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On February 09 2012 10:53 Probulous wrote:Show nested quote +On February 09 2012 10:50 Skilledblob wrote:On February 09 2012 10:44 Probulous wrote:On February 09 2012 10:38 Schnullerbacke13 wrote:On February 09 2012 10:24 Probulous wrote:On February 09 2012 10:17 Schnullerbacke13 wrote:On February 09 2012 09:42 Probulous wrote:On February 09 2012 09:37 Skilledblob wrote:On February 09 2012 09:31 Probulous wrote:On February 09 2012 09:28 Skilledblob wrote:
[quote]
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. Then why is the euro keeping them in? I know Germany is benefitting through their exports but it has already lead to a bailout for Ireland and Spain, Italy and Portugal are or were close at points. The issue here is how the EU will deal with this in the future. What stops a country faking their records after this is settled? What are the punishments? How are they enforced? I can't see rational (do they exist?) investors having any faith in the euro if these issues are not sorted out. One simple punishment is to *not* bailout them. Greece could get into depth, because the market anticipated they'd get a bailout. Without this silent assumption greece would not have been able to rise that depth, because yield rates would have been much higher and they would not have been able to get that much credit. Although the public perception is, that the debt market needs regulation, the current crisis is the result of too much regulation (forcing yields down etc.) and bailouts. A country like e.g. Argentina simply cannot rise that much debt because yield rates will skyrocket. Vice versa banks should not get bailouts. If they lend money to a country and the country can't pay, the money is lost. That's why they receive yield payments (reward for risk). All those bailouts lead to unpunished (or very delayed punishment) debt rising. But aren't those bonds denominated in euro? So the rest of the EU has an inherent interest in keeping Greece afloat. If Greece defaults, the euro defaults and so by proxy do all other euro states. They are, but yield rates are different for each country. If greece fails, german bonds will not suffer. However if it becomes clear, that the EU is willing to let greece default, yield rates for other weak economies (portugal, spain, italy, ireland) will get a reality injection and will rise pretty quick. The yield rates of those countries are still not completely realistic as there is still the hope, that the debt will be payed by the EU in case. If greece defaults, this phantasy bubble will plop and yield rates for e.g. itally will go >10% which will let them default pretty quick. Its a chain reaction. Blaming the market for this chain reaction is wrong, actually yield rates are unrealistic and do not reflect the real default risk. They will default in the long run anyway, politics can delay this but in the end there are only 2 ways out: mass default or inflation. See that is why I don't think letting Greece default makes sense. It affects so many other EU countries that the cost would outweigh the benefits. Surely this is the lever to be used to get a more centralised budget setting system up. Every country has a basic choice, either let the EU have more control over your budget or get out. actually the EU allready has an agency that watches over the budgets of the various countries. But the problem is nobody really cares what they say. But there are no consequences for not caring. That is the problem, there have to be very reall, very painful consequences for not following the rules.
In a proper market, the market itself will punish by raising interest rates for bonds of a "bad" country. If politics force interest rates down (newest proposal: Eurobonds), there is no punishment.
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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.
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On February 09 2012 10:49 Probulous wrote:Show nested quote +On February 09 2012 10:42 Schnullerbacke13 wrote:On February 09 2012 10:34 Probulous wrote:On February 09 2012 10:25 Sub40APM wrote:On February 09 2012 10:22 Probulous wrote:On February 09 2012 10:13 Sub40APM wrote:On February 09 2012 10:08 Probulous wrote:On February 09 2012 10:01 Skilledblob wrote:On February 09 2012 09:55 Probulous wrote:On February 09 2012 09:47 Skilledblob wrote:
[quote]
You cant get kicked out of treaties inside the EU. Nobody can kick anybody out all you can do is leave on your own. And people still think the euro is a good idea Based on this it seems that they euro is at the mercy of the people setting individual national budgets. How is that viable? To me it seems like a family where everyone has access to the credit card. Am I missing something? well basically the Euro is a good idea but not for everyone. For Germany in particular it is a great idea because we can sell lots of stuff but for countries like Italy, Greece or Spain which allready had some Inflation going the Euro certainly did not help at all. 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?Other options considered: + Show Spoiler [Euro breakup] +
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. Seriosuly mate, thanks for the responses, always nice to get a better understanding. Aren't in effect doing that anyway? Standard opportunity cost says that by giving Greece debt at vastly lowered interest rates Germany is losing money. Plus there is the vey real possibility that the debt will not be repaid and Germany has no leverage over Greece other than debt repayment.
