Greece becoming a failed state?

[Winner]

Couldn't agree more.
The one positive thing in this fiasco is that MAYBE it'll make UE leaders think a bit more before overextending, and remember the concept of "consolidation".

It's EU. "E" first. The same goes to the "consolidation" concept, always championed by the French who can't get over their diminishing influence in the EU, so they always try to erect new barriers to prevent more integration.

I hope it finally allows us to have a "Europe of two velocities".

The Germans especially should be afraid of a two-speed Europe. I understand that dealing with the ones of Britain (often followed by Czechia, sadly) is frustrating, but the moment we split the EU into plus and minus categories, we can just give up. It would inevitably get entrenched and the project would grind to a halt.

I only support the notion of having multiple opt-in/opt-out categories (commons currency, Schengen, etc.). If a country doesn't want to participate, fine, but it must not be allowed to block the others from going further.

 

[Grimz101]

The Germans especially should be afraid of a two-speed Europe. I understand that dealing with the ones of Britain (often followed by Czechia, sadly) is frustrating, but the moment we split the EU into plus and minus categories, we can just give up. It would inevitably get entrenched and the project would grind to a halt.

I only support the notion of having multiple opt-in/opt-out categories (commons currency, Schengen, etc.). If a country doesn't want to participate, fine, but it must not be allowed to block the others from going further.

From what I've read, Germany likes to use the UK and others to balance consensus away from France's and other's protectionist ideals.
Having a two speed Europe has many pros & cons. After the lisbon fiasco in which it took half the time I have been living on earth to implement reform in Europe (if you include to precursor constitutional treaty) a two speed Europe makes sense, otherwise in my opinion there is the real risk Europe stagnates. Then again if a core Europe goes too far, implementing a tax on financial transactions etc, the UK and other pro trade countries would never join.

 

[Akka]

It's EU. "E" first. The same goes to the "consolidation" concept, always championed by the French who can't get over their diminishing influence in the EU, so they always try to erect new barriers to prevent more integration.

Don't be daft and paranoid. Consolidation is required before expansion, it has nothing to do with some kind of shady conspiration crap. It's better for everyone if things are smoothed and in working condition first, and then only when the whole thing runs adequately, you add more.

If not, well, you end up with an overstretched creaking junk that breaks apart because it wasn't reinforced enough first. Or is gutted of its essence by centripetal (centripeting ?) forces.

 

[Leoreth]

II only support the notion of having multiple opt-in/opt-out categories (commons currency, Schengen, etc.). If a country doesn't want to participate, fine, but it must not be allowed to block the others from going further.

That's what I understand as "two speeds". It's not about making an arbitrary division into "good Europe" and "bad Europe" or something like that. It's about getting away from the situation where one single country can veto reform and progress by simply refusing or being unable to follow.

 

[Tahuti]

That's what I understand as "two speeds". It's not about making an arbitrary division into "good Europe" and "bad Europe" or something like that. It's about getting away from the situation where one single country can veto reform and progress by simply refusing or being unable to follow.

Countries unable to follow shouldn't've been allowed to join in the first place until they were prepared. Next-time, it may be a better idea for the European Union to only accept new member states that are also ready and willing to immediately join the Eurozone too.

 

[Winner]

Don't be daft and paranoid. Consolidation is required before expansion, it has nothing to do with some kind of shady conspiration crap. It's better for everyone if things are smoothed and in working condition first, and then only when the whole thing runs adequately, you add more.

Conspiracy? Nah, everybody knows what France expects from the EU, it's common knowledge.

If not, well, you end up with an overstretched creaking junk that breaks apart because it wasn't reinforced enough first. Or is gutted of its essence by centripetal (centripeting ?) forces.

That's obvious. Some members (Britain) want endless expansion in hope it will stop any attempts to integrate the EU further. The problem is that certain members use "consolidation" as an excuse to turn the EU into a protectionist, closed bloc that will not expand ever again. Doing that would of course totally screw up the EU foreign policy and eventually destroy the union from within.

So far, there is little evidence that enlargement is to blame for any of the EU's problems - unless you mean enlargement in general, that is, everything that happened after ECSC was founded. Greece, Portugal, Ireland, Spain, Italy - all these are old member states. The European Constitution treaty was blocked not by Czechia or Poland, but by France and the Netherlands. France and Denmark have been the ones trying to undermine the Schengen agreement recently, not any of the new EU members. Italy has blocked the European Commissions attempts to liberalise the services market in the EU. The new EU members which adopted the Euro are doing just fine, unlike some of the old member states. So, how exactly does enlargement stand in the way of further integration? Someone explain it to me on concrete examples, please.

 

[RRRaskolnikov]

Conspiracy? Nah, everybody knows what France expects from the EU, it's common knowledge.

A good base to launch another attempt on Moscow, 200 years later?

That's obvious. Some members (Britain) want endless expansion in hope it will stop any attempts to integrate the EU further. The problem is that certain members use "consolidation" as an excuse to turn the EU into a protectionist, closed bloc that will not expand ever again. Doing that would of course totally screw up the EU foreign policy and eventually destroy the union from within.

nobody within the current union agrees on its form nor on its goal, so it might be wiser to get this settled down before going on with the land grab. Also, you present it as if it's all black and white: end less expansion, or forever fixed borders? Don't you think there is a balanced way to handle things?

