The future of euro: on the brink of extinction

Eurosclerosis rescues the single European currency

In brief: The future of the euro remains uncertain against the threat of new defaults in the euro area and the problems of Southern Europe.

The future of the euro is like a tale of Atlantis. The European Union has a decent respect for tradition: every crisis to draw into an advantage. European sclerosis (the term originated in the late 70′s – early 80′s, and characterizing the high unemployment rate against a background of high economic growth) and budgetary squabbles 80 preceded the appearance of the Single European Act of 1986, and the crisis of the ERM , Burst in 1992-1993, accelerated the creation of a single European currency.

I want to believe that the current crisis, Europeans, too, will be able to turn into a good opportunity for further development of the euro area, though, because they have no other acceptable alternative. Over the past three months, the leaders of the Eurozone had learned many bitter lessons of the mistakes when creating a single currency. Financial Assistance Programme, approved in May, shows that the country leadership is serious about these lessons. But the story does not end there. Special attention should be their desire to revise the principles of management of a single currency. The events of recent months have seriously changed the attitude to the problem at the national level and most likely, the main changes are still ahead.

Without a single currency Europe would be transformed into an economic desert. The absence of the euro over the past two years would cost the region more expensive than its availability over the past three months. Competitive devaluations since the financial crisis in 2008 would bring the region into chaos, a much more profound than the one that we are experiencing now. Leaders of the euro area is well understood. Now they face the challenge to prove that the principles of the functioning of the euro zone reduce the risk dezyntegratsii minimized and potential benefits of using the common currency used for all one hundred percent. Both directions are not yet fully developed. I hope that this problem will be solved, since many policies in the euro area are beginning to refer to the original control system of a single European currency, as a politically and intellectually bankrupt. On the one hand, it was the culmination of a 40-year integration process, based on the apparent failure of European countries themselves, the challenges that they threw the world economy. On the other hand, it implies the conservation of absolute national independence in the fiscal, budgetary and macroeconomic issues.

It is in this lies the main reason why the main tool of economic management, “Pact on Stability and Growth Pact”, was never and could never be a solid foundation on which to build something monumental. The responsibility for its performance fell a national government, and they are then voted for the imposition of penalties for violation of the provisions of the Covenant. The current debt crisis – is the result of the management structure of the single currency with a very broad powers and respect for economic sovereignty for individual states. Creators of the euro, clearly aimed not breaking anything, so left the country’s economic sovereignty. Perhaps many believed that the consequence of the initial agreement will be revised in the context of the experience. However, the limitations of this approach in the face. Sharing a single currency in itself imposes a number of commitments, entails a certain economic interdependence, say, Germany and Greece. The political instruments that reflect this relationship, and able to manage it, completely absent. Moreover, without such tools, the neighbors of Greece in the euro area more deeply bogged down in its problems. If the rest of the Eurozone with maniacal persistence insisted that the financial difficulties of Greece relate only to Greece, they would be driven by the shortest route euro area into a trap.

Herman Van Rompeya, President of the European Council, was puzzled to develop recommendations for reforming the euro area. I hope that his proposals would help Europe to move forward in the political and economic integration. Recent experience suggests that Europe needs a more rigorous oversight of the national economy, not only for fiscal policy. As a result, naturally improve macroeconomic coordination within the euro area. Even in the single European market, national economic policies seriously affect the position of its neighbors. The euro zone is very reluctant to take up the formation mechanisms for the management of independence – it is nothing more than a tribute to the attachment to the idea of national independence, which has nothing to do with reality. I can not agree with those who deny the possibility of a radical reform of management system in Europe. The German government is sometimes called the main obstacle in this context. But Berlin has repeatedly hinted at its readiness for constructive negotiations on the reform. Suggestions of the German authorities can be regarded as a starting point for discussion and reflection. This contrasts sharply with the uncompromising rhetoric of Berlin in the beginning of the year. European integration has never moved beyond adjusting to a common denominator of incompatible national laws. Germany is interested in is to play its traditional leading role not only a good neighbor in Europe, but also the restraints of national interests.

Anrey Torbinski
2010-07-05 17:55, Currency news.

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