The future of the Euro

[gwnn]

Until you let the level-headed politicians and traditionally honest and responsible economy of Romania in the Eurozone, the Euro will never be stable.

[hrothgar]

 

In the federal state Germany exists the financial commpensation between "poor" and "rich" states from the beginning (Länderfinanzausgleich ) and it has been working for more than 60 years. But such a "solidarity is possible imo inside the same nation, not in entire Europe.

 

 

Why? Germany didn't exist as a country 150 years ago. What we now know as Germany was an ill defined collection of squabbling principalities which barely spoke the same language. (Hochdeutch and Plattdeutch were very different and don't get me started on Kolsch). The religious split between the protestant North and the catholic south was equally severe, as were the rivalries between Prussia and Bavaria.

 

Back in the days of romantic nationalism there were concious attempts to foster the notion of a German volk which obviously worked (perhaps a little too well). However, its important to note that "Germany" is a quite artificial and relatively short lived construct.

 

I see no reason why the same sorts of principles couldn't be applied to Europe as a whole. (Alternatively, maybe we should lsice the continent in two based on the olive oil / butter demarcation zone)

[mgoetze]

The volatility of the PLN was pretty high in last months, are you not worried >>> your turbos can be knocked out before expiry day?

 

Currently at +11.65% BTW. ;)

[blackshoe]

There are many differences between the situation here and the situation there, which is why I said formation of a federation with a strong central government is unlikely. Not least of the differences is that the states of the US didn't spend several centuries prior to our Revolution warring amongst themselves. It seems you in Europe are still doing it, if less bloodily than in the past. B)

[Aberlour10]

Who is the next?

 

It seems Portugal will be a new "star" in this thread within few weeks.

[mgoetze]

Portugal owe me EUR 2000! ;)

[cherdano]

Back in the days of romantic nationalism there were concious attempts to foster the notion of a German volk which obviously worked (perhaps a little too well). However, its important to note that "Germany" is a quite artificial and relatively short lived construct.

 

I see no reason why the same sorts of principles couldn't be applied to Europe as a whole. (Alternatively, maybe we should lsice the continent in two based on the olive oil / butter demarcation zone)

So who is going to play Napoleon?

[blackshoe]

Robert Vaughn?

[y66]

Robert Vaughn?

 

:)

[mike777]

So who is going to play Napoleon?

 

 

There is talk that George Clooney will. :)

 

A reboot of The Man From U.N.C.L.E. is also in the works, and he said George Clooney would be starring “if I have my way.”

 

http://insidemovies.ew.com/2011/01/10/steven-soderbergh-retiring/

[y66]

Nice summary here of various previously discussed plot elements by Krugman. Excerpts:

 

The [Euromess] is a tragedy not only for Europe but also for the world, for which Europe is a crucial role model. The Europeans have shown us that peace and unity can be brought to a region with a history of violence, and in the process they have created perhaps the most decent societies in human history, combining democracy and human rights with a level of individual economic security that America comes nowhere close to matching. These achievements are now in the process of being tarnished, as the European dream turns into a nightmare for all too many people. How did that happen?

 

...

 

In any case, the odds are that the current tough-it-out strategy won’t work even in the narrow sense of avoiding default and devaluation — and the fact that it won’t work will become obvious sooner rather than later. At that point, Europe’s stronger nations will have to make a choice.

 

It has been 60 years since the

Schuman Declaration

started Europe on the road to greater unity. Until now the journey along that road, however slow, has always been in the right direction. But that will no longer be true if the euro project fails. A failed euro wouldn’t send Europe back to the days of minefields and barbed wire — but it would represent a possibly irreversible blow to hopes of true European federation.

 

So will Europe’s strong nations let that happen? Or will they accept the responsibility, and possibly the cost, of being their neighbors’ keepers?

Wolfgang Münchau, writing in the Financial Times answers thusly:

 

As Barry Eichengreen, professor of economics and political science at the University of California at Berkeley, has remarked in a recent article, there are only two principal solutions to this crisis. A messy default by member states, or a German-led bail-out – bail-out meaning actual money paid, not the seemingly cost-free EFSF guarantees so far granted. These two solutions correspond to the two EFSF models. A widening of the EFSF’s role as just described would effectively amount to a German-led bail-out. The alternative, a more modestly-sized EFSF, preferred by Germany, would probably end, later, in a messy periphery default, followed by a eurozone-wide banking crisis requiring recapitalisation.

