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Would you recommend leaving the Euro? And: Would you vote for a party which recommends leaving the Euro?

These are not rhetorical questions. I am really wondering what your opinion is.

by rz on Fri Nov 28th, 2014 at 09:40:08 AM EST
[ Parent ]
I don't think it needs to be a straight yes or no necessarily.

I would definitely vote for a party stating that staying in the Euro is not going to be an at any cost objective - for instance, that is the Syriza position.

I would want my government (yes, I can dream - France is not going to do that anytime soon) to very clearly present that, if the Euro is to insist on sticking to something that arithmetically cannot work, then the decision will be to leave, and it will be taken soon enough.
But that we are quite willing to be part of a workable project if the appropriate changes are made.

It may seem unthinkable, but somehow I guess Germany would think twice before insisting on the path of doom should a country like France or Italy make a credible exit threat.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Fri Nov 28th, 2014 at 09:55:28 AM EST
[ Parent ]
It may seem unthinkable, but somehow I guess Germany would think twice before insisting on the path of doom should a country like France or Italy make a credible exit threat.

I think this is very much a mistake. Threats are always unpopular. The German government is also under substantial political pressure. The only way I can think of that Germany would agree to changing the rules for the Eurozone is if our own economy goes badly.

Otherwise I think threats will be counterproductive.

But there is an even more important problem with hinting that you will leave the Euro: Your Banks will be destabilized. In principle the only non-destructive way to leave the Euro, would to do it suddenly without telling anybody beforehand. This again, would be politically very unpopular basically everywhere.

by rz on Fri Nov 28th, 2014 at 10:24:05 AM EST
[ Parent ]
Making it clear that you will not seek to stay at all cost, and highlighting your needs, should be sufficient.
Then a private conversation with Angie to make it clear that you mean it.

France leaving (and the mere suggestion by Sarkozy that he might do it, although it is highly unlikely that he would have, was enough to lead to the one time Merkel showed more flexibility) would be such a catastrophe for the German economy that even your awful political class may well find the resolve to stop lying to its population for a minute and make the case for changing the rules.

Staying as it is is an impossibility, so pointing it out should hardly weaken the banks more than they would be in the long run anyway.
Although we would not hit the long run in any case: if no party makes the case that it is not an at all costs thing, then you'll have le Pen winning an election. At this stage your choice is a military coup, or an uncontrolled exit.

I am not saying it is easy, and that is an extra reason for not stating it as an absolute yes or no. But by saying yes, whatever, you have far worse consequences than by admitting that it is not so straightforward. We are many years behind the curve and if we don't bend Germany soon, a whole generation and then some will have been sacrificed, for no eventual gain as the ultimate point will be the same: ordoarithmetics do not work.


Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Fri Nov 28th, 2014 at 10:55:55 AM EST
[ Parent ]
"Making it clear that you will not seek to stay at all cost, and highlighting your needs, should be sufficient.
 Then a private conversation with Angie to make it clear that you mean it."

Isn't that  - in a so somewhat different context - the Cameron strategy?

Not really working.

by IM on Fri Nov 28th, 2014 at 02:04:25 PM EST
[ Parent ]
On the contrary, Cameron is grandstanding for all he's worth.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Nov 28th, 2014 at 02:29:37 PM EST
[ Parent ]
If we look at the UKIP results, not even that aspect is working.
by IM on Fri Nov 28th, 2014 at 02:50:27 PM EST
[ Parent ]
Indeed. And a UK departure would harm only the UK.

Whereas the breakup of the Eurozone would, first and foremost, harm Germany.

Another thing: Cameron complains about things that are actually rather trivial, no major economic consequences would ensue from their continuation. Whereas the Euro framework CANNOT continue, for the simple reason (among others) that there is no way for a sum of non-zero positive numbers to be zero.
So you can't simply reason countries into falling back in line. All you can do is blackmail them into aggravating the disaster and somewhat delaying the outcome. But status quo is not an option, it is at most an unstable transitory state.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Fri Nov 28th, 2014 at 03:40:10 PM EST
[ Parent ]
We are at a point where being popular is hardly a reasonable aim.

The German government has to see that it is not possible to go on sticking blindly to an unworkable set of institutions and policies, or there will be major disruptions in Europe, in particular of the extreme-right government kind.

