The ECB could lead the process of digging the way out of this hole if they committed themselves to returning closer to the previous trend line of nominal income in the eurozone. They need a sharp increase in NGDP. If they were committed to this course of action, they could arguably get away with a lot of these austerity measures and still be okay. However, this would mean higher inflation in Germany. Two problems with that.
The Germans hate inflation.
The ECB labors under an explicit price stability mandate. Even if they were competent enough to know what needs to be done – which is possible, though they don’t really show any signs of it – they still wouldn’t have the legal authority to do what needs to be done. They’d have to get their mandate relaxed, which means asking the Germans. (See problem one.)
This is the sensible solution, but they’re apparently not interested in it. That leaves only less sensible outcomes on the table. Lots of turbulence ahead, most like.
It’s not just internal politics.
A lot of the votes are from external pressure. If there’s another bond crisis, which requires more support from the broader eurozone and EU, the other countries in Europe want Greece to vote again to confirm their previous commitments, and often to accept even more stringent conditions. Every bit of external assistance tends to be conditional on them accepting yet more cuts. The extra cuts have to be voted on every time.
Right…I understand in a parliamentary system if the ruling coalition loses a vote it essentially means you have to form a new government. What confuses me is why a coalition would approve something at one point but be unable to basically approve the next (and expected) step later on, it just seems the people being elected don’t really have any desire to follow consistent policy.
Austerity is extremely unpopular with the Greek people, and probably the Greek parliament. It’s probably (just a guess) that bunch of MPs get elected, see that they have no choice but vote for the upcoming austerity package, but then when another one comes down the pike they can’t bring themselves to vote for it. Partially because of all of the protestors and partially because the only thing the austerity measures bring Greece is misery and pain, and all they get out of it is making Germany happy.
This is not a defense of Greece by the way. Greece only, or mostly, has itself to blame for the mess that they’re in.
But seeing as how they’re blaming all their problems on the banks, Germany, and everyone else but themselves, I’ll join in with those who say it’s probably best for Greece to leave the eurozone.
The only hyperinflation country I’m familiar with is Zimbabwe, and from everything I’ve heard, it hasn’t been working out for them very well at all.
Well, there are a few factors (note that I’m just speaking about parliamentary politics generally; I don’t know the specifics of the Greek parliamentary system.)
First, it depends on how strong the party discipline is. Even if the party leaders agree to something, it’s not automatic that the rank and file in the party will support it. Party discipline can vary tremendously from parliamentary system to parliamentary system. If the leaders don’t have strong party discipline, then they may have trouble corralling their members to vote for a particular measure.
Second, even if party discipline starts out strong, in times of crisis popular discontent may undermine it. If there is strong opposition among the public to a particular measure, and they make that opposition strongly felt, members of parliament may change their mind. That’s how democracy is supposed to work, with representatives paying attention to their constituents throughout their term, not just in the immediate run-up to the election. So even if a party starts out supporting a particular policy, strong popular opposition to that policy may force the party as a whole to re-consider its position, or contribute to the unravelling of party discipline as individual members of a party change their mind and their votes.
Third, it depends whether a particular parliamentary system is organised to produce majority governments or minority governments. First past the post voting systems (UK, Canada, Australia) tends to produce majority governments, which are able to enforce stronger discipline and “stay the course” during a crisis. Other systems (e.g. proportional voting) may tend to produce minority governments (Israel is the best example of this tendency), which are more fragile and more likely to collapse under stress. From the press reports, it sounds to me like Greece may fit this pattern. If that’s so, then the Greek government may be more likely to topple under a major stress or series of stresses. That may result in general elections, but it may also mean a re-organisation, with a different party taking the lead in a coalition. But to maintain that coalition, that new government may have to make new arrangements with a different set of minor parties, which in turn can change the priorities of the government dramatically.
Finally, in asking how there can be so many votes, remember that most parliamentary systems have a series of steps for a bill to become law. For instance, most Westminster style parliaments have four steps for a bill: 1st reading (introduction); 2nd reading (approval in principle); committee (detailed examination); and 3rd reading (final approval). At each stage, the bill has to be passed by a majority in the chamber, and thus at each stage there’s a chance to defeat the measure. The governing coalition has to hold its supporters together for each vote, and that means that each member party of the coalition has to agree to the measure at each stage.
Add in that there are a series of tranches, and possibly a number of different bills needed to amend the laws to satisfy the conditions of a particular tranche (e.g. - one bill to change pensions, another bill to change income tax, a third to change banking rules), and the number of votes multiplies.
Interesting graphic. In short, the Eurozone represents perhaps the worst collection of countries constituting a monetary union that you could come up with.
The set of countries beginning with the letter M are pretty far spread around the globe and gain no obvious advantage from currency union.
Meanwhile a set of countries that share borders, are relatively wealthy and were already in many cases the largest trading partners for each other have an obvious benefit from making transactions and investment simpler.
That’s not to say the euro was a good idea overall, but let’s not start the post hoc hyperbole.
I’ve downloaded the 2011/12 WEF report and I can’t find that chart. If there is a newer report, there doesn’t seem to be a public link for it.
ETA: this is not to imply any dishonesty about the cite: obviously your cite is legit. But perhaps they got the graph from a draft report.
Emphasis added. The graph doesn’t seem to be from the WEF report, but rather from that analyst who used the data from the report to build his scale of econo-similarity between countries.
Yes, countries that begin with M don’t have the same geographic proximity and established trade relationships, but I’d think the underlying point of the exercise is to emphasize the remaining economic gulfs between the eurozone countries. You wouldn’t expect countries that rank so differently on such a scale to have enough collective flexibility to justify a common currency among them. I would personally concentrate more on the lack of labor mobility and the difficulty of fiscal cooperation, but I think this method of collecting all those numbers still makes its point. The similarities don’t remotely outweigh the differences. They are very different economies, which means very different monetary needs.
