Tobold's Blog
Tuesday, March 26, 2013
 
The evil of having money

Being German it is somewhat scary to see German flags burned in several countries on the TV news. There are numerous references to Hitler, with Angela Merkel regularly being shown with a Hitler mustache. So for my American readers, who might be baffled by the events, maybe some explanations are in order. For the full historic overview you might want to read The New Statesman. But here is the shorter version.

So, are German armies about to overrun several countries of southern Europe? No, not at all. What is rolling southwards aren't German tanks, but German money. And the German "crime" against which everybody is protesting is that the Germans insist on certain guarantees for their loans, just like any bank would. For example in Cyprus the condition was that Cyprus should come up with 7 billion Euros on their own as condition for receiving 10 billion Euros from Europe, largely financed by Germany. That is a bit as if you want a mortgage on a $170,000 house, and the bank asks you to come up with $70,000 on your own as condition for receiving a $100,000 mortgage.

Protesters in Cyprus claim that having to come up with 7 billion Euro is ruinous for the country, and they want Germany to give them the whole 17 billion without conditions and preferably without interest. But maybe the realization that they can't even afford 7 billion should have come before enacting policies which required a 17 billion bailout package. What the critics are saying is that Germany will earn money from lending money. Just like a bank does. But the fact that you have to pay an interest on a bank loan doesn't result in a moral obligation for the bank to give you a loan under any conditions. In fact a bank has a moral obligation to only lend money responsibly, because giving out loans that have little chance of getting repaid would be a disservice to those who paid money into the bank, in this case the German taxpayer.

The "threat" from Germany is not German bombers, but simply the Germans withholding loans. Which would be no threat at all if the countries in question would run their economies in a way where they could get loans from regular investors. The money that is flowing from Germany via Europe to these countries is in fact cheap compared to the prohibitive interest rate they would have to pay on the free market, in addition to the fact that there aren't enough free market loans available for these countries due to their existing debts and deficit.

In the end, if somebody has large debts and still spends more than he earns, that doesn't give him the moral right to protest against the evil banks who at some point refuse to lend him even more money. People do understand what a "credit rating" is in their personal finances, and that their loan application can be denied by a bank. We just need to get to the point in Europe where countries understand that same concept.

Comments:
Except in this case, the perception is that Germany is telling the Cypriots that if they don't let the government raid their bank accounts then they won't get the funding.

Even if that's not the case and it is the Cyprian government alone that came up with this plan, the citizen who has been robbed by his own government is going to feel mightily pissed off at every one in the chain of events.

Hey, it's money, hard earned, and it's emotional. I bet you'd be a tad miffed if you had your bank account seized.

It may not (always) be logical, but people aren't.
 
Well, to be fair, it's hardly the countries, that have to learn how a loan works. The idiots protesting on the street are the problem and make me shake my head. It could be worse, at least no one burns our embassies and executes our officials... maybe they just can't afford torches and knifes?
 
It's hard to make people understand when their political lives rely on not understanding. Cooking the books and bribery are something that you can do during your term to get that cheap loan. Trying to fix the economy can take longer, and can lead you getting voted out of office due to lack of results. Or at least the beneficiaries of those loans will switch their support to your competitors.
 
Germany should discard the Euro and re-embrace the Deutschmark. This would allow EU bankers to massively devalue the Euro, lessening the burden of debt accumulated by wastrel nations, without harming the purchasing power of the Mark and hurting the economy of frugal Germany. A weaker Euro would help with sovereign debt and help foolish people who have been spending money they don't have. It'll hurt responsible people in rest of the EU who have been saving money for retirement, the true victims, and there will absolutely need to be some sort of public pension reform if this isn't just to kick the can down the road another 10 years, but I see it as the best way out.

Either way, Germany is under no obligation to make the loans. But it's rational to do so, with a sufficiently large haircut to account for the uncertainty about whether Cyprus intends to or will even be able to pay it back. 7b for 17b seems too small to me, given the mess Cyprus has caused for itself, but I'm not an expert on such things.
 
The conclusion of the New Statesman article that you link includes this line:

"Germany is both too strong and too weak, or at least too disengaged. It sits uneasily at the heart of an EU that was conceived largely to constrain German power but which has served instead to increase it".

If you believe that seventy years is long enough for the feelings that precipitated that arrangement to dissipate then you haven't been studying your history. It's not about money.
 
This would allow EU bankers to massively devalue the Euro, lessening the burden of debt accumulated by wastrel nations

Actually massively devaluating a currency is exactly the same as taking a percentage of each savings account, it just isn't so blatantly obvious. If you devaluate a currency by half, you cut both saving and debts in half. Good for the people who have debts, bad for the people who saved money. Redistribution in any case.
 
