Euro Area Financial Crisis Inevitable?

[USEagle13]

I think USEagle13 is a little jealous of our European lifestyles and frightened of the Eurozone as an economic entity.

I realise that he/she is working to polemic effect but he/she is either very misinformed about Europe generally and the EU specifically or they're just trolling for effect.

The EU is by no means perfect but I consider its major accomplishments to include:

- The integration of the former Eastern-bloc countries

Yeah and once they get upset enough they will unintergrate and take what they claim is theirs

- The rollout of consistent human rights legislation across Europe

Oh yeah. That is when the UN peacekeepers just stands there and watches people ethnic cleanse each other with machetes. UN is a joke at peacekeeping.

- Free movement of people across mainland Europe

People been moving cross Europe since the beginning of times my friend

- Movement of labour across Europe

Oh socialism. Hence your situation you have now.

So no great feats there in any of that. It's all for show to "trick the sheeple"

I suspect USEagle13 would love to work in a country where the standard work week is 35 hours, where people typically have 6 weeks paid vacation a year (in addition to national holidays) and were the poor, old and sick don't live in fear of not being able to afford high quality healthcare

Oh live with a bunch of lazy bums!? Nahhhh. I'll pass.

 

[The Don]

Oh yeah. That is when the UN peacekeepers just stands there and watches people ethnic cleanse each other with machetes. UN is a joke at peacekeeping.
.

UN peacekeepers in the EU ?

When did this happen ?

 

[The Don]

Oh socialism. Hence your situation you have now.

No, capitalism ! I can get a job anywhere in Europe without having to worry about getting a work permit or more pertinently, I can recruit from anywhere in the EU without worrying about having to get a work permit

 

[drkitten]

UN peacekeepers in the EU ?

Hey, by his own admission, he's an American, and he's evidently not especially well educated. You can't expect him to be able to tell all those groups of garlic-smelling furrin types apart.

UN, EU, France, NATO, what's the difference?

 

[USEagle13]

UN peacekeepers in the EU ?

When did this happen ?

No it is when they are doing "peace keeping missions" in other countries.

 

[rjh01]

<snip>
As an aside, the British are looking smarter and smarter all the time for not throwing their Pound into this mix...

The pound used to buy a lot more Euro than it does now.

Dec 2010 1.17913 EUR
Dec 2009 1.11153 EUR
Dec 2008 1.09921 EUR
Dec 2007 1.38419 EUR
Dec 2006 1.48667 EUR
Dec 2005 1.47142 EUR
Dec 2004 1.43871 EUR
Dec 2003 1.42451 EUR
Dec 2002 1.55625 EUR
Dec 2001 1.61735 EUR
Dec 2000 1.62893 EUR

Ref http://www.x-rates.com/d/EUR/GBP/hist2000.html

 

[The Don]

The drop in the value of the pound against the Euro has been cited as a key benefit to the UK which has enabled the UK to improve export performance.

Of course it has also been an inflationary factor for imported goods.

The same is true for the Pound against most currencies

 

[Emperor_Gestahl]

I dunno what the ECB can or can't do but Ireland already printed 51B euros on it's own so I'm guessing the ECB can do that too:

http://www.independent.ie/business/...y-institution-printing-own-money-2497212.html

 

[Puppycow]

I dunno what the ECB can or can't do but Ireland already printed 51B euros on it's own so I'm guessing the ECB can do that too:

http://www.independent.ie/business/...y-institution-printing-own-money-2497212.html

A spokesman for the ECB said the Irish Central Bank is itself creating the money it is lending to banks, not borrowing cash from the ECB to fund the payments. The ECB spokesman said the Irish Central Bank can create its own funds if it deems it appropriate, as long as the ECB is notified.

News that money is being created in Ireland will feed fears already voiced this week by ECB president Jean-Claude Trichet that inflation is a potential concern for the eurozone.

However, a source at the ECB said the European bank is comfortable that the amounts involved are small enough not to be systemically significant. The ECB has been lending money to banks in Ireland at just 1pc, as long as the banks can put up acceptable collateral.

Huh. I hadn't realized that Ireland retained its own central bank which can print euros.

Now I'm confused.

Can other EU countries do the same thing? Can Greece?

 

[CatOfGrey]

The EU is by no means perfect but I consider its major accomplishments to include:

- The integration of the former Eastern-bloc countries
- The rollout of consistent human rights legislation across Europe
- Free movement of people across mainland Europe
- Movement of labour across Europe

I suspect USEagle13 would love to work in a country where the standard work week is 35 hours, where people typically have 6 weeks paid vacation a year (in addition to national holidays) and were the poor, old and sick don't live in fear of not being able to afford high quality healthcare

The accomplishments are a testament to the the good things about Europe, not least of which is a well-educated populace.

However, I would not brag about a 35-hour workweek and 6 weeks of mandatory vacation. That lack of production is a reason that Europe is falling behind Asia, and has much bigger structural issues (namely, countries writing checks for benefits that, ten years later, their population isn't willing to cash, because they won't work 40 hours, 50 weeks to pay).

I also wouldn't brag too much about health care. Unlike the US, the average person does not need to wait for medical procedures (the cost of time is how health care is paid for by those under a 'free healthcare' system.) We also don't have a system where government controls who gets medical treatment and who doesn't.

