[lol_wut]

how is having an artificially weak currency a subsidy to Germany? isn't that like underpricing their goods? and wouldn't that imply that countries who import German goods are being subsidized, because they are able to get German goods at artificially low prices?

also can you suggest a place where I could read more about this? its awfully confusing, and somewhat counter-intuitive and it would be helpful to read where someone has presented this idea in a paper or article or something.

[Analemma_]

I don't like how you're being downvoted for asking a legitimate question in apparent good-faith. This idea can be genuinely counterintuitive the first time you encounter it.

The issue is that, normally when a country with its own currency is economically uncompetitive, its currency weakens, which helps give a boost to domestic industry by making their exports cheaper than those of richer nations. So there's a natural corrective function to economic fragility that helps these countries get back on their feet. The Eurozone breaks that corrective mechanism: without the Euro, right now e.g. Greece would have a weak currency and Germany a much stronger one, which would help Greek industry because their products would be cheaper than Germany's. But since they're all using the Euro, Greece can't get any kind of comparative economic advantage.

[_delirium]

To add to this, one of the parts that's counterintuitive is that in principle currencies are just accounting mechanisms, so you can achieve the same effects in a currency union. The problem is that it requires a lot more coordination. When you devalue a currency, a bunch of things in the country move together: wages go down in external terms (e.g. $ or € denominated terms), but housing costs, domestic service prices, etc., all move together, because they're denominated in the same local currency. So the currency has become worth fewer dollars or euros, but the ratio between wages and rents in local currency is unchanged, so people can still in the immediate future pay their rent out of their wages, the same as before.

To accomplish the same without an independent currency requires managing this movement in nominal terms. If the problem is that the country is basically broke or uncompetitive, and needs to solve this by "getting cheaper" compared to other countries, everything in the country has to get cheaper simultaneously. Wages have to go down in €, housing has to go down in €, etc., and this all has to happen in a coordinated way so everyone can still pay their now-lower rent with their now-lower wages, and so on. Economists call this "internal devaluation", i.e. achieving the same effects as a currency devaluation while not having a separate currency, by just lowering actual prices for everything.

The consensus seems to be that it's difficult to pull this off successfully, and really good positive examples are rare. It's complicated by just the general difficulty of coordination, as well as longer-term contracts (e.g. most people's rent and wages don't get renegotiated monthly). Greece has been sort of doing this through consistent single-digit deflation, but it draws it out over a long period. Many (though not all) economists think the result is worse than an all-at-once currency devaluation would've been.

[knzhou]

This is the clearest explanation of this topic I've ever seen -- my sticking point has always been exactly what you just explained. Is there a good place to get more macroeconomic explanations like this?

[StanislavPetrov]

Not only that but when when a country issues their own currency and controls their own finances they control the level of debt they want to take on in a crisis, and aren't bound by the Eurozone.

[wheels]

I read this long essay, "Germany Must Lead or Leave", by Soros himself, seven years ago when it first came out:

https://www.spiegel.de/international/europe/george-soros-on-...

My memory of such isn't perfect, and I won't reread all dozen-ish pages for the sake of an HN comment, but I remember it covering some of the issues of Eurozone integration, and seems very topical given this thread is about Soros.

[mcv]

> "wouldn't that imply that countries who import German goods are being subsidized, because they are able to get German goods at artificially low prices?"

Yes, and that makes German products more attractive, boosting German exports. Germany gets a boost to their export, at the cost of importing at higher prices. Because Greece's currency is artificially boosted, they can import relatively cheaply, but they have trouble exporting because their exports are too expensive, so money is leaving the country.

[kaonashi]

https://www.lrb.co.uk/v14/n19/wynne-godley/maastricht-and-al...

>If a country or region has no power to devalue, and if it is not the beneficiary of a system of fiscal equalisation, then there is nothing to stop it suffering a process of cumulative and terminal decline leading, in the end, to emigration as the only alternative to poverty or starvation.

[raxxorrax]

For the average German it is plain and simple not an advantage. Maybe if the export bonuses keep the company you are working for alive, but that is a unrealistic edge case.

[wheels]

That's false. I'll give you a very easy example of how it's benefited me (and many, many Germans):

I sell SaaS software on a subscription basis to customers all over the world. They pay for our service in USD, which is then converted to EUR when I get paid from the company.

If the Euro was stronger, which it would be if it were only the currency for Germany, I'd get less Euro when that conversion happened, and I'd have less local currency for things like rent, groceries, etc. The Euro being artificially depressed against USD absolutely benefits anyone who either personally or via their company exports products, including stuff like SaaS. Since exports are the backbone of the German economy, it has a very concrete benefit to most Germans. Greece's economic problems literally mean I get more cash.

[martinlaz]

> If the Euro was stronger, which it would be if it were only the currency for Germany, I'd get less Euro when that conversion happened, and I'd have less local currency for things like rent, groceries, etc.

But wouldn't you be able to still buy exactly the same stuff with less (but stronger) Euros?

[wheels]

No. My rent won't go down in Euro just because the Euro is strong. The strength or weakness of a currency mostly dictates how it interacts with goods and services from outside of its currency zone. So I might be able to buy more consumer electronics (which mostly aren't produced in Germany) with a strong Euro, but rent, milk, bread, which are internal to Germany, will stay approximately the same in their Euro denomination.

This is true in most places without particularly volatile currencies, though in countries that do have very volatile currencies, things like rent have historically been specified in stable currencies like US Dollars, Deutsche Mark or Euro.

[martinlaz]

The point is that these extra Euros, if they were any significant amount, in the local market would drive the demand for goods up, along with their prices. And then we'd be buying the same amount of stuff, just more expensive.

Surely things like rent take longer to reflect an increased demand but they do eventually catch up.

[raxxorrax]

That is by far not the average situation. That would also mean that wages would increase when the Euro was introduced.