Is Greece going to set off the long feared next wave of the Great Recession?

Georgob :-
"It is easier to see the flaws in the EU and the Euro Zone than to recall the troubles of the past that some of which might be still with us if they didn't exist."


There were no massive problems going on at the time, when the EMU was due to begin.

In fact, Germany was sort of regarded as the sick man of Europe at the time, quickly rectified by having their DM converted at about 18% lower than it should have been when it changed to Euros, as many and varied experts soon realised.

This also meant that the German work force's pay was automatically pegged at a lower amount than it should have been, thereby making production costs lower and ensuring that German goods looked tremendously good value for money to neighbouring Euro members.

The Germans themselves would have noticed no real difference, as Walter has already stated, because their incomes were also pegged down due to the 18% "devaluation" anomaly.

The wonderful trade export boom that Germany then experienced was mainly down to the massive anomaly rather than as Walter describes it, Germany suddenly becoming "export champions". Like I said, Germany was pretty much in the exports doghouse up until the Euro began.

What they did do was to take full advantage of this windfall, and do all the right things with the money, such as re-invest, modernise, create new designs, develop manufacturing technology etc.

But if they hadn't had that initial three or four years of a playing surface greatly tilted to their advantage (still is), then that upward spiral would have been much much reduced.

Conversely, some of the poorer countries had their currencies pegged too high when they went in, giving them more Euros to start off with and creating a false air of prosperity.

Greece was famous across Europe as being a marvellous place to go for a summer holiday. Their prices were cheap and we went there in droves.
Off the top of my head, tourism accounted for about 15 - 20% of their country's earnings.
I went to various islands for six or seven years running.....until the Euro started. Overnight it made Greek beer/wine/food the same price as anywhere else, their accommodation just as expensive as most other holiday destinations.

I, and many others (including Germans, who also went there in droves) looked around and went elsewhere. Tourism for Greece now contributes much less to their economy.

Portugal was much the same. It suffered a similar fate. Spain's numbers (or at least the spend per head) is down as well.

But the biggest and most deadly loss for all these countries concerned, is that they no longer have sovereign power over their currency, and can only stand helpless as market forces cause devastating problems for their economies.
In the old days they would have tweaked their Lire, Drachma or Escudo etc to solve the problem. An interest rate hike or a lowering is usually an easy way to nip many problems in the bud. Not now. Not allowed.

On the other side of the coin, Germany is happily having its currency held down low because of the weak Euro neighbours, making the cost of their goods seem nice and cheap on the world markets, Some experts put today's equivalent DM as 25% higher than the Euro is currently trading, making the average €40,000 BMW €50,000 in the real world, if they had kept the DM.

Anyone can be an "export champion" if they not only have good products, but are then allowed to sell them at up to 25% cheaper than the real world price.
Everyone knows that Germany makes superb stuff, but come on......do they really need this (what is effectively) massive discount program called the Euro to tilt the table so much in their favour?

I have great sympathy for the ordinary Greek citizen right now.

Since I vividly remember those days ...

1. There already had been a European Monetary System, the European Currency Unit (ECU).
2. The ECU was conceived on 13 March 1979 as an internal accounting unit. (In use since 1972)
3. On 1 January 1999, the Euro replaced the ECU, at the value €1 = 1 ECU.
4.

On 31 December 1998, the European Currency Unit (ECU) exchange rates of the eurozone countries were frozen and the value of the euro, which then superseded the ECU at par, was thus established.

So Germany devalued the DM by 18% in the period before the 31.12.1998? That would have been noticed even by me.

The EU masters days ago told the greek people that yes/no is about staying in the Euro. They are the deciders.

You can look at the historic exchange rates (a rather good site) >here<.

Nice graphs, Walt. The export one sort of proves my point looking at that upward curve.

Just two questions for you, Walter.

1. If the Eurozone was thriving everywhere and was consequently valued at 25% higher than it is at present on the world exchanges, would it have a major negative or positive effect on Germany's world export figures?

2. Assuming that you answered negative, what incentive does Germany and its mega financial institutions and contacts have for making a real thriving success of the entire Eurozone?

See where I'm going here?



An interesting article here......it's quite balanced, overall.

Snippet....

"Second, it is the view of most economists that Germany has been the biggest winner out the euro, and that being part of the euro -- rather than keeping its old currency the Deutschmark - has been an enormous advantage. When it joined, the exchange rate was set at €1 = DM1.96, which most people at the time thought was a fair rate.
But it is estimated by the European Commission itself that since then, Germany’s real exchange rate has fallen by nearly 20 per cent. In other words, if Germany had kept the Deutschmark, the value of its goods would have been 20 per cent more expensive to any potential customer. Being part of the shared euro, kept weak by struggling neighbours, has helped it drag down the cost of its goods. As a result, German cars, kettles and shoelaces suddenly became far cheaper to buy.
This argument has long been pushed by Nobel prize-winning economist Paul Krugman, no less, who has emerged one of the chief Germany-bashers. But a number of other Nobel prize-winning economists, such as Joseph Stiglitz and Christopher Pissarides, have recently joined him in voicing criticisms of the inherent problems of a powerful northern Europe, led by Germany, and a weak southern Europe all using the same currency. Germany, they say, urgently has to readdress its serious imbalances. The most obvious method would be to make its goods more expensive, by pushing up its workers' wages.
Fans of the country, however, say Krugman and the rest have short memories, and that when the country joined the euro it was, famously, “the sick man of Europe” with high unemployment; it was, at the time, the slowest growing European economy after Italy. It needed to join the euro at a relatively low level to help it regain some competitiveness."



