Euro on the brink of collapse

[alfred russel]

Now, I freely admit I am heavily biased against the Euro, due to my (to create a quote for Europhiles) "puerile nationalism", but I would think that the citizens of Greece and Ireland would disagree with you. While "death spiral" is an exagerration, the Euro is one of the major factors in the strangulation of their economies at the moment.

Without the Euro they'd be screwed.  As it is they're humiliated Eurozone members (and rightly so - I don't think they should be able to vote in the EU for a decade or two) without it they'd be bankrupt and doing tricks for the IMF.

Spain is not fine at all. There's a lot wrong, for example dismally low productivity (especially in the public sector), underfunded R&D, regular tax evasion, abusive work conditions, stupid two-tier job security (older workers are impossible to fire, young ones are pretty much free), woefully stupid fiscal incentives (which penalize hiring people and encourage speculation), strangled rent market, dysfunctional education system, generalized corruption ... but that's nothing new.

  Exactly, nothing new.  The new stuff is American traders wondering if Spain's about to go bankrupt.  Fiscally you're doing okay even in comparison with much of the rest of Europe.

Sheilbh, you are missing the point--it isn't about default, it is about an economy with a massive budget deficit that is attempting to close it while it has close to 20% unemployment. Contractionary fiscal policy in a deep recession is a textbook method to create an economic disaster.

I am a huge fan of the euro and european integration--a common currency makes europe a much better place to do business. But this is the classic danger of having a common currency in europe--wheras before the pesata would devalue in which would help spanish exporters, encourage investment in spain, and protect domestic producers, Spain is now stuck with a relatively strong currency.

[Sheilbh]

Sheilbh, you are missing the point--it isn't about default, it is about an economy with a massive budget deficit that is attempting to close it while it has close to 20% unemployment. Contractionary fiscal policy in a deep recession is a textbook method to create an economic disaster.

But as I say fiscally Spain's not doing badly.  Their national debt is about a the level and I think a little less than the UK or the US and about a third of, say, Italy or Greece.  Similarly they had a strong surplus a short while ago.  Now they have problems with the construction sector which has, of course, been particularly badly hit but their banking sector's solid and growing.  In terms of the cuts their budget deficit is smaller than the UK's and they have said they'll cut it but the ECB is giving countries lots of lee-way right now in terms of deficit spending.  The Spanish don't need an emergency as much as Ireland did and my understanding is the goal is to cut the deficit to within 3% of GDP by 2013. 

I agree that it's unfortunate that Spain can't devalue her currency - but I don't think she's necessarily standing on a precipice.  The sudden worry about Euro-state sovereign debt genuinely seems very overblown to me.

[Agelastus]

Look people always fail.  There are always sections of the economy that are doing shit.  Now it may be true that this was happening in construction and wholesaling in Ireland but that's a smaller part of the economy than the financial services sector, retail, service sector generally and IT all of which employ far more people and boomed.  So I'm not convinced that what you were seeing was the canary keeling over or whether it was particular industries that weren't doing well.

The point is that it is an indicator because it depends on the other, larger sectors of the economy for its business. When things get tight, store and bank refurbishments are the first things cut back, even before plans to build new branches. So I think it is a very good indicator, and although the evidence is anecdotal, it comes from people with a ground floor view of the economy.

On retail in particular (as this could be linked to the wholesaling) the Irish retail and hospitality sector has really modernised its back-office stuff in the last ten years and it's a lot larger and more efficient and more corporate which would, I imagine, have an effect further along the supply chain.  And I do wonder if some of those 20-30 year old clients were dying off because they weren't changing or efficient enough, that is did they not feel the Tiger or were they killed off by the Tiger.

Wrong sort of wholesalers (I'm talking about the sort like our Newey & Eyre or Edmundsons.) Several of our wholesalers have been taken over, as I said, without disappearing. The Irish ones went bust with no-one to pick up the pieces. Which indicated that all their rivals were in just as deep shit as well.

Now we can argue over whether a dominance on the service sector is a good thing or not - and I don't think it is.  But if we're going to do that, let's focus on Maggie not Ireland

I consider relying on a service industry economy to the extent we do as being foolish in the extreme. However, I also don't think that Thatcher's medicine was unneeded for our economy (privatisation, breaking much of the Unions power etc.) One can make an argument that she went too far, not that she was not needed in my own opinion.

The indifference of successive governments to manufacturing AFTER Thatcher's neccessary shock is much more disturbing. The decline of car manufacturing (and thus strategically vital mass production techniques) is a case in point.

