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My solution for Europe: Equity, not debt
#21
(08-13-2011, 06:58 PM)b5d Wrote: It's all part of the natural process of using countries as 'laboratories' for innovation. They need incentives. America likewise will lose its position in the world if its political and economic system performs worse than those of other countries.

You mean sort of like how we are now allowing the individual states act like 'laboratories' of innovation?

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#22
Sure. But then, after the 'experiment' is done, the lessons have to be applied to the higher levels.
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#23
H...W Wrote:The problem is that you have a whole bunch of different countries, with different monetary policies, all using the same currency. This is a recipe for disaster in the long run
What was a reciep for disaster was a lot of different countries using different curencies and maintaining border controls for no valid reason.

The only problem is with Greece because this country should have never been allowed in the euro zone. They are way too far off from having a balanced budget as euro currency countries are required.
But it's not Greece that will make the euro collapse.

H...W Wrote:But b5d thinks it should. He thinks the richest country should own the poorer, less fiscally responsible countries
I don't see any logic in this since countries are owned by the EU which is doing what bd5 suggests already. Germany is just a regional state, not organized to take care of annexed land.
Moreover Germany is NOT interrrested in annexing any other country let alone debt-ridden countries. That would make no sens whatsoever since Germany is already part of the EU.

PIIGS countries are making efforts to balance their budget already thanks to the EU.

WmL Wrote:I think uplifting all to the highest standard is the only winning strategy.
That's what the EU is about.

Countries joining the EU make a pledge to raise from crap to a modern developed country.

bd5 Wrote:Are you sure it's not an attempt to increase the sovereignty of certain tribes?
Actualy the winning tribes are those controling the EU commission. But it's a multinational tribe.
...Just like your tribe controlling the Congress, if you will.

bd5 Wrote:they could create a "Germany party", with a certain number of representatives appointed regardless of the votes.
Interresting idea. However they don't need to do that because the EU already plays that role. Germany being part of the EU is exercizing its power through the EU, a power balanced by other nations (or tribes if you insist - LOL).
Within the EU everybody agrees on what Greece, Portugal, Italy etc should do.
And in practice these countries must do what they are told, within some margin of decision.

bd5 Wrote:Now, if they're going to be losing their sovereignty to someone, shouldn't it be to a country that knows how to manage their economy?
That's what happens already in practice.
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#24
(08-14-2011, 05:44 AM)Fredledingue Wrote: Within the EU everybody agrees on what Greece, Portugal, Italy etc should do.
And in practice these countries must do what they are told, within some margin of decision.

Why?

My impression comes from what I've heard, that countries exceeded their budget limits one hundred something times, and were not punished once. Now, I can understand the urge not to enforce hard budget limits in all cases - I think there should be some discretion. But with discretion comes responsibility, and with responsibility comes the possibility to lose that responsibility. I think an automatic enforcement mechanism like this works better than some kind of bureaucracy. It's more market-oriented that way.

Really, what I'm talking about could work through the EU just as easily as nationally. But I think there should be some acknowledgement of which countries the money is coming from.
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#25
bd5, it's only after the Subprime crisis in the US (2008~2009) that eurozone countries started to fail en mass to meet eurozone requirements, most notably the maximum 3% GDP of deficit.

FRance broke it prior the subprime crisis and was heavily criticized but wasn't sanctioned because it was not that a big deal. Greece however flatly lied about their number. But that was known later.

IMO there is a real acknowldgement as to where the money comes from. Germany has de facto a stronger position in the negociation. My point is that wasn't intended from Germany. They are not too exited about it.

