När och hur spricker EMU?

"Risken är att EU plötsligt ger upp andan"
Europeiska unionen är döende, skrev Charles Kupchan i en tankeväckande krönika i söndagens Washington Post.
Det finns tyvärr en del som tyder på att han har rätt.
Annika Ström Melin, Kolumn DN 1 september 2010

Det finns egentligen inte någon Eurokris.
Tvärtom tvingar euron fram reformer som sedan länge varit nödvändiga, vilket alltid har varit ett av de starkaste argumenten för en gemensam valuta.
Stefan Fölster, Magasinet Neo 2010-06-15

The intra-eurozone imbalances will not only persist, but probably increase.
This will make the economic adjustment for Spain, Portugal or Greece even more difficult than it already is.
Those persistent imbalances, much more than the build-up of debt, are my deep cause of concern about the long-term health of the eurozone.
Wolfgang Münchau, FT August 29 2010

The improvement in Germany’s economic growth is driven not by productivity gains but by real devaluation.

As Raghuram Rajan of the University of Chicago Booth School of Business and former chief economist of the International Monetary Fund notes in a thought-provoking new book, the underlying “fault lines” are still with us.
This is a threat to survival of the eurozone and even the open world economy.
Martin Wolf July 13 2010

The new Slovak government remains opposed to a rescue package for Greece, Prime Minister Iveta Radicova said Monday, after a meeting with European Union Council President Herman van Rompuy.
Wall Street Journal 13 July, 2010

"The position of our minister of finance and also my personal and our political party [position] is as it was before, that we really do not agree," Ms. Radicova said when asked about her view of the Slovak contribution to aid for Greece.

Slovakia stalls €440bn bail-out fund
Slovakia's incoming government is also determined not to pay the country's €800m contribution to a €110bn IMF-eurozone rescue plan that was activated in May for Greece. But this has not prevented disbursement of loans to Athens.
FT July 2 2010

At about €4.4bn, Slovakia's contribution to the fund is relatively small. But the centre-right parties that won its June 12 election and are forming a government campaigned on a platform of no bail-outs.

Staring into the abyss
As the euro-zone crisis spooks governments, opinions are diverging dramatically
about what the union is for
Jean-Claude Juncker, prime minister of Luxembourg, said memorably in 2007:
“We all know what to do, but we don’t know how to get re-elected once we have done it.”

The Economist print July 8th 2010

Europa befinner sig i den värsta situationen sedan andra världskriget,
kanske till och med sedan första världskriget.
Det säger chefen för den Europeiska centralbanken Jean-Claude Trichet
Ekot 16 maj 2010

ECB-chefen Jean-Claude Trichet gör sitt uttalande i en intervju i det kommande numret av den tyska tidskriften Der Spiegel.

Jean-Claude Trichet tells us the world faced a second Lehman crash in the days and hours before EU leaders launched their €720bn defence fund.
If the European Central Bank’s president is correct, we are in trouble.
The EU-IMF package is already unravelling. What will the West do for its next trick?
Ambrose Evans-Pritchard 16 May 2010

The president of Germany's central bank, the Bundesbank, Axel Weber, his Dutch counterpart and the ECB's chief economist, Jürgen Stark, voted against this move. Seldom is there so much dissent within the highest decision-making body for the euro.
Jean-Claude Trichet Spiegel On-line 15/5 2010

For some of us writing at the time of the Eurozone's formation just over a decade ago, the current crisis has been all too predictable.
Other currency unions, we pointed out, had been tried in history and always fallen apart.
Andrew Alexander, Daily Mail 12th February 2010

Europeiska unionen är döende, skrev Charles Kupchan i en tankeväckande krönika i söndagens Washington Post. Nationalismens återkomst kommer att leda till EU:s fall, förklarade han. Det är ingen plötslig eller dramatisk död, utan ett utdraget försvinnande, hävdade Kupchan och fortsatte: Snart kommer vi att vända oss mot andra sidan Atlanten och inse att den europeiska integrationen, som vi under de senaste femtio åren tagit för given, är borta.

Det finns tyvärr en del som tyder på att han har rätt. Viljan att hålla ihop Europa har blivit svagare, både bland ledande politiker och medborgare.

Den senaste Eurobarometern visar vad som har hänt. I undersökningen, som genomfördes i somras, svarar bara 49 procent att medlemskapet är ”något bra”.

Under ytan pågår också en annan utveckling, som inte syns lika väl.
Eurosamarbetet har faktiskt stärkts av den senaste tidens kriser,
brottsbekämpningen har blivit mer gemensam och
en gemensam asyl- och flyktingpolitik håller sakta på att växa fram.
Europas länder fortsätter att växa ihop, även när det inte märks.

Europeiska unionen flämtar, och behöver hjälp för att kunna börja andas igen. Utan politisk vilja att fortsätta samarbetet kan det gå fort. Risken är att EU plötsligt ger upp andan. Medlemsstaternas uppslitande arvsskifte skulle inte bli en trevlig tillställning.

Only a closer union can save the eurozone
I am aware that, at a time of rising nationalism and regionalism throughout the EU, there is no consensus for such sweeping reforms
Wolfgang Münchau, FT, June 27 2010 19:52

At some point the markets will realise that large parts of the German and French banking systems are insolvent, and that they are going to stay insolvent.

You might think that Europe’s policy elites cannot be so stupid as to commit themselves to stress tests without a resolution strategy up their sleeves. But I am afraid they probably are. Europe’s political leaders and their economic advisers are, for the most part, financially illiterate.

Beyond this restructuring, the eurozone will need to commit itself to a full-blown fiscal union and proper political institutions that give binding macroeconomic instructions to member states for budgetary policy, financial policy and structural policies. The public and private sector imbalances are so immense that they are not self-correcting.

There is no point in beating about the bush and issuing polite calls for the creation of independent fiscal councils or other paraphernalia. This is not the time for a debate on second-order reforms.

I am aware that, at a time of rising nationalism and regionalism throughout the EU, there is no consensus for such sweeping reforms.

But that is the choice the EU’s citizens and their political leaders will have to make – a choice between reverting to dysfunctional and, as it transpires, insolvent nation states, or jumping to a political and economic union.

Contrary to general belief, Germany’s eurosceptic professors have not abandoned their legal efforts to block the EU rescues for European banks exposed to Greek debt,
Should they succeed, of course, the eurozone risks disintegration within days, and perhaps hours.
Ambrose Evans-Pritchard July 8th, 2010

Hungary's IMF revolt augurs ill for Greece
"Austerity is extremely hard to sell to electorates.
The risk is that this moves from a wider financial and economic crisis to a European political crisis as governments are punished by voters.
The approval rating for Lithuanian's prime minister has fallen to 7pc."
Ambrose Evans-Pritchard, 19 July 2010

The country /Hungary/ cannot easily devalue to claw its way out of its debt-trap
because 63pc of loans from mortgages, households, and companies are in foreign currencies,
much of it in the ever-soaring Swiss franc.
"A weaker currency will crush households.

Forex lending represents around 91 per cent of the total in Latvia, 87 per cent in Estonia and 72 per cent in Lithuania and over 50 per cent in Hungary, Romania and Bulgaria a senior official at the European Bank for Reconstruction and Development
FT 19/1 2010

The rebellion against the 1930s fiscal and monetary policies of the Euro-complex is gathering pace.
Il Sole has published a letter by 100 Italian economists warning that the austerity strategy imposed by Brussels/Frankfurt risks tipping Europe into a self-feeding downward spiral.
Ambrose Evans-Pritchard, June 16th, 2010

Far from holding the eurozone together, it will cause weaker countries to be catapulted out of EMU.
Others will leave in order to restore sovereign control over their central banks and unemployment policies.
At worst it will blow the EU apart, leading to the very acrimony that the European Project was supposed to prevent.

The current flap over the sustainability of Greece's membership in the European Economic and Monetary Union (EMU) is reminiscent, in many ways, of the events leading up to the collapse of the Bretton Woods system--another ultimately untenable currency regime--which was put into place after World War II and terminated by the break of the dollar's link to gold after August 1971.

For example, Greece should not share a currency with Germany (or have a currency pegged to Germany's) as it has done by joining the EMU, unless it is willing to adopt what are essentially German monetary policies as expressed by the ECB. The only way to avoid this and maintain a shared currency would be for Greek labor to move freely to Germany as pressure for currency depreciation rises, just as California labor can move to Colorado or any other U.S. state under the same circumstances.

Notwithstanding the highly touted Greek rescue package of €45 billion unveiled on April 12 by European governments in conjunction with the IMF, Greece will probably default on its debt sometime within the next year, just as Argentina defaulted on its debt in December 2001 after a decade-long peg to the dollar that suffered from the same flaw as Greek membership in the EMU. The United States and Argentina were not part of an optimal currency area for much of the same reason that Greece and Germany are not.

Comment by Rolf Englund:
I have been reading John Makin for some twenty years I guess, and still become more and mor impressed by him.
June 26, 2008

Markets, and to great extent economic policy, are "held hostage" by forces that are "to a great extent moved by herd behavior" and policy makers will have to take that into account when addressing the issue, he added.

"Complete break-up would have effects that dwarf the post Lehman Brothers collapse," ING analysts wrote in a market research.

As Amartya Sen, the Nobel-laureate, pointed out in the Financial Times ("The diverse ancestry of democracy", June 12 2005), democracy is "government by discussion". Elections are only part of that discussion. A discussion that absorbs an elite of politicians, bureaucrats, intellectuals and interests does occur at the European level. Its house newspaper is the FT. But there is no European-wide discussion that includes the public at large. Nor could there be in an EU with 460m people and 25 countries divided by history, culture, values and, above all, language.
Martin Wolf Financial Times June 15 2005

SPIEGEL: Despite all of these efforts, the central problems with the euro remain. Strong economies belong to the same currency union as weak ones like Greece. Is the euro not doomed to failure?
Thomas Mirow, head of the European Bank of Reconstruction and Development:
There are also big differences between the states in the US.
The question is, to what degree are the states there for each other and if there are effective balancing mechanisms. That was kept from the public for a long time.

Der Spiegel 6 July 2010

The creation of the euro resulted in the disappearance of intra-area exchange rate risk and an expectation of fiscal and macroeconomic convergence among the euro member countries.
This was reflected in a significant narrowing of regional sovereign spreads until very recently.
On the heels of Greece’s fiscal troubles, investors are now re-pricing these risks across the region.
This highlights the need for policymakers to continue to pursue credible fiscal consolidation plans and strengthen economic governance in the euro area.
IMF Global Financial Stability Report, July 7, 2010

In the US, stress test forced weaker institutions to raise capital and turned round sentiment
But politicians in Europe are balking at making public the results of stress tests, because of worries that releasing details of what lies on balance sheets may be counter-productive and create the very crisis that everyone is trying to avoid.
David Oakley, FT June 14 2010

The case against the euro
Travelling between Germany and Spain a disturbing question formed in my mind.
Has the euro been not just bad for some countries but damaged them perhaps for a generation?
Gavin Hewitt, BBC's Europe editor, 11 June 2010

What prompted this thought was my reading of an in-depth analysis of the crisis in the eurozone. It has been put together by the Carnegie Endowment for International Peace. It is called Paradigm Lost - the Euro in Crisis. It features a series of reports by economists such as Uri Dadush, Sergei Aleksashenko, Vera Eidelman and Paola Subacchi.

The focus of the report is the so-called PIIGS - Portugal, Ireland, Italy, Greece and Spain

In Greece, Ireland and Spain credit increased by an average of 155%, but in countries like Germany and the Netherlands, the core, it increased by only 27%.

That is one of the key conclusions of the paper. Since adopting the euro Greece, Ireland, Italy, Portugal and Spain have become increasingly uncompetitive. That and the slowdown in productivity is the heart of the crisis in the eurozone, rather than debt.
Debt is a symptom.

The eurozone’s tragic small-country mindset
One of the most important characteristics of a small open economy is that its own actions have little impact on the rest of the world.
Wolfgang Münchau, FT 13 June 2010

Mr Van Rompuy, like the majority of EU leaders, hails from a small country – in his case, Belgium. When small-country politicians talk about economics, they naturally talk within the framework of a small open economy. One of the most important characteristics of a small open economy is that its own actions have little impact on the rest of the world.

Governments now implement austerity packages without any consideration of the effect on other countries. Austerity started in Greece, spread to Portugal, Spain, Italy and Germany.

The rush to austerity creates a formidable dilemma for France. The strategic alternative is either to accept it or risk a break with Germany, thus reversing more than 25 years of Franco-German monetary and fiscal convergence. It is a deeply serious choice.
Nicolas Sarkozy, the French president, last week criticised the European austerity policies as recessionary. He is right.

The prevailing view in Brussels and Frankfurt is that the growth problem is 100 per cent structural.
I do not deny the presence of structural obstacles to growth, but the EU’s strategy is likely to fail for two reasons.

So far, so good. But here is my question: what is your “plan B”?
I have been fascinated – if appalled – by the pre-Keynesian approach you and the prime minister have taken to the UK’s fiscal challenges.
What Keynes called “the Treasury view” – that fiscal policy has no effect on activity, even in a deep recession – is alive and well in Downing Street.
Martin Wolf, 10 June 10 2010

- Visst beror dagens problem i ekonomin i någon mån på missgrepp i slutet av 80-talet och början av 90-talet.
Men i grunden har Sverige inte hamnat i en stabiliseringspolitisk kris. Underskottet i statsbudgeten beror djupare sett på att vi försöker överbrygga en konjunkturnedgång när det i själva verket handlar om en grundläggande strukturell förändring.
Mats Svegfors 1994-09-10 i SvD

I en ovanligt öppenhjärtig intervju i måndagens Financial Times förklarade EU:s president Herman Van Rompuy att euroområdet var ”på gränsen till ett sammanbrott” i våras.
I motsats till många andra hävdar han också att eurons kris delvis beror på valutasamarbetets konstruktion.
”Euron blev en stark valuta i ett område med små ränteskillnader. Det blev ett slags sömnpiller. Vi var inte medvetna om de underliggande problemen.”
Det är ett anmärkningsvärt uttalande.
Annika Ström Melin, DN 16/6 2010

En rimligare förklaring till krisen är de enskilda medlemsländernas bristande budgetkontroll

När EU:s stats- och regeringschefer samlas för att ha förtroliga samtal om Europas politiska vägval skrivs inte ens protokoll. Herman Van Rompuy leder den minst öppna av EU:s institutioner. Genom intervjuer öppnar han dörren på glänt, men priset för den förändrade maktbalansen i EU är ökat hemlighetsmakeri.

I Grekland beror problemen på underskotten. I Spanien och på Irland på vilda lånepartyn som blev värre av euron. Det går inte att analysera krisen som ”om alla bara hållit ordning och följt reglerna skulle allt vara bra”.

Folkpartiet bryr sig inte om ekonomiska argument.
Folkpartiet vill gå med i euron, helt enkelt eftersom folkpartiet vill gå med i euron.
Katrine Kielos, Aftonbladet 21 maj 2010

In an interview with the Financial Times, Mr Van Rompuy said that the 16-nation bloc had been on the edge of a breakdown last month that could have caused a world crisis. But European leaders now understood that the way forward was to implement politically unpopular but necessary economic reforms, such as opening up labour markets and raising the retirement age, he said.

German and French officials tend not to mention that it was lending by their domestic banks and investors that helped Greece, Spain and others to live so long beyond their means.
Stephanie Flanders, the BBC's economics editor,14 July 2010

The biggest economies in the eurozone are rallying round the big support package agreed in early May, because they think a default by a European government could be bad for everyone. But it's also because they know it would be particularly bad for the French and German banks who are sitting on a large amount of Greek and other sovereign debt.

Globalisation has brought instability to the global economy. Banks and other financial institutions have played a key role in this respect by taking massive risks without pricing them properly. They must not be allowed to emerge from the carnage unscathed.

CDS prices are over 721bp for Greek five-year bonds, Portugal 345bp, Ireland 260bp, Spain 247bp, and Italy 234bp.
CDS spreads are back to where they were right before that fateful summit May 7, when EU leaders met to work out the mother of all rescue packages
Eurointelligence 3 June 2010

The reasons for the return of mistrust are doubts about the package itself, doubts about the future governance of the eurozone, the cacophony of European governments, the persistent criticisms of Axel Weber.

Germany insists that the SPV does not borrow at average eurozone market rates, but at the market rates of the recipient country (which would rendered the whole project ad absurdum).

In its financial stability review, the European Central Bank predicted €195bn in bank writedowns in 2010 and 2011, and warns of dangerous financial contagion as a direct result of the sovereign debt crisis.
Specifically, the ECB warned about “a number of hazardous contagion channels and adverse feed-back loops between financial systems and public finances.”
Eurointelligence 1 june 2010

El Pais spoke of a "perverse spiral" in its editorial.
Fitch has not downgraded Spain for lack of austerity
Spain's unemployment was already 20.5pc even before this latest dose of shock therapy.
There are 4.6m people without work.
Dole payments alone account for half the budget deficit
Ambrose Evans-Pritchard, 30 May 2010

The eurozone’s crisis has blown sky-high the idea that developed countries are 100 per cent safe.
A bank can buy all the Spanish debt (current rating: AA) it likes without having to back it up with a cent of capital
Lex, FT May 27 2010

The possibility of a break-up of the eurozone.
Six months ago such a scenario was unthinkable. The political drive behind the euro was formidable and the possibility of its failure was nil. But discord and lack of solidarity over Greece have damaged the credibility of the bloc’s governance. The chance that the eurozone will break up is tiny but it is no longer zero.
Lex FT 23 May 2010

Then there is the question of whether Greece will – or should – default. Such an event would dwarf any sovereign default since 1983. The two most significant – Russia in 1998 and Argentina in 2001 – amounted to a combined $155bn in defaulted debt, according to Barclays Capital. Greece’s outstanding debt is some $350bn. A default would be massively painful but it remains a viable option for Athens.

The euro, in its current form, is finished.
The game is up for a monetary union that was meant to bolt together work-and-save citizens in northern Europe with the party animals of Club Med.
No amount of pit props from Berlin can save the euro Mk I from collapsing under the weight of its structural dysfunctionality.
You cannot run indefinitely a single currency with one interest rate for 16 economies, when there are such huge fiscal disparities.
Jeff Randall, Daily Telegraph 20 May 2010

By announcing a ban on the activities of short-sellers she /Angela Merkel/ is hoping her decoy will avert German attention from the small print of Berlin's support for Greece, which talks of developing processes for "an orderly state insolvency". This sounds ominously like a softening-up process for a form of default.

Merkel and Cameron disagree on EU treaty change
"wouldn't agree to any treaty that drew us further into the euro area"
EU Observer 21/5 2010

UK Prime Minister David Cameron on Friday (21 May) rejected the the idea of a new EU treaty change to accommodate German chancellor Angela Merkel's vision of stronger economic co-ordination in the EU.

"There is no question of agreeing to a treaty that transfers powers from Westminster to Brussels. Britain is obviously not in the eurozone and is not going to be joining, so it wouldn't agree to any treaty that drew us further into the euro area," Mr Cameron said on Friday (21 May) during a joint press conference with Ms Merkel in Berlin.

Gnisslet mellan Tyskland och övriga euroländer ger underlag för spekulationer om att tyskarna skulle vara på väg att tröttna på euron och i stället söka sig tillbaka mot gamla D-marken.
Förmodligen rör det sig om helt ogrundade gissningar, men de öppnar ändå för ett dystert scenario där valutaunionen spricker och Europa hotas av ekonomiskt kaos.
Johan Schück, DN 2010-05-21

Här finns historiska spår som förskräcker, från 1930-talets konkurrensdevalveringar som fördjupade depressionen och banade väg för ännu större katastrofer.

Ingen vill ta ansvaret för att något liknande ska hända. Det är ett avgörande skäl till att Tyskland och de andra euroländerna kan väntas ta sig samman och söka lösningar som räddar valutaunionen.

Det räcker inte att återupprätta EU:s stabilitets- och tillväxtpakt. Om man vill verka förebyggande, så behövs även kontroll över euroländernas ekonomiska utveckling i stort. Annars går det inte att förhindra fastighetsbubblor såsom i Irland och Spanien eller väldiga underskott mot omvärlden såsom i dag i Portugal.

Might the eurozone break up? Until recently I would have answered: absolutely no.
This is not because I thought the currency union a wise idea. But the commitment to make it work seemed fundamental to the policies of Europe’s principal powers.
Martin Wolf FT 18 May 2010

Is that still true? I do not know.
So what has gone wrong? What is happening now? What happens next? What does it mean for both the eurozone and the world economy?

It was no accident that the eurozone created a special purpose vehicle to manage this bail-out.
It is not just the name that reminds us of those notorious financial structures that brought us the subprime crisis.
Wolfgang Münchau, FT May 23 2010

The credit team at Credit Suisse pursued this question to the bitter end. Before the start of monetary union in 1999, EU countries borrowed at different interest rates, the spreads reflecting expectations about future exchange rate realignments and default probabilities.

With the arrival of the euro, spreads almost disappeared. Just as subprime CDOs enjoyed triple A ratings because of the way they were constructed, the entire eurozone enjoyed a triple A rating on the back of Germany’s.

This produced a massive credit boom in Spain and Portugal, and those credits were recycled through the eurozone banking system. Bankers in Düsseldorf, Munich and Paris bought those Spanish mortgage obligations and Greek sovereign bonds, proudly adding them to their fine collections of subprime CDOs.

The eurozone came extremely close to a breakdown 10 days ago.
What is completely missing in Brussels – and even more so in Berlin – is an understanding of the urgency of the situation.
Wolfgang Münchau, FT May 16 2010

While fiscal profligacy was the root cause of the problems in Greece, it is not the root cause of the problems in Portugal and Spain - a defunct labour market and massive indebtedness of the private sector.
But instead of solving those structural problems, the two countries last week responded with a fiscal tightening.

What makes the economic problem in the Iberian peninsula so difficult is the simultaneous need to reduce debt and improve competitiveness.

Spain cannot maintain a large price differential with Germany forever. If you add fiscal retrenchment into this toxic debt-deflation mix, the result is bound to be a self-sustaining depression, especially in the absence of structural reforms.

What is completely missing in Brussels – and even more so in Berlin – is an understanding of the urgency of the situation.

So when the European Union’s programme of credit guarantees ends in three years, the same combination of factors that led to the most recent crisis will still be present.

I thought it was ironic that a special purpose vehicle had been chosen to save the eurozone, given our most recent experience with those toxic structures.

How can a loan guarantee solve a problem of excessive indebtedness?
We should remember that, unlike in Greece, the issue in Spain and Portugal is not primarily fiscal, but an excessively indebted private sector.
So unless José Luis Zapatero, Spain’s prime minister, is going to present the mother of all economic reform packages, it is hard to see how the mother of all bail-outs is going to work.
Wolfgang Münchau May 10 2010

IMFs dödsdom över Grekland och EU:s räddningspaket
Rolf Englund blog 2010-05-12

Inte vår bästa stund
Den europeiska situationen nu är inte alldeles bekväm.
Den grekiska krisens drama går från den ena akten till den andra.
Carl Bildt, blog, 25 april 2010

Finanskrisens härjningar. Kronans svängningar. Greklands ekonomiska kaos.
Plötsligt har euron blivit het inför valet.
Sydsvenskan har talat med alla de fyra borgerliga partiledarna.
De är djupt oeniga i fråga om folkomröstning.
Fredrik Reinfeldt anger två villkor för att han ska lova en folkomröstning.
Sydsvenskan 3 april 2010

Varje dag kan vi nu via medierna se hur konflikterna och problemen med EMU tydliggörs.
EMU-tvångströjan kommer bara i en storlek och den passar uppenbart inte alla.
Den här sortens förkeynesiansk deflationspolitik provades under 1920- och 1930-talen och var antagligen den främsta enskilda orsaken till depressionen.
Lars Pålsson Syll, Newsmill 2010-05-08

Den mycket prekära utveckling som vi idag ser i Grekland, Portugal, Italien och Irland visar på den hämsko som EMU utgör när dessa kristyngda ekonomier ska försöka hitta en väg ut ur krisen. Förmågan att ta sig ur finanskrisens efterdyningar blir onödigt långdragen och låg. Att inte fullt ut ha möjlighet att bedriva en egen ekonomisk politik skapar ett hårt tryck på statsbudgeten och bäddar för de missnöjesyttringar som vi ser rada upp sig i land efter land.

Historien borde förskräcka. Den här sortens förkeynesiansk deflationspolitik provades under 1920- och 1930-talen och var antagligen den främsta enskilda orsaken till depressionen. Ekonomierna tog sig inte ur moraset förrän dåtidens dårskap - guldmyntfoten - kastades på historiens gravhög. Och är det egentligen inte också där EMU hör hemma?

Frankrikes president Nicolas Sarkozy hotade med att dra Frankrike ur eurosamarbetet
om inte Tyskland gick med på det räddningspaket som ska hjälpa Grekland ur krisen.
Det uppger den spanska tidningen El País enligt DN 14 maj 2010

“It was nuts to let Greece and Portugal in (to the EU) as quickly as they did,” he added. “They just looked the other way and decided to let them in. Greece had high inflation, default risks. Portugal had an IMF program early as 1984."

