Is the end nigh for the Euro? [vol. 3]
Discussion
dandare said:
Don't forget that the UK is way more indebted then any of those countries, so they may be secretly laughing at us. In fact, of all the first world countries, we are in third place for debts, and probably have no chance of repaying these debts.
Total and utter crap. Where did these supposed 'facts' come from? I agree we are in the deep brown stuff re the debt and deficit, but f
k me...Andy Zarse said:
Total and utter crap. Where did these supposed 'facts' come from?
I agree we are in the deep brown stuff re the debt and deficit, but fk me...
Odd isn't it - any cursory analysis of the facts would reveal some fairly simple stuff. I agree we are in the deep brown stuff re the debt and deficit, but f
k me...Greece has around 5m economical active people - the UK has about 30m
Whilst our debt may be similar, our ability to repay it dwarfs others. We are a global trading nation. Have one of the financial capitals of the world based here, are home to many many multinational businesses, and have a tradition of enterprise and innovation - and paying taxes!
Whilst our debt may be high, we also own our currency we don't rent it. If the significance of this passes you by, then perhaps a spot of Galbraith may be in order for you.
Finally and most significantly a large part of our debt is owned by us ! Private individuals and banks in the UK. We still have plenty of options left to us to, the question is to find the most sustainable path both to reduce debt - without significantly harming economic growth. Reducing spending and maintain a flat or low growth economy is not easy.
Look at the growth contractions across Europe, and they see if you really feel that the coalition have made a reasonable fist of economic policy. (Whilst I accept it isn't stellar, it ain't bad either)
Guam said:
I have often felt that the debt comparisons should remove mortgage debt as standard given that it is optional and cross linked to a corresponding asset. We will always appear worse on the personal debt front than other countries in Europe where renting is more the norm.
A good point.O/T I wonder, since the rather poorly conceived/recieved 'wealth tax' in France, how many Paris mortgage holders are upside down on their loans?
Any thoughts on this? Not the first time I've heard of huge deposits sitting doing nothing (being pumped into assets). I believe UK companies as well have more cash in the bank than ever before.
David McWilliams said:
Our economy is going backwards. Latest figures from the CSO reveal that the economy has shrunk since last summer.
We are now contracting at a pace last seen in 2009, when the wheels really began to come off. The Irish economy has contracted now for three quarters in a row.
Throughout recent recorded history, recessions last on average ten months. This recession is completely different, both in terms of its scope and its depth. We are seeing a massive double-dip recession led by a depressed local economy, which is compounded by the delayed effects of austerity in Europe.
Domestic consumption is cratering. According to the figures, in January to March of this year, consumption fell by 3 per cent. This is the largest fall in the whole recession – even including 2009 and 2010. Investment, too, is down 7 per cent and even exports, usually the bright point on the Irish economic landscape, were down 3 per cent in the first few months of the year.
Traditional economics tells us that, in a recession, as unemployment rises, wages fall. And as wages fall, the cost of labour falls. When you go back to Karl Marx (not a bad launch point), you will know that in any economy, there is the return to capital and the return to labour. If one goes up, the other goes down and vice-versa
The return to labour is wages. If wages are falling, then the implication is that the return on investment – profit – must be rising.
Thus, the way the economy rights itself is that wages fall and profits rise. As profits rise, the return to investment rises. Eventually, investors will come to see that they have a ‘one-off’ opportunity to invest their capital and get more for each euro invested than was previously the case. This should trigger an increase in investment and the economic cycle kicks off again.
So why is this not happening now anywhere in Europe, let alone Ireland?
The most obvious answer is debt. There is simply too much debt, which is strangling investment opportunities.
Take Ireland, for example. Many small businesses are starved of capital and are offering investors double-digit returns for working capital. Many small businesses are surviving due to the dexterous management of this cashflow, deploying a bit here and there to keep all the balls up in the air.
We know from the US that in the past few years it is these small, young businesses that create jobs. Indeed, large companies are net job destroyers, so these cash-strapped small businesses hold the key to the future.
So why are they not getting the capital, if the return on capital is rising? The reason is that the capital is trapped in the banking system and it is not being released into the economy. Now, maybe the new capital might come from outside the country in time. Foreigners may well decide that Irish businesses are worth backing, but it seems fair to suggest that foreigners will only buy trophy assets, rather than recapitalise the entire economy. Providing working capital is still the job of local capital, and it is not working.
Maybe one way of attracting capital out of the banks in the next few years is for this coming budget to be truly pro-small business. Maybe the government could think of giving a tax holiday to local investors investing in local companies.
