Ireland is in deep economic doo-doo. they have instituted extreme austerity measures but to no avail. They are being pressured to seek help from the European partners lest their sickness infects other parts of Europe.
Portugal is not so far behind Ireland. And after that Spain and Italy. Greece has already been “rescued” and it has probably only delayed the inevitable.
So the question is: Is the Euro itself doomed?
Ireland is in nowhere the dire straits that Greece is in. It is fundamentally a sound economy with some momentary problems. Unlike Greece, they actually do stuff, produce things. They even – unlike some other countries which shall remain unnamed – have a rather large foreign trade surplus. The reason Ireland is being pressured to seek “help” may have more to do with other EU countries wanting to use it as a lever to force Ireland to raise its corporate taxes. At least that’s one explanation. It has been a wish for years among some nations and parties that the EU should set a minimum tax-rate.
It is said that the problem with Greece and Portugal is that they are not competitive at the current rates and that they are unable to devalue their currency to fix the problem. However, if that was the problem and they were willing to do something about it, then they could fix it by slashing salaries. Other EU countries (Latvia, though of course not a Euro country) have done so with what seems to be good results. At least Latvia, according to the latest statistics I have seen, appears to have turned a corner: exports are up, unemployment is down.
Van Rompuy says the Euro and the whole of the EU is in a struggle for its existence. But I recon that if the EU was really worried about its survivability due, as he says, to the debt level of the nation states, then the EU wouldn’t have demanded a raise to its budget of 6.9% - to be paid by the nation states.
Nah we were saying the same things about the $US over the last few years and the YEN over the last couple of decades. The Euro wont fail but smaller countries might.
I think the Euro is doomed. It is inherently unstable and expanded with too many countries that probably should not have been it the Euro-zone in the first place. The economies are too disparate, and harsh economic times are making that more and more apparent.
Once the PIGS fall, then France is next.
USD and Yen are different stories since they are currencies for a single country. Well, ok, USD as THE global fiat currency is pretty unique. USD is still the global safe haven,
Maybe there’s an obvious reason this hasn’t been done yet, but…why not kick the “PIGS” out of the Eurozone?
Either the EU govts (i.e., Germany) get together and bail Ireland out, or the ECB will. Those are the only 2 alternatives. Either way, it’s likely to have an effect on the Euro - in terms of appearance if not as a consequence of monetizing their debt.
If Spain and Italy falls it is already over. Greece, Ireland and Portugal are all too small to make up an important percentage of the Euro-zone’s economy. Spain will be the one everybody eyeballs. But I don’t see that the disparities within the euro-zone are greater than disparities within the USA (for instance between North Dakota and California) or between western and east cost China. Japan I’ve heard is essentially two different countries; the greater Tokyo area, and everything else. Even small Denmark has large differences between the areas (the journalists & politicians use the word “rotten banana” to describe the regions which have become decoupled from the economic growth)
why not switch trade of Oil from $US to Euroes?
as most of the rest of the world has been saying for eons.
Much saner option i think.
then maybe our printing money would not be so callous
The same is true of any fiat currency.
For one, that would destroy the Eurozone. Not so much financially, but politically. The huge, huge problem is that no mater what any starry-eyed Euo-dreamers wanted, Europe is not and proably should not be a single untied body. They came up with that idea in a much earlier time when open war was still common, and like NATO, it has mostly outlived its original purpose.
In fact, I somewhat laud the idea of some economic integration. I actually like the idea of a single currency, even for the whole world. But it would have the same problems whether in Europe or the globe: the world economy is too diverse. There are too many disparate needs and too many people with different ideas. This can work in a place even as large as the U.S. or China, because despite heavy regional differences, our economic base is reasonably unified, and the needs of Nevada not that different from New York or Nashville. Currency integration had its advantages, but it’s ultimately going to cause these kinds of situations in any credit crunch.
Moreover, I simply don’t think Germany is going to bail everyone out, and that’s pretty much what’s going to happen.
I think he does have a point with the EU though. This isn’t obvious and I only learned of it recently, but despite there being an economic union, there is no fiscal coordination as there is in the US (it’s extremely well disguised, but we do be co-ward-in-ated).
That means that member countries can spend like drunken sailors and there is nothing the Union can do as an entity to whip them into line.
