Eurozone

“ Is it not our business methods that have to be adapted to modern conditions? When Germany commenced to expand, and to carefully nurse her industries, the first thing she did was to adopt the gold standard, to create the Imperial Bank, and put it on a basis which enabled it to powerfully assist in the commercial development of the country, and to reform her system of weights and measures; she adopted the metric system, and this step alone assisted her materially in her export trade. ”

“ To re-establish a sound currency, to meet at once the shock, tremendous as it was, of the fall of prices, to enlarge her capacity for foreign trade, to open wide the field of individual enterprise and competition, and to say plainly and distinctly that the country must relieve itself from the embarrassments which it felt, by economy, frugality, and renewed efforts of enterprise,—these appear to be the general outline of the policy which England has pursued. ”

“ For it must be remembered that the exported treasure will, in its turn, produce an excess of currency in the countries which receive it; and that that excess will necessarily lead to a rise in prices and a fall in the rate of interest, precisely commensurate with the amount received. It will not be necessary, therefore, that prices should fall much below the average at home, in order to stimulate an increased export of commodities to those countries in which prices have risen ”

“ Theoretically an unduly low level of home prices should stimulate exports and so cure itself. But in Germany, and still more in Poland and Austria, there is little or nothing to export. There must be imports _before_ there can be exports. [150] Allowing for the diminished value of gold, the exchange value of the franc should be less than 40 per cent of its previous value, instead of the actual figure of about 60 per cent, if the fall were proportional to the increase in the volume of the currency. ”

“ The economy benefits from strong electronics and telecommunications sectors and strong trade ties with Finland, Sweden, and Germany. The current government has pursued relatively sound fiscal policies, resulting in balanced budgets and low public debt. Rapid growth, however, has made it difficult to keep inflation and large current-account deficits from soaring, putting downward pressure on the country's currency. The government has not given up on adopting the euro, but has repeatedly postponed its target date. ”

“ XIII.43 To make this clear we shall suppose, at first, that one country, say Austria, would continue on the gold standard while England, Germany, France, the United States, and the other chief countries of the world should close their mints to the free coinage of gold. They could then maintain a gold-exchange standard with a (varying) par of exchange with Austria. By suitably changing the par of exchange from time to time, the whole commercial world, excepting Austria, could then keep the purchasing power of money stable, instead of allowing it to fluctuate with gold. ”

“ If after loaning, in the near future, billions of dollars to Europe we double the purchasing power of the dollar, we are not only putting ourselves in the position of an unjust (and much to be hated) Shylock but the pound of flesh we would thus exact of Europe would drain her life blood and weaken her usefulness to us as a customer. The sound policy, which we are now adopting, of giving Europe long and easy credits should be carried out in fact as well as in name and this implies that we should not permit any undue appreciation of our dollar. ”

“ Economy European Union
Economy - overview:
Domestically, the European Union attempts to lower trade barriers,
adopt a common currency, and move toward convergence of living
standards. Internationally, the EU aims to bolster Europe's trade
position and its political and economic power. Because of the great
differences in per capita income (from $10,000 to $28,000) and
historic national animosities, the European Community faces
difficulties in devising and enforcing common policies. ”

“ Selling movements such as these do not materially affect Europe's set position on our stocks, but they do result at times in very large amounts of our stocks being dumped back upon us—‌sometimes when we are ready for them, sometimes when the operation is decidedly painful, as in the Fall of 1907. In any case, when Europe sells, we buy. And when we buy, and at the rate of millions of dollars' worth a day, there is a big demand for exchange with which to pay for what we have bought. ”

“ In order to secure the euro's place in the international monetary system, the Council, on a proposal from the Commission, shall adopt a decision establishing common positions on matters of particular interest for economic and monetary union within the competent international financial institutions and conferences. ”

“ As A plentiful Currency will occasion a less Consumption of European Goods, in Proportion to the Number of the People, so it will be a means of making the Balance of our Trade more equal than it now is, if it does not give it in our Favour because our own Produce will be encouraged at the same Time. And it is to be observed, that tho' less Foreign Commodities are consumed in Proportion to the Number of People, yet this will be no Disadvantage to the Merchant, because the Number of People increasing, will occasion an increasing Demand of more Foreign Goods in the Whole. ”

“ If the latter course is to be adopted so that the old relations between the various national price levels are not to be resumed and the old pars of exchange not to be reestablished, the stabilization plan as proposed in this book would afford the appropriate method for maintaining a new set of levels. For we can, by reducing the weight of European gold coins relatively to ours, enable each European nation to adopt its own price level at any desired point. If, on the other hand, we rehabilitate the old units, European price levels must go through a painful fall relatively to ours. ”

“ As between London and Paris and Berlin the greatest factor operating the exchanges is the relative value of money in the three centres. There is no great excess of trade balance at any season in favour of Germany or France and against England. On the other hand the banking relations between those countries are very intimate, and if funds can be very profitably employed in one of these places, there will be a good demand for remittance, and exchange will move in favour of that place, that is to say, exchange will go towards that limit point at which gold will be sent. ”

