March 26, 2001

7:21 AM

The Euro.I have a question for all of the Euro-zone mefi members. Do regular folks in Europe think the varied governments will come together for the economic benefit of the whole or will regional differences doom the new currency?
posted by CRS (9 comments total)

Neither really, but it will save me from having to exchange currencies when on holiday...
posted by fvw at 7:34 AM on March 26, 2001

Maybe I should state that I have a hard time envisioning a successful currency when there is no unified constituency for the central bank to support.

That is, since the economies of France and Germany often have different needs than those of Italy and Belgium, will the bank simply cater to the large countries? For example, will it reduce interest rates to stimulate expansion in one country where growth is slowing, or raise rates to stamp out inflation in another country?

In the U.S., this problem is not present since the Federal government is so strong and we all feel that the overall health of the country is more important than that of any individual state.

I don't think that European countries have reached the point yet where they can accept "taking one for the team," and will each demand that they get the monetary policy help they need, thus causing serious internal discord. Am I totally off-base on this?
posted by CRS at 7:52 AM on March 26, 2001

No CRS, I have a hard time understanding how countries with diverse and fluctuating economies can tie themselves together under a single currency, selflessly giving up elements of control over their own economy.
There are supposed to be conditions which have to be met to ensure 'convergence' but economies ebb and flow, being tied into a single currency and having to comply with rules to ensure the strength of that currency restricts what individual governments can do to correct their economies.
We (Britain) have yet to enter the 'Euro zone' though popular opinion states that after the next election the government will begin the process (at the moment it's too much of a vote-loser to put to the masses) of convincing the populace that it is a Good Thing.
I think they'll have a difficult task. The average Brit doesn't really trust the rest of Europe and the popular press is behind the 'save the Pound' campaign, tending to ignore the benefits of belonging to a single market economy.
posted by Markb at 8:17 AM on March 26, 2001

I think the US downturn may actually work to the advantage of the Europhiles. The euro's recovered somewhat in recent months; fundamentals across the EU are strong enough not to be automatically crippled by a US recession; in a world economy where both the US and Japan are no longer safe harbours, you're going to see the big finance houses attempt to bolster the euro for their own benefit. (The internal needs of the EU nations have precious little to do with it.)

What's intriguing is that the UK's economic model remains closer to that of the US, in that there's a greater emphasis upon equity investments and credit over savings and bonds. And I don't see that changing. But I'd much rather see Britain incline back towards the economic model on the continent: it may not be as fast to grow in boom times, but it's more resistant to bursting.

And CRS: the question of regional disparities in economic policy isn't confined to the EU. In the north of England (and Wales, and Scotland), we've long been the victims of an economic policy directed towards the property-owning "middle England" of the London area, creating the famed north-south divide. We don't accept "taking one for the southerners", but we have to, because of the grotesque centralisation of British politics. At least an economic policy not set by Londoners for Londoners is likely to help the deprived regions of the UK: after all, even now we're more likely to get EU aid right now than government money.

In short, an EU monetary policy may be subject to the centralised bureacracy in Brussels, but at least it won't be shamelessly manipulated for short-term political gains, as is all too often the case.
posted by holgate at 8:19 AM on March 26, 2001

I hear that the powers that be (forgot the name of the committee) is planning on backing the Euro with gold if need be. My professor for International Business would constantly talk of the Euro and its current situation, and according to him a Gold backing might occur.

The result of Europe creating a successful Euro would make them the central monetary power with a combined population of 350 million compared to 270 million of the US.

So I hear at least. I'm no expert in economics.
posted by physics at 11:42 AM on March 26, 2001

The benefits of this single currency far outways the problems faced in getting there. As physics said, the EU is going to be one hell of a monetary power.
posted by Zool at 4:55 PM on March 26, 2001

Sorry Zool: U are tres wrong. The Euro is at least 50 years before its time. Like much of the EC/EU, it's a political creation which flies in the face of the economic disparities between, e.g., Germany, at one extreme, and, e.g., Spain, at the other. Relative good economic times (10% unemployment is good in Europe) have somewhat obscured how ill-conceived the Euro is. Look for the Euro to test its lows against the dollar later this year (it's already gone from, what, $1.18 to 88 cents? I think it will be abandoned within five years.
posted by ParisParamus at 6:06 PM on March 26, 2001

By the way, gold doesn't work any more to "back" a currency. CPU chips, perhaps.
posted by ParisParamus at 6:08 PM on March 26, 2001

markb: "I have a hard time understanding how countries with diverse and fluctuating economies can tie themselves together under a single currency, selflessly giving up elements of control over their own economy."

what "control"? the USA and greenspan tried a "soft landing" of the US-economy. looking at the stock-markets and economical prospects, it looks like they failed.

i think the whole discussion about "control" of the economy is senseless, because nobody can really control the market.

parisPARAMUS: "Like much of the EC/EU, it's a political creation which flies in the face of the economic disparities between, e.g., Germany, at one extreme, and, e.g., Spain, at the other. Relative good economic times (10% unemployment is good in Europe) have somewhat obscured how ill-conceived the Euro is."

well, look at the situation in germany alone: the unemployment-rate differs from federal state to federal state, somewhere between 7-8% in southwest germany up to 20% in northeast germany. so a german "national"-economy-politic has to solve the same probs like a european-economy-politic. why should the european fail?

parisParamus: "Look for the Euro to test its lows against the dollar later this year (it's already gone from, what, $1.18 to 88 cents?"

so what? during the last five years the dollar/DM-ratio moved from 1.50DM up to 2.20DM/US$. this is nothing unusual. i think we will see periods with the euro over the 1US$-border...
posted by dogfood at 2:29 AM on March 27, 2001