 

It is not clear that the small EFSF/default option would be cheaper. On the contrary, for the system as a whole it would probably be more expensive and riskier. But for national governments it might be politically more expedient, because the inevitable transfer occurs inside the country – from the government to domestic banks – as opposed to cross-border. Of course, no matter which option is pursued, Germany ends up paying.

 

I fear we are heading towards the small EFSF/default solution. The German political and legal establishment may not intend to damage the eurozone, but they are prioritising limited liability. The recent

alarmist essay by Otmar Issing

, former chief economist of the European Central Bank, responding to rather modest joint economic governance proposals, is typical of the reaction Angela Merkel can expect if she were to move down the road of joint and several liability. The German chancellor takes a pragmatic approach but, given the political opinion in Berlin and the legal constraints, she is not going to take the kind of risks a genuinely expanded EFSF would entail.

 

So we will end up with a moderately larger financial umbrella, austerity, more austerity, and ultimately a messy default and more banking crises. A comprehensive crisis-resolution strategy remains elusive, despite claims to the contrary.

[Aberlour10]

As Barry Eichengreen, professor of economics and political science at the University of California at Berkeley, has remarked in a recent article, there are only two principal solutions to this crisis. A messy default by member states, or a German-led bail-out – bail-out meaning actual money paid, not the seemingly cost-free EFSF guarantees so far granted. These two solutions correspond to the two EFSF models. A widening of the EFSF's role as just described would effectively amount to a German-led bail-out. The alternative, a more modestly-sized EFSF, preferred by Germany, would probably end, later, in a messy periphery default, followed by a eurozone-wide banking crisis requiring recapitalisation

This is the exactly situation at the moment and Merkel's dilemma. Her goverment is in troubles and knowing how unpopular any additional euro-bail-out in german public opinion is, she tends to sit this problem out, I cant imagine she will make a "big moves" in this case, she tries to play the role of the "Iron Lady".

Yes she takes a pragmatic approach, but primarly in view of retention of the own political power. Merkel looks afraid to the german taxpayers/voters. If the polls will deal worse, I would not wonder, she will have to say "I want my money back"(Margret Thatcher) at some point.

[Gerben42]

This is the exactly situation at the moment and Merkel's dilemma. Her goverment is in troubles and knowing how unpopular any additional euro-bail-out in german public opinion is, she tends to sit this problem out, I cant imagine she will make a "big moves" in this case, she tries to play the role of the "Iron Lady".

Yes she takes a pragmatic approach, but primarly in view of retention of the own political power. Merkel looks afraid to the german taxpayers/voters. If the polls will deal worse, I would not wonder, she will have to say "I want my money back"(Margret Thatcher) at some point.

 

The voters already want their money back. And they have the right to think this way. A popular question for example is: Why should people in Germany and the Netherlands have to work until they are 67 while fellow Euro countries have a much lower pension age? They want less tax burden and instead the EU wants to introduce Eurobonds that would put further pressure on the German deficit.

[Aberlour10]

This is funny. "Alternativlos" ( no alternative ) has been choosen to the Ugliest Word of The Year 2010 in Germany today. Why? Because Merkel und her stuff used it xxxxxxx times to explain the public opinion these uncounted €-billions she put in the various financial bail-outs und tried so to cut any discussion about it.

[the_dude]

As a stupid American, have never understood how so many nations have supported this push for European fiscal-unity in the first place.

 

Here in America, we have a severe problem with politicians promising favored constituencies with benefits to be paid by someone else far in the future. Obviously this is rapidly unraveling. And we are a unified (somewhat) republic with a strong central government.

 

Yet in Europe, where they have states and cultures that vastly differ from each other (much more so than in America) with each state having it's own sovereign government.. how does anyone think that this could possibly work? What German will EVER agree to play for Greek vacations and early retirements?

 

Just curious. Didn't anyone see this coming?

[Winstonm]

When did forethought become a necessary attribute of politicians?

[kenberg]

 

Just curious. Didn't anyone see this coming?

 

 

Several years back I was at a long conference in the U.K., held on a college campus (Warwick). We stayed in the dorms. There were many signs on buildings and in windows saying "Say yes to Europe" and quite a few signs saying "Say no to Europe". And one large sign "Say maybe to Europe". My sort of guy.

 

Anyway, yeah, cultural differences must be a challenge. American cities are not all the same, I really like Chicago for example, but they are not nearly as different as, say, Paris, Madrid and Athens. Well, challenge is another name for opportunity, or some cliche like that.

