Image by Gadget Virtuoso via Flickr
There’s been an enormous amount of ink used on the ‘veto’ that David Cameron used in Europe last week, with warnings of dire consequences if the UK doesn’t help to support the Euro.
Frankly, I don’t understand this as the Euro has been doomed since introduction in January 1999. In fact, the 10th anniversary of the release of Euro banknotes and coins on 1st January, 2002, would be a great time to announce its departure as a central currency.
“Heresy” I hear being loudly cried… But the facts are simple – for a central currency to work, it needs central control, and Europe doesn’t have this. Sure, it has a hideously expensive, large, bureaucratic parliament that shuffles (at even more expense, thanks to French Government insistence) between Brussels and Strasbourg every month, but all this body does as far as I can – apart from ensure regal lifestyles for its members at taxpayer expense – is create complication in everyone’s life, and silly rules that have clearly not been thought through. What the Eurozone doesn’t have is central fiscal control. A United States of Europe, if you like, where the member countries have the status that individual states have in the USA.
Of course, the reason for this is simple – no member country’s politicians want to be answerable to a (central) higher authority. You can see this in the choice of the European President – a nice enough chap, apparently, but basically invisible, and certainly no “leader of Europe.”
Unlike the USA, Europe is not united in a common history/language/culture. It’s a very diverse set of countries and should remain as such – celebrating the differences, rather than trying to blend them into a murky sameness. It could never support a central government, and shouldn’t.
What it SHOULD be is a free-trade zone, as originally envisaged. The Euro should be simply a currency that exists to facilitate this free trade – similar to the ECU of pre-1999, but actually existing as a currency. Legal tender in all EU countries, it would operate alongside those countries’ own currencies, with a rate of exchange that floats against each, allowing that country to determine its own fiscal policy (as they all do to a large extent anyway – which is what caused the mess) and have the relative value of its currency determined accordingly. Like trade, loans could be made or sought in Euros or a country’s own currency, depending on the will of both parties to the transaction.
The dissolution of the current Euro would be simple – start with each country having its currency at par with the Euro, and let them float from that point. Market forces would soon determine the real value of each currency.
As a considerable side benefit, this would also facilitate the dissolution of the European Parliament saving us all a great deal of money and aggravation.
There would be no need to try to prop up a fatally flawed system and countries could celebrate their individuality while sharing in what should arguably be the biggest and wealthiest free trade zone in the world. This would also mean an acceleration of growth at country level.
Given the Euro cannot survive unless all in the Eurozone abrogate power to the centre – which I can’t ever see happening – isn’t it best to ackowledge the role the Euro should play and move to individual currencies; the sooner the better?
Agree with you Guy. Know for a fact that the Euro was flawed from the beginning and what has now happened was inevitable. It will not survive since European countries are not interested in a federal Europe.
Thanks Catarina, and getting rid of the wasteful European Parliament (its internal financial controls are a joke!) would save Billions a year.
The Euro is a fine textbook example of how to work the Bait-And-Switch. When the Euro was first introduced, it was rumored to be 15% backed by gold. That was enough to get people on board with it. So much for rumors. It turns out that it’s just another fiat currency. People play the debt game as hard as they can go, but in the end, it’s still just borrowed debt.
http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/
Thanks, George. It really is scary to see just how cavalier politicians are with our money! Your blog on the US is truly frightening, too…
When will people understand the no government has money, and that what they do is take money from one section and give it to others, having skimmed a huge percentage for themselves?
“The dissolution of the current Euro would be simple – start with each country having its currency at par with the Euro, and let them float from that point. Market forces would soon determine the real value of each currency.”
The moment it was announced, in those countries likely to do less well, this would cause a catastrophic bank run as people seek to get their money out while it’s still worth something. Fractional reserve banking can’t deal with that, so the result will be a collapse and even bigger bank bailouts, and probably also a huge wipe-out of savings, investments and credit.
Simple?
Thanks for reading the post and your comments, Nick.
I believe such a transition could be managed fairly simply by retaining the Euro as legal tender in all countries, and allowing account holders to hold both Euro and local-currency accounts. Initially, most people – particularly those with potentially weaker currencies – would hold their money in Euros. However, they would start to earn in their local currency and we’d see a transition. They could, of course, move their money from local currency to Euros whenever they wished (as one can do today if you have bank accounts in more than one currency), but this would settle down over time as people got used to their own currencies.
As for fall-out: that’s pretty well inevitable in the Eurozone, whatever happens. I also think the US banking system is teetering and once the Euro problems are perceived to have been resolved, attention will turn to the Dollar and the inability of the US Government to address the deficit.
– for a central currency to work, it needs central control, and Europe doesn’t have this.- so many European countries have fought for independence to have one power reeling them in. Don’t really think this will work. I feel that it will only cause chaos in the end.
I agree, Alex – can’t see the various countries in Europe relinquishing control. Really don’t see a long-term future for the Euro as a sovereign currency: think the only way for it to survive is as a trading currency, with the Eurozone countries reverting to national currencies…