3 ms·

Depends a whole lot of how it disintegrates. Every country for itself, or a divide into southern and northern fractions with radically different policies? Anyh

by 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.
  - InclinedPlane 15y ago
    Printing money to pay debt is a form of default that would result in loss of credit ratings. The US is still within the realm where they can be reasonably expected to pay their debt through conventional means (taxation and reduced spending), which is not the case for some countries in the eurozone.
- veyron 15y ago
  The troubles that we are seeing now ARE caused by the Euro. It tried to combine strong exporting nations like Germany with weaker tourist nations like Greece. Were the Deutschemark a separate currency, it would be stronger than the current Euro (and likewise, the drachma would be weaker than the Euro). Germany benefited greatly from this (net exporters benefit from a weaker currency -- see China) and Greece and other nations were hurt. If you want to see a pure example, check out what happened with Nintendo. Thanks to the relative strengthening of the yen, they posted a loss: http://www.bbc.co.uk/news/business-15473961 http://www.bbc.co.uk/news/business-15473961 Overspending is intrinsically not problematic if the currencies are separate. The governments of overspending nations would just print more money, devaluing their currencies in the process.
  - yummyfajitas 15y ago
    Germany benefited greatly from this (net exporters benefit from a weaker currency -- see China) and Greece and other nations were hurt. You've got it backwards. Germans worked hard producing goods which they turn around and send to people outside Germany. This is a net loss for the Germans. In contrast, the Greeks received a bunch of goods and services they didn't need to work as hard for. This was good for them. A weaker currency may be good for companies with domestic liabilities and foreign customers, but it's very bad for consumers with domestic customers (their employer) and foreign liabilities.
    - veyron 15y ago
      You have to think about more than just the first-order effects. In general, a company will sell more products if they can sell for a lower price. "Germans worked hard producing goods which they turn around and send to people outside Germany." <-- agreed "This is a net loss for the Germans." <-- not so simple. It is a net loss for Germans if you presume that they would sell the same number of goods with a stronger currency. However, that is not how it works. If the currency were stronger, they would actually export less, and as a whole would be worse off. Let's take Mercedes-Benz cars as an example. Daimler pegs a price in Euros (the home currency) and the US price is driven by the euro price (plus some adjustments, but those are small relative to the product price). If the euro is weakened relative to the dollar, then they can sell cars at a lower price for US consumers. In the US market, then, they would sell even more cars. MB actually cut the price a bit for the E class lineup due to this effect. As another example, consider China. If China's currency were allowed to appreciate against the dollar, then chinese goods would cost more to the US customers, making US-produced goods more appealing. In the extreme, if the dollar was severely weakened (for example, if the fed printed a ton of money without a similar action by china), then US products would actually be cheaper than the corresponding Chinese products.
- martythemaniak 15y ago
  Yes, but that overspending was enabled by the Euro. When the peripheral countries (Italy, Spain, Greece, etc) entered the Euro, their cost of borrowing fell dramatically and people/governments responded to those incentives and borrowed, creating a false boom. One of the key planks of economics is that people respond to incentives, so is it really suprising that when incentivized to borrow (whether it's southern european governments, or low income earners with sub prime mortgages), people borrow?
  - riffraff 15y ago
    do you have numbers showing that peripheral countries borrowed more after they entered the euro? AFAIK Italy's deficit has been more or less stable for the last twenty years while debt has gone down for the first few years of the euro presence and has only risen again after 2008. As far as i can tell italy's problem has been and continue to be a de facto stagnation with growth rate around 1%, which surely is not the case for others e.g. spain.
  - barrkel 15y ago
    Yes, and you'd think that the people lending money would have also responded to incentives, and refused to lend so cheaply (both privately and publicly - each of the PIIGS has its own distinct malaise) to countries with a poor credit history. A lot of planks of economics have failed lately, and it's not all government fault.
- Atropos 15y ago
  The troubles are caused by overspending + bad policies. The Euro however makes the problem slightly worse, because they cant artificially devalue their currencies. If you look at the rankings in "World Bank Ease of Doing Business" and "Heritage Economic Freedom" the picture is very clear: "AAA Euro Countries": (Ranking WorldBank - Heritage) Finland: 11 // 17 Germany: 19 // 23 Netherlands 31 // 15 Austria 32 // 21 Luxembourg 50 // 13 Portugal: 30 // 69 Spain: 44 // 31 Italy: 87 // 87 Greece: 100 // 88

