Ongoing European Debt Crisis

Indeed, that's government's job. To magic money out of thin air, and suck it back into thin air when it's no longer needed. We call it fiscal policy and responsible governments the world over practice it on a daily basis. But this argument is indeed pointless. I've had it over and over again in this thread and it illustrates exactly what's wrong with the Eurozone.

Achaemenid, you joke about killing Greek children, but that is literally what is going on. Diffusing the responsibility and calling it the "will of the people" makes it no less horrifying, just impersonal. Clearly I'd like to have a debate about economic principles, but when it comes down to it, Greeks and Spaniards are suffering and dying over forced austerity that is completely pointless.

edited 15th Jan '13 1:04:05 PM by Fighteer

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

I would say more they're killing German children. The economy is built on selling a manufacturing sector - it's ridiculous to sabotage their customer base like this.

A speedy resolution has to be an actual solution first. Austerity is not. You can shoot someone in the head to end an epileptic attack quickly, but it's not really treatment for their epilepsy.

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

,

I am going to agree to disagree.

Personally, I think we would do Greece an even greater disservice if we implemented a Keynesian program which later failed, stranding Greek companies and government in an even worse position. The deficits of Greece and Spain are too far gone for anything to be done. They must be cut, and fast. I don't think what is happening in Greece or Spain is a good thing, at all. Nor am I blind to the sufferings of their people. But I cannot see any other option. Investors predict signs of recovery in 2013 for both nations, and by the end of the coming year Greece may be able to borrow at proper rates again. But stimulus requires wiggle room, and there comes a point where a nation's debt grows to such a degree that it cannot borrow more. I hope that Germany will have the foresight to allow Greece some leeway once the debt is under control. But it isn't at the moment, and it will not be without austerity.

That's my view. Goodbye.

edited 15th Jan '13 1:14:07 PM by Achaemenid

Schild und Schwert der Partei

Then you've just flushed Germany's economy down the drain 20 years from now. It's locked down into its current vision of the status quo and isn't going for the easy solution out of the fear of ghosts of deutschmarks past. You will never get that market for Germany's manufacturing sector back once the Eurozone performs this amputation - it'll shrink like a slug on a salt flat.

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

False. They are largely the result of contraction as a result of the credit shock of 2008-2009, followed by forced austerity. If you restore their GDP to pre-2008 levels, they would have manageable deficits. Well, maybe not Greece.

Only if that nation cannot devalue its currency via fiscal policy. That is the case for Greece, Spain, and the other Euro countries, because they are chained to the ECB. It is not the case for the United States, Britain, or Japan, who have sovereign currencies.

If the ECB would engage in stimulus, the problem would be over very quickly, but it won't because the people in charge of Eurozone economic policy believe in the confidence fairy. That's your fast solution. Core inflation is the slow solution. Forced austerity in the peripheral countries is the "apply the leeches and bleed the patient until he gets better" solution.

edited 15th Jan '13 2:02:18 PM by Fighteer

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

How would you save the popular Greek economy while punishing its political elites? Boycotting their political involvement in the Eurozone?

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

I'm not sure that "punishing its elites" is really a solution, but first and foremost I would apply direct stimulus in the form of unemployment benefits, welfare programs, and other direct payments. Get some work programs going to rebuild whatever's broken in their infrastructure. Flood the consumer economy with cash.

If you want, you could chain those stimulus efforts to tax and pension reform. There's room for it and it would help the long-term outcome.

You should also nationalize any banks that are at risk of failing due to debt overhangs. Straight-up debt cancellation would not be a bad idea, either, given that it's held by the same bondholders who lent money in the first place and hung Greece out to dry.

Another, longer term solution would be to replace all debt issuance by individual Eurozone nations with "Eurobonds" that are backed by the ECB. Get rid of the whole "lending on individual nations' credit" thing. Form a full fiscal union with transfer payments in lieu of debt, much like the United States does it. Of course, we do have municipal and state debt, but that is implicitly backed by the Federal government.

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

"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". "

Germany didn't steal money from Greece nor did she cause the financial crisis which initiated the whole thing. Germany has a trade surplus true but how did Germany achieved this? By becoming more competitive and very painful reforms which were implemented by chancellor Schröder. And by selling products of superior quality which are mostly not even produced in Greece. Would the people of Greece start driving cars made by a Greek company if VW et all would stop selling them in Greece? No. German banks didn't force Greece to borrow money, the people of Greek did it in order to enjoy a higher standard of living their economy could sustain. The government of Greece borrowed money because they traded jobs for the state in return of votes. A train conductor earned in Greek 500€ more had to work 10 hours less per month and had 2 weeks more vacation than his German counterpart. In addition, the really wealthy people evaded their tax payments.

"If you restore their GDP to pre-2008 levels, they would have manageable deficits." Yes but that is impossible because their GDP was unsustainable with their economy. In Spain, many young people worked on construction sites on projects like airports Spain didn't need. In Greece way to many people worked for the state on well-paid jobs the government didn't need. The German bureaucracy is bad enough, but the Greek one is in a total mess. Completely ineffecient, bloated and antiquated. A German official who normally advises development countries how to build their bureaucracy said in a newspaper the Greek bureaucracy was more similar to a third world country than a European country.

