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Is the Euro worth it?

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    I'll keep this super succinct: is the Euro worth keeping alive when all these crises, largely caused by the currency, are continuing to occur? Is it not the case that this currency is being kept around simply for some out of touch political objective in the form of a United Europe?

    To have 'more Europe' as Merkel repeats is a ridiculous proposition because if a shared currency can cause so much trouble, then how can a fiscal union be any better? Surely if you are tied in even more then even more trouble will occur?
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    (Original post by Stanley Baldwin)
    I'll keep this super succinct: is the Euro worth keeping alive when all these crises, largely caused by the currency, are continuing to occur? Is it not the case that this currency is being kept around simply for some out of touch political objective in the form of a United Europe?
    Are they? I can't see how the crisis in Greece, Ireland, Italy and Spain were not inevitable even without the Euro.
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    (Original post by Stanley Baldwin)
    I'll keep this super succinct: is the Euro worth keeping alive when all these crises, largely caused by the currency, are continuing to occur? Is it not the case that this currency is being kept around simply for some out of touch political objective in the form of a United Europe?

    To have 'more Europe' as Merkel repeats is a ridiculous proposition because if a shared currency can cause so much trouble, then how can a fiscal union be any better? Surely if you are tied in even more then even more trouble will occur?
    they were hardly caused by the euro ... they were caused by irresponsible lending and borrowing by the people and governments of these nations, nothing more.
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    The Yankee $ has worked well enough for a while now in 50 States of a Union, the € could manage just as well.
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    (Original post by Stanley Baldwin)
    I'll keep this super succinct: is the Euro worth keeping alive when all these crises, largely caused by the currency, are continuing to occur? Is it not the case that this currency is being kept around simply for some out of touch political objective in the form of a United Europe?

    To have 'more Europe' as Merkel repeats is a ridiculous proposition because if a shared currency can cause so much trouble, then how can a fiscal union be any better? Surely if you are tied in even more then even more trouble will occur?
    The definition of madness is trying the same thing over and over and expecting a different result.

    The Euro was a mistake from the start, the sooner countries like Greece, Italy, Spain, Portugal and Ireland are allowed to leave the better as the Euro is hindering them more than it is helping.
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    (Original post by Brandmon)
    Are they? I can't see how the crisis in Greece, Ireland, Italy and Spain were not inevitable even without the Euro.
    Exactly.

    Is the Euro worth it? Perhaps ask the people of Greece. The EU is often criticized for not being democratic, and there may be some truth in that, but the Euro is hugely popular in the Eurozone countries. Euroskeptics from outside the Eurozone should bear that in mind when calling for the Euro to be broken up on the one hand, and criticizing the EU for being undemocratic on the other.
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    (Original post by JMB92)
    The definition of madness is trying the same thing over and over and expecting a different result.

    The Euro was a mistake from the start, the sooner countries like Greece, Italy, Spain, Portugal and Ireland are allowed to leave the better as the Euro is hindering them more than it is helping.
    I read as Kyle's voice lol.
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    (Original post by Ajibola)
    I read as Kyle's voice lol.
    I try to read everything in Kyle's voice lol
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    (Original post by JMB92)
    The definition of madness is trying the same thing over and over and expecting a different result.
    Who has done what "over and over?"
    (Original post by JMB92)
    The Euro was a mistake from the start
    Who says that, your dad?
    (Original post by JMB92)
    the sooner countries like Greece, Italy, Spain, Portugal and Ireland are allowed to leave the better
    They can "leave" whenever they want to, but it would be very bad for the EU.
    (Original post by JMB92)
    as the Euro is hindering them more than it is helping.
    Please explain in detail?
    (Original post by JMB92)
    I try to read everything in Kyle's voice lol
    Maybe that explains your thinking.
    Ö¿Ö
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    (Original post by Earthling_1)
    The Yankee $ has worked well enough for a while now in 50 States of a Union, the € could manage just as well.
    You understand the huge differences between the EU and US right? The EU would never become like the US unless every country involved gave up most of its power and if there was complete fiscal and political union something just about every member state is against.
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    (Original post by Aj12)
    You understand the huge differences between the EU and US right?
    I certainly do, the US has been a Union for a tad longer than the EU, plus a few other tiny differences, such as language.
    The EU would never become like the US unless every country involved gave up most of its power and if there was complete fiscal and political union something just about every member state is against.
    Don't worry, Brussels is working on it.