To certain extends, yes. However its not germany, which is financing the greece debt, but private sector financial institutions, so there are no opportunity costs. The current bailout payments actually are directly flowing back to thos institutions, so the 'help packages' are not a greece bail out, but another bank bailout.
However Eurobonds in contrast to current situation would mean a huge permanent cash drain for Germany, Austria, Finland, Netherlands (and some more), as the interest rate of eurobonds would be much higher than the interest rate for german bonds, but lower for the weaker economies. This equals indirectly a permanent cash transfer.
Additionally the lower interest rates of Eurobonds would only allow for a continuation of debt rising by some countries ..
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On February 09 2012 11:00 Schnullerbacke13 wrote:Show nested quote +On February 09 2012 10:53 Probulous wrote:On February 09 2012 10:50 Skilledblob wrote:On February 09 2012 10:44 Probulous wrote:On February 09 2012 10:38 Schnullerbacke13 wrote:On February 09 2012 10:24 Probulous wrote:On February 09 2012 10:17 Schnullerbacke13 wrote:On February 09 2012 09:42 Probulous wrote:On February 09 2012 09:37 Skilledblob wrote:On February 09 2012 09:31 Probulous wrote:
[quote]
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. Then why is the euro keeping them in? I know Germany is benefitting through their exports but it has already lead to a bailout for Ireland and Spain, Italy and Portugal are or were close at points. The issue here is how the EU will deal with this in the future. What stops a country faking their records after this is settled? What are the punishments? How are they enforced? I can't see rational (do they exist?) investors having any faith in the euro if these issues are not sorted out. One simple punishment is to *not* bailout them. Greece could get into depth, because the market anticipated they'd get a bailout. Without this silent assumption greece would not have been able to rise that depth, because yield rates would have been much higher and they would not have been able to get that much credit. Although the public perception is, that the debt market needs regulation, the current crisis is the result of too much regulation (forcing yields down etc.) and bailouts. A country like e.g. Argentina simply cannot rise that much debt because yield rates will skyrocket. Vice versa banks should not get bailouts. If they lend money to a country and the country can't pay, the money is lost. That's why they receive yield payments (reward for risk). All those bailouts lead to unpunished (or very delayed punishment) debt rising. But aren't those bonds denominated in euro? So the rest of the EU has an inherent interest in keeping Greece afloat. If Greece defaults, the euro defaults and so by proxy do all other euro states. They are, but yield rates are different for each country. If greece fails, german bonds will not suffer. However if it becomes clear, that the EU is willing to let greece default, yield rates for other weak economies (portugal, spain, italy, ireland) will get a reality injection and will rise pretty quick. The yield rates of those countries are still not completely realistic as there is still the hope, that the debt will be payed by the EU in case. If greece defaults, this phantasy bubble will plop and yield rates for e.g. itally will go >10% which will let them default pretty quick. Its a chain reaction. Blaming the market for this chain reaction is wrong, actually yield rates are unrealistic and do not reflect the real default risk. They will default in the long run anyway, politics can delay this but in the end there are only 2 ways out: mass default or inflation. See that is why I don't think letting Greece default makes sense. It affects so many other EU countries that the cost would outweigh the benefits. Surely this is the lever to be used to get a more centralised budget setting system up. Every country has a basic choice, either let the EU have more control over your budget or get out. actually the EU allready has an agency that watches over the budgets of the various countries. But the problem is nobody really cares what they say. But there are no consequences for not caring. That is the problem, there have to be very reall, very painful consequences for not following the rules. In a proper market, the market itself will punish by raising interest rates for bonds of a "bad" country. If politics force interest rates down (newest proposal: Eurobonds), there is no punishment.
Then, the government that is punished by high interest rates is forced to default, quits the euro, devalues via massive deficit spending, which quickly results in full employment. Now that there are plenty of customers with full pockets, the private sector ramps up investment in capacity, hires more workers, makes larger profits, pays more taxes, and the budget deficit closes itself.
Pretty good punishment, eh?
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So I go back to my original question, what would be the most rational thing to do at this point? If centralisation of budgets is a political shitty-diaper than what options could plausibly solve this issue?