[Winstonm]

I really like Chicago for example, but they are not nearly as different as, say, Paris, Madrid and Athens. Well, challenge is another name for opportunity, or some cliche like that.

 

I think you are making a mountain out of a molehill.

[PassedOut]

I think you are making a mountain out of a molehill.

One man's Mede is another man's Persian.

[hotShot]

As a stupid American, have never understood how so many nations have supported this push for European fiscal-unity in the first place.

 

Here in America, we have a severe problem with politicians promising favored constituencies with benefits to be paid by someone else far in the future. Obviously this is rapidly unraveling. And we are a unified (somewhat) republic with a strong central government.

 

Yet in Europe, where they have states and cultures that vastly differ from each other (much more so than in America) with each state having it's own sovereign government.. how does anyone think that this could possibly work? What German will EVER agree to play for Greek vacations and early retirements?

 

Just curious. Didn't anyone see this coming?

 

The cultural differences withing EU Europe are much smaller than some seem to think. Check historical maps of the Roman Empire and see that Greece, Spain,, France and parts of Germany and England have been "united" more than 2000 years ago. All of Europe is used to Christian beliefs and ethics. Of cause there are differences, but they are small compared to e.g. Asia.

 

Do you really think that "China Town" and "Gods own country" are culturally closer than Spain and Germany?

 

The Euro was/is a political project to simplify comparisons between the countries. The idea was that if the people can discuss prices, income and taxes this would accelerate the harmonization of fiscal and social standards. Even the crisis will work in that direction. France has raised the retirement age last year and I am sure that Greece will have to raise it as well.

 

Many people are not aware yet, that population size has influence on worldwide economic and political significance . China has more than 1 billion people, Greece has a little more than 11 million. Only a united Europe is big enough to stay significant.

 

And yes some experts expected trouble, but the financial crisis accelerated the problem.

[kenberg]

I think that the differences between Athens and Paris exceed the differences between San Francisco and New York, but probably the real issue is that, at least to a large extent, Athenians think of themselves as Greek and Parisians think of themselves as French, while people in New York, San Francisco and a mining town in West Virginia all think of themselves as Americans.

As mentioned, it's a challenge and it has gotten tough. I won't be throwing spitballs, good luck.

[Gerben42]

Only a united Europe is big enough to stay significant.

 

Why would being significant be a goal? Many insignificant countries are doing VERY well. 1.3 billion Chinese and 8 million Swiss. Yet I would prefer to be part of the 8 million.

[hotShot]

Why would being significant be a goal? Many insignificant countries are doing VERY well. 1.3 billion Chinese and 8 million Swiss. Yet I would prefer to be part of the 8 million.

 

The Swiss managed to be one the the most significant banking places in the world.

 

A lot of the less significant countries in the world are in Africa, so losing significance is often related with economic loss and with the loss of political influence in the world.

[Gerben42]

The Swiss managed to be one the the most significant banking places in the world.

 

A lot of the less significant countries in the world are in Africa, so losing significance is often related with economic loss and with the loss of political influence in the world.

 

You have your logic backward. Although poor countries mostly do not have large political influence, not having political influence doesn't mean poverty. Before they got awarded the World Cup, how many people knew Qatar even existed? I mean people other than Blatter :)

 

The biggest secrets to prosperity are political stability and good health. Natural resources are worth nothing if the political system is broken. With its fertile lands and natural resources, if led properly, Zimbabwe could have been Africa's richest country by now. Instead, it is one of the poorest.

[hotShot]

I guess you are aware of he fact that Chinas economy is growing with more than 10% a year.

Estimate how man years will it take for Chinas 1.3 billion people to produce a sufficient number of engeniers so that they no longer need to buy technology from other countries?

Won't that make them to a big contender for e.g. Germany?

I guess you also know that Chinas industries is using it's profits to buy the rights for exploiting Africa's natural resources and that China is about to stop it's exports of rare minerals to other countries.

So do you really think that e.g. a country like Germany is capable to stand its ground on its own?

 

Perhaps after thinking about that you can accept the possibility that after losing costumers, exports would drop and difficulties accessing natural resources it will led to further loss in competition, leading to a significant drop in the peoples economic situation.

 

To me it seems better to combine the efforts of about 501 million Europeans (Number from Januar 2010) to improve the chances to stay "significant".