Bebs: even though you did not mention austerity, it is what is required to regain a competitive position when you have no control over monetary policy.
Firstly look at what HAS happened: wages in Greece have risen 30% faster in comparison with Germany; hence Greece is totally uncompetitive.
So to remove that 30% differential and get Greece back to a more competitive position (really Greece should have wages much lower than Germany due to the power of the German economy) the wage (and cost) base of the Greeks has to fall by a minimum 30%...to do that you need to implement a package of austerity (or in other words) cut wages by minimum 30%.
The alternative is to debase the currency by 30%, but the Greeks don't have their own currency, so they can't do that.
DizzyDoris: you are plainly and simply wrong!
Austerity DOES make a country more competitive and there are loads of examples of this, Ireland for one is now more competitive than it was due to the austerity measures already taken; however, it is painful.
Austerity should not be confused with default; they are separate issues but there is a connection.
A country in default can still be competitive. Default means that this month you just can't pay your mortgage; it does not mean you are charging too much for your services compared with the rest of the market.
However; when a country implements an austerity package, growth and tax take can fall so paying the state debt is more difficult and that is where a country can default.
What the EU is trying to do is this:
Greek government expenditure exceeds income from taxation so Greece needs to borrow money to meet its monthly running costs and pay for the mortgage.
To correct the situation Greece needs to do three things:
1. Learn to live within its means
2. Be more efficient in its tax collection (there are plenty of rich people in Greece who pay little or no tax)
3. Become more competitive
The EU wants help Greece to start living within its means; that requires austerity. Meanwhile the EU are loaning the Greek government the money it needs to keep paying the mortgage.
So why should Germany bail out such a basket case of a country?
Just think about it.
The Germans pay their taxes on time and promptly and work hard to ensure they have a successful economy.
The PIIGS don’t.
(Although Ireland is a slightly different case; there would not have been this problem had the Government not underwritten all the banks in the state.)
Sunshyn: True but it has always been the way in Europe that the rich support the poor and therefore have more say.
What I find poor about the long term thinking here is this:
Financial transfers have been a feature of the EU for years; it is what lifted Ireland from the dark ages of the 80s to the early Celtic Tiger years.
So after years of austerity Europe will be a strong financially powerful heart of Germany, France and the Benelux countries and an impoverished south….not much different than 30 years ago. So what was it all for?
The centre north of Europe will still have to transfer money to the south for decades ahead.