I have been struggling to understand exactly what is going on in Euroland, so I sat down over the last few days and tried to make some sense of it.
This is what I have got, feel free to add detail and correct the inaccuracies.
History - The Euro
The Euro was created effectively to help out the countries that joined it, I don't really care about the ideological bollox and neither do countries, it is all I suspect about money.
Germany and France gained an artificial increase in their exports from Euro membership which stimulated their economies massively - effectively the Euro was valued down because of the smaller less powerful member economies like Greece for example.
http://www.indexmundi.com/g/g.aspx?c=gm&v=85
Notice the steep increase in exports after 2002.
Germany's exports really sky rocket with the introduction of the Euro, their inflation stayed low and generally their economy was safe guarded.
The other smaller economies gained access to increased and cheaper debt due to being tied to stronger economies, Greece for example mainly joined so it could carry on borrowing. I don't think any of this is in dispute.
Crisis
Then the economic bubble burst when it became clear that private debt had became unmanageable and the banks realised that they probably were not going to get the money back they had lent out - subprime mortgages.
Government's were forced to help pay the banks debts off which led to 2 problems.
1. Sovereign/ State debt increased massively
2. Banks stopped lending money
These 2 combined meant that the countries that had joined the Euro to gain access to cheap loans now couldn't get loans and were faced with a massive bill to bail out their banks.
Woops
Ireland, Greece, Cyprus, Portugal all went bust and could no longer keep up the payments on their loans, Italy, Spain, Belgium and to a lesser extent France started to look worriedly at their increasing debt interest payments.
This all happened in 2008 and since then the Euro zone has been spiralling downwards. If Italy or Spain default on their loans then the banks in Spain, Germany, UK, USA, China and anywhere else that leant those Governments money stand to lose a lot of money. This understandably has panicked the banks who still don't want to lend any of their capital, without capital to borrow at reasonable rates companies do not expand and economic growth doesn't happen. This is why the rest of the world keeps yelling at Europe and telling it to sort its self out. Until it can fix the debt problems of its member states an economic recovery is unlikely and in fact it looks like the rest of the world will also be sucked into a massive recession.
You will see the term Quantitative easing used a lot...this means printing money to try and inject some growth into the economy and is in direct response to the lack of credit being offered by the banks.
So what have the Euro zone countries done in 2 years
Well basically not much.
The major suggestions seems to be that the ECB, the European Central bank should pay the debts of the Euro zone countries, or at least buy Govt bonds to allow them to carry on borrowing and therefore hopefully to start growing again.
The problem with this is that the ECB gets money from it's member states, which effectively means Germany and France would need to bail out the other countries.
This is something Merkel and Sarkozy are not very keen on doing.
So what have they tried to do instead?
Firstly they tried to ignore it and imposed some big austerity measures on Greece, Ireland etc. to "help" them clear their debt. They hoped in time the problem would sort itself out. The big issue being that countries trying to save money and that can't borrow don't import very much from other countries. They therefore continued in recession and other countries that relied on them as export markets were also not helped. This made the recession longer.
So when Austerity didn't help they did what?
When it became clear that Greece was going to default again and that a lot of other countries were also in serious danger they decided to ask the IMF for help to pay the Euro zone debts. The IMF said no, go sort out your own problems Euro land.
They then rather embarrassingly went to Cannes for a G20 meeting where they asked China to help bail them out.
http://www.euromoney.com/Article/291...ina-wont-bail-
out-Greece.html
China said no, as did Japan, Brazil, the USA and my Mum.
That meeting was a bit of a failure especially as the rest of the world stood around pointing fingers at the Euro zone and saying "bloody fix it so we can get out of this recessions"
When Merkel said "Obama got a crash course in European politics"
http://www.guardian.co.uk/business/feedarticle/9931070
What she really meant was, he told us to bloody well pay the eurozone debt and we said, oooo, erm.....ahhhh, look the good year blimp!
O dear, so now what?
