The Euro – A Fatal Conceit

Imagine that the euro had never been introduced and we instead had had freely floating European currencies and each country would have been free to choose their own monetary policy and fiscal policy.

Some countries would have been doing well; others would have been doing bad, but do you seriously think that we would had a crisis as deep as what we have seen over the past seven years in Europe?

Do you think Greek GDP would have dropped 30%?

Do you think Finland would have seen a bigger accumulated drop in GDP than during the Great Depression and during the banking crisis of 1990s?

Do you think that European taxpayers would have had to pour billions of euros into bailing out Southern European and Eastern European governments? And German and French banks! (I elaborate on this here.)

Do you think that Europe would have been as disunited as we are seeing it now?

Do you think we would have seen the kind of hostilities among European nations as we are seeing now?

Do you think we would have seen the rise of political parties like Golden Dawn and Syriza in Greece or Podemos in Spain?

Do you think anti-immigrant sentiment and protectionist ideas would have been rising across Europe to the extent it has?

Do you think that the European banking sector would have been quasi paralyzed for seven years?

And most importantly do you think we would have had 23 million unemployed Europeans?

The answer to all of these questions is NO!

We would have been much better off without the euro. The euro is a major economic, financial, political and social fiasco.

It is disgusting and I blame the politicians of Europe and the Eurocrats for this and I blame the economists who failed to speak out against the dangers of introducing the euro and instead gave their support to a project so economically insane that it only could have been envisioned by the type of people the British historian Paul Johnson called “Intellectuals”.

And don’t say you where not warned. Milton Friedman had warned you that forced monetary integration would cause political disunity and would be an economic disaster. He was of course right.

Bernard Connolly who wrote the book “The Rotten Heart of Europe” warned against exactly what is going on right now. Nobody wanted to listen. In fact Bernard Connolly was sacked from the European Commission in 1995 for speaking his mind.

The sacking of Bernard Connolly unfortunate is telling of lack of debate about monetary policy matters in Europe. Any opposition to the “project” is silenced. The greater “good” always comes first.

There have only been referendums about euro adoption in a few countries. In Denmark and Sweden the electorate have been wise enough to go against the “orders” of the euro establishment. As a consequence both countries today are better off than if the electorate had followed the orders of the elite and voted ‘yes’ to euro adoption.

It is easy to understand the frustration of the European voters. They have been lied to. Unfortunately the outcome is that voters across Europe now are happy to vote for parties like Front Nation, UKIP, Podemos and Syriza. I ask you the cheerleaders of the euro project – is this what you wanted?

I can only say that I can understand the Greek population’s anger over seven years of economic and social hardship and I likewise can understand that the taxpayers of Finland don’t want to pay for yet another meaningless bailout of Greece. But you should not blame each other. You should blame the European politicians who brought you into the euro.

Blame the eurocrats who never understood Hayek’s dictum from his great book “The Fatal Conceit”:

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

The euro is a fatal conceit.

UPDATE: I now have some empirical evidence that the euro is indeed a Monetary Strangulation Mechanism.


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  1. Do you mind if I translate this to Finnish and post it with the usual credentials and linkbacks?

  2. Rotten Heart I suspect. But great and justified spray.

  3. John Haskell

     /  July 12, 2015

    All very logical, but for some reason this logic only persuades if you explain it in English

  4. In my opinion a very good comment.
    In agreement.

  5. I agree the Euro was not a great idea… but it was not the Euro that did Greece in.

  6. Edwardo

     /  July 12, 2015

    Lars wrote:

    “I can only say that I can understand the Greek population’s anger over seven years of economic and social hardship and I likewise can understand that the taxpayers of Finland don’t want to pay for yet another meaningless bailout of Greece. But you should not blame each other. You should blame the European politicians who brought you into the euro.”

