The fairly rapid fluctuations in interest rates is a sign that speculation is going on. That’s not a criticism of the speculators, who are reacting to the underlying conditions even if they are making them worse. If Europe wants the rates to fall - now - they have to do something to make that happen. It should go without saying that banning or limiting trading in debt is not the way to do that.
I realize that the Germans are still scared of hyperinflation, but you don’t need big inflation to fix it. The Fed injected tons of money in the US economy and yesterday the interest rate on 10 year T-bills was 1.99%, I believe. Despite the fears of monster inflation in the US from certain people, there has been none.
Hoover did austerity and it didn’t work very well. Thus my comment.
Germany does depend on exports. They’d be in worse shape if the Greeks and Italians could devaluate their currency, wouldn’t they? And they will have a hard time exporting if their customer countries have crashed economies.
That is my logic, yes. For the sake of argument, I am buying into the “conventional wisdom” seen in the Elections forum that the voters will blame any downturn for any cause on the incumbent, and that the economy will be 90% of the reasons he is or is not reelected.
I don’t know the politics or the law of the ECB, but the highlighted part sounds right to me. It may be that the law says they can’t do it, or that it seems politically impossible. But the solution is for the ECB to buy however many bonds they need to buy in order to stabilize the situation. Often, when there’s a crisis, what seemed impossible before, becomes possible after.
ECB purchases wouldn’t necessarily cause inflation; but even if it did that’d be good for Germany’s export business.
Why? The currency union of industrial Michigan and tourist hotspot Hawaii works just fine.
Their problem is a lack of political unity - and that the Greek government and the banks conspired to lie about the true state of their budget.
The treaty is an attempt at remedying this, but it is too little too late. They have to piddle or get off the pot - decide on no Euro (which will be tricky) or a United States of Europe, which will be tricky also.
I was just talking with my BIL (in Rio de Janeiro, Brazil). The Rio real estate market is undergoing a boom-you can sell a closet-sized apartment for >$150,000!
the reason? Italians, Portuguese, French, Spanish investers are buying up everything in sight.
I’m willing to bet that these folks see a Euro collapse in the offing.
The Euro isn’t going to collapse, it might just have to cut loose some of the southern economies.
Germany will hang onto as many of them as possible as they makes German exports cheaper than they would otherwise be in DMarks.
It’s just a question of how well Germany manages this process. You’ll notice, so far, they haven’t lost a single member, and all those impoverished countries - or rather the wroking class in those countries - are paying bond holders, and German guarantors, fortunes in interest in order to stay in the euro club.
The Germans win in the short term and the long term, working people all across Europe lose.
There has been significant inflation, though, and that’s been a problem.But regardless, Germans don’t want their currency dropping any. They want it right where it is forever.
This would be an example of factually incorrect statements. I know that Obama has promulgated this line; it’s still completely incorrect. Hoover might not have liked big spending programs, but he doubled spending and paid for it in large part with taxes on the rich.
http://online.wsj.com/article/SB122576077569495545.html
http://www.nathanielward.net/2009/02/did-herbert-hoover-cut-spending/
Depending on how much they’re exporting outside the Euro area, maybe.
Once you do this, it starts to call into question of why there is a Euro. Once it basically becomes Germany’s Happy-Fun Time currency, why should the Euro exist at all? There’s also the question of why Italy should allow anyone to keep to it if they can’t be in it, etc.
The US is an ideal currency area. There’s a high level of labour mobility derived from the fact that you all speak the same language, consider yourselves fellow countrymen, have a shared culture, and the majority of tax and legal structures in the states are broadly similar, barring a few exceptions. The EU, on the other hand, has 230 native languages, more than 50 markedly distinct legal systems and tax structures and vastly different cultures amongst the constituent nations, with labour mobility suffering because of it. It’s incredibly hard to work elsewhere in the EU other than your native nation, or ones close by. And no, not everybody speaks English. In fact, far from it, even in developed Western European states, never mind the old Communist Bloc.
The problem goes far beyond a lack of political unity. The EU is just not a good currency area.
This explains Greece. It doesn’t explain Spain which has been a model European state in terms of how its economy was run, with fundamentals in many respects better than that of Germany.
