> the increased flexibility will make the economic status of the different Euro members a lot sounder.
Why should it? The troubles we see now are NOT caused by the Euro but by overspending. Or are you saying the US economic problems are caused by the US dollar?
The troubles that we are seeing now ARE caused by the Euro.
It tried to combine strong exporting nations like Germany with weaker tourist nations like Greece. Were the Deutschemark a separate currency, it would be stronger than the current Euro (and likewise, the drachma would be weaker than the Euro). Germany benefited greatly from this (net exporters benefit from a weaker currency -- see China) and Greece and other nations were hurt.
If you want to see a pure example, check out what happened with Nintendo. Thanks to the relative strengthening of the yen, they posted a loss: http://www.bbc.co.uk/news/business-15473961
Overspending is intrinsically not problematic if the currencies are separate. The governments of overspending nations would just print more money, devaluing their currencies in the process.
Germany benefited greatly from this (net exporters benefit from a weaker currency -- see China) and Greece and other nations were hurt.
You've got it backwards.
Germans worked hard producing goods which they turn around and send to people outside Germany. This is a net loss for the Germans. In contrast, the Greeks received a bunch of goods and services they didn't need to work as hard for. This was good for them.
A weaker currency may be good for companies with domestic liabilities and foreign customers, but it's very bad for consumers with domestic customers (their employer) and foreign liabilities.
Germans worked hard producing goods which they turn around and send to people outside Germany. This is a net loss for the Germans.
There is a lot of truth to that. It's important to keep in mind that Germany as a whole is doing that voluntarily, though. It is a (more or less) conscious political choice to be a net exporting nation, and it was achieved by (among other things) systematically depressing the real wage development in Germany by political means.
So the German position is really schizophrenic (and I'm saying that as a German). On the one hand, Germany has for the last ten years given presents (in real terms) to the rest of the world. But now Germans are saying that they don't want to give presents (aka bail outs) to other European countries, even while they insist on continuing to give presents (aka net exports) to other countries.
It is a self-contradicting policy.
The problem is that Germany - at least the German elite - benefited in the sense that accumulating financial assets against the rest of the world implicitly increases the power that Germany has over the rest of the world. So Germany is in this very powerful position right now, where nobody can effectively challenge the insanity of their self-contradicting policies, at least from the outside.
From the inside it is very hard work as well, because unfortunately the media campaigns in favor of net exports have been so effective that most regular people believe in their benefits.
You have to think about more than just the first-order effects. In general, a company will sell more products if they can sell for a lower price.
"Germans worked hard producing goods which they turn around and send to people outside Germany." <-- agreed
"This is a net loss for the Germans." <-- not so simple.
It is a net loss for Germans if you presume that they would sell the same number of goods with a stronger currency. However, that is not how it works. If the currency were stronger, they would actually export less, and as a whole would be worse off.
Let's take Mercedes-Benz cars as an example. Daimler pegs a price in Euros (the home currency) and the US price is driven by the euro price (plus some adjustments, but those are small relative to the product price). If the euro is weakened relative to the dollar, then they can sell cars at a lower price for US consumers. In the US market, then, they would sell even more cars. MB actually cut the price a bit for the E class lineup due to this effect.
As another example, consider China. If China's currency were allowed to appreciate against the dollar, then chinese goods would cost more to the US customers, making US-produced goods more appealing. In the extreme, if the dollar was severely weakened (for example, if the fed printed a ton of money without a similar action by china), then US products would actually be cheaper than the corresponding Chinese products.
It is a net loss for Germans if you presume that they would sell the same number of goods with a stronger currency.
No, it's a net loss for the Germans because they don't get to enjoy the product of their labor.
Consider your Mercedes example. Some Germans work very hard building this car, and do they get to enjoy driving this car? No. They put it on a boat and send it to the US. In return they receive some colored pieces of paper which they can't buy very much with.
A strong currency means your citizens have access to many goods and services worldwide. The USD is strong relative to the INR - that means I could buy all the dosas I wanted without caring about the price. In contrast, the strong GBP meant that I had to think twice before buying a sandwich in London.
The law of demand is only relevant if you are discussing the balance sheets of exporting businesses, which for some reason you seem insistent on doing.
I'm discussing the balance sheets of consumers. Maybe I'm just crazy, but I care more about consumers than I do about Mercedes-Benz Inc.
Suppose that mercedes benz is only able to sell half as many cars as normal. What will happen? Will they keep the same number of employees? If the US is any example, the answer is clearly no. And once families lose their incomes, they have less income to deal with.
If you presuppose that they magically earned the same number of euros without concern for the demand, then yes. However, that's not how it works. You have to look at Mercedes Benz and other companies because they are the ones who are paying most of the consumers.
Put simply, a consumer with no income in a world with a stronger Euro is worse off than a consumer with an income in a world with a weaker Euro (something is better than nothing :)
You seem to wish to invoke second order effects only while saying "what's good for Mercedes is good for Germany".
Consider the second order effects of a stronger currency. Germans can now purchase big screen TVs, food and non-German cars for less money than before. They still have money left over which can be spent on personal trainers, pedicures, restaurant meals, etc. Or conversely, they can work fewer hours.
In this world, Germans have the same number of Mercedes-Benz cars as before, and they also consume more restaurant meals and leisure.
Germans worked hard producing goods which they turn around and send to people outside Germany. This is a net loss for the Germans.
Except that they did get paid for said goods, and if their currency had been independent and stronger, they would not have sold so many of them in the first place, since they would have been more expensive.
