“Angela Merkel, the German chancellor, mounted stiff resistance tonight to any swift bailout of Greece, as a rift opened up between European capitals over how best to tackle the risks posed to the euro. Despite a show of Franco-German unity on the crisis and the first statement from EU leaders pledging to safeguard the currency’s stability, hopes on the markets of a German-led rescue plan to shore up Greece’s critical public finances were dashed by Merkel, who repeatedly emphasised that Athens would need to put its own house in order and brushed aside all questions of financial support. Germany is stepping totally on the brakes on financial assistance,” said a senior EU diplomat. “On legal grounds, on constitutional grounds and on principle.” Another senior diplomat said of the Germans: “They’re not waving their chequebooks.”
From the article:
“Merkel said this was the best way to assuage the markets. The parallel is with Ireland which has responded to a similar public finance crisis with savage spending cuts, public sector wage and pension cuts and restored market confidence.”
One assumes Merkel was born in Germany to German parents, so, unfortunately, there is no possibility of electing her president of the U.S.
Good for her!
It is good to know that there are some European leaders emerging like Angela Merkel. She’s a real meanie.
Someone has to say no to someone eventually, a lesson not learned in America yet I fear.
No, not at all.
America seems to have learned just the opposite lesson, and seem intent on spending their way out of debt.
Not so fast. When somebody talks about standing on principle, follow the money. Back when the euro was being implemented a lot of folks warned that it was going to be a bad deal for smaller countries.
Greece is an extreme example because they were actually cooking the books but Spain, Italy and Portugal are also likely to be hurt.
Other small countries will think twice before ebtering the EU and switching to the euro, see this NY Times article:
“Countries like Estonia and Latvia were once desperate to get in,” said Alf Vanags, director of the Baltic International Center for Economic Policy Studies in Riga. “The euro is not looking so attractive now.”
Latvia has been on track to adopt the euro in 2014, as has Lithuania, with Estonia eyeing its inclusion by 2011.
These governments have reason to fear that, like Athens, they will be caught in a vise: unable to pay for expensive social programs demanded by citizens while staying within the euro zone’s debt limits.
Enthusiastic for years about adopting the euro, Latvia had undertaken painful austerity measures. Even as the global economy contracted, the government slashed spending. The program included cuts of 50 percent or more in the salaries of public-sector employees and a 40 percent reduction in hospital budgets.
The result, many economists say, has been deepening unemployment and the worst recession of any country in the 27-nation European Union.
They are two different issues.
“Professing to be wise, they became fools” Romans 1:22
It is an interesting article. If the euro is adopted then the country does not have the option of devaluing the currency in order to increase the attractiveness of domestic products. The Canadian market has benefited from this vis-av-vis the stronger american currency for many years now. A weaker Canadian dollar makes our products cheaper and theirs more expensive to buy.
The Latvian government so far seems to be rejecting such an option as a short term fix though. it is unpopular of course to cut social programs that are not affordable, and once people are on the public teat, as politicians everywhere know too well, we really sink out teeth in.
But it is the only long term solution that is possible.
A Briton would know, of course. I call it eating one’s cake and having it too. Hungary got away with keeping her currency too, though my Hungarian friend tells me it didn’t help them much. Neither did joining the EU.
My Hungarian friend thinks it’s the greatest thing since Attila.
Hmm. Apart from the Greeks a lot of this has to do with monetary policy and exchange rates and a region as large and diverse as Europe, not just governments’ and peoples’ laxity in one country.
From an old interview with Milton Friedman on the success of the Euro:
Question: Switching directions again, Europe has been moving towards a single currency. Do you think that’s a wise move for all the states, some of them, or none of them? Why so?
Milton Friedman: We’re in the midst of a wonderful natural experiment. You have a really different arrangement with the euro than we’ve ever had historically. We’ve had many cases in which a number of countries have used the same currency. That’s when they’ve used gold or silver as money. But each individual country has been able to control the content of its own money. So while they were using the same commodity as currency, they were always in a position to determine what the terms of exchange were between their own currency and the other currencies.
But the euro is a very different arrangement. For the first time in history, we have essentially an independent central bank for a considerable number of distinct political entities. I, in advance, was very negative about it and have been very negative & pessimistic about it. We’ll see how the Europe plan does on the one hand and on the other, how the other countries of the world, the UK, the United States, Japan, which are linked together by flexible exchange rates, we’ll see how they do.
[P]ersonally, as I say, I believe the Euroland is going to run into big difficulties. That’s because the different countries have different languages, limited mobility among them, and they’re effected differently by external events.
Right now [in Past] for example, Ireland and Spain are doing very well, but on the other hand Germany and France are doing very poorly. The question is; “Is the same monetary policy appropriate for all of them?” Germany and France on one hand and Ireland and Spain on the other: it’s very dubious that it is. That’s why you’re having increasing difficulties within the Euroland group. As you probably know Sweden, which had not joined the European Monetary Union, voted down doing so and will keep its own currency.
Also, “Was Milton Friedman right about the euro?” from Canada’s National Post sometime back:
"Before the launch of the euro in 1999, Milton Friedman predicted that the Eurozone would not survive its first economic crisis.
He noted that in a world of floating exchange rates, if one country faces a shock, it could simply respond by letting the exchange rate change. But with the arrival of the euro, that option is no longer available."
Heck I still remember as a student the arguments over the pros and cons of flexible vs. fixed exchange rates. But I think he was onto one source of the current problem.
He was also right about the causes of the Great Depression: monetary policy. The Fed. Reserve had been loose with money in the 1920s and then after the Crash, they contracted the monetary supply severely. This Monetary contraction was more responsible for the scope of the Great Depression than some wild capitalism running amok before. Had the monetary supply been not contracted so severely, there would have been no Depression like in the 30s, according to Friedman.
With the Euro, the whole flexible exchange rate for inividual countries goes out the window.
But was Attila really a Magyar? One may reasonably doubt it.
It’s a traditional thing - denying it is a bit like saying ‘King Arthur lived long before the age of the courtly knight’ or whatever - it’s true but all countries have their foundation myths.
If it’s their myth, they could have found a far less interesting one. Now, my ancestor Aeneas…
interesting op-ed from the Financial Times:
It seems that quite a number of observers have forgotten what Emu is, and what it is not. The monetary union is based on two pillars. One is the stability of the euro, guaranteed by an independent central bank with a clear mandate to maintain price stability. The other is fiscal solidity, which has to be delivered by individual member states. Member countries are still sovereign. Emu does not represent a state; it is an institutional arrangement unique in history.
In the 1990s, many economists – I was among them – warned that starting monetary union without having established a political union was putting the cart before the horse. Now the question is whether monetary union can survive without such a political union. The current crisis must be handled in such a way as to produce a positive answer. The viability of the whole framework – nothing less – is at stake.
So I’ll have to ask our European friends if this guy is correct that the political union should have come first. Somehow I don’t see a true “United States of Europe” any time soon.