The Euro is murdering the nations and economies of the EU quite literally. Since the fixed currency regime came into effect, replacing national currencies in transactions in 2002, the fixed exchange rate regime has devastated industry in the periphery states of the 19 Euro members while giving disproportionate benefit to Germany. The consequence has been a little-noted industrial contraction and lack of possibility to deal with resulting banking crises. The Euro is a monetarist disaster and the EU dissolution is now pre-programmed as just one consequence.
The ECB’s increasingly shrill mantra that it makes policy for the monetary union as a whole and not for its largest member (Germany) could well cause a black swan to appear — in the form of a German political shock this autumn. The Frankfurt-based officials have been ignoring the historical observation of Nobel Prize-winning economist Robert Mundell that central banks of federal unions are intuitively alert to symptoms of monetary instability in their dominant economic member — for example: Ontario in Canada and New South Wales in Australia. (California, at around 13% of the US economy does not qualify as “dominant.”)
For leftist critics of the EU, reform looks unlikely — but aligning with right-wing Euroskeptics looks worse. Maybe there's a third option.
When European Union President Jean-Claude Juncker addressed the European Parliament in Strasbourg this past September, he told them the organization was facing an “existential crisis.” In part, he blamed “national governments so weakened by the forces of populism” that they were “paralyzed by the risk of defeat in the next election.”
We are accustomed to looking at Europe’s woes in a purely financial context. This is a mistake, because it misses the real reasons why the EU will fail and not survive the next financial crisis. We normally survive financial crises, thanks to the successful actions of central banks as lenders of last resort. However, the origins and construction of both the the euro and the EU itself could ensure the next financial crisis commences in the coming months, and will exceed the capabilities of the ECB to save the system.
Can the EU still unite a continent shattered by world wars, or is it little more than a vehicle for austerity capitalism? The European Union is one of the premier trade organizations on the planet, with a collective GDP that surpasses the world’s largest national economies.
But it’s far more than a trade group. It’s also a banker, a judicial system, a watchdog, a military alliance, and — increasingly — an enforcer of economic rules among its 28 members. “Larger now than the Roman Empire of two thousand years ago,” observes British historian Perry Anderson, “more opaque than the Byzantine, the European Union continues to baffle observers and participants alike.”
Alexis Tsipras had a choice. As the leader of the fledgling Syriza government in Greece, he could have told the European Union to stuff its austerity plan. He could have taken the risk that the EU would offer a better deal to keep Greece in the Eurozone. Or, failing that, he could have navigated his country into the uncharted waters of economic independence.
Between now and next April, four members of the European Union (EU) will hold national elections. They'll go a long ways toward determining whether the 28-member organization will continue to follow an economic model that's generated vast wealth for a few, widespread misery for many, and growing income inequality for all.
Myths are dangerous because they rely more on cultural memory and prejudice than facts. And behind the current crisis between Greece and the European Union (EU) lies a fable that bears little relationship to why Athens and a number of other countries in the 28-member organization find themselves in deep distress.
The costs and risks of maintaining the eurozone system are already immense and rising. So is an exit possible? Intuitively, the exit from the euro should be as easy as the entrance. Joining and leaving the club should be equally simple. Leaving is just undoing what was done before. Indeed, many popular articles discuss the prospects of an exit of countries such as Greece or Germany. However, other voices have rightly argued that there are important exit problems.
The problems of the eurozone are ultimately malinvestments. In Greece these days the struggle continues about who will ultimately foot the bill for these investments. During the early 2000s an expansionary monetary policy lowered interest rates artificially. Entrepreneurs financed investment projects that only looked profitable due to the low interest rates but were not sustained by real savings. Housing bubbles and consumption booms developed in the periphery.