The Euro, Don't believe the hype

SupaNova

This is a post from a FOFOA's blog:
http://fofoa.blogspot.com/

Don't believe all the noise, and there's a tonne of it right now. They don't know what they are talking about. The euro survives and thrives regardless of how the European debt crisis is ultimately resolved, and no countries will leave the euro. In fact, there are countries trying to get in, and none that will leave short of a coup, revolution or state failure, which isn't even a consideration right now. And even if that happens, the euro will still survive and thrive while the country that leaves will suffer greatly, the local hyperinflation that will ensue being the least of their problems.

Spend some quality time with the Eurosystem's balance of payments and marvel at how remarkably balanced Europe is with the rest of the world. Then compare that with the US balance of payments. As just a quick example, in April (one month) the Eurozone imported only €4.1 billion more goods than it exported. The US, on the other hand, imported $58 billion more goods than it exported, and April was the lowest month yet this year for the US. Of course that's just goods. For services, the US exported $14.5 billion more services than it imported. How much of that do you think was "Wall Street financial services"? Europe also exported more services than it imported, but only €2.8 billion.

So for goods and services combined, the Eurosystem ran a trade deficit of €1.3 billion in April, while the US ran only a $43.5 billion deficit (down from its previous normal $50 billion, but back up in May). Looking back at 2010 (just to get a full year's picture) the US ran a $500 billion goods and services deficit for the year. The Eurosystem (even with those lazy PIIGS) actually ran a trade surplus for the year, exporting more goods and services than it took in! So how can that be? As a currency representing a community of more than 300 million people, the euro is quite healthy compared to the dollar!

Of course there is a huge imbalance inside Europe between the states running a large surplus and those running a large deficit. But with a shared currency the adjustment pressure for such an imbalance is foisted elsewhere, not on the currency. It lands squarely on the politicians, who, like Costata said, couldn't be a more deserving bunch of Aholes. For the dollar, the structural deficit and debt of the US places a massive devaluation pressure directly on the dollar. But for Europe the currency is balanced with no (or very little) adjustment pressure.

The economic flow of goods and services within Europe will of course have to contract as the imbalance retreats. If the euro weakens on the global currency stage Europe will start running an overall trade surplus again, like China, which will soften the blow of a contracting internal economy. If the euro strengthens, things like cheaper oil will help soften the contraction. Internally the politicians have their hands full. No doubt! Externally, the euro is just fine. To the euro, just like FOA said, the politics of the PIIGS and Germany are little more than a sideshow.

And notice I didn't even mention gold yet. Anything that would appear to seriously threatens the euro, like an outright sov. debt default, would explode the price of gold which would simultaneously rescue the euro balance sheet and kill the dollar.

Sincerely,
FOFOA

There seems to be periodic posts here of late regarding a euro collapse, moving money to dollars or sterling, re introducing the punt.



The health of the Euro in comparison to the US is staggering when you compare the Eurozone's trade surplus to the US's $500bllion deficit in 2010.



The euro is also the only currency that has a realistic likelihood to take over as world reserve currency within the coming years.

http://en.wikipedia.org/wiki/File:Reserve_currencies.svg

Green Back

All is fine then?
And to think the ECB are holding crisis talks this afternoon:

http://www.ft.com/cms/s/0/0c70a650-c0f3-11e0-b8c2-00144feabdc0.html#axzz1UMKe4oWr

Quick email Trichet the details of this blog and wikipedia. Tell him what an idiot he is for ruining peoples Sunday by calling them or get your head out of the sand.

SupaNova

I haven't said all is fine or either does the post i quoted. Learn to read and digest please.

The post was to highlight the hype regarding a euro collapse and show that as a currency it is quite healthy in comparison to alternatives and isn't going anywhere.

Care to debate a point raised?

Green Back

SupaNova wrote: »

I haven't said all is fine or either does the post i quoted. Learn to read and digest please.

Nor did I accuse you of saying all is fine.
Are you suggesting I can't read? How very insulting.

There is no point debating this other than pointing out that it completely ignores the core issue here; unmanageable debt. Over a trillion for Italy alone and no one in their right mind is suggesting the Euro should/could be the global reserve currency.
It's about saving the currency at this point not trying to get one of the US dollar.

