7 ms·

Ultimately, the "euro" experiment is doomed to failure. You can't have a unified currency and monetary policy, while individual countries have massively differ

Ultimately, the "euro" experiment is doomed to failure. You can't have a unified currency and monetary policy, while individual countries have massively different domestic spending policies.

hugh3 16y ago
Right, so the EU powers that be have two options: 1. Admit they were wrong and dismantle the Euro, or 2. Use it as an excuse to centralise more power in Brussels, "harmonising" the spending policies of the various member nations Which do you think they'll pick?
- gaius 16y ago
  The problem isn't the spending policy, tho'. Go to Athens and you will see the problem very clearly. The habour is full of yachts, the streets are jammed with luxury cars and the people covered in designer labels and bling. This is a wealthy place, you might think, then look at little closer. The place looks like a building site and here's why: in Greece you pay no taxes on a building 'til it's completed, but since the weather is fine all year anyway, why not just leave the top floor unfinished? And they do, private individuals and corporations alike. You see, the Greeks want a level of government spending like Germany or Sweden. They're even willing to vote in the taxes to fund it. But they're not willing to actually pay those taxes, and so they just don't. Greece is a poor country full of rich people. In that sense the austerity measures will be easy to implement: corruption is everywhere. As is a strong sense of entitlement... Compare that to Germany or Sweden where paying your tax is seen as a civic duty. I did quite like the German idea that the Greeks ought to sell off their islands to other countries to raise cash.
  - dpapathanasiou 16y ago
    "But they're not willing to actually pay those taxes, and so they just don't." It runs deeper than that: Greece is the last Stalinist economy in Europe (despite never being behind the Iron Curtain). The government is so massively bureaucratic and corrupt that most people there consider it foolish to pay taxes to such an entity. This article goes into the background, and, on a hopeful note, suggests how that could change in the future: http://www.aei.org/article/101804 http://www.aei.org/article/101804
    - jbooth 16y ago
      Unless there are a whole bunch of Greek collective farms and forced labor camps that I'm unaware of, "stalinist" might be overstating it.
      - dpapathanasiou 16y ago
        You're right about the lack of forced labor camps, but "Stalinist" is how local economists describe the situation. To give you some idea: if you want to start a company, it will take you a minimum of 40 days to visit various bureaucrats and get permissions. When you hire employees they will come with union strings and have a Soviet-era worker mindset (i.e., they can do whatever work they want, incompetently or not, and they still expect to get paid, etc.), which is probably where the phrase comes from. The Calomiris article goes into more detail.
        jbooth 16y ago
        Well then those quote "local economists" are idiots with no sense of history. "Mildly socialist, corrupt and inefficient" is how any economist who has a brain, local or otherwise, would describe it. "Stalinist" is for Sarah Palin, the Tea Party and other groups who are more concerned with "impact words" than actually understanding anything. EDIT: Just to make it more clear how inaccurate and inflammatory that comparison is, Stalin by many estimates killed more people than Hitler. I'll repeat that. Stalin by many estimates killed more people than Hitler. Want to rethink the comparison maybe?
        dpapathanasiou 16y ago
        I understand your point, but it's not my term (e.g., here's a recent citation in English http://www.guardian.co.uk/world/2010/mar/28/greece-bond-issue http://www.guardian.co.uk/world/2010/mar/28/greece-bond-issu... and there are other articles in Greek using the same phrase). Their references to that term allude to red tape on a large scale, centralized economic planning, indifferent and unmotivated labor, etc., not the death camps and killing. (And that last phrase reminded me of this: http://bit.ly/bh96ml http://bit.ly/bh96ml apropos of nothing).
  - bd_at_rivenhill 16y ago
    Hopefully the Germans will be smart enough to force the scheduling of the bailout payments to be done in such a way that it pushes the Greeks to cut their spending. Maybe something like make the first payment equal to about 95% of what seems to be needed in order to cover their interest payments and then decline from there.
  - elblanco 16y ago
