(European) Views on Euro vs. Krugman's: Euro, expression of European Hubris


The first thing about the Euro you have to know is that it isn't primarily a financial tool, but a peace project - as the whole European Union is. The Euro gives Europeans a common symbol which tells every european citizen that we belong together. This is a very important point on a continent shaken by wars for centuries. Even nowadays you can see that old, buried conflicts can suddenly show up like it has in Yugoslavia.

You were able to see the power of a symbol like this in Eastern Germany in 1989 / 1990. Millions of people were demonstrating against the communist government. A lot of them were showing posters like "If the Deutsche Mark doesn't come to us, we will go to the Deutsche Mark." So even when a lot of economists told the government of Western Germany that it would economically bad to expand the Deutsche Mark to eastern Germany, it was absolutely necessary - the people of eastern Germany already started to leave their country for the "golden west".

The euro is also a tool for integration: By eliminating currency exchange risks it helps to foster trade relations and thereby strenghens our Union. This helps strenghen common interests and so we can start and implement common projects like the Lisbon treaty, which gives us opportunities to something like a (weak) federal government and easier ways to come to decisions (e.g. elimination of the unanimity principle in a lot of cases).

In fact, the Euro is the solution to a lot of problems. By requiring fiscal responsibility it strenghens the fundament of Europe. But if a country behaves irresponsible and ignores the rules (with the help of Goldman Sachs and AIG) and runs a hidden 13% debt instead of the allowed 3% debt, then we run into trouble. The rules I mentioned to prevent financial crises wouldn't even be there without the Euro.

Somehow it sounds to me that you actually instead of talking about european problems you only want to talk again about your usual point that deficits don't matter right now. I think in the case of Greece you are wrong. The deficits are the problem here, the problem is not the Euro and there is no easy solution for this government. In Spain a devaluation of its currency would have major and harsh social implications - so it wouldn't be an easy way out, too.

I guess we have common ground if we say that more european integration in some areas is necessary, but this will take time. But the Euro certainly isn't the problem here, it's a helping tool.

Louella Santobello
Nice, France

If Europe's adopting a single currency before the continent was ready for it, what is behind the financial disarray of the UK, which did not adopt the Euro?

William Osler
Philadelphia, PA

"A breakup of the euro is very nearly unthinkable, as a sheer matter of practicality. As Berkeley’s Barry Eichengreen puts it, an attempt to reintroduce a national currency would trigger 'the mother of all financial crises.' "

Professor Krugman: I think you might want to challenge the assumption that the Euro won't break apart because the results of such a schism would be too horrible to contemplate. Since when has this stopped horrible events from happening in the past? There are some who are saying quitely publicly that the Euro is already doomed, and thinking investors should prepare for just such an outcome, which would mean (IMHO) a much higher dollar and much lower stock prices. Caveat emptor!

Pierre Garenne

I am regularly bored by "anglosaxon" statements on Europe and the euro which, rather than examining Europe's evolving economic and political situation (for better or worse) consists of simple Europe-bashing. A major factor in the slow speed of Europe's drive to some form of unity (the euro was as much if not more a political than an economic decision) has been the perpetually negative interventions by the UK which tries to profit from its US and financial institutional relations and at the same time not lose out on its exports (including financial services) to Europe(the UK's largest market).

In my view European unity and some form of European (federal?) government would already be in place to our great advantage if it wasn't for British (little Englander) obfuscation, and with it the possibility of finding political and economic solutions for the PIIGS (English nomenclature) problems before the event. The UK is clearly a US and financial industry cat's paw pursuing political and economic policies that benefit a transatlantic financial-banking elite, disrupting Europe-wide financial regulation and political unity is seen as profitable.

Whether, as the UK government argues, the crumbs that the ordinary Brits manage to pick up under the table are sufficient compensation for their country's real economic and political situation is an analysis that is long overdue (by Paul?).