Note that almost all of the problem countries ran trade surpluses before joining the Euro, and that the different regions had a lot better balance of trade as a whole. What then happened was that the fixed exchange rates made the automatic rebalancing, that competing floating currencies have, stop working, and inbalances aggregated in the system. These inbalances took a form that is perceived as overspending, but that is a much too simplistic view.
The economic problems of US are a lot less severe than those in the Euro area, precisely because US has a different way of equalizing bad balance between regions - namely taxes and federal spending. There are also no danger of default, since US can fulfill the obligations it has by printing money. That is also not on the table in the Euro area.
Printing money to pay debt is a form of default that would result in loss of credit ratings. The US is still within the realm where they can be reasonably expected to pay their debt through conventional means (taxation and reduced spending), which is not the case for some countries in the eurozone.
Yes, but that overspending was enabled by the Euro. When the peripheral countries (Italy, Spain, Greece, etc) entered the Euro, their cost of borrowing fell dramatically and people/governments responded to those incentives and borrowed, creating a false boom.
One of the key planks of economics is that people respond to incentives, so is it really suprising that when incentivized to borrow (whether it's southern european governments, or low income earners with sub prime mortgages), people borrow?
do you have numbers showing that peripheral countries borrowed more after they entered the euro?
AFAIK Italy's deficit has been more or less stable for the last twenty years while debt has gone down for the first few years of the euro presence and has only risen again after 2008.
As far as i can tell italy's problem has been and continue to be a de facto stagnation with growth rate around 1%, which surely is not the case for others e.g. spain.
Yes, and you'd think that the people lending money would have also responded to incentives, and refused to lend so cheaply (both privately and publicly - each of the PIIGS has its own distinct malaise) to countries with a poor credit history.
A lot of planks of economics have failed lately, and it's not all government fault.
The troubles are caused by overspending + bad policies. The Euro however makes the problem slightly worse, because they cant artificially devalue their currencies.
If you look at the rankings in "World Bank Ease of Doing Business" and "Heritage Economic Freedom" the picture is very clear:
Nothing special. Euro would be exchanged with national currencies. No money will be lost or anything. Just a giant currency conversion, but with some turbulence around it.
Having said that, the Euro is a great project. It will trigger a common European economic policy and that will push Europe to the next level.
What national currencies will Euros be exchanged for? What rates will they be exchanged at? Will other markets recognise those new currencies (and they will be =new= currencies, since all the Eurozone currencies ceased to exist when they changed to the Euro), and what rates will they be traded at on the markets as opposed to the fixed exchange rate they'll swapped for Euros at.
It took 10 years to get from the establishment of the Euro (then ECU) as a currency to the point where all the Eurozone nations switched to it as the only official currency - there will not be 10 years to switch the other way, and it's going to be very very messy.
The Euro is the 2nd most traded currency after the US dollar, is the 2nd largest reserve currency after the dollar, it's used as part of currency baskets for setting FX rates of numerous other currencies. Were the Euro to dissolve, the second order effects in markets around the world would be extremely turbulent, and likely highly damaging to the world economy.
Claiming that it would be 'Nothing special' is naivety at it's most dangerous.
Your statement is false on its face. The Euro has not triggered a common European economic policy but instead has made the impact of dissimilar economic policies worse.
What is the route from point A to point B here? An economic crisis that forces tighter Eurozone policies? Military enforcement of economic policies?
"On 1 November 1993, under the third Delors Commission, the Maastricht Treaty became effective, creating the European Union with its pillar system including foreign and home affairs alongside the European Community.[16][17] The 1994 European elections were held resulting in the Socialist group maintaining their position as the largest party in Parliament. The Council proposed Jacques Santer as Commission President but was seen as a second choice candidate, undermining his position. Parliament narrowly approved Santer but his commission gained greater support being approved by 416 votes to 103, Santer had use his new powers under Maastricht to flex greater control over his choice of Commissioners. They took office on 23 January 1995.[18]"
"The Schengen Agreements and the rules adopted under them were, for the EU members of the Agreement, entirely separate from the EU structures until the 1997 Amsterdam Treaty, which incorporated them into the mainstream of European Union law. The borderless zone created by the Schengen Agreements, the Schengen Area, currently consists of 25 European countries, covering a population of over 400 million people and an area of 4,312,099 square kilometers (1,664,911 sq mi).[1]"
Bzzzt! Wrong treaty! Bzzzt! No idea about European integration!
Schengen is about abolishing borders, it is not at all about freedom of movement (i.e. the right to live and work everywhere).
Making freedom of movement possible is one of the central tasks of the European Union. Its most important goal is to create a common market. Freedom of movement of work is obviously an absolutely necessary pre-condition for a common market.
The European Union is wholly responsible for bringing that freedom of movement to EU member states. That's what the 1993 treaty was (mostly) all about!
There is no freedom of movement between all Schengen countries. I'm German and I definitly can't just go live and work in Switzerland (which is not an EU member) – despite Switzerland being a Schengen member.
And yes, it's true: The EU was founded in 1993. But that's not really the right way of looking at it. Before the EU there was the EEC (European Economic Community), founded in 1958. With the 1993 treaty the structure of the EEC was slightly changed, it was given more power and it was renamed to EU. Yes, there were changes but not really radical ones. For all intents and purposes EU and EEC are one and the same.
You can get a work visa (similar to US green card) if you can find a job that pays more then 46000 Euro/Year. That is the typical IT starting salary for companies like SAP or Microsoft Germany - if you are good ;)
Why should it? The troubles we see now are NOT caused by the Euro but by overspending. Or are you saying the US economic problems are caused by the US dollar?