Is the Eurozone a money pit?

Great Debates
1

According to the Financial Times:

“What is the single factor uniting Europe’s worst performing economies? The answer is: they all use the euro, while those countries still using their own currencies are doing rather well, according to the European Commission’s spring forecasts published on Tuesday.”

(http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1048313569815&p=1012571727201)

Of course, FT is hardly a neutral source in this, but is the Euro becoming a deadly noose around the necks of nations that have eliminated their national currencies?

2

Not really. The stability pact is a bit of a problem, but since the countries in question have pretty much ignored it happily, that isn’t the issue.

It’s funny that the FT would raise such claims, given that the worst performer is Germany, which is also the country most dependent on exports. I would suggest looking at the overall world economy, rather than the Euro, for the source of the problem.

3

If you read the whole piece, it’s difficult not to think it a balanced article - quoting one dimension and claiming the FT has taken a view is not overly clever and rather undermines the premise of the debate you propose, IMHO. Example:

*"There are many factors explaining why the eurozone is doing poorly compared with the rest of Europe other than the fact that it shares a currency. The structural problems in Germany and Italy in particular have held back growth. Meanwhile Greece and Ireland, which use the euro, have the fastest growing EU "*economies.
And the concluding para:

  • Whatever the statistics may show, the credibility of the euro can perhaps best be judged by the fact that - with the exception of Britain - all the other non-euro EU members are queuing up to join.*
    What are you arguing, the Euro is “a deadly noose” … ? Splendid. Right - you sure it’s the Euro that needs the noose ?
4

The short answer to the OP is: as yet we just can’t tell. Truth to tell, there are some pretty heavyweight arguments on both sides of the €. To pretend that only one set exists in any serious form is to do serious disservice to the debate.

And of course, the true debate facing an individual country, such as my own (UK), is not so much “Euro or not Euro” as, “Given that these other economically powerful countries have already banded together financially, should we Euro or not Euro”, which is an altogether different kettle of fish.

In short: [ul][li]Not being able to control one’s own interest rates = very bad[/li][li]Not having floating exchange rates to nullify inflationary effects across large areas = bad[/li][li]Not having control of the money supply generally = bad[/li]
BUT

[li]Transparency in pricing = good[/li][li]Lack of trade barriers = good[/li][li]Lack of “shoeleather” costs as a result of one currency = good.[/li][li]Using a heavyweight super-currency that rivals the dollar in terms of sums traded (especially if Sterling joins) = very good[/li][/ul]And then you get into the political arguments, which are at least as important. As a European, do you believe in the concept of a European super-state or don’t you? And at the end of the day, I think that this is the most critical question of all.

pan