On January 15 2012 15:52 paralleluniverse wrote: A follow up on my last post (http://www.teamliquid.net/forum/viewmessage.php?topic_id=114227¤tpage=54) about the European's getting the cause of the crisis completely wrong.
Here's what S&P said about why they downgraded European credit ratings.
HOW DO WE INTERPRET THE CONCLUSIONS OF THE DECEMBER EUROPEAN SUMMIT?
We have previously stated our belief that an effective strategy that would buoy confidence and lower the currently elevated borrowing costs for European sovereigns could include, for example, a greater pooling of fiscal resources and obligations as well as enhanced mutual budgetary oversight. We have also stated that we believe that a reform process based on a pillar of fiscal austerity alone would risk becoming self-defeating, as domestic demand falls in line with consumer's rising concerns about job security and disposable incomes, eroding national tax revenues.
The outcomes from the EU summit on Dec. 9, 2011, and subsequent statements from policymakers, lead us to believe that the agreement reached has not produced a breakthrough of sufficient size and scope to fully address the eurozone's financial problems. In our opinion, the political agreement does not supply sufficient additional resources or operational flexibility to bolster European rescue operations, or extend enough support for those eurozone sovereigns subjected to heightened market pressures. Instead, it focuses on what we consider to be a one-sided approach by emphasizing fiscal austerity without a strong and consistent program to raise the growth potential of the economies in the eurozone. While some member states have implemented measures on the national level to deregulate internal labor markets, and improve the flexibility of domestic services sectors, these reforms do not appear to us to be coordinated at the supra-national level; as evidence, we would note large and widening discrepancies in activity and unemployment levels among the 17 eurozone member states.
Regarding additional resources, the main enhancement we see has been to bring forward to mid-2012 the start date of the European Stability Mechanism (ESM), the successor vehicle to the European Financial Stability Fund (EFSF). This will marginally increase these official sources' lending capacity from currently €440bn to €500bn. As we noted previously, we expect eurozone policymakers will accord ESM de-facto preferred creditor status in the event of a eurozone sovereign default. We believe that the prospect of subordination to a large creditor, which would have a key role in any future debt rescheduling, would make a lasting contribution to the rise in long-term government bond yields of lower-rated eurozone sovereigns and may reduce their future market access.
We also believe that the agreement is predicated on only a partial recognition of the source of the crisis: that the current financial turmoil stems primarily from fiscal profligacy at the periphery of the eurozone. In our view, however, the financial problems facing the eurozone are as much a consequence of rising external imbalances and divergences in competitiveness between the EMU's core and the so-called "periphery." In our opinion, the eurozone periphery has only been able to bear its underperformance on competitiveness (manifest in sizeable external deficits) because of funding by the banking systems of the more competitive northern eurozone economies. According to our assessment, the political agreement reached at the summit did not contain significant new initiatives to address the near-term funding challenges that have engulfed the eurozone.
The summit focused primarily on a long-term plan to reverse fiscal imbalances. It proposed to enshrine into national legislation requirements for structurally balanced budgets. Certain institutional enhancements have been introduced to strengthen the enforceability of the fiscal rules compared to the Stability and Growth Pact, such as reverse qualified majority voting required to overturn sanctions proposed by the European Commission in case of violations of the broadly balanced budget rules. Notwithstanding this progress, we believe that the enforcement of these measures is far from certain, even if all member states eventually passed respective legislation by parliaments (and by referendum, where this is required). Our assessment is based on several factors, including:
The difficulty of forecasting reliably and precisely structural deficits, which we expect will likely be at the center of any decision on whether to impose sanctions; The ability of individual member states' elected governments to extricate themselves from the external control of the European Commission by withdrawing from the intergovernmental agreement, which will not be part of an EU-wide Treaty; and The possibility that the appropriateness of these fiscal rules may come under scrutiny when a recession may, in the eyes of policymakers, call for fiscal stimulus in order to stabilize demand, which could be precluded by the need to adhere to the requirement to balance budgets.
Details on the exact content and operational procedures of the rules are still to emerge and -- depending on the stringency of the rules -- the process of passing national legislation may run into opposition in some signatory states, which in turn could lower the confidence of investors and the credibility of the agreed policies.
More fundamentally, we believe that the proposed measures do not directly address the core underlying factors that have contributed to the market stress. It is our view that the currently experienced financial stress does not in the first instance result from fiscal mismanagement. This to us is supported by the examples of Spain and Ireland, which ran an average fiscal deficit of 0.4% of GDP and a surplus of 1.6% of GDP, respectively, during the period 1999-2007 (versus a deficit of 2.3% of GDP in the case of Germany), while reducing significantly their public debt ratio during that period. The policies and rules agreed at the summit would not have indicated that the boom-time developments in those countries contained the seeds of the current market turmoil.
While we see a lack of fiscal prudence as having been a major contributing factor to high public debt levels in some countries, such as Greece, we believe that the key underlying issue for the eurozone as a whole is one of a growing divergence in competitiveness between the core and the so-called "periphery." Exacerbated by the rapid expansion of European banks' balance sheets, this has led to large and growing external imbalances, evident in the size of financial sector claims of net capital-exporting banking systems on net importing countries. When the financial markets deteriorated and risk aversion increased, the financing needs of both the public and financial sectors in the "periphery" had to be covered to varying degrees by official funding, including European Central Bank (ECB) liquidity as well as intergovernmental, EFSF, and IMF loans.
I've been hearing that the real solution to this crisis is for the ECB to lend to indebted countries at low rates, and policy to increase the competitiveness of periphery European countries (such as Portugal, Spain, Italy, Greece, etc) such as decreasing real wages through inflation, as well as a fiscal union.
Any rebalacing in the trade deficits, which S&P says is a large part the cause of the crisis, would be bad for countries with high surplus, like Germany, which is why Merkel isn't going for it, she prefers austerity, because it doesn't hurt Germany.
no it wouldn't be bad for us. Our Surplus is the deficite of someone else ... and if that someone as in the case of the PIGS finances it's decifite by lending from who they buy (germany) and can't repay that dept (as is the case right now) Germany gave them whatever they bought and we have bad debt that we probably won't get repaid. Doesn't sound like a good trade to me. Especially if the big money (banks, funds, whatever big financial institution) is able to make the citizen pay for their stupidity and the state bails them all out.
