Frans Somers, owner of SBC International, talks about the advantages and disadvantages of the introduction of the euro. He raises the question whether the euro should have been introduced after all. In hindsight, according to many experts the euro should never have been introduced; at least not for countries such as Greece, Italy, Spain and Portugal. Additionally, before the common currency was introduced around the year 2000, quite a number of economists strongly doubted the advantages of the system. Even worse, monetary integration beyond the existing system of fixed but adjustable exchange rates (the European Monetary System – EMS) was assumed to be very risky. The main reasons for introducing the common currency from an economic point of view were the following: to further promote intra-European trade and competition and to strengthen the EU as a global powerhouse. Competition is the keyword in this context. European integration had the intention of removing all the barriers of internal trade: tariffs, border controls, different legal regulations and product requirements, etc. The abolition of national currencies was considered as the final step in this process, because a common currency would remove all transaction costs and currency risks associated and guarantee market transparency. Hence, promoting the mobility of goods, services and capital. A crucial point was also that by abolishing national currencies, there would no longer be the option to take an ‘emergency exit’ for individual countries to escape from international competition: competitive devaluations were essentially ruled out. Until then, countries with increasing costs and high inflation rates could restore their international competitiveness overnight by a simple devaluation. This was common practice in countries like Italy, Greece and Spain; reason why one could receive enormous amounts of liras, pesetas or drachmas for a guilder or mark in the end. Taking away this monetary instrument meant that these countries would become fully exposed to international competition and the discipline of the market. Weaker European countries would be forced to improve or they were driven out of the market: a matter of sink or swim. As a result, competitiveness would not only be reinforced in individual European countries, but also for the EU as a whole, strengthening its position on world markets and thus promoting overall European growth, employment and prosperity. A nice theoretical model, but would it also work in practice? In the early nineties of last century, the pros and cons of a common currency were fiercely debated. The case against the euro focused on two arguments: – The European Union definitely did not meet the criteria for an Optimal Currency Area (OCA). This theory was originally developed by Robert Mundell as early as 1961. In an OCA the benefits of a single currency are intended to be greater than the costs. An OCA presumes flexibility in either prices/wages costs and/or factor mobility. It means that, if a country has a relatively high inflation rate, it will loose market share, leading to shut down of firms and unemployment. Adjustment will take place either through lower wages and prices (price flexibility) or migration of workers to efficient countries (factor mobility). However, if wages and prices are rigid and workers stay in their own country, the only way out to restore competitiveness is a flexible exchange rate. Precisely as it used to be the case in the southern member states of Europe before the introduction of the euro. As a whole, the EU until today has been characterised by a high degree of rigidity of wages and prices, despite many efforts of structural reforms to address these problems. – The occurrence of asymmetric shocks in demand or supply. Normally, countries in a specific region are in the same stage of the business cycle. But in theory it may happen that some countries face strong growth, while others get stuck in a recession. With a single currency, there is no opportunity to differentiate monetary policy per country. An example of such an asymmetric shock is the exceptional boom in demand in Germany after the reunion in the early nineties of last century, whilst simultaneously other European countries were in an economic downturn. This aside, an economic and monetary union (EMU) presumes in principle that countries are in a similar stage of development. Therefore economic and social cohesion has been strongly emphasized in various EU treaties. Various convergence programmes have been set up in order to prepare member states for participation. Finally, member states could only join the Eurozone if they satisfied five convergence criteria: similar inflation and interest rates, a budget deficit of less than 3%, public debt less than 60% of GDP and a stable currency. Nonetheless, at the decisive moment in 1997, none of the candidate countries fulfilled all of these criteria – not even Germany, France, The Netherlands and Luxemburg. Countries like Italy, Spain, Portugal and Greece did not satisfy any condition at all, however were allowed to join the Eurozone nevertheless. Needless to say that this could be identified as a false start for the euro. Why was it decided