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The causes: A very short history of the crisis

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There is a Difference Between Greece and the US » If we learn the wrong lessons from Greece, our social safety net may wind up in tatters. Many market analysts, commentators and economists claim to be having a hard time finding a metric in which the US is in better financial shape than Greece. Ken Rogoff, for example, recently warned that a Greek default would usher in a series of sovereign defaults, and suggested recently on NPR that the crisis also had implications for the US. The historian Niall Ferguson made a similar claim a few months ago in the Financial Times. The cries of the deficit hawks grow louder: Repent all ye fiscal profligates, before the "day of reckoning" comes. Let's dial down the Biblical hysteria a wee bit while there's still time for rational debate. The relative performance of various currencies against the US dollar is highly instructive in this regard. That the US has the reserve currency is an irrelevant consideration here. Why won't these deficits be inflationary? And the same logic applies for Greece.

Eurozone in crisis in graphics: Deficit Continue reading the main story EU rules say that countries using the euro are not allowed to have an annual deficit of more than 3% of GDP, but several countries have failed to keep to that rule in recent years. Note that Germany, Italy and France were all among the first countries to break the Maastricht rule during the last decade, while Spain and the Republic of Ireland ran surpluses before the 2008 crisis. Since 2008, peripheral economies such as Spain, Greece and Portugal have run big deficits, because their economies have slumped, generating less tax revenues and requiring more unemployment benefit payments. Ireland experienced an exceptionally enormous deficit of 31% of its GDP in 2010, largely due to the cost of rescuing its banks. Italy, however, has faired surprisingly well. Send us your feedback

German Economic Striving at the Expense of Workers and Neighbors Will Backfire | Economy February 21, 2012 | Like this article? Join our email list: Stay up to date with the latest headlines via email. Unemployment in Germany is now at a 20 year low and the country’s economy seems to be impervious to the strains afflicting its neighbors in the economic periphery- notably, Greece, Portugal, Italy and Spain. But hold on a minute. Who Needs a Mini Job? The Germans have always been obsessed with export competitiveness. Unlike the American Henry Ford, who created good, well-paying jobs because he knew that having a secure middle class was essential to having a market for his cars, Peter Hartz views the relationship between wages and the economy very differently. The Hartz reforms have been extremely far reaching in terms of the labor market policy that had been stable for several decades. The “reforms” actually decreased regular employment. Floyd Norris of the NY Times captures this trend well in a recent piece on “Germany and the rest of Europe”:

A tale of two economies – Greece and Iceland Last Friday (March 9, 2012), the Greek government effectively defaulted on its public debt after the required minimum of 75 per cent of private creditors agreed to the so-called “haircut” or debt swap. I find it amusing how the Euro leaders have attempted to massage the default as a debt swap or some other euphemism. The facts are obvious – close to 100 per cent of those who are holding Greek government debt will lose at a minimum 53.5 per cent of the value of their assets. All the political elites in Europe (or most of them) seemed to be raising their Chardonnay glasses to toast a success. On Saturday (March 10, 2012) the Sydney Morning Herald reported in the article – Greek problem solved, Sarkozy says – while Germany warns – which predictably had the French leader making political statements in the face of his upcoming election and the Germans – being, well, Germans. Sarkozy was quoted as saying: Today the problem is solved … A page in the financial crisis is turning. Conclusion

Die Top-Ökonomen: Kemal Dervis - Weg mit den deutschen Exportüberschüssen Kemal Dervis Das Thema sollten jedoch nicht nur auf Leistungsbilanzdefizite in Industrieländern und Überschüsse in Entwicklungsländern beschränkt werden. Viele Entwicklungsländer - darunter Indien, Südafrika, Brasilien und die Türkei - weisen Leistungsbilanzdefizite auf. Auch gibt es viele Industrieländer mit einem Leistungsbilanzüberschuss: Deutschland ist seit dem Beginn der Eurokrise ein bekanntes Beispiel, aber auch Japan, die Niederlande, Norwegen und Schweden produzieren Überschüsse. Es geht also nicht nur darum, die Überschüsse der Entwicklungsländer abzubauen, um dadurch die Defizite der Industrieländer entsprechend zu verkleinern. Darüber hinaus unterliegt der chinesische Renminbi einer ziemlich großen realen Aufwertung, da die Inflation in China stärker steigt als in den USA oder in der Eurozone.

