Jonas.dini
New member
And here's Guy Verhofstadt:
Is the euro facing problems? Of course! Should the solution be to abolish the euro and put it outside with the rest of the garbage? No. On the contrary, abolishing the single currency now would be a crucial mistake. It would once again introduce monetary limits combined with variations in exchange rates and risks. It would seriously hamper trade and economic activity within the European Union and could potentially give it a fatal blow. In short, it would mean the end of the successful internal market that we currently have in Europe.
The euro has certainly increased intra-EU trade. Thanks to the euro, consumers have a wider choice allowing them to buy goods and services at lower prices. The success of the ECB in keeping inflation low has been a source of stability and has made it possible to keeping borrowing costs low for both the private and the public sectors, thereby contributing to more economic growth and employment. The euro is also attractive to foreign governments as a reserve currency. This is of benefit to the whole euro-zone economy because widespread holdings and a high demand for euros encourages third countries to price their exports in the single currency—thus reducing costs to euro-zone members as there are no exchange-rate costs.
Even after the start of the financial crisis in 2008 the euro brought stability and security. I seriously doubt that Europe, without the common currency, would have been able to weather the economic storm that followed the collapse of Lehman Brothers. A European Union without a single currency would have had to deal with an avalanche of currency devaluations and even depreciations. This would have led to a situation in which internal trade within Europe would have come to a standstill. A European Union without the euro could have fallen back to a situation in which protectionism gained the upper hand, as happened after the first world war. This would have plunged Europe into a long period of economic stagnation.
Does this mean that the euro is not in a problematic situation? Not at all! But it is crucial to recognise these problems and design structural solutions to solve them. Instead of throwing out the baby with the bath water by abolishing the single currency, we should do exactly the opposite. We should strengthen the foundations of the euro zone that are currently lacking.
The real reason for the euro crisis is the fact that the euro zone is a monetary union that is not supported by an economic and political union. This is a unique situation. Nowhere in the world will you find a common currency system that is based on 17 independent governments, 17 different economic policies and 17 bond markets. The result is that, despite the existence of a stability pact (which is too weak in its current form), the divergence between the euro countries (their competitiveness and their effectiveness) increases, rather than decreases. This has led to a decrease in the cohesion of the euro zone and hence to the current euro crisis (mainly in the form of increasing "spreads"). For almost a decade, decision-makers have claimed that "peer pressure" and "best practices" (the so-called Lisbon Strategy) would strengthen the cohesion of the euro. They claimed that member states would not have to give away any of their decision-making power or sovereignty. They were wrong and the crisis has revealed that this idea is an illusion. In reality the contrary has happened: the cohesion within the euro zone, for example the distance between the German and the Greek economies, has diminished not increased. We are now dealing with the consequences of this development.
The difference with America and the dollar is telling. California is almost bankrupt. It is not even capable of paying its civil servants. But despite the fact that California is one of America’s major economies, its difficult situation is not causing significant unrest in the country or significantly affecting the dollar. By contrast, Greece represents barely 2.5% of European Union GDP, but despite its insignificant size it is shaking the foundations of the euro zone. What is the difference? Behind America and the dollar stand a government, a substantial budget, a central bank and a common bond, which are all supporting the system. These institutions do not find themselves in a healthy condition—far from it. But for the financial markets it is the consistency of the system that counts. The solidarity between the different parts of the system is deeply rooted. It has a common bond market and a federal government that is far from being a "lame duck". All these conditions are lacking in the European Union and in the euro zone mutatis mutandis.
The question is not whether our single currency should be abolished or not. The question is whether our leaders dare to take bold measures or not. If they continue to come up with half-hearted measures as they have done over the past 18 months, it will lead to the end of the euro. That is obvious. However, if they show courage and transfer additional powers to Europe, like Helmut Kohl and François Mitterrand did in their time, a viable European economy and a euro that can take over the dominant role of the dollar are within reach.
Is the euro facing problems? Of course! Should the solution be to abolish the euro and put it outside with the rest of the garbage? No. On the contrary, abolishing the single currency now would be a crucial mistake. It would once again introduce monetary limits combined with variations in exchange rates and risks. It would seriously hamper trade and economic activity within the European Union and could potentially give it a fatal blow. In short, it would mean the end of the successful internal market that we currently have in Europe.
The euro has certainly increased intra-EU trade. Thanks to the euro, consumers have a wider choice allowing them to buy goods and services at lower prices. The success of the ECB in keeping inflation low has been a source of stability and has made it possible to keeping borrowing costs low for both the private and the public sectors, thereby contributing to more economic growth and employment. The euro is also attractive to foreign governments as a reserve currency. This is of benefit to the whole euro-zone economy because widespread holdings and a high demand for euros encourages third countries to price their exports in the single currency—thus reducing costs to euro-zone members as there are no exchange-rate costs.
Even after the start of the financial crisis in 2008 the euro brought stability and security. I seriously doubt that Europe, without the common currency, would have been able to weather the economic storm that followed the collapse of Lehman Brothers. A European Union without a single currency would have had to deal with an avalanche of currency devaluations and even depreciations. This would have led to a situation in which internal trade within Europe would have come to a standstill. A European Union without the euro could have fallen back to a situation in which protectionism gained the upper hand, as happened after the first world war. This would have plunged Europe into a long period of economic stagnation.
Does this mean that the euro is not in a problematic situation? Not at all! But it is crucial to recognise these problems and design structural solutions to solve them. Instead of throwing out the baby with the bath water by abolishing the single currency, we should do exactly the opposite. We should strengthen the foundations of the euro zone that are currently lacking.
The real reason for the euro crisis is the fact that the euro zone is a monetary union that is not supported by an economic and political union. This is a unique situation. Nowhere in the world will you find a common currency system that is based on 17 independent governments, 17 different economic policies and 17 bond markets. The result is that, despite the existence of a stability pact (which is too weak in its current form), the divergence between the euro countries (their competitiveness and their effectiveness) increases, rather than decreases. This has led to a decrease in the cohesion of the euro zone and hence to the current euro crisis (mainly in the form of increasing "spreads"). For almost a decade, decision-makers have claimed that "peer pressure" and "best practices" (the so-called Lisbon Strategy) would strengthen the cohesion of the euro. They claimed that member states would not have to give away any of their decision-making power or sovereignty. They were wrong and the crisis has revealed that this idea is an illusion. In reality the contrary has happened: the cohesion within the euro zone, for example the distance between the German and the Greek economies, has diminished not increased. We are now dealing with the consequences of this development.
The difference with America and the dollar is telling. California is almost bankrupt. It is not even capable of paying its civil servants. But despite the fact that California is one of America’s major economies, its difficult situation is not causing significant unrest in the country or significantly affecting the dollar. By contrast, Greece represents barely 2.5% of European Union GDP, but despite its insignificant size it is shaking the foundations of the euro zone. What is the difference? Behind America and the dollar stand a government, a substantial budget, a central bank and a common bond, which are all supporting the system. These institutions do not find themselves in a healthy condition—far from it. But for the financial markets it is the consistency of the system that counts. The solidarity between the different parts of the system is deeply rooted. It has a common bond market and a federal government that is far from being a "lame duck". All these conditions are lacking in the European Union and in the euro zone mutatis mutandis.
The question is not whether our single currency should be abolished or not. The question is whether our leaders dare to take bold measures or not. If they continue to come up with half-hearted measures as they have done over the past 18 months, it will lead to the end of the euro. That is obvious. However, if they show courage and transfer additional powers to Europe, like Helmut Kohl and François Mitterrand did in their time, a viable European economy and a euro that can take over the dominant role of the dollar are within reach.
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