Integral
Can't you hear it?
Eh, the ECB is basically the Bundesbank anyway.
Eurozone Debt Hurts Stock Markets
- Thread starter Tani Coyote
- Start date
Racsoviale
Smoke me a kipper!
Third time's the charm
On opposite day, maybe.
That Germany's trying to exert its influence in the EU is only natural, so is everyone else. Of course it's profiting from the union's open market, as do less developed countries profit from subventions funded mostly by Germany.
Even if you'd like to construct motivations of European dominance under EU disguise, it would be apparant to you that none of this is possible for Germany alone or even all of its giver nations, given the number of receiver nations and the unproportional representation in the EU's legislative institutions. This is of course assuming you know anything about the EU's political structure, which you obviously don't.
I find it a typical American attitude to be unable to imagine a country without ridiculous militaristic and patriotic fervor.
warpus
In pork I trust
Depends. Poland, for example, is still growing at a very healthy rate, despite the economic downturn.
Gabryel Karolin
Gammelgädda
Hardly, Greece were bailed out weren't they.
The problem is that the real problem never went away with nationalizing car companies and banks and hundreds of billions of dollars in artificial breathing, only noone wants to admit that so this "new" crisis apparantly is about southern Europe being incompetent and the euro loosing value vs the dollar. I mean come on, a peripherous fringe country known for its corruption and incompetence is found to be corrupt and incompetent and the whole world panics? And the euro is still up 20% since introduction and 50% since the all time low against the dollar so there is plenty of room there.
Yeah, the Euro was overvalued over the last years anyway. That import-heavy countries, that have profited from this for a long time, are now making demands to export-heavy countries, is as understandable as it is hypocritical.
Grimz101
King
The low Euro will boost exports, and with the $1 Trillion from the ECB & IMF I doubt anything bad will happen *shrugs*.
Verbose
Deity
Except you know, IF we all go for the German kind of export driven model, where Germany has essentially had 0% wage growth while on the Euro, to top the Germans, everyone will have to slash wages to underbid them, and get a piece of the German export market. If any country has profited so far, Germany has.
So then the race to the bottom is on, with all kinds of national economies contracting all over the Eurozone, possibly triggering that global recession we've been trying so hard to avoid. Investors worry like crazy that the Greek economy won't be able to pick up sufficiently to ensure necessary growth to pay for its debt. It can't become competitive with Germany by depreciating its currency as it's on the Euro (otherwise devaluation or inflation), so all that remains is slashing wages across the board, or leaving the Eurozone. If it leaves the Eurozone, the market worries about that, if it slashes wages and cripples its GDP that way, it worries as well.
But hey, now it's crunch time and the Eurozone is set to try to underbid Germany, so we can all be snipping bits and pieces off the German surplus export, so everything's all right, right?
Face it, Mise was right in his post. It can't work with everyone just trying to do what the Germans have been doing. The current German model doesn't work unless others take up slack from it.
It probably really is simpler to solve the crisis for the Eurozone by Germany putting on its spending pants, than for everyone to try to starve themselves into a size costume smaller than Germany's. It might not be palatable in Germany and it's counter intuitive since I guess the Germans tend to feel they should be rewarded for showing all these frugal virtues, not find it might have been the entirely wrong thing to do.
Tani Coyote
Son of Huehuecoyotl
- Joined
- May 28, 2007
- Messages
- 15,191
The Germans have always plotted to take over the world. Now they realise its best to be discreet about it.
Now we need merely combine Germany with Britain and America, and Rhodes' dream will be a reality!
Indeed. They shall win the third war for sure.
First off: It was a joke. Germanophilic comments are a typical thing here.
Second: I don't think it has anything to do with being "American" or such. Germans, from what I've heard, are very reluctant to be patriotic(sadly, given they have a great history and plenty of reasons to be proud) or even support the military, compared to the rest of Europe. Isn't there some law that prevents writing music that mentions the military?
I understand this all dates back to the Third Reich, but dear god, that was over half a century ago. Get over it and re-assert yourselves as the greatest nation in Europe. The Germanophiles will respect you for it once you storm Paris and Warsaw.
