7 ms·

It's not that simple. Germany wanted a country like Italy in the Euro so it would pull the currency down and not allow it to appreciate too much (like the Deuts

It's not that simple. Germany wanted a country like Italy in the Euro so it would pull the currency down and not allow it to appreciate too much (like the Deutsche Mark did). That would would be very bad for German exports.

wsc981 4y ago
Yes, Germany benefitted hugely from southern European countries joining the Euro as it made it much easier for Germany to export goods to southern Europe. At the same time it was made much easier (at lower interest rates) for southern European countries to borrow money from northern European countries and other markets, as creditors would feel more secure that they'd get their money back. Creditors would assume the northern European countries would bail-out southern European countries in case of problems. And that caused southern European countries to lend more which might benefit a country like Germany again. These countries could lend more easily to buy luxury cars, for example.
- rich_sasha 4y ago
  This narrative is kind of correct, but it irks me when people somehow blame northern Europe for southern Europe's debt. No one forced them to overborrow, especially since it mostly happened in times prosperity. Generally speaking, access to cheap debt is seen as a uniformly good thing.
  - random_kris 4y ago
    Well the northern European will blame southern for not being frugal enough. But this is the same as drug dealer saying their dead customer was not responsible enough. Yeah it true, but some people just are not responsible for their own actions and the dealer was happily benefiting all the time from him
    - rich_sasha 4y ago
      When dealing with the public, sure I agree. But not at all when dealing with (supposedly) professional bodies such as national governments, I don't buy it. I'm not pointing the "overspending" finger either, just saying, countries should take responsibility for their actions, not complain at the enablers.
      - QuarterReptile 4y ago
        I don't know much about Italian government, but unless there's some fundamental difference between them and the US, I don't see any chance of a government showing restraint and staying in power, when the other guys could deliver prosperity without the bill coming due for 10+ years. What am I missing?
    - dmichulke 4y ago
      Well, this! Except that the dead customer still owes 590 billion to (mostly) the drug dealer mentioned above and won't be able to pay it. And the goods delivered were not drugs but things that usually don't alter your way of thinking (like cars, machines, ...), even less if we're talking about a group of people (like the government or a country of 60mn people) Oh and there was also trading (i.e. delivering goods back), so Italy is not only consumer but also producer.
      - deleted 4y ago
        [deleted]
  - wsc981 4y ago
    If politicians have the ability to borrow, they will generally make use of it. Which is why the weaker currencies were a much better fit for Southern European countries. Creditors would expect a high interest, due to high inflation, thus limiting the politician's ability to borrow money. I do feel northern Europe (especially Germany) is partially to blame, since they were very much interesting in increasing their exports and the Euro was the enabler.
    - qeternity 4y ago
      > If politicians have the ability to borrow, they will generally make use of it. This does not absolve the politicians, nor the electorate.
  - Ygg2 4y ago
    > how blame northern Europe for southern Europe's debt. They both share the blame. If a bank clerk keeps giving loans to a drug addict something is definitely off. Especially if it suggest settling the debts via organ sale (austerity).
  - djbebs 4y ago
    Incentives matter, and when you create incentives to over borrow, you're going to see entities overborrow.
  - mirko22 4y ago
    It’s the North providing the debt :)
  - disgruntledphd2 4y ago
    The really low interest rates set by the ECB for the benefit of Germany/Northern Europe pre financial crisis absolutely poured fuel on the bubble fires of the PIIGS.
quonn 4y ago
Spain and other countries, yes. Nobody wants the extreme instability of Italy.
lottin 4y ago
Having a weak currency means you're selling cheap and buying expensive, so it's not clear how it benefits you. It certainly benefits everyone else.
- currenciessfe 4y ago
  It also means you're paying your labor cheap. That makes you more competitive.
  - lottin 4y ago
    But competitive simply means your products sell for less. The question was how does selling for less and buying for more benefit you?
    - currenciessfe 4y ago
      You don't sell for less, since you sell in foreign currency. So you get the same amount of foreign currency (price in USD remains the same), but you need less converted to your internal currency to pay your labor. But then you can invest that extra profit in decreasing your foreign currency price, thus becoming more competitive. You can google for longer explanations of why a weak currency is excellent for exporters, this is well established.
      - lottin 4y ago
        I just Googled it, and this is what I found [1]: When a country's currency appreciates in relation to foreign currencies, foreign goods become cheaper in the domestic market and there is overall downward pressure on domestic prices. In contrast, the prices of domestic goods paid by foreigners go up, which tends to decrease foreign demand for domestic products. A depreciation of the home currency has the opposite effects. It contradicts directly your claim that exports don't get cheaper. You're saying exports remain the same (because they don't get any cheaper), and that the only change is an increase of corporate profits at the expense of wages. [1] https://en.wikipedia.org/wiki/Currency_appreciation_and_depreciation#Economic_effects https://en.wikipedia.org/wiki/Currency_appreciation_and_depr...
vandreas2 4y ago
Not really Italian lira suffered from inflation, a lot of people push this narrative that somehow Italy was forced to join the Euro against her will. From Wikipedia: Lira pesante Due to the lira's low value after the war economic calculations and price displays became unwieldy because of the large number of zeroes. As early as the 1950s suggestions were made to redenominate the lira but no serious efforts were made at that time. In the 1970s a plan known as lira pesante [it] (English: hard lira) or lira nuova (new lira) was proposed. The lira pesante would have redenominated the currency at 1,000:1, removing 3 zeroes. However the project went dormant for several years before being revived in 1984. Ongoing heavy inflation saw the lira pesante pushed back until it was permanently abandoned in 1991 because of plans for a single European currency.
denton-scratch 4y ago
At one time, there were rules for joining the Euro, things like debt-to-GDP, controls on government spending and so on. Germany and France, in particular, pressed for the southern countries to be admitted, despite the well-known fact that they didn't meet those conditions. They had large pension and state-payroll obligations, and they couldn't cut that spending and stay in power. Greece tried to cut it's spending, and the government was ejected. The new socialist government was then destroyed by German bankers and politicians.

