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Europe: denial or misplaced values?
Europe: denial or misplaced values? Europe’s problem is simple to see and it’s just as easy to see why all these fixes fail. When you fix the symptom you don’t cure the disease. In this case curing the disease probably will involve killing the patient (the euro). Competitiveness differences within the Zone are too wide and are too entrenched to deal with without undermining the very basis of the Zone, which is to defend the single currency. Letting currency (or country) parities readjust is the only real solution. The price level differences in Europe are so severe that they cannot be handled by ‘internal devaluation’ otherwise known as deflation. Asking a generation of people to undergo deflation to keep the euro intact is a bad case of misplaced values. And that is where Europe is right now. It is upside-down and backwards. It is no wonder Europeans can’t find a solution. You can go through the haystack with the best scientific equipment and powerful magnets but if there is no needle there you will not find one. And the EMU is simply looking in the wrong haystack because it does not want to, and the IMF does not want to, face up to the real problem.
It’s unsolvable in the context of a single currency zone. That’s what it is.
When economic forces are pulling your currency zone apart you can’t keep it together without stopping the forces that cause those tectonic plates to drift apart. Expressions of unity won’t do it. Raising taxes won’t do it. Big Bazooka funds won’t do it. The Zone keeps looking for a fix in the wrong haystack and that just won’t do it either. In the end to fix the problem you must break up the union.
Period.
It’s not because of costs or because it is better for country X.Y or Z. It’s because if EMU does not do this things just continue to get worse.
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Germany should be first to leave the Euro...
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They have already put plans in place - see (1) changes in law so as to allow leaving EUR without leaving EU; and (2) recently strengthening Soffin so as to provide a tool for sorting out the resulting disruption to German banks.
Personally, I don't think this step is far away; Germany takes central banking seriously, and the Bundesbank thinks the 'statist' blind political support policies wanted by most of the ECB board members are beyond foolish and well into reckless territory (indeed we are on the second round of German ECB members because of this).
It should not be forgotten that German citizens never wanted to lose the DEM, and would rejoice at its return.
France might be OK in the EUR after Germany has left, because if Germany goes so will the other disciplined members (eg The Netherlands), and the rest (including France) can print and inflate to their hearts content...now what happened to the French 'old Franc'?
Watson
Yes Mr Watson. I see you GET it.
Macro economics requires too much discipline for most to think it though.
People love free trade or want to worship market solutions, but markets get things wrong every day. Politicians get things wrong twice a day.
I take my hat off to you...
elementary dear Watson, to you, but not to most.
Of course for political reasons Germany CAN'T be the first to leave so that will make things interesting.
"People love free trade or want to worship market solutions, but markets get things wrong every day. Politicians get things wrong twice a day."
And most economists rarely if ever get it right.
Thank you for your supportive comments, but I have to say I'm not sure I agree about
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...CAN'T be the first to leave...
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I agree they don't _want_ to be first, but what happens if Spain fails?
Much larger numbers than Greece; indeed I think it was Spanish considerations that triggered the action to strengthen Soffin.
Actions are _much_ more important than opinions (my own included).
I simply cannot think why Germany decided to strengthen Soffin when it did (early part of crisis well over) unless they wanted to make provision for Germany leaving the EUR.
Watson
And they told (almost instructed) their banks to get out Spain, Portugal and France!
Ok, this is my perspective at this point. I sent Mr Brusca a chance to send personal messages to me several hours ago. Why wait for a reaction.
You are desperate for someone to buy your goods. You have much experience in the trade. Can you send us a proper sample? You should be able to come up with the best designer stuff available.
I am a simple dealer in homegrown. Some like it, some can afford better.
It would behoove you to attempt some proof reading and perhaps invest in a spell checker...or at least learn how to use one.
Despite that, I think your point is that each country ought to be able to swindle those who lend to them and the lowly serfs trapped inside the lines on a map, through money printing. How is that really different from the current mess?
check out norway
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misplaced values
Bobby - Ok...so now you finally recognize that the EUR is toast. Bravo ! You are no longer blaming the Germans...you are making progress....
Now you just have to focus your understanding on the impact of exponential debt on "credit" values, and its impact on the real price level, and thr real price level on GDP.
You may graduate from the ZH University of Realism yet...maintain the stiff upper lip....keep on going in your quest to eradicate the indoctrination you absorbed while at the NY Fed.
Progress is noticeable.
Robert,
Deflation is only bad for the Bankers and better for consumers. This is not a Europe issue it is a Global one. This Financial Crisis started in the US and will finish in the US. Europe only stands as a distraction from the real Elephant in the room, which is the US total liabilities.
If your Pal Ben keeps printing.....he will destroy us all.
NOPOMO
deflation is bad for anyone who owns assets and has debt. deflation reduces asset values ( the collateral for pension pay-outs, by the way)and makes debt harder to service(even if interest rates fall).
you are seriously misinformed about the impact of deflation.
hehehe
Yeah, price deflation has such a terrible impact on computers and technology...that's one market that is really shrinking and unproductive because there just isn't enough inflation to rev it up!
Thank God food isn't like that, deflating in price and stuff. But maybe when steak and hamburger outprice us, we can eat our iPads after all.
