4 ms·

Austerity is a religion in Europe and it's strongly supported by Germany, which is the leading economic powerhouse and major EU creditor. If you look at the su

by atmosx 11y ago

Austerity is a religion in Europe and it's strongly supported by Germany, which is the leading economic powerhouse and major EU creditor. If you look at the surplus it works well for their exports but the salaries are at the same level they were in the 90s. So although unemployment is low and exports were going strong (hence corporations like BMW and Mercedes are making huge profits) the salaries were largely at the same levels. The German government decide to keep the surplus instead of spending money in local and foreign investment which keeps virtually the EUR low. It's a policy heavily criticized by both USA and European economists. One might argue that these choices worked very well for Germany. Not very well for the rest of the Eurozone, especially the Mediterranean countries, which found themselves having huge deficits. The EU has structural problems which the German model speed up.

Retric 11y ago
It's important to note GDP is far from independent of underlying demographics. A stable population ends up older than post WWII countries where used to which requires an older retirement age and a lower percentage of workers to support spending levels. This shift feels like austerity, but countries have no choice long term.
- luch 11y ago
  Exactly, government-managed retirement funds were created after WWII, at a time when there was few retirees and a massive young workforce. Now it's the other way around : the demographic transition is hitting the retirement age all over Europe and it is an alarming problems for many countries including France and Germany.
jackgavigan 11y ago
It's also worth remembering that the asset bubbles in Portugal, Ireland, Greece and Spain were inflated by the Eurozone's low interest rates. The reason those interest rates were set so low was to boost the German economy, which was in the doldrums, post-reunification.
- mohawk 11y ago
  Greece did not suffer from an asset bubble, the other countries you mentioned did. Interest rate convergence was one of the criteria for introduction of the Euro: https://en.wikipedia.org/wiki/Euro_convergence_criteria#Criteria https://en.wikipedia.org/wiki/Euro_convergence_criteria#Crit... Point 5, long-term interest rates The ECB's mandate is to worry about price-stability, not the German economy https://www.ecb.europa.eu/mopo/intro/objective/html/index.en.html https://www.ecb.europa.eu/mopo/intro/objective/html/index.en... Practice may of course deviate from theory, but i don't think it did much here. German unification was 1990, we are talking about the time around 2000. Many central banks in the world lowered interest rates after the dot-com crash & 9-11 and the economic slowdown that followed. You might argue that this caused asset bubbles, and i would tend to agree. If it were up to me, i would add "avoiding asset bubbles" to the ECB mandate, if you want to you could regard it as a kind of price-stability mandate for assets.
  - jackgavigan 11y ago
    > Greece did not suffer from an asset bubble... Greece's House price index (2007=100) shows a cumulative rise of 44.3 from 2001 thru 2007, and a cumulative drop of 49 from 2008 thru 2014 - http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=129.RPP.A.GR.N.TD.00.4.R1 http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=129.RPP.A.G... As of February 2014, "Greece [had] suffered the second biggest property crash in the EU since the debt crisis began." - http://www.theguardian.com/world/2014/feb/28/home-ownership-greece-property-market http://www.theguardian.com/world/2014/feb/28/home-ownership-... From Q3'08 to Q2'14, Greek house prices declined by 41.6% in real terms - http://www.bankofgreece.gr/BogDocumentEn/PRODEXPO_Oct_2014.pdf http://www.bankofgreece.gr/BogDocumentEn/PRODEXPO_Oct_2014.p...
    - mohawk 11y ago
