The future of the Euro

[mike777]

Mike, people are free to move and work within the EU with some restrictions for citizens from a few countries but those are not members of the Euro zone.

 

 

Helene, not the point.

 

Europe is threatened with endemic, structural unemployment, linked especially to the lack of integration of young people into the workplace, the absence of retraining incentives, and the massive drain of industrial employment.

 

 

Workers will have to become extremely adaptable so that their mobility reflects the choices of monetary harmonization.

 

Labor mobility is easier to propose than do with realities to contend with such as the lack of linguistic, cultural, institutional and legal unity.

 

For the Euro to be a success it will require an adjustment of the social protection systems in the direction of more competivitness and flexibility.

 

The mobility of capital forces social and educational systems to compete against each other.

 

One can see the national tensions already being felt in Greece, Ireland, and Portugal.

---

 

 

Some of these thoughts borrowed from Bruno Colmant, CFA.

[Aberlour10]

The euro was, and still is, based on the premise of the mobility of factors of production( i.e., people and capital).

 

In order for the euro to succeed two problems must be resolved:

 

The member states will have to loosen their grip on the financial system, which will lead to a decrease in public debt.

 

Workers' international mobility will have to be made more flexible and fluid at the cost of more restrained social protection.

 

The choice of a common currency was an excellent one, but the durability of the eurozone is not an established fact.

 

Workers mobility increased rapidly and cuts in social protection systems took place in mostly european countries during the last decade. In low loan sector we have everywhere now the "US circumstances" = you need 2-3 such a jobs to have enough to live.

 

For Euro full success it needed and need still compliance of only 2 rules by all euro-zone countries.

 

The ratio of the annual government deficit to gross domestic product (GDP) must not exceed 3% at the end of the preceding fiscal year.

 

The ratio of gross government debt to GDP must not exceed 60% at the end of the preceding fiscal year.

 

Ignoring of these both Maastricht Criterias by a lot of members led Europe to the current desaster, so simply is the truth.

[mike777]

If you think labor markets in Euro countries are mobile then we disagree.

 

 

They are still very uncompetitive and inflexible.

 

I would only point how many protesters and unemployed/underemployed are youth.

 

If the best, hardest, most productive workers dont have jobs and others do.....that says labor is not mobile.

 

I understand many disagree. One of the main reasons are social protections but I have listed many other reasons above.

[y66]

That Greek financing offer — annotated

From Joseph Cotterill on Jul 22 12:49 at FT Alphaville via Krugman

 

http://av.r.ftdata.co.uk/files/2011/07/Tiepolo.png

 

And lo — the cherubim descended on the Institute of International Finance’s Greek bond exchange, and sang… well, what were those dulcet tones, exactly? The Ode to Joy – or the Argentine national anthem…

 

Way too much like the latter, we think.

[pdmunro]

A very interesting analysis of the European monetary crisis by Yanis Varoufakis, a Greek economist

http://www.abc.net.au/lateline/content/2011/s3276182.htm

 

I really loved this sentence: "This is how Europe works, it dithers, it delays, it makes cowardly small steps towards the truth and at some point that which it has admonished as impossible it embraces as inevitable."

 

He comments: "It's a crisis that has spread well without the limits of Greece. It has, as of course you all know, moved to Ireland and from there south to Portugal; recently it has contaminated Italy and Spain. Currently it's spreading its wings over Belgium, the French banks and so on."

 

He advocates three immediate steps:

1) "The first thing we need to do is unify the banking sector. It's preposterous to have France responsible for the French banks, it's like ... having Wall Street supervised and recapitalised in times of crisis by the state of New York."

2) "We need a common bond. Something like the US Treasury Bills"; and

30 "If you have a Eurobond, at the European level, you could co-finance a Marshal Plan for the whole of Europe using the European Investment Bank, which is twice the size of the World Bank."

[Aberlour10]

These 3 immediate steps will make from EU the full version of the ETU European Transfer Union, where will no more need for budget discipline, structure reforms etc...the tax payers from "rich countries" will pay all the bills one way or another.

[jdeegan]

:P The best size for a nation state (often based on a shared language or religion or some other values) and the best size for a currency union are evidently not the same. HA HA! Working this out is going to take a while. Perhaps we can take some comfort in the fact that the optimal size for a computer world of bridge players is apparently global.

[Vampyr]

:P The best size for a nation state (often based on a shared language or religion or some other values) and the best size for a currency union are evidently not the same.

 

A New Yorker looking for her first job will consider positions in Florida, Texas and California; and often information about jobs in these and other states will be readily available at the same source.

 

A Portuguese job seeker, however, will not readily investigate positions in Austria or the Netherlands, even if information about them is easy to find. Leaving one's family in New York and moving to California is far easier and more comfortable than leaving one's family in Finland and moving to Greece, even though the latter involves a considerably shorter distance. And if, suddenly, a vast majority of people became more inclined to live in a foreign country, the language barriers alone would make mobility an illusion.

