EU Members -- what was it like getting your first paycheck in Euros?

[Kinniken]

Originally posted by Håkan Eriksson


The "No" side had the facts on their side.

I have yet to meet a single economist with a definite answer to that question

It's always "well, it should increase trade, but...", "the lack of flexibility could be a problem, but...","it might increase inflation in the short term, but easier comparison between countries should lower prices in the medium term, so ...","the change of currency might slow consumption, but prices will look cheaper, so ...","the weak euro might increase inflation but boost the economy..."

Any analysis concerning the common currency as a whole done with any objectivity is bound to conclude that there are simply too many effects on both sides to able to give a definite answer one way or the other. On some precise aspects, there seem to be a consensus (the Stability Pact is stupid, trade between euro-zone countries is increasing), but on the long-term effects of the euro I have never seen one that was in anyway independent.

I will admit that I am mainly in favour for political (I want a more united Europe) and practical (I like moving around Europe and the euro makes it easier) reasons. I think that on the longer term it will prove beneficial to the European economy, especially if the parts of Monetary Union which works the most badly are reformed, but it's not the first reason.

 

[Hitro]

Originally posted by SanPellegrino
the € made me poorer. Ok, the prices for big things stayed the same, but all those pigs of shop/restaurant owners nearly doubled their prices. Some didn't even made a new price list, just made € signs over the old DM price!

That's unfortunately the same expirience as mine.

 

[The Last Conformist]

Hm, I wasn't in Germany when the switched took place, but I've seen plenty of price lists in pubs and the like that still list prices in both DM and euros, and they pretty much infallably charge half the amount of euros that they charged DMs.

 

[Kinniken]

Well Hitro, in both France and Venice (which I happened to visit both just before and just after the switch), I did not saw jumps in prices like you describe. Only very small prices (coffees again) seemed to have been converted with a big increase. I never saw a price increase near the 100% you are describing.

Anyway, AFAIK what really matters is the long-term effect on inflation, not a possible one-time hike on small prices. And since the Euro was introduced, inflation in the euro zone has been remarkably low. How much is due to the euro however is hard to say. It's obvious that the euro's strength is lowering inflation by reducing import prices, but obviously to make a comparison with what would have happened without it we would need to know how much the national currencies would have risen, and that's clearly impossible; we can simply guess that they would have done so as well, since the rise of the euro is mainly due to causes outside the EU.

 

[Marla_Singer]

You're right Kinniken, the ECB is fighting a lot more efficiently the inflation than used to do any other national central banks before.

The ECB is built on the model of the Bundesbank, which was already very independant. Most of studies prove that the more a central bank is independant, the more it will fight efficiently inflation. The ECB is today the most independant central bank in the world... and as a result, economists are more scared of deflation as it occured in Japan than they are scared of inflation.

According to me, the monetary policy of the European Union is too rigid and too strict, and that's the main thing which harms the economy of the €urozone. Germans were scared to lose a strong small currency to get a weak big currency. That's why it has insisted to create the stability pact which is proven way too rigid.

During the last summit between Blair, Chirac and Schröder, the three chiefs of state concluded we should create some kind of "Mr Economy" in the EU commission. To put it in a nutshell, the purpose in here is to create a "flexible" stability pact. As Romano Prodi said, the stability pact is useless in times of prosperity, and harmful in times of recession. Writing on marble that we should not have a deficit below 3% and debts above 60% of the GDP is not a solution.

The purpose of that "Mr Economy" fo the EU would be to give more flexibility to that pact, especially about deficits. In times of hard recession, we would say that we can go untill 5% of deficits. At the opposite, in times of economic boom, we couldn't have any deficits at all (0%). Those are examples just to explain.

I think that would help a lot the EU cause this way, we would be able to have better coordinated monetary and budgetary policies. For now, we say that both should always be rigid. That might be a good alternative for the long run, but in the short term, it's very, very harmful.

 

[Marla_Singer]

BTW Kinniken, what do you think about my new avatar ? Do you like it better ?

 

[Kinniken]

Originally posted by Marla_Singer
According to me, the monetary policy of the European Union is too rigid and too strict, and that's the main thing which harms the economy of the €urozone.

