Alla valutaunioner i historien har antingen
lett till en stat eller spruckit.
Varför skulle EMU vara så
annorlunda?
Anders Lindberg, Hässelby, SvD Synpunkt
14/8 2003
|
For some of us writing at the time of the Eurozone's formation just over a decade ago, the current crisis has been all too predictable. Euron spricker när dollarn faller
Rolf Englund Nya Wermlands-Tidningen 2001-01-08 “Should a eurozone member ultimately find itself unable to consolidate its budgets or restore its competitiveness, this country should, as a last resort, exit the monetary union while being able to remain a member of the EU.”
Wolfgang Schäuble, German finance minister, FT March 11 2010 19:15 “Should a eurozone member ultimately find itself unable to consolidate its budgets or restore its competitiveness, this country should, as a last resort, exit the monetary union while being able to remain a member of the EU.” If we wish the euro to be strong and stable on a lasting basis – our condition for bringing the DM and its high credibility into the euro fold – we have to be prepared to integrate further in the eurozone. Co-ordination between euro members must be more far-reaching; they must take an active part in each other’s policymaking. I understand that a great deal of political resistance will have to be surmounted. Nevertheless, I am convinced that from Germany’s perspective, European integration, monetary union and the euro are the only choice. There are some people who might feel that their scepticism towards the euro has been vindicated. They are overlooking the strengths of Europe and the problems faced in other leading global economic zones. Greklands ekonomiska problem tvingar EU att ta ett nytt steg ut i det okända. Annika Ström Melin, vårt lands mest kunniga journalist i detta ämne, ställer EMU-frågan på sin spets. Den meste Ja-sägaren, P J Anders Linder på SvD, tiger dock fortfarande. Det är inte oundvikligt Nu är det skamligt många i Sverige som förbereder sig och Sverige för en tillvaro i ett av EMU-EU dominerat Europa. Varför skall man göra sig omöjlig till ingen nytta när man kan vara realist och få ett välbetalt jobb i Bryssel eller i varje fall få åka dit med någon svensk delegation? Motstånd är ju ändå meningslöst, tänker väl Herr Unckel och andra. Men, som alla svenskar vet, varje meddelande om att motståndet skall uppges är falskt. Det är inte dom som kommer att segra, det är vi. Likt det en gång mäktiga Sovjetunionen kommer den Europeiska Unionen att i efterhand ses som en papperstiger, som ett snarast oförklarligt historiskt misstag likt Första Världskriget. Full textP.S. Ett stort tack till familjen Ander som på 1970-talet lät mig skriva ett oräkneligt antal ledare i NWT om löntagarfonderna och som lät mig skriva många förgripliga artiklar om EU och EMU i början av 2000-talet. "Nu behövs ett statsmannalikt ledarskap... Europas ledare, först och främst Tyskland och Frankrike" EU kan varken låta Grekland halka ner i statsbankrutt eller överlämna det till Internationella valutafonden, eftersom andra EMU-medlemmar – Portugal, Spanien och Italien – antagligen skulle ligga närmast till för attacker från finansmarknaderna. I så fall skulle det finnas risk för att euron rasade och för första gången på allvar hotade hela det europeiska integrationsprojektet. Europas ledare, först och främst Tyskland och Frankrike som har avgörandet i sina händer, måste agera snabbt och genomdriva nya, uppfinningsrika lösningar. Även med ett, två eller tre steg framåt kommer Tysklands och Frankrikes regeringar att ta stora inrikespolitiska risker om eurokrisen i Medelhavsländerna förvärras och en finansiell räddningsoperation där blir nödvändig. Invånarna i de länder som blir tvungna att betala notan är inte förberedda på den verklighet som ligger framför dem, och det kommer att lägga bränsle på den mångåriga ökning av euroskepticismen som nu genomsyrar alla politiska läger. Detta gäller i allt högre grad också Tyskland, och vi kommer sannolikt att få se ett extremt stort politiskt problem växa fram där mycket snart. Under 90-talet var det drömmen om federationen som dominerade sinnena och euron fick symbolisera den nya europeiska staten. Eller som Tysklands utrikesminister Joschka Fischer sa på ett föredrag i Berlin 1999 och svepte med handen över publiken: Joschka Fischer "Allt är inte frid och fröjd. Former Federal Reserve Chairman Paul Volcker is confident the /Euro/currency will survive German constitutional law imposes such tight constraints that any dilution of the no bail-out clause in the Maastricht treaty or the price stability target of the ECB might trigger a forced German exit. Greece last week solved its fiscal problem by creating a private sector problem of identical size. This means that, by following the fiscal policy rules, the eurozone would risk a private sector depression, which would almost certainly be concentrated heavily in Europe’s south. This scenario would greatly increase the probability of a eurozone break-up at some point in the future. We have always known that a monetary union cannot exist without political union in the long run. Millions of migrants have arrived in Greece, Italy and Spain over the past decade. The economic crisis will slow the flow but is unlikely to undo the demographic shift, not least because the birthrate among immigrants is much higher than the general population's. "If there's a lesson that can be learned from the northern European experience, it's that temporary migrants tend to remain," says Joaquín Arango, professor of sociology at the Complutense University of Madrid. Det kommer aldrig att bli möjligt att göra någon entydig nyttokalkyl som visar att Sverige gör en nettovinst på att gå med.
Lars Calmfors 2009 Greece threatens more than the euro 
The EU has always proceeded by creating economic “facts on the ground”, which were intended to trigger political effects. Ever since the 1950s this has worked admirably, as a modest coal and steel community turned into a common market and finally into a Union of 27 nations, with its own parliament, supreme court and foreign policy. Jacques Delors, the European Commission president who presided over the creation of a single marketin the 1980s, said frankly: “We’re not here just to make a single market – that doesn’t interest me – but to make a political union.” The creation of the single market involved a huge expansion of European law and therefore deep erosions of national sovereignty. A logical political response to Greek insolvency – and the threat of similar crises in Spain, Portugal and eventually Italy – might be to create common European taxes and a mechanism for big fiscal transfers between EU states. But there is no sign of any such move. Europe is stuck. So what has gone wrong? The problem is that the “economics first, politics later” method is almost Marxist in its assumption that economics will inevitably dictate a particular political response. But democratic politics involves choice. If you want to understand what is happening to the European Union’s constitution, the EU flag is a good place to start. EU, EMU, Marx och Den Enda Vägen The risk premium on Greek government bonds continues to hover around 3 per cent, depriving Greece of much of the benefit of euro membership. If this continues, there is a real danger that Greece may not be able to extricate itself from its predicament whatever it does. Further budget cuts would further depress economic activity, reducing tax revenues and worsening the debt-to-GNP ratio. Given that danger, the risk premium will not revert to its previous level in the absence of outside assistance. The euro was meant to be a monetary union but not a political one. Det som nu händer är precis det som kritikerna, bland annat nobelpristagaren Paul Krugman och andra, varnade för inför bildandet. The late Eddie George /The former governor of the Bank of England/ once remarked to me that the euro project, which was launched in 1999, came 10 years too early. He was wrong. Was the real mistake creating the euro in the first place? Since I was one of the few Americans to advocate a single European currency, you would be justified in asking: Am I having second thoughts? Euro Currency Union Showing Strains Is this funny, or not? Mr Van Rompuy is a president without a country behind him—a president without money. So when a European Union crisis explodes that only money can fix, he will always be overshadowed by leaders who are putting their own taxpayers’ billions on the table. Such leaders are not just making a financial sacrifice for Europe when they dig deep into their pockets. They are taking a political risk. In one opinion poll, by the Emnid institute, for instance, 71% of Germans opposed financial aid for Greece. Mr Van Rompuy has no voters to fear. So in such disputes, he is a non-combatant: a counsellor but not a player. Årets upplaga av boken Europaperspektiv handlar om hur EU har hanterat den globala krisen - Det bästa för dem hade varit en flytande växelkurs, likt Sveriges. http://www.europaportalen.se/index.php?newsID=48411&page=4001&more=1 http://www.europaperspektiv.se/ Jonas Ljungberg, Professor, Dept. of Economic History, Lund The real story behind the euromess lies not in the profligacy of politicians but in the arrogance of elites — specifically, the policy elites who pushed Europe into adopting a single currency well before the continent was ready for such an experiment. Consider the case of Spain, which on the eve of the crisis appeared to be a model fiscal citizen. If Spain still had its old currency, the peseta, it could remedy that problem quickly through devaluation if Spain were an American state rather than a European country, things wouldn’t be so bad. For one thing, costs and prices wouldn’t have gotten so far out of line: Florida, which among other things was freely able to attract workers from other states and keep labor costs down, never experienced anything like Spain’s relative inflation. For another, Spain would be receiving a lot of automatic support in the crisis: Florida’s housing boom has gone bust, but Washington keeps sending the Social Security and Medicare checks. The fundamental problem was hubris, the arrogant belief that Europe could make a single currency work despite strong reasons to believe that it wasn’t ready. Är krisen ett bevis på att eurons införande – som i den antika grekiska tragedin – drevs av hybris och att det är en ödesbestämd nemesis som är under uppsegling? Victims of hubris, the Eurozone's original cheerleaders deserve this current crisis. Victims of hubris, the Eurozone's original cheerleaders deserve this current crisis. When they began to recruit member countries for the single currency, they laid down a set of basic rules about the soundness of national budgets before they could qualify to join. These were sensible enough. But in their eagerness for enlargement (as part of their pursuit of a United Europe in which they would be the main voices), the founder members allowed these rules to be broken. The problems were visible from the outset. For example, neither Greece nor Italy's national finances were in a good enough condition to merit joining. But the greater ideal of a Eurozone prevailed over financial common sense. Economics gave way to politics, as it so often does. Proof, also, that creative accounting is not confined to dodgy public companies. Will the Eurozone still be around in five years' time? With Greece, Italy, Portugal and Spain now suffering a severe financial crisis and with the euro seriously weakening, I think the prospect that it survives in its present form is most unlikely. Full textDie Griechen und der Euro Credit Suisse says Greece must raise €30bn (£26bn) in debt by mid-year, mostly in April and May. Here, in a chart, is why Britain can’t afford to be complacent about the plight of Portugal, Ireland, Italy, Greece and Spain. Tio års test av euron visar att domedagsprofetiorna kommit på skam. Tänk om det inte fungerar The last few days have reminded me of the speculative attacks Investors have concluded that the probability of a contagious default is rising. They are right. The least helpful suggestion in this situation – one that has already contributed to investor panic last week – is to let the International Monetary Fund sort out the mess. The argument is that the European Union is not in a position to provide emergency aid in an effective manner and that the IMF has the experience, personnel and the instruments to do so. That is all true, but advocates of an IMF-led bail-out conveniently ignore the disastrous signal that this would send to the financial markets about where the eurozone is heading in the future. It would demonstrate that the eurozone was incapable of sorting out its own problems. The eurozone might end up losing so much credibility that investors started treating it not as a monetary union but as a fixed exchange rate system with a finite time horizon. At the moment, in the absence of any framework, the threat of a default is transmitted automatically from the first to the next vulnerable country. Last week, the stock market fell even more in Madrid and Lisbon than in Athens. And, lest we forget, other European countries might also be vulnerable. Austria could still be drowned by its banking crisis; Belgium has a much higher level of debt than either Spain or Portugal and a financial sector heavily shaken by the global crisis. As worries spread north, serious investors might be tempted to bet serious money on a eurozone break-up. Such panics are easily triggered and difficult to stop. More seriously for Europe, even a slight surprise – a lost parliamentary vote or illness knocking out a trusted minister – could frighten investors, sparking a spiral of selling. Such panics are easily triggered and difficult to stop. Risk-averse investors will then race to drop exposed bonds, shares and other sovereigns, spreading crisis through the continent. What the eurozone must do if it is to survive Not a bang but a whimper: the threat facing the eurozone Der Spiegel, the German news magazine, has caused a stir in Brussels by reprinting bits of an unusually gloomy internal report from the European Commission on the euro zone (the 16 countries that use the single currency). In particular, people have focussed on the report's finding that differing competitiveness among euro zone countries is "a cause of serious concern for the euro area as a whole." In a widely quoted extract, the report seen by Spiegel frets that: ...differences among euro zone countries "jeopardize confidence in the euro and threatens the cohesiveness of the euro area." British Eurosceptics who have been predicting the collapse of the euro since before it was even created will no doubt be nodding sagely and feeling vindicated. Comment by Rolf Englund; Who is going to buy the multiple trillions in government debt that the G-7 countries want to issue? The dollar may be the worst currency in the world, except for all the others. The Greek government has promised to slash its fiscal deficit 
The task it is undertaking is huge. In particular, unlike most countries with massive fiscal deficits – the UK, for example – Greece cannot offset the impact of fiscal tightening by loosening monetary policy or depreciating its currency. A big structural fiscal tightening will generate a deep recession. The government will soon be facing miserable public and private sectors, with no policy levers. In an article in the FT last week, Desmond Lachmanof the American Enterprise Institute concluded that Greece will be forced to leave the eurozone. Suddenly, the unthinkable would be thinkable. The eurozone could then confront a wave of sovereign debt and financial sector crises that would make what happened in 2009 look like a party. A bail-out by the eurozone as a whole would create a monstrous moral hazard for politicians. Given the horrendous difficulty of all alternatives, I am sure the effort will be made to tough it out for as long as possible. The competitive disinflation route to prosperity seems highly likely to fail. Some, knowing of my opposition to UK membership of the eurozone, may suppose that I find some pleasure in these looming difficulties. On the contrary, I fear the dangerous consequences. Most of the time having an independent currency is nothing but a nuisance. But every so often and quite unpredictably, countries desperately need a safety valve. Det handlar om vad jag vill kalla "brandförsäkringsargumentet".
