From Pat Baron:

“Emile,
Even Germany is not immune to the predations of the euro.  I keep pointing out that German exporters benefit from euro credit expansion, but at the expense of all other Germans.  This is one reason that Germany is reluctant to put an end to the euro mess…the exporters and their constituents, workers, etc., do benefit. But this really is no different than saying that US Steel benefits from taxpayer handouts. US Steel and its workers, etc. benefit, but surely no one else does.  It is a wealth transfer.

“It is wrong to state that the case against the euro is centered on a “one size fits all”, which makes it impossible to adapt the currency to differing economic situations.  This view reflects an ingrained Keynesian mindset in which the currency is a tool of economic management.  No.  A currency is simply a medium of exchange.  The currency remains fixed; prices expressed in terms of that currency are flexible.

“It furthers a misunderstanding of the role of money to state that “Britain can benefit from being able to devalue sterling…”  Wrong.  No country can force another to pay for its economic progress.  Devaluing a currency causes a transfer of wealth WITHIN the currency zone and gives a subsidy, paid entirely by the devaluing nation, to foreigners.  Usually exporters benefit at the expense of non-exporters, but the process is delayed and obscured so that the real costs are hidden.  It it is one of the great economic fallacies of our time that a country can benefit by devaluing its currency.”

Emile’s response:

“Presumably German exporters benefit from euro credit expansion because they have far earlier access to the newly created fiat money than those who have to wait for the production cycle to complete its course, by which time their purchasing power has been diminished by the currency inflation.

“On your second paragraph, if variations in prices, rather than currency (which, as you say, is simply the medium of exchange), arise from differential productivity levels, in turn arising from relative management skills, factor utilisation efficiency, differences in employment-tax rates and regulatory burdens, etc etc (ie, the difference between, say, Greece and, say, Germany), does this mean that joining the euro is not in itself a mistake for governments in the EU?  Whatever their currency of choice, their understandable desire for greater price-competitiveness can be met only by reducing burdens on productivity, reducing regulation and taxes, and so on.

“This would suggest that the main argument against joining the eurozone is that your new currency (the euro) is being systematically debased by the ECB (with encouragement from IMF), a process over which you now have no control, whereas you did at least have control over the supply of your Slotis, Kroner, or whatever.

“Per contra, an ability to devalue your slotis as a matter of deliberate policy is not an argument for retaining your currency as that process creates even more dislocations that in time will come home to roost.”

From Patrick:

“Dear Emile,
Your analysis of every point above is absolutely right!  I could not state them better myself.”