The euro: time to show solidarity or quit

One fifth of the Spanish believe they would be better off if they abandoned the single currency, as do some people in Greece. Switching back to their former currencies would mean they don’t need to listen to what the Troika – the European Commission, European Central Bank and International Monetary Fund – says about austerity measures. Their former currencies could be weakened to a level that makes their products attractive to global buyers. 

In well-off countries like Germany, Finland and the Netherlands, some citizens should also like Napoleon’s lesson, though for another reason. Joining the euro, Finland has seen lower competitiveness in mainstay industries like wood and paper production because of higher labour costs. The economy is now dragged down by weaknesses in the peripheral countries in the euro zone. It’s not surprising that the Finns envy Sweden, their neighbour that lives out of the zone.

The Dutch will go to the polling booths on September 12. Whatever the outcome, it will have nothing to do with the euro. But sentiment is why politicians have to relinquish some power to Brussels.

Napoleon: To extraordinary circumstances we must apply extraordinary remedies.

In Germany the public debt ratio is 80 per cent of gross domestic product. The country risks higher debt if it needs to inject more money to save the euro. On September 12 Germany’s Constitution Court will rule on whether a euro-zone rescue fund is constitutional. On the same day, the EC will unveil its thoughts on a Europe-wide banking supervisor – a step towards a banking union, which would certainly require Germany’s backing. Within weeks the Troika will report on whether to give Greece more rescue money.

Napoleon: Between a battle lost and a battle won, the distance is immense and there stand empires.

Certainly, leaders know that without action, the euro zone will break up, with an enormous impact on the economy. Different opinions are being voiced. Some Germans understand that and are worried at how much they will lose.

William Shakespeare: Expectation is the root of all heartache.

The single currency meant further integration and more bargaining power. But the region is being ripped apart, with the euro now considered the cause of the demise.

Shakespeare: It is not in the stars to hold our destiny but in ourselves.

While Europe struggles, other countries understand that they need to help, or they can expect a boomerang effect, as China is experiencing now. It is not surprising that China is one of the countries (including Japan, which has pledged US$60 billion) lending money to the IMF, which mobilised funds to stabilise weak economies. Thailand also came up with a pledge.  

Shakespeare: When a father gives to his son, both laugh; when a son gives to his father, both cry

Emerging economies’ assistance to developed nations in Europe was never anticipated until the euro crisis emerged. Before, Europe was a gold mine to all, with over 300 million people whose per-capita income is many times higher than that in emerging economies. All that changed as several countries imposed austerity measures to reduce public debt. Austerity measures mean more will become jobless (now nearly 30 per cent in Greece and some 20 per cent in Spain). As people’s purchasing power falls, tax income will drop and asset prices will fall. If economic recovery comes too late, some countries will need to cut more expenditure. And the vicious cycle will continue.

Buddha: Do not dwell in the past, do not dream of the future, concentrate the mind on the present moment. 

The financial crisis is changing the global economic landscape. The US remains the world’s biggest economy, but investment is flowing to emerging countries that have greater growth prospects. Thai companies are quick to grasp the opportunities. Land & Houses mulls investing in real estate in the US. Property Perfect is buying a resort in Japan. Thai Union Frozen Products is eyeing potential takeover targets.

Now that the euro zone is sinking, cheap targets will arise. In time, when the prices are right, more mergers and acquisitions are anticipated.

It is worth noting the Spanish government is mulling creating a bad bank, the model initiated in Sweden and adopted here in Thailand after the 1997 financial crisis. Our experience is bad banks tend to sell anything sellable, to reap as much money as possible. Asset fire sales will be the case, which will depress asset prices. So far, there has been criticism at European leaders injecting money into the system, without letting asset prices reflect the actual condition. This could discourage new investment and hence prolong the recession.

Buddha: I never see what has been done; I only see what remains to be done.

The ECB’s bond-buying scheme, announced last week, gave a big boost to global stock markets, including Thailand, which on Friday hit a 16-month high. Yet, the world knows that much remains to be done if the euro is to be saved. A German newspaper said the good news from the ECB’s action is that the euro will be sustained for some time. Yet, the bad news is that the ECB hinted that the euro would be saved at whatever cost.

Napoleon was right to say that we need to unite to fight. The question is whether Europeans still share the same goal. Will they be better off if they separate?