EPTEuropean Politico-economics QA Mega-thread - Page 59
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puerk
Germany855 Posts
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cLutZ
United States19573 Posts
On February 22 2015 05:44 WhiteDog wrote: You don't seem to understand the point at hand. In a normal economy, the increasing government investment and inflation rate in the greek economy would have 1) increase interest rate 2) depreciate the value of the currency relative to foreign currency and thus prevented consumption of foreign goods. This is all pretty true (except that Greece didn't invest). If Greece had its own currency the borrowing would have increased interest rates and resulted in inflation which would have lowered their ability to purchase good from foreign countries. We agree on what likely would have happened in that situation. Where we disagree is on what actually happened in the real world. What I see is that Greece, because they didn't face those constraints was able to become richer more quickly through leverage. The problem that I see is that that borrowing was not invested, or was invested poorly, thus not generating a high enough rate of return to pay off the debt. I don't know if you think that is untrue (please explain) or irrelevant (same). | ||
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WhiteDog
France8650 Posts
What I see is that Greece, because they didn't face those constraints was able to become richer more quickly through leverage That's your moral point of view. For some moral reasons you actually insist on Greece borrowing money, and you discard many economic and objectiv facts : - it actually was invested with some result (since their productivity gains were high, as my graph showed, even if you refuse to acknowledge it) but that, as productivity raised, their wage too, and that because of the common currency, resulted in an increase in the inequalities of competitivity instead of reducing those (what should happen when you gain productivity and have inflation) : - the euro was created in order to permit those investment ("GO SPEND MONEY" is what europe said to Greece) ; - those investments were possible because other countries were refusing to invest and decided to save and eventually loan their savings. Greece was able to take so much credit, just like the US before the subprime crisis BTW, only because other countries had a high saving rate and refused to use that money (Germany and France for Greece, China and Saudi Arabia for the US). - finally you discard that at the core of all this is the subprime crisis (an exogene crisis, not related to Greece's behavior), that played a role in revealing the inequalities and putting in light the inability of the euro to revert back inequalities in competitivity. Just compare to a zone with no common currency and a zone with a common currency and a federal state. With a federal state, if inequalities in competitivity appeared, the federal state will organize fiscal transfer from the poorest to the richest region to mitigate the inequalities (in fact, it doesn't even need to, because the state in itself is, most of the time, an organisation that always force fiscal transferts at a massive level, even in countries such as the US where the welfare state is way less developped than in europe). In a zone with no common currency, floating currency will adjust themselves to prevent high inequalities in the balance of payments : as a country buy more competitive product from another country, the purchasing power of its currency will drop and prevent said country to continue buying the more competitive product, which coincidently will lose their competitivity gain only for monetary reasons. This is actually one of the reason why China, heavily oriented toward exportation, have one of the highest saving rate of the world (50 % of its GDP !). | ||
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Nyxisto
Germany6287 Posts
Every time someone brings this simple fact up you just act like this person does not think Greece deserves to have a high standard of living or something. "That's just your moral point of view!" has become your standard rebuttal to everything that has nothing to do with ethics at all. | ||
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WhiteDog
France8650 Posts
On February 22 2015 08:37 Nyxisto wrote: That's not a moral point of view. The Eurozone increased Greece's standard of living and decreased interest rates by design. If they had their own currency they could not have imported as much as they did and would have needed to borrow at higher interest rates. Every time someone brings this simple fact up you just act like this person does not think Greece deserves to have a high standard of living or something. That's a moral point of view because you put aside the fact that german and french refused to invest their money and preferred to give them to the greece. Actually, from a purely economical standpoint, the interest rate is the compensation for the various risks taken to lend the money, and now if Greece refuse to pay back, it is more Germany's fault than Greece's fault - for misinterpreting the risk of default and lending money at a lower interest rate than it should. Takes two to tango, but somehow you place all the burden on Greeks. | ||
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Nyxisto
Germany6287 Posts
It clearly didn't work in the case of Greece but it did work pretty well in the Baltics. There was no explosion of debt there and they've experienced considerable GDP growth since the Euro was introduced. I also do understand that it takes two parties to borrow and lend and I'm not saying Greek needs to bleed out or whatever. All I'm saying is that this situation could have been avoided, it's not a systemic problem of the currency, and this has a lot to do with Greece's policy making over the last years. | ||
