Why the Euro is collapsing

The woes of the Euro are not caused by the currency itself, but rather by the irresponsible, profligate, big government financial policies of most Eurozone states.

And as Charles has rightly remarked, the Eurozone is hardly the only monetary union suffering from such problems – so are the US, Britain and other statist monetary unions.

The root causes of the Euro’s downfall, as I remarked, are the irresponsible, profligate, big government financial policies of most Eurozone states.

These policies, in turn, are caused by the European economic model, i.e. the statist economic system prevalent in Europe. This economic system, often called the “social democracy” system, is a statist cradle-to-grave economic system whose subjects are punitively taxed, while simoultaneously spoon-fed by the state (which plays a dominant economic role) and coddled with statist policies.

Such schemes include early retirement schemes, “public work projects”, generous welfare rolls for lazy people, subsidies for unprofitable enterprises, generous entitlement programs, agricultural subsidies, and huge bureaucracies whose only raison d’etre is to employ people.

Such schemes are very costly, however, and they are financially unsustainable. The policy of maintaining these schemes is what caused the euro’s woes. The problem is that once you give an entitlement program to some people, they’ll fight you if you try to abolish it. Vide the Greeks, who have been rioting for a few months now because the Greek government announced that it would curtail the Greek socialist government programs.

The problem is that a strong currency can be maintained ONLY if the public sector spends its money wisely and doesn’t rack up huge debts. Disregarding this fact, many Eurozone countries, including Greece, Italy, Portugal, Spain, France and Germany have been accumulating large debts over the past decade (and no pre-2007 Budget Minister has posted BIGGER budget deficits than Nicolas Sarkozy).

And now, faced with this financial disaster, European countries will have to choose one of the following options: either to allow their currencies to collapse, or to maintain credible currencies. The latter option, however, will require European countries to DRASTICALLY reduce the economic role of the state and DRASTICALLY increase the economic role of the private sector.

In France’s case, the best solution would be to implement bold reforms,including the abolition of special retirement schemes and the solution blueprint I published on 16/12/2009:

Half-measures, tiny reforms and tiny spending reductions will not solve any problems.


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