 

[kellyb]

Huh. I hadn't realized that Ireland retained its own central bank which can print euros.

Now I'm confused.

Can other EU countries do the same thing? Can Greece?

I'm curious about that, as well. And can the ECB or IMF "retaliate" if they deem that a country is printing too many Euros?

 

[kellyb]

However, I would not brag about a 35-hour workweek and 6 weeks of mandatory vacation. That lack of production is a reason that Europe is falling behind Asia, and has much bigger structural issues (namely, countries writing checks for benefits that, ten years later, their population isn't willing to cash, because they won't work 40 hours, 50 weeks to pay).

Benefits aren't why some of them are in trouble, maybe with the exception of Greece. It was the unchecked housing bubble and insolvent banks that got them into trouble. Ireland had perfectly balanced budgets.

I also wouldn't brag too much about health care. Unlike the US, the average person does not need to wait for medical procedures (the cost of time is how health care is paid for by those under a 'free healthcare' system.) We also don't have a system where government controls who gets medical treatment and who doesn't.

This is outdated information. The NHS used to have bad waiting lists, but that's been resolved via better funding and organization.

 

[Francesca R]

Ireland already printed 51B euros on it's own so I'm guessing the ECB can do that too:

Huh. I hadn't realized that Ireland retained its own central bank which can print euros.

I'm curious about that, as well. And can the ECB or IMF "retaliate" if they deem that a country is printing too many Euros?

"Printing money" in the form of lending to banks happens every day at every central bank in the world. So does "destroying money" which is its reverse. But it's different from what's usually regarded as monetizing debt / financing the government--which is when central bank money creation goes straight to central government.

 

[Francesca R]

As an aside, the British are looking smarter and smarter all the time for not throwing their Pound into this mix...

The pound used to buy a lot more Euro than it does now. [ . . . ]

Well that's kind of the point, isn't it?

 

[Francesca R]

Benefits aren't why some of them are in trouble, maybe with the exception of Greece.

They are not the proximate cause of the crisis, but unfunded pension promises are very much the reason why almost every rich country in the world will be in trouble without any changes. And those problems are biggest where labour-force productivity is lowest, retirement ages are lowest, promised benefits most generous, and fertility rates lowest. Which applies to a lot of Europe.

 

[Francesca R]

I the Euro is the only currency in the world that cannot inflate, it will become the most expensive currency in no time.

My understanding is that it can inflate, however, all the member nations need to agree on how much.

The ECB can certainly "inflate" (expand the monetary base) but only in a way that is consistent with its inflation objective, which is to achieve 2% inflation or less over the medium term. Since inflation is around that level anyway (actually a little above it), it doesn't think it should inflate. It isn't likely to do so in order to reduce the real value of Greece's public debt (offset by reducing the purchasing power of the rest of the region's public. The rationale in favour of independent central banks, and the creation of the euro itself, is precisely to sever the incentives to do that (which--it was hoped--would stop national governments getting into the type of situation that would call for it in the first place, but that part hasn't worked out too well).

Having said that, it isn't necessarily easy to get inflation up even if it was too low (see Japan). But 2% inflation surely won't help Greece afford the real cost of its likely future debt service.

 

[Francesca R]

What will happen if they decide bondholders have to take a big haircut?

With existing bonds it can be a legal mess because it is hard--even for governments, when they have borrowed from lenders other than their own citizens--to just impose losses without breaching internationally recognised contract terms, and the process of restructuring bond payments via voluntary participation can be hijacked by hold-outs. Hence the recent discussion/fuss about writing in collective action clauses (which make it easier to restructure) to future issues of euro-zone sovereign debt.

Other than that, disorderly repudiation of debt is not something that Europe is likely to do.

Or is there another way out?

The other ways out are (2) fiscal transfers from the large states to the troubled ones (Re-rigging the EFSF so that countries like Ireland and Greece pay a subsidised interest rate is a form of fiscal transfer, but the kind that can be sneaked through without angering electorates so much), or (3) generating a large positive inflation surprise that lowers the real value of government liabilities.

There are huge political and other risks with both of those

Will the ECB print new money to pay for the debts?

If it doesn't create unanticipated inflation, and it isn't financed by the large governments (IE a fiscal transfer), then ECB money printing isn't a way out, since it does nothing to improve the solvency of the afflicted sovereigns.

 

[pipelineaudio]

Hey, by his own admission, he's an American, and he's evidently not especially well educated. You can't expect him to be able to tell all those groups of garlic-smelling furrin types apart.

UN, EU, France, NATO, what's the difference?

Before you drown in smug

http://en.wikipedia.org/wiki/United_Nations_Protection_Force

 

[drkitten]

Before you drown in smug

http://en.wikipedia.org/wiki/United_Nations_Protection_Force

Hmmm....

The United Nations Protection Force (UNPROFOR), was the first United Nations peacekeeping force in Croatia and in Bosnia and Herzegovina during the Yugoslav wars. It existed between the beginning of UN involvement in February 1992, and its restructuring into other forces in March 1995.

Did I miss a memo? When did Croatia, Bosnia, and Herzegovina join the EU?

 

[pipelineaudio]

Where did he say EU? What he quoted was "europe"

The poster after him tried to move the goalposts to EU