Sovereign debt bubble thread

[HVC]

facepalm

Switzerland has been quite successful with their balanced budget act. Germany has added a balanced budget article to its constitution and will not be allowed to make more than 0.35% of GDP in new debt after 2016 - unless there are natural disasters or economic crises.

Such as making more than .35% in new debt.

[DGuller]

facepalm

Switzerland has been quite successful with their balanced budget act. Germany has added a balanced budget article to its constitution and will not be allowed to make more than 0.35% of GDP in new debt after 2016 - unless there are natural disasters or economic crises.

Such as making more than .35% in new debt.

[Zanza]

Not really.

Anyway, an interesting side effect of this whole fiasco is that the Swiss Franc is now almost at parity with the Euro. At the current rate, it will be just a few more days until it is worth more than the Euro. I pity all those fools in Eastern Europe that took out mortgages in Swiss Franc.

[Barrister]

You know, I was expecting the latest economic news out of the US would have increased the value of the loonie - since our budget deficit, balance of trade and general economic outlook is so much stronger than the US.

But it the wild way that economics works, the weakening US economy is weakening the price of oil (and other commodities), so the C$ is actually decreasing in value.

[Iormlund]

Switzerland has been quite successful with their balanced budget act. Germany has added a balanced budget article to its constitution and will not be allowed to make more than 0.35% of GDP in new debt after 2016 - unless there are natural disasters or economic crises.

What is the point then? Spain, for example, was in surplus before the crisis. Such a measure would have made absolutely no difference.

[Zanza]

Switzerland has been quite successful with their balanced budget act. Germany has added a balanced budget article to its constitution and will not be allowed to make more than 0.35% of GDP in new debt after 2016 - unless there are natural disasters or economic crises.

What is the point then? Spain, for example, was in surplus before the crisis. Such a measure would have made absolutely no difference.

Might not have done a difference in Spain, but it could have done a difference in some other countries. Spain's rotten labour market is of course a much bigger problem than its government deficit.

[Martinus]

Not really.

Anyway, an interesting side effect of this whole fiasco is that the Swiss Franc is now almost at parity with the Euro. At the current rate, it will be just a few more days until it is worth more than the Euro. I pity all those fools in Eastern Europe that took out mortgages in Swiss Franc.

Unfortunately it may become a problem not just for them, but for the entire banking market due to negative equity issues. Good I took my last loan in zloty.

[Martinus]

It seems the potato head twins were right about one thing, btw: we would have been in much more shit now if we adopted the euro back in 2007-2008.

[Cecil]

It seems the potato head twins were right about one thing, btw: we would have been in much more shit now if we adopted the euro back in 2007-2008.

Broken clocks and all that. 

[Razgovory]

So is the Euro going to actually survive this?

[The Minsky Moment]

facepalm

Switzerland has been quite successful with their balanced budget act.

Misleading because Switzerland is a diffuse federal system where significant fiscal authority resides in the cantons.  Many of the cantons can and do run fiscal deficits.

[The Minsky Moment]

What is the point then? Spain, for example, was in surplus before the crisis. Such a measure would have made absolutely no difference.

Ireland and Iceland also had sound government finances.  The point is well taken - all the fiscal orthodoxy in the world doesn't matter if the government faces a decision whether to intervene in a crisis or permit a complete collapse of the private economy. 

[Iormlund]

Might not have done a difference in Spain, but it could have done a difference in some other countries. Spain's rotten labour market is of course a much bigger problem than its government deficit.

The labour market had little to do with the current crisis. It stems from the housing bubble. There was a whole host of other factors leading to it, such as regulation penalizing owners and thus preventing competition in rental market, fiscal incentives toward buying property, arrival of millions of immigrants in need of a place to live, a fucked up municipal funding system that depended on housing transactions... and guess what: chronically low ECB interest rates. Which is why I can't help but roll my eyes every time I read a German patronizing us.

Then there are are long-term structural problems such as rigid labour market, education imbalances and the like. Those were not really involved in the bubble, although obviously should have been addressed then and we'd be in slightly less deep shit.

[DGuller]

Which is why I can't help but roll my eyes every time I read a German patronizing us.

Meooowww!

[alfred russel]

What is the point then? Spain, for example, was in surplus before the crisis. Such a measure would have made absolutely no difference.

Ireland and Iceland also had sound government finances.  The point is well taken - all the fiscal orthodoxy in the world doesn't matter if the government faces a decision whether to intervene in a crisis or permit a complete collapse of the private economy.

An alternative view is that they did not have sound finances: that whether you can balance a budget in a boom economy is not enough to be considered sound if you also a relatively small economy vulnerable to shocks in certain economic sectors (and even more so if you have a currency that won't depreciate with those shocks).