ECB and Inflation

[Admiral Yi]

In related news Italy's debt/GDP is now 132%.

[Zanza]

They should have defaulted years ago.

[The Minsky Moment]

Their bonds were trading at a yield of 40% before the bailout Joan.  If they tried to solve their problems by issuing new debt the interest bill would kill them.

If they had their own central bank that would treat domestic debt as good collateral, then the commercial banks would buy on good terms.  Sure this would imply creeping debt monetization but so what - there are bigger problems.

[The Minsky Moment]

They should have defaulted years ago.

Yes.
But the "responsible" governments wanted to be good Europeans and play ball.
That was the time for EZ governments and authorities to step in and say good enough we will cut you a break.
I get why for moral hazard reasons the EZ feels it has to play hardball with Syriza but that just underlines the folly of failing to address this much earlier.

[The Larch]

No comments about Draghi being doused with confetti by a Femen activist today? 

[Crazy_Ivan80]

I don't get this narrative, how is Greece being "allowed off the hook"?

maybe because the greeks are notoriously bad at paying taxes and the state is notorious for wasting what little money it gets, making it look as if the greek state (of which the greeks still elect the government) is spending the money but letting the others pick up the tab when it's time to pay up. Make the Greeks pay their taxes before spending ours in other words. And more importantly, make the prove that they've changed their mentality in regards to the collecting and spending of money cause otherwise they'll be begging again before too long

[Valmy]

She did the V sign? What a dork.

[Admiral Yi]

If they had their own central bank that would treat domestic debt as good collateral, then the commercial banks would buy on good terms.  Sure this would imply creeping debt monetization but so what - there are bigger problems.

Do you think that's sufficient demand to take care of their financing needs/wants?

[Sheilbh]

In related news Italy's debt/GDP is now 132%.

10 year yield - 1.03%.

Germany's selling debt to 2024 at negative and responding to Commossion and IMF criticisms of their current account surplus and lack of investment said it's true, but spending now would be pro-cyclical. Just like every other bit of Eurozone economic policy.

[Crazy_Ivan80]

She did the V sign? What a dork.

she's ordering two beers

[Valmy]

She did the V sign? What a dork.

she's ordering two beers

[Zanza]

That was the time for EZ governments and authorities to step in and say good enough we will cut you a break.

The problem with that approach would have been what crazy ivan says: The Greeks would just have continued as it is. Without a common economic and fiscal policy in the EZ (and no one seriously pushes for that), the only lever the other governments have is the bailout program as it is.

[Zanza]

Germany's selling debt to 2024 at negative and responding to Commossion and IMF criticisms of their current account surplus and lack of investment said it's true, but spending now would be pro-cyclical.

State investments will never be able to compensate the lack of private investment in Germany. I am not sure how to address the fact that it is more profitable for German companies to invest abroad. Germans are just miserable consumers and our aging society doesn't look like that will change anytime soon.
Aging society also means that Germany has a strategic goal to lessen debt to have a long-term viability of the state budget considering that our workforce will start to shrink soon. I think the current plan is to go from like 78% of GDP to about 62% of GDP in the next 5 years...

[Sheilbh]

Germany's selling debt to 2024 at negative and responding to Commossion and IMF criticisms of their current account surplus and lack of investment said it's true, but spending now would be pro-cyclical.

State investments will never be able to compensate the lack of private investment in Germany. I am not sure how to address the fact that it is more profitable for German companies to invest abroad. Germans are just miserable consumers and our aging society doesn't look like that will change anytime soon.
Aging society also means that Germany has a strategic goal to lessen debt to have a long-term viability of the state budget considering that our workforce will start to shrink soon. I think the current plan is to go from like 78% of GDP to about 62% of GDP in the next 5 years...

Not much time but while I don't think public investment can compensate for private investment it has a role. Especially given that I understand German infrastructure is in pretty bad state - like the Kiel canal having to close because the locks broke down which hadn't happened in decades not uncoincidentally maintenance spending is now around 20% what it was a few years ago. As the IMF has put it Germany could afford 'much-needed public investment in infrastructure, without violating fiscal rules'. It's a baffling choice not to.

Private investment's an issue everywhere and it's not entirely clear why - I think in the UK and US at least it's possibly to do with remuneration. But of the Eurozone Germany's productivity growth through investment is the lowest - lower than Greece. Germany's productivity growth has come through wage restraint (in part, perhaps, because the country experienced a sort-of internal globalisation).

I think the bigger problem is trying to copy the German model in a far larger economic unit. Schaeuble today said the biggest success of Greece's reforms was lower wage costs and that risked being undone. The problem I see with that view is that according to the Commission in the particular case of Greece, labour costs are a very small part of overall export costs (hence why, despite that reduction, Greek exports haven't recovered). Then there's the paradox of thrift problem within the Eurozone and beyond that I'm just not that it's a viable model for a currency union that's in the developed world and possibly the world's biggest or second biggest economy. I think you have to look more broadly for the productivity gains.

The other problem is that, you're right German money may be more profitable elsewhere - but that's precisely what got us into trouble in the first place. It was those imbalances of German money looking for a return that dangerously inflated Irish and Spanish banks and credit boom. Just as surely as Chinese, developing market and oil producer money globally helped drive the credit boom in the US and the UK. Ultimately you can no more blame the debtor than the creditor in this situation, deep distortions in savings and investment somewhere will lead to irrational debt accumulation/credit booms somewhere else. If we don't fix that then it's only a matter of time before we're back in the same cycle. And I think the Eurozone - even with the steps made towards banking union - could be more at risk than most other markets because of how fragmented banking supervision still is and free movement of capital. If banks and businesses in Germany can't get a return domestically, of course they're going to banks and businesses and people in other countries - despite how unstable this may make the Eurozone there is nothing that either the debtor or creditor country can do, due to free movement of capital.

The ageing thing is interesting because by definition an ageing society should consume more. Pensioners live on their savings. Old people stop saving and start spending. My understanding is that while that's held true in most economies there's something particular in the German that means it isn't happening at anywhere near the rate it is elsewhere. But from what I've read no-one has any idea what.

[MadImmortalMan]

The other problem is that, you're right German money may be more profitable elsewhere - but that's precisely what got us into trouble in the first place. It was those imbalances of German money looking for a return that dangerously inflated Irish and Spanish banks and credit boom. Just as surely as Chinese, developing market and oil producer money globally helped drive the credit boom in the US and the UK. Ultimately you can no more blame the debtor than the creditor in this situation, deep distortions in savings and investment somewhere will lead to irrational debt accumulation/credit booms somewhere else. If we don't fix that then it's only a matter of time before we're back in the same cycle. And I think the Eurozone - even with the steps made towards banking union - could be more at risk than most other markets because of how fragmented banking supervision still is.

So we're fixing a problem that was caused by cheap credit with cheap credit.