If Italy Were a Small Business...(A Way to Understand the Euro Crisis) | Hacker News Reader

If Italy Were a Small Business...(A Way to Understand the Euro Crisis)

inc.com

24 pointscartnicnc18 comments

Given the title, it is not surprising that this analogy glosses over a key point. It only tangentially refers to the main problem, which is that currently Italy (and Greece and Spain) are tied to a single currency, and they do not have a currency of their own to devalue to deal with this crisis. e.g. see

http://krugman.blogs.nytimes.com/2011/11/10/original-sin-and...

This seems to be the problem with the analogy of national finances=family or small business finances, i.e. that nations typically can control their money supply and value, and this is purely a macroeconomic hack, rather than a morality issue.

Surely that's what makes it a valid analogy? Countries that have their own currencies have an escape route from debt in the form of devaluation, which makes them unlike small businesses. Countries that use a shared currency (or issue debt denominated in another country's currency) don't have that escape route, which makes them much more similar to small businesses.

OTOH it's hard to take an article seriously when it contains the phrase "way more than they ever should of". Perhaps the copy editor was having a bad day.

It's shocking how cavalier economic folks like Krugman are when it comes to dismissing analogies between national finances and personal finances. Yes an individual does not have the ability to print their way out of debt, however, that doesn't diminish the fact that those doing the debasement are committing fraud against the people whose interests they claim to protect.

That's an overly simplistic view of what is going on. A modest (<15%) rate of inflation that is driven by wage increases is actually a Good Thing for the majority of the population, because their real standard of living depends much more on the real value of income than it does on savings. And don't forget the role that debt and nominally fixed contracts for rent or mortgage play, either. If real incomes rise during an inflationary period, the majority of the population will be better off afterwards. This is not an unrealistic scenario, by the way. It happened several time throughout the 20th century.

It's just that most people confuse inflation with hyperinflation - the latter is not so much "inflation writ large"; instead it is an outright rejection of the old money system, which is a huge qualitative difference.

> It only tangentially refers to the main problem, which is that currently Italy (and Greece and Spain) are tied to a single currency, and they do not have a currency of their own to devalue to deal with this crisis. e.g. see

Honestly, having your own currency wouldn't help one bit when all the credits you've taken are in an another currency. Look at what happened to Argentina at the end of the '90s, no matter how much they devalued the Peso they still had to eventually default, because the credits they had were not in Peso.

I cannot understand why people like Krugman and most of the other economists don't bring up this point when raising issues like "it would all have been fine if the Greeks had stick to using their own currency".

The UK devalued its currency by something like 30%. It seems this helped (although the UK is by no means out of the woods).

I thought pegging the Argentine peso to the dollar was what made the Argentine debt crisis worse.

> I cannot understand why people like Krugman and most of the other economists don't bring up this point when raising issues like "it would all have been fine if the Greeks had stick to using their own currency".

I believe this is simply a case of omitting the obvious. The people who most emphasize the importance of a sovereign currency do point out the importance of not taking on debt that is denominated in a foreign currency.

It's just that if you write all the little caveats and conditions in there all the time, the end result becomes unreadable.

I'm living in a third-world country, and making a living from the Internet. Can someone with experience/knowledge tell me how much this will affect the Internet business? I do web development (HTML5/WordPress/JavaScript)

Web development - I don't think it'll be affected. When st hit the fan in 2008 in the US, the only thing I lost were commissions from sales - even then not by much - before, I was having a ~300% ROI, after it was around 200%, and I had to drop PPC. Leads actually increased in numbers, and Content creation still remains the same - I've got more clients than I can handle, although there are many more from India and Germany right now (before, the US was leading, too), so you'll be fine...

Thanks for reassuring. The 2008 crisis didn't affect my business at all and I'm more linked to the USA than the EU. However, I thought this up-coming crisis could be much worse.

>Let’s pretend Italy is your business. No, you could never be that stupid.

This clearly does not apply to the person who wrote this brilliant "article".

also how much a "regional" crisis affects an internet business?

The specific effects are local to the business. Broadly, the business will be affected by the global economic environment, making everything from raising money to executing sales more difficult.

Personally, I had an interent startup that went through a lot of challenges due to the financial crisis in 2008, even though we weren't in finance or even the US. But it made the funding environment so bad we had to change plans for some time.

The current tech market is stronger than most other segments, but don't get too comfortable. Internet businesses aren't divorced from real world economics.

Do you mean "how much a 'regional' crisis affects an internet business based in the US"?

I'm pretty sure that if this leads to a break up or two-tier Eurozone, then it is going to touch every business, every where, because economies are like kids at school -- once one gets sick it passes it on to all the others. It's certainly going to affect everyone in Europe, even those that aren't in the €. It's going to affect exchange rates. It's going to affect the ability of many people to buy your goods. And so on...

Why is it that northern Europe is doing so well (relatively), and southern Europe so badly?

Is it something more than corruption in Greece and Italy???

I heard the situation explained as Italy and Greece had systemic spending/borrowing issues before joining the Euro zone. Everyone knew this and thought once those countries no longer had their own currencies they would shape up.

Unfortunately, the opposite happened and these nations started borrowing more thanks to their new found access to cheap money Germany and France's economies basically subsidized the borrowing.

Rather than cutting back on benefits, slimming corporate and government budgets, ending nepotism hires and enforcing sane tax policies, Italy and Greece just continued their lifestyles all while issuing more and more Euro backed debt. Now the party ends.

Within the Eurozone, a large part of the problem is the relative development of wages. Obviously wages are higher in, say, Germany than in Greece. However, the rate of change of the quotient of wages divided by productivity has been higher in the southern nations relative to Germany and other northern nations.

In fact, in the particular case of Germany, the quotient has decreased, i.e. German employees have been screwed by their own political and business elite. The result is that German exports are cheaper than they should be, which creates trade and therefore balance of payments imbalances.

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