But then our initial skepticism towards Europe’s new money quickly turned to admiration. The euro’s weaknesses were actually its great strength. Since no nation stood behind it, none would knock it down to get where it wanted to go. Just as the Europeans could never agree on sausages or military campaigns, they would never agree on the destruction of their money. If French wanted a weak euro to help enliven their economy, the Germans and the English would tell them to stop whining and show some backbone. If it were the English whose economy went soft and who wanted an easier money policy, likewise, the French would like nothing better than to deny it to them.
That is the charm of the Europeans; they detest each other mutually. The French would rather endure a depression themselves than spare the English one. And as for the Italians, the Irish, the Austrians…and all the other peoples at the periphery – well, they can just look out for themselves!
But rather than leave the European Central Bank weak and subservient, it actually makes it stronger and more independent. Its officials may have no more integrity than officials of the Federal Reserve. Their economic theories may be no better. But at least they are unresponsive. In central banking, the consequence of inertia and inactivity is almost always salutary.
While the Fed has cut rates…raised them…and then cut them again, the ECB has done nothing. And the euro has almost doubled from its low and now trades for $1.55.