By Hayden Huff, David Campbell, Jacob Diamond, and C.T. Souder
In 1999 seventeen countries transitioned from individual economies to one financial system known as the European Union. The newly found Euro provided a currency that unified many countries, tearing down tariffs, trade boundaries, and promoting free trade throughout Europe.
However, excessive spending and poor fiscal habits followed quickly. Many countries were guilty of this spending, especially Greece and Portugal. When times were good in the early years of the union this was not a huge problem. Banks offered cheap loans which caused the public sectors of many countries to become bloated. When the financial crisis hit in the year of 2008, the euro was crippled and the debt that countries such as Portugal, Italy, and Greece became insurmountable.
Today, Greece and Portugal continue to struggle with massive debt, even after billions of dollars in payouts had been granted to both countries by the European Central Bank, the International Monetary Fund, and the European commission. Help was also provided through a temporary system called the European Financial Stability committee. Aid was needed by these countries because it became too expensive to borrow in open markets in the Union. High rates for lending nearly toppled the Euro as a whole.
Italy and Spain also experienced trouble in large public debt and a crushing housing bubble respectively. Tentative investors and weary bankers drove interest rates through the roof which crippled lending. The problem with a connected system like the European Union is that trouble in the countries listed above does not only affect those countries, it also compromises economic growth in countries such as Germany and France who have kept their spending in check. The Euro experienced large amounts of deflation here by deflating assets and values of everything across the Union.
Although the Union is a good idea for trade and business, it also forces countries like Germany and France to step in and grant aid where they otherwise may not have deemed necessary because collapse of one country in the Union could mean collapse of the Union as a whole. In recent months EU leaders have met in an attempt to set up a sustainable system for countries that struggle with spending to maintain healthy levels of debt and some progress has been made, although much more work is needed primarily in Greece.
Research Division of the Federal Reserve Bank of St. LouisI. “The Financial Crisis and the Future of the Eurozone.” The Financial Crisis and the Future of the Eurozone. IDEAS, Dec. 2010. Web. 16 Apr. 2015.
De Grauwe, Paul, Crisis in the Eurozone and how to Deal with It (February 15, 2010). CEPS Policy Brief No. 204. Available at SSRN: http://ssrn.com/abstract=1604453
Bloomberg Business. “The European Debt Crisis Visualized.” YouTube. YouTube, 11 Feb. 2014. Web. 16 Apr. 2015.
Ever heard that too much love can kill you? Well, Greece and a number of other countries within the EU have got gout. They’ve been whittling away at their own finances, slowly consuming themselves until nothing is left.
Chris Martenson wrote that the Greek crisis is of grave importance, not because of the relatively small impact it will have financially, but the precedent of Greece welching on their promise to pay back their debt – and getting away with it. Let me explain. Greece is not the only country in this situation. Several other European nations have large amounts of debt, which they can now pick up and throw into the ocean, not unlike a cinder-block tied to the leg of the guy who ticked off the mob.
Greece, for the purposes of this metaphor, is being boiled in a pot of hot water. The hard-left Greek leadership appear to wish to escape by digging down and out through the fire. By implementing anti-austerity measures, they are essentially driving up the debt further and hoping that Germany, in their infinite compassion, will send them a BFC (Big Fat Check). Or else, they risk an entire government receiving their termination notices.
Syriza has, according to Martenson, dared to say that their debt was unpayable. Much of the world has traded bonds and securities that are based on the currencies of that nation. Essentially, these non-existent widgets have value because we give them value. By saying that the debt is unpayable, this gives incentive for these other countries to employ these measures in order to prevent the weight of this debt to be passed on to the people of their own countries.
Bankrupting your country and then making the citizenry foot the bill? Not exactly a great idea, historically speaking.
Many people are of the opinion that Greece will be able to rebound from the European financial issues, and in the end be better off for them. And recently Greece’s economic status has been proving this somewhat correct.
For the first time in nearly 6 years, in 2014 the Greek economy began to grow again. This is largely due to all the Austerity measures demanded to be put in place by the more economically sound European countries, such as Germany. This has had a big-brother effect on Greece, similar to making a kid eat their vegetables. Greece has been forced to make adjustments to their economy, making them more financially sound and stable. The largest change in the economy is thanks to the recovery of private consumption.
Greece has traditionally been known as a largely leftist country. However this economic crisis has forced the country to learn and implement policy that makes them much more fiscally responsible and independent in the future. The citizens are learning that they cannot continue borrowing money without paying it back.
Greece is taking the correct steps to become more fiscally responsible. If they continue down their current road and use this crisis as a learning situation they will continue to improve and be much better off as a country.
Of all the commentary covering the Sovereign Debt Crisis, Paul Krugman’s is my favorite. I don’t read Krugman’s blogs because I agree with him; I disagree with many of his views. Instead, I read his blogs because the tone with which he writes is entertaining. It may make my blood boil, but that’s part of creating my own informed view.
In the blogosphere, the hardest pushback against Krugman comes from Forbes. Here’s a broad analysis of the issue: Krugman writes and blogs for the left-leaning New York Times. His credentials make him an appealing authority on all things economic. When it comes to the Sovereign Debt Crisis, Krugman blames Germany for exacerbating the plight of the Greeks. Krugman attempts to articulate the German outlook thus: “We pulled ourselves out of our late 90s doldrums…so why can’t Southern Europe do the same?” Various writers for the conservative-leaning Forbes have criticized Krugman on several fronts. Forbes holds the view that Germany is being unfairly criticized and pressured to fund the Greek economy, which for all intents and purposes is on financial life-support. Krugman’s tone, his statistics, and overall opinions come under harsh criticism.
Forbes’s style of writing is personal. Regarding Krugman, the writers at Forbes go for the throat. They question his credentials, accuse him of believing in bad economics, and even go so far as to say Krugman has an “inherent dislike of economic success.”
In response, Krugman takes the high road. He doesn’t attack the writers at Forbes; he doesn’t accuse them of inadequate or farcical statistics. Rather, Krugman further elaborates on his original points. His style of rebuttal is to repeat his original talking point, then explain in-depth, why he is right. This is an interesting strategy, because it can give the impression that this debate is taking place between an adolescent and an adult. Krugman is the adult who provides an argument, while Forbes resorts to name-calling. Krugman doesn’t respond to the name-calling; he knows that his point will have more impact if he simply repeats himself over and over again. The online economic debate relating to the Greek crisis is a microcosm of what is occurring on the international stage: no one is willing to admit the other might be right. Compromise seems ever less likely. The question for Germany and Greece has boiled down to this: who is going walk away first? At one time Germany and Greece benefitted from one another. Now, however, their economic relationship is tainted.