Another ‘euro’ sceptic

Bloomberg’s Mathew Lynn has been pretty consistently skeptical about the workability of the common currency. Personally I find it difficult to disagree with the following:

The euro, the common currency shared by 12 EU nations, will weaken considerably as Europe enters a long period of political instability. Recriminations from the collapse of the constitution will be played out over months, not days.

And the economics of integration that have dominated Europe for the last 30 years have come to an end. Forget convergence. The big trend in the next few years will be Europe’s economies going their own way, not with each other. In time, even the euro’s survival might be called into question.

“The initial reaction might be relatively muted because the markets had already discounted `no’ votes in both countries,” said Stuart Thomson, a fixed-income strategist at Charles Stanley Sutherlands in Edinburgh. “What it does do is put a stop to any thoughts of fiscal integration, because that was really the next step of the process. Without that, it is difficult to see what is underpinning the euro.””

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

1 thought on “Another ‘euro’ sceptic

  1. I tend to agree with Roach.

    The US current account deficit will last longer than talk about the euro’z breakup.

    Right now the market’s focus in on Europe’s weakness (stagnant growth, no job growth, etc). Eventually, the market will focus once againt on the United States’ weaknesses (no real income growth from wages — or at least not enough to match american consumption expectations, ballooning external deficits, external not being taken out to invest in new export sectors). Neither currency zone looks particularly attractive right now.

    My bet: talk about the euro breaking up will recede. The commitment of European elite to preserving existing integration is pretty fierce. Eurozone interest rates may go down, despite Trichet’s stubborness. That may prop up growth — particularly if combined with some structural reforms that focus more on freeing up the consumer and housing finance markets, not the labor market (labor market reform’s impact on domestic demand is probably negative in the short-run — see Germany).

    Eventually, the fact that the eurozone is in external balance and the US is not will once again become the market’s focus. If $ stays where it is now, oil stays at 50-55, China doesn’t move (or do more than a cosmetic move), and US growth continues (i.e. the housing bubble doesn’t burst), an 8% of GDP US current account deficit in 2006 is not out of the question.

    Interesting anti-spam solution too

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