What exactly is the Eurozone for?

As the Eurowipe-out roars past Greece towards Portugal and Spain, possibly taking Belgium too in its path, what are the benefits of this currency zone to make it worthwhile enduring the astronomic costs?   The bail-out of Greece cost E110bn, and we’re now being told that in the case of Ireland E85bn may not be enough to satisfy all the creditors.   Of course Ireland enjoyed one hell of a bonanza while the party lasted, even achieving (for a short time) higher per capita incomes than the UK.   But the downturn is colossal: with a population one-twelfth that of the UK, Ireland faces tax rises of E5bn plus spending cuts of E10bn on top of the cuts of E15bn already announced.   After nearly 20% has already been drained out of the Irish economy in just 3 years, this latest s0-called national plan will probably extend the slump for another 6 years or so – a truly biblical 7 fat years followed by 7 exceedingly thin years.   Is a roller-coaster on this scale of volatility in the interests of the Eurozone, let alone Ireland?

The Eurozone is a fantasy built on a mirage.   The fantasy was that the Eurozone would not only enshrine the currency of the largest trading area in the world, but would also be an essential building block towards full political and monetary union and perhaps a federal European super-state.    The mirage was that by drawing in more economies into its ambit around the northern core, it could piece by piece assemble the components of an economic super-power.   But the crucial dynamics of such an economic construct were conveniently ignored in the rush to the ultimate political goal.   A single currency can only be sustained if all the member states are broadly comparable in growth, productivity and inflation.   They patently are not.

So is there a long-term future for the Eurozone when on top of the Greek and Irish bail-outs at a cost of some E200bn there may well be further bail-outs of Portugal at a cost of another E100bn and then conceivably the big one, Spain, at a cost of perhaps E400bn?   Some are even predicting that the cost could rise to not far short of E1 trillion before the storm blows over.  

In effect Germany has a choice.   If it is prepared to accept higher inflation to accommodate the weaker members of the Euro-club, maybe the Eurozone can survive in its present form.   But there is no way Germany, as the lead creditor, will be ready to accept such a price, given its historical  horror of inflation getting out of control.   Indeed with all countries in the Eurozone now planning fiscal tightening over the next year, the trend of policy is in precisely the opposite direction.   The only way that Greece, Ireland, Portugal and possibly Spain can now escape years of stagnation and deflation, trying in vain to repay impossibly huge debts, is to exit from the Eurozone, default on their debts, and steadily resume growth at their own much more competitive exchange rate.

2 thoughts on “What exactly is the Eurozone for?

  1. What is the Euro-zone for ? The hegemony of the political oligarchs who steer this wayward ship of (almost) super-state is the goal, our national economies and cultures are the sacrifice they are willing to make to achieve their total control of the biggest economy ever seen. Rumpoy’s statements before his up-coming conference with African heads of state and their economists and diplomats reveal that the EU wants to tie in with the AU and create a mutual trading and resource exploiting bloc bigger than anyone has dreamed of before. PCE 279/10 Brussels 25th Nov 2010,Comments made by Rumpoy and Barroso on the eve of the EU/Africa summit, is a document you should read, I have the PDF file of it if you need, and will e-mail it to you if necessary. In it Rumpoy mentions “…global governance..” in the context of EU/AU co-operation and trade agreements as well as political agreements, all very scary stuff, including mention of “contracts” for the private sector of the EU bloc to “aid” African economies in their drive to greater economic parity with EU and other world economies. “Global governance” indeed, when they cannot even govern the EU, one suspects that they are so eager to do business with the AU and its national sub-divisions and their respective economies because of the vast wealth that Africa still contains in the form of untapped resources and an enormous and very cheap labour market.

  2. What is sure is that Germany and France are in a very difficult position as far as the decision making process is concerned but the recent statements of their leaders suggest that they will not give up and a concerted effort will be made to save the single currency. According to German Chancellor Angela Merkel the two countries are working on a joint proposal for a crisis mechanism that is to replace the current one beyond 2013. It is questionable whether the price of accepting higher inflation is comparable to the possible threat of bankruptcy of some German banks.

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