Third: Nice unnecessary jab at America though.
It was merely a joke about how Germany's relative lack of patriotic sentiment is actually a disguise for their obvious intentions of world domination.
OBVIOUS.The German savings ratio probably just hit a 17-years-high...somewhere around 12-15 % now (which is not higher than the Eurozone average btw). The government is running a deficit of over 5 % of GDP this year. That's not really low...only compared to the US or the UK (but these countries are not a good benchmark in this case). In other words, its hands are tied...and even more so as the federal government directly controls only about 1/3 of total government expenditure. The deficit has to be reduced to 0.35 % by 2016 by constitutional law. I have bad news for everyone hoping for a more expansionary fiscal policy in Germany: it's not gonna happen for the reasons stated above. Only the Left Party would be in favour of it but it remains isolated. Public opinion is totally geared towards balancing the budget.Except you know, IF we all go for the German kind of export driven model, where Germany has essentially had 0% wage growth while on the Euro, to top the Germans, everyone will have to slash wages to underbid them, and get a piece of the German export market. If any country has profited so far, Germany has.
So then the race to the bottom is on, with all kinds of national economies contracting all over the Eurozone, possibly triggering that global recession we've been trying so hard to avoid. Investors worry like crazy that the Greek economy won't be able to pick up sufficiently to ensure necessary growth to pay for its debt. It can't become competitive with Germany by depreciating its currency as it's on the Euro (otherwise devaluation or inflation), so all that remains is slashing wages across the board, or leaving the Eurozone. If it leaves the Eurozone, the market worries about that, if it slashes wages and cripples its GDP that way, it worries as well.
But hey, now it's crunch time and the Eurozone is set to try to underbid Germany, so we can all be snipping bits and pieces off the German surplus export, so everything's all right, right?
Face it, Mise was right in his post. It can't work with everyone just trying to do what the Germans have been doing. The current German model doesn't work unless others take up slack from it.
It probably really is simpler to solve the crisis for the Eurozone by Germany putting on its spending pants, than for everyone to try to starve themselves into a size costume smaller than Germany's. It might not be palatable in Germany and it's counter intuitive since I guess the Germans tend to feel they should be rewarded for showing all these frugal virtues, not find it might have been the entirely wrong thing to do.
As for private demand: my money is on further decline or stagnation (at best). It's not in the Germans' mindset to spend hard earned money in times of rising threats of unemployment and tax increases.
And wage increases? I agree that it would make sense to let German wages rise and wages elsewhere fall (as opposed to just let them fall everywhere). But German wages won't rise. The labour unions have been in a very defensive position for one or two decades now. While they're powerful they've never asked for big wage increases. And given Germany's export dependance business organisations have a strong public standing. As long as the Euro existed (and possibly even longer) they, supported by politicians of almost all parties (at times even the Social Democrats) and the Bundesbank (which remains highly regarded by the public), asked for wage moderation and played the threat of job losses. Do you really think that's going to change now? My bet is it won't.
innonimatu
the resident Cassandra
- Joined
- Dec 4, 2006
- Messages
- 15,060
One question: if debt (public and private) in most countries around the world has never been higher, if savings are at a very low point, where has the money for the loans come from?
The foundation of accounting is that assets and credits must balance. If someone owes money, someone else is a creditor. For people and for institutions. So, who is holding the credits? Who accumulated all that wealth? And why is not that being taxed by the states deep in deficit?
The foundation of accounting is that assets and credits must balance. If someone owes money, someone else is a creditor. For people and for institutions. So, who is holding the credits? Who accumulated all that wealth? And why is not that being taxed by the states deep in deficit?
I think at least part of it is from sovereign wealth funds
Then why didn't everyone of you do it? Economic responsibility? Seriously?
While that is true, you can't hold Germany responsible for letting in a country into the Eurozone that was obviously not able to economically cope with its new strong currency in the first place.
