The European Union

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The European Union

Postby mazater » Tue Dec 07, 2010 2:06 am

AA has had a plentiful of threads about US and it's numerous issues, however, we've never had one about EU (as far as I know of, anyways), so I figured it's time to change that.

So let's discuss the EU for a change, shall we?

WALL OF TEXT INC. OBLIGATORY TL;DR AT THE END. WITH LINKS. AND PARDON MY ENGLISH, SIR, I'M NOT GREAT AT IT.

Starting off with Debt & Deficit numbers from 2009 (Link leads to BBC, numbers are from Eurostat, though.)

I won't go deep into that, as the numbers are about a year behind. But as one can easily see, Italy and Greece had debt equal to some 115% of their respective GDP's about a year ago. Ouch.

As many may know, things have only gotten worse after those numbers were given by Eurostat.

Things have gotten so, so much worse, that people have come up with a term PIGS (or PIIGS or PIIGGS) countries.

For those unaware of such term, it basically refers to countries (Portugal, Italy, Ireland, Greece & Spain) with redicilous amount of Sovereign Debt. The (expected)result of their excess Sovereign Debt is ultimately National bankruptcy, which, obviously, is not cool.

Out of the PIGS/PIIGS countries, Ireland and Greece have already fallen.

ECB & IMF are, at the moment, keeping Greece afloat by loaning money to it, but with great loans comes great interest rate. Greece is not expected to ever be able to completely repay the loans, which leads to a pretty damn poor Country reliant on the continued goodwill of EU countries, ECB and IMF. Needless to say, "we" simply cannot keep giving them money, it has to stop at some point. And when it does, well, bye bye Greece.

As for Ireland, the country itself isn't in as dark place as Greece is. EU has just recently agreed with Ireland (and it's banks) to give them "emergency loans" in an attempt to save the country and the banks.

The Irish people don't seem to really enjoy the idea of loaning from ECB, individual EU countries or IMF, so they've been pretty busy rioting against the loans. And, quite frankly, the Irish people are probably right.

Economists such as Barry Eichengreen and Kevin O'Rourke have openly stated that accepting loans from ECB, or IMF, will be the final blow in Ireland's coffin. The loans and their interest rates would kill Ireland completely, they say.

Today is the time when the Irish parliament gets the Budget estimates for next year to look at, discuss about and to vote about.

EDIT: And they've decided on their new budget. See Irish Times.

The result of that Budget Vote could very well be the end of the current Irish Government and ultimately lead to Ireland cancelling the EU's promised loans, which, in turn would lead to the very thing that EU is desperately trying to avoid.

That being a chain reaction amongst banks that would lead to the destruction of most French, German and British banks. And that wouldn't be healthy for the EU at all.

So, if Ireland takes the offered loans, they are probably screwed. If they decline the loans, we're all, probably, screwed. That's about it in a nutshell. Things aren't looking too great for the EU or the "Celtic Tiger" known as Ireland.

And if that wasn't bad enough, there's more.

The "P" in PIGS/PIIGS countries, Portugal, is expected to fall so deep into financial crisis that they, too, would require loans within a year.

ECB is capable of constant loans to Portugal along with Ireland and Greece for a couple of years, so things aren't lost even when (emphasis on the when part, most Economists are certain of Portugal requiring loans, it's only a matter of time.) Portugal goes down, so to speak.

However, things will get really, really dark if the last one of the PIGS/PIIGS countries, Spain, requires loans.

ECB simply does not have enough money to give any reasonable support to Spain. Spain going down without any financial support would mean the death of EU as we know it. How that death will end up like, nobody knows. *Shrug*

The Councellor of Germany, Angela Merkel, has already gone as far as saying that Germany will leave the EU if things don't get better soon, and as some may know, Germany is one of the key countries in EU.

Should they (Germany) leave, EU would be screwed way over it's head.

TL;DR:
Things aren't looking too great on this side of the world.
Opinions about the future of our merry little Union?
Have a laugh, it's on us this time around.

LINKS:
NY Times' excellent graph about bank loans amongst EU countries. Definitely worth a glance to come to terms with the amount of loans going across banks and the effect it would have if those banks in those countries would fall.

BBC's news abot Ireland's Budget vote.

Barry Eichengreen's opinion about the state of Ireland from Handelsblatt. (In German.)

O'Rourke's thoughts about the current Irish situation from Eurointelligence. (In English.)

Portugal's future expectations from Irish Times.

BBC's Stephanie Flanders' thoughts about EU and Germany's possible exit from EU. More links to come when I have the time to update.

Ireland's new Budget Info. (Irish Times)

And here's a few Articles about EU and the future from The Economist.
(Note that they only allow unregistered users to read 5 articles/week.)

