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Subject: Should Germany drop the Euro?!
viche83 [del] to
All
I stumbled across some articles that it seems the best way to deal with the European debt and currency crisis is for all of €uro countries that Germany has to leave the Currency Union. It is quite interesting, but the results could be very tricky.
For Germany it seems not so much of a bad idea. The Euro would significantly loose value (probably) but well it would be interesting. Germany would not have to stabilize the other countries anymore and the others could deal with their problems for themselves without having Germany have a word in it anymore.
http://edition.cnn.com/2012/05/30/opinion/prestowitz-prout-germany-eurozone/index.html?hpt=hp_c2
For Germany it seems not so much of a bad idea. The Euro would significantly loose value (probably) but well it would be interesting. Germany would not have to stabilize the other countries anymore and the others could deal with their problems for themselves without having Germany have a word in it anymore.
http://edition.cnn.com/2012/05/30/opinion/prestowitz-prout-germany-eurozone/index.html?hpt=hp_c2
I'm afraid it's a bit of a fairy tale.
It seems too costly for the other countires, yet not necessarily more costly than keeping the Euro as it is. But for Germany? I don't see the advantage. VIt will suddenly become more expensive for all its main trade partners. According to the article, it would be "compensated by capital inflows that spur investment". Terrible mistake. Such additional inflows, unrelated to trade but just motivated by fear in other countries, would push the Mark beyond trade balance levels. You have to keep in mind that capital flows change overnight, but productivity increases slowly over time and is not really a policy variable. Hence, these inflows would actually end up financing trade deficits (imagina how expensive the Deutsche Mark would become for that to happen), because, what investment is to be pursied when the currency is overvalued and imports are cheap? You would get closer to a US situation, with debt financed higher levels of consumption, rather than real investment (of course, financial asset may skyrocket - fancy another bubble? :P), more inequality (as the article says, some jobs will be destroyed, so not everybody would be enjoying debt-financed consumption)...
As far as I can tell, being the most productive country within the Eurozone is the best situation for Germany, as opposed to becoming a Japan-like productive country in isolation. Well, and of course, any of those is better than just becoming unproductive ina world scale :P
It seems too costly for the other countires, yet not necessarily more costly than keeping the Euro as it is. But for Germany? I don't see the advantage. VIt will suddenly become more expensive for all its main trade partners. According to the article, it would be "compensated by capital inflows that spur investment". Terrible mistake. Such additional inflows, unrelated to trade but just motivated by fear in other countries, would push the Mark beyond trade balance levels. You have to keep in mind that capital flows change overnight, but productivity increases slowly over time and is not really a policy variable. Hence, these inflows would actually end up financing trade deficits (imagina how expensive the Deutsche Mark would become for that to happen), because, what investment is to be pursied when the currency is overvalued and imports are cheap? You would get closer to a US situation, with debt financed higher levels of consumption, rather than real investment (of course, financial asset may skyrocket - fancy another bubble? :P), more inequality (as the article says, some jobs will be destroyed, so not everybody would be enjoying debt-financed consumption)...
As far as I can tell, being the most productive country within the Eurozone is the best situation for Germany, as opposed to becoming a Japan-like productive country in isolation. Well, and of course, any of those is better than just becoming unproductive ina world scale :P
Yes, I see the problems.
The Problem is at the moment for Germany that we are in big debt already but we have to secure the economically weaker countries in the Eurozone with money we don't have, so in the near future Inflation will hit Europe because the money we don't have has to be printed. And then everybody, except for the rich who can bring their money outside the Eurozone, will loose a lot of their assets. And with or during Inflation different bubbles (stocks, houses, raw materials, gold) will come up.
Or if you look at Greece, Europe tried to secure their economy but wanted them to cut drastically of all state expenses (if that is a good Idea to cut on expenses if the economy is already down is difficult to say). Now they probably won't find a new government and the European Currency Union is tumbling.
