Today's Stories

March 20-22, 2009

P. Sainath
Slumdogs vs. Billionaires

March 19, 2009

Dave Marsh
Sir Bono: the Knight Who Fled From His Own Debate

Paul Craig Roberts
Was the Bailout Itself a Scam?

Mike Whitney
Why Business is Hysterical About Card Check (And Why America Needs It)

Sam Smith
The Economy in Two Eras of Democrats

Harvey Wasserman
The Crash of France's Nuclear Poster Child

Binoy Kampmark
Back Into NATO: the End of French Exceptionalism

Kathy Sanborn
Broken Culture: the Desecration of Iraq's Art Treasures

Christopher Brauchli
Taxing Problems

George Wuerthner
Permanent Damage From Temporary Logging Roads

Diann Rust-Tierney
New Mexico Abolishes the Death Penalty

Website of the Day
Bailout Plan: "Cross Your Fingers and Hope"

March 18, 2009

Michael Hudson
The Real AIG Conspiracy

Paul Craig Roberts
Israel's American Chattel

Nelson P. Valdés
Why Obama's New Cuba Rules Violate the Constitution

Jonathan Cook
Bedouin Villages Left in the Dark Ages

John Ross
The Death of the American Newspaper

Yifat Susskind
Where Are We Leaving Iraqi Women?

Dave Lindorff
Who's Calling the Shots Now?

Frances Moore Lappé
The City That Ended Hunger

Richard Grossman
Beware the Madoff Diversion!

Rev. William E. Alberts
On Being Whole Not Holy

Website of the Day
Three Weeks in Cuba: a Painter's Perspective

March 17, 2009

Michael Hudson
Mr. Bernanke Spreads the Fire

James G. Abourezk
Show Business: AIG and the Posturing Democrats

Harry Browne
Ireland's Blast From the Past

Joanne Mariner
U.S. Human Rights Abuses in the War on Terror

Alan Farago
The National Ponzi Scheme

Dean Baker
Getting Lehman Bros. Wrong ... Again

Peter Morici
Cuts for Autoworkers, Bonuses for Derivatives Traders

Bill and Kathleen Christison
Obama and the Empire

Richard Gott
Victory for the Left in El Salvador

Walter Brasch
Dog Mutilations vs. Cosmetics

Website of the Day
Single-Payer Action

March 16, 2009

Pam Martens
Has a Comedian Just Saved America?

Uri Avnery
The Rape of Washington

Mike Whitney
Bernanke's Witness Protection Program

Ralph Nader
Americans Want Justice for Wall Street Crooks

Nikolas Kozloff
Down But Not Out: the Latin American Right

John Walsh
Redbaiting on the Left

Ron Jacobs
A Call for Common Sense

Binoy Kampmark
The Case of Tim K

Stephen Fleischman
Coxey's Army Will March Again!

Christian Christensen
A 25-Year Misunderstanding: Springsteen's "Born in the USA"

Scott Handleman
Shooting Tristan Anderson

Website of the Day
Clean, Green, Sustainable

March 13 / 15, 2009

Alexander Cockburn
The Parable of the Shopping Mall

Peter Lee
What the Chas Freeman Fight Was Really About

Diana Johnstone
NATO's Global Mission Creep

David Harvey
Is This Really the End of Neoliberalism?

Petrino DiLeo
Inside Obama's Housing Plan: Will Millions be Left Out in the Cold

David Ker Thomson
Tender to the Earth

Eric Ruder
Massacre in Slow Motion: an Interview with Haider Eid on Gaza

Fred Gardner
Cannabidiol Now!

David Yearsley
Music Torture

Saul Landau
How Israel Gives Jews a Bad Name

Laura Carlsen
Drug War Doublespeak

Robert Weissman
We Told You So

John Goekler /
Merle Lefkoff
The Struggle in Saffron

Tom Barry
Imprisoning Immigrants for Profit

Kathy Sanborn
Money Out of Thin Air

Chris Mobley / Leela Yellesetty
Criminalizing Poverty: the Jail Seattle Doesn't Need

David Michael Green
The Perils of Being Right and Wrong

Alan Maass /
Lee Sustar
A Socialist Moment?

