The future of the Euro

[Al_U_Card]

How about comparisons with the reparations that Greece had agreement to obtain after WWII but that America successfully wrote off (along with 50% of the German debt across the board) by a clever use of language? Greek reparations were tied to a peace treaty with Germany but the USA chose to call the agreement something other than a peace treaty.

 

The funny thing is this. The current Greek government, the one everyone in Northern Europe seems to hate so much, has done more to reform the economy and lessen corruption than any Greek government since the war. The only sensible course is for the debt to be restructured, probably somewhere between 30 and 50 cents in the Euro. And if the creditors (Germany) refuse, I doubt the repercussions of defaulting, as bad as they will be, will be worse for Greece than the current situation. They need to do it now though, before Germany gets to buy up all of the assets they are forcing to be privatised.

Exactly. Then Greece COULD reform their financial system to suit their needs (and not the eurobank's) but then again a coup and military junta would HAVE to be installed... SWEIN?

[y66]

Greece and Europe: Is Europe holding up its end of the bargain? by Ben Bernanke

 

This week the Greek parliament agreed to European demands for tough new austerity measures and structural reforms, defusing (for the moment, at least) the country's sovereign debt crisis. Now is a good time to ask: Is Europe holding up its end of the bargain? Specifically, is the euro zone's leadership delivering the broad-based economic recovery that is needed to give stressed countries like Greece a reasonable chance to meet their growth, employment, and fiscal objectives? Over the longer term, these questions are evidently of far greater consequence for Europe, and for the world, than are questions about whether tiny Greece can meet its fiscal obligations.

 

Unfortunately, the answers to these questions are also obvious. Since the global financial crisis, economic outcomes in the euro zone have been deeply disappointing. The failure of European economic policy has two, closely related, aspects: (1) the weak performance of the euro zone as a whole; and (2) the highly asymmetric outcomes among countries within the euro zone.

 

In late 2009 and early 2010 unemployment rates in Europe and the United States were roughly equal, at about 10 percent of the labor force. Today the unemployment rate in the United States is 5.3 percent, while the unemployment rate in the euro zone is more than 11 percent. Not incidentally, a very large share of euro area unemployment consists of younger workers; the inability of these workers to gain skills and work experience will adversely affect Europe's longer-term growth potential.

 

Currently, the unemployment rate in the euro zone ex Germany exceeds 13 percent, compared to less than 5 percent in Germany. Other economic data show similar discrepancies within the euro zone between the "north" (including Germany) and the "south."

 

[These developments] pose serious medium-term challenges for the euro area. The promise of the euro was both to increase prosperity and to foster closer European integration. But current economic conditions are hardly building public confidence in European economic policymakers or providing an environment conducive to fiscal stabilization and economic reform; and European solidarity will not flower under a system which produces such disparate outcomes among countries.

 

The risks for the European project posed by these economic developments are real, no matter what the reasons for them may be. In fact, the reasons are not so difficult to identify. The slow recovery from the crisis of the euro zone as a whole is the result, among other factors, of (1) political resistance that delayed by many years the implementation of sufficiently aggressive monetary policies by the European Central Bank; (2) excessively tight fiscal policies, especially in countries like Germany that have some amount of "fiscal space" and thus no immediate need to tighten their belts; and (3) delays in taking the necessary steps, analogous to the banking "stress tests" in the United States in the spring of 2009, to restore confidence in the banking system. I would not, by the way, put "structural rigidities" very high on this list. Structural reforms are important for long-run growth, but cost-saving measures are less relevant when many workers are already idle; moreover, structural problems have existed in Europe for a long time and so can't explain recent declines in performance.

[mike777]

As many point out the purpose of the Euro was to prevent another France vs Germany war.

 

 

Now they expect Greeks to pay the price of peace.

------------

 

As Y66 pointed out in his posts, Europe needs a kindly old sugar daddy.

 

A sugar daddy that will demand and expect a few favors now and then but not that many as he is older and kinder.

 

In return Europe gets a Daddy.

[Al_U_Card]

Draghi was vice chairman and managing director of Goldman Sachs International and a member of the firm-wide management committee (2002–2005).

 

Like "one-time" Cypriot bail-ins, the cyclical nature of debt-service and wealth transfer is really what matters. It shouldn't be long now...

[Gerben42]

As many point out the purpose of the Euro was to prevent another France vs Germany war.

 

 

Now they expect Greeks to pay the price of peace.

