From A Greek Debt Crisis To A Eurozone Structural One?

When we look back five years from now, will we see this week as marking a turning point in the short, but far from uneventful, ten year history of Europe’s common currency? Certainly recent comments by the deputy governor of the People’s Bank of China have made evident what was already implicit: the dependence of EU sovereign debt on sentiment in global markets, especially in Asia and the Americas. Simon Derrick, chief currency strategist at Bank of New York Mellon even went so far as to say the trauma of recent days might well signal the point that we stop talking about a “Greek debt crisis” and start talking about a “Eurozone structural crisis” . And while Herman Van Rompuy, president of the European Council, was telling us on the one hand that the eurozone will never let Greece fail, Jane Foley, research director at busied herself explaining, on the other, that any involvement of the International Monetary Fund in helping Greece to stabilise its fiscal position only heightens the risk that the country might one day end up leaving the eurozone. So just where are we at this point?

Basically it is important to recognise that the current crisis has placed the spotlight on the severe institutional weaknesses which lie underpin the common currency, and it is just these weaknesses which are leading so many commentators to now ask themselves whether it might not have been easier to implement political union in Europe before embarking on such an ambitious monetary experiment.

These weaknesses became even more clear on Thursday when Jean Claude Trichet went very public in making clear that he personally is totally opposed to IMF participation in any Greece “rescue”. “If the IMF or any other authority exercises any responsibility instead of the eurogroup, instead of the governments, this would clearly be very, very bad,” he said on France’s Public Senat television. And this on the same day as Angela Merkel and Nicolas Sarkozy were publicly celebrating the triumph of the “Franco-German” entente. Clearly there are still many rivers left to cross before we can say we have reached the other side in this particular structural crisis.

Basically the issues facing Greece are now not primarily fiscal ones. The issue is how to get growth back into the economy fast enough to stop deflation and the economic contraction taking away all the good work acheived through fiscal cutbacks, and how to finance Greek borrowing at a rate of interest which stops the level of indebtedness spiralling upwards out of control.

The Economist magazine have done their own calculation on this, and they estimate that a loan of €75 billion rather than the currently rumoured €25 billion will be needed and that the country is likely to need five years (rather than three) to get its deficit down below 3% of GDP. They also assume that Greek GDP will be 5% below its current level by 2014. Obviously the output you get in these sort of calculations rather depend on the expectations you put in, but these are not unrealistic expectations.

As I explain in this post on the debt snowball problem, only two things really matter at this stage, the rate of change in nominal Greek GDP (that is non price adjusted) and the rate of interest charged on the sovereign debt. As regards nominal GDP, the Economist assume a 5% contraction in 2010. This may seem rather steep, but it does include an anticipated fall in prices as well as a drop in GDP. My own calculations suggest a drop in real GDP of about two percent, rather than the somewhat higher numbers others are talking about. I suggest this number is more realistic given the degree to which the trade deficit is likely to correct, and the net trade impact on headline GDP numbers.

As far as prices goes, I think a one percent fall in the CPI is a reasonable guess at this stage. If you look at the chart below you will see that interannual Greek inflation is still well above the EU 16 average, but prices have now been falling since November, and even though we shouldn’t neglect the impact of tax and public sector tariff increases, prices will almost certainly be down in December 2010 over January. The big difficulty is estimating by how much.

One of the key issues facing Greece at the moment, with large parts of its outsanding debt needing to be refinanced, is just what rate of interest (or extra spread) will have to be paid on any loan (I deal with this question in this post). This is almost a key question, since it can become a “life or death” issue in determining whether or not the country will be forced into default. But here both the EU and the IMF have a problem, since if the Euro Group countries make a loan at a level near to the the current price charged for German debt (which is what should happen if we argue Greek debt carries no additional risk since we are all guaranteeing it), then other countries who are currently paying more (Spain, Ireland, Portugal, Austria etc) may ask why they also could not have such favourable treatment. On the other hand, asking the IMF to make a cheaper loan causes problems, since it could be seen as subsidising Europe in sorting out its problems, and this might not be easily understood in Emerging Economies where there are evidently many more needy cases than Greece’s to think about.

The bottom line is that there is no easy answer here, and Europe is struggling to convince the rest of the world that it has both the will and the instruments to effectively tackle the problem of maintaining a single currency in a diverse group of countries. Herman Van Rompuy said on Friday there was no danger of Portugal being sucked into the same sort of debt whirlpool as Greece, and that Portugal would not be the next country to be sent over to Washington in search of a helping technical hand from the IMF. Which raises the question: if it won’t be Portugal, who will it be?