Secession Greek Prime Minister George Papandreou said there was "no chance" that Greece would exit the euro zone, We are about to learn whether the euro can survive a two-speed euro zone. It is unlikely that any of the so-called Piigs (Portugal, Ireland, Italy, Greece and Spain) will be able to get their fiscal houses in order any time soon. Of these, only Ireland seems to have the political will required to cut spending, and even that is not a certainty. The prospect that the euro zone as a whole will grow a bit obscures the wide disparity in the likely performance of its members. Germany and France should begin to recover, Greece and Spain might be another story altogether. It is this disparity that is most worrying to euro zone policy makers as their area-wide currency celebrates its eleventh anniversary, refuting by its continued existence those critics who said the new currency would not survive a serious recession. Angela Merkel will in the end contribute to a bailout fund if necessary. Paul De Grauwe, a Brussels-based economist who advises European Commission President José Manuel Barroso, displayed more than a wry sense of humor when he told reporters, "If there are fears now that a breakup of the euro zone will lead to a weakening of the euro, then that is good news. So we should congratulate Greece for getting us out of … having a euro that is too overvalued." Full textUnemployment in the eurozone 10 per cent for the first time since the introduction of the single currency.
Despite extraordinary measures to protect the labour market during the downturn, 4m have lost jobs across the 16 countries that use the euro, according to the European Commission’s statistical arm. Spanish unemployment, by contrast, is at 19.4 per cent, nearly three times its level before its credit-fuelled economy collapsed. Germany has 7.6 per cent unemployment. The eurozone’s next decade will be tough What would have happened during the financial crisis if the euro had not existed? That is the outcome the creators of the eurozone wished to avoid. But, if the exchange rate cannot adjust, something else must instead. Where does that leave peripheral countries today? In structural recession, is the answer. This leaves peripheral countries in a trap: they cannot readily generate an external surplus; they cannot easily restart private sector borrowing; and they cannot easily sustain present fiscal deficits. The crisis in the eurozone’s periphery is not an accident: it is inherent in the system. When the eurozone was created, a huge literature emerged on whether it was an optimal currency union. I varje nation måste man också ta ställning till om man vill ha en myntunion som bygger på att det egna landets medborgare måste utvandra för långa perioder eller för alltid för att systemet skall fungera. Eurozone credit contraction accelerates Southern Europe is being ordered to carry out IMF-style austerity, without the IMF-style devaluation required to rectify the massive imbalances that have built up between North and South under the euro. The EMU system has condemned Club Med to structural depression, with no way out. The logical – yet politically absurd – response of German Chancellor Angela Merkel is to talk of overriding national democracies in order to save the euro. "The question arises over what authority Europe has to tell national parliaments what to do, in order to avoid damage to Europe itself? National parliaments don't like to be dictated to about such things, but we need to address the problem," she said. Det var inte inflationen - det var Depressionen Standard & Poor's has put Greece on negative credit watch Trade imbalances will grow from their current low levels in the months ahead, and this is politically dangerous. Dubai and Euroland That Dubai World had financial troubles was known, but many investors had assumed its debts were backed by the government of Dubai, and ultimately by Dubai’s oil-rich neighbour, Abu Dhabi. There are similar ambiguities within the euro bloc. If countries with rickety public finances, such as Greece, Ireland and Spain, ever found themselves unable to refinance their debt, would other euro members with deeper pockets rescue them? If not, would default by one euro-zone country threaten the viability of the euro itself? Some think any problem will be Greece’s alone. After all, the treaty that created the euro contains a “no bail-out” clause that prohibits one country from assuming the debts of another. Officials have said they will support Greece, but they haven't said how. This has some skeptics of the euro project wondering if the rich, thrift-minded EU states ultimately can be counted on to come to the aid of poorer and heavily indebted ones. "They can choose solidarity or chaos," said David Marsh, author of The Euro: The Politics of the New Global Currency. Any number of things could change in the euro zone in the next few years, Marsh said, depending on the terms offered debtors like Greece. He cites prospects ranging from smaller countries dropping out to a split of the EU into northern and southern regions to Germany pulling out, collapsing the project altogether. David Marsh, author of The Euro: The Politics of The New Global Currency, said the danger for EMU laggards is that the ECB will begin to tighten before they are out of trouble. Eurons växelkurs har nått smärttröskeln för industrin i euroområdet. Förutom Europafacket deltog även ekofinordföranden Anders Borg, eurogruppens ordförande Jean-Claude Juncker, ECB-chefen Jean-Claude Trichet och ekonomikommissionär Joaquin Almunia. "Jag är djupt oroad över utvecklingen i växelkursen på senare tid. Euron har nått smärttröskeln för industrin i euroområdet", sade han. "Det är oförenligt med G20-ländernas åtaganden för en ordnad upplösning av de globala obalanserna", fortsatte han. "The euro at $1.50 is a disaster for the European economy and industry," Beijing has clamped the yuan firmly to the weak dollar for over a year, quietly benefiting from the export advantages. It accumulated $68bn (£41bn) in reserves in September alone as a side-effect of holding down the currency. 15 miljoner arbetslösa i EurolandUnemployment levels across the 16 countries that use the euro rose to 9.7% in September, the highest rate since January 1999. This brought the number of people unemployed across the eurozone region to 15.3 million. Spain has the highest eurozone unemployment rate at 19.3%. Time for the ECB to get serious about the overvalued euro Euron har för länge sedan bevisat sin styrka. I den senaste ekonomiska krisen framstod euron som en säkrare tillflykt än dollarn. När det isländska alltinget för en vecka sedan med knapp marginal beslutade att lämna in en medlemsansökan sade EU-kommissionens ordförande José Manuel Barroso att beslutet var ett tecken på det europeiska projektets vitalitet.
It could be that future generations of German politicians find ingenious ways around the balanced budget law.
The euro should appreciate to $1.53 (as against $1.40 recently). Latvia - IMF experts were overruled by Brussels The ECB estimated bank writedowns total of $649 billion, Euro-zone banks will probably need to write down another $283 billion this year and next on bad loans and securities, the European Central Bank said on Monday. The ECB estimated bank writedowns due to securities -- or toxic assets -- would total around $218 billion from the start of the financial turmoil to the end of 2010, while bad loans would account for another $431 billion -- a total of $649 billion, with an estimated $366 billion already announced. The figures were published in the ECB's latest Financial Stability Review, $375 billion - It seems unfair. This was supposed to be a US crisis. This mess is sizable. Sweden in the early 1990s is rightly held up as the example of how to this; As in the US, the blanket guarantees on deposits and various interbank assets prevented a panic, but also likely removed much of the market pressure on the banks to behave better. jfr Kronan är en dyrbar lyx. Why eurofederalists should be delighted with recent events The most likely structure for a rescue would not require any funding from Germany at all. The rescue would simply consist of a decision, approved by a qualified majority on the European Council to implement Article 122 of the Lisbon treaty. But who would actually pay for such an EU bailout? This brings us to the second reason why eurofederalists should be delighted with recent events. The eurozone faces three threats more serious than any in the US or Britain: If you think Alistair Darling faces trouble in his Budget, spare a thought for Brian Lenihan, the Irish Republic's Finance Minister, who on Tuesday announced his second emergency budget in six months, imposing drastic tax rises, pension and wage cuts, still leaving his country with the by far the biggest budget deficit in the eurozone. Or for Yannis Papathanassiou, his Greek counterpart. His country's credit has been downgraded to one notch above junk status and was justifiably described yesterday as teetering on the verge of bankruptcy in the German magazine Stern. Or for Pedro Solbes, the respected Spanish Finance Minister, who was sacked on Monday in response to the meltdown of an economy and banking system said to be invulnerable only a few months ago.
Or even for Peer Steinbrück, the German Finance Minister, who, despite his swaggering boasts about the triumph of the Rhenish social-market model over Anglo-Saxon capitalism, presides over the weakest leading economy in the world outside Japan. Ex-Bundesbank chief Karl Otto Pohl has just said that Ireland and Greece The U.S. government rescued giant insurer American International Group "Kronan räddar Sverige" Austrian banks have lent a total of $300bn to clients in the region (Eastern Europe),
Will Germany deliver on the Faustian bargain that created monetary union? Eastern crisis that could wreck the eurozone European stocks tumbling to a six-year low Vår slutsats blir att euron är bra för både näringsliv och konsumenter i Sverige, skriver Klas Eklund, Carl Johan Åberg och åtta andra nationalekonomer /däribland således Karolina Ekholm/. Can The Euro Survive? Ever heard of the four PIGS? The euro, or so the argument went, was doomed from the outset because of the wide spread in economic performance and discipline amongst the member countries. When the Stability and Growth Pact behind the euro was established, there was no reference made to unit labour costs which, with the benefit of hindsight, was a major mistake. Even Jean-Claude Trichet, the Head of the European Central Bank, who rarely admits mistakes, has publicly stated that if he could design the currency union all over again, he would push for a unit labour cost stability pact. Table 1: 2007 Unit Labour Cost Index (2000=100)
Another issue, which is potentially even more destabilising for the euro longer term, is the massive liabilities facing Europe as its population ages. A third problem facing Europe is the sheer scale of the banking crisis. Although this is not just a European problem, European countries are probably worse off than the US because a larger part of European debt has to be financed externally. Kenneth Rogoff and Carmen Reinhart published a research paper about a month ago which should be mandatory reading for all investors2. They have studied every single banking crisis of the past 100 years and reach some rather unsettling conclusions.
