7 ms·

The euro is a disaster even for the countries that do everything right

94 points by Sami_Lehtinen 11y ago

civilian 11y ago
Yup! Basically the same argument as Milton Friedman made. The examples and graphs are nice though. http://www.project-syndicate.org/commentary/the-euro--monetary-unity-to-political-disunity http://www.project-syndicate.org/commentary/the-euro--moneta...
- asgard1024 11y ago
  I don't understand one thing. People keep saying that Milton Friedman "predicted" this. However, what exactly approach to macroeconomics did he prescribed to the political union? Specifically, how did he wanted to deal with regions that have different economic growth? As I understand it, he was opposed to strong government and fiscal policies. So how do you resolve these problems on national level, if you can't have monetary policy and you don't want to have fiscal policy? To me it seems that he didn't really have any better solution.
  - lottin 11y ago
    I think he expected that people would move from high unemployment to low unemployment regions. In practice, I don't know how true this is. For instance, even in a culturally homogeneous countries such as England and Germany there are significant differences in unemployment rates between regions.
xgbi 11y ago
How is the Euro different from the Dollar in the US? I mean, you guys have 51 states, each of them with their own set of specific taxes and laws (just like us), with different commercial strengths and weaknesses (just like us). But we don't hear about Wisconsin being asphyxiated by the dollar value regarding its exportations. Maybe the fact that we have such a disparity in minimum wages in Europe, where the Northwestern countries (UK, France, Germany etc.) have very high salaries, whereas eastern countries have a sensibly lower wage system. That's where the BCE and European Parliamentary should start maybe?
- venomsnake 11y ago
  Because US is fully federalized and is redistributing from the top down (californians and newyorkers pay for the midwest). The big federally funded programs (military, social security, healthcare, infrastructure) take some pressure off the state's budget. And because US citizens have less state identity than they identify with US the wealth transfers are easier to bear. The us citizens that will say "I am American from Colorado(or any of the other 49)" are more common than EU people that will say "I am European from Germany (or any of the other 20+ Eu countries)"
  - deleted 11y ago
    [deleted]
  - Cthulhu_ 11y ago
    Re: your first point, the same happens in Europe; the relatively rich west (like the aforementioned Netherlands) pays for the relatively poor newer eastern-european states, and the farming industry in countries like Spain, and with the recent problems in Greece, spends billions to try and get that country back on its feet.
    - RobertoG 11y ago
      " and the farming industry in countries like Spain," I don't know what this mean. The farmers in Spain are payed for not producing. I suppose the rational is protecting the farmers in France and the Netherlands. This is not redistribution in the sense of "rich" helping "poor".
    - aliem 11y ago
      The big difference is that a country in Europe has his own economy completely detached from the rest of the EU while in the US the federal state will provide money coverage for the basic state services and absorbs economic shocks distributing it on the whole country.
  - Animats 11y ago
    The EU has union-level redistribution, especially for farmers, who, as in the US, are heavily subsidized. US states sometimes get into the same kinds of problems. Look what's happening to Kansas right now, after a big tax cut. There's no escape for a state that screws up. They can't impose capital controls and keep people from moving their money out of state. They can't print money. If the EU was a full financial union, individuals in Greece would have no problem withdrawing money from banks, because they'd be customers of banks in other countries. US states don't have their own financial systems. It's the combination of a common currency and separate banking systems that's the problem.
Svip 11y ago
Aren't there negative consequences to having one's own currency when it comes to import? For instance, Greece has a tiny export market and mostly import goods. If they were devaluing their own currency, surely their trade partners would be concerned with dealing with them, unsure what their money would be worth a month from now. Just look at the ruble in Russia this past winter, it had pretty negative effects for a country that imports a lot of its food. The article also fails to mention Germany has benefited a lot from the Euro, even through hard times. Until January this year, the Swiss franc was pegged to the Euro, when it was unpegged, it skyrocketed to become almost the same value as the Euro, effectively halting all export from Switzerland. I also find the comparison between Finland (pop. 5.4 mil), the Netherlands (pop. 18 mil) and Iceland (pop. 300,000) unfair considering their relative sizes. Surely, it's easier to manage a smaller economy than a larger one. I must confess, I am no expert, I just believe that criticism of the Euro often tends to be rather simplified. Friedman's commentary (posted by civilian) seems far more "rounded", so to speak. But I will gladly admit that the Euro project is flawed in being a political project rather than an economical project. Although, Friedman forgets to mention the several nations that use the US Dollar as their official currency as well (e.g. Ecuador, El Salvador and Zimbabwe), surely they have no option at all (unlike Finland and the Netherlands which actually have a say in Euro matters) other than abandoning it.
- dogma1138 11y ago
  Eh? The swiss franc was always higher than the euro. The peg was I swiss = 1.25 euro's, it actually lost value compared to the euro over the past year.. Also i don't think that managing's Icelands economy is easier, i would say it's harder. Iceland has 300,000 people, it's economy is pretty much based on fishing aluminum and seasonal tourism. It's a country in which when a bank goes bust the central bank goes out with it, when a large company goes bankrupt it can result in the unemployment rate jumping into the double digits.. Having 18 million people is a very big advantage over having 300,000, you have the wealth of those 18 million as a collateral not to mention a much healthier risk diversity.
