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The Eurozone is fatally flawed because they share a currency but have no transfer payments between rich and poor members. So you have countries like Germany tha

The Eurozone is fatally flawed because they share a currency but have no transfer payments between rich and poor members. So you have countries like Germany that are effectively subsidized by poorer countries. It's been a great setup for 20 years if you've been in the German capital class, not so great for anyone else.

PeterisP 7y ago
The majority of EU budget consists of programs such as the common agricultural policy, ERDF and other infrastructure funding which are de facto transfer payments to improve and sustain poorer areas.
- Despegar 7y ago
  Until German taxpayers are financing universal healthcare and pensions for Greeks and Italians, those things are marginal at best.
- richardknop 7y ago
  Correct me if I’m wrong but isn’t majority of agricultural funding going to France, Germany etc, the wealthy members?
  - PeterisP 7y ago
    Well, they're both the largest recipients and the largest contributors because they're the largest and most populous countries. However, France and Germany contribute significantly more than they receive, and poorer regions receive significantly more than they contribute, so that's effectively a transfer mechanism.
skokage 7y ago
>So you have countries like Germany that are effectively subsidized by poorer countries. Could you explain this comment further, or have links to stories that go in depth on how that works? Not saying you are wrong, but I don't understand how germany, which is an economic powerhouse and exports a lot of goods, are being subsidized by poorer countries.
- wheels 7y ago
  The gist of it is that if Germany were still on the Mark, then the Mark would be significantly stronger than the Euro is today. Having weaker economies on the same currency causes Germany's currency to be artificially weak, which makes its exports artificially cheap on the world market. In contrast, the poorer Eurozone countries have an artificially strong currency, which makes their exports more expensive than they would be if they had their own free floating currency. There are some transfer mechanisms from rich to poor Eurozone countries, but they're nothing anywhere close to the scale of e.g. the US federal government.
  - p1necone 7y ago
    Even though it's the same currency, wouldn't the buying power and cost of living be higher and lower respectively in the poorer countries and somewhat balance it out? Separate currencies are just an abstraction - what really matters in the local economy would be things like the cost of wages or the cost of living expenses. Edit: _delerium answered my question pretty well in a reply to another commenter.
  - lol_wut 7y ago
    how is having an artificially weak currency a subsidy to Germany? isn't that like underpricing their goods? and wouldn't that imply that countries who import German goods are being subsidized, because they are able to get German goods at artificially low prices? also can you suggest a place where I could read more about this? its awfully confusing, and somewhat counter-intuitive and it would be helpful to read where someone has presented this idea in a paper or article or something.
    - Analemma_ 7y ago
      I don't like how you're being downvoted for asking a legitimate question in apparent good-faith. This idea can be genuinely counterintuitive the first time you encounter it. The issue is that, normally when a country with its own currency is economically uncompetitive, its currency weakens, which helps give a boost to domestic industry by making their exports cheaper than those of richer nations. So there's a natural corrective function to economic fragility that helps these countries get back on their feet. The Eurozone breaks that corrective mechanism: without the Euro, right now e.g. Greece would have a weak currency and Germany a much stronger one, which would help Greek industry because their products would be cheaper than Germany's. But since they're all using the Euro, Greece can't get any kind of comparative economic advantage.
Zenst 7y ago
>but have no transfer payments between rich and poor members You do if you count open free trade, least that is the ideology. Though the reality is very disproportional and for countries able and in a position to leverage that, did very well. So you get some countries doing better than others, how do you balance that out. Well, with a membership fee based upon how well the individual member is doing in relation to other members and using most of that fee to invest in those countries doing less well. Which seems a simple and fair way. At least on paper when they signed it all off it did. I will say though, I've always worried about the aggressive QE usage by the ECB. Whilst great for exports, it has equally impacted imports. This with most consumer tech being imported, then it would be more advantages to companies that export outside the EU to have QE keeping the Euro from racing ahead than for importers. Hence countries with a dominant export outside the EU, have done rather well out of QE and those importing, equally less so. But then, how QE is not counted as currency manipulation is beyond me.
Reason077 7y ago
> “The Eurozone is fatally flawed because they share a currency but have no transfer payments between rich and poor members.” This is incorrect. The EU has substantial transfer payments. Wealthier EU countries (like Germany) subsidise poorer ones (like Poland) on the order of tens of billions of Euros annually. Regional development (subsidies for poorer areas) is the second largest EU budget line item after agriculture. https://www.bbc.co.uk/news/uk-politics-48256318 https://www.bbc.co.uk/news/uk-politics-48256318
- Despegar 7y ago
  How much each member contributes to the EU budget is a drop in the bucket compared to the transfer payments I'm talking about (healthcare, social security, defense). The Eurozone should either go all the way like the US, or they should scrap the currency union. This halfway step only serves the wealthy.
  - _visgean 7y ago
    Not true at all. I am from Czech republic and we benefited massively from these contributions. If I compare for example general state of infrastructure it is much better than in UK where I currently reside. All the train stations were rebuilt using EU funds. Also not sure what you are talking about "This halfway step only serves the wealthy.", not not really. Look at quality of life and GDP rise in post soviet EU countries.
    - Despegar 7y ago
      The Czech Republic isn't in the Eurozone and doesn't face the structural disadvantages that Greece or Portugal do.
      - _delirium 7y ago
        The Czech Republic definitely shows one way to approach the EU: get the transfer payments from a political union and partial economic union (in trade policy, etc.), as well as remittances from emigrants employed elsewhere in the free-movement zone, but retain an independent floating currency and avoid monetary union. Greece would've been in a considerably different position if they had taken the Czech route and stayed out of the Euro. Arguably a better position, though that's not something all economists agree on. Certainly a different one, at any rate.
barrkel 7y ago
There is no fiscal union, but there certainly are transfer payments done on a regional (not national) level; i.e. a region of a country (or the whole country, if it is particularly poor) can access EU funds for infrastructure and the like. https://en.m.wikipedia.org/wiki/European_Regional_Development_Fund https://en.m.wikipedia.org/wiki/European_Regional_Developmen...
arbitrary_name 7y ago
What? There are billions in direct transfers to poorer EU countries. It has been great for millions of non-Western EU citizens.
eru 7y ago
I agree that the Euro is flawed, but I don't think your reasons are right. Other commenters point out that there's some transfer payments in the EU, a superset of the Euro zone. Also around the world you have other currency unions that don't involve transfers and that are doing just fine. Eg Hong Kong effectively uses the USD. See https://en.wikipedia.org/wiki/Currency_substitution https://en.wikipedia.org/wiki/Currency_substitution for some more background. And, of course, Scotland, Canada and Australia were doing just fine on the gold standard in the 18th and 19th centuries; without any fiscal transfers between countries in the gold block. (I explicitly mention those countries, and not eg the US or England for specific reasons. I also explicitly not mention the interwar gold standard.) See https://marketmonetarist.com/2015/07/14/the-euro-a-monetary-strangulation-mechanism/ https://marketmonetarist.com/2015/07/14/the-euro-a-monetary-... for an empiric demonstration of the Euro's flaws. And https://marketmonetarist.com/2015/07/19/the-euro-a-fiscal-strangulation-mechanism-but-mostly-for-monetary-reasons/ https://marketmonetarist.com/2015/07/19/the-euro-a-fiscal-st... for a follow up.
- riffraff 7y ago
  The currency union in this case is paired with lack of tariffs and free movement of capital and goods, which is not the case for Hong Kong and the US, nor was the case in the 19th century Australia and Canada.
  - eru 7y ago
    Good points. Though to be honest, the EU has plenty of de-facto restrictions on free trade in services. (Unilateral) free trade was a pretty popular policy back then. In practice, the decrease in transportation costs we have today dwarfs the difference in tariffs.

