5 ms·

Do you have articles about this "benefiting from the Euro" thing? Being German myself, I still don't understand what they mean - and btw this seems mostly to be

by Tichy 14y ago

Do you have articles about this "benefiting from the Euro" thing? Being German myself, I still don't understand what they mean - and btw this seems mostly to be an accusation by the struggling European countries, not "most German economists"? So how does it work - how do we profit from the Euro, on the cost of other EU countries?

sebbi 14y ago
Germany is an export country. The Euro enables us (yes, German too) to sell our goods in the Euro-zone without having to worry about exchange rate fluctuations.
cdavid 14y ago
The general idea is that Germany, since 2000 or so, did what is essentially an internal devaluation, by freezing salaries. This only works because Germany was the only big economy within the Eurozone to follow this policy. Note that GDP increase was not especially high in Germany compared to other countries with a similar size within the Euro (e.g. France did better in the 1999-2011 period: http://fatasmihov.blogspot.co.uk/2011/12/internal-devaluation-german-style.html http://fatasmihov.blogspot.co.uk/2011/12/internal-devaluatio...). This policy cannot possibly work if other countries follow it within the Euro zone.
- Tichy 14y ago
  What does that have to do with the Euro? And why can such a policy not work if "other countries follow it within the Euro" zone? Also I wasn't aware that the government determines the salaries here in Germany. You are aware that the cold war is over and capitalism won, even here in Germany? We don't have a communist/socialist regime that can simply set salaries. Although the government can of course affect salaries by raising taxes (less net salary for everyone).
  - cdavid 14y ago
    If everybody decreases their labour cost everything else being equal, then obviously you don't get a competitive advantage from it. You just made everyone poorer. See also http://seekerblog.com/2012/01/17/euro-crisis-german-unit-labor-cost-repression-is-the-primary-cause-of-periphery-stress/ http://seekerblog.com/2012/01/17/euro-crisis-german-unit-lab... for the same line of arguments. Germany essentially gained market shares at the expense of other eurozone countries (0-sum game) instead of actual increases in productivity (which is not a 0-sum game). As far as pressure for decreasing labour cost, this is pretty much uncontroversial. I did not say that Germany had a gvt authority setting salaries, but various factors such a pressure from high unemployment in the early 2000, and lower-than-eurozone inflation helped it (see e.g. http://www.voxeu.org/article/how-restore-competitiveness-eu http://www.voxeu.org/article/how-restore-competitiveness-eu - even though that article argues something closer to the opposite of what I am arguing here).
Roritharr 14y ago
A good article about it in german is here: http://www.handelsblatt.com/politik/international/vorteile-der-gemeinschaftswaehrung-der-euro-darf-nicht-zerbrechen/6738998.html http://www.handelsblatt.com/politik/international/vorteile-d... the tl;dr: Germany is and was always a strong export oriented nation with our main-markets being in the direct vicinity. Before the Euro many of those neighbors hadn't had the economic lending power to build up their infrastructure and buy german goods. With the introduction of the Euro these countries could suddenly lend money on the international markets with the support of the german rating, and spend that borrowed money to a large degree in Germany. (Greece is still buying German tanks...) tl;dr of the tl;dr: Germany is rich because other countries bought our stuff with money they could lend because of the trust the Euro had because of Germany.
- Tichy 14y ago
  OK I get that, but won't that backfire in a big way? It's happening right now, I guess... Still, I don't really think Germany can be blamed. Unless you think of the "weaker" countries as children who can't take responsibility for themselves. But why would Germany be smarter? I think overall we are just lucky atm (or were lucky for a while...).
  - Roritharr 14y ago
    Thats why i said, the euro put Germany in a very fortunate situation. I can't imagine Ex-Chancellor Kohl expecting it to play out this way. Its not that Germany is in any way smarter, Germany would probably have done the same, even if it were just on a governmental or banking level, as private lending is very conservative in Germany.
  - dan00 14y ago
    "Still, I don't really think Germany can be blamed. Unless you think of the "weaker" countries as children who can't take responsibility for themselves." Well, you can't directly blame Germany, that's right. But someone had to lend all that money, and I don't believe, that no one could see the real financial situation in these countries. So, what did the banks wrong, and why nobody looked after the banks?
rbehrends 14y ago
Because Germany is an export-oriented economy with a huge trade surplus, primarily trading with other EU countries. If the Euro didn't exist, the natural course of events would be for countries at the receiving end (who are running a trade deficit) to devalue their currencies. That would cut into German exports. But with a unified currency, devaluation to counter trade or current account imbalances is impossible.
- Tichy 14y ago
