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Thread: Why the EURO was a bad idea.

  1. #1
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    Jan 2009
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    Default Why the EURO was a bad idea.

    1. One interest rate cannot be suitable for everyone

    Quite simply if there is a single currency there must also be a single interest rate set by the European Central Bank. For the single currency to work, this single rate must be suitable for all member states. It is difficult to see how a single rate could possibly be suitable for all of the economies in all foreseeable situations. Take for example Germany and Ireland in 2001. The German economy is on the brink of recession while the Irish economy is booming. The Germans would ideally like a low rate while the Irish needed a higher rate. The compromise rate is not suitable for either Ireland or Germany. This shows that in the long term the result is painful for both countries as both countries have an unsuitable interest rate. One size cannot fit all!

    2. It is irreversible

    The single currency experiment has been designed to be irreversible. If a country feels that it is not in their interests to remain in the single currency there is no mechanism for it to leave. This feature alone makes the single currency an unattractive prospect. [2010 Update] Take for example Portugal, Ireland, Spain and especially Greece have been struggling with huge budget deficits. If the other member states do not bail them out it is inevitable that the financial tensions will be so great that Greece will have to leave the Euro. But the founding fathers quite arrogantly did not build a lifeboat into the Titanic Euro experiment. There is no mechanism set out for leaving the Euro - for example what happens to Greece's share of ECM gold? Wars have started over lesser issues.

    3. It will lead to tax harmonisation

    It is not that commonly known but UK citizens pay less tax than anyone else in Europe. Although denied by many, it is clear that continental Europe will not allow Britain to have a different tax regime as it would give Britain an ‘unfair advantage’. It would also be difficult to image that Eurozone interest rates can be managed effectively by the European Central Bank if the tax policies (fiscal policies) are different throughout Europe. It is inevitable that the Eurozone countries will eventually move substantially towards tax harmonisation. Continental Europe has a history of high taxation; so it’s also certain that ‘tax harmonisation’ is another way of saying that British taxes would go up.

    4. Loss of control in managing our own affairs

    If the UK were to adopt the Euro it would be handing over control of the economics of this country to a group of people who are unelected by the UK population. This seems wrong. It also seems inevitable that once the EU started controlling the UK economy it will want to control other aspects of government – what about taxes, the legal system, the armed forces…..

    5. It is protectionist in nature

    When asked about why Britain should join the Euro some Euro-fans state that we cannot afford to be outside of the Euro. Since we already have free trade with the Eurozone, the implication is that Europe will form a trading block that will block or tax our exports. Apart from being illegal under international law and GATT, it is extremely unlikely that the Eurozone would actually stifle trading link with the UK as they have more to lose than we do. That aside, one has to acknowledge that trading blocks are a thing of the past. They are an old fashioned 1950s trick used to protect industries that suffer from inefficiencies and lethargy. Britain shouldn’t be pinning it’s hopes on such a backward looking regime; Britain should be looking forward and forging new trading links with the Americas and Asian continents.

    6. Economic ’shocks’ will have different effects across the Eurozone

    Many people are saying that the Eurozone will finally start to really work “when the economic indicators of the constituent nations converge”. This type of comment shows a shallow understanding of what is important. What really needs to happen is not only convergence of the economies but also convergence of how the economies react to changes. For example in Germany home ownership is much lower than in the UK. This means that if there was an increase in interest rates in both the UK and Germany, the slowdown effect would be greater for the UK as more people have floating rate mortgages. Likewise in business, suppose there was another oil crisis. The types of industry varies from country to country. A country that is dependent upon heavy industry would most likely be hit harder than one which is predominantly service based. In the past interest rate changes could compensate for they discrepancies.

    7. It is undemocratic

    The whole Europe and Euro project is undemocratic at many different levels. Take for example Britain. There was a referendum in 1974 asking the British people whether or not they wanted to be part of the Common Market. Since then the British people have not been given the opportunity to vote on further European integration since all major parties have taken broadly the same position.

    It has been mooted that Tony Blair will not call a referendum on Europe before such a time as he thinks most of the electorate will vote in favour of joining the Eurozone. If this is the case then he is acting undemocratically – he should state the date for a referendum and see what the people decide.

