I’m no economist, which makes me something less than an expert on this subject. What I hope to do here, however, is explain what a nation must accomplish, in every-man terms, to officially make the switch from their national currency to the euro. The explanations here will not focus on the economic and government side of things, but rather on what we – the average citizens – might see of these changes.
The requirements can be broken down into two categories: economic strength and economic stability.
Economic Strength
Economic strength, for all us laypeople, is economesse for, “How much does a litre of milk cost in your country?” compared to other countries. The idea here is to, as closely as possible, have a balance in prices between goods in your country as compared to the same goods in euro-using countries.
To see this in every day terms, let us imagine a chocolate bar being bought in a few different countries. For our countries let’s take the Czech Republic which still uses it’s national currency – the crown – and continues to delay its switch to the euro (and because – um – that is where I live) and Germany which has been using the euro from the currencies humble beginnings.
If our imaginary chocolate bar costs €1 in Germany then it will also cost €1 in a country whose economic strength is equal to that of Germany. Currently, however, that chocolate bar only costs sixty cent euro (after conversion) in the Czech Republic.
Of course, this is all far more complicated than chocolate bars. Our imaginary chocolate bar here really represents any product or service within your country. This means that the Czech Republic’s economic strength is sixty percent of that of Germany’s at current. Therefore, before the Czech Republic can make the switch to the euro, its chocolate bars need to cost €1.
So, why?
If the chocolate bar only costs sixty cent in the Czech Republic, while still costing €1 in Germany, everyone in Germany will, now that there are fewer economic restrictions and no hassle of currency conversions, want to drive to the Czech Republic and buy their chocolate bars. This will decrease the number of chocolate bars for sale and increase the demand.
Does that bring something to mind from high school economics – or watching too much CNBC? If you said, “What is supply and demand?” DING! DING! DING! DING! DING! If supply for a product decreases, the price will go up. If there is greater demand for a product, the price goes up. And if both of these happen at the same time?
All aboard the express rocket to Saturn. This will be a nonstop flight which means no stops will be made along the way. No sight seeing on the moon or asteroid gazing in the Belt. Please make sure your seat belt is tightly fastened and your have taken care of all your personal business before we blast on out of here!
So now our imaginary chocolate bar is flying off shelves at ninety cent a piece, but these aren’t Czechs buying them – they can’t afford to buy as many chocolate bars with the new higher price. Czechs are not going to be happy with this – they like their chocolate – I mean, not as much as beer, but, come on, stick with me here, I’m trying to make a point. Since Czechs are going to want to buy chocolate like they did before the invasion of the Germans they are going to want to get paid more to buy it.
But imagine this beyond our small little chocolate bar – milk, petrol, plumbers – everything will be rising in price. And where are employers going to get the extra money to pay their employees who demand to live the chocolate bar lifestyle they have grown accustomed to? In the absence of magic, real measures must be taken and real measures mean companies will raise the already rising prices of their products to pay their employees more. But who can afford these things now?
I am sure your own imagination can fill in the rest of this tragic story. If only there was some precaution in place so that such a horrible scenario wouldn’t play out. Well, there is.
Nations wishing to officially adopt the euro as their national currency must first match their economic strength to that of euro-using countries. That is to say, your chocolate bars need to cost €1.
The way we, our-average-citizen-selves, see this is when the value of the national currency of these countries raises on the world market. This can be accomplished through a couple of simple steps. Decreasing national debt, which is for the government to stop spending money it doesn’t have and to pay money back that it has already borrowed. Raise GDP, which is for a country to produce more – work, work, work! And finally, increase economic stability.
Economic Stability
Economic stability is more than just the confidence of other countries that your countries economy won’t suddenly and utterly collapse at any moment (think Russia, 1989). Economic stability is a little more complicated than that.
You may have found from your own experiences, if you are old enough, that economies have phases. That is to say, there are better times and there are not-so-great times. This can be imagined as a ship riding on the waves in an ocean. When the ship is at the top of the wave the economy is at its strongest – unemployment is low, the currency is strong and people have money and are spending it. When the ship is at the bottom of a wave the economy is weaker – unemployment is up, the currency is weak and people don’t have as much extra money to spend. We have all experienced these waves, if we realize it or not.
Ships don’t fair well in storms, with their high and unpredictable waves tossing crew and cargo around, making it hard to get any of the work of sailing done; while calm waters with slow and predictable changes between crests and troughs are easy to sail. Likewise, nations with unpredictable economies are dangerous to those who do business with them and their currency is under constant threat of becoming worth less.
Since euro-using countries do not want their economies to be tossed around by other euro-using countries, it is required that a country wishing to switch to the euro must bring its economic phases under control. That is to say, they must match their waves with the waves of euro-using countries.
These are the two areas of change that a nation must make, that are noticeable by the public, to make the big switch over from their national currency to the euro. Whatever else you read other places with pages and pages of little rules and requirements, this is what it means to Joe and Kathy Blow – or Blóhavski – depending on their nationality.
And just think, all Josef and Kateøina Blóhavski asked was, “Is beer going to get more expensive?” Sorry, Josef, we’ll just have to wait and see.
