Home > Uncategorized > Why the euro cannot be saved

Why the euro cannot be saved

from Lars Syll

The euro may be approaching another crisis. Italy, the eurozone’s third largest economy, has chosen what can at best be described as a Euroskeptic government. This should surprise no one. The backlash in Italy is another predictable (and predicted) episode in the long saga of a poorly designed currency arrangement, in which the dominant power, Germany, impedes the necessary reforms and insists on policies that exacerbate the inherent problems, using rhetoric seemingly intended to inflame passions.

euroItaly has been performing poorly since the euro’s launch. Its real (inflation-adjusted) GDP in 2016 was the same as it was in 2001. But the eurozone as a whole has not been doing well, either … If one country does poorly, blame the country; if many countries are doing poorly, blame the system … The euro was a system almost designed to fail. It took away governments’ main adjustment mechanisms (interest and exchange rates); and, rather than creating new institutions to help countries cope with the diverse situations in which they find themselves, it imposed new strictures – often based on discredited economic and political theories – on deficits, debt, and even structural policies.

The euro was supposed to bring shared prosperity, which would enhance solidarity and advance the goal of European integration. In fact, it has done just the opposite, slowing growth and sowing discord …

The central problem in a currency area is how to correct exchange-rate misalignments like the one now affecting Italy. Germany’s answer is to put the burden on the weak countries already suffering from high unemployment and low growth rates. We know where this leads: more pain, more suffering, more unemployment, and even slower growth …

Across the eurozone, political leaders are moving into a state of paralysis: citizens want to remain in the EU, but also want an end to austerity and the return of prosperity. They are told they can’t have both. Ever hopeful of a change of heart in northern Europe, troubled governments stay the course, and the suffering of their people increases …

Germany and other countries in northern Europe can save the euro by showing more humanity and more flexibility. But, having watched the first acts of this play so many times, I am not counting on them to change the plot.

Joseph Stiglitz

The euro has taken away the possibility for national governments to manage their economies in a meaningful way — and in Italy, just as in Greece a couple of years ago, the people have had to pay the true costs of its concomitant misguided austerity policies. 

The unfolding of the repeated economic crises in euroland during the last decade has shown beyond any doubts that the euro is not only an economic project but just as much a political one. What the neoliberal revolution during the 1980s and 1990s didn’t manage to accomplish, the euro shall now force on us.

austerity22But do the peoples of Europe really want to deprive themselves of economic autonomy, enforce lower wages and slash social welfare at the slightest sign of economic distress? Is increasing income inequality and a federal überstate really the stuff that our dreams are made of? I doubt it.

History ought to act as a deterrent. During the 1930s our economies didn’t come out of the depression until the folly of that time — the gold standard — was thrown on the dustbin of history. The euro will hopefully soon join it.

Economists have a tendency to get enthralled by their theories and model and forget that behind the figures and abstractions there is a real world with real people. Real people that have to pay dearly for fundamentally flawed doctrines and recommendations.

  1. June 27, 2018 at 4:10 pm

    The Euro project is run by financial kleptocrats who are more interested in maintaining financial hegemony than in the effects of this policy on the public.

    • June 27, 2018 at 4:13 pm

      Absolutely correct.Far from being a ‘failure’, the euro has been an unprecedented success in its role as a weapon to attack the working class. Both individual wages and the social wage have been eroded as a result of it, and national democracy is being reduced by the day.

  2. June 27, 2018 at 4:10 pm

    Until the end of last year I edited a website, Spectrezine, which we have now closed due to lack of resources. Spectre began as an ‘inky’ in 1997 and from the very start we warned of what the euro would lead to. Our prognostications were uncannily accurate, but this gives no satisfaction when we see the misery that this project has inflicted on working people.

  3. lobdillj
    June 27, 2018 at 4:52 pm

    Sovereign nations are the sole issuer of the currency used by the populace. Any nation that does not issue its own currency is a USER of the currency and has no sovereign ability to control its finances. The Euro was a bad idea.

    • Prof Dr James Beckman, Germany
      June 27, 2018 at 5:36 pm

      lobdillj, we seldom speak of the fact that the $ is a global reserve currency, as now the Euro & since last year the Chinses Yuan are also. So having your own national currency is fine, in that you can try to make its exchange value weaken as it needs with regard to other currencies but if it is not a reserve currency the local currency may not be acceptable in repayment of foreign debts at whatever exchange rate. Contracts are apt to specify in dollars, euros or new Yuan. This is a double issue which is seldom discussed. This means that if a weakened Italian Lira requires payment in, say, ten million Euros that the payment actually has to be in Euros.

      • Calgacus
        July 5, 2018 at 5:21 pm

        The point of having a national currency is not to allow one to “devalue”. The point is to allow a country to run its own economy, which cannot be done in the grip of irrational obsessions about the foreign sector that are historically prevalent in Europe. Of course it is better off to be a reserve currency issuer, but that is not necessary to show how much better a national currency is than a monstrosity like the Euro.

        On foreign debts, the right thing is to not incur them – for the state – and for the state to not stand behind private debtors within its own borders (an absurd and novel idea). A merit of the gold standard was that it made private sector entities go broke, often to foreign holders of their debt and then NOT be rescued by the state, both the debtor and the foolish foreign creditor losing out.