Actually the problem is more political than economical. My guess is that if it were another EU country, Germany would not be so reluctant. But here the problem is that they would be bailing out banks which hold massive Russian investments, so Germany feels that they end up providing cover for Russian money invested somewhere, and NOT "helping the economy". From this point of view, I can understand the German position.

BTW it would really be high time to bring back a strict separation of investment banks and savings banks, so that a government can safely let an investment bank sink without being strong-armed into saving it because "OMG savings!". The whole "investment = guaranteed profit" thing must die, end of story. This way banks will think twice before lending out +\inf sums of money.

 
It's a funny thing. Whenever a country is in trouble, they ask for help but claim their sovereignty is paramount.

It's a bit like in your analogy, getting a mortgage on your house, and then claiming individual rights allow you to sell the same house (or buy something else with the money from the loan).

After all, Germany hasn't TAKEN the 7 billion. They are simply saying: you need 17, we can give you 10, if you come up with the rest. Deal?

If you agree to the deal, you better keep your end of the bargain without vilifying the other party.

Cypress could have taken the 17B from ... the Russian oligarchs. See what conditions they might offer.
 
" What is rolling southwards aren't German tanks, but German money. "

you have to be kidding right? Or to be brain washed by your media...German have made lots of billion of money by this crisis from the south countries. Germans take money from european bank with around 1% interest and then they lend this money to south europe for 8% at least..

German have started 2 world wars in the past and now have started the third one which is economic against south europe. If you seriously believe that German have not won from this crisis or they didn't made lots of money then you need to read something else except spiegel
 
You need to read something else than Berlusconi-controlled press. Try some American and UK papers, maybe you can believe they aren't controlled by Germany.

You will also have to decide what exactly you want. Do you want Germany to lend money to Southern Europe, or do you not want them to lend money to Southern Europe? What do you call economic warfare, the lending or the not lending?

I don't think your 8% number is correct, and even if it were, lending money to Cyprus at 8% is still well below market rate.
 
As Bhagpuss pointed out, you have framed this discussion in very simple terms, as though this was an isolated case of bickering over loan terms.

In addition to what I would call the stigma stemming from the behavior of the German state from 1871 to 1945, there is also the question of who has benefited from the Euro zone. Overwhelmingly that has been Germany. Giving all those countries on the Med a stable currency worth something let them buy billions in German goods. Go look at the balance of trade between Greece and Germany before and after the Euro.

Again, it is not Germany's fault that they happened to be in the ideal position to exploit the unified currency. Somebody was going to make out the best. But it adds an additional emotional layer that a lot of those borrowed Euros went to Berlin. Now the "winners" won't help out the "losers," or such is the perception.

Most damming of all though was that Germany knew who the losers were well in advance. Back to Greece again, it is widely acknowledge that the Greek government simply lied about their budget and revenues to get into the Euro zone, and that everybody at the table knew it.

But the weakness of the EU with its national sovereignty issues meant that the EU couldn't call BS on Greek claims, so everybody, Germany included, pretended everything was all right. But Germany did not HAVE to get in bed with Greece and other countries on the Med. It could have put its foot down and made demands... and then probably would have been characterized with little toothbrush mustaches drawn on then chancellor Kohl or Schröder. Because there is no winning for Germany. 70 years has not been long enough.

But Germany chose not to stand up then, so it has to stand up now. Germany got into this situation with its eyes wide open. Now comes the test. Is the Euro Zone one economy or not? Can countries that don't follow the rules be made to change their ways or be kicked out? Because these sorts of loans are meaningless if nothing else changes. They just become a national subsidy.

I expect that a lot more portraits will be defaced with toothbrush mustaches along the way to finding out.

 
We were supposed to create a union with equal members that would be friends and allies. Having one country that can take money with 1% from the EUROPEAN bank and the other who cannot or they take with over 5-6% doesn't sound equal nor friendly.

Economic warfare I mean, that you bribe politicians with your money to work for your interest(siemens) and then you "invade" in the government of these countries, decide their politics and how they will govern their country in order to give them a loan with over 7-8%.

No country would ever accept this if first their politicians were not bribed to do this.

Anyway, you can do whatever you want and you do the best for your country. Is not your fault that other politicians betray their countries. I was commented on you about the "german money that roll into the south" like you really helping us...you will take back that money with great interest and also you can govern these countries by political control them. Thanks for the help boss
 
I looked it up: The interest rate for the Cyprus bailout loan of 10 billion is 2.5%. You can hardly claim that to be usury.

Giving all those countries on the Med a stable currency worth something let them buy billions in German goods. Go look at the balance of trade between Greece and Germany before and after the Euro.

How is it Germany's fault if countries like Greece spend more money than they have and then use that money to buy German cars and similar stuff? You're just switching the argument from claiming a bad debtor's problem is the fault of the bank to claiming that it is the fault of the department store where the bad debtor spent his money on stuff he couldn't afford.
 
also after the world war 2, Europian countries (greece among them) have decided to give away all german debt to help the germans to rebuild their Country..that happened after a war were the people who suffered from it show the ultimate generosity and gave away all their economical claims.

