The global economy

Start the engines, Angela


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The Economist has got the world it wanted. We are on the very edge now.

Their skill is even oponents of the rotten system have to hope for its very survival.

Too big to fail..

Terence Hale

Start the engines, Angela. Ready study grow. The laws of psychiatry say a solution to a problem is being made conscious of the problem. The problems of the euro zone are not a German problem and the laws of capitalism must be applied to where the problem lay. Taking a Greek example, we have a boxing match.

Sicko Basher

I am only just learning economics so please go easy on me!

Under Keynes book The General Theory of Employment, Interest and Money in 1936 he stated that Friedman beilive in the free market orthodoxy of supply and demand bringing an end to recession.

Is Merkel of the same school of thought thus prevent stimulus package for Europe and relying soley on supply and demand to boost the Eurozone?

Is the time now ripe of government fiscal intervention with regards to Keynesism?

Go easy im just learning lol

sikko6 in reply to Sicko Basher

I will tell you that Keynes and Hayek are obsolate! They no longer apply to modern globalised economies. There are no suitable alternatives at the moment. That's why they are in trouble!

Sicko Basher in reply to sikko6


Thank you very much.
Another question if you dont mind?

Since Paul Krugman is of Keynesism train of thought ( is this correct?) is his economic influence lessened?

Thanks again for the reply.

Greatly appreciated

Sicko Basher in reply to sikko6


Thank you very much.
Another question if you dont mind?


Thanks again for the reply.

Greatly appreciated

sikko6 in reply to Sicko Basher

Just look at US of "Amercia". Amercia is a new term used by republicans! Obama spent trillions of dollars for stimulus. What happens now? Her economy is stalled again. Another example is Spain. Spain built highways and airports. They are hardly used. Look what's happening in Spain!

The reason is that we are living in globalised trade. When money is spent by government, they are not circulating domestically any more. They end up in China and elsewhere where things are manufactured. In another words, economy is leaking money. Keynes works if almost all things are manufactured or produced domestically!

Sicko Basher in reply to sikko6

But how about the 'Lost Generation' in Japan in the 90's?
Did they not export their way out of recession?

Being Irish I know a little something about my little ecomony.
Our national debt is huge because the "government" tied our national debt to the banking debt of the major foreign bondholders in Danske bank for example.

However our exports are booming.
Could we not hypotetically do the same as Japan?

Also did you notice the rise of far right parties around Europe in conjuction with the policy of austerity?

Thank sagain

Sicko Basher in reply to Sicko Basher

Oh just a useful bit of information.

Danske Bank is the biggest share holer in National Irish Bank.
Rabo Bank, Nothern Rock and Royal Bank of Scotland are all major shareholders in Irish Banks.

They used Irish banks as investment tools.
When they lost the money they lost throught their Irish subsideries (banks) we will call them for argument sake.

This made it look as if Irish banks were insolvent and thus the IMF forced a bailout on the all to willing Irish government.

Before the bailout Irish debt was in the low teens of billions.
Now Irish debt since bank debt was made sovern debt is over 160 billion.

The average Irish person is not to blame for the mess of our country

nickik in reply to sikko6


They are both not obsolate. The bigger and more complex the world economy grows the more importend is the inside. The job of a central planner gets harder and harder with the growth of the economy. The central planners could not plan a single country with all there economic knowlage and they can even less plan the world econoomy. The pure arrogance of people that want to know what will happen if X or not X is just mind blowing.

That economistcan not do this, they have shown every time the have tried it and the track record of predicting bubbles is not better.

The inside of Hayek is know what you dont know, exept that you are not smart enougth to plan the world economy, let people plan for there own lifes.

Keynes is still releven because we have to understand him to understand all the people walking around that say we should solve the debt problem either with more debt or with inflation (something even keynes would have rejected).

Sicko Basher in reply to nickik


Would you agree so that Austerity in Europe is not the solution?
Or am I totally missing the point here?

Would a government policy of expansionary economics not creat jobs thus creating revenuse for the govenrment to invest in infastructure like hospitals, schools etc.

Is this not how the 'business cycle' works?


nickik in reply to Sicko Basher

> Would you agree so that Austerity in Europe is not the solution?

Calling it a solution is a misguided. Is it a solution for short term economic donwturn? No it is not. Lifing within your means is not is the only thing that can work longterm.


Lets leave aside if it would be a good idea but where will that money come from? Governments generally have 5 diffrent ways to get money.

