
The euro is a disaster even for the countries that do everything right - Sami_Lehtinen
https://www.washingtonpost.com/blogs/wonkblog/wp/2015/07/17/the-euro-is-a-disaster-even-for-the-countries-that-do-everything-right/
======
Svip
Aren't there negative consequences to having one's own currency when it comes
to import? For instance, Greece has a tiny export market and mostly import
goods. If they were devaluing their own currency, surely their trade partners
would be concerned with dealing with them, unsure what their money would be
worth a month from now.

Just look at the ruble in Russia this past winter, it had pretty negative
effects for a country that imports a lot of its food.

The article also fails to mention Germany has benefited a lot from the Euro,
even through hard times.

Until January this year, the Swiss franc was pegged to the Euro, when it was
unpegged, it skyrocketed to become almost the same value as the Euro,
effectively halting all export from Switzerland.

I also find the comparison between Finland (pop. 5.4 mil), the Netherlands
(pop. 18 mil) and Iceland (pop. 300,000) unfair considering their relative
sizes. Surely, it's easier to manage a smaller economy than a larger one.

I must confess, I am no expert, I just believe that criticism of the Euro
often tends to be rather simplified. Friedman's commentary (posted by
civilian) seems far more "rounded", so to speak. But I will gladly admit that
the Euro project is flawed in being a political project rather than an
economical project.

Although, Friedman forgets to mention the several nations that use the US
Dollar as their official currency as well (e.g. Ecuador, El Salvador and
Zimbabwe), surely they have no option at all (unlike Finland and the
Netherlands which actually have a say in Euro matters) other than abandoning
it.

~~~
perlgeek
I agree.

I also find it pretty insincere to brush off economic problems with the half-
sentence "but those should have been manageable". Aren't there lot of nations
with economic problems that aren't managable (in the sense of averting a
shrinking economy in the course of a few years), even though they have their
own curreny?

Finally, on the small scale, traveling is so much easier if you don't have to
worry about currrency. No need to get cash in the foreign currency in advance.
No need to worry about exchange rates. No need to worry about your bank adding
crazy exchange fees. You can compare price to what you're used to without
having to do any mental (or awkward mobile phone) arithmetics. Border regions
and travelers profit imensly from the Euro.

This is pretty obvious, but econmics pieces on the Euro routinely forget to
mention it.

~~~
pjmlp
On the other hand, 1 € in Portugal isn't the same value as 1 € in Germany,
given the salary differences.

Yet many brands, e.g. H&M, tend to have the same prices for some of their
goods.

Which leads to the disparity that we are now suffering from.

~~~
oblio
Your argument is mostly invalid as H&M, for example, has tags in multiple
currencies. And as a non-Euro Romanian I can tell you that the conversion rate
is not favorable to the buyer.

~~~
pjmlp
My argument is based on the fact that I have seen such tags with the same
price for Germany and Portugal.

It true that they don't do it for most of their products, but that doesn't
change the fact I have seen such price tags.

~~~
oblio
My point is that for H&M and similar networks the prices are constant across
countries, based on their pre-set FX rate, which is not in the favor of the
buyer.

The initial argument would only be valid if prices in different currencies
would be smaller in the poorer countries, which doesn't happen anyway,
regardless of currency.

~~~
pjmlp
> The initial argument would only be valid if prices in different currencies
> would be smaller in the poorer countries, which doesn't happen anyway,
> regardless of currency.

But it does happen, on average H&M products are cheaper in Portugal than on
Germany, except for those few cases I happened to stumble on.

~~~
issaria
I think oblio means that even if Portugal is not in the Euro zone with its own
currency, it's unlikely to get a better price than now.

~~~
oblio
Exactly. Unfortunately I am not that good at getting my point across :(

------
lispm
Lots of propaganda against the Euro. It's going on for a few years now.
Especially it's coming from a country which recently caused a world-wide
economic crisis.

Actually the Euro is doing a good job, given all these attacks.

Now we read daily about the problems of tiny Greece. Just 10 million people
out of 334 million living in the Eurozone. A constant news stream about a tiny
tiny problem.

