The shrinking dollar

[Keitht Super Moderator Find all posts View Profile Close Keitht]

The move to the Euro has definitely had an inflationary effect on prices in Spain. That's the only country I have direct experience of in a short timescale either side of the move to the Euro. Some of the price increases can be put down to 'rounding' as vendors will inevitably round up rather than down when the opportunity arises. Another factor has been simple profiteering. People were unsure of the conversion rate so again vendors took the opportunity to increase prices simply because they could get away with it.
Another factor in price inflation has been the actual unit value of the Euro compared to the Peseta. Where a price before might increase by 5 or 10 peseta it will now rise by 5 or 10 cents, or approximately double the old figure.
The availability of cheap flights has had an effect on property prices, but the move to the Euro has had a far greater effect on the prices of food and drink.

[alanmj Banned Find all posts View Profile Close alanmj]

With a 170% housing price increase from 1997 to 2005 there would have been huge price rises anyway, whether measured in euros or pesetas. As with Ireland, the housing market represents a huge fraction of the economy (over 30% of the Irish economy, and higher for Spain), so has been driving inflationary increases. The same increases being seen today in non-euro eastern European accession states, entirely due to property speculation.

I also am of the opinion that the euro caused minor inflation, and I've thought 5% to max. 20% based on what I've read and experienced, but even that is questioned. The 2002 figures from the European Central Bank quoted increases of 0.12%-0.29% due to the introduction of the euro. Whatever the figure is, it is nowhere near 170%!

[Carolinian Super Moderator Find all posts View Profile Close Carolinian]

For the accession states in eastern Europe, it is the VAT increases that has raised prices, not property speculation. The price increases hit rather suddenly and at the same time as the VAT increase. We will see another big hit with the change to the euro.

I have been travelling to Romania regularly for some years, and property has been going up there for some time. Except for some minor hotel increases, this did not have a lot of impact on prices. Romania is not as far along in the EU process as Hungary and Poland (just became a member officially today, in fact), and the EU impact has not been as much as in those countries. They have not been required to increase the VAT yet.

I personally observed what happened with the change to the euro in Germany, and your percentages are very much on the low side.

With a 170% housing price increase from 1997 to 2005 there would have been huge price rises anyway, whether measured in euros or pesetas. As with Ireland, the housing market represents a huge fraction of the economy (over 30% of the Irish economy, and higher for Spain), so has been driving inflationary increases. The same increases being seen today in non-euro eastern European accession states, entirely due to property speculation.

I also am of the opinion that the euro caused minor inflation, and I've thought 5% to max. 20% based on what I've read and experienced, but even that is questioned. The 2002 figures from the European Central Bank quoted increases of 0.12%-0.29% due to the introduction of the euro. Whatever the figure is, it is nowhere near 170%!

[Carolinian Super Moderator Find all posts View Profile Close Carolinian]

The problem of price gouging with the introduction of the euro was illustrated by an incident in Italy that I posted on one of the t/s boards based on an article I read in either The Daily Telegraph or The Economist a year or two ago.

It seems the leader of a national consumer group in Italy was outraged over all of the unjusitfied price increases that came with the change to the euro, and to make his point decided to sue his local street corner cafe, which has more than doubled the price of cappuchino, as an example. He won his case and got a judgment requiring that the price be reduced to a correct conversion of the old price in lire. With the media in tow, he went to the cafe and ordered his cappuchino and was charged a properly converted euro price. However, when reporters tried to order cappuchino, they were told that they would get that price once they produced their own court orders saying they were entitled to the old price. Otherwise they had to pay the new price.

[timbuktu Member Find all posts View Profile Close timbuktu]

Yes, Brits are buying Real Estate for half price

I have a friend who manages an expensive home in Boston for an extremely wealthy man from London.
He just bought a $10 million home in Palm Beach. Fl. Cost to him was $5 million using British pounds. Quite a bargin for him.
Why is our dollar so weak ???

