Euro Pain
One of the more quixotic forms of Bush Derangement Syndrome had been a love affair with the Euro as a currency somehow destined to replace the USD as the world’s currency (thereby further chastening President Bush.) While there are lots of reasons why the USD will and should fall, the Euro is not one of them,
Who in the eurozone can do what Alistair Darling has just done in extremis to save Britain’s banks, as this $10 trillion house of cards falls down? There is no EU treasury or debt union to back up the single currency. The ECB is not allowed to launch bail-outs by EU law. Each country must save its own skin, yet none has full control of the policy instruments.
Germany has vetoed French and Italian ideas for an EU lifeboat fund. The former knows exactly where that leads. It is a Trojan horse that will be used one day to co-opt German taxpayers into rescues for less Teutonic EMU kin. One can sympathise with Berlin. But sharing debts with Italy and Spain was implicit when they agreed to launch the euro. A shared currency entails obligations. We have reached the watershed moment when Germany has to decide whether to put its full sovereign weight behind the EMU project or reveal that it is not prepared to do so in a crisis. Ambrose Evans-Pritchard, the telegraph
Like many collectivist ideas, the Euro was a solution in search of a problem. Worse, by linking the weaker economies of Southern Europe to the stronger (relatively speaking) of Northern Europe, it actually made matters worse in many cases. With currency, monetary policy and credit, one size does not fit all. The right interest rate for Spain is unlikely to be the same as it is for Germany. But the very premise of the Euro was that it should be.
I have been amazed at how well the US dollar has been doing. Frankly, on fundamentals and projected growth in money supply the USD should be falling. It isn’t, yet. Largely, I suspect, that there is nowhere for funds to go. (Other than the Canadian dollar of course - but we really do not want a $1.50 Canadian dollar.)
Written by jay on October 8th, 2008 with
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