“The euro is like a bumblebee. This is a mystery of nature because it shouldn’t fly but instead it does. So the euro was a bumblebee that flew very well for several years. And now – and I think people ask ‘how come?’ – probably there was something in the atmosphere, in the air, that made the bumblebee fly. Now something must have changed in the air, and we know what after the financial crisis. The bumblebee would have to graduate to a real bee. And that’s what it’s doing.” — Mario Draghi, President, European Central Bank
In this morning’s New York Times Paul Krugman — the leftist economist who believes that there has never been an economic problem that a little currency printing wouldn’t solve — now believes that the euro is “deeply flawed” and will become workable only when “Europe becomes much more like a unified country.” I wonder where Krugman, indeed Europe’s leadership, has been all these years. Here is a series of posts I made back in 2005 just before France rejected the European constitution. They are in response to a series of questions from a poster on my stance at the time on the euro. This quote sums-up that longish post (linked below) made in 2005:
“Loss of power is when you wake up in the morning and discover that the other political party won and you are going to be sitting it out for the next four years. Loss of sovereignty is when you wake up in the morning and find out that Congress just voted the United States into the European Union and by the end of next week you will need to exchange your dollars for euros. Imagine how members of the German parliament feel tonight. They just approved of the constitution in behalf of their citizenry while the citizenry of the country next door just defeated the same arrangement by a significant margin. We may not see the complete effects of this election for some time to come.”
Here is another excerpt from that post:
“I believe the euro is a competitor to the dollar, but it will not be a replacement for gold holdings in the private portfolio. It is still a fiat currency and [its] existence as a competitor to the dollar doesn’t address some of the primary political problems associated with the European Union. . . Machiavelli commented once that history repeats itself because the passions and beliefs that marked one era are present in all eras, therefore human political and economic institutions can be expected to make the same mistakes repeatedly. The euro, like the dollar, is a currency issued by human beings. It is subject to error. That is why gold, which is not issued by human beings, is the greater repository of wealth. I understand the value of the euro as a precursor to gold value, but I don’t think its presence is necessary for gold demand to continue gathering steam. My quarrel with the euro is the same quarrel I have with the dollar, the yen and the Malaysian ringit for that matter. They are the spawn of human political institutions as such have two strikes against them before they get in the batter’s box. By this I don’t mean to offend anyone. The euro will play a significant role in the transition into a two or three currency reserve world.
But, back to the EU . . . . . Europe at the moment is a nation without a governing political document. It has a central bank that issues a currency without political protocols – essentially a currency without a country. I see that as a disadvantage, not an advantage. Until that is addressed, it will be a competitor but only in terms of default. Under current conditions, I could easily see the euro simply becoming Dollar Lite in international markets. But that’s probably acceptable from the European point of view. It is not interested in sponsoring the chief reserve currency at this time, but more a shared responsibility concept with the dollar. I think this is a G-7 understanding already agreed to tacitly.”
Then as now, I come to the same conclusion:
“As for the euro, I’ll just say that it will make gold, the traditional European haven, look all the better given the dollar’s on-going prospects. If the constitution goes down to defeat, eventually the Germans might yearn for their D-mark, and the French their franc, but finding neither one available, they will opt for gold.”
The post holds up well now — seven years later.
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