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Ireland cut spending and made efforts.
Now Greece and (later) Spain and Portugal come and ask to be rescued by Germans (who do that in order to prevent total failure of the Euro).
Why did EU force Ireland to make the cuts?
Also, EU has to be very careful with money handed to Greece and possible others in PIGS. Especially in the Balkans money dissapear without trace…
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From what I understand eurozone are not asking Ireland to make any more sacrafices than what has been asked of Greece.
The difference is that a significant amount of Greek debt reaches maturity shortly and if they cannot replace it the country faces meltdown This was not the situation faced by Ireland. It is for that reason that Greece is being helped.
Richard
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From what I understand eurozone are not asking Ireland to make any more sacrafices than what has been asked of Greece.
The difference is that a significant amount of Greek debt reaches maturity shortly and if they cannot replace it the country faces meltdown This was not the situation faced by Ireland. It is for that reason that Greece is being helped.
Richard
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@rt21 wrote:
From what I understand eurozone are not asking Ireland to make any more sacrafices than what has been asked of Greece.
The difference is that a significant amount of Greek debt reaches maturity shortly and if they cannot replace it the country faces meltdown This was not the situation faced by Ireland. It is for that reason that Greece is being helped.
Richard
Greece has not made any sacrifice yet. And I would say they never will.
Much of the Greece economy is underground which will never be taxed. Same as in Spain.Besides, the unions are very strong and they will mobilize people to fight against cuts…
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@rt21 wrote:
From what I understand eurozone are not asking Ireland to make any more sacrafices than what has been asked of Greece.
The difference is that a significant amount of Greek debt reaches maturity shortly and if they cannot replace it the country faces meltdown This was not the situation faced by Ireland. It is for that reason that Greece is being helped.
Richard
Greece has not made any sacrifice yet. And I would say they never will.
Much of the Greece economy is underground which will never be taxed. Same as in Spain.Besides, the unions are very strong and they will mobilize people to fight against cuts…
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I wouldn’t disagree with you are saying. Greece has a long way to go in cutting its expenditure and there is a big difference between saying you are going to do something and actually doing it. However, there is very little time to do anything before their existing loans mature and that is why the eurozone members are insisting on very tight conditions for supporting Greece.
If eurozone don’t step in then there is a serious risk of sovereign default which might lead to a dominoe affect. This would have seriously implications for banks across the eurozone as well as in the UK.
The problems will arise if the Greek government backs down in the face of popular unrest.
However, as I have said the Ireland situation is different from that of Greece because of the immediacy of the maturing debt. If Ireland had have faced a similar situation I would have no doubt that eurozone would have stepped in.
Richard
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I wouldn’t disagree with you are saying. Greece has a long way to go in cutting its expenditure and there is a big difference between saying you are going to do something and actually doing it. However, there is very little time to do anything before their existing loans mature and that is why the eurozone members are insisting on very tight conditions for supporting Greece.
If eurozone don’t step in then there is a serious risk of sovereign default which might lead to a dominoe affect. This would have seriously implications for banks across the eurozone as well as in the UK.
The problems will arise if the Greek government backs down in the face of popular unrest.
However, as I have said the Ireland situation is different from that of Greece because of the immediacy of the maturing debt. If Ireland had have faced a similar situation I would have no doubt that eurozone would have stepped in.
Richard
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@rt21 wrote:
I wouldn’t disagree with you are saying. Greece has a long way to go in cutting its expenditure and there is a big difference between saying you are going to do something and actually doing it. However, there is very little time to do anything before their existing loans mature and that is why the eurozone members are insisting on very tight conditions for supporting Greece.
If eurozone don’t step in then there is a serious risk of sovereign default which might lead to a dominoe affect. This would have seriously implications for banks across the eurozone as well as in the UK.
The problems will arise if the Greek government backs down in the face of popular unrest.
However, as I have said the Ireland situation is different from that of Greece because of the immediacy of the maturing debt. If Ireland had have faced a similar situation I would have no doubt that eurozone would have stepped in.
Richard
That makes practical sense on paper Richard, however, I suspect it’s not how most people will be thinking. Your ‘average joe’ will percieve the bail-out as an ability to wreck your economy and then rely on others to pay for it. No one believes the Greeks are suddenly going to become a bunch of super efficient Germans who will dilligently get their heads down at work and fastideously pay their taxes until their economy is exporting itself back to health again. The perception is that the Greeks are just not going to do that, ever, and some might say the same for the Spanish also.
The maastricht treaty said “NO BAIL OUTS”, and at the first sign of the need for one, we have one… Personally I suspect that the markets will be taking a very dim view of this until someone owns-up that maastricht needs redrafting and potentially the euro’s purpose needs redefining.
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@rt21 wrote:
I wouldn’t disagree with you are saying. Greece has a long way to go in cutting its expenditure and there is a big difference between saying you are going to do something and actually doing it. However, there is very little time to do anything before their existing loans mature and that is why the eurozone members are insisting on very tight conditions for supporting Greece.
If eurozone don’t step in then there is a serious risk of sovereign default which might lead to a dominoe affect. This would have seriously implications for banks across the eurozone as well as in the UK.
The problems will arise if the Greek government backs down in the face of popular unrest.
However, as I have said the Ireland situation is different from that of Greece because of the immediacy of the maturing debt. If Ireland had have faced a similar situation I would have no doubt that eurozone would have stepped in.
Richard
That makes practical sense on paper Richard, however, I suspect it’s not how most people will be thinking. Your ‘average joe’ will percieve the bail-out as an ability to wreck your economy and then rely on others to pay for it. No one believes the Greeks are suddenly going to become a bunch of super efficient Germans who will dilligently get their heads down at work and fastideously pay their taxes until their economy is exporting itself back to health again. The perception is that the Greeks are just not going to do that, ever, and some might say the same for the Spanish also.
The maastricht treaty said “NO BAIL OUTS”, and at the first sign of the need for one, we have one… Personally I suspect that the markets will be taking a very dim view of this until someone owns-up that maastricht needs redrafting and potentially the euro’s purpose needs redefining.
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I think your comments are very much in line with Flosmichael’s and I really couldn’t disagree with them. It is a real dilema for eurozone members and is what is called the moral hazard.
It was a question of which country blinked first and Germany and its partners did.
I believe that this is going to be a very bumpy ride for the eurozone and also for that matter the UK because we face similar economic problems to the club med countries. The only difference is that the UK probably has a better record of delivering cuts and paying its taxes than say Greece or Spain
It will be interesting to see whether Greece et al will be able to carry out their promises particularly in the face of a possible backlash from their electorate. Conversely the german taxpayer may also make clear to their government that they are not prepared to support its policies of propping up profligate member states
The continuing turmoil in the world economy makes it very difficult to predict what affect it will have on all of us
Richard
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I think your comments are very much in line with Flosmichael’s and I really couldn’t disagree with them. It is a real dilema for eurozone members and is what is called the moral hazard.
It was a question of which country blinked first and Germany and its partners did.
I believe that this is going to be a very bumpy ride for the eurozone and also for that matter the UK because we face similar economic problems to the club med countries. The only difference is that the UK probably has a better record of delivering cuts and paying its taxes than say Greece or Spain
It will be interesting to see whether Greece et al will be able to carry out their promises particularly in the face of a possible backlash from their electorate. Conversely the german taxpayer may also make clear to their government that they are not prepared to support its policies of propping up profligate member states
The continuing turmoil in the world economy makes it very difficult to predict what affect it will have on all of us
Richard
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@rt21 wrote:
I think your comments are very much in line with Flosmichael’s and I really couldn’t disagree with them. It is a real dilema for eurozone members and is what is called the moral hazard.
It was a question of which country blinked first and Germany and its partners did.
I believe that this is going to be a very bumpy ride for the eurozone and also for that matter the UK because we face similar economic problems to the club med countries. The only difference is that the UK probably has a better record of delivering cuts and paying its taxes than say Greece or Spain
It will be interesting to see whether Greece et al will be able to carry out their promises particularly in the face of a possible backlash from their electorate. Conversely the german taxpayer may also make clear to their government that they are not prepared to support its policies of propping up profligate member states
The continuing turmoil in the world economy makes it very difficult to predict what affect it will have on all of us
Richard
The eurozone members have reacted very slowly to this crisis, in fact I’m still wondering if they’ve got their heads around it or are just playing dumb in order to fudge their way through it.
But to me, it looks like a fairly huge gamble, as now the survival of the euro depends on how well the Greek government manage their people through internal devaluation, and further down the line the same when Spain and Portugal are needing to roll over their debt.
Interesting that Merkel is still saying that rules is rules… Are the german playing bad-cop/good-cop in this at the same time? Fascinating really…
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@rt21 wrote:
I think your comments are very much in line with Flosmichael’s and I really couldn’t disagree with them. It is a real dilema for eurozone members and is what is called the moral hazard.
It was a question of which country blinked first and Germany and its partners did.
I believe that this is going to be a very bumpy ride for the eurozone and also for that matter the UK because we face similar economic problems to the club med countries. The only difference is that the UK probably has a better record of delivering cuts and paying its taxes than say Greece or Spain
It will be interesting to see whether Greece et al will be able to carry out their promises particularly in the face of a possible backlash from their electorate. Conversely the german taxpayer may also make clear to their government that they are not prepared to support its policies of propping up profligate member states
The continuing turmoil in the world economy makes it very difficult to predict what affect it will have on all of us
Richard
The eurozone members have reacted very slowly to this crisis, in fact I’m still wondering if they’ve got their heads around it or are just playing dumb in order to fudge their way through it.
But to me, it looks like a fairly huge gamble, as now the survival of the euro depends on how well the Greek government manage their people through internal devaluation, and further down the line the same when Spain and Portugal are needing to roll over their debt.
Interesting that Merkel is still saying that rules is rules… Are the german playing bad-cop/good-cop in this at the same time? Fascinating really…
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@adiep wrote:
@rt21 wrote:
I think your comments are very much in line with Flosmichael’s and I really couldn’t disagree with them. It is a real dilema for eurozone members and is what is called the moral hazard.
It was a question of which country blinked first and Germany and its partners did.
I believe that this is going to be a very bumpy ride for the eurozone and also for that matter the UK because we face similar economic problems to the club med countries. The only difference is that the UK probably has a better record of delivering cuts and paying its taxes than say Greece or Spain
It will be interesting to see whether Greece et al will be able to carry out their promises particularly in the face of a possible backlash from their electorate. Conversely the german taxpayer may also make clear to their government that they are not prepared to support its policies of propping up profligate member states
The continuing turmoil in the world economy makes it very difficult to predict what affect it will have on all of us
Richard
The eurozone members have reacted very slowly to this crisis, in fact I’m still wondering if they’ve got their heads around it or are just playing dumb in order to fudge their way through it.
But to me, it looks like a fairly huge gamble, as now the survival of the euro depends on how well the Greek government manage their people through internal devaluation, and further down the line the same when Spain and Portugal are needing to roll over their debt.
Interesting that Merkel is still saying that rules is rules… Are the german playing bad-cop/good-cop in this at the same time? Fascinating really…
http://www.guardian.co.uk/theguardian/2010/feb/11/germany-greece-merkel-bailout-euro
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@adiep wrote:
@rt21 wrote:
I think your comments are very much in line with Flosmichael’s and I really couldn’t disagree with them. It is a real dilema for eurozone members and is what is called the moral hazard.
It was a question of which country blinked first and Germany and its partners did.
I believe that this is going to be a very bumpy ride for the eurozone and also for that matter the UK because we face similar economic problems to the club med countries. The only difference is that the UK probably has a better record of delivering cuts and paying its taxes than say Greece or Spain
It will be interesting to see whether Greece et al will be able to carry out their promises particularly in the face of a possible backlash from their electorate. Conversely the german taxpayer may also make clear to their government that they are not prepared to support its policies of propping up profligate member states
The continuing turmoil in the world economy makes it very difficult to predict what affect it will have on all of us
Richard
The eurozone members have reacted very slowly to this crisis, in fact I’m still wondering if they’ve got their heads around it or are just playing dumb in order to fudge their way through it.
But to me, it looks like a fairly huge gamble, as now the survival of the euro depends on how well the Greek government manage their people through internal devaluation, and further down the line the same when Spain and Portugal are needing to roll over their debt.
Interesting that Merkel is still saying that rules is rules… Are the german playing bad-cop/good-cop in this at the same time? Fascinating really…
http://www.guardian.co.uk/theguardian/2010/feb/11/germany-greece-merkel-bailout-euro
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Slightly off topic I know but I’ve recently been reading-up a bit on Germany’s opposition to some of the Greece bail-out suggestions and had also recently read this : –
http://www.greekembassy.org/Embassy/Content/en/Article.aspx?office=2&folder=289&article=4885
There is also, apparently, a huge, outstanding German loan debt to Greece of several millions, (maybe billions) but I can’t find the article online at the moment……
Why the German opposition then?
stevmk2 -
Slightly off topic I know but I’ve recently been reading-up a bit on Germany’s opposition to some of the Greece bail-out suggestions and had also recently read this : –
http://www.greekembassy.org/Embassy/Content/en/Article.aspx?office=2&folder=289&article=4885
There is also, apparently, a huge, outstanding German loan debt to Greece of several millions, (maybe billions) but I can’t find the article online at the moment……
Why the German opposition then?
stevmk2 -
Oh dear Steve
– now expect a very thorough reply from flosmichael on that one! 😆
I went down that route on page one of the ‘Coming out of the Euro’ thread, starting with my post: Fri Feb 05 at 12:10 pm.
http://www.spanishpropertyinsight.com/forums/viewtopic.php?t=4792&start=0
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Oh dear Steve
– now expect a very thorough reply from flosmichael on that one! 😆
I went down that route on page one of the ‘Coming out of the Euro’ thread, starting with my post: Fri Feb 05 at 12:10 pm.
http://www.spanishpropertyinsight.com/forums/viewtopic.php?t=4792&start=0
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@stevmk2 wrote:
Slightly off topic I know but I’ve recently been reading-up a bit on Germany’s opposition to some of the Greece bail-out suggestions and had also recently read this : –
http://www.greekembassy.org/Embassy/Content/en/Article.aspx?office=2&folder=289&article=4885
There is also, apparently, a huge, outstanding German loan debt to Greece of several millions, (maybe billions) but I can’t find the article online at the moment……
Why the German opposition then?
stevmk2Greece GDP: Gdp of Greece: $327.6 billion (2007 est.) – The World Factbook
Greece deficit : 13% of GDP i.e. $42 billion
MOney oqed by Germany: .45 billion drachmas (about 35 million dollars) in 1997 so say 60 million Dollars today.
$42 billion versus $60 million…
I have not found any source for the $10,600 billion that Germany owes Greece and what for.
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@stevmk2 wrote:
Slightly off topic I know but I’ve recently been reading-up a bit on Germany’s opposition to some of the Greece bail-out suggestions and had also recently read this : –
http://www.greekembassy.org/Embassy/Content/en/Article.aspx?office=2&folder=289&article=4885
There is also, apparently, a huge, outstanding German loan debt to Greece of several millions, (maybe billions) but I can’t find the article online at the moment……
Why the German opposition then?
stevmk2Greece GDP: Gdp of Greece: $327.6 billion (2007 est.) – The World Factbook
Greece deficit : 13% of GDP i.e. $42 billion
MOney oqed by Germany: .45 billion drachmas (about 35 million dollars) in 1997 so say 60 million Dollars today.
$42 billion versus $60 million…
I have not found any source for the $10,600 billion that Germany owes Greece and what for.
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just found this (sorry for the off-topic)
War reparations at 1938 prices:
* USD 360,000,000 from Italy:
o USD 125,000,000 to Yugoslavia;
o USD 105,000,000 to Greece;
o USD 100,000,000 to the Soviet Union;
o USD 25,000,000 to Ethiopia;
o USD 5,000,000 to Albania.* USD 300,000,000 from Finland to the Soviet Union;
* USD 300,000,000 from Hungary:
o USD 200,000,000 to the Soviet Union;
o USD 100,000,000 to Czechoslovakia and Yugoslavia.* USD 300,000,000 from Romania to the Soviet Union;
* USD 70,000,000 from Bulgaria:
o USD 45,000,000 to Greece;
o USD 25,000,000 to Yugoslavia.source: http://en.wikipedia.org/wiki/Paris_Peace_Treaties,_1947
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just found this (sorry for the off-topic)
War reparations at 1938 prices:
* USD 360,000,000 from Italy:
o USD 125,000,000 to Yugoslavia;
o USD 105,000,000 to Greece;
o USD 100,000,000 to the Soviet Union;
o USD 25,000,000 to Ethiopia;
o USD 5,000,000 to Albania.* USD 300,000,000 from Finland to the Soviet Union;
* USD 300,000,000 from Hungary:
o USD 200,000,000 to the Soviet Union;
o USD 100,000,000 to Czechoslovakia and Yugoslavia.* USD 300,000,000 from Romania to the Soviet Union;
* USD 70,000,000 from Bulgaria:
o USD 45,000,000 to Greece;
o USD 25,000,000 to Yugoslavia.source: http://en.wikipedia.org/wiki/Paris_Peace_Treaties,_1947
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@adiep wrote:
@rt21 wrote:
The maastricht treaty said “NO BAIL OUTS”, and at the first sign of the need for one, we have one…
In fact, as is obvious now, so far there has been NO bailout. Just fine political supporting words.
Regardless of the domino effect, the PIIGS have to be allowed to fail, there simply isn’t enough money available to support them. A new Northern Euro should arise from the ashes consisting of solid economies, possibly with the addition of Sweden (and maybe the UK in a decade or so when the economy is back up to scratch).
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@adiep wrote:
@rt21 wrote:
The maastricht treaty said “NO BAIL OUTS”, and at the first sign of the need for one, we have one…
In fact, as is obvious now, so far there has been NO bailout. Just fine political supporting words.
Regardless of the domino effect, the PIIGS have to be allowed to fail, there simply isn’t enough money available to support them. A new Northern Euro should arise from the ashes consisting of solid economies, possibly with the addition of Sweden (and maybe the UK in a decade or so when the economy is back up to scratch).
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Peter
Although I understand where you are coming from, I feel that the eurozone countries have to be very careful in their decison making about support for Greece.
Certainly if Greece does not follow through on its promised actions there is a good argument that it might be better to let them sort their own problems out. However, if they do grasp the nettle and try to resolve their problems then it might be better to provide them with support.
If Greece does go down then banks around the world will be left with another round of toxic debts, which will be more difficult to sort out than the last time. When the credit crunch occured in 2008 nations around the world borrowed heavily to pump liquidity into the system. Governments encouraged banks to buy government bonds and this is what they did. I seem to recall reading an article the other day that French banks have exposure to about 86 billion euros of Greek government bonds
Once you have a sovereign default then confidence in the market would evaporate. Who would want to buy billions of government debt if the risk of default was high. The UK would be in a very vulnerable position and might not be able to meet its commitments in the world without raising funds through government bonds.
I agree that one possible scenario for the future might be that similar economies such as France and Germany might break away and form their own currency.
The trouble is that the economic situation is so fluid that it is not possible to make predictions with any confidence
Richard
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Peter
Although I understand where you are coming from, I feel that the eurozone countries have to be very careful in their decison making about support for Greece.
Certainly if Greece does not follow through on its promised actions there is a good argument that it might be better to let them sort their own problems out. However, if they do grasp the nettle and try to resolve their problems then it might be better to provide them with support.
If Greece does go down then banks around the world will be left with another round of toxic debts, which will be more difficult to sort out than the last time. When the credit crunch occured in 2008 nations around the world borrowed heavily to pump liquidity into the system. Governments encouraged banks to buy government bonds and this is what they did. I seem to recall reading an article the other day that French banks have exposure to about 86 billion euros of Greek government bonds
Once you have a sovereign default then confidence in the market would evaporate. Who would want to buy billions of government debt if the risk of default was high. The UK would be in a very vulnerable position and might not be able to meet its commitments in the world without raising funds through government bonds.
I agree that one possible scenario for the future might be that similar economies such as France and Germany might break away and form their own currency.
The trouble is that the economic situation is so fluid that it is not possible to make predictions with any confidence
Richard
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Post war Politics in Europe has been engaged in the process of political and monetary union. It is no exaggeration to state that this has underpinned all intellectual and political thought for a generation. The ambitions of the modern political class in Europe is the creation of a super state or super power to rival that of the US and China. Nothing less will do.
Set backs to this cause have been factored in. They expect derailment and crisis but the cause is too great to fail.
Monetary union in the form of the Euro represents a major supporting plank. It’s political not economic. If it were most states would not touch it with a long pole.
Therefore no single state or even group of states will be allowed to stall the greater purpose.
The debts of the PIIGS states pale into insignificance alongside that of California and some other smaller US states. The idea that they would leave that union because of unsustainable debt or bankruptcy is laughable. The federal government always rides to the rescue.
So it will be in Europe. They will huff and puff and prevaricate but the house will not fall down. -
Post war Politics in Europe has been engaged in the process of political and monetary union. It is no exaggeration to state that this has underpinned all intellectual and political thought for a generation. The ambitions of the modern political class in Europe is the creation of a super state or super power to rival that of the US and China. Nothing less will do.
Set backs to this cause have been factored in. They expect derailment and crisis but the cause is too great to fail.
Monetary union in the form of the Euro represents a major supporting plank. It’s political not economic. If it were most states would not touch it with a long pole.
Therefore no single state or even group of states will be allowed to stall the greater purpose.
The debts of the PIIGS states pale into insignificance alongside that of California and some other smaller US states. The idea that they would leave that union because of unsustainable debt or bankruptcy is laughable. The federal government always rides to the rescue.
So it will be in Europe. They will huff and puff and prevaricate but the house will not fall down. -
I agree that eurozone has been formed for political and economic reasons and that the collective will is to sustain it.
However, the politicians have to deal with their electorates and it is their will that will prevail. If Greek government can’t convince their people that the medicine is good for them there will be civil unrest and the government knows that at the end of the day they will be voted out of power. If the economic situation gets that bad there is also the danger of civil strife and anarchy.
Similarly the German Government knows that they cannot take their electorate for granted in giving huge loans out to what most Germans consider to be a profligate country. That is one of the reasons why the German Government has not given cast iron assurances to back the Greeks with money.
A recent opinion poll in Germany showed that most Germans do not want their Governemnt to lend money to Greece. From what I have read there are also some constitutional hoops that the German Government would have to jump through before they could do so.
Richard
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I agree that eurozone has been formed for political and economic reasons and that the collective will is to sustain it.
However, the politicians have to deal with their electorates and it is their will that will prevail. If Greek government can’t convince their people that the medicine is good for them there will be civil unrest and the government knows that at the end of the day they will be voted out of power. If the economic situation gets that bad there is also the danger of civil strife and anarchy.
Similarly the German Government knows that they cannot take their electorate for granted in giving huge loans out to what most Germans consider to be a profligate country. That is one of the reasons why the German Government has not given cast iron assurances to back the Greeks with money.
A recent opinion poll in Germany showed that most Germans do not want their Governemnt to lend money to Greece. From what I have read there are also some constitutional hoops that the German Government would have to jump through before they could do so.
Richard
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@logan wrote:
Post war Politics in Europe has been engaged in the process of political and monetary union. It is no exaggeration to state that this has underpinned all intellectual and political thought for a generation. The ambitions of the modern political class in Europe is the creation of a super state or super power to rival that of the US and China. Nothing less will do.
Set backs to this cause have been factored in. They expect derailment and crisis but the cause is too great to fail.
Monetary union in the form of the Euro represents a major supporting plank. It’s political not economic. If it were most states would not touch it with a long pole.
Therefore no single state or even group of states will be allowed to stall the greater purpose.
The debts of the PIIGS states pale into insignificance alongside that of California and some other smaller US states. The idea that they would leave that union because of unsustainable debt or bankruptcy is laughable. The federal government always rides to the rescue.
So it will be in Europe. They will huff and puff and prevaricate but the house will not fall down.With all due respect, I think that’s total poppycock.
Having a few frenchmen believe in a european superstate doesnt make it any closer to being a reality. I can think i’m a lottery winner 24 hours of the day, and it still doesnt make me one, it just makes me a horrendously mistaken dreamer. In actual fact, those euro dreamers are about to get a wake up call of grand proportions and I think we’ll soon see how much they value their superstate versus their wealth.
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@logan wrote:
Post war Politics in Europe has been engaged in the process of political and monetary union. It is no exaggeration to state that this has underpinned all intellectual and political thought for a generation. The ambitions of the modern political class in Europe is the creation of a super state or super power to rival that of the US and China. Nothing less will do.
Set backs to this cause have been factored in. They expect derailment and crisis but the cause is too great to fail.
Monetary union in the form of the Euro represents a major supporting plank. It’s political not economic. If it were most states would not touch it with a long pole.
Therefore no single state or even group of states will be allowed to stall the greater purpose.
The debts of the PIIGS states pale into insignificance alongside that of California and some other smaller US states. The idea that they would leave that union because of unsustainable debt or bankruptcy is laughable. The federal government always rides to the rescue.
So it will be in Europe. They will huff and puff and prevaricate but the house will not fall down.With all due respect, I think that’s total poppycock.
Having a few frenchmen believe in a european superstate doesnt make it any closer to being a reality. I can think i’m a lottery winner 24 hours of the day, and it still doesnt make me one, it just makes me a horrendously mistaken dreamer. In actual fact, those euro dreamers are about to get a wake up call of grand proportions and I think we’ll soon see how much they value their superstate versus their wealth.
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Public opinion in EU states has never mattered that much to the executive.
Remember the French and Dutch voted against adopting the Euro in the first referendum. More recently Ireland voted against the Lisbon Treaty, and Treaty of Nice. There are many other examples of public opinion being over ridden which I will not bore you with.
My point really is the the concept of European integration is an idea too big to falter. Whenever there’s a set back they try again, and again until they succeed. The great project is not allowed to fail. It’s unthinkable to the current European political class.
I personally think the European Union is an undemocratic monster. I do not agree with the super-state concept or its phony institutions pretending to be legitimate.
However that is what we are grinding towards. Public opinion in Europe is against it. That does not stop them.
Economic problems with Greece will cause a minor ripple. They will find a way to fix it which will cost us all. It always does. -
Public opinion in EU states has never mattered that much to the executive.
Remember the French and Dutch voted against adopting the Euro in the first referendum. More recently Ireland voted against the Lisbon Treaty, and Treaty of Nice. There are many other examples of public opinion being over ridden which I will not bore you with.
My point really is the the concept of European integration is an idea too big to falter. Whenever there’s a set back they try again, and again until they succeed. The great project is not allowed to fail. It’s unthinkable to the current European political class.
I personally think the European Union is an undemocratic monster. I do not agree with the super-state concept or its phony institutions pretending to be legitimate.
However that is what we are grinding towards. Public opinion in Europe is against it. That does not stop them.
Economic problems with Greece will cause a minor ripple. They will find a way to fix it which will cost us all. It always does. -
I think there is a big difference between pushing through abstract concepts like the Lisbon Treaty and giving taxpayers’ money away to another eurozone member to prop it up.
Most people including me do not fully understand what the Lisbon Treaty is but we do understand what money is. If Germany did provide funds to Greece, which were subsequently squandered, Angela Merkel knows that her days in power would be numbered as also would be her party’s. That is one of the main reasons that she put her foot down and refused to provide guarantees for Greece’s debts.
If things get worse in Greece she may of course be pressured into doing so but at that point I think Germany will begin to review its position in the eurozone.
It’s a very fluid situation and of course things may change in unpredictable ways.
Richard
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I think there is a big difference between pushing through abstract concepts like the Lisbon Treaty and giving taxpayers’ money away to another eurozone member to prop it up.
Most people including me do not fully understand what the Lisbon Treaty is but we do understand what money is. If Germany did provide funds to Greece, which were subsequently squandered, Angela Merkel knows that her days in power would be numbered as also would be her party’s. That is one of the main reasons that she put her foot down and refused to provide guarantees for Greece’s debts.
If things get worse in Greece she may of course be pressured into doing so but at that point I think Germany will begin to review its position in the eurozone.
It’s a very fluid situation and of course things may change in unpredictable ways.
Richard
-
@rt21 wrote:
I think there is a big difference between pushing through abstract concepts like the Lisbon Treaty and giving taxpayers’ money away to another eurozone member to prop it up.
Most people including me do not fully understand what the Lisbon Treaty is but we do understand what money is. If Germany did provide funds to Greece, which were subsequently squandered, Angela Merkel knows that her days in power would be numbered as also would be her party’s. That is one of the main reasons that she put her foot down and refused to provide guarantees for Greece’s debts.
If things get worse in Greece she may of course be pressured into doing so but at that point I think Germany will begin to review its position in the eurozone.
It’s a very fluid situation and of course things may change in unpredictable ways.
Richard
Edward Hugh has just posted this article on his Facebook page http://www.nytimes.com/2010/02/14/business/global/14debt.html
The Telegraph is reporting on last weeks meeting prior to the EU announcement regarding Greece, they appear to have some insight into the dynamics between France and Germany.
http://www.telegraph.co.uk/finance/economics/7232369/Can-anyone-fix-the-euro-puzzle.htmlThere’s going to be a multitude of investment bank analysts crawling over Greece finances in the coming weeks, one expects that the digging will unearth more embarrassments for the EU making it even more difficult for the Germans to offer financial support.
The French of course take the approach of pushing for more fiscal unity, iow, hand more of Greek economy over to the EU to manage, but then they stand to lose the most financially if Greece defaults.
All the while the markets are going to be leveraging positions against any weak spots, and as Maggie T rightfully pointed out, you cant buck the markets.
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@rt21 wrote:
I think there is a big difference between pushing through abstract concepts like the Lisbon Treaty and giving taxpayers’ money away to another eurozone member to prop it up.
Most people including me do not fully understand what the Lisbon Treaty is but we do understand what money is. If Germany did provide funds to Greece, which were subsequently squandered, Angela Merkel knows that her days in power would be numbered as also would be her party’s. That is one of the main reasons that she put her foot down and refused to provide guarantees for Greece’s debts.
If things get worse in Greece she may of course be pressured into doing so but at that point I think Germany will begin to review its position in the eurozone.
It’s a very fluid situation and of course things may change in unpredictable ways.
Richard
Edward Hugh has just posted this article on his Facebook page http://www.nytimes.com/2010/02/14/business/global/14debt.html
The Telegraph is reporting on last weeks meeting prior to the EU announcement regarding Greece, they appear to have some insight into the dynamics between France and Germany.
http://www.telegraph.co.uk/finance/economics/7232369/Can-anyone-fix-the-euro-puzzle.htmlThere’s going to be a multitude of investment bank analysts crawling over Greece finances in the coming weeks, one expects that the digging will unearth more embarrassments for the EU making it even more difficult for the Germans to offer financial support.
The French of course take the approach of pushing for more fiscal unity, iow, hand more of Greek economy over to the EU to manage, but then they stand to lose the most financially if Greece defaults.
All the while the markets are going to be leveraging positions against any weak spots, and as Maggie T rightfully pointed out, you cant buck the markets.
-
@rt21 wrote:
Most people including me do not fully understand what the Lisbon Treaty is but we do understand what money is.
RichardThe Lisbon Treaty is a major step forward in the creation of a United States of Europe. The EU now has an unelected President and Foreign Minister. There is now a legal framework for the concept of a federal system and a reduction of state veto in future summit legislative assemblies.
The German people have always been suspicious of the Euro project. I agree that they will be unhappy contributing to any bail out of the PIIGS. However Merkle is an astute politician and a federalist. Public reluctance first and at the same time behind the scenes planning on how best to get the thing done.
They will extract a high price from the Greek people but in the end it will be done. -
@rt21 wrote:
Most people including me do not fully understand what the Lisbon Treaty is but we do understand what money is.
RichardThe Lisbon Treaty is a major step forward in the creation of a United States of Europe. The EU now has an unelected President and Foreign Minister. There is now a legal framework for the concept of a federal system and a reduction of state veto in future summit legislative assemblies.
The German people have always been suspicious of the Euro project. I agree that they will be unhappy contributing to any bail out of the PIIGS. However Merkle is an astute politician and a federalist. Public reluctance first and at the same time behind the scenes planning on how best to get the thing done.
They will extract a high price from the Greek people but in the end it will be done. -
@logan wrote:
@rt21 wrote:
Most people including me do not fully understand what the Lisbon Treaty is but we do understand what money is.
RichardThe Lisbon Treaty is a major step forward in the creation of a United States of Europe. The EU now has an unelected President and Foreign Minister. There is now a legal framework for the concept of a federal system and a reduction of state veto in future summit legislative assemblies.
The German people have always been suspicious of the Euro project. I agree that they will be unhappy contributing to any bail out of the PIIGS. However Merkle is an astute politician and a federalist. Public reluctance first and at the same time behind the scenes planning on how best to get the thing done.
They will extract a high price from the Greek people but in the end it will be done.Were in danger of repeating ourselves here 🙂
However, what you suggest is that Germany will make an open ended commitment to shore up any EMU members finances when the need arises. That’s not going to happen. For a start, Greece’s credit rating is hanging in the balance, if they are downgraded to BBB then the ECB are going to say ‘non’ to any more Greek bonds. The German constitution doesnt allow for a bail-out and lets not forget the Germans fought for a NO BAIL OUT clause in Maastricht many moons ago.
Personally I think the outcome here is a done deal, Germany will opt to protect its currency (the Euro). The easiest way to do that is by following the EU’s own rule book, which will ultimately lead to Greece being ejected from EMU.
But as Richard rightly points out, the situation is fluid and *very* unpredictable.
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@logan wrote:
@rt21 wrote:
Most people including me do not fully understand what the Lisbon Treaty is but we do understand what money is.
RichardThe Lisbon Treaty is a major step forward in the creation of a United States of Europe. The EU now has an unelected President and Foreign Minister. There is now a legal framework for the concept of a federal system and a reduction of state veto in future summit legislative assemblies.
The German people have always been suspicious of the Euro project. I agree that they will be unhappy contributing to any bail out of the PIIGS. However Merkle is an astute politician and a federalist. Public reluctance first and at the same time behind the scenes planning on how best to get the thing done.
They will extract a high price from the Greek people but in the end it will be done.Were in danger of repeating ourselves here 🙂
However, what you suggest is that Germany will make an open ended commitment to shore up any EMU members finances when the need arises. That’s not going to happen. For a start, Greece’s credit rating is hanging in the balance, if they are downgraded to BBB then the ECB are going to say ‘non’ to any more Greek bonds. The German constitution doesnt allow for a bail-out and lets not forget the Germans fought for a NO BAIL OUT clause in Maastricht many moons ago.
Personally I think the outcome here is a done deal, Germany will opt to protect its currency (the Euro). The easiest way to do that is by following the EU’s own rule book, which will ultimately lead to Greece being ejected from EMU.
But as Richard rightly points out, the situation is fluid and *very* unpredictable.
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just read the Edward Hugh blog that adiep referred to in his post
If I was German taxpayer I would certainly want no truck with the eurozone particularly with such members as Greece. It beggars belief what their previous government did with shady deals and inaccurate financial reporting.
Locking into a single currency without fiscal unity requires a high level of trust among member states. How could you begin to have any trust in Greece or for that matter some other similar states. We all know the big shortcomings in the property market in Spain over the past few years. I can’t help but feel that what happened in that market is just symptomatic of the way Spain handles its affairs in general
Richard
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just read the Edward Hugh blog that adiep referred to in his post
If I was German taxpayer I would certainly want no truck with the eurozone particularly with such members as Greece. It beggars belief what their previous government did with shady deals and inaccurate financial reporting.
Locking into a single currency without fiscal unity requires a high level of trust among member states. How could you begin to have any trust in Greece or for that matter some other similar states. We all know the big shortcomings in the property market in Spain over the past few years. I can’t help but feel that what happened in that market is just symptomatic of the way Spain handles its affairs in general
Richard
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@rt21 wrote:
just read the Edward Hugh blog that adiep referred to in his post
If I was German taxpayer I would certainly want no truck with the eurozone particularly with such members as Greece. It beggars belief what their previous government did with shady deals and inaccurate financial reporting.
Locking into a single currency without fiscal unity requires a high level of trust among member states. How could you begin to have any trust in Greece or for that matter some other similar states. We all know the big shortcomings in the property market in Spain over the past few years. I can’t help but feel that what happenned in that market is just symptomatic of the way Spain handles its affairs in general
Richard
Richard, if you were looking at this from a risk perspective, as I’m sure that Germany must be, then the problem must be how to quantify the levels exposure to Greek and Spanish debt if taking on a commitment to support them – in an open ended manner.
If it’s not open-ended and based upon only the current known debt repayments, then again the Euro suffers, as ultimately it will be seen as temporary arrangement for some states, i.e. the ones who cant stay on the straight and narrow will in the end fall out of it. This sort of scenario will be very damaging for the Euro, for example, would anyone invest in Spain or Greece at euro levels when its highly possible they may leave EMU and devalue against the Euro.
It’s a right old pickle from what I can, that’s why I expect the German to play it by the book, I dont see them having a choice.
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@rt21 wrote:
just read the Edward Hugh blog that adiep referred to in his post
If I was German taxpayer I would certainly want no truck with the eurozone particularly with such members as Greece. It beggars belief what their previous government did with shady deals and inaccurate financial reporting.
Locking into a single currency without fiscal unity requires a high level of trust among member states. How could you begin to have any trust in Greece or for that matter some other similar states. We all know the big shortcomings in the property market in Spain over the past few years. I can’t help but feel that what happenned in that market is just symptomatic of the way Spain handles its affairs in general
Richard
Richard, if you were looking at this from a risk perspective, as I’m sure that Germany must be, then the problem must be how to quantify the levels exposure to Greek and Spanish debt if taking on a commitment to support them – in an open ended manner.
If it’s not open-ended and based upon only the current known debt repayments, then again the Euro suffers, as ultimately it will be seen as temporary arrangement for some states, i.e. the ones who cant stay on the straight and narrow will in the end fall out of it. This sort of scenario will be very damaging for the Euro, for example, would anyone invest in Spain or Greece at euro levels when its highly possible they may leave EMU and devalue against the Euro.
It’s a right old pickle from what I can, that’s why I expect the German to play it by the book, I dont see them having a choice.
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Some good points here but none of you really address the political implications of not supporting Greece, Pigs, et al.
I emphasis the political implications because that is what really matters in all things Euro or EU. Not the markets, economics, or in the end public opinion. That’s all secondary. With democratic political power and will anything is possible.
The European Project is the holy grail. Not for me but they who run Europe.
‘They’ will do just enough to calm the markets in this instance.’ They’ will do just enough to satisfy German public opinion. The project will roll on, and on and on………..
Why? Because ultimately there can be no peace or social stability in Europe without economic union in some form or other..David Smith, economics editor of The Times writes today:-
“Last week Van Rompuy indicated a desire for more central control by proposing the EU be given greater oversight of national budgets and that summits take place between leaders every month rather than just four times a year.
