Is the Euro Forever?
Leaders of European Union member states have been reeling from the double rejection of the proposed European Constitution by two of the six founding members. Given a chance to express their opinion on “ever closer union,� for the first time in over a decade and ever, French and Dutch voters spurned the controversial text against the wishes of their countries’ political, media and commercial elite. What does this portend for the European currency? FULL ARTICLE
Comments (15)
Very interesting article. Howeverr, I have a few comments.
"In particular, potential members must weigh the reduction of uncertainty and transaction costs from pegging to another currency against relinquishing the ability to print fiat money to get out of jams."
A Austrian should know that printing money is hardly something that solves problems. While it does give the economy a short-term boost, the long-term effects are if anything negative.
"However, a loose monetary policy and attendant devaluation by a euro-free Italy would prompt lenders to demand higher interest rates to compensate for currency risk, threatening to push the de facto bankrupt government into formal insolvency, not unlike the collapse of Argentina’s currency peg to the dollar and its attendant sovereign default in late 2001. "
Actually, the situation is very different from Argentina's in a significant way. If the Italian government borrows in liras, as I think they mostly did before 1999, then devaluation will not push them towards default. Argentina's default after its devaluation came because they had dollar loans who tripled in peso terms after its devaluation.
And more generally, it is wrong to say that the higher interest rates outside the euro is dependant upon risk of default. Few if any believe the Italian government would formally default on their loans. Instead the differential was related to exchange rate risk and the expectations of a falling lira due to the notoriusly inflationist policies historically pursued by Italy.
However, if the Italian government were willing to pay the price in the form of higher inflation they could with a own central bank have pushed interest rates to a level as low as in the rest of Europe anyway. As I've recently pointed out, it is wrong to assume that central banks are unable to control government bond yields. If investors are unhappy about the low yields there is nothing they can do other than to simply sell liras until it falls so low that there will be a expected appreciation to compensate for the low yields and it is pretty safe to say that the Italian government would be happy with a cheaper lira since this would benefit exporters.
"national authorities dare not rile the electorate by introducing market reforms that are painful in the short term without cushioning the blow via accommodative monetary policy."
But on the other hand, "accomodative" ( i.e. inflationary ) monetary policy is likely to be used as substitute for short-sighted politicians to reforms. Again, a inflationary monetary policy worsens the economy in the long-run, but since the short-term effect is positive and since electoral politics tend to be short-sighted, politicians will be tempted to use this as a substitute for free market reforms.
Published: July 26, 2005 11:49 AM
And another thing: the primary reason for Italy's woes is not so much higher wage increases than in the rest of Europe, something which should be compensated by the lower real interest rates it implies. After all, Ireland and Spain has seen increases in unit labor costs as large as in Italy, yet they have had higher growth than any other Western European country and is this year expected to grow by 5-6% and 3.5% respectively.
Instead the problem for Italy is first of all that their industry are specialiced in goods which also China and other highly competitive Asian and Eastern European countries specialise in, like textiles, furniture and white goods. Secondly, Italy have even more destructive regulations than in the rest of Europe and thirdly Italy's population is the oldest and fastest aging in Europe.
Published: July 26, 2005 12:11 PM
Since it appears you and I are the only ones on the blog today, I will respond to your comments.
I realise, and thought it was self-evident, that the trade-off between the attenuated transaction costs of a fixed currency and the ability to print money was a false one, given that printing money only generates problems. If it appears that I did not fully make that position apparent, I thank you for making the Austrian position clearer.
My comparison of Italy to Argentina concerned the overvalued exchange rate that Italy has incurred as a result of eurozone membership. The overvalued exchange rate is putting a damper on economic growth and pressure to break the currency link as Argentine authorties faced in late 2001. Although I agree with your comments on the lira and the Bank of Italy's ability to influence bond yields, I think that the Italian government is default prone, based on its growing indebtedness and implicit entitlement obligations (including the rapidly ageing population).
Concerning your comment on "accommodative monetary policy", I thank you for clarifying the Austrian position again. I wrote that section of the article assuming readers would understand the consequences of increasing the money supply, which I addressed earlier in the article:
"The existence of the ECB precludes individual member states from inflating their way out of trouble, a self-defeating prescription that merely serves to distort investment and production patterns and covertly redistributes income, ultimately aggravating economic problems."
I do acknowledge that unit labour costs are not the only problem Italy faces. The problems are profound, a fractured banking system, the tendancy for firms to remain small, thereby losing out on economies of scale, and of course competition in so-called "white goods" production, that China is overtaking. I meant to add those thoughts to the article, but it slipped my mind.
