Ongoing European Debt Crisis

Time to reclaim Constantinople!

edited 14th Jan '13 2:56:59 PM by Silasw

“And the Bunny nails it!” ~ Gabrael “If the UN can get through a day without everyone strangling everyone else so can we.” ~ Cyran

That is a bit beside the point. Hitler did prove that you can build and expand industries by mandate/investment from the state and create enough employment to escape a recession. If Germany's economy had been expanded in ways that didn't necessitate war, the country would not have depended on war to (try to) survive.

Using FDR rather than Hitler as an example is easier, but I wanted to give two examples that were related to each other while applying to different conditions. I'm sure you can come up with more examples of successful stimulus programmes if you look for projects like those that were relatively common in the Interwar period.

Quod gratis asseritur, gratis negatur.

Not to mention going that Germany actually went back into recession in 1938-39 whilst the UK did not.

Schild und Schwert der Partei

That's because the UK was undergoing it's own rearming stimulus.

Keep Rolling On

Up to a point. Britain had also grown in roughly the same time period as Germany during the The '30s, and had not been re-arming at the same rate. Similarly, Germany got the unemployment rate down artificially by using conscription, which the British did not introduce until 1939-40. The idea that the Nazis were competent economists or "put Keynesianism into action" as A.N Wilson moronically put it in his ridiculous biography of Hitler, is a myth:

- Richard J. Evans.

Hitler succeeded only in creating a bubble.

edited 15th Jan '13 3:02:59 AM by Achaemenid

Schild und Schwert der Partei

"Hitler succeeded only in creating a bubble."

Indeed. There were signs of recovery before Hitler became chancellor and one of the reason why the bubble didn't burst before WWII was because wages remained lower than inflation. In fact companies asked Hitler to allow them to raise the wage of their workers because they feared that their skilled experts would leave for better paid jobs in other countries. Moreover many historians believe that if Germany hadn't annexed the Sudetenland and later the rest of Czech territory, Germany would have been in serious financial troubles.

As with FDR, there is still a dispute whether his "new deal" really solved the crisis or if the WWII saved the economy. And anyway, there are too many differences between Germany and the USA back then and Greece today. Both countries were industrial power houses and had a substantial industrial base, in the case of Germany the government spend money in order to create artificial demand which in return improved the German facilities.

Greece however has neither an existing heavy industry nor a manufractural base. This is no stereotype, it is a fact. An economist wrote an article about this a few months ago in which he admited that although he deems austerity to be wrong, he and other experts have no idea in which part of Greece economy a stimulus would actually achieve lasting growth. Sure we could build a couple of highways and a few airports, but would that help Greece in the long term? It didn't work in Spain and Germany has her own crumbling infrastructure to deal with. We could build solar plants in Greece and make other heavy investments in renewable energy, but Greece has no companys who could gain from such investments. Instead Chinese, American and German companys would build these plants. Solar plants don't need many workers in order to function so we would not create many long-term jobs. And again, Germany needs to invest into renewable energy too, so it would be difficult to explain these meassures to the German public.

Other proposals like higher inflation rates over an extended period of time are not worth talking over, because they are completely unrealistic.

Precisely. If we want an industrial, stimulus-led recovery, that will certainly work in places like Britain, or France, which have thriving heavy industries (aircraft and cars, respectively), but it is much harder to chuck money at the Greek problem.

Schild und Schwert der Partei

It's funny that the least painful or, indeed, extreme of all possible solutions is the one being brushed aside as unrealistic, merely because of a cultural phobia.

Doctor: "Here, we have this simple pill that will cure the patient over time, with no extra effort required from anyone, just a bit of discomfort while the symptoms work themselves out."

Patient: "I'm deathly afraid of pills because my schnauzer choked on one and died when I was a boy! Don't you have some surgery or chemotherapy or gamma rays or something? Maybe I can just suffer and die because I've been naughty. ANYTHING BUT THE PILL!"

edited 15th Jan '13 6:50:27 AM by Fighteer

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

Every country has it's own culture and preferences. Americans fear god and gun control, and the politicians cannot find a consensus over the debt ceiling, and the Germans have every reason to loath inflation. Besides that there is no guarantee that it will work, inflation would merely be the least painful therapy for Greece. The Germans would suffer far more under high inflation than other people because of how they invested their money. So far the German economy has done quite well and is projected to be stable at least for the next year. There will be a big wage increase next year so this should boost domestic consum in Germany and in return help the euro zone. It will take some more years, but the painful reforms Greece is undergoing will pay off one day. It took some time but they helped in Germany too.

