Euro Crisis Returns

Ryan Avent telling it like it is:

LAST week I reckoned that one shouldn't be too hard on Germany where its current-account surpluses are concerned, since their deflationary impact could easily be offset by looser monetary policy at the European Central Bank. But I added a proviso:

Third, one should not discount the Bundesbank's influence on ECB attitudes toward inflation. (It's against it.)

Today, the Financial Times reports:

Last week, two German members of the ECB’s 23-member governing council led a six-man revolt against Thursday’s move to cut the bank’s benchmark lending rate by 25 basis points. The cut was quickly followed by public broadsides from Germany’s influential conservative economist Hans-Werner Sinn and some mainstream financial media.

This, remember, is at a time when inflation across the euro area has fallen to 0.7% year-on-year (while outright deflation is a serious problem in several member states), and when the unemployment rate remains stuck at 12.2%. Germany does not want to give any ground. It doesn't want to write the periphery cheques. It doesn't want to backstop their finances. It doesn't want to run bigger fiscal deficits. It doesn't want to reduce its current-account surplus. And it doesn't want to accept even a little more inflation. One is tempted to conclude that it doesn't want to be a part of the euro area. But something has to break. Hopefully it will be Germany's resolve on monetary policy, rather than something more dangerous.

France is leading the nose dive too unfortunately. Making the WC was going to provide some needed relief to some at least because real life in France is going to be horrible in 2014... truly disastrous policies with this new govt. No chances to improve or recover.

But we have little chance of making the WC too now lol.

2014 will be a very tough year for us Cypriots. Shops and stores are already closing very rapidly. I hope we can make it through this disaster...

Stiglitz on why Austerity is killing the eurozone: http://www.project-syndicate.org/commentary/joseph-e--stiglitz-says-that-the-europe-will-not-recover-unless-and-until-the-eurozone-is-fundamentally-reformed#SWsUiKSXErY2FDRx.99

Scott Sumner wrote:Are German schoolchildren taught of the deflation of 1929-32?

Today it was announced that the eurozone economy had officially slipped into deflation, although as Paul Krugman pointed out the problem is not new at all. If you look at fundamentals such as inflation expectations embedded in the bond market, the eurozone has been sliding toward disaster for several years.

On the BBC this morning a reporter was discussing policy options of the ECB, and mentioned that the Germans were opposed to monetary stimulus, partly because they were taught as schoolchildren that the 1923 hyperinflation led to the rise of Hitler. Actually, the Nazi Party was still tiny in late 1929, after six years of price stability under a gold price peg. Hyperinflation was a problem, and probably made a few savers more sympathetic to the Nazis. But it certainly was not what put them in power.

How did the Nazis go from being a tiny party in 1929, to the largest single party in 1932? The answer is simple---deflation (or more precisely falling NGDP.) The severe deflation of the early 1930s pushed Germany into a very deep depression with massive unemployment, and a desperate German electorate turned to the Nazis. (More precisely a third of the electorate.)

Germany has done better than any other country in facing up to the crimes of its past. But it's not enough to be repentant, one must also learn the proper lessons from history. German schoolchildren must be taught that deflationary monetary policies put Hitler in power. This is especially so because pressure from Germany was one of the factors that caused the ECB to tighten monetary policy in 2011, a decision that led to the current deflation. Fortunately for Germany, the costs of this policy are borne primarily by other countries, and unlike 1929-32 the deflation is very mild, but if it all falls apart after the Greek elections you can be sure that German taxpayers will pick up much of the tab from the bailouts that follow.

http://econlog.econlib.org/archives/2015/01/are_german_scho.html

Watch the rise of new extremist parties because the ECB is not doing its job

https://farm4.staticflickr.com/3726/13800405773_1a74cd7f09_o.gif

Hmm I wonder what's so different about Switzerland and the UK and the rest of europe

Switzerland is tiny and as such can be easily managed, also they're still filthy rich from being a tax haven for decades.
The UK bought their low unemployment with stagnating wages, mostly. Also they're a rich country to begin with. The struggling ones are the ones with a medium-sized economy, just look at Spain going down the economical shitter, their economy, just like the irish one, grew on debt, and grew too fast, and when the investment bubble burst in 2008, they took a dive.

The countries who had a steady economic development like Germany, the UK, and France took much smaller hits.

Also, if you just look at that map, it seems like nice weather makes you poor.

Nah the main difference is that they have their own currency and are not slaves to the ECB and their backwards ways of promoting deflation. While certain European countries should definitely address their labor markets, size of the state, corruption and inefficiencies, etc the core problems of the eurozone are monetary.

If Greece had their own currency, for example, when times are bad they could use monetary policy to boost economic activity, which is what most countries do. But they have the ECB and instead they have to go through a depression and deal with deflation.