Such a tax holiday could apply to the investor’s income or property tax. These are just obvious ideas. At the moment, there is over €90 billion in deposits in the banking system. Getting even a fraction of this money into the local economy could work wonders.
Without such initiatives, we end up with an economy with plenty of potential working capital, but no actual working capital. This explains how the return of capital can remain in double-digits without investors taking up these opportunities.
The problem with small companies offering double-digit returns to real investors is that they can’t do this indefinitely. With inflation running at a few per cent, the company that offers double-digit returns on capital goes bust quickly or becomes dependent on expensive capital, and it can’t grow because so much of the turnover is going to pay the investor.
The company that is offering such returns is only doing it because it is desperate and, unless it gets working capital, it will shut down.
Thus double-digit returns are an opportunity, but also a sign that things may actually slump further from here because it is not a sustainable business model.
The other mechanism whereby the recovery becomes a self-reinforcing mechanism is through wages. In normal recessions, wages will fall as the number of people looking for a job increases. But this is not happening because, naturally, trade unions will move to protect their members.
Instead of wages falling, as classical economics suggests, we see in Europe that companies don’t cut wages; instead they let people go. As this process tends to follow the ‘last in, first out’ pattern, it disproportionately affects younger workers.
Obviously, the people in work want to keep their jobs and conditions, even if the people out of work would be prepared to do the same job for less. This tends to lead to the insider/outsider dilemma, where the workforce is pitted against each other.
Those on the inside – with jobs – have different interests to those on the outside without jobs. The upshot is that people who lose their jobs can’t get back into the workforce and the rate of long-term unemployment rises, as we have seen to an alarming extent in Ireland. All this causes demand to fall.
The implication of both these big forces in the credit markets and in the labour market is that the economy gets stuck. Businesses not only don’t have enough credit, they don’t have enough customers.
If the government cuts spending in this context, the money the government is not spending has to be spent by someone else, otherwise the economy will have to contract.
In the case of Ireland, our government still hopes that foreigners will take up the slack, offsetting the reduction in government spending by buying Irish goods in huge volumes. The plan was that this foreign demand would be seen in surging exports.
Unfortunately, this is not happening. Export figures are actually falling, most probably reflecting austerity policies abroad.
Therefore, national income is falling, unemployment remains far too high and thousands are leaving the country. It is difficult to see how this is all going to turn around and the more the economy contracts, the more the initial debt burden becomes unsustainable.
The economy needs a lower debt burden, a more competitive exchange rate and policies that either liberate the potential capital in the deposit base, or a slow down in government cuts and tax increases.
None of these appears on the cards, implying that last week’s atrocious figures may become a trend.
We are now contracting at a pace last seen in 2009, when the wheels really began to come off. The Irish economy has contracted now for three quarters in a row.
Throughout recent recorded history, recessions last on average ten months. This recession is completely different, both in terms of its scope and its depth. We are seeing a massive double-dip recession led by a depressed local economy, which is compounded by the delayed effects of austerity in Europe.
Domestic consumption is cratering. According to the figures, in January to March of this year, consumption fell by 3 per cent. This is the largest fall in the whole recession – even including 2009 and 2010. Investment, too, is down 7 per cent and even exports, usually the bright point on the Irish economic landscape, were down 3 per cent in the first few months of the year.
Traditional economics tells us that, in a recession, as unemployment rises, wages fall. And as wages fall, the cost of labour falls. When you go back to Karl Marx (not a bad launch point), you will know that in any economy, there is the return to capital and the return to labour. If one goes up, the other goes down and vice-versa
The return to labour is wages. If wages are falling, then the implication is that the return on investment – profit – must be rising.
Thus, the way the economy rights itself is that wages fall and profits rise. As profits rise, the return to investment rises. Eventually, investors will come to see that they have a ‘one-off’ opportunity to invest their capital and get more for each euro invested than was previously the case. This should trigger an increase in investment and the economic cycle kicks off again.
So why is this not happening now anywhere in Europe, let alone Ireland?
The most obvious answer is debt. There is simply too much debt, which is strangling investment opportunities.
Take Ireland, for example. Many small businesses are starved of capital and are offering investors double-digit returns for working capital. Many small businesses are surviving due to the dexterous management of this cashflow, deploying a bit here and there to keep all the balls up in the air.
We know from the US that in the past few years it is these small, young businesses that create jobs. Indeed, large companies are net job destroyers, so these cash-strapped small businesses hold the key to the future.