So it looks like a good Idea to get out before it turns even worse.
In the past before the Euro the Mark was already besides the Pound the "most valuable" currency in Europe (and Germany still had a lot of Export), but I see the problems you mentioned in these times the Mark would be very expensive. It is a rather difficult problem.
But well, our chancellor will push anyway more and more money in the Eurozone and everybody tells us there will be no inflation coming up, when even someone with no economy background can see it will.
The Problem is at the moment for Germany that we are in big debt already but we have to secure the economically weaker countries in the Eurozone with money we don't have, so in the near future Inflation will hit Europe because the money we don't have has to be printed. And then everybody, except for the rich who can bring their money outside the Eurozone, will loose a lot of their assets. And with or during Inflation different bubbles (stocks, houses, raw materials, gold) will come up.
Or if you look at Greece, Europe tried to secure their economy but wanted them to cut drastically of all state expenses (if that is a good Idea to cut on expenses if the economy is already down is difficult to say). Now they probably won't find a new government and the European Currency Union is tumbling.
So it looks like a good Idea to get out before it turns even worse.
In the past before the Euro the Mark was already besides the Pound the "most valuable" currency in Europe (and Germany still had a lot of Export), but I see the problems you mentioned in these times the Mark would be very expensive. It is a rather difficult problem.
But well, our chancellor will push anyway more and more money in the Eurozone and everybody tells us there will be no inflation coming up, when even someone with no economy background can see it will.
You know Mueller, Mr Dax? . He said something very interesting and true. He said 3 things can happen , revolution( no one wants that), inflation to deal with the high european depths or to take a lot of "richman taxes".
After 40-60 yers we are yet again in a cycle where a few own most of the worlds wealth. This is normal to happen, one just has to deal with it from time to time. 3rd option was even done in the US in the 30's , so called NEW DEAL.
EZB has decided to choose option 2, but as mentioned in this thread the rich wont hurt from this as much as the poor. So far it is uncertain if this will even work.
I'd have apprecitated if someone had the guts to go for the taxes for the waelthy. In germany less than 5 % owns 10 times as much as germanys depths. Not even loosing 50 % of their weatlh would hurt them, the money would come back to them. Its allways like that the money comes from the masses and ends up with a few at the end, just from time to time one does need a reset to get all running smoothly again.
After 40-60 yers we are yet again in a cycle where a few own most of the worlds wealth. This is normal to happen, one just has to deal with it from time to time. 3rd option was even done in the US in the 30's , so called NEW DEAL.
EZB has decided to choose option 2, but as mentioned in this thread the rich wont hurt from this as much as the poor. So far it is uncertain if this will even work.
I'd have apprecitated if someone had the guts to go for the taxes for the waelthy. In germany less than 5 % owns 10 times as much as germanys depths. Not even loosing 50 % of their weatlh would hurt them, the money would come back to them. Its allways like that the money comes from the masses and ends up with a few at the end, just from time to time one does need a reset to get all running smoothly again.
You have to take into account that "securing their economy" mostly means "securing their payments to their creditors". And very often those creditors are the German financial system.
Without all those rescues and bailout, Greece (and others) woud have stopped paying altogether a long while ago, damaging the banks in more healthy economies. Of course, the bailouts have costs too, not born by banks alone, but also by Europeans taxpayers in general (probably with an uneven distribuition among them).
Now, if Germany started living in a new currency, two things could happen: 1) all the international lending contracts remain in euros, in which case German banks would get paid in full, but seeing their assets value in marks falling, hindering their ability to lend to the rest of the economy, 2) all the international cotnracts involving Germans would become Mark contracts, making all European creditors unable to pay their debts with their income in euros - hence defaulting. Again, big losses for German creditors.