Remember how Goldman Sachs tried to profit from Greece in the Eurozone both
ways? Helping Greece to hide its debt, so that it can join the Eurozone and
then betting that the outcome would be negative.

[http://www.spiegel.de/international/europe/greek-debt-
crisis...](http://www.spiegel.de/international/europe/greek-debt-crisis-how-
goldman-sachs-helped-greece-to-mask-its-true-debt-a-676634.html)

[http://www.independent.co.uk/news/world/europe/greek-debt-
cr...](http://www.independent.co.uk/news/world/europe/greek-debt-crisis-
goldman-sachs-could-be-sued-for-helping-country-hide-debts-when-it-joined-
euro-10381926.html)

~~~
adventured
The Eurozone has seen zero net economic growth for about 8 years, and has 11%
unemployment (13% without Germany). GDP has just finally started to get back
to where it was in 2007/2008.

Germany's GDP is where it was in 2008; France is where it was in 2007, with
France having ~10.5% unemployment.

Finland has been in an eight year recession/stagnation combination, with zero
growth. Their unemployment rate has gone from 7.5% three years ago, to 9.5%
today. Their household income to debt ratio has doubled since 2000, to 120%.

Italy has seen three recessions in seven years, with an unemployment rate of
12%.

Greece has collapsed.

Spain has 23% unemployment, Portugal is 14% (and those aren't the U6
equivalent numbers, just the headline).

The Netherlands economy hasn't gotten any bigger since 2007, and they now have
one of the highest household debt levels on earth, which will continue to
crimp their economic growth prospects severely.

Ireland's household debt ratio is one of the five worst in the world. Their
unemployment rate is nearly 10%, which is a six year low.

Austria, Estonia, Slovakia, Slovenia, Lithuania, Latvia have seen zero growth
since 2007/2008.

Simultaneously most of the Eurozone countries have seen a significant
expansion of household debt over 10 to 15 years, as they try to prop up their
standard of living with debt.

The only bump the region has seen economically since 2007, has been via
currency devaluation and debt monetization, which has chopped down the
Eurozone standard of living by perhaps 20% in exchange for a brief burst of
low growth.

I'm not sure by what basis one would judge that it's working well at all.

~~~
programLyrique
Is that because of the euro, or because the policies of austerities that were
chosen at that time?

The problem with the euro is that it is considered as an economic issue,
whereas it should be a political one (and it was when it was created, as the
first step in an "ever tighter union"). If we European citizens want to keep
the euro, we need to deepen the Union.

~~~
adventured
If they went with inflation instead of austerity, all you'd see accomplished
is the nominal numbers would climb, while the real numbers would not. That's
what we're seeing right now with the QE devaluation of the Euro; pretend
growth via dropping the value of the Euro (if you have to drop your currency
by 20% to get 2% growth, what you have is not growth).

Austerity and inflation accomplish the exact same outcome, the only difference
between the two depends on how they're implemented, and the lies that the
politicians get to spin to pretend one is better than the other (politicians
in weak economies almost universally prefer inflation, because they can lie
and show nominal growth, and tell their citizens that their wages and pensions
aren't falling, when in fact they are in real terms).

Take Greece for example. They could exit the Euro and meet all of their
_domestic_ obligations - in a debased new currency, that wouldn't actually be
meeting the obligations in real terms as the currency tumbled. They'd get to
pretend everything was fine nominally.

Inflation instead of austerity is used to devalue the amount of debt held,
which is a form of defaulting on creditors. It drops the standard of living,
as it steals wealth from citizens by devaluing their real incomes and assets.

~~~
Sami_Lehtinen
"devalue the amount of debt held, which is a form of defaulting on creditors"

Which won't work well if the loans aren't nominated in your national currency.
This is why currency loans are the real trap when devaluation hits.

------
stannol
I wish people would stop taking Iceland as an example for pretty much
anything. They basically have two industries (Fishing and aluminium) and only
300 000 people, they are a very special case and comparisons rarely make
sense.

~~~
Cthulhu_
And Eve Online, I guess. 300K is even less than I thought that country has. We
(NL)'ve got more unemployed, elderly/retired, children, etc than that. Of
course the ratio will probably be about equal, but yeah, can't compare a
300.000 people economy with a 17 million and 5.5 million one.

