Home > financial crisis, jobs > There is no Eurozone…. (charts)

There is no Eurozone…. (charts)

from Merijn Knibbe

Two graphs on the Euro-conundrum:

1. It’s not about deficits. Germany did, until 2011, not have smaller deficits than Italy. And the Eurozone has a much smaller consolidated deficit than the UK (or the USA, for that matter). But nobody talks about the end of the pound (or the dollar) and the UK. And everybody talks about the end of the Euro and Italy-as-we-know-it (while Italy does have a primary surplus, by the way). Technical note: the graph shows a four quarter moving average of government deficits. Data are available up to the second quarter of 2011, except for Germany. Neither Eurostat nor the ECB publishes these data, however. A quick internet search yields that the 2011 German deficit is quite low, as taxes increased between 6 to 10%. And German consumption is going down, despite a 6% increase in total wages, due to ‘Konsumunlust’ (word of the week). This German austerity won’t solve the Eurozone imbalances: the Euro requires higher German consumption and investments.

Larger version here

Some good news: the Belgium sort of government decided to give the ‘markets’ (more precisely: the banks and the large financial funds and in the end the ECB) the finger and to borrow directly from the Belgians themselves. A smashing success which also brought rates on the large-scale market down. Competition works. As I understand the present situation the ECB will try to thwart subsequent efforts, as this success erodes its power, lowers interest rates and threatens the banks and financial institutions. Let’s wait, and see.

2. Ceci n’est pas un équilibre général. There is no Eurozone anymore. The ECB sees the Eurozone as a general equilibrium system. But it isn’t. There are different Eurozones, with different price levels, increasingly different levels of unemployment, increasingly different levels of ‘trust’, increasingly different interest levels and for governments, people and companies alike increasing differences in access to credit. Technically: feed back loops are not based on negative feed back, but as Paul de Grauwe has shown, on explosive positive feed back connected to the very existence of the Euro, leading to, well, the present situation. The higher Spanish unemployment is, the higher it will be.  I see that the legend of the graph is in Dutch, oops, that’s an ‘euro’, an unfortunate event which I can’t change anymore (Duitsland = Germany, Griekenland = Greece, Spanje = Spain).

Larger version here

  1. Deniz Kellecioglu
    December 3, 2011 at 1:08 pm

    Dear Merijn, it is valuable to have these types of perspectives and data. But let us not forget that the the troubles of the Euro is very different from the pound and the dollar. One reason is that the Euro do not have a consolidated fiscal policy, and the fact that the zone is composed of economies very different from each in general, and in particularly in terms of debt levels, solvency and other macroeconomic variables.

    In relation, one central issue is the prospects of an economy to lift itself out of recession and crises. In that sense, the prospects are higher (from a market perspective) for the UK and USA. Of course, the issue of contagion is clear and present.

  2. December 3, 2011 at 5:28 pm

    Norway was smart enough to stay out of the Eurozone. The benefits are now obvious.

  3. Koenfucius
    December 3, 2011 at 8:30 pm

    Good post. The public subscription to the Belgian bonds was, by any measure a great success – 5 billion and counting, that’s €500 for every man, woman and child – and I understand that caretaker PM Leterme even came to the Netherlands to invite Dutch subscriptions as well. However, it’s a small cup in the ocean, even for Belgium. Such public subscriptions cannot be a substitute for borrowing in the markets, and is not real competition for them.

  4. cj
    December 3, 2011 at 8:35 pm

    @Helge
    Norway is NOT a member of the EU. So it could not have been able to adopt the euro at all. There was no choice for them.

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