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A Euro Tragedy

62 points by deafcalculus 8y ago

ironcan 8y ago
An often overlooked point is that euro is not just an economic tool but also a social one, as being able to travel and pay freely in the whole continent is an important unifying point.
- kzrdude 8y ago
  Not intended to be entirely contrafactual, but can't we think of lots of alternative solutions to the same problem? Being able to travel across europe and pay freely everywhere. For example, unifying card or other cashless payments to a bigger extent, so that coins and bills become less important.
  - throwaway8121 8y ago
    Those are 21st century solutions for a 1990s problem. And now the Euro exists it would be very difficult to revert to separate currencies (even though that may be preferable)
- petre 8y ago
  I can pay freely with my own currency in the EU as long as I use a credit or debit card, thank you. I won't trade sovereignity for convenience, regardless of social engineering coming from Bruxelles or Merkel. I don't want my country to become the next Greece.
  - kasey_junk 8y ago
    “Freely”? I’d be surprised.
  - walkingolof 8y ago
    Greece problems ran deeper than just entering the Euro, massive corruption and tax avoidance played a major role creating that crisis. Its estimated that ~25% of the Greece GDP where not subject taxed, effectively a shadow economy.
    - PaulHoule 8y ago
      This is a factor in Italy too.
    - petre 8y ago
      How about Italy and Portugal then? The truth is that the Euro was a political decision with disregard of ecomics. That's why Margaret Tacher refused to adopt the Euro for the UK and warned that it would end democracy in Europe. https://m.youtube.com/watch?v=5TPpuIslzG4 https://m.youtube.com/watch?v=5TPpuIslzG4
    - taysic 8y ago
      It's worth noting that when a country has control of its own currency, its issues are more self-contained. It doesn't get easy money based on the performance of other countries within the EU. It also can devalue its own currency if it can't pay back its own bonds.
  - kuschku 8y ago
    You consider a 2-3% (or up to 7% with AMEX) fee on everything you buy (even though it’s paid by the merchant, and so you only pay it indirectly) "free"? And would you be equally calm if you’d have to pay 2-3% more sales tax?
    - petre 8y ago
      Rather than trading away my country's sovereignity? Yes! It's actually quite a great deal compared to getting screwed over by the ECB/creditors and having to pay increased taxes on everything.
  - jimnotgym 8y ago
    Freely? My bank charge extortionate fees for translating currencies on a card.
  - dpwm 8y ago
    Just out of curiosity, what is your country? There are many countries at the moment that this could apply to, but most are already in the Euro which so far is a one-way trip. > I won't trade sovereignity for convenience, regardless of social engineering coming from Bruxelles or Merkel. This sounds a lot like Brexit leave campaign rhetoric and I suspect is the reason you're being downvoted. Regardless of how you feel about the EU and Brexit, sovereignty has to be one of the weaker aspects. Disliking the EU is fine, but let's be honest about why. Consider the origin of most nation states. Smaller autonomous regions were invaded or bribed into some form of union. In many of these unions rules were harmonized to varying extents and sovereignty was ceded. Common currencies were also adopted in some of the unions. Consider the nation state that you hold the sovereignty of so high. Imagine tomorrow it was split into two. Both of these regions have the same currency and many common rules and regulations. Given that it's highly probable that your country has fully embraced capitalism and derives much of its wealth through trade, it has a choice: change things or not. If you don't change anything you haven't really regained sovereignty. If you change things you're imposing barriers to trade. Given you had a common currency and rules before, there's a good chance that they were your preferred trading partner if the infrastructure was good enough. Interestingly, there are regions where intra-state infrastructure is better than inter-state infrastructure, usually due to geography. But we can go deeper than that. We can keep subdividing from regions into cities into towns into households into individual people. Every time you go to the ballot box you acknowledge that you have ceded individual sovereignty. All the evidence I've seen points to the sovereignty argument in Brexit wasn't about sovereignty being ceded, but who it was perceived as being ceded to. Because if the vision of the Brexit-supporting International Trade and Development Secretary is to be taken as the post-brexit plan, then Brexit will be all about ceding more sovereignty for less trade.
    - repolfx 8y ago
      All the evidence I've seen points to the sovereignty argument in Brexit wasn't about sovereignty being ceded, but who it was perceived as being ceded to They're impossible to disentangle. Voters in the UK had for years been telling politicians, here's our priorities, here's what is upsetting us. Mostly, massive immigration that overloaded public services. In response they were told, sorry, we can't do anything about that, France and Germany won't let us. It's out of the question, even trying to talk about it is pointless. Oh yeah, and you're probably a racist for even asking. Voters don't like being told to shut up because some foreign politician disagrees. Is that dislike a desire for "more sovereignty" or is it a problem with who power has been delegated to? Arguably if the UK had entered an EU-like arrangement with the USA instead, and become the 51st state, voters would have faced very similar concerns over things like gun control instead of immigration. Ultimately technological progress does allow us to satisfactorily decentralise power in new ways. Some people want society to go in the opposite direction and centralise it as much as possible. This is a bad idea, and the Eurozone predicament is an interesting example of why.
- Systemic33 8y ago
  Definitely. And it also makes a difference for a company, as you can set a € price, and it can work for more or less the entire EU. E.g. in Denmark (although not part of €, but pegged to 100€ ~ 745kr.) you can with full support, do all your bookkeeping/accounting denominated in Euro if you so please, as the danish state allows for bookkeeping denominated in DKK and EUR.
  - Silhouette 8y ago