This entry was posted in A Fistful Of Euros, Economics: Country briefings, Economics: Currencies by Edward Hugh. Bookmark the permalink.

About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

49 thoughts on “From A Greek Debt Crisis To A Eurozone Structural One?

  1. Is there a point in trying if the chances of success are low? That is would it be better in that case to default now before a downward spiral is entered?

  2. If we set the bigger problems aside for a moment I don’t really see the problems with the financial needs of Greece. As far as I understand Greece doesn’t needs 75 Billion euro loan. It needs this sum over the course of the year and that is not quite the same.

    So in a month or so whenever Greece needs to place another 10 or 15 Billion euro bond on the market. Greec has two goals: Borrow this money and to borow it at moderate interest. If the financial markets don’t want to lend at moderate interest rates, help is needed. Germany (or France etc.) could borrow another 10 or 15 Billlion at 3 or 3,5% interest. This sum can then be reloaned to Greece.

    One or two months later the marktes will be willing again to lend, a willingness that should be hold to the end of the year.

    Of course a interset rate of 3,5% would be a bit unfair to Spain , Portugal and so on. But of course there is an easy solution: Germany (or France) will demand 3,5% + X from Greece, X being the difference between the lending cost of Germany and Spain(Italy, Portugal).

    Optimist claim that the threat of sich a action would be enough to kepp interest rates down. I think it has to be done at least once as a demonstration.

    Still all that needs to be done to keep Grecce solvent until the end of the year is one big loan. Is that really that difficult?

  3. Let me suggest that we stop using the insulting acronyms PIGS or PIIGS for the peripheral countries of the EU(we can use GISPI instead) and FUKD (or FUKDE as you have suggested) for France, UK, Deutchland. And, by the way, all Spain and Greece have to do, as far as some Germans are concerned, is to sell Majorka and Myconos, plus some monuments…But as Germany is also beyond the 3% limit of deficit/GDP, I hope they will agree to sell Bavaria…

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  5. I’m not sure if bavaria is equal to myconos. I’m not sure if germany who’s expected to help out greece needs to sell anything to take care of itself. Its not like germany is the country going around asking for help. I think we need to leave our personal dislikes of germans and greeks aside as that makes matters ridiculous.

  6. […]embarking on such an ambitious monetary experiment… benefits of the Euro for countries like Portugal was to allow economies with poor monetary institutions to benefit from top quality ones – yet crisis revealed the faultlines of monetary mechanisms and dispositifs that must reconcile conflicting interests and solve credibility problems over time.

  7. Maybe it’s already been mentioned, but I expect that one side-effect of all this will be a pretty serious wave of working-age emigration from the PIIGS – and so sorry Pkpetro, but this acronym is now common usage, so, tough – to the rest of Europe, including to parts of Europe that are not in the Euro. And I think that will be a net benefit to places like the UK and Scandinavia, since Greeks, etc., are very hard-working people. It will help to make their demographic situation better, and that of core-EU worse.

    I think in a few years time it will be marked as a true irony that Europe could institute free movement of labour before it could institute common fiscal government.

  8. “hope they will agree to sell Bavaria…”

    Huge snark fail due to the sub national against Bavaria especially from the Prussian regions (and vice versa).

  9. There is a fundamental problem with the analysis of the Eurozone. This is the first time ever when a major group of European welfare states effectively meet an economic crisis “depression style”.

    There hasn’t been a time in economic history were welfare states encountered depression economics 1930s style. The 1970s recession was one of stagflation, and discredited the Keynesian concepts. This recession however effectively should demonstrate that the institutions created in welfare states are able to cushion and deal with the economic fall out.

    Economic reorientation of a welfare state from a near-depression is an entirely different affair than economic reorientation for an Anglosaxon style economy.

    The policy recipe for a welfare state may not at all be a Keynesian recipe, but instead a series of negotiated changes in social arrangements.

    It is rather obvious that the key political problem before economic recovery is to curtail the financial sector and return them again in a limited sector of the economy where financiers aren’t the businesses that call the economic shots.

    It might be needed in Europe that politicians engage mainly into a kind of “trustbusting” Teddy Roosevelt style against the financial sector, while altering the social structure of the entitlement arrangements as their welfare state economies are far less in need of stimulus interventions.

