This page has been archived and commenting is disabled.
Is The Euro The "Barbarous Relic" Of The 21st Century? Musings On The Fate Of Europe By Dylan Grice
With the US increasingly locked up in its own liquidity bubble, even as its traditional trading partner China moves to a trade deficit stance for the first time in years, the key question of how that other critical trading counterparty, Europe, will survive the tensions in its periphery have been persistently unaddressed. As rumors of a Greek credit restructuring become ever louder, the next question becomes not whether it is "constitutional" to bail out Greece, but whether a EMU member can impair the balance sheets of its investors in a pre-packaged bankruptcy, the bulk of whom just happen to be other Union members. And all of this is occurring even as concerns about the viability of the euro as a currency have become a mainstream topic. Below is the latest essayistic observation on the future of the euro and the eurozone from SocGen's Dylan Grice, who as usual shows more foresight on all matters sovereign than most. His conclusion: the euro could very well soon become the short-lived barbarous relic of the 21st century.
Reflections from behind a volcanic cloud of ash
For all the grandiose political loading of the euro project, it is actually only the most recent attempt at a currency union. Some have succeeded, others have failed, and spending time in Helsinki where I’ve been marooned this past week by Iceland’s terrifying volcanic plume (or at least by the hysterical reaction to it) has proved an unexpected opportunity to think about why that is. The euro’s problem isn’t Greece or Spain or even Germany. The euro’s problem is Europe.
Though spring has broken out back in London, there is still grit on the roads and pavements here in Helsinki. Lumps of packed snow are wedged into bus shelters and street corners and people are still wearing hats, scarves and gloves. It?s very cold and still feels like winter, though the people are friendly and the history rich. There are worse places to be stranded.
It?s a good vantage point to think about the euro and the problems that currently blight it too. Sitting here writing in the extreme northeast of the eurozone reminds me just how diverse Europe is. I feel far from the eurozone and even farther from Greece, the current epicentre of its problems on many levels.
The geographical distance is huge. Helsinki is the eurozone?s most northerly city while Athens is its most southerly. But the ancestral distance is no less stark. Greece is the cradle of Western civilisation and Europe?s oldest nation, while Finland, colonised by the Swedes during the Northern Crusades of the thirteenth century and with no written history of its own until the sixteenth, is one of its youngest. While Athens is dominated by Mt Olympus from where Zeus was once thought to marshal the clouds, Helsinki is dominated by its cathedral, built in tribute to Tsar Nicholas I in 1852 and giving the city an echo of Romanov Russia.
These two nations even appear on opposite linguistic fringes: the Greeks still use the same distinct alphabet as their celebrated ancestors while the Finns?" ?Finno-Ugric?" tongue is one the few EU languages which isn?t a member of the Indo-European family.
Yet these countries share the same currency. In the cold light of day it?s difficult to understand why. What do they have in common - a shared ?"European-ness??" Possibly ... but don?t Brazil and Angola have a shared ?"Portuguese-ness?"? Is anyone suggesting they get into monetary bed together?
Anyway, the more you wander around Helsinki and begin to understand it, the more you realise you don?t understand Europe or what ?'European-ness'? is. You might define it as consisting of three ancestral pillars: Graeco-Roman, Germanic and Christian. You might start with the Graeco-Roman tradition, from which comes the notion of centralised state power, of democracy, and in particular secular democracy, and from which the distinction between church and state is derived, in contrast to say, Islam, where there is no such distinction. Then there were the Germanic tribes outside and to the north of the old Roman empire. These tribes? members enjoyed equality in the eyes of the law long before the Magna Carta, and kings were elected according to merit rather than their blood line. They bequeathed Europe a flatter and more meritocratic structure, which tradition found lasting and significant expression in the success of Protestantism in Northern Europe following the Reformation. And you might conclude the final pillar of ?'European-ness'? to be Christianity, which gives its value system: respect for property rights, monogamy, etc. ... but then you?d probably decide this was all a load of convoluted and unconvincing historical mumbo-jumbo and that you still didn?t know what it means to be a European.
