Euro vs. Engineering: If it doesn't bend it'll break

There’s a simple rule of thumb in engineering which says: “If it doesn’t bend it will break”, or in more general terms: “if there is no give, it will break”. That is why if you examine any bridge (that is still standing), railway or large building you will discover expansion joints. These are joints which allow the structure to expand and contract due to e.g. temperature otherwise as the structure expands due to rising temperature, the pressure due to the increase in size will rise and rise and rise until something has to give: either the structure will bend, warp or even break completely. In some instances the whole structure has collapsed simply because of the repetitive stress due to temperature change.
So, e.g., if you build a large brick wall, then approximately every 5m, there should be a movement joint, as otherwise the expansion and contraction due to heating/cooling will eventually create enough stress to force it’s own expansion joint, or as most people know it: a crack.
The situation becomes even worse, if the building has foundation built on materials with different characteristics. If one end is on stone, and the other on clay which expands and contracts as it gets wetter and drier, then the one end will stay where it is, whilst other moves up and down. Either the structure will have a built in expansion joint; or it will create one! Worse still around where we are, there are large areas of soft peat. In such a situation, it is only possible to build by creating an enormous “raft” of reinforced concrete. The concrete still moves but, because it remains rock steady because of it’s internal strength, the whole structure stays together. But if you were stupid enough to build on a mixture of peat and rock even on clay and not build in expansions joint then you are bound to see the whole structure crack and eventually fall down. You cannot build on such a foundation; unless you create a massive massively strong foundation which can support the entire structure and even out the uneven support from the bedrock.
The Euro
And that is the problem with the Euro. The various economies in europe have entirely different engineering properties when it comes to foreign exchange value. Germany could be compared to a rock, Greece to a boggy bit of peat. Others to clay … sometimes firm, sometimes soft. When Europe was a coalition of independent economic units, each had a “movement joint” between it and the next: the exchange rate. As some economies moved ahead, their exchange rate would reflect this so that their currency would be worth more, their buying power would increase, countries that did less well would devalue, their wages would effectively drop compared to the world average (without active intervention by government) the cost of imports would increase, meaning that countries doing less well would gain massively from a lower currency winning exports and as their price dropped and selling more to home markets as the cost of imports grew.
In contrast, countries doing very well economically, would find their currency increasing in value with the result that foreign exports would go down, imports would increase meaning that those doing well naturally tended to start spending in those doing not so well. The result was dynamic stability:  repressed growth of those surging ahead, boosted growth for those not doing so well tending to keep the whole system aligned with small by gradual movement between areas. In effect the system of independent states meant that those doing well economically, naturally tended to support those doing badly because wages drop in those areas doing badly WITHOUT ACTIVE INTERVENTION, meaning that workers in areas doing less well get a cost advantage meaning they attract work.
But, what happens if you have a single currency? Let’s say one part of country has a disproportionate spending on transport infrastructure (like the SE of the UK). For obvious reasons, employers will prefer prefer to locate where there is a good transport infrastructure. But as unions and employers, particularly government tend to have national wage agreements, the workers in other areas will always insist on the same wages, with the result that any employer with a choice will always go to those areas with the best transport infrastructure … which in turn tend to have the best trained personnel, which in turn tends to attract even more employment. The result is a huge regional unemployment – unemployment blackspots, and unless the economic area is willing to create massive trans-area subsidies, the result is social unrest, a breakdown of a sense of a “single” nation, even overt hostility, the growth in extreme parties, etc etc. An economic area cannot exist without active management to address areas of economic decline by taxing those doing well and investing in those doing less well in the hope of creating enough economic parity to keep the whole unit together. That is the essential foundation of any economic unit that will ever work. A supportive mechanism that allows the strong to support the week … just as a single building foundation allows the whole structure to stay together on an uneven structural support.
To put a figure on it. If one country has a growth rate of say 3% and another only grows at 2%, then it is a simple calculation to work out that there is a differential economic growth rate of 1%. That means you either have to allow a “differential movement” of 1% each year between the two, or … you have to transfer payments between the two of 0.5% (for same size countries) so that you realign the growth … in effect that area not doing so well, grows not wealth it has created, but from wealth created in the more prosperous area. So, long as these transfer payments continue, the two can stay as one economic unit movement together and maintaining the same overall growth rate.
But of course, such transfer payments are hugely contentious. The rich areas resent the tax, the poor areas resent being the recipient of “charity”. It gets worse when the problem is badly run countries. The rich resent subsidising the stupidity of the poor, and eventually insist that the poor give up their “welfare” policies and focus on the “work ethic” of the better off areas. But isn’t it natural that areas doing well will tend to vote in “economic parties”, who will keep the economy thriving and reject the “nice” parties who do well in areas of economic problems where there is a much bigger problem because of the relative poverty. So, different areas are likely to have very different priorities – entirely different politics; politics which could be the real cause, OR it could be the symptom of relative poverty but be seen as the cause by those who end up having to subsidise the poorer areas to keep the whole economic unit together.
In short, you cannot just tack together an economic unit and hope it will stay together. But what did the idiots who ran the EU decide to do? They decided to join the whole Euro zone together into one massive massive structure – to remove all the movement joins … WITHOUT DOING ANYTHING TO CREATE A SINGLE FIRM FOUNDATION.
In any economic unit that works, in place of the normal movement joints needed between independent economic units, you have instead a massive reinforcing structure of economic subsidies aimed at supporting the areas doing less well. To compensate for the inability to realign their currency, the areas doing less well have to be “propped up” by the rest. They have to be literally supported by a rigid massively strong system of financial support that will never break.
But the Euro was never built on such a foundation. In truth it was like a gerry built extension, with very shallow foundations, built on peat which only stayed in one piece for a very short time before the cracks started to appear. And then instead of admitting the foundations were woefully weak, the cracks were just plastered over and hidden – only to reappear much bigger and bigger and bigger, and they will keep growing unless or until they either admit that they needed movement joints (exchange rates) between the different speed economic zones or they admit they needed much much better foundations.
But what do we see? The builders haven’t a clue what they are doing and instead of creating movement joints or tackling the foundations, they have instead attached massive iron bars to the side so that instead of the part of the house built on peat slowly sinking on its own into the mire, it is now hanging precariously off the rest of the structure with the inevitable result that the whole building is under massive strain … sidewards strain it was never built to take, and the cracks are beginning to appear everywhere.
All I can say, is thank goodness the idiot spin-doctors in NewLabour never got us into the Euro, but even so, if you live in the house next to one about to fall apart … it’s always possible that as their structure falls down it could bring ours with it!