The Eurozone crisis, Is there a way out?

[liveco]

I was just reading now on LA times (McManus: Europe's continental drift), and a phrase really captured my attention; The author, while describing how bad the situation is in Europe (especially the southern countries) goes as far as saying:

"
Southern Europe is experiencing its worst drop in living standards since World War IITo anyone who has been

Comments

[peristaltor]

You want them to abandon the Euro and go back to individual countries currencies?

I'll try to explain things in a nutshell. First, in a truly sovereign nation, the money supply can be controlled through taxation and regulation. In a growing economy, the number of [insert currency name here]s increases slowly; the larger the amount, the less each individual [insert currency name here] is worth.

Let's say you take out a loan. The amount of your loan increases the currency supply by that much, since all modern depository banks create "credit" every time they issue money as a loan. This works out for you, though, since you repay the loan later. As the economy grows, the chance that you'll be able to find money to repay the loan increases.

When the economy stalls, though, people hold on to their money. They don't circulate it. That reduces the amount of money available to repay loans. Worse, when this happens the banks stop lending, further reducing the available [insert currency name here]s.

These crises are pretty predictable, though, and can be smoothed through good regulation that affects the money supply. When you have no control over that money supply, though. . . .

For Eurozone members, their money is common throughout the EU. Therefore, at the first sign of a crisis Euros flow out of the country. In a sovereign nation, there would be a clearing function that would put a price on removing said money. Not so for the EU. Money earned in Greece can be hoarded in banks in Germany.

Which means the Greek, Portuguese, Spanish et cetera banks have no control over the amount of money within their borders. No matter how much they tax, they can't get the money in their economies without some form of international repatriation, and such a thing doesn't exist in the Maastricht Treaty.

You probably already know what happened in Cyprus. Smaller crises are happening all over Southern Europe. Italy has already frozen the amount of Euros banks issue its citizens in cash, and has started patrolling the border with Switzerland looking for trunk loads of cash.

This is not going to end well.