  I have to admit, I never understood the point of devaluing your currency, except maybe for sneaking taxes by your citizens. Say you want to buy a German car that costs 20000€, and your country uses Drachme, not Euro. How does devaluing Drachme help you afford the car? if you say "no, a Drachme is not worth 0.5 Euros anymore, it is only worth 0.05Euros", it only means you have to 10 times more Drachmes for the car than before? Say you produce olives, and one pound of olives goes for 1 Eur. So you need to sell 20000 pounds of olives to afford the car. How does the valuation of Drachme enter into that?
  - czr80 14y ago
    You don't buy a BMW. But: 1) You buy a local car because the foreign ones are all too expensive 2) BMW decides to build a plant in your country because it is so much cheaper. Both of those things help grow your economy, growth leads to a stronger currency, and then you buy a nice new BMW.
    - Tichy 14y ago
      Why is it cheaper to build the factory in your country? Instead of paying with a devalued currency, you could simply pay less Euros? Same for buying local vs foreign cars - I just don't see how the currency makes a difference (or the possibility to devalue the currency). Let's stick to olives: either you get x Euros for a pound of olives, or y Drachmes. In the end, if you want to buy a car, you have to exchange the Drachmes into Euros. You should get exactly x Euros for y Drachmes. Otherwise there would be an opportunity to get infinite olives for free. So it doesn't matter how much you devalue the Drachmes, you'll always get the same amount of Euros per pound of olives.
HSO 14y ago
It's a strawman. In every country, you will find sectors (and the associated people) who have a net gain from the EUR and some with a net loss. It doesn't really matter and would be impossible to figure out who benefits and loses more, both on the micro and the macro level. I myself think about it in this (admittedly broad stroke) way: 1) The EUR is not just an economic project. It is a political instrument. That's why it exists, and that's what will determine its future. The economics is only a constraint (alas, now binding) not the objective. 2) No matter the history, a breakup now would be incredibly costly for everybody. Bob Rubin, US treasury secretary under Clinton, aptly described it as "Lehman times x". That's why a complete reversal is highly unlikely. 3) There is a solution: Peripheral states must accept a German-dominated external voice in their fiscal affairs; Germany must let the ECB monetize the debt. Neither of which is politically realistic. 4) In the absence of a conventional political solution, the continent "needs" a holy-shit-moment, something that will scare enough people sufficiently s.th. politicians can reach the costly compromise (3). So I expect one to happen. 5) What journalists, economists, and whoever writes about the success of a country ex post does not matter, it's just noise. Think about what people wrote about Japan in the 80s, the "Asian tigers" in the 90s, the "Washington consensus", etc etc. Until just a few months ago, it was China's state-dominated model, now it's Germany's social-consensus-based turn. Or, to stay with Germany, remember the Economist cover about "the sick man of europe"? It's quite similar to the attribution bias when successful people write autobiographies (or have biographies written about themselves). People like "the illusion of control", and a nice story with a neat, understandable "explanation" with max three identifiable causes or "factors" that led to the observation supports it. Personally, I think the best way to test your understanding of how the world works is to make predictions and bet on them, preferably money, less preferably your reputation or your ego. So yeah, this article is probably blah but I will read it anyway because it will probably make me feel good, having grown up in and thus having links to the successful system du jour ;-)
- lispm 14y ago
  good comment
- stfu 14y ago
  1) The EUR is not just an economic project. It is a political instrument. That's why it exists, and that's what will determine its future. The economics is only a constraint (alas, now binding) not the objective. This can not be repeated often enough. All the gloom and doom commentators making break-up predictions are highly underestimating this aspect. EU behavior can not be explained by rational/economic factors based logic.
czr80 14y ago
1) Cheap currency: "For German companies, the sinking euro acts as a kind of crisis buffer. While it reduces demand for German products within the euro zone, these make up only around 40 percent of the country's exports. But for the rest of the world, a weak euro means cheaper German products, which means they're more competitive." 2) Cheap credit: "But recently even interest rates on German bonds with longer maturities have decreased significantly. The federal government is saving a bundle. The reason for the windfall? Amid the ongoing euro crisis, Germany is one of the few borrowers that are still regarded as a safe haven. Many investors would rather lend the government money at bargain-basement rates than risk losses." 3) Inability of other countries to (quickly) adjust given single currency constraints, leading to, for example: "As mass protests form in Spain due to high unemployment among young people, Germany is benefiting from an influx of new skilled professionals. An increasing number of southern Europeans looking for work are heading north to prosperous Germany." http://www.spiegel.de/international/europe/profiting-from-pain-europe-s-crisis-is-germany-s-blessing-a-808248.html http://www.spiegel.de/international/europe/profiting-from-pa...
jordanlev 14y ago
I just read this article which explains it nicely (IMO): http://www.stratfor.com/weekly/financial-markets-politics-and-new-reality http://www.stratfor.com/weekly/financial-markets-politics-an...

