Ship of Fools: What happens if Greece leaves the Euro?

Thread: What happens if Greece leaves the Euro? Board: Oblivion / Ship of Fools.

To visit this thread, use this URL:
http://forum.ship-of-fools.com/cgi-bin/ultimatebb.cgi?ubb=get_topic;f=70;t=023087

Posted by Robert Armin (# 182) on :

I am genuinely puzzled here, and am looking for wiser Shipmates to enlighten me. Greece is clearly in a big financial mess, and there are loads of opinions about what (if anything) can be done to sort them out. One possibility is that they might have to pull out of the Euro zone, and this is normally accompanied by warnings that all of Europe, and even Britain, might then collapse in financial ruin.

What I can't see is why Greece leaving should cause problems for any other countries. How serious would it be if we saw a Hellenic withdrawal?

Posted by Beeswax Altar (# 11644) on :

Does anybody know what would happen if Greece leaves the Euro? The EU can't maintain the status quo. Other nations will soon have to decide if staying in the euro is in their best interest. Greece might end up being a test case.

Posted by SeraphimSarov (# 4335) on :

If Greece goes , I don't see Spain or Portugal staying. It will probably become a grouping of smaller nations (Germany, France, Etc) But who knows what will happen in the event of a free fall ?
I'm very glad the UK and Scandinavia were smart enough to stay out

Posted by Evensong (# 14696) on :

Mmmnnnn.... Good question Robert Armin. I've been equally bamboozled at the financial systems involved in these things.

And if other countries withdraw cos they can't keep up ( I believe Spain is next on the hopeless causes list?) what then?

How does it hurt the Euro if weaker economies withdraw?

I would have thought it would help.

[Confused]

[ 22. May 2012, 13:27: Message edited by: Evensong ]

Posted by Honest Ron Bacardi (# 38) on :

If weaker economies withdraw, what happens next is unpredictable. Theoretically, the exchange rate of the euro should rise as it is not being pulled down by the weaker economies. That would make it more difficult for the weakest economies remaining in the euro, and give less headroom to the stronger economies to bear the load of supporting them.

But in fact the banks in the stronger economies are already highly exposed to debt in the weaker economies, and the latter are going to have to default if they withdraw.

So what is likely to happen is a flight of capital. It has started already in Greece. Nobody knows whether that will lead to general bank failures, but some will assuredly fail.

Posted by Yerevan (# 10383) on :

As I understand it, the Greek banks would almost certainly not survive a Greek withdrawal from the Euro. Apparently many Greeks are already withdrawing their money, on the basis that keeping it in cash (and in euros) is a better option than trusting to a Greek successor currency. The question then is how much exposure the wider European banking system has to a Greek bank collapse.

Posted by the long ranger (# 17109) on :

I think there has also been a lot of money put into the bail-out of Greece by other Eurozone countries. As far as I can understand it (which admittedly isn't far), a withdrawal from the Euro would be to default on their loans.

Posted by Evensong (# 14696) on :

So defaults on loans hurt the banks which in turn hurt capital in general?

But wouldn't that only occur if the banks were only smallish banks not backed by the EU or the IMF?

Posted by Yerevan (# 10383) on :

There's also a pyschological aspect. The euro was very much sold as the next big step in the European project, a sort of post-war European manifest destiny.

Posted by Fidei Defensor (# 17105) on :

Read, mark, learn and inwardly digest

Posted by Albertus (# 13356) on :

Which is the reason why dodgy economies like Greece (OK, Greece being the worst example) were allowed in. If the Euro had started off with, say, the Benelux, Germans, Austrians, maybe the French, then let others in as an when they could show they could hack it, would it be in the trouble it is in today? Nope.

Posted by Honest Ron Bacardi (# 38) on :

quote:
Originally posted by Evensong:
So defaults on loans hurt the banks which in turn hurt capital in general?

But wouldn't that only occur if the banks were only smallish banks not backed by the EU or the IMF?

The majority of the capital that banks loan is not their own but is borrowed in the marketplace. They do of course have to deal with loans going bad all the time, but if it gets out of hand, lenders will stop lending to banks if they think the banks will not be able to repay them in turn. Its a game of confidence really.

Posted by Matt Black (# 2210) on :

Agreed. The EU is a bit like a shark: it has to keep moving forward in order to survive. That's why EU leaders are never content with the status quo but always looking ahead to the next treaty, the next round of accessions etc. Any country exiting the Euro would be a retrograde step and thus spell the beginning of the end for the EU.

[Reply to Yerevan]

[ 22. May 2012, 13:59: Message edited by: Matt Black ]

Posted by Yerevan (# 10383) on :

Though its debatable whether even a much smaller eurozone would have worked without much higher
levels of economic integration (which would have meant surrending more sovereignty than any electorate would have been willing to accept). Thus Ireland came unstuck partly because eurozone membership took certain key means of cooling down an overheating economy out of Irish hands i.e. eurozone interest rates for much of the 2000s were the polar opposite of what the Irish economy needed, because the Irish economy was out of step with much of the continent. IMO the euro cannot be made to work without a massive surrender of sovereignty on the part of its members, but no one is going to make that surrender.

Posted by Crœsos (# 238) on :

quote:
Originally posted by Yerevan:
As I understand it, the Greek banks would almost certainly not survive a Greek withdrawal from the Euro. Apparently many Greeks are already withdrawing their money, on the basis that keeping it in cash (and in euros) is a better option than trusting to a Greek successor currency. The question then is how much exposure the wider European banking system has to a Greek bank collapse.

That's always been the big barrier to any nation abandonning the Euro: that doing so would kick off bank runs and a financial crisis. What makes a Greek exit from the Euro thinkable is that they're going to have a finanicial crisis anyway and having the level of control available to countries with their own currency (and thus greater control over their internal rate of inflation) is a rather critical tool in getting out of this particular type of financial crisis.

Posted by Crœsos (# 238) on :

quote:
Originally posted by Yerevan:
The question then is how much exposure the wider European banking system has to a Greek bank collapse.

I haven't checked the numbers on this, but I suspect that the exposure of other European banks to Greek banks is trivial compared to their exposure to Greek government debt. Remember, the various "rescue" packages Greece has received so far haven't been intended to help Greece, but rather to bail out the holders of Greek government bonds, most of whom are German and French banks. If the Greek government defaults on its bonds, or starts paying off those bonds using a much-devalued New Drachma, the consequences for the counterparties is expected to be dire.

Posted by ken (# 2460) on :

quote:
Originally posted by Robert Armin:
How serious would it be if we saw a Hellenic withdrawal?

Very serious for Italian Mediterranean tourist operators as the cost of Greek hotels and cruises was suddenly halved. And Plenty of high-quality cheap olive oil to compete with Spanish production.

British and German universities will recruit loads of Greek academics only too willing to triple their wages by moving a few hundred miles. Oh, we already did that. They're here already.

Non-Greek Bank collapses? Only if they are utterly incompetant idiots. Which they might be, of course. Most large private foreign investment will have been taken out of Greek banks in 2008 & 2009. That's one of the reasons they have been having such trouble.

Posted by Crœsos (# 238) on :

quote:
Originally posted by ken:
Most large private foreign investment will have been taken out of Greek banks in 2008 & 2009. That's one of the reasons they have been having such trouble.

This ties in with my earlier post on consequences of leaving the Euro. Doing so will make it next to impossible for the Greek government to sell bonds. However, given that it's already next to impossible for the Greek government to sell bonds, this no longer seems to be a huge barrier.

Posted by lowlands_boy (# 12497) on :

quote:
Originally posted by Crœsos:

quote:
Originally posted by Yerevan:
The question then is how much exposure the wider European banking system has to a Greek bank collapse.
I haven't checked the numbers on this, but I suspect that the exposure of other European banks to Greek banks is trivial compared to their exposure to Greek government debt. Remember, the various "rescue" packages Greece has received so far haven't been intended to help Greece, but rather to bail out the holders of Greek government bonds, most of whom are German and French banks. If the Greek government defaults on its bonds, or starts paying off those bonds using a much-devalued New Drachma, the consequences for the counterparties is expected to be dire.

Yes - this. It seems to me that all this bail out money that is being "invented" by the ECB and the IMF is being "given" to Greece, so that they can "give" it straight to their creditors. If the Greeks pull out of the Euro, it's clear that they won't get any more bail out money, and their creditors will be knackered. In which case, the ECB/IMF/whoever, can just cut out the middle man and give the bail out money directly to the same creditors who are ultimately receiving it now. No?

Posted by lowlands_boy (# 12497) on :

By the way - for those in the UK who might not have seen it and have access to BBC iPlayer, they had a good show last week presented by Robert Peston, investigating the founding of the Euro and it's current problems.

The Great Euro Crash

Posted by Honest Ron Bacardi (# 38) on :

If you want to see who owes what to whom, there is a useful graphic here, on the BBC website, which splits government debt from non-government debt.

Posted by ken (# 2460) on :

Frankly I think if Greece or any other country simultaneously leaves the Euro and sees its new currency inflate sharply, the Euro governments will wave a magic legislative wand and write off most of the government debt, "printing" (i.e. making an entry in a database that represents) much of the extra money needed. That will make everybody a bit poorer and give a one-off inflationary blip but it won't change the relative position of the nations still in the Euro to each other, nor would it cripple productive companies. In fact by cutting the value of Euro against other currencies it might boost exports a little.

Private debt is a different matter. If you or I or Barclay's Bank decide to lend money to Greek individuals and companies and the Greek government suddenly ordains that Euro-denominated debt has to be paid back in Dodgy Drachmas, that's our look-out. We could have done the deal in Sterling had we wanted. Or pulled out of the contract, or sold some or all of the debt on to spread the risk, or taken insurance.

quote:
Originally posted by Honest Ron Bacardi:
If you want to see who owes what to whom, there is a useful graphic here, on the BBC website, which splits government debt from non-government debt.

