The Euro

[Kill all the fetuses!]

It's rather obvious why politicians would want to enter the EU, but what about adoption of the Euro? In the Baltics, for instance, politicians have been sacrificing major economic indicators (e.g. growth) for years just so they can get within the margin of other indicators (e.g. inflation) that would allow them to get to adopt the Euro.

But there really aren't any clear economic benefits that would justify such fervour to adopt the damn currency. And it is strange that the fervour didn't go away even after 2008.

What would be (Marxist) analysis of the situation with the Euro?

[The Idler]

Bigger currencies are worth more (in price) than smaller currencies.

[tuwix]

It's rather obvious why politicians would want to enter the EU, but what about adoption of the Euro? In the Baltics, for instance, politicians have been sacrificing major economic indicators (e.g. growth) for years just so they can get within the margin of other indicators (e.g. inflation) that would allow them to get to adopt the Euro.

But there really aren't any clear economic benefits that would justify such fervour to adopt the damn currency. And it is strange that the fervour didn't go away even after 2008.

What would be (Marxist) analysis of the situation with the Euro?

It's only bourgeois effort to get there. The lower classes lose due to Eurozone. Greece, Spain and Portugal are the best examples, but I don't know society who benefited from Euro.

And why do bourgeoisie tends to that? Because it's easier for them to make business. Variable values of national currencies cause uncertainty of profit. Euro just. avoids that.

[FSL]

Less developed economies and the businesses there have two options to finance their activities, either borrow in their own currency or borrow in a major currency, like the dollar or the euro.

Interest rates have to account for currency risk, meaning they will be higher for loans made in currencies that tend to fluctuate a lot. Currencies that are used and traded less, like the turkish lira or the south african rand etc are more risky than major currencies. Also, investors have less confidence in the institutions of those countries, they can't be sure that the central bank won't pursue a very loose monetary policy. So for these reasons, if a baltic country or a baltic copany wants to raise money by borrowing, they can either borrow expensively on their own currency or borrow on a major currency but with themselves currying the risks (imagine a baltic country that has its revenue in whatever the currency is there but needs to pay interest in euros; if the value of the local currency falls, they're in for trouble).

So to reduce the cost of borrowing, which is essentially the cost of capital for their activities, these countries adopt major currencies in many cases. Latin american countries used to quasi-adopt the dollar and now european countries join the eurozone.


There are other factors too, it helps tourism, simplifies business transactions and improves the country's financial standing since the eurozone is considered very prude.

[Kill all the fetuses!]

Less developed economies and the businesses there have two options to finance their activities, either borrow in their own currency or borrow in a major currency, like the dollar or the euro.

Interest rates have to account for currency risk, meaning they will be higher for loans made in currencies that tend to fluctuate a lot. Currencies that are used and traded less, like the turkish lira or the south african rand etc are more risky than major currencies. Also, investors have less confidence in the institutions of those countries, they can't be sure that the central bank won't pursue a very loose monetary policy. So for these reasons, if a baltic country or a baltic copany wants to raise money by borrowing, they can either borrow expensively on their own currency or borrow on a major currency but with themselves currying the risks (imagine a baltic country that has its revenue in whatever the currency is there but needs to pay interest in euros; if the value of the local currency falls, they're in for trouble).

So to reduce the cost of borrowing, which is essentially the cost of capital for their activities, these countries adopt major currencies in many cases. Latin american countries used to quasi-adopt the dollar and now european countries join the eurozone.


There are other factors too, it helps tourism, simplifies business transactions and improves the country's financial standing since the eurozone is considered very prude.

I understand this very well, but the problem is that the currencies are usually, well, always tied to the Euro before adopting it and its adoption doesn't really change interest rates or risk factors all that much, so it just seems to me that fanaticism of politicians of adopting the Euro is hard to explain....

[ckaihatsu]

http://en.wikipedia.org/wiki/Economic_and_Monetary_Union_of_the_European_Union# Criticism

Criticism[edit]

There have been debates as to whether the Eurozone countries constitute an optimum currency area.[6]

Monetary policy inflexibility[edit]

Further information: European sovereign-debt crisis

Since membership of the eurozone establishes a single monetary policy, individual member states can no longer act independently, preventing them from printing money in order to pay creditors and ease their risk of default. By "printing money" a country's currency is devalued relative to its (eurozone) trading partners, making its exports cheaper, in principle leading to an improved balance of trade, increased GDP and higher tax revenues in nominal terms.[7]

[FSL]

I understand this very well, but the problem is that the currencies are usually, well, always tied to the Euro before adopting it and its adoption doesn't really change interest rates or risk factors all that much, so it just seems to me that fanaticism of politicians of adopting the Euro is hard to explain....

They are tied to the euro because they're about to adopt it. You can't join the eurozone with inflation running rampant and then immediately adapt to a much tighter monetary policy.

There are some rules and countries that are about to join the eurozone need to follow them. They tie their currencies to the euro, have a strict monetary policy, reduce their inflation, and then join.
In that case markets do have faith that this sum of policies isn't about to go away or be modified by a new government because the future entry into the eurozone guarantees it'll stay as is.


Smaller countries tying their currencies to a major one does happen as I mentioned above, but there are fewer reasons to believe they are doing it for good. Argentina's peso was tied to the dollar but when things got rough, it was devalued. An exit from the eurozone, though not as unlikely as it would seem a few years ago, is still much more complicated.