# The €uro. A Dead Duck Walking?



## TheBigShort (30 May 2018)

I don't proclaim to be expert in these affairs, but from my armchair it is becoming clearer and clearer as time progresses.
News from Italy, on the back of political uncertainty is unsettling, at the very least.
The €uro is failed experiment. It is a one-currency-fits-all-economies.
In its relatively short history, it has done more to destabilize the economies of the eurozone than it has to bring any form of alignment.
Euphoria, exuberance, easy credit, overheating, debt spiral, bankruptcy, bailouts, money printing, political instability, crisis...are all adjectives and words that you can associate with the €uro.
Stability is not a word that you could plausibly associate with the €uro.

The question what to do? Wind it up in as orderly fashion as possible over the next decade or continue with the pretence that as a currency it commands the loyalty of Eurozone citizens and that politically "whatever it takes" - Draghi, will support its continued existence?

Personally, I think it is a dead duck as it stands.
Italy's woes are continued evidence of that.

I say that as someone who voted for Treaties to facilitate the €uro and supports the concept of the single currency.

With the exception that world central banks are moving closer to a one world currency (including a universal basic income) then I don't see how it can limp from one crisis to another without political instability driven btyy economic forces eventually breaking it up.


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## Sunny (30 May 2018)

To be fair, Italy was a basket case when it had it's own currency and will be a basket case again with it's own currency. The Italian Lira is not Sterling or the Swiss Franc. Unfortunately, it is easier for people to blame the Euro for every economic problem in places like Italy than facing up to the reality. And I say that as someone spent a significant number of years working for an Italian bank and who has a love for the Country and people but God, they are stuck in the 1950's when it comes to economic and social reform and the impact of globalisation.


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## Leo (30 May 2018)

The Euro and it's associated rules and oversight may be the only thing saving the Italians from themselves!


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## TheBigShort (30 May 2018)

Sunny said:


> Italy was a basket case when it had it's own currency and will be a basket case again with it's own currency. The Italian Lira is not Sterling or the Swiss Franc. Unfortunately, it is easier for people to blame the Euro for every economic problem in places like Italy than facing up to the reality.



Thats a fair point. The economic woes of the Italian economy are not necessarily of the euro's doing. But it only goes to underline how unsuited the euro is to the Italian economy.
The aim of the euro was to create one economic and financial unit operating under the same rules. This does not suit all of the economies within it and is creating political instability. The greater the instability, the less likely the euro will be to survive.


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## TheBigShort (30 May 2018)

Leo said:


> The Euro and it's associated rules and oversight may be the only thing saving the Italians from themselves!



Thats somewhat an oxymoron in itself. It is the associated oversight and rules that appear to moving voters to poitical parties prepared to abandon those rules.


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## T McGibney (30 May 2018)

I've always considered it only a matter of time before the Euro, and with it the EU, collapses in flames and I consider the UK to have been wise to opt to abandon the latter before such a disaster materialises.

I'm not saying I'm right but it is my gut feeling and heaven knows what timeframe is likely to be involved.


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## Protocol (30 May 2018)

Economic theory would suggest that the eurozone is not an OCA.

OCA = optimal currency area.

So it is a political project, as the economics don't fully yet support the establishment of a monetary union.

https://archive.intereconomics.eu/year/2013/5/the-optimum-currency-area-theory-and-the-emu/


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## Sunny (30 May 2018)

TheBigShort said:


> Thats a fair point. The economic woes of the Italian economy are not necessarily of the euro's doing. But it only goes to underline how unsuited the euro is to the Italian economy.
> The aim of the euro was to create one economic and financial unit operating under the same rules. This does not suit all of the economies within it and is creating political instability. The greater the instability, the less likely the euro will be to survive.



Yep. They are paying the price for fudging the issue when the Euro was introduced. I don't think they want to leave the Euro. I think like the UK, it is coming from a deep dissatisfaction with the EU as a whole and the EU need to wake up to this very quickly. I like the EU. I believe in the idea of it but there is no doubt that it is becoming as dysfunctional as the United Nations.


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## Jim2007 (30 May 2018)

TheBigShort said:


> The €uro is failed experiment. It is a one-currency-fits-all-economies.



