Sovereign debt bubble thread

[The Larch]

Returning to the peseta would be crippling, even moreso than our current shitty situation, I don't think that it's a realistic choice.

I'll believe that we're in deep shit when public employees start getting laid off. Which hasn't even happened yet.

[Valmy]

I'll believe that we're in deep shit when public employees start getting laid off. Which hasn't even happened yet.

Heh.  We have had to do alot of that in Texas with the economic downturn and everybody says we are a model of prosperity.

[Jacob]

And to put the icing on the cake, Argentina has just announced that it is nationalizing YPF. This'll turn mad-max-esque over here at this rate. I'll grab a shotgun just in case.

What's YPF?

[Sheilbh]

And to put the icing on the cake, Argentina has just announced that it is nationalizing YPF. This'll turn mad-max-esque over here at this rate. I'll grab a shotgun just in case.

What's YPF?

Spanish owned oil firm:
http://www.bbc.co.uk/news/business-17732910

[The Larch]

And to put the icing on the cake, Argentina has just announced that it is nationalizing YPF. This'll turn mad-max-esque over here at this rate. I'll grab a shotgun just in case.

What's YPF?

The Argentinian branch of Repsol - YPF, Spain's flagship oil company.

[citizen k]

http://www.zerohedge.com/news/nationalizations-begin-argentina-takes-over-oil-and-gas-producer-ypf

Update 2: SPAIN SEES FIRMS' INTERESTS AS NATIONAL INTEREST, OFFICIAL SAYS; SPAIN ANALYZING RESPONSE TO ARGENTINA OVER YPF, OFFICIAL SAYS. Oops.

Update: TRADING HALT: YPF (NYSE)-NEWS DISSEMINATION. Translation: YPF shareholders - you have been Corzined. The money has vaporized. Jon Corzine has been appointed to the newly formed Argentina based Board of Dictators. Have a nice day

[Tamas]

And to put the icing on the cake, Argentina has just announced that it is nationalizing YPF. This'll turn mad-max-esque over here at this rate. I'll grab a shotgun just in case.

what is YPF?

[The Larch]

And to put the icing on the cake, Argentina has just announced that it is nationalizing YPF. This'll turn mad-max-esque over here at this rate. I'll grab a shotgun just in case.

what is YPF?

RTMFT

[Tamas]

And to put the icing on the cake, Argentina has just announced that it is nationalizing YPF. This'll turn mad-max-esque over here at this rate. I'll grab a shotgun just in case.

what is YPF?

RTMFT

TLDR

[Sheilbh]

As an aside I just saw this from the European Council on April 1:
http://blogs.r.ftdata.co.uk/brusselsblog/files/2012/03/Eur-Council-1-April.pdf

[Iormlund]

How would returning to the peseta solve Spain's problems of high private euro-denominated debts and extremely high unemployment?

A solution of the former would require a private-sector default. However, if e.g. Santander defaults on its euro-denominated debt, its assets in foreign countries would be seized in the bankruptcy proceedings, wrecking Santander. However, if the Spanish people en masse default on their euro-debts to Santander, that might become inevitable.

Not sure how changing to the peseta would all of a sudden create millions of jobs when according to Iormlund and Larch one of the main groups of jobseekers is unskilled workers that used to work in Spain's huge construction industry. Because even with the new peseta I don't see how that industry could be easily restarted. Massive public works?

I'm not saying exit is a panacea. It will be really painful for everyone. It's just better than a decade-long depression via internal devaluation:

a) Everyone is saving. Capital controls and higher inflation resulting from costlier imports (energy above all) would encourage to put savings into circulation before they were eroded.
b) With current policy everyone's debt is getting harder to repay as time goes by because we are decreasing wages and earnings while mortgages or business debt stay the same. With a Neopeseta debts would also go down as the new currency fell. They would be easier and faster to repay leading to a quicker recovery.
c) Money circulating in the black market would have to come out or lose all its value.

And yeah, some banks would be on the hook for their foreign assets. But if those assets are so significant, they will probably be healthy enough to reach an agreement with their creditors. If most of their operations are in Spain proper and especially in real estate, they are fucked nevertheless and will have to be rescued eventually anyway.

[MadImmortalMan]

It's just better than a decade-long depression via internal devaluation

Japan has had that for two decades, and they have their own currency. There's no guarantee.