to establish the EMU anyway, despite the theoretical objections and practical complications? Why were even weak member states so eager to join the Eurozone? By far the most important motive is political. Weak countries envisaged that by becoming a member, they would automatically forced to improve their economies, driven by intensified competition. Governments would come under supervision of European authorities, preventing in particular the unstable ones to overspend and make a mess of government finances. Further, we should not forget that the nineties in the last century were an era of high economic prosperity and progress, along with high growth rates. This created an optimistic view on future developments. The dramatic events of the early 21st century were not foreseen, however. The debt crisis of 2008, starting with the fall of Lehman Brothers bank, had a devastating effect on the world economy. But more importantly for the EU the crisis had a very different impact on individual European countries; this can be
Start-up Bloombox brings innovation in the flowerbusiness
Start-up Bloombox brings innovation in the traditional flowerbusiness Marvin Schrooth is founder and owner of Bloombox, a webshop offering bouquets. Bloombox distinguishes itself by its unique partly transparent packaging, which makes it possible for the receiver to directly see the flowers preserving the emotional impact that a bouquet has. How did your studies prepare you for entrepreneurship? The ‘Consumer Services Management’ track that I chose in my bachelor in Business Administration has proven itself to be a good choice. The client has always been the main focus and we learned to think from the clients’ point of view. This outside-in way of thinking I still apply on a daily basis and is actually the base of my whole organisation. What have you learned from running your own company? At the moment I am working more hours than ever, but also with more joy than ever. I have learned a lot in a short amount of time on (online) entrepreneurship in general, finance, marketing and communication, doing international business, laws and regulations, planning and structure and specific aspects of the flower business. What is the most memorable moment of the business for you? A moment that I will always remember is when I received the custom packaging from China. The exclusive packaging is an important unique selling proposition of Bloombox. It was an exciting moment as I hadn’t seen the packaging in real life yet since I decided to start with the final production without receiving a sample of the final design first. That day I found a huge pallet in the middle of the street. I remember clearly that I grabbed a cardboard box from it and ran inside. The huge amount of invested time and money ran through my head, together withthe deadlines that couldn’t be met if something would be wrong, When I ripped the cardboard box open I directly saw the quality and appearance of the Bloombox packaging. There I was, holding my very own product, the first Bloombox. It was a moment of pure euphoria. How does a regular day in your life look like? 04:00 Meerssen, The Netherlands, Bloombox – The alarm is set early and a long but eventful day is ahead of me. Let’s go! 06:00 Aalsmeer, The Netherlands Flower Auction – After a slight delay I have arrived on the flower auction. The auction has already started so I have to hurry to collect my desired assortment. It is the biggest flower auction in the world and it is always a crisscross of demand and offer. After a few cups of coffee and a dose of positive stress I am satisfied; I have been able to purchase all the products we need. I decide to quickly enjoy a last cup of coffee with a partner at the auction and give my permission to transport the flowers directly to the business location of Bloombox. Through our tightly designed logistic process we can arrange and send the Bloomboxes ordered for today, with fresh flowers auctioned today! 13:00 Gent, Belgium, Website Builders – After the trip to the colourful flower auction, I’m back in the online world. I have a meeting with the team that has designed and developed our website. We review the file I have sent them earlier with a series of changes that have to be processed. This file is based on the customer reviews from the first few months which have provided us with a lot of useful feedback. Our team believes in and works according to the ‘’Build, Measure, Learn principle’’. It was a short but productive meeting and I’m already looking forward to the changes and the associated customer experiences. 16:00 Meerssen, The Netherlands, Bloombox – When I arrive at Bloombox the flowers have already been cleaned and are neatly stored in the refrigerator. The orders that will be delivered tomorrow are being prepared by our staff. It makes me happy to see these experienced people being proud of their work. 19:00 Beek, The Netherlands Distributioncenter parcel post – Since we have received a few last-minute orders I myself bring the orders to the distribution center with whom we work together. The end of a long day is in sight but the journey of the parcels has only just begun… www.bloombox.nu
Is Quantitative Easing the savior?