So far, there is little evidence that enlargement is to blame for any of the EU's problems - unless you mean enlargement in general, that is, everything that happened after ECSC was founded. Greece, Portugal, Ireland, Spain, Italy - all these are old member states.

You implies that because some new members are doing fine, they aren't problematic for the rest of the puzzle (it seems to me that the problematic is mutual adaption - in terms of social/work laws and prices -, rather than individual performance), which is convenient from your point of view.

The European Constitution treaty was blocked not by Czechia or Poland, but by France and the Netherlands. France and Denmark have been the ones trying to undermine the Schengen agreement recently, not any of the new EU members. Italy has blocked the European Commissions attempts to liberalise the services market in the EU.

And?
Of course it's the members which have seen their situation go from bad to ugly that complain, the other way around would be surprising.

---

The treaty wasn't blocked since it's currently causing troubles. The french result was mostly a big screw up from Raffarin and all more than anything else.
Schengen: Sarkozy trying to get some more FN (facists) votes... you can't read european politics without any attention to domestic affairs.

 

[Dachs]

Let's just hope the current crisis doesn't result in a lost decade for Europe, or at worse a break up of the Union. An United Europe would be a good counterweight to America and China.

Counterweight? In what sense?

 

[RRRaskolnikov]

internet spamming probably

 

[Winner]

Counterweight? In what sense?

Moderating influence would be a better term.

 

[Grimz101]

Counterweight? In what sense?

In the last few decades we've seen the importance of treaty based institutions. Those forged by the Doha round talks, G20, kyoto talks, etc. A united European voice on the matter would be stronger than the sum of it's parts in a multi-polar world.

In the context of the rise of the BRICs and others, Europe needs to unite or dwindle.

 

[innonimatu]

Doha round talks

The failed recent trade talks?

G20

What did they ever agree to do? Also, what are the "G20" - supposedly "the largest 20 economies". Expecting them to produce any meaningful agreement is as realistic as expecting agreements from all the countries with names starting with the letter "G". Having a single thing in common does not make a sound basis for any agreement. Mind you, we also have the rather intriguing "G8" which mysteriously excludes the worlds second largest economy... this "G" soup really is interesting!

kyoto talks

You mean the never-really-obeyed agreement to limit CO2 emissions coupled with an idiotic idea of "pollution trading", the whole of which is now being allowed to quietly expire?

the rise of the BRICs

More letter soup!

 

[kronic]

Is there?

With all due respect to the authors, I doubt it very much. As of today, German 10y bonds yield less than 1.5 %, 5y bonds around 0.5 % and 1 and 2y bonds not even 0.1 %. This is considerably less than what the US and UK have to pay despite their current safe heaven status backed up by the clear commitment of their central banks to buy up every single bond should it be necessary. The German bond market is very large and very liquid - I really doubt there's much to gain from making it even bigger by adding worse debtors then the German sovereign. The downside is that Germany then guarantees everyone's debt forever (for the first 60 % of GDP) while it's not even going to solve the underlying economic problem of the Eurozone (i.e. the lack of external competitiveness of various countries, not only relative to Germany but mostly (!!!) to everyone in- and outside of the Eurozone). Just why do I not like any Eurobond proposal?

 

[Grimz101]

The failed recent trade talks?



What did they ever agree to do? Also, what are the "G20" - supposedly "the largest 20 economies". Expecting them to produce any meaningful agreement is as realistic as expecting agreements from all the countries with names starting with the letter "G". Having a single thing in common does not make a sound basis for any agreement. Mind you, we also have the rather intriguing "G8" which mysteriously excludes the worlds second largest economy... this "G" soup really is interesting!



You mean the never-really-obeyed agreement to limit CO2 emissions coupled with an idiotic idea of "pollution trading", the whole of which is now being allowed to quietly expire?



More letter soup!

Whether or not these various multi nation treaty based institutions have had total success, a United Europe with one clear voice on the issues, instead of several fragmented countries voicing opinions would surely make a difference. Imagine a fragmented United states in which the individual states negotiate in these various treaty based institutions. Clearly a homogeneous voice results in better leverage. Maybe I didn't give the best examples of treaty based institutions but that's not the main point I was trying to portray.

The "BRICs" Brazil, Russia, India and China are clearly growing faster then Europe as a whole, Europe needs to consolidate, or become ever more marginalized in the world stage, as they fall in the GDP world rankings relative to others.

With all due respect to the authors, I doubt it very much. As of today, German 10y bonds yield less than 1.5 %, 5y bonds around 0.5 % and 1 and 2y bonds not even 0.1 %. This is considerably less than what the US and UK have to pay despite their current safe heaven status backed up by the clear commitment of their central banks to buy up every single bond should it be necessary. The German bond market is very large and very liquid - I really doubt there's much to gain from making it even bigger by adding worse debtors then the German sovereign. The downside is that Germany then guarantees everyone's debt forever (for the first 60 % of GDP) while it's not even going to solve the underlying economic problem of the Eurozone (i.e. the lack of external competitiveness of various countries, not only relative to Germany but mostly (!!!) to everyone in- and outside of the Eurozone). Just why do I not like any Eurobond proposal?

