My Letter to the NY Times re: Blog Prophet of Euro Zone Doom

From: patrickbarron@msn.com
To: letters@nytimes.com
Subject: Letter-to-the-Editor
Date: Thu, 10 Jun 2010 14:04:01 -0400

re: Blog Prophet of Euro Zone Doom

Dear Sirs:
Mr. Edward Hugh may be correct that the Euro will fail, but it will not fail as a direct result of cultural differences among its members. It will fail because the European Central Bank (ECB) succumbed to political pressure to abandon its primary responsibilities to keep the currency stable and chose instead to destroy the Euro's purchasing power. Profligate nations can coexist in the same currency zone as financially responsible nations, but eventually the profligate nations will be forced to mend their ways or they will run out of money. This is good--one of the benefits of a sound money is its use as a unit of account, revealing when one is accumulating capital and when one is destroying it.

The Greek financial crisis revealed that nation's path to destruction much earlier than otherwise because it was on the Euro and could not hide its problems by debasing the drachma. This was a Greek financial crisis that is merely denominated in Euros; it was not a Euro crisis. It became a Euro crisis only when the ECB bought Greek bonds and forced the European Union (EU) nations to guarantee them against the will of their citizenry. At that point it became obvious that the more responsible nations might be forced to leave the Euro Zone by the overwhelming demands of their citizenry to do so.

It is not true that debasing one's currency is a means to restoring financial solvency. Debasing the Euro may spur EU exports temporarily, but it is no long term solution. By making imports expensive a debased Euro will raise the cost of living for the common man in Europe and even raise the cost of those imports that are used as factors of production in export industries.

The world's politicians should abandon their search for a quick financial fix that does not exist. If some claimed that they have found one, you can bet that the costs either are hidden or will be borne by politically unpopular minorities. The EU had a golden opportunity to allow the free financial market to impose discipline upon the Greek government. The Greek people should demand that their leaders keep them in the Euro Zone, because that is the surest and quickest path to forcing their government to abandon its destructive fiscal policies. More debt or currency debasement will only hide the problem, make it bigger, and result in a worse situation in the future.

Patrick Barron