As Cyrille says, getting that point across is within the scope of firm diplomatic discourse, without the need for public histrionics.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Nov 28th, 2014 at 12:13:18 PM EST
[ Parent ]
 "getting that point across is within the scope of firm diplomatic discourse,"

that is magical thinking

by IM on Fri Nov 28th, 2014 at 02:13:23 PM EST
[ Parent ]
The only unrealistic thing about it is that we haven't got the statesmen we'd need to carry it out.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Nov 28th, 2014 at 02:34:39 PM EST
[ Parent ]
O, "leadership". You are not an Wapo columnist?
by IM on Fri Nov 28th, 2014 at 02:45:54 PM EST
[ Parent ]
Where am I am talking about "leadership"? I am talking about heads of state who are sufficiently clear-sighted, honest, and courageous to do what the situation calls for. Needless to say, we don't have them.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Nov 28th, 2014 at 03:38:39 PM EST
[ Parent ]
statesmen. leadership. resolve.
by IM on Fri Nov 28th, 2014 at 05:47:24 PM EST
[ Parent ]
They are all scared shitless of the markets, and to a certain extent they are right since the State has been hollowed out by 30+ years of Reagan-Thatcher and 15+ years of 3rd way.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Nov 28th, 2014 at 05:49:59 PM EST
[ Parent ]
It is a matter of cultural hegemony.

Here in Germany, two thirds of the voters of Left (party) demand a balanced budget.

Any yes, you will the same mind set in every western country.

by IM on Fri Nov 28th, 2014 at 05:54:20 PM EST
[ Parent ]


A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Nov 28th, 2014 at 05:57:24 PM EST
[ Parent ]
And you can find the 66% among supporters of all parties.
by IM on Fri Nov 28th, 2014 at 06:10:17 PM EST
[ Parent ]
And if we seek a bit we can find a press release of e. g. Renzi congratulating and promising Italy will achieve the same next tuesday.
by IM on Fri Nov 28th, 2014 at 06:12:37 PM EST
[ Parent ]
Does this mean that a full third doesn't buy their bullshit any more? Given that the Nulldefizit is unassailable elite consensus that doesn't sound so bad.
by generic on Fri Nov 28th, 2014 at 07:22:26 PM EST
[ Parent ]
Indeed.
by afew (afew(a in a circle)eurotrib_dot_com) on Sat Nov 29th, 2014 at 05:48:51 AM EST
[ Parent ]
We're all supposed to be elated that the Bundestag approved a budget with zero new debt issues in 2015.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Nov 28th, 2014 at 05:56:06 PM EST
[ Parent ]
Cyrille:
somehow I guess Germany would think twice before insisting on the path of doom should a country like France or Italy make a credible exit threat.

Eggzackly! It calls their bluff, basically, and would force them to reveal why they really want the status quo to continue, as the journalistic pressure steps up.

Been believing -and saying- this for years here.

Greece had zero heft. Italy needs to do it soon, or the state of the nation will be so parlous that it will be an even bigger mess, whether in or out of the Euro.

It's either bleed to death or make one last effort before all strength to do so is gone...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri Nov 28th, 2014 at 08:15:13 PM EST
[ Parent ]
What Cyrille said.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Nov 28th, 2014 at 11:09:08 AM EST
[ Parent ]
I would say yes and yes. Or well, for France the threath of leaving may be enough. But otherwise, take the temporary crisis rather then suffer under the Troika.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Fri Nov 28th, 2014 at 04:21:35 PM EST
[ Parent ]
I would say yes and yes, also. In theory.

If a small country (like mine) decides to live the Euro, then there will be a massive assault on that country to prove it was a "wrong" decision. Being dependent on 80% of imports of what you eat and also dependent on non-electric energy would make it easy to bring on a intended catastrophe.

And yes, if a small country like Greece decides to exit, I believe that the EU powers will make sure to make of it an example.

For this thing to be sorted it has to be Italy (where my hopes are) or even Spain.

I completely assume that I would like Marine to win in France. She is the only one with balls to face the situation. Send a snake to a snake-pit kind of argument.

by cagatacos on Fri Nov 28th, 2014 at 04:45:16 PM EST
[ Parent ]
cagatacos:
it has to be Italy (where my hopes are)

Yup, Italy is the fulcrum point. I agree, Spain would do as well too, but I think the Italian state is closer to tipping point though I don't know for sure.

I think the crunch will come in February when President Napolitano will step down and holy hell will break loose around the choice of the next president.

