Tuesday, June 21, 2011

Excellent commentary

Political union cannot fix the euro

"A single currency that was meant to bring Europeans together is instead driving them apart"

Posted by uncle tom @ 10:22 AM (1944 views)
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11 thoughts on “Excellent commentary

  • Was it meant to bring Europeans together? Michael Hudson doesn’t think so.

    “There is little thought of wealthier EU economies helping bring less productive ones up to par, e.g. as the United States does with its depressed areas (as in the rescue of the auto industry in 2010) or when the federal government declares a state of emergency for floods, tornados or other disruptions.

    “EU “aid” is largely self-serving – a combination of export promotion and bailouts for debtor economies to pay banks in Europe’s main creditor nations: Germany, France and the Netherlands.

    “Every member is expected to pay its own way. The central bank does not monetize deficits, and there is minimal federal sharing with member states. Public spending deficits – even for capital investment in infrastructure – must be financed by running into debt, at rising interest rates as countries running deficits become more risky. This means that spending on transportation, power and other basic infrastructure that was publicly financed in North America and the leading European economies (for most of the 20th century) must be privatized. Prices for these services must be set high enough to cover interest and other financing charges, high salaries and bonuses, and be run for profit – indeed, for rent extraction as public regulatory authority is disabled.”

    http://michael-hudson.com/2011/06/how-financial-oligarchy-replaces-democracy/

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  • Icarus,

    The key difference between the US and EU is that a person who lives in Cambridge, Massachusetts, thinks of himself as an American first, and a citizen of Massachusetts second, while someone who lives in Cambridge, England, thinks of himself as English first and British second, whilst his citizenship of the EU barely registers.

    Even in the most EU-friendly parts of europe, the great majority of people still accord their primary loyalty to their region, nation or tribe.

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  • bidin'matime says:

    Language builds walls as well as bridges.

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  • uncle tom – have you been to Cambridge, England lately? There’s as much Spanish, Italian and East European languages spoken on the street as there is English. Quite a few Belfast accents too.

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  • icarus,
    There is a fair bit of rich-to-poor subsidy. Every time I go on holiday to Greece there seems to be yet another motorway with a huge sign stating “funded by the EU” or similar. I haven’t seen any such signs in Germany. The workers on the motorway are locals. There’s clearly a transfer of money.

    “– even for capital investment in infrastructure – ” – Boohoo, so they can’t retire at age 52 *and* have shiny new roads? No wonder the markets aren’t going to lend to them. However if they delay the pension age for a couple of years longer, and clamp down on rampant tax evasion, they might actually have the money to pay for shiny new roads. It’s not rocket science. What’s foolish is that it has taken the markets so long to realise this. Greek debt should have been priced higher from the start. Since it’s the investors in that debt who got it wrong, they’re the ones who should take haircuts.

    The American example isn’t instructive. Large transfers of money are the exception (flood damage, auto industry bailout), not the rule. Several US states are running dangerously high budget deficits (California, Nevada, Illinois) and there’s no certainty of a central government bailout. The biggest differences in the US are high labour mobility and weak job security / weak unions. The Greeks can’t easily pack up their bags and go work in Germany, and their long-standing job security (for unionised private-sector and public-sector workers) has given them unrealistic expectations of what is affordable.

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  • “have you been to Cambridge, England lately”

    I live close to Cambridge, but very rarely venture into the city centre

    “The American example isn’t instructive”

    Except the euro-federalist argument has long been based on the ‘US of europe’ model – they even gave an intial value to the euro that was close to $1, even though it made little sense to do so.

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  • It’s not the currency that’s driving this union apart, it’s the attempted negative manipulation dynamic of the whole.

    They simply have had enough of it now.

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  • drewster – if you read the rest of Michael Hudson’s article you’ll see that he puts a lot blame on the poorly organised and regressive Greek taxation system which allows the rich to avoid much of their tax obligations. But it’s not just Greece. People in the peripheral euro debtor countries, as well as Latvia and Iceland, have protested against paying debts run up by their governments, on the grounds that there was collaboration between their governments and foreign lenders in which debts were taken on that they knew little about, and that they are asked to take cuts in living standards (austerity measures that would worsen their economies, as happened in the third world from the ’70s onward) see their infrastructure privatised to pay those lenders, and their democracic processes sacrificed to bankers.

    They also see the EU and euro as a means by which more of core countries’ exports (including arms and German/French retail giants presence in their countries) are sold to them than would be sold if the Greeks etc. controlled their own exchange rates and fiscal and monetary policy.

    The infrastructure programme undertaken by the EU emphasises the need for heavy private sector involvement and revenue-generating projects, with the EU providing guarantees to improve the rating of the bonds issued by those private companies. I don’t know enough to comment further but it seems more complex than a simple transfer of German money to Greek roadbuilding.

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  • whatever one thinks about the Euro (I think it is ill-conceived) this article is a load of b*llocks. In particular its central claim is this:

    >There is not a strong enough common political identity in Europe to support the single currency. That is why German, Dutch and Finnish voters are revolting against the idea of bailing out Greece again

    Is anyone regailing against the bailout because of a perceived lack of identity??! There is a far more concrete reason, namely that it does not make sense to issue loans to cover loan payments. Every halfwit knows this leads to a debt explosion! the people peddling these loans are anything but halfwits. They want to extend the extra loans to that they get paid off (and everything in Greece gets sold off at bargain prices) before an eventual default in which only public sector creditors won’t get paid off.

    N

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  • nickb,

    It really is very hard to explain away the halfwit bit..

    Perhaps more to the point is that the key movers never saw it as a gamble with their own money, and many of them did not have a background in economics.

    Many of the protagonists for the creation of the euro did not see it at as an end in itself, but a stepping stone toward their ultimate goal; and therefore reasoned that the obvious shortcomings in the euro project would merely serve to force ‘ever closer union’ into reality.

    The EU institutions are really very nasty, both in their actions and attitude; and I do hope that the democratic wishes of the various electorates will now prevail.

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