    Seen from that perspective the Greek adaptations are exactly right. What is missing is a group of politicians who dare to curtail the financial sector. A revocation of banking licenses for investment banks after revealed misconduct may curtail them.

    Dealing in naked CDS on bonds can be construed as deliberately breaking insurance regulation (they are investment banks and lack insurance licenses) and prosecuted as such. It will be a shocker when Goldman Sachs, Morgan Stanley, JP Morgan Chase or some of the European banks that seem to engage in such dealings would face the treath of their operating license revoked, but that might be a more relevant and executable contribution than attempts to create new regulation.

    More executable, because such investigation and measure against financial misbehavers can be launched by one of the European governments with political support by others, instead of needing European co-ordinated agreements across all nations.

    An European Elliot Spitzer …

  10. Very often I think that Edward is joking. This is one of those instances.

    25.000 million euro is not even half the amount spent by the Bank of England and the Treasury in RBS. And that is just one of the five british private banks they have acquired. That money was not even a loan, it does not accrue any interests nor it has any return guaranties, so far it has lost more than half its value and there is no sight of any possible resale of those assets in any mid term future. Here we are talking about a country, Greece, with a GDP that dwarfs the bottom line of all those banks put together. But still he insists on this being some kind celestial apocalypse which will turn the world as we know it upside down.
    Then again, as I said, Edward does often engage in jokes of this nature like trying to find a pattern after pointing to some lost hamlet in Spain that does not pay its electricity bills.

  11. Pkpetro, could you take Bavaria for free? I know a lot of Germans that would fight and die for Bavarian independence. And while we are at it, please take also the Saarland and Saxony. I understand they are black holes and we might top this deal off with some money. (As hix said.)

  12. No time bought with this agreement. Does not help Greece either in the short term or long term due to all the strings the ifs the buts and the vetoes attached.

    What might have saved the day, temporarily, for Greece, is ECBs decision to continue accepting downgraded government bonds as collateral. Trichet pre-empted both Sarko and Merkel. Now Greece might not be saved by this, but her Banks will surely make a few more bucks in the short term.

  13. Yes, Nikos, I’m already aware that greece spends a lot on its army, as a %age of GDP. This is completely by choice though. No one is forcing greece to. You see when a country joins nato, what usually happens is that country lowers its defence spending due to the fact that defence is now in the hands of the most powerful military alliance in the world, and ure not by yourself in defending yourself. If greece wants to keep it up, than it’s no one’s fault. Cuz greece wants to have an arms race with a country 7 times its size,and a nato ally its again no one’s fault!!
    As to the fact that its a border EU country and it gets a lot of immigration, you’re right. THIS ONE is an actual argument that deserves credit, and its not greece’s fault that all of pakistan seems to wanna move there. So fine, point taken. But the other point u made above, was baseless, I thought.

  14. OK, my German friends, so you don’t want to sell Bavaria. Then sell a couple of the Frisian islands. Fair enough? Oh, and sell some German monuments also. Monuments? What monuments???

    Seriously now. The bailout deal just announced is ridiculous. Greece must restructure its debt and borrow from the IMF at 3.5% interest, if needed. I agree with NikosR. Of course Greece can exit the eurozone without exiting the EU. But whether there is in fact any point remaining in the EU is a valid question. Because it is well established in economic theory that a monetary and trade union increases the divergences in competitiveness, and this is the root of the problem. And because, without solidarity, the EU is kaput. (Apart from the so-called “moral hazard”, there is a moral deficit…) This is the best course of action for all the GISPI. Let the FUKD keep the eurozone for themselves.

  15. Well, I’m sorry to say, that you have no clue about local geopolitics. Better comment on something you have some clue about. This is not the place to analyze Greek Turkish relations, the role Turkey is playing in the region, nor Turkey’s internal affairs and politics. As to who is benefitting in multiple ways from all these, well look at our Euro and non-Euro ‘allies’. As always in crime, go after the money.

  16. As it has become apparent that the German trade surplus is based predominantly on heavy bribing in trade partner countries, what a good idea will be to open criminal cases against all those Siemens, Daimler, FerrStall etc. etc. managers!

