|Quoting lewis (Reply 99):|
While this may be true, I am pretty sure Revelation has a point here. The Greek rates were close to Germany only when the country introduced the Euro. Did something change in the productivity of the Greek economy overnight, deserving such cheap rates? Not really. It is hard to believe that knowledgeable people in the industry were not betting on Germany and other stronger countries covering for Greece when it would eventually run out of money.
That's why I keep saying that the only longterm solution to the problem is to phase out the Euro, lewis.
The US dollar and the British pound are 'reserve currencies.' The Federal Reserve and the Bank of England (both government-backed) guarantee them. And both those governments are 'sovereign' governments, so there is no effective limit to the financial resources available - both governments have in the past needed to resort to 'printing money' to ward off recessions, and have not hesitated to do so.
The Euro, of course, is theoretically backed by the European Central Bank, but it is not a government-backed 'sovereign currency' in the same sense. Trouble is, the market has, for many years, treated it as if it was one. Because of that, it's day-to-day value has been the same in all the Eurozone countries - and every country in the Zone can borrow it at more or less the same rate. The trouble was, according to this article, that the people who set up the Euro literally 'didn't bother' to set up any sort of 'who does what?' contingency plan:-
"Expulsion and secession - While the eurozone is open to all EU member states to join once they meet the criteria, the treaty is silent on the matter of states leaving the eurozone, neither prohibiting nor permitting it. Likewise there is no provision for a state to be expelled from the euro. Some, however, including the Dutch government, favour such a provision being created in the event that a heavily indebted state in the eurozone refuses to comply with an EU economic reform policy.
The benefits of leaving the euro would vary depending on the exact situations. If the replacement currency were expected to devalue, the state would experience a large scale exodus of money, whereas if the currency were expected to appreciate then more money would flow into the economy. Even so a rapidly appreciating currency would be detrimental to the country's exports."
So there is no 'system' under which countries like Greece can be required to pay higher interest rates to borrow Euros -or to 'rein in' their deficits. Effectively, the wealthier EU countries (nowadays almost solely Germany) are guaranteeing the (spiralling) debts of the poorer ones. Which brings us to this:-
|Quoting aloges (Reply 85):|
The financial crisis was caused by rampant speculation, an astonishing lack of oversight and corruption in e.g. Greece, not by the Euro. The idea that countries would benefit from devaluing their currencies fails to take into account that the foreign debt of these countries and their populations would still have to be paid off in Euros, Dollars, Pounds and so on; not to mention the inflation that a devaluation would cause.
True as far as it goes, Aloges, but completely impracticable. There is no practical prospect of the weaker countries (not just Greece, there are at least half a dozen of them) ever being able to pay off their debts in Euros. Or in any other currencies, come to that. The only solution to the current problem will be the one followed in all other recessions, ever since the 1920s; to write off their debts, and have them adopt lower-valued currencies which will force them to 'live within their means,' importing only as much stuff as they can 'pay for' with their exports.
What it boils down to is that the Euro thing wasn't fully 'thought through' at the beginning - it was always a 'disaster waiting to happen.' And it will be largely up to the strongest economy in the Eurozone - Germany's - to stump up the cash to at least start on the long, painful process of putting things right.
[Edited 2013-01-24 19:00:18]
"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci