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Thread: The economic crisis

  1. #1

    Default The economic crisis

    Hello,

    first of all I will write a bit of the situation here where I live, just to give you in idea what I'd in mind posting this thread.

    I'm living in Germany. Just today the news told us that we have the lowest level of youth unemployment in all of europe. In Italy, on the other hand, it keeps rising. In Greece more than 50% of the youth are unemployed. A big german magazine (Die Spiegel) had a story on the exodus of Italians.
    If I hear or look at the international debate on the topic of the economic crisis, there is a huge difference between what we discuss here and what is discussed just across the borders (pretty much in any direction). Germany, for example, refuses the idea of euro-bonds (getting a loan for a country together as the EU). Pretty much everyone else seems to be promoting the idea. It seems, the discussion in germany is isolated in a way which frightens me. Another big weekly newspaper (Die Zeit) wrote that Germany is on the way to ruin the continent the third time in a 100 years by not helping the other countries in the euro zone. Still, there is nearly no public debate on that topic.

    I would be very interested to hear your take on what is happening in the world in that regard. What is the discussion where you live? Does the crisis effect you or people you know in any way? Is there a public debate on that topic? What do you personally think about it? What do you think is the reason for all that shit going on? Do you have an idea of a solution?

    Greetings

    polprin

    (I hope there is not another ongoing thread about this. The threads I found are dead.)

  2. #2

    Default

    The Eurozone is a monetary union but without the labor mobility to sustain such without highly coordinated fiscal/monetary policy.

    In the US, if Nevada is doing terrible and North Dakota is hiring every warm body it can, a person can move to North Dakota without language or other major barriers (beyond whatever personal attachments they have in Nevada). In the Eurozone, not a lot of Greeks or Spaniards speak German.

    The result is that Spain has an unemployment rate in the 20s while the German economy is doing great. With the exception of Greece, the countries now in crisis were largely fiscally responsible on the eve of the financial meltdown, but with depressed economies, revenues cannot hope to keep up with expenses. Austerity in the face of an economic downturn is self-defeating due to the multiplier effect. Since they don't borrow in a currency they control and can therefore outright default, such a debt situation deteriorates rapidly.

    The only real option is for some type of transfer to happen within the Eurozone from countries doing well in the core to those in the periphery. The most practical way to achieve this on a large scale is probably for the ECB to buy up the bonds of the periphery, but there are other options which can be done in conjunction like some implementation of "Eurobonds". In these cases, inflation would increase throughout the Eurozone at Germany's expense but to the benefit to the periphery that needs it.



    Bottom line: the Eurozone is a single currency area that is falling apart because its united fiscal policy and monetary policy or lack thereof are currently unworkable. Short of more integration, the whole thing is doomed to collapse. Studies like this one by UBS last year have concluded that it's probably cheaper for Germany to outright bail out the periphery than to suffer the economic effects of a Eurozone breakup.

  3. #3

    Default

    I don't follow the world economy or even my own local economy any more. So this is just my very high level non-detailed opinion.

    To use software terminology, the whole thing is a major hack. The way the economy functions at even a very basic level is rediculous in my opinion. The problem is, we've built on this crummy system for so long with so much invested in it, and the complexity has grown so big that we are kinda stuck with it. The developed world is dependant on this sytem for management of resources and manpower, and it kinda works for the most part, but the system itself is insanity built on chaos built on more insanity and I think it's starting to show. We've got a massive sky scraper that almost everyone lives in built ontop a crummy "lowest bid" foundation .. and it's starting to tilt.

  4. #4

    Default

    the way i see it, Germany and France have played it right, all along....... to suit themselves, that is.
    lots of other countries within the EU have lived beyond their means for far too long and relied upon scrounging and financial fakery (include Britain in the latter; although, that's a whole different story of mismanagement).
    Spain and Greece (and Italy, to a good extent) are third-world countries and they always will be, for so long as there are first-world countries. the reason is simple: climate and geology.
    Spain and Greece cannot hope to compete with France and Germany, in terms of living standards and the industries and fuels needed for such. if they do try to compete [by adopting the same living standards], they'll always be begging and borrowing. they should stick to doing what they are best suited to do, in the ways best suited to their lands.

  5. #5

    Default



    Quote Originally Posted by ade View Post
    Spain and Greece (and Italy, to a good extent) are third-world countries and they always will be, for so long as there are first-world countries. the reason is simple: climate and geology.
    I think Greece indeed is somewhat of a failed state with an incapable governmental system. (Still, it is in the European interest not leave the country behind.)

