Wednesday, November 9, 2011

19th nervous breakdown

Here it comes... Markets are going up and down, not knowing if euroland is falling apart or not. "Scheitert der Euro, scheitert Europa", warns Angela Merkel, Chancellor of Germany. Other EU leaders echoes this message, declaring that the eurozone crisis is not to be blamed on the euro but on certain countries, foremost Greece and Italy, having taken on too much debt. But this analysis is wrong. The cause of the crisis is the common currency, the euro. It would be a blessing if the euro were to be replaced with freely floating national currencies. Exchange rates would then be adjusted to reflect each country's competitiveness, which would give a country like Greece a chance to recover. The euro system is very rigid, leaving individual countries without the protection of a national currency and interest rates fitting the country's economic situation. The euro experiment might very well result in a European depression if the euro leaders don't change course and give it up.

The weaker eurozone countries basically walked into a trap when they joined the euro. That's the conclusion of several studies by economists, for example Kash Mansori. Euro adoption encouraged capital to flow into these countries, but when those capital flows came to a sudden stop, and lending rates skyrocketed, they were caught in the trap. This is an inherent weakness in the euro system. Individual countries have no means to deal with an overheated economy, or its opposite, without their own currency and their own interest rate policy. What's left in the present situation is to hit the people directly with tax increases, spending cuts, cuts in wages and finally unemployment.

The way out of this mess is to scrap the euro and reintroduce national currencies. That's no disaster; that's to save Europe.

Wednesday, February 2, 2011

The battle for Egypt

The Egyptian people has through peaceful mass demonstrations demanded the resignation of President Hosni Mubarak as a necessary first step to democratic reforms. But last night Mubarak said he would stay on as planned until elections in September. Today Mubarak supporters began attacking anti-government demonstrators. It seems Mubarak is trying to preserve his oppressive regime, in the face of both Egyptian and international opinion.

Not that international support for the democracy movement couldn't have been stronger. Both the US and the EU have been dragging their feet and neither has come out decisively on the side of the demonstrators. However, yesterday US President Barack Obama made an effort to side with the opposition, calling for the "transition" to start "now". Obviously he didn't dare to directly call for Mubarak to resign.

Despite Obama's effort there is no sign of Egyptians waving the American flag. To that end US policy in the Middle East hasn't convinced people that the US is a true ally in the struggle for democracy. Indeed, former Secretary of State Condoleezza Rice acknowledged this in her 2005 speech in Cairo:

For 60 years, my country, the United States, pursued stability at the expense of democracy in this region here in the Middle East -- and we achieved neither. Now, we are taking a different course. We are supporting the democratic aspirations of all people.

Unfortunately, the policy of supporting democracy hasn't been firmly pursued, reflected in Obama's hesitant response to events in Tunisia and Egypt. Mubarak needs to be told to step down now. Anything less will jeopardize the transition to democracy in Egypt.