It turns out that the Europhobes had not checked out the main premise of their official argument.
Krugman in Do Currency Regimes Matter?: “Antonio Fatas, citing new work by Andy Rose (pdf), suggests that currency regimes don’t really matter – in particular that membership in the euro has not really been a special problem for peripheral countries.
Challenging preconceptions is always good, and this is a serious debate. I am still, however, very much on the other side. I’d argue two points.
First, nominal wage stickiness – the key argument for the virtues of floating exchange rates”. is good.
Is it not amusing that “the conscience of a liberal”, Krugman, who passes for an extreme, left wing, bleeding heart socialist, in the USA, lauds the lowering of wages? By the way of currency devaluation? because, you see, the problem with wages is not that they low, it’s that they are “sticky”. Not to say ‘yacki’. In any case, never low enough.
Rose, professor at UC Berkeley, is endowed with one of these big, impressive titles. Rose is “B.T. Rocca Jr. Professor of International Business, Associate Dean, and Chair of the Faculty, Haas School of Business at the University of California, Berkeley, NBER Research Associate, and CEPR Research Fellow.”
Could not have happened to a better guy. A more Very Serious Person. Krugman takes titles very seriously, so he is now cornered. Professor Eminence Rose looked at 170 “small economies” (out of 214, excluding large economies such as EU, USA, China, etc.). Rose established that:
1) countries having opted for a hard currency exchange rate or for an inflation target, stayed, since 2006, in the one of the two regimes that they chose.
2) economic outcomes did not differ (so the partisans of devaluation, such as Krugman, are not supported by data).
On the face of it, it’s obvious that the partisans of devaluation are idiots: once 214 countries have devalued, then what? Ooops; of this we did not think, that’s why we are called idiots. But that makes us pundits who dine at the White House, and are very well paid.
OK, let me rephrase this. it’s obvious that the partisans of devaluation are on the payroll of the hyper rich. Indeeed, who profits from devaluation? After Argentina massively devaluated, friendly Americans landed like vultures, and bought entire landscapes, many times over.
USA banks made a fortune.
The only thing left, after devaluations, is that the rich is getting richer. Indeed, the rich own other things, besides their wages. Like real estate. A point Krugman always blissfully forgets. Such are American style “liberals”. All for liberally liberating capital from the constraints of civilization.
Anyway, I sent this to Krugman, who published it right away:
Ah, nothing like a bit of anti-Euro propaganda in the morning now that the government of the financially rogue nation has reopened for a bit, sequestered and all, with its infrastructure inferior to Spain’s.
Belonging to the euro zone brought tremendous advantages to the countries concerned. In particular, they splurged on infrastructure, and trade, commercial or human.
Spain is covered with very high speed train lines. As Spain does not frack, this is a precious asset. The world’s most advanced military transport plane (the brand new A400) is also built is Spain, and ramping up production (by contrast, and no coincidence, Boeing announced that the fabrication of the competitor of the A400, the C17, will be terminated).
What the honorable Paul does not seem to know is that conversion rates into the Euro were deliberately manipulated. For example the Drachma was converted at twice its real worth. It was viewed as a welcome gift to the Greeks. As Franco-Germania was about 60 times the size of Greece economically speaking, that was viewed as innocuous enough.
That also means that Greece ought to collapse 70% from its peak to return to the poverty level it had to start with. That will not happen: tourism is rebounding. Same in Portugal.
Greeks have not opted out of the Euro as they remember dramatic life with the drachma. Totally drachmatic. Europe has made Greece free, democratic, and rich.
The problems of Greece, at this point, are not about wages being sticky. The problems, basically, are that the Greek economy and fiscal system are far from where they ought to be. But the Franco-Germans are helping instilling the needed Prussian spirit.
Ireland, and others, have announced they are pulling out of the crisis. Next objective? To further the banking union. Paradoxically, the state of Landers banks in Germany is a problem.
The real argument of europhobes, of course, is that New York is the world’s most beautiful city, and the Euro is a threat to the splendor they live off, like the vampire from the neck of a cow. But don’t expect them to be that honest, or introspective; their livelihood depends upon not being that way, and talking of other things.
Things that, it turns out, they just invented, with the sheer power of their greedy, self obsessed minds.
It’s a wild world, but the Euro is strong.
Patrice Ayme
