The Rise and Fall of the European Union

Several weeks ago I had a wonderful conversation with a colleague regarding the rise and the fall of the Euro. My friend was very articulate and presented a compelling argument. The article concerned itself with the European Union's attempt to create a United States of Europe. No more taxation when goods crossed boarders and as a residual effect they would have the strongest currency in the world. As we spoke, I was struck by the historic precedent of allowing politicians to make decisions in areas that they are not qualified to make. It brought me back to reading some of Martin Armstrong's writings where he told a story of a major Australian public company that had asked his firm to run its treasury operations assuming the hedging risks. When Mr. Armstrong told this company his fee, they politely refused and instead hired a hot shot young trader in his late 20s. He immediately bought himself a flashing new Porsche as a gift for landing himself a seven figure job. To make a long story short, within a week he had lost the company $80 million. Needless to say, the board members of the company were not too pleased and they immediately called Mr. Armstrong's firm back in and with their tail between their legs and meekly agreed to Mr. Armstrong's original fee. The board had learned, the hard way that they would be best served by hiring a company that knew something about an economic model. It is an old proverb that a lawyer who acts as his own counsel has a fool for a client. What this firm learned the hard way was that they should not make decisions regarding hedging without some expertise. You wouldn't hire a lawyer or a dentist to fix your car. While this is a broad generalization, the analogy works quite well. As I have stated, the logic of creating the Euro currency to represent 17 nations was at face value a very good idea. Easy trade across borders would stimulate the entire European continent as goods and services would flow and thereby create wealth for all European nations. This was a great idea right? Wrong! While the consolidating of the European currency was a wonderful idea, it only addressed half the problem. Consolidating the debt of Europe into a Single National debt was the first necessary step. I am not saying that that you throw all future debt into one pot. Nor am I saying that you create a national debt on a level with a single interest rate. What I am saying is that you discount the debt of the weak and it must be all accumulated past debt, not debt going forward. Future state debt would become local debt distinguished from federal debt as is the case in the USA. The consolidation of past debt would be at market value and not at some fictitious par value because some politician wants to score some brownie points. In conclusion, the creation of a single monetary system without creating a single monetary debt can only lead to failure. The failure to have consolidated the Euro debt is far more dangerous than most seem to understand. History is a catalogue of solutions. The problem is that you must first read them!