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Comment by mutatio | Hacker News Reader

The ECB has its hands tied behind its back, perfect storms like this highlight one of the benefits of a country having its own currency and fiscal policy - the ECB cannot move like UK/US as reconciling Greece/Italy and Germany/Northern Europe can't be done without massive pain for the south.

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On the other hand though, the Eurozone population pretty much equals that of the US, and surely there are a bit underdeveloped US states compared to the overdeveloped ones, right? So why is the EU bad idea and the US is not?

Because US is a transfer union. In EU you have a lot of transfer unions within individual states (eg. East-West germany, North-south italy). When a greek moves to germany for work, the money does not flow between the two countries

How do you mean? Euro transfers within the EU work like domestic ones, it's a rule. I've moved a few EU countries in recent years and I've been able to use the same bank (Revolut) for everything everywhere I moved.

They mean a policy of redistribution of wealth between countries, not the mechanics of a bank transfer.

Transfers as in better-off regions supporting worse-off ones.

I mean in the sense of "rich countries aid the poor ones"

https://www.dbresearch.com/PROD/RPS_EN-PROD/A_European_trans...

I'm not sure that's accurate. For example, Ireland has been the net recipient of €40B since joining the union.

If you mean transfer as regards banking, the whole EU (plus EFTA and the UK) are covered by the Single Euro Payments Area, within which all bank transfers must be subject to the same rules and fees as national ones (notwithstanding currency exchange fees if applicable).

If you mean transfer in a more abstract fiscal sense, not even individual EU states themselves are homogeneous regarding their internal fiscal policies. Some are federal, such as Germany, and some are highly centralised, such as France. Then you have the case of Spain where all 17 autonomous communities (≈pseudofederal states) have a small leeway regarding income tax and must follow the baseline central policy, but two regions in particular—the Basque Country and Navarre—have fully devolved powers regarding taxation due to "fueros", i.e. historical rights.

It's about fiscal policy. The EU has no unified fiscal policy. It can't raise taxes for transfers from north to south.

Almost every economist said in 98 that the euro is a bad idea. And it is for the south of Europe. It's great for the north and Germany especially, but for the south it is and has a killer.

In my opinion, the Euro will ultimately break the current EU.

That’s because the euro zone is a scam.

Rich countries in the north especially Germany put in place policies akin to dumping and were shielded from the effects it should have had on their money by the economic gap with the poorer countries in the south. Southern countries found themselves handicapped by an overvalued currency. Meanwhile politicians in the north refused any form of transfers and keep popularising the idea that southern countries are poorer because they lack discipline.

It’s not!

Currency fluctuations don’t allow for global trade. That’s why after WW2, the Bretton-Woods system was established with fixed exchange rates. After that came to its end, Europe created a new system. Rates were not pegged to gold but to other European currencies (only 2% deviation allowed, 6% for Italy and Britain).

That created a problem for countries that couldn’t keep up with the German economy: Stabilizing the exchange rate was getting very expensive for those countries. Germany started with zero gold reserves after WW2 and now has second place because of this system.

The solution: a common currency. Germany gave up the privilege of getting paid for their strong currency so weak currency countries could stay in the system. A lot of money for an economically integrated Europe. Italy gave up some sovereignty over the money supply and pledged not to spend too much.

Even without the euro, Italy had an “overvalued currency” that held it back because it kept devaluing its currency with no economic growth and, yes, no financial discipline (although, of course, Italians don’t lack discipline). The introduction of the euro relieved Italy of much of the burden.

While I agree that there was a lot of populist rhetoric in the northern countries, pretending that the euro is bad for Italy and good for Germany is also populistic. The reverse is true.

If you mean fixed exchange rates (going back to the 70s) are bad for Italy then one can discuss that. (But there’s a lot of economic literature against that – just imagine California and Kentucky had different and free-floating currencies and how trade would be impaired)

There are a lot of confusion in your reply.

> Currency fluctuations don’t allow for global trade.

I’m glade to learn every country in the world with their own currency can’t participate in global trade. Obviously fluctuation is not an issue for trading.

I’m guessing that by the pegging to each other you are mentioning the ECU and European Exchange Rate Mechanism. Its goal had very little to do with trade. It was mostly an attempt to avoid speculation and large monetary fluctuations which made debt management more costly for countries. It collapsed extremely fast and the southern countries were amongst the first to exit the system for reasons which are very close to why the euro is so poor for them.

> The solution: a common currency. Germany gave up the privilege of getting paid for their strong currency so weak currency countries could stay in the system.

A strong currency is detrimental to a country export. I’m not even addressing the rest of the paragraph as it doesn’t make much sense. Why are singling Italy by the way? The problem is the same for Spain, Portugal, Greece, in some measure Ireland and even somewhat impact France.

You are also completely failing to address the distortion of the German economy which are a large part of the issues especially after Hartz IV. If you take a look at the German wage levels, saving rates and trade balance, you will see that their money should be much stronger than the euro is.

