Forums → WEPR → Economical Crisis

I sure as hell hope you guys don't vote in more Golden Dawn nincompoops. An economic crisis is bad enough without stirring the xenophobic pot and portraying all migrants as evil and parasitic.

Increasing government debt. Members of the European Union signed the Maastricht Treaty in 1992, under which they pledged to limit their deficit spending and debt levels. However, this was always not the case because, The Greeks and Italians were able to mask their credit levels; i.e the debt their governments had accumulated through vast expenditure, in the Greeks case, on huge welfare largesse and military spending.

For example, a daughter of a Greek civil worker, if she is not married, can continue to withdraw his pension even after he is dead. Which is excessive and idiotic fiscal irresponsibility. US economist Paul Krugman named Greece as the only country where fiscal irresponsibility is at the heart of the crisis.

Also, a rising trade deficit caused by importing far more than exporting to other countries; this can be due to the the loss of competitiveness in Europe, such as the vast subsidies given to farmers. Also, the high wages compared to low wages in other countries, would relocate plants overseas, and lower your exports, since your production has moved away. This, in the defense of low cost countries, is not their fault; much of Greece, Italy, Spain etc, also capitalized on low wages vis a vis the US and more developed European states in the 1960s-1970s.

Structural problems within the EU. The EU dictates a common monetary policy, which means the supply of Euros is controlled by the EU, however each government can decide their own fiscal policy, i.e whether to deliberately increase/decrease government expenditure and increase/decrease tax when they are needed. This feature brought fiscal free riding of peripheral economies, especially represented by Greece, as it is hard to control and regulate national financial institutions.

Bad financial loans. There was easy credit in the early 2000s that encouraged high-risk lending and borrowing practices by banks that were actually structurally weak, and by investors who were not sound.

Lastly, loss of confidence as the crisis worsens, essentially a self-fulfilling prophecy.

Explanation on what fiscal free-riding is, Italicised chunks are my own elaborations:

Each member state of the Euro-zone is caught between two alternatives: to engage in fiscal free-riding or to be the sucker, the victim of free riding by the others. The reason is easy to grasp. When a country has its own currency, fiscal profligacy when expansionary fiscal policy/excessive government spending is carried out, carries its own punishment. Interest on the national debt rises more than proportionately to the debt, both because the country's own capital market gets overstretched, and because the risk attaching to its currency increases. Default on the debt and devaluation of the currency (coming after a flight into inflation to water down the debt), though perhaps still remote, start looking less improbable as the whole zone uses the same currency, hence the effects are distributed, rather than having say the Greek drachma taking a hit if the Greek government did not accept the Euro. The repercussions of a fiscal policy where each government uses their own national currency, rather than a regional currency renders a loose fiscal posture more and more difficult to hold, and in due course tend to impose some discipline on the government.

As a member of the Euro-zone, the same government running a large deficit is spared most of these disciplinary consequences. No member country, with the possible exception of Germany, is big enough in the zone as a whole, for its deficit financing to represent a significant strain on the zone's capital market. Currency risk subsists only relative to currencies outside the zone, in practice only the dollar and the yen, but it is eliminated within the zone; there is no Greek Euro and no Spanish Euro, so one cannot weaken relative to the other. Fiscal irresponsibility by one country still has adverse consequences for the zone as a whole, but only a small fraction of them is borne by the irresponsible country in question, with the bulk spread over all the other member countries. This is the classic breeding ground for free riding.

Under these circumstances, fiscal vice is not punished but fiscal virtue is. This is not to say that budget deficits are always evil if some of their negative consequences are shifted to other countries, as they in fact are in the Euro-zone. In the short run, occasional deficits may be justifiedâ"or would be if they were not habit-forming. However, Greece has been overspending for years, and this causes a problem.


Thanks de Jasay.

Greece as the only country where fiscal irresponsibility is at the heart of the crisis.

and lower your exports, since your production has moved away.

Bad financial loans. There was easy credit in the early 2000s that encouraged high-risk lending and borrowing practices by banks that were actually structurally weak, and by investors who were not sound.

No member country, with the possible exception of Germany

Sweden doesn't use the Euro.

It was explaining what fiscal free riding, i.e what Greece does.

ah yea i always switch those scandinavian countries up.

i know it are only 2 of the 3 but always forget witch 1 hasn't the euro. then i ment norway and finland =)

i know it are only 2 of the 3 but always forget witch 1 hasn't the euro. then i ment norway and finland =)

In a nut shell:
Too generous, government, infrugal spending by public,trade unions BS,and risky investments brought greeks down

Norway isn't even in the European Union. The only Scandinavian country that has the Euro is Finland.

In a nut shell:
Too generous, government, infrugal spending by public,trade unions BS,and risky investments brought greeks down

in a nutshell i would say: the government didn't show the right numbers. they had far less then they thought. and now we are trying to safe them but they refuse to pay us back sometime. and when there seems to finaly be a agreement then they instandly drop it all. then they need a new government but are unable to make 1. meanwhile we are giving them money we will never see back again.

well if you ask me then they are just not willing. and we should kick them out. their just 2% we can miss that. not that i don't like greece. it's a nice country whit good people. but their not good whit getting things done in time. or come to a agreement.

Also, sorry Goumas if anything I said about Greece is factually wrong and offends you.

This is actually helping me revise for my econs papers....

Members of the European Union signed the Maastricht Treaty in 1992, under which they pledged to limit their deficit spending and debt levels. However, this was always not the case because, The Greeks and Italians were able to mask their credit levels

Everyone is at fault to a certain degree; once you open the can of worms that is such generosity, no one would like to cut back on it and be seen as an electoral villain.

Also, sorry Goumas if anything I said about Greece is factually wrong and offends you.

As a matter of fact, both Germany and France, did not meet the 3 percent standard and claimed exemption from retaliation measures because, so the German finance minister Hans Eichel argued, the German government was already applying a restrictive policy.

If austerity means raping and pillaging the *honest and law-abiding* taxpayers -again-, in order for the corrupt politicians to remain in power, austerity can go screw itself for all I care!

I strongly object to the word "generosity". It makes it sound like the government did everything out of the goodness of their heart, which is just not the case. The Greek politicians weren't generous, they were corrupt. It was quid pro quo.
I give you a "benefit" and you give me something in return.

Well yes, but unlike the Greeks, the Germans have a massive trade surplus, vs a huge trade deficit. It has shrunk, but it would naturally, since people in a crisis import less.
Nor is Greece competitive. The cheap loans that the euro brought the country artificially raised prices and wages and the country has to come back down from this high level.

Greek political parties racked up enormous debts while presiding over a dramatic loss of competitiveness and, thus, growth potential. Some even sought to be highly economical with the truth, failing to disclose the true extent of their budgetary slippages and indebtedness.

I wouldn't say they're all corrupt, but bought too much into the cheap cash flowing around, spent too much, and generally managed the economy badly.

Also, it would still be unfair to blame just the government as well. According to a remarkable presentation that a member of Greece's central bank gave last fall, the gap between what Greek taxpayers owed last year and what they paid was about a third of total tax revenue, roughly the size of the country's budget deficit.

but Greece on the whole spends far too much, including as I said before, its ridiculous military, at 900 pounds per person, one of the highest in the world