- This topic has 16 replies, 8 voices, and was last updated 13 years, 11 months ago by
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It’s official, all Eurozone economies have to pump Billions of Euros into Greece’s economy immediately. What effect might this have on Spain and Portugal for example? Could the PIGS start to melt, will they become crackling? Could the Euro now take a big punt down?
Fortunately, the UK doesn’t have to cough up for once, it’s got it’s own problems!
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I feel this is the start of real problems for the Euro, surely it will soften (more) on the Forex markets now. I guess the Euro will have a few years of problems before we see where it’s all going. But, I can now see that some of the PIIGS will have to leave EMU, so that they can devalue, and try to survive.
Even with this bail out, I still think Greece will default, this is just giving them time. I guess they are hoping that things will pick up quickly, and that further bail outs wont be needed. I cannot see this, they will fold at some stage IMHO. Spain & Portugal next?
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One of the principal problems for Greece is the inability to make it’s economy more competitive. It cannot run it’s own economy. It cannot devalue its own currency. Membership of the EU and EMU has placed the country in a strait jacket with a burden of rules and laws designed for much larger economies such as Germany and France. Spain and Portugal are in a similar position but with less debt.
Greece lied and falsified it’s figures to gain entry into EMU. The country was a boarder line basket case when it joined and membership of ‘the club’ has just made a bad situation worse. The country has been living beyond it’s means for years. They are now borrowing money at ruinous interest rates and it cannot go on.
Financial markets have finally recognised that the reality of EMU is an economic disaster. The system was always doomed to fail because it was a collective political aspiration and not an idea based on sound economic principals.
The original concept of EMU countries having a budget deficit of no more than 3% has long since been abandoned. Sanctions were supposed to operate if that happened to prevent member states living on debt. The rules have never been applied. Economic mismanagement is tolerated for political expediency.
Once you water down the founding principals it’s only a matter of time before the whole edifice comes crashing down.
The Euro in it’s present form is doomed. What we are witnessing now is it’s very slow and painful demise. -
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The idea of a united Europe, considering recent history, is a sound one, and monetary union was inevitable. Surely the European Central Bank is a more reliable institution than our politically controlled Treasury, in world terms?
The ECB can devalue the currency should it be in their interest, but why should they for an isolated and small country like Greece? The ECB also have the power to throw out member states that don’t comply with financial regulations, and if the current propping up exercise doesn’t work, then that could well be the next step.
The markets are aware of the Euro’s problems, and could also make the necessary adjustment to the currency, they’ve already done it with the pound, much to my regret.
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@Rocker wrote:
The ECB can devalue the currency should it be in their interest, but why should they for an isolated and small country like Greece? The ECB also have the power to throw out member states that don’t comply with financial regulations, and if the current propping up exercise doesn’t work, then that could well be the next step.
It is in Europe’s interests to devalue the Euro but it will not happen significantly because Germany would not allow it. A sound currency has been the key stone to German post war prosperity. For historical reasons the German people are obsessed with their currency being powerful. They are a nation of savers not borrowers and have an almost imperialist view of their economy. The ECB is simply a recycled Bundesbank and operates on that basis.
Greece will not be thrown out of EMU.That is the political nuclear option. It would destroy the creeping movement towards a federal Europe. They could decide to leave but that would signal a greater disaster and it would give Greek bonds junk status and a ignite a massive flight of capital. The only reason investors still buy Greek bonds is the high yield and the fact they are underwritten by the EU. Failure is not an option despite what Politicians say in public.
I expect the IMF to force Greece to live within their means. They face years of austerity and hardship and have no choice but to comply. -
@ Logan
Whilst I agree in principle to what you are saying. Do you think that the German public will tolerate on-going bail outs? The press coverage seems to suggest that they will not.
If Greece (or one of the other PIIGS) defaults, what then? Surely this will force Greece out of EMU. And, IMHO kicking the failed economies out would be the right thing to do, as countries like Greece deliberately ignored the rules of EMU membership. They made this mess for themselves, and frankly why should the stronger economies help them. They deserve all they get.
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I think next year will be the time for big decisions, the money Greece is asking for at the moment (40-45 billon euro) is in most eyes only enough to last until the start of next year, then they will need much more, for me that’s the time the Germans will be thinking very hard about more money, that will signal the time to check the country of origin on your notes!
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I know it’s pointless to speculate, and I still remember Gordon Brown repeatedly using his five silly tests that would have to be met before the UK would join the Euro, effectively ruling out us ever being able to, but what if we had? Our manufacturing industry has all but died and the service industry, especially banking, has practically bankrupted us.
Would we still be making things if we had been part of a stable currency system for the past ten years? The only chance we had was ten years ago, it will be too late whatever happens on May 6.
I watch the movement of the pound, I have to because I live in Spain with an English income, and I’ve got no idea where the pound is going. Perhaps if the Greek experiment fails, the pound will rise again? And who will be next, after Greece?
