Euro Area

[Furunculus]

You really don't know what you're talking about, do you?

The problem with the economy isn't the Euro, it's the overborrowing, which worked fine when there was growth.

And you really cannot read, can you?

in part because a common currency comes with a homogenised borrowing rate.

What you don't get however is a homogenised political culture taking direction from a homenginsed society

Ergo, you get overborrowing from weak peripheral countries who spent ten years riding on Germany's ticket, using that 'slack' to give themselves nice social-benefits which their developing economies could not support, thus destroying their productivity*, knackering the export potential, and hollowing out their industries.

The whole idea that problems would be solved if all troubled economies (Greece, Spain, Portugal...) would switch back to their old currencies is completely and utterly idiotic. Yes, they could devalue them and plug the holes in the budget but that just means that their money would be worth less. Furthermore, it would have scared investors and bond buyers cause who wants a bond that's gonna be worth less than the paper it's printed on in 20 years? Nowadays, those who want to buy Spanish bonds worry about whether the government will be able pay the interest, with peseta back they would be worrying that even if the government can pay the interest, is it gonna be much smaller in addition.

No one is saying that escaping the eurozone will be easy or pain-free, what is being said that internal devaluation cannot regain external competitivness without causing revolution, and the only other solution is a perpetual transfer union which france and the netherlands are completely unwilling to entertain.

p.s. no one wants to buy spanish bonds because they just really want to, they buy them because the risk/reward works in their favour vis-a-vis some other contries bonds. at the moment there is very little reward and enormous risk viz the utter scalping of private sector bond holders in greece necessary to preserve the ECB - ergo no one wants spanish bonds.

Even if we agree that disbanding the Euro is the answer (which it isn't) it's a very complex, expensive and time consuming process to switch back to old currencies. Creating chaos across the continent, fear among investors and businesses is hardly a good way to ride through the crisis. Like trying to figure out who's supposed to inherit how much of a house that's on fire. Put the fire out first and deal then cause otherwise you won't have a house to inherit.

And you judge this to be a worse solution to the welfare and wellbeing of the southern periphery than a decade of grinding internal devaluation leading to high unemployment, static growth, and poor services? i question your motives for suggesting this, particularly as a self-proclaimed internationalist..... Surely it is my job as a nasty nationalist right-winger to callously disregard the plight of 'others'?

The Euro isn't the problem. It's just used by the europhobes to "show" why an united Europe is a bad thing. Personally, I'd rather deal with 27 different countries about my economy than having my "independent" economy go bust on its own.

ARE YOU MY FAMILY?

Rinse and repeat until the message has sunk in.

Let me know when rich europe is willing to underwrite the public-services of poor europe.

Until then i am going to uproarously laugh at every person who continues to blindly defend the failed political model the foundations of which are being undermined by the economic model they believe will bolster it.
Each and every time a disaster occurs i will roflmao! not at their misfortune, but at the foolishness of the people who caused it via their blind faith.

Testing: "roflmao!"

Excellent, it's working.



* pages #7 and #9 for the remedial reading class:
http://www.levyinstitute.org/pubs/wp_651.pdf

[gaelic cowboy]

Unless the ECB is unshackled from inflation ideology and made to stand behind every bank and deposit in the Eurozone this only ends with the breakup of the Euro.

[Furunculus]

yes, that is the other element of the equation:
1. Fiscal policy - via transfers of various means, in addition to the collective spending caps which merkel terms her "fiskal" union.
2. Monetary policy - looser money to encourage germans to spend more and drive up pay-bargaining agreements a little via inflation to even out the competitiveness gap.
unfortunately, the paymaster (germany) isn't up for either measure in sufficient quantity.

[rory_20_uk]

Which is to say - until Germany and other productive countries are provide to work their arses off to send money to others to not work then this isn't going to be able to continue.

[Sarmatian]

Bull.

"government doesn't rely solely on tax redistribution to transfer funds from one place to another, there are grants, funds, credits etc... "

All this is either idrectly funded by taxation, or underwritten by it.

The government has exactly one real way of generating income - tax. Even things like nationalised defence companies that sell weapons to other countries just fund the home-country's defence bill.

Bollox. First of all, governments have other means of generating revenues, like owning shares or entire companies, bonds etc etc... but it is indeed mostly tax.

Second of all, no one's arguing that tax isn't the prime source of income for governments. What we're talking about once the government collect said income, can it distribute it to other countries without a need for a supranational body. The answer is, yes it can.

