Whither the euro?
Published:Friday | September 23, 2011 | 12:00 AM
Here am I jet-lagged, fuzzy about whether it is actually Tuesday - 10 p.m., night in the Caribbean, or Wednesday 5 a.m. - rather early morning in Luxembourg where I am to attend a conference: 'Innovation for Financial Services Summit', beginning in a few hours time.
To get here, physically the middle of Europe, you must pass through London, Heathrow. There, you glean business news in so many ways. News-stands provide glimpses of headlines while big screen displays 'sell' the latest in Smartphones, iPads and Spielberg movies - all colourful and upbeat. Nevertheless, once your attention wanders to news rather than the Eggs Benedict and stimulating aroma of the coffee you might be having for breakfast, you can't avoid it; gloom dominates.
The gloomy tales headlines tell include the Italian downgrade by Standard and Poor's potential Greek unrest against austerity measures even as sovereign debt default looms, political setbacks for Angela Merkel and German reluctance to bear Greece's burden, the ideological battle waged by Republicans against anything President Obama merely suggests to pull the US economy from the abyss, and, of course, that pessimistic International Monetary Fund (IMF) projection of performance of the world economy.
Central topic
Understandably, though, the central topic is the fate of the euro. In the Financial Times, Nouriel Roubini, the economist dubbed 'Dr. Doom' for pointing out before the meltdown, that Wall Street and the housing bubble would cause a financial crash, feels Greece should quit the Eurozone. He thinks this is the least costly approach to the problem. Using a quite persuasive analogy, that of a broken marriage "that requires a break-up, [he suggests] it is better to have rules that make separation less costly to both sides". He may well be right. Greek public debt will rapidly approach 200 per cent of GDP, and debt relief offered so far, really has had little in the form of true relief. To tackle the problem by internal measures remains difficult since the tool of variation of the currency value - devaluation - is unavailable to Greece within the Eurozone.
So why won't those who made true progress out of the headwinds of the European project find the political will to deal with the problem? Gideon Rachman, in the same issue of the Financial Times, provides part of the answer to this. It is something we have grappled with in our region for a couple hundred years. To what extent for instance are Barbados, Guyana, Jamaica and Trinidad and Tobago willing to renounce aspects of nationality and the precious little sovereignty each does possess, for the greater good of the whole CARICOM? Individual country response to the CLICO meltdown suggests CARICOM Single Market and Economy (CSME), the concept, is just that - thoughts in the minds of dreamers.
Rachman draws attention to the physical look of the euro bank notes. The images on the notes are of imaginary buildings. "National currencies typically feature real people and places - George Washington on the dollar bill, the Bolshoi theatre on the Russian rouble - European identity is too fragile for that. Selecting a place or a hero associated with one country would have been too controversial. So the European authorities chose images that represented everywhere and nowhere".
As Caribbean people, we can understand where Rachman is coming from. Even if some Jamaicans feel Nanny is a legend conjured up by artist impression, she is still authentically ours! And so is Kaieteur Falls to Guyanese, though oh so real! Yet capital city of the Federation of the West Indies was an issue, then who was to be Premier. Finally, Sparrow succinctly put it: 'Federation boil down to simply this, 'is dog eat dog, survival of the fittest' since one from 10 leave zero, as Eric Williams claimed to have discovered after enthusiastic prodding from Bustamante.
Yet, we should try to understand where the architects of the European project were coming from. Themes of uncertainty, difficulties in defining a rational course of action when the future is indeterminate, when, contrary to the boasts of so many public figures people respect, intuition rather that cold analysis ultimately provides the basis for many decisions and action - these were obviously factors guiding the framers of the European project. Their hope was that the benefits of a common currency and closer cooperation would seep into the consciousness of all Europeans regardless of nationality, heroes, great music and so on. They made the best choice. Their capacity to be rational had boundaries - bounded rationality is an area of fundamental breakthrough in economics, earning its originator a Nobel Prize. I'm sure, however, the Europeans were not thinking of Herbert Simon when they took the plunge.
They couldn't predict repeal of the Glass Steagall Act, which served the United States and the world so well for more than half a century. Nor could they foresee that greed would completely swamp Wall Street, to the tune of 3000 lobbyists armed with billion-dollar budgets to buy influence over legislation to regulate the financial-services industry. They could not foresee that in a time of unprecedented global financial integration, enabled by new technologies and innovation, derivatives, bets on anything you choose, these instruments Warren Buffet called 'financial weapons of mass destruction' would bring down the whole edifice of global finance. Finally they could never contemplate the fact that even after classic demonstration of the folly of these ways, the US Congress is unable to make the regulatory changes required for the world economy to stand any chance of rebounding quickly, without too much human suffering, potential unrest and dislocation.
Greece, in part benefited and suffered from these developments. The northern Europeans have every right to feel deprived if their taxes ultimately should be used in any grand scheme to rescue Greece, Italy, Spain and Ireland. The notion of a Eurobond is the embodiment of this type of rescue - some family members are in trouble, so other members kick in from their rainy-day stockpiles. To know the economic and financial decisions required to solve these problems is not difficult. The question is whether they are, in reality, feasible. Politically, Europe shall have to decide if it has reached this place. We don't yet know.