The PIIGS

[gloomyDAY]

We all know that Greece is in the pits and knocking on the door for cash. Portugal is probably going to be next and Italy is slowly making their way between a rock and a hard spot. Ireland is in a lot of debt but at least they have made significant efforts to curtail their spending and find an equilibrium.

None of these, I mean none, are as worrisome as Spain. The Spaniards voted in a Socialist leader after a few terrorists attack and now we see bloated government spending that far exceeds their GDP. Add to that empty homes, companies unwilling to add permanent employees, and a populace staunchly against any kind of reform and we have ourselves one hell of a mess. Furthermore, Spain accounts for 10%, or so, of Europe's economy. If they go down, then who can fish Spain out of debt?

[Mark in Oshawa]

We all know that Greece is in the pits and knocking on the door for cash. Portugal is probably going to be next and Italy is slowly making their way between a rock and a hard spot. Ireland is in a lot of debt but at least they have made significant efforts to curtail their spending and find an equilibrium.

None of these, I mean none, are as worrisome as Spain. The Spaniards voted in a Socialist leader after a few terrorists attack and now we see bloated government spending that far exceeds their GDP. Add to that empty homes, companies unwilling to add permanent employees, and a populace staunchly against any kind of reform and we have ourselves one hell of a mess. Furthermore, Spain accounts for 10%, or so, of Europe's economy. If they go down, then who can fish Spain out of debt?

Well, at some point, all left/socialist governments either come to terms with spending and reel it in to an extent (never really to any great effect, since their voters see it as a betrayal, and no one on the right trusts them), or they really drive the country off the road and the opposition inherits the mess with an election.

IN Spain's case, I suspect there will be at some point an effort to raise taxes to stem the bleeding...and when that drives money and investment elsewhere, I am sure they will blame it on someone.

That is the beauty of all this. It repeats itself over and over and over. Governments that spend too much eventually collapse or get knocked out of office...unless of course they are Mr. Chavez in Venezuela...then you just wreck the country....

[fandango]

All interesting points, gloomyDay, if a little simplistic. I don't think the population here is as anti-reform as you say. If fact, I would say that Spain has the ability to embrace radical change just as much as Ireland, for example.

The problem is confidence. The government is losing the confidence of the people, nothing new there, but the alternative may well be worse. The opposition have no real ideas, and all sides are mainly engaged in mud-slinging. If the President says the sky is blue, the opposition leader will either say no it isn't, or that it's the President's fault.

There's a strange situation in Spain. For people who haven't lost their jobs, the situation is not worse than a few years ago. In fact, as prices fall etc, the situation is better. Things will get serious when there's no more money to pay the unemployment benefits. Many of the unemployed are unskilled workers, and many are foreign, so them moving back to their countries will ease things a little.

I don't think this problem has come about because the government is Socialist.

[EuroTroll]

I guess the main problem is that many Western countries have a habit, almost a culture of accumulating debt, even in good times. Cutting government spending is an unpopular thing to do, so it isn't done... Here's a map of the level of public debt in 2007, as a percentage of annual GDP (based on the CIA Factbook).

http://upload.wikimedia.org/wikipedia/commons/thumb/d/da/Public_debt_percent_gdp_world_map.svg/1000px-Public_debt_percent_gdp_world_map.svg.png

And then the recession hit!

[Mark in Oshawa]

All interesting points, gloomyDay, if a little simplistic. I don't think the population here is as anti-reform as you say. If fact, I would say that Spain has the ability to embrace radical change just as much as Ireland, for example.

The problem is confidence. The government is losing the confidence of the people, nothing new there, but the alternative may well be worse. The opposition have no real ideas, and all sides are mainly engaged in mud-slinging. If the President says the sky is blue, the opposition leader will either say no it isn't, or that it's the President's fault.

There's a strange situation in Spain. For people who haven't lost their jobs, the situation is not worse than a few years ago. In fact, as prices fall etc, the situation is better. Things will get serious when there's no more money to pay the unemployment benefits. Many of the unemployed are unskilled workers, and many are foreign, so them moving back to their countries will ease things a little.

I don't think this problem has come about because the government is Socialist.