Just nonsense.  The dollar is in exactly the same state, given the mixed type of economies in each state.  It is not the currency that is the problem it is the economies themselves.  They could use monopoly money for all the difference it would make.


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## TheBigShort (30 May 2018)

Jim2007 said:


> Just nonsense.  The dollar is in exactly the same state, given the mixed type of economies in each state.  It is not the currency that is the problem it is the economies themselves.  They could use monopoly money for all the difference it would make.



I dont think its 'nonsense' but granted there is a circular arguement at play here. 
As my list of adjectives to describe the euro implies, there are times when being in the euro appears to be highly beneficial. But clearly it has a politically and economically destabilizing effect also. 
If its not the fault of the euro, but rather the economies themselves, then that only confirms that the euro is an inappropriate construct. It cannot suit all economies all of the time. This leads to economic instability, and in turn, political instability. 
Perhaps, one solution would be to cede fiscal sovereignty to a centralised Federal United States of Europe? 
Unlike individual states in the US, eurozone states are constrained to the Fiscal Stability and Growth pact which, in my opinion, is a crude, and ultimately unsustainable way of appropriately managing a countries economy.


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## Leo (30 May 2018)

TheBigShort said:


> Thats somewhat an oxymoron in itself. It is the associated oversight and rules that appear to moving voters to poitical parties prepared to abandon those rules.



The parties getting the votes now are just pushing populist policies that would bankrupt the country if followed through on. The prudent response to an aging population and plummeting birth rates (to the point where they introduces a 'Fertility Day') isn't to promise universal incomes, slash income taxes while increasing the state pension along with lowering the retirement age.


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## Purple (30 May 2018)

Leo said:


> The parties getting the votes now are just pushing populist policies that would bankrupt the country if followed through on. The prudent response to an aging population and plummeting birth rates (to the point where they introduces a 'Fertility Day') isn't to promise universal incomes, slash income taxes while increasing the state pension along with lowering the retirement age.


Exactly, we'd never do that, no our populist left wingers  want to do all that but pay for it by taxing "the rich".

If that doesn't work then blame the Euro.


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## TheBigShort (30 May 2018)

Leo said:


> The parties getting the votes now are just pushing populist policies that would bankrupt the country if followed through on



Perhaps so, perhaps not. The markets are responding to proposed policies that will increase Italian debt in excess of  productivity growth. As such, Italian bonds yields are rising, threatening bankruptcy of the Italian state, threatening Italys participation in the euro, threatening the very existence of the euro (mine and your currency), threatening economic instability in the wider European economies.

Who, on that basis alone, can plausibly  say that the Euro is a stable, suitable currency for Europe?


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## TheBigShort (30 May 2018)

Purple said:


> Exactly, we'd never do that, no our populist left wingers  want to do all that but pay for it by taxing "the rich".
> 
> If that doesn't work then blame the Euro.



Its not about 'blaming the euro'! It is about acknowledging how the euro, as a currency, is a failed construct. It is not a suitable currency for all eurozone economies. In its short existence it has been associated with crisis more than stability. 
I support the concept of a single currency, but the euro does not, in my opinion, work to provide economic stability and growth.


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## TheBigShort (30 May 2018)

Purple said:


> Exactly, we'd never do that, no our populist left wingers want to do all that but pay for it by taxing "the rich".



Isnt the attempted coalition government in Italy a partnership between right and left wing parties?

The way im reading matters is, that it is not so much the prospect of a populist coalition that sparked the sell-off of Italian debt, but rather the failure to establish the coalition itself. It is the prospect of returning to the polls with heightened euro scepticism coming out further on top that is prompting the sell-off.
Notably, the parties concerned are in negotiation to find a finance minister than will receive seal of approval from the President - this appears to have stalled the sell-off for now.


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## odyssey06 (30 May 2018)

Being in the euro requires sacrifices - it's a lot easier to devalue your currency than to cut wages and benefits. 
I don't think there is buy in to this from some eurozone countries (e.g. Italy, Greece), and they should have been asked in a referendum to join.
And I don't think there is buy in from other eurozone countries (e.g. Germany) that being in a shared currency will required shared financing.

