Greenspan: Why European Union Is Doomed to Fail The European Union is doomed to fail because the divide between the northern and southern countries is just too great, former Fed Chairman Alan Greenspan told CNBC in a recent interview. "At the outset of the creation of the euro in 1999, it was expected that the southern eurozone economies would behave like those in the north; the Italians would behave like Germans. They didnt," Greenspan said. "Instead, northern Europe fell into subsidizing southern Europes excess consumption, that is, its current account deficits." Greenspan predicts that as the south's fiscal crisis deepens, the flow of goods from the north will stop altogether and southern Europe's standard of living will go down. "The effect of the divergent cultures in the eurozone has been grossly underestimated," he added. "The only way to have several currencies from divergent nations lumped together is if they are culturally close, such as Germany, the Netherlands and Austria. If they arent, it simply cant continue to work." Greenspan feels that, to a very large extent, whats driving the United States at the moment is Europe. "Today, there is one single integrated global stock market," he said. He also expects the European crisis, coupled with a failure to address the U.S. budget deficit, may be severe enough to cause a bond market crisis if the market suddenly decides the U.S. is more like Greece than not. "It is very difficult to predict when a bond crisis could happen," he said. But getting an agreement on the U.S. budget will be difficult, he added, because Washington is the most polarized he's seen it in his career. Greenspan would like to see Congress address the revenue side of the budget problem by eliminating government subsidies through tax breaks, like the deduction for mortgage interest payments. "Much fiscal policy is implemented, not through spending increases, but through tax credits and other so-called 'tax expenditures,'" he said. "The markets should respond to them as they do spending cuts, with little contraction in economic activity. We thus could get a very large positive impact on the deficit from such reductions, with minimum negative impact on the economy." It is no surprise, then, that Greenspan supports the Simpson-Bowles deficit-reduction proposal, which came out last year. Though the plan was met with strong resistance in Washington, Greenspan believes "the presumption we can rein in our budget deficits without inflicting some fiscal pain is utterly unrealistic." If Simpson-Bowles isn't enacted, Greenspan favors letting the Bush tax cuts expire and restructuring the tax code, moves he says could fairly easily put ove(*)(*)r a trillion dollars back into Uncle Sam's pocket each year. http://www.cnbc.com/id/45033013 I wonder, if Northern voters will accept the debt of the South? The Brits are already balking, and the German-Franco relationship is beginning to show signs of strain. _
Alan Greenspan. The primary problem is that the Eurozone has been a patchwork from the beginning. Brussels thought it could hop along on one leg and simply make necessary adjustments as needed, instead of sorting everything out from the outset. There should have been both a fiscal and monetary union put into place in the beginning of this project -- they should have Eurobonds and such from the get go. That would have given the Euro necessary leverage to maneuver around and strong arm fiscally irresponsible member states. (Which shouldn't have even been admitted in the first place.) Brussels was too eager for power and the member states were too timid to fork over the necessary mechanisms to central control for the Eurozone to proceed smoothly. Now its paying the price.
>>>There should have been both a fiscal and monetary union put into place in the beginning of this project <<< They'd never have got that past their electorates, and the member states are the EU; they control one of the most powerful institutions. Brussels couldn't have set up the euro without their agreement.
Yes, I have always thought they should have made a northern Euro zone and a southern Euro Zone. Possibly even a separate eastern euro zone. I also think the Scandinavians should have outright rejected the idea of the Euro, and instread instituted a common "Nordic kronar" currency. The Nordic countries essentially already their own version of the "euro zone" otherwise. Not sure where Estonia would fit in, it could probably be accepted into the Nordic zone. Estonians have a lower standard of living, but the people share similar values to the scandinavians, and the government tends to be very fiscally responsible. So basically, I think think there should be four separate Euro zones, because each of the four european regions has more in common- culturally, ethnically, and economically.
