Sovereign debt bubble thread

[Tamas]

I know Iceland is a special case, but seeing how they did a swift recovery after letting their moronic banks fail, isn't that an option for Spain? Spending the bailout money on shooting the fall of The People affected by the bank bust? Just asking.

[MadImmortalMan]

If Iceland were the size of Spain, they would have brought others down with them.

[Tamas]

If Iceland were the size of Spain, they would have brought others down with them.

So the swift recovery would have spread?

[Richard Hakluyt]

Many a true word is spoken in jest 

[Admiral Yi]

I know Iceland is a special case, but seeing how they did a swift recovery after letting their moronic banks fail, isn't that an option for Spain? Spending the bailout money on shooting the fall of The People affected by the bank bust? Just asking.

Spain would still be on the hook for insured deposits.  One thing that made Iceland a special case is that other European countries paid off the deposits that Iceland should have up front.

[Tamas]

I have been reading Spain-related writings here and there, and, am I correct to feel like I am reading early writings about the Greek situation?

If so, shouldnt the EU just go the fuck ahead and help Spain into a 75% default like it eventually did with Greece?

[The Minsky Moment]

I don't know who 'we' is, but in that time Spaniards have lost any confidence or even hope in Rajoy and his goverment. Their gross incompetence in most areas has already reached Zapatero-like magnitude. There will be no Monti Effect in Spain.

We being shorthand for investors, bankers and traders throughout the world.

The problem in Spain is economic fundamentals, within the institutional context of the EU.  Those have been baked in for months and haven't changed.  Whether Rajoy is a good or bad politican should be of little relevance.  Spanish banks have been walking wounded for about 4 years now, the fundamentals have been lousy for about as long, the fiscal issues are what they are, and the limitations of the eurozone system are what they are.  Swapping out Rajoy for Superman wouldn't have made any meaningful difference on any of those things.

The LTROs may have saved Europe from a massive collapse and in that sense some return of optimism was rational but in itself it did nothing to fix any of the underlying problems; it just bought time.

[citizen k]

The LTROs may have saved Europe from a massive collapse and in that sense some return of optimism was rational but in itself it did nothing to fix any of the underlying problems; it just bought time.

Europe's Collapse Explained in 3 minutes:

http://www.youtube.com/watch?feature=player_embedded&v=NOzR3UAyXao

[The Minsky Moment]

Amusing but there is a serious answer to the question of where the money can come from.  The EU has a central bank.  It's just limited in what it is permitted to do.

[The Brain]

It can breastfeed, FWIW.

[Tamas]

Amusing but there is a serious answer to the question of where the money can come from.  The EU has a central bank.  It's just limited in what it is permitted to do.

Serious question: what are the main reasons behind not letting it unleash the printers EU style? I don't like the idea of ad infinitum money printing, but what do I know.
There must be a reason why Bernanke ended up with a situation where the amount of dollars on the market could triple overnight if the banks unloaded their QE reserves in a hissy fit, while the EU just won't do anything similar.
Is it to prevent the few economies still working from getting fubared by it?

[The Minsky Moment]

Serious question: what are the main reasons behind not letting it unleash the printers EU style?

The rules don't permit it and the ze Germans would flip.

[Sheilbh]

Serious question: what are the main reasons behind not letting it unleash the printers EU style? I don't like the idea of ad infinitum money printing, but what do I know.
There must be a reason why Bernanke ended up with a situation where the amount of dollars on the market could triple overnight if the banks unloaded their QE reserves in a hissy fit, while the EU just won't do anything similar.
Is it to prevent the few economies still working from getting fubared by it?

Not really.

The ECB's role is far more limited than the Fed or the BofE.  The Maastricht Treaty is quite strict on what the ECB can do.

There is also a problem in that, politically, there's pressure from Germany on how far the ECB can go.  So the impression I get is that there's an attempt to push the treaty as far as is legally possible (like LTRO) and German tolerance for printing as far as is politically possible (probably LTRO).

Also the ECB's sole care is price stability and inflation in the Eurozone is above target (just above 2%) so they probably don't want to try a more expansionary monetary policy until that's down.  Remember the ECB increased interest rates in 2009 because they got spooked by inflation.

Personally I think a lot of this is political.  The Lisbon Treaty includes an explicit prohibition on the bailing out of member states - that became politically necessary, so a legal workaround was found.  I'm sure the same could happen if there was sufficient political consensus or will to go for something like QE.

[Iormlund]

The problem in Spain is economic fundamentals, within the institutional context of the EU.  Those have been baked in for months and haven't changed.  Whether Rajoy is a good or bad politican should be of little relevance.  Spanish banks have been walking wounded for about 4 years now, the fundamentals have been lousy for about as long, the fiscal issues are what they are, and the limitations of the eurozone system are what they are.  Swapping out Rajoy for Superman wouldn't have made any meaningful difference on any of those things.

I mostly agree with that. But part of fixing Spain long-term are painful reforms. It's hard for the average Joe to swallow them when, for examaple,  Rajoy raises taxes on the poor and middle class and at the same time enacts a fiscal amnesty for those that evaded billions from the IRS.

[Iormlund]

I have been reading Spain-related writings here and there, and, am I correct to feel like I am reading early writings about the Greek situation?

If so, shouldnt the EU just go the fuck ahead and help Spain into a 75% default like it eventually did with Greece?

There are a couple differences.

For all the talk about profigalcy, individual Greeks (or business) are not excessively indebted. It's the government that spent like there was no tomorrow.
In Spain the case is the opposite. For the most part governments kept spending in check, but private debt ballooned. When the sub-prime crisis hit, the real estate bubble burst and 10 to 15% of the Spanish economy vanished overnight. And with it the revenues it generated. This left a huge gap in both public and bank finances. The latter are slowly causing banks to fail and eventually the State will not be able to bail them out.