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Should Germany leave the Euro?


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Should Germany leave the Euro?

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Stumbled across this article, which was a front page story:

Economists Troll Germany, Telling It To Leave The Euro First

Thought it was amusing, and would like to see what others think of the prospect of Germany leaving the Euro. In particular, I have a feeling @Fat Tails may have an opinion.

Mike

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Big Mike View Post
Stumbled across this article, which was a front page story:

Economists Troll Germany, Telling It To Leave The Euro First

Thought it was amusing, and would like to see what others think of the prospect of Germany leaving the Euro. In particular, I have a feeling @Fat Tails may have an opinion.

Mike

Yes, and don't go back to the Mark but create the drachma community!

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Added a poll to make it a bit of fun

Should Germany (not Greece) leave the Euro?

Total votes: 934
 


Please vote and discuss...

Mike

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Big Mike View Post
Stumbled across this article, which was a front page story:

Economists Troll Germany, Telling It To Leave The Euro First

Thought it was amusing, and would like to see what others think of the prospect of Germany leaving the Euro. In particular, I have a feeling @Fat Tails may have an opinion.

Mike


Europe is different from the United States. It has a long history of national states, which explains its current federal structure.

Britain:

First of all Britain would never accept to cede power to a Central European Government. Also Britain does not participate in the ESM (European Stability Mechanism). It share in financing the permanent Greek deficit is zero. It is the German taxpayer who carries the burden to finance the Greek party.

France:

France is much more reluctant to cede powers to a Central Government than Germany is. However, they may change position, once they need someone else to finance the budget deficit.


Germany:

Germany has been the paymaster of Europe since its inception. Germans are now tired of paying for the permanent inefficiencies of Southern European economies. This is even more true of Skandinavian countries. Norway has not joined the European Union, and Sweden and Danmark have kept their currency. Finland is the European country most opposed to throw more fresh money after the Greeks.





I think that there is a strong cultural difference between Northern and Southern Europe. Southern European politicians have a natural tendency to promise more than they can pay for. The shadow economy is flourishing in Southern Europe. Citizens are not declaring taxes, which further contributes to the problem.


Three solutions to the problem:

(1) Reforming the structure of the European Union with a Central Economic Government. The Government should then have its own budget, which would require specific European taxes and control of expenditure by the European Parliament.

(2) The second model would see a rigid structure as it is implemented today, but would allow some of the debt ridden economies to devaluate its currencies.

(3) The third solution would be the slow decay of the Euro currency, probably triggered by outside events.

I do not believe that there is an option for something called "Europe à deux vitesses", which describes a split of the Euro zone into a robust Northern economy and a Southern inflationary economy running higher budget deficits.


What is Europe ?

The point is that Europe is an extremely inhomogenous strucutre. There are countries like Bulgaria with a per capita income of € 7,772 or Romania with € 10,034. On the other side of the scale there are countries like Ireland with an income of € 51,356, Austria with € 51,306 or Denmark with € 56,147.

Now compare these figures with the US. The richest states, Delaware and Alaska have a per capita income of just above $ 60,000 per annum, while the poorest state - Mississippi - has a per capita income of just below $ 30,000 per year. By the way this figure is absolutely comparable to Greece.

To summarize: In Europe the per capita income of the poorest country is about 7.5 times lower than the per capita income of the richest country. In the USA - which did not have half of its states being rules by communists 25 years ago - the per capita income of the poorest country is only 2 times lower than the per capita income of the richest country.

But then in Europe, it is not the poorest countries that have recently joined which are creating the problem. It is the comparatively rich Southern European economies which do not comply with the strict rules of controlling government expenditure. I think this is more of a cultural problem. Now Germany is blamed for maintaining the minimum of discipline which is needed to avoid an implosion of the Euro. Those who cry loudest are left wing economists who want to maintain the state run Ponzi schemes and feed them with new money. I am definitely against transferring more money to the comparatively rich and lazy. Greece is just a stupid distraction from more serious problems as the various war zones around Europe and the hundreds of thousands of refugees we need to cope with.

I am with Paul Krugmann and with the German finance minister Wolfgang Schäuble. The best economical cure for Greece would have been to reintroduce the Drachma and devalue it. This cure has helped Argentine to find its way to sustained economic growth. But politically, the Greek people would not have accepted this measure and (wrongly) interpreted as an expulsion from Europe. Therefore the whole thing ended with a compromise. Things will calm down now, and co-operation will again prevail over demagoguery.

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Germany makes the EU. Without it, the EU will probably fall apart.

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tturner86 View Post
Germany makes the EU. Without it, the EU will probably fall apart.

A single country cannot make the EU. The EU has relied on on its core countries France, Germany and Benelux since its inception. When things get critical, these countries have always been able to find a compromise.

