By on October 9, 2011

Everybody has heard  that Europe and the Euro are in trouble. So why does it take so long to save it? We’ll let you in on a little known secret. First, let’s go to Slovakia. The eurozone’s second poorest member quietly turned into an automotive powerhouse. Ever hear much of the Slovakian auto industry? You won’t. Global automakers such as Volkswagen, Peugeot, Kia have discreetly set up car plants in Slovakia. Parts makers followed. Wages are low – 780 euros a month on the average. Without anyone looking, Slovakia turned into the world’s top auto maker per capita. They want to keep it that way. And that’s why they don’t want to help Greece.

Everything in the EU must be decided unanimously. “One dissenting voice among the 17 countries that use the euro could wreck the latest plan,” writes Reuters.

“It’s a debate the rest of the world is following with concern. No strangers to privations and harsh economic reform, Slovaks are divided over whether their government should agree to increasing the powers of the fund set up to help Greece and other euro zone countries that have lived beyond their means.”

Officially, it’s a question whether a poor country like Slovakia should pay for countries like Greece, which borrowed too much and were fudging their books even before they joined the euro.

Unofficially, there is another matter. A low Euro is fuel for the European export machine. While the Japanese car industry is driven out of the country by its strong yen, a low euro makes exported BMWs, Mercedes or Audi even more attractive.

Germany exported itself out of the crisis in 2010 when the Euro was down to 1.20 to the dollar. When the Euro nearly hit $1.50 last May, exports started to slow down. The crisis in the Mediterranean countries brought the Euro down to more sedate levels, and order books are full. At the same time, imports from Japan, which suffers from a strong yen are being kept in check without anyone  raising a stink about level playing fields.

However, with all the trouble the euro supposedly is in, it still fetched a $1.34 on Friday. Which is relatively high for a currency that is supposedly falling apart  if you believe the news. A euro in trouble hides the fact that the dollar is weak. Whenever there are rumors about the Mediterranean mess being solved, the euro pops up like a spring that has been under pressure. Germany exports about half of the cars it makes at home. Or in places like Slovakia.

So the little known secret is that despite the chest pounding and the dramatic (but largely unsuccessful) salvage operations, the export dynamos in Europe’s north are not unhappy with a euro that is kept in check. If peace would break out on the euro front, the currency could easily zoom to $1.50 or higher.

It is not unwelcome when people in Slovakia ostensibly ask why a poor country should help bail out the Greek. It prevents people in Berlin, Wolfsburg and Stuttgart from openly discussing whether they should bail out the Greek and lose their jobs to a zooming Euro, or whether they should prolong the southern agony a little more. Riots in Athens are more palatable than riots in Berlin. Especially when you are in Berlin.

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21 Comments on “Why A Bad Euro Is Good...”


  • avatar
    Educator(of teachers)Dan

    “All politics is local.” – Thomas (Tip) O’Neill, Jr. passed down to him from Thomas O’Niell, Sr.

  • avatar
    Bryce

    keeping the Euro low against a worthless US dollar is difficult. Just luck Italy and Spain are lined up to fail next.

    • 0 avatar
      Patrickj

      At the risk of sounding like Eldard, American and British commentators gloating about how quickly the Euro is going to fail are projecting the issues of their own countries on the European continent.

      • 0 avatar
        mike978

        I don`t completely agree. I am British and am thankful that the UK never joined the Euro. Shadowing the fore-runner back in 1992 caused enough trouble. The Euro was always a political project to force greater unity between the members of the EU. Economically it was a one-size fits all project which can work in the US or Canada but in Europe with 20 plus languages and widely differing customs/cultures it was always doomed. A Euro for Germany, Austria, Scandinavian countries and the Netherlands could work since those countries are economically similar.

      • 0 avatar
        Patrickj

        @Mike
        I agree that the UK made the right choice in keeping its own currency.

        The issue is that both the UK and the US look at the Continent as about to collapse, without seeing that they have grossly neglected industry, education, and character/employability of their own peoples. Both have very hollow economies based on people dressed in expensive imported suits pushing pixels around Wall Street and the City of London.

        At least the Germans, northern Italians, and now Slovaks, are actually making things.

