Bloomberg: Denmark Should Cut Loose From Euro

[ingemann]

http://www.bloombergview.com/articles/2015-01-20/denmark-should-cut-loose-from-euro

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[ingemann]

This is a good example of a case where the entire establishment agrees on something idiotic and it has become a dogma - "we have done it since 1982, so it must be right". I see little chance of common sense prevailing.

It's complex, there's benefits and problems with both.

Keeping the status quo, will improve our productivity, while the Euro falls, it will also keep a high export going.

Cutting the Krone loose on the other hand, will more or less remove our foreign debts overnight, it will increase inflation (which is a good thing) and likely cause a consumer boom. But it will also lower our productivity, weaken our export and risk creating a new bubble.

So staus quo is safe, while cutting the Krone loose is risky, but could give large rewards.

[Gustaf]

No, it's the other way around. Keeping a currency peg is risky because you can't counter the business cycle with monetary policy. There is a small gain from reduced uncertainty etc.

[Antonio the Sixth]

At this point, I'd support letting every country who wants leave the Euro, and make a real, serious monetary union (including an central bank with a full mandate to promote growth, fiscal harmonization, and a mutualization of interest rates) with the countries that want it. Then we'll see who is serious about European federalism and who isn't.

[politicus]

At this point, I'd support letting every country who wants leave the Euro, and make a real, serious monetary union (including an central bank with a full mandate to promote growth, fiscal harmonization, and a mutualization of interest rates) with the countries that want it. Then we'll see who is serious about European federalism and who isn't.

Except that Denmark isn't in the Euro-zone, we just have a political establishment that insists on acting as if we were a Euro country regardless of the circumstances. Given that a majority of voters rejected the Euro back in 2000 this is also a democratic problem.

[ingemann]

At this point, I'd support letting every country who wants leave the Euro, and make a real, serious monetary union (including an central bank with a full mandate to promote growth, fiscal harmonization, and a mutualization of interest rates) with the countries that want it. Then we'll see who is serious about European federalism and who isn't.

I hate to tell you this, France are not going to dictate how the Euro will look in the future, unless France decide it want a monetary union with itself, Italy, Iberia and Greece.

[Antonio the Sixth]

I hate to tell you this,

You can't start a post with this and expect me to take it seriously. Luckily, nothing else in your post is worth addressing anyway.


@Politicus: Yes, I know, I wasn't really addressing the article tbh. It was just my basic reaction to what I assumed to be the gazilionth "Euro suxx" hackpiece.

[politicus]

@Politicus: Yes, I know, I wasn't really addressing the article tbh. It was just my basic reaction to what I assumed to be the gazilionth "Euro suxx" hackpiece.

It is a shallow article, but it does address the dogmatic character of the fixed (within a tier) exchange rate policy in Denmark - the author mentions how this was taken for granted even in a university course in economics he once took in Denmark and how he found that very strange.  

"When I studied economics at the University of Copenhagen, we learned about the macroeconomics of small open economies, various exchange-rate regimes from both a theoretical and historical perspective, and optimal currency areas. But when it came to Danish monetary policy, we weren't asked to apply any of that. Instead, we were simply told that abandoning the peg was impossible: Foreign investors would immediately dump all their holdings of Danish government bonds and the economy would be in ruins."

Btw Denmark established a fixed (= tiered) exchange rate to the Deutschmark back in 1982. Of course the Deutschmark was a strong currency so you did not get upwards pressure on the krone back then, but the issue of the pegged currency predates the EMU. Which made it strange to turn it into a Euro-debate. A comparison with Switzerland would be more relevant.

I hate to tell you this,

You can't start a post with this and expect me to take it seriously. Luckily, nothing else in your post is worth addressing anyway.

Ingemann dislikes France for some reason and seems always to be looking for French arrogance or delusions of grandeur in every post made by a French poster.

[Antonio the Sixth]

@Politicus: Yes, I know, I wasn't really addressing the article tbh. It was just my basic reaction to what I assumed to be the gazilionth "Euro suxx" hackpiece.

It is a shallow article, but it does address the dogmatic character of the fixed (within a tier) exchange rate policy in Denmark - the author mentions how this was taken for granted even in a university course in economics he once took in Denmark and how he found that very strange. 

"When I studied economics at the University of Copenhagen, we learned about the macroeconomics of small open economies, various exchange-rate regimes from both a theoretical and historical perspective, and optimal currency areas. But when it came to Danish monetary policy, we weren't asked to apply any of that. Instead, we were simply told that abandoning the peg was impossible: Foreign investors would immediately dump all their holdings of Danish government bonds and the economy would be in ruins."

Btw Denmark established a fixed (= tiered) exchange rate to the Deutschmark back in 1982. Of course the Deutschmark was a strong currency so you did not get upwards pressure on the krone back then, but the issue of the pegged currency predates the EMU. Which made it strange to turn it into a Euro-debate. A comparison with Switzerland would be more relevant.

Yeah, fixed exchange rates without a possibility to have a voice in the monetary policy of the currency you tie yourself to doesn't seem like a very sound policy. Especially when said monetary policy is entirely focused on combating inflation instead of balancing inflation and growth concerns like any sound central bank would do. And by the way, I'm the first to say that the Euro, as it currently exists, is dysfunctional, and I'm pretty sure Germany is the only country that has a real interest in preserving the status quo (although even that's debatable).

[ingemann]

Ingemann dislikes France for some reason and seems always to be looking for French arrogance or delusions of grandeur in every post made by a French poster.

I have nothing against modern France or Antonio (who while I often disagree with him, think his presence on this board improve it and he's a general likable person). But I have a problem with people thinking that good policies for EU are policies who benefit ones own country and that other people are against it are anti-federalists. Yes the Euro in the existing form have to large extent benefitted the economies focusing on export, but it's not good for EU or its members if countries with BOP surplus are penaltised, which his suggestion would result in.

[AdamHyde]

I hate to say it, but Denmark already has an opt out on the Euro. Denmark is one of only two EU members that aren't legally obligated to joint the Eurozone, the other being the UK.

From what I understand of Danish politics, all political will to join the Eurozone evaporated after 2008. However, pegging their currency to the Euro is still beneficial and allowing it to float freely may lead to a run on the currency - like it did when the UK left the ERM. It would be a mistake to think that the Danish actually want to join the Eurozone, rather than just maintain such relative stability to maximise benefit from the Eurozone.