Stopping Euro Zone Crisis

[Farabi]

I Think the problems on the collapse of euro zone economics is because they take interest from debt too big. You should do each 7 years erasing the debts. I think each 10 years if the creditor took 10% each montsh, person who took the debt already gave the creditors twice as big as they debt, so there is no need anymore to keep paying the installment. So, my solutions is erasing the debt each 7 years since debt is a heacy burden for europes economics, what do you think?

[clive]

They knew the interest rate and term going in, if this was not workable it shouldn't have been taken out. This is no different to people who have taken out mortgages, can loans, or student loans. One suspects they choose to ignore the details, or blinded by their desperation to get the money. The system is broken, and they need to stop bailing, and face reality. The normal way you deal with this is through bankruptcy.

The primary holders of the debt are insured six ways to sunday, there is no reason for them to take a haircut and not have it be a "credit event" where the insurer needs to pay out. The failure point is the insurance (CDS, credit default swaps), where they have taken premiums year over year, but will now have to pay out. There are a lot of people holding the wrong end of that deal, if there was any transparency we'd know who.

The only way to resolve the issue is to eject failing Euro members, and let them default on some or all of their debts. Until the members have the social and fiscal rigor of the Germans the system is never going to work, and members who stay under German dictates are going to be chafing to leave.

[hutch--]

 :bg

That pretty much hits it on the head, unless poorer European countries are willing to suffer the 4th Reich, they are better off reverting to their own currency and adjust the problem with their exchange rate. The inclusion of a whole host of countries that don't have the industrial strength of Germany has worked for Germany in that it has artificially reduced the exchange rate for the Euro which in turn made German exports more cost competitive at a world level. The price of doing this is a host of countries going bust trying to work on a currency that did not reflect their own industrial capacity.

Countries like Greece, Italy, Spain, Portugal, Ireland, the Baltic countries and Balkan countries should be trading in their own currency and allowing the market to determine the exchange rate so that they are not trapped in a debt spiral that continues to reduce their industrial capacity and living standards. Would anyone want to end up in the pickle that Iceland is in with its failed banks and debt burden ?

[jj2007]

... reverting to their own currency and adjust the problem with their exchange rate.

You have a point there, Hutch. Or rather, you are fairly close :bg

Greece, Italy, Spain, Portugal, Ireland, the Baltic countries and Balkan countries should be trading in their own currency and allowing the market to determine the exchange rate

In the five years between 1997 and 2002 (when the Euro was introduced), Lira and Mark had an exchange rate of 990 Lire per Mark. By some kind of magic, the markets had determined that this was the natural rate. We know a little bit more about this phenomenon, but it is indeed a central question for solving the currency crisis.

[clive]

Unfortunately Europe has many contradictory forces which show up when the system gets out of balance.

Throwing other peoples money at Greece or other failing/insolvent member states, merely delays the inevitable. Best to stop the music, and see who have chairs to sit on, and who is posturing to cover their own asses.

[Farabi]

Than sovling unemployee how to get worked, one of the country which is default better focus how to feed the unemployee.