So why are they not getting the capital, if the return on capital is rising? The reason is that the capital is trapped in the banking system and it is not being released into the economy. Now, maybe the new capital might come from outside the country in time. Foreigners may well decide that Irish businesses are worth backing, but it seems fair to suggest that foreigners will only buy trophy assets, rather than recapitalise the entire economy. Providing working capital is still the job of local capital, and it is not working.
Maybe one way of attracting capital out of the banks in the next few years is for this coming budget to be truly pro-small business. Maybe the government could think of giving a tax holiday to local investors investing in local companies.
Such a tax holiday could apply to the investor’s income or property tax. These are just obvious ideas. At the moment, there is over €90 billion in deposits in the banking system. Getting even a fraction of this money into the local economy could work wonders.
Without such initiatives, we end up with an economy with plenty of potential working capital, but no actual working capital. This explains how the return of capital can remain in double-digits without investors taking up these opportunities.
The problem with small companies offering double-digit returns to real investors is that they can’t do this indefinitely. With inflation running at a few per cent, the company that offers double-digit returns on capital goes bust quickly or becomes dependent on expensive capital, and it can’t grow because so much of the turnover is going to pay the investor.
The company that is offering such returns is only doing it because it is desperate and, unless it gets working capital, it will shut down.
Thus double-digit returns are an opportunity, but also a sign that things may actually slump further from here because it is not a sustainable business model.
The other mechanism whereby the recovery becomes a self-reinforcing mechanism is through wages. In normal recessions, wages will fall as the number of people looking for a job increases. But this is not happening because, naturally, trade unions will move to protect their members.
Instead of wages falling, as classical economics suggests, we see in Europe that companies don’t cut wages; instead they let people go. As this process tends to follow the ‘last in, first out’ pattern, it disproportionately affects younger workers.
Obviously, the people in work want to keep their jobs and conditions, even if the people out of work would be prepared to do the same job for less. This tends to lead to the insider/outsider dilemma, where the workforce is pitted against each other.
Those on the inside – with jobs – have different interests to those on the outside without jobs. The upshot is that people who lose their jobs can’t get back into the workforce and the rate of long-term unemployment rises, as we have seen to an alarming extent in Ireland. All this causes demand to fall.
The implication of both these big forces in the credit markets and in the labour market is that the economy gets stuck. Businesses not only don’t have enough credit, they don’t have enough customers.
If the government cuts spending in this context, the money the government is not spending has to be spent by someone else, otherwise the economy will have to contract.
In the case of Ireland, our government still hopes that foreigners will take up the slack, offsetting the reduction in government spending by buying Irish goods in huge volumes. The plan was that this foreign demand would be seen in surging exports.
Unfortunately, this is not happening. Export figures are actually falling, most probably reflecting austerity policies abroad.
Therefore, national income is falling, unemployment remains far too high and thousands are leaving the country. It is difficult to see how this is all going to turn around and the more the economy contracts, the more the initial debt burden becomes unsustainable.
The economy needs a lower debt burden, a more competitive exchange rate and policies that either liberate the potential capital in the deposit base, or a slow down in government cuts and tax increases.
None of these appears on the cards, implying that last week’s atrocious figures may become a trend.
Another sterling (no pun) post from ArtDir completes another series of excellent posts from AndyZarse, Gargamel, DJRC, AngrewMG, Digga, Guam and Mermaid over the last couple of days all of which offer far more detailed analysis and realistic proposals to address the issues in this monumental mess than the mainstream media offer overall. The reality of the hit that must come in the EU in order to enable the EU to face the inherent problem of currency dilution, is a huge problem to consider but it is going to have to be considered. This madness has created massive loans to totally insolvent states who cannot repay these loans. This undeclared totally lost debt is waiting to roll over onto the ECB and their cohorts in the EU and precipitate a real financial crisis. It is therefore essential that the EU recognise the problem and allows these states to fall away and recover. Whist they do not, the unrevealed losses already present in the EU currency are just an uncontrolled club liable to smack the EU at any time.
The range, strength and depth of opinion expressed in this forum are primarily the reason why I do think this thread is worth continuing. The opinions offered are often very different but invariably based upon some sense of reality and the actual facts of the current position. To my mind half the Media are simply not interested in dealing with the facts but much more focused on keeping in with the political powers that be. There is as far as I can see little real appetite in journalism to examine and face the problems that are cheerfully swept aside by the spin doctors in Europe. This is I think the primary reason why the EU has been able to keep this Ponzi scheme running undetected for as long as they have.