  17. German companies haven’t been able to deduct bribes from taxes as a business expense for a while now. Nevertheless, when in Rome, do as the Romans. Interestingly enough many countries facing problems now seem to have never cleaned up their legal system. After all, why not sentence all these bribing companies while they enter your country? I have mostly experience with Bulgaria, or Balkanistan as I like to call it. Most of the Bulgarians I know hate the country for its corrupt state. But nobody does anything about it. How did they ever get into the EU? I hope they did not bribe EU officials! Unfortunately the crisis will probably make them more corrupt, not less.

    A collectible

  18. Why the bribing must diminish anywhere? The bribing practice has not changed.

    German companies are still bribing very intensely. This is done through local subsidiaries which bribe also local auditors to ignore differences in the balances.

  19. @Nikos.
    I dont have a clue? Because you said so right? And you know all.
    I didnt start discuss internal Turkish politics! I didnt start to discuss armies and GDP military spending! Scroll up and look at who did.

  20. Greek has a amount of debt to refinance of 25
    billion euros between April and May, so initially
    the package discussed was 22 billion euros, while
    the German experts before Frau Merkel toughened
    her position were working on a contingency plan
    that amounted to a need of 50 billions euros
    ( source: Financial Times Deutschland )
    A post at Zero Hedge had the figures for the
    European financing and refinancing needs for

    @M.G in progress, if you have not yet done so, as I see your name on many econ(ned) blogs,
    you should read his analysis on Italy

  21. Using IMF is a good idea, because IMF can lend cheaply to Greece, while the Eurozone cannot without breaking treaties. This is not altruism on IMF’s part, but rather their standard way of doing things. The current rate for loans in a situation like the present one is SDR + 2%, which equates to roughly 3,25%. I am not up to speed on exactly how much IMF will be lending if asked, but I have seen the number 15 bio. EUR being kicked about, and that number at a rate of 3,25% will be very helpful to Greece. This rate is 1,25% below the refinancing rate they assume in their plan, and obviously it will also diminish the amount they need to raise in the open market, thereby probably lowering the rate they have to pay there.

  22. The issue of political union (or actually, the lack thereof) is exemplified and exacerbated by the pervasive lack of fiscal policing in the area. The fiscal projections of every state that we have researched have turned out to be pure fantasy, at the most optimistic. See and scroll down to the first set of graphs to see how unrealistic the Greek austerity plan forecasts are in relation to historical trends, the IMF forecasts (which themselves have been highly inaccurate to the optimistic side) and the EU forecasts (which have been even more unrealistic).

    As you scroll down you will see the same for Italy, Spain and the UK. The problem is much, much deeper and pervasive than most pundits realize and/or admit, and the current set of solutions offered by the states will NOT bring an end to the problem which is metathesizing in real time.

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  25. Germans poison our food, steal our children and run a conspiracy to rule the EU. Just read the protocols of the elders from Berlin. Everything is written down.

  26. @mirakulous: Yes, you have no clue. Turkey
    -occupies EU soil in Cyprus.
    -has a whole army with invasion capabilities aimed at the greek islands
    -routinely violates greek airspace, leading to dogfights with casualties on both sides(planes and pilots)
    -and NATO has a clause for support against an outside attack. There is no clause for support against an attack by another NATO member.
    These are the facts. Since neither the EU(in fact the UK worked out the Ankara agreement with the US and Turkey to specifically exclude the area from a possible action zone by the European army. Now, why would the UK negotiate this with 2 non-EU countries I leave it to your imagination), nor NATO guarantees defence, Greece has to spend a huge amount to do this herself. A common EU army whose mission would be to defend all of Europe against an external attack would mean a huge economy in all defence budgets. Some don’t like it though.

  27. @chris. Since YOU say so, then it MUST be true. lol
    – since turkey occupies EU soil with which i agree, then the EU should deal with it, not greece, since its not occupying greek soil. germany and france should probably increase military spending to counter the big turkish threat on eu soil then. i dont think the eu voted greece to be the defender of the eu. inventing democracy was enough.
    -a lot of countries have armies with invasion capabilities.Look at the invasion capabilities of nato. Ask serbia and afghanistan about it!
    -i agree with regards to the violation of greek airspace.the umbrella that includes greece (EU) should really do something about that!!
    -i dont think that some dislike the idea of a european army. I think that MOST dislike the idea of a european army, and I’m quite sure you’re the only one out there that thinks this is the solution to greece’s problems. I don’t see how this will ensure the next greek government, which will probably be led by another nephew of a previous PM, won’t lie, and wont live off credit, etc etc. Don’t you recall the major issues yugoslavia had, and how its jna was forced to pin its own people against each other?! Such a tight military union would strike fear in the hearts of many europeans, i’m sure!

