Eastern europe, the Eurozone and the Euro

There is an imminent danger present amongst the citizens of the EU. There seems to be the widespread misconception that the stability of the euro, depends on Europe becoming “fiscally integrated”.

The problem is, fiscal integration amounts to being ruled by a bunch of technocrats in Brussels that you didn’t even vote for. If politics and citizenship are already detached, this process would worsen the situation terribly.

Worst of all, is the fact that the fear of not consolidating, in terms of how this affects the currency, has no real foundation.

As we know, but not many other people, managing a currency is, or at least should be, a question of maintaining its value. This is done by controlling the supply of sed currency.

Central banks do this today in an awkward way, since they adjust the money supply to steer short-term interest rates. This makes the effects of the policies unpredictable. In fact, it may not be necessarily the case that putting up interest rates will make the currency appreciate or reduce inflation. Much o it has to do with people’s reactions, since demand for the currency is, together with supply, what determines the price. And unlike most macroeconomists think, money demand can be quite unstable. It isn’t quite as easy as making two lines meet on a graph.

The point is, I don’t think there is any real threat in letting eastern european countries use the euro. Likewise, the world isn’t going to explode if a country decides, for whatever reason, to abandon the euro.

Certainly, too much importance is given to being part of the EU and eurozone. People also seem to think that abandoning the EU would be detrimental to commerce, since the EU is part of a trading block, you wouldn’t benefit from free trade.

The way I see it, however, is the opposite. The EU isn’t a free trading block, it doesn’t allow for free trade, it limits it. It imposes arbitrary and detrimental costs to non member countries.

Unfortunately, protectionism is hidden all over the place. Suffice to say that around 50% of the EUs budget goes towards subsidizing french farmers.

And we’re gonna get more of this if we don’t do anything. The fragile grasp we have on government is slowly slipping away.


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