PeterisP 7y ago

The majority of EU budget consists of programs such as the common agricultural policy, ERDF and other infrastructure funding which are de facto transfer payments to improve and sustain poorer areas.

Despegar 7y ago
Until German taxpayers are financing universal healthcare and pensions for Greeks and Italians, those things are marginal at best.
richardknop 7y ago
Correct me if I’m wrong but isn’t majority of agricultural funding going to France, Germany etc, the wealthy members?
- PeterisP 7y ago
  Well, they're both the largest recipients and the largest contributors because they're the largest and most populous countries. However, France and Germany contribute significantly more than they receive, and poorer regions receive significantly more than they contribute, so that's effectively a transfer mechanism.

skokage 7y ago

>So you have countries like Germany that are effectively subsidized by poorer countries. Could you explain this comment further, or have links to stories that go in depth on how that works? Not saying you are wrong, but I don't understand how germany, which is an economic powerhouse and exports a lot of goods, are being subsidized by poorer countries.

wheels 7y ago
The gist of it is that if Germany were still on the Mark, then the Mark would be significantly stronger than the Euro is today. Having weaker economies on the same currency causes Germany's currency to be artificially weak, which makes its exports artificially cheap on the world market. In contrast, the poorer Eurozone countries have an artificially strong currency, which makes their exports more expensive than they would be if they had their own free floating currency. There are some transfer mechanisms from rich to poor Eurozone countries, but they're nothing anywhere close to the scale of e.g. the US federal government.
- p1necone 7y ago
  Even though it's the same currency, wouldn't the buying power and cost of living be higher and lower respectively in the poorer countries and somewhat balance it out? Separate currencies are just an abstraction - what really matters in the local economy would be things like the cost of wages or the cost of living expenses. Edit: _delerium answered my question pretty well in a reply to another commenter.
- lol_wut 7y ago
  how is having an artificially weak currency a subsidy to Germany? isn't that like underpricing their goods? and wouldn't that imply that countries who import German goods are being subsidized, because they are able to get German goods at artificially low prices? also can you suggest a place where I could read more about this? its awfully confusing, and somewhat counter-intuitive and it would be helpful to read where someone has presented this idea in a paper or article or something.
  - Analemma_ 7y ago
    I don't like how you're being downvoted for asking a legitimate question in apparent good-faith. This idea can be genuinely counterintuitive the first time you encounter it. The issue is that, normally when a country with its own currency is economically uncompetitive, its currency weakens, which helps give a boost to domestic industry by making their exports cheaper than those of richer nations. So there's a natural corrective function to economic fragility that helps these countries get back on their feet. The Eurozone breaks that corrective mechanism: without the Euro, right now e.g. Greece would have a weak currency and Germany a much stronger one, which would help Greek industry because their products would be cheaper than Germany's. But since they're all using the Euro, Greece can't get any kind of comparative economic advantage.

