The Euro (€), the currency used in the European Monetary Union (EMU), has been harshly criticised by means of unstability in controlling the business cycle. It is technically impossible to stabilise the business cycle without establishing a common federal government handling the common fiscal policy among nations using the common monetary policy.
I am not particularly member of British Conservative party but tend to have a lot of mimilar points of view. I am the person who tends to be popular among individuals from either British Conservatives or British Communists, which are the only parties strongly contradicting European Union and its common currency. The idea of adopting common currency without under a strong common federal governments's controlship is disguisting as bad as sleeping with a ugly and stupid lady. The idea of this kinda common currency is an awkward polyandry!! Now, I would rather prefer going together with one nice wife Sterling (£) if I were a British, Yen (\) as I am Japanese, etc. These currency £ and \ are mature enough to be a proper partner, and I like occasionary going to date with different ladies, which means other currencies, in a temporary time period, which implies I go travelling and have business with other countries. However, € is a totally bitich! Neither appropriate to be a wife, nor even to be a mistress!!
Speaking of a system of the European Central Bank (ECB) at Frankfurt, it takes an enormous time to change the interest rate and the money supply because it needs votes from all representives from each EMU member countries. All European regions have a different business cycle so that it would be better to settle their own central bank to be flexible with controlling their own independent interest rate and money supply. However, the interest rate the ECB decides is a compromise between all EMU regions! Therefore, altough some regiouns may have required the lower rate to stimulate their economic activity and other regions may have required the higher rate to calm down the inflation. In fact, Irish economy is still suffering from the excess economic burst and struggling with the huge price inflation whilst France and Germany are irritated with stagnated economic sitimulus.
Only the way, these EMU economic regions have been able to rationally control their business cycle is the national debt. However, incurring national debt has been restricted since the Maastricht Treaty required all European nations, including non-EMU ones such as Britain and Sweden, not to make their budget deficit level exceeding 3% of their GDP level. The Maastricht Treat thus disables to stimulate economic activity during the recession period. This is because the ECB and the European Central Government at Brussel is afraid of bearing some countries become selfish to incur an excess amount of national debt. The selfish act of some nations will cause the difficulties to control the price inflation of € and the exchange rate of € with other currencies. An excess incurrence of debt requires either to transfer the tax revenue from other countries' budget to these deficit countries or to act the Seigniorage-effect, which implies the action to induce a high price inflation to reduce the value to national debt. Nevertheless, it has been argued that the ECB is rather selfish because the ECB retards the economic growth in some nations by following their own ideology. The ironice facts are that neither the ECB nor Brussel has a strong enforcement to transfer the tax revenue to deficit countries and the Seigniorage-effect is notoriously risky enought to disturb all EU regions' economy.
If they want to keep the EMU and aspire to create the Euroland which is something like the United States of America (USA), the EU must have a strong dictatorial federal authority. This federal authority can be formed by a strong leadership which is enought to overwhelm all regions of the EU to corporate together and admit a supranational authority to lead all European nations which still strongly tend to stick to their own identity and sovereinity. The reason why the USA is relatively stable to control over its business cycle is an existence of the federal government which is able to distribute the central tax to the different economic situations, and all states share the common identity as a part of USA civilisation. Nonetheless, European nations are too stubborn to abandon their proud and independent identity so that the European-constitution, which has beem regarded as the first step to form the European federation, was rejected. In order to stabilise the current EU economic situation, it inevitably requires to expect an incredibly strong dictator who may overwhelm and enforce all European nations and citizens to admit their supranational authority to share the same indentity such as Naporeon Bonaparte tried to do.
Furthermore, this idealistic common monetary union tends to contradicts the proactivism in fiscal policy and Adam Smith's absolute advantage theory in trade. Many people tend to misunderstand that the moneralist point of view is merely a right-wing ideology. Nonetheless, the EU is more likely to be a social democratic club. Therefore, EU nations prefer high government expenditure in public expenditure but abondan the fiscal political responsibility. All in all, the EU should be called the left-wing monetarist! The EU officals seem to believe that as all European nations naturally become corporated, not by any enforcement, the business cycle will be eventually stabilised without the strong dictatorial federal government. From Keynesian point of view, this is highly odious monetarist ideology which totally neglects the risk of assymetric shock in business cycles. Furthermore, from Benthamite (Utilitarian/Libertarian) point of view, the EU's leftwing monetarist ideology invades the individual liberty for both people and states! Individuals living among European regions should have kept their own currency in order to determine their preference of money supply.
It has been highly emphasised that the fiscal policy is highly more valuable than the monetary policy to control the business cycle. The control of the business cycle is necesarry to secure the economic and social stability in a region. Keynesian economists claim that the monetaly policy at the recession time period hardly works due to the pessimism of people's expectation for the future investment, and then tax cut and/or operating public projects is more likely to stimulate economic activity. In return to incurring national debt instead of cutting tax and spending for public projects, it is supposed to raise tax burden to redeem the national dept. Whilst Neoclassical theorists and Monetarists contradict this Keynesian proactive fiscal policy with the theory Recardian-equivalence. Recardian equivalence mentions that people may expect to save their income to prepare for paying the expected future tax rise even though it is in the recession time period. However, it has been argued that Recardian equivalence ignores the fact there may be many individuals cannnot even afford to save their income, and if it were possible to induce a higher price inflation in any way possible individuals able to afford saving would spend more. The common monetary policy and the Maastricht Treaty disrupt the rational proactive fiscal policy following the Keynesian principle, and seem to blindly believe the monetarist and Ricardian principles. I would like to say that the EU must realistically focus on the catastrophy occuring in Ireland!
On the other hand, the EU believe the specialisation of industries among European nations create the strong economic growth enought to defeat the US economy. I have been laughing about such idealistic leftwing cruds saying such a thing! The USA has a federal government wich can distribute their tax and government expenditure across all over the states. Therefore, it has enabled to specialise industiries among states and tackle with the assymetiric shock among each business cycle. For example, Detroid can be specialied for making cars whilst California can be specialised making rice. The USA can tackle with an occational rice famine in California with tranfering the tax from Detroid, if the demand for its car industry is high enough, to eliminate the budget deficit in California. The pro-EMU European economists tend to regard it does not matter whether the security against the assymetic shock is assured or not!
On top of this aspect, the over-specialisation of industries is based on the theory of "relative-advantage" in trade. For example, suppose that Germany can produce 10 cars and 10 potatos whereas Rumania can produce 3 cars and 4 potatos in their production possibility frontier (PPF). The relative advantage theory recommends Germany should be specialised with its car industry whereas Rumania should be specialised with potato farm. However, this may cause Rumania to lack enough food to feed its own people because of the very high inflation which disables Rumanians to affor their own potato. The relative advantage theory totally ignores the capacity of land, capital, and knowledge level. The theory of absolute advantage in trade, mentioned by Adam Smith, claims that, in this example case, Germany can only export both products to Rumania because Germany is capable to produce the excess amount of these goods. On the other hand, it is never prodictable that Germany can keep producing the excess amount of cars. Japan may defeat Germany by competition in car industry, and this event may reduce the total revenue of German car industry. Therefore, all economic regions need its own both monetary and fiscal policy or a strong supranational federal government to insure for any sort of sudden change in the market.
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