[veyron]

The troubles that we are seeing now ARE caused by the Euro.

It tried to combine strong exporting nations like Germany with weaker tourist nations like Greece. Were the Deutschemark a separate currency, it would be stronger than the current Euro (and likewise, the drachma would be weaker than the Euro). Germany benefited greatly from this (net exporters benefit from a weaker currency -- see China) and Greece and other nations were hurt.

If you want to see a pure example, check out what happened with Nintendo. Thanks to the relative strengthening of the yen, they posted a loss: http://www.bbc.co.uk/news/business-15473961

Overspending is intrinsically not problematic if the currencies are separate. The governments of overspending nations would just print more money, devaluing their currencies in the process.

[yummyfajitas]

Germany benefited greatly from this (net exporters benefit from a weaker currency -- see China) and Greece and other nations were hurt.

You've got it backwards.

Germans worked hard producing goods which they turn around and send to people outside Germany. This is a net loss for the Germans. In contrast, the Greeks received a bunch of goods and services they didn't need to work as hard for. This was good for them.

A weaker currency may be good for companies with domestic liabilities and foreign customers, but it's very bad for consumers with domestic customers (their employer) and foreign liabilities.

[nhaehnle]

Germans worked hard producing goods which they turn around and send to people outside Germany. This is a net loss for the Germans.

There is a lot of truth to that. It's important to keep in mind that Germany as a whole is doing that voluntarily, though. It is a (more or less) conscious political choice to be a net exporting nation, and it was achieved by (among other things) systematically depressing the real wage development in Germany by political means.

So the German position is really schizophrenic (and I'm saying that as a German). On the one hand, Germany has for the last ten years given presents (in real terms) to the rest of the world. But now Germans are saying that they don't want to give presents (aka bail outs) to other European countries, even while they insist on continuing to give presents (aka net exports) to other countries.

It is a self-contradicting policy.

The problem is that Germany - at least the German elite - benefited in the sense that accumulating financial assets against the rest of the world implicitly increases the power that Germany has over the rest of the world. So Germany is in this very powerful position right now, where nobody can effectively challenge the insanity of their self-contradicting policies, at least from the outside.

From the inside it is very hard work as well, because unfortunately the media campaigns in favor of net exports have been so effective that most regular people believe in their benefits.

[veyron]

You have to think about more than just the first-order effects. In general, a company will sell more products if they can sell for a lower price.

"Germans worked hard producing goods which they turn around and send to people outside Germany." <-- agreed

"This is a net loss for the Germans." <-- not so simple.

It is a net loss for Germans if you presume that they would sell the same number of goods with a stronger currency. However, that is not how it works. If the currency were stronger, they would actually export less, and as a whole would be worse off.

Let's take Mercedes-Benz cars as an example. Daimler pegs a price in Euros (the home currency) and the US price is driven by the euro price (plus some adjustments, but those are small relative to the product price). If the euro is weakened relative to the dollar, then they can sell cars at a lower price for US consumers. In the US market, then, they would sell even more cars. MB actually cut the price a bit for the E class lineup due to this effect.

As another example, consider China. If China's currency were allowed to appreciate against the dollar, then chinese goods would cost more to the US customers, making US-produced goods more appealing. In the extreme, if the dollar was severely weakened (for example, if the fed printed a ton of money without a similar action by china), then US products would actually be cheaper than the corresponding Chinese products.

[yummyfajitas]

It is a net loss for Germans if you presume that they would sell the same number of goods with a stronger currency.

No, it's a net loss for the Germans because they don't get to enjoy the product of their labor.

Consider your Mercedes example. Some Germans work very hard building this car, and do they get to enjoy driving this car? No. They put it on a boat and send it to the US. In return they receive some colored pieces of paper which they can't buy very much with.

A strong currency means your citizens have access to many goods and services worldwide. The USD is strong relative to the INR - that means I could buy all the dosas I wanted without caring about the price. In contrast, the strong GBP meant that I had to think twice before buying a sandwich in London.

[veyron]

You are forgetting the law of demand here: http://en.wikipedia.org/wiki/Law_of_demand

[yummyfajitas]

The law of demand is only relevant if you are discussing the balance sheets of exporting businesses, which for some reason you seem insistent on doing.

I'm discussing the balance sheets of consumers. Maybe I'm just crazy, but I care more about consumers than I do about Mercedes-Benz Inc.

[veyron]

Ok take a step back.

Suppose that mercedes benz is only able to sell half as many cars as normal. What will happen? Will they keep the same number of employees? If the US is any example, the answer is clearly no. And once families lose their incomes, they have less income to deal with.

If you presuppose that they magically earned the same number of euros without concern for the demand, then yes. However, that's not how it works. You have to look at Mercedes Benz and other companies because they are the ones who are paying most of the consumers.

Put simply, a consumer with no income in a world with a stronger Euro is worse off than a consumer with an income in a world with a weaker Euro (something is better than nothing :)

[ScottBurson]

Germans worked hard producing goods which they turn around and send to people outside Germany. This is a net loss for the Germans.

Except that they did get paid for said goods, and if their currency had been independent and stronger, they would not have sold so many of them in the first place, since they would have been more expensive.

I think veyron has it right.