Full Takedown of the Euro

The euro will not survive.

Just one example, out of several in the post, of two nations that have more reason to form a currency union than European nations.
America is Canada’s biggest trading partner by an overwhelming margin — 77 per cent of Canada’s exports went to its southern neighbor in 2014, while 55 of its imports came from there. Canada is also America’s biggest trading partner and biggest export destination. This shouldn’t be surprising given cultural similarities, language, and the ease of moving from one place to the other. Canadian banks operate south of the border, while the high-end manufacturing industry, especially for motor vehicles, is tightly integrated along the Great Lakes region. (This is why the Canadian government contributed to the bailouts of General Motors and Chrysler.)

About half of the foreign direct investment in Canada comes from the United States, while 42 per cent of Canada’s outbound FDI is held in the US. The true economic exposure to the US is probably higher, since roughly 17 per cent of Canada’s outbound FDI is invested in Barbados, the Cayman Islands, and Luxembourg. Similarly, a little more than 8 per cent of foreign direct investment in Canada comes from Bermuda, the Caymans, and Luxembourg.

Around 11 per cent of the foreign direct investment in the US comes from Canada — more than any foreign country besides the UK, after adjusting for tax-minimisation strategies that imply significant foreign investment from Belgium, Luxembourg, the Netherlands, the British Virgin Islands, etc.

Looking the other direction, 28 per cent of US outbound FDI is held in the Bahamas, Bermuda, the Caymans, the British Virgin Islands, Ireland, and Luxembourg. Another 15 per cent of US direct investment abroad is held in the Netherlands, which is also known to be friendly to multinationals keen on cutting their tax bill. Add in Switzerland, Hong Kong, and Singapore, and you get another 8 per cent. Of the remainder, about 16 per cent is invested in Canada, second only to America’s foreign direct investments in the UK. (That number, in turn, may be distorted by the Channel Islands, some of which are also tax havens.)

Canada and the US have long had comparable inflation rates and tightly-linked business cycles, yet Canada, which is roughly one-tenth the size of America, has also been happy to have an independent monetary policy and floating exchange rate:

From 1976 through 1986 the loonie depreciated by a third. Then it rallied against the US dollar by 24 per cent until the end of 1991, sank another 29 per cent through the end of 2002, soared by two thirds until the crisis, collapsed, rose again with oil, and has since plunged around a fourth. As with New Zealand and Australia, this currency flexibility seems to have been no impediment to linking Canada’s and America’s real economies.

All of these examples should have been known to the founders of the euro by the 1990s, yet they moved ahead regardless.
That is one example out of a long post showing why the euro is not only pointless, but a cost and threat to financial market stability because its breakup will likely be messy. Do read the whole thing. When the U.S. dollar breaks out and the euro is headed for its breakup, this will be common wisdom.

FT Alphavile:The euro was pointless

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