If that site is true then the non-Government debt from Greece to UK is worth about 100 Euros per UK taxpayer. So if Greece utterly vanished from trade markets and no Greek ever paid back a penny to their British creditors the direct impact on our economy would be somewhere in the same ballpark as the 1993 Bishopsgate bomb or the government's over-reaction to the 2000 fuel protest. Less than the policing costs of the Jubilee and the Olympics.

Ireland though owes us about 3,000 euros per taxpayer. And its nearly all private business debt. Whoops.

[ 22. May 2012, 17:32: Message edited by: ken ]

Posted by the long ranger (# 17109) on :

I was just talking to someone else about this.. presumably if Greece restarts their own currency, there would be massive devaluation vs the Euro. In that scenario, things that are scarce at the moment in Greece are unlikely to become less scarce (because they are going to be short of hard currency to buy expensive stuff and nobody will lend them anything).

So the chances of hyperinflation and the grinding to a halt of public services seems fairly high.

Which makes me think that anyone who is able to will try to leave Greece - and as they are full members of the EU can legitimately settle in any other nation state.

Gadzooks, it'd mean the breakup of the EU. Who is going to want to accept millions of hungry refugees from Greece?

Posted by ken (# 2460) on :

quote:
Originally posted by the long ranger:

Who is going to want to accept millions of hungry refugees from Greece?

Pretty much anyone. They are mostly white and comparitively well-educated, and (despite the propaganda of the last few years) they actually on average work longer hgours and more productively than most Europeans.

Also about a quarter of all Greeks live abroad already. London might well be the city in the world with the third or fourth largest Greek population (the competition would include New York and Melbourne).

Even if half the population left - which won't happen - and even if they all stayed in the EU - also unlikely - that would be only about one percent of the population of the other countries.

And if even a fractiom of that many lest, there would be an awful lot of cheap houses and land in Greece for us Brits and Germans to buy. Greece is too hot for me, especially in summer, but you can buy a small house in a holiday resort with a small garden and a swimming pool for less than the likely price of my slumlike London flat. If real prices halved? Even though I wouldn't go, I bet a lot of the kind of people who used to buy houses in Spain twenty years ago, and now seem to be going to Turkey or to Northern Cyprus, would be very tempted.

Posted by Sober Preacher's Kid (# 12699) on :

quote:
Originally posted by Yerevan:
Though its debatable whether even a much smaller eurozone would have worked without much higher
levels of economic integration (which would have meant surrending more sovereignty than any electorate would have been willing to accept). Thus Ireland came unstuck partly because eurozone membership took certain key means of cooling down an overheating economy out of Irish hands i.e. eurozone interest rates for much of the 2000s were the polar opposite of what the Irish economy needed, because the Irish economy was out of step with much of the continent. IMO the euro cannot be made to work without a massive surrender of sovereignty on the part of its members, but no one is going to make that surrender.

American, Australian and Canadian economists were critical of the Euro for just this reason. The EU was not nearly integrated enough as a market, particularly for labour. Statutory labour mobility doesn't mean much when Spanish workers won't move to Germany because of language and cultural issues.

Further all those three above-named federations have extensive systems of fiscal transfers which experience has shown are needed to make a single currency area work. The Euro didn't have that and was thus a bomb waiting to go off.

Apparently the ECB is no longer dealing with some Greek banks, which means those banks are bankrupt and have failed in practical terms. Once the central bank stops dealing with you, you're toast.

In terms of immigrants from Euro victim states, I'm holding out for Irish immigration. Just because parts of my family wound up on these shores from Ireland 150 years ago due to economic issues.

Posted by Honest Ron Bacardi (# 38) on :

SPK wrote

quote:
Further all those three above-named federations have extensive systems of fiscal transfers which experience has shown are needed to make a single currency area work. The Euro didn't have that and was thus a bomb waiting to go off.

This is true enough, though the EU does have a structural funding mechanism which is intended to push things in that direction. But this is only going to work if the funds are used for economic purposes to make the economies more convergent. And broadly speaking I think France and Spain did that. Probably Ireland too though I don't know enough to confirm that.

The problem is that Greece didn't. It's difficult to know where to begin really - the government hid debts off-balance sheet so it could apparently meet the joining criteria. It has a near-optional tax regime if you are an employer or self-employed (which of course most professions choose to be). The government deficit is running out of control, and the national debt heads ever-skywards. And so on (see threads passim).

Even if a rabbit can be pulled out of the hat and Greece gets to stay in the euro, they will become increasingly in hock to their northern neighbours and surely increasingly resentful. That in itself could spell disaster, and it is true whether or not a fiscal union can be formed. The point is they are non-convergent, and I think they cannot now realistically become convergent.

ken wrote:

quote:
Frankly I think if Greece or any other country simultaneously leaves the Euro and sees its new currency inflate sharply, the Euro governments will wave a magic legislative wand and write off most of the government debt, "printing" (i.e. making an entry in a database that represents) much of the extra money needed. That will make everybody a bit poorer and give a one-off inflationary blip but it won't change the relative position of the nations still in the Euro to each other, nor would it cripple productive companies. In fact by cutting the value of Euro against other currencies it might boost exports a little.

Something like that I guess, even if not that exactly. I think the only authority able to do this under current laws is the ECB, and right now they are banned from doing it. But I guess if Germany could be persuaded, they could change the rules overnight. Frankly I doubt the German public would support it, so it may get done some other way.

Posted by Sober Preacher's Kid (# 12699) on :

I know the EU has transfers, but the "policing" behind them just isn't of the same order that it is in Canada, the US and Australia. Australia has an extensive system of "tied grants" for states with lots of compliance, the US Unemployment Insurance system is run by states with Federal supervision, as is Medicaid. In Canada we either have unconditional grants (equalization) or tied transfers that have fulfilled their purpose, health transfers are related to the level of parallel private billing in a province and eradicated the practice 30 years ago.

The EU just isn't on the same level. The aforementioned Anglosphere economists told the EU that the middle ground the EU was aiming for didn't exist.

Posted by Crœsos (# 238) on :

quote:
Originally posted by the long ranger:
I was just talking to someone else about this.. presumably if Greece restarts their own currency, there would be massive devaluation vs the Euro. In that scenario, things that are scarce at the moment in Greece are unlikely to become less scarce (because they are going to be short of hard currency to buy expensive stuff and nobody will lend them anything).

So the chances of hyperinflation and the grinding to a halt of public services seems fairly high.

The question is how massive is "massive"? (And why does any inflation rate above about 2% seem to be considered "hyperinflation" these days?)

In line with my other posts, since the austerity measures being demanded of Greece are already resulting in "the grinding to a halt of public services", that's not a particularly effective warning. At any rate, a moderate amount of inflation (especially inflation relative to the rest of the EU) would probably help the Greek economy by boosting its exports to the rest of the EU.

Posted by fletcher christian (# 13919) on :

Posted by Seraphim:

quote:

I'm very glad the UK and Scandinavia were smart enough to stay out

I'm hoping that this won't come as a shock. Are you sitting down? The UK is part of it - you are actually in the EU, you do benefit from it and just as the rest of Europe would be effected by an economic downturn in the UK, so the UK would quite naturally and understandably be effected by an economic downturn in any other part of Europe. The UK isn't miles away from the rest of Europe. I know some might wish it was, but it is actually part of it. I know that leaders on TV talk about Europe like it's as far off and far away as China and I know that must be very confusing and make it really hard to understand where exactly the UK is located. I know you have swallowed all the silly spin about the Euro and how everything is all about the Euro. Now ask yourself; would it really get us out of this crisis where banks gave loans like it was Christmas come early and people bought houses they knew they couldn't afford and where businesses built more property than there are people to live in them, if we all had our own money called by our own special name with our own pretty pictures on them? Maybe you haven't noticed this either, but not being in the Euro doesn't seem to be helping the UK in the least at the moment. I'm somewhat surprised you still swallow that spin about it 'being all about being in the euro', but at least you're living up to what your leaders expect of you (which isn't a good thing by the way).

Posted by fletcher christian (# 13919) on :

Hmmm, I promise I only hit the button once, but a Trinitarian response has been garnered.

[To quote Hannibal Lecter; "Not any more" Edited at FC's request; B62]

[ 22. May 2012, 21:49: Message edited by: Barnabas62 ]

Posted by the long ranger (# 17109) on :

quote:
Originally posted by ken:
Pretty much anyone. They are mostly white and comparitively well-educated, and (despite the propaganda of the last few years) they actually on average work longer hgours and more productively than most Europeans.

Well, obviously we inhabit different worlds, ken. In mine, productivity throughout Europe is down and concerns about a lack of employment and immigration at an all-time high. There are few jobs, mass migrations of Greeks would put strains onto social security budgets in countries which are already close to breaking point, in my opinion.

quote:
Also about a quarter of all Greeks live abroad already. London might well be the city in the world with the third or fourth largest Greek population (the competition would include New York and Melbourne).

I'm sure this is true, but hardly relevant. If every person in the disapora had a family member to live with them, this would cause massive strain. And as far as I can see, there is very little chance of Greeks being able to migrate to North America. Possibly to Australia - I hear that many Irish are moving over there.

quote:
Even if half the population left - which won't happen - and even if they all stayed in the EU - also unlikely - that would be only about one percent of the population of the other countries.

Again, this is true but irrelevant. It isn't the numbers of migrants so much as the concentration of them in a short period of time which would cause a problem.

quote:
And if even a fractiom of that many lest, there would be an awful lot of cheap houses and land in Greece for us Brits and Germans to buy. Greece is too hot for me, especially in summer, but you can buy a small house in a holiday resort with a small garden and a swimming pool for less than the likely price of my slumlike London flat. If real prices halved? Even though I wouldn't go, I bet a lot of the kind of people who used to buy houses in Spain twenty years ago, and now seem to be going to Turkey or to Northern Cyprus, would be very tempted.