"There is no risk that the euro will break apart," said Jean-Claude Trichet, EU officials are furious over comments this week by Dominique Strauss-Kahn, head of the International Monetary Fund, who said the euro could prove unworkable unless the member states give up some control over fiscal policy. The yield spreads on Greek 10-year bonds have reached post-EMU highs of 265 basis points over German Bunds. Enligt ledamoten Charles Wyplosz så hade den grekiska valutan gått omkull och troligen också den italienska, spanska, portugisiska och kanske också den irländska valutan Iceland Is Sacrificed to Save EU: The European Union, in order to save itself from the faults of its own legislation, has decided that Iceland and the Icelandic people are expendable. Realising its own failures the EU has decided, through the British and Dutch governments, that the Icelandic authorities have to shoulder the responsibility which is rightfully the EU regulators’. This is what the so-called Icesave dispute is mainly about. The dispute started in October 2008 when almost the entire Icelandic banking system collapsed. One of the three largest Icelandic banks, Landsbanki, had operated internet savings accounts in the United Kingdom and the Netherlands collecting large amounts of deposits by offering high interest rates. These accounts were operated with the approval of the British and Dutch authorities and their operation was made possible by EU laws. According to a cruel joke making the rounds these days, An even crueler epithet calls London "Reykjavik on the Thames." On Monday, S&P downgraded Spain's credit rating to AA+ from triple A, following a similar cut for Greece last week. All this has led to speculation that the euro zone's breakup is imminent. The euro is an anchor of stability, particularly for small members that otherwise would be much more exposed. Denmark may hold a referendum on joining the euro next year and in Iceland, which hitherto has declined to join even the European Union, a clear majority now favors adopting the single currency. Being a member of the eurozone doesn’t immunize countries against crisis. Fördel att stå utanför EMU The eurozone economy will shrink 1.9% in 2009, the European Commission has forecast. The PIIGS "The euro is a flawed mechanism. The euro has no flexibility. The euro marks its 10th birthday on New Year’s day at a perilous moment in global finance. Capital markets have worried about public finances in some countries, leading to a dramatic widening of yield spreads, for example, on Greek and Italian bonds compared with German state debt. Eurozone members trying to pull themselves out of recession will not have the option of currency devaluation, which could make the process more painful. Such trends might make managing the eurozone harder, raising questions about its long-term future Even if the eurozone has avoided a Lehman Brothers-style collapse, there is widespread agreement that the current fragmented system leaves the region dangerously exposed. Still, any moves to centralise bank regulation should be expected to encounter resistance from governments with an eye to the national interest – something James Bond would know all about. Multimedia feature: the euro at 10 We should not try to avoid 1929. We have already failed. Euroskeptics are easy to find in the Nordic capitals, and they won't accept that the financial turmoil has boosted the argument for the common currency. More by Rolf Englund in english Investors Raise Their Bets on Defaults in EU Countries For Ireland, which introduced a €400 billion bank-guarantee program last month that is twice the size of its gross domestic product, investors' cost of insuring against debt default has risen eightfold since the start of the year. The divergence in bond yields points up that even though the euro-zone nations share a currency and a monetary policy administered by the European Central Bank, investors still price the countries' creditworthiness individually. The so-called spread between yield on the 10-year Italian Treasury bond and the corresponding German 10-year bond rose to 1.25 percentage point, after breaching the mark of a full percentage point Tuesday for the first time since the euro's launch in 1999. The interest spread between Italian 10-year bonds and German Bunds has reached 108 basis points, the highest since the launch of the euro. Italy's public debt is the third largest in the world after the US and Japan. At 107pc of GDP, it is the highest of any major economy in the eurozone and almost double the 60pc limit stipulated by the EU's Maastricht treaty. One can sympathise with Berlin. But sharing debts with Italy and Spain was implicit when they agreed to launch the euro. Has the international financial crisis exposed the cracks in the European Union's single market? Germany will guarantee all private savings accounts German Finance Minister Peer Steinbrueck, deputy leader of Social Democrats, The crucial problem on this side of the Atlantic is that the largest European banks have become not only too big to fail, but also too big to be saved. Similarly, the total liabilities of Barclays of around £1,300bn (leverage ratio 60!) are roughly equivalent to the GDP of the UK. Fortis bank has a leverage ratio of “only” 33, but its liabilities are three times the GDP of its home country of Belgium. Given that solutions for the largest institutions can no longer be found at the national level it is apparent that the European Central Bank will need to be put in charge as it is the only institution that can issue unlimited amounts of a global reserve currency. Lender of Last Resort $700 billion rescue plan Could the credit crunch destroy the Eurozone? Mostly Spain What if one of the member states of the eurozone were to default on its debt?
The probability of a default is low but clearly rising. The decision by Standard & Poor’s, the ratings agency, to downgrade Greek sovereign debt and to put Spanish and Irish debt on watch seriously rattled investors last week, for good reason. If the financial crisis has taught us one thing, it is to take perceived tail-risks more seriously. Before I answer the question, it is best to consider what would not happen. For a start, the eurozone would not fall apart. A government about to default would be mad to leave the eurozone. It would mean that, in addition to a debt crisis, the country would also face a currency and banking crisis. Bank customers would simply send their euros to a foreign bank to avoid a forced conversion into a new domestic currency. So we are stuck with the eurozone for better or for worse. If a default happens, the central banks and governments of the eurozone would be forced to co-ordinate their policies whether they liked it or not. Under its statutes, the euro system, which includes the ECB and the national central banks, is not allowed to monetise (that is, buy) new sovereign debt or to grant overdraft facilities. But the ECB is allowed to buy debt in the secondary markets, which is a way of monetising debt. All it would take is a decision by the ECB’s governing council. Putting roughly the same value on Greek and German debt – which is what financial markets did for most of the last 10 years – never made sense. If you assume the worst-case scenario of a default by five or six countries, a full fiscal union would be more probable than a break-up. Meltdown Den stigande räntan drabbar inte svenskarna lika hårt som i många andra länder i Europa. De flesta euroländer har inte en ekonomi som tillåter en mer expansiv finanspolitik. De länder som ändå försöker sig på det riskerar att bryta mot euroländernas ekonomiska regler i den så kallade stabilitetspakten. – Problemet är ju då att situationen ser ganska olika ut i olika länder. Tyskland kanske kan ta det här därför att där har man haft en ganska stark konjunkturutveckling jämförelsevis. Men sedan har vi ju länder som Spanien, Italien och Irland, där lågkonjunkturen är mycket starkare. Så att det kommer helt klart att uppstå stora spänningar inom euroområdet, som är just den typ av spänningar som uppkommer när man ska ha en ränta för ett stort antal länder, där de ekonomiska förhållandena kan se väldigt olika ut, säger Lars Calmfors Spain, Ireland `Thrown to the Wolves' ``They have been thrown to the wolves,'' said Stuart Thomson, who helps manage $46 billion in bonds at Resolution Investment Management Ltd. in Glasgow, Scotland. `It's much easier to bring inflation lower if you're willing to have a recession in economies like Spain, Italy and Ireland.'' The Irish economy contracted for the first time in more than a decade in the first quarter. Growth in Spain was the slowest in 13 years in the period, Has Europe's terminal crisis begun with a triple no vote? The attempt to override the triple "No" votes of the French, Dutch, and Irish peoples has brought the EU to a systemic crisis of legitimacy.Has Europe's terminal crisis begun with a triple no vote? Germany and Spain have clashed in an escalating dispute over the European Central Bank, Why would the euro fall? Because the currency is still an experiment in cooperation.
In the past fifteen years, France government debt to GDP has moved from 35% in French Franc (i.e.: a currency the government could print at will) to 70% in Euros (i.e.: a currency that only the ECB can print). Emu’s second 10 years may be tougher  As the euro soars, the pressures of adjustment to internal divergence are likely to grow to enormous levels. The report is honest about these challenges. Between 1999 and 2007, huge divergences in inflation, relative unit labour costs and current account positions emerged (see charts). These tendencies were exacerbated by the divergence in real interest rates, with the lowest rates in the countries with the highest inflation and – perversely, but inevitably – the strongest economies. http://ec.europa.eu/economy_finance/emu10/reports_en.htm The stories here are two: A 10 per cent improvement in relative unit labour costs would demand a 10 per cent decline in relative wages. ECB marking its 10th anniversary June 1, has failed in each of the last eight years to achieve its aim of bringing inflation below 2 percent. There is no excuse for Britain not to join euro From a conventional macroeconomic perspective, there is no reasonable argument for a small, highly open economy such as Britain’s to retain monetary independence To those loudly insisting all this week that Britain should have joined the euro ten years ago, Celebrating 10 years of the euro? About 16 million jobs have been created in the eurozone since the birth of the euro, and unemployment has fallen, from 9% in 1999 to 7% in 2007. Of course, neither of these achievements is necessarily due to the euro, any more than the fall in average inflation and long-term interest rates can be directly attributed to the European Central Bank. Nearly all of the world's advanced economies have seen a steady decline in inflation since the late 1980s (at least until recently), a development that has pushed down interest rates as well.  EMU@10 is a very substantial document about the future of the euro area – by far the most comprehensive and thoughtful report we have yet seen. It has three parts. We will ignore the first, which looks back at the first ten years, as well as the second on future challenges, There are three schools of thought about euro area policy co-ordination. What is remarkable is that the European Commission is departing from the previous line that economic reforms should be dealt with purely under the framework of the Lisbon Agenda. *
I am very pleased to welcome you to this website dedicated to the euro and The unemployment rate in Spain jumped the most in 15 years to a three-year high The pain in Spain Europe's monetary union, which launched the euro almost a decade ago, Jean-Claude Juncker, the EU's 'Mr Euro', The euro hit a record high against the dollar after data In truth, as the euro approaches its tenth birthday celebrations, it is facing the biggest test of its short life ECB has been reluctant to cut rates is not because growth is so robust but because inflation has picked up to 3.5%—the highest in the euro's nine-year existence. And two bigger worries have emerged. The first is the strength of the euro. Mr Almunia, economics commissioner, says the euro is “overvalued” and adds that, although the impact has been moderate so far, “we are at the limits, if not beyond them.” The second worry is the housing market. Europe may have avoided the American subprime mess, but in several countries house prices have been even bubblier than in America. They are already falling in Spain and Ireland, and, beyond the euro zone, are starting to do so in Britain. A property bust may not produce an American-style mortgage meltdown, but it will surely topple economies heavily dependent on construction Even critics of the euro would concede that it has had considerable success, establishing itself in less than a decade as a genuine rival to the dollar as a world currency. But... But some countries have adapted a lot better to the discipline of the euro than others. Germany and the Netherlands have cut labour costs and introduced enough reforms to make their economies more competitive. France, Spain and especially Italy have done less—and are suffering more, from both the euro's rise and the global slowdown. Though many observers are rightly concerned about Spain, it may be Ireland that becomes the next serious test of EMU’s one-size-fits-all monetary policy. The European Commission Predicts Weaker Growth, Higher Inflation in 2008 Yet if the storm is peaking in the US, it has hardly begun in Europe. Byggkrasch nära i Spanien Companies in Britain and Europe have failed to place a single high-yield bond http://blogs.telegraph.co.uk/business/ambrosevanspritchard/nov07/euro.htm As the euro brushes $1.50 against the dollar, As Airbus chief Thomas Enders warned in a speech to the Hamburg workers last night, Europe's champion plane-maker - the symbol of European unification, in the words or ex-French president Jacques Chirac -- is now facing a "life-threatening" crisis. The sudden rocketing in sovereign bond spreads this week between core German Bunds and Club Med debt - Italian, French, Spanish, Portuguese, Greek, as well as Irish, Belgian and Slovenian - is a clear sign that markets are starting to price in a break-up risk for the single currency, however remote. The euro soared to another record high against the sagging dollar, "Some thougths about the future of the euro" Why The IMF’s Decision To Agree A Lavian Bailout Programme Without Devaluation Is A Mistake Paul Krugman Edward Hugh Mer om Baltikum och Swedbank SEB m fl The wolf packs are circling. Hedge funds target currency pegs The global M3 money supply is growing at 10.6pc as stimulus from America, Europe – and Japan, through the carry trade – leaks out to the vibrant parts of the world economy... With the usual lag, inflation has at last hit. The easiest prey are in the Baltics and Balkans, where EU newcomers have let rip by importing an ECB monetary policy designed for the slow barges on the Rhine. All are overheating. The dominoes are toppling. The dollar broke above $1.40 per euro for the first time Varför betalade ECB 1.800 miljarder kronor för att rädda euron? The euro slipped to a six-week low against the U.S. dollar on Wednesday and The ECB made a total of four cash interventions since last Thursday The ECB "will continue to monitor the situation while euro-area financial markets in general are going back to normal functioning,'' The European Central Bank on Monday injected another 47.67 billion euros ($65 billion) into the banking system Speculation is mounting that the European Central Bank will seek to arrange a currency swap The European Central Bank made a second move to boost liquidity in the financial market Friday, *
Med nödkrediter på nästan 900 miljarder kronor, Paniken borde egentligen vara obefogad Kommentar av Rolf Englund: *
