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Thread: Portugal could face downgrade, Moody's warns

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    Lord Tammerlain's Avatar
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    Re: Portugal could face downgrade, Moody's warns

    Quote Originally Posted by Ahlevah View Post
    It is in the sense that these countries will find it more difficult to avoid a deflationary death spiral. You have countries with a common currency but which do not have their economies completely integrated, so the European Central Bank can not respond to economic crises the same way, say, the U.S. Federal Reserve can. It's difficult to inflate when you have countries like Germany that don't want or need it, that is when one country's economy is expanding or at least holding its own while another is in free fall.
    For Greece to experience a deflationary death spiral the EU would have to as well. Being a common market if the costs of labour, land etc went into a deep deflationary period, the companies that do business in the EU would locate business's in Greece to take advantage of the lower costs of doing business. Investor's or people looking for second homes would buy up greek property.

    Realitically the last thing Greece needs is to reflate, it needs to restructure. It needs to collect taxes in a different more efficient manner, It needs to lower the level of public sector employement(specifically the costs of it)
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    Re: Portugal could face downgrade, Moody's warns

    Quote Originally Posted by Lord Tammerlain View Post
    Being a common market if the costs of labour, land etc went into a deep deflationary period, the companies that do business in the EU would locate business's in Greece to take advantage of the lower costs of doing business. Investor's or people looking for second homes would buy up greek property.
    Any business that would have its revenues largely concentrated in the local economy would not see things this way. A business that is a purveyor of services or doesn't plan on exporting its wares would have to weigh the pros and cons of locating in a society in which real incomes and overall economic activity are declining. And any manufacturing exporter that locates in an inefficient nation like Greece would be butting heads with productive Germans or cheaper Eastern Europeans. Besides, companies considers a whole gaggle of factors when making a choice as to where to locate, such as regulatory and legal issues and taxes.
    Last edited by Ahlevah; 05-06-10 at 11:55 AM.
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