Published: July 26, 2005 12:51 PM
Hi Austrians.
Thanks for the responses on the Tour de France thread. Sorry it took me so long to get back to you, but I wrote a response to your ideas, and clarifying my own.
Here's the link- http://blog.mises.org/blog/archives/003817.asp
Or scroll down to July 13th, "Free Riders: Austrian v. Public Choice" (its at the very bottom of the blog right now, second to last entry)
Published: July 26, 2005 3:40 PM
This is an interesting article.
Looks as if the EU is heading towards a serious crisis or some sort of end game.
What would you expect to happen next?
Published: July 26, 2005 4:46 PM
"The gradual abolition of exchange controls in Western Europe throughout the 1980s paved the way for EU member states to embark upon economic and monetary union (EMU)"
In french texts, EMU stands for European Monetary Union (Union Monétaire Européenne)..? Is this a typo?
Also, I'm wondering, what if Italy kept the euro but re-introduced the Lira, so both currency would have legal tender. Wouldn't having two fiat money competing increase the stability of both?
Of course this is a rather bastard, non-austrian proposition, but I think this is an option that should be investigated...
Published: July 26, 2005 6:44 PM
What is a "white good"?
- Josh
Published: July 27, 2005 1:01 AM
Are we under a Tontine Policy?
The following is presented "as is", just as it was first published in 1983 in a
book titled "The Tontine Government." This transmission is not offered for
general consumption, as only a very small percentage of you will understand or
appreciate its contents, and it is for that very small percentage that it is
primarily being offered.
T H E E X O N
[T h e E x e m p t E l e c t]
[EXON: "(In Britain) one of four yeomen of the guard who act as commanding
officers in the absence of higher authority. Also called EXEMPT."]
The Federal Reserve Act transferred the money-making powers of the United States
to a private group of bankers who then set up the fractional reserve system of
banking. Under the charter granted to this private corporation, there was a
stipulation that if the American people did not agree with its operation, the
people had 20 years to oust the corporate charter. They could (or were entitled
to do this) by the use of an ancient Common Law Writ called a Quo Warranto ["quo
warranto" means "by what right?"] After 20 years it becomes a matter of Public
Policy; Public Policy being a part of the Law of Nations under the Law Merchant.
Twenty years puts us to the year 1933, which is the infamous year the Congress
suspended our Public National Money System (Gold Standard, House Joint
Resolution 192, June 5, 1933) and put an end to the American people being able
to "pay" their debts "at law." Upon reading the debates of the 73rd Congress in
1933 on the subject of the gold standard, one learns that on June 5, 1933
America became bankrupt; being unable to tender in "payment" of debts.
But that is only part of the story. What you probably also missed was the part
where America was re-insured by a credit policy and this was done under the
Statute of 19 George II c. 37. At the stroke of the pen, American lost its
Constitutional government in "payment" of debts and its 18-delegated powers,
along with its allodial land titles and all the "law" that went with it.
Instead of "paying" taxes to support a democratic-republican form of government,
where the people are sovereign, we now have a parliamentary-republic in which
the Congress is the sovereign. But more importantly, all we can do is a
compelled performance in "discharge" (NOT PAYMENT) of debts. These "discharges"
are nothing more than insurance premiums to the Federal Reserve, which is a
Tontine policy, which is re-insured by a credit policy.
The idea of a Tontine scheme is nothing new, but has existed in one form or
another since the Roman Empire. As time went on, it became more sophisticated
up to the point where it is today. The first Tontine started in America in
1791. By the year 1880, Tontines were very numerous and were quite corrupt.
There was practically no end to their power due to the immense amounts of money
involved. As a result of this money power, the Tontine insurance companies were
buying up businesses and controlling the government. As a result, the Tontines
became so corrupt and gross that they threatened the American family and the
very basis of the United States of America. This corruption spurned the
Armstrong Committee in the year 1905 to investigate the Tontine insurance
companies. After a long investigation, the committee recommended that the state
legislatures pass legislation banning Tontine schemes. This was done under the
non-forfeiture statues. The owners of these Tontine schemes saw that their
whole world was about to collapse because of the pending legislation regarding
their schemes. They immediately went to work to establish a federal system to
both broaden the scope of their operation and avoid the problems of operating in
individual states. This was the start of the Federal Reserve System in 1913.
The Tontine policy is a gambling policy, or what is called in the law, a
wagering policy. The cunning plot to reinstitute the Tontine scheme at the
Federal level in the name of the Federal Reserve is by all means cunning and
despicable. This is the basic groundwork used to enslave the American people.
