As if the peoples of Europe weren't already sufficiently screwed, seventeen European states joined the Euro currency union in 1999.
This was a disaster in waiting dreamt up by, among others, Edward Heath (U.K. Prime Minister, 1970–74), who could also claim responsibility for establishing the politically correct view on mass immigration to Britain by kicking Sir Cyril Osborne out of the Conservative Party caucus for stating that Britain was a white country for white people and by firing Enoch Powell from the cabinet for warning about the peril of civil strife if mass immigration continued.
Heath who, in 1971, took Britain into the European Economic Community under the false claim that it was a free trade association not a proto-political union, advocated a common European currency because, in trading with Europeans, he asserted, it would save the trivial inconvenience of changing one's money.
Fortunately, for Britain, Heath's Conservative successors rejected membership in the Eurozone, and Tony Blair feared to arouse the anger of the electorate by reversing their decision.
The countries entering the Eurozone did so without provision for fiscal union or any other basis for adapting their widely differing economies to dynamic shifts in relative performance.
As a consequence, the Eurozone constitutes a potent mechanism for economic destabilization. Here's why. All nations engage in foreign trade, not merely to obtain commodities or industrial products that they lack, but to enjoy a diversity of goods and services beyond the basic necessities that they are unable to produce economically for themselves.
Thus, America, for example, which produces perfectly acceptable California wine, imports wine that is rarely superior to the Californian product from France and Spain, Australia, South Africa and New Zealand, Chile and Peru among many other countries. Likewise, Canada, with more trees than any nation save Russia and Brazil, nevertheless imports American Christmas trees and wooden power poles.
To purchase from abroad one must first buy a foreign currency. The price of one currency in terms of another is largely a matter of supply and demand, which means that a country that becomes increasing competitive in international trade will see its currency appreciate in value against other currencies, thereby checking exports and encouraging imports. Conversely, a country that loses competitiveness will see its currency fall in value relative to that of others, thereby checking imports and boosting exports.
Although there are complications as, for example, when a country hoards foreign currency, or engages in the export or import of substantial quantities of investment capital, the effect of such actions are ironed out in due course.
However, if countries join together in a currency union, there is no mechanism to adjust imports and exports on a country-by-country basis so that exports and imports of each country roughly balance. On the contrary, the use of a common currency creates an instability leading to runaway economic distortion resulting in the disintegration and collapse of the least competitive economies and the accelerated expansion of the most competitive economies.
For example, when the international competitiveness of one country in the currency union declines, it tends to lower the exchange value of the common currency, which in turn stimulates the exports of the strongest members of the union, while reducing its imports.
Conversely, the success of the most competitive countries in raising exports and limiting imports tends to raise the exchange value of the common currency, which in turn depresses the already poor export performance of the least internationally competitive members of the union, while increasing their imports.
This means that a currency union guarantees an exchange rate that is too low for the most competitive member states and too high for the least competitive member states, and this unavoidable mispricing of the currency leads to runaway economic growth and falling unemployment for the the most competitive members of the union at the cost of declining output and rising unemployment for the least competitive members of the union.
This is precisely what is happening within the Eurozone now. Germany and several other North European states are growing fast as the southern Eurozone states, Greece, Italy, Portugal and Spain see their economies contract, their government revenues shrink and their public debt explode.
The problem could be solved through the creation of a fiscal union which would permit tax revenue to be siphoned from the strong economies to cover welfare costs or to increase investment in the weak economies. This is what happens within most national jurisdictions, but it is a fairly stupid solution, and in the context of the Eurozone, it is naturally uncongenial to the Germans and other prospering members of the union who believe that inhabitants of the less prosperous states need to work harder and earn less.
Another solution would be for the unemployed in Greece or Spain to migrate to Germany or Netherlands where employment opportunities are more abundant. But due to language barriers (not every European is multilingual, and few indeed speak Hungarian, Slovenian, Slovak, Bulgarian or Romanian) and generous unemployment pay and cultural factors, ready internal labor mobility is not a feature of the Eurozone, as the current unemployment statistics bear out. In Spain, unemployment now stands at 22.9%, whereas in Germany unemployment is at a "record low" of 6.8%.
A further possibility would be the adoption of a process whereby wage rates are adjusted country by country at regular intervals to reflect changes in national unemployment rates. Thus, where unemployment is high, all wages and benefits would be adjusted downward in accordance with an appropriate formula. Conversely, where unemployment is low, wages would be adjusted upward in accordance with the same formula. The result would be to balance competitiveness and employment rates in all countries.
And the formula could be extended within nations to even out regional differences in employment. Thus those in regions of high unemployment would have the option of accepting work at below national average wages or moving to a more prosperous region.
Although this is a perfectly viable scheme for which I readily accept public acknowledgment, it is presumably beyond the intellectual grasp of most bureaucrats and politicians and is unlikely, therefore, to receive acceptance in less than a hundred years.
In the meantime, one can expect continued buggering around that makes the leadership of Europe look increasingly incompetent.
Perhaps the result will be the withdrawal from the Eurozone by those countries most adversely affected. Greece, apparently, is already threatening: give us 130 billion Euros or we split. This could be the prelude to a return to the happy days of independent, democratic, self-governing European nations, each with its own currency, but joined in a free trade association and a mutual defense and non-aggression pact.
Throw in a consultative committee of heads of state operating under the motto "Independence Forever", or just "Never Again", and it might work.
What's Wrong With Europe and What Needs to Be Done About It