    And it also makes a difference for a company, as you can set a € price, and it can work for more or less the entire EU. Unfortunately, that isn't really what happens in practice. Although many states share the same currency, they do not share the same wealth or cost of living. You can't just pick one price for your product or service in Euro and then expect that everyone from France and Germany to Greece and the Eastern European states will be able to afford it. The EU might like to present itself as a single market, and it tries very hard to force people to set one price that applies throughout. However, the illusion is shattered when it comes into contact with the more diverse reality, and there's always a risk when you artificially distort markets for political reasons that you'll do more harm than good.
    - kazen44 8y ago
      This is basically the same in the US or any other major country/economic block with a single currency. Setting a price in the US will mean you also exclude people from poorer regions where cost of living and wages are lower. This is not exclusive in the eurozone. Also, your last argument makes little sense in my opinion. The EU's predecessors itself massively distorted both steel and coal markets to "force" peace and cooperation through the contintent and deal with the age old problem of nationalism and revenge over old wars... Could that be considered a bad thing because it distorted the markets? I highly doubt many would agree?
      - throwaway8121 8y ago
        Not on the same scale, there is no US state as wealthy as Luxembourg nor as poor as Bulgaria.
- cturner 8y ago
  I don't think this is a strong argument. Physical cash is on the way out. You can do payments through mastercard/visa lines, and wired transfers are straightforward. FX conversions are straightforward when everyone has a phone. In 2007 I had a situation where I was being paid in Australia, but living in London. I used the lines on my cards for that year, and don't remember it being inconvenient.
  - rwmj 8y ago
    My bank makes me use a terrible rate and then adds a £1.50 charge on top, every time I use my card in the rest of Europe. So I'm still looking for good deals on Euros and carrying large amounts of cash when I go.
    - hocuspocus 8y ago
      Check out Revolut, Monzo, Starling or Transferwise.
    - rtpg 8y ago
      the EU could simply force banks to let you withdraw at market rates at any ATM
      - majewsky 8y ago
        There was a huge pushback from banks a few years ago when transaction fees at German ATMs were capped to (AFAIK) € 1,90. The argument from banks is that there are a lot of online-only banks that rely on the ATMs of banks with physical branches in a parasitic manner.
        kazen44 8y ago
        in the netherlands they are trying to solve this issue by making ATM's standardized and not bank-dependant. Which seems like a far saner way to do it imo.
        hocuspocus 8y ago
bitL 8y ago
Is USD a tragedy, given California vs Appalachia?
- adamnemecek 8y ago
  Is that rift endangering the future of US as a whole?
  - walkingolof 8y ago
    https://en.wikipedia.org/wiki/Partition_and_secession_in_California https://en.wikipedia.org/wiki/Partition_and_secession_in_Cal...
    - adamnemecek 8y ago
      I’m aware. Is this like a thing that’s likely to happen.
      - protomyth 8y ago
        Not really. There was a pretty good chance of the state of Jefferson happening, then WWII happened and screwed up that plan. Secession would be really tricky given California's dependence on the states around it for power, water, etc.
  - mhneu 8y ago
    It's a danger. It used to be unthinkable. Now it's just very very unlikely. The recent Republican tax cut for the first time really explicitly targets blue states. If the urban areas get upset and act like Germany towards Greece/Kansas/Alabama, you could see great divisions in the US. It's the reason James Clapper[1], who measured other countries' instability, is now worried because he's seeing it in the US. https://www.wired.com/story/how-a-former-us-spy-chief-became-trumps-fiercest-critic/ https://www.wired.com/story/how-a-former-us-spy-chief-became... “The United States had begun to show many of the same characteristics of instability we used to assess other nation-states,” he writes, including rising income equality, an increasingly restive population of young people who couldn’t find work, a rural-urban divide, and declining political discourse. [1] Leave his signals intel role aside for now; he ran agencies whose role was to predict which other countries would be unstable, and rural-urban divides are a big predictor. Gulp.
YeGoblynQueenne 8y ago
>> The reality, as the author describes, is that Syriza’s call for debt relief should have been granted. But that is 100% the failure of Syriza, not the Europeans. Syriza took this perfectly sensible, perfectly legitimate demand and turned it into a circus act, backed by a farcical Referendum [1] and fronted by the clownish antics of Yanis Varoufakis. A unique opportunity to reason with our European partners was squandered, just so that Varoufakis could burnish his personna of the maverick economics professor. And because Tsipras, who was in way over his head, an inexperienced young prime minister trying to negotiate with the heavy-weights of European politics, did not have the courage or the honesty to accept reality for what it was: that no, we didn't hold all the aces, no, the EU would not shed a tear if we jumped off the Grexit cliff no matter how loudly Varoufakis proclaimed it to be the divine truth; that, no, you cannot play chicken with frau Merkel, you silly little boy. And that the Europeans were not even out to get us. They needed something they could present to their own citizens as a viable option. We gave them an Aristophanean comedy instead, a shadow play of Karagiozis with all the bells and whistles. And we paid the price, for the populism of our leaders, their lack of seriousness and their incompetence. And we still do. _________ [1] The referendum question regarded an offer by the EU that had already been withdrawn before the referendum was called. The text of the question itself was so vague and complex that on the one hand it immediately became a running joke with various memes, and on the other, allowed all sides in the debate to claim victory and only served to muddle the waters even further on what "The Will of the People" really was.
- netsharc 8y ago
