In a single currency it is hard to become more competitive and repay your debts

I can see how Ireland and other highly endebted Euro countries can stay in the Euro, if their governments implement policies designed to lower unit labor costs. What I don't see is how the debt can be repaid. Whether before, as part of, or instead of a departure from the Euro, they need to default on some of that debt. The sooner they start, the less the total pain (to everyone) will be. I'd rather see those bailout funds providing some credit to a recently defaulted peripheral Euro nation rather than putting off the inevitable for 2-3 years.

I totally agree with Irving Fisher saying that "the struggle to reduce debts can sometimes increase indebtedness." There may be no way for Greece, Ireland, and other highly indebted countries to escape this euro crisis without debts. The end of the crisis hinges on how efficeintly they utilize the debts.

I totally agree with Irving Fisher saying that "the struggle to reduce debts can sometimes increase indebtedness." There may be no way for Greece, Ireland, and other highly indebted countries to escape this euro crisis without debts. The end of the crisis hinges on how efficeintly they utilize the debts.

Sadly, economics remains a subject in which plausible arguments can be put forth, much like in a court of law, for contrasting points of view, leaving the "judge" to muddle through to the best of her/his ability, as in a court of law.

The World Bank, even more sadly, is largely a politically oriented institution, as is the IMF, and neither likes a contrary point of view much.

What has been clear for a long time that there has to be external demand for a country to export. In a closed world economy there have to be importers as well. It has also been clear that for all practical purposes United States provides the residual demand because it is (or was) politically helpful for the American government to give the average voter the freedom to buy without having the income, and this could be done because its currency worked as the world's currency. Whether irresponsible or otherwise, this situation was tenable until the counterpart reserves were distributed among countries that subscribed also to an acceptance of let us say the American ethos for the want of a better world. Such countries included Japan Korea and Taiwan, and also Singapore. Perhaps Germany up to a point.

The world has changed over the last 8-10 years, politically. The political change is owed entirely to the United States which managed to weaken its authority all on its own: the wars of choice have been expensive and these expeditions raised expenditures to a point that the sums no longer add up for the United States for the foreseeable future. Other countries including China and Germany have become more assertive, but not so Japan.

One would conjecture that China or Germany may not wish to carry the counterpart reserves without a quid pro quo, even though Japan may be more willing. This quid pro quo may involve a loss of some sovereignty by the United States to China and Germany, likely to be in the political and monetary spheres. The European situation is like a subset of the bigger circle.

Sadly, economics remains a subject in which plausible arguments can be put forth, much like in a court of law, for contrasting points of view, leaving the "judge" to muddle through to the best of her/his ability, as in a court of law.

The World Bank, even more sadly, is largely a politically oriented institution, as is the IMF, and neither likes a contrary point of view much.

What has been clear for a long time that there has to be external demand for a country to export. In a closed world economy there have to be importers as well. It has also been clear that for all practical purposes United States provides the residual demand because it is (or was) politically helpful for the American government to give the average voter the freedom to buy without having the income, and this could be done because its currency worked as the world's currency. Whether irresponsible or otherwise, this situation was tenable until the counterpart reserves were distributed among countries that subscribed also to an acceptance of let us say the American ethos for the want of a better world. Such countries included Japan Korea and Taiwan, and also Singapore. Perhaps Germany up to a point.

The world has changed over the last 8-10 years, politically. The political change is owed entirely to the United States which managed to weaken its authority all on its own: the wars of choice have been expensive and these expeditions raised expenditures to a point that the sums no longer add up for the United States for the foreseeable future. Other countries including China and Germany have become more assertive, but not so Japan.

One would conjecture that China or Germany may not wish to carry the counterpart reserves without a quid pro quo, even though Japan may be more willing. This quid pro quo may involve a loss of some sovereignty by the United States to China and Germany, likely to be in the political and monetary spheres. The European situation is like a subset of the bigger circle.

