4 ms·

Blaming evil banks and profligate creditors while tightening the money supply wasn't a particularly fruitful thing to do the last time there was a global econom

Blaming evil banks and profligate creditors while tightening the money supply wasn't a particularly fruitful thing to do the last time there was a global economic crisis, and a whole lot of modern macro was about not repeating that mistake. Then the world goes around and repeats the same offenses, and the public once again buys the easy, moralistic stories. Bleh. The fact of the matter is that the Eurozone is a bad idea, a lot of economists said it was a bad idea, and now they're seeing their predictions come true. For each European financial disaster it's easy to blame some convenient cause, but eventually you have to ask: what is it about the Eurozone that is so good at precipitating financial crises? As banks collapsed and massive financial contagion in America was uncovered, did anyone in 2007-08 (besides a small number of monetary-inclined economists) think the very Euro would be threatened again, and again, and again, as America lurched along in limp but definite recovery? To paraphrase Bill Clinton: it's the money, stupid. The Eurozone is structured to suck the money out of peripheral economies in times of crisis, which then seize up like an engine starved of oil. The best banking system in the world cannot survive if all its money disappears. Cyprus does not have the best banking system in the world, so I guess they're worse off.

frozenport 14y ago
The Eurozone is structured to suck the money out of peripheral economies in times of crisis It seems like Greece is doing much of the sucking, much to the chagrin of their stern German neighbors. I don't see the Euro as structurally deficient, I really think this problem is a due to Greek culture in the early 2000s being incompatible with the EU. Remember that Cyprus is a very small country, being half the size of Pittsburgh. I think many people forget why the Euro exists. It exists to grow trade and foster connections between European countries, and it serves to level them and their societies. This is a social agenda. If Greece stays in the Euro their culture will have changed for the better.
- kaoD 14y ago
  That sounds a lot like colonization.
- Samuel_Michon 14y ago
  “Remember that Cyprus is a very small country, being half the size of Pittsburgh.” Cyprus is small, but it's not that small. Pittsburgh, PA: 305,704 people (Pittsburgh metro area is 2.36 million though) Cyprus: 786,873 people Pittsburgh, PA: 55.37 mi^2 Cyprus: 3572 mi^2 Courtesy of Wolfram|Alpha: http://www.wolframalpha.com/input/?i=size+pittsburgh%2C+pa+vs+cyprus http://www.wolframalpha.com/input/?i=size+pittsburgh%2C+pa+v... http://www.wolframalpha.com/input/?i=population+pittsburgh%2C+pa+vs+cyprus http://www.wolframalpha.com/input/?i=population+pittsburgh%2...
  - rayiner 14y ago
    I don't know why you wouldn't look at the city's metro area. And if you look at GDP, really Cyprus is 1/4 the size of Pittsburgh.
  - vacri 14y ago
    The way some Americans rate city populations is weird to my (Australian) sensibilities. We assume the metro area in the city population - because the city is referred to as a whole. If I go to visit a friend in the metro areas of Sydney, I'm still 'going to Sydney', not 'the Sydney metro area'.
    - virtualritz 14y ago
      Actually, not some Americans, but some (or all) Australians. It all depends on the pov. :) Europe is the same as is most of the first world as far as bigger cities go (bigger meaning >=1 million inhabitants). There is "city population" and "metro area population" (outside the well-defined boundaries of the city). In the 3rd world this data granularity often isn't available. In Australia, I guess it may be available but the distinction simply isn't made (which also helps making you feel bit more "important" when comparing Aussie city sizes to other big cities in the world, I guess). ;) When I lived in Australia I wondered why Sydney felt so small, smaller even than my home town Hamburg, in Germany. Even though it was supposed to have 4.5 million inhabitants while Hamburg barely has 2 million. After understanding this it all made sense. Hamburg has 1.75 million city + 3.25 metro area = 5 million ... in 3rd world/Aussie city population math. :) Check Wolftram Alpha; you'll find there is no metro population area data for most 3rd world/Australian cities, but it is there is for most big cities in the rest of the first world.