It was long a criticism of eurosceptics that a single currency would not work among such diverse economies without political integration. Now, such excuses are being used to increase political integration.”Creeping federalism is alive and well and coming to a country near you..
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Some good points here but none of you really address the political implications of not supporting Greece, Pigs, et al.
I emphasis the political implications because that is what really matters in all things Euro or EU. Not the markets, economics, or in the end public opinion. That’s all secondary. With democratic political power and will anything is possible.
The European Project is the holy grail. Not for me but they who run Europe.
‘They’ will do just enough to calm the markets in this instance.’ They’ will do just enough to satisfy German public opinion. The project will roll on, and on and on………..
Why? Because ultimately there can be no peace or social stability in Europe without economic union in some form or other..David Smith, economics editor of The Times writes today:-
“Last week Van Rompuy indicated a desire for more central control by proposing the EU be given greater oversight of national budgets and that summits take place between leaders every month rather than just four times a year.
It was long a criticism of eurosceptics that a single currency would not work among such diverse economies without political integration. Now, such excuses are being used to increase political integration.”Creeping federalism is alive and well and coming to a country near you..
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@adiep wrote:
http://www.reuters.com/article/idUSTRE61D0ZC20100214
🙂
problem is the information source is the Bild on Sondag. Bild’s nearest English-language stylistic and journalistic equivalent is often considered to be The Sun in the UK, and is modeled after the British tabloid the Daily Mirror.
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@adiep wrote:
http://www.reuters.com/article/idUSTRE61D0ZC20100214
🙂
problem is the information source is the Bild on Sondag. Bild’s nearest English-language stylistic and journalistic equivalent is often considered to be The Sun in the UK, and is modeled after the British tabloid the Daily Mirror.
-
@Fuengi wrote:
@adiep wrote:
http://www.reuters.com/article/idUSTRE61D0ZC20100214
🙂
problem is the information source is the Bild on Sondag. Bild’s nearest English-language stylistic and journalistic equivalent is often considered to be The Sun in the UK, and is modeled after the British tabloid the Daily Mirror.
Possibly so, but I wouldn’t say it makes it any less representative of opinion, perhaps more so…
-
@Fuengi wrote:
@adiep wrote:
http://www.reuters.com/article/idUSTRE61D0ZC20100214
🙂
problem is the information source is the Bild on Sondag. Bild’s nearest English-language stylistic and journalistic equivalent is often considered to be The Sun in the UK, and is modeled after the British tabloid the Daily Mirror.
Possibly so, but I wouldn’t say it makes it any less representative of opinion, perhaps more so…
-
I have no doubt that the political will is there within France and Germany to suppport the euro, However, how much monetary support is actually given will depend upon the perceived size of the problem. Germany will not take unneccessary risks with its own economy.
If they feel that the risk is relatively small they will fund it at the last minute. But if they feel the risks are high they won’t. Look at the example of the UK some years ago when the conservative government tried shadowing other major currencies in the ERM. They were prepared to increase interest rates into double digits to stay in but then realised the game was up and left with their tail between their legs.
It’s difficult to predict the outcome of this but I hope for our sakes that Germany does put its hand in its pocket and funds the Greek shortfall.
Richard
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I have no doubt that the political will is there within France and Germany to suppport the euro, However, how much monetary support is actually given will depend upon the perceived size of the problem. Germany will not take unneccessary risks with its own economy.
If they feel that the risk is relatively small they will fund it at the last minute. But if they feel the risks are high they won’t. Look at the example of the UK some years ago when the conservative government tried shadowing other major currencies in the ERM. They were prepared to increase interest rates into double digits to stay in but then realised the game was up and left with their tail between their legs.
It’s difficult to predict the outcome of this but I hope for our sakes that Germany does put its hand in its pocket and funds the Greek shortfall.
Richard
-
@rt21 wrote:
I have no doubt that the political will is there within France and Germany to suppport the euro, However, how much monetary support is actually given will depend upon the perceived size of the problem. Germany will not take unneccessary risks with its own economy.
If they feel that the risk is relatively small they will fund it at the last minute. But if they feel the risks are high they won’t. Look at the example of the UK some years ago when the conservative government tried shadowing other major currencies in the ERM. They were prepared to increase interest rates into double digits to stay in but then realised the game was up and left with their tail between their legs.
It’s difficult to predict the outcome of this but I hope for our sakes that Germany does put its hand in its pocket and funds the Greek shortfall.
Richard
Amazingly quite a (rare) balanced report from Old Ambrose in the Telegraph.
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@rt21 wrote:
I have no doubt that the political will is there within France and Germany to suppport the euro, However, how much monetary support is actually given will depend upon the perceived size of the problem. Germany will not take unneccessary risks with its own economy.
If they feel that the risk is relatively small they will fund it at the last minute. But if they feel the risks are high they won’t. Look at the example of the UK some years ago when the conservative government tried shadowing other major currencies in the ERM. They were prepared to increase interest rates into double digits to stay in but then realised the game was up and left with their tail between their legs.
It’s difficult to predict the outcome of this but I hope for our sakes that Germany does put its hand in its pocket and funds the Greek shortfall.
Richard
Amazingly quite a (rare) balanced report from Old Ambrose in the Telegraph.
-
@adiep wrote:
@Fuengi wrote:
@adiep wrote:
http://www.reuters.com/article/idUSTRE61D0ZC20100214
🙂
problem is the information source is the Bild on Sondag. Bild’s nearest English-language stylistic and journalistic equivalent is often considered to be The Sun in the UK, and is modeled after the British tabloid the Daily Mirror.
Possibly so, but I wouldn’t say it makes it any less representative of opinion, perhaps more so…
unforunately no. Without knowing about the methology, etc… you can only question such a survey.
-
@adiep wrote:
@Fuengi wrote:
@adiep wrote:
http://www.reuters.com/article/idUSTRE61D0ZC20100214
🙂
problem is the information source is the Bild on Sondag. Bild’s nearest English-language stylistic and journalistic equivalent is often considered to be The Sun in the UK, and is modeled after the British tabloid the Daily Mirror.
Possibly so, but I wouldn’t say it makes it any less representative of opinion, perhaps more so…
unforunately no. Without knowing about the methology, etc… you can only question such a survey.
-
@Fuengi wrote:
@adiep wrote:
@Fuengi wrote:
@adiep wrote:
http://www.reuters.com/article/idUSTRE61D0ZC20100214
🙂
problem is the information source is the Bild on Sondag. Bild’s nearest English-language stylistic and journalistic equivalent is often considered to be The Sun in the UK, and is modeled after the British tabloid the Daily Mirror.
Possibly so, but I wouldn’t say it makes it any less representative of opinion, perhaps more so…
unforunately no. Without knowing about the methology, etc… you can only question such a survey.
Youre right. In future i will look for a survey that has biometric controls and is cross-referenced to a genetic database.
Or
I could take it for granted that if the popular national red-top is against something, then there’s a good chance its readers are too. on the basis that people don’t generally buy newspapers they disagree with, hence those papers dont become… popular.
Maybe im simplifying things too much? 🙂
-
@Fuengi wrote:
@adiep wrote:
@Fuengi wrote:
@adiep wrote:
http://www.reuters.com/article/idUSTRE61D0ZC20100214
🙂
problem is the information source is the Bild on Sondag. Bild’s nearest English-language stylistic and journalistic equivalent is often considered to be The Sun in the UK, and is modeled after the British tabloid the Daily Mirror.
Possibly so, but I wouldn’t say it makes it any less representative of opinion, perhaps more so…
unforunately no. Without knowing about the methology, etc… you can only question such a survey.
Youre right. In future i will look for a survey that has biometric controls and is cross-referenced to a genetic database.
Or
I could take it for granted that if the popular national red-top is against something, then there’s a good chance its readers are too. on the basis that people don’t generally buy newspapers they disagree with, hence those papers dont become… popular.
Maybe im simplifying things too much? 🙂
-
@adiep wrote:
@rt21 wrote:
I have no doubt that the political will is there within France and Germany to suppport the euro, However, how much monetary support is actually given will depend upon the perceived size of the problem. Germany will not take unneccessary risks with its own economy.
If they feel that the risk is relatively small they will fund it at the last minute. But if they feel the risks are high they won’t. Look at the example of the UK some years ago when the conservative government tried shadowing other major currencies in the ERM. They were prepared to increase interest rates into double digits to stay in but then realised the game was up and left with their tail between their legs.
It’s difficult to predict the outcome of this but I hope for our sakes that Germany does put its hand in its pocket and funds the Greek shortfall.
Richard
Amazingly quite a (rare) balanced report from Old Ambrose in the Telegraph.
The wolf licks lips before eating the rabbit. Ambrose might become an anti-Euro hero after his “eroic” fights against common currency.
-
@adiep wrote:
@rt21 wrote:
I have no doubt that the political will is there within France and Germany to suppport the euro, However, how much monetary support is actually given will depend upon the perceived size of the problem. Germany will not take unneccessary risks with its own economy.
If they feel that the risk is relatively small they will fund it at the last minute. But if they feel the risks are high they won’t. Look at the example of the UK some years ago when the conservative government tried shadowing other major currencies in the ERM. They were prepared to increase interest rates into double digits to stay in but then realised the game was up and left with their tail between their legs.
It’s difficult to predict the outcome of this but I hope for our sakes that Germany does put its hand in its pocket and funds the Greek shortfall.
Richard
Amazingly quite a (rare) balanced report from Old Ambrose in the Telegraph.
The wolf licks lips before eating the rabbit. Ambrose might become an anti-Euro hero after his “eroic” fights against common currency.
-
Most of this bellicose opposition to helping Greece comes from far right groups in Europe who hate everything EU. It’s to be expected. They see the current situation as an opportunity to weaken the structure.
It’s interesting to note that Gordon Brown said at the meeting in Brussles that “helping Greece was not a matter for the UK, it was a matter for Eurozone states”.
In the minds of politicians a two speed or two level EU seems to already exists. The federalists must have choked in their coffee. 😀 -
Most of this bellicose opposition to helping Greece comes from far right groups in Europe who hate everything EU. It’s to be expected. They see the current situation as an opportunity to weaken the structure.
It’s interesting to note that Gordon Brown said at the meeting in Brussles that “helping Greece was not a matter for the UK, it was a matter for Eurozone states”.
In the minds of politicians a two speed or two level EU seems to already exists. The federalists must have choked in their coffee. 😀 -
@adiep wrote:
@Fuengi wrote:
@adiep wrote:
@Fuengi wrote:
@adiep wrote:
http://www.reuters.com/article/idUSTRE61D0ZC20100214
🙂
problem is the information source is the Bild on Sondag. Bild’s nearest English-language stylistic and journalistic equivalent is often considered to be The Sun in the UK, and is modeled after the British tabloid the Daily Mirror.
Possibly so, but I wouldn’t say it makes it any less representative of opinion, perhaps more so…
unforunately no. Without knowing about the methology, etc… you can only question such a survey.
Youre right. In future i will look for a survey that has biometric controls and is cross-referenced to a genetic database.
Or
I could take it for granted that if the popular national red-top is against something, then there’s a good chance its readers are too. on the basis that people don’t generally buy newspapers they disagree with, hence those papers dont become… popular.
Maybe im simplifying things too much? 🙂
no, not at all. But I think it is worth taking into account that in a country with a dalily circulation of 21 million, bild represents approximately 3 million readers. So 14% of all newspaper readers read the bild. 57% want greece thrown out. Or 1.7 million readers.
So when an article states: “A majority of Germans want debt-ridden Greece to be thrown out of the euro zone” it is a tad sensasionlist.Of course if we want to follow the idea that as the most widely sold paper is representative of germany as a whole then go for it. But by that same argument we have to beleive that spains housing ministry is spot on with its statistics.
(edit: sorry for the waffle. in a rush)
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@adiep wrote:
@Fuengi wrote:
@adiep wrote:
@Fuengi wrote:
@adiep wrote:
http://www.reuters.com/article/idUSTRE61D0ZC20100214
🙂
problem is the information source is the Bild on Sondag. Bild’s nearest English-language stylistic and journalistic equivalent is often considered to be The Sun in the UK, and is modeled after the British tabloid the Daily Mirror.
Possibly so, but I wouldn’t say it makes it any less representative of opinion, perhaps more so…
unforunately no. Without knowing about the methology, etc… you can only question such a survey.
Youre right. In future i will look for a survey that has biometric controls and is cross-referenced to a genetic database.
Or
I could take it for granted that if the popular national red-top is against something, then there’s a good chance its readers are too. on the basis that people don’t generally buy newspapers they disagree with, hence those papers dont become… popular.
Maybe im simplifying things too much? 🙂
no, not at all. But I think it is worth taking into account that in a country with a dalily circulation of 21 million, bild represents approximately 3 million readers. So 14% of all newspaper readers read the bild. 57% want greece thrown out. Or 1.7 million readers.
So when an article states: “A majority of Germans want debt-ridden Greece to be thrown out of the euro zone” it is a tad sensasionlist.Of course if we want to follow the idea that as the most widely sold paper is representative of germany as a whole then go for it. But by that same argument we have to beleive that spains housing ministry is spot on with its statistics.
(edit: sorry for the waffle. in a rush)
-
The one thing that struck me, when I read the various reports on the poll, was that they refer to 53% of Germans rather than 53% of Bild am Sonntag’s readers. Also that the poll was undertaken by Emnid, who are a German market research company
Although the key to the integrity of any polling data is the methodology, which unfortunately is not unavailable, I would tend to think that the poll was carried out on a wider cross section of the German public than Bild am Sonntag’s readers.
Richard
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The one thing that struck me, when I read the various reports on the poll, was that they refer to 53% of Germans rather than 53% of Bild am Sonntag’s readers. Also that the poll was undertaken by Emnid, who are a German market research company
Although the key to the integrity of any polling data is the methodology, which unfortunately is not unavailable, I would tend to think that the poll was carried out on a wider cross section of the German public than Bild am Sonntag’s readers.
Richard
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It’s hardly surprising Germans don’t want a bail out when they read how the Greeks along with Goldman Sachs cooked the books to enter the Euro.
http://business.timesonline.co.uk/tol/business/economics/article7027221.ece 🙄
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It’s hardly surprising Germans don’t want a bail out when they read how the Greeks along with Goldman Sachs cooked the books to enter the Euro.
http://business.timesonline.co.uk/tol/business/economics/article7027221.ece 🙄
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@rt21 wrote:
The one thing that struck me, when I read the various reports on the poll, was that they refer to 53% of Germans rather than 53% of Bild am Sonntag’s readers. Also that the poll was undertaken by Emnid, who are a German market research company
Although the key to the integrity of any polling data is the methodology, which unfortunately is not unavailable, I would tend to think that the poll was carried out on a wider cross section of the German public than Bild am Sonntag’s readers.
Richard
Fair points. I must of missed that bit about Emnid.
I would still love to know how many people were polled though.
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@rt21 wrote:
The one thing that struck me, when I read the various reports on the poll, was that they refer to 53% of Germans rather than 53% of Bild am Sonntag’s readers. Also that the poll was undertaken by Emnid, who are a German market research company
Although the key to the integrity of any polling data is the methodology, which unfortunately is not unavailable, I would tend to think that the poll was carried out on a wider cross section of the German public than Bild am Sonntag’s readers.
Richard
Fair points. I must of missed that bit about Emnid.
I would still love to know how many people were polled though.
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@Fuengi wrote:
@adiep wrote:
@Fuengi wrote:
@adiep wrote:
@Fuengi wrote:
@adiep wrote:
http://www.reuters.com/article/idUSTRE61D0ZC20100214
🙂
problem is the information source is the Bild on Sondag. Bild’s nearest English-language stylistic and journalistic equivalent is often considered to be The Sun in the UK, and is modeled after the British tabloid the Daily Mirror.
Possibly so, but I wouldn’t say it makes it any less representative of opinion, perhaps more so…
unforunately no. Without knowing about the methology, etc… you can only question such a survey.
Youre right. In future i will look for a survey that has biometric controls and is cross-referenced to a genetic database.
Or
I could take it for granted that if the popular national red-top is against something, then there’s a good chance its readers are too. on the basis that people don’t generally buy newspapers they disagree with, hence those papers dont become… popular.
Maybe im simplifying things too much? 🙂
no, not at all. But I think it is worth taking into account that in a country with a dalily circulation of 21 million, bild represents approximately 3 million readers. So 14% of all newspaper readers read the bild. 57% want greece thrown out. Or 1.7 million readers.
So when an article states: “A majority of Germans want debt-ridden Greece to be thrown out of the euro zone” it is a tad sensasionlist.Of course if we want to follow the idea that as the most widely sold paper is representative of germany as a whole then go for it. But by that same argument we have to beleive that spains housing ministry is spot on with its statistics.
(edit: sorry for the waffle. in a rush)
I don’t see how its sensationalist. I strongly suspect it represents the feelings of your average Johan.
Anyway, we’ll soon find out 🙂
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@Fuengi wrote:
@adiep wrote:
@Fuengi wrote:
@adiep wrote:
@Fuengi wrote:
@adiep wrote:
http://www.reuters.com/article/idUSTRE61D0ZC20100214
🙂
problem is the information source is the Bild on Sondag. Bild’s nearest English-language stylistic and journalistic equivalent is often considered to be The Sun in the UK, and is modeled after the British tabloid the Daily Mirror.
Possibly so, but I wouldn’t say it makes it any less representative of opinion, perhaps more so…
unforunately no. Without knowing about the methology, etc… you can only question such a survey.
Youre right. In future i will look for a survey that has biometric controls and is cross-referenced to a genetic database.
Or
I could take it for granted that if the popular national red-top is against something, then there’s a good chance its readers are too. on the basis that people don’t generally buy newspapers they disagree with, hence those papers dont become… popular.
Maybe im simplifying things too much? 🙂
no, not at all. But I think it is worth taking into account that in a country with a dalily circulation of 21 million, bild represents approximately 3 million readers. So 14% of all newspaper readers read the bild. 57% want greece thrown out. Or 1.7 million readers.
So when an article states: “A majority of Germans want debt-ridden Greece to be thrown out of the euro zone” it is a tad sensasionlist.Of course if we want to follow the idea that as the most widely sold paper is representative of germany as a whole then go for it. But by that same argument we have to beleive that spains housing ministry is spot on with its statistics.
(edit: sorry for the waffle. in a rush)
I don’t see how its sensationalist. I strongly suspect it represents the feelings of your average Johan.
Anyway, we’ll soon find out 🙂
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Bail outs for Greece imminent.
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“At which point do we think that the EU will realise the game is up?”
Am I right in thinking that you meant the eurozone rather than the EU. If that is the case I still think there is still a long way to go. At this stage I would be very surprised to see any eurozone member take steps to withdraw or abandon the project. The concept was ill conceived and in its present form will lead to further problems unless members agree to significant reform. However, given the options that member states such as Ireland have (withdraw,default or continue with membership) I think withdrawal at this stage would be the least desirable option for them.
The real test of nerves for the eurozone would be if a country like Spain faced a run on its banks.
Richard
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@rt21 wrote:
The real test of nerves for the eurozone would be if a country like Spain faced a run on its banks.
RichardSpanish and Irish banks have been supported by the ECB with liquidity since the crisis began. The ECB is currently trying to wean these banks off the credit tap because the Germans are pressing Trichet to end it.
That has caused this crisis in Ireland. It remains to be seen if Spain’s banks can survive without ECB aid because the government cannot do it alone. If Spain requires financial aid to the tune of Greece and Ireland the Euro is dead in the water.
