
Why the Euro will ultimately fail - mixmax
http://www.maximise.dk/why-the-euro-will-ultimately-fail/
======
nnain
For a decade until 2008-09, large majority of the economists weren't able to
predict how this is going to bite. The southern states were having a ball as
they carelessly kept increasing the labour charges and enjoyed a comparatively
higher valuation at the cost of nations that have a more professional
workforce. I get eerie whenever a country's mood and economy is suddenly
booming for no seeming important reason other than the play on financial
instruments.

Anyway, back to the point. Spain, Italy have a lot of fine craftsmen -
remember Zara, Ferrari and Lamborghini! But the Northerners are pretty
professional at their work - BMW, Volvo, Nokia! It will take long for the
mindset in the southern states to change from casual to the one of
performance.

As the pressure mounts, a lot of young people will start to gravitate towards
greener pastures in other countries - it's easy for people from member states
to move to a new country, thus depriving these countries of young workers.
It'll turn out to be a pretty painful situation them, a brain/workforce drain,
which is the last thing they want right now.

The EU and Euro currency brings both good and bad. The good that I see is the
easy exchange of money, travel and work options. The bad is that European
people aren't a single stock, they don't like to be compared to each other, or
to be put on similar benchmarks. It was smart move by Switzerland and UK to
stay out of the Euro currency. The common currency puts a pressure on everyone
to be equal. And that, is not going to happen. This will be a challenge EU
will face for a very long time to come, and maybe there's no good answer.

~~~
mixmax
_a lot of young people will start to gravitate towards greener pastures_

This is already happening. The coffee shops, kiosks and warehouses in Denmark
where I'm from are packed with economical refugees from Southern Europe.

The sad part is that the ones that leave are probably the most driven ones,
and thus the ones the southern countries need in the future.

~~~
cylinder
Well if the whole thing is a union, what does it matter? Americans don't
stress about the smartest Floridians heading to New York for work.

And there's the problem... you're either a union or you're not. Can't pick and
choose which elements of union and sovereignty you want.

~~~
dageshi
Any further EU integration, of the kind necessary to make it a functioning
union will likely require referendums in many countries. More than that it
will realistically signify the death knell of what was traditionally the
nation states of europe. The public mood is not there for those to pass in
many countries

~~~
cbd1984
> The public mood is not there for those to pass in many countries

It will be once the next European war is over.

America wasn't as unified as it is now until after the Civil War and the
subsequent passage of Constitutional amendments to fully and finally not only
abolish slavery, but to make sure freed blacks would be full citizens, despite
what the states formerly in a state of rebellion thought about it.

------
pvaldes
And then the Spaniard carpenter go out wearing some extra furs and chase some
dinosaurs for dinner, END.

> Because the Spanish workers _aren’t as good as the German_ at optimising
> chair-making

> This is not necessarily because _the spanish workers are lazy_

Oh, thanks, thanks. You are so kind... Except that the spanish workers are not
lazy at all (you can find _some_ lazy workers here, and in Germany of course)
this is what the troika and little friends want you to think for fun and
scamfit. They had called us even the PIGS countries... Portugal Greece, Spain,
Italy... ready for sacrifice, "they merit this, they are lazy, stupid, living
la vida loca with our money"...

> There’s just one problem. Those damned voters

Yeah, the bastards that we had looted are soo unpredictable that now they
don't want to vote us again... this is what they call it democracy I think,
stupid democracy...

This article is just propaganda repeating the same dated ideas. Spanish
workers can buy the machines they need and the materials they need. We don't
live in the XIII siecle. And just for the record, spreading the picture of a
spanish (or greek) carpenter sitting under a fig tree working exclusively on
"olive wood" is so silly that can not be casual.

~~~
vannevar
I would agree that the characterization is insulting. But the real point is
that once a disparity appears, _regardless of the cause_ , it becomes a
vicious cycle. And in a dynamic multilateral economy, disparities are
virtually guaranteed. Any economic system that relies on relative parity in
the participants _must_ have a compensatory mechanism (ie, wealth
redistribution) to maintain that parity in the face of the systematic tendency
for wealth to flow from the poor to the rich. This is as true for the Eurozone
as it is for the NFL here in the States.

