Thus it is the ECB which is the crucial determinant of currency stability and the ECB's successive rescue packages which are creating the problems. They are perpetuating a situation where certain economies such as Greece are allowed to run up ever greater deficits - without facing the normal economic consequences. This is quite simply a function of being part of a Monetary Union.
The situation is exacerbated by fears of euro collapse especially on the part of the Germans who fear for their export markets and the French, who are afraid because of their banks' financial exposure.
Of course the right solution is to change exchange rates, i.e. allow devaluation, but that requires the previous 'Foreign Exchange Rate Union'. The alternative is to change the national economy but that is precisely what governments and people do not want and cannot afford because the costs and social impacts are just too great.
The outcome is turning into a political and economic catastrophe as the market prices in the ever growing risks associated with current policies.
Professor Dr Philipp Bagus, author of 'The Tragedy of the Euro', started with the proposition that fiscally independent states cannot operate with a single unified banking system as to do so creates massive perverse incentives. Certain members are allowed to run ever growing monetary deficits, which they would and could not otherwise do, and the response of the ECB is simply to go on buying bonds in a vicious circle which further incentivises the same bad behaviour.
He then explored at length, the many issues surrounding exit from the system, the most difficult and complex of which is the issue of capital flows, bearing in mind that capital will always seek strong, sound, hard currencies and avoids the reverse.
He suggested the following routes forward:
• creating a parallel new currency
• allowing currency freedom / competition
But all require - and it is the only long-term solution - the policy choices of banking and monetary reform, deficit elimination, privatisation, deregulation and flexible labour markets, i.e. those policies which roll back the state and deliver competitiveness.
The alternative of continuing as we are will, in time, inevitably result in the poisonous combination of stagnation, inflation, centralisation and conflict, eventually undermining both democracy and liberty.