3 ms·

"This balancing out via exchange rates is no longer possible within the Euro" Trying to understand - you mean it is not possible for other Euro countries (who

by Tichy 15y ago

"This balancing out via exchange rates is no longer possible within the Euro" Trying to understand - you mean it is not possible for other Euro countries (who also use Euro as their currency)? But does it really matter for them? They still have to come up with Euros somehow. If their only way to make Euros is to sell Olives, they might still have difficulties to afford a high end German car... As for the net importer stuff - I think some countries are just borrowing heavily, and I think Germany has been blamed for lending the money to those borrowers that in turn fuels it's exports. However, I fail to see what is so evil about it: either those borrowers become insolvent, in which case Germany gave away it's exports for free, or they can pay eventually. Also, why blame the money lender and not the borrower?

davidw 15y ago
> Trying to understand - you mean it is not possible for other Euro countries (who also use Euro as their currency)? But does it really matter for them? By way of example, Italy used to devalue the currency from time to time to give a bit of a boost to exports. This, for better or worse, is no longer possible.
- Tichy 15y ago
  Still, I am not sure if in the end, such measures are only "snake oil". Theoretically it should all cancel out eventually. For example if you devalue the currency, your people become poorer. What is the difference to just paying them lower wages and thus selling your stuff for less Euros? Seems to me it is mostly psychological: devaluing the currency can be done sneakily behind the populations back (printing more money or whatever), whereas lowering wages would get noticed. Personally I am always for more transparency, so maybe it is a good thing if the sneaky way to conduct economics goes away.
  - ckuehne 15y ago
    Tichy is right. Devaluation - if at all - works only in the short run [1]. http://johnhcochrane.blogspot.com/2012/01/should-greece-devalue.html http://johnhcochrane.blogspot.com/2012/01/should-greece-deva...
  - davidw 15y ago
    Yes, I think there are problems with devaluations, and one of the positives of the crisis is that Italy is finally starting to grapple with some structural reforms, timid though they may be. Stores may finally open on Sundays! Also, it looks like http://SrlFacile.org http://SrlFacile.org made it in front of the right people, as the recent liberalization package includes a simplified form of limited liability company which requires no 'social capital' and no notary to form. The psychological thing isn't something to discount too lightly though: wages tend to be 'sticky' in that it's very difficult, generally, to get people to take lower wages.
    - deleted 15y ago
      [deleted]
      - davidw 15y ago
        Shops opening on Sundays is just an example - there are a number of reforms under way. Germany could use some liberalization of its own; it doesn't have all that much more economic freedom than Italy, it just functions significantly better.
    - Tichy 15y ago
      Sure - I suppose the most common form of getting them to accept lower wages is by firing them or closing the company because of bankruptcy :-( I hope Italy gets back on track, it's such a beautiful country.
      - davidw 15y ago
        It's a lot more than a beautiful country: there are lots of smart, hard working people here too. However, the incentives currently in place are such that for many, their best course of action is to go abroad. For instance: http://en.wikipedia.org/wiki/Federico_Faggin http://en.wikipedia.org/wiki/Federico_Faggin
  - nhaehnle 15y ago
    > For example if you devalue the currency, your people become poorer. What is the difference to just paying them lower wages and thus selling your stuff for less Euros? One important difference is in domestic contracts. Let's say you are an employee in a country that uses # as currency, and your current monthly wage is 1000#. You pay 500# of that every month for fixed contracts such as rent, health insurance, electricity, telephony, etc. Now you are faced with two possible scenarios: A) There is CPI inflation of 10%. B) Your wages are cut by 10%. In both scenarios, your nominal wages are down to 900#. But when you look at it more closely, there is a significant difference. In scenario A, you still receive (nominal) 1000#. Of those, you pay 500# to your fixed contracts, and you use the remaining 500# for consumption goods, whose real value compared to before is now only 450#. In scenario B, you receive (nominal) 900#. Of those, you pay 500# to your fixed contracts, and you have 400# remaining to buy consumption goods. Clearly, inflation (scenario A) is better for you. Devaluation of the currency by 10% would be even better, because currency devaluation rarely punches through entirely to consumer prices: only imported goods are affected directly, after all. Now you could argue that in the long run, those fixed contracts like rent will also be adjusted. But there is a huge difference in pressure and thus power between the scenarios: when your wages are decreased, you are immediately worse off as an employee, and it is up to you personally to try to get a better deal on the rent, forcing the landlord to decrease their rent in turn. In the case of inflation, however, it is up to the landlord to raise rents, something for which there are often significant legal hurdles. Most employees probably don't think these scenarios through, but the gut reflex ends up being correct in this case: for employees, currency devaluation is better than nominal wage reduction. (Of course, everything I've said changes for somebody who has significant nominal assets; but then, it would probably be incorrect to classify them as an employee.)
    - Tichy 15y ago
      OK, point taken, surely it is easier form an organizational point of view. But then another question: suppose the governments wants to make it's goods/exports cheaper, maybe there would still be lots of other possibilities, like changing/lowering taxes. Obviously still more complicated than just printing more money, but still.
- lispm 15y ago
  If these countries would have did that, they would be in a worse situation than they are now.
coldarchon 15y ago
The modest agricultural town, Larisa, with a population of 250k has the worlds greatest density of Porsche owners. There are more Porsche Cayennes in Greece than taxpayers declaring over 50k Euros income. Obviously selling Olives and Feta ..

by Tichy 15y ago

davidw 15y ago

> Trying to understand - you mean it is not possible for other Euro countries (who also use Euro as their currency)? But does it really matter for them? By way of example, Italy used to devalue the currency from time to time to give a bit of a boost to exports. This, for better or worse, is no longer possible.

