austerity, debt crisis, ECB, economics, euro, European Central Bank, eurozone, germany, greece, ireland, italy, Keynesian, maastricht treaty, monetarism, monetary policy, nationalism, PIIGS, populism, portugal, sovereign debt, spain, United States
The Euro has practically been destined for failure since its inception. In essence, the Euro is a 17-nation currency peg that lacks any sort of flexibility to adjust for real economic movements. It strips away the independence from each nation within by eliminating any form of monetary policy, meaning that each individual nation has no ability to shift its money supply due to economic events.
This would not necessarily be disastrous if there were other mechanisms in place to account for it. After all, the American states of Texas and Ohio both lack independent monetary policy, as well. The main difference, however, is that American “states” are not governed as sovereign nations. They gave up that sovereignty in 1789 when the US abandoned the Articles of Confederation in favor of the US Constitution. Moreover, American banks don’t primarily rely on financing from the state of Virginia or the state of New Jersey. They rely on it from the United States federal government and it is regulated by the US Federal Reserve. Whereas, banks in Spain rely on financing from the Spanish government. Yet, Spain’s currency is controlled a completely separate entity: the European Central Bank.
Unfortunately, this has been a recipe for disaster. In many ways, it’s almost like a reversion to the gold standard, in that nations that need to increase money supply can not. Except, it may even be worse, since gold is at least a commodity that can be bought and sold. Whereas, if you’re Spain, your currency is actually pegged to other currencies that don’t even exist any more. Moreover, moving the peg requires all the other Eurozone nations to agree to measures that allow this to occur. So, there is no way out and a nation like Spain can get stuck in a deflationary spiral.