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Offline UK Decimal +

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In search of a common currency
« on: May 11, 2011, 04:30:18 PM »
Why am I using this section of the forum?   I’m not quite sure where this belongs, but hopefully it will become clear if any replies are posted.

My suggestion is that the idea of an international currency, and I’m thinking of the Euro at present, is by no means new and I also consider that it has some underlying faults.

About a couple of thousand years ago, Roman coins circulated very widely and this (presumably) worked well as the various countries involved were all under one rule - Rome.

Much more recently, we have seen how (for example) the Euro has been affected by countries under independent rule defaulting in some way.   The ‘good’ countries appear to have been forced to ‘bail them out’ with some form of assistance, which I consider to be unfair to the citizens of those countries which are able to manage their affairs efficiently.

Other than aid following major disasters (earthquake, flooding, etc.), I am against giving any form of aid to any country which has decided that it wishes to be or remain independent.   They should stand alone, which is their desire.   There can be no half-way stage; either alone or accept becoming annexed to any country willing to help them.

Will there ever be a world-wide currency?   With my very limited knowledge of international affairs, I only see problems ahead.

What say you?

Bill.
Ilford, Essex, near London, England.

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Offline Figleaf

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Re: In search of a common currency
« Reply #1 on: May 11, 2011, 06:19:18 PM »
I agree. Problems ahead.

First on how fair it is to pay for the Greek problems if you are German or Dutch. So far, this question is mainly one that sits between the ears of journalists. Greece, Ireland, Spain and Portugal have either been granted loans or given access to the option of taking out loans. These loans are on terms that are between onerous (Greece) and too severe (Ireland). In so far as the facilities are used, the money is returned and interest paid, the payment - and profit - is from the countries in trouble to the others, not the other way around. I think that should and will change.

You didn't mention it, but the journalistic worry about the imploding euro is pretty silly. Der Spiegel, which last weekend floated the rumour that Greece was contemplating it, was called highly irresponsible and rightly so. If Greece would revert to the Drachme, the currency would lose a large percentage of its value. More important, Greece would be unable to borrow anything from anybody for years unless it would offer very high interest rates. Calculations have shown that while this solution looks less painful, it is actually more painful: halving Greek wages would cost less as well as solve the Greek problem more quickly than devaluing by 50%. It is clearly not in the interest of Greece to leave the euro.

On the other end of the scale, Germany would also suffer from leaving: the mark would shoot up, the interest rate down. German exports would suffer heavily, the country would get into a deflationary spiral and end up, like Japan, in an economic coma.

Next, picking up the thread of the first para again, is it fair that in the end, "Germany" (which seems to include many of the countries around it) pays for "Greece" (which seems to include Spain, Portugal and Ireland)? It seems just, that countries that make a mess one way or the other clean up their own mess. To explain why it is more complicated than that, have a look at the treaty of Versailles, that concluded the first world war. In short, the history is that the victorious countries claimed damages from Germany: Germany was required to clean up its own mess. Germany was put under close supervision of the claimants. When Germany was physically unable to pay the amounts required, France occupied the Rhineland, hyperinflation broke out, the economy collapsed and Germany was even less able to pay, plus the economic misery totally poisoned the social climate. It was only when the UK and US realised that Germany would never be able to pay that they could drag the French and the Belgians into a debt reform that got the economy going again under Weimar. It was too late to stop social radicalisation and the rise of national socialism.

There are important parallels between Germany 1920 and Greece 2010. Greece is in fact under Bundesbank stewardship. It will never be able to pay its debt on its own. Social unrest is fomenting. The lesson of history is that letting them clean up their own mess may just lead to much more costly social effects. Take a look at Greece's neighbours and you get the idea: Albania mired in poverty, FYROM (Macedonia) in tribal war with itself, Bulgaria, trying to get organized for the last 20+ years and Turkey, under the alternative threats of militarism and theocracy. Throw in some extra trouble, corruption and kleptocracy and you get what Greece could look like if left to its own devices. That doesn't mean Greece should not clean up it's act, notable in the area of cronyism and state economy, but it does mean we should avoid the "Weimar effect".

