Eurosvæðið - upp og niður eins og annars staðar

Globe and Mail birti í gær athygliverða grein um eurosvæðið, þar er fjallað um mismunandi stöðu hagkerfa á eurosvæðinu og framtíðarhorfur fyrir þau, sem og svæðið í heild.  Margur fróðleikur kemur fram í greininni og er hún vel þess virði að lesa, sérstaklega nú, þegar margir velta því fyrir sér hvort að Íslandi hefði vegnað betur eða verr, hefði euro verið tekið upp snemma á áratugnum.

Það verður varla um það deilt að marg hefði verið öðruvísi á Íslandi ef euro hefði verið gjaldmiðillinn.  Ein stærsta spurningin hlýtur þó að vera á hvaða gengi euroið hefði verið tekið upp, það hefði ráðið miklu um framhaldið.

En hefði húsnæðisbólan orðið miklu stærri og sprungið með enn ógnvænlegri afleiðingum? Vextir hefðu án vefa verið lægri, en var það það sem helst vantaði í þennsluna? 

Stöðugleikinn hefði hefði verið meiri, fáir verða líklega til að bera á móti því.  Verðbólgan hefðu verið minni (en þó má deila um hve mikið, ef húsnæðisverð hefði verið tekið, eins og gert er, og það hefði farið enn hærra.) 

Það eru án efa skiptar skoðanir um það, rétt eins og uppi eru skiptar skoðanir um hvort Danir hefðu verið betur komnir innan eurosvæðisins, en minnst er á það í greininni.

En í greinni (sem er löng, 4. síður á netinuj) má m.a. lesa eftirfarandi:

"Financial and economic misery stretches across the length and breadth of the region. While much of the global concern has focused on Wall Street and the U.S. economy, the situation in Europe is even worse. No country has been spared, as the credit crisis has burst bubbles created by cheap debt, flattened business and consumer spending, and compounded existing structural problems. The depth of the European crisis hit home this week as the International Monetary Fund reported that euro zone economies will contract by a combined 0.5 per cent next year and said the damage could be worse than it estimates.

"Both inside and outside the shelter of the euro zone umbrella, some countries have fared far worse than others. But the rain is pelting down on everyone, even as panicky governments and the oft-criticized European Central Bank scramble to recapitalize battered banks, free up credit and restore a measure of market confidence.

And the umbrella has begun springing serious leaks under the worst strains it has faced since its inception a decade ago. The severity of the slump in the hardest-hit countries is spurring resentment in their better-off neighbours, such as Germany, France and the Netherlands. Taxpayers in those countries have no desire to bail out their weaker currency partners.

The economic pain in the 15-country euro zone is not being spread equally, which is a major source of tension. Countries that grew rapidly thanks to easy credit, such as Spain and Ireland, have been run off the prosperity highway by the collapse of the housing bubble. Some face years of painful restructuring that might have been easier if they had control over their own monetary policy. Others, such as Germany and the Netherlands, have fared notably better, which makes it all the more difficult to apply the euro zone's one-size-fits-all monetary policy."

Bond investors are showing their concerns about the zone's future, as spreads between euro bonds issued by the weaker sisters such as Italy and Greece and those of healthier countries such as Germany widen. Speculators aren't wagering that the euro zone will collapse, bond analysts said. But they are making bets that the cracks will widen.

But for its member countries, the failure of the monetary union would have such disastrous consequences that it's almost unthinkable.

"The costs would be astronomical. It would also mean a return to the days when even minor crises could trigger volatile currency swings, undermining economies and putting government balance sheets at risk. “You would have the mother of all financial crises,” said Richard Portes, a professor of economics at the London Business School.

So far, no one is talking of abandoning the euro, and most of the newer members of the European Union from the old Soviet bloc are clamouring to join. Even the Western European members of the EU that chose to retain independent currencies – Denmark, Britain and Sweden – may be having second thoughts about embracing the relative stability of the euro after the beating they have absorbed.

Tiny Iceland, which is not part of the EU, certainly wishes it had adopted the euro after its savaged currency become almost worthless. Even the eccentric pop star Bjork has joined a growing Icelandic chorus calling for membership."

