Euro Crisis

Chart of the Day: The Ahistorical Greek-German Monetary Union


Nope, that's not a smile:

Reverting to historical norms

Chart via Paul Krugman, who links to a George Soros speech that's getting a lot of attention, mostly because the famous currency speculator is now arguing that "the euro crisis threatens to destroy the European Union." The Soros speech is full of blame on Germans and calls for more centralization and debt forgiveness, but this is a helpful passage on the insanity of the convergence illustrated above:

When the euro was introduced the regulators allowed banks to buy unlimited amounts of government bonds without setting aside any equity capital; and the central bank accepted all government bonds at its discount window on equal terms. Commercial banks found it advantageous to accumulate the bonds of the weaker euro members in order to earn a few extra basis points. That is what caused interest rates to converge which in turn caused competitiveness to diverge. Germany, struggling with the burdens of reunification, undertook structural reforms and became more competitive. Other countries enjoyed housing and consumption booms on the back of cheap credit, making them less competitive. Then came the crash of 2008 which created conditions that were far removed from those prescribed by the Maastricht Treaty. Many governments had to shift bank liabilities on to their own balance sheets and engage in massive deficit spending. These countries found themselves in the position of a third world country that had become heavily indebted in a currency that it did not control. Due to the divergence in economic performance Europe became divided between creditor and debtor countries.

Soros basically argues that the Euro has about three months to get it together. If not….

[T]he gradual reordering of the financial system along national lines could make an orderly breakup of the euro possible in a few years' time and, if it were not for the social and political dynamics, one could imagine a common market without a common currency. But the trends are clearly non-linear and an earlier breakup is bound to be disorderly. It would almost certainly lead to a collapse of the Schengen Treaty, the common market, and the European Union itself. (It should be remembered that there is an exit mechanism for the European Union but not for the euro.)

Re-read Johan Norberg's May article in Reason: "Financial Crisis II: European governments fail to learn from history."

NEXT: A.M. Links: Sheriff Asks for Independent Review of Seth Adams Shooting, George Soros' Euro Warning, Gaydar Real

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  1. Yes its all Germanys fault that Greece is in the position it is, only a crazy radical would suggest that the majority of the people of Greece are to blame for voting the politicians that implemented all the things that led them to where they are.

  2. Stupid German’s always messing with poor Greece, who was just trying to pay unsustainable pensions to everyone over the age of 50… I mean, isn’t that the Greek dream? To retire on the backs of the Germans at 50? Not their fault.

  3. If you flip that chart upside down it resembles a dyno chart of any turbo charged vw

    1. Haha, nice. Although, you could really expand that to apply to any turbo charged car really, or at least any well-matched turbo to displacement system. If one shifts the Greek percentage decrease to right around 2008, and we imagine that to be 5,000ish rpms on the chart,then you’re looking at a NA Honda, or most 2L engines with way over-sized turbos, like a GT35 or greater.

  4. Obviously it’s because Germany is still upset about losing WWII and wants to skull fuck the rest of Europe.

    The EU should nuke it from orbit. Just to be sure.

    1. They should probably see if they can get them to pay for the nukes first.

  5. one could imagine a common market without a common currency

    Not hard at all considering that it already exists.

    Or does one forget that the EU has 27 Countries but only 17 of them use the Euro.

  6. This is strange because the last time the Germans were to blame for something bad, he seemed happy to get along with them.

  7. Here is the money quote from an earlier Soros interview:

    SPIEGEL: If you support the idea of higher taxes and somewhat more government, why do you not just pay more taxes instead of giving it to your foundation?

    SOROS: Because I think that my foundation uses the money better than the government does. In any event I do pay taxes

    SPIEGEL: You are basically saying that you are smarter than the government.

    SOROS: Well, I have greater freedom of action than a bureaucracy. I also care more about the causes to which I contribute. So my foundation can set an example, in its philanthropic activities, for the government to follow.….._wrong_di/

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