Europhobes Devaluating

It turns out that the Europhobes had not checked out the main premise of their official argument.

Krugman in Do Currency Regimes Matter?: Antonio Fatas, citing new work by Andy Rose (pdf), suggests that currency regimes don’t really matter — in particular that membership in the euro has not really been a special problem for peripheral countries.

Challenging preconceptions is always good, and this is a serious debate. I am still, however, very much on the other side. I’d argue two points.

First, nominal wage stickiness — the key argument for the virtues of floating exchange rates”… is good.

Is it not amusing that “the conscience of a liberal”, Krugman, who passes for an extreme, left wing, bleeding heart socialist, in the USA, lauds the lowering of wages? By the way of currency devaluation? because, you see, the problem with wages is not that they low, it’s that they are “sticky”… Not to say ‘yacki’. In any case, never low enough. 

Rose, professor at UC Berkeley, is endowed with one of these big, impressive titles. Rose is “B.T. Rocca Jr. Professor of International Business, Associate Dean, and Chair of the Faculty, Haas School of Business at the University of California, Berkeley, NBER Research Associate, and CEPR Research Fellow.”

Could not have happened to a better guy. A more Very Serious Person. Krugman takes titles very seriously, so he is now cornered. Professor Eminence Rose looked at 170 “small economies” (out of 214, excluding large economies such as EU, USA, China, etc.). Rose established that:

1) countries having opted for a hard currency exchange rate or for an inflation target, stayed, since 2006, in the one of the two regimes that they chose.

2) economic outcomes did not differ (so the partisans of devaluation, such as Krugman, are not supported by data).

On the face of it, it’s obvious that the partisans of devaluation are idiots: once 214 countries have devalued, then what? Ooops; of this we did not think, that’s why we are called idiots. But that makes us pundits who dine at the White House, and are very well paid.

OK, let me rephrase this. it’s obvious that the partisans of devaluation are on the payroll of the hyper rich. Indeeed, who profits from devaluation? After Argentina massively devaluated, friendly Americans landed like vultures, and bought entire landscapes, many times over.

USA banks made a fortune.

The only thing left, after devaluations, is that the rich is getting richer. Indeed, the rich own other things, besides their wages. Like real estate. A point Krugman always blissfully forgets. Such are American style “liberals”. All for liberally liberating capital from the constraints of civilization.

Anyway, I sent this to Krugman, who published it right away:

Ah, nothing like a bit of anti-Euro propaganda in the morning now that the government of the financially rogue nation has reopened for a bit, sequestered and all, with its infrastructure inferior to Spain’s. 

Belonging to the euro zone brought tremendous advantages to the countries concerned. In particular, they splurged on infrastructure, and trade, commercial or human.

Spain is covered with very high speed train lines. As Spain does not frack, this is a precious asset. The world’s most advanced military transport plane (the brand new A400) is also built is Spain, and ramping up production (by contrast, and no coincidence, Boeing announced that the fabrication of the competitor of the A400, the C17, will be terminated). 

What the honorable Paul does not seem to know is that conversion rates into the Euro were deliberately manipulated. For example the Drachma was converted at twice its real worth. It was viewed as a welcome gift to the Greeks. As Franco-Germania was about 60 times the size of Greece economically speaking, that was viewed as innocuous enough. 

That also means that Greece ought to collapse 70% from its peak to return to the poverty level it had to start with. That will not happen: tourism is rebounding. Same in Portugal. 

Greeks have not opted out of the Euro as they remember dramatic life with the drachma. Totally drachmatic. Europe has made Greece free, democratic, and rich.

The problems of Greece, at this point, are not about wages being sticky. The problems, basically, are that the Greek economy and fiscal system are far from where they ought to be. But the Franco-Germans are helping instilling the needed Prussian spirit. 

Ireland, and others, have announced they are pulling out of the crisis. Next objective? To further the banking union. Paradoxically, the state of Landers banks in Germany is a problem.

The real argument of europhobes, of course, is that New York is the world’s most beautiful city, and the Euro is a threat to the splendor they live off, like the vampire from the neck of a cow. But don’t expect them to be that honest, or introspective; their livelihood depends upon not being that way, and talking of other things.

Things that, it turns out, they just invented, with the sheer power of their greedy, self obsessed minds.

It’s a wild world, but the Euro is strong.


Patrice Ayme

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14 Responses to “Europhobes Devaluating”

  1. Alexi Helligar Says:

    It is interesting to look back at all the “well-informed” pundits who said that the Euro was dead. Now it seems like the strength of the Euro is a new “problem”.

    Patrice, we have to hand it to you again, you called this one correctly. It is amazing what one can foresee when one’s intentions are pure.
    Euro Rally Could Put Brake on Recovery
    The euro pushed above $1.37 on Friday for the first time since February in a move that analysts say could crimp the single currency zone’s recovery from recession. Europe’s currency has garnered support this year thanks to an easing in the continent’s debt crisis and a return to economic growth…


    • Patrice Ayme Says:

      Very well put, Alexi! Thanks! Purity makes my jihad strong! [I hope the NSA got that one! jihad, jihad…] The strength of the Euro has long been a problem.

      But, the way the Germans look at it, France was right in the 1930s and Hitler, following Roosevelt, wrong. And let’s not talk about 1923, when Schacht engineered hyper inflation in Germany to spite France and Belgium. The example they all have below their nose if Suisse, with its Swiss Franc, so strong it had to be pegged to the Euro. Strength makes strong. Merkel is happy to buy all that coal to the USA with her strong Euro.