"If you want, you could chain those stimulus efforts to tax and pension reform. There's room for it and it would help the long-term outcome. "

Yeah because that totally worked in the past when government used stimulus and promised they would really make reforms later which never happened because it looked if they were not necessary anymore.

Eurobonds are a good idea once there are enough restrictions implemented. As of right now, the Southern countries would simply stop reforming if they were to gain access to those eurobonds.

"Clearly I'd like to have a debate about economic principles, but when it comes down to it, Greeks and Spaniards are suffering and dying". Pls don't be too melodramatic. I was in Spain last year. Yes, conditions are bad there but nothing compared to other countries I have been.

"ust let the central bank fulfill its job as lender of last resort, inflate your way out, fix it later." Even now, when the Euro is in great danger there is still resistance against any reforms which could prevent such a crisis from happening again. Do you really think the members of the eurozone could agree to any further steps once the crisis ends? That never worked before and it won't work in the future.

"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."

Good point. It didn't help that many young people left school in order to work on construction sits and are no without proper education. Spain had the highest rate of early school leavers in Europe before the crisis.

edited 16th Jan '13 6:21:25 PM by Zarastro

How about encouraging manufacturing in Greece, or other similar solutions?

Keep Rolling On

... That would take a decade or two to turn up meaningful results, IINM.

Fiat iustitia, et pereat mundus.

...but it might stop it happening again?

Keep Rolling On

Yes, but they don't have 10-20 years to spare. They need a solution that starts stabilizing them within the next couple of years at the very most.

Fiat iustitia, et pereat mundus.

I`m afraid European Union direct control (occupation?) might be the answer.

Keep Rolling On

Not occupation. But greater integration, such as the Union has been crying out for for years would help a lot.

edited 16th Jan '13 1:55:52 PM by Achaemenid

Schild und Schwert der Partei

So France is officially going bankrupt as well. I'm...starting to think the Euro was a giant mistake. I think, to simplify things, most of the Eurozone countries were still acting like they could regulate their currency, when they should have been acting (and spending) more like States do in the US. (Not the best model.)

Of course, making it so a sovereign nation can't control their own currency is a pretty stupid idea in general.

Source?

And what's likely to be the fallout of France going bankrupt?

edited 29th Jan '13 10:24:20 AM by PotatoesRock

http://www.bbc.co.uk/news/business-21244911

I was mistaken. Sorta. It's the labor minister claiming that France is going bankrupt. The government is running damage control right now, so it might not be that bad. Still, without some series stimulus, or some non-pants-on-head retarded economic policy, I'd give them a year or two at most.

Hollande is taking steps to tax the wealthy very hard. That should put some money back in the government's coffers, enabling some homegrown stimulus spending. Hopefully that'll be an important step towards recovery.

Quod gratis asseritur, gratis negatur.

The new law is estimated to bring 500m€ extra per year. Not bad but this won't be enough to save France. They need to implement serious reforms later on, maybe Hollande intents to hit the wealthy first in order to make reforms looking more fair.

Hollande made noises like a Keynesian when he was elected. If he follows up on that, his "reforms" may not be quite what the austerians hope.

edited 29th Jan '13 6:18:18 PM by Fighteer

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

OK, €500 million isn't a whole lot when you consider the scale of this. As Fighteer said, though, Hollande has a plan that includes loads of stimulus spending. I think he talked about hiring 100 000 people for government jobs (mostly teachers and such IIRC.)

Quod gratis asseritur, gratis negatur.

Hollande's problem is the same as all the other EU nations' — they can't spend unlimited money on stimulus because they aren't borrowing in their own currency. Without a central bank to issue funds, the deficit spending can trigger a sovereign debt crisis exactly as in Spain and Italy. This makes taxation of the wealthy one of the few good ways to obtain the necessary cash.

Of course, the ECB could get its head out of its ass and start throwing stimulus money around, but that would be subject to veto, and you better believe that Germany would exercise that veto, because Germany is terrified of inflation and of losing their moral high ground.

edited 30th Jan '13 7:09:43 AM by Fighteer

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

EU leaders agree 3% budget cut deal in Brussels: For the First Time, the European Union's Budget has been cut. Austerity comes to the European Union itself.

Keep Rolling On

That should be a bad thing, right?

Fiat iustitia, et pereat mundus.

Yes, and no. Is a cut needed? Probably. Is the way the cuts have gone good? Absolutely not. I am incredibly eurofederalist, but I am at complete odds with the way the negotiations have gone down. The CAP has not been reformed at all, and the "growth" spending (eg infrastructure, Galileo, start-up funding) has been slashed to compensate. This was supposed to be a "Budget for the European peoples" and yet, I see this as not for the Peoples, but for short-term gain. This is a seven-year plan; to be honest, how many of the current state heads of government will still occupy their position in 2020?