And in any case, this "?European-ness?" hardly rolls off the tongue does it? If you ask an American what it means to be American they?'ll instantly rattle off something about freedom and democracy; if you ask a Chinese what it means to be Chinese, you?ll instantly get something back about being a part of an ancient civilisation, not a country; if you ask a Brit what it means to be British they?ll mumble back something about fair play, bad food, and never winning at football.
Political coherence isn?'t cultural homogeneity: Minnesota isn?t like Dallas, Shanghai isn?t like Chongqing, Aberdeen isn?'t like Bristol. But there is a nebulous, intangible yet very real shared "?we"? with which coherent political units identify; an American "?we"?, a Chinese ?"we"? and a British "?we"? (although the nationalist genie is hard to put back in the bottle and today the British "?we"? is weakening). And, because these political unions broadly cohere, they also produce successful currency unions: America has had a single currency since its civil war; each Chinese dynasty through the ages (including today?s Communist Party) has succeeded in imposing a single currency on its realm; Britain has had a stable and successful currency union since the Act of Union of 1707.
So when hard times hit these nations, the idea that the union will break up in consequence is absurd. In the UK, the banks which caused most of the problems for taxpayers (HBOS and RBS) were both Scottish, yet no one sought to make political capital out of it. Notwithstanding the rising nationalist temperature north of the border, English anger towards Scotland and the Scots for "?causing?" the financial crisis hasn?t just been muted, it?s been non-existent. In America, many States face real solvency issues and fiscal crises that are likely to see some defaults, yet no-one is seriously suggesting this will lead to a break-up of the dollar.
Earlier supra-national currency unions in Europe have broken up: the Austro-Hungarian krone broke up in 1919 because the Habsburg ?"we"? wasn?t strong enough to dominate the distinct Austrian and Hungarian "?we'?s"? following the fallout from WW1; the Soviet ruble broke up in 1990 because the Soviet ?we? wasn?t robust enough to dominate, for example, the Ukrainian, Kazakh, Georgian "?we'?s"? following the collapse of communism -? likewise the Czechoslovakian koruna.
The centrifugal force of the nationalist "?we?" broke those common currencies. That those similar nationalist ?we?s? exist in Europe today doesn?t bode well for the future of the currency, if history is any guide. Neither the French, German, Finnish or Greek "?we'?s"? have strong parallels in the older and more successful currency unions of today. Where is the European ?"we"? and if we don?t even know what it is, why do we think it will be sufficiently robust to weather hard economic times?
This is the euro?s first test -? and the early signs aren'?t good. According to an FT/Harris poll published last month, only around 30% of Germans think that leaving the euro would leave the economy worse off, while nearly 40% think the economy would be better off. The same poll showed Germans to be steadfastly against aid to Greece. Why, they ask quite reasonably, should German taxpayers retiring in their sixties bail out Greek tax avoiders retiring in their fifties? Note that German and Greek "?we'?s"? are already trumping any notional European one.
Meanwhile, the brilliantly named Joachim Starbatty is said to be filing a claim at the constitutional court that the aid package is in breach of the Maastricht treaty. It has been reported that if he does, the rescue could be delayed for weeks or even months, though the confident assumption seems to be that his claim will fail. What if it doesn?t?
There is nothing inevitable in the euro breaking up. Decades from now, the European "?we"? might yet dominate the national versions. Indeed, it took so long for the German "?we"? to be forged that in 1916, a full 45 years after the official unification of 1871, a Frenchman who couldn?t have known the heartbreaking resonance his observation would carry in future years noted: "?Still today, Prussians, Saxons, Badensians, Wurttembergers and Bavarians exist in Germany. Only Jews are exclusively German.?"
But neither is there anything inevitable about it surviving. Most of the arguments against break-up seem to be emotional: that there is "?too much political capital?" invested in the euro project for it to fail now, or that it?s "?in no-one?'s interest?" for it to dissolve. Of all the good reasons to give in support of the euro, surely an argument built on the premise that ?"things that are in no-one?s interest don?t happen?" should be the last.
