Time Preference & Currency Zones

Over the course of the last decade multiple countries across Europe gave up their individual currencies (and interest rate levels) and adopted a common one: the euro. Of these, the Mediterranean countries traditionally had higher interest rates and occasional currency devaluations in pre-euro times, the more Northern European countries by contrast had relatively low rates and occasional revaluations. Post-euro adoption, the rate of debt accumulation in Mediterranean countries accelerated, industry was dismantled and houses built. At the same time, trade deficits expanded to new highs.

Without belaboring the details, it seems to me that this a clear consequence of different average time preferences. The former provinces of the Roman Empire share a relatively high time preference, whereas the non-Roman parts of Europe have a far lower one.


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2 Responses to Time Preference & Currency Zones

  1. time traveller says:

    does time preference mean leisure time AKA work ethic?

    if so i think that makes sense. the euro zone group bundles hardworking germans with relaxing greeks – similar to how A+ loans were bundled with junk to create better performing mutual funds – which worked until the home values collapsed under the model – the one thing they had not really planned for. Or, perhaps better to say – the one thing the hapless mutual fund buyers had not realized was a risk in the risk free funds they were plowing money into…

    was the euro currency a plan to get the euro zone back to thoughts of war?

    at first glance your headline i thought was referring to “time zones”…

  2. Pingback: High Time Preference + Low Interest Rates = ? | Aha Moments

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