Maybe...but Socialist/Left of center governments tend to spend more to give the population more entitlements. Take away the spending the US was dumping into Iraq and foreign policy, and they would likely have been in a better financial picture at the Federal level and able to ride this out. The most indebted states are left of center economic sinkholes in the US. In Canada, the provincial governments having the hardest time with this recession are those led by parties who play left of center/socialist politics.

It is what it is. You go around promising an equal outcome and social justice for all...and it costs more more money. So you tax and spend more, and you eventually push business either out, or into places where they cannot invest. It can hurt the economy, which makes getting out of the hole so much worse.

There is a time and place for government spending, and there are legitmate purposes the state has to spend money on, but the regimes in the most difficulty are often those who promise too much to too many...

[Mark in Oshawa]

Oh..and before anyone thinks this is an anti/left diatribe, I can look at that map and tell you that some very indebted nations are led by "right" of center gov'ts too. The problem is, they didn't run their economic budgets as they ran. Or in Canada's case, are dealing with a complex state that has evolved into a social welfare state that is very expensive full of entitlements. Also, consumer debt is high..which has nothing to do with government.....so even tho my nation has a "Conservative" at the helm, the reality is you don't change 40 years of expanding social services in one shot.

[EuroTroll]

I think it's just common sense to build reserves in good times and spend them in bad times. When you run budget deficits during growth years -- what do you expect will happen when a recession hits the economy? You need to borrow even more, because your income decreases and you have to revitalize the economy through increased government spending. Eventually, borrowing money becomes very expensive. This is what's happened to Greece, which is why they've had to turn to the IMF and the EU for cheaper money.

Left wing or right wing -- a government just shouldn't spend beyond its income during growth years. It should run a budget surplus. How many Western governments did? "Not many" is the answer.

[Mark in Oshawa]

I think it's just common sense to build reserves in good times and spend them in bad times. When you run budget deficits during growth years -- what do you expect will happen when a recession hits the economy? You need to borrow even more, because your income decreases and you have to revitalize the economy through increased government spending. Eventually, borrowing money becomes very expensive. This is what's happened to Greece, which is why they've had to turn to the IMF and the EU for cheaper money. This is what is happening now in Canada. That said, the government is turning the screws down again on spending, and I suspect that the only reason the debt got as high as it did was from the minority gov't status of the governing party.

Most nations should do this, but as Greece has proven, things can be out of control. How much of this is linked to their hosting the Olympics in 04? A small nation dropping 20 billion plus for a 2 week party cannot be on a sound financial footing afterwards. The social programs in Greece are heavy as well, as it is in a lot of Europe. All in all, fiscal responsbility is tough when you are spending on entitlements and the Olympics...


Left wing or right wing -- a government just shouldn't spend beyond its income during growth years. It should run a budget surplus. How many Western governments did? "Not many" is the answer.

Too many of both stripes. The problem in North America is our governmental systems give us 3 levels of government's taxing us, but there is only ONE tax payer, so if the Fed's tax us less, the Province/States, or the local municipal politicians tend to tax a little more figuring we can afford it.

Then you look at US states such as New York or California and see the fiscal realities facing them. Quebec here in Canada is at 99% Debt load to GDP. The transfer money they get from the Federal Canadian gov't is paying for many of their social policies and yet they are still a "have not" province. This despite being the greatest producer of Hydro electric power on the continent, having an educated workforce, and a lot of immigrants and youth willing to work. The debt wall for giving out incentives such as state run day care ( 7 dollars a DAY to look after your children) and paying French families to have more children (the Quebecois have the lowest birth rates on the continent) hasn't worked. The fact is, business fled the province due to high taxes and political stupidity and if not for the richer provinces helping out, they would be in trouble that the Greeks would identify with.

Fiscal realities mean at some point, you run out of other people's money to spend. Margaret Thatcher's point about socialism is quite true. Now She wasn't perfect, but on fiscal management, I think she had the nub of it. Every society reaches a point where there is no point to taking taxes past a certain level....because when you drive out the rich, you are only left with the poor and the middle class....and they cannot provide jobs and create wealth. Society needs rational tax policy and fiscal policies...and sometimes a government just has to say "No" to things it cannot afford...right or left.

