6 ms·

My first reaction was similar. Why imitate the Euro when that experiment has gone badly?

hydrox24 7y ago
> Why imitate the Euro when that experiment has gone badly? Because the Euro solved a problem that did not exist in the EU. Every nation that joined was able to convert their currency to other EU currencies at reasonably low cost, and because each currency was relatively stable, at a low risk too. Africans do actually have high currency conversion costs, and some of the currencies are risky. To put it in Krugman's terms, the African nations have mostly committed the 'original sin' anyway, and this is a way of making a bad situation better. Italy was free of the original sin and was making a good situation worse by joining the EU.
- pgeorgi 7y ago
  > Italy was free of the original sin and was making a good situation worse by joining the EU. "co-founding the EU" (but nevermind: EU and Eurozone aren't the same)
vnorilo 7y ago
Well, as an individual eurozoner I vastly prefer a single currency and for me personally it certainly reduces the friction of cross-border trade (I both buy stuff and sell services). I understand that many eurozone countries could be helped by currency tools like devaluing, but I'm not sure if anyone can really know how the tradeoffs vs. smoother commerce pan out and conclude authoritatively that the whole thing is a net negative.
- petre 7y ago
  I also buy stuff and services frictionlessly being outside of the EZ. Why trade away your country's monetary sovereignity for the convenience of currency exchange? We all know what happened to Greece and to the Italian economy.
  - vnorilo 7y ago
    Maybe the businesses in your country improve their conversion rates ever so slightly because of said convenience? We spend time and money to optimize for far sillier things in our funnels. I do not claim to know the aggregate effects, but I would guess it is not as simple as convenience vs. sovereignity.
    - petre 7y ago
      Not really. Visa and the banks do take a cut. But there is Revolut now if you want to give them the middle finger. They will be forced to adapt and offer similar services or at least non-ripoff exchange rates. I always prefer a free market solution to an EU buceaucratic solution. Such as EU mandated zero transaction fees in order to convert the bulk of the transactions to cashless, be able to track them and "prevent money laundering", which of course isn't true (eg. Danske bank scandal).
  - goodcanadian 7y ago
    The Greece and Italian economies were mismanaged. The Euro, in and of itself, had little to do with it. At worst, it removed one tool for dealing with the mismanagement. Far better to manage it well in the first place.
    - petre 7y ago
      Greece maybe. But if Italy's economy was mismanaged it was due to outside pressure. https://www.ineteconomics.org/perspectives/blog/how-to-ruin-a-country-in-three-decades https://www.ineteconomics.org/perspectives/blog/how-to-ruin-... https://news.ycombinator.com/item?id=19649182 https://news.ycombinator.com/item?id=19649182
      - gattilorenz 7y ago
        > Until the early 1990s, Italy enjoyed decades of relatively robust economic growth This is painting just one side of the story. Look up the graphs for debt as % of GDP in the same years.
- Double_a_92 7y ago
  How do currency policies even work? Isn't it like the state forcing exporting and tourism companies to lower their prices (by devaluating the currency)? Why is that the states job instead of the individual companies'? Also the state can scam buyers of state bonds by inflating the currency, which also has the sideeffect of meddling with it's own economy. It's not a silver bullet, it's just different cancer.
  - bainsfather 7y ago
    "Isn't it like the state forcing exporting and tourism companies to lower their prices (by devaluating the currency)? Why is that the states job instead of the individual companies'?" With a free-floating currency, prices for foreign buyers can change overnight. This can allow quick responses to shocks. In contrast, internal devaluation (deflation) is a very slow process (how do you coordinate everyone in a country to reduce their prices). e.g. for the UK circa 2008 the economy had problems (more reliant on finance sector than most other countries) and the currency dropped, making UK exporters more competitive. Italy or Greece a few years later would have also seen their currencies fall, had they not been locked into the same currency as Germany. Instead, their exporters have problems with competitiveness which take many years to equilibrate (they must have lower inflation or deflation relative to Germany). There is a subject called 'Optimum Currency Areas'. As always, there are tradeoffs, more homogeneous economic areas face this particular problem less and so are more likely to benefit from a single currency.