"The economies under the umbrella face a world of pain. Spain, for example, is in such bad shape that it faces a prolonged depression, analysts say, with collapsing domestic consumption, a massive current account deficit and unemployment rising above 20 per cent.

At the other end of the euro misery scale sit countries like Germany, the Netherlands and France, which managed to avoid a Spanish-style housing explosion but still face tougher economic times ahead.

Germany's once-booming, export-driven economy, the largest in the euro zone, has come to a standstill this year. Industrial output fell 3.6 per cent in September, the biggest decline in 14 years. And the economy is expected to contract by as much as 0.8 per cent next year.

On Thursday, French Finance Minister Christine Lagarde gave her most pessimistic prediction yet for France's economy, saying it is now likely to grow by at most 0.5 per cent in 2009. Just last month, she had forecast 1-per-cent expansion. The world financial crisis, she said, “is starting to be felt and is going to last several trimesters.”

French unemployment, which only this summer had dropped to its lowest rate since the 1980s, is now expected to rise to 7.4 per cent by the end of the year. At the same time, consumer confidence has dropped to an all-time low.

Ms. Lagarde also told the parliament that the country's fiscal deficit would likely reach 3.1 per cent of gross domestic product this year, exceeding the EU's threshold of 3 per cent for euro zone members.

Yet for all that, France is still better off than it was before the euro was introduced, said Jérôme Boué, an economist with Global Equities in Paris."

"Indeed, the euro became one of the flavours of the decade, soaring nearly 80 per cent against the U.S. dollar between early 2002 and March, 2008, and prompting dreams in Brussels of becoming the leading engine of global growth and wielding the power and influence that would come with such economic clout.

Now, those dreams have been washed away by a tidal wave of gloom, and the question becomes whether the flaws baked into the very structure of the euro zone will sink it as well – or if the Europeans will take advantage of this crisis to make the system more efficient and effective.

The policies of the ECB have tended to fall into line with the preferences of the strongest and most influential members, namely Germany and France. In the early years, the ECB ran a loose monetary ship, keeping interest rates low for the sake of the then-stumbling German economy. The excessively low rates, combined with a global credit boom, triggered bubbles in some of the fastest-growing, but weaker, economies."

Inflation was not a problem in Germany and France, but in less wealthy and less structurally sound economies, such as Spain, Ireland and Greece, prices rose dramatically. The ECB couldn't intervene, and the credit bubble ballooned in some countries, but the currency remained strong, masking the problem.

"Derek Scott, a former economics adviser to then-British prime minister Tony Blair, argues that the very nature of the euro zone played a key role in the creation of the credit bubbles and debt mountains that have blown up so traumatically. “Whatever may have been the mistakes in the United States, it seems to me that the euro zone itself is a structure that, almost by definition, creates asset bubbles, on top of anything that might have been exported by the United States or China.”

Spain, Portugal, Ireland, Greece and a couple of other European countries expanded rapidly thanks to a housing and construction boom, high domestic demand and debt-fuelled consumption. Although they suffered from inflation, a drop in competitiveness and widening current account deficits – all weaknesses a central bank would normally try to address – everything seemed manageable.

But then the global credit freeze hit with a vengeance. Lenders worried about being repaid and domestic consumption quickly fell off a cliff. The same thing happened in Britain and the U.S. Central banks in those countries could – and did – intervene dramatically."

"And the most serious flaw in the euro zone design quickly became apparent as conditions deteriorated: There is no institution capable of co-ordinating fiscal policies or taking other emergency measures in the event of a once-in-a-century financial catastrophe.

As long as many of the policy options available to governments and central banks in Canada, the U.S. and elsewhere are not in the euro zone playbook, Europe faces “a much longer, harder, more complicated slog to pull out of this,” said Peter Zeihan, vice-president of analysis with Stratfor, a global intelligence firm based in Austin, Tex."

"Historically, every European crisis “has been used as an opportunity to bring about ‘more Europe,'” said Mr. Scott, the former Blair adviser, referring to the EU's widening of powers. “That is a potential result of this.”