Christopher Brauchli
Pity, the Poor Tax Collectors

Richard Morse
Clinton in Haiti

Lorenzo Wolff
Taking It From the Streets: From Springsteen to the Wu-Tang Clan

Poets' Basement
Springate and Johnston

Website of the Weekend
Hear the Buffalo

March 12 , 2009

Sharon Smith
Bottom Feeders at the Trough

Christopher Ketcham
Full Spectrum Penetration: Israeli Spying in the United States

Mike Whitney
Haircut Time for Bondholders

Ray McGovern
Obama Caves to the Lobby

Eric Toussaint /
Damien Millet
The Doublespeak of a Discredited IMF

John Ross
The War is Not Over

M. Reza Pirbhai
Men in Black: Another View of Pakistan

Chris Floyd
Lost Liberty Blues: Prisons, Profits and the Banality of Evil

Steve Early
Why Labor Doesn't Need a "House of Lords"

Quentin Gee
Hiding the Costs of Coal

Website of the Day
Amadee Coral Reef: a Spherical Panorama

March 11 , 2009

Mike Roselle
From Birmingham to Coal River: Why is the Environmental Movement So Timid?

Paul Craig Roberts
The Criminal Injustice System

Henry A. Giroux
Academic Labor in Dark Times

Nikolas Kozloff
The Death Cries of the Salvadoran Right

Norm Kent
I am Patient Number 380206011

Mitu Sengupta
Reforming the World Bank: Different Image, Same Tune?

Ludwig Watzal
The Structure of Israel's Occupation

David Macaray
The Battle Over EFCA Has Begun

William S. Lind
Rounding Up the Usual Suspects

Martha Rosenberg
A Merger From the Folks Who Brought You Vytorin

Website of the Day
American Indicator: One in Fifty Kids are Homeless

March 10 , 2009

Franklin Spinney
What Israeli Peace Process?

Vijay Prashad
What Did Hillary Clinton Do?

Stan Cox
There's No Free Lunch on Your Browser: the Internet's Energy Drain

Zoltan Grossman
Coffee Strong: Listening to the G.I. Voice at Fort Lewis

Reuven Kaminer
Pure and Unadulterated Racism

Jonathan Cook
Memoricide in the West Bank

Dave Lindorff
Business Rules

Brian McKenna
How Anthropology Disparages Journalism

Harvey Wasserman
Is This the End of the Age of the Automobile?

Corey Pein
He Told You So

Website of the Day
AIG and Systemic Failure: $1.6 Trillion in Insured Deriviatives

March 9 , 2009

Pam Martens
Madoff and the Sorkin Affair

Ralph Nader
Too Big...Period

Peter Lee
Meet Gulbuddin Hekmatyar: the US's Worst/Best Hope for Afghanistan?

Mike Whitney
Geithner's Charade

Peter Morici
Fixing the Banks: Treasury's Doomed Strategy

Dean Baker
Why Do We Need a Private Health Insurance Industry, Anyway?

Steve Ault
Kiss Thailand's Tolerance for Gays Goodbye

Stephen Lendman
Guantánamo Under Obama

Farooq Sulehria
Tennis Without Spectators

Belén Fernández
Chávez, a Cockfight and the Caracazo

Website of the Day
How Lincoln Learned to Read

March 6-8 , 2009

Alexander Cockburn
Harlots High and Low

Chris Floyd
Tangled Up in Karl

Uri Avnery
Remember Ophira?

Dave Lindorff
Kiss the Banks Goodbye

Mark Weisbrot
The Crisis vs. the Dogma

David Ker Thomson
Against Work

Phil Aliff
Soldier Suicides

Rebekah Ward
Georgia Injustice: Another Young Life Wrecked

Tracey Briggs
How Capitalism Feels in the Head

Dean Baker
Depression Nostalgia?