------------

 

As Y66 pointed out in his posts, Europe needs a kindly old sugar daddy.

 

A sugar daddy that will demand and expect a few favors now and then but not that many as he is older and kinder.

 

In return Europe gets a Daddy.

 

The point of the European Union (not of the Euro) was to create a peaceful Europe. The Euro was sort of forced upon Germany as a demand for unification. At the time, especially in Britain, there was a lot of distrust in Germany, which is shown in the fact that Germany was forced to sign a document that it would recognize the Oder-Neiße border to Poland. I mean what kind of treaty is that? If someone like Hitler comes to power again, sure he'll say: "OK let's bring back Alsace back but for Pomerania I have this treaty here saying my eastern border is at the Oder". I doubt it.

 

Anyway for me as a Dutchman I would probably have supported the German reunion on the premises that if the most powerful country suddenly needs to incorporate a technically bankrupt and economically messed-up country (which was the case in East-Germany) that's fine. And in fact it did cost about a trillion Euro already and still the East is economically behind. Also no one is or should be complaining about this reunification, since it was the right way to go. There would have been no way to fix former East Germany to where it is now if it had remained an independent country.

 

When the Euro started, in fact it was the "north" that was most sceptical about the Euro, I mean not having to exchange currency when going on holiday is nice, but in the "north" we had nice stable currencies and were happy with them. Why risk pulling in some weaker candidates like Spain and Italy?

 

On the other hand, the "south" saw the Euro as great opportunity, and in the short term it helped them as they now had a currency much more trusted than Peseta or Lire. It was so attractive, that Greece (which didn't qualify) hired Goldman & Sachs to make it look like they did meet the targets. Also many European politicians thought it would be strategically helpful to have Greece in.

 

Then the Euro came, and the "south" was happy, and the "north" was sceptical. And rightly so. The "south" had all reason to be happy, since they could now lend money cheaply with a trusted currency. In the "north", not much changed except that we didn't have to exchange money anymore. In fact people remained sceptical as the perceived inflation increased. This is a psychological effect since people still perform the exchange in their head and their reference price remains stuck in the last century.

 

And now suddenly Germany is the bad guy, although it really was the rest of Europe who were worried about too much German dominance and wanted to reduce this with the Euro.

[Aberlour10]

The idea of the common European currency came on agenda already in 70's and 80's, but there was no chance to realize this project. It would never pass the german parliament to those times. And then came suddenly and unexpected the chance for a fast reunification of the country. Chancellor Kohl met following situation:

 

Gorbatschov said YES

 

Bush said YES

 

Mitterrand said "Depends On"

 

Thatcher gave a "silent" NO

 

Today we know, the french president was the deciding player,he got Euro for his YES. No official agreement has been signed, but its sure. that was the price. Ms Thatcher was all alone.

 

 

 

[kenberg]

The idea of the common European currency came on agenda already in 70's and 80's, but there was no chance to realize this project. It would never pass the german parliament to those times. And then came suddenly and unexpected the chance for a fast reunification of the country. Chancellor Kohl met following situation:

 

Gorbatschov said YES

 

Bush said YES

 

Mitterrand said "Depends On"

 

Thatcher gave a "silent" NO

 

Today we know, the french president was the deciding player,he got Euro for his YES. No official agreement has been signed, but its sure. that was the price. Ms Thatcher was all alone.

 

It's been five years since you started this thread and I am wondering how your thinking has evolved since then. At the time i had the naive view of "Oh, a bump in the road, they will take care of it". The truth of course (and I never hid this) is that I had not thought much about it.

 

The last few weeks have made me pessimistic. I don't have any real opinion on whether the Euro will survive or not, but it is really hard for me to imagine that the Greece will still be in the Euro Zone a few years down the road, I could give reasons, but really I think everyone knows the reasons, it is just (just?) a matter of trying to see what conclusions to draw. I remain hopeful that I am wrong, but I just don't see how it is all going to work.

[Zelandakh]

I don't have any real opinion on whether the Euro will survive or not

The Euro is worth an unbelievably large amount to Germany and its export economy. This is the reason why Merkel was prepared to invest such a lot into holding it together in Ireland, Spain, etc. The change has come at home with voters upset at their money being "wasted" abroad and that has led to her hard-line stance with Greece. But that value means that it is very unlikely that the Euro itself will fall. Germany will fight tooth and nail to keep it together and, in general, what Germany wants in Europe it gets.