      Thanks for the numbers, you are right. The charts are remarkably similar for Greece http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=129.RPP.Q.GR.N.TF.00.3.00 http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=129.RPP.Q.G... Spain http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=129.RPP.Q.ES.N.TD.00.0.00 http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=129.RPP.Q.E... Portugal http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=129.RPP.Q.PT.N.TD.00.5.00 http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=129.RPP.Q.P... But i would still claim that in the case of Greece, the (masked) public debt crisis preceded the asset bubble whereas in Spain, Portugal and Ireland the public debt crisis followed the asset bubble.
mohawk 11y ago
First, i'd like to state that i'm talking about austerity in general, not about Greece in particular. Greece needs a debt restructuring, there's no way around it. The whole reason for all that austerity was that some countries were unable to refinance their debt and other countries are afraid they might not be able to refinance in the future. Refinancing debt in hard times becomes harder yet if it is externally financed. You need to convince someone to lend you money if you want to run a deficit. Love it or hate it, the Germans don't like a soft currency. The reason is probably the prelude to the rise of Hitler, which was marked by hyperinflation from printing too much money. It has been in their "DNA" since WW2, and no amount of economic handwaving is going to change that, at least in the forseeable future. In practice Germany has had a budget deficit nearly every year of course (such is politics), they just aren't that big. The reason Germany joined the Eurozone was the absence of debt mutualisation. The Bundesbank warned that this was hard/impossible without political union, but they were ignored. And so, here we are.
- ZeroGravitas 11y ago
  Some claim the Germans intentionally inflated their currency to stiff the French who held crippling levels of debt over the Germans.
  - mohawk 11y ago
    Inflating away the currency had no benefit for reparations. The details are here https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_R... https://en.wikipedia.org/wiki/World_War_I_reparations https://en.wikipedia.org/wiki/World_War_I_reparations
- atmosx 11y ago
  And if there was no 'Russian threat', no 'cold war' and no Marshall Plan... How well do you think a 'hard currency' would have worked for them?
alvarosm 11y ago
Because it's the only way to make sure there's less squandering. Mediterranean countries are screwed because they're so lame they couldn't do anything worthwile with the easy money they got, so they wasted all of it. Airports that have never been used, stadiums in small towns close to each other, so-called "phantom" cities... And that's just the "shocking" tip of the iceberg of widespread mismanagement. You either force these low-lifers to cut spending or they'll keep getting themselves in a position where they'll never repay their debt.
- atmosx 11y ago
  Your point of view is extremely naive and insulting. You can't blame entire nations for the lack proper government management or cultural differences. On the other hand, I understand that you're probably are a lesser mind and you simplify complex topics, like the one discussed here. It make you think you understand them. But you don't. Your comment is implying that all Germans are Nazis. They are not.
  - alvarosm 11y ago
    You can and you should blame entire nations for their cultural differences. It's obvious they're responsible -and must be held accountable- for how they behave. This is elementary. You could attack me or you could use reason. You chose the first, so I'm not going to reason with you any more.
dragonwriter 11y ago
> Austerity is a religion in Europe Austerity is a religion among the world's bankers and has been for some time; the US has been no less a subscriber to it than Europe and has been fully on board with imposition of austerity measures as conditions for World Bank and IMF efforts in the past. Its getting noticed more in Europe because the attempts to impose it in the Eurozone have, unlike decades of IMF and World Bank efforts, actually targeted countries outside of the Third World that First World observers actually notice and care about.

