Well BBC ran a show last night. And it did show the some reasons why Greece is such trouble today. It turns out people spent like crazy, far beyond their means. Things like electricians driving Porsche's and High End Mercedes cars. All of it imported from Germany. When a nation full of people with government included involves in such spending it is but other wise natural that they price for it later on.
If BBC did run such a show, then, as a Greek, I can tell you it was bollocks.
In fact, in you check the private (homes + enterprises) debt for Greece as compared to the GNP you will see that it is quite small, actually one of the smallest in the western Europe.
Plus, even for this private debt, the majority is in the form of housing loans (= to buy a house). So, no "electricians driving Porsches". Well, you could find one or two maybe. But I doubt you could find five of them.
"Well BBC ran a show last night" therefore it must be true and I can now give you all my expert opinion in the matter.
Private debt is much higher in the UK than in Greece, both in relative and in absolute terms. Public debt is probably second in line to Greece, it's a close race with Italy and maybe some smaller Eastern countries. I wonder if the BBC covered that last night.
I never said borrowing was wrong. I said borrowing without having means to pay back is wrong. You almost make it look as though Greece did nothing wrong in borrowing, but now Germany and alike are committing a huge sin in not bailing them out.
UK, Italy and all those countries you mentioned might definitely have the same debt. But the situation there is different because those people have a way of paying their loans back.
I am not expert in economics but I know, spending more than earning(Or what you can earn) is not healthy for any economy.
Germany has massive part on it by enforcing such shockingly low borrowing rates across the Eurozone.
It completely destroyed countries with immature Real Estate landscapes, countries used to high inflation rates that collectively shot themselves in the foot.
Germany and France took no hostages when they were stagnating and failed to meet EU requirements. They gave absolutely no regard to these countries and now they are paying for it. They will either way, because that's their main market, Europe. Because it's not just Greece that's over-borrowed, it's most of the eurozone including Italy, France, Spain, Belgium, Netherlands, ... basically most of the Eurozone by GDP.
As this pops up everywhere, could you please cite a source from e.g. a ECB protocol or otherwise how Germany "controls the rates" or "enforces shockingly low borrowing rates" in violation of the ECB charta?
The ECB back then set rates in accordance with inflation, e.g. to keep it low. That's the charta of the ECB. When a high inflation country joins a construct that has a goal of keeping inflation low, then yes you have a problem if you do not change. But I'm not sure Greece e.g. was forced to join a low inflation construct.
From the ECB homepage:
"The ECB is the central bank for Europe's single currency, the euro. The ECB’s main task is to maintain the euro's purchasing power and thus price stability in the euro area."
(Beside the obvious fact that "shockingly low borrowing rates" would lead to high inflation, which could then not lead to "countries used to high inflation rates that collectively shot themselves in the foot.")
The rates always follow the needs of Germany and sometimes France. The rates are discretionary and set by the president of the ECB.
Borrowing in most countries with a "hot" Real Estate market was unstoppable. Only higher rates like they historically had could have controlled it. The dimension of the damage done by this policy is incalculable.
There was no compromise. If a middle-ground, 5-6% rate had been set, the cost would have been shared. Now we're like Japan, the UK and to some extent the US: way over-leveraged, and the problem is our asymmetry and the fact that we really don't believe in the Union. When push comes to shove we shift blame. In the US nobody talked about expelling California from the Union when it went kaput and their hole is of a much bigger dimension than that of Greece. Germans will never consider Greeks as equals, it's a fact, so we either enforce it or call it quits.
The EU consists of independent countries which have their own governments, their own economic policies, their own banks, ... a real-estate bubble in Greece is fully the responsibility of Greece.
A hot 'real-estate' market not stoppable? Where was it tried?
How about Mexico? Would the US pay for Mexico to prevent a bancruptcy there?
If someone in the US decided the interbank interest rate, then they would have shared responsibility.