[Carolinian Super Moderator Find all posts View Profile Close Carolinian]

Why is our dollar so weak ???

There is a thread on that subject on the Political board on TS4MS

[alanmj Banned Find all posts View Profile Close alanmj]

I personally observed what happened with the change to the euro in Germany, and your percentages are very much on the low side.

Carolinian, your personal observations and anecdotal stories of your friends all make pleasant reading, and are fodder for euro-sceptics, but totally lack objective and authoritative support. The inflationary effect of the introduction of the euro I quoted is from the ECB's figures (which even I find surprisingly low), and I have to believe that (a) they are the experts and know what they are talking about, (b) they have all the appropriate the statistics to make the statements they do, and (c) they do not lie. ECB's figures for inflation before, during and after the intro of the euro is an average of 2% (see numerous articles on ECB's web site: www.ecb.int). The introduction of the European Monetary Union has been an unqualified success, and has led to unprecedented monetary stability to the extent that the euro is becoming the global currency of choice over the US dollar. Unless you have a financial and banking background, and are able to challenge assumptions (a), (b) and/or (c) and dispute ECB's figures with undeniable facts, then your stories will remain just that.

But back to the topic of the thread, the dollar has weakened this morning to 1.3272 to the euro by 11:49 a.m. in London - almost a whole cent decline from yesterday's close in New York. In total, the dollar fell 10.2 percent against the euro last year. There are as many forecasts out there as there are experts, but most agree that aggressive changes are needed by the President, the Government and the Fed Reserve to stabilize the falling dollar, and most think that just isn't going to happen, so the dollar will continue to slide against the euro.

timbuktu asks why the dollar is weak. I think the answers lie in the facts that the U.S. has:
-huge and increasing deficit (~$500B): see historical chart at www.uuforum.org/deficit.htm (I will not editorialize! The facts speak for themselves.)
-rapidly increasing national debt. Now over $8.5 trillion, or $7.0 trillion when inflation corrected. See data at www.brillig.com/debt_clock/faq.html
-slowing manufacturing sector
-slowing construction sector
-growing trade imbalance (now >5% of GDP): see US Bureau of Economic Analysis data
-increasing energy costs

There is likely a whole bunch of other reasons as well. All these give estimates of an impending recession in the U.S. as high as 45% (again there are as many projections as experts). But the world's currency markets are moving out of dollars and into euros as the reserve currency, with some projections that the euro will supplant the dollar by 2022 as the world's top reserve currency (see wage.wisc.edu/uploads/News/Chinn_Frankel_europaper_reuters.pdf), so those experts who control currencies are doing the talking with their walking.

Perhaps if we have an economist here s/he can add their views based on facts and expert opinion, rather than yet more anecdotal stories and unsubstantiated statements.

[Carolinian Super Moderator Find all posts View Profile Close Carolinian]

I wonder if your ECB figures are from their denial phase and just not revised.
The ECB has a certain bias, a vested interest, don't you think?

The Economist magazine had one of the best euro-sceptic arguments around.
They pointed out that one size doesn't really fit all. Some countries have economies that need higher interest rates, for example, and some need lower. National governments are denied the tools they need for what fits their country's needs best. The ECB comes out with a muddle in the middle that may suit some countries great but hoses those at the ends who need either significantly higher or significantly lower rates.

When the Swedes voted down the euro and opted to keep the kronor as their national currency, polls on the reasons for their decision were interesting. While being a threat to their national identity was to be expected, it was curious that many Swedes also told polsters that they considered the euro a threat to Democracy. The Economist had an interesting sidebar to its article on the Swedish vote on the poll results, and most interestingly the strongest supporters of the euro were the older demographic groups while the younger the age group, the stronger the opposition to the euro. That bodes well for Sweden thumbing its nose at the euro for many years to come, as Denmark also has. And, of course, Norway has voted not to be part of the EU at all.
Hooray for Scandanavian democracy.

