Eurozone remains restricted to wealthier European countries

  • Thread starter Deleted member 1487
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Deleted member 1487

I've been listening to an interview with Yanis Veroufakis this morning wherein he talks about the German finance minister having wanted to restrict the Eurozone to only countries of roughly comparable GDP per capita (Germany, France, Belgium, Netherlands, etc.) and leave out the smaller nations due to incompatibility in terms of currency value. With the Euro being basically the Deutschmark, that would make sense as it lets the Euro be properly valued and smaller, less competitive nations keep currencies that were more in line with what their economies actually were valued at. So what if the European Union allowed the Eurozone to remain restricted even as it created a large political union?
https://en.wikipedia.org/wiki/Eurozone
Effectively it would be limited to these nations with a GDP per capita over 40k Euro:
France, Ireland, Belgium, the Netherlands, Germany, Finland, Austria, and Luxembourg.
All other nations retain their own currency. What impact does what have on the EU, the economy of Europe overall, the economies of the Eurozone, and the politics of integration of the EU? Do we see the current debt crisis?
 
The problem isn't/wasn't with GDP/capita, per se, but with convergence of economies. In particular, patterns of deficit spending and debt loads. While Greece is having desperate problems, and Spain and Portugal have bad problems, Italy is in the next tier of problematic finances. OTOH, Estonia, which was, iirc, even poorer when it joined, is NOT in a debt crisis, and resents being told it has to bail out Greece which is 'richer'.

It is true that in the enthusiasm for 'ever deeper union', several countries were allowed (even encouraged) to join the Euro, even if that meant using accounting tricks to claim to meet the criteria.

If a harder line HAD been taken on 'convergence', several countries wouldn't be in the Euro, and wouldn't be in the mess they're in. Of course, they might be in a DIFFERENT mess....

Do we see the current debt crisis? No. Do we see a series of smaller debt crises? Yes. Would e.g. Greece have more tools to deal with their crisis? Certainly. Would the overall level of retrenchment ultimately be a whole lot different? Not sure.

It would leave the Euro a much stronger currency.
 

Deleted member 1487

The problem isn't/wasn't with GDP/capita, per se, but with convergence of economies. In particular, patterns of deficit spending and debt loads. While Greece is having desperate problems, and Spain and Portugal have bad problems, Italy is in the next tier of problematic finances. OTOH, Estonia, which was, iirc, even poorer when it joined, is NOT in a debt crisis, and resents being told it has to bail out Greece which is 'richer'.

It is true that in the enthusiasm for 'ever deeper union', several countries were allowed (even encouraged) to join the Euro, even if that meant using accounting tricks to claim to meet the criteria.

If a harder line HAD been taken on 'convergence', several countries wouldn't be in the Euro, and wouldn't be in the mess they're in. Of course, they might be in a DIFFERENT mess....

Do we see the current debt crisis? No. Do we see a series of smaller debt crises? Yes. Would e.g. Greece have more tools to deal with their crisis? Certainly. Would the overall level of retrenchment ultimately be a whole lot different? Not sure.

It would leave the Euro a much stronger currency.
The GDP per capita part is about joining the currency part of the union. Because it remains within a range there is convergence of economies as the relative value of each of the currencies of those nations would be in the same ball park if they were each separate, but having one currency among them would facilitate trade and economic integration.
I think you're confusing the currency part of the EU with the EU itself, because today they are synonymous but wouldn't be ITTL I'm proposing. I'm saying the EU exists and allows in all the nations as per OTL, but the common currency part is restricted to nations within a similar range of economic performance per capita so that by having a common currency with a single value it isn't harming them to lose independent monetary policy relative to the value of economic integration with their neighboring countries. For the rest of the EU then they would still abide by the common regulations and laws of the EU, but would retain separate currencies due to the harm that would come to them if they tried to run their economies with a stronger currency than their economy warranted, which would hurt exports. Part of the problem with the debt crisis is that the countries with the debt and weaker economies cannot inflate their currencies to make exports more competitive, which is part of the reason the Greeks were talking about leaving the EU and common currency as a last resort.

I get the point about Estonia, but it is an outlier and it's low debt is based on a rapidly growing economy, which is partially facilitated by being a significant exporter and being nearly energy independent due to it's shale oil deposits.
https://en.wikipedia.org/wiki/Economy_of_Estonia
This also is a rather unique economic advantage:
The ice-free port of Muuga, near Tallinn, is a modern facility featuring good transshipment capability, a high-capacity grain elevator, chill/frozen storage, and brand-new oil tanker off-loading capabilities. The railroad serves as a conduit between the West, Russia, and other points to the East.