However it seems that at the Cannes meeting they heard about the Tobin or Robin Hood tax. This is a tiny tax that is levied against a financial transaction but because 100,000's of these transactions happen daily a lot of money could be raised. This tax could pay off the Euro debt.
http://www.guardian.co.uk/business/2...n-hood-tax-g20
I can imagine Merkel looking at Sarkozy and saying.
"Well this won't hurt German manufacturing exports so we won't pay very much"
and Sarkozy looking at Merkel and saying
"Well this won't affect French Argicultural profits, and those bankers are all wasters, so lets do it"
So they did it and we all lived happily ever after?
Well no because the country that would be affected the most by a tax imposed on financial transactions would be the country with the biggest Financial sector in Europe, Britain.
Effectively the Eurozone was now asking the UK to pay the Euro debt.
This is why Cameron has said no.
What did he say no too?
He vetoed changes to the existing Lisbon treaty and forced a new one, which Britain hasn't agreed too, to be created.
Now as I understand it this means that new laws will apply to Britain as a member of the EU but that the treaty which put in place the punishments for not following the new laws won't apply.
ie. the EU can make new fiscal regulation laws but Britain can ignore them.
This is the crucial quote,
| Quote: |  | |
| "I regret very much that the UK was not willing to join the new fiscal compact, as much for the sake of Europe and its crisis response as for the sake of British citizens and their perspectives," said Rehn [European Commissioner for Economic and Monetary Affairs]. "I would also like to remind you that the UK government has also supported and approved the six-pack of new rules tightening fiscal and economic surveillance, which enters into force tomorrow."The UK's excessive deficit and debt will be the subject of surveillance like other member states, even if the enforcement mechanism mostly applies to the euro area member states." | |
| | |
So...erm I am lost?
Well we are back to square 1. The Euro zone is still in a massive crisis and the latest scheme to avoid the ECB paying has failed.
The rest of the world is still sliding or is already back into recession and I am wondering who they will ask next.
If Merkel or Sarkozy had balls I would describe them as champion cuppers right about now, I can't see that they have done much else.
If I was Father Christmas I would be opening any letters from Frau Merkel or Herr (he is practically a German puppet) Sarkozy with a little bit of trepidation.
My opinion - this is a forum
I hate that Britain is so dominated by London and finance, I am pro-European, pro-A United States of Europe and pro-Tubin tax...however even I can understand why the UK has stuck 2 fingers up and told them to sod off.
I understand that maybe it is better to be inside at the table than outside throwing stones but the whole deal just seems like such a huge poo pile of domestic politics and vested German French interests with very little intention of actually rescuing the Euro that being outside looks pretty good.
I have no idea if it is a clever thing or not, nobody will for another 10, 20, 30 years but I am glad it has happened.
The German model of Austerity for Europe seems silly, I am pro-Keynesian so centralised budget control at this point in Europe's history just seems incredibly dumb and naive.
Trying to control spending in countries struggling with growth, I believe can only lead to resentment and unrest.
Although as UBS points out the alternative of a broken Europe could be civil war.
http://www.gfsnews.com/article/2917/1/
I also hate that Germany and France are now standing up and pointing the finger at the UK and claiming it is the UK's fault. It seems they have found a scape goat and will pile the blame on. I can't beleive that sarkozy and Merkel didn't know that the UK could never accept their treaty change...it had been in the papers for about 2 weeks previously. I can therefore only assume they are stupid or were deliberately side lining the UK.
To me it looks like they have lurched from crisis to crisis with no real idea of how to solve the problem or that they don't possess the will to take the bitter pill and sort it out themselves.
It also smacks a little bit of wounded pride. The UK stayed out of the Euro and now can do a bit of gloating.
This from Sarkozy
| Quote: | | |
| "You have lost a good opportunity to shut up." He added: "We are sick of you criticizing us and telling us what to do. You say you hate the euro and now you want to interfere in our meetings." | |
| | |
http://articles.businessinsider.com/...sident-cameron
Just looks like a loss of face to me. Also how is this man a politician?
Basically I don't see a good solution to the problems. I see horrible solutions and someone needs to pick one and follow it through.
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