"with no extra effort required from anyone" In essence, Germany does not demand more from Greece than what Germany already did a few years ago. And sorry, but the mentality of the Greeks will have to change in some way. Nobody in their right mind would demand them to become more German. But they should stop tax evasion, the whole Fakelaki-thing etc. There is no denying that these problems contributed greatly to the crisis, even without the financial crisis Greece would have been in trouble in a few years. Spain had always a very high youth unemployment and a very bad education system and Italy had, well Berlusconi... . The crisis cannot be solved as long as the structural problems are not adressed and reforms have been implemented.

"just a bit of discomfort while the symptoms work themselves out" Discomfort for the doctor, not the patient in this case. Inflation can be more than cause little discomfort, especially if the doctor himself is perfectly healthy. Every government has to mind the interest of their country first. I feel sorry for those young Greeks who don't find a job right now, but I'd rather see Greece in a permanent recession for the next couple of years than let Germany undergo inflation and thus lose money, as long as the Euro survives of course. Germany has long enough been the paymaster for Europe. I think it is good that Germany invests so much in European Unity but pls from now on under our own conditions. Nobody minds it when France defends her interest regarding the CAP or when the UK insists on Thatcher's rabatt. Neither France nor the UK think in this case what would be the best for Europe, they simply defend their own interest. And so does Germany now. Maybe austerity alone is not the answer. But Greece must become more competitive or it will be in trouble in a couple of years.

"Maybe I can just suffer and die because I've been naughty." Greece suffers due her past mistakes but nobody wants Greece to "die". We just give them a bitter pill to swallow so that they don't repeat the same mistake again.

edited 15th Jan '13 8:23:35 AM by Zarastro

And yet you are actively trying to kill Greece. There won't be a country left after the austerity program has had its way.

There is no need for Germany to undergo severe pain from this controlled inflation. Their wages would go up along with their prices. The point is to rebalance the Eurozone's competitiveness. Germany has enjoyed a 20% comparative advantage in competitiveness over the peripheral countries and that is unsustainable, both for them and for Germany.

You don't seem to get that a collapse of Greece, Italy, and Spain would inevitably contaminate Germany and France as well.

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

Again, inflation at this point would solve nothing. Maybe we can talk about it once there are further rules implemented but we see what happens in Italy once the threat of the crisis only slightly decreases, the opposition obstructs Monti and the government stops implementing further reforms. Merkel could agree to a stimulus and/or inflation, but she will have to get some big concessions in return or otherwise the parliament would never agree to this and with good reason. The question not only how to solve the crisis but how to prevent something like that ever happening again. This requires drastic measures and these measures are unlikely to be taken once the crisis is over, so they must be implemented as long as the crisis continues.

Nope. You're still stuck in the "bleeding the patient" mentality. There is no moral crisis, only a balance of payments crisis. Fix that and the imaginary moral crisis will magically resolve itself, because it never existed in the first place.

Edit: However, it's clear that this crisis was caused by the same "every man for himself" mentality that is evident in your posts. Europe never had a real union, and so the illusory safety of the Euro served to disguise for a while the rotting self-interest at its core. Now the system is paying the price.

By the way you're talking, it's clear where the failing is, and there were ever a question of who "deserves" what, you might wish to consider your own place on the moral scale.

edited 15th Jan '13 8:40:51 AM by Fighteer

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

1. The average retirement age in Greece was 53 before the crisis. 2. Civil servants got a 14 months pay bonus for Christmas. There was a bonus which was collected just for turning up at work. 3. Roughly 30% of taxes went uncollected or were unaccounted for in the decade leading up to the Eurozone crisis. 4. For Greek civil servants, the average working week was 3 days.

