Sometimes I wonder if this incident didn't happen, would the UK had entered the Euro and Brexit wouldn't be on the horizon today.
It's been a great setup for 20 years if you've been in the German capital class, not so great for anyone else.
However, France and Germany contribute significantly more than they receive, and poorer regions receive significantly more than they contribute, so that's effectively a transfer mechanism.
Could you explain this comment further, or have links to stories that go in depth on how that works? Not saying you are wrong, but I don't understand how germany, which is an economic powerhouse and exports a lot of goods, are being subsidized by poorer countries.
There are some transfer mechanisms from rich to poor Eurozone countries, but they're nothing anywhere close to the scale of e.g. the US federal government.
Edit: _delerium answered my question pretty well in a reply to another commenter.
also can you suggest a place where I could read more about this? its awfully confusing, and somewhat counter-intuitive and it would be helpful to read where someone has presented this idea in a paper or article or something.
The issue is that, normally when a country with its own currency is economically uncompetitive, its currency weakens, which helps give a boost to domestic industry by making their exports cheaper than those of richer nations. So there's a natural corrective function to economic fragility that helps these countries get back on their feet. The Eurozone breaks that corrective mechanism: without the Euro, right now e.g. Greece would have a weak currency and Germany a much stronger one, which would help Greek industry because their products would be cheaper than Germany's. But since they're all using the Euro, Greece can't get any kind of comparative economic advantage.
To accomplish the same without an independent currency requires managing this movement in nominal terms. If the problem is that the country is basically broke or uncompetitive, and needs to solve this by "getting cheaper" compared to other countries, everything in the country has to get cheaper simultaneously. Wages have to go down in €, housing has to go down in €, etc., and this all has to happen in a coordinated way so everyone can still pay their now-lower rent with their now-lower wages, and so on. Economists call this "internal devaluation", i.e. achieving the same effects as a currency devaluation while not having a separate currency, by just lowering actual prices for everything.
The consensus seems to be that it's difficult to pull this off successfully, and really good positive examples are rare. It's complicated by just the general difficulty of coordination, as well as longer-term contracts (e.g. most people's rent and wages don't get renegotiated monthly). Greece has been sort of doing this through consistent single-digit deflation, but it draws it out over a long period. Many (though not all) economists think the result is worse than an all-at-once currency devaluation would've been.
https://www.spiegel.de/international/europe/george-soros-on-...
My memory of such isn't perfect, and I won't reread all dozen-ish pages for the sake of an HN comment, but I remember it covering some of the issues of Eurozone integration, and seems very topical given this thread is about Soros.
I sell SaaS software on a subscription basis to customers all over the world. They pay for our service in USD, which is then converted to EUR when I get paid from the company.
If the Euro was stronger, which it would be if it were only the currency for Germany, I'd get less Euro when that conversion happened, and I'd have less local currency for things like rent, groceries, etc. The Euro being artificially depressed against USD absolutely benefits anyone who either personally or via their company exports products, including stuff like SaaS. Since exports are the backbone of the German economy, it has a very concrete benefit to most Germans. Greece's economic problems literally mean I get more cash.
But wouldn't you be able to still buy exactly the same stuff with less (but stronger) Euros?
This is true in most places without particularly volatile currencies, though in countries that do have very volatile currencies, things like rent have historically been specified in stable currencies like US Dollars, Deutsche Mark or Euro.
Surely things like rent take longer to reflect an increased demand but they do eventually catch up.
Yes, and that makes German products more attractive, boosting German exports. Germany gets a boost to their export, at the cost of importing at higher prices. Because Greece's currency is artificially boosted, they can import relatively cheaply, but they have trouble exporting because their exports are too expensive, so money is leaving the country.
>If a country or region has no power to devalue, and if it is not the beneficiary of a system of fiscal equalisation, then there is nothing to stop it suffering a process of cumulative and terminal decline leading, in the end, to emigration as the only alternative to poverty or starvation.
That's why this isn't as much a problem for the US as the EU.
There are other factors at play, of course, and I think that a complete analysis would defy any simplistic explanation. Compare to the US dollar: does New York benefit from a common currency at the expense of Louisiana?
The EU has far, far less tax income, and for the last 10 years been spending all that money on the new entrants instead of Greece, Spain or Italy as it did pre-EU27. (And I would argue of course they should spend the money there for the greatest good).
So there's no redistribution through tax, and Germany benefits from a much weaker currency, while struggling countries can't use currency controls to kick start their trade.