Since 2008 they pay their deficite by a trick in the ECB system. To simplifiy it ... the central bank of greece for example prints more euro and the german central bank to keep the balance prints less and recieves the difference as debt. Since 2008 this extra bailout did reach 450 billion Euro just on the side of germany's central bank (which in the end the german state has to pay for)
sadly i just got a german source (at this time it was 320 Billions)
To simplifiy it ... the central bank of greece for example prints more euro and the german central bank to keep the balance prints less and recieves the difference as debt.
Ummm... no.
Only the ECB can print Euros, I'm not even sure if there is a Greece Central Bank anymore.
And that's part of the reason the Eurozone was a bad idea. Eurozone countries can no longer respond to financial crises with monetary policy. The ECB prescribes "one size fits all" monetary policy. That one size being Germany,
In order to fix the Eurozone, the divergence in trade deficits and surpluses needs to close. This can be achieved from inflation in Germany and deflation in PIGS.
Last edit: 2012-02-09 16:31:14
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paralleluniverse Australia. February 09 2012 16:40. Posts 2946
On February 09 2012 07:55 vetinari wrote: Greece will have to default and leave the euro. Its going to be chaos for them, but staying in the euro is economic suicide, because austerity during a recession is unbelievably retarded.
If labour markets were very flexible they could continue staying in the euro. But since the labour markets aren't able to accept that wages need to be lower, and some people need to befired, the country would benefit from a devalulation of the currency.
So while austerity is the solution to the problem of too much spending, the crises will be prolonged when unions has too much power, and government insitutions interfer with the market.
Greece's problem isn't too much spending, its too little spending. Too much spending is when you have full employment and inflation increasing. This is why entering the euro is such a dumb idea: because a nation sovereign in its currency has the ability to spend however much it needs to maintain full employment indefinitely.
I don't think this is correct. While I've strongly argued that fiscal stimulus is the right way to fight a recession, Greece's problem was too much spending. They spent too much before the crisis, and now cannot spend anymore to stimulate the economy in recession. If the country had its own central bank, it would print it's own money and continue, as you suggest, however Greece's monetary policy is determined by the ECB which is focused like a laser on German inflation.
Given that Greece cannot print its own money, the only way to finance government spending is to borrow, but they are no longer creditable because of their massive debt, they can only borrow at ridiculously high interest rates.
Greece is screwed, because they are cutting spending during a recession, which will make the recession worse. But since Greece is in the Euro, they have no other choice.
Greece is also the only country in the Euro that is in crisis because of too much spending, all other Eurozone countries that are in crisis is due to having a large trade imbalance with Germany.
In short, Greece should print more money and spend it, but can't.
Last edit: 2012-02-09 16:42:19
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vetinari Australia. February 09 2012 16:40. Posts 602
On January 15 2012 15:52 paralleluniverse wrote: A follow up on my last post (http://www.teamliquid.net/forum/viewmessage.php?topic_id=114227¤tpage=54) about the European's getting the cause of the crisis completely wrong.
Here's what S&P said about why they downgraded European credit ratings.
HOW DO WE INTERPRET THE CONCLUSIONS OF THE DECEMBER EUROPEAN SUMMIT?
We have previously stated our belief that an effective strategy that would buoy confidence and lower the currently elevated borrowing costs for European sovereigns could include, for example, a greater pooling of fiscal resources and obligations as well as enhanced mutual budgetary oversight. We have also stated that we believe that a reform process based on a pillar of fiscal austerity alone would risk becoming self-defeating, as domestic demand falls in line with consumer's rising concerns about job security and disposable incomes, eroding national tax revenues.
The outcomes from the EU summit on Dec. 9, 2011, and subsequent statements from policymakers, lead us to believe that the agreement reached has not produced a breakthrough of sufficient size and scope to fully address the eurozone's financial problems. In our opinion, the political agreement does not supply sufficient additional resources or operational flexibility to bolster European rescue operations, or extend enough support for those eurozone sovereigns subjected to heightened market pressures. Instead, it focuses on what we consider to be a one-sided approach by emphasizing fiscal austerity without a strong and consistent program to raise the growth potential of the economies in the eurozone. While some member states have implemented measures on the national level to deregulate internal labor markets, and improve the flexibility of domestic services sectors, these reforms do not appear to us to be coordinated at the supra-national level; as evidence, we would note large and widening discrepancies in activity and unemployment levels among the 17 eurozone member states.
Regarding additional resources, the main enhancement we see has been to bring forward to mid-2012 the start date of the European Stability Mechanism (ESM), the successor vehicle to the European Financial Stability Fund (EFSF). This will marginally increase these official sources' lending capacity from currently €440bn to €500bn. As we noted previously, we expect eurozone policymakers will accord ESM de-facto preferred creditor status in the event of a eurozone sovereign default. We believe that the prospect of subordination to a large creditor, which would have a key role in any future debt rescheduling, would make a lasting contribution to the rise in long-term government bond yields of lower-rated eurozone sovereigns and may reduce their future market access.
We also believe that the agreement is predicated on only a partial recognition of the source of the crisis: that the current financial turmoil stems primarily from fiscal profligacy at the periphery of the eurozone. In our view, however, the financial problems facing the eurozone are as much a consequence of rising external imbalances and divergences in competitiveness between the EMU's core and the so-called "periphery." In our opinion, the eurozone periphery has only been able to bear its underperformance on competitiveness (manifest in sizeable external deficits) because of funding by the banking systems of the more competitive northern eurozone economies. According to our assessment, the political agreement reached at the summit did not contain significant new initiatives to address the near-term funding challenges that have engulfed the eurozone.