SupaNova

Green Back wrote: »

Nor did I accuse you of saying all is fine.
Are you suggesting I can't read? How very insulting.

There is no point debating this other than pointing out that it completely ignores the core issue here; unmanageable debt. Over a trillion for Italy alone and no one in their right mind is suggesting the Euro should/could be the global reserve currency.
It's about saving the currency at this point not trying to get one of the US dollar.

Leaving aside the reserve currency debate, that is longer term issue. Can you clarify what you mean when you say unmanageable debt? I would see the continual process of restructuring and negotiating the terms of debt as managing the debt, and this seems a more likely scenario than outright default and break up of the euro.

ei.sdraob

@OP compare US military spend to the rest of the world combined
When you have the biggest sticks you can wave them at any creditors who come looking for their money or want access to your market
moral of story big sticks are useful :P

Anyways remind us how many billions are laundered from the US economy every year via Ireland think twice before rocking the boat

SupaNova

ei.sdraob wrote: »

@OP compare US military spend to the rest of the world combined
When you have the biggest sticks you can wave them at any creditors who come looking for their money or want access to your market
moral of story big sticks are useful :P

Anyways remind us how many billions are laundered from the US economy every year via Ireland think twice before rocking the boat

Its not just a question of the US waving sticks at the creditors when they come looking for their money. They need to wave their sticks at the creditors to continually bail them out and fund their deficits for the foreseeable future.

ei.sdraob

SupaNova wrote: »

Its not just a question of the US waving sticks at the creditors when they come looking for their money. They need to wave their sticks at the creditors to continually bail them out and fund their deficits for the foreseeable future.

They wouldn't have such large deficits (and unemployment for that matter) if China its largest creditor (and artificially pegged currency) did not have access to their market

Green Back

SupaNova wrote: »

Leaving aside the reserve currency debate, that is longer term issue. Can you clarify what you mean when you say unmanageable debt? I would see the continual process of restructuring and negotiating the terms of debt as managing the debt, and this seems a more likely scenario than outright default and break up of the euro.

My initial point was that the blog completely ignored the current Euro crisis and went off into cloud cuckoo land.

For me the jury is still out on whether the Euro will survive. You're right to pull me on the use of unmanageable though. Definition of unmanageable:
"Difficult to keep under control or within limits.
difficult or impossible to control, use, or manipulate"

I dont think the debts were always unmanageable but have become so because of the ECB and the political leaders in Europe. Time and again they have created fudged agreements with the hope of pacifying the markets but not making any fundamental changes. They have bought time but with this time the crisis deepend and the future of the Euro has become more perilous.
If the Euro does fall it will be disastorious for the global economy not just Europe.

SupaNova

Green Back wrote: »

My initial point was that the blog completely ignored the current Euro crisis and went off into cloud cuckoo land.

Discussing balance of trade which directly relates to the strength of a currency, which is most of what the post talks about, is not going off to cloud cuckoo land. If your not productive enough to pay for imports through exports, your currency eventually has to weaken.

Green Back

SupaNova wrote: »

Discussing balance of trade which directly relates to the strength of a currency, which is most of what the post talks about, is not going off to cloud cuckoo land. If your not productive enough to pay for imports through exports, your currency eventually has to weaken.

Never mind rearranging the deck chairs why the Titanic goes down he's trying to sell tickets for the voyage.
What percentage of today's crisis meeting will be concerned about balance of payments? I suspect it will be close to 0.

The fact that the blogger is championing the Euro as the global reserve currency is laughable. Perhaps not cloud cuckoo land but certainly a parallel universe.

SupaNova

ei.sdraob wrote: »

They wouldn't have such large deficits (and unemployment for that matter) if China its largest creditor (and artificially pegged currency) did not have access to their market

That is a fair point but still a negative for the dollar. As China faces high inflation at home they will be forced to adjust that peg more rapidly.

SupaNova

Green Back wrote: »

Never mind rearranging the deck chairs why the Titanic goes down he's trying to sell tickets for the voyage.
What percentage of today's crisis meeting will be concerned about balance of payments? I suspect it will be close to 0.

The fact that the blogger is championing the Euro as the global reserve currency is laughable. Perhaps not cloud cuckoo land but certainly a parallel universe.