It is interesting to note that all Ireland’s banks passed the recent stress tests. We now know what a fraud that was.
Spain and the EZ has much more pain is to come until the crisis ends with substantial return to growth and that is very likely to take some time.
Good description of realities here:
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100008667/the-horrible-truth-starts-to-dawn-on-europes-leaders/ -
“The ECB is currently trying to wean these banks off the credit tap because the Germans are pressing Trichet to end it. That has caused this crisis in Ireland”
I think the core of the problem is that the Irish Government have taken on the bank’s debt as a sovereign debt and as a result bond holders now view Ireland as more of a risk. This higher risk feeds into higher rates of borrowing, which of course have a very negative impact on Ireland’s ability to service its debt. However, the story doesn’t just end there because the eurozone club fear that the Irish situation will have a negative impact on the bond yields in other eurozone countries such as Spain and that is why pressure is being put on Ireland to accept a bailout.
Richard
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@rt21 wrote:
I think the core of the problem is that the Irish Government have taken on the bank’s debt as a sovereign debt and as a result bond holders now view Ireland as more of a risk.
RichardThe reason being the ECB has stopped supporting their banks. These banks are insolvent and unable to borrow on commercial markets so the Irish government had no choice. Their own debt is close to 32% of GDP and unsustainable without massive EU support. Their bonds are effectively junk.
EU and IMF bail out is inevitable and so is the further surrender of Irelands sovereignty.
The most interesting question is which EU state will fall next, Portugal is currently favourite. The markets will move against it soon and then turn their attention to Spain. The markets have decided the EZ in it’s current form is unsustainable. The politicians continue to paper over the cracks but we are currently witnessing the beginning of the end game. -
Although I am aware that the ECB have made statements about reducing support for banks, I was under the impression that in Ireland’s case the ECB had increased rather than reduced their support. For example at the end of October I had read that it had €130bn in loans outstanding to Irish-based banks compared to €119bn outstanding in September. From what I understand any liquidity problems may have arisen fom a significant outflow of funds, which is understandable given their financial plight.
However, I think we both agree that the Irish banks require support from whatever sources they can tap into
Richard
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Richard: The ECB are expected to announce next week that they will impose a country by country cap on the amount EU banks can borrow. Irelands banks have been borrowing huge sums which are unsustainable and have been told the funds will no longer be available. This has brought matters to a head this week, as well as unwise statements from Mrs Merkle. It will halt a very lucrative carry trade in their own bonds. The banks have been borrowing at 1.2% and buying Irish bonds yielding 7%. All smoke and mirrors.
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@rt21 wrote:
“At which point do we think that the EU will realise the game is up?”
Am I right in thinking that you meant the eurozone rather than the EU. If that is the case I still think there is still a long way to go. At this stage I would be very surprised to see any eurozone member take steps to withdraw or abandon the project. The concept was ill conceived and in its present form will lead to further problems unless members agree to significant reform. However, given the options that member states such as Ireland have (withdraw,default or continue with membership) I think withdrawal at this stage would be the least desirable option for them.
The real test of nerves for the eurozone would be if a country like Spain faced a run on its banks.
Richard
Actually Richard, I probably did mean the Eurozone, although our friend Rompuy seems to think the entire EU is at stake. Who knows, he could be right, maybe they will have to rip a load of those treaties up to allow an exit, or a restructure.
Picking up on some of your wording, particularly “this stage” seems to imply you think that sooner or later there will be big changes, what do you think they’ll be? And one thing that weve seen time and again with the markets, if you even hint that something is going to happen further down the line, they’ll force your hand so it happens sooner rather than later. So any hint that a country will leave or that restructuring will take place will cause instant action to be required.
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@adiep wrote:
Logan, if im not mistaken, earlier in this thread and earlier this year you were making the point that the Eurozone wont be allowed to fail. Forgive me if im wrong… But do you still think that’s the case?
We should never underestimate the political will that exists among the political class to preserve the goal of a European super state. Markets can do one thing, apply pressure on politicians but in the end markets do not posses the levers of power to make effective change. Politicians simply have too much to lose if the Euro fails. Their entire generation have grown up with that single aim.
The current bunch of European leaders will be dragged kicking and screaming towards any modification of the mess Delors created. He was warned monitory union in the form he conceived and implemented would not ultimately work.
To answer you question adiep, yes I still believe the EZ will continue and survive anything that’s thrown at it. However modification and changes to how it operates are inevitable.
What shape that will take is anyone’s guess. Two speed Europe, two monitory zones, I am sure they will come up with some fix which in the end will never work. Monitory union cannot work without full political, social, economic and cultural union, aka the USA. -
Adiep
I think the eurozone is in unchartered waters and depending upon events in the future anything, even the unthinkable, is possible. I don’t think anyone knows how things will pan out and that is why I used the expression at this stage.
There are 3 possible options facing those eurozone members who are facing sovereign debt problems. And as I mentioned in an earlier post I feel that it is the sovereign debt problems that are driving this crisis.
Firstly they could withdraw from the eurozone. However, Greece and Ireland have not shown any interest in doing so even when both are facing great pain in continuing their membership of the club. One of the main reasons for not withdrawing is that both countries may recognise that they could face huge problems in the lead up to a withdrawal. For example there would probably be a huge flight of money out of each country as people and companies realised that their savings were at risk through a devaluation in currency. This would lead to a currency crisis.
Secondly a country could default on its obligations. However, this would have a huge negative impact on its trading partners and also bond holders. It would find it very difficult to go back into the market place to seek future loans and if it did the premiums demanded by bond holders would be unbearably high. Bear in mind that Greece and Ireland spend more money than they take in income from tax so they have to bridge the gap with loans.
Thirdly they could continue to belong to the eurozone. However as we all know the euro concept is deeply flawed and both countries and indeed others are having to face deep and unpopular cuts in order to regain competitiveness within the straight jacket of the euro. Changes could be made to address the flaws but this would result in a significant reduction in sovereign independence, which may be unpalatable to some if not all members
All three options carry huge risks and from what I understand the option to withdraw is considered the most damaging.
Richard
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@logan wrote:
@adiep wrote:
Logan, if im not mistaken, earlier in this thread and earlier this year you were making the point that the Eurozone wont be allowed to fail. Forgive me if im wrong… But do you still think that’s the case?
We should never underestimate the political will that exists among the political class to preserve the goal of a European super state. Markets can do one thing, apply pressure on politicians but in the end markets do not posses the levers of power to make effective change. Politicians simply have too much to lose if the Euro fails. Their entire generation have grown up with that single aim.
The current bunch of European leaders will be dragged kicking and screaming towards any modification of the mess Delors created. He was warned monitory union in the form he conceived and implemented would not ultimately work.
To answer you question adiep, yes I still believe the EZ will continue and survive anything that’s thrown at it. However modification and changes to how it operates are inevitable.
What shape that will take is anyone’s guess. Two speed Europe, two monitory zones, I am sure they will come up with some fix which in the end will never work. Monitory union cannot work without full political, social, economic and cultural union, aka the USA.In your belief that it can and will be saved, I think you underestimate the folly and insurmountable design flaws inherent in the single currency. As you say, it cannot work without full political, social, economic and cultural union, the USA didnt come by that lightly, it took a civil war and plenty of strife to get there. Nothing like the EU is facing right now. If they want full union, they’ll need to drag everyone into the gutter and remove all hope, leaving a way forward for Single Europe Union to save the day. Presumably that means removing peoples playstations, plasma TV’s, BMW’s and Spanish holiday homes first, otherwise folks will just tell them to p*ss off.
Assuming they cant engineer such a union in the next 3 years, the markets are going to “tear them a new one” at each and every opportunity which will make this idiotic enterprise all the more painful for politicians and public alike. I dare say that politicians in Germany are already thinking the unthinkable – lets face it, chucking cash at lazy southern europeans is not a vote winner, the first one to stand up and say no more will get plenty of votes.
And on the otherhand, what does the EU have to offer? Ten years of austerity, debt slavery and watching MEP’s feather their nests at the publics expense.
Nah, its a gonna, i’m 100% sure of that.
[EDIT] We havent even discussed the effects that unbalanced interest rates will have whilst these countries are emerging from depression.
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@rt21 wrote:
Adiep
I think the eurozone is in unchartered waters and depending upon events in the future anything, even the unthinkable, is possible. I don’t think anyone knows how things will pan out and that is why I used the expression at this stage.
There are 3 possible options facing those eurozone members who are facing sovereign debt problems. And as I mentioned in an earlier post I feel that it is the sovereign debt problems that are driving this crisis.
Firstly they could withdraw from the eurozone. However, Greece and Ireland have not shown any interest in doing so even when both are facing great pain in continuing their membership of the club. One of the main reasons for not withdrawing is that both countries may recognise that they could face huge problems in the lead up to a withdrawal. For example there would probably be a huge flight of money out of each country as people and companies realised that their savings were at risk through a devaluation in currency. This would lead to a currency crisis.
Secondly a country could default on its obligations. However, this would have a huge negative impact on its trading partners and also bond holders. It would find it very difficult to go back into the market place to seek future loans and if it did the premiums demanded by bond holders would be unbearably high. Bear in mind that Greece and Ireland spend more money than they take in income from tax so they have to bridge the gap with loans.
Thirdly they could continue to belong to the eurozone. However as we all know the euro concept is deeply flawed and both countries and indeed others are having to face deep and unpopular cuts in order to regain competitiveness within the straight jacket of the euro. Changes could be made to address the flaws but this would result in a significant reduction in sovereign independence, which may be unpalatable to some if not all members
All three options carry huge risks and from what I understand the option to withdraw is considered the most damaging.
Richard
Hi Richard, there’s a myriad of options for leaving. Here’s a few more.
1) Countries leaving the Euro have a floating currency parallel to the Euro prior to the switchover. This removes the shock to the system and allows investors time to position themselves for upcoming opportunities and risks.
2) Countries leaving the Euro enter an ERM (exchange rate mechanism) at rate which the markets feel is appropriate.
3) Germany leaves the Euro, allowing it to devalue.One option for keeping it all together – turn on the printing presses and inflate the hell out of the currency.
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Excellent article in the FT
http://www.ft.com/cms/s/0/14270bf8-f59e-11df-99d6-00144feab49a.html#axzz15xca74nf
How to stop Ireland’s financial contagion
By Wolfgang Münchau
Published: November 21 2010 19:17 | Last updated: November 21 2010 19:17
If you merge 16 small open economies, you get a large closed economy. But here is the catch. If you assemble the leaders of the 16 small open economies, you get a roomful of 16 small-economy politicians. Economic governance through the European Council has proved always cacophonous and often incompetent. It is an institutional framework of finger-pointing. The Irish say they are not Greece. The Portuguese say they are not Irish. The Spanish finance minister said last week that Spain is not Portugal. There are no prizes for guessing what Italy is not.
This governance paradox lies at the heart of the eurozone crisis. It explains, for example, why in the middle of an existential banking crisis, there has been a debate about the Irish corporate tax rate. The French and Germans have argued that Ireland’s ultra-low taxes are distorting competition. The Irish say they need a low tax rate to attract foreign direct investment. It is hard to conceive of an issue that is less relevant to the current problem.
The task that needs to be solved now is to stop contagion of the Irish banking crisis. The channels are easy to figure out. The two largest creditors to Ireland are the UK and Germany, with loans outstanding of $149bn and $139bn respectively, according to data from the Bank for International Settlements. An Irish bank default would affect the German and British banking systems directly, and require significant domestic bank bail-outs.
A second channel of contagion would be via the capital markets, to Portugal. The biggest creditor to Portugal is Spain, itself in a precarious position with exposures of $78bn. A default of Irish banks would spread like wildfire. It has to be prevented.
The case for Ireland to take the money from the European Financial Stability Facility (EFSF) is overwhelming. The EFSF was set up precisely for that purpose. Contrary to what I expected, the EFSF has managed to find a way to offer loans with relatively low interest rates. The quid pro quo is a significant lower overall lending ceiling than what the official €440bn ($602bn) headline figure suggests. But even then, it is large enough to handle any conceivable Irish and Portuguese crisis. The EFSF is not large enough to handle any problems that might arise in Spain. In that sense, it is not an umbrella for the eurozone, but only for two of its smallest and most peripheral members.
Considering what is at stake, both for Ireland and the eurozone at large, it is absurd for Dublin to play hard to get. It is equally absurd for others to make an EFSF loan contingent on issues of tax policy. Last week negotiators from the European Union, the European Central Bank and the International Monetary Fund descended on Dublin for talks that will be difficult. Even as it indicated it would seek a deal on Sunday, the Irish government remained keen to avoid a humiliation. There are also political considerations by those who are guaranteeing the loans. The German parliament, for example, cannot be taken for granted. Also, we should be prepared for elements of structured finance, whose purpose, as ever, will be to obfuscate. Patrick Honohan, the governor of the Irish central bank, already hinted that a contingent standby facility might be all that was needed. Does “standby” not sound so much better than “bail-out”? As long as it stabilises the situation, we should not care.
I expect that the eurozone will get over this particular short-term funding crisis. The mechanisms to solve it are in place. But I am concerned about two medium-term developments, for which they are not prepared – not even close. The first is solvency. The EFSF can provide liquidity for Irish banks, but it cannot make them solvent. Ireland’s gross external debt stood at $2,131bn at the end of the second quarter, roughly 1,000 per cent of gross domestic product. As of the end of 2009, the net external debt position was 75.1 per cent of GDP, according to the economist Ricardo Cabral; better than Portugal’s, but still high.
To maintain solvency, Ireland and the other peripheral eurozone countries require a return to solid growth very soon. Kevin O’Rourke, professor of economics at Trinity College Dublin, raised an important point of principle last week. If you believe structural reforms are the key for higher growth then surely you cannot apply this argument to Ireland, a textbook example of a country that has implemented reforms. At a time of extreme fiscal tightening, moderate monetary tightening and weak global demand, I fail to see where Ireland will grow. Does Dublin really think foreign corporations would be lured by low corporate tax rates, and choose this moment to invest, given the current uncertainties? And can Ireland really produce a devaluation of sufficient size with sufficient speed to create an export boom at a time like this?
My second concern is the return of large intra-eurozone imbalances. The Organisation for Economic Co-operation and Development last week forecast Germany’s current account surplus would be heading back towards 7 per cent of GDP by 2012 – close to the pre-crisis record. We are planting the seeds for the next crisis, for which the EU has no institution, no facility and no task force.
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Some interesting views.
We now have the spectre of Ireland’s government showing public reluctance to accept bailout when last week they protested it was not necessary and no talks with IMF and EU were taking place. Total farce, total surrender.
Zapatero has often said the same thing. Portugal maintains a similar stance.
This soap opera of financial disasters within EZ will continue until either they return to growth or Germany politicians and German public opinion screams enough.
The Euro would collapse within weeks after that scenario.
It is entirely possible that moderate German politicians will seek electoral advantage in halting financial aid. Who would blame them? The figures are eye watering. Returning to the DM would be a very popular idea for the German population who are already fed up with bailing out the rest of Europe.
However nothing succeeds like self interest and it actually is in the long term economic interests of Germany that the Euro survives. However convincing the people of that is another matter.
I believe the Euro will survive but not in the current form. If Spain fails and passes round the begging bowl the shock waves in Europe will probably cause serious and meaningful change, if not total collapse. -
Hi adiep
re your myriad of options and in particular the three which you mention.
I must confess I just cannot envisage how options 1 and 2 would operate in practice as both seem to suggest a phantom currency operating alongside the euro. If that was possible then assuming that we are talking about the weaker members leaving the euro then the expectation would be that these phantom currencies would plunge downwards and find their own level. However, in the meantime most people if they had any sense would hold on to their euros and not convert them into the other currency until they needed to do so. There would also be an outflow of money from those countries as business and wealthy individuals sought to protect the value of their assets. This would create a banking crisis in that country, which could lead to some banks going bankrupt. To counteract this crisis the banks would have to increase their interest rates, which of course would have a huge negative impact on borrowers. A weak country would also have to rely on the bond market for loans and given the uncertainty within the country the yields to cover the added risk would probably be prohibitive.
There would also be some doubt as to whether such a country could survive in the European Union. It would probably be ostracised by its former eurozone partners and may lack any allies in E.U. budget negotiations and face discrimination when projects are allotted across member states.
There are many other downsides, which for the sake of brevity I have not mentioned.
The third option is plausible because Germany is a very strong member of the eurozone and European Union and wouldn’t face the same downsides as a weaker state.
Richard
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Ambrose Pritchard quote that hits it on the money. Daily Telegraph today:-
What happens if Spain tips back into recession in 2011, and or when Spanish banks start coming clean on the true scale of their property losses, and Spanish companies have trouble rolling over foreign loans? What happens if Spanish 10-year bond yields creep above 5pc?
Can Mrs Merkel go back to the Bundestag and request fresh money to boost the collateral of the EFSF in order to cope with the next casualty?
A reader asked me this week whether there is any graceful way to avoid this coming chain of disasters.
Yes, there are two options, neither entirely graceful. The European Central Bank can print money like a drunken sailor, flood the bond markets with €2 trillion, and tank the euro against China’s yuan for good measure.
If the Germans refuse to accept this, they should abandon EMU at once, leaving France and southern Europe with the residual euro and the institutions of monetary union. Existing euro debt contracts would be upheld. Germany would revalue – alone or with Finns, Dutch, etc – so holders of Bunds would enjoy a windfall gain.
France could revive the Latin Union of the late 19th Century, a more benign venture than the Máquina Infernal now asphyxiating Portugal, and deflating Spain. -
“The European Central Bank can print money like a drunken sailor, flood the bond markets with €2 trillion, and tank the euro against China’s yuan for good measure.”
Well, that a plan. The Germans will probably have to accept it.
Apparently the US is going the trade war route. This could get nasty
http://ftalphaville.ft.com/blog/2010/11/22/411951/bernanke-hints-dollar-standard-is-flawed/
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@logan wrote:
Ambrose Pritchard quote that hits it on the money. Daily Telegraph today:-
What happens if Spain tips back into recession in 2011, and or when Spanish banks start coming clean on the true scale of their property losses, and Spanish companies have trouble rolling over foreign loans? What happens if Spanish 10-year bond yields creep above 5pc?
Can Mrs Merkel go back to the Bundestag and request fresh money to boost the collateral of the EFSF in order to cope with the next casualty?
A reader asked me this week whether there is any graceful way to avoid this coming chain of disasters.
Yes, there are two options, neither entirely graceful. The European Central Bank can print money like a drunken sailor, flood the bond markets with €2 trillion, and tank the euro against China’s yuan for good measure.
If the Germans refuse to accept this, they should abandon EMU at once, leaving France and southern Europe with the residual euro and the institutions of monetary union. Existing euro debt contracts would be upheld. Germany would revalue – alone or with Finns, Dutch, etc – so holders of Bunds would enjoy a windfall gain.
France could revive the Latin Union of the late 19th Century, a more benign venture than the Máquina Infernal now asphyxiating Portugal, and deflating Spain.The trouble with Ambrose’s views on anything European is that he has been consistently wrong for more years that I can remember. If the article in today’s Telegraph had been written by anyone else I would have applauded it because it makes sense, but coming from this journalist it’s guarantied to be wrong; he’s been consistently wrong since he started writing about Europe.
Is he playing some perverse game with a hedge fund, each time betting against his own predictions? He would be a rich man by now.
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@rt21 wrote:
Hi adiep
re your myriad of options and in particular the three which you mention.