Zenst 7y ago

>but have no transfer payments between rich and poor members You do if you count open free trade, least that is the ideology. Though the reality is very disproportional and for countries able and in a position to leverage that, did very well. So you get some countries doing better than others, how do you balance that out. Well, with a membership fee based upon how well the individual member is doing in relation to other members and using most of that fee to invest in those countries doing less well. Which seems a simple and fair way. At least on paper when they signed it all off it did. I will say though, I've always worried about the aggressive QE usage by the ECB. Whilst great for exports, it has equally impacted imports. This with most consumer tech being imported, then it would be more advantages to companies that export outside the EU to have QE keeping the Euro from racing ahead than for importers. Hence countries with a dominant export outside the EU, have done rather well out of QE and those importing, equally less so. But then, how QE is not counted as currency manipulation is beyond me.

Reason077 7y ago

> “The Eurozone is fatally flawed because they share a currency but have no transfer payments between rich and poor members.” This is incorrect. The EU has substantial transfer payments. Wealthier EU countries (like Germany) subsidise poorer ones (like Poland) on the order of tens of billions of Euros annually. Regional development (subsidies for poorer areas) is the second largest EU budget line item after agriculture. https://www.bbc.co.uk/news/uk-politics-48256318 https://www.bbc.co.uk/news/uk-politics-48256318

Despegar 7y ago
How much each member contributes to the EU budget is a drop in the bucket compared to the transfer payments I'm talking about (healthcare, social security, defense). The Eurozone should either go all the way like the US, or they should scrap the currency union. This halfway step only serves the wealthy.
- _visgean 7y ago
  Not true at all. I am from Czech republic and we benefited massively from these contributions. If I compare for example general state of infrastructure it is much better than in UK where I currently reside. All the train stations were rebuilt using EU funds. Also not sure what you are talking about "This halfway step only serves the wealthy.", not not really. Look at quality of life and GDP rise in post soviet EU countries.
  - Despegar 7y ago
    The Czech Republic isn't in the Eurozone and doesn't face the structural disadvantages that Greece or Portugal do.
    - _delirium 7y ago
      The Czech Republic definitely shows one way to approach the EU: get the transfer payments from a political union and partial economic union (in trade policy, etc.), as well as remittances from emigrants employed elsewhere in the free-movement zone, but retain an independent floating currency and avoid monetary union. Greece would've been in a considerably different position if they had taken the Czech route and stayed out of the Euro. Arguably a better position, though that's not something all economists agree on. Certainly a different one, at any rate.

barrkel 7y ago

There is no fiscal union, but there certainly are transfer payments done on a regional (not national) level; i.e. a region of a country (or the whole country, if it is particularly poor) can access EU funds for infrastructure and the like. https://en.m.wikipedia.org/wiki/European_Regional_Development_Fund https://en.m.wikipedia.org/wiki/European_Regional_Developmen...

arbitrary_name 7y ago

What? There are billions in direct transfers to poorer EU countries. It has been great for millions of non-Western EU citizens.

eru 7y ago

I agree that the Euro is flawed, but I don't think your reasons are right. Other commenters point out that there's some transfer payments in the EU, a superset of the Euro zone. Also around the world you have other currency unions that don't involve transfers and that are doing just fine. Eg Hong Kong effectively uses the USD. See https://en.wikipedia.org/wiki/Currency_substitution https://en.wikipedia.org/wiki/Currency_substitution for some more background. And, of course, Scotland, Canada and Australia were doing just fine on the gold standard in the 18th and 19th centuries; without any fiscal transfers between countries in the gold block. (I explicitly mention those countries, and not eg the US or England for specific reasons. I also explicitly not mention the interwar gold standard.) See https://marketmonetarist.com/2015/07/14/the-euro-a-monetary-strangulation-mechanism/ https://marketmonetarist.com/2015/07/14/the-euro-a-monetary-... for an empiric demonstration of the Euro's flaws. And https://marketmonetarist.com/2015/07/19/the-euro-a-fiscal-strangulation-mechanism-but-mostly-for-monetary-reasons/ https://marketmonetarist.com/2015/07/19/the-euro-a-fiscal-st... for a follow up.

riffraff 7y ago
The currency union in this case is paired with lack of tariffs and free movement of capital and goods, which is not the case for Hong Kong and the US, nor was the case in the 19th century Australia and Canada.
- eru 7y ago
  Good points. Though to be honest, the EU has plenty of de-facto restrictions on free trade in services. (Unilateral) free trade was a pretty popular policy back then. In practice, the decrease in transportation costs we have today dwarfs the difference in tariffs.