Is the end nigh for the Euro? [vol. 3]
Discussion
Andy Zarse said:
Over the last fifteen years where do you think the DM would have been (I mean generally, not specifically) compared to where the Euro actually was and is now? Weaker? Or more like the Swiss Franc?
Germany has basically had a massive structural advantage over its fellow Euro member states (more fool them) by fixing the exchange rate in an internal market. Totally insane for the others to have let them and now they're paying the price with their destroyed industries and smashed economies. It is only fair that Germany now picks up its share of the tab.
I don't deny that Germany has benefitted from a weak euro, but that weakness hasn't been the reason for Germany's success any more than it's been the cause of Greece's failure. Germany succeeds because it's got a strong economy, a strong work ethic, a structured and effective tax system etc, unlike Greece. Germany has basically had a massive structural advantage over its fellow Euro member states (more fool them) by fixing the exchange rate in an internal market. Totally insane for the others to have let them and now they're paying the price with their destroyed industries and smashed economies. It is only fair that Germany now picks up its share of the tab.
It's easy to play the victim card, but as I see it the only successful longterm outcomes for Greece are dependant upon a) a complete change of direction in terms of their economic strategy/attitude, or b) ongoing support from their more prosperous neighbours, neither of which is likely imo. Appealling against the injustice whilst at the same time promising more handouts to the electorate isn't going to work, as Thatcher once said 'The problem with Socialism is that you eventually run out of other people's money', and Greece has run out.
LongQ said:
Gargamel said:
And finally, in all the discussion about bond prices, haircuts, capital flight etc. Lets just remember the human cost of this grand folly. Prostitution in Greece has risen to record levels, with an average price of just 11 euros for sex... It is a disgrace that in Western Europe, the grand politics of the late 90's and 2000's have led to this situation.
So that's something else where the Germans have developed a larger industrial scale operation that dominates the markets. Apparently it has been a very strong growth area.
RYH64E said:
I don't deny that Germany has benefitted from a weak euro, but that weakness hasn't been the reason for Germany's success any more than it's been the cause of Greece's failure. Germany succeeds because it's got a strong economy, a strong work ethic, a structured and effective tax system etc, unlike Greece.
No. That wasn't my point. Whether or not the Euro is weak or strong is largely irrelevant. I was very careful to specify the internal market. My point is that in any natural scenario the DM would have strengthened hugely against say the Lira and made Audis and Mercs far too expensive for ordinary Italians to buy. As it is, when in Italy recently, it was absolutely horrifying to see the lack of Italian cars on the road. An Italian driving a B Class Merc, an utter sh*tbox of a car, disgusts me! They are even riding BMW GS1200s and not Ducatis and Guzzis 
This appals my petrol head. Why and how can this happen? Essentially because BMWs are no cheaper than Ducatis. That the Ducati factory is now owned by Audi means they will be making their product very efficiently. Your stereotypical image of "lazy foreigners" is not correct. So no, it's not that the Euro is weak or strong, but that its very existence fixed the exchange rate and has amplified Germany competitive position to its huge advantage.
At the time the economies "converged" Germany was an industrial power house,and had been for many years, the likes of Siemens, Mercedes, Bosch and VW had a huge base of infrastructure, skilled labour, and the ability to stay ahead, as products rapidly advanced in technology, the PIGS were pork on a slow roast from day 1, and now they are being eaten
Walford said:
At the time the economies "converged" Germany was an industrial power house,and had been for many years, the likes of Siemens, Mercedes, Bosch and VW had a huge base of infrastructure, skilled labour, and the ability to stay ahead, as products rapidly advanced in technology, the PIGS were pork on a slow roast from day 1, and now they are being eaten
They were told it would happen but chose not to listen... now they're all paying the price and yet unbelievably still refuse to understand the role of the Euro in their predicament. Many still think it's just a piece of paper. They won't accept its adoption comes at a cost; being as efficient as Germany or having your wages, employment levels and social security cut accordingly.Andy Zarse said:
No. That wasn't my point. Whether or not the Euro is weak or strong is largely irrelevant. I was very careful to specify the internal market. My point is that in any natural scenario the DM would have strengthened hugely against say the Lira and made Audis and Mercs far too expensive for ordinary Italians to buy. As it is, when in Italy recently, it was absolutely horrifying to see the lack of Italian cars on the road. An Italian driving a B Class Merc, an utter sh*tbox of a car, disgusts me! They are even riding BMW GS1200s and not Ducatis and Guzzis This appals my petrol head. Why and how can this happen? Essentially because BMWs are no cheaper than Ducatis. That the Ducati factory is now owned by Audi means they will be making their product very efficiently. Your stereotypical image of "lazy foreigners" is not correct.
