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when was last time Greek's trade balance was positive ? probably never.

but you re right they should not be using the same currency as Germany/France, few others countries are in the same situation, I guess it will be sorted out soon by shrinking the Eurozone.

by fredouil (fredouil@gmailgmailgmail.com) on Sun Feb 12th, 2012 at 02:38:58 PM EST
[ Parent ]
Right, all countries have a duty to have a positive trade balance.

Query: who do they all export to?

by afew (afew(a in a circle)eurotrib_dot_com) on Sun Feb 12th, 2012 at 02:42:19 PM EST
[ Parent ]
dont have to be every years, there are economical cycles
by fredouil (fredouil@gmailgmailgmail.com) on Sun Feb 12th, 2012 at 02:48:06 PM EST
[ Parent ]
And right now, the economic cycle requires Germany to have 6-8 % yearly inflation for a few years, so Greece can avoid deflation while the trade imbalance is worked out.

If you don't like that, then you don't like the common currency.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 12th, 2012 at 02:51:21 PM EST
[ Parent ]
I have nothing against inflation.What ever works.but yes as you point out, the logic of a common currency between Greece and Germany is not very rational and quite painful to manage ;-)
by fredouil (fredouil@gmailgmailgmail.com) on Sun Feb 12th, 2012 at 02:55:31 PM EST
[ Parent ]
From an operational point of view, it's actually extremely easy to manage. The ECB just has to print money in proportion to each member state's internal current accounts deficit, and use that money to reduce the co-pays on deficit countries' regional development funds.

Voila, problem solved.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 12th, 2012 at 02:58:29 PM EST
[ Parent ]
Precisely ~ the logic of a common currency is that since Germany profited from a decade a German banks lending into the Greek bubble economy to generate the purchasing power for German production and employment, as the trade surplus-creating country it bears equal guilt for the imbalance as Greece, the trade deficit-creating country.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Mon Feb 13th, 2012 at 09:58:49 AM EST
[ Parent ]
Lest we forget: unlike for example Spain, Greece did have really crappy public finances, deficits and so on, before the crisis.

The other periphery countries had their finances screwed as a result of the crisis, due to lower revenue, higher social costs (that is, good contra-cyclical policy) or retarded bank rescues (Ireland).

Greece is at a greater fault than Italy, Spain etc. But I'm not defending the ECB for a second. I argued Greece should default back in 2008, and I haven't changed my mind.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Feb 16th, 2012 at 08:09:21 PM EST
[ Parent ]
Well, Spain et al mismanaged their private sector solvency just as badly as Greece allegedly mismanaged its public sector. A mismanagement I still don't see that much evidence of, to be honest. Barring retaliatory wage suppression, which is the ultimate in irresponsible short-term begger-thy-neighbour policy, they were really in a pick-your-poison type of scenario between a run on their public bonds or a run on their private banks. That Greece picked the former rather than the latter does not make them any more or less virtuous.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Feb 17th, 2012 at 03:01:44 AM EST
[ Parent ]
True, but the risk-taking of the private sector, while certainly relevant to the authorities, is less their respoinsibility than is the risk-taking of the public sector, which the authorities directly control rather than just regulate.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Feb 17th, 2012 at 03:43:11 AM EST
[ Parent ]
I'm not talking about risk-taking.

I'm talking about simple rules of addition and subtraction telling you that if you make like the Spanish and run a public sector surplus in the face of an external deficit, you are pushing your private sector into a messy default.

