Well done to the euro then

Let us not lose sight of what has occurred. The root cause of this social, political and economic disaster is EMU. As Nobel economist Paul Krugman said this week: “Depression-level slumps didn’t happen in Europe before the coming of the euro.”

And we did tell the federasts so.

28 comments on “Well done to the euro then

  1. Wrong Tim you cannot tell a federast anything.Not even now when it stares them in the face.

  2. Eggs were broken. But lessons have been learned. We should put all this misunderstanding behind us and move forward together into the bright new dawn of Euro-State Utopia!

  3. Sure, before the Euro there was full employment in Spain, Greece never went bust, Italy never inflated its debts away and Cyprus had a thriving and honest banking industry that never laundered any money for the Russians. Yawn.

  4. It really does surprise me that Tim, who is generally against governments doing anything at all, is so in favour of governments controlling the currency. Can you explain this discrepancy?

  5. @Dearieme – which we seem to be doing.

    And, gosh, of the major currencies since 1999, which is winning said competition? Euro has gone from a low of about $0.8 to a high of $1.6 and currently $1.4. Pound has fallen off the chart, Yen is falling off the chart, China is forcibly devaluing again after about half a week of floating, and pretty much only the CHF is stronger than 15 years ago. So much that they backstopped it and have been de facto euro members for 4 years (SNB had to buy up tons of europeriphery junk to keep their currency down – just proving that there’s really no such thing as economic independence in a globalised world anyway).

    And sure, if anyone wants to set up the Utrecht Florin or the Breton Franc, or the Ruzomberok Tolar, why should we stop them?

  6. BiG – you blithering idiot. Thanks to the Germans, the monetary base in Europe is catastrophically tight. Eventually, even the Europeans will figure out what the Germans have done. Until then, all investment money will sit in the German ten year Bund, and the decline of the economies on the periphery will continue. Congratulations Germany! Thanks to your economic ignorance you have brought Europe to her knees for the third time in one hundred years!

  7. No, the currencies aren’t competing; each has a monopoly in its own territory. I would rather see the Euro made legal currency in the UK, but without the abolition of the Pound. Then they’d compete. And it has the side benefit of making kids good at mental arithmetic.

  8. @Jean,

    Germany is about 12 months away from starting to buy back those 10-year bunds. At which point there will be no yield and no further demand for them. That money has to go somewhere.

    What your blithering has done is illustrate the root cause of the problem – government over-indebtedness (yes, including Germany). Why anyone is surprised at anaemic or nonexistent growth when the State goes around hoovering up all the spare capital is a mystery.

    With which the euro has nothing to do. If there had never been a euro all the governments would still be broke and all that money would still have fled to deutschmark 10-year bunds.

  9. @Squander, pre-euro it was common for other national currencies to be accepted in border areas. The Euro is in widespread use in Switzerland, Hungary, and Croatia (just speaking from recent experience), though admittedly Forints and Kunas haven’t really made much headway in the eurozone.

    And plenty places take euro in the UK, you are free to transact in it if you like. I run a UK-based voluntary and we account in euro, do our returns in euro, and pay our taxes to HMRC in euro. If that doesn’t make it a legal currency there, I am not sure what does.

  10. BiG – you blithering idiot. Thanks to the Germans, the monetary base in Europe is catastrophically tight. Eventually, even the Europeans will figure out what the Germans have done. Until then, all investment money will sit in the German ten year Bund, and the decline of the economies on the periphery will continue. Congratulations Germany! Thanks to your economic ignorance you have brought Europe to her knees for the third time in one hundred years!

    Don’t blame us… the Euro was the price the Froschfresser demanded for reunification.

  11. BiG,

    “of the major currencies since 1999, which is winning said competition”

    What competition.

    I am not sure why you don’t accept the shock absorber benefits that come from a single fiscal / tax zone having its own currency (both exchange rate and interest rate stabilisers), or not accept, from another thread, the disaster that is the euro reality?

    Let’s take Spain for example. 2008 / 09 and the £ crashes against the € (as you described). Lots of Brits head home (a shock), as Spain is now too expensive. Lots else too and the Spanish economy tanks. Spain currently has ~ 27% unemployment and 55% + (?) youth unemployment.

    Alternatively – with the peseta – simplistically the peseta would have devalued in 2008 / 09 along with the £. Less recession in Spain as a result. And Spain wouldn’t have boomed to the same extent prior to 2008, with higher interest rates being demanded for riskier (higher inflation) peseta debt. Hence, even less of a relative decline come 2008.

