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.
> 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
The seller simply insists they get paid in their own currency, or USD.
This is already the case for much of commodities trading which is a naturally international business dealing with "interesting" countries. Including in (now formerly) banned countries like Iran.
Even if you're not doing the trade in USD, your accounting currency is probably the USD (even if you're based in say, Geneva and have no business in the US) and every trade is immediately FX-hedged back to USD.
Fun things happen when you can't hedge the currency (because, say, it's extremely illiquid, like the CFA franc). This also applies to commodities like fertilizers in Argentina. The price of doing a trade usually increases for the local counterparty to match the risk taken by the foreign counterparty. And then, you try and hedge it anyway using a basket of things. You can hedge ferts to an extent with a basket of agricultural commodities that use them and hope the relationship holds. It's worth taking the risk because you can have such a deep discount and increase your normally razor thin margin (a hedged physical trade might not net you 1%, but you might get double digit percent shipping rice from Myanmar to Nigeria).
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.
Travel, absolutely, but it seems to me a bigger benefits are in import/export accountancy and greater (convenient) access to suppliers. An increase cross-border trade would make a flatter, more efficient, marketplace for the win.
Don't disagree with the points others have made on fiscal & monetary policy though.
As with most things in life, this seems like an area where if someone claims to have the single true answer then they're selling something.
People are globalized, and with the internet, routinely arbitrage price differences which is leading to a more global MSRP.
For example, a study of over 1 million bank accounts in Australia (i.e. 1 in 22 Australians) in 2011 by the Commonwealth Bank of Australia showed that over 75% of e-commerce by revenue was cross-border (i.e. Australians were importing).
Thanks to the rapid appreciation of the AUD until 2012, brands benefitted from as much as a 50% boost in MSRP locally, and Australians ended up importing not just clothes and cosmetics but things like lawn mowers.
This higher MSRP was so profitable to the brands that they were very strict on enforcing it. I won't mention any names but an online retail shop was opened by a large European investment group in the hope of using gray import from Hong Kong to cut MSRP; the brands tracked the news and informed the group that they would stop supplying the European investments of said group if the new Australian entity did not respect local sourcing rules. Another large retail group told me they were making 40% of their global EBT from Australia, where they only employed 4 staff to smooth arrivals at customs (they offered free 3-week shipping to Australia from their UK warehouse).
Anecdotal evidence (such as French acquaintances buying glasses from Australian online retailers) seem to point at a reversal in the situation.
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.
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.
> 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.
Long term, I think the traveling part is pretty nonsense. The reason is simple - as more people start to pay with cards instead of cash the problem goes away by itself. Not having to carry cash at all is a better solution than only having to carry a single kind of cash.
As for worrying about banks and exchange rates - if that is a problem I suggest doing something similar to how roaming charges have been regulated. That will probably be necessary in the long term anyhow as a precondition for creating a single market for financial services.
You suggest that when you go to another currency region you're ready to spend without giving much thought to the actual amounts you're pulling out of your pockets? Because if you do care about costs you're presented with, there is no way around the aforementioned "mental arithmetics" (due to the exchange rate, of course).
Yes there are consequence, and it's a good thing IMO: It ties your currency to your politics.
It forces the politics to be smart because taking a very stupid decision will cause your currency to be attacked on the markets. It was a sane regulator which lacks in today's Euro countries.
I think one benefit of imports being more expensive is that it boosts the domestic economy. Not sure whether it's enough to offset the rise in import costs for Greece though.
That's only viable if the country in question makes the same products. One example I heard was kitchens. They don't make kitchens in Greece, so they have to import them.
But you are right, if there was a significant industry in the country in question, it would. I'm afraid it doesn't apply to Greece, though.
Sorry if this is too pedantic, but that's the whole point of devaluing the currency. In this case, there's no domestic kitchen industry because it's cheaper to import them. But if the currency devalues, then it becomes more expensive to import them and so domestic companies jump into the marketplace. Greeks start buying Greek-made kitchens, creating jobs in the kitchen factories. Then the factories start exporting them because it's cheaper for foreigners to buy the Greek kitchens then their own country's, because of the devaluation.
Right, but it's more complicated than that because different types of goods have different supply behaviours.
Imagine if the Greek car industry relies on importing steel, and there isn't enough spare capacity in Greek steelworks to satisfy national demand, and due to currency devaluation Greek car manufacturers can no longer afford to import steel.
