The Euro was flawed from the start. It created a self inflating bubble that bursted in 2008. Germany is as much to blame as Spain and Italy, but only the south had to pay the price.So what really caused the crisis?There was a big build-up of debts in Spain and Italy before 2008, but it had nothing to do with governments. Instead it was the private sector - companies and mortgage borrowers - who were taking out loans. Interest rates had fallen to unprecedented lows in southern European countries when they joined the euro. And that encouraged a debt-fuelled boom.
Good news for Germany...All that debt helped finance more and more imports by Spain, Italy and even France. Meanwhile, Germany became an export power-house after the eurozone was set up in 1999, selling far more to the rest of the world (including southern Europeans) than it was buying as imports. That meant Germany was earning a lot of surplus cash on its exports. And guess what - most of that cash ended up being lent to southern Europe.
...bad news for southern EuropeBut debts are only part of the problem in Italy and Spain. During the boom years, wages rose and rose in the south (and in France). But German unions agreed to hold their wages steady. So Italian and Spanish workers now face a huge competitive price disadvantage. Indeed, this loss of competitiveness is the main reason why southern Europeans have been finding it so much harder to export than Germany.
That's nothing new, there is a nice series about it from BBC Television (so not really biased). Conclusion was that the northern EU countries profited more from the EU than the southern ones. Especially Germany is profiting most. Will try to find the BBC series about it.
Bad economic policies on southern Europe's part... and it hasn't even anything to do with the euro, the southern economies would've slided into a crisis anyhow. Not just because of poor economic policies, but because of the 2008 crisis. German's lendings has made the impact of those poor economic decisions less hurtful....bad news for southern EuropeBut debts are only part of the problem in Italy and Spain. During the boom years, wages rose and rose in the south (and in France). But German unions agreed to hold their wages steady. So Italian and Spanish workers now face a huge competitive price disadvantage. Indeed, this loss of competitiveness is the main reason why southern Europeans have been finding it so much harder to export than Germany.
How come you manage to read the same thing as everyone else and come to a wrong conclusion? The EURO is the root cause of the crisis. The way it works is turning the South into a periphery that has to rely on the North for it's survival and economic decissions.Which brings us back to the euro zone crisis. People (especially Germans) often view the crisis, which first became severe four years ago this spring, through this frame: Profligate, free-spending nations along Europe’s southern coast (we’re looking at you, Greece, Italy and Spain) borrowed more money than they could possibly repay; then, when the bill came due, they nearly caused the collapse of the common euro currency before being bailed out by their more responsible Northern European neighbors.
The run-up in debt in Spain and Greece and Italy was the flip side of Germany’s success in containing workers’ wages and improving exports. Germany sold more stuff to Southern Europe than it bought. It took the profits and, in effect, lent the money back to those same Southern European countries. In Greece and Italy, it showed up as government borrowing, and in Spain as a housing bubble fueled by bank loans.
It all fell apart once the indebtedness of the Southern European countries became too much to bear. Because all these countries use the same currency, the euro, none could relieve the pressure by devaluing their currency as they might have with their own lira, drachma or peseta.
Europe has been forced to fix its internal imbalances some other way. The approach so far has largely been one of forcing steep cuts in wages and benefits on the Southern European countries, so that they can regain competitiveness against Germany.
The Euro is broken and Italy is right to consider ditching it.
Do you really wonder why that didn't happen?
If the solution to economical crisis in Southern Europe is screwing their own currency, they shouldn't have swapped their national currency with the Euro.
Last edited by Cyberowl; 2014-05-14 at 03:33 PM.