Alan Greenspan on the never ending euro failure

There is no end to the ongoing euro crisis. Former Fed Chairman Alan Greenspan explains why the euro is - and will stay - a huge failure:

"At the outset of the creation of the euro in 1999, it was expected that the southern eurozone economies would behave like those in the north; the Italians would behave like Germans. They didn’t," Greenspan said. "Instead, northern Europe fell into subsidizing southern Europe’s excess consumption, that is, its current account deficits."
Greenspan predicts that as the south's fiscal crisis deepens, the flow of goods from the north will stop altogether and southern Europe's standard of living will go down.
"The effect of the divergent cultures in the eurozone has been grossly underestimated," he added. "The only way to have several currencies from divergent nations lumped together is if they are culturally close, such as Germany, the Netherlands and Austria. If they aren’t, it simply can’t continue to work."

Tim Worstall also has a good piece on the same subject in Forbes:

While these very different economies are locked into the one currency, one interest rate, system there’s really not a lot anyone can do about it. Some talk of fiscal union, which is in essence the rich areas sending money to the poor ones. But absolutely no one at all thinks that those rich areas have the desire nor capacity to ship enough money: we’re not talking about a few billions here or there, but substantial percentages of GDP being necessary.

All of which is what made me conclude long ago that the failure of the euro is inevitable. Please note, I don’t mean that collapse of it is: political finagling can hold it together for decades if people really try. What I mean is failure in an economic sense. Interest rates will always be set for the core economies, meaning that they will always be wrong for the peripheral ones. Which means that those peripheral economies are condemned to a cycle of huge boom and bust as interest rates are either way too low or way too high for their circumstances.
Yes, I do think it fair to say that wild gyrations are a sign of failure in an economic policy or system. And in this sense, I think it inevitable that the euro will fail. For it already has.

A celebration of EU "successes"

In his speech to EU Heads of Delegation, Herman Van Rompuy has highlighted the great successes achieved during his tenure as President of the European Council:


First of all: we have come a very long way. In almost three years we have re-enforced rules 

for oversight of budgets, bubbles and banks; built rescue mechanisms; developed 

assistance programmes for countries in difficulty; embarked upon a path of fiscal 

consolidation and structural reform in all Member States; and on top of that we are 

stepping up our joint investment in growth and jobs.

Van Rompuy appears to live in his cosy little haiku world, far away from the evils of the real world surrounding him. 

This is the sad reality today: 

The Purchasing Managers' Index (PMI) for the euro zone, published by Markit, showed the economic rot that began in smaller periphery members of the 17-nation bloc is now taking hold even in Germany, its largest and strongest economy.

"There is very little in the overall euro zone PMIs to suggest an imminent recovery. The figures are consistent with the economy returning to a technical recession," said Philip Shaw at Investec.

PS

But maybe the gloom and doom has a silver lining?: 

The External Action Service has now reached its cruising speed! It is one of High Representative Cathy Ashton's many successes. 

We will apparently have to wait for Van Rompuy´s next speech in order to get some more information about Baroness Ashton´s "many successes". (My suspicion is that it will be a very short speech.)

Meanwhile, there are people who are not as convinced about Cathy Ashton´s achievements.  

Herman van Rompuy gets an award

Students of the Economic Faculty Association of Rotterdam University have granted  the European Union "President" Herman van Rompuy the “World Leader cycle Award”.

It is not quite clear whether Haiku Herman got his prize for of his ability to ride a bike, or perhaps - and this is more likely - because his style of leadership rather well fulfills the definition of a cycle:
"A process that returns to its beginning and repeats itself in the same sequence".

Anyway, the students of the Rotterdam University are to be congratulated for showing a real sense of humour -  a rare faculty in the world of academic faculties today.

In a recorded video message the grateful award winner eloquently elaborated on what it takes to be a great world leader - by describing himself in action:

The oracle in Brussels also gave this prediction:


I´m confident that Europe will overcome the crisis. We will get there, but it takes time.
A few more steps to take this year and next year, and we will see a strengthened Europe, with confidence in the future.


Twelve months from now you will be surprised!" 


Herman van Rompuy may be right about a surprise 12 months from now, but chances are that it will not be the kind of surprise that he is pipe dreaming about.