wsc981 4y ago

Yes, Germany benefitted hugely from southern European countries joining the Euro as it made it much easier for Germany to export goods to southern Europe. At the same time it was made much easier (at lower interest rates) for southern European countries to borrow money from northern European countries and other markets, as creditors would feel more secure that they'd get their money back. Creditors would assume the northern European countries would bail-out southern European countries in case of problems. And that caused southern European countries to lend more which might benefit a country like Germany again. These countries could lend more easily to buy luxury cars, for example.

rich_sasha 4y ago
This narrative is kind of correct, but it irks me when people somehow blame northern Europe for southern Europe's debt. No one forced them to overborrow, especially since it mostly happened in times prosperity. Generally speaking, access to cheap debt is seen as a uniformly good thing.
- random_kris 4y ago
  Well the northern European will blame southern for not being frugal enough. But this is the same as drug dealer saying their dead customer was not responsible enough. Yeah it true, but some people just are not responsible for their own actions and the dealer was happily benefiting all the time from him
  - rich_sasha 4y ago
    When dealing with the public, sure I agree. But not at all when dealing with (supposedly) professional bodies such as national governments, I don't buy it. I'm not pointing the "overspending" finger either, just saying, countries should take responsibility for their actions, not complain at the enablers.
    - QuarterReptile 4y ago
      I don't know much about Italian government, but unless there's some fundamental difference between them and the US, I don't see any chance of a government showing restraint and staying in power, when the other guys could deliver prosperity without the bill coming due for 10+ years. What am I missing?
  - dmichulke 4y ago
    Well, this! Except that the dead customer still owes 590 billion to (mostly) the drug dealer mentioned above and won't be able to pay it. And the goods delivered were not drugs but things that usually don't alter your way of thinking (like cars, machines, ...), even less if we're talking about a group of people (like the government or a country of 60mn people) Oh and there was also trading (i.e. delivering goods back), so Italy is not only consumer but also producer.
    - deleted 4y ago
      [deleted]
- wsc981 4y ago
  If politicians have the ability to borrow, they will generally make use of it. Which is why the weaker currencies were a much better fit for Southern European countries. Creditors would expect a high interest, due to high inflation, thus limiting the politician's ability to borrow money. I do feel northern Europe (especially Germany) is partially to blame, since they were very much interesting in increasing their exports and the Euro was the enabler.
  - qeternity 4y ago
    > If politicians have the ability to borrow, they will generally make use of it. This does not absolve the politicians, nor the electorate.
- Ygg2 4y ago
  > how blame northern Europe for southern Europe's debt. They both share the blame. If a bank clerk keeps giving loans to a drug addict something is definitely off. Especially if it suggest settling the debts via organ sale (austerity).
- djbebs 4y ago
  Incentives matter, and when you create incentives to over borrow, you're going to see entities overborrow.
- mirko22 4y ago
  It’s the North providing the debt :)
- disgruntledphd2 4y ago
  The really low interest rates set by the ECB for the benefit of Germany/Northern Europe pre financial crisis absolutely poured fuel on the bubble fires of the PIIGS.