Now in days of peace, help is loans with interest along a slavery for the country which take the loan. Also greece debt was 140 billion. What they did, was a trick(the traitors politicians) and they took all the private debt of the banks (banks are private corporations, don't belong to Greece) and they put their dept into the national debt, raising it to over 300 billion. Greece have given over 200 billion to the private banks until now and all these are appear as Greek debt.

It would be better to let those banks fall..but then the euro would have trouble and guess what?German would lose lots of money because of euro..So actually the Germany saved the Germany..
 
Hi, Tobold

there are a few more points to this:
- I believe the main reason Cyprus banks are in a bad shape is that they lent money to Greece, and then the EU asked them to write off that debt. So now the people there are unhappy .. because they may lose their money because of Greece ...

- The way in which the money were asked was very dangerous.
Usually bank savings up to 100K EU are guaranteed by the government - this creates confidence in the banking system for the ordinary people.
But now the government initially decided to take 10% from all savings - it that happened it would destroy the confidence in the banking system. A lot of people will take out all their money from the banks and hide them under the bed - not only in Cyprus, but in other countries with shaky economies - because we wont believe Germany's assurance that the proposed tax will be one time only.
 
http://www.youtube.com/watch?v=ATg1ze0ac88
 
Hmm, as someone who believes in capitalism far more than is fashionable these days, it is sad to see declines around the world. People wanting to avoid economic realities with other people's money may be the conflict or at least conversation of the future.

On a lighter note, if economic sanity and propriety briefly return to Europe, how will Darkfall 3 ever get funded? I remember an American humor magazine of the 70s describing the European Community (EEC in 70s?) describing it as "a way for Germany to conquer Europe without as much bloodshed this time."
 
In any case, this is a discussion that Germany can't win: They will be the bad guys if they lend money, and they will be the bad guys if they don't lend money. It is the typical socialist attitude in which the one who has the money is always the bad guy.

Speaking of World War III: We are only a few years away from a situation where the bad debtor is the USA, and the unwilling lender is China. Assuming that the USA feels the same about that then as Cyprus feels now, how do you think that will work out?

Unfortunately the debate has lots of arguments that are just bad economics, by people who don't really understand the subject. For example all that talk about who the common currency helped most, or how southern Europe would be better off leaving the Euro and devaluating their currency. Yeah, that worked so great in the 70s!

In reality currency manipulation is by definition a zero sum game. Yes, in the short term you lose debt and make your exports more competitive. But then you also lose your savings, your interest rate goes up, and your production becomes more expensive due to all the things you need to import, until you are where you were before. How high would you think Southern European interest rates would be if they were in drachme and lira?
 
I think we're still a ways further than you think from having similar problems in the US. The troublesome nations in the EU have huge governments financed by very high taxes, that don't quite cover the expense.

In the US while many people, myself included, feel the government is already too large, it's actually small in comparison to EU governments. If you think the US gov is too big, you'll see the EU gov's as monstrously big. And monstrously hard to finance.

On the tax side of things, the American upper class pays a comparable rate to many EU nations (depending on whether you want to include corporate taxes as lessening individual gains, which I do). Other income groups are far different. America's middle and working class people pay an absurdly lower rate than, say, Belgium's middle and working class people. America puts far more of it's tax burden on the wealthy than EU nations do.

We won't run into the problems of Cyprus or Greece as quickly, because 1) our fixed expenses/entitlements aren't growing as quickly, and 2) there's a lot more room to increase the tax burden, especially on lower to average incomes, before running into the social unrest the EU is experiencing.

It is still a problem, though. 20 years instead of 6 or 7. :P
 
Yeah, this whole continent wide union thing is a lot more complicated than it looks, isn't it? The flip side of this is that if these still had their own currencies, they couldn't have gotten in the hot water they are in. Doubt anyone would have given the Cypriot government the money in Cyprus bucks. So I guess from their point of view you let them lose with Germanys credit card for a decade and then all of sudden got really serious judgmental about the bill getting paid. Doesn't mean they are right, but I guess that's how they feel.

I wouldn't sweat it. German has the right of it, and more importantly, who gives a shit what Cypriot street protesters think? Even if Germany caved it would just delay the crisis to the point where even Germany can't patch the boat.


 
Wilhelm nailed it here: " there is also the question of who has benefited from the Euro zone. Overwhelmingly that has been Germany. Giving all those countries on the Med a stable currency worth something let them buy billions in German goods. Go look at the balance of trade between Greece and Germany before and after the Euro.