[Jag_Warrior]

I usually hang up on people who cold call me. But I got a call this morning from a fellow trying to convince me to open a Forex trading account with his firm. I agreed with most everything that he said. He believes that over the next two weeks, the Euro will be down, as over this time span, the nations mentioned in the OP will be under severe pressure to refinance debt and make coupon payments. Yields will probably rise and other Eurozone nations are going to have to scramble to figure out what role they're willing to play. So go short the Euro, according to him.

I just don't know enough about all of the variables that go into (effective) Forex trading, so I passed. But let's see if the Euro isn't lower in 2-3 weeks than it is now. I bet he's right.

[Mark in Oshawa]

I usually hang up on people who cold call me. But I got a call this morning from a fellow trying to convince me to open a Forex trading account with his firm. I agreed with most everything that he said. He believes that over the next two weeks, the Euro will be down, as over this time span, the nations mentioned in the OP will be under severe pressure to refinance debt and make coupon payments. Yields will probably rise and other Eurozone nations are going to have to scramble to figure out what role they're willing to play. So go short the Euro, according to him.

I just don't know enough about all of the variables that go into (effective) Forex trading, so I passed. But let's see if the Euro isn't lower in 2-3 weeks than it is now. I bet he's right.

I cant see how the Euro doesn't take some sort of hit for all this fiscal insanity and bailout madness. It has kicked the crap out of the US dollar. I know this because the only currency the Canadian dollar has gained big time over in the last year is the US dollar, and it is mainly due to the unrest on your side of the line Jag. What is happening in Europe is the same....

[donKey jote]

All interesting points, gloomyDay, if a little simplistic. I don't think the population here is as anti-reform as you say. If fact, I would say that Spain has the ability to embrace radical change just as much as Ireland, for example.

The problem is confidence. The government is losing the confidence of the people, nothing new there, but the alternative may well be worse. The opposition have no real ideas, and all sides are mainly engaged in mud-slinging. If the President says the sky is blue, the opposition leader will either say no it isn't, or that it's the President's fault.

There's a strange situation in Spain. For people who haven't lost their jobs, the situation is not worse than a few years ago. In fact, as prices fall etc, the situation is better. Things will get serious when there's no more money to pay the unemployment benefits. Many of the unemployed are unskilled workers, and many are foreign, so them moving back to their countries will ease things a little.

I don't think this problem has come about because the government is Socialist.

I don´t think Juanito Foreigner going home will help much at all, but otherwise a pretty much spot on analysis once again :up:

They (the PP and consorting tertulianos) blame Zapatero for anything they can (heck they´ll probably blame him for the giant ash cloud almost missing the peninsula entirely :p ), but he is without doubt one of the most honest politicians Spain has had for a long long time.

[Mark in Oshawa]

I don´t think Juanito Foreigner going home will help much at all, but otherwise a pretty much spot on analysis once again :up:

They (the PP) blame Zapatero for anything they can (heck they´ll probably blame him for the giant ash cloud almost missing the peninsula entirely :p ), but he is without doubt one of the most honest politicians Spain has had for a long long time.

Honest or not, he is running what could be a bankrupt country soon. You can be honest, and lousy at handling money....

[donKey jote]

Sure... he is also to blame because the bubble burst on his watch.

Guess what the only alternative appears to be:
dishonest and skilled at handling money (as in laundering ;) )

The same people who accuse him of being slow to react to the crisis have taken a whole year to "accept the resignation" of their party treasurer, after all sorts of tricks to set up the judge who uncovered their "dodgy" financing.

Frankly, I still prefer an honest politician.

[Mark in Oshawa]

Sure... he is also to blame because the bubble burst on his watch.

Guess what the only alternative appears to be:
dishonest and skilled at handling money (as in laundering ;) )

The same people who accuse him of being slow to react to the crisis have taken a whole year to "accept the resignation" of their party treasurer, after all sorts of tricks to set up the judge who uncovered their "dodgy" financing.

Frankly, I still prefer an honest politician.

Well most of em are probably "honest"....but there are degree's of it. Since I don't know about this chap...I will stay out of commenting on the quality of his leadership. The Spanish can do that...

[Alexamateo]

I usually hang up on people who cold call me. But I got a call this morning from a fellow trying to convince me to open a Forex trading account with his firm. I agreed with most everything that he said. He believes that over the next two weeks, the Euro will be down, as over this time span, the nations mentioned in the OP will be under severe pressure to refinance debt and make coupon payments. Yields will probably rise and other Eurozone nations are going to have to scramble to figure out what role they're willing to play. So go short the Euro, according to him.

