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This is part of a very interesting thread on the Euro and the US dollar.
It sums up very neatly the likely problems when individual countries run into economic difficulties while tied into a common currency.
This obviously has implications for NZ if it adopted the stronger Australian dollar as its common currency.

More on the Euro from Steve to Zeev and a reply
Zeev, funny you should post that about the Euro. I was speaking today to a Danish friend who is visiting the UK about the Euro. He told me he expected Denmark to join soon as it looked like voters would agree to it in a referendum. I told him I thought it would run into serious troubles and used the very example of Spain and Greece having a slower economy than Northern Europe and no longer having the compensating benefit of their currencies devaluing according to market forces, which would allow their governments to set rates lower than other parts of Europe.
This would have the result, in this example, of Spain and Greece asking for some kind of relief, and the EU (which appears to be run for the benefit of the Germans and French, and of course the personal pockets and egos of Eurocrats) disappointing them. My friend had no opinion on whether my predictions had merit, but stated that the focus was on how convenient it was to just have the one currency wherever one goes. Of course that is convenient, but it is kind of ironic that the Euro happens at the very moment we are seeing what happens to a country (Argentina) when there is an attempt to buck the market with an unsustainable currency peg. Pegging the currency of Mediterranean countries to those of Northern Europe, makes as much sense as pegging the Peso to the US Dollar.

The conditions and cultures of Mediterranean countries (and you can possibly include parts of France and most of Italy as well as Spain and Greece) varies greatly compared to countries such as UK, Germany & Scandinavian countries. And the work ethic varies too, or you could say that the Northern countries have a work ethic <vbg>.

Indeed right now, there is talk from the Bank of England about the possibility of needing to increase rates due to excessive spending, debt etc. With the consumer in other parts of Europe already retrenching, we have the lack of economic uniformity right now to cause problems with the Euro.

It makes more sense to adopt a common language than it does to adopt a common currency. It's a nice evil fantasy for an Englishman to impose such a rule on our French friends across the channel but if you look at similarities between UK & US, and also Spain and South America, you can see what a strong link language and culture is, as opposed to geography. The Danes do well in business partly because they know they are a small country and have no pride barriers when it comes to learning English. This positive attitude is partly what drives them to want to accept the Euro without shame in losing their Kroner. But the arguments you hear in the media about losing economic sovereignty have more of a national pride basis to them. In fact, I have never heard a politician or media correspondent discuss the problems you and I have discussed.

I think it is a given that the UK will enter the Euro, and that it will be a disaster. I think the market will know this ahead of time, and that knowledge will strengthen the US dollar.

On the subject of Greenspan not educating the world on these facts, I guess he wants to, but it would be considered undiplomatic especially in the light of the post 9/11 worldwide spirit of comradeship. It would be seen as a kick in the teeth from the USA to criticise our nice new Euro after all the support the US has received, especially just now, when much of Europe is celebrating how nicely the launch has gone.

I expect, and hope, Greenspan will seep the advice out, and help us prepare for this disaster and help bring an end to the politicians' personal gravy train hobby that is known as the EU.
Steve, to me, the Euro (and additional steps being undertaken in the area of more uniform taxation) is resurrection of Charlemagne's dream (that lasted less then a century and plunged Europe back into the dark ages) of a unified Europe (and of course, the later dream of the "Third Reich"). It is possibly feasible, but not before the various parts of Europe are strong enough to maintain their cultural and historical heritage within a true federation within a single political entity. Dividing the monetary and fiscal counter balance along diverse political entities is, IMTO, a recipe for long term disaster. There will be a period in which this problem will be masked (as the US economy finally gets out of its current malaise and start to have once more payments deficits in the $40 B/month range, an element which will eventually weaken the dollar vs the Euro) for some time, but eventually, the economic tensions within Europe may bring to social unrest which will cause unraveling of that unnatural new order.
It seems that you and I are the lonely voices in the desert decrying that lunacy (g).

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