Monday, 12 December 2011

Getting the Eurozone act together may kill the Euro currency.

If the Euro not broken it is at least cracked.

The Euro is a currency without currency. The US dollar is suspect. Why is the Canadian dollar looking good?

One thing that a currency must be able to do if it is to become a medium of exchange is be acceptable when it is offered for payment or to settle debts. That is basic. The US dollar enjoys universal acceptance. It is truly a world wide medium of exchange despite the wiles and political  vacillations of the US Congress since 2008.
I have used US dollars to pay for a coffee in a tiny Spanish Pyrenees village without any problem. US dollars can be pulled out anywhere on this planet and they are immediately acceptable for trade. They are simply pretty pictures printed on rag paper but we accept them  and somehow value them as useful to do business. 
Really no one needs Euros.  We could all adopt US dollars as the world standard and perhaps some nationalistic feathers would be ruffled but very likely Europeans would accept US dollars for payment throughout Europe without too much of a hit to their Euro centred egos or sensibilities.
US debt doesn’t stem the US dollar appeal.
US dollars are printed by a country with a lot of debt not unlike the Eurozone countries who are also living well above their means. However the US dollar remains a world standard for payment and exchange despite these economic woes. The Euro does not enjoy the same appreciation. Neither does the Canadian dollar even if Iceland wants to use it to replace their struggling debt ridden situation.
The Canadian dollars are prettier than the US dollars. They are colourful and now they are now to be printed on plastic. Canadian dollars are really neat compared to US dollars and I can see why there might be an attraction to have these pretty objects in Iceland. 
Please note that the Icelanders do not want the Euro. They want a stable currency backed by a stable country and they are selected Canada as that choice. They are focused on recovering from their slide into bankruptcy and the Canadian dollar looks like a good bet along with Canadian banks and banking.
The Euro is over valued in the European sea of debt.
The Euro is losing its luster. The reason is that the Eurozone is under a lot of stress and it is coming apart mostly because of political vacillations. Even Greece gave a passing thought to dumping the Euro and restoring its Drachma. Not a good idea, but it shows that the Euro is now a currency without much currency. The British are now patting themselves on the back for retaining the Pound Sterling and not surrendering to the Euro as Ireland did with the devastating results we know. The Euro doesn't really inspire confidence with its Greek and Irish track record.
The Euro is under fire. It's mainly because even now the Eurozone countries cannot seem to get their fiscal house in order. They vacillate they try to weasel out of what they agree to do to solve the debt crises of their member states. And so the world is tired of the Euro and it may very well go the way of the Dodo. It won’t happen fast. The Euro will fade away as it is dumped by Eurozone states.
Imagine the problems associated with the Euro. It is used by larger economies like Germany and France and it sets a standard of exchange based on the industrial performances and GNPs of these two large Eurozone members. The Euro is really fueled by German discipline and energy. France doesn’t really have the same clout as Germany especially when some of its banks are on the edge.
Poor Eurozone countries can't afford the Euro.

When other poorer countries adopt the Euro like Spain, Portugal and Greece the result is the exchange rate established by highly industrialized countries in the Eurozone is imposed on these poorer and slower performing economies.
The Euro sets standards of living that are unsustainable in Spain, Portugal and Greece and probably this is also true in emerging post Soviet Eastern European countries. This is one reason for the growing debts of these countries. They are trying to keep up with more powerful and active industrialized economies.
It is a myth that one central currency in Europe is useful. The Swiss like Britain stayed out of adopting the Euro mainly because they operate important world financial centres in which the Euro was a smaller player.  
Greeks, Spaniards and Portuguese users find that the Euro and Eurozone requirements create inflationary spirals and costs to their poorer economies. The Euro raises standards of living. Since taxes cannot be adequately collected in Greece, Spain and Portugal due to widespread avoidance, debt builds as these countries try to keep up with Eurozone standards.
The Euro may be an interesting experiment in play money.

The Euro may be an interesting experiment in centralized currencies and its effects on economies of different sizes and aspirations. The last time Europe tried a centralized currency was during the Roman Empire and we all know what happened to that experience as Roman Europe fragmented into smaller parts all pursuing their own feudal and nationalistic interests. 
History may now repeat itself as the Eurozone immersed in debt it cannot pay, defaults into a fragmented New Dark Age where countries pursue their own interests and their citizens begin new rounds of political, ethnic, cultural and fiscal independence as they try to survive. 
The current Eurozone fiscal crises may also be a harbinger of Information Age effects where large corporate and Eurozone centralizing planning ideas are fragmented by the nature of instant and constant digital communications. 
In this world many of us are still getting used to 24/7 fiscal systems influencing events in one timezone from other timezones on the other side of the world. These trades are controlled by programmed trading software that can inflict fiscal uncertainty in markets as they open thus creating change that was not expected or adequately controlled. That is the new fragmentation and it may ultimately be able to stress any economy or currency with impunity.
© Copyright 2011, Tom Thorne, All Rights Reserved

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