| Submit your comments on this article |
| Economy |
| The Coming Euro Crack-Up |
| 2011-05-09 |
| h/t Instapundit A spectre is haunting Europe—the spectre of the disintegration of the eurozone. All the powers of old Europe have entered into a holy alliance to exorcize this spectre: German chancellor and French president, the Brussels eurocracy and the bonus-laden bankers. Let the ruling classes tremble. The debtors have nothing to lose but their burdens. So Karl Marx might have written were he watching unfolding events in the eurozone. In a sense, it is like watching a slow-motion train wreck. A quick review: Some 17 of the 27 nations that constitute the European Union have abandoned their own currencies in favor of the euro. This means they have given up control of their exchange rates and their interest rates, the latter set by the European Central Bank on a one-size-fits-all basis. In fact, it is the state of the German economy, the area’s largest, that dictates interest rate policy for the entire 17-country group. When Germany was suffering under the weight of the costs of reunification, its sluggish economy needed, and got, a low-interest rate policy from the European Central Bank. That eventually proved too stimulative for, say, Ireland, which was in the midst of an inflating property bubble. The creation of the eurozone also led lenders to assume that the credit of every member was just about as good as the credit of Germany and France. So Greece, Portugal, Spain, and Italy could sell sovereign debt at very low interest rates and use the borrowed money to finance an expansion of their welfare states—Greeks, for instance, could retire at 50 if they were in a hazardous occupation such as hairdressing (all those chemicals). More important, countries like Portugal, with a poorly educated workforce, and Spain, with politically run regional banks making imprudent loans to local property developers, became noncompetitive with their eurozone colleagues and international rivals. No problem: Fiscal policy was not controlled from the center, and investors hadn’t yet realized that lending to the so-called PIGS (Portugal, Ireland, Greece, and Spain) was a hazardous occupation. So the latter could tap the credit markets to fill the gap between tax receipts and spending, and benefit from German-level interest rates. Then the rating agencies rose from their torpor and downgraded the sovereign debt of Greece, helping to drive interest rates on its government bonds to unsustainable levels. Enter Brussels with a bailout for Greece. And when Ireland’s deficit soared to 32 percent after the government decided to guarantee the debts of its insolvent banks, enter Brussels with a bailout for Ireland. Now Portugal, burdened with an economy that has not grown for a decade, also is rattling its begging bowl, and another bailout is being negotiated with a conclusion along the lines of earlier bailouts imminent, never mind that the previous two have done more harm than an honest confession of insolvency would. If at first you don’t succeed, repeat the mistake. ...To the intrinsic flaws in the euro system—a one-size-fits-all interest rate and the inability of the eurozone bureaucracy to control the fiscal policies of members—add the news from tiny, previously europhile Finland. In last month’s election, the anti-euro, anti-bailout True Finn party’s share of votes jumped from 4 percent to 19 percent, and its parliamentary seats from 5 to 39 in a 200-seat parliament, enough to insist on inclusion in a coalition government. Just as the Tea Party sent a message politicians can’t ignore, so the True Finns sent a message to the incoming government that it should think hard before casting a vote—unanimity is required—for the impending Portuguese bailout. As Tony Barber put it in the Financial Times, “Finns are angry because, like the Austrians, Dutch, and Germans, they dislike rushing to the aid of countries that in their eyes have cheated, idled, lied, lived beyond their means, and let reckless bankers run amok.” Finland’s “no” vote is all that is needed to leave Portugal drowning in debt. ...The“European project” won’t go quietly into the night. But it just might go noisily into the ashcan of history... |
| Posted by:g(r)omgoru |