Given that, the euro will stagger from one crisis to the next until either (a) both sets of countries buy into it OR (b) the countries that don't want to be in are cut loose.
The euro, as presently constructed, was a terrible idea.


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## Firefly (30 May 2018)

TheBigShort said:


> Its not about 'blaming the euro'! It is about acknowledging how the euro, as a currency, is a failed construct. It is not a suitable currency for all eurozone economies.



I see it a bit differently. I think Italy has shown itself to be not only not suitable to its own currency but also to the Euro. Ditto for Greece. It's not that the euro is not suitable to some countries, rather, some countries are not suitable to the euro. The euro has brought the cost of borrowing down to practically nil. Some countries like Italy and Greece and us have used this to borrow far far too much and when it comes to paying it back it causes them problems. Just because DFS have 0% on sofas doesn't mean I have to buy one...


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## TheBigShort (30 May 2018)

Firefly said:


> I think Italy has shown itself to be not only not suitable to its own currency but also to the Euro. Ditto for Greece. It's not that the euro is not suitable to some countries, rather, some countries are not suitable to the euro.



So the countries that are 'not suitable' should leave? Or be cut loose?


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## Firefly (30 May 2018)

TheBigShort said:


> So the countries that are 'not suitable' should leave? Or be cut loose?



Probably. Like most clubs really.


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## TheBigShort (30 May 2018)

Firefly said:


> Probably. Like most clubs really.



And the debt acquired by these countries as Euro's will be paid how? And by whom?


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## Firefly (30 May 2018)

TheBigShort said:


> And the debt acquired by these countries as Euro's will be paid how? And by whom?



I would imagine if the debts are owed in Euros they would be paid back in Euros. If I borrow $100, I must repay $100 dollars plus interest. It doesn't matter if my own currency is Euros, punts or anything else.


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## jpd (30 May 2018)

By them, in euro's - and good luck with that.


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## TheBigShort (30 May 2018)

Firefly said:


> I would imagine if the debts are owed in Euros they would be paid back in Euros. If I borrow $100, I must repay $100 dollars plus interest. It doesn't matter if my own currency is Euros, punts or anything else.



If they could pay back in euros then there would not be a sovereign debt crisis in the first place!


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## Firefly (30 May 2018)

TheBigShort said:


> If they could pay back in euros then there would not be a sovereign debt crisis in the first place!



I agree. Living beyond your means. Seems to be endemic..


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## DeclanDublin (30 May 2018)

The Euro, it seems to me to be primarily a political project aimed, in large part, at ensuring peace in Europe by wrapping economies so tightly together that war is inconceivable. I don't think the need for this has gone away.  We sometimes lose sight of the need for overarching peace in a long period of political stability. The scale of Italian debt is eyewatering, no matter what currency they use. However, the freedom to devalue certainly benefited Italy in the past.


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## TheBigShort (30 May 2018)

Firefly said:


> I agree. Living beyond your means. Seems to be endemic..



Yeh, so to ask the question again. If some countries leave, or are cut loose from the euro (on account that they cannot repay their debts) who are to pay those debts, or how are the debts to be repaid?
Or do you advocate a default, which is what will occur if a country leaves or is cut loose.


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## Firefly (30 May 2018)

DeclanDublin said:


> However, the freedom to devalue certainly benefited Italy in the past.



Maybe we might have to devalue the Euro in time....it would make debt repayments and other government obligations a lot cheaper for a lot of countries...


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## Firefly (30 May 2018)

TheBigShort said:


> Yeh, so to ask the question again. If some countries leave, or are cut loose from the euro (on account that they cannot repay their debts) who are to pay those debts, or how are the debts to be repaid?
> Or do you advocate a default, which is what will occur if a country leaves or is cut loose.



I would take a guess that it will be the remaining countries who would have to pick up the bill and therefore the likes of you and me. Something to look forward to I guess


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## robert 200 (30 May 2018)

Oh ye with short memories  !!!!!

Do you want a return to Bertie holding the purse strings .

