Germany secretly planning to be overlord of the eurozone

[vite]

Is it possible that Germany has been manipulating the currency war to become overlord of the eurozone?

[Hawker]

This is one of those questions to which the answer is always "No." Germany openly plans to get rich by subsidising its manufacturing industries.  In doing so, it has become dominant but there has never been anything secret about it.

[muyuu]

Is it possible that Germany has been manipulating the currency war to become overlord of the eurozone?

Germany openly strives for more power in the eurozone. No secrecy about that.

However, I can't see how does the logic work there in manipulating the currency and this outcome.

[realnowhereman]

Germany already is overlord of the Eurozone; that, some might argue, is exactly why the currency is failing.

The normal mechanism for reconciling the differences in productive capacity between countries is the exchange rate.  Within a single-currency-zone, the mechanism is taxation and redistribution (transfer payments).  The eurozone has neither of these mechanisms.

The weaker countries are therefore left with one option, which is the equivalent of exchange rate adjustments but is much more difficult to implement: lower wages and higher prices.

Good luck getting that passed the Greek/Italian/Spanish/Portugese electorate.

Bizarrely, perhaps the best thing for the eurozone (assuming they want to save the euro) would be for Germany to leave it.  Then to allow the DM/EUR rate to sort out the imbalances.

[anu]

Bizarrely, perhaps the best thing for the eurozone (assuming they want to save the euro) would be for Germany to leave it.  Then to allow the DM/EUR rate to sort out the imbalances.

That vola would probably make Bitcoin look stable

[realnowhereman]

Bizarrely, perhaps the best thing for the eurozone (assuming they want to save the euro) would be for Germany to leave it.  Then to allow the DM/EUR rate to sort out the imbalances.

That vola would probably make Bitcoin look stable

At least it would be predictable: DOOOOOOOOOOOOWN.

[Hawker]

Germany already is overlord of the Eurozone; that, some might argue, is exactly why the currency is failing.

The normal mechanism for reconciling the differences in productive capacity between countries is the exchange rate.  Within a single-currency-zone, the mechanism is taxation and redistribution (transfer payments).  The eurozone has neither of these mechanisms.

The weaker countries are therefore left with one option, which is the equivalent of exchange rate adjustments but is much more difficult to implement: lower wages and higher prices.

Good luck getting that passed the Greek/Italian/Spanish/Portugese electorate.

Bizarrely, perhaps the best thing for the eurozone (assuming they want to save the euro) would be for Germany to leave it.  Then to allow the DM/EUR rate to sort out the imbalances.

We need a rep system on this forum so instead of quoting posts like this and saying "qft" we can reward the poster with a +1 to their rep.

Great post. 

[realnowhereman]

Why thank you. You've made my night

[legitnick]

I did Nazi that coming.

[Hunterbunter]

Germany already is overlord of the Eurozone; that, some might argue, is exactly why the currency is failing.

The normal mechanism for reconciling the differences in productive capacity between countries is the exchange rate.  Within a single-currency-zone, the mechanism is taxation and redistribution (transfer payments).  The eurozone has neither of these mechanisms.

The weaker countries are therefore left with one option, which is the equivalent of exchange rate adjustments but is much more difficult to implement: lower wages and higher prices.

Good luck getting that passed the Greek/Italian/Spanish/Portugese electorate.

Bizarrely, perhaps the best thing for the eurozone (assuming they want to save the euro) would be for Germany to leave it.  Then to allow the DM/EUR rate to sort out the imbalances.

I agree with both your assertions; that exchange rates resolve differences in trade between sovereigns, and taxation/redistribution resolves it within a sovereign nation.

Isn't the larger point of the EU, however, to become a united Europe after thousands of years of bloodshed? It started with open trade and a single currency, and this wall was inevitable without those wealth redistribution mechanisms to balance disparities in production.

You say that going from a single currency to multi-currency state might be the best thing for the Eurozone (Germany leaving), but is not a mechanism of shared sovereignty also an alternative? If the goal is the unification of Europe, isn't creating a central taxation system and government a better alternative? It would be akin to how the US went from States -> United States.

[Hawker]

The fundamental problem with a United States of Europe is that the peoples are genuinely different.  3 differences matter most to me.

When the US has a recession, people can move around the country for new jobs.  That is not an option in Europe.  If I were asked to move to Bulgaria for a few years, I'd be landing in a country where I can't even read the traffic signs and people drive on the wrong side of the road.  Whereas if a New Yorker is asked to move to Oregon, the big differences are a lot less of a barrier.  

As well as that, in the US, no-one will ever object to Federal spending going to Texas or to Delaware.  Germans and Brits are furious about EU spending going to Greece and Italy.  

Most seriously, the business cycle is different in many countries.  In the 1992 EMU crisis, the UK economy needed low interest rates to avoid recession at a time when Germany needed high interest rates to avoid inflation.  When they tried to insist on syncing anyway, the UK economy went into a deep and totally unnecessary recession.

The Euro would work if these differences didn't exist.  But they do.  Its why the UK opted out and its why Euroland will go through what looks like a rough decade.

[realnowhereman]

I agree with both your assertions; that exchange rates resolve differences in trade between sovereigns, and taxation/redistribution resolves it within a sovereign nation.

