The central premise of this informative, stimulating and flawed book is that the European Union made a terrible mistake by launching the euro without simultaneously taking political action to balance trade within the Eurozone.
The problem with the Eurozone is that it is a monetary union that does not have the necessary requisites of a fiscal union and political union that would set up the rules and mechanisms to allow the central authorities to move capital from surplus to deficit regions.
Europe’s elite failed to see the eurozone crisis, and the responses to it not only as a financial and economic issue, but also a human one.
The difficulty for any person who goes to another country to talk about economic and political policy is that they are almost inevitably going to be, to some degree, out of touch and out of tune with on the spot realities.
A mid-week update. So far this week oil prices suffered their largest three-day drop of the year and remained below the $90 threshold for the first time since last December. Oil futures in New York settled at $86.30 per barrel on Wednesday, down six percent from $91 at the week’s start. The price of London’s Brent crude this week also slipped below the $100 threshold for the first time this year, closing Wednesday at $97.80. The WTI-Brent price gap remains around $11, also around the year’s lowest level.
We are three and a half years into the Eurozone crisis that kicked off in October 2009 when Greek minister of finance George Papaconstantinou made it apparent to the outside world that his country’s budget was essentially a gaping hole. The recent bailout (or bail-in where depositors and creditors have to pay their share) of the Cyprus banks is just the latest chapter in this ongoing story of recession, austerity measures, high unemployment, strikes, protests, credit rating cuts, financial reforms and leadership resignations. But what if, on top of all of this, the price of oil was to spike at over US$200 a barrel? Would that mark the end of the Eurozone?
Since reading Herman Daly’s “Nationalize Money, not Banks,” my head has been whirling with notions of how to help restructure the financial system to support a steady-state economy that respects ecological limits. The current system creates debt-based money by allowing banks to hold only a very small fraction of demand deposits while lending out the rest (with interest) to be re-deposited and then loaned out again (with interest), and on and on. Why is this so important? Besides according gratuitous profits to the private banks for producing money (a public resource that could just as easily be produced by a public institution), the fractional reserve system also creates a structural dependency on economic growth because, as Bill McKibben observes, “without the growth, you can’t pay off the interest.”
On Tuesday, March 19, the national legislature of Cyprus overwhelmingly rejected a proposed levy on bank deposits as a condition for a European bailout. Reuters called it “a stunning setback for the 17-nation currency bloc,” but it was a stunning victory for democracy. As Reuters quoted one 65-year-old pensioner, “The voice of the people was heard.”
A mid-week update.
The latest twists and turns in the saga of the Greek debt crisis are signs that the brief honeymoon the Fund enjoyed in the wake of the “Great Recession” has ended.
A midweek update.
A weekly update, including:
-Oil and the Global Economy
-The Middle East
-The Superstorm’s Aftermath
-Quote of the Week