Euro Area

[gaelic cowboy]

An article linkin Bob marley and the Euro financial crisis which for some reason is not up on the main website yet.

Financial Contagion
May 10, 2012

Posted in Articles | Irish Independent by David McWilliams
Thirty-one years ago this week the great Bob Marley passed away and ascended to the great Rasta heaven in the sky. For most of us, Marley was reggae and reggae was Marley. I remember the day he played in Dalymount in the summer of 1980. What I actually remember most (I was too young to go to the gig) was the lingering smell of ganga on the 7A bus that afternoon, as half of the ‘Noggin obviously skinned up on their way into town to pay homage the great man.

And paying homage is the right word, because it was the last outdoor concert Marley ever played. He died less than a year later. The cancer which had started in his toe, spread rapidly. Urban legend has it that Marley contracted an infection after injuring his toe playing soccer (by the way if you ever want to see an natural player with the ball at his feet, google “Bob Marley playing football”). The soccer story isn’t true.

Spoiler Alert, click show to read: 

Marley, who’s Dad was a white Englishman, suffered from a malignant melanoma found under the nail of his toe. It is speculated that because he was half-white living in the Caribbean, he was more susceptible to this type of skin cancer.

What is true was that his doctors suggested that he get his toe amputated. Marley refused on the grounds at Jah Rastafari stipulated that humans shouldn’t permit their own flesh to be cut. Marley’s life would have been saved had he had the amputation. Tragically the cancer spread and his health deteriorated rapidly leading to his tragic demise.

Watching the latest twists and turns on Europe’s road to financial calamity as each financial crisis mutates into a banking crisis and then into a bond market crisis and then into yet another capital flight crisis and ultimately, now to a political crisis, I am reminded of Bob Marley.

Financial market contagion, like contagious diseases, spread and mutate if you don’t deal with them early and decisively. They get worse, not better. This is the lesson of Europe in the past four years, and of the Asian crisis in 1997 and the Latin American debt crises in previous decades. In the case of Europe, a financial crisis first became economic and then jumped over to become a full-blown political crisis. The political scalp of Sarkozy is only the latest victim.

The European elite’s response has been to kick the can down the road as they say, in order to buy time and hopefully time will heal all. But time doesn’t heal at all. In fact it gives the contagion the time to mutate and become more virulent.

The more the EU pretends that peripheral countries are solvent the less people believe it. The infection rather than getting better gets more aggressive and it changes its nature, like mutating cells. It affects banks and companies, it then affects house prices and then it mutates back again to hamper economic growth. The faltering growth rates, drive up unemployment. Once unemployment starts to rise, politics falters and incumbents get kicked out.

Not only that, but big dreams of political integration and the like, seem really unnecessary and indicative of a deep disconnect between politics and the people. In these instances, the people just get fed up and tell their politicians to snap out of it via the ballot box.

Ultimately, Europe has four problems. The first is not enough growth; the second is too much debt; the third is no political leadership and the fourth is the political illegitimacy of the technocrats that have been installed to run the economies on the periphery.

Growth won’t return until the debt overhang is eliminated but the debt overhang will not be eliminated without growth. Unless of course, there is a managed default. The only way out of this growth and debt dilemma is some sort of default, somewhere fast.

In order to facilitate this the ECB will have to be involved and this means persuading Germans that the Euro will only be fixed and the continental economy put back together if the core issues of over-borrowing in the periphery and its handmaiden over-lending by the core is fixed. This must come through a mutual deal between the debtor and creditor countries. This is called co-responsibility.

The “fiscal compact” will not sort this. In fact, it will make the situation worse in the short-term because it will reduce growth rates in those very countries, which have too much debt. Eventually these populations, which are already showing their dissatisfaction at the polls, get fed up.

There’s a common misperception that countries default on their debt because they can’t pay back the money they’ve borrowed. This is rarely the case. For the most part, countries default because their citizens get sick of the hardships they have to endure because of onerous debt repayments. And it becomes politically impossible for governments to continue honoring their commitments to creditors. Default is a strategic decision.

One of the best books published in recent years of these financial episodes was a study of debts and defaults by Ken Rogoff and Carmen Reinhart called This Time It’s Different. These scholars point out that more than half the defaults by middle-income countries occur at levels of external debt relative to GDP below 60% Europe’s debt levels in the periphery are close to twice this.