    > in Greece you pay no taxes on a building 'til it's completed, but since the weather is fine all year anyway, why not just leave the top floor unfinished? And they do, private individuals and corporations alike. This. Athens reminded me a little bit of Cairo, with mile after mile of "unfinished" occupied buildings. It seems also that good policy is a major problem. No taxes till complete? That's fine, now make it illegal to move into an incomplete building. No sane person can make a rational argument that people should be able to move into construction sites.
    - sesqu 16y ago
      I would make that argument, especially if I'm personally involved in the building (not sure about the legalities here). Maintaining a house no one lives in is pretty expensive, so there's every reason to have someone move in as soon as the house can manage weather protection, food storage, and ventilation. Further, if you're personally involved in advancing those concerns, you're already spending at least 10 hours a day in the building. Now, leasing the place out while there are holes in the floor is probably against a law, but there's no reason why buildings couldn't be continuously developed incrementally with user feedback. And occasionally, they are.
  - shykes 16y ago
    "The place looks like a building site and here's why: in Greece you pay no taxes on a building 'til it's completed, but since the weather is fine all year anyway, why not just leave the top floor unfinished?" Interesting. The exact same thing happens in south Italy.
  - jrockway 16y ago
    Sounds a lot like California.
- fab13n 16y ago
  Yep, Europe has set itself up in a situation where sooner or later, it'll have to get a unified economic policy. But it doesn't look like a bad thing to me: * European countries are too small to be meaningful in worldwide economic (or military) matters: our markets would be too atomized, we wouldn't have any negotiation power unless we "harmonize" our positions: I'd rather have the decisions be taken together, rather than harmonized as an afterthought. * Granted, today Brussels doesn't work democratically and lacks real power, especially when it comes to monetary policy. Giving real power to that shapeless bureaucracy seems stupid at first sight. For European elections, most parties are attached to a single country, have "national" (i.e. totally off-topic and inapplicable) programs, aren't kept accountable for anything once elected; the vast majority of voters either don't have a clue what a Euro-MP's purpose is, or would bet that they have none. But all of this would change quite rapidly, if Brussels was to get some real, strategic, intelligible power: real programs would become defensible during elections, the purpose of real pan-European parties would become clear, and if elected people ran on a real program, they could be held accountable of it (well, at least as much as in normal democraties anyway).
  - eru 16y ago
    I agree somewhat with the sentiment that a stronger EU can be good. But I do not see why we should see harmonization as so important. Unilateral free trade is always possible. Also, Switzerland seems to be doing fine as a small and independent country.
    - fab13n 16y ago
      Without harmonisation: * We can't decide anything about inflation, interest rates, at monetary policies. * There's an incentive for fiscal dumping: you set your tax rates for mobile capital so low that you drain wealth from the 26 other countries; knowing that common market and currency makes more things mobile and therefore drainable Besides, free trade is a fairy tale: we practice free trade according the WTO rules, but the real business is the negotiation where WTO rules are decided. As Europe, you've got enough weight to have your word, as most businesses can't afford to forgo the whole European market. Most of them can forgo France, or Germany, or Spain.
sailormoon 16y ago
You can use the exact same argument to say the US federalism "experiment is doomed to failure". Actually, I wrote that with the intention of disagreement, but now I think about it ...
- eru 16y ago
  The US has probably greater fiscal transfers between states and the federal budget is bigger than the EU budget compared to the member states' budgets.
- conover 16y ago
  But the big difference is that US states (redundant?) must run a balanced budget.
  - sailormoon 16y ago
    Oh yes, and haven't they been doing a sterling job of that.
    - tokenadult 16y ago
      Most states run balanced budgets most years, and some have been in surplus quite recently. Of course, they do that partly by shifting funding of state government functions to the federal budget, which is not constitutionally required to be balanced as most state budgets are.
      - wtn 16y ago
        They may technically have "balanced budgets" but many large states have huge off-balance-sheet liabilities (as does the US Treasury).
  - m_eiman 16y ago
    Euro countries are supposed to do that too, it's part of the deal. Not everyone cares too much about that, though. It's easier to be yelled at by the ECB than your voters when the latter will vote you out of office.
eru 16y ago
