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Here is Bloomberg animation for european debt crisis: https://www.youtube.com/watch?v=C8xAXJx9WJ8 https://www.youtube.com/watch?v=C8xAXJx9WJ8 I kept this in m

Here is Bloomberg animation for european debt crisis: https://www.youtube.com/watch?v=C8xAXJx9WJ8 https://www.youtube.com/watch?v=C8xAXJx9WJ8 I kept this in my bookmarks more than a year. Euro is failed project by its core because monetary policy without fiscal polity doesn't work.

yishanl 11y ago
Really helpful, thanks!
h1fra 11y ago
Thanks for the sharing, very intersting and well explained
haberman 11y ago
This is awesome, thanks! There is one big part I really don't get though. Why would Greece's creditors assume that Germany was going to cover a Greek default, just because they are both in the EuroZone? That would be like my bank assuming that the US Government would cover my mortgage if I default, just because it's denominated in dollars. That line of reasoning makes no sense to me. Related to this, the video says: "The problem is, somebody has to pick up the tab, or else every country in the Euro area will suffer." I don't get this either. That would be like saying that me defaulting on my mortgage will make all my neighbors suffer, just because our mortgages are in the same currency. It doesn't seem like a Greek default should hurt anybody but Greece and their creditors.
- fredkbloggs 11y ago
  Yeah, this. I've never yet seen an explanation for this, in either the MSM or the financial press. There is an assumption everywhere that no one in the eurozone can default. My thinking is that this must have something to do with the ECB's rules on collateral; if the Greek banks have nothing but defaulted securities to offer, then they cannot meet their reserve requirements and therefore cannot obtain euros from the ECB or other banks within the system. That would result in all Greek banks going bust and being unable to operate, unless the Bank of Greece stepped in (by implication, issuing loans to banks in drachma in exchange for defaulted or new public debt securities). But this is speculation on my part; I have never seen the mechanism explained in any detail. Kind of amazing that in 7 years of "crisis" everyone has been happy to parrot the same default == grexit mantra without once explaining the mechanics, but here we are.
  - haberman 11y ago
    Yes, the default == grexit line of reasoning is also under-explained, I agree! Maybe an even simpler explanation for that link could be: a Greek default would make their borrowing costs so high that the government simply could not operate without being able to print money and inflate their currency.
- afterburner 11y ago
  The banks that loaned the money for those "mortgages" are counting on being payed back. If they aren't, they might go bankrupt, causing a financial crisis. Or, they might start lending a lot less, or call in their loans early, putting the squeeze on others, including other banks, causing a financial crisis. And a financial crisis affects everyone. You are nothing to a bank, a bank is huge, and fully expects some people to default on their mortgages. They can take it. However, what if everyone in California defaulted on their mortgages? Then it might cause many banks to fail, cause a financial crisis, and depress the entire US economy, including your neighbours. The monetary union disguised the risk of lending, which was still there.
  - haberman 11y ago
    But everything you're saying would apply whether Greece was on the Euro or the Drachma. Yes, an entire country defaulting would screw a lot of creditors, but the risk of default should be priced into the loan/bond terms (interest rate, etc). That's part of the reason investors can make money on bonds, because there is a risk/reward curve they're riding, and the risk is that they won't get their money back. I get the "too big too fail" argument, I just don't get the "monetary union puts us on the hook for our neighbors" part.
    - afterburner 11y ago
      That's funny, your phrasing outlines the paradox: it's a union, yet you don't consider it part of you, but simply a "neighbour" that can be squeezed at will. Monetary unions turn into transfer unions if the regions' productivity are not equal. This is clear from the union of states called the USA. Poor states constantly get federal money taxed from rich states. And there's nothing wrong with that; the whole country benefit from there not being ruined states in the union. Monetary unions also don't work very well without a fiscal union, under which transfers are far more easily arranged...
frivoal 11y ago
It's a pretty good video. One thing it doesn't cover (or only implies) is that the debtor's countries spending plays a role in fueling the richer countries economies. Germany is in a better situation because of many fundamentals, but exporting to Greece (on borrowed money) didn't hurt. Borrowing to spend without considering whether you can repay is irresponsible. Lending money to someone so that they can buy from you, without considering whether they can repay is also irresponsible. As much as Greece is guilty of the former, Germany is of the later. Here's an other article putting a different spin on this: http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/11584031/Germanys-record-trade-surplus-is-a-bigger-threat-to-euro-than-Greece.html http://www.telegraph.co.uk/finance/comment/ambroseevans_prit...
