Euro, not Brexit, is the EU's biggest threat

[Plazma Inferno!]

One surprising thing about Britain’s vote to leave the EU is that Britain’s economy has been doing better than a lot of European countries. Unemployment in the United Kingdom has fallen to 5 percent, its lowest level in a decade. In contrast, the average unemployment rate among countries that (unlike Britain) have joined the EU’s common currency, the euro, is still above 10 percent.
And many economists argue that’s not a coincidence — that poor policies by the European Central Bank have systematically weakened growth in countries that have adopted the euro.
A new paper from economist David Beckworth makes the case that the economic woes of eurozone countries like Spain and Greece can ultimately be traced back to the euro itself. He argues that other problems in those countries, like their problems with high debt, were made worse by the ECB’s tight-money policies.
This argument has huge implications. It suggests that without reforms, eurozone countries could continue suffering from slow growth and abnormally severe recessions for decades to come. That, in turn, will fuel public resentment against the EU and increase the danger that other countries will follow the UK’s lead.
And the euro isn’t just a mistake — it’s a mistake that’s going to be hard to fix. Any country that tries to leave the euro risks triggering a financial crisis. And while deeper economic integration could help to mitigate the euro’s problems, the political obstacles could be insurmountable. Brexit wasn’t great news for the future of the EU. But the common currency is likely to create much bigger headaches for European leaders in the years to come.

http://www.vox.com/2016/6/29/12052494/brexit-eu-euro-disaster

 

[exchemist]

One surprising thing about Britain’s vote to leave the EU is that Britain’s economy has been doing better than a lot of European countries. Unemployment in the United Kingdom has fallen to 5 percent, its lowest level in a decade. In contrast, the average unemployment rate among countries that (unlike Britain) have joined the EU’s common currency, the euro, is still above 10 percent.
And many economists argue that’s not a coincidence — that poor policies by the European Central Bank have systematically weakened growth in countries that have adopted the euro.
A new paper from economist David Beckworth makes the case that the economic woes of eurozone countries like Spain and Greece can ultimately be traced back to the euro itself. He argues that other problems in those countries, like their problems with high debt, were made worse by the ECB’s tight-money policies.
This argument has huge implications. It suggests that without reforms, eurozone countries could continue suffering from slow growth and abnormally severe recessions for decades to come. That, in turn, will fuel public resentment against the EU and increase the danger that other countries will follow the UK’s lead.
And the euro isn’t just a mistake — it’s a mistake that’s going to be hard to fix. Any country that tries to leave the euro risks triggering a financial crisis. And while deeper economic integration could help to mitigate the euro’s problems, the political obstacles could be insurmountable. Brexit wasn’t great news for the future of the EU. But the common currency is likely to create much bigger headaches for European leaders in the years to come.

http://www.vox.com/2016/6/29/12052494/brexit-eu-euro-disaster

...and the Pope is now reliably reported to be Catholic........

Everybody in Europe has been acutely aware of all this since the Greek crisis. The Euro is a one-size-fits-all currency and setting a central bank interest rate that is right for Germany means it will be wrong for Greece and vice versa. If the Euro is to survive, they need to integrate a lot more, have a common tax system and adopt a transfer union, in which rich countries agree to subsidise the poor ones, rather as happens between states in the US. This in turn implies closer political integration (no taxation without representation).

But, as Brexit has illustrated, the mood of EU peoples is against that at the moment. So the Eurozone is in an untenable position. The British, at the time of John Major's premiership, foresaw all this and kept the UK out of the Eurozone when the Maastricht treaty was signed.

The Euro may well collapse unless political leaders in the EU are able to convince their people to accept the fuller integration that it requires. If it does collapse, the EU countries will find themselves with precisely the sort of arrangement that the UK had, within the EU.......until last week......

 

[Edont Knoff]

The Euro may well collapse unless political leaders in the EU are able to convince their people to accept the fuller integration that it requires.

This will be difficult, since the european union is mostly perceived as a institution that produces high costs, and comes up with rules that no one needs - e.g. no vacuum cleaners above 1600 watts may be sold anymore and no incandescent bulbs over 15watts may be sold (only LED and fluerescent tubes).

Many people feel that the EU rules to much, which they want to decide on the own.

In this climate it will be hard to convince people to let the EU rule even more domains of life.

To me, the collapse looks like the more likely prediction.

