So, I'm sitting in my office reading about the bloodbath on Wall St. today. The bulk of the jitters seem to coming from the situation with Greece and the fear that Portugal, Spain and possibly Italy are facing similar systemic problems. Not being real familiar with the details in Greece I thought I would look in to what's happening and I found a few things, namely;
Only the first of these reasons calls unambiguously for Greeks to accept the pain of fiscal austerity. All the others have a strong European dimension and call for European solutions. In particular, the loss of competitiveness by Greece (and a number of other countries, including Spain and Ireland) is the mirror image of an increase in relative competitiveness by others, notably Germany, Austria and the Netherlands. The latter countries could not have increased their net exports without the faster demand expansion in the former group, which, it is often forgotten, were also responsible for much of Europe’s economic and jobs growth in recent years, while demand and output growth in the surplus countries has been sluggish. The problem is symmetrical and the solution must be as well.
For Greece has not – as is often claimed or implied – lagged behind Germany in raising productivity: on the contrary hourly labour productivity increased more than twice as fast in Greece than Germany during the ten years of the euro since 1999. Nor do frequent claims in the media of Greek ‘laziness’ stand up to scrutiny: average annual working hours are the longest in Europe (and hundreds of hours per year longer than in Germany!). The problem has been with nominal wage and price setting.
Due to strong differences in wage setting, Greek nominal unit labour costs increased by more than 30% since the start of EMU – and the increases in Italy, Spain, Portugal and Ireland were even higher – whereas in Germany they rose by just 8%. Monopolistic price setting is also critical, enabling firms to pass on higher wage costs or imported prices onto domestic prices. Such wage and price divergences are not sustainable within a monetary union where exchange-rate adjustments are no longer possible. But this requires an adjustment from both ends. Wages and prices in Greece and other countries need to fall in relative terms, but they must increase faster in Germany, whose aggressive wage moderation policies are deflationary, export unemployment and threaten to explode the monetary union. This is the only way to rebalance the euro area while avoiding the huge risk of a deflationary spiral.
http://www.social-europe.eu/2010/04/open-letter-to-european-policymakers-the-greek-crisis-is-a-european-crisis-and-needs-european-solutions/
The Euro is now getting hammered. It's mostly reactionary at this point but some are suggesting the collapse of the Eurozone if what's happening in Greece spreads to Spain.
I think there are some similarities comparing Greece and the State of California. Furthermore, I think there are similarities between the Eurozone and the USA (that is to say that I don't believe Floridians will be too happy if the Feds send their tax dollars to bail out Cali).
So, why are some in the US seeming to embrace Western European socialism (for lack of a better term) when we can see what will likely happen? Additionally, we can already see some festering with California Public Employees and it is only a matter of time before the Federal stimulus money runs out and teachers, cops, firemen, city, county, water district and other public employees get either laid off or asked to take big cuts. There is very little growth in the private sector in California so governments can forget about a growth in tax revenue. In addition, the unemployment in Cali is significantly higher than the national average yet the Governator is "full steam ahead" with AB 32 (cap and trade) which some studies have shown job losses to exceed 1,000,000 net. There will be no bail-out from the private sector in California.
Are big govt solutions really the answer?
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