The Travails of EMU

Landon Thomas has an article on the fragility of EMU in today’s New York Times: you can read the article here.

8 replies on “The Travails of EMU”

Obviously you’re at the mercy of how a probably longer quote was used but I don’t understand the point at the end — what improved cooperation in the Eurozone would come from internal adjustment measures?

The other political issue facing the ECB in Ireland is that the government has told the people repeatedly that there was a huge cash infusion coming from them for the NAMA bonds. But as Karl has repeatedly emphasized, there is no such infusion.

@Frank Galton
NAMA was described as a “wall of cash” by a senior government minister.

@Philip Lane
Happy New Year. Thanks for all your hard work.

It is something of a myth that the ‘Piigs’ economies are more stagnant and less dynamic than the ‘Non-Piigs’, and likely to remain in recession for years, while the ‘Non-Piigs’ bound ahead. In fact, there is a large element of racism involved in this characterisation.

If we look at the decade or so before the global recession, nearly all the ‘Piigs’ economies grew much faster than the ‘Non-Piigs’, especially Greece, Ireland, and Spain. For example, Germany’s GDP growth averaged only 1% annually between 2000 and 2007. France and Denmark were little better. In contrast, Greece and Ireland managed 5% to 6% annually, and Spain around 4%. Of the ‘Piigs’ countries, only Italy and Portugal had low GDP growth rates in the decade prior to the global recession. If we look at the most recent 3 quarters, i.e. between 2008 Q4 and 2009 Q3, it still appears to be something of a myth. The following are the figures for changes in GDP between 2008 Q4 and 2009 Q3 (source: Eurostat database):


Sweden -0.4%
France -0.9%
Belgium -1.3%
Luxembourg -2.1%
Austria -2.4%
Germany -2.4%
Denmark -3.0%
Netherlands -3.0%
U. Kingdom -3.3%
Finland -4.9%


Portugal -0.8%
Greece -1.0%
Ireland -2.4%
Italy -2.6%
Spain -2.9%

So, the three worst-performing economies in the EU15 so far in 2009 are Denmark, Netherlands, U. Kingdom and Finland, all ‘Non-Piigs’.

Where the characterisation of the ‘Piigs’ economies as relatively weak has more truth in it, is in relation to their budget deficits. The budget deficits in Ireland, Greece and Spain are well above the EU15 average. Of the ‘Non-Piigs’, only the U’ Kingdom has a deficit in the same range as Ireland, Greece and Spain, although France isn’t too far behind.

The main reason why the deficits in the ‘Non-Piigs’ countries are currently lower than in the ‘Piigs’ countries is the massive levels of taxation in them. Many of the ‘Non-Piigs’ countries, especialy the Nordic countries, have tax takes of around 50% of GDP. In Ireland, its around 25%, while in Spain and Greece its in the 30% to 35% range.

While the global financial crisis persists, the low budget deficits of the ‘Non-Piigs’ countries are a definite plus factor for them, in terms of how their economies are perceived by the markets. There is no getting away from that. The fact that their deficits are relatively low because of penal taxation is ignored for now, because, while the global financial crisis persists, risk of bankruptcy is considered as more important than underlying long-term growth potential. However, when the global financial ends, deficits come down, and global growth resumes, this very same penal taxation is likely once again to result in the ‘Non-Piigs’ economies achieving much lower GDP growth rates than the ‘Piigs’ economies.

shocking, them nasty nordies with old fashioned welfare….oh, sorry. showing my political views there, my bad.
heres to 2010 when both of us are shown to be guilty of overegging our puddings, a la hicks

A poor article. Well chosen tho! Typical Euro bashing with very little understanding of fundamentals, as after all, it is the msm! Who owns it?
Expect the same or worse from Rupert Murdoch. I am not sure if it is racism tho!

Frank Galton
Perhaps he meant that the economies are becoming more coordinated as they realize that low interest rates can be dangerous for sobriety? Who knows he is only a journalist. It is not as if he is paid to tell the truth articulately.

How is FF/Green lying to voters a problem for the ECB?!

Are you arguing that FF/Greens should increase taxation by say +80%? I think that would be excessive, but something of the order of +50% might eventually be necessary, as the GNP continues to decline.

Happy New Year!
I wish everyone the opportunity to sell their assets at only a 30% discount to the cost. It is still a good result.

I note that Brian Lenihan has had to suffer a breach of confidentiality. We will all have to get used to that as more public servants respond to recent generosity ……….

Eurozone (in some parts) recovering? This is joke? Right? The math says that the debt repayments are so massive that nothing short of 15% p/a inflation for 10 years will extract us from this awful economic and financial mess. That is; defaults are ruled out on political grounds – ditto for Debt Jubilees and ‘quickie’ personal bankruptcies.

You stumble into a deep excavation. You ‘recover’ when you get back to your original position on the sidewalk, not when you pick yourself off the bottom and start to scramble up the sides. But then again, what if you were perched up on a rickety piece of scaffolding before your plunge? Which is Ground Zero?

@ All: Best wishes for 2010.

B Peter

@Pat Donnelly

“Are you arguing that FF/Greens should increase taxation by say +80%? I think that would be excessive, but something of the order of +50% might eventually be necessary, as the GNP continues to decline.”

No. Why do you think that?

I support low taxation economies. I was trying to point out that most of the much-derided ‘Piigs’ economies actually have higher long-term growth rates than the ‘Non-Piigs’ (although only Ireland among them has as yet overtaken the ‘Non-Piigs’ in GDP/GNP per capita). I consider relatively low taxation (as a percentage og GDP) to be one of the reasons for this.

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