quonn 4y ago

Spain and other countries, yes. Nobody wants the extreme instability of Italy.

lottin 4y ago

Having a weak currency means you're selling cheap and buying expensive, so it's not clear how it benefits you. It certainly benefits everyone else.

currenciessfe 4y ago
It also means you're paying your labor cheap. That makes you more competitive.
- lottin 4y ago
  But competitive simply means your products sell for less. The question was how does selling for less and buying for more benefit you?
  - currenciessfe 4y ago
    You don't sell for less, since you sell in foreign currency. So you get the same amount of foreign currency (price in USD remains the same), but you need less converted to your internal currency to pay your labor. But then you can invest that extra profit in decreasing your foreign currency price, thus becoming more competitive. You can google for longer explanations of why a weak currency is excellent for exporters, this is well established.
    - lottin 4y ago
      I just Googled it, and this is what I found [1]: When a country's currency appreciates in relation to foreign currencies, foreign goods become cheaper in the domestic market and there is overall downward pressure on domestic prices. In contrast, the prices of domestic goods paid by foreigners go up, which tends to decrease foreign demand for domestic products. A depreciation of the home currency has the opposite effects. It contradicts directly your claim that exports don't get cheaper. You're saying exports remain the same (because they don't get any cheaper), and that the only change is an increase of corporate profits at the expense of wages. [1] https://en.wikipedia.org/wiki/Currency_appreciation_and_depreciation#Economic_effects https://en.wikipedia.org/wiki/Currency_appreciation_and_depr...

vandreas2 4y ago

Not really Italian lira suffered from inflation, a lot of people push this narrative that somehow Italy was forced to join the Euro against her will. From Wikipedia: Lira pesante Due to the lira's low value after the war economic calculations and price displays became unwieldy because of the large number of zeroes. As early as the 1950s suggestions were made to redenominate the lira but no serious efforts were made at that time. In the 1970s a plan known as lira pesante [it] (English: hard lira) or lira nuova (new lira) was proposed. The lira pesante would have redenominated the currency at 1,000:1, removing 3 zeroes. However the project went dormant for several years before being revived in 1984. Ongoing heavy inflation saw the lira pesante pushed back until it was permanently abandoned in 1991 because of plans for a single European currency.

denton-scratch 4y ago

At one time, there were rules for joining the Euro, things like debt-to-GDP, controls on government spending and so on. Germany and France, in particular, pressed for the southern countries to be admitted, despite the well-known fact that they didn't meet those conditions. They had large pension and state-payroll obligations, and they couldn't cut that spending and stay in power. Greece tried to cut it's spending, and the government was ejected. The new socialist government was then destroyed by German bankers and politicians.