    Ditto other Med countries now totally trapped (through the prior excessive boom) at the wrong exchange rate unless they continue to deflate back to competitiveness with Germany, but which would further increase their “relative” (euro) debt. Greece to the extent that it is now resorting to electing neo Nazis to Strasbourg.

    There is no single euro fiscal / tax zone. Unless debt is forgiven or other transfers take place, such a Med country risks being locked in a deflationary spiral with ever increasing debt as a % of GDP. Germany for now refuses to engage in the type of large scale transfers – that say London engages in naturally with Liverpool by virtue of HM Treasury’s role in managing income taxes and expenditure.

    This is (one of the reasons) why the UK would have been stark raving bonkers to have joined the euro. Even factors such as our non convergent mortgage system (with its mainly variable interest rates compared to Germany) could have been a potential “mega shock” simply waiting to destroy us.

    Of course, you are in Germany, and perhaps as the main beneficiary of the current imbalance within the euro zone you have a different perspective?

  12. @ BiG

    “Germany is about 12 months away from starting to buy back those 10-year bunds.”

    How is Germany going to buy them back…

  13. Yes, clearly Europe would have been better off with 17 different currencies all trying to devalue against each other.

    When was it we actually unfixed exchange rates? Bretton Woods – remember that? 1971 or so I think. And basically gold everything before that. Floating exchange rates are the experiment – not the fixed ones, though I grant you BW and predecessors were in a world of pretty serious capital controls (absorb the shocks by shutting down trade). Back when you could only take £50 out of the UK at a time.

    The lack of a single European tax/fiscal regime simply wouldn’t be a problem if we had governments eating the 15-20% of the economy they should do rather than the 50-60% they do (with consequently a majority of jobs dependent on the largesse and solvency of the govt). Personally I’d prefer the crisis succeeded in shrinking government (how much did Greece cut its civil servants salaries? 30% wasn’t it?) than introducing another layer of tax.

    And to take your argument, why don’t we have an independent currency for Liverpool? Letting the Liverpool Pound perpetually devalue would surely be good for Liverpool.

  14. @ BiG

    “Yes, clearly Europe would have been better off with 17 different currencies all trying to devalue against each other.”

    It’s not what I said!

    If you read again, I talked about the need for a “single fiscal / tax zone having its own currency”. No problem at all if 17 countries want to join together, but they need to do the “single zone” trick if they want it to work more effectively than it is doing currently.

    “capital controls” – precisely..:)

    and I don’t disagree at all with your small spending / small government – in fact I agree completely!

    “the Liverpool pound” – not at all necessary, as again, we have fiscal transfers in place within our (£) currency area – the UK is a full political union.

  15. And separately from that, 17 wouldn’t all try to devalue. Only those adversely impacted by a shock would devalue against those less impacted.

    Ie, the Deutchmark north, without the euro, whould have appreciated against the Club Med south, as we know.

    Hence, Germany’s economy is gaining hugely right now due to its currency being relatively cheap (by being tied to the Club Med). Ie, funds should be transferring from rich to poor (as they would in the UK) but there is no euro zone political / fiscal union to deliver that.

    And re the small government thing (15%-20%), yes, but we know that’s not going to happen.

  16. BiG:

    “Yes, clearly Europe would have been better off with 17 different currencies all trying to devalue against each other.”

    That’s the problem. They shouldn’t be trying to devalue they (by which I assume we both mean politicians) shoul let their currencies float, and have the balls to tell their electorates why.

  17. That’s the problem. They shouldn’t be trying to devalue they (by which I assume we both mean politicians) shoul let their currencies float, and have the balls to tell their electorates why.

    When money has been reduced to just a number in a computer that politicians can arbitrarily increase or decrease, you can’t stop them meddling with it.

  18. I can really see that one working. Merkel standing up and saying, some Friday afternoon: “Now that the banks have closed I can tell you that on Monday we reintroduce the Deutschmark, because it will appreciate strongly against the Euro. There will be a big recession and three million job losses in Germany, while capitalists and speculators will make billions from the chaos and currency appreciation. We will rescue our banks by converting your euro deposits to Neumark only once the exchange rate has settled while your debts are already in Neumark. We are taking this important step to deliberately become less competitive with our southern neighbours. If we don’t charge more for our products and services, we won’t be able to make more of us unemployed so that they have more jobs”.

