Given the impossibility of one central bank managing the economies of a diverse and fractured...


Given the impossibility of one central bank managing the economies of a diverse and fractured continent, Bloomberg's Matthew Lynn says the euro is doomed.
Comments (19)
  • Tony Petroski
    , contributor
    Comments (6356) | Send Message
     
    "...Given the impossibility of one central bank managing the economies of a diverse and fractured continent,"

     

    diverse--thinking about that one.

     

    fractured?

     

    Who is the novelist?

     

    Oh. sorry...the Euro...
    16 Nov 2010, 06:59 PM Reply Like
  • Drew Arnold
    , contributor
    Comments (197) | Send Message
     
    Agreed. The efficiencies that the euro creates involving trade appear to be outweighed by the inefficiencies the euro creates by having countries with different levels of development and different economic models being put under the same monetary policy.
    16 Nov 2010, 07:01 PM Reply Like
  • Donald Ingram
    , contributor
    Comments (3481) | Send Message
     
    I would not be too fast in writing the Euro off. As Mark Twain once sagely put; "the reports of my death have been greatly exaggerated."
    16 Nov 2010, 07:17 PM Reply Like
  • BetTheHouse
    , contributor
    Comments (147) | Send Message
     
    Sorry to break it to you, but Mark Twain is definately dead. The 1897 New York Journal obituary he was talking about just happened to be slightly premature.
    16 Nov 2010, 07:58 PM Reply Like
  • greenzulu
    , contributor
    Comments (205) | Send Message
     
    Yes, and reports of the Euro's demise are premature as well. In time, it may not survive, but the European Union -- French and Germans included -- are too committed to let it disappear.

     

    Committed? Who do you think owns all those bonds? Germans, for example, are by far the largest holders of Spanish bonds. Think they want to be paid back in pesetas? And the French? Same boat, including Portuguese debt. Yeah, in time, the Eurozone will modify it's currency regime, but if you look at the U.S. current account deficit, with near-70% of GDP being spent on consumption, you wouldn't be so quick to go long the dollar vs. Euro.
    16 Nov 2010, 11:44 PM Reply Like
  • Gary Jakacky
    , contributor
    Comments (2946) | Send Message
     
    Destroying the Euro should be part and parcel of US economic and foreign policy. Europe is a morally, fiscally, and militarily bankrupt region coasting on American military might, Russian natural gas, and cheap illegal Islamic labor getting more expensive by the day.
    16 Nov 2010, 07:29 PM Reply Like
  • Furioso
    , contributor
    Comments (25) | Send Message
     
    Tell us how you really feel
    16 Nov 2010, 07:36 PM Reply Like
  • SaBiN
    , contributor
    Comments (37) | Send Message
     
    Good one trainingwheelboy! Get back to the books and look where destroying other places around the world has gotten us. Ohhh.. and don’t forget how great it will be for the American people once Europe is destroyed. I’m sure your average american’t will be doing really well after that.
    16 Nov 2010, 08:10 PM Reply Like
  • Bill S. Friend
    , contributor
    Comments (715) | Send Message
     
    The demise of the Euro clearly spells disaster for the dollar.
    16 Nov 2010, 09:54 PM Reply Like
  • The Geoffster
    , contributor
    Comments (4291) | Send Message
     
    The NYT called the euro a currency in search of a nation. It was an idea built on a dream.
    16 Nov 2010, 08:05 PM Reply Like
  • Jake Huneycutt
    , contributor
    Comments (1422) | Send Message
     
    Great article; I agree that the Euro is doomed without major reform and the author does an excellent job laying out the reasons why. However, I disagree with the notion that splitting the Euro would realistically solve the problem for the long-term.

     

    Currency pegs are the problem. It's time we realize that currency pegs have almost always failed historically. The gold standard failed. The Japanese peg resulted in an asset bubble of epic proportions that eventually led to 2 decades of economic despondency (and still counting!). Now, China is trying to put to stop rising inflation there, that has resulted from their own Dollar peg. Pegs, quite simply, don't work.

     

    A currency peg has the same economic affect as a price subsidy or rent control (depending on which side of the valuation distortion a nation finds itself on). It creates economic misallocations that lead to excess spending/weak production in one nation and weak spending and excess production in another. Efficient businesses in the 'strong currency' nations are punished and inefficient businesses in the 'weak currency' nations are rewarded. Even if you split the Euro, how long before the economies drift far enough apart so that underlying disparities develop and create huge trade imbalances again?

     

    I realize people might not think of the Euro as a "currency peg", but in actuality, it is. It's a giant 16-nation currency peg. The old currencies were all set at a certain rate on a fixed date and that's where things have stayed. Those old currencies are sort of "shadow currencies" now, because Europe has never really abandoned the basic system that those currencies were designed for. Unless there is fiscal integration in the Eurozone, those currencies still "exist" in some sense of the word; they are simply not traded on the free markets any more.
    16 Nov 2010, 09:50 PM Reply Like
  • Bill S. Friend
    , contributor
    Comments (715) | Send Message
     
    The gold standard was removed so that the central bank could manipulate the value of the dollar.
    16 Nov 2010, 09:56 PM Reply Like
  • Jake Huneycutt
    , contributor
    Comments (1422) | Send Message
     
    The gold standard was removed because every nation that had it fell into a giant depression of epic proportions due to artificially constrained money supply. Once the gold standard was removed, every single nation that went off it started to recover. And the nations that weren't on the gold standard, fared better to begin with; China was on a silver standard and almost avoided the depression entirely (much lesser supply constraints with silver).