The summit focused primarily on a long-term plan to reverse fiscal imbalances. It proposed to enshrine into national legislation requirements for structurally balanced budgets. Certain institutional enhancements have been introduced to strengthen the enforceability of the fiscal rules compared to the Stability and Growth Pact, such as reverse qualified majority voting required to overturn sanctions proposed by the European Commission in case of violations of the broadly balanced budget rules. Notwithstanding this progress, we believe that the enforcement of these measures is far from certain, even if all member states eventually passed respective legislation by parliaments (and by referendum, where this is required). Our assessment is based on several factors, including:
The difficulty of forecasting reliably and precisely structural deficits, which we expect will likely be at the center of any decision on whether to impose sanctions; The ability of individual member states' elected governments to extricate themselves from the external control of the European Commission by withdrawing from the intergovernmental agreement, which will not be part of an EU-wide Treaty; and The possibility that the appropriateness of these fiscal rules may come under scrutiny when a recession may, in the eyes of policymakers, call for fiscal stimulus in order to stabilize demand, which could be precluded by the need to adhere to the requirement to balance budgets.
Details on the exact content and operational procedures of the rules are still to emerge and -- depending on the stringency of the rules -- the process of passing national legislation may run into opposition in some signatory states, which in turn could lower the confidence of investors and the credibility of the agreed policies.
More fundamentally, we believe that the proposed measures do not directly address the core underlying factors that have contributed to the market stress. It is our view that the currently experienced financial stress does not in the first instance result from fiscal mismanagement. This to us is supported by the examples of Spain and Ireland, which ran an average fiscal deficit of 0.4% of GDP and a surplus of 1.6% of GDP, respectively, during the period 1999-2007 (versus a deficit of 2.3% of GDP in the case of Germany), while reducing significantly their public debt ratio during that period. The policies and rules agreed at the summit would not have indicated that the boom-time developments in those countries contained the seeds of the current market turmoil.
While we see a lack of fiscal prudence as having been a major contributing factor to high public debt levels in some countries, such as Greece, we believe that the key underlying issue for the eurozone as a whole is one of a growing divergence in competitiveness between the core and the so-called "periphery." Exacerbated by the rapid expansion of European banks' balance sheets, this has led to large and growing external imbalances, evident in the size of financial sector claims of net capital-exporting banking systems on net importing countries. When the financial markets deteriorated and risk aversion increased, the financing needs of both the public and financial sectors in the "periphery" had to be covered to varying degrees by official funding, including European Central Bank (ECB) liquidity as well as intergovernmental, EFSF, and IMF loans.
I've been hearing that the real solution to this crisis is for the ECB to lend to indebted countries at low rates, and policy to increase the competitiveness of periphery European countries (such as Portugal, Spain, Italy, Greece, etc) such as decreasing real wages through inflation, as well as a fiscal union.
Any rebalacing in the trade deficits, which S&P says is a large part the cause of the crisis, would be bad for countries with high surplus, like Germany, which is why Merkel isn't going for it, she prefers austerity, because it doesn't hurt Germany.
no it wouldn't be bad for us. Our Surplus is the deficite of someone else ... and if that someone as in the case of the PIGS finances it's decifite by lending from who they buy (germany) and can't repay that dept (as is the case right now) Germany gave them whatever they bought and we have bad debt that we probably won't get repaid. Doesn't sound like a good trade to me. Especially if the big money (banks, funds, whatever big financial institution) is able to make the citizen pay for their stupidity and the state bails them all out.
Since 2008 they pay their deficite by a trick in the ECB system. To simplifiy it ... the central bank of greece for example prints more euro and the german central bank to keep the balance prints less and recieves the difference as debt. Since 2008 this extra bailout did reach 450 billion Euro just on the side of germany's central bank (which in the end the german state has to pay for)
sadly i just got a german source (at this time it was 320 Billions)
To simplifiy it ... the central bank of greece for example prints more euro and the german central bank to keep the balance prints less and recieves the difference as debt.
Ummm... no.
Only the ECB can print Euros, I'm not even sure if there is a Greece Central Bank anymore.
And that's part of the reason the Eurozone was a bad idea. Eurozone countries can no longer respond to financial crises with monetary policy. The ECB prescribes "one size fits all" monetary policy. That one size being Germany,
In order to fix the Eurozone, the divergence in trade deficits and surpluses needs to close. This can be achieved from inflation in Germany and deflation in PIGS.
It also means they are severely constrained with respect to fiscal policy, which is far more powerful than monetary policy.
Incidently, if you want to get a heart attack, have a look at the english private debt figures.
vetinari Australia. February 09 2012 16:48. Posts 602
On February 09 2012 07:55 vetinari wrote: Greece will have to default and leave the euro. Its going to be chaos for them, but staying in the euro is economic suicide, because austerity during a recession is unbelievably retarded.
If labour markets were very flexible they could continue staying in the euro. But since the labour markets aren't able to accept that wages need to be lower, and some people need to befired, the country would benefit from a devalulation of the currency.
So while austerity is the solution to the problem of too much spending, the crises will be prolonged when unions has too much power, and government insitutions interfer with the market.
Greece's problem isn't too much spending, its too little spending. Too much spending is when you have full employment and inflation increasing. This is why entering the euro is such a dumb idea: because a nation sovereign in its currency has the ability to spend however much it needs to maintain full employment indefinitely.
I don't think this is correct. While I've strongly argued that fiscal stimulus is the right way to fight a recession, Greece's problem was too much spending. They spent too much before the crisis, and now cannot spend anymore to stimulate the economy in recession. If the country had its own central bank, it would print it's own money and continue, as you suggest, however Greece's monetary policy is determined by the ECB which is focused like a laser on German inflation.
Given that Greece cannot print its own money, the only way to finance government spending is to borrow, but they are no longer creditable because of their massive debt, they can only borrow at ridiculously high interest rates.
Greece is screwed, because they are cutting spending during a recession, which will make the recession worse. But since Greece is in the Euro, they have no other choice.
Greece is also the only country in the Euro that is in crisis because of too much spending, all other Eurozone countries that are in crisis is due to having a large trade imbalance with Germany.
In short, Greece should print more money and spend it, but can't.
