Re: Re: Euro – One in seven chance it will be abandoned

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Chopera
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It is not a “German Europe” however it is a eurozone that sets interest rates according to the needs of the “eurozone economy” which is dominated by the German economy, so by extension interest rates are heavily influenced by the needs of the German economy. Why else has the ECB just raised interest rates? No other eurozone country wants it.

This setting of rates according to the requirements of the German economy will inevitably be damaging to eurozone economies not in cycle with the German economy which, to a greater or lesser extent, includes every other country in the eurozone. The question has always been whether those countries whose economies were severely damaged by having inappropriate interest rates would be sufficiently compensated in other ways.

For Ireland, Greece and Portugal I think we can now safely say the answer is no. I think the same would go for the UK if it were part of the eurozone. The UK had a big enough boom and bust with interest rates set too low by the Bank of England from 2002 to 2007. If the UK had been part of the eurozone interest rates would have been half as low again during that period. The UK economy would have exploded. Probably taking down the euro with it. (It’s ironic that by keeping the UK out of the euro, the eurosceptics might well have saved it!)

For Spain I used to think the same, but now I’m not so sure. Of course the euro has damaged the Spanish economy in the short term, but having now seen how the Spanish government is being forced to cut back the state, reform the labour market and generally make Spain more competitive without devaluing the currency, then I think there’s still a chance Spain might come out of this mess in a better shape than it entered it (I guess we’ll now in about 5 years or so).