I must confess I just cannot envisage how options 1 and 2 would operate in practice as both seem to suggest a phantom currency operating alongside the euro. If that was possible then assuming that we are talking about the weaker members leaving the euro then the expectation would be that these phantom currencies would plunge downwards and find their own level. However, in the meantime most people if they had any sense would hold on to their euros and not convert them into the other currency until they needed to do so. There would also be an outflow of money from those countries as business and wealthy individuals sought to protect the value of their assets. This would create a banking crisis in that country, which could lead to some banks going bankrupt. To counteract this crisis the banks would have to increase their interest rates, which of course would have a huge negative impact on borrowers. A weak country would also have to rely on the bond market for loans and given the uncertainty within the country the yields to cover the added risk would probably be prohibitive.
There would also be some doubt as to whether such a country could survive in the European Union. It would probably be ostracised by its former eurozone partners and may lack any allies in E.U. budget negotiations and face discrimination when projects are allotted across member states.
There are many other downsides, which for the sake of brevity I have not mentioned.
The third option is plausible because Germany is a very strong member of the eurozone and European Union and wouldn’t face the same downsides as a weaker state.
Richard
Richard, youre only looking at one side of the coin – flight of investment. If an asset devalues enough, i.e. hits the bottom, then it will find buyers. Currencies represent assets. Sooner or later the floating punt would hit bottom and then you’d see the punt looking attractive, at which point there will be a net inflow of cash. This is how floating currencies work, as opposed to the freak show being lived out in the Euro.
BTW, not wanting to overtly point out the obvious, but Ireland already has one hell of a banking crisis. Money is being hoovered out of deposit accounts at an incredible rate. The worst that can happen, IS HAPPENING !!
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@Rocker wrote:
@logan wrote:
Ambrose Pritchard quote that hits it on the money. Daily Telegraph today:-
What happens if Spain tips back into recession in 2011, and or when Spanish banks start coming clean on the true scale of their property losses, and Spanish companies have trouble rolling over foreign loans? What happens if Spanish 10-year bond yields creep above 5pc?
Can Mrs Merkel go back to the Bundestag and request fresh money to boost the collateral of the EFSF in order to cope with the next casualty?
A reader asked me this week whether there is any graceful way to avoid this coming chain of disasters.
Yes, there are two options, neither entirely graceful. The European Central Bank can print money like a drunken sailor, flood the bond markets with €2 trillion, and tank the euro against China’s yuan for good measure.
If the Germans refuse to accept this, they should abandon EMU at once, leaving France and southern Europe with the residual euro and the institutions of monetary union. Existing euro debt contracts would be upheld. Germany would revalue – alone or with Finns, Dutch, etc – so holders of Bunds would enjoy a windfall gain.
France could revive the Latin Union of the late 19th Century, a more benign venture than the Máquina Infernal now asphyxiating Portugal, and deflating Spain.The trouble with Ambrose’s views on anything European is that he has been consistently wrong for more years that I can remember. If the article in today’s Telegraph had been written by anyone else I would have applauded it because it makes sense, but coming from this journalist it’s guarantied to be wrong; he’s been consistently wrong since he started writing about Europe.
Is he playing some perverse game with a hedge fund, each time betting against his own predictions? He would be a rich man by now.
Oh come on, how can you say this??? Ive been reading AEP for a long time and his predictions are finally coming to fruition.
The man was early, but not wrong.
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Adiep
mmmm. Although it is true that investors look for opportunities, most people are risk averse and if I had a lot of money I think I could find better ways of putting it to good use rather than say investing in a country like Greece that would have a dodgy currency. I think you would find that it would be a very long time before most people would even think about putting their money back into such a weak economy and in the meantime it may suffer equal or more misery than it is now but without the support and also probably without access to the European Union market. The point I’m making is that such countries are between a rock and a hard place and there is no easy option. Whichever option they choose is going to be painful. Despite all the pain it is interesting to note that neither Greece nor Ireland have shown any signs of wanting to exit the euro zone.
Whilst it is true that Ireland has one hell of a banking crisis, it is also true that they are being helped out by the IMF and the euro zone. Can you imagine what the consequences would have been for them if they had announced on Saturday that they were leaving the euro zone. Can you imagine the IMF and the euro zone announcing the day after that they would be pouring money into the country to help it stabilise over the next three years. Can you also imagine the reaction of the bond market to the news. Although foreign companies have been attracted to Ireland for its low taxation, the other factors that have attracted them have been its membership of the E.U. because it represents huge market potential. This would all be put in jeopardy.
Perhaps Ireland et al have all sold their souls to the devil and now have to live with the consequences.
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@rt21 wrote:
Adiep
mmmm. Although it is true that investors look for opportunities, most people are risk averse and if I had a lot of money I think I could find better ways of putting it to good use rather than say investing in a country like Greece that would have a dodgy currency. I think you would find that it would be a very long time before most people would even think about putting their money back into such a weak economy and in the meantime it may suffer equal or more misery than it is now but without the support and also probably without access to the European Union market. The point I’m making is that such countries are between a rock and a hard place and there is no easy option. Whichever option they choose is going to be painful. Despite all the pain it is interesting to note that neither Greece nor Ireland have shown any signs of wanting to exit the euro zone.
Whilst it is true that Ireland has one hell of a banking crisis, it is also true that they are being helped out by the IMF and the euro zone. Can you imagine what the consequences would have been for them if they had announced on Saturday that they were leaving the euro zone. Can you imagine the IMF and the euro zone announcing the day after that they would be pouring money into the country to help it stabilise over the next three years. Can you also imagine the reaction of the bond market to the news. Although foreign companies have been attracted to Ireland for its low taxation, the other factors that have attracted them have been its membership of the E.U. because it represents huge market potential. This would all be put in jeopardy.
Perhaps Ireland et al have all sold their souls to the devil and now have to live with the consequences.
There is and will be life outside of the Euro, so I wouldnt get too hung up on the turmoil that leaving it might create. Life will go on after.
Were not talking about some 3rd world countries here without the rule of law. These are developed nations with pools of skilled labour. Make that labour cheap and you’ll see business falling over each other to invest. What you’ll also see is the development of the internal market, what cannot be afforded via import will have to be made domestically. And actually, I think we’ll find that the bond markets will be very forgiving of a default caused from participating in the Euro. It was viewed by many as being unsustainable in the first place and I think we’ll see investor breath a sigh of relief that sanity has been allowed to reign, opening up new opportunities.
If we were talking about an undeveloped nation here, then Id agree, but these economies represent very good value, at the right price — the problem is, they are being prevented from finding that price.
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The view from the UK, especially the anti-Europe one, is one of world isolation, constantly wishing and hoping that the EU and the EZ will fail. Despite signing the various treaties with the rest of Europe, those people still hanker for a failure of the entire European project. Such a failure is highly unlikely and the sceptics fail to understand what the consequences would be for the UK. They somehow imagine that the country could rally behind the Union Jack and the pound Sterling and get the rest of the world onboard. Noble thoughts, but downright silly.
Any problems within Europe affect all of its people, all of the treaty signers, especially a country on its periphery whose exports go directly to its European partners and would go bankrupt sooner than its neighbours because it didn’t join the currency union.
The bankers caused most of the current troubles, mainly American ones, but our City is still our biggest asset and we had to bail it out because it’s all we’ve got, our manufactured exports are not sufficient to sustain us. Via the prudent Scottish banks, we are joined to Ireland at the hips, if Ireland fails, we fail.
Portugal is too small to matter, but if Spain fails, we fail. Santander will make sure of that.
What has dragged us down for many years is our dogged support for the US, the main reason we didn’t join the Euro; they didn’t let us. The Dollar is struggling now, mainly against the Euro, it would have gone under long ago, deservedly so, if confronted with a true united Europe. China, in particular, would have preferred to invest in a stable Europe instead of a shaky superpower coming to the end of its life.
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I resist getting into the old debate over the pros and cons of the Euro, Eurozone et al. However had the UK been a member of the Eurozone when the current recession arrived the country would have needed a massive bail out to save the country’s banks and it’s economy from going under. The fact that it could devalue it’s own currency, reduce it’s interest rates to near zero, raise capital from the markets at affordable rates and run it’s own economy to the satisfaction of the markets has kept the EU and IMF at bay.
In my opinion it can never be a satisfactory situation to allow other countries to have control of your economy. It’s like allowing your nearest neighbour to run your personal household budget. Its doomed to failure.
The smaller countries in the EZ are suffering economically because they are out of sink with the richer states and cannot prosper. If that continues without meaningful change eventually they will be forced out. It’s as sure as night and day. Then watch their economies boom unfettered by control from Frankfurt and Brussels. -
Adiep
Although I think we share a similar view and concerns about the euro itself, our main difference of opinion appears to be in the potential repercussions for a (weak) country unilaterally withdrawing from the eurozone without the support of fellow members (it may be quite different if it was an amicable withdrawal or if a number of other states withdrew at the same time).
I think it might be best for us to agree to differ on this particular issue and see how things pan out.
Richard
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Looks like a bond sale by the Spanish failed.
http://ftalphaville.ft.com/blog/2010/11/23/413546/spanish-contagion-heads-for-the-bonds/
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heres another thought, one perhaps a mite sentimental but i also think is based on common sense.
These european nations have taken hundreds and in some cases thousands of years to reach the stage of development we see now. Does it seem sensible or reasonable to you that these nations can be merged by a bunch of gravy train riding beaurocrats in a matter of a few years?
surely by any standard that would be a pretty stupid thing to attempt ? half of these beaurocrats couldnt erect an MFI bedside table in that time frame, let alone a functional superstate.
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Maybe Germany should be encouraged to leave the Euro.
At worst, it will generate serial depression and default among member countries. Moreover, this is also a global problem: the emphasis on deflationary adjustment in weaker countries risks turning the eurozone as a whole into a gigantic Germany, dependent on importing demand from the rest of the world. As Philip White has noted in a paper for the pro-European Centre for European Reform, the eurozone is far too large to play such a role in the world economy. Thus, the question of imbalances within the eurozone is inescapable, however much Germany may wish to resist such a discussion.
http://www.ft.com/cms/s/0/9dc7e408-f73e-11df-9b06-00144feab49a.html
If Spain needs a bailout, something will have to give. Treaties are only a piece of paper.
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My understanding of the European Treaties is that all E.U. member states are under an obligation to join the euro zone as long as they meet the convergence criteria (However, I’m sure non euro zone countries would sensibly insist that their economies are not convergent).
The Treaties have no provision for an exit clause from the euro zone therefore in principle a country could now only leave the euro zone by leaving the European Union. From what I understand the Lisbon Treaty does have a provision for member states to leave the European Union but is silent on the issue of leaving the euro zone.
It would need a change in the Treaties for a member to leave the euro zone and remain legally in the European Union. That is why I mentioned in an earlier post that leaving the euro zone and remaining in the European Union would require the consent of other members. If that consent was withheld then other members could make life intolerable for the member state that unilaterally decided to leave.
Richard
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Nail hit firmly on head there rt21. However much the eurosceptics may wish one of the countries, be they big or small, to jump ship the structure of the various treaties makes this very very difficult.
Does anyone remember the time the, then newly appointed, John Major very publicly tried to veto all EU decision making to try to force the UK’s agenda on the EU? From memory the policy lasted for less than 48 hours before a retreat was sounded.
I can’t help thinking that some people are writing off the euro and consequently the EU way too early.
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Most of the problems with the EZ have been identified here, but I think the solutions have been clouded by a pre-existing dislike of the euro experiment, in much the same manner as has AE-P. It is has become obvious that the EZ will have to change and change quite drastically but not necessarily destroy itself. Imbalances both internally and externally will have to be dealt with, and that is both a global and local problem needing global and local solutions.
Dit
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@brianc_li wrote:
Nail hit firmly on head there rt21. However much the eurosceptics may wish one of the countries, be they big or small, to jump ship the structure of the various treaties makes this very very difficult.
Does anyone remember the time the, then newly appointed, John Major very publicly tried to veto all EU decision making to try to force the UK’s agenda on the EU? From memory the policy lasted for less than 48 hours before a retreat was sounded.
I can’t help thinking that some people are writing off the euro and consequently the EU way too early.
You’re assuming that the member states would resist a country leaving, I don’t see that being the case. Who will hold an entire country ransom if they want to leave? That’s a totally unrealistic scenario and actually quite typical of the EU to find themselves in such a situation.
Can you imagine the reaction, “sorry, you cant leave, you’re in this forever”. Hah ! That single act would destroy the EU in a heartbeat.
EDIT: BTW, why should changing a treaty be so troublesome?
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@DITTER wrote:
Most of the problems with the EZ have been identified here, but I think the solutions have been clouded by a pre-existing dislike of the euro experiment, in much the same manner as has AE-P. It is has become obvious that the EZ will have to change and change quite drastically but not necessarily destroy itself. Imbalances both internally and externally will have to be dealt with, and that is both a global and local problem needing global and local solutions.
Dit
Ditter, the solution has been identified. Mass austerity and internal devaluation, to the point where these economies become competitive again. The imbalance you refer to is obviously Germany’s surplus, but lets be sensible, do you think anyone would seriously suggest that Germany should run a deficit with the likes of Spain and Greece? How is that going to happen? “Dear vorkerz, from zees moment, vee must be less productive and buy more of zee olive oilz”
I think the fact the Europhiles are refusing to accept, is that these economies cannot be bound together with the levels of stability desired without total political and fiscal union. The possibility of that is now extremely remote.
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Adiep
if you are correct in your assumption that a weak state could leave the eurozone and stay in the European Union with the consent of the other members, why haven’t those countries left already because as you and I know some countries have been economically strangled in that arrangement in recent years.
I have not heard one credible reason given for their reluctance to jump ship other than the one that I have given above
Richard
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@rt21 wrote:
Adiep
if you are correct in your assumption that a weak state could leave the eurozone and stay in the European Union with the consent of the other members, why haven’t those countries left already because as you and I know some countries have been economically strangled in that arrangement in recent years.
I have not heard one credible reason given for their reluctance to jump ship other than the one that I have given above
Richard
We don’t have evidence either way, though do you seriously think that any European nation will held in the EZ against its will? Why would our fellow European brothers do that? Were talking about nations states here, not a bunch of spiteful children.
I feel that its not beyond the wit of a few lawyers to modify the treaties to allow leaving of the EZ, or for that matter a quick exit of the EU followed by an even quicker rejoin — while the ink’s still wet. The method isnt particularly important.
Not for one minute would I suppose any of these treaties could hold the EZ together against its participants will. Will the EU send its army?
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I have not heard one credible reason given for their reluctance to jump ship other than the one that I have given above
Simple. Non of the countries want to leave the EU or Eurozone, they are giving the excuse about ‘treaties’.
Any country that did want to leave could go ahead and do it, nothing could stop them. AFAIK there is no real basis that they could convert to the Euro in the first place; all the requirements were simply niceties with zero basis in any sort of law. One minute they had worthless Pesetas and Lire next they had Euro/DM’s at a fixed exchange rate. They would only need to print some money (or continue to use the country specific Euro notes/coins) and change the symbol of the currency (maybe even not do that). Re-instate a central bank of course and set a interest rate.
One country (Montenegro I think) even converted unilaterally without any agreement with the EU.
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Interestingly, Ireland’s main export markets are USA, UK and Belgium, which appear to represent about 60% of exports. God knows what the Belgium’s are buying so much of? Maybe Zinc? Germany, France et al are below 5%.
If the Irish devalued, I suspect their market share in the UK and USA would shoot upwards and lets face it, the UK is never going to be placing problems in the way of a country that leaves the Euro.
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@peterhun wrote:
Simple. Non of the countries want to leave the EU or Eurozone, they are giving the excuse about ‘treaties’.
That’s debateable. The Irish voted against the Lisbon Treaty first time around, we all know about the second vote and the scare tactics employed.
If the Irish public decide theyve had enough of the EZ and this god awful debt spiral, their politicians will have to react. That’s not a remote possibility given the budget proposals in Ireland today.
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well, this about says it all
http://www.youtube.com/watch?v=-KAWXC5Z0wU&feature=player_embedded
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Quote from The independent today:
Would anybody like a clue to just what the Spanish government are doing to make things “look” good? All government payments to pharmacies have been stopped until January, which does not mean that pharmacists stop supplying drugs against prescriptions, they can’t, they are obliged by law to honour a doctor’s prescription, but until January they will not be paid.
You might at first say “fine, they have other income from other products” and that would obviously be true, to a greater of lesser degree depending on the shop in question. But what is government spending going to look like in January when this money does finally get paid, if it gets paid?
We might also ask what other little government tricks are being played to hide (delay) spending, that will in time show up?
Government statements are made by politicians and by the normal rules of nature should never be believed.Another little game being played in Spain is for banks that repossess houses to hold them on their books at full market value, the price the ex-owner paid, despite the fall in property prices. This keeps the banks holdings at an unreal (untrue) value. Spanish banks have far less value than they are currently showing, another bubble that must at some point burst. The property crash of the last two to three years was far worse than anybody will admit and hiding behind this fake bank value might have been a good idea if problems had only gone on for a short time and real values had come back up to close the gap, but that has not happened and it seems very unlikely that it will do in the foreseeable future. The big question the Spanish government are avoiding is how long they can keep this bank (house) of cards standing and how badly the people of Spain (and Europe) will be hurt when it all falls down.[/i]
The truth is that Spain will not admit it’s true financial situation because their borrowing costs would rocket to unaffordable levels.
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The Guardian article, though perceptive, could easily and already has been written by most people involved in the Spanish property market, especially the expats living in Spain. We don’t need statistics, especially Spanish ones, the evidence is all around.
The building has stopped, the main players have gone bankrupt and unemployment has gone through the roof. Of course the banks are holding on to their properties at pre-2007 valuation levels, how could they not?
Ireland and Spain face a similar problem, over-building and ridiculous lending, which has come to a halt but the banks need to borrow large sums just to survive – to repay their silly borrowing from the money markets.
Spain has one trump card in its pack, a high-earning tourist trade which may see them through the hard times, and, in European terms, it may be considered too big to fail, just like the good old Scottish banks when the recession began.
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The European banking system would be “nearly bust” if the euro were to be abandoned which means the 16-member currency “cannot and should not go,” Evolution Securities Ltd. said.
“If the euro is abandoned, and we go back to the peseta, lira, escudo, drachma etc., devaluations would follow immediately,” said Arturo de Frias, head of bank research at Evolution in a note to investors today, adding the industry is a “great buying opportunity.” Devaluations mean write-offs “of a size that would render the whole European banking system completely insolvent.”
I’m coming to the conclusion that they will bail out Spain even if its costs 500Billion Euro’s. The Euro will survive.
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I think it’s increasing likely sovereign debt investors in the Eurozone are going to face a substantial ‘haircut’ to their investments. Merkle has said as much in an interview yesterday, perhaps to pacify German public opinion. No investment is risk free and perhaps the morality of investors sharing some of the burden is right, otherwise the returns are free money. The question is on what scale. Markets are concerned it could be substantial and in the case of Spain huge.
I don’t agree with Rockets statement that Spanish banks are correct in keeping their none performing assets at pre recession levels. It makes no sense and is deliberately misleading. Recently the Bank of Spain tried to force the banks to come clean with their losses. However I think the scale of the disaster shocked even them so they have held off on that one for fear of spreading panic. Make no mistake Spanish banks are sitting on catastrophic loss and the markets smell blood. -
Just read an interesting article in the Independent about the euro crisis. One of the questions they ask is
Q: So why don’t the Greeks, the Irish and others just leave the euro now?
