Who has REALLY benefited from Euro membership?

Just to remind you - the Euro came into being on 1 January 1999. These are the eleven founder members.

To make it even clearer, here is a chart showing only the largest economies among the founder members:

Now, admittedly I am only showing external trade balances. But part of the point of the European Union has always been promotion of trade between its members. The common currency was supposed to improve this by removing currency risk from cross-border trade.

Please tell me what value the common currency has brought to Italy,Spain and France?

And I haven't even included Greece......


  1. I'm quite shocked... I thought France had done better than this!

  2. It's allowed them the luxury of consuming more than they produce?

  3. Germany has not had an easy ride. Most Germans have had no pay rise in 15 years and are not enjoying the fruits of euro membership. So, the question must be, why is the eurozone still with us?

    1. Well, is now the time for them to start enjoying the fruits? Holidays, wine, maybe a pay rise? Based on my limited understanding of economics, it seems that the best thing for the eurozone is for Germans and Dutch to have some fun and give themselves a pay rise. What terrible sacrifices they need to make.

  4. Clearly Germany has been the major beneficiary but I suspect this is because their industrial processes are more efficient and they think and export with a global perspective. Somewhat the same can be said of the Netherlands.

    France on the other hand has been at a constant party although it does organise large projects well such as TGV, Airbus and stuff. But it has really inflexible labour laws and disregards EU rules when it wants to. Together with the very large public sector which is not directly productive, I suspect this is the main reason why France which therefore appears to be working, does not actually produce that much. I guess the most useful industry in France is tourism.

    Small businesses which are the backbone of the American, British, Indian, Chinese and also Italian economies find it difficult to survive in an environment which imposes 35 hour weeks and reducing retirement ages.

    There was perfect symmetry in 1960 because France believed the world owed it a living for being France and Germany wanted to regain the human race. I suspect this was the original motivation for using agriculture as the funding mechanism of the EEC 6. It was a WW2 war reparations system where Germany paid and France spent. Great idea for France except I don't know why German and also Dutch politicians have put up with this for so long. It is way out of date.

    The Euro has always been a mechanism for making the rich richer and the poor poorer. It was foisted on the unsuspecting EU to maintain this club, including the mandatory membership rule of course.

    The UK was very wise to keep out of it but this is not an option to other members. And we have to look forwards and try to help solve both the Euro problems and our own. London is the major financial centre - in the world really - and we should treasure this rather than criticise the City all the time.

    But the only real solution for the Eurozone is for Eurobonds to be issued by the ECB and for it to start acting like a proper central bank as the bank of last resort. It is the liquidity risk that is pushing up yields. Yes printing money has its risks but it buys time.

    This is what should have happened originally - a common currency without fiscal discipline was a car crash waiting to happen. A great deal of responsibility lies in Germany and France as the main architects of the Euro. So they should roll up their sleeves and stop muttering about austerity and cuts. Or there will a revolution in southern Europe which will either bring about military government, civil unrest or war which will manifest itself in Brussels. To do this Merkel/Germany need to be persuaded. Perhaps the election results in North Rhineland/Westphalia will concentrate her mind. She doesn't strike me as a kamikaze politician.

    There is enormous cultural and intellectual capital in Europe which should be a benefit not a curse.

    1. I wasn't suggesting any particular reason why Germany and the Netherlands appear to have profited from the single currency, although I suspect that (for them) low interest rates and currency exchange rates have as much to do with it as the productivity you mention. I totally agree about the French public sector and the dead hand of EU legislation on countries that depend on small businesses.

      I don't think the political will is there for a full fiscal union, certainly not with Germany. Maybe if Germany left, the rest might form something more constructive. But while Merkel and the Bundesbank call the shots, there will be no fiscal transfers, no Eurobonds and no lender of last resort, and the eurozone will continue into its death spiral.

    2. Not entirely the point of the post, but as I've no idea what will should happen about the euro, maybe no harm.

      I think we should be careful about worshipping small businesses. Nothing wrong with them, but best if they grow into large ones. I'm afraid I can't remember where I read it, so no link, but I have seen it convincingly argued that a problem in (I think) Greece and Italy compared to the US is that their small businesses are prevented from growing into large ones. Yes, the US has dynamic small businesses, but the key to the national success is that lots of them grow into big ones. A high proportion of US workers work for large businesses.

      On willingness for fiscal union, I can't decide if Germany are trying to force out Club Med (with or without a view to fiscal union after that) or whether they are playing chicken and trying to force through what they see as necessary reform before union takes place.

    3. Low interest rates certainly helped Germany but I am not sure it was good for the rest of the Eurozone - Ireland in particular.

      I agree that Merkel is dead set against Eurobonds and the ECB behaving as a proper central bank. I suspect this will be on her epitaph, written of course by the Bundesbank.

      The national banks have a curious position in a common currency - they are actually irrelevant if the currency works properly. You could interpret the Bundesbank's hostility to Eurobonds as just protecting its own interests.

      But it's not in Germany's interests to force out Club Med - they are keeping the Euro nice and low so German factories are full and unemployment only 2.5%. It is in fact a small price to pay for the world export domination that Germany enjoys.

      Proper fiscal union, as Oscar LaFontaine observed in 1998, is necessary. And a proper functioning of the central bank goes with this.

      The problem for Hollande etc is to persuade Merkel and Germany that it is better to do the job properly and promote some growth than to stick their collective heads in the sand and hope the problem will either go away or end up on someone else's desk.

      This is suicide and I think Europe is staring over an abyss. The political will can only come from realising the implications of falling in. One day the markets will realise this too.

      Democracy is, as Churchill observed, the worst form of government apart from all the others. The people have spoken in a number of countries and their collective message is clear. It is a stupid politician that ignores it. Of course that is no guarantee that it will be heard.:-(

    4. Absolutely, John, you've nailed the point of this post. Germany has more to lose from Eurozone breakup than anyone else. It has benefited from the low interest rates and exchange rates that actually worked AGAINST the interests of countries like Ireland and Spain. The trouble is that Germany is desperately trying to hang on to its trade surplus (about 60% of its exports are to the Eurozone) but without restarting the capital transfers that made those exports possible, and that abruptly reversed in 2008 (my post on Greece "The road to hell" discusses this more). This is called "having your cake and eating it", and it is of course impossible. If the other countries are to manage without capital transfers - which implies running trade and fiscal balances flat or in surplus - Germany must accept that it can only have a trade surplus with NON-Eurozone countries.

    5. Frances - the trouble is that the boneheads of Berlin need to understand this as well. As you say the majority of German exports are to the EZ but if their individual economies collapse, there will be no market anyway and we will all be driving round in 10 year old Toyotas.

      Where is Germany then? Probably being sold to the Chinese who have a mountain of USDs and Euros to spend before they have to revalue their currency up.....

      Don't forget how sensitive they are to a market conditions. ISTR they saw minus 6% growth immediately after the banking collapse. Yes they recovered pretty quickly but mainly because people started buying again.

      And come to that, what about our own LOL government? If there is no movement in Berlin and Osborne carries on, albeit delayed a bit now, we are for the chop too.

      The only thing that will help is if Berlin sees the writing on the wall and eventually realises what has to be done then it will give HMG a little more leeway while retaining our credit rating, which would be very expensive to lose.

      Headless chickens all around I'm afraid! The Euro architecture must be rebuilt properly this time.


Post a Comment

Popular posts from this blog

WASPI Campaign's legal action is morally wrong

The foolish Samaritan