    BTW, I don't expect much in the way of Euro support from many Brits.
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    (Original post by Earthling_1)
    I certainly do, the US has been a Union for a tad longer than the EU, plus a few other tiny differences, such as language.Don't worry, Brussels is working on it.

    BTW, I don't expect much in the way of Euro support from many Brits.
    You won't find this level of EU support in anyone.
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    (Original post by Aj12)
    You won't find this level of EU support in anyone.
    Please specify "this level?"
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    It makes travelling easier.
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    Highly questionable. But it has been a disaster all along for lack of political union to accompany fiscal policy.
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    (Original post by Stanley Baldwin)
    largely caused by the currency
    No - this isn't really the case. Greece has serious problems because the average pensioner recieves a state pension equal to 110% of the median salary, average age at retirement is in the early 50s (while Greece also has a very high life expectancy and a very low fertility rate - so the workforce is falling as ever more people retire). Greece has awarded its people pension rights that can never be met - whence sovereign bankruptcy (compounded by banking collapse and a world recession that especially hit Greece's two biggest industries - tourism and international shipping).

    Spain just has a banking crisis and a collapsed construction industry - compounded by inflexible labour contracts which make it impossible for employers to sack or cut the wages of permanent workers. If wages can't fall in response to falling demand, soaring unemployment is inevitable.

    The UK, incidentally, is doing much worse than the eurozone average in terms of productivity, GDP or GDP/ capita. Our only virtues are that we have more flexible labour markets (so while only 8.2% of the UK workforce is unemployed, 28% are only working part time - over a third of which claim to be seeking full time work).

    GDP/ capita performance, along with government net debt (which is an indicator for where the sharpest fiscal contractions will happen, and where income growth will be lowest over the next decade):

    http://www.imf.org/external/pubs/ft/..._NGDP&grp=0&a=

    (Original post by Stanley Baldwin)
    To have 'more Europe' as Merkel repeats is a ridiculous proposition because if a shared currency can cause so much trouble, then how can a fiscal union be any better? Surely if you are tied in even more then even more trouble will occur?
    This, sorry to say, sounds painfully confused.

    To sumarize:
    "a shared currency is causing awful trouble" & "a shared currency is a form of European cooperation" => "European cooperation causes awful trouble"
    Whence you procede to conclude:
    "a fiscal union is a form of cooperation" => "a fiscal union would cause additional awful trouble"...

    You really need to attack things at a deeper level.

    Think about a currency at a fundamental level. It provides a number of uses:
    - a medium of exchange for performing transactions (here, the euro helps in Europe by reducing transaction costs - the same currency is valid across borders)

    - a unit of account for negotiating contracts (low stable inflation helps; in open European economies which trade heavily, the euro provides a good unit of account for many international contracts which would not be tenable without such a stable unit of account)

    - a store of value (here, again, the euro is far safer. The ECB guarantees low and stable inflation. The euro has maintained its value better than - and is less volatile than - sterling or the dollar. The euro has certainly provided a far safer store of value than the former French frank or any of the south European currencies)

    - a tool for monetary policy. Here, the euro works well at a continental level - the eurozone as a whole has neither deflation nor significant inflation. Yet clearly, the euro removes freedom to use monetary policy for stimulas of particular national economies.

    That is, the euro sacrifices national fiscal policy (which is only significant in the very short run) to obtain the other benefits. And the other benefits really have been huge. Trade between countries in the eurozone has grown far faster than between any other set of developed countries. And in the long run, trade results in arbitrage, specialisation, economies of scale, more rapid transmission of innovation and faster productivity growth.

    Now, the banking problem in Spain really isn't a problem of the euro - it is a problem of banking contagion (which the UK is heavily exposed to btw) and of sovereign debt (if the government were to recapitalise the banks). Greece has a problem of government by criminals & clowns.

    There are a number of proposals to mitigate losses, minimise the recessionary effects - for example, with eurobonds or a European banking union. If properly implemented, these could both be economically useful of their own merits - for instance, by allowing banks to compete more freely across the eurozone, and making it easier still for businesses with strong financial activity to trade throughout the eurozone. I guess we'll see what happens.

    The mainstream British media have been hopeless in reporting this (excessive hype, tons of misinformation) - if in doubt, check out numbers at eurostat, IMF or ECB; listen to coverage in the German, Dutch or French media.

