Yanis Varoufakis: The Euro Has Never Been More Problematic [video]
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I think it’s the exact opposite. He’s speaking from the experience of being in the Eurogroup and negotiating directly with Germany. Anything he has to say on the matter is far more credible than any of the pro-Euro claims made by people who have no skin in the game.
>Is there anyone here on HN who has further reading advice on these claims (E.g that the € is malice by design)?
It’s a bit dated now, but pretty much anything Keynes wrote about trade balances under the Bretton Woods system corroborate what Varoufakis says. He really presents a pretty standard Keynesian perspective on monetary unions, so you won’t have to look far.
By that metric, the German finance minister's claims are also the gospel truth on the situation. "Skin in the game" helps when one can affect future outcomes. It aligns incentives. It does nothing for the accuracy of a primary source defending past decisions.
The man is a fraud who believed that throwing veiled and not so veiled accusations of naziism at Germany in specific and the EU in general was a reasonable course of action. He is a delusional attention-seeker who had a self-destructive legacy in his stint as head of greece's finances who decided to quit immediately before the result of his actions blew up in Greece's face just to personally avoid being held accountable for his actions.
The point is that there are definitely economic benefits to the simplicity and low-overhead of currency union among equal and near-equal partners, but when economic conditions vary greatly between regions (or more correctly, when economic conditions change differently over time in various regions), there can be a greater benefit to having different currencies that can trade at different levels against each other to assist in the proper valuation of resources in either region.
There's no 100% right answer, and national boundaries are not necessarily the "optimal" borders for currency areas, but obviously there are practical issues to weigh as well.
So I think it's obviously wrong to say "the Euro is bad". It's a great thing for France and Germany and Belgium and the Netherlands and several other countries in the Eurozone. But expanding the Euro to Greece maybe was a bit too far.
That said, the EU could do a lot via policy to make up for the problems caused by the imbalance of economic conditions between Greece and Germany, but ... they aren't doing nearly enough.
I lost interest in what he was saying in his long winded article after the first few paragraphs.
How do we make things work here in the US?
>> So I think it's obviously wrong to say "the Euro is bad". It's a great thing for France and Germany and Belgium and the Netherlands and several other countries in the Eurozone. But expanding the Euro to Greece maybe was a bit too far.
I don't know how Greece would have been better off with Drachma. I mean Drachma is still convertible currency, no? Greece isn't Zimbabwe. They can't just print money, can they?
Maybe this is naive but I don't understand how currency matters unless you have some weird third world level conversion control.
By being one country as well as one currency region.
That's not just a glib answer. The US can use federal financial transfers to help, say, Mississippi. But the EU can't use direct financial transfers to help Greece, because EU rules (IIUC) don't allow it, and Germany (for example) wouldn't put up with being taxed to pay for it even if the rules allowed it.
> Germany (for example) wouldn't put up with it even if the rules allowed it.
It makes sense. I have a lot of respect for Germany but there's probably some limit to how much they can make miracles happen. The nineties wasn't that long ago and my understanding is Germany has invested a lot in Eastern part of Germany over the last two or three decades. I'd be apprehensive about pouring money into Greece if there's no common identity between Greece and Germany that instinctively reassured me that if there was some tragedy in Germany, there wouldn't be "foreign aid" from Greece but rather the same disaster relief as Greece would offer itself.
My understanding though is that the common identity is still rather weak. I'm not just poking at the French. Seems like all Europeans think of themselves as Brits, Spaniards, Italian, or bla bla bla before they think of themselves as European. I think I listened to someone argue that the EU is not a country and never will be based on how the Constitution behind less preamble:
>> HIS MAJESTY THE KING OF THE BELGIANS, THE PRESIDENT OF THE CZECH REPUBLIC, HER MAJESTY THE QUEEN OF DENMARK, ...
I think they tried to argue that the EU is somehow superior and more modern compared to these United States of America. I don't know much about the Eurozone but I'm very optimistic because I don't see any other way Europe doing any better than barely surviving if it did not unite.
More importantly, I think the stupid and nostalgic old people will die at some point.
> Just over 70% of 18 to 24-year-olds who voted in the referendum backed Remain, four major academic and commercial polls conducted shortly after the ballot agree, with just under 30% backing Leave.
> In contrast, only 40% of those aged 65 and over supported Remain, while 60% placed their cross against Leave.
https://www.bbc.com/news/uk-politics-45098550
I am optimistic, for what it is worth.
The Euro’s design balances Germany’s paranoia surrounding inflation with the South’s preference for rebalancing its economies though devaluation. With the benefit of hindsight, a terrific compromise wasn’t found. Obvious fixes, which include a Eurozone FDIC analogue and a European fiscal authority for basic social services like unemployment insurance and housing subsidies, are opposed by pretty much every country’s politicians. (The rich because they don’t want to subsidise the poor, but do want to keep selling to them on credit. The poor because they don’t want to lose their jobs to a unified entity in Brussels.)
To which the only response is seriously, have you met these people?!
However, knowing that it is deeply flawed, and knowing why, does reveal a bunch of economists pointing out it wasn´t a great idea before it happened, but not as it happens for quite the right reasons.
It can be observed, there are so many competing economics tribes at the moment, one of them is always bound to be right on something.