A: It is not a painless solution. If they adopt a “new drachma” or “new punt” their overseas debts, many denominated in euros, will automatically be revalued upwards, making them even more difficult to pay off. People’s savings would be devalued and devastated. In those circumstances a national default would become a reality in Europe, something hitherto confined to Africa, Latin America and Russia. It would be humiliating, make borrowing very expensive, and might be even worse than defaulting within the euro.
Haven’t really got time to comment on the article but I do share their view that leaving the euro could be just as painful if not more than staying in
Richard
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@logan wrote:
I think it’s increasing likely sovereign debt investors in the Eurozone are going to face a substantial ‘haircut’ to their investments. Merkle has said as much in an interview yesterday, perhaps to pacify German public opinion. No investment is risk free and perhaps the morality of investors sharing some of the burden is right, otherwise the returns are free money. The question is on what scale. Markets are concerned it could be substantial and in the case of Spain huge.
I don’t agree with Rockets statement that Spanish banks are correct in keeping their none performing assets at pre recession levels. It makes no sense and is deliberately misleading. Recently the Bank of Spain tried to force the banks to come clean with their losses. However I think the scale of the disaster shocked even them so they have held off on that one for fear of spreading panic. Make no mistake Spanish banks are sitting on catastrophic loss and the markets smell blood.Every business inflates its non-liquid assets on the balance sheets to present the best possible picture to investors; unfortunately the Spanish banks have no choice in the matter, the true figures would be horrendous and some of them would be technically bankrupt – and that wouldn’t help anyone, not even the euro-sceptics cheering from the sidelines, who are unable to think through what a European catastrophe would mean for their fortunes.
I listened to a distinguished economist being interviewed earlier today and he was very supportive of the Euro and explained that Spain was not in need of any support and had sound finances. He blamed the current speculation on unreasoned market panic, with no foundation in fact.
He also contrasted Spain with the UK, whose indebtedness is higher. I’m not sure I agree with his analysis, but it could explain why the pound is holding steady rather going through the roof against the Euro.
Selfishly, I would like the pound to rise, and all the indicators seem to point that way, but the currency markets don’t agree with me.
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@rt21 wrote:
Just read an interesting article in the Independent about the euro crisis. One of the questions they ask is
Q: So why don’t the Greeks, the Irish and others just leave the euro now?
A: It is not a painless solution. If they adopt a “new drachma” or “new punt” their overseas debts, many denominated in euros, will automatically be revalued upwards, making them even more difficult to pay off. People’s savings would be devalued and devastated. In those circumstances a national default would become a reality in Europe, something hitherto confined to Africa, Latin America and Russia. It would be humiliating, make borrowing very expensive, and might be even worse than defaulting within the euro.
Haven’t really got time to comment on the article but I do share their view that leaving the euro could be just as painful if not more than staying in
Richard
This isnt a problem. The debt can be converted or defaulted upon. A conversion will result in a “hair cut” but investors are already pricing in the effects of that.
So, not really valid, as it assumes that a default or haircut wont take place if they stay in the Euro. Merkel has made it clear that haircuts will happen.
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@logan wrote:
I think it’s increasing likely sovereign debt investors in the Eurozone are going to face a substantial ‘haircut’ to their investments. Merkle has said as much in an interview yesterday, perhaps to pacify German public opinion.
These statements from Merkel and Sarkozy have caused Irish bond yields to rocket. They have effectively ruined any chance of the Irish surviving without Euro assistance or a default.
So Merkel is saying that she can buck the markets… haha. Weber is saying they will pump in as much money is necessary to save the Euro.
They are bluffing and the markets are going to call their hands.
There are plenty of other bonds to buy, nobody needs to by Greek or Spanish soverign debt. Saying haircuts are likely is just asking for trouble.
But apparently they can buck the markets, so lets see…
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@Rocker wrote:
I listened to a distinguished economist being interviewed earlier today and he was very supportive of the Euro and explained that Spain was not in need of any support and had sound finances. He blamed the current speculation on unreasoned market panic, with no foundation in fact.
Rocker, you dont seriously think that’s a credible response to the crisis?
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I don’t know why, but I’m reminded of headless chickens singing in the bath. Mrs Merkel is but a politician in a precarious coalition, who has inherited an economy based on prudent savings, and a model export-led country.
It may not be right to constantly return to a UK comparison, but we abandoned manufacturing for a service economy centred on the City. It made us rich, and if it hadn’t been for Lehmans and the recession, we would now be rich indeed.
It could still work out, the bailed-out banks are returning to profit and are repaying their borrowings with interest. We don’t have millions of empty houses and our builders are still building. When it’s all sorted, the Brits will return to Spain and help them out by buying up their empty houses.
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@adiep wrote:
The beeb and Indi are mercilessly pro-Euro.
The poor old beeb are always being blamed for being anti this or pro that. Such is the fate of neutrals, they are always getting accused by both sides of being the other side’s friends.
I personally thought the beeb article was quite illuminating. It pointed out why a weak economy would have serious problems leaving the Euro whilst a strong economy e.g. Germany could leave and not have those problems.
IMO if Germany and all the other strong countries said they were leaving the Euro and setting up a Euro MK2 currency the old Euro would sink in value and make their exports and debt much cheaper, and therefore making life much easier, for those remaining. Meanwhile the Euro MK2 would significantly increase in value compared to the existing Euro making their exports less competitive thus addressing the current imbalances.
Of course I don’t think for one second that would happen, it would not be politically acceptable to anyone.
Edited 10:15 to include IMO in the text for clarity.
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just read an interesting article in the Telegraph, albeit another mercilessly pro-Euro daily 😉
it quotes Portugal’s finance minister as saying “I don’t want to refer to this or that country, much less Germany,” “But there is among our partners in the EU those that think that the best way of preserving stability in the euro area is to push and force those countries that have been in the spotlight to seek aid.”
I think it just confirms what some of us already knew that the E.U. is not a gentleman’s club, it is a collection of hard nosed politicians who are well versed in the black arts of arm twisting. It’s strange that one week after publicly saying that it did not need any bailout, Ireland fell into line with the E.U’s view that it did.
Richard
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Spain issues defiant warning to markets
By David Oakley in London, Quentin Peel in Berlin and Nikki Tait in BrusselsPublished: November 25 2010 19:47 | Last updated: November 26 2010 11:41
Spain has warned financial traders betting against its debt that they will lose money, in a defiant challenge to the markets which are driving Madrid’s cost of borrowing sharply higher.
José Luis Rodríguez Zapatero, Spanish prime minister, on Friday ruled out any rescue package for the country even as the premiums demanded by investors to hold Spanish sovereign debt over that of Germany’s rose to euro-era highs.
“I should warn those investors who are short selling Spain that they are going to be wrong and will go against their own interests,” Mr Zapatero said in an interview with Barcelona-based broadcaster RAC1, according to Bloomberg. He “absolutely” ruled out any need for a rescue.
Continued<
http://www.ft.com/cms/s/0/d0976a74-f8ca-11df-b550-00144feab49a.html?ftcamp=rss#axzz16OkdCnuNIf Zapatero is denying it, it must be true.
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Of course its difficult for a weak country to leave, its difficult for them to stay too, losing ones sovereignty is hardly something most voters will relish.
Using these bailouts to push through more control of these countries is really a disgrace to watch. How have they put themselves in such a position. This will just create more acrimony, more nationalism (notice how Sinn Fein won the Irish by election the other day?), and more infighting between these nations.
Ultimately “the project” will fail, probably sooner than most people think.
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There’s an article about this on http://www.moneyweek.com, Spanish Bond prices and Zapatero’s denial etc
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@rt21 wrote:
one never knows whether those who buy the bonds and therefore determine its yield are the same ones who are speculating against the euro.
You can bet your bottom dollar that some are eyeing this situation as a possibility to make some serious money
Richard
I guess as traders, they all look to follow trends and fundamentals, which pretty much all stack up in the same direction — so highly likely the same.
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The Moneyweek article describes what most forums members have posted here this week. The prognosis for the property market is spot on and even a little over optimistic. You will soon be able to buy a Spanish property for the price of a good second hand car.
I had yet another meeting with a banker in Spain this week. He was almost in despair. Repossessions are currently running at 70% more than sales. Construction has halted everywhere and in 2011 bankruptcies are set to rocket. Yet this bank will still not yield their property holding prices by any significant amount. Its now just a poker game to see who blinks first. They seem incapable of understanding that investors will not touch their stock at current levels with a very long pole. -
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I think the problem is more the decision making process by senior management.
Once property is marked down to any current saleable level the banks balance sheets take a hit and losses become public knowledge. That may be a normal process in most other countries but in Spain the truth is hidden. It’s simply the business and political culture that has not moved into the modern era.
Consequently the markets who are only to aware of ‘Spanish Practices’ scent blood. They have only themselves to blame. Until they come clean with the true extent of their losses the markets will chip away and Zapatero will find himself in the truly awful position of Brian Cowan. -
@logan wrote:
I think the problem is more the decision making process by senior management.
Once property is marked down to any current saleable level the banks balance sheets take a hit and losses become public knowledge. That may be a normal process in most other countries but in Spain the truth is hidden. It’s simply the business and political culture that has not moved into the modern era.
Consequently the markets who are only to aware of ‘Spanish Practices’ scent blood. They have only themselves to blame. Until they come clean with the true extent of their losses the markets will chip away and Zapatero will find himself in the truly awful position of Brian Cowan.The problem with Spain is one of transparency, and it’s a historic one, a remnant from such a relatively short time ago (35 years) when there wasn’t any. Court hearings are still often held in secret and it filters all the way down to Telefonica and Iberdrola refusing information that should be in the public domain.
If the banks repossess all of the homes on which mortgages are no longer being paid and place them on the open market without a ‘reserve’, they would go bankrupt, it may even make the entire country insolvent because those debts are huge.
There could be a domino effect as well, most commentators acknowledge that if Spain fails, the Euro is dead and all European countries, including the UK, will suffer for many years.
It might be better for all of us (expats especially) if the banks continue to hold on to those properties at current prices until there is a recovery, even if it’s ten years away.
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Do not agree at all. You are proposing that Spain becomes a European Japan. Sloooooow deflationary cycle, huge debts, etc… Better to do as the US and other developed nations such as the UK and tell the truth about the problem.
There’s no point in hiding it now, the markets are going to charge a premium because they know something is being hidden.
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I agree with Rocker that lack of a transparency culture in Spanish business and politics has it’s origins in its history. However that is simply not an excuse acceptable to anyone in the modern world. If Spain expects to be taken seriously by world markets attitudes and practices need to change.
It is completely unacceptable that Spain’s public companies, or The bank of Spain hide or disguise the true state of their business losses. If coming clean means bankruptcy then so be it. That’s how market economies operate. In most countries of the G7 continuing to trade whilst insolvent is a criminal offence.
Zapatero simply doesn’t get it. He thinks his country is a victim of market dealings designed to sabotage his economy. What a pathetic, clueless statement by a Prime Minister of a country which had the fourth largest economy in Europe.
When politicians run out of ideas they lash out, bite the hands that feed them whilst clutching at straws blowing in the wind. -
I should have quoted, this is what I was disagreeing with from Rocker.
It might be better for all of us (expats especially) if the banks continue to hold on to those properties at current prices until there is a recovery, even if it’s ten years away.
But, yes, I do agree that they’ll try and get away with pulling the wool over the markets eyes until they are caught and even then they’ll try and dodge. But thing just aint how they used to be 15 years ago, the Internet and technology big bang in the markets have seen to that. Anyone can be a billion dollar detective these days, i.e. find where the billions have gone.
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Spain needs lots of new money next year and investors know that they will have to take a haircut becuase the Eurozone simply doesn’t have the money, German law precludes it.
Now, how about the ECB printing a couple of Trillion? They have done some QE already, is there anything to stop them doing it again?
A 20% fall in the Euro would probably be ok with a lot of countries in the EZ. -
Whatever financial markets do now is because of what investors believe will occur in nine months time. If they reacted to what happens today its already too late.
In the second quarter of 2011 a huge portion of Spanish debt matures. That will crunch the country into default without a bail out. For the government to say that a bail out is not required they mean for today. The markets know for 2011 it’s a done deal. Who knows even the banks may have come clean by then and revalued their none performing assets to junk status. -
What leaves a bad taste in my mouth is that Ireland had made a serious attempt to address their budget woes, whereas Greece did jack. Greece ends up with higher market bond yields but lower bailout repayment rates, Ireland gets stitched up with higher rates and actually lower market rates than Greece had at the time of the bailout.
The Irish have seen a huge crash in their housing market which has pushed normal folk into serious levels of negative equity, whereas Spanish banks have distorted the truth and the supply of mortgages in order to prevent a crash. If Spain gets bailed, you can bet its for a lot more money and at an even lower rate than Ireland or Greece. Spain has done less than Greece to address it economic woes, it barely admits it has any, yet is on the brink of the kind of crisis that could end up bankrupting much of Europe’s banking system.
Nobody ever said life was supposed to be fair, but this just takes the p*ss.
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If bankers lend cheap money foolishly, who is acting irresponsibly, banker or borrower? Both, but especially the banker.
The stench of moral hazard in this crisis is sickening. Bond-holders must take a hit. Anything else is just immoral.
The way things are now, Irish tax payers will spend a generation slaving away to pay for the irresponsible lending of bankers.
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You are confusing issues here Mark The current crisis in the Eurozone has been caused by excessive Government borrowing some of it to shore up banks but most of it due to a catastrophic fall in their tax revenues leaving a huge hole in public finances. Governments, especially in Spain and Ireland depended on the property bubble to keep their coffers topped up.
Individual banks in the US, UK and Ireland have already taken the hit. Spain’s is still to come. Yes they acted irresponsibly but have already paid a price for that. Hence the need for support both from national government and in the case of Ireland and Spain from the ECB.
Bond holders are investors who simply seek a reasonable return on their capital and expect it returned on maturity.
Where is the morality of them being forced into taking a haircut? Bond yields reflect the degree of risk. If you today invest in a 10 year Greek bond paying more than 12% risk that your capital may not be returned in tact is proportionate. Spanish bonds today pay 5.5% hardly a massive return which reflects massive risk.
The moral hazard lies with the way governments and central bankers behave, failing to control the property bubble, not raising interest rates to choke off cheap money, and spending money they did not have. None of that behaviour can be blamed on investors or bond holders. -
@logan wrote:
Bond holders are investors who simply seek a reasonable return on their capital and expect it returned on maturity.
Where is the morality of them being forced into taking a haircut? Bond yields reflect the degree of risk. If you today invest in a 10 year Greek bond paying more than 12% risk that your capital may not be returned in tact is proportionate. Spanish bonds today pay 5.5% hardly a massive return which reflects massive risk.
The moral hazard lies with the way governments and central bankers behave, failing to control the property bubble, not raising interest rates to choke off cheap money, and spending money they did not have. None of that behaviour can be blamed on investors or bond holders.I would totally agree with you with respect to original purchasers of bonds and I think that there is a moral argument that they should be protected as they are lending directly to the governments but these bonds are subsequently traded with higher or lower yields depending on whether they are seen as better or worse investments than when originally issued. I don’t see why subsequent purchasers should be protected just because they misjudged the risk.
Having said that I have no idea whether original or subsequent pruchasers are identifiable. Maybe that’s how it should be done after 2013 or whenever i.e. original purchasers get protection but subsequent purchasers take a risk. -
@mark wrote:
If bankers lend cheap money foolishly, who is acting irresponsibly, banker or borrower? Both, but especially the banker.
The stench of moral hazard in this crisis is sickening. Bond-holders must take a hit. Anything else is just immoral.
The way things are now, Irish tax payers will spend a generation slaving away to pay for the irresponsible lending of bankers.
If only it was as simple as the banks lending recklessly. Anglo Irish Bank is a name which is synonimos with all that was wrong during the boom times – two guys who headed this bank used it as their own personal bank and look directors loans in the billions and tried to hide it and this was backed by a Fianna Fail government – the financial regulator turned a blind eye to all that was going on. Irish Nationwide was also another bank who acted the same way. None of these guys will probably ever do time for this. Bank of Ireland, AIB, Permanent TSB the main crime here was the loaned out too much money but it was during a time when interest rates were at an all time low people were earning good money and they threw money at people without doing any stress tests – but the bank that brought them all down was Anglo Irish Bank and it is being wound down in the next few weeks after tax payers have pumped in excess of 30 billiion into it over the last two years. It is a name that will be inscribed in present taxpayers brains for a long time to come. We will have a tough few years ahead of us but hopefully we will turn the corner as we have been skimming the bottom for the last 3 years and going nowhere. We all look forward to a General Election in the New Year – a new beginning for everyone living here be it a tough one but we will see our way out of it- some good will come from it.
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Folks
I work in the Bond markets in the City of London.
Simply put, the situation is this :
Governments do not entirely run their countries when it comes to finance — in most other things they have the power.
What is happening is — Governments have 2 sources of money — income and what they borrow, just like everyone else.
When a Government wants to borrow cash, they go to the credit markets. The credit markets are bondholders.
Telling bondholders to accept a less return than contracted or no return (haircut versus default) is short term stupidity.
Sooner or later after an event like the above, the Government (with new people in it) will want to borrow again and go back to the same Bank manager they shafted before by default for another loan — guess what the response will be — from outright refusal to buy, to buying at a much higher interest rate.
Thats why bondholders must be protected at all costs — its in the countries best long term interest to be on future good terms with the bank manager.
The blame must squarely and solely be placed on the secondary lenders in a country (ie the local banks locally regulated) not the primary ones otherwise the country fails.
Never forget this — its the bond market that dictates a country’s financial fortunes. No country is self financing. A responsible government and population will understand this and not lash out against the bank manager.
Stubborn short term defiance = long term failure lamented about by future generations.
— Munky
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@ozmunky wrote:
Folks
I work in the Bond markets in the City of London.
Simply put, the situation is this :
Governments do not entirely run their countries when it comes to finance — in most other things they have the power.
What is happening is — Governments have 2 sources of money — income and what they borrow, just like everyone else.
When a Government wants to borrow cash, they go to the credit markets. The credit markets are bondholders.
Telling bondholders to accept a less return than contracted or no return (haircut versus default) is short term stupidity.
Sooner or later after an event like the above, the Government (with new people in it) will want to borrow again and go back to the same Bank manager they shafted before by default for another loan — guess what the response will be — from outright refusal to buy, to buying at a much higher interest rate.
Thats why bondholders must be protected at all costs — its in the countries best long term interest to be on future good terms with the bank manager.
The blame must squarely and solely be placed on the secondary lenders in a country (ie the local banks locally regulated) not the primary ones otherwise the country fails.
Never forget this — its the bond market that dictates a country’s financial fortunes. No country is self financing. A responsible government and population will understand this and not lash out against the bank manager.
Stubborn short term defiance = long term failure lamented about by future generations.
Somehow lenders are falling over themselves to fund states which may well be insolvent (USA/UK/Japan/etc) for minuscule yields. Rates that will likely leave these investors out of pocket due to inflation.
Lenders will lend to states that have defaulted if they feel the risk/reward ratio balances for them. Its certainly not the case of going to some pin-striped banker who will look down his glasses and go “tut tut tut, didnt you default before? now get out!”
If these countries follow this route, their populations will migrate and whoever is left will be reduced to poverty, which of cause will lead to restructuring or default.
The burden of debt sometimes becomes too much, hence entities become bankrupt. This is one of those cases.
The investors who lent the money in the first place, may well find they don’t have any money to lend again, as they imprudently lent it in the first place and will have lost it post default. However, new investors will come along and the worlds economy will change and risk and reward will look different. The countries will remain.
So in summary, I dont think the bond markets memory is that great, and in summary summary, hasnt Greece defaulted something like 3 times in the last 100 years, yet somehow they still managed to borrow 150% of GDP?