Winning comment
Game.Set.Match: Renfield
I'm so happy we seem to have found a replacement for leo & mad hedge fund trader, thanks Robert.
I do not (this time) disagree with his assertions, but they are merely that --- assertions, without any foundation in detailed argument or analysis. In other words, Robert, you just gave us three paragraphs of opinion with little or nothing to back it up. Is this the best you can do?
This is just a valueless armchair chat with regurgitation of material put out years ago by incomparably better sources like Felix Zulauf (who actually lives in Europe and runs a fund there). ZH must be getting really desperate for site hits to publish insipid stuff like this.
Agreed, although I could never for the life of me understand why ZH published the Keynesian ramblings and statist drivel of Leo either, and yet that went on for almost two years. I used to assume that his presence was designed to draw out fury and indignation, and therefore comments and site hits, a cynical ploy if that was the case.
Any one who in approx 3 paragraphs says they can fix Europe is looking for cheap advertising. Move on.
I just wasted 3 minutes of my live by reading this pointless drivel.
And no, I didn't even rated whatever this is supposed to be.
Snoopy
BobbleHead Brusca has now overtaken that one clown from Canada who used to guest post on here as the biggest douchebag currently guest writing on ZH. (Remember the guy who used to say he was always having lunch with some big hedge fund guy and blah blah blah, I am sure one of you will remind me who he is again!)
EgB: I rate Mr Brusca's posts as a 3 on a scale where Chris Whalen's Uncle Sol and Graham Bummers both score 10.
Yes it was Leo...
Akak and I tormented him to no end...
Ah yes, Leo, the cripple (I speak here of his mind and soul more than his body) who deserved all the opprobrium heaped upon him here!
Good times.
Aaah Leo, we knew him well (better than the delusional muppet knew himself)
Leo's now pushing up the daisies (in Canada somewhere) having topped himself ...nice to know his carbon footprint is being put to better use under the ground than it ever was above it
Leo (and his 'winning' green investments) RIP
Leo shot himself?...if true, this is precisely the thing I was talking about. Do not take advice (financial or otherwise) from mentally disturbed people.
Leo's brain is still dead, but he continues to breathe [nonsense] to any pension fund silly enough to listen....
http://pensionpulse.blogspot.com.au/
Good. I'm somewhat superstitious...I don't like speaking ill of the dead.
Its still open season ;-)
When they are brain-dead, it is open season.
Chinese Solarz, Bitchez!
ROTFL!!!
Leo?
RB - Big hurdle. Jump higher.
i.
Robert - great analysis. They (Europeans) desperately need to have their own currencies to adjust to the differences between economies. Interestingly - what did them wasn't the new addition of post-communist countries but the prior addition of the Club Med countries.
They will need to redefine the entire concept of EU. Some things are great like open borders, free movement of people and products and some things are killing them, like trying to prop up badly managed countries.
singing to the choir
I am going to try and take a stab at this one. Excuse me If I see this wrong. Mr. Brusca the main reason is you have soverign countries that are a part of a fiscal union. I am sure you know this but having said that each member is a soverign country and none want to give up their idenity nor their nationalism and give up said soverignty to a central government and they like the USA and become a state to a central government.. This is not going to happen. Countries will leave the union and they know it. I do not blame them.
There is no way to balance the current system until one they have a fiscal union, and two they form a central form of government. I do not blame soverign countries for not wanting to bail out other soverign countries. Especially when the standards in one country are different then in another country. I am not going to go into all the differences as most here already know them. Most economical solutions from the USA think they have the solution and forget they are dealing with individual soverign countries. Hell they will not even agree on a set of standards for every country in respect to all the social programs and labor.
Discussing how the Northern Countries prospered under this system has no relevence as the consuming countries knew what they were getting into. I always consider the adults of a errant child and they give them a credit card and tell them they can spend 500 bucks. The first month the child spend 600 bucks and the parents get up set and tell the child now you better not spend that kind of money next month. The parents get the bill and the child spends 1500 dollars the next month and the parents cut the child off and the child gets pissed off and have a fit. We are there now in Europe.
There is no fixing this problem in its current form, it is impossible. I suggest you pull up a chair, get some popcorn, and watch the comedy as we are right back to where we were last year and the political elite will now be spouting all kinds of schemes that are nothing more then comedy to anyone that can actually think critically. Hell even I can now figure it out.
There is no Fiscal Union and cannot be one. The whole EU Project is based on a LIE. It was done to deceive the peoples of Europe and was deliberately conceived in the 1920s - yes 1920s - modelled on The League of Nations which if you recall tried to disarm nations and have one Army.
Well the People of Europe have not been asked. The Euro was going to be One Ring To Bind Them All - but it has not worked out and People are not happy to lose Democracy. The Bourbons running Europe have forgotten nothing and learned nothing but have no policy other than to keep rolling forward leaving the Peoples of Europe wondering what they are doing.
There cannot be a fiscal Union because there is no Legitimacy to the EU. It has a Politburo at its heart - Unelected - yet passing 80% laws in European States and by-passing National Assemblies. When the USA has an appointed President chosen by Brazil, Argentina, Mexico, Canada to rule over the US and a Congress without any power over Budgets you might not think Fiscal Union too clever either.