You do if you count open free trade, least that is the ideology. Though the reality is very disproportional and for countries able and in a position to leverage that, did very well.
So you get some countries doing better than others, how do you balance that out. Well, with a membership fee based upon how well the individual member is doing in relation to other members and using most of that fee to invest in those countries doing less well.
Which seems a simple and fair way. At least on paper when they signed it all off it did.
I will say though, I've always worried about the aggressive QE usage by the ECB. Whilst great for exports, it has equally impacted imports. This with most consumer tech being imported, then it would be more advantages to companies that export outside the EU to have QE keeping the Euro from racing ahead than for importers.
Hence countries with a dominant export outside the EU, have done rather well out of QE and those importing, equally less so.
But then, how QE is not counted as currency manipulation is beyond me.
This is incorrect. The EU has substantial transfer payments. Wealthier EU countries (like Germany) subsidise poorer ones (like Poland) on the order of tens of billions of Euros annually.
Regional development (subsidies for poorer areas) is the second largest EU budget line item after agriculture.
The Eurozone should either go all the way like the US, or they should scrap the currency union. This halfway step only serves the wealthy.
On the other hand, Slowakia and Ireland are part of the Eurozone and are doing very well despite starting out poor. (Maybe Ireland doesn't fit here, because they've been doing very well since long before the Euro.)
The EU consists of independent, co-operating countries. This is quite different from the US. There is very little the EU can do without votes from the individual countries.
So the assumption is that a country that joins the Euro has carefully evaluated the pros and cons. At the same time, the amount of subsidies a country receives is not dependant on that country being part of the Euro-zone or not.
If you look at the Euro at the time of introduction, then there was every intent to make Euro as strong and stable as the Deutche Mark. Very much so against the wishes of France, who wanted a currency that was way more subject to political control.
Of course, one incentive for countries to adopt the Euro was exactly was the article is about: a small currency stands no chance against investors speculating against it. Better hide in a big currency.
How?
Poorer countries in general have lower productivity (possible causes can be lacking infrastructure (roads, electricity, telecom, but also regulations etc.), lacking capital, lacking foresight/lacking capital to invest in future tech by the governement (e.g. broadband internet)).
This results - despite lower wages! - in higher unit labor costs.
If you form a monetary union with poorer and richer countries (like the EU), you have problem. The richer countries, despite higher absolute wages, will have lower unit labor costs. The richer countries can therefore expand exports at the cost of domestic production in the poorer countries (e.g. Germany vs. rest of EU).
If the poorer country wouldn't be part of the union, it could (among other things) lower the value of its own currency (or the forex markets would do that). Lower-valued domestic currency assists exports, which levels competition with the richer countries a bit.
This doesn't mean that there are no alternatives inside the current EU! They just haven't been implemented yet. Options would be
* way higher minimum wages in the rich countries (Germany was one of the last countries in Europe to implement them)
* implementing less union-hostile laws in the richer countries (resulting again in higher wages, but also for higher income groups not affected by minimum wage)
* More infrastructure investments in the poorer countries (there already are significant transfers, but more would help)
* A unified fiscal strategy. After implementation of the Euro zone, there were massive capital inflows into the poorer countries, resulting in overvaluation of the local economy. This was a big reason for the local problems of the last decade [1]
[1] https://streetlightblog.blogspot.com/2011/09/what-really-cau...
In areas where countries like Germany directly compete with poorer countries, they do so by having more and better automation. Productivity is not that people work harder, is it that there are more machines to do the work.
The net effect of raising wages is that there will be more automation, largely negating the increase in wages. By it self this is not a problem.
Where is goes wrong is that within a country, there are many jobs that cannot be automated easily. In particular, with an aging population, you need lots of nurses and other care takers.
Increasing minimum wages with sole goal of reducing export imbalance can make those cost go through the roof, and generally lower the standard of living for a large part of the population.
Reducing the cost of 'care' and other jobs that dependent on personal service, is already very important to improve the standard of living.
But when looking at countries it is very important to not only look at wages as cost. Especially in Germany the low wages result in low domestic demand, which results in the country being a net exporter again and again.
Rising wages, especially minimum wages, are mostly spent domestically on services (think going to the hairdresser instead of cutting your own hair, or finally using healthcare as needed).
Germany was a wonderful field experiment for exactly this in the last years, as it was one of the two countries out of 27 European countries not having minimum wage laws. After implementing minimum wage (starting at 7€ something, now at 9.20€/h) pretty much zero job loss could be observed, depending on market segment quite the opposite. Because wages are not only costs, but also create demand.