 

[geordief]

This will be difficult, since the european union is mostly perceived as a institution that produces high costs, and comes up with rules that no one needs - e.g. no vacuum cleaners above 1600 watts may be sold anymore and no incandescent bulbs over 15watts may be sold (only LED and fluerescent tubes).

Many people feel that the EU rules to much, which they want to decide on the own.

In this climate it will be hard to convince people to let the EU rule even more domains of life.

To me, the collapse looks like the more likely prediction.

Fair enough but then what?
EU#2? Is it not a political space that has to be filled somehow account taken of its importance?

Is the difficulty that its constituent parts are democratic in contrast to trading'political blocks like Russia and China which are held together regardless of the views of the population?

 

[Edont Knoff]

Fair enough but then what?

If you look at europe's past you'll see many and also many very small countries with a multitude of good and bad relations. At the moment I imagine this coming back. I'm not saying it is good in any way, but the tendencies to break look much stronger than the ways to glue the EU together.

 

[geordief]

If you look at europe's past you'll see many and also many very small countries with a multitude of good and bad relations. At the moment I imagine this coming back. I'm not saying it is good in any way, but the tendencies to break look much stronger than the ways to glue the EU together.

I never bought into the idea that the EU was formed to prevent a reocurrence of two world wars but I think it would be criminal now not to take this seriously.

They say it is NATO that has kept the peace but it needs political legitimacy and if the European democratic political space fractures we may have cause for regret.

The world is not a friendly place for democracies. They need to protect what they have achieved.

 

[joepistole]

If you look at europe's past you'll see many and also many very small countries with a multitude of good and bad relations. At the moment I imagine this coming back. I'm not saying it is good in any way, but the tendencies to break look much stronger than the ways to glue the EU together.

After witnessing the boneheaded Brexit decision and the consequences which have already occurred as a result, I don't think anyone on the continent is willing to repeat it and follow the UK down that path.

 

[exchemist]

I never bought into the idea that the EU was formed to prevent a reocurrence of two world wars but I think it would be criminal now not to take this seriously.

They say it is NATO that has kept the peace but it needs political legitimacy and if the European democratic political space fractures we may have cause for regret.

The world is not a friendly place for democracies. They need to protect what they have achieved.

I think you and EK might want to bear in mind that the collapse of the Euro need not mean the collapse of the EU. As I have been saying, GB's position (until last week) was a model of the format the EU might have, if the Euro did not exist. The challenge would be how to unwind the Euro without a catastrophe in the process. I can imagine ways on which that might be done, country by country - we had a dress rehearsal in Greece a few yeas ago. Though it would certainly be difficult.

 

[geordief]

You don't think the Eurozone was created to provide a refuge for the individual member states against currency speculators.?

Is it not necessary in some shape or form? Is Sterling more exposed now that GB is more exposed economically?

 

[exchemist]

After witnessing the boneheaded Brexit decision and the consequences which have already occurred as a result, I don't think anyone on the continent is willing to repeat it and follow the UK down that path.

Well, I think we need to wait 6 months before making that judgement, actually. What the stock market does in a week is hardly conclusive. And the political earthquakes are probably sorely needed, because what you see happening here is an attempt to respond to the reasons why GB voted to leave. People are positioning themselves to try to understand and then deal with the disparity between the London elite and the provinces that has shocked everyone so much. Democracy is starting to work, in a rather inchoate fashion.

I find myself coming to terms with the fact that I (as a member of the London elite, I suppose) had not understood the circumstances of so many of my fellow countrymen. Clearly we need to do more to spread the wealth around and make more people feel part of it and not simply rely on the a priori assumption that globalisation is good for everyone, all the time. This may be an adjustment other countries eventually have to make. We may end up ahead of the curve.

 

[exchemist]

You don't think the Eurozone was created to provide a refuge for the individual member states against currency speculators.?

Is it not necessary in some shape or form? Is Sterling more exposed now that GB is more exposed economically?

No of course it wasn't a technical thing like that. It was part of the political project for ever-closer union. A big, tangible, symbolic step closer. It was sold to the people on the basis that they could travel freely without changing money at the (by now, open) borders. The risks and responsibilities were never made clear. The hope was that, by adopting one currency, the economic cycles of the various participant countries would "converge".

