Germany, Greece, and the EU

[myp]

In light of the crisis in Greece, does anyone have any predictions of what will happen to the Euro or EU? After the crisis unfolded, everyone looked to one of the EU's strongest economies: Germany. Germany seems to be skeptical of a bailout now because a bailout of Greece could set an unwanted precedent of bailing out others, especially out towards the Mediterranean- just another example of moral hazard. Such a bailout would also hurt the Euro (currency), but the lack of a bailout, could hurt the European banking system and have especially adverse effects in Spain and Portugal, which are also under large deficits. On top of all that, many German citizens do not want their tax money spent to bail out another nation.

Any thoughts?

There is an interesting piece on the scenario from the Economist which is what actually prompted me to making this post. You can check that piece out here: http://www.economist.com/world/europe/displayStory.cfm?story_id=15549449&source=most_commented

 

[Dirk]

The EU will be fine, the euro will do fine. The euro is based on the DAX, which is very stable.

As for Greece, that depends on whether the Government can hold onto power, or not.

In regards to Germany, the Government and the people have taken a dim view of bailing out the rich. A view which i share. It was the same when the question of bailing out Deutsche Bank came up.

 

[dave]

The EU will be fine, the euro will do fine. The euro is based on the DAX, which is very stable.

As for Greece, that depends on whether the Government can hold onto power, or not.

In regards to Germany, the Government and the people have taken a dim view of bailing out the rich. A view which i share. It was the same when the question of bailing out Deutsche Bank came up.

The problem is that "moral hazard" applies to everyone not just the "rich". Whenever the benefits go to one person or a company but the risks are born by society, its dangerous.

 

[deanhills]

In light of the crisis in Greece, does anyone have any predictions of what will happen to the Euro or EU? After the crisis unfolded, everyone looked to one of the EU's strongest economies: Germany. Germany seems to be skeptical of a bailout now because a bailout of Greece could set an unwanted precedent of bailing out others, especially out towards the Mediterranean- just another example of moral hazard. Such a bailout would also hurt the Euro (currency), but the lack of a bailout, could hurt the European banking system and have especially adverse effects in Spain and Portugal, which are also under large deficits. On top of all that, many German citizens do not want their tax money spent to bail out another nation.

Any thoughts?

There is an interesting piece on the scenario from the Economist which is what actually prompted me to making this post. You can check that piece out here: http://www.economist.com/world/europe/displayStory.cfm?story_id=15549449&source=most_commented

I'm not an economist, but we have a recession, and the EU Government costs a lot of money to run. The EURO was very high, and probably even benefitted relatively from the major problems with the US economy during last year. My gut feeling says the EURO may go down, in fact announcements may be coming from countries who are unhappy in the EU that may make the EURO less attractive. My own money is presently in the worst currency possible, the UK Pound. I'm not sure what to do with that and am waiting things out.

 

[Dirk]

I'm not an economist, but we have a recession, and the EU Government costs a lot of money to run. The EURO was very high, and probably even benefitted relatively from the major problems with the US economy during last year. My gut feeling says the EURO may go down, in fact announcements may be coming from countries who are unhappy in the EU that may make the EURO less attractive. My own money is presently in the worst currency possible, the UK Pound. I'm not sure what to do with that and am waiting things out.

Two things:

The EU Government is extremely cheap.

Germany WANTS the value of the Euro to go down.

 

[myp]

Two things:

The EU Government is extremely cheap.

Germany WANTS the value of the Euro to go down.

The EU Government is not extremely cheap. If you look at it from Germany or France's standpoint maybe, but if you look at a lot of the other countries, there are some major debt problems and weak market fundamentals. Let's remember that all of the EU regulations all come with a cost, even if it is not an accounting cost, it could be an opportunity cost.

 

[Dirk]

The EU Government is not extremely cheap. If you look at it from Germany or France's standpoint maybe, but if you look at a lot of the other countries, there are some major debt problems and weak market fundamentals. Let's remember that all of the EU regulations all come with a cost, even if it is not an accounting cost, it could be an opportunity cost.

Well, I will say that very few EU regulations are actually enforced. A lot of them are just common sense and others are just not put into practice. In theory, it is completely impractical to enact even a majority of them. But it's like H&S - there are loads of rules, but few are actually adhered to in reality.

