The future of the Euro

[Winstonm]

I note with interest that Krugman's piece (Source: The great one.)

was a data driven narrative conclusion while the Wall Street Journal offers a narrative explanation with no confirming data.

 

Reality may indeed lie somewhere between these two views, but I am prone to think reality is more likely reflected in data than dreams and thus if reality is between these extremes it lies closer to the left boundary than the right.

[y66]

Reality is a crutch for people who can't handle lies. (paraphrasing Lily Tomlin)

[Winstonm]

Reality is a crutch for people who can't handle lies. (paraphrasing Lily Tomlin)

 

 

The authoritarian/individualist is hard to convince

[Aberlour10]

(Not so serious this time.) The european dream team in action, do they really know where does MS Euronic navigate ? ;-)

 

http://3.bp.blogspot.com/-I8dra_oF-vo/Tu8hUGrxnTI/AAAAAAAABWo/CUfNpPQBtIk/s1600/Titanic-Sarkozy-e-Merkel.jpg

[y66]

My dream team looks more like Thelma and Louise with Christine Lagarde as Thelma and Angela Merkel as Louise. And Mario Monti as the Brad Pitt character.

 

Cool story about these 2 savvy babes here.

[mgoetze]

So apparently investing in Europe now carries the same legal risks as investing in Ecuador. Good job, Mrs. Merkel!

[mike777]

so the question becomes again keep the euro and bail them out or no?

 

 

As for Greece, clearly without more "labor freedom" nothing will improve.

With out more property laws that are clear and enforced, nothing will improve. If we dont know who owns the land and if they can sell it free and clear......forget it.

If we cannot fire,hire etc workers, increase productivity of workers...forget it.....

 

 

If countries such as Greece and France want to put more economic power in the same political hands fair enough...that is the debate.

 

I should add the USA.

[blackshoe]

I was thinking about Merchant Marines. The US had at one time one of the largest, if not the largest, merchant fleets in the world. I suspect it was part of the engine that fueled our growth over the first 150 years or so the country was in existence. Now we have almost no US flagged ships? Why? Because government regulation made flagging ships in this country too expensive. Seems to me to be a case of "penny wise, pound foolish". That's just one example, of course. So I agree. In general, economic power does not belong in political hands.

[mike777]

So Greece has defaulted on the privately held debt....33%...The other 67% held by gov agencies not allowed to default just yet.

 

 

So a default did not end the world or end Europe.......

 

I mean look at all I mean all of the posts that did not say just default.......

 

 

idots....

--

 

 

Now if Iran is bombed this year.....that is another story.

[y66]

Krugman posted this yesterday:

 

Some of us have been talking it over, and here’s what we think the end game looks like:

 

1. Greek euro exit, very possibly next month.

 

2. Huge withdrawals from Spanish and Italian banks, as depositors try to move their money to Germany.

 

3a. Maybe, just possibly, de facto controls, with banks forbidden to transfer deposits out of country and limits on cash withdrawals.

 

3b. Alternatively, or maybe in tandem, huge draws on ECB credit to keep the banks from collapsing.

 

4a. Germany has a choice. Accept huge indirect public claims on Italy and Spain, plus a drastic revision of strategy — basically, to give Spain in particular any hope you need both guarantees on its debt to hold borrowing costs down and a higher eurozone inflation target to make relative price adjustment possible; or:

 

4b. End of the euro.

 

And we’re talking about months, not years, for this to play out.

[kenberg]

Are these the shadows of things that must be, or are they the shadows of things that MIGHT be?

[Aberlour10]

So, the thread is now 2y old, Greece stands on the edge of the disaster, Spain and Italy struggle hard and EU activites in Brussels seem to be like a Dance on the Vulcano

[jdeegan]

:P The fundamentals of this situation are mindnumbingly familiar by now. Your own national currency makes it possible to devalue one single price (your currency) whenever your economy goes in the crapper (and vice versa). A common currency (assuming everyone believes in it) makes borrowing and lending within the currency union much easier. Advantages and disadvantages.

 

Spinning off the sunny Med countries I think makes sense. Keeping together France, Germany, Benelux and their Eastern European followers should be O.K. We live and learn.

[y66]

Soros on the Euro -- From Krugman's blog June 4, 2012, 8:11 AM

 

His speech is getting a lot of attention, and rightly so. It’s not so different from what many of us have been saying, but given the source — and, to be fair, the historical breadth of his perspective — I can see why it’s getting people to pay attention in a way they hadn’t before.

 

His point about the euro bubble is particularly well taken. I’d put it this way: it so happened that the euro came into existence at a time when the German economy was in the doldrums. Then the euro made investors believe that southern Europe was safe, causing a huge fall in interest rates there:

 

http://graphics8.nytimes.com/images/2012/06/04/opinion/060412krugman1/060412krugman1-blog480.jpg

 

This in turn led to vast inflows of capital; the flip side of these inflows was large trade deficits, and large counterpart German surpluses, which was just what the Germans needed. Everyone was happy! For a few years.

 

And then the bubble burst, leading to the crisis today.

 

Needless to say, this story bears little resemblance to the morality play of profligacy and its consequences that has dominated European discussion until just about now. If there were any villains, they were the architects of the euro, who waved away warnings about the system’s flaws. But never mind the villains: the question is what to do now. And time is running out fast.

