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The Euro Is a Big Success - No Kidding --- Greg Palast


World  (tags: conflict, corruption, economy, europe, finance, government, humanrights, politics, society )

Kit
- 906 days ago - gregpalast.com
The idea that the euro has "failed" is dangerously naive. The euro is doing exactly what its progenitor - and the wealthy 1%-ers who adopted it - predicted and planned for it to do.



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Kit B. (276)
Tuesday June 26, 2012, 10:38 am

The idea that the euro has "failed" is dangerously naive. The euro is doing exactly what its progenitor – and the wealthy 1%-ers who adopted it – predicted and planned for it to do.

That progenitor is former University of Chicago economist Robert Mundell. The architect of "supply-side economics" is now a professor at Columbia University, but I knew him through his connection to my Chicago professor, Milton Friedman, back before Mundell's research on currencies and exchange rates had produced the blueprint for European monetary union and a common European currency.

Mundell, then, was more concerned with his bathroom arrangements. Professor Mundell, who has both a Nobel Prize and an ancient villa in Tuscany, told me, incensed:

"They won't even let me have a toilet. They've got rules that tell me I can't have a toilet in this room! Can you imagine?"
As it happens, I can't. But I don't have an Italian villa, so I can't imagine the frustrations of bylaws governing commode placement.

But Mundell, a can-do Canadian-American, intended to do something about it: come up with a weapon that would blow away government rules and labor regulations. (He really hated the union plumbers who charged a bundle to move his throne.)
"It's very hard to fire workers in Europe," he complained. His answer: the euro.

The euro would really do its work when crises hit, Mundell explained. Removing a government's control over currency would prevent nasty little elected officials from using Keynesian monetary and fiscal juice to pull a nation out of recession.

"It puts monetary policy out of the reach of politicians," he said. "[And] without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business.

He cited labor laws, environmental regulations and, of course, taxes. All would be flushed away by the euro. Democracy would not be allowed to interfere with the marketplace – or the plumbing.

As another Nobelist, Paul Krugman, notes, the creation of the eurozone violated the basic economic rule known as "optimum currency area". This was a rule devised by Bob Mundell

That doesn't bother Mundell. For him, the euro wasn't about turning Europe into a powerful, unified economic unit. It was about Reagan and Thatcher.

"Ronald Reagan would not have been elected president without Mundell's influence," once wrote Jude Wanniski in the Wall Street Journal. The supply-side economics pioneered by Mundell became the theoretical template for Reaganomics – or as George Bush the Elder called it, "voodoo economics": the magical belief in free-market nostrums that also inspired the policies of Mrs. Thatcher.

Mundell explained to me that, in fact, the euro is of a piece with Reaganomics:

"Monetary discipline forces fiscal discipline on the politicians as well."

And when crises arise, economically disarmed nations have little to do but wipe away government regulations wholesale, privatize state industries en masse, slash taxes and send the European welfare state down the drain.

Thus, we see that (unelected) Prime Minister Mario Monti is demanding labor law "reform" in Italy to make it easier for employers like Mundell to fire those Tuscan plumbers. Mario Draghi, the (unelected) head of the European Central Bank, is calling for "structural reforms" – a euphemism for worker-crushing schemes. They cite the nebulous theory that this "internal devaluation" of each nation will make them all more competitive.
****
By Greg Palast | The Guardian USA


---Full article at Visit Site.
 

Jason S. (57)
Tuesday June 26, 2012, 11:10 am
thanks
 

Janelle Wong (71)
Tuesday June 26, 2012, 11:45 am
The Euro: As Good (and Bad) as Gold

The gold standard forced austerity and helped cause the Depression. Today's problem is the hard-money elites of the euro zone

Like the gold standard of a century ago, the euro has promoted free trade and investment across borders. The 12-year-old unified currency also shares the gold standard’s greatest flaw: the lack of an escape hatch. If a country runs chronic deficits, it can’t regain competitiveness through the market’s depreciation of its currency. Under the gold standard, exchange rates were fixed, which is to say the escape hatch of depreciation was locked. Under the euro, exchange rates no longer even exist. The escape hatch has been locked, welded shut, and sat on by the leaders of the Continent’s most powerful economies.