”Centralbanker dumpar euron”
- Det finns trots räddningspaketet i helgen
stora frågetecken kring om euron kommer att finnas kvar som valuta om ett par, 3—4 år
Carl Hammer, chefsstrateg på SEB, DN/TT 14 maj 2010

The End of the Beginning for the Euro
Parallels between Europe's sovereign-debt crisis and the global financial crisis are manifold
Marc de Vos, WSJ,May 12, 2010

First off, there is the self-contented hubris.
Prior to 2007, the demigods of finance and economics had convinced themselves and the rest of the world of the wonders of efficient markets, and applauded the so-called Great Moderation, while housing prices and financial risks skyrocketed around them.

A little over a year ago, as the European Monetary Union entered its second decade, Europe's elite marvelled at how the euro, in the words of the European Commission, "has clearly become the second-most important currency in the world"; how "it has brought economic stability"; and how "its framework for sound and sustainable public finances helps ensure that future generations can continue to benefit from the social systems that Europe is justly famous for."
What a difference a year makes; how bitter the taste of irony.

Next consider the immediate causes of the calamity.
As with the housing market and the derivatives craze, the euro tale is one of easy money, excessive leverage, bad accounting, and failed supervision.

Euro-membership allowed profligate southern European countries to borrow cheaply and beyond their economic means. The euro's Stability and Growth Pact, meant to restrain budget deficits and national debt, was violated in its application and ignored in its supervision. In short, this was a bubble of public excess waiting to be pricked.

European politicians such as Swedish Finance Minister Anders Borglambast financial markets for "wolfpack behavior." Speculation is a factor, but you cannot blame the coal mine disaster on the canary.

The euro was supposed to lubricate faster economic growth by eliminating the cost and confusion of constantly converting between national currencies. More important, it would promote political unity. With a common currency, people would feel "European."
Their identities as Germans, Italians and Spaniards would gradually blend into a continental identity.
None of this has happened.
Robert J. Samuelson Washington Post May 10, 2010

What we're seeing in Greece is the death spiral of the welfare state.
This isn't Greece's problem alone, and that's why its crisis has rattled global stock markets and threatens economic recovery. Virtually every advanced nation, including the United States, faces the same prospect. Aging populations have been promised huge health and retirement benefits, which countries haven't fully covered with taxes. The reckoning has arrived in Greece, but it awaits most wealthy societies.
Americans dislike the term "welfare state" and substitute the bland word "entitlements." Vocabulary doesn't alter the reality.

A single currency could no more subsume national identities than drinking Coke could make people American. If other euro countries (Portugal, Spain, Italy) suffer Greece's fate -- lose market confidence and can't borrow at plausible rates -- there would be a wider crisis.

The End of the Euro
How the crisis in Greece could lead to the demise of Europe's most ambitious project.
Alarming is the exposure of other EU banks to Greek debt, which totals $193 billion
Niall Ferguson NEWSWEEK May 7, 2010, From the magazine issue dated May 17, 2010

It was far from clear that the 11 countries that initially joined up constituted an "optimal currency area." A single monetary policy would likely amplify, rather than diminish, the fundamental differentials between highly productive Germany and the less efficient periphery.

But the worst defect in the design of the EMU, we argued, was that it was uniting Europe's currencies but leaving its fiscal policies completely uncoordinated. There were, to be sure, "convergence criteria," which specified that a country could join only if its deficit was less than 3 percent of gross domestic product and its public debt was less than 60 percent. But even when these were turned into a permanent set of fiscal rules in the Stability and Growth Pact, there was no obvious way they could be enforced.

A confidential Bank of England paper circulated in 1998 speculated about what would happen if a country—referred to only as "Country I"—ran much larger deficits than were allowed. The result, the bank warned, would be a colossal mess.

For nearly nine years after Greece became the 12th EMU member on Jan. 1, 2001, the Cassandras appeared to have gotten it wrong. The euro was a triumphant success... Between 1999 and 2003, international banks issued more bonds priced in euros than in dollars. The countries that had stayed out began to wonder if they'd missed not just the bus but a luxury coach.

The first will be a Greek default. It's simply not credible that the government will be able to deliver such severe fiscal tightening at a time of deep recession.

Even more alarming is the exposure of other EU banks to Greek debt, which totals $193 billion,

When the euro was launched back in January 1999, it was worth less than $1.20, and for most of its first three years it was down below parity with the dollar. So its recent slide from close to $1.60 before the global financial crisis to $1.27 last week is far from unprecedented. But the way this crisis is unfolding, further declines seem likely. It will surely be at least a year before investors wake up to the fact that the fiscal predicament of the United States is actually worse than that of the euro zone.

The difference is, of course, that the United States has a federal system, while the euro zone does not. In America, Texas automatically bails out Michigan via the redistribution of income and corporation tax receipts. What the Greek crisis has belatedly revealed is that such fiscal centralization is the necessary corollary of a monetary union.

Europe now faces a much bigger decision than whether to bail out Greece. The real choice is between becoming a fully fledged United States of Europe, or remaining little more than a modern-day Holy Roman Empire, a gimcrack hodgepodge of "variable geometry" that will sooner or later fall apart.

The euro is in danger, German Chancellor Angela Merkel
said in a speech to parliament
CNBC 19 May 2010

"Every one of us here can feel that the current crisis of the euro is the greatest challenge that Europe has faced for decades, since the signing of the Treaty of Rome," she said. "This challenge is existential. And we have to rise to it.

"I'll boil it down to its core:
The euro is the foundation for growth and prosperity, along with the common market -- also for Germany. The euro is in danger.
"If we don't deal with this danger, then the consequences for us in Europe are incalcuable."

Mrs Merkel made a moving plea to the Bundestag to support the €110bn (£93bn) rescue for Greece.
"Nothing less than the future of Europe is at stake. The happy tale of German history since World War Two and our emergence as a free, united, and strong country cannot be separated from the European Union.
We owe decades of peace and prosperity to the understanding of our neighbours," she said.
Daily Telegraph 6/5 2010

People worry that if Greece is Bear Stearns, Portugal is Lehman and Spain AIG,"
BNP Paribas said during the past week, a phrase that gained much circulation.
Reuters 7/5 2010

”Euron är en domedagsmaskin”, menar Junilistans före detta ordförande Nils Lundgren,
men bemöts av Folk partiets Carl B Hamilton, som skyller krisen på Grekland.
SvD/E24 2010-05-04

– Grekland är det mest eklatanta exemplet på hur det kan gå. Jag menar att det här är ett extremt tydligt bevis för att vi som var skeptiska inför omröstningen hade rätt, säger Nils Lundgren.

Folkpartiets Carl Hamilton menar dock att krisen i Grekland inte beror på eurosamarbetet som sådant, utan på Greklands oförmåga att följa gemensamma regler.
–Med tanke på den vettlösa politik som Grekland har fört så spelar valutasystemet ingen roll, det går åt skogen i vilket fall som helst. De hade inte varit räddade av drachmern. Problemet är att euroländerna har haft en för slapp kontroll, dels vad gäller insamling av statistik, men också i kontrollen av ländernas finanspolitik.

– I slutändan tror jag att krisen kommer att leda till att det blir nödvändigt med en större samordning av finanspolitiken. Det kanske tar ett par år, men det kommer att leda till en överstatlighet på finansområdet, säger folkpartiets Carl Hamilton.

Nils Lundgren, vars Junilistan länge motsatt sig en ökad överstatlighet, ser en liknande utveckling och är kritisk.

– En viktig del av det vi ser nu är att man inte kan ha en självständig finanspolitik och en gemensam penningpolitik. Det är ingen ny lärdom, utan något vi lärt ut till studenter sedan 60-talet.

Nu finns det en del federalister som tycker att det här är bra, och som vill överföra finanspolitiken till Bryssel, säger han.

The Eurozone was formed and it was largely accepted as an irreversible fact. The sceptics refrained from questioning its soundness as an institution for fear of being perceived as unrealistic or extreme. Mentioning that a member country might leave the monetary union some day was considered a political non-starter, so that pragmatic economists who insisted on making a difference in the policy arena did not see the point in ruining their credibility by making such suggestions.

The reason why the Eurozone does not work is not asymmetric shocks but asymmetric trends.

Take the example of Spain. It has enjoyed strong growth after its accession to the Eurozone, but this growth was not sustainable. It was mainly driven by a construction boom, itself the outcome of a housing bubble. As construction is not a traded good, the result has been a massive trade deficit, which reached 9% of GDP.

As the boom heated the economy (relative to its equilibrium level which involves a rather high level of unemployment), Spain has experienced consistently greater inflation than the average of the Eurozone. This inflation has in turn deteriorated its competitiveness, which has further added to its trade deficit, while making it quite painful to reallocate resources to the export sector now that the construction industry is gone. Greece has experienced similar inflation differentials and its competitiveness is even more crippled than Spain's.

The “c” word: Contagion
Is Europe facing a ‘Bear Stearns’ moment?
Gillian Tett, FT May 5 2010 19:18

Since € 110bn - $ 143bn - many policymakers thought – or prayed – it would be big enough to smother the market fear.

Instead, the fear seems to be worsening. The price of bonds issued by Portugal and Spain slumped on Wednesday amid rumours that those countries might soon be forced to tap the IMF for aid too.

Tales also circulated that some Greek, Spanish and Portuguese banks are being shut out of the interbank markets due to concerns about counterparty risk. Even normally sanguine officials could be heard uttering the “c” word: contagion.

On the morning of September 16 1992, the UK was in the Exchange Rate Mechanism (ERM); by the evening it was out. No politician decided this – it just happened.

Initially, it was thought that the eurozone would not be subject to such market brutality because, in complete contrast to the ERM, once countries have joined the euro, there is no exchange rate against which speculators can take out positions. As we now know all too clearly, there is still a means through which pressure can be exerted – namely the bond markets.

But at first it was not thought that the bond market could stage anything as spectacular as the events of September 1992. There was a subliminal belief that, whatever the treaties might say, if a eurozone member ever got into trouble, somehow or other the rest of the eurozone would bail it out. Anyway, this was well before the collapse of Lehman Brothers.
This demonstrated that markets must now think the unthinkable – and that includes default by a eurozone member.

But, Greece, trapped inside the sluggish eurozone, these would condemn her to years, and perhaps decades, of depression and deflation.

Is a European banking crisis next?
The FT reports that “many European banks have become shut out of the international lending markets because of continuing concerns over Greece, sparking fears that some could collapse as they run out of cash.
Greek and Portuguese banks cannot borrow in the international money markets, while weaker European banks are also struggling to raise money as fears of counterparty risk have grown sharply.”
Even French and German banks have difficulties because of their exposure to Greek debt.
Eurointelligence 30/4 2010

Från ECB till EBC
Eurointelligence, en utmärkt källa till kunskap, ställer i dag frågan om Greklandskrisen kommer att utvecklas till en European Banking Crisis, som lämpligen kan förkortas EBC.
Rolf Englund blog 30/4 2010

Europe no longer carries the stamp of inevitability. Quite suddenly, it has become almost as easy to foresee a future in which the Union fractures. The risk is not so much of a great rupture – though if Greece defaults the immediate shocks will be profound – but of the atrophy that flows from the absence of political leadership.

Det är målsättningen om ett ständigt fastare förbund - "ever closer union" - som är själva grundbultsfelet med EU.
Rolf Englund Barometerns website 7/6 2005

– Den stora risken i ett krisscenario är att bankerna i Tyskland och Frankrike får en rejäl smäll och att vi får en ny vända av finanskris,
säger Handelsbankens chefekonom Jan Häggström.
Ekot 28/4 2010

So do not be fooled by anybody who says that the central bank should cut interest rates for the benefit of innocent citizens
Wolfgang Munchau, FT January 20 2008

This is going to be the most important week in the 11-year history of Europe’s monetary union.
By the end of it we will know whether the Greek fiscal crisis can be contained or whether it will metastasise to other parts of the eurozone.
What we are seeing here is Europe’s equivalent of the US subprime crisis. Unless we hear some implausibly good news from Athens by Friday, it will soon blow up.
Wolfgang Münchau, FT April 25 2010

Germany
Four professors will launch a legal challenge in early May at the Verfassungsgericht (high court).
Should they secure an injunction, EMU may fly apart.
EMU shut the warning signals, disguising risk.
What investors overlooked is that currency risk mutates into default risk in a monetary union
The EU-IMF "therapy" of deflation for Greece repeats the catastrophic errors of Chancellor Heinrich Bruning in the early 1930s and must lead to a depression
Ambrose Evans-Pritchard, 25 Apr 2010

Friday will be remembered as the day the euro needed rescuing.
Sure it is Greece that has asked to be bailed out but it was still a day that the architects of the single currency had never envisaged.
For when it came to it, there were no plans to save a euro member in trouble.
Gavin Hewitt, the BBC's Europe editor, 24 April 2010

The last few months have been a long, agonising drama. It is the financial markets that have been in the driving seat. The politicians, the eurozone countries, the European Central Bank, the European Union have all played catch-up, scrambling to put together a rescue plan. Now Europe is faced with what is potentially the biggest ever bail-out of a country.

Poland should not rush to sign up to the euro
Slawomir Skrzypek, FT April 12 2010
The writer, late president of the National Bank of Poland, submitted this article before he died in the Smolensk air crash on Saturday. It is published by agreement with Mr Skrzypek’s wife, Dorota, and the Bank

Because Poland’s currency is not bound by the Exchange Rate Mechanism II, we have been able to adjust the value of the zloty in line with domestic requirements. Between 2008 and 2009, Poland’s real effective exchange rate, allowing for differences in unit labour costs, fell by nearly 20 per cent – a significant factor behind the narrowing of the current account deficit. During this process, we brought about a significant catch-up in GDP per capita, now at 60 per cent of the EU average compared with 49 per cent in 2004 when Poland joined the EU.

The necessary structural reforms will, over the longer term, improve Poland’s ability to meet euro entry criteria. But we must temper the wish to adopt the euro with necessary prudence. We should not tie ourselves to timetables that may prove counterproductive. Solid economic growth and sensible policies on debt and deficits are possible both within and outside the eurozone.

The Glory of Poland
My first thought, hearing of the Polish tragedy, was that history’s gyre can be of an unbearable cruelty,
decapitating Poland’s elite twice in the same cursed place, Katyn.
Roger Cohen, New York Times April 12, 2010

“Katyn is the place of death of the Polish intelligentsia,” Michnik, now the soul of Poland’s successful Gazeta Wyborcza newspaper, said when I reached him by phone. “This is a terrible national tragedy. But in my sadness I am optimistic because Putin’s strong and wise declaration has opened a new phase in Polish-Russian relations, and because we Poles are showing we can be responsible and stable.”

Michnik was referring to Prime Minister Vladimir Putin’s words after he decided last week to join, for the first time, Polish officials commemorating the anniversary of the murder at Katyn of thousands of Polish officers by the Soviet Union at the start of World War II. Putin, while defending the Russian people, denounced the “cynical lies” that had hidden the truth of Katyn, said “there is no justification for these crimes” of a “totalitarian regime” and declared, “We should meet each other halfway, realizing that it is impossible to live only in the past.”

Mr. Van Rompuy and many investors fear a sovereign default would start a chain reaction of panic and failures, perhaps breaking up the euro zone.
The worries are certainly not groundless, even if Greece’s debt of 270 billion euros is only 4 percent of all euro zone sovereign obligations. A write-down could reduce Greek banks to insolvency.
EDWARD HADAS, NYT April 5, 2010

Help Portugal Help Greece
The real fun begins if Spain’s cost of borrowing rises above the pooled loan rate.
It has to lend €9.8 billion to Greece.
Charles Forelle, Real Time Brussels, WSJ 5/5 2010

As of a few minutes ago, the yield on a two-year Portuguese bond stood at 5.66% and the yield on a 10-year at 6.13%. Both yields are up substantially from yesterday. It now seems clear that Portugal’s cost of borrowing the €2 billion it is putting toward the Greek bailout now exceeds the interest rate Greece will pay. (We earlier detailed the rate calculations; three-year Euribor is 1.73% today, so the bailout rate is 4.73%, plus a 0.5% service charge in the first year.)

But European Commission officials say a special clause in the bailout deal prevents any country from taking a loss on its Grecian lending. So the other 14 countries will cede a small bit of their profit to Portugal.

If we assume Portugal’s cost of borrowing for three years is around 5.75%, it will need a subsidy of about 0.5% in the first year and 1% annually thereafter, or €50 million over three years on its €2 billion loan.
We figure Germany and the rest can afford that.

The real fun begins if Spain’s cost of borrowing rises above the pooled loan rate. It has to lend €9.8 billion to Greece.

A country such as Portugal with total debt of 300pc of GDP, a current account deficit of 11.2pc, and a budget deficit of 9.4pc should not think it has the luxury to trim spending at a leisurely pace.
Portugal has an ugly choice. If it tightens hard to soothe bond markets, it too risks depression. EMU's Faustian Pact is closing in.
Ambrose Evans-Pritchard, 25 Apr 2010

We are in the Maastricht madhouse, a currency union without a treasury, ruled by the "no bail-out" clause of Article 125 of the EU Treaties. Europe is at last paying the price for fudging the true implications of EMU 19 years ago in that Medieval city on the Maas, gambling that it would one day be able to lead Germany by the nose into a debt union.

Portugal's economy
The importance of not being Greece
The Economist print April 22nd 2010

Portugal is doing better than Greece. So why are markets fretting over Lisbon’s debt burden (yields on two-year bonds have risen to 4.8%)? And why have such figures as Simon Johnson, a former IMF chief economist, and Nouriel Roubini, a New York economics professor once labelled Dr Doom, said that a Greek-style crisis could infect Portugal?

One answer is that Portugal’s biggest problem is not primarily fiscal. It concerns growth—or the lack of it. Real GDP growth over the decade since Portugal joined the euro has been the slowest in the zone, despite a boom in Spain, its main trading partner.

Low growth reflects a disastrous loss of competitiveness since the country joined the euro. Portugal has lost export-market share to emerging economies (including those of eastern Europe) that churn out similar low-value products.

Värstascenariot för euron
Hur illa kan det gå för euron sedan Grekland avslöjats som bankrutt och Spanien, Portugal och Irland också riskerar att tappa fotfästet.
Vilket blir första land att lämna euron den dag det blir möjligt?
Godmorgon Världen Lördag 03 april 2010

To some extent I cannot help feeling that a congenital inability to take bite-the-bullet type decisions is resulting in an ongoing process of passing the buck ever onwards and upwards. The latest exemple here is the issue of IMF involvement in the Greek adjustment process

Well, one of the reasons lying behind all the reluctance we are currently seeing may not be the issue of the German constitution, or even the question of changes to the Lisbon Treaty, or any of the major issues of principal which arise and would require lengthy and onerous debate. Maybe the question is a much more simple one: perhaps Europe's leaders are simply worried that if they make a cheap loan to Greece, then Spain, Portugal, Ireland, Italy, Austria, Slovenia and Slovakia may all soon argue they also need one.

I am aware of the commitment of Europe’s elite to the success of the European project.
But the crisis is profound – for the eurozone, the European Union and the world.
As Wolfgang Münchau has pointed out, last week’s European Council was not a solution but a fudge.
Martin Wolf FT March 30 2010

The IMF should impose default on Greece to end the charade
I just had lunch with Carmen Reinhart, author of `This Time is Different: Eight Centuries of Financial Folly” and a world authority on sovereign defaults.
Ambrose Evans-Pritchard Economics April 2nd, 2010

The euro’s big fat failed wedding
The European Union was banking on three forms of convergence:
economic, political and popular.
Gideon Rachman March 29 2010

En viktig slutsats är emellertid att valutaunionen har skapat en mycket stor del av de ekonomiska balansproblem som framför allt de sydeuropeiska länderna står inför.
En annan viktig slutsats är att det är mycket svårt att ta sig ur problemen när man sitter fast i en valutaunion.
Resultatet kan bli en gastkramning av ekonomierna och hela samhällssystemet.
Nils Lundgren Europaportalen 15/3 2010

The beginning of the end of Europe’s economic and monetary union as we know it.
This is the true historical significance of Ms Merkel’s decision.
Wolfgang Münchau, FT March 21 2010 19:35

In a column several weeks ago I put forward three conditions necessary for the eurozone to survive in the long run: a crisis resolution mechanism, a procedure to deal with internal imbalances, and a common banking supervisor. Since then, things have been moving in the wrong direction on all three counts.

For a start, we have come from a situation in which the “no bail-out” clause of the Maastricht treaty, having been almost universally disbelieved for 10 years, is suddenly 100 per cent credible. The minute the IMF marches into Greece, all ambiguity will end.

As is well-known, the ECB relies on ratings produced by American rating agencies to determine eligibility of government bonds as collateral. Prior to the financial crisis the minimal rating needed to be eligible was A- (or equivalent). In order to support the banking system during the banking crisis, the ECB temporarily lowered this to BBB+. At the end of 2009, however, the ECB announced that it would return to the pre-crisis minimal rating from the start of 2011 on. As the Greek sovereign debt had been lowered to BBB+, this created a big problem for financial institutions holding Greek government bonds, which now face the prospect that their holdings of Greek government bonds may become extremely illiquid. No wonder many dumped Greek government bonds, precipitating the crisis.

The choice the Eurozone authorities face today is between two evils.
The first one arises from moral hazard.

The second evil arises from the contagious effects of letting Greece default on the banking system and macroeconomic policies in the Eurozone

The legal skeptics argue that the no-bail out clause in the Treaty forbids the member states of the union to provide financial assistance to another member state. But this is a misreading of the Treaty. The no-bail-out clause only says that the European Union shall not be liable for the debt of governments, i.e. the governments of the Union cannot be forced to bail-out a member state (see Article 103, section 1).

But this does not exclude that the governments of the EU freely decide to provide financial assistance to one of the member states.

In fact this is explicitly laid down in Article 100, section 2. Thus euro zone governments have the legal capacity to bail out other governments.

Here is the text: “Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, acting by a qualified majority on a proposal from the Commission, may grant, under certain conditions, Community financial assistance to the Member State concerned”.

ECB should discontinue its policy of outsourcing country risk analysis to American rating agencies. The latter have a dismal record.

The structural problem in the Eurozone is created by the fact that the monetary union is not embedded in a political union. This imbalance leads to a dynamics of creeping divergencies between member states and no mechanism to correct or to alleviate it

This structural problem has to be fixed before we are hit by the next crisis.
But that is also the hard part.

There is today in the Eurozone no willingness to move forward into a more intense political union.

One is led to the conclusion that the inability to create a more intense political union in the eurozone will continue to make the latter a fragile construction, prone to crises and great turbulence each time such a crisis must be resolved.

The fundamental problem with the euro project was overambition.
The difficulties of monetary union without political union were much discussed in the 1990s, and then simply ignored, except in Britain and Scandinavia.
The risk of a single currency was probably manageable with a small group of countries that had a decent chance of remaining competitive with Germany. Bringing in all of southern Europe dramatically raised the stakes.
Martin Taylor, FT March 21 2010

I had always supposed that the euro would hold together because the misery of unravelling it seemed likely to exceed the pain of soldiering on. But when both partners in a marriage seriously question the arrangement, divorce is only a matter of time. This is a marriage with 16 partners and domestic violence is hotting up.

Chancellor Angela Merkel has halted at the Rubicon.
Has Germany just killed the dream of a European superstate?
So after weeks of Euro-bluff it looks ever more like an IMF rescue for Greece after all, and hence for any other eurozone nation driven to ruin by the wrong monetary policy.
Ambrose Evans-Pritchard, 21 March 2010
Very Important Article

“Should a eurozone member ultimately find itself unable to consolidate its budgets or restore its competitiveness, this country should, as a last resort, exit the monetary union while being able to remain a member of the EU.”
Wolfgang Schäuble, German finance minister, FT March 11 2010 19:15

Olli Rehn /European Commissioner for Economic and Financial Affairs/ is quoted with the dramatic statement that a failure of Greece is a failure of the EU.
"If Greece fails and we fail, this will do serious and maybe permanent damage to the credibility of the European Union... The euro is not only a monetary arrangement but a core political project of the European Union."
Eurointelligence 15.03.2010

Greece threatens more than the euro
The risk for Europe now is that if the EU does not move forward politically in response to the Greek crisis, it will move backwards – and the long process of European integration could start to unravel.
Gideon Rachman, FT. February 22 2010

The Future of the Euro
Moment of Truth for Europe's Common Currency
Part 2: Is Europe Laying the Foundation for a Common EU Economic Government?
Der Spiegel Online 19/3 2010

The disastrous budget situation in Greece has highlighted the common currency's weaknesses in recent weeks and similar situations in Spain, Ireland, Italy or Portugal could aggravate the situation even further.

"economically absurd", "economically erroneous and politically dangerous", "a scandal", "insane"
Europe’s monetary union is in a deep crisis.
In the context of Greece’s debt concerns and emerging problems in other countries, huge current account imbalances have been identified as a major threat.
But since the adoption of a single currency, devaluation is no longer available to correct an unsustainable current account deficit.
Otmar Issing, FT March 18 2010

Across Europe, from profligate Greece to newly strait-laced Ireland, countries are promising deep, painful cuts in public spending even as they face the likelihood of a new recession.
But some argue that Berlin is pressing too hard, and that the region’s new fixation on debt has created a “cult of austerity” that could make it harder to recover from the slump.
New York Times 17/3 2010

We need an agreement that as an ultima ratio it's possible to exclude a country from the euro zone if again and again it doesn't fulfill the requirements,"
Ms. Merkel said in an address to Germany's lower house of parliament.
WSJ March 17, 2010

Ms. Merkel's spokesman, Ulrich Wilhelm, said Wednesday that securing approval for the new rule would take "a few years"—a vast understatement, said Simon Tilford, chief economist at the Center for European Reform, a London think tank, considering the history of the Lisbon treaty.

