The Euro Crisis Explained To Grannies

One of the subjects that is currently on the limelight, and about which one can’t find any text that is simple to understand, is the eurozone crisis.

Basically, the poorer countries, when they joined the euro, had their credibility artificially improved, which allowed them to get much deeper in debt than would otherwise be viable. Germany cherished the improved accessibility to these new markets and actively collaborated in the excessive concession of credit. Now that the bubble has burst, Germany hesitates between total integration, which would ease the problems, but would tie it forever to countries of which Germany is suspicious, and a refusal of further integration, which endangers the supremacy which Germany has conquered.

Still confused? I advise you, then, to read the version I wrote for the education of the public.

It’s dead easy. By the end of the text, if you side with the bridegroom, you agree with Germany. If you side with the bride, you agree with Portugal, Greece, etc.

The Euro Crisis Explained To Grannies

‘But why aren’t you getting married?’ asks the boy’s mother, astounded.

‘The guests are already arriving. It’s going to be a scandal’ adds the girl’s mother.

The bridegroom’s tone sounded uncompromising.

‘She only wants my money. I must have been blind, but now I see everything. It’s all clear, now!’

‘You’re an idiot!’ shouted the bride in a shriek ‘That’s all you can think about. For you it’s all about money, money. Everything is money.’

‘You’re right. You don’t think about money. It means nothing to you. But you surely know how to spend it.’

The girl’s mother was confused.

‘But my daughter was never a big spender. She may, occasionally, loose her head over a pair of shoes or a purse, but…’

‘She was never a big spender with her money! With mine, it’s a free for all.’ interrupted the bridegroom.

‘With yours? But how…’

The girl rattled her fingers on the table top, half nervous, half angry.

‘He lent me his VISA, mummy, and I bought some stuff.’

‘You lent her your VISA?’ asks the boy’s mother, in disbelief.

‘But if you lent my daughter your VISA, it was surely with the intention of buying her some present. I see no reason for your present attitude.’

‘I did lend it, it’s true’ confirms the boy, now a bit embarrassed ‘But she was supposed to use it within the card’s limits. Sweet little darling decided that it wasn’t enough. So, she decided to buy lots of additional stuff. On credit instalments. With MY card.’

‘Cheap! That’s what you are, cheap! I didn’t spend that much.’

‘Oh, I see, it wasn’t much. So, we don’t have a problem, after all. You just need to pay the debts.’

‘You know very well that I don’t have the money. If you didn’t want me to spend it, then why did you hand me the credit card? You handed it over, I spent it. Tough luck!’

‘Tough luck my arse. First you pay the debts. Then, with time, we’ll think about the marriage.’

‘Oh, I see! You’re having second thoughts about the marriage? I’ll make it easier for you, then. I’m leaving and that’s it.’

The bride opened the room’s door and threatened to leave, without much conviction.

‘You leave this room, there’s no marriage and you pay all the debts. In court, if needed be’ shouted the bridegroom, somewhat out of control

‘My daughter is right. You are vulgar. With all your wealth and posh surnames, how do you dare to make such a fracas because of peanuts?’

The bridegroom’s mother finally lost her temper.

‘Vulgar? My son? You should be ashamed of yourself, being mother of that tart. You had better teach her to work and live within her own means. I always advised my son against getting involved with her.’

Through the open door, one could now hear the sound of a TV set. The presenter’s voice struggled against the screaming from the room:

“… Mrs. Merkel, again sent the markets into turmoil, by declaring that she will not discuss in the next meeting any further integration, which would allow some respite to the sovereign debts in Southern Europe. It now seems clear that Germany is not ready to endanger its own economy in order to…”

‘Court? You really are low. Threatening me with court action. Your own bride!’

‘If it offends you that much, there’s an easy way out. Just take back to the shops the stuff you bought with my card.’

Now it was the bride’s turn to lose her temper.

‘Take back what I bought? That would be the day. And I guess I can get my shags back, can I?’

