> Subject:
> IP: ECONOMICS: What's Wrong with the Euro?
> Date:
> Mon, 22 May 2000 10:12:43 -0400
> From:
> "R. A. Hettinga" <[EMAIL PROTECTED]>
> To:
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> Date: Thu, 18 May 2000 05:21:06 -0500
> To: [EMAIL PROTECTED]
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> Subject: IP: ECONOMICS: What's Wrong with the Euro?
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> The Objective American
> http://www.objectiveamerican.com/index.cfm
>
> Thursday, May 18, 2000
>
> ECONOMICS: What's Wrong with the Euro?
> By E.G. Ross
> EDITOR
>
> How you think about a fact may defeat you before you ever do anything about
> it.
> —Norman Vincent Peale
>
> WHEN THE EURO, the unified European currency, first appeared in January of
> last year, it looked strong. It opened trading at $1.18. Since then, the
> Euro has fallen 25%. European finance ministers and politicians profess
> perplexity. The Euro was supposed to challenge the dollar for currency
> supremacy. Instead, the Euro has behaved like a piece of cheap cheese left
> in the sun too long.
>
> The Euro was conceived by a U.S. citizen, Nobel Laureate, Robert A.
> Mundell. It's his intellectual baby. He has correctly noted that unified
> currencies tend to produce economic efficiencies. As a result, they are
> stronger than multiple, competing currencies operating in the same
> territory. One Euro should work better than a conglomeration of pounds,
> liras, marks, francs, etc. However, Mr. Mundell noted other important
> things about currencies—factors which the supposedly perplexed European
> ministers and politicians have either forgotten or evaded.
>
> * First, currencies cannot remain strong unless the governments that issue
> them restrain their monetary printing presses. The latest evidence suggests
> that the European central bank has been turning out far too many Euros.
> This has debased the currency and sent average European consumer prices up
> by over 6% in the last year.
>
> * Second, currencies will weaken unless governments adopt fiscally sound
> policies. That is, they must not run deficits too large to handle or
> deficits that are significantly less sound than those of their competitors,
> such as the United States. The U.S. is no longer running a deficit. Europe
> has made progress against deficit spending. Hence, it is probably, at
> worst, a lesser cause of the Euro's decline.
>
> * Third and fourth, currencies cannot remain strong unless their
> governments adopt sound tax and regulation policies. Too much taxation or
> red tape tends to hurt currencies. Unfortunately, these are areas in which
> Europe needs to do a lot of work. Some European nations have. Ireland has
> adopted what Mr. Mundell calls supply-side policies that fit the bill.
> Ireland is now the lowest-taxed European nation and has consequently boomed
> for eight years straight at average real growth of 9% (although its
> inflation picture could also be better).
>
> Europe as a whole, however, remains mired in suffocating taxation and
> regulations on business, labor, and consumers. The bureaucratic hurdles in
> the way of new businesses are often 10 times as burdensome as those that we
> face in the U.S. The average taxpayer in Europe forks over 50% or more of
> his income to the government, vs. less than 30% for the average American.
>
> Printing money too fast; too much red tape; taxes that are way too high.
> Only European fiscal policy even halfway meets the four-part test of
> support for the Euro. Less than one out of four ain't good. Why is the Euro
> falling? It is backed by policies that are too high on government command
> and control and too low on individual liberty and initiative. An Euro
> without monetary restraint, and in the context of overbearing taxes and
> regulation, is like a Band-Aid on a major wound. It isn't big enough to do
> the job.
>
> Unless European rulers want to see the Euro collapse completely—or worse,
> see their economies slide into another annoying recession—they must wake up
> to the rest of the advice that Mr. Mundell gave them. He knew what he was
> talking about. Currencies depend on many factors for their strength. The
> Europeans could do worse than to examine why the dollar has remained strong
> in recent times. Despite some setbacks, the U.S., more than any major
> country, has followed supply-side, pro-individual enterprise and
> pro-liberty policies. If Europe wants a brighter economic future, that's
> the road it needs to take, too.
>
>
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> R. A. Hettinga <mailto: [EMAIL PROTECTED]>
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