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2012 will be year of truth for the euro

Commentary Dec. 15, 2011 - 06:36AM JST ( 5 )

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5 Comments

2

NeverSubmitDec. 15, 2011 - 09:00AM JST

Once each European country gives up all it's sovereignty and agrees to total Soviet style domination from Brussels the global bankers will loosen the noose on the debt market.

This is a ploy to concentrate power in the EU.
-2

WilliBDec. 15, 2011 - 11:52AM JST

NeverSubmit:

You are right. However, I think this time the Eurocrat politbureau have overreached. The meek, permanently ashamed German electorate might accept the yoke, however there is no way the Southerners will. It is a safe bet that Greece, Italy, Spain, and Portugal will exit the Euro in 2012.
-1

WilliBDec. 15, 2011 - 12:01PM JST

" Yes, Europe is promising a great leap forward with policies that correct at last the flaws in the design of monetary, without fiscal, economic and ultimately political union. "

I had to laugh when I read this sentence. Kind of the absurd political logic of the Eurocrats in a nutshell.

The "design of monetary, without fiscal, economic and ultimately political union" IS the flaw. This is the contradiction in terms, which creates the mess we are in. The only way to solve it is to end it -- i.e. dismantle the Euro currency.
0

kchozeDec. 16, 2011 - 12:55AM JST

I think defining the south of Europe as seeking "political solutions to economic problems" is wrong. The problem is that the very vision of the crisis as a budget crisis is wrong. Deficits and debt woes are a symptom of the underlying problem: the inflexibility of the Euro and its inability to be used by different economies with different dynamics.

In short, the problem is that the southern European countries have higher built-in inflation whereas the north, Germany leading the way, have traditionally low inflation. Since they were put on a common currency, this means that costs are increasing much faster in the south than in the north, but the currency of the south cannot be devalued to counter-balance this phenomenon. So the south has become too expensive and thus uncompetitive, destroying its industrial base, while the north, especially Germany, has profited from this with huge trade surpluses. To end the problem, the south has to have lower inflation than the north to balance the costs, but the north is obsessed about avoiding high inflation for itself, so the south is forced through internal devaluation, basically manufacturing an economic crisis to force the economy to lower wages and costs.

Some people in the north, especially Germans, have painted the crisis as a result of the immorality of the southern Europeans who were careless with their money. This may apply to the Greeks, but to no one else, and Greece is a small country and economy. Spain and Italy were doing exactly what Germany was asking, balancing the budget and reducing their debt burden. The problem is that northern investors saw that they could make more money investing in the south than in the north, as the south's prices increased faster, so they flowed there, blowing up an inflation bubble that, when it burst, destroyed years of careful budgetary discipline. The Germans are thus partly responsible for the crisis, their banks and their investors greatly helped in creating the inflationary bubbles. Germans also benefited the most from the Euro. But they don't want to accept that responsibility or admit they benefited from it, they want the southern Europeans to bear all the burden of the adjustment, in order to protect their investments.

Right now, the markets know that the southern countries are being put to internal devaluations and know the economic catastrophes that will ensue. As their economies will deflate, they know that their debt burden is going to increase in kind and so they understand that as long as the painful austerity is forced upon these countries, their ability to repay their debts will diminish, not increase. So lending to these countries is risky, and risk must be paid through higher interest rates... and higher interest rates increase the cost of debt, which further increases budgetary woes and thus increases the risk of default.

In the short term, the European Central Bank must print money to finance these countries' debts (something the Germans are dead set against), which will reassure lenders as the debt will be backed by the printing press. Inflationary policies must also be taken to accelerate the process of balancing the different economies. This is necessary to stabilize the situation, but it won't solve the root cause of the problem: the inflexibility of the Euro. Ultimately, reforms must be taken to make it more flexible, but the only way it can be done, as far as I can see, is the reintroduction in one form or the other of national currencies so that they can float their values towards each other.
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AthletesDec. 16, 2011 - 02:39PM JST

Euro is a fantasy and it will vanish soon. Common currency and market is not existed in the reality. Germany which is strongest in the europe is a clear winner. If they are still using German currerncy, their export will not be competitive like right now. They will not get market share like now too. Most nations of EU are debt addictive and enjoyed the low interest loans. However they are now paying the heavy price for the easy and cheap money. If the irresponsible nation like Greece and Spain were not inlcuded in Europe, things will be better now.

Greece can not lower the value of common currency. Therefore their export sare not competiive and can not make the trade surplus. Being a European union member is not flexible and adaptable for changing circumstances.

In North America, FTA has made thousands of low skilled jobs loss in USA. In the reality, there is no free market. All of the market has some form of protection and limitation. Such as agriculture and anti dumping protection.