"There can be little doubt:
without further steps towards political union, the eurozone has little chance of survival"
Professor Paul de Grauwe
"Without further steps towards political union, the eurozone has little chance of survival"
Ambrose Evans-Pritchard, Daily Telegraph 16/7 2007
By screwing down wages, Deutschland AG has deflated costs since 1995 by 20pc against France, 30pc against Spain, and 40pc against Italy.
How quickly Berlin forgets that the European Central Bank held rates at 2pc until December 2005 to prop up Germany, damning Club Med to deadly bubbles.
Article 111 of the Nice Treaty states that the Council (politicians) may set fixed exchange rates (by unanimous vote), and formulate "general orientations" (by majority vote). In other words, they may compel the ECB to change course on interest rates. Yes, this requires an enabling proposal from the Commission, but would Brussels ever dare to prevent a vote desired by half of Europe?
This is no longer academic as the euro hits levels that threaten to suffocate France, Spain, Italy, Portugal and Greece.
The delayed effects will strike at the worst time, just as the housing booms unwind and as higher rates deliver their final kick. A triple whammy in 2008.
Airbus chief Louis Gallois said a rate above $1.35 means death for European aviation.
"If there is a prolonged slippage in the dollar much beyond that, then we need to ask ourselves if we can still build airplanes in Europe," he said.
Will Mr Sarkozy let this happen? "We have not created the world's number two currency so that we can no longer build a single aircraft on European soil," he said.
Little noticed, two conferences lately have fretted over the euro-zone's dangerous splits:
one at Dresdner Kleinwort and second at the
Stiftung Wissenschaft in Berlin.
Leuven University's Professor Paul de Grauwe explained why the euro had become unworkable.
"The fact that large areas of economic policy remain in national hands creates asymmetric shocks. National wage policies lead to divergent trends:
this in turn leads to a vicious circle in which each country tries to recover its competitive position by wage cuts, leading to a deflationary spiral," he said.
"There can be little doubt: without further steps towards political union, the eurozone has little chance of survival," he said.
Undeniably true, but haven't Europe's tribes made it clear that they do no want a superstate?
Jag undrar hur länge det dröjer innan det stora staterna i Europa börjar på att säga att
det är orimligt att all makt ligger hos Centralbanken
Fransmännen talar ju redan om ett stabilitetsråd
och om man skall lyfta dessa saker till europeisk nivå, vilket jag mycket väl tror
kan bli resultatet av EMU,
då byter vi karaktär på den europeiska unionen och går mot en mer
Logiken i det hela rör sig i federativ riktning... Sch! säger Kohl åt mig när jag tar upp det.
Göran Persson 1997-10-13, Fichtelius, sid. 391
"In fact, I can be even more explicit: if we do not move forward at a political level, then it's quite sure the euro will collapse."
Paul de Grauwe, professor of economics at the University of Leuven in Belgium and an adviser to Mr Barroso
Comment by Rolf Englund:
Much better to have a Euro-collapse now than a Politicial Union,
that will only delay, not prevent, the
inevitable collapse of the Euro.
One Size does not fit all.