Tichy 15y ago
Still, I am not sure if in the end, such measures are only "snake oil". Theoretically it should all cancel out eventually. For example if you devalue the currency, your people become poorer. What is the difference to just paying them lower wages and thus selling your stuff for less Euros? Seems to me it is mostly psychological: devaluing the currency can be done sneakily behind the populations back (printing more money or whatever), whereas lowering wages would get noticed. Personally I am always for more transparency, so maybe it is a good thing if the sneaky way to conduct economics goes away.
- ckuehne 15y ago
  Tichy is right. Devaluation - if at all - works only in the short run [1]. http://johnhcochrane.blogspot.com/2012/01/should-greece-devalue.html http://johnhcochrane.blogspot.com/2012/01/should-greece-deva...
- davidw 15y ago
  Yes, I think there are problems with devaluations, and one of the positives of the crisis is that Italy is finally starting to grapple with some structural reforms, timid though they may be. Stores may finally open on Sundays! Also, it looks like http://SrlFacile.org http://SrlFacile.org made it in front of the right people, as the recent liberalization package includes a simplified form of limited liability company which requires no 'social capital' and no notary to form. The psychological thing isn't something to discount too lightly though: wages tend to be 'sticky' in that it's very difficult, generally, to get people to take lower wages.
  - deleted 15y ago
    [deleted]
    - davidw 15y ago
      Shops opening on Sundays is just an example - there are a number of reforms under way. Germany could use some liberalization of its own; it doesn't have all that much more economic freedom than Italy, it just functions significantly better.
  - Tichy 15y ago
    Sure - I suppose the most common form of getting them to accept lower wages is by firing them or closing the company because of bankruptcy :-( I hope Italy gets back on track, it's such a beautiful country.
    - davidw 15y ago
      It's a lot more than a beautiful country: there are lots of smart, hard working people here too. However, the incentives currently in place are such that for many, their best course of action is to go abroad. For instance: http://en.wikipedia.org/wiki/Federico_Faggin http://en.wikipedia.org/wiki/Federico_Faggin
- nhaehnle 15y ago
  > For example if you devalue the currency, your people become poorer. What is the difference to just paying them lower wages and thus selling your stuff for less Euros? One important difference is in domestic contracts. Let's say you are an employee in a country that uses # as currency, and your current monthly wage is 1000#. You pay 500# of that every month for fixed contracts such as rent, health insurance, electricity, telephony, etc. Now you are faced with two possible scenarios: A) There is CPI inflation of 10%. B) Your wages are cut by 10%. In both scenarios, your nominal wages are down to 900#. But when you look at it more closely, there is a significant difference. In scenario A, you still receive (nominal) 1000#. Of those, you pay 500# to your fixed contracts, and you use the remaining 500# for consumption goods, whose real value compared to before is now only 450#. In scenario B, you receive (nominal) 900#. Of those, you pay 500# to your fixed contracts, and you have 400# remaining to buy consumption goods. Clearly, inflation (scenario A) is better for you. Devaluation of the currency by 10% would be even better, because currency devaluation rarely punches through entirely to consumer prices: only imported goods are affected directly, after all. Now you could argue that in the long run, those fixed contracts like rent will also be adjusted. But there is a huge difference in pressure and thus power between the scenarios: when your wages are decreased, you are immediately worse off as an employee, and it is up to you personally to try to get a better deal on the rent, forcing the landlord to decrease their rent in turn. In the case of inflation, however, it is up to the landlord to raise rents, something for which there are often significant legal hurdles. Most employees probably don't think these scenarios through, but the gut reflex ends up being correct in this case: for employees, currency devaluation is better than nominal wage reduction. (Of course, everything I've said changes for somebody who has significant nominal assets; but then, it would probably be incorrect to classify them as an employee.)
  - Tichy 15y ago
    OK, point taken, surely it is easier form an organizational point of view. But then another question: suppose the governments wants to make it's goods/exports cheaper, maybe there would still be lots of other possibilities, like changing/lowering taxes. Obviously still more complicated than just printing more money, but still.
lispm 15y ago
If these countries would have did that, they would be in a worse situation than they are now.

coldarchon 15y ago

The modest agricultural town, Larisa, with a population of 250k has the worlds greatest density of Porsche owners. There are more Porsche Cayennes in Greece than taxpayers declaring over 50k Euros income. Obviously selling Olives and Feta ..