Monetary union remains as
flawed as ever
The
eurozone has recently been off our news radar. We Britons have become smug of
late given our new-found growth, now that we’re the most rapidly expanding
economy in the Western world (almost).
We
certainly have a sense that the “Continental” economies aren’t doing as well as
ours. Apart from those pesky Germans, of course, who are annoyingly good at
making stuff the rest of the world wants to buy.
Yet, the
fear of the euro as a tinderbox, which at any minute could spark financial
meltdown, seems to have gone. The euro as a ticking-time bomb, about to
explode, causing another Lehman-style Minsky moment on global markets – all
that has been dealt with, we think, sorted, solved?
I would
like to tell you that’s true. But I can’t, because it isn’t. The eurozone’s
deep structural flaws remain as ever they were.
This
jerry-built monetary union, for all the fanfare, arrogance and “solidarity”, is
fundamentally just as vulnerable as it was in the summer of 2012, when,
suddenly, everyone started worrying that the single currency wasn’t, as we’d
always been told, “irreversible”.
Until
then, it was only been “nutters” like me who openly questioned the eurozone’s
long-term survival. We raised such “mad” questions not because we’d spent much
of our adult lives studying economics, history and the minutiae of currency
unions – oh no – but because we were “cranks” and “xenophobes”.
Back in
that Olympic summer, however, as government bond yields in the likes of Greece,
Spain and Italy spiked, and riots broke out in previously laid-back European
capitals, everyone realised that some profligate members could crash-out of
monetary union, forced by market vigilantes and window-smashing thugs, or maybe
even kicked-out by Germany (with the Finns and the Dutch providing moral
cover).
But then
the newish European Central Bank president, Mario Draghi, promised to do
“whatever it takes” to save the euro. At the same time, politicians began
talking about a “banking union” – and with extremely serious faces. As if by
magic, there was calm. The markets relented and bond yields fell back.
Since
then, while it hasn’t been plain sailing, there’s been far less talk of a
stormy “break-up” of monetary union. The euro is actually set to end 2013 as
one of the best-performing main currencies – up from $1.32 in early January to
around $1.37 today.
The fact
that the US government wanted this dollar depreciation, deliberately stoking it
by expanding the Fed’s balance sheet $85bn (£52bn) a month is, of course,
completely irrelevant.
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