The main thing which harms the euro zone economy is the lack of economic reforms

However, I agree with you that the EBC is overly strict. It's good to fight inflation, but what we really need now is more growth.

 

[Kinniken]

Originally posted by Marla_Singer
BTW Kinniken, what do you think about my new avatar ? Do you like it better ?

Yes, very much so

It's much better than your last one and better than your first one. The only somewhat unfortunate thing is that a quick glance could lead people to believe you are a warm support of Dutch-American friendship

 

[Akka]

Originally posted by Marla_Singer
BTW Kinniken, what do you think about my new avatar ? Do you like it better ?

I second Kinniken : this one is MUCH better than the horrible previous one.
At least this one doesn't look like an add for the football team of the worst part of the country

 

[Hakim]

The ECB may be independent in principle, but all the requests from PMs and presidents to lower the rates is a sign that its independence isn't quite accepted yet.

The breaking of the stability pact by France & Co probably tilted many Swedish voters to a No vote in the referendum. The news came so well timed you almost got the feeling that it was part of some devious plan to keep the swedes out.

Until some new rules have been set we are in a situation where there is a stability pact but the biggies don't have to abide by it. That's not a very fair deal for a small member state. If 3% deficit is too hard, raise it to 4 or 5 as long there is a rule that everyone will follow. A weak pact where the member can talk their way out is a nightmare.

I'm not a friend of deficits though. I guess 1 or 2% are in order since predictions about the economy might be wrong but more than that is dangerous. Each government want to keep the deficits as high as possible to keep voters happy. One year before election a government is likely to keep the deficit at 6 rather than 5% if there's a recession and at 1% instead of 0 when not. A constant deficit creates a pyramid scheme where one generation passes the problems on to the next generation until it don't work anymore. And the last generation will then go racist, protectionist and to war.

Inflation as a means to create growth is delusive. In the end it's the productivity that determines growth. Messing with the currency is not going to solve any problems.

 

[funxus]

I've never gotten a paycheck in Euro, but it was nice being able to use the same currency all the way from Germany to (and in) Slovenia when we went there. Now that I have a VISA card, I don't hae to worry much about it any longer.

About Sweden, we're likely to join some day anyway, so it'd probably have been better to take the bull by the horns. I think we would have been better off fighting the "children's diseases" together with the rest of Europe than by ourselves later. Like Kinniken, I was more for it for political reasons than for the economic ones though (which seemed very vague).

 

[Marla_Singer]

Originally posted by Hakim
The ECB may be independent in principle, but all the requests from PMs and presidents to lower the rates is a sign that its independence isn't quite accepted yet.

The breaking of the stability pact by France & Co probably tilted many Swedish voters to a No vote in the referendum. The news came so well timed you almost got the feeling that it was part of some devious plan to keep the swedes out.

Until some new rules have been set we are in a situation where there is a stability pact but the biggies don't have to abide by it. That's not a very fair deal for a small member state. If 3% deficit is too hard, raise it to 4 or 5 as long there is a rule that everyone will follow. A weak pact where the member can talk their way out is a nightmare.

I'm not a friend of deficits though. I guess 1 or 2% are in order since predictions about the economy might be wrong but more than that is dangerous. Each government want to keep the deficits as high as possible to keep voters happy. One year before election a government is likely to keep the deficit at 6 rather than 5% if there's a recession and at 1% instead of 0 when not. A constant deficit creates a pyramid scheme where one generation passes the problems on to the next generation until it don't work anymore. And the last generation will then go racist, protectionist and to war.

Inflation as a means to create growth is delusive. In the end it's the productivity that determines growth. Messing with the currency is not going to solve any problems.

I agree with you Hakim, but before saying "no" to the €uro at least untill 2013 like you did, you may consider the problem you talk about is a very short term issue that will be solved pretty fast because it's also in the interests of Germany and France to not simply establish rules to break them afterwards.

I agree with you that deficits are bad, but they also depends of the economic growth, do you agree ? What can be said is simple, if you have a growth of 5%, then you can spend like a freak and still have no deficits. At the opposite, if you have a recession of -1%, then you would have to cut your spendings to not have any deficits. As a consequence, you'll damage even more your economy !

The thing is that we need a better flexibility than an eternal simple rule of 3% of deficits. That rule is useless in time of economic boom and harmful in time depression.