Well, again, this is a very optimistic vision of the Greek future. An alternative involves mass instability within the country. shortages of food and rioting. In that scenario, the tourism market could drop off - as Egypt shows, tourists do not like danger. As to the cheap housing, there are already an influx of people leaving Cyprus to return to northern Europe as they begin to realise that hospital bills are unaffordable. In an unsettled Greece, I cannot see that it necessarily follows that people from the North will be so keen to move there even if they have the money to do so. There are many cheap places to live in Croatia and elsewhere, the fact that the price is low has not encouraged mass purchasing of their housing.

Posted by aumbry (# 436) on :

quote:
Originally posted by Albertus:
Which is the reason why dodgy economies like Greece (OK, Greece being the worst example) were allowed in. If the Euro had started off with, say, the Benelux, Germans, Austrians, maybe the French, then let others in as an when they could show they could hack it, would it be in the trouble it is in today? Nope.

You are buying the idea that the failure of the Euro Project is to do with the weaker economies which joined it dragging the show down. The fault in fact lies not with Greece or Spain or Italy but the very design of the Euro. If the Euro had contained say just Germany, Benelux and the Austrians it would have been a very hard currency which would mean that the least competitive economies in that group say Belgium and Austria would have found themselves in the position that Spain and Greece are now in.

Greece has had abysmal governance and not all of the economic disaster they are facing can be blamed on the Euro but their only hope is Euro-exit which would make them competitive again in their main export market of tourism, foreign currency would start to return, as Ken says people would buy cheap villas and olive oil and gradually there would be a revival. With the Euro all they can hope for is a decade of grinding austerity.

The backers of the Euro will spin a tale of Euro-exit being an economic disaster because they know that if Greece had a revival outside the Euro other nations would want to follow and the whole project would quickly collapse. It amazes me that the European public still take any notice of the economic predictions of the Euro-Elite as it is their policies which have led to this disaster.

[ 23. May 2012, 10:29: Message edited by: aumbry ]

Posted by Vaticanchic (# 13869) on :

Cheap hols?

Posted by ken (# 2460) on :

quote:
Originally posted by the long ranger:

If every person in the disapora had a family member to live with them, this would cause massive strain.

Bollocks. The UK alone had more Poles than that move here in the 1990s and 2000s. Economically beneficial to pretty much everybody. There really aren't that many Greeks.

Now if Spain crashed in the same way, that would put lots of people in the shit. And don't even think about Italy. Ireland defaulting would hurt the UK financially (but not anyone else much). But Greece alone isn't big enough to cause serious trouble for everyone else.

Posted by the long ranger (# 17109) on :

quote:
Originally posted by ken:
Bollocks. The UK alone had more Poles than that move here in the 1990s and 2000s. Economically beneficial to pretty much everybody. There really aren't that many Greeks.

The majority of Poles came to work when there were jobs. Now there are fewer jobs, they are leaving. So bollocks to you.

quote:
Now if Spain crashed in the same way, that would put lots of people in the shit. And don't even think about Italy. Ireland defaulting would hurt the UK financially (but not anyone else much). But Greece alone isn't big enough to cause serious trouble for everyone else.

It isn't about Greece being the problem on its own, but the domino effect of any possible default. If it was just about the effect of Greece, nobody outside of Greece is going to be worrying about it.

Posted by aumbry (# 436) on :

quote:
Originally posted by ken:

quote:
Originally posted by the long ranger:

If every person in the disapora had a family member to live with them, this would cause massive strain.
Bollocks. The UK alone had more Poles than that move here in the 1990s and 2000s. Economically beneficial to pretty much everybody. There really aren't that many Greeks.

Difficult to believe they could have been economically beneficial to the workers at the bottom of the ladder whom they undercut but if by everybody you mean the middle classes then you are probably right.

Posted by ken (# 2460) on :

More workers means more jobs. There is no fixed supply of "jobs" granted to us from on high by a mysterious and ineffable "economy". Workers make jobs.

Posted by aumbry (# 436) on :

quote:
Originally posted by ken:
More workers means more jobs. There is no fixed supply of "jobs" granted to us from on high by a mysterious and ineffable "economy". Workers make jobs.

In my naivete I thought that workers were subject to the laws of supply and demand and that if you flood the market with cheap labour the price falls. Certainly a chum of mine who is a humble self employed painter and decorator considers that Eastern European workers have had a depressing effect on what he can earn.

Posted by aumbry (# 436) on :

This article seems to not to follow Kenonomics:-

Effect of migration on wages

Posted by Ricardus (# 8757) on :

quote:
Originally posted by aumbry:

quote:
Originally posted by ken:
More workers means more jobs. There is no fixed supply of "jobs" granted to us from on high by a mysterious and ineffable "economy". Workers make jobs.
In my naivete I thought that workers were subject to the laws of supply and demand and that if you flood the market with cheap labour the price falls.

Not necessarily, because you also create more consumers, which increases demand for goods and services, and therefore for labour.

Posted by Sioni Sais (# 5713) on :

With the increasing numbers of pensioners and young people not starting work until they are older than was the case we had better get workers from somewhere.

What's needed* in Greece and everywhere else is confidence. It was a lack of confidence that NINJA loans would be repaid that led to the current economic downturn (call it a recession or depression according to whether you have a job or not). The tricks that governments are trying and the hoops they are going through are designed to give the market makers confidence, but I reckon we might as well wait until the current generation of corporate CEOs, hedge-fund managers and city traders are dead before we get a recovery.

*If that is you're a capitalist and actually want the global free market to return.

Posted by Cod (# 2643) on :

quote:
Originally posted by Sioni Sais:
With the increasing numbers of pensioners and young people not starting work until they are older than was the case we had better get workers from somewhere.

Even if the British economy continues to contract and there is no work for them?

Posted by Sioni Sais (# 5713) on :

quote:
Originally posted by Cod:

quote:
Originally posted by Sioni Sais:
With the increasing numbers of pensioners and young people not starting work until they are older than was the case we had better get workers from somewhere.
Even if the British economy continues to contract and there is no work for them?

Economies don't behave entirely of their own volition. Gorgeous George looks increasingly rudderless so if the market doesn't provide the solution the government will be under even more pressure to stimulate growth; the IMF suggested lowering the base rate further and more Quantitative Easing only yesterday.

If you're not careful I'll bang the drum for repairing empty homes firstly to employ people and then to house people. There, broken my own promise.

Posted by PaulTH* (# 320) on :

quote:
Originally posred by Albertus:
Which is the reason why dodgy economies like Greece (OK, Greece being the worst example) were allowed in. If the Euro had started off with, say, the Benelux, Germans, Austrians, maybe the French, then let others in as an when they could show they could hack it, would it be in the trouble it is in today? Nope.

This is entirely the point. A political decision was made to allow Greece to join the Euro when its economy clearly wasn't fit for puropse. That's why I think it will stay in. The Eurocrats won't want to admit they got it wrong. And IMF leader Christine Legarde's opinion:

quote:
she said that the costs of Greece leaving could be so high that other members of the eurozone may be prepared to pay more to keep Greece in the euro.

Greece will not pay its debts, because its people won't tolerate the austerity measures imposed on it. But Greece is about 2% of the EU economy. In EU terms it would cost peanuts to keep it afloat in perpetuity. In the way a poor city or county in the UK, or a poor state in the USA could be kept supported by the rest of the economy. It would matter little if Greece stays or goes, except the possibility of contagion affecting much larger economies such as Spain and, especially Italy, sends shudders throughout Europe. The EU and Greece need to decide. either accept it's a basket case economy and treat it like a poor brother you love. Or eject it from the Eurozone. Don't expect it to pay its debts. It can't and it won't.

Posted by Cod (# 2643) on :

quote:
Originally posted by Sioni Sais:

quote:
Originally posted by Cod:

quote:
Originally posted by Sioni Sais:
With the increasing numbers of pensioners and young people not starting work until they are older than was the case we had better get workers from somewhere.
Even if the British economy continues to contract and there is no work for them?
Economies don't behave entirely of their own volition. Gorgeous George looks increasingly rudderless so if the market doesn't provide the solution the government will be under even more pressure to stimulate growth; the IMF suggested lowering the base rate further and more Quantitative Easing only yesterday.

If you're not careful I'll bang the drum for repairing empty homes firstly to employ people and then to house people. There, broken my own promise.

Perhaps this is a subject for a separate thread, but ISTM that the British government isn't in a position to stimulate growth (leastways by spending more money). Its options are a mixture of the following a) raise taxes and by doing so risk further economic contraction b) print more money and c) borrow more money. Both b) and c) risk increasing bond yields and thus the cost of borrowing, although Britain has got away with it so far. b) also risks inflation. I wonder if Keynesianism can work for state that has to, at every turn, try not to spook its creditors.

In any event, ISTM that Labour, while criticising Coalition spending cuts, wouldn't have done very many things differently had they been reelected to power.

Posted by Cod (# 2643) on :

quote:
Originally posted by PaulTH*:
... or a poor state in the USA ...

Perhaps American shippies could comment. I understand that there is considerable variation of wealth per capita between US states: according to Wikipedia, Delaware's is $US70K; Mississipi's is $US33K (a bit above Greece which is at $US27K).

Do the indigents of Mississipi struggle on by themselves or do the denizens of wealthier states assist them?

Has an American state faced bankruptcy, and if so, what happened?

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by Cod:
In any event, ISTM that Labour, while criticising Coalition spending cuts, wouldn't have done very many things differently had they been reelected to power.