History shows that “willingness to pay, rather than ability to pay,” as the authors put it, “is typically the main determinant of country default.”
As the crisis mutates and mutates all around Europe, the point at which the people will get fed up will come sooner rather than later. Contagion can only be stopped by decisive action. Buying time just makes the ultimate crisis much more disruptive.

When I hear politicians contenting the opposite, whether its about the fiscal compact or the growth by austerity argument, it strikes that they are smoking something stronger that the heads on the 7A in the summer of 1980.

[Sarmatian]

lol, never used my geology degree professionally.

after uni helped start up a engineering R&D firm creating electric recycling vehicles

did an e-business masters

then shifted to newly created 3D animation company, helped them find and grow a sales strategy.

i like technology and the culture of business start-ups, so if it seems a little random it works for me. :)

So basically, neither your education nor your business experience has anything to do with macroeconomics or political economy or anything that is even close to what we're talking about. So, how can you present a single opinion and be absolutely certain that it is right?

[Sasaki Kojiro]

Call me odd but I'm happy to pay taxes in order to provide universal Healthcare to all citizens, even those who certainly couldn't afford it.

What do you think of people who aren't? If you're odd are they normal?

[Sir Moody]

What do you think of people who aren't? If you're odd are they normal?

its a common turn of phrase over here in the UK - its basically short hand for "You can call me strange if you want but..."

Id actually say the Majority of people here favour Universal Health care.

[Furunculus]

So basically, neither your education nor your business experience has anything to do with macroeconomics or political economy or anything that is even close to what we're talking about. So, how can you present a single opinion and be absolutely certain that it is right?

call it arrogance Sarmatian; i'm clever enough to think i'm clever enough to take an opinion on finance and the political economy.

[Furunculus]

on the subject of lack of recognised expertise on the global economy, i found this from eighteen months ago:

https://forums.totalwar.org/vb/showt...post2053231412

The euro, as presently constructed is at fault, having a monetary union without a fiscal union is quite frankly retarded.

Having a fiscal union only works if your collective peopleS will accept a transfer union, to prevent imbalances tearing your 'single' economy apart.

Anyone fancy asking a hard working german how keen they will be to bail out portugal before christmas, having already bailed out ireland and greece?

Seems pretty on the money! ;)

[Sarmatian]

Any sufficiently large country has different fiscal rules for different regions/state/provinces.

If you think the fiscal policies are exactly the same in each state in the US, you've got another thing coming. If you think that Moscow regions has the same fiscal rules as Kamchatka, think again. If you believe that same rules apply in <insert Chinese interior state> as in Tianjin or Shanghai province, you're wrong again.

So, whoever thought of that "monetary union is only possible with fiscal union" doesn't really know what he's talking about.

[Furunculus]

Any sufficiently large country has different fiscal rules for different regions/state/provinces.

If you think the fiscal policies are exactly the same in each state in the US, you've got another thing coming. If you think that Moscow regions has the same fiscal rules as Kamchatka, think again. If you believe that same rules apply in <insert Chinese interior state> as in Tianjin or Shanghai province, you're wrong again.

So, whoever thought of that "monetary union is only possible with fiscal union" doesn't really know what he's talking about.

and i quote (from wiki, but what the hell):

Under fiscal union decisions about the collection and expenditure of taxes are taken by common institutions, shared by the participating governments. For example, in federal nations such as the United States, fiscal policy is determined to a large extent by the central government, which is empowered to raise taxes, borrow and spend.

A fiscal union being a transfer union, for precisely the imbalances you note above. What merkel proposes, her "fiskal union", is decidely not a transfer union and thus it will not work!

http://blogs.telegraph.co.uk/finance...e-first-place/

There is one further thing. It is possible to take an area which is not an optimal currency area and make it more so. This is what Lord Mandelson is talking about when he parrots the line about a "fiscal Europe". The idea is that if the rich areas send money to the poor areas then the effects of being lumbered with the wrong currency can be mitigated. As indeed they can: London sends vast amounts of money to the north of England and Scotland and this helps reduce the impact of the Pound Sterling itself not quite being such an optimal area.

