The Reason Why The Euro Was Created, In One Chart

With Italy's new government once again - if coyly for the time being - bringing up the thorny issue of currency redenomination within the Eurozone, and by implication the failure of the euro and its reversion back to its constituent currencies, we thought it would be a good idea to remind readers why the euro exists in the first place. The briefest possible answer: to make sure the Deutsche Mark does not.

As presented in the chart below - which shows the performance for each of the EU12 countries against the German DEM in every decade from the 1950s to the start of the Euro in 1999 - apart from a small revaluation of core countries in the 1990s, every country devalued to Germany in every decade between the 1950s and the start of the Euro. Said otherwise, the Deutsche Mark appreciated in value against all of its European peers for 5 consecutive decades, a condition which if left unchanged, would have led to an economic and trade crisis.

And as a bonus chart, here is same data (with the US and UK added) from the end of the Bretton Woods system in 1971 to the start of the Euro (Lira -82% devaluation to German DM) and during the 1990s (-24% devaluation) – the decade immediately leading up to the Euro start. As can be seen Italy is amongs the weakest performers relative to the German DM over these periods and showed the momentum that existed in the period leading up to the start of the Euro.

And while the fixed exchange of the Euro for European nations allowed the German export industry to go into overdrive, the lack of the possibility for an external, i.e. currency, devaluation, meant that Italy has been forced to do it all by engaging in internal devaluation, i.e., lower wages, higher unemployment and boosting its current account deficit, which however is made virtually impossible given Italy's deteriorating demographics. This is what DB's Jim Reid said of Italy's potential future:

Looking forward, Italy will not find it easy to grow out of its problems as its facing one of the worst set of demographics of the G20 countries. It’s population size has peaked (according to the UN) and is expected to decline out to 2050. Its working age population (15-64 year olds as a proxy) is set to fall -24% over the same period and is  again one of the worst placed in the G20.

One can almost see why Italy is rather angry at the Euro: As Reid summarizes, Italy is stuck in a "fixed exchange rate with one of the most competitive countries in the world in recent times. The debt levels, high levels of youth unemployment, and demographics show the difficulties that will lie ahead too"

Comments

Lost My Shorts JRobby Mon, 06/04/2018 - 14:02 Permalink

Blaming the Euro for Italy's problems is stupid.  It's just an age-old dilemma that existed long before the Euro, and will exist long after.  Do you want confetti money that you can print at will?  Or do you want hard money that retains its value?  Each has advantages and disadvantages.  The Italians and other southern countries had decades of experience with confetti money, and were well aware of the disadvantages (high interest rates, rampant inflation, economic stagnation).  So they signed on to the somewhat hard-money Euro for a change of pace, and enjoyed the benefits of that for a while, but now they are back to complaining about the disadvantages of hard money, and wondering if going back to freely-printed confetti money will solve all their problems.  Duh ... what do you think?

In reply to by JRobby

ThirdWorldNut directaction Mon, 06/04/2018 - 16:04 Permalink

Disagree with "Lost my Shorts". People were fooled into thinking euro is good for them. Mortgage rates/auto loans/credit card debt rates plummeted from double digit to low single digit. So why would not they not borrow more? 

Now you could preach personal responsibility (to which I would strongly agree 9 out of 10 times). But a modern superstate, grand daddy of nanny states, was hardly in a position to teach its comrades about individual responsibility. Ergo, here we are.

So if you want to blame someone, blame the globalist elites running the show from their chateau.

In reply to by directaction

Scipio Africanuz Lost My Shorts Mon, 06/04/2018 - 14:45 Permalink

The prudent solution for Europe, is to phase out the euro, and let national currencies rule again, and why? So every European nation can take its destiny in its own hands, for good, or bad.  I miss the lira, franc, guilder, and other iconic currencies.

If Europe will survive, and I'm crazy about European culture, the compositional nations need to be set free. I miss Europe, the Europe I wanna backpack through, this EU thing, is a travesty! Common market, yes! Single currency? No! Consolidated liability? Hell no!