  I got a different reading of the whole situation in 2015 from the book by Mr. Varoufakis himself, "Adults in the Room". TL;DR: the EU was never going to budge. They knew what he wanted was right, but they couldn't give Greece any political wins. And the Eurocrats were expert in shaping the story in the media, that you (yes you) got the impression the Greeks were stupid clowns. Look at Brexit, I now get the impression the Brits are clowns, but if someone wrote an inside story book, it's probably deliberate run-around and media manipulation. Not that I'm saying the Brits aren't clowns...
  - JumpCrisscross 8y ago
cturner 8y ago
Australia has about 25 million people and about five economic centres of more than a million people. The reserve bank has to set one rate. At times, it gives compromise rates that are a tradeoff between a mining boom on one side of the country, and a downturn on the other. The European central bank has a much larger version of the same problem. Iceland was able to use rates to help it out of its economic collapse. Greece can't do this. The quality of consumer FX has steadily improved over the decades. Access to technology has given tighter spreads and convenience. If the Euro goes, I hope there is some consideration given to running regional currencies rather than national. Imagine if a "Bank of Italy" maintained independent northern, central, and southern notes.
- alkonaut 8y ago
  There are similar issues in every large currency area with different economies. However, US and Australia are countries where people are mostly fine with the idea that having a single currency and interest rate also means big transfers have to take place within the country. This isn’t the case in the EU. Although Greece (And others) receive EU support, there just isn’t popular support for the kind of transfers required to keep a single (German) interest rate. Taxing people in one country to transfer to another isn’t possible on that scale in the EU. What needs to happen for the Euro to survive is that Germans have to accept a pretty substantial and long term inflation in order to keep growth elsewhere. But they had some bad luck with inflation in the past when it led to “economic anxiety” so it’s a bit of a red flag for them... The other solution is to kill (or split) the Euro to save the EU. It seems more and more sensible.
  - DogPawHat 8y ago
    I always read German attitudes to the Eurozone with some disbelief. They always seem to insist the burden of changing policy to make the Euro work fall on other countries and not there own.
    - deleted 8y ago
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PaulHoule 8y ago
What I find strange about it there was almost a universal consensus among economists that the Euro couldn't work. The UK was fortunate enough to drop out of the Euro as the Pound/Euro was mispriced in the transition phase. https://en.wikipedia.org/wiki/Impossible_trinity https://en.wikipedia.org/wiki/Impossible_trinity Unlike many ideas in economics, the "impossible trinity" has proven itself again and again. It's not one of the usual right wing tropes like "raising the minimum wage will tank the economy". Different monetary zones allow price levels to adjust. For instance I was in Montreal and looking at the price of package tours to different parts of Europe and Greece turned out to be the most expensive place to go. If it wasn't for the Euro, price levels would drop in Greece as denominated in USD, it would be more attractive to go on vacation there, manufacturing would become more profitable there, and the Greek economy will recover. It is true that the Eurozone and the E.U. are different but I am not sure that Brexit voters really know that. What they have seen is Eurocracy has a "democratic deficit" and and inability to handle problems (for better or worse government legitimacy is more impacted by effectiveness than by process or ideology.)
- mhneu 8y ago
  What I find strange about it there was almost a universal consensus among economists that the Euro couldn't work. Yes, exactly. It's strange because of the near "universal consensus" you cite on the effect of currency union without fiscal policy union. And it's possible to have a real economics debate about this topic now because this topic hasn't been politicized - it's almost purely an academic debate without the (primarily right-wing) agenda-driven media sources weighing in. I also find it strange that what happened was what economists were predicting-- but I have a guess as to why currency union happened anyway. The architects of the euro thought a single currency would draw the EU together and would, a few years later, end up with coordinated fiscal policy. But that didn't happen, and a currency crisis hit, damaging the euro, before fiscal policies became coordinated. (Given political situations, it seems almost impossible that fiscal policy will be unified now.) The linked post (and book) are good because they use the Greece-Germany situation as an example to highlight the bigger issues of fiscal policy and it crashing into domestic policies and politics. Pretty fascinating, really.
- deleted 8y ago
nordsieck 8y ago
It has been pointed out (I forget where) that part of the reason the US works as a monetary union is that people are not very attached to where they live. When one area of the country becomes much more successful than another, many people are often willing to move, which acts as a countervailing force to regional productivity differences. One of the problems with the EU is that Germans like to live in Germany and Greeks like to live in Greece.
- JumpCrisscross 8y ago
  > part of the reason the US works as a monetary union is that people are not very attached to where they live More significant is our fiscal union. My taxes in New York and California support Mississippi and Iowa. (Politically, this requires the citizens of a country to see themselves as one.) The EU missed, in the last crisis, an opportunity to form a banking and preliminary fiscal union.
- ajmurmann 8y ago
  Funny enough mobility across state lines is down 50% in the US as well (http://www.econtalk.org/archives/2017/05/tyler_cowen_on_1.html http://www.econtalk.org/archives/2017/05/tyler_cowen_on_1.ht...) Edit: formatting
- user5994461 8y ago
  The US is a single country with a single language, a single culture and a single currency. It's not comparable to the many countries within Europe.
  - repolfx 8y ago
    Sort of but not really, right? America has a large population of Spanish speakers and go to many cities and you'll find official signage and documents written in Chinese and other languages. Single culture, well, compare people living in the deep south and Manhattan, what they value and enjoy. Beyond sports do they have a lot in common? That said I agree Europe is much less homogenous.
