I’ve heard that the situation in Greece has no link to Spain’s issues. But Spain and Ireland have similiar issues. If Spain’s economy falters, could it take Ireland with them? (I’ve heard Spain faltering wouldn’t push the Greece “domiono”)
Take Ireland where? What are you talking about - defaulting on sovereign debt?
No one knows what happens 6 months from now - period.
People will, however, talk about it all day long…
What I’m refering to: Spain’s economy’s falters, and that domino bringing down Ireland’s economy.
What constitutes the “faltering” of an economy? And why would Spain “faltering” have more effect on Ireland than Greece?
From what I’ve heard (though I concede, I could be, and probably am, wrong) Spain’s issues are different from Greeece’s, which I believe are, it’s debt/GDP ratio is out of whack.
Why don’t you share “what you heard” and where you heard it if you want an intelligent discussion.
It’s much more complicated than that. Japan’s debt/GDP ratio is much higher than Greece’s but Japan is nowhere near a crisis situation like in Greece.
I don’t know enough about the situation to really try and answer your question but I suspect that “the situation in Greece has no link to Spain’s issues” and “Spain and Ireland have similiar issues” are both off-base. Hopefully someone who knows a lot about the situation can explain it in more detail.
It is not just the amount of debt as such, its also the ability to cover it, Japan has huge a huge economy with massive manufacturing capacity, and massive export rates, along with massive funds in pensions that can stabilise things.
Greece, not so much, fairly small economy, not much export, lots of dependency on tourism, and they have simply priced themsevles out of that market.They tried to go for the value added market in tourism - fewer tourists bringing lots of money and prepared to pay higher prices - ut they forgot who their customers came from - other nations whose ecnomies also have issues.
Consumers are repaying debt in Europe, they are paying back much more than they are borrowing, real state markets have gone stagnant, and this is what drives much of the UK economy becuase of all the goods that are assiciated with purchase of housing.
So Greece probaly needs to devalue, to reduce its imports and make itself more attractive as a tourism destination however being tied into the Euro, they can’t.
Sooner or later they will drop right out of the Euro.There will be much wailing and nashing of teeth, abotu the damage to the crediblity of the Euro itself, but it will happen, just a matter of time.
Spain is also a relatively small, and tourist based economy, not as small as Greece, but still need support, same with Ireland.
Greece has problems due to very irresponsible spending on their welfare state, even the UK has never been nearly as profligate - can’t think of any other developed nation that has had a full retirment age at less than 55.
I used to think the Euro was a great thing, however you then put your national economic credibility into the hands of populist politicians in fairly ramshackle Euro governments, so now I am not as sure, in fact I now have 180 degree turnaround, we in UK should never join it.
Agreed. To add to your points, Greece has not followed the good example of Ireland in putting things right. Ireland is suffering from a Greek tragedy - that they are linked in the mind (or the mindlessness?) of the market to a country of idiots who can’t hack it.
Greece has been issuing untrue information about its economy for years. When those lies were discovered, it has been slow to commit itself to reforms, and reluctant to make the serious changes and major cuts in public expenditure needed to get fixed. It has a weak government while the opposition refuses bluntly to accept reality and is lying to the public about what is possible. All a recipe for destruction.
On the contrary, in Ireland massive and clear action is being taken. There is a clear political and social consensus that strong measures must be taken, and the only differences arise in the detail of how to do it. Also, the underlying economy of Ireland is stronger than the Greek economy, with a good export performance still firing away, backed by foreign direct investment, while most of the local economy is managing to hold its own.
First, the reasons for why a country is in debt, and the problems this causes, are many. Some of the factors influence each other - if a recession is going on (not only in Greece), then loss of jobs means both loss of income tax and paying out unemployment checks for the govt., which means less money, and less spending by the citizens, which also means less sales tax…
One of the major problems in Greece is the widespread habit of cheating on taxes and corruption. Cutting some expenditures, which is what many experts recommend/ banks demand and the current head of state is trying to get across therefore won’t help if no taxes are coming in - but widespread corruption is by definition difficult to adress because nobody wants to step on the toes of his buddies or powerful people.
Spain and Ireland are different because their problems come mainly from real estate: Spain had a building boom where houses were built without any concern if they could be reasonably be sold at the necessary price afterwards, because of tax incentives. Now finished houses are standing around empty, but nobody wants to buy them as holiday homes (partly because the rest of Europe is also tighenting their belt).
Ireland lowered taxes on several things, including real estate, as enticment to investors and companies to do business there, but now companies have gone elsewhere.
So in that sense, Ireland and Spain’s problems are related to real estate; but I have not heard that they are connected.
What is being said, however, is that Spain is too big to fall: if they apply for the Euro safety umbrella, the umbrella is too short to cover them, and everything would break. So everybody is hoping they won’t need the safety net. Ireland and Greece are smaller in total terms and thus can be covered, although Greece with continuing demands is stretching not only the pocket books, but also the patience of the rest of Europe.
A little more than half way down the page here http://www.eurofound.europa.eu/ewco/studies/tn0702028s/tn0702028s_5.htm will be found a table which shows that average retirement age in Greece is 61.7. This figure is higher than the ages for France or Germany, the countries to whose banks much of the Greek debt is owed. It is also higher than the EU average.
I hesitate to cite a blog, but all it’s claims are fully referenced.
http://sturdyblog.wordpress.com/2011/06/18/democracy-vs-mythology-the-battle-in-syntagma-square/ contains fairly convincing rebuttals of many of the myths presently being peddled about Greece.