by atmosx 11y ago

Retric 11y ago

It's important to note GDP is far from independent of underlying demographics. A stable population ends up older than post WWII countries where used to which requires an older retirement age and a lower percentage of workers to support spending levels. This shift feels like austerity, but countries have no choice long term.

luch 11y ago
Exactly, government-managed retirement funds were created after WWII, at a time when there was few retirees and a massive young workforce. Now it's the other way around : the demographic transition is hitting the retirement age all over Europe and it is an alarming problems for many countries including France and Germany.

jackgavigan 11y ago

It's also worth remembering that the asset bubbles in Portugal, Ireland, Greece and Spain were inflated by the Eurozone's low interest rates. The reason those interest rates were set so low was to boost the German economy, which was in the doldrums, post-reunification.

mohawk 11y ago
Greece did not suffer from an asset bubble, the other countries you mentioned did. Interest rate convergence was one of the criteria for introduction of the Euro: https://en.wikipedia.org/wiki/Euro_convergence_criteria#Criteria https://en.wikipedia.org/wiki/Euro_convergence_criteria#Crit... Point 5, long-term interest rates The ECB's mandate is to worry about price-stability, not the German economy https://www.ecb.europa.eu/mopo/intro/objective/html/index.en.html https://www.ecb.europa.eu/mopo/intro/objective/html/index.en... Practice may of course deviate from theory, but i don't think it did much here. German unification was 1990, we are talking about the time around 2000. Many central banks in the world lowered interest rates after the dot-com crash & 9-11 and the economic slowdown that followed. You might argue that this caused asset bubbles, and i would tend to agree. If it were up to me, i would add "avoiding asset bubbles" to the ECB mandate, if you want to you could regard it as a kind of price-stability mandate for assets.
- jackgavigan 11y ago
  > Greece did not suffer from an asset bubble... Greece's House price index (2007=100) shows a cumulative rise of 44.3 from 2001 thru 2007, and a cumulative drop of 49 from 2008 thru 2014 - http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=129.RPP.A.GR.N.TD.00.4.R1 http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=129.RPP.A.G... As of February 2014, "Greece [had] suffered the second biggest property crash in the EU since the debt crisis began." - http://www.theguardian.com/world/2014/feb/28/home-ownership-greece-property-market http://www.theguardian.com/world/2014/feb/28/home-ownership-... From Q3'08 to Q2'14, Greek house prices declined by 41.6% in real terms - http://www.bankofgreece.gr/BogDocumentEn/PRODEXPO_Oct_2014.pdf http://www.bankofgreece.gr/BogDocumentEn/PRODEXPO_Oct_2014.p...
  - mohawk 11y ago
    Thanks for the numbers, you are right. The charts are remarkably similar for Greece http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=129.RPP.Q.GR.N.TF.00.3.00 http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=129.RPP.Q.G... Spain http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=129.RPP.Q.ES.N.TD.00.0.00 http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=129.RPP.Q.E... Portugal http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=129.RPP.Q.PT.N.TD.00.5.00 http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=129.RPP.Q.P... But i would still claim that in the case of Greece, the (masked) public debt crisis preceded the asset bubble whereas in Spain, Portugal and Ireland the public debt crisis followed the asset bubble.

mohawk 11y ago

First, i'd like to state that i'm talking about austerity in general, not about Greece in particular. Greece needs a debt restructuring, there's no way around it. The whole reason for all that austerity was that some countries were unable to refinance their debt and other countries are afraid they might not be able to refinance in the future. Refinancing debt in hard times becomes harder yet if it is externally financed. You need to convince someone to lend you money if you want to run a deficit. Love it or hate it, the Germans don't like a soft currency. The reason is probably the prelude to the rise of Hitler, which was marked by hyperinflation from printing too much money. It has been in their "DNA" since WW2, and no amount of economic handwaving is going to change that, at least in the forseeable future. In practice Germany has had a budget deficit nearly every year of course (such is politics), they just aren't that big. The reason Germany joined the Eurozone was the absence of debt mutualisation. The Bundesbank warned that this was hard/impossible without political union, but they were ignored. And so, here we are.

ZeroGravitas 11y ago
Some claim the Germans intentionally inflated their currency to stiff the French who held crippling levels of debt over the Germans.
- mohawk 11y ago
  Inflating away the currency had no benefit for reparations. The details are here https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_R... https://en.wikipedia.org/wiki/World_War_I_reparations https://en.wikipedia.org/wiki/World_War_I_reparations
atmosx 11y ago
And if there was no 'Russian threat', no 'cold war' and no Marshall Plan... How well do you think a 'hard currency' would have worked for them?

alvarosm 11y ago

Because it's the only way to make sure there's less squandering. Mediterranean countries are screwed because they're so lame they couldn't do anything worthwile with the easy money they got, so they wasted all of it. Airports that have never been used, stadiums in small towns close to each other, so-called "phantom" cities... And that's just the "shocking" tip of the iceberg of widespread mismanagement. You either force these low-lifers to cut spending or they'll keep getting themselves in a position where they'll never repay their debt.

atmosx 11y ago
Your point of view is extremely naive and insulting. You can't blame entire nations for the lack proper government management or cultural differences. On the other hand, I understand that you're probably are a lesser mind and you simplify complex topics, like the one discussed here. It make you think you understand them. But you don't. Your comment is implying that all Germans are Nazis. They are not.
- alvarosm 11y ago
  You can and you should blame entire nations for their cultural differences. It's obvious they're responsible -and must be held accountable- for how they behave. This is elementary. You could attack me or you could use reason. You chose the first, so I'm not going to reason with you any more.

dragonwriter 11y ago

> Austerity is a religion in Europe Austerity is a religion among the world's bankers and has been for some time; the US has been no less a subscriber to it than Europe and has been fully on board with imposition of austerity measures as conditions for World Bank and IMF efforts in the past. Its getting noticed more in Europe because the attempts to impose it in the Eurozone have, unlike decades of IMF and World Bank efforts, actually targeted countries outside of the Third World that First World observers actually notice and care about.