It seems that we are hopelessly mired in discourse about the effects and failing to discuss the cause. Friends, am I the only one seeing the pattern here? Each time a country pegs its currency to a "master currency" such as the dollar or euro, its economy collapses. This is due to the inability of the "victim" country to produce and sell goods at a rate that will keep up with the inflation of the master currency. The short term effect is "collapse" of the victim country's economy followed by the inevitable borrowing and concessions from the "printers" of the master currency. The long term effect is the "enslavement" of the victim country as it becomes the debtor in a perpetual bankruptcy and struggles in vain to repay its continually inflating debt. Wake up! Focussing on the effects of the problem takes one's eyes off the cause....

The solution to Ireland's problems is to obtain the Poland's status: be a member of the European Union without the Euro and with its own money, fixed 10% below the Euro. That is the way to stop emigration. Differences in manpower's productivity are compensated by adjustments in your currency or by exporting your less able workers. Monetary policy is a very important economic tool and Ireland needs it. If not, Ireland faces many years of economic distress and sufferings.

What may be unappreciated by the countries that adopted the euro is that large economies under one monetary control have winners and losers.

The USA is a perfect example. Some parts, like Appalachia are permanently depressed. Other parts, like California, are relatively vibrant.

If the entire euro zone continues to cling to the euro. Ireland may become Appalachia, Greece may become Mississippi, Germany is California, England is New York even though it has no Euro, Spain and France are the Midwest, etc.

If you give up sovereignty for security, you get servitude and provincial status.

Avraam Jack Dectis

If Spain, Portugal and Greece manage to keep wage costs rising less than the euro-average for the next few years, the primary industry, tourism, should increase its competitiveness. For small countries like Portugal and Greece may not prove too hard, but for Spain to keep wages rising lower the the euro-average may prove more difficult. However, Germany managed that almost throughout the 2000s. But reductions to social benefits are maybe a necessity. How unemployment will fare is less certain and the wealth gap between the richest and the poorest may increase.

Yes, but Spain is not Germany. The spanish working population seem to be, so far, accepting the loss of social benefits and the, in theory, lower wages imposed on public workers, by the socialist government. When, not if, the conservative party win the next election and are obliged to introduce far tougher measures, I doubt very much that they will be understood to be beneficial to the economy or society in general, and, in my opinion, serious uprest will take place. 2013 will be an extremely difficult year in Spain and I can envisage a military coup by 2015.

I think that it's not casual that the so called "markets" are attacking the last important countries (specially Spain) with leftish governments, while France, UK, Germany are in the hands of the right parties. Why do we not talh about Italy? It's quite suspcious, I guess.

Probably Zapatero is one ot "The last idealists" in Europe, and they are giving him no other chance than moving to the right, and finally the popular party (right party in Spain) will probably win the next elecion.

Best regards

http://pronosticoselectorales.blogspot.com/ (you can translate into english with the translator)

(Sorry for my english)

Read your blog and the comments. Quite frankly, I don´t think when the elections take place will make any difference. As far as I am concerned the later the better as in the next 14 months the Socialist party will either have to take extremely tough measures or just give up and let the ECB and IMF run the show. If elections are called before either of these two things happen and Sr Rajoy takes the bull by the horns (banned in Cataluyna) the left will start creating a huge amount of problems, strikes will be a regular feature of daily life, tremendously affecting the tourism industry.
Can you imagine what would have happened in Spain if it had been the PP who had called in the military to run the airports ? I can.

I would say its the complete opposite of what this article claims. In currency union, you must increase competitiveness to be able to compete, instead of devaluing and inflating your economy.

The economist for some reason always seem to want to follow the inflation devaluation spiral and opt our of any real reform. Which is what all the Southern European economies have done until they joined the Euro, but no more. Now they have to reform instead of devalue.

High time they do.

And to those who think there is a debt crisis in the Euro, look at public debt and deficit in the US, and add private debt to that. Look at private debt in the UK...

The age of backward land economics is over. US+UK economics is dead.

