what are the pro's & con's of the euro?

the_pink_panther_2

Seriously, this may be a daft question to a lot of people;I always thought it would be unsustainable to have a single currency within several economies, particularly such varied ones. Why was the euro ever introduced?

2sides2everystory

the_pink_panther wrote: »

Seriously, this may be a daft question to a lot of people;I always thought it would be unsustainable to have a single currency within several economies, particularly such varied ones. Why was the euro ever introduced?

Well, there's this place called the Continent of Europe which since the introduction of the internal combustion engine just isn't so big that you mightn't have breakfast in one country, lunch in another, dinner in a third and a nightcap back home in a fourth, by which time you might be so FOREX'd off that you might wonder if there was a better way

paddyrg

Creating another superpower currency to rival the USD - in the dream it was a part of a federal Europe where slowly more and more trade would become easier and cheaper within the Eurozone.

the_pink_panther_2

I understand the bit about trade being easier and cheaper, but when you talk about the super power currency, do you just mean because it would be used among so many? It's just that I don't really get how having one currency for multiple economies could ever have been viable, as soon as one of those countries runs into financial difficulties, all are up the creak, right? And if so, wasn't that obvious a decade ago?

MiddleWill

the_pink_panther wrote: »

I understand the bit about trade being easier and cheaper, but when you talk about the super power currency, do you just mean because it would be used among so many? It's just that I don't really get how having one currency for multiple economies could ever have been viable, as soon as one of those countries runs into financial difficulties, all are up the creak, right? And if so, wasn't that obvious a decade ago?

It was meant to solve problems, not cause them. It opened up a lot of trade to smaller European countries as it removed the cost of buying currency. For Germany and France it was more a case of relaxing borders and hoping it would bring more trade i.e. a more integrated Europe.

And to answer your question: Not necessarily. I admit I can't understand why anyone would trust a politician, however no one expected countries to cover up their financials when requesting to join....

the_pink_panther_2

Hmmm, you explain things well MiddleWill. Were the finances of these countries scrutinised when they Joined? I hadn't realised that the financial status of the member countries had ever been questioned. I do understand your point about that the smaller EU countries having trade costs reduced by this move, so it was beneficial in this respect, but I really fail to see how the problems we are having now could have been avoided really, I mean, it really takes one economy to have problems, which given about 13 counties in the single currency it's likely to happen sooner or later, and the other members have no option other than to bail them out, that or realise that the money owed to them could never be repaid.

MiddleWill

the_pink_panther wrote: »

Hmmm, you explain things well MiddleWill. Were the finances of these countries scrutinised when they Joined? I hadn't realised that the financial status of the member countries had ever been questioned. I do understand your point about that the smaller EU countries having trade costs reduced by this move, so it was beneficial in this respect, but I really fail to see how the problems we are having now could have been avoided really, I mean, it really takes one economy to have problems, which given about 13 counties in the single currency it's likely to happen sooner or later, and the other members have no option other than to bail them out, that or realise that the money owed to them could never be repaid.

Well I'm certainly no financial journalist but I'm sure it was a case of some European body looking at a state's finances and asking the question - are they robust enough to join the Euro and will the Euro benefit? I'm sure I remember reading that they did some kind of masking or 'window dressing' of accounts.

I think it's all down to the EU bodies simply inviting too many people. It's too much risk. However the EU wasn't designed for that, it was for closer integration of the whole of Europe - the 'single market'. No one expected it to be the behemoth that it is today (and why UK should never join).

oldvicar

I believe the main reason the Euro was brought in to being was political idealogy, as a symbol of an ever more united (states of) Europe.

I have a dream ...

Bit of an economic nightmare now though.

Generali

the_pink_panther wrote: »

I understand the bit about trade being easier and cheaper, but when you talk about the super power currency, do you just mean because it would be used among so many? It's just that I don't really get how having one currency for multiple economies could ever have been viable, as soon as one of those countries runs into financial difficulties, all are up the creak, right? And if so, wasn't that obvious a decade ago?

The problem is the same as having the same currency for the North and South of the UK. The monetary policy (interest rates) that suit one area aren't necessarily those that will suit another area.

If the South needs high interest rates and the North low then what happens? Well in the late 80s, the South got high interest rates but to some extent that was balanced by a flow of tax money (e.g. through the welfare system) from South (esp. London) to North.

I guess to some extent the problem is that there is no way for funds to flow around the Eurozone to anything like the extent necessary to hold everything together. Last time I checked, the North East's economy was about 70% from Government spending.

There is absolutely no way IMHO that voters in Germany or the Netherlands would vote for their taxes to prop up the economies of poorer areas in the Eurozone to that extent. Similarly I doubt that voters in Malta, Slovakia or Cyprus would vote to give up powers to decide how their Government taxed and spent in return for a hefty subsidy.

The UK is slightly different in that the North of the country (to generalise) tell Southerners that they are going to take their money rather than Southern voters offering it to them.

Mrs_Bones

Generali wrote: »

There is absolutely no way IMHO that voters in Germany or the Netherlands would vote for their taxes to prop up the economies of poorer areas in the Eurozone to that extent. Similarly I doubt that voters in Malta, Slovakia or Cyprus would vote to give up powers to decide how their Government taxed and spent in return for a hefty subsidy.

The politicians seem intent on pushing this fiscal union idea through though, do you really think they will meet much opposition and be prevented from taking over the the government powers of other countries like the ones you mentioned above? They already seem to have got their way in Greece and Italy. Will the German people or those from the Netherlands actually get a say in where their tax money is sent? Democracy seems to be dying in the EU, it's been ill for a long time.

pqrdef

the_pink_panther wrote: »

It's just that I don't really get how having one currency for multiple economies could ever have been viable, as soon as one of those countries runs into financial difficulties, all are up the creak, right? And if so, wasn't that obvious a decade ago?

It was always going to need net transfers of funds from richer to poorer countries, to offset trade imbalances. But the EU has always shunted money around, via its central budgets. This is accepted, grudgingly.

The eurozone's problem is that it isn't the whole EU. It went ahead in the hope that those countries which opted out would join in soon enough.

So the eurozone had no institutions or mechanisms, apart from the inadequate ECB, to dress up the movement of money in a politically acceptable way. Eurozone bonds, for instance, would have effectively shifted money by making some countries pay higher interest on their borrowing than what they would otherwise have paid - a hypothetical figure only. That way, money would have been lifted out of Germans' pockets without them really knowing who to blame.

Instead of which, the eurozone could do nothing except wait for a crisis which could only be managed by politically-unacceptable inter-country "loans".