A weak currency is a good thing for cheapskate travelers. The process is simple: a country has a dire political or financial crisis. The currency crashes. And then -- bargain vacation! But as much as I like a bargain, I won't be going to Greece, Ireland, or Spain this summer. Contrary to what you might think, those countries don't represent value for US travelers.
A weak currency is often a key part of rebuilding a weak economy. It makes goods and services produced in a country cheaper, and that attracts business. In essence, a weak currency is a country's way of going on sale, no different from a retail store cutting prices to get customers in the door and move the merchandise out. That's why a weak currency isn't necessarily a bad thing.
Tourism is often the first industry to benefit from a weak currency. It also brings in money and creates jobs for people with a spectrum of skills, ranging from accounting to housekeeping. That's why I've found over the years that the first step to a cheap vacation is locating a country with troubles of one kind or another.
A financial crisis is best, because the problems rarely spill over to concerns for tourists. But even a little violence and mayhem can work for travelers with a higher risk tolerance. I wouldn't rent a car in Mexico right now, but a nice beach resort with professional guides? That, I can do, especially given all the deals available. Besides, I'm not going to bars frequented by the drug gangs, so I'm not going to run into them.
I honeymooned in Italy shortly after the assignation of a big crime boss and the election of a communist-friendly prime minister, Carlo Ciampi. The lire fell sharply, and I bought a lot of clothes. My family went to Iceland in 2009, after the bottom dropped out there. It was great -- lots of hiking over continental plate boundaries, lots of designer clothes on sale at boutiques that were going out of business.
Beach vacations in Greece remain pricey, even though the country is on the verge of going bust. A week of horseback riding and shopping for woolens in Ireland is an expensive proposition, too. The reason? Blame the euro.
Greece and Ireland can't devalue their currencies by managing interest rates or buying back bonds. The EU could manage the euro to reduce its exchange rate, but Germany and France aren't interested in becoming bargain-basement economies. Because overall supply and demand for the euro is very much driven by activity in the largest economies, Greece and Ireland have a problem.
The European Union, combined, has the world's largest economy. Germany is ranked sixth, with a GDP of $2.9 trillion. Greece is 39th, with $318 billion, just over 10 percent the size. Ireland is even smaller, at $172 billion. Because Greece and Ireland are held hostage by their overvalued currency, their recovery is slowed.
And I have to find my cheap vacation elsewhere.
The European Monetary Union is a huge experiment. The nations on the euro are responsible for their own national budgets, but they don't have any way to influence their currency. For a long time, Ireland, in particular, was a beneficiary. It's an English-speaking country with a high literacy rate, and the country used to have a desperately low standard of living. That made it an ideal low-cost location for companies that wanted to expand their operations. Back then, the Irish were happy to bring in those valuable euros.
Even in the United States, we tend to think of a weak dollar as a bad thing, but it has helped certain sectors of the economy. The US had 56 million visitors in 2007, before the financial crisis, according to the Department of Commerce's International Trade Administration. Last year, there were 59.8 million visitors. And this summer, my guess is that a lot of Germans are taking their valuable euros to the sweltering New York City streets.
In Ireland, meanwhile, the number of tourists arriving has dropped. The nation had 7.7 million visitors in 2007, according to the Irish Tourist Development Authority, and 5.9 million in 2010. Ouch! As for warm and sunny Greece, 14.9 million people showed up in 2010, down from 16.1 million in 2007. (The 2010 data for Greece isn't available, maybe because it's not very good.)
With a flexible currency, economic troubles in one sector can translate into bargains in some export sectors, especially travel. The euro is not a fixed currency, but it has a de facto fix for the smallest countries in Europe. That's limiting the options that Ireland and Greece have for recovery, and it's limiting my vacation plans.
Well, I haven't a clear idea of what form it might take, but given that member states have a solvent financial underpinning, it would take shape much as it has. Strictly speaking, I would characterise it as a federation, not a union, where the "fetters" are the series of treaties and agreements, across all institutions, which bind the members in a process.
As such, there's no need for MEP's to have "real power". They legislate. One scenario might be that member states sign on to various legislation, committing to participation in the process to the extent that their population can support.
I don't recall that statement by Friedman, but I assume by union he meant unity of interests, not the kind of union enforced by a cannonade. The herding of cats that would characterize a pan-European political union is best done as it's been attempted, by diplomacy and degrees. I believe one mistake has been the focus on the traditional geographical demarcations. Any state that submits a favorable prospectus should be able to join, though ease of trade would probably keep the location of member states more or less on the European continent.
It was Milton Friedman who said it and said it best-A Monetary Union is not possible without a Political Union.
So if we do get a Political Union(where the MEPs have real power);then for sure the Euro experiment can be expected to succeed.
On the other hand if the wider populace chooses to revolt(like what looks increasingly likely in Greece,Ireland .Portugal and now in Germany);then its curtains for the Euro.
I for one would rather bet against the Euro than for it[Really encouraged by the fact that China is betting for it-The same China which invested in Lehman bonds and Citi bonds before they were completely worthless]
looiking at the US economy and the current trend that we arein, even if you are a "cheapskate" traveler, you probably won't have the money to go...have you seen the price of airline tickets, plus baggage!! Wow...but I was surprised to see that Europe's total economy eclipsed ours...not by much though.
Well, if they survive this, we'll see more unified currencies. This is still an experiment, playing out on a global stage.
I liked it better when the euro was launched and was worth about a dollar. That year, everyone in my family received Scottish sweaters for Christmas - they were so cheap, even with the shipping! That didn't last long, between Europe's success and the US's decline.
It's not hard to understand the Europeans wanting to unite around a common currency. When the financial capital of the world moved from London to New York after World War I, regional pride, among other motivators, started the notion of unification going on the continent. What better example to model ones economy after than the United States at that time?
The powerful operations of wishful thinking in this venture caused the framers of the Euro-based economy to ignore key aspects of the United States economy. The industrial role of various regions in the United States grew over time interdependently. The resulting framework is something Europe cannot hope to map to, in a rapid transition, without marked convulsion such as we've seen in the past year.
If they stick it out it may very well be worth the experiment. Then again there may be other factors that make the climate very inhospitable for it.
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