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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 co

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
    [deleted]
  - ajmurmann 8y ago
    I think that's in large part because Germany had the Agenda 2010 which heavily cut welfare and hit many people super hard. The common narrative is that it's because of those sacrifices the German economy is in a better position than most other European countries. On top of that in the very least the perception is that the lower classes didn't benefit from that at all. So I understand that there is a lot of "I did my part and sucked it up while others didn't and now I am supposed to suffer again to help people who failed to do the right thing in the first place." Not saying that that's the correct attitude, just offering a explanation.
- 21 8y ago
  I'm not an expert on this, but my understanding is that there are big transfers taking place from Germany to the rest. They can be seen in Target 2 balances. Technically they are supposed to be more like loans, but in practice economists accept that they will not be paid back (as Greece proved): https://upload.wikimedia.org/wikipedia/commons/d/da/TARGET2_balances.png https://upload.wikimedia.org/wikipedia/commons/d/da/TARGET2_...
Swizec 8y ago
> Imagine if a "Bank of Italy" maintained independent northern, central, and southern notes. How would this work? I still remember before Slovenia was in the EU we had our own currency that was okay but not so hot. All big transactions between people like buying a home were done in deutsche marks. Or at least everyone talked about them using DEM and later EUR as the currency. Point being people will absolutely use the most stable currency easily available regardless of what their local currency is.
- deleted 8y ago
  [deleted]
camillomiller 8y ago
Bank of Italy is really a thing by the way, it’s Italy’s central bank and it’s called Banca d’Italia
panarky 8y ago
This is exactly the problem. The US has a single currency that serves vastly different economies. The dollar prevents poor economies in Alabama and Mississippi from devaluing their currencies just like Italy and Greece can't devalue their currencies. But the US also has fiscal tools like taxation and direct transfers that subsidize Alabama and Mississippi. Fiscal policy requires political union to force wealthy economies to transfer their wealth to poor economies. The EU doesn't have political union, and they're actually headed in the opposite direction due to discord about migration leading to stronger nationalist/populist/authoritarian leaders. So if political union is the solution and the EU is going the other way, then it's hard to see how the Euro and by extension the EU can survive.

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
  [deleted]
- ajmurmann 8y ago
  I think that's in large part because Germany had the Agenda 2010 which heavily cut welfare and hit many people super hard. The common narrative is that it's because of those sacrifices the German economy is in a better position than most other European countries. On top of that in the very least the perception is that the lower classes didn't benefit from that at all. So I understand that there is a lot of "I did my part and sucked it up while others didn't and now I am supposed to suffer again to help people who failed to do the right thing in the first place." Not saying that that's the correct attitude, just offering a explanation.
21 8y ago
I'm not an expert on this, but my understanding is that there are big transfers taking place from Germany to the rest. They can be seen in Target 2 balances. Technically they are supposed to be more like loans, but in practice economists accept that they will not be paid back (as Greece proved): https://upload.wikimedia.org/wikipedia/commons/d/da/TARGET2_balances.png https://upload.wikimedia.org/wikipedia/commons/d/da/TARGET2_...

Swizec 8y ago

> Imagine if a "Bank of Italy" maintained independent northern, central, and southern notes. How would this work? I still remember before Slovenia was in the EU we had our own currency that was okay but not so hot. All big transactions between people like buying a home were done in deutsche marks. Or at least everyone talked about them using DEM and later EUR as the currency. Point being people will absolutely use the most stable currency easily available regardless of what their local currency is.

deleted 8y ago
[deleted]

camillomiller 8y ago

Bank of Italy is really a thing by the way, it’s Italy’s central bank and it’s called Banca d’Italia

panarky 8y ago

This is exactly the problem. The US has a single currency that serves vastly different economies. The dollar prevents poor economies in Alabama and Mississippi from devaluing their currencies just like Italy and Greece can't devalue their currencies. But the US also has fiscal tools like taxation and direct transfers that subsidize Alabama and Mississippi. Fiscal policy requires political union to force wealthy economies to transfer their wealth to poor economies. The EU doesn't have political union, and they're actually headed in the opposite direction due to discord about migration leading to stronger nationalist/populist/authoritarian leaders. So if political union is the solution and the EU is going the other way, then it's hard to see how the Euro and by extension the EU can survive.