Of course they wouldn't. Every current Labour MP is dancing a little jig of joy that they got to fuck up the economy then leave the Tories to take the flack for doing what's necessary to fix it.

Posted by South Coast Kevin (# 16130) on :

quote:
Originally posted by Cod:
I wonder if Keynesianism can work for state that has to, at every turn, try not to spook its creditors.

As I understand it, Keynesianism has a rather important corrolary to the bit about spending in a recession; and that's the requirement to run a budget surplus in the good times. The previous UK government spectacularly failed in that regard.

quote:
Originally posted by Cod:
In any event, ISTM that Labour, while criticising Coalition spending cuts, wouldn't have done very many things differently had they been reelected to power.

Well indeed; the last Labour Chancellor (Alistair Darling) warned that 'cuts worse than anything since the Depression' would be necessary, if I recall correctly. Or was it 'cuts worse than under Thatcher'? Anyway, severe cuts to public expenditure.

You don't hear Labour saying this now, though - it's all 'The Tories are destroying growth' and 'too far, too fast'...

Posted by Sioni Sais (# 5713) on :

quote:
Originally posted by Cod:

quote:
Originally posted by PaulTH*:
... or a poor state in the USA ...
Perhaps American shippies could comment. I understand that there is considerable variation of wealth per capita between US states: according to Wikipedia, Delaware's is $US70K; Mississipi's is $US33K (a bit above Greece which is at $US27K).

Do the indigents of Mississipi struggle on by themselves or do the denizens of wealthier states assist them?

Has an American state faced bankruptcy, and if so, what happened?

AFAIK Delaware is the Brass Plate capital of the USA (ie, companies tend to have registered offices there in preference to elsewhere. It is for US companies what Liberia and Panama are for ships. That could bump the figures up.

Cod,

I accept that the government is concerned about 'spooking the lenders', but if that's the case aren't we now in thrall to the big bankers to a greater extent than we were to the unions back in the 'seventies?

Posted by Sober Preacher's Kid (# 12699) on :

quote:
Originally posted by Cod:

quote:
Originally posted by PaulTH*:
... or a poor state in the USA ...
Perhaps American shippies could comment. I understand that there is considerable variation of wealth per capita between US states: according to Wikipedia, Delaware's is $US70K; Mississipi's is $US33K (a bit above Greece which is at $US27K).

Do the indigents of Mississipi struggle on by themselves or do the denizens of wealthier states assist them?

Has an American state faced bankruptcy, and if so, what happened?

They are assisted greatly through federal programs. The poor are helped with Medicaid, Unemployment Insurance (I understand that states borrow from the federal government if their own UI funds run out. There are also grants to extend eligibility). Over-65's receive Social Security and Medicare, whose bill is entirely paid for in Washington. Even if a state totally mismanages its finances, cheques still come in from Washington.

In Europe, all of these expenses are dealt with at a national, not EU level. That is a problem.

States can't declare bankruptcy, not the way that is individuals or companies can. States are sovereign under the US Constitution, they can default on bond payments but they can't go into court and declare bankruptcy. No court has the authority to enforce bankruptcy procedure against a state.

Arkansas defaulted on state bonds in 1932, that was the last outright default. California has come close in recent years and resorted to paying state employees in IOU's but bond payments were still made.

In Canada provinces cannot default and the Federal government has authority to stop a default by activating the residual powers granted to Ottawa in the Constitution. In 1993 Saskatchewan threatened to default. The Federal Department of Finance prepared to take over the province's finances, the Bank of Canada was ready to extend emergency credit and the provincial government, had it actually defaulted, would have been deprived of a good deal of authority for a while.

Though the Mulroney government advanced several scheduled transfer payments and disaster was avoided.

Posted by Matt Black (# 2210) on :

quote:
Originally posted by Ricardus:

quote:
Originally posted by aumbry:

quote:
Originally posted by ken:
More workers means more jobs. There is no fixed supply of "jobs" granted to us from on high by a mysterious and ineffable "economy". Workers make jobs.
In my naivete I thought that workers were subject to the laws of supply and demand and that if you flood the market with cheap labour the price falls.
Not necessarily, because you also create more consumers, which increases demand for goods and services, and therefore for labour.

Only if they have the money to pay for them; there be the rub...

Posted by Cod (# 2643) on :

quote:
Originally posted by Sioni Sais:

Cod,

I accept that the government is concerned about 'spooking the lenders', but if that's the case aren't we now in thrall to the big bankers to a greater extent than we were to the unions back in the 'seventies?

I think we are. Vince Cable's "pinstriped Scargills" comment is very apt. It is causing a real crisis of democracy.

Posted by South Coast Kevin (# 16130) on :

quote:
Originally posted by Cod:

quote:
Originally posted by Sioni Sais:
I accept that the government is concerned about 'spooking the lenders', but if that's the case aren't we now in thrall to the big bankers to a greater extent than we were to the unions back in the 'seventies?
I think we are. Vince Cable's "pinstriped Scargills" comment is very apt. It is causing a real crisis of democracy.

Except it's clear enough how any country can avoid being in thrall to the 'pinstriped Scargills'; don't run up large debts. If a country can keep its national debt low then it's likely to find a ready market for its gilts, isn't it?

Posted by Sioni Sais (# 5713) on :

quote:
Originally posted by South Coast Kevin:

quote:
Originally posted by Cod:

quote:
Originally posted by Sioni Sais:
I accept that the government is concerned about 'spooking the lenders', but if that's the case aren't we now in thrall to the big bankers to a greater extent than we were to the unions back in the 'seventies?
I think we are. Vince Cable's "pinstriped Scargills" comment is very apt. It is causing a real crisis of democracy.
Except it's clear enough how any country can avoid being in thrall to the 'pinstriped Scargills'; don't run up large debts. If a country can keep its national debt low then it's likely to find a ready market for its gilts, isn't it?

That's exactly the argument the bankers use to further their own selfish short-term interests. Then again, the IMF (and I'm not too sure they and the trading bankers have common cause) advocate still lower base rate and QE. What is QE other than printing money?

Nothing will work unless it restores business confidence. If the banks won't lend to business I think the government had better do so.

Posted by Crœsos (# 238) on :

quote:
Originally posted by South Coast Kevin:
Except it's clear enough how any country can avoid being in thrall to the 'pinstriped Scargills'; don't run up large debts. If a country can keep its national debt low then it's likely to find a ready market for its gilts, isn't it?

Except it doesn't seem to work that way. Before the 2008 financial collapse, Spain had a relatively low national debt and the Irish government was running budget surpluses. Despite this, they're both having trouble moving their bonds now. The problem for them isn't that they ran up large debts, it's that they've got tremendous unemployment now.

Posted by the long ranger (# 17109) on :

I am no economist, but I was just watching a series of scary economic videos by a respected Professor of Economics Richard Wolffe.

According to him, debt is not the issue - and in fact reducing government costs whilst increasing tax is going to make matters worse. He says that there is always a cycle of private capital boom-and-bust with a form of government capitalism taking over when the private capitalism fails.

Again, according to his analysis, it is almost inevitable that government will eventually decide that the only way out of the crisis will be to directly employ the masses (either in various forms of low paid public service or ... in a war..) and that this would cost less than the alternatives because the monies invested would be the money which would have to be put in to propping up the economy in other ways, and with money the masses would be buying things and paying taxes anyway.

If your industrial output is reducing and the population has less money to spend, I can't actually see how austerity is helping (other than reducing the national debt, perhaps).

Posted by South Coast Kevin (# 16130) on :

quote:
Originally posted by Crœsos:
Before the 2008 financial collapse, Spain had a relatively low national debt and the Irish government was running budget surpluses. Despite this, they're both having trouble moving their bonds now. The problem for them isn't that they ran up large debts, it's that they've got tremendous unemployment now.

Spain and Ireland have both had massive booms (and now busts) in property prices. The UK had the boom but not - yet, in my view - any massive bust. As I understand it, the Spanish banks are in such trouble because of the money they lent out for mortgages on homes that are now worth rather less than they were a few years ago.

So the banks' willingness / ability to lend is crippled, businesses are hamstrung and unemployment shoots up.

One might argue that the UK is at risk of all this, as well as still running a high budget deficit...

Posted by Crœsos (# 238) on :

quote:
Originally posted by the long ranger:
If your industrial output is reducing and the population has less money to spend, I can't actually see how austerity is helping (other than reducing the national debt, perhaps).

It's not even doing that. It doesn't help to reduce your national debt if the steps taken cause your GDP to contract by an even greater amount. But for some reason the "let's add a bunch of former government workers to the unemployment rolls during a jobs crisis" plan seems to be the preferred one.

Posted by Sioni Sais (# 5713) on :

quote:
Originally posted by South Coast Kevin:

quote:
Originally posted by Crœsos:
Before the 2008 financial collapse, Spain had a relatively low national debt and the Irish government was running budget surpluses. Despite this, they're both having trouble moving their bonds now. The problem for them isn't that they ran up large debts, it's that they've got tremendous unemployment now.
Spain and Ireland have both had massive booms (and now busts) in property prices. The UK had the boom but not - yet, in my view - any massive bust. As I understand it, the Spanish banks are in such trouble because of the money they lent out for mortgages on homes that are now worth rather less than they were a few years ago.

So the banks' willingness / ability to lend is crippled, businesses are hamstrung and unemployment shoots up.

Looks like the Spanish banks were following the lead of those in America and the UK. I'm really, really pissed off that people have to serve the economy rather than the economy serving the people. Wealth is like manure. If you spread it around, it helps things grow. If you pile it up in a few places, it's shit and stinks.

Posted by the long ranger (# 17109) on :

quote:
Originally posted by Sioni Sais:
If you pile it up in a few places, it's shit and stinks.