The EU is done, what follows now, is negotiations about the EU debts, and the debt sharing formula. Let's go back to national sovereignty, and put the stake in the heart of supra-national diktats!

Same goes for the USA, an end to federal hegemony, and a restoration of states rights, in conformity with the US Constitution...

In reply to by Lost My Shorts

edotabin theprofromdover Mon, 06/04/2018 - 15:57 Permalink

The problem isn't the Euro itself. It is but one tool in a very large toolbox. The biggest problem is the insidious nature and the methods being used to foist things on people/countries etc. The intentions are never announced. The plan is never clearly laid out and the secret hope is that the "sneaky plan" will gain enough traction that, by the time the people realize what's going on, it'll be too late to make changes or go back.

Unlike many here, I think everyone on the planet is one. I don't hate Mexicans, I don't dislike Russians or Poles or Serbs and I don't want to enslave black people. As a human, I simply prefer people I have things in common with. By common, I don't mean a job or the Dollar or the Euro. I mean upbringing, language, traditions, beliefs. You know, things that actually mean something. You can't replace God with the Euro or Hillary. You can't replace childhood friends with the EU Commission.

Creating bonds takes many generations. I can't change that simply because some "smart guy" in Brussels decided he was going to oversee the complete globalization of the human race right now. As travel becomes faster/easier, as business expands and through controlled migration etc. eventually we will all become one and it doesn't have to be at the expense of one over the other. It may take 2-300 years but give it time and most of the problems we face today will work themselves out naturally.

It's funny because all these "smart" people at the top haven't realized they are trying to cram a round peg into a square hole and have created a huge backlash, further setting them back. In essence, they have become their own worst enemy and this is what usually happens when things are taken to the extremes.

 

 

In reply to by theprofromdover

DisorderlyConduct edotabin Mon, 06/04/2018 - 17:40 Permalink

The globalists know damn good and well that they're cramming a round peg into a square hole. You've simply discounted the possibility that they are not bent upon a healthy integration for a happy world, but are instead trying to kill anyone who's not on their side. Big difference.

When you understand it for what it is, it makes so much more sense. The alternative - that people smart enough and capable enough to sway the whole world are also clueless about the direct effects of their actions is simply not credible. It's delusion.

In reply to by edotabin

MoreFreedom Lost My Shorts Mon, 06/04/2018 - 17:38 Permalink

I don't see this so much as the age old gold standard vs. fiat money conflict, but instead the age old problem of unlimited democracy whereby voters vote themselves funds and benefits from the treasury (including all the welfare and redistribution schemes) vs. countries that don't allow government to steal for some at the expense of others. 

The second problem, with a fiat currency, leads the politicians and government to engage in deficit spending creating huge debt. And government becomes the means by which the citizens jockey to steal from each other.   The second problem assuming the country has gold backed money, just forces the government to make the hard decisions as to who gets what, and who's going to pay for it today.  Forcing government to pay for their spending now rather than later, generates a lot more opposition to redistributing that money in the first place. 

This is one reason why government shouldn't be in the welfare business.  It changes "governments are instituted among men to protect their lives, liberty and pursuit of happiness" to governments are instituted among men so the people in power can use it to steal, including stealing to buy votes - i.e. a government without limits.

Government after all, is just the use of force against individuals (kill, jail, fine, and take their money) that starts with taking money from people to do it.  It's an evil and uncivil institution, but a necessary evil.  That's another reason to limit it and minimize it, in preference to civil institutions operating on a voluntary basis.

In reply to by Lost My Shorts

Stuck on Zero Lost My Shorts Mon, 06/04/2018 - 17:42 Permalink

The problem is that the people with the money in Italy would deposit it in German banks. It simply kept leaving Italy for safer areas. That left the man in the street with no way to trade with his own countrymen. If Italy issues its own currency that won't happen. There will be inflation, of course, but there will at least be something to trade with.