On to a world currency. There are important parallels between Louisiana and Greece (malfunctioning, kleptocratic government, stubborn, deep pockets of poverty) and between California and Spain (an important economy losing its grip). Yet, no one believes Louisiana or California endanger the dollar zone (or should get out of it). Clearly, the stronger central government in Washington makes a difference. The lesson is that you need political will and working central institutions to have a common currency. The problems of Portugal, Spain and Ireland (Greece is a special case, because it involved cheating) show that the degree of commonality of the central institutions of the EU, notably the ECB in Frankfurt, are insufficient. This is neither big news, nor something that never happened before in the EU. Standard procedure is to get some crummy compromise on the table, then start working on it as it continually threatens to fail because of its weakest point. It is called the "flight forward" and it works.

The central point is therefore that in order to have a common currency, you must have the institutions and procedures to control it to everyone's satisfaction. In most of the world, this is impossible. Note that in the example you mention of the Roman empire the extra element is force. There were similar attempts to foist a common currency on unwilling nations, ranging from the Carolingian denier and solidus to the Franc de Germinal. There are also plenty of marriages of convenience, mostly small entities, using bigger ones for protections, ranging from Argentina (US) to Luxembourg (Belgium). Voluntary common currencies are rare. The Latin Monetary Union tried and failed and it is telling that there is no serious thought even of a US-Canadian common currency: no political will on either side. None of the attempts that were made in the past were politically stable. Unless you expect much more political peace, love and understanding, there's no chance of a wider currency order.

Peter
« Last Edit: May 11, 2011, 10:47:28 PM by Figleaf »
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Offline Ukrainii Pyat

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Re: In search of a common currency
« Reply #2 on: May 11, 2011, 10:36:18 PM »
Well written response Peter.

I believe the Euro is a good idea, a common currency in a defined region.  Where there needs to be some modifications is that the expectations of performance cannot and should not be lowered for irresponsible national entities.  If the EU had not modified the terms for the entry into the Euro zone for some countries, particularly the PIIGS, and had taken into account past performances with devaluations of currency - even right up to in the past 20 years - I cannot fathom how those countries managed to squeak in to the common currency.  You cannot expect states like Greece, Portugal, Italy etc to all of a sudden become remarkably fiscally sound overnight.  In fact it might take awhile.  It was not as though they should have never joined the Eurozone, but they should have waited longer - perhaps with their currencies pegged at a fixed rate vs. the Euro.

I can appreciate how the German citizen can be pretty upset about having to bailout irresponsible Greece.  It is just not the same as you have cited, in the USA - though states have a lot of autonomy they are still under the federal umbrella.  Though they may have differing cultural aspects, even a different way of talking, Louisiana is still part of the USA(though when I worked for a major petroleum marketing firm, the employees literally voted it the least desired "foreign" posting!)  But if I am working my bottom off in Dusseldorf, paying my taxes, racing my BMW down the autobahn etc, I would indeed resent my taxes being used to bail out what I perceive as a bunch of people laying about sipping on Ouzo, and lounging around at their huge outdoor pool that they hide under covers so the tax authorities won't know about it - even if they use GoogleEarth to find the evaders.

Countries that dollarised over the past 50 years saw more benefits from it than drawbacks for the longest time.  There once was a lot of confidence in the dollar.  But just like the once almighty British Sterling, now the dollar has past it's time in the sun.  I foresee that eventually these countries like Ecuador, Panama etc that dollarised, are going to have to think about if they want their economy being drawn down with the US economy because of the demise of the dollar.  Other countries like Belarus that pegged their currency vs. the dollar may actually see some benefit if it makes whatever exports they have more attractive value wise - but the same cannot be said for Saudi Arabia with it's Rial being pegged to the dollar.  Saudi Arabia doesn't need to deflate the value of it's currency to make their exports attractive - they have a constant demand - so much so that they can set the terms.  Which is why there is serious discussion of a common Gulf States currency for Saudi Arabia, Qatar, Bahrain and the UAE.
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Offline chrisild

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Re: In search of a common currency
« Reply #3 on: May 12, 2011, 12:16:33 AM »
Der Spiegel, which last weekend floated the rumour that Greece was contemplating it, was called highly irresponsible and rightly so.

Silly or worse, yes. Consider the background however: Journalists hear about some top-level but secret meeting where apparently the situation in Greece (and maybe more) is to be discussed. And what are they told by Jean-Claude Juncker's spokesman? No such meeting is planned, etc. etc.  Well, shortly afterwards they find out that this was an obvious lie. And then you start thinking.

