Preparing my favorite cooked breakfast of bacon & eggs with fried tomatoes and baked beans on toast I stumbled upon another sign of food inflation. While this depicted can of baked beans costs an unchanged 89 Euro cents in my local supermarket I get less product for the same price.
Opening the 10 cm high can one discovers that it is only filled with 75% beans. Heinz has become generous with its tomato sauce which fills the top 2.8cm of the can and I can remember very clearly there used to be more beans in the can 2 years ago. Under the assumption that Heinz used to fill the cans with 90% beans I arrive at an earlier kilo price of €2.68.
At the lower fill rate of 75% one has now to pay €3.21 to get a kilo of this Heinz classic.
This is a 20% price hike within 2 years or some 9.8% p.a. Being highly skeptical about official consumer price indices I prefer such on-the-ground research, this time in the comfort of my own kitchen. Like stamps there cannot be any hedonic changes applied to baked beans. It’s the same product for several decades. Although EU laws require food distributors to display a kilo price consumers are being tricked this way in a multitude of food items. My favorite cookie bar still costs the same, but on opening the wrapping I find a vacuum of 2 centimeters in a 6 cm long wrapper. This is one more sign that companies cut corners in order to keep the price tags per unit unchanged.
It is ironic that consumer surveys on prices always result in a much higher rate of price inflation than the respective national statistics office’s calculations. Prices have roughly doubled in Austria since the introduction of the Euro. Former central bank governor Klaus Liebscher’s statements that consumers “feel higher inflation” made him always appear a bit helpless when defending the non-existent strength of the Euro.
The Euro Is Doomed to Fail as All Monetary Unions Did in the Past
If you are in the mood to read more about the doomed Euro currency, download this PDF from Black Swan Capital, titled “Preparing for a Breakup in the European Monetary Union.” Short reminder: All currency unions in history ended with a complete economic mess due to wide differences in the terms of trade that varied regionally. From a historic perspective the Euro will share the same fate.
While I certainly oppose Milton Friedman’s supply side theories Black Swan noted this smart statement made before the introduction of the Euro:
It seems to me that Europe, especially with the addition of more countries, is becoming ever more susceptible to any asymmetric shock. Sooner or later, when the global economy hits a real bump, Europe’s internal contradictions will tear it apart.
Parsing Black Swans research note I am reminded about the sunny summer Maastricht convergence criteria. They mandate the following.
These criteria were invented 10 years ago when it was unimaginable for the big majority of “experts” that Europe would ever face again strong economic headwinds as we witness them now. Thanks to these optimists there are no official strategies as how to unwind from the Euro currency union without major collateral damage.
I faintly remember that the idiotic Maastricht criteria also include punishment rules if a country diverges too far. Seeing only negative convergences these days like rapidly rising unemployment, ballooning government debts and tricks on official inflation figures I arrive at the sad conclusion that applying fines on weak Euro members can be compared to a man who stumbled and falls and the arriving paramedics jump on his back.
Brussels, we have a problem and you are cooking up the wrong medicine. Celebrating black masses at the grave of John Maynard Keynes are certainly not the solution. You cannot fight monetary inflation by printing ever more Euros for a sagging economy.
(7 votes, average: 4.43 out of 5)
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Well done!
The Euro Is Doomed to Fail as All Monetary Unions Did in the Past - unfortunately you are right. Many countries have problems with the prices after introduction of the Euro.
I am living in Bulgaria and we are preparing for introduction of the Euro, but for example the prices have doubled in Greece when they applied the Euro.
Two points as counterargument against your very tendentious post.
1. Inflation: inflation is currently at it’s lowest since years. Kilos are included in statistical accounts of inflation. May I also remind you that inflation is quite a natural process which is desirable over deflation.
2.’All currency unions in history ended with a complete economic mess due to wide differences in the terms of trade that varied regionally.’
==> I advise you to look into the history behind currencies such as the dollar. All currencies began somewhere and often enough this started as an aggregation of other smaller currencies. The main difference in if they succeed or not, is not trade imbalances but how economic policy (next to monetary policy) reacts to differences in business cycles.
This is supported by empirical evidence from today. The Euro has not only survived the biggest economic crisis since WWII, but came out stronger, as a haven of stability. However, the real test to it’s endurance is how the Euro’s economic policy is coordinated in view of differing business cyles in the different member states who are indeed, as you pointed out, in different stadiums of economic development.
And there come the Maastricht criteria in view… I agree that fining member states is not the smartest way to come to a coordination of economic policy. The problem is finding a good way to do so… The option of Eurobonds was touched upon some time ago, but didn’t seem politically viable.
Therefore, the Euro’s fate will be truly tested in the political attempts to coordinate economical policy in the Euro zone. It is thus certainly not doomed to fail, as also the dollar has not failed to become an established currency.
the link to the PDF does not work … unfortunately … ’cause I wanted to read the document …basing ones future on ones past is not always the best policy … it can blur new possibilites unknown in the times of past events.
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