This is not sustainable, especially when coupled with high government borrowing and frankly abysmal book-keeping. Greeks are protesting now, but they were also protesting when the government tried to up the retirement age. There has been a serious cultural failure here in the Greek public sector. It may sound unpalatable, but Greek government has been incredibly lazy and bloated, and that must change. The bailouts were funded by and large by taxpayers of other EU member states, especially Germany (my second favorite country in the world, behind Scotland, if you'll permit me to declare an interest). They are entitled to demand a serious change, given that the most valuable source of income for the Greek government is now their money. I am not arguing, not would I ever, that Greeks are inherently inferior or lazy. What I am arguing is that successive Greek governments failed to A: deal with the revenue and pay problem, and B: allowed a culture of unsustainable and disproportionate reward to develop in the way it paid its public sector workers. This has led us to where we are today.

The European project was not built on corrosive self-interest. Self-interest emerges at the worst of times - observe Cameron's use of the UK's veto and the cynical way he is trying (and failing, because of his inherent ineptitude) to use this crisis to screw concessions out of the EU - but the response to the crisis is not founded on every man for himself, but rather a need to keep the Euro. It would benefit Germany, especially her taxpayers, to reprint D-marks and ditch the Greeks, but instead she has footed the bill for a series of important bailouts. Hardly the actions of a self-interested power. Similarly, this crisis was caused by the exact opposite of self-interest: French naivete in allowing Greece to enter the Eurozone despite not meeting the economic criteria, because it was the land of democracy, Socrates, and Plato. Honor Before Reason extraordinaire.

I sincerely hope this final segment of your comment was directed at Zarastro's advocacy of austerity and not Germany as a whole or his nationality thereof, because that's how it read to me. In the former case it was unfair, and in the latter case it was downright racist and unworthy of you.

edited 15th Jan '13 9:19:39 AM by Achaemenid

Schild und Schwert der Partei

Look, forget Greece. Greece is an outlier; its share of the Eurozone economy is trivial. It's symptomatic of a problem; that is the unsustainability of the system as a whole. Greece might be better off bailing out of the Euro; certainly it's hard to imagine a worse outcome than the austerity program it's on now.

Spain, Italy, Portugal, Ireland... those countries are where the real test lies — especially the first two. Their insolvency could contaminate the whole project yet they are being treated like Greece, as the ne'er-do-well cousin that you have to cut off for his own good.

You really have to look at this as a case of being right or being dead. You keep making it into a moral issue where those "corrupt, entitled Greeks" get what's coming to them, but economics is not a morality play, it's a matter of mutual self interest.

If you want to make what I said about Germany as a whole... well, I see Zarastro's statements as emblematic of the mentality that I'm talking about above. The proof is in the pudding. The "Northern Eurozone bloc"'s selfish us-or-them attitude is going to doom the whole project every bit as much as the supposed profligacy of the south.

For example, Greece lied about its solvency to get into the Euro, but where was the due diligence of the investors who rushed to flood it with cheap money?

edited 15th Jan '13 9:28:01 AM by Fighteer

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

No. What the Northern countries want is to smother the debt crisis quickly and efficiently and thus free up capital for the economic recovery that will come when investors' confidence returns to the afflicted countries. Arguably, they are being successful - sovereign interest rates are down, credit rating agencies are beginning to recover confidence in the Zone, and lessons have been learned and a bailout fund created for the future and for the rest of the uphill climb.

What the Southern countries wanted was to slowly work their way out of the debt crisis, which was less painful for them (and, notably, their politicians' poll numbers) but much slower. Unfortunately, this required more money than they had and more money than Norther taxpayers are prepared to give them. And why should they? It is fundamentally not the duty of Swabian housewifes, or Copenhagen teachers, or Bavarian mothers, or Finnish policemen, to pay their way in the Eurozone. Responsibility must lie with them. The Euro is a mutual partnership. You do not get all of the North's money by signing on, you get obligations and responsibilities, which, come the bad times (especially if you are partly responsible for them yourself) you must fulfill.

edited 15th Jan '13 9:35:02 AM by Achaemenid

Schild und Schwert der Partei

Again, we're talking fundamentally opposing axioms. My interest is in fixing both the short-term and long-term problems in the Eurozone so that they can have a stable union. Your interest appears to be in not doing anything that would inconvenience anyone who isn't in the countries suffering from 21.7% unemployment (Spain, 2012). Ironic given that your lenders were only too happy to ship truckloads of cash down there when rates were low, and made a great deal of profit while precipitating this crisis.