Unfortunately I cannot share your view of the EU's current state and future. This "somehow they will get their act together, even if the road is long and painful" does not seem to work any more. "Weimar" has often been called a democracy without democrats. And it died. If the European Union continues to turn into a "Europe without Europeans", populated primarily by people who care about the "good old" nation state only, well ...

Hope you don't have any plans to travel to Denmark in the future. Stay in the Schengen Area? Sure, why not. But for the Danish government, Schengen is so much more fun if they can have their borders back.

Rant off. ;)

Christian

Offline <k>

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Re: In search of a common currency
« Reply #4 on: May 12, 2011, 01:30:29 AM »
Unfortunately I cannot share your view of the EU's current state and future. This "somehow they will get their act together, even if the road is long and painful" does not seem to work any more. "Weimar" has often been called a democracy without democrats. And it died. If the European Union continues to turn into a "Europe without Europeans", populated primarily by people who care about the "good old" nation state only, well ...

Christian

Nation state or Europe? It's not a simple case of either/or. You are a German, but you also have your local patriotism: you prefer North-Rhine West-Failure to Berlin or "Prussia". You have your priorities, but they're not always the same as everyone else's. And why should they be? Likewise, Europe means different things to different people.

In the EU, we have small squabbles rather than big ones. Think of Serbia, Georgia, Russia in recent years. If they'd all been fellow members of the EU, I doubt they would have embarked on such violent escapades. So don't throw the baby out with the bathwater. It's surely a bit too early to expect the nation state to wither away. If the euro was invented simply to help that process along, then it was the wrong way of going about it. Evolution is preferable to revolution.

While it's nice to skip from country to country without having to change your money, it has always seemed to me that the pain involved in fitting yourself into the tight corset of such a wide currency union has to bring far greater benefits than that to be worth it. In just what way, beyond the death of money-changing, do the member states expect the euro to benefit them? A currency is a currency. It's a tool, not an emblem, not a shiny new way of proclaiming your love of Europe. I've always felt there was a bit of a fetish about it. To give an example, I can see the benefits of metrication, and I'd be willing to put up with the changeover period, and the loss of our old friend the pint, etc., to achieve those benefits, knowing that the pain would be temporary. However, as we've seen, adopting the euro has the potential to be far more painful, and for far longer, than merely switching from imperial to metric. Just why is this pain worth it? Perhaps in a century or two it would happen naturally, but it seems to have been rushed. If adopting the euro were no more painful than going metric, I'd be all for it - despite my dislike of the coinage format. Utility must come before beauty.

Figleaf, of course, is the transnational par excellence, the Pangloss of WoC, who believes that all is for the best in the best of all possible worlds, and that the end always justifies the means. Don't expect any change there. But a successful currency union really would require a fully federal Europe. It's a bit early in history for most Europeans to want that yet.
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Offline Prosit

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Re: In search of a common currency
« Reply #5 on: May 12, 2011, 02:09:08 AM »
Yeah, it is that big ole place over there that we can safely ignore sometimes for decades  ;) :D ;D
Dale



.......Europe means different things to different people....

Offline Ukrainii Pyat

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Re: In search of a common currency
« Reply #6 on: May 12, 2011, 02:30:34 AM »
Yeah, it is that big ole place over there that we can safely ignore sometimes for decades  ;) :D ;D
Dale

Really?  Gees they have a mystical way of drawing the USA into their ruinous wars since 1917. And still are.  Think Kosovo, Serbia etc.  I think Europe needs to take care of their own problems, including the Russian ones!
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Offline Prosit

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Re: In search of a common currency
« Reply #7 on: May 12, 2011, 04:03:09 AM »
In amonst those decades there is some nastiness.
Dale

Really?  Gees they have a mystical way of drawing the USA into their ruinous wars since 1917. And still are.  Think Kosovo, Serbia etc.  I think Europe needs to take care of their own problems, including the Russian ones!