This is ridiculous.  The EU helps a country build its economy from being the poorest of the richest to one of the richest parts of the world and it's a bad thing because when they fall it's extra hard and the EU's fault.  The EU invested a lot in Irish infrastructure - more's needed - but more importantly it was the existence of a common market that helped the Irish.  They cut taxes and had a relatively well educated English speaking populace with access to the world's biggest market.  Inevitably international companies would suddenly find Ireland a very attractive location for their European bases.

It's not a bad thing. I was merely pointing out that you cannot say with such blanket certainty that without the EU Ireland would have been worse off than Iceland during the current financial crisis as the EU itself was so integral to the growth and circumstances that have led to the bust. You were basing your perspective on Ireland's current position and writing off Ireland without the Euro/EU without factoring that into your argument

Your own argument does dovetail quite nicely with my own position on Europe actually; that all we need is a free trade/common standards area without any of the idiot political claptrap.

[Agelastus]

I think it's still really unclear.  I mean about half the Poles have gone home I think but they were overwhelmingly very young.  I still don't know if they'll end up settling down, meeting an English girl, having kids and so on or if they're still planning to go back to Poland.  I don't know if they're basically like European South Africans/Australians or are looking to settle.

Either way they're welcome

I agree. I had no time at work for any complaints from the "English" half of the workforce about Poles coming in and taking our jobs.

Firstly, because I consider immigration a good thing.

Secondly, because as most of them claimed to have voted for Labour, they were acting hypocritically in complaining about it. If they felt that strongly about it as a political issue, they should have voted for an anti-immigration party (by which I do not mean the Tories, as I am certain that had they been in power they would also have placed no delays or limits on this migration, despite their rhetoric.

[alfred russel]

Sheilbh, you are missing the point--it isn't about default, it is about an economy with a massive budget deficit that is attempting to close it while it has close to 20% unemployment. Contractionary fiscal policy in a deep recession is a textbook method to create an economic disaster.

But as I say fiscally Spain's not doing badly.  Their national debt is about a the level and I think a little less than the UK or the US and about a third of, say, Italy or Greece.  Similarly they had a strong surplus a short while ago.  Now they have problems with the construction sector which has, of course, been particularly badly hit but their banking sector's solid and growing.  In terms of the cuts their budget deficit is smaller than the UK's and they have said they'll cut it but the ECB is giving countries lots of lee-way right now in terms of deficit spending.  The Spanish don't need an emergency as much as Ireland did and my understanding is the goal is to cut the deficit to within 3% of GDP by 2013. 

I agree that it's unfortunate that Spain can't devalue her currency - but I don't think she's necessarily standing on a precipice.  The sudden worry about Euro-state sovereign debt genuinely seems very overblown to me.

Sheilbh, you are off base. You are in a fiscal disaster if you have very high unemployment and are in a spot that you have to cut spending. How much debt you have is less relevant. Look around the globe--it is a minority of countries that can finance debt that is a significant percent of GDP.

If Spain implements plans to reduce deficit spending from 13% of GDP to 3% in a few years, you realize that is going to impose a massive GDP reduction on a country that is already experiencing very tough times? Maybe that doesn't cause tax revenues to decrease significantly (reopening the budget deficit), but it will still have very negative consequences for Spain, and the rest of Europe.

[Iormlund]

Now, I freely admit I am heavily biased against the Euro, due to my (to create a quote for Europhiles) "puerile nationalism", but I would think that the citizens of Greece and Ireland would disagree with you. While "death spiral" is an exagerration, the Euro is one of the major factors in the strangulation of their economies at the moment.

Without the Euro they'd be screwed.  As it is they're humiliated Eurozone members (and rightly so - I don't think they should be able to vote in the EU for a decade or two) without it they'd be bankrupt and doing tricks for the IMF.

Spain is not fine at all. There's a lot wrong, for example dismally low productivity (especially in the public sector), underfunded R&D, regular tax evasion, abusive work conditions, stupid two-tier job security (older workers are impossible to fire, young ones are pretty much free), woefully stupid fiscal incentives (which penalize hiring people and encourage speculation), strangled rent market, dysfunctional education system, generalized corruption ... but that's nothing new.

  Exactly, nothing new.  The new stuff is American traders wondering if Spain's about to go bankrupt.  Fiscally you're doing okay even in comparison with much of the rest of Europe.

Sheilbh, you are missing the point--it isn't about default, it is about an economy with a massive budget deficit that is attempting to close it while it has close to 20% unemployment. Contractionary fiscal policy in a deep recession is a textbook method to create an economic disaster.

