Tag Archives: monetary union

07.13.2012 | A Euro Zone Olympic team?

Sharing a larger and more varied pool of European talent was supposed to create an economic synergy. Starting with the European Coal and Steel Community in 1951, the first step was free trade. Nations were added, trade barriers disappeared, and by 2002, they had their monetary union.

What next? Does an Olympic union make sense?

In a report on the economics of the Olympics, Goldman Sachs asks if a euro zone team would win more medals than the 17 member nations took home separately.

For the “yes” side, they point out that the pool of talent would multiply, athletes might train harder because of fewer spots, and more resources would be supporting a single goal. In addition, because athletes would have to choose events more selectively, they would only compete in their best sport.

On the other hand, when East and West Germany combined their talent, the results were mixed and tough to evaluate because other variables changed (like China’s increased competitiveness). As a specific example, the report points out that a unified Germany fared worse in football but better with hockey. Also, national pride and cheering home crowds might make a big difference. Finally, small countries tend to target one event with huge resources.

Their conclusion? The key to capturing the benefits of a euro team relates their current problems. Whether looking at the Olympics or monetary union, euro zone nations need more success optimizing the benefits of their union and minimizing its negatives.

Using Goldman’s medal chart from the 2008 Olympics, here is how euro zone nations compared with the US and China:

2008 Beijing Olympic Medal Winners (Euro Zone, US and People’s Republic of China)

	Gold	Silver	Bronze	Total
Germany	16	10	15	41
Italy	8	9	10	27
France	7	16	18	41
Netherlands	7	5	4	16
Spain	5	10	3	18
Slovakia	3	2	1	6
Slovenia	1	2	2	5
Finland	1	1	2	4
Belgium	1	1	0	2
Estonia	1	1	0	2
Portugal	1	1	0	2
Greece	0	2	2	4
Austria	0	1	2	3
Ireland	0	1	2	3
Luxembourg NA
Malta NA
Cyprus NA
Euro Zone Total				174

USA	36	38	36	110
People’s Republic of China	51	21	28	100

The Goldman report, “The Olympics and Economics 2012,” is interesting. But here, the Telegraph disagrees with its conclusions. And here is a concise timeline history of the euro zone.

Posted by: adminEcon
Tags: euro, euro zone Olympic team, European Coal and Steel Community, fiscal union, London, monetary union, Olympics 2012, sovereign debt
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06.02.2012 | The European Union “Family”

The results of a European Pew Research opinion survey among 8 nations reminded me of a dysfunctional family. As you look at the tables below from the Pew Report, you might think of Germany as the successful sibling, Greece as the “black sheep,” and the growing dissatisfaction with how the family makes a living.

1. Stereotyping in Europe

Who Works Hardest, Who’s Corrupt

Views in:	Most Hardworking	Least Hardworking	Most Corrupt	Least Corrupt
Britain	Germany	Greece	Italy	Germany
France	Germany	Italy	Italy	Germany
Germany	Germany	Greece	Italy	Germany
Spain	Germany	Greece	Spain/Italy	Germany
Italy	Germany	Romania	Italy	Germany
Greece	Greece	Italy	Greece	Germany
Poland	Germany	Greece	Poland	Germany
Czech Rep.	Germany	Greece	Czech Rep.	Germany

From Pew Research Center

2. Asked about whether they viewed Germany favorably, France, the Czech Republic, Poland, Spain, Britain and Italy resoundingly said yes. However, 78% of the Greeks who were surveyed said no. (p. 36)

3. Support For Free Market Declining

% Completely/mostly agree

	2007	2010	2012	2010-2012 Change
	%	%	%
Britain	72	64	61	-3
France	56	67	58	-9
Germany	65	73	69	-4
Spain	67	62	47	-15
Italy	73	–	50	–
Greece	–	–	44	–
Poland	68	68	53	-15
Czech Rep.	59	–	50	–

From Pew Research Center

To see Pew’s conclusions and additional tables that are fascinating, here is the entire report, ”European Unity on the Rocks.” A second report, reflected by the following table, highlights the differences between US and European values. Please note that tables were directly copied from Pew.

Posted by: adminEcon
Tags: corruption, EU, EU crisis, European Union, eurozone, Germany, Greece, monetary union
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05.09.2012 | An Emperor, Immortality, and Monetary Union

By Mira Korber, guest blogger.

Two days ago I visited the Times Square Discovery TSX exhibition of the Terracotta Warriors. It is a fascinating display of history, art, and architecture, and I was particularly struck by some economic artifacts from 221 B.C – specifically, each of the currencies unique to the “Seven Warring States” of China: Qin, Qi, Chu, Yan, Han, Zhao, and Wei. Interestingly, each currency reflected the values of its province. For example, in provinces that valued agriculture, the coins were shaped similarly to spades for moving earth. Other currencies featured knife-like forms.