  - Svip 11y ago
    Back in 2011, it was worth more. But the peg was actually at 1 euro = 1.20 francs,[0] but in mid-January it went to 1 euro = 0.81 francs in one day, that's 30%. Meaning that buying things with euros in Switzerland became 30% more expensive all of the sudden. [0] http://www.bbc.com/news/business-30829917 http://www.bbc.com/news/business-30829917
stannol 11y ago
I wish people would stop taking Iceland as an example for pretty much anything. They basically have two industries (Fishing and aluminium) and only 300 000 people, they are a very special case and comparisons rarely make sense.
- AndrewKemendo 11y ago
  In that case, Vladivostok would be a great comparison metric also! [1] https://en.wikipedia.org/wiki/Vladivostok https://en.wikipedia.org/wiki/Vladivostok
- Cthulhu_ 11y ago
  And Eve Online, I guess. 300K is even less than I thought that country has. We (NL)'ve got more unemployed, elderly/retired, children, etc than that. Of course the ratio will probably be about equal, but yeah, can't compare a 300.000 people economy with a 17 million and 5.5 million one.
  - techman9 11y ago
    Does Bjork count as an industry?
    - mseebach 11y ago
      She lives in New York and her label is London-based. If she does count as an industry, it's not an Icelandic one.
- robin_reala 11y ago
  Iceland’s tourism industry is now bigger than fishing as of 2015.
malas 11y ago
We (Lithuania) joined recently the Euro zone. Only positive things happening here. Someone just wants to make a profit from EUR/USD
- tim333 11y ago
  One country that joined six months ago is not a very good sample. Things seemed good in Spain and Greece for a few years until they didn't.
josu 11y ago
>Now, the normal way to make up for this would be to cut costs by devaluing your currency, except that Finland doesn't have a currency to devalue anymore. Keep in mind that this is a zero sum game, in order to devalue your currency the rest have to appreciate. So we have no idea what would have happened if every country in Europe still had its own currency and tried to outdevalue each other. It could even have the potential to start an international race to the bottom.
- cturner 11y ago
  When people say devalue in the current context, it is a shorthand for the Iceland scenario. What they mean is: moving off the shared currency (EUR) and adopting a national currency. This generally means a one-off devaluation, because the country moving off it will be weaker, and in their act of moving off the EUR will get stronger, and their new currency will have less purchasing power. [This is not always the case - when people speculate about a German exit, they assume the opposite would happen: strong Mark, weakended Euro.] What you're suggesting here is a bit different: > So we have no idea what would have happened if > every country in Europe still had its own currency > and tried to outdevalue each other China has found a round-about way to do this against the US for the last 30 or so years. But it's no longer viable in free countries. As soon as the state gives citizens access to international financial products, and allows them to move money internationally, it can no effectively control national FX rates. If it were to try it, enterprising citizens would model the real value, and use commodities or similar to arbitrage the peg. Since the 1970s, there has been a migration of countries moving off fixed exchange gearings to flating economies, driven by this dynamic. Some went willingly (Australia), others tried to ignore the inevitable and found themselves forced to it (UK). China has seen the writing on the wall on this and appears to be on an arc towards floating the renmimbi. The nationalist lingo about this will the their hope that it will become a reserve currency (what actual value it has to be used as a reserve currency in a well-oiled system is unclear - probably none). The real story is that they have to do it if they want to continue transitioning to a full import/export economy. They're already leaking heavily (look at the amount of US debt they buy to prop up the peg), and that problem can only get worse as their middle class and financial sectors become more confident. The Euro was a masterful play by German policy makers for maintaining social stability beyond reunification. It works differently to the Chinese mechanism but has a similar outcome: it removes purchasing power from rich Germans, and forces the price down of the goods being produced by poor Germans. Why does Germany still have a strong industrial sector? They chose this over having a strong financial sector. Instead of rich Germans being angry at vast unemployment and benefits in the weaker parts of their own country and thinking about splitting, they have high employment across the nation and get to look down on neighbours instead. But it's not so good for the neighbours. There have been some positive outcomes - the goal of joining the euro has probably had a strong positive effect on good-governance in many countries who had to work hard to join.
snemvalts 11y ago
Comparing a country that went to bankruptcy in 2008 (short, deep recession => higher growth long term) to two countries which have problems not because of the euro doesn't make any sense.
jwr 11y ago
The Euro seems to make no sense unless there is a common government and common economic policy, which Europe lacks. I'm from Poland and I've always been a big supporter of the Euro, but I recently realized that it can't work in its current form. I would like to see a more unified Europe instead (we have much more in common than we think). Sadly, this is not likely happen mostly due to stupidity (populist and nationalist movements all across Europe).
- teebot 11y ago
  I think you came to the right conclusion. We need more Europe now (and a more democratic / less bureaucratic one).
- danieltillett 11y ago
  Everyone has always known this. The idea was bring in the Euro and then later the economic and political integration required to make it work. The Euro has always been a Trojan horse for European integration. If this is a good or a bad thing depends on your perspective.
