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Really interesting op-ed from NYT on the whole Eurozone issue. It fits very well with the discussion of default risk in the first chapters of "This Time is Different". The basic thesis of the author is below:
"The Greek crisis is only the first of what could be several tremors resulting from the euro’s original sin. While few are willing to say it yet, the solution is clear: the only way to avoid further harm to the global economy is for Germany to lead its fellow stable states out of the euro and into a new and stronger currency bloc."
As I read this article, I thought about the concept of debt-tolerance from this week's reading. From the op-ed:
"Unlike their northern neighbors, the countries in the zone’s southern half have difficulty placing bonds — issued to finance their national deficits — with international capital investors. Nor are these countries competitive in the global economy, as shown by their high trade deficits."
What do you think about the Euro and the future of the Eurozone?
Do you agree with the 'euro-optimists' who argue that "the introduction of a common currency and the global economic competitiveness it spurred would quickly lead to sweeping economic and societal modernization across the union"?
Does a common currency amongst many countries reduce the default risk of all?
http://www.nytimes.com/2010/03/29/opinion/29Starbatty.html
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Interesting article. I actually had quite a few conversations about the pros and cons of the euro while I was on study abroad in France last year. From the very beginning, the United Kingdom and Denmark opted out of a common currency because the countries had stable economies and strong currencies and adopting the euro would hurt their economies.
ReplyDeleteI was under the impression that the euro was unpopular among many French and German people because they felt their economies suffered. While, from a tourist's perspective, I would hate to see Germany and other countries abandon the euro, I believe the economic goals and practices of the countries in the euro-zone are so different that a common currency is not sustainable.
Trying to align countries that are so culturally and ideologically different is not seeming to be that practical. Economically, Eastern and Western Europe are still very different and a clear gap exists between those countries that were to the West of the Iron Curtain. Even Germany is still feeling pressure from the reunification and it strains their economy even today. Capitalism in these former Communist countries has not always integrated well. Trying to unite these economies which are at different stages of development through one currency does not make a lot of sense.
ReplyDeleteThere is certainly benefits in transaction costs to a global currency but it may have gotten too much credit for its ability to stimulate economic change on a large scale, even within the United States there are economic zones with different price levels and costs of living. Likewise, there are areas within the "American economic bloc" that have debt and different regions can default. In a more linguistically, economically, and (arguably) culturally diverse region than the United States, Europe has had understandable challenges with the transition. I don't think the answer is a "stronger" economic bloc though. If the Euro is to succeed it needs the strong and the weak economies.
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