Time to Break Up the European Union?

For the past couple of years, the American Monetary Association (AMA) has found much to be concerned about with the state of the United States dollar and economy. While we're not letting the Obama administration off the hook for doing either its evil or incompetent best to wreck America, it seems that there might be a currency across the Atlantic taking it even harder on the chin right now: the euro.

Struggling countries like Greece and Spain stumble along at nearly 20% unemployment, while their stronger counterparts in the union, Germany, for example, have to be getting a bit fed up with their weak sisters. It shouldn't surprise anyone to think that the possibility of disbanding this economic organization hasn't crossed a few leaders' mind. There are two major schools of thought when it comes to the idea that abandoning the European Union is actually a wise move towards strength.

A British think-tank has already held a public contest soliciting the best method to manage a controlled breakup of the European Union. Entrants were shortlisted to five finalists, one of which, Jonathan Tepper, sums up his formula with three Ds: depart, default, devalue. His thinking is that the weak countries who have been targeted for multiple bailouts already be allowed out of the union, where they can default, devalue their currency, restructure their bonds, and try to get back on track.

The idea of devaluation, which used to be a common economic strategy to European countries in financial straits, is off the table because everyone operates on the same currency now. It's like there is one big country for currency purposes but many smaller ones when it comes to culture and economies. In the old days, a country like Greece would devalue its currency to reduce the cost of what it owed in debt.

Devaluation simply means to make a currency worth less when compared to other currencies, especially those to which it owes money. This works in the short term by stimulating exports and reducing the value of debt payments – makes them cheaper. A currency devaluation creates more expensive imports, thus slowing international commerce and keeping more money at home. As we mentioned, though, when both debtor and credi

tor nations have the same currency, devaluation is impossible UNLESS Greece drops out of the Euro Zone and adopts its own currency again.

Of course, some economists think this path would be disastrous anyway, that implementing an “austerity” policy during times of recession only worsens a financial crisis. On the other side of the spectrum you have the recent American approach, known as a stimulus but more commonly called a bailout, which doesn't seem to be working all that well either.

The big problem, no matter which economic school of thought you embrace, is that too much debt is crippling. Try living beyond your means on credit in your personal life and see how that works. Fine for while, but when it bites, it bites hard.

Another idea for the European Union breakup is for the stronger currencies to get out, effectively cutting the rope to the anchors which will almost certainly drag them down. The trouble with that is the potential chaos into which the entire world could be thrown, with bankruptcies and legal nightmares springing up immediately, especially for any individuals or organizations involved in cross-border activity. Assets and liabilities would suddenly change in value. One estimate is that there is about thirty trillion euros worth of this kind of exposure.

This fear of financial and economic chaos on an unimaginable scale is what holds European leaders' hand for now. Throw in the desire to not so easily abandon the euro project which had been in the works for decades after World War II. Despite much antagonism towards Greece, the rest of the union chose to hold their collective nose and bailout the sinking country again, believing the alternative of having a country leave the euro to be catastrophic.

Ultimately, it may not be economic concerns that break up the European Union, but rather politics. Any single creditor, of the 17 members involved, might eventually grow tired of propping up a debtor state, or refuse to accept the loss of sovereignty in trying to save the currency. Politics, pure and simple, could be the eventual instigator of the meltdown and leaders' would be wise to plan for the breakup when it comes. A smart general prepares for a war he sees coming a mile away, and sensible heads in the union should get ready for divorce.

The American Monetary Association

Flickr / BlatantWorld.com

zp8497586rq
Share and Enjoy:
  • Print
  • Digg
  • StumbleUpon
  • del.icio.us
  • Facebook
  • Yahoo! Buzz
  • Twitter
  • Google Bookmarks
AMA