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The problem with stimulus spending in a place like Spain is that someone will have to lend them the money to spend. They either have to charge pretty high inter

The problem with stimulus spending in a place like Spain is that someone will have to lend them the money to spend. They either have to charge pretty high interest (which exacerbates Spain's already high deficit) or give a discount on the interest, such that it no longer reflects the risk the lender is taking. Most anti-austerity calls seem to suggest the latter, which basically amounts to redistribution from those countries (Germany, Netherlands et.al.) that did not enjoy the easy living during the boom years that Spain did.

jwcooper 14y ago
Germany isn't completely innocent here though either, even though it can look like they were frugal during the boom years. From Michael Pettis [1]: The strength of the German economy in recent years has largely to do with its export success. But for Germany to run a large current account surplus – the consequence I would argue of domestic policies aimed at suppressing consumption and subsidizing production – Spain and the other peripheral countries of Europe had to run large current account deficits. If they didn’t, the euro would have undoubtedly surged, and with it Germany’s export performance would have collapsed. Very low interest rates in the euro area (set largely by Germany) ensured that the peripheral countries would, indeed, run large trade deficits. The funding by German banks of peripheral European borrowing, in other words, was a necessary part of deal, arrived at willingly or unwillingly, leading both to Germany’s export success and to the debt problems of the deficit countries. [1] http://www.mpettis.com/2011/07/19/current-account-dilemma/ http://www.mpettis.com/2011/07/19/current-account-dilemma/
- mseebach 14y ago
  It was certainly very convenient for the germans to have some takers for their cheap bonds, but the fact remains that nobody forced the peripheral countries to live beyond their means and to refrain from implementing necessary reforms.
  - gyardley 14y ago
    Nor did anyone force countries like Germany to share a common currency with them. I've never really gotten why one country would want to share only a currency with another country, while leaving their social and economic policies independent. But now that that's happened, the combination gets to stand or fall as a whole.
    - tsotha 14y ago
      The plan was "harmonization" of tax and spending policies. It's not really any secret the people actually running Europe were trying to cobble a United States of Europe together, first by sharing a currency and then by moving all the decision making to Brussels over time. Of course Italians and Spaniards don't have any desire to become Germans, and vice-versa. The currency part was easy - the "harmonization" part will take generations if it happens at all.
      - dpe82 14y ago
        Indeed. It's hard to "harmonize" countries or regions that don't speak the same language. Workers can't easily move from country to country to take advantage of job opportunities (and thus spread culture through direct interaction), and there's little shared media.
        brazzy 14y ago
        Except lots of workers are doing that right now. And there's a reverse movement of retirees. Maybe the crisis will after all end up faciliarting that harmonazation whose lack caused it...
        onemorepassword 14y ago
        Language is a doable barrier to overcome, and so is harmonizing various regions on a regulation level. Remember that in Europe those cultural differences exist within countries and have for centuries. Hell, Brussels itself symbolize that. If you think they don't easily move from country to country, I suggest you visit London, Amsterdam or Berlin. Harmonization is a political issue, and what hampers it is selfish and corrupt politicians. Making it a cultural issue is dangerous nonsense. An average Greek would be quite happy to live under German style regulations, if he could trusts the authorities to play by the rules. Ordinary people and their cultural differences are not the problem.
- graeme 14y ago
  This seems backwards. I think Germany is to blame, but for keeping interest rates too HIGH. A higher Euro would INCREASE Spain's trade deficit. Spain needs a looser monetary policy than Germany is currently allowing. If the Euro were lower, they could export more and the real value of their debt would decrease.
- stretchwithme 14y ago
