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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

• 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.
              • eli_gottlieb 14y ago
                Ok, let's talk two scenarios. First one: real world. We know how this one turns out. Second one: Greece was never allowed into the Euro and off the Drachma. So what happens? Well, the lack of productivity in the Greek economy means the drachma stays and goes continually down in relation to the Euro, which we'll presume is the dominant currency-zone Greece wants to import from. The result is that Greece is forced to take responsibility for its own behavior much earlier-on, and without damaging impact on anyone else. At some point, the Greeks, in this scenario, simply cannot import much anything from Northern Europe, but their land, labor and capital become very cheap for external investors. Then, if the Greeks are at all smart, they get exploited for a little while to make foreign capital spend itself improving their productivity, until they can either become self-sufficient or balance their trade via cheap exports. As Greek productivity improves, the drachma becomes more expensive, allowing the Greeks to then import more on the strength of their own economy rather than by borrowing from someone else. It's simply a known fact in economics that separate macroeconomic policies and environments demand separate currencies, or else you get a financial crisis of some sort.
      • AkThhhpppt 14y ago
        No, it's raising tariffs on imported goods by stealth. <em>The currency only matters at the border</em>, so if the thing or person under consideration doesn't cross the border, devaluation doesn't matter.
  • Tobias42 14y ago
    I think it is a psychological issue. If salaries get cut by 30% across the country, people go to the streets. If you devalue their currency, most people don't even realize it and just accept that the prices for certain imported goods went up.
    • Tichy 14y ago
      I can understand the psychological aspects, but I can't accept that economists see that as a serious issue. It is like "oh dear, we can not cheat our citizens anymore", like saying "governments need the ability to defraud the population". They should instead seek to educate the population.
    • rrreese 14y ago
      It's not just that, while devaluation alters import prices local prices like rent and service costs don't fluctuate. So a 30% devaluation doesn't make people 30% poorer.
      • Tichy 14y ago
        Of course it would: in your example, the landlords would be poorer because they would collect less rent. Likewise for service providers. Perhaps you could argue for public services, but for those the government could just lower the fees instead of devaluing the currency. But thanks to your example I see it has more subtleties: it is also a question who to take the money from. Making landlords poorer might be an easy sell to the majority of the population - if the population would have any idea of what is going on, which I doubt. Services might just go away if they make less money.
        • AkThhhpppt 14y ago
          No, landlords would NOT be poorer, they're taking in exactly the same as before devaluation. Devaluation directly effects ONLY imports (more expensive) and exports (cheaper): it effects the local economy only based on how much it depends on each.