Monday, February 27, 2012

And so it begins

Some foretelling about the Euro crisis.

Contrary to what you might have read in the media, the Euro crisis is just about to really start now. At least that's my personal opinion - for what it's worth.

In other words, the European Union was never in danger of failing due to a pure financial assault. First, we have the ECB which can print as much money as it wants, and second we have the ECB which, more than any other institution on earth, has an incentive to do whatever is necessary to sustain the Euro. In the short term this is enough.

But we are no longer in the short term. We are entering the long term, or if you will, we are just passing the prelude. In April and May, Greece and France will have elections. In 2013, Germany will have elections. These elections will, for the foreseeable future (which isn't very long), determine the future of the European Union.

The current strategy was to force Southern Europe into painful reforms which will undoubtedly be (mostly) good for their economies in the long run. But to enforce these reforms the countries are suffering dramatic economic - and social - hardship. This hardship must not continue for much longer for two reasons. First, the countries will start to elect erratically. That's what humans do if the pressure grows too high. Second, millions of unemployed, and especially youth unemployment, isn't just a transient thing. Unemployed people lose their qualifications. They will be ever less productive the longer they are unemployed - and a year is already too long. Moreover, economies have inertia. They don't suddenly start to grow just because the government is passing good laws. This often takes many years, sometimes a decade.

For these reasons Northern Europe, and especially Germany, need to stop the austerity-caused recession soon - even if the wages and prices in Southern Europe are still too high to be competitive on the global market. The rest of the wages have to be adjusted with the help of inflation (inflation must go up, the wages must grow much slower). This is not optimal but it is the best of all options.

Luckily this seems to be what is going to happen. All major opposition parties in Germany are in favor of more European solidarity than the current government. There is a reasonable chance that the opposition will win in 2013. The same is true for France in April/May; even though their socialist party is at times a bit strange, in my opinion. Anyway, they are going to win - it seems - and this will put a lot of pressure on Mrs. Merkel even before 2013.

Now, we just need to hope that the Greek vote responsibly. A Greek exit could cause problems for Portugal, which could, once again, bring forward the danger of a chain reaction in the financial markets. And even though the ECB would probably rather print money and distribute it with the helicopter than to stop existing, politicians in Northern Europe would respect its independence only for so and so long.

As for Germany and Mrs. Merkel. I respect her a lot. But I think she has fulfilled her historic mission and it would be good to see a new chancellor in 2013.

In any case, my prognosis for the coming two years is that it's going to get stormy; a lot more stormy than it has been in the past. I sincerely hope that the European Union does survive. Considering the rising powers like China, India, Brazil, among many others, and especially looking at the strange direction the US is taking I, more than in the past, appreciate the European societal model. But this model will not be able to persist if Europe, again, splits up into tiny, independent nation states.


  1. For a long time I've been saying that the Eu would eventually disolve. There will be smaller colitions but the big EU will be gone. But don't worry about China. They are a big bubble that will pop.

    I also see a long period of wars as a certain unnamed religion will keep pushing till there are a hundred little wars raging all over the place.

    The US will go bankrupt led by states like Illinios and California. An even deeper depression will hit the world.

    While all of this sounds terrible the world will eventually pull out of it. It is just the repeating cycle of history.

  2. "The current strategy was to force Southern Europe into painful reforms which will undoubtedly be (mostly) good for their economies in the long run."

    tell me one country with IMF that gone well..they sold all their resources in 1/100 of real price and then they destroyed..after that they throw away the IMF and they rise again from the what is happening now to southern countries will not help them in the long run, it will help the bankers to have the smallest possible loses from the crisis

    some times we must just put numbers aside and think that these numbers are humans starving, humans my country 3 days go we had the 1200 suicide...400.000 more unemployed people, how this can help in the long run?

    Can you name me 1 country in the world that don't have a debt?only 1..Greece have debt, Germany also have a debt, USA have the biggest whom all these countries own money?if Greece owns to Germany and other europian countries as I hear in the @@ media, then Germany owns to whom?USA owns to whom? the whole economical system is a joke and the whole humanity are in debt to some bankers that you can count in the fingers of 1 hand...

    you accept their rules and you talk based on these rules and their right and wrong, I just don't accept the rules..if Greeks in the coming elections do not vote for a party that will throw IMF away and they will deny the illegal debt, they are lost..yes illegal..when Germany take money with 1% interest from the CEB and then it gives it to Greece for 7% interest, I can safely say that this is not a Europian help but I can say it is a loan shark

    1. Unfortunately, you just made my point :(

    2. You can "sell hardships" to people... but again, it has to come from within. From their own needs.

      Only "inner circle" can have required level of trust to pull it off, otherwise rejection is inevitable.

      Which is why "hardships for our own" works, and "hardships for 'others'" doesn't. Difference in "tribe identity" is quite important for humans.

  3. When i saw the news on this yesterday evening, I felt a little sorry for how the German people have no tools whatsoever to actually make such decisions. you choose your reps and then you're pretty much screwed / need hope for the best. scary.

    direct democracy ftw.

    1. Even though I acknowledge that the more direct democracy works well in Switzerland, Syl, I am opposed to more direct democracy in Germany or most other nations. I want the population to elect people who seem smart and honest and then set these people free for a few years.

      In my opinion, more direct democracy works relatively well in Switzerland because Switzerland is small and it constantly feels threatened by the outside world.

