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Publicado: 20 de febrero de 2012
THE
TRAGEDY OF THE EURO
THE
TRAGEDY OF THE EURO
By
Philipp Bagus
Ludwig von Mie Intitute
AUBURN, ALABAMA
Copyright © by the Ludwig von Mises Institute Published under the Creative Commons Aribution License .. http://creativecommons.org/licenses/by/3.0/ Ludwig von Mises Institute West Magnolia Avenue Auburn, Alabama Ph: () - Fax: ()- mises.org ISBN: ----
To Eva
Foreword
by Jesús Huerta de Soto
It is a great pleasure for me to present this book by my colleague Philipp Bagus, one of my most brilliant and promising students. e book is extremely timely and shows how the interventionist setup of the European Monetary system has led to disaster. e current sovereign debt crisis is the directresult of credit expansion by the European banking system. In the early s, credit was expanded especially in the periphery of the European Monetary Union such as in Ireland, Greece, Portugal, and Spain. Interest rates were reduced substantially by credit expansion coupled with a fall both in inflationary expectations and risk premiums. e sharp fall in inflationary expectations was caused bythe prestige of the newly created European Central Bank as a copy of the Bundesbank. Risk premiums were reduced artificially due to the expected support by stronger nations. e result was an artificial boom. Asset price bubbles such as a housing bubble in Spain developed. e newly created money was primarily injected in the countries of the periphery where it financed overconsumption andmalinvestments, mainly in an overextended automobile and construction sector. At the same time, the credit expansion also helped to finance and expand unsustainable welfare states. In , the microeconomic effects that reverse any artificial boom financed by credit expansion and not by genuine real savings started to show up. Prices of means of production such as commodities and wages rose. Interest rates alsoclimbed due to inflationary pressure that made central banks reduce their expansionary stands. vii
viii
e Tragedy of the Euro
Finally, consumer goods prices started to rise relative to the prices offered to the originary factors of productions. It became more and more obvious that many investments were not sustainable due to a lack of real savings. Many of these investments occurred in theconstruction sector. e financial sector came under pressure as mortgages had been securitized, ending up directly or indirectly on balance sheets of financial institutions. e pressures culminated in the collapse of the investment bank Lehman Brothers, which led to a full-fledged panic in financial markets. Instead of leing market forces run their course, governments unfortunately intervened withthe necessary adjustment process. It is this unfortunate intervention that not only prevented a faster and more thorough recovery, but also produced, as a side effect, the sovereign debt crisis of spring . Governments tried to prop up the overextended sectors, increasing their spending. ey paid subsidies for new car purchases to support the automobile industry and started public works to supportthe construction sector as well as the sector that had lent to these industries, the banking sector. Moreover, governments supported the financial sector directly by giving guarantees on their liabilities, nationalizing banks, buying their assets or partial stakes in them. At the same time, unemployment soared due to regulated labor markets. Governments’ revenues out of income taxes and socialsecurity plummeted. Expenditures for unemployment subsidies increased. Corporate taxes that had been inflated artificially in sectors like banking, construction, and car manufacturing during the boom were almost completely wiped out. With falling revenues and increasing expenditures governments’ deficits and debts soared, as a direct consequence of governments’ responses to the crisis caused...
TRAGEDY OF THE EURO
THE
TRAGEDY OF THE EURO
By
Philipp Bagus
Ludwig von Mie Intitute
AUBURN, ALABAMA
Copyright © by the Ludwig von Mises Institute Published under the Creative Commons Aribution License .. http://creativecommons.org/licenses/by/3.0/ Ludwig von Mises Institute West Magnolia Avenue Auburn, Alabama Ph: () - Fax: ()- mises.org ISBN: ----
To Eva
Foreword
by Jesús Huerta de Soto
It is a great pleasure for me to present this book by my colleague Philipp Bagus, one of my most brilliant and promising students. e book is extremely timely and shows how the interventionist setup of the European Monetary system has led to disaster. e current sovereign debt crisis is the directresult of credit expansion by the European banking system. In the early s, credit was expanded especially in the periphery of the European Monetary Union such as in Ireland, Greece, Portugal, and Spain. Interest rates were reduced substantially by credit expansion coupled with a fall both in inflationary expectations and risk premiums. e sharp fall in inflationary expectations was caused bythe prestige of the newly created European Central Bank as a copy of the Bundesbank. Risk premiums were reduced artificially due to the expected support by stronger nations. e result was an artificial boom. Asset price bubbles such as a housing bubble in Spain developed. e newly created money was primarily injected in the countries of the periphery where it financed overconsumption andmalinvestments, mainly in an overextended automobile and construction sector. At the same time, the credit expansion also helped to finance and expand unsustainable welfare states. In , the microeconomic effects that reverse any artificial boom financed by credit expansion and not by genuine real savings started to show up. Prices of means of production such as commodities and wages rose. Interest rates alsoclimbed due to inflationary pressure that made central banks reduce their expansionary stands. vii
viii
e Tragedy of the Euro
Finally, consumer goods prices started to rise relative to the prices offered to the originary factors of productions. It became more and more obvious that many investments were not sustainable due to a lack of real savings. Many of these investments occurred in theconstruction sector. e financial sector came under pressure as mortgages had been securitized, ending up directly or indirectly on balance sheets of financial institutions. e pressures culminated in the collapse of the investment bank Lehman Brothers, which led to a full-fledged panic in financial markets. Instead of leing market forces run their course, governments unfortunately intervened withthe necessary adjustment process. It is this unfortunate intervention that not only prevented a faster and more thorough recovery, but also produced, as a side effect, the sovereign debt crisis of spring . Governments tried to prop up the overextended sectors, increasing their spending. ey paid subsidies for new car purchases to support the automobile industry and started public works to supportthe construction sector as well as the sector that had lent to these industries, the banking sector. Moreover, governments supported the financial sector directly by giving guarantees on their liabilities, nationalizing banks, buying their assets or partial stakes in them. At the same time, unemployment soared due to regulated labor markets. Governments’ revenues out of income taxes and socialsecurity plummeted. Expenditures for unemployment subsidies increased. Corporate taxes that had been inflated artificially in sectors like banking, construction, and car manufacturing during the boom were almost completely wiped out. With falling revenues and increasing expenditures governments’ deficits and debts soared, as a direct consequence of governments’ responses to the crisis caused...
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