eurozone help please!

jack747

would anyone be able to tell me roughly why has the current eurozone crisis being linked with the breakup of the eurozone!...help would be really appreciated, thanks!

Justin1982

Commentators and economists start talking about breakup of eurozone during the crisis partly due to each nations tendency to gravitate towards protectionist policies during a crisis and partly due to their general ignorance and lack of real insight into economics.

The tendency to gravitate towards protectionist policies is kind of two pronged.
The Greeks for example could decide to break off from Euro, return to the Greek Drachma, devalue their currency, thereby becoming more competitive and obtain the ability to control their own economic future free from European interference.
The Germans on the other hand could leave the Euro, return to the DeutschMark, keep their strong currency, not have to pay for the bailout of the rest of the PIIGS and not have to worry about taking economic policies that have to be considered for all of Europe rather than just of German interest.

The general ignorance and lack of real insight into economics comes from the fact that the above arguments (which are continually used by economists who swear that Euro zone break up is a certainty) are kind of economic horse ****.
Weakening or strengthening your currency will only ever have a short term gain. Longer term it isnt a fruitful solution to an economic crisis. The only solution to an economic crisis like this is real economics......ie, pay off your debts over time and stop being such a bunch of economic **** wits creating assett bubbles and promoting casino style banking and business.
Also, there is no real way that a country like Germany can actually isolate itself from European problems. European countries have to understand that at this stage their economies are highly correlated and linked.

Fair cooperation amongst EU nations along with sound real economics are the best way forward.

KyussBishop

Countries suffering from economic crisis, which have their own sovereign currency and which have control over monetary policy, have more options for dealing with the crisis and greater space for engaging in recovery policies.

Each individual country with the Euro however, effectively does not have sovereign control over their currency, or over monetary policy, which makes the Euro a lot like the gold standard (very inflexible, especially in the face of crisis); any move towards recovery policies in Europe, has to be negotiated between all member states, which has resulted in a huge political and economic deadlock, where countries like Germany will not agree to engaging in recovery policies.

So, there are many recovery policies which could be pursued within Europe, which could greatly ease the crisis and put countries (especially the periphery) on the road to recovery, but we are in a kind of twilight zone where 1: Germany and other countries refuse to agree to recovery policies, but 2: Europe has not flat-out come out and said that recovery policies will never come.

So, Europe is hanging together on the vague hope of recovery policies coming about eventually, and out of fear of what will happen if there is a breakup.


The more obvious it becomes to populations though, that recovery policies will not ever happen, then the more powerful political groups will become who want to exit the Euro (especially in countries like Italy, which can very credibly make an exit); when one major country exits the Euro, this is very likely to be the end of the Euro altogether (and an exit, will be a very very painful affair for many countries, especially the periphery countries).

Draper666

Thanks lads I know I didn't ask but very informative replies

jack747

thanks lads very usefull appreciate it.

Voltex

Krugman summed up a number of root causes for the Eurozone crisis in an article I read some time back..I think some were:

1-Lack of true freedom of labour movement
2- Economies with different levels of economic development
3-Lack of alignment of business cycles across the Eurozone
4- It was a political ideal rather than one of true economic benefit

Justin1982

Voltex wrote: »

Krugman summed up a number of root causes for the Eurozone crisis in an article I read some time back..I think some were:

1-Lack of true freedom of labour movement
2- Economies with different levels of economic development
3-Lack of alignment of business cycles across the Eurozone
4- It was a political ideal rather than one of true economic benefit

I wouldnt necessarily agree with all of those.......particularly number 1, 2, 3.

It was probably a lot more simple.......Bad economics, bad politics, bad choices, greed, stupidity, cockiness and human nature would be my main pointers.

4 is also wrong.......Getting a single currency made it more efficient to sell products across Europe, ie. less hassle and removal of currency exchange transaction fees.....That makes it a whole lot easier for money to flow from uncompetitive areas of EU to more competitive areas of EU which helped reduce the effect of 2. Thats why Ireland boomed and Germany did not. As it turned out the Irish were fairly retarded with money so its bubble burst and money easily flowed back to Germany.

