From economic point of view, Euro Area is not optimal currency area (the EU did not actually meet the criteria for an OCA at the time the euro was adopted). Even if economic rationality suggests to finish common market, politics determine process of integration.

Thank you, Lumir. It is hundred percent correct what you say about that. But let us no forget or omit at least two aspects. The one is that your and equally other scholars’ assertion in this respect (i.e. the Euro Zone isn’t an OCA) implicitly equals that there was no OCA ever on this planet, so this theory itself might come under question – and this was developed since early 60ies (it is 50 years old already), see Mundell and a long list of other names, including Krugman, who recently shown up very angry in ‘Washington Post’ about the crisis in Europe. The other is that OCA belongs (in my view) to what can be called ‘advanced integration’ – around melting national-home markets into one common-unique one --, as splitting from the ‘incipient market’ of 50ies and 60ies in the European Community and from all the other (than European-EU) integration forms throughout the world – around just replacing the old internationalization of national economies (i.e. theory of international trade, with D. Ricardo, the neoclassic of the HOS model and the other contemporary supporters) that ever proved so imperfect.

@Dear Balasz Kotosz,

I disagree with the following sentence: "economic rationality suggests to move towards fiscal union" . Economic rationality does not suggest anything like that, as diversity is just as important in economics as it is in life.

Similar living systems competing for the same resources end up in conflict. Different systems within the same environment use different resources and should evolve towards complementarity and specialization. So the German fiscal system may favor car industry, the French system may favor hydro-energy, the Hungarian system may favor food industry and the Austrian system may favor finance and insurance. This way, trade is mandatory, interdependence is high, conflict probability is low.

So in my opinion, fiscal union is fueled by political reasons more than economic ones, and it's outcome is political union.

@ on topic

The movement towards the fiscal union is a step forward towards the European State, so i guess option 3 is true, integration was fueled by the crisis. The debate is focused on "how" not on "to what end".

Hi, Bradut, let me see our problem in at least two ways.

First, the current money is fiat money everywhere, even in Switzerland, where the Franc was gold denominated up to recently. So is the Euro currency. Then, as fiat money Euro is managed by a central bank, as all the other currencies, since no other money management formula since even the late gold standard era. And this is the ECB. Then, the central bank always deals with government directly in managing the currency – this is the way of having either the monetary policy conveyed by government to central bank, or corresponding government departments dealing with the last, namely treasury and ministry of finance, with its (national) budget. Or, as for Euro, it is the rupture, or the missing piece – there aren’t in the EU either treasury, or central budget to manage this common currency. Did you say something about the EU’s budget ? I believe not, because the too little budget of the Union isn’t able or entitled to be aimed as such. Behind this evidence, in context, the ECB doesn’t deal with the European Commission, as the EU government in place – the EC here proves its unhappy weakness, whereas the ECB is so ‘condemned’ to stay strong. But, how strong the ECB really is?... we already have witnessed this during the recent financial crisis, namely there is enough to debate about.

So, instead of some EU government, the ECB manages its Euro currency through dealing with… member States (governments). Or, what can be said about this ? Is it a ‘moment of truth’ in which the Union still proves much weaker than what an advanced integration formula would here require ? But even these last aren’t the real questions about present and near future, in my view, but something else, meaning: could this situation really last ? And let me here explain: the cooperation between government and central bank isn’t so smooth and/or comfortable, as popularly thought even for ordinary environments. As for instance, since you’re a Romanian like me, just tell me how many times did you see on TV the prime minister showing up hand in hand with the central bank governor ? I can answer this question to you: it was just two times (in 1991, when Stolojan government, and some date in 2005-6, when Tariceanu government) and these always in exceptional conditions; plus the two did not look too friendly to each other. Then, just let think about a cooperation between ECB and many national governments that do not form any unique organization, but different influences and sizes. Or, just repeating the same question: is that OK and/or can it last for long ?

Or, this is the problem of fiscal union at least on the one hand. On the other, when this above is not so OK, then the common currency comes under question, and the solution might be going back to old former national currency and probably the former European Monetary System (1979-1999). Then, the EMS was demonstrated once by McKinnon in an article of 1992 as being the same formula with the former Bretton-Woods Agreement international monetary system. And that has got almost violently bankrupted in 1971 after having last two and a half decade time.

