The Euro is an exceptional case, a dangerous experiment of a currency divorced from individual nations themselves. The Euro is a foreign currency to all its users -except, some may say, Germany which has insisted right from the start that the Euro should be, to all intents and purposes, a continuation of the DM.
All 18 governments that use the Euro are users not issuers of the currency. They have all scrapped their sovereign currencies. They now lack the powers that a sovereign issuer has. Japan, the United States, the U.K., Canada, Australia, are sovereign issuers. Governments that adopted the Euro must borrow the currency. They must pay whatever the bond vigilantes require. They can run out of money. And they lack the policy space of a sovereign issuer.
For a member of the Eurozone, such as Italy the relationship between the government and the currency is different from the UK’s relation to the pound. Italy does not issue the currency that it uses. A country giving up control of the currency effectively gives up its own independence. Italy has becomes a State like Georgia is the sense that Georgia is a State of the USA. Except that the Eurozone doesn’t have anything like the financial infrastructure, which exists in the USA, and which is needed to equalise the imbalances between the richer and poorer parts of the currency zone and make a common currency work.
The problem with the Euro is that it cannot be created as needed. The governments must go out and get Euros from someone else. The Eurozone countries have sacrificed their ability to conduct sensible economic policy, and the effects are clearer now than ever. Spain and Greece have unemployment rates of over 25%. Youth unemployment is over 50%. Unemployment is high everywhere. France has unemployment measured in double gigures. 1 in 4 of their young people are without work. The Eurozone as a whole is an economic disaster area.
But the Europeans can’t say they weren’t warned. In 1997 Wynne Godley wrote:
“The danger then is that the budgetary restraint to which governments are individually committed will impart a dis-inflationary bias that locks Europe as a whole into a depression it is powerless to lift.”
The UK thankfully learned from its own experience the pitfalls of tying its own currency to another currency with its ill fated attempt to shadow the DM in the 90s. That ended in the debacle of Black Wednesday. But better a debacle than a disaster. At least the pound still existed, at the time, and could be freed. Greece and Spain don’t have their Drachma or Peseta any more. Just how they can free themselves from their predicament isn’t easy to see.
If you talk to most Germans , or read articles in the German media, you’ll notice a lot of finger pointing towards, particularly, the Greeks. Their argument is basically one of ‘Look, we manage perfectly well with the Euro. If you sorted out your deficiencies then you could manage too’!
To decide if this is realistic we need to look at the three sector balances for any country:
Public Sector Balance +Private Sector Balance + Rest of World Balance = 0
Germany runs a balance of trade surplus with the Rest of the World. Therefore the last term is negative.
The Private Sector save, in true German style, for their pensions etc. Therefore the second term is positive.
So the Government can comfortably run a closed to balanced budget without causing a deflationary effect on their economy.
It’s a lot different for Greece or Spain.
Their balance of trade is poor. Therefore the last term is positive.
There are still many who wish to save (people do when times are bad) so the second term is positive too.
The EU requires countries to minimise their deficit. So the periphery have to try to balance their budgets. The first term has to be close to zero.
So yes, theoretically there is a lot that could be done to gather in more taxes from the rich in Greece. That could be done, of course. But fundamentally the German argument is nothing more than saying that if all countries had a balance of payments surplus then everyone could be like Germany! The Germans are supposed to be smart and modern. Can’t they see the lack of logic?
The dictat of the EU is effectively one of trying to suspend the rules of basic arithmetic. The more Governments of the periphery countries try to achieve the impossible the more their economies spiral downwards in search of a ‘zero solution’ to the equation.
What can be done? Forcibly stop Greeks and Spaniards saving? Import controls within the Euro region? That would work but there are obvious problems! But, the first step is to at least recognise the reason for the problem. It’s pretty obvious but I don’t see any indications that the penny has dropped. German politicians, mainstream European economists, the IMF and many others are locked into a neo-liberal mindset.
They are like old fashioned doctors who prescribe the bleeding of a patient . When that doesn’t work they prescribe more bleeding. Then more and more until the patient dies! Afterwards they all agree that bleeding was the right course of action but they probably should have prescribed it earlier and in greater amounts! Is this supposed to be the 21st century?
Let’s follow the money. So, Peter, who owns the ECB?
Are you going to tell us who you think owns it?
@PJM probably Goldman Sachs.