There was a deep silence in the room. Both mothers stared at their respective children, jaws dropped.

‘Holly Jesus, my daughter. Don’t tell me that you let him…’

Through the door, the presenter’s voice could clearly be heard:

“… analysts consider the eurozone economies too closely integrated to allow for any backtracking. The penetration of German products in eurozone markets…”

‘Can’t anyone switch off the bloody TV?’ screamed the bridegroom.

Someone did.

A head snooped through the door, left ajar. The hair was short and a Roman collar covered the neck.

Both mothers put on their best smiles, trying to look as relaxed as possible.

‘They’re a bit nervous, that’s all, Father. A couple of minutes, and all will be settled.’

The other mother tried, unsuccessfully, to look condescending, as if all marriages were like this.

The priest said nothing. He closed the door and walked away. An elderly lady, who helped with the running of the Parish, asked:

‘What’s going on, Father? They were all screaming, in there. Don’t they want to get married, anymore?’

‘Marriage, Mrs. Violante, is a sacred vow. It requires devotion and sacrifices. These people have no idea what those things are.’

‘But are they getting married or not, Father? The church is full, already. The guests are agitated. What do I do?’

‘Let’s wait for a while. In times gone, I would refuse to marry them. This is just an adventure between a rich and immature boy and a promiscuous girl, looking for easy money.’

He paused.

‘If you care to know my opinion, Mrs. Violante, none of them is worth their salt.’

——————————————–

I imagine that several readers are, by now, battling a dilemma.

‘I read the whole text but I agree with neither the bridegroom nor the bride. The one I agree with is the priest. Whose side am I, after all?’

‘You are on my side, dear reader.’

——————————————–

.

Did you like what you read?

Please feel free to check out my book

“The Prince and the Singularity – A Circular Tale”

It is a book with one big advantage, you only need to read the first 50 lines to know whether you’re going to like the story or not.

If you’re not hooked after 50 lines then my book is not for you.

.

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P. Barrento 2012

http://www.facebook.com/pedro.barrento

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24 responses to “The Euro Crisis Explained To Grannies

  1. Very good set up… For anarchists like me the solution would be a short story; no marriage, no powers, no capital markets,… By other hand, being a Vedic follower, I know that History is just made of this: “Now I have the power and you have to do what I say.”… Give it another 200 or 300 years and the thing will shift to the opposite side… Probably to a Planetary cause this time around!

    • Marriage is dealing with challenges – both bride and groom haven’t got enough skills to deal with this troubled marriage just because the bride is a chronic over-spender. Debt is the money of slaves so I guess the bride is enslaved forever.

  2. Its a false analogy – the bit you are missing is the fact that the groom’s income is, in fact, based on a hidden subsidy from the bride. Neither bride or groom realize this, yet. But they will eventually.

    Lets proceed with the analogy for a moment.

    The bride has the courage of her convictions and walks out the door, tells the audience the marriage is off but the party is on and invites everyone off to the hotel to eat the cake and drink the wine. The groom and his mum sneak off dejected, and feeling like something is wrong. They will be the last to find out what it is.

    Meanwhile, in vino veritas, the story emerges about the argument and it turns out that the bride has all the supporters on her side. All her friends tell her that they didn’t like his dictatorial pretensions anyway and felt he was a bit of a bully. So do most if his relatives who stayed around for the free drink.

    The story breaks down at this point as there is no fairy tale version of currency trading, so lets slip back into reality for a few sentences.

    The Germans and the rest of the Eurozone agree to part company. The DM is reintroduced and immediately becomes the strongest currency in the world. Its value rises to five times the value of the residual Euro (they keep the name for sentimental reasons – they still believed in the dream). When Mr Benz opens his car show room in New York the following morning, all of his prices have increased because of the currency conversion. Mr Ferrari, on the other hand, has to mark down his prices. That day, Mr Ferrari sells twice the number of cars as normal and Mr Benz sells none. By the end of the week Mr Benz cancels all his orders for showroom stock. Mr Ferrari, on the other hand, is ringing around all the dealers asking if they can spare him a few cars as his showroom is bare. Turns out none of them have any and the factory in Turin is already working overtime to cope with demand. He does what any right thinking salesman would do, he increases his prices, after all, demand has outstripped supply for his products. His profits soar.