    But I strongly disagree in terms of Spain and Italy. Especially the Italian North is a vital economic area. Milano is one of the most important cities in the world according to the GaWC studies.
    Of course Spain had a bubble economics in regard to their real estate market. But the US had as well. (Both to a certain extent financed by German money due to unbalanced trade balances.) The superb high speed rail network of Spain is a good example for a well working governmental system. The problems Spain is facing right now is due to a wrong policy on European level, mainly be countries (and their governments) like Germany, Finland, the Netherlands or Sarkozy, who did not handle the crisis adequatly.

  6. #6
    Peachy

    Default

    A financial union is hardly the answer. It just means throwing good money after bad money. Bad money because the countries now in financial trouble have lived beyond what they could afford simply by borrowing on way too favorable terms. Way before the Euro, Italy, Spain, Greece and others had to pay higher interest rates, so they were careful not to take out too many loans, or they weren't careful and either refused to pay back or inflated the debt away.

    Unfortunately, the monetary union lead to lower interest rates for poorly performing countries. That's mostly the regulators' fault though because they allowed banks to hold EU government debt without needing any underlying equity, so banks bought loads of EU government debt because they considered it safe and because it wouldn't interfere with their other lending activities. It made investors blind as to what the risk in investing in those countries really was. Now that risk has come to the surface, and the stupid EU politicians try to sweet it under the carpet time and time again.

    There's no alternative to cutting back excessive spending. Back in the one country-one currency world, that was easy. You simply kept people's nominal income stable while prices would go up all the time. So people could buy less with their money - the value went down. When the value is fixed with the Euro, countries would have to lower nominal figures to become competitive. In other words: They'd have to force every company to lower wages by like 20% and prices by 20%. I'm sure you -as a private person - would cry for joy if you saw prices at the store fall by 20%, but would most likely take to the streets if your income goes down by 20%. It's not an easy task, and truth to be told: It has never been tried before!

    The result of the governments' activities is obviously a depression. If people have less money to spend, there's less demand, more unemployment etc. Just as in your personal life, if you spent too much money in the past there comes a time when you have to pay for it, and that's not a pretty time.

    What people are failing to see, however, is that this crisis has done more to modernizing Greek, Italian or Spanish economy or administration than any other time before. Sometimes, it takes a major blow to the head to get things going, and what - if anything - could be a stronger blow than surging unemployment at the brink of bankruptcy. Sometimes, people tend to forget that other countries, such as the U.S., have exactly the same problems. They, however, don't have EU politicians breathing down their necks about changes. In that sense, I pity the U.S. and the UK. For however this all turns out in the end, they'll be years behind in sorting out their economies. It's just that the investor world is so focused on the EU that they tend to ignore the other countries. But how long will that last? There's already been major student protests and riots in the UK.

    Peachy

  7. #7

    Default

    Thank you all for your replies! First, I thought nobody had an interest. However, I didn't intend it to be that focussed an the EU. My initial post was meant as an example. But that's what happens in the internet, I assume




    What people are failing to see, however, is that this crisis has done more to modernizing Greek, Italian or Spanish economy or administration than any other time before
    In a documentation about the changes in greece, they said that their standards of living has been reduced radically. They compared it to times of war. There are families which can't satisfy the basic needs of their kids. I don't see why this modernisation is good. I understand that you argue from an investors perspective, however, economy needs to be for the people or this economy has no right to be there.




    Bad money because the countries now in financial trouble have lived beyond what they could afford simply by borrowing on way too favorable terms
    Some people say, the european crisis is all about the economic power of Germany. Since it has a high productivity and a relativly low wage level, other countries can't compete with it. A look at the trade deficit of other euro-zone-countries and Germany supports this view. So, you could argue, the economic power of Germany is devastating for countries like Greece. Since we share the currency, there is no possibility of devaluation. For me, this seems to be legitimate argument. If that's true, the conclusion would be that their must be higher wages, better social security etc. in Germany. At least that would be an alternative to the austerity programme, wouldn't it?



    There's no alternative to cutting back excessive spending
    Yeah, sure. But there are different ways to achieve this. Either you just cut back or you change what "excessive" means by stimulating the economy, rising the tax income etc. I really think is a major problem in discussions about this topic that we are constantly mixing moral ("excessive", "beyond their means",...) and economic categories. In german, "Schulden" (debt) also means guilt...

