I agree with the Brit that Europe has no choice but to bail out Greece. As Buffett says when they created the Euro and all signed on it was those nations exchanging their credit cards and some were responsible and others were not.
Last edited by Football16; 06-10-2011 at 10:27 AM.
Brit, if you had bothered to read my post, you would see that I actually agree with you, although the idea you have about converging living standards is not convincing (although, of course, living standards are converging to the extent that Grecian standards will be reduced, especially if they are kicked out of the Euro area). Further, the whole point of my post was the reflect on how it is a hard lesson for the West overall - not just for Greece, so it is hardly a 'surprise' to me.
FT - why are you convinced that the Living standards wont be converging?
This penchant for making money off paper is one the key problems in the USA and the world.
The Iceland crash was classic. No history of banking and they were thumbing their noses at the world with ads featuring John Cleese - all came down with the UK declaring Iceland a terrorist nation as they were not prepared to pay off overseas debts.
Greece and others living their means is a different scenario but one that can be fixed if the politicians have the will to look at the longer term. The problem in Europe is that with the Euro they have unwittingly become their brother's keeper - like it or not.
Canada was running a fiscal deficit in the 1990s with a fiscal deficit to GDP rate near 70% IIRC and by 2009 it was some 29%. Most came from government spending cuts with some from surtaxes on higher income earners, excess premiums on employment insurance, and the GST. The irony was that most of this was racked up by a Tory gov't under Brian Mulroney. Now with the Conservatives back in power the spending is rising as the PM now is buying his legacy and votes unlike the Libs did.
When PM Jean Chretien came into office in the early 1990s he had his Min. of Finance work on this and they did it for the long good of the country. While Martin got the credit it was really the PM that led this. When Martin got to be PM they didnt call him Mr. Dithers for nothing. He was out of office quickly as he was not the like of the PM. He rose past where he should have been.
A US professor has written on this and a quick glance suggests he is right in large measure as to how it was accomplished. The downside is that the middle income and lower income earners with gov't cutbacks face higher user fees like in university education as the Feds shifted the burden by withdrawing spending in areas the provinces are responsible for under our Constitution.
The US could do the same but there is no longer term view.
http://mercatus.org/sites/default/fi...son.5.5.11.pdf
Do I think that the average earnings in China will converge with average earnings in, say, Greece? No. There are simply too many variables. Differences in location, productivity, infrastructure, education, etc., etc.
Have the Greeks been living beyond their means and must their living standards be reduced (convergence of a sort since Asian living standards are rising)? Yes, certainly.
So it depends, really, how one defines 'convergence'. If you are referring to a trend, sure (the West is getting 'relatively' less rich than Asia, even as it gets richer; the lines are moving closer together, even when both are heading up); if you are referring to per capita GDP or wage equality, as in, you expect the average person in China to be as rich as the average European in 10-20 years, no way.
10/15 years I would agree no way.
30/40 years down the road is hard to predict but the trend seems to be heading that way - or at least much closer.
I think for China the Key element will be the political reform which can totally derail the country depending on how it is handled.
But I think that has already happened, at least in the US. US personal debt levels have been declining since the recession that preceded the financial crisis. In fact the reason the recovery has been so painfully slow and unemployment remains so high is because of the painful process of deleveraging. I guess it is true that it does constitute a temporary decrease in living standards caused by a reduction of debt-powered consumption, but it is a necessary prelude to future growth, rather than a downward spiral.Original Post Deleted
On the other hand, getting the government to live within its means is a real problem and if the deficits don't get under control, some sort of quasi-Greek meltdown will eventually result.