US Treasury 10 year bonds current yield is 1.74% yet would you really say that's the proper price considering their fiscal situation? Consider German exposure to peripheral debt.

(Source

Spoiler :

Alesia Kalbaska and Mateusz Gatkowski, forthcoming Journal of Economic Behaviour and Organization – Credit Default swaps in the Analysis of Eurozone Sovereign Contagion

Portugal, Ireland and Spain are already in dire situations, Greece going over the edge could push bond yields up in these three countries. Whilst German banks probably have enough equity to survive a default by Greece, if the other Peripherals, (mainly Spain) default, then Germany would face a banking crisis, and an export decline as their European trade partners face recession.

Yes Eurobonds won't restore competitiveness, put they'll offer a reprieve to peripheral nations, where by their net interest balance goes down, and they can slow down the pace of the some of the cuts that hurt growth.

(I'd go into more detail but I have an exam tomorrow, I would be ready to go into more detail come Thursday on any points if anyone wishes.)

 

[kronic]

Portugal, Ireland and Spain are already in dire situations, Greece going over the edge could push bond yields up in these three countries. Whilst German banks probably have enough equity to survive a default by Greece, if the other Peripherals, (mainly Spain) default, then Germany would face a banking crisis, and an export decline as their European trade partners face recession.

That is already happening. These countries are in severe recessions and German exports to them are way down. The export volumes into these countries were really in a bubble, at a level that was not sustainable for them. Consequently, the share of German exports into the Eurozone is now (2011) down to 40 % and the trade surplus with the Eurozone amounts to no more than €20bn.

Bank recapitalisations are unavoidable and should have been done way more aggressively back in 2008/09. Most or all of the peripherial countries will end up in some sort of default. Even with blue bonds, Spain et al. will not have the capacity to service their debt. I see Spanish debt going over 100 % of GDP within the next few years once the government decides to intervene decisevely in the Spanish banking sector - provided that a default didn't happen by then. I'm not optimistic that the Spanish economy can support such levels. I consider the money provided via EFSF/ESM as essentially gone. There's no way the hundreds of billions provided by Germany are going to be paid back once all the funds are being used.

Yes Eurobonds won't restore competitiveness, put they'll offer a reprieve to peripheral nations, where by their net interest balance goes down, and they can slow down the pace of the some of the cuts that hurt growth.

Not by much unless you manage to convert their debt into Eurobonds overnight. If current bonds are not converted but merely replaced over time, the slower pace of cuts will be barely feelable given how long it takes to roll over the entire debt stock of a country.

But what worries me even more is that Eurobonds may lead us back into the days when the same bond rates for everyone led to the great misallocation of capital we have seen in the earlier years of the Eurozone's existence. Note that rates on government bonds typically act as benchmarks for the rates available for the private sector. Northern countries, especially Germany, not primarily the sovereigns, but their private sectors, were royally screwed when they lost their advantage in rates. However, their low rates were the result of their economic performance while the lower rates in the periphery were not the results of their economic performance (productivity etc.) but of the perception that the North would essentially backstop the South. For the moment, low rates may indeed help to stabilise the Southern economies but the long-term effect of returning to the same rates for everyone without having the same economic structures, productivity etc. will be as disastrous as pre 2007. Why anybody would make these mistakes again, i.e. deliberately building an institutional structure that invites capital misallocation and bubbles, is beyond me.

 

[Snorrius]

What going to the Drachma would accomplish would be to allow Greece to crash and burn independently of the rest of the Eurozone. Which is probably the best outcome for everyone.

The prophecy shall come true. I doubt Greece will be only one as there are other states who are going to follow these route and while Europe can take one hit, another one from big country like Spain will be fatal. Euro can survive if only all uncompetent states would be excluded from Eurozone but it will not be euro as we know it.

 

[Cutlass]

The talk now is that the Euro is doomed. We shall see.

 

[anandus]

An interesting article in Der Spiegel about a plan that the German government is formulating to create growth in Europe by creating Special Economic Zones in crisis-countries in Europe where there can be fiscal benefits for foreign investors in exchange for labour market reforms and additional privatizations of state-owned companies.

It appears to be a move towards the SPD, Hollande and Syriza*.
(* Well Syriza won't like market reforms and privatizations AT ALL, but at least it's a step away from the austerity-only policy)

 

[Leoreth]

Throwing Syriza into one category with the SPD and Hollande is an insult to the latter. The good terms on which both seem to be is only due to the vague nature of their plans. Once they'll be actually worked out Syriza will realize that they won't help them with their illusion of being able to turn back time, too, and go full opposition against them as well.

 

[Terxpahseyton]

@kronic
I don't understand how low interest rates for a government by the means of eurobonds has influence on interest rates for the private market. I mean isn't a private entity that seeks debt judged for its individual merit, rather than the merit of its state? I don't understand how one would conflate the two.