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.

Chief Executive of Danish Saxo Bank: "The euro is doomed"

Things have been fairly quiet in Euroland lately, mainly due to the upcoming German elections. (Chancellor Merkel and her Social democratic opponent do not want the euro crisis to disturb the election campaign). But the crisis has of course not disappeared. That's why it is good that Lars Christensen, chief executive of Saxo Bank, reminds us about the reality:

The eurozone is doomed and its dysfunctional model has no chance of recovery with the euro in its current form, creating problems for Russia and other world economies, Lars Christensen, chief executive of European investment bank Saxo Bank, said at a Moscow press conference on Tuesday.
Underperforming eurozone countries create a massive drain on the world economy, he said. “This is a problem not just for Russia but for everybody else,” Christensen added. Saxo bank has been operating in Russia since 2011. --

 

“The euro is doomed. It took decades to get it in place and unfortunately it will have a very long time to get rid of it again,” he said.
While an immediate dissolution of the common European currency has a potential to be catastrophic for some economies and political leaders who invested their careers in it, the eurozone project had “fundamental construction” problems from the very start, Christensen added.
“These 17 countries [which are part of the eurozone] have to act as if they were a one nation state, [where] you can have some solidarity with areas that are underperforming and accept substantial transfer payments [to support them]. [But] you can’t expect 17 countries to have that kind of solidarity toward each other,” he added.
“[Greece] hasn’t done anything different from what they did before they joined the eurozone. Greece is not the problem for euro. Euro is the problem for Greece.”

Read the entire article here

Sleepwalking into the September 22 elections suits chancellor Merkel well

It is difficult to believe that there is just a few weeks left until the German elections (on September 22). Most political commentators are on holiday, and even if those who are on duty, make some tired attempts to remind people about the upcoming elections, nobody seems to be interested. Germans are enjoying the gorgeous summer weather, and the number one topic seems to be how Pep Guardiola will fare as the coach of Champions League winner Bayern Munich ...

But there are also political reasons as to why Germans are sleepwalking to the elections:

General elections are meant to pick a government and election campaigns to discuss the most important issues facing a country. If that’s your definition of an election, you may wonder whether Germany is really heading to the polls on September 22.

Seldom has the run-up to an election been as lacklustre as to this year’s vote in Germany. Just nine weeks ahead of polling day, most Germans have better things to do than to think about politics. They go on holidays, discuss the appointment of Pep Guardiola as manager of Bayern Munich football club, or just enjoy the sudden arrival of proper summer weather after an unusually cold spring.

Meanwhile, the political parties are not giving voters much reason to really engage with them and their manifestos. Their election pledges are all too easily recognised as gimmicks that will never be implemented, and on the biggest issues of the day, the future of Europe and the euro, there is no debate between established parties.

Foreign observers might naively assume that as economic data from Europe’s periphery deteriorate, Germany would discuss the implications. After all, its exposure to Southern Europe is huge. If only a part of German lending to the rest of Europe had to be written off – say after a sovereign default, a banking crisis, or both – this would inflict pain on German investors and taxpayers. German savers are already paying for the crisis because the European Central Bank's policies have made decent interest income a distant memory.

So there are enough reasons to pay attention to the euro crisis and consider ways out of it. But fight an election campaign on these crucial issues – you must be kidding.

It is as if Germany’s mainstream parties – Christian Democrats, Social Democrats, Greens and Free Democrats – are forming a cartel to prevent real political discussions. None of them are willing to draw any attention to Europe as a topic. Little wonder as every single parliamentary decision on the euro crisis has been supported by all these parties. There is no way in which the opposition could now credibly blame the government for the very policies it has always supported.

There is a second reason for the cross-party armistice ahead of the election. A party challenging the consensus on Europe has emerged, the 'Alternative for Germany' party. The Alternative is currently polling at 2-3 per cent – where all the other parties would like them to remain. In order not to give Alternative any extra publicity, the political cartel refuses to engage on the issue of Europe, effectively pretending it does not exist.

