In this column and many others, there has been much gnashing of teeth over the break-up of the Euro. Yesterday, a friend and client sent me an interesting blog by Charles Hugh Smith, which makes the important point that a nation's currency is an important throttle on that nation. Without that throttle, the nation will easily get out of control.
He said it well: "The euro supporters forgot or ignored the primary purpose of national currencies:to account for differences in transparency, productivity, trust, money creation and risk between nations' economies and their Central Banks/States. If you remove this means of accounting for these fundamental differences, then you have removed a feedback loop from a dynamic system, and thus removed an absolutely essential flow of information and transparency."
He was arguing that the world will survive the loss of the Euro, as it should have never been created in the first place. While I expect the Euro to survive, I do agree the world would survive losing it, ignoring the immense pain of getting rid of it.
But, what makes the Euro unsustainable was never expected to be sustained. Creation of the Euro, along with a common monetary policy, was expected to be the first step in a long process of both fiscal and political integration. Unfortunately, the politicians predictably waited on the second and third steps until there was a crisis.
We are already seeing calls for greater fiscal integration. To issue Eurobonds (the silver bullet to solve this crisis), Germany has already made clear that EU headquarters in Brussels would have to approve all national budgets, which is a huge loss of sovereign power and national identity by each nation.
My prediction remains that the Euro will survive and that this crisis will do for Germany what the two World Wars could not. Since I see that as inevitable, I wish it would happen today and permit the U.S. stock market to once again reflect the U.S. economy.
He said it well: "The euro supporters forgot or ignored the primary purpose of national currencies:to account for differences in transparency, productivity, trust, money creation and risk between nations' economies and their Central Banks/States. If you remove this means of accounting for these fundamental differences, then you have removed a feedback loop from a dynamic system, and thus removed an absolutely essential flow of information and transparency."
He was arguing that the world will survive the loss of the Euro, as it should have never been created in the first place. While I expect the Euro to survive, I do agree the world would survive losing it, ignoring the immense pain of getting rid of it.
But, what makes the Euro unsustainable was never expected to be sustained. Creation of the Euro, along with a common monetary policy, was expected to be the first step in a long process of both fiscal and political integration. Unfortunately, the politicians predictably waited on the second and third steps until there was a crisis.
We are already seeing calls for greater fiscal integration. To issue Eurobonds (the silver bullet to solve this crisis), Germany has already made clear that EU headquarters in Brussels would have to approve all national budgets, which is a huge loss of sovereign power and national identity by each nation.
My prediction remains that the Euro will survive and that this crisis will do for Germany what the two World Wars could not. Since I see that as inevitable, I wish it would happen today and permit the U.S. stock market to once again reflect the U.S. economy.
