9 ms·

What really caused the eurozone crisis?

162 points by mhw 15y ago

Derbasti 15y ago
I think the most fascinating point in this is that wages remained constant in Germany whereas they rose in the countries that are in the worst shape right now. Can anyone corroborate this data? Is this actually true? That would be such an easy explanation…
- sgift 15y ago
  Unfortunately, this is true - at least it gets regularily reported in german newspapers and I have no reason to believe that they are wrong. I write unfortunately because the translation is that germans today are far less wealthy than ten years ago and now we pull our neighbours down with us.
  - nknight 15y ago
    Some of the countries, like Spain and Italy, were to some degree trying to "catch up", weren't they? That is to say, Germans had a lot more purchasing power to start with.
- dhoe 15y ago
  It's true, but it's debatable how much it explains. Germany looks relatively good right now, but it's been 20 years of slow growth and lots of pain after '89. It's funny that just a couple of years ago, say 2003, you'd read about the booming Greece and "sick man of Europe" Germany.
  - arethuza 15y ago
    And Ireland was the Celtic Tiger... http://en.wikipedia.org/wiki/Celtic_Tiger http://en.wikipedia.org/wiki/Celtic_Tiger
- JamisonM 15y ago
  Part of it is playing catch-up with Germany but another part of it is that the Germans restructured their economy quite a bit to reach as close to full employment as they are. I'm having a hard time finding any sources to link to but they provide a lot of government incentives for hiring part-time workers and income top-ups for those workers. As their exports have experienced growth the income has been spread out as it increased. These other nations just enjoyed a huge influx of private credit to rev up their economies - no plan, no accounting for the long-term impact of the changes.
gizmo 15y ago
Pretty good analysis (for an infographic). They correctly show that government debt did not cause the current crisis but total debt did. By stating that the increase in private sector debt caused it they almost (incorrectly) imply that therefore the private sector (and the people) are to blame. Of course it's the responsibility of the government to take corrective measures to ensure long term financial stability. The European governments were completely negligent in that regard. Note also that the financial sector is not mentioned at all in this analysis. The nasty dilemma offered at the end is a false one. First the article observes that government spending was not the cause of the crisis, and then the solution revolves around government spending? The current eurozone debates are about politics: the people in western Europe want to punish the countries they see as irresponsible. That's why we have all the talk about austerity measures. Austerity will only further cripple the economies of the GIPS countries as we've seen during the Great Depression in the 30s. Austerity doesn't work: it leads to criminal levels of capital waste: high unemployment, low standards of living, poor liquidity, and so on. So the question isn't "Should the GIPS countries spend money to prevent a worse recession?" the real question is "How can the GIPS countries get the money to prevent a crushing depression and a lost generation?". There are a number of options: ECB bailout. Eurobonds. Bailout by the richer part of the eurozone. Various forms of quantitative easing. Unfortunately this is difficult as long as the people in Europe are angry at the GIPS countries. No politician is going to support a bailout at the expense of the richer countries if the people want to see blood.
- jonnathanson 15y ago
  At the end of the day, the Europeans can't have their cake and it eat, too. Either the Eurozone is a truly integrated, multinational superentity, or it's a meaningless construct on top of a group of wholly independent nations. It can't be the former when things are going well, and the latter when things are going poorly. A fairweather EU / economic zone doesn't work, because it's built on a foundation of quicksand. How can these countries rely on a cooperative economic superstructure when, beneath it all, they still see each other as competitors? Transnationalism doesn't work when you're secretly a nationalist.
  - 15y ago
harryf 15y ago
But where is Greece?
- krogsgard 15y ago
  The infographic stated that Greece is wholly excluded, as they never reported properly anyway, enabling them to join the union in the first place, and broke the rules all along. Though I too wish they were included at least for some perspective.
gregschlom 15y ago
On a related note, the "Money as Debt" documentary is a fascinating watch to understand where money comes from. I just submitted it to HN http://news.ycombinator.com/item?id=3381634 http://news.ycombinator.com/item?id=3381634 and I'd be interested in hearing the opinion and criticism of people with better knowledge of the monetary system than me.
- webreac 15y ago
  do you have a textual transcription of this video ?
  - gregschlom 15y ago
    Here: http://usuryfree.blogspot.com/2011/01/money-as-debt-ii-transcript.html http://usuryfree.blogspot.com/2011/01/money-as-debt-ii-trans...
yummyfajitas 15y ago