At the time of Hitler, they would have been thrilled. Not today. Different views, different mentalities. I don't know. Interrestingly at the time of Hitler, when Germany fixed to invade the whole of Europe, Germany was financialy kaput, the opposite of what they are today...
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#26
Hmm. I think I recall reading throughout many years that there were EU countries not obeying the the debt limit rule. It got to be kind of a joke, but now it has come to roost in its ostentatious obviousness.
Jefferson: I place economy among the first and important virtues, and public debt as the greatest of dangers. To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our choice between economy and liberty, or profusion and servitude. If we can prevent the government from wasting the labors of the people under the pretense of caring for them, they will be happy.
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#27
(08-15-2011, 05:40 PM)Fredledingue Wrote: bd5, it's only after the Subprime crisis in the US (2008~2009) that eurozone countries started to fail en mass to meet eurozone requirements, most notably the maximum 3% GDP of deficit.
If so, I stand corrected. But in any case it is obvious, in hindsight, that the architects of the Euro never took an engineering approach to the problems the Euro might face, with scenario analysis. (And these sorts of problems were not at all unforeseen, at least by American Keyenesians.) There need to be automatic stabilizers - the way a nuclear plant is rigged to automatically shuts down when it loses power, for instance. You can't just make plans based on your best-case scenario.

Quote:IMO there is a real acknowldgement as to where the money comes from. Germany has de facto a stronger position in the negociation. My point is that wasn't intended from Germany. They are not too exited about it.
My question is, how do you end up with a persistent trade surplus by accident? My theory is that you fix a low exchange rate, and then resist real appreciation (through inflation.) Of course, resisting inflation is normally a good macro policy, so it doesn't draw attention. Please, feel free to suggest other possibilities - this is the question that got me on to this topic. China and Japan have implemented their surpluses somewhat differently...it seems that such success story has a different method, but in every case it requires planning.

Quote:At the time of Hitler, they would have been thrilled. Not today. Different views, different mentalities. I don't know. Interrestingly at the time of Hitler, when Germany fixed to invade the whole of Europe, Germany was financialy kaput, the opposite of what they are today...
They're in a position of strength, not weakness, so we're not worried about them turning into Nazis again.
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#28
For those who joke about the € and barely conceal their hope of seeing its collapse, here you are!

bd5, a must-read for you.


Sarkozy told reporters that he and Merkel want a "true European economic government" that would consist of the heads of state and government of all eurozone nations.
Greg Keller and Juergen Baetz, On Tuesday August 16, 2011, 3:04 pm PARIS (AP)
Wrote:
France and Germany called on Tuesday for a "new economic government" for Europe, with mandatory balanced budgets enshrined in the constitutions of all euro zone members as a way to overcome the debt crisis that has threatened to fracture the continent's fragile common currency.

jt Wrote:I think I recall reading throughout many years that there were EU countries not obeying the the debt limit rule. It got to be kind of a joke, but now it has come to roost in its ostentatious obviousness.
I recall only France had a serious national debt trouble prior the financial crisis because... their deficit was 4% of GDP instead of 3% and maybe one or two others were a few points above 3.
When they entered the €, all countries had a GDP/deficit ratio equal or inferior to 3%, except Greece which lied about it.

Today most eurozone countries have deficits from 5 to 15% of GDP.
While France's deficit to GDP ratio of pre-crisis era had never been fixed, it looks like nothing in comparison to today's standards. It will take another 5 to 10 years to get everybody back to the 3% norm.

bd5 Wrote:There need to be automatic stabilizers - the way a nuclear plant is rigged to automatically shuts down when it loses power, for instance. You can't just make plans based on your best-case scenario.
You are absolutely right. The financial health of eurozone nation have been taken care of very lightly.
PIIGS debts mounted for years without anybody worrying because the deficit was kept low, within the 3% norm (see above) or slightly above.
What happened with the financial crisis was not a sovereign debt boom, these debts already existed for the largest part (like the part of debt Obama inherited from previous admins), what exploded literaly overnight was the deficit.
And nobody foresaw it. Even worse it took several market crashes to have the gummints slowly react.