Whether discussed today or not, balance of payment and global reserve currency are being discussed, and are of importance. The euro is the second most commonly held reserve currency, and % of reserves held in euros has been increasing , while the % held in dollars has been decreasing. I don't think we have to go to a parallel universe or cloud cucko land to to find it to be a possibility.

Debtocracy

Has Comical Ali become a blogger?

[MOD]This isn't AH - either make a substantive comment or save it for the pub.[/MOD]

SupaNova

Debtocracy wrote: »

Has Comical Ali become a blogger?

I'm surprised you haven't copy and pasted your usual spiel about more debt than money in circulation. And you're the poster that said the problem with QE was that they didn't put it in the hands of broke consumers, lol.

johnnyskeleton

SupaNova wrote: »

This is a post from a FOFOA's blog:
http://fofoa.blogspot.com/






There seems to be periodic posts here of late regarding a euro collapse, moving money to dollars or sterling, re introducing the punt.



The health of the Euro in comparison to the US is staggering when you compare the Eurozone's trade surplus to the US's $500bllion deficit in 2010.



The euro is also the only currency that has a realistic likelihood to take over as world reserve currency within the coming years.

http://en.wikipedia.org/wiki/File:Reserve_currencies.svg

International commentary is a fickle business. If you look at how the troubles were reported internationally, it was all the PIRA's doing. Not the Loyalists, not the other Republican groups, all the PIRA.

The same is true of the coverage of currencies. People are used to dumping on the Euro. It is easy. But anyone who has been following FX trends over the last few years can see that Euro is outperforming the dollar and sterling. Occasionally there will be a dramatic drop in Euro relative to other currencies, but it is usually short lived and the Euro returns to a strong relative trading position vis a vis the dollar and c. 10-20% under parity with the pound.

johnnyskeleton

Green Back wrote: »

Nor did I accuse you of saying all is fine.
Are you suggesting I can't read? How very insulting.

There is no point debating this other than pointing out that it completely ignores the core issue here; unmanageable debt. Over a trillion for Italy alone and no one in their right mind is suggesting the Euro should/could be the global reserve currency.
It's about saving the currency at this point not trying to get one of the US dollar.

I fail to see how the Eurozone is worse off than the US. The US has breached the 100% debt:GDP ratio recently. Europe is below that, albeit not terribly far off (at 85.1% at the end of 2010):

http://blogs.wsj.com/brussels/2011/04/26/debt-and-deficit-roundup/

Crucially, the US is in that position notwithstanding they have already engaged in massive quantitative easing. That is the last grasp effort and that it hasn't helped means that the US is running out of options. It now has to embark on austerity measures. The Eurozone still has the QE card to play, while having already engaged in austerity. US Federal deficit is running in the 10-12% region, whereas the Eurozone is in the 6-7% region.

Plus, as the OP's article points out, the Eurozone is in a much better position as regards balance of trade.

ei.sdraob

johnnyskeleton wrote: »

I fail to see how the Eurozone is worse off than the US. The US has breached the 100% debt:GDP ratio recently. Europe is below that, albeit not terribly far off (at 85.1% at the end of 2010):

http://blogs.wsj.com/brussels/2011/04/26/debt-and-deficit-roundup/

Crucially, the US is in that position notwithstanding they have already engaged in massive quantitative easing. That is the last grasp effort and that it hasn't helped means that the US is running out of options. It now has to embark on austerity measures. The Eurozone still has the QE card to play, while having already engaged in austerity. US Federal deficit is running in the 10-12% region, whereas the Eurozone is in the 6-7% region.

Plus, as the OP's article points out, the Eurozone is in a much better position as regards balance of trade.

You are speaking of Europe as one, the last few years have shown that to be false

View

ei.sdraob wrote: »

You are speaking of Europe as one, the last few years have shown that to be false

Europe is one - it is just highly dysfunctional though. Then again, as can be seen from the US, they manage to be highly dysfunctional almost as well.

Liam Byrne

For services, the US exported $14.5 billion more services than it imported. How much of that do you think was "Wall Street financial services"? Europe also exported more services than it imported, but only €2.8 billion.

