Reply to: Ken Clarke does an about-turn on the euro

[wendigo100]

Ken Clarke will be 69 years old come the next election. Isn't that a little too old to be the tories' new leader, or am I being ageist?

Ageist, but valid - although he'd be good at exposing Gordon Brown now, there's obviously a greater risk of him losing his marbles by 2009/10.

I'll stick to what I said during the IDS reign - David Davies will be the next Tory Prime Minister.

[stackpole]

Ken's soixante neuf

Ken Clarke will be 69 years old come the next election. Isn't that a little too old to be the tories' new leader, or am I being ageist?

[BlasterBates]

..no its due to the fact that there are 5 million unemployed in Germany so employers can push wages down, whereas in Ireland there is virtually no unemployment and a strong demand for goods.

[Rebecca Loos]

But isn't that adjustment due to the initial shock of the prices having changed dramatically (when the switch took place) and these fluctuations have got a decreasing magnitude leading to full parity, a bit like a wave?

[BlasterBates]

No I actually meant are.

It isn't an exchange rate fluctuation in the conventional sense.

But there are fluctuations in the "economic sense".

If wages and prices in Ireland rise with respect to Germany, the Germans can buy less in Ireland than they could before, but Irish people have all had wage increases so in real terms things aren't more expensive.

This effect, which actually has happened and is not a hypothetical situation is exactly the same as if the Irish punt had risen against the DM. In other words what is happening is that Exchange rate fluctuations arise due to the population earning less rather than simply as a result of the currency devaluing.


Strange but true

[Rebecca Loos]

BB,

When you said 'there are "Exchange rate fluctuations" within the Euro area'
Surely you meant there were - surely at the cut-off point it was decided that 1 euro = X DM and 1 euro = X Irish pounds, and that was it - so there was a readjustment (rather than a fluctuation), which may have been fair or unfair for each country, but once it has been done, and local prices (in euros) have adjusted, then there aren't any fluctuations any more within the euro zone.

I think the argument that the switch to the euro has meant a lot of price increases was valid as an initial inconvenience (which I accept was unfair and maybe should have been better handled) but it is no long term argument against a single currency.

I accept the argument that joining in would mean that in effect Britain would help bail out less disciplined countries like Italy or Greece or even France, where the pension liabilities will surely generate a very uncomfortable situation any time soon. But for people like you and me, and for small to medium sized firms, I think the switch to the euro would be excellent.

As an aside, interesting exchange rate situation at the moment: the pound looks overvalued, but then so does the euro, so which one is more overvalued, and is there any scope for the pound to go up against the euro?

[BlasterBates]

aha "Exchange rate fluctuations"

Interesting you should mention that because.....

there are "Exchange rate fluctuations" within the Euro area. So for example in Ireland the "exchange rate" between Ireland and the rest of the Euro-area went up so making Germany, for example, more competitive.

That is because exchange rate fluctuations reflect the prices/costs in different countries and prices and costs went down in Germany reflecting a devaluation (i.e. everybody earnt less so they could buy less= the same effect as a DM devaluation).

[stackpole]

It isn't just interest rates. It is the ability to manage our own economy.

Sod Italy, Germany or Greece - if they are having a rough time they have a better chance of sorting themselves out individually than by compromising everyone else, including those doing well, and dragging the whole lot down. That's the never-ending cycle of stagnation we saw in the Soviet Union.

Exchange rate fluctuations balance fluctuations in competitiveness between countries so we can all carry on doing business. Note that "The EEC Commission itself has found that the reduced cost of changing money would at best only save 0.1% of national income for a big mature country like the UK." (Patrick Minford, a eurosceptic)

Also, remember that if we joined the Eurozone, in a decade or so we would have to bail out the pension systems around the rest of the zone that are even worse funded than ours - which include Italy, Germany and France.

Finally, with all the bits and bobs that affect the economy like taxes and legislation, a common currency won't work without political union.

To reduce the Euro argument to the hassle of individuals changing money when they go abroad is Sun-reader mentality.

[BlasterBates]

An interesting fact, regardless of whether we're in the Euro or out is that the central bank's influence on interest rates is in any case receeding. For example in the US returns on bonds do not reflect the interest rate set by the central bank.

So does the BOE really control interest?

It would appear that the financial markets are setting effective rates. In other words having the pound or not having the pound won't make a blind bit of difference, because rates are increasingly being set by the market.

[The Lone Gunman]

But the business argument will not convince the public. Joe Bloggs is not interested in the exchange rate that a company dealing with europe gets. Many anti Euro people fear that the move to a single currency would be the first step onto the the USoE and so would reject it.

For the record I am neither for or against the Euro. I can see it has benefits, but to convince the population the pro euro crowd will have to do better than the 'you won't have to change your money when you go on your jollies' argument

For the record I am against it for the reason posted earlier about different economies in different states. Untill all countries are working for the benefit of Europe and Europeans and not for the benefit of individual countries and their residents I will be firmly against Europe and the Euro.

[BoredBloke]

But the business argument will not convince the public. Joe Bloggs is not interested in the exchange rate that a company dealing with europe gets. Many anti Euro people fear that the move to a single currency would be the first step onto the the USoE and so would reject it.

For the record I am neither for or against the Euro. I can see it has benefits, but to convince the population the pro euro crowd will have to do better than the 'you won't have to change your money when you go on your jollies' argument

[The Lone Gunman]

...no the main the argument for the Euro is business isn't it.

I mean we're are all businesses so the argument that applies to those of us doing business here also applies companies large and small doing business in Euroland.

Having worked in sales in a company that exported, tryiing to make a profit in foreign exchange is problematic, expecially if it is highly competitive, and profit margins are small, because big swings can drive you out of business.

So this is the key argument for either being in or out of the Euro.

The thing is as time goes by, more and more businesses are working cross-border in the EU, so eventually the pressures will move towards being in the Euro or pegging (eg Switzerland and Denmark).

That is the best argument for the Euro.
Business will have predictable non fluctuating costs within the Euro zone. It also means currency fluctuations dont make one countries goods too expensive in another country.

[BlasterBates]

...no the main the argument for the Euro is business isn't it.

I mean we're are all businesses so the argument that applies to those of us doing business here also applies companies large and small doing business in Euroland.

Having worked in sales in a company that exported, tryiing to make a profit in foreign exchange is problematic, expecially if it is highly competitive, and profit margins are small, because big swings can drive you out of business.

So this is the key argument for either being in or out of the Euro.

The thing is as time goes by, more and more businesses are working cross-border in the EU, so eventually the pressures will move towards being in the Euro or pegging (eg Switzerland and Denmark).

[BoredBloke]

"..aha so in principle you think its a good thing to be a larger currency area. Well I agree with you Tony, except joining the Dollar is not on offer."

I didn't say it was a good or a bad thing. How much would it cost to join the Euro, how would it effect our economy and is this risk worth taking given that the only benefit people seem to be coming up with is that you don't have to pay to change your cash. For a small number of people these benefits would no doubt be significant. For most though the benefits would not.

[BlasterBates]

Can we join the dollar? Exchage rate fluctuations cost me a couple of thousand last year

..aha so in principle you think its a good thing to be a larger currency area. Well I agree with you Tony, except joining the Dollar is not on offer.