It's understandable that troubled Denmark and a handful of Eastern European countries such as Hungary, which have been pushed to the brink of bankruptcy, might be looking for safety in the euro."

“But the notion that a Denmark would be safer inside the euro zone I don't really buy. You gain some security perhaps. But against that, you're locked into a system, where if you get into difficulties, you can't get out,” Mr. Scott said.

There's a price to be paid for gaining the stability of a stronger currency, Mr. Scott and others critics say. Joining a monetary union could weaken an already troubled economy. “Far from being a mechanism for convergence of economic performance, it's a mechanism for divergence,” he said. Within the euro zone, “that's what we're seeing. And it's now exaggerated because of the wider international problems.”

"Amy Verdun, a political science professor at the University of Victoria who has written extensively about European monetary policy, argues the EU's big mistake was setting up an “asymmetrical” economic and monetary union.

The monetary side, in the hands of the ECB, is responding to the current crisis. But it has no political counterpart – just the finance ministers of the member countries who gather from time to time to co-ordinate policies.

Unlike national governments, the euro zone has no mechanism for directing attention to a problem sector or struggling country. And that is unlikely to happen, because it would mean transferring more authority to the European Union. As it is, “people don't trust the existing EU institutions,” Prof. Verdun said."

"Euro zone members can and frequently do act unilaterally, without regard to the consequences for their fellow euro zone partners. Early in the banking crisis, for example, Ireland hastily guaranteed all deposits, causing a furor and setting off a race among governments seeking to out-do each other in national assistance. Only belatedly did they realize it would be considerably more effective to enact common policies.

Whether the euro zone can continue with its flawed model of a powerful central bank and a weak, informal arrangement on the economic side remains to be seen, Prof. Verdun said.

“They are heavily dependent on ad-hoc co-ordination. There's no authority to say: ‘You have to.'”

And there will always be a conflict between the interests of the heavyweights and the peripheral members. Even EU officials recognize that a single monetary policy is bound to be inappropriate for certain countries at least some of the time."

Are there sufficient strains to call into question the euro zone's survival?

Prof. Portes, of the University of London, dismisses such a question out of hand.

“I think it's nonsense,” he said. “The stakes are much too high. Even Germany recognizes that you couldn't allow the euro zone to break up in any way. The consequences for any country to drop out would be horrendous. Its financial system would be destroyed.”

A mixed outlook in the euro zone

Spain

Upside: Greater stability and much lower interest rates than would have been possible to maintain outside the euro zone. The success story of the euro zone until the credit crash.

Downside: In Spain's case, low interest rates contributed to the housing bubble now deflating with disastrous consequences for the economy.

Prognosis: Grim. Stuck with a stronger currency and higher interest rates than its economy can support. Facing years of high unemployment and poor competitiveness.

Ireland

Upside: In the face of stunted wage growth and a softening labour market, private consumption should remain positive in 2009. If the wage growth and the labour market trends can be reversed and mixed with dropping inflation, a 2010 turnaround is possible.

Downside: Prior to the economic downturn and the bursting of the country's real estate bubble, Ireland enjoyed strong growth and low unemployment, which makes its fall from grace and return to earth particularly harsh.

Prognosis: Could be worse. After a prolonged break from tough times, Ireland will need to take its lumps before returning to growth.

Germany

Upside: To combat high inflation and an underperforming economy in the first half of the decade, Germany put in place a number of reforms to boost exports and lower unemployment which should help it weather the storm.

Downside: Export-based economy has been hit hard by the downturn and the decreased spending from its trading partners.

Prognosis: Positive. Many German companies are in a positive financial position with low reliance on outside financing, which should help the economy buck the crisis faster than others.

Italy

Upside: The country is doing well despite its government which is hoping to balance the books by 2011. Lower commodity prices in the coming years are expected to help Italy narrow its current account deficit.

Downside: Things weren't going particularly well for Italy even before the crisis hit thanks to tough trade unions driving up the price of domestic goods and an inability to keep growth rates up.

Prognosis: Ugly. Unemployment is expected to rise for the first time in a decade and shows no signs of slowing.