Furunculus is stuck because he read in the torygraph that a "transfer union" is needed.

The EU is notorious for corruption, especially of "infastructure" projects, which only generate jobs as long as they are running anyway. Once the project ends, so do the jobs - they aren't a long-term solution to unemployment.

You don't "finish" infrastructure, there's always something else to do, otherwise you'd see big building companies going bust every other month. The added benefit is that other businesses get to use that infrastructure.

Of course, infrastructure isn't the only thing EU's investing in.

It ultiamtely matter not if the tax is "supranational" or collected locally. You still require a central executive and central treasury to take in funds and distribute them, and it must be done at a Federal level because anything less simply takes too long. Look at the stupid time it took to send Greece a relatively paltry sum, why because the various bodies had to agree and it didn't work because there is no central oversight to garrentee more money.

Of course, central treasury and a central executive is indeed the most efficient way but it is not the only way, and since it is off limits at the moment, other avenues should be explored.

The problem with the money lent/given to Greece, ie. it took so long, wasn't that it was complicated to decide and collect the money but because it took so long and it was so hard for Greece to agree to a very strict austerity measures and very strict fiscal rules, which is basically committing suicide in political terms.

The Euro doesn't work - it is a currency union without a fiscal union.

Didn't we went through this already? Even Furunculus moved on and decided that a "transfer union" is now needed.

And you really cannot read, can you?

That, sir, is an insult. Mind you, I was the best in reading in my class in elementary school and was voted "most likely to learn all the letters eventually".

Ergo, you get overborrowing from weak peripheral countries who spent ten years riding on Germany's ticket, using that 'slack' to give themselves nice social-benefits which their developing economies could not support, thus destroying their productivity*, knackering the export potential, and hollowing out their industries.

Exactly, my good man. It started before the common currency and continued with the common currency. Now, for extra points, which two countries hold majority of the Greek debt and what happens with that if Greek defaults?

what is being said that internal devaluation cannot regain external competitivness without causing revolution

Sarcasm off, might be my English but I don't understand what you're saying here.

p.s. no one wants to buy spanish bonds because they just really want to, they buy them because the risk/reward works in their favour vis-a-vis some other contries bonds. at the moment there is very little reward and enormous risk

And your solution to that is to increase the risk and lessen the reward???

And you judge this to be a worse solution to the welfare and wellbeing of the southern periphery than a decade of grinding internal devaluation leading to high unemployment, static growth, and poor services? i question your motives for suggesting this, particularly as a self-proclaimed internationalist..... Surely it is my job as a nasty nationalist right-winger to callously disregard the plight of 'others'?

And this is where you're lost. Southern states would have been much worse off with a return to their former currencies, so the liberal in me has no trouble supporting.

ARE YOU MY FAMILY?

Rinse and repeat until the message has sunk in.

Hold your horse, there. We still aren't sure if Scots are your family.

Let me know when rich europe is willing to underwrite the public-services of poor europe.

Germany, first and foremost, since it's the strongest industry and needs markets to export to. Anyway, most Germans still support the Euro. You, as a self-proclaimed nasty nationalist right winger should rejoice, since it will make German economy weaker and your beloved nation state can profit from it.

Until then i am going to uproarously laugh at every person who continues to blindly defend the failed political model the foundations of which are being undermined by the economic model they believe will bolster it.
Each and every time a disaster occurs i will roflmao! not at their misfortune, but at the foolishness of the people who caused it via their blind faith.

You do that, and refuse to acknowledge any facts that may come in the way of your roflmaoing.

[gaelic cowboy]

Which is to say - until Germany and other productive countries are provide to work their arses off to send money to others to not work then this isn't going to be able to continue.

No this is not required unless you continue preventing the ECB from acting systemically as is currently the system.

[Philippus Flavius Homovallumus]

Sarmation - it is not only the Torygraph talking about a transfer union, and we established during the Mayoral Election that Furunculus is more widely read than that.

Technically - a government can simply "give" money to another government, either as Aid or as a loan. In practice, governments are subject to their electorates and we have seen from recent German elections that the policy of even loaning money to countries like Greece is deeply unpopular and cannot be continued because the governments that lend will simply be voted out of office. On top of that - actually organising the loans to Greece has been agonisingly slow, so slow that they have not worked.

In order to function as a working economy Greece, and Italy, and Portugal, and Spain must be able to borrow from the money markets or Germany must borrow on their behalf.

That requires either debt union or a transfer union - most likely both.

