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The End of the Euro: The Uneasy Future of the European Union
Synopses & Reviews
The End of the Euro begins with an overview of the birth of the euro itself. Understanding this history is essential to understand the anomalies built into the project from the beginning. These anomalies form the subject of chapter two, along with how they led to the situation that turned Greece, Portugal, and Spain into euro-destroying economic disaster areas. Chapter three shows how this was not an unforeseeable situation, as Europes history is filled with earlier failed attempts to build monetary unions. Chapter four is focused on Germany, by far the most important country within EMU, and why the chances of Germany leaving the union are much higher than is generally assumed. The book concludes with an analysis of what lies in wait for the remains of the monetary union — and for a deeply divided and troubled continent in general. Either the EMU transforms itself fundamentally or it disintegrates.
From noted economic journalist Johan Van Overtveldt, this is an up-to-the-minute examination of the fate of the Euro. Building on the success of the hardcover edition and the ongoing problems of the European debt crisis, this new edition has been completely updated to reflect the breaking developments of a crisis that will only become more pronounced and dire through the end of 2012 and beginning of 2013.
In a process that began with the Maastricht Treaty of 1991 and concluded on January 1, 1999, 11 Western European countries made the euro the European Union's single currency, and the European Central Bank (ECB) the EU's only policy-making central bank. Bringing together Germany, France, Italy, and other European countries into a monetary union with a single currency and a single monetary policy could only ever result in major imbalances between the member countries, thus threatening the EU itself. This was recognized from the start by many economists and other observers, and the political elite paid elaborate lip service to these warnings. However, no one followed up on these risks by initiating actions and reforms. Instead, European politicians seemed to indicate, directly and indirectly, that if the EU showed unity, it would simply transform into a well-functioning monetary union. Moreover, given the imperative to work together more closely, the monetary-union effort would strengthen the political union among the euro-countries. Thus, in spirit, the process of monetary union was often seen as a means to an end.
Along these same lines, the political elite supervising the monetary union turned a great idea—the creation of a unified currency for Europe—into a huge gamble. Implicit in their reasoning was the notion that Europes leading politicians would always be able to come up with an adequate solution to any crisis that might occur. As the former Belgian prime minister and EU leader Jean-Luc Dehaene insisted: The idea of a unified Europe grows and becomes reality through crises. We need crises to make progress.” Dehaene and like-minded European politicians never seriously considered the possibility of an insoluble, catastrophic crisis that could potentially crash the entire EU effort.
For ten years, from 1999 to 2008, it seemed that the politicians claims were vindicated. Although there was little substantial progress toward real political union within the euro area, the euro and the euro countries in general prospered, despite a string of major shocks like the bursting of the dotcom bubble, the 9/11 terrorist attacks, and the wars in Afghanistan and Iraq. But things changed dramatically with the financial crisis of 2007-2008. In January 2009 Barry Eichengreen, professor of economics and political science at Berkeley, wrote that what started as the Subprime Crisis in 2007 and morphed in the Global Credit Crisis in 2008 has become the Euro Crisis in 2009”.
After its immediate impact, the crisis caused the financial and capital markets to worry about the so-called sovereign risks, i.e. countries running the risk of becoming insolvent. Although budget deficits in countries like the United States and the United Kingdom were much larger than the aggregate data for the euro area, markets started to home in on the risks posed by countries inside the European monetary union. Markets recognized that the enormous problem facing everyone in the union was the long-term working of the monetary union itself. Eichengreens Euro Crisis” is all about the sustainability of EMU and the single currency.
By early 2009 the structural imbalances within the euro area, and in particular the untenable situations building up in Greece, Portugal, Spain, and Ireland, were there for everybody to see. At first, political leadership in the EU denied any structural problem whatsoever. Their second reaction was to recognize the crisis, but deny any link between it and the workings of the monetary union. Eventually, when the leadership couldn't deny any longer, the search for external villains to blame began. Those villains were found in the greed, speculation, and irresponsibility of the financial markets. As the French saying goes: les excuses sont faites pour sen servir” (excuses are made to be used”).
Fundamentally, however, the gigantic problems facing the EMU and the euro have little to do with alleged criminal behavior in the financial markets or with the financial crisis of 2007-2009. The crisis of 2009-2010 was an accident waiting to happen. It could have happened earlier, or the clash could have been postponed for several more years; but given how the EMU was set up, a major crisis was simply unavoidable. Untenable imbalances within the monetary union were enshrined in the different treaties, pacts, and political agreements that led to the creation of the euro in the first place, and guided its first ten years. That politicians never acted on this reality makes them the prime culprits of the long and agonizing death of the euro.
The structure of this book is as follows: Chapter I gives historical background on the euro. History is essential to understanding the anomalies built into the project from the beginning. These anomalies form the subject of Chapter II, along with an analysis of how they led to the situation that turned Greece, Portugal, and Spain into euro-destroying economic disaster areas. Chapter III shows how this was not an unforeseeable situation, as Europes history is filled with earlier failed attempts to build monetary unions. Chapter IV focuses on Germany, by far the most important country within the EMU, and why the chances of Germany leaving the union are much higher than is generally assumed. The book concludes with an analysis of what lies in wait for the remains of the monetary union and a deeply divided and troubled continent. Either the EMU transforms itself fundamentally or it disintegrates, and it is the latter that holds the best odds.
About the Author
Johan Van Overtveldt, PhD, is editor-in-chief and managing director of Trends, Belgiums leading weekly on business and economics. He has published several books in Dutch and contributes to the Wall Street Journal Europe and other publications. He is also the author of Bernanke's Test (Agate B2, 2009) and The Chicago School (Agate B2, 2007).
Table of Contents
Chapter I: The Long March
Chapter II: Dangerously Unfinished Business
Chapter III: "We could have known"
Chapter IV: The Endgame (It's all in Germany's hands)
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