I would go a bit further than Canadian Finance Minister Jim Flaherty in commenting that “maybe Europe should give up on the eurozone”.
Europe should definitely give up on the eurozone, that collectivist-inspired effort at central control of disparate nations and disparate lives.
The attempt to have a common currency—the Euro—among 17 different economies was always doomed to failure. It is just another essentially useless fiat currency. It is legal tender because central authorities say it is.
The conduct of trade between 17 competitors using the same currency cannot work because no adjustment can be made in a member country for fluctuating trade balances. If the currency cannot adjust to account, for example, for the profligacy and unproductiveness of Greece then something else must be adjusted—in Greece. If Greece were on the drachma it would be valued less than toilet paper right now.
If the eurozone were one national economy (maybe that’s what the central planners in Brussels are hoping for), the single currency may have a chance in the global economy. All the incremental fiddling about to try and impose “austerity” (meaning nothing more than fiscal responsibility in this context), has been a waste of time. Flaherty has been critical of this “incrementalism” in Europe. He thinks that unless the member nations are prepared to pony up for bailouts of the less successful nations then giving up on the eurozone is an option.
Europe may not have a choice in the end. Germany will be the deciding factor in any case. If Greece should leave the eurozone the Euro will be under pressure for devaluation as Germany may leave as well.
Germany after all, is the one economy that has significant trade surpluses and is being called upon to support the bailouts. Some, namely the International Monetary Fund, actually blame the crises in Greece and other failing member economies on the German surplus trade balance. A Globe and Mail writer even advocates that Germany should start consuming more.
Incredibly, Germany is effectively criticized for being too productive! Why is it so difficult for Germany to decide to wash its hands of this eurozone stain? Out, out damned Euro, I say.
©Copyright 2012 Edward Podritske