Again, it is not Germany's fault that they happened to be in the ideal position to exploit the unified currency. Somebody was going to make out the best. But it adds an additional emotional layer that a lot of those borrowed Euros went to Berlin. Now the "winners" won't help out the "losers," or such is the perception."

Understanding the underlying accounting helps tremendously here:

Each country considers three sectors that when added together MUST equal 0.00Eu:
1. Private Sector of Country
2. Government Sector of Country
3. Rest of the World

You can also look at it from a EuroZone perspective:
1. Private Sector of EuroZone
2. Government Sector of EuroZone
3. Rest of the World.

If the private sector is losing money, then the other two sectors must have a total balance that's positive and opposite in magnitude to the private sector's loss. That could be a negative Government and a huge positive balance for the rest of the world or some combination of the two.

Here's the problem: Since the inception of the EuroZone, Germany has been able to run an extractive negative balance in the Rest of the World sector, something few other EZ countries have been able to do.

Remember, no matter what level you are looking at, there are the three sectors and they MUST balance to 0. If Germany has been running a trade surplus (extracting wealth from it's "the rest of the world" sector), then by definition some other private or governmental sectors are running a deficit. If you follow the money, by and large, the private and governmental sectors that Germany has been running trade surpluses against are fellow EZ countries!

Now, a Sovereign currency holder like England, the US, Japan or Russia has options that EZ countries do not - they can inflate their currencies for one, they can simply purchase goods via fiat money creation and reach full employment that way for another. EZ countries are much more like households than Sovereign currency nations, including Germany. So those EZ countries are really stuck with a bad deal: the Germans have knowingly been running huge trade surpluses against the rest of the EZ countries and now the bill for that is coming due and the Germans don't want to pay the Piper.

This sort of crap doesn't happen in the US because States that are dumb enough to buy into Neo-Liberal economics are subsidized by the Socialist states up North and out West. Instead of having profit-making operations on both sides, there's the profit making side of the trade imbalances benefiting the Blue Socialist States and the non-profit making side of Federal Government transfers to the Red Neo-Liberal States. If those transfers did NOT exist, Blue Socialist States would be in the same position as Germany is today.

Fortunately, we're not that dumb. Merkel, being a fan of Neo-Liberal economics, seems to be.



 
You got it the wrong way round: A country having a trade surplus is a direct consequence of it being the least irresponsible country in a sea of countries running irresponsibly large deficits. Any attempt to blame the deficits on the countries that make a profit is just reverse economics of the socialist kind. It is like claiming that your personal debts are an economic consequence of some people being rich and saving money, and concluding from that they should give you money for free.
 
I once played a fun game with the people screeching about how the "Lazy Greek people need to pay 'their' debts". I asked them if they can prove that the Greek People actually ever received the money... or any benefit... from these loans. Now, I'm not referring to wild stories of excess from the BBC. I referring to actual numbers showing actual benefit from these loans. I'm sure SOMEBODY got the money. But a better question is WHO.

I wouldn't be surprised if a significant amount of the money "loaned" round tripped back into the banks that made the loan.
 
And I'll say with absolute certainty that a significant amount of depositors whose money is now being taken received NO benefit from the loans. They may have even been hurt because their competitors did stupid things and dropped prices with money they received from loans. Do you even care to argue that?

And if you want to even pretend to take the moral high ground while gutting perfectly innocent people like trout then perhaps you need to put some of the ringleaders of this economic disaster in jail for the very real crimes that they actually did commit.

If you think refusing to punish the guilty while gutting the innocent makes the Cyprus people happy, I mean really.
 
To be more accurate, the reason for most of the protests was because they were proposing to take a percentage of every depositor's savings regardless of their personal financial situation.

Since then they changed it to only affect deposits over 100k (of which I'm sure there are a lot thanks to all the Russian depositors).
 
I"m not privy to the inner workings of the crisis that occurred in Greece, but I do know that what is happening in Cyprus is being driven by fears of other smaller Euro nations whose banking industries are much weaker(Spain, Italy, Ireland.. ect.), and it is raising fears that the same kind of measures could be forced on their banks should they fail. Also, there is no guarantee(after a bailout loan) that there wont be a run on the banks in an attempt to put the money into more financially secure banking systems, and this could cause a domino effect among the smaller EU countries.

One has to realize that a large portion of the wealth in Cyprus comes from outside sources; such as the Russians, who are being very vocal behind the scenes about all of this. Keep in mind that this gives Russia a nice opportunity, as they would benefit from Cyprus becoming a sattelite...natural gas fields, political stability...and possibly a forward Naval base considering their interests in other regions(Syria)....all at Europe's expense.

What is especially troublesome about all of this, and one has to think that the German's know this, is that Cyprus is sitting on upwards of 5-600 billion in oil and gas deposits..so do the math in regards to a 17 billion EZ loan.

Something about this whole mess doesn't add up.
 