However, expect that to change over the coming years to decades. This was a glaring oversight from the beginning. I guess they figured that by having high admission standards they could keep out the rif-raf. Only problem was that everyone lied about meeting the admission standards. So the single, solitary measure in place to help assure fiscal stability was nothing more than a minor impediment.
I don’t think that the Euro is doomed.
I’ve been living here in Ireland for five years now, and have witnessed this financial catastrophe unfolding in real time. People here are very upset with the current hardships and quite angry at their government officials for contributing to this mess. However, I have heard no one call for a return to the Punt (Irish Pund) or (even more drastically) for Ireland to leave the EU. In fact, I get the distinct sense that the Irish people actually would prefer in some ways if “Europe” stepped in to resolve the crisis (as long as restructuring demands are not too harsh), as they seem to have higher confidence in the competence and integrity of other governments and institutions than their own.
As to whether the EU (i.e. Germany & France) would prefer to cut Ireland loose, that is another matter entirely. I still think that they would prefer to keep the Euro going if at all possible, for strong political reasons as well as mere economic ones (Germany, as the Eurozone’s largest exporter is also the largest beneficiary of the common currency area). I think there is also a recognition that, at least in Ireland’s case, the ECB bears a significant share of the blame for fueling the crisis with its unerring devotion to low interest rates and hence cheap money.
I don’t think it’s really fair to lump Ireland in with Greece or Portugal. The problems here are almost entirely related to the state having to spend tens of billions of Euros to bail out the three major banks (similar to Iceland’s 2008 crisis), whereas it is my understanding that the problems in Greece & Portugal (and perhaps Italy & Spain) are much more related to systemically unhealthy economies or corrupt/inefficient governments than banking failures.
Was in an oversight though? Before EMU, plenty of people were pointing out the contradiction inherent in monetary union without the political union necessary for central fiscal controls. The architects of the euro were not stupid and must have been aware of the problem. Either they simply believed in some vague, optimistic way that political union would come about before it became an issue or, more cynically, the knew crises would come and hoped that they would push the eurozone* countries towards political union. Well, now the crises have arrived, and some of those people may still hope that in the end it means closer political union to fix the fundamental problems. Seems unlikely - I think it’s more likely that that either some countries will leave the euro (not necessarily the weaker countries being kicked out - there is some talk now of Germany withdrawing and the euro becoming a weaker currency), or some kind of major restructuring of the euro, involving new treaties and basically writing all the clauses that they should have in the first place.
Note: the eurozone and the EU are not coterminous. Several EU member countries
do not use the euro.
You’re right about their not being stupid and about many noted personalities putting a very sharp point on the issue. I did try to address the apparent contradiction but only in passing. The idea going in was that the EU would only admit member nations that had a proven track record of fiscal responsibility. But as we all know and as they must have at least suspected at the time, in almost every case, a member’s ability to meet the criteria was a pure fiction.
So it is something of a mystery how the EU ever came to pass. I can’t analyze the benefits to member countries quantitatively, but according to the people who can - and do - there was too much to be gained to become overly concerned about something that might never be a problem. Of course at this point it’s obvious that it was a delusional attitude, but I can imagine it was a persuasive argument at the time.
What i never understood, was why the Eurocrats didn’t create the euro as a “parallel” currency-convertable into the various national currencies. So international trade/transactions could be carried on in euros (which was the initail idea-saving on transaction costs). The member nations could then keep their own currencies, and value/devalue them at will.
Face it, a country like Greece is a tourist/service economy; Germany is a manufacturing and high tech economy-tying them together was bound to cause problems.
Again, it looks like you are confusing the EU with the eurozone.
I don’t see how this would save on transaction costs?
I don’t see what the purpose of that would be. You wouldn’t save conversion costs. Everyone would still have to convert into their domestic currency to use at home, and you’d still be vulnerable to exchange rate fluctuations. All you would achieve is an extra layer of currency conversion.
Probably, but I almost never use the term EEC (or EC now I suppose).
Any argument you can make about Europe and its countries, I can make about the US and its states. California is in deep doo-doo; will that cause the death of the dollar? Hawaii is a tourist economy, while Michigan is manufacturing; was tying them together bound to cause problems?