What I mean by all of the above is that it seems to be rather no option for the future, no alternative to the perspective fiscal union, here including the federative State formula for the Union, for or against our will. Or, whether we do not like it, sorry, it is too late already – we had to stop this process and project to what the EFTA and other integration formulae throughout the world did prefer instead of this long term type option. Integration might stop here, but with some disastrous consequences, whereas, on the other hand, a presumable fiscal union could not mean as much ‘uniformity’, as also popularly thought – i.e. taxation could be both central and local and locally differentiation might remain in place.

Dear Liviu Andrei

I agree with you, however i strongly believe that EU should not strive to such a integration level because the cost of the loss in diversity is the implicit conflict.

National Banks as well as ECB should not endorse government, because they should avoid money value to be strongly related to governments. The oldest trick in the world is printing money to balance the budget, with disastrous effects on prices, interest rates, and wage value. This is the reason why most NCB's are independent and should remain so.

There is an alternative to fiscal union, which is a common fiscal framework. That would mean a common taxonomy of taxes, a common tax collection framework, but, the mix of taxes values, quotas, percentage should remain national. This way governments could use the fiscal policy to address issues incurring at national level. I have a completely negative opinion regarding local administration level efficiency and efficiency potential.

Capitalism is based on robbery and deception, and collapses into absolute monarchy. Karl Marx found that long ago. So, how modern economics work? USA prints money and gives it away for free to jobless black people. They create demand that makes economics spin. You know, capitalists seek surplus value, so their employees can't buy everything they have produced, and that's causes overproduction crisis. That does not mean jobless black people create the most of demand with their free money -- no, they are just a tiny addition, but they fill the gap. While government fills the surplus value gap with printed free money, crisis does not happen.

However, European Union has problems with applying this solution USA uses. While USA government may borrow money never to return, EU consists of few governments that will have to agree on the amount of "free money" each of them should have.

Sorry, Professor Maltsev, I rather believe that ecnomics isn’t your area of studying.

When I entered academic research in Bucharest, my home area, it was an article i wrote in which i emphasised that capitaISM, communISM, liberalISM, nationalISM, esthetISM... are all the same, namely ISMs, so ideology. Then, there was never ‚capitalism’ versus communism, but free market, versus alternative economic systems attempted. Since we fail to understand that:

/ First, stories about Karl Marx’ wisdom are enough familiar to me, but it was a long, long time ago that was listening to them in class. Or, it was Marx telling us that capitalism would end in violent revolutions – it is me who saw these changing system revolutions on the ground, but they were in communist, not in capitalist countries. Sorry, I know things were and are different in Russia.

/Second, the ‚American Imperialism’ is rather another Leninist slogan – US were not in the Marx’s time as they are today. Then, I equally know that Europe was something different for the URSS, that the American case, but that was just politics – politics of the cold war, let me say.

/Third, money is another concept that, as for instance, took me about a half of lifetime to study – saying that ‚Americans print money and give to...etc’ would be just another insult to economics.

Please, friend, let subjects you don’t know in peace! Or, on te contrary, learn on them, as update. And, no ideological prejudice! It is good for nothing. By the way, I could provide you with my two books on RG, one is about money, the other a manual of economics. Just ask for. Regards!

May be I'm not expert in formal economic theories, but I grew together with capitalism in my country. I remember how it was built. I remember privatization vouchers. I remember zillions of ponzi schemes. I remember very fast inflation and tiny salaries that were delayed for many months to be used by managements in "grey" privatization schemes. I remember gangsters shooting on the streets. Most lucky of that gangsters became capitalists, of course they don't shoot any more now, they use the force of Market to rob people. And bribing government, of course. Two generations later, no one would think they were gangsters, liberal propaganda will convince everyone they are just more clever and hardworking.

So, without any formal theories, I know that capitalists are definitely not angels, but devils. 90% of starting businessman are bankrupt. That is, all "angels" who open business with the best of intentions become bankrupts.Only "devils" survive.

All of them try to get connected with government. All of them dream to have own army to protect them, and all of them have security departments. So, they fulfil mass demand only as long as mass customer has money. Centralized bank system that is believed to create money does that only for capitalists. In any crisis, banks would lend money to capitalists, that already have all of them,and under 0% interest rate, "to stimulate the market". But will never lend money to jobless black people that have none. That's why rich become more rich and poor become more poor even during the crisis. And that's why government have to borrow money in a bank and give to mass customer to break this vicious circle.

Many people say US dollar is not provided with any real value. Well, that's true. However. US government has $15 trillion debt. At the same time, the amount of money hidden in offshore banks is estimated to be $30 trillion -- the same order of magnitude. Banks, as we know, don't keep their money in a basement but lend to US government. So, does all that people want their dollar accounts to become a pumpkin? No indeed! That's why default of US government is never to happen. All that "government shut downs" are just circus with clowns, no more. Why default, if they can print as much dollars as they need?