The European Central Bank scrambled to head off a potential financial crisis on Thursday by pumping an emergency €94.8bn ($131bn) into the region’s banking system The cash injection was the biggest in the ECB’s history, exceeding the €69bn provided the day after the terrorist attacks of September 11 2001. The ECB also made an unprecedented one-day pledge to meet 100 per cent of all funding requests from financial institutions. In “The Coming Collapse of the Dollar,” James Turk and I said this about the effect of a falling dollar on other countries: Professor Paul de Grauwe So what if the euro rises above $1.40? The long-run performance and success of the EMU depends on whether economic convergence or divergence is occurring. Germany needs to formulate a response to Sarkozy or the only proposal on the table will be Sarkozy’s anti-stability, anti-competition, pro-currency-intervention proposals. The euro has continued its dramatic surge to record highs against the dollar, causing serious strains in southern Europe and renewing concerns about the long-term viability of monetary union. The country that most troubles outsiders is Latvia. French and Italian industrial production both unexpectedly fell in April Finns euron kvar om 15 år? I en viktig fråga är EMU-projektets varmaste anhängare och argaste kritiker helt överens: For the first time, respectable voices - i.e., those deemed respectable by the European elite - "tensions" from "persistent divergences in growth and inflation" among its members, the European Commission warned Italy is often mentioned as the country most likely to leave the euro. I disagree. The real reforms needed to secure the euro’s future Joaquín Almunia, EU monetary affairs commissioner 280-page report on the low pace at which countries have adapted to the euro since its launch in 1999. Now, some experts are becoming concerned that Could the eurozone disintegrate? - The answer is yes. John Rubino 7/20/2007: Correctly interpreting this change in buying patterns as a threat to their vital export sectors, European and Japanese leaders will respond with the only weapon they have left: monetary inflation. They’ll cut interest rates and buy dollars with their currencies, flooding the world with euros and yen the way the U.S. now floods the world with dollars. So what if the euro rises above $1.40? My prediction is that they will first have a fight about who is in charge. If the euro continues to appreciate, Germany in particular will suffer from a sustained exchange-rate overshoot, as its economy remains as dependent as ever on a successful export sector. There are non-trivial structural risks that the euro may appreciate further in the short-to-medium term.If it does, Mr Steinbrück (“I’m not worried about a strong euro. I love a strong euro”) will not only have to eat his words. More worryingly, he and his European colleagues will have no idea what to do under these circumstances. Germany’s ability to improve its competitive position through a devaluation of the real exchange rate has run its course. My hunch is that the German government will find it difficult to stick to its current position and that Mr Sarkozy will win this argument. It would be much better if the eurozone adopted a more structured process to deal with exchange rate overshoots. Germany needs to formulate a response to Sarkozy or the only proposal on the table will be Sarkozy’s anti-stability, anti-competition, pro-currency-intervention proposals. The long-run performance and success of the EMU depends on whether economic convergence or divergence is occurring. Now several years after the formation of the monetary union (formally started in 2002 but already effectively in place since 1999) there is enough economic data to make a preliminary assessment of the success of the monetary union. Here is a concise overview of the economic criteria that make a currency or monetary union desirable.... In the RGE paper (co-authored by Christian Menegatti, Elisa Parisi-Capone and myself) that we presented at the EMU conference we conducted a systematic overview of the evidence on economic convergence or divergence within the EMU. The only country where the external adjustment has taken place has been Germany: but even in this case the adjustment was very slow and took more than a decade: the shock of German unification and the ensuing loss of competitiveness of Germany took more of a decade to be unraveled via a painful process of corporate restructuring and significant wage moderation. Iin the process leading to EMU real interest rates sharply fell in countries such as Spain, Portugal, Ireland and the Netherlands. This reduction in real interest rates led to an economic boom and overheating that – in the countries above – took also the form of a housing boom with excessive investment in real estate and sharply rising home prices. The ensuing economic bust in the Netherlands and Portugal was particularly painful. The housing bust that is likely to now occur in Spain - and possibly even Ireland – will be similarly painful. One serious open question if whether the countries – Italy, Portugal, Spain, Greece - that have experienced a significant loss of competitiveness and real exchange rate misalignment will be able implement reforms that will increase productivity growth, reduce relative unit labor costs and allow them to regain their lost competitiveness. There are some reasons to be cautiously pessimistic. Even ECB executive board member Lorenzo Bini-Smaghi - who strongly argued that EMU has been a success – admitted that these countries may have to go through a long and painful adjustment period to regain the lost competitiveness. This article appeared orginally in Nouriel Roubini's Blog at RGE Monitor. The euro has continued its dramatic surge to record highs against the dollar, causing serious strains in southern Europe and renewing concerns about the long-term viability of monetary union. French president Nicolas Sarkozy yesterday instructed his staff to draw up plans on "the means for implementing an exchange rate policy" in co-operation with the 13 finance ministers of the eurozone, showing that he intended to press ahead with his campaign to clip the wings of the European Central Bank. The aim is to twist the arm of the ECB, until it agrees to slow the pace of rate rises. "When the dollar loses 33pc of its value against the euro, how can our industries regain the competitiveness lost unfairly due to political manipulation by the rest of the world?" he told Euro MPs last week. The current account deficits of Spain, Greece, and Portugal have all reached 10pc of GDP. While the slippage in France is less dramatic, it has been enough to cause deep soul-searching in Paris about the value of euro membership on current terms. Bernard Connolly, global strategist for Banque AIG, said investors switching from dollars to euros were mistakenly treating Germany as if it were a "proxy" for all Europe. "What they fail to recognise is that Spain, Italy, and France are in a worse state than the US, and are even more dependent on a global credit bubble to support demand," he said. French and Italian industrial production both unexpectedly fell in April The euro advanced to a record against the dollar in April, making European goods less competitive at a time when the economy of the U.S., the region's biggest export market, has slowed. The European Commission predicts euro-region growth will cool to 2.6 percent this year, from 2.7 percent, still robust enough for the European Central Bank to push interest rates higher. The declines in French and Italian output come after a report showing German industrial production fell in April for the first time in six months. Manufacturing in the euro region expanded at the slowest pace in more than a year in May. The unemployment rate in Spain jumped the most in 15 years to a three-year high The pain in Spain The Spanish economy has been a driving force for economic activity in the euro area for more than a decade, with year-on-year GDP growth exceeding the average rate of expansion in the euro area in every quarter since 1995. The weakness began last year in the housing market — the major driver of the Spanish economy over the last ten years. The danger signs are now spreading to other sectors of the economy. The Economist Intelligence Unit has cut its forecast for Spanish GDP growth to just 1% in both 2008 and in 2009, compared with an annual average rate of expansion of 3.8% in 1998-2007. Rising employment in the construction sector has accounted for a substantial share of overall employment growth in recent years, while house prices are estimated to have increased by 190% between 1997 and 2007—only Ireland and the UK have experienced a similar hike in prices among major industrialised countries. A return to a more normal level of housing investment would take off some 3 percentage points of GDP, and in order to absorb earlier excess construction, a temporary fall to below the normal level would probably be necessary. The experience of Sweden, where housing investment declined by 71% between the peak in 1990 and the first (not final) trough in 1995, suggests that such adjustments can be dramatic. With Spain being a member of the euro area (and a departure from the club out of the question), a devaluation of the currency to improve competitiveness and boost export demand is also not an option (although the high, and rising, current-account deficit would suggest a serious overvaluation). President Nicolas Sarkozy The ECB has doubled rates since December 2005, a key factor driving the euro to record highs. While a resurgent Germany can take the strain, most of the "Club Med" bloc is losing export share - including France. "How can you continue to export if the euro is the only currency in the world that is overvalued compared to the dollar, the yen and the yuan? Sarkozy Sarkozy is no fool. He is a former finance minister, who knows exactly what he is talking about. He has formed a firm view of economic governance both in France and in the euro area. And he has come to a different conclusion that most of us have. From the vantage point of a populist politician who is keen to break with the past, Sarkozy is in fact totally consistent. Treat the ECB, the Commission, and the Germans as your enemy, and play the role of Robin Hood, who takes the money from the evil ECB and hands it to the poor. This, far more than Italy's economic weakness, or a Spanish housing market meltdown, is the stuff which could endanger the long-run viability of the euro. Axel Weber, the hawkish head of the Bundesbank, is alarmed by a 10.9pc surge in the M3 money supply France and Germany have begun to clash openly over control of monetary policy in the eurozone, taking starkly different views about the rising threat of inflation. In an unprecedented rift, the heads of the Bundesbank and the Banque of France have contradicted each other in public, exposing an emerging rift between Europe's north and south. Axel Weber, the hawkish head of the Bundesbank, is alarmed by a 10.9pc surge in the M3 money supply in March, the highest growth rate for the region in almost a quarter of a century. The less-watched M2-M3 gauge rose 19.8pc - anathema to monetary hawks in Frankfurt. The comments were flatly contradicted hours later by Christian Noyer, France's bank chief. "There is no concern that inflation will get out of hand. The risk has not increased," he said, showing his irritation. The north-south clash reflects the yawning gap between a resurgent "Teutonic Tiger" conquering markets in Asia and Eastern Europe, and a sickly France being left behind. The strong euro is slowly asphyxiating French exporters. The rest of the Club Med bloc is lining up behind Paris. Romano Prodi, Italy's premier, said: "I am worried about the relentless rise of the euro. We have reached a point where it has become truly a burden." European finance ministers The eurozone has now split into two incompatible camps. Madness was at full throttle last week as the stateless currency of the world's least dynamic bloc surged to an all-time high near $1.37 against the dollar. It brushed yen163 against the yen, a rise of 80pc since 2001. The euro is even lording it over the Swiss franc. This rise has occurred at a time when a) the EU's "Lisbon" drive to unshackle the economy and close the technology gap with America has flopped, b) France, Italy, Spain, and Poland are openly defying the EU's single market rules, c) the grand plan to create an EU superstate has collapsed, leaving the euro an orphan currency, with no sovereign entity behind it, and no hope of an EU Treasury or debt union to see it through a crisis. The world plainly wants euros. Investors are willing to believe for now that the currency is a sort of big D-Mark reflecting the wonders of the German export machine - forgetting about 180m Latins on the other side of the eurozone's cultural fault line. They'll learn.Sated with dollars, China, Russia, and the petro-powers are shunting their massive reserves into Bunds and Spanish treasuries, pushing the euro ever higher.Since most of Asia hold down their currencies by mercantilist intervention, Europe is taking the brunt of the dollar slide. Deutschland AG has just enforced the harshest wage compression of modern times.Unit labour costs in manufacturing fell 4.4pc in 2005 alone as Volkswagen and Siemens extracted longer hours without extra pay under threat of moving jobs East.Stealthily, Germany has gained 40pc in competitiveness against Italy since the D-mark and lira were fixed in 1995, 30pc against Spain, and about 20pc against France. Berlin gave up the D-Mark under an implicit contract that the euro would never fuel German inflation.This contract will be enforced. If not, German citizens will pull the plug on EMU. The only question is who will file for divorce first: the Latins or Teutonia. They cannot both share the currency. Euro is 'doomed to failure' The French created the European Union, so it would be appropriate if they destroyed it. Do current account deficits matter inside a monetary union? Is Latvia about to devalue? The currency’s peg to the euro has provided the country with much-needed stability – after Russia’s 1998 default, most crucially – but has restricted the central bank’s ability to use monetary policy to reduce demand and inflation. It has also encouraged the credit boom by reducing borrowers’ exposure to foreign exchange risk. Moody’s says Latvia’s $20bn external debt equates to over 100 per cent of GDP, 43 per cent of it short-term and owed by the private sector. After Thailand’s currency peg broke in 1997, its currency lost more than half its value in the following six months. Bör Carl Bildt dömas till böter? Germany’s export strength also makes it export-dependent and vulnerable to a downturn in global demand. The real reforms needed to secure the euro’s future Ségolène Royal, socialist candidate for the presidential elections: The Eurozone economy is strong enough to withstand weaker US growth, higher German taxes and a dip in exports next year, Growth will slow in 2007, though the Commission said it would remain robust as negative effects would be limited. Countering the global problems would be strong domestic consumer demand and improved corporate spending, it added. ``While slower growth in the U.S. will undoubtedly have an impact on the rest of the world, our analysis suggests that its effect on activity in the euro area should be limited,'' Klaus Regling, head of the commission's economics department, said in the report. The recent flurry in foreign exchange markets probably signals the start of a process of unwinding global imbalances. Suppose the market brings about the requisite dollar depreciation. The author is a fellow of Merton College, Oxford Suppose the market brings about the requisite dollar depreciation. Then, if China and Japan were to maintain their dollar exchange rates, as they are currently entitled to, other countries, especially in Asia, would have an incentive to do the same. There would then be a large effective appreciation of the euro with potentially devastating effects on Europe. An exchange rate war could follow, as well as a return to protectionism. French premier Villepin attacks ECB amid call for return to franc Speaking on French radio as the euro surged to fresh records against Asian currencies, he said it was time to "lay everything on the table" and set the proper limits of ECB power. "We must clarify matters in exchange rate policy, which means taking back our sovereignty and our margin for action so the states can play their part," he said. The comments came as Nicolas Dupont-Aignan, a presidential candidate, became the first major Gaulliste to call for a return to the franc, underlining the collapsing popular support for monetary union in parts of French society. Mr Dupont-Aignan said the EMU had become unreformable, leading to a monetary squeeze that was driving the French economy into slump. Mr de Villepin said the eurozone was split into two clearly opposed camps. "There are some states that are happy with the current situation, but for France it is not acceptable. This is a tough fight that we are going to have to carry out at a political level," he said. Mr de Villepin's comments on exchange policy was a clear reference to Article 111-2 of the Maastricht Treaty giving EU finance ministers the power to shape the exchange rate. Known as the "nuclear option", it gives politicians the means to dictate policy to the ECB - since the exchange rate is an indirect lever over interest rates. It would in effect strip the bank of its cherished independence. No EU national leader has ever before threatened openly to invoke the clause. Michael Dicks, chief eurozone economist for Lehman Brothers, said a further rise in the euro above $1.35 would could cause severe strains. The Iraq invasion, disastrous though it has been, may not go down in history as the greatest political blunder of the past decade. What we see today, not only in Italy and Hungary, but also in the other relatively weak economies on the southern and eastern fringes of the EU, is the beginning of the end of the European project. What we see in Eastern and Southern Europe