Before a lot of us were decrying the Eurozone’s financial worries on this site, Jim Rogers was voicing doubt about the entire experiment—back in 2002-3, before the whole project really got off the ground.
Although he liked the idea of an alternative currency to the debasing dollar and yen, Rogers only considered the euro “a less sick currency than the others.” He lauds the premise of individual nations of the Eurozone being unable to print their own currency and further debase it (although they can still borrow, and they do, heavily).
But how quickly we forget. Although Germany today is considered the paragon of fiscal responsibility within the zone, it wasn’t always that way—in the mid 1990’s, Germany was actually on a deficit-spending binge. The problem, Rogers contends, was that the different Eurozone members all had varying degrees of economic order in their houses. And now all of a sudden, nations in wildly-different states of economic health were forced to live together.
Of course, the Eurocrats weren’t stupid. One of the prerequisites for joining was that no one’s budget deficit could be greater than 3% of GDP per annum (or pay a draconian fine). That rule, as well as a lot of the other fiscal requirements, seems pretty much optional these days. As Eddie may be able to attest, in the late 90’s the French government actually proposed raiding the national pension fund to balance the budget just so they could get into the club before returning the money as soon as it was done (“Yes, they actually said that out loud,” Rogers writes derisively).
Sound familiar? It seems the hang-wringing over the Euro experiment is a lot older than we think.
According to our pal Jim, what should have happened was to start tiny—Germany and Austria adopt a shared currency, for instance (since they’ve very closely linked anyway). Then, add the Netherlands, and so on and so forth; it would have taken decades to expand to its current size. Rogers argues that this would have established a sense of fiscal responsibility from the beginning, instead of the profligacy on some nations’ part that is causing so much trouble these days.
What do you guys think? Would that have worked? Could it have resulted in a stronger euro? Would that create a stronger case for holdouts like Denmark, the U.K., and Norway reconsider their “Thanks, but no thanks” stance?
This is a very interesting article. Europe would have done better to create an identity for itself and then tied it's finances together. I see them as having bought a house together, merged bank accounts, and drawn up wills before having been married...figuratively speaking.
In a way, they tried to set themselves up as the new global federal reserve but they forgot two things: (1) fiat currency is backed by the power of the state....and they really don't have all that much these days, and (2) being solvent helps... The reason the dollar is respected is because IT HAS VALUE EVERYWHERE AND NOTHING WILL CHANGE THAT....no matter what Ron Paul says in his gloom and doom tone of voice. Personally, I think he's just trying to break the bank alla Soros but his assessment of the fundamentals is removed from reality.
I fucking love being blasphemous.
The problem with Rogers' "What if" scenario is just that...if only he had a time machine. His idea doesn't seem to be applicable right now, and he also believes unwinding it in any capacity would be disastrous.
Jim Rogers is a great guy to give macro advice on how things "should have been". Building a time machine would help things though. Do you know any good physicists?
You don't need to turn the continent into several mini-germanies, or whatever. That's the most absurd of the various ideas.
The issue isn't getting the various countries aligned in terms of their fiscal, debt, etc.. situations... it's having central planned monetary policy without centralised fiscal planning, a Europe wide government and the ability to issue debt Europe wide as opposed to only at the state level. Obviously, the citizens of the continent wouldn't go (or have gone) for it as it would mean giving up their sovereignty which is exactly why the politicians went for monetary union only. Even then, the UK, Norway, etc.. had the right idea and were sceptical.
If you look at the USA, each state can have different debt or economic conditions from the next one, but it "works", i.e. the system doesn't break down every decade, if one state has issues, you can work things out.
A common currency requires common governance. The alternative is to have the different countries fix their exchange rates to one another and try to maintain this over time or to not have a common currency at all.
It would probably work too, given that most of the nations have devolved into unitary states that make 99% of all meaningful decisions at the national level. Call it a supranational political bloc, Euros love big fancy words for simple things. They fucked up in coming up with a name for their currency before coming up with a name for their government. Imagine the states here calling creating the "Americano" before even declaring independance? So, now the issue is to find a common identity. Rallying around some kind of label is a useful, if temporary, starting point. Here's a few starters:
Yeah, I'm all out of ideas at the moment, I'll let this marinate in my head for a while.
We already have a European Parliament. There are many regulations that affect the whole EU. I also disagree about how easy it would be to come together as a whole. Europe has extremely different cultures, and a history of disagreements, wars, aliiances and hates that goes back literally thousands of years. It's not costing us more than it is worth, with these cultures being so different it would be too big of a compromise. In fact, just think about the latest European conflicts. They are all segregation conflicts, not aggregation. The Balcan war, IRA or ETA being just a few examples.There are still many nationalist conflicts within Europe, so trying to actually merge all the countries in the EU would be as close to utopia as it gets. That said, I do agree with the point that you can't have a single currency and different economic policies and debt issues. I think the Euro is a necessity for Europe to be able to compete in the current economic climate, and I think many Europeans would be willing to let the ECB or some kind of vote between the finance ministers or smth like that dictate a common policy.
Honestly, I don't see why nations there replaced their currency with a pan national one. Why not just have a common area currency that the local (national) currencies can trade against? This way, the individual nations have to maintain their own books, but they can exchange local currencies against a second currency with wider use. Or did they try that and it not work?
I think it would have worked. But we would've only seen very few countries that would represent the common currency zone. In hindsight, this 20 something country number is a joke at best.
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