Personally, I'm quite horrified about the EU's situation. Increasing unemployment throughout the whole EU amongst all the other things, so uncool.
Last edited by mazater on Thu Dec 09, 2010 12:57 am, edited 3 times in total.
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Re: The European Union

Postby Krazed » Tue Dec 07, 2010 5:03 am

Towel Porn will save you?
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Re: The European Union

Postby cakeftw » Tue Dec 07, 2010 5:07 am

In my "just crawled out of bed half dead" state of mind, that looks to me like we're headed towards a situation where we'll be borrowing money off people to lend money to people who are borrowing for the exact same reason we just did.
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Re: The European Union

Postby mazater » Tue Dec 07, 2010 5:17 am

Krazed wrote:Towel Porn will save you?

I sure hope so. ;)
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Re: The European Union

Postby Barathorn » Tue Dec 07, 2010 5:56 am

The situation has come about because there are too many fat cats at the top of the pile earning far too much money which is being paid by the taxpayers. We are in a recession and people should be worried about their jobs, I certainly am. I don't however see any Euro MP's worried about their jobs? I think they should be as they have put us in this mess. I genuinely feel for the people of the countries in trouble at this time.

Standardised currencies and unions do not work when countries don't start on a level footing and it is morally and ethically wrong for people to be making a nest egg for themselves when others are suffering.

I have no faith in the European Union at all.
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Re: The European Union

Postby Brekkie » Tue Dec 07, 2010 7:46 am

Just out of curiosity, what got the PIIGS countries into so much debt in the first place? What were they spending all their money on?
In the case of the U.S., I know where our debt came from; a combination of the bush tax cuts and increased spending on two wars. Then when the deficit continued to bubble, the Obama administration made the, correct, decision to push through the economic stimulus package which was a pretty clear success in pulling the country back from the brink, but had the effect of ballooning the national debt to levels where it is now becoming a long term concern.

But why are the EU countries in debt? As far as I know there haven't been any big disasters in Europe like the gulf oil spill or hurricane Katrina, and the financial investment in the war on terror isn't nearly as big a proportion of spending for the EU as for the US.

Thank you for this thread, the links are very interesting.
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Re: The European Union

Postby Fridmarr » Tue Dec 07, 2010 9:32 am

Brekkie wrote:Just out of curiosity, what got the PIIGS countries into so much debt in the first place? What were they spending all their money on?
In the case of the U.S., I know where our debt came from; a combination of the bush tax cuts and increased spending on two wars. Then when the deficit continued to bubble, the Obama administration made the, correct, decision to push through the economic stimulus package which was a pretty clear success in pulling the country back from the brink, but had the effect of ballooning the national debt to levels where it is now becoming a long term concern.
This is just dead wrong, objectively dead wrong. First, I think you are probably confusing deficit with debt, we had a significant debt before Bush took office. The wars were costly but were probably as good of a stimulus as the actual stimulus package was and the total amount spent on the Iraq war including the last 2 years under Obama is about the same as the stimulus. The "brink" you refer to was dealt with before Obama took office by TARP, when banks were running out of money to loan.

If you have a desire to blame budget problems on Bush, you can cite the wars, but then you can't turn to Obama as a source of fiscal responsibility between the democrats slush fund err stimulus and the looming healthcare overhaul. Better examples for bashing Bush would stuff like Medicare Plan D, and the fact that he grew the government pretty significantly. Honestly though, you can look at pretty much every politician since the mid 1900's (congress has much more of an impact on the budget than the president does) and realize that we have a really bad spending problem, and almost all of them have contributed to it, much less attempted to fix it. After all, it's a hell of a lot easier to get re-elected if you get money to your district, but then that means you have to scratch someone's back too.

Taxes, like pretty much everything else have a price point. That's why as you raise the top level tax brackets you reach a point where they actually end up representing a smaller percentage of government revenue. When the Bush tax cuts were being passed (and they had pretty reasonable bipartisan support) there was tons of propaganda about how they did nothing for anyone but the rich. At least now with this debate, we can put that issue to bed, as the media is forced to concede that point since the dems and Obama want to keep all but the top level cuts. Of course analysis of what those top level cuts cost splits across party lines. Dems look at a flat figure assuming no broader economical impact and republican assume that keeping them means these folks are going to run out and hire all the jobless with their "extra" money.

If you want trash our government's fiscal dealings which shouldn't be done in this thread anyhow, there's plenty there, but at least a little effort in masking your Obama is god complex is probably in order.
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Re: The European Union

Postby Barathorn » Tue Dec 07, 2010 9:48 am

Hey stinky Americanos, get into your own thread!

/mutters

From my own limited understanding it came about because basically when countries started using the Euro there was limited understanding of how a centralized currency would fare given each countries own needs, provision was made but they got it really badly wrong. Basically those countries doing well continued to do well and those in a not so stable state got completely out of their depth. Add a recession and it is the people who suffer because of poor management.