| #16 As with its predecessor, the Holy Roman Empire, the EU, almost from its second generation, is starting once again on the slow decay to irrelevance. So here is the EU flag, featuring the "roadkill crow" of the HRE overlaid. |
| Posted by: Anonymoose 2011-05-09 19:41 |
| #15 Sometimes I have my doubts about that phil_b. After all they voted in Obama. |
| Posted by: CrazyFool 2011-05-09 17:56 |
| #14 The yuan won't replace the USD. Because it means trusting your money to the chicoms and not enough people are that dumb. |
| Posted by: phil_b 2011-05-09 17:50 |
| #13 What makes you think you won't get both? |
| Posted by: Bright Pebbles 2011-05-09 13:11 |
| #12 It's race between the Euro crackup and the US replacing the dollar with the yuan. I think I prefer the crackup. |
| Posted by: Zebulon Thranter9685 2011-05-09 13:02 |
| #11 The EMU (European Monetary Union) is only one of the seven heads of the EU hydra, so a downsizing of the eurozone or a collapse of the euro would by no means be the end of the European Project. But, considering that European unification has already been attempted three times -- by Charlemagne, Napoleon, and Hitler -- I don't see why this time would work out any better. |
| Posted by: RandomJD 2011-05-09 13:01 |
| #10 The crime they do have is rape which never had been a problem in the past. One guess who are raping these blonde infidels whores. |
| Posted by: Zebulon Thranter9685 2011-05-09 12:17 |
| #9 Just a current update from The Norway Post "Statoil has reported net income in the first quarter of 2011 of NOK 16.1 billion compared to NOK 11.1 billion in the same period last year". |
| Posted by: Dale 2011-05-09 10:55 |
| #8 Gorb yes and no. They claim their crime is at the lowest level in twenty years. The crime they do have is rape which never had been a problem in the past. Women don't go out at night alone now I'm told. |
| Posted by: Dale 2011-05-09 10:44 |
| #7 That was good to hear. I had always been told they abstain the alcohol. We have several come over for reunions and one smokes. He is a teacher and pays dearly for his smokes. Very competitive people. Senior Olympics and such. Had an Uncle who challenged me to sit ups on an inclined board. He did two hundred sit ups every morning into his eighties. I declined his challenge and I think I made the right decision. |
| Posted by: Dale 2011-05-09 10:39 |
| #6 Hmm. If this keeps up, there will be too many actors to establish a New World Order. Also, if a country is too prosperous and all its workers retire early, it will force immigration from less successful systems, and import less successful attitudes. Which makes that more successful system ... less successful. Perhaps this would be a good reason to keep a country from being too successful. |
| Posted by: gorb 2011-05-09 10:37 |
| #5 teetotalers! mostly. Norway has heavy taxes and strict control on alcohol in order to control Norwegan predeliction for heavy drinking. There was a group of Norwegan dentistry students at my Irish University (apparently no dentistry school in Norway) who were famed for going on wild drinking benders lasting for days. |
| Posted by: phil_b 2011-05-09 09:47 |
| #4 anon1 No it's not grand. All the things you call "Free" (except trade) just shift costs onto taxpayers and the poor. |
| Posted by: Bright Pebbles 2011-05-09 08:21 |
| #3 Tipper your "Portugalnomics:Ep. 1 " was very good. They seem to be a big part of this world. Norway retires their people at fifty also. Norway is in the black also. The cruse lines are seeing a banner year. Exports of fish at record level. Best longevity. Needs to hire more foreign workers . They have over 350,000 now. Major deals in gas and oil with several countries. They have five oil drilling platforms on order. Socialist to the core and teetotalers! mostly. Well you can't have everything. |
| Posted by: Dale 2011-05-09 07:30 |
| #2 ahh LOL noisily into the rubbish bin of history. Very amusing. But sad. This was a grand experiment, would be terrific if they could keep the Eurozone together. Once that disintegrates there's not much reason to keep the rest of it together. It's been grand having no different currencies, open zone for travel, working, living etc. what a shame i hope they can work it out. Riots in Greece say they won't. Retiring at 50 just imagine. In australia it's 67. |
| Posted by: anon1 2011-05-09 07:15 |
| #1 Portugals response to Finland. Portugalnomics:Ep. 1 |
| Posted by: tipper 2011-05-09 06:19 |