The root of the problem is that the countries share a currency but not their debts. So long as Greece has debt four times as expensive as Germany which is must use a weak Mark to sell it cannot buy back it's own debt to lower the price. Prior to the currency union, if you wanted to buy German deby you did it in Marks and you bought Greek debt in Drachma. When you sold the Greek debt you had to sell the Drachmas back to the Greek bank to buy the Marks to buy German debt with; the Greek Bank could then use those Drachmas to buy Greek debt and offset the price.

Now, when you seel Greek debt the Euro's you used to buy it go not to the Greek bank, but straight to the German one when you buy erman debt. So Greece becomes ever poorer.

[gaelic cowboy]

Bollox. First of all, governments have other means of generating revenues, like owning shares or entire companies, bonds etc etc... but it is indeed mostly tax.

Revenue is not the problem the problem is the balance sheet.

Of course, central treasury and a central executive is indeed the most efficient way but it is not the only way, and since it is off limits at the moment, other avenues should be explored.

The only avenue being explored is internal devaluation which leads to worse balance sheets.

The problem with the money lent/given to Greece, ie. it took so long, wasn't that it was complicated to decide and collect the money but because it took so long and it was so hard for Greece to agree to a very strict austerity measures and very strict fiscal rules, which is basically committing suicide in political terms.

Greece wouldnt have half as bad a problem if while being bailed out the ECB cut the value of the outstanding bonds it owns.

Exactly, my good man. It started before the common currency and continued with the common currency. Now, for extra points, which two countries hold majority of the Greek debt and what happens with that if Greek defaults?

Except before the a central bank could take steps to improve or even fully rescue it's own banking system.

In contrast nowadays it is prevented from this action and essentially no one is in charge but the governments which really means taxpayers.

Sarcasm off, might be my English but I don't understand what you're saying here

He means that continual austerity in order to sustain essentially german growth will lead to potential revolution in the South.

And your solution to that is to increase the risk and lessen the reward???

Actually the risk is highest now thats why no one will buy them.

And this is where you're lost. Southern states would have been much worse off with a return to their former currencies, so the liberal in me has no trouble supporting.

The only people really worried about this are bankers all across the world who stand to lose out on bond and loan repayments.

Hold your horse, there. We still aren't sure if Scots are your family.

But in Scotland the Bank of England stands behind a regional bank

Germany, first and foremost, since it's the strongest industry and needs markets to export to. Anyway, most Germans still support the Euro. You, as a self-proclaimed nasty nationalist right winger should rejoice, since it will make German economy weaker and your beloved nation state can profit from it.

The German economy is still far more dependent on inter european trade than the average man on the street thinks. Continual hammering of Euro area economies in pursuit of unattainable Debt to GDP targets will eventually weaken there economy anyways.

[Furunculus]

Didn't we went through this already? Even Furunculus moved on and decided that a "transfer union" is now needed.

And i quote:

The reverse side of the fiscal union coin, a transfer union......
Because it isn't just what you spend your taxes on and how much, it is where you spend them in order to even out the imbalances that prevent one part of the economy from functioning within another.
Infrastructure - welsh road building
Social security - glasgow
Public jobs - north east
Procurement - harland and wharf

Exactly, my good man. It started before the common currency and continued with the common currency. Now, for extra points, which two countries hold majority of the Greek debt and what happens with that if Greek defaults?

France and Germany, but i fail to see how this is relevant to the fact that Greece overborrowed because it was able to tap a homogenous euro-rate that was far lower than it would normally have been granted?

Sarcasm off, might be my English but I don't understand what you're saying here.

If greece cannot devalue externally it's only way to regain competitiveness is to devalue internally, in both the private and the public sphere, by shedding jobs and cutting costs, viz the reduced welfare for the growing unemployed.

And your solution to that is to increase the risk and lessen the reward???

There is no reward because the risk is already so big that people won't invest. A bond rate of 6.5% is already an unsustainable debt trajectory for any nation, ergo, it is not a serious economic proposition for anything but temporary economic suicide, and won't get better as long as the euro keeps peripheral nations locked in a primary deficit. Time to start again.

And this is where you're lost. Southern states would have been much worse off with a return to their former currencies, so the liberal in me has no trouble supporting.

temporarily terrible, rather than persistantly awful. that is the choice greece has.

Hold your horse, there. We still aren't sure if Scots are your family.

there may be some uncertainty here but we can be damn sure that the answer is "no" in germany given that Merkel cannot agree to eurobonds or a transfer union, at least while greece is a member, lest she be turfed out of office.