What does a country do when it can’t depreciate its currency to lower its prices? Now, as in the 1930s, the only alternative is an internal devaluation, which means cutting wages and other costs, including government benefits. That’s a painful process that creates enormous social stress. In the 1920s and ’30s the impoverishment of the working class led to the rise of Hitler and Mussolini. Even if fascism is averted, punitive austerity can lead to a downward spiral as trade and financing dry up, deflation sets in, debts loom larger, and one country after another gets sucked downward.

Once the euro symbolized common purpose and uplift. But to quote the Depression-era lyricist Lorenz Hart, “When love congeals/It soon reveals/The faint aroma of performing seals.” The seals of 2011 are the hard-money types in Germany, Finland, and other points north who insist that the Greeks, the Italians—and maybe soon the French—must be held to account for their financial transgressions. These calls for fiscal responsibility, and the anger behind them, make emotional sense. But today’s austerity tough guys sound alarmingly like Andrew Mellon, President Herbert Hoover’s Treasury Secretary, who, according to Hoover’s memoirs, said the only way to get the U.S. economy back on track in the 1930s was to “liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate … purge the rottenness out of the system.”

Purging the rottenness nearly killed the patient. In an increasingly relevant 2000 essay called “The Gold Standard and the Great Depression” in Contemporary European History, American economists Barry Eichengreen and Peter Temin wrote that elites were befuddled by a gold standard mentality that “sharply restricted the range of actions they were willing to contemplate.” They added: “The result of this cultural condition was to transform a run-of-the-mill economic contraction into a Great Depression that changed the course of history.”

A gold standard doesn’t have to be deflationary. From the 1870s until World War I, the gold standard more or less worked under the auspices of the Bank of England: Countries that imported more than they exported were forced to make up the difference by shipping gold to their trading partners. Because gold was the ultimate storehouse of value, countries feared losing too much of it. To stanch the outflow of gold, central banks would raise interest rates to push down domestic spending and prices. Meanwhile, the countries that imported gold would see domestic prices rise, which would make them more receptive to cheaper imports and shrink their surpluses. There was discipline and a natural balance.

World War I spoiled the equilibrium. War spending caused inflation, forcing countries to suspend convertibility of their currencies into gold. After the war most countries struggled back onto the gold standard (though not Germany, which suffered hyperinflation). Returning to the old exchange rates required reversing the wartime inflation—namely, imposing punishing deflation. Democracies weren’t as good at imposing austerity as autocracies had been. The rise of labor unions and the introduction of minimum-wage laws made it harder for employers to cut pay, so they cut workers instead.

Creditor countries such as the U.S. didn’t play fair in the 1930s. They bought tons of gold to take it off the market so it wouldn’t affect their money supply or interest rates. By hoarding, they left too little gold for the debtor countries and worsened their deflation.

Eventually all countries were forced off gold by financial crises and popular upheavals. Britain abandoned gold in 1931 and fared best economically. Die-hard France, which stuck with gold until 1936, did worst. Even with prices plunging, the elites fretted about the threat of inflation. Ralph Hawtrey, a British Treasury official, likened that to crying “‘Fire, fire’ in Noah’s flood.”

Policymakers have not fully absorbed the lessons of the Depression. Monetary and fiscal policy are better but “not enough better,” Eichengreen says. There’s an understanding that big banks can’t be allowed to fail, but “one might say, Aren’t the biggest banks too big to save, especially in Europe?”

The most unfortunate difference between then and now is that the euro, unlike the gold standard, is a raccoon trap: Its designers deliberately left out an exit procedure. That means you can get in, but you can’t get out without leaving a part of yourself behind. Eichengreen points out that Britain was growing again by the end of 1932, just over a year after abandoning gold under duress. Today a country—say, Greece—that quit the euro would take far longer to right itself. That’s because unlike Britain, to get relief Greece would have to default on its euro-denominated debts and damage its credit rating. “The Greek government,” Eichengreen says, “will be hard-pressed to find funds to recapitalize the banking system. Greek companies won’t be able to get credit lines. The new Greek government is going to have to print money hand over fist. At some point they would be able to push down the drachma and become more competitive. But the balance is different now.”