The difference in per-capita GDP between the poorest and wealthiest US states is small compared to EU nations. I did some quick research:

Luxembourg GDP Per Capita: 114,370

Ireland GDP Per Capita: 83,990

-----

Romania GDP Per Capita: 12,510

Bulgaria GDP Per Capita: 9,850

vs:

New York GDP Per Capita: 93,463

-----

Mississippi GDP Per Capita: 42,411

Yes, NY transfers wealth to Mississippi but the scale of transfer and the relative number of wealthy states vs poor (there's like 5 in the deep south) means the dynamic is completely different. Without significant development in ex-Soviet states I'm not sure how the EU can hold together longterm.

Neither Romania nor Bulgaria use the Euro as a currency. I meant literally the Eurozone - https://en.wikipedia.org/wiki/Eurozone

There is significant development in ex Soviet states

https://tradingeconomics.com/romania/gdp-per-capita

https://tradingeconomics.com/estonia/gdp-per-capita

https://tradingeconomics.com/bulgaria/gdp-per-capita

https://tradingeconomics.com/poland/gdp-per-capita

https://tradingeconomics.com/lithuania/gdp-per-capita

Luxembourg is extremely small, and Ireland's GDP is artificially high due to tax evasion by multinationals. Excluding those, the richest country in the Eurozone is Denmark, at $61000 per capita, and the poorest is Poland, at almost $16000 per capita.

Poland is not in the Eurozone, and as I said in the sibling comment, neither is Romania or Bulgaria. Eurozone is mostly wealthy countries, so the parent commenter's argument doesn't work here.

They've had thirteen years to stop their Wile E Coyote approach to fiscal policy and they've chosen not to do so because they wanted to ride the gravy train a little while longer. End of the line.

It's time to inflict massive pain for the south. Can't spend any more decades wasting money.

Thank you, we appreciate it. Specially when just a few weeks ago Central Europe wanted the south to be solitary with the rest of Europe and save gas, gas they don't get from Russia and always paid more for.

This is why the EU is a stupid idea. When it is the south, they should suffer, when it is Central Europe, everyone should come together and sing kumbaya

The EU is a great idea, implemented in a way that leaves a lot to be desired. It certainly is a lot better than what came before, the economic gains are felt everywhere but not equally so. That's the thing that should change, unfortunately such change takes time.

Not so fast. The ECB should have raised rates like the Fed, but didn't to accommodate the Southern EMU members. If what you are claiming was true, the ECB would have just gone ahead and leave the south to fend for itself. Instead their policy is adding fuel to the inflation inferno to protect the south.

They're not wasting money. They simply don't have the massive wealth of the North to jump off from or to cushion blows. On top of that a large quantity of what they do earn is spent on interest payments to the North.

I am from the south. We are wasting money and producing too little. We don't have the massive wealth of the north because we are culturally incapable of behaving some other way.

It's like the US: young people move from poor states to rich ones. Nobody in America ever talks about the basket case that is Alabama. People have been moving into New York and California for a hundred years.

Anecdotal: My dentist was from Rumenia. I'm sure they need dentists too but he can make more money in the Netherlands.

Likewise the doctors in Netherlands move to Denmark, and the circle goes on.

Not a circle, a ladder

i'm sorry but this is plain ignorance. chalking up the performance of a collection of european economies to just "it's cultural" is being, at best, ignorant.

is the cultural problem an important factor? as someone who's also from the south, yes, i think it is. is it the only one (that matters)? no.

the eu (and the euro) works mainly to provide a cheap-access market for the stronger economies to a series of other countries. it's extremely difficult for poorer economies to compete with the stronger ones (due to regulations, size and how those two interplay). it's even more difficult for those economies to provide the same quality of life (i.e. higher salaries, same level of social care, etc.) when they themselves don't have full control of their economy/market.

That's a very generalist statement that doesn't explain much.

That is totally to forgot that Italy has been cost reduction/ austerity since the 90's. Precisely when it's started to do that, its economy stalled.

Spain had its debt going from 30% to 70% after the 2008 crisis.

Significant part of it is also deepened de-industrialization. The entire western world but Germany experienced it. Doesn't have much with a culture or just south culture.

Even in Germany, parts that lost industries decades ago are still borer that the rest of country. France and Belgium have similar problems and Italy north-south split is even older.

Nobody know how to reverse it or at least succeeded. This is not easy.

Yet when we move north we are able to be productive, so maybe we are failing to bring that cultural change back home.

Of course: those who move north do so because they do not share the cultural shortcomings of the south. Therefore they are self-selecting.

I'm from the south too. Our engineers are all over the north, proving to everyone that we have the brainpower to build some of the best systems in the world.

There are pending issues related to management, but also north-enforced market control (milk cuotas come to mind) that definitely have affected the economy.

It must be terrible to live with this level of self-hatred.

They don't have this wealth because when they were given access to interest rates much lower than what they would have under independent central banks / currencies they went and spent it on consumer goods instead of investing into capital.

They don’t have this wealth because their ability to export is severely hampered by their money in order to shield the German from the consequences of their stupid working laws and boost Germany unsustainable trade balance.

I really wish the south acted like the north is acting now when Germany was considered the sick part of Europe in the 90s. We would have avoided so much trouble.

Ironically they've already been in pain since 2008. But within the eurozone they can't escape the trap of having a strong currency (relative to themselves), combined with a terrible economy with massive debt.

The euro just cannot work in the long run. The sooner people up top admit this the better for 300m europeans. But they will never admit defeat.

If you want more "Brexits" that is certainly the way to influence public opinion and the growing national parties.

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