Ms. Merkel said the country's heavy reliance on exports is a plus, not a minus. "Germany will not forfeit its export strength," Ms. Merkel said. Her affirmation of the exports that drive Europe's largest economy made her the latest German official to hit back against French Finance Minister Christine Lagarde, who said the strategy creates unsustainable imbalances in the euro zone. Ms. Lagarde, speaking on French radio Wednesday, said that Germany should lower taxes to boost domestic consumption.

China and Germany unite to impose global deflation
Germany is in a supposedly irrevocable currency union with some of its principal customers. It now wants them to deflate their way to prosperity in a world of chronically weak aggregate demand. I am beginning to wonder whether the open global economy is going to survive this crisis.
The eurozone may also be in some danger.
Martin Wolf, FT March 16 2010

They've got only a garlic press For many years, I and others thought that when times got tough, it would be virtually impossible for the European currency to hold together.
On the other hand, there is an attractiveness about the euro: No member country of the European Union can print it.
Bill Fleckenstein 12/3 2010

If life in the eurozone becomes intolerable, exit will become the default resolution mechanism.
And when you include the legal possibility of an exit, the whole political and economic dynamic changes,
and the threat of an exit might turn into a self-fulfilling prophecy.
This does not apply only to Greece, but to a number of countries that have lost competitiveness to Germany.
Wolfgang Münchau, FT March 14 2010

I had previously assumed that Germany had a national interest in preserving the eurozone, as its exporters benefit more than anyone else from a stable exchange rate. Ergo, I thought, Germany – despite the rhetoric – would eventually do whatever it takes to prevent a breakup. It would be the rational thing to do.
But I think I was wrong.

If we wish the euro to be strong and stable on a lasting basis – our condition for bringing the DM and its high credibility into the euro fold – we have to be prepared to integrate further in the eurozone. Co-ordination between euro members must be more far-reaching; they must take an active part in each other’s policymaking.

I understand that a great deal of political resistance will have to be surmounted. Nevertheless, I am convinced that from Germany’s perspective, European integration, monetary union and the euro are the only choice.

There are some people who might feel that their scepticism towards the euro has been vindicated. They are overlooking the strengths of Europe and the problems faced in other leading global economic zones.

Greklands ekonomiska problem tvingar EU att ta ett nytt steg ut i det okända.
Vi sitter alla på första parkett och betraktar hur historien vrider sig, ännu ett stycke.
Unionen är en ofullbordad och därmed känslig konstruktion. Det verkar just nu inte särskilt troligt – men kanske hejdar sig unionen i steget och börjar tveka. Då kan det oavslutade bygget i stället börja krackelera.
Annika Ström Melin, Signerat, DN 12/3 2010

Annika Ström Melin, vårt lands mest kunniga journalist i detta ämne, ställer EMU-frågan på sin spets.
Rolf Englund blog 18/2 2010

Den meste Ja-sägaren, P J Anders Linder på SvD, tiger dock fortfarande.
Rolf Englund blog 2010-03-11
Så även i dag 2010-03-12

Det är inte oundvikligt
Rolf Englund i EU-krönika i Nya Wermlands-Tidningen 2001-09-18:

Nu är det skamligt många i Sverige som förbereder sig och Sverige för en tillvaro i ett av EMU-EU dominerat Europa. Varför skall man göra sig omöjlig till ingen nytta när man kan vara realist och få ett välbetalt jobb i Bryssel eller i varje fall få åka dit med någon svensk delegation? Motstånd är ju ändå meningslöst, tänker väl Herr Unckel och andra. Men, som alla svenskar vet, varje meddelande om att motståndet skall uppges är falskt. Det är inte dom som kommer att segra, det är vi. Likt det en gång mäktiga Sovjetunionen kommer den Europeiska Unionen att i efterhand ses som en papperstiger, som ett snarast oförklarligt historiskt misstag likt Första Världskriget.

P.S. Ett stort tack till familjen Ander som på 1970-talet lät mig skriva ett oräkneligt antal ledare i NWT om löntagarfonderna och som lät mig skriva många förgripliga artiklar om EU och EMU i början av 2000-talet.

"Nu behövs ett statsmannalikt ledarskap... Europas ledare, först och främst Tyskland och Frankrike"
Ska vi rycka ut för de sydeuropeiska länderna
eller ge upp och låta euron dö?
Den frågan klargör vad hela krisen handlar om: det europeiska projektets framtid.
Joschka Fischer, kolumn DN 10/3 2010

EU kan varken låta Grekland halka ner i statsbankrutt eller överlämna det till Internationella valutafonden, eftersom andra EMU-medlemmar – Portugal, Spanien och Italien – antagligen skulle ligga närmast till för attacker från finansmarknaderna. I så fall skulle det finnas risk för att euron rasade och för första gången på allvar hotade hela det europeiska integrationsprojektet.

Europas ledare, först och främst Tyskland och Frankrike som har avgörandet i sina händer, måste agera snabbt och genomdriva nya, uppfinningsrika lösningar.

även med ett, två eller tre steg framåt kommer Tysklands och Frankrikes regeringar att ta stora inrikespolitiska risker om eurokrisen i Medelhavsländerna förvärras och en finansiell räddningsoperation där blir nödvändig.

Invånarna i de länder som blir tvungna att betala notan är inte förberedda på den verklighet som ligger framför dem, och det kommer att lägga bränsle på den mångåriga ökning av euroskepticismen som nu genomsyrar alla politiska läger. Detta gäller i allt högre grad också Tyskland, och vi kommer sannolikt att få se ett extremt stort politiskt problem växa fram där mycket snart.

Under 90-talet var det drömmen om federationen som dominerade sinnena och euron fick symbolisera den nya europeiska staten. Eller som Tysklands utrikesminister Joschka Fischer sa på ett föredrag i Berlin 1999 och svepte med handen över publiken:
”Ett mynt, en lagbok och ett svärd över hela kontinenten”.
PM Nilsson, Expressen 25/3 2007

Joschka Fischer
In the revolutionary cauldron of 1970s Frankfurt, he was a militant activist in the causes of Vietnam opposition and environment protection. He tottered at the edge of the terrorist scene and, more recently, has had to defend links with suspected kidnapper and murderer Hans-Joachim Klein and, by association, Carlos the Jackal.
BBC August 2005

"Allt är inte frid och fröjd.
Euron är ett politiskt flaggskepp i EU och därför är det grekiska dramat en rejäl prestigeförlust."
Det senaste SvD har skriit i frågan, 15 februari 2010
Rolf Englund blog

Former Federal Reserve Chairman Paul Volcker is confident the /Euro/currency will survive
“I’m still a believer in the euro,” Volcker said in an interview in Berlin March 6.
The lack of a unified government to back up the European Central Bank is a “structural crack” and “maybe fortunately it’s tested with a country as small as Greece, which doesn’t present an insuperable financing problem.”
Bloomberg March 8 2010

German constitutional law imposes such tight constraints that any dilution of the no bail-out clause in the Maastricht treaty or the price stability target of the ECB might trigger a forced German exit.
The most one can hope for during the next 10 years is improved voluntary co-ordination in the European Council.
Germany has unilaterally prescribed itself a deficit-to-GDP ceiling of 0.35 per cent from 2016.
Wolfgang Münchau March 7 2010

Greece last week solved its fiscal problem by creating a private sector problem of identical size.
The Greek state – the sum of its public and private sectors – is just as bankrupt today as it was a week ago

This means that, by following the fiscal policy rules, the eurozone would risk a private sector depression, which would almost certainly be concentrated heavily in Europe’s south. This scenario would greatly increase the probability of a eurozone break-up at some point in the future.

We have always known that a monetary union cannot exist without political union in the long run.

Millions of migrants have arrived in Greece, Italy and Spain over the past decade.
To avoid serious social problems, those countries need to do a better job of making them feel welcome
Time Magazine March 1st 2010

The economic crisis will slow the flow but is unlikely to undo the demographic shift, not least because the birthrate among immigrants is much higher than the general population's. "If there's a lesson that can be learned from the northern European experience, it's that temporary migrants tend to remain," says Joaquín Arango, professor of sociology at the Complutense University of Madrid.

Det kommer aldrig att bli möjligt att göra någon entydig nyttokalkyl som visar att Sverige gör en nettovinst på att gå med.
Lars Calmfors 2009

The EU has always proceeded by creating economic “facts on the ground”, which were intended to trigger political effects.

Ever since the 1950s this has worked admirably, as a modest coal and steel community turned into a common market and finally into a Union of 27 nations, with its own parliament, supreme court and foreign policy.

A logical political response to Greek insolvency – and the threat of similar crises in Spain, Portugal and eventually Italy – might be to create common European taxes and a mechanism for big fiscal transfers between EU states.

But there is no sign of any such move. Europe is stuck. So what has gone wrong? The problem is that the “economics first, politics later” method is almost Marxist in its assumption that economics will inevitably dictate a particular political response. But democratic politics involves choice.

If you want to understand what is happening to the European Union’s constitution, the EU flag is a good place to start.
European leaders will agree to delete references to the flag in the constitution.
Everybody knows the flags will keep flying.
The words in the constitution will change. But the substance will remain the same.
Gideon Rachman, Financial Times June 12 2007

The risk premium on Greek government bonds continues to hover around 3 per cent, depriving Greece of much of the benefit of euro membership. If this continues, there is a real danger that Greece may not be able to extricate itself from its predicament whatever it does. Further budget cuts would further depress economic activity, reducing tax revenues and worsening the debt-to-GNP ratio. Given that danger, the risk premium will not revert to its previous level in the absence of outside assistance.
George Soros FT February 21 2010

The euro was meant to be a monetary union but not a political one.
The construction is patently flawed. A fully fledged currency requires both a central bank and a Treasury.
The Treasury need not be used to tax citizens on an everyday basis but it needs to be available in times of crisis. When the financial system is in danger of collapsing, the central bank can provide liquidity, but only a Treasury can deal with problems of solvency. This is a well-known fact that should have been clear to everyone involved in the creation of the euro.
George Soros FT February 21 2010

Det som nu händer är precis det som kritikerna, bland annat nobelpristagaren Paul Krugman och andra, varnade för inför bildandet.
Systemet har mycket svårt att hantera så kallade ”assymetriska chocker” där ett lands konkurrenskraft och betalningsförmåga plötsligt urholkas av någon exogen händelse.
Per Lindvall, SvD/E24, 2010-02-11

The late Eddie George /The former governor of the Bank of England/ once remarked to me that the euro project, which was launched in 1999, came 10 years too early. He was wrong.
It was 20 or 30 years too early or perhaps should not have been launched at all.
Samuel Brittan, FT February 18 2010

Was the real mistake creating the euro in the first place? Since I was one of the few Americans to advocate a single European currency, you would be justified in asking: Am I having second thoughts?
My answer is no, creating the euro was not a mistake, but it could still be a mistake in the making.
The Greek crisis shows that Europe is still only halfway toward creating a viable monetary union. If it stays put, the next crisis will make this one look like a walk in the park.
Barry Eichengreen, 2010-02-15

Euro Currency Union Showing Strains
Rolf Englund, a Swedish economist who campaigned vigorously against the euro in a 2003 referendum whether to adopt it there, said the current crisis underscored why Swedes resoundingly decided to keep the krona.
''It will crack sooner or later, because it's impossible to have a common currency for such a big, and diverse area,'' he said.
''There's no real EU solution for Greece. They're helpless now, and they have no instruments to fend it off.''
New York Times, Associated Press, February 12, 2010

Is this funny, or not?
Herman Van Rompuy, non-combatant
Charlemagne, The Economist Feb 15th 2010

Mr Van Rompuy is a president without a country behind him—a president without money. So when a European Union crisis explodes that only money can fix, he will always be overshadowed by leaders who are putting their own taxpayers’ billions on the table.

Such leaders are not just making a financial sacrifice for Europe when they dig deep into their pockets. They are taking a political risk. In one opinion poll, by the Emnid institute, for instance, 71% of Germans opposed financial aid for Greece. Mr Van Rompuy has no voters to fear. So in such disputes, he is a non-combatant: a counsellor but not a player.

“What went wrong wasn’t what happened this year. What went wrong was what happened in the first 11 years of the euro’s history. In some ways we were victims of our success. “The euro became a strong currency with very small interest rate spreads [on government bonds].
It was like some kind of sleeping pill, some kind of drug. We weren’t aware of the underlying problems.”
Herman Van Rompuy, president of the European Union, FT June 13 2010

Årets upplaga av boken Europaperspektiv handlar om hur EU har hanterat den globala krisen
En av författarna som stack ut i panelen var docenten i ekonomisk historia vid Lunds Universitet,
Jonas Ljungberg som pratade om de kontroversiella delarna av eurosamarbetet.
- En del länder i Europa har valt att låta låsa sin valuta mot euron
- Det bästa för dem hade varit en flytande växelkurs, likt Sveriges.
Europaportalen 2010-02-04

The real story behind the euromess lies not in the profligacy of politicians but in the arrogance of elites — specifically, the policy elites who pushed Europe into adopting a single currency well before the continent was ready for such an experiment.
None of this should come as a big surprise. Long before the euro came into being, economists warned that Europe wasn’t ready for a single currency. But these warnings were ignored, and the crisis came.
Paul Krugman, February 14, 2010

Consider the case of Spain, which on the eve of the crisis appeared to be a model fiscal citizen.

If Spain still had its old currency, the peseta, it could remedy that problem quickly through devaluation

if Spain were an American state rather than a European country, things wouldn’t be so bad. For one thing, costs and prices wouldn’t have gotten so far out of line: Florida, which among other things was freely able to attract workers from other states and keep labor costs down, never experienced anything like Spain’s relative inflation. For another, Spain would be receiving a lot of automatic support in the crisis: Florida’s housing boom has gone bust, but Washington keeps sending the Social Security and Medicare checks.

The fundamental problem was hubris, the arrogant belief that Europe could make a single currency work despite strong reasons to believe that it wasn’t ready.

är krisen ett bevis på att eurons införande – som i den antika grekiska tragedin – drevs av hybris och att det är en ödesbestämd nemesis som är under uppsegling?
SvD-ledare signerad Claes Arvidsson 15/2 2010

Victims of hubris, the Eurozone's original cheerleaders deserve this current crisis.
For some of us writing at the time of the Eurozone's formation just over a decade ago, the current crisis has been all too predictable.
Other currency unions, we pointed out, had been tried in history and always fallen apart.
Andrew Alexander, Daily Mail 12th February 2010

Victims of hubris, the Eurozone's original cheerleaders deserve this current crisis. When they began to recruit member countries for the single currency, they laid down a set of basic rules about the soundness of national budgets before they could qualify to join. These were sensible enough.

But in their eagerness for enlargement (as part of their pursuit of a United Europe in which they would be the main voices), the founder members allowed these rules to be broken.

The problems were visible from the outset. For example, neither Greece nor Italy's national finances were in a good enough condition to merit joining. But the greater ideal of a Eurozone prevailed over financial common sense. Economics gave way to politics, as it so often does. Proof, also, that creative accounting is not confined to dodgy public companies.

Will the Eurozone still be around in five years' time? With Greece, Italy, Portugal and Spain now suffering a severe financial crisis and with the euro seriously weakening, I think the prospect that it survives in its present form is most unlikely.

Die Griechen und der Euro
Wirtschaftsprofessor Dirk Meyer von der Bundeswehruniversität in Hamburg
„Ein Austritt wäre langfristig besser“
FAZ 12. Februar 2010

Credit Suisse says Greece must raise €30bn (£26bn) in debt by mid-year, mostly in April and May.
Greek banks have been shut out of Europe's inter-dealer markets, forcing them to raise money at killer rates. They are suffering an erosion of deposits as rich Greeks shift money abroad.
This could come to a head long before April.
Ambrose Evans-Pritchard, 11 Feb 2010

Here, in a chart, is why Britain can’t afford to be complacent about the plight of Portugal, Ireland, Italy, Greece and Spain.
UK banks are exposed to these countries to the tune of 16 per cent of gross domestic product, according to this chart from Stephen Jen of BlueGold Capital Management
(the figures themselves are Bank for International Settlement numbers).
Edmund Conway February 10th, 2010

Tio års test av euron visar att domedagsprofetiorna kommit på skam.
Under krisen har euron visat sig vara en trygg hamn för euroländerna, och en tillflyktsort globalt.
Carl B Hamilton blog 8 februari 2010

Tänk om det inte fungerar
Valutaunionen är ett stort vågspel. om den skulle förverkligas. Det kan visserligen hända att en gemensam valuta skulle tvinga fram den anpassning som krävs för att den ska fungera: en samordnad finanspolitik, flexibla arbetsmarknader, och överföringar av människor och resurser mellan länderna.
Men tänk om det inte fungerar.
Gunnar Wetterberg, Samhällspolitisk chef på SACO DN Debatt 95-07-18

The last few days have reminded me of the speculative attacks
on sterling and the Italian lira in September 1992.
Wolfgang Münchau February 7 2010

Investors have concluded that the probability of a contagious default is rising. They are right.

The least helpful suggestion in this situation – one that has already contributed to investor panic last week – is to let the International Monetary Fund sort out the mess. The argument is that the European Union is not in a position to provide emergency aid in an effective manner and that the IMF has the experience, personnel and the instruments to do so.

That is all true, but advocates of an IMF-led bail-out conveniently ignore the disastrous signal that this would send to the financial markets about where the eurozone is heading in the future. It would demonstrate that the eurozone was incapable of sorting out its own problems. The eurozone might end up losing so much credibility that investors started treating it not as a monetary union but as a fixed exchange rate system with a finite time horizon.

At the moment, in the absence of any framework, the threat of a default is transmitted automatically from the first to the next vulnerable country. Last week, the stock market fell even more in Madrid and Lisbon than in Athens. And, lest we forget, other European countries might also be vulnerable. Austria could still be drowned by its banking crisis; Belgium has a much higher level of debt than either Spain or Portugal and a financial sector heavily shaken by the global crisis. As worries spread north, serious investors might be tempted to bet serious money on a eurozone break-up.

Such panics are easily triggered and difficult to stop.
Greek 10-year borrowing costs, at 6.7 per cent, are about 2 percentage points dearer than Ireland or Portugal, the two next riskiest eurozone sovereigns. This air of danger has infected Greek businesses.
Financial Times editorial February 5 2010

More seriously for Europe, even a slight surprise – a lost parliamentary vote or illness knocking out a trusted minister – could frighten investors, sparking a spiral of selling.

Such panics are easily triggered and difficult to stop. Risk-averse investors will then race to drop exposed bonds, shares and other sovereigns, spreading crisis through the continent.

What the eurozone must do if it is to survive
The clear and present danger to the eurozone is Spain.
Wolfgang Münchau January 31 2010

Not a bang but a whimper: the threat facing the eurozone
Der Spiegel, the German news magazine, has caused a stir in Brussels by reprinting bits
Charlemagne blog, The Economist,Jan 25th 2010

Der Spiegel, the German news magazine, has caused a stir in Brussels by reprinting bits of an unusually gloomy internal report from the European Commission on the euro zone (the 16 countries that use the single currency). In particular, people have focussed on the report's finding that differing competitiveness among euro zone countries is "a cause of serious concern for the euro area as a whole." In a widely quoted extract, the report seen by Spiegel frets that:

...differences among euro zone countries "jeopardize confidence in the euro and threatens the cohesiveness of the euro area."

British Eurosceptics who have been predicting the collapse of the euro since before it was even created will no doubt be nodding sagely and feeling vindicated.

Who is going to buy the multiple trillions in government debt that the G-7 countries want to issue? The dollar may be the worst currency in the world, except for all the others.
Where do you put your reserves? The dollar? The euro? Really? The euro is not a currency, it is an experiment.
I think Spain is an even bigger nightmare for the EU when compared to relatively small Greece.
Italy? Belgium? Portugal? All those countries (and their voters) will be watching to see how the EU deals with Greece. The potential for volatility in the euro is just huge.
Walt Ratterman at John Mauldin January 15, 2010

The Greek government has promised to slash its fiscal deficit
from an estimated 12.7 per cent of gross domestic product last year to 3 per cent in 2012.
Is it plausible that this will happen? Not very.
But Greece is merely the canary in the fiscal coal mine.
Other eurozone members are also under pressure to slash fiscal deficits.
What might such pressure do to vulnerable members, to the eurozone and to the world economy?
Martin Wolf, January 19 2010

The task it is undertaking is huge. In particular, unlike most countries with massive fiscal deficits – the UK, for example – Greece cannot offset the impact of fiscal tightening by loosening monetary policy or depreciating its currency.

A big structural fiscal tightening will generate a deep recession.
That is sure to increase the cyclical deficit.

The government will soon be facing miserable public and private sectors, with no policy levers.

In an article in the FT last week, Desmond Lachmanof the American Enterprise Institute concluded that Greece will be forced to leave the eurozone.
Simon Tilford of the Centre for European Reform in London argued on these pages that it must be bailed out, instead.
There are two other possibilities:
Greece toughs it out;
or Greece just defaults.

Suddenly, the unthinkable would be thinkable. The eurozone could then confront a wave of sovereign debt and financial sector crises that would make what happened in 2009 look like a party.

A bail-out by the eurozone as a whole would create a monstrous moral hazard for politicians.
It would only be possible if the eurozone subsequently exercised a degree of direct control over the fiscal decisions of member states.
It would, in short, be the fastest route to the political union that many initially believed was a necessary condition for success.

Given the horrendous difficulty of all alternatives, I am sure the effort will be made to tough it out for as long as possible.

Some, knowing of my opposition to UK membership of the eurozone, may suppose that I find some pleasure in these looming difficulties. On the contrary, I fear the dangerous consequences.

Most of the time having an independent currency is nothing but a nuisance. But every so often and quite unpredictably, countries desperately need a safety valve.

Det handlar om vad jag vill kalla "brandförsäkringsargumentet".
En rationell sannolikhetskalkyl visar ju att man egentligen inte behöver någon brandförsäkring; risken att huset brinner är mycket liten.
Men om det sker och man saknar försäkring så slås hela ens tillvaro i spillror.
Det är inte sannolikheten i sig utan olyckans katastrofala följder som motiverar försäkringen.
Anders Ferm år 2000

Secession
Fears of a euro break-up have reached the point where the European Central Bank feels compelled to issue a legal analysis of what would happen if a country tried to leave monetary union.
Ambrose Evans-Pritchard 17 Jan 2010

Greek Prime Minister George Papandreou said there was "no chance" that Greece would exit the euro zone,
as the country's reform plans came under renewed criticism from the European Central Bank.
WSJ 14/1 2010

We are about to learn whether the euro can survive a two-speed euro zone.
Irwin Stelzer, WSJ 11/1 2010

It is unlikely that any of the so-called Piigs (Portugal, Ireland, Italy, Greece and Spain) will be able to get their fiscal houses in order any time soon. Of these, only Ireland seems to have the political will required to cut spending, and even that is not a certainty.
Which means that we are about to learn whether the euro can survive a two-speed euro zone.

The prospect that the euro zone as a whole will grow a bit obscures the wide disparity in the likely performance of its members. Germany and France should begin to recover, Greece and Spain might be another story altogether. It is this disparity that is most worrying to euro zone policy makers as their area-wide currency celebrates its eleventh anniversary, refuting by its continued existence those critics who said the new currency would not survive a serious recession.

Paul De Grauwe, a Brussels-based economist who advises European Commission President José Manuel Barroso, displayed more than a wry sense of humor when he told reporters, "If there are fears now that a breakup of the euro zone will lead to a weakening of the euro, then that is good news. So we should congratulate Greece for getting us out of … having a euro that is too overvalued."

Unemployment in the eurozone 10 per cent for the first time since the introduction of the single currency. Despite extraordinary measures to protect the labour market during the downturn, 4m have lost jobs across the 16 countries that use the euro, according to the European Commission’s statistical arm.
FT January 8 2010

Spanish unemployment, by contrast, is at 19.4 per cent, nearly three times its level before its credit-fuelled economy collapsed. Germany has 7.6 per cent unemployment.

The eurozone’s next decade will be tough
Many have argued that, within a currency union, current account deficits do not matter any more than between Yorkshire and Lancashire.
They are wrong.
Martin Wolf January 5 2010

What would have happened during the financial crisis if the euro had not existed?
The short answer is that there would have been currency crises among its members. The currencies of Greece, Ireland, Italy, Portugal and Spain would surely have fallen sharply against the old D-Mark.

That is the outcome the creators of the eurozone wished to avoid.
They have been successful.

But, if the exchange rate cannot adjust, something else must instead.
That “something else” is the economies of peripheral eurozone member countries. They are locked into competitive disinflation against Germany, the world’s foremost exporter of very high-quality manufactures.

Where does that leave peripheral countries today? In structural recession, is the answer.
At some point, they have to slash fiscal deficits. Without monetary or exchange rate offsets, that seems sure to worsen the recession already caused by the collapse in their bubble-fuelled private spending.

This leaves peripheral countries in a trap: they cannot readily generate an external surplus; they cannot easily restart private sector borrowing; and they cannot easily sustain present fiscal deficits.
Mass emigration would be a possibility, but surely not a recommendation.

The crisis in the eurozone’s periphery is not an accident: it is inherent in the system.

When the eurozone was created, a huge literature emerged on whether it was an optimal currency union.
We know now it was not.