The drawbacks of the "cut spending" option are predicated on textbook Keynesian analysis. Cut spending, you get an anti-stimulus, and a contraction. But it's important to recognize the assumptions that go into Keynesian analysis, sticky nominal wages in particular. Sticky nominal wages prevent the necessary cuts in real aggregate wages, leading to unemployment (another way of cutting real aggregate wages). Keynesian analysis typically treats sticky nominal wages as given. But is it? In the time of Keynes, government employment was a fairly small sector of the economy. This is no longer true - I've heard estimates that the public sector makes up 20-40% of Greece's economy. Further, even in the private sector (particularly in Europe), a lot of wage stickiness is caused by union contracts, minimum wages, and mandated benefits. Wage stickiness is also created by welfare/unemployment/etc - why get a job paying less than your old job if it only pays marginally more than unemployment? So why not make use of this and impose wage flexibility by fiat? Cut the pay of government workers, force renegotiation of union contracts, reduce benefits and make welfare/unemployment/etc as unpleasant as possible? I truly don't understand why Keynesians don't push for these policies. (Note: I'm aware of the problem of nominal debts, these could be mitigated by making it easier to settle debts. I.e., make foreclosure/debt collection faster and easier.) [edit: just curious, will those who are downmodding explain where my analysis fails?]
- m0nty 15y ago
  I'm guessing that the silent downvoters are reacting to the "wage flexibility by fiat" paragraph which might be construed as a political viewpoint rather than an economic one. The widely-accepted narrative at the moment is that the bankers caused the crisis, and the rest of us are victims, so why should we be subjected to more pain to fix the mess they made? It would at least be polite for people to say why they don't like your opinion, rather than just bitch-slapping you into silence.
- white_devil 15y ago
  There's not much point in basing an analysis of what's wrong with the world's economy on the economic (pseudo-?)principles that got us into this mess. It would also be good to note that the US is pretty much just as insolvent as Europe. Individual states are going bankrupt, but no one seems to care, at least as long as there's something else to talk about. The real problem is too much greed & corruption. That sounds simplistic and vague, but that's what it all boils down to.
maximusprime 15y ago
"the idea of a single currency" caused it. A truly terrible idea. Everything that happened was inevitable.
- jarek 15y ago
  Single currency without a single fiscal policy.
  - maximusprime 15y ago
    A single currency across countries with such different economies, histories, cultures and languages would still result in the same outcome IMHO.
marquis 15y ago
In regards to 'wages rose and rose in Spain' and are now not competitive with Germany: I would have thought that wages in Spain pre-1997 were very low compared to Germany, so if they rose it was to become comparable. How does this then make Spain less competitive with Germany? (I may be completely wrong and am neither an economist nor aware of what the wage gap is/was between eurozones).
- Maro 15y ago
  The infographic says regarding Spain and Italy: "Their exports are uncompetitive". Maybe the thinking is that stuff exported by Spain and Italy is on average crappier than stuff exported by Germany, so it should cost less to manufacture, ie. lower wages?
  - jc79 15y ago
    I can tell that the minimum wage in Portugal is around 485 Euros (and there is a very significant portion of the population earning just that), so it's not fair to say the wages are 'even' with Germany. It is really a matter of what you invest on and export: and with few exceptions, the choices made here were not brilliant...
    - Maro 15y ago
      Here in Hungary it's around €300. Btw. there's a Google feature for this: http://tinyurl.com/7xlfah2 http://tinyurl.com/7xlfah2
- fcatalan 15y ago
  And they are far from comparable right now, after "rising and rising". Tell me how these are not competitive: http://www.payscale.com/research/ES/Country=Spain/Salary http://www.payscale.com/research/ES/Country=Spain/Salary http://www.payscale.com/research/DE/Country=Germany/Salary http://www.payscale.com/research/DE/Country=Germany/Salary
cs702 15y ago
Missing from this otherwise good infographic: the role played by private-sector financial firms, which are tightly interlinked with each other in a massively complex global network no one really understands, even today. The structure and behavior of private-sector financial firms appear to have been a major destabilizing force leading to the crisis. A (relatively tiny) number of reputable economists are starting to look beyond these current-account imbalances to the disproproportionate growth and destabilizing role of the financial system -- a welcome development IMO. Here's a recent example (in lay language): http://www.voxeu.org/index.php?q=node/7446 http://www.voxeu.org/index.php?q=node/7446
chris_dcosta 15y ago
I'm not so sure this tells the whole picture. Countries borrow money from banks and wealthy individuals in the bond market. These same countries (and I class Europe as a pseudo-country) want to bring in legislation to prevent banks from doing what they did to create the first crisis in 2007. But the interest rates are being set by the lenders, and this can be used as a kind of weapon to retaliate in this game. What's happeneing at the moment is that the bond holders are basically trying to force the governments to raise taxes and cut public expenditure for no other reason than so they can get their money back. Governments are caught in this trap because it's rather unfair to punish the people like this. If you take a step back and look at the series of problems since 2007 you'll see that the banks were responsible for selling worthless "structured debt" to each other before realising they couldn't trust each other, then freezing all lending causing liquidity problems, and now using bonds interest rate weapons to effectively prevent governments from legislating against their bad behaviour. It's a game of poker with some very high stakes: the options are a few banks choking or whole countries. I'm not greek but the more I read and look at this the more I think they had the right idea to stand up to the banks. In the end they got half their debt removed, but unless all politicians stand together with the people and call it, this will all end in tears.