It's been in fashion to villify the US for similar reasons since the 1960s. Welcome to the past fifty years.
 
About that argument that Germany benefited from Euro most, well the data does not support this. Since 2001 (the year of the introduction of the Euro) the percentage of German export to Euro-member countries decreased each and every year.


In addition, one should point out that Germany did not actually want to be part of the Euro-zone, but accepted it as a tradeoff for the reunification of Germany.
 
Citizens of any country with the wealth and power of Germany should be used to seeing their flag burned on TV. Clearly Germany has been doing something wrong for this not to be the case.
 
Kirk, I'm sure not losing a huge part of your saving and your salary due to devaluation (which would happen if Greece had not adopted Euro) is a benefit. I also need to note the state is usually milked by companies by selling overpriced stuff, so if the money comes solely from EU being generous, the state still gets some profit - even though it's just a fraction compared to what it could get.

I also wonder how would you like Germany to go about punishing corrupt Greek officials.
 
Sadly, Cyprus does have some leverage here. Their economy tanking would affect the rest of the EU and the Euro, and they could always default (which would again affect the EU and the Euro). It is the same threat that Greece negotiated under, and the "too big to fail" banks for that matter. Save us, or you're screwed too.

I think the EU needs to adopt budget requirements for member nations. You can't let a nation tie themselves to your economy and currency if they're just going to wreck it.

At this point, it's too late for any "good" solutions, and the only options left are bad options. You need the ability to act before it reaches this point.
 
Breaking News: The Taggart Bridge over the Mississippi River has just collapsed in an explosion that could be seen in New York.

Unconfirmed reports indicate a new super-weapon developed by the State Science Institute may have malfunctioned leading to widespread destruction for 100km.

Atlas Shrugged used to be a cautionary tale - now it reads like an instruction manual.

Only solution is collapse the Euro and let the southern states devalue to get their economies started again.
 
The ECB could just print money, it's not like there isn't massive amounts of idle capital and labor in the struggling countries - printing money leads to inflation if and only if there's a lack of real assets to cover the creation. As a minor example of the truth of this statement: Remember, trade creates wealth, but it does not create money. So if you continuously generate wealth but never create more money, each Euro stands in for more and more wealth, creating deflation. So it must be the case that printing money can have good effects. One of those good effects is to give businesses and labor the ability to generate demand.

If you have high unemployment, you have massive amounts of pent up demand. Money can release it, provided it's targeted properly, which isn't too hard - give it to the poor.
 
Tobold said, "You got it the wrong way round: A country having a trade surplus is a direct consequence of it being the least irresponsible country in a sea of countries running irresponsibly large deficits. Any attempt to blame the deficits on the countries that make a profit is just reverse economics of the socialist kind. It is like claiming that your personal debts are an economic consequence of some people being rich and saving money, and concluding from that they should give you money for free."

Not quite. We're dealing with accounting identities, accounting 101, not economics. If you're running a trade surplus, then by definition someone else has to be running a deficit.

Your problem seems to be that you're attaching moral language to the accounting terms: 'good' surpluses and 'bad' deficits. This is an enormous ethical mistake: those are purely descriptive terms "deficit and surplus", not normative ones. The moral language properly applies to the resulting effects on the human beings affected by trade imbalances: poverty and wealth. Why? Because these trade surpluses and balancing deficits are processes that result from the non-centralized swarming-style action of free markets, attaching moral language to them is a category error, at best.

And again, the Socialist Blue States here in the US subsidize the Neo-Liberal Red States precisely because they wish to avoid Germany's fate.

Note: excuse the double post, post got swallowed.
 
@Samus, regarding the budget requirements, there are one. See http://en.wikipedia.org/wiki/Stability_and_Growth_Pact Although it needs to be said being "flexible" whenever Germany and France need it to and the fact it is not possible to remove a country from eurozone (at least there are no provisions for it) does weaken the pact somewhat...
 
Well, to be fair, it's hardly the countries, that have to learn how a loan works. The idiots protesting on the street are the problem and make me shake my head.

I am always boggled by this viewpoint. Even if we assume that the people in the streets are there because they asked for loans they couldn't afford - as opposed to the responsible individuals who are protesting having their bank accounts raided - who determined that they should have loans in the first place? The banks. The reality of the risk did not change between 2007 and 2008 (or whenever). The only irrational players here were the banks themselves. Even if the people paid back everything they owed, the loans themselves would still have been an unconscionable risk for both the banks and the economy.

You can argue that people should know better than to take more than they can chew, but the banks had a fiduciary obligation to not make bad loans. When someone sends $10,000 to a Nigerian Prince based on an email chain letter, do you blame the Nigerian Prince? These risky loans should never have been offered in the first place.

How is it Germany's fault if countries like Greece spend more money than they have and then use that money to buy German cars and similar stuff? You're just switching the argument from claiming a bad debtor's problem is the fault of the bank to claiming that it is the fault of the department store where the bad debtor spent his money on stuff he couldn't afford.

