Posts tagged with: eurozone

brexitWhat is Brexit?

British, Irish, and Commonwealth citizens will vote next month on the question “Should the United Kingdom remain a member of the European Union or leave the European Union?” Brexit is merely the shorthand abbreviation for “British exit,” which refers to the UK leaving the European Union.

What is the European Union?

After two World Wars devastated the continent, Europe realized that increasing ties between nations through trade might increase stability and lead to peace.

In 1958, this led to the creation of the European Economic Community (EEC), an arrangement that increased economic cooperation between six countries: Belgium, Germany, France, Italy, Luxembourg and the Netherlands.

Over the next few decades, more countries joined (there are now 28 member state) and it morphed into a federalist-style economic-political union. The UK joined in 1973, and in 1993, the name was changed to the European Union.

The EU institutions are: the European Council, the Council of the European Union, the European Parliament, the European Commission, the Court of Justice of the European Union, the European Central Bank, and the European Court of Auditors.

Why is there a push for the UK to leave?
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greece for saleGreece has had to deal with a very uncertain economic outlook over the past decade or so, but now it’s getting downright ugly. Greece owes over $1 billion this month in debt repayments, along with pensions, government salaries and other obligations. They likely don’t have the money.

The rapidly deteriorating Greek economy makes its already daunting debt pile even harder to manage, a key point of contention between Athens and its lenders. The [European Commission’s] latest forecast reckons that Greece’s debt will reach a whopping 180% of GDP this year, much higher than expected in recent months. Greece’s most recent bailout agreement called for its debt-to-GDP ratio to fall to 110% by 2022, which looks nearly impossible without some sort of restructuring, write-down, or default.

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eurozone_2518920bAbysmal.” That’s the word one reporter is using to describe the newly released numbers for Eurozone unemployment and inflation. The Eurozone (which includes 17 nations) is seeing miserable numbers:

The ranks of the jobless swelled by 60,000 to a record 19.45 million, according to Eurostat, the European Union’s statistics agency. Though the unemployment rate remained steady at 12.2 percent, the previous month was revised up from 12 percent.

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Record unemployment rates in Europe have been published and they should alarm Americans. Why? Because we are headed in the same direction. Nile Gardiner, of The Telegraph, is quite sure of this:

The United States isn’t just gliding towards a continental European-style future of vast welfare systems, economic decline, and massive debts – it is accelerating towards it at full speed. Or as Acton Institute research director Samuel Gregg puts it in his excellent new book published today [January 8] by Encounter, America is already “becoming Europe,” with the United States moving far closer to a European-style welfare state than most Americans realize.

The American Interest spins a further tale of woe, citing an 11.8 percent unemployment rate for the 17-nation Eurozone. Pity Spain: they have a 27 percent unemployment rate. Yes, you read that correctly: 27 percent. And young people (those under 25) are especially hard hit: 24 percent unemployment in the E-zone, with over 50 percent unemployment for young people in Spain and Greece.

Is it too late for America to reverse course? Read “Becoming Europe” by Samuel Gregg.

Read Nile Gardiner’s “128 million Americans are now on government programmes. Can America survive as the world’s superpower?

I haven’t been able to work out all the specifics (perhaps some of my colleagues would be better suited for that), but somehow I feel like this video of the Casteller festival in Spain is a metaphor for the Eurozone. Thoughts?

Acton’s director of research Samuel Gregg is up at Public Discourse, with a piece titled “Monetary Possibilities for a Post-Euro Europe.” With his usual mix of sophisticated economic analysis and reference to deep principles, Gregg considers European countries’ options should the eurozone fail. If that happens, he says, “European governments will have a once-in-a-lifetime opportunity to rethink the type of monetary order they wish to embrace.”

One such scenario is a three-way monetary division within the EU that reflects the differing political commitments and economic priorities of different nations. Germany and the more fiscally responsible eurozone members such as Austria, Finland, and the Netherlands could, for instance, decide to reconcile themselves to being the only ones with the necessary fiscal and monetary discipline to maintain a common currency.

Alongside this bloc would be two other groups. One would consist of those EU countries such as Britain, Sweden, and Denmark that have maintained their own monetary systems because of reservations about the euro’s implications for national sovereignty. Another group would include EU nations such as Greece, Portugal, and Italy that are simply unable or unwilling to embrace the disciplined monetary and fiscal policies required by a common currency; these nations would consequently find themselves outside the eurozone and reverting to their national currencies.

A more radical monetary opportunity for a post-euro EU would be currency competition. This was once proposed by Britain’s Margaret Thatcher as an alternative to the present common currency. Contemporary proposals for currency competition, such as that advanced by Philip Booth and Alberto Mingardi, involve the monetary authorities of different countries authorizing the use of currencies alongside the euro in domestic settings other than their own. Consumer choice rather than state sovereignty would thus ultimately determine which currencies were used.

Yet another option would be the embrace of what might be called a European gold standard. In the 1950s and 1960s, the German economist Wilhelm Röpke argued that European monetary integration could occur via a nucleus of countries agreeing to adhere to a gold standard, much as had happened somewhat spontaneously in the nineteenth century through a process of unilateral decision-making by individual countries. Once this had occurred, adherents of such a gold standard would have to insist upon all members maintaining monetary discipline as well as freedom and stability in foreign exchange markets.

The stability of the European currency would be assured not by EU bureaucrats, but by the gold standard itself, and by allowance for the expulsion of countries that abuse their big-boy privileges.

Britain just rejected an EU treaty because the Conservative Party decided Brussels was trying to capitalize on the Mediterranean crisis by grabbing more power. The three proposed currency models, Gregg argues, would maintain countries’ freedom by yanking monetary power from central bureaucrats who exercise political power. He reflects further on the composition and history of the eurozone, on the countries’ political and economic freedom, and on what Röpke would have to say in the rest of the piece.

Protesters outside parliament on May 5 in Athens, Greece.

On the blog of The American Spectator, Acton Research Director Samuel Gregg looks at how Europe refuses to address the root causes of its unending crisis:

Most of us have now lost count of how many times Europe’s political leaders have announced they’ve arrived at a “fundamental” agreement which “decisively” resolves the eurozone’s almost three-year old financial crisis. As recently as late October, we were told the EU had forged an agreement that would contain Greece’s debt problems — only to see the deal suddenly thrown into question by internal Greek political turmoil, which was itself quickly overshadowed by Italy’s sudden descent into high financial farce.

No doubt many of these dramas reflect commonplace problems such as governments having difficulty reconciling promises made in international settings with domestic political demands. The apparently unending character of Europe’s crisis, however, is also being driven by another element: the unwillingness of most of Europe’s political establishment to acknowledge the root causes of Europe’s present mess.

One such mega-reality is the unsustainability of the pattern of low-growth, big public sectors, heavy regulation, large welfare states, aging populations, and below-replacement birthrates that characterizes much of the eurozone. Even now, it’s difficult to find mainstream EU politicians who openly concede the high economic price of these arrangements.

Read “Can’t Face Economic Reality” on The American Spectator.