In reply to by Lost My Shorts

StopBeingParanoid Mon, 06/04/2018 - 13:51 Permalink

If Italy had its finances in order (no deficit), they'd have no issues. The problem with PIGS is that they're addicted to foreign money, so here's one piece of advice: live within your own means. Same for the US.

ParkAveFlasher StopBeingParanoid Mon, 06/04/2018 - 14:02 Permalink

Wrong - nations have a right not to subsidize over-production in countries in the which they have no voice nor recourse to legislate back towards national sovereignty. 

How could they be "addicted to foreign money", it's a single currency!

The problem is the failure to recognize the sanctity of ownership, the inviolable right to personal property.

Overproduction is malinvestment, it is also a misallocation of resources, typical to unmitigated inflation.  A BMW in every driveway, vendor-financed with more-than-generous leasing and upgraded every other model year, is not symptomatic of prosperity, but symptomatic of distortions in pricing generated by oversupply of currency.

The Italian peninsula fosters one of the most developed cultures in history (excepting the Vatican, which, when emptied of its satanic denizens, would become a very precious art museum).  Huge quantities of gold, cities of marble, foreign holdings beyond measure.

 

 

In reply to by StopBeingParanoid

Endgame Napoleon ParkAveFlasher Mon, 06/04/2018 - 15:39 Permalink

The Pope is a big socialist and an advocate for the mass-scale, welfare-buttressed immigration that has, in part, destroyed the US middle class, causing much misery, but I would not call him “satanic.”

The Vatican is a fine place to house an art collection; you can trust them. You cannot accuse Popes of refusing to protect art; they even put a high priority on art preservation in the midst of the Holocaust. I put art on a sky-high pedestal, but that prioritization took it to an extreme.  

Italy and Greece seemed to do better when they had the flexibility to respond to current economic conditions without getting permission from the strict German nanny, but maybe in this age of wanton money printing, they would go haywire if the nanny gave them the keys to the car. 

I see your point about overproduction and property rights, though, and I honestly never even thought about it before reading ZHedge. It sounds like the US might have done that, too, given those aerial photos of car graveyards. But global warming / cooling have bought some time for the job-manufacturing crowd, creating a bigger market for replacement cars.

https://www.zerohedge.com/news/2014-05-16/where-worlds-unsold-cars-go-d…

In the age of automation, when every momma works even though we have fewer full-time jobs due to computers that do more of the work, various countries are manipulating supply & demand with overproduction schemes, trying to keep the non-welfare-eligible / non-womb-productive, young men employed and out of prison or off of the streets. 

The non-womb-productive humans created by the working moms in their “voted-best-for-moms” jobs will never get their main household bills paid by government for womb-productive sex and part-time office work that keeps them under the income limits for welfare.

When single, the non-womb-productive humans created by the glorified working moms of the fake-feminist era   cannot just supplement a spousal income with money from a mom-gang job, where they are above firing except in the case of all day / every day absenteeism in a management job. They have to work somewhere, hence the need for governments to manufacture JOBS.

If most mommas were doing the work of raising their own children, there would be more natural, non-manufactured demand for labor and a freer labor market, in which wages would rise, since fewer workers would be rewarded for working part time for low wages that keep them under the income limits for welfare and the cut off for refundable child tax credits. 

Many working moms in single-earner households—along with legal / illegal immigrants in households with US-born kids and male breadwinners—get paid for creating excess workers while working part time to stay under the income limits for multiple, womb-productivity-based welfare programs that cover their major bills, like housing and food, in addition to the refundable child tax credits up to $6,431 that boost up their paychecks. The paychecks of the non womb productive are not boosted up by government, and yet, mommas do not just birth womb-productive offspring.

The non-womb-productive males have to work somewhere, as do the non-womb-productive females who do not have children for government-paid daycare workers, $9-per-hour babysitters or elderly grandparents to raise, albeit the vast majority of female-dominated jobs that are not dominated by youth are dominated by mom gangs. 

