The Greece and Eurozone Crisis Made Simple

July 8, 2015 at 10:03 am Leave a comment

One can go into long convoluted explanations but, as I see it, there are two basic problems, one leading into the other. The more superficial problem is that in a single currency zone without the option of devaluation purchasing power will drain to the more competitive countries. To continue buying in the common currency people, companies and governments in less competitive (and poorer) countries have to borrow but this is a temporary solution for the obvious reason that they must pay back with interest so pretty soon borrowing makes this problem worse.

At that point the rationale of the common currency zone is stuck in an unresolvable dilemma. All the twists and turns have merely been “kicking the can down the road” – and each time the problem re-surfaces it is bigger and more threatening. What does “kicking the can down the road” mean? It means borrowing more in order to pay back the last lot of loans.

… from an ecological economics perspectives it seems to me that it is easier to handle imbalances when all are growing because energy is cheap. Here we come to the second, deeper problem that I alluded to in the first paragraph. When all are growing then all are confident and imbalances can be covered by borrowing and lending because there is confidence that debts will be eventually be repaid. Also if all are growing state deficits and state borrowing are lower because tax revenues come in and expenditure on social problems are lower.

Once growth stops then there is no reason to send money to deficit countries and they are in trouble – as has happened throughout southern Europe and Ireland.

Read the full article HERE.

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Entry filed under: Economy, Investment.

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