EU countrie (€zone or not) should all have a stop-borrowing mecanism to prevent them to fall in this quagmire.

bd5 Wrote:My question is, how do you end up with a persistent trade surplus by accident? My theory is that you fix a low exchange rate, and then resist real appreciation (through inflation.)
Perhaps there is a bit of that, but there must be more than one reason a country is net exporter whilst other are not.

One thing that helps China is not only an undervalued yuan, it the low wages.
The US can devaluate the US rupiah as much as they want they will never be a net exporter because salaries still cost twice as much as anywhere else.
You need excellent productivity to do so with a strong currency. I think that's what the Germans get.
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#29
fredle... Wrote:Today most eurozone countries have deficits from 5 to 15% of GDP.

Astounding. I did not realize it was so high.

b5d Wrote:There need to be automatic stabilizers - the way a nuclear plant is rigged to automatically shuts down when it loses power, for instance. You can't just make plans based on your best-case scenario.

A noble thought. How do you arrange it so that people actually follow the rules that they set up? History indicates that folks connive to get around the rules any way they can. Unfortunately, the Deity himself seems disinterested in human foibles, so we cannot rely on him.

Jefferson: I place economy among the first and important virtues, and public debt as the greatest of dangers. To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our choice between economy and liberty, or profusion and servitude. If we can prevent the government from wasting the labors of the people under the pretense of caring for them, they will be happy.
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#30
Greg Keller and Juergen Baetz, On Tuesday August 16, 2011, 3:04 pm PARIS (AP)
Wrote:
France and Germany called on Tuesday for a "new economic government" for Europe, with mandatory balanced budgets enshrined in the constitutions of all euro zone members as a way to overcome the debt crisis that has threatened to fracture the continent's fragile common currency.
This is more radical than I'm proposing. The reason these limits failed was because there was economic logic against them. Adding foreigners to a country's legislative body doesn't violate any economic logic, but enshrining things in countries' constitutions creates economic inflexibility.

(08-16-2011, 04:16 PM)Fredledingue Wrote:
bd5 Wrote:My question is, how do you end up with a persistent trade surplus by accident? My theory is that you fix a low exchange rate, and then resist real appreciation (through inflation.)
Perhaps there is a bit of that, but there must be more than one reason a country is net exporter whilst other are not.

One thing that helps China is not only an undervalued yuan, it the low wages.
The US can devaluate the US rupiah as much as they want they will never be a net exporter because salaries still cost twice as much as anywhere else.
You need excellent productivity to do so with a strong currency. I think that's what the Germans get.
It's true. The currency is a sort of stopgap - it will automatically correct any imbalances as they arise, if allowed to, though it itself is not the cause of the imbalances. The causes are structural, as you say. Now the question is, how are you going to stop it, if not currency appreciation? Structural things like productivity are determined by politics, much more than by macroeconomic policies. So really this entire macroeconomic debate is on the wrong level.

Quote:A noble thought. How do you arrange it so that people actually follow the rules that they set up? History indicates that folks connive to get around the rules any way they can. Unfortunately, the Deity himself seems disinterested in human foibles, so we cannot rely on him.
This is exactly the principle I'm talking about. You need to design things so that they work by gravity if the Diety happens to suffer downtime. "Gravity" here is incentives. If a country is begging for money, they have no choice but to beg, so we don't need to worry about their incentives. If a country is on the receiving end of that begging, then they can extract a pound of flesh for their troubles - we simply stop restricting them from doing so. It's simpler than the system now.
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#31
b5d, I agree with your design criteria: Let the laggards suffer their natural losses. This is a time honored social mechanism at all levels of human life.

Unfortunately, there are too many people and gummint entities that want to pride themselves on being kinder and gentler and sensitive. When they indulge themselves in this expansive generosity, no useful consequences occur; the can gets kicked down the road.
Jefferson: I place economy among the first and important virtues, and public debt as the greatest of dangers. To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our choice between economy and liberty, or profusion and servitude. If we can prevent the government from wasting the labors of the people under the pretense of caring for them, they will be happy.
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#32
jt Wrote:Astounding. I did not realize it was so high.
The US gap is 10% or so...

bd5 Wrote:but enshrining things in countries' constitutions creates economic inflexibility.
I don't think the constitutional amendment is an important part of it. It's mostly smbolical, a rule that they can follow or not follow.