Over larger areas and numbers of people, the US is regarded as a good example. However, it is worth looking at quite how much money has to be sloshed around America to achieve a single currency. Some would argue that it's the welfare state bit of the Federal government, perhaps plus the military, that does this. That's about 5 or 6 per cent of US GDP. Others argue that it's the whole of the Federal government that does it, around and about (outside current blowout deficit times) some 20 per cent of the entire economy.

Which is fine if that's your sort of thing. But now try and move this over to the European scenario. The US government, all levels of it, takes some 35 to 40 per cent of GDP. That's two fifths of everything that everyone produces in a year. And this is after they've done that fiscal sloshing around to make up for having a single currency.

Here in Europe, governments take 40 to 50 per cent of GDP, two fifths to one half, before they've started to chuck the cash around to pay for the vanity project of the euro. We'd have to take in tax another 5 to 20 percent of everything produced and ship it off to the poor countries to achieve what the Americans have: a single currency that doesn't cripple those poor areas.

Five per cent of the UK's GDP is £75 billion or so: that's more than all council tax and all business rates. Twenty per cent is £300 billion: more than all VAT plus all income tax.

Can we see any possible future in which we (or the Germans, the Finns or the Swedes) agree to pay such taxes so that we can build a Common European Home – or, if you like, to subsidise the countries which we really shouldn't have a common currency with?

No, quite. I can't, either.

Are you my family, whom i trust to look after me and mine in ackowlegement of the same commitment in return?
Or are you merely my neighbour?

Nothing. Else. Matters.

[Philippus Flavius Homovallumus]

Any sufficiently large country has different fiscal rules for different regions/state/provinces.

If you think the fiscal policies are exactly the same in each state in the US, you've got another thing coming. If you think that Moscow regions has the same fiscal rules as Kamchatka, think again. If you believe that same rules apply in <insert Chinese interior state> as in Tianjin or Shanghai province, you're wrong again.

So, whoever thought of that "monetary union is only possible with fiscal union" doesn't really know what he's talking about.

In the US and Russia the federal government takes in federal taxes and spends it in the poorest regions - the Barnett formula does the same for the UK - where regions of Wales, Scotland, the South West and North of England are basket cases.

The EU does this to a small degree with "infastructure" projects, but a much greater amount of German money would need to be spent in Greece, and not Germany, to make fiscal union work.

The Germans will not vote to be poor.

[Philippus Flavius Homovallumus]

http://www.guardian.co.uk/commentisf...y-exiting-euro

I think you know it's over when the liberal British elite no longer believe it.

[Furunculus]

http://www.guardian.co.uk/commentisf...y-exiting-euro

I think you know it's over when the liberal British elite no longer believe it.

Dear lord above, i am in agreement with simon jenkins:

For a while, Germany knew it was on to a good thing and cross-subsidised (and lent) to cover the gap, much as the British Treasury sustains the UK's poorer regions. But a continent is not a nation. It has diverse loyalties and obligations. Sooner or later the subsidies and the lending would stop. That day is now. The sceptics were right.

[Sarmatian]

and i quote (from wiki, but what the hell):
A fiscal union being a transfer union, for precisely the imbalances you note above. What merkel proposes, her "fiskal union", is decidely not a transfer union and thus it will not work!

I'm not familiar with the exact content of what Merkel is proposing, but the point is that euro-sceptic maxim "monetary union must be also a fiscal union" is bollox, pure and simple, and it doesn't exist anywhere in the world.

It's a wonder it managed to stick for so long with eurosceptics (which proves just how uninformed most eurosceptics are, they just need a cool mantra to parrot). Thank god they've changed it to "Ok, it works, but I don't want to pay a single dime to anyone outside my country". Helps their case much more.

http://blogs.telegraph.co.uk/finance...e-first-place/



Are you my family, whom i trust to look after me and mine in ackowlegement of the same commitment in return?
Or are you merely my neighbour?

Nothing. Else. Matters.

Are Scots your family? You weren't against sending them money and they may end up proclaiming independence. Are you in favour of kicking them out because the fact that they are merely considering a referendum shows they aren't really committed to look after you and yours in return?

