Swedes at times say disparaging things about their neighbours and my compatriots, the Norweigans, things like being naive and somewhat dim-witted. I hate to admit it, but the Swedes may occasionally have a point.
Today the papers bring news about a group of some 20 aggrieved, and presumably wealthy, Norwegians having entered a formal complaint with the Norweigian Consumer Protection Bureau about the fact that Tesla has advertised their new P85D model as possessing 700 hp under the hood. However, such claim is only true to the extent that the P85D, being a 4-wheel drive, has two electric motors, one of about 500 hp for the front axle and another of about 200 hp for the rear. The local head of Tesla Norway has belatedly come out to explain that you cannot add these two up for propulsion power purposes, and that Tesla consequently has since refrained from making the 700 hp claim.
I guess this is where the Swedes get the idea that in Norway you don't necessarily have to be particularly intelligent in order to get rich.
The aggrieved claimants declare that the Tesla P85D performance is not up to what they thought they had paid for, which further shows a surprising lack of understanding of the prestige technologies they are willing to shell out so much money for.
The Tesla P85D is theoretically capable of reaching a top speed of 200 mph (320 kmph), but for technical reasons related to the functional safety of the battery pack (over 7,000 lithium-ion battery cells connected in series and parallels), maximum speed is blocked at 135 mph (215 kmph). The latter requires no more than 165 hp from motor-to-wheels, but would nevertheless drain the effectively available power from the 85 kWh battery pack in about a half hour.
However, the sexy thing about Tesla is acceleration. It is said to be capable of 0-to-60 mph (100 kmph) in 3.1 seconds. This would require about 440 hp under the hood. No need for 700 hp even here, and in any case I am not sure I would try it on a Norwegian road, particularly not at winter time.
Finally, there are not many places in Norway where the speed limit exceeds 50 mph (80 kmph), which at a steady pace the Tesla can handle with 20 hp from the electric motor, or about double that on a long, steep incline. There are a few of those in Norway.
So, my fellow Norskie Tesla freaks, would you get real, please!?
Wednesday, October 21, 2015
Thursday, October 15, 2015
THE GREAT VOLKSWAGEN DECEPTION
That car companies deceive their customers on actual fuel efficiency standards, and that governments all over have looked the other way, should come as no surprise to anyone. That Volkswagen has gone the extra mile to deliberately cheat with illigal software shows a degree of stupid arrogance that is decidedly Teutonic in character. Whenever the Germans screw up, they are prone to do it big time.
One of the German engineering arguments in favor of combustion engines in general, and diesel in particular, is "It makes no sense building clean electric cars when the power they consume come from a coal-fired electricity plant."
Well, it actually makes sense, even then. The Fuel-to-Wheels power efficiency of electric cars are more than four times greater than that of diesel-driven cars. This means that the CO2 emissions from a coal-fired power plant propelling an electric car is only about half the emissions caused by a car's diesel engine.
However, a more intriguing question to ask is how to solve the lengthy recharging dilemma when the use of electric cars eventually becomes widespread. Recent news stories from California describe nascent plug-in warfare and associated shenanigans around too scarce recharging outlets in relation to the as of yet relatively small number of electric cars in circulation.
Keep tuned in on this one.
One of the German engineering arguments in favor of combustion engines in general, and diesel in particular, is "It makes no sense building clean electric cars when the power they consume come from a coal-fired electricity plant."
Well, it actually makes sense, even then. The Fuel-to-Wheels power efficiency of electric cars are more than four times greater than that of diesel-driven cars. This means that the CO2 emissions from a coal-fired power plant propelling an electric car is only about half the emissions caused by a car's diesel engine.
However, a more intriguing question to ask is how to solve the lengthy recharging dilemma when the use of electric cars eventually becomes widespread. Recent news stories from California describe nascent plug-in warfare and associated shenanigans around too scarce recharging outlets in relation to the as of yet relatively small number of electric cars in circulation.
Keep tuned in on this one.