Bad simile - if you pile up shit in a few places it gets hot, composts, becomes more stable and turns into a better soil additive.

Posted by South Coast Kevin (# 16130) on :

quote:
Originally posted by Crœsos:
It doesn't help to reduce your national debt if the steps taken cause your GDP to contract by an even greater amount.

I suppose not. Two things, though. Firstly, which countries in financial trouble are even close to reducing their national debt? Aren't countries like the UK and USA just at the stage of reducing (slightly) the national deficit?

Secondly, the converse to your statement must also be true, I'd have thought - it's no good taking measures to increase GDP if the national debt is increasing by an even greater amount.

quote:
Originally posted by Sioni Sais:
I'm really, really pissed off that people have to serve the economy rather than the economy serving the people.

Yeah, I'm pissed off too. But we are where we are - if a country has a large debt then it is, to some extent, a slave to the markets; the debt must be serviced.

Furthermore, if the markets (i.e. countries in credit, pension funds etc.) feel a country's debt is risky - might not get paid back - then they'll demand a higher rate of interest and the country will become unable to service its debts.

That's what has happened to Greece, isn't it? People are only willing to lend to Greece at a horrendously high interest rate, because there's a very real risk of not getting the money back in full.

Posted by Sioni Sais (# 5713) on :

quote:
Originally posted by the long ranger:

quote:
Originally posted by Sioni Sais:
If you pile it up in a few places, it's shit and stinks.
Bad simile - if you pile up shit in a few places it gets hot, composts, becomes more stable and turns into a better soil additive.

No, good simile. If it is shit alone, it remains shit. There has to be some leavening (eg vegetation) to break it down usefully.

[ 25. May 2012, 15:04: Message edited by: Sioni Sais ]

Posted by Sioni Sais (# 5713) on :

quote:
Originally posted by South Coast Kevin:

quote:
Originally posted by Sioni Sais:
I'm really, really pissed off that people have to serve the economy rather than the economy serving the people.
Yeah, I'm pissed off too. But we are where we are - if a country has a large debt then it is, to some extent, a slave to the markets; the debt must be serviced.

Furthermore, if the markets (i.e. countries in credit, pension funds etc.) feel a country's debt is risky - might not get paid back - then they'll demand a higher rate of interest and the country will become unable to service its debts.

Then they should put their big girl panties on and suck it up. The banks should realise that the world does not owe them a living, any more than it does public service workers. By what divine right do the interests of lenders and market makers get to overrule democratic governments? It's a myth that they serve mankind.

quote:
That's what has happened to Greece, isn't it? People are only willing to lend to Greece at a horrendously high interest rate, because there's a very real risk of not getting the money back in full.

The banks would stand a better rate of getting it back if they charged a lower rate! Gosh, they really are pissing in their own soup, not the Avgolemono.

Posted by the long ranger (# 17109) on :

quote:
Originally posted by South Coast Kevin:
if a country has a large debt then it is, to some extent, a slave to the markets; the debt must be serviced.

Furthermore, if the markets (i.e. countries in credit, pension funds etc.) feel a country's debt is risky - might not get paid back - then they'll demand a higher rate of interest and the country will become unable to service its debts.

OK, but if there are less people working and less production, how are the debts going to be paid? How are we better off with lower debts (maybe?) but lower employment and lower production?

Posted by South Coast Kevin (# 16130) on :

quote:
Originally posted by Sioni Sais:
By what divine right do the interests of lenders and market makers get to overrule democratic governments?

No divine right at all! Simply the cold fact that if you borrow money from someone then you place yourself at their mercy, to an extent. If countries can borrow money and later get off the hook by appealing to the will of the people or something like that, then the whole premise of lending money to governments could be undermined (through moral hazard). I'm finding it hard to imagine how the world would be if all governments had to have savings, rather than debts...

quote:
Originally posted by the long ranger:
...if there are less people working and less production, how are the debts going to be paid? How are we better off with lower debts (maybe?) but lower employment and lower production?

There's a balance, isn't there? There must be - surely it's ludicrous to incur ever-higher debts in order to give people pointless work like digging holes and then filling them in again. Likewise, it would be stupid for a country to reduce its public spending to zero in order to get its debt paid off as quickly as possible.

So what we're talking about here is where the balance is between a country controlling its deficit / debt and maintaining growth / production / employment. For the UK, I think we're just at the edge of sensible - I'd rather the deficit be reduced rather quicker than currently, because events in Greece and Spain are clearly showing the risks of, respectively, not controlling your deficit and not taking action to keep house prices from inflating dangerously.

Posted by the long ranger (# 17109) on :

@South Coast Kevin - well, that only works if work itself has no value and the reduction of the deficit is more important than the human damage it will cause. Or in other words if you are content to sacrifice people for the debt.

In our situation there are plenty of empty workplaces and plenty of people without work. At a very base level, giving them all pointless work would probably cost little (particularly if you are the government and can print money anyway) and would probably save a lot of money by giving people worth and value, would save a lot of repossessions, would do this and that and the other. And it isn't even as if this money isn't already being spent - albeit by bailing out the bankers rather than the workers.

And furthermore, there are plenty of things which could be done by people that are more valuable than digging and filling in holes - things that would enhance and improve our lives - and possibly which would make the country (or countries) more competitive in the future.

Personally I am not totally convinced by this model of economics, but it makes a lot more sense than contracting and depressing the population with austerity and expecting a solution to the crisis to suddenly and magically appear.

Posted by Matt Black (# 2210) on :

quote:
Originally posted by the long ranger:
@South Coast Kevin - well, that only works if work itself has no value and the reduction of the deficit is more important than the human damage it will cause. Or in other words if you are content to sacrifice people for the debt.

Well, the Greeks left it too late.

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by the long ranger:
@South Coast Kevin - well, that only works if work itself has no value

Of course work doesn't have any value in and of itself! It's the usefulness of that work that gives it value!

quote:
and the reduction of the deficit is more important than the human damage it will cause. Or in other words if you are content to sacrifice people for the debt.

For an example of what happens when you follow the "just keep spending and spending and sod how much debt you end up with" approach, just look at Greece. No human suffering there, right?

Posted by South Coast Kevin (# 16130) on :

quote:
Originally posted by the long ranger:
@South Coast Kevin - well, that only works if work itself has no value and the reduction of the deficit is more important than the human damage it will cause. Or in other words if you are content to sacrifice people for the debt.

Up to a point, I agree. But beyond that point, you get to where Greece is - unable to carry on borrowing the money you need to fund the government expenditure.

quote:
Originally posted by the long ranger:
In our situation there are plenty of empty workplaces and plenty of people without work. At a very base level, giving them all pointless work would probably cost little...

I'm okay with going into (more) debt to fund infrastructure or other improvements; it's what most people do to fund a house purchase, a course of education or suchlike. But funding general expenditure like public sector salaries on a deficit basis; that's immensely risky, surely? Countries just have to get their spending under control, otherwise they end up, like Greece, defaulting on their debts and having to make catastrophically harsh cuts.

quote:
Originally posted by the long ranger:
...particularly if you are the government and can print money anyway.

Obviously Greece can't do this at the moment but, in any case, it's another option that's fraught with danger - hyperinflation.

quote:
Originally posted by the long ranger:
Personally I am not totally convinced by this model of economics, but it makes a lot more sense than contracting and depressing the population with austerity and expecting a solution to the crisis to suddenly and magically appear.

I think NOT getting government expenditure under control is 'expecting a solution to the crisis to suddenly and magically appear'. In contrast, I'd say the austerity approach is all about taking responsibility and trying to get back to stability as a country ourselves.

Sure, one can argue about the specific measures taken and the balance between tax rises and spending cuts. But I think the austerity approach is the only realistic option, sorry...

Posted by Sioni Sais (# 5713) on :

quote:
Originally posted by Marvin the Martian:

quote:
Originally posted by the long ranger:
@South Coast Kevin - well, that only works if work itself has no value
Of course work doesn't have any value in and of itself! It's the usefulness of that work that gives it value!

Could someone explain the usefulness of trading in derivatives?

Posted by Sioni Sais (# 5713) on :

quote:
Originally posted by South Coast Kevin:
I'm okay with going into (more) debt to fund infrastructure or other improvements; it's what most people do to fund a house purchase, a course of education or suchlike. But funding general expenditure like public sector salaries on a deficit basis; that's immensely risky, surely?

There's a simple answer. A lot of activity in the public sector is done as a result of Joe Public wanting 'something to be done'. Same Joe Public resents paying for a Bloated Bureacracy. A whole stack of these activities are never going to contribute to any revenue stream and often the costs can't be offset by fees. Governments allegedly consider costs when passing legislation but I doubt they ever do so accurately, especially when the actual work is done by bodies outside the central government, such as local authorities and the NHS, of which past, present and future UK governments are very fond.

Posted by South Coast Kevin (# 16130) on :

quote:
Originally posted by Sioni Sais:
Could someone explain the usefulness of trading in derivatives?

I don't feel we need to explain the usefulness of any private sector activity. If someone wants to pay another to perform a particular service or supply a particular product, then questions of usefulness are, in my view, irrelevant.

The government does have a role to play in terms of, for example, regulation and business promotion, but those are side issues to this particular point.

Posted by tclune (# 7959) on :

quote:
Originally posted by Sioni Sais:
Could someone explain the usefulness of trading in derivatives?

This article does an excellent job of explaining it I think.

--Tom Clune

Posted by sebby (# 15147) on :

Whatever Greece decides to do, one can only hope that it is decided quickly. The uncertainty and hoky-coky is bad for the markets.

Posted by tclune (# 7959) on :

quote:
Originally posted by sebby:
Whatever Greece decides to do, one can only hope that it is decided quickly. The uncertainty and hoky-coky is bad for the markets.

