Hi Steve, > I'll bet you a good dinner that the Euro doesn't decline significantly > (5% max) against the US$, Br. Pound, or the Swiss Franc during the next > year.
Rather than about the weakness of the Euro, the article was about the problems that arise from the abolition of national sovereignity over national currencies. Note that 4 of the 5 countries mentioned have *weak* own currencies, so they should rather "gain" from the Euro. Nonetheless, as the EC report admits, the negative effects prevail. Your prediction above may well be correct, but that won't have to be the merit of the Euro... (the USD may fall by itself, the CHF will have to be lowered artificially to prevent harm for our export industries and tourism, and a mix of both may apply to the GBP.) Also, your prediction for the next year may be correct but nonetheless there is also harm for the previously strong currencies such as DEM, because the DEM exchange rate has already been fixated to the Euro 3 years ago (i.e. the harm to Germany has already been done and little will change during 2002). > There is a bias 'anti-euro' by conservatives in UK & by those EC > countries, like Switzerland, who have till now rejected joining in. Certainly a factor too (btw, CH is not an EC country), but even without that bias, it's hard to see any *economic* argument in favor of the Euro (while there are lots of emotional, political/imperial and vested-interest arguments for it). Do you have one? > Some contentions: > > | FIVE countries in the eurozone face the threat of severe economic problems > | as a direct result of their membership of the single currency, according to > | a damning official report by the European Commission. > > "direct result" claims in a complex living system are ridiculous. But direct results exist also in a complex living system (e.g. if a bank robber grabs 1 million Euro, he'll be rich as a direct result, and if he shoots the bank teller, the teller will be dead as a direct result..). > | In a frank admission that the single currency's critics in Britain and > | elsewhere were right all along, the report warns that Ireland, Finland, > | Spain, Portugal and Holland are trapped in a policy straitjacket they > | cannot escape. > > "cannot escape": another example of predictive hubris by the author. Unfortunately, the EMU is indeed a straitjacket -- no predictive hubris is required to see that... > | Because the countries had joined the euro bloc, they could not put up their > | own interest rates to calm their economies. > > Again, the banks and capital mkts set real world rates! The worship of > the Central Banks is much like other forms of prayer: not necessarily > rewarded as hoped. The point is that there aren't "real world rateS" anymore but just ONE "real world rate" for the whole Euro area. This has devastating effects on different regions within that area. > | Now they face a crash, says the report. Government deficits are likely to > | soar, unemployment will rise and their banking systems will be threatened > | with crisis. > | [And the crash will include other EU countries too, as was predicted by > | German economists as early as 1992! --CR] > > The whole world is tetering on depression; who thinks those few late > boomers could be immune? They don't have to be immune, but the Euro will make a bad thing worse. > | The report admits that the five joined the euro at the wrong exchange rates. > | Having given up control of their own currencies and interest rates, they > | cannot use monetary policy to fend off disaster. > > Time will tell, and economies adjust. Economies adjust, but the question is what it will cost in terms of additional unemployment, social unrest, organized and street crime, etc. > | The admissions come in the end-of-year report of the EC's directorate for > | economic affairs, in the section 'Macroeconomic Developments In The Euro > | Area'. > | > | It states: 'The real exchange rate at which countries entered the third > | phase of economic and monetary union might not have fully reflected the > | competitive position of some member states.' > > Maybe so; perfect foresight is impossible. The point is that the EC didn't listen to those independent economists who had 20/20 foresight back then (some of them even sued against the Euro introduction at the constitutional court, but were rejected for political "reasons"!). What's especially worrying about this non-listening is that it isn't simply incompetence on the EC's part, but rather a reckless megalomaniacal calculation that is so concerned about the profits for the few that it doesn't give a damn about the disastrous effects for the many. Regards, Chris