~~~
pvaldes
> once a disparity appears, regardless of the cause, it becomes a vicious
> cycle

And that nobody is saying is that austerity measures wrong-by-design, corrupt
politics generously feeded and sponsored by "Europe", and national central
banks and organisms deliberately not doing the surveillance job what
supossedly we had payed them for, are the cause, or at least responsible for a
lot of this situation.

And there is also the full speed "burn as many environmental resources and
biodiversity as you can" situation in order to be able to pay high fake
interests also. Economists are blind. His "I will not spend any money for
erradicating those zebra critter mussels in Spain in 2001 (when we could have
done this) because the economy..." is currently a mortage of >40 millions of
euro/each year for the next generation of europeans. All that they say is that
"economy is recovering". Those people should be fired. Right now! Before they
can be able to do more damage.

German banks lend lots of money to help some especulators and delinquents
continue destroying the coasts and nature of southern Europe, when the
pyramidal system crash eventually Greeks and Spaniards workers, that weren't
even in the bussiness, are forced to pay the disaster created, for an
esotheric reason.

------
lyschoening
The author makes variation in competitiveness out to be a bigger problem than
it actually is. Even if one nation is always less competitive than the other
(and I am not sure that Spain and Germany would be a good example here), this
doesn't have to end up in a situation where one nation can produce a product
for less and less and the other nation stagnates indefinitely.

> It’s pretty obvious that Merkel, or maybe her voters, aren’t European enough
> to accept the fact that Greece will never be able to repay it’s debt, no
> matter how much they cut their spending.

Most German voters are very capable of accepting this. They think reforms are
necessary to prevent the problem from reoccurring, but they don't oppose a
haircut per se.

> Far-outish-upon-Grandalf with 1000 inhabitants and a closed factory in the
> North of England just isn’t a good business for England. But the government
> still pays for social services, public pensions, roads and schools because
> the British voters accept that even though far-outish-upon-Grandalf is
> pretty screwed up, they are after all British and you can’t just throw the
> poor bastards out of the Commonwealth.

> Carolina is a piss-poor state that needs handouts from the federal
> government year after year. Last year South Carolina spent $2.34 for every
> $1 they collected in taxes. Courtesy of the federal government.

EU nations aren't like states in the US. It will be great if some time they
become states in a union, but that time is not now. While they're still
independent, though, each nation remains able to plan their budget and
expenses independently. Sure, there is not much freedom to adjust the currency
-- but each nation still has plenty of other tools available to make sure the
deficit remains controllable.

I disagree with the notion that the Euro has to fail just because EU nations
are not all the exactly the same. I see this crisis as a point where people
finally start paying attention to their neighbors in the fiscal union around
the Euro, and that should make future crises much less likely and should make
the EU more resilient as a whole.

------
touristtam
Pretty spot on. And the "2-speed" union has been in the talks quite a few
times in the past decade. I don't think we need more nationalism at the
European level to strengthen the public opinion of the need for further
integration.

It just seems that the news outlet have not moved out of the national border
and are indirectly responsible for this feeling of being a national from the
country before being European. That being said, a lot of people in the younger
generation seems to feel European t least on an equal part with the feeling of
being a national citizen from their country.

------
isthisforme
There's another much simpler option: Greece can go bankrupt, default on it's
loans, and start over without the burden of unrealistic debt keeping them in
poverty. It can remain in the Euro and everyone can move forward more -
perhaps with more prudent lending standards.

Yes, some investors will lose that money. They were happy cashing their
cheques when things were going well. Investing is a business with a risk of
loss.

~~~
ZenoArrow
Forgive me for being blunt, but I get the impression that you knew what
comment you'd make before you read the article.

The article suggests the problem is systemic. Even if Greece goes bankrupt but
stays in the Euro, the core issues have not been solved and the situation will
arise again. In a race between efficiency and diversity, the Euro is
systematically predisposed towards efficiency (which reduces the scope for
diversity), and the economic controls that have historically protected
diversity have been removed, therefore either diversity is lost (member
nations lose control of their fiscal policy) or the Euro is abandoned.

That is what the article suggests. What is your response to that?

~~~
isthisforme
I think it's a mistake to assume that fiscal policy and monetary policy need
to be linked.