today are the consequences of the EU’s transformation from a union of democratic countries into a sort of supra-national financial empire in which the most important decisions affecting EU citizens are no longer subject to democratic control. There is now almost no chance of Hungary, or any other new European country, being admitted to the euro-zone in the foreseeable future. This was demonstrated over the summer when Lithuania and Estonia was refused permission to join the euro on the flimsiest of grounds. Italy will be tightening its budget at the same time as Germany implements the biggest tax increases in its modern history At some point the people of Europe will realise that there is something rotten in a political system that leaves them forever in the world economy’s slow lane — and which cannot be changed by any democratic process, regardless of how people vote. Eurozone unemployment falls to record low Why break-up of faltering euro could be the way ahead The disintegration of the euro may be drawing closer. Warnings of an EMU bust-up were once confined to a handful of eurosceptic journals: they have since spread to City banks such as Morgan Stanley and HSBC, and are now moving perilously close to the EU core itself. "Will the Eurozone Crack?" is the latest missive from the Centre for European Reform, a pro-euro think-tank with close ties to the European Commission. "The single currency was supposed to bring Europe together, but it risks becoming a source of economic dislocation and political division," begins the report, a 59-page demolition of EMU by the centre's business chief, Simon Tilford. As The Daily Telegraph's Brussels correspondent, I used to meet for furtive lunches with a Commission economist who was so worried about the coming smash-up that he had switched his savings into "hard" currencies, choosing foreign accounts beyond EU reach. I joke not. He knew, from his ringside seat, that the single currency had been thrust on Europe by the Delors crowd for entirely political reasons in the face of vehement warnings from the pros at the Directorate of Economic and Monetary Affairs. How to ensure the eurozone does not unravel What are the circumstances under which the eurozone could disintegrate? A departure by Italy or Spain, or both, would not suffice. However, it is extremely difficult to construct even a purely theoretical scenario under which it would make sense for France or Germany to reintroduce national currencies. A decision to quit would never pay off for the quitter in the short run. The administrative costs would be crippling, financial markets would be in turmoil and the quitter would almost certainly have to pay higher risk premiums on its bonds. Den gemensamma valutan är integrationens mest synliga tecken, och
förmodligen det mest långtgående steget mot en europeisk gemenskap Otmar Issing, Europe's high priest of monetary orthodoxy, has confessed that the euro was launched on flawed foundations and is now threatened by "big tensions" between north and south. Otmar Issing, Europe's high priest of monetary orthodoxy, has confessed that the euro was launched on flawed foundations and is now threatened by "big tensions" between north and south. In a parting shot before stepping down today as the European Central Bank's chief economist, and dominant force, Dr Issing said the stark differences in wage inflation across the eurozone were storing up future trouble. While he did not name the culprits, Dr Issing was clearly fingering the Club Med quartet of Portugal, Greece, Italy, and Spain, all of which failed to kick their inflationary habits after joining EMU. He said the euro project was launched before the building blocks were in place. "The proper functioning of a monetary union requires flexible labour and good markets. These conditions have not been fulfilled from the start." Dr Issing has been Frankfurt's intellectual powerhouse since the early 1990s, infusing the fledgling euro-bank with the ethos and monetary discipline of the revered Bundesbank, where he had also been chief economist. A loyal public servant, he has never questioned the euro's viability, but it is an open secret that he long favoured a core currency limited to France, Germany and Benelux, and doubted whether the euro could survive as an orphan currency without the backing of full political union. Paul de Grauwe, professor of economics at the University of Leuven in Belgium and an adviser to Mr Barroso, fears that a lack of political integration is undermining the single currency project. The Italian election result was a disaster for Italy and is a threat to the future of the euro. The narrow election victory by Romano Prodi’s centre-left alliance was the worst imaginable outcome in terms of Italy’s chances to remain in the eurozone beyond 2015. Spricker EMU? Italy’s seven years within the eurozone seem consistent with Dante’s famous inscription at the entrance of hell: “Abandon all hope, ye that enter”. Italy follows Argentina down road to ruin Try reissuing the 12 national currencies that were replaced with just one. At a seminar in London this month organized by the think tank Open Europe, John Gillingham, professor of history at the University of Missouri-St Louis, said it was time to look at radical options to change the way the euro area's economy is run. "The currencies of the euroland should be reissued and any attempt to regulate the values of the currencies by an overall single monetary and fiscal straight jacket should be dropped," said Gillingham, who wrote the book "Design for a New Europe". It might seem odd to listen to forecasts on monetary matters from a historian rather than an economist. Then again, the euro is primarily a historical achievement - which may help explain why it has gone wrong. Of course, the debate has been here before. (You don't need to be a professor of history to know there are very few genuinely new ideas in the world.) As far back as 1990, then British Chancellor John Major proposed a new European currency that would circulate alongside the existing national ones. It wasn't accepted then because everyone was focused on creating a single currency that would replace the others. Now, perhaps it has more chance. Why? Because in 1990 you could still argue a single currency would deliver stronger growth. It is hard to argue that in 2006. There are only three ways forward. One is to struggle on with a permanently sluggish economy. Another is to wait for a financial crisis, or a bad-tempered exit (probably by Italy). The third is to preserve what is good about the euro, while repairing the parts that don't work. Design for a New Europe at Amazon Will EMU survive 2010? Germany entered EMU with an overvalued exchange rate, but it has regained competitiveness through a process that used to be called ‘competitive deflation’, i.e. extracting continuous concessions from trade unions on labour costs. By contrast, Italy has continuously lost competitiveness, and the French performance has again been ‘middling’. Somewhat surprisingly, the export performance of France is even worse than that of Italy, suggesting a corresponding lack of structural reforms. Unnoticed by many, an even more severe disequilibrium is building up in the case of Spain, which so far has been regarded as a success story. The remainder of this decade is thus likely to see the North and the South of Europe trading places: Germany is likely to emerge with the strongest growth once its real estate market has bottomed out, whereas Italy and Spain are likely to experience a period of weak growth as their labour markets struggle with the problem of how to regain competitiveness through lower wages and extracting concessions on working time. The real test for the EMU framework is thus likely to arise over the remainder of this decade. Once Germany has brought its public finances under control (probably around 2007), the pressure will mount on Italy whose relative position is likely to have deteriorated further. Over time, the global savings glut is likely to end and global interest rates are likely to return to more normal levels. The ‘one size fits all’ policy of the ECB is then likely to become very difficult to bear for countries like Spain and Italy, which will then have to enter a period of very low increases, or even declining, domestic price levels. A combination of slow growth, rising real interest rates and increasing pressures from Brussels to reduce spending will make EMU unpopular in these countries. Spanish banks doubled their share of the ECB’s weekly funding auctions, The European Central Bank has effectively funded new lending in Spain in recent months, replacing banks’ use of wholesale capital markets, which have been strangled by the global credit crunch. The market for securitised debt and for mortgage-backed bonds in particular has been almost entirely shut since the credit crunch hit last summer and investors began shunning complex, structured debt. The Spanish banking system is second only to the UK in Europe in its use of mortgage-backed bond markets and other securitisations to fund lending. Jean-Claude Trichet, president of the ECB, last week insisted the central bank had not been bailing out banks in Spain, but said there had been a marked increase in use of securitised bonds as collateral by Spanish banks and others. Yet if the storm is peaking in the US, it has hardly begun in Europe. "Some thougths about the future of the euro" Professor Paul de Grauwe Since the start of the year, the Spanish economy has felt like a huge party on the Titanic,
cruising heedlessly on to an iceberg of corporate debt. “Spain is different!” the over-borrowed say. There won’t be a property crash – foreigners will always want a place in the sun. “International investors only care about one thing, your exposure to the real estate sector,” laments one Spanish banker. Although house prices are not falling yet, house sales are. According to the association of Spanish property registrars, property sales fell 7 per cent in 2006. This year, building permits have been issued for 800,000 new homes. And while not all will come on to the market this year, it is difficult to escape the conclusion that the Spanish real estate market is over-heated, over-priced and over-supplied. One serious open question if whether the countries – Italy, Portugal, Spain, Greece - that have experienced a significant loss of competitiveness and real exchange rate misalignment will be able implement reforms that will increase productivity growth, reduce relative unit labor costs and allow them to regain their lost competitiveness. Euro helps topple Spanish property Miguel Fernandez Ordonez, the Bank of Spain's governor, blamed the bubble on the wrong interest rates caused by euro membership. Bernard Connolly, global strategist for Banque AIG and former head of economic research for the European Commission, said the country will face a brutal adjustment over the next two years - if it can remain in the euro at all.  Last year alone, Spain started to build 800,000 new homes Spain has experienced a roaring economic expansion, in part fuelled by low interest rates caused by sluggish growth in other parts of the eurozone. - In any dynamic modern economy the size of the US or the European Union there are bound to be significant regional differences in economic performance. Economic policy tries to assuage such differences and set up automatic stabilising mechanisms by which they become self-correcting. Movements in exchange rates can act as such an automatic stabiliser. Lawrence Lindsey Financial Times 1996-11-28 Disbelief has been suspended. Whenever I mention rising interest rates, higher mortgage payments, creeping unemployment, the possibility of falling house prices, fingers are stuffed in ears, eyes are tightly shut and heads shake wildly. No, no, no. Go away. The pain in Spain Shares in Spanish construction companies have collapsed like haciendas in an earthquake. Years of cheap loans, chronic over-supply of housing (facilitated by corrupt planning officials) and dodgy investment schemes, peddled to gullible foreigners, created an unsustainable boom. The bust is going to Costa lot, especially for thousands of Britons who borrowed heavily to buy a home in the sun, expecting rental income to pay the mortgage. The pain in Spain is a timely reminder that rampant bull markets can make ordinary people mistake themselves for financial wizards. Do current account deficits matter inside a monetary union? In Spain, the construction and housing sector accounts for 18.5 per cent of gross domestic product, The booms in Spanish and Irish real estate make the US real estate boom look timid By importing the credibility of the European Central Bank, they benefit from low nominal interest rates, in spite of their vivid growth and consequent higher than average inflation. Thus in addition to the global savings glut which exercised downward pressure on nominal interest rates, both countries exhibit very low real interest rates. In fact, the total value of mortgage debt in Ireland tripled over the 2000-2005 horizon, and mortgage lending is still growing at a 20% pace. Spanish lending is still growing at a 23.6% pace. Given that in Ireland 83% of total outstanding mortgage debt in 2005 and in Spain, 97% of the debt is at variable rate interest, households are considerably exposed to interest rate hikes. A decade of red-hot growth in the Spanish housing market fueled a jump in such things as jobs and consumer spending, turning Spain into one of the fastest-growing countries in the euro zone. Byggkrasch nära i Spanien Italy is often mentioned as the country most likely to leave the euro. I disagree. Italy is often mentioned as the country most likely to leave the euro. I disagree. Leaving the euro would not solve any of Italy’s problems. Since Italy’s debt is mostly euro-denominated, Italy would be facing an Argentinian-style debt crisis. A wise Italian politician told me recently that Italy was more likely to disintegrate as a nation state than to leave the euro. If any country ever decided to quit, unlikely as this may be, that country would be Spain, not Italy. Over the past seven years, Spain has lost even more competitiveness against the eurozone than Italy. At the same time, Spain is also in a better position to quit. With a debt-to-gross-domestic-product ratio of just over 40 per cent, Spain would have no problem servicing its debts. Unlike Italy, Spain enjoys the reputation of a European success story. But its economic success rests on shaky ground. It was driven by a housing bubble, during which average property prices have increased almost threefold since 1997. The US and UK housing markets have been well behaved by comparison. The house-price bubble has kept the Spanish economy ticking over – and overshadowed Spain’s underlying problem of falling competitiveness. Successive Spanish governments have failed to put in place the one condition essential for a country to prosper in the eurozone in the long run – a sufficient degree of wage and price flexibility. The country’s current account deficit for the first 11 months of 2005 reached 7.3 per cent of GDP. In its latest autumn forecast, the European Commission put the current account deficit at 8.3 per cent this year, and 9.1 per cent in 2007. These are unsustainable levels. More about house prices at internetional.se On Friday I was in Davos in a panel on the "Ups and Downs of EMU" (European Monetary Union) where ECB head Trichet, Italian Economy Minister Tremont, a few other EU officials and myself were supposed to discuss the following questions: Unlike the other panelist that ignored the topic and spoke instead about all the good things allegedly associated with EMU, I took the questions seriously by considering some of the problems and risks faced by EMU and the risks of a break-up, especially for the case of Italy. My remarks caused a stir with Minister Tremonti who interrupted me in the middle of my remarks, went into a temper tantrum and shouted - to the consternation of all participants - to me: "Go Back to Turkey!!". I happen to have been born in Istanbul; but more than offensive to myself his pathetic burst of uncivilized anger was an insult to the decent Turks who are currently trying to negotiate an agreement to enter into the EU. My current concerns are that, while EMU has lead to a process of convergence of nominal variables (inflation, interest rates, etc.). it has also been associated with a process of increased divergence in economic performance, especially regarding economic growth rates. This economic performance divergence is a serious problem for some EMU countries (Italy, Portugal, Greece) and it may eventually lead to a collapse of EMU. I am not supportive of such a collapse but, unless appropriate macro and structural economic policies are undertaken, the risk of a break-up becomes serious. The risks that eventually Italy may exit EMU cannot be underestimated. See also: Frits Bolkestein, the former EU internal market commissioner, has questioned the chances of survival for the euro in the long term.
