#deutschmark

LOL suck it stalin

The Euro celebrates its 10th anniversary

Governments of Latin countries, and especially France, regarded the Euro as an efficient means of getting rid of the hated Deutschmark. Before the introduction of the Euro, the Deutschmark was a standard that laid bare the monetary mismanagement of irresponsible governments. While the Bundesbank inflated the money supply, it produced new money at a slower rate than the high inflation of—especially southern European—countries, who used their central banks most generously to finance deficits. The exchange rate against the Deutschmark served citizens in those countries as a standard of comparison. Governments of high inflation countries feared the comparison with the Bundesbank. The Euro was a means to end the embarrassing comparisons and devaluations. Governments of high inflation countries did not fear the newly established European central bank. While the new central bank would look like a copy of the Bundesbank from the outside, from the inside it could be put under political pressure and gradually become a central bank more like that of Latin central banks. Actually, Southern Europe has control over the ECB. The council of the ECB is composed of the directors of the ECB and the presidents of the national central banks. All have the same vote. Germany and Northern hard currency countries such as the Netherlands, Luxembourg and Belgium hold the minority of votes against countries like Italy, Portugal, Greece, Spain, and France, whose governments are less averse to deficits. These Latin countries had strong labor unions and high debts making them inherently prone to inflation. The Euro was advantageous to Latin countries in that its inflation could be conducted without any direct evidence of an appreciating Deutschmark. Inflation would go on, but would be more hidden. When prices start to rise, it is relatively easy to blame it on certain industries. Politicians may, for instance, say that oil prices increase because of peak oil. But if oil prices go up and there is devaluation, it is more difficult for politicians to blame oil for the price increase. Devaluations coupled with higher inflation could easily lead to losses in elections. Devaluations against the Deutschmark disappeared with the introduction of the Euro. Giscard d’Estaing, founder of a lobbying group for the Euro, stated in June 1992 that the ECB would finally put an end to the monetary supremacy of Germany. What he meant was that the smoking gun that disciplined other countries would finally disappear. He added that the ECB should be used for macroeconomic growth policies; in other words, inflation. In a similar way, Jacques Attali, advisor to Mitterand, acknowledged that the Maastricht Treaty was just a complicated contract whose purpose was to get rid of the Mark. This aim was also pursued by the Italians and others. With the ECB having been based on the model of the Bundesbank, high inflation countries inherited part of its prestige. The founding of the ECB was similar to an imaginary merger of the car makers Fiat and Daimler-Benz, where the Germans take over management and quality control. While the management majority is German, the Fiat’s plants are still in Italy. The costs of undoing the merger, however, are immense. While it is certainly good for Fiat, it is not so good for Mercedes itself. The result of the introduction of the Euro was the expectation of a more stable currency for southern European countries. Inflationary expectations fell in these countries. When inflation expectations are high, people reduce their cash holdings and start to buy as they think prices will be considerably higher in the future. When inflationary expectations fall, people increase their cash holdings marginally, leading to lower price inflation. This is one reason why rates of price inflation in the southern countries went down even before the Euro was introduced. The expectation associated with the Euro reduced inflationary expectations, helping these countries to fulfill the Maastricht criterion of low inflation rates. As in the case of a merger between Daimler and Fiat, for Germany, the Euro implied a watering down of the soundness of its currency. The fear for Germany was that the Euro would be less stable than the Deutschmark, spurring inflationary expectations. The German government was, in fact, using the Bundesbank’s monetary prestige to the benefit of the inflationary member states and to the detriment of the general German population