  - yxhuvud 11y ago
    The problem is that when economic issues are the cause of the failure, that doesn't make the countries involved want to integrate. It makes them hate each other instead. Which the Greek situation have showed.
    - danieltillett 11y ago
      Yes this is one of the possible outcomes :( The euro project was always a bit of a gamble. It reminds me of the German attack through Belgium during WWI. The german military high command was criticised after the war of gambling too much trying for a knock-out victory. Using the euro to achieve european integration has a similar feeling about it. Edit. This is not a criticism of Germany in anyway, just an feeling I have based on the Euro project being a high risk, high reward strategy.
- gutnor 11y ago
deleted 11y ago
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kfk 11y ago
No it's not. Devaluation != wealth. Say an economy produces only 2 lemons per year and they cost 1 euro, say you devaluate and now the cost 1.5 euro... how much wealth have you created? None, you are still producing only 2 lemons. The real problem in Europe is taxes, a very bad culture for entrepreneurship and, consequently, little to none venture capital. While we do have very competent people technically, we miss totally the business side of things. Italy is a great example of this, lots of stems, very poor business people and no to little venture capital. Then, when you do manage to actually produce something and sell it, you are killed pretty much from day 1 by taxes - more than half of your added value will go to the government.
erkkie 11y ago
Lots of fluff in the article over a single question, how does losing the ability to devalue your currency compare over other things gained. The usefulness of devaluation is highly related to export/import structure and the political ability to make cuts so it makes no sense to fault it all on the Euro (or to assume the loss of being able to devalue your currency makes being in the euro-zone a net loss).
bubbleRefuge 11y ago
As some heterodox economists predicted[1], the Euro did/does not have the institutional structure in place to withstand a crisis. Since there is no fiscal authority to implement systemic pro-growth counter-cyclical policy, the knee jerk response of the bankers whom make EU economic policy is austerity and the bone crushing scorched earth deflation that results.
facepalm 11y ago
Are they saying that without the Euro, Nokia would have beat Apple? While criticism of the Euro is not new and may be warranted, the recent times also give me the impression that there is simply way too much room for interpretation in Macroeconomics. So everybody gets to keep their pet theories and nothing ever gets validated.
- puzzlingcaptcha 11y ago
  Yeah, it's a rubbish argument. Cheaper Nokia phones still wouldn't sell due to lack of demand. They were already cheap in comparison. And by the time they came up with N9 the app ecosystems for iOS and Android were already well established. What I also dislike about articles like this is conflating tax increases and government spending cuts under one umbrella of 'austerity'. If for example Finland increased taxes more while Iceland cut more spending, is the recovery due to devaluation of the krona (btw Iceland imports more than exports) or better domestic demand as people had more money to spend? They also claim Iceland did 12x the 'austerity' Finland did, so maybe it helped after all? That's what should be investigated. That is not to say euro is not to be blamed, but not for the reasons in this article.
scotty79 11y ago
> Countries can't devalue their currencies or cut interest rates or even spend more when they get into trouble, and so they stay in trouble. Not only euro countries can't do that. Many countries with separate currencies have independent bodies dedicated to keeping currency stable. You can't order those bodies to devalue the currency because two main things your economy was doing that were worthwhile became obsolete. They ought to keep inflation target regardless of governments and economy. It's often written into the constitution. The only country I know that can have their currency devalued according to what economy is perceived to need is USA.
joeyspn 11y ago
I'm not a big fan of discussing politics on HN, but as an avid financial reader (in other specialised forums) I'll drop this quote here. "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." Henry Ford Henry was spot on. 99,9% of westerners just don't get the monetary system, and asymmetric monetary unions are starting to extract all the assets from the weakest members/states. A recipe for disaster. Also, decoupling the € from the $, or even the ¥ is naive. They're one, and part of the very same formula. Neither of these currencies will break-up w/o dragging the others down the abyss. This is the card that former greek FinMin Varoufakis tried to play.
- adaml_623 11y ago
  I was coming here to comment that I hate the way that a country 'manages' it's finances. Or makes mistakes. Or joins the Euro. And what I mean by that is that a very small powerful minority entrenched at the top of a countries hierarchy or banking system do things for their own benefit that positively or negatively affect millions of others. And then the media reports on these actions as if it was a _country_ doing something. And the main reason I hate it is because if you don't understand what happened in the past then you are not able to prevent bad things from happening again or happening elsewhere.
deleted 11y ago
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lispm 11y ago
Lots of propaganda against the Euro. It's going on for a few years now. Especially it's coming from a country which recently caused a world-wide economic crisis. Actually the Euro is doing a good job, given all these attacks. Now we read daily about the problems of tiny Greece. Just 10 million people out of 334 million living in the Eurozone. A constant news stream about a tiny tiny problem. Remember how Goldman Sachs tried to profit from Greece in the Eurozone both ways? Helping Greece to hide its debt, so that it can join the Eurozone and then betting that the outcome would be negative. http://www.spiegel.de/international/europe/greek-debt-crisis-how-goldman-sachs-helped-greece-to-mask-its-true-debt-a-676634.html http://www.spiegel.de/international/europe/greek-debt-crisis... http://www.independent.co.uk/news/world/europe/greek-debt-crisis-goldman-sachs-could-be-sued-for-helping-country-hide-debts-when-it-joined-euro-10381926.html http://www.independent.co.uk/news/world/europe/greek-debt-cr...