The ageing of Europe's population will hit the continent "ruthlessly," the outspoken Dutch politician stated, with eurozone states like Italy being unprepared for the expected jump in pension claims. Will all the 12 countries in Europe's single currency remain members in three or four decades? WILL all the 12 countries in Europe's single currency remain members in three or four decades? The question may seem imponderable. But euro-area governments floating 30- or even 50-year bonds are asking investors to ponder it nonetheless. S&P assumes that countries such as Italy and Greece would want to regain their own currency only to debauch it. Both have lost competitiveness since the 1990s. Italy's unit labour costs are projected to be 27% higher by the end of 2006; Greek costs have increased by almost half. In S&P's simulations, the Italian government announces a surprise exit from the euro on the last day of 2006, and promptly devalues the new lira by 27%. The Greeks devalue by 49%. Both countries would thus recoup, at a stroke, the competitiveness they have lost. Unfortunately, their debts would still be payable in euros. Of course, I will be challenged on my views on Europe and my opposition to the British intervention in Iraq. Europe should concentrate on building jobs, enterprise and competitiveness with a real attack on unnecessary regulation. Ken Clarke’s dismissal of the euro as a “failure” is like a cardinal telling us that God doesn’t really exist. The sceptical voice of the former UK Conservative chancellor adds to the chorus of pessimism about the euro that has reached a crescendo after the No votes in the French and Dutch referendums. I agree with him that the cautious approach to entry by Gordon Brown, the current chancellor of the exchequer, is right at the present time. But is the euro really a “failure”? There are two new, contradictory arguments for pessimism. The first is that the European Central Bank’s common monetary policy is a cause of slow growth. The second concern is that Germany, far from languishing under the euro, is showing signs of economic improvement, potentially creating an unsustainable divergence with Italy (and others). Either, it is said, could lead the single currency to collapse. There is a serious issue about whether the “one size fits all” monetary policy is restricting growth, particularly in Germany Let us again suppose that A reforms and B does not. En rad länder i västra Europa plågas av en ihållande ekonomisk kris. Arbetslösheten stiger och tillväxten sjunker. I Tyskland, Italien och Frankrike - liksom Sverige - tilltar svårigheterna trots god konjunktur och låg ränta. Ekonomisk politik kan fokusera på antingen strukturella reformer eller stimulanser av konjunkturen. Det senare kan utgöras av finanspolitik eller penningpolitik. Båda är dock bara olika former av klassisk keynesiansk stimulanspolitik. En gemensam valuta, som i Hayeks anda för bort penningpolitiken från nationella politiker, stänger likt en guldmyntfot möjligheten att fuska sig ur problem och främjar därför reformer.
Kommentar av Rolf Englund: Därigenom måste Munkhammars slutsats bli att det behövs supply-side economics, som i USA. Sedan moderaterna, efter att ha tappat var tredje väljare, övergav den Munkhammarska systemskiftespolitiken, strömmarna väljarna till. It is economic performance – not the European Union budget or any proposed constitution – that will determine the fate of the “European Project”. European Central Bank council member Christian Noyer: Noyer, also governor of France's central bank, told French National Assembly's foreign affairs committee last week, according to minutes of the closed hearing released today. Such a move may put in doubt a nation's continued membership of the European Union, he said. For the first time, respectable voices - i.e., those deemed respectable by the European elite - "Det finns ingen anledning till oro" Weakening economies in Europe have translated into rising pressure for political change. The previously noted loss by Germany’s left-of-center SPD Party of North Rhine–Westphalia in the May 2005 election has been likened to the Republicans carrying New York and California in a presidential election. Clearly, it is not politically viable for even a left-leaning German government to try to rein in social costs while the German economy is so weak. The unemployment rate is above 11 percent, and growth is slipping toward zero. The poor performance of some European economies and the unevenness of performance among them--Spain, Ireland, and even France are still experiencing strong growth and strong real estate markets--is a byproduct of Europe’s bold currency experiment in which full currency union preceded political union. The more serious problem is the moral-hazard issue that arises in a monetary union with one central bank oriented toward low inflation and twelve treasuries with sharply differing economic systems to manage. The expedient move by the Italian government would be to borrow heavily in order to finance a large fiscal stimulus to boost Italy out of its recession. The effective peg between interest rates on Italian government liabilities and German government liabilities means that the Italians will be under increasing pressure to employ Keynesian fiscal stimulus to boost their economy. The Italian Finance Ministry answers to the Italian government, not to the European Central Bank, thus the institutional bias to use deficit finance to boost the economy out of recession. Lord Lamont was UK chancellor of the exchequer 1990-93 and is co-chairman of the Bruges Group Six years ago, 11 European nations made a bold bet that a common currency would unify and fortify the continent from Sicily to Helsinki. Now, as many of the nations in what is known as the euro zone slog through an economic funk, The euro-bashing isn't confined to Italy. A poll for Stern magazine this month found that 56% of Germans want the mark back. "Breakup is back on the radar screen as a theoretically possible option" for the monetary union, says Holger Fahrinkrug, an economist at Swiss bank UBS in Frankfurt. "It would have been better for Italy to stay out [of the euro] for a few years," says Julian Callow, chief European economist at Barclays Capital in London. "There's no easy solution now." Is the euro forever? A rising tide of integrationist ambition swept the single currency on to the European shore in the 1990s. I en viktig fråga är EMU-projektets varmaste anhängare och argaste kritiker helt överens: för att valutaunionen ska hålla, måste den förr eller senare leda till politisk union. The French and Dutch referendums have dashed hopes of political union in Europe. Finns euron kvar om 15 år? Varför överlevde valutaunionerna i USA, Kanada, Tyskland och Italien, till skillnad från de skandinaviska och latinska mynt-unionerna? Jo, de var en del i arbetet med att skapa en nationalstat. För amerikanerna tog det 150 år att uppnå en fungerande monetär union... Ännu på 1920- och 1930-talen rådde en oenighet mellan regionerna om penningpolitiken, vilket lade grunden för den paralysering som i sin tur bidrog till att skapa den stora depressionen. Om Tyskland fortfarande haft en egen valuta skulle man kunnat devalvera sig ur de senaste årens kostnadskris. Men i stället har landet pressat ner kostnadsläget den hårda vägen, genom arbetslöshet och sänkta reallöner. Hur länge orkar Europa färdas på det spåret? Nu riktas blickarna mot Italien, som har förlorat sin konkurrenskraft på grund av fallande produktivitet och finansiell oreda. Martin Wolf i Financial Times tecknade i förra veckan en mörk framtidsbild, i vilken italienarna känner sig så pressade att de sliter sig loss från EMU. Så här i backspegeln måste 1990-talet betraktas som ett osedvanligt lyckosamt decennium, i väntan på det stora ovädret. Could the eurozone disintegrate? - The answer is yes. Tyskland har gjort många fel. Ett allvarligt fel var att gå in i EMU med en för högt värderad valuta. Ja, det är ju inget konstruktionsfel, det blir så med en gemensam valuta. In an interview with the daily La Repubblica
Top The under-fire euro fell further on Wednesday, slumping to an eight-month low EU will never become a federation with a unique federal government, federal army and international personality. The writer, a member of the European Commission between 1999 and 2004, is author of The Limits of Europe (Lannoo) and his Brussels diary Grensverkenningen (Prometheus) The Common Agricultural Policy and regional development funds do not respect this rule. They urgently need reform. Why should German citizens pay for the upkeep of the landscape in France? What makes the bureaucrats in Brussels believe they are better judges of French regional policy than their colleagues in Paris? All non-essential bits of these programmes should be repatriated. That would also help to slim the EU budget. The EU is a group of states that have decided to carry out certain tasks in a federal manner, such as trade and competition policy. The federal framework applies to the European parliament, the European Court of Justice and (for 12 of the 25 member states) the European Central Bank. But the EU will never become a federation with a unique federal government, federal army and international personality. The reason is that member states do not want that: not Britain, and not France either. Nor do the Germans want it, even though Joschka Fischer, their foreign minister, spoke some years ago of a "federation of nation states". That concept is a contradiction in terms. In using it, Mr Fischer underestimated his audience. It is an example of the eurobabble that other politicians have unfortunately emulated. The principle of subsidiarity, which means that whatever member states can do equally well (or better) should not be undertaken by the Union. This principle has been obeyed more in theory than in practice. The trouble is that the institutional bias is always to propose more. The European parliament wants the EU to do everything. The European Commission displays the normal bureaucratic instinct: more tasks mean more jobs and more money. And often a member of the Council of Ministers tries to achieve through Brussels what they cannot get at home. Many politicians mistake activity for action. An EU of 40 is inevitable unless stopped by a referendum, The second problem, Bolkestein warned, is that immigration is The Limits of Europe Never Closer Union? Before the vote, Jean-Claude Juncker, Luxembourg's prime minister and current president of the European Council, declared that France and the Netherlands should re-run their referendums, if necessary, in order to obtain the "right answer". Mr Juncker is all too representative of the contemporary European elite, which does not merely deserve, but needs, the kicking the French have given it. When the French look at contemporary Europe, they no longer see themselves in the mirror and when they look at their economy, they no longer see anybody in control. First, the treaty is dead. I presume the Dutch will vote No. If the British cannot be threatened with isolation, they will also reject it. It is impossible to overturn the verdicts of the disgruntled citizens of two of the six founding members and two of the three most powerful countries in Europe. Further movement towards deeper integration among all members of the EU is off the agenda. The Europe we have today is as much as - quite possibly more than - all will share. Enlargement beyond Bulgaria and Romania has become unlikely. There will be referendums on Turkish entry. In current circumstances, these would be lost. France has set its face not just against the European project but against the modern world. That is going to make it far more difficult to pursue liberalisation, domestically, within Europe and globally. For that outcome, the French elite bear heavy responsibility. Their ceaseless indulgence in infantile anti-market rhetoric has had its consequence. Last but not least, there is a chance of some unravelling of the European project, which has relied on a version of the bicycle theory: if it does not go forward, it risks toppling over. The belief that it must go forward is now dead. It is possible that some achievements, including the single market, will go backwards. A currency union requires greater flexibility and so more intense internal competition than independent national monetary areas. The failure to make this clear before starting the union was the great political and economic blunder of the 1990s. Rolf Englund: The Economist also wrote that Not bad for being written in 1997... This is just a foretaste of what could happen once investors start to think through the euro's long-term chances of survival in a "post-federal" Europe that is no longer moving ineluctably towards ever-closer union. Hubristic talk that the euro would soon displace the dollar as the world's reserve currency has been silenced by a flurry of analysts' reports warning that monetary union is becoming unmanageable and could collapse, leaving holders of Italian, Greek and Portuguese state bonds with a wicked haircut. Italy's Confundistria chief, Luca Cordero de Montezemolo, believes his country is now staring into the abyss. Its world share of exports has collapsed by almost one third since the launch of EMU. The economy has contracted for the last two quarters and is now accelerating downwards. "The political class doesn't seem to understand the dramatic condition of our public finances, and above all the real economy. This is the worst crisis since the war. We must face up to the emergency with brave, urgent, and unpopular measures," he says. Portugal, Greece and Italy slipped into monetary union with false figures - or "statistical alchemy" in the words of Eurostat - and debt loads that breach the Maastricht limits. They enjoyed a quick windfall from ECB's far lower rates, but the wealth illusion proved poisonous. It let Italy fend off structural reform, and led to a mighty boom and bust in Greece and Portugal. Paul Krugman about the break-up of EMU
Here's how the story has been told: a year or two or three after the introduction of the euro, a recession develops in part - but only part - of Europe. This creates a conflict of interest between countries with weak economies and populist governments - read Italy, or Spain, or anyway someone from Europe's slovenly south - and those with strong economies and a steely-eyed commitment to disciplined economic policy - read Germany. The weak economies want low interest rates, and wouldn't mind a bit of inflation; but Germany is dead set on maintaining price stability at all cost. Nor can Europe deal with "asymmetric shocks" the way the United States does, by transferring workers from depressed areas to prosperous ones: Europeans are reluctant to move even within their countries, let alone across the many language barriers. The result is a ferocious political argument, and perhaps a financial crisis, as markets start to discount the bonds of weaker European governments. In spite of interest rates at historic lows, strong world demand, low inflation and healthy corporate profitability, the eurozone growth outlook is gloomy. The European Commission 29 June formally asked the Italian government to take measures to get back in line with eurozone rules.