British policy has, over several centuries, been to finance sectorial international interests through the national Exchequer at the expense of the ordinary citizen. Profits are not directly affected by the "transfer of such charges" from company balance sheets to the national Exchequer. One could argue a similar thesis concerning US economic and foreign affairs policies. Does the man-in-the street really benefit? I have serious doubts.

Paris, France

On the other hand,it was my impression that if Ireland hadn't had the Euro they would have suffered a similar financial calamity to Iceland's (which doesn't have the Euro).

Boston, Massachusetts

Does this mean that the British - who stuck firmly to the pound sterling - got it right?

Parksville, GWN

As this crisis moves forward, deflation will overtake not only weak economies but will eventually come to reside at the doorstep of the United States. The global under-utilization of industrial capacity, over supply of housing, unsupportable debt repayments, and falling wages will all contribute to the collapse of what will soon be the world's last bastion of Leveraged Capitalism. Unless the Federal Government is willing to annul a large percentage of the vast debts of its citizens, corporations, and lower levels of government, any financial stimulus provided will be used to service debts accumulated by these groups. Corporations will continue to be, at least temporarily, at the head of the line due to the inordinate influence that they wield in the circles of power. However, should such a universal attempt be made, international bond markets will not stand idly by. Expect very large rises in Real Interest Rates as a result. The Great Recession is merely a precursor to a far larger scale event, as the limits of credit-fueled growth have now been reached.

In conjunction with Peak Oil, deflation in this scenario is not universal, as energy and it's dependent products (food and fuel primarily) will rise rapidly as a percentage of disposable income. As necessities (see above) consume an ever larger percentage of total income less remains available for discretionary spending. Deflation does therefore not equate to greater purchasing power for the majority (those with net indebtedness) as purchasing power falls at a greater rate that aggregate prices.

Needless to say this is a terrifying outcome, particularly for corporations, as their survival depends on the continued consumption of non-necessities (both goods and services). Citizens can and will adapt to this new economic reality albeit with dramatic adjustments to quality and style of life. Governments may not be so lucky as their flexibility is constrained by shrinking tax bases, rising social program costs, and the political and economic costs of massive unfunded liabilities.

Even at this late hour governments can still hope to mitigate the worst of the social fallout, as to be forewarned is to be forearmed. The first Great Depression could likely not have been prevented but some of the pain, suffering, and disruption that it caused could have been lessened with the soonest possible adoption of reasonable lending standards, curtailment of predatory corporate behavior, and truthful discourse. The same holds true today.


“Europe needs to move much further toward political union, so that European nations start to function more like American states.”

Why? What's wrong with small countries?

Almost the only people in Europe who want “political union” are politicians and political commentators. On the very rare occasions when voters have been allowed to express themselves on the subject, they have mostly voted against it. The whole European enterprise has become profoundly undemocratic.

Furthermore, the EU bureaucracy is more wasteful and expensive than the bureaucracy of any member state (which is really saying something). Eliminating it would have the same effect on Europe's economic performance as removing a ball and chain from the legs of a long-distance runner. The money wasted in Brussels and Strasbourg could be more usefully used to help small businesses create jobs.

Thirty years ago, the European Common Market had a real economic raison d'ĂȘtre: reducing tariffs, and thereby freeing trade, among its members. That was very valuable, and made Europe more prosperous. Now, that reason has largely gone, replaced by WTO treaties which have reduced tariffs and freed trade worldwide. Eliminating the EU would not greatly reduce the trade between (say) France and Germany, because WTO agreements would allow each country's companies to compete in the other. Having outlived its usefulness; imposing a huge bureaucratic cost on the continent; and continuing only in defiance to the wishes of most Europeans, the EU should be abolished, not turned into some monster super-state to appease the lust of politicians for power and the liking of commentators for a superficial simplification of the international scene.

Marie Burns
Fort Myers, Florida

You can blame Europeans on the euromess, but I would rather blame Lloyd Blankfein. Louise Story & other Times reporters wrote yesterday that "One deal [with faltering Greece] created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels." AND in some derivatives deal, the Times reports, "In what amounted to a garage sale on a national scale, Greek officials essentially mortgaged the country’s airports and highways to raise much-needed money." The deal is predicted to be a big loser for Greece, but not for Goldman.