Why do you think so? What odds would you offer on common monetary policy in the EU falling apart first vs common monetary policy in the US and China falling apart first? (China and other countries are copying US policy, by pegging the exchange rate. They should fail soon, too, by the same logic.)
- roboneal 16y ago
  >> Why you think so? While China may have pegged it's exchange rate to the U.S. , it has the power to decouple at any time to adjust to changing market conditions. Greece (and soon Portugal, Spain, & Italy) don't have that ability. What can they do? - beg for a bailout or exit the EURO and devalue their currency. I guess there is a third option - dramatically cut SPENDING and entitlements.
  - eru 16y ago
    I guess the Germans are hoping the rest of Europe follows them with the third option.
henryprecheur 16y ago
Being unable to devalue the currency (print money to pay debt), is --I think-- a good thing. It is harder for politicians to postpone the pain, they have to cut spending and do what's needed for the country/state/province to recover fiscally. If somebody weights 200kg: The right solution is to lose weight and eat your vegetables; not to "devalue" the Kilogram.
- cynicalkane 16y ago
  Another way to lose weight would be to starve to death, which is what happened to many people the last time the Fed refused to devalue the currency (1929-1933).
  - yummyfajitas 16y ago
    To be fair, a massive ecological crisis (the dustbowl) and price controls on food (making it uneconomical to ship food to cities) also contributed to food shortages.
    - anamax 16y ago
      > price controls on food (making it uneconomical to ship food to cities) also contributed to food shortages. You got the boundary on the price controls wrong. They mandated minimum prices, not maximum. The minimum was more than enough to pay for shipping, but it was higher than the amount people could afford. FDR believed that the depression was caused by excess production. The federal govt destroyed food and other things to reduce supply in an effort to drive up prices. That didn't stop until WWII was imminent, when it became obvious that the US couldn't be an "arsenal of democracy" if it wasn't producing as much as it could. This war on production is what made the great depression "great", that is, long an deep. To be fair, these FDR policies were extensions of what Hoover had done. Interestingly enough, FDR campaigned against them.
      - eru 16y ago
        One wonders why FDR is held in such a high regard. But popular historical judgement seems strange anyway. Just look at English kings.
nickpinkston 16y ago
The real economics at work here are the economies of scale that comes with being the reserve currency of the world. Whoever owns the reserve currency holds the keys to the global economy - they're not backing anytime soon. Some say it could be 2022 when the Euro > Dollar. PDF: http://www.ssc.wisc.edu/econ/archive/wp2006-01.pdf http://www.ssc.wisc.edu/econ/archive/wp2006-01.pdf
cabalamat 16y ago
> You can't have a unified currency and monetary policy, while individual countries have massively different domestic spending policies. This is factually incorrect, because for over 1000 years European currencies were backed by silver or gold and were thus the same, despite the fact that European polities had vastly different spending priorities and indeed levels of development.
- cynicalkane 16y ago
  The GP meant not that it's physically impossible, but rather that it is a bad idea. (I'd rather not get into an argument about the gold standard; except to say that almost every economist that matters thinks it is a bad idea.)
- roboneal 16y ago
  You may need to brush up on the history of currency. So called "gold and silver" standards did not eliminate fluctuating exchange rates and valuation/devaluation cycles. For example: "In 1663, a new gold coinage was introduced based on the 22 carat fine guinea. Fixed in weight at 44½ to the troy pound from 1670, this coin's value varied considerably until 1717, when it was fixed at 21 shillings (21/-, 1.05 pounds). However, despite the efforts of Sir Isaac Newton, Master of the Mint, to reduce the guinea's value, this valuation overvalued gold relative to silver when compared to the valuations in other European countries" http://en.wikipedia.org/wiki/Pound_sterling#Gold_standard http://en.wikipedia.org/wiki/Pound_sterling#Gold_standard So even in physical coin form, this only worsened with introduction of paper notes, individual currencies fluctuated in valuation from country to country. Thus, European currencies historically were not "the same".
  - presidentender 16y ago
    You've just criticized bimetalism, not the concept of a backed currency. Gold will be the same value relative to gold; it's just impossible to peg gold to silver.
  - cabalamat 16y ago
    There were fluctuations of gold relative to silver. There were not fluctuations of gold relative to gold, or of silver relative to silver.