Do you know that the EU subsidises Spanish fishing boats to fish off the West Coast of Africa putting African fishermen out of business because their corrupt governments sell fishing rights - then these fishermen have to come as refugees to Europe looking for work in Spain as illegals ? Do you know how far the misery of the EU extends into Africa ? If you want a Fiscal Union with Spain and Italy and Greece start to include North Africa and West Africa too
http://allafrica.com/stories/201203201307.html
http://www.stopillegalfishing.com/sifnews_article.php?ID=82
http://www.iwatchnews.org/2011/10/04/6769/spain-s-hake-appetite-threaten...
http://www.eubusiness.com/topics/fisheries
So if you want a Fiscal Union because Spain is bust try adding Africa to it as Spain is destroying African business and fishing
sandmann, I'm crushed. I'm used to much better arguments from you. "the people of Europe have not been asked", the "ring to bind them all", and now even the Bourbons? I have the impression your account has been highjacked.
This fisheries business with North Africa: where is the difference with the British/Icelandish spate? Except by the fact that the Icelanders did win it by ramming British warships with their trawlers?
Very different. The British "spat" with Iceland was resolved when the USA wanted to retain its NATO Keflavik base in Iceland and squeezed the British to give in.
With mediation by the Secretary-General of NATO, Dr. Joseph Luns, Iceland and Great Britain were able to come to an agreement on June 2 1976
The British fishing industry is gone. Spanish ships now have the right to fish up to the shoreline and have the EU subsidising new boats whilst British boats are scrapped. Britain had the biggest fishing fields in Europe - now they are open to all comers. It is not North Africa but West Africa down to Mozambique.
You clearly have no idea of how far the depredations reach and what is happening in Southern Europe. Spain cannot compete on citrus with Morocco so imports Illegals to keep its Citrus industry going and destroys jobs for its own people. Spain is so uncompetitive that it needs illegals that it exploits and has frequent amnesties on illegals hoping they will migrate North.
The economic problems of Europe are not limited to the EU because the EU extends its weird economics into Africa and destabilises economies there. You really have a limited grasp of the EU if you think the EuroZone is the full extent
sandmann, again, your posts are usually crystal clear. here you are murky as the bottom of a lake at night for me. what is your point?
That the Spanish fishers are dislocating the British fishers? This just means that the UK government is pushing less for it's fishing industry vs the Spanish government. Because they diplomatically traded this point against a few concession for the City of London, as far as I remember. Who needs British fishers if British bankers are soo much cooler and productive?
And eat Spanish fish. Queen Elizabeth (the First) decreed England has to eat fish three times a week while engaged to the Spanish King.
your "wierd economics" are just free markets with industries backed by governments - quite common on this globe.
" Most economical solutions from the USA think they have the solution and forget they are dealing with individual soverign countries. Hell they will not even agree on a set of standards for every country in respect to all the social programs and labor."
Yeh...and this has only been going on for 1000 years...at a minimum. It's called "exponential debt" that has caused the issues. save yourself the verbiage.
No need for all the paragraphs....we all covered that in ECOn 101.
in respect to all the social programs and labor."
http://ec.europa.eu/social/main.jsp?langId=en&catId=82
You are of course wrong....
http://europa.eu/legislation_summaries/employment_and_social_policy/empl...
Bounce RubberBalls bounce!
US banksters love italian suites, swiss watches, french restaurants, but the natives that live in the old world ...give them austerity.
Ok but Rubber Scrota is an anagram of RobertBrusca.
"...curing the disease probably will involve killing the patient (the euro). Competitiveness differences within the Zone are too wide and are too entrenched ...to defend the single currency.."
it's not competitiveness that's killing the Euro, it's that age old killer of all nations, debt
It doesn't matter to the US Dollar that both Texas and Idaho are doing fine and California and Chicago are crumbling ...what matters to the US Dollar, and will kill it, is the debt
It certainly matters to the [over-taxed] residents of Texas and Idaho that the [profligate] residents of California and Illinois are crumbling through misallocation of resources!
The USD has been plunging in purchasing power only since the introduction of a single monetary authority (the Fed) and central tax-farming bureaucracy (the IRS) ... both, coincidentally, introduced in 1913.
Get rid of these ridiculous central planning "Unions" and leave each grouping of like-minded communities---whether farming, industrial or services-oriented---to either live within their means or be forced to borrow against their own assets to fund profligacy.
i-dog, according to Mr. Brusca there is a very easy solution: California and Illinois need a different currency that can be devalued faster than that of Texas and Idaho. simple - and no intended consequences, of course...
What Brusca 'suggests' is an amputation of a portion of the EMU so his overlords on Wall St can continue the pillage in the FX markets. It cannot be more obvious.
Bobby, write something coherent on the US before you save the world, mmmkay?
Yes great range of 'solutions' politicians have
once they flog/trash the Govt budget finances they then proceed to the next policy option of flogging/trashing the currency
it looks like vandalism and total anarchy but they actually call this system 'democratic government'