Wages alone have to cover a full range of household bills for non-womb-productive males and for many sperm-productive males who are not paid by government for their role in the sex and reproduction that leads to an excess of human labor in the age of automated labor, hence the need for governments to manufacture JOBS for the humans that part-time working moms were paid by government to create in the fake-feminist era.

In reply to by ParkAveFlasher

caesium Endgame Napoleon Mon, 06/04/2018 - 16:54 Permalink

This pope is no different from any of his immediate predecessors. It's delusional to think otherwise. The Vatican doesn't house that many great works of art. Most of which were either stolen or have ended up in private collections. Catholic theology has a problem with both socialism and capitalism. The key debate of our time is the conflict between usury (capital) and labor. Capitalism has destroyed American labor and it was for this reason many Catholics in the rust belt states voted for him. Usury is fundamentally immoral and wise men like Henry Ford were not capitalists and their vision for humanity has catholic qualities.

In reply to by Endgame Napoleon

Endgame Napoleon rmopf2010 Mon, 06/04/2018 - 16:44 Permalink

One thing is for sure: All of these countries are 100% sure that an aging population is a horrible thing, even in aging states in the USA that have healthcare as their main source of JOBS for working-age citizens.

Healthcare is the one social service that the young in general consume less of, although the womb-productive, young citizens and noncitizens consume far more [free] healthcare than the non-womb-productive, middle-aged citizens that these states / countries scorn.

In fact, all of the 100%-free and non-contributory government services that drain the budgets of state governments are consumed by the young and womb-productive citizens and noncitizens who are the only ones eligible for the freebies.

The non-womb-productive citizens get NOTHIN’ from government until they turn 65, and they get nothing from government period, but what they have contributed to from every paycheck throughout their working lives.

Yet, the non-womb-productive citizens and the too-old-to-pump-out-anymore-kids crowd have lower paychecks due to paying higher tax rates to accommodate the freebies of the womb-productive citizens and noncitizens of these youth-seeking countries / states.

Many American states—no less than Italy—will do ANYTHING to get more womb-productive, young people to settle in their states, including offering cash payouts to young womb producers and absorbing millions of legal / illegal immigrants, saying they want a bigger tax base, even though it is the womb-productive “poor” who [consume] the most non-contributory welfare without paying as much in taxes.

Many of the illegal immigrants work mostly under the table, paying taxes only on the small amount of traceable income that keeps them below income limits for the programs, while collecting billions in monthly welfare, progressive tax-code welfare, medical care and education for their children (and themselves, but fetched through their US-born kids).

And a ton—billions per year—of the pay-per-birth welfare for the immigrants goes out of the state / country in remittances, whereas the scorned elderly citizens spend every dime of the retirement checks that they contributed either 7.65 or 15% of every dime they ever earned to in their own state / country.

And the scorned, non-womb-productive, middle-aged citizens spend every dime of their earned-only and more-heavily-taxed income in their country / state. 

But give us more sexed-up-and-birthing people in their childbearing years who work part time to stay under the income limits for multiple welfare programs, ensuring that they contribute very little to the tax base, while drawing heavily from the tax base all during their childbearing years and again all during their old age. 

This will solve all of our economic problems, especially in an era when fewer humans are needed to complete the work due to automation!!!!!!!!! It is the brilliant, logical sex & birthing / anti-aging-population plan cooked up by the most educated group of elites ever to grace planet Earth.

It is logical in an era when unlimited numbers of young, strappin’ humans are needed to work in the 100% robot-staffed farms in high rises, like the ones in Japan, and in the no-humans-need-apply lights-out manufacturing facilities.

Recruit womb-productive mommas around the globe to work part time, thereby staying eligible for unlimited wads of welfare fiat, to manufacture more and more human job applicants, providing more welfare the more they birth.

Call it feminism for working women, even though women at large have never, ever, ever monetized sex and womb productivity in any previous historical era more than in the “feminist” era of working mommies.

Humans are nuts.

No wonder machines are the winning applicants. 

