Crisis in Greece, the Euro Area and the European Union

[MmeBergerac]

Well, I would expect that the unions said something while the unemplyment rate climbed month after month...

But, Mme Bergerac what is life like in Spain?
Do middle class people who *have* a job feel the impact of the econimic crisis in their personal lives? I'd be really interested to hear how this affects normal daily life in Spain, or whether it's relatively unobtrusive, as it has been (so far) in the UK....

Well, it's easier for people who have a job, of course, but they are afraid to loose it. Companies are having bad numbers. Many construction companies have bankrupted, and a good part of the Spanish economy depended on them. If there's no more construction, then the companies who made supplies (from bricks to doors or furniture) don't have orders, they can't pay their own suppliers and at last the have to close and fire the staff. And so in other sectors.

On an every day level, you wouldn't say things are so bad, but there are sings if you know where to look: at the supermarket, people buy the 'white brand' much more than the brand names, when till a couple of years ago nobody bought anything but brands; clothes shops are almost empty (Zara used to be always crowded), and two weeks ago I went to the cinema on a saturday evening and only waited a minute in the line, while the usual thing was having to queue up for half an hour. Perhaps the best example is my college cafeteria: though there's a menu for 5€ (very cheap for Madrid), you always could bring your food from home and heat it up in the microwave. Six months ago there were still just two microwaves; today, there are 5.

In things like holidays, or so, I can't say very much, because there are lots of people that would give up dinner for six months to be able to pay the holidays at the beach. But the car sales are frozen.

Well, at last Zapatero has waken up and decided to do something (well, Obama himself called to tell him that this couldn't go on this way; and ZP can ignore the rest of the world, but if Obama says it, it must be true )

http://www.abc.es/hemeroteca/histori...151621677.html

http://www.abc.es/20100512/economia-...005120903.html

[Klio]

I thought of you when I heard the news about Zapatero's plans this morning.

Thanks for your analysis of the situation. I do recognise some of those same signs from the UK now that I am thinking about it.

[MmeBergerac]

Well, two days after the shock measures were announced, I'm convinced they won't solve the problem. Public servants will have their salaries reduced in a 5%; the same will happen with pensions; the Social Security medicines will be rationed (a measure to prevent self-medication?). But the government has at least three highly inneficient Ministries that could be supressed or integrated in others, saving a good lot of money, that will remain untouched; subsidies to Spanish cinema (Spanish movies receive form the Government more money than they make in the box office, because nobody watches them), unions and political parties will not be reduced. There will be a tax increase that won't collect enough money beacuse people who still can pay taxes are already up to the neck. Due to the organization of the State in autonomous regions, the administratrion is often redundant with the subsequent waste of money, but there're no measures to change that.

In short, the government has taken measures that I don't deny are necessary, but 1) it's not sure that they'll be enough to repair the damage; 2) they haven't taken measures that were possible and could save more expense without hurting so many people; 3) these measures can work at the moment, but they don't attack the root of the problem; it's like giving antipyretics to drop the fever on a patient without giving also the antibiotic that would stop the infection.

[Linda86]

I just have a crazy question & I know this will NEVER happen: if all employees (doctors, public transportation operators, actors, etc) were paid the same wage, would we still have financial problems (bailouts, debt, etc)?

[Klio]

Hmmm... it's a good question, but it has its problems.

What you are suggesting is essentially a communist system (I mean that in a strictly technical sense -not as a term of invective, so please, mods, let it stand). Communist states tried this - not quite that extremely, but the gap between wages of unskilled workers, skilled workers and various posts where academic degrees were needed were not supposed to be too different from each other.

It sounds like a system that should work well and lead to a fair society (and a cheap public sector). As far as I understand it (and I don't understand it very well, it has to be said) the main problem there is that people lack incentives to try harder. If I earn just as much without getting any qualifications, as I do after years of training, why should I bother?

Of course, lots of people bother anyway just because they want to, but you lose a lot of potential when people just don't have an incentive to try as hard as they possibly could.

In any case, those economies ended up very slow and unproductive, and very poor overall. I guess it's also a problem if there isn't anybody who can actually spend on stuff that's not strictly necessary - because that spending keeps other people in work, too.

