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Friday, May 28, 2010

Eurozone Faces Politcal Turmoil

As I have long predicted, the Eurozone's concept of "one size fits all" wrt interest rates is leading to political chaos.

Eurozone countries, that are having to enact austerity measures in order to stay within the Euro, are facing growing domestic resistance to the cuts being imposed. At the very least Europe is set to be hit by wave after wave of strikes this summer coupled, most likely, with street demonstrations and chaos.

The policy of "one size fits all" can never possibly be expected to work across 16 divergent economies unless, by some miracle, they are all in sync. On rare occasions (eg by luck or fraud) sync can occur. However, the norm is that 16 economies will be out of sync.

Those economies that tether themselves to the Euro and, by definition, interest rates set by the ECB are denying themselves the ability to manage their way out of their economic doldrums by way of currency devaluation. All that they have left is the heavy handed tool of fiscal austerity.

It is hardly surprising that the citizens of the Eurozone are revolting against the dictatorship of the Euro.

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