Will Quantitative easing or helicopter money help the European economy? Sylvester Eijffinger sheds his light on the quantitative easing project of the ECB. He talks about a possible stock market bubble, good and bad deflation and trust in the economy. In the last month of 2014 we saw the first case of a negative inflation rate, 0.2 percent in the euro zone. Immediately, many (central) bankers, economists and politicians pointed to the risk of deflation in the Eurozone. Deflation is not a single negative inflation, but a process of continuous decline in prices, which are embedded in expectations and wages. Inflation in the Eurozone is indeed historically very low, but that is mainly due to falling oil prices which in turn could stimulate economic growth. Some economists call that “good deflation.” It is dangerous to continuously highlight the dangers of deflation, because a self-fulfilling prophecy could occur. As long as consumers and producers hear the term ‘deflation’, long and often enough they might eventually go on believing it. It is noteworthy that the discussion about deflation is politicized between proponents of buying up government bonds, such as President Mario Draghi of the European Central Bank (ECB), and opponents such as Bundesbank president Jens Weidmann and Klaas Knot president of the Dutch central bank. It has now been several months since Draghi pushed his will through the Governing Council of the ECB, citing the threat of deflation. According to many experts, this threat is gone now and is a thing of the past, just as I and others have predicted. The ECB has started their quantitative easing program (or simply QE) in March 2015 with the purchase of government bonds worth 60 billion per month for a period of eighteen months, while the economies in the Eurozone – except Greece – have already shown the first signs of recovery. According to the European Court of Justice, it is allowed under the treaty if certain conditions are met, but the question remains whether this is a wise decision. Buying up government bonds of weak euro countries – such as France and Italy – will remove the pressure to implement structural reforms in these countries. There is more than enough liquidity in the Eurozone. The problem is however that liquidity does not go into the real economy. The monetary transmission process has not functioned for years. That does not keep some economists from proposing even wilder ideas to boost the economy, such as the spreading of “helicopter money”. This idea comes from the former Chairman of the Federal Reserve; Ben Bernanke (FED), who acquired the nickname “Helicopter Ben.” Will helicopter money – handing out free money to anyone – even work? The answer is no! One can bring the horse to the stream, but it cannot force it to drink (Milton Friedman). There is excess liquidity in the Eurozone, but consumers and producers in the weak euro countries refuse to spend or invest it as long as there is no trust in the economy. Such confidence can only return if the weak euro countries finally put things in order. What’s happening now is that the excess liquidity increases further in the Eurozone, which will result in a further decline and even negative (nominal) interest rates. The shares listed on the Amsterdam stock exchange are extremely high, the AEX index went through the 500 point mark for the first time in seven years. The prices of listed stocks are relatively very high and this is mainly because of the extremely low or even negative interest rates. I am not surprised at all about the current level of the AEX index. The decision of the ECB to buy up 60 billion worth of government bonds and loans a month has a depressing effect on the already low short and long-term interest rates. The returns on savings are further reduced, pretty much forcing savers to invest in stocks. There is a speculative bubble being created, but this bubble still has a long time (up to 18 months) to continue growing. As long as the purchasing program of the ECB continues, individual investors will step into the stock market. However, the longer the bubble, the greater the hit will be when it pops. I expect that a correction on the stock market will take place within the next year. The only question is whether this will occur at 500 or 600 points. The stock exchange is reminiscent of the alcoholic who has an ever greater need for alcohol. However, there comes a time when the alcoholic will have to quit. The longer it lasts, the harder it will be to quit the stock market. Or in the famous words of William McChesney Martin, another former Fed chairman: “It is our task to take the punch bowl away, when the party is still going.” Unfortunately ECB President Draghi wants to put more alcohol in the punch bowl the upcoming 18 months. Therefore, the QE-party of Draghi will eventually turn out to be an even greater disillusionment. Source: https://goo.gl/0p1qqx (www.jalta.nl)