- vixen99 14y ago
  An issue with Greek culture? Yes but what about Spain, Italy and Portugal, Ireland - and now maybe Slovenia? They also have immense problems thanks to their Euro status. Truth is that these counties should never have been asked to join the Euro in the first place and this problem will never be fixed while they remain. However it's the big cosy idea that counts in the minds of the Eurocrats, never mind the human cost. http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9957999/Cyprus-has-finally-killed-myth-that-EMU-is-benign.html http://www.telegraph.co.uk/finance/comment/ambroseevans_prit...
  - bayesianhorse 14y ago
    They are all dealing with their own problems, it's just that almost every country is dealing with their issues instead of postponing it. You can picture it as going through therapy or adolescence. And boy what a drama that is...
    - barking 14y ago
      Growing up doesn't usually involve reducing a person's responsibilities. With the advent of the ECB that's what's happened. Now every little eurozone country has to get used to working with interest rates that are effectively set to suit Germany. In the noughties that meant having cheap money because Germany was in the doldrums. Of course fiscal policies could have been used to dampen down demand in the overheated peripheral economies at that time. And to a certain extent there were. In Ireland, in about 2002, there was a very generous tax-free savings scheme if people to put away money for 5 years. Practically everyone who had the money bought into it to the maximum limit allowed. It was completely inadequate though and a lot more should have been done. However the trend in Europe is also to harmonise fiscal policy. So to me it looks like, if we know what's good for us, we will all have to get into line with the German economy. In the future we will be paying ever closer attention to internal German politics and economic affairs. Maybe that's a good thing, the Germans do seem to know how to run an economy but I don't think 'growing up' is a metaphor I'd use for it.
      - youngtaff 14y ago
- cgio 14y ago
  You have to check your numbers ;-) In fact, all the bail out money goes to interest payments. Therefore, no sucking just moving money from one pocket (Germans) to the other (German banks). On Germans, we have to have another discussion on their role in corruption in Greece and elsewhere... Maybe they are ripping too the fruits of their corrupted business practices (Siemens and many many more in various cases globally.)
rmp2150 14y ago
The events unfolding in the Eurozone is the result of it being only a monetary union instead of a fiscal and monetary union. Milton Friedman predicted this would happen in '04.
- mbreese 14y ago
  It is hard to control an economy when you don't control your own currency.
- bayesianhorse 14y ago
  Tons of people predict tons of doom in advance... It's not really a smart idea to pick the "correct" doomsayer a decade later...
  - rmp2150 14y ago
    First off, Friedman is not a doomsayer. Friedman correctly diagnosed the underlying causes of the Eurozone's malaise a decade ago. If the Eurozone entered into a fiscal union, much of the fundamental problems would be remedied. Political pressure/forgoing of sovereignty makes such an event highly improbable.
MaysonL 14y ago
The euro crisis is in essence a balance of payments crisis: Germany persistently ran balance of payments surplus with its euro partners, and their banks kept lending the surplus to their peripheral neighbors to fund their balance of payments deficits.
Joeri 14y ago
The main problem of the eurozone is that debt is not centrally managed. If debt were centrally managed, it would be centrally regulated, and the current crises would have had a lower likelihood. Although to be fair, the U.S. debt is centrally managed, and that didn't seem to help much 5 years ago.