So no, it's not that the Euro is weak or strong, but that its very existence fixed the exchange rate and has amplified Germany competitive position to its huge advantage.
I don't deny that Germany has benefitted from the fixed exchange rate, but the reason Greeks buy German cars instead of Greek cars probably has something to do with the unfortunate fact that Germany makes some very good cars and Greece doesn't make any (to the best of my knowledge)... Greece didn't make cars when their currency was the Drachma, they don't make cars now their currency is the euro, and it wouldn't make any difference to their competitive situation in the automotive market whether or not the New Drachma could devalue to whatever level because they've got nothing to sell (and not just cars). This appals my petrol head. Why and how can this happen? Essentially because BMWs are no cheaper than Ducatis. That the Ducati factory is now owned by Audi means they will be making their product very efficiently. Your stereotypical image of "lazy foreigners" is not correct. So no, it's not that the Euro is weak or strong, but that its very existence fixed the exchange rate and has amplified Germany competitive position to its huge advantage.
Italy is a different case altogether, I nearly bought an Alfa 4C recently but instead decided on a Lotus Elise S. The exchange rate didn't enter into my decision making process, I went for the Lotus because a) it's British, b) I like having a Lotus in the garage, c) it's a fantastic drive, and d) it's not a Porsche...
RYH64E said:
the reason Greeks buy German cars instead of Greek cars probably has something to do with the unfortunate fact that Germany makes some very good cars and Greece doesn't make any (to the best of my knowledge)... Greece didn't make cars when their currency was the Drachma, they don't make cars now their currency is the euro,
Welcome to the paper folding school of car design: http://en.wikipedia.org/wiki/Namco_(automobiles)there was also this: http://en.wikipedia.org/wiki/DIM_(automobiles)
RYH64E said:
I don't deny that Germany has benefitted from the fixed exchange rate, but the reason Greeks buy German cars instead of Greek cars probably has something to do with the unfortunate fact that Germany makes some very good cars and Greece doesn't make any (to the best of my knowledge)...
You're missing the point entirely - the number AND cost of German cars sold was due to a favourable Euro. Yes the Greeks need to buy cars from someone - but I'm thinking perhaps Nissan Micras, Ford Fiestas and some cheapo French rubbish is more suited to their income level. The last time I visited Greece (mid-naughties) I was surprised by the number of high end BMWs around the place - more than the poverty stricken part of SW London where I reside. Ditto the rest of the PIGS. No one is saying that Germans don't make good stuff but when it comes to competitiveness then the Japanese and others have them licked - but they gamed the Euro to make their stuff competitive as well (a huge internal market with competition barriers to boot). Whether it was entirely intentional or not is another matter ..Edited by fido on Tuesday 27th January 12:16
fido said:
You're missing the point entirely - the number AND cost of German cars sold was due to a favourable Euro. Yes the Greeks need to buy cars from someone - but I'm thinking perhaps Nissan Micras and Ford Fiestas are more suited to their income level. The last time I visited Greece (mid-naughties) I was surprised by the number of high end BMWs around the place. Ditto the rest of the PIGS.
I don't think I am missing the point, I've accepted that Germany has benefitted from a fixed euro axchange rate, but how would Greece be better off if they'd bought Nissan Micras and Ford Fiestas rather than cheap German VWs (or BMWs for those who might otherwise have bought a Lexus)? It's not as if the domestic Greek automotive industry suffered because they haven't got one, and that's a big part of their problem.fido said:
some cheapo French rubbish is more suited to their income level.