To round off the boredom ahead of the election, polls have been stable for months, if not years – Chancellor Angela Merkel is virtually guaranteed to remain in office. The only uncertainty remains about her coalition partner (although it makes little difference in practice).

What is strange about this sleepwalk to the polls is not how it has paralysed proper political debates within Germany but how it has paralysed proper political debates within Europe.

Read the entire article here

PS

When the summer and the German elections are over, chancellor Merkel - and Europe - will again be faced with the same old problems - the perpetual euro crisis, unemployment (particalarly youth unemployment) and the rising costs of the failed renewable energy policies.  

"Euroskeptic" Herman Van Rompuy in keynote speech: "No public support at all" for "more Europe"

Has Herman Van Rompuy gone Euroskeptic? 

For the first time ever, EU "president" Van Rompuy had something sensible to say about the European Union. In a "keynote Speech at the Federation of Young European Greens" he had this to say:

Some are in favour of “more Europe” – at times forgetting it is a Europe for 
which there is no public support at all.

There must have been at least two speechwriters in action for this "keynote speech", because a little later  Haiku Herman repeated his usual message of "more Europe":


The fourth and final point is that we are deepening our Economic and Monetary Union 
with a real banking union, a fiscal union, and an economic union. Step by step, but keeping 
the right direction.

Van Rompuy also remained true to the usual EU Politburo line: Always blame others - never yourself -  for the mess you have created. The bad things came from abroad, according to Herman: "the global credit crisis and its ramifications hit our continent.": 

The financial crisis hurt Europe hard – a brutal, unprecedented shock. In many ways, our 
countries and the eurozone were unprepared. Collectively, we had to build a lifeboat in 
the middle of a storm. It took years of struggle, and I recognise that more than once, we looked into the void. But we managed to keep going, step by step, even if it was sometimes 
messy or slow. And eventually we've managed to make it out of that violent storm.

What a hero of shakesperian or wagnerian dimensions we have in the captain of the Euro-Titanic! The opera "Herman, The Man Who Defied the Storm" is begging to be composed. However, true wagnerians will probably be disappointed, because this opera cannot be anything else than an opera buffa. 

The importance of Lord Lawson's message

Nigel Lawson (now Lord Lawson of Blaby), Margaret Thatcher's longest-serving Chancellor yesterday showed why he is head and shoulders above the pygmy  politicians now in charge of the UK government: 

The British former chancellor of the exchequer, Lord Lawson, has urged the UK to leave the European Union, arguing that economic gains from an exit "would substantially outweigh the costs".

Writing in the Times, he describes the EU as "a bureaucratic monstrosity" and added that after an association with Brussels of 40 years "the case for exit is clear".

The peer - who was Margaret Thatcher's chancellor for six years - believes that leaving the EU would prove to be a wake-up call for business leaders.

He said that too many of them were content to be in "the warm embrace of the European single market" when the great export opportunities lay in the developing world, particularly Asia.

"The heart of the matter is that the relevant economic context nowadays is not Europe but globalisation. I strongly suspect that there would be a positive economic advantage to the UK in leaving the single market."

"The heart of the matter is that the very nature of the European Union, and of this country's relationship with it, has fundamentally changed after the coming into being of the European monetary union and the creation of the eurozone, of which - quite rightly - we are not a part."

For these reasons, Lord Lawson says, having voted to stay in the European Common Market, as the EU was known in 1975, "I shall be voting "out" in 2017".

"Not only do our interests increasingly differ from those of the eurozone members but, while never "at the heart of Europe" (as our political leaders have from time to time foolishly claimed), we are now becoming increasingly marginalised as we are doomed to being consistently outvoted by the eurozone bloc."

"You do not need to be within the single market to be able to export to the European Union, as we see from the wide range of goods on our shelves every day. The statistics are eloquent.

"Over the past decade, UK exports to the EU have risen in cash terms by some 40%. Over the same period, exports to the EU from those outside it have risen by 75%.

