questioning an ongoing eurozone




It seems like I get asked my thoughts about the Eurozone a lot these days.


And I have been thinking about writing about the euro and the Eurozone for some time.


This could be a painfully long and intense post but I have elected to keep it quasi-brief and summary-like thoughts.


And I know where to begin.


Because I mistakenly thought it was a brilliant idea … but I was naive.


I selfishly thought the brilliance was having one currency when traveling.


My naïve belief was it was going to create a super-country centered around a common currency and creating a ‘super-economy’ to balance America, a growing Asia, emerging countries <Africa> and, at that time, I thought Russia.





Silly me. I ignored <or maybe better said … I was oblivious> to the fact to be truly successful there were three structural components necessary … currency, economic and political.


Without alignment on all three the Eurozone idea was doomed for a long struggle if not dismal failure.



I wish I had seen this following thought from then Chancellor of Germany Helmut Kohl  in 1991:


“Political union is the essential counterpart to economic and monetary union. Recent history, not only in Germany, teaches us that it is absurd to expect in the long run that you can maintain economic and monetary union without political union.”




To be clear.


He was not suggesting a super country but rather an alignment within constituents. The monetary, the euro currency, to be complemented by a fiscal/economic and political union so there could be control of individual country spending and coordination of economic policy within constituents.


chaos team alignmentThe currency came. But not the alignment of the constituents on the remainder.


The discussion of a fiscal alignment fell apart into a set of what they called “convergence criteria” which set limits to public debt as a % of GDP and deficits under 3%.


In my own pea like brain at that time I guess I had envisioned a quasi-euro parliament guiding this super cargo ship of economy insuring the overall interests of the entire Union were met while also permitting individual constituents the highs, or lows, they deserved – within a range.




And I should have remembered that Caribbean had tried something similar in the late 50s. After dissolving that “union of constituents” in 1962 individual islands have struggled, and some have prospered, and regional combinations of islands have been successful <I am actually surprised more ‘experts’ do not pull this example out of the bag when discussing the repercussions should the Euro concept be dismantled>.





The Eurozone <EU>.


Without a governmental oversight <aligning, at minimum, economic interests> the Eurozone has turned into a one currency pegged to a median while all the constituents, individual countries, may have inflated or deflated economies against the median. Therefore it can make the best even better and the worst even worse. Oh. Which it did <oops>.

For example, while Germany is getting a lot of great press on its austerity and debt management one should remember that they managed a misalignment with debt in maybe the early 2000’s <or they assessed risk well and assumed some short term debt bubble> in addition their economy in particular has benefited from a currency pegged on a median, therefore offering great value in exports, when their economy is prospering. Some reports suggest that the media currency value has added at least three points to their overall GDP growth.



My fleeting point here is that Germany is not the formula for all constituents.





The euro concept has also eliminated a valuable tool – the possibility of floating an individual’s country currency against its individual economy. It doesn’t solve all the issues but it does provide a key economic tool to manage value without being burdened by the success, or failure, of others.





Using Germany (who is doing well now) as a guide for all countries is insanely stupid. Unless the countries revenue generating economy mirrors Germanys (which none do I believe) a country needs to customize economic management based on the country. And, once again, a country loses an important management tool if they cannot manipulate the value of its currency.


It is a catch22.




When asked what I believe … I believe the best thing is to dissolve the eurozone as it currently exists. Similar to the Caribbean solution there could possibly end up being euro-regions with their own currency and governmental alignments (with regard to economy) but I would dissolve it.




Regardless. I also believe it will fail even if it isn’t dissolved.


And I believe that thought maybe for an odd reason <which I frankly haven’t seen anywhere else>.


Lack of patience.


Let me explain.


intent help flaws self best

The best argument I have seen for why the Euro WILL survive is a simple one … while the Eurozone was a flawed design in conception <mainly because no one really wanted to build that particular house in the beginning> that as each crisis is faced ultimately the partially built house will be completed room by room out of necessity. And I actually agree with that thought. Crisis forces constituents to make the hard choices & decisions.




No one has the patience.


Structural reforms pay off in the longer term. And no one has patience for long term <even if long term is really only 2 to 3 years>.


Even today we see the signs of it. Several of the steps taken to resolve the situations in Spain are 2 year plans <at minimum> to be truly effective. Yet if people do not see results now they clamor for more discussion and more solutions and … well … more of more. Is discussion bad in itself? Nope. But it also takes your eye off the ball.



In addition. While global economy actually needs more spending <and even some inflationary aspects> which leads to some increased deficits in stronger economies, because of overall fear, the people who shouldn’t be seeking to lower deficits will continue focusing on deficit management.


<by the way … that last thought is one America should be focusing on rather than debt>



In today’s world we just do not have the patience. Well. Let’s say in the western world we just do not have the patience. Asia <and China> tend to have a longer view.




I could be surprised.


And probably will be I imagine.



I was certainly wrong about the Eurozone when it was created. I could certainly be wrong here. Or maybe better said … I wasn’t wrong … I just had flawed thinking.


There is certainly an opportunity to strengthen the structure and rebuild the beauty in the breakdownflawed institutional architecture but I just don’t see how (1) the constituents will align to do so and (2) withstand the public scrutiny and have the patience to make, and take, the hard choices.




And dissolving the Union? Painful. 2 years <at least> of the shit hitting the fan.




Maintaining the current course <or current list of actions> is simply absurd as an ongoing solution … globally as well as european-wise.


Me? Rip the bandage off quickly. Lots more immediate pain but less pain overall.

, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,
Written by Bruce