Indeed. Just because they are facing a miserable time is no reason to drag us down with them. They really ought to show a little consideration...

--Tom Clune

Posted by South Coast Kevin (# 16130) on :

quote:
Originally posted by sebby:
Whatever Greece decides to do, one can only hope that it is decided quickly. The uncertainty and hoky-coky is bad for the markets.

Well, one might say 'There is no such thing as the markets' [Big Grin]

There are merely individuals and companies buying and selling financial products (including government debt) that collectively make up what we refer to, in short, as 'the markets'. So I'm not sure how helpful it is to refer to 'the markets' as some kind of bogeyman or the cause of our financial woes.

PS: Thanks for that link, tclune. I found it very informative.

Posted by 205 (# 206) on :

quote:
Originally posted by Sioni Sais:
What's needed* in Greece and everywhere else is confidence.

snip

corporate CEOs, hedge-fund managers and city traders are dead before we get a recovery.

And here I was thinking confidence lacks because governments of 'so-called developed nations' seem hellbent on spending every dime they might ever collect in taxes and about half again as much.

It would be interesting to see real austerity measures implemented somewhere over some time and what the lasting effect on the given economy might be.

Of course if that's happened anywhere recently (Germany?) and I missed it no doubt someone will provide the example. [Hot and Hormonal]

Posted by Crœsos (# 238) on :

quote:
Originally posted by 205:
And here I was thinking confidence lacks because governments of 'so-called developed nations' seem hellbent on spending every dime they might ever collect in taxes and about half again as much.

As I noted before, with the exception of Greece most of the European economies considered "troubled" today were actually following the low government spending playbook you advocate.

quote:
Originally posted by 205:
It would be interesting to see real austerity measures implemented somewhere over some time and what the lasting effect on the given economy might be.

Of course if that's happened anywhere recently (Germany?) and I missed it no doubt someone will provide the example.

Any number of failed states (e.g. Somalia, Sudan) have both minimal government expenditures and a lack of regulatory framework.

This recommendation has a very "the beatings will continue until morale improves" feel to it.

Posted by SeraphimSarov (# 4335) on :

quote:
Originally posted by fletcher christian:
Hmmm, I promise I only hit the button once, but a Trinitarian response has been garnered.

[To quote Hannibal Lecter; "Not any more" Edited at FC's request; B62]

You can keep the fatuous and fuckwitted condescension to Hell where it belongs

Posted by Cod (# 2643) on :

quote:
Originally posted by South Coast Kevin:
Except it's clear enough how any country can avoid being in thrall to the 'pinstriped Scargills'; don't run up large debts. If a country can keep its national debt low then it's likely to find a ready market for its gilts, isn't it?

How can that happen when the pinstriped Scargills demand a country's government bail them out on pain of watching the country's economy collapse?

Posted by Cod (# 2643) on :

quote:
Originally posted by South Coast Kevin:

quote:
Originally posted by Sioni Sais:
Could someone explain the usefulness of trading in derivatives?
I don't feel we need to explain the usefulness of any private sector activity. If someone wants to pay another to perform a particular service or supply a particular product, then questions of usefulness are, in my view, irrelevant.

And here I was thinking that the whole point of the free market was that it was useful in advancing civilisation, and also that the reason why it is so heavily regulated was in an attempt to keep it free and efficient.

Derivatives are an example. There are all sorts of ways in which they can make the market more efficient. On the other hand, only stockbrokers gain by wheeler-dealing them and clipping the ticket.

Posted by South Coast Kevin (# 16130) on :

Cod - what I meant about trading derivatives was that I don't feel the need to explain the usefulness of any specific private sector activity. I'm not advocating a completely free market with no government regulations at all, but I am saying that governments should, on the whole, let the private sector get on with it.

As for the bank bailouts, maybe they should have been allowed to fail... Or maybe they had (as many said at the time) become too big to fail, so realistically there was no choice but to bail them out. Maybe the lesson is that governments should regulate the banks enough that the failure of any one bank will not absolutely cripple the economy. Businesses fail every day, new ones start up every day. My own view is that this should be the situation in the financial sector too.

Posted by Sioni Sais (# 5713) on :

I've had a read of the article to which tclune provided a link and AFAICT derivatives are intended as a form of insurance. My concern is that they have gone beyond that, so that there are derivatives of derivatives and a market devoted to derivatives alone has sprung up.

While derivatives remain a means to the end of an efficient, effective and confident market then all is well, but if they become an end in themselves, I believe they can damage the market, if only by removing some of the more talented traders from the mainstream.

To go back to insurance, could it be worth looking at laws relating to policy holders of life assurance? In some countries life policies that are intended to benefit someone other than those who have an insurable interest the life assured are illegal or at any rate restricted. Would this, or something like it, help to convince those outside the markets that derivatives trading is not a dishonourable business? Whether this could get Greece out of its mess I don't know - maybe the UK could sell the Elgin Marbles and give the proceeds to Greece!

Posted by Trisagion (# 5235) on :

The "derivative of the derivative" wouldn't fall foul of the insurable interest rules, though, because the holders of the derivatives themselves would have such an interest. I think you're looking in the wrong place for the bogeyman. I reckon that we are the villains, not the banks, the bankers, the authorities or the derivative traders. None of this would be possible without the demand for credit to finance otherwise unaffordable lifestyle aspirations. You and I are responsible for our own actions, not the governments we put in place and who lifted credit controls so we could buy houses, consumer goods or whatever that we couldn't afford, nor the banks and bankers who we, through our governments, have empowered to loan us money whether we can afford to borrow it or not, nor yet the derivative traders who enable the banks to manage the risk that I won't pay them back by bundling my debt with your better risk debt.

[ 26. May 2012, 12:09: Message edited by: Trisagion ]

Posted by Sioni Sais (# 5713) on :

You're quite right Trisagion, we have to look at ourselves and nature of man to 'want' things.

Back when I was a child I wanted things too. Actually I needed them, but my parents didn't fall for that. They had the first and final say in whether I could have things (unless I chose to steal them) so they took the usual step of giving me pocket money and docking it for misdemeanours, which happened just often enough for me to get the message.

The difference was that I never got to vote for my parents. You hit the nail on the head by pointing to 'the governments we put in place'. By and large we are unwilling to pay taxes but we want, or need, more and more!

Governments could be wise, as my parents were, and keep a tight rein, or court popularity and get re-elected by either spending money they haven't got (and won't get) or deregulating. In all instances these were to satisfy our 'needs', some through the public sector and sometimes through business. Oh, they can also satisfy base prejudice when they haven't got any money and can't deregulate further.

I suppose the Greek government did the same sort of thing. It's normal for politicians to want to be re-elected, so maybe we should have a one-term limit then they would not worry about being re-elected and could (just possibly) act in the national interest. Maybe the term of office for mandarins should be restricted similarly too!

Posted by Sober Preacher's Kid (# 12699) on :

I have advocated that the life insurance rules be extended to derivatives; it's not a popular position. The rules about an insurable interest, contained in the Life Insurance Act, 1774 mean that there is no limit on derivatives of derivatives, and so on, but it greatly limits who can purchase them.

The Act's rules mean that risk has to be unilateral, the purchasing party has to have an insurable risk (will suffer a loss) in order to purchase and hold the contract. Thus it limits the purchasing side of the market. For instance, if Sionai Sais offers to sell me a CDO on Greek debt, I can't buy it because I don't own any Greek bonds.

If I did purchase that CDO, risk would be bilateral because I am attempting to gain from a Greek default. This is bilateral risk and as such is gambling.

Posted by Trisagion (# 5235) on :

...and the inevitable consequence of that would be a serious restriction in the credit markets. As you can see above, I'm not at all sure that's a bad thing but my views on this don't seem that widely shared.

Posted by sebby (# 15147) on :

quote:
Originally posted by tclune:

quote:
Originally posted by sebby:
Whatever Greece decides to do, one can only hope that it is decided quickly. The uncertainty and hoky-coky is bad for the markets.
Indeed. Just because they are facing a miserable time is no reason to drag us down with them. They really ought to show a little consideration...

--Tom Clune

Probably meant sarcastically, but I wholeheartedly share the meaning of what you have written taken at face value.

Posted by Steve H (# 17102) on :

The answer to the thread title's question is that they'll make a drachma out of a crisis.

Posted by Martin PC not & Ship's Biohazard (# 368) on :

WOL!

Posted by Steve H (# 17102) on :

"WOL"?

Posted by Martin PC not & Ship's Biohazard (# 368) on :

Wheeze Out Loud

Posted by Steve H (# 17102) on :

[Big Grin]

Posted by Cod (# 2643) on :

quote:
Originally posted by South Coast Kevin:
Cod - what I meant about trading derivatives was that I don't feel the need to explain the usefulness of any specific private sector activity. I'm not advocating a completely free market with no government regulations at all, but I am saying that governments should, on the whole, let the private sector get on with it.

I think it is sensible to ask whether any particular market activity helps or hinders the free market in its operation. Furthermore, governments certainly do this. I imagine this is why insider trading is banned, for example.

quote:
by Sioni SaisI've had a read of the article to which tclune provided a link and AFAICT derivatives are intended as a form of insurance. My concern is that they have gone beyond that, so that there are derivatives of derivatives and a market devoted to derivatives alone has sprung up.

ISTM that if derivatives are used for the purpose to which they were designed, they do no damage at all. It is speculation on the prices of derivatives, as with many other things, that seem to wreak economic havoc. We currently have a market that is heavily influenced by concerns about what all other investors are likely to do. In such circumstances, investors will, for example, buy gold which has no yield because they know everyone else is doing it, and they can ride up the price. It is no different from gambling, and it makes the market very unpredictable, thus compounding the problem by obliging otherwise prudent investors to speculate themselves.