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Spot on Adiep!
There seems to be a widespread belief in the media, governments and in the markets themselves that the market is a single entity that believes the same thing when in fact it is a herd of individuals and it’s true that sometimes it acts literally like a herd but are really made up of thousands of individuals always looking for an opportunity to make money that the others haven’t seen. Unless an investor has personally been burnt by a defaulting government he or she will simply see a past default as a quantifyable risk, but not a given outcome in the future, from which money can be made; and so the game goes on. There are many countries that defaulted in the past that the market seems to have fortgotten about.
It is not a cosy customer/bank manager relationship of days gone by, it is simply a question of whether enough individuals think there is money to be made in the future.
p.s. According to Robert Peston’s blog on the BBC, Portugal’s central bank has come clean about problems in its own domestic banks. Apparently the Portugese government has been surreptitiously borrowing money from the ECB via its own domestic banks to plug a hole in its own current account, something that is strictly against EU rules. I thought the contagion wouldn’t reach Portugal until next year but I should imagine that this revelation might speed things up a tad.
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@zoro wrote:
p.s. According to Robert Peston’s blog on the BBC, Portugal’s central bank has come clean about problems in its own domestic banks. Apparently the Portugese government has been surreptitiously borrowing money from the ECB via its own domestic banks to plug a hole in its own current account, something that is strictly against EU rules. I thought the contagion wouldn’t reach Portugal until next year but I should imagine that this revelation might speed things up a tad.
Spanish banks have borrowed truly eye watering sums from the ECB this year, although November saw a slight decline mainly due to Trichet turning off the taps. I would not be surprised at all if some of this cash found it’s way in the governments coffers.
With bond yields for Spain ever rising towards 6%, cheap money from Europe looks attractive. Don’t call it a bail out though. As we all know Spain does not need one. 😆 -
@ozmunky wrote:
Folks
I work in the Bond markets in the City of London.
…..
Thats why bondholders must be protected at all costs — its in the countries best long term interest to be on future good terms with the bank manager.
The blame must squarely and solely be placed on the secondary lenders in a country (ie the local banks locally regulated) not the primary ones otherwise the country fails.
Stubborn short term defiance = long term failure lamented about by future generations.
— Munky
Ozmunky, good to have your input from the bond markets.
No offence, but I would expect you to say that bond-holders must be protected at all costs. After all, you work in the bond markets. It’s in your interests, unless you are shorting.
I disagree that bond-holders must be protected at ALL costs. Since when was lending supposed to be a one-way bet? Bond-holders must re-learn that lending money is not risk-free, and some lending is riskier than others. They must charge appropriate interest rates to compensate for the risk, which will discourage irresponsible borrowers from borrowing too much.
I agree that borrowers must do their best to pay their debts, but if bond-holders are protected at ALL costs, i.e. whatever the cost to society (through inflation, social upheaval, etc.), and ALWAYS get their money back (even if it means Germans paying for the PIGS’ party), then it becomes a risk-free, one-way bet, and they will lend cheaply to everyone, which is exactly why we are in the mess we are in now.
I’m scornful of the present hue-and-cry about Spanish bond rates rising to, what is it? 5%. Sure, that makes it more expensive for Spain to borrow, but it should never have been so cheap, which only encouraged Spain to splurge out, living beyond its means with unsustainable gearing and over-heads. Given Spain’s history, yields are just rising to where they should be, though I accept they will probably over-shoot. The same is true of all the PIGS, and one day will be true of Japan and other fiscal basket cases too.
Moral hazard arises when your mistakes come free. Have bond-holders made the mistake of lending too freely? Yes. Should they pay some price? Yes. If not they will carry on making the same mistake.
And don’t tell me that bond-holders have no control over their money, how it is lent, and at what price.
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I don’t think bond investors believe they are insulated from risk. (Moral hazard). Far from it since the current elevated yields from EZ countries testify.
It can never be right or moral for anyone, individual, company, bank or country not to honour it’s debts. That is what Mark seems to be suggesting is acceptable. Haircut or default it’s the same thing. It’s not your money so what the hell………..
If you don’t think bond markets have long memories Argentina and many of the other Latin American states are good examples.
In any case the EU has this week stated that bond haircuts are not on the agenda. Merkle suggested it was a good idea to pacify the Germans. What it actually did was shaft the peripheral EZ countries into ever higher rates. -
Have lenders made mistakes by lending irresponsibly? Yes.
Should they learn a lesson? I think so. If not, they will make the same mistake again. That’s what it boils down to. And I think it is wrong to lay all the blame on borrowers. Are you saying lenders have no responsibility whatsoever?
Anyway, think what you like but defaults are in the post, one way or another (inflation is a likely way). The debts are overwhelming. Might as well just get on with it in an orderly fashion. The sooner it is dealt with the better.
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I agree, defaults, or at the very least, haircuts are on their way. Despite anything the EU says, Germany wants it and what Germany wants Germany will get when it comes to finance.
Germany wants lenders to be more careful in future when lending to spendthrift countries since theyu don’t think the countries themselves can be trusted and haircuts are a good way to bring that about. The only restraint on making at happen at present is the current crisis but it will happen, it’s just a question of when. -
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I have to say, I find the whole situation quite fascinating, if a bit scary, at present.
At the tail end of last week I found myself, for the first time ever, thinking that the euro as we know it would not survive. This week, particularly in the last couple of days, I get the feeling that the key players have looked into the abyss and don’t like what they see.
Whilst the German public and those in ‘strong’ countries, such as myself in NL, would love to see our purchasing power in countries such as Spain increase by 30% or so overnight. I get the impression we are having brought home to us just what an impact this would have on our economies. That any desire to see those countries who have not managed their finances properly punished is tempered by the impact that such punishment would have on their own countries.
The big question now is one of leadership. If the big players can bring themselves to act together in the common good rather than serving vested domestic agendas (A big ask, I know) then there is a chance that the eurozone and the EU will emerge from this mess a stronger and more cohesive entity. If they can’t, I see a crisis similiar to the Asian one of the late 90’s engulfing the continent.
Interesting times indeed.
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@mark wrote:
@ozmunky wrote:
Folks
I work in the Bond markets in the City of London.
…..
Thats why bondholders must be protected at all costs — its in the countries best long term interest to be on future good terms with the bank manager.
The blame must squarely and solely be placed on the secondary lenders in a country (ie the local banks locally regulated) not the primary ones otherwise the country fails.
Stubborn short term defiance = long term failure lamented about by future generations.
— Munky
Ozmunky, good to have your input from the bond markets.
No offence, but I would expect you to say that bond-holders must be protected at all costs. After all, you work in the bond markets. It’s in your interests, unless you are shorting.
I disagree that bond-holders must be protected at ALL costs. Since when was lending supposed to be a one-way bet? Bond-holders must re-learn that lending money is not risk-free, and some lending is riskier than others. They must charge appropriate interest rates to compensate for the risk, which will discourage irresponsible borrowers from borrowing too much.
I agree that borrowers must do their best to pay their debts, but if bond-holders are protected at ALL costs, i.e. whatever the cost to society (through inflation, social upheaval, etc.), and ALWAYS get their money back (even if it means Germans paying for the PIGS’ party), then it becomes a risk-free, one-way bet, and they will lend cheaply to everyone, which is exactly why we are in the mess we are in now.
I’m scornful of the present hue-and-cry about Spanish bond rates rising to, what is it? 5%. Sure, that makes it more expensive for Spain to borrow, but it should never have been so cheap, which only encouraged Spain to splurge out, living beyond its means with unsustainable gearing and over-heads. Given Spain’s history, yields are just rising to where they should be, though I accept they will probably over-shoot. The same is true of all the PIGS, and one day will be true of Japan and other fiscal basket cases too.
Moral hazard arises when your mistakes come free. Have bond-holders made the mistake of lending too freely? Yes. Should they pay some price? Yes. If not they will carry on making the same mistake.
And don’t tell me that bond-holders have no control over their money, how it is lent, and at what price.
Hi Mark
Many thanks for your considered and thoughtful post.
For the record, I am not a bond trader nor do I have a chance to participate in shorting activity — in the sovereign market the bets are big — far bigger than for an individual.
Personally I dont hold sovereigns, but rather I am a subordinate holder because of my working age and then will flip to sovereigns or other senior debt when I stop work in a few years when I can longer earn back any losses (haircuts,defaults) that may occur. I plan on doing this in Spain despite all the excitement on this website.
I will use simple language quite deliberately:
When I say “bond holders” I mean bond holders of sovereign debt that lend to governments.
The big boys are PIMCO, CALPERS (californian public service workers pension) and the Norwegian sovereign fund from gas & oil that guarantees pensions for school teachers, firemen etc plus the whole spectrum and then those on the secondary euro-sterling market eg. those (like me) that are looking at the Italian Govt 2028 bond paying almost 7% in GBP for example — those that buy and then hold.
Its these guys (and their members) that supply world governments and their populations with financial oxygen for them to provide services and employment.
As Logan correctly says, any default at sovereign level is so short sighted — bit like punching the bank manager in the face in the street when passing.
The credit markets only supply money, its up to local Governments on how they spend it and regulate their affairs (unless as in a personal bankruptcy the IMF is the administrator — loss of sovereignty in the Irish example)
There are 2 points I would like to make:
(i) default/haircuts for senior and sovereign bondholders is not the answer — those dependent on Govt money that is funded will suffer.
Defaults and haircuts are appropriate at the local country level for junior subinordinated local debt (like I have) hence beware of the holder — eg Anglo Irish (which I dont own — my exposure is UK only)(ii) The Euro will not collapse one country at a time — its either all countries in or all countries out at the same time.
The reason is that the cross border holdings of the banks of the EU are all intertwined with each other to such a degree that if any country attempts to leave will have a wrecked banking system from exposure to everyone else and in a highly devalued local currency when it does it.
To be frank, in order to be free you have to first swallow a cyanide pill and hope its under strength.Anyway enough for now.
— Munky
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Its an interesting concept that these organisation can lend money and not risk losing it. Quite novel. Certainly not one that has any precedent in history, save for the Mafia. Or is this the modern day equivalent of knee-capping?
If was I was lending money to someone who likely wont be able to repay me on time or repay the full amount, I would take that element of risk into account, decide whether to lend to them and if so i’d keep a very close eye on them.
These bondholder, who employ thousands and manage billions perhaps should have done the same?
Lets remember, not everyone has been caught up in this mess, some managers of funds had the good sense to stay clear and have no exposure. Yet, you propose we pay for the mistakes of those who didn’t do their jobs properly.
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@adiep wrote:
Its an interesting concept that these organisation can lend money and not risk losing it. Quite novel. Certainly not one that has any precedent in history, save for the Mafia. Or is this the modern day equivalent of knee-capping?
If was I was lending money to someone who likely wont be able to repay me on time or repay the full amount, I would take that element of risk into account, decide whether to lend to them and if so i’d keep a very close eye on them.
These bondholder, who employ thousands and manage billions perhaps should have done the same?
Lets remember, not everyone has been caught up in this mess, some managers of funds had the good sense to stay clear and have no exposure. Yet, you propose we pay for the mistakes of those who didn’t do their jobs properly.
Hi Adiep
Quite so.
I can see where you are coming from.
Its important to separate local issues from international ones.
The problem is when there is a buyers strike and no one buys until the interest rate gets much higher at the auction.
Look at the auction today of bonds for Portugal. They now have to pay way more for the borrowed money because everyone is nervous.
You think this is bad — watch the bond auction for Italy in the new year (Feb I think). The Italian Govt doesnt have enough money to last it past March/April and they need to go the bond markets soon to borrow some money.
All this talk about bondholders needing to accept problems with payment is going to hurt the Italians because no one will buy their bonds.
Unless of course the ECB does which they have to as a last resort which makes the inaugural ECB bond issue in Q1 2011 all the more interesting — what happens if the market demands a crippling interest rate from the ECB because of their problem children ?
Thats where the action is.
— Munky
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@ozmunky wrote:
@adiep wrote:
Its an interesting concept that these organisation can lend money and not risk losing it. Quite novel. Certainly not one that has any precedent in history, save for the Mafia. Or is this the modern day equivalent of knee-capping?
If was I was lending money to someone who likely wont be able to repay me on time or repay the full amount, I would take that element of risk into account, decide whether to lend to them and if so i’d keep a very close eye on them.
These bondholder, who employ thousands and manage billions perhaps should have done the same?
Lets remember, not everyone has been caught up in this mess, some managers of funds had the good sense to stay clear and have no exposure. Yet, you propose we pay for the mistakes of those who didn’t do their jobs properly.
Hi Adiep
Quite so.
I can see where you are coming from.
Its important to separate local issues from international ones.
The problem is when there is a buyers strike and no one buys until the interest rate gets much higher at the auction.
Look at the auction today of bonds for Portugal. They now have to pay way more for the borrowed money because everyone is nervous.
You think this is bad — watch the bond auction for Italy in the new year (Feb I think). The Italian Govt doesnt have enough money to last it past March/April and they need to go the bond markets soon to borrow some money.
All this talk about bondholders needing to accept problems with payment is going to hurt the Italians because no one will buy their bonds.
Unless of course the ECB does which they have to as a last resort which makes the inaugural ECB bond issue in Q1 2011 all the more interesting — what happens if the market demands a crippling interest rate from the ECB because of their problem children ?
Thats where the action is.
— Munky
I agree there is the theoretical potential for a “bond strike”, however, as we know, bond markets are not coordinated in such a way, there is no trade union. So whilst I may think lending to Italy is far too risky, there are quite probably several funds who can absorb such a risk with a 5% return. This has to be the case right, else any country that look vaguely dubious would instantly find themselves locked out of the markets, and we know that’s not what happens — or else how did Greece borrow so much?
But, im being quite contrary, and I agree with a fair amount of what you are saying. Just not that bond markets are somehow sacred and investors have a god given right to always make money.
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@ozmunky wrote:
@adiep wrote:
Its an interesting concept that these organisation can lend money and not risk losing it. Quite novel. Certainly not one that has any precedent in history, save for the Mafia. Or is this the modern day equivalent of knee-capping?
If was I was lending money to someone who likely wont be able to repay me on time or repay the full amount, I would take that element of risk into account, decide whether to lend to them and if so i’d keep a very close eye on them.
These bondholder, who employ thousands and manage billions perhaps should have done the same?
Lets remember, not everyone has been caught up in this mess, some managers of funds had the good sense to stay clear and have no exposure. Yet, you propose we pay for the mistakes of those who didn’t do their jobs properly.
Hi Adiep
Quite so.
I can see where you are coming from.
Its important to separate local issues from international ones.
The problem is when there is a buyers strike and no one buys until the interest rate gets much higher at the auction.
Look at the auction today of bonds for Portugal. They now have to pay way more for the borrowed money because everyone is nervous.
You think this is bad — watch the bond auction for Italy in the new year (Feb I think). The Italian Govt doesnt have enough money to last it past March/April and they need to go the bond markets soon to borrow some money.
All this talk about bondholders needing to accept problems with payment is going to hurt the Italians because no one will buy their bonds.
Unless of course the ECB does which they have to as a last resort which makes the inaugural ECB bond issue in Q1 2011 all the more interesting — what happens if the market demands a crippling interest rate from the ECB because of their problem children ?
Thats where the action is.
— Munky
Sorry for yet another post.
I forgot to mention that life in the credit markets is tough enough already without the EU meddling.
Consider the holders of subordinated debt in RBS and Lloyds — many of whom are retired (some in Spain) after a lifetime of doing the right thing and depend on the income — who have had their coupon interest payments suspended by the EU under anti-competition rules because they are state aided (ie bailed out).
This is slated to end 2012/2013 but could be extended again after already 3-5 years of no income. When they do resume they will not be paid the income thay have missed — they just have to wear it.
The tragedy of this is that some of them will not live to see this occur.
Another appalling example of unintended consequences — so those hardcore younger folks should think of the bigger picture.
— Munky
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@adiep wrote:
@ozmunky wrote:
@adiep wrote:
Its an interesting concept that these organisation can lend money and not risk losing it. Quite novel. Certainly not one that has any precedent in history, save for the Mafia. Or is this the modern day equivalent of knee-capping?
If was I was lending money to someone who likely wont be able to repay me on time or repay the full amount, I would take that element of risk into account, decide whether to lend to them and if so i’d keep a very close eye on them.
These bondholder, who employ thousands and manage billions perhaps should have done the same?
Lets remember, not everyone has been caught up in this mess, some managers of funds had the good sense to stay clear and have no exposure. Yet, you propose we pay for the mistakes of those who didn’t do their jobs properly.
Hi Adiep
Quite so.
I can see where you are coming from.
Its important to separate local issues from international ones.
The problem is when there is a buyers strike and no one buys until the interest rate gets much higher at the auction.
Look at the auction today of bonds for Portugal. They now have to pay way more for the borrowed money because everyone is nervous.
You think this is bad — watch the bond auction for Italy in the new year (Feb I think). The Italian Govt doesnt have enough money to last it past March/April and they need to go the bond markets soon to borrow some money.
All this talk about bondholders needing to accept problems with payment is going to hurt the Italians because no one will buy their bonds.
Unless of course the ECB does which they have to as a last resort which makes the inaugural ECB bond issue in Q1 2011 all the more interesting — what happens if the market demands a crippling interest rate from the ECB because of their problem children ?
Thats where the action is.
— Munky
I agree there is the theoretical potential for a “bond strike”, however, as we know, bond markets are not coordinated in such a way, there is no trade union. So whilst I may think lending to Italy is far too risky, there are quite probably several funds who can absorb such a risk with a 5% return. This has to be the case right, else any country that look vaguely dubious would instantly find themselves locked out of the markets, and we know that’s not what happens — or else how did Greece borrow so much?
But, im being quite contrary, and I agree with a fair amount of what you are saying. Just not that bond markets are somehow sacred and investors have a god given right to always make money.
Hi Adiep
Greece was able to borrow cheaply because they were the first ones to ask for the bailout. There is some doubt in the markets now that the amount they borrowed is till not enough. The countries at the end of the queue are finding it much tougher.
If Greece went to the markets now for everything, the picture would be way different — in fact, the consensus in the market is that Greece’s interest rate would be 8-9% plus — enough to certainly break them because their GDP and tax revenue they collect cant pay the bill. The outcome for them if they borrowed now would be disastrous clearly needing the IMF/EU to put them on life support quite aside from the social consequences.
What many dont know is that the Greeks (ie the Govt) have to hand over the revenue of some of their biggest money spinners — Aircraft landing fees of the whole country for 10 yrs (or more maybe someone else knows the exact facts of this) and earnings from the national Lotto — to Goldman Sachs to repay loans they took out before the Euro crisis blew.
Wow. Gets murky I have to say.
— Munky
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Talk about the devil.
This has just appeared in the past few minutes:
http://www.ft.com/cms/s/0/3c55afc4-fd7a-11df-a049-00144feab49a.html#axzz16thQxHvk
This is what the EU will do to save the Euro.
Looks to me it will survive intact if this is successful which it most likely will be.
— Munky
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@ozmunky wrote:
Talk about the devil.
This has just appeared in the past few minutes:
http://www.ft.com/cms/s/0/3c55afc4-fd7a-11df-a049-00144feab49a.html#axzz16thQxHvk
This is what the EU will do to save the Euro.
Looks to me it will survive intact if this is successful which it most likely will be.
— Munky
See what I mean? Some sucker will buy them 🙂
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You’ve got to admire the bond holders/supporters chutzpah.
