Monday, June 20, 2011

The Achilles Heel of Euroland

With the situation in Greece and pending crises in southern Euroland, what we are seeing is the collosal mistake of creating the European common currency, central banking, and governance standards. Certainly a European zone of more open borders, more cultural exchanges, and trade liberalization would have been a brilliant move, but what we now have is a mess.

We can see the American model with its heritage of one main language and a relatively homogenous culture as a unified large land mass of relative prosperity(we hope) but could anyone imagine an Asiarama central bank combining Japan, China, South Korea, Vietnam, and Thailand among others.

That's obviously a wildly exaggerated comparison to what Europe has become, but combining countries with multiple languages, disparate cultures, and a history of 20th century wars was an ambitious goal. Robbing these sovereign countries of the ability to manage monetary policy, currency policy, and independent debt funding in the coin of their own realm has really destroyed their financial flexibility.

Some point to the continued strength of the Euro as proof that the concept is still viable and even successful, but that is open to question. The Euro's strength is just the mirror image of the dollar's weakness in light of a slowing economy and a ridiculous budget ceiling sqabble that should be settled by legislative spending debates rather than threats over U.S. near term solvency.

If only the crazed but tough and bullying DSK hadn't turned out to be such an actively scandalous and physically threatening weiner there might be some leadership capable of stabilizing this situation. At the moment, the market is frightened and looking at the possibility of interbank credit freeze-ups once again, good for no one.


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