The Europe Trap (part II)

Hong Kong, like France, Germany and Britain, has an economy that is fully integrated into the world economy. They have a comprehensive social net to protect their citizens from financial discomfort, but they do not have reckless, foolish entitlement programs that burden the government. Argentina, while it has some international exposure, is a much more self-contained economy. They have an extremely high burden of entitlement programs. A person working for the government 1 day has earned a pension for life. Retirement age is very young.

When Argentina dropped its peg to the US dollar many Argentineans lost as much as 75% of their wealth overnight. Going forward they could take care of their internal obligations with devalued local currency. If Argentineans bought goods produced in Argentina they had inflation, but not as bad as that on imported objects.

The same thing would happen in the peripheral European countries. The real pain will come in decoupling from the Euro. Internal debt can be paid with depreciated local currency. Past international obligations are due in Euros. Many banks now offer accounts denominated in foreign currencies. These are backed by reserves in those currencies and can buffer the effects of inflation for local people.



David Segrest is an International REALTOR in Charlotte, NC. His email is david@segrestrealty.com , His webpage is http://davidsegrest.com , and his international real estate blog is http://dointernationalrealestate.blogspot.com/

The Europe Trap

I can’t help but wonder if the European Union has totally lost its collective mind. A tax on bank deposits to save the banks! That can only cause a run on the banks. Then, there is this whole austerity thing when the economies need stimulus not an anchor. The government of the EU is destroying the economies of its borderline countries.


Italy, Greece, Spain, Cyprus and Portugal should get out of the Eurozone. Their problem is that they can’t because they need the bailouts. The European Union is an excellent idea. The Euro is only good for the strong economies. Britain should be in the Eurozone. The countries mentioned above should get out.

Hong Kong and Argentina provide excellent examples of the benefits and pitfalls of currency fixes. The Hong Kong dollar is pegged to the US dollar; so when the Hang Seng crashed, the entire Hong Kong economy did not collapse. The Argentine peso was tied to the US dollar and when they had problems, the dollar peg made things worse. Why does this happen? Come back and read “The Europe Trap part II)

David Segrest is an International REALTOR in Charlotte, NC. His email is david@segrestrealty.com , His webpage is http://davidsegrest.com , and his international real estate blog is http://dointernationalrealestate.blogspot.com/