I'm a financial and economic dunce so I'm clueless about the whole recession thing. So, how will leaving the euro help Greece? Or is it that Greece leaving will be good for the euro?

There are two ways to dig yourself out from under the pile of steaming, hot shite that Greece finds itself under. Your country's economy can become more competitive, which is very hard and painful or you can devalue your currency, which is relatively easy. When you devalue your currency, your exports become cheaper and so you sell more. This means more tax for the government and all the associated benefits which are good for the economy. It also has the effect of lowering the real value of the government's debt. So if I owed you €10, that'd get you 10 burgers in Mcdonalds. If the euro devalued to half of what it was worth, that same €10 would only get you 5 burgers in Mcdonalds, which means the loan is now worth less in real terms and is cheaper to pay back in terms of what it's really worth.

The major disadvantage of the Euro is that its exchange rate is a one size fits all which doesn't suit countries like Greece who have no control over it and cannot devalue it to save their economy. The results are these ludicrous attempts to impose austerity on Greece.

not looking good for all of us if that happens

Bebs posted

There are two ways to dig yourself out from under the pile of steaming, hot shite that Greece finds itself under. Your country's economy can become more competitive, which is very hard and painful or you can devalue your currency, which is relatively easy. When you devalue your currency, your exports become cheaper and so you sell more. This means more tax for the government and all the associated benefits which are good for the economy. It also has the effect of lowering the real value of the government's debt. So if I owed you €10, that'd get you 10 burgers in Mcdonalds. If the euro devalued to half of what it was worth, that same €10 would only get you 5 burgers in Mcdonalds, which means the loan is now worth less in real terms and is cheaper to pay back in terms of what it's really worth.

I beg to differ madam. Austerity never made an economy competitive, there is not one single example of it. There are plenty of how the IMF ruined countries who then still went bankrupt however.

Either way expect a few food riots. Given what we now know about the banking profession which is more important; the economy or the society? This really is post capitalism.

I never mentioned austerity in the paragraph related to competitiveness. It's most certainly not a synonym for competitiveness and the brand of austerity being preached in Europe at the moment has not got increased competitiveness as its goal. Angela Merkel's brand of austerity is simply debt collection by another name. It's squeezing the cash out of tax payers so their states can pay the bills of their banks and so the banks can pay back German banks. It's self interest.

The Euro doesn't seem to be working at all for those on the edge. What I don't like is that Merkosy (Merkel and Sarkosy are the new Brangelina) seem to be having their private meetings, deciding whats best for everyone without consulting anyone else.

Sometime there is a case for leaving the Euro. The Journal had an article a while back (with the pic below) comparing what would happen countries that stay in the Euro compared to those that leave. Makes for interesting reading and really put doubts in my mind about it being best for ireland to stay in it at all. 

"burn" the bondholders 

Reykjavik

 

Ratings agency raises Iceland's credit rating

Friday, February 17, 2012 - 05:04 PM

International ratings agency Fitch has this evening raised Iceland's credit rating by one notch, from BB+ status to BBB-.

The agency said that the outlook is now stable for Iceland, and that its decision "reflects the progress that has been made in restoring macroeconomic stability, pushing ahead with structural reform and rebuilding the country's creditworthiness".

Iceland made a decision two years ago to force bondholders to pay for the banking system's collapse.

Fitch noted that the country had successfully made it through an economic reform programme drawn up with the IMF.

Read more: http://www.irishexaminer.com/breakingnews/business/ratings-agency-raises-icelands-credit-rating-540256.html#ixzz1mia0Wy71

I really can't understand how 20+ member states have just decided to sit back and allow Germany and France to rule by diktat. I'm for the concept of a federal Europe, but over my dead body with it's democratic credentials in tatters like this. What is the European Parliament FOR?!

Because (perversly) it would be too costly to EU politicians if all the EU states had to revert to national currencies, "liar, liar, your pants are on fire".

Giving birth to elephants.

Bebs: even though you did not mention austerity, it is what is required to regain a competitive position when you have no control over monetary policy.

Firstly look at what HAS happened: wages in Greece have risen 30% faster in comparison with Germany; hence Greece is totally uncompetitive.

So to remove that 30% differential and get Greece back to a more competitive position (really Greece should have wages much lower than Germany due to the power of the German economy) the wage (and cost) base of the Greeks has to fall by a minimum 30%...to do that you need to implement a package of austerity (or in other words) cut wages by minimum 30%.

The alternative is to debase the currency by 30%, but the Greeks don't have their own currency, so they can't do that.

DizzyDoris: you are plainly and simply wrong!

Austerity DOES make a country more competitive and there are loads of examples of this, Ireland for one is now more competitive than it was due to the austerity measures already taken; however, it is painful.

Austerity should not be confused with default; they are separate issues but there is a connection.  

A country in default can still be competitive.  Default means that this month you just can't pay your mortgage; it does not mean you are charging too much for your services compared with the rest of the market.

However; when a country implements an austerity package, growth and tax take can fall so paying the state debt is more difficult and that is where a country can default.

What the EU is trying to do is this:

Greek government expenditure exceeds income from taxation so Greece needs to borrow money to meet its monthly running costs and pay for the mortgage.

To correct the situation Greece needs to do three things:

1.     Learn to live within its means

2.     Be more efficient in its tax collection (there are plenty of rich people in Greece who pay little or no tax)

3.     Become more competitive

The EU wants help Greece to start living within its means; that requires austerity.  Meanwhile the EU are loaning the Greek government the money it needs to keep paying the mortgage.

So why should Germany bail out such a basket case of a country? 

Just think about it. 

The Germans pay their taxes on time and promptly and work hard to ensure they have a successful economy. 

The PIIGS don’t.

(Although Ireland is a slightly different case; there would not have been this problem had the Government not underwritten all the banks in the state.)

Sunshyn: True but it has always been the way in Europe that the rich support the poor and therefore have more say.

What I find poor about the long term thinking here is this:

Financial transfers have been a feature of the EU for years; it is what lifted Ireland from the dark ages of the 80s to the early Celtic Tiger years.

So after years of austerity Europe will be a strong financially powerful heart of Germany, France and the Benelux countries and an impoverished south….not much different than 30 years ago.  So what was it all for?

The centre north of Europe will still have to transfer money to the south for decades ahead.

Once we were afraid to be Iceland, now we wish we had been more like them. I really think that Irelands future no longer belongs with the Euro (but should stay in the EU). Most companies that are investing in here have to deal with currency fluxuations anyway as they are from outside the Eurozone. We could pull out but keep strong trade links within the EU. (like Sweden and the UK), devalue the new currencyto be more competitive and drive up employment. It wouldn't be easy by no means but I fear that we're on a long slow road of stagnation if we keep going the way we are.