Plenty of commentators consider the US and Eurozone to be in similar positions. And in some respects they are right – both areas have incredible debt. Both currently witness large differences in how the economy is performing in different parts – the ‘core’ and ‘periphery’ of Germany vs. Greece, Spain, Portugal et al may not be so different from the core of Washington DC and peripheries like struggling Detroit, Florida or Las Vegas, or bankrupt California. Both areas have a single central bank dictating monetary policy, independent of the government – The ECB of Europe and the ‘Fed’ in the USA, while individual states levy their own taxes and exercise a degree of autonomy similar to that of Euro states.
But this is where the similarity ends. There are a number of crucial factors that separate the two blocs enormously, and which are the reasons that could mean that the Euro project inevitably collapses, while the Dollar continues to hold its value.
1. Shared Culture language and history
Americans, despite differences in shade, have successfully ensured through their shared media and educational systems, that all their people are American. Often first generation immigrants are more patriotic than more mature families – opinions differ, sure, but from Oklahoma to San Francisco, the population of USA is American. They share a history of being part of the same country and culture for generations, the same ethical system, and broadly the same religion. For a person to move from one state to another for employment is easy – he can live in a similar house, speak the same language, eat in the same restaurants, shop in the same shops, and drive the same car.
Compare this with someone moving from Portugal to Germany (or even France to Germany) A very low % of Germans speak Portuguese or Greek. Popular culture and national psyche is completely different, typical food is different. There are very few reference points for the Greek or Portuguese man moving to Germany for work, and thus very little incentive for him to do so. So he stays put and hopes his country will implement a generous welfare system for his benefit, with foreign (German) money.
2. Permanent dependency/subsidy
The way the Euro is set up right now is permanently in Germany’s favour. With its high quality, competitive industries, the country is able to make machine tools and cars much more efficiently than its southern European counterparts. Its Southern counterparts in the past could use currency as a gearstick to make up for this, devaluing and thus competing. Now that’s taken away, the current situation was inevitable.
Not only is it inevitable, it’s potentially permanent. Currently, money looking for a home in, say Greece, is likely to bypass Greece altogether. Ending up in a ‘safe’ German bank with very low interest rate, the bank, buys ‘safe’ German bonds, the money from which of course ends up being lent back to Greece by the ECB to prop up what remains of its economy.
So in the end, it seems to Germans like they are permanently subsidizing the ‘lazier’ parts of Europe. Of course they, being at the centre of the web, actually benefit from this system, but politically it suits the countries leaders to ignore this fact.
In other words, asking the German public to permanently subsidise its poorer less productive neighbors like Greece, who beyond the Euro they have absolutely nothing in common with, is VERY different from asking citizens of the more affluent parts of USA to help their countrymen in poorer parts cope with economic blight.
3. National Policies
In Europe, each country has its own voting public, and its own tax and monetary policies. This means one country can overspend, be slack on tax collection, and let its voters retire at 55, while the other country who does the opposite, shares the same interest rates.
In the US states can levy taxes and spend to some degree, but large portions of the spending (like medical and defence spending) are kept in federal hands.
So, in its current state, the Eurozone is looking more and more like a group of disparate nations concerned broadly with their own interests, locked together by a currency and an interest rate that by its definition cannot suit every country. A totally different situation to the US with its cultural hegemony and central control.
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