2010 May 12 Wednesday
Estonia To Replace Greece In Euro Zone?

As I see it, the Euro currency zone leaders are lining up replacements for those members that will drop out of the euro in order to escape excessive debt burdens. The Euro mandarins might see it differently. But given that continued PIIGS (Portugal, Ireland, Italy, Greece, Spain) membership in the euro is uncertain it makes sense to think of Estonia as a substitute for Greece.

The Baltic republic of Estonia, a country of 1.3 million people, is on course to adopt the euro in January 2011, the European Commission says.

The recommendation still requires the approval of all 27 EU member states, 16 of which are in the eurozone.

What if Greece votes the membership out of sour grapes as Greece leaves? Or maybe Portugal will threaten a veto in order to get bigger loans.

Nouriel Roubini thinks the most heavily indebted euro zone members will be forced to abandon the euro currency in order to escape the unsustainable debt burdens they carry.

May 12 (Bloomberg) -- New York University professor Nouriel Roubini said Greece and other “laggards” in the euro area may be forced to abandon the common currency in the next few years to spur their economies.

A “real depreciation” in the euro is needed to restore competitiveness in nations including Spain, Portugal and Italy, he said in an interview on Bloomberg Television today. The euro will remain the currency for a smaller number of countries that have “stronger fiscal and economic fundamentals,” Roubini said.

Jim Rogers thinks the sovereign debt bail-out will doom the euro by encouraging even more government irresponsibility.

“I was stunned,” Rogers, chairman of Rogers Holdings, said in a Bloomberg Television interview in Singapore. “This means that they’ve given up on the euro, they don’t particularly care if they have a sound currency, you have all these countries spending money they don’t have and it’s now going to continue.

Rogers is raising his young daughters to speak Mandarin because he sees the 21st century as the Chinese century.

Share |      By Randall Parker at 2010 May 12 10:19 PM  Economics Sovereign Crises

Mthson said at May 13, 2010 1:39 AM:

Is learning Mandarin really practical at this point in technological history?

Companies "have developed iPhone Apps which transform the smart phone into a handheld speech to speech translator." http://singularityhub.com/2009/11/23/universal-translators-are-all-around-us-video/

The internet's still relatively young. By the time children who are currently 10 years old reach 30, I'd expect speech translators to be highly developed and in broad use.

Also, who wants to waste time and brain space on another language? Most people will never even master their native language, including scientific vocabularies, business vocabularies etc.

Snouck said at May 17, 2010 3:42 AM:

"New York University professor Nouriel Roubini said Greece and other “laggards” in the euro area may be forced to abandon the common currency in the next few years to spur their economies."

I think Greece and the other PIIGS are going to try to stay in the Euro. Because if they go back to currencies of their own, the debt will still be denoted in Euros. With their currencies depreciated this debt will be much higher than it is now and the interest burden correspondingly higher. More likely Germany and other credit nations will look at Denmark which still uses the Danish Kroner and go back to their own currencies or create a new, narrow currency union. Somone told me that Onno Ruding, a World bank buraucrat and former Minister of Finance of The Netherlands discussed leaving the Euro on a radio commentary show and joining a monetary union with Germany.



Randall Parker said at May 17, 2010 9:03 PM:

Snouck, The Greeks can exit the Euro and then default. They don't have to worry about the drachman-euro exchange rate on their debt if they just walk away from the debt.

Bill Gross of Pimco points out that Spain has defaulted 13 times in the last 200 years. Greece would probably be in the same league if it hadn't been part of the Ottoman Empire for much of that time.

Of course, if the Germans and Dutch bail on the euro then what benefit does Greece get from staying a member?

All this discussion doesn't even factor in Peak Oil. Contracting economies will suddenly find their debt as a percentage of GDP spiraling out of control. Even France might default.

Snouck said at May 18, 2010 9:10 AM:

Randall: "Bill Gross of Pimco points out that Spain has defaulted 13 times in the last 200 years. Greece would probably be in the same league if it hadn't been part of the Ottoman Empire for much of that time."

Greece is now part of the EU empire. It has treaty obligations and has to avoid upsetting the EU political balance.

Greece has a massive hole in the budget, perhaps 15 percent, which has to be financed by loans, at interest. If they leave the Euro they will get no low interest loans from the EU. They cannot borrow on the market because they cannot afford bond market interest rates. Closing the budget deficit at once will increase violence against the state.

If they would leave the Euro, go back to a devalued drachme they will undercut the other Euro zone countries and take their jobs. All countries in the Euro internal market are required by treaty to enter the EMU as soon as they can in order to prevent such competition. If Greece leaves the other countries will regard Greece in breach of the treaty and evict Greece. Most of Greece's trade is with the EU member states. It will be difficult for Greece to make a living without easy access to the EU markets. Moreover the country will lose influence, become isolated if it takes such an unilateral step.

It is wiser for Greece and other PIIGS to stay in the EU and wait for the creditor nations to move out. Indeed Greece may leave the EMU after Germany and the other creditors have left. There will be fewer recriminations that way. They can get cheap loans. Not a bail out as a bail-out is forbidden by treaty (art. 125 Lisbon Treaty, also in the previous texts) and keep the population happy. What is there not to like?

This whole EMU has created a huge mess. Our politicians should never have created this abomination. The effect on both the southern countries and on the northern countries is going to be terrible.

NotProgressive said at May 31, 2010 8:06 PM:

Greece's birth rate is only 1.29. A replacement birth rate is 2.1 per female. It is not unusual to have 4 Greek grandparents, with two children, and one grandchild.

The perfect trifecta for Greece's downfall is socialism, low birth rates, and the Euro. In the case of the Euro, it is a straitjacket for Greeks. If Greece had their own money, then it would feedback a signal that all is not well. Devaluations of the currency would follow, and Greek citizens could modify their economy (or birthrates), etc. Since the Euro is controlled by the big economies, France and Germany, then Greece and smaller economies get short shrift. In other words, the value of money is a feedback mechnism for economies, something like the nervous system for a biological creature. Since Greece has poor feedback, they are effectively blind and dumb.

In the U.S. if one region has poor economic performance, people simply move to different better performing region. In Europe, Greeks are unlikely to up and leave, and move to Germany. Greek history and ethnic ties trump false economic ties. The Euro is a false construct that doesn't serve the needs of the ethno states of Europe.

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