3 ms·

Is the Euro the New Dollar?

33 points by noor420 18y ago

tokenadult 18y ago
"European Commission President José Manuel Barroso credits the euro for delivering lower inflation, lower interest rates and greater price stability, and helping create 16 million jobs." Krugman, in an article from the 1990s in Slate cited recently here on HN, expressed the opinion that the Euro would reduce employment growth in Europe, which didn't seem very plausible to me.
- tl 18y ago
  Maybe we should add this to the growing list of blog posts on http://angry-economist.russnelson.com/ http://angry-economist.russnelson.com/ that show where Paul Krugman has been dead wrong in his area of expertise.
  - Shamiq 18y ago
    It's difficult to be correct if your area of expertise is predicting the future.
    - tokenadult 18y ago
      "It's difficult to be correct if your area of expertise is predicting the future." A very good point. I like the definition of "expertise" championed by K. Anders Ericsson, a researcher on expertise and how it develops. He defines expertise as RELIABLY superior performance to a degree that makes the performer a statistical outlier. In one of his studies, he discovered that there is no such thing as expertise in choosing common stocks in which to invest.
    - nandemo 18y ago
      I don't know that his job is to predict the future. He's an economist, not a fortune teller. Of course, science can help us to "predict the future", in the sense that we know the sun will rise tomorrow and so on. But economics is not a natural or experimental science. Surely it can help you make reasonable predictions, but the nature of methodologically correct economic predictions -- meaning not necessarily predictions that turn out to be right, but ones you can reasonably make -- is much different from those of physics. Therefore, Krugman and other economics and financial pundits should rather refrain from making unsupported predictions. I think they get away with it because most people don't understand economics and also due to selection bias, as most of us pay attention only to the ones that turn out to be right.
  - mikedouglas 18y ago
    http://www.google.ca/search?q=site%3Aangry-economist.russnelson.com+housing+bubble http://www.google.ca/search?q=site%3Aangry-economist.russnel... People in glass houses shouldn't throw stones :)
    - davidw 18y ago
      Also: Russ Nelson is a smart, nice guy, and a good programmer, but to my knowledge, he is not an "economist" in the sense of someone with a degree, or employed in some capacity in that field. His bio doesn't mention economics at all: http://russnelson.com/bio.html http://russnelson.com/bio.html That's not to say that what he has to say is wrong, but it's a bit odd to attach the 'economist' label when I'm not sure he has really earned it any more than many of us with an interest in the field and a bit of reading under our belts.
- gaius 18y ago
  That's not the whole picture, tho'. Lots of jobs have been created in Ireland and Holland, which have been the recipients of vast amounts of EU subsidies (the UK and Germany are the only net contributors to the EU budget). That's nothing to do with the Euro; that subsidy could have been paid in any hard currency and gotten the same result. Unemployment in France for example remains stubbornly high. Germany isn't doing so well out of the Euro either, once the mighty Bundesbank tuned its economy with Teutonic efficiency, but no more.
  - felixmar 18y ago
    The Netherlands is actually one of the biggest net payers of the EU together with Sweden, Germany and Austria. The UK isn't a big net payer because of the British rebate.
zitterbewegung 18y ago
Wouldn't it be a better idea to court european VC's than american because they might pay you in euros?
- laut 18y ago
  If you prefer EUR over of USD, you can just buy EUR with the USD you have.
  - deleted 18y ago
    [deleted]
- pmorici 18y ago
  Not if you are doing business in American. You would have to convert those Euros into dollars anyways and you then have the added risk of being exposed to the currency markets.
vaksel 18y ago
not yet
mdasen 18y ago
No, it isn't. Definitely not yet. While the dollar's reputation has been damaged by the Bush years, the dollar made its way through two world wars and the cold war without the problems that most European currencies faced. As Warren Buffet says, "It takes 20 years to build a reputation and five minutes to ruin it." And it's true that while the dollar won't be seen in the pre-Bush light for a couple decades, it's not as if it's been replaced (yet). The euro has done well in its 10-year history and has been wonderful for Europe (both stimulating trade and creating stability - I'm a huge euro supporter), but it's only existed for 10 years in what has been a relatively safe economic time. This is the first real test of the euro and we are far from seeing how it is faring. Exchange rates aren't a good way of measuring a currency, even though they would seem like one. The fact is that currency valuations are usually tied to the interest rates you can earn in banks of that currency. The ECB (European Central Bank) has always kept interest rates high. That encourages people to change dollars into euros and deposit them