Tuesday, September 29, 2015
THE GULF STREAM AND CLIMATE CHANGE
I read in today's news that science, through new satelite imaging, has "discovered" an unexpected cold spot in the North Atlantic south of Iceland, reawakening the theory that cold fresh meltwater from the coastal glaciers of Greenland is upsetting the normal flow of the Gulf Stream. As we know, the Gulf Stream is the main reason why North-Western Europe has a liveable climate.
A quick visit with some facts should suggest that this is another piece of climate nonsense.
The Gulf Stream begins upstream of Cape Hatteras on the U.S. East Coast as a continuation of the Florida Current. The Stream changes directions during the year, shifting north in the fall and south in winter and early spring. Once the Gulf Stream reaches the Grand Banks, its structure changes from a single meandering front to multiple branching fronts. One branch becomes the North Atlantic Current, curving north along the continental shelf and eventually turning east between latitudes 50 and 52 North towards Northern Europe. The other branch becomes the Azores Current, flowing south-eastwards towards the Mid-Atlantic Ridge and recirculating off the coast of West Africa.
The dreaded North Atlantic cold spot is situated near the fork in the currents, which does not seem particularly unexpected to me.
The Gulf Stream transports about 110 million cubic meters of warm water per second at an average speed of 6.5 kilometers per hour. This works out to 3.5 million cubic kilometers per year, an amount of water greater than that carried by all the world's rivers combined.
The melt water released by Greenland's coastal glaciers amounts to about 200 cubic kilometers per year, 0.006% of the amount of Gulf Stream waters passing that way.
With this kind of proportional relationship, it is going to take some convincing as far as I am concerned that we are up against a major climate event.
A quick visit with some facts should suggest that this is another piece of climate nonsense.
The Gulf Stream begins upstream of Cape Hatteras on the U.S. East Coast as a continuation of the Florida Current. The Stream changes directions during the year, shifting north in the fall and south in winter and early spring. Once the Gulf Stream reaches the Grand Banks, its structure changes from a single meandering front to multiple branching fronts. One branch becomes the North Atlantic Current, curving north along the continental shelf and eventually turning east between latitudes 50 and 52 North towards Northern Europe. The other branch becomes the Azores Current, flowing south-eastwards towards the Mid-Atlantic Ridge and recirculating off the coast of West Africa.
The dreaded North Atlantic cold spot is situated near the fork in the currents, which does not seem particularly unexpected to me.
The Gulf Stream transports about 110 million cubic meters of warm water per second at an average speed of 6.5 kilometers per hour. This works out to 3.5 million cubic kilometers per year, an amount of water greater than that carried by all the world's rivers combined.
The melt water released by Greenland's coastal glaciers amounts to about 200 cubic kilometers per year, 0.006% of the amount of Gulf Stream waters passing that way.
With this kind of proportional relationship, it is going to take some convincing as far as I am concerned that we are up against a major climate event.
Friday, July 10, 2015
QUO VADIS, GREECE?
To quote the memorable duo Abbott & Costello - "This is another fine mess you have gotten us into!"
Greece and the European Union, pretty much in equal measures, have indeed made a whale of a mess and are now facing the real possibility of collosal debt default, financial market collapse and Greece's exit from the Euro. The International Monetary Fund, with U.S. encouragement from the sidelines, is urging debt forgiveness as part of a long term rescue plan. The main U.S. concern may not be primarily the financial issues involved, but rather strategic military concerns about seeing the collapse of NATO's south-eastern flank in times when relations with Russia are none too good. On the other hand, we have the Germans who cannot wait to see the back of the Greeks.
Incidentally, this is the same Germany that twice did its utmost to destroy Europe during the last 100 years, defaulted on its WWI debt obligations and was put back on its feet after WWII through massive aid and debt foregiveness from its former U.S. and European enemies. The past sins of the Greek have been rather more prosaic.
But to keep on lending money to the Greece we see today will solve nothing. If the European and NATO communities wish to save Greece, a long term "Marshall Plan" involving investments - not more debt - will have to be put in place. A quick look at some Greek macro-figures will tell why this is so.