On 5 December 2006, the Commission adopted the Convergence Report 2006, which re-assessed the conditions for adopting the euro in the Czech Republic, Estonia, Cyprus, Latvia, Hungary, Malta, Poland, Slovakia and Sweden. The ECB published its own report on the same day. Sverige bör, liksom England, hålla sig utanför euron så länge som möjligt. Han går därmed på kollisionskurs med det svenska näringsliv som annars hyllar hans tongivande teser för liberal globalisering. "Det är bara länder som inte kan sköta sin penningpolitik själva som behöver den. För länder som kan sköta sin penningpolitik är det mycket bättre att stå utanför euron och på så vis skapa en stabil ekonomisk-politisk miljö istället för att införa euron och därmed riskera en penningpolitik som är ’quite inappropriate for you." 2004 kom hans banbrytande bok ”Why Globalization Works” där han bland annat detaljgranskar globaliseringskritiken och ger den fel på nästan samtliga områden utom att vissa internationella institutioner, såsom WTO, inte fungerat ”så bra som de borde”.
Nu har boken översatts till Svenska (SNS förlag) men den är inte skriven för svenskar, säger Martin Wolf lite skämtsamt: Let us think the unthinkable: Disappearance of the zone as a whole seems hugely unlikely, so long as the commitment to the European project survives. But the exit of one (or more) members, a sovereign default or both is not at all inconceivable. Interest rate spreads within the eurozone are tiny. Investors apparently consider the debt of the eurozone governments as close to perfect substitutes. This is astonishing: after all, ratios of government debt to gross domestic product at the end of last year varied from Luxembourg's 5 per cent and Ireland's 29 per cent to Italy's 105 per cent and Greece's 112 per cent Investors must not only believe that the currency union is impregnable but that each sovereign borrower is as good as the other. The latter belief assumes that all the fiscal authorities will behave in an equally responsible manner or that there is an implicit bail-out. These assumptions are highly implausible. Relative to Germany, Italy's real effective exchange rate has appreciated by almost one-fifth since 1999. In its most recent Economic Outlook, the OECD notes that the cyclically adjusted primary fiscal balance (the balance before interest payments) has collapsed from a surplus of 5 per cent of gross domestic product in 1998 to a forecast surplus of only 1 per cent this year In order to regain lost external competitiveness, Italy must have substantially lower inflation in the costs of tradeable goods and services than elsewhere in the eurozone. Unfortunately, efforts to shift the fiscal position back to balance would weaken the economy still more, since there are no monetary or exchange-rate offsets to such fiscal tightening. (Rolf Englund: That is the main point with EMU. If that is not a good thing -
which I do no think it is,
than the whole EMU project is fundamentally wrong. Bad thinking - as stupid as the Stability Pact. Why do you do stupid things like that? Because you need a flag, a parliament, a president, a defence - and a currency - to build a state.) Martin Wolf continues: If you think you have seen a case a bit like this, you are right: it is called Argentina. Bernard Connolly, a notorious opponent of the monetary union, even argues that the debt ratio will explode upwards, given the low inflation Italy needs and the declining potential rate of growth that Italy also has Mr Connolly's assumptions seem too pessimistic, particularly over the present fiscal position. But the underlying point is strong: managing the fiscal position of a country that suffers from structurally weak productivity growth, a large loss of international competitiveness and an irrevocably fixed exchange rate (or, in Italy's case, no exchange rate at all) is challenging, to say the least. I do not wish to be misunderstood. So let me be clear. I am not saying that the eurozone will disintegrate, or that Italy is doomed to Argentina's fate either. I am saying that tough choices and tougher times do lie ahead. Only with radical structural reforms, the most disciplined wage behaviour and the greatest possible fiscal rigour can a country in Italy's predicament sustain stability and return to healthy growth. If the country fails to rise to the challenge it confronts, a default or even a forced withdrawal from the eurozone is perfectly conceivable.Could we be headed for some sort of crisis within the EU? If the No vote wins in France It is almost impossible to overstate the importance of the French referendum Utan Europas förenta stater kommer EMU att spränga EU – Om EMU inte skulle fungera ekonomiskt, kan man ha hur vackra
argument som helst för – det kommer ändå att haverera. The eurozone is a monetary federation without a federal budget. This unstable situation can evolve in two ways. One is implosion through political tensions between member states An emergency plan for dealing with a European financial crisis was agreed at the weekend The chancellor's proposal may be the first sign of an unravelling of the underlying fundamentals of the euro. The trouble is that immigration looks more and more like the first problem that requires Europeans to choose definitively between European and national sovereignty. Nations can lay down the law on immigration, and so can the EU. But any mixed regime of EU standards and local immigration quotas will collapse of its own illogic
What would happen if one of the 25 member states of the European Union refused to ratify the constitutional treaty? EMU ökar spänningarna i medlemsländerna Tyskland, Italien och Nederländerna har för låg tillväxt. Samtidigt riskerar Irland, Grekland och Spanien överhettning.Den europeiska centralbanken, ECB, har ett omöjligt jobb. Deras ränta blir fel för några länder hur de än gör.Och det kan bli ännu värre i framtiden.
”Jag tror att man ska räkna med att länderna inte går fas. Situationen som man ser i dag tror jag inte ska uppfattas som extrem. Det kommer att uppkomma situationer där konjunkturutvecklingen skiljer sig mycket mer åt mellan länderna än i dag”, säger Lars Calmfors Stark euro tynger Framför allt Tyskland, men även Nederländerna, skulle behöva en lägre styrränta för att få fart på ekonomin. Tillväxten är låg samtidigt som resursutnyttjandet och därmed också inflationstrycket är lågt. Samtidigt slår den starka euron hårt mot konkurrenskraften för exportföretagen. Det är helt klart så att om Tyskland hade haft en egen räntepolitik så skulle man ha haft lägre ränta där i dag än vad man har”, säger Ingemar Hansson, generaldirektör på Konjunkturinstitutet, KI. Eftersom räntepolitiken bestäms på en europeisk nivå kan den inte samordnas med arbetsmarknadsreformer, vilket gör att Tyskland fastnar i hög arbetslöshet.Samtidigt är ECB:s ränta, som i dag är 2 procent, för låg för flera länder. Irland är det tydligaste exemplet, med en hög tillväxt och ett högt resursutnyttjande riskerar konjunkturen att bli överhettad.Inflationen skenar i väg och det finns stor risk för fastighetsbubblor när räntan är när räntan är så pass låg som den är i dag. Även Grekland, Luxemburg och Spanien kan få liknande överhettningsproblem. Det är en nödvändig delkostnad för en valutaunion”, säger Ingemar Hansson. An emergency plan for dealing with a European financial crisis was agreed at the weekend Although there are no signs that such a problem is likely to appear in the foreseeable future, European regulators are haunted by the Asian financial crisis in 1997-98, which shook the whole region. The assumption underlying the agreement is that the most likely cause of a economic crisis in Europe would arise from the banking sector, not from a securities crash. Lars Jonung på CNN: Every nation state has a system of supervision and control of its financial sector, including a lender of last resort, to guarantee the soundness and stability of the financial system. RE: Sverige Jonung m fl: Finland Internationella valutafondens roll i krishantering: fallet Asien Rolf Englund, Den Stora bankkraschen, Timbro, 1983 How long will the euro survive? The author shows that the answer depends principally on Germany. Brendan Brown received his PhD from London School of Economics and is Director and Head of Research at Tokyo-Mitsubishi International plc, London. "Euro on Trial" looks back - to the aspirations of the founders - and forward - to the possibility of reform or splitting up. Monetary union is reversible in part or in whole and this book assesses the costs and benefits. How long will the euro survive? The author shows that the answer depends principally on Germany. Germany's membership so far has brought much disappointment. How many more years of disillusion are required before the question of EMU reform or break-up enters the mainstream of German political debate? Euron spricker när dollarn faller The dollar is likely to fall further. Politicians are failing not only to enthuse voters, but they are silent on the biggest challenge There is a new economic challenge in the world that is particularly difficult for Britain and Europe. Pricing power has shifted from the Atlantic to the Pacific; it now belongs to China. China can set the prices for manufacturers below the level at which Europe, or Britain, can compete. European cars, for instance, have many good qualities, but, like Fiat or Jaguar, they are surplus to the world’s requirements. China also sets prices for raw materials and oil. If Chinese demand had not risen so fast in the past five years, oil would be $20 a barrel, not $50. This revolution in pricing power reflects the industrialisation of China, drawing on the huge Chinese workforce. In the past 12 years 200 million people from the west of China have moved to industrial areas within 100 miles of the Pacific. This transfer continues. They have acquired advanced technologies and high skills. It is the equivalent of adding another Germany, France and Britain to the potential workforce of Europe, at less than 10 per cent of European labour costs. This is one of the largest human migrations in history. Britain has not begun to adjust to its impact. This has already turned the terms of trade against Europe; the process is global and the rate is accelerating. In all probability it will destroy the ill-conceived euro before 2020, perhaps before 2010. The eurozone is set up according to this principle - "one money, one central bank". Sir, Allow me to comment on two statements by Wolfgang Munchau in his interesting analysis of the stability of monetary unions ("The flaw that threatens the eurozone", September 6).
First, Mr Munchau writes: "The Scandinavian monetary union (1872-1931), which included Sweden, Denmark and later Norway, was more durable but started to unravel slowly after the political union between Norway and Sweden ended in 1905."