I don't think the EU can be compared to any single national government in regards to cost. Same when you're talking about revenue. Tiny proportions, in comparison.

In regards to the poorer countries, they actually get money from the EU.

I don't support the EU, but I find it's important to be accurate.

 

[deanhills]

Germany WANTS the value of the Euro to go down.

This part is really interesting for me. That is possibly the reason for the British Pound that is low as well. As well as the US Dollar? It did not just happen, it was a Government strategy?

 

[Dirk]

This part is really interesting for me. That is possibly the reason for the British Pound that is low as well. As well as the US Dollar? It did not just happen, it was a Government strategy?

In the case of the UK and US, they want the value of the pound and the dollar to go up. The reason Germany wants the reverse is because its economy is based on exports. It's one of the biggest exporters in the world. That's not patriotism on my part, that's fact. The UK's and US's economies are service-based, rather than manufacturing. That's the reason that the Bush administration kept the dollar's value artificially high.

Does this help?

 

[deanhills]

In the case of the UK and US, they want the value of the pound and the dollar to go up.

I don't think so. They want their currencies to be low so that their exports can be more competitive. Especially the US that has such an enormous debt with China, and must be competing with China with exports to the world.

 

[Dirk]

I don't think so. They want their currencies to be low so that their exports can be more competitive. Especially the US that has such an enormous debt with China, and must be competing with China with exports to the world.

The US and UK simply don't have an important export economy. Their economies are service-based. You have Reagan and Thatcher to thank for that. Germany, however, has its economy based on manufacturing cars, chemicals, electronics etc. It exports these - it's one of the largest exporters in the world. Hell, in 2005, we WERE the largest exporter in the world.

 

[deanhills]

The US and UK simply don't have an important export economy. Their economies are service-based. You have Reagan and Thatcher to thank for that. Germany, however, has its economy based on manufacturing cars, chemicals, electronics etc. It exports these - it's one of the largest exporters in the world. Hell, in 2005, we WERE the largest exporter in the world.

The "serviced-based" parts are exported on a very big scale. For example in the Middle East there is a satellite campus of Harvard University, there are people from the UK training people here in the military, and many other establishments. Consultants and advisors. Dubai has a large percentage of people from the United States.

 

[Dirk]

I'm not sure exactly how to explain it, but it doesn't work that way.

Trust me, there's a reason the dollar was kept artificially high in value.

Anyone good with economics care to help explain?

 

[David]

The "serviced-based" parts are exported on a very big scale. For example in the Middle East there is a satellite campus of Harvard University, there are people from the UK training people here in the military, and many other establishments. Consultants and advisors. Dubai has a large percentage of people from the United States.

Dubai is bankrupt. Not an example I'd use.

 

[deanhills]

Dubai is bankrupt. Not an example I'd use.

So is the United States. Apparently it does not matter how bankrupt you are, but how much credibility you have. By the way, Dubai is just one Emirate out of the total of seven Emirates that there are. Abu Dhabi is the Emirate that counts and where the oil is. There is no oil in Dubai. Dubai makes its money mostly out of trading and its money problem is pretty much the ones New York Banks had before Obama decided to bail them out. Bailing out in the UAE is a little different. They negotiate the bail-outs asset by asset, such as the name of Burg Dubai, being changed to Burg Khalifa. Very rare that countries give their leaders a blank cheque like they had given to Obama for 1.2 trillion dollars in January last year.

 

[Dirk]

Ahem, back on topic, I have an update.

I flicked on AJE earlier, and just as i predicted, most Germans oppose bailing out Greece.

So i clicked on the AJE website and found an article on it. It's here:

http://english.aljazeera.net/news/europe/2010/03/2010315191228967537.html

The German Government is currently opposed to the bailout.

Also as i predicted, there will be no problems for the euro, according to the article.

I opposed a bail out anyway, but then i read this:

If we talk about measures, for example about loans, they will follow the same kind of methodology as the IMF.

Now i just hope this idea dies ASAP.

I'm sure we can all tell, if that goes ahead, there will be a LOT more fighting in Greece - i'm frankly surprised the Government got away with so much already!

 

[deanhills]

The German Government is currently opposed to the bailout.

Hope they will stick with this however, as their instincts are usually always right, but when it gets to nitty gritty negotiations and they are part of a Group, they may have to change their point of view.