Yeah, which is why they will probably have to leave. The cynic in me wonders if the harsher and harsher austerity measures are an attempt to force the greeks to choose to quit the euro, since they can't be kicked out otherwise.
At any rate, austerity won't solve a damn thing. They are in a classic debt-deflation scenario, though on a sovereign level, rather than on a private level, like the 1930's.
Even france will have to quit the euro eventually. That, or become a german vassal state. How ironic, given that the french wanted the euro the most.
On January 15 2012 15:52 paralleluniverse wrote: A follow up on my last post (http://www.teamliquid.net/forum/viewmessage.php?topic_id=114227¤tpage=54) about the European's getting the cause of the crisis completely wrong.
Here's what S&P said about why they downgraded European credit ratings.
HOW DO WE INTERPRET THE CONCLUSIONS OF THE DECEMBER EUROPEAN SUMMIT?
We have previously stated our belief that an effective strategy that would buoy confidence and lower the currently elevated borrowing costs for European sovereigns could include, for example, a greater pooling of fiscal resources and obligations as well as enhanced mutual budgetary oversight. We have also stated that we believe that a reform process based on a pillar of fiscal austerity alone would risk becoming self-defeating, as domestic demand falls in line with consumer's rising concerns about job security and disposable incomes, eroding national tax revenues.
The outcomes from the EU summit on Dec. 9, 2011, and subsequent statements from policymakers, lead us to believe that the agreement reached has not produced a breakthrough of sufficient size and scope to fully address the eurozone's financial problems. In our opinion, the political agreement does not supply sufficient additional resources or operational flexibility to bolster European rescue operations, or extend enough support for those eurozone sovereigns subjected to heightened market pressures. Instead, it focuses on what we consider to be a one-sided approach by emphasizing fiscal austerity without a strong and consistent program to raise the growth potential of the economies in the eurozone. While some member states have implemented measures on the national level to deregulate internal labor markets, and improve the flexibility of domestic services sectors, these reforms do not appear to us to be coordinated at the supra-national level; as evidence, we would note large and widening discrepancies in activity and unemployment levels among the 17 eurozone member states.
Regarding additional resources, the main enhancement we see has been to bring forward to mid-2012 the start date of the European Stability Mechanism (ESM), the successor vehicle to the European Financial Stability Fund (EFSF). This will marginally increase these official sources' lending capacity from currently €440bn to €500bn. As we noted previously, we expect eurozone policymakers will accord ESM de-facto preferred creditor status in the event of a eurozone sovereign default. We believe that the prospect of subordination to a large creditor, which would have a key role in any future debt rescheduling, would make a lasting contribution to the rise in long-term government bond yields of lower-rated eurozone sovereigns and may reduce their future market access.
We also believe that the agreement is predicated on only a partial recognition of the source of the crisis: that the current financial turmoil stems primarily from fiscal profligacy at the periphery of the eurozone. In our view, however, the financial problems facing the eurozone are as much a consequence of rising external imbalances and divergences in competitiveness between the EMU's core and the so-called "periphery." In our opinion, the eurozone periphery has only been able to bear its underperformance on competitiveness (manifest in sizeable external deficits) because of funding by the banking systems of the more competitive northern eurozone economies. According to our assessment, the political agreement reached at the summit did not contain significant new initiatives to address the near-term funding challenges that have engulfed the eurozone.
The summit focused primarily on a long-term plan to reverse fiscal imbalances. It proposed to enshrine into national legislation requirements for structurally balanced budgets. Certain institutional enhancements have been introduced to strengthen the enforceability of the fiscal rules compared to the Stability and Growth Pact, such as reverse qualified majority voting required to overturn sanctions proposed by the European Commission in case of violations of the broadly balanced budget rules. Notwithstanding this progress, we believe that the enforcement of these measures is far from certain, even if all member states eventually passed respective legislation by parliaments (and by referendum, where this is required). Our assessment is based on several factors, including:
The difficulty of forecasting reliably and precisely structural deficits, which we expect will likely be at the center of any decision on whether to impose sanctions; The ability of individual member states' elected governments to extricate themselves from the external control of the European Commission by withdrawing from the intergovernmental agreement, which will not be part of an EU-wide Treaty; and The possibility that the appropriateness of these fiscal rules may come under scrutiny when a recession may, in the eyes of policymakers, call for fiscal stimulus in order to stabilize demand, which could be precluded by the need to adhere to the requirement to balance budgets.
Details on the exact content and operational procedures of the rules are still to emerge and -- depending on the stringency of the rules -- the process of passing national legislation may run into opposition in some signatory states, which in turn could lower the confidence of investors and the credibility of the agreed policies.
More fundamentally, we believe that the proposed measures do not directly address the core underlying factors that have contributed to the market stress. It is our view that the currently experienced financial stress does not in the first instance result from fiscal mismanagement. This to us is supported by the examples of Spain and Ireland, which ran an average fiscal deficit of 0.4% of GDP and a surplus of 1.6% of GDP, respectively, during the period 1999-2007 (versus a deficit of 2.3% of GDP in the case of Germany), while reducing significantly their public debt ratio during that period. The policies and rules agreed at the summit would not have indicated that the boom-time developments in those countries contained the seeds of the current market turmoil.
While we see a lack of fiscal prudence as having been a major contributing factor to high public debt levels in some countries, such as Greece, we believe that the key underlying issue for the eurozone as a whole is one of a growing divergence in competitiveness between the core and the so-called "periphery." Exacerbated by the rapid expansion of European banks' balance sheets, this has led to large and growing external imbalances, evident in the size of financial sector claims of net capital-exporting banking systems on net importing countries. When the financial markets deteriorated and risk aversion increased, the financing needs of both the public and financial sectors in the "periphery" had to be covered to varying degrees by official funding, including European Central Bank (ECB) liquidity as well as intergovernmental, EFSF, and IMF loans.
I've been hearing that the real solution to this crisis is for the ECB to lend to indebted countries at low rates, and policy to increase the competitiveness of periphery European countries (such as Portugal, Spain, Italy, Greece, etc) such as decreasing real wages through inflation, as well as a fiscal union.
