Planet Money Explains the Eurozone Crisis

Wednesday, June 13, 2012

The chart, showing European yields, that Planet Money and Brian Lehrer use to try and explain the European debt crisis. (Thomson Reuters Datastream)

Live from WNYC's Jerome L. Greene Performance Space. Watch live video here.

Founders of Planet Money, Adam Davidson and Alex Blumberg, help break down how we got to this moment of European disunion, and what the future may hold for the Euro.



Alex Blumberg and Adam Davidson

Comments [15]

Edward from Washington Heights AKA pretentious Hudson Heights

The collapse of Europe demonstrates the unsustainable of socialism.

Jun. 13 2012 11:15 AM
John A.

And how many of Chris Garvey's checks have been paid back?

Jun. 13 2012 10:54 AM
Pauline Park from Queens

Adam & Alex have offered some good analysis here, but what's missing is an analysis of the origins of the euro & the 'deal' that the EU member states made to create it. I actually did my dissertation on the Maastricht Treaty that created the European Union, and the most important thing to remember is that Germany didn't want the euro; Germans reluctantly gave up the Deutschemark in order to advance political union; that was the deal -- create Economic & Monetary Union (EMU) in exchange for accelerating political union. The rest of the EU countries got the 'price stability' (low inflation) of a reliably solid currency -- the euro is basically a Europeanized Deutschemark. The reason why this didn't work was because the other member states didn't live up to their end of the bargain, most importantly, in keeping their deficits under the agreed limits. Crucially, there was a critically disjuncture between fiscal & monetary policy, with a single currency meaning that the European Central Bank (ECB) was basically an extension of the Bundesbank, but with all of the eurozone member states pursuing separate & widely divergent fiscal policies, which would inevitably bring about disaster. The southern tier countries had another reason for joining the eurozone, which was the prestige of being 'in Europe.' This was particularly important for countries such as Greece, Spain & Portugal that had spent decades under the rule of right-wing fascist military dictatorships. So it would be really wrong to blame Germany for this mess. If Germany made any mistake, it was agreeing to the creation of the euro without insisting on a single, unified fiscal policy for all the eurozone member states, without which the euro could not be sustainable in the long term.

Jun. 13 2012 10:48 AM

Brian asked, what role does the US have. The response was beside dismissive, was no role in essence. But wasn't it the US that generated this world wide economic disaster through the banks desire to tap one of the last bastions of economic stability, the housing market. The commentators sounded like teenagers in their use of descriptions and very unknowledeable

Jun. 13 2012 10:47 AM
jaysee from N NJ

So disappointing to SEE Brian _reading_ just about everything he says! I like radio better ...

Jun. 13 2012 10:45 AM
Chris Garvey

The Federal Reserve has already written these checks.
Federal Reserve gave $16.1 Trillion since 2007 to:
Citigroup: $2.5 trillion ($2,500,000,000,000)

Morgan Stanley: $2.04 trillion ($2,040,000,000,000)

Merrill Lynch: $1.949 trillion ($1,949,000,000,000)

Bank of America: $1.344 trillion ($1,344,000,000,000)

Barclays PLC (United Kingdom): $868 billion* ($868,000,000,000)

Bear Sterns: $853 billion ($853,000,000,000)

Goldman Sachs: $814 billion ($814,000,000,000)

Royal Bank of Scotland (UK): $541 billion ($541,000,000,000)

JP Morgan Chase: $391 billion ($391,000,000,000)

Deutsche Bank (Germany): $354 billion ($354,000,000,000)

UBS (Switzerland): $287 billion ($287,000,000,000)

Credit Suisse (Switzerland): $262 billion ($262,000,000,000)

Lehman Brothers: $183 billion ($183,000,000,000)

Bank of Scotland (United Kingdom): $181 billion ($181,000,000,000)

BNP Paribas (France): $175 billion ($175,000,000,000)

Federal Reserve's nearly 100 year history was posted on Senator Sander's webpage.

Jun. 13 2012 10:38 AM

Assuming for the moment that EU muddles through this crisis, would a requirement for members to participate in a system of "bail-out insurance" (involving dues or premiums based on credit rating or some such) make sense in the future?