    - vnorilo 7y ago
      Thank you for the insights. Any thoughts on how it went down in Latvia, sometimes cited as a success story but also criticized [1]? [1]: http://cepr.net/publications/reports/latvias-internal-devaluation-a-success-story http://cepr.net/publications/reports/latvias-internal-devalu...
      - bainsfather 7y ago
        I am sorry, no. I do not have such expertise. When I read economics textbooks, I see a marked contrast to physics textbooks. e.g. in physics, they might explain about a pendulum using equations etc, but then they show you real experimental data, to show that your equations about period vs pendulum length are correct. I have not found economics textbooks that do that. The more basic thing that economics gives me is akin to this: when iron ships were first proposed, sceptics might say 'iron sinks, so iron ships are impossible, you are crazy'. You can answer this by putting an iron saucepan in the kitchen sink, and showing that it floats. So (macro) economics can tell me some basic things about 'which way is up'. But putting even half-accurate numbers on things is difficult. imo economics is often done best when you view it using historical case studies + theory to know which way each effect acts. This is not to say that what you ask is impossible, but when that is done (by experts, not me), it is not convincing enough to convince others that it is right.
- imtringued 7y ago
  Devaluation is not a mere government tool, it's an automatic, market based mechanism of leveling the playing field between two countries.
seer 7y ago
I would call the euro a smashing success to be honest. Small countries, especially the ones that came out of the old ussr, seem to be very susceptible to their leaders playing with the currency to further their immediate goals, to the detriment of long term prosperity. Namely they like to print money. Countries that pegged their currency to the euro, or outright started using it got measurably better than the one that didn’t. Counties that had “troubles because of the euro” would have most definitely had them even without, but the problem would have surfaced much later, when the damage would have been done. It’s just so easy to solve economy problems with devaluing a currency and most, especially populist governments just can’t help themselves but do it, ending in huge nation wide catastrophes - see a lot of latin america, pre-euro ex-ussr countries etc. Having a stable currency is just vital to the long term health of a country, and the euro has certainly helped with that immensely. It does remove a tool from a government’s toolbox, but a dangerous one that I wouldn’t trust most of them to use anyway. As for Africa, with the amount of financial education the populace has at large, I would presume a stable currency would do wonders to their economies long term, at least for several generations ahead. A bit oversimplified but very accessible source of info for geopolitical economic stuff like this would be VisualPolitik youtube channel.
- TomMarius 7y ago
  The Czech Republic (the fastest growing EU economy) wouldn't be as successful had it accepted Euro.
  - patrickmcnamara 7y ago
    Ireland has technically been the fastest growing economy in the EU for the past several years and it uses the Euro. GDP is an iffy measure for Ireland though.
  - seer 7y ago
    Perhaps, its all a trade off. Maybe you lucked out with your governments. Having your own currency is a tool that _can_ be used wisely to great effect. It’s just that the modern world is filled with examples of the opposite. And it has been just a couple of decades. Over the long run, stable currencies usually outperform their capricious rivals. Mostly because investors want stability, and so they flock to places where it is present. There are numerous examples of countries with their own currency doing well, or doing very very poorly. But there are few examples of countries doing very badly _because_ they adopted a union currency. Imagine Alabama stating they’ll quit the US dollar and get their own alabamians or something - it might go great, it might go badly, but you sure know it would be risky. And investors by and large wouldn’t like that.

