If the economy in any given region of the US declines, the people have a much greater ability to move where the jobs are than they do in Europe. Anywhere I go in the US, I’m going to find similar people speaking the same language, following much the same laws, and experiencing mostly the same culture. Is an unemployed Portuguese citizen likely to have the same experience if he heads to Germany to find work?
I think the Euro as we know it is doomed because it’s no longer serving its primary goal: fostering political cooperation between the nations of Europe. If anything, it’s making everyone more tense (witness Greece busting out the inevitable Nazi crack against Germany recently). The German response will be interesting because they seem to benefit the most from the Euro; if not for the willingness of their neighbors to maintain trade deficits, Germany’s export-oriented economy wouldn’t work so well.
Also the US integrated itself economically, socially and politically along the same timeline and from a rather nascent stage. The European countries have tried to do no real social integration, politcal integration in a limited way, and the ecomomic integration is being attempted with very mature , previously independent economies. The comparison is strained at best.
Germans don’t want to do it and the German government is dead against it but they’re preparing the ground for the ECB to do it. It’ll mean the end of the current hard Euro policy if the ECB just starts hoovering up Eurodebt but the alternative is to let let’s say the Irish government and consequently their banks go bust. And German banks have massive exposure to peripheral Euro countries’ debt, so the ECB bailing out countries like Greece is basically a backdoor bailout of German banks. Either Germany closes its eyes to the ECB doing it or it has to bail its own banks out for vast sums of money.
Switzerland takes Euros and Swiss Francs everywhere. You can buy chicken curry sandwiches and glasses of champagne at the main bar in Zurich airport, the taxi drivers, hotels and restaurants all take Euros. The ticket machines in parking garages and vending machines take both currencies. Before the Euro came along you could spend Swiss francs, French francs, Deutschmarks and Lira.
There is a high “smoke and mirrors” component to all this, though, isn’t there? If, say, Greece devalues its currency by X% what it’s effectively doing is reducing the salaries of all Greek people, and also the prices of all Greek-made goods (and Greek property) by X% and then continuing on as before, hoping that the new lower salaries will attract outside investment, and the new lower prices of goods encourages overseas buyers to buy more goods.
Both of these strategies are actually available to workers and companies who are struggling at any time, it’s just that for psychological reasons they are reluctant to employ them. ISTM that it would be a good idea if they did employ these tactics without the government basically forcing them to. Having been once employed by a company that did exactly that during a lean time (and subsequently went on to be extremely successful) I have a fairly positive view of that possibility.
Philosophically speaking, I observe that there seems to be no real consensus between economists about the way in which a government should “stir the pot” in economically bad times. There are still violent disagreements on this very board about whether the “New Deal” solved or exacerbated the Great Depression, f’rinstance. So I’m not sure whether tying the governments’ hands and preventing them from doing any fiddling might not be for the best in the end.
No, it is effectively increasing the cost of imported goods and services. Non-traded goods and services (local mfgs, local services) remain unchanged (except to the extent imported inputs impact end price).
Some segments of the pop effectively get higher salaries, some lower. Depends.
Greek goods and services relative to the Rest of World look cheaper. Outside investment is an added bonus, but Greek exporters immediately become more competitive.
Eh?
If you mean that it is “psychological reasons” that workers refuse salary cuts, to an extent. Human behavioural bias against direct losses is becoming well-known.
However, you have left out the issue fixed (contracted) obligations.
Generally contracts - employment, services, utilities, etc. are written in nominal currency unit terms. It is difficult and expensive to rewrite contracts, and well-night impossible relative widely consumed services that are contracted. By lowering the nominal value of the unit of account, the government in question (within limits) saves on a significant direct and time cost re this problem.
It is thus in the real of the idealized theoretical that a general devaluation / price cutting strategy is available to the Greek economy in general.
Of course, if you are an entity that contracted an obligation to pay in a foreign currency (as banks and certain suppliers may do), well you’re right fucked.
That’s in the realm of hand-waving fantasy. Of course cost cutting and efficiency are long-term goods, but in a situation where the economy is suffering from an over-valued currency relative to other currencies, real world experience shows that single firm action is… like a little Dutch boy with his finger in the Dike. Nice gesture, sure, but you’re still quite fucked.
I’m bemused by this level of analysis. Bemused.
Perhaps in the United States.
As far as I can tell, it is between some ideologues relying on piss-poor economics.
Suppose the Euro is abandoned?
What would happen?
Would the member states have eruo-national currency conversion for a limited time?
I’d love to see the lira come backprices in hundreds of thouands!
FWIW, the Euro is the official currency of three non-EU states (Andorra, Kosovo and Montenegro). Of course they aren’t technically part of the Eurozone.
Germany would go back to the D-Mark which many of the smaller economies will peg their own currency to. The Danish Krone was pegged to the D-Mark before it became pegged to the Euro. Not much change there. I expect the D-Mark would become de-facto currency in many other countries.
As it is, the Greek, Irish, Portuguese crisis is actually a great benefit for many northern economies – including I think Germany. It depresses bond rates in these countries (as money flees the PIIGS and seeks safe havens) and it depresses the Euro, making exports more competitive. Germany, Denmark (& Sweden) are currently experiencing an export driven boom. The trick is to keep the Euro reeling but not actually toppling over – which would be too messy. Greece, Ireland and Portugal can all go down in flames – they make up just 5-6% of the Euro-zone economy. Spain & Italy needs to be kept standing.