[Aberlour10]

The Euro is worth an unbelievably large amount to Germany and its export economy. This is the reason why Merkel was prepared to invest such a lot into holding it together in Ireland, Spain, etc. The change has come at home with voters upset at their money being "wasted" abroad and that has led to her hard-line stance with Greece. But that value means that it is very unlikely that the Euro itself will fall. Germany will fight tooth and nail to keep it together and, in general, what Germany wants in Europe it gets.

 

Its another masterpiece of Merkels ability for balancing acts. To show german voters and tax payers, she is hardliner, she stayed and stays hard, giving Germans the illusion their money is not completely lost. But she is willing to pay and will pay every amount the 3rd bailout package needed. This leads to the paradox: the anger about financial bailouts grows rapidly in Germany but Merkels popularity nowdays is best ever.

[Al_U_Card]

“Forget the politicians. The politicians are put there to give you the idea you have freedom of choice. You don't. You have no choice. You have owners. They own you. They own everything. They own all the important land, they own and control the corporations that've long since bought and paid for, the senate, the congress, the state houses, the city halls, they got the judges in their back pocket, and they own all the big media companies so they control just about all of the news and the information you get to hear. They got you by the balls. They spend billions of dollars every year lobbying to get what they want. Well, we know what they want. They want more for themselves and less for everybody else. But I'll tell you what they don't want. They don't want a population of citizens capable of critical thinking. They don't want well informed, well educated people capable of critical thinking. They're not interested in that. That doesn't help them.”

― George Carlin

 

Comic(?) genius.

[kenberg]

I will try to put some items together in a narrative that I see as plausible:

 

1. Popularity of Merkel.

In post 377, Bernanke is quoted:

" Currently, the unemployment rate in the euro zone ex Germany exceeds 13 percent, compared to less than 5 percent in Germany. Other economic data show similar discrepancies within the euro zone between the "north" (including Germany) and the "south." "

I cite Clinton (or Emmanuel, oops I mean Carvilee, thanks Blackie):: It's the economy, stupid.

An over-simplification, sure. For example the UK has a fairly\y low rate also. But if your unemployment is four point something and the others nearby collectively have a rate of thirteen or so, you might well conclude that the Fraulein seems to know what she is doing.

I am not claiming that either blame or credit are always correctly placed in these matters, I am merely saying that the person in charge often is the one that is so honored.

 

2. Merkel objectives.

Several pages back, Krugman was quoted both as saying that the Euro was a mistake and that given it's existence it should be made to work as well as possible. This could match with Gerben's assertion that the Euro was forced on Germany and Zel's assertion that "The Euro is worth an unbelievably large amount to Germany and its export economy.". We have it, so let's save it.

That much is easy, but now I suggest something stronger. Merkel views saving the Euro as a much more important objective than saving Greece. In this view, the Geeks may or may not be able to cope with the plan, but the general course of Eurozone responsibility is being established in the direction that she believes to be right.

 

 

My above thoughts are not deep and presumably not all that original. But I try to put things together in ways so that I can say "Oh yes, I can imagine people making that choice". Tsipras calling the referendum made no sense to me so I assumed that it was a ploy to get Greece out of the Euro without him being seen as the primary mover of that event. I was wrong there. But the general story line above seems to me to be a pretty plausible explanation for Merkel's choices. It doesn't mean that she is right, but her behavior does not strike me as irrational.

[Aberlour10]

I

" Currently, the unemployment rate in the euro zone ex Germany exceeds 13 percent, compared to less than 5 percent in Germany.

.

 

Not all that gilitters is gold, Ken. Sure the german economy performs good, but this low unemployment rate results by far from the other factor, the radical, neoliberal reforms of the job market in last 15 years. With massive increase of the jobs in the low and lowest pay sector. Alone 1,5 millions have to stock up their wages with social benefits by the state to reach so the minimum subsistence level. A much higher number is payed very close to this level.

 

 

 

[Al_U_Card]

1929-1934

1974-1981

2009-201?

Bankers "harvesting" the system.

Glass-Steagle tried to stop it.

Bretton-Woods side-tracked it.

Quantitative easing re-enabled it.

 

The euro was an effort to contain (supplant) $US before China could exercise its financial muscle.

 

WW III is being fought in the fields of finance and we are all just collateral ( ;( ) damage.

[hotShot]

Funfact:

 

Germany is making money from transferring money to Greece, because it can borrow cheaper than it loans it to Greece.