German prosperity came on the backs of the nations that are now suffering as a result. Germany and its buddies bear as much moral blame as anyone else. They are like the schoolyard bully who steals the little kid's lunch and then laughs at him for being hungry, saying "it's not my problem".

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

Arrant rot.

The first part of your post makes me question whether or not you actually read my previous one. What I pointed out was that the most efficient way to restore investment and confidence in the Southern governments is to reduce their deficit and thus restore their ability to pay back their colossal outstanding debts. This will allow them to borrow cash at favorable rates, and restore the external investment in their economies. It will also reduce the chances of the individual weaknesses of various countries spreading to the wider Eurozone as investors fear a break-up or mass default. For instance, a Greek or Spanish default would severely weaken the ability of Italy and France to repay their loans, possibly precipitating a mass default.

You then tried to blame the problems of the southern European economies on Germany. This is simply false. The Southern economies are in the mess they are in because of a multitude of causes, each varying. The main cause of Greece's misfortune is A: shoddy book-keeping and B: unsustainable borrowing. Both of these causes can be laid squarely at the door of successive incompetent Greek governments - did you know, for instance, that they lied about their debt figures in order to gain entry to the Eurozone? The availability of Northern and French cash is not the fault of those countries. The Greek borrowing of it was a decision motivated by electoral advantage and a need to maintain the flawed system, and in any case, how could the Northern powers have known that Greece wasn't fit to lend to when the Greeks were lying to them. Ireland and Spain's problems were caused by enormous housing bubbles, which then collapsed, the fault for which lies at the door of the housing companies and their investors, who grievously miscalculated demand etc. Again, not really Germany's fault - in fact, your attempt to blame German lending for the weaknesses of Spain's economy is especially ludicrous, as Spain borrowed very little pre-crisis, and has been royally shafted over by its own private sector. Italy's woes stem from the global economy, not its own - it was export-heavy, very reliant on manufacturing and agriculture. Demand for both has dropped, so Italy's economy has slumped. Its government, even in the boom years, also over-borrowed.

So the Italian and Greek crises were cause by the irresponsibility of their governments (to a lesser degree in Italy's case, the Spanish by a housing collapse not of Germany's making, and the Irish for similar reasons. None of which is Germany's fault. But you are right, this isn't a morality tale (despite your hypocritical attempt to paint Germany as an evil oppressor). Instead this is a question as to which course is right to save the Eurozone. Gambling on a return to competitiveness in fundamentally uncompetitive economies like those currently afflicted (especially the Greek and Spanish) following a huge cash injection is simply unworkable. The Eurozone has taken the safest route to restore investor confidence it badly needs. With the trillions of Euros, the fate of the European project, and the global economy on the line, it was unrealistic to expect them to gamble. And the people paying most of the stake in such a gamble would be people who were not responsible for the crisis, but that's beside the point.

Your final jab likening Germany to a schoolyard bully is simply asinine, but I should point out that German prosperity since re-unification has not been built on weregild from the south but on competitiveness in manufacturing, which is largely what is responsible for Germany's status as the world's third exporter (behind the EU as a whole and the PRC). This competitiveness arose mainly from Germany's long-standing expertise in manufacturing, their post-war boom, fiscal responsibility (thus encouraging investment) and, most of all, their unions agreeing to keep wages steady. So German prosperity is actually more to do with them agreeing to making more things for less money. Their steadiness through the economic crisis is partly because they didn't over-borrow in the boom years, letting them continue borrowing at low rates, but, more importantly, because they make shit the world needs and they make it well.

edited 15th Jan '13 11:14:18 AM by Achaemenid

Schild und Schwert der Partei

I am reminded of Charles Pierce's axiom: Fk the Deficit. People got no jobs. People got no money.

Share it so that people can get into this conversation, 'cause we're not the only ones who think like this.

If only we could.

Schild und Schwert der Partei

I just worry that the Euro Zone and the EU will more suffer because, image wise, Germany does look like kind of a prick to the periphery states that have incredibly massive unemployment. And I'm concerned that those outliers will just hold a grudge and be incredibly more nationalistic/anti-EU due to "Well, what did the EU and the Northern states do for us besides force us to all be out of jobs? =/" is how I see the common person and Political rhetoric swinging.

