Path to Bankruptcy of Sovereign nations

[rishab dhar]

The bailout money is earmarked for foreign creditors.

Perhaps you are focusing on the wrong thing. There are infinite ways to solve a problem, but some ways are much better than others. You are subtly suggesting that it does not matter what path we take. However, I beg to differ, for the simple reason that Greece ( the corrupt government officials) will keep on misusing money. It will keep on taking more debt and will never learn. It is pouring money into a black hole.

A better way to deal with this would be to pay the foreign creditors directly, and let Greece default. This way we can end the problem much faster. Otherwise, corrupt Greece will keep asking for more and more bailout funds for the deficit it keeps on incurring.

Also, I would favor creation of 2 monetary unions, but with a single political union. There should be two Euros: Euro 1 ( for core countries, such as France, Germany, Netherlands, Austria, Switzerland, and Scandinavian countries, such as Finland, Sweden, Norway) and Euro 2 ( for peripheral countries : PIIGS and other weak eastern European countries). There would be two monetary policies : one for Euro 1 and the other for Euro 2. The Euro 1 zone, as of now, needs higher interest rates, and Euro 2 needs lower, probably fed-like, interest rates. This would help in reducing the economic imbalances of the EU.

 

[rishab dhar]

rishab, I like how you speak of a whole country defaulting as if it were no big deal...

I would like you to quote the text where I mention that a country defaulting on its debt is no big deal. I have said nothing like that. If you see the topic of discussion and my initial post, you will find that I merely suggested the possible scenarios, if the present trends continue. I said that the way things are going ( the Credit markets for PIIGS remain nearly frozen; their economies are extremely weak; they have unemployment rate; they are incurring massive fiscal deficits) it is very possible that within couple of years Spain and Italy too might be at the brink of default. In addition to that, I also mentioned the repercussions of these events on the international economy- by any stretch of my imagination they are not rosy. Then how can you assume that a default by a country is no big deal?

Now if you were suggesting why I favor a default to a bailout is another story. You don't want to be at the mercy of the core countries by paying debt on their loans throughout your life. They have held Greece/Portugal/Ireland a hostage to what they did. These bailouts have been designed in a way that these countries will never be able to pay back those loans. Such high debt means that majority of the taxes collected by these countries go merely into paying back interest on those loans. As a result, because of no investment and massive private sector lay-offs, majority of the population remains unemployed, and there seems to be no economic growth.I for one would always favor the side of default, cleaning off the debt, and start afresh. This indeed would be painful, but this path is much better than the path of economic slavery - equivalent to colonization of Asian and African countries by the Europeans.

 

[Jojo]

I would like you to quote the text where I mention that a country defaulting on its debt is no big deal. I have said nothing like that. If you see the topic of discussion and my initial post, you will find that I merely suggested the possible scenarios, if the present trends continue. I said that the way things are going ( the Credit markets for PIIGS remain nearly frozen; their economies are extremely weak; they have unemployment rate; they are incurring massive fiscal deficits) it is very possible that within couple of years Spain and Italy too might be at the brink of default. In addition to that, I also mentioned the repercussions of these events on the international economy- by any stretch of my imagination they are not rosy. Then how can you assume that a default by a country is no big deal?

Now if you were suggesting why I favor a default to a bailout is another story. You don't want to be at the mercy of the core countries by paying debt on their loans throughout your life. They have held Greece/Portugal/Ireland a hostage to what they did. These bailouts have been designed in a way that these countries will never be able to pay back those loans. Such high debt means that majority of the taxes collected by these countries go merely into paying back interest on those loans. As a result, because of no investment and massive private sector lay-offs, majority of the population remains unemployed, and there seems to be no economic growth.I for one would always favor the side of default, cleaning off the debt, and start afresh. This indeed would be painful, but this path is much better than the path of economic slavery - equivalent to colonization of Asian and African countries by the Europeans.

If this helps...
http://www.economist.com/node/18960081?fsrc=scn/fb/wl/kc/14july11

theres no such easy solution...whatever path it takes it will be painful...a full rank prof in Greece makes as much as a PhD student stipend in the west europe..after all the wage cuts, not sure where it will go..

Reading thru above posts it feels like its so easy..let Greece default..no big deal...actually I think it will never default...or will not be allowed to default...ECB/EU/Merkel/Sarkozy et al will not let Greece default...whatever money Greece needs they will supply. For some fact clearing, EU or Europen Union is a consortium of 27 countries, out of them17 countries use Euro as the common currency which is know as Eurozone. Norway & Switzerland are not part of EU or Eurozone but they are part of schengen agreement.

 

[rishab dhar]

Who says that any course of action would be difficult, but they are themselves to blame for the situation they are in today. Heck they even lied, by misstating the facts about their debts and deficits, to get themselves into European monetary union. It was not only Greek government, but also the people of Greece, who evaded taxes, resulting lesser tax collections and higher public debt. Neither the Greek government, nor the people are innocent. I believe everyone reaps fruits for one's actions one day or the other - the judgement day. Now, its Greece's time to pay back.

 

[DominiConnor]

Jojo's point makes me think of what will happen with such vastly different pay & income levels in the EU

Note that I say both "pay" and "income"...

Tax rates in different EU states are going to diverge greatly, and it looks like the places with the lowest pay (Ireland, Greece, etc) will have the highest taxes, so you will earn less and pay a bigger % of that.
The European region has always had a variety of options where different states have chose to have a lot of services and higher tax or lower taxes & services. But this is not going to be the case.

It seems entirely inevitable that some EU states will have high taxes that deliver low services to people on low wages facing high unemployment.

The EU has a free labour market, not as free as the USA, but most EU citizens can choose to live and work in most places in the EU.
Obviously there are language barriers and professional qualifications aren't remotely standardised, but...

If you were (say) 25 in Greece or Ireland with portable skills like programming, banking, bartending, bricklaying and enough language skills to work in another state, would you stay ?
Irish people speak English (some would say better than the English), educated Greeks and Portuguese are at a standard that compares well with other places, so we may see serious outflows.

All countries face demographic issues, but the scary thing is if a country loses too big a % of its smart young people. That would criplle them for at least a generation. This has happened before. Ireland is shit because for centuries rational smart people left, Britain later bled talent to the USA hastening the demise of its empire, Italy was hurt badly by US immigration as well.

 

[rishab dhar]

So could this, possibly, load to massive inflows to strong core countries such as Germany and France, especially if situation does not improve over longer term. This would, I suppose, make them even stronger : smarter people, higher population, faster growth in economy -> bigger say in Europe.

Could this possibly reverse the trend of declining population in Germany, which possibly is the cheapest country (in comparison to the stronger, richer, and more developed European Countries - France, Switzerland, Austria, Netherlands etc). Of course there are language barriers. But I guess that if wage and quality of life disparities remain and grow wider, it is quite possible that many the people from these peripheral countries might migrate to Germany/France.