Eurozone credit contraction accelerates
Bank loans and the M3 money supply in the eurozone contracted at an accelerating pace in November, raising the risk that a lending squeeze will choke the region's fragile recovery next year.
Ambrose Evans-Pritchard, 30 Dec 2009

Southern Europe is being ordered to carry out IMF-style austerity, without the IMF-style devaluation required to rectify the massive imbalances that have built up between North and South under the euro.
The victims are caught like France and Germany under the Gold Standard of the early 1930s, when society was broken on a wheel of deflation decrees.
Ambrose Evans-Pritchard, 20 Dec 2009

The EMU system has condemned Club Med to structural depression, with no way out. The logical – yet politically absurd – response of German Chancellor Angela Merkel is to talk of overriding national democracies in order to save the euro. "The question arises over what authority Europe has to tell national parliaments what to do, in order to avoid damage to Europe itself? National parliaments don't like to be dictated to about such things, but we need to address the problem," she said.

Det var inte inflationen - det var Depressionen
Germany "the new democracy survived serious threats to its existence in the early postwar years and found a semblance of stability from 1924 to 1928,
only to be submerged by the collapse of the economy after the Wall Street crash of 1929."
Ian Kershaw, New York Times, February 3, 2008

Standard & Poor's has put Greece on negative credit watch
"The situation in Greece is very difficult," ECB chief Jean-Claude Trichet told the European Parliament's economic committee. "So this calls for very difficult, very courageous but absolutely necessary measures."
BBC 7 December 2009

Trade imbalances will grow from their current low levels in the months ahead, and this is politically dangerous.
Deficit country economies remain extremely fragile, and even if they avoid a double dip recession their unemployment rates will continue to rise well into next year.
Kevin O'Rourke Eurointelligence 4.12.2009

Dubai and Euroland
What would happen if a member of the euro area could no longer finance its debt?
would default by one euro-zone country threaten the viability of the euro itself?
The Economist print Dec 3rd 2009

That Dubai World had financial troubles was known, but many investors had assumed its debts were backed by the government of Dubai, and ultimately by Dubai’s oil-rich neighbour, Abu Dhabi.

There are similar ambiguities within the euro bloc. If countries with rickety public finances, such as Greece, Ireland and Spain, ever found themselves unable to refinance their debt, would other euro members with deeper pockets rescue them? If not, would default by one euro-zone country threaten the viability of the euro itself?

Some think any problem will be Greece’s alone. After all, the treaty that created the euro contains a “no bail-out” clause that prohibits one country from assuming the debts of another.

Officials have said they will support Greece, but they haven't said how. This has some skeptics of the euro project wondering if the rich, thrift-minded EU states ultimately can be counted on to come to the aid of poorer and heavily indebted ones.
"They can choose solidarity or chaos," said David Marsh, author of The Euro: The Politics of the New Global Currency.
Fortune February 19, 2010

Any number of things could change in the euro zone in the next few years, Marsh said, depending on the terms offered debtors like Greece. He cites prospects ranging from smaller countries dropping out to a split of the EU into northern and southern regions to Germany pulling out, collapsing the project altogether.

David Marsh, author of The Euro: The Politics of The New Global Currency, said the danger for EMU laggards is that the ECB will begin to tighten before they are out of trouble.
It is German recovery that threatens to stretch the North-South divide towards breaking point.
Ambrose Evans-Pritchard, 22 Nov 2009

Eurons växelkurs har nått smärttröskeln för industrin i euroområdet.
Det är dåliga nyheter för tillväxten i hela Europa.
Det sade ordföranden för den europeiska företagarorganisationen Business Europe Jürgen Thumann
i ett uttalande på måndagen i samband med ett EU-möte om arbetsmarknaden.
DI 2009-11-09

Förutom Europafacket deltog även ekofinordföranden Anders Borg, eurogruppens ordförande Jean-Claude Juncker, ECB-chefen Jean-Claude Trichet och ekonomikommissionär Joaquin Almunia.

"Jag är djupt oroad över utvecklingen i växelkursen på senare tid. Euron har nått smärttröskeln för industrin i euroområdet", sade han.

"Det är oförenligt med G20-ländernas åtaganden för en ordnad upplösning av de globala obalanserna", fortsatte han.

"The euro at $1.50 is a disaster for the European economy and industry,"
said Henri Guaino, right-hand man of President Nicolas Sarkozy.
French finance minister Christine Lagarde said it was intolerable that Europe
should "pay the price" for a dysfunctional link between the US and China.
Ambrose Evans-Pritchard, 20 Oct 2009

Beijing has clamped the yuan firmly to the weak dollar for over a year, quietly benefiting from the export advantages. It accumulated $68bn (£41bn) in reserves in September alone as a side-effect of holding down the currency.
Fresh reserves are mostly being invested in eurozone bonds, pushing the euro higher.

15 miljoner arbetslösa i EurolandUnemployment levels across the 16 countries that use the euro rose to 9.7% in September, the highest rate since January 1999. This brought the number of people unemployed across the eurozone region to 15.3 million.
BBC 30/10 2009

Spain has the highest eurozone unemployment rate at 19.3%.
Latvia has the EU's highest rate at 19.7%.

Time for the ECB to get serious about the overvalued euro
The euros nominal and real appreciation since the end of 2000, resumed with a vengeance during 2009.
The strength of the currency is hurting the exporting and import-competing sectors of the Euro Area.
Unemployment and excess capacity continue to rise.
Willem Buiter's Maverecon October 18, 2009

I den senaste ekonomiska krisen framstod euron som en säkrare tillflykt än dollarn.
Den svenska kronan däremot fick flyta upp och ned (mest ned) på de internationella orosvågorna.

När det isländska alltinget för en vecka sedan med knapp marginal beslutade att lämna in en medlemsansökan sade EU-kommissionens ordförande José Manuel Barroso att beslutet var ett tecken på det europeiska projektets vitalitet.
Det kan man säga. Projektet lever, och euron har i den djupa ekonomiska krisen visat sig vara den fasta punkt man eftersträvade när den gemensamma valutan skapades.
Samtidigt är det ett svaghetstecken att en ledande företrädare för unionen behöver framhålla det lilla Islands vilja att delta som bevis på att projektet ännu inte är tömt på sin livskraft.
Johannes Åman, Signerat DN 25/7 2009

It could be that future generations of German politicians find ingenious ways around the balanced budget law.
Or that they find a two-thirds majority to overturn it.
Or that Mr Sarkozy or his successors follow Germany into a future of austerity.
But as long as one of those three events fails to happen, Germany may discover that unilateral fiscal rigour in a monetary union could prove extremely costly.
For the sustainability of the euro, you surely do not want to get into a position where a large member state has a rational economic reason to quit.
So if Germany and France really do what they both promise,
you may as well start the egg timer.
Wolfgang Münchau, Financial Times June 28 2009

The euro should appreciate to $1.53 (as against $1.40 recently).
Dollar Again Substantially Overvalued
"principally though not exclusively, against the Chinese renminbi and some other Asian currencies"
requires substantial dollar depreciation as well as a few others like the Swedish krona and the Swiss franc.
Peterson Institute for International Economics June 3, 2009

Latvia - IMF experts were overruled by Brussels
Contrary to revisionist talk, Argentina was not a basket case.
Its imbalances were no worse than those of the Baltics, Balkans, Spain, or Greece, and arguably better.
The denouement sequence is worth rehearsing since it offers a crude guide for those with euro pegs in Eastern Europe,
and ultimately perhaps for Club Med inside EMU.
The explosive power of this broad group dwarfs Argentina.
Ambrose-Evans Pritchard, Daily Telegraph 14 Jun 2009

The ECB estimated bank writedowns total of $649 billion,
with an estimated $366 billion already announced.
CNBC Reuters 15 Jun 2009

Euro-zone banks will probably need to write down another $283 billion this year and next on bad loans and securities, the European Central Bank said on Monday.

The ECB estimated bank writedowns due to securities -- or toxic assets -- would total around $218 billion from the start of the financial turmoil to the end of 2010, while bad loans would account for another $431 billion -- a total of $649 billion, with an estimated $366 billion already announced.

The figures were published in the ECB's latest Financial Stability Review,
which concluded that risks to the financial sector had increased in the last six months
amidst a deterioration in the economic environment which is putting pressure on the bottom line of companies and households.

$375 billion - It seems unfair. This was supposed to be a US crisis.
And now it turns out that the real banking mess is still coming for the eurozone
Adam S. Posen, Eurointelligence 5/6 2009

This mess is sizable.
The latest IMF Global Financial Stability Report estimates that a minimum of $375 billion
of capital will need to be injected into euro area banks, and perhaps as much as $725 billion
compared to $275 billion to $500 billion for the US banking system).

Sweden in the early 1990s is rightly held up as the example of how to this;
Japan from 1995 to 2001 is rightly held up as the example of how not to do this.
The difference comes down to how the government is forcing the banks to recognize the full extent of losses, and thus of capital needs.
Banks which are insolvent need to be either shut down, temporarily nationalized and reorganized before resale, merged with healthier banks,
or be subject to capital injections from the government in return for some form of shares.

As in the US, the blanket guarantees on deposits and various interbank assets prevented a panic, but also likely removed much of the market pressure on the banks to behave better.

jfr Kronan är en dyrbar lyx.
Omvärlden backar upp Sverige och Sverige backar upp Baltikum. även om Lettland fortsätter sin svältkur kommer förlusterna att bli mycket stora.
Barbro Hedvall, Signerat DN 2009-06-12

Why eurofederalists should be delighted with recent events
The extreme deflationary policies now being imposed on the weakest eurozone countries point to frightening implications.
The Greek and other Club Med governments can slash their deficits only at the cost of huge falls in economic activity. Without the possibility of devaluation they cannot hope for big export gains
Anatole Kaletsky, The Times 11/2 2010

The most likely structure for a rescue would not require any funding from Germany at all. The rescue would simply consist of a decision, approved by a qualified majority on the European Council to implement Article 122 of the Lisbon treaty.

But who would actually pay for such an EU bailout? This brings us to the second reason why eurofederalists should be delighted with recent events.

As it happens, the European Council quietly approved an increase in the EU’s borrowing powers from €12 billion to €25 billion in December 2008 and to €50 billion last April. This borrowing was approved to make sure that the EU had plenty of money to help new members such as Hungary, Latvia and Romania, which have not yet joined the euro.

To extend the facility to all EU countries would take just another quick majority decision. And given that EU bonds are automatically guaranteed by all member governments, including Germany, France and Britain, there would, in practice, be no limit to the amount that could be raised overnight.

The eurozone faces three threats more serious than any in the US or Britain:
the extreme vulnerability of Germany's economy to collapsing exports,
financial instability in Eastern Europe and
the growing tensions between the core and the periphery of the eurozone.
Between now and the German general election on September 27,
these dangers could combine into a perfect storm
Anatole Kaletsky The Times 9/4 2009

If you think Alistair Darling faces trouble in his Budget, spare a thought for Brian Lenihan, the Irish Republic's Finance Minister, who on Tuesday announced his second emergency budget in six months, imposing drastic tax rises, pension and wage cuts, still leaving his country with the by far the biggest budget deficit in the eurozone.
Irland

Or for Yannis Papathanassiou, his Greek counterpart. His country's credit has been downgraded to one notch above junk status and was justifiably described yesterday as teetering on the verge of bankruptcy in the German magazine Stern.
Grekland

Or for Pedro Solbes, the respected Spanish Finance Minister, who was sacked on Monday in response to the meltdown of an economy and banking system said to be invulnerable only a few months ago.
Spanien

Or even for Peer Steinbrück, the German Finance Minister, who, despite his swaggering boasts about the triumph of the Rhenish social-market model over Anglo-Saxon capitalism, presides over the weakest leading economy in the world outside Japan.
Tyskland

Ex-Bundesbank chief Karl Otto Pohl has just said that Ireland and Greece
are in danger of defaulting on their sovereign debts and/or may be forced out of the Euro
Ambrose Evans-Pritchard Daily Telegraph Feb 26, 2009

The U.S. government rescued giant insurer American International Group
in part because its collapse would dramatically hurt European banks
CNBC 06 Mar 2009

"Kronan räddar Sverige"
Att Sverige står utanför euro-samarbetet är vår räddning.
Det säger den franske analytikerräven Charles Gave.
"Jag är extremt oroad över Europa", säger han.
Dagens Industri 2009-03-13

Austrian banks have lent a total of $300bn to clients in the region (Eastern Europe),
equivalent to 68 per cent of Austrian gross domestic product, according to (BIS).
If Bank Austria, which is owned by Italy’s Unicredit, were included, the figure would rise to about 100 per cent
Financial Times February 25 2009

Will Germany deliver on the Faustian bargain that created monetary union?
The German finance ministry is drafting rescue plans to prevent
default on the edges of the eurozone
leading to a full-blown collapse of Europe's monetary system.
Ambrose Evans-Pritchard, Daily Telegraph 23 Feb 2009

European stocks tumbling to a six-year low
"We're near the cliff's edge, very close to capitulation, the mood is very gloomy," said Jean-Claude Petit, head of equities at Barclays Wealth Managers France.
"I'm not sure that governments and central banks are realizing what's really going on.
The gaffes made by West-European banks in East Europe revealed recently are having a devastating effect"
CNBC 20/2 2009

Vår slutsats blir att euron är bra för både näringsliv och konsumenter i Sverige, skriver Klas Eklund, Carl Johan Åberg och åtta andra nationalekonomer /däribland således Karolina Ekholm/.
- Den räntepolitik som förs av ECB i normalfallet kommer att stabilisera även den svenska ekonomin, skrev de.
Inte ens det är väl riktigt sant, men den viktiga frågan är vad som händer när läget inte är normalt, som t ex om världen skulle råka in i en Finanskris.
Rolf Englund blog 14/2 2009

Ever heard of the four PIGS?
This less than flattering acronym stands for Portugal, Italy, Greece and Spain, which are all in much deeper trouble than they are prepared to admit.
They are often considered the 'antidote' to the BRIC countries, the fast growing emerging market economies of Brazil, Russia, India and China.

The euro, or so the argument went, was doomed from the outset because of the wide spread in economic performance and discipline amongst the member countries.
At one end you had, and still have, the highly disciplined, but also slow growing, economies of Germany and the Netherlands.
At the other end you find the faster growing but poorly disciplined countries such as Spain and Greece.
As icing on the cake, you also had, and still have, countries that lack in both departments, such as Italy.

When the Stability and Growth Pact behind the euro was established, there was no reference made to unit labour costs which, with the benefit of hindsight, was a major mistake. Even Jean-Claude Trichet, the Head of the European Central Bank, who rarely admits mistakes, has publicly stated that if he could design the currency union all over again, he would push for a unit labour cost stability pact.

Another issue, which is potentially even more destabilising for the euro longer term, is the massive liabilities facing Europe as its population ages.
We have borrowed table 2 below from Goldman Sachs which makes no secret of the challenges facing a number of European countries.
Greece is clearly facing the biggest challenge. Public debt, which currently stands at about 95% of GDP, will grow to a whopping 555% of GDP by 2050 if the current pension and social security programme is left unchanged. The Greek government is painfully aware of this and have been working on several new initiatives.
It was the passing of one of those new laws which caused the riots in Athens before Christmas.

A third problem facing Europe is the sheer scale of the banking crisis. Although this is not just a European problem, European countries are probably worse off than the US because a larger part of European debt has to be financed externally.
As you can see from chart 1, more than $2 trillion of European and U.S. bank debt needs to be re-financed before the end of next year.
Unless there is a material improvement in market conditions, re-financing at such a massive scale is simply not doable.

Kenneth Rogoff and Carmen Reinhart published a research paper about a month ago which should be mandatory reading for all investors2. They have studied every single banking crisis of the past 100 years and reach some rather unsettling conclusions.
As they point out: "Broadly speaking, financial crises are protracted affairs".

"There is no risk that the euro will break apart," said Jean-Claude Trichet,
the European Central Bank's president, speaking at the World Economic Forum.
Ambrose Evans-Pritchard in Davos 30 Jan 2009

EU officials are furious over comments this week by Dominique Strauss-Kahn, head of the International Monetary Fund, who said the euro could prove unworkable unless the member states give up some control over fiscal policy.
"Otherwise, differences between states will become too big and the stability of the currency zone is in danger," he said.

The yield spreads on Greek 10-year bonds have reached post-EMU highs of 265 basis points over German Bunds.
The spreads have jumped to 236 for Ireland and 153 for Italy, levels unthinkable just months ago.

Enligt ledamoten Charles Wyplosz så hade den grekiska valutan gått omkull och troligen också den italienska, spanska, portugisiska och kanske också den irländska valutan
vilket hade tvingat länderna att söka hjälp från den internationella valutafonden. Charles Wyplosz menar att euron skapades för att undvika just valutakriser och därför nu fyller sin roll.
Ekot i anledning av SNS 27/1 2009

Iceland Is Sacrificed to Save EU:
Shame on Britain and Holland
The Brussels Journal, 2009-12-05

The European Union, in order to save itself from the faults of its own legislation, has decided that Iceland and the Icelandic people are expendable. Realising its own failures the EU has decided, through the British and Dutch governments, that the Icelandic authorities have to shoulder the responsibility which is rightfully the EU regulators’. This is what the so-called Icesave dispute is mainly about.

The dispute started in October 2008 when almost the entire Icelandic banking system collapsed. One of the three largest Icelandic banks, Landsbanki, had operated internet savings accounts in the United Kingdom and the Netherlands collecting large amounts of deposits by offering high interest rates. These accounts were operated with the approval of the British and Dutch authorities and their operation was made possible by EU laws.

According to a cruel joke making the rounds these days,
the difference between Iceland and Ireland is one letter and six months.
Speculation that the euro zone's breakup is imminent
Wall Street Journal 23/1 2009

An even crueler epithet calls London "Reykjavik on the Thames."
As European governments pile on mountains of debt to recapitalize their overleveraged banks and pump-prime their economies, the hitherto unthinkable is now a distinct possibility: national defaults.

On Monday, S&P downgraded Spain's credit rating to AA+ from triple A, following a similar cut for Greece last week.
Ireland and Portugal were put on credit watch, and Italy may be next in line.

The yield spreads between German bonds, the euro zone benchmark, and Greek, Belgian, Italian, Portuguese, Spanish and Irish bonds have widened to new heights -- an indication that the market considers the latter less safe.

All this has led to speculation that the euro zone's breakup is imminent.
Jean-Claude Trichet, president of the European Central Bank, felt compelled yesterday to dismiss such talk as "unfounded."

The euro is an anchor of stability, particularly for small members that otherwise would be much more exposed. Denmark may hold a referendum on joining the euro next year and in Iceland, which hitherto has declined to join even the European Union, a clear majority now favors adopting the single currency.

Being a member of the eurozone doesn’t immunize countries against crisis.
In Spain’s case (and Italy’s, and Ireland’s, and Greece’s) the euro may well be making things worse.
Paul Krugman, New York Times January 19, 2009

The eurozone economy will shrink 1.9% in 2009, the European Commission has forecast.
The whole European Union was facing a "deep and protracted recession".
Unemployment in the the 16 countries using the euro is expected to exceed 10% in 2010, up from 7.5% in 2008.
BBC 19/1 2008

The PIIGS
The euro zone faces tough times as the PIIGS — Portugal, Ireland, Italy, Greece and Spain —
will need a flexible exchange rate to compensate for the economic slowdown
so some of them may decide to break free from the single currency's straightjacket
Hugh Hendry, Chief Investment Officer and Partner at Eclectica, CNBC 12/1 2009

"The euro is a flawed mechanism. The euro has no flexibility.
We need drachmas, we need lira, we need pesetas… and we don't have them," Hendry said.

The euro marks its 10th birthday on New Year’s day at a perilous moment in global finance.
This month, the euro hit its highest level ever on a trade-weighted basis.
Ralph Atkins, Financial times December 30 2008

Capital markets have worried about public finances in some countries, leading to a dramatic widening of yield spreads, for example, on Greek and Italian bonds compared with German state debt.

Eurozone members trying to pull themselves out of recession will not have the option of currency devaluation, which could make the process more painful.

Such trends might make managing the eurozone harder, raising questions about its long-term future

Even if the eurozone has avoided a Lehman Brothers-style collapse, there is widespread agreement that the current fragmented system leaves the region dangerously exposed. Still, any moves to centralise bank regulation should be expected to encounter resistance from governments with an eye to the national interest – something James Bond would know all about.

We should not try to avoid 1929. We have already failed.
The best we can do now is to avoid 1930, 1931 and 1932
What about the €200bn European Union stimulus package that was agreed in a watered-down form by EU leaders on Friday?
Unfortunately, it is a public relations exercise first and foremost, designed to dupe people into believing that the EU is finally doing something.
Wolfgang Münchau, Financial Times, December 14 2008

Euroskeptics are easy to find in the Nordic capitals, and they won't accept that the financial turmoil has boosted the argument for the common currency.
"That's a totally ludicrous (amusing or laughable through obvious absurdity) assertion.
My view is that the euro will burst, and the sooner the better," said Rolf Englund, an economist who campaigned against the euro when Swedes rejected the currency in a 2003 referendum.
International Herald Tribune, October 16, 2008

Investors Raise Their Bets on Defaults in EU Countries
the cost of swaps linked to euro-zone countries including Italy and Greece has doubled in the past month.
Wall Street Journal, 31/10 2008

For Ireland, which introduced a €400 billion bank-guarantee program last month that is twice the size of its gross domestic product, investors' cost of insuring against debt default has risen eightfold since the start of the year.

The divergence in bond yields points up that even though the euro-zone nations share a currency and a monetary policy administered by the European Central Bank, investors still price the countries' creditworthiness individually.

The so-called spread between yield on the 10-year Italian Treasury bond and the corresponding German 10-year bond rose to 1.25 percentage point, after breaching the mark of a full percentage point Tuesday for the first time since the euro's launch in 1999.
In early 2007, that gap was about 0.2 percentage point.

The interest spread between Italian 10-year bonds and German Bunds has reached 108 basis points, the highest since the launch of the euro.
Ambrose Evans-Pritchard, 31 Oct 2008

Italy's public debt is the third largest in the world after the US and Japan. At 107pc of GDP, it is the highest of any major economy in the eurozone and almost double the 60pc limit stipulated by the EU's Maastricht treaty.

Has the international financial crisis exposed the cracks in the European Union's single market?
And are concerns over the economic national interest now over-riding the broader goal of European integration?
These are the questions being asked by those committed to an "ever closer union" referred to in the words of the EU's founding Treaty of Rome.
BBC 6 October 2008

Germany will guarantee all private savings accounts
Hypo Real Estate, Germany's second biggest commercial property lender, is in trouble after a 35bn euro rescue plan collapsed.
Ms Merkel had previously been strongly critical of the Irish and Greek governments' decisions to take independent action to protect all savings deposits.
BBC 5 October 2008

German Finance Minister Peer Steinbrueck, deputy leader of Social Democrats,
"The world will never be as it was before the crisis,"
"The United States will lose its superpower status in the world financial system. The world financial system will become more multi-polar."
Reuters 25 Sep 2008

The crucial problem on this side of the Atlantic is that the largest European banks have become not only too big to fail, but also too big to be saved.
The total liabilities of Deutsche Bank (leverage ratio over 50!) amount to about €2,000bn (more than Fannie Mae) or more than 80 per cent of the gross domestic product of Germany.
This is simply too much for the Bundesbank or even the German state, given that the German budget is bound by the rules of the European Union’s stability pact
Daniel Gros and Stefano Micossi, Financial Times, September 23 2008

Similarly, the total liabilities of Barclays of around £1,300bn (leverage ratio 60!) are roughly equivalent to the GDP of the UK. Fortis bank has a leverage ratio of “only” 33, but its liabilities are three times the GDP of its home country of Belgium.

Given that solutions for the largest institutions can no longer be found at the national level it is apparent that the European Central Bank will need to be put in charge as it is the only institution that can issue unlimited amounts of a global reserve currency.

Could the credit crunch destroy the Eurozone?
The historical precedent is not the Great Crash of 1929.
Rather, it is the Japanese property bubble of 1989 and the deflation and long-term stagnation which followed.
George Irvin, EU Observer, 31/7 2008

What if one of the member states of the eurozone were to default on its debt?
On the occasion of the euro’s 10th birthday, this has become the most frequently asked question about the single currency zone.
Wolfgang Münchau, Financial Times January 18 2009

The probability of a default is low but clearly rising. The decision by Standard & Poor’s, the ratings agency, to downgrade Greek sovereign debt and to put Spanish and Irish debt on watch seriously rattled investors last week, for good reason.

If the financial crisis has taught us one thing, it is to take perceived tail-risks more seriously.

Before I answer the question, it is best to consider what would not happen. For a start, the eurozone would not fall apart. A government about to default would be mad to leave the eurozone. It would mean that, in addition to a debt crisis, the country would also face a currency and banking crisis. Bank customers would simply send their euros to a foreign bank to avoid a forced conversion into a new domestic currency.

So we are stuck with the eurozone for better or for worse. If a default happens, the central banks and governments of the eurozone would be forced to co-ordinate their policies whether they liked it or not. Under its statutes, the euro system, which includes the ECB and the national central banks, is not allowed to monetise (that is, buy) new sovereign debt or to grant overdraft facilities. But the ECB is allowed to buy debt in the secondary markets, which is a way of monetising debt. All it would take is a decision by the ECB’s governing council.

Putting roughly the same value on Greek and German debt – which is what financial markets did for most of the last 10 years – never made sense.