But when I think of the part about being a threat to democracy, I think of countries like Germany where polls showed overwhelming opposition by the people to abandoning the Deutsche Mark, but their politicians rammed the unwanted euro down their throats without a referendum. Doesn't it smack of authoritarianism for politicians to deprive their citizens of one of the markers of nationhood, a national currency, without even giving them a say in a referendum?

It was interesting last year when an Italian cabinet minister openly suggested considering going back to the lire.

When a major travel guidebook on Greece cites the euro as the reason for big price increases there, they certainly have been in a position to observe what is happening and do not have the vested interest of the ECB in reporting what is happening and why.

These lase posts may be getting a bit on the political side, which is why I started a seperate thread on the Political board. Alan, maybe you would like to join the discussion there.

Carolinian, your personal observations and anecdotal stories of your friends all make pleasant reading, and are fodder for euro-sceptics, but totally lack objective and authoritative support. The inflationary effect of the introduction of the euro I quoted is from the ECB's figures (which even I find surprisingly low), and I have to believe that (a) they are the experts and know what they are talking about, (b) they have all the appropriate the statistics to make the statements they do, and (c) they do not lie. ECB's figures for inflation before, during and after the intro of the euro is an average of 2% (see numerous articles on ECB's web site: www.ecb.int). The introduction of the European Monetary Union has been an unqualified success, and has led to unprecedented monetary stability to the extent that the euro is becoming the global currency of choice over the US dollar. Unless you have a financial and banking background, and are able to challenge assumptions (a), (b) and/or (c) and dispute ECB's figures with undeniable facts, then your stories will remain just that.

But back to the topic of the thread, the dollar has weakened this morning to 1.3272 to the euro by 11:49 a.m. in London - almost a whole cent decline from yesterday's close in New York. In total, the dollar fell 10.2 percent against the euro last year. There are as many forecasts out there as there are experts, but most agree that aggressive changes are needed by the President, the Government and the Fed Reserve to stabilize the falling dollar, and most think that just isn't going to happen, so the dollar will continue to slide against the euro.

timbuktu asks why the dollar is weak. I think the answers lie in the facts that the U.S. has:
-huge and increasing deficit (~$500B): see historical chart at www.uuforum.org/deficit.htm (I will not editorialize! The facts speak for themselves.)
-rapidly increasing national debt. Now over $8.5 trillion, or $7.0 trillion when inflation corrected. See data at www.brillig.com/debt_clock/faq.html
-slowing manufacturing sector
-slowing construction sector
-growing trade imbalance (now >5% of GDP): see US Bureau of Economic Analysis data
-increasing energy costs

There is likely a whole bunch of other reasons as well. All these give estimates of an impending recession in the U.S. as high as 45% (again there are as many projections as experts). But the world's currency markets are moving out of dollars and into euros as the reserve currency, with some projections that the euro will supplant the dollar by 2022 as the world's top reserve currency (see wage.wisc.edu/uploads/News/Chinn_Frankel_europaper_reuters.pdf), so those experts who control currencies are doing the talking with their walking.

Perhaps if we have an economist here s/he can add their views based on facts and expert opinion, rather than yet more anecdotal stories and unsubstantiated statements.

[alanmj Banned Find all posts View Profile Close alanmj]

These lase posts may be getting a bit on the political side, which is why I started a seperate thread on the Political board. Alan, maybe you would like to join the discussion there.

Carolinian, thanks for that invite. I'm still very much a TS4M neophyte - where's the political board? Does one have to have special member status to see it?

[Carolinian Super Moderator Find all posts View Profile Close Carolinian]

It is under Community Forums, and must be signed up for seperately.

