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The Business: Euro Zone ' Heading For Collapse Without Political Union'.

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'Euro zone 'heading for collapse without political union'':

http://www.thebusinessonline.co.uk/Stories...85-CDADD4F8BB41

The euro zone is heading for inevitable collapse because it cannot function without full political union, a senior economic adviser to the European Commission has warned.

Paul De Grauwe, a leading economist whose work was used to make the case for European monetary union in the 1990s, says the signs point to a slow death for the euro project over as long as two decades.

He has said the only future for Europe is to have a free trade zone -- but he has questioned whether the European Union (EU) is needed now its member states have shown themselves hostile to further union.

De Grauwe has shown The Business unpublished research he has written laying out in detail what he regards as the intrinsic link between political union and the success of currency union.

The document, together with his comments last week in De Morgen, a Dutch newspaper, gives a bleak view of the euro zone's prospects of maintaining a single currency without unified taxes or economic structures.

His main observation is that inflation has not converged in the EU member states and that differences have been exacerbated over the years. But all are still under a 2% inflation target set by the European Central Bank.

Italy, Spain, Portugal and The Netherlands, he argues, are now powerless to restore their competitiveness "without introducing outright deflation, and large increases in unemployment" -- moves national governments are likely to avoid.

"A political union is the logical end-point of a currency union. If political union fails to materialise, then in the long term the euro area cannot continue to exist," he said in the interview.

"Now that nobody appears to want that political union, you can begin to wonder whether monetary union was such a good idea," he added. "Political unification has failed. But that is a big problem for the currency union. That is in danger."

The effects of this will take time, he said. "In the longer term, the monetary union will collapse ...not next year, but on a time frame of 10 or 20 years. There is not a single monetary union which survived without political union. They have all collapsed."

"Sometimes I wonder: do we still need the European Union? I start to have doubts about that. It is sufficient that countries open up their economy. You don't need to do that in the context of the European Union."

His comments will carry a powerful impact. De Grauwe's work was cited by the architects of the euro zone at a time when it was argued membership would bring cheaper prices, higher economic growth and more employment.

Since the euro zone countries locked their currencies in 1999, their average unemployment has been stuck at 9% and inflation rates across Europe remain disparate with no signs of convergence.

[...snip...]

De Grauwe's research paper concludes the euro project will flounder on a key flaw: that national politicians bear full political responsibility for unemployment, but that the tools to deal with it have been transferred to European institutions.

"This will continue to make the euro zone a fragile regime. In the long run, however, there can be little doubt: without further steps towards political union the euro zone has little chance of survival."

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'Overheating Spanish economy threatens euro zone':

http://www.thebusinessonline.co.uk/Stories...F0-6EF08D64FE44

Spain's current account deficit will this year overtake that of America as a percentage of GDP to become the world's largest, threatening to trigger an economic crisis, a report will warn on Monday.

Membership of the euro and its one-size-fits-all interest rates mean that Spain is undergoing an unsustainable consumer boom to be followed by a savage bust, the Centre for Economics and Business Research (CEBR) will predict. Spain has been one of the few success stories of western Europe in the past 20 years.

[...snip...]

Spain's deficit will reach 8.1% of GDP this year, well above America's 6.5% and the UK's 2.7%. Spain's vast balance of payments deficit is just one symptom of an overheated economy, the Centre for Economics and Business Research said. House prices surged by 120% between 1997 and 2005, construction output has been growing very strongly, and domestic demand has risen by 5.7 percentage points more than GDP since 2000.

Costs are also rising much faster than in the euro zone as a whole, with inflation at 3.9% in the year to March, against an average of 2.2% for the whole zone. The consequence of faster-rising costs in Spain is that it is steadily losing competitiveness against other euro-zone members such as Germany and France. Angus McCrone, author of the report and an economist at the Centre, said: "Since they are all locked into the same fixed exchange-rate regime, Spain has no chance to address a loss of competitiveness in the traditional way, by allowing its currency to fall. The recent Spanish economic performance is unsustainable."

Unless fiscal policy is tightened significantly, which is unlikely, Spain will succumb to the kind of boom-and-bust scenario that used to be associated with the UK, the Centre said.

The whole process may take two or three years to unfold, but the Spanish economy will become even less competitive against its euro area peers, leading to a loss of business confidence, a rise in unemployment, a sharp turn in the housing market and a rise in bad debts.

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The funny thing is, the Euro may succeed in killing the dollar just in time to collapse itself :).

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Guest Charlie The Tramp

'Euro zone 'heading for collapse without political union'':

The reason I have always believed the EU will return to the old Common Market. The people of the major players are now realising that political union will not work. The bigger it grows so does the corruption within an already corrupted organisation.

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The reason I have always believed the EU will return to the old Common Market. The people of the major players are now realising that political union will not work. The bigger it grows so does the corruption within an already corrupted organisation.

Yep

Maybe kept simple like easier trading without red tape could be both benificial and long lasting.

(And the French can subsidise themselves themselves) :)

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Is anyone surprised?

Many of the European Politicians, I believe, still want that total Political Union.

Remember the initial point of all this was to prevent further wars between European Nations. Well especially a certain two.

Trouble is those pesky populations that do the voting don't seem as enthusiastic.

It always seemed to me that, put simply, common currency would ultimately have to mean common wages, costs and taxes. That means a single Government and a "Europe of the Regions".

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Remember the initial point of all this was to prevent further wars between European Nations. Well especially a certain two.

Like Yugoslavia on a grander scale?

Unions, Wars or both?

That Union required a Dictator and a Police State, without those came war.

Now about a European President and various common surveillance systems and official documents.

Oops.

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Many of the European Politicians, I believe, still want that total Political Union.