Their next move was the suspension of the Public National Money System (HJR 192)
in "payment" of debts, and then 5 years later, the Erie Railroad v. Tomkins 304
U.S. 64 case, which opened the floodgates to flood the country with insurance
script, debt and credit in "discharge" of debts.
The plot to enslave the people thickens even more because until the advent of
(HJR 192) and the Erie Railroad decision, the Maritime or Admiralty Law now
prevails over the entire country through re-insurance of a credit policy
mentioned earlier. The second a person touches the credit system of the Public
National Credit (Federal Reserve) they have involved themselves in a Joint
Maritime venture for profit in a Tontine policy of limited liability for the
payment of debt. The joint venture being the use of the communal credit,
Maritime Law is a credit system, and finally, you have created an insurable
interest because you used the credit system of the commune. The insurable
interest is what the federal income tax, right to work taxes, property taxes,
and all the other obscenities that you can think of are about. These are not
taxes, but insurance premiums on the use of the credit for profit.
In the case of De Livio v. Boit, 2 Galliston, Mass., Federal Case No. 3776
(1812), it was held that insurance is a maritime contract, therefore, of
Admiralty Jurisdiction. A person's involvement in Maritime Law (communal credit
of the Tontine, HJR 192) means you are on a voyage and hopefully it will be
successful (gambling) and you will make a profit. Under limited liability for
the payment of debt, the limited liability is provided by the insurance premiums
you tender (your taxes).
Common Law insurance is for the security of the family unit and not for profit.
This means that you want to place yourself under the Common Law rather than the
Maritime Law, unless you are greedy, corrupt and in control of the system! The
principles of Maritime Law is not family, but rather for profit, and under
Maritime Law you can be (and are) compelled to carry insurance (pay taxes -- a
form of protection money) and you are now beginning to see the mess this country
is in and how we got here.
The gold bill being promoted by Rep. Ron Paul from Texas is another hoax by the
enemy in order to destroy the Federal Reserve, thereby allowing the Class "A"
stockholders of the Tontine to foreclose on the United States Treasury, whereby
all the land titles will be totally locked up along with the highway system that
has the U.S. in front of the route number, the Library of Congress will be
confiscated and all the truths about the corrupt Tontine will disappear forever.
These are only a few of the foreclosures to come. Rep. Ron Paul's gold bill is
a private gold system owned by the owners of the Tontine swindle. This gold
bill will not repeal HJR 192, nor will it be a Public National Gold Standard
owned by "We the People" in "payment" of debt.
The Formula of the Federal Reserve is as follows:
Fractional Reserve Banking is a Tontine policy, re-insured by a credit policy in
the form of ex-chequer annuitie bills generating an over insurance, which is
split with the Class "A" stockholders of the Federal Reserve and the United
States Treasury. This split started in 1946 to fund their socialistic programs
whose effect catalyzed small investment and over-consumption, postulating traded
discounted script, compounding on Tontine principles, whose price premium is
being confiscated through insurable interest at positive premium, positive
premium, reflecting inflation.
As one can see, the freedom movement has been taking an historical approach to
the problem and this has been in error because nowhere in the history of the
world today have we dealt with the issues that we are confronted with today.
An interesting fact, as a result of the Tontine (Federal Reserve), HJR 192 and
the Erie Railroad decision is this: there is no longer an immovable law
(Common Law) of the world to guide commerce. Everything is in collision through
a Tontine (gambling policy) for profit (greed) under limited liability for the
payment of debt, ala John Calvin and the Teutonic Order. For more information
on the Teutonic Order, see the "Black Book of the Admiralty" 4 volumes, the
authority on Admiralty Law. The above Tontine, HJR 192 and the Erie Railroad
decision, 304 U.S. 64, has now turned private enterprise, not free enterprise,
into public law under the International Law of Marine Insurance under the guise
of National Government. This law of insurance (limited liability for the
payment of debt) has superseded the Common Law and equity. All the Law and
equity has been dismantled and replaced by a wagering policy of insurance under
Admiralty Law.
Since HJR 192 and the Erie Railroad decision replaced the immovable law (Common
Law) with the movable law (law of marine insurance), then it follows that there
are in reality, no Common Law juries today. Today's juries decide no issues of
Law. Today's judges, state and federal, are now more properly Vice Admiralty
Chancellors ruling in marine insurance and the juries merely advisory councils
which serve as the conscience of the Vice Admiral (after being instructed by
him). The legislature (sovereign) has already ruled by passing the statute
initially. One has to remember that we as a people and a nation are bankrupt
and insolvent, being unable to determine our own destiny because we cannot truly
"pay" our debts. You are not responsible today for what you do, Common Law
however is full responsibility for your actions.
