The Eurozone Club: Part II

January 14, 2014

It’s been just over a week since commenting on Latvia’s joining the eurozone on Jan 1, in Part I.

One of Riga’s most popular lunch spots, Stockpot, remains on holiday / vacation, as they have pledged to do so for a two week stretch, until 15 January, when the lats will no longer circulate side-by-side with the euro, and thus avoid the headache of on-the-fly accepting lati and returning euros from customers.  Many other small businesses have sensibly done the same.

Mailer on euro transition sent to Latvians. Peppered around it is the tagline “Our Money.”

We’ve established that all new EU countries since 2004, of which Latvia is one, have by default made the Hobson’s choice to join the eurozone.  Latvia had to do it sooner or later, as will Poland, Czech Republic, Hungary, Romania, Bulgaria and all future members.  This in spite of the majority of Latvians being against it.  In order to join, however, they had to first meet the guidelines laid out in the Maastricht Treaty, which was signed in said city back in 1992.  As reviewed in the last post, since the euro’s introduction in 1999, nearly half of all countries already in the eurozone don’t follow their own benchmarks, for the first three criteria of price inflation, government deficits and debt.

This post will review the last two points of Maastricht, as well as bring in additional local and macro views on the situation.  I sum it up with thoughts from Chris Martenson, Mike Maloney and Doug Casey, all specifically interviewed for this article.

Eurozone Rule No. 4: Stable exchange rate

Latvia needed to peg its currency to the euro for at least two years, and not suffer from devaluation or anything else bad during this span.  The Bank of Latvia kept its exchange at a rate of approximately 70 santims (Latvian cents) to 1 euro.  When times were really tough, in the depths of 2009 and 2010, many outsiders like the IMF were pushing for Latvia to devalue its peg, which would help its exports (also would have bankrupted those with excessive debts in euros and income in lati, which happened to be most of the country).  It did not, and instead, as mentioned in the last post, pushed real, tough austerity measures through, choosing to devalue “internally.”  Watching Greece or even the US ever try this would be laughable.

Many other CEE countries in the EU, such as Poland (no recession since end of communism), the Czechs and Hungary have not even planned on taking the step to peg their currencies to the euro, presumably because they’ve seen the mess it can cause.  But again, it is a requirement of the EU that they eventually do this as a first step to eurozone entry, like it or not.

We cannot exactly review this criterion in the context of current members under the Stability and Growth Pact as we did the first three criteria; however, we can review this standard in the context of the euro itself.

What’s your measuring stick?

Admittedly, at this moment in time, the euro certainly isn’t under-utilized.  Though mandatory, it’s the transacting lubricant for 333 million people across Europe.  At nearly 25% of global bank reserves, it is second only to the US dollar in circulation.

In that sense, it’s stable.  But it’s no secret that fiat currencies are in a race to the bottom, something we don’t need to prove here.  A new currency system will probably emerge in the very near future.  So I won’t spend much time on the euro’s stability relative to other fiat currency units, as their central banking authorities are all printing like mad.

Let’s look at just one example, which illustrates a few points.  The place is surrounded by euro demons on all sides: Switzerland, and its franc:

Source: Oanda

Among the assortment of reasons why Switzerland has traditionally been a safe banking haven, it was, indeed, the last country to lose gold backing to its currency… detached by their bankers and politicians only in 2000.  Such history was certainly recognized by markets in 2007, when the gears started to creak in the world’s financial framework.

From October 2007, the euro slid at a 10% compounded annual rate against the franc over four years.  Keeping in mind our rule of 72… such a pace would have halved the Europeans’ purchasing power versus the Swiss by 2014.

But of course, giving in to the moans of the Europeans (as well as big business exporters in its own country), the Swiss central bank put the kibosh on its safe haven status and joined the currency wars in August 2011.  They put the brakes on by printing and selling francs, targeting a floor of 1.20 of their currency to 1 euro.  As you can see, it remains there today.

Never ending is the intellectual hubris that endlessly spars back and forth when it comes to currencies… and economics, for that matter.  If your currency becomes “too strong,” your exports “suffer” they say.  However, your own people would still be getting richer.  I don’t buy into the “too strong” argument myself; but in any event, the point is that the Swiss, rather than enjoying the fruits that come with a well-managed and strong currency, have joined the race to the bottom with the rest of the world’s fiat currency units.  They are now debasing their own franc in tandem with the euro.

In any event, looking at one government fiat unit against another doesn’t usually paint a clear picture, even if you’re comparing something as pathetic as the euro with something as prestigious as the Swiss franc.  The yardstick just gets moved around too much.

