1. Over the last 15-20 years globalization changed the world much faster than it was expected. Competition amongst nations intensified and incomes started converging. Most countries in the developed world started feeling the pressure, which hurt low-skill labour providers first.
2. To gain time many countries sought credit to fuel local consumption and housing. In some cases debt was raised by the population directly and in some by the state which then passed on the benefits to the population. The credit crunch of 2008 brought an end to this effort.
3. Ever since the developed world is trying to manage the drop in incomes. The focus is (again) to delay while hoping that the emerging world will offer a helping hand (which is happening in some cases).
4. In Europe the complex decision-making, increased role of the government and generous welfare state makes the adjustment process even more difficult. Europe needs to both speed up the fiscal union and get the printing presses going (to monetize debts while depreciating the currency).
5. Over the last two years, the leaders of Europe have been trying to persuade their respective constituencies accordingly. But progress is painfully slow and would have been much slower if it weren't for Greece, which is being made an example. However, if progress is to be adequate, then (unfortunately) Greece's misery needs to escalate (with riots, bank raids and other TV-hot images thrown in the mix).
6. Greece is a sitting duck in this respect. The combination of a Soviet-styled administration and a left-leaning population unable to deal with the notions of a competitive world, makes reforms near impossible to implement. Having below standard political leadership doesn't help either.
7. What's next? More drama but no closure. A mix of political chaos, depression, pensions paid with IOUs, etc. at first and then, depending on developments in Europe, possibly a return to the drachma (and a suspension of EU membership).
8. When and how? Even with the bailout agreement in place and working, the Greek government will run out of cash in late fall. Given how unlikely additional bailout funds are, this sets the stage for more drama. And then who can do it better that a radical left leader ...
9. And Europe? With a little help from global growth and the Greek drama motivating politicians in Spain/Italy and German savers alike, Europe stands a decent chance of pulling it through. But it is running out of time ...
2. To gain time many countries sought credit to fuel local consumption and housing. In some cases debt was raised by the population directly and in some by the state which then passed on the benefits to the population. The credit crunch of 2008 brought an end to this effort.
3. Ever since the developed world is trying to manage the drop in incomes. The focus is (again) to delay while hoping that the emerging world will offer a helping hand (which is happening in some cases).
4. In Europe the complex decision-making, increased role of the government and generous welfare state makes the adjustment process even more difficult. Europe needs to both speed up the fiscal union and get the printing presses going (to monetize debts while depreciating the currency).
5. Over the last two years, the leaders of Europe have been trying to persuade their respective constituencies accordingly. But progress is painfully slow and would have been much slower if it weren't for Greece, which is being made an example. However, if progress is to be adequate, then (unfortunately) Greece's misery needs to escalate (with riots, bank raids and other TV-hot images thrown in the mix).
6. Greece is a sitting duck in this respect. The combination of a Soviet-styled administration and a left-leaning population unable to deal with the notions of a competitive world, makes reforms near impossible to implement. Having below standard political leadership doesn't help either.
7. What's next? More drama but no closure. A mix of political chaos, depression, pensions paid with IOUs, etc. at first and then, depending on developments in Europe, possibly a return to the drachma (and a suspension of EU membership).
8. When and how? Even with the bailout agreement in place and working, the Greek government will run out of cash in late fall. Given how unlikely additional bailout funds are, this sets the stage for more drama. And then who can do it better that a radical left leader ...
9. And Europe? With a little help from global growth and the Greek drama motivating politicians in Spain/Italy and German savers alike, Europe stands a decent chance of pulling it through. But it is running out of time ...