Organized religions of today teach the Tontine principles of the Teutonic Order.
Proof of this is that the church will not marry you unless you get permission
from the State. The license, incidentally, is purchased with Tontine insurance
script. This license requirement is a direct result of the church having its
franchise to operate from the State under limited liability for the payment of
debt (forgive our debts as we forgive our debtors). For more on John Calvin,
read Thomas Jefferson's letter to Dr. Benjamin Waterhouse, June 26, 1822. For
profit, because the church is tied into the Tontine credit system and is
gambling to make a profit. Ultimately, what this all means is the One World
Corporate Church (EXON) operates for profit while its debts are passed onto the
reprobate or non-elect slaves on Space Ship Earth. This "good ship Earth"
concept is important because it allows the law of maritime insurance and not the
Common Law to operate and our freedoms are based on the Common Law as prescribed
by our Founding Fathers.
The law of maritime insurance (Tontine) imposition is destroying families by
turning them into warring cannibals. The order of the day will soon be murder,
rape, robbery, distrust and lack of respect for your fellow man, along with
unidentifiable fatherhood to be a corporate cog in their machine to worship
their coal-tar god of EXON. This will all work for the benefit of the people of
EXON (the elect) who will be exempt from all liabilities. These EXON are the
last survivors of the Tontine swindle, such as George Rapp and his Harmony
Society that became the first Tontine court case in America. In this case, the
Pennsylvania Supreme Court upheld the people's right to enter into a commune and
each surrender his property into one common stock for the mutual benefit of all.
Schriber v. Rapp, 5 Watts 23 (1836). It is this very case that opened the door
for the destruction of America and its precious document called the
"Constitution of the United States." The Class "A" stockholders of the Tontine
Life Insurance Corporation of limited liability for the payment of debt called
the Federal Reserve. They will own everything on the face of the Earth and the
non-elect reprobates will be locked into performing as slaves. The non-elect
will be forced to use all the EXON's phoney products so the EXON can show a
profit. Thomas Jefferson said it will take mankind at least 2,000 years to
overthrow this slavery should we become totally locked into it.
This may sound like an insane story, but it is true, nevertheless.
Lee Brobst - Lecturer
Published: July 27, 2005 6:15 AM
Grant, I'm glad you agree with my comments. Regarding our only apparent remaining disagreement, whether Italy will default on its debt, Ii too think they will default in effect-but not formally. Western countries usually don't default formally, instead they use inflation to default in effect.
Most likely they will reintroduce the lira, then start to massively inflate which will in turn of course mean a sharp devaluation of the lira. The massive inflation will of course mean that the real value of the debt will be eroded. This will temporarily relieve the Italian economy somewhat at the expense of the rest of Europe, but not do them any good in the long term.
As for Wild Pegasus question what white goods is, I thought this was a standard English term for refrigerators, washing maschines and similar items, but perhaps it is only British English.
As for melt_cores question, EMU is the English order of letter of appearance, the French would be UME, just like the EU is UE in French.
And regarding his suggestion of having both the euro and the lira, I doubt it would be particularly successfull. Particularly if the Italian government is going ton inflate it extra (which I think would be the point of it all) it is not likely to crowd out the prevailing euro.
Published: July 27, 2005 10:41 AM
What I meant actually was that the E stand for "european", and not "economic" as is written in Grant Nülle's text.
(Sorry for nitpicking!)
Published: July 27, 2005 10:55 AM
You're right. "White goods" is a common term, as is "brown goods."
White goods are: washing machine, clothes drier, dish washer, refrigerator, freezer etc.
Brown goods are: stereo, radio, TV, video/CD player, etc.
Published: July 27, 2005 6:02 PM
But is it a common word in America too? Or is it only commonly used in the UK (and Ireland and Australia and New Zealand?)I really wonder, since I am not a native English-speaker myself and got the word in this context from a article in The Economist (who is British) discussing the roots of Italy's economic problem.
Published: July 28, 2005 2:18 AM
I remember it being used in Canada, if that has any significance.
Published: July 28, 2005 8:42 AM
Apologies for my tardy response. The European Commission- essentially the EU's executive and civil service- refers to EMU as "Economic and Monetary Union, not "European Monetary Union"
"White goods" nor "Brown goods" are terms typically not found in America.
Published: July 29, 2005 4:41 PM
Pardon my English- The terms "White goods and "Brown goods" are not typically used in America
Published: July 29, 2005 4:43 PM