The former Czech President Václav Klaus argues that local currencies are necessary adjustment mechanisms that allow countries to recalibrate their economic strength according to the realities that they find on the ground. Hence, any attempt to establish a fixed exchange rate system between countries sooner or later has to fail, since the fluctuating pressures of disparaging economic realities in those different countries eventually become so huge that they are impossible to withstand. (Witness the inevitable end of the Bretton Woods-system, witness the disaster of Argentina’s currency board system against the US dollar, witness the disintegration of the former Czechoslovakian currency union).
In view of this, it is, according to Mr. Klaus, quite irrational to believe that such widely different countries as Greece and Finland, to name just a few examples, could continue to prosper while sharing the same currency. Unfortunately, the opposite is true. And as long as the authorities in the EURO-zone do not recognize that they are fighting the laws of nature by insisting on a currency union for 17 member states, the EURO zone countries will not have a chance to leave the recessionary environment that they are currently in.
But, it isn’t the unreasonably large currency union alone that, in Mr. Klaus’s view is hampering the European growth perspective. It is also the interfering, decree-wielding power of an overly bureaucratic regime in Brussels that does so. And last but not least, it is the patronizing and dependency generating character of the European welfare state that does so. Unless, there is substantial change in these three areas (i. e. the European notion of welfare state, the market debilitating power of bureaucracy and the overly ambitious reality of a currency union) Europe cannot hope to prosper.
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On most counts Noah denkt™ is in agreement with President Klaus. We have also come around to believe that Greece needs to leave the EURO currency. We share Mr. Klaus’s conviction that the European welfare state needs fundamental reform. And we support his view that Brussels needs to be less intrusive when it comes to imposing the shape of bananas etc…
We are not as sure though as Mr. Klaus is, that the EURO currency union will only be viable if the number of member states is reduced to six or seven relatively homogeneous countries in Northern Europe. After all, it has to be recognized that economic reality is quite different even inside individual member states. (Just witness the difference between Germany’s prosperous South and its impoverished North East). And still no one seriously believes that the currency union between say Bavaria and Mecklenburg-Vorpommern should be dissolved.
No, what ultimately decides if poor and rich countries can prosper inside the same currency union is the political determination in subject countries to do so. And here we need to ask our devaluation-prone brothers in the South whether they truly believe that our societies continue to afford a return to the old Citroën 2CV days of late? We doubt that. Instead, we believe that the world of Gento, Pirri or Butragueño has just as much disapperared as that of Francoise Sagan, Claude Chabrol or Louis Malle. After all, it can’t be denied that we do want to enjoy the spoils of a CR7- Champions-League environment. And so we should embrace our forward-looking aspirations and stop romanticizing about the good old local days gone by.
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