Let’s look at gold.

Gold has been trusted for thousands of years, seen as a store of value across civilizations, and has been negotiated as a unit of account across innumerable contracts.  Gold shows us that oil is actually cheaper today than it was 40 years ago, if you kept it in your wallet to pay, which isn’t allowed by our leaders.

Here’s how the euro has stacked up against gold since inception:

Source: Kitco, Oanda

This is too easy, I know.  One can certainly argue that the current (and I would contend, still ongoing) bull market in gold lines up very well with the introduction of the euro in 1999.  And yet, there has been some pressure on gold versus fiat currencies, as 2013 saw gold’s first annual drop since 2000.

But look around the world today and ask yourself… Look at the tables in Part I and ask yourself… Do you think gold will go back to 200 euros per ounce anytime soon?

Even with the current retrenchment of gold… The yellow metal has appreciated at a compound annual growth rate of nearly 9% over the past 15 years.  Though it’s taken a big hit in recent trading, it’s still on pace for its second doubling by 2015 (72 / 9(%) = doubling every 8 years).  It’s volatile at these levels no doubt, but the long term halving—and then halving again—of the euro’s purchasing power against gold—a six thousand year old barbarous relic—should tell us something.

Bitcoin

2013 was no doubt the breakout year for the cryptocurrency.  One year from now, when Lithuania joins the eurozone, if Bitcoin gains as much traction in 2014 as it did in 2013, all the analysis in these posts may be irrelevant anyway.  All the mismanaged budgets, deficits and debts, inflation, instability, and encroaching costs on individuals’ freedom to transact, whether you’re in the euro, dollar or yen may not matter at all.

Because you’d have an infinitely safer, better alternative.

Such a paradigm shift is this concept.

Apparently the European Central Bank is aware of this.  Said the ECB itself in its own review of Bitcoin in October 2012:

If the use of virtual currency schemes grows considerably, incidents which attract press coverage could have negative impacts on the reputations of central banks, if the public perceives the incidents as being caused, in part, by central banks not doing their jobs properly.  As a consequence, this risk should be considered when assessing the overall risk situation of central banks.

One can only note the irony in their labeling the cryptocurrency as a “scheme.”

They also correctly note the aspect of freedom and choice that the Bitcoin framework is based on:

The theoretical roots of Bitcoin can be found in the Austrian school of economics and its criticism of the current fiat money system and interventions undertaken by governments and other agencies, which, in their view, result in exacerbated business cycles and massive inflation.

It almost seems like they’re listening.  Of course, the actions of the ECB and other central banks rarely reflect any cautious recommendations from their staff white papers.  Their printing will continue.  It’s all they know how to do.

Now for a chart that will make you laugh, or cry, depending on if you were long Bitcoin at the start of 2013:

Source: Mt. Gox, Bitcoin Charts, Oanda

Parabolic.

You’re looking at the fifth year of this currency in operation.  If you’re curious, that compounding rate worked out to a doubling of Bitcoin’s purchasing power every 4.7 days versus the euro in 2013.  And it all came in the last two months.  Amazing.

Now, there is no shortage of people claiming Bitcoin is a bubble or Ponzi scheme, even in the ranks of Austrian economists.  It admittedly does look that way, simply looking at the chart.

However, there are plenty of reasons to believe we are witnessing the first ever hyper-monetization of a major competitor to government fiat currency units, and it could sustain itself.  Chiefly among them, are the amount of vendors and businesses that are (and will be) accepting Bitcoin to settle payment.

Similar to the previous charts, it might be illustrative to invert this, to show how the euro has been losing its value against Bitcoin, as it was with the Swiss franc and gold:

Source: Mt. Gox, Bitcoin Charts, Oanda

Time will tell if Bitcoin solidifies itself as a formidable means of exchange, claiming rank well ahead of our current, forced-usage-of-government-fiat situation.

If you’d like to read a full overview including the technicalities of Bitcoin, I would suggest this thesis by Peter Šurda.  If you’d like to watch a full overview including the technicalities of Bitcoin, I would suggest these videos by Konrad Graf.  If you’d like to watch a full overview on the possibilities of Bitcoin and beyond via the Blockchain, I would suggest this video by Stefan Molyneux.  Finally, if you’d like to read a full overview on why Bitcoin’s first mover advantage is likely all it needs to maintain superiority over altcoins (alternative cryptocurrencies), I’d recommend this article from the Mises Circle.