I'm confused. Isn't the whole POINT of a thriving economy to export more than it imports, thereby bringing money in ?

Given that fact, the U.S. outperformed Europe significantly on that basis, and yet the article is phrased to gloss over that.

View

Liam Byrne wrote: »

I'm confused. Isn't the whole POINT of a thriving economy to export more than it imports, thereby bringing money in ?

Given that fact, the U.S. outperformed Europe significantly on that basis, and yet the article is phrased to gloss over that.

You are just quoting for services. Add in goods as well and the picture changes:

So for goods and services combined, the Eurosystem ran a trade deficit of €1.3 billion in April, while the US ran only a $43.5 billion deficit (down from its previous normal $50 billion, but back up in May). Looking back at 2010 (just to get a full year's picture) the US ran a $500 billion goods and services deficit for the year. The Eurosystem (even with those lazy PIIGS) actually ran a trade surplus for the year, exporting more goods and services than it took in!

SupaNova

Liam Byrne wrote: »

I'm confused. Isn't the whole POINT of a thriving economy to export more than it imports, thereby bringing money in ?

Given that fact, the U.S. outperformed Europe significantly on that basis, and yet the article is phrased to gloss over that.

We export so we can import, its not the money we want, its the imports. The more goods we export the more we can import.

Scofflaw

SupaNova wrote: »

We export so we can import, its not the money we want, its the imports. The more goods we export the more we can import.

Yup. Goods and services we consume = material quality of life. The money is just a way of keeping track of the score.

cordially,
Scofflaw

ei.sdraob

Scofflaw wrote: »

Yup. Goods and services we consume = material quality of life. The money is just a way of keeping track of the score.

cordially,
Scofflaw

And if you control the printing presses for the worlds reserve currency then you can exchange goods made by Chinese near slave labour for pieces of green paper that you can devalue at will.

johnnyskeleton

ei.sdraob wrote: »

johnnyskeleton wrote: »

I fail to see how the Eurozone is worse off than the US. The US has breached the 100% debt:GDP ratio recently. Europe is below that, albeit not terribly far off (at 85.1% at the end of 2010):

http://blogs.wsj.com/brussels/2011/04/26/debt-and-deficit-roundup/

Crucially, the US is in that position notwithstanding they have already engaged in massive quantitative easing. That is the last grasp effort and that it hasn't helped means that the US is running out of options. It now has to embark on austerity measures. The Eurozone still has the QE card to play, while having already engaged in austerity. US Federal deficit is running in the 10-12% region, whereas the Eurozone is in the 6-7% region.

Plus, as the OP's article points out, the Eurozone is in a much better position as regards balance of trade.

You are speaking of Europe as one, the last few years have shown that to be false

No, I'm not speaking about Europe, I'm speaking about the eurozone. This thread is about currencies, you see, and since some are arguing that the Euro is doomed because of eurozone debt levels, I thought I'd demonstrate that the euro is in a better position than usd because the eurozone has less public debt than the USA, so at worst It is in the same boat as the dollar, and in my view (and the markets) it is doing slightly better.

Do you have anything of substance to add from an economic point of view, or is your view of the eu/euro a purely political one? Because if anything you are showin that a lot of the noise against the euro is not supported by the facts.

ei.sdraob

johnnyskeleton wrote: »

Do you have anything of substance to add from an economic point of view

This is subforum of politics :rolleyes: there are economic and political angles and both are related

US population continues to grow rapidly and the population density (even with Alaska excluded) is low, Europe on the other hand is getting older and grayer, neither is the European welfare state model conductive to innovation and enterprise and in case of Ireland damn right hostile to small startups.

The dollar whether you like it or not remains the worlds main reserve currency, while yes there are issues as pointed out by @View with 2 political parties tearing the country apart overall the union is quite strong, on the other hand we have all sorts of commentary here in Europe from likes of Germany media painting Greeks and Irish as somehow stupid and subhuman (despite them being the first to break the growth and stability pact) with the whole eurozone stumbling from crisis to crisis as grand speeches are made but little of substance materialize.

The US despite its troubles is better position in the medium to long term than Europe especially when it comes to innovation and business creation, something we could learn from if we take the statist blinkers of.