        If a private entity cannot accumulate enough foreign currency for it to pay its foreign-denominated bills, directly or through accumulating enough domestic currency to exchange for the foreign currency on the market, too bad for it and its creditors – and nobody else.

        But even if there are pre existing foreign debts of the state, they would tend to become more payable if the foreign currency is abandoned. E.g Greece’s debt was not unpayable in full when Tsipras snatched defeat out of the jaws of victory. And that is not primarily because of currency depreciation, it is because a national currency allow a healthy domestic economy, while the Euro prevented it.

        The idea of the Euro was to destroy European social democracy – the destruction of European businesses and wealth was a price to be paid for that goal. Destroying individual lives was both a price, but even more, a part of the goal.

      • Calgacus
        July 6, 2018 at 10:23 pm

        I replied to your reply to this, I think, at “The mess at the heart of the EU” post.

  4. Prof Dr James Beckman, Germany
    June 27, 2018 at 5:25 pm

    As a free market guy from Silicon Valley, I take the view that Italy is a laggard in making its economy more productive. Italy has been down in the dumps for a long time. While I love its food, people & culture, these ingredients seem not to make for prosperity. Accordingly a lot of borrowing, but not a lot of Italian effort/cleverness in spending that borrowing which makes up in many ways for America’s love of the same spending against tomorrow’s income.
    The Euro concept as I take it was to allow serious business people to trade over borders profitably. The onus was business to make it all happen, it seems to me. Yes, I have lived in Europe full-time for 16 years.

  5. Craig
    June 27, 2018 at 8:12 pm

    Making domestic economies abundantly profitable and free flowing with the new paradigm policies of a universal dividend and discount/rebate policies throughout the entire economic/productive process is the way to resolve both the vices of reserve currency manipulativeness and the domineering strategy of being an export platform.

    With sovereign and rational publicly administered finance making money no object or problem, and AI increasingly removing the need for human economic input each country could then re-industrialize in the most efficient and ecologically sane manner possible. Then, if we grow a couple of extra neurons by implementing an intelligent program for the acculturation of the populace to leisure (self chosen and self directed focus on purposeful activities…NOT idleness) we’d have a much more positive, happy, constructive and creative world. And if anyone was having trouble finding purpose without traditional employment a job guarantee could fit easily within the mental and economic set described above.

    Also, within the above paradigm an objective analysis allows for chiding the Italians for inefficiency of economic strategy and effort, and chiding the Germans for their occasional drift toward dominance via moralistic rectitude. Being of German descent I’m well aware of the tendency.

  6. June 27, 2018 at 10:29 pm

    ”The most puzzling development in politics during the last decade is the apparent determination of Western European leaders to re-create the Soviet Union in Western Europe.”

    ― Mikhail Gorbachev

  7. June 28, 2018 at 12:20 am

    For those who wonder how deep the rabbit hole goes, here:
    https://professorwerner.org/eu-basics-your-guide-to-the-uk-referendum-on-eu-membership/
    Is a review of how the EU was created and by whom. Hint: it was the CIA.

  8. Helen Sakho
    June 28, 2018 at 3:36 am

    Numb consciences, numbing paradigms. And so the story continues.

  9. Craig
    June 28, 2018 at 5:40 am

    That’s actually pretty standard operating procedure for the CIA and for the primary force behind American foreign policy, namely finance and its current monopolistic paradigm of Debt Only. And actually, not to belittle the stress, institutional destructiveness and loss of life it has caused, there probably wasn’t a group of bankers and financiers slavering over some vector analysis board laughing evilly while it was all planned out. It was much more likely that the CIA consulted “the best financial advice they could get” that was based on the fallacies in DSGE, and so everyone felt they were actually doing the right thing for everyone. Conspiracies, especially large ones, are almost non-existent. It’s the systems that are built on fallacious thinking and well meaning experts that are unaware of the deeper problem of way outmoded paradigms and who also have no idea of their new replacement….that are the real problem.

    • June 28, 2018 at 4:05 pm

      A growing meme is, we are not in battle of good against evil, but rather good against good. Sad but true.

    • June 28, 2018 at 4:21 pm

      What I mean by meme:

  10. June 29, 2018 at 10:10 am

    The Euro might work if certain countries paid taxes. I mean Germany of course. No federation can work without federal taxes, yet the Germans refuse to pay them since the origin of the Eurozone. Even compared to Italy it Greece, the scale of tax disobedience in Germany is monumental.

  11. Helen Sakho
    June 29, 2018 at 1:04 pm

    So much for the legendary German discipline that was so admired by all parties. Personally, I blame the immigrants for this!

  12. Helen Sakho
    June 29, 2018 at 3:34 pm

    And in case there is any confusion on what category of immigrants I was referring to above and without repeating previous posts on this issue by myself, my reference above was to all who defected (after the fall of the Berlin Wall) to West Germany in search of position, promotion, or family reunion.
    Alternatively such people could seek asylum in Turkey, which I hear has very pleasant resting and business resources.
    As a surviving creature of repeated Genocides and diaspora since time immemorial, but still going, I would to the best of my ability defend them, their families, but particularly the asylum seekers they leave behind in whichever geography they choose to settle in.

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