It's the idea of economic governement at the EU level that is interresting. Who wants the power will need to make spending cuts and balance their budget.

bd5 Wrote:Structural things like productivity are determined by politics
Not only, the entire society, the mentality of the poeple, workers and businessmen, their seriousness at work is extremely important.

That's why you have countries that do better than others with similar policies.
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#33
(08-21-2011, 02:34 PM)Fredledingue Wrote: It's the idea of economic governement at the EU level that is interresting. Who wants the power will need to make spending cuts and balance their budget.
Really? I didn't see that anywhere in the article. It said all EU countries would be invited.

I know what you mean - on a less formal level, countries with better economic management would have more influence. But informal influence, even if it helps guide policy after the fact, misses the powerful role of incentives. It doesn't promote any kind of behavior before the fact. Nobody really competes for 'informal influence.'

Taking the long view - if "Europe" intends to be around for a long time, it will have to go through growing pains, just as the US did with its Civil War. Political processes will have to be streamlined and formalized, and there will be losers in the short and medium term. Anything else would ultimately be unsustainable - and I see no hint of this in currency policy discussions.
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#34
I don't know what you mean by after the fact. We are after the fact. Anything done now is a reaction to past events.
The new structure (if created), will have a pre-emptive role of course.

It's interresting that the markets beg for the creation of eurobonds and that Germany and France are strongly against that. Of course such eurobond would be a disaster because we would start to borrow like the US. It would also force all countries to share the same debt, which is unjust.
But the markets want that because they want to invest in Treasury-like notes. They would like the EU to creates their own risk-free Treasuries, where poeple could park their money. Fortunately our leaders don't see it that way. They don't fall in the trap.
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#35
(08-22-2011, 07:00 AM)Fredledingue Wrote: It's interresting that the markets beg for the creation of eurobonds and that Germany and France are strongly against that. Of course such eurobond would be a disaster because we would start to borrow like the US. It would also force all countries to share the same debt, which is unjust.
But the markets want that because they want to invest in Treasury-like notes. They would like the EU to creates their own risk-free Treasuries, where poeple could park their money. Fortunately our leaders don't see it that way. They don't fall in the trap.
Incidentally, even from the perspective of an outside country like the US, it wouldn't necessarily be helpful for the markets to have a whole new excuse not to invest.

The problem in the US isn't so much the debt level, but the fact that it was never allocated towards productive investment. Does the new structure solve that problem? As best I can tell, this additional layer of bureaucracy hinders any solution.
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#36
b5d Wrote:...
The problem in the US isn't so much the debt level, but the fact that it was never allocated towards productive investment. Does the new structure solve that problem? As best I can tell, this additional layer of bureaucracy hinders any solution.

BINGO.

Yet many argue that when the debt reaches 100% of GDP as in the US, the nation is in trouble. Even Krugman thinks we have to be at some kind of war (with ET et al for him) in order to justify vastly more debt.

LINK

Jefferson: I place economy among the first and important virtues, and public debt as the greatest of dangers. To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our choice between economy and liberty, or profusion and servitude. If we can prevent the government from wasting the labors of the people under the pretense of caring for them, they will be happy.
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#37
Spain is also going to write it in the constitution:
Daniel Woolls, Associated Press Wrote:activist groups were to hold a rally in Madrid against a constitutional amendment that will force the government to keep its future deficits very low. They fear it heralds drastic spending cuts on social policy and marks the end of the welfare state in Spain.

The measure was approved by the lower house of Parliament last week -- albeit amid furious opposition from leftist and regional-based parties -- and goes before the Senate on Wednesday, where passage is also expected.

Also important news:
Swiss franc pegged against the euro.
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