Is that cheapo French rubbish that somehow doesn't benefit from the same euro that Germany uses?fido said:
(a huge internal market with competition barriers to boot).
With obvious consequences for UK manufacturers should we find ourselves on the outside of said huge market.Edited by RYH64E on Tuesday 27th January 12:25
fido said:
You're missing the point entirely - the number AND cost of German cars sold was due to a favourable Euro. Yes the Greeks need to buy cars from someone - but I'm thinking perhaps Nissan Micras, Ford Fiestas and some cheapo French rubbish is more suited to their income level. The last time I visited Greece (mid-naughties) I was surprised by the number of high end BMWs around the place. Ditto the rest of the PIGS.
I'd agree with that, we've been to Greece a fair bit (holidays) over the last 25 years and I don't think I've been in a taxi that wasn't an E class, even on the islands.Norfolkit said:
fido said:
You're missing the point entirely - the number AND cost of German cars sold was due to a favourable Euro. Yes the Greeks need to buy cars from someone - but I'm thinking perhaps Nissan Micras, Ford Fiestas and some cheapo French rubbish is more suited to their income level. The last time I visited Greece (mid-naughties) I was surprised by the number of high end BMWs around the place. Ditto the rest of the PIGS.
I'd agree with that, we've been to Greece a fair bit (holidays) over the last 25 years and I don't think I've been in a taxi that wasn't an E class, even on the islands.I used to travel to Scandinavia a lot and no matter which country one was in the majority of taxis were Mercedes back then. Bear in mind they were on the road 24hrs a day in most cases would clock up enormous distances in a year or two and then be fettled and sold on into a private market that, in many cases, was hugely skewed by taxes to reduce the importation of cars, especially "luxury" cars. In Finland for example imported cars at one point attracted 132% tax. Perhaps they still do. I suspect that taxis were not included in that trap.
I think in Greece the Merc reputation was probably based in the 50s on the basis they could stand up to the wear and tear from the local roads as they were then.
RYH64E said:
But how would Greece be better off if they'd bought Nissan Micras and Ford Fiestas rather than cheap German VWs (or BMWs for those who might otherwise have bought a Lexus)? It's not as if the domestic Greek automotive industry suffered because they haven't got one, and that's a big part of their problem.
It's got nothing to do with their domestic industry but everything to do with them spending way above their station - which the Euro had a massive hand in facilitating. Okay, perhaps I should have added the example of RR Sports in Ireland to make it the point without a German product!Same reason my frugal and financially liquid neighbours drive a Micra + Laguna, but my show-off neighbours across the road (Black RR Sporr + S4 convertible .. this is actually a real example) cannot afford their mortgage and have had to rent their place out!
Car production is somewhat global now so I don't really see that the Euro alone is the only influence on pricing and whether or not a particular country buy make X or make Y.
If you are financing a car the purchase decision is much less about the buy price and more about the "rental" which is based on the anticipated resale value (as we all know) plus whatever incentives the manufacturer is prepared to offer to make the deal attractive while they retain a market.
When there was a fashion in the UK to buy new cars in Europe and save substantial amounts of money (with luck) for a year or two the place with the deals was very expensive Denmark.
How come? you might ask.
Well the tax on cars was so high at the time that most local models were down specced (even compared to the UK!) to hit lower tax levels and then sold to the dealers at a low price anyway.
With EU regulations in place one could order a UK spec car for delivery in Denmark, get a reduced price and not pay the huge tax. Then import to the UK and save something like an extra 10% on the cost of doing a deal with a supplier in, say, Belgium. Whilst volumes of sales remained fairly low the manufacturers were unconcerned since it kept the Danish market active for them and helped the dealers a little.
To head off the trend rather than fight the EU it was easier to make certain aspects of service and warranty more difficult for imported cars if they felt the need to do so.
There is no reason to suppose that they would not wish to keep a sales and service network running in Greece using similar arrangements related to buying prices. There would be more margin to play with in the upper end market.
