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> “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 sub

> “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.
      - eru 7y ago
        See https://marketmonetarist.com/2015/07/14/the-euro-a-monetary-strangulation-mechanism/ https://marketmonetarist.com/2015/07/14/the-euro-a-monetary-... for the importance of a floating currency. (Or rather, the importance of not joining nor pegging to the Euro. Other currencies might not be as toxic?)
      - mcv 7y ago
        So the transfer payment are not part of the Eurozone, but part of the EU. That makes Eurozone membership a problem for weaker economies like Greece. On the other hand, Slowakia and Ireland are part of the Eurozone and are doing very well despite starting out poor. (Maybe Ireland doesn't fit here, because they've been doing very well since long before the Euro.)
    - _visgean 7y ago
      Well you are talking about EU budget. If you look at https://en.wikipedia.org/wiki/Budget_of_the_European_Union#EU-27_contributions_(2007%E2%80%9313) https://en.wikipedia.org/wiki/Budget_of_the_European_Union#E... its clear that both Greece and Portugal receive higher contributions then Czech republic. Also I am not sure what structural disadvantages you are looking at. Look at Slovakia that is in Eurozone and benefited massively.
    - phicoh 7y ago
      At the introduction of the Euro, many were quite concerned about Greece joining. The EU consists of independent, co-operating countries. This is quite different from the US. There is very little the EU can do without votes from the individual countries. So the assumption is that a country that joins the Euro has carefully evaluated the pros and cons. At the same time, the amount of subsidies a country receives is not dependant on that country being part of the Euro-zone or not. If you look at the Euro at the time of introduction, then there was every intent to make Euro as strong and stable as the Deutche Mark. Very much so against the wishes of France, who wanted a currency that was way more subject to political control. Of course, one incentive for countries to adopt the Euro was exactly was the article is about: a small currency stands no chance against investors speculating against it. Better hide in a big currency.
    - zajio1am 7y ago
      Slovakia was in similar position to Czechia, but joined Eurozone in 2009. From that time, it has similar or better GDP growth than Czechia.
- op00to 7y ago
  > halfway step only serves the wealthy How?
  - bildung 7y ago
    (Warning: Armchair economist!) Poorer countries in general have lower productivity (possible causes can be lacking infrastructure (roads, electricity, telecom, but also regulations etc.), lacking capital, lacking foresight/lacking capital to invest in future tech by the governement (e.g. broadband internet)). This results - despite lower wages! - in higher unit labor costs. If you form a monetary union with poorer and richer countries (like the EU), you have problem. The richer countries, despite higher absolute wages, will have lower unit labor costs. The richer countries can therefore expand exports at the cost of domestic production in the poorer countries (e.g. Germany vs. rest of EU). If the poorer country wouldn't be part of the union, it could (among other things) lower the value of its own currency (or the forex markets would do that). Lower-valued domestic currency assists exports, which levels competition with the richer countries a bit. This doesn't mean that there are no alternatives inside the current EU! They just haven't been implemented yet. Options would be * way higher minimum wages in the rich countries (Germany was one of the last countries in Europe to implement them) * implementing less union-hostile laws in the richer countries (resulting again in higher wages, but also for higher income groups not affected by minimum wage) * More infrastructure investments in the poorer countries (there already are significant transfers, but more would help) * A unified fiscal strategy. After implementation of the Euro zone, there were massive capital inflows into the poorer countries, resulting in overvaluation of the local economy. This was a big reason for the local problems of the last decade [1] [1] https://streetlightblog.blogspot.com/2011/09/what-really-caused-eurozone-crisis-part.html https://streetlightblog.blogspot.com/2011/09/what-really-cau...
    - phicoh 7y ago
      Higher minimum wages to solve imbalances in the Euro-zone would probably result in a disaster. In areas where countries like Germany directly compete with poorer countries, they do so by having more and better automation. Productivity is not that people work harder, is it that there are more machines to do the work. The net effect of raising wages is that there will be more automation, largely negating the increase in wages. By it self this is not a problem. Where is goes wrong is that within a country, there are many jobs that cannot be automated easily. In particular, with an aging population, you need lots of nurses and other care takers. Increasing minimum wages with sole goal of reducing export imbalance can make those cost go through the roof, and generally lower the standard of living for a large part of the population. Reducing the cost of 'care' and other jobs that dependent on personal service, is already very important to improve the standard of living.
malloryerik 7y ago
At the same time the euro gives Germany a benefit much greater than inter-EU German transfer payments. By greatly weakening the euro, the zone's fiscally-challenged countries pull open the gates for German exports which roar out of the Europe with significantly lowered sticker prices in other currencies. It appears to be a massive benefit since one can easily imagine a uniquely German currency being 30% higher. Now that's a bargain. What's more, Germany may even have a built-in advantage datinng back to the inception of the euro, when the Deutsche Mark was brought into the union at what many believe was about a 6% undervalued rate. "Updated IMF data suggests that by 2017 the German pricing edge built into the euro had about doubled to over 12%."[1] https://www.forbes.com/sites/miltonezrati/2018/01/23/the-german-swindle-built-into-the-euro/#66d5456427da https://www.forbes.com/sites/miltonezrati/2018/01/23/the-ger...
peteretep 7y ago
Germany paid net €12bn. California has net federal tax receipts of $450bn. Not identical types of figures, but comparing the tiny transfer payments in the EU to the gigantic ones in real financial unions is where the difference lies.
- OscarTheGrinch 7y ago
  Pretty sure that billions in Europe have three extra zeros.
  - opless 7y ago
    Not when it comes to finance. Everyone appears to use the short billion these days, and it caused me significant cognitive dissonance!
  - mcv 7y ago
    I think everybody here is talking about US-size billions, not European-size billions.
- Reason077 7y ago
  > "Germany paid net €12bn. California has net federal tax receipts of $450bn" It is meaningless to compare a net transfer to gross tax receipts. California's large, wealthy population generates high federal tax receipts, but it's net contribution is actually negative because the federal government currently spends more in California than it receives in taxes. Source: https://www.governing.com/week-in-finance/gov-taxpayers-10-states-give-more-feds-than-get-back.html https://www.governing.com/week-in-finance/gov-taxpayers-10-s...
  - WillySchu 7y ago
    It's pretty unlikely that this is still the case. The article you link to appears to be citing a 2017 report which itself uses data from FY2015[1]. This means that it doesn't take into account the 2017 federal tax overhaul which, among other things, capped deductions for state and local taxes paid. This means high tax high income states will almost certainly be paying more in federal taxes. Unfortunately, I don't think the data is available to confirm or refute this yet. [1]: https://rockinst.org/wp-content/uploads/2018/02/2017-09-28_Balance-of-Payments-Report.pdf https://rockinst.org/wp-content/uploads/2018/02/2017-09-28_B...
zajio1am 7y ago
> This is incorrect. The EU has substantial transfer payments. Size of EU budget is about 1 % of EU GDP, so these transfer payments are likely inconsequential as a fiscal mechanism.

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.
    - eru 7y ago
      See https://marketmonetarist.com/2015/07/14/the-euro-a-monetary-strangulation-mechanism/ https://marketmonetarist.com/2015/07/14/the-euro-a-monetary-... for the importance of a floating currency. (Or rather, the importance of not joining nor pegging to the Euro. Other currencies might not be as toxic?)
    - mcv 7y ago
      So the transfer payment are not part of the Eurozone, but part of the EU. That makes Eurozone membership a problem for weaker economies like Greece. On the other hand, Slowakia and Ireland are part of the Eurozone and are doing very well despite starting out poor. (Maybe Ireland doesn't fit here, because they've been doing very well since long before the Euro.)
  - _visgean 7y ago
    Well you are talking about EU budget. If you look at https://en.wikipedia.org/wiki/Budget_of_the_European_Union#EU-27_contributions_(2007%E2%80%9313) https://en.wikipedia.org/wiki/Budget_of_the_European_Union#E... its clear that both Greece and Portugal receive higher contributions then Czech republic. Also I am not sure what structural disadvantages you are looking at. Look at Slovakia that is in Eurozone and benefited massively.
  - phicoh 7y ago
    At the introduction of the Euro, many were quite concerned about Greece joining. The EU consists of independent, co-operating countries. This is quite different from the US. There is very little the EU can do without votes from the individual countries. So the assumption is that a country that joins the Euro has carefully evaluated the pros and cons. At the same time, the amount of subsidies a country receives is not dependant on that country being part of the Euro-zone or not. If you look at the Euro at the time of introduction, then there was every intent to make Euro as strong and stable as the Deutche Mark. Very much so against the wishes of France, who wanted a currency that was way more subject to political control. Of course, one incentive for countries to adopt the Euro was exactly was the article is about: a small currency stands no chance against investors speculating against it. Better hide in a big currency.
  - zajio1am 7y ago
    Slovakia was in similar position to Czechia, but joined Eurozone in 2009. From that time, it has similar or better GDP growth than Czechia.
op00to 7y ago
> halfway step only serves the wealthy How?
- bildung 7y ago
  (Warning: Armchair economist!) Poorer countries in general have lower productivity (possible causes can be lacking infrastructure (roads, electricity, telecom, but also regulations etc.), lacking capital, lacking foresight/lacking capital to invest in future tech by the governement (e.g. broadband internet)). This results - despite lower wages! - in higher unit labor costs. If you form a monetary union with poorer and richer countries (like the EU), you have problem. The richer countries, despite higher absolute wages, will have lower unit labor costs. The richer countries can therefore expand exports at the cost of domestic production in the poorer countries (e.g. Germany vs. rest of EU). If the poorer country wouldn't be part of the union, it could (among other things) lower the value of its own currency (or the forex markets would do that). Lower-valued domestic currency assists exports, which levels competition with the richer countries a bit. This doesn't mean that there are no alternatives inside the current EU! They just haven't been implemented yet. Options would be * way higher minimum wages in the rich countries (Germany was one of the last countries in Europe to implement them) * implementing less union-hostile laws in the richer countries (resulting again in higher wages, but also for higher income groups not affected by minimum wage) * More infrastructure investments in the poorer countries (there already are significant transfers, but more would help) * A unified fiscal strategy. After implementation of the Euro zone, there were massive capital inflows into the poorer countries, resulting in overvaluation of the local economy. This was a big reason for the local problems of the last decade [1] [1] https://streetlightblog.blogspot.com/2011/09/what-really-caused-eurozone-crisis-part.html https://streetlightblog.blogspot.com/2011/09/what-really-cau...
  - phicoh 7y ago
    Higher minimum wages to solve imbalances in the Euro-zone would probably result in a disaster. In areas where countries like Germany directly compete with poorer countries, they do so by having more and better automation. Productivity is not that people work harder, is it that there are more machines to do the work. The net effect of raising wages is that there will be more automation, largely negating the increase in wages. By it self this is not a problem. Where is goes wrong is that within a country, there are many jobs that cannot be automated easily. In particular, with an aging population, you need lots of nurses and other care takers. Increasing minimum wages with sole goal of reducing export imbalance can make those cost go through the roof, and generally lower the standard of living for a large part of the population. Reducing the cost of 'care' and other jobs that dependent on personal service, is already very important to improve the standard of living.

