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hellbringer
Tux's lil' helper
Joined: 12 Feb 2003
Posts: 82
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 Posted: Thu Feb 11, 2010 12:27 pm Post subject: |
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| cach0rr0 wrote: |
...and in what way precisely is that an argument contrary to my own, that without Germany backing the euro it's doomed to either fail, or cease to be relevant on foreign exchanges? |
This is obviously true (or at least I agree), but I think the point we are trying to make is that it is not only Germany alone that does the backing. Without France the Netherlands and probably Italy it would also fail. There is more to a currency value than public deficit (else the US dollar would be totally worthless).
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cach0rr0
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Joined: 13 Nov 2008
Posts: 3849
Location: Houston, Republic of Texas
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| Posted: Thu Feb 11, 2010 6:54 pm Post subject: |
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| erm67 wrote: |
Taxation is also different in the various US states so you should be considering them separately as well even if the biggest share is composed of federal taxes. And the same goes for other federal entities why are you emphasising an identical fiscal policy only for the EU? |
Uniform fiscal policy is so critical in the EU because you have a centrally-managed uniform monetary policy, but NO uniform fiscal policy. The US has a uniform fiscal policy at the federal level, the EU does not.
| erm67 wrote: |
In a free market like the EU if taxation was unfair in a country all companies would move to a country with a more favourable taxation, so it is necessary and in the interest of all partecipants to have a comparable level of taxation/services to prevent company migrations. It is just self regulating, countries that fails in doing this (Greece?) will face problems.
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And what are the EU's national tax rates? That's precisely the point, that I keep repeating. Right now fiscal policy is defined by each individual nation, while monetary policy is decided by a central body. Read through the article, in your "flawless" system Germany has managed to become a dominant force that has a competitive advantage over every other eurozone member, albeit some to a greater degree than others.
| cach0rr0 wrote: |
It isn't at all flawed to look at a state's financial position with respect to the performance of the nation. |
| erm67 wrote: |
But it is flawed to get conclusions about the currency of the whole nation based on the performance of a single state, this regards your CA deficity -> currency devaluation argument. Also the impact of the public debt of a single member on the currency of the whole area can not be considered seriously.
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Conclusions no, predictions yes. With the US federal government adopting somewhat of an expansionary Keynesian approach to recession spending, it is perfectly reasonable to predict that the bailouts required to rectify California's estimated nearly $600 billion debt are going to cause severe inflation, and an overall devaluation of the dollar. A similar effect will be seen with the euro any and every time a member nation requires a bailout.
| erm67 wrote: |
This is exactly the problem here, external investor buying indiscriminately govt bonds (and speculating on them) of the eurozone without discriminating about the countries and what is happening in Greece probably will have the effect of stopping this trend, goverments with a high debt are facing problems in placing their bonds, a stimulus to do better. Not having central EU bonds is probably the cause of all this. And probably more effective measures should be taken against countries not respecting the '93 stability pact.
The situation in Portugal Greece Ireland (Spain is maybe a bit different) is not going to influence very much the economy of the eurozone or the euro as a whole but will create problems to those countries, leave the euro is probably out of question for them, too expensive and unpredictable, the only solution will be to fix their balances. |
So then where is the money going to come from when Portugal, Greece, Ireland, or France need a bailout?
The lion's share of that will end up having to come from Germany. Germany has found itself in a very strong, very dominant financial position over other eurozone member nations. Collectively, other member nations simply do not have the money to give, as is readily seen by looking at the tremendous CA deficits.
This is the crux of the matter. With different bodies setting multiple different, non-uniform fiscal policy, shifts in CA balance and fiscal balance will not be shared uniformly across all member nations. In order to remedy this, you'd need to remove the majority of each individual member nations' control over their own fiscal policy, and shift it to a centralized EU body. The stronger nations whose outlook is infinitely more positive than the weaker ones, are unwilling to cede this control.
You are left with a problem whose solution is known, but a solution that will never be adopted by member nations willingly. |
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erm67
Tux's lil' helper
Joined: 01 Nov 2005
Posts: 130
Location: somewhere in Berlusconia.
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| Posted: Thu Feb 11, 2010 8:05 pm Post subject: |
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| cach0rr0 wrote: |
Uniform fiscal policy is so critical in the EU because you have a centrally-managed uniform monetary policy, but NO uniform fiscal policy. The US has a uniform fiscal policy at the federal level, the EU does not.
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We do have a uniform fiscal policy: public debt deficit cannot be more than 3% of the GDP, how this is implementented is left to to the country, what is missing are effective measures against countries that doesn't respect the pact.
| cach0rr0 wrote: |
Read through the article, in your "flawless" system Germany has managed to become a dominant force that has a competitive advantage over every other eurozone member, albeit some to a greater degree than others.
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Again you do not understand that commercial exchange occurring internally in the eurozone should be treated differently from that with non-euro countries, this because it is expected that internal exchanges grows in a free market and participating countries are not expected to reduce it. The fact that the German economy is doing well and trailing the eurozone economy is good because of common currency, this only as long as the balance with foreign countries (non-euro) remains good.
| cach0rr0 wrote: |
A similar effect will be seen with the euro any and every time a member nation requires a bailout. |
Well at the moment Greece is not requesting a bailout and not getting one 
| cach0rr0 wrote: |
So then where is the money going to come from when Portugal, Greece, Ireland, or France need a bailout?
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At the moment the worst situation was in Ireland but they managed to direct their balances toward an orderly condition without all the media buzz of greece a couple of years ago. Spain still has unresolved problems and should cut its populistic expenditures before it gets in trouble, France is not doing so bad as you think, Portugal remains a candidate as the next fail but maybe the recent situation will induce them to a more realistic politic.
I personally agree that the EU an eurozone countries pledged to support Greece, as a member, but did not just sign a blank check to cover their political failures, this maybe can be a signal to the outside that the eurozone is really an entity and to the other problematic countries that they are expected to respect the pacts.
And the BCE is expected to emit euro-bonds to create an emergency fund to be used in real future cases of emergency.
| cach0rr0 wrote: |
The lion's share of that will end up having to come from Germany. Germany has found itself in a very strong, very dominant financial position over other eurozone member nations. Collectively, other member nations simply do not have the money to give, as is readily seen by looking at the tremendous CA deficits.
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I repeat CA daficit should be calculated excluding exchanges with other eurozone countries, since those are expected to grow and cannot be altered by fiscal measures.
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