Debate on sorting the EU economy out!

CKhalvashi

As we’ve done the house prices to death on these boards, I thought I’d give something a little different a go.

Here’s a discussion on the general economy as a whole, and what we can do to boost the UK and EU economies as a whole, whilst creating jobs, sustainability and keeping interest rates reasonable.

I’m going to introduce myself, before we go any further. I’m a young-ish Company Director with a young family, heavily involved with local politics within East Hertfordshire and of an Eastern European background (I was born in the Soviet Union).

Some views that I have, I know are not going to be popular, however will increase the long-term sustainability of the UK and EU as a whole. Please discuss any matters that may be of concern to you, and I’ll research and reply. If anything is worthy of being taken to my local MP for further debate, I will do so.

CK

michaels

Do you think people from less 'feather-bedded' back grounds, for example those coming to Western Europe from the East are more 'hungry' for success than the locals? On the other hand incomers from other countries seem very happy to benefit from the support systems in place rather than having the ambition to better themselves. Is this true in your experience? Why do you think so?

michaels

The US seemed to be in a worse place than Europe with the financial crisis a few years ago and yet it seems to have more capacity to reinvent its economy, why is this?

vivatifosi

The biggest concern I have with the status quo is that it is unsustainable. There is no chance whatsoever that the system that we have - as is - will exist in five years time. Either a) the Eurozone will need to move towards a more federal system - which will potentially lead to Britain being even more of an outsider than present, or b) that currency union will fail and that the shocks caused by the need to reinvent national currencies will keep us in a prolonged recession.

Neither scenario is great in terms of paying down our debts, reinvigorating our economy, pulling in new investment or sorting out our structural issues. For the life of me I can't see a Plan C. Hopefully someone will.

michaels

And the biggie - is there any way Europe can recover from the mess it is in? Within the Euro attempts are being made to regain competitiveness through massive real wage reduction but with debt fixed in nominal terms this does not seem to make debt servicing sustainable.

We have seen other crises such as the Asian one a decade plus ago - what levels of real income falls were seen then? Were they accompanied by debt write-offs? Is default and pain for creditors now the only realistic outcome?

vivatifosi

michaels wrote: »

The US seemed to be in a worse place than Europe with the financial crisis a few years ago and yet it seems to have more capacity to reinvent its economy, why is this?

While the political elements there can't be said to all be singing off the same hymn sheet, they at least aren't pulling in 27 different directions. Also the role of the US president does allow for leading from the front, whether or not people think the current or previous incumbents up to the job. In Europe they are so busy pain sharing and can kicking that the committee is busy designing a camel.

CKhalvashi

michaels wrote: »

Do you think people from less 'feather-bedded' back grounds, for example those coming to Western Europe from the East are more 'hungry' for success than the locals? On the other hand incomers from other countries seem very happy to benefit from the support systems in place rather than having the ambition to better themselves. Is this true in your experience? Why do you think so?

One important thing to remember with certain Eastern Europeans is that for much of their lives, they’ve been subject to the Communist ‘planned’ economy, which is being slow in how it changes. This, in turn, leads to a world where success can be necessary to survive.

In much of the former-USSR states, there are low salaries, with living costs not as low in proportion, so many Eastern Europeans have had to work for what they have, with no reliance on a state-backed system that isn’t there.

Without putting those that genuinely cannot work in the category here, there are still not enough jobs to fill the number of people out of work, leading to some having to rely on benefits. For this reason, there should be strict time limits on the time that immigrants can claim, for example the home government paying for those out-of-work in another EEC country. This is not usually the case, however, with more immigrants in work that locals, definitely in this region.

Immigration is certainly a good thing, as is emigration, however it’s getting the balance right that needs to be investigated.

Thrugelmir

CKhalvashi wrote: »

Here’s a discussion on the general economy as a whole, and what we can do to boost the UK and EU economies as a whole, whilst creating jobs, sustainability and keeping interest rates reasonable.

Scrap the Euro and allow individual currencies to float perhaps. One size fits all simply doesn't work. While tax rates, retirement ages, welfare benefits etc all differ.

CLAPTON

vivatifosi wrote: »

The biggest concern I have with the status quo is that it is unsustainable. There is no chance whatsoever that the system that we have - as is - will exist in five years time. Either a) the Eurozone will need to move towards a more federal system - which will potentially lead to Britain being even more of an outsider than present, or b) that currency union will fail and that the shocks caused by the need to reinvent national currencies will keep us in a prolonged recession.

Neither scenario is great in terms of paying down our debts, reinvigorating our economy, pulling in new investment or sorting out our structural issues. For the life of me I can't see a Plan C. Hopefully someone will.

instead of EU say Soviet Union

was the break up of the soviet union a disaster for the member states or for us?

to me the answer is a no brainer
as is the break up of the Euro
and the EU

there will be a new invigourated set of nation states; instead of seeing who can milk the EU for as much as they can get, will instead stand on their own feet and make the best of their talents and natural advantages

a win win for everyone

Procrastinator333

First thing is Greece needs to default, drop out of the Euro and devalue. It will hurt, but just go for a full default, take the pain, and then move on. They do that and while they will have a horrendous 2-3 years, after that, they could come out of this as one of the first to start recovering properly.