Well, it was obvious from the start that the Euro was meant to be a precursor to a European government that eliminated national sovereignty. It was also obvious that the people of Europe had no desire for such a government.

Like Yugoslavia on a grander scale?

Exactly. The EU as planned would have replaced the possibility of international wars with the almost inevitability of civil war.

The future is communities far smaller than most current nation states, not far larger.

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He doesn't provide any evidence for these doomsday assertions.

His main observation is that inflation has not converged in the EU member states and that differences have been exacerbated over the years. But all are still under a 2% inflation target set by the European Central Bank.

Thats his main observation? Compared to the dollar, the euro is in great shape. Its strong, with a low interest rate (2.25%), low inflation and a strong trade surplus from the eurozone.

People on the continenent seem happy. Sure they've not enjoyed a credit binge and HPI like we have, but is that so terrible?

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Remember the initial point of all this was to prevent further wars between European Nations. Well especially a certain two.

Like Yugoslavia on a grander scale?

Like World War 1 ?

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Its strong, with a low interest rate (2.25%), low inflation and a strong trade surplus from the eurozone.

If you don't count Italy, Spain and Ireland, anyway.

The Euro is effectively the Deutschmark under a different name, except that the French, Irish, Spanish and Italians can print them too. It's increasingly becoming a way for the less responsible states to steal wealth from Germany.

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If you don't count Italy, Spain and Ireland, anyway.

The Euro is effectively the Deutschmark under a different name, except that the French, Irish, Spanish and Italians can print them too. It's increasingly becoming a way for the less responsible states to steal wealth from Germany.

Maybe so, but that was the original intention ("why can't we have a currency like the Deutschmark?"). The Germans don't mind anyway, they bail out the EU budget without compaints too.

The chances of the Euro failing are next to zero. It just won't be allowed to happen. If it came down to a choice, I'd say a full political union is more likely than a switch back to Francs, Lire, DMs.

Edited by tonification

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I'd say a full political union is more likely

That, if proposed with all the ramifications revealed, would see the emergence to greater prominence of many Nationalist Parties across Europe.

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If these economies diverge because europe has different poltical economies with divergent inflation, instead of the same political economy, with the same inflation rate, the euro will fall, because what backs a currency is the debt,bonds and obligations which the borrowers pay. As economies enter the bust phase, and try to get out of the euro, facing rising unemployment, to reflate thier economies, the reconciliation of the Euro Bond debt and making the member states pay it back, becomes a major problem..

Of course, I would not be surprised at massive immigration (Turkey/Africa) used in these economies to try to lower wages and restore competetivness in the worst way possible for its citizens. Spain already has 10% of its population composed of immigrants.

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He doesn't provide any evidence for these doomsday assertions.

His main observation is that inflation has not converged in the EU member states and that differences have been exacerbated over the years. But all are still under a 2% inflation target set by the European Central Bank.

Thats his main observation? Compared to the dollar, the euro is in great shape. Its strong, with a low interest rate (2.25%), low inflation and a strong trade surplus from the eurozone.

People on the continenent seem happy. Sure they've not enjoyed a credit binge and HPI like we have, but is that so terrible?

Would you mind taking your blinkers off please

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People on the continenent seem happy.

Not so in France, for sure. Or Germany. Or Italy. I don't think the Dutch or the Danes are that full of the joys of life either, despite having lower unemployment than the first moribund three (containing over 200m people between them).

Spain already has 10% of its population composed of immigrants.

Ultimately we're all immigrants. Unless, I suppose, you and your forebears have lived in east Africa for 3m years.

People like you make me wish I was going to be an emigrant again soon.

Edited by BoredTrainBuilder

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If these economies diverge because europe has different poltical economies with divergent inflation, instead of the same political economy, with the same inflation rate, the euro will fall, because what backs a currency is the debt,bonds and obligations which the borrowers pay. As economies enter the bust phase, and try to get out of the euro, facing rising unemployment, to reflate thier economies, the reconciliation of the Euro Bond debt and making the member states pay it back, becomes a major problem..

Of course, I would not be surprised at massive immigration (Turkey/Africa) used in these economies to try to lower wages and restore competetivness in the worst way possible for its citizens. Spain already has 10% of its population composed of immigrants.

Insightful post

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Not so in France, for sure. Or Germany. Or Italy. I don't think the Dutch or the Danes are that full of the joys of life either, despite having lower unemployment than the first moribund three (containing over 200m people between them).

Ultimately we're all immigrants. Unless, I suppose, you and your forebears have lived in east Africa for 3m years.

People like you make me wish I was going to be an emigrant again soon.

And people like you believe in a houseprice crash, with the most massive immigration in this islands history! :lol: Strastopheric Houseprices and a crashing birthrate obviously mean more immigration is needed...

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The chances of the Euro failing are next to zero. It just won't be allowed to happen.

IMHO, at a minimum, Italy will be out of the Euro within five years. More likely the Euro-zone will be down to France and Germany and maybe a couple of the small hangers-on who can't screw it up too badly.

The Euro simply makes no sense without a pan-European government, and attempting to eliminate national governments would lead to a civil war.

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The EU will come under more and more pressure. It will implode slowly, maybe not over as long as period as 10 to 20 years but possibly as soon as 5 to 10 years. There are other political issues that each member state must grapple with, but when the tide turns it will be quicker than expected IMHO.

I believe this could coincide with the end of the next recession where protectionism (already rife in many member states) will spread

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Guest horace

[quote

The chances of the Euro failing are next to zero. It just won't be allowed to happen.

I seem to recall `It just won't be allowed to happen` has often been trotted out by numerous posters to this website in relation to a HPC. It would appear that this cliche now has an international dimension but this time in relation to the Euro. I wonder if the Euro and a HPC are related?

h. :o

Edited by horace

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  • 335 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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