In reply to by rmopf2010

MaxDemon Mon, 06/04/2018 - 13:53 Permalink

These charts show why the euro should never have been created.

By bottling up the differences between how counties run their economies, the euro has only created pressure that must be vented (although that is not allowed), or it will explode.  As to the form of that explosion, the most likely is that many banks in Italy, and in Europe, will fail when Italy defaults. 

the_river_fish MaxDemon Mon, 06/04/2018 - 16:14 Permalink

Europe's lost economic decade

  • GDP growth for the European Union between 2007 and 2017 adjusted for inflation was negative
  • Banks in Greece, Cyprus, Portugal and Italy have a non-performing loan ratio of over 10% a decade on from the financial crisis and have only provisioned around 50% of the losses
  • The European Central Bank (ECB) is by far the biggest holder of European bonds and has a balance sheet of €4.5 trillion or some 45% of the GDP of the Eurozone
  • 18 of the 28 countries that are part of the European Union have seen house prices fall between 2008 and 2017
  • Greece has been the worst affected country, with its stock market down 85% since 2007, GDP per capita down 22% since 2007, house prices down 43% since 2008 and banks in Greece currently have a non-performing loan ratio of 42%

https://thistimeitisdifferent.com/europe-lost-decade-charts

In reply to by MaxDemon

Endgame Napoleon MaxDemon Mon, 06/04/2018 - 16:59 Permalink

Through central banks, and through creating symbiotic bail-out relationships between the economies in many countries, have they not, in effect, done the same thing with the dollar without putting it under the umbrella of the Euro? It seems like the dollar, too, will wither without all of the central bankers’ doctoring. It seems like the dollar has just as little independence as the roped-in currencies of the disenfranchised European currencies. They say being the reserve currency is some kind of white privilege, but most Americans are not feeling too privileged. The government pumps up the favored groups, of course, making their paychecks stretch over more expenses and eliminating bigly expenses for many, like doubling child tax credits for full-time and part-time-working womb producers in single earner and dual-earner households this year. Government beats the non-womb-productive citizens over the head with the dollar, making sure that their non-welfare-augmented and non-tax-credit-augmented wages are eaten up mostly by rent. 

In reply to by MaxDemon

Quantify Mon, 06/04/2018 - 13:55 Permalink

Had Italy had a good leader with a vision they would have sealed off immigration decades ago. Went for the tourist trade with all that coastline and good weather and great food and wine and sucked off the tourist trade with its reduced population. But no it joined the fascist EU and became a economic vassal of the Germans.

Rubicon727 Quantify Mon, 06/04/2018 - 14:17 Permalink

"But no it joined the fascist EU and became a economic vassal of the Germans."

"It" means the corrupt politicians, as they are throughout the western world, were paid off and allowed all of this to happen; NOT the Italian people.

Same sort of vulgar corruption between US politicians and US corporations, banks, and the entire financial market. 

In reply to by Quantify

HRH of Aquitaine 2.0 Quantify Mon, 06/04/2018 - 16:42 Permalink

True. I studied in Rome in 1997. It was a beautiful spring, seeing comet Hale-Bopp overhead. Our biggest fear were the pickpockets. Now? There is no way I would use public transport. Tragic. It was an amazing way to travel, via rail. Sure, now you don't have to get the local currency each time you cross a border but you are not safe to travel, either! The train stations in every single major city are infested with Muslim and Narfrican gangs.

Until they clean out the gangs and ragheads, Western Europe is fucked.

In reply to by Quantify

Endgame Napoleon Quantify Mon, 06/04/2018 - 17:10 Permalink

So true. That is what Italy should have done. Other than France and Spain, no other country would be as attractive for a mega tourist industry.

Some of Eastern Europe could do it due to the architecture. I don’t know about the weather. 

Once, a customer of mine was, amazingly, being trained by one of two Romanian immigrants that I have met. This was a legal immigrant and a super-skilled one. The other one was a grad student. 

