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How The Strong Euro Hurts

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Euro Hurts Slovakia, Slovenia as Shoppers Seek Hungary Bargains

http://www.bloomberg.com/apps/news?pid=206...id=annjtpNckalo

July 1 (Bloomberg) -- Six months after Slovakia joined the euro, the government is investigating why its citizens are doing their shopping in Hungary.

The forint’s 14 percent decline against the single currency in a year is sending Slovaks across their borders to buy cars, appliances and food that is as much as one-third cheaper. Igor Barat, the government’s euro coordinator, said on June 29 that the two-month study will probe how “shopping tourism†arose from euro adoption.

Slovakia and Slovenia, the only two eastern European nations to use the euro, are in the worst recessions since they threw off communism. The currency’s strength is crimping sales for retailers such as Slovak supermarket chain Coop Jednota and exporters including Slovenian appliance maker Gorenje Group d.d. and postponing the recovery from the global financial crisis.

“There are serious headwinds ahead,†said Simon Tilford, chief economist at London’s Centre for European Reform. “For Slovakia and Slovenia, the strong euro exposes them to competitive risk. If it persists, there’s no doubt the strength will complicate an already difficult period.â€

...

“In times of crisis like this, the euro may really act as a disadvantage†because smaller members can’t devalue their currencies to become more competitive, said Juraj Kotian, an Erste Bank AG economist in Vienna.

And it's absolutely the same for the PIIGS.

It's unsustainable and something's gotta give.

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Euro Hurts Slovakia, Slovenia as Shoppers Seek Hungary Bargains

http://www.bloomberg.com/apps/news?pid=206...id=annjtpNckalo

And it's absolutely the same for the PIIGS.

It's unsustainable and something's gotta give.

Well, there are contrarians. Take this:

People who are expressing that (a devaluation is possible) lack some education and knowledge and I am sorry. There is absolutely nothing to do with devaluation in Latvia," he told Reuters at the Bank for International Settlements (BIS) meeting

He: the governor of the CB of Latvia running currency board. So, matey, you lack some education :D?

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Well, there are contrarians. Take this:

"People who are expressing that (a devaluation is possible) lack some education and knowledge and I am sorry. There is absolutely nothing to do with devaluation in Latvia," he told Reuters at the Bank for International Settlements (BIS) meeting"

He: the governor of the CB of Latvia running currency board. So, matey, you lack some education :D ?

I believe John Major and Norman Lamont were similarly contrarian in their day ;)

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He: the governor of the CB of Latvia running currency board. So, matey, you lack some education :D?

:lol:

linky?

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It's unsustainable and something's gotta give.

Indeed, but most likely not until many millions of jobs have been sacrificed and many billions of tax payers money wasted in papering over the cracks. The euro was doomed from the start.

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I believe John Major and Norman Lamont were similarly contrarian in their day ;)

I believe pound has always been a free floating currency or at least "managed float"? Baltic countries hv been running currency boards against EUR with +/-1% band around parity, i.e. literally had adopted EUR, created nice hallucinations, but no more money for the crack. IMF is almost refusing to give another dose, but the dear EU are putting some pressure on IMF. It tells a lot about the prospects of EUR.

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And it's absolutely the same for the PIIGS.

I hate to be contrarian but it certainly doesn't feel like it in euro section 'P',

yet.

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Latvia is in ERM II so any talk of devaluation is most unwelcome. However, the Lat's peg is unsustainable so it will have to break at some point.

'Is Latvia the new Argentina?':

http://www.voxeu.org/index.php?q=node/3683

Latvia has been hard hit by the global crisis and faces an unsustainable currency peg. Should the country float its currency, adopt the euro, or try a contained devaluation? This column assesses the options and says that the latter is most realistic, in that it will address the concerns of the EU, IMF, and Latvia.