Alternative 1) seems plausible for Germany leaving the euro, while alternative 2) is more reasonable for Germany staying but the others leaving it. Either way, without a plan to make debtors able to pay Germany back, Germany will face all the consequences of a default. Certainly, IMF and the like could take the main role in orchestrating a new plan for the debtors to be able to pay, but my experience tells me that it would be much less effective than making these plans within the EU - a EU with all its members.
Bottomline: I guess a pessimistic view would just say that Greece and co went down, they can't pay back, and that's gonna hurt whatever you do. Then, every choice you make will have a very limited impact on the size of the losses, but a more substantial impact on the ditribution of those losses between different sectors of the economy (in this case, of the German economy). If we take this view, it's hard to say that something "is going to be good for Germany": it will probably be "better for these Germans" and also "worse for these other Germans" :P
Without all those rescues and bailout, Greece (and others) woud have stopped paying altogether a long while ago, damaging the banks in more healthy economies. Of course, the bailouts have costs too, not born by banks alone, but also by Europeans taxpayers in general (probably with an uneven distribuition among them).
Now, if Germany started living in a new currency, two things could happen: 1) all the international lending contracts remain in euros, in which case German banks would get paid in full, but seeing their assets value in marks falling, hindering their ability to lend to the rest of the economy, 2) all the international cotnracts involving Germans would become Mark contracts, making all European creditors unable to pay their debts with their income in euros - hence defaulting. Again, big losses for German creditors.
Alternative 1) seems plausible for Germany leaving the euro, while alternative 2) is more reasonable for Germany staying but the others leaving it. Either way, without a plan to make debtors able to pay Germany back, Germany will face all the consequences of a default. Certainly, IMF and the like could take the main role in orchestrating a new plan for the debtors to be able to pay, but my experience tells me that it would be much less effective than making these plans within the EU - a EU with all its members.
Bottomline: I guess a pessimistic view would just say that Greece and co went down, they can't pay back, and that's gonna hurt whatever you do. Then, every choice you make will have a very limited impact on the size of the losses, but a more substantial impact on the ditribution of those losses between different sectors of the economy (in this case, of the German economy). If we take this view, it's hard to say that something "is going to be good for Germany": it will probably be "better for these Germans" and also "worse for these other Germans" :P
you have to consider WHY Germany need a strong Euro and in which configuration.
There is the fact that Germany import primary goods in dollar ( and Euro ), and export mainly in Euro... Because of the rate,they need strong Euro. Dropping the Euro would be completely counter productive, their currency will raise and they will still sell in Euro Zone, but they will be far less competitive because of their currency.
Look at the Switzerland, they are suffering "fly to currency quality" on their money.
(edited)
There is the fact that Germany import primary goods in dollar ( and Euro ), and export mainly in Euro... Because of the rate,they need strong Euro. Dropping the Euro would be completely counter productive, their currency will raise and they will still sell in Euro Zone, but they will be far less competitive because of their currency.
Look at the Switzerland, they are suffering "fly to currency quality" on their money.
(edited)
I think that is impossible for PIGS countries to repay their public debts.
At least it is for italy and greece, don't know for spain portugal and ireland.
Surely in italy we need to nationalize it.
today we have our banks full of home public debt, and it repays more than every other investiment (over 5%)
So the banks has no interest in loaning money to people to buy houses or to companies to make business, they will face a risk without any greater income.
moreover with our crisis, the risk to lose in loaning is too big.
So banks prefer the "system" risk, gnowing they can't help anyway a state failure..
in fact banks are not loaning money no more, and smarter (anbd richer) people started to buy land, taking money off-shore, changing euro in other values.
Do you think there are any solutions to this scenario?
Even with all germany economic strenght you can't handle this. There's no way you can turn the light on (but remember it was Deutsch Bank that started the speculation on italian public debt..)
At least it is for italy and greece, don't know for spain portugal and ireland.
Surely in italy we need to nationalize it.
today we have our banks full of home public debt, and it repays more than every other investiment (over 5%)
So the banks has no interest in loaning money to people to buy houses or to companies to make business, they will face a risk without any greater income.
moreover with our crisis, the risk to lose in loaning is too big.
