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View Full Version : How Long Has the Euro/EU Got Left?



Thrymheim
Tuesday, August 12th, 2008, 03:37 AM
While reading an artical on German manufacturing figures

http://www.spiegel.de/international/business/0,1518,570831,00.html

I noticed the fact that since 1999 there has not been an official recession (two quarters with negative growth) in a Euro using member state. What effect would this have on other member states?
If one country using the Euro hits recession (spiralling inflation etc) would this automatically impact on other states, and would the effect be exasperated or alleviated by the shared currency?

So back to the tiltle how long is left?

Gorm the Old
Tuesday, August 12th, 2008, 04:16 AM
The last time I read or heard anything about this, the EU was obligated to bail out any member country which underwent a financial collapse such as has afflicted Italy many times since WWII.

I asked this question some time ago, but could find no one who knew the answer. Does the EU treasury in Brussells have enough money to bail out a failed economy in case some member nation has a recession or, worse, a total economic collapse ? No one seems to know.

My guess is that it does not and would have to "increase the money supply", that is, print worthless paper to fill in the gap. Economists try to ignore Gresham's Law ["Bad money drives out good.] claiming that it is unscientific
[As if anything in economics IS scientific !] Unscientific it may be, but it is true.

Unbacked currency, issued to make up a deficit lessens the public's confidence in the currency already in circulation. Inasmuch as the Euro, like almost every other monetary unit these days is just fiat money, its value is based solely on two things, the public's confidence in it and legal tender laws which apply only within the jurisdiction of the issuing authority.

Every time Brussels has to prop up a failed economy, the Euro will slip. Eventually, it may devolve into just what it was supposed to supplant: national currencies, i.e., Irish Euros, Italian Euros, German Euros...........all having different exchange values. This might work for the distinctive 1-Euro coins, but the paper money all looks the same.

I think that the EU will be plagued with defections and secessions [the rumblings are already audible.] and , if the economy of more than one member country should fail, confidence in the Euro would fall so badly that the whole system would collapse. How long would this take ? Just as a wild guess, my gut feeling is that the EU will crumble within a decade.

SwordOfTheVistula
Tuesday, August 12th, 2008, 07:36 AM
Eventually, it may devolve into just what it was supposed to supplant: national currencies, i.e., Irish Euros, Italian Euros, German Euros...........all having different exchange values. This might work for the distinctive 1-Euro coins, but the paper money all looks the same.

That can't really happen, since the Euros are issued by a seperate European Central Bank, not by the individual countries, any more than the money issued by the Philadelphia mint would be more valuable than the money issued by Denver mint. I suppose one country could try to 'cheat' and try to create unauthorized Euros, essentially counterfeiting at a national level, but this would quickly bring the total collapse of the currency.

What's more likely is to get in a dispute where for example Germany wants to lower interest rates, but France wants to raise them. Probably they would still compromise in this scenario, as it would be very difficult to withdraw from the Euro and create a new currency (quite possibly one of the motives in creating the Eurozone).

Germany has had stagnant economic prospects for a while and they haven't really done anything to fix it, they'll likely be able to limp along for a while, going into a long, slow decline.