BTW, the euro has impacted prices one place in this hemisphere, and that is the French Caribbean. It is particularly obvious on Sint Maarten / St. Martin where half of the island is Dutch and half French. The Dutch half still officially uses the Netherlands Antilles Guilder and unofficially the US dollar, while the French half uses the euro. Since the change to the euro, the French half has become a lot more expensive that the Dutch half. I have read that in desperation, some merchants in the French half have even started taking dollars on a one-for-one basis for euros. . . . and no, the French half has not had a big property speculation boom to the exclusion of the Dutch half.

[mshatty Super Moderator Find all posts View Profile Close mshatty]

Carolinian, thanks for that invite. I'm still very much a TS4M neophyte - where's the political board? Does one have to have special member status to see it?

You also need to have at least 15 posts. You are 4 posts away from seeing the forum.

[Keitht Super Moderator Find all posts View Profile Close Keitht]

I also am of the opinion that the euro caused minor inflation, and I've thought 5% to max. 20% based on what I've read and experienced, but even that is questioned. The 2002 figures from the European Central Bank quoted increases of 0.12%-0.29% due to the introduction of the euro. Whatever the figure is, it is nowhere near 170%!

I suspect what most visitors see is the increase in prices that directly affect us i.e. food, drink and transport in resort. This is of course very different to what politicians and economists base the inflation figures on. All I can say with certainty is that in the several years prior to the introduction of the Euro in Spain, prices for food and drink in the tourist areas had been pretty stable. Immediately following the introduction of the Euro there were noticeable price increases. I suspect businesses thought we wouldn't bother doing the conversion - they were wrong. Increases varied from just a couple of % up to in excess of 20%.

[alanmj Banned Find all posts View Profile Close alanmj]

You also need to have at least 15 posts. You are 4 posts away from seeing the forum.

Thanks Mike. Strange rule about the need for 15 posts. Rewards the loquacious over the reflective.

[Keitht Super Moderator Find all posts View Profile Close Keitht]

Thanks Mike. Strange rule about the need for 15 posts. Rewards the loquacious over the reflective.

The 15 posts rule was brought into effect mainly to stop people coming to the site purely to stir the proverbial. Sure they can create 15 rubbish posts to get to the Political Forum, but that is too much like hard work for most spammers.

[Carolinian Super Moderator Find all posts View Profile Close Carolinian]

Any time there is a major change in currency, there are too many who try to profiteer in this way, and it leads to a jump in prices. The UK experienced it with decimilization in the late 1960's. I strongly suspect that prices would still be better both for natives and visitors if it were still 12 pence to the shilling and 20 shillings to the pound, but too many too advantage of the change to raise prices significantly. It has been the same with the change to the euro.

I agree that it is probably more noticible in things that visitors purchase. It was quite obvious in the prices of a restaurant a few blocks from Notre Dame cathedral in Paris that I often ate at which jumped very significantly after the euro came in. It was also very obvious comparing recent but pre-euro admission prices with those posted post-euro at tourist attractions. The first hotel I stayed at in France after the euro came in, I noticed a pre-euro price list for rack rates for rooms that was about 30% less than the euro rack rates then posted. From the place it was located and the fact that it had euro equivalents seemed to indicate it was fairly recent pre-euro. I have seen these things repeated in a number of countries in Europe.

I have read that the euro-supporters thought that when Brits travelled to euro-using countries and experienced using real euros, it would turn around the negative mood of the country toward the euro, but the opposite in fact happened. Brits went to places they were familiar with, saw the obvious prices increases, and it hardened their negative opinion of the euro.

I suspect what most visitors see is the increase in prices that directly affect us i.e. food, drink and transport in resort. This is of course very different to what politicians and economists base the inflation figures on. All I can say with certainty is that in the several years prior to the introduction of the Euro in Spain, prices for food and drink in the tourist areas had been pretty stable. Immediately following the introduction of the Euro there were noticeable price increases. I suspect businesses thought we wouldn't bother doing the conversion - they were wrong. Increases varied from just a couple of % up to in excess of 20%.