Why the Euro is ultimately doomed

[sasguru]

Contrary to the past, Europeans pay themselves too much without creating added value to match. There's virtually nothing that Europe creates/makes that can't be created far cheaper in the US (where land is relatively cheap) or Asia (where labour is relatively cheap). This process is accelerating and the current crisis will cause the decisive swing to the East as European companies outsource production and non-core business to cheaper locations merely to survive.

[Doggy Styles]

Extrapolate. Why does that mean the euro ultimately doomed?

[PM-Junkie]

Contrary to the past, Europeans pay themselves too much without creating added value to match. There's virtually nothing that Europe creates/makes that can't be created far cheaper in the US (where land is relatively cheap) or Asia (where labour is relatively cheap). This process is accelerating and the current crisis will cause the decisive swing to the East as European companies outsource production and non-core business to cheaper locations merely to survive.

That will have an impact, but if anything is going to bring the Euro down (and in my view it will) it is the restrictions it puts on individual countries to jump start their economies. One size fits all may arguably just about work when economies are expanding, but during a recession - not a chance.

Within 18 months I expect to see the deutschmark back, and possibly the franc.

[sasguru]

Well it might survive but not in its current form/value.

[Mich the Tester]

Well it might survive but not in its current form/value.

What other form will it take?

[Doggy Styles]

PM-J gives the most obvious reason why countries might leave it, indeed, the reason why it's probably a bad idea in the first place.

However, I reserve judgement until I've heard AtW or someone provide the counter-argument.

[BlasterBates]

The Euro doesn't worry me but Sterling does. My Grandfather's pension was reduced in value by a substantial amount. During a benign devaluation you hang on and your wealth returns, after a currency crisis you lose a substantial amount of your savings and they don't return.

Greece and Italy might have a problem with debt, but their pensioners can sleep soundly because once the economy recovers they still have their wealth.

The question is will Britain's massive debt be purged by effectively impoversihing the pensioners.

I'm not sure everyone will be gloating about the Euro in a year's time.

[TimberWolf]

Much of Asia is more doomed than we in the UK - too high a population density. It doesn't matter what they can make and how cheaply than can make it, if they can't feed themselves and obtain fuel, they are doomed once the rest of the world stops buying their goods. Well that would be the future for India if it weren't for the fact that they are on a big nuclear building program and have oodles of Thorium.

[Cyberman]

That will have an impact, but if anything is going to bring the Euro down (and in my view it will) it is the restrictions it puts on individual countries to jump start their economies. One size fits all may arguably just about work when economies are expanding, but during a recession - not a chance.

Within 18 months I expect to see the deutschmark back, and possibly the franc.

It has always been said that once recession hits, the Euro will be severely tested. Different economies may require different interest rates and this is not possible. Not all of the economies are sychronised with eachother, although this is a worldwide recession so that may not be a problem this time. The fact is that the ECB are slow to react and more cautious because they have to think of multiple economies. This will cause more pain than would otherwise be necessary if all countries could act unilaterally with interest rates.

Be grateful that we are outside the Euro !!

[sasguru]

This prescient article written in 2005 by a Swedish economist is a very good summary of the strengths and weaknesses of the the world economy in the long run. Europe is ultimately doomed because of its ageing population especially in Germany and Italy.

http://mises.org/story/1804