Offline chrisild

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Re: In search of a common currency
« Reply #8 on: May 12, 2011, 10:45:07 AM »
Nation state or Europe? It's not a simple case of either/or. You are a German, but you also have your local patriotism: you prefer North-Rhine West-Failure to Berlin or "Prussia". You have your priorities, but they're not always the same as everyone else's. And why should they be? Likewise, Europe means different things to different people.

Precisely because I live in a "multi-level" structure, I don't have any problems with certain issues being decided at the local/municipal level, others being taken care of at the state level, at the federal level, and the European level. Now what level should have which competences will be subject to further discussion, even within Germany (or Belgium or Spain etc.). The problem these days is that a growing number of people seem to prefer doing away with the EU level.

Problems with the common currency? Away with it. A fairly small number of North Africans entering the EU? Blackmail other governments (à la Berlusconi) or build a new wall around one's country (à la Kjærsgaard). And I think that if, for example, political decisions in Germany were taken only by some council of state governors (prime ministers of the Länder, so to say), the result would be similar - as none of these "regional" politicians would ever be voted for by, or be responsible to, voters in any other German state.

By the way, it's spelled "Bah-lin".  ;D

Christian

Offline chrisild

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Re: In search of a common currency
« Reply #9 on: May 12, 2011, 11:31:58 AM »
Really?  Gees they have a mystical way of drawing the USA into their ruinous wars since 1917. And still are.  Think Kosovo, Serbia etc.  I think Europe needs to take care of their own problems, including the Russian ones!

May sound popular - then again the US has been pretty successful at deepening the division, or rather using the existing discrepancies, in Europe. The EU has never been one stable "bloc", so you may say it is perfectly legitimate to profit from that. Be it with regard to the US war in Iraq (see the Vilnius Group) or be it about passenger data, in many cases it boils down to "either we can come to an agreement with the EU, or make our deals with single 'willing' member states".

Does not mean the US should have ignored the war in former Yugoslavia - on the contrary, had the US not been involved, the conflicts would most probably have gotten worse. What I am trying to say is you cannot really expect "Europe" to be strong and united, taking care of issues in Europe without intervention from anywhere else, and at the same time use the fact that the EU member states have a hard time to come to agreements (especially fast agreements) in many regards.

Side note: Russia is a neighbor of the EU just as it is a neighbor of the US. Heck, it's pretty close to Alaska - ask Palin. ;)

Christian

Offline Ukrainii Pyat

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Re: In search of a common currency
« Reply #10 on: May 12, 2011, 12:56:25 PM »
May sound popular - then again the US has been pretty successful at deepening the division, or rather using the existing discrepancies, in Europe. The EU has never been one stable "bloc", so you may say it is perfectly legitimate to profit from that. Be it with regard to the US war in Iraq (see the Vilnius Group) or be it about passenger data, in many cases it boils down to "either we can come to an agreement with the EU, or make our deals with single 'willing' member states".

Does not mean the US should have ignored the war in former Yugoslavia - on the contrary, had the US not been involved, the conflicts would most probably have gotten worse. What I am trying to say is you cannot really expect "Europe" to be strong and united, taking care of issues in Europe without intervention from anywhere else, and at the same time use the fact that the EU member states have a hard time to come to agreements (especially fast agreements) in many regards.

Frankly I am saying the USA should not have been involved in deepening divisions that already existed - lord knows they would still show the same result eventually - nothing like hundreds of years of collective memories of conflicts.  In my opinion it was up to Europe to take care of Yugoslavia's amputations too.  The problem there was that Russia tacitly supported the Serbs, and well Germany could have stepped in - but then there are those pesky memories of a past German "intervention" in Yugoslavia back in 1941 that rear their ugly heads.  France and Italy are too busy fighting themselves to be any contribution.  Then Britain, but it is busy patrolling important places like it's "sovereign" bases in Cyprus, and being the USA's little helper in Iraq and fending off the hoards of Spaniards clambering at the bit to get into Gibraltar.
[/quote]

Side note: Russia is a neighbor of the EU just as it is a neighbor of the US. Heck, it's pretty close to Alaska - ask Palin. ;)

Christian

Oh good grief Charley Brown, you had to bring up the dumbest expression of an Alaskan Okie possible.  I am thinking they need to renew her TV programme, but change the name to "Rednecks on Ice".  Actually in Russia there were lot of jokes about that too, and some funny but inappropriate to post on forum long distance photos of Palin on the other side.
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Re: In search of a common currency
« Reply #11 on: May 12, 2011, 01:17:00 PM »

Does not mean the US should have ignored the war in former Yugoslavia - on the contrary, had the US not been involved, the conflicts would most probably have gotten worse. What I am trying to say is you cannot really expect "Europe" to be strong and united, taking care of issues in Europe without intervention from anywhere else, and at the same time use the fact that the EU member states have a hard time to come to agreements (especially fast agreements) in many regards.


