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Posts Tagged ‘“Euro B”

“Euro B”: For internal trades?

Most population or demographics of the Northern European States such as Germany, Holland, Danmark, Sweden, and Norway are on average much older than the Southern States such as Spain, Portugal, Italy, Ireland, and Greece.  For example, the average age in Germany is 45 and thus, Germany spends less for new housing and can save much more than the younger States. States experiencing high deficits in budget and in GNP need plenty of credit to get its young citizens settled down.

The smaller or emerging States in the EU are suffering from another major handicap.  In the previous decade, these States received plenty of financial funding from the richer States in the EU and thus, most of the young people quit colleges and universities in order to work in a booming economy and to make money and purchase consumerism products that their families never owned or experienced. 

Statistics show that 80% of the newer entrepreneurs in Spain and Portugal have not earned a college degree; they have restricted and limited skills to compete in this global economic environment.  An entire generation was lost to shoulder the next challenges.

The problems of the Euro currency and the economy of European Union (EU) States had begun before the latest financial crash, but this financial upheaval uncovered problems that were swept under carpets for as long as the illusion of global economic development was not that evident.

The European common market is a vast market of 450 million consumers, as large as the combined USA and Russia markets.  If the EU policies focus on internal trades among its States then, most of the difficulties would be far more bearable in this climate of stringent conditions to slowing down deficits in budget and to GNP. 

The EU needs to consider issuing a currency valid for its internal trades that is heavily devalued compared to the current Euro.  This inner currency may be called “Euro B” which will have the consequences of lowering the cost of living compared to reductions in salaries and public reduction in sectors of health, education, family planning, and small business lending facilities.  The other consequence is that tourism will increase and tourists will be able to purchase more consumerism goods as product prices effectively fall. 

Another additional remedy that may keep internal trades developing smoothly is to allowing hard hit States to asking for more liquidity of “Euro B” as internal trades increase and develop.  Obviously, Germany should keep the exclusive monopoly of issuing Euro, both Euro A and Euro B(a monopoly that generates over 5 billion Euros to Germany per year), but the mechanism for evaluating the needs for more liquidity should be more lenient and timely.

For example, the colonies in the US before independence experienced economic expansions while England was having hard times.  Benjamin Franklin, Ambassador to France after the US independence, let out the secret: Economic expansion was related to the colonies enjoying the right to “printing” currency when the economy needed this “oiling” mechanism.

England then convinced the US government, after US independence, to have the monopoly of issuing money instead of the US treasury.  The Rothschild family in England endeavored to ruin the US economic expansion by refraining from issuing badly needed currencies. The dollar received a higher value than being simply an oiling mechanism: thus, the dollar was overvalued and the economy shrank.

The “Euro A”, designed for external trades outside the EU, can still be devalued, but since export balances favor only export economies such as in Germany then, “Euro A” may be considered as a political currency that should not affect significantly internal trades in the European common market. 

The Euro of the European Union (EU) currency or what I call “Euro A” is witnessing healthy devaluation lately compared to the dollar and needs to be lower to around 1.1 to the dollar.  The increasing difficulties experienced by many States in the EU result from initial weaker economies that could not compete efficiently in the European common market and then, were buffeted by the US financial crisis as financial multinationals extended credits not based on tangible sound economic improvement.  

As long as “Euro A” is overvalued and individual States have no sovereignty for issuing currency then, the smaller States will have no options but exercising internal devaluation of 20% represented in lower salaries and harsher budget cuts.

The European and international financial and political medias are breaking the taboo of discussing whether maintaining the Euro is a viable alternative in the short-term. The arguments of the group that staunchly defends the Euro is mostly based on political reasons: To them it is becoming a matter of safeguarding dignity and sovereignty.  It believes that the Euro is the major factor in the reconstruction of the European market and for the political stability and the cohesion of the European market.  This group would like you to believe that without the Euro there would be no EU.

The “taboo breaker” group believes that the EU is in dire difficulty because it prematurely created a common currency before ironing out and strengthening common politics.  Germany and its satellites States in the northern hemisphere benefited most from the Euro since their currencies were highly overvalued “stronger” than the Euro and thus, they managed to compete better and export more to the European common market.  The other States in the Union could not deal with a Euro that was much overvalued compared to their national currencies and thus, had to suffer in market competition.

The financial and economic commotions in Greece, Ireland, Portugal, and Spain are symptoms of the financial and economic imbalance with respect to the vaster and stronger economies in Germany, France, and Italy.  This group believes that the EU is heading toward a deflationary period within a couple of years if no structural institutions are installed.

The main source of imbalance is that the original six States in the Union had firmer and better tested administrative and political institutions that could apply regulations agreed on; they had the capability to supervise and monitor laws and regulations governing the union members.  The weaker States are at great disadvantage: The main powerful States in the union have no confidence in the resilient determination of the weaker States to effectively executing the agreed upon regulations and second,  the weaker States are prohibited to issuing (printing money) to satisfy liquidity in their internal trade and commerce.

