Why I love the euro

Damien Grant's picture
Submitted by Damien Grant on Sat, 2012-02-11 19:16

Watching the riots and angst on the streets of Greece, the harsh adjustments being forced on Italy the new self discipline being imposed in Spain I am struck how none of this would be possible without the euro.

The inability of governments to print money and inflate their way out of trouble (ie: stealing peoples savings), is forcing governments to balance their books.

It is also pleasing that the Germans are refusing to entertain quantative easing. Good on them.

I also find it interesting that there is an acceptance of the stable currency, there is no opportunity for someone like Winston Peters to advocate higher inflation as a solution: the very nature of the debate has changed.

I wonder what the productive members of Greek society are thinking? I imagine that they are secretly pleased to see the perks, privileges and small monopolies that weight down their society are being chiseled away.

Maybe we are witnessing the high watermark of socialism. Maybe. It is a nice thought.


Damien's subtitle should be...

Marcus's picture

"How I learnt to stop worrying and start loving Angela Merkel, the Greek way."

Grant

darren's picture

I remember reading a similar argument made by taub

Nassim Taleb. Yes, I believe he was also recently interviewed by Russ Roberts. You'll find the podcast at the same site.

Darren

Damien Grant's picture

Thanks for posting that, it was interesting.

I have got through about a third of it, but I especially liked the line that the lesson people take from a crisis is not "I must never do that again" but rather, "that was so bad the authorities will never let it happen again",

I remember reading a similar argument made by taub, the author of the black swan book, part of his idea as to why people under estimate risk.

Damien

Podcast on Greece, the European Crisis, and the Euro

darren's picture

Economist Tyler Cowen (George Mason University, Fairfax, Virginia) is interviewed by economist Russ Roberts who blogs at "Cafe Hayek."

http://www.econtalk.org/archiv...
58 minutes

Tyler Cowen of George Mason University talks with EconTalk host Russ Roberts about the European crisis. Cowen argues that Greece is likely to default either in fact or in spirit but that the key question is which nations might follow--whether Italy and Spain can find a road to economic health and honoring past debts. Cowen gives his best guess as to what is likely to happen to the euro and the European Union and the implications for the rest of the world. He explores some less likely scenarios as well. He is pessimistic about Greece and the short-run prospects for preserving the status quo, but he is optimistic in the long-run about the European Union though it may have a different structure down the road.

Your point is ridiculously made...

Marcus's picture

"Because Greece cannot print money it is forced to raise taxes and cut spending. This is a good thing. Even raising taxes is a good thing in this context because if makes the costs of socialist programs transparent to those who have to pay for them."

Firstly, you have no idea whether or not that is clear to them. I've seen no evidence for that. Most Greeks still believe that the Government should give them state hand outs and that they shouldn't be paying more taxes for it. Indeed, many of them think that this is a work of nasty bankers (and especially US capitalists) against their socialist system. Just listen to interviews with protestors and the opposition.

Secondly, you understand very little about Euroland economics, do you?

They have a currency: the Euro.

They have a central bank: The ECB.

The ECB is currently borrowing money it does not have. (Recently their credit rating was downgraded on the basis that Greece would not pay them back).

They are then loaning this money to Euroland banks at knock-down rates, hoping that they will lend it on to Governments (and/or) keep the spiral of debt ridden Euroland banks from going bankrupt.

It's not printing money, but it's not that much better either.

Everyone's at it in the west at the moment, I agree. But it's nothing to applaud that they are not quite yet at the level of banana republic politics.

Trojan

Damien Grant's picture

I am not advocating Germany bail out Greece but if they do so Germany will do so for their own reasons but it is of no importance to my original point:

Because Greece cannot print money (or borrow any more) it is forced to raise taxes and cut spending. This is a good thing. Even raising taxes is a good thing in this context because it makes the costs of socialist programs transparent to those who have to pay for them.

Printing money to inflate away sovereign debt erodes the value of those who have their wealth stored in currency or assets denominated in currency. It is one of the worst abuses of sovereign power short of shelling a civilian city. The euro is working a bit like the old gold standard did.

The euro has become a German Trojan horse.

You said that it was...

Marcus's picture

Forcing them to balance their books.

How are they being forced to balance their books?

How? How? How?

It would be like me saying that by getting the local Iwi to make an incantation over your tree before you can chop it down is forcing you to be more spiritual.

did

Damien Grant's picture

Did i advocate german tax payers bail out Greece?