Any rebalacing in the trade deficits, which S&P says is a large part the cause of the crisis, would be bad for countries with high surplus, like Germany, which is why Merkel isn't going for it, she prefers austerity, because it doesn't hurt Germany.
no it wouldn't be bad for us. Our Surplus is the deficite of someone else ... and if that someone as in the case of the PIGS finances it's decifite by lending from who they buy (germany) and can't repay that dept (as is the case right now) Germany gave them whatever they bought and we have bad debt that we probably won't get repaid. Doesn't sound like a good trade to me. Especially if the big money (banks, funds, whatever big financial institution) is able to make the citizen pay for their stupidity and the state bails them all out.
Since 2008 they pay their deficite by a trick in the ECB system. To simplifiy it ... the central bank of greece for example prints more euro and the german central bank to keep the balance prints less and recieves the difference as debt. Since 2008 this extra bailout did reach 450 billion Euro just on the side of germany's central bank (which in the end the german state has to pay for)
sadly i just got a german source (at this time it was 320 Billions)
To simplifiy it ... the central bank of greece for example prints more euro and the german central bank to keep the balance prints less and recieves the difference as debt.
Ummm... no.
Only the ECB can print Euros, I'm not even sure if there is a Greece Central Bank anymore.
And that's part of the reason the Eurozone was a bad idea. Eurozone countries can no longer respond to financial crises with monetary policy. The ECB prescribes "one size fits all" monetary policy. That one size being Germany,
In order to fix the Eurozone, the divergence in trade deficits and surpluses needs to close. This can be achieved from inflation in Germany and deflation in PIGS.
if u have no clue, read on it and dont assume shit. Every country still has their central bank, they simply are connected by an ECB system. The debt i mean is piled in the TARGET system.
"There was not sufficient time to build a fully fledged single RTGS system in time for the introduction of the euro. The most practical and immediate solution was to link the existing RTGS systems and define a minimum set of harmonised features for sending and receiving payments across national borders.
At the national level, central banks continued to function as they did for the settlement of payments within their banking community. This approach kept the changes that the banks and central banks had to undergo to a minimum. This was important at a time when they were already heavily involved in the changeover to the euro and the single monetary policy.
The TARGET system was built by linking together the different RTGS structures that existed at the national level. TARGET, the first-generation RTGS system for the euro, commenced operations on 4 January 1999 following the launch of the euro. "
On February 09 2012 10:08 Probulous wrote: [quote]
So I guess as long as Germany's increased income through the lowered euro value outweighs the income lost through "lending" to Greece they will continue supporting bailing out Greece? Seems a little exploitative but I guess that is expected. The problem is that it doesn't solve the issue for those with a trade deficit. What happens when Greece refuses to accept more debt without cancellation of current debt? Surely Germany is then on the hook? I guess the devaluation of the euro through a partial default would benefit them even more. Talk about a conflict of interest
Isnt that the case with all federal units? Surely in Australia some states are richer than other states and presumably to maintain a relatively comparable standard of living transfer payments are made from the federal budget to the poorer states while citizens of the poorer states emigrate out of those states and into the more prosperous ones. No?
Yes but we have a federal government setting budgets for all states (the country budget at least). Sure each state can issue bonds but the currency if predominantly determined by what the economy as a country does, not by state. So having a central budget setting agency for the entire country makes sense. To compare with the EU, it would be like if the AUD was our currency but all the governmental spending was done by individual states. Then yes we would have similar problems.
Well yes, that is why one solution for the EU is to draw closer together.
Thanks guys, I am slowly coming to a decent understanding (well I think so anyway).
Question: Are there any better solutions than a central budget office for all euro denominated states?
This would involve some members of the EU leaving. This seems highly unlikely because as explained they can't be kicked out. Plus they benefit from having leverage over their neighbours. This would also damage countries with a trade surplus as the euro would increase in value.
This is where a european banks and governments put together a massive savings account to protect against future debt issues. This seems to be the way the crisis is being dealth with but does not solve the fundamental problem of fiscal union. Namely that with each country allowed to spend in euro whilst having no accountability for their spending. Ultimately most of this debt is held within the EU and so when a country looks to default, it is the EU left holding the doozy. I don't see this as a long term solution
Any other options?
From a german point of view, this would mean to permanently move cash to economical weaker countries. Some countries have a tradition of disorganization and political disorder which is not likely to change. Does the german tax payer want to pay Berlusconis Bunga Bunga ? I don't think so :-). So any german politician proposing this, will not be elected again.
You seemed ok with paying for East Germans, no?
There where som complaints in West Germany, but basically: Yes. Does this mean we should pay for Grecce and Spain debt ? The german public opinion is: No. Nothing wrong with that.
Well sure, I dont think there is anything *morally* wrong about not wanting to pay for the olive zone. But I do wonder how many Germans understand what it would mean for German if the olive zone defaults and leaves. Again -- as I said above -- if the Germans can no longer export to the olive zone and runs trade deficit vs its Northern puppet states then where can it export to? Surely not to China, they'll steal your IP and flood you with cheap knock offs thanks to their disregard over the well being of their people/general poverty of their people. Maybe you can export to Russia for their oil/gas but looks like Putin wants to have the state a stronger hand in industrial policies, so I wouldnt be surprised if they do what the Chinese do and demand foreigners form joint ventuers and tech transfers with local corps.
Northern puppet states?
countries that serve as inputs for the German export industry and thus run a trade surplus with Germany.
ETisME Hong Kong. February 09 2012 18:31. Posts 4888
Can anyone give me some big updates on the EU zone? I rarely read anything about it because it just isn't there on newspaper very much anymore. Plus, I would actually prefer to listen to some locals' comments rather than some figures and the experts' "analysis". As an undergraduate, I would totally say that empirical data, graphics, historical comparison usually don't really predict the consequences correctly at all. They only really help in explaining what happened and economists can only try to fit a model and build a hypothesis around what might happen if they do this/that.
