Strong Euro - Bad Mistake?

Rochdale_Pioneers

itsnever2lateisit? wrote: »

Germany seems to think that if the Govt's of its export markets spend that will help reflate their economy (and they're right) given that they are the worlds biggest exporter by value.

I think they're going to have to choose between watching their manufacturing base die waiting for the rest of the world to recover, and lavishing it with vast subsidies and creating false demand through cash giveaways (the car voucher scheme). Germany might be saying that 4% investment is enough (and its certainly more than we've spent so far), but in practice its unlikely to be.

kennyboy66_2

Generali wrote: »

Everybody's pushing down the value of their currency. Not everyone can reduce their exchange rate by definition.

True that.

Best to get your retaliation in first in these circumstances. Good job sterling plummeted when it did. Germany in the long run will be able to live with a strong currency as they have a long history (even very recently) of reducing unit labour costs.

Spain & Italy (especially) don't.

Beggar thy neighbour.

Its dejà vu all over again!

MrFonzerelli

US federal fiscal policy plays a far greater role in assisting regional adjustment than does EU-level fiscal policy in Europe. But in Europe, national fiscal policy assists regional adjustment much more than state level policy does in the US.

Without there first being a common regulatory environment and similar taxation levels within europe, I cant IMO see the necessary political willpower for the richer nations to assist the poorer ones during a downturn in the economic cycle.

lostinrates

MrFonzerelli wrote: »

Yes, the euro is definitely the cart coming before the horse.
Without there first being a common regulatory environment and similar taxation levels within europe, I cant IMO see the necessary political willpower for the richer nations to bail out the poorer ones during the bust part of an economic cycle.

I personally feel that the EU is too politically diverse to reach genuine accord in the near future. When you look at the very recent trouble history in parts of Europe. Even in Italy in some circles unification is still an uncomfortable topic.

Reaper

It's particularly odd that Germany won't play ball. They have been hit hard by the recession not because they did anything wrong (unlike us) but purely because their economy depends on exports.

Quick quiz - who is the world's largest exporter? America? China? Nope, it's Germany.

Their exports have collapsed partly because other countries have stopped buying and partly because the strong Euro means their goods are overpriced outside of Europe.

The logical thing to do is lower interest rates plus QE (I've stopped saying Quantative/Quantatitive Easing 'cos I can't spell it) because they can prop up their hard hit companies with the money plus it will devalue the Euro, but the Germans are very conservative and that's too adventurous for them. Their loss.

tomterm8

lostinrates wrote: »

as a matter of interest, wht came first in america, monetary union or a consitutution? Not an attempt at a pointed question, a genuine question (and one I should know the answer too ).

Monetary union formally began in the US with the ratification of the Constitution in 1788. However, it took many years for the process to be complete - there were several national banks before the federal reserve system and it was only in the civil war that paper money really became a national currency, prior to that different banks minted currency according to US regulations (it was gold);

EDIT: by the way, the EU currency union is very much more like the Zollverein (i.e. the precursor to the German monetary union) than US monetary union since the Zollverein was a currency union without fiscal union.

MrFonzerelli

Reaper wrote: »

It's particularly odd that Germany won't play ball. They have been hit hard by the recession not because they did anything wrong (unlike us) but purely because their economy depends on exports.

Quick quiz - who is the world's largest exporter? America? China? Nope, it's Germany.

Their exports have collapsed partly because other countries have stopped buying and partly because the strong Euro means their goods are overpriced outside of Europe.

The logical thing to do is lower interest rates plus QE (I've stopped saying Quantative/Quantatitive Easing 'cos I can't spell it) because they can prop up their hard hit companies with the money plus it will devalue the Euro, but the Germans are very conservative and that's too adventurous for them. Their loss.

I can understand why a country like the UK, with a large amount of national currency debt would wish to devalue its currency.

The argument in favour of QE isn't as strong when the country is Germany. Which has a relatively large number of savers amongst its population.

StevieJ

Reaper wrote: »

It's particularly odd that Germany won't play ball. They have been hit hard by the recession not because they did anything wrong (unlike us) but purely because their economy depends on exports.

Quick quiz - who is the world's largest exporter? America? China? Nope, it's Germany..

Year 2010 - Who was the worlds largest exporter

Generali

StevieJ wrote: »

Year 2010 - Who was the worlds largest exporter

I dunno, Madegascar? My mum lent my sister twenty quid last week and now she's Britains 4th largest lender!