One thing I may say definitely, economics is not a natural thing with natural laws that need to be academically studied. It's a thing engineered and built by people. That is. all laws of economics are determined by the psychology of people society.

Dear Roman Maltsev,

Being from Est-Europe, and having experienced Marx theory in practice, i can only say communism is wrong and planned economy as seen by communists does not work.

This is because the underlying market rules apply even in the most controlled planned economy, and the forces involved are impossible to tame. It is pointless to look back at Marx. Not all revolutions are "communist" ones, in fact most revolutions have nothing in common with the communist revolution imagined by Marx.

USD, like EUR or GPB, gold, any currency or substitute have the only value it needs to have, people's confidence. People trust dollars, so dollars have value, that's all. Trust is very real, so value is just as real.

Best regards

Bradut, are you kidding?

The success of USSR made barbarian capitalistic countries to reform their economic system (remember Great Depression?). USSR saved world from fascism (remember Holocaust?). USSR was the first country to conquer cosmos. USD value is not created by trust, but by fear. And USSR could survive for decades of Cold War, when the whole world was against us.

Just compare the demographics of USSR and modern Russia and see the difference.

My grandparents were just peasants with few years of school, and now I have university education. That was possible only in USSR. In USA, I would just sell drugs behind the corner and shoot at competitors, and even would never dream of getting expensive education. And if someone shot me, I would die because medicine is too expensive in US as well.

Now I see you real point, Mr. Maltsev, and I am so sorry... for you, first. There is no point continuing such dialogue, because really obsolete. Just two points, let me add: First, Your USSR did collapse on economic basis, after feeding for such a long time the illusion of unexhaustable resources to be allowed to all its own citizens and the other satelite countries around. Second, let me tell you that you, ordinary citizens of Moscow and Russian provinces, had a lower wealfare than the other communist countries' citizens. And that was for what a Spanish saying expresses like: 'the one who commands is always the one who pays'. In other words, you and your parents and friends around have paid for the whole USSR's international adventures and superpower ambitions.

So sorry for you, friend, not only for what you lived in your country so far, but especially for such late nostalgia you keep.

Dear Roman Maltsev

You point out the benefits, but disregard the costs of USSR. Yes, USSR saved the world from fascism, but in Est Europe they replace-it with communism.

Check out the roots of fascism and communism and you will find the same root, Marxist ideology. Actually fascism is a ideology derived from communism. Both share the same disregard for human life, agreeing that some humans have to be eliminated if they stay in the way, based on the same Marx sentences. So both systems are inherently criminal in nature.

I suggest opening a topic on communism revival opportunity and wait opinions on that topic.

Oh yes, Liviu. It's one more russian reversal. Selling drugs behind the corner in capitalistic world, I would pay to the gang boss that commands and covers me, he even can collect enough money for first-class education and medicine. In Soviet Russia, our Gang Boss not only covers us, but pays for our education and medicine.

You are right that economical reasons are important in the crash of USSR. It's impossible for just 1/6 to win the competition against the whole capitalistic world.

But look at the China instead, as more successful example. Where your computer you are writing from was produced?

Now little more about economical reasons. USSR got deficit budget in 1989, and had only $104 billion in 1991 when went bankrupt. USA has deficit budget for more than 100 years, and its debt is $18 trillion. USA is formally bankrupt. USSR needed just 10-20 years to survive crisis. And no one helped it. A lot of engineers (emerged from peasant families) escaped fallen USSR to give a rise to the wave of innovations in a world. Now ex-USSR entered the phase of its demographic problem when nonborn children of 90's should graduate university and start to work. And now, the whole capitalistic world complains on the lack of engineers, and suffer economy crisises one after another. Nice coincidence, isn't it?

By the way, USSR saved the world from third world war. It is well-known USA had plans to conquer the world with the use of nuclear weapon it had monopoly on. When USSR got its own bomb, monopoly ended and 3rd world war was just cold war.

Bradut, that's just Romanian demagogy. Socialism is definetely not fascism, and nothing criminal at all. Capitalistic USA is famous for its largest number of people in prison. Plus, no one even counts jobless black people shot when selling drugs.