A little thought: EU and USA are like those old daddy billionaires. They were once very productive and grew rich, but USA didn't learn how to save what it has, spending on luxury goods and keep burrowing just to be able to live rich. While EU is trying to include more kids into his family, even some who are shady and have a very different culture background and EU has to spent money trying to hold everyone together by controlling how much money each of them can get. When one was caught cheating and had to be saved, other cried unfair and wants some of those extra cash.
paralleluniverse Australia. February 09 2012 18:42. Posts 2946
On February 09 2012 18:31 ETisME wrote: Can anyone give me some big updates on the EU zone? I rarely read anything about it because it just isn't there on newspaper very much anymore. Plus, I would actually prefer to listen to some locals' comments rather than some figures and the experts' "analysis". As an undergraduate, I would totally say that empirical data, graphics, historical comparison usually don't really predict the consequences correctly at all. They only really help in explaining what happened and economists can only try to fit a model and build a hypothesis around what might happen if they do this/that.
So you would rely on gut feeling instead of objective analysis?
A little thought: EU and USA are like those old daddy billionaires. They were once very productive and grew rich, but USA didn't learn how to save what it has, spending on luxury goods and keep burrowing just to be able to live rich. While EU is trying to include more kids into his family, even some who are shady and have a very different culture background and EU has to spent money trying to hold everyone together by controlling how much money each of them can get. When one was caught cheating and had to be saved, other cried unfair and wants some of those extra cash.
On February 09 2012 18:31 ETisME wrote: Can anyone give me some big updates on the EU zone? I rarely read anything about it because it just isn't there on newspaper very much anymore. Plus, I would actually prefer to listen to some locals' comments rather than some figures and the experts' "analysis". As an undergraduate, I would totally say that empirical data, graphics, historical comparison usually don't really predict the consequences correctly at all. They only really help in explaining what happened and economists can only try to fit a model and build a hypothesis around what might happen if they do this/that.
So you would rely on gut feeling instead of objective analysis?
A little thought: EU and USA are like those old daddy billionaires. They were once very productive and grew rich, but USA didn't learn how to save what it has, spending on luxury goods and keep burrowing just to be able to live rich. While EU is trying to include more kids into his family, even some who are shady and have a very different culture background and EU has to spent money trying to hold everyone together by controlling how much money each of them can get. When one was caught cheating and had to be saved, other cried unfair and wants some of those extra cash.
Mmm, not all fields of economics are terrible. Its mostly neoclassical economics that is hopeless. monetary circuit theory, and neo-chartilists in general are pretty good. Their models of the economy start from reality and go from there, meaning that their models are actually useful...
ETisME Hong Kong. February 09 2012 19:44. Posts 4888
On February 09 2012 18:31 ETisME wrote: Can anyone give me some big updates on the EU zone? I rarely read anything about it because it just isn't there on newspaper very much anymore. Plus, I would actually prefer to listen to some locals' comments rather than some figures and the experts' "analysis". As an undergraduate, I would totally say that empirical data, graphics, historical comparison usually don't really predict the consequences correctly at all. They only really help in explaining what happened and economists can only try to fit a model and build a hypothesis around what might happen if they do this/that.
So you would rely on gut feeling instead of objective analysis?
A little thought: EU and USA are like those old daddy billionaires. They were once very productive and grew rich, but USA didn't learn how to save what it has, spending on luxury goods and keep burrowing just to be able to live rich. While EU is trying to include more kids into his family, even some who are shady and have a very different culture background and EU has to spent money trying to hold everyone together by controlling how much money each of them can get. When one was caught cheating and had to be saved, other cried unfair and wants some of those extra cash.
no, not gut feelings. But there are a lot of factors that only the locals can truly feel and provide. Economies don't really solely dependant upon government's policy and decisions, it's what the people react to it that really matters. It's a great way to feel how people react to their policy, how they think what should have been done, how big the disappointment/pleased by the policy.
An example would be that Japan lowering their interest rate, hoping people would spent and invest to stimulate the economy but no one did that. It's a matter on how to approach the topic to be honest. Finance is similar, some people prefer buying stocks with graphs and numerical data, but some treat it as a business and study more than just numbers, including how people see the brands etc.
Data can be biased and usually very hard to obtain an accurate one since there are tonnes of sampling methods etc. There will always be opposing theories, different theories attempting to explain the same effect etc. It's no wonder that a monkey can out-perform some professional investors
I really dislike people treating economics with too much of mathematics and theories, just lacks that human side of it. It's like a game company trying to design the perfect fps games but didn't notice their target market doesn't really play any fps
Last edit: 2012-02-09 19:48:18
paralleluniverse Australia. February 09 2012 19:54. Posts 2946
On February 09 2012 18:31 ETisME wrote: Can anyone give me some big updates on the EU zone? I rarely read anything about it because it just isn't there on newspaper very much anymore. Plus, I would actually prefer to listen to some locals' comments rather than some figures and the experts' "analysis". As an undergraduate, I would totally say that empirical data, graphics, historical comparison usually don't really predict the consequences correctly at all. They only really help in explaining what happened and economists can only try to fit a model and build a hypothesis around what might happen if they do this/that.
So you would rely on gut feeling instead of objective analysis?
A little thought: EU and USA are like those old daddy billionaires. They were once very productive and grew rich, but USA didn't learn how to save what it has, spending on luxury goods and keep burrowing just to be able to live rich. While EU is trying to include more kids into his family, even some who are shady and have a very different culture background and EU has to spent money trying to hold everyone together by controlling how much money each of them can get. When one was caught cheating and had to be saved, other cried unfair and wants some of those extra cash.
no, not gut feelings. But there are a lot of factors that only the locals can truly feel and provide. Economies don't really solely dependant upon government's policy and decisions, it's what the people react to it that really matters. It's a great way to feel how people react to their policy, how they think what should have been done, how big the disappointment/pleased by the policy.
An example would be that Japan lowering their interest rate, hoping people would spent and invest to stimulate the economy but no one did that. It's a matter on how to approach the topic to be honest. Finance is similar, some people prefer buying stocks with graphs and numerical data, but some treat it as a business and study more than just numbers, including how people see the brands etc.
