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Iceland was really a short-term liquidity problem. Iceland deregulated it's banks and then Iceland's central bank responded to overheated growth by jacking up the interest rates to cool the economy. European banks behaving like investment banks government-backed money went crazy. Oh, sure we'll give you short-term loans since you can just put it in bank over in your quaint little country and rack up 12% interest. Then in 2008 when the lending markets froze Iceland's banks were sitting on these huge loans, all coming due in the near future, with no one willing to lend them anything. They basically flipped the external investors, the foreign banks, the bird.
Greece is a little different. It's a long-term problem... prior to the economic downturn, Greece was living fat on deficit. Since the '80s, they've spent half the time in the over 10% of GDP territory for deficit. The US deficit spending, which is totally unsustainable, was over 10% for one year since WW2. Based on current yields (26%) it's obvious that Greece can't pay back its soverign debt. Just servicing their debt would cost nearly 50% of the county's GDP...and they have massive pension obligations that are only going to get worse. It can't be done. Debt aside, Greece is just a very weak economy. Its current account deficit is out of control (-10%, US is -3%, Germany 5%, China 4%). Economic growth is weak. Savings rate is weak. It's just a total dead dog. Iceland was not.
The feeling I get from Germany is that they are willing to bail out Greece, but only if Greece is willing to get serious about hitting the 3% of GDP deficit target rates. And they just aren't serious about it. They've gone from 15% to 10% of GDP deficits. Good job, but that's only a bit more than a third of the way there. A third of a bailout isn't going to address the problem. Greece really needs its debts wiped almost clean to have a chance, but the creditors aren't willing to do that when they think, rightly so, that Germany will bail Greece. They know they'll take some hit even if that occurs but not an absolute hit.
with the election now over it looks like a deadlocked government. So know one knows what that will bring about. Too uncertainties. But down the road a few years I think things are going to look real bad everywhere. There is talk of a hard landing in China now---serious talk by the way. Just hang on to your seats for the next few years or maybe many more.
with the election now over it looks like a deadlocked government. So know one knows what that will bring about. Too uncertainties. But down the road a few years I think things are going to look real bad everywhere. There is talk of a hard landing in China now---serious talk by the way. Just hang on to your seats for the next few years or maybe many more.
If China goes into hard landing it will be due to the powers that be inside China deciding it is time to do so. It won't be due to long struggling fringe European economies. China and really the rest of the world would be well served to look at just how much growth or potential growth there is everywhere else and carry on. Not to mention China could finally decide its time to let the internal market do a little of the heavy lifting too. But no way a country with those kinds of reserves and way above world average growth goes into hard landing unless it chooses to do so.
I saw that German had figure the cost to them and its was like 1.5Trillion euros in total cost. As to US the governamnt never has released a estimate but not like anyhwere near that because we are not nrealy has exposed.
The German production boom was due in no small part to the Eurozone and a common currency that under priced German goods and over priced Greek goods by the accumulation of debt. What will become of German industry without PIIGS markets?
The German production boom was due in no small part to the Eurozone and a common currency that under priced German goods and over priced Greek goods by the accumulation of debt. What will become of German industry without PIIGS markets?
You have taught me alot, gwynedd1, over these past two years or so about the nature of money and debt, but I'm not so sure about this argument that Germany over the past ten years or so owes all of its success to the eurozone.
West Germany's D-mark rose in value steadily, at times precipitously, throughout the post-WWII period and into the 1990s, and all during that time it was an export-manufacturing power, based on the quality of its products. The Germans compete on quality. Even a German pencil is better quality than those produced in other countries, I know because my own fingers feel it and I am willing to pay extra to import effing pencils from Germany, they are worth it.
From time to time, other countries implemented competitive exchange rate devaluation policies, but these are, or a supposed to be, short-term policies designed to get out of a hole, compete on price, sell inventory, buy time and make structural changes to become more competitive; but, often failing to make such structural changes, whatever the competitive structural problem is usually comes back to the surface on a cyclical basis.
Having said that, the Germans may have used the eurozone to pull up eastern Germany to speed faster than may have otherwise been the case, but the underlying theme is still that the Germans compete on quality.
Countries like Portugal, Spain and Greece do have competitive advantages, but, for whatever reasons and to differing degrees, they do not pursue policies to a great enough extent to generate the most value out of those advantages. The Germans are telling them to stop sitting on their hands and get to work on those competitive advantages, yes, through internal devaluation, to stop whining about it and wishing that money illusion will do all the work for them.
I'm not so sure about this argument that Germany over the past ten years or so owes all of its success to the eurozone.
West Germany's D-mark rose in value steadily, at times precipitously, throughout the post-WWII period and into the 1990s, and all during that time it was export-manufacturing power, based on the quality of its products. The Germans compete on quality. Even a German pencil is better quality than those produced in other countries, I know because my own fingers feel it and I am willing to pay extra to import effing pencils from Germany, they are worth it.
From time to time, other countries implemented competitive exchange rate devaluation policies, but these are, or a supposed to be, short-term policies designed to get out of a hole, compete on price, sell inventory, buy time and make structural changes to become more competitive; but, often failing the make such structural changes, whatever the competitive structural problem is usually comes back to the surface on a cyclical basis.
Having said that, the Germans may have used the eurozone to pull up eastern Germany to speed faster than may have otherwise been the case, but the underlying theme is still that the Germans compete on quality.
Countries like Portugal, Spain and Greece do have competitive advantages, but, for whatever reasons and to differing degrees, they do not pursue policies to a great enough extent to generate the most value out of those advantages. The Germans are telling them to stop sitting on their hands and get to work on those competitive advantages and to stop whining and wishing that money illusion will do all the work for them.
The German economy was still built to sell into the Eurozone that did not reflect the PIIGS ability to pay. They will have too much capacity. What should have happened was perhaps the use of local labor to allow Greek built with German design as is done in the states. However the Euro distorted the market. and now they are paying for it.
What should have happened was perhaps the use of local labor to allow Greek built with German design as is done in the states. However the Euro distorted the market. and now they are paying for it.
You perhaps have a point, but perhaps also the distortive factors were Greek labor laws and other difficulties of doing business in Greece, not the euro, and now they are paying for it.
You may know that countries like Italy and Greece have among the lowest rates of foreign direct investment, and this before the euro.
You perhaps have a point, but perhaps also the distortive factors were Greek labor laws and other difficulties of doing business in Greece, not the euro, and now they are paying for it.
You may know that countries like Italy and Greece have among the lowest rates of foreign direct investment, and this before the euro.
That may be but it still does not explain essentially a foreign debt. Why could they still buy BMWs with no exports of their own? Its because they were too cheap.
The problem within the Eurozone is that they agreed to use a common currency, but did not agree to release their individual sovereignties or their individual central banks. Stop and think about it: United States-POTUS-Federal Reserve; United Kingdom-Prime Minister-Bank of England; Germany-Chancellor-Bundesbank...or is it??? Where does the ECB come in here??? It really is an institution with no precedent; it claims to manage the monetary affairs of 17 countries with their own central banks and own heads of state. This can only lead to disaster. Banks and sovereigns are intertwined in ways that exclude other banks and sovereigns; thus, no two countries can use the same monetary unit and expect things to work out well between them, as they are too different. Yes, a fiscal union would help some of the problems, but ultimately, that would fail also. It will only work if all the French, Germans, Greeks, Italians, etc agreed to dissolve borders, give up their sovereignty, put their fiscal affairs into the hands of a central "authority", and probably agree on the same customs and language. Good luck with that!
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