This is just a matter of balance sheets and accounting identities. No fancy math required. Just the ability to put figures in the correct accounts, do some arithmetic and compare balance sheets using simple algebra. Hardly rocket science.
Professor Terzi illustrates this through the game Monopoly.
Germany, controlling the ECB, is the banker. Therefore, Germany will be the last country standing. Of course, the EZ will implode before that, or the rules will be changed. As Italy and France are squeezed more, then the issue will surface with a vengeance.
Without concerted action to address the balance of payments issue the EZ is toast.
Ending the collapse is possible, and yet Europe clearly lacks political will. This week begins with a country in ruins. As it is, the Eurozone will not last long.
Money And The Real Economy
Eurozone desperately needs a “FISCAL WHATEVER-IT-TAKES”. But EU leaders ain’t bold enough to act.
Andrea Terzi, Professor of Economics, Franklin College, Switzerland
Eurozone desperately needs a “FISCAL WHATEVER-IT-TAKES”. But EU leaders ain’t bold enough to act.
Andrea Terzi, Professor of Economics, Franklin College, Switzerland
7 comments:
Exports are just a way of pretending that your central bank isn't funding things.
You export. You earn US dollars (say). You need to convert those to Euros to pay for local things, but you can't because the importers have already sold all their Euros to other exporters.
So you have a liquidity crisis in the FX market, which is solved by the banks and financial houses borrowing Euros into existence from themselves and buying US dollars from you, which they can then discount at the central bank if reserves become an issue.
And if that drives up the currency too much, then more Euros will appear to buy the US dollars to keep the exchange rate down - because *exports*.
Bonkers.
Neil they dont have to sell their USDs... they can save them.... hold them as assets in their US subsidiaries. ...
I agree some USDs are probably exchanged for EUR in the case of a multinational that has USD profits... but not near all...
This is like the people over here saying the US multi nationals should get a tax cut to "bring the profits home" or Bernie Sanders saying he wants to "close that loophole!".. both impossible as those profits are in EUR accounts... a US firm cannot "bring home" a EUR.
Rsp
It comes down to net borrowing and net saving in euro in the euro currency zone, and the availability and terms of euros for the net borrowers to meet their payment schedules.
The eurocrats' "solution" to the Greek problem of lacking euros to pay P&I has been to reduce and then shut off their supply of euros. The net savers won't lend, and the ECB won't permit creating more euros. That player is out of the game unless it cuts spending on other things and/or sells assets to the net savers. Actually, Greece could pledge specific assets as collateral for loans to keep the game going, but under the rules of the game they are just going to forfeit the collateral down the road.
I bet that if we could get one of our people to interview Schauble we could get him to admit that he would like all the nations in the EZ to be net exporters....
Oh, I think he could be argued into saying that all the countries in the world should aim at becoming net exporters.
He is probably smart enough not to say that all should actually be net exports simultaneously.
But he is crafty enough to imply it and then change the subject if asked.
Yep, if everybody tries to be a net exporter we have competition which increase productivity etc.
Is their rationale, ofc in reality things don't work that way. For starters his own country will never let go the competitive advantage it has over others and they will use politics to do so (like with the euro and EU).
"Neil they dont have to sell their USDs"
They do have to sell some if they're to pay people in the Eurozone. They may choose to hold their profit in USD, but not their Eurozone cost base.
I never said they had to exchange *all* their earnings, although they may choose to do so to reduce currency risk.
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