I just don't know enough about all of the variables that go into (effective) Forex trading, so I passed. But let's see if the Euro isn't lower in 2-3 weeks than it is now. I bet he's right.

Hey Jag, Krugman's shorting the Euro! :p

http://www.nytimes.com/2010/04/30/opinion/30krugman.html?ref=opinion

On the flip side, I know Great Britain took some flak in some circles for not joining the Euro. In hindsight, it is looking like the right decision.

[Garry Walker]

I usually hang up on people who cold call me. But I got a call this morning from a fellow trying to convince me to open a Forex trading account with his firm. I agreed with most everything that he said. He believes that over the next two weeks, the Euro will be down, as over this time span, the nations mentioned in the OP will be under severe pressure to refinance debt and make coupon payments. Yields will probably rise and other Eurozone nations are going to have to scramble to figure out what role they're willing to play. So go short the Euro, according to him.

I just don't know enough about all of the variables that go into (effective) Forex trading, so I passed. But let's see if the Euro isn't lower in 2-3 weeks than it is now. I bet he's right.

I agree that the euro will go down a bit, I have invested a little bit of money with that belief too.

[anthonyvop]

Hey Jag, Krugman's shorting the Euro! :p

http://www.nytimes.com/2010/04/30/opinion/30krugman.html?ref=opinion



Even a broken Clock is right twice a day.

[fandango]

A stopped clock.

[Malbec]

I usually hang up on people who cold call me. But I got a call this morning from a fellow trying to convince me to open a Forex trading account with his firm. I agreed with most everything that he said. He believes that over the next two weeks, the Euro will be down, as over this time span, the nations mentioned in the OP will be under severe pressure to refinance debt and make coupon payments. Yields will probably rise and other Eurozone nations are going to have to scramble to figure out what role they're willing to play. So go short the Euro, according to him.

I just don't know enough about all of the variables that go into (effective) Forex trading, so I passed. But let's see if the Euro isn't lower in 2-3 weeks than it is now. I bet he's right.

I have to thank the Greeks for torpedoing the Euro just in time for my holiday in France later in May. They couldn't have timed it better.

As for those talking about socialist governments the Greek government was neither left nor right wing, it was just crap. Their tax system invited both evasion and an exodus of both capital and companies overseas, they lied over government spending levels and debt to join the Euro and unlike the Irish were incapable of taking tough action to cut debt. They were having a tough time during the boom years, now its a recession they can't cope.

The Spanish are in a different position entirely. Their economy grew because it was largely well managed (with the exception of the property market) but they are suffering because they were hit hard by the credit crunch. Unlike the Greeks the Spanish are fundamentally strong.

[gloomyDAY]

I have to thank the Greeks for torpedoing the Euro just in time for my holiday in France later in May. They couldn't have timed it better. :D


Unlike the Greeks the Spanish are fundamentally strong.I hope you're right Dylan. I'm just hoping that people in Spain could be more malleable when accepting changes to its current economic problems.

Good chat boys!

[Mark in Oshawa]

I suspect those of you in the UK are glad someone didn't tie your future to the Euro.....

[anthonyvop]

A stopped clock.
When describing Krugman a "broken clock" is being kind.

[anthonyvop]

I have to thank the Greeks for torpedoing the Euro just in time for my holiday in France later in May. They couldn't have timed it better.

As for those talking about socialist governments the Greek government was neither left nor right wing, it was just crap. Their tax system invited both evasion and an exodus of both capital and companies overseas, they lied over government spending levels and debt to join the Euro and unlike the Irish were incapable of taking tough action to cut debt. They were having a tough time during the boom years, now its a recession they can't cope.

The Spanish are in a different position entirely. Their economy grew because it was largely well managed (with the exception of the property market) but they are suffering because they were hit hard by the credit crunch. Unlike the Greeks the Spanish are fundamentally strong.

Greece, Portugal and Spain are paying for their socialist, economic policies.

[donKey jote]

I suspect those of you in the UK are glad someone didn't tie your future to the Euro.....