I think Spain, Italy, Greece, etc. are going to 'remember' things as them being forced, in their eyes, into mass unemployment by an greedy and unfeeling Germanic-Nordic Northern and Central Europe in the long run.

It doesn't matter who actually did what, just I see this being held against Germany in the future, badly, with the image "Germany only cared about itself" lingering, whether they did or not. And that is what is going to potentially damage the European Project.

There's very little that can be done about that. And who knows what people will remember ten years down the line. If the Eurozone is saved, that will be enough. The project will be weakened by the crisis - almost every global institution has been (no-one likes Congress either, and this crisis will define BO's presidency, for better or worse), but a weakened Union can be repaired. But no-one can put Humpty Dumpty back together if he falls off the wall.

Schild und Schwert der Partei

Implimenting systems to avoid ridiculous unemployment the next time round would help (and I believe they are trying to.) The main concern to me is you have a massive number of the working youth in these countries. They won't forget generally suffering in their early year. This is pretty much the ideal time that such young people are likely fall into gangs, or worse, extremist hyper-nationalist political parties.

Those groups swelling with power and able to spread a comforting message of hate that lasts a life-time is never a good thing, and recessions/depressions help feed them, last I checked.

Those are the hidden dangers of the Euro Crisis I'd really worry about, myself.

Wrong. Investors have no confidence in their bonds because their economies are so depressed that they have no realistic chance of ever paying them off, and are being made more depressed by forced austerity. Fix the economies first and their deficits will disappear, as if by that magic that people like to attribute to the "confidence fairy".

That you fail at this fundamental point of economics is precisely why the Eurozone is in trouble. Your ignorance is multiplied a millionfold and is currently in charge of most of its governments.

Yes, I know Greece lied. They were encouraged to lie; given a pat on the back, as it were; welcomed in with open arms and a "wink wink, nudge nudge". And you cannot have debt profligacy without lending profligacy; that is, the people who were busy buying all the bonds that the Southern countries could shovel out without bothering to check if they would remain solvent should a demand shock hit.

You've drunk the austerity Kool-Aid, and unless you and a lot of people unlearn your axioms, the crisis will never really heal, but will just happen over and over again.

edited 15th Jan '13 12:35:49 PM by Fighteer

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

Sigh. There really is very little point in me continuing this discussion, so this is the last time I'm going to respond here. I find your arguments entirely unconvincing, and it is evidently beyond my powers as a debater to convince you.

My point is is that any stimulus has to come from somewhere - you cannot magic money out of thin air, and you need at least some contraction in spending to free up wealth in order to target a stimulus. Similarly, of the depressed countries, only Italy has industries that can readily be stimulated into lasting growth. These countries are so indebted that that they cannot borrow more - no one will lend to them. No one will lend to their companies. They cannot wave a magic money wand and fix their economies, because the capital is not there.

And people will lend if there is demand and if they think they can afford it. Also, nobody knew Greece was lying, nor was there a "nudge-nudge wink wink" attitude. That's simply foolish. The fact is that Greece decieved banks. It is not their fault that a national government lied to them.

I'm leaving now - I'm off back to my buddies in Berlin to kill and eat Greek children.

We know about those dangers, and what can be done to avoid them. The last Great Depression taught us that lesson, and it is one we will not soon forget.

Again, is not that simple. You still have to pay back money you borrowed, especially as most of the loans are fairly short term. The choice is between rapid pain but a speedy resolution, or a drawn out process. Given political considerations, a speedy resolution is preferable.

edited 15th Jan '13 12:51:40 PM by Achaemenid

Schild und Schwert der Partei

Funny how little you can do when you legislate away your ability to solve the problem. Just let the central bank fulfill its job as lender of last resort, inflate your way out, fix it later. Everyone will make more money in the long run. I agree with fixing Greece's politics, and I really agree with fixing Italy's politics, but that can be done by other means. Spain and Ireland didn't do anything to deserve this. inb4 Fighteer points out that yes we can

edited 15th Jan '13 12:51:36 PM by RadicalTaoist

Share it so that people can get into this conversation, 'cause we're not the only ones who think like this.