Plus the 5* movement is reformulating, as Beppe says he's tired and has delegated power to younger, cooler blood. Expect a less erratic strategy from them soon as the attention shifts to a set of highly capable new front men (and woman), completely un-prone to the verbal kamikaze excesses of its volatile founder. The cebtre-right and far right are still floundering in the wilderness notwithstanding Salvini's skills, no-one else has any cred, though Berlu is still flapping his gums.

Renzi's turd way troika pandering and fiscal sleight of hand will get old really fast as the Italians cotton on. It already is...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri Nov 28th, 2014 at 08:29:36 PM EST
[ Parent ]
I see two types of answers to my question.

a)  Cyrille,  Migeru,  afew, (maybe melo):
We need a credible threat to leave the Euro, to change the European institutional setup. The exact nature of the changes you want has not been spelled out, but from our discussion here it is quite clear that what would be needed is, i) changes to the 'Stability and Growth Pact', ii) The possibility for the ECB to directly finance gouvernments. iii) maybe a higher inflation target.

b)  A swedish kind of death,  cagatacos:
We should leave the Euro right now.

I want to lay out here why I think that position a) is wrong and b) is correct. With the caveat that b) makes most sense for Portugal, Spain and Greece.

Why is a) wrong?

The threat is not credible:
As expressed by afew, melo and Cyrille, I guess the idea here is that if countries where to leave the Euro, their new currency would devalue leading to less demand for German good and in turn to a negative economic impact for Germany.I think there are several reasons why this will not be take seriously in Germany:
I)German economists are crazy and the economists advising our government are the worst of the bunch.
The understanding of the economy in Germany is deeply ideological: 'if you work hard things will be fine', 'a lower value for the currency is only needed for lazy southerners' and so on.
II) Even looking at it objectively it is not clear to me if German would be worse of if other countries would leave the Euro. All other countries have to import at lot of good, no matter what. So the amount of devaluation possible is limited. At the same time, the real income of Germans would rise. they could go cheaper on Holidays, they could by cheaper goods from the rest of Europe and so on. this would create a rebalancing which is urgently necessary.
III) In the special case of France I am not even sure that the new currency would devalue. The French economic weakness is a myth. I am not saying that everything is fine in France, but still the economy is quite strong. Furthermore, in contrast to Germany France has not destroyed its infrastructure in an obsession with its deficit and it has a growing population. These two factors lead to the conclusion that its growth potential is much better then the growth potential of e.g. Germany. If now on top of this France would have its own currency and could run a sane monetary policy this would probably create solid growth (I will also come back to this in b)) and therefore an appreciation of  the currency.
IV) If you simply threaten to leave the Euro your financial system will be destabilized. As soon as you start to talk about leaving the Euro you basically have to shut down all banks, or you will have a bank run. Even if you agree with I.III), then it would still make sense to first take your Euros out of France, wait till the new currency drops a little and then go back in. For Spain and Portugal, anybody how lets his Euros be exchanged to the new currency will have substantial losses. So either you do it directly and quickly, or your banks will collapse and you will have to beg the IMF for Money.

Lets go to b):

We should not underestimate the challenges in leaving the Euro. I also have to say that legally any country leaving the Euro would enter unknown territory. If some investment fond would loose money because your country leaves the Euro, could it sue? Most probably. And, while in the long run leaving the Euro could be hugely beneficial, in the short run it could lead to real loss of purchasing power for imported goods, which are a lot of goods. A debt default is also pretty much unavoidable, which also comes with real costs down the line.

That said: 25% unemployment is unacceptable. I do not see how this can continue! This is an obvious reason why Spain, Portugal and Greece should leave the Euro. Similar to Argentina around 2000, the benefits of a different monetary policy would most probably outweigh all costs.

Now for France the Situation might be different. It could probably leave the Euro, and some of its creditors might even agree to denominate the debt in the new currency. Or maybe not, but even then France will not need to default on its debt. I am quite confident that growth would be sufficient. Again, it is not clear to me that leaving the Euro is really a good idea for France at the moment, but it still beats the 'whining about leaving the Euro' option.

by rz on Sat Nov 29th, 2014 at 06:59:20 AM EST
[ Parent ]
Checking tradingeconomics.com Portugal, Spain, Italy and Greece now all has small surpluses. (France still has a deficit, though it has decreased.) So now should be a good time to leave, as many euros goes in as comes out which decreases the risk of runs and shortages.

