Re: Re: Eurozone failure and the Spanish property market.

#102115

peterhun
Participant

@Rocker wrote:

I would urge any sellers to wait at least another year if they are able to. I’m afraid that my reasons are connected to a political debate taking place far away from Spain, but very relevant to the Spanish property market. I’m not that fond of posting link after link, but sometimes we need to consider the wider picture:

http://www.spiegel.de/international/germany/0,1518,736680,00.html

If Germany stops supporting the Euro, it is bound to fail, and the majority of German people want their Mark back in the same way that the majority of British people want to keep their pound Sterling.

There is not nearly the same enthusiasm in Spain for a return of the Peseta, some see it as a reminder of repressive government in the recent past. A devalued Euro would suit them just as well.

Perhaps if a complete break-up of the Euro is avoided, a two-tier Euro will take its place – the Olive Euro for the southern states (including France), and a Northern Euro for the others.

I can’t see that as a sensible solution, it would surely be easier for people just to wake up one morning to be told that their old currency was back in use, with the Euro being phased out completely over the next year or so.

Logic tells me that any of the solutions mentioned are bound to benefit Spain which is badly in need of a currency devaluation to kick start both its construction industry and the ailing housing market. And tourism will return with a vengeance.

A revaluation up or down will not be be painless with the loss of the Euro. The banks in both countrys (German and Spain) will be bankrupted because their overseas debt will not be denominated in the new currency, vastly increasing the amount for Spain and making significant loses for Germany. And I don’t think it will be an orderly crash either; 30% is what is needed but panic will make it more.
There are many (initially hidden) costs of a devaluation – first is inflation as imports push up costs. Then jobs are lost. Bank lending in Spain will fall even further. Germany will be royally ****ed as well, with their exports collapsing (as happened in 2008 when they were one of the worst affected countries) and massive job loses.

For these reasons, I believe that Spain will not be allowed to default regardless of the cost to Germany. The Euro will survive. But forget the worlds economy recovering in a year, it will be five maybe more years before the recovery.

The world splurged on debt, made possible by the invention of Mortgage backed securities. These have now been shown to non functional. They allowed the world to take on debt at levels not seen since 1929 (and infact exceed that peak by 50%).

It took 70 years for the world to get back to that level of debt. I cannot see it happened again for decades, unless someone can invent another way of maying risk disappear; maybe a Money Tree or a Golden Goose.

No credit manufacturing means falling house prices everywhere – until the mortgages are paid off in a decade.

edit:
All thats ignoring the effect of Basel III forcing banks to lend at half the levels they did just before the crash..