Following last week’s votes by the French and the Dutch to reject the European Constitution, there have been murmerings in Italy that they might withdraw from the Euro currency.
What would the impact be were Italy to bail out? Would it create a domino effect with other nations withdrawing? Would the Italian economy pick up or be hammered by it?
I’m not sure what the mechanism might be for withdrawl - various commentators have said it’s highly unlikely that it would ever happen?
The European experiment didn’t suddenly happen with the Euro. It’s been a long, slow evolution. The fact is, some didn’t like the way it was evolving, and so it’ll take a slightly different tack.
The idea is really downright silly. Some politicians are willing to play silly or dangerous games however as long as it gets them votes. It worries me, a little though, as if it would actually happen it would be disastrous. Right now though, I’m half hoping that anyone really involved in this sees that the idea would be outright silly, and although you might find enough votes to support the idea of reverting back, noone actually involved in the financial and political issues that would involve would be crazy enough to cooperate.
Well, as much as I love to avoid a good brouhaha, I’m a bit taken aback by the unthinking cliches presented here.
So tell me, why is the euro such a great, wonderful, magnificent thing, if the eurozone has been, in the aggregate, stagnant pretty much since the euro started, and if the one major country that stayed out, Britain, is doing just fine? Does this constitute proof of success to you guys? And if so, just what, exactly, would constitute failure? Ten years of stagnation? Twenty? Maybe a mere, oh, five years of out-and-out depression?
I’m really curious. Tell me.
I think you are falling into just the opposite trap. You are implying that the euro is a failure because the German and Italian economies are in the shitter.
The German and Italian economies may well have been in the shitter anyway. Nobody has a crystal ball on these things. The Irish economy is performing very strongly, and we’ve adopted the euro.
I realise that we are a small, open, trade dependent economy, but my point is that perhaps you should look at other reasons why growth is sluggish in the big european economies. Rigid labour markets, high taxation, red tape etc.
The other thing you should realise is that things change very quickly. Only a couple of years ago, the euro was very weak against the dollar. Euro-sceptics seized on this as evidence that the euro was a failure. Now they don’t mention it too much.
In summary, what i’m trying to say, is that the euro is neither a panacea for all of europe’s ills, nor the cause of all it’s problems. It does however make trade easier between countries by removing exchange rate fluctuations.
The reason Britain is doing fine has nothing to do with the Euro, and everything with the fact that it came from a very deep depression. It had stripped its workers from most rights and for a long time Britain didn’t even have a minimum wage. Britain is now mostly benefiting from having made itself exceptionally cheap. That is not to say that poor people in Britain are now well off, but Britain does share some of the dynamics of the U.S. economy in that regard, but without as much of the aweful debt Bush has run that country into. However, as soon as Britain has regained the average Western level of prosperity, it runs the risk of seeing the Pound severely hamper any further progress by becoming far to expensive. This process can be witnessed in, for example, Norway, which thanks to its massive oil reserves had a budget surplus for several years, but which saw many of its benefits cancelled out by an expensive kroner.
France and Germany, on the other hand, suffer from several problems that have nothing to do with the euro. Both France and Germany have a social system that seriously needs reform, they need to cut costs, balance the budget, and invest in the proper areas (development and education)*
Of course, the problem of an overweight social security system is all the more pertinent for Germany, which after all has to carry the weight of a near bankrupt former East-Germany.
The Netherlands ‘suffers’ too, in the sense that unemployment is rising. But we were quite recently a country with the lowest unemployment rates in the world, and that naturally resulted in wages skyrocketing, of which we now suffer the backlash. The Dutch guilder, linked to the German mark for I think 18 years now, was actually stronger than the DM at this point and could have gotten a higher rate against the Euro. It is fortunate however, that we didn’t, because now the relatively cheaper Euro put a brake on our inflation (over 4% the year before the Euro) quite a bit.
Compare that to the fact that the Netherlands alone saves 15.000.000.000 euro (the cost of introducing it to our country) each year by no longer having to deal with exchange rates and different national currencies.
Currently, the expensive Euro has benefits and downsides. On the one hand, it mitigates the effect of expensive oil, which is sold in dollars. On the other had, the expensive Euro hurts our Export.
Generally, the strength of a currency indicates a good economy. However, in this case, the European economy isn’t good so much as that the American economy is bad. We fully have Bush’s expenses in Iraq and Afghanistan to thank for that.
Anyway, I’m not an economist (IANAE?) but don’t assume that because some of us like the euro, we are unthinking.
