Quote:
Originally Posted by kerry
Yes, but it's not a central currency system like you find in other nation states. In other nation states with central banks and a common currency, the value of the currently is in the control of the institutions of that nation as opposed to an external body. In the case of the Euro, the national parliaments and national financial institutions have no direct control over the value of the Euro. So for instance, the Spanish, Greeks and Irish, cannot devalue their own currency to reduce their external debts in a response to declining revenues which make them unable to pay their debts at the current rates.
I don't think the problem is the variety of cultures. The US has a huge variety of cultures within its 50 states, yet it wouldn't face the problems of Spain or Greece because it is in control of its own currency and its value. Some countries like the UK and Denmark are part of the EU, but retained their own currencies. This serves their national interests much better I think.
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Not directly cultural, but the various economies within the European currency union vary tremendously in their efficiency and productivity. Perhaps this is a bit cultural? The problem which results is the less efficient state - Greece, Portugal - cannot make their exports competitive with those of more efficient states - Germany in particular. Without the ability to devalue their currency, exports tank and the economy contracts.
Getting back to Larry's original question - I don't think the original statement is fair or accurate. There have been significant withdrawals from banks in countries that might leave the Euro. Not quite a run, but clever Greeks want to retain their savings in Euros rather than risk having them forcibly converted to (nearly worthless) drachma. However, those deposits that leave Greece have simply flowed to banks in the more stable European countries - Germany, Denmark, Netherlands, and Norway are the ones I've read about. These strong countries are awash in deposits. The excess deposits end up at their respective national central banks (Bundesbank, in the case of Germany) and from there flow to the Euopean Central Bank (ECB). From the ECB, Mario Draghi (there he is again!) can use them as loans to recapitalize banks under pressure.
Spain's banks are in some trouble. Spain has a property bubble which is in the process of deflating, hence Spanish banks hold many bad mortgages. Probably sounds a bit familiar, eh?