It also one that’s not likely to get resolved soon:
It is possibly also true that the euro has made it marginally easier to conduct business between eurozone states. Companies and individuals no longer have to worry about exchange rate risk, and can plan for the future accordingly. Yet the major efficiency gains anticipated by European industry from pricing policies and financial strategies have failed to materialise.
Nor do the exaggerated claims around price stability bear much scrutiny. The eurozone’s aggregated inflation rate disguises big variations on the ground. A year ago, for instance, the inflation rate ranged from 6.7pc in Spain through 11.3pc in Germany to 21.7pc in Latvia.
Even today, with the generalised price surge now receding, the differences are extreme, ranging from minus 0.7pc in Belgium to 6.9pc in Slovakia.
Despite 25 years of monetary integration, inflationary experience across the eurozone remains very different. In terms of interest rates, it is very much still the case that what may be appropriate for one country is likely to be inappropriate for another.
It’s absolutrely true that there are benefits to having the same curreny. Also that there are costs. Ths more different the component parts of the currency area the greater those costs. This is why the theory in this area is about optimal currency areas. What’s the right size where those costs and benefits match off against each other?
The answer is that Europe’s far, far, too large. But then everyone sensible’s known that since the 1990s.
Isn’t the problem that its economies, politics and cultures are too diverse rather than size? The USA is about the same size but not as diverse.
For the avoidance of doubt I’m not referring to ethnic mix when I use the word diverse.
Greater diversity, yes. And the standard answer is a central budget which balances through fiscal policy. So, the US Feds raise about 20% of GDP through tax, then spend it. But the money raise comes unequally, the spend equally so. More tax in from richer areas, more spending out to poorer. This then acts as a counterweight to the problem of all having the same monetary policy – currency and interest rates.
Which means that the EU solution is to have 20% of eurozone GDP taxed and spent throgh Brussels. Which the centralisers do indeed say.
The Euro was and remains a political project without an economic basis. To force parity between, say, the historically appreciating DEM and the declining FFR was always a madness without capital transfers from German taxpayers. There needed to have been an EU-wide Formule Barnette to go along with the single currency.
USA is diverse but grew into the new territories, so took the currency with it, rather than imposed it on top of the existing structure ( the Spanish and French systems were simply abolished ). There are also capital transfers between the states to keep equilibrium.
Austria Hungary had a single currency, even when it became the dual state. Monetary control was very strict across the Empire helped by a healthy mix of heavy industry and agrarian production. The state sector ( eg railways) even pushed technological innovation It was only when the Great War buggered everything did inflation become a serious problem around 1917.
The eurozone isn’t about to collapse – it’s worse than that
Consider the fact that millions of people across the Western world are positively hoping for some sort of “collapse” as an escape from the Klownwelt.
I bet that wasn’t the case in 2003.
Many European citizens, she noted with evident satisfaction, may not even remember a time before the single currency.
But they do remember getting off a dinghy at Lampedusa.
This is probably just as well, because not only was the glorious variety of bank notes that populated Europe back then aesthetically far more pleasing than today’s grimly homogenised versions, but it was also a time of much greater hope for the future and rather more impressive economic growth.
There’s no hope in a Clown World, and no growth under Net Zero.
So the EU has failed, hasn’t it? Because a political and economic system that guarantees you poverty and degradation is not a successful one.
Extracting the UK from Europe’s bear hug has proved difficult and protracted enough even for a country with its own currency. Imagine the economic turmoil and dislocation if it also meant abandoning your established means of exchange and rebuilding monetary sovereignty from scratch
Joining the EU is like applying to be a louse on a slave. You not only abandon your own sovereignty, but the EU itself lacks sovereignty. Like the late-stage Ottoman Empire, it’s less than the sum of its parts.
When the American government instructed the EU/Germans to destroy their own economy, they immediately complied without any resistance. That’s because Germany is a conquered and beaten slave nation, and by extension so is the EU, which seemingly can do nothing except hasten the demise of European peoples.
France and Germany were as rich as the 36th and the 31st US states in 2000, but 21 years later, French GDP per capita was lower than the 48th poorest US state, Arkansas, while German GDP per capita had fallen to become no more prosperous than the 38th US state, Oklahoma.
This is what the worst people you’ve ever heard of have spent 8 years trying to drag us back into.
A losers’ club.
Why does the eurozone need to tax wealthy areas to give to poor areas?
Am I taxed lots to give money to my poor neighbour? (OK, rhetorical question, but I’d hardly say it’s necessary).
Lower Manhattan is taxed incredibly highly yet people living there tend to remain extremely rich. The six-toed three-eyed folk living in the mountains of the Carolinas remain dirt poor despite the amounts of that tax spent on them, which appear to make little to no difference.
I just don’t get this “you have to even things out with tax or the currency doesn’t work” argument. It sounds an awful lot like socialism to me. Something I thought most of us, our generous host included, were not epsecially keen on.
TMB: “The Euro was and remains a political project without an economic basis.”
Oh, it does have a political and economical basis.
It’s just that it wasn’t designed to benefit , y’know, us mere peons.
Which means that the EU solution is to have 20% of eurozone GDP taxed and spent through Brussels. Which the centralisers do indeed say.
Its still that diversity thing though. There’s no way Germans are going to sign up for fiscal transfers to Greeks & Italians.
Although given the way they’ve decided to commit economic suicide they might start supporting them to get some support themselves.