For a long time I have been studding economic global trends. I have been living in Portugal for the last 13 years and have observed the EU financial crisis first hand. Economists and politicians try to explain the problem but it is very hard to understand the technical language they use. Here is my simplified explanation:
Joe Average’s Financial Situation
Joe is doing great, making lots of money, working overtime and supporting his wife, three children and aging parents. He provides for his family’s daily needs and even gives a generous allowance to his dependents but doesn’t have much savings. One day the family car gives out and he needs to buy a new one. He doesn’t have enough savings but has good credit. Joe knows nothing about cars but has an employee who knows about buying cars so he asks him to find a new one for him. Joe is also a new member of a buying club. Joe’s employee knows a car salesman in the buyers club and immediately buys a car from him.
Joe’s Impending Crisis
Since his employee didn’t shop carefully, it costs twice as much as it should, is not big enough for his family, gets bad gas mileage, is unsafe, and is full of defects. The employee pleads ignorance “I didn’t know it had problems”, but enjoys a great steak dinner and free HD TV that he received for the referral. A short time after this Joe’s overtime is cut and he is having difficulties paying his bills. His savings run out so he has to borrow more money. Now his credit rating is crashing because of the high debt and reduced income. He is having trouble getting more credit.
Joe’s Bail Out
He then goes to a credit consolidation agency and they say he can receive a loan from them to avoid bankruptcy but to qualify he must fulfill certain conditions. He must cut his spending on food, medical insurance, and the allowances for his family. They suffer greatly but get the loan and can pay his monthly debts but will have to pay for the next 30 years.
Fill in the Blanks to Explain the EU Crisis
- Joe represents the average taxpayer.
- Joe’s savings represent a countries budget surplus.
- His family represent the children, retired, and unemployed.
- The daily needs and allowances for his family represent consumer spending, social security, education, and medical spending.
- The car represents any public works project.
- His friend represents an elected government official.
- The buying club represents the EU.
- Joe’s employee’s car dealer friend represents a contractor for public works.
- The car problems represent the bid that is over budget, not completed to specifications and won unfairly by nepotism, bid rigging and bribes (steak dinner and HD TV)
- Joe’s work problems represent a economic slowdown and raising unemployment.
- The credit consolidation agency represents the Troika ( European Commission, European Central Bank, and International Monetary Fund).
- Joe’s budget cuts represents austerity.
Joe’s family suffers for the next 30 years. His children can’t afford college. One of his parents die from the flue because they can’t afford flue shots, (this has happened in Portugal), he has less to spend so local business close, and has no savings for the next crisis. The banks receive their money with profits and continue to lend for bad deals….