    Meanwhile Heinz in Hamburg is out shopping for a new car. He can afford the VW Golf but decides his wife says there’s great value on offer at the Peugeot dealership at the moment. And true enough, their top of the range hot hatchback with the sunroof and the fuel injection has been marked down to a third the price of the Golf, and the Golf doesn’t even have a bluetooth radio or metallic paint for that price. He decides to haggle with the VW dealer and pops back into the showroom. The salesman offers him a set of mats and a cup of coffee. He then throw in his entire commission. But this is nowhere near what Heinz was hoping for. He buys the luxury sedan from the Peugeot man and is thrilled with the value he has just got.

    Six months later, Heinz is laid off. His company haven’t sold any of the solar panels they manufacture. They can’t compete on price, in spite of the 50% state subsidy the German government introduced to boost exports in a desperate attempt to balance their deficit. Everyone is buying Spanish or Polish panels for half the price. The German government is warned that if it introduces barriers to imports it will be thrown out of the European Union. And the imports are so cheap no local producer can compete with the imports.

    Slowly the penny begins to drop. The only reason why German exports were so affordable before the DM was introduced was because of the weakness of the Euro. It was creating the conditions where high value German exports could be sold at low value Euro prices. All the money sloshing about in the German coffers was actually an IMBALANCE in the Euro created because the engineers who set it up weren’t engineers at all, they were economists. Or politicians pretending to be economists. They forgot to build in a redistribution mechanism to cope with disparities in export values and it became a one-way ticket for one country to prosper and 17 to suffer.

    Back to the story.

    The bride marries the Peugeot man and they live happily ever after.

    A year later, Heinz comes to work for them on minimum wage.

    The Groom was last heard in connection to a police investigation into a ponsi scheme in Albania. His mother is in a care home for the bewildered paid for by the taxes of the Eurozone, the German welfare system having collapsed.

    • The German Mark has existed before, and it didn’t skyrocket to the point where the German economy became uncompetitive, on the contrary. I think you bear a grudge against them and there is a lot of wishful thinking on your arguments. If you tell me that the German economy is presently benefiting from the money the high classes from the “poor” cuntries (Portugal, Greece, etc) transfer to Germany for safekeeping and that they then lend that money back on high interest to those same countries, I think you’ll be nearer to having a more genuine case against them.

      • Without meaning anything personal, your name doesn’t sound German, but you seem to have a rather German style sense of humor about this funny story. Hopefully it’s a HUGE exaggeration because the real situation is already not funny at all and it’s likely to get a lot worse. If a German moralizing blame game helps the Euro to fail I’m pretty sure the Germans will end up regretting that pretty badly even if they never realize their decisive role in making that happen.

        To me, the best solution concerning this wedding would be for the wise uncle of the bride or groom to say ‘With a child already well on the way, you both need to grow up in a hurry. Look, the huge credit card debt will be discharged in a bankruptcy. Since neither of you has significant assets for the bank to repossess. Go ahead, get married, declare bankruptcy as a family and from now on work out your financial planning together after learning from this painful lesson’. The mothers at first both curse the uncle for his terrible morality and horrible advice, but after everybody has a couple large glasses of wine provided by the priest, the couple go to the altar. Years of hard times and struggles of all sorts ensue but the marriage survives and the kids grow up to be far more responsible than their parents.

        As you might guess from my name, I don’t have any skin directly in this pot, but a nasty failure will effect a lot of people outside the continent in a negative way too, so I wish the family a happy marriage from across the street from the church. May God bless them all!