- justincormack 15y ago
  The Greek debt negotiations haven't finished, and while the private sector bond holders may get 50% losses, Greece will not cut 50% of its debts, as the official lenders are not taking losses. Greece would be better off simply defaulting fully, as it will still end up with government debts of 150% of GDP or so after default. Also if the countries default the banks do too, as they hold a lot of the government debt - it was a mutual game.
  - chris_dcosta 15y ago
    Agreed. Banks were previously bailed out on the basis that this would be terrible for the people whose assets/savings were held at banks that failed because they could not return those assets to the people. But things have changed since then... firstly governments have guaranteed people's assets in the event that a bank fails. In addition some countries took charge of their banks, notably the UK, meaning that at least from a "business as usual" case, it is not inconceivable nor technically impossible to move the accounts from a failing bank into a nationalised bank. So if the banks were to default now, the situation would be different. The governments could let a bank or many banks fail and with careful management take back control. One other point is that banks can make very large profits in a very short space of time. LloydsTSB in under six months following the write-down of massive losses in the crisis, made a first quarter profit of 3 billion pounds. I don't know many companies that can turn things around that quickly, but banks regularly do. This, to my mind, makes it less credible to hold the threat of many banks defaulting over the heads of the governments, and is another reason why I say the governments make the call.
russnewcomer 15y ago
This is not a fully developed thought, but I think the current Eurozone crisis shows the difficulty of trying to politically unify culturally diverse people groups. I am not an economist or a political theorist, but I think that the Eurozone crisis proves that in trying to create the EU and gain some of the economic advantages that the United States has with a single currency (and other advantages as well, I know I am simplifying), the Eurozone founders didn't fully take into account the cultural issues that their creation would face. America, for various and sundry reasons easily traceable through its founding, is largely culturally monolithic (I realize this is a simplification, yes) and by and large, Americans in one geographic region of the country (for example, the Midwest, which didn't fly too high in the recent booms but is also not facing a bottom dropping out like other regions) do not strenuously question the need to 'bail out' other areas of the country through large federal spending. It happens in America, its just largely invisible and rarely widely debated along geographic lines (farm subsidies, bank bailouts, automaker bailouts, all can be argued to have a strong geographic context that largely gets ignored in America politics) because of the strong nationalistic component in America that the Eurozone lacks. Smaller versions of this basic problem can be seen, manifested in different ways, all throughout Asia (Afghanistan, India, India/Pakistan, Laos, China) and Africa (Sudan/South Sudan, the DRC), and probably though South America too, but I am far less familiar with SA.
- m0nty 15y ago
  There are indeed cultural issues, but deeper than that is the problem of trying to impose one economic policy (via one currency) on an area as diverse as Europe. We are generally quite good at rubbing along with our European neighbours, but the race to expand the Eurozone at breakneck speed has led to a large number of economically disparate countries being lumped to together as (somehow) one entity. Like easy credit, it only holds together while the trend in the worldwide economy is upward.
JamisonM 15y ago
The summary of the infographic can be made in a single sentence: Paul Krugman has been right about the causes of the Eurozone crisis. The "Don't cut spending" solution at the end mentions the real heart of the problem, "The ECB says its mandate does not allow it [to bail governments out]." -- All the Eurpoeans need to do is make the ECB a lender of last resort. In a liquidity trap expanding the monetary base will do very little to devalue the precious savings the Germans are so worried about, so it won't even hurt them.
- disgruntledphd2 15y ago
  >All the Eurpoeans need to do is make the ECB a lender of last resort. The problem with this solution is that it is specifically prohibited by the EU treaties (Maastricht, I believe). I would guess that this treaty change (which would require a referendum in Ireland) would be extremely unpopular in Germany and the Netherlands, the main payers in this situation. That being said, Eurobonds are not specifically forbidden so I suspect that the Germans will relent on this after they've extracted their pound of flesh.
  - justincormack 15y ago