~~~
techman9
Does Bjork count as an industry?

~~~
mseebach
She lives in New York and her label is London-based. If she does count as an
industry, it's not an Icelandic one.

------
xgbi
How is the Euro different from the Dollar in the US?

I mean, you guys have 51 states, each of them with their own set of specific
taxes and laws (just like us), with different commercial strengths and
weaknesses (just like us). But we don't hear about Wisconsin being asphyxiated
by the dollar value regarding its exportations.

Maybe the fact that we have such a disparity in minimum wages in Europe, where
the Northwestern countries (UK, France, Germany etc.) have very high salaries,
whereas eastern countries have a sensibly lower wage system.

That's where the BCE and European Parliamentary should start maybe?

~~~
venomsnake
Because US is fully federalized and is redistributing from the top down
(californians and newyorkers pay for the midwest).

The big federally funded programs (military, social security, healthcare,
infrastructure) take some pressure off the state's budget.

And because US citizens have less state identity than they identify with US
the wealth transfers are easier to bear.

The us citizens that will say "I am American from Colorado(or any of the other
49)" are more common than EU people that will say "I am European from Germany
(or any of the other 20+ Eu countries)"

~~~
Animats
The EU has union-level redistribution, especially for farmers, who, as in the
US, are heavily subsidized.

US states sometimes get into the same kinds of problems. Look what's happening
to Kansas right now, after a big tax cut. There's no escape for a state that
screws up. They can't impose capital controls and keep people from moving
their money out of state. They can't print money.

If the EU was a full financial union, individuals in Greece would have no
problem withdrawing money from banks, because they'd be customers of banks in
other countries. US states don't have their own financial systems. It's the
combination of a common currency and separate banking systems that's the
problem.

~~~
RobertoG
You can't really compare the redistribution in the States with the Euro area.

If some state like Kansas has problems, automatically, the federal budget
cover the increment in social spending and that keep the aggregate demand in
that state from going too low.

If some state like Greece has problems, automatically, Brussels make them to
spend less in social programs in order to control its spending. The aggregate
demand fall and the problems increase.

The Euro area is "designed" to be procyclical. And that is crazy.

------
malas
We (Lithuania) joined recently the Euro zone. Only positive things happening
here. Someone just wants to make a profit from EUR/USD

~~~
tim333
One country that joined six months ago is not a very good sample. Things
seemed good in Spain and Greece for a few years until they didn't.

------
jwr
The Euro seems to make no sense unless there is a common government and common
economic policy, which Europe lacks.

I'm from Poland and I've always been a big supporter of the Euro, but I
recently realized that it can't work in its current form. I would like to see
a more unified Europe instead (we have much more in common than we think).
Sadly, this is not likely happen mostly due to stupidity (populist and
nationalist movements all across Europe).

~~~
abell
I'm quite skeptical of a European political unification having a net benefit,
considering precedents. To mention European cases, East Germany is still far
from catching up with the western part (you might be aware of this as a Pole)
and the South of Italy, which in the mid 1800s was quite advanced, has never
really recovered after being "united" with the North. And we are speaking of
regions with a common language.

To make things worse, the linguistic and cultural composition of Europe is
much more diversified. This means a much higher friction for internal
migrations, which would help balance economic mismatches. Moving say from
Italy to Poland or from Greece to Germany to work requires a huge investment
in language acquisition.

Another effect of language barriers is the difficulty of a paneuropean
political discourse. In this respect, I am quite grateful to Varoufakis for
communicating extensively in English and allowing me to access his and
Syriza's message (whether I agree with it or not) out of the simplifications
and potential distortions of my country's media.

~~~
dschiptsov
China and India had language barriers and cultural differences. By introducing
the state language(s) they have solved the problem in one generation. India
benefited enormously by giving English the status of the state language.
Europe should do it too. (I could hear an outcry of French and Germans..)

