Irish Banks, Debt & the Euro Crisis - the Collapse of the European Dream?
There has been enormous coverage in the press recently about the Irish banking and debt crisis, the crisis in the Euro and the anxious diplomatic manoeuvres to keep the European Union together. It is a rarely paralleled birth pang in the development of a confederated union of nation states.
Lest we forget, the important thing to remember about the fiat currency systems that underpin it all is that ultimately they are intrinsically worthless electronic credits, paper and low/variable value scrap metal. Thus, global economic trade from street bazaars to the trading houses of Wall Street, involves exchanging tangible goods and assets of real practical use and real value for something that is essentially intrinsically worthless. Strange as it may sound, people work long hours in difficult jobs the world ore in exchange for something that is intrinsically worthless. That is the stark nature of things. Of course the 'gold standard' is long gone, and it is probably certain never to be re-introduced in a complete form, at least formally. However, what has replaced it is odd, deceptive, usurious and altogether more interesting. It might best be described as the 'consumer standard'.
Essentially in practice consumers, rather than the issuing banks, are backing the currency, by providing goods and services that it might be exchanged for, or a 'claim on resources'. The perceived value, perceived confidence and the ready acceptance value and exchange of fiat currency within an economy is founded on the generally reasonably reliable confidence that we will find someone else willing to accept it, in exchange for goods and services that we ourselves need. It is part of a large number of reasons why real inflation values of essential goods and services are so high, as (highly quantitatively eased) fiat currency is chasing assets of real value within the economy, such as commodities. When the US and the UK turn on the printing presses of their central banks (creating new 'claims on resources', often abroad, in the resource rich developing world) it forces other countries to do the same. Stoking the cost of important commodities, pricing food outwith reach of their own poor, and inflating the value of their currencies relative to others.
Currency is simply a product itself, issued by central and retail banks, intrinsically worthless of course, but a useful, and essential transitive means of accounting for and exchanging a common value for goods and services. But it never in practice, strangely enough becomes a 'claim on the resources' of the issuing bank.
However, a little mentioned or megaphoned point in the global mass media is that fiat currencies can - and very often do - become virtually worthless overnight due to loss of confidence, a disaster, an electronic or other systemic collapse or government decree. Witness the Russian rouble in the 90's, East Germany currency post reunification, the temporary issue with the Icelandic Kroner in 2008 and the Zimbabwe situation. Government decree that they would back the collapsing occidental banks following the 2008 crash, preserved confidence in many currencies, and in many notable names in world finance. But government decree isn't always to be relied upon. For those who have a stake or exposure in some way to the Euro (and that to a lesser or greater degree is the whole world), it always pays to hedge your bets though. My feeling though is the survival of the Euro is probably assured. In the unlikely event it collapsed, it would probably be interchangeable favourably or on comparative terms with whatever currency replaced it.
Without a readily accepted common currency European trade and commerce, from the High Street up, would virtually collapse overnight for months, even years. So the motivating factors for preserving and bolstering the Euro, between citizens and government, and between government and corporations (much as we sometimes often loathe them, and much as they often loathe each other) is very high.
Relatively peaceful though things may outwardly appear in civic society, not since the collapse of the German Weimer Republic and the assassination of Archduke Ferdinand of Austria, have the stakes, the risks and the dangers in Europe been higher.