Full article.......

http://www.telegraph.co.uk/news/worldnews/europe/eu/10956140/Does-Germany-rule-your-world.html

I'm not an economy expert at all, so I can't answer your questions.

Your linked/quoted Torygraph article says that wages in Germany are lower than in neighbouring countries. That really might be so (though employers will tell you differently).

But not only that ...


Source

I would have thought that it was quite an easy question, Walter.

Uncomfortable for you maybe, but easy.

I've always been a European, and like it with the open borders and the Euro even more. (And I've always though that England [sic!] is divided by more than the Channel from the continent.)

No, those questions aren't uncomfortable for me. I just don't know enough about it.

Why are you bringing the UK into this?

The UK is doing OK as far as exports go, even with our own currency. If we could somehow export our goods at 20% discount we would probably do a lot better, and maybe run a massive surplus like Germany .

This is about Greece, and all the other dominoes in this vast board game called the Euro.

Why the hell has the Troika allowed this situation to develop.....even begin in the first place? It was plainly obvious that Greece was treading on economic thin ice when they were miraculously let in to the Euro club.

It was then plainly obvious that it had no chance of paying back any of the vast "bail out" loans offered to it over the past three or four years.

Even a moron would think twice about lending such sums, yet the Troika did it again and again.

It is either gross incompetence or something much much more.

One has to wonder.


And all the time, Greece is on the brink of going up in flames, whilst others build up vast illegal surpluses, year after year.

Reminds me of an old song my Londoner Dad would sing after a pint or two....


"It's the same the whole world over
It's the poor wot gets the blame
It's the rich wot gets the pleasure
Ain't it all a bleedin' shame."

England (UK actually) is probably divided from "Europeans" more likely in the way that we tend to ask questions a lot more than our dutiful counterparts.

To infer that people who ask questions and investigate below the surface are somehow less European, shows what a "proper" European is in your eyes.

I tend to be very wary and suspicious about vast gravy trains who always think they know best, even when they totally **** things up.

it would have been good for Greece if a few people there had thought that way 30/40 years back (or had stayed instead of emigrating)

yup. it is.

what is the Greek population and government going to do to move forward?

Basically, they have the option of pulling down their collective pants and letting Angela have a go at them with a large ribbed purple knobbler, or they all don sackcloth and ashes and sell off most of their islands to Northern Euro syndicates who can then build lots of hotels.

Like I said before, I think they have nothing more to lose. I'm talking about the vast majority of the population who are just ordinary folk trying to get by.

They can cut loose and run quite easily, and probably have a much easier time of it in the short term, maybe even the long term.
Putin would be in like flynn, but at least with some support from him they would be able to feed the kids and turn the heater on when winter arrives.

The EMU HAVE to scrap a large part of the mainly troika created debt to stop the likely contagion. If they don't, then god knows what will happen.

I'm probably suspicious because I live in the middle of Canada's Greek immigrant community and it feels like the people who stayed behind always have their hands out to their relatives. Canada is a country of immigrants and no other population talks so much about supporting their relatives back home - and it's been going on for many decades.

Immigrants always complain about the people back home, but it's more noticeable with the Greek ex-pats.

It's seemed like the ones who were going to make something of themselves did, by getting out.

I agree with you about the tradeoffs attendant to the single currency. All of what you noted, particularly the differences in the social and economic factors among the various countries and regions involved, was well-known known at the time the Euro was launched. Presumably that is what motivated the stability and control pact that then accompanied the new currency.

When the deficit and spending limits involved became inconvenient to most participants, notably including Germany and France, the Stability Pact was abandoned. That's probably whan the train started going off the tracks. Germany took some constructive actions to increase labor market mobility and manage its government finances, but none of the other nations involved did so, including notably France and Italy, as well as the other, smaller nations. When the 2007 financial crisis hit the vulnerable nations (Ireland, Portugual, Greece & Spain ) were immediately in crisis themselves. Ireland, Portugual and Spain quickly took corrective action with varying degrees of success. Meanwhile Greece continued with low labor productivity and high deficit and debt levels in an over regulated economy with an unusually high levels of government employment. It wasn't until their debt levels and bond rating hit truly dangerous levels that they began constructive action and that only at the direction of the EU and IMF which had consolidated much of their debt (very likely as a way of protecting their own national banks).

In short there is no shortage of potential fault here, but at the same time Greece appears to be in a league of its own in terms of financial irresponsibility, and I believe that is the defining problem.

That is certainly true of Haiti. But if the Greeks are like that then we we are immediately back to the question of where were they let into the Euro. If this was the case then Paris and Berlin as the shepards of the EU project have to get most of the blame. Getting into the EU allowed greece to load up on debt, like kids gorging on candy, but if the operator of the candy store invited the kids in, enthusiatically, then the operator gets the blame for anything that goes wrong not the kids.

you stop obese people from eating in your restaurant? do you request notes from their doctors re their dietary requirements/limits? do you have blood pressure machines and glucose meters that you require people to use?

your analogy doesn't work.