Thursday, June 23, 2011

Adopting the Euro is "Not Something to Kill Yourself Over"

The one good think about the Greek crisis is that it is scaring the hell out of Eastern Europeans about joining the eurozone.

Business Week reports:
First join the European Union, then qualify for the euro. That was the path laid out for the countries of Eastern Europe that wanted to weld themselves to the West. Euro membership proved that a country had the discipline to join one of the world's most exclusive clubs.

The Greek crisis has slowed the rush to join. On June 7, Latvia's central bank governor, Ilmars Rimsevics, said the euro shouldn't be introduced in his country "at any price." His Lithuanian counterpart, Vitas Vasiliauskas, said two days later that the goal of adopting the euro in three years is "not something to kill yourself over." On May 20, Poland's central bank governor, Marek Belka, said his country and the region would not get the benefits they had anticipated from a quick adoption of the euro. And as far back as December, Czech Prime Minister Petr Necas said his country can refuse to adopt the single currency as long as it deems it beneficial to keep the koruna...More alarming to these countries is the idea that if they were in the euro zone, they would be coughing up billions to a bailout fund for Greece, Portugal, and Ireland.
The best thing these Eastern European countries can do is maintain their own currencies and move to a gold standard. In the long run, a gold standard and domestic free market policies will be the key to an increasing standard of living and a strong country. Given the likely financial turmoil ahead for the U.S., China and Western Europe, Eastern Europe could become the refuge of those looking for sanity in an insane world. Through proper monetary and economic policies, Eastern Europe could over time attract the best and the brightest throughout the world, while the Bernankes and Krugmans crash the rest of the world on Keyensian, authoritarian and inflationary shores.

1 comment:

  1. Robert, I'll have to agree to disagree. Sure, the euro is something we shouldn't want within a hundred miles of our Eastern European countries, but we don't have much of a choice at this point.

    I live in Estonia - a Baltic State which adopted the euro as of 01.01.2011. It wasn't a good move by our (otherwise very smart) leadership, but you have to bear in mind that the Estonian kroon was already tied to the euro. In other words, we would had gone down with the ship either way. But now, Estonian economy has taken a great step up. We have major foreign investments coming in and our country is viewed as a stable and trustworthy one (i.e. no risk of devaluing our currency or anything).

    Now let's go back to where Estonian kroon was created in 1992. Our political leadership back then wanted a currency based on gold standard, but we didn't get the approval of IMF for this. I guess they didn't want another strong economy with sound money. So they decided to tie the kroon with the Deutsche mark - we were doing well, until the euro was created and we were then tied to a dead sheep.

    Sure - we should have tried to re-tie the kroon to Swiss franc, but I am 99% sure the IMF would not had allowed it either. So in political terms, we simply didn't have much of an choice. Unfortunately.

    PS: I advise you to read a small article about Estonia that was published not long ago in Washington Post.