  2. Alexi Helligar Says:

    I like your saying, “the rich own other things, besides their wages. Like real estate.”

    Krugman is not the only one to not see this. Most people think of wealth only in terms of their incomes, and are blind to real estate, factories, charitable foundations, trusts and other productive properties.

    In the case of Krugman, I think his blindness is self-willed.


    • Patrice Ayme Says:

      …Without counting the more important worth of the hyper rich; their connections. That’s how carlos slims, heir to a plutocratic family, became even richer; the Mexican government gave him the state telecom company.

      Similarly, in the USA, prez Nixon used public money to give HMOs to plutocrats such as his friend, the construction magnate Kaiser… who had persuaded him, in the oval Office, to do so.

      Krugman is calculating. For example he did not publish my broadside against Roosevelt… Although he just got the Roosevelt award, and was crowing about it. So, visualize this: Krugman is afraid of… me. Of my righteous ideas. He is afraid that my venom is going to reach out, and poison the entire Roosevelt empire, and they will hate Krugman for it…

      They can have all the riches they want, but the ultimate wealth is that of the mind.PA


  3. Paul Handover Says:

    My, someone’s been busy this last week!

    On a more serious note, how do you see the chances of the Euro becoming the defacto global currency, replacing the dollar’s role in international trade?

    If that was to happen what would it mean for USA Inc.?

    Yet another deeply interesting essay, Patrice.


    • Patrice Ayme Says:

      Dear Paul: somebody has indeed being busy, and that’s just a small fraction of it.

      De facto, the Euro has become the second world reserve currency… followed by the Pound (not the Yen!). After what happened to Saddam Hussein (who had briskly converted to Euros!), or what happened to Strauss-Kahn (who had introduced a gigantic amount of “IMF drawing rights”), a go-slow approach for switching to Euros is preferred by world leaders.

      The trust in the Euro is demonstrated by its exaggerated strength.

      Paul Krugman claims, disingenuously, that the fact the dollar is/was the world’s reserve currency does not matter at all. However lord Keynes who was the UN head of the currency problem board in 1944-45 (“Brenton Woods”) disagreed ferociously, furiously, and the USA overwhelmed his objections not. Instead the Americans finally substituted secretly the document that was signed, eluding Keynes and the UN.

      Bretton Woods was exploded by Nixon in 1973. Since then rates have been floating. Under Reagan the dollar was worth 11 Francs. Under Carter, it was worth 3.90 Francs (the Euro’s was established on the long term average Dollar/Franc, not Dollar/DM!)

      The fact that Krugman, a lover and publicist of Keynes, never mentions this is telling of deliberate bias towards the Wall Street-USA empire.


      • Paul Handover Says:

        Thanks for such a comprehensive reply.


        • Patrice Ayme Says:

          Thank you, Paul, to give me the occasion to think about those matters. As Alexi Helligar was mentioning, Krugman is not being honest. His attitude relative to keynes is prima fascies evidence: he brandishes keynes all the time, but never about the Dollar.
          Now I understand that Krugman is trying to be political. For a philosopher, that’s no excuse.


  4. Patrice Ayme Says:

    Meanwhile Krugman justly denounced Greenspan in the “worst ex-central banker in the world”

    Says Krugman: “The thing is, Greenspan isn’t just being a bad economist here, he’s being a bad person, refusing to accept responsibility for his errors in and out of office. And he’s still out there, doing his best to make the world a worse place.”
    I sent him this, and he published it:

    Greenspan, central bankster. Still in office, propagandizing. Insisting deliberate crimes were, and still are, virtues. The way that central bankster earns his keep.

    Greenspan makes Jean-Claude Trichet looks like Saint Francis of Assisis plus Einstein combined. And what Trichet says now is good, by the way: he is definitively oriented, in what he says to the public, against excessive taxation for the little guys, inequality, tax cheats, plutocracy.


  5. Paul Handover Says:

    Forgot to mention that the British currency exchange company that Jean and I use is forecasting the USD weakening against the GBP to 1.67 by early 2014.


    • Patrice Ayme Says:

      The Americans are keeping a deliberate weak dollar to gain economic advantage, but it’s the French/German/Swiss view (in this historical order!) that this works only short term. Also the energetic situation of Europe is such it has interest to keep a strong currency, to buy said energy cheap. Forces to make quality products.


  6. Patrice Ayme Says:


    Europe is said to be beginning an economic recovery. If stock and index prices are any indication, investors seem to believe it is so.

    The problem with devaluing one’s currency is, if everyone does it it will not have the desired effect, presumably to make the goods and services you are exporting more competitively priced elsewhere in the world.

    The U.S. has repeatedly resorted to this tactic without regard for the effect it has on developing countries economies. Greece will likely to drop out of the Eurozone sooner or later, hopefully when it can do so with the least repercussions for the rest of the EU.


    • Patrice Ayme Says:

      Jeff: I don’t see why Greece will have to leave the eurozone. In any case, it will not happen. The problems of Greece are better solved inside the eurozone.
      The USA, indeed, behave as if it were the god of the universe. Hence the obsession with god? But, hell, it does not have an energy problem, so it can make its dollar as cheap as needed…


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