Germany: A False Model at Reports from the Economic Front As growing numbers of countries face renewed austerity pressures, there is a tendency to explain the trend by searching for specific policy failures in each country rather than considering broader structural dynamics. Key to the credibility of those who argue for a focus on national decisions is the existence of countries that people believe are performing well. Thus, the argument goes, if only policy makers followed best practices their people wouldn’t find themselves in such a bad place. Here is a typical framing of the German experience: At a time when unemployment rates in France, Italy, the UK, and the US are stuck around 8%-9%, many are turning to the apparent miracle in the German labor market in search of lessons. In other words, Germany seems to be doing things right. This development was far from accidental. The New York Times described the German employment miracle as follows: As the chart below shows, German wages have been stagnating for over a decade.

Germans and Aliens The Times has an article today about Germany’s faith in austerity as the answer to depression. It’s sad reading for anyone hoping that Europe will get its act together; it’s especially galling that Germans remain so committed to belief in expansionary austerity, despite the thorough empirical debunking the notion has been given over the past year and a half (see, e.g., this IMF working paper (pdf)). But the Germans believe that their own experience shows that austerity works: they went through some tough times a decade ago, but they tightened their belts, and all was well in the end.

The eurozone crisis is not about market discipline Washington, DC - The people who gave us the eurozone crisis are working around the clock to redefine it in order to profit politically. Their editorials - run as news stories in media outlets everywhere - claim that the euro crisis is a story of profligate governments being reined in by the bond market. This is what is known in economics as a "lie". The eurozone crisis is most definitely not a story of countries with out of control spending getting their comeuppance in the bond market. Prior to the economic collapse in 2008, the only country that had a serious deficit problem was Greece. The crisis changed everything. Ireland saw its debt explode because it got stuck with a huge bill from bailing out its free-wheeling bankers. Whatever the case, this is not the classic story of profligate government spending. Even after the collapse, the ECB has exacerbated the debt problem with its wrong-headed policies. People should recognise this process for what it is: class war.

Europa im Würgegriff der Banken Ein sehr guter Artikel, soweit es die Ist-Situation betrifft. Eine Restrukturierung der Verbindlichkeiten ist sicher das kleinere Übel gegenüber einem Mega-Bailout auf Kosten der Allgemeinheit (würde auch die Richtigen treffen, nämlich die Gläubiger), aber es trifft nicht die Ursache des Problems. Die Ursache ist vielmehr die nahezu grenzenlose Verfügbarbar von Geld, das von den Banken (über die Zentralbanken) buchstäblich aus dem Nichts geschaffen wird (und natürlich auch zuerst den Geschäftsbanken zur Verfügung steht). Aus China kam ein interessanter Vorschlag zur fundamentalen Lösung dieses Problems: Währungen sollten durch Vorhalten eines Rohstoffkorbs (wenigsten teil-)gedeckt sein.

Bankenrettung als Farce von Lucas Zeise Wir sind wieder da, wo wir drei Jahre zuvor auch schon waren. Die Banken müssen abermals mit sehr viel staatlichem Geld vor dem Untergang gerettet werden. Noch ist reichlich unklar, wie genau die Bankenrettung aussehen wird. Die Aussicht darauf, dass die Regierungen des Euro-Gebietes wieder enorm viel Steuergeld zur Stützung der Banken aufzuwenden gedenken, hat den Aktienmarkt beflügelt. Die Banken misstrauten sich gegenseitig. Die Freude am Aktienmarkt über die von Merkel, Barroso und vom französischen Präsidenten Nicolas Sarkozy in Aussicht gestellten geldwerten Stützungsoperationen für die Banken wurde kurioserweise von den Vorständen einiger dieser Banken nicht geteilt. Die Banker ihrerseits wollen das zusätzliche Eigenkapital nicht, denn eine hohe Eigenkapitalquote verringert aus zwei Gründen die Profitabilität: Erstens wird der Hebel kleiner, mit dem die Bank aus wenig geborgtem Geld mit ihren Geschäften viel Geld macht. Viel Schein, wenig Sein

