Euro In Trouble
This blog has been consistent in its analysis of the situation with the Euro. The fundamental problem is that there is no central direction of financial policy. My phrase is that you cannot have a currency without a government. A currency without a central government is similar to a country without an effective central government. There is unrest while rival factions vie for control of different parts of the country, with varying and often irreconcilable aims. We know all about this from recent history.
Of course there are straightforward financial issues confronting the Euro, all of which are soluble. But only on condition that there is a central financial policy covering all of Euroland, with provision for countries which ignore the rules and go on a spending binge to go bust. This is what happens in the United States if one of the states goes off the financial rails. California is often teetering on the brink. It does not affect the stability of the dollar or the economy of the rest of the country if they do, beyond the effect of adverse news which always dents markets. As we all know the Fed (Federal Reserve Bank) is the most powerful Central Bank in the world. The European Central Bank has nowhere near the clout, because the political institutions on whose behalf it functions are many, diverse and often conflicting.
This has to be resolved and Germany, knowing this only too well, has spoken out. Reports of markets in panic, stunned European capitals and so on, just go to demonstrate how unreal the politicians of Europe have become and how naive and unstable the fabled markets actually are. There is now no running away from the issues.
Whether they can be solved by a beefing up of the Lisbon Treaty is doubtful unless is provides for central governance of economic policy and monetary control. If it does so provide it is by no means certain that all the countries affected will be able to gain sufficient democratic authority to ratify the amendments. The alternative is that they muddle on. In this event Germany will walk away. The rest will be forced back into their various unstable and third rate currencies and the Deutschmark will once again be the dominant currency of Europe with the Bundesbank in charge.
Europe will then have to consider what it is. As a trading union it has huge potential still. As a political alliance of Nation States it will go far, but the dream of a federal structure and ever closer union will be over. The people of Britain will prefer that. So, I suspect, will most of the people of Europe.