This is the portion of the crisis I personally find baffling. If the ECB loaned money directly to member states on the cheap, interest rates would go down along with the chance of sovereign default.
Instead, the latest ECB plan is to lend money to German banks, who then lend to member states at the higher rate, pocketing the risk premium. I’m not the first to notice this is a huge profit opportunity for banks, but I have to ask why the bankers are allowed to profit while their governments demand austerity from the borrowers?
This is incredibly misleading, if you read the cites more closely and have looked at history.
Hoover doubled spending as a percentage of the economy. The economy was depressed. If GDP tanks, overall government spending doesn’t have to increase much to still be twice as large relative to GDP.
As for the tax increase, giving the credit to Hoover is silly. No, it wasn’t his first or even preferred idea. The concept was initially for a sales tax. Read McElvane’s history of the Great Depression. It was a massive populist flood of anger and outcry that had Congress backtrack on a national sales tax and enact income tax increases, instead.
I suppose Hoover gets some kind of credit for not vetoing a massively popular bill, but giving him credit for it is ridiculous.
Not exactly news . . . Oh, wait, you said “over” . . .
It is not true that government only increased a little during Hoovers term. Nominal spending increased by 50% in Hoover’s term. In real terms it increased even more because there was deflation. We can’t know what would have happened if the sales tax had been passed or if there had been actual austerity, but we do know what happened after a massive increase in government spending paid for by a tax hike on the rich. That should give us pause before we try the same thing again.
As for what will happen, Italy and Spain will have to partially default and Germany, France and the UK will have to bail out their banks. The Euro will either have to fall apart or a fiscal union will have to be tried. I think there were two large kerfuffles in the last century about whether smaller countries want Germany making their decisions for them. I think that means the Euro will have to fall apart. The elites of Europe will do anything to keep this from happening, but if democracy means anything they will have to eventually bow to the popular will.
You’d be surprised at the mobility within the EU. My daughter is living in Germany now, and her boyfriend is German. He can and has worked all over. The rules for workers from the EU are different than those outside. And while there are different languages, first, there are communities of like language speakers, and, second, all reasonably high level communication is done in England. She is taking a Masters in International Business in Germany, and all classes are taught in English. She is involved with a multi-nation elementary education initiative where all meetings and documents are in English, though none of the countries involved are English-speaking. Traveling within the EU these days is no more difficult than traveling within the US.
I’d say because there is no expectation that there is political will in the EU to deal with a bad economy through monetary means. And panic to a certain extent. If Spain was still under the peseta, they’d have lots of room to run deficits for stimulus, and encourage exports through currency modifications.
Actually, no. I’m a British postdoc employed on an EU grant in Italy. When I first moved here I had to go to the hospital. They had to search the Casualty department to find a nurse who spoke pidgin English. The doctor, in his 30s, didn’t speak English at all. Similarly, my student nurse flatmate speaks barely any English. In the two months I have been living with her, I’ve learnt more Italian than in the 15 months before. This is true all over here; even very educated people just do not speak English that well, if at all, more likely speaking French as a second language. My tax situation, upon starting employment, was so bad that I didn’t get paid for six months due to the Italian authorities not knowing how to apply the UK-Italian joint tax agreement correctly. It’s no exaggeration to say that moving around the EU for work is still a very difficult process (and I believe labour mobility statistics back me up on this).
Language problems become even more exacerbated if you leave Western Europe.
As for travelling within the EU not being any more difficult than travelling within the US, I suspect what you mean is travelling within the Schengen area is no more difficult than travelling through the US. There’s still EU countries where you must show a passport to enter (e.g. the UK).
Do you mean WWII or the Great Depression?
In the case of WWII, I’d say things were tough at home, but we kind of expected that in wartime.
And this particular massive bought of government spending, partially paid for by massive tax hikes on the rich did not seem to cripple our economy. Quite the reverse, actually.
In the Great Depression? Things were on the uptick until we tried to balance the budget in '36 (i.e. austerity measures). What exactly should give us pause?
I’m not even sure what democracy has to do with this.
I’d argue the ECB has to bow to reality. I’m not sure where the popular will even comes into play.
That means buying up massive numbers of bonds or letting the Euro dissolve.