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On February 09 2012 11:12 Schnullerbacke13 wrote:
However Eurobonds in contrast to current situation would mean a huge permanent cash drain for Germany, Austria, Finland, Netherlands (and some more), as the interest rate of eurobonds would be much higher than the interest rate for german bonds, but lower for the weaker economies. This equals indirectly a permanent cash transfer.
Additionally the lower interest rates of Eurobonds would only allow for a continuation of debt rising by some countries ..
Eurobonds pretty much exist allready. The European Central Bank is allready buying up bonds from greece and other countries to keep them afloat. And the ECB gets its money through the members of the EU. So I dont get all the fuzz about Eurobonds because they allready exist anyway
On February 09 2012 11:17 Probulous wrote:
So I go back to my original question, what would be the most rational thing to do at this point? If centralisation of budgets is a political shitty-diaper than what options could plausibly solve this issue?
France and Germany team up and start a war against southern Europe. 
man I need some sleep now
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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.
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On February 09 2012 11:19 Schnullerbacke13 wrote:Show nested quote +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.
Right, so by bailing out Greece the EU is trying to buy time for the other weaker states to sure up their finances before a greek default. Geez, that's like giving away money. I mean if the EU banks are the ones lending to Greece, knowing full well that a default is coming then they are asking for a hammering when the debt is due. So the central banks with too much greek debt ask their respective countries to bail them out thereby effectively getting northern EU tax payers to pay for greek expenditures.
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On February 09 2012 11:17 Skilledblob wrote:Show nested quote +On February 09 2012 11:12 Schnullerbacke13 wrote:
However Eurobonds in contrast to current situation would mean a huge permanent cash drain for Germany, Austria, Finland, Netherlands (and some more), as the interest rate of eurobonds would be much higher than the interest rate for german bonds, but lower for the weaker economies. This equals indirectly a permanent cash transfer.
Additionally the lower interest rates of Eurobonds would only allow for a continuation of debt rising by some countries ..
Eurobonds pretty much exist allready. The European Central Bank is allready buying up bonds from greece and other countries to keep them afloat. And the ECB gets its money through the members of the EU. So I dont get all the fuzz about Eurobonds because they allready exist anyway
You are right. But ECB only has a "temporary" allowance to buy trash bonds. The volume of those purchases have to be agreed cyclically. Eurobonds would be there at least for 20+ years, so there is a big difference between the situation now and Eurobonds.
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On February 09 2012 10:42 Schnullerbacke13 wrote:Show nested quote +On February 09 2012 10:34 Probulous wrote:On February 09 2012 10:25 Sub40APM wrote:On February 09 2012 10:22 Probulous wrote:On February 09 2012 10:13 Sub40APM wrote:On February 09 2012 10:08 Probulous wrote:On February 09 2012 10:01 Skilledblob wrote:On February 09 2012 09:55 Probulous wrote:On February 09 2012 09:47 Skilledblob wrote:On February 09 2012 09:42 Probulous wrote:
[quote]
Then why is the euro keeping them in? I know Germany is benefitting through their exports but it has already lead to a bailout for Ireland and Spain, Italy and Portugal are or were close at points. The issue here is how the EU will deal with this in the future. What stops a country faking their records after this is settled? What are the punishments? How are they enforced? I can't see rational (do they exist?) investors having any faith in the euro if these issues are not sorted out. You cant get kicked out of treaties inside the EU. Nobody can kick anybody out all you can do is leave on your own. And people still think the euro is a good idea Based on this it seems that they euro is at the mercy of the people setting individual national budgets. How is that viable? To me it seems like a family where everyone has access to the credit card. Am I missing something? well basically the Euro is a good idea but not for everyone. For Germany in particular it is a great idea because we can sell lots of stuff but for countries like Italy, Greece or Spain which allready had some Inflation going the Euro certainly did not help at all. 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?Other options considered: + Show Spoiler [Euro breakup] +
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?
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On February 09 2012 11:19 Schnullerbacke13 wrote:Show nested quote +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.
Who will Germany export to then though? German runs trade deficit vs (a) China and (b) Northern European countries/Slovakia who feed in as cheap component makers for German export machine.
The issue of the euro isnt about poor countries 'robbing' the rich, the issue is also that in a world were 6/7th of the people are poorer than an average German/American worker by a factor of 4-5 where can German corporations export to and still afford to employ Germans? The Germans, Japanese and Chinese of the world depend on there being a wider world market from which they can generate trade surpluses but as we see right now the countries that serve as markets are slowly running out of ability to absorb trade surpluses. German funding olive zone is just like China-Japan funding the United States trade deficit. If they stop funding it it stops being a deficit.
