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Rumours of the euro’s death look exaggerated

There are many aspects of the European Union that I dislike but I have never quite shared the view that the euro is due to collapse at some point, even if one or two member nations revert to domestic currencies, which at this stage looks highly unlikely barring an Asian-style collapse. Of course, I certainly think that imposing a single, monopoly currency on widely diverging economies at different points of the economic cycle is fraught with danger but that, remember, applies to single political jurisdictions like Britain or the US as well as blocks of different countries, which is why I am interested in the idea of free banking and multiple currency systems within a single polity. People who scoff at this idea have to argue why, if this is so weird, you can operate in a world with different forms of computer software, etc. Here is another interesting article on the idea.

Of course, I know that the prime reason for objecting to the euro for many people is not the economics anyway, but its place in the political agenda of those who wish to forge a European single state, relegating the separate nations to the status of provinces. But if people imagine that the economics of the euro-zone are going to blow the whole thing apart, they may have to wait a long time. A couple or more years ago, remember, it was argued – with a lot of convincing detail – that the euro would fall apart and countries like Italy would be forced to quit. That has not happened. The Daily and Sunday Telegraphs, with columnists like Evans Ambrose Pritchard and Liam Halligan, have argued several times about the euro’s demise. Halligan is arguing this again. Well, try as I might, it is quite hard to imagine at the moment that the euro is about to fall to pieces. Try telling that to anyone who has bought euros with sterling or dollars lately. We might soon be reaching the point where, to borrow from Mark Twain, the comment is that rumours of the euro’s death have been much exaggerated.

13 comments to Rumours of the euro’s death look exaggerated

  • Paul Marks

    The Euro is a fiat currency that has value because various governments demand that their taxes are paid in it (and also because it replaced various currencies that were once, long ago, commodity monies – standard Carl Menger history of money stuff).

    However, this makes the Euro no worse (at least in this) then other currencies – even the Swiss Franc is no longer linked to a commodity (a few years a ago a certain percenatage of the Swiss Franc notes had to be covered by gold owned by the central bank – but this is no longer the case).

    So it a matter of looking at money supply expansion rates (which is hard because the stats are distorted in various ways) the money supply growth (both “narrow” and “broad” money) of the Euro is high (i.e. BAD) but so is that of (for example) the Pound.

  • Paul Marks

    Competing currencies:

    Fine – there are many cases in history (including very recent history) around the world.

    It is a matter of being clear in a contract what one is to be paid in. AND for the government not to violate those contracts.

    For example, in the United States before 1933 many private contracts specified that payment was to be a certain amount of gold at a certain degree of purity (in case payment in “Dollars” was distorted in future by a Civil War or First World War fiat money inflation).

    One would have thought that such contracts were protected not only by the provision that no State was to declare anything other than gold or silver coin legal tender, but also by the giving to the United States Congress only the power to “coin” (not to print) money (in memory of the fiat money “not worth a Continental” inflation of the American war of independence) – but also by the general provisions in the Constitution forbidding the Federal Government from violating existing contracts.

    However, the Supreme Court just ripped up all the various parts of United States Constitution that would have forbad the voiding of the “gold clauses” in private contracts.

    “Why relevant?”

    Well if your contract (for example) specifies that you are to be paid in Swiss Francs and then the government just comes along and voids your contract…….

    So one must be careful in such matters.

    Certainly one should try and avoid the government knowing anything about one’s financial affairs (as a safety measure), but such “hole in the wall” capitalism is costly – and such costs hold back such ideas as competing currencies.

    As well as normal transaction costs – for example the cost of converting the currency into whatever currency the government demands payment of its taxes in.

  • Paul Marks

    “Free banking”.

    This only has meaning if governments will allow banks to go bankrupt – no “lender of last resort” and no phony “insurance” schemes for depositors (as if one can “insure” against the risk of bad business judgments – that is NOT something that can be calculated in an insurance way).

    But this means that fractional reserve banking (which is basically an unstable confidence game) would tend to decline – for all the talk of what happened in Scotland in the 18th century (Scottish “Free Banking” was in fact propped up by courts not enforcing contracts against banks – depositing gold in a Scottish “Free Bank” turned out to be high risk activity, one reason why Scotland remained poorer than England in the 1700’s, although some Scots became very rich indeed – connected Scots).

    With the decline of fractional reserve banking would come an end to “low interest rates” (for the connected) as all lending would be from real savings (i.e. income that people had chosen not to consume but to GIVE UP – to lend out till WHEN AND IF they were paid back).

    The modern financial system is based on lending that is not from real savings, and such doctrines as different people being able to spend the same money at the same time.

    I doubt people in the financial would be very keen on the end of this bubble economy – which is what real “free banking” would mean.

    I repeat that “free banking – till there is a problem” is not free banking.

    It is more like “free trade in banking is free trade in swindleing” to use a 19th century line – although this line only covered “free banking” where government courts refused to enforce contracts – most importantly refused to enforce “I want my gold NOW”.

  • hovis

    Johnathan I would tend to agree that the Euro despite my loathing for all it represents (and the EU itself) will continue to exist despite the fact it is not the best solutions for the member states involved…but that is perhaps the point it is for the EU and its bureaucracy not the member states.