Blair, Chirac and Schröder agree on that solution and are ready to defend it at Brussels. According to what I've read, the only one which disagreed with it was Jose Maria Aznar. As a result, that should be something that will be decided in the months coming. And that's a great news.

 

[MrPresident]

Originally posted by Marla_Singer
Blair, Chirac and Schröder agree on that solution and are ready to defend it at Brussels.

Why does Blair have a say on the flexibility of the euro stability pact?

Originally posted by Marla_Singer
The thing is that we need a better flexibility than an eternal simple rule of 3% of deficits. That rule is useless in time of economic boom and harmful in time depression.

The 3% rule is based upon the principle that a deficit level anywhere near that level is bad for the euro, so it really shouldn't have been a problem even during a depression. However certain governments found out the hard way that without control of your own interest rate a government needs to spend (or cut taxes) in order to get the economy going again, which inevitably results in large deficits.

 

[Kinniken]

Breaking the 3% limit in recession does not seem like such a big problem to me; the Stability Pact is unduly inflexible. However, I hate the way France and Germany refused to abide by it. It makes it all the harder to reform now; any softening of the pact will be seen as a Franco-German victory, even if it makes a great deal of economic sense.
Despite this, I think it's still the way to go: reform the pact to make it more sensible, AND change the "control system" so as not to allow a simple blocking minority (very easy to create) to block fines. While France and Germany should have acted better, as long as avoiding painful measures requires only a little bit of diplomacy rule-breaking will continue to happen; few politicians are prepared to face fire at home when they can so easily avoid it.

 

[Marla_Singer]

I totally agree with you Kinniken.

We should definitly find better ways to punish those who don't follow the rules. I'm not sure economical fines are the best way since countries will always cross the red line during hard times. Maybe we could find any political way to blame the government which cross the line. Personally, I think the best would be both economical and political. And, as you've said, their should be a better neutrality of those who fine the member crossing the red line.

 

[Kinniken]

Unfortunately, I do not see what other punition to apply that fines. They do not have to be big though - just being fined would be a humiliation for a government, and would by itself extract a heavy political cost at home.
As for the deciding body, for a decision of this importance it cannot be anything else than the European heads of state/government. Can you imagine the anti-European feelings that fines imposed by the Commission or the ECB on a member state would trigger?
Simply, what is needed is a qualified majority less easy to block. The one proposed in the Constitution would do nicely. BTW, it's somewhat interesting considering the number of people who see France and Germany's breaking of the rules as a good reason not to sign the Constitution that had it been in place during the Stability Pact crisis, France and Germany would have been unable to create a blocking minority and would not have avoided the fines.

 

[Hakim]

Originally posted by Marla_Singer
I agree with you Hakim, but before saying "no" to the €uro at least untill 2013 like you did, you may consider the problem you talk about is a very short term issue that will be solved pretty fast because it's also in the interests of Germany and France to not simply establish rules to break them afterwards.

I guess we weren't so sure about the intentions to solve it, or that the solution would be a good one.

I agree with you that deficits are bad, but they also depends of the economic growth, do you agree ? What can be said is simple, if you have a growth of 5%, then you can spend like a freak and still have no deficits. At the opposite, if you have a recession of -1%, then you would have to cut your spendings to not have any deficits. As a consequence, you'll damage even more your economy !

I agree at least to the extent that predictions may fail. Of course if nothing is done to adjust it next years deficit will be worse if the recession continues, but why don't adjust it directly instead of letting the debts get higher and higher? In what way is the economy damaged when cutting the expenses?

The thing is that we need a better flexibility than an eternal simple rule of 3% of deficits. That rule is useless in time of economic boom and harmful in time depression.

Blair, Chirac and Schröder agree on that solution and are ready to defend it at Brussels. According to what I've read, the only one which disagreed with it was Jose Maria Aznar. As a result, that should be something that will be decided in the months coming. And that's a great news.

I don't know much about how the new order will be, but the more complicated the pact is made, the more will it be subject of opinions and interpretations. If the economic state should be taken into account, the words recession and boom must be broken down to some basic indicators, preferrably measured by some independent institute. Otherwise the definitions will be stretched to fit whoever needs to be reelected next year.