Anyway, the precedent set by arguably the greatest supra-national single currency experiment in history isn?t encouraging. Like the euro today, it involved the use of a cross-border single-currency without political union. Like the euro today, it is impossible to overstate the political capital invested in the project back then, or it?s centrality to the psyche of investors and policymakers. Like the euro today, membership was exalted from within and coveted from without. And like the euro today, any policy action aimed at ensuring the system?s integrity was sanctified and deemed beyond political reproach.
Yet Keynes famously thought it a "?barbarous relic?" and most economic historians today believe that adherence to it exacerbated and intensified the Great Depression of the 1930s. That single currency experiment was the Gold Exchange Standard of the 1920s, and the world?s de facto single currency was gold. Before the system?s collapse the notion that currencies would not one day be backed by bullion was simply unthinkable. But in the face of the chaotic chain of events triggered by the crash of 1929, it was the harsh austerity and painful unemployment levels required to maintain parity to gold standard that instead became unthinkable. How long then before the ?"internal devaluations?" of today become similarly unthinkable, and the poor old euro becomes the "?barbarous relic?" of the 21st century?
- 8294 reads
- Printer-friendly version
- Send to friend
- advertisements -


Greek bond spreads continue to blow out, the Euro crash is accelerating, yet stocks continue to rise none the less, shaking off any and all bad news.
Looks like the banks are rocketing again:
And don't forget your mattresses...
I'll let Rasputin add his two cents:
Signs of scroomage from several sources
Rasputin
- Wed, Apr 21, 2010 - 07:45 AM
Beginning with yesterday's "Lehman Hearings Bread and Circus", I found
it hilarious that NO ONE at the Fed, the SEC, or even Lehman itself
(including former CEO Dick Fuld) was aware that FIFTY BILLION FIATSCOS
PER QUARTER were magically appearing and disappearing off Lehman's
balance sheet every quarter in the "Repo 105" transactions.
Luckily for us, no other Wall Street shysters were pulling similar
shenanigans, right?
Right?
Heh, and we should trust the Fed, the SEC and Wall Street to
protect our interests?
Next up, we have and update on the "HAMP" program:
Dismal failure.
Only 240k modifications so far, from a total of OVER FOUR MILLION
homedebtor potential candidates.
And the reason for the catastrophic failure of this handout from
Uncle Gorilla?
The banks don't want to take the writedowns.
Duh.
Speaking of failed financial gamblers, the IMF just reported that
FIVE TRILLION FIATSCOS of bank debt needs to be rolled over in the
coming quarters, but--get this--the banks are STILL sitting on trillions
of fiatscos of losses.
Who could've guessed that?
Moving back to the topic of deadbeat homedebtors, PBS "News Hour"
showed a segment last night regarding the total McMansion carnage in Ft.
Myers Florida. They featured one deadbeat who hasn't made a condo
payment in over TWO YEARS!!!
Which confirms our theories on this board as to where the sheeps
are getting the fiatscos to fling at iPads.
However, the funniest part was when Paul Solomon interviewed a
banker who stated (paraphrasing):
"When McStucco prices were rising, no sheeple called their bank and
said 'Here, let's share the profits'. Yet now they want us to LOWER the
principal because they are underwater?"
Of course, the banks sold all the loans to the securitization
bagholders anyway, so why should THEY care?)
Speaking of shopping sheeple, the American Assn. of CPAs just
reported that FIFTY-FOUR PERCENT of American lambs have ZERO, ZIP, NADA
savings.
However, the ewes DO have plenty of charge card debt run up at the
malls, according to the AICPA.
Wow.
Finally, I saw a segment on "First Business" this morning that
featured a sharp lawyer who is soliciting "victims" to sue Godman Squid
under a class action thingy.
It's about time somebody stood up and sucked a couple million in
legal fees for themselves and will hand the poor proles who were
scroomed by the Squid a couple hundred fiatscos each.
