I don’t get it: Why aren’t the peripherals moving out of the Euro Zone?
I’ve been thinking about this issue for quite a while. If you look back at historical economic events, most of the accounts suggest a very clear message to us: Let the countries in strains voluntarily or be forced to devalue their currencies. By doing so, they could get back to balance.
Whether the problem stems from the public or the private sector, origins of the problem comes from going on a careless spending binge, whether it’s the government or the household sector. As the current account deficit or the private sector debt piles up to an unsustainable level, a painful deleveraging process ensues to make the economy get back on its feet. Here comes the necessary devaluation of its own currency. It will make their products to be sold again in the global marketplace, and thus allow growth for their economies. This is what is needed for Spain, Portugal, and Greece. But unfortunately for those countries, the ECB’s main current concern is warding off inflation; this will lead them to hike interest rates across the Euro Zone, which will have devastating effects to already battered peripheral countries. Thus, at this point, every policy they have in mind is incompatible to serve the distinct needs that each country has.
Then, as we have seen through this crisis over and over again, why can’t we just dump this idiotic plan to combine drastically different countries into one monetary union and just completely separate them? Or, if it turns out to be really badly needed in any future time, wouldn’t be better to reconsolidate them when their fiscal and monetary conditions approach to a similar condition?
Right now, I see no benefits other than political reasons to keep this thing going.
And political reasons is all you need...
Well, that's what happens when you create a currency focusing on the politics of it instead of the economics. Hell, even the coming rate hike and the recent agreement was politically driven... So much for what was supposed to be the dollar rival.
Common currencies work just fine as long as member states don't have the fiscal authority to deficit spend. Of course if you have that it all goes to hell in a hand basket.
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