- misja111 11y ago
  How is this propaganda? It seems to me that the article is just listing facts. These facts show a not very positive side of the Euro, but does that make the article propaganda? Also, the article is not about Greece. It's about Finland and the Netherlands, and how they have been doing comparing to Iceland.
  - tonyedgecombe 11y ago
    It can still be propaganda whilst showing facts. I haven't read the article but pretty much everything I have read on the euro exaggerates some facts and ignores others in order to support the political leanings of the writer or their employer.
  - lispm 11y ago
    > It seems to me that the article is just listing facts. How so? It starts with 'The euro might be worse for you than bankruptcy.' This sentence is so vague that it does not make any sense at all. It 'might'? For 'you'? I live in the Eurozone, in Germany, and I fail to see how it is worse than 'bancruptcy. How is growth related to `bancruptcy` of a tiny island? `the results have still been a catastrophe` - low growth in the Netherlands is a catastrophe? Last I looked the Netherlands were a nice country, far form being a 'catastrophe'. 'Now, the normal way to make up for this would be to cut costs by devaluing your currency, except that Finland doesn't have a currency to devalue anymore.' The 'devaluing' theory. Not again. 'since you have to fire people to convince them to take pay cuts.' More theory. Look at Germany. Workers agreed to keep wages stable. Outcome: record low unemployment. 'Iceland' - Iceland has just 300k population on an island. Comparing it to the Netherlands, Greece or Germany is just wrong. Different size, difference situation, different banking system, ...
jagermo 11y ago
Sorry, this is not true. Germany has had a lot of positive effects from the euro, as have the the people living in these countries. I remember when we had to exchange money when going for a skiing trip to Austria (about 30 km from us). Now I can just grab some cash and pay in Germany, Austria, France, Italy, Spain, Greece etc. This is a huge win for me personally. This is as if someone would say: "The dollar is a disaster even for states that do everything right". Yes, you have spending, corruption etc. But that is true for every currency. It might be that the Euro changed a lot of things. Some for the worse, most of them for the better.
- tallanvor 11y ago
  Yes, the Euro has been great for Germany, but that's because they basically control the currency and have forced inflation to an absolute minimum, even though a reasonable amount of inflation would be significantly helpful for Greece, Italy, Spain, and quite a few other Eurozone countries. So yes, Germany is doing well, at the expense of the rest of the Eurozone.
  - facepalm 11y ago
    How do they control the currency?
  - jagermo 11y ago
    Do you think the rest of the Eurozone would be better of without the Euro? I don't want to start a flamewar, I'm just interested. I remember Italy and its Lira (something like a 1000 Lira equaled 1 Mark). Now the prices in Italy are kind of stable (we go there a few times every year). I am no expert but it seems that the Euro brought more stability. Plus, please don't forget that Germany enforced austerity measures since we got the East back. We have basically been used to them for so long and it kind of saved us during the last crisis. Its more of a lucky side effect I guess...
    - kilburn 11y ago
      I don't know about the rest of the eurozone, but as a Spaniard I must say that I do think we would have been better off without the euro. The euro gave us the gun to shoot ourselves in the foot, and we have done plenty of stupid things with it. A few examples: - Huge inflation. In a very short timespan (two years maybe?), we went from 1€ = 166pts to 1€ = 100pts in purchasing power value, without an equivalent salary raise. - Crazy housing bubble, with an ~100% rise in house prices between 2002 and 2008 (!!) - Over-indebtment to pay for stupid things: airports in the middle of nowhere, high-speed trains to unpopulated areas, etc. - Destruction of several industries (e.g.: a huge clothing industry) I could go on but I think this illustrates my point. Again, I'm not saying that this is anyone else's fault. This is what we spaniards deserve because that's what we chose to do with the possibilities the euro gave us. Nevertheless, it doesn't change the fact that we could not have done all these things without it. Edit: format.
MeNotMe 11y ago
It's such a bad idea. Germany needed to be pressured into the Euro by Mitterand in exchange for Germanys unification. France didn't want a unified Germany with an independent currency.
knivets 11y ago
It is the same guy who wrote this — http://www.washingtonpost.com/blogs/wonkblog/wp/2015/01/14/bitcoin-is-revealed-a-ponzi-scheme-for-redistributing-wealth-from-one-libertarian-to-another/ http://www.washingtonpost.com/blogs/wonkblog/wp/2015/01/14/b...
Oletros 11y ago
Shocking, an US newspaper advising against the Euro
wmkn 11y ago
> "That's left Dutch households with a bigger debt burden than anyone else in the euro zone." Sure, this is a problem. But it is an unfair comparison if you do not put it against the (much bigger) savings held by the Dutch. http://www.cbs.nl/en-GB/menu/themas/macro-economie/publicaties/artikelen/archief/2012/2012-3680-wm.htm http://www.cbs.nl/en-GB/menu/themas/macro-economie/publicati...
mcv 11y ago
The article is correct. A monetary union without a fiscal union doesn't seem to work very well. I should add that the Dutch situation isn't helped by 15 years of mostly right-wing governments that were already in love with austerity, but that only underscores that austerity is pretty harmful to your economy. The euro could work fine, just not with the current rules. There needs to be some mechanism that compensates for the inequality between the different countries, just like how poorer regions within a sovereign country tend to get extra aid.

