Sovereign debt bubble thread

[MadImmortalMan]

Perception is reality in cases like this. Perception might be wrong by the resulting prices are real.

[Sheilbh]

I don't see why even a disorderly exit of Greece (or others) from the Eurozone would destroy the Common Market. We ignored the treaties when starting the bailouts and EFSF too, so legality is not really an argument. Even with the New Drachma, Greece and everybody else would still benefit from the Common Market. They would probably need to institute capital controls for a time to make the switch, but that's all really.

I was talking about overall total collapse of the Euro.  I think if the Euro goes and we're back to national currencies all over the EU's failed.  We may have a free trade zone but nothing as ambitious as the Common Market. 

If Greece left then I think they'd be frozen out - and the Commission would probably compensate for any 'competitive devaluation' by increasing tariffs on Greece.  But then if Greece leaves I think the market would just start betting on who'd leave next until we were down to a core.  I used to think it was impossible to imagine the Euro failing at all, now I'm not so sure.  My current impossibility is the idea of Italy leaving

There may not be any rules regarding a country leaving the Euro, but what is going to stop the Greeks from just up and doing it?  It's not like they have complied with any of the rules while being in the Eurozone and nothing ever happened to them...

Nothing.  The legal way to do that would be to leave the EU.  If they just left the Euro then I think they'd have been assumed to have left.

The US could transform its Articles of Confederation into the highly successful US constitution.

My favourite argument is that this is Europe's Hamiltonian moment.  Sadly we don't have a Hamilton.

Germany and France are supposedly considering a "Coalition of the Willing" that will be in parallel to the current EU treaties and will be open to Eurozone members that are willing to go further on common fiscal policy. If that thing flies, we'll have a "core" that is defined not like it is defined now but rather by willingness to commit to common fiscal policy. The "periphery" will be those Eurozone countries that prefer to stay out. The advantage is that it can be implemented faster than a general EU treaty change.

I don't know if that's plausible though.  You'd still have the same problems with, for example, Irish referendums.  Also I think the Poles went mental about this idea.  The only countries with a total Euro opt-out are the UK and Denmark so the remaining states have an interest in the development of any fiscal rules - just like the EU-10 had an interest in the negotiation of Nice. 

I think the UK government would (stupidly) allow a Euro-core of treaties but I don't know that the other member states who have to join the Euro would.  Given all that and the trouble it would take to set up I'm not sure that a coalition of 25 is going to find things much easier than 27.

[The Minsky Moment]

I agree with you.  The only thing that can possibly justify the pre-crisis yields is belief in a de facto guarantee.

The entire project was premised on de facto cross-guarantees.  Greece's admission would have made no sense otherwise.  Only when the bill came due, the factum skipped town.

[Zanza]

Our spreads didn't skyrocket until very recently, when investors were convinced by Merkel and the ECB that the Euro was in actual danger, something most would have thought crazy talk a few months ago.

The "PIIGS" thing has been around for much longer than just "very recently", so arguing that everything was fine in Italy and Spain before Merkel and the ECB "convinced" investors that there was danger is a bit strange.

[Zanza]

I was talking about overall total collapse of the Euro.  I think if the Euro goes and we're back to national currencies all over the EU's failed.  We may have a free trade zone but nothing as ambitious as the Common Market. 

Yes, I got that. But why would we not have the Common Market anymore? We had it before the Euro, we still have it with various currencies. The Euro is not an integral component of having a Common Market, so I don't see the relationship between the possible collapse of the Eurozone and the end of the Common Market.

If Greece left then I think they'd be frozen out - and the Commission would probably compensate for any 'competitive devaluation' by increasing tariffs on Greece.

Why would the Commission be so vindictive?

But then if Greece leaves I think the market would just start betting on who'd leave next until we were down to a core.

Yes. But what's even worse is that there would be immediate bank runs in the candidate countries as people would try to get as many Euros out of the banking system as possible.

Nothing.  The legal way to do that would be to leave the EU.  If they just left the Euro then I think they'd have been assumed to have left.