"The heart of the matter is that the relevant economic context nowadays is not Europe but globalisation, including global free trade, with the World Trade Organisation as its monitor."

PS

Lord Lawson's message is an important milestone in the process of bringing the slow motion Titanic, called the European Union, to its final destination. It will inspire wise people also in the other present members countries, where opposition against the EU, and particularly the euro is fast growing.

Unemployment - the only sector in the eurozone and the EU with strong growth

These people are the ones who should be held accountable for the record unemployment and recession  in the EU.

"Our economic fundamentals remain strong"
EU Commission president J.M. Barroso (speech in New York, April 12 2013)

The only thing that is growing fast in the eurozone (and basically in the entire EU) is unemployment. Today official eurozone enemployment hit a new high: 12,1% - 19.2 million people - are on the dole. In the full 27-member EU, a total of 26.5 million (10.9%) people were out of work in March.

The Eurostat data show a dramatic year-on-year rise; a year before the eurozone unemployment was 11% and 10.3% for the entire EU. 

Greece (27.2%) and Spain (26.7 %) were the hardest hit. 

You could be forgiven for thinking that it could not possibly be much worse. But, as economist Andrew Watt (Germany's Macroeconomic Policy Institute), shows us, you would be wrong: 

"we can make a rough and ready calculation of the “real” rate of underemployment in Europe. According to the European Labour Force Survey, average hours of part-timers are a tick under twenty per week, whereas full-timers work 41.5 hours a week. We don’t know exactly how the working time preferences are distributed, but a reasonable starting point would seem to be to assume that those part-timers wanting longer hours have the same average hours as all part-timers and that they want to move to the average of full-timers. In  other words we add somewhat more than half of the 9.2 million involuntarily part-time workers to the unemployed total.** We then add the people in the two sub-groups of the economically inactive both to the numerator (unemployed) and denominator (unemployed plus employed).

If I haven’t made any stupid excel mistakes*** the underemployment rate in the EU27 could be considered to be up to 16.7% and in the euro area as high as 18.0%. In other words the unemployment rate captures only about two-thirds of the extent of European underemployment."

PS
It is of course possible that I have misunderstood what Barroso said. He may actually be right when he states that "our economic fundamentals remain strong" - if he meant to say that his own and the other commissioners' economic fundamentals remain strong. 

Wolfgang Schäuble on the Cyprus bailout mess

Wolfgang Schäuble, German finance minister, last night said that “nobody other than Cyprus is to blame for this” (the Cyprus bailout mess)

“Cyprus is living with a banking sector with low taxes and favourable laws that is completely overdrawn and that makes Cyprus bankrupt. This business model is not sustainable.”

Schäuble is, of course, right. But what he "forgot" to mention, is that without the euro, neither he, nor any of his other eurogroup colleagues would have the slightest reason to worry about massive bailout packages and possible repercussions on the eurozone financial markets. 

The EU is shamefully failing young people: Eurozone youth unemployment close to 25%

While EU commission president José Manuel Barroso is bragging ( and lying) about the end of the euro crisis, he - and all the other European leaders - do not have anything to say about this: 

The eurozone unemployment rate hit a new record high of 11.8% (November 2012) with  18.820 million people out of work 

Youth unemployment rate in the eurozone is now 24.4%.

The youth unemployment "leaderboard":

Greece (57.6%) 

Spain (56.5%)

Italy (37,1%)

SHAME ON YOU, BARROSO AND THE REST, FOR FAILING THE YOUNG PEOPLE OF EUROPE!

PS

Ambrose Evans-Pritchard, who is refering to the dismal employment statistics cited above, comments in his Telegraph column:

Mr Barroso may be right that the euro will not implode in 2013. But what matters henceforth is whether the victim nations wish to stay in a project that is causing so much damage, or indeed whether is any moral purpose in holding the euro together at this stage.

The march towards fiscal union (overtly, or by ECB stealth) strips elected parliaments of the final control over tax and spending. It thus eviscerates democracy. The Project breaks the back of historic nation states that are the only real defence of liberal representative government.