If you assume the worst-case scenario of a default by five or six countries, a full fiscal union would be more probable than a break-up.

Meltdown
Two aspects of the eurozone economy are often mixed up. One is its overall performance.
The other is the divergences that at any time exist within the single currency area.
If you look at the eurozone from a great height, a meltdown of the Spanish economy looks like a minor regional wildfire.
Wolfgang Münchau, Financial Times, July 20 2008

Den stigande räntan drabbar inte svenskarna lika hårt som i många andra länder i Europa.
Den svenska ekonomin är betydligt bättre än i övriga EU, vilket gör det möjligt att kombinera räntehöjningen med en expansiv finanspolitik med bland annat sänkta skatter.
Lars Calmfors, Ekonomiekot 4 juli 2008

De flesta euroländer har inte en ekonomi som tillåter en mer expansiv finanspolitik.

De länder som ändå försöker sig på det riskerar att bryta mot euroländernas ekonomiska regler i den så kallade stabilitetspakten.

– Problemet är ju då att situationen ser ganska olika ut i olika länder. Tyskland kanske kan ta det här därför att där har man haft en ganska stark konjunkturutveckling jämförelsevis. Men sedan har vi ju länder som Spanien, Italien och Irland, där lågkonjunkturen är mycket starkare.

Så att det kommer helt klart att uppstå stora spänningar inom euroområdet, som är just den typ av spänningar som uppkommer när man ska ha en ränta för ett stort antal länder, där de ekonomiska förhållandena kan se väldigt olika ut, säger Lars Calmfors

``They have been thrown to the wolves,'' said Stuart Thomson, who helps manage $46 billion in bonds at Resolution Investment Management Ltd. in Glasgow, Scotland. `It's much easier to bring inflation lower if you're willing to have a recession in economies like Spain, Italy and Ireland.''

The Irish economy contracted for the first time in more than a decade in the first quarter. Growth in Spain was the slowest in 13 years in the period,

Has Europe's terminal crisis begun with a triple no vote?
The ultra-Europeans have overplayed their hand. We can now glimpse a chain of events that will halt, and reverse, this extremist push towards an Über-state that almost no one wants.
Ambrose Evans-Pritchard, Daily Telegraph, 23/6 2008

The attempt to override the triple "No" votes of the French, Dutch, and Irish peoples has brought the EU to a systemic crisis of legitimacy.Has Europe's terminal crisis begun with a triple no vote?

Germany and Spain have clashed in an escalating dispute over the European Central Bank,
exposing the deep rift that has emerged between Europe's North and South.
Ambrose Evans-Pritchard, Daily Telegraph 10/6 2008

Why would the euro fall? Because the currency is still an experiment in cooperation.
At some point, one or more of the weaker European countries is going to need more monetary stimulation than the majority of the countries in the union, for a variety of reasons.
Will they pull out to be able to issue their own fiat currency?
John Mauldin May 30 2008

In the past fifteen years, France government debt to GDP has moved from 35% in French Franc (i.e.: a currency the government could print at will) to 70% in Euros (i.e.: a currency that only the ECB can print).

No wonder that Francois Fillon, the current French Prime Minister recently declared: "I run a state which now stands in a situation of financial bankruptcy, which has known deteriorating deficits for fifteen straight years and which has not voted a balanced budget for twenty-five years. This cannot last."

As the euro soars, the pressures of adjustment to internal divergence are likely to grow to enormous levels.

The report is honest about these challenges. Between 1999 and 2007, huge divergences in inflation, relative unit labour costs and current account positions emerged (see charts). These tendencies were exacerbated by the divergence in real interest rates, with the lowest rates in the countries with the highest inflation and – perversely, but inevitably – the strongest economies.

The stories here are two:
the divergence in relative unit labour costs between Germany, on the one hand, and Ireland, Portugal, Greece, Spain and Italy, on the other;

and the scale of the credit-fuelled property booms in Spain and Ireland.

A 10 per cent improvement in relative unit labour costs would demand a 10 per cent decline in relative wages.
If that were to happen over, say, five years, nominal wage increases would probably have to be in the 0–1 per cent range.
Little short of a recession is likely to generate that result.

ECB marking its 10th anniversary June 1, has failed in each of the last eight years to achieve its aim of bringing inflation below 2 percent.
Sticking with the current number may result in ``a pyrrhic victory by pushing inflation within target but having destroyed the real economy,''
says Thomas Mayer, chief European economist at Deutsche Bank AG in London.
Bloomberg May 27 2008

There is no excuse for Britain not to join euro
The case for the UK shedding sterling and adopting the euro has never been clearer.
Willem Buiter, FT June 2 2008

From a conventional macroeconomic perspective, there is no reasonable argument for a small, highly open economy such as Britain’s to retain monetary independence

To those loudly insisting all this week that Britain should have joined the euro ten years ago,
I can only say: are you completely mad?
Ambrose Evans-Pritchard 08 May 2008
Highly recommended

Celebrating 10 years of the euro?
By Stephanie Flanders
Economics editor, BBC News 7/5 2008

About 16 million jobs have been created in the eurozone since the birth of the euro, and unemployment has fallen, from 9% in 1999 to 7% in 2007.

Of course, neither of these achievements is necessarily due to the euro, any more than the fall in average inflation and long-term interest rates can be directly attributed to the European Central Bank.

Nearly all of the world's advanced economies have seen a steady decline in inflation since the late 1980s (at least until recently), a development that has pushed down interest rates as well.

EMU@10 is a very substantial document about the future of the euro area – by far the most comprehensive and thoughtful report we have yet seen. It has three parts. We will ignore the first, which looks back at the first ten years, as well as the second on future challenges,
and focus on the third about policy co-ordination, the most important from our point of view.

There are three schools of thought about euro area policy co-ordination.
here are those who want a new treaty to produce genuine gouvernance economique to subject the ECB to political dictat.
There are those who want to stretch the existing framework (“let’s see how far the ambiguity over exchange rate policy can take us”).
And there are those who want to work under the existing framework.

What is remarkable is that the European Commission is departing from the previous line that economic reforms should be dealt with purely under the framework of the Lisbon Agenda.
This report acknowledges that there are euro area-specific, rather than EU specific, externalities in economic reforms.
And while the Commission does not favour a new Lisbon Agenda for the euro area alone, it proposes structures to deal with implementing reform policy co-ordination at the euro area level.
Eurointelligence 8/5 2008

The unemployment rate in Spain jumped the most in 15 years to a three-year high
as the building market contracted. The jobless rate rose to 9.6 percent
April 25 Bloomberg

The pain in Spain
Spain's long property boom has come to a painful end
The experience of Sweden, where housing investment declined by 71% between the peak in 1990 and the first (not final) trough in 1995, suggests that such adjustments can be dramatic.
The Economist April 22nd 2008

Europe's monetary union, which launched the euro almost a decade ago,
remains an "experiment" with the outcome "likely to remain uncertain for a considerable time to come"
writes Otmar Issing, who served as the European Central Bank's chief economist for its first eight years
Financial Times, April 16 2008

Jean-Claude Juncker, the EU's 'Mr Euro',
matters could get out of hand unless America took steps to halt the slide in the dollar.
Daily Telegraph 19/4 2008

The euro hit a record high against the dollar after data
showed eurozone inflation hits its highest level since the introduction of the single currency. - 3.6 per cent in March.
FT, April 16 2008

In truth, as the euro approaches its tenth birthday celebrations, it is facing the biggest test of its short life
The euro is about to show the world that it is not yet an optimal currency area — and the demonstration may not be a pretty one.
The Economist print, April 10th 2008

ECB has been reluctant to cut rates is not because growth is so robust but because inflation has picked up to 3.5%—the highest in the euro's nine-year existence.

And two bigger worries have emerged. The first is the strength of the euro. Mr Almunia, economics commissioner, says the euro is “overvalued” and adds that, although the impact has been moderate so far, “we are at the limits, if not beyond them.”

The second worry is the housing market. Europe may have avoided the American subprime mess, but in several countries house prices have been even bubblier than in America. They are already falling in Spain and Ireland, and, beyond the euro zone, are starting to do so in Britain. A property bust may not produce an American-style mortgage meltdown, but it will surely topple economies heavily dependent on construction
(which accounts for 15% or more of Spanish and Irish GDP, for example).

Even critics of the euro would concede that it has had considerable success, establishing itself in less than a decade as a genuine rival to the dollar as a world currency. But...

But some countries have adapted a lot better to the discipline of the euro than others. Germany and the Netherlands have cut labour costs and introduced enough reforms to make their economies more competitive. France, Spain and especially Italy have done less—and are suffering more, from both the euro's rise and the global slowdown.

Though many observers are rightly concerned about Spain, it may be Ireland that becomes the next serious test of EMU’s one-size-fits-all monetary policy.
Alan Ahearne, Eurointelligence 6/4 2008

The European Commission Predicts Weaker Growth, Higher Inflation in 2008
The economy of the 15 nations that share the euro will expand 1.8 percent this year, the weakest since 2005.
Inflation will average 2.6 percent, the fastest since the euro was introduced in 1999
Feb. 21 2008(Bloomberg)

Yet if the storm is peaking in the US, it has hardly begun in Europe.
"The next really big shock to financial markets is likely to be the risk of collapse in the EMU credit bubble: the private sector credit consequences are likely to be catastrophic"
Ambrose Evans-Pritchard

Byggkrasch nära i Spanien
Det är en konsumtionsstyrd ekonomi som i hägnet av gemensamma euron har häpnadsväckande underskott i utrikeshandeln.
Fredrik Braconier SvD 2008-01-04

Spain and Italy threaten EMU stability
Ambrose Evans-Pritchard, 8/1 2008

Click

Companies in Britain and Europe have failed to place a single high-yield bond
since the credit crunch kicked off in August, and
may now have to wait until next year before the credit market reopens for business.
Will Europe survive the euro?
Ambrose Evans-Pritchard, Daily Telegraph, 29/11/2007

As the euro brushes $1.50 against the dollar,
it is already too late to stop the eurozone hurtling into a full-fledged economic and political crisis.
We now have to start asking whether the EU itself will survive in its current form.
Ambrose Evans-Pritchard, Daily Telegraph 23/11 2007

As Airbus chief Thomas Enders warned in a speech to the Hamburg workers last night, Europe's champion plane-maker - the symbol of European unification, in the words or ex-French president Jacques Chirac -- is now facing a "life-threatening" crisis.

The sudden rocketing in sovereign bond spreads this week between core German Bunds and Club Med debt - Italian, French, Spanish, Portuguese, Greek, as well as Irish, Belgian and Slovenian - is a clear sign that markets are starting to price in a break-up risk for the single currency, however remote.

The euro soared to another record high against the sagging dollar,
climbing above $1.47 for the first time
CNN 2007-11-07

"Some thougths about the future of the euro"
The real threat to the cohesion of the monetary union is not Italy, or even a post-property-crash Spain.
The real issue is the political gulf between France and Germany.
Susanne Mundschenk and Wolfgang Münchau, Eurointelligence 18/10 2007

Why The IMF’s Decision To Agree A Lavian Bailout Programme Without Devaluation Is A Mistake
Edward Hugh, Paul Krugman (and Anders Åslund)December 23, 2008

Paul Krugman
I’ve been saying this for a couple of weeks, but Edward Hugh has the goods.
Hugh puts his finger, in particular, on one gaping hole in the logic of the opponents of devaluation. We can’t devalue, they say, because the Latvian private sector has a lot of debts in euros, and a devaluation would make it very hard for borrowers to service those debts. As Hugh points out, the proposed alternative — sharp wage cuts, and basically a major domestic deflation — will also make it hard to service those debts.
Read more here

The wolf packs are circling. Hedge funds target currency pegs
Fifteen years after George Soros smashed the sterling and lira pegs of Europe's Exchange Rate Mechanism, central banks have invited hedge funds to pounce again. This time on a global scale.
Ambrose Evans-Pritchard, Daily Telegraph 15/10/2007

The global M3 money supply is growing at 10.6pc as stimulus from America, Europe – and Japan, through the carry trade – leaks out to the vibrant parts of the world economy... With the usual lag, inflation has at last hit.

The easiest prey are in the Baltics and Balkans, where EU newcomers have let rip by importing an ECB monetary policy designed for the slow barges on the Rhine. All are overheating.
Inflation is now 11pc in Latvia, and 7pc in Estonia and Lithuania. Property prices in the capitals of all three are more expensive than Berlin. Inflation is 12pc in Bulgaria and 6pc in Romania.
The ECB has now invited the wolves to kill...... more

The dominoes are toppling.
What began as a credit crunch has turned into a dollar crunch.
We are witnessing a run on the world's paramount reserve currency,
an event that occurs twice a century or so
The needs of the Germanic and Latin zones are incompatible and
a coin with no treasury, debt union, or polity to back it up cannot displace the dollar — if it survives at all.
Ambrose Evans- Pritchard, Daily Telegraph 1/10 2007

The dollar broke above $1.40 per euro for the first time
Bloomberg 20/9 2007

The euro slipped to a six-week low against the U.S. dollar on Wednesday and
high-yielding currencies stayed weak as investors continued to unwind risky positions
on concerns that fallout from the U.S. subprime problems is spreading to other countries.
CNBC/Reuters August 14, 2007

The ECB made a total of four cash interventions since last Thursday
after investors panicked when it became clear that European banks were vulnerable to the US turmoil.
The total pumped into the European banking system to help keep lending activity from freezing up came to around €200 billion
- on Tuesday (14 August) the bank gave another fresh cash injection of €7.7 billion.

The European Central Bank on Monday injected another 47.67 billion euros ($65 billion) into the banking system
13 Aug 2007 08:06 AM ET

Speculation is mounting that the European Central Bank will seek to arrange a currency swap
with the US Federal Reserve that would allow it to lend dollars to
European banks struggling to meet short-term dollar funding needs.
Financial Times, August 13, 2007

The European Central Bank made a second move to boost liquidity in the financial market Friday,
putting 61.05 billion ($83.6 billion) into the euro money markets,
having already injected 94.8 billion euros Thursday.
CNBC.com 10 Aug 2007 06:11 AM ET

Med nödkrediter på nästan 900 miljarder kronor,
mer än man pumpade ut efter terrorattackerna den 11 september 2001,
lyckades Europeiska centralbanken avvärja en allmän panik på Europas finansmarknader.
Gunnar örn, Dagens Industri 8/10 - den 10 augusti - 2007

Paniken borde egentligen vara obefogad
med tanke på att den amerikanska bolånekrisen inte är särskilt omfattande i pengar räknat.
Den totala bolånemarknaden i USA är värd i storleksordningen 3.000 miljarder dollar. Av detta klassas en femtedel, ungefär 600 miljarder dollar, som högrisklån. Av dessa högrisklån kan så mycket som var femte fordran visa sig vara värdelös, enligt en bedömning gjord av centralbanken Federal Reserve. Totalt handlar det alltså om möjliga kreditförluster på drygt 100 miljarder dollar.

The European Central Bank scrambled to head off a potential financial crisis on Thursday by pumping an emergency €94.8bn ($131bn) into the region’s banking system
after liquidity in the interbank market started to dry up, threatening banks’ access to short-term funds.
Financial Times 8/10 2007

The cash injection was the biggest in the ECB’s history, exceeding the €69bn provided the day after the terrorist attacks of September 11 2001. The ECB also made an unprecedented one-day pledge to meet 100 per cent of all funding requests from financial institutions.

In “The Coming Collapse of the Dollar,” James Turk and I said this about the effect of a falling dollar on other countries:
The only reason Japan or Europe can generate even their current meager rates of growth is the willingness of U.S. consumers to buy their Hondas and BMWs.
John Rubino 7/20/2007

So what if the euro rises above $1.40?
What will the Europeans do in that case?
What we are most likely to get is confusion followed by panic.
Wolfgang Münchau, Financial Times, 16/7 2007

Germany needs to formulate a response to Sarkozy or the only proposal on the table will be Sarkozy’s anti-stability, anti-competition, pro-currency-intervention proposals.
Wolfgang Münchau, Eurointelligence 12/7 2007

The euro has continued its dramatic surge to record highs against the dollar, causing serious strains in southern Europe and renewing concerns about the long-term viability of monetary union.
Ambrose Evans-Pritchard, Daily Telegraph, 12/07/2007

The country that most troubles outsiders is Latvia.
It has a whopping current-account deficit: some 21% of GDP in 2006, soaring consumption and debt, financed mainly by foreign-owned banks.
This points to a need for tough restraining measures. But the currency, the lats, is pegged to the euro, so the central bank's ability to raise interest rates is constrained.
RE: Like in Sweden before 1992 and allt that
The Economist print July 5th 2007

French and Italian industrial production both unexpectedly fell in April
as a stronger euro crimped exports, suggesting Europe's fastest growth in six years may have peaked.
Bloomberg June 11 2007

Finns euron kvar om 15 år?
Euron blev verklighet därför att det fanns europeiska ledare - Helmut Kohl, Francois Mitterand, Jacques Delors - som önskade sig de nya pengarna.
Om deras efterträdare bestämmer sig för att inte tro på projektet, då kommer det förr eller senare att haverera.
Peter Wolodarski Signerat DNs ledarsida 3/6 2005

I en viktig fråga är EMU-projektets varmaste anhängare och argaste kritiker helt överens:
för att valutaunionen ska hålla, måste den förr eller senare leda till politisk union.
”Det finns inget historiskt exempel på en beständig valutaunion som inte varit kopplad till en stat”, har ECB:s chefsekonom Otmar Issing förklarat.
Gunnar örn DI 7/6 2005

For the first time, respectable voices - i.e., those deemed respectable by the European elite -
are raising serious questions about the future of the euro.
The issue is not really so much the future of the currency as the fact that, in May, the euro's future became a reasonable topic of conversation.
John Mauldin, Thoughts From The Frontline, 24/6 2005

"tensions" from "persistent divergences in growth and inflation" among its members, the European Commission warned
The report represents one of the sharpest official warnings that the euro remains fragile
Wall Street Journal 23/11 2006

Italy is often mentioned as the country most likely to leave the euro. I disagree.
If any country ever decided to quit that country would be Spain.
Wolfgang Munchau, Financial Times February 20 2006

Joaquín Almunia, EU monetary affairs commissioner 280-page report on the low pace at which countries have adapted to the euro since its launch in 1999.
fear that a downturn could exacerbate problems in unreformed economies and heighten political and public criticism of the euro
Financial Times 23/11 2006

Now, some experts are becoming concerned that
without further moves towards political integration in Europe, one of the most tangible symbols of European unity -
the euro - could collapse.
BBC 14/5 2006

Could the eurozone disintegrate? - The answer is yes.
If /Italy/ fails to rise to the challenge it confronts, a default or even a forced withdrawal from the eurozone is perfectly conceivable.
Martin Wolf Financial Times 25/5 2005

John Rubino 7/20/2007:
In “The Coming Collapse of the Dollar,” James Turk and I said this about the effect of a falling dollar on other countries:
The only reason Japan or Europe can generate even their current meager rates of growth is the willingness of U.S. consumers to buy their Hondas and BMWs.
As the dollar plunges, Japanese and European goods, priced in suddenly-appreciating currencies, will become prohibitively expensive for U.S. consumers, who will respond by buying U.S.-made alternatives or nothing at all.

Correctly interpreting this change in buying patterns as a threat to their vital export sectors, European and Japanese leaders will respond with the only weapon they have left: monetary inflation. They’ll cut interest rates and buy dollars with their currencies, flooding the world with euros and yen the way the U.S. now floods the world with dollars.

So what if the euro rises above $1.40?
What will the Europeans do in that case?
What we are most likely to get is confusion followed by panic.
Wolfgang Münchau, Financial Times, 16/7 2007

My prediction is that they will first have a fight about who is in charge.
This has now turned into a fight among politicians, specifically between President Nicolas Sarkozy of France, who has asked for a more interventionist exchange-rate policy, and Angela Merkel, the German chancellor, who has said she will not permit this.

If the euro continues to appreciate, Germany in particular will suffer from a sustained exchange-rate overshoot, as its economy remains as dependent as ever on a successful export sector.

There are non-trivial structural risks that the euro may appreciate further in the short-to-medium term.If it does, Mr Steinbrück (“I’m not worried about a strong euro. I love a strong euro”) will not only have to eat his words. More worryingly, he and his European colleagues will have no idea what to do under these circumstances.

Germany’s ability to improve its competitive position through a devaluation of the real exchange rate has run its course.

My hunch is that the German government will find it difficult to stick to its current position and that Mr Sarkozy will win this argument.

It would be much better if the eurozone adopted a more structured process to deal with exchange rate overshoots.
But in the absence of such a strategy, what we are most likely to get is confusion followed by panic.

The long-run performance and success of the EMU depends on whether economic convergence or divergence is occurring.
Nouriel Roubini, New York University and RGE Monitor, 28/6 2007

Now several years after the formation of the monetary union (formally started in 2002 but already effectively in place since 1999) there is enough economic data to make a preliminary assessment of the success of the monetary union.

Here is a concise overview of the economic criteria that make a currency or monetary union desirable....

In the RGE paper (co-authored by Christian Menegatti, Elisa Parisi-Capone and myself) that we presented at the EMU conference we conducted a systematic overview of the evidence on economic convergence or divergence within the EMU.

The only country where the external adjustment has taken place has been Germany: but even in this case the adjustment was very slow and took more than a decade: the shock of German unification and the ensuing loss of competitiveness of Germany took more of a decade to be unraveled via a painful process of corporate restructuring and significant wage moderation.

Iin the process leading to EMU real interest rates sharply fell in countries such as Spain, Portugal, Ireland and the Netherlands. This reduction in real interest rates led to an economic boom and overheating that – in the countries above – took also the form of a housing boom with excessive investment in real estate and sharply rising home prices. The ensuing economic bust in the Netherlands and Portugal was particularly painful.

The housing bust that is likely to now occur in Spain - and possibly even Ireland – will be similarly painful.

One serious open question if whether the countries – Italy, Portugal, Spain, Greece - that have experienced a significant loss of competitiveness and real exchange rate misalignment will be able implement reforms that will increase productivity growth, reduce relative unit labor costs and allow them to regain their lost competitiveness. There are some reasons to be cautiously pessimistic. Even ECB executive board member Lorenzo Bini-Smaghi - who strongly argued that EMU has been a success – admitted that these countries may have to go through a long and painful adjustment period to regain the lost competitiveness.

French president Nicolas Sarkozy yesterday instructed his staff to draw up plans on "the means for implementing an exchange rate policy" in co-operation with the 13 finance ministers of the eurozone, showing that he intended to press ahead with his campaign to clip the wings of the European Central Bank. The aim is to twist the arm of the ECB, until it agrees to slow the pace of rate rises.

"When the dollar loses 33pc of its value against the euro, how can our industries regain the competitiveness lost unfairly due to political manipulation by the rest of the world?" he told Euro MPs last week.

The current account deficits of Spain, Greece, and Portugal have all reached 10pc of GDP. While the slippage in France is less dramatic, it has been enough to cause deep soul-searching in Paris about the value of euro membership on current terms.

Bernard Connolly, global strategist for Banque AIG, said investors switching from dollars to euros were mistakenly treating Germany as if it were a "proxy" for all Europe. "What they fail to recognise is that Spain, Italy, and France are in a worse state than the US, and are even more dependent on a global credit bubble to support demand," he said.

The euro advanced to a record against the dollar in April, making European goods less competitive at a time when the economy of the U.S., the region's biggest export market, has slowed. The European Commission predicts euro-region growth will cool to 2.6 percent this year, from 2.7 percent, still robust enough for the European Central Bank to push interest rates higher.

The declines in French and Italian output come after a report showing German industrial production fell in April for the first time in six months. Manufacturing in the euro region expanded at the slowest pace in more than a year in May.

The unemployment rate in Spain jumped the most in 15 years to a three-year high
as the building market contracted. The jobless rate rose to 9.6 percent
April 25 2008 Bloomberg

The Spanish economy has been a driving force for economic activity in the euro area for more than a decade, with year-on-year GDP growth exceeding the average rate of expansion in the euro area in every quarter since 1995.
The good times are now over.

The weakness began last year in the housing market — the major driver of the Spanish economy over the last ten years. The danger signs are now spreading to other sectors of the economy.

The Economist Intelligence Unit has cut its forecast for Spanish GDP growth to just 1% in both 2008 and in 2009, compared with an annual average rate of expansion of 3.8% in 1998-2007.

Rising employment in the construction sector has accounted for a substantial share of overall employment growth in recent years, while house prices are estimated to have increased by 190% between 1997 and 2007—only Ireland and the UK have experienced a similar hike in prices among major industrialised countries.

A return to a more normal level of housing investment would take off some 3 percentage points of GDP, and in order to absorb earlier excess construction, a temporary fall to below the normal level would probably be necessary.

The experience of Sweden, where housing investment declined by 71% between the peak in 1990 and the first (not final) trough in 1995, suggests that such adjustments can be dramatic.

With Spain being a member of the euro area (and a departure from the club out of the question), a devaluation of the currency to improve competitiveness and boost export demand is also not an option (although the high, and rising, current-account deficit would suggest a serious overvaluation).

President Nicolas Sarkozy
"How can you continue to export if the euro is the only currency in the world
that is overvalued compared to the dollar, the yen and the yuan?
Daily Telegraph 7/6 2007

The ECB has doubled rates since December 2005, a key factor driving the euro to record highs. While a resurgent Germany can take the strain, most of the "Club Med" bloc is losing export share - including France.

