This article on Lewrockwell.com discusses the not-very promising future of the Euro, as hinted by the first serious debt difficulties in . Now, what the Greek government would seem to be doing is to threaten to leave the Eurozone if the EU doesn’t fund some of it’s liabilities. My question: how the hell can anyone switch currencies like that?
It took for the Euro more than a decade of near-hard pegs among European currencies and two more of use between financial intermediaries to get going, as Mises would have predicted. Now, what could possibly install in its place? Only the euro is money now, and it will take a long time for anything else to re-emerge once the Euro flies. Even foreign currencies are used little, for the crushing majority of Greek foreign commerce is directed to EU member countries. So, is all this just a very poorly though-out bluff, or could there be a chance that some country could break away form the Eurozone, assuming the will is there?
So it seems the EU its going to play it quietly, and try to get away with it.
My opinion is that the core of the matter is what will the ECB do. The ECB is controlled by the germans. Germany is a creditor nation, while the PIIGS (Portugal, Ireland, Italy, Greece and Spain) are creditor nations. So Germany wants a strong euro (also they have a relatively strong currency tradition since they suffered Weimar hyperinflation). And the PIIGS want monetization of the debt, so devaluating the euro, to get away as easy as they can from the debt (also it was standar policy for this countries to devaluate their when there were problems so their goverments are used to this).
Theoretically the ECB can not monetize goverment debt because it would be a transfer of wealth from one european country to the other, so theoretically its forbidden by law. But until now the ECB has been quietly monetizing the debt using the comercial banks as proxies. This is why the yields are still relatively low even with the increase of debt. But now Germany is starting to warn the rest of the EU countries that they should start cutting the deficit because the party is over. Some people are very worried about this because they say the ECB is really going to cut the cheap credit and then the countries are going to go into bankrupcy, they are going to be forced to leave the EU, etc…
My opinion is that this is just a show from the german politicians. They are looking for two things. One: look good in the eyes of the german people, because obviously they dont want to pay with higher prices the stupid actions of the rest of the countries. Second: Put presure on the PIIGS, specially the politicians, so they behave a bit more responsable. But at the end, Germany is not interested in breaking the EU, its a bit market for they exports, so they will end up financing the debt through covered monetization, but will do it as quietly as they can, to try to get away with it in front of their population.
Hugo my man you got a very good point. The present German government headed by kanzellerin Merkel has suffered a dramatic drop in popularity. The only thing that’s keeping it in place is the fact that the Left is in shambles, lacking a charismatic leader and a convincing political manifesto. What caused this sudden drop in popularity is the decision to use German federal bond to insure Greece’s debt and talks about increasing deficit spending to prop up the economy. The EU popularity in Germany is at an all time low and some recent rumors about a supposed rescue plan for Spain (yet again the Great Sick Man of Europe) are driving it even lower. The fact that the euro (popularly called teuro, a joke on teur, expensive, overpriced) is still seen as the main driving force behind a strong increase in consumers prices in the last ten years also adds up.
Anti-EU sentiment is strong all over the Continent but national governments have done a very fine job of destroying organized opposition to it. The timely (and still very suspicious) death of the last outspoken EU critic, Jorg Haider, helped out to no small end to silence critics. Why is that? Because no government will be left behind, no matter how spendthrift and incompetent it is. Greece is already being bailed out, Spain will be next. The great unknown is, of course, popular reaction. If the EU imposes upon Greece and Spain very tight financial measures how are people going to respond? My bet is simple: do nothing, stay there and take it. EU, like many artificial creations (Italy and Belgium to say but two) thrive on complacency and sloth. That, and not drastic measures and political courage, is what is going to win the day for the Evil Union.
Kakugo is a very attentive observer of global events. I am delighted and impressed. [:)]
However, although the possible bailouts of failing spendthrift states in southern Europe had been causing some dismay among the German public, this is now covered up by some new scandals, such as the liberal party’s push to lower taxes for some of their most generous donors.
Though stuff like that is relatively petty compared to the implications of national bailouts for the rest of Europe, it’s easier to see the motives and scams behind it and thus, more easily criticizable.
Every fiat currency is in trouble across the planet. Reality is proving that the Mercantilist-Keynesian Model of reducing the value of the currency through credit expansion to among other things help local exporters is nothing but bad economics.
At this point though, all there is just the government of Greece trying to extort money from the other Euro nations. Besides Greece is not the size of a player that France or Germany is. If the folks in either of those countries get upset then you could see real problems for the Euro.
Besides the Euro is in somewhat better shape than the falling US Dollar. The US Dollar is quickly being dumped as the World Reserve Currency.