  Those who borrow a lot must import a lot. Those who produce more than they consume export what they do not consume. Its simple physics. To produce more than you use is a virtue. Germans are hardly to blame for their virtues. I guess their failure was in lending to those without the means to pay back.
  - stfp 14y ago
    Come on, it's anything but simple physics. Macroeconomics has nothing to do with "common sense" family finance hygiene or the mind-numbing model you describe.
  - nhaehnle 14y ago
    Economics is not a morality play, and from a global perspective, net exports (that is, exporting more than you import) are not a virtue. Where there is a country that exports more than it imports, there must necessarily be a country that imports more than it exports. That's just simple math. This trade automatically is reflected in a flow of monetary assets from the importer to the exporter; in this case, a (partially indirect) flow of monetary assets from Spain to e.g. Germany. That's also just simple math. Speaking as a German, it is incredibly frustrating that this simple insight is almost never acknowledged in public discussion here. There is simply no way the Euro can survive while Germany insists on being a net exporter forever. What is even more frustrating is that the German elite successfully plays a divide-and-conquer strategy. Most people perceive the Euro crisis as "Germans against the South", whereas in reality, it is the German elite against the German and the Southern people, considering that the German net export "success" has largely been managed by keeping German wages low (when measured against the appropriate benchmark, i.e. productivity).
- nhebb 14y ago
  Germany seems to be getting blamed for the economic problems in Spain and Greece, but when I read a line like this: > The strength of the German economy in recent years has largely to do with its export success. I think, well, at least Germany actually makes something. I'm not familiar with any major products or services coming out of Spain or Greece. Maybe it's the American in me, living a life inundated with advertising and branding messages, but when an economy is not based on agriculture, natural resources, or tourism, it seems logical that it should be known for something - preferably making something.
  - Someone 14y ago
    It is the American in you; both Spain and Greece are known for agriculture and tourism. You won't see them advertise in the USA because they have plenty of people closer by to sell to. Spain exports plenty of citrus fruits, wine, and olive oil and also somewhat is the Florida of the EU in that elderly people move there after retirement. Greece is a bit similar. It has plenty of tourism, and exports wine and olive oil. It also has attractive rules for merchant shipping (Wikipedia claims the Greek merchant shipping fleet is the largest in the world).
jorgeortiz85 14y ago
Have we totally forgotten Keynes? My spending is your income. The resources of an economy (in this case, many of Spain's workers) are lying idle. The entire country would be wealthier if they were put to work. Further, I don't know what you mean by "easy living", but Spain was more fiscally responsible than even Germany before the crisis. Spain's deficits are not the result of irresponsible borrowing and spending (as in Greece), but rather of a collapsed economy because the investment money (mostly German, etc) that flooded the country before the crisis evaporated just as quickly after the crisis.
- ekianjo 14y ago
  put to work by who? Stimulus has not worked very well for the US after 2008, has it? And Spain does not have trillions of dollars to spend in stimulus anyway. Stop dreaming.
  - anigbrowl 14y ago
    We haven't had that much fiscal stimulus in the US releative to the size of the economy. It's a missed opportunity considering money is basically free right now and T-bills return a fixed coupon (so even if interest rates were 5% in 5 years' time it would have no effect on the cost of servicing debt issued today). The EU has trillions to spend. This is a federal problem, but some countries in Europe don't want to admit because they want to cling to the illusion that monetary union can exist indepedently of fiscal union.
    - ekianjo 14y ago
      > that much fiscal stimulus in the US releative to the size of the economy. I knew this was coming. "The stimulus didnt work because it was not big enough". Always the same excuse coming from Keynesians. "Aspirin did not cure my Cancer because I didnt take enough". Sure, when you attack the wrong causes in the first place you get very poor results, unless you get lucky.
      - tptacek 14y ago