Data can be biased and usually very hard to obtain an accurate one since there are tonnes of sampling methods etc. There will always be opposing theories, different theories attempting to explain the same effect etc. It's no wonder that a monkey can out-perform some professional investors
I really dislike people treating economics with too much of mathematics and theories, just lacks that human side of it. It's like a game company trying to design the perfect fps games but didn't notice their target market doesn't really play any fps
Economists are not mindless automatons who are disconnected from reality and can understand nothing but data.
Analyzing something as complex as an entire economy with nothing but your subjective, narrow and confirmation biased view of the world is foolish. You act as if data cannot capture the effect of interest rate cuts on private investment.
As a prime example of the folly of this approach, your statement on the European debt crisis is nonsense.
Last edit: 2012-02-09 19:59:57
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vetinari Australia. February 09 2012 21:51. Posts 602
On February 09 2012 18:31 ETisME wrote: Can anyone give me some big updates on the EU zone? I rarely read anything about it because it just isn't there on newspaper very much anymore. Plus, I would actually prefer to listen to some locals' comments rather than some figures and the experts' "analysis". As an undergraduate, I would totally say that empirical data, graphics, historical comparison usually don't really predict the consequences correctly at all. They only really help in explaining what happened and economists can only try to fit a model and build a hypothesis around what might happen if they do this/that.
So you would rely on gut feeling instead of objective analysis?
A little thought: EU and USA are like those old daddy billionaires. They were once very productive and grew rich, but USA didn't learn how to save what it has, spending on luxury goods and keep burrowing just to be able to live rich. While EU is trying to include more kids into his family, even some who are shady and have a very different culture background and EU has to spent money trying to hold everyone together by controlling how much money each of them can get. When one was caught cheating and had to be saved, other cried unfair and wants some of those extra cash.
no, not gut feelings. But there are a lot of factors that only the locals can truly feel and provide. Economies don't really solely dependant upon government's policy and decisions, it's what the people react to it that really matters. It's a great way to feel how people react to their policy, how they think what should have been done, how big the disappointment/pleased by the policy.
An example would be that Japan lowering their interest rate, hoping people would spent and invest to stimulate the economy but no one did that. It's a matter on how to approach the topic to be honest. Finance is similar, some people prefer buying stocks with graphs and numerical data, but some treat it as a business and study more than just numbers, including how people see the brands etc.
Data can be biased and usually very hard to obtain an accurate one since there are tonnes of sampling methods etc. There will always be opposing theories, different theories attempting to explain the same effect etc. It's no wonder that a monkey can out-perform some professional investors
I really dislike people treating economics with too much of mathematics and theories, just lacks that human side of it. It's like a game company trying to design the perfect fps games but didn't notice their target market doesn't really play any fps
Humans are not that hard to model. Modeling a human is hard. People really are quite predictable. Its why marketing works.
BrTarolg United Kingdom. February 09 2012 22:05. Posts 2496
On February 09 2012 18:31 ETisME wrote: Can anyone give me some big updates on the EU zone? I rarely read anything about it because it just isn't there on newspaper very much anymore. Plus, I would actually prefer to listen to some locals' comments rather than some figures and the experts' "analysis". As an undergraduate, I would totally say that empirical data, graphics, historical comparison usually don't really predict the consequences correctly at all. They only really help in explaining what happened and economists can only try to fit a model and build a hypothesis around what might happen if they do this/that.
A little thought: EU and USA are like those old daddy billionaires. They were once very productive and grew rich, but USA didn't learn how to save what it has, spending on luxury goods and keep burrowing just to be able to live rich. While EU is trying to include more kids into his family, even some who are shady and have a very different culture background and EU has to spent money trying to hold everyone together by controlling how much money each of them can get. When one was caught cheating and had to be saved, other cried unfair and wants some of those extra cash.
By locals i assume you mean locals in the trader sense. Hi there!
Most of us think greece is gonna leave at some point or another
most of the indicators point this straight upmove in stocks for the last few weeks is pretty much the biggest warning sign - when the fundamentals are all wrong but everyone has a bullish sentiment this is basically the most dangerous situation
the bear market begins when the last bull has bought...
On interesting notes, rates unch. They will probably change next month, but LTRO at the end of feb will be interesting to watch the banks take free money and shove it right back in ECB deposit
On February 09 2012 07:55 vetinari wrote: Greece will have to default and leave the euro. Its going to be chaos for them, but staying in the euro is economic suicide, because austerity during a recession is unbelievably retarded.
If labour markets were very flexible they could continue staying in the euro. But since the labour markets aren't able to accept that wages need to be lower, and some people need to befired, the country would benefit from a devalulation of the currency.
So while austerity is the solution to the problem of too much spending, the crises will be prolonged when unions has too much power, and government insitutions interfer with the market.
Greece's problem isn't too much spending, its too little spending. Too much spending is when you have full employment and inflation increasing. This is why entering the euro is such a dumb idea: because a nation sovereign in its currency has the ability to spend however much it needs to maintain full employment indefinitely.
How did greece ever get into this mess? By spending too much when times were good? But according to that logic they should never experiment a contracticing GDP? Cus they spend a lot of money?
Greece has these problems now because their government is crap. Rampant tax fraud and an economy that was largely tourism based. This could only lead to desaster when the harsh years in other countries started and not as many tourists were coming anymore.
If it is so obvious now, why were they let into the euro in the first place? It must have been clear that having access to cheaper credit would not stop this behaviour even if there were so called penalties for it. A far more important question is how will this be prevented in the future. I have yet to hear a decent explanation aside from a central fiscal policy.
greece got into the Euro zone because they faked their records. That's really all there is to it.
What Greece has to do is get it's fiscal politics in order. I cant think of anything more. The greece industry is hardly exsisting, most of it's money comes from tourism. But through entering the Euro zone and probably out of greed too, vacations in greece became really expensive compared to maybe ten years ago. So this means they destroyed lots of their own tourism income through too high prices. This led to tourists going to Turkey instead of Greece.
On February 09 2012 09:34 Hider wrote:
Ye thats spending too much money (relative to income). With flexible labor markets wages would fall when tourism decreases. This is what they are supposed to do.