 

 

 

Let us not forget that the reason for the state dept crisis was saving the banks after the subprime-crisis.

 

The reason to save Greece 5 years ago, was to save German and French banks and pensions-fonds who was massively involved with Greece dept.

Now all European taxpayer have to cover the loss.

 

Economists outside of Germany often wonder why Germany is such a firm believer in austerity.

I think the reason is that more than half of Germany's GDP is generated through export.

So if the German government is doing some saving, half of the GDP is uninfluenced by that.

[kenberg]

Not all that glitters is gold, Ken. Sure the german economy performs good, but this low unemployment rate results by far from the other factor, the radical, neoliberal reforms of the job market in last 15 years. With massive increase of the jobs in the low and lowest pay sector. Alone 1,5 millions have to stock up their wages with social benefits by the state to reach so the minimum subsistence level. A much higher number is payed very close to this level.

 

Data should be approached with caution, it has been known to bite. I agree. Still, the four point something unemployment figure could at least be some part of an explanation for Merkel's popularity. Without getting into too much personal detail, I will say that if Dad is working, if the bills are being paid, and you see that this is not true for everyone, you don't fret all that much about some people who vacation in Paris.

 

Don't get me wrong. We seem to be regressing, here in the U.S. and elsewhere. Survival is of course necessary, but in a rich country people should have a reasonable hope for better. We seem to be losing that.

 

Specifically with Germany, I get the idea that they are better than we are at recognizing that not every child will grow up to be a computer scientist, and they help steer them in a direction where they can make a living doing something useful. But how good a living? That might be the rub. I confess to not knowing the details.

[blackshoe]

According to Wikipedia, "the economy, stupid" was coined by James Carville.

 

It's not the economy. It's the governments. And the bankers.

[kenberg]

According to Wikipedia, "the economy, stupid" was coined by James Carville.

 

It's not the economy. It's the governments. And the bankers.

 

Oh right. Emmanuel was Obama's guide through the underworld of politics, Carville was Clinton's.No doubt both Carville and Emmanuel will demand an apology for the mis-identification. You seen one guru, you seen them all..

[blackshoe]

Oh right. Emmanuel was Obama's guide through the underworld of politics, Carville was Clinton's.No doubt both Carville and Emmanuel will demand an apology for the mis-identification. You seen one guru, you seen them all..

:lol: :lol: Okay!

[Zelandakh]

Its another masterpiece of Merkels ability for balancing acts.

I think she is an excellent politician and generally makes the right move at the right time. She is certainly completely dominant over here at the moment.

 

 

Merkel views saving the Euro as a much more important objective than saving Greece.

I think this much is clear. It is basically an accepted truth that Germany is the big winner from the Euro. Why would Merkel want to give that up?

 

I also think that she was upset that Greece used the Hitler card and brought up the subject of reparations. No German politician ever wants to be linked with this period and I suspect if she could save the Euro while also bringing down the politicians responsible, that would be the ideal solution from her point of view.

 

 

Not all that gilitters is gold, Ken.

The economy is biting in Germany too. I work in Germany for a very large and successful international company and we have had close to a freeze on hiring new external staff in recent times. Sales have also been difficult with some notable contracts lost. Compared with other countries Germany is still doing very well and even has a skills shortage in some tech sectors. Noone should pretend that the economy here is having an easy time of it though.

 

Without the Euro Germany would probably be in difficulty. Historically the money markets bought gold and DMs in difficult economic times. That usually meant that the DM was strong after a recession and badly affected the German recovery. Under the Euro, the German currency is kept nice and low through the smaller countries of the Eurozone. That helps keep the exports cheaper and will, when the better times come back, mean that Germany will probably lead the way. That is in stark contrast to previous recessions and highlights that the Eurozone is worth even more to Germany now than during good times; and it is worth plenty even then.

[mike777]

I think she is an excellent politician and generally makes the right move at the right time. She is certainly completely dominant over here at the moment.

 

 

 

I think this much is clear. It is basically an accepted truth that Germany is the big winner from the Euro. Why would Merkel want to give that up?

 

I also think that she was upset that Greece used the Hitler card and brought up the subject of reparations. No German politician ever wants to be linked with this period and I suspect if she could save the Euro while also bringing down the politicians responsible, that would be the ideal solution from her point of view.