As for 1, even though the different languages made movement of labour around Europe hard in theory, there was huge movement to countries like Ireland from countries that never migrated here before.

There was some labour movement constraints like Central europe not allowing a flood of eastern Europeans in straight away. But I would not in any way consider that a negative that contributed to the financial crisis in Europe at all.

Voltex

Justin1982 wrote: »

I wouldnt necessarily agree with all of those.......particularly number 1, 2, 3.

It was probably a lot more simple.......Bad economics, bad politics, bad choices, greed, stupidity, cockiness and human nature would be my main pointers.

4 is also wrong.......Getting a single currency made it more efficient to sell products across Europe, ie. less hassle and removal of currency exchange transaction fees.....That makes it a whole lot easier for money to flow from uncompetitive areas of EU to more competitive areas of EU which helped reduce the effect of 2. Thats why Ireland boomed and Germany did not. As it turned out the Irish were fairly retarded with money so its bubble burst and money easily flowed back to Germany.

As for 1, even though the different languages made movement of labour around Europe hard in theory, there was huge movement to countries like Ireland from countries that never migrated here before.

There was some labour movement constraints like Central europe not allowing a flood of eastern Europeans in straight away. But I would not in any way consider that a negative that contributed to the financial crisis in Europe at all.

I'm not usually a fan of Krugman, but his points are valid in my mind.

1. Although there is relative ease of labour movement within the Eurozone, linguistics is certainly a barrier. There should be ease of labour movement within a common currency zone, so where there's a localised recession, downturn, depression labour can move to areas with better opportunities. This ease of movement should also include transferability social security entitlements and pension provisions. We didn't exactly see many Dutch, German, Finnish, Greek professionals moving here.
2. By no means am I saying there are no benefits to the single currency, but the reality is that with the Euro, there's a single central bank who is responsible for monetary policy across a group of nations with very different levels of economic development and business cycles. This is probably one of the most significant attributes of the Irish experience. Interests rates were set with the economies of Germany and France in mind, whereas Ireland had very low rates couplked with an emerging housing boom and a general economy that was very quickly catching up with its European peers.
3. This is very much encompassed within 2.
4. I suppose this is more Mrs Thatcher's reason for opposing the "Hard Ecu". There were so many economic barriers to the single currency it became hard to see the sustainability of the currency without true fiscal and monetary union.

Justin1982

Voltex wrote: »

I'm not usually a fan of Krugman, but his points are valid in my mind.

1. Although there is relative ease of labour movement within the Eurozone, linguistics is certainly a barrier. There should be ease of labour movement within a common currency zone, so where there's a localised recession, downturn, depression labour can move to areas with better opportunities. This ease of movement should also include transferability social security entitlements and pension provisions. We didn't exactly see many Dutch, German, Finnish, Greek professionals moving here.
2. By no means am I saying there are no benefits to the single currency, but the reality is that with the Euro, there's a single central bank who is responsible for monetary policy across a group of nations with very different levels of economic development and business cycles. This is probably one of the most significant attributes of the Irish experience. Interests rates were set with the economies of Germany and France in mind, whereas Ireland had very low rates couplked with an emerging housing boom and a general economy that was very quickly catching up with its European peers.
3. This is very much encompassed within 2.
4. I suppose this is more Mrs Thatcher's reason for opposing the "Hard Ecu". There were so many economic barriers to the single currency it became hard to see the sustainability of the currency without true fiscal and monetary union.

Just on point 1. Your right, language is a barrier to true economic movement. But most Europeans outside of Ireland/UK are pretty darn multi lingual. And I still would say that language barrier had nothing to do with financial crisis. The amount of immigration into Ireland during the Celtic Tiger was unreal. If you lived in Dublin between 2000 and 2007 you'd notice just how much there was. Companies like eBay, Google and State Street have a high percentage of employees from different parts of Europe working in Ireland. And they are just the companies that I know. Most companies are like that. Any town in Ireland has a huge immigrant population also whether it be from Europe or Africa.

Germans and French dont feel the need to move to Ireland on mass as they have a fairly sophisticated lifestyle but there was plenty of movement from those countries. Irish people dont move to Europe as much. Thats more a cultural thing I think than economic or due to language