~~~
filmor
And rightly so, there are far more native German speakers in the EU than
native English speakers. Even French is mother tongue to more people than
English.

~~~
adventured
And yet half of all members of the EU don't share a common language they're
functional in. That's a drastic inefficiency. The logical means of correcting
it, is to standardize on English, which would provide a much greater
international benefit than any other language already heavily spoken in the
EU.

18% of the EU speaks German natively, versus 13% for English. However roughly
50% speak English as a whole, versus 38% for German. There are 360 million
native English speakers in the world, and only 89 million German; with a
billion English speakers globally, and only 166 million German speakers.

------
jagermo
Sorry, this is not true. Germany has had a lot of positive effects from the
euro, as have the the people living in these countries.

I remember when we had to exchange money when going for a skiing trip to
Austria (about 30 km from us). Now I can just grab some cash and pay in
Germany, Austria, France, Italy, Spain, Greece etc.

This is a huge win for me personally.

This is as if someone would say: "The dollar is a disaster even for states
that do everything right". Yes, you have spending, corruption etc. But that is
true for every currency.

It might be that the Euro changed a lot of things. Some for the worse, most of
them for the better.

~~~
tallanvor
Yes, the Euro has been great for Germany, but that's because they basically
control the currency and have forced inflation to an absolute minimum, even
though a reasonable amount of inflation would be significantly helpful for
Greece, Italy, Spain, and quite a few other Eurozone countries.

So yes, Germany is doing well, at the expense of the rest of the Eurozone.

~~~
jagermo
Do you think the rest of the Eurozone would be better of without the Euro?

I don't want to start a flamewar, I'm just interested.

I remember Italy and its Lira (something like a 1000 Lira equaled 1 Mark). Now
the prices in Italy are kind of stable (we go there a few times every year). I
am no expert but it seems that the Euro brought more stability.

Plus, please don't forget that Germany enforced austerity measures since we
got the East back. We have basically been used to them for so long and it kind
of saved us during the last crisis. Its more of a lucky side effect I guess...

~~~
kilburn
I don't know about the rest of the eurozone, but as a Spaniard I must say that
I _do_ think we would have been better off without the euro.

The euro gave us the gun to shoot ourselves in the foot, and we have done
plenty of stupid things with it. A few examples:

\- Huge inflation. In a very short timespan (two years maybe?), we went from
1€ = 166pts to 1€ = 100pts in purchasing power value, without an equivalent
salary raise.

\- Crazy housing bubble, with an ~100% rise in house prices between 2002 and
2008 (!!)

\- Over-indebtment to pay for stupid things: airports in the middle of
nowhere, high-speed trains to unpopulated areas, etc.

\- Destruction of several industries (e.g.: a huge clothing industry)

I could go on but I think this illustrates my point. Again, I'm not saying
that this is anyone else's fault. This is what we spaniards deserve because
that's what we chose to do with the possibilities the euro gave us.
Nevertheless, it doesn't change the fact that we could _not_ have done all
these things without it.

Edit: format.

~~~
touristtam
For the inflation from day one, that is the same story for every country in
the Euro zone that had a weaker currency than the Deutch Mark.

The French baguette went from 1.20 French Francs (about 20 Euro cents give or
take at the time) to 1 to 2 Euros depending on the Bakery. That's 500%
inflation at best on something that is basically the bread and butter of
French diet (pun intended).

The Euro zone should have a unified taxation system to ensure a fair
competition throughout the zone.

------
joeyspn
I'm not a big fan of discussing politics on HN, but as an avid financial
reader (in other specialised forums) I'll drop this quote here.

"It is well enough that people of the nation do not understand our banking and
monetary system, for if they did, I believe there would be a revolution before
tomorrow morning." _Henry Ford_

Henry was spot on. 99,9% of westerners just don't get the monetary system, and
asymmetric monetary unions are starting to extract all the assets from the
weakest members/states. A recipe for disaster.

Also, decoupling the € from the $, or even the ¥ is naive. They're one, and
part of the very same formula. Neither of these currencies will break-up w/o
dragging the others down the abyss. This is the card that former greek FinMin
Varoufakis tried to play.

~~~
adaml_623
I was coming here to comment that I hate the way that a country 'manages' it's
finances. Or makes mistakes. Or joins the Euro.

And what I mean by that is that a very small powerful minority entrenched at
the top of a countries hierarchy or banking system do things for their own
benefit that positively or negatively affect millions of others.

