What caused the Eurozone (EZ) collapse? by SignyM

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What caused the Eurozone (EZ) collapse?

POSTED BY: SIGNYM
UPDATED: Saturday, October 1, 2011 10:50
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Saturday, October 1, 2011 6:57 AM

I believe in solving problems, not sharing them.

Was it profligate government spending, like Greece? Or something more complex: A sudden surge of capital from the EZ core to the periphery, as it sought higher profits, followed by a sudden stop?

This article says that it was capital slopping around in an uncontrolled fashion. Their evidence for this is that only two of the four nations affected overspent their government budgets (Greece, Portugal) but the other two (Ireland and Spain) actually had positive government budget balances. On the other hand, all four of the nations affected (Greece, Portugal, Ireland and Spain) showed huge capital inflows from other nations... imports of goods and transfers exceeded exports by a significant amount.

Quote:
The factor that crisis countries have in common is that, without exception, they ran the largest current account deficits in the EZ during the period 2000-2007. The relationship between budget deficits and crisis is much weaker; some of the crisis countries had significant average surpluses during the years leading up to the crisis, while some of the EZ countries with large fiscal deficits did not experience crisis. This is one piece of evidence that a surge in capital flows, not budget deficits, may have been what laid the groundwork for the crisis.

Also, personal consumption in the four nations actually FELL in the years leading up to the collapse.

This is very much the same a Mexico 1994, and the Asian Tiger Market collapse of 1997.

The common factor seems to be bubble capital behavior followed by financial collapse.

http://streetlightblog.blogspot.com/2011/09/what-really-caused-eurozon
e-crisis-part.html

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Saturday, October 1, 2011 10:28 AM

GEEZER

Keep the Shiny side up

Yep. Per the blogger's theory investment from the rest of Europe, and its sudden stop (cuaused by changes in investor attitudes) caused the crisis in Greece, Spain, Iceland and Portugal.

The thing he doesn't discuss is what made the investors change their attitudes and decide to stop putting money into these countries. Could it have been the amount they were spending on social welfare instead of infrastructure, etc? Guess we'll have to look elsewhere for that discussion.

"Keep the Shiny side up"

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Saturday, October 1, 2011 10:50 AM

DREAMTROVE

Fiscal malfeasance. It's pretty easy for bankers and Frankfurt to buy bad politicians in Athens to borrow and spend on projects that benefit the most corrupt members of both societies. I think it's an inevitable result of their economic system, which, of course, they copied from us.

That's what a ship is, you know - it's not just a keel and a hull and a deck and sails, that's what a ship needs.

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