It's not really a switch in the argument, if the department store and bank are in collusion. Why did the Germans let Greece (etc) have all that credit in the first place, if not to open up new markets for German goods? Out of the goodness of their hearts? It is almost textbook Predatory Lending.
 
Why did the Germans let Greece (etc) have all that credit in the first place, if not to open up new markets for German goods?

The Euro gave both Germany and Greece the exact same access to cheap money from investors everywhere. The Germans spent a decade doing labor reforms, investing money into infrastructure and factories, making their economy more competitive. The Greece spent that decade with politicians handing out government jobs like candy (Greece has 6 times more government jobs per inhabitant than the UK) to buy votes. At the end of the decade Germany was rich, and Greece was poor. Now whose fault is that?
 

Kirk, I'm sure not losing a huge part of your saving and your salary due to devaluation (which would happen if Greece had not adopted Euro) is a benefit. I also need to note the state is usually milked by companies by selling overpriced stuff, so if the money comes solely from EU being generous, the state still gets some profit - even though it's just a fraction compared to what it could get.

I also wonder how would you like Germany to go about punishing corrupt Greek officials.


I'm glad you ignored my not particularly bold claim that corrupt government and corporate officials in Greece stole a portion of the loan money and sent a significant portion of the loaned money back to Germany/England. Because, you know, that's all really obvious and just boring to even argue, isn't it?

Of course, once you've accepted that, Tobold's whole argument implodes. But you clearly operate on a different level.

So let's deal with your stupid lies now.

Would I rather, if I were a Greek, have my currency devalued or my countries national infrastructure and national resources sold to London Loan Sharks for pennies on the dollar in rigged auctions. You know, Russia in 1990s.

I think I'll take devaluation.

Having addressed that oh so difficult question, we now have to move on to a more complicated one.

Can the EU, which has the power to demand that Greece sell off it's national assets for nothing, and laugh at millions of people protesting, have the power to "make" the Greek people enforce the law on other Greeks who they want to see hanged in full accordance with the law?

Well, you see the problem with that "question" is the EU has to intervene to protect these scumbags from their fellow Greeks!

So the real question is, can the EU stop protecting these criminals or not?

Well, if they were punished, how would the EU hirelings in Spain and Italy react?

A difficult question.
 
Kirk, who voted those corrupt politicians into power, the Greek or the Germans?

You might argue that Europe and Germany left Greece alone and didn't intervene. But look at what is happening now, when they *do* intervene and tell the Greek government they have to stop wasting money. Now Europe and Germany are blamed for that intervention.

Greek would have run into exactly the same problems without Europe. You simply can't spend more than you earn forever.

If you're running a trade surplus, then by definition someone else has to be running a deficit.

Nobody says that isn't true. I just reject the notion that this basic accounting principle somehow results in a moral obligation of the country running the surplus to give free money unconditionally to the country running the deficit. The Greek can stop that deficit any time they want by simply living inside their means.
 
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Tobold,

I think that the conclusion of what Wilhelm Arcturus, Roger Burgess and a few others are saying (sorry for posing my interpretation on you guys!) is that none of this has to be a matter of morals, of "good" vs "bad".

Put straight up: the best way for Germany to keep making more money and keep getting richer is to send more money to Cyprus, Greece and anyone else that cares to use them to buy German stuff. In other words: make more money. Like Richard Burgess pointed out, this does not have to lead to inflation at all, but even if it does it will be on a moderate level.

[Very sweeping generalisiaton incoming: read with caution!]
But since inflation is bad for the 'haves' (capital, old people) and good for the 'will haves' (labour, young people), and power generally resides with the former, we see very few initiatives in those directions.

Tobold, you mentioned that this discussion is populated by people who don't understand the subject. I certainly don't presume to have a complete understanding of the concept of money, much less "economy". Indeed, as with most subjects I have encountered, the more I read about it the less I feel that I know. Dig seriously into the pile that is money theory, and you will ultimately come out with... nothing. The basic problem, it seems to me, is that money simply does not exist. It is no more real than the Sword of a Thousand Truths.

 
When reading discussions like this I often find myself thinking:

Stop searching for someone to blame, and start searching for a solution.
 
All western countries are spending more than they earn. Like many things in life, that's also a question of degree. Germany's credit is good thanks to hard choices. The Greek and Cypriot credit is bad since they've been irresponsible. For a while they enjoyed more credit than they should have, thanks to euphoria in light of the currency union.

The situation is not unlike some banker handing a young adult - who happens to have a rich relative - a platinum credit card. Fast forward until the final notices arrive. Now it's time to pay and everyones eyes turn to Uncle Armin who's been living frugally.

