Re: first day of the euro

From: steve (
Date: Sat Jan 05 2002 - 07:37:00 MST

> Mike Lorrey wrote
> a) Do different countries have the EXACT same bills and coins in every
> detail? No, they don't. As several europeans here have said, there are
> very slight but noticable differences on the paper bills and the reverse
> side of every coin has graphics particular to the country in which it
> is stamped.

Not exactly. The coins vary from one country to another (at least as regards
the reverse of the coins) but the notes are uniform throughout the eurozone.

> b) Therefore, there are 12 different national mints involved in the
> production of the new european currency, and the 12 different central
> banks who run those mints.

Not so. National central banks are effectively redundant. It's the ECB which
directs the national mints and controls the money supply for the whole of
the eurozone - that's precisely the problem
> All it takes is for one of those mints to decide to over or under
> produce their local currency to entirely mess up the money supply for
> everyone.

They are no longer able to do this - see above. That is why the member
states of the eurozone have agreed to strict limits on government borrowing,
because they can no longer manipulate the money supply or the exchange rate
to get around the problems excessive spending would cause. Will they be able
to stick to this? I doubt it (it already looks as though Germany is going to
hit the limit in the first half of this year).

> All that has really occured is that all 12 countries have changed the
> name of their currency to the 'Euro' and have agreed to tie the value of
> each to that of all other 'Euros', much as many countries in the world
> tie their own currency one for one to the US Dollar. The heads of each
> national Central Bank belong to the European Central Bank, but that
> doesn't mean that each national bank will actually honestly deal with
> everyone else.

This is an accurate description of how things were until Jan 1st. They are
now trying to make it work as a genuine single currency, part of which
involves taking all discretion away from national central banks and giving
it all to the ECB plus a single interest rate etc. Whether they will succeed
is quite another matter. I agree that the euro will probably not challenge
the dollar as a reserve currency because its record as a store of value is
worse than the dollar during the short time it's been in existence and the
governments of the eurozone are unwilling/unable to make the reforms that
would get the eurozone economy growing. A few years ago I heard Bill
Niskanen give a talk on the euro and he made several predictions (e.g. that
it would decline against the dollar and other currencies, that it would have
a relatively high rate of inflation, that its effect on Germany would be
deflationary) all of which have so far proved correct, except for the last
one ie that the euro would not lat for more than five years. His argument
was that sooner or later there would be an exogenous shock with very
differential effects (a war in the Middle East perhaps?) and in consequence
the eurozone governments would be faced with a choice: abandon the euro by
retaking control of domestic money supply (as Mike Lorrey says) or make big
changes in the welfare state and labour market. He predicted they would do
the former. Personally, I favour a single currency but not a central bank
(these are a disaster IMO). BTW - the first forged euronotes appeared on 3rd
January. Isn't the ingenuity of the criminal fraternity amazing? Steve

This archive was generated by hypermail 2.1.5 : Fri Nov 01 2002 - 13:37:32 MST