What posts! You’re great guys. Still, my question was rather more economic. IF Greece REALLY wanted to break off form Euroland, COULD it, keeping in mind 1) the Mises Theorem of the Value of Money and 2) the fact that the Euro is the sole currency there? T
he only viable option would be, I believe, to mint clearly recognizable Greek euro coins, and let them float freely with “normal “ euros. Only thus the Greeks break off form the ECB dictate, while still keeping their currency. Would you agree?
The present situation had already been envisioned in the early '90s, before the Maastricht Treaty came into being: the first hint of crisis would test the monetary union to its limits. The German people have a God-given terror of inflation. Though there are very few alive now who remember the excesses of the Weimar Republic it has been imprinted in the national political DNA. German politicians have to be extremely careful with inflation, not because they are genuinely convinced of it, but because even a moderate raise in consumers prices (seen as symptoms of inflation at large) can spell your political death. Countries like Italy or Greece and to a lesser extent France have long been accustomed to inflation and “loose” economical politics; Italian government were very wont on devaluing the old lira to prop exports, especially after the influence of President Einaudi (the one Italy owes its large gold reserves to) died out. The euro has been an half-baked attempt to implement a “one size fits all” monetary system and unless all Europe uniforms to the German model, it’s doomed to failure. Soon or later the German political class will realize its attempt at imposing political and economic control over the Continent is not worth the effort, especially if the number of countries lining up at at the Bundesbank for help starts growing (the Baltic Republics are already on life support and Germany is quietly bailing them out to avoid Russian involvement, Hungarian economy will need a similar treatment very soon and Slovakia is in shambles). Hans Delbruck, the great military historian and adviser to the German Imperial family, warned Kaiser Wilhelm in 1914 not to get involved on multiple fronts because even Germany’s mighty military and powerful economy wouldn’t be enough and the country would face inevitable collapse. Kaiser Wilhelm preferred to listen to the war crazed Junkers and Socialists and we all know what happened. This is exactly the same thing all over again, except this time instead of regiments and cannons we have sovereign debt, inflation and banks.
Also considers this: from the outside Germany is an imposing economical powerhouse (though China surpassed it in 2009, much to the chagrin of economical chauvinists) but it has one enormous internal problem: reunification. All attempts at making the former DDR a part of the system failed, and failed miserably. The underdeveloped East guzzles resources without giving anything in return. This is very similar to the Italian situation, where the industrial and very rich North has to keep the underdeveloped and poor (we are talking Maghreb-style poor) South on life support. But this is a story for another day, duty calls now.
A country can use the Euro as the common medium of exchange and not be part of the Euro zone (Montenegro, for example). The Greek government may bring back its national currency, but the market will choose which currency to employ as the common medium of exchange. There will be fluctuations between the two, and if the government places some sort of arbitrary restriction then Gresham’s law will take hold.
I don’t think a living soul would take the old drachma back, now that it has fallen into disuse. No calculation is possible with it. Mises is clear on this point, you can’t just switch money like that. Only building on the current euro would work. The same goes for every other country in the EU, of course.
You cannot be a Neo-Nazi and be involved in politics in Europe, trust me. The smear campaign started when popular press got wind his father was a member of the Austrian Nazi and when he said many German soldiers where nothing more than good men conscripted into the army… so what? My great-grandfather was a member of the Fascist party and a village mayor but many seem to forget that back then you had to be a member of the ruling party to be anything more than a farm laborer. He may not have been the nicest of personalities but at least he did something for the real world economy (tax cuts… a rare thing these days) and, what’s more important, he openly questioned the EU, something no other politician dares to do anymore. His death was the final nail in the coffin for organized, outspoken EU criticism. Yes, I didn’t like him that much like I didn’t like Theo Van Gogh (outspoken critic of the EU immigration politics) but you have to give credit to who speaks reason.
He was not a neo-Nazi, to be a neo-Nazi you first have to have some sort of ideology. Haider was a total political opportunist without any principles.
He was not as much of an extremist as he was sometimes painted but he did play on xenophobia as the centerpiece of his political strategy and always tried to frustrate the Slovene ethnic minority for the chauvinist vote. Most of this consisted of smybolic antiques like illegally (by Austrian state convention) removing bilingual signs of villages in areas where they live, rather than something more substantial, but it was very ugly and symbolically opressive.
He was a just a local thug in an armani. A better dressed version of sheriff Arpaio.
Do you really believe the current trend towards centralization in Brussels is the result of a German impulse? Personally, I don’t see how any part of the German power elite would benefit from this:
Business tycoons might be able to expand their markets a little quicker and at a smaller expense, but still, unless you’re intent on abusing the Cantillon effect to your advantage, what’s the use of a more inflationary currency regime? Even worse for nationally influential businessmen, the ECB is now even farther out of reach than the Bundesbank had been, so if anything, cronyism has become a much more competitive business.
National politicians have been hamstrung in their ability to implement countercyclical policies (see Maastricht treaty, limitations on deficit spending) and to grant national monopolies and cartels. As such, they have become less attractive to cronies and rent seekers.
Intellectuals are all upset about the Bologna process which has apparently rattled their nicely furnished ivory towers quite a bit. Though they still remain loyal to the idea of European integration, this loyalty has not yet paid off for many of them I believe.
My view may be tainted by my German nationality, but in my opinion, the EU has always been and still is a project fueled by the experiences of two world wars whose main purpose is to level power on the continent. Given the size and economic as well as political influence of Germany, it’s likely that a certain “enclosure” of Germany has always been an objective.
Additionally, if you look at trade balances, it’s Germany and Scandinavia that pull the cart for the rest of Europe in terms of monetary stability. I don’t see how any nation with this background would stand to benefit from this EU construct.
Don’t get me started on this one. The potholes in my Bavarian roads are getting large enough to drill for oil while the historical centers of many Eastern cities look more refined than they probably did when they were first built.
The population of Germany is 82 million. The population of France is 65 million. Germany is simply not as big of a factor anymore, to warrant a project of this size for the purpose of checking its power.
I dont think it will happen, the germans wont let it happen, but in the case it happens, I think the greek goverment could implement a day or a week bank holiday, and then change all the bank accounts from euros to gree-euros and they can claim is a “temporal” messure (temporal like Nixon breaking the dollar-gold system). When the greeks go to the bank now they get this “temporal” greek-euros, and the law is changed for this greek-euros to be legal tender, and you get the media and tv to push the goverment agenda and promote the new greek-euros, etc… I think people in general would buy it. There would be some problems obviously, but it could be done.
The problem is that the new greek-euro would devaluate very quickly since now investors would know that now the Greek goverment is alone trying to pay the debt. It would be suicidal. It would be a Argentinian style crisis. That is why I think the greek goverment will accept anything the germans say they have to do to stay in the union, and the germans goverment will help them out and pay the cost as long as they obey, because they too want the union to remain together.
I take the Hoppean system as a reference when speaking of the EU. States are inherently bankrupt for, as Mises put it, everything they do not only fails to address the perceived problem that was set as the measure’s original goal, but also creates new, real, problems. More measures are required to address these, and so on. If we see that every such measure has a given cost, it becomes easy to see that, given time, every State marches towards bankruptcy, always.
Now Hoppe holds that the only way a State can postpone the day it has to close shop, is to expand it territory, bringing more men and capital under its aegis. As long as expansion happens, the State survives.
Now, the glorious ’50 and ’60 are gone for , and . All the capital base created back than is, by now, nearly extinguished. Foreseeing this day, a bunch of guys came to a very necessary understanding in the late ’50: no European state was big enough to command the other, hence military expansion would be impossible. Only a concerted expansion could save the Big Three from bankruptcy in the future. Thus, the EU was born. By agreeing to form an aggressively expanding Superstate, in which those better off subsidize those worse off, the elites of these countries could keep the good money coming. So, up to the ’80 it was who subsidized the (the ’s need to be subsidized was the main reason that had to postpone its entrance into the EU: back than it was a winning team), while from 2005 onward, Eastern Europe is subsidizing southern . The just slided back into financial breakup, after the short respite offered by Thatcher. The only Western European country still contributing appear to be and . When these too will face bankruptcy, in the not-so-distant future, and when the meager stock of Easter capital will have been extinguished too, the EU will have but two choices: expand anew, or break up, just like former Yugoslavia did.
So will be taken in, and will provide capital for a decade to more. If the can too be pulled in, yet an other decade of existence will be assured to the EU. After that, if declines membership, it shall be war.
Sure, it shan’t happen. I was just enquiring whether it possibly can, form an economic point of view.
I fully agree with your scenario, with a minor difference: it would be far easier in practice. already mints its own euros, which are recognizable form other euro coins and notes. Thus, it would be easy to break formal ties with the ECB and start managing the supply of these coins independently. No big fuss would come about, aucontraire, the typical Greek nationalism would be well served and the government’s popularity would fly. See, we’ve found a single case in which going libertarian would actually increase the popularity of a government.
The problem with using greek-minted ECB euros is that they are hard to differentiate from normal euros. I have in my wallet german and french coins (I live in Spain) and have had other nations euros. You dont even realize they were minted in other nation if you dont check. And with the notes is even harder. I dont think that would work. You would need something more practical, something you can diferentiate easily on your day payments. In the hypothetical case that would happen (and again I think their intention is to avoid it) the greek goverment would need to mint and print a new currency.