Patrick Artus aux rendez-vous de Blois: Euro; vers la sortie ?

Black is black?

The book of Patrick Artus, Economist at Natixis, which underwent a round table meeting of the history of Blois copresented  by Jean-Marc Vittori, appears, despite its title, as a plea and a hope for the Euro.

Except that, as the conference progressed , feeling was exactly the contrary : euro is a hopeless and that we must leave as soon as possible...

Report and comments:

The impossible coordination

"Countries that do not have the same currency need not strong coordination. Wages policies and different tax policies are corrected by proportional devaluations of the currencies. Countries that have the same currency have on the contrary need to coordinate as in the case of a country's deficit, all others affected.

Between the countries of the euro area, all that creates the heterogeneity is bad. Without having the same tax and social security rules, there is a real problem of dumping. But how to harmonise the labour markets? Countries that have wages got 4 times lower that we...They should be out  . It will be very  be difficult to correct it is certain...

That is why institutional progress must concern the euro area if you want it to work. An economic and monetary union has many drawbacks: same interest rates, inability to devalue... resulting in a loss of freedom of economic policies.  On the other hand, there is an economic advantage: large domestic market with major corporations more competitive (because economies of scale) in the rest of the world. »

 Comment: Well Yes, let’s dream !. Except that when the Germany proposed (in a way so utopian a kind of franco-German Government that it is doubtful whether they even believe in it)), France said no... And now, France returns to the subject, but Germany is no longer in the mood to... Nor any other country, especially those who fear a Franco-German condominium

The impossible convergence, the  forced specialization

 But how the single market has really boosted domestic trade? Surveys of economists show that actually it is especially the Germany and England who took advantage of the single market (the France little). We were unable to create a large European company in the field of renewable energy, and it is the Chinese who have done so.

The disappearance of exchange risk allows specialization of the countries of the area (each makes it what it is best at). This disappearance also facilitates the movement of capital and invest with savings accumulated in another country. But it is in theory. In fact things went less well...

Initially the specialization has seems to be working. Electronics: region Rhône-Alpe/Austria, agriculture: Spain, France... Today it would be inefficient to manufacture everything everywhere (whatever say the catalans). The savings has much circulated: the surpluses of the Germany and the low countries were used to lend money to the Greece, Spain... between 99 and 2008: the Germany lent 3000 billion euros to the countries of the South.

But at the end of the 2000s, we saw the  emerging consequences of  this 1st reflection deficit: if countries specialize in excess, their economic structures become very different. This causes a difference in levels of income between countries... predictable and inevitable. It was naïve enough to believe that as long as we have the same currency, we will have the  same economy... This is a terrible mistake of not having considered heterogeneity caused by the specialisation of Member nations.

 Comment: So the main benefit expected from the euro, the single market, worked very badly, and only for the benefit of the Germany. The Euro, it's like the Germany and football once, everyone plays,  at the end, Germany wins.

Patrick Artus, as I recall,  was even more severe; the sold idea by proponents of the euro as it would cause a convergence of the economies was just a scam, belied by the strongest economic theories. A single currency for savings heterogeneous trained on the contrary a divergence and a specialization of economies. So what was predictable, with the Euro, Germany strengthens its industrialization, Spain and the Italy's desindustrialized  and specialized _ in what ?: tourism and low cost vegetables and fruit... And France in what? Tourism, wine, gastronomy, some public services, a bit of agriculture-(cf Houellebecq)

This was  not announced to the Europeans, and it's not what people wanted.  So, now, when asked to vote for Europe, , they said, say, and  wiill say logically  : No!  (Auguste Comte: If people do not know what they  need, they know what they want, and no one should want it for them - notice to European technocrats!)

Solidarity : needed and less accepted

Addressing heterogeneity caused by the specialization of economies, within a monetary union, needs a high dose of federalism, which allows to transfer funds from the richest to the poorest areas, in a automatic way. Implied without having the richest countries  to give their agreement every time since obviously, solidarity between States is not sustainable...

It's exactly what we see in the United States where transfers between States are huge. There, if a State loses one euro, the federal system transfers 60 cents (in Europe, for a lost euro, one cent only...).  In the US, there is actually much more solidarity than we. There must be structural contribution of rich countries and rich areas to automatically transfer funds to poor areas. Otherwise, the poor will always be pooredr and the wealthy, wealthier. In the United States, despite the huge federal budget, disparities remain huge. This is the limit of the specialization.

Eoropean Policiy was suppose d to be  built as such: If one country has a debt problem, other countries in the area will come to help her... This was not the case, or one time only. For more, if inflation has been uniform throughout the area, because of the heterogeneity of the economies, standards of living begins to vary from one country to another. Clearly, a major brake to the prosperity of the euro area  is the selfishness of the rich nations who want to enjoy the benefits of the single market without suffering the disadvantages. This lack of solidarity is observed also within countries, evidenced by Catalunia in Spain.

The great crisis for Europe was from 2011 to 2014, when Germany has stopped lending to the countries of the South. Abruptly, the external deficit of these countries was no more funded, which forced them to reduce domestic spending. Austerity is in fact a consequence of the sudden stop of the German funding.

Europe has tried a few defensive reactions: creation of the European stability mechanism = + ultra-expansionniste economic policy, with interest rates at zero. But if we've developed these defensive mechanisms, we  have not solved the origin of crises in Europe.

Comments: not real need! Spain and Catalunia, which cause cold sweats at our Eurocrats, are good excuses, but, as far as I know, Germany is no longer very willing to pay.  To make the Euro work, Germany, should continuously agree to transfer to other European countries several times (2.3?)  the equivalent to the effort for the integration of the East Germany. . You only have to believe !And pray that Catalonia does not give ideas to Scotland, Padania,Flanders, Bavaria...

Black is black, euro is dead, the af ter euro ?

And yet, Mr Artus showed enough contemptuous towards the supporters of the exit from the euro, except that he did not even try  to oppose them serious arguments, repeating, for example, that the debt is in euros and not in national currency, which has been disputed; "the euro will not burst because European countries are intertwined by their debts" (while acknowledging that most of the debt is compensated - Spain is lending money to Germany!, and that net debt represent only a tiny part of the total debt) ;  that the coexistence of one  common EU currency and a national currency is extremely complicated and baroque (while acknowledging that China works, and not too badly on a similar mechanism..)

At the end of this conference, which was meant to be optimistic about the euro!, the conclusion seems to be: black is black, and the euro  is ruined. It's perfectly predictable, it will explode just as broke the Latin Union franc, and any sensible economist should worry about the euro “after” , to at least keep some  European organization...