frozenport 14y ago

The Eurozone is structured to suck the money out of peripheral economies in times of crisis It seems like Greece is doing much of the sucking, much to the chagrin of their stern German neighbors. I don't see the Euro as structurally deficient, I really think this problem is a due to Greek culture in the early 2000s being incompatible with the EU. Remember that Cyprus is a very small country, being half the size of Pittsburgh. I think many people forget why the Euro exists. It exists to grow trade and foster connections between European countries, and it serves to level them and their societies. This is a social agenda. If Greece stays in the Euro their culture will have changed for the better.

kaoD 14y ago
That sounds a lot like colonization.
Samuel_Michon 14y ago
“Remember that Cyprus is a very small country, being half the size of Pittsburgh.” Cyprus is small, but it's not that small. Pittsburgh, PA: 305,704 people (Pittsburgh metro area is 2.36 million though) Cyprus: 786,873 people Pittsburgh, PA: 55.37 mi^2 Cyprus: 3572 mi^2 Courtesy of Wolfram|Alpha: http://www.wolframalpha.com/input/?i=size+pittsburgh%2C+pa+vs+cyprus http://www.wolframalpha.com/input/?i=size+pittsburgh%2C+pa+v... http://www.wolframalpha.com/input/?i=population+pittsburgh%2C+pa+vs+cyprus http://www.wolframalpha.com/input/?i=population+pittsburgh%2...
- rayiner 14y ago
  I don't know why you wouldn't look at the city's metro area. And if you look at GDP, really Cyprus is 1/4 the size of Pittsburgh.
- vacri 14y ago
  The way some Americans rate city populations is weird to my (Australian) sensibilities. We assume the metro area in the city population - because the city is referred to as a whole. If I go to visit a friend in the metro areas of Sydney, I'm still 'going to Sydney', not 'the Sydney metro area'.
  - virtualritz 14y ago
    Actually, not some Americans, but some (or all) Australians. It all depends on the pov. :) Europe is the same as is most of the first world as far as bigger cities go (bigger meaning >=1 million inhabitants). There is "city population" and "metro area population" (outside the well-defined boundaries of the city). In the 3rd world this data granularity often isn't available. In Australia, I guess it may be available but the distinction simply isn't made (which also helps making you feel bit more "important" when comparing Aussie city sizes to other big cities in the world, I guess). ;) When I lived in Australia I wondered why Sydney felt so small, smaller even than my home town Hamburg, in Germany. Even though it was supposed to have 4.5 million inhabitants while Hamburg barely has 2 million. After understanding this it all made sense. Hamburg has 1.75 million city + 3.25 metro area = 5 million ... in 3rd world/Aussie city population math. :) Check Wolftram Alpha; you'll find there is no metro population area data for most 3rd world/Australian cities, but it is there is for most big cities in the rest of the first world.
vixen99 14y ago
An issue with Greek culture? Yes but what about Spain, Italy and Portugal, Ireland - and now maybe Slovenia? They also have immense problems thanks to their Euro status. Truth is that these counties should never have been asked to join the Euro in the first place and this problem will never be fixed while they remain. However it's the big cosy idea that counts in the minds of the Eurocrats, never mind the human cost. http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9957999/Cyprus-has-finally-killed-myth-that-EMU-is-benign.html http://www.telegraph.co.uk/finance/comment/ambroseevans_prit...
- bayesianhorse 14y ago
  They are all dealing with their own problems, it's just that almost every country is dealing with their issues instead of postponing it. You can picture it as going through therapy or adolescence. And boy what a drama that is...
  - barking 14y ago
    Growing up doesn't usually involve reducing a person's responsibilities. With the advent of the ECB that's what's happened. Now every little eurozone country has to get used to working with interest rates that are effectively set to suit Germany. In the noughties that meant having cheap money because Germany was in the doldrums. Of course fiscal policies could have been used to dampen down demand in the overheated peripheral economies at that time. And to a certain extent there were. In Ireland, in about 2002, there was a very generous tax-free savings scheme if people to put away money for 5 years. Practically everyone who had the money bought into it to the maximum limit allowed. It was completely inadequate though and a lot more should have been done. However the trend in Europe is also to harmonise fiscal policy. So to me it looks like, if we know what's good for us, we will all have to get into line with the German economy. In the future we will be paying ever closer attention to internal German politics and economic affairs. Maybe that's a good thing, the Germans do seem to know how to run an economy but I don't think 'growing up' is a metaphor I'd use for it.
    - youngtaff 14y ago
cgio 14y ago
You have to check your numbers ;-) In fact, all the bail out money goes to interest payments. Therefore, no sucking just moving money from one pocket (Germans) to the other (German banks). On Germans, we have to have another discussion on their role in corruption in Greece and elsewhere... Maybe they are ripping too the fruits of their corrupted business practices (Siemens and many many more in various cases globally.)

rmp2150 14y ago

The events unfolding in the Eurozone is the result of it being only a monetary union instead of a fiscal and monetary union. Milton Friedman predicted this would happen in '04.

mbreese 14y ago
It is hard to control an economy when you don't control your own currency.
bayesianhorse 14y ago
Tons of people predict tons of doom in advance... It's not really a smart idea to pick the "correct" doomsayer a decade later...
- rmp2150 14y ago
  First off, Friedman is not a doomsayer. Friedman correctly diagnosed the underlying causes of the Eurozone's malaise a decade ago. If the Eurozone entered into a fiscal union, much of the fundamental problems would be remedied. Political pressure/forgoing of sovereignty makes such an event highly improbable.

MaysonL 14y ago

The euro crisis is in essence a balance of payments crisis: Germany persistently ran balance of payments surplus with its euro partners, and their banks kept lending the surplus to their peripheral neighbors to fund their balance of payments deficits.

Joeri 14y ago

The main problem of the eurozone is that debt is not centrally managed. If debt were centrally managed, it would be centrally regulated, and the current crises would have had a lower likelihood. Although to be fair, the U.S. debt is centrally managed, and that didn't seem to help much 5 years ago.