Europe adrift.

Australia broadcast the Eurovision song competition finals last night, and amidst all the wind machines, drama, and general awesomeness of the whole Euro-trash spectacle (I say all of this is the most affectionate way. I love Eurovision) I had to wonder... what would Greece, or in fact any of the countries who have been hardest hit by the economic downturn do if they won?

Loreen from Sweden won in a landslide. Source

Eurovision is huge and at least from my perspective (which is from my side of the telly) appears to be very expensive.

Like much of my adult education, my understanding of global economics comes from the telly, the internet and a couple of magazine and newspaper articles. So consider this as a disclaimer for what is to come...

Back in 1983 the Australian Prime Minister Bob Hawke announced that the Australian dollar would be floated.
In the time that has followed the move had proven to be a wise one.

How does it work? A floating currency is effectively controlled by the market. For Australia it means that when demand for our exports rises, the currency increases in value against other global currencies. When demand falls, so does the currency, which makes it cheaper for people to buy our products and helps products to continue moving... it provides a buffer for the ebb and flow (and sometimes tidal disasters) of the global economy.

This is unlike the Chinese Ren Min Bi for example which is carefully controlled by the government.

There are unique troubles associated with this as seen when demand in one sector of a country's economy (like the mining boom in Australia) drives the dollar up, and so other exporters (eg. car manufacturers) become uncompetitive in the global market due to the strong currency.

I am aware that this is a very basic understanding of what is a much more complex issue.
Of all the things I follow on the news, the strength of the Australian dollar is one of them. I'm not really sure why that is, I'm not going to America any time soon so whether the dollar is above or below parity with the US has no practical significance to me, neither do I trade in currencies - but it is interesting.

I don't really understand all the very many factors that have contributed to the snowballing disaster in Europe, but after thinking about it, there is one thing that I kind of get.
That is, that within the European Union itself, there is no floating currency. Greece, one of the poorest countries in the union, experiences the strengthening of the Euro based on more traditionally successful countries like Germany, while Germany gets to enjoy what is probably a weaker Euro than it would otherwise have.

If that makes sense...?

So as Greece starts to sink, instead of their currency's value being adjusted by the market to help buffer the nation from some of the crash, it remains high, preventing Greece from being competitive in a market which is as a whole experiencing tough times.

Is there more to it? Of course there is, I'm not even pretending that I know a whole lot about a continent that I have never actively studied or set foot on. But when I kept hearing about the European Financial Crisis on the news I figured I should think a little more about it and at least try to figure it out. Politics aside, I think that there is something fundamentally wrong with a whole collection of such varying nations sharing a currency like the Euro. While everything is going well, its just peachy, but as this crisis is proving, its not a very robust system.

At least that's how I see it.

I'm sure there are a lot of people who know a whole lot more about the whole thing, and so feel free to educate me.