Saturday, October 15, 2011

The Euro Crisis

I just realized something: We are all waiting for the financial crisis to end, but how could it end? Under what measures? In what way? Did anyone think of that at all?

We are building debt shields for states and banks but as long as those are needed, the common currencies of the world will stay unstable. To satisfy the need for national debt interest and to provide the money for the European Stability Mechanism ("Euro Rettungsschirm", abbr: ESM), countries have to take on more loans. In fact, what many people do not realize is that the ESM itself are just loans that have to be paid back after a certain period of time and so if countries that are already in debt do not spend their money wisely (which is likely as they don't seem to have been doing that before->they are in debt!!!), they will be in a lot more trouble in the future, so in fact this may NEVER end if we keep going like this! This would be like lending money to a guy who is already in debt big time and is likely to lose your money too. Furthermore, he has to pay back all the other loan sharks first, so when do you get your money back: probably never. Which brings both of you in an even more unstable situation.

Also, countries that have a public safety net are obligated to serve their people first, so if many people are jobless (which usually is the case in poor countries) and the state does not have money and to pay for social services even, the money from the loans will go there and so will not be invested in infrastructure or debt reduction and in a few years when that money is gone, the country in question will need more. We can see this process in the example of the reintegration of Eastern Germany. The eastern states got billions of Euros from the west to invest in infrastructure and build up their economy but most of the money had to be used to pay for social welfare, which is why even now the eastern part of Germany is far behind economically.
The fact that government officials stay in office usually about one to 10 years at most usually and the fact that they have no responsibility concerning the long term consequences of their actions in office makes this even more dangerous as the repercussions for getting way too many loans usually take effect decades after the money was transferred.

Countries, in fact, are not supposed to make surplusses or minusses like companies, they are supposed to manage the public money and to reinvest it into the country to the best effect. Getting loans to do great things for your poeple (to get re-elected) is a great temptation  for all politicians and the big  pay-back will not be due for 10 or 15 years, which is longer than most high-ranking politicians are (supposed to be) in office. Investing part of the money into debt reduction is not a prestigious project so most politicians will try to avoid paying back more of the loans they or their predecessors started than absolutely necessary and the national debt keeps on rising...
In fact, countries should not be able to get loans at all due to their structure, purpose and governance.

So what does this mean for us and our future?
The debt crisis will not just end, it is way to complex. At this point almost every country owes every other country unimaginably high sums of money and debts are still on the rise. If a few countries do better, other countries will get closer to crashing. Furthermore, it is very unlikely that several diverse, potentially oppositional governments over 30 years time will follow the same policy of debt reduction in every country to bring debt levels down to a tolerable level. You don't just pay back 1796 Billion(!) euros (approx. 2500 billion dollars; debt Germany 2010) within one or two years. The system is flawed and the crisis will go on over decades if we do not change the system or let it crash and see what happens.

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