The good news is Greece, Spain and Portugal don't have to access the public capital markets for 3 years. The problem lies in the fiscal discipline these countries have to adhere to secure EU-IMF financing. I think Greece is just the canary in the coal mine as Thailand was in 1997 to Russian defaults and New Century Financial was to Lehman Brothers.
It remains to be seen how Greece and other problem countries manage to cut deficits without controlling their money supply. For instance, Canada did it in the 90's but that was with the help of devaluing their currency by 30%.
The statistics I've read on this are not particularly happy when we consider 20% of the world economy is slowing going forward.
Consider this, based on 2009 numbers (and 2010 numbers make matters worse) if European countries revert back to Maastricht criteria of 3% deficit to GDP.
Here's the reduction to growth of nominal GDP annually over the next three years.
Finland--no problem. Already under 3% deficits.
Austria (0.2%) annually
Italy (0.8%)
The Netherlands (0.8%)
Belgium (1%)
Germany (1%)
France (1.5%)
Portgual (2.2%)
Spain (2.8%)
Greece (3.5%)
Ireland (4%)
That said I made considerable shifts to my equity stake. I was fully invested since the beginning of May, 2009 but since the first week of May, 2010 I'm 30% long equities and 20% short equities.
Be ready to pick your spots. The best way to make money in a tumultuous environment is not to lose money but have it ready to put to use once things get really, really cheap. For me, it's "the trend is your friend until the end when it bends". The bend doesn't appear to close at this point so I'll wait.
Btw, Mise very solid post.
It remains to be seen how Greece and other problem countries manage to cut deficits without controlling their money supply. For instance, Canada did it in the 90's but that was with the help of devaluing their currency by 30%.
The statistics I've read on this are not particularly happy when we consider 20% of the world economy is slowing going forward.
Consider this, based on 2009 numbers (and 2010 numbers make matters worse) if European countries revert back to Maastricht criteria of 3% deficit to GDP.
Here's the reduction to growth of nominal GDP annually over the next three years.
Finland--no problem. Already under 3% deficits.
Austria (0.2%) annually
Italy (0.8%)
The Netherlands (0.8%)
Belgium (1%)
Germany (1%)
France (1.5%)
Portgual (2.2%)
Spain (2.8%)
Greece (3.5%)
Ireland (4%)
That said I made considerable shifts to my equity stake. I was fully invested since the beginning of May, 2009 but since the first week of May, 2010 I'm 30% long equities and 20% short equities.
Be ready to pick your spots. The best way to make money in a tumultuous environment is not to lose money but have it ready to put to use once things get really, really cheap. For me, it's "the trend is your friend until the end when it bends". The bend doesn't appear to close at this point so I'll wait.
Btw, Mise very solid post.
Verbose
Deity
I never said Greece etc. did good here. They got on the Euro and then got high on cheap credit — since at the time that was what benefited the German economy most (the ECB took more cues from what was good for Germany than, say tiny Greece and Portugal). Maybe they shouldn't have, but getting down from the run-away wage increases now involves slashing GDP on a scale that will hurt the entire EU (since currency depreciation and inflation are out) — which isn't in the German interest either. No one really cares if Greece goes down over this, it's small enough not to matter that much, but if Germany can be expected to be the only part of the EU economy that grows in the decade to come, then the EU is probably going down, and the market is jittery over that aspect, rather than over whether Greece specifically will go bankrupt or not. It's not about Greece, it's about the EU.
And we can't allow the PIIGS to just go belly up. If it was the US, a lot of the people there would move where the growth and the jobs are — in this scenario quite possibly Germany. Is Germany expecting to take in large sections of the Greek, Portugese, Spanish etc. workforce in the years to come?
No I can't. But it doesn't matter. This is about how the EU works, specifically the Eurozone, and not about Germany or Greece individually. And the real market fear right now is that, well, apparently the Eurozone isn't working. But sorting Greece out in the short term means next to nothing compared to sorting Germany out in the long term — and Germany can't go on inside the Eurozone like it has so far, since it will likely end up wrecking smaller, weaker EU members, unless as said they start racing Germany towards the bottom, bringing the EU GDP down big-time, causing recession. Power bringing responsibility and all that.
