Today the Times features several stories about the ongoing negotiations between Greece and Germany, and the plan to rehabilitate Greece's shattered economy. It has been decided that the Euro-zone countries whose economies are strong will be establishing a fund for those who are in trouble. Because Germany's economy is the strongest in the euro-zone at present, it will foot the majority of the bill for the fund, and Greece will be the fund's biggest beneficiary. This motion towards the establishment of a permanent bailout fund brings the Euro-zone one step closer towards a united fiscal policy. The creation of the permanent fund will pool together the debt-risk of all of the debtor nations within the Euro-zone, which could then be managed through EU-wide monetary policy. This step makes the European Central Bank in effect a government of its own. Do you think this is the best way to address the European Debt crisis? What concerns do you have over this decision?
http://www.nytimes.com/2012/09/13/world/europe/german-court-backs-euro-rescue-fund.html?ref=business
I don't think anyone can really say if this is the best way to handle the situation, but it is nice to see a step in a positive direction. I think it is good that Germany has stepped up and accepted their role in all of this and have stated that they want to help Europe as a whole. However, it will be interesting to see if what Jorg Kramer stated will come true. He mentioned that this plan could potentially lead to the "union of mutualized debt" as opposed to a long term stabilization period. It just seems like one of those things where only time will tell how effective it really is, or can be.
ReplyDeleteI agree that it is wonderful that Germany is taking an active role and continuing to help out other EuroZone countires, however I do also think that Jörg Krämer's point about the Stability Mechanism leading to a change in character amongst the EuroZone nations is valid. Hopefully his predictions are wrongs and we don't see inflation, a weaker Euro, and mutual debt as the overall outcome of the European Stability Mechanism.
ReplyDeleteI think that this new plan has possibilities for both great successes, but also great failures. With Germany contributing as the main source of support for struggling EuroZone countries, it seems as if this strategy could result in positive results such as stimulation for Greece or lowered interest rates in Italy. However, with any deal that includes relying on other countries comes great risk. The assistance that countries like Germany will provide to the EuroZone also could in fact result in higher interest rates within their own borders and in turn weaken the EuroZone as a whole.
ReplyDeleteThe other options European central bank has except the bailout fund are: either the central bank buys the bonds or the struggling countries leave euro. There are chances that the European Central bank may not be able to print enough money to buy bonds from all the struggling countries. In that case the struggling countries are only left with option: leave euro. This would have been a disaster for country like Greece. We can only wait to see how well European Stability Mechanism will work but for the moment it might be the best way to address the debt crisis.
ReplyDeleteI believe this plan is great. Although there are concerns regarding a sharing of debt among the members of the eurozone, I think this is really their only option to solve the debt crisis. It may cause a mutual debt sharing, but we cannot say that for sure, we can only wait and see what happens. I think Germany is taking a huge step in helping other EuroZone countries, and hopefully it will work out for the best, and help create a "more powerful and strong European Core."
ReplyDeleteI am going to go out on a limb, and say that although the bailout packages will begin to resolve the Euro zone debt crisis. The only longer term solution will be more intimate cooperation and differentiation of member economies. Highly industrial/ wealthier economies within the zone will continue to attract greater levels of traditional industrial and business investment (as long as they are not initially dragged down by the bailouts) for their already large sums of educated and specialized labor/ capital. Leaving the struggling economies like Spain and Greece to find new areas production or specialization. Perhaps something along these lines:
ReplyDeletehttp://www.nytimes.com/2012/09/13/world/europe/spains-economy-sends-city-residents-back-to-country.html?pagewanted=2&ref=europe
"Rurbanismo" might lead to a revitalized rural population predisposed to agriculture in the unique Mediterranean growing environment. This along with the tourism mentioned in the article could lead to possible new foothold for the struggling economies, fulfilling the need for new rural jobs and reducing the glut of labor in the cities. Government finances perhaps need to reflect upon this offing incentives to move away from overcrowded cities, reducing infrastructure expenditures in already strained city government.
Whether this restructuring is fair, or invited by the populous is another question entirely....
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ReplyDeleteI believe the European Stability Mechanism makes the most sense as a temporary fix. On the other hand I do not believe this solution can sustain. If this continues in the long term, the stronger economies will be holding the weaker economies’ debt in the form of bonds. What if these bonds are not paid back? I can see this causing major political tension in terms of dominance and major decision-making in the Eurozone. As the article mentions, Germany has the largest economy in the Eurozone and thus is inclined to assist those struggling economies. Something we need to consider is that German has a very successful economy because of the hard working mentality in their culture. Germany, in general, has a very high focus on efficiency and financial progression. Possibly a better, long term solution will be to ask for more assistance from the IMF or ask countries globally to collaborate in purchasing bonds of countries like Greece, Portugal, and Ireland.
I look at this plan for economic rejuvenation with high hopes, but a twinge of skepticism given it's historical predecessors. It is fantastic to see a Euro-united 'mechanism' working alongside the European Central Bank on reconstructive measures.
ReplyDelete'Fantastic' but only truly as a temporary fix in the face of larger looming issues. Buoying the Euro from problems and giving more time to the debt-ridden will only work for a while without a successful plan for the future post hoc. Debt mutualization is a fantastic start and bides more time. But more corollary ideas needs to come soon as well to make any real long term reforms to the economy.
As far as the bond-buying programs planned for countries like Spain and Italy goes, we can only cross our fingers that enough demand will be stirred from the ECB's stirring of the pot. But once one has seen the magic trick once...it just makes me a bit doubtful that the results can be as positive as they need to be.