    Eurobonds are forbidden by the German constitution though. And why exactly is more borrowing the answer? ECB money would be monetization but eurobonds are just subsidized borrowing for the PIIGS, which we already had for years with their low rates. .
    - JamisonM 15y ago
      If you read the infographic you will find that borrowing by governments was not the cause (and even if it were that does not mean it can not be the answer, that is what widening the monetary base is partially about). Italy and Greece would be running surpluses if they could borrow at U.S. rates (maybe Spain and Ireland too, I don't know) - so Eurobonds at the good rates they would attract can be an important part of the answer.
      - 15y ago
coldarchon 15y ago
This won't change the fact that rating agencies hiding bad debts in packets with better debts caused the crisis in first place. Period.
blumentopf 15y ago
One point that's not fully explained in this infographic is the borrowing costs in the Eurozone countries: Before the Euro introduction, borrowing costs in Germany, both for the private as well as the government sector, were cheap, whereas in the southern countries they were high. With the Euro introduction, borrowing costs were essentially unified, the interest rate being set by the ECB. So Germany suddenly faced higher borrowing costs than before and the southern states faced significantly lower borrowing costs. That lead to the debt explosion in southern Europe and it put Germany in a tougher position than before. Germany went through an economic slump between 2000 and 2005 and had to retool its economy to be as competitive as before. Germany did this with internal devaluation: German wages have now been stagnating for a decade. Between 2005 and 2010, the roles have switched and right now Germany's economy is almost overheating, in part because the interest rate set by the ECB is super low to make life easier for the struggling southern countries. That's why Euro critics like Ambrose Evans-Pritchard call the ECB's policy "one size fits none". However, that's not to say the Euro critics are right. The hope of Euro optimists is that the Eurozone countries' economies will eventually converge. Whether or not that will ever happen is still up in the air. The whole thing is an experiment without precedent.
ww520 15y ago
Having the same Euro currency but different economic structure and policy in different countries doesn't work, especially in Spain/Italy/France's case. Their labor cost has soared and trade deficit widen against Germany but they can't cheapen their currency to make them more competitive. They are stuck.
jl6 15y ago
Asking what specifically caused the crisis is like asking which hamburger caused your obesity. This is a problem that has been building over decades, and it will take decades to solve.
_k 15y ago
Countries & institutions that weren't mentioned : Greece 22% of the people in Greece work for the government. That's unsustainable. They paid very little taxes and the government's debt ballooned to a point where the market said enough. Greece asked the EU for a bailout & they got it. There were no real austerity measures. Now they want the debt holders to cut the debt in half. Belgium's problems. Belgium's debt is ballooning out of proportion & bigger than Greece's. Close to 10% of the people work for the government. Savings are high and can be used to revive the economy. Instead, the government asked everyone to buy up their bonds at prices lower than what's available on the market. Crazy & stupid but real. 50% of all goods are export, even though labour costs are twice as high as Spain's. The Netherlands is in a similar situation. How is that possible? They just work harder. I don't know why that isn't mentioned in the article as a possible solution. The Netherlands They were able to handle the world economic slowdown that started in 08. They came prepared, they paid down their debt with every surplus they had. Exports have been holding up quite well, although the slowdown is catching up. Savings are high and that's another bullet you can use to revive the economy. Housing prices are a bit high though. Also, those who work after age 62 can earn a bonus for every year they remain employed. ECB & IMF The ECB says they aren't allowed to buy government debt. That's correct but it's BS as well. They found a way around it. They gave money to the IMF and the IMF gave it to Italy. With Germany & France's permission. Last week the IMF tried to raise money from its members. They failed at it. Both the IMF & the ECB are sitting on gold reserves. Not enough to bail everyone out but perhaps enough for some quantitative easing. Not that I'm in favor of it. Quite the contrary. Inflation When everyone wants a bailout and the ECB blows through all reserves, then they will have no other option than to do what Ben Bernanke is secretly doing in the US. He's buying up all the debt and he's probably doing it by printing more dollars. Don't worry, don't feel sorry, there're other solutions. 1) Governments need to be smaller & more efficient. 2) Lack of discipline & brass balls In some EU countries you get paid $ 1,000 per month to take time off. You get to ride on the bus for free. You don't have to pay taxes on your house. The list goes on and on. It's a luxury problem. It's easy to stop. It's political suicide but it has to stop. 3) Retirement age. The worldwide average is 64 if I'm not mistaken. In Europe it's something like 60 - 62. In Germany it's 65 to 67, so they already shot that bullet. It used to be 50 something in Greece ... I'm all for austerity programs because I want the craziness to stop. I want our politicians to stop getting deeper in debt. Now !

