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Posts Tagged ‘euro vs dollar’

 

The recent debt crisis in the peripheral countries of EU revealed a real problem of leadership in the EU, a leadership that it is not only about EU unification but about facing the antagonism from US,  since the crucial  future issues behind the decisions by EU is the antagonism of Euro vs. Dollar for a share to global markets as world currencies and the challenges that come from China and other BRIC countries.

The US and China of course don’t want the collapse of Euro because this will mean the collapse of the global financial and currency system, something that would cost dearly to everyone. But both they are benefited by a Euro zone that will not lead the developments but will have a second role while being affected by US or China depending the balance of power. This can explain the interest of China to buy second class European debt and European assets in Greece and elsewhere.

We also  all finally understood that probably the Euro shouldn’t be extended, at least yet, beyond a core of countries around Germany like Holland, France, Austria that have similar economies and  the Scandinavians, if they wanted too. But Euro zone was extended to soon for political reasons and for the short term economic gains, since a zone of 16 countries was created where the above core countries could export their products, especially Germany and France, while the common currency was backed up by an economic zone with a total GDP of 8,4 trillion Euros.

Many economists and analysts now talk about the possibility of a core zone that will be created around Germans not de jure (by law) but de facto, something that means that there will be a permanent difference among the core and the peripheral countries in their real value  of their “common” currencies and their  inflations without ever being declared a creation of two different currencies.

I think this means that the peripheral countries would have to work their asses off to reach the level of North Europe, decrease corruption and increase efficiency and competitiveness. I find this scenario quite fair and proper for everyone but in realistic terms it is very optimistic and even unattainable at least in the short term. In Greece for example a development like that will need many years and deep structural changes.

Also to be really fair we should never forget that there are objective obstacles for a convergence among European nations, since there is not any industrial or other base where most small peripheral countries could sustain a competitive advantage, while you cannot change  deeply rooted wrong mentalities of people fast and easily without investing a lot of time and effort . Still these changes are not impossible to happen but they need a lot of time and more importantly, common economic and political decisions under a common political framework and a common political will inside the EU.

For sure in many Southern countries there are increased levels of corruption and non-transparency that leads to inefficiencies and lack of competitiveness and the final responsibility should burden those countries with the problem and not anyone’s else, but I think this is only a small part of the problem of EU and by no means the real source of the  problems that Euro-zone faces today.

The question many times phrased as  if the South Europeans are going to pull down the North or if the North will help the Southerns to stand on their feet at its own expense. Still I think the question is framed wrongly, there is a different division of labor among Euro zone nations and in this time of crisis the countries with strong exporting industries like France and Germany with surpluses have an advantage. I still insist that the extension of Eurozone aimed  to the creation of a vast market and a vast geographically economy that will back up the common currency while in the minds of most Europhiles and bureaucrats there was and is always the hope of a complete political unification  in the future, something for sure quite difficult considering the many cultural obstacles.

But there was a mutual benefit for all while the division among North and South is not an absolute measure. For example in 2007 Germany exported  goods of a value of 624 billions Euro to EU out of its total exports of 964 billions  and France exported to EU 261 billions Euro out of 403 billions of its  total exports. Also Belgium a Northern country starts to face similar debt problems with a total government debt more than 100% of GDP and now is getting in the wary eye of speculators, while the budget deficit and debt problems of UK is also well known.

However if finally two different zones will be created the Germans and the other advanced countries will have a short and mid term gain avoiding the cost of paying the deficits of the others from their surplus.

However we shouldn’t never forget that the only way for the EU to be a real antagonist of USA and of the emerging giants of China, India and Brazil is to create a currency zone as big as possible.  And this would not happen without the inclusion of South and in the future of Eastern Europe.

This would be a long term political and economic gain that will be lost with a restricted euro zone. I think everything  is about political decisions concerning a trade off of short and midterm economic gains with long term political gains of strategic importance that will finally be translated to economic gains and if finally Germany and France  really want a European Union that will become a super power similar to US and China and would be able to compete in the global arena.

 

 

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