arez 8y ago
I hope that we will see a different and more rational handling in italy's case. In fact we should allow countries to leave the EU if their economy is not strong enough. It just doesn't make sense for anyone to have the same currency. Right now, everyone treats the "dropping out of the EU zone" as a failure and a stepping stone into a complete EU collapse, but the EU shouldn't be a prison. Having the same currency and no option to devalue for a country leaves you strangled and tied to the big guys (Germany, France,...). Let italy, portugal, spain and finnland drop out if they want, let them devalue their currency and let them get back on their feet, otherwise we stumble deeper and deeper into uncharted dark territory. Ofc it's not as easy as I'm stating it here, if they drop out of the EU, Germany and others would be in deep trouble due to the massive credits they gave everyone to make them stay and dependent
- mhneu 8y ago
  Drop out of the EU, or drop out of the euro? Half of the macro arguments are about the problems of currency union without fiscal policy union. Perhaps the pre-2015 UK position is a good intermediate drop-back step: no currency union, still many ties to EU and Brussels. (that said, the German wage deflation discussed in the post is an EU issue, not a euro issue.)
- Panoramix 8y ago
  I think you mean drop out of the Eurozone. Leaving the EU would be completely nonsensical.
mhneu 8y ago
This is a really, really valuable post (and book). The topic of the euro's effects on Greece, and the influence of Germany, appears to be at a wide consensus amongst academic economists. Stiglitz, Krugman, and even people like Navarro agree. https://krugman.blogs.nytimes.com/2017/02/01/germany-the-euro-and-currency-manipulation/ https://krugman.blogs.nytimes.com/2017/02/01/germany-the-eur... https://www.forbes.com/sites/timworstall/2016/09/11/the-euro-is-a-disaster-stiglitz-krugman-milton-friedman-and-james-tobin-agree/#2e67a756063d https://www.forbes.com/sites/timworstall/2016/09/11/the-euro... I remember back 20 years ago that macroeconomists were talking about how the lack of fiscal coordination was going to break the euro. And so it has come to pass, it seems. Edit: or what PaulHoule says with more detail in another reply.
jimnotgym 8y ago
I don't see it as a tragedy for Germany. You would have to feel the euro has a lower value than the duetchmark would have today? That rather helps Germany in their position as one of the worlds top exporters. Germany ous growing and has a budget surplus. I think as others have noted the idea of a single currency is always going to be partly political. What kind of state makes all of its decisions based on economic theory? The euro zone as a whole right now is out-growing the UK, and according to my fx dealer are deliberately playing down their growth to keep the euro weak. I think criticising the idea of the euro as 'political' is a bit rich from someone whose opposition to it seems too also be ideological. Personally I like the easy trade it facilitates. FX risk is dreary to manage. Only having to hedge GBPEUR makes it much simpler than the old days. Maybe the mistake, if there was one, was letting Greece et al join before they were ready
taysic 8y ago
Seems to me its doesn't make sense to have a gov sell bonds in a currency that it doesn't have control of. This includes countries outside of the EU that use the Euro. When buying bonds of a country, there should mean the investor believes in the direction of the country / the governance there / believes it is low risk that the bonds would lose value or the strength of the economy would collapse. That's the risk that gets taken by the investor. It doesn't make sense to peg it to an external countries' performance. Of course it sweetens the deal but makes things confusing too.
candiodari 8y ago
It's scary and terrible how people think of this. That this was somehow Greece's fault, or even Greece's doing. Or worse yet: Syriza's fault. Politicians are experts at this. This morning there was a discussion on ozzie radio with the secretary of the treasury on radio. There, the government decried the lack of innovation in the Australian business community. Specifically why there aren't any Australian businesses that operate online 2-sided marketplaces like Amazon or Ebay. Similar discussions have been happening in Europe. Now of course, when you analyze the argument (and I assure you these government people at that level aren't morons, they know this) it turns out these government people are psychopaths. You see, the reason there is no Australian 2-sided online marketplace is ... tax. The Australian government has chosen not to impose either import tax, rules or GST/VAT on imported goods with a value < $1000. So after years of imposing a ~18% cost disadvantage on Australian businesses compared to international businesses, a senior government representative comes on public radio, and eloquently decries the fact that it must be Australian's inadequacy that has prevented them from competing with international companies WHILE IMPOSING AN 18% PRICE HANDICAP ON THEM. Therefore, it is only fair that customers punish them. They called up a few of them that were clearly preselected for their utter lack of rhetorical abilities to make them completely ridiculous (they were cut off halfway through the argument too). In other words, this guy has been pursuing a policy of openly sabotaging Australian businesses for at least half a decade, blames them, wide open in public for not performing well, and then picks the worst of them to "say a few words". Now this sort of thing happens a LOT in discussions. For instance, when it comes to immigrants, ... I must say it makes it VERY clear why these people want to censor (sorry, I mean "eliminate fake news for the good of the people"). For the record, I am a socialist and I hate the business practices of these businessmen, but hearing that radio discussion I must say, I got a newfound respect for them and a deep hatred of the Australian treasury/government. I mean I would respect someone who just stood there and said "I'm screwing you and there's nothing you can do" more than this lying asshole. Thing is, I'm absolutely sure 90% of people listening (at least) fell for it. You should learn to look at European governments actions as very similar to this. You will understand far more about the situation by assuming any government spokesman/woman (including of course such papers as Der Spiegel) are at best leaving out viewpoints, usually outright lying, and sometimes directly falsifying their argument.