94 points by Sami_Lehtinen 11y ago

Yup! Basically the same argument as Milton Friedman made. The examples and graphs are nice though. http://www.project-syndicate.org/commentary/the-euro--monetary-unity-to-political-disunity http://www.project-syndicate.org/commentary/the-euro--moneta...

asgard1024 11y ago
I don't understand one thing. People keep saying that Milton Friedman "predicted" this. However, what exactly approach to macroeconomics did he prescribed to the political union? Specifically, how did he wanted to deal with regions that have different economic growth? As I understand it, he was opposed to strong government and fiscal policies. So how do you resolve these problems on national level, if you can't have monetary policy and you don't want to have fiscal policy? To me it seems that he didn't really have any better solution.
- lottin 11y ago
  I think he expected that people would move from high unemployment to low unemployment regions. In practice, I don't know how true this is. For instance, even in a culturally homogeneous countries such as England and Germany there are significant differences in unemployment rates between regions.

xgbi 11y ago

How is the Euro different from the Dollar in the US? I mean, you guys have 51 states, each of them with their own set of specific taxes and laws (just like us), with different commercial strengths and weaknesses (just like us). But we don't hear about Wisconsin being asphyxiated by the dollar value regarding its exportations. Maybe the fact that we have such a disparity in minimum wages in Europe, where the Northwestern countries (UK, France, Germany etc.) have very high salaries, whereas eastern countries have a sensibly lower wage system. That's where the BCE and European Parliamentary should start maybe?

venomsnake 11y ago
Because US is fully federalized and is redistributing from the top down (californians and newyorkers pay for the midwest). The big federally funded programs (military, social security, healthcare, infrastructure) take some pressure off the state's budget. And because US citizens have less state identity than they identify with US the wealth transfers are easier to bear. The us citizens that will say "I am American from Colorado(or any of the other 49)" are more common than EU people that will say "I am European from Germany (or any of the other 20+ Eu countries)"
- deleted 11y ago
  [deleted]
- Cthulhu_ 11y ago
  Re: your first point, the same happens in Europe; the relatively rich west (like the aforementioned Netherlands) pays for the relatively poor newer eastern-european states, and the farming industry in countries like Spain, and with the recent problems in Greece, spends billions to try and get that country back on its feet.
  - RobertoG 11y ago
    " and the farming industry in countries like Spain," I don't know what this mean. The farmers in Spain are payed for not producing. I suppose the rational is protecting the farmers in France and the Netherlands. This is not redistribution in the sense of "rich" helping "poor".
  - aliem 11y ago
    The big difference is that a country in Europe has his own economy completely detached from the rest of the EU while in the US the federal state will provide money coverage for the basic state services and absorbs economic shocks distributing it on the whole country.
- Animats 11y ago
  The EU has union-level redistribution, especially for farmers, who, as in the US, are heavily subsidized. US states sometimes get into the same kinds of problems. Look what's happening to Kansas right now, after a big tax cut. There's no escape for a state that screws up. They can't impose capital controls and keep people from moving their money out of state. They can't print money. If the EU was a full financial union, individuals in Greece would have no problem withdrawing money from banks, because they'd be customers of banks in other countries. US states don't have their own financial systems. It's the combination of a common currency and separate banking systems that's the problem.

Svip 11y ago

Aren't there negative consequences to having one's own currency when it comes to import? For instance, Greece has a tiny export market and mostly import goods. If they were devaluing their own currency, surely their trade partners would be concerned with dealing with them, unsure what their money would be worth a month from now. Just look at the ruble in Russia this past winter, it had pretty negative effects for a country that imports a lot of its food. The article also fails to mention Germany has benefited a lot from the Euro, even through hard times. Until January this year, the Swiss franc was pegged to the Euro, when it was unpegged, it skyrocketed to become almost the same value as the Euro, effectively halting all export from Switzerland. I also find the comparison between Finland (pop. 5.4 mil), the Netherlands (pop. 18 mil) and Iceland (pop. 300,000) unfair considering their relative sizes. Surely, it's easier to manage a smaller economy than a larger one. I must confess, I am no expert, I just believe that criticism of the Euro often tends to be rather simplified. Friedman's commentary (posted by civilian) seems far more "rounded", so to speak. But I will gladly admit that the Euro project is flawed in being a political project rather than an economical project. Although, Friedman forgets to mention the several nations that use the US Dollar as their official currency as well (e.g. Ecuador, El Salvador and Zimbabwe), surely they have no option at all (unlike Finland and the Netherlands which actually have a say in Euro matters) other than abandoning it.

dogma1138 11y ago
Eh? The swiss franc was always higher than the euro. The peg was I swiss = 1.25 euro's, it actually lost value compared to the euro over the past year.. Also i don't think that managing's Icelands economy is easier, i would say it's harder. Iceland has 300,000 people, it's economy is pretty much based on fishing aluminum and seasonal tourism. It's a country in which when a bank goes bust the central bank goes out with it, when a large company goes bankrupt it can result in the unemployment rate jumping into the double digits.. Having 18 million people is a very big advantage over having 300,000, you have the wealth of those 18 million as a collateral not to mention a much healthier risk diversity.
- Svip 11y ago
  Back in 2011, it was worth more. But the peg was actually at 1 euro = 1.20 francs,[0] but in mid-January it went to 1 euro = 0.81 francs in one day, that's 30%. Meaning that buying things with euros in Switzerland became 30% more expensive all of the sudden. [0] http://www.bbc.com/news/business-30829917 http://www.bbc.com/news/business-30829917

stannol 11y ago

I wish people would stop taking Iceland as an example for pretty much anything. They basically have two industries (Fishing and aluminium) and only 300 000 people, they are a very special case and comparisons rarely make sense.