Not entirely true: the depression was at least partly caused by the last Tory government having the pound shadow the ERM (as it was then). This caused many problems, culminating in Black Tuesday. As a result, we are decidedly skeptical about repeating the exercise.
I’m going to need a cite for that, first of all.
Secondly, for the sake of argument, I’ll assume that this has something to do with things like fired FX traders, both in banks and in large companies that had to deal with exchange-rate fluctuations and hire people to administer that, and who thought of it as a cost.
Big deal. The last thing anyone should be concerned with when it comes to running an economy is how many costs get piled onto big banks and big companies. Small concerns are the ones responsible for economic development, not big ones, and they are most likely to do most of their business locally, first within the city/town and then the region in which they were founded, and then only after that initial success will they do business elsewhere, which, depending on the size of the nation in question, may or may not involve having to get concerned with exchange-rate fluctuations. Either way, for a rapidly growing and now medium-sized concern, it becomes just another cost of doing business. I realize that this model doesn’t work for the vanishingly tiny number of companies that depend for most of their success on the Internet.
Getting back to fx trading as a cost, there is a benefit: a currency, like anything else, can and should be valued on the open market. The benefit to having it valued thusly is that it gives instant, real-time feedback on how a country’s economy is doing. Before the euro and the ERM, Europe had the benefit of a multiplicity of currencies giving precise, real-time feedback to a large number of nations. With the euro, all that feedback has been suppressed. I at first thought this would lead to a boom followed by a long stagnation, but I was wrong: the boom never came. To quote from an article on the last global economic update from the OECD:
I would call all of your arguments about what happened to the Dutch economy previous and post the euro circumstantial. Anecdotal, even. We have the eurozone, wherein aggregate growth has been insignificant for 5 years, coincident with the life of the euro. And we have the UK acting as a control on this experiment, doing quite nicely. Indeed, in the above-cited article, projected growth in the US was revised upwards by the OECD, which flatly contradicts your assertions about the US having a bad economy relative to Europe. Note well that the previously projected level was already 50% faster than the aggregate of eurozone growth in any of the past 5 years. That’s not doing badly relative to Europe; a more reasonable description would be “way better”.
Huh? the banks make money from FX transactions! They take a cut. It is other companies, both large and small, and individuals, who take the hit.
Anyway, this is all just handwaving.
here is your argument.
The UK economy is strong and it is outside the eurozone, the german/italian/french economies are weak and they are in the eurozone, ergo, the euro is bad news…
I’m afraid this just doesn’t follow. Myriad factors make up economic performance. You are picking one.
As i said before, Ireland is in the eurozone, but has stronger growth than the UK and the US. Maybe the key factor is speaking english!
The real factor is probably that US, UK and Ireland are lower tax economies with less regulation. Even from your own cite:
They’re calling for reform… not to scrap the euro.
Well, max power, thanks for the reply and the attempt at interpretation, but it’s that last argument by you that is my real argument.
The assumption is precisely that: that absent exchange-rate fluctuations, things will be better. But if that’s so, why have things stagnated over the last five years? Saying that it’s because the countries inside the eurozone haven’t implemented reforms is, pardon me, stupid. Why?
Because if everyone knew those reforms, whatever they may be, were needed in order for the euro to work, why do the euro before you do the reforms? And what, exactly, is the euro supposed to do for you if it can’t work absent these reforms?
It strikes me as the kind of argument a communist would bring up if it was pointed out that their economies were perpetually lagging those of the West, back in the day: they’d bring up everything under the kitchen sink, saying that in some ideal world, it really, really would work.
Well, sorry, this is the real world you have to deal with. If the euro can’t work in that real world, too bad.
As for bringing up Ireland’s performance under the euro, this proves precisely nothing. In any sample of anything, there will be an outlier. Ireland is the outlier. Big deal.
Also, continuing on Ireland: you would have to prove that, absent the euro, Ireland wouldn’t do as well as it presently is. Correct me if I’m wrong, but my impression is that joining the EU was what did it for Ireland, not the euro.
My argument is against the euro, not the EU, just to be clear.
Well, as I said when I started: five years of below 2% growth should be enough for any reasonable person who isn’t wedded to an ideology.
Do you need ten years? Twenty? How long before YOU give up?
I would argue that a skyrocketing real-estate market and the resulting boost to consumer spending from mortgage equity withdrawal have a lot more to do with it. As the table near the bottom of this page shows (look for the red headline “*The Economist * Review of Property Market”), the average house price in Ireland climbed 181% between 1997 and 2004, the biggest gain among the 20 countries for which figures are provided.