There was I thinking that the spread in yields between German Bunds and the peripheral countries bonds represented the increased risk of default or haircuts when all along, now it’s been explained to me, it’s been a sort of thank you from those countries’ taxpayers for the investors’ generousity and certainly doesn’t mean that there was ever a possibilty of a haircut or default as part of the package. I see now how mean those Germans are for not offering the extra money too and still the bond buyers don’t hold a grudge and give the Germans their money, practically for free.
Sorry for the cynicism. I’m not advocating that it is OK for bond issuers to default or whatever but to take the view that taking the high interest rates for lending without accepting that there should be an element of risk in there takes my breath away.
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Come off it Zoro 3-5% yield hardly reflects risk as we know it. Equities return annually 15-20% in good times. That’s the return on risk I and most other investors expect.
Government bonds have always been seen as the safest method of return with modest returns.
Bank deposits are guaranteed by governments and most are paying 3-4%. I suppose that’s moral hazard as well.
If you want the capitalist system to continue investments returns have to be just that…. returns in good times and bad.
Otherwise most investors will buy gold and other metals and watch the world as we know it fall apart. -
@ozmunky wrote:
Talk about the devil.
This has just appeared in the past few minutes:
http://www.ft.com/cms/s/0/3c55afc4-fd7a-11df-a049-00144feab49a.html#axzz16thQxHvk
This is what the EU will do to save the Euro.
Looks to me it will survive intact if this is successful which it most likely will be.
— Munky
I’m pretty certain of that now. Euro going down is just unacceptable, no matter the cost.
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@logan wrote:
Come off it Zoro 3-5% yield hardly reflects risk as we know it. Equities return annually 15-20% in good times. That’s the return on risk I and most other investors expect.
Government bonds have always been seen as the safest method of return with modest returns.So I’m still at a loss to understand why investors settle for one rate of return from Germany but won’t settle for the same rate from anyone else e.g. Spain. Could you explain please?
I don’t dispute that the rates you quote don’t represent a fair return for the risk as perceived today but presumably it reflected what the risk seemed to be when they were issued. If not it just keeps going back to the question of what is the real reason for the spread if it is not for risk?
It smacks of insurance companies complaining that they had no idea that floods could really happen when they set their premium for flood insurance otherwise they’d have charged a much higher premium.
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Government Bonds are a market like anything else and are traded. If they produce higher yields it’s more attractive to investors. Of course some risk factors are built in to the rate the market sets. However with the EU effectively underwriting that risk its low. Merkle was playing to the gallery suggesting haircuts might happen.
Greek bonds yield 12% which on the face of it appears worth a punt but the Greek government could not possibly borrow at such a rate. The market knows that and anyway nobody wants bonds with junk status because the risk is too high. No moral hazard there.
I am not a bond market expert. I have UK Gilts but that’s as far as I go. Munky is the man to advise. -
@logan wrote:
Of course some risk factors are built in to the rate the market sets. However with the EU effectively underwriting that risk its low.
I think we are now in agreement. The different yields reflect a perceived difference in risk which was perceived to be extremely low for Germany and just low for everyone else.
Time will tell if that perception was accurate. I don’t have a vested interest here, just a passing interest in the concept of risk.
I note that you are looking for suitable property investments from the banks’ stocks of properties. Good luck, I suspect that recent events will work in your favour there.
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Risk is the corner stone of any investment and has always to be measured. In the Spanish property market right now risk is everywhere and obvious. Property and in particular Spanish property has in the past served me well. However these days institutions currently selling are totally unrealistic. They believe if they hold out or hold on everything will be fine.
They are convinced the ECB will always be there for them so why right down their none performing assets to levels which reflect the current situation.
They can sit it out with a cheap flow of liquidity for as long as it takes.
Why is that option available? Because the European Union has a political agenda formed over 65 years to create a unified political entity. The very thought the Euro can fail is laughable because it’s simply not a possibility. Too much political energy by generations of politicians is invested in it.
That’s frustrating for a market investor, its distorting the true situation, bucking the market if you like.
All my instincts indicate the Spanish property market for the professional investor has had it’s day. The Euro and monitory union has seen to that.
However in the scheme of things for individuals such as I, we can move on to other things. The economy of the country however in my view is doomed to stagnation and that’s very sad. -
As far as I can see, there’s 2 possible paths to keep the Euro alive.
1) Internal devaluation. The periphery goes through several years worth of internal devaluation until spending is reduced and competitiveness levels increased. Germany remains dominant force within Europe.
2) Fiscal union and redistribution of wealth from the strong to the weak. Includes EuroBond and lots of wonderful new treaties. The economies of Europe are optimised for the poorest regions, as opposed to the strongest.
Can you spot the problems with either of these routes?
Are there other options?
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Thanks to all who have contributed to a discussion thats not that obvious in the short term to most people.
All I will say about this excitement is (for those who care) to monitor the CDS (Credit Default Swap) market — this is the canary in the coal mine.
For those that dont know what CDS’s are — they are an insurance policy for you to paid your income come what may if the borrower defaults or cant pay. In other words, if you buy the bond+CDS premium you will be guaranteed to be paid — what you get back depends on the price of in the insurance policy.
As CDS’s are insurance policies and just that and not the real asset they are termed “derivatives” — an instrument that you might heard of — and amazingly you can buy and sell these.
When a CDS approaches 1000bps (ie 100%) it means its pretty certain the market thinks they wont pay and default — this market largely operates on news, rumours and chinese whispers and other scuttlebutt from the stables.
So, when a bank or country or company goes beyond 800 bps its danger zone stuff.
I had a lot of money in Kaupthing (the Icelandic bank) and called them to pull my money out when it went to 750bps in 24 hours — when I called them at luchtime 2 days later (my fault) CDS price was 1300 — I was toast — the UK Govt saved my deposit.
What I am trying to say is watch the CDS market — you get stuff like UK Govt and HSBC in the low 100’s up to Spain at 650 (at its height) and Ireland at 850+ (now lower) to other Govts even higher.
Normally you need a bloomberg terminal at £15k a year to monitor this but you can do it for free but you have to look for it– CMA datavision is one the market providers.
Apologies in advance if this has nothing to do with Spanish property (Sorry Mark) but it may be useful to retired property in Spain who depend on the income.
— Munky
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@ozmunky wrote:
…..When I say “bond holders” I mean bond holders of sovereign debt that lend to governments.
The big boys are PIMCO, CALPERS (californian public service workers pension) and the Norwegian sovereign fund from gas & oil that guarantees pensions for school teachers, firemen etc plus the whole spectrum and then those on the secondary euro-sterling market eg. those (like me) that are looking at the Italian Govt 2028 bond paying almost 7% in GBP for example — those that buy and then hold.
Its these guys (and their members) that supply world governments and their populations with financial oxygen for them to provide services and employment.
As Logan correctly says, any default at sovereign level is so short sighted — bit like punching the bank manager in the face in the street when passing.
The credit markets only supply money, its up to local Governments on how they spend it and regulate their affairs (unless as in a personal bankruptcy the IMF is the administrator — loss of sovereignty in the Irish example)
There are 2 points I would like to make:
(i) default/haircuts for senior and sovereign bondholders is not the answer — those dependent on Govt money that is funded will suffer.
Defaults and haircuts are appropriate at the local country level for junior subinordinated local debt (like I have) hence beware of the holder — eg Anglo Irish (which I dont own — my exposure is UK only)(ii) The Euro will not collapse one country at a time — its either all countries in or all countries out at the same time.
The reason is that the cross border holdings of the banks of the EU are all intertwined with each other to such a degree that if any country attempts to leave will have a wrecked banking system from exposure to everyone else and in a highly devalued local currency when it does it.
To be frank, in order to be free you have to first swallow a cyanide pill and hope its under strength.Anyway enough for now.
— Munky
It’s not at all like punching your bank manager in the street. It’s like sitting down with your bank manager and saying sorry I can’t pay back all the money you lent me.
And let’s be honest, the big boys like Pimco would take the hit then come back for more before long, albeit at a higher interest rate. They are going to get screwed by lots of Western governments, either by default, currency devaluation, or inflation, and in the end what difference does it make? Didn’t Bill Gross himself said the other day in his funny high-pitch voice that the US debt was like a Ponzi scheme? But who else are they going to lend to? Cuba? North Korea? They’ll be back.
Mark
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ozmunky
I’ve been looking at the free CDS prices here.
http://www.markit.com/cds/most_liquid/markit_liquid.shtml
It seems they want a corporate email address to get prices at http://www.cmavision.com/market-data/#initial
@mark wrote:
It’s not at all like punching your bank manager in the street. It’s like sitting down with your bank manager and saying sorry I can’t pay back all the money you lent me.
And let’s be honest, the big boys like Pimco would take the hit then come back for more before long, albeit at a higher interest rate. They are going to get screwed by lots of Western governments, either by default, currency devaluation, or inflation, and in the end what difference does it make? Didn’t Bill Gross himself said the other day in his funny high-pitch voice that the US debt was like a Ponzi scheme? But who else are they going to lend to? Cuba? North Korea? They’ll be back.
Mark
With a higher rate of interest on all loans in future, the lender will basically get his money back. Argentina pays an extra 5% becuase of its default history (as I understand it), so it simply terms they are re-paying the defaulted money back after 15years. Why not avoid default and keep a lower rate?
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@peterhun wrote:
With a higher rate of interest on all loans in future, the lender will basically get his money back. Argentina pays an extra 5% becuase of its default history (as I understand it), so it simply terms they are re-paying the defaulted money back after 15years. Why not avoid default and keep a lower rate?
Because for some countries the low rate will necessarily lead to default. It goes to the heart of the problem. They are just too irresponsible to be trusted with a low rate. Pimco et al should know that or they were born yesterday.
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This question of default is simply not going to happen. Default/haircut is the nuclear option and would destroy the financial credibility of the EU.
Trichet has said today the ECB will offer unlimited liquidity for European banks. Germany, France and Holland and even Spain, Italy will continue to underwrite the entire EZ bailout fund for whatever it takes. Even the UK pitched in for Ireland, ye gods!
Unfortunately the Euro will out live us all. I wish it were different but the reality is the entire European project is at stake if the Euro fails. -
Logan, the chances are that Ireland and Greece will default – its not the other way around.
Both countries are likely entering “debt deflation”. Not sure what you know about that — im no expert — but quite simply the debt repayments cause a contraction of the economy, which in turn makes the debt a greater percentage of GDP, and hence payments as a percentage rise, which in turn causes a contraction of the economy, which… and onwards it goes spirals downwards…
http://en.wikipedia.org/wiki/Debt_deflation
The common routes out of such a scenario are not available to Ireland, 1) debt forgiveness/restructuring/default, 2) inflation. 3) fiscal stimulus.
This is what the fuss is all about and why the bailouts are not making the fuss go away. The bailouts are not free money, it is just more debt at an interest rate of between 5-6%. Ireland’s repayments in a couple of years are going to be a very high percentage of its total tax revenues, The Irish government may have to increase taxes to pay back the debt — increasing taxes in an already broken economy will just make it sicker.
Until someone starts paying Irelands bills for it, then the chance of this debt deflation spiral looms large and along with that, a default.
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These countries will just roll over the debt and borrow more as and when it’s needed from Europe. I do agree debt deflation exists and will cause these countries some pain. However I repeat you cannot view this crisis with economic norms. The politics of Europe override all economic consequence.
In the case of Ireland the deep restructuring is starting to show some small results. If the economy can grow and it is basically sound the years of coming austerity will turn things around.
If there is to be default I agree Greece is the prime candidate but only if Germany runs out of patience.
The ECB have indicated this week their bond buying policy will increase. QE by another name with unlimited liquidity. Unless Trichet is trying to buck the market, and that’s entirely possible, it looks a done deal to me.
One the other hand………………………………..http://www.guardian.co.uk/world/2010/dec/03/angela-merkel-germany-abandon-euro
Beats me where she is coming from. -
@logan wrote:
These countries will just roll over the debt and borrow more as and when it’s needed from Europe. I do agree debt deflation exists and will cause these countries some pain. However I repeat you cannot view this crisis with economic norms. The politics of Europe override all economic consequence.
In the case of Ireland the deep restructuring is starting to show some small results. If the economy can grow and it is basically sound the years of coming austerity will turn things around.
If there is to be default I agree Greece is the prime candidate but only if Germany runs out of patience.
The ECB have indicated this week their bond buying policy will increase. QE by another name with unlimited liquidity. Unless Trichet is trying to buck the market, and that’s entirely possible, it looks a done deal to me.
One the other hand………………………………..http://www.guardian.co.uk/world/2010/dec/03/angela-merkel-germany-abandon-euro
Beats me where she is coming from.The risk from moral harard incurred in bailing out Greece and Ireland shouldn’t be discounted. These nations could quite easily continue to spend and the repercussions would be minimum, if, as you say, the economics wont override the political desire to maintain the euro.
Do you see what im getting at? To keep the Euro alive, it has to be an open-ended commitment to fund these nations. Any hint that its not, means default. Default means big trouble for the Euro.
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Ah! Yes I understand your position now Adiep. Moral hazard lies in countries within the EZ being insulated from the rigours of the capitalist markets ebb and flow.
Truth is the Euro project was badly designed in the first place. You cannot have economic unity without first having a fiscal and political system that is whole.
Merging all other EZ states into provincial provinces of Germany was politically unacceptable to the nationalist tendencies of other states, particularly France.
So they forced through the dog’s breakfast we are now saddled with.
Very few people within the EU cared less about a single currency. It was foisted on them by an undemocratic system.
So who can blame peripheral members states if they spend, spend and extract what they can from the entity which bankrolls the entire project, Germany.
It’s a win win situation. The illusion of national sovereignty is preserved. The countries and their banks are bailed out despite their folly and Germany picks up the tap. Great.
Moral hazard indeed. Its a bit like Catholicism. The EU was once described as the political wing of the catholic church. Sin as much as you like, confess and all will be forgiven.
Moral hazard again.
I agree the systems doomed to fail but I fear not in my life time and probably not yours. -
We shall see. Im far more upbeat about the prospect of this abomination being destroyed in the short term.
Whats the betting that Greece doesnt meet its spending reduction targets. And, if and when they dont, the EU will end up becoming an accomplice to the fudging of Greek economic data. They cant afford to let on to the German public if the targets are missed. That will be the realisation of Moral Hazard, Germany’s worse nightmare, a “free pass” for Greece and all it represents.
There are greater forces at work than a bunch of French and Belgium Europhiles can muster. Im betting we see the death of the Euro as we know it, in 2011.
Fancy a bet? If I win, you pay me in pounds (five of them) if you win I pay you in Euros (five of them)
hehe…
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@adiep wrote:
Merkel has said today the Euro Bonds require new treaties. Will German turkeys vote for Christmas?
The choice will be Christmas or Thanksgiving, either way they are going to get stuffed.
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@rt21 wrote:
Interesting comments made by a top official at the Office for Budget Responsibility, who told MPs yesterday that a dissolution of the eurozone is highly unlikely but is not in the realms of impossibility.
Richard
In other words, he was just stating the obvious.
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I had to chuckle at the Torygraph’s coverage of this non-story.
Banner headline – “Euro collapse possible”
Buried down in the story “Asked to estimate the probability he said: “1.7pc”.”
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Clearly the Germans have now had enough bailing out the weaker states.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8187396/Eurozone-members-left-to-fend-off-markets-alone.html
The E Bond is now dead in the water since Germany would be underwriting it’s credibility. This is an interesting development and may well be the first step in the long road of Germany going it’s own way.
Personally I would be happy to pay adiep a fiver and see the Eurozone collapse. It’s doing nothing but making EU peripheral states poorer.
I believe when they entered the EZ these states thought they could spend, spend like lottery winners and not have to earn a living. Since that illusion is now well and truly gone the raison d’être of being in the thing has evaporated. -
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@logan wrote:
Personally I would be happy to pay adiep a fiver and see the Eurozone collapse.
I hope you are not conditioning adiep into increasing his bet with you 😉
Richard
P.S On a serious note I am still not sure what the terms of the bet are. You talk about the collapse of the euro but adiep talks about the death of the euro as we know it. Under adiep’s phraseology the exit of one country could be interpreted as “the death of the euro as we know it” even though the euro may subsequently survive or even flourish.
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@rt21 wrote:
@logan wrote:
Personally I would be happy to pay adiep a fiver and see the Eurozone collapse.
I hope you are not conditioning adiep into increasing his bet with you 😉
Richard
P.S On a serious note I am still not sure what the terms of the bet are. You talk about the collapse of the euro but adiep talks about the death of the euro as we know it. Under adiep’s phraseology the exit of one country could be interpreted as “the death of the euro as we know it” even though the euro may subsequently survive or even flourish.
Richard, this is a gentlemans wager, Im sure Logan will know that he has lost without me having to inform him or us having to argue over semantics… But you are right of course, I did craftily leave it open to interpretation in my favour, but lets not tell everyone eh…
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BAILING OUT THE IRISH – SIMPLE
It is a slow day in a damp little Irish town.
The rain is beating down and the streets are deserted.
Times are tough, everybody is in debt and everybody lives on credit.On this particular day a rich German tourist is driving through the town,
stops at the local hotel and lays a €100 note on the desk, telling the hotel
owner he wants to inspect the rooms upstairs in order to pick one to spend
the night.The owner gives him some keys and, as soon as the visitor has walked
upstairs, the hotelier grabs the €100 note and runs next door to pay his debt
to the butcher.The butcher takes the €100 note and runs down the street to repay his debt to
the pig farmer.The pig farmer takes the €100 note and heads off to pay his bill at the
supplier of feed and fuel.The guy at the Farmers’ Co-op takes the €100 note and runs to pay his drinks
bill at the pub.The publican slips the money along to the local prostitute drinking at the
bar, who has also been facing hard times and has had to offer him “services”
on credit.The hooker then rushes to the hotel and pays off her room bill to the hotel
owner with the €100 note.The hotel proprietor then places the €100 note back on the counter so the
rich traveller will not suspect anything.At that moment the traveller comes down the stairs, picks up the €100 note,
states that the rooms are not satisfactory, pockets the money and leaves
town. No one produced anything. No one earned anything. However, the whole
town is now out of debt and looking to the future with a lot more optimism.
And that, ladies and gentlemen, is how the bailout package works.(it took me a minute to work out who actually lost out over this….) 🙂
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@adiep wrote:
@rt21 wrote:
@logan wrote:
Richard, this is a gentlemans wager, Im sure Logan will know that he has lost without me having to inform him or us having to argue over semantics… But you are right of course, I did craftily leave it open to interpretation in my favour, but lets not tell everyone eh…
As we are all gentlemen (and ladies) on here I shall keep your comments to myself. Discretion is the word 🙂
And as for Charlie, she seems to have a good grasp of the economic situation in Ireland. I don’t think I could have described it any better myself. Who was the loser in that little story by the way ? Everybody seemed to be a winner!
Richard
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Gosh! Just popped in after a while and I thought I had the wrong forum 😉 Didn’t realise we had so many financial “experts” on here. Find it difficult to believe any serious (or sane) investor would even be wasting their time looking at the spanish market when there are so many opportunities to study. Some seem to have contracted googleitus 😆
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@katy wrote:
Gosh! Just popped in after a while and I thought I had the wrong forum 😉 Didn’t realise we had so many financial “experts” on here. Find it difficult to believe any serious (or sane) investor would even be wasting their time looking at the spanish market when there are so many opportunities to study. Some seem to have contracted googleitus 😆
You know what blokes are like, as soon as they realise a new subject exists, they instantly become experts on it and want to argue about it endlessly. We cant help it 🙂
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