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3-Dec-11 World View -- Europe recoils as Germany takes charge

Pakistan changes rules of engagement versus U.S. forces

** 3-Dec-11 World View -- Europe recoils as Germany takes charge
** http://www.generationaldynamics.com/cgi ... 03#e111203




Contents:
Europe recoils as Germany takes charge
Record turnout in Egypt's elections
Pakistan changes rules of engagement versus U.S. forces



Keys:
Generational Dynamics, Germany, Angela Merkel, Nicolas Sarkozy,
Egypt, Muslim Brotherhood, Freedom and Justice Party,
Alafi Al-Nour Party, Pakistan

There's an issue with tying high productivity countries and low productivity countries together in such a fiscal union while letting them sell their own bonds and run with different laws. This issue is caused by forcing the same rate of inflation/deflation on evey country. Suppose the Euro has an inflation target rate of 2%, and Germany has a yearly productivity increase of 4%. If both these goals are met, then a country with a productivity increase of 2% must have an inflation rate of 0%. A country that has a productivity increase of less than 2% must have deflation to make up the difference.

That's horribly oversimplified, but the point is that money will flow into the higher productivity countries, and out of the lower productivity countries, so eventually a country like Greece or Italy will collapse economically, no matter what is done otherwise. They chose to collapse via bond debasement, but if it had not been bond debasement, it would have been another road to a similar end.

It works in the United States because of massive transfers of
money from "rich" states to "poor" states. Europe isn't ready
for that yet.

John

John wrote:It works in the United States because of massive transfers of
money from "rich" states to "poor" states.

Its really far, far, far more haphazard in the United States. GDP and/or per capita income per state appears to have a somewhat dubious relationship to total federal grants to states per capital. Just for instance, NY and NJ have similar per capita GDP, but NY gets 70% more fed funding per capita. NY is one of the largest per capita recipients of fed funds, NJ one of the lowest. And the relationship is about that wacky everyplace you look.