      Moreover, I am disgusted (deliberately chosen term) that Switzerland effectively helps rich people in Greece, but not only there, to evade paying taxes. It's time for the EU to do the same thing the US has done and force Switzerland to stop helping a few people in other countries to get illegally(!) rich at the cost of their fellow citizen.

      Switzerland won't do this on its own because direct democracy prevents it ..

  4. agreed, although direct democracy didn't prevent this in the case of the US accounts and I'm fairly certain the EU accs will follow at some point. I still believe in DD and it's a much greater topic than that though. :)

    1. The problem with direct democracy is that the people actually decide. :)

      But seriously, I would be scared to death having some people that have no knowledge about a subject determining the outcome. In the US the vast majority can't even name the VP, secretary of state or even one person running in the GOP primary.

      Now if everyone had to pass a test on their knowledge then maybe. I mean would you really want a bunch of Snokkies, Paris Hilton's or Kim K's deciding your fate?

    2. Whenever I think about Direct Democracy, I always end up with this Chicken and the Egg argument. I feel that if people in a society aren't forced to make decisions for themselves they will remain willfully ignorant on the issues. However, if people are ignorant, you don't want them making decisions on issues anyway.

      To morph into a Direct Democracy there would have to be a change in attitudes in terms of people's priorities in life. If the people cannot make learning about the issues a priority over watching a reality TV show then it will never work. On the other hand people won't be inclined to do that unless it is required of them. However, as it seems right now (in the US) they don't want it.

      It never ceases to amaze me how fast people will abandon their right to govern themselves just because they don't feel like dealing with the responsibility that goes with it. AKA...actually learning about the issues.

    3. Without a significant time investment and education you cannot understand the Euro crisis. The idea that a population would start to educate itself to a degree that it could make a reasonable judgement on these issues is completely insane, in my opinion. Most people don't even have a basic understanding mof how our society works in the first place. And most DON'T CARE ...

      Look at Giannis' comment. That's the level of understanding for most people. You don't want these people (sorry Giannis, nothing personal) to decide what to do in detail. You want them to appoint people who they consider smart and honest to deal with these issues and to hold these people accountable every few years.

      Direct democracy is like having WoW players vote on mechanics and content. And game design is much less difficult than real-world economics! :)

    4. Not sure if that first paragraph was directed to what I wrote, but I wasn't saying to put DD into play with the euro crisis. Dumping DD suddenly onto any society that was so dependent on a representative (or totalitarian) government would be very foolish in my opinion.

      With respect to Giannis, I don't know him, but I think its obvious that there is a language barrier there.

      I think your last paragraph isn't a very good analogy. I would think that in a DD, game design experts would come forth with proposals and society would vote on them. Society wouldn't be designing it themselves. This would be no worse than the current system where a senator or congressman with a degree in business is voting on legislation dealing with lets They rely largely on "experts" to put forth proposals and then pick the one that makes the most sense. Or put together a proposal based on their advice.

      DD wouldn't work very well for logistical reasons where compromises need to occur to get legislation passed because there is a philosophical divide in what a particular society wants to achieve.

  5. It's an extreme version of what is going on in the US. the US has the advantage of being the world currency and having a federalist system that lets it force monetary fixes onto the states.

    Unfortunately those with the knowledge aren't doing much better than those without. I think we had a generation worldwide that actually managed to convince themselves the rules of economics, politics and people had changed. Now comes the 50 years of picking up the pieces. Greece and the Euro's collapse may be what it takes to convince everyone that nothing had changed except our perspective and the speed of information.

  6. @Degrin, Goodmongo

    I don't want to go into a lengthy debate on DD, but it's a misconception that the people easily decide on everything themselves on a daily basis here. we too elect our representatives, the difference is that some tool of control and prevention always remains on the side of the people. it would scare me to think that once we have our elects, we'd be in their hands and at their mercy for years without any ways to interfere sometime.

    however, tools such as initiatives are long and difficult processes; the majority of them are unsuccessful too or then they already didn't pass legal and never came to a vote. but we have this tool, just like we have the referendum.

    one BIG advantage of this system is actually that there's a very clear perception among swiss citizens that politicians are there to serve US, not the other way around. people cult in politics, loud and costly election campaigns or cringe-worthy TV battles do hardly or not exist here and are frowned upon. we have a few bad examples too of course, but it's generally unpopular.

    and while I understand the fears connected to DD in terms of 'everybody making decisions', well...I'm not sure I want to think of the sovereign as incurable ignorant. I'd rather see parties fighting to educate voters, one way or another. I have been surprised by some of our votes in the past; people can show a lot more sense than one thinks and they are not so ignorant about knowing what's important. you get more representative results, even if you don't always like them at least and the process is slower, preventing fast shots from happening.
    of course there are bad sides too, but you always take the good with the bad (aka minarets campaign (sigh).

  7. Don't forget that groups of people often make decisions that are locally good for them but not good for the majority. When that become thousands of groups it can look like a bunch of stupid dysfunctional people. Though in reality it's usually people making the most reasonable choice for their particular situation. That's why subsidies are so hard to kill. It may be best for society to kill it but its never best for those who are about to lose it.

  8. Sam made a good point. See in the US we have hundreds of groups separated by race, region, religion, age, sex, lifestyle etc. Much more than a place like Switzerland could ever face.

    The US also has some release valves like voter referendums, recalls or ballot initiatives. And then you have the courts which can easily invalidate even what the DD has decided upon. Bottom line is I would like to have something that is close to what Syl has but unfortunately in the US it just won't work at this time.