    At another level, the whole of the EU is fundamentally undemocratic as the EU commissioners are appointed and not elected. Clearly, as the EU takes shape with a diverse population of over 270 million people, the value of a single vote is going to diminish. It will not be long before countries are told that policy and decisions have been formulated ‘for the good of Europe’, despite being clearly not in the interests of a particular country.

    8. Why team up with one of the slowest growing areas in the World?

    Using today’s technologies of telecommunications and the internet it is just as easy to communicate and trade with people on the other side of globe as it is to do deals in the next city. So just because the countries of Continental Europe are Britain’s geographical neighbours is not a good enough reason to link up with them. There is no reason why Britain cannot create free trade links with any country!

    9. Britain would do better outside the Eurozone

    Britain would be in an excellent position outside the Eurozone. At the moment we can freely trade with the Eurozone and that is unlikely to change. We would be in a position to establish further free-trade agreements with the Americas and Asia. Britain would flourish as a bastion of free trade, while France, Germany et al languish at ‘the heart of Europe’!

    10. It will lead to war in Europe

    The year is 2010, three years after the creation of the United States of Europe and Tony Blair is the first President. The European economy, as a whole, is doing reasonably well. However, the people to the South, the country that was called Spain, still have high unemployment (19%) and their standard of living has not increased at the same rate as the rest of Euroland. They have been in recession for the last three years and public confidence is at rock bottom. The local government for the area has protested to Brussels but the official line is that ‘the European economy as a whole is at last starting to show signs of economic grow’. Before the local elections in the State of Spain the people feel isolated and frustrated. The newly formed Spanish Independent Nationalist Party (SIN) promises the people the return of their borders and a government that will fight for the interests of Spain and Spain alone. They win a landslide victory, capturing 63% of the vote. SIN approaches Brussels with a proposal to re-establish the old borders by 2012. The proposal is immediately rejected by the European Government. President Blair says that, “it would not be for the good of Europe”. The people start to protest on the streets of Madrid and Barcelona. The ruling Government of Europe is nervous about these “right wing extremists” and the civil unrest that they have created. As a temporary step they send in the European Army (EA) as a “peace keeping force”. The local Spanish population resents such a move and open hostility breaks out on the streets of Madrid……

    Is the scenario really so absurd?

  2. #2
    Join Date
    Apr 2009
    My Reputation Points: 390 / Power: 8

    Default Re: Why the EURO was a bad idea.

    the euro was a idealistic adventure

    in reality it will NEVER work unless countries are prepared to give up its soverignity... or prepared to bale out its neighbours

    what a mess!
    Last edited by tua lam pah; 06-05-2010 at 04:35 AM. Reason: wrong spelling
    fucking foreigners, come to our country and fuck with us?....i am the 40%, lets see who fuck who!

  3. #3
    Join Date
    Aug 2008
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    Default Re: Why the EURO was a bad idea.

    If Greece is not a member state of the European Union, she could resort to printing the Drachma like what the US is doing.

  4. #4
    Join Date
    May 2009
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    Default Re: Why the EURO was a bad idea.

    Exactly! That is why Greece should call the dare and ask EU for cheap interest free loan with debt forgiveness if they remain in Euro. Or else they should just get out of Euro all together.

    If they sign on to ECB /IMF rules Greece will die a slow death as the economy will stall due to the budget cuts. Just imagine Gov cutting spending during recession. 2 years down the road, unemployment will hit 30% and you will have a bloody riot.

    Greece needs $145B (more likely $200B by the time it is al over). At 5% interest (rate mentioned) that is $7.3B in hard currency going overseas just for interest. Their annual Gov revenues is about $80B. And that is not enough because they are running a 13% budget deficit. So in effect interest alone will be about 10% of the budget. How about payment of principle?? So just servicing this debt could come to 15% of their budget. This measn to run no deficits, they need to reduce spending 13% + cut another 15% to pay for the ECB/IMF loan. Wah almost 30% cut. Not possible lah.

    Go back to drachmas and inflate your way out of debt. Then with cheap drachmas, suddenly you have hordes of tourist bringing in forex and cruise the Greeck islands.

    Greeck should call the bluff because if Greece exits Euro then that might be beginning of end for Euro. But the leaders would be idiots to sign on to the loans under such terms. They could still remain member state of EU but just not join the Euro - just like the UK.

    Quote Originally Posted by Merl Haggard View Post
    If Greece is not a member state of the European Union, she could resort to printing the Drachma like what the US is doing.

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