I'm still not clear on how that's a more responsible sort of thing to do than to run a public sector deficit and then repudiate the public debt in an orderly manner.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Feb 17th, 2012 at 03:54:04 AM EST
[ Parent ]
Because in a non-mad world, private defaults do not lead to public bailouts and massive costs to the tax-payer, but rather to wipeouts in private wealth/capital/equity, which individual investors have decided to risk to get a chance at higher returns.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Feb 17th, 2012 at 04:11:29 AM EST
[ Parent ]
However, in a non-mad world, public defaults do not lead to liquidation sprees that destroy extant capital equipment. Private defaults do. So it's not a priori such a clear-cut thing which is preferable.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Feb 17th, 2012 at 04:16:00 AM EST
[ Parent ]
In my experince, private companies that go bust do not melt down their machines, they (the companies) are either bought wholesale out of bankruptcy by competitors, or their machines are.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Feb 17th, 2012 at 04:26:48 AM EST
[ Parent ]
The problem is less that they go bankrupt (although some do melt down their machines in that eventuality). The big problem is that they hang on for dear life for a while, trying to survive through cutting costs by cutting corners. There's no company more risk loving and short-termist than a company trying to paper over an insolvency.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Feb 17th, 2012 at 04:34:34 AM EST
[ Parent ]
Hardly an overbearing problem. A little friction is to be expected in an economy based on creative destruction. The upside of the managed capitalist system is worth this little downside, by a very wide margin.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Feb 17th, 2012 at 05:40:18 AM EST
[ Parent ]
Jake:
public defaults do not lead to liquidation sprees that destroy extant capital equipment.

That would be true for GM. But is it really applicable to the problem in Spain, where the mis-allocation resulted in a vast supply of overpriced real estate. It would seem that, in that case, private sector defaults would be an efficient way to reprice the assets at the cost of those who could most afford to pay. But we can't have the wealthy paying, can we?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Feb 17th, 2012 at 02:28:27 PM EST
[ Parent ]
The bubble having happened, the assets obviously need to be reassessed with an eye towards finding a sustainable price level.

But ex ante it is not obvious that inflating a housing bubble and then popping it is less painful for the common Spaniard than selling bogus Spanish government bonds to German banks and then telling them to fuck off and die when they come to collect.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Feb 17th, 2012 at 03:10:57 PM EST
[ Parent ]
If most of the holders of MBSs written around the inflated real estate are foreign, especially is many of them were involved in creating the MBSs and/or the bubble, I think I know which I would choose were I a Spaniard. By writing down the value of the asset it becomes liquid again. Life can resume. Better yet if the financial sector took the hit. The part of the hit that is to pension firms and/or small holders could be partly compensated, though writing down the value to something close to actual market value would certainly help all Spanish holders of underwater mortgages.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Feb 17th, 2012 at 09:39:54 PM EST
[ Parent ]
That's all true, but doesn't speak to the point I was making at all.

My point was that if you had been Senate and People of Spain in 2001 and, for some reason that defies rational comprehension, decided to hitch your wagon to the Eurozone, would it be better for the Spanish people to accommodate German mercantilism by blowing a real estate bubble (as they in fact did) or by selling bogus government bonds (as Greece did)?

My point is that that choice is far from clear-cut in 2001.

In 2012, after the fact, it's obvious what should be done. But also totally irrelevant to the discussion I was commenting on.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 18th, 2012 at 04:29:01 AM EST
[ Parent ]
My point was that if you had been Senate and People of Spain in 2001 and, for some reason that defies rational comprehension, decided to hitch your wagon to the Eurozone, would it be better for the Spanish people to accommodate German mercantilism by blowing a real estate bubble (as they in fact did) or by selling bogus government bonds (as Greece did)?

Incidentally, there was a recent op-ed in El Pais that's related to that: La gente que pagará esta reforma laboral (XAVIER VIDAL-FOLCH 16 FEB 2012)

Desde hace decenios existía en España un consenso básico, casi tácito, en que había que superar el modelo económico basado en salarios bajos y mediocre tecnología, que se reputaba propio de los países menos desarrollados. Pero la Agenda 2010 del canciller Schröder reverdeció una competitividad alemana basada en reducir costes al factor trabajo. De forma que si los vecinos, y entre ellos los más exitosos, optaban por ello, quizá había que volver a las (cutres) andadas del modelo español.

No es así: con esta reforma estamos tomando solo en parte, en la parte más dura para los trabajadores (la reducción del coste del despido, por ejemplo), las recetas alemanas. Pero no las partes más blandas: allá se exige el permiso de la autoridad a los despidos colectivos; prosiguen intactos los mecanismos de cogestión en la empresa; existe una auténtica política activa de empleo / recolocación.

