The Eurozone (a.k.a. How Germany Took Over Europe Anyway)

Forgot to publish this. So now I am.

The Nazi's envisioned a Europe under their control. Fortunately their military ambitions were repelled. The then weakened Germany began it's road to recovery. One reaction to WWII was a call for a more unified Europe. This sentiment was common among many politicians and the roots of the EU began to take hold. After a few loose coalitions had success The EU proper was established with six founding countries. This brought a new era of cooperation between European nations and the longest peace the region has ever seen.

I think the biggest flaw in the EU was the adoption of a common currency. Seventeen nations currently use the Euro as their currency. The idea of a common university seems great at the first passing glance (The U.K. and Switzerland were criticized for not adopting the currency and still are today). However the reasons why the Euro should not exist are not too much harder to comprehend.

The most important reason is that different countries have different economic goals. In an earlier post I described how low exchange rates can be used to help a country that wants to export a lot and high ones can help an importer. All of the countries of the Eurozone are not either  net exporters or net importers; there is a mixture of both using the same currency. This means that no matter how responsible every country in the Eurozone is with their money there will still be some countries wanting to change monetary policy.

Of course, as we have seen, not all of the countries that use the Euro are responsible with their money. Holders of Greek bonds had to take a 75% haircut off of the value of their bonds. The prices on Spanish bonds are now falling because investors believe a similar haircut is in the future. Italy has a debt to GDP ratio of 120%. This has led to some countries being grouped together as the P.I.I.G.S.(Portugal, Italy, Ireland, Greece and Spain).