Daniel P. Wirt, M.D.
Remove the Handle From the Health Insurance Misery and Death Pump

Carl Finamore
The Recovery Plan: Save Us From Those Who Would Save Us

Wajahat Ali
The Pakistani Monster

David Michael Green
Smart is the New Stupid

David Macaray
The Minimum Wage Revisited

Michael Dickinson
On Financial Fools Day

Susie Day
Line in the Sand

Bob Sommer
Echoes of the Townhouse Explosion

Ben Sonnenberg
No Forgiveness for the Bourgeoisie: Buñuel's "The Exterminating Angel"

David Yearsley
Sonic Fakery in "Slumdog" From the Mozart of Chennai

DC Larson
They're Writing Those Depression Songs, Again

Lorenzo Wolff
Live Truth: Music Sans Headphones

Poets' Basement
Dominquez, MacNeil and Buknatski

Website of the Weekend
The Environment & Obama: a Conversation with Jeffrey St. Clair

March 5 , 2009

James G. Abourezk
This Time It's Mrs. Clinton's Turn

Kathleen and Bill Christison
U.S. Military Aid to Israel

Robert Weissman
Wall Street's Best Investment: Paying for Public Policy

Patrick Cockburn
My Day at the Terror "Charity"

William Blum
Being Serious About Torture...Or Not

Robert Fantina
From Iraq to Afghanistan: Augmentation All Over Again

Saul Landau
The Unseen Crisis

Benjamin Dangl
Striking a Blow Against the Beer Cartel: a Grassroots Victory in Utah

Christopher Brauchli
The New Leaders of the GOP

Website of the Day
The Angola 3: 36 Years of Solitude

March 4, 2009

Marjorie Cohn
Blueprints for a Police State

Mike Whitney
Blowing Up the Economy: How Securitization Lit the Fuse

Ron Jacobs
The Banality of Occupation: the Rand Papers

Ashley Smith
War by Another Name

Joanne Mariner
Obama's War on Terror

Dan Bacher
The California Water Wars: Why It's Not a Conflict Between Fish and People

Mark Engler
Will the Winds of Change Reach El Salvador?

Franklin Lamb
"What's Hezbollah Done for Us Lately?"

Cal Winslow
Slugging It Out in California

David Mandelzys
Apartheid Week

Website of the Day
Guantánamo: the Definitive Prisoner List

March 3, 2009

Conn Hallinan
Ethnic Cleansing and Israel

Fawzia Afzal-Khan
The Long, Dark Night of Pakistan

Brian M. Downing
The Changing Game in Afghanistan

Robert Larson
External Damnation: Companies are Designed for Destruction

Daniel P. Wirt, MD
Single-Payer Health Reform

Russell Mokhiber
Burn Your Health Insurance Bill!

William Loren Katz
Obama, One Ape and Two Newspapers

Kathy Sanborn
The Lazy Man's Guide to the Economic Crisis

Pauline Imbach
A New Start for the World Social Forum?

Christopher Ketcham
The Best Journalism You'll Write is Priceless

Website of the Day
The Surveillance Self-Defense Project

March 2, 2009

Andrea Peacock
A Poisoned Town's Shot at Justice

Paul Craig Roberts
Obama's Budget

Peter Lee
Pakistan Lurches Toward the Abyss

John Blair
Locking Down Big Coal

Peter Morici
Treasury's Flawed Plan for Citigroup

Uri Avnery
10 Ways to Kill Fatah

Michael Donnelly
Resistance to the War on the Wild

Fred Gardner
The Judge Who Ruled Marijuana is Medicine

Sonia Nettnin
Middle East Medical Mission Heroes

Andrew Lehman
A New Deal for the Web

Website of the Day
Pentagon Papers II?

Feb. 27 - March 1, 2009

Alexander Cockburn
Is Nancy Pelosi Really Against War Crimes?

Harry Browne
Where the Cheats Have No Shame

Anthony DiMaggio
From Bush to Obama: Seven Years of Wartime Propaganda

Sasan Fayazmanesh
Dennis Ross and Iran: the Fox and the Chicken Coop

Mischa Gaus
The Banks' War on Workers

Felice Pace
The Economy and the Big Picture

Mike Whitney
Is Free Market Capitalism Possible Without Accountability?

