The relation is established against the USD. The Bretton Woods agreement defined the United States Dollar as reference currency for all others and, to this day, all exchanges between currency pairs are done thru the USD. For instance, if you exchange pounds for yens, the back-office mechanism is exchanging pounds for US dollars and then US dollars for yens. If you look closely, the GBP/JPY exchange rate is equal to GBP/USD * USD/JPY.

Also, until 1971 the GBP did not free float. Its rates were fixed against the USD. The free float came after that.

Now, nowadays and for the last 5-7 years, yes, the forex market has been heavily manipulated by central banks. That was not the case before. However, this I must stress, central bank intervention does not change much the true market value of a currency. Historically intervention has been useless in the medium and long terms.


That is one of the falacies of the Euro, the assumption that a common currency could benefit all equally.


Not so fast. Anyway, the same problem would remain for Portugal and France are very different economies. On another note, for certain countries, like Portugal, a weak currency while appearing as a good thing, given that the Portuguese can't govern themselves, would be terrible and lead to further impoverishment.

One thing is to use a one-time currency devaluation as a way to boost exports and economic development. A whole different thing is to enter the cycle of devaluation-inflation which is what Portuguese governments did since 1974 until the introduction of the Euro. This leads to an increasingly diminished value of a country's currency thus making those who use it poorer.

Yes, and in trying to stick with case studies relevant to the in/out debate (rather than general economic theory/practice) I offer:

1. The Grexit issue continues more or less unabated following on from 12 months ago.
There is an interesting commentary below from a world reknowned economist.
Europe’s Attack on Greek Democracy
I feel that you won't agree with every premise therein, but it does make an interesting perspective.
Certainly, it is a well informed comment on the issues of 12 months ago which continue today, unabated and virtually non-debated in the UK.

2. Today, we have further mention of the buzz word "austerity" in the UK.
In truth, the UK has yet to implement such a programme if the definition is accepted of "reducing the national debt".
The UK national debt continues to rise.

__________________
Dave

Stiglitz is precisely one of the Academia economists to whom I referred earlier with a touch of politician. As a general rule he has been historically wrong when speaking about real world conditions. Let's not forget that he is one of those who praised Chavez economic rule in Venezuela, the Syriza confrontational attitude when they took power and also tried to meddle in Spain whose subsequent growth came totally against his expectations.

I don't waste my time reading him. As soon as I opened the link and noticed the name Stiglitz didn't read further.

On what concerns Greece, there was no real case for bailing them out then and what is happening is exactly what was expected. They were bailed out (again!) merely for political reasons, specially because Donald Tusk didn't let it go any other way when it all pointed to a lack of agreement. Given that Mrs. Merkel also wanted to hold on to Greece, when things looked desperate she grabbed the hand offered by Tusk and an agreement (or sort of...) happened. It would had been prefereable for everybody just letting the Greeks fall. Including for the Greeks themselves. There are societies which, because of their very nature, are not able to be rich and prosperous. The way Greeks approach money, work, state, citizenship, etc, etc, is mediocre to say the least. They won't ever be prosperous. Now, the Euro is designed considering that all its members work towards their own prosperity which, in turn, leads to the prosperity of the whole. It's an utopia, of course, but it is the thinking behind the whole shebang. Now, this is true for Germans, Dutch and some others but far from true when we speak about Greeks or Portuguese. The rules of the Euro are alien to these societies and, therefore, they are not able to function within them. They don't even understand them and the results are those which we all see. I think it would be better for everybody to just allow them to exit the Euro and live life the way they know, the way they can according to their culture and the way they want. Any harm is of their own making and, with time (decades, not years), maybe (or maybe not) they can, on their own, move forward towards other paths.


What has been coined as "Austerity" is merely going back to living within one's means instead of borrowing and living the present with the future people's earnings.

Accepted on both counts, with some reservations about the "future childrens' earnings" element.
Those points were posted by me as a means of adding to the discourse.

In his final sentence of his article, Stiglitz does refer to an issue which has received little mention here so far:-
"Greeks might gain the opportunity to shape a future that, though perhaps not as prosperous as the past, is far more hopeful than the unconscionable torture of the present."

A few other countries could replace the word "Greece" in that thought.
This is related to your earlier point about Portugal/France.

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Dave

That is more or less what I say in the paragraph added after posting originally. I agree that if they go out of the Euro they will loose any chance of being prosperous. But, then again, within the Euro they aren't for they don't know how to live with a strong currency as the Euro so it goes more or less to the same. There are caveats, however. If Greece leaves the Euro, the new dracma will be worthless and so Greek society will go back easily 50-70 years in living standards. And yes, I'm fully aware of their conditions after World War II and from then onwards. They will easily revert back to that.

It's the first time, though, that I see Stiglitz assuming that they will be less prosperous out of the Euro rather than in. It seems that age is being good for him. At least it's bringing him realism and wisdom. It's a start.

Now, where I don't agree is on the "hopeful future" thing. The hope would last only the first week if that. Then, when people start realising that all they have in their wallets is colored toilet paper, hope goes down the drain very fast. I totally assume that there is a strong chance even of a civil war in Greece following their exit of the Euro but, then again, is of their own making and societies must be allowed to solve their disputes themselves and live as they wish. It's their problem more than anyone else's.

Greek People "Genius!"



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