But why would people assume that? The acquis communitaire is so much more than the Euro and there are countries that participate in the EU without being in the Euro.

Germany and France are supposedly considering a "Coalition of the Willing" that will be in parallel to the current EU treaties and will be open to Eurozone members that are willing to go further on common fiscal policy. If that thing flies, we'll have a "core" that is defined not like it is defined now but rather by willingness to commit to common fiscal policy. The "periphery" will be those Eurozone countries that prefer to stay out. The advantage is that it can be implemented faster than a general EU treaty change.

I don't know if that's plausible though.  You'd still have the same problems with, for example, Irish referendums.[/quote]
Not really. If they can't pass a referendum, they would not be part of it.

Also I think the Poles went mental about this idea.

Definitely.

I think the UK government would (stupidly) allow a Euro-core of treaties but I don't know that the other member states who have to join the Euro would.  Given all that and the trouble it would take to set up I'm not sure that a coalition of 25 is going to find things much easier than 27.

It wouldn't be a coalition of 25. It would be a coalition of Germany and France and those countries that are willing to make a quick step towards fiscal union. Non-Euro members would not be part of it by design. If they feel excluded, that's exactly what Sarkozy wants to achieve.

[Tamas]

Can the chart on the second page of this be real?
http://www.scribd.com/doc/74335711/Hayman-Nov2011

Holy fuck if it is.

[Sheilbh]

Yes, I got that. But why would we not have the Common Market anymore? We had it before the Euro, we still have it with various currencies. The Euro is not an integral component of having a Common Market, so I don't see the relationship between the possible collapse of the Eurozone and the end of the Common Market.

Both the Euro and the Common Market are core parts of the EU treaties.  Countries can't pick and choose which bits of the treaty they're following.  If the Eurozone collapses completely and all 17 members are launching new currencies or renegotiating currency unions then, under the current rules, it's hard to see how they'd still be in the EU.  If those 17 are gone then the EU's over - including the Common Market.

Why would the Commission be so vindictive?

It's not vindictive.  It's entirely understandable if a country's making competitive devaluations - which is presumably a major reason the Greeks would want to leave.

But why would people assume that? The acquis communitaire is so much more than the Euro and there are countries that participate in the EU without being in the Euro.

Not really.  Participation in the Euro is a legal requirement of EU membership.  With the exception of the UK and Denmark all countries are either members or working towards membership. 

The understanding of the ECB is that there's two possible interpretations.  It's either inconceivable to withdraw from EMU without also withdrawing from the EU or there is no right to withdrawal from EMU, it can't be done unilaterally so even if the Greeks wanted out they could still be told no.  Obviously neither's terribly satisfactory and the ECB paper avoids choosing which one it prefers but does say that this was one of the major flaws of the constitution and it's now a flaw of Lisbon.

An additional reason a country is possibly the difficult of negotiating back their reserves from the ESCB system, some of which is, I believe, held by the ECB?

Not really. If they can't pass a referendum, they would not be part of it.

But how would that work to protect the Euro or develop any fiscal oversight.  What's the point of a treaty within a treaty that doesn't bring all Euro members within a fiscal integration zone?  This problem could still have happened anyway.  I can see how it would avoid it if it was binding on all Euro members but short of that it seems ineffective.

It wouldn't be a coalition of 25. It would be a coalition of Germany and France and those countries that are willing to make a quick step towards fiscal union. Non-Euro members would not be part of it by design. If they feel excluded, that's exactly what Sarkozy wants to achieve.

But non-Euro members are working to Euro membership.  I get that they wouldn't be part of it by design but that seems to go against the point of all EU members working towards the Eurozone.  In the same way as the EU-10 would resent it if the EU of 15 decided to rig the voting system at Nice.

[Zanza]

Euro membership might be part of the treaties, but there is both a precedent for countries opting out de jure (UK, Denmark) and countries opting out de facto (Sweden) and that's tolerated by the rest of the EU. Your idea that the non-Eurozone countries are actively working towards Euro membership is factually incorrect for some of them (e.g. Czechia). Do they want a say? Yes. Will they get it? Unlikely as there is already special EZ-17 meetings which don't include the rest.

