European powers battle it out- (19.06.05)

The continent of Europe used to fight wars over territory and trading rights. One of the reasons for founding the European Community was to avoid similar wars in the future by having common approaches and economic policies that would allow the whole continent to develop in parallel. The recent rows over the EU constitution and budget seem to indicate that a historic debate is far from being settled.

The Euro was meant to resolve these sort of conflicts. In fact, it has exaggerated them somewhat. This is hardly suprising as not allowing exchange rates to vary between countries means that differences in economic policy are more likely to come into focus. Companies with less successful economic policies, perhaps those who prefer social protection to economic development, are more likely to notice the impact in a fixed exchange rate environment than with floating exchange rates. Italy has perhaps noticed this first, being traditionally the weakest of the large European economies within the Euro. The Netherlands and Ireland may be smaller economies than Germany or France, but their presence in the Euro still has an impact on the larger economies suffering from Eurosclerosis. It is hardly Britain's fault for the failings of the German or French economies as they are not in the Euro. Blaming liberal Anglo-Saxon economics is genuinely a diversionary tactic rather than having any real economic basis. A country may be correct in providing social protection rather than promoting free market economic growth, but when they are tied into a fixed currency area based on free market trading principles they should hardly be suprised that the negative economic effects of the social policies are accentuated.