BarrileteCosmico wrote:Nah the main difference is that they have their own currency and are not slaves to the ECB and their backwards ways of promoting deflation. While certain European countries should definitely address their labor markets, size of the state, corruption and inefficiencies, etc the core problems of the eurozone are monetary.

If Greece had their own currency, for example, when times are bad they could use monetary policy to boost economic activity, which is what most countries do. But they have the ECB and instead they have to go through a depression and deal with deflation.

+1

#NoToEuro

Or they would go into hyper-inflation while trying that, and end up like Zimbabwe.

No, no they wouldn't. In the US they have egaged in massive monetary stimulus purchasing 80b dollars in securities per month and even so they have barely broken ahead of 2%. In order to get hyper inflation you need to completely un-anchor inflation expectations and that's just not possible in the current deflationary environment. And even if inflation were to increase at a much higher rate than anticipated, fixing inflation is much easier than fixing defaltion since there is no limit to how much you can raise interest rates.

I don't know how they deal with their own currency elsewhere , but i can safely vouch nobody's close to this failure which is Greece. We can't follow anyone's example and say , become a bigger Iceland , or a tiny 'X' country with own currency. Why is that?

This i can say why very easily . Greece's real issues , aren't essentialy economical . But cultural , ethical , the wrongs and false ideologies and desires are in our cities/countryside and in the majority's beliefs and wants . Progressive people , liberals and those who want to live their lives in a country of meritocracy based on human rights , are a minority and concedered false-cultured , get mocked or even accused of being enemies of the traditions and all that kind of bs.

Deeply conservative people rule and live in this land , and corrupted , that too. Citizens are just as corrupted as most politicians here , most of them at least. Just much more stupid and infinite times poorer. Let me give you one example , as to why this country won't progress as it should , whatever economists expect and plan.

Clerics fund got a raise from 132m euros , to 177m euros. Yes that's right , Greece is paying for their clerics and doesn't get taxes from the church. Clerics also enjoy some important other benefits that no sane country , or citizens would allow. Here they want their dear clerics and church to get paid by the country , just because most are Christians. Only Christians clerics though and only the Christian church enjoys such benefits. And atheists and people who aren't Christians , pay them too , because fk you that's why .

In the mean time , while this far-right government brags about the economy getting better , () , they cut funds from Health care and Education , they cut 2.2b euros on just Health care alone .And that's just from the first days of 2015!! Don't remember on education , but it's any cut there and you deserve what's coming to you. In the mean time clerics got a raise whilst all of Greece got it in the ass , once again . A young priest (especially with children) , gets paid more than a young policeman , a young doctor , a young lawyer and young scientists. And Greeks want that for their dear priests , because they all believe in the same fantastic friend. Won't even mention the top heads lol , thousands of euros. I've seen the vila of the archbishop where i live with my own eyes. They all produce absolutely nothing and get paid by the citizens , let alone the rest they get from them . I've heard with my own ears , people that will vote based on religious beliefs . In 2015. They won't vote X , because he's atheist , or against the church , or because they want full and absolute seperation of church-country e.t.c .
....  

You think any currency , is going to make a real difference in economy for this failure of a culture and nation ?

I could say countless things about what's wrong with Greece and the Greek, but let me just say this , we better stay in the euro , suffer for all the things we must and mustn't , just so one day , hopefully , we can get it right . We won't get it right with the drachma , that is certain. We'll get back to other times , better left in the past. Right now , getting back to the drachma will be a historical catastrophy for us. Even in the Euro we will continue to suffer a lot and rich will get richer and the poor poorer , but if you ask me , Greece fully deserves this. Totally , absolutely . And besides , those who gave us money must get it back , no matter who's more at fault or not. Most say all kind of bs about why they helped us but truth is , nobody asked the Dutch or the French or the Germans , especially them , how they feel for giving us so much money for being stupid , or how they feel about the majority still voting for the same corrupted politicians , for the same wrong reasons. They think Europe is out to get them personally , as if anybody cares for the ass hole of europe that is Greece , lol . Most don't even know how and why Greece really became a nation and that it always was in essence , Europe's protectorate. They don't know why they suffer today and they don't know any better than their ignorance either. Their ignorance isn't even bliss , it's just what they've always known. There's a severe lack of education , morals , ethics , you name it. The majority is like that . The rest barely have any say and it always was like that , at least now we are being heard somewhat. Europe wants to protect these sane and progressive and liberal and wants them to be in charge , the true democratic citizens. It's not a question of currency , that's what i wanted to analyse here. It's a question of culture , of ideals , before it becomes economics .

Greeks don't like admitting it even today , but the majority of citizens are also at fault , much more than corrupted politicians . Politicians did what they did so they can exploit the stupidity which bugs their very minds. Nothing more. It's not a question of being in the euro or not , simply because when you have false cultural and ethical foundations , nothing will work properly and the economy is quite high in the list.

