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Apocalypse Later: The End of Europe Has Been Delayed Indefinitely
- knb 15y agoTo my understanding, the German version of the law that was passed says: The guarantees are basically possible, but they are still optional. Whatever the ESFS contract says, and whatever the EFSF Bureaucrats might decide: before any real money flows from Germany to Greece, the German parliament (or a parl. committee) will have to approve this a second time.
- iwwr 15y agoIs this $600bn out of pocket for the German state, or some leveraged fund, or perhaps a smaller contribution to a bigger fund?
- mrich 15y agoGermany guarantees €211bn, this is part of a previously existing fund created by all EU countries. I assume they provide the money as needed, not upfront.
- danmaz74 15y agoUsually the share of contributions to the EU by national states are proportional to GDP. So everybody (who adopted the Euro) is contributing, but Germany has the biggest proportion. A lot of haggling was needed to convince Finland to contribute...
- tybris 15y agoThough strangely enough, the per-capita contribution of Germany is lower than that of Ireland.
- fleitz 15y agoThat's how the rich get richer, Germany is in a realistic position to create it's own currency. Germany has better leverage over the situation than the Irish, hence they pay less.
- Someone 15y agoThat isn't strange. The GDP per capita of Ireland is higher than that of Germany (http://en.wikipedia.org/wiki/Economy_of_the_European_Union#Economic_variation http://en.wikipedia.org/wiki/Economy_of_the_European_Union#E...)
- juhanaj 15y agoThe reason for the "haggling" was that there was parlamentary elections in Finland and the presidential elections is also pretty soon so the populists are playing their games.. I'd say most Finns just as happy to contribute as everyone else.
- danmaz74 15y agoI understand that. I just wanted to point out that it isn't just Germany contributing, it is all Eurozone states.
- waxymonkeyfrog 15y agoThe latter. Germany is responsible for about $280 bill. But this is a fund. We don't know how much will actually have to be footed by the govt/people when it's all over. TARP cost much, much less than its first price tag. The bailout of Greece will probably cost mcuh more than today's price tag.
- coldarchon 15y agoBailout? Are payments finite?
- mrich 15y agoI would be interested how the bailout is perceived in the US. What is your understanding of the workings of the eurozone?
- stevenbedrick 15y agoI'll give you a hint: 90% of Americans probably couldn't find Greece on a map, and of the 10% who could, 90% wouldn't know what the word "eurozone" meant.
- vondur 15y agoSad but true.
- learc83 15y agoNo, just ridiculous hyperbole.
- fmota 15y agoYeah, the 10% figures are greatly exaggerated. More like 5%.
- stevenbedrick 15y agohttp://news.nationalgeographic.com/news/2002/11/1120_021120_GeoRoperSurvey.html http://news.nationalgeographic.com/news/2002/11/1120_021120_... Hyperbole, perhaps. Ridiculous, no.
- maratd 15y agoYup. A country made up of 99% ignorant twits (your math) is responsible for one of the largest and robust economies on the planet. Good one.
- SkyMarshal 15y agoAs far as the Euro bailout goes, my take is that it's roughly the same as what happened in the US - too-big-to-fail banks holding too much bad debt (sovereign debt in Europe, vs mortgage, other collateral-backed, and municipal debt in the US), and maybe still too-highly leveraged using those debt 'assets' as collateral. If the collateral (Greek, Portugese, Irish, etc bonds) defaults, not only do the banks take a huge haircut on their capital, but they also get margin calls on their leverage that they can't pay. Boom, bankpocalypse. The German government knows this, just as the US government did, which is why they too will proceed with the bailout despite citizens' vehement opposition and at the risk of losing their next election. The alternative is something that, once it occurs, can't be undone easily, and which most citizens would probably regret once it became real. I'm sure there are tons of details I'm missing, but haven't been following this as closely the past two years. But that's one American's take on it, fwiw.
- lmkg 15y agoAt some point, it occurred to me that switching everyone over to the same currency should have been the last thing that Europe does to unify its economy, rather than one of the first things. It was a big symbolic victory, but as a practical matter it means the countries in the Eurozone share a fiscal policy, while still having independent economies. They should have waited until their economies were already on the same page before conjoining their currencies, but instead they tried to force a unity that wasn't there yet. Now Greece is missing one of the big knobs that could have been turned (by itself or others) to deal with its crisis, namely devaluing its currency. This article points out something I hadn't seen before, which is one way in which the unified currency may still end up somehow achieving its goal of unifying Europe: as the strong, fiscally-responsible states bail out the weaker ones, they get to dictate policies in those states as conditions of the bailouts. Politically, the bailed-out states will start aligning more with European interests compared to purely self-interested ones. It's not the best way to achieve European unity, but it has some advantages. On the one hand, it's a little unfair that Germany gets to strong-arm Greece into doing what it wants, because it's an involuntary loss of sovereignty. On the other hand, it seems like a decent heuristic that the states with the strongest economies get more power to make economic decisions. How well that works out for Greece in the long run depends on the politics and alignment between what's good for Germany, what's good for Greece, and what's good for Europe as a whole. I assume the EU will be making sure German bankers don't simply pillage Greece's economy for decades.
