The Eurozone Crisis - Is It About Money Anymore?

I've watched things unfold, since my last post on the subject a few months ago. Bailouts, haircuts, bonds that guarantee nothing, billions of Euros of debt written off. Bankrupt Greece in deal after deal to avoid default after default, and withdrawal from the Eurozone. Spain, Ireland and Portugal in trouble, Italy and France struggling.

What a joke it really is. It's not about money anymore. It's about Monopoly figures on balance sheets, and it always was, since the Eurozone got into trouble because of diverging performance between economies. The Euro itself is more of a flag than a credible currency, a flag for the dream of a United Europe. The players involved just can't accept that fixed exchange rate systems don't work - and the Euro is the ultimate in fixed exchange rates, because one unit of one nation's money is one unit of another nation's money, 1:1. Take a look at the Gold Standard, Bretton Woods, The Snake - they all lasted only as long as the economic performance of the nations involved remained reasonably in line, a state of affairs that can never last for ever.

So they're now trying ridiculous scheme after ridiculous scheme to try and save the Euro, because they think that to abandon it, or to watch nations fall out of the Eurozone, means that the dream of a United Europe is lost. But in economic terms, that's the whole reason why it could never work long-term in the first place - the Dollar works in the United States of America, and the Pound works in the UK because the constituent States or Counties don't have their own economic sovereignty, their own fluctuating circumstances of cross-border trade.

German Chancellor Angela Merkel (above right) has said in the recent past that Greece should make its debt repayments before paying its doctors and nurses, and its economy should be subject to central control, and that war could result if the Eurozone splits up, and that guaranteed bonds aren't guaranteed anymore, and should be traded in for bonds that are worth less. She seems knowledgeable, but it sometimes sounds like Germany, the largest economy in Europe, is trying to play Fourth Reich, and that it views Greece as a naughty province which never does what it undertakes to do. And Germany is in negative growth itself, isn't it?

So where's it all going to end? The fact that it's been going on for so long tells you that the Eurozone doesn't work, and can never work. It never could work for too long, because of the reasons described above. It's time to view the Eurozone in monetary rather than ideallistic terms, and break it up to stop the effects of gross uncertainty on the rest of the sensible world.

The Eurozone Crisis - A British Perspective

It all sounds a bit complicated, doesn't it? There's a lot of money floating around. The trouble is, everyone owes it to everyone else. Some of the economies on mainland Europe are in big trouble, with colossal debts, especially Greece. The taxpayers of wealthier economies have a big problem with helping out debt-ridden economies, again and again. And it's been rumbling on for ages.

For me, the Eurozone crisis is very simple. Fixed exchange rates don't work, and the ultimate in fixing your exchange rate is to have the same money as someone else, it's one unit of your money to one unit of theirs.

Historically, fixed exchange rate systems have never worked, even when rates are fixed within limits. Look at the Gold Standard of the 1920's and 30's. Look at the Bretton Woods system, in the post-war period. Look at 'the snake', in the 1970's.

Eventually, they all fell apart. They were introduced in the interests of creating economic stability, but couldn't be maintained, despite rescue efforts, because a significant disparity will eventually arise in the performance of one or more of the economies involved, against the others.

Does that sound like a familiar story to you, based on news coverage from the recent past? Just ask yourself a question. If you loaned a lot of money to a friend, and discovered they couldn't pay you back, would you lend them money again? And if you did lend them a lot of money for a second time, and they couldn't pay you back, would you do it on a third occasion?

You wouldn't, would you? If you did, you would be very unwise. Eventually, the friend walks away, and is forced to go it alone, after running out of people who are willing to chase a lost cause. And the money is gone.

Eventually, the Eurozone will break up, in monetary terms. The Euro was launched in pursuance of the dream of a united Europe. From a British perspective, thank goodness we stayed away from a united currency, and I do admire David Cameron's stance on no more bailouts. His stance is also correct on Britain's membership of the EU, and the proposed referendum. It would be insanity for Britain to pull out, it's about the advantages of open trade, not the money you use.