- arethuza 11y ago
  Worth noting that "Greece accounts for less than half a percent of German exports" http://www.reuters.com/article/2015/07/01/eurozone-greece-industry-germany-idUSL8N0ZG3CN20150701 http://www.reuters.com/article/2015/07/01/eurozone-greece-in...
  - sheepmullet 11y ago
    The poorer Euro countries keep the Euro down which is critical to Germany maintaining their high export levels. If the Germans were still on the Deutschmark they would not be the export powerhouse they are now.
michaelt 11y ago
Fiscal union - where there's central political control that can prevent countries from borrowing excessively - is one option. Another proposal is 'eurobonds' [1] where there were two types of government debt. Blue debts would be backed by all the eurozone countries, but could only be issued up to a certain debt-to-gdp ratio. Beyond that, governments could issue red debts which aren't backed by any other country, and which come with an orderly default procedure. That way, the Greek government would only enjoy the great interest rates the Germans get if they were following the same strict fiscal discipline - and red debt interest rates would reflect the fact they didn't have the German government standing behind them, so there wouldn't be a bunch of the cheap debt that Greek politicians seemingly can't resist. Unfortunately this isn't a very popular proposal at the moment; if it had come out 15 years ago, when everyone had a clean slate and Greece didn't have all this debt, it might have prevented things getting to where they are now. But the proposals to institute this now basically amount to "give Greece a bunch more low-interest loans they can't pay back, but make Germany liable for them, and a while later when greece has spent all their eurobond money make their interest rates shoot up putting us back to where we are today" which Germany, quite reasonably, wasn't interested in going for. [1] https://en.wikipedia.org/wiki/Eurobonds https://en.wikipedia.org/wiki/Eurobonds
deleted 11y ago
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alexfernandez 11y ago
This video is interesting, but I find it opinionated, neo-liberal, US-centric and conclusion-driven. It raises more questions than it answers: if Greeks are not paying their taxes, why would raising those same taxes help anyone? Why should Germans and French pay the Greek debt, if not to repay loans to German and French banks? How can a government bribe its whole population with borrowed money, and who is lending that money? Isn't it irresponsible to lend to countries in those terms, and shouldn't the lenders lose that money? Why would these losses cause a default in foreign economies? Also, most of its facts are messed up: the US subprime mortgage crisis did not cause the crisis via a Spanish real-state market collapse, it just tightened credit and ultimately deflated public banks (cajas de ahorro) which have hidden political spending for several decades, and which have cost billions in the last few years. This is well documented, just as a data point: Bankia was bailed out for $29B http://content.time.com/time/world/article/0,8599,2115950,00.html http://content.time.com/time/world/article/0,8599,2115950,00.... The problem with Government spending cuts mandated from the outside is that they all go to health and education, instead of cleaning up the layers of bottom-feeding politicians and friends which have occupied most public companies and which are devouring the economy. The Spanish competition regulator estimates the cost of corruption in about €48b: http://www.elconfidencial.com/empresas/2015-02-10/la-cnmc-cifra-en-el-4-5-del-pib-el-coste-de-la-corrupcion-en-la-contratacion-publica_706560/ http://www.elconfidencial.com/empresas/2015-02-10/la-cnmc-ci... (in Spanish, I found no good source in English). I can imagine that in Greece the situation will probably be similar or worse, it would be nice to have credible figures. Meanwhile inequality soars in Spain, and the number of millionaires increases: http://www.theguardian.com/world/2013/oct/10/spanish-wealth-gap-inequality-charity http://www.theguardian.com/world/2013/oct/10/spanish-wealth-... http://elpais.com/elpais/2015/05/21/inenglish/1432203309_060148.html http://elpais.com/elpais/2015/05/21/inenglish/1432203309_060... Any analysis which doesn't take into account these factors is superficial and will never reach the true causes. A shared fiscal policy would make European policy less transparent and easier to manipulate by the elites, unless it was accompanied by deep reform in all European institutions, which is highly unlikely. Revising the role of the ECB is much more interesting IMHO.