I am a huge fan of the euro and european integration--a common currency makes europe a much better place to do business. But this is the classic danger of having a common currency in europe--wheras before the pesata would devalue in which would help spanish exporters, encourage investment in spain, and protect domestic producers, Spain is now stuck with a relatively strong currency.

Quite frankly, I prefer things this way. Changes are sorely needed, crisis or not, and with a bit of luck we might get to see some of those now. I'd rather face the problems and restructure than patch things up and cope.

Of course, I might think otherwise if I were struggling. The truth is I've got a relatively secure job that pays well above the median salary and if things get really bad and I lose it I'd have enough savings and skills to be optimistic.

[Iormlund]

Sheilbh, you are off base. You are in a fiscal disaster if you have very high unemployment and are in a spot that you have to cut spending. How much debt you have is less relevant. Look around the globe--it is a minority of countries that can finance debt that is a significant percent of GDP.

If Spain implements plans to reduce deficit spending from 13% of GDP to 3% in a few years, you realize that is going to impose a massive GDP reduction on a country that is already experiencing very tough times? Maybe that doesn't cause tax revenues to decrease significantly (reopening the budget deficit), but it will still have very negative consequences for Spain, and the rest of Europe.

I wouldn't worry that much. Truth is there's a lot of room for improvement in the Spanish economy. Just tapping into all the revenue lost to the black market would make more than enough to get into a healthy surplus.
Also, many if not most of those unemployed now are foreigners. Once things get started elsewhere quite a few will probably leave.

[Martinus]

Same can be said about Poles in London. I think you are underestimating worker mobility within the EU.

I am not saying anything about worker mobility in Europe, so it is impossible for me to underestimate it. 

I thought that's what we have been discussing. 

Your claim that there is a bigger difference, culturally speaking, between the UK and Greece than between New York and Kentucky, is quite true, but it has nothing to do with the discussion at hand: that other than the language barrier, the worker mobility in Europe is not materially lower than in the US.

[Martinus]

Yeah, I find it funny that Americans dismiss European worker mobility as impossible due to language barriers, yet a substantial part of their of work force is composed of people whose first language is Spanish, rather than English. 

Serious question though.  Poles that travel the EU to get work.  Do they stay there and get citizenship in become British or whatever or do they go back or stay Polish citizens?

Usually the latter. That does not change the fact that European economies can be responsive to each other through worker movements, which I believe is the only thing myself and Tyr are claiming here.

[Razgovory]

Same can be said about Poles in London. I think you are underestimating worker mobility within the EU.

I am not saying anything about worker mobility in Europe, so it is impossible for me to underestimate it. 

I thought that's what we have been discussing. 

Your claim that there is a bigger difference, culturally speaking, between the UK and Greece than between New York and Kentucky, is quite true, but it has nothing to do with the discussion at hand: that other than the language barrier, the worker mobility in Europe is not materially lower than in the US.

What do you mean by materially lower?

[PDH]

What do you mean by materially lower?

translation "however I define it to make it seem like I am right."

[alfred russel]

There is a simple way to solve the labor mobility debate. Just compare the % of US residents not born in the state which they reside vs. the % of immigrants in the EU member states.

[Admiral Yi]

Sheilbh, you are off base. You are in a fiscal disaster if you have very high unemployment and are in a spot that you have to cut spending. How much debt you have is less relevant. Look around the globe--it is a minority of countries that can finance debt that is a significant percent of GDP.

How much debt you have is very relevant.

[alfred russel]

Sheilbh, you are off base. You are in a fiscal disaster if you have very high unemployment and are in a spot that you have to cut spending. How much debt you have is less relevant. Look around the globe--it is a minority of countries that can finance debt that is a significant percent of GDP.

How much debt you have is very relevant.

What matters is how willing lenders are to service your debt, and at what cost. Japan has about three times our debt as a percent of GDP, but has no problems financing it. Russia has far less debt than us, but there were concerns of default a year ago.

Looking back to the credit crunch last year, there were companies that either went bankrupt or effectively did so even though their assets exceeded their liabilities and they had only posted earnings in the previous several years.

[Admiral Yi]

What matters is how willing lenders are to service your debt, and at what cost. Japan has about three times our debt as a percent of GDP, but has no problems financing it. Russia has far less debt than us, but there were concerns of default a year ago.

Sovereign debt is just like a mortgage.   Credit worthiness is based on repayment history and debt/income.

Japan might be a special case because of their huge domestic savings and apparent indifference to getting zero return.