Greece is a country with a population of about 10.8 million. The median age is 43.5 years - not far from that of stagnating Japan - and there is no population growth. Youth dependency rate is 22.5% and for the elderly it is 30.5% for a total of 53% of the population. Pretty much every citizen over 55 years of age is on pension. Over-all unemployment currently hovers around 25% and for youth around 55%.
Gross Domestic Product (GDP) has probably by now shrunk to around USD 230 billion, a miserable USD 21,300 per capita, about 60% of the European Union average. GDP is comprised of 96% private and public consumption, 12% investment, a total of 108% propped up by an unaffordable 8% trade deficit. A sustainable and progressive GDP makeup should be more like 80% + 20% + 0%, respectively.
How to get from here to there is the question which begs an answer. A 10-year program of annual direct investment by EU and IMF of around USD 20 billion (0.12% of EU GDP) should do the trick, coupled with labor market and pension structural reforms. But how to add an element of economic growth - say 2% p.a. - with a stagnant population?
Labor productivity growth would be one answer, but next to impossible to achieve in a national economic environment based on 3% agriculture, 16% industry and 81% services. First step would be to find jobs for one million who currently find themselves unemployed, say another 10 year program of 100,000 new jobs per year. After that there would have to be immigration, for which the Middle East has plenty of candidates already, as we speak.
For any of this to happen, there has to be willingness for meaningful assistance from the EU, as well as reciprocal willingness on the part of Greece to accept it. For EU and NATO, saving Greece is undoubtedly worth the effort. Time will show whether the parties are up to the task.
Greece and the European Union, pretty much in equal measures, have indeed made a whale of a mess and are now facing the real possibility of collosal debt default, financial market collapse and Greece's exit from the Euro. The International Monetary Fund, with U.S. encouragement from the sidelines, is urging debt forgiveness as part of a long term rescue plan. The main U.S. concern may not be primarily the financial issues involved, but rather strategic military concerns about seeing the collapse of NATO's south-eastern flank in times when relations with Russia are none too good. On the other hand, we have the Germans who cannot wait to see the back of the Greeks.
Incidentally, this is the same Germany that twice did its utmost to destroy Europe during the last 100 years, defaulted on its WWI debt obligations and was put back on its feet after WWII through massive aid and debt foregiveness from its former U.S. and European enemies. The past sins of the Greek have been rather more prosaic.
But to keep on lending money to the Greece we see today will solve nothing. If the European and NATO communities wish to save Greece, a long term "Marshall Plan" involving investments - not more debt - will have to be put in place. A quick look at some Greek macro-figures will tell why this is so.
Greece is a country with a population of about 10.8 million. The median age is 43.5 years - not far from that of stagnating Japan - and there is no population growth. Youth dependency rate is 22.5% and for the elderly it is 30.5% for a total of 53% of the population. Pretty much every citizen over 55 years of age is on pension. Over-all unemployment currently hovers around 25% and for youth around 55%.
Gross Domestic Product (GDP) has probably by now shrunk to around USD 230 billion, a miserable USD 21,300 per capita, about 60% of the European Union average. GDP is comprised of 96% private and public consumption, 12% investment, a total of 108% propped up by an unaffordable 8% trade deficit. A sustainable and progressive GDP makeup should be more like 80% + 20% + 0%, respectively.
How to get from here to there is the question which begs an answer. A 10-year program of annual direct investment by EU and IMF of around USD 20 billion (0.12% of EU GDP) should do the trick, coupled with labor market and pension structural reforms. But how to add an element of economic growth - say 2% p.a. - with a stagnant population?
Labor productivity growth would be one answer, but next to impossible to achieve in a national economic environment based on 3% agriculture, 16% industry and 81% services. First step would be to find jobs for one million who currently find themselves unemployed, say another 10 year program of 100,000 new jobs per year. After that there would have to be immigration, for which the Middle East has plenty of candidates already, as we speak.
For any of this to happen, there has to be willingness for meaningful assistance from the EU, as well as reciprocal willingness on the part of Greece to accept it. For EU and NATO, saving Greece is undoubtedly worth the effort. Time will show whether the parties are up to the task.
