UK Economy Back In Recession

[Venusian Broon]

Apologies Bowler ,

I'm optimistic about lots of other things though!

And you never know, it might just sort it self out....

...yeah right.

[Clansman]

Isn't part of the problem with the Eurozone crisis is that you have a number of countries that have the same currency, but they all have separate central banks. As a result of their being no European central bank, there is no way to devalue the Euro, and thus get the crisis countries that wee bit of relief they need to prevent utter collapse.

Creating the Eurozone in the first place without a central bank to control the currency seems a bit daft.

[thaddeus6th]

Precisely. There is actually a European Central Bank which sets a eurozone-wide interest rate, but the economies are so divergent that the interest rate can never (even in good times) be right for everyone, and Germany's presence means that the euro is stronger than it would otherwise be.

[Bowler1]

To really work it has to be one bank and one political controlling entity, to compare see the USA. That is not going to happen anytime soon so the stresses will build on the Euro for now. It might limp through, there is a willingness to make the currency work and failure is not an option for many people. I however won't be taking any bets for the Euro!

[Ursa major]

Originally Posted by Clansman

Isn't part of the problem with the Eurozone crisis is that you have a number of countries that have the same currency, but they all have separate central banks. As a result of their being no European central bank, there is no way to devalue the Euro, and thus get the crisis countries that wee bit of relief they need to prevent utter collapse.

Creating the Eurozone in the first place without a central bank to control the currency seems a bit daft.

The main thing lacking is a single demos**. Social solidarity, where members of a society accept that they have responsibilities towards that society, is lacking. So while the average taxpayer in a country may bewail how much they're paying (and on whom their money is spent), there's an inbuilt feeling of acceptance, even while they're shouting for lower taxes and for scroungers to have their state funds cut. The average taxpayer in an EU country will see little reason to spend any of their money in another EU country, even if the recipients there are hard-working, model citizens (who just happen to live in a poor EU country).

This means that the basic infrastructure to cope with some areas of the EU losing out from EU-wide policies (such as the Eurozone interest rate or the opening of the EU to cheap imports from East Asia that undercut one of that country's major industries) is simply not there.


** - Many Europeans do see themselves as Europeans, but this is not the same as Alabamans and Californians seeing themselves as Americans.

[Venusian Broon]

Originally Posted by thaddeus6th

Precisely. There is actually a European Central Bank which sets a eurozone-wide interest rate, but the economies are so divergent that the interest rate can never (even in good times) be right for everyone, and Germany's presence means that the euro is stronger than it would otherwise be.

Having worked in the city for about 10 years, when people talk about the Euro - what they really mean is the 'old Deutschmark' or the 'German Euro'. The Euro is set for Germany and for which ever countries are in step with Germany.

Partly this is logical. Germany is the biggest and strongest economy - why set interest rates to harm your best player? It's up to the rest to catch up, right?

Without Germany there just wouldn't be a Euro at all.

Why have we got to this point? <Possibly ignore the rest, I'm rambling a bit. But I've written it now, so what the hell >

The hope of politicians. When they launced the Euro they felt that everything was in place so that when all the economies were tied together by the currency, by direct or in-direct pressure (or by some sort of magical transference) they would all order themselves to be in-line with the German economy eventually - the most stable, hard-working and dominant economy in the Eurozone. Unfortunately like most politician's ideas, the reality usually does not behave how they expected.

What actually happened. Well the world took the Euro as a proxy for the Deutschmark and the market set rates in that belief. With low interest rates and huge amounts of cheap money the weaker nations of the Eurozone took advantage, and by trying to succeed, ended up diverging even more. Some like Spain and Ireland saw this in the housing market as private individuals took advantage of the interest rate and a once-in-a-lifetime chance to make a killing in property - hence initiating the unsustainable housing booms in these markets. Then the governments themselves, seeing that they could get loads of cheap cash raised spending programs - with the assumption that the interest rate is low and stable - not a problem even in the long term they thought.

Of course the fundamental problem here is that Greece, Spain, Ireland, etc... just are not the same economy as a Germany or Sweden. And really, no amount of cheap money thrown at it will change the fact. Each soverign state is different.Throw into the pot that governments will tend to spend the maximum that they are allowed to/can - there's always something to fix or not right that needs attention.

Now in the good times, don't think the Germans were doing all this because they were alturistic. By setting up the Eurozone and other measures it opened up the Europe for German companies (some of the best and efficient in the world) in a way that they had never before. So the German economy really benefited from this arrangement. I'm not suggesting a conspiracy - that that was the goal of the Eurozone - but when you level national 'playing fields' in business then generally the best and most efficient succeed. And German industry probably knew this at the start.


Ursa's comment on social solidarity is an excellent one, and until this problem is cracked it'll be difficult for Europe to be more integrated. Perhaps this is a good thing, perhaps not - I'll be frank I don't know. Would we do better as a small nation of 60m trading with friends or is it necessary to be part of a much bigger power bloc - Europe? Because will US, China, India and Russia (and probably Brazil to be fair to them...) just dump all over any standalone nation and get what they want?

[Bowler1]

Greece is back in the news again after elections with no clear winners and no agreement between the parties to form a coalition government. Loans are being withheld until a pro austerity government is in place and this is a clear signal to the Greeks to put up, or shut up. Are the Greeks listening to this, I’m sure they are but do they care might be the better question?

While all this carries on markets and business in general hate the uncertainty of a confusing election result. I would generally like to see the Euro make it as I think it will be better for the UK in the long run, but even I’m beginning to think that the Euro as we currently know it won’t last. If one country leaves will more?