Economy
Related: About this forumOK... non Econ major here....
Some of you Econ brainiacs .. please explain about the causes of the Eurozone crisis. Was it the social spending..? or the Euro-banks investments..? or the effects of the Gulf Stream?
Keep it simple, please.
I know that if they go... we go... and we may go anyway. I'm just trying to get my head around how Europe could go from OK to Shitsvile so fast.
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SheilaT
(23,156 posts)But the short answer is that it was NOT, I repeat NOT social spending. Each country fucked up in its own particular way. The Greeks simply avoid paying taxes big time. It's as if every single Greek is Leona Helms. And if you don't know offhand who she is, google her.
The Irish went nuts building housing for which there was no market. The Icelanders decided they were geniuses at international banking. Those last two countries got involved in schemes a lot like the entire mortgage fraud thing in this country.
Did I tell you that social spending has absolutely nothing to do with the crisis?
mrdmk
(2,943 posts)Nothing more, nothing less!
Iceland became a paradox for the financial community. On the hand, Iceland had the least regulations of any European country. On the other hand, they were the first to go down hard. Then Iceland told the world here is what happens when there is a problem of this magnitude:
1) Fire and investigate Government and Business Leaders suspected in less-than-honest conduct.
2) Tell the World Financial Concerns to go Stuff-It!
The majority (out of a total of 17), Germany and others are not having major problems at this time. Just a few stingers from a contraction in the world economy. Others (about 5 of them are in trouble), cannot pay their debt on time, thus in trouble, per-say!
Just being honest in a nutshell...
dixiegrrrrl
(60,160 posts)Bigmack
(8,020 posts)
CatholicEdHead
(9,740 posts)On their Rear Vision program. It is a good half hour program which explains much of it. Listen to it or read the transcript.
mrdmk
(2,943 posts)Eurozone:
The eurozone (About this sound pronunciation (help·info)), officially called the euro area,[8] is an economic and monetary union (EMU) of 17 European Union (EU) member states that have adopted the euro (€) as their common currency and sole legal tender. The eurozone currently consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. Most other EU states are obliged to join once they meet the criteria to do so. No state has left and there are no provisions to do so or to be expelled.
Monetary policy of the zone is the responsibility of the European Central Bank (ECB) which is governed by a president and a board of the heads of national central banks. The principal task of the ECB is to keep inflation under control. Though there is no common representation, governance or fiscal policy for the currency union, some co-operation does take place through the Euro Group, which makes political decisions regarding the eurozone and the euro. The Euro Group is composed of the finance ministers of eurozone states, however in emergencies, national leaders also form the Euro Group.
Since the late-2000s financial crisis, the eurozone has established and used provisions for granting emergency loans to member states in return for the enactment of economic reforms. The eurozone has also enacted some limited fiscal integration, for example in peer review of each other's national budgets. The issue is highly political and in a state of flux as of 2011 in terms of what further provisions will be agreed for eurozone reform.
On occasion the eurozone is taken to include non-EU members who use the euro as their official currency. Some of these countries, like San Marino, have concluded formal agreements with the EU to use the currency and mint their own coins.[9] Others, like Kosovo and Montenegro, have adopted the euro unilaterally. However, these countries do not formally form part of the eurozone and do not have representation in the ECB or the Euro Group.[10]
link: http://en.wikipedia.org/wiki/Eurozone
European Union
The European Union (EU) Listeni/ˌjʊərəˈpiːənˈjuːnjən/ is an economic and political union of 27 member states which are located primarily in Europe.[7] The EU traces its origins from the European Coal and Steel Community (ECSC) and the European Economic Community (EEC), formed by six countries in 1958. In the intervening years the EU has grown in size by the accession of new member states, and in power by the addition of policy areas to its remit. The Maastricht Treaty established the European Union under its current name in 1993.[8] The latest amendment to the constitutional basis of the EU, the Treaty of Lisbon, came into force in 2009.
The EU operates through a hybrid system of supranational independent institutions and intergovernmentally made decisions negotiated by the member states.[9][10][11] Important institutions of the EU include the European Commission, the Council of the European Union, the European Council, the Court of Justice of the European Union, and the European Central Bank. The European Parliament is elected every five years by EU citizens.
The EU has developed a single market through a standardised system of laws which apply in all member states. Within the Schengen Area (which includes EU and non-EU states) passport controls have been abolished.[12] EU policies aim to ensure the free movement of people, goods, services, and capital,[13] enact legislation in justice and home affairs, and maintain common policies on trade,[14] agriculture,[15] fisheries and regional development.[16] A monetary union, the eurozone, was established in 1999 and is currently composed of 17 member states. Through the Common Foreign and Security Policy the EU has developed a limited role in external relations and defence. Permanent diplomatic missions have been established around the world and the EU is represented at the United Nations, the WTO, the G8 and the G-20.