Lets get down on our knees and thank the Gods that we are on our feet


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## Firefly (30 May 2018)

robert 200 said:


> Oh ye with short memories  !!!!!
> 
> Do you want a return to Bertie holding the purse strings .
> 
> Lets get down on our knees and thank the Gods that we are on our feet



I agree. We've obviously been through a difficult decade, but I think on the whole, life has been much much better for us within the EU. 
Thanks to our insatiable desire to live beyond our means during good times and bad our children will have enormous hurdles to climb.
I actually think we will look back at this time as being a golden time for Ireland.


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## jpd (30 May 2018)

TheBigShort said:


> Yeh, so to ask the question again. If some countries leave, or are cut loose from the euro (on account that they cannot repay their debts) who are to pay those debts, or how are the debts to be repaid?
> Or do you advocate a default, which is what will occur if a country leaves or is cut loose.



If a country leaves the eurozone and then refuses to pay it's debt, it is clearly in default. A country in default will find it difficult to fund it's public spending as no external source of funding will be available other than a bail out led by the IMF (aka Argentina). Such bailouts come with strings attached. Another result will be a large devaluation of it's new currency making its citizens poorer relative to those in the Euro zone. Yes, the devaluation will make it more competitive and attract tourists but the locals will definitely be worse off.


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## TheBigShort (30 May 2018)

Firefly said:


> I would take a guess that it will be the remaining countries who would have to pick up the bill and therefore the likes of you and me. Something to look forward to I guess



I don't think it would be that simple. There was probably a chance that if Greece or ourselves defaulted that the euro could have absorbed the reputational damage and hobbled on, but even at that I would doubt it. If Italy were to default, or allowed to default then the euro's reputation would be gone. 
Think about it, who would risk lending their capital to debt-ridden eurozone countries knowing that they too might default in the near future? Interest rates would spike dramatically on all countries with high debt to gdp ratios forcing those countries to default also.

For the euro to survive (I dont think it will) default is simply not an option.


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## TheBigShort (30 May 2018)

jpd said:


> If a country leaves the eurozone and then refuses to pay it's debt, it is clearly in default. A country in default will find it difficult to fund it's public spending as no external source of funding will be available other than a bail out led by the IMF (aka Argentina). Such bailouts come with strings attached. Another result will be a large devaluation of it's new currency making its citizens poorer relative to those in the Euro zone. Yes, the devaluation will make it more competitive and attract tourists but the locals will definitely be worse off.



I agree. And if a country defaults, say Greece, what do you think investors will do when it comes to buying bonds of Italy or Spain or Ireland? Probably run a million miles away.
Default in the eurozone is not a realistic option. Italy defaulting is definitely a non-runner.


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## TheBigShort (30 May 2018)

Firefly said:


> I think on the whole, life has been much much better for us within the EU.



I agree, I certainly would not advocate leaving the EU. 



Firefly said:


> Thanks to our insatiable desire to live beyond our means during good times and bad our children will have enormous hurdles to climb.
> I actually think we will look back at this time as being a golden time for Ireland.



Sometimes it is hard to equate your views. One the one hand you despair our insatiable appetite to keep living beyond our means while simultaneously think we are living through a golden time!


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## Firefly (30 May 2018)

TheBigShort said:


> Sometimes it is hard to equate your views. One the one hand you despair our insatiable appetite to keep living beyond our means while simultaneously think we are living through a golden time!


By golden time, I mean we've never had it so good and this is because as we've put it on the never never...


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## TheBigShort (30 May 2018)

Firefly said:


> By golden time, I mean we've never had it so good and this is because as we've put it on the never never...



Ok, fair enough, my misinterpretation of your previous comment.
However, it only adds to the notion that the Euro is not suited to our economy (or we are not suited to Euro).
I don't think we would have ever been capable of borrowing to the extent we have, both in public finances and private credit, had we remained with the punt?


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## joe sod (30 May 2018)

Sunny said:


> To be fair, Italy was a basket case when it had it's own currency and will be a basket case again with it's own currency. The Italian Lira is not Sterling or the Swiss Franc. Unfortunately, it is easier for people to blame the Euro for every economic problem in places like Italy than facing up to the reality. And I say that as someone spent a significant number of years working for an Italian bank and who has a love for the Country and people but God, they are stuck in the 1950's when it comes to economic and social reform and the impact of globalisation.