I dont see how that's related to spending too much money at all. Anad your so called "flexible markets" would only achieve one thing and that is destroy the inland demand for products. Less wages mean less sold goods, means less taxes, means less government jobs ( something greece relys on ), this starts a chain reaction that destroys your inland demand.
Keynesians (mistakenly) think that this chain reaction is bad and that it will last forever.
No they dont. Keynes, and Keynesians are pretty clear that one way out of a crisis is to wait long enough for a deflationary depression to be so severe that prices are in fact reset eventually. What Keynesians are about is avoiding those 5-10 years of defletionary depression and an economic trend where "new" full employment is higher than the previous trend line.
Your right sorry. I misrepresented your view. But something I don't get is, why 5-10 years? Do keynesians have any empircal proof that it takes that long with laizzes-faire politics (and no great depression was no laizzes-faire).
On February 09 2012 11:01 Probulous wrote: Well I guess you're fucked then
God what an aweful situation. It's like something out of a kafka novel. "We would love to help but we can't because we don't actually want to solve anything". I guess then nobody can be pissed at Greece.
Somewhat. However people often forget that "money" is just some digits in a banks computer. The basics of Europe are still in shape: Infrastructure, well educated people and a lot of world-class industry corporations.
Its a simple thing: Some person A raised too much debt and can't pay. Some other person B gave too much debt. There is no magic "solution" to that. So let A default and let B take the loss telling both: Better be careful next time. By trying to avoid this necessity, politicians just make the problem get worse.
This is the problem of looking at aggregate statistics. Because this isn't the solution to a sustainable economy. The debt is there for a reason: 1) Reforms are needed. Both at government level and in the private sector. The austery is a neccessity for these reforms to be made. IF debt is just removed, greece will continue with too much borrowing and spending. The long term problem isn't solved.
Psychobabas United Kingdom. February 10 2012 00:06. Posts 1958
Rampant unemployment, mass redundancies, it's another repeat of the 2008-2009 crisis. The banking sector is so hard-hit it's unbelievable. There are 5 major bank offices in my town, JPMorgan, Liverpool Victoria, Nationwide, Bank of New York and Barclays. Not ONE has any positions going, not even temporary. Pretty goddamn depressing.
I feel so sorry for graduates looking for a decent job.
On February 09 2012 07:55 vetinari wrote: Greece will have to default and leave the euro. Its going to be chaos for them, but staying in the euro is economic suicide, because austerity during a recession is unbelievably retarded.
If labour markets were very flexible they could continue staying in the euro. But since the labour markets aren't able to accept that wages need to be lower, and some people need to befired, the country would benefit from a devalulation of the currency.
So while austerity is the solution to the problem of too much spending, the crises will be prolonged when unions has too much power, and government insitutions interfer with the market.
Outdated and caught up by reality. This New-Classical point of view has been tried often, failed, tried again and failed again. First time where it was shown that it did not work at non-full employment was during the Great Depression. The President of the USA asked these economists what the solution was, and its Quoted was their advice. The unions were broken (what automaticly occurs in times of duress. People leave unions for personal certainty) and still there was depression. Demand for labor didn't suddenly peaked as these economists suggested because of the price drop. No, because there wasn't any aggregate demand for products and thus no need for hiring new workers to satisfy aggregate demand. The problem was then and it is still today (for the weak state of the current economy, not the europroblem specific) is that worldwide aggregate demand < worldwide supply. And as long as this is the case, there will not be a revival of the world economy. Lowering wages and decreasing public spending will only make our times even harder.
What the people who argue for decreasing public spending often forget, is the simply the difference between a household and a government. If a household is in financial trouble, it should reduce spending till the point where revenues >= spenditures. Applying this logic to the governement fails because government spending affets general income. If 1 household decreases spending then the economy wouldn't suffer very much and would stay more or less the same. For a government, whos spending often combine to 30+% of the GDP this is NOT the case. Decreasing expenditures would decrease their incomes and the general state of the economy. Making everybody worse off then they were before.
Your rewriting history. The Great Depression was a big government experiment. Maybe Hoover wasn't the favourite politican of Keynes, but this certainly wasn't a refusal of Says law.
Problem with the politics of Hoover and Roosvelt was that they didn't let prices fall. This is how a crisis is solved. When prices are too high, they ought to go down. Its really that simple. There is not magic cure. You cant make the economy sound by increasing demand at procucts which are too high priced. Savings are needed.
We had this discssuion at the republician thread. You can look it up if you have time. The problem of the keynesian way of thinking is that they for some reason think that the bubble economy is sound. That prices aren't too high and that some people don't need to get fired. You just need to increase spending becasue that increases aggreate numbers. But that only prolongs the crisis.
Btw your example is actually wrong even according to keynesian logic. A household spending change has a multiplicator effect as well. What you might have wanted to imply was that government can idebt it self much more as it can always increase revenues (taxes) to get rid of the debt. Households can't do that.
Im rewriting? Your... Ignoring the causes for the Great Depression (for which I haven't studied sufficiently to somehow decent opnion), one cannot dispute the fact that the massive government spending, caused by the war, ended the depression. WW2 saved the USA from their Depression.
Thanks for the information on the discussion in the republician thread though. I will surely look it up.
jello_biafra United Kingdom. February 10 2012 00:18. Posts 5812
On February 10 2012 00:06 Psychobabas wrote: Speaking from the UK, we are in recession here.
Rampant unemployment, mass redundancies, it's another repeat of the 2008-2009 crisis. The banking sector is so hard-hit it's unbelievable. There are 5 major bank offices in my town, JPMorgan, Liverpool Victoria, Nationwide, Bank of New York and Barclays. Not ONE has any positions going, not even temporary. Pretty goddamn depressing.
I feel so sorry for graduates looking for a decent job.
We're not in recession, there was growth last quarter.
"I found the Crown of France lying in the gutter and I picked it up with my sword" - Napoleon Bonaparte
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vetinari Australia. February 09 2012 16:40. Posts 602