Almost all of Japanese’s debt is owned by Japaneses (more than 95% of it, IIRC), making this country an extremely peculiar case.
A little bit off topic, but what are the protestors in greece all about? Do they believe spending cuts are unnecessary, or that the cuts should not impact on their lifestyle?
We can readily go into quote wars, here is something from over a year ago, so it predates the current round of difficulties,
Tax-evasion, unfunded state pay rises and unfunded increases in state spending, that includes pensions, add to that a failure to use the lower interest rates that the Euro brought to pay of historical debt, and that the spending was not on investment in enabling wealth creation, and there ou have it, note the rax evasion issue.
No doubt there is a lot of mythology about, however you can’t get away from the basic issues, more going out than coming in, and no prospect of putting it right even in the long term - this would need a huge change of national attitude to taxation and patronage, and this has become ingrained over the last two or three decades.
Probably both. But some of the proposed cuts were pretty draconian, like rapidly (and I mean rapidly) privatizing much of the state sector. Historically, that sort of rapid privatization has often resulted in assets being undervalued and tax payers getting screwed. I haven’t really been keeping up with what they’ve decided to do, but if I lived in a country that was going to undergo rapid privatization, I’d be pissed. It’s theoretically possible to do, but it’s fraught with a lot of risks. Note that I am not arguing against privatization generally, just rapid ones.
Aside from that, Greece has other options on the table. They could unilaterally restructure their debt. Or they could unilaterally default on their debt. That might force it out of the Euro, it might not. But being forced out of the Euro may not be a bad thing in the long run. There would be pain in the short term, definitely, but it’s not easy to foresee how these things will play out over time.
In short, there are no good options here, and people are arguing about what the best bad option is.
If Greece devalues, there will be a huge bank crisis as people seek to pull out their funds before devaluation occurs. Knowing that Greece won’t devalue. Unless they’re in the midst of a banking crisis anyway. Then they might devalue.
Contagion. Once one bank fails, people in other banks sometimes get nervous. So banks that are fundamentally sound can experience a bank run. This sort of process could conceivably cause dominoes to fall in Spain and Ireland, even if their economies are fundamentally sound (which admittedly they are not).
It’s a mess. Europe never should have launched a single currency without much stronger counter-cyclical and counter-geographical fiscal institutions. Ireland, Spain, Greece, all other countries outside the core and probably even Italy should have opted out.
I hadn’t really thought about this angle before, but all three of these countries get a lot of tourist travel from the US. I would imagine that the relative strength of the Euro may have made travel there from the US a less attractive option than it once was. Speaking only for myself, I used to go to Spain semi-regularly when it was cheap to do so, but these days I am more apt to vacation closer to home.
Has there been a noticeable drop-off in tourist travel from the US over the past 10 years or so (corresponding with the rising value of the Euro against the dollar)? (Not that I am suggesting this is causing the crisis, but I would think it might be a drag on the economies of all three nations.)
As far as I can make out, the number of tourists has fallen from a high of 60 mill in 2007 to 53 mill in 2010, of course that does not necassarily mean that same reduction in revenues.
http://www.usatoday.com/travel/destinations/2009-08-21-spain-tourism-decline_N.htm
Since the UK is the largest single supplier of tourists to Spain, its obviously something we can see quite readily.Lots of organisations have talked things up, the reality is that folk here are cutting back, and are likely to cut back further.
Turkey has become much more popular than it was, and this is possibly at the expense of Greece, again this is mainly anecdotal - but I know a goodly few folk who have switched destinatons from Greece.I would imagine all those images of violent protests in Greece are not going to help tourism much either.
There has been a small boost to Spanish tourism this year, but on the back of a 16% fall across the last few years, it isn’t much, and the reiminder is that austerity measures proposed around the EU are likely to have an adverse impact.
Greek guy here. I will try to address some of the problems that led to the protests
-
The greek govt. constantly raises taxes. At the same time businesses close one after another, people stop spending money and the govt. gets less tax money than expected. So they respond by raising taxes even more. And this leads to more businesses closing etc. Obviously raising taxes alone is not leading anywhere.
-
The Greek govt. is planning on selling (privatising) the power and comunications companies (among others) for peanuts. The projected money earned from those sales will be miniscule compared to the debt and at the same time Greece will lose valuable assets.
-
There have been several scandals involving politicians embezzling taxpayers money (vatopaidi, Siemens, submarines). Although there is enough evidence to put those involved behind bars, politicians are always covered by their peers and nobody gets ever punished. This has made people extremely angry. Now, whenever a politician is seen in public, angry mobs form spontaneously around them.
They’re just protesting the austerity measures. Bear in mind these are measures of a level of severity the US has never come close to experiencing in most of our lifetimes. Unemployment in Greece is nearly double what it is in the US right now. Nevertheless the government is slashing pensions, salaries and social welfare programs, and some of the new taxes it has started implementing are almost breathtaking - a 10% tax on the profits of any business earning over 100,000 EUR for instance. Jacking up taxes on rent, housing, buying new cars, selling new cars, retail goods, hotels, restaurants, retail goods. Can you imagine any situation, no matter how serious, in which those measures combined would not spark widespread protests in the US? Add into the equation the fact that the Greek people don’t feel like they’re responsible for the financial crisis or their government’s mismanagement of the economy, and the austerity measures stand to seriously damage the economy, keeping it in recession and driving up unemployment further.
I imagine the US accounts for a relatively negligible proportion of the tourists to those countries. For Greece it’s about 2% for instance. Spain and Ireland are probably higher but I doubt it compares to the number of tourists from other EU countries.