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Since the introduction of the Euro, many EU states got money a lot cheaper than they should have, due to their association to the stronger neighbouring economie

by jpfr 12y ago

Since the introduction of the Euro, many EU states got money a lot cheaper than they should have, due to their association to the stronger neighbouring economies. That started a completely irresponsible spending frenzy that was well-received by the voting public. Germany is trying to save the Euro zone, not tank it. The US-based economists claim that it is possible to spend money (take on debt) to kick-start an economy and then recoup that money by increased tax earnings. It turns out that doesn't work any longer. Plus, many contries worldwide are already paying interest on their debt with new debt. And they have zero margin to increase taxes. Some countries (including Germany, but not including the US) can still make it out of that downwards spiral. The question is no longer, whether the EU will tank. The question is which of the EU, the US or China will default first on their debt. The results will be devastating and capital will flee to the non-defaulted economic blocks. This is a big political game played over decades. And media-based support of one or the other school of economics is part of it.

Gibbon1 12y ago
That problem with you, is your so reflexively focused on government debt that you can't get your head around the fact that most of the Southern countries in trouble DIDN'T HAVE LARGE GOVERNMENT DEFICITS. They had large and growing public debt most of it related to borrowing to buy private assets. And unsupportable wage inflation. Go look it up, the governments of Italy, Spain, etc except for Greece weren't borrowing beyond their means. What they were suffering from was out of control inflows of cash. Inflows of cash in a country with it's own currency tends to be self limiting, because as money flows in the exchange rate adjusts making investments less attractive. (A country with a well run central bank will actively adjust the exchange rate to prevent the inevitable panic and flight that happens at the end of a bubble, or you have a bubble and it sucks for a while) Part of the problem with the Euro is weaker member countries can't control the flow of capital into and out of the country. Yet they are on the hook for the mal effects that result. This is wrong.
- jpfr 12y ago
  How does the twin deficits hypothesis fit into your world view? [1] Capital inflow is due to a trade deficit, that is to a large part financed by government debt (taking in money from abroad). [1] http://en.wikipedia.org/wiki/Twin_deficits_hypothesis http://en.wikipedia.org/wiki/Twin_deficits_hypothesis

by jpfr 12y ago

Gibbon1 12y ago

That problem with you, is your so reflexively focused on government debt that you can't get your head around the fact that most of the Southern countries in trouble DIDN'T HAVE LARGE GOVERNMENT DEFICITS. They had large and growing public debt most of it related to borrowing to buy private assets. And unsupportable wage inflation. Go look it up, the governments of Italy, Spain, etc except for Greece weren't borrowing beyond their means. What they were suffering from was out of control inflows of cash. Inflows of cash in a country with it's own currency tends to be self limiting, because as money flows in the exchange rate adjusts making investments less attractive. (A country with a well run central bank will actively adjust the exchange rate to prevent the inevitable panic and flight that happens at the end of a bubble, or you have a bubble and it sucks for a while) Part of the problem with the Euro is weaker member countries can't control the flow of capital into and out of the country. Yet they are on the hook for the mal effects that result. This is wrong.

jpfr 12y ago
How does the twin deficits hypothesis fit into your world view? [1] Capital inflow is due to a trade deficit, that is to a large part financed by government debt (taking in money from abroad). [1] http://en.wikipedia.org/wiki/Twin_deficits_hypothesis http://en.wikipedia.org/wiki/Twin_deficits_hypothesis