The euro cannot be blamed for the monetary and policy failures of the ECB, national central banks and politicians.
To qualify, membership in the euro required an inflation rate no more than 1.5% higher than the average rate of the three lowest member states, a fiscal deficit of no more than 3% at the end of the preceding fiscal year, a ratio of gross government debt to GDP of no more than 60%, membership of the exchange rate mechanism for two years without devaluation, and long-term interest rates no more than 2% higher than the inflation rates of the three lowest inflation rates.
In 1992, when Maastricht was signed, Greece's overnight lending rate was 28%. By 1996, when the Commission released its first convergence report, it had fallen to 12.8%. When Greece joined the euro in 2001, it had fallen to 3.3%. Italy's 3-month interbank rate fell from 13% to 9%, and then to 3.4% at these same times.
Capital which had originated as credit expansion instead of genuine savings migrated to nations with higher bond yields, first as a trickle but then in increasing quantities as confidence grew that monetary unification under the euro was there to stay.
No one thought to complain, and Germany's sound-money men were silenced by those who pointed to Germany's growing exports to the high-spending euro members.
The EU's monetary system was then saddled with trillions of euros of debt that could never be repaid, and the PIGS suddenly found further finance from the markets was unavailable.
When we blame the euro for these ills, we're letting politicians and central bankers - who have only ever viewed the euro as a stepping-stone toward their grand objectives - off the hook.
https://www.zerohedge.com/news/2019-02-01/how-euro-enabled-europes-debt-bubbles
To qualify, membership in the euro required an inflation rate no more than 1.5% higher than the average rate of the three lowest member states, a fiscal deficit of no more than 3% at the end of the preceding fiscal year, a ratio of gross government debt to GDP of no more than 60%, membership of the exchange rate mechanism for two years without devaluation, and long-term interest rates no more than 2% higher than the inflation rates of the three lowest inflation rates.
In 1992, when Maastricht was signed, Greece's overnight lending rate was 28%. By 1996, when the Commission released its first convergence report, it had fallen to 12.8%. When Greece joined the euro in 2001, it had fallen to 3.3%. Italy's 3-month interbank rate fell from 13% to 9%, and then to 3.4% at these same times.
Capital which had originated as credit expansion instead of genuine savings migrated to nations with higher bond yields, first as a trickle but then in increasing quantities as confidence grew that monetary unification under the euro was there to stay.
No one thought to complain, and Germany's sound-money men were silenced by those who pointed to Germany's growing exports to the high-spending euro members.
The EU's monetary system was then saddled with trillions of euros of debt that could never be repaid, and the PIGS suddenly found further finance from the markets was unavailable.
When we blame the euro for these ills, we're letting politicians and central bankers - who have only ever viewed the euro as a stepping-stone toward their grand objectives - off the hook.
https://www.zerohedge.com/news/2019-02-01/how-euro-enabled-europes-debt-bubbles
No comments:
Post a Comment