Cyprus-Forum.com

[yialousa1971]

thank you!

from another kraut, married with a Cypriot, living here for years, still refusing to turn a blind eye to the fact how the big money changed the mentality of too many people here but still awaiting delvelopments that get everybody to bethink of the meaning of life.

Welcome.

[Nikitas]

Lucius said: "The question is how we get out of it again"

The answer was provided repeatedly by US secretary of the treasury Geittner: let the European Central Bank act like a bank, print more money. But Germany objects, referring to the hyperinflation of the 1920s. That makes about as much sense as Ireland organizing its industrial policy by referring to the 1848 potato famine. As long as the only way approved by Germany is taxing the crap out of the debtor economies there is no way out. The other big economies, USA and China use their central banks to inject liquidity into the market, yes at the cost of some inflation, but in the last resort some inflation is perferable to massive unemployment.

The worry that liquidity will trigger inflation can be moderated by preventing excessive consumer financing. There are mechanisms in place to ensure that liquidity will be directed towards productive measures. It is notable that during the last decade Germany was OK with borrowed money being directed to unbridled consumer spending as long as it took in a major share of it. As recently as 2010 here in Greece car importers touted how you could have a Porsche Cayenne with only 250 a month.

[lucius]

Lucius said: "The question is how we get out of it again"

The answer was provided repeatedly by US secretary of the treasury Geittner: let the European Central Bank act like a bank, print more money. But Germany objects, referring to the hyperinflation of the 1920s. That makes about as much sense as Ireland organizing its industrial policy by referring to the 1848 potato famine. As long as the only way approved by Germany is taxing the crap out of the debtor economies there is no way out. The other big economies, USA and China use their central banks to inject liquidity into the market, yes at the cost of some inflation, but in the last resort some inflation is perferable to massive unemployment.

The worry that liquidity will trigger inflation can be moderated by preventing excessive consumer financing. There are mechanisms in place to ensure that liquidity will be directed towards productive measures. It is notable that during the last decade Germany was OK with borrowed money being directed to unbridled consumer spending as long as it took in a major share of it. As recently as 2010 here in Greece car importers touted how you could have a Porsche Cayenne with only 250 a month.

Printing money would not solve the underlining problem of current account deficits. The account surplus of Germany skyrocketed after the introduction of the euro, because of the increased demand for the then relatively cheaper german products. Italy on the other hand had a account surplus before the introduction of the euro. Now it has a significant deficit. Main explanation for it is declining competitiveness since the introduction of the Euro. It is not just the so called Agenda 2010, labour market reforms etc. The main reason for Germanys (or Netherlands for that matter) rise in the decade from 2000-2010 is mainly the Euro. The competitors could not devalue their currencies anymore. In my opinion a Euro (South) - Italy, Spain, Portugal, Greece + Cyprus is the way to go. The other alternative - every country with its own might be not good either - especially for the smaller economies (Greece, Cyprus, Portugal) because of the always existing current account deficit. If you import more than you export a very cheap currency is not that good either - think of the import costs for energy, food, cars etc. With energy independence and significant domestic production it is easier.

After a euro (south) a Porsche Cayenne would not be that cheap anymore in Greece, but a Fiat or Alpha Romeo might be. Maybe even a Ferrari would be cheaper then a Porsche Cayenne

Maybe the bad things we see now in Cyprus is the beginning of this Euro(South). Most Britains would say, of course every one should get its own national currency back. I don´t think thats the correct answer. But the current way is certainly not the right anwer, too.

[lucius]

Lucius said: "The question is how we get out of it again"

The answer was provided repeatedly by US secretary of the treasury Geittner: let the European Central Bank act like a bank, print more money. But Germany objects, referring to the hyperinflation of the 1920s. That makes about as much sense as Ireland organizing its industrial policy by referring to the 1848 potato famine.

I do agree with you that hyperinflation is the ever-present nightmare in German minds that clouds their judgement to some extent. But, i see no chance of overcoming that anytime soon. Might take some decades. As long as the German debt does not become to big I do not see any chance at all.

[Nikitas]

Lucius,

You have a point about the Euro-south, which would be a neat way to avoid the chaos of returning to various national currencies. I wonder what the attitude of the four norhern economies (who are currently suited by the single Euro) might be to such a proposal. Germany, Holland, FInland and Austria are the ones who try to outdo each other in hardlining. A two tier Euro would deprive them of the easy southern European markets. It will also be interesting to see which club France will choose!

[lucius]

Lucius,

You have a point about the Euro-south, which would be a neat way to avoid the chaos of returning to various national currencies. I wonder what the attitude of the four norhern economies (who are currently suited by the single Euro) might be to such a proposal. Germany, Holland, FInland and Austria are the ones who try to outdo each other in hardlining. A two tier Euro would deprive them of the easy southern European markets. It will also be interesting to see which club France will choose!

Well, they are many in Germany who propose exactly such thing. Don´t know about the other countries. Of course the German economy would lose competitivness with the introduction of a devalued currency. But, its nothing new. I remember the complains of the industry lobby about the various lira and peseta devaluations back then (90ies). Of course it had an effect, but it was manageable. I think it will be manageble in future too. Yes, maybe the unemployment rate would go from 5 % to 9 % in Germany, so what. But in Southern Europe it would drop significantly.

I am afraid i never heard about such a proposal from current politicians in the main parties. If they talk about it then behind closed doors. I sincerely hope so that such a plan is in the making. The problem i see now is the almost silent France in that matter. I guess back in the days of Mitterand or Chirac such a proposal would have been come through fairly quickly. But the unbalanced German view finds no counterweight right now. Britain is on the sidelines - now more then ever. Italy has now goverment at all and the french president is almost completely silent. Had the former (no Italian gouvernment) plenty of times before, but a silent French president? Never.

[repulsewarrior]

...interesting.

i think of North America as an Eastern Seaboard, a Western Seaboard, and a Central state; in terms of efficiency, this is the natural pattern of trade. your suggestion may be worth considering if it is expanded, not just European, geographically countries like Syria, Lebanon, Israel and Egypt (Libya, Algiers, Morocco), because they are Mediterranean. Turkey and Greece for that matter will be a boon to an Eastern European market, if there is more than one "European" currency...