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Of course France and Germany will only continue to support Greece if these measures taken now actually work.They are only short term to prevent Greece defaulting on it’s obligations. The German public are unlikely to put up with their government constantly filling Greek coffers. Some economists estimate a figure of €250bn will be required in the next 2 years. That’s beyond any amount these countries would lend. The IMF have to get measures in place now to stop the rot. The Greeks are going to have to get used to whatever medicine is prescribed. Greece will not leave EMU and will not be kicked out because its just politically unacceptable in the EU for one member to fail.
To understand the mindset of the European Project as they like to call it you need to go back to basics. The principal vision of post war politicians in Europe is a federal Europe. A European super state if you like. A third block to compete alongside Asia/China and the USA. That’s the big idea.
Unfortunately for them a federal system has to have as it’s foundation a unified economic and social system as well as a political one. I believe that’s an impossible aim. Countries as diverse as those in Europe will never reach economic unification because they develop and evolve at differing speeds. As an example;
German has a trading surplus but selfishly refuses to help other EU states by weakening it’s grip on manufacturing export markets to allow others in.
The Euro was jogging along nicely in the good times. However the real test of its viability is in the bad. When the worlds economies hit the buffers so did EMU and the big idea and it’s weakness is plain for all to see.
So the stakes are high. If Greece fails, Spain and Portugal may follows. The ‘Big Idea’ for Europe will be doomed to failure and I for one will rejoice. -
@logan wrote:
Of course France and Germany will only continue to support Greece if these measures taken now actually work.They are only short term to prevent Greece defaulting on it’s obligations. The German public are unlikely to put up with their government constantly filling Greek coffers. Some economists estimate a figure of €250bn will be required in the next 2 years. That’s beyond any amount these countries would lend. The IMF have to get measures in place now to stop the rot. The Greeks are going to have to get used to whatever medicine is prescribed. Greece will not leave EMU and will not be kicked out because its just politically unacceptable in the EU for one member to fail.
To understand the mindset of the European Project as they like to call it you need to go back to basics. The principal vision of post war politicians in Europe is a federal Europe. A European super state if you like. A third block to compete alongside Asia/China and the USA. That’s the big idea.
Unfortunately for them a federal system has to have as it’s foundation a unified economic and social system as well as a political one. I believe that’s an impossible aim. Countries as diverse as those in Europe will never reach economic unification because they develop and evolve at differing speeds. As an example;
German has a trading surplus but selfishly refuses to help other EU states by weakening it’s grip on manufacturing export markets to allow others in.
The Euro was jogging along nicely in the good times. However the real test of its viability is in the bad. When the worlds economies hit the buffers so did EMU and the big idea and it’s weakness is plain for all to see.
So the stakes are high. If Greece fails, Spain and Portugal may follows. The ‘Big Idea’ for Europe will be doomed to failure and I for one will rejoice.If the boys from Eton get in for the next five years, you can start rejoicing. They want to be part of a benign trading club, preferably run by them, with no other European commitment. It’s bound to impress the rest of the world, especially the US and China, and maybe they hope that the now wealthy India will come to their rescue when things go wrong. (We did teach them a thing or two, old chap).
Even with the severest austerity measures for the next few years, we will still have to go to the IMF with our begging bowl, we’re not big enough to survive on our own, which is a pity.
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@Rocker wrote:
If the boys from Eton get in for the next five years, you can start rejoicing.
I’m not concerned or very interested what the British do. I’m based in France and am concerned with the current European movement towards a super state without democratic accountability. I want France to remain French and not a homogenised state within a state subject to a federal system of law making, distant centralised, unaccountable government and an economy run from Frankfurt.
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Apparently there are those within Greece already suggesting they pull out of the Euro according to a Sky and BBC news tickertape this morning.
Germany and France are able to contribute to the 1st installment of 40-45 billion euros but I doubt the likes of Spain and Portugal can really afford it but they will have to pay up too, along with Ireland etc.
This could just be the beginning! I can smell bacon already! 🙂
Maybe I’m wrong but would Brits really want to buy property in Spain and the Eurozone now especially with the hint of a devaluation of the euro and therefore their new home? If this happens it would be far better to wait for this to blow over and pick up some really good bargains. I wouldn’t risk changing sterling over to euros at current rates in order to buy into a falling market.
Taylor Wimpey property for example might get even cheaper, maybe 2 for the price of 1.
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@angie wrote:
Taylor Wimpey property for example might get even cheaper, maybe 2 for the price of 1.
They would still be overpriced taking into account oncosts 😆
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Now Greece’s debt has been downgraded to Junk status, Portugal’s debt also downgraded to similar status, but more importantly, Spain’s Debt has also been downgraded to not quite junk yet! Maybe that will follow.
The economists are talking seriously of the Domino effect throughout Europe with impact worldwide!
Possibly time to get your money out of Spain!
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Maybe I’m wrong but would Brits really want to buy property in Spain and the Eurozone now especially with the hint of a devaluation of the euro and therefore their new home?
Many existing owners are complaining about the high price Euro, so they would be winners, there are always winners and losers in any change. The currency the debt is repaid in will also have a major impact, but generally converting from the German backed Euro to Spanish paper will damage its appeal to investors immensely. Cheap borrowing costs for the Euro is the major reason for the rise in property prices in the southern countries; imagine how many would take a peseta based mortgage at a rate of 18%?
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