I’ll say it again… it will be very interesting to compare the status of Bitcoin one year from now, when the “ceremonial ATM withdrawal” of euros will take place by the government ministers in Lithuania, after the clock strikes midnight on 1 January, 2015.

A Note on Currency Exchange

A discussion on the cost of actually changing currency.  The Bank of Latvia claims that over the next ten years, Latvians will save EUR 700 million on currency conversions between lati and euros.  That’s EUR 70 million—or about 54 euros per working-aged person—per year.  Ilmārs Rimšēvičs, Bank of Latvia Governor, and others, have many times made the claim that this money will “go back” into the economy.

Perhaps it’s true.  I’d debate this on two points.  First, it’s not like these proceeds to money changers have just vanished from the economy in the past.  They have been (and would continue to be) distributed to employees as wages and to shareholders as dividends, which in turn would circulate back into the economy.

Also, Mr. Meelis Antonen, founder of Tavid, the largest currency exchange in the region, in an interview done specifically for this article, shed light on what they actually did in Estonia after their country went on the euro and thus lost the profit center of the EEK/EUR (kroon/euro) trade.  “We simply increased our rates on exchanging euros with other currencies.  On average this used to be 1-2% before euro accession, and after we increased the fees to 2-3%.”

Thus I think the story of savings on currency exchange, though perhaps significant over the very long-term (assuming the euro holds any value to real goods), is a bit of a red herring in the short-term.  And certainly nothing that adds to the stability of the euro.

It’s Your Money… And It’s Safe with Us

One final point on the “stability” of the euro itself.

First an illustration.  If you were to go to your local bank, and request to take out a moderately large sum in cash—€10,000 or so—you would be met with tremendous opposition.  The manager would come out, he would ask you what’s wrong, how they can help, and try to convince you not to take the money out.  It’s your money of course.  The reason for this is fractional reserve banking—they loan out the vast majority (90-95%+) of your money that’s on deposit.  It’s not actually in a vault somewhere.

A discussion on that is for another day, but it is interesting how Latvia, with its small, post-Soviet economy still really does have tremendous distrust in the system.  The Latvian Commercial Banking Association undertook a tremendous ad campaign last autumn—posters all over public transport—actually advertising the act/benefits of putting your money in a bank account.  Quoting stats like 25% of seniors don’t know how to use bank cards and the like, the bankers clearly were aware that this huge monetary event for the country was an opportunity for them to get those lati stashed under mattresses into euro bank accounts… where they could hold 5% and loan out 95% of the new deposits, pyramiding their balance sheets and making more on interest.

How could anyone not use a bank account, you say?  Yes, one could very easily scoff at this entire situation as tremendously primitive.

Irony left to reader.

Eurozone Rule No. 5: Long-term interest rates. 

This one is beyond mundane.  You can read about it from the convergence report, if you dare:

“[Long-term interest rates] shall be no more than 2.0% higher, than the unweighted arithmetic average of the similar 10-year government bond yields in the 3 EU member states with the lowest HICP inflation (having qualified as benchmark countries for the calculation of the HICP reference value).  If any of the 3 EU member states in concern are suffering from interest rates significantly higher than the “GDP-weighted Eurozone average interest rate”, and at the same time have no complete funding access to financial markets (which will be the case for as long as a country receives disbursements from a sovereign state bailout program), then such a country will not qualify as a benchmark country for the reference value; which then only will be calculated upon data from fewer than 3 EU member states.”

Translation?  Not sure.

It’s something on the order of requiring that interest rates for eurozone accession countries be low and stable.

To the open-minded, free market thinker, the above is enough to make you shake in your boots.  Or simply dismiss as impossible.  Regulation of the things called interest rates—which is done by a central bank in nearly every country of the world—a priori yields a problem.  The problem manifests itself in the Austrian Business Cycle Theory.

Beyond the scope of this article, the theory is essentially:

1. Central banks print money to spur economic growth, which lowers interest rates below their natural level;
2. These lower interest rates create an artificial demand for borrowing by businesses to undertake capital-intensive projects which require loans, such as developing real estate, factories, or shipping.
3. What these projects really are, however, are malinvestments, because they would not have been undertaken if there were no money printing in step 1.  Had their loans been based on real savings from productive capital at risk, the situation would be healthy;
4. When the credit starts flowing and contracts get signed, people feel good.  Businesses typically make additional malinvestments.  This is called the boom period.
5. The boom period and step 1 could repeat for a long time.  Eventually, however, the bust arrives.
6. The bust is an inevitable result of the boom, caused by two things:
   1. Artificial demand.  Businesses begin to realize what they’ve actually undertaken all along—malinvestments.  Since their loan was based on printed money and not risk capital, they couldn’t judge the merits and true demand for their projects.  This would be evidenced by the fact that their income is much too low to cover their operating costs, and they default.  The next point exacerbates the situation.
   2. Rising interest rates.  The printed money from step 1 eventually flows through too many areas of the economy that aren’t prepared for it, causing prices to rise, which can be destructive; to combat this, central banks begin raising interest rates.  The businesses that undertook these malinvestments again aren’t prepared, as their cost of capital is higher than expected (via debt payments), and they default.
7. Misjudged sales and unmanageable debt from rising interest rates, these are the triggers for the bust.  But remember it was all an effect of the boom, which was an effect of money printing by central banks.  As is typical in the bust, all businesses that made the malinvestments tend to default together during the bust… thus making it, in fact, an economy-wide bust.  (Not just one business that made a mistake, there is the “cluster of errors”…everyone at once suddenly becomes much less smart than they were during the boom).

That was more steps than I had planned when I started writing them.  Still, it should sound familiar to those who do have bank accounts.

The key is that when interest rates are distorted by central banks, the boom-bust cycle occurs.  More importantly for our case, the bigger the central bank, the bigger the boom-bust cycle.

And who prints these euros which Latvia has just started using?

If you have made it this far from last week without fleeing back to the “Thank you lats” video, you already know the answer…

Enter stage left and drum roll please… the European Central Bank.  ECB, for short.  One of the heavyweight champions of monopolistic money printing, sharing the title with the US Federal Reserve and Bank of Japan.

Let me try to illustrate graphically how much the European Central Bank interferes with interest rates in the eurozone’s economy, in an effort to show how disastrous it is.

Check it out.  As discussed in step 1 above, to get the economy’s engines roaring, the ECB lends its printed out of thin air money to commercial banks.  It lends it at a rate which it sets in committee, called the “Deposit Facility,” which is the boldest, red line series plotted below.  If you can resist, try not to read the arrowed captions yet:

Source: European Banking Federation, Bundesbank, St. Louis Fed

The key to this entire explanation is that the red line is set by the ECB, in a centrally planned, big boy committee with a monopoly to do as they see fit.  They set the rate.

The other four rates shown—two short term maturities (1-month and 1-year) and two long-term maturities (10-year and 30-year German Bunds)—are “set” by the market.

Look at the two darkest blue lines series, the 1-month and 1-year maturities for EUR-LIBOR.  Ask yourself, does there appear to be a correlation between their movements and the deposit rate’s red line movements of the ECB?  Using your eyes will tell you yes.  I will tell you using Microsoft Excel that it’s 0.98 for the 1-month, and 0.96 for the 1-year over 15 years of eurozone history.  1.00 is perfect correlation.  Correlation does not mean causality, true, but one of these data series is set by a board of men with special privileges from government, and the other two are supposedly “set” by the free market.

Thus, with short-term “market” interest rates sharing nearly perfect correlations, few outliers, and long-term trends with the deposit rate set by the ECB’s planning board, we can conclude that the ECB sets short-term “market” rates in Europe.

Now take a look at the two lightest blue line series.  Here we finally arrive at the fifth and final Maastricht benchmark—these are the type of long-term interest rates that entering countries must boast as being “low and stable” before entering the club.  But again, we are analyzing the current eurozone members here, so stay with me.  As there is no centralized treasury in Europe like there is in the United States (yet), for these long-term rates we need to look at sovereign bond yields of individual nations inside the eurozone.  I’ve plotted the 10-year and 30-year German Bunds (bonds), the eurozone’s largest economy.  Same question as before.  Does there appear to be a correlation with the red line from the ECB?  Not as strong as that with short-term rates, but there certainly is one.  It’s 0.77 for the 10-Year, and 0.72 for the 30-Year over 15 years of eurozone history.

Many, including former chairman of the US central bank Alan Greenspan, have insisted that central banks don’t control long-term interest rates.  He also said that 0.85 is a “tight correlation.”  The German 10-year is thus 8 percentage points from a “tight correlation” from the ECB’s deposit rate.  It’s a very strong correlation.

Thus, with long-term “market” interest rates sharing very “tight” correlations, few outliers, and long-term trends with the deposit rate set by the ECB’s planning board, we can conclude that the ECB, if not completely, has a very strong hand in setting long-term “market” rates for Europe.