As an aside, I find it slightly concerning that the money the UK has saved by making cuts in local government [which admittedly needed to be made] happens to be around the figure we are going to have to pay to Ireland to help them [which I don't begrudge given the wrongs we have done in the past] which smacks to me that somebody knows pretty much spot on what the financial trend is going to be over the next few years but isn't using this information for the good of the country/countries in question because of the scaremongering it would result in.

Crazy times.
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Re: The European Union

Postby mazater » Tue Dec 07, 2010 10:02 am

Brekkie wrote:
But why are the EU countries in debt? As far as I know there haven't been any big disasters in Europe like the gulf oil spill or hurricane Katrina, and the financial investment in the war on terror isn't nearly as big a proportion of spending for the EU as for the US.

Ireland, atleast, has gotten itself to this mess thanks to their own stupidity.
Well, okay, that's not a nice way to put it. Let's rephrase that.

Ireland has gotten itself to this mess thanks to their housing bubble and recapitalization of their banking sector. (Banking sector being: Anglo Irish Bank, Bank of Ireland and Allied Irish Bank.)
The reason Ireland had to recapitalize it's own banking sector was due to two things: Bad loans (From the banks' perspective) and their bad Property Deals. (Again, from the banks' perspective)

In a nutshell, the three aforementioned banks raced against eachother in loaning cheap money to pretty much everyone who wanted some, with extremely poor collateral guarantees. That resulted in poor banks, which the Irish Government decided to support with their own money. That resulted in a poor Ireland, which is now probably getting a loan from ECB.

And just for the record; Back when Ireland was making the decision about whether to support their banking sector or not, many Economists were against recapitalization. Some quite aggresively even.

As for Greece, the answer is even more simple.
They spent more than they should have. They took loans all the time to support their huge Social Service systems and on top of that, they made false bookkeeping to make it look like things were manageable over there. As the financial crisis hit, the sad, sad, fact about their faked numbers got out.

Their political leaders more than likely expected that nobody would ever get wind of their false statistics, atleast not on their lifetime.
And in the worst case scenario, they counted on ECB to carry them (Greece) through dark times. And the latter was right, we're helping Greece by paying for their political leaders' unjust decisions.

I, for one, hate everything about that. It's disgraceful.
I could live with the fact that ECB would give financial support to Ireland, atleast they didn't do what they did out of pure greed. But those Greece leaders did what they did out of greed and national pride.

Here's a decent blog post about Greece.
And here's an article about Greece. (EUObserver)

There's also the fact that Greece gets a lot of it's money from tourists visiting there.
Needless to say, people travel less during financial crisis'. The result of less traveling means less money to Greece.

I don't know about what's happening over at other PIGS/PIIGS countries, but I'd imagine the issues are a mix of Greece and Ireland.
Bad banking, excessive Greed and maybe a housing bubble of sorts.

As for the whole America thing, I won't comment on that. I don't honestly have a clue about what's going on at that side of the planet.
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Re: The European Union

Postby Rachmaninoff » Tue Dec 07, 2010 2:18 pm

mazater wrote:As for the whole America thing, I won't comment on that. I don't honestly have a clue about what's going on at that side of the planet.

And I don't know what is going on with Europe. I'm starting to see some parallel's. I'll go back to my corner and lurk now.
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Re: The European Union

Postby mazater » Tue Dec 07, 2010 11:02 pm

In case there's anyone with knowledge about the economical situation over at Portugal, Spain or Italy, pray tell.
I, for one, would be interested to hear what they're doing over there.
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Re: The European Union

Postby Daeren » Tue Dec 07, 2010 11:59 pm

The annoying part is that in these countries that are forced to cut, people are striking and rioting, making the situation even worse. You can't honestly expect pension age in the fifties.
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Re: The European Union

Postby mazater » Wed Dec 08, 2010 12:23 am

Daeren wrote:The annoying part is that in these countries that are forced to cut, people are striking and rioting, making the situation even worse. You can't honestly expect pension age in the fifties.

Not to mention when they do something like this during their riots. It costs money to fix up what they managed to destroy over there.

But then again, can't really blame them for being mad. They've got the right to be pissed off.

EDIT: Added a few links to The Economist's articles.
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Re: The European Union

Postby aureon » Wed Dec 15, 2010 3:35 pm

Italy, the last of the PIIGS in the fall order, Is still likely to fall.
And it's economy, even crippled, is way too big to be saved by EU's intervention.
The public debt in EU countries is mostly radicated in post-war loans (Marshall loans) and common to all the "first-world" countries, including iceland, USA, canada, japan, etc.
In Italy, well.. if you're laughing at our PM, there's a reason.
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Re: The European Union

Postby Arjuna » Fri Dec 17, 2010 3:06 pm

Fortunately I live in Sweden...
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