I don't expect the ECB to come up with more funds than the combined efforts of the Euro partners, but it is wrong to believe that the European Stability Mechanism (ESM) of €500bn (which is due to replace the EFSF this year) represents the largest sum that Eurozone countries can afford to fork out. It is a comparitively small sum of money, intentionally so to discourage reliance on it by large nations. It also requires political agreement to use. That does not inspire confidence in the markets. A combination of strict insistence on fiscal repsonsibility across the Eurozone combined with market knowledge that the ECB will step in as a lender of last resort for states who need to run budget deficits will give states access to cheaper credit on the market, as lending to them will no longer pose as high a risk. It's the quickest way back to growth.

You come so close to getting it... yet then veer completely away from it... I dont understand.

The ESF isn't the largest amount that Europe can afford.  (True.)

It's done that way so a large nation doesn't try to depend on it.  (Also True.)

It requires political agreements to use.  (Again true, because of the above reason.)

A combination of strict insistence on fiscal responsibility combined with market knowledge that the ECB will step in as a lender of last resort for states who run budget deficits will breed market confidence.  (False.)

1) Without strict austerity (the whole point of this arguement) you can't say you have strict fiscal constraints with insistence on it being met.  The USA has strict budget rules about State budget deficits.  Yet the US acts as a "Lender of last resort" to the states.

What happens?  They don't tackle their budget problems.

2) Europe doesn't have the money to bail out bigger countries anyway.  Europe has more money it can fork out, but not anywhere near enough to save a State like Italy.  Greece has taken aid equal to more then 50% of it's GDP and that hasn't even scratched the surface of fixing greece.  For Italy that would be something like 1.2 Trillion dollars, just for a greece like solution!

That's what... a 10th of Europes GDP?  Just to do what they did with Greece mind you... not even to go all out like your suggesting.

3) the ECB working as a lender of last resort would SEVERLY drain other countries, and likely push them over the edge as well.  France isn't as far away from being Italy as you'd think.

Pretty soon they're going to have zero money to be able to put towards this stuff.   It's essentially all on the Germans.

spend less.



there i said it, thats what needs to be done

Oh, hey! That's very much along the lines of what I was thinking!

My idea more revolves around freezing the interest rates on current loans and establishing a payment plan for each loan that allows them to be paid off eventually. It would require austerity measures like the others, but at this point it looks like it can't be avoided. Maybe it won't be so bad with the loan principles not increasing?

I agree with the idea that these loans with interest rates are bad for a number of reasons. Does anybody know if it's a common practice for people involved with loans (loan issuers particularly) to use the loans currently being paid back to them as collateral for loans they themselves take out? I believe that's how that housing bubble (and consequent economic collapse) came into being, but I could be grossly misinformed on the specifics.

I'm pretty sure it's evident I'm no economics expert. ;)

Not quite...

What happened with the loans worked kinda like this.

Say I agreed to lend Ascii 100 dollars, with the agreement that he pays me 10 dollars a month for 24 months, netting me 240 dollars at the end of 12 months.

However, i'm not 100% sure he'll pay me back the 100 bucks.  So I offer you $1 a month, so that if he fails at any time during the loan (which is unlikely, but possible) You will pay me 50% of what he lost.  Meaning I now make a $10 profit but have much less risk.  While your making a quick $10 while shouldering only half the burden on a loan that's probably going to be paid back immdeiatly anyway.

Essentially a giant web of that, led to a bunch of people who shouldn't have had loans in the first place defaulting, destablizing the system, causing these guys to raise their intrest rates to avoid folding (instead of 120 i now want 130, since there was a provision in the deal allowing this.) causing more people to fail their morgages.... leading to the more people needing to make up more of the losses...

well you get the picture.

This. And thanks, you saved me having to come up with a reply!

Stop being so socialist and giving out everything for free. You can't pay for all of that free college education and free health care without getting the money from somewhere, and taxes are already high in Europe...

Also, interesting how college is the most expensive in the USA (although the best colleges and vast majority of them are in the USA) and yet USA has the highest % of people going to college than any country in the world, including European countries which has it for free. In many cases, the USA % doubles Eu countries with college graduates.

I think that has to do more with the culture of learning here, and the culture of college and the athletics that go with it and make it prestigious.

