Spinoff from this Elections forum thread on the French presidential election, which Socialist Hollande just won, which Reuters calls “a swing to the left at the heart of Europe that could start a pushback against German-led austerity.” To which Airman Doors USAFresponded:
Will it happen? Is the euro so fragile that it can’t survive a revolt against austerity measures? I don’t see how. Isn’t Europe what ecnomists call an Optimum Currency Area? And hasn’t everybody learned the advantages of having money you can spend anywhere in it?
As I understand it, economists differ over what constitutes an optimal currency area, but I think they might agree that the eurozone isn’t it.
The hassle of changing currencies has lessened, to be sure, but then it would have decreased anyway, due to technological advances. A citizen of a non-Euro country can get money from an euro-ATM without any problem, at a competitive exchange rate. No doubt the trade zone that is the EU is, to some extent, to thank for that. But the point is, it doesn’t require a common currency. It applies just as well to British citizens visiting Switzerland - that is, non-Euro users visiting a country that is not in the EU.
I do see a euro collapse-but it actually will have benefits:
-states like Spain, Greece, etc. can now devalue their currencies, and become competitive again
-Germany can revert to its own currency, which will become stronger-that will cramp its exports a bit, but more importantly, reduce the cost of its imports-which will mitigate inflation.
A noble experiment, but doomed from the start.
Is George Soros shorting the euro?
Introduction of Euro was a huge blow against economic sovereignty of member countries, especially small ones. When the economic times are good, that can be ignored. When recession hits, and you cannot make independent economic decisions, the reality hits.
If France and other countries start pushing back against austerity, seeing as how countries defaulting on their loans would bring much worse problems on all of the Eurozone (at least) than it currently has, doesn’t that give those countries a lot of leverage to negotiate with Germany and the banks? “If you don’t start backing off and being more flexible then we’re going down and we’re going to take you with us!”
If the euro (which is spelled with a lower-case “e,” BTW) does collapse, how does that affect the global economy? (That is to say, of course, how does it affect America?)
I would rate it as higher than that but still not certain. The factual actual is that the Euro is in tremendous imminent danger as are the economies and stability of much of Western Europe as a whole. Most of aren’t used to thinking about Europe as a hotbed of political, social, and economic instability because it hasn’t been that way during our lifetimes (post WWII) but it has been historically just as volatile as the Middle East is today and could easily revert back to that given just a few additional negative circumstances.
The thing that some people realize is that this isn’t just a choice that people can make. SOMETHING very big will happen soon to the Eurozone economy and probably within the next few months to a year. The current situation is unsustainable. Austerity measures aren’t meant just to be a means of punishment for the countries that have to undergo them. They are to buy time and to help correct systemic issues within those countries. All of the major world financial markets are tied together as a very automated system. Given the right set of triggers, the entire Eurozone banking system could collapse within in a few hours time and there isn’t anything anyone could do about it.
The Euro was a bad idea to begin with and I hope that it does get dissolved with the smallest amount of disruption as possible to the European countries like Germany and France that can support themselves but especially to the world economy as a whole. The secondary effects would still be felt in the U.S. because of integrated financial markets. The U.S. might merely get thrown into another recession while the Eurozone would be dealing with a true and devastating depression.
The last time I was in the Eurozone was pre-euro, and the only hassle I remember when it came to money was that you didn’t want to get stuck with too much cash because you probably wouldn’t get as good an exchange rate than you would pulling from dollars to the needed currency via ATM. The other problem was that you still needed a lot of cash on hand instead of being able to use plastic of one form or another for almost everything. Combine that with the ATM often giving out too big a bill to be useful–I pulled $100 in Vienna, for instance, and got about 1300 schillings, mainly being a 1000 schilling bill and three 100 schilling bills. It was like having three tens and a hundred. Impossible to find a place to break it.
I think they have a chance to save the euro, but they’ll have to make some real big changes to do so. I can’t really say to any specifics, just a feeling that there would have to be actual political integration on a much deeper scale than what currently happens in Brussels. Right now, it feels to me like the difference between the Articles of Confederation and the Constitution.
We’ve had a lot of threads on this topic. Quite a few. Feel free to do a search sometime.
This isn’t about resisting a “revolt”. You can’t force people to keep their promises. This is especially true when you are deliberately setting up a system that makes it harder for them to keep their promises. I have nothing much against austerity, in broad principle. A lot of countries in Europe need to undergo stringent economic reform in order to be more efficient.