And then the media reports on these actions as if it was a _country_ doing
something. And the main reason I hate it is because if you don't understand
what happened in the past then you are not able to prevent bad things from
happening again or happening elsewhere.

------
erkkie
Lots of fluff in the article over a single question, how does losing the
ability to devalue your currency compare over other things gained.

The usefulness of devaluation is highly related to export/import structure and
the political ability to make cuts so it makes no sense to fault it all on the
Euro (or to assume the loss of being able to devalue your currency makes being
in the euro-zone a net loss).

------
snemvalts
Comparing a country that went to bankruptcy in 2008 (short, deep recession =>
higher growth long term) to two countries which have problems not because of
the euro doesn't make any sense.

------
facepalm
Are they saying that without the Euro, Nokia would have beat Apple?

While criticism of the Euro is not new and may be warranted, the recent times
also give me the impression that there is simply way too much room for
interpretation in Macroeconomics. So everybody gets to keep their pet theories
and nothing ever gets validated.

~~~
puzzlingcaptcha
Yeah, it's a rubbish argument. Cheaper Nokia phones still wouldn't sell due to
lack of demand. They were already cheap in comparison. And by the time they
came up with N9 the app ecosystems for iOS and Android were already well
established.

What I also dislike about articles like this is conflating tax increases and
government spending cuts under one umbrella of 'austerity'. If for example
Finland increased taxes more while Iceland cut more spending, is the recovery
due to devaluation of the krona (btw Iceland imports more than exports) or
better domestic demand as people had more money to spend? They also claim
Iceland did 12x the 'austerity' Finland did, so maybe it helped after all?
That's what should be investigated.

That is not to say euro is not to be blamed, but not for the reasons in this
article.

------
civilian
Yup! Basically the same argument as Milton Friedman made. The examples and
graphs are nice though.

[http://www.project-syndicate.org/commentary/the-euro--
moneta...](http://www.project-syndicate.org/commentary/the-euro--monetary-
unity-to-political-disunity)

~~~
asgard1024
I don't understand one thing. People keep saying that Milton Friedman
"predicted" this. However, what exactly approach to macroeconomics did he
prescribed to the political union? Specifically, how did he wanted to deal
with regions that have different economic growth? As I understand it, he was
opposed to strong government and fiscal policies. So how do you resolve these
problems on national level, if you can't have monetary policy and you don't
want to have fiscal policy? To me it seems that he didn't really have any
better solution.

~~~
lottin
I think he expected that people would move from high unemployment to low
unemployment regions. In practice, I don't know how true this is. For
instance, even in a culturally homogeneous countries such as England and
Germany there are significant differences in unemployment rates between
regions.

------
scotty79
> Countries can't devalue their currencies or cut interest rates or even spend
> more when they get into trouble, and so they stay in trouble.

Not only euro countries can't do that. Many countries with separate currencies
have independent bodies dedicated to keeping currency stable. You can't order
those bodies to devalue the currency because two main things your economy was
doing that were worthwhile became obsolete. They ought to keep inflation
target regardless of governments and economy. It's often written into the
constitution.

The only country I know that can have their currency devalued according to
what economy is perceived to need is USA.

------
mcv
The article is correct. A monetary union without a fiscal union doesn't seem
to work very well. I should add that the Dutch situation isn't helped by 15
years of mostly right-wing governments that were already in love with
austerity, but that only underscores that austerity is pretty harmful to your
economy.

The euro could work fine, just not with the current rules. There needs to be
some mechanism that compensates for the inequality between the different
countries, just like how poorer regions within a sovereign country tend to get
extra aid.

------
josu
>Now, the normal way to make up for this would be to cut costs by devaluing
your currency, except that Finland doesn't have a currency to devalue anymore.

Keep in mind that this is a zero sum game, in order to devalue your currency
the rest have to appreciate. So we have no idea what would have happened if
every country in Europe still had its own currency and tried to outdevalue
each other. It could even have the potential to start an international race to
the bottom.