by yxhuvud 15y ago

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.
- InclinedPlane 15y ago
  Printing money to pay debt is a form of default that would result in loss of credit ratings. The US is still within the realm where they can be reasonably expected to pay their debt through conventional means (taxation and reduced spending), which is not the case for some countries in the eurozone.
veyron 15y ago
The troubles that we are seeing now ARE caused by the Euro. It tried to combine strong exporting nations like Germany with weaker tourist nations like Greece. Were the Deutschemark a separate currency, it would be stronger than the current Euro (and likewise, the drachma would be weaker than the Euro). Germany benefited greatly from this (net exporters benefit from a weaker currency -- see China) and Greece and other nations were hurt. If you want to see a pure example, check out what happened with Nintendo. Thanks to the relative strengthening of the yen, they posted a loss: http://www.bbc.co.uk/news/business-15473961 http://www.bbc.co.uk/news/business-15473961 Overspending is intrinsically not problematic if the currencies are separate. The governments of overspending nations would just print more money, devaluing their currencies in the process.
- yummyfajitas 15y ago
  Germany benefited greatly from this (net exporters benefit from a weaker currency -- see China) and Greece and other nations were hurt. You've got it backwards. Germans worked hard producing goods which they turn around and send to people outside Germany. This is a net loss for the Germans. In contrast, the Greeks received a bunch of goods and services they didn't need to work as hard for. This was good for them. A weaker currency may be good for companies with domestic liabilities and foreign customers, but it's very bad for consumers with domestic customers (their employer) and foreign liabilities.
  - veyron 15y ago
    You have to think about more than just the first-order effects. In general, a company will sell more products if they can sell for a lower price. "Germans worked hard producing goods which they turn around and send to people outside Germany." <-- agreed "This is a net loss for the Germans." <-- not so simple. It is a net loss for Germans if you presume that they would sell the same number of goods with a stronger currency. However, that is not how it works. If the currency were stronger, they would actually export less, and as a whole would be worse off. Let's take Mercedes-Benz cars as an example. Daimler pegs a price in Euros (the home currency) and the US price is driven by the euro price (plus some adjustments, but those are small relative to the product price). If the euro is weakened relative to the dollar, then they can sell cars at a lower price for US consumers. In the US market, then, they would sell even more cars. MB actually cut the price a bit for the E class lineup due to this effect. As another example, consider China. If China's currency were allowed to appreciate against the dollar, then chinese goods would cost more to the US customers, making US-produced goods more appealing. In the extreme, if the dollar was severely weakened (for example, if the fed printed a ton of money without a similar action by china), then US products would actually be cheaper than the corresponding Chinese products.
martythemaniak 15y ago
Yes, but that overspending was enabled by the Euro. When the peripheral countries (Italy, Spain, Greece, etc) entered the Euro, their cost of borrowing fell dramatically and people/governments responded to those incentives and borrowed, creating a false boom. One of the key planks of economics is that people respond to incentives, so is it really suprising that when incentivized to borrow (whether it's southern european governments, or low income earners with sub prime mortgages), people borrow?
- riffraff 15y ago
  do you have numbers showing that peripheral countries borrowed more after they entered the euro? AFAIK Italy's deficit has been more or less stable for the last twenty years while debt has gone down for the first few years of the euro presence and has only risen again after 2008. As far as i can tell italy's problem has been and continue to be a de facto stagnation with growth rate around 1%, which surely is not the case for others e.g. spain.
- barrkel 15y ago
  Yes, and you'd think that the people lending money would have also responded to incentives, and refused to lend so cheaply (both privately and publicly - each of the PIIGS has its own distinct malaise) to countries with a poor credit history. A lot of planks of economics have failed lately, and it's not all government fault.
Atropos 15y ago
The troubles are caused by overspending + bad policies. The Euro however makes the problem slightly worse, because they cant artificially devalue their currencies. If you look at the rankings in "World Bank Ease of Doing Business" and "Heritage Economic Freedom" the picture is very clear: "AAA Euro Countries": (Ranking WorldBank - Heritage) Finland: 11 // 17 Germany: 19 // 23 Netherlands 31 // 15 Austria 32 // 21 Luxembourg 50 // 13 Portugal: 30 // 69 Spain: 44 // 31 Italy: 87 // 87 Greece: 100 // 88