Sovereign debt bubble thread

[MadImmortalMan]

All 17 Eurozone countries just put on creditwatch negative by S&P.

[crazy canuck]

So I read that the Italians announced austerity which at first glance sound promising.

Now Rome will burn but if they manage to keep control, it may benefit Europe. 

Is there any country whose outlook has improved after undertaking austerity measures?

Canada. 

[crazy canuck]

Look at the UK or the US. Yes both have run supluses for a few years here or there, but the overwhelming trend is deficit spending.

In real terms, if you have 3% inflation, you have reduced your debt by 3%. You can increase your debt by that amount without increasing the real debt burden. Increases in hours worked due to population growth and improvements in productivity also make sustaining debt easier.

Both are also special circumstances given the historical strength of their currencies.  The US is a very special case given that world trade is largely denominated in US currency.  For the rest of us prudent budgeting becomes more important.

[Zanza]

All 17 Eurozone countries just put on creditwatch negative by S&P.

Good. Otherwise some unsuspecting bond trader could have missed that there are problems with Eurozone sovereign debt.

[DGuller]

All 17 Eurozone countries just put on creditwatch negative by S&P.

Good. Otherwise some unsuspecting bond trader could have missed that there are problems with Eurozone sovereign debt.

[Admiral Yi]

Good. Otherwise some unsuspecting bond trader could have missed that there are problems with Eurozone sovereign debt.

The fact that there are problems should be reflected in the current ratings.  The negative outlooks mean the problems are expected to get worse.

[MadImmortalMan]

S&P hopes to complete its review of EU sovereign ratings as soon as possible following this week's summit on Dec. 8 and 9. The AAA countries - Germany, France, Finland, Luxembourg, and Netherlands, as well as AA Belgium - face a one notch downgrade. All other countries are looking at up to two notches.

So unless the summit drops a nuke, there will be six downgrades and eleven double-downgrades.

[Ideologue]

The dean put Greece on double-secret probation.

[Ed Anger]

US VP Biden jokes in Greece about bringing much aid
Mon, Dec 05 05:16 AM EST

ATHENS, Dec 5 (Reuters) - U.S. Vice President Joe Biden joked during a visit to debt-choked Athens on Monday about bringing money to help Greece out of its deepest financial crisis in decades.

Introducing a member of his delegation during a meeting with Greek President Karolos Papoulias, Biden said: "This man represents the Treasury department. He's brought hundreds of millions of dollars."

His comments drew laughs from both the Greek and U.S. delegations.

Euro zone ministers will meet on Friday for a summit billed key to finding a way out of a growing debt crisis and may turn to the International Monetary Fund for more aid.

A senior U.S. Treasury official said last week that the United States was not planning to make such loans to the Fund and said the lender's resources were adequate.

Asked what his message to Europe was, Biden said: "Hang in there."

I Joe.

[MadImmortalMan]

Looks like S&P's own ratings projections from last years base case scenario were wildly optimistic.

[Iormlund]

I think Monti and Rajoy should be able to present and pass bold plans. That bit is the bit I'm most confident of.

Rajoy has remained carefully hidden since he won the elections while our spreads skyrocketed. Don't expect anything bold from him, whatever that means.

[The Brain]

I'm glad it's Euro and not Mero.

[Sheilbh]

Rajoy has remained carefully hidden since he won the elections while our spreads skyrocketed. Don't expect anything bold from him, whatever that means.

Which let's him be all the more bold.  If you've not promised anything in particular your options are far wider.

This looks nonsensical to me.  Can anyone explain it except as, effectively, the Eurozone doing what Ireland did in 2008?

The eurozone's 'terrible mistake'
December 5, 2011 2:17 pm by Ralph Atkins

UPDATE: Angela Merkel, German chancellor, in Paris has just announced a u-turn: under the new ESM, private sector investors will not be required to bear some losses. The ECB will be pleased. See ft.com for more.

European Central Bank policymakers have become more outspoken in attacking "private sector involvement" in Greece's bail-out. The plan to persuade banks to take a "haircut" on their Greek bonds was "a terrible mistake," according to Athanasios Orphanides, Cyprus's central bank governor and ECB governing council member.

"By forcing the impairment of any state bond we have triggered concern internationally of all state bonds in the eurozone and that's one of the key reasons we have a problem," he told his country's parliament.

I have noted before the ECB's strong opposition to PSI generally and in Greece's case specifically. The view from Frankfurt is that it simply undermines investor confidence in the whole eurozone. In other words, if Greece's difficulties had been better managed earlier, Italy and Spain would not have been caught up in the contagion and the eurozone would not now be facing an existential crisis.

It is the polar opposite view of many economists outside the eurozone -that the crisis has erupted because of a dogged refusal by eurozone policymakers to accept at a Greek debt restructuring is inevitable and to get on with putting Greece's finance back on a sustainable basis.

But my hunch is that the ECB's view has not changed.

I suspect it is privately urging eurozone government leaders, especially in Germany, to think again about PSI in Greece, and once the European stability mechanism, the European Union's planned long term stabilisation fund, is in place. If compromises have to be sought this week, the ECB would certainly hope this was one area where there was room for manoeuvre.

I think, looking at the British press and the government, that if there's a new treaty we may have to have a British referendum.

[Admiral Yi]

My understanding is the ECB has an issue with haircuts because of all the shyte bonds they bought up.

[MadImmortalMan]

There's a LOT of bitching and wailing about that going on in the interwebz today. I dunno. Maybe the best thing for Germany to do is just say fuck it and pay for all the bags of snacks while they can borrow at rates likely to be less than their rate of inflation over the next dozen years.

I can't see how Merkel stays in power though.