There’s an interesting op-ed in today’s New York Times, “Subprime Europe” by Liaquat Ahamed. Somewhat shocking data: “loans by Austrian banks to Eastern European countries are almost equivalent to 70 percent of Austria’s G.D.P.”
2 thoughts on “Europeans as dumb as we are?”
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This was readily apparent for several years, as Russians and Ukrainians spent 150% of annual income on foreign vacations and rapidly depreciating electronics with unsecured loans at 30% interest from local banks, often part- or majority-owned by Germans and Austrians.
It was completely unsustainable and everyone knew it, but they didn’t expect the commodities boom to collapse overnight. This is one part of finance where the bankers actually deserve all the blame.
Or more exactly the Europeans share the same underlying problem – too much “capital” chasing after too few opportunities. Pretty much everything else follows – management acting without concern for investors, bubbles with over-inflated values in one area after another, low interest rates central banks can barely effect, money flying into dubious schemes, and massive economic swings when spooked capital flows out of the market without a matching in-flow.
What does a century of rapidly rising productivity do? Growing “third world” countries might serve as a sink for excess capital for a time, but what happens when those countries start generating massive surpluses of their own? Do we have any slightest notion how to run an economy when there is too much capital?
In an odd sense, our trouble is too much success.