 

 

 

The economy is biting in Germany too. I work in Germany for a very large and successful international company and we have had close to a freeze on hiring new external staff in recent times. Sales have also been difficult with some notable contracts lost. Compared with other countries Germany is still doing very well and even has a skills shortage in some tech sectors. Noone should pretend that the economy here is having an easy time of it though.

 

Without the Euro Germany would probably be in difficulty. Historically the money markets bought gold and DMs in difficult economic times. That usually meant that the DM was strong after a recession and badly affected the German recovery. Under the Euro, the German currency is kept nice and low through the smaller countries of the Eurozone. That helps keep the exports cheaper and will, when the better times come back, mean that Germany will probably lead the way. That is in stark contrast to previous recessions and highlights that the Eurozone is worth even more to Germany now than during good times; and it is worth plenty even then.

 

hmm all interesting all irrelevant.

 

Germany needs to be the sugar daddy, when it denies it is too blame. Germany denies it destiny...it gets blamed. It needs to be a kindly ...old sugar daddy....it expects and demands favors but only a few...it is old and kindly. Germany wants respect and yes now and then the favor...you understand...Sugar daddy

See Y66 posts

[Gerben42]

Not all that gilitters is gold, Ken. Sure the german economy performs good, but this low unemployment rate results by far from the other factor, the radical, neoliberal reforms of the job market in last 15 years. With massive increase of the jobs in the low and lowest pay sector. Alone 1,5 millions have to stock up their wages with social benefits by the state to reach so the minimum subsistence level. A much higher number is payed very close to this level.

 

Well, there is always income equality. And Germany has the lowest Gini coefficient of all large economies (according to Wikipedia). Of the G20, only Australia has the same number all others are higher. And this despite globalization, which has the effect that many traditionally low-paying jobs are often exported. Germany has managed to keep many of them in the country.

 

As for austerity, it is easy for Germany to demand this since it doesn't have a problem there. It has the highest tax income in history, and it's increasing every year. The government doesn't know what to do with so much money but with the socialist party also in the government, they have a partner who knows how to increase state spending on the wrong kind of projects. But it's apparently what the German people want since they voted the one party who wants to reduce government spending out of the parliament.

[mike777]

Well, there is always income equality. And Germany has the lowest Gini coefficient of all large economies (according to Wikipedia). Of the G20, only Australia has the same number all others are higher. And this despite globalization, which has the effect that many traditionally low-paying jobs are often exported. Germany has managed to keep many of them in the country.

 

As for austerity, it is easy for Germany to demand this since it doesn't have a problem there. It has the highest tax income in history, and it's increasing every year. The government doesn't know what to do with so much money but with the socialist party also in the government, they have a partner who knows how to increase state spending on the wrong kind of projects. But it's apparently what the German people want since they voted the one party who wants to reduce government spending out of the parliament.

 

 

1) again all interesting

2) all perhaps true for sake of this thread

3) all not the question or issue or relevant.

4) It is clear at this point it is blamed.

5) to not get blame become sugar daddy for Europe

) see Y66

 

 

Germany is the sugar daddy for Europe or it gets the blame.

[Al_U_Card]

Once the "loans" are in place and ready to default, then the bail-ins can start. Meanwhile, there is always QE euro-style, should the ECB need to provide cash to those banks that are short of cash but want to loan even more.

 

Bail-ins are just another security blanket for the banks.

 

Here in Canada, The BoC has declared that they feel bail-ins are necessary, "liquidity injections" are necessary to stabilize structurally unsound financial institutions but that they will favour those institutions that have "recovery" plans in-place, if and when the situation arises.

 

Imagine that, the BoC will use my tax dollars to shore up wonky banks, but especially those that have a plan to get that money back from me, one way or another.

 

Here our banks are chartered. This means that they are regulated such that the shenanigans of the US are much less possible and deleterious for our financial system. This stopped our banks from over-leveraging and limited their losses back in 2009.

[hotShot]

Today "Greece" got a loan of 7,1 Billion €

They should be happy, shouldn't they?

 

I mean who cares that 4,2 Billion got to the EZB (intrests) , 2,05 Billion to the IWF and 0,5 Billion to other Banks.

[Aberlour10]

Today "Greece" got a loan of 7,1 Billion €

They should be happy, shouldn't they?

 

I mean who cares that 4,2 Billion got to the EZB (intrests) , 2,05 Billion to the IWF and 0,5 Billion to other Banks.

 

Business as usual ( for last 5 years and probably next 10)