Magazine article USA TODAY

Eurozone Now Is Danger Zone Igniting a Worldwide Crisis: The Potential Collapse of the Euro Has Brought Europe-And Much of the Global Economy, Including That of the U.S.-To Its Knees

Magazine article USA TODAY

Eurozone Now Is Danger Zone Igniting a Worldwide Crisis: The Potential Collapse of the Euro Has Brought Europe-And Much of the Global Economy, Including That of the U.S.-To Its Knees

Article excerpt

FOR ECONOMIST, author, and syndicated columnist Thomas Sewell, the first lesson of economics concerns the scarcity principle, stipulating that there never is enough of anything to satisfy the desires of everyone fitly. Sewell's corollary is that the first role of politics is to disregard completely the first lesson of economics and then seek fame by promising abundance for all. During the Euro monetary crisis, Sewell's irony seems appropriate because Europe has drifted into a seemingly endless dilemma: its politicians often make decisions based on political goals rather than economic realities. With the advantage of hindsight, the Euro currency clearly was intended to hasten the political integration of Europe--a longtime objective sought by many past leaders, including the Roman emperors, medieval popes, France's Napoleon Bonaparte, Germany's Adolf Hitler, and, more recently, by the bureaucrats of Brussels, Belgium. Indeed, the annals of history are tittered with numerous failed attempts to unify the disparate European cultures.

In modern democratic societies, politicians are very likely to seek advancement by making grand economic pledges that usually consist of transferring wealth from the well-off few to the "deserving" many. This political tactic seems omnipresent in the West, from Pres. Barack Obama's soak-the-rich rhetoric to the divisive class warfare politics practiced in Europe. To protect themselves from public scrutiny, the Western political classes created supposedly independent economic bodies such as the International Monetary Fund (IMF), Federal Reserve Bank, and European Central Bank (ECB), and then put political appointees in charge. For the transnational European political class, found mostly in the wealthy Northern European nations, the Euro has become the symbol of a resurgent and unified Europe. For this rising class, the quest for political unity means that the Euro must be retained regardless of cost, and its defense largely is the product of political calculations rather than economic considerations.

As the new leader of the IMF, Christine Lagarde, a former French finance minister, has indicated that the principal political task of the IMF is to avert the collapse of the Euro. Lagarde has gained the support of the major European leaders, including German Chancellor Angela Merkel.

Harvard University economist Robert Barro maintains that attempts to salvage the Euro since 2010 have resulted in partially strengthening the political bonds of the 17 Eurozone nations. Many authorities might dispute Barro's views. Acceptance of the bailout funds from the European Union, IMF, ECB, and the European Financial Stability Facility have saved the Euro for now, although it declined in value against all other major currencies in 2011.

The European Union also has sought greater direct authority over the fiscal policies of every Eurozone government--a proposal that has been greeted with dismay by most Eurozone nations; Germany and France being notable exceptions. Barro predicts that, if the Euro survives as the common currency of the European Union, it eventually will lead to a centralized and strong political entity, but that the cost of this policy would be prohibitively expensive. Barro's gloomy assessment is similar to the views expressed by another prominent Harvard economist who is a longtime critic of the Euro, Martin Feldstein: "The Euro should now be recognized as an experiment that has failed" because it was "the inevitable consequence of imposing a single currency on a very heterogeneous group of countries."

There are 17 European Union nations that employ the Euro and there are another 10 that are eligible to adopt it, but these 10 are reluctant to join the Eurozone. Three are founding members of the European Union (United Kingdom, Denmark, and Sweden) and each strongly opposes the Euro. The remaining seven hail from Eastern Europe: Bulgaria, Czech Republic, Hungary, Latvia, Lithuania, Poland, and Romania and are not part of the original European Union. …

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