The expanding Euro Zone

[Frederick]

Me-thinks next year.... now that France has announced she has her highest number of unemployed ever... More and more  people will be thinking  its not working  for them and press for changes .

http://www.thecommentator.com/article/5474/euro_disaster_rolls_on_as_the_stupid_club_expands

[Quillan]

In September 2011 many economists, mainly American including Soros, gave the Euro six weeks, some even said six days to 'live'. Here we just over three years later and it is still going. The Euro is in to deep now for anything major to happen to it. A collapse of the Euro would have horendous effects on the world economy. The 2008 crash would seem like a very minor event if the Euro crashed and burned. When the US went through the creating of a common currancy it went through a lot more pain than the EU.

When you read these things you have to look at who is writing them and who is behind them because there is always an agenda somewhere. The Commentator is a right of centre anti EU and anti Euro. I could tell you a lot about the owner of The Commentator, those that assisted in its creation and those that write for it but it would be far more intersting for people if they did their own research and then they can't say I am biased or making it up.

[Gluestick]

The Euro was and always will be a totally synthetic construct and relies on the more successful Northern member states, shovelling buckets of funding and guarantees (which those posting such guarantees fool themselves into believing such guarantees will never actually invest!) from the North to the South.

It is called, popularly, yet appositely, "Kicking the can down the road"!

(n.b. Interesting to note -as I earlier forecast) average Germans are now fatigued paying extra taxes and suffering reduced living standards, only since they must support the continuing ideological vision of myopic EU honchos!)

The core problem with sovereign financing, is it takes much longer to hit the dead wall, as deadlines can be delayed and delayed and delayed.

In operating any "Fiat" currency, the essential twin levers for control are Money Supply and Base Rate/s: both of which were denied to members from inception. This flawed approach left only Sovereign Risk borrowing (Government Borrowing) to adjust each member state's own fiscal policy and balance.

Well as we know from Greece, Portugal, Italy et al this was a disaster; and still is.

The concept of currency cocktails and what are called Currency Baskets, is they are self-adjusting: even the precursor to the Euro (The Exchange Rate Mechanism - ERM) accepted it needed essential "Divergence": i.e. member's currency could drift up and down from a central datum.

Yet this was missing from the Euro.

Trying to merge hugely disparate economies into one monetary whole, is the core problem: and it is this which will drive the Euro into Euro-Lite: a grouping of the most successful economic states into a more balanced currency mechanism.

Here is my earlier (published) analysis from 2001.........

"History has proved how frail currency

baskets, mechanisms, and cocktails can be: The snake, super snake, and

exchange rate mechanism all failed. The Treaty of Rome in 1957 proposed

economic and monetary union as a central plank of then-Common Market

policy, despite the obvious ethnic and cultural barriers. But the vision

of an expanded Euroland, where economies recently moved from collective

to market-driven status are accepted into the euro "club," is political

lunacy.

Obviously, euro-based multinationals would love a single

medium of value exchange, since such would remove both the need for

multicurrency accounting and exchange risk exposure. Similarly,

politicians desire larger power bases. However, the stark fact is that

about 98% of all EU businesses (excluding agriculture and the public

sector) are small and medium enterprises. With the vast majority of

global trade denominated in U.S. dollars, a large exchange risk overhang

still exists for those trading outside Euroland.

If the EU were

made up of 15 Switzerlands, then the Euro would work. If, however, each

economy were as fiscally stable as Switzerland, there would be no point."

[andyh4]

Quote Gluestick

[quote user="Gluestick"]

The Euro was and always will be a totally synthetic construct

[/quote]

I think you will find that applies to most if not all currencies.

At its most facile level the belief that a stamped metal circle has value way above the scrap value of the metal and that a printed piece of paper has more value, has something of a Kafkaesque feel about it when you think about it.

Regarding the later points about disparate economies being brought together; Twas ever thus. This is why governments have had to invent regional development grants and programs or similarly named schemes. It can apply to many regions:

North of England

North of France

Southern Italy

Central Spain (in fact most of Spain except Catalonia)

Former Eastern Germany (I am still paying solidarity tax to pay for that regional development program)

[Gluestick]

The reasons I dispute this much quoted analogy, Andy is since the USA and Britain etc, enjoyed common fiscal, taxation, legal and statutory systems.

Clearly, the EU does not.

More critically, until relatively recently, paper currency enjoyed convertibility and, true intrinsic value to gold and silver.