in European banks which drives up the price of the euro in foreign exchange markets. However, high interest rates also discourage the investment in businesses that drives an economy. So, one can't say that the euro's strength benefits its people. And that's what you need to do: to look at how a currency is serving the people under it. The Federal Reserve has proven over decades that it can effectively fight both booms and recessions. In a recession, one needs to expand the money supply. That makes it easier for borrowing and therefore investing and spending - exactly what we're seeing missing from our current situation. People have stopped borrowing, investing, and spending because of the high cost of it (compared to boom times) and so by making it easier to do those things we can mitigate some of the pain of the recession and make the whole recession shorter as we more quickly encourage business to return to normal.* The ECB has lowered interest rates, but the ECB's policy has always been to target inflation and not mitigate recession. Partly this comes from differences between Europe and America. Europe has had many currencies in the past that just free-fell. Inflation was terrible, currency unstable, etc. Likewise, governments have large social programs in Europe and high unemployment is seen as a way of life rather than a disaster. For example, in Germany 8% unemployment is amazing. In the US, we call for politicians' heads when it hits that level. But European countries are more capable of handling such unemployment without huge upheaval because the social programs keep people at bay and without as much worry about a paycheck. *This is the consensus of mainstream economics in the same way that the existence of global warming is the consensus of mainstream climate scientists. Yes, you can always find those who will disagree with anything.
dc2k08 18y ago
China announced on christmas day that it was gearing the yuan to be used as an international currency as more and more businesses are worried about trading in the dollar. There is also evidence that China is moving away from its reliance on exports for economic growths towards a more consumer driven economic model by setting up distribution centres in rural areas and offering subsidies to rural households for the purchase of household appliances and other goods. They are though also strengthening trade relations in emerging markets. A number of Gulf Arab states will maintain their 2010 deadline for a single currency, the secretary-general of the Gulf Cooperation Council also announced recently. This all means that yes, the dollar is being put to sleep and 2009 will be a disaster year for it and the American economy, but it does not mean the Euro will replace it. The Yuan will become the currency for trade with China and the GCC will be seeking to promote their own single currency.
- gaius 18y ago
  They'll have to float it first.
  - deleted 18y ago
    [deleted]
- tokenadult 18y ago
  "There is also evidence that China is moving away from its reliance on exports for economic growths towards a more consumer driven economic model by setting up distribution centres in rural areas and offering subsidies to rural households for the purchase of household appliances and other goods." That will be problematic for China. http://www.nytimes.com/2009/01/01/business/01exports.html http://www.nytimes.com/2009/01/01/business/01exports.html "But shifting toward a greater reliance on domestic demand is not easy. Chinese households have one of the world’s highest savings rates because the country’s social safety net is in tatters, with families receiving scant government help with education costs, medical care and retirement; the average hospital stay costs the equivalent of two years’ wages for the average Chinese worker."
  - 18y ago
lionhearted 18y ago
One interesting point is that some individual countries on the euro can't optimize their currency strategy now. The example I've heard a few times that makes sense is Italy. When they needed to in the past, they could sink the value of their currency to stimulate Italian exports. Now, not so much - and euro stronger than other global countries reduces demand for Italian goods. It'll be interesting to see how the euro works out when a couple local economies in Europe are in bad shape and would love to have a stronger or weaker currency than the rest of the Union.
- eru 18y ago
  Now Italy finally has to cut costs. Perhaps it's better in the longer term for them.
sachinag 18y ago
Wow, a bunch of comments here and no one's mentioned that oil is traded in dollars. If oil kicks of a wave of commodities being traded in Euros, then yes, the Euro will be the new Dollar. At the end of the day, the dominant currency is the one most people use. In 1900, the language of international relations (and trade) was French.
patrickg-zill 18y ago
My understanding is that 85% of international trade is settled or conducted in USD. If the Euro is on track to replace the US Dollar, then surely there are stats showing that use of the Euro to conduct international trade is growing, in areas where USD was formerly used. Since this is after all Time, it is no surprise that no such stats are quoted and instead we get News McNuggets.