Jun. 13 2012 10:36 AM
Josh Karan from Washington Heights, northern Manhattan

The problem of indebtedness is being described as the cause of the economic crisis.
The reality is the reverse.

Indebtedness by individuals occurred because for the past generation capitalist society's, including the corporations, banks, and governments, engaged in policies to increase inequality -- by undermining unions, outsourcing industrial job, reducing taxes on the wealthy.

This decreased aggregate demand, weakening purchasing, which could only be compensated by people going into debt -- credit card debt, home equity debt, education debt.

With increasingly shrinking demand, corporations turned to financial speculation as the arena to invest their growing profits that resulted from lower wages, because they would not earn as much from what had previously been productive investment than they would from flipping real estate or setting up enterprises in authoritarian, low wage developing countries.

These corporate interests took over both the Democratic and Republican parties in the US, and conservative and "socialist" parties in Europe. All of them attacked government taxation and spending, which ever since Keynes and the Great Depression, has been the only means of counteracting private sector slowdowns. With no alternatives, banker led governments in England, France, Spain, and Italy engaged in massive borrowing to kick the can down the road. They are reaching the end of that road.

Only a massive international policy of taxing the wealthy and productive government investment, not war spending, can begin to change the economic conditions, in Europe and in the US. This would require a different ideological framework, which recognizes that unregulated capitalism will always be subject to crisis, and that these crises get progressively greater when left to "free market solutions".

Jun. 13 2012 10:36 AM
Chris from End the Fed

I don't believe the bankers don't understand the concept of bubbles. Indeed, the Banks created both the bubble and the crash. Their tools are the Federal Reserve and other central banks.
Congressman Charles Lindberg said in a Congressional Record dated, December 22, 1913, vol. 51, "This new law [the Federal Reserve Act] will create inflation whenever the trusts want inflation. It may not do so immediately, but ... if the trusts can get another period of inflation, they figure they can unload the stocks on the people at high prices during the excitement and them bring on a panic and buy them back at low prices... The people may not know it immediately, but the day of reckoning is only a few years removed."

Jun. 13 2012 10:34 AM
John from NYC

What is this??????

Why the refusal to talk about the issue????

The problem is not about Germany lending to Greece, etc. The problem is that the Greeks don't produce anything, they don't pay their taxes, they have two home, and they retire at 50.

Talking about this is called INSISTING ON AUSTERITY.


Jun. 13 2012 10:31 AM
Jack Jackson from Central New Jersey

The 2000 Tech Bubble was a case of faddism in the marketplace. The Y2K 'hoax' and the degree of non-productive spending that went to curing this over-hyped 'problem' popped that bubble.

The 2008 meltdown was caused by 8 years of government stimulus spending. The money had to go somewhere or the Bush Administration would have no economic wins at all! It popped when homeowners that needed two or three cars in order to maintain their lifestyles were put between the rock and a hard place by six months of $4/g gasoline which turned the smoldering sub-prime issue into a full on crisis. If he had it to do again, even Dubya would release some strategic oil to snap that price run up at 60-90 days.

Jun. 13 2012 10:26 AM
bernie from bklyn

can the guest talk about who gained from this crisis? and is it that obvious? we know the banks and nation-states lost lots of $ but weren't there many financial "players" that made out big during this crisis and isn't it that easy to just look at this all as a worldwide crime network? nothing is happening is this country regarding prosecuting the criminals that ruined our economy but how about europe? is there a possibility of any justice?

Jun. 13 2012 10:21 AM
oscar from ny

Easy the euro was invented to create more debt for the mass

Jun. 13 2012 10:18 AM
Martin Chuzzlewit from Manhattan

Great background reading prep (short) in current issue of DER SPIEGEL by Niall Ferguson and Nouriel Roubini. Link below-

Jun. 13 2012 09:07 AM
George from Brooklyn

What role can the ECB play in solving the crisis?

Does the US have a role in ending the crisis?

Jun. 13 2012 06:17 AM

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