Ultimately, the "euro" experiment is doomed to failure. You can't have a unified currency and monetary policy, while individual countries have massively different domestic spending policies.

hugh3 16y ago

Right, so the EU powers that be have two options: 1. Admit they were wrong and dismantle the Euro, or 2. Use it as an excuse to centralise more power in Brussels, "harmonising" the spending policies of the various member nations Which do you think they'll pick?

gaius 16y ago
The problem isn't the spending policy, tho'. Go to Athens and you will see the problem very clearly. The habour is full of yachts, the streets are jammed with luxury cars and the people covered in designer labels and bling. This is a wealthy place, you might think, then look at little closer. The place looks like a building site and here's why: in Greece you pay no taxes on a building 'til it's completed, but since the weather is fine all year anyway, why not just leave the top floor unfinished? And they do, private individuals and corporations alike. You see, the Greeks want a level of government spending like Germany or Sweden. They're even willing to vote in the taxes to fund it. But they're not willing to actually pay those taxes, and so they just don't. Greece is a poor country full of rich people. In that sense the austerity measures will be easy to implement: corruption is everywhere. As is a strong sense of entitlement... Compare that to Germany or Sweden where paying your tax is seen as a civic duty. I did quite like the German idea that the Greeks ought to sell off their islands to other countries to raise cash.
- dpapathanasiou 16y ago
  "But they're not willing to actually pay those taxes, and so they just don't." It runs deeper than that: Greece is the last Stalinist economy in Europe (despite never being behind the Iron Curtain). The government is so massively bureaucratic and corrupt that most people there consider it foolish to pay taxes to such an entity. This article goes into the background, and, on a hopeful note, suggests how that could change in the future: http://www.aei.org/article/101804 http://www.aei.org/article/101804
  - jbooth 16y ago
    Unless there are a whole bunch of Greek collective farms and forced labor camps that I'm unaware of, "stalinist" might be overstating it.
    - dpapathanasiou 16y ago
      You're right about the lack of forced labor camps, but "Stalinist" is how local economists describe the situation. To give you some idea: if you want to start a company, it will take you a minimum of 40 days to visit various bureaucrats and get permissions. When you hire employees they will come with union strings and have a Soviet-era worker mindset (i.e., they can do whatever work they want, incompetently or not, and they still expect to get paid, etc.), which is probably where the phrase comes from. The Calomiris article goes into more detail.
      - jbooth 16y ago
        Well then those quote "local economists" are idiots with no sense of history. "Mildly socialist, corrupt and inefficient" is how any economist who has a brain, local or otherwise, would describe it. "Stalinist" is for Sarah Palin, the Tea Party and other groups who are more concerned with "impact words" than actually understanding anything. EDIT: Just to make it more clear how inaccurate and inflammatory that comparison is, Stalin by many estimates killed more people than Hitler. I'll repeat that. Stalin by many estimates killed more people than Hitler. Want to rethink the comparison maybe?
        dpapathanasiou 16y ago
        I understand your point, but it's not my term (e.g., here's a recent citation in English http://www.guardian.co.uk/world/2010/mar/28/greece-bond-issue http://www.guardian.co.uk/world/2010/mar/28/greece-bond-issu... and there are other articles in Greek using the same phrase). Their references to that term allude to red tape on a large scale, centralized economic planning, indifferent and unmotivated labor, etc., not the death camps and killing. (And that last phrase reminded me of this: http://bit.ly/bh96ml http://bit.ly/bh96ml apropos of nothing).
- bd_at_rivenhill 16y ago
  Hopefully the Germans will be smart enough to force the scheduling of the bailout payments to be done in such a way that it pushes the Greeks to cut their spending. Maybe something like make the first payment equal to about 95% of what seems to be needed in order to cover their interest payments and then decline from there.
- elblanco 16y ago
  > in Greece you pay no taxes on a building 'til it's completed, but since the weather is fine all year anyway, why not just leave the top floor unfinished? And they do, private individuals and corporations alike. This. Athens reminded me a little bit of Cairo, with mile after mile of "unfinished" occupied buildings. It seems also that good policy is a major problem. No taxes till complete? That's fine, now make it illegal to move into an incomplete building. No sane person can make a rational argument that people should be able to move into construction sites.
  - sesqu 16y ago
    I would make that argument, especially if I'm personally involved in the building (not sure about the legalities here). Maintaining a house no one lives in is pretty expensive, so there's every reason to have someone move in as soon as the house can manage weather protection, food storage, and ventilation. Further, if you're personally involved in advancing those concerns, you're already spending at least 10 hours a day in the building. Now, leasing the place out while there are holes in the floor is probably against a law, but there's no reason why buildings couldn't be continuously developed incrementally with user feedback. And occasionally, they are.
- shykes 16y ago
  "The place looks like a building site and here's why: in Greece you pay no taxes on a building 'til it's completed, but since the weather is fine all year anyway, why not just leave the top floor unfinished?" Interesting. The exact same thing happens in south Italy.
- jrockway 16y ago
  Sounds a lot like California.
fab13n 16y ago
Yep, Europe has set itself up in a situation where sooner or later, it'll have to get a unified economic policy. But it doesn't look like a bad thing to me: * European countries are too small to be meaningful in worldwide economic (or military) matters: our markets would be too atomized, we wouldn't have any negotiation power unless we "harmonize" our positions: I'd rather have the decisions be taken together, rather than harmonized as an afterthought. * Granted, today Brussels doesn't work democratically and lacks real power, especially when it comes to monetary policy. Giving real power to that shapeless bureaucracy seems stupid at first sight. For European elections, most parties are attached to a single country, have "national" (i.e. totally off-topic and inapplicable) programs, aren't kept accountable for anything once elected; the vast majority of voters either don't have a clue what a Euro-MP's purpose is, or would bet that they have none. But all of this would change quite rapidly, if Brussels was to get some real, strategic, intelligible power: real programs would become defensible during elections, the purpose of real pan-European parties would become clear, and if elected people ran on a real program, they could be held accountable of it (well, at least as much as in normal democraties anyway).
- eru 16y ago
  I agree somewhat with the sentiment that a stronger EU can be good. But I do not see why we should see harmonization as so important. Unilateral free trade is always possible. Also, Switzerland seems to be doing fine as a small and independent country.
  - fab13n 16y ago
    Without harmonisation: * We can't decide anything about inflation, interest rates, at monetary policies. * There's an incentive for fiscal dumping: you set your tax rates for mobile capital so low that you drain wealth from the 26 other countries; knowing that common market and currency makes more things mobile and therefore drainable Besides, free trade is a fairy tale: we practice free trade according the WTO rules, but the real business is the negotiation where WTO rules are decided. As Europe, you've got enough weight to have your word, as most businesses can't afford to forgo the whole European market. Most of them can forgo France, or Germany, or Spain.

