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EnergyWhat the yanks don't get about the euro
Filed under: Investing
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Personally, I'm a fan of the euro -- although I'm well aware that this is a viewpoint that is far from universal.Yet oddly, some of the harshest criticism of the single currency comes not from within the eurozone, or even our very own Daily Telegraph, but thousands of miles away over the Atlantic.
Investing
Readers of the Sunday Times, for instance, are regularly regaled with the views of longtime respected American columnist Irwin Stelzer, of the Hudson Institute, who has eloquently documented the eurozone's travails.
And dip into Business Week, the Wall Street Journal, or a number of other high-profile American publications, and it's certainly not difficult to spot euro-unfriendly faces casting scornful looks in this direction.
Flawed from the start
Now, the euro is in a mess. There's no denying that. Look at Greece, Ireland, Spain and Portugal, and what you see are economies with significant headwinds: debt, unemployment, contraction and weak public sector finances.
I have some sympathy, too, for those who argue that the austerity zealots are making a bad situation worse, at least in human terms, and at least in the short term. At a time when they should be at their most productive, millions of twenty-somethings and thirty-somethings are twiddling their thumbs, looking for jobs that don't exist.
What I don't agree with, though, is that all this was somehow predictable from the start -- that the very notion of a single currency for Europe is flawed, and a grand economic venture that was doomed from the start.
Which is a view that you'll often hear from over the Atlantic.
Comparative advantage
The logic? Well, say the eurozone's critics, imposing a single currency over a set of very different economies ignores their underlying economic realities.
And without currencies that adjust in value relative to each other, in order to compensate, a single currency relies on jobs and businesses moving in response to economic conditions, rather than exchange rates.
So jobs, for example, will move from high-wage areas to low-wage areas. And businesses will move from high-tax economies to low-tax economies.
It's just plain silly, in other words, to expect a single currency to stretch from Cork to Krakow, or Amsterdam to Athens.
Howdy
Except, of course, that the distance from Cork to Krakow, or Amsterdam to Athens, is rather less than some of the distances that are to be found within another single currency region that I can think of.
Seattle to Miami, for instance, or Boston to Los Angeles. Yes: the United States, in short, is also home to disparate regional economies with varying wage rates, taxes, unemployment levels and comparative economic advantages.
Yet a single currency -- the United States dollar -- seems to serve it quite well.
And even membership of the North American Free Trade Agreement (NAFTA) didn't result in the "giant sucking sound of jobs heading south", to Mexico, that some had predicted.
Greed, not economics
To be sure, the euro isn't without its problems. But these, I'd argue, have their roots in political governance, greed and stupidity, rather than fundamental economic theory.
The Greeks should have collected more taxes and awarded themselves less generous pensions, rather than borrowed themselves into a hole that they will struggle to get out of. The Spaniards and the Irish should have borrowed less on easy credit, and built fewer empty houses. The Italians -- well, you get the picture.
The eurozone's present travails, in short, are going to be with us for some time. But they stem from what happened after the euro was created in 1999, and not from fundamentally flawed decisions taken prior to its launch.
Stronger is better
The takeaway for investors?
Well, that's simple. On the wilder shores of economic debate, the euro's demise appears to be regarded as simply a matter of time.
I'm more sanguine. Europe has some fine economies and fine businesses, and a single currency makes them stronger, not weaker. Which for investors, has to be good news.
To be sure, the euro could yet crash and burn. But if it does, it will be pilot error, and not a structural design flaw.
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And dip into Business Week, the Wall Street Journal, or a number of other high-profile American publications, and it's certainly not difficult to spot euro-unfriendly faces casting scornful looks in this direction.
Flawed from the start
Now, the euro is in a mess. There's no denying that. Look at Greece, Ireland, Spain and Portugal, and what you see are economies with significant headwinds: debt, unemployment, contraction and weak public sector finances.
Investing
I have some sympathy, too, for those who argue that the austerity zealots are making a bad situation worse, at least in human terms, and at least in the short term. At a time when they should be at their most productive, millions of twenty-somethings and thirty-somethings are twiddling their thumbs, looking for jobs that don't exist.
What I don't agree with, though, is that all this was somehow predictable from the start -- that the very notion of a single currency for Europe is flawed, and a grand economic venture that was doomed from the start.
Which is a view that you'll often hear from over the Atlantic.
Comparative advantage
The logic? Well, say the eurozone's critics, imposing a single currency over a set of very different economies ignores their underlying economic realities.
And without currencies that adjust in value relative to each other, in order to compensate, a single currency relies on jobs and businesses moving in response to economic conditions, rather than exchange rates.
So jobs, for example, will move from high-wage areas to low-wage areas. And businesses will move from high-tax economies to low-tax economies.
It's just plain silly, in other words, to expect a single currency to stretch from Cork to Krakow, or Amsterdam to Athens.
Howdy
Except, of course, that the distance from Cork to Krakow, or Amsterdam to Athens, is rather less than some of the distances that are to be found within another single currency region that I can think of.
Seattle to Miami, for instance, or Boston to Los Angeles. Yes: the United States, in short, is also home to disparate regional economies with varying wage rates, taxes, unemployment levels and comparative economic advantages.
Yet a single currency -- the United States dollar -- seems to serve it quite well.
And even membership of the North American Free Trade Agreement (NAFTA) didn't result in the "giant sucking sound of jobs heading south", to Mexico, that some had predicted.
Greed, not economics
To be sure, the euro isn't without its problems. But these, I'd argue, have their roots in political governance, greed and stupidity, rather than fundamental economic theory.
The Greeks should have collected more taxes and awarded themselves less generous pensions, rather than borrowed themselves into a hole that they will struggle to get out of. The Spaniards and the Irish should have borrowed less on easy credit, and built fewer empty houses. The Italians -- well, you get the picture.
The eurozone's present travails, in short, are going to be with us for some time. But they stem from what happened after the euro was created in 1999, and not from fundamentally flawed decisions taken prior to its launch.
Stronger is better
The takeaway for investors?
Well, that's simple. On the wilder shores of economic debate, the euro's demise appears to be regarded as simply a matter of time.
I'm more sanguine. Europe has some fine economies and fine businesses, and a single currency makes them stronger, not weaker. Which for investors, has to be good news.
To be sure, the euro could yet crash and burn. But if it does, it will be pilot error, and not a structural design flaw.
More stories
