How did 19 countries abandon their own currency
for the Euro? How did it cause the Eurocrisis? How is the Euro managed and mismanaged? I wrote this episode in such a way that even
if you know almost nothing about economics, you will still understand it. So enjoy! The European Union is compromise upon compromise
by 28 different-thinking countries, balancing between keeping national sovereignty or giving
it up for the greater good, for the European project to function properly. the EU is a tower of ductape. This is shown perfectly in action with the
Euro. Whenever you go abroad, you have to exchange
your currency for that of the country you’re visiting, paying a small percentage of your
money just to get back less money. This hampered European trade and so in 1999
the Euro came into force for companies and governments. In 2002 coins and paper bills were introduced
for the average citizen. So, which countries have the Euro? To be part of the Euro you must adhere to
4 criteria: your country’s spending must be less than 103% of its income, your debt
less than 60% of your economy -GDP-, and have low inflation and interest rates. Any EU country who achieves these goals must
join the Euro. Except Denmark and the UK, who have special
opt-outs. The initial countries to join the Euro were
Portugal, Spain, France, Luxembourg, Belgium, Netherlands, Ireland, Germany, Finland, Austria,
and Italy. Greece joined in 2001, Slovenia 2008, Malta
and Cyprus 2008, Slovakia 2009, , Estonia 2011, Latvia 2014, and Lithuania in 2015. So what does joining the Euro mean? Countries relinquish their control over their
monetary policy, which means the right to print money, set interest rate -how expensive
bank loans are-, and inflation rate -the price increases for products every year. Instead this is handled by the European Central
Bank, or ECB. The ECB is run by the 19 governors, one of
each of the national central banks of the Eurozone. But what is most important is what the ECB
WASN’T allowed to do: fiscal policy. “okaaay, what the hell is fiscal policy?” Fiscal policy is how much taxes a government
collects and how much it spends. Countries usually spend more than they collect
in taxes, so they borrow extra money. And here lies the beginning of the Eurocrisis. Government want money and investors are willing
to give that money, if they get a little bit extra back when the government has to repay,
called interest. So an investor looks at Germany, for example:
“hmm, let’s see, you always pay back your debt, strong economy, and you don’t have
a lot of other debt. This is a safe risk so I want only 3% interest”
but that same investor looks at Greece and goes “your government collapsed in the 70s,
small economy, low tax income. This is very risky. I want 18% interest”
But this changed with the Euro. Investors now looked at Greece and thought
“well, if Greece can’t pay it back then at least Germany will… they have the same
currency afterall” This meant southern European countries could borrow A LOT more money. so, to get re-elected, leaders went on a massive
borrowing spree to give jobs and early pensions to their voters. And how did they repay these debts? By borrowing even more money, of course. And to make sure the EU didn’t get angry
for borrowing too much, Greece simply lied about how much debt they really had. In Ireland and spain, at the time, this cheap
borrowing lead to a housing bubble. This basically means that you could buy a
house that was too expensive for you with a cheap loan. And if you couldn’t repay your loan you
just sell your house to repay your debt and make a little bit of profit as well… at
least, that’s how it was sold to the customer. The same happened in the USA. When too many people tried selling their house,
the price of property went down. Every investor in property suddenly saw a
lot of their money disappear. Why is this so important? Because that meant there was no more money
to spend on loans. The fantasy of cheap borrowing came to a halt
and the global recession had begun. All the companies who had invested in US,
Irish, or Spanish housing debt were close to bankruptcy. So how could this be solved? You might often hear people say “pfft, just
let them go bankrupt. It’s their own fault”. But they forget if you want to buy a house
or start a business, you come to a bank. If the banks fall, you have nowhere to go. You want to take out money from your bank? Yeah, you can’t anymore, your bank is gone. Pension funds are also big investors. Your pension, your parent’s pension, your
grandparent’s pension… gone. Millions of people in poverty in an instance. And what about the countries in debt? Regular companies who did nothing wrong, car
makers, software companies, producers of food all had investments in banks or companies
with debt. Company after company would fall, tens of
millions without jobs, poverty would run rampant. These same companies also had invested in
government debt of Ireland, Portugal, Spain, Italy, and Greece. After a year of recession, these 5 countries
who were on the verge of bankruptcy. Remember, the only way some were able to repay
their debt was with more debt. But nobody was giving them any loans anymore. Meaning pensions, social welfare, and jobs
were at risk. So how can the governments prevent bankruptcy? Normally, when you have control over your
own currency. You simply print more money to pay off debt,
salaries, and social welfare. This lowers the value of your currency, meaning
