E C B's Chief Economist Warns That Euro's Basis Is Unsound

[Realistbear]

http://www.telegraph.co.uk/money/main.jhtm.../31/ixcity.html

Outgoing euro chief warns of 'tensions'

By Ambrose Evans-Pritchard (Filed: 31/05/2006)

Otmar Issing, Europe's high priest of monetary orthodoxy, has confessed that the

euro was launched on flawed foundations and is now threatened by "big tensions" between north and south.

In a parting shot before stepping down today as the European Central Bank's chief economist, and dominant force, Dr Issing said the stark differences in wage inflation across the

eurozone were storing up future trouble

.

"The continuing divergence in unit labour costs has caused some member states to lose a substantial degree of competitiveness. This can cause big tensions," he said

"Some of these countries have manoeuvred themselves into a difficult situation. They must do everything to change course," he told the German daily Handelsblatt.

Rome said hundreds of unfunded infrastructure projects had been launched by the outgoing government to create a "Potemkin"

illusion of prosperity

, leaving a wreckage of debts and signed contracts that could not be honoured.

If the EU currency breaks up due to imbalances and tensions that may undermine confidence in its recent soaring value. How much longer before Germany feels it is time to go it alone and refloat the DM? Euros anyone?

Edited May 31, 2006 by Realistbear

[werewolves]

http://www.telegraph.co.uk/money/main.jhtm.../31/ixcity.html

"big tensions" between north and south."

Have we not our own tensions between north and south here in old Blighty?

P.S. If anybody was wondering where the phrase 'Old Blighty' comes from:

It’s a relic of British India. It comes from a Hindi word bilayati, foreign, which is related to the Arabic wilayat, a kingdom or province. Sir Henry Yule and Arthur C Burnell explained in their Anglo-Indian dictionary, Hobson-Jobson, published in 1886, that the word was used in the names of several kinds of exotic foreign things, especially those that the British had brought into the country, such as the tomato (bilayati baingan) and especially to soda-water, which was commonly called bilayati pani, or foreign water.

Blighty was the inevitable British soldier’s corruption of it. But it only came into common use as a term for Britain at the beginning of the First World War in France about 1915. It turns up in popular songs There’s a ship that’s bound for Blighty, We wish we were in Blighty, and Take me back to dear old Blighty, put me on the train for London town, and in Wilfred Owen’s poems, as well as many other places.

Edited May 31, 2006 by werewolves

[AvidFan]

http://www.telegraph.co.uk/money/main.jhtm.../31/ixcity.html

Outgoing euro chief warns of 'tensions'

By Ambrose Evans-Pritchard (Filed: 31/05/2006)

Otmar Issing, Europe's high priest of monetary orthodoxy, has confessed that the

euro was launched on flawed foundations and is now threatened by "big tensions" between north and south.

In a parting shot before stepping down today as the European Central Bank's chief economist, and dominant force, Dr Issing said the stark differences in wage inflation across the

eurozone were storing up future trouble

.

"The continuing divergence in unit labour costs has caused some member states to lose a substantial degree of competitiveness. This can cause big tensions," he said

"Some of these countries have manoeuvred themselves into a difficult situation. They must do everything to change course," he told the German daily Handelsblatt.

Rome said hundreds of unfunded infrastructure projects had been launched by the outgoing government to create a "Potemkin"

illusion of prosperity

, leaving a wreckage of debts and signed contracts that could not be honoured.

If the EU currency breaks up due to imbalances and tensions that may undermine confidence in its recent soaring value. How much longer before Germany feels it is time to go it alone and refloat the DM? Euros anyone?

Hang on, hang on...

Chavez wants to sell oil in Euros.

Iraq is selling oil in Euros.

Iran's oil bourse selling in Euros

Russia wants to sell energy in Rubles but may have to compromise on the Euro...

Surely it's be "make your mind up time" soon as the whole economy jumps the dollar ship...

Euro or....?

[cupidstunt]

Rome said hundreds of unfunded infrastructure projects had been launched by the outgoing government to create a "Potemkin"

illusion of prosperity

, leaving a wreckage of debts and signed contracts that could not be honoured.

If the EU currency breaks up due to imbalances and tensions that may undermine confidence in its recent soaring value. How much longer before Germany feels it is time to go it alone and refloat the DM? Euros anyone?

I wish my memory was better but here goes-

I read an article a couple of years ago that was written and endorsed by several "emminent" Economists. The gist was that the Germans couldn't wait to get out of the Euro but we're waiting for the Italians to go that way first. You're above comments tend to bare that out!