[Furunculus]

I'm not familiar with the exact content of what Merkel is proposing, but the point is that euro-sceptic maxim "monetary union must be also a fiscal union" is bollox, pure and simple, and it doesn't exist anywhere in the world.

It's a wonder it managed to stick for so long with eurosceptics (which proves just how uninformed most eurosceptics are, they just need a cool mantra to parrot). Thank god they've changed it to "Ok, it works, but I don't want to pay a single dime to anyone outside my country". Helps their case much more.

Mentary Union does not work without Fiscal Union (inc transfers), because divergent economies have no mechanism to correct for that diversion. so no, it is far from bollox, you want the Euro to work then you'd better be willing to pony up 5% of GDP in perpetuity.
Alternatively, you might get away without the transfers is you have very harmonious neigbouring economies, germany and the netherlands for example. In that case, the Eurozone needs to weed out the weak countries that cannot thrive without transfers, viz the upcoming Grexit. But Greece is only the start!

Are Scots your family? You weren't against sending them money and they may end up proclaiming independence. Are you in favour of kicking them out because the fact that they are merely considering a referendum shows they aren't really committed to look after you and yours in return?

yes, the scots are my family, i consider myself british not english.

if scots vote for indepenence then they will have said they are not my family, in which case the sentiment dies, but i am not going to prempt their decision.

[Kralizec]

Mentary Union does not work without Fiscal Union (inc transfers), because divergent economies have no mechanism to correct for that diversion. so no, it is far from bollox, you want the Euro to work then you'd better be willing to pony up 5% of GDP in perpetuity.
Alternatively, you might get away without the transfers is you have very harmonious neigbouring economies, germany and the netherlands for example. In that case, the Eurozone needs to weed out the weak countries that cannot thrive without transfers, viz the upcoming Grexit. But Greece is only the start!

This mantra is based on conjecture, not empirical observation, and usually espoused by people (like you) who already were against the monetary union to begin with.

And how did you come up with the 5% (of GDP) figure? Did you just wrote that down to make your argument more dramatic or convincing?

[Sarmatian]

Mentary Union does not work without Fiscal Union (inc transfers), because divergent economies have no mechanism to correct for that diversion. so no, it is far from bollox, you want the Euro to work then you'd better be willing to pony up 5% of GDP in perpetuity.

It's bollox, there are mechanisms to correct that. Army of different EU funds (and many more not EU-related) stare you right in the face and thousands new ones can created if need be.

Alternatively, you might get away without the transfers is you have very harmonious neigbouring economies, germany and the netherlands for example. In that case, the Eurozone needs to weed out the weak countries that cannot thrive without transfers, viz the upcoming Grexit. But Greece is only the start!

The difference in GDP per capita between richest and poorest EU state is about the same as between richest and poorest US state.

yes, the scots are my family, i consider myself british not english.

if scots vote for indepenence then they will have said they are not my family, in which case the sentiment dies, but i am not going to prempt their decision.

What about family ties, language, common history, similar mindset... all those values you seemed to emphasize when you were talking about nation states? Are they all severed the moment Scots declare independence? Poof and that's it?

[InsaneApache]

If the jocks do secede then they will face the prospect from joining the Euro. Won't happen.

[Furunculus]

This mantra is based on conjecture, not empirical observation, and usually espoused by people (like you) who already were against the monetary union to begin with.

And how did you come up with the 5% (of GDP) figure? Did you just wrote that down to make your argument more dramatic or convincing?

with the greatest respect, the argument was made before the euro kicked off by people who looked at britain and german reunification and realised the consequence implicit, an argument that was shouted down by people who are looking VERY VERY stupid today.

i read it somewhere, can't find a source anymore. regardless, you could probably work it out roughly by looking at the german reunification tax, or the federal tax deviation as a proportion of total US government spending. All referred to in the Worstall blog post.

It's bollox, there are mechanisms to correct that. Army of different EU funds (and many more not EU-related) stare you right in the face and thousands new ones can created if need be.

The difference in GDP per capita between richest and poorest EU state is about the same as between richest and poorest US state.

What about family ties, language, common history, similar mindset... all those values you seemed to emphasize when you were talking about nation states? Are they all severed the moment Scots declare independence? Poof and that's it?