"How can you continue to export if the euro is the only currency in the world that is overvalued compared to the dollar, the yen and the yuan?
How can a sector make ends meet if its productivity gains are eaten up by the artificial depreciation against the euro?'' he told farmers.

Sarkozy
We have no indication to believe that he intends to backtrack on anything.
Far more than Italy's economic weakness, or a Spanish housing market meltdown,
this is the stuff which could endanger the long-run viability of the euro.
Wolfgang Münchau 4/6 2007

Sarkozy is no fool. He is a former finance minister, who knows exactly what he is talking about. He has formed a firm view of economic governance both in France and in the euro area. And he has come to a different conclusion that most of us have.

From the vantage point of a populist politician who is keen to break with the past, Sarkozy is in fact totally consistent. Treat the ECB, the Commission, and the Germans as your enemy, and play the role of Robin Hood, who takes the money from the evil ECB and hands it to the poor.

This, far more than Italy's economic weakness, or a Spanish housing market meltdown, is the stuff which could endanger the long-run viability of the euro.

Axel Weber, the hawkish head of the Bundesbank, is alarmed by a 10.9pc surge in the M3 money supply
In an unprecedented rift, the heads of the Bundesbank and the Banque of France have contradicted each other in public,
exposing an emerging rift between Europe's north and south.
Ambrose Evans-Pritchard Daily Telegraph 18/05/2007

France and Germany have begun to clash openly over control of monetary policy in the eurozone, taking starkly different views about the rising threat of inflation. In an unprecedented rift, the heads of the Bundesbank and the Banque of France have contradicted each other in public, exposing an emerging rift between Europe's north and south.

Axel Weber, the hawkish head of the Bundesbank, is alarmed by a 10.9pc surge in the M3 money supply in March, the highest growth rate for the region in almost a quarter of a century. The less-watched M2-M3 gauge rose 19.8pc - anathema to monetary hawks in Frankfurt.

The comments were flatly contradicted hours later by Christian Noyer, France's bank chief. "There is no concern that inflation will get out of hand. The risk has not increased," he said, showing his irritation.

The north-south clash reflects the yawning gap between a resurgent "Teutonic Tiger" conquering markets in Asia and Eastern Europe, and a sickly France being left behind. The strong euro is slowly asphyxiating French exporters.

The rest of the Club Med bloc is lining up behind Paris. Romano Prodi, Italy's premier, said: "I am worried about the relentless rise of the euro. We have reached a point where it has become truly a burden."

European finance ministers
The incoming French president was warned there was no enthusiasm for his election calls for the ECB’s mandate to be amended to focus it on creating jobs and growth as well as fighting inflation.
Financial Times 9/5 2007

The eurozone has now split into two incompatible camps.
"The euro is our currency but everyone else's asset," bemoaned Josef Christl, from Austria's central bank.
Ambrose Evans- Pritchard, Daily Telegraph 30/4 2007

Madness was at full throttle last week as the stateless currency of the world's least dynamic bloc surged to an all-time high near $1.37 against the dollar. It brushed yen163 against the yen, a rise of 80pc since 2001. The euro is even lording it over the Swiss franc.

This rise has occurred at a time when a) the EU's "Lisbon" drive to unshackle the economy and close the technology gap with America has flopped, b) France, Italy, Spain, and Poland are openly defying the EU's single market rules, c) the grand plan to create an EU superstate has collapsed, leaving the euro an orphan currency, with no sovereign entity behind it, and no hope of an EU Treasury or debt union to see it through a crisis.

The world plainly wants euros. Investors are willing to believe for now that the currency is a sort of big D-Mark reflecting the wonders of the German export machine - forgetting about 180m Latins on the other side of the eurozone's cultural fault line. They'll learn.Sated with dollars, China, Russia, and the petro-powers are shunting their massive reserves into Bunds and Spanish treasuries, pushing the euro ever higher.Since most of Asia hold down their currencies by mercantilist intervention, Europe is taking the brunt of the dollar slide.

Deutschland AG has just enforced the harshest wage compression of modern times.Unit labour costs in manufacturing fell 4.4pc in 2005 alone as Volkswagen and Siemens extracted longer hours without extra pay under threat of moving jobs East.Stealthily, Germany has gained 40pc in competitiveness against Italy since the D-mark and lira were fixed in 1995, 30pc against Spain, and about 20pc against France.

Berlin gave up the D-Mark under an implicit contract that the euro would never fuel German inflation.This contract will be enforced. If not, German citizens will pull the plug on EMU. The only question is who will file for divorce first: the Latins or Teutonia. They cannot both share the currency.

Euro is 'doomed to failure'
Former British foreign secretary Lord David Owen said:
"The basic concept is flawed. I think that it is a straitjacket which if we joined we would find an intolerable constraint."
Lord Owen was Britain’s foreign secretary from 1977-79 and EU co-chairman of the international conference on the former Yugoslavia from 1992-95.
BBC 1999-02-28

The French created the European Union, so it would be appropriate if they destroyed it.
Of course, Mr Sarkozy and Ms Royal would reject any suggestion that they are eurosceptics. Both argue that they want a “better Europe” or a “different Europe”.
Gideon Rachman, Financial Times, April 10 2007

Is Latvia about to devalue?
Although Latvia in 2007 may not be Thailand in 1997, there are worrying similarities.
Lex, Financial Times 21/3 2007

The currency’s peg to the euro has provided the country with much-needed stability – after Russia’s 1998 default, most crucially – but has restricted the central bank’s ability to use monetary policy to reduce demand and inflation.

It has also encouraged the credit boom by reducing borrowers’ exposure to foreign exchange risk. Moody’s says Latvia’s $20bn external debt equates to over 100 per cent of GDP, 43 per cent of it short-term and owed by the private sector.

After Thailand’s currency peg broke in 1997, its currency lost more than half its value in the following six months.

Bör Carl Bildt dömas till böter?
Back in 2005, the former Thai central bank governor was fined $4.6 billion /he/ was found by a civil court to be guilty of “grave negligence” in squandering Thailand’s currency reserves in a futile attempt to prop up the baht.
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Germany’s export strength also makes it export-dependent and vulnerable to a downturn in global demand.
Any distress in the US will transmit to the rest of the world economy via the financial markets.
Direct trade has long ceased to be the main transmission mechanism of transatlantic shocks, at least for the UK and the eurozone.
Wolfgang Munchau, FT March 4 2007

Ségolène Royal, socialist candidate for the presidential elections:
It's not for Mr Trichet to dictate the future of our economies: it's a matter for our leaders chosen by the people.
Daily Telegraph 27/12 2006

The Eurozone economy is strong enough to withstand weaker US growth, higher German taxes and a dip in exports next year,
the European Commission has said.
BBC 18/12 2006

Growth will slow in 2007, though the Commission said it would remain robust as negative effects would be limited. Countering the global problems would be strong domestic consumer demand and improved corporate spending, it added.

``While slower growth in the U.S. will undoubtedly have an impact on the rest of the world, our analysis suggests that its effect on activity in the euro area should be limited,'' Klaus Regling, head of the commission's economics department, said in the report.
Bloomberg

The recent flurry in foreign exchange markets probably signals the start of a process of unwinding global imbalances. Suppose the market brings about the requisite dollar depreciation.
Then, if China and Japan were to maintain their dollar exchange rates there would be a large effective appreciation of the euro with potentially devastating effects on Europe.
Vijay Joshi, FT 15/12 2006

Suppose the market brings about the requisite dollar depreciation. Then, if China and Japan were to maintain their dollar exchange rates, as they are currently entitled to, other countries, especially in Asia, would have an incentive to do the same. There would then be a large effective appreciation of the euro with potentially devastating effects on Europe. An exchange rate war could follow, as well as a return to protectionism.

French premier Villepin attacks ECB amid call for return to franc
Ambrose Evans-Pritchard, Daily Telegraph 13/12 2006

Speaking on French radio as the euro surged to fresh records against Asian currencies, he said it was time to "lay everything on the table" and set the proper limits of ECB power. "We must clarify matters in exchange rate policy, which means taking back our sovereignty and our margin for action so the states can play their part," he said.

The comments came as Nicolas Dupont-Aignan, a presidential candidate, became the first major Gaulliste to call for a return to the franc, underlining the collapsing popular support for monetary union in parts of French society. Mr Dupont-Aignan said the EMU had become unreformable, leading to a monetary squeeze that was driving the French economy into slump.

Mr de Villepin said the eurozone was split into two clearly opposed camps. "There are some states that are happy with the current situation, but for France it is not acceptable. This is a tough fight that we are going to have to carry out at a political level," he said.

Mr de Villepin's comments on exchange policy was a clear reference to Article 111-2 of the Maastricht Treaty giving EU finance ministers the power to shape the exchange rate. Known as the "nuclear option", it gives politicians the means to dictate policy to the ECB - since the exchange rate is an indirect lever over interest rates. It would in effect strip the bank of its cherished independence. No EU national leader has ever before threatened openly to invoke the clause.

Michael Dicks, chief eurozone economist for Lehman Brothers, said a further rise in the euro above $1.35 would could cause severe strains.

The Iraq invasion, disastrous though it has been, may not go down in history as the greatest political blunder of the past decade.
That dubious honour will probably belong to an event most people still regard as a triumph: the creation of the euro.
"the beginning of the end of the European project"
Anatole Kaletsky, The Times 26/10 2006

What we see today, not only in Italy and Hungary, but also in the other relatively weak economies on the southern and eastern fringes of the EU, is the beginning of the end of the European project.

What we see in Eastern and Southern Europe today are the consequences of the EU’s transformation from a union of democratic countries into a sort of supra-national financial empire in which the most important decisions affecting EU citizens are no longer subject to democratic control.

There is now almost no chance of Hungary, or any other new European country, being admitted to the euro-zone in the foreseeable future. This was demonstrated over the summer when Lithuania and Estonia was refused permission to join the euro on the flimsiest of grounds.

Italy will be tightening its budget at the same time as Germany implements the biggest tax increases in its modern history

At some point the people of Europe will realise that there is something rotten in a political system that leaves them forever in the world economy’s slow lane — and which cannot be changed by any democratic process, regardless of how people vote.

Eurozone unemployment falls to record low
7.7 per cent of the workforce
(I Sverige 4,6 per cent)
FT 1/12 2006

Why break-up of faltering euro could be the way ahead
At the end of the day, EMU is no more than a glorified system of fixed exchange rates. We know from past shocks – ERM 1992, Asia 1997 – that such constructs can collapse in days if for any reason the markets start to smell blood.
Ambrose Evans-Pritchard, Daily Telegraph, 18/09 2006

The disintegration of the euro may be drawing closer. Warnings of an EMU bust-up were once confined to a handful of eurosceptic journals: they have since spread to City banks such as Morgan Stanley and HSBC, and are now moving perilously close to the EU core itself.

"Will the Eurozone Crack?" is the latest missive from the Centre for European Reform, a pro-euro think-tank with close ties to the European Commission.

"The single currency was supposed to bring Europe together, but it risks becoming a source of economic dislocation and political division," begins the report, a 59-page demolition of EMU by the centre's business chief, Simon Tilford.

As The Daily Telegraph's Brussels correspondent, I used to meet for furtive lunches with a Commission economist who was so worried about the coming smash-up that he had switched his savings into "hard" currencies, choosing foreign accounts beyond EU reach. I joke not. He knew, from his ringside seat, that the single currency had been thrust on Europe by the Delors crowd for entirely political reasons in the face of vehement warnings from the pros at the Directorate of Economic and Monetary Affairs.
"They didn't care if there was a crisis one day. In fact they welcomed it, thinking that it would make it easier for Brussels to gain fiscal powers and create a debt union," he said.

What are the circumstances under which the eurozone could disintegrate?
In practice, that would happen only if either Germany or France decided to quit.
Wolfgang Munchau, FT 25/9 2006

A departure by Italy or Spain, or both, would not suffice. However, it is extremely difficult to construct even a purely theoretical scenario under which it would make sense for France or Germany to reintroduce national currencies. A decision to quit would never pay off for the quitter in the short run. The administrative costs would be crippling, financial markets would be in turmoil and the quitter would almost certainly have to pay higher risk premiums on its bonds.

Den gemensamma valutan är integrationens mest synliga tecken, och förmodligen det mest långtgående steget mot en europeisk gemenskap
En del experter menar att en gemensam valuta aldrig kommer att fungera utan en gemensam ekonomisk politik och en verklig solidaritet mellan länderna
Jakub Swiecicki, Utrikespolitiska Institutet 2006/8

Otmar Issing, Europe's high priest of monetary orthodoxy, has confessed that the euro was launched on flawed foundations and is now threatened by "big tensions" between north and south.
"The proper functioning of a monetary union requires flexible labour and good markets. These conditions have not been fulfilled from the start."
Ambrose Evans-Pritchard, Daily Telegraph 31/5 2006

Otmar Issing, Europe's high priest of monetary orthodoxy, has confessed that the euro was launched on flawed foundations and is now threatened by "big tensions" between north and south. In a parting shot before stepping down today as the European Central Bank's chief economist, and dominant force, Dr Issing said the stark differences in wage inflation across the eurozone were storing up future trouble.

While he did not name the culprits, Dr Issing was clearly fingering the Club Med quartet of Portugal, Greece, Italy, and Spain, all of which failed to kick their inflationary habits after joining EMU.

He said the euro project was launched before the building blocks were in place. "The proper functioning of a monetary union requires flexible labour and good markets. These conditions have not been fulfilled from the start."

Dr Issing has been Frankfurt's intellectual powerhouse since the early 1990s, infusing the fledgling euro-bank with the ethos and monetary discipline of the revered Bundesbank, where he had also been chief economist.

A loyal public servant, he has never questioned the euro's viability, but it is an open secret that he long favoured a core currency limited to France, Germany and Benelux, and doubted whether the euro could survive as an orphan currency without the backing of full political union.

Paul de Grauwe, professor of economics at the University of Leuven in Belgium and an adviser to Mr Barroso, fears that a lack of political integration is undermining the single currency project.
BBC 14/5 2006

The Italian election result was a disaster for Italy and is a threat to the future of the euro.
Italy is now in the economic condition that normally preceded devaluation of the lira in the years before the single currency. So long as Italy remains in the euro system it will be impossible to devalue, yet it would be equally impossible for a weak left-of-centre coalition, with no real majority, to take the tough economic decisions that might, or might not, restabilise the economy.
William Rees-Mogg, The Times, 17/4 2006

The narrow election victory by Romano Prodi’s centre-left alliance was the worst imaginable outcome in terms of Italy’s chances to remain in the eurozone beyond 2015.
Wolfgang Munchau, Financial Times 17/4 2006

Spricker EMU?
Det mardrömsscenario ekonomerna varnade för tycks nu inträffa i Italien
Expressen-ledare 24/3 2006

Italy’s seven years within the eurozone seem consistent with Dante’s famous inscription at the entrance of hell: “Abandon all hope, ye that enter”.
The economic consequences of monetary union have been so serious for the country that they require urgent political action by the next Italian government. Without it there will be no escape from the inferno.
Wolfgang Munchau,Financial Times 20/3 2006

Italy follows Argentina down road to ruin
Desmond Lachman, American Enterprise Institute (Timbros storebror)
Financial Times 17/3 2006
Desmond Lachman joined AEI after serving as a managing director and chief emerging market economic strategist at Salomon Smith Barney. He previously served as deputy director in the IMF's Policy and Review Department and was active in staff formulation of IMF policies toward emerging markets.

Try reissuing the 12 national currencies that were replaced with just one.
That might sound like it would destroy the euro. And yet it may be the only way to salvage something from an experiment that looks more like a failure with every month that passes.
Matthew Lynn, a columnist for Bloomberg News, 27/2 2006

At a seminar in London this month organized by the think tank Open Europe, John Gillingham, professor of history at the University of Missouri-St Louis, said it was time to look at radical options to change the way the euro area's economy is run.

"The currencies of the euroland should be reissued and any attempt to regulate the values of the currencies by an overall single monetary and fiscal straight jacket should be dropped," said Gillingham, who wrote the book "Design for a New Europe".

It might seem odd to listen to forecasts on monetary matters from a historian rather than an economist. Then again, the euro is primarily a historical achievement - which may help explain why it has gone wrong.

Of course, the debate has been here before. (You don't need to be a professor of history to know there are very few genuinely new ideas in the world.) As far back as 1990, then British Chancellor John Major proposed a new European currency that would circulate alongside the existing national ones.

It wasn't accepted then because everyone was focused on creating a single currency that would replace the others. Now, perhaps it has more chance. Why? Because in 1990 you could still argue a single currency would deliver stronger growth. It is hard to argue that in 2006.

There are only three ways forward. One is to struggle on with a permanently sluggish economy. Another is to wait for a financial crisis, or a bad-tempered exit (probably by Italy). The third is to preserve what is good about the euro, while repairing the parts that don't work.

Will EMU survive 2010?
Global interest rates are likely to return to more normal levels. The ‘one size fits all’ policy of the ECB is then likely to become very difficult to bear for countries like Spain and Italy
Daniel Gros, Director CEPS, 17 January 2006
A most impressive list of Board of Directors....

Germany entered EMU with an overvalued exchange rate, but it has regained competitiveness through a process that used to be called ‘competitive deflation’, i.e. extracting continuous concessions from trade unions on labour costs. By contrast, Italy has continuously lost competitiveness, and the French performance has again been ‘middling’.

Somewhat surprisingly, the export performance of France is even worse than that of Italy, suggesting a corresponding lack of structural reforms.

Unnoticed by many, an even more severe disequilibrium is building up in the case of Spain, which so far has been regarded as a success story.

The remainder of this decade is thus likely to see the North and the South of Europe trading places: Germany is likely to emerge with the strongest growth once its real estate market has bottomed out, whereas Italy and Spain are likely to experience a period of weak growth as their labour markets struggle with the problem of how to regain competitiveness through lower wages and extracting concessions on working time.

The real test for the EMU framework is thus likely to arise over the remainder of this decade. Once Germany has brought its public finances under control (probably around 2007), the pressure will mount on Italy whose relative position is likely to have deteriorated further. Over time, the global savings glut is likely to end and global interest rates are likely to return to more normal levels. The ‘one size fits all’ policy of the ECB is then likely to become very difficult to bear for countries like Spain and Italy, which will then have to enter a period of very low increases, or even declining, domestic price levels. A combination of slow growth, rising real interest rates and increasing pressures from Brussels to reduce spending will make EMU unpopular in these countries.

Spanish banks doubled their share of the ECB’s weekly funding auctions,
taking their borrowing up to €44bn in December, according to the most recent data from the Bank of Spain.
Financial Times February 11 2008 22:01

The European Central Bank has effectively funded new lending in Spain in recent months, replacing banks’ use of wholesale capital markets, which have been strangled by the global credit crunch.

The market for securitised debt and for mortgage-backed bonds in particular has been almost entirely shut since the credit crunch hit last summer and investors began shunning complex, structured debt.

The Spanish banking system is second only to the UK in Europe in its use of mortgage-backed bond markets and other securitisations to fund lending.

Jean-Claude Trichet, president of the ECB, last week insisted the central bank had not been bailing out banks in Spain, but said there had been a marked increase in use of securitised bonds as collateral by Spanish banks and others.

Yet if the storm is peaking in the US, it has hardly begun in Europe.
Bernard Connolly, global strategist at Banque AIG, says euro-losses may surpass the US debacle:
"The next really big shock to financial markets is likely to be the risk of collapse in the EMU credit bubble: the private sector credit consequences are likely to be catastrophic"
Ambrose Evans-Pritchard

Since the start of the year, the Spanish economy has felt like a huge party on the Titanic, cruising heedlessly on to an iceberg of corporate debt.
The danger signs were there for all to see: a real estate bubble; corporate borrowing up 37 per cent in a year; frenzied M&A activity, and last but not least
a current account deficit that has ballooned to become the second largest in the world in absolute terms after the US.
Leslie Crawford, FT July 14 2007

“Spain is different!” the over-borrowed say. There won’t be a property crash – foreigners will always want a place in the sun.
And who cares about the current account deficit? We are all in the euro now.

“International investors only care about one thing, your exposure to the real estate sector,” laments one Spanish banker.

Although house prices are not falling yet, house sales are. According to the association of Spanish property registrars, property sales fell 7 per cent in 2006. This year, building permits have been issued for 800,000 new homes. And while not all will come on to the market this year, it is difficult to escape the conclusion that the Spanish real estate market is over-heated, over-priced and over-supplied.

Euro helps topple Spanish property
Bank of Spain's governor, blamed the bubble on the wrong interest rates caused by euro membership
Ambrose Evans-Pritchard, Daily Telegraph 26/04 2007

Miguel Fernandez Ordonez, the Bank of Spain's governor, blamed the bubble on the wrong interest rates caused by euro membership.
"The single monetary policy has meant that excessively loose conditions for our economy have been almost continuous," he said. "A less relaxed tone would have been better for our needs." A report by the bank concluded that house prices were 35pc overvalued.

Bernard Connolly, global strategist for Banque AIG and former head of economic research for the European Commission, said the country will face a brutal adjustment over the next two years - if it can remain in the euro at all.
He said: "Spain is going to face the very direst of economic circumstances: a cycle of recession, deflation and widespread private sector default - a depression in fact.
This stock market slide is not just a 'correction'. It has a very, very, long way to go."

Last year alone, Spain started to build 800,000 new homes
Unfortunately, the number of new houses was not just more than France, Germany and Italy combined built last year. It was also more than anybody wanted to buy.
FT editorial 28/4 2007

Spain has experienced a roaring economic expansion, in part fuelled by low interest rates caused by sluggish growth in other parts of the eurozone.

- In any dynamic modern economy the size of the US or the European Union there are bound to be significant regional differences in economic performance. Economic policy tries to assuage such differences and set up automatic stabilising mechanisms by which they become self-correcting. Movements in exchange rates can act as such an automatic stabiliser.
Lawrence Lindsey Financial Times 1996-11-28

Disbelief has been suspended. Whenever I mention rising interest rates, higher mortgage payments, creeping unemployment, the possibility of falling house prices, fingers are stuffed in ears, eyes are tightly shut and heads shake wildly. No, no, no. Go away.
It was the same in Spain, until this week.

The pain in Spain
It was the same in Spain, until this week. Then, hola!
Financial reality crashed through the roof of the property market.
Jeff Randall, Daily Telegraph 27/4 2007

Shares in Spanish construction companies have collapsed like haciendas in an earthquake. Years of cheap loans, chronic over-supply of housing (facilitated by corrupt planning officials) and dodgy investment schemes, peddled to gullible foreigners, created an unsustainable boom. The bust is going to Costa lot, especially for thousands of Britons who borrowed heavily to buy a home in the sun, expecting rental income to pay the mortgage.

The pain in Spain is a timely reminder that rampant bull markets can make ordinary people mistake themselves for financial wizards.

Do current account deficits matter inside a monetary union?
the impact of low interest rates was greatest not where demand was weakest, but where conditions for a property boom were best: notably, in Ireland and Spain
Martin Wolf, FT 28/3 2007

In Spain, the construction and housing sector accounts for 18.5 per cent of gross domestic product,
about twice as high as the eurozone average.
The comparable figure for Germany is 8.7 per cent.
Wolfgang Munchau, FT 19/3 2007

The booms in Spanish and Irish real estate make the US real estate boom look timid
Charles Gottlieb of the Center for European policy studies, Nov 21, 2006

By importing the credibility of the European Central Bank, they benefit from low nominal interest rates, in spite of their vivid growth and consequent higher than average inflation. Thus in addition to the global savings glut which exercised downward pressure on nominal interest rates, both countries exhibit very low real interest rates.

In fact, the total value of mortgage debt in Ireland tripled over the 2000-2005 horizon, and mortgage lending is still growing at a 20% pace. Spanish lending is still growing at a 23.6% pace. Given that in Ireland 83% of total outstanding mortgage debt in 2005 and in Spain, 97% of the debt is at variable rate interest, households are considerably exposed to interest rate hikes.

A decade of red-hot growth in the Spanish housing market fueled a jump in such things as jobs and consumer spending, turning Spain into one of the fastest-growing countries in the euro zone.
But now, economists say the real-estate boom is coming unmoored from the economic fundamentals that once drove it, and they worry the market is headed for a hard landing that could have repercussions for the rest of the economy.
Wall Street Journal 9/11 2006

Byggkrasch nära i Spanien
Fredrik Braconier SvD 2008-01-04

Spain and Italy threaten EMU stability
Ambrose Evans-Pritchard, 8/1 2008

Click

Italy is often mentioned as the country most likely to leave the euro. I disagree.
If any country ever decided to quit that country would be Spain.
Wolfgang Munchau, Financial Times February 20 2006

Italy is often mentioned as the country most likely to leave the euro. I disagree. Leaving the euro would not solve any of Italy’s problems. Since Italy’s debt is mostly euro-denominated, Italy would be facing an Argentinian-style debt crisis. A wise Italian politician told me recently that Italy was more likely to disintegrate as a nation state than to leave the euro.

If any country ever decided to quit, unlikely as this may be, that country would be Spain, not Italy. Over the past seven years, Spain has lost even more competitiveness against the eurozone than Italy. At the same time, Spain is also in a better position to quit. With a debt-to-gross-domestic-product ratio of just over 40 per cent, Spain would have no problem servicing its debts.

Unlike Italy, Spain enjoys the reputation of a European success story. But its economic success rests on shaky ground. It was driven by a housing bubble, during which average property prices have increased almost threefold since 1997. The US and UK housing markets have been well behaved by comparison.

