And Tadic believe that this kind of EU will admit Serbia as one of its members? He certainly knows that it will never happen, but continues to mislead the Serbs. ==
...The stakes are much too high. Even Germany recognizes that you couldn't allow the euro zone to break up in any way. The consequences for any country to drop out would be horrendous. Its financial system would be destroyed...." http://www.reportonbusiness.com/servlet/story/RTGAM.20081107.wrcover1108/BNStory/Business/home European (dis)union It's been 10 years since the birth of the euro zone, and the dream of global economic clout. But now the blanket is tearing, threatening a disastrous derailment of the monetary union * Article * Comments (104) * BRIAN MILNER AND SUSAN SACHS >From Saturday's Globe and Mail November 7, 2008 at 9:53 PM EST TORONTO AND PARIS Two or three times a week, Laurence Humeau trudges to the jobs centre near her home in southeast Paris and waits her turn to scroll through the offerings at one of the countertop computers. She has been coming for eight months and never has the wait been longer. Welcome to the economic crisis, said Ms. Humeau, a 29-year-old former barmaid, cashier and telemarketer who had to move back in with her parents after her last temporary job ended. Every day it's more crowded here because every day more of us are being put out on the street. The busy Tolbiac neighbourhood jobs centre, a cheerless place of harsh fluorescent lights and bare walls, is a bellwether of the recession settling over France and the rest of the Europe. Financial and economic misery stretches across the length and breadth of the region. While much of the global concern has focused on Wall Street and the U.S. economy, the situation in Europe is even worse. No country has been spared, as the credit crisis has burst bubbles created by cheap debt, flattened business and consumer spending, and compounded existing structural problems. The depth of the European crisis hit home this week as the International Monetary Fund reported that euro zone economies will contract by a combined 0.5 per cent next year and said the damage could be worse than it estimates. Both inside and outside the shelter of the euro zone umbrella, some countries have fared far worse than others. But the rain is pelting down on everyone, even as panicky governments and the oft-criticized European Central Bank scramble to recapitalize battered banks, free up credit and restore a measure of market confidence. And the umbrella has begun springing serious leaks under the worst strains it has faced since its inception a decade ago. The severity of the slump in the hardest-hit countries is spurring resentment in their better-off neighbours, such as Germany, France and the Netherlands. Taxpayers in those countries have no desire to bail out their weaker currency partners. The economic pain in the 15-country euro zone is not being spread equally, which is a major source of tension. Countries that grew rapidly thanks to easy credit, such as Spain and Ireland, have been run off the prosperity highway by the collapse of the housing bubble. Some face years of painful restructuring that might have been easier if they had control over their own monetary policy. Others, such as Germany and the Netherlands, have fared notably better, which makes it all the more difficult to apply the euro zone's one-size-fits-all monetary policy. The stresses could end up breaking apart the world's most ambitious currency union. The euro zone is about to go through the most traumatic time since it came into being, said Howard Archer, chief European economist with IHS Global Insight in London. Bond investors are showing their concerns about the zone's future, as spreads between euro bonds issued by the weaker sisters such as Italy and Greece and those of healthier countries such as Germany widen. Speculators aren't wagering that the euro zone will collapse, bond analysts said. But they are making bets that the cracks will widen. But for its member countries, the failure of the monetary union would have such disastrous consequences that it's almost unthinkable. The costs would be astronomical. It would also mean a return to the days when even minor crises could trigger volatile currency swings, undermining economies and putting government balance sheets at risk. You would have the mother of all financial crises, said Richard Portes, a professor of economics at the London Business School. So far, no one is talking of abandoning the euro, and most of the newer members of the European Union from the old Soviet bloc are clamouring to join. Even the Western European members of the EU that chose to retain independent currencies Denmark, Britain and Sweden may be having second thoughts about embracing the relative stability of the euro after the beating they have absorbed. Tiny Iceland, which is not part of the EU, certainly wishes it had adopted the euro after its savaged currency become almost worthless. Even the eccentric pop star Bjork has joined a growing Icelandic chorus calling for membership. THE EURO MISERY SCALE Some might wonder why the euro zone is still so attractive to those on the outside looking in. The economies under the umbrella face a world of pain. Spain, for example, is in such bad shape that it faces a prolonged depression, analysts say, with collapsing domestic consumption, a massive current account deficit and unemployment rising above 20 per cent. At