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It is interesting that Denmark, which did not enter the EMU, maintained strong growth in real hourly earnings and has not been damaged nearly as much by the crisis as some of the EMU nations.

Denmark has pegged its krona to the euro. This is a silly argument.


First, the nations' leaders agree to surrender their currency sovereignty - they didn't have to but chose to. They largely mislead their citizens with spurious arguments about optimal currency areas and the rest of the sophistry that the neo-liberal economists happily fed them.

They had no currency sovereignty to start with. Monetary policies were driven by the Bundesbank's already (under the watchful eye of the markets) - today the ECB has policies that are designed for the whole area - somehow nobody remembers when the Germans were complaining that the ECB policy was too tight for them...


Fifth, when the whole things meltdowns due to its design and the German strategy, the nations which are now in extreme crisis are told they have to introduce harsh pro-cyclical fiscal policies to savage living standards of their citizens.

As if the current crisis had anything to do with the eurozone and was not caused by the global meltdown and, now, worries about public debt started in the US and UK that somehow end up blaming the Greeks and the euros.

So, bah.

Again: don't trust anything written in English about Europe or the euro.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Feb 11th, 2010 at 02:45:20 PM EST
[ Parent ]
The Nordics in the global crisis | VoxEU
The Nordics have all had different monetary regimes since the euro. Given their similarity in other respects, a comparison of Finland and Sweden is especially interesting. It is almost a laboratory experiment. Sweden has a floating exchange rate and an independent central bank geared to price stability, while Finland is part of the Eurozone. Who has made the better choice?

The krona was mostly stable and developments in Finland and Sweden were strikingly similar during the first decade of the euro. Once the crisis erupted, however, the krona fell significantly relative to the euro, thereby strengthening the price competitiveness of Sweden relative to Finland and the euro area. One might expect this to help Sweden come through the crisis at less cost than Finland, arguably benefitting at the expense of its neighbour by capturing market shares.

The decline in exports and output in 2009 was indeed smaller in Sweden than in Finland, and GDP growth is forecast to be somewhat faster. However, the differences do not seem large. Also, manufacturing output shows little response to the change in competitiveness, and unemployment is rising in parallel with developments in Finland.

Either the effects of the improved competitiveness are relatively modest or the lags are long, or a depreciation of a floating currency has less effect on export and output volumes than a devaluation of a pegged currency used to have. What is clear is that the floating exchange rate does not insulate an economy from external shocks, and the economic differences between the two exchange rate regimes seem smaller than often claimed in the heated debate about the Eurozone.



"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
by Melanchthon on Thu Feb 11th, 2010 at 04:28:08 PM EST
[ Parent ]
That's only because Sweden is a net exporter.

If it were a net importer, Sweden's foreign debt would have blown up with the falling Krona.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Thu Feb 11th, 2010 at 04:32:03 PM EST
[ Parent ]
Yes, but what they say is, despite being a net exporter, the falling Krona didn't boost the Swedish economy as the dominant theory narrative claims...

"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
by Melanchthon on Thu Feb 11th, 2010 at 05:12:01 PM EST
[ Parent ]
Denmark has pegged its krona to the euro.

And, more importantly, so has the Bundesbank.

The DKK is overvalued (based on my experience with the relative purchasing power of DKK and €, it should be trading at roughly €:DKK 1:10 rather than 1:7.5) and we have a structural current accounts problem, so it's not so much a case of Nationalbanken pegging to the € as the Bundesbank guaranteeing the DKK.

(Of course the picture is complicated somewhat by the oil revenues which permit us to maintain what looks like a balancing foreign trade when we are actually selling out our assets hand over fist.)

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Feb 11th, 2010 at 06:54:34 PM EST
[ Parent ]

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