July 28, 2018

I am not sure what, but, to hold the Eurozone together, requires something politically very difficult to be done.

Sir, you write: “IMF…economists reckon the real exchange rate was between 10 and 20 per cent weaker than appropriate in Germany, which continues to run huge trade surpluses, but overvalued by between 3 and 10 per cent for Spain. This is not a problem that a central bank can fix” “Central bankers and currency conflicts” July 28.

That is a central problem with the Euro, from day one, from when the bridges were burnt, and way too little has been done to solve it, in fact most efforts seem to have been to ignore it. 

And Sir, don’t tell us that central bankers have the right to be so unaware of this problem, so as for instance having assigned Greece a 0% risk weight, which caused Greece run even larger deficits, and Germany even larger surpluses, all mostly financed by German and French banks.

And, truthfully, have central bankers, with their hubris filled “whatever it takes” messaging communicated sufficiently their limitations to the politicians? I don’t think so.

What can be done to solve it? I have no firm idea but, what about a Euro effect compensation tax, by which surplus countries would be charging higher sales taxes than deficit countries, and all those revenues were shared out to all European equally by means of a Universal Basic Income? Would that be politically impossible? Perhaps, but if not something politically very difficult is done about this problem, it will become politically impossible to hold the Euro are together. 

The governments, the European Parliament, the Council of the European Union and the European Commission, cannot persist counting on European central bankers, like a Mario Draghi, to solve it.