reproduced from Fullermoney: a suggestion that Germany should leave the Euro.

I still think the simplest solution is to get out of the EU. This novel version seems to suggest that all would be well if Germany pulled out of the Euro. It’s just papering over the cracks, I reckon.

Your free daily email from www.fullermoney.com  

Bloomberg Part 1 – Save Europe: Split the Euro – Here is the opening for the first of two interesting articles from Bloomberg on why the euro should be split:  

On the eve of the American Civil War, Abraham Lincoln famously said that “a house divided cannot stand.” Today, the European Union — committed for decades to the quest for “ever closer union” — must confront an agonizing truth. Lincoln’s maxim must be inverted. For the EU to survive, the euro must divide.   Between the Treaty of Rome in 1957 and the Single European Act in 1986, Europe’s governments brought about the one great peaceful revolution the continent has seen in its long and troubled history. The creation of a single European currency would build on this remarkable success. It was the next vital step to greater unity and prosperity. The economic crisis in southern Europe shows that the euro system, at least in its current form, has instead become a mortal threat to both.   Greece, Spain, Portugal, Italy and Cyprus are trapped in a recession and cannot restore their competitiveness by devaluing their currencies. The euro area’s northern economies have had to join in repeated bailouts and put aside their notions of prudent finance. A vicious circle of resentment and populism in the south and strengthening nationalism in the north is tearing the union apart.   And the crisis isn’t yet abating. France, Europe’s second-largest economy, is now sinking into a grave economic slump. Like the southern countries, it must restore its competitiveness; like them, as part of the euro system, it lacks the means. Because of its size and because of the guiding role it has played in the EU’s development, France, we’ll argue in Part 2 of this article, will be crucial in breaking the vicious circle.   Bloomberg Part 2 – France Must Lead Breakup of Euro – Here is a middle section from Part 2:   For France and for the euro system as a whole, the best strategy is to dismantle the monetary union from the top — via the exit of Germany and the other most competitive countries. Appreciation of the new German currency would improve the deficit countries’ trade balances.

In some cases, debt write-offs would still be necessary, but the scale of reduction and the cost to creditors would be smaller because the monetary dismantling would boost the deficit countries’ growth. The surplus countries would have to recapitalize their banks after losses due to any debt reduction, so exiting the system doesn’t mean abandoning the crisis countries. The difference is that, after the exits, their assistance would help put the deficit countries on a recovery path, whereas the current bailouts lead only to a dead end.   The European Central Bank would have to strive to maintain credibility and trust during any controlled dismantling of the euro system. The ECB could be preserved, at least for some time, as the central bank responsible for monetary policy in all 17 member countries, even after some had replaced the euro with new currencies.   This would facilitate strong policy coordination among the former members and demonstrate that the segmentation was an orderly transformation carried out under the control of the most respected and credible European institution.   Many observers concede that the euro was a mistake but think there’s no going back. They reckon that dissolving the monetary union would lead to economic chaos, first in Europe, and then around the world. European leaders are afraid that backtracking on the euro project would also be a lethal blow to the larger cause of European integration and could be the beginning of the end of the EU and the single market. These fears give rise to what we regard as the disastrous strategy of defending the euro at all costs.   Although a controlled segmentation of the euro system through the exit of the most competitive countries would actually be the most effective way to help the deficit countries, it could still be seen as a decision by the strong to abandon the weak. Europe’s history makes it difficult for Germany’s leaders to initiate such a move.   My view – Veteran subscribers may recall that I favoured retention of the European Free Trade Association, to preserve peace and promote economic growth within Europe, long before the single currency was launched. Currency unions, formed by aligned countries which wish to remain independent, have had a difficult history.

Predictably, the euro has not avoided similar problems. It was the triumph of ego and naivety, rather than common sense. It has also compromised democracy within modern Europe. Worse still, it has revived historic enmities among ancient civilisations.

Nevertheless, I have also maintained that the euro would survive, if that is what most Europeans actually want. Today, European governments still proclaim their commitment to the euro, publicly, but this has an increasingly hollow ring. Few European politicians would test this resolve with a ‘yes or no’ referendum on whether or not their citizens favour remaining within the single currency.

Obviously, the single currency would be less contentious if Europe’s economic performance improved. It could, and should, as Europe has moved somewhat closer to fiscal union. Mario Draghi’s ECB has been very effective in lowering interest rates among Europe’s countries with deficit problems. This has bought time but the ECB does not have the mandate to institute pro-growth policies.

Advertisements

Tags: , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: