Would the best solution with the current crisis in Europe just be to kick the PIGS( Portugal, Ireland, Greece, Spain) out of the EU altogether? I’m aware that there are many more problems surrounding the European Union as well, but would this be a legitimate start in the right direction?
Gerally speaking though, outside of my question, I think the Euro will turn out to be a failed experiment in the end.
There are contingency plans that are in this general area (drafts for plans on how to cope with secession from the union, et cetera). A short term solution would be forcing PIGS to start opting for a different currency (their former currencies), although I think the process to convert would take far too long and the crisis of interventionism is fast coming.
All things considered, the best solution is to radically scale back the size of government. In Greece, even suggestions of this have sparked protests. The public sector has become too large to cope with itself, apparently. But, this is a very improbable option, given that it is not very popular (large public sector, united with the left-wing which see government spending as sustainable).
In any case, I think sovereign bailouts are the worst idea. It has been tried countless times before, and countless times before it has ended in a crisis of interventionism.
All fiat currencies inevitably fail. The Euro was the “ultimate” fiat currency, which is why it will probably fail the fastest.
EDIT: One thing left unconsidered is the psychological impact any event in PIGS will have with investors in the remainder of the Eurozone.
I think it would be great if the PIGS got kicked out. But this is mostly because of the consequences and the message it would send around the world. Mainly, that a one-region statist currency is doomed to failure.
The best thing for the EU? That is easy. Germany should leave. The German citizenry is clearly paying for the bloated governments of these other countries. If the media reports are true, then the German economy is in the best shape of all the larger nations in the EU. (There are still Germans alive who experienced the Weimar Republic and the evils of fiat currency.) I would hope that Germany would then allow citizens to issue their own currencies and not re-adopt the Mark, or at least re-adopt the Mark by establishing a rate of exchange of Marks for gold.
The EU is not good for Europe. The EU is just a regulation generating machine that is replacing the relationships between nations with a command and control bureaucracy that rivals that of the USA.
As for what to do with the PIGS: That is also easy. Nothing. If they can not exist in the EU without bailouts then maybe it is time to allow them to leave. The same holds true in the USA for California. Fat chance of that happening.
I believe that it will never happen that Germany leaves the EU and reintroduces a gold-standard, let alone allowing people to issue their own money. The political climate around here is pretty socialist at this time, the only more or less liberal party (FDP) got only 8% in latest polls.
That would be me and I stand by my assertion. The euro and its ancillaries like the Maastricht Treaty were designed from scratch to help out the German economy. EU funds were envisioned as gifts for second rate countries to somewhat sweeten the pill: all in all Germany gets the much better deal. Bribing is often much more effective and cheaper than conventional diplomacy.
Germany, despite its large contributions to the EU, is by far the EU country in best shape (leaving Luxembourg aside). Taxation is lower than in Italy and France, the percentage of economy depending on government spending is lower than in most other EU countries (and mostly concentrated in the former DDR), they haven’t destroyed their manufacturing base and social tensions are still very limited.
So why the other countries aren’t all marching on Berlin to get things straight? France is the largest recipient of EU funds and is more or less left alone in internal matters and foreign affairs. Normally the EU would thunder over such a large State involvement in the economy as you see in France but they just turn the other way around. In short they struck a deal with Germany and they are happy with it. Italy may be one of the largest Continental economies but it’s politically irrelevant, a giant Belgium in short. Britain has been in state of decadence for decades. It may boast an impressive military and a nuclear arsenal but it lacks political and economical muscle. Also her recent leaders are seen in Berlin as not very trustworthy (which says all). The others have to march to the tune set in Berlin: imagine the Napoleon’s German “allies” and you get a good picture.I always say that the EU is the third German attempt at European supremacy, only this time they are using treaties and money instead of regiments and cannons. But like previous times there are complications.
The present economic crisis may well be similar to the Miracle of the Marne or the Battle of Britain in being an unforeseen and seemingly insignificant event throwing a wrench in an impressive and seemingly unstoppable war machine. The machine may still roll but it’s not the same as before. Keep a close eye on the ECB in the next five years to see where the machine is heading. around here nothing happens quickly. The Spanish crisis has people so worried precisely because it happened “all of a sudden” and is precipitating quickly.
Then what are the options? The most sensible would be turning the EU into what it was originally meant to be, a zollverein (custom union), and slowly dismantle the euro. One currency for Club Med countries and one for Germany, Belgium and the Netherlands with France stuck in the middle but probably going the Club Med way. Even Milton Friedman has always seen the euro as “doomed from inception”. This option would be unacceptable to the German industry since it would lose the instruments to keep the Southern rivals (mainly Lombardy) at bay and euro bureaucrats standing to lose their cushy jobs but it would be much welcome by pretty much everybody else, including the average German voter who has always seen the euro with suspicion, though he also benefited from it. The fact that Germany refused to bailout Greece may be a good sign, though Greece is nothing compared to what is brewing in Spain.
don’t forget this story
They won’t be kicked out.
Seems pretty simple to me.
Bailout, with string attached (conceding more power to the EU from the implicated nation states). Just tell the public that it’s the fault of capitalism and more centralized regulation is needed.
There are no solutions to the EU’s crisis that are simple enough for politicians to embrace. The only solutions are hard solutions, and that means that hardest one will be applied by nature, not by concerted action.
Expect Argentina on the Aegean.
I am well aware of this issue, but I am also well aware that ever since 1948 there has been a unwritten pact between the German voters and their politicians: there won’t be another Weimar, no matter what. This means politicians have to be very careful when using inflation. The first round of euro inflation (which I can assure you came as a shock to us all) cost Gerhard Schroeder and his left-leaning government the 2005 election even if the effects in Germany were mild when compared to other countries. The average German voter is surprisingly well informed, doesn’t make a fuss about his issues but when he kicks you out of Bundestag it means you are out for good. Stability is paramount and there can be no stability in an inflationary background. That’s why I am saying Germany won’t bail out Greece: the second round of euro inflation is starting to be felt already and the landscape isn’t pretty.
I’ve enjoyed your posts in this thread and in that other thread on this topic.
Do you see a conflict of interest arising between Germany and the ECB? As the ECB sustains it’s previous management with Greece (and other countries?) whereas, as you noted in the “first round of euro inflation”, Germany will increasing take economic hits that will only weaken it’s own economy while the ECB maintains it’s current inflationary stance with these other weaker Euro nation-states. If the German public is this much dead-set against inflationary tactics then not only will the PIGS change ECB (or even EU) policies but Germany would have to as well it would seem to save itself. What do you think?
It seems like those who lived during Weimar are long gone, and those who remember WWII are disappearing rapidly. Don’t younger voters, now anyone under age 60, behave like Americans or anyone else who does not understand the effect of a central bank? In other words, do German voters truly understand and fear price inflation? If so, where do they learn this, in government schools? (I’m curious about this, because it is so unlike anything seen in any other country.)
Of all the countries in Europe, I think Germany is the only one that didn’t have a real estate bubble.
Speaking from experience (as a Greek and having visited Greece most recently), I think Greece would benefit (hopefully) if they were kicked out from the Monetary Union. The public sector is so bloated, yet the people inside aren’t willing to budge. Greece will not learn it’s lesson (bailout) from this. We will not see any substantial changes here. I’m sure your most of you on this forum share the same views as well. But, for me it’s slightly dissapointing in a sense. Because at the end of the day, I feel as if the majority of Greeks will not see the problem here: Government. Most of them never have and never will bring themselves to criticize the role of the Greek government. Very few have that I know of have actually gone this length (Don’t expect much from their youth either, they bear the authentic stamp of “Proud Product of Greek Public Education System”).
They will when it collapses and defaults on all of its obligations.
Fear of inflation is something built in the country’s political DNA. Pretty much like militarism in the US or hairy chested nationalism in Russia it’s a political constant. This is not as to say that German governments have refrained from inflation (far from it): they’ve just had to be more cautious than others when inflating their currency or risk defeat.