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On February 09 2012 11:36 Sub40APM wrote:Show nested quote +On February 09 2012 10:42 Schnullerbacke13 wrote:On February 09 2012 10:34 Probulous wrote:On February 09 2012 10:25 Sub40APM wrote:On February 09 2012 10:22 Probulous wrote:On February 09 2012 10:13 Sub40APM wrote:On February 09 2012 10:08 Probulous wrote:On February 09 2012 10:01 Skilledblob wrote:On February 09 2012 09:55 Probulous wrote:On February 09 2012 09:47 Skilledblob wrote:
[quote]
You cant get kicked out of treaties inside the EU. Nobody can kick anybody out all you can do is leave on your own. And people still think the euro is a good idea Based on this it seems that they euro is at the mercy of the people setting individual national budgets. How is that viable? To me it seems like a family where everyone has access to the credit card. Am I missing something? well basically the Euro is a good idea but not for everyone. For Germany in particular it is a great idea because we can sell lots of stuff but for countries like Italy, Greece or Spain which allready had some Inflation going the Euro certainly did not help at all. 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?Other options considered: + Show Spoiler [Euro breakup] +
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.
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On February 09 2012 11:47 Schnullerbacke13 wrote:Show nested quote +On February 09 2012 11:36 Sub40APM wrote:On February 09 2012 10:42 Schnullerbacke13 wrote:On February 09 2012 10:34 Probulous wrote:On February 09 2012 10:25 Sub40APM wrote:On February 09 2012 10:22 Probulous wrote:On February 09 2012 10:13 Sub40APM wrote:On February 09 2012 10:08 Probulous wrote:On February 09 2012 10:01 Skilledblob wrote:On February 09 2012 09:55 Probulous wrote:[quote] And people still think the euro is a good idea Based on this it seems that they euro is at the mercy of the people setting individual national budgets. How is that viable? To me it seems like a family where everyone has access to the credit card. Am I missing something? well basically the Euro is a good idea but not for everyone. For Germany in particular it is a great idea because we can sell lots of stuff but for countries like Italy, Greece or Spain which allready had some Inflation going the Euro certainly did not help at all. 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?Other options considered: + Show Spoiler [Euro breakup] +
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.
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On February 09 2012 11:41 Sub40APM wrote:Show nested quote +On February 09 2012 11:19 Schnullerbacke13 wrote: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. Who will Germany export to then though? German runs trade deficit vs (a) China and (b) Northern European countries/Slovakia who feed in as cheap component makers for German export machine. The issue of the euro isnt about poor countries 'robbing' the rich, the issue is also that in a world were 6/7th of the people are poorer than an average German/American worker by a factor of 4-5 where can German corporations export to and still afford to employ Germans? The Germans, Japanese and Chinese of the world depend on there being a wider world market from which they can generate trade surpluses but as we see right now the countries that serve as markets are slowly running out of ability to absorb trade surpluses. German funding olive zone is just like China-Japan funding the United States trade deficit. If they stop funding it it stops being a deficit.
It is clear, that the trade surplus cannot perist long term. However continous exporting money to enable other countries to buy german cars is not a solution and does not make sense (not for germany and not for the buyer).
The export surplus will stop exactly when demand is vanishing. Demand will vanish if debt rising stops. This will be a good development long term. The current cycle of giving credit and having an export surplus is not sustainable as the importing nations industry output shrinks sharply, while germany's industry overheats. In germany there are more and more well educated people from southern europe (in my company >60% of workers are not german). So basically the industry activity moves to germany and import nations are hurt by "brain drain". Since germany is not that a nice country (-10 Celsius here today), it does not make sense to let half of europe's elite work here.
Stopping the crazy debt system will also stop the concentration of industrial activity in germany and the trade surplus will vanish (or get lower) naturally.
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On February 09 2012 11:51 Sub40APM wrote:Show nested quote +On February 09 2012 11:47 Schnullerbacke13 wrote:On February 09 2012 11:36 Sub40APM wrote:On February 09 2012 10:42 Schnullerbacke13 wrote:On February 09 2012 10:34 Probulous wrote:On February 09 2012 10:25 Sub40APM wrote:On February 09 2012 10:22 Probulous wrote:On February 09 2012 10:13 Sub40APM wrote:On February 09 2012 10:08 Probulous wrote:On February 09 2012 10:01 Skilledblob wrote:
[quote]
well basically the Euro is a good idea but not for everyone. For Germany in particular it is a great idea because we can sell lots of stuff but for countries like Italy, Greece or Spain which allready had some Inflation going the Euro certainly did not help at all. 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?Other options considered: + Show Spoiler [Euro breakup] +
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.
on another note: Defaulting does not necessary mean a country has to leave. It is possible to default (=just don't pay the bonds) and stay in the Eurozone.
