Sovereign debt bubble thread

[MadImmortalMan]

An entire point in bond yield is an awful big move. Probably an all-time record for that instrument.

[Josquius]

My decision to remain in Japan another year looks wise then. No jobs to be had in Europe yet....

[Ed Anger]

My decision to remain in Japan another year looks wise then. No jobs to be had in Europe yet....

Until Japan implodes. They are starting to be mentioned on the financial channels.

[Josquius]

My decision to remain in Japan another year looks wise then. No jobs to be had in Europe yet....

Until Japan implodes. They are starting to be mentioned on the financial channels.

Japan imploded 20 years ago, the government still spends like its the boom.
I'm not worried that this job will suddenly disappear. At worst they'll cancel the programme and stop taking on new people some year....and I'm limited to 3 max anyway (which I don't want to do) so...yeah.

[Neil]

My decision to remain in Japan another year looks wise then. No jobs to be had in Europe yet....

Until Japan implodes. They are starting to be mentioned on the financial channels.

Japan imploded a long time ago.

[Ed Anger]

No shit sherlocks.

[Ideologue]

What's there to comprehend?

I just can't imagine a Euro-society with 50% youth unemployment.  As Jacob said, it's just crazy.

I can imagine it.  I can imagine an America with 50% youth unemployment.  It's still coming; no one is doing what has to be done to prevent it.

[Sheilbh]

All on the line for Papademos ahead of talks with leaders

 
Prime Minister Lucas Papademos is preparing for a make or break meeting with Greek political leaders and is said to be considering resigning if the three parties in his coalition government cannot agree on the set of reforms Greece should adopt so it can qualify for more loans.

Papademos is expected to meet PASOK's George Papandreou, New Democracy's Antonis Samaras and Giorgos Karatzaferis of the Popular Orthodox Rally (LAOS) on Saturday. The three politicians will have to agree on measures that will satisfy Greece's lenders and pave the way for a new bailout.

However, a number of sticking points remain. One of the main issues on which the party leaders are finding it difficult to agree is the private sector wage reductions that are being demanded by the troika of the European Commission, European Central Bank and International Monetary Fund.

Sources told Kathimerini that the troika is demanding that the minimum wage of 751 euros per month (gross) be reduced and that labor costs in the private sector drop by 25 percent in a bid to help Greece regain competitiveness.

Labor unions and employers wrote to Papademos on Friday to inform him that they cannot agree on a wage cut.

Papademos needs the agreement of the political leaders so the prospect of Greece receiving a new bailout can be discussed at the meeting of eurozone finance ministers on Monday.

Greece will have to set out the measures it plans to take over the next two years to reform its economy and create a primary budget surplus as well as the framework for the debt restructuring agreement with its bondholders.

Skai TV and radio reported on Friday that should the leaders fail to agree a deal, he will tender his resignation on Monday.

Edit:  Apparently there's also worries the Greeks may need another €15 billion on top of the €130 billion, if they get that, to recapitalise Greek banks after they take the private sector haircut necessary to get the €130 billion.

[Zanza]

That's bullshit and won't solve anything. It might buy a bit more time, but that's about it.

[MadImmortalMan]

I don't understand why they are demanding this. Is it an attempt to improve their trade balance?

[Sheilbh]

I don't understand why they are demanding this. Is it an attempt to improve their trade balance?

Basically Greece needs to become competitive.  In a single market the only real way to do that is a prolonged internal deflation.  So they a 25% cut to private sector costs, a 35% cut to supplementary pensions and so on to reduce the labour costs of Greece.

Couple of points that I've read recently.  Apparently the Greeks are not yet running a primary surplus.  So even if they were to default they'd still need another extreme bout of austerity immediately.  However, as Megan McArdle argues, when you're angry you're not rational and in addition to all the new taxes and the spending cuts to their pensions and services, for the private sector worker to now have to take a 25% wage cut would possibly be the sort of thing that would make everyone angry enough to prefer default.

The other thing I find striking is the mentions of the LAOS and their leader who hadn't been that prominent before.

I'd be interested to read some articles on the Greek election that's coming up in April (or, possibly not, if they go bankrupt).  I imagine this will be like Ireland with PASOK getting wiped out like FF and loads of new independents.  But in Ireland Fine Gael's been out of power since the nineties and are generally associated with good Garret Fitzgeraldy type things, whereas from what I know the main opposition in Greece were in power from 2000-10 and were the ones who ran the deficits for the past decade and fiddled the books.  So presumably they won't do well?

[Iormlund]

The really scary thing is that Spain has very similar salaries as Greece.

A 25% cut on the typical 1000€ salary leaves you 750€. With a reasonable 350€ monthly mortgage payment you are looking at a 40% loss of available income for a great part of the population. A massive decrease in consumption. Whoever thought of this must be a complete lunatic.

[The Minsky Moment]

It's perfectly logical.  In a currency union, the only way structural external deficits can be remedied is through deflation in deficit country or inflation in the surplus country. 
Now consider the probability Germany will agree to inflate.
That leaves only two options - "internal devluation" or exiting the currency union.

[Sheilbh]

Interestingly the FT quoted a Deutsche Bank which argued that the solutions are either fiscal transfers, 'Latvian-style' internal devaluation; or  'the Latin countries could exert their influence over the ECB to pursue a monetary policy that leads to higher inflation in the Germanic countries'.  Though the last one sounds impossible they think it could end up happening because it's the path of least resistance:

With outright budgetary transfers from the creditor to the debtor countries unlikely and the latter also probably unable to achieve internal real depreciation through deflation of goods, services and asset prices, the path of least resistance seems to be an appreciation in creditor countries through the inflation of goods, services and asset prices. With representatives of debtor countries holding a majority of votes in the ECB"s Governing Council, a policy of easy money and exchange rate depreciation that leads to overheating in the creditor countries seems most likely.

Edit:  Whether that just leads to Germanic, creditor countries withdrawing is another question.

[Zanza]

Over the last decade, inflation in the Germanic countries was lower than in the Latin countries. I wonder how one would go to change that.