Germany which has insisted right from the start that the Euro should be, to all intents and purposes, a continuation of the DM.
First of all, Germans were never asked if they want the euro,
ca. 80% would had said no.
The most important thing for Germany is to do trade with a currency.
In a soft currency like some countries in south europe,
savings would always devalue, and all the imports become more expensive.
That might be realy nice for the multi national corporations because german private people can’t import at a time the country runs huge surplus because it’s locked.
But they would NEVER ever accept Greek style or Italian style soft currency.
People already forget that rich italians and companies in Italy, had bank accounts in DM or Swiss franc back then.
So South Europe wanted low interest rates, but at the same time the possibility to devalue the currency? Well yes Germany always insisted that this is not possible.
Is there any country very successful in trade with a soft currency??
Germany has no real wage growth or even real wage decline since decades. Spain and Greece had private loan BUBBLE.
it’s a tragedy. The euro is terrible, the life of millions of people is destroyed to save the rich.
If they tell you Germany would lose more as Greece.
Think about that Germany has now higher wage inequality as UK.
Just the richest 10% would realy lose.
3/4 Germans do NOT work in the export business.
Wages there are low.
Not many women work in the export sector.
Women are heavily disadvantaged because of this!
Could this have todo with the low birth rate? yes absolutely.
Not sure if i wanted to say wage inequality.
i did mean this here:
1) I do mean those who make the big decisions in Germany, and not the vast majority of the German people. As you say, many in Germany are having to get by on very low wages. See for example:
2) Ownership of ECB. Its not Goldman Sachs, nor is it Rothchilds! Its as below, for those who are interested, But ownership isn’t the problem. A change of ownership would not make the EU any more like America which it needs to be for a common currency to work. The US have, for example, a common system of income tax which is paid to the Federal government then it is paid out to the individual States. Wealthy States like California pay in most. Poorer States like Mississippi pay in least. But the proceeds are distributed equitably.
3) Technically the DM,Euro, Lira, Drachma, US$, Japanese Yen are all soft currencies. All modern day currencies are. They aren’t backed by anything at all. No gold. No silver. They are all just government IOUs.
This is what Wikipedia has to say about the ECB: The European Central Bank (ECB) is the central bank for the euro and administers the monetary policy of the Eurozone, which consists of 18 EU member states and is one of the largest currency areas in the world. It is one of the world’s most important central banks and is one of the seven institutions of the European Union (EU) listed in the Treaty on European Union (TEU). The capital stock of the bank is owned by the central banks of all 28 EU member states.[dated info] The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt, Germany.
So, who owns the 28 central banks that own the ECB?
Do you really have a question about the ownership of the ECB? I suspect not. It sounds like you are torn between wanting and not wanting to say something about it! You may as well get it off your chest as you raised the issue to start with.
I would like to know the identities of all of the shareholders of the central banks of each of the 28 member states, and how many shares each central bank owns. Wikipedia could have provided the answer directly, but didn’t. Until one knows the answer, one does not know who owns the ECB!
Similarly, one doesn’t know who owns the US Federal Reserve until one knows the identities of the shareholders of each of the 12 member banks that own the shares in the Federal Reserve, and how many shares each member bank owns. Until one knows the answer, one does not know who owns the Federal Reserve!
Actually, government spending (tax proceeds) are in not distributed equally in the U.S. Poorer states get back much more than they pay in taxes; wealthy states pay much more than they get back. This re-distribution enables the U.S. to more or less function (albeit with considerable regional tensions) in addition to the imperialist rent gained by exploitation of the global South that it benefits from.
Yes I’d agree with your first two sentences and the first half of the third. The second half of that sentence is a political comment which could apply to all wealthy nations. It’s unfair to single out the USA in that respect. IMO.
It true that all advanced capitalist countries gain from said exploitation, but capitalism always requires a center, and the U.S. fills that role. Its multi-national corporations, as a group in comparison to any other countries’ multi-nationals, are the most rapacious and the U.S. supplies more military muscle, and financial pressure, than any other country. Britain did so in earlier times, but the baton has long been passed.
Also note that the Obama administration is pushing for the most draconian rules in the ongoing Trans-Pacific and Transatlantic Partnership negotiations — they very well know whose corporations are going to win if their proposals are adopted.
Too true! We’re steadily shifting toward government by corporation (fascism) and away from government through plebiscite. Unaccountable and unrestricted neo-liberalism needs to reined in!