Saturday, July 10, 2010

The 5 conditions to join the European Monetary Union






There are the 5 conditions:

1. High trade frequency with the Eurozone
2. Flexible Labour Mobility
3. Harmonised Business cycle with the Eurozone's
4. Sophisticated fiscal policy and a long history of the tight monetary policy
5. Political integration.

The score for the UK:

1. Tick!
2. Tick! But, conditional. The UK should stop the unfair welfair distribution system! The way to select the individuals to gain the benefit much more carefully...
3. No. The financial regulation system has to be more centralised and controlled by the mainland EU.
4. Not too bad compared to Mediterraneans.
5. Conditionally tick. Depends on how the USA reacts, and how the EU performs in the diplomacy. In addition, the nuclear issue is a big matter! The UK nuclear technology sharing must shift from with the USA to with France. All the nuclear plants should be owned by the EU gov't!

The biggest challenge for the UK to join the EMU is the question No. 3. The UK has a strong trade tie with outside the EU, and the UK industry has been sustained by her remarkably famous very liberalised financial market. It'll be a big challenge for the UK citizens to abandon their tradition as the centre of internationan financial market... In addition, the problem of the question No. 5 is France.

France has to abandon her nationalism! France has to make the nuclear technology shared with the EU gov't!



>I'd be keeping an eye on German politics. They are paying for the Greeks and others.

I think (and feel) the continental Europe will survive with the EMU. In fact, meanwhile the EMU needs to enforce transformation (It will be oppressive) to the European Federalism, the economy eventually will be stabilised and face an economic recovery in 2014.


Creation of the "Eurobond" is better than enforcing one country or a few countries to transfer their tax revenue.

If I were the EU governor, I would have made all the Eurozone countries to DEFAULT in order to abolish all the national debt of these member countries. Then, all the fiscal stimulus packages should be paid off by the "Eurobond" i.e. collective responsiblity among the all Eurozone countries. This way will give much better prospect for the economic growth inside the Eurozone so that the Golden Role will be encouraged. In this way, the Eurobond will be more popular to be purchased so that the EU finance will be much lucrative.



In addition, I wonder how the USA reacts, and how France is willing to share the nuclear issue with the UK.

* The advantange for the UK to join the EMU:

1. Becomes easier to establish a branch of Europe in the UK and of the UK in Europe.
2. Financial market is more integrated with the EMU countries so that the risk of shock in the financial market is shared among the EMU countries
3. If the Euro-bond is created (This is the final condition to support joining the EMU!), the UK will take an advantage of the credibility of the Euro and the Euro-bonds (Creating the common currency also requires the common bond i.e. abolishing the national debt system)

But, whereas there are various advantages, I am a wee bit still sceptical about this integration...

1. The power of trade unions need to be diminished (Which is good, but the wage bargaining power of labourer in the entire EMU needs to be 10% or below so that the riot of labourers may occur)
2. The fiscal policy should be dictated by the EU central gov't, and weaken the dicision making power of the national gov't (especially during the first step of the estabilishment: It can allow more decentralisation after the status-quo of the EU federation is stabilised)
3. Immigration law for non-EU skilled labour force will be much stricter than now so that I am wondering if """I""" may have a disadvantage :( (This is the statement the UKIP put emphasis on)

Why The United States, Europe, and Japan are heading toward deflation, a classic prolonger of crises. further?


If I were a governor of central bank in any of them, I would have "INCREASED" the interest rate rather than putting it down to the zero rate...! :(

We'd rather better "restrict" money supply to increase the value of currency and increase the interest rate to encourage the trade of national debts! The investment rate won't increase due to the liquidity trap anyway so that we'd rather better decrease the excess supply (of capital), i.e. cutting down the unnecessary supply in a Short run. In the middle run, as savers gain the interest rate, unnecessary enterprises will be closed down, some productive enterprises will put a prise rise so that labourers (mainly unions) will also start bargaining for their wage, etc in the middle run.

Speaking of national debts, we'd rather better increase the interest rate in order to stimulate the demand for buying debts as a traded equity. As the interest rate starts going up it means the price inflation of these bonds. As the inflation of commodity, i.e. national debts, people start buying them and trade each other. As the exuberance to buy a national debt is encouraged, the public fonding is coming into the gov't budget i.e. the Golden Role occurs.

Are the bunch of buggers working in these central banks and major financial institutions real elites? I often think I'm much superior to them? Ain't I insane to say that?? Oh, God...



>will be the biggest challenge to democracy since the Second World War.

As I said in my blog, according to Kondratieff, we are now in the "Winter" which will cause the huge mass destruction as same as WW2 and Spain-America War. Until reducing the excess supply of capital and discovery of a new techology and/or a new natural resource take place, the winter won't end.

>I really do not think governments will be able to take the people with them when it comes to reducing our respective deficits unless the private market fills the gap.

I always claim people that the IS-LM model fails! It is useful to demonstrate a plausible explanation to indicate how the monetary and fiscal policy work. However, this model isn't proven by any statistic analysis. As Prof. Paul Krungman said many economists say lie. The IS-LM model always encounters the simultaneous problem (impossible to predict the change by using explanatory variables because these explanatory variables are also influenced by the dependent variable) and depends on the "sensitivity" of variables e.g. interest rate, tax, etc. As a matter of fact, I should be called a radical government sceptic. Although I admire the analyses introduced by J.M. Keynes, the possitive planning always suffering from "sensitivity dependency", "effect lagging", "violation of equity", etc.