

Germany Is Smart to Plan for Death of Euro - jscore
http://www.thestreet.com/story/10933330/germany-is-smart-to-plan-for-death-of-euro.html?puc=outbrain&cm_ven=outbrain&obref=obnetwork

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lispm
Haha, funny. I wonder why US and UK publications publish this topic over and
over.

There is zero chance that Germany will go back to the Mark.

Ireland and Greece are tiny countries. Their problems are totally blown out of
proportion. Germany has a GDP of around 2.5 Trillion Euro. The EU has a GDP of
12 Trillion Euro. Ireland has a GDP of around 160 Billion.

The Euro being under pressure? How is that bad news for Germany's export
oriented economy? It is not.

Second, the countries like Greece and Ireland under pressure? That's also
great for the greater EU. It makes everyone aware that changes in economic
policy are needed. Up until now in many areas the EU and Eurozone countries
have different economic policies that are not really adjusted to each other.
There is now some chance that this will change.

The internal problems in Europe have been caused by a few factors:

* the banking system took a lot of risks and also invented fancy new products (aka ponzi schemes)

* bubbles in a few countries, especially the housing bubble in the UK, Ireland, ...

* budget deficits for example in Greece, UK, ...

The financial crisis has exposed these problems. Giving up the Euro does not
solve any of these problems.

The single currency market of the Eurozone has been given such a boost to the
economy that very few people would be willing to give that up. The only real
question that is worth discussion is how to repair the broken parts.

All other speculation in this area is wishful thinking and market manipulation
from people who want to profit from the manipulations.

~~~
efsavage
"I wonder why US and UK publications publish this topic over and over."

"Ireland and Greece are tiny countries. Their problems are totally blown out
of proportion."

I think you answered your own question, I bet if you asked a number of
Americans which had the larger population of Ireland or Germany, a significant
number would not know or would even guess Ireland. I also bet if you asked a
number of Americans which had the larger population of Ireland or
Massachusetts, a large majority would say Ireland, even residents of
Massachusetts.

~~~
ximeng
To save other people Googling, populations and GDP per capita (2009, USD) of
the economies under discussion. All from Google apart from GSP (gross state
product) per capita of Massachusetts, which is from Wikipedia.

    
    
      Ireland:        4,450,446 (51,049)
      Massachusetts:  6,593,587 (49,875)
      Germany:       81,879,976 (40,873)
      UK:            61,838,154 (35,165)
      Greece:        11,283,293 (29,240)
    

The figure for GDP per capita in Ireland seems pretty high.

Bailout is EUR 85bn which comes out to about 25,233 USD per capita.

~~~
donalm
That's because Ireland has low corporation tax (12.5%) so multinational
companies export their profits there and artificially inflate the GDP.

~~~
salemh
That may change however:

[http://www.belfasttelegraph.co.uk/news/local-
national/republ...](http://www.belfasttelegraph.co.uk/news/local-
national/republic-of-ireland/meps-demand-single-corporate-tax-15012686.html)

"Ireland's low corporate tax level of 12.5% should be doubled to 25% as part
of a common rate across Europe, a cross-party group of MEPs have said."

------
shin_lao
The author seems to forget that the Euro enables Germany to export to all
other European countries without any barrier.

I run a business in Europe and everyday I'm thankful for this currency that
makes paying a bill in the Netherlands as easy as buying a baguette.

I'm always amused to read about the weakness of the EU and the supposed
problems with the Euro currency.

EU's GDP is 20% bigger than the USA. Spain is the 9th economy by GDP (to be
compared with Ireland which is 38th...).

Your "made in China" stuff was built with German machines, your cosmetics are
French and your wife dreams of Italian clothes.

There are a lot of issues in Europe but I'm not aware of a country where there
is none.

~~~
varjag
> The author seems to forget that the Euro enables Germany to export to all
> other European countries without any barrier.

He doesn't - it's in the article.

~~~
ximeng
"The German economy has hugely benefited from a cheap euro. This has fueled
its export-driven economy, and the country has racked up a huge trade surplus.
[...] Germany has benefited from a cheap exchange rate and is running trade
surpluses that are more than 6% of GDP."

"Many of the benefits of European integration came from the harmonization of
regulations and the steps that were taken to facilitate cross border movement
of goods, services and people. My work [...] shows that there is little or no
impact when the euro is introduced."