[citizen k]

Repsol Demands $10.5 Billion From Argentina (And Argentina's Counteroffer)

Sure enough, just out from the FT: Argentina will not pay Repsol of Spain what it is asking ($10.5bn) in compensation for nationalization of YPF, says deputy economy min
... but will settle for what it ends up getting: nothing. Of course, in the meantime, there will be a lot of kicking and screaming, but that's great: Risk On - Off markets demand distractions. From the FT: "These acts will not go unpunished" said Antonio Brufau, Repsol's executive chairman during a two-hour press conference on Tuesday, at which he attacked Argentina's "revisionism" over YPF's success, and its energy policy over the past decade." Said otherwise, this aggression will not stand, man. Ok, fine. Here is Argentina's counteroffer.



And since we now know what the true value loss to Repsol is, we can now see why CDS sellers would be even more concerned.
More from the FT:

"The Argentinian president has committed an illegal and unjustifiable act following a campaign intended to push down the share price of YPF and allow expropriation at a low price," he said. "This is just a way of covering up the social and economic crisis facing Argentina."

Spain has promised "clear and decisive action" against the move in the areas of trade, diplomacy, industry and energy, and summoned Argentina's ambassador on Tuesday morning.

Madrid has expressed its confidence that fellow European Union members will support it against Argentina, while Mariano Rajoy, prime minister, is using a previously scheduled trip to Latin America to rally allies.
And it is not just Spain: the EU, best known for nationalizing Greece recently, has also decided to throw its "economic weight" into the fray:

The European Union signalled it would throw its full diplomatic and economic weight behind the Spanish government. José Manuel Barroso, president of the European Commission, said he was "seriously disappointed" by the Argentine move and called on Ms Fernandez to find a "mutually agreed solution" to the stand-off that does not harm Argentina's business environment.

"We expect Argentinian authorities to uphold their international commitments and obligations," Mr Barroso said, noting that Buenos Aires has existing bilateral agreements with Madrid to protect Spanish investments in Argentina.
Much more humor pending. In the meantime, guess who is the winner:

Responding to speculation that Argentina had begun contacting Chinese state-owned oil companies in a search for investment in the new YPF, Mr Brufau said: "The Chinese are very serious, and no one serious enters through the back door."
That's right: as the broke serfs fight amongst each other for the scraps in a world becoming increasingly lawless, China wins again.

[Zanza]

a) Everyone is saving. Capital controls and higher inflation resulting from costlier imports (energy above all) would encourage to put savings into circulation before they were eroded.

Capital controls are against the four freedoms of the EU. So what you are talking about is not just abolishing the Euro, but abolishing the EU.
As long as people are afraid of their future and the state's ability to pay a reasonable pension, they'll save. If you create inflation, they'll just try to find inflation hedges. Unless you make that utterly impossible, which also means that the Spanish people will have no means to privately take care of their retirement time, I don't see it working. It could possibly even make the situation worse by increasing the savings rate to overcompensate for inflation losses.

b) With current policy everyone's debt is getting harder to repay as time goes by because we are decreasing wages and earnings while mortgages or business debt stay the same. With a Neopeseta debts would also go down as the new currency fell. They would be easier and faster to repay leading to a quicker recovery.

Yes, but that doesn't help with the current stock of debt.

c) Money circulating in the black market would have to come out or lose all its value.

That assumes the Euro ceases to exist, which is not a necessity. If the Euro still buys stuff in say Northern Europe, the black market money will just shift there, no?

So far your plan to me looks like this:

1) Leave Euro
2) ???
3) Profit!

[Sheilbh]

Capital controls are against the four freedoms of the EU. So what you are talking about is not just abolishing the Euro, but abolishing the EU.

Not necessarily.  In the case of a currency or balance of payments crisis capital controls could be introduced, dispensation can be granted by the Commission.  One of the Bundesbank Governors (I'm not sure what the German term is) has said it's arguably the last line of defence by countries in certain situations.  I think that's about right.  It should only be used when necessary and should be transparent and targeted. 

But I think in the case of a country withdrawing from the Euro it would be granted by the Commission almost just because.  There's no way that country's economy could survive without capital controls and it would be highly destabilising for the rest of the EU.