Germany, first and foremost, since it's the strongest industry and needs markets to export to. Anyway, most Germans still support the Euro. You, as a self-proclaimed nasty nationalist right winger should rejoice, since it will make German economy weaker and your beloved nation state can profit from it.

sure germany loves the euro, as it is now, for it gets more exports through trading in a currency that is artifically depressed as a result of pooling with its neighbours. it SHOULD agree to loose money and transfers for right now it is basically taking advantage of its neighbours, but then that answers the question; "are you my family". the answer is "no".

You do that, and refuse to acknowledge any facts that may come in the way of your roflmaoing.

what facts?
let me know when greece avoids exiting the euro, and when spain avoids needing a bailout before the end of the year.

[rory_20_uk]

Where does money to the ECB come from - when the ECB gives money, it has to be backed by someone the Markets trusts.

Clearly this can't be the same people who are being lent the money - although of course they do have obligations to give some money they have been lent back to the lent to them. So, the vast majority of the"real" money needs to be those with money. Germany et al give backing to the ECB, then the ECB buys up Greek debt at artificially low rates.

An accounting trick to disguise the fact Germany et al are giving money to Greece.

[gaelic cowboy]

Essentially it can now be seen that one of the big selling points of the Euro in the begining ie the removal of currency differentials was in fact a massive mistake.

They sold it to people as good for business but failed to inform them that the central bank would no longer be responsible for the banking system.

Essentially the ECB is more like one of those payday loan sharks companies with adds on daytime telly.

[gaelic cowboy]

Where does money to the ECB come from - when the ECB gives money, it has to be backed by someone the Markets trusts.

No one lends the ECB any money as it controls the press to print it.

Clearly this can't be the same people who are being lent the money - although of course they do have obligations to give some money they have been lent back to the lent to them. So, the vast majority of the"real" money needs to be those with money. Germany et al give backing to the ECB, then the ECB buys up Greek debt at artificially low rates.

Germany only needs to back bailout bonds that are sold on the open market it does not actually have to give actual money to anyone.

An accounting trick to disguise the fact Germany et al are giving money to Greece.

But this only needs to happen because the lender wants to be paid back for earlier loans. The real problem is the ECB will not mark down it's own loans and so it is forcing austerity on Greece and requiring Germany to lend to Greece.

This is all so that Greece can pay both of them back while not risking ECB bonds or cash.


This is seen for the madness it is outside the Euro hence the terrible bond yeilds and up and down currency valuations. Unless the ECB is brought under some form of political control and forced to act to end this crisis it will continue to trundle along.

The reality is this problem is solvable overnight but no one is ready to reach that door yet.

[rory_20_uk]

No one lends the ECB any money as it controls the press to print it.

Every currency has to be backed by something, else it is worthless. The ECB may be able to print money, but it still backed by the countries in the EU. This means in essence it is backed by the strong countries such as Germany.

If the ECB books losses then the losses will be passed on to the member countries. The Germans are not happy to pay for Greeks to have a higher quality of life.

[rvg]

The real trouble will start when Germany gets fed up with this circus and decides to leave the Eurozone.

[Fragony]

The real trouble will start when Germany gets fed up with this circus and decides to leave the Eurozone.

Hopefully they will, we will follow. Netherlands is too small to make a fist alone

[Furunculus]

agreed, the best possible outcome is for germany and the netherlands will leave, the rump of the eurozone will devalue in consequence, and the pressure on the PIGS will lessen signifiantly.

good post on what germany needs to do to save the eurozone, and the likelyhood of it being willing to do so:

http://www.telegraph.co.uk/news/worl...-the-euro.html

[Fragony]

The idealists are the problem, they will never accept that they were wrong. They will just go on with it. Einstein had something wise to say about insanity.

[gaelic cowboy]

agreed, the best possible outcome is for germany and the netherlands will leave, the rump of the eurozone will devalue in consequence, and the pressure on the PIGS will lessen signifiantly.

And lose all those exports to the rest of the Eurozone which accounts for 40% of there total exports with another 20% thrown for the rest of Europe.

[Furunculus]

they are strangling their neighbours anyway with their low labour costs and competitve (by german norms) currency.

the euro has turned germany's neighbouring countries from growth markets to stagnant swamps, not exactly a sustainable option for healthy german exports in the long term.

i see german mechatronic precision machine-tools regualarly, it is not something that will just migrate elsewhere if its gets 5% more expensive, german exports will at worst be no better off five years down the line if they leave.*




* my guess - not backed up by any particular empirical evidence or wizardly forecasting.