He explicitly says that the Euro does not contribute to removing the barrier.
He's saying that the fact that countries with trade deficits have pressure to
devalue their currencies contributes to a country like Germany with a trade
surplus not revaluing its currency when it might otherwise have done so.

Edit:

Quote from the abstract of his paper:

"The Euro adoption as well as the anticipation of the Euro adoption has
minimal effects on market integration."

The paper goes into more detail and is freely downloadable. In particular he
says that there is a small effect from the Euro introduction in his regression
model, but that it is much less significant than EU membership in explaining
correlation between valuations of similar companies in different countries.
The "anticipation of the Euro adoption" is intended to counter the possibility
that integration due to preparation for Euro adoption might harmonise the
valuation figures prior to actual adoption.

I'm a bit suspicious of the arguments he lays out for the lack of a Euro
effect on integration of economies within the EU, especially in the light of
his article. The paper claims:

"In addition, _ex ante_ we would expect the process of economic market
integration to be more important for equity valuations than the adoption of a
single currency. This is because currency movements account for only a small
part of the total variation in equity returns and the variability of intra-
Europe exchange rate changes before 1999 was quite limited."

So here he's arguing that Europe exchange rates before the Euro didn't change
significantly relative to each other, and using this to argue that other
factors are more important for market integration than the currency. If that's
the case you might then expect that getting rid of the Euro would equally have
very little effect. It seems he wants to have it both ways: the introduction
of the Euro has little effect on market integration, but getting rid of it
would decrease harmful effects of market integration.

In general he tries hard to tease out the correlation versus causation in
integration effects due to introduction of the Euro, but some of his arguments
seem a little arbitrary, for example, the Euro affect that he observes is
statistically explained away by introducing a "distance from Brussels" control
and a "foreign language spoken" control. I could well be misunderstanding, but
I think the significance of these controls needs more explaining to make his
case convincing. This is the point where a lot of free time and access to the
secondary literature would become helpful...

~~~
mattmanser
And check out the abstract of the linked work:

<http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1573308>

shin_lao's certainly wrong that the author 'seems to forget'. That topic is
the entire focus of his research, that the euro _hasn't_ reduced barriers to
trade, they had already been reduced before.

~~~
shin_lao
The Euro actually exists since 1998 as an exchange currency and before that it
was called the 'Ecu'.

For small business however paying and getting paid in Euro since 2002 is
certainly making things easier.

~~~
eru
Yes. It was only Euro cash that was introduced in 2001. (Or was it 2002?)

~~~
shin_lao
2002

~~~
eru
Thanks!

------
iuguy
It's not as clean cut as the article makes it.

The main funding powers in Europe are Germany, France and the UK. The UK has a
unique position in that it is a net contributor to Europe, bails other
countries out but does not have the Euro. To claim that the UK is somehow
insulated from effects of the Euro is disingenuous. A large part of our trade
is with Europe, and Europe or the US being adversely affected affects us.

France is another big player in the Euro and will contribute to bailouts, but
only so far. Germany will look to the UK to make up the difference where
possible, then countries like the Netherlands and so on until it finds
someone.

If Germany pulls out of the Euro thats it, the Euro is over. However if the
Euro dies overnight then expect massive upheaval in Europe, rising nationalism
and the potential for war. This however is unlikely thanks to the Lisbon
treaty, a treaty that centralises European power. It is likely that the EC
will want to transfer control of financial policy to Brussels for those that
receive larger bailouts (as they can no longer be trusted to run their own
economies without risking the rest of Europe - this will be one of the reasons
put forward) and Lisbon will be the vehicle to do it.

What I would love to see is actual reform of the EU as an institution as well
as reform of financial obligations from member states, but sadly it's more
likely we'll see the European equivalent of the old republic trying to extend
it's reach in order to protect itself.

~~~
notahacker
Our interest in bailing out Ireland was unusual in the level of exposure our
recovering banking sector has to Ireland. Possibly, because of our traditional
support for national sovereignty within the EU, we're even more willing than
most countries to do so without compelling the Irish to address their budget
imbalance by raising their artificially low taxes. I'm not sure the same self-
interest in applies to aiding Portugal though.

