The Euro is in crisis, a statement that gets mentioned on an almost daily basis yet what actually is going on is a little mystery.
The Greeks have a big debt, Ireland and Portugal aren’t much better off and Italy and Spain look to follow. But, like most people, I don’t quite get the complexities. Call me stupid but as I understand it the amount of money in the World, in Europe, in the banks is actually more rather than less. The UK just dumped £75 billion into the economy on top of an equally improbable amount in the last round of ‘quantative easing’. It is not real money, it is electronic but so is most of the money in the world. The Federal Reserve has dumped an astonishing £1.4 trillon, a figure so vast that it would normally be used in astronomy but all to no real avail.
The last round of Euro crisis featured the Greeks asking the rest of Europe, or rather Germany for a mere £8 billion to pay off its impeding debt payment. The Greeks have taken a kind of mortgage holiday and are only paying off the interest on their loan whilst they look for a new job. The Germans will give the money to the Greeks who will give it to the banks who lent the money and here is the twist: the banks will then pay interest to those who put the money in the bank for them to lend. It turns out most of the spare money that ended up in the banks was German in the first place.
Germany makes lovely cars, fridges and a whole host of beautifully engineered products. They are very good at it and make far more than they can sell in the home market so off they go to other countries. And can I say how happy we are with our new black Bosch fridge freezer. The Greeks also like their new fridge freezers and BMWs but had to take out a few loans and max out the credit card to get them. The Germans take their well-earned profit and pop all that spare money into the bank, and the moment anyone utilises the banks vaults the bank is allowed the money as if its their own. We think this to be perfectly normal because money isn’t really anything in particular but if you left your lawn mower or BMW in the bank for safe keeping and they took it home and lent it out to their neighbour who then actually dented it, then we would be slightly pissed off.
The Germans and the Greeks were happy with the relationship; German Euros could be lent to Greeks so they bought German goods. Except the Greeks lied when they filled out the enrolment details on their collective credit card, failing to mention that they also had a few store cards hidden away and that their credit rating was based on loans being taken out to pay the interest on the new loans. If the relationship was purely between the two nations fingers could be pointed at the Germans for being so stupid in lending money to people who couldn’t pay it back. But in between were the banks.
Banks take German Euros and pay a small interest rate in return, then lend it to Greeks at a slightly higher rate. And who would begrudge a small admin charge to the banks for moving all that money around? So were the banks stupid in lending out money to someone who could never afford to pay it all back? Well, it was never really their money so why should they care? But there is a neat way they can maximise the interest they get. If debtors are particularly risky then it is sensible to secure one’s investment and reduce the risk of loss by charging a higher interest rate. The Greek crisis is that it can no longer borrow money on the open market without incredibly high interest repayments so its gone to Euro countries for a €209 billion top up loan. If Greece defaults then the chances of anyone getting their money back is slim. Greece could declare bankruptcy and go back to the Drachma which would mean cheap holidays for the rest of the world but Greeks would be unable to afford goods from other European countries.
The Euro is in crisis because if Greece defaults or goes bankrupt then other Euro countries like Ireland will also fail, or simply have some of their debt written off. Yet with all this potential chaos the big banks and financial capitalists are making millions because they trade in currency and with so much uncertainty there is a huge amount of activity as money is being shifted about and with very low risk for the traders they can collect the commission on each trade.
As we have seen the commercial banks are very good at scaring people as to the what would happen if they are not protected from the very risks they took. At the same time they are free to find neat ways to profit from the crisis they help create. It would appear that the huge sums of quantative easing are not trickling down into the wider economy but used by the banks to spend on speculating on commodities like oil and wheat which pushes up the price, makes them more money, and increases inflation by a further 1.5%.
The banks and the financial capitalists are either a) stupid b)spoilt brats who expect to be bailed out by their parents or c) very smart. If c) then they have conspired to allow the debt crisis to manifest so as to make a killing.
Capitalism in a pure form is fairly straight forward. More and more people want oil/ fuel/wheat etc and if the supply isn’t there the price can increase. I may complain that it cost more but I won’t complain if my skills are in short supply and everyone wants to pay me more. Even speculation on commodities can help even out the income of producers in volatile markets. But financial capitalism looks to make a buck out misfortune. It is not evil just without any morels. If money can be made out of a failing economy even though a stable one would in the long term would benefit everyone then any opportunity is fair game. Neither is this form of capitalism a level playing field as the financial capitalists are able to unfairly influence government policy.
I don’t pretend to have anything but a vague understanding at what is going on but if you want to get away with murder try making the trail so complicated that it is almost impossible for anyone to work out. We may all be deceived on an unprecedented level with a conspiracy so elaborate that it would make the faked moon landings, 9/11 and Roswell look like wild speculation on the Web.