     

    The idea that the gold standard deters reckless spending is not accurate at all. The gold standard actually makes reckless spending easier, because all a nation has to do is 'move the peg' in order to eliminate debt.

     

    Whereas, in a system like the US, UK, or Japan, which are sovereign issuers of their currencies, the market sets interest rates and then reacts in a much more orderly fashion to events that would change the value of the currencies. If one of those governments allows too much currency to be printed, all that happens is that they shot themselves in the foot, because their interest rates go up.

     

    Valuation changes in the gold standard are completely arbitrary, by contrast, since a central government just decides one day, "we can't pay this much; therefore, we move the peg."

     

    The Euro and the gold standard are very similar in that they both create major distortions in currency values, money supply, interest rates, and current accounts.
    16 Nov 2010, 10:04 PM Reply Like
  • George Fiala
    , contributor
    Comments (33) | Send Message
     
    Time to haul out state currencies, maybe even city currencies - hell, why stop there - we could have Italian currency, Jewish currency, Catholic currency, PhD currency... anything else is a subsidy or a control, right?

     

    The author of the article mentioned did not back up any of his thoughts with facts. The problem in Ireland was caused by speculation in real estate. This was not caused or aided by the euro. Half the world has had the same bubble burst, led by a 50 state nation with a common currency... hey, wait.
    16 Nov 2010, 11:04 PM Reply Like
  • Jake Huneycutt
    , contributor
    Comments (1422) | Send Message
     
    Fiala,

     

    Mountain goats, the City of Zurich, unicorns, and potato fields are not sovereign entities. Unless you're arguing that the City of Barcelona is a sovereign entity, not sure how your point is relevant.

     

    The point isn't to have infinite currencies; the point is that the Euro is a 'shared currency' between several sovereign entities, and hence, doesn't work. The US, on the other hand, is both a fiscal and monetary union; the state of New Jersey is not a sovereign entity. If the Eurozone nations were willing to adopt a US-like structure, they'd have much fewer bumps in the road; but they aren't willing to. They want a "middle ground" compromise, that doesn't work economically.
    17 Nov 2010, 12:10 AM Reply Like
  • SaBiN
    , contributor
    Comments (37) | Send Message
     
    Sorry, I don't agree with -> "If the Eurozone nations were willing to adopt a US-like structure, they'd have much fewer bumps in the road; but they aren't willing to."

     

    I think the people of the Eurozone are a bit more tindery (like a fire) than the US. What happens in Europe portends the future of the US.

     

    The bumps for the US are building but the US is better at kicking the can down the road. The last to fall if you will.
    17 Nov 2010, 12:16 AM Reply Like
  • cincinnatijake
    , contributor
    Comments (146) | Send Message
     
    Unfortunately, the banking cartel a.k.a. the Federal Reserve, manipulates the interest rates in the market by keeping the Fed funds rate artificially low. When the currency is debased by flooding the economy with the fiat currency printed out of thin air, it is the average citizen who is shot in the foot by having their purchasing power eroded through the hidden tax of inflation. Whoever controls the supply of money, has the ability to create booms and busts. This is why I believe the Federal Reserve should be abolished, so that free markets can determine an acceptable medium of exchange, whether it be a precious metal, paper, etc.
    17 Nov 2010, 12:24 AM Reply Like
  • bob adamson
    , contributor
    Comments (4560) | Send Message
     
    Jake Huneycutt –

     

    Your comment is very logical – up to a point.

     

    The advantage you ascribe to federal unions holds true only if the central government
    (a) has sufficient fiscal authority and capacity to come to the aid of states or provinces facing bankruptcy, and
    (b) possesses sufficient political will to come to the aid of those states or provinces before these collapse in fiscal crisis.

     

    Hopefully California, Illinois, Michigan and other States will not reach their fiscal breaking point but, if they do, have we grounds for confidence that political deadlock at the national level will not prevent an appropriate rescue package? Hopefully political posturing and rhetoric will give way to statesmanship all around but, if it does not, the US could experience the sort of political tensions and threatened fiscal impasses we now see in the EU.

     

    It would be tragic if either the US or the EU is unable to resolve an internal fiscal impasse of the sort we are currently seeing in Europe. It would be ironic if the EU were to successfully surmount its crisis but the US fail.
    17 Nov 2010, 12:39 AM Reply Like
  • bob adamson
    , contributor
    Comments (4560) | Send Message
     
    The following is a range of recent reports and opinions on the Irish situation in English from a cross-section of European newspapers. Arguably the analysis from The Economist in the first web link gives the best roadmap showing what is really unfolding behind the confusing and contradictory rhetoric. The other links give a good collective expression to the confusion and frustration that surrounds this matter at present.

     

    www.economist.com/blog...

     

    www.guardian.co.uk/bus...

     

    www.irishtimes.com/new...

     

    www.irishtimes.com/new...

     

    www.independent.ie/bus...

     

    fistfulofeuros.net/afo.../

     

    blogs.euobserver.com/w.../

     

    www.spiegel.de/interna...

     

    www.dw-world.com/dw/ar...

     

    www.dw-world.com/dw/ar...
    16 Nov 2010, 10:04 PM Reply Like
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