your products become cheaper for foreign consumers and for tourists. This is how most countries got out of the
recession. Well this had become impossible with the Euro. Low prices for a struggling economy is good. But when your currency loses value, it becomes
more expensive to buy goods from abroad. Not a big deal for struggling economies, you
won’t be buying a lot of foreign products anyway, you don’t have the money. But if your economy is doing well, such as
Germany or France, raising prices isn’t likely to get you re-elected. And without Germany or France backing your
idea, it ain’t gonna happen. So the best and easiest way to solve your
crisis is gone. “But large countries like the USA find a
way to support their poorer regions as well, don’t they?” The USA has many systems in place to transfer
money from rich regions to poor regions via unemployment benefits, healthcare for the
poor, and government investment projects. In the EU, this is impossible. Sure, Dutch citizens gladly spend their taxes
on other poor Dutch citizens, ask them to pay for other poor European citizens in Greece,
you’ll most likely hear a resounding ‘NO’. Most people in the USA feel like US citizens. Most people in the EU feel Irish, German,
Dutch, etc. So, imagine now you are Greece. What can you do? As the largest economy in Europe, everybody
looked at Germany to help pay for the debt. If these 5 countries couldn’t pay their
loans back, then European companies could go bankrupt. If nothing was done, France might go bankrupt
next, and then… Germany. So, Germany reluctantly agreed on the condition
that these 5 countries adopt the German way of government spending. Germany, and most northern European countries,
are generally very financially responsible, collects all their taxes, and people expect
little in government support. This was not so in most southern European
countries. ‘If you want OUR money. You need to adopt OUR morals’. Meaning these 5 countries had to cut spending,
borrow less, and repay current debt. Great idea, right? Hmmm, not so much. For one, the government is by far the largest
spender in any economy. Cutting government spending means fewer jobs,
less government investment, and lower pensions. These people might no longer afford a car,
meaning the car salesmen has to fire someone or go bankrupt, meaning they can’t buy as
many groceries, meaning a supermarket firing employees, and on and on it goes until you
reach the high unemployment rates we see today. So what has been done to solve the Eurocrisis? First of all, the affected countries sold
government owned companies, raised the retirement age, and made it easier to start a businesses. But this wasn’t enough. Secondly, The EU set up a fund of 200 billion
euro to keep failing companies and governments afloat. Thirdly, the European Central Bank began buying
up government debt. So if you invested in Greek loans, you could
sell that loan to the ECB to immediately get some of your investment back. Meaning people were willing to invest again
in Greek loans so the Greek people could buy houses and start businesses again: boosting
the economy. Fourthly, to make sure another Eurocrisis
NEVER happened again, the ECB started checking government expenditure of Eurozone countries. If you spend too much as a country, the ECB
can force you to spend less. And lastly, the Eurogroup was established. It is comprised of the 19 finance ministers,
one from each Eurozone country. They come together to discuss the future of
the Euro and to act quickly in case of an emergency. All in all, these measures finally seem to
work for the affected countries, except for Greece. Greece is in a state where, according to current
projections, it will stay in its current turmoil until at least 2060. That’s at least another 40 years of hardship
because it joined the Euro and they are forced to spend much of their taxes on repaying debt. So, what more could be done? One solution is Grexit, a scenario where Greece
would leave the Euro, return to it’s old currency, and finally devalue their own currency
to boost export and tourism. Great idea for Greece, very unpopular in the
rest of the Eurozone. If Greece leaves, other countries might leave. Perhaps leading to the collapse of the Euro
and maybe even the EU. The other countries could forgive Greece’s
debts. Just… forget about them. Most Greek debt is now in the hands of the
ECB and governments; thus, it wouldn’t hurt the EU economy too much. Unfortunately, telling your voters you sent
vast sums of money to a country who created the last crisis isn’t going to win you any
votes. And thus, politically impossible. Then the third option: Eurobonds. Where all debt made by national governments
would instead be turned into European debt, where all the countries would collectively
repay debt. But the interest on Eurobonds would be higher
than those of German and The Netherlands. And if Germany, the country paying the most
to keep those 5 countries afloat, says ‘no’ to reform, it doesn’t happen. And so, we are left with a country staring
into financial abys because politicians borrowed too much, countries didn’t want to give
up their sovereignty, and bankers issuing bad debt. So can another Eurocrisis happen? Unlikely. But the Euro still has many flaws: it’s
ruled too much by Germany, doesn’t help the poor regions who are in trouble, and the
countries are too culturally diverse when it comes to government spending.

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