Lee Sustar
Blaming the Autoworkers

Peter Lee
The Other Side of the Coin in Afghanistan

Nicole Colson
Ruining Young Lives for Profit

Roger Burbach
Et Tu, Daniel? The Betrayal of the Sandinista Revolution

Rannie Amiri
King Abdullah Has No Robes

Missy Beattie
Owning Disaster

Dave Lindorff
America's Stupid Health Care Debate

Robert David Steele Vivas
Intelligence for the President--and Everyone Else

John Ross
Teotihuacan Gets Mickey-Moused

Ralph Nader
Civic Heroism Awards

Yves Engler
Haiti's Harsh Realities

Alan Farago
The Story of Leonard Abess, Banker

Zulfikar Majid
Understanding Kashmir

David Yearsley
Don't Stay Up Too Late, Johan!

Charles R. Larson
Sleeping with Dogs

Kim Nicolini
Spitting at Dark Times: Mike Leigh's "Happy-Go-Lucky"

Lorenzo Wolff
So You Wanna Be a Garage Rock Star

Poets' Basement
Puthoff, Payne, Gaffney and Gray

Website of the Weekend
Sleep Now in the Fire

February 26, 2009

Dave Lindorff
Obama's Address to Congress

Jonathan Cook
Israel's Military Mephistopheles

Patrick Cockburn
Did the US Learn Anything in Iraq?

Mike Whitney
The Geithner Put

Eamonn McCann
"Make Bono Pay Tax"

Tim Wise
Eric Holder and the Whitewashing of Racism

Tom Barry
Napolitano's Hard Line

Harvey Wasserman
Obama's Excellent Atomic Omission

Adam Turl
The Enemies of Unions and the Lies They Tell

David Macaray
When People are Fired Illegally

James McEnteer
Rush to the Rescue: Limbaugh's Secret Plan to Save the Economy

Website of the Day
The Carbon Casino

February 25, 2009

Chris Sands
Afghanistan: Chaos Central

M. Shahid Alam
Israel in 1948: Poised for Expansion

Chris Floyd
Obama's Non-Withdrawal Withdrawal Plan

Dave Lindorff
Wall Street and Bernanke: the Blind Leading the Blind

Norman Solomon
The Slow Pullout Method

Rachel Godfrey Wood
Neoliberals Do The Amazon

Niranjan Ramakrishnan
Teacher and Student: the New Class Struggle

Ron Jacobs
It Ain't Over Till It's Over

Nadia Hijab
The First Waltz

Dennis Loo
The Water Line

Website of the Day
Hitchens Gets Stomped by Syrian Nerd

February 24, 2009

Paul Craig Roberts
How the Economy was Lost

Uri Avnery
Coalition Theory

Peter Morici
Is Nationalization Inevitable?

Jonathan Cook
Arab Parties Face Most Hostile Knesset in History

Paul Fitzgerald /
Elizabeth Gould
The Man Who Shouldn't be King (of Afghanistan)

Andy Worthington
Who is Binyam Mohamed?

Brian Horejsi
Crisis Creates Hope for Reality

Julia Stein
I was a Writer for the Government

Norm Kent
How Judges Disgrace the Bench

Rachel Smolker /
Brian Tokar
Biofuels, Promise or Threat?

Dennis Loo
The Water Line: Doing What Must be Done

James McEnteer
The Oscar for Denial

Website of the Day
How to Destroy a Fox News Anchor

February 23, 2009

Michael Hudson
The Language of Looting

Mike Roselle
On Cherry Pond: Going Up Against Big Coal in W. Virginia

Patrick Cockburn
The New War in Iraq

Franklin Spinney
Obama Steps on the Pentagon Escalator

Einar Már Guðmundsson
A War Cry From the North

Ralph Nader
How Credit Unions Survived the Crash

Jordan Flaherty
A New Orleans Intifada?

