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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 cours

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.
    - AkThhhpppt 14y ago
      If Drachmes are devalued, labour in Greece is cheaper than labour in Germany - workers get paid the same number of Drachmes as before devaluation, but they're paid less Euros.
      - Tichy 14y ago
        So it is mainly just cheating your citizens. I can't believe economists seriously put this forward as a problem. They should seek to educate the population, not defraud them.
        eli_gottlieb 14y ago
        Ah, but the thing is, Greeks then find it massively easier to get out of debt to the other Euro nations. Inflation has been called "austerity done right".
        Tichy 14y ago
        That is kind of a "milk maid" equation, as we call it in Germany. If the Greeks wouldn't have the Euro, perhaps nobody would have lent them money to begin with. So at least if you advocate countries having their own currencies, you should be aware of that aspect. It's not as if problems (debts) just evaporate with control over the currency. You would have other problems instead.
        eli_gottlieb 14y ago
        Yes, but it's much better to have a problem you can actually solve by taking responsibility yourself, rather than a problem whose solution relies on someone else being nice to you against their own interest (Southern Europe being on the same currency as Germany).
        Tichy 14y ago
        But maybe those states would have been bankrupt much sooner, not being able to borrow without the Euro. That is what I mean - no problem would have been solved by not being on the Euro.
- iSnow 14y ago
  >How does devaluing Drachme help you afford the car It doesn't. On the contrary, it helps you export your home made Pallas Athene car. Suppose it costs you 25000 GRD to build that car and that's 12500 € at 1 € = 2 GRD. You can sell it internationally for 15000 € for a profit of 2500 €. Now the GRD plunges to 1 € = 4 GRD. Your costs stay at 25000 GRD but that is now only 6250 €. You either can continue to sell internationally for 15000 € and earn an extra 6250 € profit or reduce the price and sell a lot more thereby also raking in more cash. Since you probably have to procure parts from abroad, the extra profit will be a lot less, but still it helps you _sell_. Who pays the bill? Of course the general population if it continues to buy imported goods, because the price of those goes up. If only a part of the gen pop switches to buying domestic goods - hey even better for the domestic producers. Apart from making more on the international market, they gain on the domestic market.
- rbehrends 14y ago
  Devaluing your currency makes foreign products more expensive relative to yours and makes your products cheaper relative to foreign ones. That means that it is less attractive to export goods to your country and more attractive to import from your country. That does not mean that devaluation is a sinecure; for example, if you heavily depend on imported goods, it will drive prices for those goods up. But it can help correct trade and current account imbalances. Also, devaluation is, more often than not, something that happens simply due to trading and market pressure and not because of government action. If a country keeps having a trade surplus, then its currency will automatically appreciate, unless there are countervailing forces.
- skurry 14y ago
  Let's say you're Greece and you're a trillion Drachmes in debt. You can't pay the interest anymore, your deficit is too high. Greece uses INFLATION, it's super effective! Prices double, but wages double also. Tax income doubles. What stays the same is the debt, and suddenly Greece can afford to pay its lenders. National crisis averted. Only the lenders are screwed, and those who had their savings in Drachmes. That's also the reason why it's very popular to have savings accounts in "hard" currency in these countries. That's how it has been for decades, but now with the Euro that's not possible anymore, leading to the Euro crisis.
lispm 14y ago
Germany had a huge trade surplus before. To devalue a currency is not a solution - the opposite. It may look attractive, but its effects are bad over long term. It for example makes imports more expensive.
- maigret 14y ago
  Huge trade surplus before? When? http://www.indexmundi.com/g/g.aspx?c=gm&v=85 http://www.indexmundi.com/g/g.aspx?c=gm&v=85 and http://www.tradingeconomics.com/germany/balance-of-trade http://www.tradingeconomics.com/germany/balance-of-trade It correlates too well with the introduction of the Euro to be just random. The issue is exactly that the Euro constantly devalues the German output - thus not slowing its increase in a natural way.
lolcraft 14y ago
Nope, it's the opposite, in fact. You confuse devaluation with depreciation. What should really happen is that Germany's currency should devaluate (via inflation). I think of it as this: GIPS have massive debts in "German"-Euros. They also have prices too high in "Gypsy"-Euros, which is equivalent to say that GIPS have also salaries too low in "German"-Euros. They just can't pay that debt, because Gypsy salaries are too low, the prices are proportionately too high, and the debts are also too big. What you do is, you create inflation only in Germany. Now German Euros are valued less, so wages and revenues grow. Gipsy Euros are valued the same as they were, so prices stay the same, and wages and revenues stay the same. Now, this means that Germans want to buy more cheap Gypsy stuff and services, so there's now a trade deficit for Germany, and a trade surplus for the Gypsies. Which means an increase in wages and revenues for the GIPS, which is allocated to paying German debt. The result is that the Gypsies get German jobs and German capital, and the Germans get their debt paid. This debt is, of course, of less value now for the Germans, they have to pay more for everything German, and there's less jobs on Germany, so they are pissed off. The thing is, they still win on the long term, because now they can buy cheaper Gypsy stuff, like Spanish-built German-designed cars. They can concentrate on more capital-intensive production, to offset lost jobs. Also, at least, they got back some of their debt.