- Taxes
- Dept (future taxes)
- Money Printing
- Forign Aid
- Government owned industriy (oil, casinos)

Lets look at them:

Taxes: Raising taxes and then leting government spend them while in a ressesion is possible the worst thing you can do, here everybody agrees.

Money Printing: This is suggested most often to the current situation. There are however many effects that this has and most of them are not good. People that have lifed within there means get screed. Creation of more bubbles. Distortion of prices. Cold Progression ....

The PIIGS dont have there own money so they can not just print money. The EU want do it because of the above.

Even if the PIIGS had a printing press it would be bad.

Dept: If they cant sell any bonds anymore, do you know what that means? That means nobody in the world thinks that they will ever get there money back. These country have mishandel money very strongly and nobody wants to give them anymore.

Forign Aid: Lets assume you are germany. You don't have to money to help the PIIGS but you can possibly lend out from somebody else. Why should you give these country so much money after they have totally failed at lifing within there means for a long time now.

Would you spend your money? Its likly that you will never get it back. Do you belive that government spending has such a growth factor that the growth will be big enought for them to pay it back? This after (shown above) everybody else on the world has shown that they dont belive in it. Hell of a risky investment, specially if you dont even have to money yourself. Thats like options trading with billions of doller.

Do you blame the german taxpayer (and other countrys) that they dont belive it is lickly.

Governemnt industry: I hope this is clear, spcially after they have shown that the are miserable managers of everything else they controll.


If you empoly a guy and then let him give back some of that stuff as taxes you will still lose money. Isn't that logical?


I am really disapointed with this newspaper. Every article on the EU crisis puts the biggest problems on the lost of confidence of inverstors. The Economisdt always forget that there is the default opition. Most of Germans do not give a fuck if the whole hedge fund system will break. And I think that interests of some half dozen investors should not be put in front of the interest of tax payers. I also do not understand why is not clear the strategy of Ms. Merkel and Germany as a whole: they want that every country in EU suffers the same sacrifices that Germans did under Mr. Schroeder terms. Therefore the argument that the austerity will be harder to Greeks and Spainrds and rest of the world is meaningless to German people. It is supposed to be hard!
30 years ago nobody complained about the draconian conditions if IMF loans to Latin governments puting countries like Brazil in recessions and hyperinflation. Now that the pepper goes to European eyes this is too spicy...

Gwitreg in reply to guest-isimwaa

Yet When Schröder implemented these drastic rules in Germany the world economy was in a much better shape, there wasn't a world money crisis, China still wasn't that huge Economy... There's little hope that brutal austerity will succeed today, cuts should be done with a longer calendar, like a 10 years plan.

Though Germany was right to have done such moves when she did it, we can't contest Germany that she was realist then.

nickik in reply to Gwitreg

The arrogance of having a 10 year plan in the world we live in today is just unbelivable. Economist can not even predicte what happens in the next year (the constantly fail) and you want to creat a great 10 year plan for the economy.

AtlantisKing in reply to guest-isimwaa

"...nobody complained about the draconian conditions if IMF loans to Latin governments puting countries like Brazil in recessions and hyperinflation"

And, speaking as Brazilian, our government only learned its lesson when there were no other options and it decisively followed the advice offered, stopped believing in magic solutions and started matching revenues and expenses.

Europeans will have to go through this as well. If they are smart, they won't waste a decade complaining about it before doing the obvious.


Why does all the world just call for German money, and never show what they would do to address German concerns of moral hazard, endless transfer payments, etc.?

I believe, that Germany is ready to act as soon as it feels comfortable that past mistakes won't be repeated. But so far I see only calls for money, and no real proposal by Spain, Italy, Greece, let alone France for "more Europe" and giving powers to Brussels.

I just can't see the reason for "taxation without representation".

Franco Saxon

I am French and I back Mrs Merkel 100%.

In the real world, when you don't have any more money to spend, you don't have any more money to spend. Full stop. You can't print it, fight it or discuss it.

mtre in reply to Franco Saxon

Franco Saxon in the real world money is created by the states when they need it. We have one currency and 17 states: one which doesn't need it, Germany, and all the others which do need it. It seems obvious that we should have a real european government and not just 17 states debating.

An Smaointeoir

If my neighbour is a lazy smoker, who, as a result of being drunk one night, falls asleep and starts a fire in his/er house, which eventually threatens mine, do I: i) lecture him about his incompetence; ii) stand there and look with a self satisfied look on my face; iii) help put out his fire, even at a cost to myself, and deal with the outcome after the threat has passed?

Zhouzhou_1 in reply to An Smaointeoir

yeah, thats how you deal with emergencies.