And that's what's been happening in Greece and why we are here today. Not because we don't know how to deal with logistics and economics , or that we don't have any worthy politicians . It's just these are the ones the majority deserves . The majority of issues and problems we face today , are cultural and ethical before these become economic ones . Just by going with this undeniable truth , staying in the Euro is prefferable to going back to the drachma , drachma will mean first of all laying the foundations for more corruption .

In any case , even those who claim we must abandon the Euro , or leave the door open for a road away of the EU , basically anything against Europe , simply lie for votes ,there are people who want away from Europe and these are votes they must gather . So they say things , things that hurt the country , just to take votes. Whoever is going to be government here will keep Greece in the Euro , nobody should bother themselves with any other scenario . They all know we need the euro like junkies need heroin . Even if there's a path away from it , we lack what it takes to see it through , even if we had the most worthy politicians we would fail. It's the citizens that will have to share the burden and work for it . What would happen is what's happening now only twice as worse , they will look to do what they always did with the drachma , get richer than their neighbour , whatever the cost. Drachma will make it easier , tax frauds and all that will get easier. In the end , it's our culture that failed , not the drachma . Or the euro.  

Besides , nobody is willing to wait another decade or so for the drachma to settle in , just to have the slightest of worth by then .

Yeah, the impression I've gotten is that Greece has a culture of laid-back practices when it comes to the economy and business practices. That you don't worry about the future.

Maybe there's something about the Mediterranean life style in general that has that mentality. Spain, Italy, they're not that different from Greece and they're, too, doing bad. Corruption, too high debt levels, lack of future planning, lack of responsibility. That until shit hits the fan you live without a worry in the world.

Î was about to write a post like Dantes, but I guess I don't need to anymore.

I would not have been as harsh, though, but that would mostly be because I am German, and shitting on the Greeks culture would make me seem like an utter dick.

Art Morte wrote:

Yeah, the impression I've gotten is that Greece has a culture of laid-back practices when it comes to the economy and business practices. That you don't worry about the future.

Maybe there's something about the Mediterranean life style in general that has that mentality. Spain, Italy, they're not that different from Greece and they're, too, doing bad. Corruption, too high debt levels, lack of future planning, lack of responsibility. That until shit hits the fan you live without a worry in the world.

You're not wrong Art , though the last sentence is ... half-true , i guess? Although , there's such a mentality and it's probably connected to the Mediterranean life style (i suppose ?) , it's not that common as you would believe. At least in Greece , like all things and people , it's divided. "Half" are like that and the other "half" are not.The real issue is what people think about this ; one half who's like this thinks it's right , the other somehow wishes they were like that too , even when they disagree. Business models and all the rest you said are more or less true , not particularly in all cases , but in many cases . For example , not everybody could become a taxi-driver untill recently , they had to receive the licence from one who had it. If they wanted to buy a new one and get to work a cub , they would have to pay somewhere near 200.000 euros to acquire it(though that was a few years back , not sure about now). lol , for a taxi licence.. it was called something like closed-proffesion , something along these lines . Again , wtf. Not sure if it has changed now , never heard anything to the contrary tbh , but this existed for other jobs too , on the individual section . Yeah , i don't think this has changed and it's just one example of laid-back practises that hurt business . I wouldn't know why anyone would want to become the owner of a taxi today lol , them in particular were hit by the economic crisis ridiculously hard.

VivaStPauli wrote:Î was about to write a post like Dantes, but I guess I don't need to anymore.

I would not have been as harsh, though, but that would mostly be because I am German, and shitting on the Greeks culture would make me seem like an utter dick.

Nah , any reasonable person , Greek or not , who really knows what's happening in Greece wouldn't think anything like that of you . He would just sadly agree , nothing more nothing less . Having said that i get what you mean , for others maybe it would seem like what you said , but imo it shouldn't concern you . Especially for the few us here who have no doubts where we live whatsoever , we're much more harsh than what i said here. I just tried to give a general idea , things are worse than what i described .

The irony is , everybody and their mothers say we should change and all that ; politicians this , economy that ; mentality this , progress that ; it's when you ask them , ok , "what should be then , what should we do " , that you realise in what deep shit we are.

Today i went for a coffee and heard an 18 year old near me , talking with his friends about football. And he said he will vote the left party , because he believes his team will get their long awaited football stadium , if this party gets to be government. 18 years old , just finished high school last may and that was the criteria of his vote. He's going to vote based on football criteria ..

Did he say his father and mother will suffer for more than 4 years to sent him to university and that education should be what he must focus on improving? no
Did he say that in 3 years in high school he had to pay for prints of a few books , because the government cut funds from education and his high-school didn't have enough money for all books ? no

He unashamedly said , i will vote the left party , so my team can have their new stadium. That's what concerns him.

And now come speak to me about economy and economic practises and currency and policies and what have you . There's no hope man .