I am addressing what you have written...

Marcus's picture

"The inability of governments to print money and inflate their way out of trouble (ie: stealing peoples savings), is forcing governments to balance their books."

Forcing German tax payers to pay for Greek debt is not "balancing the books".

What do you not understand about that?

Europe

Damien Grant's picture

I have conflicting views about Europe. I dislike virtually everything about it (save for moment the Euro) but it has been a force for good in forcing Eastern Europe to clean up their corrupt systems.

But I do like the single market, free movement of people, goods, services etc, and that would not be possible without the EEC.

But at one level all that has happened is that the socialist programs (agricultural subsidies, restrictive labour laws) have been migrated from a state to European level. If the EEC was abolished those programs would just be replicated at a national level without the benefits of an integrated market.

Marcus

Damien Grant's picture

Again, that is not what I said. I was making an observation about how the euro was forcing some governments to restructure their affairs and I think that is a positive thing.

If you want to disagree with me then tackle what I actually said.

Yes, but that is what the Greek package...

Marcus's picture

...is built upon. Extorted tax money.

And you think that is a good thing? You cannot change an ideology of a people through force.

Socialism + tax money + force = less Socialism (this does not add up).

You will only be disappointed

Mark Hubbard's picture

You will only be disappointed in me.

Jeez, why would you care what I think? That must be a real weakness as a liquidator Smiling

I've now only read the final paragraph for your column: Only property rights matter. Any honest right-winger should tell you that.

100% agreement with that first sentence. I don't care about the second; I'm a Libertarian, which is far from a Right Winger (Conservative - hell, look at Burnsy's new thread; hint he's a right winger). So long as when I work back and you've justified 'only property rights matter', I can't imagine what argument a Libertarian/Objectivist would have. Later ... I'm going to be given a divorce if I sit at this computer on this lovely sunny Sunday any longer ... you don't mess with Mrs Hubbard - http://www.solopassion.com/nod...

If greece leaves the euro I

Mark Hubbard's picture

If greece leaves the euro I imagine they will spiral into a mess of inflation, regulation and destructive socialist economics.

Yes, that's the tyranny risk I mooted, but ...

If they stay in the euro they will be forced to balance the national accounts. Does not mean they will avoid socialist programs but at least the government will need to raise enough taxes to pay for their programs, and raising real taxes is much harder than the soft fraud of inflation.

No immediate disagreement. But leaving the Euro might bring on the destruction of the Union which is a rule bound socialist monster. Again, the risk is more freedom, finally, versus move to tyranny.

Best I think

Damien Grant's picture

If you did not read the herald today.

You will only be disappointed in me.

And yes, I think there should be a messy default with greece still in the euro.

Creditors need to take some responsibility here and not be bailed out. I think part of the current sovereign debt crisis stems from the decision to bail out the failed banks. Tax payers should not fund bad lending decisions.

Mark

Damien Grant's picture

If greece leaves the euro I imagine they will spiral into a mess of inflation, regulation and destructive socialist economics.

If they stay in the euro they will be forced to balance the national accounts. Does not mean they will avoid socialist programs but at least the government will need to raise enough taxes to pay for their programs, and raising real taxes is much harder than the soft fraud of inflation.

Agree with all your points

Mark Hubbard's picture

Agree with all your points here Damien. Hopefully this will put an end to Keynesian socialism and the anti-classical liberal ethic that has been running and ruining the West for far too long now. Well, at least be part of the process to doing so.

... the question is what arises from the riots in Greece: an actual move toward (more) limited government and freer nations (including freer markets), or will some form of tyranny be bred. Unfortunately history says tyranny, so it will be interesting, and there's a lot resting on this.

I assume this is not your Herald opinion piece? As it ends up, entertaining today, so I'll have look out for it tonight if I get a chance.

... oh, one point. There is one dreadful thing about the austerity packages: higher taxation. I reckon they should be brave: allow the default (it has to happen some stage), slash the bureaucracy as planned, and lessen taxation plus free up their rule bound economy to create a vibrant free market ... no time to write more than this for now though.

That is not what I wrote

Damien Grant's picture

That is not what I wrote about.

Do you like seeing European...

Marcus's picture

...taxpayers paying off another countries debt?

If the NZ govt were bailing out the cook islands at the moment to the tune of millions of dollars, with the proviso that they decrease their spending, would you also think that was a blow against socialism?

In your twisted world you probably would.

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