The reason it was a bad idea, is that economics doesn´t think very hard if at all about what the implications are of the banking system happily expanding the monetary system for each country at different rates, and it really didn´t think about what the impact of loan securitisation would be on things like inter-bank liquidity flows.
And here we are.
Almost every EU country has someone from GS in their leadership structure over the years.
They simply engineered an arbitrage situation...
Now, sure, Germany had the upper hand knowing that While Syriza had passed a referendum to default that they did not have the heart for it and the Germans called their bluff. In retrospect, Greece would have probably been better off than they are now. While different, it's not all that different from the tactics China is taking in South Asia and Africa when they provide loans they know can't be repaid by the counties they lend them to (often secured by natural resources or infrastructure).
That statement is patently wrong in many ways.
Greece asked the EU and the IMF for help as their long accounting con finally blew in the greek state's face.
Greece benefitted from a huge debt pardon which vanished about half of the nation's sovereign debt.
The emergency loans that Greece asked for were well below market rate and, more importantly, were actually accomplishable, as back then no one in the world wanted to loan billions th a bankrupt state.
And finally defaulting on debt would be disastrous to Greece. Greek governments were piling >10% deficits that were financed through loan after loan. If Greece defaulted then their access to credit would be cut immediately as no one in the world would be willing to lend them the billions they needed and risk not getting their money back. That meant Greece would be forced to cut their >10% deficit overnight, including also the effect of a major recession that would eclipse the one they actually had to endure. If the soft multi-year transition to self sustainable spending provided by the IMF/ECB/EU emergency loans and bailout program was harsh, what would a radical spending cut made overnight be?
Why is it ok for America to use these tactics on Latin America yet reprehensible when China does the same? Isn’t this just the pot calling the kettle black?
Regardless, I was only pointing out that what Germany did to Greece was similar to what China does now to many countries. I'm simply comparing one policy to another. You're the one implying condemnation for China.
Even if this wasn't completely off-topic, I'd still recommend reading up on whataboutism to understand why this post was not making a substantive argument: https://en.wikipedia.org/wiki/Whataboutism
They also blatantly disregarded EU's and their own rules (e.g. regarding deficits) when it was for their own benefit.
There are people who, while adults, still believe in unicorns, and tooth fairies, and big nation states with huge national industries and interests looking for the good of the union and the common market, and so on. There also are pragmatists who understand politics.
If anything, the problem with Varoofakis, was that he was more of the latter.
Your point about deficits (Maastricht Treaty and other EU regulations after the crises that passed), everybody ignores that but only small countries every get in trouble for it. And when it comes to deficits, Germany is actually one of lesser offenders compared to others.
Also, it has been known for a long time that an agreement when EU was being formed was made and areas of influence setup. Germany was promised to get leading influence in ECB in exchange for basically turning Deutsche Mark into Euro and allowing the whole continent to use the German currency. French got full control of the IMF, for example, and also EU parliament being located partly in Strasbourg plus more influence in some other core EU bodies outside of ECB.
Of course when the corruption was done by and was in favor of German companies getting some job, all it was well (Fraport, Siemens, subway bribing, etc).
Germany even refused to cooperate to clean things up, e.g.: https://en.wikipedia.org/wiki/Siemens_Greek_bribery_scandal
Idk, long otm calls on BundGreenInc Intl (esp since the Euro and EU has been sold as being "long europe" the past two decades, its a crowded trade), doesn't seem as much as a sure bet as selling those otm calls and using the proceeds to long deep otm puts on grasshopper trash… but everyone in the mean time will write you off as someone who wants to bring death, destruction and chaos to europe if you don't join in on their crowded trade that people aren't even buying now (because they're buying more of "Fascist inc intl" as he admits).
Now here's one fact that nationalists don't like: the euro has a number of aims, including its symbolism of a united Europe, to stabilise the many small currencies and prevent speculation harming it [1], etc. But one of its key ideas is of course also to drive the EU countries closer. All of the EU as we know it today stems from two premises: (1) we are stronger/better off together and (2) we have to bring a.of Europe together and connect it to avoid that it may ever again become a battlefield.
This second lesson, stemming from hundreds of European wars and the nightmares of WW 1 & 2 ist of course fundamentally contrary to the idea of national autonomy. Germany is not going to attack France because both sides would essentially be destroyed and unable to function independently. The same is true for all other EU countries (including the UK, which is why Brexit is such a nightmare for all sides).
Why was the euro so harmful for Greece (Varoufakis' home country)? Two reasons, (1) because it wasn't finished, politicians lost the political will to dare to finalise the project (banking union, eurozone budget, ...) as it meant to give up more power and control to the EU. (2) Greece LIED and produced false national statistics for decades. They didn't actually fulfil the minimum criteria to join the euro. Successive governments falsified the numbers - and when it all came tumbling down (when one government was finally honest!) the Greek citizens paid the price. Greek politicians, over decades, had found it was easier to lie and produced false numbers than actually address the multitude of structural problems Greece faced. The rest of the EU then bailed it out but as a condition for this demanded rather painful reforms. Those were probably too harsh/sudden in many ways, but the real blame should still be attributed to the ones who caused the issue to begin with: the Greek governments that lived off unsustainable debt and got elected for promising more unsustainable spending - and then hid it all with invented numbers.
[1] e.g. see https://www.investopedia.com/ask/answers/08/george-soros-ban...