Maybe the officials who made these bad deals were dumb, but bankers have a moral obligation not to purposely ruin the economies of major governments (or continents!) for their own personal gains.

"Savvy businessmen" whose wealth we ought not begrudge? These aren't Masters of the Universe. They're Sleazy Little Opportunists & Scam Artists. It was guys just like these who caused europoet Dante Alighieri to dream up the circles of hell.

The Constant Weader at www.RealityChex.com

P.S. OR, the real trouble with the euro is the French don't have words for eighty & ninety. You should look into that, Paul.

Phil in the mountains of Kyushu

You want Europeans to "start to function more like American states"?

Oh my gosh -- clearly you haven't read a word of your colleague Gail Collins' columns over the past week. She has had a hilarious time trying to decide which U.S. state out-dysfunctionals all the rest --- an impossible competition, as hundreds of readers' "comments" have shown -- so many varieties of idiocy atop the institutions of so many states.

But, even if you've been negligent in your reading of your colleagues, you really expose ivy-towered limits when you suppose Europe even remotely capable of reducing all its systems of education to such laughably and pathetically tragic new lows as Americans "enjoy" for U.S. schools.

Europeans can never be as dumb as Americans -- a possibility made even more remote by the further dumbing down of the U.S.'s "reality" and idol-idolizng TV shows, and what passes for "news" across most all corporate media.

Or do you evince need for Europeans to copy Americans for another reason -- that people are too decorous in your Princeton digs, and you really pine for all the ludicrous sexual shenanigans that demonstrably increase proportionally as American politicians pursue, too, their corporate donors?

So what is it -- the U.S.'s bad schools, bathetic corporate media, or out-of-control personal lunacies in elected officials -- where do you want old-culture decent Europeans to tumble first?

Patrice Ayme
Hautes Alpes

Dear Paul:
The hubris is all yours. You are an American, you have an American mess on your hands, and, with all due respect, why don't you mind your own business?

You obviously understand strictly nothing to the European construction. You view it as hubris. Europeans see it as the way out of 15 centuries of mess.

All you can suggest is that Spain would make economic war through devaluation to the rest of Europe. Let me reassure you: war was tried before in Europe. You would know this if you had learn history in your heart of hearts, instead of knowing a few glimpses, here and there.

Merkel and Sarkozy understand Europe much better, and they want to increase economic integration. thus, they want to construct towards a better future, not destruct, towards the same ugly past, as you propose.

Now it is in the interest of the USA to destroy the Euro, so you try your best. The help given by the American plutocracy to nascent fascism in Europe can be viewed as an opportunistic plot to destroy Europe. but it did not work. Europe, unfortunately for American hegemony, is not to the USA what Greece was to Rome. When Greece was on its knees, Rome crushed it. Now Greece is on its knees, and the rest of Europe will save it. And Europe is powerful, even militarily powerful (a well kept secret).

I may write an essay on the subject, replying more thoroughly to your Europhobia, but it is barely worth it. In Europe, banks and, in the case of Spain, too much development of tourism and real estate are viewed as the problem. Not the Euro.

In the case of Greece, the military budget is a complicating factor, and so is extravagant spending by the state. This is going to be cracked down on. Because France and Germany are going to lend to Greece, with strings attached. Formal structures will follow.

From the heart of Europe, little crisis is to be seen. But the tone about banks and the USA is getting ever sharper, after Obama's pathetic performance in Copenhagen. So mind your American plate: it is full, and it's a big mess, and it is pretty disgusting.

It is true that my house cleaning lady, Agneska, barely speak French, and her English is not any better. my aging Mom has to use sign language with Agneska. But here she is, in the Alps, having followed her Polish plumber husband who works in a big local French firm. She is very young, and she will learn her French. I know two Russians who came here, knowing little, and now they are perfectly integrated. Integration of Europe is happening, and it is hubris to think it could not be done.

Patrice Ayme

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