AndrewKemendo 11y ago
In that case, Vladivostok would be a great comparison metric also! [1] https://en.wikipedia.org/wiki/Vladivostok https://en.wikipedia.org/wiki/Vladivostok
Cthulhu_ 11y ago
And Eve Online, I guess. 300K is even less than I thought that country has. We (NL)'ve got more unemployed, elderly/retired, children, etc than that. Of course the ratio will probably be about equal, but yeah, can't compare a 300.000 people economy with a 17 million and 5.5 million one.
- techman9 11y ago
  Does Bjork count as an industry?
  - mseebach 11y ago
    She lives in New York and her label is London-based. If she does count as an industry, it's not an Icelandic one.
robin_reala 11y ago
Iceland’s tourism industry is now bigger than fishing as of 2015.

malas 11y ago

We (Lithuania) joined recently the Euro zone. Only positive things happening here. Someone just wants to make a profit from EUR/USD

tim333 11y ago
One country that joined six months ago is not a very good sample. Things seemed good in Spain and Greece for a few years until they didn't.

josu 11y ago

>Now, the normal way to make up for this would be to cut costs by devaluing your currency, except that Finland doesn't have a currency to devalue anymore. Keep in mind that this is a zero sum game, in order to devalue your currency the rest have to appreciate. So we have no idea what would have happened if every country in Europe still had its own currency and tried to outdevalue each other. It could even have the potential to start an international race to the bottom.

cturner 11y ago
When people say devalue in the current context, it is a shorthand for the Iceland scenario. What they mean is: moving off the shared currency (EUR) and adopting a national currency. This generally means a one-off devaluation, because the country moving off it will be weaker, and in their act of moving off the EUR will get stronger, and their new currency will have less purchasing power. [This is not always the case - when people speculate about a German exit, they assume the opposite would happen: strong Mark, weakended Euro.] What you're suggesting here is a bit different: > So we have no idea what would have happened if > every country in Europe still had its own currency > and tried to outdevalue each other China has found a round-about way to do this against the US for the last 30 or so years. But it's no longer viable in free countries. As soon as the state gives citizens access to international financial products, and allows them to move money internationally, it can no effectively control national FX rates. If it were to try it, enterprising citizens would model the real value, and use commodities or similar to arbitrage the peg. Since the 1970s, there has been a migration of countries moving off fixed exchange gearings to flating economies, driven by this dynamic. Some went willingly (Australia), others tried to ignore the inevitable and found themselves forced to it (UK). China has seen the writing on the wall on this and appears to be on an arc towards floating the renmimbi. The nationalist lingo about this will the their hope that it will become a reserve currency (what actual value it has to be used as a reserve currency in a well-oiled system is unclear - probably none). The real story is that they have to do it if they want to continue transitioning to a full import/export economy. They're already leaking heavily (look at the amount of US debt they buy to prop up the peg), and that problem can only get worse as their middle class and financial sectors become more confident. The Euro was a masterful play by German policy makers for maintaining social stability beyond reunification. It works differently to the Chinese mechanism but has a similar outcome: it removes purchasing power from rich Germans, and forces the price down of the goods being produced by poor Germans. Why does Germany still have a strong industrial sector? They chose this over having a strong financial sector. Instead of rich Germans being angry at vast unemployment and benefits in the weaker parts of their own country and thinking about splitting, they have high employment across the nation and get to look down on neighbours instead. But it's not so good for the neighbours. There have been some positive outcomes - the goal of joining the euro has probably had a strong positive effect on good-governance in many countries who had to work hard to join.

snemvalts 11y ago

Comparing a country that went to bankruptcy in 2008 (short, deep recession => higher growth long term) to two countries which have problems not because of the euro doesn't make any sense.

jwr 11y ago

The Euro seems to make no sense unless there is a common government and common economic policy, which Europe lacks. I'm from Poland and I've always been a big supporter of the Euro, but I recently realized that it can't work in its current form. I would like to see a more unified Europe instead (we have much more in common than we think). Sadly, this is not likely happen mostly due to stupidity (populist and nationalist movements all across Europe).

teebot 11y ago
I think you came to the right conclusion. We need more Europe now (and a more democratic / less bureaucratic one).
danieltillett 11y ago
Everyone has always known this. The idea was bring in the Euro and then later the economic and political integration required to make it work. The Euro has always been a Trojan horse for European integration. If this is a good or a bad thing depends on your perspective.
- yxhuvud 11y ago
  The problem is that when economic issues are the cause of the failure, that doesn't make the countries involved want to integrate. It makes them hate each other instead. Which the Greek situation have showed.
  - danieltillett 11y ago
    Yes this is one of the possible outcomes :( The euro project was always a bit of a gamble. It reminds me of the German attack through Belgium during WWI. The german military high command was criticised after the war of gambling too much trying for a knock-out victory. Using the euro to achieve european integration has a similar feeling about it. Edit. This is not a criticism of Germany in anyway, just an feeling I have based on the Euro project being a high risk, high reward strategy.
gutnor 11y ago