Helen Redmond
Ted's Table: Kennedy and the Corporate Lobbyists Craft a Health Plan

Dennis Loo
The Water Line

Harvey Wasserman
Jet Crashes and Nuclear Reactors: Feds Ignore a Serious Risk

Terry Lodge
The Intelligence is Wrong

Website of the Day
BadCreditReport.Com

February 20 / 22, 2009

Alexander Cockburn
The Lawyer's Tale

Michael Neumann /
Osha Neumann
Remove Our Grandmother's Name from the Wall at Yad Vashem

Ismael Hossein-zadeh
Herbert Hoover Copycats

Paul Craig Roberts
Bill of Rights Under Fire

Linn Washington Jr.
The NY Post's Chimpanzee Cartoon

Saul Landau
On the Road Again

Marjorie Cohn
War Criminals Must be Prosecuted (And Their Lawyers Too)

Binoy Kampmark
Cricket and Cartels: the Fall of Sir Allen Stanford

Dave Lindorff
Using the Recession to Hammer Workers

David Yearsley
Edward Said's Greatest Musical Writings

David Macaray
A Closer Look at the Employee Free Choice Act

James McEnteer
Last Mambo in Minnehaha

Rick Salutin
A Canadian Looks at Obama

Wayne Clark
South Carolina Nears the Abyss

Richard Rhames
Got Farms?

Stephen Martin
Silver Mist Descending

Mitu Sengupta
Slumdog Millionaire's Dehumanizing View of India's Poor

Charles R. Larson
Slumdog Reality?

Richard Morse
Carnival Ramble in Haiti

Lorenzo Wolff
Desperation in an Unavoidable Groove

Poets' Basement
Three Poems of Tu Fu (Trans. K. Rexroth)

Website of the Weekend
Ron Paul: What If the People Wake Up?

February 19, 2009

Norman Finkelstein
The Cleanser: Lobbyists Whistle Up Cordesman to "Prove" Israel Waged a Clean War in Gaza

Harry Browne
How Ireland Went Bust

Robert Bryce
Why the Promise of Biofuels is a Lie

Brian M. Downing
The Winding Road: From Western Europe to Kyrgyzstan

Fred Gardner
The DEA Chief's $123,000 Flight

Andy Worthington
Obama's Uighur Problem

Wajahat Ali
Aftermath of a Beheading

Laura Carlsen
A New Attitude at the White House Toward Bolivia and Venezuela?

Deb Reich
Gaza: Choose Life!

Christopher Ketcham
Crisis? What Crisis?

Website of the Day
Taking Back NYU

February 18, 2009

Paul Craig Roberts
President of Special Interests

Mike Whitney
Trouble at Treasury

M. Shahid Alam
Afghan Pitfalls

Patrick Cockburn
A Real Surge at Last

Conn Hallinan
Death's Laboratory

Dave Lindorff
Whatever Happened to Antitrust?

Rannie Amiri
The Perils of Blogging in Egypt

Gareth Porter
Pushing Back Against Petraeus on Pullout Risks

Eric Hobsbawm
Remembering V. G. Kiernan

Christopher Brauchli
The Pope's Predicament

Martha Rosenberg
It's the Cymbalta Stupid

Website of the Day
Red Gold

February 17, 2009

Michael Hudson
The Oligarchs' Escape Plan

Mike Whitney
The Global Ditch

Ralph Nader
The One-Dimensional Congress

Joanne Mariner
Benchmarking Obama: How to Evaluate the New Administration's Counter-Terrorism Policies

John Ross
Commodifying the Revolution: Zapatista Villages Become Hot
Tourist Destinations

Belén Fernández
The Venezuelan Referendum From the Back of a Pickup Truck

Mats Svensson
Who is a Terrorist?

David Macaray
Why America Needs Labor Unions

Gregory Vickrey
$400 in Change

M. Junaid Levesque-Alam
Another Hamastan?

Michael Dickinson
Unrest in Istanbul

Website of the Day
Take a Stand for Open Access

February 16, 2009

Patrick Cockburn
Iraq Reconstruction: the Greatest Fraud in US History?

