The Euro is doomed?

[Logan]

There is an interesting debate going on in another forum regarding the future of the Euro. This article sparked it off.

http://www.forbes.com/opinions/forbes/2008/0421/034.html?feed=rss_opinions

I believe that the creation of the Euro was principally a political idea not an economic one. Like all political ideas this one was deeply flawed. A one size to fit all policy is always doomed to failure. However, because it was a political idea, failure does not mean throwing the idea out, as you might expect in any other walk of life. On the contrary. Flawed political ideas can and do last for generations, centuries even. History is littered with them.
The writer of the Forbes article is of course quite correct in his wishful thinking. He is an economist and by nature a practical pragmatist. Politicians have none of these qualities. They have the ‘vision thing’. That is shorthand for let’s invent a dogs dinner of an idea, inflict it on millions and tell them it’s great when we all know it’s a disaster. Then refuse to budge or change anything because they believe the medicine will work eventually.
Meanwhile Europe’s economy slides ever so gently into the dark abyss of stagnation and depression.
The moral of this tale is never let politicians run economies. Markets should and do that very successfully. The Euro is a wonderful example of how political interference creates disaster.
The ECB have not learned the lessons of the eighties when the DMark was overvalued and eventually led to years of economic recession in Germany and France. The trouble is this time the ECB have control of the whole of the Eurozone. That is likely to prove extremely difficult to sustain as economies like Spain sink into the mire.

Eurozone countries are now going to find it impossible to create growth because of the overvalued Euro. Without growth above inflation you have a recessionary disaster and a backward spiral. 

 

[Gluestick]

My core objections to EMU (Economic and Monetary Union), Logan always were and still are dictated by the whole spavined concept of trying to merge the interests and fiscal-economic dynamics of a host of disparate states into one system with central control meant to provide a sort of universal monetary panacea.

As the European Monetary System went forward - if one could call it that! -  with set threshholds for divergence, it was obvious what an impractical and unwieldy mechanism was being created.

The precursors, the Snake and the Super Snake allowed empirical evidence, for those with a brain, of how impossible complete monetary union would prove.

For me, a ready analogy would be to try and merge ten companies of varying size and success: and create one class of share where value was equal throughout.

Quite obviously such an exercise would be doomed to failure.

The Eurocrats who have tried to weld the fiscal and economic futures of hugely differing states together have had their shot at the realisation of a feverish dream: and now reality is coming to pass: as it always must, outside the expensive Ivory Towers in Strasbourg and Brussels.

And not content with the core abortion, these same idiots now want to allow Eastern European states just recently freed from collective economies and struggling with market dynamics to play in Tom Tiddler's Ground as well.

It is madness: insanity and self-destructive.

Whilst I know you place far more faith in markets to self-regulate economies than do I, any state has to retain the power of fiscal and monetary intervention at times: as the Fed has demonstrated of recent.

And excepting in terms of very limited member central bank interventions, that is probably the greatest single Achilles Heel of the Euro mechanism, as disparate states have disparate needs and economic waves.

As I wrote at the time in Businessweek International, the concept of a central currency mechanism would be fine if the assemblage was made up of ten Switzerlands. Yet if it were, it would not be needed in the first place!

 

[Logan]

I think your analysis Gluestick fits particularly well with the current state of the economies of Spain, in particular Italy and France.

Growth has stalled and declining rapidly. Yet their elected governments find themselves in a position where they are unable to take any remedial measures of practical meaning.

Germany has always enjoyed a strong currency and is very happy to swagger around the world, stuffing loads of paper dosh up our nose.

I await the eventual fall with restored relish.

The power to do anything practical lies in the hands of Jean Claude Trichet, the Governor of the ECB.

Unelected by anyone, appointed for an indeterminate term, with a nod of the head by past leaders of government, some of them long since departed.

He is so well past the usual retirement age and remains with a mind set of 1970’s French economic ideas long since confined to the dustbin of history.

He is a man outside his own time. Yet no one has the power to remove him from office. Unbelievable but actually true.

As the Euro appreciates constantly against every major world currency, in the face of economic decline, I am left with an overwhelming vision. That of Nero the Roman Emperor fiddling quietly whilst Rome burned.  

Unfortunately for the Italians they have in power another former EU functionaire in power who refuses to do anything practical to halt or influence the current slowly emerging debacle.

We who are powerless to change anything can only watch from the side lines and rest patiently. Investing our remaining bloated Euros in the currently floored currencies such as Sterling and wait quietly for the sunny uplands of turnaround.[:)]

[Clair]

Trichet's response: http://www.forbes.com/markets/feeds/afx/2008/04/15/afx4893817.html

[terry]

[quote user="Clair"]Trichet's response: http://www.forbes.com/markets/feeds/afx/2008/04/15/afx4893817.html


[/quote]

 

Very good well worth the read.

                                             Long live the E.U.

[Gluestick]

Ah well, no problems in the Eurozone then.

Since Jean Claude Tricky, the man prosecuted for fraud but managed to escape (similar to Silvio Berlesconi then) the future of the Eurozone economic success in in great hands.

No doubt the raft of Eurozone manufacturing exporters are totally imagining their dire problems with an over-priced Euro.

Unfortunately for me, as a financial and fiscal pragmatist, anodyne words from a political appointee with no actual banking experience, other than a stint of Governor of France's Central Bank, which was distinguished by his slavering incompetence, echo rather like shades of a certain British One Eyed ex-chancellor of Calvanistic persuasion and Caledonian descent!

