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The Forum > Article Comments > Italy will Kill the Euro - Not Spain or Portugal > Comments

Italy will Kill the Euro - Not Spain or Portugal : Comments

By Sam Vaknin, published 4/1/2011

The history of monetary unions is long and foretells disaster for the Euro

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Good article, Sam, just like your previous article on NGOs and the influence these usually undemocratic, unelected organisations hold in our modern world. You won't get too many positive posts,however, as OLO is populated mostly by greens, socialists and other lefties who don't know how to respond when their vision of the world is shown to be wrong.
Keep up the good work.
Posted by Bernie Masters, Tuesday, 4 January 2011 11:23:24 AM
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Very interesting piece - thanks Sam. You seem to be well across the historical detail. The Eurozone is unprecendented in its scope and ambition...unifying nations with differnet languages, cultures and, sometimes, entrenched animosity ... but no denying that it definitely has some structural and governance inadequacies. It's ifficult to envisage perfection in such a complex undertaking.

The schadenfreude by the Bernie Masters of the world is amusing. Let's not forget that the current problems were precipitated by the blind faith in markets and self interest by policy makers on the other side of the Atlantic. Europe will realise that preserving the single currency is worth it, even if it means letting some of the peripheral countries go, as Paul Keating said recently. It may prompt a review of current governance to strengthen the union. At the end of the day, a strong and united Europe benefits all nations...as much as it may rile those who believe Thomas Hobbes designed the world we live in.
Posted by LukeS, Tuesday, 4 January 2011 12:03:37 PM
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Sorry to disappoint you, LukeS, but I'm not taking any pleasure from the current problems afflicting the world. More importantly, you appear to have missed the key point: that the worst examples of blind faith in market mechanisms was shown by left wing, socialist governments and their leaders who clearly didn't understand the teachings of Adam Smith and Friedrich Hayak. It is these left-leaning politicians like Clinton, Blair and many European leaders who have led us into our current problems. Australia hasn't just been lucky: we've been sensible, with a right-wing Keating followed by Liberals Howard/Costello making sure that we didn't relax our banking standards or expand the welfare state beyond our means and get us into the same mess as the US, UK, the PIIGS, etc.
The Stratfor website - see http://www.stratfor.com/ - contains articles on the EU and common currency which conclude that the EU was designed not to economically benefit the bulk of the current member nations but to constrain the most powerful member, Germany, which had started two wars in Europe during the 20th century.
I don't think the EU or the euro have much of a future and, if the PIIGS don't apply some tough fiscal and other measures to sort out their messes, then there won't be enough money in the world to bail out all of the EU countries that may be in need of emergency loans.
Posted by Bernie Masters, Tuesday, 4 January 2011 12:32:46 PM
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Money is a market phenomenon. It arises without any central organisation by people trying to get around the limitations of barter. Once people obtain a commodity not for consumption in its own right, but in order to swap it later on for something they want, the stage is set for that commodity to become the generally accepted medium of exchange – money.

Contrary to popular belief, money does not and cannot arise by fiat. We know this for two reasons. Firstly all historical cases of fiat money have originated by grafting onto a pre-existing market-originating money. Secondly, a state could not originate a fiat money from scratch, because on the day of introduction it would have to specify the relation of each price to each other price. Since all the relevant market data are dispersed in the *subjective* valuations of millions of individuals, no state could ever have the knowledge necessary to perform this task.

Once people exchange not money itself, but paper notes as money substitutes, the stage is set for fractional reserve banking. In the absence of statutory regulation of the money supply, FRB would either be illegal as fraudulent, or a marginal activity at perpetual risk of bankruptcy. It would be kept under tight rein by the ordinary operations of profit and loss. But since governments claim the power to legalise fraud – and call it monetary policy - bankers and governments form a natural symbiosis for conning the rest of the population.

Once government declares a monopoly of the supply of money, the stage is set for fiat money – which takes its value not from any underlying market commodity, but from the stamp itself.

While ever a minority of the population have a power to take wealth from everyone else without their consent, and spend it on whatever the elite feel like spending it on, we have an inherently corrupt and unstable institution, which just happens to describe all monetary policy.

No political schemes or unions are needed to establish the stablest international monetary order other than to illegalise fraud - including the state’s.
Posted by Peter Hume, Tuesday, 4 January 2011 1:11:02 PM
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