- powertower 15y ago> ...as the strong, fiscally-responsible states bail out the weaker ones, they get to dictate policies in those states as conditions of the bailouts. Politically, the bailed-out states will start aligning more with European interests compared to purely self-interested ones. History has shown us that wealth is transferred, not created. And sometimes it's multiplied (when we switched from gold to debt / fractional reserves), but again, never created. Due to this, the stronger players tend to import the benefit from and export the pain into the weaker players, as that is the only play there is to make. And then the cycle repeats itself where the rich players get richer and the poor players get poorer until some major event happens (global war, industrial revolution, energy discovery) and things get shuffled a bit).
- mrich 15y agoI have been trying to understand why German politicians are willing to throw so much money at this problem, clearly against the will of the majority of the electorate. Here is the best theory I can come up with: Germany relies on exports. They need countries which buy them - having everybody use the same currency benefits trade. But more importantly, banks of strong countries like Germany, France are lending money to the fiscally weak countries so that they can import the goods they produce. This benefits their industries. However, why would the banks take on credit when they can be quite sure that these countries will default sooner or later? Well, there has to be some guarantee/assumption that they will be bailed out by the central bank/governments. And of course this happened. So German banks and the export industry, the two entities with the biggest lobbies, get subsidized with tax money. The weak countries won't ever develop their industries and become competitive. What is your view?
- martythemaniak 15y agoI believe the mainstream view is that Germany is willing to do this because having weak countries like Greece and Portugal share the same country weakens the euro, making Germany's exports better priced. If Germany was to revert to the Deutsche Mark, or a Euro made up of strong European economies (for example, Scandinavia, Germany, Low Countries, Austria) their currency would appreciate and hurt exports and industry. German politicians simply think the cost of bailing out Greece will be less than the cost of a strong currency.
- csomar 15y agoSo this is the only solution to weaken the currency? Why not spend the money on Germany instead of Greek? (things like Aerospace, Crazy Arts, Free public goodies...) Won't this make the same effect for the currency? I don't know economics, I'm really asking.
- mrich 15y agoThis would only help when it benefits external currencies (e.g. imports). Otherwise it may help the GDP and economy, but won't lower the value of the Deutsche Mark.
- tzs 15y agoFrom the "explain this in a paragraph" paragraph: Athens has run irresponsible deficits for a decade on top of an economy operating at a fraction of the productivity of Germany and France. If it were in control of its own currency, the solution today would be simpler. It would print more money to depreciate the currency until the value of goods fell relative to trading partners, which would grow exports. But Greece doesn't control its own currency. It's stuck with the euro, which bought ten years of low borrowing costs at the price of three years (and counting) of difficult, if not impossible, adjustments. Interesting. Isn't this situation (not controlling your own currency) the same thing that happens if a country uses a commodity-based currency where there is a relatively fixed supply of the commodity? (E.g., gold). In other words, is what is happening in Greece a refutation to those who say we need to switch in the US to a gold-based currency?
- sliverstorm 15y agoCut it out with your rational arguments. This is a time for fear and panic. To gold! It's shiny, so you know it will protect you!
- galadriel 15y agoYou just pointed out one of the many reasons that world economies have moved past gold-based currency. Commodity based currency also runs risk to sudden discovery of new quantities of commodity (like South American Silver mines), which lead to economic impacts for no reason at all.
- nopassrecover 15y agoTo be fair, there should be economic impacts to the instant creation of valued resources.
- nopassrecover 15y agoI got downvoted here, so I thought I'd expand. If we replace "South American gold mine" with "the release of the iPhone" or "the creation of Google" perhaps my point is clearer - i.e. the creation of value should have economic impacts. Even in a fiat currency situation, the discovery of a massive South American gold mine would have an economic impact as someone now has access to more valuable resources than they did previously. Now, if the currency was based on a commodity that has no value, then maybe your argument makes some sense, but precious metals were chosen specifically because they are valued irrespective of their role in currency. Besides, if an enormous amount of gold was discovered, sovereigns and governments still had control of the currency through debasement.
- roboneal 15y agoEurope, like America, is run by politicians with a 2-4 year election cycle "accountability" making long term multi-generational fiscal obligations (i.e., here is a tiny raise now, but we'll promise to give you free healthcare benefits 20 years from now) Europe will play the "austerity" game for a bit (cut this & that, raise taxes, etc), but it will only kill economic growth and make the problem worse. Inevitably, the "social contract" will be broken. Current working age generations are not willing to live with both "ruinious taxation" AND government "austerity" -- just to maintain the status quo of retiree benefits and government largess. Old people might vote....but young people fill streets and use firebombs
- bd_at_rivenhill 15y agoDid Europe just save Greece with this bailout? Not yet, and probably never. ... If Europe can't save Greece, why is it trying? Don't buy this line of reasoning, Greece must be saved or all of Europe is in a for a very difficult period, economically. If the Greeks are allowed to give creditors a haircut, the first thing that any sane (if slightly rapacious) investor/trader (of which there are more than enough) should do is to start shorting the Italian and Spanish bonds, buying credit default swaps on them, and shorting the Euro. Once the seal is broken and one sovereign entity is allowed to default, it becomes obvious that a sustained speculative attack would drive interest rates high enough to force the larger Southern European economies into default as well. The whole thing would play out in a fashion similar to the exit of the British government from the European exchange rate mechanism in 1992 except that the scale is much larger and the global financial sector has more numerous and powerful tools at its disposal.