The Folly of the Euro

The countries of the European Union, other than the United Kingdom, use the euro as their currency. So far, so good. The countries of the European Union each have their own governments which are not subordinated to a central European government. Here, things start to break down. Actions by the European Union to control fiscal and monetary policies require agreement by all of the member countries. This is where the whole entity goes over the cliff.

Let's put it this way: when the euro zone was formed, the economies of Europe were moving in the right direction. There was no need for major action by a central governing authority. In the last few years, however, as Europe's economy has headed south, the unwieldy and relatively powerless central government authority of Europe has been unable to deal with this crisis. The main policy being followed in Europe right now is just to avoid the next disaster waiting around the bend.

There are natural fault lines in the current structure. For example, the Germans do not want to have to bail out the Greeks if Germany cannot have political control to right the problems in Greece. These can be papered over, but not for too long.

As I write this, the interest rate on the Spanish ten year bond is at an all time high. Even Germany and the other euro countries cannot bail out Spain. It is just too big. Strangely, it is too big so it has to fail.

My prediction is that one year from now, there will no longer be a euro like the present one. Maybe some of the countries will keep it, but many will move back to their own currencies. I cannot see the european countries actually uniting into one political entity. As a result, the end of the euro is inevitable.