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Makro
France16890 Posts
On February 22 2015 04:56 Nyxisto wrote: You can't simply lay people off here. Full-time employed workers are pretty much unfireable. This is why I'm not sure I'll buy the whole" education protects you from unemployment" thing. I don't believe it's universally true. really ? in french medias they say that one of the main reason we are in a deep shit is because our laws for workers are too strict and that corporations can't fire people like in great britain for example ... thanks for the insight edit : i'm not trying to sound cynical or whatever | ||
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WhiteDog
France8650 Posts
On February 22 2015 08:49 Nyxisto wrote: Sure, but we did it on purpose. We wanted to enable Greece to grow and develop faster than they could on their own by carrying the risk of balance inequalities. That was the whole idea behind the Euro, make the common currency first and then try to accelerate development in the periphery so they can catch up. It clearly didn't work in the case of Greece but it did work pretty well in the Baltics. There was no explosion of debt there and they've experienced considerable GDP growth since the Euro was introduced. Then are you not responsable for stupidly giving money at a lower interest rate than you should have ? Really I don't know everything about the Baltics : different situations create different results. Aside from Poland, who receive MASSIVE help from the europe (and not through loan, but through direct european financement) I don't see much fairy tail in europe. | ||
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Nyxisto
Germany6287 Posts
The whole hope was that Greece uses the good conditions they get to grow the economy as fast as possible. Now that they have very little to show on that side I believe really is Greece's fault. Many "second world" countries have caught up over the last years and not ended up in some kind of debt trap, and they also didn't have great starting conditions. | ||
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IgnE
United States7681 Posts
On February 22 2015 04:38 WhiteDog wrote: I just showed two graph : one with productivity, one with wage increase, and you clearly see Germany is below what it should according to economist definition of wage increase (wage are at marginal productivity). Everybody knows that German's wages are below what they "should" from a purely economical standpoint, because they opted for a strategy of competitive disinflation : so it's not the result of economic realities, but the result of a political strategy, possible for cultural reasons (german accept low wage ?). It is not counter intuitive at all : yes it is empirically proven that diploma, experience and qualification protect from unemployment. France is a text book proof of that fact, as we have one of the highest productivity in the world (if you put aside small cheating countries such as luxemburg) but that is both the result of our educational system and of our tendancy to exclude the poorest and most uneducated people from the labor market (and force them into long term unemployment). On February 22 2015 04:56 Nyxisto wrote: You can't simply lay people off here. Full-time employed workers are pretty much unfireable. This is why I'm not sure I'll buy the whole" education protects you from unemployment" thing. I don't believe it's universally true. This is why Germany is upset about Syriza, the possibility of Greek default, and the possibility of increased minimum wage in Greece. Germans have been living on part-time work and low salaries but felt ok about it because at least they weren't doing worse than Greece/Spain/Southern Europe. | ||
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Nyxisto
Germany6287 Posts
http://en.wikipedia.org/wiki/List_of_European_countries_by_median_wage The only country that seems to pay significantly higher wages despite having a similar GDP per capita is the UK. | ||
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cLutZ
United States19573 Posts
On February 22 2015 08:47 WhiteDog wrote: That's a moral point of view because you put aside the fact that german and french refused to invest their money and preferred to give them to the greece. Actually, from a purely economical standpoint, the interest rate is the compensation for the various risks taken to lend the money, and now if Greece refuse to pay back, it is more Germany's fault than Greece's fault - for misinterpreting the risk of default and lending money at a lower interest rate than it should. Takes two to tango, but somehow you place all the burden on Greeks. First of all, the Germans were not refusing to invest. They invested IN GREECE. They made a mistake, that is fine. On February 22 2015 08:50 WhiteDog wrote: Then are you not responsable for stupidly giving money at a lower interest rate than you should have ? Really I don't know everything about the Baltics : different situations create different results. Aside from Poland, who receive MASSIVE help from the europe (and not through loan, but through direct european financement) I don't see much fairy tail in europe. Yes. The Germans, etc were stupid for loaning at low interest rates to the Greeks because they overestimated the Greeks' ability to repay. Right now, if I were the Greek government I would probably try to go the rout of defaulting on all payments of Greek debt, but remaining in the Eurozone. That is surely a bad option for the Greeks, but all the options they have are bad. And all involve violating a promise made to someone. | ||
