Currency Woes: The Euro's Big "Duh"
The Euro continues to make headlines as Ireland digests its recent $113 billion bailout. Things seem to have calmed down - for now. But don't worry, the Euro will continue to make headlines soon.
First of all, if history is any guide, there's a good chance Ireland will be back for more. But wait, Greece got its $145 billion and they haven't been back for more yet. But the operative word is "yet." It takes time to burn through $145 billion (Greece), or in the case of Ireland $113 billion. But burn through it they will - it's almost guaranteed. Then what? Best guess: more bailouts.
Why am I so sure? Well, it seems banks don't really tell us what sort of garbage they've got sitting on their books. The U.S. banks are a good example of that. They've been bailed out and still have lots of garbage on their books - but there's no way to verify that. They're not required to disclose it. And that's on top of the garbage that the Fed bought from them already (which means that garbage is now is sitting on the Fed's balance sheet).
So unless the Irish banks disclosed all the garbage they have, or the folks who put up the money did a verifiable audit (Did they?), the Irish banks may have more problems going forward.
Even if they don't, the "deficit reductions" the Irish government promised - entailing pretty serious cuts in government benefits and services - may not be enough. When they came up with the cuts, they were based on assumptions about how much revenue they would be taking in (revenue = taxes collected). They did this already and found that the tax collections went down more than estimated. They went down because the economy's in a bad recession.
So unless the economy picks up significantly and business starts booming again, taxes may not provide the revenue the government needs to meet their promised obligations.
Or maybe the Irish people will just get uppity and decide they don't want to put up with all the cuts, and we'll see an increase in social unrest.
But let's forget all that and assume everything works just fine, as planned. Let's assume that, at least in the case of Ireland, no more bailouts will be needed. And let's assume that Greece won't need more money. And let's really get optimistic here and assume that all those rumors about Spain and Italy needing big bailouts are exaggerated - and they won't need any money.
If that all happens, then the folks saying the Euro will be OK will be right...right?
(Ridiculous? Of course it is. But let's just play along, OK?)
There's still a big "Duh!" in all this.
The real issue with the Euro is the absurdity of it. It was an absurd idea to begin with. Why do I say this? Listen:
The folks who wanted the Euro - one currency for all Europe - used the U.S. as their model. They figured that the reason the U.S. prospered in ways Europe didn't was that we have one currency. You know, that the folks in California and New York could do business with each other using U.S. dollars and not separate currencies.
So they figured that if Europe had one currency, it would make sense, just like the states in the United States have one currency.
What they didn't seem to understand was that, with all our regional differences, we've pretty much shared a similar culture and history. The Europeans don't. For example, outside of our Civil War, there haven't been any wars between the states - unlike the history of European wars.
Never mind the fact that the Europeans speak all different languages. I mean, just look at the difference between Germans and Italians if you're not sure what I'm driving at.
Now, it strikes me that this was one fundamental, colossal error from the get-go.
In fact, I remember a Belgian colleague telling me - right after the Euro was established - that he didn't think the Euro would work out. He pointed out that in his native country of Belgium - a rather small country to begin with, there were two groups, the Flemish (Dutch speaking) and the Walloons (French speaking) who didn't get along all that well. He figured the Europeans weren't going to overcome their national and cultural differences.
It made sense to me at the time. It makes sense to me now.
So if all the Euro headlines make your day, don't fret. They may be gone for a while, but they'll be back - probably for years and years to come - until either they give up the whole Euro idea (Duh!) or all the Europeans have a big hug and start singing "Kumbaya" in the same language - which may be a heck of long time waiting.
First of all, if history is any guide, there's a good chance Ireland will be back for more. But wait, Greece got its $145 billion and they haven't been back for more yet. But the operative word is "yet." It takes time to burn through $145 billion (Greece), or in the case of Ireland $113 billion. But burn through it they will - it's almost guaranteed. Then what? Best guess: more bailouts.
Why am I so sure? Well, it seems banks don't really tell us what sort of garbage they've got sitting on their books. The U.S. banks are a good example of that. They've been bailed out and still have lots of garbage on their books - but there's no way to verify that. They're not required to disclose it. And that's on top of the garbage that the Fed bought from them already (which means that garbage is now is sitting on the Fed's balance sheet).
So unless the Irish banks disclosed all the garbage they have, or the folks who put up the money did a verifiable audit (Did they?), the Irish banks may have more problems going forward.
Even if they don't, the "deficit reductions" the Irish government promised - entailing pretty serious cuts in government benefits and services - may not be enough. When they came up with the cuts, they were based on assumptions about how much revenue they would be taking in (revenue = taxes collected). They did this already and found that the tax collections went down more than estimated. They went down because the economy's in a bad recession.
So unless the economy picks up significantly and business starts booming again, taxes may not provide the revenue the government needs to meet their promised obligations.
Or maybe the Irish people will just get uppity and decide they don't want to put up with all the cuts, and we'll see an increase in social unrest.
But let's forget all that and assume everything works just fine, as planned. Let's assume that, at least in the case of Ireland, no more bailouts will be needed. And let's assume that Greece won't need more money. And let's really get optimistic here and assume that all those rumors about Spain and Italy needing big bailouts are exaggerated - and they won't need any money.
If that all happens, then the folks saying the Euro will be OK will be right...right?
(Ridiculous? Of course it is. But let's just play along, OK?)
There's still a big "Duh!" in all this.
The real issue with the Euro is the absurdity of it. It was an absurd idea to begin with. Why do I say this? Listen:
The folks who wanted the Euro - one currency for all Europe - used the U.S. as their model. They figured that the reason the U.S. prospered in ways Europe didn't was that we have one currency. You know, that the folks in California and New York could do business with each other using U.S. dollars and not separate currencies.
So they figured that if Europe had one currency, it would make sense, just like the states in the United States have one currency.
What they didn't seem to understand was that, with all our regional differences, we've pretty much shared a similar culture and history. The Europeans don't. For example, outside of our Civil War, there haven't been any wars between the states - unlike the history of European wars.
Never mind the fact that the Europeans speak all different languages. I mean, just look at the difference between Germans and Italians if you're not sure what I'm driving at.
Now, it strikes me that this was one fundamental, colossal error from the get-go.
In fact, I remember a Belgian colleague telling me - right after the Euro was established - that he didn't think the Euro would work out. He pointed out that in his native country of Belgium - a rather small country to begin with, there were two groups, the Flemish (Dutch speaking) and the Walloons (French speaking) who didn't get along all that well. He figured the Europeans weren't going to overcome their national and cultural differences.
It made sense to me at the time. It makes sense to me now.
So if all the Euro headlines make your day, don't fret. They may be gone for a while, but they'll be back - probably for years and years to come - until either they give up the whole Euro idea (Duh!) or all the Europeans have a big hug and start singing "Kumbaya" in the same language - which may be a heck of long time waiting.
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