Ain't America great?
(Ras Conclusion): None of this matters because AAPL had
another blowout quarter and stocks will continue their relentless rise
to the stratosphere.
But I thought you might enjoy these tidbits anyway.
GOLD BITCHES!!
The Euro is a currency without a country.
It can't succeed unless the EU becomes an actual country and not a bloated and ineffective bureaucracy trying to impose its will on several.
Gold is a currency without a country, as is silver.
Your analysis is simple and lacking. Hardly a surprise.
I am Chumbawamba.
Gold is not a fiat piece of paper (or computer digit) as is the Euro, nor is silver. Your analysis simple and lacking. Hardly a surprise.
Oh, really? So it's only money and not a currency? Like I needed some pissant loser who doesn't understand glossary terms to come along and sling underinformed nonsense at me?
Go away.
I am Chumbawamba.
by chumbawamba
Shouldn't you be contemplating your Final Solution to the Jewish problem and jacking off with a fistful of Euros?
Oh, so it comes back to Jew bashing, does it? Why don't you take your insane ramblings to Stormfront?
But getting back to the subject at hand, are you telling me that gold is "money" but not "currency"? Care to tell me any other strange and fantastic theories of yours? I'm sure the rest of the group will also benefit from your singularly brilliant financial tutoring.
I am Chumbawamba.
Stormfront? You're the angry Arab who has posted that Israel is the source of all terrorism, suicide bombing is merely chemotherapy to the Israeli cancer, etc., etc.
Ok, genius who defended the Euro with saying gold is also a currency without a country. Same difference right? Obviously motivated by your dislike of the Zelda fairy character's "pro-Zionism" in other threads.
uh! Are you trying to use never dead argument in your discussion to win it? WTF it has to do with whatever you want to say?
You act like a child, so you are treated like a child. Have fewer temper tantrums and people will think better of you.
+300000000000000000000000
I have that impression that the whole article is based on one false premise - you can avoid all your problems if you are able to manipulate your currency! Problems arise when you can't. Just EU in it's drive to get bigger and more powerful decided to close their collective eyes to real economic shape of countries trying to become members. Result is known.
Do we have any problem with "barbaric relic", I don't think so it's more "toillette disposable" problem (fiat currency), if they kept "barbaric relic" as the measure of economic power we would go into problems but they would be limited, now, it looks to me there is no limit to our problems. Is there any difference in Greek view of 1 oz. of gold than Finnish?
I took the premise to be that the birthright of the people of Greece was greater than the birthright of the people of Germany.
I don't agree with that premise.
"yet no-one is seriously suggesting this will lead to a break-up of the dollar."
uhhhh
Weeeeelll, noone had similarly recognized housing bubble back in '05-'06 or predicted that it would burst, right?
Several of the US states tried desperately to get out of their union when they realized what federalism cost. They failed, though many lives were lost and the price of federal tyrrany is still rising, intolerably. If Greece can get out without any blood spilled, they should bolt.
Yes, and we should solve the problem by giving money (we don't have) and weapons (we buy on credit) to third world shit holes so they can exacerbate our problems.
Genius.
I am Chumbawamba.
Nice non-sequitur there.
We've had this Euro discussion many times here at ZH but Dylan is very succinct in the definitive problem. There is no "euroness".
The countries are far too diverse in culture and language. The Euro helped some nations but brutalized others. Talk about internal inflation--Greece 15 years ago was a tourist dream come true because it was a bargain. They gained on the tourism front but the retirees on fixed incomes have been devastated by the overnight increase in prices. Many other nations have experienced the very same problem.
I predicted the Euro would fail within 15 years of its inception due to these very issues--too many diverse economies under one currency with no real reason to get along. Time will tell.
Shouldn't 'euroMess' be enough instead?
On reading Grice I am struck by a view of "Europe" as a construct that emerged out fo the cold war. That was the time that all of the euro nations faced a common enemy and had some need for common ties.
Once the common enemy collapses one is left with a polyglot accumulation of disparate states that, as Grice observes, have little in common.