Oscar Guardiola-Rivera
The Truth About Colombia's New Emperor

Paul Craig Roberts
Who Remembers Guns and Butter?

Uri Avnery
Livni's Bitter Options

P. Sainath
The Meltdown: Whose Crisis Is It?

Dedrick Muhammad / Michael Brown
White Recession, Black Depression

Carla Blank
A New New Deal for the Arts

Patrick Irelan
Venezuela Ends Term Limits

Dan Bacher
Is Delta Pumping Driving Salmon and Orca Decline?

Fidel Castro
Chavez's Clarion Call

Harvey Wasserman
Hail to the Spleef: Did George Washington Smoke Pot?

Website of the Day
Mining Black Mesa

February 13 - 15, 2009

Alexander Cockburn
On the Rocks

Joshua Frank
The Myth of Clean Coal

Mike Whitney
Geithner's Coming Out Party

George Ciccariello-Maher
Venezuela's Term Limits: More Hypocrisy From the NYT

Nikolas Kozloff
Venezuela Beyond the Referendum

Brian M. Downing
Pakistan on the Brink

Paul Craig Roberts
Deficit Nonchalance

Christopher Ketcham
Israel's Ball Boys

Ron Jacobs
At a Campus Sit-In Against Israeli Occupation

Dave Lindorff
Why Can Judd Gregg See What Obama Can't?

Alan Maass
Lincoln at 200

Chuck Spinney
Grassley Sounds Off on Obama's Man at the Pentagon

Phil Gasper
Mr. Darwin's Reluctant Revolution

Stephen Lendman
A Short History of Business Handouts

Charles Thomson
Tate Cruises: Caveat Emptor on the High Seas

Kathy Sanborn
The Suicide Rush

Saul Landau
Bowled Over

Len Wengraf
The Nightmare in Somalia

Harvey Wasserman
Striking a Blow Against Nuclear Power

David Macaray
An Easy Call for Obama on Joining a Union

Tom Stephens
Four Freedoms, Four Changes

Seth Sandronsky
Lincoln and the Collective Mind

David Yearsley
On the Road Again

Lorenzo Wolff
Freaking Out With Danny Barnes

Kim Nicolini
The Body of the Worker: What "The Wrestler" Says About the State of America

Poets' Basement
Anderson, Buknatski and French

Website of the Weekend
The Iranian Revoution and the US Dual Containment Policy: a Presentation

Weekend Edition
March 20-22, 2009

Solution of Last Resort

Is the Euro Doomed?

By LAURENT JACQUE

Will the tsunami devastating the global financial system undermine the stability of the euro? Its advocates say not. Doomsday scenarios of a partial break-up of the Eurozone have, as yet, failed to materialise. They argue that, over 10 years, the Eurozone has become a haven of peace and stability giving the second world economy a stable currency. In January, the Eurozone acquired its 16th member, Slovakia. And even the Eurosceptics (Denmark, Sweden and the United Kingdom) who snubbed the launch of the single currency in 1999 are having second thoughts: the Danish crown may join up shortly.

The independent European Central Bank (ECB) has single-handedly reined in the growth in the money supply, bringing inflation down to approximately 2 per cent. Average nominal interest rates have stabilised at around 2.5 per cent, while real interest rates are at their lowest since the 1960s. And the abolition of 15 national currencies eliminated exchange risks (1) and transaction costs, galvanizing intra-euro zone trade and investment, which now form a third of its GNP.
In 2008 the euro reached its high against the dollar as the pound collapsed and Iceland went bankrupt. Reassuringly for those in the Eurozone, the euro is emerging as an alternative to the mighty dollar: today it accounts for more than a quarter of all central banks’ foreign exchange reserves and has become the currency of choice, ahead of the dollar, for all international bond issues. As ECB chairman Jean-Claude Trichet said cheerfully: “We are contributing every single day to an ever-higher level of prosperity and we are therefore playing a critical role in the unification of Europe” (2).