62 points by deafcalculus 8y ago

An often overlooked point is that euro is not just an economic tool but also a social one, as being able to travel and pay freely in the whole continent is an important unifying point.

kzrdude 8y ago
Not intended to be entirely contrafactual, but can't we think of lots of alternative solutions to the same problem? Being able to travel across europe and pay freely everywhere. For example, unifying card or other cashless payments to a bigger extent, so that coins and bills become less important.
- throwaway8121 8y ago
  Those are 21st century solutions for a 1990s problem. And now the Euro exists it would be very difficult to revert to separate currencies (even though that may be preferable)
petre 8y ago
I can pay freely with my own currency in the EU as long as I use a credit or debit card, thank you. I won't trade sovereignity for convenience, regardless of social engineering coming from Bruxelles or Merkel. I don't want my country to become the next Greece.
- kasey_junk 8y ago
  “Freely”? I’d be surprised.
- walkingolof 8y ago
  Greece problems ran deeper than just entering the Euro, massive corruption and tax avoidance played a major role creating that crisis. Its estimated that ~25% of the Greece GDP where not subject taxed, effectively a shadow economy.
  - PaulHoule 8y ago
    This is a factor in Italy too.
  - petre 8y ago
    How about Italy and Portugal then? The truth is that the Euro was a political decision with disregard of ecomics. That's why Margaret Tacher refused to adopt the Euro for the UK and warned that it would end democracy in Europe. https://m.youtube.com/watch?v=5TPpuIslzG4 https://m.youtube.com/watch?v=5TPpuIslzG4
  - taysic 8y ago
    It's worth noting that when a country has control of its own currency, its issues are more self-contained. It doesn't get easy money based on the performance of other countries within the EU. It also can devalue its own currency if it can't pay back its own bonds.
- kuschku 8y ago
  You consider a 2-3% (or up to 7% with AMEX) fee on everything you buy (even though it’s paid by the merchant, and so you only pay it indirectly) "free"? And would you be equally calm if you’d have to pay 2-3% more sales tax?
  - petre 8y ago
    Rather than trading away my country's sovereignity? Yes! It's actually quite a great deal compared to getting screwed over by the ECB/creditors and having to pay increased taxes on everything.
- jimnotgym 8y ago
  Freely? My bank charge extortionate fees for translating currencies on a card.
- dpwm 8y ago
  Just out of curiosity, what is your country? There are many countries at the moment that this could apply to, but most are already in the Euro which so far is a one-way trip. > I won't trade sovereignity for convenience, regardless of social engineering coming from Bruxelles or Merkel. This sounds a lot like Brexit leave campaign rhetoric and I suspect is the reason you're being downvoted. Regardless of how you feel about the EU and Brexit, sovereignty has to be one of the weaker aspects. Disliking the EU is fine, but let's be honest about why. Consider the origin of most nation states. Smaller autonomous regions were invaded or bribed into some form of union. In many of these unions rules were harmonized to varying extents and sovereignty was ceded. Common currencies were also adopted in some of the unions. Consider the nation state that you hold the sovereignty of so high. Imagine tomorrow it was split into two. Both of these regions have the same currency and many common rules and regulations. Given that it's highly probable that your country has fully embraced capitalism and derives much of its wealth through trade, it has a choice: change things or not. If you don't change anything you haven't really regained sovereignty. If you change things you're imposing barriers to trade. Given you had a common currency and rules before, there's a good chance that they were your preferred trading partner if the infrastructure was good enough. Interestingly, there are regions where intra-state infrastructure is better than inter-state infrastructure, usually due to geography. But we can go deeper than that. We can keep subdividing from regions into cities into towns into households into individual people. Every time you go to the ballot box you acknowledge that you have ceded individual sovereignty. All the evidence I've seen points to the sovereignty argument in Brexit wasn't about sovereignty being ceded, but who it was perceived as being ceded to. Because if the vision of the Brexit-supporting International Trade and Development Secretary is to be taken as the post-brexit plan, then Brexit will be all about ceding more sovereignty for less trade.
  - repolfx 8y ago
    All the evidence I've seen points to the sovereignty argument in Brexit wasn't about sovereignty being ceded, but who it was perceived as being ceded to They're impossible to disentangle. Voters in the UK had for years been telling politicians, here's our priorities, here's what is upsetting us. Mostly, massive immigration that overloaded public services. In response they were told, sorry, we can't do anything about that, France and Germany won't let us. It's out of the question, even trying to talk about it is pointless. Oh yeah, and you're probably a racist for even asking. Voters don't like being told to shut up because some foreign politician disagrees. Is that dislike a desire for "more sovereignty" or is it a problem with who power has been delegated to? Arguably if the UK had entered an EU-like arrangement with the USA instead, and become the 51st state, voters would have faced very similar concerns over things like gun control instead of immigration. Ultimately technological progress does allow us to satisfactorily decentralise power in new ways. Some people want society to go in the opposite direction and centralise it as much as possible. This is a bad idea, and the Eurozone predicament is an interesting example of why.
Systemic33 8y ago
Definitely. And it also makes a difference for a company, as you can set a € price, and it can work for more or less the entire EU. E.g. in Denmark (although not part of €, but pegged to 100€ ~ 745kr.) you can with full support, do all your bookkeeping/accounting denominated in Euro if you so please, as the danish state allows for bookkeeping denominated in DKK and EUR.
- Silhouette 8y ago
  And it also makes a difference for a company, as you can set a € price, and it can work for more or less the entire EU. Unfortunately, that isn't really what happens in practice. Although many states share the same currency, they do not share the same wealth or cost of living. You can't just pick one price for your product or service in Euro and then expect that everyone from France and Germany to Greece and the Eastern European states will be able to afford it. The EU might like to present itself as a single market, and it tries very hard to force people to set one price that applies throughout. However, the illusion is shattered when it comes into contact with the more diverse reality, and there's always a risk when you artificially distort markets for political reasons that you'll do more harm than good.
  - kazen44 8y ago
    This is basically the same in the US or any other major country/economic block with a single currency. Setting a price in the US will mean you also exclude people from poorer regions where cost of living and wages are lower. This is not exclusive in the eurozone. Also, your last argument makes little sense in my opinion. The EU's predecessors itself massively distorted both steel and coal markets to "force" peace and cooperation through the contintent and deal with the age old problem of nationalism and revenge over old wars... Could that be considered a bad thing because it distorted the markets? I highly doubt many would agree?
    - throwaway8121 8y ago
      Not on the same scale, there is no US state as wealthy as Luxembourg nor as poor as Bulgaria.
cturner 8y ago
I don't think this is a strong argument. Physical cash is on the way out. You can do payments through mastercard/visa lines, and wired transfers are straightforward. FX conversions are straightforward when everyone has a phone. In 2007 I had a situation where I was being paid in Australia, but living in London. I used the lines on my cards for that year, and don't remember it being inconvenient.
- rwmj 8y ago
  My bank makes me use a terrible rate and then adds a £1.50 charge on top, every time I use my card in the rest of Europe. So I'm still looking for good deals on Euros and carrying large amounts of cash when I go.
  - hocuspocus 8y ago
    Check out Revolut, Monzo, Starling or Transferwise.
  - rtpg 8y ago
    the EU could simply force banks to let you withdraw at market rates at any ATM
    - majewsky 8y ago
      There was a huge pushback from banks a few years ago when transaction fees at German ATMs were capped to (AFAIK) € 1,90. The argument from banks is that there are a lot of online-only banks that rely on the ATMs of banks with physical branches in a parasitic manner.
      - kazen44 8y ago
        in the netherlands they are trying to solve this issue by making ATM's standardized and not bank-dependant. Which seems like a far saner way to do it imo.
      - hocuspocus 8y ago