You don't know what you are talking about, for EU budgets occupy 1% of GDP and largely cycled back into member economies.

But. US. Federal. Spending. Is. Used. To. Account. For. This:
http://www.guardian.co.uk/commentisf...transfer-union

If they choose to reject that relationship, then yes, i will regretfully reallocate them into the neighbours pile. At which point i would object to the notion of an ongoing subsidy via a Barnett formula. I don't understand why this seems so controversial?


--------------

further reading on what a transfer union means for the EU:

http://www.dbresearch.com/PROD/DBR_I...pensive%3F.pdf

[Sarmatian]

You don't know what you are talking about, for EU budgets occupy 1% of GDP and largely cycled back into member economies.

But. US. Federal. Spending. Is. Used. To. Account. For. This:
http://www.guardian.co.uk/commentisf...transfer-union

If they choose to reject that relationship, then yes, i will regretfully reallocate them into the neighbours pile. I don't understand why this seems so controversial?

http://en.wikipedia.org/wiki/Structu..._Cohesion_Fund
http://en.wikipedia.org/wiki/Regiona...European_Union

You're wrong. You are assuming that there need be a supranational organization with sole responsibility of transfering funds, taking from one place and pouring to another. Collecting federal taxes and redistributing them is not the only way of transfering money from richer to poorer regions.


Considering Scottish independence, it's controversial that your nation state isn't really that stable, that apparently it's open to same weaknesses as supranational states and that in fact, you can't depend on everyone to look after you and yours, which was your chief argument against supranational states, in this case EU.

[Furunculus]

http://en.wikipedia.org/wiki/Structu..._Cohesion_Fund
http://en.wikipedia.org/wiki/Regiona...European_Union

You're wrong. You are assuming that there need be a supranational organization with sole responsibility of transfering funds, taking from one place and pouring to another. Collecting federal taxes and redistributing them is not the only way of transfering money from richer to poorer regions.


Considering Scottish independence, it's controversial that your nation state isn't really that stable, that apparently it's open to same weaknesses as supranational states and that in fact, you can't depend on everyone to look after you and yours, which was your chief argument against supranational states, in this case EU.

and................. you will have a point if they vote for independence.

i suspect they won't.

[Philippus Flavius Homovallumus]

Never mind Brit

http://en.wikipedia.org/wiki/Structu..._Cohesion_Fund
http://en.wikipedia.org/wiki/Regiona...European_Union

You're wrong. You are assuming that there need be a supranational organization with sole responsibility of transfering funds, taking from one place and pouring to another. Collecting federal taxes and redistributing them is not the only way of transfering money from richer to poorer regions.


Considering Scottish independence, it's controversial that your nation state isn't really that stable, that apparently it's open to same weaknesses as supranational states and that in fact, you can't depend on everyone to look after you and yours, which was your chief argument against supranational states, in this case EU.

You cannot simply magic money out of thin air, it must come from somewhere - if the EU does not become a federal Union it will not raise direct taxes, and the Commission will still have to go to member nations (Germany) to ask for money. This is the issue - the current system DOES NOT WORK, as evidence by the fact that Greece is now in systemic collapse, never mind decline.

Why isn't Cornwall is systemic collapse, or Wales? The answer is that the central government takes in taxes and distributes them, and richer regions automatically give more tax because they have more wealth.

For the last twenty years the British Left has been resoundingly pro-Euro, you just have to look at BBC coverage in 2007 and 2012 to see that the arguments now being made are not born of natural scepticism.

Never mind Britain being unstable - government in Greece and Italy have collapsed.

[Kralizec]

with the greatest respect, the argument was made before the euro kicked off by people who looked at britain and german reunification and realised the consequence implicit, an argument that was shouted down by people who are looking VERY VERY stupid today.

i read it somewhere, can't find a source anymore. regardless, you could probably work it out roughly by looking at the german reunification tax, or the federal tax deviation as a proportion of total US government spending. All referred to in the Worstall blog post.

I don't see what your point is here. I take it you mean to draw a parralel with the wealth transfer between west-east Germany after the reunification but I don't see how the situations can be compared.