      • This is not about interest rates, but inflation. The interest rate imbalances you describe are a symptom of the disease, but they are not the disease. Germany has used the Euro to export its inflation for a decade. If it were ever to float its currency much of that inflation would be reimported via the exchange rate mechanism. All in one big bang. The consequences of that are likely to be as I have described.

  3. Betterworld regarding the scenario of the reintroduction of the DM, Germany would easily be able to float their exchange rate and maintain a competitive level – all they would have to do is print more DM through a sterilized intervention (selling German Bonds and buying up Dollars or some other strong currency). This way, it would maintain their currency depreciated enough to be competitive, without having causing more inflation. Moreover, they would be boosting their foreign reserves.

    Thus, the scenario of the an uncompetitive German economy is not as plausible as you have put it…I am highly in favour of strengthening and maintaining the EU, but if it were disbanded, Germany’s economy would not be as weak as you put it – even though they export mostly within the EU, they are competitive enough to export elsewhere, even though they might see a decline in their exports…

    The greatest issue would be a loss of a great idea, the integration of nation’s, both economically and politically. Also, in the short run, the dismantling of the EU would be send markets into a frenzy panic – sending most countries (especially the PIIGS) into a recession and probably even into a depression, far worse than any other we have encountered.

    • We’ll see, dt, we’ll see.

      Personally, I don’t think the Bundesbank has the smarts to manipulate the global markets as you suggest. Even if they had enough money (which they don’t). We know for sure that they don’t have the credibility to convince the markets they’re not doing it, a key element in any such deception. Nor could they count on anyone to help them, until it was too late to make a difference.

      The Bundesbank have shown themselves to be incompetent as bankers, incompetent as politicians, incompetent as regulators and you expect them to suddenly become uber-competent as speculators, in a sea of speculators? They’d have to place the biggest bet in German history on a global market that hasn’t believed a word they have said for a decade (correctly), and win? Good luck with that.

      For a speculator, it’d be much easier to believe in the DM2 bubble, ride it all the way up to uncompeditive (and beyond … far, far beyond) in the hope of getting out before it finally bursts. Such a sure fire bet would suck in all the available capital on the globe before imploding. Germany’s sovereign wealth is puny in comparison. The final crash would make the Great Depression look manageable.

      The Bundesbank simply couldn’t print DM2s fast enough to keep pace with market demand, nor could they borrow fast enough, due to their constitutional restrictions.

      Result:massive, probably exponential, appreciation in value. Within 6 months every German manufacturer would be out of business.

      As for the loss of a great idea, its already lost. The current German chancellor has squandered any chance there was of rescuing it. Germany has only one focus: Germany. End of dream. How long will they accept being out-voted at the Council of Ministers, the EU Commission and the European Central Bank? Not long.

      The bully in the playground only convinces himself when he pretends that everything is OK and the game can resume. The rest of us remember his true nature.

      • For what the Bundesbank seems incapable to do, capitalist businesses do more than well. I think they excel in tunelling money. I know that.

        A certain German company sets business in another country. They use promises generously. As the other country has a little problem with unemployment, they use a bully tactics on the workplace to keep costs down. Anyone can be fired at any time for the slightest of reasons, they practice collective punishment (pay cuts for all) for “not reaching” an arbitralily set target. This actually self-supports as they only pay the workers peanuts, and overworked workers with little mone become lethargic. Of course, workers of the same company in Germany are well fed and happy and not overworked at all!

        Now, the money laundering:
        The company set up in the slave country buys the “necessary equipment” from the mother company in Germany. This has ended its useful life in Germany and is obsolete anyway. However, the company in the slave country buys it at a hefty price from the little profits they had. Any renovation costs are paid by the by the subsidiary in the slave country — it should not surprise you by now — to German companies who charge German rates. Highest bidder takes preference and no local workforce is permitted. The same goes on when buying other types of equipment, a generic german product with say 5x to 10x the price tag is preferred. Now… you see that this does not even remotely look like a “free market”, because it is not.

