Sadly, the architects of this plan have it backwards. Their starting point is “What is necessary to save the euro?” From there, they end up advocating policies of quite startling brutality. Yet the very differences in housing wealth between nations illustrate, once again, the folly of locking disparate economies into a shared currency. Those in Brussels and Berlin must ask instead: “What is necessary to restore prosperity to our benighted continent?”
They\’re almost there at Telegraph Towers but still not quite.
With climate change the question is not \”How much will it cost to stop climate change?\” but rather, \”What is the cost of climate change and thus how much is it worth spending to stop it?\”
So with the euro. Not \”What must we do to save the euro?\” but \”What is the value of the euro thus how much pain should we inflict to save it?\”.
My answers being not much and pretty much none but I agree that people can differ on that. The important thing is to be asking the right question.
Well, the problem as we all know is that if you want a central bank debt backed fiat style currency, the political boundary has to be the same as the currency boundary. That is, you can’t have one currency and separate governments.
So really the question is whether you value the nation state with its own government more than the Euro or not.
Numerous leading economists are unable to work out the basic EZ problem, namely the inability of periphery countries to regain competitiveness via devaluation. Those countries can effect what amounts to devaluation, but they
My comment above went wrong. I’ll try again.
Numerous leading economists are unable to work out the basic EZ problem, namely the inability of periphery countries to regain competitiveness via devaluation. Those countries can effect what amounts to devaluation, but they’re doing it via imposing austerity for years with a view to their wages and prices coming down.
I’ve listed some of these incompetents here:
Plus Ian B above is not correct to say that “the political boundary has to be the same as the currency boundary”. With a view to dealing with poorly performing regions, the latter “boundary coincidence” IS ONE OPTION as long as its accompanied by the sort of Federal assistance for poor states that the US has. But another option is to have no “boundary coincidence” while combining that with an effective and quick way of cutting wages, profits and prices in uncompetitive countries (effectively devaluing their currency).
As Tim says
We can often disagree on costs and benefits, but cost benefit analysis is essential.
Anyone who does not want to do such and analysis is playing fast and loose with reality.
Far better an approximate answer to the right question, which is often vague, than an exact answer to the wrong question, which can always be made precise.
– John Tukey
So with the euro. Not “What must we do to save the euro?” but “What is the value of the euro thus how much pain should we inflict to save it?”.
I’m not sure that is the right question either. I know this is naive but assuming that each country went in to the Euro following a cost benefit analysis (you can stop laughing now) with the current outcome having being risk weighted.
However that is now a sunk cost as it were and what each country should be asking is:
What is the future value of staying in the Euro against the imposed costs of staying in and future risks of another failure.
“and future risks of another failure.”
Given particularly that the probability of such a failure was very likely hugely underestimated in the original analysis and therefore ought, prudently, the increased significantly this time around…
Ian B – “Well, the problem as we all know is that if you want a central bank debt backed fiat style currency, the political boundary has to be the same as the currency boundary. That is, you cant have one currency and separate governments.”
Actually I am not sure that is the correct lesson. After all, Ireland used the pound for many years. To all intents and purposes Hong Kong, and in the old days Panama, used the American dollar.
What you cannot have is an utter lack of fiscal discipline and the same currency as a more responsible country. Ireland was willing to pay the price to maintain the peg with the pound. As is Hong Kong. Greece is not.
To IanB’s point about political vs currency boundary. You can find plenty of examples where a currency operates outside its politcial boundaries: US Dollar and the old Deutschemark are the best examples. They operate(d) as de facto currencies in many crisis-torn areas, without inflationary pressure, because they had a defined value and the users had confidence in them.
Where joining the Euro was concerned, the cost benefit analysis if it ever occurred was just skated over. The important thing for the countries concerned was to meet the joining criteria, which required considerable amounts of creative accounting by Italy and Greece.
I actually think that the Telegraph’s question is nearly right and needs rephrasing. “Can you bring prosperity back to Europe, within the contraints of the single currency?”
If Yes : is it going to hurt and how much will it cost ?
If No : how do you break the currency up in an orderly fashion ?
“The correct economic question about the euro”
Already wrong. The most important questions to be asking aren’t economic. As I keep saying, this is a political crisis, not an economic one. It’s not like any economist couldn’t tell you the two possible ways out with his brain tied behind his back. It’s just a question of what there is political will to accomplish.
Very simply, either some countries will need to leave the Euro, or Germany needs to start signing cheques (and possibly institute long-term policies to increase economic activity in Southern Europe). That hasn’t changed in the last few years whilst everyone’s been squawking. It won’t change in the future.
I don’t think the probability was under-estimated at all. It’s the ludicrous political responses to a relatively minor problem which have been – from an economic perspective – unpredictable, and, indeed, even irrational. The reality is that the current ‘crisis’ could be fixed at zero cost, and therefore the sensible solution would actually bring net benefits.
Tim appears to be agreeing that different aggregate housing wealth across Europe is important when mentioned in this article but in the one below (on the ECB)he is saying it does n’t matter .Make your mind up. Perhaps the answer is that some places have got too much wealth in property assets and others have more in well-paid jobs and productive capital.You know what the answer is. All together now….!