Being in a monetary union a country loses its ability to set out any sort of monetary policy in regards to the other member states. But they can still distinguish themselves by setting different taxation levels, moderate wages et cetera to keep their economies competitive. Obviously eastern Germany couldn't do this after the reunification, and neither can Cornwall or Wales for that matter.

It's obvious that glaring mistakes have been made in regards to EMU and that some things should have been done differently from the start - what I don't see is why a "fiscal union" is a requirement for things to work properly.

[Philippus Flavius Homovallumus]

I don't see what your point is here. I take it you mean to draw a parralel with the wealth transfer between west-east Germany after the reunification but I don't see how the situations can be compared.

Being in a monetary union a country loses its ability to set out any sort of monetary policy in regards to the other member states. But they can still distinguish themselves by setting different taxation levels, moderate wages et cetera to keep their economies competitive. Obviously eastern Germany couldn't do this after the reunification, and neither can Cornwall or Wales for that matter.

It's obvious that glaring mistakes have been made in regards to EMU and that some things should have been done differently from the start - what I don't see is why a "fiscal union" is a requirement for things to work properly.

Wages and living costs actually are a lot lower in Wales or Cornwall - between 1/2 and 1/3 what they are in London - it's not enough, so the Government pumps money in.

Same problem in Greece - in order to have the same kind of profit margins on goods as Germany you'd have to employ slaves, so Greece needs money just to keep the lights on. Litterally.

It was recently said that a currency area in the Anglo-sphere (principally the US, Canada, the UK, Australia and New Zealand) would make more sense than the Euro despite the geographical differences, because in addition to having the same language and legal systems (broadly) we also have similar living standards and working practices.

Greece and Germany are so unalike that a currancy that benefit one cannot but damage the other.

[Furunculus]

I don't see what your point is here. I take it you mean to draw a parralel with the wealth transfer between west-east Germany after the reunification but I don't see how the situations can be compared.

Being in a monetary union a country loses its ability to set out any sort of monetary policy in regards to the other member states. But they can still distinguish themselves by setting different taxation levels, moderate wages et cetera to keep their economies competitive. Obviously eastern Germany couldn't do this after the reunification, and neither can Cornwall or Wales for that matter.

It's obvious that glaring mistakes have been made in regards to EMU and that some things should have been done differently from the start - what I don't see is why a "fiscal union" is a requirement for things to work properly.

Because it isn't just what you spend your taxes on and how much, it is where you spend them in order to even out the imbalances that prevent one part of the economy from functioning within another.
Infrastructure - welsh road building
Social security - glasgow
Public jobs - north east
Procurement - harland and wharf
Failure to do so results in a divergent economy where the poorer parts struggle to live in a richer society, and poverty is compounded. Visit Greece today.

America knows this, it operates a transfer union, it succeeds. Can the same be said for the eurozone?

The reverse side of the fiscal union coin, a transfer union, and you can't dump public money on someone else unless theirnis a social compact permitting this.
This requires a political union, or put another way; a sense of shared familial sentiment.

Is there anything else I can instruct you upon? :)

[Sarmatian]

Never mind Brit

You cannot simply magic money out of thin air, it must come from somewhere - if the EU does not become a federal Union it will not raise direct taxes, and the Commission will still have to go to member nations (Germany) to ask for money. This is the issue - the current system DOES NOT WORK, as evidence by the fact that Greece is now in systemic collapse, never mind decline.

Why isn't Cornwall is systemic collapse, or Wales? The answer is that the central government takes in taxes and distributes them, and richer regions automatically give more tax because they have more wealth.

For the last twenty years the British Left has been resoundingly pro-Euro, you just have to look at BBC coverage in 2007 and 2012 to see that the arguments now being made are not born of natural scepticism.

Never mind Britain being unstable - government in Greece and Italy have collapsed.

You're missing the point - no one talked about creating money out of thin air. There are other mechanisms, outside having a federal or supranational tax, to transfer money from richer to poorer regions. Even in nation states, government doesn't rely solely on tax redistribution to transfer funds from one place to another, there are grants, funds, credits etc... There are literally thousands, both national and international, organizations that do just that.

Granted, tax redistribution is the simplest and most efficient way, but it is also most open to corruption - you're sending back just money. In case of various funds, you're investing in projects, new businesses, education, infrastructure, agriculture etc... which is slower but arguably more beneficial in the long rung.