        Now, more absurdities, the company even marks some of their products as “Made in Germany” and “Made in India”, simply “Made in Slovakia” is not what they want in their accounting books.

        A local shop orders some product from the factory. What happens now, the local factory in the same town ships the product to Germany. There, they ship the product back to the same town the factory is in. Just the price tag changes.. It is tripled or quadrupled. You know… the transportation costs and overhead, and a small profit margin.

        So, I firmly believe, your analysis – while correct – exaggerates the real effects – the German companies do what the Bundesbank could only dream of.

        I’m not going to talk about the organisational structures and leadership that will strongly remind you of concentration camps, Foxconn in China is said to be bad, but these guys are badass in ways the chinese can only dream of.

        So, I strongly believe in german profits, they do what is pragmatically the best for them. The bridegroom can complain all he wants but the truth is, inside he laughs, laughs and laughs.

        As far as I know, all German companies work this way. As soon as they cross the german border, that is. …funny way of tunelling money back to Germany is this too: they send few workers to Germany to “shooling and instruction on ‘a new machinery'”, in reality something that could be learnt in 5 hours – but instead the workers work in Germany for 5 weeks for the low pay they would get in their own country and the daughter company is also billed by the mother company in Germany for provision of the hard teaching work they have to make. I have never seen something so genial and evil at the same time!

        Once again: the daughter company sends money to Germany for the slave workforce they provide for a factory in Germany!

  4. Better, you are quite eloquent and persuasive to this reader – tho I’m primed from reading naked capitalism you put it bluntly and very crisply. Are you a NC contributor by any chance?

    I’m guessing all here may have read George Soro’s long piece in NYRB. I’m guessing Better, that you think Soro’s ‘Germany voluntary exit from the Euro’ as a possible softer landing (still probably very hard) is complete wishful thinking. Do you see this as a slow moving train wreck with zero possibility of staying on the tracks? What is your best case scenerio which might have a non-zero probability associated?

    http://www.nybooks.com/articles/archives/2012/sep/27/tragedy-european-union-and-how-resolve-it/?pagination=false

    • Actually Norcal, I have never contributed to NC, haven’t read Soros’ article yet (its on the list, and thanks for the link) and would not generally be inclined to accept him as an honest broker, given his financial interests in the outcome. Having said that, I have found him increasingly persuasive on the Euro.

      Best case scenario: Germany realizes that its interests are best served by staying inside the Euro, recognizes that trade surplus is as destabilizing as deficit inside the Eurozone and starts to accept its responsibilities for wealth redistribution like any adult member of a family.

      I suspect that will require a change of leadership, which is very likely and some of the likely successors are already making adult-sounding noises.

      The reign of the petulant child may finally be coming to an end which will delight many, and not just in Europe. Recovery globally is impossible whilst she still holds the rattle and jumps whenever the Bundesbank says ‘boo’.

  5. Very interesting, Better. You are a very interesting mystery person. I suspect that my new good friend Pedro should be flattered to have you visit his blog (not that this item of his did not deserve attention). You write with such a flourish and fluidity about this subject that I’m pretty sure you are a professional writer whether journalist or academic or other profession. Your use of ‘whilst’ marks you as a writer of UK English whether European or UK’ian. You have got to be a native English speaker to be so fluent, methinks.

    I would love to read more of your commentary! If not here perhaps you would be so kind as to email me schmandt@hotmail.com, and let me know where I can find your other vivid and sharp commentary if such is available online.

    I myself am but a retired software engineer and failed equities speculator, now eking out a living as a Japanese to English translator and enjoying the considerable charms of life in Japan (as a temporary (i hope) economic refugee from the Norcal Sierra Nevada foothills).

    • Not English at all: I come from the land of Yeats, Synge, Wilde, Beckett, Joyce … and Anglo Irish Bank! I’m no scribe, have no time to blog, but I do comment on EUobserver from time to time.

  6. The bride was happily printing her own money before she got engaged to the skinflint. After her messy breakup, she can fire up her printing press once again. She is a person in her own right, not a penniless dependent.