[helene_t]

Lots of people here see the fact that I moved from Lancashire to Yorkshire (appr 100 kilometers) as a major change in my life. Personally I wouldn't consider it a big deal if I were offered a job in Estonia or Spain, if the job is better than what I have now I would just take it. But yes, the language barrier is a problem for most workers.

 

The EUR was largely considered a success story until a few years ago. I still see it that way. I don't quite understand thiss debt problem but I feel like rambling about it anyway: IMHO it was a terrible mistake to allow the Greek and Portuguese to borrow all that money. As I understand it, before the EUR, Greek loans were risky because they were in Drachma which could be devaluated at any moment. This made it difficult for the Greeks to borrow excessively. The risk associated with a Greek EUR loan is not devaluation but rather a debt reconstruction, as seems necessary now. Presumably the lenders assumed that while a devaluation would be the problem of the lenders, a debt reconstruction would largely be the problem of the tax payers. The EU should have given a very clear signal right at the beginning, when Greece joined the EUR: that non-Greek tax-payers will take zero responsibility for Greece's debt and that the fact that Greece is now an EUR country makes no difference in that respect.

[Vampyr]

Lots of people here see the fact that I moved from Lancashire to Yorkshire (appr 100 kilometers) as a major change in my life.

 

When I first moved to England I was very amused at the approach to distance! But anyway I used the United States as an example because it is a territory approximately the size of Western Europe, with a single currency, and where mobility is easy and even quite attractive to a majority of people.

 

 

The EU should have given a very clear signal right at the beginning, when Greece joined the EUR: that non-Greek tax-payers will take zero responsibility for Greece's debt and that the fact that Greece is now an EUR country makes no difference in that respect.

 

I don't think that this is possible. The other countries which foolishly use the Euro have no choice but to protect the integrity of what is also their own currency. A significant devaluation of the Euro would not be in the interest of all the Eurozone countries.

[blackshoe]

When I first moved to England I was very amused at the approach to distance! But anyway I used the United States as an example because it is a territory approximately the size of Western Europe, with a single currency, and where mobility is easy and even quite attractive to a majority of people.

 

Looking at this map, it appears the US is about twice the size of Western Europe. Agree with the rest of your post, though. B-)

[Vampyr]

Looking at this map, it appears the US is about twice the size of Western Europe. Agree with the rest of your post, though. B-)

 

Well, specifying Western Europe was my mistake, since the EU covers almost all of Europe. Then the sizes might be closer!

[Aberlour10]

A Portuguese job seeker, however, will not readily investigate positions in Austria or the Netherlands, even if information about them is easy to find. Leaving one's family in New York and moving to California is far easier and more comfortable than leaving one's family in Finland and moving to Greece, even though the latter involves a considerably shorter distance. And if, suddenly, a vast majority of people became more inclined to live in a foreign country, the language barriers alone would make mobility an illusion.

 

 

 

I have read an intersting study about job mobility in Europe. According to that this mobility is high only in top and low loan sectors. The "middle class" doesn't want to move and seek it only if they absolutely have to. Its not a matter of nationality and destinations.

I am sure the top manager from Portugal will move immediately if he get a better job offer in Austria or NL. The same with Portuguese low skilled workers. The language is not a big barrier in jobs they usually do.

[blackshoe]

Well, specifying Western Europe was my mistake, since the EU covers almost all of Europe. Then the sizes might be closer!

 

Indeed. :D

 

Alaskan, to Texan: "if you don't shut up about how big Texas is, we'll cut Alaska in half, and make Texas the third largest state!"

[hotShot]

The Euro is now 1,43$, do we need a topic 'The future of the Dollar' ?

[helene_t]

1 U.S. dollar = 0.765597127 Swiss francs. The Euro is still above the CHF but that may be a matter of time.

[y66]

From a somewhat dated July 29 story in The Economist

 

The chart below shows movements in bond spreads over German Bunds since the July 21st summit in Brussels for the five euro-area economies most in the limelight (setting tiny Cyprus to one side). The three economies to have been bailed out already—Greece, Ireland and Portugal—have seen spreads drop on the promise of lower interest rates and longer debt maturities.

http://media.economist.com/sites/default/files/imagecache/original-size/20110806_WOC314.gif

 

But the spreads for Italy and Spain, both far bigger economies, continued to go up this week. Spain’s sovereign-debt rating was put on negative review by Moody’s this morning. Adding to the uncertainty, José Luis Rodríguez Zapatero, the prime minister, today announced an early election, to take place in November.

 

Italy sold €8 billion ($11.4 billion) of ten-year bonds on July 28th but had to pay a yield of 5.77% to do so, the highest level at auction for 11 years. Making matters worse, European politicans have gone back to making unsettling comments after their brief show of discipline at the summit: Wolfgang Schäuble, Germany’s finance minister, said this week that he would not be writing any blank cheques to the euro area’s bail-out fund, the size of which is inadequate to ringfence Spain and Italy.