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On February 09 2012 12:14 Schnullerbacke13 wrote:Show nested quote +On February 09 2012 11:51 Sub40APM wrote:On February 09 2012 11:47 Schnullerbacke13 wrote:On February 09 2012 11:36 Sub40APM wrote:On February 09 2012 10:42 Schnullerbacke13 wrote:On February 09 2012 10:34 Probulous wrote:On February 09 2012 10:25 Sub40APM wrote:On February 09 2012 10:22 Probulous wrote:On February 09 2012 10:13 Sub40APM wrote: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?Other options considered: + Show Spoiler [Euro breakup] +
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. on another note: Defaulting does not necessary mean a country has to leave. It is possible to default (=just don't pay the bonds) and stay in the Eurozone.
Greece would have to leave if it defaults, because if it can't print money nor borrow money, the government would basically be forced into massive spending cuts. The greek economy would go into a deep depression. With its own currency, the transition period would still be an absolute nightmare, but it would be better off in 10 years or so.
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On February 09 2012 11:12 vetinari wrote:Show nested quote +On February 09 2012 11:00 Schnullerbacke13 wrote:On February 09 2012 10:53 Probulous wrote:On February 09 2012 10:50 Skilledblob wrote:On February 09 2012 10:44 Probulous wrote:On February 09 2012 10:38 Schnullerbacke13 wrote:On February 09 2012 10:24 Probulous wrote:On February 09 2012 10:17 Schnullerbacke13 wrote:On February 09 2012 09:42 Probulous wrote:On February 09 2012 09:37 Skilledblob wrote:
[quote]
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. Then why is the euro keeping them in? I know Germany is benefitting through their exports but it has already lead to a bailout for Ireland and Spain, Italy and Portugal are or were close at points. The issue here is how the EU will deal with this in the future. What stops a country faking their records after this is settled? What are the punishments? How are they enforced? I can't see rational (do they exist?) investors having any faith in the euro if these issues are not sorted out. One simple punishment is to *not* bailout them. Greece could get into depth, because the market anticipated they'd get a bailout. Without this silent assumption greece would not have been able to rise that depth, because yield rates would have been much higher and they would not have been able to get that much credit. Although the public perception is, that the debt market needs regulation, the current crisis is the result of too much regulation (forcing yields down etc.) and bailouts. A country like e.g. Argentina simply cannot rise that much debt because yield rates will skyrocket. Vice versa banks should not get bailouts. If they lend money to a country and the country can't pay, the money is lost. That's why they receive yield payments (reward for risk). All those bailouts lead to unpunished (or very delayed punishment) debt rising. But aren't those bonds denominated in euro? So the rest of the EU has an inherent interest in keeping Greece afloat. If Greece defaults, the euro defaults and so by proxy do all other euro states. They are, but yield rates are different for each country. If greece fails, german bonds will not suffer. However if it becomes clear, that the EU is willing to let greece default, yield rates for other weak economies (portugal, spain, italy, ireland) will get a reality injection and will rise pretty quick. The yield rates of those countries are still not completely realistic as there is still the hope, that the debt will be payed by the EU in case. If greece defaults, this phantasy bubble will plop and yield rates for e.g. itally will go >10% which will let them default pretty quick. Its a chain reaction. Blaming the market for this chain reaction is wrong, actually yield rates are unrealistic and do not reflect the real default risk. They will default in the long run anyway, politics can delay this but in the end there are only 2 ways out: mass default or inflation. See that is why I don't think letting Greece default makes sense. It affects so many other EU countries that the cost would outweigh the benefits. Surely this is the lever to be used to get a more centralised budget setting system up. Every country has a basic choice, either let the EU have more control over your budget or get out. actually the EU allready has an agency that watches over the budgets of the various countries. But the problem is nobody really cares what they say. But there are no consequences for not caring. That is the problem, there have to be very reall, very painful consequences for not following the rules. In a proper market, the market itself will punish by raising interest rates for bonds of a "bad" country. If politics force interest rates down (newest proposal: Eurobonds), there is no punishment. Then, the government that is punished by high interest rates is forced to default, quits the euro, devalues via massive deficit spending, which quickly results in full employment. Now that there are plenty of customers with full pockets, the private sector ramps up investment in capacity, hires more workers, makes larger profits, pays more taxes, and the budget deficit closes itself. Pretty good punishment, eh?