That’s why Eichengreen thinks leaving the euro zone should be a last resort. The better option, he says, is to make the euro work the way the gold standard worked in its best years. Surplus countries should equally share the cost of adjustment with deficit countries. He favors transforming the underfunded European Financial Stability Facility from an emergency fund into a bank. He would have the facility borrow from the European Central Bank so it can make unlimited loans to countries such as Greece and Italy—on the condition, of course, that the countries demonstrate they’re on a path to fixing their competitiveness problems. Those countries don’t have a chance to fix things without the breathing room afforded by official lending, Eichengreen says.

Europe’s fatal mistake was to push ahead with monetary union without having achieved fiscal union. Limits on national budget deficits were flouted with impunity. Now creditor nations are dragging their heels on aid and stimulus because they don’t want profligate debtors to play them for fools. In an echo of the gold-hoarding mentality of the Depression, Germans have reacted angrily to the suggestion that the International Monetary Fund might tap Germany’s gold reserves to bolster the EFSF. The mood is angry and confused. German Chancellor Angela Merkel was correct on Nov. 14 in Leipzig when she described the debt crisis as “maybe Europe’s most difficult hours since World War II.”

The answer, as Merkel told her Christian Democratic Union colleagues, is “more Europe and not less Europe.” If Germany can get the “more Europe” it wants—i.e., tough, enforceable budget rules—it might countenance more help for weaker nations, even if for now Merkel is still rejecting open-ended ECB lending or jointly issued euro bonds.

There are signs that creditor nations understand their responsibilities. In October, European Union finance ministers agreed on a “six pack” of economic-governance rules that in theory should penalize countries with excessive surpluses, not just those with excessive deficits. Merkel said on Nov. 16 that “we are prepared to give up a little bit of national sovereignty” to preserve the euro.
Something needs to happen fast. As the debt crisis has come to a head, economists surveyed by Bloomberg have sharply lowered their forecasts for European growth in 2012. Output may well be shrinking in the current quarter. The risk is that the worsening woes will make the key players less flexible. In the 1930s, Eichengreen and Temin wrote, “The masochistic strand of the gold-standard mentality grew stronger as the crisis built.” Now would be an excellent time to replace masochism with common sense.

Coy is Bloomberg Businessweek's Economics editor.
 

Michael T. (82)
Tuesday June 26, 2012, 3:02 pm
@Janelle wRong posts an article.

Ms. wRong, if you want to put an article up on Care2 why don't you post the article yourself and allow people to comment on it? See how many people you draw, or don't.

This kind of post makes most people's eyes glaze over. Why don't you just put what you are trying to say in your own words and cite the article to back up your position?

I guess you see yourself as preaching and proselytizing your own version of the truth. It um. . . . doesn't have the punch, ever that you seem to want to believe it does. I do know that you have mastered the ability to cut and paste and I'd give you a green star for it if I thought for a moment that that was a worthy attribute on this forum.
 

Janelle Wong (71)
Tuesday June 26, 2012, 4:55 pm
If you don't like it, don't read it Micky or do you have a reading comprehension problem?
 

Michael T. (82)
Tuesday June 26, 2012, 5:05 pm
Apparently you can't comprehend my post Ms. wRong. Why am I not surprised?
 

Janelle Wong (71)
Tuesday June 26, 2012, 6:32 pm
Say Mickey, what do you think if contributor posts had a rating system like "approved for the slow-minded"?
 

Michael T. (82)
Tuesday June 26, 2012, 6:36 pm
Well Ms. wRong you'd be the regular weekly poster boy for the award then wouldn't you? You really want to ascribe for that kind of status? Have at it.
 

Kit B. (276)
Tuesday June 26, 2012, 6:37 pm

Sending a Green Star is a simple way to say "Thank you"
You cannot currently send a star to Michael because you have done so within the last week.
 

