The stark choice: Increase German debt or save the Euro

[BlasterBates]

Exactly you run a budget deficit close to 10%, it doesn't take long to double your debt as a percentage of GDP and end up deep in the sh*te. The problem is that the deficit is now structural it isn't just a one off. If even after an austerity budget is running close to 10% that's pretty bad.

[Doggy Styles]

Not at all, you do realise don't you that Germany's public deficit this year is 1%. Does that strike you as a "fooked" economy? The UK is 10%. The UK has one of the highest deficits in the EU. Last year it surpassed Greece.

No, sasguru is correct.

Last year none of HMGs corrective measures will have taken effect. It will take the UK many years to get rid of that deficit, so it's pointless looking at data every few weeks and saying it hasn't moved much. But the markets recognise that UK's policies are now working in the right direction and are reacting accordingly. The PIIGS lack the mechanisms and the will to do the same things.

Germany didn't have a government running up a massive deficit during the good times, and have run a sounder economy than the UK. But the advantage the UK has over Germany is that the UK does not have to support most of the rest of the eurozone.

The UK is not as badly off comparatively as some on here would believe.

[BlasterBates]

Well the UK has debt 80% of GDP, it has about 4 years to get it down, because then it will be up with Iceland. The problem with the UK deficit is that because the banking sector has imploded, it now has a structural deficit. Of course the markets aren't worried now, but they will be unless the UK makes some pretty fast progress in the next couple of years.

[sasguru]

Well the UK has debt 80% of GDP, it has about 4 years to get it down, because then it will be up with Iceland. The problem with the UK deficit is that because the banking sector has imploded, it now has a structural deficit. Of course the markets aren't worried now, but they will be unless the UK makes some pretty fast progress in the next couple of years.

Well edited. Your original post was pretty stupid

[sasguru]

All of which discussion, fascinating though it is, is missing the point.

The point is that Germany has two options:

1) Spend more to save the Euro*, thus worsening its financial position for the short-medium term
2) Let the Euro implode, in which case the ensuing economic chaos will drastically reduce demand for Germany's export goods.

Either way it suffers. I'm guessing German policy makers will take option 1. If they take option 2, prepare for a world depression.
No shadenfreude here, just saying it how it is.

* the derisory sum they passed in Parliament today is like putting a sticking plaster on an arterial wound.

[Mich the Tester]

* the derisory sum they passed in Parliament today is like putting a sticking plaster on an arterial wound.

Guildo hat euch nicht lieb!

[Churchill]

Guildo hat euch nicht lieb!

Arbeit macht frei...

Eventually

[Doggy Styles]

All of which discussion, fascinating though it is, is missing the point.

The point is that Germany has two options:

1) Spend more to save the Euro*, thus worsening its financial position for the short-medium term
2) Let the Euro implode, in which case the ensuing economic chaos will drastically reduce demand for Germany's export goods.

As Hague said, they are in a burning building with no fire escape.

[BlasterBates]

It's not a burning building yet. There is some implication here that the countries are transferring money now. This is actually not the case. Not yet. i.e. Germany and France don't need to tighten their belts. Of course it may happen. But it hasn't. Far from being in a burning building Germany is doing far better than Switzerland or the UK. Obviously Greece, Ireland and Portugal are basket cases, but that's simply because they spent too much, the Euro didn't force them to do that. The "givers" are actually making a nice profit, they're issuing bonds at X% and giving them to Greece at X+(a bit)%.

Comparing Germany and most of the Eurozone countries with the UK they're doing a lot better. If there was an unstructured default it would be become a mess, but the UK would be pulled in with it anyway.

Merkel summed it up, it's not a Euro crisis, it's a debt crisis. A Euro crisis would occur if countries decided to pull out, but that aint going to happen.

The Eurozone does not have a particularly high debt, it's about 80%, and the average deficit is lower than the UK. Of course if the wrong decisions are taken, i.e. Greece suddenly defaulted causing interest rates to spiral and dragging big countries like Italy in and sparking a credit crunch, this would be a bad; but actually easily avoidable. The British sceptic media love to make a meal of the small vicoforous minority that are in favour of a Greek default and break up of the Euro as though it's serious opposition,; but this is mainly fantasy or perhaps poetic licence to get people to read their column.

Eventually there will be a Greek default, but this will be managed; the Euro bonds they got from the EU won't be written off, at best rolled over. They're calculating a 50% discount on market bonds, this is probably going to occur in the next 1 to 2 years. So banks and insurance companies will take the hit not the EU governments. So probably London and Wall street will take quite a hit when the default goes ahead. The Germans will have made a tidy profit thankyou very much.

In a year ir two it will have blown over.

[sasguru]

It's not a burning building yet. There is some implication here that the countries are transferring money now. This is actually not the case. Not yet. i.e. Germany and France don't need to tighten their belts. Of course it may happen. But it hasn't. Far from being in a burning building Germany is doing far better than Switzerland. Obviously Greece, Ireland and Portugal are basket cases, but that's simply because they spent too much, the Euro didn't force them to do that.

Comparing Germany and most of the Eurozone countries with the UK they're doing a lot better. If there was an unstructured default it would be become a mess, but the UK would be pulled in with it anyway.

Merkel summed it up, it's not a Euro crisis, it's a debt crisis. A Euro crisis would occur if countries decided to pull out, but that aint going to happen.

In a year ir two it will have blown over.

How? All countries miraculously paid off their debts?

The only way it'll blow over (whilst keeping the Euro) is if the Germans/French cough up.

If you work in EUroland, bend over and take your shafting.