An excellent article which puts the current doom and gloom about the future of the Euro into a reasoned context. I still feel though that tax and social harmonisation will be part of the Eurozone future.
Thanks Martin. Those willing to reap the rewards of a much more rigorous discussion of the US and its history as a currency area are referred to: http://www.nber.org/tmp/79808-h0124.pdf
With a full tip of the hat to Charles Larkin, PhD.
Giovanni
,
Ronan,
nice post! I am advertising your blog among my analyst colleagues!
I appreciate the optimistic message in such troubled times. I just wanted to point out how a more accurate, albeit harder to measure, measure of the state of the business cycle would be output gap rather than absolute growth. That might pick up sharper differences between for example western/eastern and norhtern/southern Europe.
Moreover, even with not excessively asymmetric shocks to the cycle, in my opinion an issue is how the different economies in Europe can cope with shocks. In the past few years, for example, structural differences between the European economies have resulted in very different response dynamics. What do you think about that?
Ciao
Hi Giovanni,
Thanks for the comment (and for doing free advertising for the blog with the analysts!). That’s a very fair point regarding how to measure business cycle dynamics – I’ll have a look at the OECD stats. I would have two concerns:
– However bad a measure (real) GDP is of what’s actually going on (on account of how much estimation and interpolation that has to be done), I’d be even more concerned that available metrics of the output gap are influenced as much as administrative assumptions by statistical agencies as by what’s actually going on in the economy. What is potential output, for example?
– Suppose we could measure the output gap perfectly but we had a currency containing Spain, with a young expanding population and trend growth of 4%, and Italy, with an old static population and trend growth of 1%. Couldn’t there be no output gap in either economy but still they don’t form an optimal currency area for “business cycle” reasons? Just a thought…
Anyway, hope all’s well in Milan – it’s certainly a baptism of fire in the markets!
Ronan.
John Mack
,
Yes, true, the Eurozone can work IF the politics are right. But, sadly, the EU lacks a George Washington and lacks the intellectual nut practical Federalist group tat put the American Constitution together and created the United States.
My father, an immigrant from Ireland, always commented that Ireland was on a bad course because its founding lacked a George Washington and the Federalists. Cosgrove and DeValera were no bargains.
I see no political leadership in the Eurozone capable of making the EU work well through this crisis.
Good counterpoint. There are a couple of circles I cannot square.
1) Eurobonds. Who decides how many can be issued? Who decides that Italy can raise €100bn Eurobond and Ireland only €10bn Eurobond. If there is not a higher layer of EU wide governance, do you think that 17 country leaders can agree this, and that their leadership will be effective (using recent past as a guide)?
2) State borrowing. For this to work, do you propose that individual nation states should be precluded from borrowing?
3) Eurobonds are effective transfers from richer nations to poorer ones. Why should a 64 year old working German subsidise a 59 year old retired Greek or Irish?
I’m pro EU, but the primary problems are political, with some economic ones. I want it to work, but see problems which those in charge have not demonstrated they have the ability to solve.
Having said that, if we are to make it work, it is important to focus on the good things!
Thanks,
Justin
happy boy
,
thanks ronan, i am learning economics at school and this website is very helpful
[…] Lyons recently wrote a very interesting article comparing the EuroZone and the US DollarZone. Can the eurozone survive? Insights from the dollar-zone | Ronan Lyons A very interesting analysis – I quote his conclusions … 'To me, this variety of economic life […]
Martin Neary ,
An excellent article which puts the current doom and gloom about the future of the Euro into a reasoned context. I still feel though that tax and social harmonisation will be part of the Eurozone future.
Ronan Lyons ,
Thanks Martin. Those willing to reap the rewards of a much more rigorous discussion of the US and its history as a currency area are referred to:
http://www.nber.org/tmp/79808-h0124.pdf
With a full tip of the hat to Charles Larkin, PhD.
Giovanni ,
Ronan,
nice post! I am advertising your blog among my analyst colleagues!
I appreciate the optimistic message in such troubled times. I just wanted to point out how a more accurate, albeit harder to measure, measure of the state of the business cycle would be output gap rather than absolute growth. That might pick up sharper differences between for example western/eastern and norhtern/southern Europe.
Moreover, even with not excessively asymmetric shocks to the cycle, in my opinion an issue is how the different economies in Europe can cope with shocks. In the past few years, for example, structural differences between the European economies have resulted in very different response dynamics. What do you think about that?
Ciao
Ronan Lyons ,
Hi Giovanni,
Thanks for the comment (and for doing free advertising for the blog with the analysts!). That’s a very fair point regarding how to measure business cycle dynamics – I’ll have a look at the OECD stats. I would have two concerns:
– However bad a measure (real) GDP is of what’s actually going on (on account of how much estimation and interpolation that has to be done), I’d be even more concerned that available metrics of the output gap are influenced as much as administrative assumptions by statistical agencies as by what’s actually going on in the economy. What is potential output, for example?
– Suppose we could measure the output gap perfectly but we had a currency containing Spain, with a young expanding population and trend growth of 4%, and Italy, with an old static population and trend growth of 1%. Couldn’t there be no output gap in either economy but still they don’t form an optimal currency area for “business cycle” reasons? Just a thought…
Anyway, hope all’s well in Milan – it’s certainly a baptism of fire in the markets!
Ronan.
John Mack ,
Yes, true, the Eurozone can work IF the politics are right. But, sadly, the EU lacks a George Washington and lacks the intellectual nut practical Federalist group tat put the American Constitution together and created the United States.
My father, an immigrant from Ireland, always commented that Ireland was on a bad course because its founding lacked a George Washington and the Federalists. Cosgrove and DeValera were no bargains.
I see no political leadership in the Eurozone capable of making the EU work well through this crisis.
Justin Collery ,
Hi Ronan,
Good counterpoint. There are a couple of circles I cannot square.
1) Eurobonds. Who decides how many can be issued? Who decides that Italy can raise €100bn Eurobond and Ireland only €10bn Eurobond. If there is not a higher layer of EU wide governance, do you think that 17 country leaders can agree this, and that their leadership will be effective (using recent past as a guide)?
2) State borrowing. For this to work, do you propose that individual nation states should be precluded from borrowing?
3) Eurobonds are effective transfers from richer nations to poorer ones. Why should a 64 year old working German subsidise a 59 year old retired Greek or Irish?
I’m pro EU, but the primary problems are political, with some economic ones. I want it to work, but see problems which those in charge have not demonstrated they have the ability to solve.
Having said that, if we are to make it work, it is important to focus on the good things!
Thanks,
Justin
happy boy ,
thanks ronan, i am learning economics at school and this website is very helpful
The Eurozone is stabilising - Page 254 ,
[…] Lyons recently wrote a very interesting article comparing the EuroZone and the US DollarZone. Can the eurozone survive? Insights from the dollar-zone | Ronan Lyons A very interesting analysis – I quote his conclusions … 'To me, this variety of economic life […]