Politicians need to borrow money from banks to run their show. The same banks borrow money to other countries. When those countries books are balanced, the local crash would have direct international repercussions in write-offs. The BBC had a nice graphic a while ago showing the home countries of the banks holding various bad national debt. These banks are all over Europe, not just in Germany.
 
Part of the current grumbles is that the conditions might be sensible but they are not equitable. Cyprus waitted too long for their bail-out. Greece et al got tough conditions but most of the cost was absorbed by the Eurozone. The conditions applied to Cyprus are much tougher. Since Cyprus is smaller and the Euro is slightly healthier, they are not considered too big to fail. This allows the lending nations to say, "This is what happens to naughty countries" and treat Cyprus in a much more punatitive way as an example.

The one of the problems with current Euro-zone is that there is no decent method for redistributing wealth between zones, unlike all other monetary unions.
Less productive zones are burdened with an over valued currency making their exports less efficient (while the more productive zones have a cheap currency, boosting their exports). Traditionally country productivity would reach parity through currency revaluation. Since that is no longer available between euro members, the productivity gap continues to grow with not mechanism to fix the difference.
 
I think this blog post covers the reason behind the anti-german feeling all around:

http://www.economist.com/blogs/freeexchange/2012/06/economic-history
 
none of this has to be a matter of morals, of "good" vs "bad".

I fully agree. But it is the people in Southern Europe who burn German flags and paint Hitler mustaches on Angela Merkel. To them both the ease of getting credit earlier, and the end of this ease are clearly "bad".

My point is that they are wrong to blame Germany for their woes. Germany just used the ease of getting credit better than those southern countries did. In principle Greece or Cyprus had the same choice, building up their infrastructure and economy with that credit to then be later to pay it back when economic times got rougher. The protesters should blame their own politicians instead of Europe or Germany for having wasted all that easy money.
 
"My point is that they are wrong to blame Germany for their woes. Germany just used the ease of getting credit better than those southern countries did. In principle Greece or Cyprus had the same choice, building up their infrastructure and economy with that credit to then be later to pay it back when economic times got rougher. The protesters should blame their own politicians instead of Europe or Germany for having wasted all that easy money."

And the point that you're missing is that it was inevitable that some country be in Germany's position and some other country be in Greece's or Cyprus' position. The compounding effects of advantage guarantee it. This is the way trade imbalances work. In all cases. At all times.

Germany wants to have all the benefits of a trade imbalance and none of the downside, which is a requirement to ensure that trade partners are able to keep trading.

Germany is saying that "we should be part of the community in such a way as it only benefits us, but you others, you're on your own and we have no responsibility for your wellbeing."

That's hogwash.
 
Sorry for being late to the party but here's my two cents:

First of all: if bank investors and large depositors have to take the risk of bad investments as the German model suggests why is it that German banks have been repeatedly and even now being allowed to pump billions into the Greek, Spanish, Portugese, Irish, Italian and Cypriot economies and the eurogroup has been jumping through hoops to avoid them taking a hit? Secondly you are delusional if you think that Germany can continue to produce as it did without willing consumers (created by cheap German money) and once your production goes so will your economy regardless of labor reforms (btw before the crisis the work/hour cost of my previous employer was 47 euro for Greek and 120+ for German employees guess who lost 1000 jobs.)

Germans see the austerity measures as catharsis for past crimes. What they don't see is that all their allies are gone. They are sinking billions into markets that will not bounce back anytime soon because to allow them to bounce back too early would mean they haven't been punished enough. All the while the crisis is moving dangerously close to Germany and there is no bailout big enough for Germany or its economic "crimes" during this crisis.

Good luck mate.
 
And the point that you're missing is that it was inevitable that some country be in Germany's position and some other country be in Greece's or Cyprus' position. The compounding effects of advantage guarantee it. This is the way trade imbalances work. In all cases. At all times.

So you are saying that the trade imbalance between China and the USA *inevitably* will lead to the ruin of the USA? I don't think the Americans will agree with that point of view.

What I see in the USA is a Republican party full of deficit hawks and the Tea party. I didn't see any of those in Southern Europe.
 
"So you are saying that the trade imbalance between China and the USA *inevitably* will lead to the ruin of the USA? I don't think the Americans will agree with that point of view."

Hardly. I actually gave the answer why up-thread: Both the US and China are sovereign currency holders, something neither Germany, Greece nor Cyprus are. Their economies work very differently than the EuroZone economies work. They are not comparable entities at all. EuroZone economies are much more like household economies than the economies of fiat currency states.

Quoting myself:
"Now, a Sovereign currency holder like England, the US, Japan or Russia has options that EZ countries do not - they can inflate their currencies for one, they can simply purchase goods via fiat money creation and reach full employment that way for another. EZ countries are much more like households than Sovereign currency nations, including Germany. So those EZ countries are really stuck with a bad deal: the Germans have knowingly been running huge trade surpluses against the rest of the EZ countries and now the bill for that is coming due and the Germans don't want to pay the Piper.

