| | |  Business News 
Nothing is Forever, Even European Union
 Richard Giedroyc - World Coin News
go to original
April 22, 2010
Portugal, Ireland, Greece and Spain, all members of the European Union currency union – are rocking the union’s boat at the moment.
A nightmare scenario may be building, a scenario in which Greece first and possibly the other three countries could at some point find themselves as former members of the EU, while being forced to resurrect their own individual currencies.
What’s worse, Germany, the nation with the strongest economy of any participant in the currency union, is not only reluctant to bail out the four countries financially, but is re-examining if it wants to continue participation in the currency union or not.
The British newspaper The Guardian quoted a spokesman for the European Commission Feb. 15 as describing Greece’s possible departure from the euro currency union as “completely unrealistic,” while European Central Bank Chief Economist Jürgen Stark recently described the same thought to a German publication as “inconceivable.” “No chance” is how Greece Prime Minister George Papandreou recently described the scenario of a European Union without Greece.
The debt of all four countries is out of control and getting worse, putting pressure on the euro, while Germany grumbles that it is being pressured unfairly to bail out the four miscreant nations (which at a recent conference were referred to as “peripheral” EU members by German representatives).
The Feb. 26 The Wall Street Journal newspaper posed the question ‘What has the euro done for us?’ meaning Germany by the ‘us.’
The reply appearing in the article was: “Since the euro’s inception in 1999, we [Germany] have made big sacrifices to maintain the competitiveness of our economy, keeping wages down to boost exports and maintain our trade surpluses. Others in the euro zone, particular the Greeks, made no such sacrifices and built up big debts that they are struggling to repay. Now, they have the temerity to knock at our door to ask for a bail-out.”
The Feb. 15 issue of The Guardian asked what would happen if Greece did leave the EU. Answering its own question the article states: “If Greece did leave, the euro would be likely to weaken even further as confidence in the euro project collapsed and fears grew of a domino effect. Eurozone member states will be very reluctant to allow it to happen.”
The Guardian article adds, “This is uncharted territory. There are no exit clauses in any of the treaties such as Maastricht or Lisbon, because EMU [European Monetary Union] membership is meant to be irrevocable – although in practice, member states can repudiate the treaties in domestic law. A recent document by the ECB said restoring a member state’s old currency would ‘inevitably involve considerable risks and difficulties and entail substantial legal complications.’ The Greek government would have to decide what to do about the millions of Greek families and businesses with mortgages and loans in euros. It would also have to take euro notes out of circulation and exchange them for new drachmas.”
The Guardian article concludes, “The European Union would be unlikely to force Greece out, but Greece could decide to leave if it could no longer stomach the draconian spending cuts it is being forced to make to bring its deficit under control.”
Perhaps Greece and the other three nations will want to stay in the EU, but what about Germany? According to The Wall Street Journal article, “To be sure, nobody was predicting any such exit is likely, certainly not in the short term. But if [the] Germans feel they got a bad deal in swapping their low-inflation Deutsch mark for an arrangement that forces them periodically to transfer enormous sums of money to southern Europe, then that shouldn’t be ignored.”
An anonymous participant in the recent Centre for European Reform conference in London pointed out that Germany’s exporters have been the big winners since the euro is currently weaker than would have been the mark.
From a numismatic viewpoint, one big plus for Germany should it continue to remain in the EU currency union is Germany’s significantly higher seigniorage profit when Germany uses euros rather than marks, that is, the difference between the cost of producing euro coins and bank notes and their face value.
Germany can issue bonds more cheaply in euros than it can in marks, while its exports continue to benefit from the weaker euro.
Greece doesn’t have to turn to Germany for bailout money. The International Monetary Fund is a viable option, although all indications at the time this article was being written were that neither the IMF nor Germany was pleased with such a prospect.
There have been periodic currency unions in Europe since the time of the Attic drachm in ancient Greece. As the EU currency union heads toward its 10th anniversary the prospects for its near future continuance is still in question.
|
|
| |
Vallarta Weddings
Tell a Friend
Site Map
Print this Page
Email Us