162 points by mhw 15y ago

I think the most fascinating point in this is that wages remained constant in Germany whereas they rose in the countries that are in the worst shape right now. Can anyone corroborate this data? Is this actually true? That would be such an easy explanation…

sgift 15y ago
Unfortunately, this is true - at least it gets regularily reported in german newspapers and I have no reason to believe that they are wrong. I write unfortunately because the translation is that germans today are far less wealthy than ten years ago and now we pull our neighbours down with us.
- nknight 15y ago
  Some of the countries, like Spain and Italy, were to some degree trying to "catch up", weren't they? That is to say, Germans had a lot more purchasing power to start with.
dhoe 15y ago
It's true, but it's debatable how much it explains. Germany looks relatively good right now, but it's been 20 years of slow growth and lots of pain after '89. It's funny that just a couple of years ago, say 2003, you'd read about the booming Greece and "sick man of Europe" Germany.
- arethuza 15y ago
  And Ireland was the Celtic Tiger... http://en.wikipedia.org/wiki/Celtic_Tiger http://en.wikipedia.org/wiki/Celtic_Tiger
JamisonM 15y ago
Part of it is playing catch-up with Germany but another part of it is that the Germans restructured their economy quite a bit to reach as close to full employment as they are. I'm having a hard time finding any sources to link to but they provide a lot of government incentives for hiring part-time workers and income top-ups for those workers. As their exports have experienced growth the income has been spread out as it increased. These other nations just enjoyed a huge influx of private credit to rev up their economies - no plan, no accounting for the long-term impact of the changes.

gizmo 15y ago

Pretty good analysis (for an infographic). They correctly show that government debt did not cause the current crisis but total debt did. By stating that the increase in private sector debt caused it they almost (incorrectly) imply that therefore the private sector (and the people) are to blame. Of course it's the responsibility of the government to take corrective measures to ensure long term financial stability. The European governments were completely negligent in that regard. Note also that the financial sector is not mentioned at all in this analysis. The nasty dilemma offered at the end is a false one. First the article observes that government spending was not the cause of the crisis, and then the solution revolves around government spending? The current eurozone debates are about politics: the people in western Europe want to punish the countries they see as irresponsible. That's why we have all the talk about austerity measures. Austerity will only further cripple the economies of the GIPS countries as we've seen during the Great Depression in the 30s. Austerity doesn't work: it leads to criminal levels of capital waste: high unemployment, low standards of living, poor liquidity, and so on. So the question isn't "Should the GIPS countries spend money to prevent a worse recession?" the real question is "How can the GIPS countries get the money to prevent a crushing depression and a lost generation?". There are a number of options: ECB bailout. Eurobonds. Bailout by the richer part of the eurozone. Various forms of quantitative easing. Unfortunately this is difficult as long as the people in Europe are angry at the GIPS countries. No politician is going to support a bailout at the expense of the richer countries if the people want to see blood.

jonnathanson 15y ago
At the end of the day, the Europeans can't have their cake and it eat, too. Either the Eurozone is a truly integrated, multinational superentity, or it's a meaningless construct on top of a group of wholly independent nations. It can't be the former when things are going well, and the latter when things are going poorly. A fairweather EU / economic zone doesn't work, because it's built on a foundation of quicksand. How can these countries rely on a cooperative economic superstructure when, beneath it all, they still see each other as competitors? Transnationalism doesn't work when you're secretly a nationalist.
- 15y ago

harryf 15y ago

But where is Greece?

krogsgard 15y ago
The infographic stated that Greece is wholly excluded, as they never reported properly anyway, enabling them to join the union in the first place, and broke the rules all along. Though I too wish they were included at least for some perspective.

gregschlom 15y ago

On a related note, the "Money as Debt" documentary is a fascinating watch to understand where money comes from. I just submitted it to HN http://news.ycombinator.com/item?id=3381634 http://news.ycombinator.com/item?id=3381634 and I'd be interested in hearing the opinion and criticism of people with better knowledge of the monetary system than me.

webreac 15y ago
do you have a textual transcription of this video ?
- gregschlom 15y ago
  Here: http://usuryfree.blogspot.com/2011/01/money-as-debt-ii-transcript.html http://usuryfree.blogspot.com/2011/01/money-as-debt-ii-trans...

