Long term, interest rates in the Euro zone need to be set at a neutral level - fluctuating (as little as possible) in a narrow very stable band around 4%. By doing this over a long period of time, you effectively neutralise the effect of interest rates on all the economies.
The only other way a monetary union can work is if there is also fiscal union esp re the setting of tax rates. And national governments would never agree to that.
There are more countries wanting to enter the Euro than countries wanting to get out of it, so I do not see it dying any time soon, and this economical crisis is the big test, if the Euro manages to survive this crisis, there is no way it will go away when the economy thrives. I think that European Central Bank is learning a lot out of this financial crisis and it can only get better at what they do, not worse.
Excuse my ignorance, why would Germany leave the euro, surely forcing others to leave with higher bond prices is far more desirable and cheaper. IMHO the € will be this centuries DM............
This is the only way the Euro can survive and prosper over the long term.
Can you back up your assertion that there more countries queuing to join?
ringledman I agree with much of that thesis. But I think the market (and its rating agencies) must take the lion's share of the blame. Individuals operate in a common currency. I the Duke would dearly love to have my own currency but unfortunately I have to use euros, so when a bank lends me money it assesses my credit risk.
Many countries operate the dollar but are not part of the FED monetary system. They are treated by the markets like any individual, their costs of borrowing are determined by their credit rating. Similarly several countries operate sterling and euro without being part of the respective monetary systems.
The markets made a huge mistake in thinking that the single currency overnight changed the creditworthiness of perennial profligates. As a result these profligates got hopelessly drunk on cheap market credit. The argument now is that the markets have got it wrong in the other direction and that is why the profligates need official bail outs, provided they mend their ways.
Whilst I am on the theme, there are many to blame for the sub prime debacle which has triggered this whole financial crisis but the primary blame is with the mispricing by the markets and their accomplices the rating agencies.
So when I hear commentators implying the omniscience of the markets it does make my eyebrows leap.
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