Posts Tagged ‘EU’

What’s up with Greece?

Wednesday, June 22nd, 2011

Greece.jpeg
(photo credit: David Spender)

You’ve heard that there’s a little trouble brewing in the glittering blue southeast corner of Europe, right? If you haven’t, Greece is in the middle of a nasty thing called a debt crisis. Basically, they can’t pay their bills, they’re gasping for air, and they’re pulling at ropes thrown by their European Union friends. So…

What’s the big deal? Why not let Greece’s failed economic policies fail? Who cares?

Fortunately for Greece, lots of people care. European nations (and investors throughout the world) see the Greek debt crisis as an infection that could spread throughout the EU and cause serious damage. Because nations in the eurozone all share the same currency (the euro), an economic disaster in one country will drag down the value of the currency for everyone.

So why hasn’t the problem been solved yet?

This (unbelievably) is the short answer, and definitely leaves out some of the finer points of the problem:

>>> Other EU nations have already stepped up and injected more than $100 billion into the Greek economy as a kind of bailout, but it’s just not enough. The Greek government has to cut spending and raise taxes in order to qualify for more aid, but citizens (and their powerful government reps) aren’t exactly excited about losing services and a bigger chunk of their paychecks.

>>> The government is also required to privatize some of its assets, which means selling valuable things like ports and banks and water utilities to private companies to raise cash. This also is not so popular – residents like their beautiful Greek coastline!

>>> Finally, private creditors (people who are owed money by Greece) have to agree to voluntarily hold onto and buy up more Greek debt (like government bonds). This is a hard sell in any case, but because publicly traded companies are legally obligated to act in the best interest of their shareholders, it may be especially hard to convince them that buying low-return debt in a failing economy is good for anybody.

What’s going to happen now?

Well, pretty much everyone involved agrees that they need to maintain a stable eurozone and a strong currency. So European nations are likely to keep trying to fix the problem any way they can. We’re not wizards over here at TILE, so we can’t say whether it will work, not work, or kind of work.

We will say that Greece is probably a pretty fun place to go right now if you’re looking for adventure civil-unrest-style!

The European Union is…

Friday, June 3rd, 2011

The European Union is a political and economic organization made up of 27 countries in Europe. It’s not a country by itself, but in some ways it acts as a high-level governing organization for its member nations. Being part of the Union means that citizens, goods, and services are allowed to move freely between affiliated nations, without having to deal with things like visas or trade restrictions. Members of the EU also use the same currency, called the Euro.

Basically, being part of the European Union is like being in a club whose members are from all over Europe and who have decided that many of the same rules will govern every member – despite their differences in nationality. But not every European nation is a member of the EU (Switzerland, for example), and some member nations have not yet adopted the official currency (the United Kingdom still uses the Great British Pound).

Even if Mom is still doing your laundry, you can always make graphs

Tuesday, February 22nd, 2011

Even if the graphs are, oh, maybe just a little misleading. Take this one, for example. It appears to say that the reason certain European countries are in worse financial shape than others is because more of their men want to stay at home playing videogames.

See? Italy, Greece, Spain, and Portugal are over there on the right, with more of their menfolk living with the parents. And, conveniently, those same countries rank high on the riskiness (a.k.a. sovereign risk) of their government bonds (a.k.a. sovereign debt).

If he lives with his parents, you might want to think twice. About buying his government’s debt. (via The Economist)

But in case your statistics teacher hasn’t drilled this into your heads yet, correlation is not causation. This is a real-world example of that. Just because you can make a chart with a nice line on it doesn’t necessarily mean that one factor causes the other. Think about this:

  • The % of men living with their parents may be another way of describing the % of men who are unemployed (or underemployed). That would certainly be a factor in a country’s financial health.
  • Adult kids living with their folks might be due to a really expensive housing market, which is another factor in a country’s financial situation.
  • The countries with the highest % of men living with their parents all have cultural traditions that encourage kids to stay with their parents until they marry, or sometimes even after.
  • Ireland doesn’t have this culture of stay-at-home-til-you’re-40, but their bonds are still considered risky investments. If you just focus on the red line, you might miss this important point.