"Spain and Portugal, meanwhile, are only slowly waking up to the severity of their competitiveness problems." Too true.

The debt problems come not so much from the Single Currency, but from the Single Market. Even now, the the intra-eurozone trade defices loom larger and larger. And while everyone is looking at the debt consequences, we are failing to address the underlying trade causes.

Rather than opting out of the Single Currency, the net importing countries need be able to opt out of the Single Market and set up temporary luxury import barriers. We may not be able to start producing Porsche automobiles, but we surely should stop importing them.

"Spain and Portugal, meanwhile, are only slowly waking up to the severity of their competitiveness problems." Too true.

Not true at all. Spain actually consists of one central goverment and 17 autonomous ones. The central goverment is only taking the basic corrective measures because the EU and more importantly, the Germans, are forcing them too. Even so it has been two steps forward and one step back. The autonomous goverments are still spending (borrowed) money like there was no tomorrow as far as they are concerned the problem is someone else´s and if and when they get voted out their salaries and pensions will still be rolling in. Spain WILL NOT survive or begin to recuperate from this recession until the central goverment controls 100% of public expenditure.

K1200LT - Presidential candidate Rajoy was on the TV last night and when asked what he'd do first, he said he would cap public spending at all levels including all the autonomas communities. In short he would opt for central control over budgets but not over what each community did with its budget.

Election Forecasts - I would hardly call Mr. Zapatero and idealist as he has no idea about what to do. Sending in the armed forces to combat a labour dispute is idiotic and highlights the total impotence of Mr. Zapatero's government. Today's vote about the indiscriminate closure of media web sites highlights his way of thinking. He's a frightening man who wants everyone to behave like he does and if they don't he'll punish them. A true dictator.

That being said, Spain is up the creek without a paddle. An extremely nervous Elena Salgado (Finance Minister) was on RTVE this morning. She could not stop fidgeting with her hands and playing with her pen. Nervousness personified. According to her, 2011 will be better than 2010 and everything should start getting better. Great news, except we've heard it all before. According to the government, 2009 and 2010 were supposed to have shown signs of recovery. Instead unemployment went up (and continues to do so) and public spending went up as well (and continues to do so).

The markets are concerned, not because Mr. Zapatero is left wing, but because he continues spending and refuses to implement the necessary reforms that will create jobs. He prefers to have a nation of people that depend on him rather than give them a job.

This is one aspect of his character that does not seem to be reflected in the other danger zone countries. The others are in a mess, but they want to get out of it. Mr. Zapatero is in a mess, but he seems happy with the situation. This is why the markets are concerned. Markets are apolitical, they just want to know that their investments are safe and they'll earn some money. Spain, at the moment, is certainly not giving the markets the message that they want to hear.

AshtonEJ, like yourself I am also a resident in Spain but hardly ever watch Spanish TV. I understand the language but can´t cope with the political bias shown by the different channels. What else is Rajoy going to say ?. He daren´t say that the autonomous regions will be fazed out, as most sensible economists have been suggesting should happen over the past 18 months, as that would be a vote loser. So to keep everyone happy he proposes to give them less money to waste and mispend. Of course the reason he proposes to give them less money is because there is hardly anything left to spread around. Will it solve Spains economic woes ? No. Will it lessen corruption ? No. Will it make the regions pull and work together ? No. Will it make Cataluña, Galicia and the Pais Vasco even more eager to sever ties with the rest of Spain ? Yes. So basically he is suggesting postponing the day of reckoning even further, something that any sensible and statesmanlike politician should never do. He may be sensible, but a statesman...............? By the way, do you know this blog ? http://spaineconomy.blogspot.com/

The Euro Zone was intended to be large and diversified in order for it to be effective as an economic and monetary union. However for the same reason, this union has also greatly limited individual country to manage for what is best for them especially in interest and exchange rates.In a difficult time like now, such inflexibility and lack of strong political will, there is a risk that more and more members will find the Union more of a burden...