So banks prefer the "system" risk, gnowing they can't help anyway a state failure..
in fact banks are not loaning money no more, and smarter (anbd richer) people started to buy land, taking money off-shore, changing euro in other values.
Do you think there are any solutions to this scenario?
Even with all germany economic strenght you can't handle this. There's no way you can turn the light on (but remember it was Deutsch Bank that started the speculation on italian public debt..)
Should Germany drop the Euro?!
I really hope they do. That will be Denmark's only hope for points in the group of death!
(edited)
I really hope they do. That will be Denmark's only hope for points in the group of death!
(edited)
This is the smartest and simplest summary of this problem and possible solutions I have seen so far. The culmination of the last centennial cycle ended up in communism and WWII. Let's all hope that this time the world has matured enough so that the reshuffling of its wealth can and will be made consensually without making new victims of history.
"I really hope they do. That will be Denmark's only hope for points in the group of death!"
ajjajajajajajajjajjaja!!!!!!!!!!!!!!!!!!!
ajjajajajajajajjajjaja!!!!!!!!!!!!!!!!!!!
Will Germany drop the Euro? I hope so. Or they create a fiscal union, or they drop the Euro, those two are the only two solutions. The first one is impossible (see what Rutte said today).
look carefully what happened after euro introduction
Why Germany should drop euro, until its economy is based in..?
in facts they import only qualified workers, from their "home garden" countries..:
link in deutsch
link in english
Why Germany should drop euro, until its economy is based in..?
in facts they import only qualified workers, from their "home garden" countries..:
link in deutsch
link in english
It is true major problems with the currency and big debt has always hurt the poor and the middle class. Concerning Germany after WWI Germany had to pay back a lot of money to the other European Nations and this lead to unemployment, hyperinflation and in the end the rising of radical parties (communists and of course nazis).
After WWII the issue with the big debt was not a problem thanks to the US, but those people who made money in the war and had companies, properties, real estate in their families were the wealthiest people in Germany. So basically those who made money because of the war were the most influential after it. But well that is probably how war works.
The problem I personally see with financing the economically weaker countries is that at a certain point, and I think we already are past this point, the only way to finance that is by inflation. Economically this is at one point the only way to get rid of big debt. And I am not a big fan of that.
Getting out of the Euro might give the choice to work it out without inflation, but I read more about it and you are correct about your statements. It could lead to major problems for the middle and working class in Germany as well. Either way it doesn't look good.
After WWII the issue with the big debt was not a problem thanks to the US, but those people who made money in the war and had companies, properties, real estate in their families were the wealthiest people in Germany. So basically those who made money because of the war were the most influential after it. But well that is probably how war works.
The problem I personally see with financing the economically weaker countries is that at a certain point, and I think we already are past this point, the only way to finance that is by inflation. Economically this is at one point the only way to get rid of big debt. And I am not a big fan of that.
Getting out of the Euro might give the choice to work it out without inflation, but I read more about it and you are correct about your statements. It could lead to major problems for the middle and working class in Germany as well. Either way it doesn't look good.
I don't see what you are trying to say?
This is capitalism, the people go to the country where they can earn the most money if they are given the chance. The Euro made this in Europe even more significant. If Italy or any other country could provide jobs paid as well as in Germany, it would not matter.
btw: higher educated Germans go to Switzerland because of the same reason. Just that Switzerland is rather small and the fluctuation is not as big.
This is simply how the business world works.
This is capitalism, the people go to the country where they can earn the most money if they are given the chance. The Euro made this in Europe even more significant. If Italy or any other country could provide jobs paid as well as in Germany, it would not matter.
btw: higher educated Germans go to Switzerland because of the same reason. Just that Switzerland is rather small and the fluctuation is not as big.
This is simply how the business world works.