December 30, 2011Posted by on
There is a view (especially in France) that the enemies of the Euro are the AS (Anglo-Saxons). In my opinion this is not so. I do not believe the AS are against the Euro but, in common with the Austrian School of Economics, they are against its inherent flaws. As Martin Feldstein points out in his article ‘The French Don’t Get It. The French government just doesn’t seem to understand the real implications of the euro. French officials apparently don’t recognize the importance of the fact that Britain is outside the eurozone, and therefore has its own currency, which means that there is no risk that Britain will default on its debt. By contrast, the French government and the French central bank cannot create euros. There is a second reason why the British situation is less risky than that of France. Britain can reduce its current-account deficit by causing the British pound to weaken relative to the dollar and the euro, which the French, again, cannot do without their own currency. The eurozone fiscal deficits and current-account deficits are now the most obvious symptoms of the euro’s failure. But the credit crisis in Europe, and the weakness of eurozone banks, may be even more important. The persistent unemployment differentials within the eurozone are yet another reflection of the adverse effect of imposing a single currency and a single monetary policy on a heterogeneous group of countries. These comments may be valid but in making the ‘French connection’, either Feldstein hasn’t been following recent European events very well, or he simply doesn’t understand the nature of the Anglo/French relationship, which is based on mutual distrust.
While British governments have never been supporters of Austrian Economics and would seem to have little understanding of Keynesian economics, in fact, perhaps little understanding of any form of economics: the following post submitted by Tyler Durden on his own site with the title The Real Tragedy Of The Euro, would resonate with the British view.
The realisation that the European debacle is much more an issue of political harmonisation and Empire-building than one of pure economic band-aid provision should be clear to any and everyone who has followed the words and deeds of the various European factions for the past year or two. Yesterday, we discussed the dithering and competing camps but what is really critical is to understand how we got here and what the underlying social and political wills are among all of the players. There is no better summation of the formation, driving forces, and tensions among European leaders and central bankers than in Phillip Bagus’ book The Tragedy of the Euro¹. From the simple divergence of the dual visions of Europe with northern libertarians and southern socialists to the Bundesbank’s fearsome reputation for showing up weak governments, Bagus offers a clear perspective on why the EMU is a ‘self-destroying’ and ‘conflict-aggregating’ system but counters that with some views on what the outcome will be and how French governmental pressure remains the cornerstone of the establishment of a European Empire for better or more likely for worse.
The Tragedy of the Euro explains why the Euro-system almost collapsed in May 2010 when the Greek sovereign debt crisis spread to other PIIGS countries.
It explains how the system creates money out of nothing and creates perverse incentives for governments that lead to its own destruction. Without a reform, the Euro-system is doomed for failure.
Beside the European monetary institutions, the book also describes the political interests behind the euro. The single currency was an important strategical tool in the plan of European socialists. It served to get rid of the Bundesbank and the DM that served as brakes on European inflation.
In his conclusion, Bagus points out that the institutional setup of the EMU has been an economic disaster. The Euro is a political project; political interests have brought the European currency forward on its grievous way and have been clashing over it as a result. And economic arguments launched to disguise the true agenda behind the Euro have failed to convince the general population of its advantages.
The Euro has succeeded in serving as a vehicle for centralization in Europe and for the French government’s goal of establishing a European Empire under its control—curbing the influence of the German state.
In response to what the future will bring for a system whose incentives destined it for self-destruction, he sees three possibilities:
- The system will break up;
- The Stability and Growth Pact (SGP) will be reformed and finally enforced;
- Incentives toward having higher deficits than other countries will lead to a pronounced transfer union.
In the current crisis, it seems that governments are hovering between options 2 and 3 – what scenario will finally play out is anyone’s guess and with Greece’s March deadline looming, perhaps now is a good time to read and understand what is really at stake for the Euro zone.