In Germany, the lower 60%(!) of the population only hold 3% of the wealth. In other words: Almost every € earned gets spent on consumption. If those people earn more money, they spend more money, thus creating demand.
Automation is a real thing, but then again what gets automated aren't those low wage jobs in the service economy - it's mostly work in higher income brackets. And the automation can result in severe disruption in local market segments, but overall it doesn't result in less employment - see yearly productivity growth and employment rates of most industrialized economies. Just look at the United States, which currently has nearly full employment despite currently being the world center of (software) automation.
Even before minimum wages, Germany has very high sector-level minimum wage due to union tarrifs that are binding for non-union employees. Job losses were negligible because the number of people that have been affected by the minimum wage was rather small.
> the lower 60% of the population only hold 3% of the wealth.
Germany has state pensions that you can live on comfortably, and renter-friendly housing laws. So people don't need to own a house as a retirement plan (unlike much of the rest of the world).
True! Those were for the "high-paying" low wage jobs, though - mostly in construction. Gastronomy, hotel industry, haircutters etc. didn't have those. Wage laws in construction mosty were already at more than 9€/h before country-wide minimum wages were implemented.
I can't really agree on that being the reason for no observed loss of jobs though - there are too many other examples of successful minimum wage laws in other regions where the feared job losses failed to materialize, too [1].
>> the lower 60% of the population only hold 3% of the wealth.
> Germany has state pensions that you can live on comfortably, and renter-friendly housing laws. So people don't need to own a house as a retirement plan (unlike much of the rest of the world).
Yes, my angle was a bit different, though: As middle class and upper class earn more, they can afford to save more. Saving, though, does mean that the money saved doesn't take part in the economy anymore (or at least to a lesser degree).
If a low-wage person gets lets say 100€ more per month, that money will get spent almost completely at places like groceries, haircutters etc. - places that also have relatively low wages, which means those people will also spend the money completely and so on. A rise in minimum wages gets you the most bang for the buck, if your goal is stimulation of domestic demand.
[1] As one example New Jersey in the US: https://www.nytimes.com/2015/07/17/opinion/paul-krugman-libe...
What's more, Germany may even have a built-in advantage datinng back to the inception of the euro, when the Deutsche Mark was brought into the union at what many believe was about a 6% undervalued rate. "Updated IMF data suggests that by 2017 the German pricing edge built into the euro had about doubled to over 12%."[1]
https://www.forbes.com/sites/miltonezrati/2018/01/23/the-ger...
Everyone appears to use the short billion these days, and it caused me significant cognitive dissonance!
It is meaningless to compare a net transfer to gross tax receipts. California's large, wealthy population generates high federal tax receipts, but it's net contribution is actually negative because the federal government currently spends more in California than it receives in taxes.
Source: https://www.governing.com/week-in-finance/gov-taxpayers-10-s...
[1]: https://rockinst.org/wp-content/uploads/2018/02/2017-09-28_B...
Size of EU budget is about 1 % of EU GDP, so these transfer payments are likely inconsequential as a fiscal mechanism.
https://en.m.wikipedia.org/wiki/European_Regional_Developmen...
It has been great for millions of non-Western EU citizens.
Other commenters point out that there's some transfer payments in the EU, a superset of the Euro zone.
Also around the world you have other currency unions that don't involve transfers and that are doing just fine. Eg Hong Kong effectively uses the USD. See https://en.wikipedia.org/wiki/Currency_substitution for some more background.
And, of course, Scotland, Canada and Australia were doing just fine on the gold standard in the 18th and 19th centuries; without any fiscal transfers between countries in the gold block. (I explicitly mention those countries, and not eg the US or England for specific reasons. I also explicitly not mention the interwar gold standard.)
See https://marketmonetarist.com/2015/07/14/the-euro-a-monetary-... for an empiric demonstration of the Euro's flaws. And https://marketmonetarist.com/2015/07/19/the-euro-a-fiscal-st... for a follow up.
(Unilateral) free trade was a pretty popular policy back then.
In practice, the decrease in transportation costs we have today dwarfs the difference in tariffs.
For a weak economy IMHO the Euro is worth the disadvantages (and I happen not to consider the inability to do competitive devaluations a disadvantage). These can be small (GR) or large (IT) economies. For a pretty solid (sometimes strong, sometimes less strong, but never "weak") economy (DE, NL, FR, etc) it's definitely good; the small amount you lose in freedom of action is far overshadowed by the benefits (who did better from the greek financial crisis: Greece or Germany?). But for a middling economy which I consider the UK to be, despite its large size, being coupled to the eurozone would give them the worst of both worlds.