It is not the Euro that created the common European market: the EU was already instituted and functioning well before the common currency was created on political grounds.  The Euro was mainly to be the material “symbol” of the Union and this symbol degenerated into a calamity at the first major problem.  The EU could have imagined much less costly symbols for its unification until political coherence was firmly established, tested, and thoroughly evaluated.

The Maastricht treaty set limits to budget deficit below 3% and public deficit below 60%.  Currently, only Spain has kept its public debt at 54% and Germany its budget debt at 3.3%.  The remaining States in the Euro have doubled and even tripled both limits. Joblessness is very bad all over the Euro zone averaging 10%; Spain has 20% and Ireland and Greece about 14%.

It seems to me that the Euro has encourage many mafia type “economies” to expand simply because it became much easier to transfer a unique currency and circumventing further money exchange regulations and constraints.  The “Euro A” will be a good barrier for whitewashing mafia money outside the EU.

The financial institutions and the medias are sending waves of terrors claiming that there is lack of confidence in the Euro; they claim that this confidence is so low that investors are shirking the Euro zone States.  I believe that the Euro should stay but be restricted to the main large economies such as Germany, France, Italy, Spain, Holland, Danmark, and Norway where the same homogeneous spirit for taking seriously the application of financial and economic regulations among the member States.

The other weaker States should have an alternative common currency or “Euro B”, far devalued from the Euro and backed by the “Euro A”, until political coherence and institutions are equalized in efficiency and modernity.  The weaker states should enjoy the privilege of preempting slow internal trade by issuing liquidity in the newer common currency within limits.

Biter-sweet Euro: Before and after Greece; (Mar. 7, 2010)

Before Greece, you have the States of Lithuania, Hungary, and Ireland that suffered the same fate of a prematurely imposed Euro on States of weak economies. There are many articles analyzing the financial crisis in Greece. I thought that I can make sense in a short post for readers eager to know, but would refrain reading lengthy erudite articles.

There are two main factors for Greece financial problems; and there are two resolutions available, equally painful, but one is far better in shortening the pain and healing faster.

First, the common currency Euro forced weaker economies to relinquish their sovereignty over issuing money in time of shrinking economy in order to re-launch the inner trade.

Second, the US financial multinationals before the crash infused too much credit in a small economy that did not correspond to normal credit rating behaviors. This quick infusion of money inflated the sense of economic boom and generated laxity in financial control and management.  Greece is awakening to new demands for harsher financial control and imposition of higher taxes to straighten the budget balance sheet.

The first remedy is inviting the International Monetary Fund (IMF) to intervene and infuse $1.7 billion in the Greek coffer to pay the debts due this spring. This would be a bad decision. It is a worse alternative because even the EU is encouraging Greece toward that option. For example:

Lithuania GNP shrank 18% in the first year the IMF intervened with its draconian conditions: jobless rate climbed to 20%, the high level in health, education, and retirement suffered greatly. Actually, retired persons are bleeding and the socialist political parties lost ground.

In Hungary, the IMF intervention made sure that the people suffer and the socialist government be replaced by like-minded anti-socialist government headed by the former minister of economy.

If Greece ends up asking the “help” of the IMF, as the EU wishes too, then the socialist George Papandreou will start packing; a decision that will please Merkle PM of Germany.

Greece with budget deficit reaching 13% of GNP and growing, has a reasonable solution out of this mess if it wants to avoid 10 years of suffering and humiliation. Until the EU comes up with a financial recovery plan, Greece should revert to its national currency the drachma. Greece should regain its sovereignty in issuing money in this difficult period: Internal and external trades should not be hampered for lack of liquidity.

Since Greece imports amount to only 20% of its GNP, then better competitive drachma should enhance exports and reduce the loan deficit. With the already strict financial control in place, Greece will be able to shorten the period of its pain.  The EU will accept Greece currency to revert to the Euro in due time in order not to let other Euro member States to follow Greece decision.

Greece should learn how Argentina recovered.  After four years insisting of keeping the currency linked to the dollar, Argentina economy faltered entirely.  Argentina decided to float its currency and it devalued accordingly. Argentina was able to default on $100 billion of foreign loans. The government insured that bank deposits of consumers keep the same purchasing power by regular re-evaluation and re-fixing of the national currency.  People living in their own properties enjoyed the same financial facility at the rate of pre-devaluation.  Within a single semester, Argentina economy was back to normal and going strong.

Greece has choices: either the IMF intervention accompanied by ten years of suffering or reverting to the drachma until the economy is back to normal within a couple of semester.

Note 1:  I suggested in several articles that an internal Euro currency, Euro B, be created for European internal markets. In this case, smaller economies could issue Euro B to keeping liquidity available for their internal market. As the internal economy is functioning and creating jobs, harsh cuts in social budgets will be reduced.

Note 2: Spain, Portugal, and lately Italy have been experiencing bad economical and financial downturns.  If the “Euro B” was adopted, and the current Euro used for just exporting goods and dealing with foreign markets, this Euro would have been in better shape and more immune to currency exchange deals, mostly dominated by the US financial policies.


adonis49

adonis49

adonis49

December 2020
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