Wednesday, March 11, 2015
CREDIBILITY OF CLIMATE SCIENCE
Dictionary definitions of Science are "a particular branch of scientific knowledge", or alternatively, "ability to produce solutions in some problem domain". The word science originates from the Latin scientia, the meaning of which is "knowledge". In turn, knowledge is defined as "the psychological result of perception, learning and reasoning".
In other words, science is as often as not subjective, an adjective defined as "taking place within the mind and modified by individual bias".
Science, which to the individual scientist tends to be indisputable truth, has throughout history been hotly debated among opposing factions of dogmatists, often in less than polite terms and at times with fatal personal consequences to anyone expressing disagreement with generally held opinions. Not much original scientific dogma has survived intact. Were it so the Earth would still be flat and there would not be much sense in continued scientific research in fields already resting on generally accepted scientific opinion.
Research nevertheless continues to be undertaken, for which we have to give thanks lest momentarily accepted "knowledge" takes permanent hold. However, researchers need funding to put food on the table and offspring through college, and entities or persons putting up the money not infrequently do so to elicit scientific support for their own opinions or vested interests in the subject at hand. Human nature being what it is, this should not come as a surprise.
Climate change, and the role of anthropogenic carbon dioxide emissions into Earth's atmosphere, is one current area of particularly intense and high-stake disputation. It was recently revealed that a certain academic, who happens to disagree with the majority opinion that atmospheric carbon dioxide concentrations are prime movers of global warming, had been funded by industry groups with economic interests at stake.
If I may be so bold as to ask, where else do we imagine this particular academic would obtain funding for his alleged heresies against "the declared findings of 97% of the world's climate scientists"?
Let us not be so naive as to think that the funders of that 97% - mostly national and multinational governmental institutions and NGOs - do not have personal or collective axes to grind in return for the monies they bestow on their set of researchers. We can expect equal amounts of preconceived bias on both sides of the table. That is after all what debating is all about.
Unfortunately, if there are areas where "scientia" should be treated with a dose of scepticism, climate change causations are high on the list. Fundamental changes in Earth's climate is a macro-millenial process, much of which is not well understood, or understood at all. By lucky coincidence, Earth's climate has been uncharacteristically benign and stable during the latest 12,000 years, the period when homo sapiens set out on the social and economic evolution towards where we find ourselves today. If Earth's past climate history is anything to go by, we can be pretty sure that the climate will in time again become a lot less amenable, almost certainly too cold rather than too hot.
Personally, I am all for finding viable long term energy and raw material alternatives to fossil fuels as soon as possible, but I would recommend we change our focus on the issue from disputable climate science to the undisputable fact that fossil fuels will one day be exhausted.
In other words, science is as often as not subjective, an adjective defined as "taking place within the mind and modified by individual bias".
Science, which to the individual scientist tends to be indisputable truth, has throughout history been hotly debated among opposing factions of dogmatists, often in less than polite terms and at times with fatal personal consequences to anyone expressing disagreement with generally held opinions. Not much original scientific dogma has survived intact. Were it so the Earth would still be flat and there would not be much sense in continued scientific research in fields already resting on generally accepted scientific opinion.
Research nevertheless continues to be undertaken, for which we have to give thanks lest momentarily accepted "knowledge" takes permanent hold. However, researchers need funding to put food on the table and offspring through college, and entities or persons putting up the money not infrequently do so to elicit scientific support for their own opinions or vested interests in the subject at hand. Human nature being what it is, this should not come as a surprise.
Climate change, and the role of anthropogenic carbon dioxide emissions into Earth's atmosphere, is one current area of particularly intense and high-stake disputation. It was recently revealed that a certain academic, who happens to disagree with the majority opinion that atmospheric carbon dioxide concentrations are prime movers of global warming, had been funded by industry groups with economic interests at stake.
If I may be so bold as to ask, where else do we imagine this particular academic would obtain funding for his alleged heresies against "the declared findings of 97% of the world's climate scientists"?