33 points by noor420 18y ago

"European Commission President José Manuel Barroso credits the euro for delivering lower inflation, lower interest rates and greater price stability, and helping create 16 million jobs." Krugman, in an article from the 1990s in Slate cited recently here on HN, expressed the opinion that the Euro would reduce employment growth in Europe, which didn't seem very plausible to me.

tl 18y ago
Maybe we should add this to the growing list of blog posts on http://angry-economist.russnelson.com/ http://angry-economist.russnelson.com/ that show where Paul Krugman has been dead wrong in his area of expertise.
- Shamiq 18y ago
  It's difficult to be correct if your area of expertise is predicting the future.
  - tokenadult 18y ago
    "It's difficult to be correct if your area of expertise is predicting the future." A very good point. I like the definition of "expertise" championed by K. Anders Ericsson, a researcher on expertise and how it develops. He defines expertise as RELIABLY superior performance to a degree that makes the performer a statistical outlier. In one of his studies, he discovered that there is no such thing as expertise in choosing common stocks in which to invest.
  - nandemo 18y ago
    I don't know that his job is to predict the future. He's an economist, not a fortune teller. Of course, science can help us to "predict the future", in the sense that we know the sun will rise tomorrow and so on. But economics is not a natural or experimental science. Surely it can help you make reasonable predictions, but the nature of methodologically correct economic predictions -- meaning not necessarily predictions that turn out to be right, but ones you can reasonably make -- is much different from those of physics. Therefore, Krugman and other economics and financial pundits should rather refrain from making unsupported predictions. I think they get away with it because most people don't understand economics and also due to selection bias, as most of us pay attention only to the ones that turn out to be right.
- mikedouglas 18y ago
  http://www.google.ca/search?q=site%3Aangry-economist.russnelson.com+housing+bubble http://www.google.ca/search?q=site%3Aangry-economist.russnel... People in glass houses shouldn't throw stones :)
  - davidw 18y ago
    Also: Russ Nelson is a smart, nice guy, and a good programmer, but to my knowledge, he is not an "economist" in the sense of someone with a degree, or employed in some capacity in that field. His bio doesn't mention economics at all: http://russnelson.com/bio.html http://russnelson.com/bio.html That's not to say that what he has to say is wrong, but it's a bit odd to attach the 'economist' label when I'm not sure he has really earned it any more than many of us with an interest in the field and a bit of reading under our belts.
gaius 18y ago
That's not the whole picture, tho'. Lots of jobs have been created in Ireland and Holland, which have been the recipients of vast amounts of EU subsidies (the UK and Germany are the only net contributors to the EU budget). That's nothing to do with the Euro; that subsidy could have been paid in any hard currency and gotten the same result. Unemployment in France for example remains stubbornly high. Germany isn't doing so well out of the Euro either, once the mighty Bundesbank tuned its economy with Teutonic efficiency, but no more.
- felixmar 18y ago
  The Netherlands is actually one of the biggest net payers of the EU together with Sweden, Germany and Austria. The UK isn't a big net payer because of the British rebate.

zitterbewegung 18y ago

Wouldn't it be a better idea to court european VC's than american because they might pay you in euros?

laut 18y ago
If you prefer EUR over of USD, you can just buy EUR with the USD you have.
- deleted 18y ago
  [deleted]
pmorici 18y ago
Not if you are doing business in American. You would have to convert those Euros into dollars anyways and you then have the added risk of being exposed to the currency markets.