The idea of a sudden problem with massive Greek debt is absurd. The bond market has been buying such a huge volume of Greek bonds for so long that it would have been impossible for no one to notice that Greek bond debt was getting far beyond Greece's ability to pay it. The PIIGS, with their pro-business conservative governments slashed taxes, increased social spending and ran up huge deficits payed for with debt. It is quite interesting that the attacks on these nations fiscal positions began only after their conservative governments were replaced by liberals, who are now, mistakenly, taking the blame. There is a lot of ways for financial interests to get their way in politics. A conservative government willingly cooperates, a liberal government will knuckle under if the threats become real enough. There is nothing that the EU and IMF is doing that will solve the Greek debt problem. Decisions are being driven by an ideology based on private profit but public risk. The bondholders, the ones who should be bearing the losses, have managed to panic the EU leadership and the public into believing that the public must make them whole or the entire financial system will collapse and bring widespread social calamity. That this requires an immediate wholesale transfer of wealth from the taxpayers to debt holders seems an unfortuante but necessary requirement. This is of course, completely untrue. Greece could default tomorrow and the markets would fall, a few banks would fail, a few exceptionally stupid investors would be wiped out, but the economy and the people would not need to suffer a decade or more of impoverishement and economic stagnation caused by the transfer of much of the nations wealth into private hands. Argentina has much experience with this exact scenario, being a serial victim of just this sort of economic attack. Right wing governments would borrow massively from abroad and run up huge bond debt denominated in $US. They would eventually be replaced by liberals and almost immediately Argentina would become embroiled in a "debt crises" as foreign investment banks suddenly refused to roll over the bonds. The currency would begin to collapse, bondholders would become impatient, and the government, desperate to prop up the currency and for operating funds, would accept massive loans from the IMF. The IMF would lend 10s of $Billions initially to the central bank to prop up the collapsing currency as foreign investors raced to get their money out. Once these outflows slowed, bascially as foreign investors got all their money out, the IMF loans would be used to pay off bonds in $US as they came due. These IMF loans came with onerous conditions for an economy experiencing freefall. Taxes on the middle class were raised, government social spending stopped, public utilities auctioned off, public pensions privatized, and a massive selloff of other national assets were the basic requirements. Argentina went through this multiple times and the result was a demographic equal to that of the US in 1955 was reduced to that of a third world nation by 1995. In 2001 Argentina had had enough and deliberately defaulted on $98Billion of debt run up by the previous conservative government, the largest default ever at the time. The IMF was told to go away. The market for Argentine debt collapsed. The government then offered to settle the debt for 20 cents on the dollar for all outstanding bonds, more than what they were selling for on the bond markets. Those who agreed were paid from the central banks currency reserves. Those who refused spent ten years in court and the eventual settlement left the lawyers with almost all the money. The $23Billion in pension funds previously privatized, which provided scant benefits for contributors, were nationalized and the money used to recapitalize the collapsed banking system which revitalized lending. Social programs were funded and a $3Billion direct payment system to poor families who sent their children to school instituted. The result, Argentina's economy grew by 98% in real terms in the last decade and has $48Billion in currency reserves. Incomes have increased and income inequality reduced. The number of people living in poverty has been reduced by more than half. There is 20% inflation in Argentina now, but incomes are rising faster than inflation. There is the possibility of an economic shock if Brazil, its largest trading partner, runs into sudden financial problems but that is not very likely. With the economy on a well established growth path fueled by manufacturing and export growth, the increasing revenues will allow the government to now move carefully to reduce inflation without abandoning its spending.
Who is Alan Greenspan and what on Earth does he know about European Affairs?! In fact, he has shown to know nothing about basic economics, since USA = fail.
Alan Greenspan is an American who thinks Europeans are dirt. He thinks of Europeans as scum of the most vile and contemptible variety. He represents the views of most Americans in this regard.
No, no, no. You got that all wrong my friend... Alan Greenspan thinks Americans are dirt and too dumb to figure out the treasonous policies he has put in place to crash the way of life of hundreds of millions of Americans.
Union will doom for simple reason that countries entering EU have no economic power to sustain some sort of equilibrium and bigger countries such as Germany will be forced to finance Southern countries, not only Greece but expect Bulgaria,Romania, soon will Croatia come and not to mention Italy who again has Berlusconi on top. With Berlusconi, it is hardly imaginable that Italy will have significant attempts to have savings, which will bring bigger social issues within the country itself.
Is he wrong about US? To the previous unrealist poster, which Eurocountries are not Conservative led? Di Salvo, Euros are US allies.
Nominally. America has been played for a fool (which is hardly surprising, but I digress) by entering into a permanent alliance with the European countries. Europe simply views the US as the military arm of their government. We are to fight the wars Europe tells us to, not ever to have any skirmishes that are not deigned acceptable by Paris, and we are to like it. No, thank you. I admire France's healthcare, Switzerland's neutrality, and Germany's industriousness, but I detest your politicians and your governments and your sanctimony almost as much as I detest America's. I see no benefit in being your ally, other than the ability to suddenly and inexplicably set out on campaigns to terrorize hapless Arabs -- and that really isn't a benefit, now is it?