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I'm very strongly in favour of the euro, but it was a mistake for Slovenia and Slovakia to join so soon. They were essentially communist countries 20 years ago, haven't been EU members for that long, and simply don't have the economies to match the likes of France and Germany. With Shengen making it so easy to border hop to neighbouring developing countries to do your shopping, they were always going to face an exodus of spending to cheaper non-euro countries. They should have all joined together rather than in a staggered fashion - czech republic isn't due to join till 2012 at the earliest.

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Latvia is in ERM II so any talk of devaluation is most unwelcome. However, the Lat's peg is unsustainable so it will have to break at some point.

'Is Latvia the new Argentina?':

http://www.voxeu.org/index.php?q=node/3683

I wouldn't be surprised if the ECB are just trying to hold it together until after the German federal elections in September.

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I'm very strongly in favour of the euro, but it was a mistake for Slovenia and Slovakia to join so soon. They were essentially communist countries 20 years ago, haven't been EU members for that long, and simply don't have the economies to match the likes of France and Germany. With Shengen making it so easy to border hop to neighbouring developing countries to do your shopping, they were always going to face an exodus of spending to cheaper non-euro countries. They should have all joined together rather than in a staggered fashion - czech republic isn't due to join till 2012 at the earliest.

Having lived in Slovakia for a number of months it's not difficult to work out why so many go across the border to Hungary to shop. Much like the Irish heading North when Euro parity was close. Southern Slovakia has an extremely large number of Hungarian speakers. I used to fly to Budapest and get collected by family and you could see an awful lot of investment in northern Hungary. The roads only got bad after you crossed the border into Slovakia. The other countries that are due to join the euro are watching their currencies getting hammered by and large.

It's no longer the EU country with the highest unemplyment but it is also one of the poorest

The trouble for these young countries is that the investment has dried up. Slovakia ( Detroit of Europe ) had a great deal of Asian investment and the Euro provided a benefit to that.

The euro will survive, not without it's hiccups but imho people saying it's finished are wrong

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It's unsustainable and something's gotta give.

Maybe they will just experience a bit of unemployment, deflation, and the state might have to "restate" some promises (maybe including the bondholders as well as the citizens). I am not sure how to tell to what extent this is worse than devaluing the currency. I think I can see how it could be much worse, but then it also has benefits such as a complete lack of hyperinflation.

A quick look on Google suggests the Slovak budget deficit is about 5%, and they might not owe 200% of GDP, and they probably don't have a government set on implementing a scorched earth policy. Latvia is not doing nearly as well, but they are managing to cut pensions and salaries without massive civil disobedience.

Whatever happens there is coming over here. It will almost certainly be a bit different in that there will be a currency devaluation rather than deflation, and it may also be a lot worse. Oh except I forgot there are green shoots, and everything will be just fine. Better go and buy a couple of houses before I miss the boat ...

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I believe pound has always been a free floating currency or at least "managed float"? Baltic countries hv been running currency boards against EUR with +/-1% band around parity, i.e. literally had adopted EUR, created nice hallucinations, but no more money for the crack. IMF is almost refusing to give another dose, but the dear EU are putting some pressure on IMF. It tells a lot about the prospects of EUR.

Staying within 1% of a target rate = political commitment to future monetary union rather than monetary union itself. I believe the sterling ERM bands were wider, but the situation seems exactly analogous.

I'm not saying the countries won't enter EMU, just that policy-maker assurances on the subject cannot be relied on -- what else are they going to say?

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and like every other country that was daft enough to sign onto the Euro, the prices went through the roof making the country unaffordable.

I remember Spain and Greece when it was cheap. Then the euro........................................

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Staying within 1% of a target rate = political commitment to future monetary union rather than monetary union itself. I believe the sterling ERM bands were wider, but the situation seems exactly analogous.

I'm not saying the countries won't enter EMU, just that policy-maker assurances on the subject cannot be relied on -- what else are they going to say?

Completely agree with "what else are they going to say" (applies to Mr Brown, too). Just that the farce makes you laugh..has Brown sent anyone back to uni yet :lol: ?

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