[currenciessfe]

It's not that simple. Germany wanted a country like Italy in the Euro so it would pull the currency down and not allow it to appreciate too much (like the Deutsche Mark did). That would would be very bad for German exports.

[wsc981]

Yes, Germany benefitted hugely from southern European countries joining the Euro as it made it much easier for Germany to export goods to southern Europe.

At the same time it was made much easier (at lower interest rates) for southern European countries to borrow money from northern European countries and other markets, as creditors would feel more secure that they'd get their money back. Creditors would assume the northern European countries would bail-out southern European countries in case of problems.

And that caused southern European countries to lend more which might benefit a country like Germany again. These countries could lend more easily to buy luxury cars, for example.

[rich_sasha]

This narrative is kind of correct, but it irks me when people somehow blame northern Europe for southern Europe's debt. No one forced them to overborrow, especially since it mostly happened in times prosperity.

Generally speaking, access to cheap debt is seen as a uniformly good thing.

[random_kris]

Well the northern European will blame southern for not being frugal enough.

But this is the same as drug dealer saying their dead customer was not responsible enough. Yeah it true, but some people just are not responsible for their own actions and the dealer was happily benefiting all the time from him

[dmichulke]

Well, this!

Except that the dead customer still owes 590 billion to (mostly) the drug dealer mentioned above and won't be able to pay it.

And the goods delivered were not drugs but things that usually don't alter your way of thinking (like cars, machines, ...), even less if we're talking about a group of people (like the government or a country of 60mn people)

Oh and there was also trading (i.e. delivering goods back), so Italy is not only consumer but also producer.

[rich_sasha]

When dealing with the public, sure I agree. But not at all when dealing with (supposedly) professional bodies such as national governments, I don't buy it.

I'm not pointing the "overspending" finger either, just saying, countries should take responsibility for their actions, not complain at the enablers.

[QuarterReptile]

I don't know much about Italian government, but unless there's some fundamental difference between them and the US, I don't see any chance of a government showing restraint and staying in power, when the other guys could deliver prosperity without the bill coming due for 10+ years.

What am I missing?

[wsc981]

If politicians have the ability to borrow, they will generally make use of it.

Which is why the weaker currencies were a much better fit for Southern European countries. Creditors would expect a high interest, due to high inflation, thus limiting the politician's ability to borrow money.

I do feel northern Europe (especially Germany) is partially to blame, since they were very much interesting in increasing their exports and the Euro was the enabler.

[qeternity]

> If politicians have the ability to borrow, they will generally make use of it.

This does not absolve the politicians, nor the electorate.

[Ygg2]

> how blame northern Europe for southern Europe's debt.

They both share the blame. If a bank clerk keeps giving loans to a drug addict something is definitely off. Especially if it suggest settling the debts via organ sale (austerity).

[disgruntledphd2]

The really low interest rates set by the ECB for the benefit of Germany/Northern Europe pre financial crisis absolutely poured fuel on the bubble fires of the PIIGS.

[djbebs]

Incentives matter, and when you create incentives to over borrow, you're going to see entities overborrow.

[mirko22]

It’s the North providing the debt :)

[vandreas2]

Not really Italian lira suffered from inflation, a lot of people push this narrative that somehow Italy was forced to join the Euro against her will. From Wikipedia:

Lira pesante Due to the lira's low value after the war economic calculations and price displays became unwieldy because of the large number of zeroes. As early as the 1950s suggestions were made to redenominate the lira but no serious efforts were made at that time. In the 1970s a plan known as lira pesante [it] (English: hard lira) or lira nuova (new lira) was proposed. The lira pesante would have redenominated the currency at 1,000:1, removing 3 zeroes. However the project went dormant for several years before being revived in 1984. Ongoing heavy inflation saw the lira pesante pushed back until it was permanently abandoned in 1991 because of plans for a single European currency.

[lottin]

Having a weak currency means you're selling cheap and buying expensive, so it's not clear how it benefits you. It certainly benefits everyone else.

[avn2109]

I'm not the OP, but as far as I know there is no economic faction which disputes the claim that "a weak currency boosts exports."

I spent 5 minutes googling this out of curiosity and could only find published claims in favor of the orthodox "weak currency boosts exports" idea, for example "Export dependent nations may actively encourage a weak currency in order to boost their exports." [0] or "Exports become cheaper when the currency of a nation is weak."[1]

[0] https://www.investopedia.com/terms/s/weak-currency.asp [1] https://thebusinessprofessor.com/en_US/economic-analysis-mon...

If there are published claims to the contrary, I would be interested in reading them.

[plasticchris]

Pay your workers in cheap local currency, sell in strong foreign currency.

[lottin]

So how does a cheap currency benefit Germany according to this theory?

Another thing is that if production costs go down (although you don't say why they're going down, it seems a random assumption on your part), then competition among exporters will drive the price of exports down. I mean, this is Economics 101.

[plasticchris]

So, this only works if a large part of the cost is labor (this is the model china used in the last few decades) in which case the cost of production definitely goes down. I'm no expert in Germany's economy, maybe they have more materials / energy cost that they need to pay for in their home currency?

[lottin]

Your analysis is incorrect. Markup is a function of market power. If market power remains the same, an increase in markup cannot last for long. Competition will drive prices down until markup goes back to its previous level. Therefore the end result is a fall in the price of exports. Whereas for importers the opposite is true, imports become more expensive for local purchasers. This is what is meant by "selling cheap and buying expensive", which is exactly what happens when a currency depreciates.

[currenciessfe]

It also means you're paying your labor cheap. That makes you more competitive.

[lottin]

But competitive simply means your products sell for less. The question was how does selling for less and buying for more benefit you?

[currenciessfe]

You don't sell for less, since you sell in foreign currency. So you get the same amount of foreign currency (price in USD remains the same), but you need less converted to your internal currency to pay your labor.

But then you can invest that extra profit in decreasing your foreign currency price, thus becoming more competitive.

You can google for longer explanations of why a weak currency is excellent for exporters, this is well established.

[lottin]

I just Googled it, and this is what I found [1]:

When a country's currency appreciates in relation to foreign currencies, foreign goods become cheaper in the domestic market and there is overall downward pressure on domestic prices. In contrast, the prices of domestic goods paid by foreigners go up, which tends to decrease foreign demand for domestic products.

A depreciation of the home currency has the opposite effects.

It contradicts directly your claim that exports don't get cheaper. You're saying exports remain the same (because they don't get any cheaper), and that the only change is an increase of corporate profits at the expense of wages.

[1] https://en.wikipedia.org/wiki/Currency_appreciation_and_depr...

[currenciessfe]

Read again carefully what you quoted. It exactly supports my claim.

> Export dependent nations may actively encourage a weak currency in order to boost their exports.

> A weak currency may help a country's exports gain market share when its goods are less expensive compared to goods priced in stronger currencies. The increase in sales may boost economic growth and jobs while increasing profits for companies conducting business in foreign markets

https://www.investopedia.com/terms/s/weak-currency.asp

[quonn]

Spain and other countries, yes. Nobody wants the extreme instability of Italy.

[denton-scratch]

At one time, there were rules for joining the Euro, things like debt-to-GDP, controls on government spending and so on. Germany and France, in particular, pressed for the southern countries to be admitted, despite the well-known fact that they didn't meet those conditions.

They had large pension and state-payroll obligations, and they couldn't cut that spending and stay in power. Greece tried to cut it's spending, and the government was ejected. The new socialist government was then destroyed by German bankers and politicians.