Estonia today is mainly influenced by developments in Finland, Russia, Sweden and Germany – the four main trade partners. The government recently greatly increased its spending on innovation.

There is a reason it is the best of the Baltic economies...but because of it's unique position it is an outlier. The debt in the suffering EU countries is a function of a number of things, many of which come back to the moribund economies and resulting social spending commitments, which is partially a function of having an artificially strong currency relative to their economies and the lack of competitive advantage against the strong economies in the currency union, like Germany/France/the Netherlands/etc.

You're certainly right that the Euro would be a stronger currency unless there is a specific devaluing process, which is the major benefit for the larger countries with stronger economies and why they wanted the weaker economies as both captive markets and having artificially matching currencies; the thing I don't get is why the countries with less strong economies wanted to become effective economic colonies of the strong nations, didn't they see this coming?
 
Effectively it would be limited to these nations with a GDP per capita over 40k Euro:
France, Ireland, Belgium, the Netherlands, Germany, Finland, Austria, and Luxembourg.

You missed out the UK. We were kicked out of the ERM when other countries were given greater leeway. How different would things be if that hadn't happened?
 

CaliGuy

Banned
I've been listening to an interview with Yanis Veroufakis this morning wherein he talks about the German finance minister having wanted to restrict the Eurozone to only countries of roughly comparable GDP per capita (Germany, France, Belgium, Netherlands, etc.) and leave out the smaller nations due to incompatibility in terms of currency value. With the Euro being basically the Deutschmark, that would make sense as it lets the Euro be properly valued and smaller, less competitive nations keep currencies that were more in line with what their economies actually were valued at. So what if the European Union allowed the Eurozone to remain restricted even as it created a large political union?
https://en.wikipedia.org/wiki/Eurozone
Effectively it would be limited to these nations with a GDP per capita over 40k Euro:
France, Ireland, Belgium, the Netherlands, Germany, Finland, Austria, and Luxembourg.
All other nations retain their own currency. What impact does what have on the EU, the economy of Europe overall, the economies of the Eurozone, and the politics of integration of the EU? Do we see the current debt crisis?
In this TL, there would probably be less crises and thus greater stability in the Eurozone. In turn, this might have made it somewhat easier to push for greater federalization in this rump European Union.

Also, though, even with your 40K Euro per capita GDP requirement, other countries would still eventually join the Eurozone unless this figure would have kept on being raised.
 

Deleted member 1487

You missed out the UK. We were kicked out of the ERM when other countries were given greater leeway. How different would things be if that hadn't happened?
Things weren't looking peachy for the UK at the time:
https://en.wikipedia.org/wiki/Europ...d_sterling.27s_forced_withdrawal_from_the_ERM

Why not multiple regional currency blocks instead? Euro for the rich richies, national currencies or intermediaries for others
Makes sense, but at the same time how do we get the larger countries not to want the small captive ones inside their union and get the smaller economies to recognize the danger that represented?

In this TL, there would probably be less crises and thus greater stability in the Eurozone. In turn, this might have made it somewhat easier to push for greater federalization in this rump European Union.

Also, though, even with your 40K Euro per capita GDP requirement, other countries would still eventually join the Eurozone unless this figure would have kept on being raised.
Same issue as above, but I could see there being a relative range for tiered access and pegged rates.
 
Effectively it would be limited to these nations with a GDP per capita over 40k Euro: France, Ireland, Belgium, the Netherlands, Germany, Finland, Austria, and Luxembourg. All other nations retain their own currency. What impact does what have on the EU, the economy of Europe overall, the economies of the Eurozone, and the politics of integration of the EU? Do we see the current debt crisis?
Basing it on GDP means that you're excluding Italy - one of the Group of Seven countries, I'd also be interested to see where Spain ranked in things at the time. Internal EU relations are going to potentially be strained since you're diving people into two groups and excluding some, I can't imagine Italy as a signatory of the Treaty of Rome and founder-member of the EEC would take it very well. At the end of the day the Euro was always more political than economic with the intention of providing the EU with another trapping of statehood and driving ever closer union irreversibly forward, whilst it might not have technically been part of the EU to begin with for all intents and purposes it was. Here you've just introduced a two-speed Europe which would be anathema for those who support that.
 
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