West Germany's reunification with the East is somewhat different, again: since West Germany had to:

Meld an existing, failed, monetary system to its own:

Adopt all social costs, including defunct pensions etc:

Shutter steel plants, power plants etc as they failed to conform to EU regulations on emissions, etc:

All apart from the disparate economic realities.

Regional Development Grants happened, due to the changing dynamics of long established economic activities: not because, say, London introduced a new monetary system!

Remember, from inception of the Euro, it was assumed all member states were economically equal!

Which was utter slavering idiocy.

[idun]

I always thought that the idea of the € 'mad'. If it had been say France, Germany, Holland and Belgium with Lumembourg thrown in, I could have understood, but not all the countries that joined.

Interesting about the North of England and Northern France. Well I know northern England (or the Midlands up over, or simply 'just' not the SE) and most of the wealth in the industrial revolution was created there, just how it ended up in south and especially London, sort of appals me. The north created the great ships, worked the steel, had the mills, cotton and wool, we had the mines, iron and coal, even salt workings and alum.  Hard work, by the exploited poor and the money flooded into the south and now the north is criticised.... all too often, for having nothing to offer........... [:(]

I don't know enough about other countries to comment.

[Quillan]

But the reunification of Germany and the problems it created are nothing to do with the EU or the Euro (the Euro asn't even around then). The reunification of Germany caused some problems for the European Community (as it was then) as West Germany went ahead with it's unification plans without the consent of the rest of Europe.

From the German document archive.

[grumpyaudeman]

deleted

[Gluestick]

[quote user="idun"]

Interesting about the North of England and Northern France. Well I know northern England (or the Midlands up over, or simply 'just' not the SE) and most of the wealth in the industrial revolution was created there, just how it ended up in south and especially London, sort of appals me. The north created the great ships, worked the steel, had the mills, cotton and wool, we had the mines, iron and coal, even salt workings and alum.  Hard work, by the exploited poor and the money flooded into the south and now the north is criticised.... all too often, for having nothing to offer........... [:(]

I don't know enough about other countries to comment.

[/quote]

I very much agree with you, idun.

A leading economist (I seem to recall it was Heyak), propounded the concept that during Britain's Industrial Revolution, the wealth creation in Britain had shifted from agricultural and the aristocrats and to the "manufacturies". It is clear from economic history, new wealth was created at an astounding pace.

And such as Telford, Brunel and Son, Stephenson et al, were then the equivalent of the current genre of techies.

Feeling hugely threatened and realising their old power was rapdily slipping away, in response, the upper classes surreptitiously took over the money and investments in order to retain their social dominance.

So sadly, the once proud, hard working and stable communities of the North, Midlands etc have been decimated, by government: leading now to sink estates where there is no real work, with all the expected social problems and huge costs.

Parts of Northern France (the old coal mining areas particularly) are the poorest in France and the most deprived: whereas "our" bit of the Pas de Calais enjoys rapidly growing industry. Indeed, in our commune and environs, everyone young seems to work at Crystal D'Arque and is doing quite well.

Reading Emile Zola's seminal book "Germinal", a condemnation of these coal mining communities is a good way to understand how bad lives were for a majority in France.

That said George Orwell's early 1930s book,  "The Road to Wigan Pier" (It is a social report not a novel; Eric Arthur Blair -Orwell - undertook the research as a project for Victor Gollancz) is an eye opener, in terms of living conditions in the North at that time.

[Gluestick]

[quote user="Quillan"]

But the reunification of Germany and the problems it created are nothing to do with the EU or the Euro (the Euro asn't even around then). The reunification of Germany caused some problems for the European Community (as it was then) as West Germany went ahead with it's unification plans without the consent of the rest of Europe.

From the German document archive.

[/quote]

Andy didn't suggest it was, Q.

What he was trying to argue was an merger of economic systems which showed disparity suffered pain and took time.

In point of fact, by reunifying, West Germany, as it was, solved its labour problems at a stroke: as in order to supply sufficient unskilled labour in factories such as VW, they had been importing Turkish workers etc.

However with East Germans they all spoke the same language, shared a cultural heritage and whatever problems East Germany suffered, their state education system was very good, thus many of the East Germans were well qualified in Engineering, Science, Maths etc.

It was obvious to me at the time, it would take a minimum of Twenty Five years to "Digest" the fiscal, monetary, economic and social costs, however.