Sovereign debt bubble thread

[Sheilbh]

Not terribly related but, assuming no Eurogeddon, the BofE projects that the British economy will recover to 2007 levels in 2018

[Tamas]

Not terribly related but, assuming no Eurogeddon, the BofE projects that the British economy will recover to 2007 levels in 2018

that sounds about right for the next bubble, yeah

[Zanza]

[Tamas]

apparently, ECB stops monetary policy operations for some greek banks, as recapitalisation is not in place or something.

While the Greek default crawls ever closer, and at this point it is the best solution for the Greeks (running away with the loot is easier than giving it back after you spent it), I am kinda seriously worried about it.

Why? Precedent.

edit: I am worried about they leaving the euro, and possibly the EU as well, of course

[The Larch]

If I lived in one of those countries, there is no way I would hold any significant money in a Greek, Spanish, Italian, or Portuguese bank right now. The best thing about dragging this out for so long is people should have had time to prepare if it comes to that.

Define significant money.

[alfred russel]

Define significant money.

I'm not trying to start a panic, and maybe I'm a hypochondriac, but there seems to be a non zero chance that spanish accounts end up in a devalued currency. If I had a chance to open a foreign account in a euro currency (and I was Spanish), I would do so. I wouldn't withdraw my life savings and put them under my mattress--that carries risks too (fire, robbery). Maybe I would do that if I were Greek.

I think I would be more interested in getting a foreign account if I was Hungarian. Tamas, wtf?

[Tamas]

Define significant money.

I'm not trying to start a panic, and maybe I'm a hypochondriac, but there seems to be a non zero chance that spanish accounts end up in a devalued currency. If I had a chance to open a foreign account in a euro currency (and I was Spanish), I would do so. I wouldn't withdraw my life savings and put them under my mattress--that carries risks too (fire, robbery). Maybe I would do that if I were Greek.

I think I would be more interested in getting a foreign account if I was Hungarian. Tamas, wtf?

I am tapping the table as we speak. I already have a significant portion of the family savings in british pounds, and now await the non-resident serving section of a British bank finally get through my application for a savings account. The moment I can access that on the Internet, I am wiring the pounds over to it.

[Sheilbh]

While the Greek default crawls ever closer, and at this point it is the best solution for the Greeks (running away with the loot is easier than giving it back after you spent it), I am kinda seriously worried about it.

Why? Precedent.

I've always thought there needs to be a way for countries to default within the Euro - I mean US states have defaulted so it should be possible.  In my view it should be to receiving Eurobailout and IMF funds for Euro states what devaluing is to everyone else.  The bailout should come afterwards to help keep the country going while they cut their deficit and pass structural reforms.  Mervyn King made the point this morning that the can-kicking is because the EZ is trying to treat a liquidity crisis when they actually have a solvency crisis - which is more astute than his own performance

I think precedent was a large part of it.  So far the reaction to this crisis seems to under-worry about contagion, the exception is with a default because if we're honest chances are Portugal's more or less insolvent and, with their bank debt, so's Ireland.  In addition I think it would create a serious banking crisis for other Eurozone states who would have to recapitalise - this wasn't an enormous issue with Greece, but when taken with the fear of contagion it is.  So it was a combination of precedent and, I think, national politics.

The problem for Greece now is that it's going to be incredibly difficult to default.  Because the bailouts from the ECB and EFSF and IMF effectively crowded out private sector loans from Greek, French and German banks their remaining debt is almost entirely publicly held.  You don't default on the IMF - there's very few countries that have and they're African failed states.  Similarly the ECB's pushing for a similar position.  Which means that all of the massive amount of Greek debt is now institutional and very difficult for the Greeks to default on (on the other hand none of it's due for 30 years and if they could renegotiate interest payments or the like that could help ease the pressure).

So the Greeks have massive debts that are very difficult to default on and even if the ECB/EU/IMF plan works as planned they will, after a decade of austerity and structural reforms, manage to reduce their debt to 120% of GDP by 2020.  A further problem is that the plan for Greece is still based on very optimistic GDP figures - the ECB/EU/IMF have made this mistake far too many times - so I believe the economic situation this year is already projected to be far worse than was needed for the plan to work.

Edit:  Though the story you mentioned wasn't quite as important as it seemed.  Here's the FT blog on it:
http://ftalphaville.ft.com/blog/2012/05/16/1003391/shifting-ecb-liquidity-to-ela-greek-bank-recap-edition/

One further thought on Greek default or a Grexit which was raised by A Fistful of Euros (very good blog) is whether Greece has the institutional capacity to do it.  A lot of the problems of collecting tax and delivering structural reforms in Greece is because their state is weak and riddled with clientilism and corruption.  I think the British civil service or, say, the French state could manage a short-notice transition from Euro to national currency, or vice-versa, pretty smoothly and get enough contingency plans in place to make it relatively safe.  The Greeks?

Edit:  One final thought is that I think a big part of Greece staying in the Euro and not defaulting has been that they've lacked a Kirchner, all of their politicians have been deflatingly dull.  I'm not sure they've not found one in Tsipras.

[PJL]

Not terribly related but, assuming no Eurogeddon, the BofE projects that the British economy will recover to 2007 levels in 2018

So basically returning to it's 1830-2010 trend line then. Even despite the recession it was still above this line in 2010.

[PJL]

Edit:  One final thought is that I think a big part of Greece staying in the Euro and not defaulting has been that they've lacked a Kirchner, all of their politicians have been deflatingly dull.  I'm not sure they've not found one in Tsipras.

You're probably right in that. The political consensus is that Greece should stay in the euro. It's just the austerity package that has divided them. But the irony is that it's the Euro and the lack of release valves that the problem NOT the austerity.

[Sheilbh]

So basically returning to it's 1830-2010 trend line then. Even despite the recession it was still above this line in 2010.

I've no idea about the trend line.  It won't reach the same level as 2007 for 11 years, which means it's the worst recession and the worst recovery in British history, I don't think they're projecting a return to pre-crisis growth trends for far longer.

[PJL]

So basically returning to it's 1830-2010 trend line then. Even despite the recession it was still above this line in 2010.

I've no idea about the trend line.  It won't reach the same level as 2007 for 11 years, which means it's the worst recession and the worst recovery in British history, I don't think they're projecting a return to pre-crisis growth trends for far longer.

Well the possiblilty that it won't recover to 2007 levels until 2018 is bad, but it's the not the worst in British history though. The post WW1 depression was so bad that the 'Great' depression was more like a double dip, and our economy didn't fully recover its 1919 level until the late 1930s..

As for trend growth, you're right there. The markets reckon it'll be 2025 before that happens.

[Sheilbh]

I got that from Andrew Neil so he could be exaggerating, but I'd assume he included that.  It's certainly a worse recovery than the 70s, 30s or 90s recessions and depression.  Obviously for people it's fine because we've got the welfare state and a different society now, but purely in terms of lost potential it's still quite shocking that'll it take around 10 years to recover - and the BofE's growth figures for this year at least look rosy, and it doesn't include the potential for a disorderly collapse of the Euro.

[Zanza]

Did you guys somehow miss the news that Greece did in fact default on its debt in March? It didn't exactly mean the end of the world.

[Sheilbh]

Did you guys somehow miss the news that Greece did in fact default on its debt in March? It didn't exactly mean the end of the world.

What's that to do with now?  I do think if the Greeks default again - on the ECB and IMF - it would be the end of the world for them