You can build more steelworks capacity (if you can get investors) but the new plants aren't going to start producing for two-three years at least. By the time supply catches up with demand, the car manufacturers will already have gone out of business.
And if that car maker makes electric cars and needs lithium for the batteries, and greece doesn't have any lithium reserves, local production isn't an option. And if the best you can do without lithium is lead acid batteries, that's not much of an option either :)
Of course, at the moment Greece gets the worst of both worlds - who'd want to invest in a Greek steelworks today when they'll probably be out of the euro in a few years? - but people shouldn't imagine devaluing a currency is a painless cure-all for economic problems :)
"Greeks start buying Greek-made kitchens, creating jobs in the kitchen factories."
That's not how things roll in the real life, I'm afraid. After currency devolution, people just demand salaries comparable with what they see outside and if they won't obtain them, then given the open borders and all they just (gradually) leave for greener pastures. There are real problems to be solved and you can't doge that with currency tricks. It's better to avoid playing with currency, otherwise be ready to get comfortable in Zimbabwe's shoes (the worst case scenario).
Eh? The swiss franc was always higher than the euro. The peg was I swiss = 1.25 euro's, it actually lost value compared to the euro over the past year..
Also i don't think that managing's Icelands economy is easier, i would say it's harder.
Iceland has 300,000 people, it's economy is pretty much based on fishing aluminum and seasonal tourism.
It's a country in which when a bank goes bust the central bank goes out with it, when a large company goes bankrupt it can result in the unemployment rate jumping into the double digits..
Having 18 million people is a very big advantage over having 300,000, you have the wealth of those 18 million as a collateral not to mention a much healthier risk diversity.
Back in 2011, it was worth more. But the peg was actually at 1 euro = 1.20 francs,[0] but in mid-January it went to 1 euro = 0.81 francs in one day, that's 30%. Meaning that buying things with euros in Switzerland became 30% more expensive all of the sudden.
That was a very specific choice made by the national bank to protect their national coin and goods from the Euro. It was a very smart nd contested political / financial move that no other country in europe would have the balls to put up with.
> 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.
If I'm not mistaken, that's what futures in exchange markets are for.
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.
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.
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.
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.
The 1.6% positive is actually negative if you account for even very low level inflation over those years. Also, the Euro just lost a ton of value due to QE, which will ultimately drop every Eurozone member's GDP by at least 20% in real terms. In dollar terms, Germany's economy has plunged since 2008 due to this effect.
It's the same effect the US suffered as US budget deficits hammered the dollar from 2001-2009 or so. If you look at any country's GDP priced in dollars, they all universally skyrocket at the exact same time, all courtesy of the devalued dollar (the US lost a lot of ground to the rest of the world over that time due to the dollar devaluation).
Population growth is not a requirement for GDP growth. It also doesn't always help, plenty of countries have historically shown vast population growth with mediocre economic growth.
Germany's population has hardly budged since 1970. Their economy has increased several fold in that time. Productivity / output gains are far more important than population gains.
> Population growth is not a requirement for GDP growth. It also doesn't always help, plenty of countries have historically shown vast population growth with mediocre economic growth.
In developed countries most GDP growth is linked to population growth. See the US. Not taking into account that the US has an artificial inflated GDP.
> Their economy has increased several fold in that time
Long ago, different situation.
Besides that, the limits of using the GDP as a useful number have long been shown. The Iraq war with its trillion dollar cost helped the GDP a lot...
How is this propaganda? It seems to me that the article is just listing facts. These facts show a not very positive side of the Euro, but does that make the article propaganda?
Also, the article is not about Greece. It's about Finland and the Netherlands, and how they have been doing comparing to Iceland.
> It seems to me that the article is just listing facts.
How so? It starts with 'The euro might be worse for you than bankruptcy.'
This sentence is so vague that it does not make any sense at all. It 'might'? For 'you'? I live in the Eurozone, in Germany, and I fail to see how it is worse than 'bancruptcy.
How is growth related to `bancruptcy` of a tiny island?
`the results have still been a catastrophe` - low growth in the Netherlands is a catastrophe? Last I looked the Netherlands were a nice country, far form being a 'catastrophe'.
'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.'
The 'devaluing' theory. Not again.
'since you have to fire people to convince them to take pay cuts.'
More theory. Look at Germany. Workers agreed to keep wages stable. Outcome: record low unemployment.
