4. Why High Inflation Countries Wanted the Euro
RIDDING EUROPE OF THE DEUTSCHMARK
Governments of Latin countries, and especially France, regarded the Euro as an efficient means of getting rid of the hated Deutschmark.1 Before the introduction of the Euro, the Deutschmark was a standard that laid bare the monetary mismanagement
5. Why Germany Gave Up the Deutschmark
If the Euro means so many disadvantages for Germany, how is it possible that Germany agreed to its introduction? The fact is, the majority of the population wanted to keep the Deutschmark (some polls say up to seventy percent of Germans wanted to keep the Deutschmark). Why did politicians not listen to majority opinion?
6. The Money Monopoly of the ECB
Let us for a moment ponder the sheer power the ECB exerts on the life of the people in the European Monetary Union (EMU). It is a power that no institution would amass in a free society. Even though the immense concentration of power of Soviet times is of the past, the ECB still exerts total control over the monetary sphere; it has the power to create money and to thereby help mould the fate of society.
7. Differences in the Money Creation of the Fed and the ECB
Both the Fed and the ECB engage in the profitable business of monopolistic paper money production. They own the printing presses to produce dollars and Euros respectively. But in terms of its mission, the Fed is inherently more inflationary due to its dualistic tradition and mandate: to ensure price stability and growth on an equal footing.
8. The EMU as a Self-Destroying System
When property rights in money are poorly defined, negative external effects develop. The institutional setup of the Euro, with its poorly defined property rights, has brought it close to collapse and can be called a tragedy of the commons.1
9. The EMU as a Conflict-Aggregating System
“If goods don’t cross borders, armies will,” is an adage often attributed to Frédéric Bastiat and one of the pillar teachings of classical liberalism. When goods are prevented from crossing borders or from being exchanged voluntarily, conflicts arise. In contrast, free trade fosters peace.
10. The Ride Toward Collapse
When the financial crisis hit, governments responded with the typical Keynesian recipe: deficit spending. With an accelerating course of events, the EMU drove into the abyss of its breakup. We begin our story a few months after the collapse of Lehman Brothers, when the effects of the crisis on government deficits started affecting sovereign ratings.
11. The Future of the Euro
Have we already reached the point of no return? Can the sovereign debt crisis be contained and the financial system stabilized? Can the Euro be saved? In order to answer these questions we must take a look at the sovereign debt crisis, whose advent was largely the result of government interventions in response to the financial crisis.
Conclusion
The institutional setup of the EMU has been an economic disaster. The Euro is a political project; political interests have brought the European currency forwards on its grievous way and have been clashing over it as a result. And economic arguments launched to disguise the true agenda behind the Euro have failed to convince the general population of its advantages.
References
Baader, Roland. 1993. Die Euro-Katastrophe. Für Europas Vielfalt—gegen Brüssels Einfalt. Böblingen: Anita Tykve.
Bagus, Philipp. 2003. “Deflation—When Austrians Become Interventionists.” Quarterly Journal of Austrian Economics 6 (4) 2003: pp. 19–35.
———. 2004. “La tragedia de los bienes comunales y la escuela austriaca: Hardin, Hoppe, Huerta de Soto y Mises.” Procesos de Mercado: Revista Europea de Economía Política 1 (2): pp. 125–134