You are very misguided. The EU is one thing and the eurozone is a different thing. The UK does have some economic independence and very importantly, monetary independence. Those countries in the eurozone have surrendered their monetary policy to the ECB, and the ECB responds mostly to the interests of Germany, followed by France, followed by Italy, Spain and then smaller countries.
The economic cycle of Germany is substantially out of phase with that of most countries from Southern Europe, who in turn thought the Germans would pay for the party. In any case it wasn't their call. Turns up things have snowballed out of control.
Yes it is out of sync b/c Germany cut costs in the 2000, cut social security, changed job laws, increased the minimum pension age etc while the southern countries increased spending and increased massively labor costs.
You seem to think "southern countries" collectively decided to increase costs while Germany took the high road. Southern Countries HAD their costs increased and their internal inflation out of control, so the ECB could help out the then-struggling Germany and France duo.
Germany was stagnating in 2000 and MISSED their promised objectives, while Southern Countries were growing healthily. Then they found themselves with extremely low rates to help growth in Germany and France, which was basically "free money" and an out-of-cycle policy they simply did not know how to deal with. Their internal corruption did the rest.
There is one way to enforce responsibility: stop giving away free money, either be it through low rates, or through "rescue packages" done to ensure your banks won't need to swallow a massive hole from not having their lent money back.
A bit too late for this, but hey, better late than never.
- raise the rates. NEVER drop the rates below 5% as long as there is a single overheating economy in the monetary Union.
- drop the debt. Suck it up. No more rescue plans, also buh-bye to the money irresponsibly lent away. Maybe you didn't know this but you have already dropped a lot of it. Now it's when the big monster Merkel has been avoiding will rear its ugly head: the same will have to happen with other MUCH bigger countries than Greece. This will cost Germany and all the other countries massively, you will be in RECESSION for some years.
Otherwise they will be out of the Euro and then you can bet your lucky pants they will declare bankruptcy and they won't repay the debt or any rescue we (EU members including the UK that's not even in the eurozone) have given them, as Argentina did not that long ago when they let their currency float. Simply because they are unable at this point to go into a position from which they can repay.
Even with those "cuts" the German wages are still 2 times over the "southern countries".
Except if you mean to say that those in the South are less humans and do not deserve even half the wages and social welfare that Germans do --which Germany has historically said in a few occasions...
"The ECB is the central bank for Europe's single currency, the euro. The ECB’s main task is to maintain the euro's purchasing power and thus price stability in the euro area."
Which has been done at the expense of causing massive persistent damage in some "secondary" countries in the EU.
As a said before, there was a middle ground, but it wasn't considered. Higher rates during the last decade would have caused stagnation in Germany but would have avoided the complete demolition of some countries. Note that this demolition process was not only beneficial for Germany, but also for bank tycoons in these countries - their direction is now a bunch of billionaires despite whatever happens to their banks now. In these countries 2 full generations basically have had their lives destroyed from being out of the housing and job market chronically, and those with a job will have most of their disposable income confiscated. These are the really important figures usually not told in the BBC, Euronews or Deutsche Welle.
And the worst part of it is the "rescue" - the rescue consists in ensuring the banks in the most affected countries don't need to sell their massive housing stocks in a firesale. It basically consists in pegging housing prices in these impoverished countries so their average house costs twice the price of a house in an average German city, keeping 30+ year olds (the generation coming out of school during the euro-originated frenzy from last decade) homeless or living with their parents. The rescue basically consists in perpetuating this tragedy: a lost generation, birthrates to the ground (impossible to emancipate), people deprived of a sane life plan and forced to be enslaved for decades. Because that's what happens when you "so kindly" inject money to these over-stocked banks. They. Won't. Let. Their. Stocks (housing mostly). Lose. Value. This will only happen when you cannot continue "helping", the sooner the better. But this will ultimately happen, thankfully.
