7 ms·

I think that many people like me, that don't even know economy 101, are now wondering: what happens if euro disintegrates, practically speaking?

by antirez 15y ago

80hours 15y ago
Nothing special. Euro would be exchanged with national currencies. No money will be lost or anything. Just a giant currency conversion, but with some turbulence around it. Having said that, the Euro is a great project. It will trigger a common European economic policy and that will push Europe to the next level.
- elemeno 15y ago
  It's nowhere near as simple as that. What national currencies will Euros be exchanged for? What rates will they be exchanged at? Will other markets recognise those new currencies (and they will be =new= currencies, since all the Eurozone currencies ceased to exist when they changed to the Euro), and what rates will they be traded at on the markets as opposed to the fixed exchange rate they'll swapped for Euros at. It took 10 years to get from the establishment of the Euro (then ECU) as a currency to the point where all the Eurozone nations switched to it as the only official currency - there will not be 10 years to switch the other way, and it's going to be very very messy. The Euro is the 2nd most traded currency after the US dollar, is the 2nd largest reserve currency after the dollar, it's used as part of currency baskets for setting FX rates of numerous other currencies. Were the Euro to dissolve, the second order effects in markets around the world would be extremely turbulent, and likely highly damaging to the world economy. Claiming that it would be 'Nothing special' is naivety at it's most dangerous.
- InclinedPlane 15y ago
  Your statement is false on its face. The Euro has not triggered a common European economic policy but instead has made the impact of dissimilar economic policies worse. What is the route from point A to point B here? An economic crisis that forces tighter Eurozone policies? Military enforcement of economic policies?
yxhuvud 15y ago
Depends a whole lot of how it disintegrates. Every country for itself, or a divide into southern and northern fractions with radically different policies? Anyhow, short term, there will be a lot of fallout where exchange rates for contracts and loans stop being predictable leading to a drop of trade, and quite possible a lot of failed banks and other big institutions (probably saved by their respective governments, but it will still be a shaky time). Long term (assuming the sovereign debt is made into national currency and not kept in Euro[]), the increased flexibility will make the economic status of the different Euro members a lot sounder. There will be consequences of less trade though, since it is not free for the companies to protect themselves against currency effects. [] If they keep the debt in Euros while not being on the Euro themselves, then I expect hyperinflation. Thankfully for them (but not necessarily for the creditors) they will be able to do such a transition by a stroke of a pen. Sovereigns play by their own rules after all.
- 80hours 15y ago
  > the increased flexibility will make the economic status of the different Euro members a lot sounder. Why should it? The troubles we see now are NOT caused by the Euro but by overspending. Or are you saying the US economic problems are caused by the US dollar?
  - yxhuvud 15y ago
    Note that almost all of the problem countries ran trade surpluses before joining the Euro, and that the different regions had a lot better balance of trade as a whole. What then happened was that the fixed exchange rates made the automatic rebalancing, that competing floating currencies have, stop working, and inbalances aggregated in the system. These inbalances took a form that is perceived as overspending, but that is a much too simplistic view. The economic problems of US are a lot less severe than those in the Euro area, precisely because US has a different way of equalizing bad balance between regions - namely taxes and federal spending. There are also no danger of default, since US can fulfill the obligations it has by printing money. That is also not on the table in the Euro area.
    - 15y ago
forgottenpaswrd 15y ago
For europeans, a lot of bad things, the most important: 1)Forced conversions of savings from euros to pesetas, liras, francs, and in the process devaluating their purchasing power 50% or more(somebody have to pay for the excesses in financing industry and history says it is always the people as the people that have money will fly or ask expert advice to not being touched).. 2) Increment cost in commerce between Europeans as you will have to convert pesetas, escudos or liras to francs witch takes a hight commission and bureaucracy(time and money) cost. 3) If you go to other European country you will need to change money(and pay) and if you don't use it all you need to convert it again. 4) Debt is denominated in euros, so when countries start printing money for paying their obligations (pensions, functionaries) debt will be more impossible to pay than already is.
- twp 15y ago
  It's worse. If the Euro breaks up it will break up into two. The currency of the top half will skyrocket and those countries will quickly become uncompetitive and so their economies will crash. The bottom half will find that they earn is some useless currency but that their debts are denominated in Euros. They will find themselves crushed under an impossible debt burden. Think negative equity on a national scale which last decades. I know which half I would rather be in, but it's gonna be horrible for everyone.

I think that many people like me, that don't even know economy 101, are now wondering: what happens if euro disintegrates, practically speaking?

by antirez 15y ago

I think that many people like me, that don't even know economy 101, are now wondering: what happens if euro disintegrates, practically speaking?

80hours 15y ago

Nothing special. Euro would be exchanged with national currencies. No money will be lost or anything. Just a giant currency conversion, but with some turbulence around it. Having said that, the Euro is a great project. It will trigger a common European economic policy and that will push Europe to the next level.

elemeno 15y ago
It's nowhere near as simple as that. What national currencies will Euros be exchanged for? What rates will they be exchanged at? Will other markets recognise those new currencies (and they will be =new= currencies, since all the Eurozone currencies ceased to exist when they changed to the Euro), and what rates will they be traded at on the markets as opposed to the fixed exchange rate they'll swapped for Euros at. It took 10 years to get from the establishment of the Euro (then ECU) as a currency to the point where all the Eurozone nations switched to it as the only official currency - there will not be 10 years to switch the other way, and it's going to be very very messy. The Euro is the 2nd most traded currency after the US dollar, is the 2nd largest reserve currency after the dollar, it's used as part of currency baskets for setting FX rates of numerous other currencies. Were the Euro to dissolve, the second order effects in markets around the world would be extremely turbulent, and likely highly damaging to the world economy. Claiming that it would be 'Nothing special' is naivety at it's most dangerous.
InclinedPlane 15y ago
Your statement is false on its face. The Euro has not triggered a common European economic policy but instead has made the impact of dissimilar economic policies worse. What is the route from point A to point B here? An economic crisis that forces tighter Eurozone policies? Military enforcement of economic policies?

yxhuvud 15y ago

Depends a whole lot of how it disintegrates. Every country for itself, or a divide into southern and northern fractions with radically different policies? Anyhow, short term, there will be a lot of fallout where exchange rates for contracts and loans stop being predictable leading to a drop of trade, and quite possible a lot of failed banks and other big institutions (probably saved by their respective governments, but it will still be a shaky time). Long term (assuming the sovereign debt is made into national currency and not kept in Euro[]), the increased flexibility will make the economic status of the different Euro members a lot sounder. There will be consequences of less trade though, since it is not free for the companies to protect themselves against currency effects. [] If they keep the debt in Euros while not being on the Euro themselves, then I expect hyperinflation. Thankfully for them (but not necessarily for the creditors) they will be able to do such a transition by a stroke of a pen. Sovereigns play by their own rules after all.

80hours 15y ago
> the increased flexibility will make the economic status of the different Euro members a lot sounder. Why should it? The troubles we see now are NOT caused by the Euro but by overspending. Or are you saying the US economic problems are caused by the US dollar?
- yxhuvud 15y ago
  Note that almost all of the problem countries ran trade surpluses before joining the Euro, and that the different regions had a lot better balance of trade as a whole. What then happened was that the fixed exchange rates made the automatic rebalancing, that competing floating currencies have, stop working, and inbalances aggregated in the system. These inbalances took a form that is perceived as overspending, but that is a much too simplistic view. The economic problems of US are a lot less severe than those in the Euro area, precisely because US has a different way of equalizing bad balance between regions - namely taxes and federal spending. There are also no danger of default, since US can fulfill the obligations it has by printing money. That is also not on the table in the Euro area.
  - 15y ago

forgottenpaswrd 15y ago

For europeans, a lot of bad things, the most important: 1)Forced conversions of savings from euros to pesetas, liras, francs, and in the process devaluating their purchasing power 50% or more(somebody have to pay for the excesses in financing industry and history says it is always the people as the people that have money will fly or ask expert advice to not being touched).. 2) Increment cost in commerce between Europeans as you will have to convert pesetas, escudos or liras to francs witch takes a hight commission and bureaucracy(time and money) cost. 3) If you go to other European country you will need to change money(and pay) and if you don't use it all you need to convert it again. 4) Debt is denominated in euros, so when countries start printing money for paying their obligations (pensions, functionaries) debt will be more impossible to pay than already is.

twp 15y ago
It's worse. If the Euro breaks up it will break up into two. The currency of the top half will skyrocket and those countries will quickly become uncompetitive and so their economies will crash. The bottom half will find that they earn is some useless currency but that their debts are denominated in Euros. They will find themselves crushed under an impossible debt burden. Think negative equity on a national scale which last decades. I know which half I would rather be in, but it's gonna be horrible for everyone.