But they didn't: The Irish, for example, thought the low interest rates, compared to what they were used to, were great to borrow against and went on a huge house-building spree. Now Ireland is full of half-finished empty housing estates with no shops or public transport, slowly rotting in the rain. Similar story in Spain (apart from the rain, that is). The Greeks borrowed like crazy and gave all their state employees retirement on full pension at 55. And then the Germans asked them - totally unrealistically - to repay it, after these countries had pissed it all away.

As for Sterling, sure it has gone down and yes we will be worse off for many years. But that is because we have given up our rights to the Single Market and our passport to do financial services in Euros and nobody know how much of this we can salvage.

 

[geordief]

No of course it wasn't a technical thing like that. It was part of the political project for ever-closer union. A big, tangible, symbolic step closer. It was sold to the people on the basis that they could travel freely without changing money at the (by now, open) borders. The risks and responsibilities were never made clear. The hope was that, by adopting one currency, the economic cycles of the various participant countries would "converge".

But they didn't: The Irish, for example, thought the low interest rates, compared to what they were used to, were great to borrow against and went on a huge house-building spree. Now Ireland is full of half-finished empty housing estates with no shops or public transport, slowly rotting in the rain. Similar story in Spain (apart from the rain, that is). The Greeks borrowed like crazy and gave all their state employees retirement on full pension at 55. And then the Germans asked them - totally unrealistically - to repay it, after these countries had pissed it all away.

As for Sterling, sure it has gone down and yes we will be worse off for many years. But that is because we have given up our rights to the Single Market and our passport to do financial services in Euros and nobody know how much of this we can salvage.

So was EMF (was it called the EMF?- I mean the Currency snake - the EMS it was ) purely intended as a stepping stone to the Eurozone?

I remember its failure did lead to the Eurozone but was that the plan or just the way things happened?

 

[exchemist]

So was EMF (was it called the EMF?- I mean the Currency snake - the EMS it was ) purely intended as a stepping stone to the Eurozone?

I remember its failure did lead to the Eurozone but was that the plan or just the way things happened?

My recollection is that the Euro was always a glint in the eye, but certainly there were problems with EMS - I think it went through several incarnations before the Euro was launched, didn't it?

 

[geordief]

I think it went through several incarnations before the Euro was launched, didn't it?

I can't remember different incarnations. I think there were around 9 members in the chain and the weakest link was picked off before the speculators moved onto the next link .I can't remember what was the biggest link they targeted (was it France?)

But I was wondering if the European project would have been happy with the loose chain mechanism and whether it was events (not some grand scheme) that forced their hand.

Is a kind of a political "chain mechanism" now what anti federalists ** would wish for?

**"anti federalists" to mean people who would not like a deeply integrated political union.

 

[joepistole]

Well, I think we need to wait 6 months before making that judgement, actually. What the stock market does in a week is hardly conclusive. And the political earthquakes are probably sorely needed, because what you see happening here is an attempt to respond to the reasons why GB voted to leave. People are positioning themselves to try to understand and then deal with the disparity between the London elite and the provinces that has shocked everyone so much. Democracy is starting to work, in a rather inchoate fashion.

I find myself coming to terms with the fact that I (as a member of the London elite, I suppose) had not understood the circumstances of so many of my fellow countrymen. Clearly we need to do more to spread the wealth around and make more people feel part of it and not simply rely on the a priori assumption that globalisation is good for everyone, all the time. This may be an adjustment other countries eventually have to make. We may end up ahead of the curve.

You are correct, but this is much bigger than just a few days of stock market activity. Things have gotten worse and will continue to get worse for Brits. This isn't a one week event for the Brits. Yes income disparity is a big problem, but there are larger problems with the EU. And income disparity isn't just a problem in the UK. It's a global problem. It's a problem in the US, and as labor becomes cheaper and cheaper as it inevitably will with the advancement of technology, our economic and political structures will need to undergo serious restructuring. We will need to transform from a labor based economy to an ownership based economy. The solution isn't to give more to the wealthy as some advocate.

The problem as I see it is the EU put economic integration before political integration. The EU needs to do both if the EU is to succeed. As I said before, the EU reminds me of the United States after gaining independence from the UK. After independence, the US was at first a loose confederation of independent states, similar to what we now see in the EU today. The confederation proved unworkable and was soon replaced with a stronger more integrated central government with the creation and ratification of our current constitution.

