The Collapse Of The Euro Area

As shares gyrate across the globe, there is much talk of how will Asia and the emerging markets cope with a US recession or slow-down. Almost forgotten about is the economy of Europe. With EU officialdom prone to giving out fluffed up estimates of the Eurozone’s economic strength, in particular its relative lack of consumer debt compared to the ‘Anglo-Saxon’ economies, one might be forgiven for believing that all was fine and dandy for the Euro’s future.

Another picture entirely can be heard coming from no less a person than Barry Eichengreen Professor of Economics and Political Science at California University, Berkeley (pictured). On January 30th he is holding a seminar at Stanford with the title as in this post. See his seminar flyer for The Collapse Of The Euro Area HERE

What euro imperialists seem to be forgetting is that Europe has two key vulnerabilities.

The first is its puny consumer market, and its dependence on exports, for which a continually rising euro and falling dollar spells serious trouble.

From Money Week on 29th October 2007 As one Italian exporter comments to Ambrose Evans-Pritchard in The Telegraph: “The euro has risen 60% against the dollar since 2001. Until now companies have held share by squeezing margins but it’s no longer possible at this level. A strong currency is one thing. It is quite another when the exchange rate completely decouples from the real economy.”

But with German inflation hitting 2.7% in September, the chances of the European Central Bank relieving the pain with a rate cut any time soon is highly unlikely. This can only contribute to political instability in the eurozone.

That gives you the other vulnerability. There is no economic policy which suits all the countries in the eurozone. Germany wants nil inflation, while Italy desperately needs a falling currency to accommodate her indebtedness, and to keep her competitive in world markets.

Combine that with the property and construction boom that has kept Spain, Ireland and others on a growth pattern for over a decade, and see how the booms that have pulled those economies along for so long cannot go on forever, and there is a serious pattern of instability emerging.

I won’t be able to attend Professor Eichengreen’s seminar, but I’m sure we’d all love to hear his views in more detail. I’ll email him and see what comes back!

The eurozone was said to be close to collapsing in 2005 after the French and Dutch rejected the Constitution. Unless there was greater political merging of the member states and cooperation, it was widely said, the Euro would disintegrate. That is no doubt why the EU has set itself on the politically highly risky course of imposing the EU Constitution on its member states without allowing any referenda (apart from Ireland). Faced with the imminent collapse of its currency the EU decided to take enormous political risks to ensure their newly created empire did not founder.

Let’s see what more Professor Eichengreen can add to our knowledge? I cannot imagine anyone in a european University daring to organise a seminar with such a title. Click on the flyer and enjoy the sight. It will help you get over the depressing non-debate going on in the House Of Commons on the EU Constitution (although some of it is encouraging such as William Hague’s excellent speech).

Italy is obliging Eichengreen by showing a potential collapse of Prodi’s pro-Euro regime this week, also covered by Helen on eureferendum. Berlusconi is waiting in the wings of course. He’d be far more likely to pull the plug on the Euro and set the ball of collapse rolling.

By the way, if any of you can get to Barry’s Seminar at Stanford, lunch will be provided.

Do you think any British journalist or official would dare attend Barry’s seminar? I’d be amazed. There’s a collapse of courage going on in the British media at the moment, as Gordon’s pulling out all the stops to keep them in a state of threat. See post below on Branson and Murdoch.

The Tap Blog is a collective of like-minded researchers and writers who’ve joined forces to distribute information and voice opinions avoided by the world’s media.

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