    In the case of the southern Mediterranean countries ..Italy Greece etc will they not revert to a larger black economy as the official economy is crippled by the Euro and all it brings? Tax evasion is a national sport in Greece after all – I say that with admiration rather than scorn 🙂

  • I said several times, and I repeat: the Euro is a good thing. All countries having the same currency (fiat or not) facilitates trade and life very much. Individual states (provinces) are spared the need to have central banks, to coin money, to set interest rates, etc. I think all are happy with the Euro, and no one, least of all Italy or Spain want to have back their liretas, pesetas or drachmas, and the headaches involved. They gave up the privilege of printing money, and that is a good thing.
    Instead of lamenting the longevity of the Euro we should applaud it. And we should recognize that it’s a success story.

  • philmillhaven

    Individual states (provinces) are spared the need to have central banks

    Who are you calling a province?

    I declare that France is no province and I challenge as gutless or absurd any Frenchman treacherous enough to argue differently. Same goes for all the other so-called provinces.

    I am sympathetic to German war guilt and French self-loathing after capitulating and cooperating with the Nazis. The British were humbled after the war and mistakenly supposed they needed “to find a new role” which made them keen to join the club — a load of contemptible self-important bollocks obviously, but nevertheless what well-meaning men believed at the time.

    Surely it’s now time for all Europeans to outgrow this foolishness. The French and the Germans don’t need to be ashamed of themselves and it’s enough of a role for Britain (e.g.) to be responsible for 11 per cent of the world’s citations in scientific journals. There’s no need to bury these great nations in a pessimistic muddle of Euro hypocrisy and sclerotic growth.

    So let’s not heed the dismissive condescension of the likes of Jacob who would consign the country of wine & cuisine, philosophy & art, Descartes, Voltaire & Curie to the dustbin of history.

  • Monoi

    Philhaven, what are you going on about ? What is so important about having a currency, which has been exploited as far as I can remember by successive French governments to get out of the mess they created in the 1st place.

    Apart from Germany, of course.

    It makes life a lot easier for economic agents, and will induce economies of scale. From what you are saying, why would the US have 1 currency after all, if we look at the differences and varieties of their different states?

    Only the feeble minded would think that their country is going to the dogs because of their currency, which is really a reflection of the country’s value and worth. As a Frenchman, I can tell you that the country has been going to the dogs way before the Euro. Having lived in the UK for 22 years, I don’t see that having your own currency has stopped the decline. Quite the reverse, it can be argued.

  • philmillhaven

    why would the US have 1 currency after all, if we look at the differences and varieties of their different states?

    The States are indeed diverse. On the other hand they are all subject to federal law which is interpreted not by them but by the Supreme Court of the United States. While we’re on the subject individual States are dominated by Congress with regards to declaring war, approving treaties, power of the purse, power of impeachment and dominated by the Executive which commands the military and administers & enforces laws and policies.

    If you are advocating that France become such a State then I stand by my earlier remark about the gutlessness and absurdity of any Frenchman treacherous enough to say such a thing.

    Leave the shallow pride of de Gaulle behind. France was not liberated by the French, as he claimed. On the other hand, so what if your country was defeated in a war 60 years ago and liberated by foreign powers. It was a long time ago, get over it. France is a wonderful rich cultural powerhouse. It deserves better than to be hobbled by false pride and pretensions of global parity with the world’s superpower. It deserves better than to be reduced to the status of Idaho.

    Only the feeble minded would think that their country is going to the dogs because of their currency

    Only the feeble minded would believe you can surrender all the trappings of sovereignty and still retain meaningful nationhood. Currency is just one item on a long list of competencies France has submitted to an outside power. If you look around the world and if you study history, there is a direct correlation between political influence and currency.

    But let’s suppose you’re right and this were this not the case. If you euro-enthusiasts were only ever interested in making life “easier for economic agents”, surely the decision would have been made in the 1980’s for all European countries to adopt the US dollar. We could still do it, then we’d be able to buy oil without the problem of currency fluctuations and we could trade with America without mucking around with exchange rates. What do you say, are you in favour of Europe adopting the dollar?

  • Jacob

    What do you say, are you in favour of Europe adopting the dollar?

    Or the other way round – the US adopting the Euro.

    It’s only silly national pride that prevents that.

    And the currency has nothing to do with the question of France being a great nation or not. You become a great nation by producing things, material or cultural things, not by printing money.

  • Jacob

    By the way: the strongest currency in the world, now, is the Israeli shekel. It gained some 30% on the dollar and 20% on the Euro in the past months.

    Maybe we should make it the world currency.

  • hovis

    Jacob.. that “silly” national pride that prevents things the adoption of the dollar – indeed – whats in a name eh ? SO I go with the idea expounded by the philosopher Al Murray … after all it’s only national pride why doesn’t mainland EUrope adopt the pound and re-name itself “The British Empire” – oh a few headquarters can be moved s well but really – it’s only a name change nothing to worry about eh ?

  • after all it’s only national pride why doesn’t mainland EUrope adopt the pound and re-name itself “The British Empire

    The British Empire, The Holy Roman Empire, whatever…

    All dead and utterly irrelevant now.

    As to national pride – it is silly, at least as far the currency is concerned, but alas, it exists and is powerful.

  • Paul Marks


    I would not normally reply to someone who believes in a vast new fiat currency (getting rid of the limited break that currency compitition is on govenments) however you make some factual errors that I will bother to correct.

    The Euro has NOT meant the end of the Bank of France – as far as I know they have not even reduced staffing levels. Of course a currency does not need a central bank – not even a fiat currency needs one. But it is also quite possible to not have one’s own fiat currency but to have a central bank anyway (as France shows).

    Nor is the Euro a success (even by the low standards of a fiat currency) – as a glance at its money supply growth rate will show you.

    Call the Swiss Franc a success (if you must praise a fiat currency), but not the Euro.