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Whither the Euro?

Whither the Euro?. A discussion about why the Euro must work and why it will not work (as it is today) Andrew White “An Englishman living in Atlanta”. Agenda. Introduction / Frame of Reference Why the Euro needs to work Why the Euro will not work How should it work. Introduction.

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Whither the Euro?

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  1. Whither the Euro? A discussion about why the Euro must work and why it will not work (as it is today) Andrew White “An Englishman living in Atlanta”

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

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

  4. Why the Euro has to work... • Natural Evolution • Historical Direction • Winston Churchill’s “United States of Europe” • Required for Success in a Global Economy • Power Bloc versus US and ASIA • Afraid of being third, or worse...

  5. What if the Euro doesn’t work? • Subservient to Global Cycles • Interest rates no longer a national boundary • Lack of Global Influence • Loss of opportunity to rationalize resource allocation at a supra and super national level

  6. What is the Euro? • Single Currency • Businesses already use one: Ecu • Eliminate currency-based loss between nation states • Part of an… • Economic Phenomenon • Political Phenomenon

  7. What is the Process? • Maastricht Treaty 1992 • Treaty of Rome • Qualification…or not • UK, France, Finland, and Luxembourg • Austria, Belgium, Germany, Ireland, Netherlands, Portugal, and Spain • Euro launched January 1 1999 • Exchange Rates to be fixed • ECB sets interest rates

  8. Why will the Euro go wrong? • Soft • Lack of public support • Lack of political reconciliation • Hard • Exchange rates are rather useful things • All previous examples of fixed exchange rate systems have failed • Bretton Woods; Gold Standard; Snake; EMU (Sterling and Lira) Round One

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

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

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

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

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

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

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

  16. The European Thing • Italy - economy ‘broke’ • Profligate social services; corrupt and corruptible legislature • Germany - not so solid as a rock • Trying to emulate UK labour practices • France - torn between mortal enemy and enmity…never did like the UK anyway • UK - Want to be USAb

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

  18. EMU • E - entirely • M - motivated • U - underlings Thank You!

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