The meaning of "solidarity" in the eurozone 4 June 2012Last updated at 20:20 ET By Michael Goldfarb Writer and broadcaster Supporters of European integration have always been keen on the idea of "solidarity" between nations. It's not a word heard so much in the Anglo-Saxon world - but at this time of crisis, perhaps examples from American history hold useful lessons? European Union technocrats use the word "solidarity" a lot these days. The EU's success over decades has been built on ideas of solidarity. The Common Agricultural Policy accounts for more than 40% of EU expenditure - in Britain, according to UK government figures, more than 100,000 farmers receive £1.5bn ($2.3bn) in CAP funds each year. Continue reading the main story Solidarity, stability, survival... Meanwhile, 35% of the EU budget - so-called structural and cohesion funds - is spent helping member states modernise infrastructure and improve competitiveness, with poorer countries, and poorer regions of wealthier countries, the main beneficiaries. “Start Quote End Quote

Nicht die Staats­haushalte sind das Kernproblem der Euro-Zone, sondern die Ungleichgewichte in der Wettbewerbsfähigkeit der Mitgliederländer  4.6.2012, 00:01 Uhr Reden wir nicht mehr über Rettungsschirme! In Europa wird vor einer Krise gewarnt, die «heute lebende Generationen noch nicht erlebt haben.» Und wer ist dafür verantwortlich? Die üblichen Verdächtigen aus dem Süden? (Bild: Hans-Jörg Walter) Europa am Abgrund, Europa vor dem Untergang: Die nicht enden wollende Krise wird mit dramatischen Worten beschrieben. Reden wir nicht mehr über Rettungsschirme! In diesen Tagen kann man in Euroland wieder beobachten, dass Politiker selbst in Zeiten höchster Gefahr die seltsame Neigung haben, scharf am eigentlichen Thema vorbeizureden. Redeten die Politiker aber vor dem Auftauchen des neuen französischen Präsidenten vor allem über Rettungsschirme und Sparmassnahmen, haben sie nun das Thema gewechselt und debattieren mit aller Heftigkeit die von François Hollande ins Spiel gebrachten Eurobonds und Wachstum. Gleichwohl ist der Ansatz vollkommen falsch. Programmierte Krise Sinnlose Grabenkämpfe Gute Arbeit! Print Mail * Pflichtfeld

Robert Mundell, evil genius of the euro The idea that the euro has "failed" is dangerously naive. The euro is doing exactly what its progenitor – and the wealthy 1%-ers who adopted it – predicted and planned for it to do. That progenitor is former University of Chicago economist Robert Mundell. The architect of "supply-side economics" is now a professor at Columbia University, but I knew him through his connection to my Chicago professor, Milton Friedman, back before Mundell's research on currencies and exchange rates had produced the blueprint for European monetary union and a common European currency. Mundell, then, was more concerned with his bathroom arrangements. "They won't even let me have a toilet. As it happens, I can't. But Mundell, a can-do Canadian-American, intended to do something about it: come up with a weapon that would blow away government rules and labor regulations. "It's very hard to fire workers in Europe," he complained. The euro would really do its work when crises hit, Mundell explained.

Cara Chanceler Merkel Sehr geehrte Frau Bundeskanzlerin Merkel, Zuallererst möchten wir darauf hinweisen, dass wir uns an Sie als Kanzlerin der Bundesrepublik Deutschland wenden, und zwar nur als solche. Wir haben Sie nicht gewählt, erkennen keine Kanzler/in Europas an. In diesem Sinne möchten wir, die Unterzeichner dieses offenen Briefes, diesen Weg nutzen, um an Sie, Frau Bundeskanzlerin, zu schreiben. Wir, die Unterzeichner, sind Bürgerinnen und Bürger des Landes, welches Sie am 12. November besuchen werden, Bürgerinnen und Bürger, die sich solidarisch mit den von den Sparprogrammen attackierten Ländern verbunden fühlen. Aufgrund des Charakters Ihres angekündigten Besuches und vor dem Hintergrund der katastrophalen ökonomischen und sozialen Lage Portugals, betonen wir, dass Sie hier nicht willkommen sind. Weil unsere Regierung seit einiger Zeit aufgehört hat, den Gesetzen und der Verfassung dieser Republik Folge zu leisten, müssen wir uns daher mit diesem Brief direkt an Sie wenden. Unterzeichner

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