2009 2
Trash talking the euro
Published by MartinVarsavsky.net in General with No Comments
I am getting tired of the American press trash talking the euro. I just came back from New York City and all my friends in finance over there seem to be convinced that the euro will not survive this crisis. The New York Times and other top media all had articles about this. They think that euro nations will not agree on monetary policy and the French Franc, the DM, the Lira, the Peseta will be reborn. I am convinced that the Germans, French, Italians, Spaniards, the Dutch may not agree on things as to using its own taxpayer´s money to help the new members of the EU, but they all agree that without the euro they are all worse off. Indeed these are times that show that having your own little currency is a curse. You don´t believe me? Ask the British how they will manage to save a hugely dimensioned banking system in relation to GDP, having their own currency. Viva el euro!
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Martin on March 2, 2009 ·
Great Britain is not the only country with their own currency, and some of the other countries are much better than Spain.
How do you think this crisis is going to affect Denmark, Finland, Norway? Is it going to be worst than in Spain?
The countries with their own currency have the option to print money and manage the ups and downs, they will get inflation as a result, but they might choose it if the alternative is recession.
Chiva Congelado on March 2, 2009 ·
@Martin: Finland is part of the euro, and even the populist right here has stopped demanding the country to leave the common currency, as they see the examples of our neighbours to the south compared to our own, and remember that Finland with its own Finnish markka had a very rough time in 1991.
The American media keep trash talking the euro (and the EU) simply because they don’t understand that a number of countries would give up a part of their sovereignty for the common good. I’m not going to say it is perfect, but the overall balance is quite positive if you stop to think about it.
Martin on March 2, 2009 ·
@Chiva: Thank’s for correcting my mistake.
Ok, with Finland out, where do you think the crisis is going to hit harder, Spain or Denmark? And what would Denmark gain from being in the Euro today?
Martin Varsavsky on March 2, 2009 ·
@Martin:
The problem with countries that have their own currency is that from one day to the next investors can lose trust in it and pulverize the currency. Spain´s problems are completely unrelated to currency. They are structural. Too much dependency on two industries, tourism and construction that are many times related. Spain needs innovation, entrepreneurship, less layers of government, more investment in new sectors, Spain needs a lot of things but the peseta is not one of them.
Maradonalds on March 2, 2009 ·
Martin,
I guess finding out your green note is not worth what you thought it was for years and years is a hard lesson to learn by americans. But they’ll have to learn it the hard way. Meanwhile, media can always trashtalk those pretencious europeans to make the local audience feel better.
The party is over my fellow friends from the US, and it is time we all pay out debts.
Francesco on March 2, 2009 ·
Berlusconi is the worst western leader by far at the moment (I’m Italian, I’m sure anybody may dissent from this statement ;-).
Well, even Berlusconi can’t possibly defend the return to Italian lira in front of the sleepy Italian public opinion.
As in the case of Spain, Italy problems are completely unrelated to the Euro currency. Italy, as Spain, needs innovation, entrepreneurship, less layers of government, more investment in new sectors. And differently from Spain, Italy needs also a not corrupt leader, a much better political class, less mafia and more justice.
Oh my …
Martin on March 2, 2009 ·
@Martin Varsavsky:
You totally prove my point: The problem is not the currency, but the health of the whole system. If your banks are healthy and your economy is not based on real estate bubbles and garbage papers, it doesn’t matter so much if you are in the Euro or not. Not all the countries with currencies of their own are in the same situation Island is.
I totally agree on what is needed in Spain but I doubt it will happen in the near future.
Nick on March 2, 2009 ·
Hmmm.. don’t forget the Polish government, they want to join the EURO as soon as possible:
http://www.iht.com/articles/ap/2009/02/25/business/EU-Poland-Euro.php
XL on March 2, 2009 ·
MARTIN
With the poor spanish balance, and with the big debts of our financial system, do you really think that out of he Euro we could be better????
Spain needs that comes from out of Spain 200.000.000.000 € per year, do you really think that with the Peseta we can afford it???
