Saturday 8 May 2010

Euro it makes sense... or not

The European single currency is having a slight crisis. Since the global credit crunch (what an over-used catch-all lazy moniker that is, plus it doesn't really mean anything) buggered up financial markets good and proper in 2007, some eurozone economies have been struggling in the resulting downturn and recession, saddled with massive budget deficits resulting from an all too voracious appetite for cheap credit (governments and individuals alike).

My point here isn't to go over just how the Greek economy got itself into such a mess, even though anachronisms such as a state retirement age of 53 (yes, fifty three) are worth a mention. My point here is that the euro itself is in very serious trouble. And how did it get to be in so much trouble? Because it was almost certainly doomed from the start.

Let's be clear, as a tourist, I love the euro. I think it's fabulous. We live close to the Belgian border and only this morning we were in Belgium shopping. I adore the fact that I don't have to do any mental arithmetic (good thing, cos I find sums hard without a pencil and paper), or rush to the nearest cash machine to get currency, whenever we travel to Belgium, Germany or elsewhere in the eurozone. How marvellous.

So, great for tourists and also, to an extent, for businesses. But bad for economies. Right from its beginnings, my big misgiving about the European single currency has been the "one size fits all" economic policy approach. It's a bit of a risky strategy, after all. Applying the same central bank interest rates and economic governance policies to economies as disparate as Germany's and Portugal's, Denmark's and Greece's, or Belgium's and Ireland's is never a wise move. How can you expect the same central bank baseline interest rate to suit an economy like Luxembourg's, growing at 5.4% (in 2005) with that of Portugal's, growing at 0.9%? Or control a 1.4% inflation rate in The Netherlands just as well as a 3.2% rate in Spain? Of course not. Central economic policies don't usually manage to suit all regions within just one country, never mind economies from 16 different countries.

On top of this not-ever-so-bright central banking approach, add the question of solidarity between nations. Observe the distinct displeasure amongst Germans about having to stump up 22bn euros to get the Greeks out of bother. It's understandable, after all. And that is why monetary union is such a difficult thing to get right. It's not just about minting some new coins and printing off some pretty new banknotes with forrin writing on. It needs for the taxpayers in all member states to be willing to shore up another country's economy. And that is somewhat complicated. If it was easy, the Greek crisis would never have reached the stage it has now.

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Anonymous said...

I'm not really sure where I stand about the Euro, and even though I love the European Union, I'm wondering whether it was a good idea at all. The idea is good yet it brings its share of troubles...

Even in France, despite what the gov' says, prices and living expenses did rise sharply after the Euro!

Brennig said...

I do agree with your positive views on the user experience of the Euro. Moving from country to country has never been as easy as it is now. Three of the countries I regularly visit all use the same currency, Spain, Eire and Italy. But not the UK, obv.

I remember financial journalists speculating, when Greece joined the Euro, that the Greeks had fudged the entry criteria by cooking the books, and that the cooking would come back to haunt the Euro after a few years.

The Euro is a grand design, but I'm not sure that it is functionally possible, in the long term, because the internal economies that make up the Eurozone are not the same.

Expat Women said...

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Regina here, for

I would like to personally invite you to list your blog on our Expat Women Blog Directory ( so that other women can read about and learn from your expat experiences.

Many thanks in advance for your contribution and keep up your great blog!


the fly in the web said...

It always seemed to me that after the disaster of the 'money snake' - remember that little beauty? - the great brains seemed to have learned nothing in the great political rush to get a united Europe.
How could they imagine it would work without some sort ofr control over national economic policies?
I want a united europe, but not thwe one we have, with top down control by total incompetents.