Y sobre todo, se emplea a mansalva el kurzarbeit, o reducción temporal de la jornada laboral cuando disminuyen los pedidos, copagada por la empresa y el Estado: este es el mecanismo que salva a Alemania del paro --más que los minijobs-- y del que el decreto-ley realiza una ruda caricatura: descuento de la cuota de la Seguridad Social y pequeña compensación del seguro de desempleo, no real copago.

The people who will pay this labour reform (XAVIER VIDAL-FOLCH 16 FEB 2012)
For decades there was in Spain a basic, almost tacit, consensus, that the economic model based on low wages and mediocre technology had to be overcome, as it was reputed to be characteristic of less developed countries. But Chancellor Schroeder's Agenda 2010 gave new life to a German competitiveness based on reducing the cost of the labour factor. Thus if our neighbours, and among them the most successful, took that option, maybe it was time to go back to the (shoddy) old ways of the Spanish model.
Let's recall the Agenda 2010 was adopted by the EU Council as "Agenda 2010 for Growth and Jobs".
That's not the case: with this reform we're taking only in part, in the part that's harder on the workers (the reduction of the cost of layoffs, for instance), the German recipes. But not the softer parts: there, the authorisation of the authorities is required for collective layoffs [no longer the case in Spain]; the co-management mechanisms [union involvement] remain untouched; there is a true active employment/retraining policy.

And, above all, there is massive use of the kurzarbeit, or temporary reduction of the workday when orders fall, copayed by the firm and the State: this is the mechanism that saves Germany from unemployment --more so than the minijobs-- and which the [labour reform] legislative decree roughly caricatures: a discount on the Social Security contributions and a small compensation from unemployment insurance, not a real copayment.



tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Sat Feb 18th, 2012 at 05:04:44 AM EST
[ Parent ]
But the shoddy economic model based on low wages and mediocre technology was never abandoned, as the real-estate bubble shows. The Spanish political economy is unable to conceive of other activities than bricklaying.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Sat Feb 18th, 2012 at 05:05:59 AM EST
[ Parent ]
Oh, and this is what adjustment looks like: (year-on-year change in wages and company profits

Purple: company profits
Orange: wages of salaried workers

That's not going to improve "competitiveness" but it's definitely not the fault of the wages as the aggregate wage bill has dropped maybe 2% per annum over the past 3 years.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Sat Feb 18th, 2012 at 05:30:58 AM EST
[ Parent ]
And while, as you note, 'the assets obviously need to be reassessed' we have spent the last three years avoiding doing so, mostly in order to save financial institutions that would better be/have been liquidated. Neutralize the toxins in the system. Substitute 'Recognize and reorganize' for 'Extend and Pretend'. All would be better off a few years later that way. The current path will make everyone worse off a few years later.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Feb 17th, 2012 at 09:44:15 PM EST
[ Parent ]
Regarding Greece, what we have experienced was a fierce take over of the public sector by the private sector in a similar way that happened in the US under G.W. Bush (the war of Hulliburton etc). For example, pharmaceutical expenses of the public sector have doubled for 2.5 to over 5 billion euros in just five years. There was no similar improvement of the level of the health of the population as a result of raising the expenses. But that was public money that mainly went to the hands of private companies (mainly foreign) and to a lesser degree to "lazy and corrupt" civil servant.

"Eurozone leaders have turned a 50bn Greek solvency problem into a 1,000bn existential crisis for the European Union." David Miliband
by Kostis Papadimitriou on Fri Feb 17th, 2012 at 04:11:55 AM EST
[ Parent ]
Economically speaking, "Germany/France" does not exist.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 12th, 2012 at 02:44:48 PM EST
[ Parent ]
The best way for Greece to improve its trade balance will be to exit the Euro and issue its own currency. Other weaker net-importing economies joining Greece in an exit of the Euro may also have the desirable effect of driving the Euro up, making German exports less competitive (especially in the former Eurozone nations).
And Germany can then complain about how they deserve to be richer (but aren't) because they're so morally upstanding. Undoubtedly, they will use the fact of their depressed economy to further increase income disparities within Germany.
by Andhakari on Mon Feb 13th, 2012 at 07:56:39 AM EST
[ Parent ]

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