Kit B. (276)
Tuesday June 26, 2012, 6:42 pm

From the article:

Mundell, then, was more concerned with his bathroom arrangements. Professor Mundell, who has both a Nobel Prize and an ancient villa in Tuscany, told me, incensed:

"They won't even let me have a toilet. They've got rules that tell me I can't have a toilet in this room! Can you imagine?"
As it happens, I can't. But I don't have an Italian villa, so I can't imagine the frustrations of bylaws governing commode placement.

And...The euro would really do its work when crises hit, Mundell explained. Removing a government's control over currency would prevent nasty little elected officials from using Keynesian monetary and fiscal juice to pull a nation out of recession.

"It puts monetary policy out of the reach of politicians," he said. "[And] without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business.

He cited labor laws, environmental regulations and, of course, taxes. All would be flushed away by the euro. Democracy would not be allowed to interfere with the marketplace – or the plumbing.
****

We can't begin to know all the things going on just beneath the surface, who has arranged what and for what ultimate purpose. It's clear that the European Union is not functioning well for the majority of people or states/countries involved.
 

Michael T. (82)
Tuesday June 26, 2012, 6:54 pm
@Kit writes "[And] without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business. He cited labor laws, environmental regulations and, of course, taxes. All would be flushed away by the euro. Democracy would not be allowed to interfere with the marketplace – or the plumbing.

Right, and with all that, lower, lower, and ever lowering wages.
 

Veronique L. (215)
Wednesday June 27, 2012, 2:38 am
Thank you for thiss interesting article!
 

Past Member (0)
Wednesday June 27, 2012, 3:48 am
I guess everyone can have an opinion.
 

. (0)
Wednesday June 27, 2012, 5:44 am
An interesting article and subsequent posts, thank you. I live in England, not part of the Eurozone but part of the EU, where the immediate future of our own country is deeply tied to the future of the Euro (besides at its' closest England is not much more than 30 miles from the Eurozone (France))..
The BBC News website posts some really interesting articles on the subject of the Euro and the Eurozone, one of the more recent articles ponders the idea of a 'sliimmed down' Euro - personally I think that this is the option most likely to succeed. Here's a link for anyone who is interested:
/www.bbc.co.uk/news/magazine-18578400
 

Janelle Wong (71)
Wednesday June 27, 2012, 6:15 am
Poor Mickey, he just can't manage to comprende.
 

Michael T. (82)
Wednesday June 27, 2012, 7:39 am
You know, I don’t usually have a soft spot for ad hominem attacks, but Miz wRong, you make it so easy, so tempting,

and so necessary.

So poster boy how goes it today? Go on, post some more useless articles to show us how good you are at cutting and pasting . . . . again. You know you wanna.
 

Kit B. (276)
Wednesday June 27, 2012, 9:35 am

English - Comprehend - to understand the nature or meaning of; grasp with the mind; perceive: He did not comprehend the significance of the ambassador's remark.
2. to take in or embrace; include; comprise: The course will comprehend all facets of Japanese culture.

French - Comprendre - to understand

Spanish - comprender - to understand

German - begreifen - to understand

Chose a language or continue to appear as the fool.
 

Kit B. (276)
Wednesday June 27, 2012, 9:39 am

One of the few remaining investigative journalist of our time, Greg Palast digs deeply into a story, without concern for a right or left slant. His research is in depth, he travels to the story and does not wait for a news wire to bring it to him. No one has to like his facts, they can blather on and rail against the reality, but facts don't have sides, or opinions, they are simply the facts.
 

John B. (122)
Wednesday June 27, 2012, 1:23 pm
Thanks Kit for the posting such an informative article. Read and noted.
 

Aletta Kraan (146)
Wednesday June 27, 2012, 3:26 pm
Noted , thanks , hope he is right !
 

Yvonne White (233)
Wednesday June 27, 2012, 7:23 pm
What I would like to know, and I suppose there is no simple answer, is - What is the Real Currency? Obviously our Petro Dollars are not backed by gold any more, and the Euros are?? Every country has a finite amount of resources (except, maybe China, which seems to have un-ending manpower even with population control).. so IF we ALL declared the Uber-banks un-patriotic & severed ties with the Central Banking Pirates, and each nation reset their outside debt to 0, took back control of their own money..I know it's a pipe dream, but What IF we dumped the 1 %er Control of entire nations????
 
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