In other words, the central bank sets interest rates.  It is not a market-driven phenomenon.

If one accepts that the central bank sets interest rates (both short- and long-term), and manipulation of interest rates causes the boom-bust cycle per above, then it should be clear that the central bank causes the boom-bust cycle.  What’s worse, a really big central bank like the European Central Bank, will cause really big boom-bust cycles.

If you were able to hold out, go ahead and read the arrowed captions now.  This is the kind of interest rate and economic stability that Latvia can look forward to.

Maastricht in Review

Inflation, deficits, debt, stability, and interest rates.  At half of the eurozone failing the first three Maastricht criteria on average, with the euro’s own track record on the fourth and fifth criteria not exactly reflective of clear foresight by its planners, one does wonder why Latvia should join this club, much less embrace its forced handing over of the monetary keys.

Last year friend and local journalist Justin Walley asked the Bank of Latvia (the central bank) about the eurozone’s performance on Maastricht, highlighting many of the statistics relayed here and in Part I.  This was their response, and in all seriousness, I am prefacing it with one bold [sic]:

Judgments arising just from statistics and raw numbers not always provide full picture of economic development and well-being of particular country.  It has to be taken into account that majority of Eurozone countries are far ahead Latvia in terms of economic and technical development, economic complexity and welfare state (my highlight).  Other aspect is that European policy agenda in recent years have been much dedicated to overcome economic and financial difficulties by strengthening fiscal regulation with introduction of six-pack, two-pack and Fiscal compact, making further steps to create Banking union, deepening of European Monetary union in several aspects.  Important issue is that all these ambitions are mainly elaborated for Eurozone countries therefore choice to be made is distantly clear – to be in European core or stay in periphery.

The only point above, as far as I can tell, where they are actually speaking plain truth is how the majority of eurozone countries are “far ahead Latvia” in terms of the welfare state!  Nothing personal to those who crafted this masterpiece, but it does illustrate the humorous occurrences English speakers can enjoy over language barriers here in Eastern Europe.

This is especially true in political situations, when their unfamiliarity with English syntax typically constrains the familiar, linguistic dancing that politicians and technocrats employ when trying to talk around a subject, as they so often do.  Instead, over here, they just come out and say it!  So you’re often treated to something not only hilarious but refreshing as well.  No “social safety nets,” “social contracts” or “shared obligations” in mind for the Bank of Latvia with this one… nope, they just want Western Europe’s good old welfare state!

Macro forecaster and author of The Crash Course Chris Martenson has a very different view, and offered his opinion which I believe sums up the welfare state quite nicely, in an interview done specifically for this article:

You have to look at the total situation of the [eurozone], and it’s structurally insolvent at this point and time.  That’s just a math function.  EUR 70 trillion across the eurozone in unfunded liabilities that’ll have to be met in some way or another.  When you look at the political realities, the French unions are not going to give up their unfunded liabilities, they’re going to want to be paid out.  So is everybody else.  So you basically have a monetary authority with no political cohesion and no taxing authority.  It’s a recipe for disaster.  Will that disaster happen?  I can guarantee it.  Because those unfunded liabilities are going to come up and create a giant political fracture.  When?  I don’t know.  But it’s a guarantee that it’ll happen.

Back to Basics

If I haven’t reiterated it enough, I’d like to do so again: Latvia did not actually have a choice when it came to joining the eurozone.  All countries that have joined the European Union—except for the UK and Denmark which negotiated opt-outs—are obliged to join the eurozone, at one time or another, once they meet the Maastricht criteria.  Sweden, interestingly enough, did not negotiate an opt-out to Maastricht, but their people have refused to join via referendum, so they have been labeled as a “de facto opt-out” by the disgruntled ECB.

Amidst the fierce opposition of the euro here in Latvia, some ministers wanted to put the question to referendum as well.  But as the Prime Minister of Latvia confirmed, that wasn’t necessary or possible, as the people already “had their say” on this issue by voting to join the EU in 2003.

All EU countries, except the three listed above, must join the eurozone.

I address this again, as we finally get the crux of the issue for a small country like Latvia—what if they really did have their own say in the matter?  What if they did have their own choice?

Martenson explains the benefits from Iceland’s recent economic sojourn, a country which is over six times smaller than Latvia:

[Iceland] has its own currency, it wasn’t on the EU monetary system, and when the crisis came it was able to provide a stiff arm to the bankers, and make them eat the losses.  They went through a couple years of high inflation, a little bit of rising unemployment, but they’re all the way back in the saddle at this point.  Iceland has structural advantages going forward, it has free energy, essentially, through their hydro and geothermal infrastructure, and they’ve got good natural resources and a small population.  That’s all helpful, but still I think the main lessons are that when you have monetary independence, you have the freedom to take some choices.

