To recap on my last post, and add a few points, here is a little list of the pitfalls of the European single currency as it stands.
1. The currency of individual countries will not depreciate when experiencing times of hardship. Currency depreciation is a useful tool that can give disadvantaged economies a competing edge.
2. Countries can no longer set their own interest rate. Is the ECB rate really what they need?
3. No common Eurobond, this means that government borrowing costs across the eurozone can vary dramatically from country to country.
4. Vastly different legal systems, rules and ethics between countries, thus making integration difficult and somewhat unfair.
5. No defined system for the re-distribution of wealth from poorer countries to richer countries.
To my mind, as it stands in its current framework, there is no way the single currency can survive.
If it is to ever work in the long term the above points need to be addressed. Can this be done?
Points 1 and 2 cannot be rectified. Points 3, 4 and 5 however can.
A common eurobond must be created thus taking pressure off the debt servicing of countries like Greece, Portugal etc.
There needs to be huge fiscal integration between countries. Same tax laws, same tax collection system, same retirement age, same working conditions laws etc. Why should Germans have to retire at 68 whilst many Greek public sector workers retire in their early 50's?
There must be a system of wealth redistribution from richer nations such as Germany to poorer nations such as Greece.
If this were to be successful we would basically end up with a United States of Europe, only then could the Euro be seen as a triumph.
Will this ever happen? It's up to the richer countries really, Germany will need to step up and take responsibility for the poorer nations. At the moment this is looking highly unlikely.
No comments:
Post a Comment