6 ms·

I wish more people understood this. Germany has benefited enormously because of the euro, and yet you see a lot of belly aching about the southern European cou

I wish more people understood this. Germany has benefited enormously because of the euro, and yet you see a lot of belly aching about the southern European countries. Countries really only have two valves to throttle their economies. Interest rates (which Greece now has the highest in the European Union), and printing more money. Right now because the Greek economy is in a log jam, they're suffering from deflation and a shrinking economy. Interest rates have to be high so that the government can continue to borrow money to keep the country running, but that means companies aren't leveraging capital to expand. If Greece weren't part of the Euro, it could simply print more cash, which would reverse the deflationary pressure and allow the government to bring down interest rates. It would also mean the flow of trade from Germany to Greece would probably balance out more because the domestic economy in Greece would be cheaper than importing German goods.

shazow 12y ago
> It would also mean the flow of trade from Germany to Greece would probably balance out more because the domestic economy in Greece would be cheaper than importing German goods. I read this a lot but I don't quite understand why--How does a unified currency prevent the domestic economy in Greece from being cheaper than importing German goods? Why can't the local Greece industry lower prices (as it would effectively with a falling local currency), thus driving more domestic purchasing and exports since it would be comparably cheap to neighbouring countries? The only thing I can think of is that it's hard to synchronize the discount of an entire industry, and nobody wants to go first. Having a local currency and printing more money allows you to do that across the board.
- Patrick_Devine 12y ago
  > The only thing I can think of is that it's hard to synchronize the discount of an entire industry, and nobody wants to go first. Having a local currency and printing more money allows you to do that across the board. That's exactly right. The key point is time. If you have to wait for your economy to contract, you're still borrowing tons of money to keep the country afloat. You're paying high interest rates on that debt, while at the same time you're losing tax receipts as more and more people are no longer paying taxes but instead are on the dole.
- atmosx 12y ago
  Because of technology. Fishing in Ithaca costs more than importing fish. The sea in the island is amazing, full of fresh fish. Yet nobody eats fresh fish in restaurants because there are no fishermen left! Same goes for most of other products, in conditions parity there is no way for a Greek corp to fight on price domain a big German corp.
- tomp 12y ago
  > The only thing I can think of is that it's hard to synchronize the discount of an entire industry, and nobody wants to go first. Having a local currency and printing more money allows you to do that across the board. Not only that, but if you want to "lower the prices in Greece" (i.e. deflation), you would have to lower the wages of everyone at the same time. That is politically very hard to do.
Xylakant 12y ago
> Interest rates (which Greece now has the highest in the European Union) The averaged interest rates are actually fairly low for Greece as a lot of its bonds are held by European institutions with very good conditions. The effective interest rate is at 2.4%, slightly lower than even Germanys effective rate. The more interesting value is the debt-service burden, but even though that's higher for Greece, it's still in the same ballpark (it's about the level that the US have). Still, the debt is horribly high and I don't see a way to repay it. I also don't see a way that Greece can meaningfully default without leaving the EU. That's impossible to sell to Spain, Italy, Portugal, Ireland or might trigger a landslide. Maybe a unified fiscal policy could help. We live in interesting times. see http://www.socialeurope.eu/wp-content/uploads/2015/01/OP6.pdf http://www.socialeurope.eu/wp-content/uploads/2015/01/OP6.pd...

shazow 12y ago

> It would also mean the flow of trade from Germany to Greece would probably balance out more because the domestic economy in Greece would be cheaper than importing German goods. I read this a lot but I don't quite understand why--How does a unified currency prevent the domestic economy in Greece from being cheaper than importing German goods? Why can't the local Greece industry lower prices (as it would effectively with a falling local currency), thus driving more domestic purchasing and exports since it would be comparably cheap to neighbouring countries? The only thing I can think of is that it's hard to synchronize the discount of an entire industry, and nobody wants to go first. Having a local currency and printing more money allows you to do that across the board.

Patrick_Devine 12y ago
> The only thing I can think of is that it's hard to synchronize the discount of an entire industry, and nobody wants to go first. Having a local currency and printing more money allows you to do that across the board. That's exactly right. The key point is time. If you have to wait for your economy to contract, you're still borrowing tons of money to keep the country afloat. You're paying high interest rates on that debt, while at the same time you're losing tax receipts as more and more people are no longer paying taxes but instead are on the dole.
atmosx 12y ago
Because of technology. Fishing in Ithaca costs more than importing fish. The sea in the island is amazing, full of fresh fish. Yet nobody eats fresh fish in restaurants because there are no fishermen left! Same goes for most of other products, in conditions parity there is no way for a Greek corp to fight on price domain a big German corp.
tomp 12y ago
> The only thing I can think of is that it's hard to synchronize the discount of an entire industry, and nobody wants to go first. Having a local currency and printing more money allows you to do that across the board. Not only that, but if you want to "lower the prices in Greece" (i.e. deflation), you would have to lower the wages of everyone at the same time. That is politically very hard to do.

Xylakant 12y ago

> Interest rates (which Greece now has the highest in the European Union) The averaged interest rates are actually fairly low for Greece as a lot of its bonds are held by European institutions with very good conditions. The effective interest rate is at 2.4%, slightly lower than even Germanys effective rate. The more interesting value is the debt-service burden, but even though that's higher for Greece, it's still in the same ballpark (it's about the level that the US have). Still, the debt is horribly high and I don't see a way to repay it. I also don't see a way that Greece can meaningfully default without leaving the EU. That's impossible to sell to Spain, Italy, Portugal, Ireland or might trigger a landslide. Maybe a unified fiscal policy could help. We live in interesting times. see http://www.socialeurope.eu/wp-content/uploads/2015/01/OP6.pdf http://www.socialeurope.eu/wp-content/uploads/2015/01/OP6.pd...