The house-price bubble has kept the Spanish economy ticking over – and overshadowed Spain’s underlying problem of falling competitiveness. Successive Spanish governments have failed to put in place the one condition essential for a country to prosper in the eurozone in the long run – a sufficient degree of wage and price flexibility.

The country’s current account deficit for the first 11 months of 2005 reached 7.3 per cent of GDP. In its latest autumn forecast, the European Commission put the current account deficit at 8.3 per cent this year, and 9.1 per cent in 2007. These are unsustainable levels.

On Friday I was in Davos in a panel on the "Ups and Downs of EMU" (European Monetary Union) where ECB head Trichet, Italian Economy Minister Tremont, a few other EU officials and myself were supposed to discuss the following questions:
Will EMU collapse in the future? Which country will exit first? What will be the consequences of a break-up of EMU? How to avoid that? And what are the prospects for the Growth and Stability Pact?
Nouriel Roubini, 28/1 2006

Unlike the other panelist that ignored the topic and spoke instead about all the good things allegedly associated with EMU, I took the questions seriously by considering some of the problems and risks faced by EMU and the risks of a break-up, especially for the case of Italy.

My remarks caused a stir with Minister Tremonti who interrupted me in the middle of my remarks, went into a temper tantrum and shouted - to the consternation of all participants - to me: "Go Back to Turkey!!". I happen to have been born in Istanbul; but more than offensive to myself his pathetic burst of uncivilized anger was an insult to the decent Turks who are currently trying to negotiate an agreement to enter into the EU.

My current concerns are that, while EMU has lead to a process of convergence of nominal variables (inflation, interest rates, etc.). it has also been associated with a process of increased divergence in economic performance, especially regarding economic growth rates.

This economic performance divergence is a serious problem for some EMU countries (Italy, Portugal, Greece) and it may eventually lead to a collapse of EMU. I am not supportive of such a collapse but, unless appropriate macro and structural economic policies are undertaken, the risk of a break-up becomes serious.

The risks that eventually Italy may exit EMU cannot be underestimated.
On a possible EMU collapse I will talk on Friday in a Davos panel with Italian economy minister Tremont and ECB head Trichet.
Nouriel Roubini, 27/1 2006

See also:
"Det finns ingen anledning till oro"
It is highly unlikely that the European Monetary Union will collapse any time soon.
There are sound reasons to suppose that the economic pain in Europe will rise from its already high level, especially in countries, such as Germany and Italy, that are already under stress.
John Makin, American Enterprise Institute, 24/6 2005

Frits Bolkestein, the former EU internal market commissioner, has questioned the chances of survival for the euro in the long term.
EU Observer 26/1 2006

The ageing of Europe's population will hit the continent "ruthlessly," the outspoken Dutch politician stated, with eurozone states like Italy being unprepared for the expected jump in pension claims.
These states "will be forced by political pressure to borrow more and increase their budget deficit, with consequences for interest rates and inflation," he indicated, adding "the real test for the euro is not now, but in ten years time".

Will all the 12 countries in Europe's single currency remain members in three or four decades?

The Economist 24/11 2005

WILL all the 12 countries in Europe's single currency remain members in three or four decades? The question may seem imponderable. But euro-area governments floating 30- or even 50-year bonds are asking investors to ponder it nonetheless.

S&P assumes that countries such as Italy and Greece would want to regain their own currency only to debauch it. Both have lost competitiveness since the 1990s. Italy's unit labour costs are projected to be 27% higher by the end of 2006; Greek costs have increased by almost half. In S&P's simulations, the Italian government announces a surprise exit from the euro on the last day of 2006, and promptly devalues the new lira by 27%. The Greeks devalue by 49%.

Both countries would thus recoup, at a stroke, the competitiveness they have lost. Unfortunately, their debts would still be payable in euros.

Of course, I will be challenged on my views on Europe and my opposition to the British intervention in Iraq.
Europe should no longer be a divisive issue within the party. The constitution is dead. I can see no circumstances in which British membership of the euro will be an issue in this parliament or the next.
Kenneth Clarke, Daily Telegraph 1/9 2005

Europe should concentrate on building jobs, enterprise and competitiveness with a real attack on unnecessary regulation.

As far as Iraq is concerned I believe I was right and that events are proving me right.

Ken Clarke’s dismissal of the euro as a “failure” is like a cardinal telling us that God doesn’t really exist.
There are two new, contradictory arguments for pessimism.
Vincent Cable,Liberal Democrat shadow chancellor, Financial Times 1/9 2005

The sceptical voice of the former UK Conservative chancellor adds to the chorus of pessimism about the euro that has reached a crescendo after the No votes in the French and Dutch referendums.

I agree with him that the cautious approach to entry by Gordon Brown, the current chancellor of the exchequer, is right at the present time. But is the euro really a “failure”?

The first is that the European Central Bank’s common monetary policy is a cause of slow growth.

The second concern is that Germany, far from languishing under the euro, is showing signs of economic improvement, potentially creating an unsustainable divergence with Italy (and others). Either, it is said, could lead the single currency to collapse.

There is a serious issue about whether the “one size fits all” monetary policy is restricting growth, particularly in Germany

Let us again suppose that A reforms and B does not.
For B’s government, there is a windfall. For A’s government, some of the benefits of reform are lost.
The difference with the EU case comes from the fact that eurozone countries share an interest rate that is set by the ECB with respect to the average inflation rate.
Jean Pisani-Ferry, Financial Times, August 31 2005

En rad länder i västra Europa plågas av en ihållande ekonomisk kris. Arbetslösheten stiger och tillväxten sjunker. I Tyskland, Italien och Frankrike - liksom Sverige - tilltar svårigheterna trots god konjunktur och låg ränta.
Grundorsaken är den europeiska sociala modellen med höga skatter, omfattande bidrag och offentliga monopol.
I kris behövs en nationell valuta, vars ränta och växelkurs kan anpassa sig efter de nationella förhållandena, sägs det. Hur stor verkan för att stimulera ekonomin som penningpolitiken ger har dock allt mer börjat ifrågasättas.
Johnny Munkhammar SvD 5/8 2005

Ekonomisk politik kan fokusera på antingen strukturella reformer eller stimulanser av konjunkturen. Det senare kan utgöras av finanspolitik eller penningpolitik. Båda är dock bara olika former av klassisk keynesiansk stimulanspolitik.

En gemensam valuta, som i Hayeks anda för bort penningpolitiken från nationella politiker, stänger likt en guldmyntfot möjligheten att fuska sig ur problem och främjar därför reformer.

Kommentar av Rolf Englund:
Man får anta att Johnny Munkhammar har använt sig av uteslutningsmetoden.
Det kan inte vara fel på EMU. Inte är det något bekymmer att man inte inom EMU har någon ränta som ett land kan påverka. Inte är det något bekymmer med stabilitetspakten, utom kanske att den inte tillämpas för länder som Tyskland och Frankrike.

Därigenom måste Munkhammars slutsats bli att det behövs supply-side economics, som i USA.

Sedan moderaterna, efter att ha tappat var tredje väljare, övergav den Munkhammarska systemskiftespolitiken, strömmarna väljarna till.

It is economic performance – not the European Union budget or any proposed constitution – that will determine the fate of the “European Project”.
After all, Hitler came to power in 1933 due to “ordinary economic voting behaviour” when the mainstream parties’ economic agendas were unconvincing, not because a majority of German voters then embraced Nazi ideology.
Adam Posen, Financial Times, August 3 2005

European Central Bank council member Christian Noyer:
Countries using the euro are free to drop the currency.
"It is possible for a country to leave the euro zone because member states are sovereign"
Noyer is also governor of France's central bank
Bloomberg 4/7 2005

Noyer, also governor of France's central bank, told French National Assembly's foreign affairs committee last week, according to minutes of the closed hearing released today. Such a move may put in doubt a nation's continued membership of the European Union, he said.

For the first time, respectable voices - i.e., those deemed respectable by the European elite -
are raising serious questions about the future of the euro. The issue is not really so much the future of the currency as the fact that, in May, the euro's future became a reasonable topic of conversation.
John Mauldin, Thoughts From The Frontline, 24/6 2005

"Det finns ingen anledning till oro"
It is highly unlikely that the European Monetary Union will collapse any time soon.
There are sound reasons to suppose that the economic pain in Europe will rise from its already high level, especially in countries, such as Germany and Italy, that are already under stress.
John Makin, American Enterprise Institute, 24/6 2005

Weakening economies in Europe have translated into rising pressure for political change. The previously noted loss by Germany’s left-of-center SPD Party of North Rhine–Westphalia in the May 2005 election has been likened to the Republicans carrying New York and California in a presidential election. Clearly, it is not politically viable for even a left-leaning German government to try to rein in social costs while the German economy is so weak. The unemployment rate is above 11 percent, and growth is slipping toward zero.

The poor performance of some European economies and the unevenness of performance among them--Spain, Ireland, and even France are still experiencing strong growth and strong real estate markets--is a byproduct of Europe’s bold currency experiment in which full currency union preceded political union.
Normally, political union precedes monetary union.

The more serious problem is the moral-hazard issue that arises in a monetary union with one central bank oriented toward low inflation and twelve treasuries with sharply differing economic systems to manage. The expedient move by the Italian government would be to borrow heavily in order to finance a large fiscal stimulus to boost Italy out of its recession. The effective peg between interest rates on Italian government liabilities and German government liabilities means that the Italians will be under increasing pressure to employ Keynesian fiscal stimulus to boost their economy. The Italian Finance Ministry answers to the Italian government, not to the European Central Bank, thus the institutional bias to use deficit finance to boost the economy out of recession.

Lord Lamont was UK chancellor of the exchequer 1990-93 and is co-chairman of the Bruges Group
The problem with the EU is that at times its very nature exacerbates internal tensions.
That is why the euro may eventually break up
Norman Lamont, Financial Times, June 22 2005

Six years ago, 11 European nations made a bold bet that a common currency would unify and fortify the continent from Sicily to Helsinki. Now, as many of the nations in what is known as the euro zone slog through an economic funk,
the experiment is helping to drive countries further apart - and fueling a growing resentment of the wider European Union.
The Wall Street Journal 13/6 2005

The euro-bashing isn't confined to Italy. A poll for Stern magazine this month found that 56% of Germans want the mark back.

"Breakup is back on the radar screen as a theoretically possible option" for the monetary union, says Holger Fahrinkrug, an economist at Swiss bank UBS in Frankfurt.

"It would have been better for Italy to stay out [of the euro] for a few years," says Julian Callow, chief European economist at Barclays Capital in London. "There's no easy solution now."

Is the euro forever?
Six and a half years since the launch of monetary union, this was precisely what eurozone officials and central bankers had been dreading and seeking to avoid at all cost: a debate about the future of the euro.
Wolfgang Munchau Financial Times 8/6 2005

A rising tide of integrationist ambition swept the single currency on to the European shore in the 1990s.
Now, it is in danger of becoming a beached whale.
Further expansion of the eurozone is undesirable until its core economies have demonstrated their ability to make the system work, both economically and politically.
Martin Wolf Financial Times 8/6 2005

I en viktig fråga är EMU-projektets varmaste anhängare och argaste kritiker helt överens: för att valutaunionen ska hålla, måste den förr eller senare leda till politisk union.
”Det finns inget historiskt exempel på en beständig valutaunion som inte varit kopplad till en stat”, har ECB:s chefsekonom Otmar Issing förklarat.
Gunnar örn DI 7/6 2005

The French and Dutch referendums have dashed hopes of political union in Europe.
As criticism of the euro grows louder, there are fears that monetary union, too, might be in peril
The Economist "Can this union be saved?" June 6th 2005

Varför överlevde valutaunionerna i USA, Kanada, Tyskland och Italien, till skillnad från de skandinaviska och latinska mynt-unionerna? Jo, de var en del i arbetet med att skapa en nationalstat.

För amerikanerna tog det 150 år att uppnå en fungerande monetär union... ännu på 1920- och 1930-talen rådde en oenighet mellan regionerna om penningpolitiken, vilket lade grunden för den paralysering som i sin tur bidrog till att skapa den stora depressionen.

Om Tyskland fortfarande haft en egen valuta skulle man kunnat devalvera sig ur de senaste årens kostnadskris. Men i stället har landet pressat ner kostnadsläget den hårda vägen, genom arbetslöshet och sänkta reallöner.

Nu riktas blickarna mot Italien, som har förlorat sin konkurrenskraft på grund av fallande produktivitet och finansiell oreda. Martin Wolf i Financial Times tecknade i förra veckan en mörk framtidsbild, i vilken italienarna känner sig så pressade att de sliter sig loss från EMU.

Så här i backspegeln måste 1990-talet betraktas som ett osedvanligt lyckosamt decennium, i väntan på det stora ovädret.

Could the eurozone disintegrate? - The answer is yes.
If /Italy/ fails to rise to the challenge it confronts, a default or even a forced withdrawal from the eurozone is perfectly conceivable.
Martin Wolf Financial Times 25/5 2005

Tyskland har gjort många fel. Ett allvarligt fel var att gå in i EMU med en för högt värderad valuta.
Om inget mirakel inträffar vad gäller den internationella konjunkturutvecklingen kommer arbetslösheten att fortsätta att öka. Det faktum att den nominella räntan är gemensam i en valutaunion innebär dessutom automatiskt att realräntan blir lägst i de länder som har den högsta inflationen, det vill säga de som skulle behöva en hög ränta, och högst i de länder som skulle behöva stimulera ekonomin.
Stefan de Vylder Göteborgs-Posten 22/10 2002
Kommentar av Rolf Englund:Stefan de Vylders artikel var den första i världen som påpekade detta i efterhand uppenbara konstruktionsfel. är det värt Nobelpriset? Ja, ingen tidigare Nobelpristagare hade i alla fall kommit på det före de Vylder...

In an interview with the daily La Repubblica
Welfare Minister Roberto Maroni said Italy should consider introducing a temporary dual circulation of the euro and the lira,
given that the switch to the single currency has failed to tackle the country's economic slowdown and a decline in competitiveness.
Forbes 3/6 2005

The under-fire euro fell further on Wednesday, slumping to an eight-month low
Report claiming that Hans Eichel, the German finance minister, and Axel Weber, the president of the Bundesbank, were present at a meeting at which the possible break-up of European Monetary Union was discussed.
The German Bundestag is also said to have commissioned a report on the legal repercussions of a country wishing to leave the EMU.
Germany’s finance ministry labelled the talk “absurd”, while Mr Eichel and Mr Weber issued a statement saying the euro was a “unique success story”.
Financial Times 1/6 2005

EU will never become a federation with a unique federal government, federal army and international personality.
The reason is that member states do not want that
It would be risky to work towards a federal Europe since the EU might instead end up on the road to disintegration as a reaction. We may be seeing that now.
Frits Bolkestein Financial Times 31/5 2005

The writer, a member of the European Commission between 1999 and 2004, is author of The Limits of Europe (Lannoo) and his Brussels diary Grensverkenningen (Prometheus)

The Common Agricultural Policy and regional development funds do not respect this rule. They urgently need reform. Why should German citizens pay for the upkeep of the landscape in France? What makes the bureaucrats in Brussels believe they are better judges of French regional policy than their colleagues in Paris? All non-essential bits of these programmes should be repatriated. That would also help to slim the EU budget.

The EU is a group of states that have decided to carry out certain tasks in a federal manner, such as trade and competition policy. The federal framework applies to the European parliament, the European Court of Justice and (for 12 of the 25 member states) the European Central Bank.

But the EU will never become a federation with a unique federal government, federal army and international personality. The reason is that member states do not want that: not Britain, and not France either. Nor do the Germans want it, even though Joschka Fischer, their foreign minister, spoke some years ago of a "federation of nation states". That concept is a contradiction in terms. In using it, Mr Fischer underestimated his audience.

It is an example of the eurobabble that other politicians have unfortunately emulated.

The principle of subsidiarity, which means that whatever member states can do equally well (or better) should not be undertaken by the Union. This principle has been obeyed more in theory than in practice.
There are proposals to intervene in the energy efficiency of buildings; the over-indebtedness of consumers; accidents at home; the fat content of food; sexual intimidation; and working time. The EU should not be involved in these areas.

The trouble is that the institutional bias is always to propose more. The European parliament wants the EU to do everything. The European Commission displays the normal bureaucratic instinct: more tasks mean more jobs and more money. And often a member of the Council of Ministers tries to achieve through Brussels what they cannot get at home. Many politicians mistake activity for action.
The error that is steadfastly made is to think that because some cause is worthy, it must be done by Brussels. That is a non sequitur. Yet this sort of thinking is prevalent and has inevitably led to great irritation.

An EU of 40 is inevitable unless stopped by a referendum,
according to outgoing Commissioner Frits Bolkestein
EU Observer /Le Monde/ 14/10 2004

The Limits of Europe
In this provocative book, Frits Bolkestein takes the enlargement of the EU with Eastern European countries as the starting point for his argument of where the European Union should go from here. Full of controversial opinions, such as the exclusion of Turkey from membership, it will aim to set the agenda for years to come.
Amazon UK

Never Closer Union?
An earthquake has hit Europe. The move towards ever closer union turns out not to be inevitable.
The Europe we have today is as much as - quite possibly more than - all will share
The treaty is dead.
Martin Wolf Financial Times 1/6 2005

Before the vote, Jean-Claude Juncker, Luxembourg's prime minister and current president of the European Council, declared that France and the Netherlands should re-run their referendums, if necessary, in order to obtain the "right answer". Mr Juncker is all too representative of the contemporary European elite, which does not merely deserve, but needs, the kicking the French have given it.

When the French look at contemporary Europe, they no longer see themselves in the mirror and when they look at their economy, they no longer see anybody in control.

First, the treaty is dead. I presume the Dutch will vote No. If the British cannot be threatened with isolation, they will also reject it. It is impossible to overturn the verdicts of the disgruntled citizens of two of the six founding members and two of the three most powerful countries in Europe.

Further movement towards deeper integration among all members of the EU is off the agenda. The Europe we have today is as much as - quite possibly more than - all will share.

Enlargement beyond Bulgaria and Romania has become unlikely. There will be referendums on Turkish entry. In current circumstances, these would be lost.

France has set its face not just against the European project but against the modern world. That is going to make it far more difficult to pursue liberalisation, domestically, within Europe and globally. For that outcome, the French elite bear heavy responsibility. Their ceaseless indulgence in infantile anti-market rhetoric has had its consequence.

Last but not least, there is a chance of some unravelling of the European project, which has relied on a version of the bicycle theory: if it does not go forward, it risks toppling over. The belief that it must go forward is now dead. It is possible that some achievements, including the single market, will go backwards.

A currency union requires greater flexibility and so more intense internal competition than independent national monetary areas. The failure to make this clear before starting the union was the great political and economic blunder of the 1990s.

Rolf Englund:
For a moment I thought I had been smart and invented the expression "Never closer union" but I googled it and found that The Economist had written about that in "The end of federalism" - May 29th 1997

The Economist also wrote that
The bicycle theory is popular in Brussels. Yet the suggestion that after 40 years of steady development the EU is a fragile organisation that could easily collapse seems implausible.
and
The elites in Brussels and national capitals may be all for it; but the people may not... The biggest priority, however, is the need to win (or win back) the confidence of Europe’s people.

This is just a foretaste of what could happen once investors start to think through the euro's long-term chances of survival in a "post-federal" Europe that is no longer moving ineluctably towards ever-closer union.
Can a stateless currency hold together in a mere "zone" of 12 sovereign states, with a half-constructed legal base, while its economies are moving in starkly different directions?
Ambrose Evans-Pritchard Daily Telegraph 28/05/2005

Hubristic talk that the euro would soon displace the dollar as the world's reserve currency has been silenced by a flurry of analysts' reports warning that monetary union is becoming unmanageable and could collapse, leaving holders of Italian, Greek and Portuguese state bonds with a wicked haircut.

Italy's Confundistria chief, Luca Cordero de Montezemolo, believes his country is now staring into the abyss. Its world share of exports has collapsed by almost one third since the launch of EMU. The economy has contracted for the last two quarters and is now accelerating downwards.

"The political class doesn't seem to understand the dramatic condition of our public finances, and above all the real economy. This is the worst crisis since the war. We must face up to the emergency with brave, urgent, and unpopular measures," he says.

Portugal, Greece and Italy slipped into monetary union with false figures - or "statistical alchemy" in the words of Eurostat - and debt loads that breach the Maastricht limits. They enjoyed a quick windfall from ECB's far lower rates, but the wealth illusion proved poisonous. It let Italy fend off structural reform, and led to a mighty boom and bust in Greece and Portugal.

Here's how the story has been told: a year or two or three after the introduction of the euro, a recession develops in part - but only part - of Europe. This creates a conflict of interest between countries with weak economies and populist governments - read Italy, or Spain, or anyway someone from Europe's slovenly south - and those with strong economies and a steely-eyed commitment to disciplined economic policy - read Germany. The weak economies want low interest rates, and wouldn't mind a bit of inflation; but Germany is dead set on maintaining price stability at all cost. Nor can Europe deal with "asymmetric shocks" the way the United States does, by transferring workers from depressed areas to prosperous ones: Europeans are reluctant to move even within their countries, let alone across the many language barriers. The result is a ferocious political argument, and perhaps a financial crisis, as markets start to discount the bonds of weaker European governments.

In spite of interest rates at historic lows, strong world demand, low inflation and healthy corporate profitability, the eurozone growth outlook is gloomy.
A stability trap?
"If the eurozone were no longer an area of stability, I think that some countries - particularly Germany - might say that a return to a national currency would create more stability."
Ralph Atkins FT May 27 2005

The European Commission 29 June formally asked the Italian government to take measures to get back in line with eurozone rules.
Rome was called on to push its public spending deficit under the three percent of GDP ceiling by the end of 2007, and present a plan to Brussels by November on how it will achieve it.
EU Observer 30/6 2005

On 5 December 2006, the Commission adopted the Convergence Report 2006, which re-assessed the conditions for adopting the euro in the Czech Republic, Estonia, Cyprus, Latvia, Hungary, Malta, Poland, Slovakia and Sweden.

Sverige bör, liksom England, hålla sig utanför euron så länge som möjligt.
Det säger Martin Wolf, biträdande chefredaktör på Financial Times
Ekonominyheterna 4/12 2006

Han går därmed på kollisionskurs med det svenska näringsliv som annars hyllar hans tongivande teser för liberal globalisering.
"Det är bara länder som inte kan sköta sin penningpolitik själva som behöver euron," säger Wolf.
Det var efter ett föredrag om globaliseringen i förra veckan arrangerat av Ohlininstitutet i Stockholm som Martin Wolf avfärdade det samlade svenska näringslivets tes om att Sverige behöver euron.

"Det är bara länder som inte kan sköta sin penningpolitik själva som behöver den. För länder som kan sköta sin penningpolitik är det mycket bättre att stå utanför euron och på så vis skapa en stabil ekonomisk-politisk miljö istället för att införa euron och därmed riskera en penningpolitik som är ’quite inappropriate for you."

2004 kom hans banbrytande bok ”Why Globalization Works” där han bland annat detaljgranskar globaliseringskritiken och ger den fel på nästan samtliga områden utom att vissa internationella institutioner, såsom WTO, inte fungerat ”så bra som de borde”. Nu har boken översatts till Svenska (SNS förlag) men den är inte skriven för svenskar, säger Martin Wolf lite skämtsamt:
"Jag kan inte ta Sveriges problem på allvar, ni har den mest generösa välfärdsstaten på jordens yta och en ekonomi som blomstrar."

Let us think the unthinkable:
Could the eurozone disintegrate?
The answer is yes.
If /Italy/ fails to rise to the challenge it confronts, a default or even a forced withdrawal
from the eurozone is perfectly conceivable.
Martin Wolf Financial Times 25/5 2005

Disappearance of the zone as a whole seems hugely unlikely, so long as the commitment to the European project survives. But the exit of one (or more) members, a sovereign default or both is not at all inconceivable.

Interest rate spreads within the eurozone are tiny. Investors apparently consider the debt of the eurozone governments as close to perfect substitutes. This is astonishing: after all, ratios of government debt to gross domestic product at the end of last year varied from Luxembourg's 5 per cent and Ireland's 29 per cent to Italy's 105 per cent and Greece's 112 per cent

Investors must not only believe that the currency union is impregnable but that each sovereign borrower is as good as the other.

The latter belief assumes that all the fiscal authorities will behave in an equally responsible manner or that there is an implicit bail-out. These assumptions are highly implausible.

Relative to Germany, Italy's real effective exchange rate has appreciated by almost one-fifth since 1999. In its most recent Economic Outlook, the OECD notes that the cyclically adjusted primary fiscal balance (the balance before interest payments) has collapsed from a surplus of 5 per cent of gross domestic product in 1998 to a forecast surplus of only 1 per cent this year

In order to regain lost external competitiveness, Italy must have substantially lower inflation in the costs of tradeable goods and services than elsewhere in the eurozone.

Unfortunately, efforts to shift the fiscal position back to balance would weaken the economy still more, since there are no monetary or exchange-rate offsets to such fiscal tightening.

(Rolf Englund: That is the main point with EMU. If that is not a good thing - which I do no think it is,
than the whole EMU project is fundamentally wrong.
Bad thinking - as stupid as the Stability Pact.
Why do you do stupid things like that?
Because you need a flag, a parliament, a president, a defence - and a currency - to build a state.)

Martin Wolf continues: If you think you have seen a case a bit like this, you are right: it is called Argentina.