That's the rescue plan. Social collapse in several countries from the eurozone so all banks (both rescued banks and very especially lenders - in supposedly "responsible" countries) can be happy and, very importantly, German banks (and French banks, Spanish banks, British banks in the case of Ireland, ...) don't have to take responsibility for over-lending. The rescue is mainly a rescue to the banks of ALL parties disguised as a rescue to these "filthy irresponsible P.I.I.G.S."
Fucking let them bankrupt and take the hit, you have done enough damage already. Say buh-bye to all the money lent instead of pretending to be "saving Europe".
"Higher rates during the last decade would have caused stagnation in Germany but would have avoided the complete demolition of some countries."
No. There is consensus that during the decade Germany as a country, the people and companies were not borrowing enough. Low rates had no impact on that. So there would not be any stagnation in Germany with higher rates, as companies and people did not borrow. The government is cutting costs especially on the social cost side for a decade now, they have not been Keynes spenders in any way.
Economy growth in the last years came from massive social cuts, restructuring employment laws, increasing the minimum pension age over several years (will be 67 in 2012), cutting early pension programs and cost cutting in companies. Germany is exporting (too much?) because the price per unit cost is low compared to other European countries.
If your argument would have anything behind it, there should be numbers how borrowing increased in Germany , which it did not.
>"The ECB is the central bank for Europe's single currency, the euro. The ECB’s main task is to maintain the euro's purchasing power and thus price stability in the euro area."
Hmm, they forgot to add that they are a front for the interests of Germany foremost and France second.
Germany 'enforced' the borowing rates? Let's look a few years back. The rating agencies rated all kinds of junk very high. The banks all over the place where very creative with products hiding the risks. When Germany was asking for tighter regulations we were ignored or laughed at. Now the Germans simply demand that the lessons are learned and we see structural reforms - reforms which can not be done by just throwing more money at countries high in debt.
This is not "a few years back" - this clusterfuck has been brewing since year 2000 with the euribor. At that point several countries needed high rates to stop their overheating borrowing and they were given a shower of petrol to stop their fires.
Spending more than you earn can sometimes be quite healthy, for an individual, for a company, and for an economy. It's called investment.
An example: when you buy take a mortgage to buy a house several times your annual income, you've spent more than you earned. Typically you need two or three decades to pay off the extra money you spent.
>I never said borrowing was wrong. I said borrowing without having means to pay back is wrong. You almost make it look as though Greece did nothing wrong in borrowing, but now Germany and alike are committing a huge sin in not bailing them out.
Actually it's a long and convoluted history.
Do you know for example that when the newly independent state of Greece was established (after fighting for liberation from the Ottoman empire), Germany (the Bavarian state) appointed a king and cabinet of it's own there?
The new state, being very poor and having an immediate need for money to bootstrap itself (for the army, to build infrastructure, etc), got a series of loans from abroad with very ominous terms, worse than usury that they had to accept, because there where no other sources of income at that early state. The terms were like you get only 60% of the actual loan value and leave the rest 40% as insurance against not paying --but you have to repay everything plus interest. Even those loans were embezzled in large part by the bavarian cabinet (and Greeks connected to it), leaving like 10-20% of the actual loan to the state.
So, those were some of the starting steps of the new Greek state, 180 years before.
Now, in the WWII, Germany not only invaded Greece and destroyed it's infrastructure, but also took a loan (Germany FROM Greece), amounting to something like 1/5 of the current debt in today's money. When I say "took a loan", actually the appointed government of the occupying German forces gave them one, it's not like the Greek people approved it. Then, after the war, they refused to pay the recuperations...
If BBC did run such a show, then, as a Greek, I can tell you it was bollocks.
In fact, in you check the private (homes + enterprises) debt for Greece as compared to the GNP you will see that it is quite small, actually one of the smallest in the western Europe.
Plus, even for this private debt, the majority is in the form of housing loans (= to buy a house). So, no "electricians driving Porsches". Well, you could find one or two maybe. But I doubt you could find five of them.
Now, state spending is another story altogether.
I will get in more detail when I can.