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Taguchi
Greece1575 Posts
And they were doing it not because the many savings of the German people made them able to share the wealth far and wide but because these banks could get to damn near infinity leverage if they lent money to sovereigns, since sovereigns in the Eurozone were considered 'risk-free', thus those loans barely counted (if at all as I understand it) towards regulatory ratios. Yes, even crappy sovereigns like Greece or the other PIIGS (particularly like how poor Ireland is included in that nasty acronym, the only mistake, by neoliberal standards, its government made was to save its overleveraged banks!). Then the whole CDO scam imploded in 2008 in the US, EZ sovereigns came to the rescue because their banks had invested in CDOs, CDS were created since those very sovereigns had obviously become problematic themselves because they borrowed so much to deal with the CDO issue and the first CDS target was the crappiest of the sovereigns, Greece. If Greece had played nice with its loans (again, it didn't) the original target could've been Ireland instead - after all, those fellows did play nice but still got the IMF treatment. And the whole reason the banks lent recklessly and the Greeks didn't even care was the misplaced trust/euphoria in the Euro, which unfortunately was not up to the hype. If the banking system had played nice and the EZ lacked fiscal transfers and other basic tools of a monetary union, as it still does, there would still have been a collapse at some point, just not so fast or so hard. | ||
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IgnE
United States7681 Posts
On February 22 2015 10:58 Nyxisto wrote: I still don't understand where this low wage thing comes from. http://en.wikipedia.org/wiki/List_of_European_countries_by_median_wage The only country that seems to pay significantly higher wages despite having a similar GDP per capita is the UK. part time wages not the same as full time. a lot of german factories avoid layoffs by cutting back hours, which i don't think is reflected in all these "median wage" numbers. | ||
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Nyxisto
Germany6287 Posts
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IgnE
United States7681 Posts
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JonnyBNoHo
United States6277 Posts
On February 22 2015 10:58 Nyxisto wrote: I still don't understand where this low wage thing comes from. http://en.wikipedia.org/wiki/List_of_European_countries_by_median_wage The only country that seems to pay significantly higher wages despite having a similar GDP per capita is the UK. It's a unit labor costs thing. Wages are low relative to output, not low relative to other nations. ![[image loading]](http://www.maximise.dk/wp-content/uploads/2015/02/euro_zone_unit_labour_costs.jpg) This feeds into Germany's large trade surplus. | ||
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Nyxisto
Germany6287 Posts
If productivity is on par with France roughly: http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode=tsdec310&plugin=1 And the wages are pretty much even as shown above, how can the unit labour cost be so different? | ||
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JonnyBNoHo
United States6277 Posts
On February 22 2015 12:51 Nyxisto wrote: This confuses me. If productivity is on par with France roughly: http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode=tsdec310&plugin=1 And the wages are pretty much even as shown above, how can the unit labour cost be so different? The chart I posted is the change in unit labor costs, not the unit labor costs themselves. Also, you'd want to compare that productivity with mean, rather than median compensation. | ||
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Wegandi
United States2455 Posts
On February 22 2015 08:49 Nyxisto wrote: Sure, but we did it on purpose. We wanted to enable Greece to grow and develop faster than they could on their own by carrying the risk of balance inequalities. That was the whole idea behind the Euro, make the common currency first and then try to accelerate development in the periphery so they can catch up. It clearly didn't work in the case of Greece but it did work pretty well in the Baltics. There was no explosion of debt there and they've experienced considerable GDP growth since the Euro was introduced. I also do understand that it takes two parties to borrow and lend and I'm not saying Greek needs to bleed out or whatever. All I'm saying is that this situation could have been avoided, it's not a systemic problem of the currency, and this has a lot to do with Greece's policy making over the last years. The Baltics have much more freer economies, and a better tax structure. Why you ignore that, and decide to focus only on one aspect makes little sense other than perhaps for ideological purposes. Then there is the argument that the IMF and Euro-banks entice poorer countries to make poor economic decisions knowing they're likely to default because they can take the countries assets for relatively cheap due to the nature of fiat currency. The same is true of the Fed in the US. They're more like Corporate Welfare regimes and redistributive wealth schemes than institutions fostering 'good will'. It's not like people didn't see Greece from a million miles away, just like the situation that has been plaguing Africa for a long time now. | ||
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