My customer’s trainer could chisel the finest architectural details. It meant a huge amount to this non-wealthy customer to get this rare training from someone who had actually repaired beautiful, historic architecture all over Eastern Europe. He had a portfolio with pictures of it, showing all the stages of the repairs and some original, highly skilled, freestanding sculptures as well. 

We do not get many immigrants like that, here in the American South. We get mostly the welfare-fueled, cheap-labor kind. This is the area of the country where slavery thrived at one time.................

In reply to by Quantify

besnook Mon, 06/04/2018 - 13:55 Permalink

no one is stopping any of the other euro states to become as efficient as germany except themselves.

on the other hand this wouldn't be an issue in a gold based currency economy.

Konstantin Ks Mon, 06/04/2018 - 13:59 Permalink

Yes, it' s true, but let's not forget that euro was not enforced but adopted with hurrahs by hyperdebted -for that era- economies of which the bonds in local currency were panting to compete German ones. 

TheMexican Mon, 06/04/2018 - 14:42 Permalink

So instead of the German Marks perpetual strength Germany will just grow their Euro stock pile.  Net Net no difference.  Clearly the article is missing something.

Why bother writing this article?

 

 

Batman11 Mon, 06/04/2018 - 15:07 Permalink

The people that knew it wouldn't work were muzzled.

“"historically the German D-Mark had been strengthening since its introduction in 1948 against the currencies of its neighbours, and this reflected – and compensated for – increased German competitiveness. Their weakening currencies allowed German trade partners to keep their export industries in business and their workers employed.

.......

When visiting Europe at the time (I was based in Tokyo in the 1990s), and meeting my peers, the chief economists at other banks, I would of course discuss what in my view was the highly worrying prospect of these plans to abolish the D-Mark. I was astonished by their reaction. About half of them insisted that those plans were so lunatic that, of course, they would not be implemented.

.........

“The other half of the chief economists, like me, recognised that a single currency would be introduced, no matter how nonsensical the economics, since it was a political project. (The economics being bad, the politics was even worse: the end of democracy in Europe). They agreed with me that it was going to be a disaster. I asked the chief economist of what was then the fourth largest German bank: „If you think so, why don’t you speak up about this? You are forecasting gloom and doom, but I don’t see any reports by you or your bank about it.“ His answer was shocking: He said that there had been clear instructions from the boards of all the large German banks to their staff that no report on the abolition of the D-Mark and the introduction of a European single currency that was in any way negative was allowed to be published. The economists in the private sector had been muzzled by their bosses. The same I heard from journalists. So the German media only quoted the rigged reports from the banking economists. Professor Werner 

Loki The Trickster Mon, 06/04/2018 - 15:17 Permalink

This is why I keep telling my Central European relatives to never join the Euro. German cars are actually made in eastern europe. From Czechia to Romania the entire eastern corridor is one giant German OEM conglomerate. $1-2000k/mo salaries to competitively produce BMWs to be sold to Greeks and Italians on credit. The profit goes to Germany and the debt to Italy.

 

Look at this table:

 

Country      GDP/capita   3yr average Growth    Gov Debt % of GDP   

Czechia        $35,200       +3.8%                            35.1% 

Italy            $38,000        + 1.0%                          131%

Romania      $24,000        + 4.7%                           38%

Greece        $27,800        + 0.5%                          180%

 

They don't even know it but the Germans with their Eastern European manufacturing minions are destroying the Club Med countries. Czechs and Romanians will live better than Italians and Greeks, respectively within a few years. 

Harry Vederchi Mon, 06/04/2018 - 15:22 Permalink

The DEM stability helps explain the strength of the German industry. Productive capital robbed by inflation. With sound currency you get rich by producing, not politics.

caesium Mon, 06/04/2018 - 16:32 Permalink

Italy ignored its own pope over contraception and abortion so must now pay the price. They have a habit of doing this. Southern Italy was thriving before reunification so bankrupt Northern "republicans" wrecked the joint and stole the papal states as well as Southern gold and industry. As a result, millions migrated to the Americas to be treated like shit especially in the USA.