yummyfajitas 15y ago

The drawbacks of the "cut spending" option are predicated on textbook Keynesian analysis. Cut spending, you get an anti-stimulus, and a contraction. But it's important to recognize the assumptions that go into Keynesian analysis, sticky nominal wages in particular. Sticky nominal wages prevent the necessary cuts in real aggregate wages, leading to unemployment (another way of cutting real aggregate wages). Keynesian analysis typically treats sticky nominal wages as given. But is it? In the time of Keynes, government employment was a fairly small sector of the economy. This is no longer true - I've heard estimates that the public sector makes up 20-40% of Greece's economy. Further, even in the private sector (particularly in Europe), a lot of wage stickiness is caused by union contracts, minimum wages, and mandated benefits. Wage stickiness is also created by welfare/unemployment/etc - why get a job paying less than your old job if it only pays marginally more than unemployment? So why not make use of this and impose wage flexibility by fiat? Cut the pay of government workers, force renegotiation of union contracts, reduce benefits and make welfare/unemployment/etc as unpleasant as possible? I truly don't understand why Keynesians don't push for these policies. (Note: I'm aware of the problem of nominal debts, these could be mitigated by making it easier to settle debts. I.e., make foreclosure/debt collection faster and easier.) [edit: just curious, will those who are downmodding explain where my analysis fails?]

m0nty 15y ago
I'm guessing that the silent downvoters are reacting to the "wage flexibility by fiat" paragraph which might be construed as a political viewpoint rather than an economic one. The widely-accepted narrative at the moment is that the bankers caused the crisis, and the rest of us are victims, so why should we be subjected to more pain to fix the mess they made? It would at least be polite for people to say why they don't like your opinion, rather than just bitch-slapping you into silence.
white_devil 15y ago
There's not much point in basing an analysis of what's wrong with the world's economy on the economic (pseudo-?)principles that got us into this mess. It would also be good to note that the US is pretty much just as insolvent as Europe. Individual states are going bankrupt, but no one seems to care, at least as long as there's something else to talk about. The real problem is too much greed & corruption. That sounds simplistic and vague, but that's what it all boils down to.

maximusprime 15y ago

"the idea of a single currency" caused it. A truly terrible idea. Everything that happened was inevitable.

jarek 15y ago
Single currency without a single fiscal policy.
- maximusprime 15y ago
  A single currency across countries with such different economies, histories, cultures and languages would still result in the same outcome IMHO.

marquis 15y ago

In regards to 'wages rose and rose in Spain' and are now not competitive with Germany: I would have thought that wages in Spain pre-1997 were very low compared to Germany, so if they rose it was to become comparable. How does this then make Spain less competitive with Germany? (I may be completely wrong and am neither an economist nor aware of what the wage gap is/was between eurozones).

Maro 15y ago
The infographic says regarding Spain and Italy: "Their exports are uncompetitive". Maybe the thinking is that stuff exported by Spain and Italy is on average crappier than stuff exported by Germany, so it should cost less to manufacture, ie. lower wages?
- jc79 15y ago
  I can tell that the minimum wage in Portugal is around 485 Euros (and there is a very significant portion of the population earning just that), so it's not fair to say the wages are 'even' with Germany. It is really a matter of what you invest on and export: and with few exceptions, the choices made here were not brilliant...
  - Maro 15y ago
    Here in Hungary it's around €300. Btw. there's a Google feature for this: http://tinyurl.com/7xlfah2 http://tinyurl.com/7xlfah2
fcatalan 15y ago
And they are far from comparable right now, after "rising and rising". Tell me how these are not competitive: http://www.payscale.com/research/ES/Country=Spain/Salary http://www.payscale.com/research/ES/Country=Spain/Salary http://www.payscale.com/research/DE/Country=Germany/Salary http://www.payscale.com/research/DE/Country=Germany/Salary

cs702 15y ago

Missing from this otherwise good infographic: the role played by private-sector financial firms, which are tightly interlinked with each other in a massively complex global network no one really understands, even today. The structure and behavior of private-sector financial firms appear to have been a major destabilizing force leading to the crisis. A (relatively tiny) number of reputable economists are starting to look beyond these current-account imbalances to the disproproportionate growth and destabilizing role of the financial system -- a welcome development IMO. Here's a recent example (in lay language): http://www.voxeu.org/index.php?q=node/7446 http://www.voxeu.org/index.php?q=node/7446

chris_dcosta 15y ago

I'm not so sure this tells the whole picture. Countries borrow money from banks and wealthy individuals in the bond market. These same countries (and I class Europe as a pseudo-country) want to bring in legislation to prevent banks from doing what they did to create the first crisis in 2007. But the interest rates are being set by the lenders, and this can be used as a kind of weapon to retaliate in this game. What's happeneing at the moment is that the bond holders are basically trying to force the governments to raise taxes and cut public expenditure for no other reason than so they can get their money back. Governments are caught in this trap because it's rather unfair to punish the people like this. If you take a step back and look at the series of problems since 2007 you'll see that the banks were responsible for selling worthless "structured debt" to each other before realising they couldn't trust each other, then freezing all lending causing liquidity problems, and now using bonds interest rate weapons to effectively prevent governments from legislating against their bad behaviour. It's a game of poker with some very high stakes: the options are a few banks choking or whole countries. I'm not greek but the more I read and look at this the more I think they had the right idea to stand up to the banks. In the end they got half their debt removed, but unless all politicians stand together with the people and call it, this will all end in tears.