  28. @mirakulous:
    Again you miss the simple points: First, it is stupid to move towards federalism without a common defence. It’s like saying “I’ll tell you what to do, but will take no responsibility for the outcome”. Second, common defence actually means defence savings. Because it is not likely that the EU will ever be invaded from all its fronts, so you do not need a strong deterrent force on ALL fronts. Third, that is exactly the point: The EU has no common defence and does nothing about things any self-respecting country would, such as defending its own soil. So Greece has to do this on its own, while others are happy to keep the threat so they can sell arms. We are not talking about armed forces operating against EU citizens or states. And it makes a world of difference if you have an army with invasion capabilities stationed at and aimed at at neighboring country and if your recent history includes such invasions. Of course all these should have made Greece more efficient, not less so-which is the last part of your post, with which I agree. But while it is not the solution, it would be a big help and would actually benefit all of Europe.

  29. A State can go bankruptcy as well as a business or a natural person. The problem is that here there may be a systemic risk, as in the case of a large bank failure, or a large energy company…you can not let them go into bankrupcy and ceasing to operate, because it is a strategic activity. Here we have the same.
    If it were a company, probably tehre would be and acquisition by another company of its assets devalued, and to the extent it considers apropiate. And of course, a limitation of the responsability to the available assests.
    But here we have a State, and it seems to me reasonable to be monitored in its future fiscal activity by the EU in order to try to avoid the repetition of the situation.
    But in order to have a solution it is to be noted that, by defition, in the economic system there is enough money to solve the problem…in fact what we have is an interruption of the economic activity. The question is how to get it, because you can not solve the situation suddenly, hence the monetary policies were basic. But the deficit finally only can be finally solved in two ways: by taxes, or by forced loans.

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  31. So the Turks poison the food and steal the children as well.

    Save to say that the EU countries would easily be able to deal with Greece invading Turkey or vice versa. Also safe to say, they wouldnt get a chance because Americans never miss an opportonity to pretend their insane big army is good for anything.

    An EU army would be nice, but clearly Greece aggresssion stands in the way of that more than anything else. The EU is not interested in picking wars with Turkey because one 10mio member staate is on a baseless xenophobic rage against that country. A potential EU army would never be constructed in as a hidden transfer payment to Greece, rather an EU army is a far off vision about a more civilced Europe that moved beyond nationalism. The idea to pervert the EU as a means of agressive posturing against non EU European nations goes against everything the EU stands for. For peace, for overcomeing xenophobia. The answer is to include Turkey in the EU, to put pressure on both sides to deal with their conflicts peaceful.

  32. @hix:What drugs are you on?
    “clearly Greece aggresssion stands in the way”
    btw, Greece is not occupying any EU or non-EU state.
    “one 10mio member staate is on a baseless xenophobic rage against that country”
    I forgot, there is no turkish army occupying 40% of Cyprus. Turkish fighters do not violate greek airspace and harass civilian aviation. There is no army with invasion capabilities aimed at the greek islands. So again, what drugs are you on?

  33. Germany does support Turkish EU membership just like everyone else, well that is expect the countries where strong radical quasi staate christian churches spit islamophobe hate. All a question of the timepoint. After all, Germany would pay the bills, not Greece for early Turkish EU membership. EU membership here or there, Turkey is no threat to Greece either way. Neither is Macedonia, a case which shows how welcoming Greece is towards EU membership of her xenophobic rage targets once EU membership is closer than Sunday speachers.

    So Greece should just stop wasting money on guns. Soldiers can clean hotel rooms just like anyone else. Doh, not so hard for Greece to switch from local consumption to service exports for Greece.

    “As for the rest you don’t need to go much further than

    Doh again! Everyone knows Turkey is a defect Democracy. The only reason anyone ever heard about Ergenekon is that Turkey moves huge steps forward towards a full scale liberal democracy.
    And know what, the Kermalists dont want to invade Greece as well.

    Greece is the rich liberal democracy. Time to start acting like one.

  34. Predatory Lending is a major contributor to the economic turmoil we are currently experiencing.

    Here is an example of what I am talking about:
    Scott Veerkamp / Predatory Lending (Franklin Township School Board Member.)

    Please review this information from U.S. Senator Jeff Merkley regarding deceptive lending practices:
    “Steering payments were made to brokers who enticed unsuspecting homeowners into deceptive and expensive mortgages. These secret bonus payments, often called Yield Spread Premiums, turned home mortgages into a SCAM.”