He goes on, contrasting Iceland with Europe’s favorite problem child, Greece:

Greece doesn’t have freedom at this point.  Its fear is if it leaves the euro it risks the bankers closing the door and telling you that the sun won’t rise, your children will be born without limbs and whatever else.  History says you should go through your pain for a little while, and then you come out of it.  I think that Greece right now is in the position of losing an entire generation of skilled workers, who’ve been demoralized, the best ones have left, and 50 percent unemployment in the 30 and under crowd.  It’s just horrible.  There is no possible way for them to pay their debts back at this point.  They were supposed to be back at five percent growth this year, and they’re actually not only half that but minus five percent growth.  If Greece had its own currency, they could already be digging out from under this, and they would already be back on the path to recovery.

Mike Maloney, of goldsilver.com and producer of the very popular and instructive films overviewing the US’s monetary system, concurs.  Specifically for this article:

You’re going to have less, not more, control over things.  The countries that do reckless deficit spending, for instance, what Greece has been doing for years, come at the expense of inflating the currency supply, and it comes at the expense of countries that run budget surpluses and are fiscally responsible.  Latvia, if and when it has a budget surplus, is going to end up paying for all of the misguided policy and recklessness of other countries, for the inability to live within their means.

Chris summarizes it in the context for Latvia:

That’s what I think Latvia is risking.  When—not if, but when—the next financial crisis occurs, they will have given up a huge amount of economic freedom for a small amount of temporary benefit.

Already mentioned at the beginning of this critique in Part I, the first of January marked the second time the nation of Latvia abandoned its currency.  The first retreat was in 1940, when the lats was surrendered to the Soviets and their ruble.  This lasted for fifty years.  These articles have attempted to highlight the unfortunate truths of the euro, on a local, as well as macro level.

Life will go on, and time will tell if the euro escorts in economic stability or economic malaise.

One thing is for certain.  The majority of Latvians are against euro integration and in favor of their monetary independence.  This was not enough, however, for the EU centrists in Brussels and Frankfurt.

Bonus Q&A with Doug Casey.

I couldn’t much edit this one.  If you’re familiar with Doug you’re well prepared, if not, simply prepare to enjoy.  From earlier in 2013:

If the US Dollar is an ‘IOU nothing,’ the euro is a ‘Who owes you nothing.’  It’s a hot potato.  It’s going to have the same fate as all paper currencies.

Q: Local marketing for the euro consistently paints Latvia as a small ship, which by joining up with the big ship of the eurozone will have much more safety during these uncertain economic times.  Do you agree with that?

I think that’s ridiculous.  What Latvia ought to do is institute a gold currency, so that you don’t have to worry about the trustworthiness of politicians, and the tax revenues that they can generate from their subjects to prop up the currency; and, if I was Latvia I’d probably get out of the EU.  Why do you need an extra layer of bureaucracy starting in Brussels?  You can have all the advantages of free trade just by dropping the trade restrictions at the border.  And you can do so with a huge influx of capital and smart people, just by free marketizing the country instead of doing what all these other European countries are going to do.  If you’re smart you can keep Latvia from becoming just another source of houseboys and maids for the Chinese in another generation.  So I hope you all make the right decision.

Q: Two-thirds of the country is actually against joining the euro, opinion polls have shown.  Olli Rehn, the monetary affairs commissioner, dismissed such reservations.  “The eurozone could have 18 members by 2014,” he said.  “There are no criteria related to opinion surveys.  You can’t be disqualified because of opinion surveys and political criteria.”

Well, I’m not crazy about democracy, but for different reasons than that guy probably is.  He’s a member of the elite, and he thinks he knows better.  I wish him well, but he should be cautious.  Because after the euro and the EU blows up he might wind up like Mussolini in 1945.  Because people are going to be very unhappy.  You know what happen to Mussolini?  He wound up hung by his heels from a lamppost.  I wish him no ill-will, but by imposing the euro on this nice little country, he’s really inviting a vampire to the front door.

Q: Latvia had an independent currency before, but in 1940 they went onto the Soviet ruble.  What do you think about them going onto the European euro in 2014?

It makes me think they’re slow learners.

Q: Anything else?

That ought to be enough.  I don’t want to get out of control so if I go to Latvia they stop me at the borders.