If you just defaulted you can't run a deficit as no one will lend to you :-)
Although you can still devalue to boost the economy through increased exports but that hurts the average citizen who will have to deal with higher inflation and reduced savings (in real terms). There is no free lunch!
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On February 09 2012 11:00 Schnullerbacke13 wrote:Show nested quote +On February 09 2012 10:53 Probulous wrote:On February 09 2012 10:50 Skilledblob wrote:On February 09 2012 10:44 Probulous wrote:On February 09 2012 10:38 Schnullerbacke13 wrote:On February 09 2012 10:24 Probulous wrote:On February 09 2012 10:17 Schnullerbacke13 wrote:On February 09 2012 09:42 Probulous wrote:On February 09 2012 09:37 Skilledblob wrote:On February 09 2012 09:31 Probulous wrote:
[quote]
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. Then why is the euro keeping them in? I know Germany is benefitting through their exports but it has already lead to a bailout for Ireland and Spain, Italy and Portugal are or were close at points. The issue here is how the EU will deal with this in the future. What stops a country faking their records after this is settled? What are the punishments? How are they enforced? I can't see rational (do they exist?) investors having any faith in the euro if these issues are not sorted out. One simple punishment is to *not* bailout them. Greece could get into depth, because the market anticipated they'd get a bailout. Without this silent assumption greece would not have been able to rise that depth, because yield rates would have been much higher and they would not have been able to get that much credit. Although the public perception is, that the debt market needs regulation, the current crisis is the result of too much regulation (forcing yields down etc.) and bailouts. A country like e.g. Argentina simply cannot rise that much debt because yield rates will skyrocket. Vice versa banks should not get bailouts. If they lend money to a country and the country can't pay, the money is lost. That's why they receive yield payments (reward for risk). All those bailouts lead to unpunished (or very delayed punishment) debt rising. But aren't those bonds denominated in euro? So the rest of the EU has an inherent interest in keeping Greece afloat. If Greece defaults, the euro defaults and so by proxy do all other euro states. They are, but yield rates are different for each country. If greece fails, german bonds will not suffer. However if it becomes clear, that the EU is willing to let greece default, yield rates for other weak economies (portugal, spain, italy, ireland) will get a reality injection and will rise pretty quick. The yield rates of those countries are still not completely realistic as there is still the hope, that the debt will be payed by the EU in case. If greece defaults, this phantasy bubble will plop and yield rates for e.g. itally will go >10% which will let them default pretty quick. Its a chain reaction. Blaming the market for this chain reaction is wrong, actually yield rates are unrealistic and do not reflect the real default risk. They will default in the long run anyway, politics can delay this but in the end there are only 2 ways out: mass default or inflation. See that is why I don't think letting Greece default makes sense. It affects so many other EU countries that the cost would outweigh the benefits. Surely this is the lever to be used to get a more centralised budget setting system up. Every country has a basic choice, either let the EU have more control over your budget or get out. actually the EU allready has an agency that watches over the budgets of the various countries. But the problem is nobody really cares what they say. But there are no consequences for not caring. That is the problem, there have to be very reall, very painful consequences for not following the rules. In a proper market, the market itself will punish by raising interest rates for bonds of a "bad" country. If politics force interest rates down (newest proposal: Eurobonds), there is no punishment.
so basically that means that the european union is becoming "one country" in that regard. wealth is tried to be distributed more equally among that "new country", naively speaking.
i don't see a problem with it, even though i'm from germany, which has to suffer a little bit from all the other countries being worse financially.