Don't confuse it with drunkard asking for more beer and wine, screaming "its an emergency!" You'll help your neighbour getting his/her life in order and find work, and not supply him/her with more booze.

There is no fire, there's only a drunkard threatening to start one.

PK01 in reply to An Smaointeoir

iiii) You keep your own house wet, protecting it from getting damaged, while you lecture him with a satisfied look on the face about his incompetence, hoping his house will burn down to the ground so you have an opportunity you get better neighbors you can get along with. As a bonus, the value of your own house increases.

adrastheia in reply to An Smaointeoir

The problem is that most countries in southern Europe – to use your metaphor - are drunk 24/365. Giving them more money won't solve the problem, but will only make it worse for everyone.

The soft approach never works with an alcoholic...

Pardot Kynes in reply to sikko6

1) kick him out your neighborhood....hmmm I guess this is the NAZI/Stalinist way of doing things...because I don't think anybody in Europe has the right to kick someone away from his neighborhood...
2) agree


I had to check that the logo on this website still says "The Economist", and not "The Communist". It does. Yet.

I would not be surprised by pro-bailout and pro-"growth" (a.k.a. government spending) writing by some leftist paper, but such article in the economist profoundly scares me. Has the world gone mad?

Things will always take the course of least resistance - in this case putting off needed reforms and taking on more debt. I applaud Germany for standing in the way of such shortcut-taking.

Germany IS trying to start the engines - the engines of reform and production. But that takes work and effort, so everybody is screaming to get the printing press started again. Living on thin air has worked for us so far, so why not keep it up? And stop talking about the hard stuff please, it gives us headache...

As for the success of TARP - I'm still waiting for the other shoe to drop.



Now think what will almost certainly happen when (not if) the crisis eventually reaches the core and the economic outlook of Germany sours dramatically: austerity, followed by more austerity. Tightening belts, very modest wage agreements, cutting back on consumption. Right or wrong, Germans react to getting into dire straits with being frugal and housewifely. The German word for austerity (Sparsamkeit) has a considerably virtuous ring to it and that is deeply rooted in the public's psyche. Elected officials cannot simply ignore that, so a Keynsian bazooka isn't likely gonna happen. Same goes for even the slightest version of quantitative easing, which simply translates as "Inflationspolitik". It is seen as a sign of incompetent governance since it destroys wealth.
You cannot just laugh away the German mindset....


Fo the situation of Southern Europe there is a far more correct analysis possible, which however doesn't rest on economic theory but on psychology. It's realy a phenomenon called learned helplessness. The sort term appeasement is more help. The long term solution is a return to productivity instead of easy credit as the source of prosperity.

Wilhelm Röpke

It seems to be the good tone singling out Mrs. Merkel as THE savior of the single currency. On BBC Mr. Cameron mentioned it - Germany, especially Mrs. Merkel should NOT be singled out which/who can "save" the euro. In my conviction he is right.
I do not want to stress the amounts Germany paid to Europe in THE hope/trust that those countries take the correct action. However, they did not make right decisions nor did they take action. Therefore, the money given, in good will, was misused and the Germans once more were betrayed. Hello my beloved friends!! No nice behaving.
So, if someone in Europe speaks about Europe, solidarity.... he/she just means let us have (your) German money - we will promise everything but do nothing actually. That is exactly how all the calls for more German money comes around and are to be understood.
Second, all the calls for more and more German money - are they meant to be honest? NO!
So, Mrs. Merkel was right being patient for a long time. Why? Now she has come up with an idea - ja, we will give more money BUT in return we (the lenders) were given rights and means of control into national sovereignty (budget) of those (borrowing) countries. We will see what they (borrowers) understand by solidarity.
I would like to stress this point out absolutely clearly: Germany pay - Germany gives direction incl. veto. This means Europe become more German. Ja, we can go on this road .
Today Mr. Hollande and others are forced to show their colors. It was really quite - wasn't it?

Gwitreg in reply to Wilhelm Röpke

oh did he? Hollande isn't showing anything, but some distancings from Berlin, yet Madrid and Roma are becoming more attractive, I wonder why?