Let us not be so naive as to think that the funders of that 97% - mostly national and multinational governmental institutions and NGOs - do not have personal or collective axes to grind in return for the monies they bestow on their set of researchers. We can expect equal amounts of preconceived bias on both sides of the table. That is after all what debating is all about.
Unfortunately, if there are areas where "scientia" should be treated with a dose of scepticism, climate change causations are high on the list. Fundamental changes in Earth's climate is a macro-millenial process, much of which is not well understood, or understood at all. By lucky coincidence, Earth's climate has been uncharacteristically benign and stable during the latest 12,000 years, the period when homo sapiens set out on the social and economic evolution towards where we find ourselves today. If Earth's past climate history is anything to go by, we can be pretty sure that the climate will in time again become a lot less amenable, almost certainly too cold rather than too hot.
Personally, I am all for finding viable long term energy and raw material alternatives to fossil fuels as soon as possible, but I would recommend we change our focus on the issue from disputable climate science to the undisputable fact that fossil fuels will one day be exhausted.
Tuesday, August 19, 2014
MEDIAN HOUSEHOLD INCOME
On its own merit, I find median household income one of the more useless statistical concepts out there.
Median simply means that of 115,226,802 U.S. households (2012), 57,613,401 households had incomes below a yearly median of $ 51,371 and 57,613,401 households had income above the median. So what?
Dig a little deeper, and you will find that the average 2012 household income was $ 71,247, close to 40% above the median. Now a couple of relevant facts come to light. The first is that total annual household income was $ 71,247 x 115,226,802 households = $ 8.2 trillion. The second is that the poorest half of the households - the left leg of the statistical median bell curve - earns significantly less than those on the right bell curve leg, and very significantly less than the tail end of the right hand leg.
In 2012 total household debt in relation to household income - mortgages, student loans, car loans, credit card debt, etc. - was about 90%. Add that multiplier to total household income of $ 8.2 trillion and what do we get? U.S. Gross Domestic Product (GDP) of $ 15,7 trillion.
Simplistic, but relevant. At the end of the day it all comes down to household income plus how much households reasonably can and will borrow for consumption and private investment. In recent past household borrowing grew unsustainably to well over 100% of income, precipitating the 2008 financial crisis.
We must of course add business and government investment into the GDP formula, but where do business and government get their income from? Businesses from selling goods and services to households, government from taxing households and businesses (which, as noted, get their taxable earnings from household income).
And that brings me around to the question of inequality of income distribution - the unbalanced two legs of the median bell curve. This inequality is commonly expressed with the help of the so-called Gini Index, which measures the degree of inequality in distribution of family income in a country. A coefficient of 100.0 would mean that a single family receives all income, while a coefficient of 0.0 would mean that all families earn exactly the same.
The Gini Index of the United States has been climbing relentlessly and without pause from 0.35 in the late 1960s. It is now 0.45, registering by a wide margin the highest family income inequality among all developed nations. It outdoes in income inequality terms countries such as Nigeria, the Ivory Coast and Turkmenistan, just to mention three. On the other hand, it may not come as a surprise to find the world's lowest income inequality among the Scandinavian countires, which come in at an average 24.3 on the Gini scale.
Now, is it not the rich that make the economy go around, the supply-side job creators of trickle-down economics? I beg to differ. Where there is demand - i.e., purchasing power - there will be supply and consequently the prospects of economic progress. Not the other way around - businesses do not invest where demand for their output is stagnant or absent. Since the 1960s U.S. economic growth trends have inversely mirrored the Gini Index progression. I do not consider this to be a coincidence.
When family income surpasses a certain level, consumption and private investment ceases and surplus income gets more or less idly hoarded. The very rich simply have more money than they know what to do with, at which point they cease to be propellants of economic growth. And that income level of more than enough really is not all that high. Not in the millions of dollars, and certainly not in the billions.
As a Scandinavian I am fully aware of the fact that the socio-economic philosophy of that part of the world is not in the American DNA. All I therefore wish to suggest is that beefing up the earnings power on the left leg of the median bell curve and reversing the Gini Index trend line would significantly boost the prospects for long term U.S. economic growth.
