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September 10, 2016


I have just finished my first reading of Joseph E. Stiglitz’s latest book, The Euro. It is an ambitious offering which sets out the problems of countries within the Eurozone caused by adoption of a common currency (the euro) before setting up the structural requirements for its success. Per Stiglitz, it isn’t working and is the culprit leading to the recession and even depression of some states within the Eurozone, notably Greece and Spain.

The theory of those who came up with the idea of a common currency was that in serving free and unfettered markets with a common currency, mobility of labor, and restrictions on members’ budgets and taxation with the leveling effect of the euro, that all member states would be prosperous, that economic nirvana could be achieved by following such rules. Aside from the invasion of sovereignty of the rights of member states to make their own determinations in such matters, Greece isn’t Germany, nor is Spain Luxembourg, and a common currency does not change such contrasts in who they are and where they are today. What works for Germany may not work for, say, Portugal. The euro was a premature attempt to put square pegs into round holes without first doing the groundwork.

The economic history and potential of such member states in the Eurozone are very different; some such as Germany are very successful exporters of sophisticated goods and services. Greece is not a successful exporter and earns its meager foreign exchange by exporting olive oil and selling tourism. Thus for this and many other reasons Germany gets richer and Greece gets poorer, and without the right of the Greeks to conduct their own internal reforms (such as devaluing their currency to become competitive). What happened but for ideological bent should have been obvious to those who thought a common currency and reforms within member states would level the playing field among members of the Eurozone. It did not and will not work. They didn’t do their homework.

Mere adoption of a common currency did not and could not level the underlying structural differences between member states. Structural differences between the states in the Eurozone were not attended to prior to adoption of the euro, and that is the fundamental reason Europe is mired in recession (or in some cases depression) these days. It is not just Syrians and other refugees who are invading the richer countries in the Eurozone. With mobility of labor, many from Spain, for instance, have migrated to Germany and other more prosperous northern tier Eurozone states in search of employment, so many that Spain’s unemployment rate has gone down, which is a good thing but for the wrong reason.

When the euro was first introduced there was a rush to invest in member states’ economies. German and French investors bought into Greek and Spanish bonds by the billions. When the inevitable happened (Greece and Spain and others could not pay their bond debt), Germany and France and other northern members of the Eurozone whose investors had advanced such billions of euros to southern members demanded reforms within such member states’ budgeting and taxation processes, threatening in effect to bankrupt those who did not bow to their demands. Having little choice, and chained to the euro, the southern members did as they were ordered, often against the will of their people as expressed in referenda. So much for sovereignty and the will of the people!

Germany was the prime mover in this process, insisting on not only compliance in repayment but also the terms by which such debtor members could “comply.” Many, and I am one of them, resent the high-handed efforts of France and Germany in forcing their southern members to abandon their sovereign rights to choose how to govern and further force them to accept the austerity economic scheme imposed from Paris and Berlin. Austerity economics (now in vogue in both Europe and our country) has never worked anywhere at any time, and why neoliberals and others persist in employing this debunked theory (other than for perceived political gain) is one of the mysteries of our time. What is clear to me is that both Europe and our country are in dire need of a heavy dose of Keynesianism if we and they are to prosper as we once did after WW II.

I strongly suspect that Germany and France were and are simply protecting the interests of their bondholders in Greek and Spanish (and other) debt since their subsequent lending to such countries carried the condition that such loans were to be first used to pay off French and German (and other) bondholders. Greece, Spain and others in the southern tier of the Eurozone states did not prosper with adoption of the euro as promised by the neoliberals; rather they are saddled with recession and depression and massive unemployment, not to mention that they have lost the ability to govern themselves on matters of budgeting, taxation, and adjustment (devaluation or re-evaluation) of a domestic currency to meet their specific needs for competitiveness and solvency.

Adoption of the euro has not been kind to several states in the Eurozone. It was a train wreck waiting to happen from its inception for some. However, with structural reform, it is possible that it can still work, though that possibility now rests in the hands of politicians rather than economists and the chances that politicians will do the necessary are poor to none, considering, among other things, the insults that have been exchanged between the rich and poor states during this interim (the Greeks are lazy welfare bums, the Germans are greedy moneychangers etc.), none of which provides an environment where serious negotiators can sit down and do structurally what they should have done before adoption of the euro.

When you have the cart before the horse you are not going anywhere, as the old saying goes. The job of such negotiators is to place the cart behind the horse and see where that leads, while being open to adjustment as they move along. If there is no progress, perhaps the euro should be abandoned and take its place alongside other abandoned currencies in the dustbin of history.

I will discuss the ramifications of the failure of the euro, TPP, NAFTA and the like in Part II. Stay tuned.     GERALD      E








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