Sovereign debt bubble thread

[PJL]

The most likely probability is the Greece will leave the euro, but the ECB/EU/IMF etc will use their WMDs (Weapons of Monetary Destruction) to help save everyone else.

[Iormlund]

I'm not sure we'll be around by then. Yields are already almost as high as the ones that prompted LTRO last winter. If this keeps up for a couple weeks we might have to be rescued before the next Greek elections.

[Admiral Yi]

Is the US dollar really comparable to "normal" currencies though? After all, it is used to denominate trade all over the world. When China buys oil from Saudi Arabia, they probably don't pay in Yuan or Dinar, but in US dollar. That should give the US dollar a value regardless of current US economic performance or Fed policy.

Why is that?  If you and Tamas made a $100 bet on something that wouldn't affect the dollar exchange rate.

[Sheilbh]

Nobody thinks Greece will sink the Eurozone. We're worried about Spain and Italy.

Yeah.  Greece is at once a very odd and unique set of circumstances (and the only one that fits the sovereign debt morality tale) and the canary in the tunnel.  Once the precedent's been set then it is difficult to see why, say, Portugal would necessarily survive in the Eurozone.  There would inevitably be massive pressures on Spanish and Italian banks (26 were downgraded tonight) which could change their situation overnight.  So the Eurozone would either need a massive response by the ECB or an enormous political commitment, like Eurobonds and bailouts, to indicate that the Euro is unshakeable.

I read an interesting comment in the Economist earlier today that financial markets were basically renationalising.  There's not sufficient faith in the Euro for the sort of cross border lending that was happening a while ago.  In part this is good because that was part of the problem in Spain and Ireland, but those cross border loans were also a very good sign for the Euro's health.

The most likely probability is the Greece will leave the euro, but the ECB/EU/IMF etc will use their WMDs (Weapons of Monetary Destruction) to help save everyone else.

Maybe.  They've not been willing to use them to save Greece.  I'm still not sure that they would be willing or able to do it - not just for Portugal, Spain or Italy - but for them and any other country in trouble.  So far the nearest the EZ's come has been the ECB's LTRO and that's nowhere near enough and very controversial.

[Admiral Yi]

Did we lose that old "Who Will Default and Leave the Euro" prediction thread during one of our cinder block episodes?

[Neil]

Won't having the shitty countries leave the Euro devastate the German economy?

[Zanza]

Meanwhile, Germany continues to have a pretty good crisis.

BERLIN/PARIS, May 15 (Reuters) - Germany's economy confounded expectations by posting robust growth in the first quarter of the year while France could summon up none at all, data showed on Tuesday.

Gross domestic product in Germany, Europe's biggest economy, rose by 0.5 percent on the quarter, bouncing back from a 0.2 percent slide in the last three months of 2011. France's economy stagnated, although it grew slightly at the end of last year.

The figure for the euro zone as whole, due at 0900 GMT, is forecast to show it shrank by 0.2 percent, following a 0.3 percent contraction in the last three months of 2011 - putting it back into recession - although Germany's strong showing could give it a lift.

[...]

A Reuters poll of 41 economists had forecast growth of 0.1 percent on the quarter. The actual figure beat even the highest forecast for expansion of 0.2 percent in the Reuters poll.

Strength was broadly based with both exports and domestic consumption gaining ground.

As far as trade goes, exports to Europe declined and imports grew (so adjustment is slowly happening, still a trade surplus of about 1 billion Euro per month with the rest of the Eurozone though), but that was overcompensated by strong growth in overseas markets.

[Tamas]

Won't having the shitty countries leave the Euro devastate the German economy?

well, a big part of their new Lebensraum is in eastern europe I think. They are in the EU, but not in the eurozone.

[Tamas]

"The crisis has shown that one must act quickly and that Europe can act quickly... the notion that we would not be capable of reacting in the short term to something unforeseen is false."

who the fuck said that

[Zanza]

Schäuble

[Richard Hakluyt]

 

[Sheilbh]

As far as trade goes, exports to Europe declined and imports grew (so adjustment is slowly happening, still a trade surplus of about 1 billion Euro per month with the rest of the Eurozone though), but that was overcompensated by strong growth in overseas markets.

For an exporting country, that's the upside of a very low Euro.

[Sheilbh]

Hollande's plane was hit by lightening while on the way to Berlin for a meeting with Merkel

He's now returned to Paris and got on a second plane, but still

[Syt]

[Zanza]

In related news the Bundeswehr announced that it plans to have tesla coils operational soon.