[brannelford]

From where I sit, it appears Freki was right about the Euro.

Personally, I think Denmark and Sweden were right to avoid using the Euro. As smaller nations, Denmark and Sweden would run the risk of Germany/France (Merkozy) shoving its political and economic agenda down their throats.

This is the problem Greece is facing. It's an economic question. Greece needs to implement austerity; but the irony is that implementing austerity is going to restrict GDP growth, thereby putting Greece into a recession, and thereby further limiting its ability to pay its debt. Previously, Greece could have dealt with this by lowering its drachma, but the drachma no longer exists, and because Germany is economically stronger, the Euro cannot be lowered just to suit Greece's economic problem. To add insult to injury, Trichet goes and raises the interest rates, further exacerbating Greece's problems.

In a proper federation (or economic union), the stronger provinces help pay for the weaker ones, in order to help the union/federation maintain its optimal GDP. In Canada, we call this Transfer Payments, whereby funds from provinces with a stronger GDP will go to help support weaker regions. While this is no doubt controversial in Canada, most tend to agree that its the price one needs to pay in order to help maintain economic cohesion in the federation, and to prevent one smaller region from becoming an economic basket case.

Getting back to Europe, Germany seems to have chosen to completely ignore this principle of "Transfer Payments", as from what the press is reporting here, Germany appears unwilling to help Greece, even though it is demanding harsher austerity programs. Something tells me that Germany is more interested in protecting its banks (or those Germans who loaned money to the Greeks) than it is in protecting the broader unity of the European Union. Let's not forget that Germany's GDP has benefitted from having a lower Euro, yet it seems unwilling to help other regions in the Euro. Were Germany still using the deutschmark, its currency value would undoubtedly be higher, and German exports would be correspondingly lower. Despite this, Germany has reverted back to nationalistic interests, as I mention above, judging from its apparent unwillingness to lend more support to Greece.

Therein lies the problem, and this is the reason why Denmark and the UK are probably right to stay away from the Euro.

When push comes to shove, Europe will retreat back to its nationalistic interests, and those who are the biggest fish in the pond will get to call the shots. Freki is right when he suggests that Denmark would be under pressure to streamline its social programs (i.e reduce benefits) if a situation ever came about whereby Denmark was beholden to the Euro (as Ireland, Spain, Portugal and Greece have now become).

Years ago, a few economists were calling for an "Amero" similar to the Euro to cover our NAFTA trading zone between the US, Canada and Mexico. For a while, with all the Euro hype, I was worried this idea might gain traction. Thankfully, with the utter & complete mess of the Eurozone over the past few years, any talk of an Amero has long since passed.

Freki is right. A free-trade zone can work just fine with multiple currencies. NAFTA is an example. At the same time, by having its own currency, Canada is able to control its own interest rate, thereby retaining the ability to establish an independent monetary policy that is beneficial to Canada; and also to maintain many of the social programs which may be under pressure were Canada ever to find itself under one currency effectively controlled from Washington (Just as the Euro is now effectively controlled from Frankfurt).