Rest of Europe - They have a choice, either move towards political union, or drop the € back to a solid core of countries. Or, continue to flounder for another decade or 2.

In the UK, we are not at a stage that requires default, but there is a lot of debt kicking around. To me there are 2 choices, or a combination of the 2. Either a prolonged period of stagnation as debts are slowly paid off (the price of taking consumption yesterday instead of today), or letting inflation rip to wipe out the value of much of the debt in the UK. As unpopular as the BoE and government seem to be, I think they are on the right course, try to keep inflation at a decent level -3-5%, reduce the deficit and just sit tight for the next 5 years. If we get 5-10 years of little growth and 3-5% inflation, I think that is job done and the UK will be back on course. This ain't popular with most, but there is no magic panacea, there is a price to pay for all that borrowing and one way or another much of that price still needs to be paid.

CKhalvashi

vivatifosi wrote: »

The biggest concern I have with the status quo is that it is unsustainable. There is no chance whatsoever that the system that we have - as is - will exist in five years time.

And with the system as it is at present, it could be better for the same system not to exist in five years time.

Truth is that the system as it is, is unsustainable. We need to be on a mission at this time to strengthen the economy as a whole, which will require intervention from other governments, with equity swapping and further moves for a shared economy.

Either a) the Eurozone will need to move towards a more federal system - which will potentially lead to Britain being even more of an outsider than present, or b) that currency union will fail and that the shocks caused by the need to reinvent national currencies will keep us in a prolonged recession.

Once again, in my opinion, this would be the best move for the system as a whole. Take the typical banking scenario below, which could be used as a ‘Plan C':

27 EU countries (493m inhabitants) and 12 CIS states (276m inhabitants) start one Europe-wide bank for consumers, small businesses and government bodies. The bank is 100% state owned by these countries.

Lets use a rounded figure of 750m inhabitants for arguments sake.

20% of the population decide to bank with the bank (lets call it EuroCIS bank). This is 150 million people. We also gain the custom of 5m businesses.

These 37.5m people have an average of €10000 in savings each.
The business have an average of €250000 in working capital available, to take into account large companies.

2,750,000,000,000

Now we have €2.75 trillion, or the size of the UK economy.

Of this money, €1.5 trillion is placed into a 5%, 5 year bond (which would be the best buy in the UK and much of Europe. With much of the CIS’s reduced base rate, this would also be a best buy in these countries).

€1 trillion is placed in a 3.75% instant access savings account.

€0.25 trillion is placed in a 1% interest current account. (This would be an average throughout the year, and for simplicities sake, we don’t distinguish between rates for personal and business accounts).

With 7,000 branches across Europe at an average cost of €1m each and 5,000 call centre staff at an average cost of €50,000 a year, we need to make £8.5bn annually before any profit.

---

We loan €0.75tr at 7% (one of the best rates) on, over an average of 4 years. We have an average of €18bn income each month, of this €15.5bn must go back into the savers pot. This leaves €2.5bn a month surplus.

We lend €1tr for mortgages, at 4% at an average of 20 years. We have an average of €6bn income each month, and need to pay savers €4.2bn to keep stocks at this level. We have a €1.8bn surplus.

The other money is used to provide loans, overdrafts and credit cards, at an average of €1.2bn surplus monthly.

We have no bank charges, or monthly charges.

This leaves a €5.5bn monthly surplus, which with the further jobs that could be created this way, would raise tax income for governments, thus creating available funds if one countries economy was to slide.

Pust this with a common taxation scheme (say, 25% over £10000/€10000), common, simplified joint VAT and Corp Tax scheme (say, 25% over £100000/€100000), payable to the relevant government, we have a cost-effective Europe.

The same can be done with airlines, airports (re-nationalisation) and the postal system (joined up).

Sorry this took so long, I was racking through the figures.

CK

michaels wrote: »

And the biggie - is there any way Europe can recover from the mess it is in? Within the Euro attempts are being made to regain competitiveness through massive real wage reduction but with debt fixed in nominal terms this does not seem to make debt servicing sustainable.

We have seen other crises such as the Asian one a decade plus ago - what levels of real income falls were seen then? Were they accompanied by debt write-offs? Is default and pain for creditors now the only realistic outcome?

See above, for a start on the problem. There’s small risk and no stock-market investment involved. Profits would be placed towards Eastern Europe to bring up salary levels and there would be encouragement to have children.

We don’t need falls in levels of income, we need raises, and we need to be attractive to non-EU investors for this to work. Examples would be doubling the limits in certain areas of Europe (with average salary less than £10k, then raising), for example.

You’re not creating inflation, there’s little need for inflation at all with the above model, leading to a strong £/Euro.

We’re trying to circumvent write-offs and defaults, not cause them.

CK