[pp.int.general] [Pp-leaders.discussion] EU: ESM-treaty

[Philip Hunt]

On 5 November 2011 21:30, Amelia Andersdotter <teirdes at gmail.com> wrote:
> On 05.11.2011 21:45, Philip Hunt wrote:
>>
>> On 5 November 2011 20:16, Amelia Andersdotter<teirdes at gmail.com>  wrote:
>>>
>>> The EFSF is a good thing :)
>>> [...]
>>> This type of stabilizing fund is meant to correct that. The fund can push
>>> money into "poor" regions while their crisis sorts out.
>>
>> If that was what was being done, then I would support it. But the EFSF
>> is a bank guarantee facility: if a country cannot pay its debts to a
>> bank, the EFSF pays the bank. So the money doesn't go to people in
>> poor regions, it goes to the bankers.
>
> Sure. It's not a socially stabilizing fund, it's a financially stabilising
> fund. If one wants socially stabilising funds, I believe ones best shot is
> to have a re-distribution of wealth system, perhaps based on progressive
> incomes taxes and social welfare systems that secure for people health care
> and education. Like, some kind of permanent institution rather than a
> temporary fix crisis fund.

Yes, although I think that should be done on the nation state level,
because it wouldn't work politically at the European level.

>>> the European Union budget which
>>> is currently 5% of EU GDP
>>
>> 1.1% according to Wikipedia.
>
> They clubbed a big raise last spring if I'm not mistaken?

Wasn't that a one-off to deal with the financial crisis, and not the
regular budget?

>> My solution would be that if some countries, for example Greece, are
>> insolvent, let them default on their debts. They would then have to
>> choose whether to say in the Euro or not; if they did stay in, they
>> would have to have a balanaced budget, because no-one would lend to
>> them. If they left, they would be able to finance a deficit by
>> printing money (but obviously if they did too much, they would just
>> get hyperinflation).
>
> Greek banks and companies own huge resources in Eastern Europe - I'm not
> sure how they would be affected by this solution. Would it, for instance, be
> justified to give structural development funds to Greek companies in Romania
> to invest in Romanian development given that the Greek company itself is not
> guaranteed to remain solvent because of the situation "at home"?

Obviously we wouldn't want productive parts of the economy to become
insolvent because of the banks. So in the event of a bank failure, it
would be entirely sensible to bail out their depositors (but *not* the
banks).

The problem with the banks is that since 2008 they've had nothing but
bailouts, more bailouts and even more bailouts, in the EU and in the
rest of the world. We seem to be throwing our money into a bottomless
pit. The banks are not a productive part of the economy; as far as I
can tell, they are destroying wealth. So while we need a banking
industry, the one we've got now isn't it. So I say let the banks go
bust, and allow a productive banking industry to emerge from the
ruins.

> And should
> our solution in this case be to ignore the screaming needs of
> infrastructural development in Romania to accomodate for the inability or
> unwillingness of the Greek to balance their budgets?

What we need to do is encourage investment in the real economy. So
instead of throwing more money at the banks, let's spent it on (for
example) infrastructure in Romania, which will create jobs in the
short term and boost that country's economy in the long term.

> Having Greece leave the monetary union, and economic union, currently may
> seem like an attractive option but it would also be sad.

It would be sad, but it might be the best thing for them. Sadly, I
suspect that whatever happens, the next few years will be rough.

-- 
Philip Hunt, <cabalamat at gmail.com>