malloryerik 7y ago

At the same time the euro gives Germany a benefit much greater than inter-EU German transfer payments. By greatly weakening the euro, the zone's fiscally-challenged countries pull open the gates for German exports which roar out of the Europe with significantly lowered sticker prices in other currencies. It appears to be a massive benefit since one can easily imagine a uniquely German currency being 30% higher. Now that's a bargain. What's more, Germany may even have a built-in advantage datinng back to the inception of the euro, when the Deutsche Mark was brought into the union at what many believe was about a 6% undervalued rate. "Updated IMF data suggests that by 2017 the German pricing edge built into the euro had about doubled to over 12%."[1] https://www.forbes.com/sites/miltonezrati/2018/01/23/the-german-swindle-built-into-the-euro/#66d5456427da https://www.forbes.com/sites/miltonezrati/2018/01/23/the-ger...

peteretep 7y ago

Germany paid net €12bn. California has net federal tax receipts of $450bn. Not identical types of figures, but comparing the tiny transfer payments in the EU to the gigantic ones in real financial unions is where the difference lies.

OscarTheGrinch 7y ago
Pretty sure that billions in Europe have three extra zeros.
- opless 7y ago
  Not when it comes to finance. Everyone appears to use the short billion these days, and it caused me significant cognitive dissonance!
- mcv 7y ago
  I think everybody here is talking about US-size billions, not European-size billions.
Reason077 7y ago
> "Germany paid net €12bn. California has net federal tax receipts of $450bn" It is meaningless to compare a net transfer to gross tax receipts. California's large, wealthy population generates high federal tax receipts, but it's net contribution is actually negative because the federal government currently spends more in California than it receives in taxes. Source: https://www.governing.com/week-in-finance/gov-taxpayers-10-states-give-more-feds-than-get-back.html https://www.governing.com/week-in-finance/gov-taxpayers-10-s...
- WillySchu 7y ago
  It's pretty unlikely that this is still the case. The article you link to appears to be citing a 2017 report which itself uses data from FY2015[1]. This means that it doesn't take into account the 2017 federal tax overhaul which, among other things, capped deductions for state and local taxes paid. This means high tax high income states will almost certainly be paying more in federal taxes. Unfortunately, I don't think the data is available to confirm or refute this yet. [1]: https://rockinst.org/wp-content/uploads/2018/02/2017-09-28_Balance-of-Payments-Report.pdf https://rockinst.org/wp-content/uploads/2018/02/2017-09-28_B...

zajio1am 7y ago

> This is incorrect. The EU has substantial transfer payments. Size of EU budget is about 1 % of EU GDP, so these transfer payments are likely inconsequential as a fiscal mechanism.