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The euro has got these huge problems for a simple reason: salaries rose far too quickly in the periphery and far too slowly in Germany. At least that is true when we speak of Spain and Ireland as the periphery:

Salaries rise when house prices rise. Adam Smith said that wages must inevitably rise when the necessary living costs rise. The problem of Europe is high economic rent. Too much credit, unproductive loans and household debt, low or non-existent land tax, large monopoly profits. Competitive economy has a low economic rent. That is what competitiveness is. Banana republics (like eurozone?) have a large one. Labour and industries are punished, privileges rewarded. The German surplus, unproductive credit and debt was directed to peripherals not to Germany. And now Germany and neoliberals cannot accept the fact that german banks have destroyed the wealth of german savings, their labour and industry.

by kjr63 on Fri Dec 24th, 2010 at 06:40:10 AM EST
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kjr63:
Germany and neoliberals cannot accept the fact that german banks have destroyed the wealth of german savings
It's a game of chicken, and all the high-fallutin' rhetoric about crickets and ants is so much jingoistic bullshit to rally the faithful. It's an open secret that the German banks are insolvent, actually:

Eurointelligence.com: Harsh winter threatens economic recovery

One camp - that includes the European Commisison - wants another "even better" stress test, the other one does not want a stress test at all, on the grounds that this would disquiet financial markets. The German government and the Bundesbank are firmly in the latter category. (They don't want proper stress test on the grounds that the de-facto insolvency of the German banking system would be recognised if you applied some realistic stress scenarios. What is not clear to us is whether the advocates of tougher stress tests want a more honest appraisal of the banking system, or whether they want to be given a second chance at cheating. In any case, we are not holding our breath.)
(and this is from mostly German economists around the FT's Walter Münchau)

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Fri Dec 24th, 2010 at 06:48:13 AM EST
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Salaries rise when house prices rise.

Yes, just look at the US. :P

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Fri Dec 24th, 2010 at 06:49:22 AM EST
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