 

This week also saw the release of the first annual report of America’s Financial Stability Oversight Council (FSOC), a regulatory body that was set up by the Dodd-Frank act to monitor systemic risks to the country’s financial system. It has little to say about the risk of a self-harming government, but for a report that is supposed to identify threats to America, its main effect is to underline the vulnerability of Europe’s banking system.

 

America’s banking industry remains much less concentrated than Europe’s, and the size of the largest banks relative to GDP is lower, too. American banks have raised capital assiduously over the past two years as many European ones have dithered. American money-market funds are big funders of European banks, notably in the core countries; asset outflows from these funds may be prompted by worries over the American debt ceiling but will have an impact across the Atlantic.

 

The political impasse in Washington, DC, will be the big story of the coming days. Given enough dogmatism and stupidity, it might be an enormous financial one, too. But the bigger cause for concern lies in Europe.

[WellSpyder]

The EU should have given a very clear signal right at the beginning, when Greece joined the EUR: that non-Greek tax-payers will take zero responsibility for Greece's debt and that the fact that Greece is now an EUR country makes no difference in that respect.

That has always been my view of how this should have worked, and I think theoretically it is pretty clear that this makes sense. I think actually that those signals were to some extent given right at the beginning, but the problem was that no-one believed (correctly as it has turned out) that this would be the case in practice.

 

I don't think it is correct either to say that this approach couldn't work when governments borrow in the same currency. If two major UK companies both borrow in sterling and one defaults then that is a problem for its creditors not for the other company.

[Aberlour10]

1 U.S. dollar = 0.765597127 Swiss francs. The Euro is still above the CHF but that may be a matter of time.

 

This gives hundreds of thousends Poles a real headaches, They are trapped as their loans and mortages were taken in CHF / due to the low long-term interests /,And when they were taking it, the Swiss franc cost about 2 Polish zlotys. Current exchange rate = 3,65.

 

The credits were supplied in Polish zloty and denominated in CHF, what means that those, who took a mortgage worth 300.000 Polish zlotys, are more in debt after four-five years then they originally were. This is the real threat of bankruptcy.

Not only in Poland credits in CHF have been promoted without criticism and almost forcefully but also but also in Hungary, Slovakia, Romania and Bulgaria.

Alone in Poland is this situation of the gigantic scale. There are simulations saying that we talk about the amount of 170 billion zlotys denominated in Swiss franc.

[WellSpyder]

This gives hundreds of thousends Poles a real headaches, They are trapped as their loans and mortages were taken in CHF / due to the low long-term interests /,And when they were taking it, the Swiss franc cost about 2 Polish zlotys. Current exchange rate = 3,65.

Sounds like incredibly irresponsible action by the banks (why aren't I surprised by this?). It is common sense that you are taking a huge risk if the currency of your liabilities (ie borrowings) is different from the currency of your assets (in this case human capital, ie the ability to generate future earnings).

 

I remember a decade or more ago talking to a small UK housebuilder who said he was thinking of borrowing in yen because the Japanese interest rate was so low compared to sterling interest rates. I suggested that only made sense if he could afford to make a big loss if the exchange rate moved against him and perhaps there was a reason why most people left exchange rate speculation to the banks rather than betting their businesses on it.

[y66]

It seems to me that Europe's problems have way more to do with an out-of-control banking system than with the fiscal profligacy of Greece and the burdens imposed on German tax payers. But yeah, why face up to reality when you can just dust off your centuries old morality plays and pretend the guys running your banks know way more about finance than Icelandic fishermen.

[hotShot]

One of the main problem is, that the governments forced people into investing in retirement pension plans,

and forced the companies offering such plans to only invest in "save" papers

and made the rating agencies in charge to decide what is save.

 

So if Greece would default, banks and insurances that invested into "save" Greek, Italian, Spanish, Portuguese loans, will get into big trouble,

this would be a disaster to anyone getting a pension or who plans to retire in the next years.

 

Since many banks still suffer from the last crisis, that would open a second can of worms.

[Aberlour10]

The Euro is now 1,43$, do we need a topic 'The future of the Dollar'

 

The future of US Dollar depends more on psychology than on real economic facts.

For last six decades the whole world has been singing "In Dollar we trust".

Maybe one day they all ask themselves...Wait a minute! Have we all still basis to think this way? Should we still handle the world trade especially oil trade in Dollars?

[shintaro]

:angry:

 

The sooner they get rid of the ruddy Euro and Disolve Europe the better

 

B-)

[Aberlour10]

No reason to get excited, there are still two A's to loose. Who would think 20 years ago that China instructs Washington what to do before they finally loose the patient as the biggest creditor.I am afraid that financing all these wars and wonderful tax cuts with foreign money will be harder and harder.