Aasof’s Reflections

A fundamental flaw in the initial design of the euro made it unlikely that it could ever succeed and the determination to continue with economic policies, particularly in response to the global financial crisis, have made recovery from that crisis more difficult. A single monetary policy dictated by and serving the needs of the most powerful parts of the European economy, would be less appropriate for weaker parts of the European economy. The Greeks believed that their membership of the euro-zone was the entry ticket to the prosperity that the stronger members enjoyed. Encouraged by the apparent guarantee of support from those stronger members to take advantage of the asset inflation created by easy Europe-wide credit, ignoring the potentially damaging concentration of productive capacity in Europe’s industrial heartland that a single economy made inevitable.  In the longer term, when the periphery of the wider European economy began to slow down – even to close down – this was bad news even for the central core, whose markets would be less buoyant and whose obligations to weaker members would be likely to increase – because the euro would eventually handicap the whole European economy. Read more of this post