We all know now, that, with the benefit of hindsight, the phony wealth and growth promoted in the last seven years of New Labour in the UK was a nightmare steadily unfolding and that the Banking crisis was there for all to see once the froth of the media hype and grandstanding dissolved. The banking system was actually bust and but for the taxpayers in the world would have collapsed.
Precisely the same froth and grandstanding is keeping the Euro nonsense rolling and enabling dishonest EU politicians to line their pockets by pretending that that they can offer more and more loans to failing insolvent sovereign states and by pretending that this complete nonsense can substitute for real fiscal policies and economic changes to the economies concerned designed to actually address the insolvency of the failing states languishing currently within the EU.
In every walk of life recognising the magnitude of the problem that is facing an organisation or country is the first essential step to being able to polarise the position and establish the method by which the problem can be addressed. The EU is clearly wedded to the idea that it has an unassailable position with the control of the ECB and the Euro currency. I believe that reality will dawn no matter how clever the smoke an mirrors operations by the EU turn out to be. There is an enormous hole on the middle of this and Portugal, Ireland, Greece, Italy, Spain and ultimately France are steadily sailing into the abyss with the EU pretending that everything will be alright I regret to say that economic reality clearly adises that it will not.
The range, strength and depth of opinion expressed in this forum are primarily the reason why I do think this thread is worth continuing. The opinions offered are often very different but invariably based upon some sense of reality and the actual facts of the current position. To my mind half the Media are simply not interested in dealing with the facts but much more focused on keeping in with the political powers that be. There is as far as I can see little real appetite in journalism to examine and face the problems that are cheerfully swept aside by the spin doctors in Europe. This is I think the primary reason why the EU has been able to keep this Ponzi scheme running undetected for as long as they have.
We all know now, that, with the benefit of hindsight, the phony wealth and growth promoted in the last seven years of New Labour in the UK was a nightmare steadily unfolding and that the Banking crisis was there for all to see once the froth of the media hype and grandstanding dissolved. The banking system was actually bust and but for the taxpayers in the world would have collapsed.
Precisely the same froth and grandstanding is keeping the Euro nonsense rolling and enabling dishonest EU politicians to line their pockets by pretending that that they can offer more and more loans to failing insolvent sovereign states and by pretending that this complete nonsense can substitute for real fiscal policies and economic changes to the economies concerned designed to actually address the insolvency of the failing states languishing currently within the EU.
In every walk of life recognising the magnitude of the problem that is facing an organisation or country is the first essential step to being able to polarise the position and establish the method by which the problem can be addressed. The EU is clearly wedded to the idea that it has an unassailable position with the control of the ECB and the Euro currency. I believe that reality will dawn no matter how clever the smoke an mirrors operations by the EU turn out to be. There is an enormous hole on the middle of this and Portugal, Ireland, Greece, Italy, Spain and ultimately France are steadily sailing into the abyss with the EU pretending that everything will be alright I regret to say that economic reality clearly adises that it will not.
Steffan said:
the phony wealth and growth promoted in the last seven years of New Labour in the UK was a nightmare steadily unfolding.... The banking system was actually bust and but for the taxpayers in the world would have collapsed.
Precisely the same froth and grandstanding is keeping the Euro nonsense rolling .... pretending that this complete nonsense can substitute for real fiscal policies and economic changes to the economies concerned designed to actually address the insolvency of the failing states languishing currently within the EU.
Which can be summarised as,Precisely the same froth and grandstanding is keeping the Euro nonsense rolling .... pretending that this complete nonsense can substitute for real fiscal policies and economic changes to the economies concerned designed to actually address the insolvency of the failing states languishing currently within the EU.
- UK is itself in deep trouble.
- Federal Europe is the solution in Eurozone.
France is the conundrum because it is the only country which is both in the North and in the South. But surely when push comes to shove it would choose "North". Not much point sticking two fingers up at Germany, Netherlands and UK.
Ozzie Osmond said:
Which can be summarised as,
France is the conundrum because it is the only country which is both in the North and in the South. But surely when push comes to shove it would choose "North". Not much point sticking two fingers up at Germany, Netherlands and UK.
France is indeed a conundrum. However, I believe they will baulk at adopting the "Anglo-Saxon" policies of the north as it's too bitter a pill to swallow for a society that's dependent on the state at every level. Hollande won't reject everything he stands for, so if it becomes necessary to veer to the right he'll have to go. I can virtually guarantee that they won't end up with a fiscal conservative in charge. - UK is itself in deep trouble.
- Federal Europe is the solution in Eurozone.
