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Tuesday, February 2, 2010

More Doom for Dr. Doom

Nouriel Roubini is predicting more dire economic circumstances. This time it is in Europe.

Economist Nouriel Roubini says economic problems in euro zone members such as
Greece and Spain could tear apart the European Monetary Union.

“Down the line, not this year or two years from now, we could have a breakup of the
monetary union,” the New York University professor says.

Greece has a budget deficit that totals 12.7 percent of GDP, far above the 3 percent limit mandated by the European Union.

The EU has become an economic and trading force. Greece's problems have been well documented. Spain has had double digit unemployment for years.


Jason Gillman said...

I really don't understand how the EU and the euro works..

Who is their central bank?
Who prints the money?

how can any one political entity be held accountable when their are competing national interests?

AG said...

Simple, Jason: it can't.

The European Central Bank coordinates monetary policy for the eurozone. Unlike the Federal Reserve, the ECB has no mandate to promote economic growth. Inflation is their only concern.

The idea is that as long as no EU nation runs a deficit greater than 3% of GDP, it is implied that the biggest economies in the eurozone, Germany and France, would back the "peripheral" EU countries bonds if they struggled with their debt. Since all the countries issue bonds denominated in Euros, its in all the countries interest to make sure that nobody defaults and hurts the euro.

The current crisis stems from the fact that, well, this is the first time the EU has faced a recession since the introduction of the Euro.

Jason Gillman said...

So then..

The Euro is based on all things being somewhat "perfect"

A loss in GDP for any one of the participating nations then requires that nation to tax the population heavier, and immediately it seems. Obviously, cutting spending is an option always, but we know how well that goes over once a program has begun.


BTW, apologies for mistyping the word "there" Horrible, horrible mistake