'Iceland' - Iceland has just 300k population on an island. Comparing it to the Netherlands, Greece or Germany is just wrong. Different size, difference situation, different banking system, ...
It can still be propaganda whilst showing facts. I haven't read the article but pretty much everything I have read on the euro exaggerates some facts and ignores others in order to support the political leanings of the writer or their employer.
I wonder... "the banks" might not like the idea of the Euro, because a common currency eliminates the currency exchange business... how much does this affect their propaganda??
Just look what Europe would be without the Euro. We had that before. West Germany had the Deutsche Mark (DM). It was basically the anchor currency for most European countries. Germany changed it monetary politics? Everybody tried to follow. It was like the Euro, just with different currencies and a pact to keep the exchange rates stable. Main difference: the monetary policy was made by the German Bundesbank and not the ECB. Though both are in Frankfurt/Germany, the ECB is an European institution.
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.
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.
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?
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)"
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.
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.
Re: your first point, the same happens in Europe; the relatively rich west (like the aforementioned Netherlands) pays for the relatively poor newer eastern-european states, and the farming industry in countries like Spain, and with the recent problems in Greece, spends billions to try and get that country back on its feet.
" and the farming industry in countries like Spain,"
I don't know what this mean. The farmers in Spain are payed for not producing. I suppose the rational is protecting the farmers in France and the Netherlands. This is not redistribution in the sense of "rich" helping "poor".
The big difference is that a country in Europe has his own economy completely detached from the rest of the EU while in the US the federal state will provide money coverage for the basic state services and absorbs economic shocks distributing it on the whole country.
1. In the US, states aren't responsible for bailing out banks the Federal Reserve is. You don't see things like Ireland having to bail out a bunch of insolvent international banks.
2. In the US you see about 100-200 billion a year in transfer payments. I've come to believe that these are essentially compensation paid to states with weaker economies to compensate them for having to do business in dollars.
3. Social Security and unemployment insurance are Federal not, not state programs. And exception is state pensions, where there are indeed problems.
4. Most states are limited in the ways they can borrow money and don't run deficits that are large percentages of GDP.
5. Politically there is a difference. With Greece when I talk to Europeans there is this a reflexive desire to impose collective punishment on the Greeks. You just don't see that in the US. I think that frees US policy makers to take practical measures that aren't available to the Europeans. Consider Puerto Rica, about 40% of the population of Greece, half the total debt. Just said, they're broke. As an American... oh well sucks to be a creditor. But the Federal Reserve isn't going to cut off banking in Puerto Rico and force them to do a fire sale of civil assets like the EBC.
How many states do you have where SS pays out pensions to people over 56 while people in the other states work until 65 or 67 and are supposed to fund it?
SS in the us is funded via a Federal tax on wages. Rules are uniform over the entire country. Also Social Security Disability Insurance covers disabled people, and it too is a Federal not state program.
Unemployment insurance is a Federally mandated program that's administrated by the states. In 2009 California's unemployment fund was depleted and the Feds just loaned California money. Currently our fund is in the red by 8 billion. Does anyone care? No.
It's just at an earlier stage, the eurozone is still very young.
Monetary union has of course always implied ever closer union and the gradual dissolution of nation states - full political and fiscal Union. So the squabbling over who will fund Greece is rather silly in this context, if you want a single currency and market you must accept all the consequences which follow. That will take quite some time though, and as with the formation of the U.S. this is often a messy process.
As others have already said, the main difference is that the US has true political and social union to go with the financial union (if anyone is interested, this state of affairs came about during and in the aftermath of the American Civil War - indeed the war was only possible because until then the states really were independant entities capabable of defying the federal government - this is of course no longer the case).
To make it more concrete, when Louisiana has financial problems, the first remedy for Louisianans(???) is to move to another state. The next remedy is for the federal government to step in and inject funds into the economy, which is pretty much what they do, taking those funds from wealthy states such as New York and California. This works, because if the federal government hangs Louisiana out to dry, they will potentially lose seats, and potentially the presidency, come next election, so even though it annoys the rich states a little, the best political strategy is to provide as much financial support to Louisiana as possible without pissing off the rich states too much.
