(Econ201) The Euro Zone

Daniel Altman:  Back after the Second World War, a lot of people were asking, how can we get these European countries to stop fighting each other, which they’ve done for hundreds of years?  And one of the answers was, let’s get them to integrate economically; let’s tie them together.  This was the genesis of the European Union that we know today, which today has 27 countries in it.  And, presto, they haven’t fought each other.  That’s a success.  

What hasn’t been such a success has been the series of treaties that they’ve signed with each other.  And one of those treaties is the one that created the Euro Zone, these countries within the European Union that share a common currency.  Now, there was a real good reason for this.  The idea was that if they all shared the currency, not only would it help to synchronize their trade, but it would actually synchronize their economic cycles so that you would have the same economic cycle throughout these countries and you would be able to set monetary policy for these countries - the size of the money supply, interest rates, things like that - from a central authority, the European Central Bank in Frankfurt.  So the expectation was that even if the countries had slightly different cycles to start with, which would make it very hard to set one monetary policy for all of them, that eventually they would come in to sync.  

The problem is, it hasn’t worked out that way.  Even during this last downturn, we saw some countries growing while other countries were shrinking.  So if you’re a central banker sitting in Frankfurt at the European Central Bank, how do you make just one monetary policy for all of these countries?  It’s impossible.  And the problem gets even deeper when you look into the long-term because these countries have very, very different risks and opportunities facing them.  So it makes it even less likely that they’re going to have the same cycle.  

The problem in today’s terms is that we don’t have rules for knowing which countries can come into or out of the Euro Area.  We know that Greece probably needs to exit the Euro Area because of its debts and because it needs to stimulate its exports with a lower valued currency.  But we don’t even know what the rules would be for that happening.  And if Greece were to exit, we don’t know what the rules would be for it to come back.  As a result, how can you invest in Euro denominated securities because you don’t even know which countries will be in the Euro and how much the Euro will be worth?  

Directed / Produced by
Jonathan Fowler & Elizabeth Rodd

Photo courtesy of  Tilo G/Shutterstock.com

Daniel Altman explains the origins of the European Union and why it's in so much trouble today.

Why the ocean you know and love won’t exist in 50 years

Can sensitive coral reefs survive another human generation?

Videos
  • Coral reefs may not be able to survive another human decade because of the environmental stress we have placed on them, says author David Wallace-Wells. He posits that without meaningful changes to policies, the trend of them dying out, even in light of recent advances, will continue.
  • The World Wildlife Fund says that 60 percent of all vertebrate mammals have died since just 1970. On top of this, recent studies suggest that insect populations may have fallen by as much as 75 percent over the last few decades.
  • If it were not for our oceans, the planet would probably be already several degrees warmer than it is today due to the emissions we've expelled into the atmosphere.
Keep reading Show less

​There are two kinds of failure – but only one is honorable

Malcolm Gladwell teaches "Get over yourself and get to work" for Big Think Edge.

Big Think Edge
  • Learn to recognize failure and know the big difference between panicking and choking.
  • At Big Think Edge, Malcolm Gladwell teaches how to check your inner critic and get clear on what failure is.
  • Subscribe to Big Think Edge before we launch on March 30 to get 20% off monthly and annual memberships.
Keep reading Show less

Health care: Information tech must catch up to medical marvels

Michael Dowling, Northwell Health's CEO, believes we're entering the age of smart medicine.

Photo: Tom Werner / Getty Images
Sponsored by Northwell Health
  • The United States health care system has much room for improvement, and big tech may be laying the foundation for those improvements.
  • Technological progress in medicine is coming from two fronts: medical technology and information technology.
  • As information technology develops, patients will become active participants in their health care, and value-based care may become a reality.
Keep reading Show less