The culture of college athletics is the one part of college culture that needs to be reformed the fastest. Our expensive colleges are all government-subsidized too, just in the fun American way where everyone ends up paying more in hidden fees (e.g. through government backed no-default-possible Stafford loans)

Universally accessible health-care and education are two good things, and are close to being fundamental human rights as you can get, but this is not to say that there is not a good deal of wasteful spending going on in the Eurozone. Aerobus, for one, which Europe insists upon illegally subsidizing because they feel we in the USA are getting away with illegally subsidizing Boeing (which we are), and Europe, like the USA, has high farm subsidies to keep afloat farmers who would otherwise be uncompetitive in global markets.

Suddenly applied strict austerity measures would be just as bad as a financial collapse, and the former would likely lead to a revolt of sorts (see what's happened in Greece and Italy. The people won't stand for it, and while somebody has to take the burden, the most vulnerable of society will tolerate it least)

Yeah, but it won't be reformed.  College athletics = money.  And the more money a college has, in turn, does reflect better education, and higher requirements to get in year after year.... unless you know, you play football.

Those are two good things, but two things that get you into trouble.  Aerobus doesn't come close to those two giants.  It's easier to eliminate things from the budget that are easy, then to go thru a billion pages of legislature and take out the stupid little things that only have an impact if you get a lot of them (never happened).

The difference is that USA makes more food than the rest of the world, and more than enough for themselves, while Europe has to IMPORT most of their food.  Same goes with all of their natural resources.  Europe has very little in regards to that, just see oil.

But yeah, doesn't look good.  No easy fixes, they have been living a lifestyle of waste and comfort for so long that I doubt many would want the change that is needed until it smacks them in the face with 40% unemployment like Greece.

"You come so close to getting it... yet then veer completely away from it... I dont understand."

Wow, I'll try to ignore the perplexing levels of arrogrance you've shown here. I know you think you know quite a bit about economics and, in fairness, you do get some of this stuff. Try being a little less cocky though, you're not nearly as well informed about this as you think you are, believe me.

Let's me offer some corrections to what you've said.

1) Without strict austerity (the whole point of this arguement) you can't say you have strict fiscal constraints with insistence on it being met.  The USA has strict budget rules about State budget deficits.  Yet the US acts as a "Lender of last resort" to the states.

What happens?  They don't tackle their budget problems.

Not quite sure if this point is serious. If you really believe the Federal Reserve has much to do with the US not being able to manage its budget deficits you're barking up the wrong tree. Congress during the presidencies of Clinton and Nixon (LBJ as well I think though I'm not sure, it's been a while since I studied that stuff) managed to produce small budget surpluses. US budget deficits have varied wildly over the years. The reason for this is the US political system is royaly screwed up. It has little to do with the Fed.

2) Europe doesn't have the money to bail out bigger countries anyway.  Europe has more money it can fork out, but not anywhere near enough to save a State like Italy. 

It depends for how long you're talking about. For a short period, perhaps one to three years or so, it could be managed, after that things would get a bit ropey. That's why you need regulations for fiscal responsibility to be introduced but it needs to be more gradually. Room for growth must be allowed. You take away all available credit straight away the downward spiral keeps going.

3) the ECB working as a lender of last resort would SEVERLY drain other countries, and likely push them over the edge as well.  France isn't as far away from being Italy as you'd think.

But it's a lot further from Italy than you think. A lot of the hoo-haa about France regards the exposure of its financial institutions to Greek, Irish, Spanish, and Italian debt. If you can convince the market that this debt won't be defaulted on then large chunks of France's problems go away. That's why they are so keen on the issuing of Eurobonds.

In short the truth is if you restore market confidence in the Eurozone, a lot of the problems get solved. I don't think anyone would dispute that. Market confidence does not get restored, however, if the market believes an Italian default can happen in the near future. So, how do you avert this?

1. You introduce measures which insist on fiscal responsibility. However, you do it at a gradual pace that allows some credit to circulate in the market and allow the chance for  domestic growth to occur. This measure, on its own, won't work though.

Why? Beacuse this doesn't alter the sobering reality that if Italy can't get enough credit on the market it automatically defaults. The ESM isn't enough to save it, even on any reasonable short term basis. The Eurozone as a whole, however, does have the cash to save it on a short term basis.

2. Therefore you must depoliticise the giving of emergency credit to Italy as much as possible by making the ECB a 'lender of last resort'. The market will then be confident enough that short term bonds will be honoured and so will be able to make credit available to Italy at a sustainable rate.

These two need to go hand in hand. It doesn't seem like one works without the other.