 

[exchemist]

You are correct, but this is much bigger than just a few days of stock market activity. Things have gotten worse and will continue to get worse for Brits. This isn't a one week event for the Brits. Yes income disparity is a big problem, but there are larger problems with the EU. And income disparity isn't just a problem in the UK. It's a global problem. It's a problem in the US, and as labor becomes cheaper and cheaper as it inevitably will with the advancement of technology, our economic and political structures will need to undergo serious restructuring. We will need to transform from a labor based economy to an ownership based economy. The solution isn't to give more to the wealthy as some advocate.

The problem as I see it is the EU put economic integration before political integration. The EU needs to do both if the EU is to succeed. As I said before, the EU reminds me of the United States after gaining independence from the UK. After independence, the US was at first a loose confederation of independent states, similar to what we now see in the EU today. The confederation proved unworkable and was soon replaced with a stronger more integrated central government with the creation and ratification of our current constitution.

That depends on what the EU is to be. The GB vision was always of a huge economic free trade area, with common standards and political cooperation between nation states. The federal model - which is what you describe - is one that many of the Continental founders of the EU had in mind (though not all: de Gaulle being an example of one who didn't). But that is a lot more ambitious and fraught with difficulties, some of which are being exposed by the problems of the Euro.

 

[Sarkus]

After witnessing the boneheaded Brexit decision and the consequences which have already occurred as a result, I don't think anyone on the continent is willing to repeat it and follow the UK down that path.

I'm not sure many countries in the EU have an economy as strong as the UK's... was... to be able to cope. But if the UK economy does eventually rebound, even if it takes 5 years, then other countries will see it as an option should their skepticism of the EU increases.
But bear in mind that most other countries have the Euro, which makes exiting all that more difficult from the outset.

 

[Sarkus]

This will be difficult, since the european union is mostly perceived as a institution that produces high costs, and comes up with rules that no one needs - e.g. no vacuum cleaners above 1600 watts may be sold anymore and no incandescent bulbs over 15watts may be sold (only LED and fluerescent tubes).

These are reasonable regulations, in my view - especially the lightbulbs: you reduce energy consumption in lights in homes by 25% or more through using LEDs. Less energy consumption on such a scale has to be good. It may cost the consumer more but it is all part of the efforts to save the planet.
The vacuum cleaners... again it's a matter of the green agenda, and I wouldn't be surprised if they push those sort of regulations to the wider electronics market where they can. But the light bulbs is certainly a good move, imho.

 

[iceaura]

A new paper from economist David Beckworth makes the case that the economic woes of eurozone countries like Spain and Greece can ultimately be traced back to the euro itself. He argues that other problems in those countries, like their problems with high debt, were made worse by the ECB’s tight-money policies.

There's nothing about the Euro itself that requires foolish and damaging policy from central bankers. The Euro is not the problem. The bankers are the problem - and they will continue to be, whether or not the Euro fails.

These are reasonable regulations, in my view - especially the lightbulbs: you reduce energy consumption in lights in homes by 25% or more through using LEDs.

Speaking as a resident of a region in which not only the light but the heat from incandescent bulbs is valuable, and the mercury pollution from fluorescent bulb ballasts dumped in landfills and burned in garbage disposal plants is a serious problem (not to mention the neurological side effects of the flicker and the light quality), and lightbulbs need to function in cold weather outdoors, and LEDs have yet to demonstrate anything close to the reliability or light output advertised in ordinary use,

I hope such regulations would be imposed very carefully if at all, where I live.

The political backlash from that kind of micromanaging in ignorance can do more harm than such regulatory overreach has any hope of doing good.

 

[exchemist]

There's nothing about the Euro itself that requires foolish and damaging policy from central bankers. The Euro is not the problem. The bankers are the problem - and they will continue to be, whether or not the Euro fails.

Speaking as a resident of a region in which not only the light but the heat from incandescent bulbs is valuable, and the mercury pollution from fluorescent bulb ballasts dumped in landfills and burned in garbage disposal plants is a serious problem (not to mention the neurological side effects of the flicker and the light quality), and lightbulbs need to function in cold weather outdoors, and LEDs have yet to demonstrate anything close to the reliability or light output advertised in ordinary use,

I hope such regulations would be imposed very carefully if at all, where I live.

The political backlash from that kind of micromanaging in ignorance can do more harm than such regulatory overreach has any hope of doing good.

No. I'm afraid the Euro definitely IS the problem. This is well understood by most economists. If you have the same interest rate for countries whose economic cycles are out of phase or have different dynamics, you make things worse and do not have the tools to improve the position. That is true, whatever the central bankers do or don't do.