This is odd, Germany still has its huge surplus (7.5% in 2014). The eurozone itself shows a distinct surplus for the first time. Checking the numbers:

Euro Area Current Account | 1997-2014 | Data | Chart | Calendar | Forecast

Euro Area recorded a Current Account surplus of 31 EUR Billion in September of 2014.

Germany Current Account | 1956-2014 | Data | Chart | Calendar | Forecast

Germany recorded a Current Account surplus of 22300 EUR Million in September of 2014.

So Germany's surplus was about 2/3 of the Eurozones surplus. But who is allowing an undervalued euro? China?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sat Nov 29th, 2014 at 02:49:54 PM EST
[ Parent ]
But who is allowing an undervalued euro? China?
This is what I could not anticipate back in 2012 when I wrote about this: that the rest of the world would tolerate a sustained Eurozone current account surplus. But it has.

Now, isn't it interesting that the trade surplus indicates that the Euro is undervalued when everyone outside Germany was screaming bloody murder about the Euro being overvalued?

This is all leading me to question even more any "hydraulic" (to borrow a term from BruceMcF) reasoning about exchange rates, trade balances and the like. The dynamics are more complicated than that.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Sun Nov 30th, 2014 at 08:22:27 AM EST
[ Parent ]
These are very interesting points. Could you please put these into a diary?
by Bernard (bernard) on Sun Nov 30th, 2014 at 04:29:16 AM EST
[ Parent ]
I made a diary out of it.

 Leaving the Euro

by rz on Mon Dec 1st, 2014 at 03:18:42 AM EST
[ Parent ]
The exact nature of the changes you want has not been spelled out
Unless and until Article 123 of the Treaty on the Functioning of the European Union (Article 104 of Maastricht Treaty) is repealed, all the rest is cosmetic. Of course, Germany will never accept that.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sun Nov 30th, 2014 at 08:09:15 AM EST
[ Parent ]
A few comments:

rz:

German economists are crazy and the economists advising our government are the worst of the bunch.

No objection from this quarter :)
As you've noted elsewhere, some Germans have exposed it as such (but if it's written in an English paper, even the FT, does it really count?).

rz:

The French economic weakness is a myth.

No objection either, but would the hypothetical new French currency not devalue against the German one? I doubt the respective economic strengths (and the more dynamic French demography) would be enough to prevent an appreciation of the eventual new DM, if only for Deutschmark fetishism in a lot of financial circles. After all, if policies were mostly driven by facts, we would be in a very different situation, wouldn't we? Let's not forget that markets can remain irrational longer than we can remain solvent...

rz:

the real income of Germans would rise. they could go cheaper on Holidays, they could by cheaper goods from the rest of Europe and so on.

As good as it would be for German people, especially those with the lowest incomes, an over-appreciated currency would be a catastrophe for a German economy entirely oriented towards exports: a lot of companies would be hurt, not necessarily the big conglomerates who already have facilities outside of Germany, but the Mittelstand certainly. "Real income" with respect to what? Imported goods? Precisely what an export minded leadership wants to limit at all costs...

Lastly, I don't think the "credible threat to leave the Euro" is the only option for other EZ countries: never mind the fact that, barring a Le Pen elected French president, it is totally unlikely to happen, what with the current EU leaders enthralled with the austerian fairy tale. As you rightly pointed out, threats do not work well, especially with a German leadership (and a German population to a large extent) living in the parallel Swabian housewife universe. Grandstanding never works in the EU, as a British PM is finding out.

Another option is to quietly refuse to apply the full austerity straitjacket. There will be of course a lot of furor, and possibly scathing editorials from German EU commissioners (oh, wait...), but, in the finest EU tradition, no frontal crisis: just long winded horse trading negotiations ending up into some "new consensus", the details of which being difficult to predict from here.

Lastly, there's the - not entirely unthinkable - possibility that the first country to pull the metaphorical trigger won't be Greece or Portugal or Italy, or even France: Germany might well beat them all to the punch. Especially if the EU commission fails to strictly enforce full-metal austerity from Lisbon to Tallin and the cries of currency debasement and Weimar inflation upon us grow increasingly louder in Germany. This would actually provide a perfect vindication to the "lazy Southerners who cannot be trusted" theme

To quote Migeru:

Migeru:

I'm pinning my hopes on AfD.

The "summer series" 'End of the line for the Euro', a political fiction published by Le Monde over the summer of 2011, might even end up to be true after all :-)

by Bernard (bernard) on Sun Nov 30th, 2014 at 01:12:34 PM EST
[ Parent ]

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