The United States (although the federal government has expanded to a level I
hope does not happen in Europe) provides an example. There are many state
governments which have a dire financial situation. No one suggests the
abandonment of the US dollar over it - it's understood that it's possible to
have one group managing fiscal policy with a different group managing monetary
policy.

I think the same applies to Europe.

And I actually _do_ think that bankruptcy would solve core issues: a clean
slate would allow things to be built a new in a more sustainable way.

It's my understanding that bankruptcy did wonders for New Zealand. It's not a
wonderful option, but sometimes it's all that is left. And it's the only way
capitalism works.

------
kaonashi
This was predicted at the onset of the EMU in this piece:
[http://www.lrb.co.uk/v14/n19/wynne-godley/maastricht-and-
all...](http://www.lrb.co.uk/v14/n19/wynne-godley/maastricht-and-all-that)

------
SixSigma
> They aren’t really Europeans, and there is no way German, Finnish or Belgian
> voters will accept yearly handouts counted in billions of euro to Spain,
> Portugal and Greece. Even as a Brit I feel the pain of my European partners.
> We have paid a shedload of cash into Europe to be disbursed before the Euro.

I don't disagree that some of the levers of monetary policy are removed by the
common currency. If the German chairmakers were so good, would you devalue
until the exchange rate was 0dm for 1ps?

------
bsaul
I'm not familiar with the study mentionned, but i don't understand why, in
theory, the southern states couldn't lower salaries to have productivity gains
( since pay raises have been the major reason for the loss in the first
place).

~~~
the_why_of_y
In theory, that would work and solve the problem. In practice, downward
nominal wage rigidity is a thing.

[http://mainlymacro.blogspot.co.uk/2013/10/nominal-wage-
rigid...](http://mainlymacro.blogspot.co.uk/2013/10/nominal-wage-rigidity-in-
macro-example.html)

(note especially the ludicrous 27% "natural rate" of unemployment for Spain
predicted by standard economic models cited there)

Ordinarily the problem would be solved by de-valuing the currency against the
more competitive economies' currencies, but with the Euro that's not possible.

So the best way in practice would be for the more competitive economies to
incur some inflation, say 5%, for several of years so that the less
competitive ones can stay at <1% and restore competitiveness that way.

Unfortunately this is politically impossible in the Euro zone today, hence we
have 25% unemployment in southern countries.

~~~
bsaul
i just realized another big difference between the traditional
devaluation/inflation solution and the wage reduction :

In the first case, savings and capital in general are affected as well,
whereas in the second only workers are.

So i guess wage reduction would restore competitivity but would also increase
the inequality in the country dramaticaly (unless you dramaticaly increase the
taxes on higher revenues and on savings as well).

Another thing is that if a country changes its currency to be able to
devaluate, you can be pretty sure that all the savings will immediately leave
the country's bank and convert to stronger currencies.

I guess every solution is a bad one.

------
vas_k
There is so much hyprocrisy in this article as well as in the comments who try
to analyze the situation. Just by searching Google, you could find that labor
costs in most Northern countries is much higher than in South:

Hourly Wages in Europe [http://ec.europa.eu/eurostat/statistics-
explained/index.php/...](http://ec.europa.eu/eurostat/statistics-
explained/index.php/File:Hourly_labour_costs,_2013_%281%29_%28EUR%29_YB14_II.png)

Euro, was created as a means to loot other countries of their resources and
their sovereignty. Period.

~~~
vas_k
Paul Graig Roberts exlains what is going to happen to Lithuania who joined the
Euro: [http://www.paulcraigroberts.org/2015/02/10/lithuania-
media-i...](http://www.paulcraigroberts.org/2015/02/10/lithuania-media-
interview-pcr/)

"...by accepting the euro, your government accepted a loss of sovereignty. You
cannot be a sovereign state if you don’t have your own money. If you don’t
have your own money, you can’t finance your own government. So this is all the
trouble that we see in Greece, in Spain, Portugal, Ireland, Italy. These are
governments that are not sovereign, because they don’t have their own money
and therefore they cannot finance themselves, they have to rely on foreign
private banks to finance them and their creditors are more powerful than the
governments and so when the countries have difficulty paying, the creditors
may impose austerity on them and loot the countries; Greece is being looted.
How do you loot a country? You tell them their pensions have to be cut, their
employment has to be cut, social services have to be cut, so that there’s
money to pay the banks...."