> Why imitate the Euro when that experiment has gone badly? Because the Euro solved a problem that did not exist in the EU. Every nation that joined was able to convert their currency to other EU currencies at reasonably low cost, and because each currency was relatively stable, at a low risk too. Africans do actually have high currency conversion costs, and some of the currencies are risky. To put it in Krugman's terms, the African nations have mostly committed the 'original sin' anyway, and this is a way of making a bad situation better. Italy was free of the original sin and was making a good situation worse by joining the EU.

pgeorgi 7y ago
> Italy was free of the original sin and was making a good situation worse by joining the EU. "co-founding the EU" (but nevermind: EU and Eurozone aren't the same)

vnorilo 7y ago

Well, as an individual eurozoner I vastly prefer a single currency and for me personally it certainly reduces the friction of cross-border trade (I both buy stuff and sell services). I understand that many eurozone countries could be helped by currency tools like devaluing, but I'm not sure if anyone can really know how the tradeoffs vs. smoother commerce pan out and conclude authoritatively that the whole thing is a net negative.

petre 7y ago
I also buy stuff and services frictionlessly being outside of the EZ. Why trade away your country's monetary sovereignity for the convenience of currency exchange? We all know what happened to Greece and to the Italian economy.
- vnorilo 7y ago
  Maybe the businesses in your country improve their conversion rates ever so slightly because of said convenience? We spend time and money to optimize for far sillier things in our funnels. I do not claim to know the aggregate effects, but I would guess it is not as simple as convenience vs. sovereignity.
  - petre 7y ago
    Not really. Visa and the banks do take a cut. But there is Revolut now if you want to give them the middle finger. They will be forced to adapt and offer similar services or at least non-ripoff exchange rates. I always prefer a free market solution to an EU buceaucratic solution. Such as EU mandated zero transaction fees in order to convert the bulk of the transactions to cashless, be able to track them and "prevent money laundering", which of course isn't true (eg. Danske bank scandal).
- goodcanadian 7y ago
  The Greece and Italian economies were mismanaged. The Euro, in and of itself, had little to do with it. At worst, it removed one tool for dealing with the mismanagement. Far better to manage it well in the first place.
  - petre 7y ago
    Greece maybe. But if Italy's economy was mismanaged it was due to outside pressure. https://www.ineteconomics.org/perspectives/blog/how-to-ruin-a-country-in-three-decades https://www.ineteconomics.org/perspectives/blog/how-to-ruin-... https://news.ycombinator.com/item?id=19649182 https://news.ycombinator.com/item?id=19649182
    - gattilorenz 7y ago
      > Until the early 1990s, Italy enjoyed decades of relatively robust economic growth This is painting just one side of the story. Look up the graphs for debt as % of GDP in the same years.
Double_a_92 7y ago
How do currency policies even work? Isn't it like the state forcing exporting and tourism companies to lower their prices (by devaluating the currency)? Why is that the states job instead of the individual companies'? Also the state can scam buyers of state bonds by inflating the currency, which also has the sideeffect of meddling with it's own economy. It's not a silver bullet, it's just different cancer.
- bainsfather 7y ago
  "Isn't it like the state forcing exporting and tourism companies to lower their prices (by devaluating the currency)? Why is that the states job instead of the individual companies'?" With a free-floating currency, prices for foreign buyers can change overnight. This can allow quick responses to shocks. In contrast, internal devaluation (deflation) is a very slow process (how do you coordinate everyone in a country to reduce their prices). e.g. for the UK circa 2008 the economy had problems (more reliant on finance sector than most other countries) and the currency dropped, making UK exporters more competitive. Italy or Greece a few years later would have also seen their currencies fall, had they not been locked into the same currency as Germany. Instead, their exporters have problems with competitiveness which take many years to equilibrate (they must have lower inflation or deflation relative to Germany). There is a subject called 'Optimum Currency Areas'. As always, there are tradeoffs, more homogeneous economic areas face this particular problem less and so are more likely to benefit from a single currency.
  - vnorilo 7y ago
    Thank you for the insights. Any thoughts on how it went down in Latvia, sometimes cited as a success story but also criticized [1]? [1]: http://cepr.net/publications/reports/latvias-internal-devaluation-a-success-story http://cepr.net/publications/reports/latvias-internal-devalu...
    - bainsfather 7y ago
      I am sorry, no. I do not have such expertise. When I read economics textbooks, I see a marked contrast to physics textbooks. e.g. in physics, they might explain about a pendulum using equations etc, but then they show you real experimental data, to show that your equations about period vs pendulum length are correct. I have not found economics textbooks that do that. The more basic thing that economics gives me is akin to this: when iron ships were first proposed, sceptics might say 'iron sinks, so iron ships are impossible, you are crazy'. You can answer this by putting an iron saucepan in the kitchen sink, and showing that it floats. So (macro) economics can tell me some basic things about 'which way is up'. But putting even half-accurate numbers on things is difficult. imo economics is often done best when you view it using historical case studies + theory to know which way each effect acts. This is not to say that what you ask is impossible, but when that is done (by experts, not me), it is not convincing enough to convince others that it is right.
imtringued 7y ago
Devaluation is not a mere government tool, it's an automatic, market based mechanism of leveling the playing field between two countries.

seer 7y ago

I would call the euro a smashing success to be honest. Small countries, especially the ones that came out of the old ussr, seem to be very susceptible to their leaders playing with the currency to further their immediate goals, to the detriment of long term prosperity. Namely they like to print money. Countries that pegged their currency to the euro, or outright started using it got measurably better than the one that didn’t. Counties that had “troubles because of the euro” would have most definitely had them even without, but the problem would have surfaced much later, when the damage would have been done. It’s just so easy to solve economy problems with devaluing a currency and most, especially populist governments just can’t help themselves but do it, ending in huge nation wide catastrophes - see a lot of latin america, pre-euro ex-ussr countries etc. Having a stable currency is just vital to the long term health of a country, and the euro has certainly helped with that immensely. It does remove a tool from a government’s toolbox, but a dangerous one that I wouldn’t trust most of them to use anyway. As for Africa, with the amount of financial education the populace has at large, I would presume a stable currency would do wonders to their economies long term, at least for several generations ahead. A bit oversimplified but very accessible source of info for geopolitical economic stuff like this would be VisualPolitik youtube channel.

TomMarius 7y ago
The Czech Republic (the fastest growing EU economy) wouldn't be as successful had it accepted Euro.
- patrickmcnamara 7y ago
  Ireland has technically been the fastest growing economy in the EU for the past several years and it uses the Euro. GDP is an iffy measure for Ireland though.
- seer 7y ago
  Perhaps, its all a trade off. Maybe you lucked out with your governments. Having your own currency is a tool that _can_ be used wisely to great effect. It’s just that the modern world is filled with examples of the opposite. And it has been just a couple of decades. Over the long run, stable currencies usually outperform their capricious rivals. Mostly because investors want stability, and so they flock to places where it is present. There are numerous examples of countries with their own currency doing well, or doing very very poorly. But there are few examples of countries doing very badly _because_ they adopted a union currency. Imagine Alabama stating they’ll quit the US dollar and get their own alabamians or something - it might go great, it might go badly, but you sure know it would be risky. And investors by and large wouldn’t like that.