The Eurozone countries adopted all the monetary arrangements of a single economy: single currency; single interest rate; single central bank, it left its fiscal policies like taxes and spending in the hands of the individual countries. That is what has led to the current “crisis”.
Adjusting for differences in economic performance between the eurozone countries can’t be achieved by adjusting either interest rates or the exchange rate. Weak performance leads to trade deficits and state deficits and stops states spending to restore growth (as measured by GDP).
For countries outside the “core” the Euro was based on unfavourable exchange rates (most missed meeting the original entrance criteria) which was to the benefit of the “core” economies. Policy priority has been not to bail out the crisis countries themselves but their creditors (banks and hedge funds).
The current proposals to resolve the crisis are state-based, on what is best for Germany or France not on what is best for the “core”. However, the longer term proposals, to finally create a single, unified economy where taxes and spending proposals, along with interest rates are taken by the “core” as a whole should be welcomed to those that believe in the Euro. Fiscal unification is the goal. Will Britain ever join in?
Eurozone crisis
The Eurozone countries adopted all the monetary arrangements of a single economy: single currency; single interest rate; single central bank, it left its fiscal policies like taxes and spending in the hands of the individual countries. That is what has led to the current “crisis”.
Adjusting for differences in economic performance between the eurozone countries can’t be achieved by adjusting either interest rates or the exchange rate. Weak performance leads to trade deficits and state deficits and stops states spending to restore growth (as measured by GDP).
For countries outside the “core” the Euro was based on unfavourable exchange rates (most missed meeting the original entrance criteria) which was to the benefit of the “core” economies. Policy priority has been not to bail out the crisis countries themselves but their creditors (banks and hedge funds).
The current proposals to resolve the crisis are state-based, on what is best for Germany or France not on what is best for the “core”. However, the longer term proposals, to finally create a single, unified economy where taxes and spending proposals, along with interest rates are taken by the “core” as a whole should be welcomed to those that believe in the Euro. Fiscal unification is the goal. Will Britain ever join in?