Euro, The European Union Atomic Bomb

Euro, The European Union Atomic Bomb

“The Euro is a mistake” by JOSEPH STIGLITZ, winner of THE NOBEL PRIZE

Some Economists, such as Stiglitz and Krugman, believe that the euro was an experiment. Just like the fukushima atomic bomb, the euro creators did not measure, because they could not know, the effects of having a common or a single currency, “The Euro”. Even though, they still went ahead with the idea.

 In the beginning it appeared to be working. The US economists had always been defending that the euro would not work. They belieaved that the decision of adopting the euro as a common currency, was more a political than an economic decision. Stiglitz argues that some of  the objectives of the  Maastricht Treaty, have not economic basis. For instance, the limit of the government deficits of 3%.

Stiglitz, by pointing first the Euro, and sencondly the European institutions dysfunction (which Piketty also agree) as the two problems that Europe growth faces, provide also some solutions. One of them is, Germany to leave the euro. The other, is to create two euro´s currencies. These issues are discussed on Stiglitz book named “THE EURO, And Its Threat To The Future Of Europe”.

So, is the euro, really, a mistake?

To answer this question, one needs to make deeper studies on how the euro affects the Euro Zone countries. With a database, one can use Econometrics to try to explain whether the euro is or not a mistake. Supposing that we have the database with us, one can make comparisons between the EU as a whole and the Euro Zone development and growth by running some regressions, and then pick up the effect of the euro. This is a work that one will be doing this semester, as soon the results are obtained, one will publish them here. Just to rember, this is something quite impossible even using econometrics tools, because the contries did not enter in the Euro Zone at the same time. By the way, once we do not have, yet, the database for the study, one will try to make an analysis arround the question based on statistics results provided by the ECB, World Bank, and other organs.

As an Econometric fellow, my advice during the analysis is:

“Please keep in mind that, without data your are just another person with an opinion”

Are the american economists right?

If one says yes, would be saying that the EU´s countries out of Euro Zone are better than those, in the Euro Zone, what is not true. In the Other hand if one says no, one would be ignoring the facts, and being myself naive.

“Actually this is another questions with ambiguous answer”

In my point a view, the euro is failing because it was constructed with countries with very different economic structures. If in a hand we had countries with strong economies such as German, France, Belgium and others., in the other hand we had countries with week economies such as Portugal, Greece, Italy, Spain and others. If the countries do not have the same economic structures, it is expected to have different economic reaction from shokcs.

 So, if the countries did not have the same economic structures, as well as we can see today, the stronger economies would be giving orders on the weakest ones, telling them what to do and what, to not do. Properly the case of Germany. Here is a point where I, somehow, agree with Stiglitz.

Germany, the stronger economy of the Euro Zone known also for being tradictionally obsessed with the deficit issue, uses its power to enforce the other countries to follow their policy of strong constraints in the government budget.

So, the EU by adopting the policy of austerity, and applying it for the countries that depend on their fiscal policy to run their economies, once they can not use the Exchange policy, is killing them at all. I am not saying here that austerity is bad. Just look to the facts, and see that the Euro Zone was applying austerity during and after the crisis of 2008 (a crisis imported from the US). Austerity is not bad. Just like any other policy, when we apply it we must care about the time and the scenario that we are living.

The weakest economies sofered a lot with the government constraints on spending and with tax increasings, imposed by the Euro Zone, that were traduced after on upward shift of unemployment, a reduction on investment, driving them to a cycle of recession after recession. The euro zone countries were applying austerity policy even knowing that they were facing period of recession, which in economics we call pro-cyclical policy, when they should be doing the contract according to the economics theories. They were (are) doing it to get access to the markets. Again, this seems more political than economic decision. These countries, the PIGS, have been losing productivity and competitiveness, for the stronger economies.

Arround all this discusssion, it is really hard to say whether the euro is or not a mistake. What I can say here is that, more than the fact of the euro itself being or not a mistake, what is more important to explain the performance of the Euro Zone countries are the policies applied by the institutions of the area.

Resumo: Euro, a bomba atómica de União Europeia (Euro, The European Union Atomic Bomb)

Neste artigo é feita uma análise em volta da questão de, o Euro ser um erro para a união europeia. Para perceber a comparação feita com a bomba atómica de Fukushima, recomendo uma breve vista de olho sobre a história da destruição de Fukushima, que certas pessoas julgam não ter sido necessário o ataque dos EUA. Os EUA sabiam que a bomba ia destruir a cidade toda. A grande questão é que os EUA não mediram os efeitos totais da massiva destruição. Por exemplo, os EUA não previam a epidemia que assolou a cidade, resultante do ataque.

Tal como em Fukushima, os efeitos da criação do Euro não foram medidos na sua totalidade. Pelo menos, se considerarmos que foi uma decisão económica, o que eu acredito não ter sido. Dizer se o Euro é ou não um erro é uma questão mesmo muito difícil de responder. Entretanto, neste artigo, deixo duas questões que me fazem acreditar no porquê do euro estar a falhar agora. A primeira questão é o facto de os países que aderiram o euro na altura da sua criação, terem estrutura económicas muito diferentes. A segunda questão é o facto de, as decisões tomadas pelas instituições Europeias terem mais explicações políticas do que económicas.

O euro é um erro? Não sei. Está a falhar? Sim, está.

Príncipe Zanguilo