Second, Mr Munchau states that "one common cause underlies the failure of all monetary unions: the lack of political union with the authority to enforce economic and financial policy among its members". Monetary history suggests a more precise interpretation: a successful monetary union requires that there is one central bank with the legal monopoly on supplying the base money of the monetary union, hence having the power to determine the policy interest rate. What does this tell us about the future of the eurozone? The European Central Bank, with its monopoly on issuing euros, should be compared with the US Federal Reserve system rather than with the monetary unions of the past with many central banks. Of course, the economic performance of a monetary union such as the eurozone can be improved on by co-operation among the member states in various fields of policymaking. The optimal extent of such political and economic co-operation is not known to the economics profession for the moment, witness the academic debate concerning the Stability and Growth Pact. Actually, some competition among policymaking authorities within a monetary union such as the eurozone may be desirable - as long as the competition does not concern the monopoly supply of base money. It is safe to conclude that European policymakers are currently involved in a learning process, searching for improvements in the workings of the eurozone. This ongoing process of adaptation is in itself a guarantee for a lasting monetary union. Europe is likely to split The eurozone bases its economic policy on two premises: one is that it needs only a minimal degree of policy co-ordination; the other is that the process of economic and monetary union (Emu) is irreversible. Both assumptions could not be more wrong. Last week, the European Commission outlined the basics of a long-awaited reform of the stability and growth pact, the eurozone's framework for policy co-ordination. The current pact became defunct after France and Germany last year managed to avert the threat of sanctions despite running excessive deficits. The reform proposals address a few long-standing criticisms: lack of flexibility during economic downturns, a too-narrow focus on annual deficits as opposed to the outstanding stock of public debt and too great a reliance on the threat of fines. The trouble is that the reforms do not even come close to creating an effective regime of economic policy co-ordination. Where there used to be sanctions, there will now be peer pressure. Fiscal policy in the eurozone member states will in future be exactly the same as in the past, except that breaching the rules will no longer be deemed illegal but ungentlemanly. With the reformed stability pact, Emu will be more like an eccentric club than an economic union. High inflation is probably the most frequent trigger for the failure of monetary unions. Another mechanism through which a monetary union may fail is a banking crisis that starts off in one country and spills over into the rest of the union. It is far from clear whether the present system for co-ordinating banking supervision in the eurozone will prove effective in such a situation. No matter whether the trigger is high inflation, a banking crisis or some other channel, one common cause underlies the failure of all monetary unions: the lack of a political union with the authority to enforce economic and financial policy among its members. The new European constitution, signed by EU leaders in June this year and awaiting ratification by member states, takes a small step towards such a union, for example in foreign policy and through the extension of majority voting in some areas. The trouble is that it leaves the present, defunct economic policy regime intact. As a framework for a political union capable of supporting a monetary union in the long run, it simply will not do. Valéry Giscard d'Estaing, the former French president who presided over the constitutional convention, predicted that the new constitution would last for 50 years. Let us hope that he is wrong. If he is right, the constitution may well outlive the euro. Nu är det inte bara varningar och
råd som förs fram utan direkta larmsignaler Frågan kom upp när ekonomiprofessor Lars Calmfors, tidigare regeringens EU- och EMU-utredare, i Rosenbad igår presenterade årets rapport från ekonomerna i European Economic Advisory Group, EEAG Tonen har skärpts ordentligt i årets rapport. Nu är det inte bara varningar och råd som förs fram utan direkta larmsignaler om att EMU-projektet riskerar att haverera. Hotbilderna utgörs av växelkurssvängningar mellan euron och andra valutor, främst dollarn, som ECB inte tillräckligt parerar med räntesänkningar. Vidare skapar Frankrikes och Tysklands öppna nonchalans mot stabilitetspakten en osäkerhet om vilka regler som verkligen gäller. Att en rad länder, som Storbritannien och Portugal, står på tröskeln till att överträda underskottsgränsen gör inte situationen lättare. "Ett totalt sammanbrott kan inte längre uteslutas", sade Calmfors. För Sveriges del verkar läget än så länge vara ganska betryggande. Kreditvärderingsinstitutet Standard & Poor's höjde igår landets kreditbetyg till toppnivån AAA. Jacques Delors: Asked if he puts the chances of the effective
collapse of the EU as high as 50%, he replies simply:
“Yes.” Lessons from monetary union Europe's economic and monetary union is five years old this week, and it is too soon to tell what its long-term impact is likely to be. But for those countries, in Asia and elsewhere, discussing whether to set up their own monetary union, the euro's short history has produced a few early lessons. A monetary union is primarily a political, not an economic project. This is the most important lesson from the euro so far. Each member country will at some point be required to make political sacrifices. For example, members might face constraints on their fiscal policy. The economic consequences of the euro, if they exist at all, are far more difficult to prove. If you merely want exchange rate stability, forming a monetary union is definitely overkill. Start off with an internal market before adopting a single currency. The Europeans made the mistake of failing to integrate financial markets first. One negative consequence is that monetary policy decisions are transmitted to various parts of the eurozone at different speeds. Forget about a stability pact and focus instead on the long-term
sustainability of public finances, including pensions. The Brussels elite climb into their BMWs
for the Christmas break, and the near-obligatory trip to the slopes of Verbier,
in a dark mood. The only problem is that things could be even worse when they
get back. And all the time, public support for the European dream has slipped away. The number of people who think the EU is "a good thing" has slipped below 50 per cent, and turnout in next year's European elections is expected to hit a new low. The events of 2003 are a catalogue of bad news, lightened only by the formal signing of the accession treaties in April by 10 new member states - many of whom were still living under communism only 15 years ago. The Iraq crisis was only the start of Europe's problems, the Union shattering along the lines of "Old" and "New" Europe defined by Donald Rumsfeld, US defence secretary. The European economy, dogged by sluggish reform, a resistance to a truly free single market and a looming pensions crisis, remained stuck close to recession while the US roared further ahead. In June Tony Blair shelved any hopes of Britain joining the euro for the forseeable future, and in September Sweden recorded a strong No to membership of the single currency. Then came the year's twin low-points. First France and Germany effectively killed the EU's stability and growth pact because they could not bear to be bound by the deficit rules they themselves had invented. Then a few weeks later there was the appalling Brussels summit, where the EU's prestige project - a new constitution - was unceremoniously booted into the long grass because France and Germany could not agree with Spain and Poland on a new voting system. There is no sign of the constitution being revived in the near future, the stability pact lies abandoned in the gutter, and in June the voters will get their chance to say what they think in the European elections. The verdict is unlikely to be favourable, and maybe that will be the jolt Europe's squabbling and increasingly nationalistic leaders need to start burying their differences. I den grundlagskonferens som EU just lagt på is efter
sammanbrottet vid toppmötet i Bryssel förra helgen har Sverige
hållit en påfallande låg profil. Mr Giscard d'Estaing told the European parliament:
Utmaningen är att finna ett sätt att mobilisera
folkliga känslor för byggandet av Europa. Möjligheten är
att skapa ett mera demokratiskt Europa. Det finns fördelar med euron, men riskerna är
stora. In 1993, Czechoslovakia experienced a
two-fold break-up: We analyze the economic background of the two break-ups, and discuss lessons for stability of monetary unions in general. We argue that while Czechoslovakia could be considered an optimum currency area, it was in fact less integrated than some other existing unions. That, along with low labor mobility and higher concentration of heavy and military industries in Slovakia, made Czechoslovak economy vulnerable to asymmetric economic shocks - such as those induced by the economic transition. Furthermore, the Czech-Slovak monetary union was marred by low credibility, lack of political commitment, low exit costs, and the absence of fiscal transfers. Källa: http://ideas.repec.org/p/dgr/kubcen/199874.html See also: http://www.eh.net/lists/archives/abstracts/sep-2000/0007.php http://www.bradmans.com/scripts/display.cgi?type=hgc&city=293 Deutsche Bank-ekonom orolig för EMU-kollaps
– Om EMU inte skulle fungera ekonomiskt, kan man ha hur
vackra argument som helst för – det kommer ändå att
haverera. Det är det första testet. Jag är glad att jag
började där. För på den punkten känner jag mig trygg
och säker nu. Det är den så kallade stabilitetspakten som
fått Persson att börja sväva på målet Det finns starka ekonomiska skäl för att ha en buffert
i statsfinanserna om man ska gå med i EMU Skapandet av den Europeiska
monetära unionen, EMU, var utan motstycke, något som lovade mer
integrerade och större marknader. Stimulansen av handel och investeringar
är uppenbar. Men kommer euron att bestå? Niklas Ekdal, på Herbert Tingstens stol, - Vi tror inte någon går
ur, då havererar alltihop. Om Sverige går över till euron går det inte att gå ur samarbetet igen, enligt statsminister Göran Persson - Jag tror inte ens det finns någon formell möjlighet att gå ur. Man ger upp en del av sin nationella suveränitet när man går in i samarbetet, men får i stället ett skydd mot de globala marknadskrafterna. Det är det bytet vi gör, sade Persson vid en utfrågning på Värmdö gymnasium. - Det finns en kraft som växer fram som kan vara en global motvikt till USA, och det är europeiska unionen, sade Persson.
- Den gemensamma valutan är ett steg
på vägen mot fördjupad politisk enighet, mot ett slags
Förenta Europa. Myntunion utan fiskal union äventyrar
demokratin EMU är i gungning Evigt liv för EMU? Vem vet, om tio år kanske Tyskland har
temporärt tvingats lämna euroblocket för att devalvera sin
valuta. Att säga ja till euron blir då inte att säga ja till
tillväxt - utan som att knyta fast sin jolle vid "Titanic"! Om tio
år kanske vi är glada över om kronan är den enda valutan
vid Östersjön vid sidan av euron - och den ryska rubeln. Lars Calmfors tror inte på nejsidans argument att EMU
kommer att spricka, till följd av att euroländernas ekonomier
växer olika snabbt. Dessa skillnader kan, enligt honom, klaras genom att
lönerna får öka i något olika takt. Vi måste säga nej till EMU. En valutaunion utan
gemensam politisk ledning kommer inte att fungera. Du har tidigare känt en oro för att hela
europrojektet skall spricka och att det finns en sådan risk, vari
består den enligt Dig? "Jag är övertygad om att valutaunionen kommer att
spricka. Det är bara en fråga om när. Säger vi ja nu och
går in då får vi vara med i det lidandet", säger
han. Lönebildningen har varit mitt första och viktigaste
frågetecken. Vi vill ha en flytande krona som ställer in
sig på rätt kurs, varken hård eller mjuk. Jag tror för min del att länder måste klara
sina interna problem själva. Lika svårt som det är att
införa demokrati utifrån i ett land som inte är vant vid den,
lika svårt är det att införa en förnuftig ekonomisk
politik den vägen. State Street Global Advisors, the US fund manager, one of the
world's largest with $760bn of assets under management, said a single monetary
policy was by its "very design pro-cyclical and destabilising" Utan Europas förenta stater kommer EMU att spränga
EU När det gäller EMU-debatten finns det ett argument
som jag har synnerligen svårt för. Inte för att det skulle vara
särskilt besvärligt att bemöta. Heller inte för att det
skulle vara intellektuellt tungt eller värst sannolikt. Argumentet
går ut på att Sverige inte ska gå med i EMU eftersom "EMU
kommer att spricka". EMU kan sluta med katastrof Brandförsäkringsargumentet Det är en dum konstruktion - skulle vi rösta om
huruvida EMU skulle vara kvar eller inte så skulle jag tveklöst
rösta nej. Felet är naturligtvis att Europa är inte ett optimalt
valutaområde. Det finns så stora skillnader internt. Det är
få ekonomer som tror att det här skall hålla, låt oss
säga, 20 år framåt. Två tidigare försök att få till
stånd ett intimare monetärt samarbete mellan Europas stater - med
Werner-planen 1971 och EMS (det europeiska monetära samarbetet) 1979 - har
båda misslyckats. Sannolikheten för ännu ett, större,
misslyckande har inte minskat: inga egentliga säkerhetsventiler har
skapats. Tänk om det inte fungerar Valutaunionen är ett
stort vågspel. om den skulle förverkligas. Det kan visserligen
hända att en gemensam valuta skulle tvinga fram den anpassning som
krävs för att den ska fungera: en samordnad finanspolitik, flexibla
arbetsmarknader, och överföringar av människor och resurser
mellan länderna. Men tänk om det inte fungerar. State Street Global Advisors, the US
fund manager, one of the world's largest with $760bn of assets under
management, said a single monetary policy was by its "very design pro-cyclical
and destabilising" State Street Global Advisors has launched an unusually frank attack on the euro, warning it could lead to a loss of national sovereignty and push European countries into recession. The US fund manager, one of the world's largest with $760bn (£487bn) of assets under management, said a single monetary policy was by its "very design pro-cyclical and destabilising". Alan Brown, chief investment officer, said there was a "real prospect" that such a policy could see Germany slip into a deflationary cycle similar to Japan. In order for the real exchange rate to decline over time, Mr Brown said Germany would have to run an inflation rate "perilously close to zero". At the same time, Germany would experience above average real interest rates as well as tax increases and spending cuts to curtail its deficit. "There is a certain irony to the fact that Germany, the principal architect behind the stability and growth pact, is one of the first countries to be caught by it," Mr Brown said. "Effectively, all important economic sovereignty would have been handed over to an unelected body in Brussels," he added. "If a country in the eurozone were to be slipping into recession, they wouldn't be able to do anything about exchange or interest rates which are determined for the region as a whole." Mr Brown said this would lead to protracted economic downturns. "In the same way booms can go on for years, as Ireland bears out, so can busts," he said.
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