The problem is that despite the long-term benefits of economic reforms, including some of the current austerity measures, Europe is facing a cyclical problem. Austerity is contractionary. It makes cyclical problems worse if it’s not offset in some other fashion, like a more sensible monetary policy. It is literally impossible for austerity to work when the afflicted countries are already suffering a sharp drop in NGDP with no chance of external devaluation. Austerity just makes cyclical problems worse.
Austerity is doomed to failure if there isn’t some other measure to increase the nominal income of the afflicted countries.
Fuck the hell no.
A few selective euro-boosters said the eurozone would be more optimal than individual countries. Some people also said the Titanic wouldn’t sink.
Our opinions on these sorts of over-confident statements should, if we are rational, update when we begin to notice the ship taking on water.
I won’t argue with that, but I’d give four-to-one odds that the eurozone won’t exist in its current form within two years even if it doesn’t collapse entirely. A country could, possibly, be ejected without the whole system coming apart. Possibly. There’s also a remote possibility that Germany eventually sees reason and accepts that the eurozone needs higher NGDP growth, which means they need to eat a higher inflation rate. Chances of them accepting this are much higher if the world starts to crumble around them and they see no other choice for their own banks. Things could be weird, even without a collapse. The present path can’t continue, and they’ll wise up to that, in one way or another. Contractionary policy like austerity is exactly the wrong medicine for their current problems, if it’s not balanced by higher NGDP from more sensible money from the ECB.
I’d like this to be correct, but we’ve had a recent lesson in finance on how systems that seem to be separate can become inextricably connected in subtle and dangerous ways. Even if US banks have hedged their primary exposure, I’m not so confident that they’re similarly immune to secondary and tertiary effects. I would say, though, that the Fed response is nearly guaranteed to be better than the ECB response, which is a big advantage in our favor.
The Euro is toast unless there’s much deeper integration amongst the constituent nations which absolutely nobody wants. The only question is how best to dismantle it without setting off another depression or war; the Italians assassinate their politicians almost willy-nilly even in the best of times, and the Greeks have just elected a clutch of Neo Nazis and Communists into national government.
I think the euro as a whole is definitely at risk.
There are two things I don’t understand about the issue in Greece, though:
Why does Greece seem to get to vote on austerity measures 25 times a year? What is the constitutional reason Greece has had so many votes on austerity? A huge part of the instability now is because no vote in Greece is final for any reasonable period of time. At least in the United States if we vote in a new slate of politicians then we’re stuck with that decision for two years at minimum (sometimes four, sometimes six.) I understand Greece is a type of parliamentary democracy but how in the hell is it that their system results in new votes on this stuff so many times in such a short period of time?
At this point, I think the uncertainty and instability being caused by Greece’s presence in the euro is potentially worse than the actual fiscal effects of Greece rejecting austerity. Why not just eject Greece from the euro currency zone? This would allow Greece to hyperinflate its currency and pay off all of its creditors. Any bailouts from the eurozone countries would be for eurozone banks that lost money due to this.
This would be bad in the short term for everyone, but I actually think it would allow both the eurozone and Greece to get things back on the right track a lot faster than the current situation.
I don’t believe hyperinflation style bankruptcy is a panacea (many people point to places in South America where it has worked very well), because for large established economies like the United States, United Kingdom, France etc I think the results would be too negative. For a small country like Greece that has never truly been first world on the same level as most of the eurozone and other major western countries I think hyperinflation is something that Greece politicians need to be capable of using as an emergency tool.
Simple. Re-introduce the various national currencies, and announce that the old, euro denominated debts will be paid according to a new exchange rate.
End of story. Why keep the charade going? Greece can NEVER pay off its debts-even if every Greek paid his taxes for 100 years. Write off the debt and start over.
I’m certainly open to correction, but my understanding has been that the financial relief for Greece has come in a series of stages or “tranches”, and each tranche has conditions placed on it by the central bank (essentially France and Germany for this discussion). Greece in turn has to accept those conditions on each tranche, which has to be done in Parliament, by a vote.
Why the relief is structured this way, I don’t know - I think because it responds to changing conditions as they go along.
Forgot to add - that’s different from the recent elections to Parliament, which elected new members. Normally that only happens every few years, just as in the US, but if the government falls on a confidence vote (e.g. - if the Parliament rejects the terms of a tranche and the government resigns), it can trigger new elections.