Wednesday, December 19, 2012

Why the Euro must fail

First off, I agree that Euro could be saved by the full package of measures suggested by Jamie Galbraith (see previous post).  I think Krugman has specified similar measures, but they sound insufficiently radical.  This has to be full throated, or it's just duct tape.

But the plain fact is, that kind of full integration isn't happening.  I strongly believe it can't happen, and won't happen because it is politically impossible.  It will be politically impossible until Europeans see themselves as Europeans first, and not as Germans, French, Italians, etc.  I live in Texas, but I consider myself an American more than a Texan, or even Californian (where I was born and lived a mostly happy 36 years).  I believe most Americans feel this way.  But in Europe, once the 2008 crisis set in, the international finger pointing began.  Those xxxx Greeks!  and so on.  Finger pointing in the USA was less directed at states than pan-state groups, though bogus claims were made by regressives that some states, such as Texas, had been spared.  The obvious inacuracy of those claims didn't help those making them.

Technically, the Eurozone is not an Optimal Currency Area as defined by Peter Kenen.  I haven't read Peter Kenen yet but I'll take Paul Krugman's word on this.

Third, as Jamie Galbraith says, the Eurozone institutions were established in a form that could have been (he says it was) based on economic ideas from the University of Chicago.  Home of vulture economics, toxic gas.  It establishes a single mandate...currency stabilization.  So what happens when, largely as a result of neoliberal policies of the ECB and leading member nations, mass unemployment sets in?

Fourth, the Euro is basically a predatory lending scheme.  Money was lent from highly productive countries to less productive countries.  But not so much to industrialize those countries (after all that could allow them to become competitors).  More to fuel real estate speculation, excess consumption (mainly of goods from those highly productive countries), tax deferral.  I blame the lenders--who should have known better.  Like bankers in the USA, they chose the quick buck.  They should have known it would come back to bite.

Fifth, the Euro is a neoliberal wedge to destroy European welfare state policies, and ultimately welfare state policies around the globe.  That is why I would like to dance on it's grave.   This is not hypothetical, austerity policies were the first and still the primary effective response.  The existence of the Euro creates multiple prisoner's dilemmas with regards to welfare state institutions.

Sixth, I suspect it was not only intended to destroy European welfare state policies, it was an attempt to subvert one of the key humanizing aspects of Capitalism--sticky wages.  It is precisely wage deflation that is being forced on debtor countries.  It's never worked before, and I strongly believe it won't, but all the same it could, and the result would be driving all wages to below subsistence--globally!  It would be far better to have wage inflation in Germany.  I can't imagine Germans ever accepting such an idea, in spite of the fact that such a change would allow Germans to enjoy more of the ammenities of their neighbors.

Seventh, as things stand now, it looks like a suicide pact.  Now I can well imagine the response...why am I blaming the Euro, the Euro is fine, good, excellent, the problem is thost XXXX Greeks, etc.  OK, fail, go back to #1 above.

Now you might ask, as an American, don't you just want to see the Euro fail, instead of your own corrupt currency?  Not exactly.  I'd much rather see a relatively weak US dollar, and strong foreign currencies, as that would stem the disinvestment that has been happening in the USA since Reagan.  A strong dollar isn't good for me, though it might be good to some vulture capitalists in Wall Street.  But my interests have little overlap with theirs, and I'd rather see them fail because vulture capitalism continues destroying the world.  Along these same lines, I would love to see a strong German Mark.  I have enjoyed competitively priced German products in the past, but what's more important in the big picture is more domestic investment and job creation.  Germany enjoys a huge advantage from a comparatively weak currency.

Ultimately, a currency is not a technical matter.  It's a system of trust.  In the current world, that level of trust vanishes once you go beyond national borders.  Except with regards to Masters of the Universe, who don't live on earth anyway.

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