      • 0 avatar
        mike978

        PatrickJ – I agree with most of what you said and the over-sized role of finance. However both the US and UK have manufacturing industries to be proud off – especially the US. Aerospace (Boeing),Pharmaceutical R&D and manufacturer (Pfizer etc), Military hardware, construction equipment (Caterpillar). Sometimes people think it is an all or nothing situation when the reality is more complex.

      • 0 avatar
        bikegoesbaa

        You may find it instructive to compare the manufacturing outputs of the USA, Germany, Northern Italy, Slovakia, and the UK.

        http://unstats.un.org/unsd/snaama/dnllist.asp

        What is the source of your contention that the US and UK are not “actually making things”?

  • avatar

    How failing California can help US? Obviously there will be arguments about bailing out California but the rest of states will benefit from low dollar, including CA itself.

    • 0 avatar
      TOTitan

      Where did that come from? CA hasn’t asked to be bailed out. Now that we have a gov who understands politics, and whos not afraid to do whats needed, we will be just fine thank you.

      • 0 avatar

        Do not worry – CA is solidly on the way of bankruptcy. CA revenue is already almost a billion $$ short on projections http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/10/10/BAHB1LFU5Q.DTL.

        You can spend more than earnings only for so long, esp if cannot print money. But I consider it as good thing – it will lower living standards and make American products more competitive on global market. And may be Americans will start taking money they earn money more seriously and not as an entitlement and develop common sense like the rest of the world. GM and Chrysler went through bankruptcy and are more competitive as the result.

  • avatar

    Regarding video – Greeks just have a fun. It is kind of like a sport. It is a nice relaxed Mediterranean country – you come home at 4pm, go to beach, drink wine, tasty Mediterranean cuisine, nice girls in bikinis abound, retire at 57 – it is the paradise on the Earth! People cannot be really angry there. On the other hand Germans are stressed out, do not really enjoy life and get involved in World Wars every 30-50 years and additionally have to bail out everyone else. I would prefer to live in Greece.

  • avatar
    TonyJZX

    greece is a fine place if you have money… but hey… many places are cool if you got scratch

    not so funny if you’re a public servant

  • avatar
    Dynamic88

    Sooner or later the tension of 17 economies (more than that if you acknowledge that countries may have several economies within their borders) trying to share a single currency must cause the Euro to be abandoned.

  • avatar
    Pch101

    Most of Germany’s largest export markets are Euroland countries. Germany gets no benefit from devaluing the euro with respect to these countries, since its trading partners use the same currency that it does. In fact, it’s the opposite — German gets the best of both worlds, selling exports and being paid for them with a fairly strong currency.

    Sorry, but I don’t buy the argument that the PIIGS crisis is part of some master plan to devalue the euro. It’s economic ineptitude couple with political pandering to the German electorate, not some sort of (well-hidden) genius.

  • avatar
    CJinSD

    Foreign aid is alway about taking from the poor of a rich country and giving to the rich of a poor country.

    • 0 avatar
      mike978

      ? Not always – depends on how the taxes are raised in the rich country. Also depends on what the poor country is structured like. I will agree that it can happen as you describe, but not in all cases.
      US foreign aid is a very small amount of the Federal budget or as a %of GDP, and is regularly thought to be much higher by some of the public.

      • 0 avatar
        CJinSD

        And any money at all that we export is money that we don’t spend on our ever more entrenched under class. They’re a hell of a lot more deserving of it than African war lords or the Pakistani government is. How about all the money we borrow from China to give to China to spend on making their industries more competitive than ours?

    • 0 avatar
      eldard

      What? I thought foreign aid comes from money printed out of thin air?

  • avatar
    HiFlite999

    Greece is a sideshow compared to Italy and Spain. The are at the same time, “too big to fail” and too big (for Germany) to save. When that crisis fully hits the fan, negotiations to save the Euro will be about as effective as diplomacy was in preventing WWII or stopping the genocide in Serbia.

  • avatar
    blowfish

    oreign aid is alway about taking from the poor of a rich country and giving to the rich of a poor country.

    this is absolutely total brilliant.
    suck the blood out of the middle class then give the mulla to the ruling Huntas. So their Jumbo jets will always have enuf fuel to go away at the drop of the hat.

  • avatar
    eldard

    The Euro, and the EU, was a joke to begin with. Trying to unite the robotic north with the happy-go-lucky south? Oh, please…


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