Christian

I was involved in Unprofor before the Americans got involved  every thing worked fine and then the Americans arrived........what a mess they created on the ground!!! One act they committed is already sprouting a new conflict. As Bosnia was a Muslim country they decided to bring in Muslim fighters( ie:taliban) with their families to live in Bosnia. They settled in the valley next to Nova travnic I recently read of problems arising because the European muslims were being harassed by the traditional Taliban immigrants.  The fact is Europeans because of their difference are much more cultural aware than the US, so they seem to move slower than the US would like.

Offline Prosit

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Re: In search of a common currency
« Reply #12 on: May 12, 2011, 01:50:01 PM »
In the US, our discussion on State verses Federal rights was called the Civil War.
Dale

... I don't have any problems with certain issues being decided at the local/municipal level, others being taken care of at the state level, at the federal level, and the European level. Now what level should have which competences will be subject to further discussion

Offline Ukrainii Pyat

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Re: In search of a common currency
« Reply #13 on: May 12, 2011, 02:41:44 PM »
In the US, our discussion on State verses Federal rights was called the Civil War.
Dale


And unfortunately it is still being fought - though not with bullets.
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Offline FosseWay

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Re: In search of a common currency
« Reply #14 on: May 12, 2011, 02:51:29 PM »
Precisely because I live in a "multi-level" structure, I don't have any problems with certain issues being decided at the local/municipal level, others being taken care of at the state level, at the federal level, and the European level. Now what level should have which competences will be subject to further discussion, even within Germany (or Belgium or Spain etc.).

And this is precisely what I understand the term 'federalism' to mean. For this reason, I've never understood the irrational hatred of 'federal' Europe that is evident in a lot of UK thinking on the subject. To me, a federal Europe is infinitely preferable to an unaccountable bureaucratic monolith of a European Commission, which is what we have now. As Christian says, the nature and number of powers you devolve to each tier of the administrative hierarchy is a matter for political debate, but it doesn't affect the basic theory of federalism.

I don't know much about the local government structure of Germany, but I suspect that there is less divergence between theory and practice in devolution of powers there, even at the sub-Länder level. In the UK, we have local authorities and local taxation (Council Tax) to pay for them, but central government exerts such a stranglehold on how much councils raise and what they can spend it on that people justifiably see 'federalism' simply as a smokescreen for more meddling by whichever tier of government holds the strings of the fattest purse. For example:

• There are pan-England initiatives in fields such as health and education where the Westminster government dictates what the outcomes must be, but where the funding has to be found locally through Council Tax and the top-up grant to local authorities. We need to decide which areas of government service provision should be administered nationally and which locally, and then arrange appropriately accountable funding in each case, not the bizarre, unaccountable present hotch-potch.
• There is too much interference in Council Tax setting by central government. This, coupled with manipulation of the top-up grant, is open to blatant party-political abuse, whereby a Tory central government will stitch up Labour local authorities and vice versa.
• The timing and nature of the top-up grant is such that councils don't know how high they're going to have to set Council Tax until late March (the new rates come in on 5 April each year). As a result, there is no way for the local electorate to make any meaningful decisions in the ballot box based on the incumbent council's management of the local finances. If I'm particularly vexed by Income Tax, fuel duty or VAT rises, I can directly link that to government policy and vote accordingly in the general election. If I'm vexed by Council Tax rises, I'm actually better off venting my frustration at central government next time round than I am in retrospectively throwing out my local councillor, firstly because he/she has very little control over the Council Tax level, and secondly because I'll be voting in May about a decision taken in the previous financial year which is not necessarily capable of extrapolation into the following tax round.

If we could ditch all the above in favour of an administration that stretches from parish level to EU-wide level, with clear definitions of what each tier is for and how it accountably raises money for its programme, I'd be very pleased.