These disparate currencies were used by each of the seven provinces until the First Emperor of China (Qin Shihuangdi from the Qin province) united them all in 221 BC. His new currency was called the “half-liang” coin, and it was round with a square hole in the center because the shapes harmoniously interacted in a symmetry appealing to the Emperor. Additionally, the Emperor standardized weights and measures, and axles on carts so they would run smoothly down new roads and infrastructure. While he feared death and sought immortality, it seems that he was not entirely impractical after all.

It’s fair to say that this type of monetary union has been around for a while. And it has always had the same purpose. A unified currency simplifies the movement of people, goods, services, and capital because its universal acceptance eliminates calculations and conversions. A unified system of weights and measures similarly standardizes methods of calculation. Imagine a country where each state or province had its own unique system, yet tried to make transactions across borders. Chaos! The First Emperor of China seemed to think so too.

The Bottom Line? Monetary union and consistency of measurements lower transaction costs. The First Emperor of China was certainly onto something when he decided to standardize money and measurement during his rule. And while he’s buried surrounded by Terracotta Warriors, a unified currency lives on.

Related sources: Singleglobalcurrency.org. Facts about the warriors from TIME. NYT on the Discovery TSX exhibition. Photos of Chinese currencies.

Posted by: adminEcon
Tags: China, Chinese currency, emperor qin, first emperor of china, half-liang coin, monetary union, seven warring states, standardization of weights and measures, terracotta warriors, terracotta warriors exhibition, yuan
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05.08.2012 | Aspirin for the Euro Zone?

Tomorrow is Euro Day and it reminds me of aspirin.

On May 9, 62 years ago, the French foreign minister proposed a limited economic partnership with West Germany. By the time the treaty was signed in 1951, the Netherlands, Luxembourg, Belgium and Italy had joined also to form a 6-nation coal and steel free trade zone. With people, services, goods and capital moving ever more effortlessly across European borders, that free trade zone grew and became a monetary union. Here, I would usually say that 19th century free trade advocate David Ricardo would be smiling.

Instead, aspirin comes to mind.

Imagine for a moment, a country with a sick economy. Lenders know it is ill so they ask for relatively high interest payments when that country borrows. Then though, the country joins the euro zone. Rather like taking aspirin for a fever, being a euro zone member makes it look healthier than it really is. As a result, lenders let the country borrow more easily. But really, it was still sick. It needed an economic antibiotic to attack the disease rather than just an aspirin for the symptoms.

That country is Greece. And now, with its illness having resurfaced, Greece has been prescribed fiscal medicine that includes 11 billion euros of spending cuts. Based on current political turmoil, they believe it was the wrong prescription.

Our Bottom Line: Can euro zone monetary union work without nations being required to take fiscal–spending, taxing, borrowing– medicine?

The Economist has a superb series of maps that display, country by country, different euro zone debt, growth, unemployment in which Greece, Portugal and Italy stand out for their massive debt. This Chicago Tribune story from Reuters tells more about Greek political turmoil. And here, in a NY Times Magazine article, Paul Krugman clearly and logically talks about euro zone history and challenges.

Posted by: adminEcon
Tags: euro zone, fiscal austerity, France, Germany, Greece, Italy, monetary union, Netherlands, Portugal, Spain
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12.13.2011 | Alexander Hamilton, George Washington and the Euro Zone

How to decide euro zone policy today? Just look at the U.S. between 1780 and 1840.

Saturday, in his Nobel Prize lecture, economist Thomas J. Sargent compared the past U.S. to the current euro zone. He based his talk on 4 questions:

Should governments default on their debt?
Should a central government bail out a subordinate state?
Should monetary union precede fiscal union?
Should fiscal union precede monetary union?

First setting the scene, Dr. Sargent reminded us that after winning the War of Independence, U.S. debt was massive, the Congress was weak, and we had 13 different trade and fiscal policies. What to do? Write a new Constitution. The results? A bailout of state war debt, fiscal union, and national trade policy.

But, during the 1840s when states needed another bailout for excessive borrowing, the federal government refused. The results? Lenders avoided federal and state debt but states added balanced budget provisions to their constitutions.

A 1790s bailout and an 1840s refusal took Dr. Sargent back to his initial questions:

Default: The cost of a default is reputation and elevated lending expense. But it also means higher current consumption because taxes can be lower.
Bailout: The cost of a bailout is moral hazard and perhaps, excessive federal control but creditors benefit and are likely to lend again.
Monetary Union: Should monetary union come before fiscal union? Saying, “No,” Dr. Sargent concluded his talk.

The Economic Lesson

U.S. fiscal authority–the power to spend, tax, and borrow–was established when the U.S. Constitution was ratified. By contrast, the U.S. had no central monetary policy and therefore no control over the nation’s supply of money and credit until after the Civil War. (More from econlife here on Alexander Hamilton’s economic policy.)

Using the U.S. as his prototype, Dr. Sargent conveyed the importance of a central fiscal authority and implied that euro zone success will depend on it.

His 33 minute talk was excellent. You might want to look separately at his slides.

An Economic Question: How do monetary and fiscal policy interrelate?

Posted by: adminEcon
Tags: Alexander Hamilton, bailout, fiscal union, monetary union, Nobel Prize, Thomas J. Sargent
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