[gaelic cowboy]

i see german mechatronic precision machine-tools regualarly, it is not something that will just migrate elsewhere if its gets 5% more expensive, german exports will at worst be no better off five years down the line.

Yes it can migrate.

sure dont they already threaten there own workforce with expanding to Eastern Europe in order to achieve wage restraint.

[Furunculus]

are you typing on a smartphone because that came out a little garbled? :)

[Kagemusha]

Furunculus while you are big fan of US born global capitalism.It is childish to impose your personal preference as truth.

Maybe for example you should analyze why germany with its leftist social politics is fourth largest nominal gdp in the world with only bit over then 80 million people? I know already that your answer is that UK surely will be larger economy then Germany after next two decades.Thatcherians said the same two decades a go, but it didint happen.Why?

[Fragony]

Oh lollipop, exodus of the rich in France. What is it with lefties not understanding that recources aren't infinite. You can't take it for granted that the money will never run out, we have to find a cure for the addiction of other people's money. For our children. There will be mass starvations if we do not act right now.

Someone build a moneymill-park

[rory_20_uk]

Germany currently is purchasing its own stuff. Its currency is prevented from rising by being in the Euro. Currently the debts are hidden in the EU.

The UK spends an increasingly large amount on Social Services / Social Care. It is going up over inflation by the year. The norm is people stay in school until 18, and 50% until 21+. People are paid to stay in the South of England where prices are vast, which keeps prices high and ensures that they remain unemployed as the loss of benefits is above any job they could get. Moving to the cheaper north would depress wages and help new companies get a cheaper workforce. Such policies are unthinkable. Quite leftist policies where money is thrown around and then people scratch their heads that unemployment remains high.

Currently there is an outcry that people might be moved off disability allowances. Currently, people are on it for life without a review - ever. The numbers on it are also increasing. Reducing numbers by many appears to be unthinkable.

The problem is there is little if any return on investment. In Germany there is a large manufacturing base. This means persons leave University able to work in high-tech manufacturing. In the UK, reading / writing /timekeeping and dress code appears to be asking too much. Oh, and of course there are loads of jobs that are beneath people. Such as manual work / manufacturing. Everyone wants to be a middle manager in the office with the company car and good paycheque as they've got a degree. Who makes things?

I don't know how this cultural shift can be made.

[Sarmatian]

Who makes things?

The Chinese.

[gaelic cowboy]

Every currency has to be backed by something, else it is worthless. The ECB may be able to print money, but it still backed by the countries in the EU. This means in essence it is backed by the strong countries such as Germany.

If the ECB books losses then the losses will be passed on to the member countries. The Germans are not happy to pay for Greeks to have a higher quality of life.

No the euro is not backed by gold or countries it merely has a value that everyone agrees it has in short German has paid no one any money.

[rory_20_uk]

No the euro is not backed by gold or countries it merely has a value that everyone agrees it has in short German has paid no one any money.

That must be unique in all monetary systems in the world in the history of manking that is has no backing by anything at all.

Germany has paid no one any money, as we all live in the delusion that everything will get paid back. Which it is by lending money so that the last set of debts can be paid off.

[gaelic cowboy]

That must be unique in all monetary systems in the world in the history of manking that is has no backing by anything at all.

Germany has paid no one any money, as we all live in the delusion that everything will get paid back. Which it is by lending money so that the last set of debts can be paid off.

no it's quite common actually that is how fiat money works.

Germany has paid no one any money and they risk no money bailing anyone out because the risk of non-payment lies with Eurozone banks.

Each government is responsible for it's own banks and that is unique for a currency where the central bank will not stand behind the banking system.

[Kagemusha]

no it's quite common actually that is how fiat money works.

Germany has paid no one any money and they risk no money bailing anyone out because the risk of non-payment lies with Eurozone banks.

Each government is responsible for it's own banks and that is unique for a currency where the central bank will not stand behind the banking system.

And you as British,how does it concern you at all?So why do we few Irish and British members rambling over and over again about how Euro is a lost case when you havent even experienced it. Maybe Britain should apply as next state of US? As that is how insignificant your economical value is.

[HopAlongBunny]

gaelic has it right; fiat currency is worth whatever the market says its worth. Nominally the central bank controls fluctuations, but their power is limited when faced with a real crisis of confidence.

The Euro benefits from "collective defence" in case of a crisis, but really only some of the collective can afford that sort of intervention.