bitL 8y ago

Is USD a tragedy, given California vs Appalachia?

adamnemecek 8y ago
Is that rift endangering the future of US as a whole?
- walkingolof 8y ago
  https://en.wikipedia.org/wiki/Partition_and_secession_in_California https://en.wikipedia.org/wiki/Partition_and_secession_in_Cal...
  - adamnemecek 8y ago
    I’m aware. Is this like a thing that’s likely to happen.
    - protomyth 8y ago
      Not really. There was a pretty good chance of the state of Jefferson happening, then WWII happened and screwed up that plan. Secession would be really tricky given California's dependence on the states around it for power, water, etc.
- mhneu 8y ago
  It's a danger. It used to be unthinkable. Now it's just very very unlikely. The recent Republican tax cut for the first time really explicitly targets blue states. If the urban areas get upset and act like Germany towards Greece/Kansas/Alabama, you could see great divisions in the US. It's the reason James Clapper[1], who measured other countries' instability, is now worried because he's seeing it in the US. https://www.wired.com/story/how-a-former-us-spy-chief-became-trumps-fiercest-critic/ https://www.wired.com/story/how-a-former-us-spy-chief-became... “The United States had begun to show many of the same characteristics of instability we used to assess other nation-states,” he writes, including rising income equality, an increasingly restive population of young people who couldn’t find work, a rural-urban divide, and declining political discourse. [1] Leave his signals intel role aside for now; he ran agencies whose role was to predict which other countries would be unstable, and rural-urban divides are a big predictor. Gulp.

YeGoblynQueenne 8y ago

>> The reality, as the author describes, is that Syriza’s call for debt relief should have been granted. But that is 100% the failure of Syriza, not the Europeans. Syriza took this perfectly sensible, perfectly legitimate demand and turned it into a circus act, backed by a farcical Referendum [1] and fronted by the clownish antics of Yanis Varoufakis. A unique opportunity to reason with our European partners was squandered, just so that Varoufakis could burnish his personna of the maverick economics professor. And because Tsipras, who was in way over his head, an inexperienced young prime minister trying to negotiate with the heavy-weights of European politics, did not have the courage or the honesty to accept reality for what it was: that no, we didn't hold all the aces, no, the EU would not shed a tear if we jumped off the Grexit cliff no matter how loudly Varoufakis proclaimed it to be the divine truth; that, no, you cannot play chicken with frau Merkel, you silly little boy. And that the Europeans were not even out to get us. They needed something they could present to their own citizens as a viable option. We gave them an Aristophanean comedy instead, a shadow play of Karagiozis with all the bells and whistles. And we paid the price, for the populism of our leaders, their lack of seriousness and their incompetence. And we still do. _________ [1] The referendum question regarded an offer by the EU that had already been withdrawn before the referendum was called. The text of the question itself was so vague and complex that on the one hand it immediately became a running joke with various memes, and on the other, allowed all sides in the debate to claim victory and only served to muddle the waters even further on what "The Will of the People" really was.