sailormoon 16y ago

You can use the exact same argument to say the US federalism "experiment is doomed to failure". Actually, I wrote that with the intention of disagreement, but now I think about it ...

eru 16y ago
The US has probably greater fiscal transfers between states and the federal budget is bigger than the EU budget compared to the member states' budgets.
conover 16y ago
But the big difference is that US states (redundant?) must run a balanced budget.
- sailormoon 16y ago
  Oh yes, and haven't they been doing a sterling job of that.
  - tokenadult 16y ago
    Most states run balanced budgets most years, and some have been in surplus quite recently. Of course, they do that partly by shifting funding of state government functions to the federal budget, which is not constitutionally required to be balanced as most state budgets are.
    - wtn 16y ago
      They may technically have "balanced budgets" but many large states have huge off-balance-sheet liabilities (as does the US Treasury).
- m_eiman 16y ago
  Euro countries are supposed to do that too, it's part of the deal. Not everyone cares too much about that, though. It's easier to be yelled at by the ECB than your voters when the latter will vote you out of office.

eru 16y ago

Why do you think so? What odds would you offer on common monetary policy in the EU falling apart first vs common monetary policy in the US and China falling apart first? (China and other countries are copying US policy, by pegging the exchange rate. They should fail soon, too, by the same logic.)