  7. The bit that I think this lovely tale is missing is that the bride has been spending on the credit card in her husband’s shop. The wedding is being paid for out of these profits.

    After all Germany can’t have a surplus unless Greece (or someone else) has a deficit. It’s called the Balance of payments for a reason.

  8. You have to understand that this type of thing has been going on since before I was a little boy, I saw individuals profiting from it and I started too as well.

    I really like the way you summerised it in lay terms :-)

  9. Drech.

    I was hoping, based on the title, for something simple, amusing and well written.

    It is none of those things.

    It’s like a bad improv play. Worst part is that, while the author does display some genuine understanding of the problems (moreso than our media) he still doesn’t have enough understanding to proffer a decent, succinct, and accurate analogy.

  10. Reading your blog gave many interesting insights, but as a German – who is very critical of his political leadership – I have a different perception of the problem. In the blog Germany and her companies is depicted as a master whose wealth is based on selling her products to her European servants,
    But within Germany there is a growing number of servants as well who aren’t even paid a minimum wage and who can be fired on a daily basis. Being fired those wretched creatures get social welfare which doesn’t deserve this term. This cutting of the social welfare system combined with no pay-raises for the working masses was established 10 years ago and since then the German economy has recovered so that it is now flooding not only Europe with its products. And I am afraid that above all the PIIGS will also have to undergo these painful procedures to be competitive on a global level because Frau Merkel learned from her predecessor Schroeder how to modernize a state on the back of the working people.

  11. It’s a pity you don’t have a donate button! I’d certainly donate to this superb blog! I guess for now i’ll settle for book-marking and adding your RSS feed to my Google account. I look forward to new updates and will talk about this site with my Facebook group. Talk soon!

  12. The priest who orchestrated the original meeting between the Bride and Groom now steps into the discussion and insists they marry as the resultant union would be of great benefit for all members, including cousins, of the family. So they and all the cousins agree to share the bride’s debts, and sign the Mastrict pre-nuptial agreement, and the wedding union goes ahead.

    Following the union things immediately start to go wrong. Several members of the family, resident in the Mediterranean sun belt, reflect on their undertakings and decide that their share of the debts are simply too great to accept and request the bridegroom for more time to settle their cousins debt. The bridegroom responds by calling-in all his friends from wealthier parts of the world and whom are strong supporters of his business interests and ethics, to assist him to make the cousins see reason and to warn them of the consequences should they not meet the bridegroom’s demands.

    Needless to say, these strong arm tactics antagonise the cousins who then stand together demanding more time to pay and further loans to overcome a short term lack of resources. The cousins then band together and form a financial advisory group to oversee their finances and those of the bridegroom. This gives the bridegroom a problem as to which side of his family really has the more power. Then his rich relations from across the pond, who are on the side of the bridegroom’s family and who believe in the aims of those family members of a few decades ago for a fully integrated Europe, step into the discussion and put pressure on the cousins financial advisor. The result is a effectively a stalemate.

    This leaves the bride and groom with the only alternative but to divorce and an independent member of the union is asked to handle the legal side because they are well known to favour a 50:50 split of all assets of the involved parties. The bride is delighted because she can see that her 50% is likely to wipe off her debts and those of her sun belt based cousins.

    This move upsets the bridegroom and his wealthier transatlantic based family friends who owned and ran most of his business interest those few decades ago and which made them a very great deal of money, respond by sending in one of their strong arm groups to make the cousins see sense. This action simply antagonises the cousins even more.

    So the scene is set and the divorce case is expected to be judged very shortly. Meanwhile the bride and her cousins ratchet up the action by demanding yet more time to pay back the bride’s debts and the judge in the case is well aware of what this could mean as he is from the family of one the most indebted peripheral members of the union but has managed to keep a very low profile in the dispute.

    The tabloid press and pundits are now busy taking sides in the dispute between the parties.

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