The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
) -- For some time, I have argued the eurozone is not a viable economic entity.
In a recent piece,
I predicted that until it is broken up:
The French and German governments, working on behalf of their banks, will squeeze all they can out of the "weak sisters".
Unemployment rates will continue to increase with accompanying civil disorder/riots becoming more intense.
The leaders of the "weak sisters" will commit political suicide by continuing to support the ECB/IMF mandates.
Political developments of the last week make it even more certain that a break up is the only viable outcome. And yet, there are some who disagree. Amar Bhidé,
in a recent
Wall Street Journal piece
, argued that:
"Sovereign over-indebtedness and banking solvency are serious problems for Europe, but the common currency is doing its job just fine."
Bhidé is not alone in feeling this way. In what follows, I will examine the arguments made by those wanting to keep the eurozone together.
Giving Up National Currencies
Bhidé asserts: "The argument for fleeing the euro to devalue is misguided. Greece and the other peripheral economies lost little in giving up their national currencies."
Lost little? What? In giving up their national currencies, countries also lost their ability to use monetary and fiscal policies to achieve full employment.
Does this matter? Well, maybe not if all eurozone countries had the same unemployment rates. But they do not. Take a look at the following table. You have some eurozone countries near full employment. But the countries starting with Belgium have serious unemployment problems.
Monetary policies in these countries should be keeping interest rates low while fiscal policies should be creating jobs. Not so for Austria, The Netherlands and Germany: countries at or near full employment. A common monetary and fiscal policy simply cannot address the vast differences in economic conditions in the eurozone countries.
There is one other important point to note about the table above. The two right-hand columns give government deficits as a percent of GDP. Note that under IMF/German austerity pressure, the deficits of all high unemployment countries are supposed to fall in 2013. They will not.
When all countries have to use the same currency, they are held to the competitive standard: they must adjust their internal costs structures to compete on world markets. Take a look at the next table. Most eurozone countries with high unemployment have negative current account balances -- an indicator of an inability to compete on world markets.