Artificially Low Interest Rates in Europe

My chart of the day, illustrating a pretty brutal reversion to the mean:

Of course, all interest rates in a fiat system are artificial. Interest rates are the price of money, and if a central bank is determining the level of money, then they are in effect determining the level of interest, which is one reason why sovereigns who borrow in their own currency do not tend to face a danger of rising interest rates even at high levels of borrowing.

The post-Euro low-rates euphoria was a cunning trick: the single monetary policy disguised each state’s true fiscal picture. Fiscal union might have prevented this blowup, but introducing it now seems unlikely given Germany’s severe aversion to such a thing.

If AIG is considered ‘too big to fail’ what does that make the Eurozone given the very high levels of integration across the global economy today? (I don’t have the answer, but I think we can all guess).

14 thoughts on “Artificially Low Interest Rates in Europe

  1. It seems there was always the assumption that it’s a debt union (the others won’t let anyone fail) even though it was written in law that it’s not a debt union.

    Or perhaps my above interpretation is just simplistic. More likely, everyone just believed in the myth of infinite exponential growth under the auspices of the “unprecedented” stability/democracy brought about by the EU.

    • In politics, always assume an outcome beneficial to its instigators to be deliberate. “Whoops! We screwed Europe, so now you will have to give us what’s left of your sovereignty to fix it”. What is it with Germans and French and their born to rule mentality?

      • Well Jean Monnet believed Europe would centralise and gain powers through crises.

        Perhaps more significantly Romano Prodi is famed to have said that the Euro did not have the right policy tools to contain crises at its inception. They just assumed crises would give them an opportunity to adopt those tools. I think this is unspeakably stupid. Crises are, by definition, non-linear. It is so damn easy for them to get out of hand and break the entire institution.

  2. The Fiscal Union was the end game. How could they have passed the Monetary Union, if they said “lets do a Fiscal Union and BTW we can have a similar currency too”

    A United States of Europe is a certain bet. Most young people are happy to be one Federal Continent. The UK is just pompous, arrogant, and would never joing. Hence why it kept the Pound. It knew this would happen. Eventually.

    Perhaps a “Commonwealth” Gold or silver Backed Currency. The Pound!

    USD (The Americas)

    Pound (The Commonwealth)

    Euro (Continental Europe and Russia)

    Yuan (Asia)

    African can choose between Colonial powers. i.e. South Africa the Pound and Algeria the Euro.

    • Here in Australia we could make the argument of splitting our currency to deal with our two-speed economy. Western Australia has little in the way of manufacturing, but a lot in the way of mining. Alas, our constitution does not allow it, although secessionist feelings still exist there.

  3. Buddy, while I know for a fact that the long game-plan for the world is one of competing currency unions, your notion that Russia will join the Euro is wrong. They will be part of the Eurasian Yuan-Rouble area.

    • I disagree. The youth have been brainwashed into being part of the EU. Russians see themselves as Europeans, as opposed to Asians. Even the Asiatic Russians try to cling onto European class structures.

      The revolt in Russia, like the Orange revolution is promoting Pan EUism. I am a hardcore Slavic Unionist, but I fear the youth are supporting EU integration.

      Russia was always excluded from European royalty, because the Czars had Mongol bloodlines. However I think the time is ripe, for the invitation to be extended to Russia.

      Reminds me of the German Russian Von Ribbentrop treaty prior to WW2

    • In fairness to the UK, we’re not in their stinking boat, because we have our own currency in which most of our debt is denominated. Certainly our economy would suffer from a Euro collapse, but possibly not quite as much as some think, as we would undoubtedly benefit from the flight of capital.

  4. Pingback: What Are Interest Rates And Can They Be Artificially Low Or High? | azizonomics

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