These are all examples of using somebody else’s currency, rather than being part of the currency area.
And doesn’t that pretty accurately describe the relationship between the Euro, Germany, and the smaller economies?
I can’t see a relationship between geography and currency-requirements, ultimately. It’s not a problem to have more than one currency in use in a single area at the same time.
Well, no. THe point is that the accursed managed debt based fiat system we all adopted in the 20th century requires coordination between the central bank, government borrowing and spending, etc. So the areas of responsibility of the State and the central bank have to coincide. What we’ve seen here, among other things, is governments acting (borrowing, spending) uncoordinated with the german ECB, which sets its policy based on German government policy, broadly speaking.
Other currency areas do have similar problems, but are more manageable. The British central bank sets its policy for the London bubble, thus economically damaging the hinterland. But since there is a single government, they can compensate by sending money to the hinterland and creating Soviet boroughs.
Which is basically going to be the end result in the Eurozone unless the future Soviet boroughs like Cyprus and the PIIGS get the fuck out. Permanently poor economies sustained by fiscal transfers via the EU.
Take a look at the bigger picture. We don’t need governments to have money, and there’s no reason the poorer economies should stay poor – or that Germany can’t voluntarily make payments without the EU ‘forcing’ it to do so; the EU doesn’t force Germany to do anything it doesn’t want to. It’s perfectly possible to have a practical trans-national currency much like the Euro – although of course that isn’t the same as saying we have one in the Euro itself.
The real basis for our money is not government fiat at all, but rather the value we gain by living and working together in groups larger than a handful. We couldn’t get rid of money and still live in cities, for example. We could get rid of national governments and still have money, though.
With regard to what we actually have, the fixes are obvious enough. Germany needs to pay to sort out the current mess, and there needs to be a long-term plan in place to raise the poorer economies to a level where they can share a currency with Germany without it causing massive problems. In the longer term, it’s hard to see how that won’t be worthwhile for the Germans. All the obstacles are political, not economic.
the basic problem is that currently the inhabitants of the South East Bubble are prepared to fund monetary transfers to Elsewhereshire because we’re all the same country.
The Germans on the other hand don’t much like the idea of giving money to foreigners. And neither do the foreigners much like the idea of beooming German satrapies. Much in fact like the Scots; doesn’t matter how much money we give them, they hate us.
Bear in mind also that while said money transfers can keep the hinterland afloat, it is at the cost of it having an eternally under-running production economy, due to the inevitable bubbling around the central bank.
“currently the inhabitants of the South East Bubble are prepared to fund monetary transfers to Elsewhereshire because we
“currently the inhabitants of the South East Bubble are prepared to fund monetary transfers to Elsewhereshire because we’re all the same country.”
Evidence for that proposition? Personally I think it’s entirely untrue. It’s not some vague nationalistic wibble which makes it happen, but rather the fact that it’s clearly in London’s own interest to do so. Similarly with the UK (or London, if you prefer), Germany and the rest of the EU.
You need to get over this idea of countries having anything to offer us anymore. What the hell extra do I have in common with a Geordie than a Parisian or an Amsterdammer? The ‘foreigner’ lives closer, and is more likely to speak intelligible English.
As I’ve already said, we’re not talking long-term transfers, but rather a programme to bring the poorer parts of the economy up to scratch. The only transfer I advocate is a one-off payment to sort out the current mess, along with a change in the structure to prevent the same thing happening again a few years down the line.
Dave, quite a lot of being are still quite fond of countries. Even if they aren’t, national identity justifies an economic transfer from London to Liverpool to some degree; people moan, but they tolerate it.
If you obliterate the nation, people won’t then say they’re happy to help everybody. They’ll say they are happy to help nobody at all.
And as I said, if you opt for this system, you are committing yourself to eternal such transfers, because the hinterland can never catch up with the bubble zone. The central bank pumps money into the Southeast Bubble, the government takes some of that back as tax and sends it to Liverpool. The economy becomes money-based rather than production based. You’re stuck with that. It’s intrinsic to the system.
“Dave, quite a lot of being are still quite fond of countries. Even if they aren
“Dave, quite a lot of being are still quite fond of countries. Even if they aren’t, national identity justifies an economic transfer from London to Liverpool to some degree; people moan, but they tolerate it.”
And if younger generations feel much the same way about Europe as your generation feels about the UK, where do we get to?
” you are committing yourself to eternal such transfers, because the hinterland can never catch up with the bubble zone. The central bank pumps money into the Southeast Bubble, the government takes some of that back as tax and sends it to Liverpool.”
I don’t see why other areas can’t catch up. Of course, part of the problem is indeed that money gets sent there and spent there, instead of being spent on making ‘there’ more competitive, but that’s obviously not a necessary part of the system.
Dave – “Evidence for that proposition?”
Well apart from the obvious fact that we do actually do this and have done this for several decades, probably not a lot.
