# Tag Info

12

Yes, upon the introduction of the euro on January 1, 1999, all debt (indeed, all nominal contracts) in participating countries was converted from national currency to euros at a legally defined conversion rate. See this press release from December 31, 1998, which states: In accordance with Article 109l (4) of the Treaty establishing the European ...

8

One of the key requirements for a currency area to be successful is that there must be a sustainable political mandate to support fiscal transfers between regions, to provide the balancing mechanism that would otherwise have been performed by fluctuating currency rates between those regions. Another is that labour can move freely between regions. The ...

7

The closest we can get to an answer would be by looking at previous exits from currency unions. Rose published a paper studying extensively all exits after WWII. The abstract resumes well the conclusions of the paper: This paper studies the characteristics of departures from monetary unions. During the post-war period, almost seventy distinct ...

6

No Time To Argue Most importantly, there cannot be an "18 months period of notice". Tt has to be decided suddenly and there cannot be any period in which individuals could respond to the new plan by withdrawing their money and moving cash from one of the member countries to any of the others. New Currencies Each country has to have its own currency. These ...

6

(I guess a long answer can be fitting to a long question...) The current state of knowledge as to "how to run a socioeconomic area (SEA)" could be grossly summarized as follows: There is a Government that has the right to collect taxes and conducts fiscal policy, in order to provide some public goods, and also to partially smooth economic inequality ...

6

There are numerous reasons why one would want to stay in a particular country even though earning power is lower. These are usually summarized as "frictions" in the labor market. Culture, familiarity with an area, language, family are all non-negligible "frictions". I note that while there will be a tendency to vote this closed as not economic, I think ...

5

Yes the European Cenral Bank issues the extra quantity of money (as for the actual printing there are factories that print euros in many member countries of the EU, under the control of the ECB). Regarding why this does not cause inflation, it is because alongside the additional quantity of money comes the additional quantity of output of the new member, ...

4

People have argued that if the rich countries (sometimes just Germany) left the Euro the resulting dislocations would be much smaller: German departure would be less disruptive than Grexit for three reasons. First , a Greek devaluation would trigger capital flight from the next weakest country – Spain, then Italy and France. Germany would not ...

3

German bonds placed as a reference in the eurozone is a form of tacit understanding and i don't think you will find official conventions about this. This practice comes from market Finance pricing technics, as the CAPM, which use a risk (-free-rate) referential to price different kind of assets. Given the higly positive trade balance of Germany, the ...

3

I largely agree with mathtastic, but I think it is necessary to add something. When joining a monetary union a country does indeed lose its power to conduct monetary policy. However simply not being able to reduce the interest rate was not the main issue that Greece and other countries faced because of being in the Eurozone. This is because the ECB lowered ...

3

In the present legal environment it's not possible for a country to exit just the Eurozone voluntarily, by itself. The only sure way is the complicated scenario in which a country would leave the EU and rejoin it without rejoining the Eurozone; it is so far out there that I doubt you can find any serious economic analysis of it. A few other scenarios have ...

3

Occupational licensing may be one reason why: Occupational licensing is not unique to the United States. Based on information gathered in 2012 from the then twenty- seven nations in the European Union (EU), between 9 and 24 percent of European workers are subject to occupational licensing, which translates to between 19 million ...

2

The systemic problem with currency unions, and this is true of all historical currency unions, not just the current Eurozone, is that the banking systems that comprise them expand their money supplies (money in this answer is the total sum of bank deposits) at different rates. Banking systems can also contract their money supplies, this is rarer, but equally ...

2

Arguably the problem all along with the Eurozone (and any other currency union) is the operational mechanics of the underlying banking system. From a systems perspective, banking systems statistically multiplex liability bank deposits against asset cash and electronic equivalents. (It is mostly electronic these days.) Broadly speaking, the main function of ...

2

If I remember correctly reading Krugman's opinion, he stated that to be successful, a central bank has to be associated with a government. This is to harmonize fiscal and monetary policies. If you compare France and Germany in the 1960-1970s, France was playing with inflation-devaluation, whereas Germany (as is does the ECB today) tried to be more stable. ...

2

I personally think one of the main factors (maybe the main factor) is that any country that chooses to participate in the Euro zone necessarily sacrifices monetary autonomy. That is, those countries (Greece is a good example) lose the ability to enact monetary policy to mitigate negative domestic economic trends. Further (consider Germany), joining the ...

1

What you show on the picture is not the value of the coupon but the bond yield. For example, for a zero coupon bond to maturity of a bond is calculated: $$YTM = \left(\frac{FV}{ P}\right)^{1/t}-1$$ Where $YTM$ is yield to maturity, $FV$ is face value (value printed on the bond), $P$ is the bond price, $t$ is the number of time periods for the bond to reach ...

1

For free-floating sovereign borrowers (e.g., Japan, Canada, UK, and the euro as a bloc (the member countries are pegged versus each other), short-term bond yields are largely determined by the expected path of the policy rate (plus a small term premium). For longer-term bonds, one can debate how value is determined, but forward rates are generally smooth, so ...

1

They've already adopted the Euro (from which there's no "easy way out") so the convergence criteria is just dead letter after that... The EU has a procedure called the EDP (Excessive Deficit Procedure), which seems to apply to both excess deficit (3%) and (in theory, I think) the debt/gdp ratio too (60%). In general it seems the EDP was mainly applied ...

1

If you borrow money from person A and lend it to person B, how does person B's default prevent you from paying back what you owe to person A? That hypothetical situation is essentially the same between banks and governments among various countries, except that the number of entities is much greater than three (you, person A, and person B), thereby ...

1

Because commercial banks have used injected liquidities to consolidate their balance sheet instead of stimulating demands by creating credits (that did not previously exist when they make loans). This is called the money multiplier effect. The multiplier was somehow blocked (to ~$1$) because of their precaution behaviour, and so was the money velocity. On ...

1

There´s several possibilities, but they are all speculative. My guess is that its not too hard to tell a story like this one: They could leave the monetary union, declare all local deposits and debts to be in drachmas and then move on, printing drachmas and taking them in for tax payments. Later on, when the economy is growing and the fiscal deficit has ...

1

there is no treaty provision at present for a Member State to be expelled from the EU or EMU (http://www.ecb.europa.eu/pub/pdf/scplps/ecblwp10.pdf) Now could such a provision be added? The first objection to reading a right of expulsion into the treaties is a formal one. A Member State’s expulsion from the EU or EMU would inevitably result in an ...

Only top voted, non community-wiki answers of a minimum length are eligible