Yes, but that doesn’t mean you should throw your money around heedlessly. The Euro has a real cost and that cost is a deadweight loss to the members of the Euro Zone. When they throw that cost overboard, as they will undoubtedly do in the not too remote future, nothing will change except for your bookkeeping and the removal of the cost of maintaining the Euro.

My appologies to all. The quote above should have linked to the underlying article from the Economist. Here it is.

Point is, the EU replaces the many rules and regulations in the individual states with unified ones, so those mostly aren’t really new ones that cover areas previously unregulated.

Robert,

Europe is a supoptimal economic area, so the currency area has to be suboptimal, too. Even so, Europe is the only area we have. ;)

A “Suboptimal” Currency Area

Even before the euro was adopted, in 1999, it was clear that neither the EU nor the 12-member subset that has joined the monetary union was an optimal currency area. Ideally, currency zones should be compact and homogenous enough to show little regional variation in business cycles—otherwise a one-size-fits-all monetary policy will leave some regions lingering in recession, while others grow so fast they overheat. Many argue that this is what is happening in Europe, where a few countries, like Ireland, are experiencing rapid growth while big economies, like Germany and Italy, stagnate.

There are ways to mitigate imbalances within big currency areas. Even America is not an optimal currency zone; its regions sometimes boom or shrink out of sync with the rest of the economy. But America has important features that temper the problems of unified monetary policy. Federal programmes act as automatic fiscal stabilisers, siphoning off tax revenues from booming areas and transferring them to ailing regions as unemployment insurance or health benefits for the poor. America’s labour market is also highly flexible. This allows wages and prices to adjust downward, giving depressed regions a competitive advantage that can attract new companies and thus smooth out regional disparities. And workers in declining industrial towns frequently pack up and move across the country to find work; capital flows freely as well. Without these mitigating factors, people in depressed areas could easily be trapped in a cycle of stagnation.

In Europe, by contrast, few mechanisms exist to bring the euro area’s widely divergent business cycles into sync. The ECB has been trying to chart a middle course between slow- and fast-growing countries while establishing its credibility as an inflation-fighter. The result has been a monetary policy that is too “hot” for some, too “cold” for others, and “just right” for almost no one.

The lack of adjustment mechanisms means that “ever closer union” is not just a glowing ideal; it is a matter of survival. Language and cultural barriers—not to mention wide differences in social insurance and retirement programmes—encourage workers to stay in their own country, no matter how bad the economy, closing off one of the easiest avenues of convergence. If Europe’s economies do not drive forward towards a single market, with labour markets that are more flexible (and international), there is a growing risk that some of its members will eventually find the gulf between their economies and their monetary policies too wide to endure.

Unfortunately for euro-boosters, recent policy moves have all been in the wrong direction. Not only has the stability and growth pact, which was supposed to help force fiscal policies into rough alignment, been weakened. Progress has also stalled on measures to widen market access, such as the EU’s services directive. And fierce public resistance to eroding generous worker and consumer protections has made governments unwilling, or unable, to implement the kinds of deep structural reforms that could help.

Without these changes, the euro will probably be able to limp along, at least for a while—particularly if the ECB cuts interest rates, as it has begun to hint it might do: politicians have an easier time enduring a monetary policy that is too loose than one that is too tight. But if nothing is done, the instability will mount. Already Italy is being compared to Argentina, where a currency peg to the dollar made exports uncompetitive, sparking a recession and, ultimately, a fiscal crisis that forced the country to ditch the peg and devalue the peso. At this point such comparisons are scary possibilities, not likely outcomes. But it is only one of many plausible scenarios in which the economic ills of its members prove fatal for the euro.

You’re approaching the EU question in a much better way than most people do, and for that I’m grateful. I want to correct you on one important thing though. Laws are passed in two ways: By unanimous voting and by majority voting. The Constitution would have extended the number of areas subject to majority voting. Also, it’s estimated by eurosceptics that 70% of new laws originate in Brussels; europhiles put the figure closer to 50%. Either way, it’s a lot. I might not see it as a drama if the institutions making these laws were properly accountable; unfortunately we suffer something a Polish MEP recently described as being closer to the Soviet Union. And he should know. There’s a link here, it’s well worth a read: http://englandexpects.blogspot.com/2005/06/disregard-for-peoples-voice.html

That aside, I look forward to your posts on the euro, because it’s something I’m only finding out about myself.

Regards,

there is an astounding amount of laws and regulations on the level of the individual member states, If those are replaced by some EU-wide ones that’s no drama, especially because all governments have to agree to that first. And VAT is set nationally.

And Lex, Europeans are stuck with each other, EU or no EU, and our economies are increasingly becoming a single one. And you only see a tiny fraction of what’s happening over here. Governments push through their pet-projects, and then claim that Brussels made them do it. Etc, etc…

The ideological urge to make one Europe has led to a determination to force on it one-size-fits-all policies. National parliaments have been stripped of the right to set the water quality in their citizens’ taps because the French model decrees that one Europe needs one water quality.

Many people seem to think this is the case.

That is not what it looks like from across the Atlantic. Brussels issues regulations that are Union-wide. There is one currency for vastly different countries. The central government is not democratically accountable and it cannot make rules for one country and not another. And it has found a need to make very microscopic regulation which impinges on the daily lives of everyone in the EU. Why anyone would want this to continue baffles me. Each of these countries benefits from some degree of trade liberalization. But many don’t even want that.

Anyway, this election was about this constitution, and it is a terrible document that no one who has tried to read it would ever agree to live under if they were thinking straight.

As to the Italians, the facts you cite just show that it makes no sense to pretend that Italy and Germany are part of one “country.” They should have as much elbow room as they need to get along peacefully. Italy has been a complete mess for all of its modern existence. There is no reason for anyone to want to be part of that unless they live there. Moreover, the Italian police and tax authorities are totally corrupt and eliminating internal customs has turned Bari and other locations into smuggling havens. Why the other Europeans would want to tolerate this is another question.

The only person I have seen talk about what rules now govern Europe is you, Ralf. It would be interesting to see what an EU continuing to be under the Nice Treaty would look like.

But certain stubborn facts must be acknowledged: An increasing amount of law is uniform, there’s a uniform rate of VAT, tariffs on extra-European imports are uniform, 12 countries have an interest rate that is… uniform.

The list of things which are now uniform is endless, even if the intent was always “harmonisation” or “union”. Semantics? Perhaps, but the point is that all significant EU efforts (apart from language policy – something they learned not to meddle with from the Habsburgs) are devoted to schemes which have the effect of uniformity.

Regards,