Is Europe an “optimum currency area”? Milton Friedman believed it was not, and he gave apparently cogent, and now much repeated reasons, why it was not. However one should remember that appearances are deceiving, the most venomous snakes look like pretty leaves. Some people do not know how to add, but they claim they can multiply.
American economist have been lying, they are paid to lie, because their lies in economy give justification to otherwise unjustifiable policies. The policies of the USA have been, overall comfortable: having eliminated the Natives, American and Canadians, like the Australians, enjoy entire continents for themselves, far removed from the rest of the world, and its often crowed, overwhelmed realities.
Whereas France is in a different situation. French major policies have not been comfortable, since 360 CE (when the elite Parisian legions revolted, refused to leave France, and proclaimed the Caesar Julian, Augustus; the central government in Constantinople was not happy, and those in-between, distinctly uncomfortable).
France did not just declare war to the Nazis in the 1930s, when the USA was busy doing profitable business with them. France has been fighting Islamists since 721 CE (before that the Franks’ James Bonds were spying on said Islamists in the Middle East).
The war with the Islamists requires much power and determination. Here is a picture from April 2015, taken at night, with a high resolution radar. The famous Second Foreign Parachute Regiment (2 REP) is dropping at night on the Salvador Pass, in the middle of the Sahara, at the Libya-Niger border. It then engaged Islamists in combat:
[The dots are French soldiers, and equipment, not trees. The area is the most barren desert on Earth.]
Here is Milton Friedman, that supposedly great economist, as we will see a great liar, a little man, a European war lover, in the conclusion of his famous essay supposedly demolishing the Euro. That essay is oft-repeated with glee since, by pseudo-”liberal” luminaries such as Paul Krugman, and, in general, all faithful, one should even say, obsequious, servants of Uncle Sam:
“The European Commission based in Brussels, indeed, spends a small fraction of the total spent by governments in the member countries. They, not the European Union’s bureaucracies, are the important political entities. Moreover, regulation of industrial and employment practices is more extensive than in the United States, and differs far more from country to country than from American state to American state. As a result, wages and prices in Europe are more rigid, and labor less mobile. In those circumstances, flexible exchange rates provide an extremely useful adjustment mechanism.
If one country is affected by negative shocks that call for, say, lower wages relative to other countries, that can be achieved by a change in one price, the exchange rate, rather than by requiring changes in thousands on thousands of separate wage rates, or the emigration of labor. The hardships imposed on France by its “franc fort” policy illustrate the cost of a politically inspired determination not to use the exchange rate to adjust to the impact of German unification. Britain’s economic growth after it abandoned the European Exchange Rate Mechanism a few years ago to refloat the pound illustrates the effectiveness of the exchange rate as an adjustment mechanism.”
This sounds all very smart, but, it’s mostly poorly informed BS. When one knows enough, and when one is in a mood favorable to European Unification, Milton Friedman just sound like a highly paid prostitute. What he sells is lies.
Examples of Friedman ignorance, or deliberate lying:
- The member countries are more important, true, but only to some extent.Even France and Germany are tied up by the various European institutions, because the latter are part of the member countries national laws (that’s called the Single European Act). So France, for example, cannot contradict the European Court of Justice, without contradicting the FRENCH Constitution.
- Member countries are of three types: great powers (France, Germany, Britain), middle powers (Spain, Italy, Poland; Italy is a middle power because its north is more Franco-German than Sicilian, so it’s de facto divided; Spain has the same problem: Catalonia historically is more French, or Roman, than Spanish). And then small powers. Small powers can stand in the way, but not for long (Greece being the best example).
- That “regulation of industrial and employment practices… differs far more from country to country than from American state to American state” is simply, a lie. A lie disguised as a truth. European regulations are extremely similar to each other, and very far from the American ones. The exception is Great Britain, which asked for an exemption, and got it.
- Labor is less mobile in Europe, because Europe is made of different nations talking different versions of English.
- “If one country is affected with negative shocks”: the entire idea of Europe, Friedman, is to have no more “negative shocks”.
