A rather brilliant chart has been doing the rounds this week. It was produced for the World Economic Forum, but you can see it here, courtesy of Derek Thompson, economics editor of the Atlantic:
- “Here is what this chart shows. Compared across more than 100 factors measured by the World Economic Forum Global Competitiveness Report, from corruption to deficits, JP Morgan analyst Michael Cembalest calculates that the major countries of the euro are more different from each other than basically every random grab bag of nations there is.”
In other words, the Eurozone is less suited to having a single currency than just about any other conceivable currency union – the chart’s hypothetical examples include: Central America, the nations of the former USSR, a reconstituted Ottoman Empire and some totally arbitrary agglomerations like all the countries in the world beginning with the letter M!
Interestingly, one of the most economically coherent groupings was “the United Kingdom and its English-speaking offshoots”. Thus, a simple reading of the chart would suggest that a hypothetical ‘Anglozone’ would be much more suited to a single currency than the Eurozone.
In fact, there already is an Anglozone single currency. It’s called the US Dollar, which brings us on to another fascinating chart from Michael Cambalest via Derek Thompson:
- “[This] shows fiscal transfers (don't worry, that's just another word for money) between the rich California-Connecticut-Illinois-New Jersey-New York quintuple and poorer states like Tennessee. If similar, seamless transfers existed in the EU, the rich north would have to send to Portugal and Greece at least an additional 30 cents for every dollar they paid in taxes, year after year after year.”
What stands out from the chart is that the combined economies of the “quintuple” are equivalent in size to the Eurozone core of Germany, Holland, Luxemburg, Austria and Finland – while the recipient states of Missouri, Tennessee and Kansas correspond almost exactly to Portugal, Greece and Ireland.
But this is where the symmetry ends. Though the American people accept the permanent transfer of wealth from the richer to the poorer parts of their currency union, the same does not apply in the Eurozone. As Mr Thompson puts it:
- “The Germans call this sort of thing ‘a permanent bailout.’ We just call it ‘Missouri.’”