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kfk 11y ago

No it's not. Devaluation != wealth. Say an economy produces only 2 lemons per year and they cost 1 euro, say you devaluate and now the cost 1.5 euro... how much wealth have you created? None, you are still producing only 2 lemons. The real problem in Europe is taxes, a very bad culture for entrepreneurship and, consequently, little to none venture capital. While we do have very competent people technically, we miss totally the business side of things. Italy is a great example of this, lots of stems, very poor business people and no to little venture capital. Then, when you do manage to actually produce something and sell it, you are killed pretty much from day 1 by taxes - more than half of your added value will go to the government.

erkkie 11y ago

Lots of fluff in the article over a single question, how does losing the ability to devalue your currency compare over other things gained. The usefulness of devaluation is highly related to export/import structure and the political ability to make cuts so it makes no sense to fault it all on the Euro (or to assume the loss of being able to devalue your currency makes being in the euro-zone a net loss).

bubbleRefuge 11y ago

As some heterodox economists predicted[1], the Euro did/does not have the institutional structure in place to withstand a crisis. Since there is no fiscal authority to implement systemic pro-growth counter-cyclical policy, the knee jerk response of the bankers whom make EU economic policy is austerity and the bone crushing scorched earth deflation that results.

facepalm 11y ago

Are they saying that without the Euro, Nokia would have beat Apple? While criticism of the Euro is not new and may be warranted, the recent times also give me the impression that there is simply way too much room for interpretation in Macroeconomics. So everybody gets to keep their pet theories and nothing ever gets validated.

puzzlingcaptcha 11y ago
Yeah, it's a rubbish argument. Cheaper Nokia phones still wouldn't sell due to lack of demand. They were already cheap in comparison. And by the time they came up with N9 the app ecosystems for iOS and Android were already well established. What I also dislike about articles like this is conflating tax increases and government spending cuts under one umbrella of 'austerity'. If for example Finland increased taxes more while Iceland cut more spending, is the recovery due to devaluation of the krona (btw Iceland imports more than exports) or better domestic demand as people had more money to spend? They also claim Iceland did 12x the 'austerity' Finland did, so maybe it helped after all? That's what should be investigated. That is not to say euro is not to be blamed, but not for the reasons in this article.

scotty79 11y ago

> Countries can't devalue their currencies or cut interest rates or even spend more when they get into trouble, and so they stay in trouble. Not only euro countries can't do that. Many countries with separate currencies have independent bodies dedicated to keeping currency stable. You can't order those bodies to devalue the currency because two main things your economy was doing that were worthwhile became obsolete. They ought to keep inflation target regardless of governments and economy. It's often written into the constitution. The only country I know that can have their currency devalued according to what economy is perceived to need is USA.

joeyspn 11y ago

I'm not a big fan of discussing politics on HN, but as an avid financial reader (in other specialised forums) I'll drop this quote here. "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." Henry Ford Henry was spot on. 99,9% of westerners just don't get the monetary system, and asymmetric monetary unions are starting to extract all the assets from the weakest members/states. A recipe for disaster. Also, decoupling the € from the $, or even the ¥ is naive. They're one, and part of the very same formula. Neither of these currencies will break-up w/o dragging the others down the abyss. This is the card that former greek FinMin Varoufakis tried to play.

adaml_623 11y ago
I was coming here to comment that I hate the way that a country 'manages' it's finances. Or makes mistakes. Or joins the Euro. And what I mean by that is that a very small powerful minority entrenched at the top of a countries hierarchy or banking system do things for their own benefit that positively or negatively affect millions of others. And then the media reports on these actions as if it was a _country_ doing something. And the main reason I hate it is because if you don't understand what happened in the past then you are not able to prevent bad things from happening again or happening elsewhere.

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lispm 11y ago

Lots of propaganda against the Euro. It's going on for a few years now. Especially it's coming from a country which recently caused a world-wide economic crisis. Actually the Euro is doing a good job, given all these attacks. Now we read daily about the problems of tiny Greece. Just 10 million people out of 334 million living in the Eurozone. A constant news stream about a tiny tiny problem. Remember how Goldman Sachs tried to profit from Greece in the Eurozone both ways? Helping Greece to hide its debt, so that it can join the Eurozone and then betting that the outcome would be negative. http://www.spiegel.de/international/europe/greek-debt-crisis-how-goldman-sachs-helped-greece-to-mask-its-true-debt-a-676634.html http://www.spiegel.de/international/europe/greek-debt-crisis... http://www.independent.co.uk/news/world/europe/greek-debt-crisis-goldman-sachs-could-be-sued-for-helping-country-hide-debts-when-it-joined-euro-10381926.html http://www.independent.co.uk/news/world/europe/greek-debt-cr...