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On February 09 2012 13:13 JonnyBNoHo wrote:Show nested quote +On February 09 2012 11:12 vetinari wrote:On February 09 2012 11:00 Schnullerbacke13 wrote:On February 09 2012 10:53 Probulous wrote:On February 09 2012 10:50 Skilledblob wrote:On February 09 2012 10:44 Probulous wrote:On February 09 2012 10:38 Schnullerbacke13 wrote:On February 09 2012 10:24 Probulous wrote:On February 09 2012 10:17 Schnullerbacke13 wrote:On February 09 2012 09:42 Probulous wrote:
[quote]
Then why is the euro keeping them in? I know Germany is benefitting through their exports but it has already lead to a bailout for Ireland and Spain, Italy and Portugal are or were close at points. The issue here is how the EU will deal with this in the future. What stops a country faking their records after this is settled? What are the punishments? How are they enforced? I can't see rational (do they exist?) investors having any faith in the euro if these issues are not sorted out. One simple punishment is to *not* bailout them. Greece could get into depth, because the market anticipated they'd get a bailout. Without this silent assumption greece would not have been able to rise that depth, because yield rates would have been much higher and they would not have been able to get that much credit. Although the public perception is, that the debt market needs regulation, the current crisis is the result of too much regulation (forcing yields down etc.) and bailouts. A country like e.g. Argentina simply cannot rise that much debt because yield rates will skyrocket. Vice versa banks should not get bailouts. If they lend money to a country and the country can't pay, the money is lost. That's why they receive yield payments (reward for risk). All those bailouts lead to unpunished (or very delayed punishment) debt rising. But aren't those bonds denominated in euro? So the rest of the EU has an inherent interest in keeping Greece afloat. If Greece defaults, the euro defaults and so by proxy do all other euro states. They are, but yield rates are different for each country. If greece fails, german bonds will not suffer. However if it becomes clear, that the EU is willing to let greece default, yield rates for other weak economies (portugal, spain, italy, ireland) will get a reality injection and will rise pretty quick. The yield rates of those countries are still not completely realistic as there is still the hope, that the debt will be payed by the EU in case. If greece defaults, this phantasy bubble will plop and yield rates for e.g. itally will go >10% which will let them default pretty quick. Its a chain reaction. Blaming the market for this chain reaction is wrong, actually yield rates are unrealistic and do not reflect the real default risk. They will default in the long run anyway, politics can delay this but in the end there are only 2 ways out: mass default or inflation. See that is why I don't think letting Greece default makes sense. It affects so many other EU countries that the cost would outweigh the benefits. Surely this is the lever to be used to get a more centralised budget setting system up. Every country has a basic choice, either let the EU have more control over your budget or get out. actually the EU allready has an agency that watches over the budgets of the various countries. But the problem is nobody really cares what they say. But there are no consequences for not caring. That is the problem, there have to be very reall, very painful consequences for not following the rules. In a proper market, the market itself will punish by raising interest rates for bonds of a "bad" country. If politics force interest rates down (newest proposal: Eurobonds), there is no punishment. Then, the government that is punished by high interest rates is forced to default, quits the euro, devalues via massive deficit spending, which quickly results in full employment. Now that there are plenty of customers with full pockets, the private sector ramps up investment in capacity, hires more workers, makes larger profits, pays more taxes, and the budget deficit closes itself. Pretty good punishment, eh? If you just defaulted you can't run a deficit as no one will lend to you :-) Although you can still devalue to boost the economy through increased exports but that hurts the average citizen who will have to deal with higher inflation and reduced savings (in real terms). There is no free lunch!
If you are sovereign in your currency, you can run deficits as high as you want. The only limit to government deficits for a sovereign country is when aggregate demand for goods and services exceeds potential supply, at which point, inflation occurs. The idea that aggregate demand is even close to supply in an economy with 20% unemployment is an absolute joke.
Remember: a government's spending in its own currency is always financed by printing money. Taxation and issuing debt have other uses, but its nothing to do with financing spending.
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On February 09 2012 11:51 Sub40APM wrote:Show nested quote +On February 09 2012 11:47 Schnullerbacke13 wrote:On February 09 2012 11:36 Sub40APM wrote:On February 09 2012 10:42 Schnullerbacke13 wrote:On February 09 2012 10:34 Probulous wrote:On February 09 2012 10:25 Sub40APM wrote:On February 09 2012 10:22 Probulous wrote:On February 09 2012 10:13 Sub40APM wrote:On February 09 2012 10:08 Probulous wrote:On February 09 2012 10:01 Skilledblob wrote:
[quote]
well basically the Euro is a good idea but not for everyone. For Germany in particular it is a great idea because we can sell lots of stuff but for countries like Italy, Greece or Spain which allready had some Inflation going the Euro certainly did not help at all. 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?Other options considered: + Show Spoiler [Euro breakup] +
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?
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EPT