All this is rather off the point. I am no economist, but ISTM that if Greece is going to default, it will default, regardless of whether its debts are denominated in euros or drachmas. I suppose there might be an increased risk to investors in buying Greek gvt bonds in drachmas as the Greek gvt might print more drachmas and thus inflate the currency. On the other hand, printing drachmas makes a default less likely. So I consider that the ramifications of a Greek departure from the Euro are political. It would be the first step away from European integration and thus is highly symbolic.

Posted by tclune (# 7959) on :

quote:
Originally posted by Trisagion:
You and I are responsible for our own actions, not the governments we put in place and who lifted credit controls so we could buy houses, consumer goods or whatever that we couldn't afford, nor the banks and bankers who we, through our governments, have empowered to loan us money whether we can afford to borrow it or not, nor yet the derivative traders who enable the banks to manage the risk that I won't pay them back by bundling my debt with your better risk debt.

The problem with the silly "you and I are responsible for our own actions" meme is that I did none of the things that brought the economy down, but I am paying the price for it.

That is why the government needs to be involved in this -- if the damage were limited to the scum who created the problem (or, indeed, even if the damage were so much as shared by the scum that raked in multi-million dollar incomes for destroying the economy), then government intervention would be redundant. They do not share in the pain they create, and so they need to be imprisoned for the carnage that they wrought so irresponsibly.

One of the really big reasons that I find Obama such a foul POTUS is that he refused to be the sword of the Lord and of Gideon that this situation so obviously required.

--Tom Clune

Posted by New Yorker (# 9898) on :

quote:
Originally posted by tclune:
One of the really big reasons that I find Obama such a foul POTUS is that he refused to be the sword of the Lord and of Gideon that this situation so obviously required.

What do you think he should do / have done?

Posted by Crœsos (# 238) on :

quote:
Originally posted by Trisagion:
I reckon that we are the villains, not the banks, the bankers, the authorities or the derivative traders. None of this would be possible without the demand for credit to finance otherwise unaffordable lifestyle aspirations. You and I are responsible for our own actions, not the governments we put in place and who lifted credit controls so we could buy houses, consumer goods or whatever that we couldn't afford, nor the banks and bankers who we, through our governments, have empowered to loan us money whether we can afford to borrow it or not, nor yet the derivative traders who enable the banks to manage the risk that I won't pay them back by bundling my debt with your better risk debt.

The whole justification for the existence of the financial services industry is that they are supposedly experts in assessing risk and matching borrowers with a range of riskiness with lenders willing and able to take on that particular level of risk. If, as you suggest, the financial services sector can't do this anymore, what are they for?

Also, I think you're overestimating the degree to which the credit default swap crisis was the result of "lift[ing] credit controls", as opposed to a deliberate decision by non-state actors to shift financial services from regulated banks to the relatively unregulated shadow banking system.

Posted by tclune (# 7959) on :

quote:
Originally posted by New Yorker:

quote:
Originally posted by tclune:
One of the really big reasons that I find Obama such a foul POTUS is that he refused to be the sword of the Lord and of Gideon that this situation so obviously required.
What do you think he should do / have done?

The same thing George HW Bush did during the S&L crisis -- prosecute the Hell out of the offenders. Virtually the only people who don't find massive violations of existing laws in the actions of the banks are bankers and President Obama. We couldn't let the banks fail, but we sure could have thrown the perps in jail.

--Tom Clune

Posted by Ricardus (# 8757) on :

[Silly tangent]

The other day I got a letter from the Royal Mint, offering to sell me a £5 coin for £12.99, as it was a jubilee commemorative special.

This indicates to me the perfect way to solve Greece's debt crisis. Simply reclassify all Greek-issue euro coins as 'commemorative editions of Greece's euro membership', with a value of 260% their face value, and use the profit thus generated to pay off the debt. Easy!

Posted by Justinian (# 5357) on :

quote:
Originally posted by Sioni Sais:

quote:
Originally posted by Marvin the Martian:

quote:
Originally posted by the long ranger:
@South Coast Kevin - well, that only works if work itself has no value
Of course work doesn't have any value in and of itself! It's the usefulness of that work that gives it value!

Could someone explain the usefulness of trading in derivatives?

It's much higher than the usefulness of Leveraged Buyouts...

Posted by Justinian (# 5357) on :

And being slightly more serious, derivatives traders are meant to help with the efficient allocation of money to those who can best use it. In that respect they are another form of bureaucrat.

Posted by Sighthound (# 15185) on :

I would suggest one likely outcome is that the new Greek currency will be as valuable as the Confederate Dollar. Therefore carpetbaggers will move into that country and buy up attractive villas and other worthwhile assets with 'hard' currency. (Euros, US Dollars or even Pounds) The real cost of these assets to the purchasers will be minimal.

Meanwhile the value of the Greek currency will continue to spiral down, there will be massive inflation and political upheaval, possibly even to the extent of Revolution.

Eventually a hard-line government will seize power, probably backed by foreign plutocrats and certain governments. This will 'restore order' and relaunch the currency, which this time will receive support from international capitalism. The Greek people, reduced to abject poverty and in fear of the tyranny of their new masters, will subsist in a latter day version on Franco's Spain.

After thirty or forty years, 'democracy' will be restored.

Posted by Steve H (# 17102) on :

quote:
Originally posted by Sighthound:
I would suggest one likely outcome is that the new Greek currency will be as valuable as the Confederate Dollar. Therefore carpetbaggers will move into that country and buy up attractive villas and other worthwhile assets with 'hard' currency. (Euros, US Dollars or even Pounds) The real cost of these assets to the purchasers will be minimal.

Meanwhile the value of the Greek currency will continue to spiral down, there will be massive inflation and political upheaval, possibly even to the extent of Revolution.

Eventually a hard-line government will seize power, probably backed by foreign plutocrats and certain governments. This will 'restore order' and relaunch the currency, which this time will receive support from international capitalism. The Greek people, reduced to abject poverty and in fear of the tyranny of their new masters, will subsist in a latter day version on Franco's Spain.

After thirty or forty years, 'democracy' will be restored.

The Colonels all over again!

Posted by aumbry (# 436) on :

quote:
Originally posted by the long ranger:
@South Coast Kevin - well, that only works if work itself has no value and the reduction of the deficit is more important than the human damage it will cause. Or in other words if you are content to sacrifice people for the debt.

In our situation there are plenty of empty workplaces and plenty of people without work. At a very base level, giving them all pointless work would probably cost little (particularly if you are the government and can print money anyway) and would probably save a lot of money by giving people worth and value, would save a lot of repossessions, would do this and that and the other. And it isn't even as if this money isn't already being spent - albeit by bailing out the bankers rather than the workers.

And furthermore, there are plenty of things which could be done by people that are more valuable than digging and filling in holes - things that would enhance and improve our lives - and possibly which would make the country (or countries) more competitive in the future.

Personally I am not totally convinced by this model of economics, but it makes a lot more sense than contracting and depressing the population with austerity and expecting a solution to the crisis to suddenly and magically appear.

The state paying for full employment without consideration of productivity was the model tried in the Soviet Block up until the fall of communism. The trouble is the unproductive jobs crowd out the productive ones and the overall effect was pauperisation. Whilst it produced some social stability it provided very little political stability.

Posted by Cod (# 2643) on :

quote:
Originally posted by Justinian:
And being slightly more serious, derivatives traders are meant to help with the efficient allocation of money to those who can best use it. In that respect they are another form of bureaucrat.

I imagine you are referring to the theory of the efficient market, ie, the market will allocate resources most efficiently if left to its own devices.

Question - nb I have never studied economics - is there not a risk that efficiency is assumed to mean not some prestated end but whatever the market in fact does?

Posted by Crœsos (# 238) on :

Economist/blogger Brad DeLong has a quick summary of the three Euro crises that usually get compacted into one. DeLong's breakdown can be summarized as:

Northern European bankers and investors loaned Greek politicians money when the Greek politicians did not have a mandate to raise taxes to pay that money back.
How is Greece going to balance its government expenditures and government revenues going forward, for nobody--or at least nobody sane--will lend the Greek government more money for a long time to come?
How is Greece as a country is--and the other countries of southern Europe that also received enormous capital inflows that pushed up their nominal wage and price levels are--going to balance its exports and imports going forward without suffering a decade-long depression?

It's fairly useful to see them broken out like that. These are inter-related issues, but still distinct from each other, especially insofar as which parties have the means to solve them. Follow the link for DeLong's take on the matter.

Posted by Sioni Sais (# 5713) on :

quote:
Originally posted by aumbry:
The state paying for full employment without consideration of productivity was the model tried in the Soviet Block up until the fall of communism. The trouble is the unproductive jobs crowd out the productive ones and the overall effect was pauperisation. Whilst it produced some social stability it provided very little political stability.

That sounds an awful lot like the New Deal put in place by that well-known commie bastard Franklin Delano Roosevelt. It didn't crowd out productive jobs, pauperism was reduced, social stability increased and the USA was in a better position to become the Arsenal of Freedom in the 1940's.

Soviet Communism produced way too much political stability if anything, such that when a small change did occur it led to the total disintegration of the East European Soviet states. Famines and purges ensured social stability and pauperisation.

Posted by Sioni Sais (# 5713) on :

Another economy wobbles.

I'm not surprised that the Cypriot economy is closely aligned with the Greek and therefore in difficulties, but I find it odd that Cyprus has already borrowed from Russia. If the EU bail out Cyprus are we effectively protecting Russia's investment?

Posted by Cod (# 2643) on :

I am sure that no half-decent government would spend to stimulate growth without regards to productivity.

