The Euro - the beginning and end of it

A currency union can't survive by combining less competitive, smaller economies  with more competitive, larger economies without a common fiscal/borrowing system and/or labor mobility across the territories.  Before long, the currency follows the bigger more competitive countries, and the smaller less competitive ones are left with an ever decreasing ability to produce/compete/grow, thus resulting in employment loss, decreasing growth and ultimately stagnation.  The only way out for these countries is to: (1) catch-up in competitiveness (not possible in the short-term), (2) for the smaller countries to coordinate salary deflation across public and private sectors at the same time (not possible outside of a brutal dictatorship), or (3) to devalue and adjust prices via the currency mechanism.  In summary, the competitive adjustment needs to happen via the relative prices (if currency is fixed) or via the currency if its floating.

As such, the Euro's survival looks very bleak, unless Greece, Portugal, Ireland and Spain (And Italy) can catch-up in competitiveness... or most likely - they'll get out of the German straight-jacket.

I wrote two posts earlier on this:
http://jtolosa.blogspot.com/2010/05/euro-clock-is-ticking.html
http://jtolosa.blogspot.com/2009/04/spain-new-argentina.html
and its surprising to me how long it takes for the general consensus to agree to the above reality - which has been lived over and over again during the last 40 years.

The European dilemma was exacerbated because so much credit flowed into these weak countries which was put to work in unproductive assets, thus creating debt that was ultimately not able to be repaid (due to the asset bubble and the reality of the lack of competitiveness), thus, advancing the day of reckoning.

No matter how far the can is kicked, these countries will need to get out of the Euro because we were not all created equally competitive... and the difference in competitiveness needs to be reflected in relative wealth at some point... and the only democratic and equitative way of pushing through the difference in wealth (without people noticing) happens to be an exchange rate.... let exchange rates float, and the market dictate how rich or poor countries become... fixing currencies with larger and more competitive countries is like creating a vision of an oasis in the middle of the very dry desert...