The End Game or: How the Dupes were Duped or: The Euro Ten Years on

The Euro was probably the most hyped-in currency the world may have ever known.

That fact alone should have been reason for suspicion.

In this article we contrast some of the eulogies heaped on the Euro back in around 2001/2002 when it was introduced as a tangible currency with these past weeks’ near-obituaries.

The mystery of it all is that some of the same oafs who so excitedly praised their own invention are to this day still in power.

Ten short years of a “global reserve currency” –

Even the admiration for Hitler or Roosevelt wasn’t as short-lived, though they were equally involved in currency manipulation on a grand scale

Let’s hope the Euro’s demise isn’t equally accompanied by a similar war-like effort.

The Euro as the “perfect” currency

As historylearningsite.co.uk said in an article dated around 2002 titled What are the arguments for and against joining the Euro

If Britain joins the Euro, it will likely be in 2003.

Right, I see.

Fast forward to December 2011:

David Cameron blocks EU-wide deal to tackle euro crisis runs one of the BBC’s recent headlines.

In a remarkable speech on currency theory Alan Greenspan on November 30th, 2001, dwelt on the framework that is necessary to make a currency internationally successful and, ultimately, a viable proposition.

All in all, for all his economical prowess Greenspan comes to the following conclusion:

… clearly the euro readily meets all the key qualifications for a major international currency. Indeed, there can be little doubt that the euro is a sound currency. The mandate of the European Central Bank to maintain a stable purchasing power of the currency is doubtless firmer than that of the Federal Reserve or any other major central bank.

Nothing, repeat nothing, of all that would he probably underwrite today.

There is no doubt the Euro is an unsound currency.

There is ample evidence to the contrary that the European Central Bank is a nest of cowards that even break their own covenants.

And where they would possibly balk, the European Union has instead introduced a second lender of the last resort, the “Stability” Fund ESFS.

As Sam Vakhnin writes in his Deja V-Euro – The History of Previous Currency Unions:

“Before long, all Europe, save England, will have one money”. This was written by William Bagehot, the Editor of “The Economist”, the renowned British magazine, 120 years ago when Britain, even then, was heatedly debating whether to adopt a single European Currency or not.

Indeed, Bagehot was right though his timing was over a century off the mark.

But how surprised would he have been to see that this “European” currency would last but ten years while … Britain still has its pound as in Bagehot’s days (though now an anemic fiat currency like everywhere else).

PACIFIC Exchange Rate Service in a piece last updated 7-Dec-2001 or ten years ago titled The EURO – Europe’s New Currency relates (yes, like in fairy tales) the virtues of the Maastricht criteria and gives a good time-table of events leading up to the Euro.

The European Central bank had some nice slides on the Benefits of the Euro like

Low interest rates due to a high degree of price stability

(What have prices and interest rates got to do with each other?)

More price transparency

(As if people were too stupid to work a currency calculator!)

Removal of transaction costs

(Sounds nice, however, transaction costs such as currency spreads are a normal function of volatility – we have just seen what happened when these “creases” in the currency system were ironed out by the masters of fiat.)

No exchange rate fluctuations

(Interesting; if I’m not mistaken, the Euro fluctuated more wildly against the US dollar than all of the composite currencies, esp. the Deutschmark ever did before – and quite against the hyped expectations! First it soared, then it plunged, then it recovered – so much for no fluctuations …)

If you want to do your own research, just e.g. check out Google for “euro currency” between Jan. 2000 and December 2002.

Oh what a mess.

So, this is, like in an obituary, the passage of the Euro’s short life. It is still in intensive care but beyond recovery. If the Euro could only die without now being dragged through forced reanimation.

Like in the terminal illness conundrum the costs now run up in the last half year of the Euro’s life are likely to be higher than all the damage it did while it could still stand on its own dozen to two dozen clay feet.