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Comment by DanielBMarkham | Hacker News Reader

I read a lot of financial commentary. In the last year the discussion about the Euro breakup has gone from "if it breaks up..." to "when it breaks up..."

There is a lesson here about taking systems of people and trying to mash them together without acknowledging the necessary pain. I'm concerned that now we're in the end game, and more and more complex strategies are just going to make things worse. I would never advocate any kind of violence, but there's a good reason why Napoleon was the one person who did the most to modernize Europe.

The general consensus seems to be that a recession is already under way, and the contraction will continue until this all gets straightened out.

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The most convincing argument seemed to me that the way the Euro was set up is simply not workable/secure - for example they can not just print more Euros because of lots of rules.

But that kind of thing hardly seems to be the problem of mixing too many people together, it is simply a flaw in the system.

Of course the initial problem might have been that the system could only be some lowest common denominator of all the systems it tries to combine, making it almost impossible to create something good.

I find it interesting that there are therefore two interesting problems: how to set up a stable currency, and more importantly, how to set up a decision process that produces good results and doesn't alienate everybody.

The problem is that monetary policy is not set on a country by country basis. The economic cycles of countries differ and trying to control monetary policy on a global level leads to policies that do not help any country.

Still, it worked before. For example Germany used to be a lot of little states with different rulers and different currencies. The money union worked out well. And even within a country there are strong and weak economic regions. That alone does not seem to stand against a common currency.

I suppose even the US has different parts with different economic cycles and different economic strength.

That very interesting I didn't know that Germany previously worked like that.

Your point about the US is valid. However as their national debt is $15 trillion they aren't exactly a model economy.

Even if the debt is 15 Trillion and one ratings agency felt we didn't deserve the highest rating, investors are champing at the bit to purchase bonds.

Then the FED would not have to purchase bonds.

The reason the US is not suffering more from its huge debt is because the US dollar is the primary reserve currency.

That's more of a reflection of liquidity than of creditworthiness though.

I just checked with Wikipedia: the unification of Germany happened in 1871. Before then there were sometimes even ferocious wars among the states in Germany, including the Thirty Years War.

That is one reason why people had high hopes for Europe: today it seems unthinkable to have a war between states of Germany (they don't have their own military either). Perhaps one day it could be as unthinkable to have war between European states.

It already is, it is not conceivable that any country in the euro monetary union will attack militarily another one. Actually I think that this crisis will show that countries will also be able to do big sacrifices to save other countries economically.

Your point about the US is valid. However as their national debt is $15 trillion they aren't exactly a model economy.

Why are people so obsessed about the debt of sovereign governments these days?

Think about it like this: there is (virtual) money in MMO games. Gold in World of Warcraft, ISK in Eve Online, or whatever. In an in-world accounting sense, this money is a debt (liability) of whoever runs the system. But it is ridiculous on the fact of it to worry about the total amount of money in those systems.

So why is their this obsession with the debt?

The most immediate reason is this gut reflex of "it needs to be paid back". But what one has to realize is that, for a monetary sovereign, paying back the debt is just exchanging one type of liability against another. The debt is money that has already been spent. Paying it back does not create new financial assets, it is just an asset swap. Why on earth would that be problematic?

The other objection is that the interest paid on debt causes an undue redistribution of wealth. That point is one of ignorance: a monetary sovereign effectively sets the interest rate that it pays on its outstanding debt - that is what the monetary policy of the central bank is about.

Seeing the true nature of money is initially scary, and perhaps this is what stops many from a deeper understanding. I can only hope that future generation will make fun of us for the way we are thinking about money.

But the US (and UK) are prepared to monitize their debt via QE which Germany is vetoing. And the US allows internal bankruptcy, with a legal framework.

Then why would it ever make sense for Ecuador to tie its monetary policy directly to that of the US? That is, what you are saying is obvious was not obvious to the Ecuadorians.

I don't know anything about Ecuador's situation but it sounds completely different. One country tying its monetary policy to one other is a lot different than trying to agree on one policy to fit the needs of 17 countries, the way the Eurozone works.

I meant that as one example of a country which has dollarized; that is, which uses a foreign country's money as its basis of it domestic currency.

Countries which tie their domestic currency directly to the US's include Panama, Ecuador, and El Salvador. Namibia ties its currency to South Africa's (or rather, to the Multilateral Monetary Area).

Other monetary unions exist. The CFA franc has been around for 60+ years and the East Caribbean dollar has been around for 45+ years.

Those seem like counter-arguments to the idea that monetary policy should be "set on a country by country basis."

Since countries do yield domestic currency in favor of a shared currency, it's apparent that there are advantages to doing so. Why do none of those apply to the EU?

I know that I like how I can use the same currency in Germany, France, Spain, and Ireland without having to change money each trip. While I don't like stopping in Denmark, which has their own domestic currency.

"credibility"

The idea of for a country to appear credible by using a golden straightjacket. It's usually used by countries coming out of hyperinflation phases. And that policy has badly failed before in Argentina.

Domestic monetary policies also badly fail. Zimbabwe is the most spectacular recent example. Panama has been using the US dollar for over 100 years - is it not am example of how the policy can succeed, or does that work only because it has the Panama Canal?

Yes, it is a structural problem. Separately, the governments are ruled by politicians that get their mandate from the people. They tried to keep local fiscal policy and yet somehow together have a unified monetary policy. That's the kind of problem that's blatantly obvious from day one. What happened was a series of complexities that were added to these systems of governance that obscured this underlying reality. This trend looks to continue, with more and more schemes using more and more complex policies and products. It doesn't look so good.

Of course, I'm just relating what I've been reading. I can tell you it's been quite alarming and yet strangely placid. Like watching a slow-motion train wreck.

I didn't mean the number of people. I meant the idea of smashing up lots of different systems of government and cultures through byzantine layers of bureaucracy instead of just replacing them with a centralized government (which would have worked very well, probably, but it was politically unfeasible)

I wish I had any idea what to do with my Euro savings :-(

Bitcoins are now cheap again.

Greenbacks and Yuans, that's what I'd do.

But exactly how? I'm not being rude, just asking.

Apart from going to these countries and open a bank account or have actual money under the mattress, how would this work?

My bank allows me to have accounts in USD and GBP (I actually have some money on each) but if the euro blows, and there is a bank freeze and mandatory 'exchange' of euros to whatever your local coin is, I would think these accounts would also be affected (something like exchanging the USD to EUR at current rate, and then changing the EUR to escudo or dracma)

I looked at forex but I'm in no way qualified to understand how the hell that works.

GBP?

Not for me.

I'd consider the Canadian and Australian dollars, but they're both way over valued right now because of their political and economic stability. They have no where to go but down I think.

The UK's printing presses have also been running overtime lately.

To a first order approximation, every country is printing money in a beggar-thy-neighbour approach to increasing competitiveness. But when the malaise is global, that doesn't exactly work well.

I don't think the Eurozone will not break up. It will most likely lose some members though. These will either be the larger economies like Germany or the smaller ones which should never have been allowed in in the first place.

>but there's a good reason why Napoleon was the one person who did the most to modernize Europe.

if you mean centralized government of the Empire - i'd not agree, there were other big Empires in the Europe which preserved, instead of solved/improved, the problems. If you mean Napoleonic wars, when i'd agree and add WWI and WWII.

In other words, you can't have a single economy without a single government responsible for enforcing the rules.

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