There is also precedent of floating currencies and what could be called competitive devaluations (e.g. Britain in the last years) in the EU, without the Commission taking any action at all.

And everybody agrees that the Common Market is a tremendous benefit, no matter whether we have or don't have a currency union.

In the end, the countries of the EU are sovereign. No one can tell them "no" if they want out of the Euro. Certainly not the ECB.

The fact that the treaties don't have a provision to let a country quit the Euro doesn't mean anything. The EU Council can just make that decision unanimous and everything is fine.

And even if it is an unilateral decision by one country, I don't see what the other countries would gain by making the situation even worse by kicking it out of the EU completely. It's just not convincing. A dissolution of the Eurozone is bad enough, a dissolution of the EU is even worse.

[Sheilbh]

EZ EcoFin meetins is totally different from a new treaty arrangements though.  You could have something like Schengen but again the default is that countries are included.  The UK's okay with a EZ core but I don't think many other of the remaining outs would allow it. 

Also would it fly in Germany?  My understanding was that the Constitutional Court had said that no further integration should happen unless there was more democracy.  Surely that's difficult to square with a fiscal union with no further democratic element, especially if it's created outside the normal EU treaties.

In the end, the countries of the EU are sovereign. No one can tell them "no" if they want out of the Euro. Certainly not the ECB.

The fact that the treaties don't have a provision to let a country quit the Euro doesn't mean anything. The EU Council can just make that decision unanimous and everything is fine.

You're right about sovereignty and, possibly, about the Council.  My point is if we've reached that point chances are the failure's already been so large that it'll be very difficult to save the EU as we know it

[Zanza]

EZ EcoFin meetins is totally different from a new treaty arrangements though.  You could have something like Schengen but again the default is that countries are included.  The UK's okay with a EZ core but I don't think many other of the remaining outs would allow it.

It's not like they can stop it.   

Also would it fly in Germany?  My understanding was that the Constitutional Court had said that no further integration should happen unless there was more democracy.  Surely that's difficult to square with a fiscal union with no further democratic element, especially if it's created outside the normal EU treaties.

As long as the German Parliament has enough influence, the Constitional Court won't stop anything.

You're right about sovereignty and, possibly, about the Council.  My point is if we've reached that point chances are the failure's already been so large that it'll be very difficult to save the EU as we know it

I don't see the big threat to the EU as a whole.

[The Larch]

Map of European unemployment. Damn, it seems that someone threw a bomb in Andalucía.

[Admiral Yi]

The entire project was premised on de facto cross-guarantees.  Greece's admission would have made no sense otherwise.  Only when the bill came due, the factum skipped town.

How was the entire project premised on de facto guarantees?  The US states issue dollar denominated debt without a federal guarantee.  Argentina issued dollar debt while operating under a currency board without a guarantee.  African franc countries aren't guaranteed. 

If the entire project was premised on de facto gurantees it would have been a real good idea to get the most likely guarantors agreement in principle.

I thought the entire project was premised on eliminating exchange rate risk and providing the southerners instant central bank credibility.

[The Larch]

Euro membership might be part of the treaties, but there is both a precedent for countries opting out de jure (UK, Denmark) and countries opting out de facto (Sweden) and that's tolerated by the rest of the EU. Your idea that the non-Eurozone countries are actively working towards Euro membership is factually incorrect for some of them (e.g. Czechia). Do they want a say? Yes. Will they get it? Unlikely as there is already special EZ-17 meetings which don't include the rest.

IIRC, in the last couple of expansion rounds (EU 25 and EU 27) the requiriment to eventually join the Euro was included in all accesion treaties with the new members.

[The Brain]

IIRC, in the last couple of expansion rounds (EU 25 and EU 27)

And I thought EU3:Complete was fail.

[Zanza]

IIRC, in the last couple of expansion rounds (EU 25 and EU 27) the requiriment to eventually join the Euro was included in all accesion treaties with the new members.

It was already included in the EU15 expansion, but Sweden doesn't give a fuck.