I believe strongly that it is bad for societies as a whole if the difference between wealthy and poor gets too big (as it has been in many developing countries for ages, and unfortunately the developed world seems to be getting there, too), but abolishing all difference isn't good, either.

I suppose what we would want is a system somewhere between these extremes - a society seems to work best with a large middle class, but enough difference to incentivise effort.

[Linda86]

I did a little research on communism & I learned a few things. I definitely agree with the whole no motivation, incentive thing. I read communism is a misconception of Stalinism because Stalin was all about terror & totalitarian rule & used the word communism because it sounded better. I also read communism only works in small societies (maybe only in the thousands in population).

I feel like a fool because I was taught in school communism is evil & all I saw was people connecting communism to Stalin. I'm so ashamed for being so ignorant & not researching it.

[alwaysme]

Let's try and pull this back to the topic.

[hemhem20X6]

6. What do you think will be the consequences of this crisis on b) The European Union level

Oh no, could this affect the Schengen Area? Wait, no one seems to have heard of that. Link

Hm, could this affect how countries handle borders? Maybe they will want out of the Schengen Agreement if it's more profitable to have less open borders? But would countries lose tourism because of that? It's all so confusing.

[Klio]

Originally Posted by hemhem20X6

6. What do you think will be the consequences of this crisis on b) The European Union level

Oh no, could this affect the Schengen Area? Wait, no one seems to have heard of that. Link

Hm, could this affect how countries handle borders? Maybe they will want out of the Schengen Agreement if it's more profitable to have less open borders? But would countries lose tourism because of that? It's all so confusing.

I don't understand your concerns here. Why would countries pull out of Schengen? Schengen works between countries which don't have the same currency, and I don't think that it would make much sense to make the borders tougher again because of this.

I am genuinely intrigued - what makes you think so? Wndering whether I am missing something obvious here....

[Wab]

Even if countries did pull out of Schengen I can't see it having a real effect on tourism. As a non-EU passport holder before Schengen, crossing borders (in my case from UK to Belgium to Netherlands to Germany to Denmark) was seamless.

[Klio]

Yikes! One of the ratings agencies has now downgraded Greek debt to 'junk status'.

http://news.bbc.co.uk/1/hi/business/10308395.stm

Now, I am not very well informed about these things, but this doesn't sound good.
Greece has just started to bring in measures to reduce its deficit qickly - but really, no-one can expect something like this to happen in four weeks! A further downgrading will make Greece's job even harder, so this looks rather counter-productive to this uninformed observer.


What I keep wondering about is this: who are these debt rating agencies, and who monitors their activities? Their decisions can make or break whole national economies, and I don't quite see a lot of the kind of accountability or evidence-based decision making you'd hope to go with that kind of power.

Does anybody know a bit more about how this works, and how this is monitored?

[Wab]

These are the same ratings agencies which said CDOs were a solid investment so I don't put too much store in their assessments.

The Australian

Crikey

[Klio]

Originally Posted by Wab

These are the same ratings agencies which said CDOs were a solid investment so I don't put too much store in their assessments.

Yet, their decisions can make or break a country's economy (and with it millions of people's livelihoods).

Isn't there something awfully wrong with that state affairs, then?

[Wab]

Of course it's wrong.

More than one necessary infrastructure project in my neck of the woods has been cancelled because the government feared the loan needed would jeopardise its rating.

As much as we might like to deny it, the west still is burdened by the Thatcherist tenet that the only thing that matters is the bottom line.

[Klio]

I understand the idea that governments have to try to live within their means (it's not as if our current government isn't spending hours of every day to tell us this). But there is something more at work than that....

Watching the situation since 2008, too much seems to depend not on normal market mechanisms, but on markets overreacting, or just being plain irrational. The ratings agencies and their decisions seem to push market reaction in overblown panic about certain countries, and the reaction seems to be not just exaggerated, but also counter-productive, withdrawing normal financial activities from countries which need it to get back on their feet. This makes no sense.

We were always told that the markts just regulate everything qite rationally,k but it doesn't look like it! I am not arguing against a normal market economy, but would say that there has to be a way of making these mechanisms work in a way that behaves slightly less like a headless chicken. Not sure how one would do that, but the actions of those apparently unaccountable ratings agencies aren't helping.


I am looking at this with horror, wondering whether the western countries, believing that they'd never be affected, have been inflicting this sort of thing on poorer countries for decades.....