A few noteworthy stories I think have come out in the last few days. One thing I have noticed is how European leaders have given their New Years speeches, with a huge emphasis on how their countries m
A few noteworthy stories I think have come out in the last few days. One thing I have noticed is how European leaders have given their New Years speeches, with a huge emphasis on how their countries must save the Euro.I think they know some major problems are ahead that are even bigger than they are letting on. The markets were calmed after the Greek and Irish crises and we were told the members would do what it takes to bail out other Eurozone countries if needed. There have been an increasing number of commentators that say the Euro can't survive as is or will be drastically weakened if it does survive. Are they right?Can the Euro survive the next 10 years?
I still have family in Italy and they all tell me every year about their dissatisfaction with the Euro and how much more expensive everything is for them now. Italy is no longer the bargain it once was. Last summer, while we were staying with one of my cousins in Italy, we were talking about the difference in costs between Italy and the USA for things. I mentioned that my Timberland shoes cost me $67 online here and I saw them in a shoe store in italy for 120 euro, which equaled $152.
rbciao-You raise a great point about the cost of goods in Europe.I know because of the VAT,so many Europeans have to pay extra when ordering online.Sometimes even receiving a gift by mail in Europe can be a hassle.
Travel Rob always comes up with some interesting questions. Here's my 2 cents worth on the topic
A common currency can only survive if all element countries share similar financial values. For example, work ethic and hours a week spent working, similar retirement age, etc. Where the currency gets stressed is when some countries vastly overspend and rack up huge debt burdens. Because of very low European birth rates, there aren't enough young people being born to carry this huge debt load. The country faces bankruptcy and default. The problem is then shared with all countries on the Euro because the risk of one of the defaulting on their obligations would greatly inflate and devalue the Euro. I think the Germans (among a few others) are tired of bailing out loosing nations. My bet would be that some of these more productive countries will abandon the Euro soon.
We will be facing a similar problem in the USA in the near future with a number of cities(think New York, Los Angeles) and states (eg. California) having greatly overspent their current income and borrowed extensively against tax revenues produced by the next generation. I suspect that each will expect the federal government to bail them out, which just might not happen as states and cities which manage their budgets well (think Texas for example) won't put up with this. It will be interesting to watch how this unfolds.
Great points by Dr. Fumblefinger. I know some people in the countries with debt wouldn't mind dropping the Euro, so they could devalue their own currency and be more competitive in their export markets.
I don't really know enough about the subject to make an educated guess. But I did notice that Estonia just joined the group of nations using the Euro. The article I was reading implied that Russia was pissed, but most Estonians seemed pleased. But...the article also said that Estonia is the poorest country among those now using the Euro. What does that imply? It could simplify things a bit for our Baltic cruise next summer.
I remember an analysis from the time Greece was about to go bancrupt that linked the German economy to the rest of Europe. It argued that the strong economies of the EU depended on the weaker ones, and if any one of them failed, all of them would fail.
I suppose a similar argument would hold true for the Euro. And if that's true, I think we can see expect a redistribution of goods, services, and industries among EU members in the next 10 years, thereby keeping the Euro as common currency. But with China on the rise to become the major economic power, and the rest of the BRIC countries not far behind, my crystal ball becomes clouded.
The crisis of the Euro is in many ways not new...it was built into the Maastricht Treaty and the conversion to Euros 10 or more years ago.
At the time the Euro zone was forming, there were strict requirements set up for joining (this is apart from the political/social issues of the EU). They included a defined set of criteria including: budget deficit less than 3% of GDP, debt ratio less than 60% of GDP, low inflation, and interest rates close to the EU average. In the 1995-98 run-up to the Euro's institution first as an accounting currency and then in 2002 as "real money," there were doubts that some members, including Italy, could meet the criteria, and there was a lot of creative accounting done, because not moving ahead with the project in full would have been a daunting political failure.
These are the chickens that are now coming home to roost. In a relative boom, there's enough going to keep the weakness hidden. Throw in a world-wide recession/depression, and the seams start to show. If you're a European government in trouble or smelling it in the future, you think "let me cut down on some benefits, let me raise the retirement age, let me..." Since many Europeans accept the high taxes and prices they pay because they know it is the source of funds for the benefits that are now being cut...there is broad unrest. And a desire by governments to resolve the issue another way--by putting it off into the future again, as was done before 2002.
Will the Euro survive? Almost certainly, but it will take some work. The economies of the Euro zone are now so nearly inseparable that abandoning the Euro is like Dear Abby's old question for feuding spouses (Are you better off with him or without him? Not "happy" but "better off.") The cost of separation is likely greater than the cost of bandages. The real question is not "will it survive," but "what big changes and where will be necessary to accomplish it?"
The other question that remains open is "can the EU survive (as is)"? Discussing the problem with some ex-pat's now living in the USA ... their response, not without major changes. The fundamentals are that individual countries elect there government but then non-elected officials (usually ex-politicians) are appointed to represent their country in the EU governing bodies. More and more laws (expensive to abide by) are being imposed on the country (e.g., Ireland, production controls on butter ... speculation that the driving will shift from right-hand drive to left-hand drive). The EU is less and less popular. Add the expense to live under the EU government controls and you have a rising number of residents debating the worth of belonging to the EU.
But the issues of the EU are happening everywhere ... including the USA. Too much government imposing too many regulations (which drives up the cost of everything). No easy answers to any of these questions ... we certainly live in interesting times.
