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The Euro
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Could anyone that understands what going on the eurozone tell me is the euro in danger of collapse or not and if its likely what would it mean for the countries in it.
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It is not quite as straightforward as that.
The Euro maintains its strength against Sterling (and other currencies) mainly due to the enormous influence that the German economy has. This is fine for the Germans. It is not so fine for the Greeks (and indeed many other members of the Eurozone). It is precisely because the Euro is so strong that is causing Greece, and to a lesser degree Italy, Ireland, Portugal and Spain, so many problems.
Currencies “float” against one another reflecting the relative ups and downs in the national economies that use them. There are seventeen sovereign states using the Euro, each with their own government, their own policies, their own taxation regimes and their own industries and economies. There is no way on earth that the fortunes of these states are going to coincide. Yet that is what is expected of them for the Euro to be a success. Minor fluctuations between the members’ fortunes could be accommodated. But when the Euro it was introduced the politicians would not consider a scenario such as that which has unfolded since 2008 (though they were warned that the single currency would not be able to cope with such an eventuality). The result of their political vanity and their subsequent intransigence is now plain for all to see. The “worst case” scenario has unfolded and the Euro is simply not able to cope in its existing form.
Britain has survived the worst of the chaos by devaluing its currency (by about 25% against the Euro) and reducing interest rates. These options are the standard remedies for coping with a financial crisis but they have not been available to individual Eurozone nations. They are tied to conditions which suit the relatively buoyant and prosperous German economy (a high currency exchange rate and interest rates) and they cannot cope.
The single currency was a disastrous project, born of political vanity and sustained by huge amounts of capital shifting from the Baltic to the Mediterranean. The politicians were warned that monetary union without fiscal (and prferably political) union ran a high risk of disaster. All the “remedies” that they come up with at their various “summits” simply sustain a dying animal. They will not have it that the project was a folly and are simply papering over ever widening cracks. The problem is that instead of facing reality and preparing for a controlled abandonment or reform of the currency the likelihood is that it will collapse and cause worldwide financial chaos. Whether the politicians like it or not, eventually the markets will prevail over them. The only question is how much more damage to the global economy will be wreaked before that day of reckoning comes.
It will not be resolved until the Euro is either abandoned or fundamentally reformed. Hopefully before then Germany will not run out of money, or its electorate run out of patience (or both).
The Euro maintains its strength against Sterling (and other currencies) mainly due to the enormous influence that the German economy has. This is fine for the Germans. It is not so fine for the Greeks (and indeed many other members of the Eurozone). It is precisely because the Euro is so strong that is causing Greece, and to a lesser degree Italy, Ireland, Portugal and Spain, so many problems.
Currencies “float” against one another reflecting the relative ups and downs in the national economies that use them. There are seventeen sovereign states using the Euro, each with their own government, their own policies, their own taxation regimes and their own industries and economies. There is no way on earth that the fortunes of these states are going to coincide. Yet that is what is expected of them for the Euro to be a success. Minor fluctuations between the members’ fortunes could be accommodated. But when the Euro it was introduced the politicians would not consider a scenario such as that which has unfolded since 2008 (though they were warned that the single currency would not be able to cope with such an eventuality). The result of their political vanity and their subsequent intransigence is now plain for all to see. The “worst case” scenario has unfolded and the Euro is simply not able to cope in its existing form.
Britain has survived the worst of the chaos by devaluing its currency (by about 25% against the Euro) and reducing interest rates. These options are the standard remedies for coping with a financial crisis but they have not been available to individual Eurozone nations. They are tied to conditions which suit the relatively buoyant and prosperous German economy (a high currency exchange rate and interest rates) and they cannot cope.
The single currency was a disastrous project, born of political vanity and sustained by huge amounts of capital shifting from the Baltic to the Mediterranean. The politicians were warned that monetary union without fiscal (and prferably political) union ran a high risk of disaster. All the “remedies” that they come up with at their various “summits” simply sustain a dying animal. They will not have it that the project was a folly and are simply papering over ever widening cracks. The problem is that instead of facing reality and preparing for a controlled abandonment or reform of the currency the likelihood is that it will collapse and cause worldwide financial chaos. Whether the politicians like it or not, eventually the markets will prevail over them. The only question is how much more damage to the global economy will be wreaked before that day of reckoning comes.
It will not be resolved until the Euro is either abandoned or fundamentally reformed. Hopefully before then Germany will not run out of money, or its electorate run out of patience (or both).
“Somebody needs to bite the bullet and kick the banks in the knackers.”
Sorry, Dave, but the banks, whilst responsible for many ills of the past two or three years, have not caused the crisis with the Euro.
Its cause goes back to its foundation. It was based on a fallacy that such diverse economies (such as, say, Greece and Germany) could cope with a single set of rules to control their finances without a fiscal and political union. There is a strong very argument to say that Greece and Ireland should not have been allowed to join at all because they did not meet, by a very long chalk, the entry requirements.
The blame for this rests fairly and squarely with the vanity of the European politicians who were determined to force its introduction at almost any cost, with virtually no regard for the possible risks. They saw it as yet another step towards a Federation of Europe and thankfully, disastrous as it has been, their folly has virtually put paid to that plan if not forever, certainly for a very long time to come.
Sorry, Dave, but the banks, whilst responsible for many ills of the past two or three years, have not caused the crisis with the Euro.
Its cause goes back to its foundation. It was based on a fallacy that such diverse economies (such as, say, Greece and Germany) could cope with a single set of rules to control their finances without a fiscal and political union. There is a strong very argument to say that Greece and Ireland should not have been allowed to join at all because they did not meet, by a very long chalk, the entry requirements.
The blame for this rests fairly and squarely with the vanity of the European politicians who were determined to force its introduction at almost any cost, with virtually no regard for the possible risks. They saw it as yet another step towards a Federation of Europe and thankfully, disastrous as it has been, their folly has virtually put paid to that plan if not forever, certainly for a very long time to come.
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