Conventional milquetoast wisdom is that the Euro has problems because it hasn’t been willing enough to loan money through the ECB. That’s a surface view. It is technically true, from a very narrow viewpoint. But there is a technical and a cultural problem, interwoven.
Thus, the real primary lesson is none of that. The primary lesson is that a monetary union without a political union will fail because a nation without control of its currency is vulnerable to loan exploitations. Longer term players will work hard and get loans allocated to shorter-term players so that they will have buyers for their stuff. Shorter-term players exploit the longer-term players to get somewhat “free stuff”. And without control over their own currency, the shorter-term players will wind up in hock to the longer-term players.
The lesson of the Euro is that the culture of the Northern-Center exploited the culture of the Southern-Periphery by approving loans to the Southern-Periphery which were obviously going to blow up. That generated sales by the Northern-Center to the Southern-Periphery fueled by the money from the ECB.
The Southern-Periphery exploited the Northern-Center by sucking up loans that were obviously going to blow up. Those loans propped up corrupt, stupid politicians by buying the loyalty of the masses who didn’t care to look forward either.
The globe-shaking flim-flam executed by Wall Street’s big banks put stress on the system in Europe, and the house of cards began to fall.
Predictably, the Northern-Center wants to keep the balances generated by the milder flim-flam that gave loans to the Southern-Periphery in order to benefit the Northern-Center.
Predictably, the Southern-Periphery does not want to be responsible for its governance now any more than it did during the fat-loan-period. Predictably, the Southern-Periphery does not want to pay its government for the cost of the shortfall – not even when that shortfall is (Italy) obviously squirreled away in private bank accounts that are roughly double those of citizens of the Northern-Center.
The USA has its poor states. The USA has its rich states. The poor states are typically red, and net consumers of tax revenue while screeching about how terrible taxation is. The rich states are typically blue, and net payers of tax revenue while typically complaining that the wealthy don’t pay their share. (Which the wealthy definitely do not.)
But in the USA, we don’t have New York getting the Federal Reserve to make huge loans to tin-pot politicians in Mississippi so that industries can sell their goods to them. We have unequal tax allocations that just go on and on. Which keeps the union together and everyone on the same page.
So now Spain, Italy, Greece, Portugal and company have to pay on loans made in a currency the government doesn’t control. In the EU, the fundamental cultural problem is what I just stepped through. But the fundamental technical problem is not that the ECB isn’t loaning enough. The fundamental technical problem is that one nation, Germany, together with France, control the ECB.
Imagine the USA if New York and Connecticut controlled the Federal Reserve, and did so mostly for its own benefit. Imagine if there was no government in Washington, D.C, just a few buildings in Delaware housing unelected bureaucrats mostly put there by New York and Connecticut. No federal taxation, only taxation by states. And the Federal reserve throws money at any corrupt politician willing to sign his or her nation-state up for a loan that can’t possibly be repaid.
Run through in your mind how THAT would turn out. Now you understand what is going on in the Euro zone.
If the USA were mired in a system where banks in New York wanted to hang onto the balances they had acquired by exploiting sales created by getting the Federal Reserve to make irresponsible loans – what would making more irresponsible loans do?