The solution for Germany's pickle here is transfer payments like we have in the US:
This sort of crap doesn't happen in the US because States that are dumb enough to buy into Neo-Liberal economics are subsidized by the Socialist states up North and out West. Instead of having profit-making operations on both sides, there's the profit making side of the trade imbalances benefiting the Blue Socialist States and the non-profit making side of Federal Government transfers to the Red Neo-Liberal States. If those transfers did NOT exist, Blue Socialist States would be in the same position as Germany is today. "

It's still a category error to ascribe moral language to the debits and credits EuroZone economies accrue in a way that perhaps isn't for a household though. Households are made up of individuals making choices, economies are decentralized, massively parallel local maxima finding processes.


 
It's still a category error to ascribe moral language to the debits and credits EuroZone economies accrue in a way that perhaps isn't for a household though. Households are made up of individuals making choices, economies are decentralized, massively parallel local maxima finding processes.

US politics aside, this is exactly it.
The individual Greek is not in any way responsible for the Greek economic situation. Just like I am not responsible for invading France some decades ago ( - nor was my grandfather just because he didn't say 'no' and didn't started a suicide mission to kill Hitler on his own.)

The average individual Greek, as naive (stupid) as he may be when it comes to economics on this scale (just like the average German), is not responsible.

He probably didn't even elect the responsible politicians, and even if he did, those politicians never did what they said they would do. But most importantly, he simply didn't know anything about trade imbalances and the status of Greek banks. He didn't know because he couldn't know because the average Greek, just like the average German, is not a world class economist - and even those didn't really foresee the problems.

Since there's no single individual responsible we can just as well stop discussing blame and morality and start discussing solutions. These solutions should be based on reality, not on morality.

Meaning: We know that a guy who looses his pension and cannot pay the rent is desperate. And desperate people do desperate things.
We know that Greeks vote, maybe against their own best interest, radical parties if we continue the way we do. Since we know this we should start thinking about what action on our (German/European) part will probably lead to what kind of result. This is what matters, guilt does not matter.
 

Kirk, who voted those corrupt politicians into power, the Greek or the Germans?


I loved the last American election. I could vote for Romney to Obama. Both of them would have supported irresponsible banks and enabled them to the fullest. I didn't even bother voting for either of them. But let's say I did. Let's say I voted for Romney.

Am I still responsible for the actions of Obama?


Since there's no single individual responsible we can just as well stop discussing blame and morality and start discussing solutions. These solutions should be based on reality, not on morality.


But there are people who really broke the law and who everyone agrees broke the law. These people need to go to jail. Failure to punish them while stomping blood-footed through the lives of millions kind of gives the game away, don't you think?
 
But there are people who really broke the law and who everyone agrees broke the law. These people need to go to jail.

And would you consider Angela Merkel to be among those people who broke the law and should go to jail? I didn't see any protesters burning pictures of their own corrupt politicians. Surely their anger is misdirected, isn't it?
 
Tobold,

You've written before about national debt being akin to household debt and how citizens should wake up to the fact that austerity is the price they have to pay from overspending.

This may be fine from a philosophical perspective, but when EU bailouts are looked at under a microscope, do you really feel that these are forging a stronger, more financially stable EU?

Christine Lagarde, IMF: "We believe the plan provides a durable and fully financed solution to the underlying problems facing Cyprus and places it on a sustainable path to recovery".

Maybe. Or maybe the prospects for a country already facing a depression have got a whole lot worse...


 
Roger and Nils nailed it.

Statements like "the hate us for having money" only leads to further polarizing the situation, when we should be focusing on solutions instead of pointing fingers.

We know that Greeks vote, maybe against their own best interest, radical parties if we continue the way we do. Since we know this we should start thinking about what action on our (German/European) part will probably lead to what kind of result. This is what matters, guilt does not matter.

Spot on. The current situation in Greece is that the extreme right parties (combined) got 18% in the last elections, 12% of which went to the fascist party. At the same time the extreme left parties got (combined) around 25%. That's about 40% of the voters that think that Greece should default and burn bridges with the EU. Clearly, an undesirable outcome for anyone doing business in the country, Greek or otherwise. But at some point the people that have nothing to lose will become the majority.

Do you honestly believe that this will not affect your financial well-being as well? Or would you rather maintain your moral superiority while suffering the consequences?
 
...in any case what we're seeing now in Greece (and Portugal, Spain and Italy will follow) is nothing new.

We've seen it before almost point for point. The only thing missing is the inflation, but that will come as well as soon as those countries leave the Euro.

Those who forget history are doomed to repeat it. Let's put it like this: in 75 years, cinema, literature, gaming etc, will probably have another war to be based on...
 
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