    Broadly, the euro has been and will probably continue to be an enormous success (get back to the functions of a currency, and test it by those metrics).
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    (Original post by Shaun39)
    No - this isn't really the case. Greece has serious problems because the average pensioner recieves a state pension equal to 110% of the median salary, average age at retirement is in the early 50s (while Greece also has a very high life expectancy and a very low fertility rate - so the workforce is falling as ever more people retire). Greece has awarded its people pension rights that can never be met - whence sovereign bankruptcy (compounded by banking collapse and a world recession that especially hit Greece's two biggest industries - tourism and international shipping).
    Greece could never have borrowed as much as it has been able to if it did not have the euro, their yields have been artificially suppressed thanks to the growth of Germany, Austria and the Netherlands.
    Spain just has a banking crisis and a collapsed construction industry - compounded by inflexible labour contracts which make it impossible for employers to sack or cut the wages of permanent workers. If wages can't fall in response to falling demand, soaring unemployment is inevitable.
    How do you think the construction bubble got fueled in Spain in the first place?
    They could easily inflate away their debts if it were not for the euro's petty politics. Or default and tell the heavily invested European banks to take a hike.

    - a unit of account for negotiating contracts (low stable inflation helps; in open European economies which trade heavily, the euro provides a good unit of account for many international contracts which would not be tenable without such a stable unit of account)
    Yes, the Norwegians, the Japanese, the British and the rest of the world clearly cannot draw up contracts because of different currencies. All of Europe apparently was in a giant trade crunch pre-Euro.

    - a store of value (here, again, the euro is far safer. The ECB guarantees low and stable inflation. The euro has maintained its value better than - and is less volatile than - sterling or the dollar. The euro has certainly provided a far safer store of value than the former French frank or any of the south European currencies)
    The ECB is broke, it has been slowly taking on toxic debt from European banks to lend them money over the last year as collateral. No one cares if they promise to "guarantee" debt when they are themselves bankrupt.

    There are a number of proposals to mitigate losses, minimise the recessionary effects - for example, with eurobonds or a European banking union. If properly implemented, these could both be economically useful of their own merits - for instance, by allowing banks to compete more freely across the eurozone, and making it easier still for businesses with strong financial activity to trade throughout the eurozone. I guess we'll see what happens.
    Yes, lending to a country that can only show artificially low yields thanks to the competitiveness of another country is a great idea. I do wonder why Europhiles are so keen on ignoring every warning sign from bond markets from the past year and just want to drag everyone into a bigger mess in the name of "stability"(because the last 3 years haven't happened), "trade"(which countries outside the eurozone but in Europe also happen to do) and "low inflation"(because that has been achieved in a stable manner without a debt crisis that has infected most of Europe).
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    (Original post by ish90an)
    Greece could never have borrowed as much as it has been able to if it did not have the euro, their yields have been artificially suppressed thanks to the growth of Germany, Austria and the Netherlands.
    Before joining the euro, Greece, Italy, etc had high yields. There was no perception of a default risk - the reason for those high yields was currency risk. Investors expected inflation and depreciation - and this lack of currency trust left Southern Europe suffering from high real interest rates, high financing costs and less investment than would have been efficient. The euro fixed that problem - it removed currency risk.

    The result was falling budget deficits and falling debt burdens (in Italy, Spain, Portugal - though not in Greece). Investment increased in Spain and productivity growth sped up.

    The problem is that markets did not perceive any credible solvency risk. Spanish and Irish banks were somehow perceived as making sound investments, sovereigns were seen as robust (even - strangely - Greece), and nobody anticipated that a reverse of the leverage cycle would have such terrible implications for nominal GDP growth & market liquidity.

    (Original post by ish90an)
    How do you think the construction bubble got fueled in Spain in the first place?
    They could easily inflate away their debts if it were not for the euro's petty politics. Or default and tell the heavily invested European banks to take a hike.
    Inflating away debts is the same as defaulting. It is the prospect of inflating away debts that had condemned Spain to high interest rates, high debt financing costs and expensive corporate finance. If there had been a prospect of high inflation, then rates would have been higher and the construction & business investment would never have happened in the first place.

    Indeed, Spain wouldn't be suffering from the present capital flight - but it would also be poorer than it is today.

    The root of the problem isn't that Spain was able to enjoy low interest rates (thanks to removal of currency risk) - the problem is that the banks borrowed short term on international money markets, to invest long term in property. As international finance was recalled, Spanish banks had to sell of their liquid assets to meet the recall - driving up yields on Spanish bonds.

    The problem is one of financial regulation rather than currency.

    Yes - a redenomination in a new peso would remove past debts. It would aslo lock Spanish business out of international capital markets, and result in even sharper deleveraging and contraction of economic activity.

    Don't entertain the prospect - it would be foolish; and the meer prospect would bring about economic collapse.

    Some default, European transfer, eurobonds or a banking union are possible solutions to help ameliorate the crisis in Spain - but the bulk of the work must be done through implementation of flexible labour markets in Spain, and through reducing public sector pay rates & pensions to private sector norms.

    Note than the Spanish current account deficit is smaller than America's - and will be less than 2% this year. Spain is perfectly competitive (unlike Greece) - exports are already booming. Spain really needs an internal adjustment to bring down unemployment with the prevailing levels of demand. It is happening - but the faster it happens, the less suffering.

    (Original post by ish90an)
    Yes, the Norwegians, the Japanese, the British and the rest of the world clearly cannot draw up contracts because of different currencies. All of Europe apparently was in a giant trade crunch pre-Euro.
    The Norwegians, Japanese and British do far less trade than eurozone countries - and have seen far less rapid trade growth in the past decade.

    A large part of this is that trade across currency borders implies currency risk - traders invest in capacity and relationships which may become unviable when exchange rates change. Some of this risk can be hedged at high cost with currency futures, but much of it can't. It is expensie to trade across currency borders - this acts as a tariff, and severely impedes trade.

    (Note that even among non-euro members, Switzerland and Denmark have both pegged their currencies to the euro - and Switzerland has some dual circulation - cash machines also issue euro notes, rail ticket vending machines accept euros, etc. And Switzerland's massive banking system, obviously, trades even more in euros than it does in Swiss francs.)

    (Original post by ish90an)
    The ECB is broke, it has been slowly taking on toxic debt from European banks to lend them money over the last year as collateral. No one cares if they promise to "guarantee" debt when they are themselves bankrupt.
    The ECB is not "broke". It has far less exposure to banking solvency and public debt than either the Bank of England or the Fed (or the Bank of Japan for the matter).

    If banks do collapse, then the resulting loss of leverage and nominal money will give the ECB the luxury of printing as much as it wants without fear of stoking inflation - so we would have the opposite problem of a broke central bank (we'd have Japanese disease in the eurozone - a likely outcome, yet even more probable in the US on current debt trajectory).
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    (Original post by Shaun39)
    Before joining the euro, Greece, Italy, etc had high yields. There was no perception of a default risk - the reason for those high yields was currency risk. Investors expected inflation and depreciation - and this lack of currency trust left Southern Europe suffering from high real interest rates, high financing costs and less investment than would have been efficient. The euro fixed that problem - it removed currency risk.
    The reason for the high yields was not currency risk, it was because people did not believe these countries were as creditworthy as Germany or the UK because they do not have the same levels of industry as the others. Suddenly trying to hide this simple fact by switching to another currency is not a "fix", it just switches your currency risk to credit risk.
    The result was falling budget deficits and falling debt burdens (in Italy, Spain, Portugal - though not in Greece). Investment increased in Spain and productivity growth sped up.
    The "investment" was a bubble. That is not actual growth.
    The problem is that markets did not perceive any credible solvency risk. Spanish and Irish banks were somehow perceived as making sound investments, sovereigns were seen as robust (even - strangely - Greece), and nobody anticipated that a reverse of the leverage cycle would have such terrible implications for nominal GDP growth & market liquidity.
    Of course they were seen as robust, they were seen to be backed up by actually strong sovereigns like Germany as well as the ECB! As for "nobody anticipated", Goldman's were shorting Greek bonds in 2010 and people like then Bundesbank president Tietmeyer had warned in 1998 about eliminating tests to check if countries like Greece were ready to adopt the Euro.

    Inflating away debts is the same as defaulting. It is the prospect of inflating away debts that had condemned Spain to high interest rates, high debt financing costs and expensive corporate finance. If there had been a prospect of high inflation, then rates would have been higher and the construction & business investment would never have happened in the first place.
    You mean the "investment" that was actually a bubble that burst? What is this socialist fascination with confusing actual growth with debt fueled bubbles?
    Indeed, Spain wouldn't be suffering from the present capital flight - but it would also be poorer than it is today.
    It is still going to be poorer, their banks are leveraged and loaded with toxic debt and their economy is collapsing.