roboneal 16y ago
>> Why you think so? While China may have pegged it's exchange rate to the U.S. , it has the power to decouple at any time to adjust to changing market conditions. Greece (and soon Portugal, Spain, & Italy) don't have that ability. What can they do? - beg for a bailout or exit the EURO and devalue their currency. I guess there is a third option - dramatically cut SPENDING and entitlements.
- eru 16y ago
  I guess the Germans are hoping the rest of Europe follows them with the third option.

henryprecheur 16y ago

Being unable to devalue the currency (print money to pay debt), is --I think-- a good thing. It is harder for politicians to postpone the pain, they have to cut spending and do what's needed for the country/state/province to recover fiscally. If somebody weights 200kg: The right solution is to lose weight and eat your vegetables; not to "devalue" the Kilogram.

cynicalkane 16y ago
Another way to lose weight would be to starve to death, which is what happened to many people the last time the Fed refused to devalue the currency (1929-1933).
- yummyfajitas 16y ago
  To be fair, a massive ecological crisis (the dustbowl) and price controls on food (making it uneconomical to ship food to cities) also contributed to food shortages.
  - anamax 16y ago
    > price controls on food (making it uneconomical to ship food to cities) also contributed to food shortages. You got the boundary on the price controls wrong. They mandated minimum prices, not maximum. The minimum was more than enough to pay for shipping, but it was higher than the amount people could afford. FDR believed that the depression was caused by excess production. The federal govt destroyed food and other things to reduce supply in an effort to drive up prices. That didn't stop until WWII was imminent, when it became obvious that the US couldn't be an "arsenal of democracy" if it wasn't producing as much as it could. This war on production is what made the great depression "great", that is, long an deep. To be fair, these FDR policies were extensions of what Hoover had done. Interestingly enough, FDR campaigned against them.
    - eru 16y ago
      One wonders why FDR is held in such a high regard. But popular historical judgement seems strange anyway. Just look at English kings.

nickpinkston 16y ago

The real economics at work here are the economies of scale that comes with being the reserve currency of the world. Whoever owns the reserve currency holds the keys to the global economy - they're not backing anytime soon. Some say it could be 2022 when the Euro > Dollar. PDF: http://www.ssc.wisc.edu/econ/archive/wp2006-01.pdf http://www.ssc.wisc.edu/econ/archive/wp2006-01.pdf

cabalamat 16y ago

> You can't have a unified currency and monetary policy, while individual countries have massively different domestic spending policies. This is factually incorrect, because for over 1000 years European currencies were backed by silver or gold and were thus the same, despite the fact that European polities had vastly different spending priorities and indeed levels of development.

cynicalkane 16y ago
The GP meant not that it's physically impossible, but rather that it is a bad idea. (I'd rather not get into an argument about the gold standard; except to say that almost every economist that matters thinks it is a bad idea.)
roboneal 16y ago
You may need to brush up on the history of currency. So called "gold and silver" standards did not eliminate fluctuating exchange rates and valuation/devaluation cycles. For example: "In 1663, a new gold coinage was introduced based on the 22 carat fine guinea. Fixed in weight at 44½ to the troy pound from 1670, this coin's value varied considerably until 1717, when it was fixed at 21 shillings (21/-, 1.05 pounds). However, despite the efforts of Sir Isaac Newton, Master of the Mint, to reduce the guinea's value, this valuation overvalued gold relative to silver when compared to the valuations in other European countries" http://en.wikipedia.org/wiki/Pound_sterling#Gold_standard http://en.wikipedia.org/wiki/Pound_sterling#Gold_standard So even in physical coin form, this only worsened with introduction of paper notes, individual currencies fluctuated in valuation from country to country. Thus, European currencies historically were not "the same".
- presidentender 16y ago
  You've just criticized bimetalism, not the concept of a backed currency. Gold will be the same value relative to gold; it's just impossible to peg gold to silver.
- cabalamat 16y ago
  There were fluctuations of gold relative to silver. There were not fluctuations of gold relative to gold, or of silver relative to silver.