netsharc 8y ago
I got a different reading of the whole situation in 2015 from the book by Mr. Varoufakis himself, "Adults in the Room". TL;DR: the EU was never going to budge. They knew what he wanted was right, but they couldn't give Greece any political wins. And the Eurocrats were expert in shaping the story in the media, that you (yes you) got the impression the Greeks were stupid clowns. Look at Brexit, I now get the impression the Brits are clowns, but if someone wrote an inside story book, it's probably deliberate run-around and media manipulation. Not that I'm saying the Brits aren't clowns...
- JumpCrisscross 8y ago

cturner 8y ago

Australia has about 25 million people and about five economic centres of more than a million people. The reserve bank has to set one rate. At times, it gives compromise rates that are a tradeoff between a mining boom on one side of the country, and a downturn on the other. The European central bank has a much larger version of the same problem. Iceland was able to use rates to help it out of its economic collapse. Greece can't do this. The quality of consumer FX has steadily improved over the decades. Access to technology has given tighter spreads and convenience. If the Euro goes, I hope there is some consideration given to running regional currencies rather than national. Imagine if a "Bank of Italy" maintained independent northern, central, and southern notes.

alkonaut 8y ago
There are similar issues in every large currency area with different economies. However, US and Australia are countries where people are mostly fine with the idea that having a single currency and interest rate also means big transfers have to take place within the country. This isn’t the case in the EU. Although Greece (And others) receive EU support, there just isn’t popular support for the kind of transfers required to keep a single (German) interest rate. Taxing people in one country to transfer to another isn’t possible on that scale in the EU. What needs to happen for the Euro to survive is that Germans have to accept a pretty substantial and long term inflation in order to keep growth elsewhere. But they had some bad luck with inflation in the past when it led to “economic anxiety” so it’s a bit of a red flag for them... The other solution is to kill (or split) the Euro to save the EU. It seems more and more sensible.
- DogPawHat 8y ago
  I always read German attitudes to the Eurozone with some disbelief. They always seem to insist the burden of changing policy to make the Euro work fall on other countries and not there own.
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PaulHoule 8y ago

What I find strange about it there was almost a universal consensus among economists that the Euro couldn't work. The UK was fortunate enough to drop out of the Euro as the Pound/Euro was mispriced in the transition phase. https://en.wikipedia.org/wiki/Impossible_trinity https://en.wikipedia.org/wiki/Impossible_trinity Unlike many ideas in economics, the "impossible trinity" has proven itself again and again. It's not one of the usual right wing tropes like "raising the minimum wage will tank the economy". Different monetary zones allow price levels to adjust. For instance I was in Montreal and looking at the price of package tours to different parts of Europe and Greece turned out to be the most expensive place to go. If it wasn't for the Euro, price levels would drop in Greece as denominated in USD, it would be more attractive to go on vacation there, manufacturing would become more profitable there, and the Greek economy will recover. It is true that the Eurozone and the E.U. are different but I am not sure that Brexit voters really know that. What they have seen is Eurocracy has a "democratic deficit" and and inability to handle problems (for better or worse government legitimacy is more impacted by effectiveness than by process or ideology.)

mhneu 8y ago
What I find strange about it there was almost a universal consensus among economists that the Euro couldn't work. Yes, exactly. It's strange because of the near "universal consensus" you cite on the effect of currency union without fiscal policy union. And it's possible to have a real economics debate about this topic now because this topic hasn't been politicized - it's almost purely an academic debate without the (primarily right-wing) agenda-driven media sources weighing in. I also find it strange that what happened was what economists were predicting-- but I have a guess as to why currency union happened anyway. The architects of the euro thought a single currency would draw the EU together and would, a few years later, end up with coordinated fiscal policy. But that didn't happen, and a currency crisis hit, damaging the euro, before fiscal policies became coordinated. (Given political situations, it seems almost impossible that fiscal policy will be unified now.) The linked post (and book) are good because they use the Greece-Germany situation as an example to highlight the bigger issues of fiscal policy and it crashing into domestic policies and politics. Pretty fascinating, really.
deleted 8y ago

nordsieck 8y ago

It has been pointed out (I forget where) that part of the reason the US works as a monetary union is that people are not very attached to where they live. When one area of the country becomes much more successful than another, many people are often willing to move, which acts as a countervailing force to regional productivity differences. One of the problems with the EU is that Germans like to live in Germany and Greeks like to live in Greece.

JumpCrisscross 8y ago
> part of the reason the US works as a monetary union is that people are not very attached to where they live More significant is our fiscal union. My taxes in New York and California support Mississippi and Iowa. (Politically, this requires the citizens of a country to see themselves as one.) The EU missed, in the last crisis, an opportunity to form a banking and preliminary fiscal union.
ajmurmann 8y ago
Funny enough mobility across state lines is down 50% in the US as well (http://www.econtalk.org/archives/2017/05/tyler_cowen_on_1.html http://www.econtalk.org/archives/2017/05/tyler_cowen_on_1.ht...) Edit: formatting
user5994461 8y ago
The US is a single country with a single language, a single culture and a single currency. It's not comparable to the many countries within Europe.
- repolfx 8y ago
  Sort of but not really, right? America has a large population of Spanish speakers and go to many cities and you'll find official signage and documents written in Chinese and other languages. Single culture, well, compare people living in the deep south and Manhattan, what they value and enjoy. Beyond sports do they have a lot in common? That said I agree Europe is much less homogenous.