La Merkel and her Bundesbank acolythes, will face a dilemn buffer, leaving the EZ, or let the other (big) EZ countries share the zero interest bonds purchases from foreign investors, which they understand as a manipulation from Germany

Wilhelm Röpke in reply to Gwitreg

Ja, France and the others showed any reaction - no applause no disagreement.
Therefore, now Germany knows what France incl. Italy and Spain would like to be offered. Just money without any control or change of repaying. It was JUST Mr. Cameron who acknowledged that a further integration is necessary - which means a transfer of sovereign rights to Brussels.
Just think twice before hailing any German leaving of the euro zone.
France would be obliged to fill Germany's position. So, France would be the payer, the lender, THE HEALER and all the others would expect France to open its wallet.
Is this a option France would appreciate and fill?
Though, France would not because it does not WANT to and would not be ABLE to take the burdens, the guarantees, the blame, the hate and anger and the ignorance throughout Europe.
Put the truth on the table and no fairy tales:
(Only) Germany with its economical power was, is and will be THE anchor of the euro. EVERYTHING, all of the member nations benefited from, is based on Germany's reputations and its power. Coming back to your suggestion: hand in hand with a German exit the euro zone would implode instantly. Period. Game over.

DC Downington

The world economy has been placed in greater peril with the French election win of Hollande, I can understand the French people's want for change. I do however have faith in Merkel to restore the European market and Euro currency back in the black.

Kostas Diamantaras

Does it really all depend on one woman? Or is it true that in the West (US, UK and EU) we try to sustain growth through borrowing rather than producing? Once upon a time the US was making cars, consumer electronic products, etc., Europe was making mobile phones, and computers, etc. Now production has moved to Asia (big time). And instead of trying to compete, we try to maintain our well-being (two cars, big house with lawn, retirement benefits, etc) through borrowing. But this is not healthy. Banks give us growth but eventually they'll want their money back; with interest.

We really need to start the production engine rather than the banking engine. And that is not the decision of one woman.


Germany has survived two lost world wars, getting cut into pieces, hyperinflation, great depression and monetary reform, all within the last 100 years...and it emerged as Europes top economic power every time. That current little crisis barely touches Germany in comparison.

And if the whole world is affected, isnt it time for Britain and the US as well to send billions in aid to Spain and Greece and Italy? I'm looking forward to see the Economist asking the majority of its readers to pay for greek debts.

nickik in reply to Zhouzhou_1

How good the market is a recovery is just onbelivable. There are so many example of a country that came out of the bigges shithole ever and emerged beeing productive.

The recepy is always the same, threw away the old idiots that made the problem, open the market.


shifting from austerity to a far greater focus on economic growth

* TRANSLATION * more debt, kick the can down the road

recapitalisation or resolution of failing banks

* TRANSLATION * tax-payer bailouts for private institutions

and embracing a limited form of debt mutualisation

* TRANSLATION * wholesale wealth-transfers


Germany already transferred 650 billion euros in no-strings-attached cash to southern Europe via the ECB Target 2 payments system. This amounts to 16000 € per German worker. The money was tranferred right back to Germany by southern European elites, who do not trust or wish to invest in their own economies, snapping up assets in Germany. Every stimulus will end this way as long as southern Europe has not reformed and made itself competitive.

The Economist is simply advocating to continue this cycling of money. Maybe the Economist should find a new name for itself: The Socialist

MarkHutt in reply to a4DHy5HXtJ

For a Finn and a Dutch it's 18.000e per head. It does not count? Well, if it does not count, we could step out of this never ending tragedy of mending debt crisis with more debt.

This is like so overly weighted guys demand that the fit ones bring them more food, because they are too fat to get out of the bed. Instead of cutting food, they demand it's in the fit ones own interest to increase food deliveries.

You don't see how the whole system is doomed? It was doomed already at Lehman-moment. No bankruptcies anymore. Not, until there's The Big One.

Wilhelm Röpke in reply to MarkHutt

Of course every taxpayers is worth to be recognized. And sad but true all eyes are just on Germany. Nobody has focused on national responsibility of the trouble countries.

However, we should not forget that not the people benefit - they suffer - but the banks and thereby the rich profit from the bail-outs. And the money given does not only goes back to Frankfurt. It also floods back to NYC, London, Paris.......

And this is the reason why everybody on the planet urges for more German, Finnish and Dutch money.


"Please, can we start the engine now, Mrs, Merkel"? No, we can't since the ship hasn't touch the seabed yet.
If it doesn't explode on touching the seabed, then it's ok. If it explodes, just jumps out.


I think it is unfair to ask Mrs Merkel to preserve the single currency.

Will you donate your money to save your neighbor from bankruptcy caused by his financial frivolousness? I am in full support of austerity - even if it hurts the populace or an option to quit the Euro. But no bailing out by Germany!

Best wishes

Kishore Nair from Mumbai



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