You point at balance of trade being not in their favour and I point at all the billions being washed thru the likes of Ireland, and then there is China... If they ever decide to address these distortions best of luck to us here

johnnyskeleton

ei.sdraob wrote: »

This is subforum of politics :rolleyes: there are economic and political angles and both are related

But it is a thread about whether the Euro is really on the verge of collapse, economically speaking, or is it just that the anti-euro preachers are disproportionately loud.

ei.sdraob wrote: »

US population continues to grow rapidly and the population density (even with Alaska excluded) is low, Europe on the other hand is getting older and grayer, neither is the European welfare state model conductive to innovation and enterprise and in case of Ireland damn right hostile to small startups.

Straight out of the Marc Coleman school of "More people = increased aggregate demand = ??? = profit". Seriously, the USA is in trouble because they have become overdependent on the FIRE economy and most of their innovation is stifled because manufacturing takes place in other, cheaper, parts of the world. While Europe may have an ageing population, it continues to make stuff and while there are a lot of barriers to starting your own business in Ireland, we are by no means the worst place for this.

ei.sdraob wrote: »

The dollar whether you like it or not remains the worlds main reserve currency, while yes there are issues as pointed out by @View with 2 political parties tearing the country apart overall the union is quite strong,

That's fine. To be honest, as a supporter of the Euro currency the last thing I would like to see is the Euro becoming the world's main reserve currency, because the dollar's dominant position has put it in an extremely perlious position. The Euro being part of a basket of international currencies (you know, the way that fiat currencies were supposed to work before the cold war took off) is a good thing for the Euro, the Dollar and for fiat currencies generally. Diversify or die.

ei.sdraob wrote: »

on the other hand we have all sorts of commentary here in Europe from likes of Germany media painting Greeks and Irish as somehow stupid and subhuman (despite them being the first to break the growth and stability pact) with the whole eurozone stumbling from crisis to crisis as grand speeches are made but little of substance materialize.

Yet the currency has held up quite well, despite all of this. There is a conspiracy theory that the bad press is Germany's way of artificially keeping the Euro depressed so that it doesn't discourage exports. While I don't subscribe to that theory, it is interesting that the Euro has performed well despite the bad press so far.

You also fail to realise that while the US has been firinig out solutions and is now running low on ammo, Europe has played a longer game and has yet to use any of the subtantial monetary tools at its disposal.

ei.sdraob wrote: »

The US despite its troubles is better position in the medium to long term than Europe especially when it comes to innovation and business creation, something we could learn from if we take the statist blinkers of.

Believe whatever you want, but this view is no more valid than an opposing view that the Eurozone will be the world leader in innovation and business creation in the medium to long term because it has been built on a stable currency.

Actually, come to think of it, don't you "libertarians" blame "statist" policies such as quantitiative easing and low interest rates for all of the world's ills? If so, why are you championing the world's leader in QE and low interest rates?

ei.sdraob wrote: »

You point at balance of trade being not in their favour and I point at all the billions being washed thru the likes of Ireland, and then there is China... If they ever decide to address these distortions best of luck to us here

No, that is just one of the points. The main point is that for people who claim that the Eurozone is in more trouble than the US because of debt, the facts show that the Eurozone has a slightly better position vis a vis debt:gdp and deficits.

Scofflaw

While Europe may have an ageing population, it continues to make stuff and while there are a lot of barriers to starting your own business in Ireland, we are by no means the worst place for this.

One of the best, in fact, according to most sources I've ever seen.

You also fail to realise that while the US has been firinig out solutions and is now running low on ammo, Europe has played a longer game and has yet to use any of the subtantial monetary tools at its disposal.

An interesting point, although it's not quite so much a case of keeping their powder dry as disagreeing over whether to shoot. But it's true that in several senses, the EU has done relatively little about the crisis - which even the doomsayers agree on, indeed, regularly shout about - and has a lot more options remaining. Whether they can agree to use them is the point of difference, really. I think they will if the stakes are high enough, but they're hoping not to. And I'd agree that it's odd that those who oppose state interference are simultaneously often the loudest in jeering the EU for not interfering decisively.

cordially,
Scofflaw

rumour

Scofflaw wrote: »

While Europe may have an ageing population, it continues to make stuff and while there are a lot of barriers to starting your own business in Ireland, we are by no means the worst place for this.