The spanish families (trougth spanish financial system) have an enormus leveraged financial system, and all this debts comes from foreign countries, so what could happen if all this debt is in Euros, and we come back to peseta??? the level of leverage will increase to a level that will create the Bankruptucy of the spanish families, later the Bankruptucy of the financial system, and finally the full country will be in Bankruptucy…
So be out of the Euro it’s not an option.
Wilson on March 2, 2009 ·
Ciao Martin,sono d’accordo con te,anche perche con L’Euro ce l’incremento dell’interdipendenza economica e una facilitazione del commercio tra Stati membri. Questo dovrebbe portare benefici a tutti i cittadini dell’Eurozona, in quanto l’incremento dei commerci è storicamente una delle forze guida della crescita economica.Viva L’Euro!!
Distinti Saluti.
Wilson.
Philipp on March 2, 2009 ·
Martin, let the Americans talk trash. For once Europe is leading the way with the Euro – in innovation. I recently moved to Sweden and this is the first time that I am living in Europe, yet outside Euroland. What does this mean for my daily life?
Sweden’s economy is hugely dependent on private consumption (Swedes really like to shop) and the real estate market. Both markets rely on cheap money. By still being independent, the Swedish central bank, was able to reduce the interest rate ahead of the ECB. This means that the debt service for my house halved in the last 3 months. Which is nice!
On the downside, the SEK depreciated approx. 20% versus the Euro – since September 2008. This is not nice as big parts of my private life (the majority of my friends and family live in Euroland) and my savings got more expensive. I am thinking about shifting my stock portfolio into SEK. But I won’t do it because I cannot be confident that the SEK will ever recover from this depreciation.
What does this mean? We will see less super-blond Swedes at the beaches in Spain and elsewhere as travel will be too expensive for them and we will see lots of Danes keeping it up for their Scandinavian neighbours while mocking Sweden as a “banana republic”.
The Danish Crown is pegged to the Euro …
The European Union and the Euro are very modern concepts which we should be proud of – despite their flaws. Europe is the only region in the world where countries have been able to put their egos aside in order to partly transcend the notion of a nation state.
I recently travelled from Australia to New Zealand and almost did not want to bring my passport – thinking that these two countries, being very remote, culturally related and the only neighbours would have equally relaxed travel policies like Europe. Thank god I did bring my passport! The immigration to New Zealand -coming from Australia- was the most bureaucratic one I ever experienced. And it made me think what an achievement the European Union is.
andi on March 2, 2009 ·
Tell it to the silly Swedes …the Swedish crown has gone down some 50% against the dollar in the past months and some 30% against the euro.
We are really going under up here.
Exposure to Eastern Europe is huge, some 21% of GDP, mostly to the three Baltic countries (banks obviously learned NADA from the 1992 bailout). Today the factory worker’s union agreed to a 20% pay cut in order to save jobs. 17.000 people were warned they’d be laid off in February, down from 20.000 a month since october. Production seems to have come to a halt, the crown may be cheap but nobody buys whatever it is Sweden still produces onshore.
And yes, Swedes love to shop…but with borrowed money. They are up to their ears in debt. Savings levels are among the lowest if not the lowest in the EU.
cova on March 3, 2009 ·
The only countries that are facing difficulties are the new comers in the European Union that were supposed to acces the euro.
Their currencies are so low that they are facing bankrupt good for them they are EU members.At least, last sunday EU gouvernements agreed on helping them!. Not financially but for example banning protecionist measures.
Miguel on March 3, 2009 ·
Hi Martin,
If you had the bulk of your investments tied to the Euro, would you consider balancing them by shifting a part into Dollars? Or do you think that in the long run the Euro will survive and keep more or less the same parity?
Saludos,
Miguel
Martin Varsavsky on March 3, 2009 ·
@Miguel:
I actually have my portfolio pretty balanced between the euro and the dollar and think that current exchange rates are reasonable and not pointing strongly in one direction or another.
Alex on April 4, 2009 ·
“Spain needs less layers of government”
That is the main problem in Spain, our “wonderful” system of autonomies is a complete ruin, not only in economic terms. No state can be managed effectively, let alone grow, this way.
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frank on March 2, 2009 ·
que viva!