    The root of the problem isn't that Spain was able to enjoy low interest rates (thanks to removal of currency risk) - the problem is that the banks borrowed short term on international money markets, to invest long term in property. As international finance was recalled, Spanish banks had to sell of their liquid assets to meet the recall - driving up yields on Spanish bonds.
    Banks would not have invested in these construction projects because these projects would not have been possible if the yields and currency value were in line with the actual state of the Spanish economy.
    The problem is one of financial regulation rather than currency.
    The left and europhiles think "regulation" from clueless eurocrats will somehow prevent a crisis when in fact they happily ignored their own rules and were in cahoots with the same banks in letting Greece in. Every summit is the same nonsense, eurocrats claim to have "fixed" the crisis with some promise of magic money that is never delivered("we will impose austerity", "we will reduce our public pensions", "China will lend us the money") and a month later we are back at the same dance.
    Yes - a redenomination in a new peso would remove past debts. It would aslo lock Spanish business out of international capital markets, and result in even sharper deleveraging and contraction of economic activity.

    Don't entertain the prospect - it would be foolish; and the meer prospect would bring about economic collapse.
    More than the bank run going on in Greece and Spain right now? With half their young people unemployed, a broke banking system and political turmoil causing the rise of extreme wing politics eurocrats need to realise that the problem has to be solved; they have skirted around it for 2 years, digging their people deeper into debt slavery and continuing this charade won't fix the deep structural flaw of the euro.
    Some default, European transfer, eurobonds or a banking union are possible solutions to help ameliorate the crisis in Spain - but the bulk of the work must be done through implementation of flexible labour markets in Spain, and through reducing public sector pay rates & pensions to private sector norms.
    And who will employ these public sector people when the private sector still has to pay its wages in a highly valued euro and there is no guarantee if the country will even have the euro tomorrow?
    Note than the Spanish current account deficit is smaller than America's - and will be less than 2% this year. Spain is perfectly competitive (unlike Greece) - exports are already booming. Spain really needs an internal adjustment to bring down unemployment with the prevailing levels of demand. It is happening - but the faster it happens, the less suffering.
    Let us please not compare America-a country no one wants to call out because of its status as the reserve currency and the hold it has on the world's banking system- with a minnow like Spain.
    The Norwegians, Japanese and British do far less trade than eurozone countries - and have seen far less rapid trade growth in the past decade.
    But they can still write trade contracts and they can grow steadily. This isn't a rat race, maybe central banks should realise this and stop fueling bubbles.
    A large part of this is that trade across currency borders implies currency risk - traders invest in capacity and relationships which may become unviable when exchange rates change. Some of this risk can be hedged at high cost with currency futures, but much of it can't. It is expensie to trade across currency borders - this acts as a tariff, and severely impedes trade.
    Again, this does not stop countries with different currencies from trading. FX risk is a part of international risk, trying to bring different economies under a single umbrella may eliminate it on paper but it is a fraud.




    The ECB is not "broke". It has far less exposure to banking solvency and public debt than either the Bank of England or the Fed (or the Bank of Japan for the matter).
    http://www.zerohedge.com/sites/defau...ce%20Sheet.jpg

    With LTRO that let banks pledge toxic PIIGS you can guess where all the balance sheet expansion has come from.
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    The main problem with the Euro is purely its value. Due to the ever increasing number of economies joining from poorer (mainly ex eastern bloc countries such as soon to be Poland), it pushes the value of the currency up and therefore the GDP of that country adds value to it. Now this creates a problem when you consider prices of goods will also increase to the rate at which the Euro trades. Then because a lot of companies who had a base in those countries lose their cheap labour and it pushes prices and wages sky high, they move simply to another country (Asia nowadays). This then causes unemployment and as a result the Government is usually forced to borrow more to support the ever growing population out of work, as well as investing into the numerous (and often pointless) EU funds for this and that. Countries like Greece, Portugal, Ireland etc. have never ever been on the same comparative level of production and economic success as Germany or France. As such it is doomed to collapse under its own weight as the Germans and the French will have to support the weaker parts of the economy.

    Think of it like an empire. You have a war on 3 fronts, which is highly disastrous. You are losing thousands of men each week, what can can you do to keep hold to those territories desperately? Send more men to the front line. This is basically what Germany is doing with it's Euro empire, and whoever argues that Germany is not the dictator in this all to the rest of Europe is clearly dillusional. It is trying to buffer up its interlinked economies on the furthest reaches of Europe and is failing because those countries cannot meet the same standards as one another. All empires must fall, maybe even the German dominated Eurozone will too, The Roman Empire did after all. History will repeat itself. The Eurozone is far too over stretched to handle problems now, and any decision has an impact on the other 16 members. They should have left it at its original number.

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