the other end of the euro misery scale sit countries like Germany, the Netherlands and France, which managed to avoid a Spanish-style housing explosion but still face tougher economic times ahead. Germany's once-booming, export-driven economy, the largest in the euro zone, has come to a standstill this year. Industrial output fell 3.6 per cent in September, the biggest decline in 14 years. And the economy is expected to contract by as much as 0.8 per cent next year. On Thursday, French Finance Minister Christine Lagarde gave her most pessimistic prediction yet for France's economy, saying it is now likely to grow by at most 0.5 per cent in 2009. Just last month, she had forecast 1-per-cent expansion. The world financial crisis, she said, is starting to be felt and is going to last several trimesters. French unemployment, which only this summer had dropped to its lowest rate since the 1980s, is now expected to rise to 7.4 per cent by the end of the year. At the same time, consumer confidence has dropped to an all-time low. Ms. Lagarde also told the parliament that the country's fiscal deficit would likely reach 3.1 per cent of gross domestic product this year, exceeding the EU's threshold of 3 per cent for euro zone members. Yet for all that, France is still better off than it was before the euro was introduced, said Jérôme Boué, an economist with Global Equities in Paris. It's a plus. Both the financial crisis, and the economic weakness that has flowed from it, would have been considerably worse without the currency and interest rate stability provided by the European Central Bank, Mr. Boué and other analysts said. The situation in the U.S., Britain and Japan is evidence that it's false to say that you can do better with having an independent national monetary policy, said Anton Brender, director of economic studies with Dexia Asset Management in Paris. The question to be asked, he said, is how to improve and evolve the European institutions. HOW THE EURO BUBBLE GREW It has been 10 years since the euro zone was launched with great fanfare, no little trepidation and considerable disapproval from a gaggle of vocal critics, including the likes of famed U.S. monetarist Milton Friedman. But the criticism became more muted with the passing years, as the Europeans proved better disciplined than they had been given credit for, and the euro gained entrance into the exclusive club of the world's most trusted currencies. Indeed, the euro became one of the flavours of the decade, soaring nearly 80 per cent against the U.S. dollar between early 2002 and March, 2008, and prompting dreams in Brussels of becoming the leading engine of global growth and wielding the power and influence that would come with such economic clout. Now, those dreams have been washed away by a tidal wave of gloom, and the question becomes whether the flaws baked into the very structure of the euro zone will sink it as well or if the Europeans will take advantage of this crisis to make the system more efficient and effective. The policies of the ECB have tended to fall into line with the preferences of the strongest and most influential members, namely Germany and France. In the early years, the ECB ran a loose monetary ship, keeping interest rates low for the sake of the then-stumbling German economy. The excessively low rates, combined with a global credit boom, triggered bubbles in some of the fastest-growing, but weaker, economies. Inflation was not a problem in Germany and France, but in less wealthy and less structurally sound economies, such as Spain, Ireland and Greece, prices rose dramatically. The ECB couldn't intervene, and the credit bubble ballooned in some countries, but the currency remained strong, masking the problem. CRACKS EMERGE Derek Scott, a former economics adviser to then-British prime minister Tony Blair, argues that the very nature of the euro zone played a key role in the creation of the credit bubbles and debt mountains that have blown up so traumatically. Whatever may have been the mistakes in the United States, it seems to me that the euro zone itself is a structure that, almost by definition, creates asset bubbles, on top of anything that might have been exported by the United States or China. Spain, Portugal, Ireland, Greece and a couple of other European countries expanded rapidly thanks to a housing and construction boom, high domestic demand and debt-fuelled consumption. Although they suffered from inflation, a drop in competitiveness and widening current account deficits all weaknesses a central bank would normally try to address everything seemed manageable. But then the global credit freeze hit with a vengeance. Lenders worried about being repaid and domestic consumption quickly fell off a cliff. The same thing happened in Britain and the U.S. Central banks in those countries could and did intervene dramatically. The U.S. Federal Reserve has led the world in rate slashing since the crisis worsened this fall. On Thursday, the Bank of England finally responded with a surprisingly deep cut of 1.5 percentage points. On the same day, the ECB reduced rates by only a third of that, bold by its standards. Anything more aggressive risks triggering a dangerous bout of inflation in better-off economies such as Germany's. The ECB won high marks in some circles for its prompt action, at least on the capital front, since the credit squeeze first hit home in August, 2007. But on other fronts, cracks