Actually, what truly unified Europe was WWI and WWII. The goal of "Europe", or the European project, or whatever you want to call it, is to prevent another bloodbath.
bingo
I think HowarBeale should junk the whole article on the basis of this small paragraph:
"There is nothing inevitable in the euro breaking up. Decades from now, the European "?we"? might yet dominate the national versions. Indeed, it took so long for the German "?we"? to be forged that in 1916, a full 45 years after the official unification of 1871, a Frenchman who couldn?t have known the heartbreaking resonance his observation would carry in future years noted: "?Still today, Prussians, Saxons, Badensians, Wurttembergers and Bavarians exist in Germany. Only Jews are exclusively German.?"
Probably he will have some problems with some question marks too.
The ECB marks it's gold to market unlike the Fed. The Euro is anything but a "barbarous relic". If the EU wants to be solvent again all they need to do is let gold do the heavy lifting. Cause a run on gold or openly bid for it on the market until this monetary metal cleans up their balance sheets. Drive the price and set fire to paper gold allowing the POG to make you solvent again.
Do you really think the EU will let the paper game lead them to their demise while we just spin our print press?
+10
The Euro is fiat until it isn't. Unless and until they explicitly back their currency with gold, it will behave just like other fiat paper. It'll burn.
And, if I may say so myself, most Eurocrats/bureaucrats would rather die than see the return of Keyne's "barbarous relic".
It's a shame, since European countries, taken as a group, are the largest holders of gold in the world, by far, gold holdings being dominated in Europe by the "big three": Germany, France and Italy.
On the other hand, it seems an awful lot of gold from Germany is held by the NY Fed in its vaults in New York, so make of that what you will... Actually, it may very well explain why Europe hasn't switched to a gold standard yet.
This article highlights something that goes back hundreds of years.
The Euro is the modern incarnation of the Latin Monetary Union, a Napoleonic invention.
Napoleon was a lot of things, but he was very forward-thinking, and eminently populist in terms of the Code, rights, monetary sanity, etc.
No sooner did the LMU take flight than Britain, with its vampire banking tribe, attack it. Britain has waged paper war with the Sterling Bill since its inception.
In today's world, the Euro was intended to be a transactional currency, with debt and deficit caps meant to keep not only Weimar from happening, but from BRITAIN or the US happening. And so...we attack it. Same old Sterling Bill, except now it's the FRN. Our bankers cannot take assets from the weaker world if we have to actually cough up something real for our paper. This is what the BOE and Rothschild types knew. It's much, much, much harder to lend REAL capital than fictitious inflation capital because in the case of real capital you have to be productive, assiduous, and above all else, actually HAVE IT in order to lend it.
The Sterling Bill concept is much easier, issue them, inflate, deflate, just use "confidence" to prevent a run; worst-case, just declare them void and have the Royal Navy sail.
So, our WS banks assisted all the weaker EU nations into the Euro, gee, what a shock. We help embed a timebomb into this currency. Everyone knows that we are seeing a speculative attack on the flanks of the EU. Sure Greece is insolvent...who ISN'T? If Greece takes down the Euro, shouldn't CA+NY+NJ+IL+FL+44 other states bring down the FRN? Shouldn't the USG's balance sheet collapse OUR currency?
It only doesn't because we are still waging the centuries-old paper war with our own Sterling Bill. As long as we have the Gulf in our pocket and the petrodollar lives, our currency IS the Sterling Bill. Call it the Hydrocarbon Bill. That's the only thing backing it anymore.
Napoleon was thought by some as the Anti-christ, because he destroyed Christian Europe and the burgoiuse. The EU is set to be the seat of government of the Anti-christ, at least this according to those who follow such ideas( idiots). Just saying, there are, it would seem , motives far bigger than usury banking here, afteral usury has a finite date of expiration. Interesting to see how the EU architects respond to a collapsing dream or is it?.
You might be interested by the predictions of LEAP2020, a European think tank, that say the UK will be next to implode, and not another European country. They think the U.S. will go bust soon after the UK too.
