I'd agree with Gunnar, the new Euro is not only about economics, but mostly
about politics - political power, or at least potential power. Also consider the
possibility that utilizing competitive monetary tactics between a number of small states
can create more damage than any local adjustment benefits derived. This is the case
regarding the current competition between our States over corporate taxation policies.
The effect has been for corporations to play one state against another, and the mere
threat of relocation brings on sumptuous tax and incentive goodies, so that the most
powerful and wealthy corporations are not paying their share of costs. The same process
goes on with more local government such as cities.
The US model of shifting from a dozen state issued currencies to a single
federal one, is the closest historical analogy to the new Euro. We read of how this was
resisted for awhile at the state level. But after adoption we don't read of serious
problems resulting, until nearly 30 years later when the private 2nd US Bank, engaged in
a criminal monetary expansion in 1817-19, throwing the nation into economic and
financial dissaray, and then went into its criminal deflation phase in 1819-20
especially starving the southern states for money, and sowing seeds of dissension and
These were largely the results of private ownership and control of the US money
system. Certainly the fact that the system had been centralized allowed the malefactors
to do much more evil than they could have if the system was diffused, but the new Euro
does not have this type of control problem since nearly all the ECB's owners are
themselves governmentally owned.
Of course insisting that the ESCB be run by what Michael generously calls "idiot
'technocrats,' immune to political overrides," is almost guaranteed to cause some
problems, but those are the same people who were recently controlling Europe's various
national currencies. I think no one would be surprised if they continue to try to favor
their former/future employers, perceived class affiliation, even friends and former
classmates; in the monetary policies they promote; through the "Price Stability" mantra
But stating in the ECB founding documents that there will be no political
influence, Is (I hope) a futile desire of the bankers, and really indicates the
potential for the opposite - for a reasonable political input. Its already there in the
founding documents in the amended article two:
"To promote throughout the Community a Harmonious and balanced
development of economic activities, sustainable and non-inflationary
growth respecting the environment, a high level of
employment and of social protection, the raising of the standard of
living and quality of life, and economic and social cohesion and
solidarity among Member States."
This was not written by bankers! But then they attempt to throw a monkey wrench
into it, proclaiming that those goals shall not prejudice price stability.
The final arguments I'll put forward to expect what I regard as good political
influence on the ECB is the fact that when the Bundesbank refused years ago to go along
with the EURO plans, they were told by the then German Govt. that the laws would be
changed to lessen the importance of what the Bundesbank thought.
Finally the divergence of languages and national feelings will, I think provide
an extra political block to the bankers inevetible attempts to take advantage of the
But I repeat from an earlier gang8 email : The great importance of the Euro is
to have a system independent of the $. The European states are giving up a degree of
sovereignty to the Eur. community, but the European Community is potentially gaining a
lot of sovereignty in the process, away from Alan Greenspan's dollar hammer, and all
that that means.
(I've been trying to get a copy of F. A. Hayek's nobel prize winning book on
competing currencies, the denationalization of money. Gang 8 members will be interested
to know that it is not available- unknown - in the vast midwest states inter - library
loan system. Is it so bad its being hidden? The only thing they had was an 8 page review
of Hayek's idea, by Yeager)
> I would greatly welcome Gang comments.
> JOINING THE EURO
> 1. Different exchange rates continue to exist so that economies may
> compensate for different rates of inflation.
> 2. An economy with a higher rate of inflation will eventually lose
> employment in its manufacturing industries and go into decline, unless it
> can either float or regularly exercise Bretton Woods's 'floating peg'.
> Economies which suddenly find radical shifts in their terms of trade, as
> both Britain and Norway did following the discoveries of North Sea oil, may
> similarly need to adjust.
> 3. Once exchange rates are locked together, the capacity to adjust for
> inflation etc is removed. Political pressures will then force economies to
> compete in other ways to try and redress loss of employment.
> 4. Exchange rates should only be locked together once the mechanisms which
> cause inflation have also been equalised.
> 5. In creditary terms, the causes of inflation are buried in the commercial
> workings of the credit/banking industry, in the opportunities to indulge in
> financial capitalism rather than in industrial capitalism, in the
> savings/investment habits and therefore the wealth/age structure of the
> population, and in the regulatory/business structure framework which helps
> shape all these.
> 6. So far as I know, the European Commission has no more than scratched the
> surface of any the causes buried in point 5 above.
> 7. It is therefore only through sublime economic illiteracy that it can, at
> this stage, be promoting "the Euro" which in effect means locking all
> currencies in immutable exchange rate relationships. It clearly fails to
> recognise the threat, medium term and beyond, that member countries of the
> Euro will search out idiosyncratic ways of tweaking elements of 5 above to
> gain economic advantage without being caught at it.
> Wojja think?