yishanl 11y ago

Really helpful, thanks!

h1fra 11y ago

Thanks for the sharing, very intersting and well explained

haberman 11y ago

This is awesome, thanks! There is one big part I really don't get though. Why would Greece's creditors assume that Germany was going to cover a Greek default, just because they are both in the EuroZone? That would be like my bank assuming that the US Government would cover my mortgage if I default, just because it's denominated in dollars. That line of reasoning makes no sense to me. Related to this, the video says: "The problem is, somebody has to pick up the tab, or else every country in the Euro area will suffer." I don't get this either. That would be like saying that me defaulting on my mortgage will make all my neighbors suffer, just because our mortgages are in the same currency. It doesn't seem like a Greek default should hurt anybody but Greece and their creditors.

fredkbloggs 11y ago
Yeah, this. I've never yet seen an explanation for this, in either the MSM or the financial press. There is an assumption everywhere that no one in the eurozone can default. My thinking is that this must have something to do with the ECB's rules on collateral; if the Greek banks have nothing but defaulted securities to offer, then they cannot meet their reserve requirements and therefore cannot obtain euros from the ECB or other banks within the system. That would result in all Greek banks going bust and being unable to operate, unless the Bank of Greece stepped in (by implication, issuing loans to banks in drachma in exchange for defaulted or new public debt securities). But this is speculation on my part; I have never seen the mechanism explained in any detail. Kind of amazing that in 7 years of "crisis" everyone has been happy to parrot the same default == grexit mantra without once explaining the mechanics, but here we are.
- haberman 11y ago
  Yes, the default == grexit line of reasoning is also under-explained, I agree! Maybe an even simpler explanation for that link could be: a Greek default would make their borrowing costs so high that the government simply could not operate without being able to print money and inflate their currency.
afterburner 11y ago
The banks that loaned the money for those "mortgages" are counting on being payed back. If they aren't, they might go bankrupt, causing a financial crisis. Or, they might start lending a lot less, or call in their loans early, putting the squeeze on others, including other banks, causing a financial crisis. And a financial crisis affects everyone. You are nothing to a bank, a bank is huge, and fully expects some people to default on their mortgages. They can take it. However, what if everyone in California defaulted on their mortgages? Then it might cause many banks to fail, cause a financial crisis, and depress the entire US economy, including your neighbours. The monetary union disguised the risk of lending, which was still there.
- haberman 11y ago
  But everything you're saying would apply whether Greece was on the Euro or the Drachma. Yes, an entire country defaulting would screw a lot of creditors, but the risk of default should be priced into the loan/bond terms (interest rate, etc). That's part of the reason investors can make money on bonds, because there is a risk/reward curve they're riding, and the risk is that they won't get their money back. I get the "too big too fail" argument, I just don't get the "monetary union puts us on the hook for our neighbors" part.
  - afterburner 11y ago
    That's funny, your phrasing outlines the paradox: it's a union, yet you don't consider it part of you, but simply a "neighbour" that can be squeezed at will. Monetary unions turn into transfer unions if the regions' productivity are not equal. This is clear from the union of states called the USA. Poor states constantly get federal money taxed from rich states. And there's nothing wrong with that; the whole country benefit from there not being ruined states in the union. Monetary unions also don't work very well without a fiscal union, under which transfers are far more easily arranged...

frivoal 11y ago

It's a pretty good video. One thing it doesn't cover (or only implies) is that the debtor's countries spending plays a role in fueling the richer countries economies. Germany is in a better situation because of many fundamentals, but exporting to Greece (on borrowed money) didn't hurt. Borrowing to spend without considering whether you can repay is irresponsible. Lending money to someone so that they can buy from you, without considering whether they can repay is also irresponsible. As much as Greece is guilty of the former, Germany is of the later. Here's an other article putting a different spin on this: http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/11584031/Germanys-record-trade-surplus-is-a-bigger-threat-to-euro-than-Greece.html http://www.telegraph.co.uk/finance/comment/ambroseevans_prit...