So one has to ask, what is the euro for? Why is it self-evidently a positive public good for the peoples of Europe?

Why sacrifice the lifeblood of parliaments for an economic experiment that is not even offering a `Chinese' trade-off of prosperity in exchange for abridged liberties. Why sacrifice democracy for a Barroso Model that has generated a youth jobless rate of 56.5pc in Spain?

These are the questions that Mr Barroso and his successor will have to answer over the next three years as the Club Med slump grinds on. We are no longer in the frothy – dare I say trivial – phase of financial crisis. We are by now in the deadly serious phase of economic and political crisis.

The eurozone´s northern paymasters increasingly frustrated by bailouts

One after one, the eurozone´s southern member countries are joining the club of beggars. Yesterday Cyprus was the fifth country to request financial aid from its eurozone partners. Italy is still missing, but it cannot take long before it also applies for "membership" in this less and less exclusive club. However, there are clear signs that some of the few remaining northern paymasters are beginning ask whether it is worth to continue pretending that the current bailout policies are working: 

Although the Netherlands was one of the six founder members of the European Economic Community in 1957, the Dutch have soured towards EU integration over the last decade and voted down a European Union constitution in a 2005 referendum.

Taxpayers who pride themselves on frugality and clean government have been outraged by having to pay for fellow euro zone countries' perceived overspending and sleaze.

They are particularly allergic to the idea, driven by Germany and France, that the best and possibly the only way to save the euro is through much closer fiscal and political union.

-

A Maurice de Hond poll published on June 10 found that 64 percent were against Merkel's proposal to gradually move towards political union, and just 20 percent felt the only way to overcome the crisis was to transfer more power to Brussels.

About four-fifths, or 82 percent, said the issue of Europe would play a major role in the coming election, while 70 percent wanted to see less saving and more economic stimulus next year.

RETURN TO THE GUILDER?

Previous polls have found that a substantial minority hanker for a return to the guilder. That has fuelled the populists.

The Netherlands is going through its own economic crisis, and has been in recession since the middle of last year.

The Dutch are nowhere near as badly off as the Greeks or Spanish, but many are feeling the pinch and this is hurting consumer confidence and spending.

Read the entire article here

Last week Finland´s finance minister ruled out a full financial union: 

Finance Minister Jutta Urpilainen says Finland cannot support the idea of a full financial union to save the euro as put forward by the head of the IMF Christine Lagarde.

“Our view is that we cannot share common responsibility for existing southern European debts,” Urpilainen affirmed.

ECB boss Draghi: Eurozone countries should accept loss of sovereignity

European Central Bank (ECB) chief Mario Draghi is openly saying what eurozone political leaders do not - yet - want their voters to know: The member states will have to accept a loss of their sovereignity in favour of a central government.


Also part of his vision of a "growth compact," Draghi backed calls for a boost in the resources of the European Investment Bank and said EU funds needed to be "redirected" to low-income areas - ideas already floated by Francois Hollande, the frontrunner in the Sunday presidential elections in France.
"But the thirdly and most importantly is that we collectively have to specify a path for the euro. How do we see ourselves in 10 years from now ...We want to have a fiscal union? We have to accept the delegation of fiscal sovereignty from national to some form of central [government]," he said.
In getting there, politicians should however refrain from talking about a "transfer union" as a starting point, he said, in reference to richer countries automatically paying for poorer ones, a concept most loathed by Germany and its independence-wary Bundesbank.


Read the entire article here

It is also worth noting that Draghi, while in reality calling for a transfer union ("EU funds needed to be "redirected" to low-income areas") urges politicians to refrain from using the words "transfer union", because Germans do not like it.

Draghis views are of course not surprising. He is just doing what the EU political leaders have done already for years -  misleading and misinforming voters - and keeping them out of the EU decision making process. What is perhaps new, is that the unelected Draghi is openly recommending this deeply undemocratic way of treating the citizens of Europe.