Now, states aren't passive. If one option is closed to them they'll explore other options. At the moment, any kind of supranational tax is out of the question, but there are other ways to remedy that.

The current system doesn't work, huh? Keep in mind that when recession started, there was one system and now they're trying to create a different one. History thought us that there isn't a system or a state that's immune to recession.

[Papewaio]

A more resiliant network isn't just an increase in numbers it's an increase in diversity.

Southern Europe being culturally different to Northern Europe is a strength.

The biggest problem still is that capital moves far faster then a labour pool is willing too.

I do wonder how many people use credit cads more then cash. So why the hang up on having common currency? After the cost of a coffee is going to change across a city, a region let alone a country. So a single currency doesn't stop price variations. So as long as a credit card doesnt have huge fees for different currencies how are most people better off with a single currency?

[Fragony]

Wtque a strength? Did they catch the driver?

[Sarmatian]

A more resiliant network isn't just an increase in numbers it's an increase in diversity.

Southern Europe being culturally different to Northern Europe is a strength.

The biggest problem still is that capital moves far faster then a labour pool is willing too.

I do wonder how many people use credit cads more then cash. So why the hang up on having common currency? After the cost of a coffee is going to change across a city, a region let alone a country. So a single currency doesn't stop price variations. So as long as a credit card doesnt have huge fees for different currencies how are most people better off with a single currency?

Banks usually charge huge fees. You have to have either a foreign currency account or sometimes a local currency account in which case your bank will first convert the money and charge you, then send to a foreign bank to charge you again, usually with less favourable exchange rate, cause you can't choose in which bank you're gonna change your money as you're stuck with both your bank and a bank abroad. The additional fee you'd pay won't probably be less than 5% but could be much more.

Now, imagine a company in Austria that needs to buy parts for a machine from 5 different suppliers, one in Germany, one in France, one in Spain, one in Netherlands and one in Sweden. It has to convert its own currency to five different currencies, get everything and then calculate price for different currencies if it wants to sell in other countries. Add to that different stability of various currencies - Austrian schilling was tied to German mark, so not much problems there but Spanish pesetas and Italian liras weren't as stable which leads to issues like do you want to convert them right away to German marks or keep them, because you're gonna buy more parts from Spain and Italy. Is it better to change now and pay a bank fee twice (once for converting to German marks and once again to convert them to lira and pesetas) or keep them as they are in hope that they won't devalue more than you would pay for bank fees?

It's simpler, easier and more straightforward, which especially helps smaller businesses.

[Furunculus]

A more resiliant network isn't just an increase in numbers it's an increase in diversity.

Southern Europe being culturally different to Northern Europe is a strength.

The biggest problem still is that capital moves far faster then a labour pool is willing too.

I do wonder how many people use credit cads more then cash. So why the hang up on having common currency? After the cost of a coffee is going to change across a city, a region let alone a country. So a single currency doesn't stop price variations. So as long as a credit card doesnt have huge fees for different currencies how are most people better off with a single currency?

in part because a common currency comes with a homogenised borrowing rate.

what you don't get however is a homogenised political culture taking direction from a homenginsed society, so imbalances that in the past have been equalised by periodic devaluations vis-a-vis its neighbours must be done internally. In the absense of a transfer union this leads to very painful social costs from crippled services.

a single currency between the benelx nations and germany, possibly with austria and finland in tow, would have been a great idea. expanding it gradually over the the course of a generation to the nations with a political and economic culture that met with the requirements of the core would likewise have been a good idea.

note, a formalised systemic transfer union would not be absolutely necessary as the similarity would allow transfers to happen internally, but at the same time it would have been politically acceptable precisely because sufficient trust exists among that core.

however, a monetary union between 17 radically different economies without the mechanisms to enforce convergence was stupid then, is stupid today, and will be even more stupid for those continueing to argue in its favour as we watch euro-solidarity crumble in the months ahead.

the absolute crippling idiocy, the existance of which i really cannot understand, is the ideological support for the euro in the face of its inadequacies from people who approve of its aim of a post-nationalistic europe bathed in peace and tranquility.................... and yet fail to recognise that those flaws are bringing the very problems they sought to banish. namely; increased zenophobia, increased nationalism, more social unrest, less prosperity for all, much less prosperity for some, and a general reduction in welfare and well-being conducive to the worst kind of popular-extremes of political ideology.

well done them!