You know, Roman, actually, each one of us here exposes his own past, problems and still pain -- you, that are not first hating capitalism, but suffering from the Soviet Unions' bankruptcy; me, who, on the contrary, I have suffered from the communist oppression, together with family and friends around, You share arguments against me and Bradut, who are Romanians, lastly I can rethorically ask you, could you discuss with me like this under the Soviet Union and me, under Ceausescu ?! I like leterature and my best preference do you know who is ? A very Russian guy, Feodor Mihailovici Dostoievski. There is not only this -- namely, somewhere, in 1993, I took a course of (not important, it was international accounting and auditing) that was in Vilnius, Lithuania, managed by some American professors and we, together, were from all over the former Soviet Union, plus Romania (me and another guy). I remember I was 100% comfortable with all guys and ladies from Russia, Ukraine, Estonia and local people of Lithuania. I confess I wasn't this good with my school or faculty colleagues, at those times or even when re-meeting as for aniversaries. And they are all Romanians. So, how do you explain this ? Namely, I was better with Russians and other nations, than with my people ? I say this also because despite I can't see your photo on RG and despite you expose rather SF ideas, I feel you a good man with enough soul and heart. I feel I could relay on you on concrete facts and circumstancies and that I won't ever be ashamed for such a feeling, as wrong. I am also convinced of your scientific value in your field. Do you ask me why and how did I get these feelings against you ? I cannot answer this, but basing on my age(ing). An age in which I saw enough things and people. Glad to meet you, Roman! Bie-bie and to the next time, Bradut, friend, I know you also follow this dialogue around.

33 years from natural ecomony with no electricity to the nuclear bomb is not Science Fiction. My free education is not Science Ficton too. Such a science fiction is better than selling drugs in poor quarters.

Indeed, Central Banks are made independent of Government for important reasons. Everyone knows government consists of people that steal money from budget whenever possible. The more money goes through the government, the more they can steal. So, they will always create as many money as possible, that's why CB need to be independent.

But that does not mean CB should never give created money directly to government. As far as I know, formal monetary theory says it is not important who gets new printed money, only the quantity is important. If that's true, it is exactly the cornerstone that makes the theory invalid. For political reasons, CB can't sponsor government directly. So they have to do it clandestine ways. However, feeding government with some money created specially for social purposes is indeed necessary for economic stability. Of course, the exact balance is important.

In Soviet Union, there were two different types of money: public cash money and government bank money. Formally they were equal, but they were hard to convert one into other, that made stealing money almost pointless for government people. During Perestroika, these two different types of money were united. The goal was to stimulate small business that was believed to fill small niches that were deprived of attention of inert and megalomania government. But that turned out to be the start of The End. Government people instantly created zillions of schemes to steal money from budget. For Soviet Union, this new type of corruption was a challenge it was not ready for. In reality, small business became a structure for stealing money: government institutions were stealing money by buying a lot of overpriced services from small business companies created by managers of that institutions. That was exactly a reason that made a final blow to soviet economic system. These stolen money are known to be widely used in privatization fraud later.

Actually, this problem is not socialistic in its nature. Same thing may happen in capitalistic world. Remember Enron. Formally, you may think of Soviet Union as of a big сlosed joint-stock corporation, and soviet people as stock holders.

In university, we had a small economic course. They told us a little about monetary theory and gave a Formula: M*V=P*Q. M is amount of money, and V is the currency velocity. I asked teacher a question: okay, what is V? Can it change? How can it be derived? Teacher could not answer my question -- she told, V is assumed constant in monetary theory. WTF? It is known there are different types of money (M0, M1, etc.), and different currency velocity for each of them. Besides, different agents from different branches of ecomony prefer different velocity, and exchange different types of goods and services. Okay, I can suppose theory was simplified for us, and real monetary theory is much more well-designed. However, I still see something wrong in it. Conversion of different money types one into other, and currency velocity should be scrupulously controlled for monetary system to be stable. Oh, and do we need a monetary theory at all, if it becomes so complex it does not answer questions without deep diving into details? What questions can it answer, that can't be answered by the sames detailed picture alone?

Most frequently, the Soviet system is blamed by those who were capitalists before revolution. They don't like to work but prefer to live on rent. But the revolution put the end on that, and they had to work for a living, just as others, at least as managers of government companies. Being owners of companies in the past, they were good in economics. And they helped their children to learn economy. Capitalistic economy was not studied much in soviet universities, so that's exactly an example of when "secret" knowledge (unaccessible to common peasants) is inherited through generations -- exactly, the way people get education in capitalistic countries: in capitalism, lawyers grow lawyers, engineers grow engineers, doctors grow doctors, and peasants grow uneducated people, because they can't pay for education. I think, this is exactly the key, the true reason why most ex-ussr economists hate soviet union and compare socialism with fascism.