If you are financing a car the purchase decision is much less about the buy price and more about the "rental" which is based on the anticipated resale value (as we all know) plus whatever incentives the manufacturer is prepared to offer to make the deal attractive while they retain a market.
When there was a fashion in the UK to buy new cars in Europe and save substantial amounts of money (with luck) for a year or two the place with the deals was very expensive Denmark.
How come? you might ask.
Well the tax on cars was so high at the time that most local models were down specced (even compared to the UK!) to hit lower tax levels and then sold to the dealers at a low price anyway.
With EU regulations in place one could order a UK spec car for delivery in Denmark, get a reduced price and not pay the huge tax. Then import to the UK and save something like an extra 10% on the cost of doing a deal with a supplier in, say, Belgium. Whilst volumes of sales remained fairly low the manufacturers were unconcerned since it kept the Danish market active for them and helped the dealers a little.
To head off the trend rather than fight the EU it was easier to make certain aspects of service and warranty more difficult for imported cars if they felt the need to do so.
There is no reason to suppose that they would not wish to keep a sales and service network running in Greece using similar arrangements related to buying prices. There would be more margin to play with in the upper end market.
fido said:
Same reason my frugal and financially liquid neighbours drive a Micra + Laguna, but my show-off neighbours across the road (RR Sport + S4 convertible .. this is actually a real example) cannot afford their mortgage and have had to rent their place out!
This is the part of your argument that I don't get, you're not blaming your spendthrift, show off neighbour's problems on the GBP, but spendthrift Greece's problems are caused by the euro? Surely the problem is spending money that you don't have, regardless of the currency you use or who benefits from the expenditure? I can see how Germany benefits from selling more products, but Greece spending money that it can't afford is no different to your neighbours spending money they don't have, Germany might well benefit in both cases but the currency is irrelevant.
During the first Grecian € crisis I thought that Merkel played it very well, delaying bail out funding announcements and generally dragging Germany's financial feet. This seemed like a viable alternative to the Fed QE that was in full swing, as a means of keeping the € weak mostly just with words, having the markets permanently on edge. Then the Germans even managed to bail out their banks holding Greek debt using Eurozone mutualised funds, win win.
In a world of currency devaluation wars this kind of upheaval is a great asset, particularly if you can avoid paying the bill at the end of it. Unfortunately the paying of the bill seems to be getting closer, and it's going to be a hell of a bunfight deciding who is on the hook for how much when the ECB's black debt hole has to be filled. At some point I suppose the capital flight into Germany will reverse and go elsewhere judged to be less at risk - maybe the UK will benefit from this eventually?
In a world of currency devaluation wars this kind of upheaval is a great asset, particularly if you can avoid paying the bill at the end of it. Unfortunately the paying of the bill seems to be getting closer, and it's going to be a hell of a bunfight deciding who is on the hook for how much when the ECB's black debt hole has to be filled. At some point I suppose the capital flight into Germany will reverse and go elsewhere judged to be less at risk - maybe the UK will benefit from this eventually?
RYH64E said:
Greece spending money that it can't afford is no different to your neighbours spending money they don't have
It isn't conceptually - except in Greece's case - their [fraudulent] entry into the Euro allowed them to utilise lower interest rates to spend money they didn't have.fido said:
RYH64E said:
With obvious consequences for UK manufacturers should we find ourselves on the outside of said huge market.
False comparison. We are not in the Euro - thank goodness for that.fido said:
Yes the Greeks need to buy cars from someone - but I'm thinking perhaps Nissan Micras, Ford Fiestas and some cheapo French rubbish is more suited to their income level. The last time I visited Greece (mid-naughties) I was surprised by the number of high end BMWs around the place - more than the poverty stricken part of SW London where I reside.
Remember this article 
http://blogs.telegraph.co.uk/finance/ianmcowie/100...
Walford said:
fido said:
RYH64E said:
With obvious consequences for UK manufacturers should we find ourselves on the outside of said huge market.
False comparison. We are not in the Euro - thank goodness for that.Gassing Station | News, Politics & Economics | Top of Page | What's New | My Stuff