On real estate bubble. Most of the Spanish building frenzy was targeted at the “export market”, meaning buyers from Germany, Sweden, Great Britain, the Netherlands etc looking for a vacation/retirement house. When you compare the bubble to the size of the economy and population it makes the US and Irish bubbles look like small fries. Small towns and villages literally doubled in size over the past ten years; huge realtors specializing in the foreign market appeared overnight. But this isn’t the worst part: local councils set their future spending rates according to projected incomes. Foreigners and non residents pay much higher property taxes than residents. This means small town and village councils started spending like drunken sailors well before the houses were sold or even built. Now the houses are sitting there, building companies and realtors are going belly up one after another and the planned income is failing to materialize. The Zapatero Government responded like governments always do, by panicking and raising taxes, particularly succession taxes on property held by foreigners in Spain. Imagine how many more foreign buyers this decision will bring in! I am personally convinced that Greece is nothing compared to what’s brewing in Spain. The ECB and the EU agree unemployment in Spain will grow to 25% by the end of 2010, with unemployment among youths (18-35) reaching an unbelievable 50% (figures are 20% and 44% respectively already): mind these are official figures. How do you restart an economy in this shape without radical reforms, something nobody in Europe really wants?
Because my friends, that’s the big problem with Europe. Politicians and economists know very well we need reforms. We need to roll back legislation, particularly regarding labor, and radically cut welfare. But how do you sell that to the average voter who’s come to expect everything from the State? My generation will be allowed to go into retirement at 65, but many of us won’t be able anyway because so many were unable to find a regular job until their late 20’s-early '30s. Today’s youths will probably have to work until the end of their days, provided they can find at least one steady job in their life.
Kakugo, you know what’s funny? One of my Political Scnience teachers (who is is infatuated with Europe and deverything about the continent) said yesterday, it would be almost illogical if not crazy to suggest scaling back the welfare state. She basically went on to say that every voter is particularly happy and comfortable with the welfare state and no one wants to see it reduced. She then told me to stop getting my views from FOX news (which I haven’t even flipped that channel in over 3 months). I have absolutely no problem with Europe or Europeans themselves. What I do have a problem is with all the intervention occuring and very few people moving to question the necessity of all this. But then again, considering I am posting from a welfare-warfare state really makes the situation over here no different in the end.
It is really sad to not see more Americans/ Europeans alarmed over all this. Instead the people that actually question this are called “paranoid” and whatever other pejoratives exist in the book.
(Also by the way, I now genuinely hate FOX news, so it irked me even more when she said this)
Enthusiast, it’s not a matter of being “crazy” or “illogical”. It’s a simple matter of being able to afford something. Every single politician will agree with you that welfare costs are only bound to grow over time even if the benefit levels stay the same. That’s one of the reasons every single State around the world is so obsessed with nominal GDP growth. Right now even mainstream economists are grudgingly starting to agree with Professor Huerta de Soto that the reasons behind the decades-long European stagnation are excessive regulation and taxation linked to the welfare State. Yet apart from Professor Huerta de Soto nobody has stepped forward with ideas. The prevalent mentality seems to be “the next generation will take care of this issue” so every single effort is directed at providing mostly ineffective short term fixes.
The big problem right now is that the “next generation” is here and is already footing the bill. Very few youths can find a steady job: most of them have to take short term jobs which have none of the warranties long term jobs have. This was done partly to supply the economy with cheap manpower and partly to solve the huge problem of unemployment among youths. Yet another short term fix: as soon as the economy slowed down another bit they were the first to be fired or to see their salaries slashed to below subsistence levels. These youths simply cannot save and most of them won’t be able to retire because they won’t meet the minimal contribution standards. Compare this with their overwarranted fathers who cannot be fired even in face of gross incompetence and are already retiring. That’s how welfare works: somebody in the end has to be left holding the bag.
There’s no easy answer for this issue. But a 1) strong European leader could gamble on the following plan: 2)get turkey into the union, within five years. Forget northern and give the middle finder. Sell the Turks nukes if you have to, just get them in. If there is capital round to prolong the existence of the EU is certainly is contained in and turkey alone.
Having acquired some time, 3) proceed to sell charters for private cities: rent away sovereignty on large pieces of land to developers and watch 15 or so Free Cities develop, paying only “rent” on the land owned by the EU. Such rents would come to supply the union with most of its funds.
That being done, 4) abolish legal tender laws, privatize the ECB (going back to national currencies is both praxeologicaly impossible and economically unwise).
With a little luck, the EU would live for a millennium in this fashion, and the thunder will be stolen from and indeed from us anarchists.