Has anyone checked the British deficit lately?
http://www.independent.co.uk/news/business/news/shock-as-british-deficit-equals-that-of-greece-1904129.html
Oh I forgot Blair is also a socialist :laugh:

[Tomi]

Greece, Portugal and Spain are paying for their socialist, economic policies.

actually its very simular to the us one, the spend more than earn way, it just dont work in the long run.

[gloomyDAY]

Did anyone see Spain's rate of unemployment? 20%!

:eek:

Yikes!


Greece, Portugal and Spain are paying for their socialist, economic policies.They sure are, especially Spain. I read an article (http://finance.yahoo.com/banking-budgeting/article/108914/the-euros-next-battleground-spain) which stated that Spaniards "think like Cubans and live like Yankees".

[fandango]

Greece, Portugal and Spain are paying for their socialist, economic policies.

Yes, whereas other countries like Ireland are paying for what? I think the left vs right argument is irrelevant here when it comes to explaining how the mess happened (I may have missed your point - my apologies if that is the case). How they get out of it is another story.

One of Spain's problems is lack of flexibility in the workplace. It's very expensive for a company to fire someone, which makes them not want to take on anyone on anything other than a temporary contract. On the one hand, you can blame this situation on stubborn and unrealistic left-wing unions, but that's not the whole story. Under the dictatorship it was almost impossible to lose your job, so the country lurched along with low productivity for decades.

The social result of that is that it's considered very strange to change jobs in Spain. People don't shop around for a better deal, be it money or conditions, and as a result companies don't value good people. They (workers and companies) make do with what they have and moan about it.

All of this needs to change. But it's no use reducing the cost of firing people for companies if they don't also enable some of that reduction to go towards rewarding the good workers. And the idea has to be sold to everyone.

[Mark in Oshawa]

Has anyone checked the British deficit lately?
http://www.independent.co.uk/news/business/news/shock-as-british-deficit-equals-that-of-greece-1904129.html
Oh I forgot Blair is also a socialist :laugh:

Hey...I am just pointing out if the Euro goes down, at least the UK is insulated from it a bit. It defeats the whole purpose of a united EC, but the UK has always acted very standoffish with Europe anyhow. In this case, it works in their favour.

[ioan]

I don´t think Juanito Foreigner going home will help much at all...

Spot on.
Not to forget that they were the ones who made possible the growth before the crisis started.

[Mark in Oshawa]

Spot on.
Not to forget that they were the ones who made possible the growth before the crisis started.

Immigrants don't make the economy grow. They are there to feed the economy and help yes, but the people don't show up if the country isn't vibrant, free and growing to start with. They are needed when a society isn't reproducing enough to replace itself....which is a common thing seen with European birthrates. That is fine...but when all the native's grow old, someone has to keep paying taxes to feed the social welfare state that is looking after them....

IN the US, the problem WASN'T the government's to the same extent....until Obama.

[ioan]

Immigrants don't make the economy grow. They are there to feed the economy and help yes, but the people don't show up if the country isn't vibrant, free and growing to start with. They are needed when a society isn't reproducing enough to replace itself....which is a common thing seen with European birthrates. That is fine...but when all the native's grow old, someone has to keep paying taxes to feed the social welfare state that is looking after them....

IN the US, the problem WASN'T the government's to the same extent....until Obama.

You mean that the locals produce the economic growth and the immigrants only come and take advantage?

[Mark in Oshawa]

You mean that the locals produce the economic growth and the immigrants only come and take advantage?

NO...but the immigrants don't go to an economic backwater either. The nation has to reach a level where they NEED people to fill the holes the native population isn't filling AND the economy is vibrant enough to attract large numbers of immigrants. I am not talking illegal immigrantion, I am talking about people leaving their homes for a new life where they think their lives will be better. You don't see millions lining up to go to Cuba or North Korea....but they do apply to move to nations in the EC; the Anzac nations; the US or Canada...

[Francis44]

Well, I think the problem is very easy to explain....

The dolar isn't worth sh** compared to the Euro now, and we all understand why american agencys are trying to make it's value go down, they are attacking the smaller country's.

So what to do?? Simple, create and European agency capable of speculating and do the same with them, a big F you in their face.

Do you see what simple agency's can do now to country's economys, few years back and this was impossible, and should have stayed that way.