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Enron Mail |
Q1: What are the main reasons for having a common currency Euro for the EU?
Transactions of money and trade will less expensive because currency exchange cost will disappear. Saves the costs of hedging exchange rate risks (some monetary, others due to the drain on managerial attention) or the risks of not heding fixed but adjustable rates. Makes price differences more transparent across borders, which may increase trade. Economists do not fully understand why, but beyond the measurable effects of the effects I just mentioned, a common currency increases trade even more than these slightly lower transaction costs can explain. The process of qualifying for unification also required lower inflation and deficits, which many economists and politicians desired. The main arguments for monetary unifications were political, not economic, having to do with integrating Western Europe. Q2: Beside losing its monetary authority, what are the reasons that the UK does not want to join the Euro? I believe the Government has a different opinion than the public. What are these arguments? As you note, the economic reason is fear of losing control over domestic monetary policy. As with the decision to join, the UK's decision not to join was largely political, choosing NOT to unify as rapidly with Europe on monetary and lots of other matters (social charter that may regulate working conditions, etc.). Q3: In my notes, I wrote "You don't get rich by exporting -- you get rich in the short run by importing." What do you mean? I said that unclearly. I should have said, "You do not raise your standard of living by exporting; you raise it by importing." At the same time, exports are the price of imports, so you raise your grandkids' standard of living by exporting intsead of borrowing to pay for the imports. (Unless the imports are high-value investment goods...) Q4: I also wrote in my notes: "Trade deficits and exchange rates can't be used to describe a country's prosperity." If trade deficits and exch. rates can't be used to describe prosperity, what is the best measure? At first GDP comes to mind, but in my day 2 notes, there are all sorts of reasons why GDP isn't a good measure, the most poignant one being: "2 countries have the same GDP, but one country has twice as many people -- this country has lower per capita GDP, and is poorer than the first country." CRUX: is per capita GDP a good measure of prosperity? Per capita is a pretty good measure of prosperity and living standards. The list we gave are all the components of "the good life" it leaves out. On average, rich nations have higher life expectancy, etc., so GDP per capita is not too misleading, but it clearly can be (as we pointed out). Thus, no single measure suffices, and a combination of measures can be useful. David I. Levine Associate professor Haas School of Business ph: 510/642-1697 University of California fax: 510/643-1420 Berkeley CA 94720-1900 email: levine@haas.berkeley.edu http://web.haas.berkeley.edu/www/levine/
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