“It-s not some vague nationalistic wibble which makes it happen, but rather the fact that it
Dave – “Evidence for that proposition?”
Well apart from the obvious fact that we do actually do this and have done this for several decades, probably not a lot.
“It-s not some vague nationalistic wibble which makes it happen, but rather the fact that it-s clearly in London-s own interest to do so. Similarly with the UK (or London, if you prefer), Germany and the rest of the EU.”
Except it is not. It is not in London or German interests for the feckless south to remain feckless and act as a drain on the productive economies of Europe indefinitely. It may look like it but it is not.
“You need to get over this idea of countries having anything to offer us anymore. What the hell extra do I have in common with a Geordie than a Parisian or an Amsterdammer? The [foreigner] lives closer, and is more likely to speak intelligible English.”
And yet they are foreign. They will not care if you are murdered. They may even be happy. A good definition of an in-group or an out-group is the payment of blood money for your death. If your relatives have the option of taking the blood money, they are part of the same group, if they can only demand a life for a life, they are not. When 7-7 hit, did the Dutch care? Not much except in so far as they were also potential victims. Did Liverpool? Of course.
“As I-ve already said, we-re not talking long-term transfers, but rather a programme to bring the poorer parts of the economy up to scratch.”
Then you are delusional as all programmes start out promising the latter and end up the former. We have been paying to bring the North and the Celtic fringe “up to scratch” since 1950-something with every sign that we shall continue to do so indefinitely.
“The only transfer I advocate is a one-off payment to sort out the current mess, along with a change in the structure to prevent the same thing happening again a few years down the line.”
And yet the South is resolutely opposed to changing anything to prevent the same thing happening again a few years down the road. And why should they given you are so generous with all that German money?
21 Dave – “And if younger generations feel much the same way about Europe as your generation feels about the UK, where do we get to?”
A province of the new European Empire. But it will not come to that. Racial diversity means the end of the welfare state. You cannot have socialism and immigration. Europe is very diverse. Young people do not like Europe all that much from what I can see. They just do not want people to think they are Tories. But even if they did, that does not mean they will pay Greeks indefinitely.
Oh great, now we get the weird racist diatribes to brighten the thread.
You really need to get out of the UK & get around the rest of Europe. The whole “we’re all the same” narrative isn’t much followed outside of the UK centre ground & a couple of the low immigration Nordic fringe. Views that’d make diversity advocates froth at the mouth & browbeaten Brits cringe are commonly voiced & approved of throughout the rest of Europe. Stand outside Lille Flandres station & watch the Roma beggarwomen being shoved along the pavement with police rifle butts, to the overwhelming satisfaction of the passing French commuters.
Dave – “Oh great, now we get the weird racist diatribes to brighten the thread.”
Dave, where is the racist diatribe? This is something that exists only in your head. Every single thing pointed out to you so far is not only true, but can be more or less proven.
It is a basic historical assumption that America has never had a successful socialist movement because of its racial diversity – usually this is stated as rich White people using racism to split poor Whites from poor Blacks. It is hardly racist to say so. Racially diverse neighbourhoods have fewer volunteers, less social cohesion and less trust than mono-cultural and mono-racial ones. People have actually shown this you know.
What is more, even if it was a weird racist diatribe, is it wrong? Simply calling the argument stupid and the person putting it forward names does not make it untrue.
It just makes you uncomfortable to hear something you seem to know is true. Cognitive dissonance. Deal with it.
bloke in spain – “The whole [we’re all the same] narrative isnt much followed outside of the UK centre ground [and] a couple of the low immigration Nordic fringe.”
You do not even have to go that far. One good way to define a tribe is whether they will accept blood money if you kill one of their members. If African group A takes blood money from a family in African group B, they are tribesmen. If they insist on killing a member of group B they are not.
Do the Europeans give a flying f**k about British people? Well from 1988 an IRA cell operated in the Netherlands murdering, in the main, family members of the British Army stationed on the mainland. Eventually Paul Hughes (born Newry, 1958), Donna McGuire (born Newry, 1963), Sean Hick (born Glenageary, 1956), and Gerard Harte (born Lurgan, 1956) were arrested in Belgium – not the Netherlands. They stood trial for the murders. And were acquitted. Except McGuire who was convicted but had that over turned on appeal. She was then extradited to Germany to stand trial for the murder of a British Army officer, but was acquitted of that too.
The Dutch and the Germans are close to us by culture and genetics. They still did not give a damn about the terrorist murders of British Army personnel and their families. We are not tribesmen. We do not belong to their in group.
“Stand outside Lille Flandres station & watch the Roma beggarwomen being shoved along the pavement with police rifle butts, to the overwhelming satisfaction of the passing French commuters.”
See the staff at the Louvre went on strike over thieving Gypsy beggars? Love to see the British Museum even think of doing that.
Not sure about the blood money thing. Ancient English tribal law, and many other Northern European laws, were based on compensation, including for murder. The law code compiled by Aethelbert is a good example. The idea, as with all such basic laws, is to short circuit the feud escalation to murder and tribal war.