“ Such a hypothesis for our own higher interest rates would seem to be supported by the fact that in Germany, too, interest is consistently on a higher level than in London or Paris, Germany, like ourselves, being a vigorous industrial nation without any very great accumulated fund of capital saved by the people. But whatever the reason, the fact remains that in New York money rates are generally on so much more attractive a basis than they are abroad that there is practically never a time when there are not hundreds of millions of dollars of English and French money loaned out in this market. ”

“ It would not be surprising if, as is being suggested, this war should give Great Britain a decimal system of money, revise the monetary units of the nations so that they shall be even multiples of the franc, give us an international money and stable pars of exchange and, as the greatest reform of all, as well as the simplest, give us a monetary system in which the units are actually units of value in exchange, as they ought, and were intended, to be. ”

“ Transfers also call for a clear and consistent fiscal policy regarding taxation and expenditures. Problems like unemployment and collapses in demand often plague rigid monetary unions. The works of Mundell and McKinnon (optimal currency areas) prove it decisively (and separately) .
(E) Clear convergence criteria and monetary convergence targets.
The current European Monetary Union is far from heeding the lessons of its ill fated predecessors. Europe's labour and capital markets, though recently marginally liberalized, are still more rigid than 150 years ago. ”

“ Economy—overview: Germany possesses the world's third most powerful economy, with its capitalist market system tempered by generous welfare benefits. On 1 January 1999, Germany and 10 other European Union countries launched the European Monetary Union (EMU) by permanently fixing their bilateral exchange rates and giving the new European Central Bank control over the zone's monetary policy. Germans expect to have the new European currency, the euro, in pocket by 2002. Domestic demand contributed to a moderate economic upswing in early 1998, although unemployment remains high. ”

“ England is one of the few countries that has not found change desirable. France has reorganized her token coins (1864) , entered into the Latin union (1865) and adopted the limping standard in 1874. Germany has completely transformed the monetary system hitherto existing in the German States (1873) . The Scandinavian union has been set up (1875) . Holland has changed her system more than once. Still later, Austria-Hungary (1892) and Russia (1897) have come over from the silver standard with the practical use of inconvertible paper to new currencies on the gold basis. ”

“ With the exception of the United States and the British Empire, gold reserves were depleted, further credit abroad was shut off, and paper money was progressively issued, in defiance of economic laws, until inflation drove down European exchanges to the lowest levels in the record of international finance. ”

“ Particular attention will be given later on to the way in which the Bank of England and the other great foreign banks manipulate the money market and so control the course of foreign exchange upon themselves, but in passing it is well to note just why it is that when the interest rate at any given point begins to go up, foreign exchange drawn upon that point begins to go up, too. Remittances to the point where the better bid for money is being made, are the very simple explanation. Bankers want to send money there, and to do it they need bills of exchange. ”

“ We have been gravely told that conclusive proof of the insufficiency of the amount of currency in this country is furnished by the fact that England and France have a larger volume of currency than we have, and that there are many people in the country who cannot get all the loans and all the discounts which they desire. We have heard it asserted that an irredeemable currency must be a good thing after all, because there are three countries in Europe—Austria, Russia and Italy—whose economic development has been somewhat rapid of late, while those countries have an irredeemable paper currency. ”

“ The introduction of the euro as the common currency of much of Western Europe in January 1999, while paving the way for an integrated economic powerhouse, poses economic risks because of varying levels of income and cultural and political differences among the participating nations. ”

“ For instance, the annual expenditure of American tourists abroad, the remittances of emigrants in the United States to their relatives, the growing volume of investment made by our people in foreign countries, interest upon investments in the United States of private citizens of our debtor countries, and other items of so-called invisible exchange combine to furnish a large supply of our money to Europe with which they in turn can make payments of interest on debts or for the purchase of goods from us. ”

“ That we need a more elastic currency is indisputable, and also such changes in our custom of borrowing and lending 817money on collaterals on the Stock Exchange as will secure stability in rates of interest there, even in times of stringency. The time will come when the circulation of the National banks will be based on gold, instead of United States bonds, and in that way our monetary system will more closely approach that of the principal European nations. ”

“ The second practical outcome of the revolution was the development of the modern system of control of the flow of gold balances, viz. by means of the bank rate and the arbitrage transactions depending thereon, and on interest and discount rates generally.
The modern theory of international trade does not say that between two particular countries, or at any one particular point of time there is an equivalence of exchange, but that between a circle of commercially interconnected countries, and over a certain cycle of time or operations, there is an equivalence of exchange of goods and services. ”

“ We complain of an unfavourable balance of trade, and we impede one another as much as possible in selling our goods abroad. We want to enlarge trade, and we work for its limitation to fifteen or twenty persons. We grow emaciated through a high premium on foreign Bills, yet we try with all our might to restrict Remittances to as few Drawers as possible, who besides this already have quite an autocratic power over the Rate of Exchange.
We want to increase the National gain, and at the same time we occupy our people with work in which they can scarcely earn bread and water for the day. ”

“ If indispensable to safeguard the financial stability of the euro area as a whole, the ESM may provide financial assistance to an ESM Member, subject to strict economic policy conditionality under a macro-economic adjustment programme, commensurate with the severity of the economic and financial imbalances experienced by that ESM Member. ”