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Comment by Archelaos | Hacker News Reader

The article explains the eurozone banks' rush from Euros to Dollars by the difference in interest rates. What puzzels me is that it should be the other way around when you take inflation into account:

  Euro central bank interest rates: -0.5 % [1]
  Euro inflation (Nov.): 4.9 % [2]
  This yealds a Euro netto interest rate of -4.95 %
  
  Dollar FED interest rates: +0.05 % [3]
  Dollar inflation (Nov.): 6.8 % [4]
  This yealds a Dollar netto interest rate of -6.75 %

So it seems that the real interest rate difference is aprox. 2 % in favour of the Euro.

[1] The article mentions -1 %, but I couldn't find a confirmation for this.

[2] https://ec.europa.eu/eurostat/documents/2995521/11563387/2-3...

[3] Per article.

[4] https://tradingeconomics.com/united-states/inflation-cpi

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Inflation is calculated in a different way in the US and in the EU. If the calculation was the same, the inflation number would be quite similar.

You have that backwards, the gap actually increases. The Harmonized Index of Consumer Prices (EU-style inflation) for the US is sitting at 7.25% YoY.

https://fred.stlouisfed.org/series/CP0000USM086NEST

"What puzzels me is that it should be the other way around when you take inflation into account ..."

You're not taking into account the very real risk that the Euro doesn't exist in 5 or 10 or 20 years.

Many, many people in (PIGS)[1] do not appreciate being tied to the deutschemark.

[1] No offense meant.

The most plausible time for this was 2008, and despite the worst possible circumstances Greece chose not to exit.

While I also have no reason to actually expect the Euro to disappear in such a timescale, there is a letter whose keywords I can’t remember well enough to Google, which went something like:

"""If you asked us what our biggest foreign policy concerns were in 1900, we would have told you to worry about war with the British Empire and keep close to France.

In 1920, we would’ve been friends with the British, and Germany would be crushed and humiliated.

In 1940, we’d be at war with Germany and it wouldn’t be a one-sided kerb-stomp[0], and we’d be allied with the Soviets against them.

In 1970, we’d be friends with the Germans and in an Armageddon race against the Soviets.

In 1985, the Soviets seemed unassailable but at least we weren’t going to blow each other into radioactive glass.

In 1992, the Soviets were gone."""

[0] None of this language is an exact quote, but especially not this bit. I think the original dates were aligned on either decades or 20s of years?

The chance of seeing Eurobonds and EU-wide unemployment fund is significantly higher than any breakup of Eurozone

Inflation is a positive if you're holding a currency, because that suggests interest rates will go up and that currency will yield more be more valuable.

Inflation is only bad if you intend on spending that currency on goods and services affected by that inflation. Currency investors are not doing that, they'll just sell for another currency.

Very simple

They count on the following set of assumptions:

* The inflation we're seeing is transitory, and almost all of it has already materialized

* FED will give in to the political pressure and increase interest rates

* ECB is more isolated from politics and will not

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