Maybe Henry Ford - no bleeding-heart socialist - could serve as an example for the way forward. In 1914 he more than doubled the wage level of his workers to $ 5 per day, on the premise that he needed popular purchasing power for all the cars he would be turning out on his revolutionary assembly lines.
This lucid move helped kick-start the birth of the American middle class, now on the endangered species list.
Median simply means that of 115,226,802 U.S. households (2012), 57,613,401 households had incomes below a yearly median of $ 51,371 and 57,613,401 households had income above the median. So what?
Dig a little deeper, and you will find that the average 2012 household income was $ 71,247, close to 40% above the median. Now a couple of relevant facts come to light. The first is that total annual household income was $ 71,247 x 115,226,802 households = $ 8.2 trillion. The second is that the poorest half of the households - the left leg of the statistical median bell curve - earns significantly less than those on the right bell curve leg, and very significantly less than the tail end of the right hand leg.
In 2012 total household debt in relation to household income - mortgages, student loans, car loans, credit card debt, etc. - was about 90%. Add that multiplier to total household income of $ 8.2 trillion and what do we get? U.S. Gross Domestic Product (GDP) of $ 15,7 trillion.
Simplistic, but relevant. At the end of the day it all comes down to household income plus how much households reasonably can and will borrow for consumption and private investment. In recent past household borrowing grew unsustainably to well over 100% of income, precipitating the 2008 financial crisis.
We must of course add business and government investment into the GDP formula, but where do business and government get their income from? Businesses from selling goods and services to households, government from taxing households and businesses (which, as noted, get their taxable earnings from household income).
And that brings me around to the question of inequality of income distribution - the unbalanced two legs of the median bell curve. This inequality is commonly expressed with the help of the so-called Gini Index, which measures the degree of inequality in distribution of family income in a country. A coefficient of 100.0 would mean that a single family receives all income, while a coefficient of 0.0 would mean that all families earn exactly the same.
The Gini Index of the United States has been climbing relentlessly and without pause from 0.35 in the late 1960s. It is now 0.45, registering by a wide margin the highest family income inequality among all developed nations. It outdoes in income inequality terms countries such as Nigeria, the Ivory Coast and Turkmenistan, just to mention three. On the other hand, it may not come as a surprise to find the world's lowest income inequality among the Scandinavian countires, which come in at an average 24.3 on the Gini scale.
Now, is it not the rich that make the economy go around, the supply-side job creators of trickle-down economics? I beg to differ. Where there is demand - i.e., purchasing power - there will be supply and consequently the prospects of economic progress. Not the other way around - businesses do not invest where demand for their output is stagnant or absent. Since the 1960s U.S. economic growth trends have inversely mirrored the Gini Index progression. I do not consider this to be a coincidence.
When family income surpasses a certain level, consumption and private investment ceases and surplus income gets more or less idly hoarded. The very rich simply have more money than they know what to do with, at which point they cease to be propellants of economic growth. And that income level of more than enough really is not all that high. Not in the millions of dollars, and certainly not in the billions.
As a Scandinavian I am fully aware of the fact that the socio-economic philosophy of that part of the world is not in the American DNA. All I therefore wish to suggest is that beefing up the earnings power on the left leg of the median bell curve and reversing the Gini Index trend line would significantly boost the prospects for long term U.S. economic growth.
Maybe Henry Ford - no bleeding-heart socialist - could serve as an example for the way forward. In 1914 he more than doubled the wage level of his workers to $ 5 per day, on the premise that he needed popular purchasing power for all the cars he would be turning out on his revolutionary assembly lines.
This lucid move helped kick-start the birth of the American middle class, now on the endangered species list.
Monday, June 16, 2014
Will the Euro Survive?
The short answer is: I believe, it will not.
On the eve of the euro's introduction on January 01, 2001, the British newspaper, The Guardian, wrote:
"If the euro is to prove successful, history suggests that political ramifications will be significant."