arethuza 11y ago
Worth noting that "Greece accounts for less than half a percent of German exports" http://www.reuters.com/article/2015/07/01/eurozone-greece-industry-germany-idUSL8N0ZG3CN20150701 http://www.reuters.com/article/2015/07/01/eurozone-greece-in...
- sheepmullet 11y ago
  The poorer Euro countries keep the Euro down which is critical to Germany maintaining their high export levels. If the Germans were still on the Deutschmark they would not be the export powerhouse they are now.

michaelt 11y ago

Fiscal union - where there's central political control that can prevent countries from borrowing excessively - is one option. Another proposal is 'eurobonds' [1] where there were two types of government debt. Blue debts would be backed by all the eurozone countries, but could only be issued up to a certain debt-to-gdp ratio. Beyond that, governments could issue red debts which aren't backed by any other country, and which come with an orderly default procedure. That way, the Greek government would only enjoy the great interest rates the Germans get if they were following the same strict fiscal discipline - and red debt interest rates would reflect the fact they didn't have the German government standing behind them, so there wouldn't be a bunch of the cheap debt that Greek politicians seemingly can't resist. Unfortunately this isn't a very popular proposal at the moment; if it had come out 15 years ago, when everyone had a clean slate and Greece didn't have all this debt, it might have prevented things getting to where they are now. But the proposals to institute this now basically amount to "give Greece a bunch more low-interest loans they can't pay back, but make Germany liable for them, and a while later when greece has spent all their eurobond money make their interest rates shoot up putting us back to where we are today" which Germany, quite reasonably, wasn't interested in going for. [1] https://en.wikipedia.org/wiki/Eurobonds https://en.wikipedia.org/wiki/Eurobonds

deleted 11y ago

[deleted]

alexfernandez 11y ago

This video is interesting, but I find it opinionated, neo-liberal, US-centric and conclusion-driven. It raises more questions than it answers: if Greeks are not paying their taxes, why would raising those same taxes help anyone? Why should Germans and French pay the Greek debt, if not to repay loans to German and French banks? How can a government bribe its whole population with borrowed money, and who is lending that money? Isn't it irresponsible to lend to countries in those terms, and shouldn't the lenders lose that money? Why would these losses cause a default in foreign economies? Also, most of its facts are messed up: the US subprime mortgage crisis did not cause the crisis via a Spanish real-state market collapse, it just tightened credit and ultimately deflated public banks (cajas de ahorro) which have hidden political spending for several decades, and which have cost billions in the last few years. This is well documented, just as a data point: Bankia was bailed out for $29B http://content.time.com/time/world/article/0,8599,2115950,00.html http://content.time.com/time/world/article/0,8599,2115950,00.... The problem with Government spending cuts mandated from the outside is that they all go to health and education, instead of cleaning up the layers of bottom-feeding politicians and friends which have occupied most public companies and which are devouring the economy. The Spanish competition regulator estimates the cost of corruption in about €48b: http://www.elconfidencial.com/empresas/2015-02-10/la-cnmc-cifra-en-el-4-5-del-pib-el-coste-de-la-corrupcion-en-la-contratacion-publica_706560/ http://www.elconfidencial.com/empresas/2015-02-10/la-cnmc-ci... (in Spanish, I found no good source in English). I can imagine that in Greece the situation will probably be similar or worse, it would be nice to have credible figures. Meanwhile inequality soars in Spain, and the number of millionaires increases: http://www.theguardian.com/world/2013/oct/10/spanish-wealth-gap-inequality-charity http://www.theguardian.com/world/2013/oct/10/spanish-wealth-... http://elpais.com/elpais/2015/05/21/inenglish/1432203309_060148.html http://elpais.com/elpais/2015/05/21/inenglish/1432203309_060... Any analysis which doesn't take into account these factors is superficial and will never reach the true causes. A shared fiscal policy would make European policy less transparent and easier to manipulate by the elites, unless it was accompanied by deep reform in all European institutions, which is highly unlikely. Revising the role of the ECB is much more interesting IMHO.