One of the best, in fact, according to most sources I've ever seen.

You also fail to realise that while the US has been firinig out solutions and is now running low on ammo, Europe has played a longer game and has yet to use any of the subtantial monetary tools at its disposal.

An interesting point, although it's not quite so much a case of keeping their powder dry as disagreeing over whether to shoot. But it's true that in several senses, the EU has done relatively little about the crisis - which even the doomsayers agree on, indeed, regularly shout about - and has a lot more options remaining. Whether they can agree to use them is the point of difference, really. I think they will if the stakes are high enough, but they're hoping not to. And I'd agree that it's odd that those who oppose state interference are simultaneously often the loudest in jeering the EU for not interfering decisively.

cordially,
Scofflaw

How much more evidence is required not to be deemed a doomsdayer?

Fundamentally I think it's down to under standing maths which I don't think is one of irelands aptitudes. Collectively we much prefer to belong to the artistic creative label which delivers writers artists and idiots in abundance. Get to the real stuff requiring proper analysis and decision making and we are thin on the ground. Just take a look at who we want to run our country in a time of crisis internationally. A qualified school teacher who tought for how many years? Then spent the rest of his time climbing the greasy pole of Irish politics. This it appears is to the Irish armor enough to fight off the facts that emerging economies will dominate the worlds GDP in less than ten years. While less than twenty years ago they only accounted for 20%. Is one a doomsdayer to think that this rise has no impediments infront of it?
And if that is true how can the western world maintain it's deficits when it's ranking in the world has fallen from over 80% of GDP to approx 60% in less than twenty years. These changes are enormous but recognizing them and understanding the consequences can hardly be described as doomsday. Can it?

thebman

rumour wrote: »

How much more evidence is required not to be deemed a doomsdayer?

Fundamentally I think it's down to under standing maths which I don't think is one of irelands aptitudes. Collectively we much prefer to belong to the artistic creative label which delivers writers artists and idiots in abundance. Get to the real stuff requiring proper analysis and decision making and we are thin on the ground. Just take a look at who we want to run our country in a time of crisis internationally. A qualified school teacher who tought for how many years? Then spent the rest of his time climbing the greasy pole of Irish politics. This it appears is to the Irish armor enough to fight off the facts that emerging economies will dominate the worlds GDP in less than ten years. While less than twenty years ago they only accounted for 20%. Is one a doomsdayer to think that this rise has no impediments infront of it?
And if that is true how can the western world maintain it's deficits when it's ranking in the world has fallen from over 80% of GDP to approx 60% in less than twenty years. These changes are enormous but recognizing them and understanding the consequences can hardly be described as doomsday. Can it?

I think one has to look at what the GDP represents though. In the case of China, it is mostly manufacturing with their own companies admitting wages are becoming too high so they want to move to robots.

Once they have moved to robots, it will become a matter of who has the most productive robots which is realistically who has the most reliable and fastest production lines.

I think once it gets to that level and 3D printers coming down the line much of the cheap manufacturing jobs will simply cease to exist and the jobs will be lower in number but will be in maintaining those machines.

Now we are looking at a massive shift back to a lower number of local jobs I think once it hits that level as the wages for the people maintaining the machines will be reasonable enough that you could have the factory in the country where your market is which will bring with it much cheaper transport costs.

So yes at the moment it might look like it is swinging China's way and all eyes are on China at the moment but I don't see it staying that way for long. At most 10-20 years before it starts shifting back.

The real problem is what will we do with the fairly uneducated whose only jobs will possibly in construction at that point until we work out how to automate that too...

I think in the next 50 years, unskilled jobs will become a thing of the past.

Slozer

Spain and Italy have been deemed too big to bail out and with growth in both economies probably in negative territory, bond buying by the ECB for these two will continue for the foreseeable future. With the EFSF at €750 billion I guess the ECB are hoping that these 2 get thier act together before the fund has to be topped up/run out.

The key to the Euro is Germany and their willingness to keep supporting debt ridden nations.

Considering if there is any weight to the following article, the fate of the Euro may unfold sooner than we think.

http://www.marketoracle.co.uk/Article30108.html