by Tichy 14y ago

sebbi 14y ago

Germany is an export country. The Euro enables us (yes, German too) to sell our goods in the Euro-zone without having to worry about exchange rate fluctuations.

cdavid 14y ago

The general idea is that Germany, since 2000 or so, did what is essentially an internal devaluation, by freezing salaries. This only works because Germany was the only big economy within the Eurozone to follow this policy. Note that GDP increase was not especially high in Germany compared to other countries with a similar size within the Euro (e.g. France did better in the 1999-2011 period: http://fatasmihov.blogspot.co.uk/2011/12/internal-devaluation-german-style.html http://fatasmihov.blogspot.co.uk/2011/12/internal-devaluatio...). This policy cannot possibly work if other countries follow it within the Euro zone.

Tichy 14y ago
What does that have to do with the Euro? And why can such a policy not work if "other countries follow it within the Euro" zone? Also I wasn't aware that the government determines the salaries here in Germany. You are aware that the cold war is over and capitalism won, even here in Germany? We don't have a communist/socialist regime that can simply set salaries. Although the government can of course affect salaries by raising taxes (less net salary for everyone).
- cdavid 14y ago
  If everybody decreases their labour cost everything else being equal, then obviously you don't get a competitive advantage from it. You just made everyone poorer. See also http://seekerblog.com/2012/01/17/euro-crisis-german-unit-labor-cost-repression-is-the-primary-cause-of-periphery-stress/ http://seekerblog.com/2012/01/17/euro-crisis-german-unit-lab... for the same line of arguments. Germany essentially gained market shares at the expense of other eurozone countries (0-sum game) instead of actual increases in productivity (which is not a 0-sum game). As far as pressure for decreasing labour cost, this is pretty much uncontroversial. I did not say that Germany had a gvt authority setting salaries, but various factors such a pressure from high unemployment in the early 2000, and lower-than-eurozone inflation helped it (see e.g. http://www.voxeu.org/article/how-restore-competitiveness-eu http://www.voxeu.org/article/how-restore-competitiveness-eu - even though that article argues something closer to the opposite of what I am arguing here).

Roritharr 14y ago

A good article about it in german is here: http://www.handelsblatt.com/politik/international/vorteile-der-gemeinschaftswaehrung-der-euro-darf-nicht-zerbrechen/6738998.html http://www.handelsblatt.com/politik/international/vorteile-d... the tl;dr: Germany is and was always a strong export oriented nation with our main-markets being in the direct vicinity. Before the Euro many of those neighbors hadn't had the economic lending power to build up their infrastructure and buy german goods. With the introduction of the Euro these countries could suddenly lend money on the international markets with the support of the german rating, and spend that borrowed money to a large degree in Germany. (Greece is still buying German tanks...) tl;dr of the tl;dr: Germany is rich because other countries bought our stuff with money they could lend because of the trust the Euro had because of Germany.

Tichy 14y ago
OK I get that, but won't that backfire in a big way? It's happening right now, I guess... Still, I don't really think Germany can be blamed. Unless you think of the "weaker" countries as children who can't take responsibility for themselves. But why would Germany be smarter? I think overall we are just lucky atm (or were lucky for a while...).
- Roritharr 14y ago
  Thats why i said, the euro put Germany in a very fortunate situation. I can't imagine Ex-Chancellor Kohl expecting it to play out this way. Its not that Germany is in any way smarter, Germany would probably have done the same, even if it were just on a governmental or banking level, as private lending is very conservative in Germany.
- dan00 14y ago
  "Still, I don't really think Germany can be blamed. Unless you think of the "weaker" countries as children who can't take responsibility for themselves." Well, you can't directly blame Germany, that's right. But someone had to lend all that money, and I don't believe, that no one could see the real financial situation in these countries. So, what did the banks wrong, and why nobody looked after the banks?

rbehrends 14y ago

Because Germany is an export-oriented economy with a huge trade surplus, primarily trading with other EU countries. If the Euro didn't exist, the natural course of events would be for countries at the receiving end (who are running a trade deficit) to devalue their currencies. That would cut into German exports. But with a unified currency, devaluation to counter trade or current account imbalances is impossible.