justincormack 15y ago
The Greek debt negotiations haven't finished, and while the private sector bond holders may get 50% losses, Greece will not cut 50% of its debts, as the official lenders are not taking losses. Greece would be better off simply defaulting fully, as it will still end up with government debts of 150% of GDP or so after default. Also if the countries default the banks do too, as they hold a lot of the government debt - it was a mutual game.
- chris_dcosta 15y ago
  Agreed. Banks were previously bailed out on the basis that this would be terrible for the people whose assets/savings were held at banks that failed because they could not return those assets to the people. But things have changed since then... firstly governments have guaranteed people's assets in the event that a bank fails. In addition some countries took charge of their banks, notably the UK, meaning that at least from a "business as usual" case, it is not inconceivable nor technically impossible to move the accounts from a failing bank into a nationalised bank. So if the banks were to default now, the situation would be different. The governments could let a bank or many banks fail and with careful management take back control. One other point is that banks can make very large profits in a very short space of time. LloydsTSB in under six months following the write-down of massive losses in the crisis, made a first quarter profit of 3 billion pounds. I don't know many companies that can turn things around that quickly, but banks regularly do. This, to my mind, makes it less credible to hold the threat of many banks defaulting over the heads of the governments, and is another reason why I say the governments make the call.

russnewcomer 15y ago

This is not a fully developed thought, but I think the current Eurozone crisis shows the difficulty of trying to politically unify culturally diverse people groups. I am not an economist or a political theorist, but I think that the Eurozone crisis proves that in trying to create the EU and gain some of the economic advantages that the United States has with a single currency (and other advantages as well, I know I am simplifying), the Eurozone founders didn't fully take into account the cultural issues that their creation would face. America, for various and sundry reasons easily traceable through its founding, is largely culturally monolithic (I realize this is a simplification, yes) and by and large, Americans in one geographic region of the country (for example, the Midwest, which didn't fly too high in the recent booms but is also not facing a bottom dropping out like other regions) do not strenuously question the need to 'bail out' other areas of the country through large federal spending. It happens in America, its just largely invisible and rarely widely debated along geographic lines (farm subsidies, bank bailouts, automaker bailouts, all can be argued to have a strong geographic context that largely gets ignored in America politics) because of the strong nationalistic component in America that the Eurozone lacks. Smaller versions of this basic problem can be seen, manifested in different ways, all throughout Asia (Afghanistan, India, India/Pakistan, Laos, China) and Africa (Sudan/South Sudan, the DRC), and probably though South America too, but I am far less familiar with SA.

m0nty 15y ago
There are indeed cultural issues, but deeper than that is the problem of trying to impose one economic policy (via one currency) on an area as diverse as Europe. We are generally quite good at rubbing along with our European neighbours, but the race to expand the Eurozone at breakneck speed has led to a large number of economically disparate countries being lumped to together as (somehow) one entity. Like easy credit, it only holds together while the trend in the worldwide economy is upward.

JamisonM 15y ago

The summary of the infographic can be made in a single sentence: Paul Krugman has been right about the causes of the Eurozone crisis. The "Don't cut spending" solution at the end mentions the real heart of the problem, "The ECB says its mandate does not allow it [to bail governments out]." -- All the Eurpoeans need to do is make the ECB a lender of last resort. In a liquidity trap expanding the monetary base will do very little to devalue the precious savings the Germans are so worried about, so it won't even hurt them.