    Y’see, this euro thing does indirectly feed into stopping Germany invading Poland again.

  19. > Merkel standing up and saying, some Friday afternoon: “Now that the banks have closed I can tell you that on Monday we reintroduce the Deutschmark

    Er, why? Oh, you mean because that’s exactly how the Euro was introduced? Without warning, over one weekend, while the banks were shut? Yes, you’re right: that’s definitely how it would happen and not an insane example at all.

    > The lack of a single European tax/fiscal regime simply wouldn’t be a problem if we had governments eating the 15-20% of the economy they should do rather than the 50-60% they do

    And a pony!

    Given that the Euro is a project of the EU, how do you see that ever being on the table? It’s like saying that there’s no inherent problem with Sinn Fein that wouldn’t be solved by their embracing Unionism.

    > Y’see, this euro thing does indirectly feed into stopping Germany invading Poland again.

    Oh, make up your mind.

  20. @ BiG

    Merkel standing up and saying, some Friday afternoon: “Now that the banks have closed I can tell you that on Monday we reintroduce the Deutschmark”

    Again, I didn’t say (or imply) that!

    My “what would happen” comment (the Deutschmark block appreciating / Club Med depreciating) is very obviously “what would have happened if the euro hadn’t been there” and which was simply a response to your earlier “Yes, clearly Europe would have been better off with 17 different currencies all trying to devalue against each other” comment.

    Shifting goal posts..;)

    BwaB

    Yes, absolutely, I was assuming free markets!

  21. @S2, unlike the euro introduction, which took about 40 years and at least 1 (arguably 2) false start(s), a breakup would have to happen over the weekend with the banks shut.

    @PF, I think you are assuming politicians have balls. Even Switzerland isn’t letting its currency float now – it is devaluing, intentionally, to protect Swiss jobs. Why wouldn’t we all do the same given the opportunity? Because Cameron has balls? Or Hollande has balls? Pull the other one – it’s got balls on.

  22. It’s hard to know who to have a go at – Evans-Pritchard for supposing that a 70% vote for pro-EU parties means that the UK is bound to vote to leave the EU, Krugman for forgetting what happened in Europe in 1929, or Barroso for claiming the Euro had nothing to do with the crisis. Did he really say that?

  23. > a breakup would have to happen over the weekend with the banks shut.

    Because you say so. Besides, you missed the “with no warning” bit. No, the banks cannot handle an over-the-weekend shift from one currency to another without someone telling them it’s coming and when it’s coming. It takes lots of preparation — quite apart from anything else, it requires bank staff working over that weekend, which requires someone telling them they’re going to have to work that weekend. In your bizarro world, this is apparently doable by telling the banks at about 6 on the same Friday. You are being ridiculous.

  24. @BiG

    “Even Switzerland isn’t letting its currency float now”

    Re Switzerland, perhaps also remember (quite separately) the issue earlier of huge “safe haven” investment flight into the relatively small Swiss economy, and that, as a result, the CHF had already massively “over appreciated” by the time that CHF1.20/€ printing threat peg was put in place?

    Hmmm… Cameron & Hollande versus the good Doctor..:) ie printing Dm’s ?!

  25. @S2, I think that you are forgetting that most analogies have a little flaw somewhere that you can go and pick nits out of if you want to take attention away from the message.

    In fact that’s one of Schopenhauer’s stratagems, isn’t it?

  26. A couple of years ago the inaugural Wolfson economics prize invited plans for dismantling the Euro. As I recall, most of the short-listed entries did indeed plan to do the split over the weekend with the banks shut after a surprise announcement.

    Personally, I doubt that’s achievable. I think the way to do it would be to decide what the new currencies are going to be – New Euro, New Drachma, Neue Deutsche Mark, whatever, start them all at parity, and exchange all current Euro holdings into an agreed mix of the three. That way you don’t need the secrecy, because there’s nowhere for capital to flee to. But it would need the co-operation of the whole of the Euro zone, and inconvenience its entire population.

  27. @PF – indeed – the low yield on German state debt, and the projected huge appreciation of the New Deutschmark should Germany leave the euro are part of the same flight to safe havens. A consequence of excessive amounts of scared-shit globally mobile capital going to where it’s going to lose least rather than being used for some kind of productive investment.

    There are many ways you can spin that fact.

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