were emerging. On the interest rate side, it remained tightly focused on inflation. And it lacked the capacity to make such central bank moves as adjusting the amount of currency in circulation. And the most serious flaw in the euro zone design quickly became apparent as conditions deteriorated: There is no institution capable of co-ordinating fiscal policies or taking other emergency measures in the event of a once-in-a-century financial catastrophe. As long as many of the policy options available to governments and central banks in Canada, the U.S. and elsewhere are not in the euro zone playbook, Europe faces a much longer, harder, more complicated slog to pull out of this, said Peter Zeihan, vice-president of analysis with Stratfor, a global intelligence firm based in Austin, Tex. MORE EUROPE?' Every European crisis prompts soul-searching about whether it's better to be part of a large entity than going it alone. This time, despite the strains, the union could end up stronger. Worried national governments, shaken by the unexpected near-collapse of financial institutions once viewed as pillars of their economies, could finally yield some of their jealously guarded fiscal and banking authority and promote a euro-zone-wide regulatory regime. Historically, every European crisis has been used as an opportunity to bring about more Europe,' said Mr. Scott, the former Blair adviser, referring to the EU's widening of powers. That is a potential result of this. It's understandable that troubled Denmark and a handful of Eastern European countries such as Hungary, which have been pushed to the brink of bankruptcy, might be looking for safety in the euro. But the notion that a Denmark would be safer inside the euro zone I don't really buy. You gain some security perhaps. But against that, you're locked into a system, where if you get into difficulties, you can't get out, Mr. Scott said. There's a price to be paid for gaining the stability of a stronger currency, Mr. Scott and others critics say. Joining a monetary union could weaken an already troubled economy. Far from being a mechanism for convergence of economic performance, it's a mechanism for divergence, he said. Within the euro zone, that's what we're seeing. And it's now exaggerated because of the wider international problems. The future of the currency zone may have already been determined by the design flaws in its creation. Amy Verdun, a political science professor at the University of Victoria who has written extensively about European monetary policy, argues the EU's big mistake was setting up an asymmetrical economic and monetary union. The monetary side, in the hands of the ECB, is responding to the current crisis. But it has no political counterpart just the finance ministers of the member countries who gather from time to time to co-ordinate policies. Unlike national governments, the euro zone has no mechanism for directing attention to a problem sector or struggling country. And that is unlikely to happen, because it would mean transferring more authority to the European Union. As it is, people don't trust the existing EU institutions, Prof. Verdun said. A CASE FOR UNITY Euro zone members can and frequently do act unilaterally, without regard to the consequences for their fellow euro zone partners. Early in the banking crisis, for example, Ireland hastily guaranteed all deposits, causing a furor and setting off a race among governments seeking to out-do each other in national assistance. Only belatedly did they realize it would be considerably more effective to enact common policies. Whether the euro zone can continue with its flawed model of a powerful central bank and a weak, informal arrangement on the economic side remains to be seen, Prof. Verdun said. They are heavily dependent on ad-hoc co-ordination. There's no authority to say: You have to.' And there will always be a conflict between the interests of the heavyweights and the peripheral members. Even EU officials recognize that a single monetary policy is bound to be inappropriate for certain countries at least some of the time. Are there sufficient strains to call into question the euro zone's survival? Prof. Portes, of the University of London, dismisses such a question out of hand. I think it's nonsense, he said. The stakes are much too high. Even Germany recognizes that you couldn't allow the euro zone to break up in any way. The consequences for any country to drop out would be horrendous. Its financial system would be destroyed. Susan Sachs is a freelance reporter based in Paris. __________________________________________________________________ Connect with friends from any web browser - no download required. Try the new Yahoo! Canada Messenger for the Web BETA at http://ca.messenger.yahoo.com/webmessengerpromo.php [Non-text portions of this message have been removed] ------------------------------------ =============== Group Moderator: [Е-ПОШТА ЗАШТИЋЕНА] page at http://magazine.sorabia.net for more informations about current situation in Serbia http://www.sorabia.net Slusajte GLAS SORABIJE nas talk internet-radio (Serbian Only) http://radio.sorabia.net Yahoo! Groups Links <*> To visit your group on the web, go to: http://groups.yahoo.com/group/sorabia/ <*> Your email settings: Individual Email | Traditional <*> To change settings online go to: http://groups.yahoo.com/group/sorabia/join (Yahoo! 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