Tichy 14y ago
I have to admit, I never understood the point of devaluing your currency, except maybe for sneaking taxes by your citizens. Say you want to buy a German car that costs 20000€, and your country uses Drachme, not Euro. How does devaluing Drachme help you afford the car? if you say "no, a Drachme is not worth 0.5 Euros anymore, it is only worth 0.05Euros", it only means you have to 10 times more Drachmes for the car than before? Say you produce olives, and one pound of olives goes for 1 Eur. So you need to sell 20000 pounds of olives to afford the car. How does the valuation of Drachme enter into that?
- czr80 14y ago
  You don't buy a BMW. But: 1) You buy a local car because the foreign ones are all too expensive 2) BMW decides to build a plant in your country because it is so much cheaper. Both of those things help grow your economy, growth leads to a stronger currency, and then you buy a nice new BMW.
  - Tichy 14y ago
    Why is it cheaper to build the factory in your country? Instead of paying with a devalued currency, you could simply pay less Euros? Same for buying local vs foreign cars - I just don't see how the currency makes a difference (or the possibility to devalue the currency). Let's stick to olives: either you get x Euros for a pound of olives, or y Drachmes. In the end, if you want to buy a car, you have to exchange the Drachmes into Euros. You should get exactly x Euros for y Drachmes. Otherwise there would be an opportunity to get infinite olives for free. So it doesn't matter how much you devalue the Drachmes, you'll always get the same amount of Euros per pound of olives.

HSO 14y ago

It's a strawman. In every country, you will find sectors (and the associated people) who have a net gain from the EUR and some with a net loss. It doesn't really matter and would be impossible to figure out who benefits and loses more, both on the micro and the macro level. I myself think about it in this (admittedly broad stroke) way: 1) The EUR is not just an economic project. It is a political instrument. That's why it exists, and that's what will determine its future. The economics is only a constraint (alas, now binding) not the objective. 2) No matter the history, a breakup now would be incredibly costly for everybody. Bob Rubin, US treasury secretary under Clinton, aptly described it as "Lehman times x". That's why a complete reversal is highly unlikely. 3) There is a solution: Peripheral states must accept a German-dominated external voice in their fiscal affairs; Germany must let the ECB monetize the debt. Neither of which is politically realistic. 4) In the absence of a conventional political solution, the continent "needs" a holy-shit-moment, something that will scare enough people sufficiently s.th. politicians can reach the costly compromise (3). So I expect one to happen. 5) What journalists, economists, and whoever writes about the success of a country ex post does not matter, it's just noise. Think about what people wrote about Japan in the 80s, the "Asian tigers" in the 90s, the "Washington consensus", etc etc. Until just a few months ago, it was China's state-dominated model, now it's Germany's social-consensus-based turn. Or, to stay with Germany, remember the Economist cover about "the sick man of europe"? It's quite similar to the attribution bias when successful people write autobiographies (or have biographies written about themselves). People like "the illusion of control", and a nice story with a neat, understandable "explanation" with max three identifiable causes or "factors" that led to the observation supports it. Personally, I think the best way to test your understanding of how the world works is to make predictions and bet on them, preferably money, less preferably your reputation or your ego. So yeah, this article is probably blah but I will read it anyway because it will probably make me feel good, having grown up in and thus having links to the successful system du jour ;-)

lispm 14y ago
good comment
stfu 14y ago
1) The EUR is not just an economic project. It is a political instrument. That's why it exists, and that's what will determine its future. The economics is only a constraint (alas, now binding) not the objective. This can not be repeated often enough. All the gloom and doom commentators making break-up predictions are highly underestimating this aspect. EU behavior can not be explained by rational/economic factors based logic.

czr80 14y ago

1) Cheap currency: "For German companies, the sinking euro acts as a kind of crisis buffer. While it reduces demand for German products within the euro zone, these make up only around 40 percent of the country's exports. But for the rest of the world, a weak euro means cheaper German products, which means they're more competitive." 2) Cheap credit: "But recently even interest rates on German bonds with longer maturities have decreased significantly. The federal government is saving a bundle. The reason for the windfall? Amid the ongoing euro crisis, Germany is one of the few borrowers that are still regarded as a safe haven. Many investors would rather lend the government money at bargain-basement rates than risk losses." 3) Inability of other countries to (quickly) adjust given single currency constraints, leading to, for example: "As mass protests form in Spain due to high unemployment among young people, Germany is benefiting from an influx of new skilled professionals. An increasing number of southern Europeans looking for work are heading north to prosperous Germany." http://www.spiegel.de/international/europe/profiting-from-pain-europe-s-crisis-is-germany-s-blessing-a-808248.html http://www.spiegel.de/international/europe/profiting-from-pa...

jordanlev 14y ago

I just read this article which explains it nicely (IMO): http://www.stratfor.com/weekly/financial-markets-politics-and-new-reality http://www.stratfor.com/weekly/financial-markets-politics-an...