Thursday, February 10, 2011

Research progress

Thanks everyone for the comments, they have been very helpful.

My focus is still in the area of the effect that a single currency has on the several member states of the European Union. As my daily profession I'm a currency analyst and major concerns are coming out of the EU in regards to the "PIIGS" (Portugal, Ireland, Italy, Greece and Spain) Although these are only 5 countries in a fairly big union, they represent a significant part of the EU gross national product.

As many already know, Greece and Ireland sought bailout money last year from the European Central Bank and International Monetary Fund. Two of the five countries of most concern in the EU have not been unable to sustain their debt obligations without outside assistance, when (not if) will the other three countries fall?

I have continued my research along the path of the effects of a single currency union like the EU, I have been researching other countries with similar situation. The EU is definitely not the first of its type nor will it be the last to incorporate a common currency. On a side note there are members of the EU not using the Euro, for example England, Sweden, Denmark, Hungary along with a few others.

Two parts of the research I'm focusing on right now include:

1. The similarities with the EU/Euro and the early American colonies that incorporated the use of 13 different currencies in the 13 different colonies.

2. Also I'm researching effects the Euro is having on the Euro-using members of the EU. As mentioned earlier the "PIIGS" are a focus of my research, with Ireland and Greece receiving an combined 250 billion Euros of bailout money. How can the larger/producing countries hold this up (IE Germany, France etc)?

An interesting topic is how countries can manipulate their own currency when the economic conditions dictate. For example the USD has been at its weakest points over the last 3 years as we've been dealing with the financial crisis. This is no coincidence, it's advantageous for any country during times of financial difficulty to devalue their currency to make exports more competitive in the int'l arena.

In summary, is the Euro dragging down the European Union as a whole? I believe it is and so far my research hasn't uncovered much evidence to the contrary.

The EU is nearly operating as a single country but there are still big gaps in how each country deals with their own debt, so far my claim of "all or nothing" (referring to the EU's need to unite completely or dismantle) is building a strong case.

Bibliography coming shortly....

3 comments:

Mark Jeffreys said...

Jared,

that's an excellent post, as it goes a long way to helping me, as layperson when it comes to international currencies, to understand the situation of interest. The dramatic claim in your post is the all-or-nothing, unite-or-disband case to which you refer near the conclusion. One way to make an argument like that is to structure it as a cautionary tale of what will happen if the EU does not completely unite. For that, the US colonial case (and others) may be of historical help, but the argument seems daunting to me, thinking as a social scientist and wondering how you can possibly account for the wild array of variables. Alternatively, you can really focus on just what is actually happening with the Euro-using EU nations' economies vs. the non-Euro EU economies. I have no idea whether the UK is better off sticking with the Pound Sterling (although I read and listened to countless pro-&-con during my summers in the UK in the '90s and early '00s). But if you can use the current crisis and the "PIIGS" dilemma as a natural experiment testing the durability of the EU currency you can attempt a predictive case for the inevitable failure of that currency, barring a complete consolidation of all EU nations into one entity. The one thing I would leave alone is the question you raise about the manipulation of currencies, such as the USD. It seems to me that could sidetrack you.

Unknown said...

Why do you suppose the other three will of a necessity fall? And by fall, do you mean they will seek loans, or they will be in irreperable debt? Are the first two? How do other nations outside of the union compare?

As someone who is ignorant, these are the sort of things that I don't know to take for granted or not.

However, I'm intrigued that we are comparing the EU to the early colonies. Are you predicting a similar union? Was that always the goal and I'm just slow?

Scott Abbott said...

Jared,
this new post helps me, too, to understand what you're up to.
Especially important for me is that you have professional expertise in the issue. Work this the way a professional would, analyzing with a full sense for what it will cost you if your analysis is wrong.
And if the American example will help, use it. If it leads you astray from your major analysis, drop it.