The Great Euro Crash with Robert Peston (2012)
The BBC has been showing an insightful documentary on the current recession called The Great Euro Crash over the last couple weeks. It made some very valid and interesting points I hadn't considered before and I wanted to share my thoughts on some of them. Above is the doc in it's entirety and below are my comments.
*Germany seems to be an example of what used to work and what could work again. They became a European power again by bringing manufacturing and exporting jobs back to the country and by paying those workers very healthy wages. The exports are much higher than German imports now, thus allowing the country to make a ton of money off trade, and the workers receiving good wages further helps strengthen the German economy because it gives them spending power. That is an edge ze Deutch have over, say, the Chinese these days. Canada is trying to do something similar with the oil sands, but unfortunately that comes with a mighty environmental price. Other countries should follow Germany's lead and, instead of slashing wages and jobs and social programs, spend money to re-invigorate export sectors as well as pay healthy wages to employees so they can stimulate the economy by spending.
*This documentary and other commentators have suggested that many of the powerful nations in Europe, like Germany and France, have forgotten one of the fundamental compromises that was agreed upon when the European Union was formed. That was that Europe economically was to become almost like 1 ginormous nation, with the "haves" and areas with money and resources helping the "have nots" and areas with few resources. This is clearly not what is happening in reality, as France and Germany are demanding massive and devastating austerity measures and cuts from Greece, Ireland, Hungary and the other countries that are struggling most. Austerity, while it may cut the deficits of these nations for one year, will have tremendous negative effects down the line: widespread unemployment, a lack of an educated work force and a majorly slumping economy.
These effects have already begun to be felt in Greece and others, showing that austerity is cleary not the way to go. Part of the problem was that EU leaders decided to go for an economic union before a political union, where 1 finance minister or a small group could make decisions for the entire group and where agreements as to how economic support to struggling nations would be undertaken.
*I didn't know that the seeds of the EU were planted shortly after World War II, as France and Germany were looking for ways to prevent the continent (and the world) from being engulfed in another catastrophe. Unfortunately, they had no economic backgrounds and didn't fully appreciate the long-term economic effects that this union would have. Modern leaders made the same mistake to a degree, allowing countries like Italy and Greece to lie their way into the Eurozone without considering what the consequences might be. EU rules state that a country's debt to GDP ratio must be 60% to gain entry, but Italy and Greece were allowed in with higher ratios because they "were lowering their ratios to get closer to that number" (on falsified papers anyway). Also, it would have been difficult to have an EU without Italy and Greece, as they are the heart of Europe. Sadly, no one has figured out how to support and stabilize the these economies without having to consistently bail them out.
*I thought it was very interesting to hear that the German government and population have always been better at saving and controlling spending, while Greece and Italy have been the exact opposite. The immediate surge in their economies led the Greek and Italian parliaments and citizens to spend miles above their means, as they traditionally like to spend. People were buying Porsches and houses like they were going out of style, for example. When they fell back to earth and subsequently fell into a recession, a lot of people lost everything and the government was buried in an incredible hole.
*It's not surprising that soon after the economic rules were relaxed, the whole continent suffered several major crises. Host Robert Peston pointed out that the EU had a rule that said "annual deficits should never exceed 3% of GDP," but in 2003 France and Germany fought for that rule to be taken out of the Stability and Growth Pact of the EU and countries started borrowing and spending way more than they could afford or ever dream of paying back. Then in 2008, just 5 years after the rule change, the outrageous spending caught up with Europe and the whole thing went tits up. It was also made cheaper and easier to borrow money in the United States around the same time, so governments and citizens went crazy borrowing money for things like houses. When interest rates went up in Europe and America, people and governments could no longer afford their debts, leading millions to abandon/be thrown out of their homes and caused governments to lose their shirts. Thus, the great housing crisis and recession of 2008/9 was born! I can't believe that all the world's brilliant and well educated bankers and economists didn't see this coming and couldn't have warned the world about what was coming.
*The fact that taxpayers had to pay for bank bailouts has always been impossible to accept for me. The quote of the documentary was by Irish property developer-turned activist Mick Wallace, "The notion that the taxpayers should actually be taking care of the problems of badly run, failed, useless banks has been a bitter pill." Amen. Banks played games and tried to make more well than I can imagine by keeping interest rates low and relaxing borrowing limits and it came back to bite them in the arse. We shouldn't pay for their greed and we certainly shouldn't have allowed any of them to keep their golden parachutes on the way down!
*I was unaware that EU rules actually prohibit bailouts, as many nations have had to find ways around that agreement and have asked for hundreds of billions in support.
*There is no doubt, as Robert Peston points out, that major economic reform is needed to save the EU and economies of most countries in the world and make those economies competitive again. On the other hand, I'm not sure that slashing prices and wages to be competitive is the way to go. Governments and households can live within their means, granted, and spend a bit less on things they can't afford. But how about stimulating your economy by targeted job growth and putting more money in peoples' pockets through creating more and better jobs? And how about protesting and refusing to buy products from countries who pay their workers embarrassingly low wages (eg. China) and make them work in unfair conditions (Again, China, I'm looking at you)? Then, at least, every country would start with an equal playing field.
*If countries can't get back on their feet within the EU, then maybe the huge organization needs to be disbanded until someone comes up with a way to prevent these major economic problems from happening again.