[Sarmatian]

the absolute crippling idiocy, the existance of which i really cannot understand, is the ideological support for the euro in the face of its inadequacies from people who approve of its aim of a post-nationalistic europe bathed in peace and tranquility.................... and yet fail to recognise that those flaws are bringing the very problems they sought to banish. namely; increased zenophobia, increased nationalism, more social unrest, less prosperity for all, much less prosperity for some, and a general reduction in welfare and well-being conducive to the worst kind of popular-extremes of political ideology.

well done them!

You really don't know what you're talking about, do you?

The problem with the economy isn't the Euro, it's the overborrowing, which worked fine when there was growth. Euro functioned great, raising in value constantly and still is more valuable than it was at creation. If you exchanged your pounds to euros when it was created and changed them back to pounds now, you'd be a richer man.

The whole idea that problems would be solved if all troubled economies (Greece, Spain, Portugal...) would switch back to their old currencies is completely and utterly idiotic. Yes, they could devalue them and plug the holes in the budget but that just means that their money would be worth less. Furthermore, it would have scared investors and bond buyers cause who wants a bond that's gonna be worth less than the paper it's printed on in 20 years? Nowadays, those who want to buy Spanish bonds worry about whether the government will be able pay the interest, with peseta back they would be worrying that even if the government can pay the interest, is it gonna be much smaller in addition.

Those countries, Greece especially, have only euro to thank to that their economies aren't tanking. If they do tank, common currency or no, it's gonna be felt in the rest of European countries cause European economy is very inter connected, which was the prime reason for a single currency, now and then. Yes, the reasons are practical, not idealistic.

Even if we agree that disbanding the Euro is the answer (which it isn't) it's a very complex, expensive and time consuming process to switch back to old currencies. Creating chaos across the continent, fear among investors and businesses is hardly a good way to ride through the crisis. Like trying to figure out who's supposed to inherit how much of a house that's on fire. Put the fire out first and deal then cause otherwise you won't have a house to inherit.

The Euro isn't the problem. It's just used by the europhobes to "show" why an united Europe is a bad thing. Personally, I'd rather deal with 27 different countries about my economy than having my "independent" economy go bust on its own.

[Philippus Flavius Homovallumus]

You're missing the point - no one talked about creating money out of thin air. There are other mechanisms, outside having a federal or supranational tax, to transfer money from richer to poorer regions. Even in nation states, government doesn't rely solely on tax redistribution to transfer funds from one place to another, there are grants, funds, credits etc... There are literally thousands, both national and international, organizations that do just that.

Granted, tax redistribution is the simplest and most efficient way, but it is also most open to corruption - you're sending back just money. In case of various funds, you're investing in projects, new businesses, education, infrastructure, agriculture etc... which is slower but arguably more beneficial in the long rung.

Now, states aren't passive. If one option is closed to them they'll explore other options. At the moment, any kind of supranational tax is out of the question, but there are other ways to remedy that.

The current system doesn't work, huh? Keep in mind that when recession started, there was one system and now they're trying to create a different one. History thought us that there isn't a system or a state that's immune to recession.

Bull.

"government doesn't rely solely on tax redistribution to transfer funds from one place to another, there are grants, funds, credits etc... "

All this is either idrectly funded by taxation, or underwritten by it.

The government has exactly one real way of generating income - tax. Even things like nationalised defence companies that sell weapons to other countries just fund the home-country's defence bill.

The EU is notorious for corruption, especially of "infastructure" projects, which only generate jobs as long as they are running anyway. Once the project ends, so do the jobs - they aren't a long-term solution to unemployment.

It ultiamtely matter not if the tax is "supranational" or collected locally. You still require a central executive and central treasury to take in funds and distribute them, and it must be done at a Federal level because anything less simply takes too long. Look at the stupid time it took to send Greece a relatively paltry sum, why because the various bodies had to agree and it didn't work because there is no central oversight to garrentee more money.

The Euro doesn't work - it is a currency union without a fiscal union.