Too complicated a question for a multiple choice answer. I think pheymount has it right. The Euro is "too big to fail" and, as Alan Greenspan once put it, anything financial too big to fail is too big. So some "restructuring" will be done.
But in the end, these are not hard nosed money problems. Currency is flexible, political, and is subordinate to other national interests and national ideologies, profitable or not.
Within the various EU countries, and the US, there are nasty political arguments about whether banks should be bailed out ahead of homeowners, whether austerity is a better investment than education, whether "regulation" helps or hurts economic growth. One of the present difficulties faced by democracies -- and it is an enormous difficulty -- is that voters (and I include myself) actually don't understand the complexities of today's global financial markets, and there is little chance they will learn. So the political choices won't be grounded in much of anything other than who is the best at demagoguery at any given moment, or who is best at using the system anti-democratically to simply steal from the public and enrich themselves.
Geez...this post certainly generated a plethora of significantly erudite responses. Everyone made cogent points, but the problems remain monumental and difficult to solve. Since the financial problems effect the entire globe we need to remember that traveling to Italy still provides usually pleasant interludes to escape these boondoggles and not necessarily cathartic resolution to these nagging and seemingly unending challenges. Being able to continue to make yearly visits to the old country still engenders a deep sense of gratitude for me.
I think everyone has made great points ! I think whatever happens to the Euro,the impact is really going to be big. And for us travelers, it's the root issue behind a lot of other travel related issues to Europe that I hear people talking about.
After all the protests the past few weeks in Greece again, is it only a matter of time before Greece leaves the Euro behind? Can Greece continue with their austerity programs to keep getting a bailout? It looks to me that even if the Eurozone can delay some countries from leaving the Euro, that will happen eventually. I'm curious what the leaders of Europe next year will say in their speeches.
Rob raises an interesting question about the future; over the past number of years, Europe has grown as an identify along with the various national identities. Economic patterns have changed (wheat production in Britain has dropped in favor of more southern areas, and other crops have replaced it; more and more products seem less "local," even vacation destinations shift).
But, under the stress of the potential defaults/crises in Greece, Spain, Portugal, etc.), I notice more talk of north/south, responsible/profligate, industrious/lazy and other pairings that indicate that, at least for now, there is a tide of (dare I say it this way?) nationalism or national identity in a number of places. It seems to be reflected in a number of ways, including the negotiations over bailouts, with conditions imposed on Greece, eg., that the imposers would not stand for at home; the increasing discussion of re-instituting some border controls, and more.
The next couple of years will tell whether this is a "growing pain" that will pass or whether the EU will see a permanent shift in a less-united direction. I could be wrong, but I don't think that any of the core countries will be leaving the Euro zone. The reason: the stronger economies, the ones that are "giving" the bailouts, are not only investing in those economies again through the bailout funds and deferrals of payment...they are the principal creditors of those countries.
They therefore have an interest in keeping the "debtor countries" tied to a currency that cannot be instantly inflated or deflated by a single country. If Greece's economy looks shaky to the Germans and French now...imagine how it would look if the Euro were replaced by the drachma, and the European Central Bank by local politicians!
Pheymont-I just was reading over the comments from January above. I think everybody raised great points.
I also think your point on re-instituting border controls is already being done in France. When I took the bus into France last month, the bus was stopped twice.All passengers from Eastern european countries were asked a lot of questions and some even had their bags checked. Then when the bus was stopped again near Paris,passengers told them that the bus has already been checked ,but they said this check was by the Paris police for entering Paris.
The "open borders" in Europe have made tourism a bit simpler, but passport control is something that can be "programed" into any trip. Using a common currency across several countries is also beneficial to tourists. However, the benefits come with the difficulties that we are seeing now. The concept of "redistribution of wealth" is prevalent world-wide, and equally within the boundaries of countries as internationally. I am sympathetic with the plight of those living in countries that are short on resources and, even worse, short on astute leadership. But it is not an automatic responsibility of the wealthier, more industrious, better governed nations to give support, "no strings attached", to those who are not so fortunate. I think the old adage goes, "He who pays the fiddler calls the tune." But more than the problems of national insolvency and international "bail-outs", I'm concerned with the ever-increasing trend in my own country that I should be forced to share what I have earned through 40 years of working at two and sometimes three jobs with those who refuse to work for anything. To help provide subsistance to the less fortunate, I will readily agree. To provide for them smart phones, HDTV, and daily lattes is outside the realm of charitable responsibility.
I also think your point on re-instituting border controls is already being done in France. When I took the bus into France last month, the bus was stopped twice.All passengers from Eastern european countries were asked a lot of questions and some even had their bags checked. Posted by Travel Rob
Yes...has started to occur, especially in France and Italy, based on immigration issues. Schengen has always had an "emergency clause" for special circumstances; the recent discussion has centered on how long and for what reasons a state might do so. At a European summit last week, EU leaders asked the European Commission to move by September on creating a formal system for temporary re-imposition of border controls.
The focus on East Europeans in your case is interesting, since most of the hullaballoo has been over North Africans. However, many of the East European countries are outside Schengen (including two EU members, Bulgaria and Romania).
Personally I do not see anywany the Euro can survive. Interest of the countries involved are jus to disparate. German monetary policy in particular has opposing interests with the med countries who desperately need to devalue their currencies in order to stimulate their economies and devalue their debt. Their interests just don't coincide.
I had several interesting conversations with some folks in France lately who lamented that they no longer live in a democracy. I get the feeling there is real resentment toward the European Union and their loss of control.
