The Euro was never an economic instrument but a political one. It never made any sense economically, a point made by economists on both side of the aisle at the time. The British wisely made the decision to not join it. The IMF basically said the Euro as it is configured is not working. Matt O’Brien says that The euro is a disaster even for the countries that do everything right.
The euro might be worse for you than bankruptcy.
That, at least, has been the case for Finland and the Netherlands, which have actually grown less than Iceland has since 2007. Iceland, you might recall, went bankrupt in 2008.
Now, it’s true that Finland and the Netherlands have had their fair share of economic problems, but those should have been manageable. Neither country is a basket case, and both have done what they were supposed to do. In other words, they’ve followed the rules, and the results have still been a catastrophe. That’s because the euro itself is. Or, if you want to be polite, the common currency is “imperfect, and being imperfect is fragile, vulnerable, and doesn’t deliver all the benefits it could.” That was European Central Bank chief Mario Draghi’s verdict on Thursday.
He gives the example of Iceland that went bankrupt in 2008 but now has greater economic growth than both Finland and the Netherlands both of whom played by the rules.
But despite all this, Iceland has still managed to outperform Finland and the Netherlands. How is that possible? Well, it doesn’t have the euro. It has its own currency, the krona. And as much as it hurt Iceland’s people to lose 60 percent of their purchasing power on imported goods when the krona fell that much, it helped Iceland’s economy by making their goods more competitive overseas. That was enough to keep what could have been a depression from turning into anything other than a bad recession.
The euro, though, does the opposite. Countries can’t devalue their currencies or cut interest rates or even spend more when they get into trouble, and so they stay in trouble. All they can do is cut wages, cut spending, and then cut wages some more as penance for whatever economic transgressions they may or may not have committed. The euro straitjacket, in other words, turns ordinary problems into extraordinary ones (Finland) and extraordinary problems into historic ones (Greece). And that can happen whether or not you follow the rules.
You can’t have a common currency without a common fiscal union which the Euro does not provide.