:smack:
I incorrectly parsed the line “source: World Economic Forum Global Competitiveness Report, JP Morgan Stanley”.
True, but it is misleading. It makes the assumption that economic similarity between states is the most significant factor, ignoring actually much more significant things such as proximity.
Why is similarity so important? Clearly some convergence is necessary and arguably a lot of the euro problem is that some countries fudged the figures to pretend they had converged. But The Atlantic seemed to be implying that homogeneity within an economic union is directly proportional to its viability and I don’t see why that should be the case.
There are large disparities of income levels across the US states. Yet there are good reasons why an economic union works there and not, say, in a pick of asian countries with very similar GDPs and fiscal policy.
The Eurozone is worst than a hypothetical monetary union formed from all countries beginning with the letter “M”. Those guys have a great sense of humor!
Wouldn’t it be terrible if the new German Empire came crashing down around the ears of Merkel and the rest of the financial parasites…
Imposing austerity from beyond national borders is anti-democratic, austerity itself - as a model of repayment is transparently short-term, desperate and must logically fail.
Ten - TEN - euro currency, austerity-supporting Governments have fallen in the past year and a bit. Well played, Germany.
The austerity policy is like the Russian Front circa 1944; it’s over but they can’t admit it.
Yep, the euro will survive, with a core of northend European countries.
The euro may certainly have been a big mistake to start with, but it may well be an even bigger mistake to abolish. I think and hope it will survive.
Greece may crash and burn, but the euro zone can survive that. As for France, I believe Hollande will follow the route blazed by the fairly recently elected Danish social democratic prime minister. That is: faced with reality he will cast all the absurd election promises to the wind, and more or less continue down the same path as previous conservative government had already been following. He may choose to call it something different. He will not return the universal pension age to 60, he will not run up a large deficit in order to kick start the economy, he will not triple the wealth tax, he will not raise the top margin tax to 75%. Etc. He will not have much success in convincing Merkel in a substantial renegotiation of the financial pact. At least I hope the French socialists are that sane. The lacklustre performance of the French economy compared to the German and the wrecking of the close German-French alliance will however slowly reduce France to a second rate nation on par with Spain and Italy.
I don’t know why, but I’ll try this one more time.
The OP says,
In post #7 I said that countries under austerity who are getting tired of it could use the threat of another global crisis as bargaining power to get Germany, or maybe I should say Merkel, to back down. Now if that seemed over the top to people that’s because I was using a little bit of hyperbole.
My point was that I don’t just see two options; Go along with German lead austerity or else the Euro perishes. I think that the countries that are against continuing austerity have the leverage to force Merkel to back off a little without destroying the euro.
But maybe I’m wrong. Maybe there’s nothing that will get Merkel to back down on austerity causing a stalemate.
Interesting analysis. I wonder what Merkel and her advisors will say-when the German “captains of industry” tell her that their customers in Europe cannot buy German products any more?
Suppose countries like Greece stop buying BMWs, Mercedes-Benz automobiles, and Siemens machines? (The now buy Korean and Chinese -made stuff).
What will German policy be then?
Maybe we should also be asking if the euro can survive a continued program of austerity. If the revenues of Spain, Ireland - Italy? - continue to fall as unemployment increases, why would bond interest rates fall? And in a lot of places the austerity measures have not even kicked in.
Politically it might become infeasible also, if the populations of some countries decide that the survival of the euro and the health of the banks is not worth 25% unemployment.
I think there are some things that would get Merkel to back down. The Times reported an influx of recent Spanish graduates to southern Germany, since there are no jobs in Spain. Right now there is a labor shortage in Germany, but enough of an influx might cause some pressure on her to improve the economies of the places they are coming from. Perhaps the banks will start getting nervous that austerity is not working. And, as someone mentioned, pressure on German exports might do it also.
What austerity? It appears that there have been almost no cuts to public budgets. (Show Me the ‘Savage’ Spending Cuts in Europe, Please) I don’t think there’s a single euro-nation that is spending less than it did pre-recession. Perhaps Estonia. At most it has been flat-line. If the only way the euro can survive is by continual dramatic increase in public expenditure they might as well call it a day now because it’s going to topple sooner or later.
Also the economy has become globalised. Germany is competing with Chinese, Korean, Japanese, and American companies. Reducing its competitive edge will by and large not benefit Spain/Italy/Greece and France, and trying to kick-start the European economy by pumping money into German pockets is likely to benefit Asian and American economies more than Mediterranean.
This is pretty much it. I honestly (as a European in a non-Eurozone country) think the Euro is a good idea but the implementation, without closer ties between the countries, was very poor. It is pretty much time for the countries to decide if they want a true “United States of Europe” as that is what it is going to take.
Oh and some Communists in government isn’t a problem at all. Over here in Sweden, Vänsterpartiet (the rebranded Communists) regularly get 20-30 seats in parliament and are part of the left wing coalition that was in power around the lates 90s/early 2000s. Our world didn’t end. In fact, considering some of the various melt downs that have gone on worldwide in the past 10-15 years, we’ve done quite well. Communist/far left doesn’t automatically mean “bad”.
The euro will be fine. It will have fewer states to help keep the value of the currency down, but it’s not ever going to fail. No reason for it to fail.
Aren’t we arguing over semantics? Is a single currency with only the likes of Germany, Austria and the Netherlands the same “Euro” as the one with the Greeks and Italians in it? Isn’t any country leaving the currency area a massive failure, given that it was clearly envisaged that no country would ever leave by its architects, hence there’s no mechanism for doing so?
They are when they’ve just declared the agreements the Greek government made with the IMF and EU null and void.