Quotes from the British economist Dr. Gerard Lyons on the subject are also enlightening:
"The European Monetary Union (EMU) will need to become a political union to survive. This is one of the lessons from a historical analysis of monetary unions in the nineteenth and twentieth centuries. Monetary unions of large sovereign nations which do not have polical union eventually fail, sometimes after a long time."
"The lesson is that monetary unions of politically independent, large sovereign nations can fail, particiularly when there is an external shock, causing the economic environment to change. It is easier for unions to survive when the economic cycle is favorable."
Well, you may argue, the Brits have always been biased against the euro. They are just sore losers, hankering for the days of glorly when the British pound ruled world trade.
That could be so, but I believe they have got their facts right about monetary unions.
Indeed, things seemed to be moving merrily along until the economic environment took a sharp turn for the worse towards the end of the EMU's first decade. When one looks at the European Monetary Union in the aggregate, it does indeed look pretty good. With a joint GDP of around 18 trillion dollars, it runs a positive current account balance of about 1%. Look a little closer, however, and you will discover some serious structural fault lines which have been there all along but conveniently overlooked, only to crack wide open during the economic and financial crisis which ensued.
To wit, while Germany runs a current account surplus of some 210 billion dollars, France, Italy and Spain, in the aggregate, run a deficit of around 110 billion dollars. Nested within a full political union - like for example the United States of America - there would be no problem. But the prospects of a United States of Europe have never been further off the political map than after the recent elections to the European parliament.
While Germany lectures its EMU partners to get their act together, it refuses to share the spoils from its own benefits of the euro. Just imagine where the exchange rate of the German mark would have been today, not the least in relation to where the French franc, the Italian lira and the Spanish peseta would have been. The mutual current account pictures would have looked a lot different, and banks would not be lending money in abandon to the weaker currency nations without a hefty interest premium tacked on,
Now that the damage has been done, it is simply impossible for the large sovereign deficit nations to get their house in order without being releasted from the shackles of the euro.
Sooner or later, the EMU will be history.
On the eve of the euro's introduction on January 01, 2001, the British newspaper, The Guardian, wrote:
"If the euro is to prove successful, history suggests that political ramifications will be significant."
Quotes from the British economist Dr. Gerard Lyons on the subject are also enlightening:
"The European Monetary Union (EMU) will need to become a political union to survive. This is one of the lessons from a historical analysis of monetary unions in the nineteenth and twentieth centuries. Monetary unions of large sovereign nations which do not have polical union eventually fail, sometimes after a long time."
"The lesson is that monetary unions of politically independent, large sovereign nations can fail, particiularly when there is an external shock, causing the economic environment to change. It is easier for unions to survive when the economic cycle is favorable."
Well, you may argue, the Brits have always been biased against the euro. They are just sore losers, hankering for the days of glorly when the British pound ruled world trade.
That could be so, but I believe they have got their facts right about monetary unions.
Indeed, things seemed to be moving merrily along until the economic environment took a sharp turn for the worse towards the end of the EMU's first decade. When one looks at the European Monetary Union in the aggregate, it does indeed look pretty good. With a joint GDP of around 18 trillion dollars, it runs a positive current account balance of about 1%. Look a little closer, however, and you will discover some serious structural fault lines which have been there all along but conveniently overlooked, only to crack wide open during the economic and financial crisis which ensued.
To wit, while Germany runs a current account surplus of some 210 billion dollars, France, Italy and Spain, in the aggregate, run a deficit of around 110 billion dollars. Nested within a full political union - like for example the United States of America - there would be no problem. But the prospects of a United States of Europe have never been further off the political map than after the recent elections to the European parliament.
While Germany lectures its EMU partners to get their act together, it refuses to share the spoils from its own benefits of the euro. Just imagine where the exchange rate of the German mark would have been today, not the least in relation to where the French franc, the Italian lira and the Spanish peseta would have been. The mutual current account pictures would have looked a lot different, and banks would not be lending money in abandon to the weaker currency nations without a hefty interest premium tacked on,
Now that the damage has been done, it is simply impossible for the large sovereign deficit nations to get their house in order without being releasted from the shackles of the euro.
Sooner or later, the EMU will be history.
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