    It’s not the Euro, per se, though it’s certainly a Rube Goldberg contraption as it presently operates, but, rather, the $IMFS, which, ineluctably, pits debtors, i.e. Greece, against savers, i.e. Germany. Because there is no mechanism in the $IMFS to clear imbalances, they build up to utterly insurmountable dimensions, with inevitably catastrophic consequences. And, here we are. The Bretton Woods gold standard, which, fatally, tethered credit to a fixed sum of physical gold, had one very great advantage that this system (fatally) lacks, namely a mechanism to act as both spur and brake on credit/debt creation. The $IMFS is all spur and no brake.

    To your assertion, laid down at the very beginning of your post:

    “Imagine that the euro had never been introduced and we instead had had freely floating European currencies and each country would have been free to choose their own monetary policy and fiscal policy.”

    Floating currencies yes…. against floating gold. The debtors and the savers must not be pitted against one another. However, in the absence of free floating gold (which requires the end of derivative/paper gold) gold can not fulfill a desperately needed function, namely providing the populace with a means to retain (purchasing power) into the future. Saving in debt is a nominal game, and, at this stage in the life cycle of the $IMFS, that is a condition worse than nowhere.

    Last, but definitely not least, there is a very good reason that physical gold in the amount of approximately 10,000 tons, marked to market, is listed at the top of the page on the asset side of the ECB’s Consolidated Financial Statement. As the monstrous situation with Greece appears to be nearing a resolution of sorts, one can only express the desire that the aforesaid “very good reason” becomes apparent sooner rather than later.

  7. talldave2

     /  July 13, 2015

    Great point. If you want to get Republicans on boards with MM point to how tight money in TGD ended a long period of GOP dominance and led to FDR’s historic majorities, with Dems dominating Congress all the way to 1994. Bad monetary consequences has serious political consequences.

    • talldave2

       /  July 13, 2015

      *Bad monetary policy has serious political consequences.

  8. Of course I agree, the small gains that might have theoretically arisen from economies of scale have clearly been massively overshadowed by southern Europe’s unrelenting depression. Think of all the young people whose careers are being stunted, and the older people whose retirements ruined, by this scheme. I seriously think that in a just world, the people responsible for the Euro should face fines or possibly prison time.

    One thing though, Denmark is functionally in the EMU, is it not? The peg means it doesn’t have independent monetary policy, as Sweden does.

  9. Very good post, but I don’t think it’s really fair to put UKIP in the same basket with Syriza, Podemos, GD, etc… (although they have their flaws)

  10. Sean Waites

     /  July 15, 2015

    You mention UKIP as a party amongst other far left or right political parties as if they are some kind of extreme party. UKIP came about with only one aim, to get the UK out of the EU. They are not extreme and have a huge voting mass in the UK from all sides of politics. They saw the light, long before the latest crisis came about.

    • Sean, I know that that is how UKIP started. Today it seems like the party primarily is about anti-immigration. I find that rather sad.

  11. Toutes les monnaies, quel qu’elles soient, ont été, sont ou seront périssables ! cette loi est absolue, croire pouvoir la transgresser fait montre d’une suffisance apoplectique !

  12. All very convincing but there is a fatal flaw. All the BREXITERS are political failures or non-starters. Ian Duncan smith got us into the Iraq War, Nigel Farrage is a one trick pony and couldn’t negotiate his way out of a paper bag, and Boris Johnson is a fine journalist, but totally incapable as mayor of London. The only logical option was to remian in Europe and sort out Britian’s difficulties from the inside. We can because we control our own currency

    • Charles,

      One thing is the euro – another thing is the EU. In the case of the UK you are not in the euro area and in that since you have already opted out of the most horrible thing about the EU.

      Said in another way would you really leave the internal market?

      I believe there is a strong case for e.g. Greece leaving the euro, but that is about the failures of the euro, but not about what is obviously positive about the EU – the internal market with the free movement of goods, labour and capital. Unfortunately the leading Brexiters have campaigned on an essentially protectionist plank and that is why they likely will loose the vote today.

      • James Alexander

         /  June 23, 2016

        Not all brexiteers have campaigned on protectionism. Minford, Congdon and others in Economists for Leave have campaigned on unilateral free trade.

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