Isn't the larger point of the EU, however, to become a united Europe after thousands of years of bloodshed? It started with open trade and a single currency, and this wall was inevitable without those wealth redistribution mechanisms to balance disparities in production.

You say that going from a single currency to multi-currency state might be the best thing for the Eurozone (Germany leaving), but is not a mechanism of shared sovereignty also an alternative? If the goal is the unification of Europe, isn't creating a central taxation system and government a better alternative? It would be akin to how the US went from States -> United States.

That's a political rather than economic question; so is really just a matter of opinion.  Mine is that localism is better.

Optimal currency areas, to my mind, get smaller as technology allows faster and easier conversion between currencies.  What was best for the 18th century US is not necessarily what is best for the 21st century US; and by extension Europe.  Transfer payments are necessary to correct productivity imbalances within a currency area; I'm not sure that "necessary" = "good". Transfer payments mean that the productive part of an economy essentially subsidises the unproductive part.  Where then is the incentive for the unproductive part to become productive?  My argument would be that a split into two smaller currency areas would have better end results than transfer payments.  The productive part finds it harder to compete because it's goods become more expensive to the rest of the world; the unproductive part finds it easier to compete.  Lack of subsidy means no distortion of incentives so the unproductive part with its own currency suddenly has incentive to find a niche and fill it.

In short: the EU and the Euro have missed their time -- if there ever was a time for them.  Unfortunately, politicians like their gravy trains and the liklihood of the EU/Eurozone breaking up is very small.  Instead, they will be pushing for what you suggest: greater integration and the implementation of transfer payments.

<castle_in_the_sky>
For what it's worth; I envisage the day when there are many localised cryptocurrencies.  Perhaps with Bitcoin as the reserve.  They will all be supported by a single app on your mobile computing device and can easily be exchanged and converted with a few button pushes.  The exchange rates would be the most dynamic the world has ever seen, and you would have no need to worry about the detail since your app will work in any of them -- it's the proper solution to the problem that the Euro was trying to solve: facilitating free trade.  In particular, current third world countries will get the ability to trade without their corrupt governments keeping them down.  They will very rapidly become not-third-world countries.

It's this, more than anything else, that makes me supportive of Bitcoin.  I believe that free trade is what will raise the world's poor out of their hole... not socialist aid packages; and Bitcoin is how it can be done.
</castle_in_the_sky>

[Hunterbunter]

That's a political rather than economic question; so is really just a matter of opinion.  Mine is that localism is better.

Be that as it may, economics and finance are always used to service man, and not the other way around. Inefficiencies in economics are inefficiencies in our brains, but since we have evolved this way, they may not actually be that inefficient.

[ZodiacDragon84]

The Germans must be doing something right, Look at their economy, then look at pretty much everyone else.

[jago25_98]

i was at a party with a german and a greek.

To the german i said
'by joining the eurozone you signed away your soveriegnity. Greece is now part of your country and it's time for them to bring you down'

To the greek i said
'by joining the eurozone and adopting the €uro
(2 different things!), you signed away your soveriegnity. To furfil your contract you must now allow germany to bring you down'

of course neither will happen. We can see that for both that it's in thier interest to welch on thier agreements.

What they're trying to do is syncronise everyone breaking agreements at the same time. But if one country steps out of line it unbalances and besides, so much is at stake it's very hard to coordinate.

Germany looks like a conqueror but they're just trying to protect themselves in the same way greece is trying to protect themselves.

Politics doesn't make any difference in the world if it's overruled by money. The whole thing shows so clearly this now more than ever. And still people don't get it. The house of cards is falling down; b.but they're... The government! They can do anything! But no, finance overrules this.

At least now we can zip past all the crud and straight to the <i>bottom line</i>

[Kettenmonster]

... Germany looks like a conqueror but they're just trying to protect themselves in the same way greece is trying to protect themselves. ...

The bad news is, the so called german money does not really go to greece. It goes to the banks that have plundered greece.
Ok those greeks were open to take all those debts with open hands to raise their wealth. Their fault.
Unfortunately germany will loose a "customer" if greece drops out. Plus it will open the door for Portugal, Spain, Italy ...
To avoid this the greek economy is strangled to death. What a plan?!? 

Look into history:
What happened when the Spaniards robbed the incan gold? Econony went down!
Yes that gold was definitely cursed, as was the Euro for Greece.
The Spaniards didn´t know about the curse in those days, greeks had meanwhile forgotten the lesson. Just wait the Spaniards and the Portuguese have either.

Germany openly strives for more power in the eurozone. No secrecy about that.

Guess what, look at the currency that is and was used (roughly since the 1960s) in the balkan states formerly known as Yugoslavia.
Officially they had this thing called Dinar but the(ir) Deutsche Mark is still alive prospering.
No longer in Slovenia they went for the Euro, less in Croatia they use Kunas and prepare for the Euro, but in all the rest Bosnia and Herzegovina, Serbia, Montenegro still use it. In 1997 the bulgarian Lew was coupled 1:1 to the Deutsche Mark. It worked well for them. They took the money real mony, but no nay never no loans in that currency.

What do we learn? If you do it wisely, like Yugoslavia did at the end of last millenium, it will work. Even if the currency used is from a much stronger economy.