The Euro, a single European wide currency, was introduced with great optimism by the European Union. It was a great step forward for Liberalism as here was one of the freedoms it wanted, the freedom of money to move between countries unrestricted. In unison with the freedom of movement of labour (people) between countries and of goods. It was a great achievement for economic Liberalism.
They said it would bring people closer together, that it would increase trade and create a richer Europe. And for a time that seemed to be true. Trade did increase and Europe as a whole did get richer. But it wasn't evenly spread, with some countries gaining much more than others. But overall most people, and their leaders, were happy with the Euro.
It gave different advantages to rich and poor countries. Most rich countries had a high rate of exchange for their currency. Most poor countries had a bad rate of exchange for their currencies. The Euro changed that because each country, whether rich or poor, now had the same currency and therefor the same exchange rate. It made business and travel within the Eurozone much easier. It also had advantages outside of the Eurozone, countries that had high exchange rates such as Germany for example, now had a much lower exchange rate. This meant it was cheaper to buy goods made in Germany, so German exports increased. It also encouraged Germans to spend their money within Germany, as it was now more expensive to buy from other countries than it had been before the introduction of the Euro. Over time as the exports made Germany richer that wasn't as obvious as it was at the start. For Germany the Euro was a great thing.
But poor countries also benefited as overnight it made them rich, just as Germany's exchange rate had lowered, so theirs had gone up. Now they had more purchasing power, they could buy more things and everything they owned was now worth more than it had been yesterday. It encouraged economic growth as people had confidence that the future was better than today, and today was already better than yesterday had been. This confidence encouraged borrowing to buy the things that were now in reach, by people, businesses and by Government. It encouraged banks to loan money. If these things had been spent on building the future maybe things would have gone differently. But instead much of this borrowing was on living now with little thought to the future.
It highlights a major flaw in Liberal economics, it understands that economic growth is good, however it regards all growth as good. It also sees economic activity as good, but it doesn't pay much attention to what that activity is or if it is useful or not. Much of the economic activity and growth within Germany was productive, but the same could not be said for most countries in the Eurozone. Greece for example spent money it didn't have to finance things it wanted and that activity has now come back to haunt it. But most economists treated both countries the same.
In fact one of the great ambitions of the European Union is to make each European country the same as all the others. To use economics to homogenize Europe into one economy, where doing business is the same regardless of country. But to do that not only must each countries currency be the same, but its business laws and its standard of living must be the same. That is why nearly everyone involved in the Euro was happy for this growth to be spent on economically unproductive social programs. It was an attempt to use Capitalism to finance Socialism. Socialism whether used in the Soviet Union or the European Union or anywhere else, doesn't work for a very simple reason. It takes wealth from productive areas of the economy and spends it on unproductive areas. And when it doesn't work that is often perversely seen as proof that not enough has been spent, so even more wealth is then spent on the unproductive areas. Over time it destroys wealth permanently.
When Greece could no longer pay its debt, it was offered a way out, more debt in exchange for an austerity program. When Greece got into trouble it wasn't treated as a part of an integrated Eurozone, no it was treated as a distinct problem. But Liberal economics still ruled, the way to get out of debt was to give Greece more debt. It's never worked in the past but that didn't deter anyone.
It is now clear that Greece lied to get into the Euro and the rest of Europe was happy to believe the lies, even grateful that it was lied too. Now that has come back to bite everyone involved. Greece should not have been allowed to join the Euro, but it was. Greece now doesn't want to continue the austerity program, it doesn't want to pay back the debt and the Eurozone doesn't want to continue loaning money to Greece. But I believe that they all will continue. It would be better if Greece left the Euro and went back to the Drachma. Greece has a long and ignoble history of economic mismanagement and I sadly don't see that ending either. That means that further loans may make things worse not better.
When this happens again and it will, how will Europe pay for it? Nearly every country is running a deficit. This is a tragedy happening right now before our eyes and I don't see a happy ending.
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