Whither%20the%20Euro?

1
Whither the Euro?

• A discussion about why the Euro must work and why
  it will not work (as it is today)
• Andrew White
• An Englishman living in Atlanta

2
Agenda

• Introduction / Frame of Reference
• Why the Euro needs to work
• Why the Euro will not work
• How should it work

3
Introduction

• Andrew White BA Hons (Economics)
• Lived in US 3.5 years
• Watching from afar
• Scared of what might be left when I return..if.

4
Why the Euro has to work...

• Natural Evolution
• Historical Direction
• Winston Churchills United States of Europe
• Required for Success in a Global Economy
• Power Bloc versus US and ASIA
• Afraid of being third, or worse...

5
What if the Euro doesnt work?

• Subservient to Global Cycles
• Interest rates no longer a national boundary
• Lack of Global Influence
• Loss of opportunity to rationalize resource
  allocation at a supra and super national level

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What is the Euro?

• Single Currency
• Businesses already use one Ecu
• Eliminate currency-based loss between nation
  states
• Part of an
• Economic Phenomenon
• Political Phenomenon

7
What is the Process?

• Maastricht Treaty 1992
• Treaty of Rome
• Qualificationor not
• UK, France, Finland, and Luxembourg
• Austria, Belgium, Germany, Ireland, Netherlands,
  Portugal, and Spain
• Euro launched January 1 1999
• Exchange Rates to be fixed
• ECB sets interest rates

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Why will the Euro go wrong?

• Soft
• Lack of public support
• Lack of political reconciliation
• Hard
• Exchange rates are rather useful things
• All previous examples of fixed exchange rate
  systems have failed
• Bretton Woods Gold Standard Snake EMU
  (Sterling and Lira) Round One

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Soft

• Lack of Public Support
• Legislatures not ratified with own public
• UK and Denmark (No and change of leadership)
• Germany (No to DM loss)
• Insufficient awareness of the issues
• Lack of Political Reconciliation
• April 98 saw the Commission sue UK and Germany
  and 6 other states for bilateral trade agreements
  with US

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Soft

• Lack of Political Reconciliation
• Foreign policy examples
• GATT US/Libya Iraq War Argentina/UK
• Oh what a happy family..
• Wim Duisengerg and Calude Trichet (Jacques
  Chirac, 4 of 8 year term), May 1998
• Unanswered questions...

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Soft Unanswered Questions

• Sovereignty
• As the Parliament is to the People so should the
  European Parliament be?
• But what about the Commission?
• Parliament
• Policy
• Who sets it and where is the national and
  super-national line drawn?
• ECB
• Who votes here?

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Hard

• Exchange rates are rather useful things
• When in an economic down-cycle it is far easier
  for a country to devalue a currency than to put
  people out of work
• UK political and economic strategy 1945-1979
  Devaluation 1949 Convertibility of Sterling
• Most recent was Labour Policy pre-Monetarist
  experiment by Margaret Thatcher 1979
• Countries have to give up this optionand ask for
  money instead from the ECB
• What about Interest Rates...

13
Hard

• All previous examples of fixed exchange rate
  systems have failed
• Bretton Woods and Gold Standard - WW II and Post
  War
• Snake ROBOT
• EMU (Sterling and Lira)

14
Hard

• A Fudge for Qualification?
• Economic guidelines and goals laid down in 1992
• Based on economic convergence
• Deadline came and Germany and Italy failed
• German economic advisors did not want Italy in
  EMU anyway...

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The Real Issue

• Timetable to EMU was drawn up by politicians with
  economic input - should have been the other way
  around
• Many politicians were focused on re-election
  Khol.
• Political considerations outweigh economic at
  every point
• Qualification Election to key posts Membership

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The European Thing

• Italy - economy broke
• Profligate social services corrupt and
  corruptible legislature
• Germany - not so solid as a rock
• Trying to emulate UK labour practices
• France - torn between mortal enemy and
  enmitynever did like the UK anyway
• UK - Want to be USAb

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EMU - How to make it work

• Open debate of the real issues
• Get the people to buy-in
• Be prepared that some my buy-out
• Integrate Political Union with Monetary Union or
  loosen penalty (common currency rather than
  single currency)
• Publish rules and regulations
• European-wide elections throughout

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EMU

• E - entirely
• M - motivated
• U - underlings
• Thank You!