misja111 11y ago
How is this propaganda? It seems to me that the article is just listing facts. These facts show a not very positive side of the Euro, but does that make the article propaganda? Also, the article is not about Greece. It's about Finland and the Netherlands, and how they have been doing comparing to Iceland.
- tonyedgecombe 11y ago
  It can still be propaganda whilst showing facts. I haven't read the article but pretty much everything I have read on the euro exaggerates some facts and ignores others in order to support the political leanings of the writer or their employer.
- lispm 11y ago
  > It seems to me that the article is just listing facts. How so? It starts with 'The euro might be worse for you than bankruptcy.' This sentence is so vague that it does not make any sense at all. It 'might'? For 'you'? I live in the Eurozone, in Germany, and I fail to see how it is worse than 'bancruptcy. How is growth related to `bancruptcy` of a tiny island? `the results have still been a catastrophe` - low growth in the Netherlands is a catastrophe? Last I looked the Netherlands were a nice country, far form being a 'catastrophe'. 'Now, the normal way to make up for this would be to cut costs by devaluing your currency, except that Finland doesn't have a currency to devalue anymore.' The 'devaluing' theory. Not again. 'since you have to fire people to convince them to take pay cuts.' More theory. Look at Germany. Workers agreed to keep wages stable. Outcome: record low unemployment. 'Iceland' - Iceland has just 300k population on an island. Comparing it to the Netherlands, Greece or Germany is just wrong. Different size, difference situation, different banking system, ...

jagermo 11y ago

Sorry, this is not true. Germany has had a lot of positive effects from the euro, as have the the people living in these countries. I remember when we had to exchange money when going for a skiing trip to Austria (about 30 km from us). Now I can just grab some cash and pay in Germany, Austria, France, Italy, Spain, Greece etc. This is a huge win for me personally. This is as if someone would say: "The dollar is a disaster even for states that do everything right". Yes, you have spending, corruption etc. But that is true for every currency. It might be that the Euro changed a lot of things. Some for the worse, most of them for the better.

tallanvor 11y ago
Yes, the Euro has been great for Germany, but that's because they basically control the currency and have forced inflation to an absolute minimum, even though a reasonable amount of inflation would be significantly helpful for Greece, Italy, Spain, and quite a few other Eurozone countries. So yes, Germany is doing well, at the expense of the rest of the Eurozone.
- facepalm 11y ago
  How do they control the currency?
- jagermo 11y ago
  Do you think the rest of the Eurozone would be better of without the Euro? I don't want to start a flamewar, I'm just interested. I remember Italy and its Lira (something like a 1000 Lira equaled 1 Mark). Now the prices in Italy are kind of stable (we go there a few times every year). I am no expert but it seems that the Euro brought more stability. Plus, please don't forget that Germany enforced austerity measures since we got the East back. We have basically been used to them for so long and it kind of saved us during the last crisis. Its more of a lucky side effect I guess...
  - kilburn 11y ago
    I don't know about the rest of the eurozone, but as a Spaniard I must say that I do think we would have been better off without the euro. The euro gave us the gun to shoot ourselves in the foot, and we have done plenty of stupid things with it. A few examples: - Huge inflation. In a very short timespan (two years maybe?), we went from 1€ = 166pts to 1€ = 100pts in purchasing power value, without an equivalent salary raise. - Crazy housing bubble, with an ~100% rise in house prices between 2002 and 2008 (!!) - Over-indebtment to pay for stupid things: airports in the middle of nowhere, high-speed trains to unpopulated areas, etc. - Destruction of several industries (e.g.: a huge clothing industry) I could go on but I think this illustrates my point. Again, I'm not saying that this is anyone else's fault. This is what we spaniards deserve because that's what we chose to do with the possibilities the euro gave us. Nevertheless, it doesn't change the fact that we could not have done all these things without it. Edit: format.

MeNotMe 11y ago

It's such a bad idea. Germany needed to be pressured into the Euro by Mitterand in exchange for Germanys unification. France didn't want a unified Germany with an independent currency.

knivets 11y ago

It is the same guy who wrote this — http://www.washingtonpost.com/blogs/wonkblog/wp/2015/01/14/bitcoin-is-revealed-a-ponzi-scheme-for-redistributing-wealth-from-one-libertarian-to-another/ http://www.washingtonpost.com/blogs/wonkblog/wp/2015/01/14/b...

Oletros 11y ago

Shocking, an US newspaper advising against the Euro

wmkn 11y ago

> "That's left Dutch households with a bigger debt burden than anyone else in the euro zone." Sure, this is a problem. But it is an unfair comparison if you do not put it against the (much bigger) savings held by the Dutch. http://www.cbs.nl/en-GB/menu/themas/macro-economie/publicaties/artikelen/archief/2012/2012-3680-wm.htm http://www.cbs.nl/en-GB/menu/themas/macro-economie/publicati...

mcv 11y ago

The article is correct. A monetary union without a fiscal union doesn't seem to work very well. I should add that the Dutch situation isn't helped by 15 years of mostly right-wing governments that were already in love with austerity, but that only underscores that austerity is pretty harmful to your economy. The euro could work fine, just not with the current rules. There needs to be some mechanism that compensates for the inequality between the different countries, just like how poorer regions within a sovereign country tend to get extra aid.