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.
  - AkThhhpppt 14y ago
    If Drachmes are devalued, labour in Greece is cheaper than labour in Germany - workers get paid the same number of Drachmes as before devaluation, but they're paid less Euros.
    - Tichy 14y ago
      So it is mainly just cheating your citizens. I can't believe economists seriously put this forward as a problem. They should seek to educate the population, not defraud them.
      - eli_gottlieb 14y ago
        Ah, but the thing is, Greeks then find it massively easier to get out of debt to the other Euro nations. Inflation has been called "austerity done right".
        Tichy 14y ago
        That is kind of a "milk maid" equation, as we call it in Germany. If the Greeks wouldn't have the Euro, perhaps nobody would have lent them money to begin with. So at least if you advocate countries having their own currencies, you should be aware of that aspect. It's not as if problems (debts) just evaporate with control over the currency. You would have other problems instead.
        eli_gottlieb 14y ago
        Yes, but it's much better to have a problem you can actually solve by taking responsibility yourself, rather than a problem whose solution relies on someone else being nice to you against their own interest (Southern Europe being on the same currency as Germany).
        Tichy 14y ago
        But maybe those states would have been bankrupt much sooner, not being able to borrow without the Euro. That is what I mean - no problem would have been solved by not being on the Euro.
iSnow 14y ago
>How does devaluing Drachme help you afford the car It doesn't. On the contrary, it helps you export your home made Pallas Athene car. Suppose it costs you 25000 GRD to build that car and that's 12500 € at 1 € = 2 GRD. You can sell it internationally for 15000 € for a profit of 2500 €. Now the GRD plunges to 1 € = 4 GRD. Your costs stay at 25000 GRD but that is now only 6250 €. You either can continue to sell internationally for 15000 € and earn an extra 6250 € profit or reduce the price and sell a lot more thereby also raking in more cash. Since you probably have to procure parts from abroad, the extra profit will be a lot less, but still it helps you _sell_. Who pays the bill? Of course the general population if it continues to buy imported goods, because the price of those goes up. If only a part of the gen pop switches to buying domestic goods - hey even better for the domestic producers. Apart from making more on the international market, they gain on the domestic market.
rbehrends 14y ago
Devaluing your currency makes foreign products more expensive relative to yours and makes your products cheaper relative to foreign ones. That means that it is less attractive to export goods to your country and more attractive to import from your country. That does not mean that devaluation is a sinecure; for example, if you heavily depend on imported goods, it will drive prices for those goods up. But it can help correct trade and current account imbalances. Also, devaluation is, more often than not, something that happens simply due to trading and market pressure and not because of government action. If a country keeps having a trade surplus, then its currency will automatically appreciate, unless there are countervailing forces.
skurry 14y ago
Let's say you're Greece and you're a trillion Drachmes in debt. You can't pay the interest anymore, your deficit is too high. Greece uses INFLATION, it's super effective! Prices double, but wages double also. Tax income doubles. What stays the same is the debt, and suddenly Greece can afford to pay its lenders. National crisis averted. Only the lenders are screwed, and those who had their savings in Drachmes. That's also the reason why it's very popular to have savings accounts in "hard" currency in these countries. That's how it has been for decades, but now with the Euro that's not possible anymore, leading to the Euro crisis.

lispm 14y ago

Germany had a huge trade surplus before. To devalue a currency is not a solution - the opposite. It may look attractive, but its effects are bad over long term. It for example makes imports more expensive.

maigret 14y ago
Huge trade surplus before? When? http://www.indexmundi.com/g/g.aspx?c=gm&v=85 http://www.indexmundi.com/g/g.aspx?c=gm&v=85 and http://www.tradingeconomics.com/germany/balance-of-trade http://www.tradingeconomics.com/germany/balance-of-trade It correlates too well with the introduction of the Euro to be just random. The issue is exactly that the Euro constantly devalues the German output - thus not slowing its increase in a natural way.

lolcraft 14y ago

Nope, it's the opposite, in fact. You confuse devaluation with depreciation. What should really happen is that Germany's currency should devaluate (via inflation). I think of it as this: GIPS have massive debts in "German"-Euros. They also have prices too high in "Gypsy"-Euros, which is equivalent to say that GIPS have also salaries too low in "German"-Euros. They just can't pay that debt, because Gypsy salaries are too low, the prices are proportionately too high, and the debts are also too big. What you do is, you create inflation only in Germany. Now German Euros are valued less, so wages and revenues grow. Gipsy Euros are valued the same as they were, so prices stay the same, and wages and revenues stay the same. Now, this means that Germans want to buy more cheap Gypsy stuff and services, so there's now a trade deficit for Germany, and a trade surplus for the Gypsies. Which means an increase in wages and revenues for the GIPS, which is allocated to paying German debt. The result is that the Gypsies get German jobs and German capital, and the Germans get their debt paid. This debt is, of course, of less value now for the Germans, they have to pay more for everything German, and there's less jobs on Germany, so they are pissed off. The thing is, they still win on the long term, because now they can buy cheaper Gypsy stuff, like Spanish-built German-designed cars. They can concentrate on more capital-intensive production, to offset lost jobs. Also, at least, they got back some of their debt.