Readers Question: What would happen if the Euro collapses? The most likely scenario is that countries will leave one by one. A country would default on its debt and decide best option is to leave and create a new currency. The first country to leave would be Greece. Greece would be damaging, but if Greece …
Readers question: What exactly are the solutions to the EU crisis? It is a difficult question to answer. The dynamics of the single currency mean that many of the conventional solutions to economic problems cannot be used. The difficult task is to reduce levels of government borrowing whilst also managing to target economic recovery and …
Readers Question: Can you please elaborate on “fiscal devaluation” as a suggested solution for Euro area competitiveness problems? Fiscal devaluation is an attempt to restore competitiveness through changes to the tax system. In an exchange rate devaluation, a country allows its currency to fall in value. This makes the countries exports cheaper and more competitive; …
Readers Question. You said that if Greece leaves the Euro, the Drachma will depreciate. Why will this happen? If Greece did leave the Euro, then the currency which replaced the Euro, would definitely fall in value. Greeks would soon see the price of imports increase. The foreign price of Greek exports would fall. If Greece …
The Net international investment Position (IIP) measures the balance of gross assets – gross liabilities. An asset means the UK has a claim on the rest of the world. A liability means the rest of the world has a claim on the UK. There are 4 sections of net international investment. direct investment (DI) portfolio …
Readers Question: Should Greece Leave the Euro? Arguments for and against Greece leaving the Euro. One thing is clear, the Greek situation is dire. Government debt is very high, yet extremely harsh austerity measures have only succeeded in pushing the economy back into recession and leading to much higher unemployment. Within the Eurozone, Greece is …
A two speed Europe refers to how, within the EU, economies are growing at different rates and are at different stages in the business cycle. For example, countries in the core of the Eurozone (Germany, Netherlands, France) have seen relatively good recovery since the recession. In these countries, unit labour costs have remained competitive, enabling …
Readers Question: On Jan 2009 I asked a question on the greek current account deficit, the fixed EUR rate, the lack of competitiveness and the debt load and you expanded brilliantly on the dangers of the twin deficits and the deteriorating Greek credit quality. Now I just need to make a comment that all the …