    The Center for Responsible Lending says YSP “steals equity from struggling families.”
    1. Scott collected nearly $10,000 on two separate mortgages using YSP and junk fees. 2. This is an average of $5,000 per loan. 3. The median value of the properties was $135,000. 4. Clearly, this type of lending represents a major ripoff for consumers.

  35. “You can have your opinions but you can’t be imagining things and distort the truth:”

    Doh, again bullshit! Pupblic statements and policy preferences are not the same. In return, Erdogan wants to teach in Turkish at German schools and Papandreou wants gold from the Bundesbank. Merkels populist apeal to the right wing, after all Merkel does represent the most right wing party with just 35% of the voters is very moderate compared to that. Her party is the only one that doesnt support fast Turkish EU membersehips by lip service. In reality, everyone wants the same, delay Turkish EU membership some years to make it Turkish membership cheaper and less of a problem for further integration. The only countries that want fast Turkish EU membership are those that want to dump down the EU to a lousy free trade area.

    Uneducated populist crap running havoc all arround the world. God, such a waste all that money spent on guns based on useless paranoia. But hey the upper class thinks why not, made up threats and flag waveing are cool as placebo for the masses while the upper class laughs and pays no taxes. Just compare money spent on guns with inequality in those countries.

  36. @mirakulous
    “I’m already aware that greece spends a lot on its army, as a %age of GDP. This is completely by choice though.”
    You are not aware of anything. Everyday the turks are constantly disputing and violating the current borders (which are at the present state for almost a century in most parts). So what by greece’s choice bullshit you’re talking about?

    “You see when a country joins nato, what usually happens is that country lowers its defence spending due to the fact that defence is now in the hands of the most powerful military alliance in the world, and ure not by yourself in defending yourself.”
    This is theory. Practice says that in 1974 NATO “ally” Turkey invaded and occupied Cyprus. Thousands of Cypriots and Greeks died trying to defend the island from the turkish NATO “allies”.

    “Cuz greece wants to have an arms race with a country 7 times its size,and a nato ally its again no one’s fault!!”
    And what do you suggest open up the borders and let the turkish army in?

    By the way where do you live?

  37. @hix
    “The answer is to include Turkey in the EU, to put pressure on both sides to deal with their conflicts peaceful.”

    You are obviously a Turk or yoy live in Antarctica…

  38. “The policy recipe for a welfare state may not at all be a Keynesian recipe, but instead a series of negotiated changes in social arrangements.

    It is rather obvious that the key political problem before economic recovery is to curtail the financial sector and return them again in a limited sector of the economy where financiers aren’t the businesses that call the economic shots.”

    The problem is that Welfare state can only live with Banks money that cames out of thin air Central Bank.
    Call it the Cycle of Social State.
    It was the overheat economy that paid the increased expenses by Governments at start of decade.
    The problem is that Social State is not flexible to accept increased productivity. If everything is better and cheaper – and we don’t need more highways, more houses, cars last longer, demographics stagnated, now prepare for the next hit when many will not need better computers(*)- except the Social State itself where it goes to get the money? to the credit/printing of course.
    (*)This is all good news, but the social state culture doesn’t let work be flexible and reduced, 4 days weeks or equivalent…. it needs unemployment and to make something even if it is opening holes in the ground to cover them after.

  39. Lucklucky, what are you saying? If that were the case, the welfare state (as you call it)simply would need less money for those purposes.

  40. “If that were the case, the welfare state (as you call it)simply would need less money for those purposes.”

    Au contraire! It will need more money to do new things that will make believe that everyone wants to justify their bureaucratic size. The welfare state can’t be downsized except in a crisis. In my country we have parallel highways with no cars. Government want to build three TGV lines that they say will give many jobs but have no chance to have a profit: Taxpayers will foot the bill…
    You just have to look at expenses of European and US Governments.Look at numbers. This happens because in West have a Political Republic but not a Economical Republic, the State has all power to take resources from the people.

  41. Well, they’ll get a loan, the Greeks… even from the Germans (are the Latvians volunteering instea…?) – that is what the EU is there for. However, I hope that the governments will be smarter this time, and put security on the loan. I wouldn’t mind putting my savings on a greek bond if – in case not paid back in 15 years – I’ll get one of these fancy appartments in Santorini!


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