- When Friedman talks of France, he brays like an ass. The strong Franc policy is an atavism of France. France invented the strong currency thing, like 12 centuries ago. Those who did not believe in it, were boiled in wine. Alive. France applied it in the 1920s and 1930s, when the USA, the UK, Germany, and other critters tried to devaluate themselves to health (some got mad in the process). The strong Franc is a case of Germany coming to think like France, not conversely. (True France devalued in the 1960s, but then Germany wrote off more than half of its debt, with the benediction of its allies, in the 1950s.)
- The United Kingdom has been highly successful with its currency policies in the 1990s, and after 2008. However that is, first of all, because enough money was provided to run the economy. Although having a national currency allowed it to do so, currency independence is neither necessary, nor sufficient.
- Wages, prices, regulations, national laws are under convergence in Europe. Recently Germany finally imitated France and introduced a high minimum wage. German workers are now for the first time as expensive as French workers.
- Friedman ignores ways in which European countries are more similar to each other, than to American states: no death penalty, universal health care, strong privacy laws, labor protection are examples.
- The important political entities in the Eurozone are France and Germany. United, they form a superpower, especially when adding their automatic influence zone (Austria, The Benelux, Northern Spain, including Catalonia, Northern Italy, and yes, Switzerland). Since May 8, 1945, France and Germany did not have ONE serious differences, and have pursued a steady program of “ever closer union” (to use the language of the European de facto constitution). The heads of France and Germany sit together at the European Parliament, during important events. I believe, and French and German leaders believed
All right, so Friedman does not know what he is talking about.
Friedman also asserts what is well-known, that the Euro is a political project (what he does not say is that it is a French political project, because he is not anxious to spoil his hidden bias with obvious francophobia). Notice that, if some project is mostly driven by politics, that does not mean that it cannot turn out to be economical. Says Friedman:
“The drive for the Euro has been motivated by politics not economics. The aim has been to link Germany and France so closely as to make a future European war impossible, and to set the stage for a federal United States of Europe.”
Of course a USE, a United States of Europe, would be a formidable rival to the USA, and probably less friendly to the people who paid Friedman for his flood of BS venom. Then Friedman, in his conclusion, slips into psycho-politics, a domain which mixes psychology and politics, for which, considering the long list of erroneous ideas I exposed above, he has no expertise whatsoever. Friedman is like somebody who does not know how to add, and now he wants to multiply:
”I believe that adoption of the Euro would have the opposite effect. It would exacerbate political tensions by converting divergent shocks that could have been readily accommodated by exchange rate changes into divisive political issues. Political unity can pave the way for monetary unity. Monetary unity imposed under unfavorable conditions will prove a barrier to the achievement of political unity.”
The truth? Milton Friedman, the economist does not the history of economics. Let me give him a F. F for “Failed”. The Thaler/Tollar, functioned as a currency in Europe for centuries without any political unification.
The truth? France and Germany are unifying ever more. The last divergence was about Libya: France decided to overthrow the dictator there, and Germany did not help. However in Syria, Germany, and Britain are now helping France. Germany is presently sending troops for occupation and control in Mali, because and while France is getting its shock troops for attacks in Syria and Libya.
The truth? When Saddam Hussein, Iraq’s president, decided to switch to the Euro for international transaction, thus exiting Washington’s orbit, Washington decided to make Iraq an example for those who switch to the Euro. The Washington strategists wanted a murderous mess for those who switch to the Euro, and now they have it, and one must them chuckling at night, far from prying eyes. (People like Paul Krugman absolutely refuse to understand any of the preceding, as it would murder their careers to do so. At the very least.)
The truth? In the 1940s, the Nazis and the French resistance, the Free French and the French Republic agreed that “divisive political issues” and “exacerbated tensions” came from “converting divergent shocks”. To eliminate divergent shocks, eliminate differences. In this respect, the Euro is helping France and Germany achieve an ever closer union. (Notwithstanding the sea of lies American economists swim in.)
And it’s all that matter. American Jews such as Friedman, Krugman, and all these other “mans”, should remember that, when “Francia”, the Renovated Roman empire, Franco-Germania, extended from Barcelona to Berlin and beyond, there was no discrimination against the Jews.
Why? Because the very nature of a sustainable, vast empire, is tolerance. So let a common European currency be, it will be more comfortable to divergences, hence ideas.