Britain was always the odd man out. Culturally, Britain has more ties with the US, Canada & Australia. It has never belonged to Europe. If you look at the countries in war in Orwell's famous novel 1984, Britain belonged to "Oceania", while the rest of Europe was part of "Eurasia".

The EU has recenctly outgrown its original boundaries. It is the victim of its own success and enters into sort of a sideways consolidation.

Please keep in mind that Europe is the smallest continent (I am not counting Australia as a continent, that is just sort of a space ) and that it will be less important in future.

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Bottom line it boils down to the fact that a single European currency for Europe (implying a single inflation and a single interest rate), crease a difficult situation, for accommodating various economic situations and growth rates

Europe is not a single case, between North and South there are vast differences (culture, economy, growth, economic cycle, government, ...) hence a single monetary policy creates difficulties..

A single currency can only work if some regions unconditionally agree to transfer money from their regions to the regions in need... we are definitely not yet there in a single Europe

In the case of Greece, there are multiple issues
- cultural difference
- taxation difference

but even if above would be fixed, there are economical/cyclical differences
Greece lives from Tourism and Agriculture...

Northern European countries are more tertiary industries..
Southern European countries more primary industries

This is not a blame, it is a fact
the reality is that a single monetary policy, able to address problems in materially different economies
is not a peace of cake without compromises

one compromise could be to say, Greece is 2% of Europe, we fund it and turn the page
but that pragmatic approach is far from reality

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Fat Tails View Post
Europe is different from the United States. It has a long history of national states, which explains its current federal structure.
....
Three solutions to the problem:

(1) Reforming the structure of the European Union with a Central Economic Government. The Government should then have its own budget, which would require specific European taxes and control of expenditure by the European Parliament.

(2) The second model would see a rigid structure as it is implemented today, but would allow some of the debt ridden economies to devaluate its currencies.

(3) The third solution would be the slow decay of the Euro currency, probably triggered by outside events.

I do not believe that there is an option for something called "Europe à deux vitesses", which describes a split of the Euro zone into a robust Northern economy and a Southern inflationary economy running higher budget deficits.
...
I am with Paul Krugmann and with the German finance minister Wolfgang Schäuble. The best economical cure for Greece would have been to reintroduce the Drachma and devalue it. This cure has helped Argentine to find its way to sustained economic growth. But politically, the Greek people would not have accepted this measure and (wrongly) interpreted as an expulsion from Europe. Therefore the whole thing ended with a compromise. Things will calm down now, and co-operation will again prevail over demagoguery.


rleplae View Post
Bottom line it boils down to the fact that a single European currency for Europe (implying a single inflation and a single interest rate), crease a difficult situation, for accommodating various economic situations and growth rates

Europe is not a single case, between North and South there are vast differences (culture, economy, growth, economic cycle, government, ...) hence a single monetary policy creates difficulties..

A single currency can only work if some regions unconditionally agree to transfer money from their regions to the regions in need... we are definitely not yet there in a single Europe
....

Excellent points, and very appropriate to the present situation.

I am not an economist, but there is a body of work about an "optimum currency area." (For a quick reference, see https://en.wikipedia.org/wiki/Optimum_currency_area.) For many reasons, Europe probably is not an area that is best served by one currency, at least without major changes.

To illustrate, I have seen the question raised, "How would New York (or whatever) feel if it had to bail out Texas if it got into trouble?" (Or pick any other states that you prefer -- it could just as well go the other way.) The fact is that it happens all the time, and it is expected to.

The state that is having bad economic times will continue to receive fiscal support from the rest of the nation: pension payments (Social Security), Medicare and Medicaid for health care (to the extent that the US provides it), as well as unemployment insurance for the unemployed, and food stamps and other indigent support, and other funds that routinely flow from the federal to the state governments, none of which will have to come out of the state's budget. Texas banks will not run out of dollars. Texas will not have to borrow from the other states. Its residents, if they want to look for work in other states, can just pack up and go, and there will be no regional barriers of language or customs or national identity to make this difficult.

Because the US is a fiscal and political (and social and cultural) union as well as a monetary union, no US state will ever stand alone.

Not that the US is an "ideal" currency union; the individual regions of any other country would also be part of a currency union and the example would still work. But the separate nation-states of Europe do not have that degree or type of integration between them, which seems to be heart of the problem.

I do hope, and basically believe, with @Fat Tails, that "Things will calm down now, and co-operation will again prevail over demagoguery." I just see that the path ahead will still be difficult, and the single Euro may not, at this time, be the best answer. In time, it may well be, but that integration will need to be reached for it be successful.

Bob.

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Fat Tails View Post
To summarize: In Europe the per capita income of the poorest country is about 7.5 times lower than the per capita income of the richest country.

Switzerland:
This is exactly why Switzerland will never vote for the Euro
1) Just to avoid the biggest difference in per capita income
2) To become paymaster for the EU community
3) To delegate all law making to Brussel

The swiss democracy made a wise decision.

GFIs1

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