Bernard Connolly, a notorious opponent of the monetary union, even argues that the debt ratio will explode upwards, given the low inflation Italy needs and the declining potential rate of growth that Italy also has
(Italy and monetary union: voyage of the damned, Banque AIG, May 18 2005.)

Mr Connolly's assumptions seem too pessimistic, particularly over the present fiscal position. But the underlying point is strong: managing the fiscal position of a country that suffers from structurally weak productivity growth, a large loss of international competitiveness and an irrevocably fixed exchange rate (or, in Italy's case, no exchange rate at all) is challenging, to say the least.

I do not wish to be misunderstood. So let me be clear. I am not saying that the eurozone will disintegrate, or that Italy is doomed to Argentina's fate either. I am saying that tough choices and tougher times do lie ahead. Only with radical structural reforms, the most disciplined wage behaviour and the greatest possible fiscal rigour can a country in Italy's predicament sustain stability and return to healthy growth.

Could we be headed for some sort of crisis within the EU?
The crowning irresponsibility of the EU’s elite is the way that they have allowed necessary free market reforms to be contaminated by the creation of their unnecessary and unwanted superstate.
Andrew Stuttaford National Review On-line May 2005

If the No vote wins in France
will they have to start again fron "Ground Zero"?
CNBC 23/5 2005

It is almost impossible to overstate the importance of the French referendum
on the European constitution for the future of the European Union.
For the first time since the creation of the euro in 1999, we might be discussing what the European Central Bank and euro advocates have most dreaded: how long the euro might survive.
The euro can be still justified for as long as progress towards political union continues
Wolfgang Munchau Financial Times 11/4 2005

– Om EMU inte skulle fungera ekonomiskt, kan man ha hur vackra argument som helst för – det kommer ändå att haverera.
Det är det första testet. Jag är glad att jag började där. För på den punkten känner jag mig trygg och säker nu.
Göran Persson i Tiden (s) nr 3, 2003

The eurozone is a monetary federation without a federal budget. This unstable situation can evolve in two ways. One is implosion through political tensions between member states
Dominique Strauss-Kahn Financial Times 14/9 2004
The writer, a former French minister for the economy, finance and industry, is a member of the French parliament.
Very Important Article

An emergency plan for dealing with a European financial crisis was agreed at the weekend
by EU finance ministers, central bankers and financial regulators.
The most likely scenario to be tested would involve a collapse by a big bank
operating across EU borders, triggering fears of a systemic crisis.
Financial Times 16/5 2005

The trouble is that immigration looks more and more like the first problem that requires Europeans to choose definitively between European and national sovereignty. Nations can lay down the law on immigration, and so can the EU. But any mixed regime of EU standards and local immigration quotas will collapse of its own illogic
Christopher Caldwell FT 15/1 2005

What would happen if one of the 25 member states of the European Union refused to ratify the constitutional treaty?
Some say the non-ratifying country would have to leave the EU. Others argue that nothing would happen: the EU would simply continue on the basis of the existing treaties.
An intriguing possibility would be to split the EU in two - an outer part, in which all members take part, and the eurozone.The outer part would consist of a customs union, a common external trade policy, an internal market, a single competition policy and free movement of goods, services, labour and capital. This is essentially today's EU minus the eurozone and perhaps also minus the common agricultural policy, structural funds, and the common foreign and security policy.
Wolfgang Munchau FT 17/1 2005

EMU ökar spänningarna i medlemsländerna
Situationen som man ser i dag tror jag inte ska uppfattas som extrem. Det kommer att uppkomma situationer där konjunkturutvecklingen skiljer sig mycket mer åt mellan länderna än i dag”, säger Lars Calmfors
DI reporter Jonas Ohlin 7/1 2005

Tyskland, Italien och Nederländerna har för låg tillväxt. Samtidigt riskerar Irland, Grekland och Spanien överhettning.Den europeiska centralbanken, ECB, har ett omöjligt jobb. Deras ränta blir fel för några länder hur de än gör.Och det kan bli ännu värre i framtiden.

”Jag tror att man ska räkna med att länderna inte går fas. Situationen som man ser i dag tror jag inte ska uppfattas som extrem. Det kommer att uppkomma situationer där konjunkturutvecklingen skiljer sig mycket mer åt mellan länderna än i dag”, säger Lars Calmfors

Stark euro tynger Framför allt Tyskland, men även Nederländerna, skulle behöva en lägre styrränta för att få fart på ekonomin. Tillväxten är låg samtidigt som resursutnyttjandet och därmed också inflationstrycket är lågt. Samtidigt slår den starka euron hårt mot konkurrenskraften för exportföretagen.

Det är helt klart så att om Tyskland hade haft en egen räntepolitik så skulle man ha haft lägre ränta där i dag än vad man har”, säger Ingemar Hansson, generaldirektör på Konjunkturinstitutet, KI.

Eftersom räntepolitiken bestäms på en europeisk nivå kan den inte samordnas med arbetsmarknadsreformer, vilket gör att Tyskland fastnar i hög arbetslöshet.Samtidigt är ECB:s ränta, som i dag är 2 procent, för låg för flera länder. Irland är det tydligaste exemplet, med en hög tillväxt och ett högt resursutnyttjande riskerar konjunkturen att bli överhettad.Inflationen skenar i väg och det finns stor risk för fastighetsbubblor när räntan är när räntan är så pass låg som den är i dag. även Grekland, Luxemburg och Spanien kan få liknande överhettningsproblem.

Det är en nödvändig delkostnad för en valutaunion”, säger Ingemar Hansson.

Although there are no signs that such a problem is likely to appear in the foreseeable future, European regulators are haunted by the Asian financial crisis in 1997-98, which shook the whole region.
The most recent such event in Europe took place in 1992-94, although that crisis was largely confined to Nordic countries.

The assumption underlying the agreement is that the most likely cause of a economic crisis in Europe would arise from the banking sector, not from a securities crash.

Lars Jonung på CNN: Every nation state has a system of supervision and control of its financial sector, including a lender of last resort, to guarantee the soundness and stability of the financial system.
Presently, such a pan-European set of institutions is lacking.
Read more here

How long will the euro survive? The author shows that the answer depends principally on Germany.
New Book: "Euro on Trial" by Brendan Brown

Brendan Brown received his PhD from London School of Economics and is Director and Head of Research at Tokyo-Mitsubishi International plc, London.

"Euro on Trial" looks back - to the aspirations of the founders - and forward - to the possibility of reform or splitting up.

Monetary union is reversible in part or in whole and this book assesses the costs and benefits.

How long will the euro survive? The author shows that the answer depends principally on Germany.

Germany's membership so far has brought much disappointment. How many more years of disillusion are required before the question of EMU reform or break-up enters the mainstream of German political debate?

The dollar is likely to fall further.
This is creating more dilemmas for Europe than for America
The real question is not whether the dollar needs to fall, but how drastic the economic effects of its fall will be.
From The Economist print edition Nov 11th 2004

Politicians are failing not only to enthuse voters, but they are silent on the biggest challenge
In the past 12 years 200 million people from the west of China have moved to industrial areas within 100 miles of the Pacific.
They have acquired advanced technologies and high skills.
It is the equivalent of adding another Germany, France and Britain to the potential workforce of Europe, at less than 10 per cent of European labour costs.
William Rees-Mogg The Times 4/10 2004

There is a new economic challenge in the world that is particularly difficult for Britain and Europe. Pricing power has shifted from the Atlantic to the Pacific; it now belongs to China. China can set the prices for manufacturers below the level at which Europe, or Britain, can compete. European cars, for instance, have many good qualities, but, like Fiat or Jaguar, they are surplus to the world’s requirements. China also sets prices for raw materials and oil. If Chinese demand had not risen so fast in the past five years, oil would be $20 a barrel, not $50.

This revolution in pricing power reflects the industrialisation of China, drawing on the huge Chinese workforce. In the past 12 years 200 million people from the west of China have moved to industrial areas within 100 miles of the Pacific. This transfer continues. They have acquired advanced technologies and high skills. It is the equivalent of adding another Germany, France and Britain to the potential workforce of Europe, at less than 10 per cent of European labour costs. This is one of the largest human migrations in history. Britain has not begun to adjust to its impact.

This has already turned the terms of trade against Europe; the process is global and the rate is accelerating. In all probability it will destroy the ill-conceived euro before 2020, perhaps before 2010.

The eurozone is set up according to this principle - "one money, one central bank".
The Scandinavian union was based on the idea "one money, three central banks"
Lars Jonung, Research adviser, DG Ecfin, European Commission
Financial Times 13 September 2004

Sir, Allow me to comment on two statements by Wolfgang Munchau in his interesting analysis of the stability of monetary unions ("The flaw that threatens the eurozone", September 6).

First, Mr Munchau writes: "The Scandinavian monetary union (1872-1931), which included Sweden, Denmark and later Norway, was more durable but started to unravel slowly after the political union between Norway and Sweden ended in 1905."

Actually, the amazing fact is that Norway and Sweden, after mobilising their armed forces against each other, broke up their political marriage peacefully without a monetary divorce. This is an exceptional event in the history of monetary unions. After this political break-up, the Scandinavian monetary union functioned well until the outbreak of the first world war.

Second, Mr Munchau states that "one common cause underlies the failure of all monetary unions: the lack of political union with the authority to enforce economic and financial policy among its members". Monetary history suggests a more precise interpretation: a successful monetary union requires that there is one central bank with the legal monopoly on supplying the base money of the monetary union, hence having the power to determine the policy interest rate.

The eurozone is set up according to this principle - "one money, one central bank". The Scandinavian union was based on the idea "one money, three central banks", which explains why it was eventually dissolved. And the other failed monetary unions considered by Mr Munchau, the German-Austrian monetary union and the Latin monetary union, suffered from the same weakness, that is the lack of a single union-wide central bank.

What does this tell us about the future of the eurozone? The European Central Bank, with its monopoly on issuing euros, should be compared with the US Federal Reserve system rather than with the monetary unions of the past with many central banks. Of course, the economic performance of a monetary union such as the eurozone can be improved on by co-operation among the member states in various fields of policymaking. The optimal extent of such political and economic co-operation is not known to the economics profession for the moment, witness the academic debate concerning the Stability and Growth Pact. Actually, some competition among policymaking authorities within a monetary union such as the eurozone may be desirable - as long as the competition does not concern the monopoly supply of base money.

It is safe to conclude that European policymakers are currently involved in a learning process, searching for improvements in the workings of the eurozone. This ongoing process of adaptation is in itself a guarantee for a lasting monetary union.

Nu är det inte bara varningar och råd som förs fram utan direkta larmsignaler
om att EMU-projektet riskerar att haverera.
"Ett totalt sammanbrott kan inte längre uteslutas", sade Calmfors.
Sydsvenskan 17/2 2004

Tonen har skärpts ordentligt i årets rapport. Nu är det inte bara varningar och råd som förs fram utan direkta larmsignaler om att EMU-projektet riskerar att haverera.

Hotbilderna utgörs av växelkurssvängningar mellan euron och andra valutor, främst dollarn, som ECB inte tillräckligt parerar med räntesänkningar. Vidare skapar Frankrikes och Tysklands öppna nonchalans mot stabilitetspakten en osäkerhet om vilka regler som verkligen gäller. Att en rad länder, som Storbritannien och Portugal, står på tröskeln till att överträda underskottsgränsen gör inte situationen lättare. "Ett totalt sammanbrott kan inte längre uteslutas", sade Calmfors.

För Sveriges del verkar läget än så länge vara ganska betryggande. Kreditvärderingsinstitutet Standard & Poor's höjde igår landets kreditbetyg till toppnivån AAA.

Jacques Delors: Asked if he puts the chances of the effective collapse of the EU as high as 50%, he replies simply: “Yes.”
The Economist 12/2 2004

Lessons from monetary union
A monetary union is primarily a political, not an economic project. This is the most important lesson from the euro so far.
If you merely want exchange rate stability, forming a monetary union is definitely overkill.
Wolfgang Munchau, Financial Times, January 5 2004

Europe's economic and monetary union is five years old this week, and it is too soon to tell what its long-term impact is likely to be. But for those countries, in Asia and elsewhere, discussing whether to set up their own monetary union, the euro's short history has produced a few early lessons.

A monetary union is primarily a political, not an economic project. This is the most important lesson from the euro so far. Each member country will at some point be required to make political sacrifices. For example, members might face constraints on their fiscal policy. The economic consequences of the euro, if they exist at all, are far more difficult to prove. If you merely want exchange rate stability, forming a monetary union is definitely overkill.

Start off with an internal market before adopting a single currency. The Europeans made the mistake of failing to integrate financial markets first. One negative consequence is that monetary policy decisions are transmitted to various parts of the eurozone at different speeds.

Forget about a stability pact and focus instead on the long-term sustainability of public finances, including pensions.
Sustainability is a complex issue that cannot be reduced to a single number, such as a deficit ratio. Do not shy away from using qualitative criteria, even if they are not that easy to implement. It is better to have a soft rule that is roughly right than a hard rule that makes no economic sense. Be aware that policy co-ordination is an essential ingredient for a monetary union to work. Every member should accept that all aspects of economic policy - from expenditure and taxation to the regulation of financial, product and labour markets - are matters of common concern.

The Brussels elite climb into their BMWs for the Christmas break, and the near-obligatory trip to the slopes of Verbier, in a dark mood. The only problem is that things could be even worse when they get back.
The last year has been an unmitigated disaster for supporters of the cause of greater European integration, as national self-interest reasserts itself across the continent.
George Parker, the FT's Brussels bureau chief, Financial Times 18/12 2003

And all the time, public support for the European dream has slipped away. The number of people who think the EU is "a good thing" has slipped below 50 per cent, and turnout in next year's European elections is expected to hit a new low.

The events of 2003 are a catalogue of bad news, lightened only by the formal signing of the accession treaties in April by 10 new member states - many of whom were still living under communism only 15 years ago. The Iraq crisis was only the start of Europe's problems, the Union shattering along the lines of "Old" and "New" Europe defined by Donald Rumsfeld, US defence secretary.

The European economy, dogged by sluggish reform, a resistance to a truly free single market and a looming pensions crisis, remained stuck close to recession while the US roared further ahead.

In June Tony Blair shelved any hopes of Britain joining the euro for the forseeable future, and in September Sweden recorded a strong No to membership of the single currency.

Then came the year's twin low-points. First France and Germany effectively killed the EU's stability and growth pact because they could not bear to be bound by the deficit rules they themselves had invented. Then a few weeks later there was the appalling Brussels summit, where the EU's prestige project - a new constitution - was unceremoniously booted into the long grass because France and Germany could not agree with Spain and Poland on a new voting system.

There is no sign of the constitution being revived in the near future, the stability pact lies abandoned in the gutter, and in June the voters will get their chance to say what they think in the European elections. The verdict is unlikely to be favourable, and maybe that will be the jolt Europe's squabbling and increasingly nationalistic leaders need to start burying their differences.

I den grundlagskonferens som EU just lagt på is efter sammanbrottet vid toppmötet i Bryssel förra helgen har Sverige hållit en påfallande låg profil.
Men det beror inte på att Sverige efter folkomröstningen aktar sig för att sticka ut, försäkrar Persson, utan på en vilja att ta ansvar för att Europeiska Unionen får ett beslutsmaskineri som fungerar med 25 medlemmar.
- Alternativet är ju att det här havererar och går i stå. Och om varje land då ska matcha sina positioner, då kommer det här att sluta med ett elände.
Intervju i DN 20/12 2003

Mr Giscard d'Estaing told the European parliament:
"History teaches us that bad constitutions, those which are felt to be unjust or ineffective by citizens, lead to revolution or rebellion. In this particular case, I don't think that any barricades will be raised, but I do think we would see the gradual falling apart of the European Union."
Financial Times 6/12 2003

Utmaningen är att finna ett sätt att mobilisera folkliga känslor för byggandet av Europa. Möjligheten är att skapa ett mera demokratiskt Europa.
Utan det kommer det europeiska projektet att misslyckas.
Vernon Bogdanor, DN Debatt 24/9 2003

Det finns fördelar med euron, men riskerna är stora.
Vår bedömning är att Sverige för närvarande bör avstå från att ta detta steg.
Roger Mörtvik, Samhällspolitisk chef,
TCO Irene Wennemo, Näringspolitisk chef, LO
DN Debatt 5/9 2003

In 1993, Czechoslovakia experienced a two-fold break-up:
On January 1 st, the country disintegrated as a political union, while preserving an economic and monetary union.
Then, the Czech-Slovak monetary union collapsed on February 8 th.

We analyze the economic background of the two break-ups, and discuss lessons for stability of monetary unions in general. We argue that while Czechoslovakia could be considered an optimum currency area, it was in fact less integrated than some other existing unions. That, along with low labor mobility and higher concentration of heavy and military industries in Slovakia, made Czechoslovak economy vulnerable to asymmetric economic shocks - such as those induced by the economic transition. Furthermore, the Czech-Slovak monetary union was marred by low credibility, lack of political commitment, low exit costs, and the absence of fiscal transfers.

Deutsche Bank-ekonom orolig för EMU-kollaps
Stabilitetspakten är i gungning och statsminister Göran Persson gör rätt när han som förutsättning för ett euro-inträde ställer krav på budgetdisciplin. Det säger Ulrich Schröder, chefsekonom på Deutsche Bank.
Ekot 4/9 2003

– Om EMU inte skulle fungera ekonomiskt, kan man ha hur vackra argument som helst för – det kommer ändå att haverera. Det är det första testet. Jag är glad att jag började där. För på den punkten känner jag mig trygg och säker nu.
Göran Persson intervjuad i Tiden (s) nr 3, 2003

Det är den så kallade stabilitetspakten som fått Persson att börja sväva på målet
DN-ledare 30/8 2003

Det finns starka ekonomiska skäl för att ha en buffert i statsfinanserna om man ska gå med i EMU
Det ger oss en bättre start med euron än de länder, exempelvis Tyskland, som var med från starten och som inte tänkte på stabiliseringspolitiken
Lars Calmfors Ekot 17/7 2003

Skapandet av den Europeiska monetära unionen, EMU, var utan motstycke, något som lovade mer integrerade och större marknader. Stimulansen av handel och investeringar är uppenbar. Men kommer euron att bestå?
Två aktuella utvecklingar kommer att ge svaret. Den första gäller utgången av de strider som pågår i Frankrike, Tyskland och på andra håll om reformeringen av socialförsäkringarna. Den andra är debatten om huruvida "sociala rättigheter" ska skrivas in i utkastet till EU:s författning.
Georges de Ménil, professor i ekonomi vid Ècole des Hautes Ètudes en Sciences Sociales i Paris
DN 28/8 2003

Niklas Ekdal, på Herbert Tingstens stol,
om konservativt tänkande och utopiskt
Med kommentar av Rolf Englund
Signerat, DNs ledarsida, 13/7 2003

- Vi tror inte någon går ur, då havererar alltihop.
Göran Persson
Expressen/TT 2003-05-13

Om Sverige går över till euron går det inte att gå ur samarbetet igen, enligt statsminister Göran Persson - Jag tror inte ens det finns någon formell möjlighet att gå ur. Man ger upp en del av sin nationella suveränitet när man går in i samarbetet, men får i stället ett skydd mot de globala marknadskrafterna. Det är det bytet vi gör, sade Persson vid en utfrågning på Värmdö gymnasium.

- Det finns en kraft som växer fram som kan vara en global motvikt till USA, och det är europeiska unionen, sade Persson.

- Den gemensamma valutan är ett steg på vägen mot fördjupad politisk enighet, mot ett slags Förenta Europa.
Om det blir några fler steg vet vi inte, vi vet inte ens om euron överlever de påfrestningar som spänningarna mellan femton eller tjugofem ekonomier utsätter den för.
Om gud inte funnes, sa Voltaire, vore vi tvungna att uppfinna honom. EU också. Och, förr eller senare, EMU.
Dagens Nyheter, huvudledare 30/6 2003

EMU är i gungning
Antingen tvingar EMU-problemen EU att snabbt bli en centraliserad superstat eller så spricker EMU
Margit Gennser, SvD Brännpunkt 16/6 2003
Margit Gennser är ordförande i Medborgare mot EMU och var riksdagsledamot (m) 1982-2002
klicka här

Vem vet, om tio år kanske Tyskland har temporärt tvingats lämna euroblocket för att devalvera sin valuta. Att säga ja till euron blir då inte att säga ja till tillväxt - utan som att knyta fast sin jolle vid "Titanic"! Om tio år kanske vi är glada över om kronan är den enda valutan vid östersjön vid sidan av euron - och den ryska rubeln.
"Euro-ja som att knyta jollen till 'Titanic'" Anders Ferm, DN Debatt 7/6 2003

Lars Calmfors tror inte på nejsidans argument att EMU kommer att spricka, till följd av att euroländernas ekonomier växer olika snabbt. Dessa skillnader kan, enligt honom, klaras genom att lönerna får öka i något olika takt.
DN Ekonomi 6/6 2003 Reporter: Johan Schück

Vi måste säga nej till EMU. En valutaunion utan gemensam politisk ledning kommer inte att fungera.
Per-Olof Eriksson
Aftonbladet 28/5 2003

"Jag är övertygad om att valutaunionen kommer att spricka. Det är bara en fråga om när. Säger vi ja nu och går in då får vi vara med i det lidandet", säger han.
Per-Olof Eriksson, Dagens Industri 15/4 2003

Lönebildningen har varit mitt första och viktigaste frågetecken.
Det andra har varit oron för att hela europrojektet skulle kunna spricka. Naturligtvis finns en sådan risk.
Därför kommer jag rösta ja till euron den 14 september.
Ebba Lindsö
SvD Brännpunkt 13/4 2003

Vi vill ha en flytande krona som ställer in sig på rätt kurs, varken hård eller mjuk.
Tro mig, EMU kommer att spricka!
P-O Eriksson Dagens Industri 7/3 2003

Jag tror för min del att länder måste klara sina interna problem själva. Lika svårt som det är att införa demokrati utifrån i ett land som inte är vant vid den, lika svårt är det att införa en förnuftig ekonomisk politik den vägen.
ändå kommer jag nog att rösta "ja" i september.
Per Dahl, politisk chefredaktör, Barometern 3 Mars 2003

State Street Global Advisors, the US fund manager, one of the world's largest with $760bn of assets under management, said a single monetary policy was by its "very design pro-cyclical and destabilising"
Financial Times 2/3 2003

När det gäller EMU-debatten finns det ett argument som jag har synnerligen svårt för. Inte för att det skulle vara särskilt besvärligt att bemöta. Heller inte för att det skulle vara intellektuellt tungt eller värst sannolikt. Argumentet går ut på att Sverige inte ska gå med i EMU eftersom "EMU kommer att spricka".
Pernilla Ström Kolumn i DN 25/2 2003

Brandförsäkringsargumentet
Anders Ferms resonemanget om EMU bottnade i vad han själv kallade brandförsäkringsargumentet. Risken är statistiskt sett minial att huset börjar brinna, men om det sker förstörs hela ens ekonomi.
Alltså tar man en försäkring.

Det är en dum konstruktion - skulle vi rösta om huruvida EMU skulle vara kvar eller inte så skulle jag tveklöst rösta nej. Felet är naturligtvis att Europa är inte ett optimalt valutaområde. Det finns så stora skillnader internt. Det är få ekonomer som tror att det här skall hålla, låt oss säga, 20 år framåt.
P-O Edin, tidigare chefekonom på LO Affärsvärlden, nr 12, 2002-03-20

Två tidigare försök att få till stånd ett intimare monetärt samarbete mellan Europas stater - med Werner-planen 1971 och EMS (det europeiska monetära samarbetet) 1979 - har båda misslyckats. Sannolikheten för ännu ett, större, misslyckande har inte minskat: inga egentliga säkerhetsventiler har skapats.
Trots detta tror jag att EMU är bra för Europa.
Magnus Blomström i DN 98-02-02

Tänk om det inte fungerar Valutaunionen är ett stort vågspel. om den skulle förverkligas. Det kan visserligen hända att en gemensam valuta skulle tvinga fram den anpassning som krävs för att den ska fungera: en samordnad finanspolitik, flexibla arbetsmarknader, och överföringar av människor och resurser mellan länderna. Men tänk om det inte fungerar.
Gunnar Wetterberg DN Debatt 95-07-18

State Street Global Advisors has launched an unusually frank attack on the euro, warning it could lead to a loss of national sovereignty and push European countries into recession.

The US fund manager, one of the world's largest with $760bn (£487bn) of assets under management, said a single monetary policy was by its "very design pro-cyclical and destabilising".

Alan Brown, chief investment officer, said there was a "real prospect" that such a policy could see Germany slip into a deflationary cycle similar to Japan.

In order for the real exchange rate to decline over time, Mr Brown said Germany would have to run an inflation rate "perilously close to zero". At the same time, Germany would experience above average real interest rates as well as tax increases and spending cuts to curtail its deficit.

"There is a certain irony to the fact that Germany, the principal architect behind the stability and growth pact, is one of the first countries to be caught by it," Mr Brown said.

"Effectively, all important economic sovereignty would have been handed over to an unelected body in Brussels," he added.

"If a country in the eurozone were to be slipping into recession, they wouldn't be able to do anything about exchange or interest rates which are determined for the region as a whole."

Mr Brown said this would lead to protracted economic downturns. "In the same way booms can go on for years, as Ireland bears out, so can busts," he said.

nejtillemu.com

När och hur spricker EMU?