In conclusion:

  1. Correlation is not causation
  2. Think before you reblog
  3. If you can’t do either of those things, at least read the comments

Will The EU Save One Of Its Own?

Wednesday, February 10th, 2010

The European Union hasn’t been faced with the possibility of default by one of its member countries before. The world is watching as the relatively new eurozone figures out how to deal with the bad times as well as the good.

  • Greece (a member of the European Union) may not be able to meet all of its debt obligations, so the European Central Bank is meeting to consider what to do to protect the stability and credibility of the euro.
  • While there is no official bailout plan in place, certain countries within the eurozone (the group of EU countries that have adopted the euro as their currency) are piecing together aid plans that would transfer some of Greece’s debt burden to taxpayers in their own nations.
  • The EU’s rules require eurozone countries to keep their debt below a certain level, which Greece has repeatedly failed to meet. But the rules also state that the European Central Bank and central national banks cannot bail out countries, so Greek recovery may be left up to the will of individual eurozone countries.

Facts & Figures

  • The EU’s limit on debt ratios for eurozone nations is 3% of GDP.
  • Greece is expected to show a 13% budget deficit this year.
  • Greece owes a total of $303 billion to foreign banks.

Best Quote

“As long as it is very clear that any support only comes with very, very stringent conditions attached, it would not affect the moral-hazard question. It is a choice between two evils.” – Fabian Zuleeg, Chief Economist at the European Policy Centre

Belgium but not Britain? Doesn’t Euro mean Europe?

Tuesday, October 27th, 2009

If you traveled through Europe before 2002, you probably had a lot of fun juggling the different currencies and their crazy exchange rates. You could spend 20 francs on a coffee in Paris and then in Italy it would cost 5000 lira – a bit confusing. But today, you’ll pay for that coffee in Italy and in France with the same bill: the euro.

Even though it’s called the euro after (you guessed it) Europe, its name is a little misleading. There are 45 countries in Europe but only 27 of them have joined the European Union. Out of those 27, only 16 use the euro as their official currency. That’s means only about 1/3 of Europe actually uses the euro! Why so few though?

There are several reasons why:

  1. You have to be a member of the European Union to adopt the euro as your currency. There are 18 countries who don’t belong, including Switzerland (which geographically is the center of Europe).
  2. You must follow strict financial guidelines to be allowed to have the euro; some countries (like Poland) have yet to meet them.
  3. Lastly, you have to want it. Some countries like Britain, Denmark, and Sweden don’t want the euro as their official currency. (If Mexico wanted us to jointly adopt the same currency, we probably would say no as well because of the effect Mexico’s weaker economy would have on our own.)

As Europe continues to loosen the national borders that divide it, the Euro will continue to be adopted by more and more countries. Probably soon, you won’t remember what it was like to carry 20 different currencies in your pocket while visiting only one continent.

Where do they use the Euro?

Sunday, July 5th, 2009

While the answer may seem obvious – they use the euro in Europe – it’s actually not. They do use it in Europe, but not in all of Europe, and not even in the whole of the European Union. As of 2009, 16 of the 27 EU member countries have adopted the euro as their national currency. It began in 1999 with Belgium, Germany, Ireland, Spain, France, Italy, Luxembourg, the Netherlands, Austria, Portugal, and Finland switching their currencies over. Greece followed suit in 2001, Slovenia in 2007, Cyprus and Malta in 2008, and Slovakia in 2009. Combined, these areas are called the “eurozone.” A country must meet strict criteria in order to qualify for the euro standard. That’s why countries gradually join the eurozone instead of all at once.

329 million people living in these 16 countries use the euro daily. Additionally, some neighbor countries and former colonies use the euro as an unofficial currency as well. For these reasons, the euro has become the second most important international currency just behind the dollar.