arez 8y ago

I hope that we will see a different and more rational handling in italy's case. In fact we should allow countries to leave the EU if their economy is not strong enough. It just doesn't make sense for anyone to have the same currency. Right now, everyone treats the "dropping out of the EU zone" as a failure and a stepping stone into a complete EU collapse, but the EU shouldn't be a prison. Having the same currency and no option to devalue for a country leaves you strangled and tied to the big guys (Germany, France,...). Let italy, portugal, spain and finnland drop out if they want, let them devalue their currency and let them get back on their feet, otherwise we stumble deeper and deeper into uncharted dark territory. Ofc it's not as easy as I'm stating it here, if they drop out of the EU, Germany and others would be in deep trouble due to the massive credits they gave everyone to make them stay and dependent

mhneu 8y ago
Drop out of the EU, or drop out of the euro? Half of the macro arguments are about the problems of currency union without fiscal policy union. Perhaps the pre-2015 UK position is a good intermediate drop-back step: no currency union, still many ties to EU and Brussels. (that said, the German wage deflation discussed in the post is an EU issue, not a euro issue.)
Panoramix 8y ago
I think you mean drop out of the Eurozone. Leaving the EU would be completely nonsensical.

mhneu 8y ago

This is a really, really valuable post (and book). The topic of the euro's effects on Greece, and the influence of Germany, appears to be at a wide consensus amongst academic economists. Stiglitz, Krugman, and even people like Navarro agree. https://krugman.blogs.nytimes.com/2017/02/01/germany-the-euro-and-currency-manipulation/ https://krugman.blogs.nytimes.com/2017/02/01/germany-the-eur... https://www.forbes.com/sites/timworstall/2016/09/11/the-euro-is-a-disaster-stiglitz-krugman-milton-friedman-and-james-tobin-agree/#2e67a756063d https://www.forbes.com/sites/timworstall/2016/09/11/the-euro... I remember back 20 years ago that macroeconomists were talking about how the lack of fiscal coordination was going to break the euro. And so it has come to pass, it seems. Edit: or what PaulHoule says with more detail in another reply.

jimnotgym 8y ago

I don't see it as a tragedy for Germany. You would have to feel the euro has a lower value than the duetchmark would have today? That rather helps Germany in their position as one of the worlds top exporters. Germany ous growing and has a budget surplus. I think as others have noted the idea of a single currency is always going to be partly political. What kind of state makes all of its decisions based on economic theory? The euro zone as a whole right now is out-growing the UK, and according to my fx dealer are deliberately playing down their growth to keep the euro weak. I think criticising the idea of the euro as 'political' is a bit rich from someone whose opposition to it seems too also be ideological. Personally I like the easy trade it facilitates. FX risk is dreary to manage. Only having to hedge GBPEUR makes it much simpler than the old days. Maybe the mistake, if there was one, was letting Greece et al join before they were ready

taysic 8y ago

Seems to me its doesn't make sense to have a gov sell bonds in a currency that it doesn't have control of. This includes countries outside of the EU that use the Euro. When buying bonds of a country, there should mean the investor believes in the direction of the country / the governance there / believes it is low risk that the bonds would lose value or the strength of the economy would collapse. That's the risk that gets taken by the investor. It doesn't make sense to peg it to an external countries' performance. Of course it sweetens the deal but makes things confusing too.

candiodari 8y ago

It's scary and terrible how people think of this. That this was somehow Greece's fault, or even Greece's doing. Or worse yet: Syriza's fault. Politicians are experts at this. This morning there was a discussion on ozzie radio with the secretary of the treasury on radio. There, the government decried the lack of innovation in the Australian business community. Specifically why there aren't any Australian businesses that operate online 2-sided marketplaces like Amazon or Ebay. Similar discussions have been happening in Europe. Now of course, when you analyze the argument (and I assure you these government people at that level aren't morons, they know this) it turns out these government people are psychopaths. You see, the reason there is no Australian 2-sided online marketplace is ... tax. The Australian government has chosen not to impose either import tax, rules or GST/VAT on imported goods with a value < $1000. So after years of imposing a ~18% cost disadvantage on Australian businesses compared to international businesses, a senior government representative comes on public radio, and eloquently decries the fact that it must be Australian's inadequacy that has prevented them from competing with international companies WHILE IMPOSING AN 18% PRICE HANDICAP ON THEM. Therefore, it is only fair that customers punish them. They called up a few of them that were clearly preselected for their utter lack of rhetorical abilities to make them completely ridiculous (they were cut off halfway through the argument too). In other words, this guy has been pursuing a policy of openly sabotaging Australian businesses for at least half a decade, blames them, wide open in public for not performing well, and then picks the worst of them to "say a few words". Now this sort of thing happens a LOT in discussions. For instance, when it comes to immigrants, ... I must say it makes it VERY clear why these people want to censor (sorry, I mean "eliminate fake news for the good of the people"). For the record, I am a socialist and I hate the business practices of these businessmen, but hearing that radio discussion I must say, I got a newfound respect for them and a deep hatred of the Australian treasury/government. I mean I would respect someone who just stood there and said "I'm screwing you and there's nothing you can do" more than this lying asshole. Thing is, I'm absolutely sure 90% of people listening (at least) fell for it. You should learn to look at European governments actions as very similar to this. You will understand far more about the situation by assuming any government spokesman/woman (including of course such papers as Der Spiegel) are at best leaving out viewpoints, usually outright lying, and sometimes directly falsifying their argument.