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Comment by wazoox | Hacker News Reader

If only this was the worst problem with EU. The worst problem is the very existence of the Euro in the absence of a financial policy -- and Germany explicitly forbade this from happening. Therefore the Euro will explode sooner or later. For reminders, the situation is so bad that France recalled its ambassador in Italy friday. Something that AFAIK didn't happen since WWII. EU isn't peace; obviously, it's tearing countries apart. In a few years, Brexit will be seen as the most prescient, great political act of the decade.

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Unfortunately the macroeconomic aspect is a total taboo in Germany. Even "solidary" leftists claim we profit so much from the Euro... The ones on the very left get it, but they barely talk about it. Germany will never give up on the cheated export surplus until the whole thing goes bust.

Hell, barely anyone gets it anyway. Germany is certainly not alone to blame. How can the competitiveness of Germany increase for more than a decade without any other EU country caring? In the past they devalued their currencies, so why didn't they act now? Also Germany violates the 6% export surplus limit, no one cares!

Germany (and France!) violating the same budget rules it insists everyone else follows is indeed a damning indictment of what the EU truly is. But Germany isn't a winner from the Eurozone. I don't understand why everyone keeps thinking that. Germans are suffering under it and allow themselves to suffer because they see unifying Europe as a form of penance for World War 2.

Think about it - German "competitiveness" is just another way to say that they work harder than everyone else. They save money that the ECB then gives to foreign governments through QE. They make things and send them to other parts of Europe. In return they get what are effectively IOUs from the other countries - TARGET2 balances that are supposed to imply a transfer of "real" euros (i.e. paper money) one day, but which are so huge those transfers will never actually happen. There are no realistic scenarios in which an equally sized flow of goods or services ever comes back to the poor Germans in return for their efforts: the only plausible outcome is that either the internal imbalances are written off for good by the EU authorities, or that other countries exit the Eurozone and the imbalances are written off amidst acrimony and bitterness. I cannot see any realistic path to Italy, Spain, Portugal, Greece, eastern Europe etc ever becoming as productive as the Germans are, let alone more productive as would be required to restore balance to the system, if only because the Germans never seem to give themselves pay rises.

In the end Germany will be the biggest loser of the EU project, simply because they put the most into it to start with.

> But Germany isn't a winner from the Eurozone

Well our politicians see it different. Germany was able to have government surpluses and decrease the countries debt. We have low unemployment. Relative to other EU countries, especially France, we look pretty healthy. Despite the domestic market being a mess and the average worker being stripped of normal wage increases, it's hard to argument against these "successes" without explaining in detail the macroeconomic aspects and the consequences in the long run.

> German "competitiveness" is just another way to say that they work harder than everyone else.

Actually France has about the same productivity as Germany, always had since introduction of the Euro. I think what you mean is productivity in relation to wages, namely unit labor cost. Meaning germans get way too low wages for their productivity.

And yes Germany will be the biggest loser: The government and export industry gained the most, they will lose the most. Millions of additional unemployed people, hatred from the other (former) Euro countries, far right/left parties may have a shot of getting to power, etc..

Yes, but the UK is outside the eurozone. It also has very low unemployment and although the deficit exploded under a left wing government and due to the financial crisis, it's been falling since 2010 and is now at its lowest level in a very long time. There's still more work to do to reach surpluses (last achieved in 2000) but the UK wasn't a part of the eurozone then either.

And of course Switzerland also doesn't use the euro and has a balanced budget, and a strong economy.

So to me the domestic German narrative that these sorts of economic success are to do with the eurozone seem wrong. Countries in Europe and which are not using the Euro have been able to obtain these results too. Probably if the euro had never happened Germany would be doing just as well today, and their purchasing power would have effectively gone up even if the wages hadn't because imports would have become so much cheaper.

Good point about productivity vs unit labor cost. That's indeed what I meant.

What you have to know or realize: ALL finacial sectors in Germany are net savers. Private households, companies and now also the government. When there are savings, someone else has to have debt. It's a zero sum game, meaning all savings have a debt counterpart. Now where is the debt counterpart for Germany? Look at this picture: http://www.flassbeck-economics.com/wp-content/uploads/2016/0... On top, private households. Below, companies. Below that, the government. And finally, THE REST OF THE WORLD. As you can see, from the start of the Euro, the debter position in Germany shifted from being the government or the companies, to foreign countries. Every year Germany needs 280€ billion or so new debt IN OTHER COUNTRIES to have these savings. Other eurozone countries continuously lose market share against Germany: https://upload.wikimedia.org/wikipedia/commons/0/03/Balance_...

But it affects non-eurozone countries as well of course. For example the US basically critized Germany (long before Trump) as a currency manipulator, Trump just speaks it out loud. Because again, without the Euro, Germanys own currency would value up and the massive exports would be impossible.

So I think you can't deny that some dramatic change happend when the Euro was introduced and that it's still happening today.

Now if you assume Germany did not do wage dumping and the Euro wasn't introduced, could Germany be in the same position as it is now? No. Look at the graphic again and pin the red line (foreign countries) to the zero position. That in turn means, you now have to pull another line down! Because remember, all lines have to sum up to zero. Which line would you pull down? Ask private households to stop saving and spend much more money? Or increase company tax (while every other country is decreasing it)? The only solution left would be for the government to make deficits.

Currently, other countries make deficits for Germany. This is not sustainable.

But inside one country, with one money, there is an equalization of payments mechanism at work between regions. California is much richer than Ohio, and nobody in the US bats an eye at the thought that California pays for roads in Ohio, that's just the way it should work.

For Euro to work in the long term, Germany (or parts of it) and some other regions should finance heftily (8% of Germany GDP is an often quoted number) for development of Spain, Greece and other regions. But the problem is that EU is not a country. There is no European people with a deep feeling of solidarity to each other. Germans from Bavaria agree (reluctantly) to pay for Saxony, but they definitely won't pay for Portugal. There is no solution in sight, really.

The italy-france kerfuffle can be explained by the current Italian government needing an enemy for electoral reasons and has nothing to do with any specific EU policy.

The France government ran with the ball for the exact same reason.

But the euro problem is at least something that can be dealt with or walked back to some degree or if nothing else happens, it'll implode which will bring changes. Harming the internet is not something you can reverse. Once you fracture the internet it stays fractured.

- or, for security, the EU raises a standing army, is granted fiscal powers over the core states to fund it's increasing needs and becomes Eurasia... (writing this from Airstrip One).

The France-Italy spat doesn't have to do much with the EU

Do you know the historical origins of the Euro and how France was worried to have a unified Germany with low interest rates next door? So, yeah.

The Euro has its problems but your post just sounds like disinformation to be honest

It has everything to do with the EU, the Dublin rule, the fact that Italy is chastised for its 2% deficit while France gets away with 2.8% deficit, and some other things. Why do you think the populists won the elections in Italy, and will without a doubt in France in May?

Here is the story of the euro: stupid French technocrats invented it. Some unknown counsel in Fabius office when he was a prime minister even explained someday how he and a colleague pulled the "3% deficit rule" out of their noses because it sounded right, back then in 1984. This would be oh so funny if it wasn't so pathetic thinking about how incompetent all these serious-looking people are.

Mitterrand said in 1992 "J'ai cloué les mains de l'Allemagne à la table" (I nailed Germany's hands to the table). That was a terrible idea from the start. The bet was that as it cannot function without an integrated financial and tax systems, these will be forced into existence against everyone's will (but those of the most convinced federalists). And guess what? no integration happened, and now we're hosed.

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