For all these glittering achievements, there are signs of malaise. During the last decade the Eurozone’s economic growth was sluggish, unemployment continued stubbornly high and many EU members’ budgetary deficit exceeded the 3 per cent GDP ceiling mandated by the Growth and Stabilisation Pact. By contrast, the Eurosceptics had far lower rates of unemployment (half the Eurozone average), higher growth rates and very low budget deficits (if not surpluses).

The euro has failed to deliver any significant benefits to Eurozone countries, mainly because of structural economic problems for which the euro was never meant to be the panacea. Even so, hopes of reduced unemployment or higher economic growth have not come true. So could the euro be partly responsible for the vicissitudes of the last decade? And will it survive unscathed the crisis engulfing the global economy?

The launch of the euro in 1999 was a politically motivated event which never met the acid test of what economists call an “optimal currency area”. A group of countries (or regions) is deemed to constitute an optimal currency area when their economies are closely interwoven by trade in goods and services, and characterised by mobility of capital and labour. The United States is the longest surviving and most successful example of a well-functioning currency area.

Is the European Union also an optimal currency area? Intra-EU trade hovers at around 15 per cent of the Eurozone’s GNP – significant but considerably lower than in the US. While footloose capital is increasingly the EU norm, labour mobility across Europe is only a fraction of what it is in the US and remains very low within each of its national economies.

Ignoring these problems, the EU launched the euro in 1999 and created a single monetary policy, establishing a central bank and depriving each country of two (out of three) critical policy instruments: an independent monetary policy to tame inflation or spur growth through interest rate adjustments and a flexible exchange rate to keep its economy competitive.

Furthermore, fiscal policy – the third critical instrument – is sharply constrained by the Growth and Stabilisation Pact which caps the budget deficit for each country at 3 per cent of GDP. National debt should not exceed 60 per cent of GDP, with notable exceptions such as Italy and Greece, which breached the ceiling at 104 per cent and 95 per cent of their GDP respectively. Structural and cyclical differences between individual EU members are clear; so the Eurozone’s reduced economic policy deftness is of particular concern in the event that one member country suffers an economic shock that does not affect the rest.

If the Eurozone were really an optimal currency area, a country in trouble would be able to adjust through the mobility of its labour force within the rest of the Eurozone, the flexibility of wages and prices, and/or a budgetary transfer from Brussels to help it out. None of these conditions were met when the euro was first launched, nor is there any sign that member countries are putting in motion structural reforms to bring the Eurozone any closer to becoming an optimal currency area.

The third condition – which is easier to meet – calls for a hefty dose of “fiscal federalism” and would transfer significant taxing and spending power away from national governments to the EU. This transfer remains elusive for fear of further diluting national sovereignty.
Indeed the EU – which itself has limited taxing power (no more than 1.27 per cent of GNP) – cannot make stabilizing fiscal transfers to smooth out national shocks. The brunt of the responsibility for fiscal policy remains in the hands of national governments, with Brussels accounting for less than 3 per cent of Eurozone government expenditures.

This stands in stark contrast to the United States where more than 60 per cent of government expenditures occur at the federal level. The US also has high labor mobility and greater wage flexibility than Europe. Even Germany’s reunification, which joined east and west in a single mark in 1991, hardly created an optimal D-mark zone: in spite of fiscal transfer in excess of 200bn euros over a 10-year period, unemployment remained stubbornly high (close to 20 per cent) in East Germany.

In its first 10 years the Eurozone has experienced at least two main “asymmetrical” shocks which did not impact all its members uniformly: the overvalued dollar from 1999-2002 and the oil shock from 2005-8. In the case of the dollar, those Eurozone countries dependent on international trade have experienced faster imports-induced inflation than those oriented to Eurozone trade. Ireland – more of an international than a European trader – experienced inflation at the rate of 4.1 per cent over the 1999-2002 period, whereas Germany – more of a European than an international trader – remained in the slow inflation lane at 1.2 per cent over that same period.

