The ongoing calamity that is the Euro

The Euro project was flawed from the start.  I have written before how puzzled I am that anyone thought it was ever a good idea.  And as the evidence rolls in that the Euro is mostly destructive to the real economy of Europe, we see its defense become only more loud, desperate, and shrill.  Defending the currency has become a near-religious act among people who think of themselves as just too sophisticated to be sucked in by anything as irrational as religious practice.  One can only hope that saner heads will prevail and this horribly flawed idea can be undone with the least amount of damage to the poor citizens of the Eurozone.  I am not especially optimistic—religious wars tend to get very ugly and pseudo-religious wars over money promise to be ugly times 10.

The euro now equals poverty and deflation

Eurocrats see the survival of the euro as more important than the prosperity of its users.
By Daniel Hannan  06 Jun 2012

To grasp the sheer unfairness of the euro system, consider Slovakia. For a few days last October, this nation of five million defied the might of Brussels. Its MPs refused to approve the bail-out fund, arguing that it was wrong for prudent countries to be fined so as to reward profligate ones. The EU promptly turned its hideous strength against the plucky Carpathian republic. Within five days, the government had fallen and parliament had ratified the fund.

When we read of the latest euro-calamities – three Portuguese banks bailed out yesterday, Cyprus on the point of bankruptcy, retail sales across the eurozone far lower than expected – we feel sympathy rather than panic. Countries in the single currency have no such luxury.

“Since we joined the EU,” says Richard Sulik, leader of Slovakia’s liberal SaS party, “our net receipts from the Brussels budget have come to just over one billion euros. Under the European Stability Mechanism, we are liable for 13 billion. All to bail out countries with higher GDPs than ours.”

According to the polls, two thirds of those who use the euro believe it has made them worse off. They’re right. On Europe’s periphery, monetary union means deflation, poverty and emigration. In the core, it means unprecedented tax rises.

EU leaders no longer argue that the single currency boosts growth. Instead, they fall back on the cure-would-be-worse-than-the-disease shtick. Imagine the chaos of a break-up, they tell us, eyes wide with horror. The bank runs, the capital controls, the return to protectionism!

Oh, come off it. Every country currently in the euro has, by definition, managed precisely such a transition within the past 15 years. Adopting a new currency would be easier today than it was then, because more money is digitised, and notes and coins represent a smaller proportion of the currency in circulation. Defenders of the euro sometimes claim that leaving a currency union is not the same as joining one. True, but I can count at least 29 occasions when it has happened since the Second World War.

I asked a Slovakian economist how his country had managed its monetary divorce from the Czech Republic in 1993 (I am in Bratislava campaigning with local Eurosceptics). “Quite easily,” he replied. “We waited until a Friday afternoon, then the head of our central bank phoned all the banks and told them that someone from his office would come round with a stamp for their banknotes and that, until the new mint came into operation, that would be our legal tender. On the Monday morning, we had a new currency.”

All right, it’s a little more complicated than that, but only a little. In April, the five finalists for the Wolfson Economics Prize presented their plans for an orderly unbundling of the euro. All of them found ways to overcome the technical difficulties.

The truth, of course, is that supporters of the euro were never interested in the economics. Newly released documents show that Helmut Kohl was specifically warned against including countries with high debt levels. He decided that the political imperative of integration mattered more than the economic practicalities. The present Chancellor has made the same call. “If the euro fails, Europe fails,” Angela Merkel told the Bundestag when seeking support for the bail-out fund. “No one can take another 50 years of peace for granted.” more