Thanks , but I subscribe to LEAP2020. They also said the US would default in summer 2009... Wrong!!!
LEAP has a pro-eurasian slant to their liberal socialist views. Smart people but seem at least, naive to religious views, motives.
the UK rightfully ought to implode. So should we.
But the UK is an agent of ours and there's a significant interlocking directorate between the BOE and the FRB.
the brits are doing their bit for the anglo-saxon empire
http://www.youtube.com/watch?v=RZUOkGxGUVs
The exact same analysis could be relayed to the polyglot of US states? Those residing in NY and TX or MS have as much in common as Greeks and Finns. Surprised Tyler hasn;t taken him to task for the implict endorsement of the keynesians solutions he endorses via ownership of your very own currency to pervert and abuse.
Nonsense.
We all speak the same language. We all share the same national history since 1776. We all share the same Executive branch and high court. And finally, we are all bound by the same Constitution. Greece and Finland share none of those things.
Actually, we don't all share the same national history.
The deep south, and the northeast have different cultures, no?
I see your point, but we can't deny there are some regional differences.
Regional difference is a hell of a lot less severe then national/historical/linguistic/ethnic/thousands of years of resentments and so on and so on.
Best example I can think of is watch a barcelona football/soccer (whatev u wanna call it), the barca fans (catalans) are constantly burning spanish flags b/c they hate madrid and want independence. When you go to a Dallas Cowboys game are people burning American flags? Yeah, maybe you see some confederate flags around, but I don't think burning the stars and stripes would go over too well.
The catalan/castillan thing is just one group in one country who doesn't feel a part of the nation they live in. the freakin basques have been blowing up stuff forever in spain.
now take that, multiply by 22 or how many countries and a few minority groups in each country.
little more dramatic then a guy from boston getttin pissed the texas bopard of ed is puttin good ole teddy in their history books.
capiche?
It's not about culture, it's about whether or not you can afford to keep their finances from imploding.
umm, I went to Miss., they had slightly funny accents, but I was able to speak the same language.
I agree. The hatred of nyc & dc by middle america will boil over someday.
Talking about barbarous relics seems they having more trouble than usual in bringing down gold today.
it occured to me while sitting on the throne, if the fed locks up money market funds in a market decline will that also prevent knife catchers from bidding for stock?
First off and obviously "Europe" has two things in common. They're called "World War I and World War II." That includes Finland. That includes Greece. I'm not saying the author is wrong in his analysis--but the purpose of "the experiment" (and this is more than just a currency union of course) is to prevent another 40 million dead on the Continent in this century. Seems like a laudible goal to me. To I think the currency union can start a war rather than prevent one? i think THAT would be an interesting question. Jous Sans Frontiere as they say.
i think you'll find that each nation joined the european project for their own selfish reasons.
http://www.youtube.com/watch?v=K-Xvy1r4Pm8
off topic:
Dear Tyler Durden,
Please explain to me why it is NOT plausible that GS "cornered" the sub prime market as the the Hunt Bros did oil?
Between Goldman, and Paulson; make almost 20 bil shorting sub yum yum prime, besides any other hidden partners.
This new token case of fraud might show they knew these things would blow up! How difficult is it to show they, with intent crashed subprime, knowing it would spill over into any market with a dereviative behind it. ??
And Is there any way to know exactly who was behind the $550 billion drawdown at the fed window on sept 11? 15? of 2008?
Inspector Asset
All paper currencies are barbarous relics. Only gold and silver are real, lasting money.
Could someone please remove the freaking ?'s next time!!
Guns and liquor and the only post apocalyptic currency, i can get a lot more food with a bottle of Jack than some inert material I grace my grill with.
How will you get this alcohol? Will you make it? For your sake, and others around you, I hope it is good!
Greek mythology is bull. Hundreds of years from now, the books will be written to talk of "Bernankus" the god of paper, "Geithnus" god of sneer and deception and "Bush-chen" the two headed horse of the apocalypse.