France is the conundrum because it is the only country which is both in the North and in the South. But surely when push comes to shove it would choose "North". Not much point sticking two fingers up at Germany, Netherlands and UK.
Oz, do you really believe the people of the countries are ready for or desirous of a Federal Europe?
A provoking thought, but I don't think Hans and Pierre are ready to embrace just yet.
You are right though France would joint he north, but would remain bitter and malcontented about having to do so.
Sooner or later some country or some politician is going " allow" some democracy into the EU and then I am afraid, it will fail if it cannot deliver real economic benefit to its members.
A provoking thought, but I don't think Hans and Pierre are ready to embrace just yet.
You are right though France would joint he north, but would remain bitter and malcontented about having to do so.
Sooner or later some country or some politician is going " allow" some democracy into the EU and then I am afraid, it will fail if it cannot deliver real economic benefit to its members.
Gargamel said:
Oz, do you really believe the people of the countries are ready for or desirous of a Federal Europe?
Remember there are now 28 EU states. I believe a substantial proportion would be perfectly comfortable in a federal arrangement. It's not as if everyone will be forced to wear lederhosen, eat cheese and drink sangria.In the modern world sovereignty is IMO only an illusion.
Ozzie Osmond said:
Gargamel said:
Oz, do you really believe the people of the countries are ready for or desirous of a Federal Europe?
Remember there are now 28 EU states. I believe a substantial proportion would be perfectly comfortable in a federal arrangement. It's not as if everyone will be forced to wear lederhosen, eat cheese and drink sangria.In the modern world sovereignty is IMO only an illusion.
Blib said:
Ozzie Osmond said:
Gargamel said:
Oz, do you really believe the people of the countries are ready for or desirous of a Federal Europe?
Remember there are now 28 EU states. I believe a substantial proportion would be perfectly comfortable in a federal arrangement. It's not as if everyone will be forced to wear lederhosen, eat cheese and drink sangria.In the modern world sovereignty is IMO only an illusion.
Ozzie Osmond said:
Blib said:
Croatia, the first time in history that a country jumped aboard a sinking ship.
So where do you think Scotland, a significant proportion of the UK and apparently keen to leave, will jump to?Interestingly, I'm just now watching euro news. An interview with French economist Jacques Rupnik. He has just said that a Croatian politician of his acquaintance recently used the exact same analogy that I have. Many Croatians feel that they are joining a sinking ship.
How perceptive am I?
Oh and Ozzy sunshine, don't accuse me of being a Little Englander either. Neither of my parents are British. Indeed, neither now lives in Britain. They live in two of the failing Euroland economies, Ireland and Cyprus. So, don't attempt to patronise me.. My information is first hand. Furthermore, I am a goatee wearing company director with business interests within Europe and beyond.
Thirty years' experience in these markets gives me some idea of when things are not working properly. Matey, they ain't working properly.
Have a nice day.
Edited by Blib on Tuesday 2nd July 07:35
Ozzie Osmond said:
In the modern world sovereignty is IMO only an illusion.
I find that a breathtakingly myopic opinion. It is all very well to reflect from a middle class perspective in a stable democracy, sat on the sofa with an iPad, the kids in a decent school, money in the bank and little to worry about, but in the real world ( that is the world apart from the top 2% of the population of the most stable nations) sovereignty remains an issue that many people would die for.The Chinese, Japanese and Koreans don't share that view. Indians don't share that view. All over the world, the significant majority of humanity really do care about their national identity, their borders and their perception of what defines them. In most cases, they are defined by their nationality, their sovereignty.
You are more wrong than a very wrong thing.
Ozzie Osmond said:
I believe a substantial proportion would be perfectly comfortable in a federal arrangement.
I think you are probably right on that. The problem is persuading Dem Deutche Volk to pay for it all. Personally I think it's only fair they should, after all Germany gains a massive competitive advantage from the fixed rate currency union. You can't destroy the economies of other countries and not expect to pay for it. Andy Zarse said:
Ozzie Osmond said:
I believe a substantial proportion would be perfectly comfortable in a federal arrangement.
I think you are probably right on that. The problem is persuading Dem Deutche Volk to pay for it all. Personally I think it's only fair they should, after all Germany gains a massive competitive advantage from the fixed rate currency union. You can't destroy the economies of other countries and not expect to pay for it. 
So whilst the French make lovely noises about being a Sovereign nation, you feel they might still accept direct rule from Brussels. Loss of Tax and Economic management. Be "allocated" a budget, lose the Army, Borders and all those lovely symbols of National Identity.
I want what you're smoking.
I want what you're smoking.
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