jwcooper 14y ago

Germany isn't completely innocent here though either, even though it can look like they were frugal during the boom years. From Michael Pettis [1]: The strength of the German economy in recent years has largely to do with its export success. But for Germany to run a large current account surplus – the consequence I would argue of domestic policies aimed at suppressing consumption and subsidizing production – Spain and the other peripheral countries of Europe had to run large current account deficits. If they didn’t, the euro would have undoubtedly surged, and with it Germany’s export performance would have collapsed. Very low interest rates in the euro area (set largely by Germany) ensured that the peripheral countries would, indeed, run large trade deficits. The funding by German banks of peripheral European borrowing, in other words, was a necessary part of deal, arrived at willingly or unwillingly, leading both to Germany’s export success and to the debt problems of the deficit countries. [1] http://www.mpettis.com/2011/07/19/current-account-dilemma/ http://www.mpettis.com/2011/07/19/current-account-dilemma/

mseebach 14y ago
It was certainly very convenient for the germans to have some takers for their cheap bonds, but the fact remains that nobody forced the peripheral countries to live beyond their means and to refrain from implementing necessary reforms.
- gyardley 14y ago
  Nor did anyone force countries like Germany to share a common currency with them. I've never really gotten why one country would want to share only a currency with another country, while leaving their social and economic policies independent. But now that that's happened, the combination gets to stand or fall as a whole.
  - tsotha 14y ago
    The plan was "harmonization" of tax and spending policies. It's not really any secret the people actually running Europe were trying to cobble a United States of Europe together, first by sharing a currency and then by moving all the decision making to Brussels over time. Of course Italians and Spaniards don't have any desire to become Germans, and vice-versa. The currency part was easy - the "harmonization" part will take generations if it happens at all.
    - dpe82 14y ago
      Indeed. It's hard to "harmonize" countries or regions that don't speak the same language. Workers can't easily move from country to country to take advantage of job opportunities (and thus spread culture through direct interaction), and there's little shared media.
      - brazzy 14y ago
        Except lots of workers are doing that right now. And there's a reverse movement of retirees. Maybe the crisis will after all end up faciliarting that harmonazation whose lack caused it...
      - onemorepassword 14y ago
        Language is a doable barrier to overcome, and so is harmonizing various regions on a regulation level. Remember that in Europe those cultural differences exist within countries and have for centuries. Hell, Brussels itself symbolize that. If you think they don't easily move from country to country, I suggest you visit London, Amsterdam or Berlin. Harmonization is a political issue, and what hampers it is selfish and corrupt politicians. Making it a cultural issue is dangerous nonsense. An average Greek would be quite happy to live under German style regulations, if he could trusts the authorities to play by the rules. Ordinary people and their cultural differences are not the problem.
graeme 14y ago
This seems backwards. I think Germany is to blame, but for keeping interest rates too HIGH. A higher Euro would INCREASE Spain's trade deficit. Spain needs a looser monetary policy than Germany is currently allowing. If the Euro were lower, they could export more and the real value of their debt would decrease.
stretchwithme 14y ago
Those who borrow a lot must import a lot. Those who produce more than they consume export what they do not consume. Its simple physics. To produce more than you use is a virtue. Germans are hardly to blame for their virtues. I guess their failure was in lending to those without the means to pay back.
- stfp 14y ago
  Come on, it's anything but simple physics. Macroeconomics has nothing to do with "common sense" family finance hygiene or the mind-numbing model you describe.
- nhaehnle 14y ago
  Economics is not a morality play, and from a global perspective, net exports (that is, exporting more than you import) are not a virtue. Where there is a country that exports more than it imports, there must necessarily be a country that imports more than it exports. That's just simple math. This trade automatically is reflected in a flow of monetary assets from the importer to the exporter; in this case, a (partially indirect) flow of monetary assets from Spain to e.g. Germany. That's also just simple math. Speaking as a German, it is incredibly frustrating that this simple insight is almost never acknowledged in public discussion here. There is simply no way the Euro can survive while Germany insists on being a net exporter forever. What is even more frustrating is that the German elite successfully plays a divide-and-conquer strategy. Most people perceive the Euro crisis as "Germans against the South", whereas in reality, it is the German elite against the German and the Southern people, considering that the German net export "success" has largely been managed by keeping German wages low (when measured against the appropriate benchmark, i.e. productivity).
nhebb 14y ago
Germany seems to be getting blamed for the economic problems in Spain and Greece, but when I read a line like this: > The strength of the German economy in recent years has largely to do with its export success. I think, well, at least Germany actually makes something. I'm not familiar with any major products or services coming out of Spain or Greece. Maybe it's the American in me, living a life inundated with advertising and branding messages, but when an economy is not based on agriculture, natural resources, or tourism, it seems logical that it should be known for something - preferably making something.
- Someone 14y ago
  It is the American in you; both Spain and Greece are known for agriculture and tourism. You won't see them advertise in the USA because they have plenty of people closer by to sell to. Spain exports plenty of citrus fruits, wine, and olive oil and also somewhat is the Florida of the EU in that elderly people move there after retirement. Greece is a bit similar. It has plenty of tourism, and exports wine and olive oil. It also has attractive rules for merchant shipping (Wikipedia claims the Greek merchant shipping fleet is the largest in the world).

jorgeortiz85 14y ago

Have we totally forgotten Keynes? My spending is your income. The resources of an economy (in this case, many of Spain's workers) are lying idle. The entire country would be wealthier if they were put to work. Further, I don't know what you mean by "easy living", but Spain was more fiscally responsible than even Germany before the crisis. Spain's deficits are not the result of irresponsible borrowing and spending (as in Greece), but rather of a collapsed economy because the investment money (mostly German, etc) that flooded the country before the crisis evaporated just as quickly after the crisis.

ekianjo 14y ago
put to work by who? Stimulus has not worked very well for the US after 2008, has it? And Spain does not have trillions of dollars to spend in stimulus anyway. Stop dreaming.
- anigbrowl 14y ago
  We haven't had that much fiscal stimulus in the US releative to the size of the economy. It's a missed opportunity considering money is basically free right now and T-bills return a fixed coupon (so even if interest rates were 5% in 5 years' time it would have no effect on the cost of servicing debt issued today). The EU has trillions to spend. This is a federal problem, but some countries in Europe don't want to admit because they want to cling to the illusion that monetary union can exist indepedently of fiscal union.
  - ekianjo 14y ago
    > that much fiscal stimulus in the US releative to the size of the economy. I knew this was coming. "The stimulus didnt work because it was not big enough". Always the same excuse coming from Keynesians. "Aspirin did not cure my Cancer because I didnt take enough". Sure, when you attack the wrong causes in the first place you get very poor results, unless you get lucky.
    - tptacek 14y ago