The fragmentation of the Euro would undoubtedly have consequences for the UK,
but I'm not sure that they would be wholly negative in the shorter term (a
bankrupt country unilaterally withdrawing and allowing the Euro to appreciate
might even be good for UK exports). Given the parlous state of our own
finances, I'm not sure the economic case for contributing to a bailout of
other countries is clear cut (given that it's by no means guaranteed to
succeed...), and certainly it would be _politically_ disastrous for the
British government to commit to any additional spending.

Other countries have more invested in making the Eurozone a success, but
ultimately the survival of the Euro depends largely on the continued support
of France and Germany as the rest of the Eurozone isn't exactly inundated with
money, which leaves inevitably aligns its future very closely with the
interests of those countries.

~~~
iuguy
As always on HN, the debate is always stimulating and informative compared to
other places.

I think you're right about Ireland. There's also a lot more in common
culturally with Ireland than with Portugal, and while Anglo-Irish history is a
tricky subject, I would imagine people would take the concept of helping
Ireland more seriously than Portugal.

Your point about fragmentation is quite interesting to me. Perhaps if Portugal
and Spain were 'encouraged to leave' by the EU that might be a politically
bitter pill to swallow, but perhaps a financially acceptable solution. After
all, a large part of the Eurozone no longer meets the Copenhagen criteria.
Unfortunately neither the EC or EU Parliament seem to have any grounding in
reality or rational thought.

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dmoo
Some arguments as to why end of the euro would be bad for Germany.

[http://www.spiegel.de/international/europe/0,1518,731798,00....](http://www.spiegel.de/international/europe/0,1518,731798,00.html)

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danmelnick
The problem with the Euro is that it forces a central monetary policy but each
country is mostly on its own to set its own fiscal policy.

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stupidsignup
All germans know that this is not going to happen. The euro is here to stay,
and germans (at least those who generate most of the GDP for germany) are
willing to pay in order to keep it. After all, we can do the math.

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reirob
"The German economy has hugely benefited from a cheap euro" - this is complete
crap. It is the first time I hear that the euro is cheap. If the euro is so
cheap why it did not benefit to other countries? If the euro is so cheap why
is France lobbying to devaluate it? If Germany benefited from cheap euro, how
comes that Germany was always supporting the policy of the ECB to maintain a
strong and stable euro.

Alone this quote makes this article to lose credibility. For me this article
is pure propaganda.

~~~
huherto
I interpreted it as "the euro is cheap for the Germans". But I am very
ignorant about European economy.

~~~
Someone
Mixing in weaker coins with the mark to get the euro makes the euro weaker
than the mark was. That helps German exports to non-euro countries.

Within the euro, the link is even stronger. Before the Euro, there was an
agreement to keep exchange rates more or less fixed, but the fixed rates would
get adjusted when they grew too unrealistic. When that happened, the Italian
lire, Greek drachme, Spanish peseta, etc. would get devalued, making German
products more expensive for people in Italy, Spain, Greece, etc. That
mechanism is gone now.

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JeffL
On the last page it says "Currency union without fiscal union is bound to fail
-- and we are seeing the failure right now."

I guess the argument is that if each country has their own currency, they can
devalue it when they are having problems and get out of trouble and the Euro
prevents that possibility? But does anyone know how things worked in terms of
this issue back when gold was more the common currency and before paper money
was more common?

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Estragon
FTA:

    
    
      The next big ones are Italy, Belgium and *France*. 
    

France is in trouble, too? I hadn't heard that. I'd be interested to read
about it, if anyone has any links. (I'm not French, despite the username. :-)

~~~
noverloop
probably the same issue that Belgium has, banks with a lot of PIGS-bonds.

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perlgeek
A website where Ghostery blocked 14 different scripts... record so far.

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anigbrowl
404?

~~~
jeroen
It's working now.

~~~
anigbrowl
Oh, it's their mandatory mobile site, not your link. Sorry.

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chailatte
Angela Merkel warned that Germany could abandon the euro

"Angela Merkel at the EU summit on 28 October. According to witnesses, during
an discussion with the Greek prime minister at dinner, she said: "If this is
the sort of club the euro is becoming, perhaps Germany should leave."

"The German chancellor, Angela Merkel, has warned for the first time that her
country could abandon the euro if she fails in her contested campaign to
establish a new regime for the single currency, the Guardian has learned."

[http://www.guardian.co.uk/world/2010/dec/03/angela-merkel-
ge...](http://www.guardian.co.uk/world/2010/dec/03/angela-merkel-germany-
abandon-euro)