With a combined population of over 500 million inhabitants,[17] or 7.3% of the world population,[18] the EU generated a nominal GDP of 16,242 billion US dollars in 2010, which represents an estimated 20% of global GDP when measured in terms of purchasing power parity.[19]
link: http://en.wikipedia.org/wiki/European_Union
Just a small detail: The Eurozone is mostly about currency, whereas European Union is a social cause, trade, and free movement of people, goods and services.
PassingFair
(22,451 posts)Ghost Dog
(16,881 posts)This appropriation of the economic surplus to pay bankers is turning the traditional values of most Europeans upside down. Imposition of economic austerity, dismantling social spending, sell-offs of public assets, de-unionization of labor, falling wage levels, scaled-back pension plans and health care in countries subject to democratic rules requires convincing voters that there is no alternative. It is claimed that without a profitable banking sector (no matter how predatory) the economy will break down as bank losses on bad loans and gambles pull down the payments system. No regulatory agencies can help, no better tax policy, nothing except to turn over control to lobbyists to save banks from losing the financial claims they have built up.
What banks want is for the economic surplus to be paid out as interest, not used for rising living standards, public social spending or even for new capital investment. Research and development takes too long. Finance lives in the short run...
(From above link)
... And the proximate "cause" of the crisis is the same. International financial speculators sold credit to those they must have known would evenytually have trouble paying... exactly like (and done by some of the same people) as the original US junk-mortgage scam (the 'trigger') - plus the mountain of leveraged derivatives piled up on top of that - calculating that eventually it would be 'taxpayers', the 99%, that would be made to suffer and pay.
girl gone mad
(20,634 posts)and the individual countries giving away currency sovereignty to join an economic and monetary union which was not structured to accommodate serious downturns such as the global financial collapse of 2008.
dkf
(37,305 posts)I guess it's a glass half empty sort of thing.
applegrove
(132,216 posts)were a part of the EU to borrow even more money. They used that borrowed money to pay themselves huge salaries and great early retirements. It was one huge fraud in that case but legal. It was different in every country.
So too having a common currency means that when poor countries got into trouble they no longer had control over monetary policy and could not devalue their currency (doing this would make their goods cheaper and imported goods more expensive and would help improve their economies).
Iceland had huge speculative banks that were run by former fishermen.
varied reasons. All of them having to do with the wrong assumptions being made, speculation taking place based on faulty financial assumptions, and then huge crashes.
USA was guilty of this too.
Ghost Dog
(16,881 posts)... The economies of the PIIGS were not as sound as Germany’s—but the lenders treated them as if they were. Not only that, the lenders assumed that, if any country got into trouble—i.e., if any one of the PIIGS couldn’t pay back their loans—the eurozone as a whole would be good for the debt...
... This in a nutshell is what happened between 1999 and 2010, when the Greek crisis first erupted: During those “boom” years (which were really no more than junior going crazy with the credit card), the various countries of the eurozone went into massive debt, in order to both fund a social safety net, and cut taxes on their citizens...
... Though they now don’t want to admit it, the Germans encouraged this over-indebtedness, by the way—as did the French. Why? Because with this false sense of prosperity, the over-indebted nations bought German and French goods and services. German and French banks were at the forefront of lending money to the PIIGS—which essentially made the whole scheme nothing more than vendor financing on a massive scale: I lend you money so that you can buy my products.
Just like a junkie setting up an addict, or a predatory credit card company giving you teaser rates, the Germans and the French—via their banks and government institutions—gave the weaker economies all the incentive in the world to go into massive debt, and then go out and buy German and French products...
/... http://gonzalolira.blogspot.com/2011/11/beginners-guide-to-european-debt-crisis.html?utm_source=BP_recent
I'd point out though that where Lira refers to the borrowed money being spent (or splurged) on social services and tax cuts and consumer spending, countries like Spain (which I know something about because I've been living here since the late 'eighties) also invested considerable sums in developing much vital infrastructure, modernizing the country at an almost developing-country pace. This can be expected to have improved competitiveness and continue to provide dividends in the future.
rdking647
(5,113 posts)in the euro zone you have strong economies (germany) and weak ones (the PIGS) Under normal circumstances a weak economy can devalue its currency make its export more attractive an imports more costly,helping its economy out. It can also print as much money as it wants to pay its own debts subject to the inflation that causes.
Enter the Euro.
suddenly the weaker countries are thought of as being as credit worthy as the stong ones. this allows greece,italy etc to sell a lot of bonds at low interest rates since the currency is the strong Euro.
now the market decides that these weak countries have sold enough debt and they dont want to buy any more at low rates. Under the old system the country would just devalue its currency,making any old debts cheaper. But with the Euro they cant just print more money. so they are stuck.. That in a nutshell is the problem.
Whats needed is one of 2 things. either the Euro prints more money or countries leave the Euro. Ideally it would be #1 but Germany,which controls the Euro wont allow it to happen. I suspect that in the next year the euro will fall apart. Contries will leave and germany /france and a few others will be the only ones left.