Similarly, the quadrupling of the price of crude oil is impacting on national rates of economic growth and inflation more or less in proportion to their dependence on oil. France, with its lower dependence on oil (35 per cent of its energy supply because of its high dependence on nuclear power), is less affected than Greece, Ireland, Italy, Portugal or Spain, which rely on oil for more than 55 per cent of their energy supply.

The combination of centralized monetary policy and decentralized fiscal policy is resulting in localized differences in inflation which are affecting the euro’s purchasing power in each Eurozone country. Under a national exchange rate, this is easily corrected through monetary policy and “competitive” depreciation/appreciation of the national currency. But this is no longer a possibility: the straightjacket of the euro killed the exchange rate policy instrument and froze monetary policy at the national level. Because of this inability to respond flexibly to inflation, the purchasing power of the euro is rapidly eroding in several countries.

On the basis of labour cost indices in Italy and Germany over the period 1 January 1999 to 30 September 2008, the euro in Italy is overvalued by 41 per cent against the euro in Germany, and Spain and Greece are not far behind. Unless countries suffering from overvaluation can correct the problem through faster gains in productivity and/or wage and price downward flexibility, the problem is not reversible. More importantly, overvaluation is a cumulative process which becomes harder to correct over time. In this vein, the latest round of EU enlargement may – to a limited extent – bring about some price and wage downward flexibility to the Eurozone as firms can make increasingly credible threats to outsource from or to relocate manufacturing operations to Eastern Europe to take advantage of cheaper labour.

To make matters worse, EU countries cling to their own electoral calendars for presidential, parliamentary or municipal elections. This exacerbates cyclical discrepancies across the Eurozone: the run-up to an election is often accompanied by expansionary fiscal policy.

As the world economy digs itself in a deeper hole, the main economic policy goal is becoming to combat the relentless rise of unemployment, which could rapidly reach 10-12 per cent. Spain’s unemployment has already skyrocketed to 13 per cent in the last six months. But fighting unemployment will result in massive budget deficits, which will unravel the Stabilisation Pact and jeopardise the stability of the single currency. Stimulus plans that are being implemented are blowing big holes in the deficit ceiling set at 3 per cent of GDP, pushing national debts way beyond the threshold of 60 per cent of GDP and raising new threats to the independence of the ECB.

Under duress, and facing the bleak prospect of a prolonged economic crisis and deepening structural unemployment, some countries may be tempted to follow the example of the brutal devaluation of the pound. Greece, Italy, Portugal and Spain (whose unemployment often exceeded 10 per cent in the last decade) will not agree to remain “under-competitive” because of the “over-valuation” of the euro.

However traumatic it may be to reinstate national currencies, some countries could decide to abandon the euro to recover their economic competitiveness. This scenario is reminiscent of the major currency crises that rocked the Bretton Woods system of fixed exchange rates between 1944 and 1971, and more recently the European Monetary System from 1979-99 (3). But this is unlikely in the short term, if only because national debts denominated in euros would become very expensive to service with a newly restored but devalued currency for the seceding country. Even so, further deterioration of an already fragile social climate (such as the recent demonstrations in Greece) fuelled by a brutal acceleration of unemployment, may push some countries to this solution of last resort.

Laurent Jacque is the Walter B Wriston professor of international finance and banking at the Fletcher School (Tufts University, US) and HEC School of Management (France)

Notes.

(1) Risks due to exchange rate fluctuations. Prior to the creation of the euro, investors would routinely speculate against the franc, lire or pound. In September?1992, George Soros successfully speculated against the pound as the United Kingdom abandoned the European Monetary System.

(2) Interview in Die Zeit, Hamburg, 23?July?2007.

(3) The European Monetary System was established in 1979and aimed at stabilising exchange rates among European currencies, in effect re-enacting on a European scale the Bretton Woods system of pegged exchange rates. Each currency was pegged to an artificial currency unit known as the ecu, the predecessor of the euro.

This article appears in the March edition of the excellent monthly Le Monde Diplomatique, whose English language edition can be found at mondediplo.com. This full text appears by agreement with Le Monde Diplomatique. CounterPunch features one or two articles from LMD every month.

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