They say that history doesn’t repeat itself but it does rhyme. The slow motion collapse of the euro allows Americans to observe what might have happened here if the Articles of Confederation had been allowed to prevail. A large free trade zone with a common currency but with different identities and loyalties. See Nouriel Roubini’s article in Slate:
For the last decade, the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) were the eurozone’s consumers of first and last resort, spending more than their income and running ever-larger current-account deficits. Meanwhile, the eurozone core (Germany, the Netherlands, Austria, and France) comprised the producers of first and last resort, spending below their incomes and running ever-larger current-account surpluses.
These external imbalances were also driven by the euro’s strength since 2002, and by the divergence in real exchange rates and competitiveness within the eurozone. Unit labor costs fell in Germany and other parts of the core (as wage growth lagged that of productivity), leading to a real depreciation and rising current-account surpluses, while the reverse occurred in the PIIGS (and Cyprus), leading to real appreciation and widening current-account deficits. In Ireland and Spain, private savings collapsed, and a housing bubble fueled excessive consumption, while in Greece, Portugal, Cyprus, and Italy, it was excessive fiscal deficits that exacerbated external imbalances.
It’s not as though this is a surprise: the euro has been operating as designed. I was in Germany when the expansion of the European Union beyond a handful of “core” countries and a few Scandinavian countries was being hotly discussed and even then it was quite clear that the whole idea was subsidizing German manufacturers and French farmers, a process that reached its fruition with the widespread adoption of the euro.
There was never a good reason for a common European currency or, more accurately, a distinct common European currency since there already was a common currency (the dollar), other than German nationalism.
The folklore is that the people in the countries of the “periphery” are dishonest, lazy, shiftless and looking for a handout from their more thrifty and industrious neighbors. I think the truth is more that the countries of the “periphery” are undercapitalized.
Ireland was an English colony until less than a century ago and parts of it still are. Italy was fractured and warring for a millennium, effectively colonized by Spain and then Austria, until a century and a half ago when it gained its independence and united (or vice versa). Greece was a Turkish colony until 180 years ago.
Spain was a colony of “the Moors”, North Africans of Arab and other descent, until 1492 (the other reason that’s an important date). I don’t know enough about Portuguese history to comment intelligently but I do know that the relationship between Portugal and Brazil has been peculiar to say the least. I’m not certain who was colonizing whom.
My point in this historical litany is that the situation is more complex than the folklore admits. The number of hours worked by the average Greek is greater than those worked by the average German or Frenchman. I think there’s a better argument that the Greeks and Italians do not have adequate economic freedom than that they are shiftless, lazy, and grasping.
BTW, from whose language was the word “provincial” derived? From whose language “core”? From whose language “periphery”? Hint: it wasn’t German.
Looking forward to an answer to that last question. I took a glance at the etymology in on-line dictionaries earlier this morning, and it looked like the words have traditional English to French to Latin and/or Greek origins. Word origins not be getting at where the usage comes from. I always assumed Province France was the origin of the concept of “provincial,” which again seems to point to French, Latin and/or Greek.
“Provincial” and “core” are both derived from Latin; “periphery” is derived from the Greek peripherein, to carry around.
Thanks Dave. I’ve also thought the Articles of Confederacy is a great reference point here, one of the most important compromises needed to form the union was the creation of uniform bankruptcy laws, which would keep debtor states (generally the South) from borrowing from the Yankees and defaulting under permissive laws from pro-debtors states.
“The folklore is that the people in the countries of the “periphery†are dishonest, lazy, shiftless and looking for a handout from their more thrifty and industrious neighbors. I think the truth is more that the countries of the “periphery†are undercapitalized.”
I’m glad to see you addressing this. Amazing how difficult it ia for people to understand that for someone to be an exporter and a saver, someone else must be an importer and a spender.