walkitout (walkitout) wrote,

Let's Quit Bashing the Euro. It Is Unseemly.

It is very, very easy to find people over the last several years predicting the imminent demise of the Euro, along with a good measure of “and good riddance, I always knew it was a suck-ass idea”. I do not understand why Americans, and an occasional British author or publisher, keep producing this nonsense. I am trying to, I really, really, am, but I do not understand.

(1) Compared to What: Krugman has perhaps the most cogent argument for why Greece/Cyprus/some other country could/should/would leave the Euro. He argues that a country which controls its own currency (and right there, right there if you are not laughing yourself sick, you are Not Paying Attention) has more choices. Essentially, he’s arguing that Greece or Cyprus or whatever could devalue its currency versus other currencies, thus making its exports more desirable, thus leading to fuller employment and Lots of Other Good Things.

Here’s the thing: all of the countries that people are proposing could do better by devaluing their currency and thus becoming export powerhouses currently are running trade deficits in things like fuel and pharmaceuticals. If they devalue their currency, fuel and medicine become more expensive for their people. Expensive fuel doesn’t just mean people drive less and heat their homes less -- it means it is more expensive to run factories to produce export goods. While making imports more expensive _sounds_ like a great thing when you’re thinking like an economist, in practice what it means is that people’s quality of life goes down Pretty Damn Fast. If the import in question is a pharmaceutical, that quality of life might come to an earlier end.

That’s my argument against devaluation as a solution. However, there’s an even better argument against departing the Euro to regain control of one’s currency: none of the countries which are on the list of possible Euro exiters has _any_ history at all of responsible central banking practice. There’s no reason to _expect_ them to voluntarily devalue their currency to improve their position with respect to trade, so when that happened, they’d probably be fighting it. Think capital controls imposed by the Eurozone to keep capital in country are tough on Cypriots? Think about what a minimally competent Cypriot government might cobble together after a period of inflation, then hyperinflation, as everyone decides they don’t trust the new/old currency and will do anything to back-convert to Euros, ideally in an off-Cyprus bank (or some other currency).

Because that is what would almost certainly happen.

Greece is a little different. They’ve got this weird culture of fakelaki, in which substantial monetary compensation for services -- and I don’t mean at restaurants, I mean doctors and lawyers and other professionals -- in the form of cash in an envelope, not reported to the government for taxation purposes, think of it like a tip but on a meth-Ritalin cocktail. This limits the capacity of the Greek government to fund services, obviously, and it’s not going to be easy to get rid of because everyone in their legislature has a background in professions which make the vast majority of their money through fakelaki. People say all kinds of crap about Greek history and Greek protests and wtf, but I defy you to find a country in which workers who receive tip income don’t under-report and justify it in some dumbass way. _Canadians_ do this, and they’re probably the most law-abiding people on the planet. The only reason Canada and the US and similar places don’t have a fakelaki/Greece-style tax evasion problem is because the people who are tipped are paid so little anyway that it hardly matters (that is, the only taxes they are effectively evading are payroll taxes).

What if 80% of your doctor’s compensation or your lawyer’s compensation was cash in an envelope, under the table? That’s Greece.

Greece is not an easy nut to crack. It’s kind of small, and its major trading partners are Italy and Germany. While Italy has its problems, it’s hard to imagine it leaving the Eurozone -- if it does, it’s all over. If Greece went back to the drachma, trade would become harder for it. In addition to the fuel more expensive, medicine more expensive, etc. issues, almost all of its trade would just be more difficult and expensive because it would involve new exchange rate risk (Cyprus already has a lot of exchange rate risk built into it because a lot of their business is done with people not on the Euro). As long as Greece can convince the Eurozone to help it out in exchange for the Eurozone getting all up in its business and more or less coercing it into some degree of modernization (of its tax system, and hopefully to do something about this fakelaki crap), Greece is a pure winner. The only way Greece loses is if the Eurozone bails it out and doesn’t make it Grow Up.

Greece _leaving_ would be a country which spent its entire time in the Eurozone hiding its debts through complex derivative instruments suddenly unable to finance a Damn Thing, and no one to make sure it survives detox. I’m not sure what would happen to the junkie, but there is no scenario in which it is “better” than sticking it out in the EU, for as long as the troika is inclined to put up with its shit.

(2) Long ago, when everyone did everything on Wintel and there was absolutely no alternative, people liked to compare the rate at which Windows and applications run on Wintel crashed horribly, losing data and worse, to other technological endeavors. There were analogies comparing PCs to airplanes, railroads, cars, you name it. The analogies were universally Stupid, because they were comparing computers at a comparatively early era of adoption to mature industries that were heavily regulated with a view to safety and universal accessibility. If you went back to the first decades of airplanes, railroads, cars, you name it, you would be shocked and appalled at how fucking dangerous those things were to anyone within a few miles of them. Seriously. Coal burning, steam powered, iron being hurtled through your town at grade. Absolutely nuts.

And don’t get me started on bridges falling down. I’ve got entire books about them.

But everything worth doing is worth slogging through the horrifying death toll at the beginning, to get to the point where entire industries are murdered because this new fangled thing is better in every way: cheaper, faster, more reliable and, eventually, much, much safer (and less polluting, at least until it scales up to such a level that even the reduced pollution is worse than what you were dealing with before). A number of commentators like to point out that all previous monetary unions have failed, which is both silly (because of all of the above) and not, strictly speaking, true. The United States is a monetary union which succeeded, or, at any rate, graduated to a higher level of integration sometime not earlier than 1860 and not later than around 1913, altho I’m prepared to debate the actual time frame in which we transitioned from a monetary union to whatever the hell we are now.

A quick sum-up: I don’t understand EU monetary union bashing. I think the people who think it would be better for Cyprus/Greece/wtf to exit and adopt their own monetary policy have failed to think of Cyprus/Greece/wtf as distinct, real entities and are instead thinking of them as mini-Britains or mini-United States or similar. They’re totally wrong and leaving the Euro would be an utter disaster for any country which left -- and those countries do know that. People who are down on monetary unions in general, particularly Americans, don’t seem to understand their own history. At all.

One more point: (3) Anyone remember why the monetary union part of the Eurozone was so important? Because I sure do. Big Money Pushes Little Money Around. It’s a law of poker and it’s a law of Money. The Almighty Dollar isn’t called that as some kind of a ha-ha-you’re-so-cute joke; it’s for real, and a whole lot of countries (and a whole lot of businesses) got unbelievably sick of trying to avoid getting smashed every time a president (or, less often, someone at the Fed) decided to do something that had massive knockon effects around the world. We didn’t inflate the fuck out of our currency over the course of a couple decades and have no one notice. That was really tough to deal with. Volcker finally got it under control, but the way he got it under control (politically the only option, I will concede) was incredibly destabilizing. The Continent would like to have something to counterbalance the Dollar, partly because we do screwy shit pretty often, and partly because the Dollar gets an incredible break by being the Dollar, and partly because the US Dollar as the reserve currency of the world distorts everything. And I mean everything.

There's a much more paranoid version of this third point:


I don't agree with that idea, altho I will note that you can treat oil as an underlying currency: if you need oil in order to make your economy tick along, no amount of devaluation will make the oil cheaper in real terms -- it will eventually be the thing that drives all your pricing, unless you want to become North Korea or something and quit using it. Which no one wants.


The Euro is going to work. It is. And it will be good for everyone, because it will make it harder for us to do dumbass things that are a lot easier to do when you control your own currency.

No More Phillips Curve For You. Ever.
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