 

Edit: replaced link to Soros speech.

[y66]

Guess who's emerging from the crisis?

 

 

Iceland, of course.

 

[phil_20686]

Guess who's emerging from the crisis?

 

 

Iceland, of course.

 

 

Except that he seems to credit it as due to expansionary fiscal policy, which is wrong. They have had contractionary fiscal policy (in real terms) and expansionary money policy: scott sumner analyses it at greater length. To whit:

 

 

Now you might wonder what all this has to do with market monetarism. Recall that we are the ones claiming that Britain and the eurozone need to combine tight fiscal policy with monetary stimulus. The tight fiscal policy addresses the looming debt crisis, and the monetary stimulus keeps AD (i.e. NGDP) growing at the sort of rate needed to keep the economy close to full employment. Is there any evidence that Iceland did some monetary stimulus? Here's Kevin Drum:

 

Also worth noting: the Icelandic krona got devalued

a lot

. In 2008 a euro bought 90 krona. Today it buys 160 krona. [and the euro has been falling like a stone against the dollar]

 

Iceland did almost everything right. They stiffed the bank creditors to avoid aggravating the moral hazard problem, just like the textbooks recommend. In the eurozone the bank creditors are being bailed out. They relied of fiscal policy to address S/I and debt issues [i.e fiscal contraction], and let monetary policy address AD [i.e. quantitative easing, i.e. printing money], just as the New Keynesians were recommending in the 1990s. In the eurozone they combined tight money with reckless deficits. And now Iceland is growing fast and the eurozone is stagnating.

 

 

 

 

[]= my edits, bold emphasis mine..

 

So far the economic crises seems to score up as : Market monatarists = Winners, New keynesians= ok, Real buisness cycle = hard money austerians (i.e. Austrians) = EPIC FAIL.

[y66]

Krugman: What a real bank bailout looks like

 

30 percent of Spain's GDP (2010) = $423 billion = €335 billion.

[32519]

Germany v Greece

[y66]

Greece Drinks the Hemlock

 

The fact is, just about everything in this austerity package has been tried before and failed disastrously. These unpalatable steps will do nothing to make Greece’s debts more payable, bring its budgets closer to balance or help make the structural reforms Greece needs to revive its economy. Instead they will almost certainly further shrink an economy that has already shrunk by an astounding 25 percent over the past few years, making fiscal improvement nearly impossible.

What else is new?

[Aberlour10]

Who thought a few months ago that Cyprus will stand so fast on the edge of disaster?. Surely, this economy is too small to have a big impact on financial situation in Europe, but the loss of confidence will be enormous if this state fails.

[Winstonm]

One would think that the American opponents of Keynesian theory would view the destruction caused by European austerity during times of poor economic performance and rethink their position about supply-side, but when dealing with a group who refuses to abandon its narrative beliefs in the face of conflicting data we can only hope that group is not allowed into places of national influence - like Congress.

[mike777]

A big problem with European austerity.

 

 

They are still following Keynesian theory and running massive deficits.

They still have massive debt problems.

On top of that they dont have free movement of labor in many ways.

 

 

Austerity is not running 800 billion deficit year after year.

 

The most frequently asked question now is "can goverments walk away from their debt?"

[onoway]

A big problem with European austerity.

 

Austerity is not running 800 billion deficit year after year.

 

The most frequently asked question now is "can goverments walk away from their debt?"

Is there going to be any other option when all is said and done?

 

What I know about economics would fit on the head of a very small pin but it would appear that virtually every country in the world including the US is extended way beyond its capacity to pay and the only other way out is borrowing or printing yet more money. Even printing money costs the government yet more interest so... Somehow this seems as though it is merely delaying the inevitable..certainly would be for an individual.

 

I have doubts that everyone would sit passively while their governments raid their savings accounts to pay the IMF or whomever. Especially when that won't even begin to solve the problem. I also have doubts that the majority of people will sit passively while their standard of living shrinks to that of serfs serving the will of the IMF and world banks.

 

It's certainly possible that I am missing something and have been watching the "wrong " videos from the "wrong" experts but..

 

Looks from here as though the longer they put it off the worse it will be when it finally and inevitably happens.

[mike777]

6 possible time bombs or Zombi Swans from Outer Space.

 

No shortage of problems but at least we can see some crises coming. They are both visible and comprehensible, making crafting solutions possible via the admittedly slow moving political/economic system.

 

More dangerous for society at large is the crisis we dont see coming.

 

1) Derivatives blow up.

30$ trillion in unregulated derivatives in 2000 over 600 trillion today and counting.

 

2) Japan finally implodes.

Aging population that will spend more, save less means less domestic demand for govt bonds and interest rates that can only go up.

 

3)The Petrodollar dies.

Since 1973 Saudies only accept US dollars for oil and we would provide protection

 

4) U.S. Pension defaults spike.

 

5)Debt jubilee resets the system.

Widespread forgiveness of debt engineered by governments rather than the markets.

Have central banks simply write off the bonds they are now accumulating.

 

6) Cyber attack cripple the economy?

Sooner or later a major act of cyberterror, cybercrime or cyberwar will occur. It will happen with little advance warning.

[mike777]

dup