I have to say i take exception to describing italy as a basket case, It is still an industrial heavyweight producing cars , advanced machinery for factories and many other things. It is the third largest economy in europe and eighth in the world, its hardly a basket case. There are many countries in the world that are basket cases but none produce cars or advanced industrial goods. Yes Italy has gone downhill since it adopted the euro, therefore the euro cannot be dismissed as a significant factor in holding back italy


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## Sunny (30 May 2018)

joe sod said:


> I have to say i take exception to describing italy as a basket case, It is still an industrial heavyweight producing cars , advanced machinery for factories and many other things. It is the third largest economy in europe and eighth in the world, its hardly a basket case. There are many countries in the world that are basket cases but none produce cars or advanced industrial goods. Yes Italy has gone downhill since it adopted the euro, therefore the euro cannot be dismissed as a significant factor in holding back italy



Sorry you take exception but Italy is a basket case. I don’t care how many cars it produces. How many governments have been in place since world war 2? This industrial powerhouse that you describe applies to half the country in the North. The South of Italy is basically a different country. It has one of the largest debt piles in the industrialized world and has been getting worse in recent years in a period of so called austerity. The debt they do sell is mainly bought by domestic investors. Italian banks are the largest holders of Italian debt by far. Even yesterday’s bond auction. I am willing to bet that Italian banks ploughed into the auction to make sure it sold. Italians have stored billions and billions outside the country which is only being tackled now like we tackled it 30 years ago. Corruption is still ripe and unemployment in the young is still being driven by nepotism. Most jobs in Italy depend on who you know and what school you went to. Again, us 30 years ago. 

Still the food is great and I do love the people. But it is still a basket case country albeit with loads of potential. But then so do countries like Greece and Argentina.


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## Firefly (31 May 2018)

TheBigShort said:


> I don't think we would have ever been capable of borrowing to the extent we have, both in public finances and private credit, had we remained with the punt?



Didn't stop us in the late 1970s until the mid 1980s when we borrowed like crazy. Didn't turn out too well then either.


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## TheBigShort (31 May 2018)

Firefly said:


> Didn't stop us in the late 1970s until the mid 1980s when we borrowed like crazy. Didn't turn out too well then either.



True, but it was all our responsibility. Now we are dependent on other countries remaining fiscally prudent. Failure by another country to be fiscally prudent threatens the value and even the existence of the euro, just as Ireland threatened it, Greece threatened it, Portugal and now Italy.


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## Firefly (31 May 2018)

TheBigShort said:


> True, but it was all our responsibility.


It was then, it was in the years before and after 2008 and it is now



TheBigShort said:


> Now we are dependent on other countries remaining fiscally prudent. Failure by another country to be fiscally prudent threatens the value and even the existence of the euro, just as Ireland threatened it, Greece threatened it, Portugal and now Italy.


Very true and for that reason any country not adhering to the rules should join a different club.


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## TheBigShort (31 May 2018)

Firefly said:


> Very true and for that reason any country not adhering to the rules should join a different club



Joining a different club means default, right? A default, even by Greece or Ireland, would probably trigger a collapse in the euro. 
I guess what im pointing out is a glaring flaw in the construct of the euro?


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## Firefly (31 May 2018)

TheBigShort said:


> I guess what im pointing out is a glaring flaw in the construct of the euro?



I believe there is no clear exit mechanism from the EU itself, so I think that's the issue, rather than the currency itself...


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## TheBigShort (31 May 2018)

Firefly said:


> I believe there is no clear exit mechanism from the EU itself, so I think that's the issue, rather than the currency itself...



I assume you mean the Euro, and not the EU? Although as the Brits are discovering there is no real exit mechanism there either. 
But with regard the euro, you are correct there is no real exit mechanism. The reason for that was to prevent the scenarios where a country could arbitrarily leave and/or be cut loose, thus discrediting the reputation of the euro as a leading world currency which was worth its salt.
The Growing and Stability pact is the mechanism to oversee spending and borrowing by governments. 
It is shown to be wholly ineffective. Even before the sovereign debt crisis Germany and France routinely breached limits without  consequences for them. 
Efforts have/are being made to reinforce the measures in which countries can step out of the parameters set in the GSP, but as can be seen with Italy, the reinforcements are rudderless if the political will, or political management, of a countries finances dictate otherwise.


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