Europe

Economic union

Many countries in Europe are part of a union which allows easy travel and relatively free trade with low taxation. Many are also use a common currency, Euro, issued by a central bank.

A big part of the motivation for doing this was to quell fears that the strong German economy might again give rise to an expansionist war-machine.

Euro

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Strength of economies

Economic viability of sovereigns is discussed elsewhere.

Germany

Germany is the economic and industrial powerhouse of Europe. Its products and demands are consumed in many countries.

Switzerland

The Swiss have their own currency. Their economy is strong, but is heavily dependent on foreign demand for their products. Euro has been getting weaker relative to the Swiss Franc due to financial problems described elsewhere. So, in order to keep demand for its products high, the Swiss have had to artificially weaken their currency by promising a fixed, lower exchange rate.

Sovereigns’ economic viability

Financially strong sovereigns

German government is relatively efficient in collecting taxes and providing services.

German income

German citizens have a keen memory of the inter-bellum period when run-away inflation occurred. So, they are strongly resistant to irresponsible government spending which could lead to similar devaluation. Also, they are willing to pay relatively high taxes, and have of late even agreed to lower job security.

France

French banks have high exposure to Greek sovereign debt. So, they may need to be resuced by the French sovereign.

Financially weak sovereigns

As of 2011: Some countries, given relatively easy access to debt, mismanaged government economy.

Greece, Portugal

Greece lied to others about the state of their economy in order to join the Euro and pretend compliance with the associated demands. Greek politicians used money acquired from debt to pay unrealistically high wages to state employees. Its tax-collectors are deliberately inefficient.

The case of Portugal is similar.

Ireland

The Irish, poor for a millennium, became rich as population growth declined due to increased popularity of contraception in the traditionally Catholic nation. They then used easily granted debt to buy land and build (now wasted) buildings in a real-estate boom. The Irish banks then had to be rescued by the sovereign, which reduced the financial health of the Irish government.

Iceland

Icelanders, given easy access to debt, sought to use the money in buying goods and services abroad which they could not afford with the goods and services they exported. The anticipated domestic growth to pay this debt was unrealistic.

Some lenders were ordinary people: For example, banks promised high interest on foreign currency deposits. Icelandic government had to then make up for atleast the domestic commitments of its banks.