If I were a shopkeeper in a cooperative with 11 others, and the deal was that we would all stump up so much per month to enable us to buy supplies at cheaper prices, and then one of us spent his next six months’ income on fancy tables and chairs, the other 11 of us would be pretty upset.
If we had been smart, we would have agreed at the outset not to spend more individually than we took in as income.
If we had been really smart, we would have given each other access to our books so that we could all see whether there was a risk that one or more of us was going off the rails.
If we had been super-smart, we would have given a veto on each other’s checking accounts so that none of us could write checks for more than we could afford.
So why are the Europeans so amazed at the idea that they should introduce this power and tread on each other’s sovereignty a bit?
Has it really taken a default by Greece to make the Eurozone countries wake up and agree to contemplate this?
Hang On A Moment
Hang on a moment, while Germany was powering away and building up its economy, its banks (and French and Belgian banks) were lending to Greece and Italy even though they knew that they were sub-prime economies.
And they made good interest out of the lending. And then when things got tough, they raised the interest rate to compensate for the risk.
But they created the risk themselves by lending in the first place to economies that were not paying their way.
Ah, I see. The game is up, the fun is over. Now it is time to agree to budget restraint; the budget restraint that should have been agreed and mutually imposed from the start.
Why wasn’t it? Any group of shopkeepers buying in bulk would have. So why not a code of practise among nations?
The answer is surely that too much money was being made and no-one in the governments of the rich Northern European nations were able to or wanted to stop their banks making hay while the sun shone.
Update December 9th
Associated Press reports on the new treaty between the core Eurozone members:
Governments participating in the new treaty agreed to have balanced budgets, calculated as an annual “structural” deficit of no greater than 0.5 percent of gross domestic product. During economic slumps, when tax receipts fall and spending may rise to stimulate growth, governments will be allowed to temporarily run slightly higher deficits, of up to 3 percent.
An unspecified “automatic correction mechanism” will punish countries that break the rules.
To prevent excessive deficits, countries will have to submit their national budgets to the European Commission, which will have the authority to request that they be revised. Countries will also have to report in advance how much they plan to borrow.
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Absolutely spot on! The problem is that there are two games in play here – financial and political…and what’s best for one isn’t always best for the other.
Maybe the UK ought to take over running the EU as we are a nation of shopkeepers
Yes, financial sense and politics were bound to bump into one another, which begs the question of why they didn’t see this coming and act accordingly by not getting themselves in this position.