[Guest muttley]

]Rome said hundreds of unfunded infrastructure projects had been launched by the outgoing government to create a "Potemkin" illusion of prosperity, leaving a wreckage of debts and signed contracts that could not be honoured

This guy is quoting Charlie the Tramp!!

[MarkG]

Surely it's be "make your mind up time" soon as the whole economy jumps the dollar ship...

Not really. If the Euro collapses it will presumably become the 'Germano' or maybe the 'Germano-Franco'... and a German currency is almost certain to be far more stable than a European currency: if I remember correctly the Deutschmark lost the least value of any Western currency from the 50s to the 90s.

As someone said in another article a few years ago, the best thing about the Euro is that it would kill the US dollar just in time to collapse itself afterwards.

Edited May 31, 2006 by MarkG

[watchinandwaiting]

It isn't the first time monetary union has been tried!

The lesson is monetary unions of politically independent, large sovereign nations can fail, particularly when there is an external shock, causing the economic environment to change. It is easier for unions to survive when the economic cycle is favourable. The long time during which both the Latin and Scandinavian Unions survived demonstrates the importance to hold judgement on the success of a union, until its performance can be judged in an economic downswing or when there is a deflationary shock.

Link

[BuyingBear]

Not really. If the Euro collapses it will presumably become the 'Germano' or maybe the 'Germano-Franco'... and a German currency is almost certain to be far more stable than a European currency

The Euro is the Deutschmark by any other name, the ECB is based in Frankfurt as is the mighty Deutsche Bundesbank. If you look at historical Euro exchange rate data to the early 90's it's simply indexed to the DM. Obviously countries like France the rest of the EU couldn't be seen as using Deutschmark, it would rather make them doubt the outcome of WWII!

[werewolves]

The Euro is the Deutschmark by any other name, the ECB is based in Frankfurt as is the mighty Deutsche Bundesbank. If you look at historical Euro exchange rate data to the early 90's it's simply indexed to the DM. Obviously countries like France the rest of the EU couldn't be seen as using Deutschmark, it would rather make them doubt the outcome of WWII!

Are you suggesting that Hitler lives on in the form of the Euro?

[BuyingBear]

Are you suggesting that Hitler lives on in the form of the Euro?

Not quite, Hitler's Reichsmark became worthless for anything other than kindle. The Deutschmark was introduced by the allies, it was a British economist that suggested it and introduced the free float, IIRC.

[MarkG]

The Euro is the Deutschmark by any other name

Except that the best part of a dozen other countries can print them.

How secure do you think the Deutschmark would have been if the Italian government could print them by the bucket-load?

[BuyingBear]

Except that the best part of a dozen other countries can print them.

How secure do you think the Deutschmark would have been if the Italian government could print them by the bucket-load?

Hrm, that's why France and Germany insisted on the growth and stability pact, to ensure spendthrift Italy didn't return to its wicked ways, as it turned out it was France and Germany itself who were the first to break the rules, this is precisely Germany is now hiking vat rates by 3% to 19% in order to get their deficit into line.

Edited May 31, 2006 by BuyingBear

[Realistbear]

Germany is not going to "carry" the lame among the EU community. With huge disparities among the EU members it seem unlikely that the Euro can survive in the long term. 2% borrowing rates may work for Germany but they do not work for inflating economies such as Ireland. What is good for the goose is not good for the gander in Europe. IMO, we could see Germany "opting out" within a couple of years.

[bpw]

Germany is not going to "carry" the lame among the EU community. With huge disparities among the EU members it seem unlikely that the Euro can survive in the long term. 2% borrowing rates may work for Germany but they do not work for inflating economies such as Ireland. What is good for the goose is not good for the gander in Europe. IMO, we could see Germany "opting out" within a couple of years.

and we'll see pigs flying the union jack over the houses of parliament......

Despite real concerns in some coutries who are struggling to come to terms with unification, the facts seem clear to me. The Euro is a resounding success and what's needed is further integration so that Europe can compete with the US. If you live here in the USA you'll realise there are massive regional disparities between say california and louisiana - while one whines on about the other the fact is the strong, productive and creative states are successful and the weak spend half their time begging for federal funds. Why should it work like that here in the USA and not in Europe. People in the UK, France and Germany loose little and gain a lot from the Eu - and weaker nations get subsidies which keep them engaged in development. Can Greece really argue they are worse off, would they have become an industrial power house if they hadn't joined the eu? And as for Ireland, their success was paid for by development grants and soft loans. Would they be better off out of the Eu?

[BuyingBear]

and we'll see pigs flying the union jack over the houses of parliament......

I'm not sure about that, but you will find plenty in the chambers beneath.