However, I will ask the question again: why should we assume that it would work again in present circumstances? What, for example, was the US government's debt levels compared to GDP in the 1930s? How easily could the US government borrow money in order to spend it? What was the cost of its borrowing? Did it, in fact, have to borrow at all? I haven't seen anyone considering or asking these questions.

Another example: the NZ government very successfully stimulated the economy here in the 1870s. It was so successful that NZ became (briefly) the richest country in the world in GDP per capita terms after the US. However, the NZ government owned huge tracts of land, and was able to borrow money at low interest by granting mortgages over a relatively small portion of them. What equivalent asset do Western governments have to use? I suspect they simply don't have any.

Posted by Evangeline (# 7002) on :

quote:
Originally posted by Sioni Sais:

quote:
Originally posted by aumbry:
The state paying for full employment without consideration of productivity was the model tried in the Soviet Block up until the fall of communism. The trouble is the unproductive jobs crowd out the productive ones and the overall effect was pauperisation. Whilst it produced some social stability it provided very little political stability.
That sounds an awful lot like the New Deal put in place by that well-known commie bastard Franklin Delano Roosevelt. It didn't crowd out productive jobs, pauperism was reduced, social stability increased and the USA was in a better position to become the Arsenal of Freedom in the 1940's.

I don't think the state paying for full employment without consideration of productivity sounds anything at all like FDR's New Deal. The New Deal did use SOME government spending to stimulate the economy and relieve poverty but the govt funds were generated largely from austerity measures-the pay of public servants (or whatever they're called in the US) and the army was cut by 15% and govt dept. budgets were reduced by 25%.

Posted by Cod (# 2643) on :

Evangeline, that's very interesting. What you say suggests that cuts in public spending do not in themselves strangle economic growth (provided that spending is appropriately directed elsewhere). This is in flat contradiction to critics of various European governments.

Posted by Sir Pellinore (ret'd) (# 12163) on :

I think previous Greek governments had been falsifying the true economic situation of their country for quite a while before the current crisis hit.

Add to that the incredible ineptitude of international bankers, whose misdeeds are eventually paid for out of taxpayers' pockets and you have problems.

To me the EU and the Euro are both effectively dead. How long they "survive" on artificial resuscitation is a moot point.

Posted by Cod (# 2643) on :

I am told that it was pretty widely known that the Greek government falsified its economic data. I am also told that the ECB and the eurozone governments knew this but decided it didn't matter.

Anyway, Greece will soon be yesterday's news - indeed not news at all - if Spain requires a bailout. The question then will be whether Eurobureaucrats will sacrifice the Euro or whether they will risk the entire European project in order to keep it.

Posted by Dave W. (# 8765) on :

quote:
Originally posted by Evangeline:
The New Deal did use SOME government spending to stimulate the economy and relieve poverty but the govt funds were generated largely from austerity measures-the pay of public servants (or whatever they're called in the US) and the army was cut by 15% and govt dept. budgets were reduced by 25%.

I don't think that's correct. Table 1.1 from this collection of historical tables (pdf) indicates that the US government borrowed heavily during the Great Depression. In 1934 (for example) total federal spending was $6.54B, while revenues were only $2.96B; so more than half of government spending that year was deficit spending - that is, borrowed money.

Posted by Crœsos (# 238) on :

quote:
Originally posted by Evangeline:
I don't think the state paying for full employment without consideration of productivity sounds anything at all like FDR's New Deal. The New Deal did use SOME government spending to stimulate the economy and relieve poverty but the govt funds were generated largely from austerity measures-the pay of public servants (or whatever they're called in the US) and the army was cut by 15% and govt dept. budgets were reduced by 25%.

This is just plain false.
The federal budget in 1929 was US$1.7 billion, or about 1.6% of the GDP. In 1932 the federal budget was US$1.8 billion, 3.1% of the GDP. Note that the share of GDP has increased without a big increase in spending. This is because the U.S. GDP had shrunk from US$103.6 billion to US$58.8 billion over that time period.

Federal spending in 1933, FDR's first year in office, was US$2.3 billion. I usually prefer to attribute spending during a president's first year to his predecessor, but in FDR's case the "100 Days" is a notable exception of a president adding a lot of spending right out of the gate. Spending increased until reaching US$5.6 billion in 1936, representing 6.7% of the then US$83.8 billion GDP.

So, overall government spending, including hiring a lot more workers for various public improvements, increased greatly under the New Deal. And military spending was most definitely not cut during this period, going from US$900 million to US$1.2 billion over the 1933-1936 period.

And this was largely financed via deficit spending. The U.S. federal debt in 1929 was US$16.9 billion. By 1932 it was US$19.5 billion. As noted above, this wasn't due to increased government spending but rather due to decreased tax revenue resulting from the contraction of the U.S. GDP. In 1933 the federal debt was US$22.4 billion. By 1936 it was US$33.8 billion.

So why did this work? Mostly because the Great Depression was a demand crunch. No one produced anything because no one had a job (and thus had no money to buy anything produced). And no one was hiring to make products for which there was no demand. The obvious solution was to simply give people jobs, which was the essence of the New Deal. The jobs themselves needn't have been particularly productive, since the main purpose was to pump money into the economy, though a lot of them were. A lot of the infrastructure Americans are still using today was built during the New Deal.

In short, the type of austerity measures advocated by you and implemented by Herbert Hoover, on the advice of his Treasury Secretary Andrew "liquidate everything" Mellon, shrank the U.S. GDP by 46% in four years. FDR's use of deficity spending on public works grew the U.S. GDP by 63% over the same stretch of time.

Posted by Cod (# 2643) on :

I've no idea who is correct: you or Evangeline, but the significance is not clear unless a meaningful comparison can be drawn between the circumstances in which the US government borrowed in the 1930s and EU governments now. What was the interest rate? How much did debt servicing cost? Did its creditors expect to get repaid? Did the US governnment come at all close to simply running out of money?

The problem is that high government debt is destablising the economy. To me this seems quite different from the 1930s.

Posted by Sober Preacher's Kid (# 12699) on :

The crucial difference was that the US borrowed in US dollars and never came close to running out of money. It couldn't, it could simply use inflation to manage its debt. US debt in 1945 was 120% of GDP. That debt was never paid off (actual obligations eliminated), it was reduced to insignificance through economic growth and inflation.

Greece borrows in euros and can't get enough euros to pay its debt. It can't inflate away its debt because of the euro either. It's stuck.

Posted by Sioni Sais (# 5713) on :

quote:
Originally posted by Sober Preacher's Kid:
The crucial difference was that the US borrowed in US dollars and never came close to running out of money. It couldn't, it could simply use inflation to manage its debt. US debt in 1945 was 120% of GDP. That debt was never paid off (actual obligations eliminated), it was reduced to insignificance through economic growth and inflation.

Greece borrows in euros and can't get enough euros to pay its debt. It can't inflate away its debt because of the euro either. It's stuck.

Stuck it is. The EU and those who have lent to Greece also have to consider whether they will prefer a government that refuses to implement deep cuts or a military one which will probabily be highly nationalist. The political dimension can't be ignored.

Posted by Crœsos (# 238) on :

quote:
Originally posted by Sober Preacher's Kid:
The crucial difference was that the US borrowed in US dollars and never came close to running out of money. It couldn't, it could simply use inflation to manage its debt.

Not entirely true. The adherence to the gold standard limited the ability of the U.S. to pursue a full range of monetary policy options. It was only after the gold standard was abandoned that something like the New Deal could be pursued.

quote:
Originally posted by Sober Preacher's Kid:
Greece borrows in euros and can't get enough euros to pay its debt. It can't inflate away its debt because of the euro either. It's stuck.

This is the primary problem with Greece (and the other GIPSI nations); the Euro is essentially behaving like a latter-day gold standard, limiting the range of policy options available.

Posted by Choirboy (# 9659) on :

One thing I don't see mentioned is the downside to Germany if several of the GIPSI's leave the Euro. Greece alone leaving may or may not be a disaster. But will this start a domino effect? And, if so, will Germany lose out on exports as these countries internally devalue and render foreign imports less competitive?

Posted by Cod (# 2643) on :

Well, it seems that the further integration is now being called for at the highest levels. Merkel calls for European integration. It is perhaps wrong to say that the lunatics have taken over the asylum. That probably happened some time ago. It is just that they have waited until now before waving the keys around.

My question is: will the Eurocrats put the entire European project at risk to save the Euro? Will they opt for the United States of Europe or bust? Or will they opt for an orderly dismantling of the Euro?

Posted by Sioni Sais (# 5713) on :

quote:
Originally posted by Cod:
Well, it seems that the further integration is now being called for at the highest levels. Merkel calls for European integration. It is perhaps wrong to say that the lunatics have taken over the asylum. That probably happened some time ago. It is just that they have waited until now before waving the keys around.

My question is: will the Eurocrats put the entire European project at risk to save the Euro? Will they opt for the United States of Europe or bust? Or will they opt for an orderly dismantling of the Euro?

The Eurozealots very probably will do that, possibly on the basis that they can force it through as a bulwark against whatever goes on outside Europe.

If they want anything resembling a US of E then we had better have a proper European legislature, with some members elected Europe-wide, or at least on Europe-wide tickets, rather than the unelected European Commission. If the European people aren't ready for it, then it shouldn't be allowed to happen, even if Ms Merkel does have a sense of destiny.

Posted by Tukai (# 12960) on :

quote:
Originally posted by Choirboy:
One thing I don't see mentioned is the downside to Germany if several of the GIPSI's leave the Euro. Greece alone leaving may or may not be a disaster. But will this start a domino effect? And, if so, will Germany lose out on exports as these countries internally devalue and render foreign imports less competitive?

As far as I can work out, that is indeed one of the main reasons that Germany is so desperate to keep Greece etc in the Euro zone.

UBB.classic^TM 6.5.0