Funny how politicians grasp at external dynamics, to "prove" their own genius: in this case the forex markets deserting the sinking ship called the US dollar.

No doubt Gordon and Tricky share the same magic wand supplier.....................

 

 

[Logan]

I agree with all Gluestick has said. Trichet previously was Banque de France governor and was charged with fraud when Credit Lyonnais almost went under along the lines of Northern Rock. The French government bailed the bank out. He had previously become a shoe in for the ECB job so his seat was kept warm until his eventual trial and acquittal. When governor of the B de F he presided over a long period in the early nineties when the DMark reigned supreme over all world currencies. He and the German central bank engineered the ERM into a position where most major currencies including Sterling could not compete. The end result was a lack of competiveness in Europe and economic decline. 

That is history. However history is repeating itself once more under his moribund leadership. Italy and Spain as well as France and likely several others are at the start of a cycle of serious economic decline. The strait jacket of the Euro does not allow these countries any room for fiscal or financial movement on their own.

I doubt the new Italian President just elected will put up with Trichet for long. I see some political alliance between him and Sarkozy likely. It's well known Sarko dislikes Trichet and wants him gone.

Unfortunately, I do not actually believe the Euro will be abandoned. That's a nuclear option and unthinkable in today's EU political climate. However I do think events will force change and Trichet out, eventually.

After reading that Forbes article I think he inhabits another planet!

 

[tj]

Avi Tiomkin, what else would you expect from jewish american, frightened by the VERY REAL demise of the american dollar ?

Its nonsense, the euro may be a little over valued right now, and then again perhaps not, but in use by a population equal to that of america, it is the second largest currency in the world, well the bit that matters anyway.

Reverting back to old currencies is not an option, those mentioned as likely contenders cant afford it anyway, thats by the by, but they are the ones who gain the most from the union, thats why Germany appears to throw its weight around because they were doing quite nicely thank you without it, but they are in it to stay. 

[Gluestick]

Some interesting comments and analysis, Here.

[Logan]

Thanks for that link Gluey.

Here is an interesting quote for an economist:-

Furthermore, the ECB is forbidden by its founding charter to balance the goal of price stability against other aims such as growth and job creation.

So now we know some of the realities. These concequences seem not to matter in the ivory towers of the EU.

[bigears]

hi

the british press used to rubbish the euro. 

[terry]

[quote user="bigears"]

hi

the british press used to rubbish the euro. 

[/quote]

Yes so true,

             Has it changed a lot then?

[Pierre ZFP]

For purely selfish reasons I would like the UK to be in the Eurozone as I regularly visit 5 European countries and can use Euros in all but one of them - Guess which one  (everybody

 

[Clair]

This thread has been pruned and some posts have been deleted.

Please be aware that it is

a message board which from time to time is visited by hoaxers.

If you encounter users who you feel are abusing the message boards,

please do not respond to them.

These users are only encouraged when

their messages provoke a response, so the best thing you can do is

ignore them.

Click on the 'Report' link on their message and Forum

Admin or a moderator will deal with the complaint.

Thank you

Forum Moderators

[bigears]

hiya

terry, the euro is now a strong currency, on what grounds could the english press rubbish it?

[cooperlola]

Have you seen this, Bigears?:

http://www.ft.com/cms/s/0/d9746dd0-0c5b-11dd-86df-0000779fd2ac.html

[Gluestick]

Hmm............................

Weber an ECB member and also chairman of the Bunhdesbank is bearish: if no interest rate drop expect the ECB to start dumping Euros in the Forex markets to drive down its value, before manufacturing exporters are dead in the water.............

 

 

[Logan]

The sentiment in the forex markets is the Euro to climb to 1.65 against the Dollar and stay there until the credit crunch is over or the oil price drops. Parity with Sterling is also a possibility. In 1992 the French Franc rose to 7FF against the Pound! Almost Euro parity. The result will be dire for EU manufacturing and will almost certainly guarantee a deeper recession in the Eurozone. The only concern the ECB seem to have is reducing inflation. They seem to be a bunch of one club players.

[bigears]

hi

I know a number of brits permanently here who are struggling with 80 p for 1 euro.  If it goes to parity and prices of the necessities of life keep rising I can see people having to sell up and go back to the UK.  There are difficult times ahead for people living in both countries. 

[WJT]

I know it is probably a blip, but things are looking promising today. [:)]

[cooperlola]

A wopping 1.26!  Funny when that's pleasing, isn't it?

[WJT]

Yes it is very sad that 1.26 is pleasing. But don't forget the .85 so almost 1.27. [:D]

[Logan]

The Bank of England are in discussions with the clearing banks over possible funding through mortgage backed assets.

Basically the Chancellor will make available capital for banks to free up the credit market in return for gold standard security. This has given Sterling a slight and in my view temporary up tick. 

Market expectation is always out of cinq with what governments do. Especially this hopeless lot.

I expect Darling to announce a package of measures way below what the City needs to free up the credit markets. The figure to return the credit markets back to normality is in excess of 300 billion. I expect Darling to announce something between 50-60 billion. Not near enough.

[cooperlola]

[quote user="WJT"]Yes it is very sad that 1.26 is pleasing. But don't forget the .85 so almost 1.27. [:D][/quote]Wahay, I'm rich...[blink]

[Bugsy]

We've had jam on our bread tonight,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,[Www]