disgruntledphd2 15y ago
>All the Eurpoeans need to do is make the ECB a lender of last resort. The problem with this solution is that it is specifically prohibited by the EU treaties (Maastricht, I believe). I would guess that this treaty change (which would require a referendum in Ireland) would be extremely unpopular in Germany and the Netherlands, the main payers in this situation. That being said, Eurobonds are not specifically forbidden so I suspect that the Germans will relent on this after they've extracted their pound of flesh.
- justincormack 15y ago
  Eurobonds are forbidden by the German constitution though. And why exactly is more borrowing the answer? ECB money would be monetization but eurobonds are just subsidized borrowing for the PIIGS, which we already had for years with their low rates. .
  - JamisonM 15y ago
    If you read the infographic you will find that borrowing by governments was not the cause (and even if it were that does not mean it can not be the answer, that is what widening the monetary base is partially about). Italy and Greece would be running surpluses if they could borrow at U.S. rates (maybe Spain and Ireland too, I don't know) - so Eurobonds at the good rates they would attract can be an important part of the answer.
    - 15y ago

coldarchon 15y ago

This won't change the fact that rating agencies hiding bad debts in packets with better debts caused the crisis in first place. Period.

blumentopf 15y ago

One point that's not fully explained in this infographic is the borrowing costs in the Eurozone countries: Before the Euro introduction, borrowing costs in Germany, both for the private as well as the government sector, were cheap, whereas in the southern countries they were high. With the Euro introduction, borrowing costs were essentially unified, the interest rate being set by the ECB. So Germany suddenly faced higher borrowing costs than before and the southern states faced significantly lower borrowing costs. That lead to the debt explosion in southern Europe and it put Germany in a tougher position than before. Germany went through an economic slump between 2000 and 2005 and had to retool its economy to be as competitive as before. Germany did this with internal devaluation: German wages have now been stagnating for a decade. Between 2005 and 2010, the roles have switched and right now Germany's economy is almost overheating, in part because the interest rate set by the ECB is super low to make life easier for the struggling southern countries. That's why Euro critics like Ambrose Evans-Pritchard call the ECB's policy "one size fits none". However, that's not to say the Euro critics are right. The hope of Euro optimists is that the Eurozone countries' economies will eventually converge. Whether or not that will ever happen is still up in the air. The whole thing is an experiment without precedent.

ww520 15y ago

Having the same Euro currency but different economic structure and policy in different countries doesn't work, especially in Spain/Italy/France's case. Their labor cost has soared and trade deficit widen against Germany but they can't cheapen their currency to make them more competitive. They are stuck.

jl6 15y ago

Asking what specifically caused the crisis is like asking which hamburger caused your obesity. This is a problem that has been building over decades, and it will take decades to solve.

_k 15y ago

Countries & institutions that weren't mentioned : Greece 22% of the people in Greece work for the government. That's unsustainable. They paid very little taxes and the government's debt ballooned to a point where the market said enough. Greece asked the EU for a bailout & they got it. There were no real austerity measures. Now they want the debt holders to cut the debt in half. Belgium's problems. Belgium's debt is ballooning out of proportion & bigger than Greece's. Close to 10% of the people work for the government. Savings are high and can be used to revive the economy. Instead, the government asked everyone to buy up their bonds at prices lower than what's available on the market. Crazy & stupid but real. 50% of all goods are export, even though labour costs are twice as high as Spain's. The Netherlands is in a similar situation. How is that possible? They just work harder. I don't know why that isn't mentioned in the article as a possible solution. The Netherlands They were able to handle the world economic slowdown that started in 08. They came prepared, they paid down their debt with every surplus they had. Exports have been holding up quite well, although the slowdown is catching up. Savings are high and that's another bullet you can use to revive the economy. Housing prices are a bit high though. Also, those who work after age 62 can earn a bonus for every year they remain employed. ECB & IMF The ECB says they aren't allowed to buy government debt. That's correct but it's BS as well. They found a way around it. They gave money to the IMF and the IMF gave it to Italy. With Germany & France's permission. Last week the IMF tried to raise money from its members. They failed at it. Both the IMF & the ECB are sitting on gold reserves. Not enough to bail everyone out but perhaps enough for some quantitative easing. Not that I'm in favor of it. Quite the contrary. Inflation When everyone wants a bailout and the ECB blows through all reserves, then they will have no other option than to do what Ben Bernanke is secretly doing in the US. He's buying up all the debt and he's probably doing it by printing more dollars. Don't worry, don't feel sorry, there're other solutions. 1) Governments need to be smaller & more efficient. 2) Lack of discipline & brass balls In some EU countries you get paid $ 1,000 per month to take time off. You get to ride on the bus for free. You don't have to pay taxes on your house. The list goes on and on. It's a luxury problem. It's easy to stop. It's political suicide but it has to stop. 3) Retirement age. The worldwide average is 64 if I'm not mistaken. In Europe it's something like 60 - 62. In Germany it's 65 to 67, so they already shot that bullet. It used to be 50 something in Greece ... I'm all for austerity programs because I want the craziness to stop. I want our politicians to stop getting deeper in debt. Now !