Or we just scrap the Eurozone because Germany wants to keep exporting no matter what? It was good for Germany while it lasted, but now the jig is up, and everyone fend for themselves...
As you can tell the apparent present German self-declared victim-hood doesn't sit too well with me. But the problem is really structural and with the entire Eurozone construct. Germany can still make it work for a while, perhaps enough for the Eurozone to reform itself, or bring it down.
But sure, Greece should never have been allowed to join. A coordination of financial policies from the Eurozone's inception would have been wise — though not politically possible at the time. Then otoh France and Germany shouldn't just have waived the conditions for Eurozone membership for themselves a couple of years back when they ran up budget deficits above the set level with impunity, etc...
The problem is that all member sates have looked out for Nr One, with no one sufficiently looking at the big picture, and no integration of financial policies. And while Greece has been downright fraudulent in its dealings with the rest, the German choices hasn't helped anyone but Germany. So, yeah, why should we expect more from Germany? — like accepting higher interest rates than necessary to baby the southern European economies along when they could have used it to not en up in the present mess — but then again the German power in economic matters is such that it should be expected to be aware of its own strength at least.
Because it's not as is all the PIIGS are like Greece. Spain, a rather bigger economy, ran budget surpluses for a decade and was an exemplary Eurozone member, it just got dumped on by having a overheated real estate bubble burst — with Madrid's hands often tied when it came to trying to cool things down, as it was stuck on the Euro, and the low interest rates making credit cheap Germany largely insisted on — while the global economy in general went south in 2008.
Greece in annoying and all, but much larger Spain is getting clobbered because too many people can see no way for it to climb out of the hole it suddenly got dumped into mostly through no fault of its own — but where Germany sticking to conducting its business mostly as it has done for the last decade or so pretty much dooms the Spaniards.
You make it sound like there was no case for low interest rates. What would have happened if they had been considerably higher than they were? Given that Germany did not grow at all for a while it would have undoubtedly caused a very long recession in Germany and most likely Italy. Germany alone has more inhabitants and a larger economy than Spain, Ireland, Portugal and Greece combined. So, would it have been better? What do you think what the German response would have been? Quite likely even stricter cuts and more austerity, increasing the problem of diverging competitiveness. You present too much of a simplistic view if you think everything would have been good if interest rates had been higher.
The main problem of the Eurozone is that the 11/12 economies were extremly different right from the start of EMU. There was and is no way to set an interest rate that fits everyone. I doubt that it fits many countries at all. And in the German case, it's fair to say that it was even still too high for many years when you look at GDP, inflation and credit growth data. Maybe, it's better to end this Euro experiment. The austerity measures will cause too much pain in the South (even without the € but the Germans are not really willing to remodel their economy either.
The main problem of the Eurozone is that the 11/12 economies were extremly different right from the start of EMU. There was and is no way to set an interest rate that fits everyone. I doubt that it fits many countries at all. And in the German case, it's fair to say that it was even still too high for many years when you look at GDP, inflation and credit growth data. Maybe, it's better to end this Euro experiment. The austerity measures will cause too much pain in the South (even without the €
but the Germans are not really willing to remodel their economy either.
JerichoHill
Bedrock of Knowledge
except greece? including developed world? no.
Mise
isle of lucy
If we take German reticence towards boosting domestic demand as a given, then shouldn't we be arguing for looser monetary policy, and perhaps a higher inflation target? Increased inflation expectations should encourage spending in Germany but would also make it easier for governments and employers in Greece, Spain, etc to reduce real wages, as it would require a smaller decrease in nominal wages/pensions/benefits/etc to produce the same real wage reduction (=> increased competitiveness). It will of course mean slightly higher premia on sovereign debt, but thanks to the ECB's move to buy more sovereign debt, we won't have to worry about that for a few years yet.
Yes, I know this will be highly unpalatable for the German government, Bundesbank and electorate, but the ECB is supposed to be independent... right?
Yes, I know this will be highly unpalatable for the German government, Bundesbank and electorate, but the ECB is supposed to be independent... right?