  8. #8

    Default

    The tragic thing about the euro is that the architects are so wedded to it as a political project that they are blind to the reality that it is obviously dysfunctional as a monetary one. You have multi-speed economies in the member states (northern vs southern Italy), let alone across the whole zone, so quite how they ever thought it would work is beyond me. Greece needs to exit, but will trigger a tsunami of panic if it does - would you lend to Portugal or Spain if there was precedent of a member state defaulting? I sure as hell wouldn't, and that sends their debt skywards right at the time they can least afford it, plunging them further into a debt spiral. If the zone is to survive, I can only see it being on German / IMF terms, and that means much more monitoring and central control of spending, giving the delightful outcome that a zone set up to aid freedom of trade and movement of labour would result in a loss of democratic accountability. Quite how that gets resolved to everyone's satisfaction I have no idea.

  9. #9

    Default

    This is a very interesting debate and to find to the solution to the problems wont be easy . In my opinion greece shouldnw have been aloud to have joined the eurozone in the first place because there economy wasn't strong enough in the first place . I can underrtand germanys reluctance to issue 'euro bonds' because of history.

  10. #10

    Default



    Quote Originally Posted by polprin View Post
    Hello,

    first of all I will write a bit of the situation here where I live, just to give you in idea what I'd in mind posting this thread.

    I'm living in Germany. Just today the news told us that we have the lowest level of youth unemployment in all of europe. In Italy, on the other hand, it keeps rising. In Greece more than 50% of the youth are unemployed. A big german magazine (Die Spiegel) had a story on the exodus of Italians.
    If I hear or look at the international debate on the topic of the economic crisis, there is a huge difference between what we discuss here and what is discussed just across the borders (pretty much in any direction). Germany, for example, refuses the idea of euro-bonds (getting a loan for a country together as the EU). Pretty much everyone else seems to be promoting the idea. It seems, the discussion in germany is isolated in a way which frightens me. Another big weekly newspaper (Die Zeit) wrote that Germany is on the way to ruin the continent the third time in a 100 years by not helping the other countries in the euro zone. Still, there is nearly no public debate on that topic.

    I would be very interested to hear your take on what is happening in the world in that regard. What is the discussion where you live? Does the crisis effect you or people you know in any way? Is there a public debate on that topic? What do you personally think about it? What do you think is the reason for all that shit going on? Do you have an idea of a solution?

    Greetings

    polprin

    (I hope there is not another ongoing thread about this. The threads I found are dead.)
    I am your western-neighbour, I come from The Netherlands. The debat here is the same, the problem is nobody really has a solution and while everybody is shouting 'bout problems that are a result from the major problem. The problem with Germany is, I mean the ethical problem, is that Germany had the most benefit of the EMU. That's why back in 2000/2001 Germany wanted everybody in the EMU. Why? Cause Germany is an economicly giant. A production economy of the caliber that is almost comparable to some Asian country's. So the EMU started out as a transfer union. Where Germany would produce(along with other North european countries) and Italy, Greece and Spain would buy it. This caused an unhealthy flow of currency from the south to the north. And now, the north dous not want to give anything back. So in the south there is a lack of money. Banks cant give any money so company's either leave to the north or go bankrupt, passing this faith to thier employees.

    And as a result goverment obligations in the south or not being sold, because nobody can buy them. So they have to give enormous leverage (high % on loans) in order to attract at least a bit of money.

    And in the north we have a to many money. Nobody earns a thing on loaning money because there is simply to much of it. So our retiremund funds (800Billion Euro's) are melting. As are our banks. As a result banks dont give any money for your spare money (well hell fucking 2%) and only gain less then that by borrowing money to anything, the state, companies etc. So the only way to solve the current problem is to stop the current cash flow. Eurobonds are the first step to that. When the goverments of the southern gain a secured financiel position, they will be realiably again. As a result they can invest in the economy once more.

    Furthermore there is no reason to chat about youth unemployment. It is simply not interesting. Because the youth is either at school, or at unadministered jobs. They simply have no right(until they turn 27) to any financial aid from the goverment. So the goverment simply has no idea ho many people between 18-27 really work, besides from the ones who are still studying.

    Give it some time, Germany will eventually bend knowing that they will rip themselfs apart by letting there custommers(Italy, Spain, Greece etc.) fall into bankrupcy. It is not so much Germany's fault, it is an ethical question. Because while Germany wanted all these countries in the EMU, knowing that it would eventually become a structural problem, they are not(yet) as noble as to offer sufficient help.

    Don't forget that the crisis in th US may have been the trigger, it has never been the cause of the problems over here. People still forget that, and still close thier eyes for the real problem, until things are really going to blow.
    Last edited by Trevor; 22-Aug-2012 at 19:15. Reason: removing auto-merged duplicate post.

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