Losing Euro in Defaults Brings No Threat to EU: Matthew Lynn
Matthew Lynn should be the head of the E.U. He is the only writer/speaker in the entire area with sanity and brains…
“It will be objected that the euro has to be preserved to keep the European Union together.
That will certainly be the standard line from the Brussels – based elite during the next few years. Indeed, it was heard frequently during the trillion-dollar weekend, May 7 to 9, when euro-zone leaders came to Brussels and agreed on a bailout plan meant to be big enough to restore confidence in the region’s sovereign debt.
In the opinion of at least a few of the participants in the negotiations, the single currency was just a few hours away from collapse. “We must save the euro to save the European Union” was the cry that went up.
When Angela Merkel was trying to sell the Greek rescue package to a skeptical German parliament, she slipped straight into that familiar, comfortable rhetoric. “It is a question of survival,” she told the Bundestag. “The euro is in danger. If the euro fails, then Europe fails. If we succeed, Europe will be stronger.”
Outside the Euro
But why? No matter how many times you say it, it doesn’t sound any more convincing.
The European Union and the euro are not the same thing. Three of the long-standing members of the EU — Britain, Denmark and Sweden — have remained outside the euro since the currency was launched. It’s very hard to argue that they have suffered as a result. Likewise, the majority of the new members from eastern Europe have yet to join the single currency. It hasn’t stopped them from being full EU members.
Breaking up the euro will not break up the EU. It will change its character, but it needn’t be the end of the EU — just a particular version of it.
Unsustainable and Unbalanced
By any reasonable measure, the single currency has been a failure. It hasn’t made the economies of Europe converge: If anything, they have moved further apart over the past decade. It hasn’t promoted growth, except of the most unsustainable and unbalanced kind: crazy credit booms in Spain and Ireland, reckless public spending in Greece and massive, pointless trade surpluses in Germany.
Nor has it shielded its members from financial instability: In fact, the euro has created instability, visiting a wholly self-made crisis on the European continent. It is a cause of instability, not a cure for it.
Looking forward, there are years of terrible austerity for the high-deficit countries, accompanied by big cuts in living standards and rates of unemployment that will make it virtually impossible for an entire generation of Greeks, Irish or Spanish to build careers for themselves.
In Germany, the Netherlands and France, there will be simmering resentments over the bailouts. Years of “Bild” front pages shrieking about lazy Greeks living well on German taxes will take an inevitable toll on what was until now the most pro- European of countries. Does that strengthen the EU? It doesn’t sound like it.
Save the EU
It’s ridiculous to claim that saving the euro is about saving the European Union. Precisely the reverse is true: To save the EU, the euro needs to be dismantled.
But what would be the best way of unraveling the currency? Neither Greece leaving nor Germany leaving makes much sense. In either scenario, what remained would be just as unbalanced and dysfunctional as before.
Creating two or three different euro zones would make more sense. The lower-deficit countries in the north would form one bloc, while the high-deficit countries, all in the south apart from Ireland, would form another. Morgan Stanley has already given that southern currency a provisional name: the medi.
There’s a chance that the groupings that emerged would work better. They would be optimal currency areas, to use economist Robert Mundell’s phrase, which the euro zone as it was created in 1999 never was. But it would still be a hugely complicated undertaking, with little guarantee of success.
New Deutsche Marks
In reality, the most rational option would be competing currencies. Return to the national currencies, re-creating the deutsche mark, the franc, the lira and so on.
The EU would be preserved in the same form in which it exists today. There would be the same free movement of goods, money and people around the member states. There would be the same cooperation on security, policing, trade, agricultural and environmental issues. There would just be no more euro.
True, there would be a period of intense disruption. But once the re-created currencies settled down, there would be a burst of prosperity. The deflationary shadow that the euro is casting over Europe would have been lifted. The Greeks, the Spanish and the Irish could set about rebuilding their economies with new, lower exchange rates. The Germans would be importing a lot more, lifting their neighboring economies.
Within a year, freed from the shackles of the single currency, the whole continent would be growing at a fast clip again. Deficits would be falling. Everyone would be feeling better about the economy.
There would, however, be advantages to keeping the euro as a financial currency. Businesses could price their goods in euros if they wanted to and sell stuff to each other in that currency. The financial markets could use it to price stocks and to issue bonds. It could be used at airport terminals, on the high-speed trains that now shoot across borders and in the tourist resorts where people find it troublesome to keep converting from one currency to another.
It would float on the foreign-exchange markets, allowed to find its own level. A European central bank would be maintained, with a mandate to keep the euro as a strong and stable store of value.
Within the core euro-zone countries, the new euro might gradually displace national currencies. It’s certainly possible to imagine that happening in the Netherlands, Belgium and Austria. They might well be followed by some of the eastern European countries. Latvia and Lithuania might easily decide it wasn’t worth the hassle of running their own currency. They could just use the euro instead.
When Grand Projects Fail
The currency could grow from the bottom up instead of being imposed from the top down.
Don’t expect the dismemberment of the euro to be discussed in public for some years. Europe’s leaders will fight to preserve it until the last moment. They’ve already created a massively expensive bailout package, used for Greece and Ireland so far. That has bought them some time.
And yet, when grand projects fail, they always do so quickly. The Berlin Wall collapsed overnight. It will be the same with the euro. Leaders will insist again and again that the single currency has to be preserved. They will fight the markets and clamp down on speculators, throwing a trillion dollars at the problem, then 2 trillion and then 3 trillion in a vain attempt to see whether there is some sum of money huge enough to make a monetary union across European borders work.
Then, one day, in 2 or 5 or possibly 10 years, they’ll realize that nothing will ever fix it. And the euro will be dismantled far more quickly and smoothly than anyone would have imagined.”
Dr. Pinna says:
Matthew Lynn states here what I have been saying for decades… I go one step further. Get rid of the Euro and the E.U. totally!
The E.U. is like a dying animal crawling with parasites! It is a functionless fabric of futile daydreams which supports a hierarchy of robber barons who live off of the illicit profits they make from a guileless public.
WORST OF ALL
Europe like every other country in the world today, must compete against the entrepreneurs and workers of China! That is a formidable task.
Playing games with fake currencies and fake frontiers is like a teen-age girl putting on make-up. That wont cut it with an experienced and hard working Lady like China.