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Old 23rd February 2010, 04:29 PM   #13
Mega Forero
Join Date: Mar 2008
Location: Madrid (Arganzuela)
Posts: 834

Originally Posted by Culebronchris View Post
Am I the only one that finds all this economics stuff a bit strange?

It's dead obvious that things are bad. The tyre shop up the road has gone, the newspaper kiosk closed down, house prices have tumbled and every second person seems to be out of work. For me, and I suspect for most other people that's how we decided things were bad. Maybe everyone else understands how growth figures and all the other economic indicators are calculated and what they mean but I don't.

On the radio, on the telly the politicians blame each other and demand that "something be done" whilst the markets seemed to be rising and banks were reporting increased profits. Lots of Countries in Europe produced figures that said they were out of recession. I presumed that things were getting better in some way even though the tyre shop hadn't re-opened.

Then one morning Salgado was off to London to try to persuade the British press not to be so nasty about Spain. Apparently currency speculators were at work and journalists encouraged Governments to follow the example of Hong Kong in dealing with them. There were stories everywhere about Greece going bankrupt and apparently Ireland, Portugal and Spain weren't far behind. All those stories quoted some index that showed how debt was traded and about individual countries credit ratings. Stuff I'd never heard of before.

How does this work? Is all this real or is it some form of make belief World like Michael Douglas and Greed Is Good?
This is real.

Eurozone countries that have large budget deficits are unable to pull the usual trick of devaluing their currency (and therefore their debt). They therefore have two options: either reduce their spending or get bailed out. Ireland have reduced their spending, Spain is talking about doing so, but it is doubtful that Greece (which has both a high deficit and high government debt) is willing and able to sufficiently reduce its spending to get things under control.

I think a country is usually considered to be bust when it needs to be bailed out (it happened to the UK in 1976). Normally this means getting a loan from the IMF, with some large strings attached (such as devaluation and spending cuts). The EU doesn't want to call in the IMF because those attached strings are effectively political interference, and the EU would rather be interfering in Greek affairs than have the IMF do so. So it looks like if anyone is gopingto bail out Greece then it'll be the ECB. However ECB money is largely German money and they, quite rightly, don't see why they should have to pay for countries where, for example, people retire earlier and get more state benefits.

Either way, this doesn't get round the problem that Greece cannot devalue its currency and therefore its debt.

Spain isn't in such a bad state as Greece, but it is rapidly catching up, and the current Spanish government seems more intent on denying there is any problem than trying to do something about it. So there's a real risk that whatever happens to Greece this year may well happen to Spain in a couple of years time.

I think that how real this all feels depends to a large extent on whether you've got a job or not. I graduated in the 1991 recession and it took me a couple of years to find anything approaching a decent job. It hurt. I know other people who held on to their jobs at the time and now say they can't even remember there being a recession at the time.
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