~~~
cturner
When people say devalue in the current context, it is a shorthand for the
Iceland scenario. What they mean is: moving off the shared currency (EUR) and
adopting a national currency. This generally means a one-off devaluation,
because the country moving off it will be weaker, and in their act of moving
off the EUR will get stronger, and their new currency will have less
purchasing power. [This is not always the case - when people speculate about a
German exit, they assume the opposite would happen: strong Mark, weakended
Euro.]

What you're suggesting here is a bit different:

    
    
      > So we have no idea what would have happened if
      > every country in Europe still had its own currency
      > and tried to outdevalue each other
    

China has found a round-about way to do this against the US for the last 30 or
so years. But it's no longer viable in free countries.

As soon as the state gives citizens access to international financial
products, and allows them to move money internationally, it can no effectively
control national FX rates. If it were to try it, enterprising citizens would
model the real value, and use commodities or similar to arbitrage the peg.

Since the 1970s, there has been a migration of countries moving off fixed
exchange gearings to flating economies, driven by this dynamic. Some went
willingly (Australia), others tried to ignore the inevitable and found
themselves forced to it (UK).

China has seen the writing on the wall on this and appears to be on an arc
towards floating the renmimbi. The nationalist lingo about this will the their
hope that it will become a reserve currency (what actual value it has to be
used as a reserve currency in a well-oiled system is unclear - probably none).
The real story is that they have to do it if they want to continue
transitioning to a full import/export economy. They're already leaking heavily
(look at the amount of US debt they buy to prop up the peg), and that problem
can only get worse as their middle class and financial sectors become more
confident.

The Euro was a masterful play by German policy makers for maintaining social
stability beyond reunification. It works differently to the Chinese mechanism
but has a similar outcome: it removes purchasing power from rich Germans, and
forces the price down of the goods being produced by poor Germans. Why does
Germany still have a strong industrial sector? They chose this over having a
strong financial sector. Instead of rich Germans being angry at vast
unemployment and benefits in the weaker parts of their own country and
thinking about splitting, they have high employment across the nation and get
to look down on neighbours instead. But it's not so good for the neighbours.
There have been some positive outcomes - the goal of joining the euro has
probably had a strong positive effect on good-governance in many countries who
had to work hard to join.

------
knivets
It is the same guy who wrote this —
[http://www.washingtonpost.com/blogs/wonkblog/wp/2015/01/14/b...](http://www.washingtonpost.com/blogs/wonkblog/wp/2015/01/14/bitcoin-
is-revealed-a-ponzi-scheme-for-redistributing-wealth-from-one-libertarian-to-
another/)

------
Oletros
Shocking, an US newspaper advising against the Euro

------
kfk
No it's not. Devaluation != wealth. Say an economy produces only 2 lemons per
year and they cost 1 euro, say you devaluate and now the cost 1.5 euro... how
much wealth have you created? None, you are still producing only 2 lemons. The
real problem in Europe is taxes, a very bad culture for entrepreneurship and,
consequently, little to none venture capital. While we do have very competent
people technically, we miss totally the business side of things. Italy is a
great example of this, lots of stems, very poor business people and no to
little venture capital. Then, when you do manage to actually produce something
and sell it, you are killed pretty much from day 1 by taxes - more than half
of your added value will go to the government.

------
MeNotMe
It's such a bad idea. Germany needed to be pressured into the Euro by
Mitterand in exchange for Germanys unification. France didn't want a unified
Germany with an independent currency.

------
wmkn
> "That's left Dutch households with a bigger debt burden than anyone else in
> the euro zone."

Sure, this is a problem. But it is an unfair comparison if you do not put it
against the (much bigger) savings held by the Dutch.

[http://www.cbs.nl/en-GB/menu/themas/macro-
economie/publicati...](http://www.cbs.nl/en-GB/menu/themas/macro-
economie/publicaties/artikelen/archief/2012/2012-3680-wm.htm)

------
bubbleRefuge
As some heterodox economists predicted[1], the Euro did/does not have the
institutional structure in place to withstand a crisis. Since there is no
fiscal authority to implement systemic pro-growth counter-cyclical policy, the
knee jerk response of the bankers whom make EU economic policy is austerity
and the bone crushing scorched earth deflation that results.