In Europe this is not the case. Indeed, this is precisely the problem that has been debated over recent weeks. The rich states (err, state, because Germany is about it at the moment, although I suppose you could count in the UK as well) refuses to pump more money into Greece's economy. They consider the situation to be Greece's problem, and they aren't going to do anything to help. Politically, there is no impact on German leaders to take this stance - or even worse, there is a political advantage to take this stance, as only Germans vote for German political leaders. Socially, with two very different cultures, and two different languages, there is not much by way of social cohesion. There are not huge numbers of mixed German / Greek families capable of looking across the border and seeing "us", not "them".
Imagine a European political structure that was truly integrated: There is a European president that commands the European military, and controls the European budget which comes directly from taxes that the European government levies on it's people, instead of the budget being made up from funds allocated to the European government by it's member state governments (which is the case today). In such a case, the European president would be much more willing to listen to Greece's case than the German Chancellor is today, and we wouldn't have this crisis.
That in a nutshell is the difference between the US and Europe. It has long been the UK's biggest criticism of the Euro, and is on record as being the reason they decided to not join the Eurozone (no financial union without political union).
(My opinion here, I know not everybody is going to agree). Because it took way more than 5 years to unify the American Dollar if I remember whereas the EU wants to go too fast, the local currencies were dropped really quickly and it destabilized the public opinion and the local economy. In people's mind, the euro is associated with inflation and decrease of purchase power. The EU is also way more diverse than anything close to the United States, no one thinks himself as European, there is no European identity (yet).
One main problem also is that anything coming from the EU has a bad reputation, the EU is perceived to be very bureaucratic and top-down (they are perceived to be too far from the average guy and not listening). It's not only in the UK, no-one wants to do a actually do a survey because they fear the results.
As a share of GDP, USA as a federal entity have many (10+) multiples higher budget compared to the EU entities. All the pork and military and other federal spending in the states act as an equalizer.
It took you 100 years, 10 depressions and 1 civil war to figure out how that needed to work..
Well for one thing (beyond what others have listed), the Dollar is the global reserve currency, which means US inflation is partially exported to the rest of the world - domestically the US only absorbs part of the inflation of its own monetization programs. The Eurozone can't as effectively export the hit its citizens take to their standard of living from QE currency debasement.
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).
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.
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..)
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.
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.
More than half the EU population already speaks english whereas less than one third speaks German [1]. Plus it is a much better choice thinking in global (worldwise) terms.
Everyone has always known this. The idea was bring in the Euro and then later the economic and political integration required to make it work. The Euro has always been a Trojan horse for European integration. If this is a good or a bad thing depends on your perspective.
The problem is that when economic issues are the cause of the failure, that doesn't make the countries involved want to integrate. It makes them hate each other instead.
The euro project was always a bit of a gamble. It reminds me of the German attack through Belgium during WWI. The german military high command was criticised after the war of gambling too much trying for a knock-out victory. Using the euro to achieve european integration has a similar feeling about it.
Edit. This is not a criticism of Germany in anyway, just an feeling I have based on the Euro project being a high risk, high reward strategy.
That's unfortunately going to be a tough deal. If anything the whole Euro thing has made its partners Euro-skeptical.
I'm not sure you would convince Ireland, Portugal, Spain, Italy, Greece that more Europe is good for them considering how bad it has been so far. ( we have hurt you, sorry, just let me be in charge and everything will be good now )
For the rest of the countries, Germany has taken the image of dictator of Europe, meaning that more Europe means more Germany telling you how to live your life for Germany's pleasure. Of course that's BS, but Germany is the go-to scapegoat and as they don't campaign anywhere else than Germany, so no matter how true that is, that is going to stick in people memories for decades.
If there was one official European language, as primary, it would be easier to unite the people. Language is the greatest divider. Just look at Belgium, or Spain/Catalonia, France/Corsica, it is still dividing people.
I don't even think Google Translate would help, because it could well be mainly the result of different languages causing different systems of thought.
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.
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.
It's not low inflation that is the primary benefit to Germany, it's that they have an artificially cheaper currency while remaining in the Euro, because of the weakness of all the other members. If Germany were outside the Euro, their currency would be vastly more expensive point to point than Spain, Portugal, Greece, Italy et al. That more expensive currency would drag down German exports.
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...
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.
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.
and i think that spain is responsible for that and not the euro.
if you had your own currency inflation would have increased the prices of all imported goods and thus diminishing the purchasing power...i can remember when italy hat its lira and every trip one got more ond more lira in exchange for our schilling (austria).
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.
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.
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).
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.
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.
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.
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.
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.
> 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.
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.
>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.
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.
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.
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.
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.
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.