BTW I don't think this is an argument for the UK getting out of the EU; I think they should fix their shit (which goes back decades) instead.
Sometimes democracy doesn't work you know, so we have to try harder.
Some will argue that the coming general election is an up-down vote on Johnson's deal. However, it isn't in that it is a first-past-the-post contest between different parties in each constituency – a majority of the vote might be received by parties opposed to Johnson's deal, yet the Tory candidate might still be returned due to the majority against them being split. A referendum on the deal itself wouldn't be faced with that issue.
Since the referendum we have had a GE a EuroMP election and now...another GE. With only the referendum and the EuroMP being done on the proportional representation system.
Sad thing is, had David Cameron got the EU to agree to reform, things would of been much different. Which is ironic as Mr Macron is keen to see reform, with even Donald Tusk not long after the referendum saying that the EU needed reform. Ironic as that reform is on hold, until the UK leaves. That's sad as in all this time, the EU could of outlined some reforms and the whole reason to have a revote upon the leave/stay would of been more palatable as things had/was changing. Bit like saying your going to quit a game due to some imbalance that has gone on for ages that you don't like, and before you quit, they say they are going to address the issue. So you may well change your mind.
However you look at it though - a lot of people got way more politically educated over the past two years. Be interesting how that pans out over time.
(FWIW I don't think a referendum should have been held in the first place, and an un-referended decision either way would have been better.)
- Do you want to have a border in Ireland?
- Do you want a border between Ireland and the rest of the UK?
- Do you want to lose money for the NHS even though we had a bus saying the opposite?
- Are you just going to say "no" to everything, but not have an idea what to do instead?
Then maybe, just maybe it would a good idea to ask voters to choose again between leave this way, that way, another way or "who knew this could be so complicated, let's not do that".
Having another vote just because politicians didn't like the way the first one went is not democratic. We can have another vote, but lets leave first.
> Having another vote just because politicians didn't like the way the first one went is not democratic.
Sure, which is why nobody is proposing that.
The regular definition of two parties that have agreed something
> Sure, which is why nobody is proposing that.
Apart from the Labour party and the so called Peoples Vote campaign. But apart from them nobody is I suppose
Parliament passed the second reading of the new agreement allowing it to move to the committee stage for further scrutiny, but they rejected plans to pass it into law before the 31 October deadline, and forced the government (through the 'Benn Act') to ask for a third Brexit delay. This was followed, on the last day of October, by an act providing for an early general election on 12 December.
"Have", kinda but not quite.
They are also not proposing that. If you have to misrepresent other groups instead of arguing against what they are actually saying then you are not discussing but just talking to yourself.
Joining the EUR means literally giving up sovereignty. The Iron Lady explained that very concisely in her last speech as a PM in the House of Commons: “He who controls the interest rates in Europe, controls Europe”. Couldn’t be more “spot-on”.
Regarding the topic. The UK never considered itself part of “Europe”. There historical and cultural facts and the events of the 20th century that IMO played a major role in keeping their own currency.
Italy is the largest political mess of Europe, and the amount of structural problems is staggering.
Its industries kept it running, and China's growth as a manufacturing centre, together with the accession of countries with less structural problems have taken a toll on the Italian industry.
If there was no Euro, Italy would still be ruined anyway.
Some nuance please... Your fallacious point of view is pushed by certain lobbying groups because a weak currency is
- horribly harmful to inhabitants' living standards (how many days of disposable income does it take a developer to buy an iPhone in the UK vs in the US? About three times as many.)
- very helpful to the shareholders of exporting companies (cheap labor and high profit margins)
you are correct in that it makes monetary policy impossible to control from the "outside". obviously that's not a great outcome for various economies in the EU, including the ones you have listed.
* The mid-2000s British housing bubble, and its collapse in 2007, would have been even bigger.
* Britain would have had to ask the IMF, ECB, and EU for loans.
* The Tories would in 2010 have promised a referendum to leave the Euro and won a majority. Labour would have won fewer than 100 seats, and UKIP would have "made spectacular gains".
* The anti-Euro side would have won the referendum, and the currency would have collapsed.
* "after a deep and painful recession economic recovery began".
* "Britain would have destroyed the euro on departure, and would now be on the point of leaving the EU altogether. The idea that Farage might be the next prime minister would be quite credible."