vaksel 18y ago

not yet

mdasen 18y ago

No, it isn't. Definitely not yet. While the dollar's reputation has been damaged by the Bush years, the dollar made its way through two world wars and the cold war without the problems that most European currencies faced. As Warren Buffet says, "It takes 20 years to build a reputation and five minutes to ruin it." And it's true that while the dollar won't be seen in the pre-Bush light for a couple decades, it's not as if it's been replaced (yet). The euro has done well in its 10-year history and has been wonderful for Europe (both stimulating trade and creating stability - I'm a huge euro supporter), but it's only existed for 10 years in what has been a relatively safe economic time. This is the first real test of the euro and we are far from seeing how it is faring. Exchange rates aren't a good way of measuring a currency, even though they would seem like one. The fact is that currency valuations are usually tied to the interest rates you can earn in banks of that currency. The ECB (European Central Bank) has always kept interest rates high. That encourages people to change dollars into euros and deposit them in European banks which drives up the price of the euro in foreign exchange markets. However, high interest rates also discourage the investment in businesses that drives an economy. So, one can't say that the euro's strength benefits its people. And that's what you need to do: to look at how a currency is serving the people under it. The Federal Reserve has proven over decades that it can effectively fight both booms and recessions. In a recession, one needs to expand the money supply. That makes it easier for borrowing and therefore investing and spending - exactly what we're seeing missing from our current situation. People have stopped borrowing, investing, and spending because of the high cost of it (compared to boom times) and so by making it easier to do those things we can mitigate some of the pain of the recession and make the whole recession shorter as we more quickly encourage business to return to normal.* The ECB has lowered interest rates, but the ECB's policy has always been to target inflation and not mitigate recession. Partly this comes from differences between Europe and America. Europe has had many currencies in the past that just free-fell. Inflation was terrible, currency unstable, etc. Likewise, governments have large social programs in Europe and high unemployment is seen as a way of life rather than a disaster. For example, in Germany 8% unemployment is amazing. In the US, we call for politicians' heads when it hits that level. But European countries are more capable of handling such unemployment without huge upheaval because the social programs keep people at bay and without as much worry about a paycheck. *This is the consensus of mainstream economics in the same way that the existence of global warming is the consensus of mainstream climate scientists. Yes, you can always find those who will disagree with anything.

dc2k08 18y ago

China announced on christmas day that it was gearing the yuan to be used as an international currency as more and more businesses are worried about trading in the dollar. There is also evidence that China is moving away from its reliance on exports for economic growths towards a more consumer driven economic model by setting up distribution centres in rural areas and offering subsidies to rural households for the purchase of household appliances and other goods. They are though also strengthening trade relations in emerging markets. A number of Gulf Arab states will maintain their 2010 deadline for a single currency, the secretary-general of the Gulf Cooperation Council also announced recently. This all means that yes, the dollar is being put to sleep and 2009 will be a disaster year for it and the American economy, but it does not mean the Euro will replace it. The Yuan will become the currency for trade with China and the GCC will be seeking to promote their own single currency.

gaius 18y ago
They'll have to float it first.
- deleted 18y ago
  [deleted]
tokenadult 18y ago
"There is also evidence that China is moving away from its reliance on exports for economic growths towards a more consumer driven economic model by setting up distribution centres in rural areas and offering subsidies to rural households for the purchase of household appliances and other goods." That will be problematic for China. http://www.nytimes.com/2009/01/01/business/01exports.html http://www.nytimes.com/2009/01/01/business/01exports.html "But shifting toward a greater reliance on domestic demand is not easy. Chinese households have one of the world’s highest savings rates because the country’s social safety net is in tatters, with families receiving scant government help with education costs, medical care and retirement; the average hospital stay costs the equivalent of two years’ wages for the average Chinese worker."
- 18y ago

lionhearted 18y ago

One interesting point is that some individual countries on the euro can't optimize their currency strategy now. The example I've heard a few times that makes sense is Italy. When they needed to in the past, they could sink the value of their currency to stimulate Italian exports. Now, not so much - and euro stronger than other global countries reduces demand for Italian goods. It'll be interesting to see how the euro works out when a couple local economies in Europe are in bad shape and would love to have a stronger or weaker currency than the rest of the Union.

eru 18y ago
Now Italy finally has to cut costs. Perhaps it's better in the longer term for them.

sachinag 18y ago

Wow, a bunch of comments here and no one's mentioned that oil is traded in dollars. If oil kicks of a wave of commodities being traded in Euros, then yes, the Euro will be the new Dollar. At the end of the day, the dominant currency is the one most people use. In 1900, the language of international relations (and trade) was French.

patrickg-zill 18y ago

My understanding is that 85% of international trade is settled or conducted in USD. If the Euro is on track to replace the US Dollar, then surely there are stats showing that use of the Euro to conduct international trade is growing, in areas where USD was formerly used. Since this is after all Time, it is no surprise that no such stats are quoted and instead we get News McNuggets.