Sovereign debt bubble thread

[Neil]

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.

Is that really surprising, given that the bubble growth was a scam perpetrated on us by the financial industry?

[Sheilbh]

Apparently some 1.5 billion euros have been withdrawn from Greek banks in the last ten days. So if this keeps up, then I guess another 5 billon euros will be withdraw by the next Greek election.

Austrian ORF quotes the Greek Central Bank that on Monday alone Greeks withdrew € 700,000,000 from the banks.

According to the Guardian in the 10 days since the elections Greeks have withdrawn €3 billion.  The €700 million figure increases to €800 billion if you include total outlays of banks, including people converting cash into things like bunds.  In addition there's been a  €12 billion fall in deposits in the first quarter and analysts quoted in the British press have said instantly accessible cash could dry up in the Greek banking system.

If this situation intensifies then I think it's a very difficult problem for the Eurozone.  The capital flight could push Greece out of the Euro before the election.  Within the Euro they can't impose capital controls so it seems the only solution would be some emergency support for the banks from the ECB, though I'm not sure if that's legal.  Regardless that decision may need to be taken before the Greek election's held.

[Tamas]

Didn't one of you outline a scenario earlier, that if Italian and Spaniards eventually follow suit and perform a mass exodus of their euros to Germany, Germany will have a strong incentive to grab the initiative in destroying the euro, since otherwise they would be royally fucked by all those Spanish and Italian deposits if/when those countries switch back to their own currency?

[Sheilbh]

Didn't one of you outline a scenario earlier, that if Italian and Spaniards eventually follow suit and perform a mass exodus of their euros to Germany, Germany will have a strong incentive to grab the initiative in destroying the euro, since otherwise they would be royally fucked by all those Spanish and Italian deposits if/when those countries switch back to their own currency?

I think that's the effect of TARGET 2.  The more there's capital flight from the periphery into Germany as problems escalate the more incentive Germany has to keep the Euro going because more assets in the Bundesbank would be claims on periphery banks.  But in that situation it would all depend on the sort of break-up that was happening.  And in all honesty I think it would probably pale in comparison to the costs of keeping the Euro going or breaking it up.

Here's a good post on not worrying:
http://www.voxeu.org/index.php?q=node/7921
Here's one on worrying:
http://www.voxeu.org/index.php?q=node/7999

[Zanza]

Wouldn't that just counter Germany's gigantic current account surplus of the last decade?

[Sheilbh]

Now in Spain:

UPDATE 1-Bankia customers pull out over 1 bln euros -report

Thu May 17, 2012 2:09am EDT

* Over 1 bln euros taken out since nationalisation - El Mundo

* New chairman informs board of cash exit

May 17 (Reuters) - Customers of troubled Spanish bank Bankia, nationalized last week, have taken out over 1 billion euros ($1.3 billion) from their accounts over the past week, El Mundo newspaper reported on Thursday.

The newly appointed chairman, Jose Ignacio Goirigolzarri, informed a board meeting that customers had pulled out funds since the bank was taken over by the government, El Mundo said, citing information from the board meeting it had seen.

The government took over Bankia, the country's fourth largest lender, on May 9 in an attempt to dispel concerns over the bank's ability to deal with losses related to a 2008 property crash.

Uncertainty over the final cost of Spain's banking reform has stoked investor fears that an expensive international bail-out could be on the cards, putting the survival of the euro zone at stake.

Shares in Bankia slumped 10 percent on Wednesday, compounding a week of falls, as small investors who had participated in a July stock market listing sold their holdings which have lost over half their value since the flotation.

Bankia did not respond to requests on Wednesday asking if there had been mass withdrawals of cash from deposits. No-one one was available immediately to comment on Thursday.

Shares are now down 26% and the regulator's classing their shares as 'under auction' which happens when there's particularly large orders.  It looks like large institutional shareholders are dumping it

Edit: Trading suspended.

[Martim Silva]

And in the spanish bond auction, the price of the 4-year bond went up from 3,3 top 5,1%.

Also, the government asked for support for the cuts in Parliament and got zero support.

I think I might as well add that the stocks of the Portuguese banks are falling hard again (they've been falling for the last three days), and that the upper limits on withdrawals at the ATMs suddenly vanished yesterday (no official word given, the maximum option is just... gone. We could withdraw up to 400 euro per day, now it's 150 euro max).

[jimmy olsen]

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.

Cities have, but I don't recall states going bankrupt.

[mongers]

Dark days in Europe*, one of the worst crisis since May 1940 ?



* I include Cameron's and Osborne's Britain in this.

[Tamas]

I think I might as well add that the stocks of the Portuguese banks are falling hard again (they've been falling for the last three days), and that the upper limits on withdrawals at the ATMs suddenly vanished yesterday (no official word given, the maximum option is just... gone. We could withdraw up to 400 euro per day, now it's 150 euro max).

[Sheilbh]

Cities have, but I don't recall states going bankrupt.

Loads did in the 19th century.  I'm fairly sure a couple of southern states did in the Depression too, I think Arkansas and Mississippi.

[mongers]

Cities have, but I don't recall states going bankrupt.

Loads did in the 19th century.  I'm fairly sure a couple of southern states did in the Depression too, I think Arkansas and Mississippi.

The 20th century instance/s seem like quite a one off event:

http://www.nytimes.com/2011/01/23/weekinreview/23davey.html

[mongers]

I think I might as well add that the stocks of the Portuguese banks are falling hard again (they've been falling for the last three days), and that the upper limits on withdrawals at the ATMs suddenly vanished yesterday (no official word given, the maximum option is just... gone. We could withdraw up to 400 euro per day, now it's 150 euro max).

Yes, I think this could be a self-fulfilling prophecy; If I lived in the Eurozone country, I'd be wanting to have a fair few hundred/thousand euros under my mattress at the moment.

[Iormlund]

The word "corralito" is all people at work have been talking about for a couple days. Fear has finally reached the masses.

Didn't one of you outline a scenario earlier, that if Italian and Spaniards eventually follow suit and perform a mass exodus of their euros to Germany, Germany will have a strong incentive to grab the initiative in destroying the euro, since otherwise they would be royally fucked by all those Spanish and Italian deposits if/when those countries switch back to their own currency?

That was Keynes/Joan/Minsky.

[mongers]

The word "corralito" is all people at work have been talking about for a couple days. Fear has finally reached the masses.

Didn't one of you outline a scenario earlier, that if Italian and Spaniards eventually follow suit and perform a mass exodus of their euros to Germany, Germany will have a strong incentive to grab the initiative in destroying the euro, since otherwise they would be royally fucked by all those Spanish and Italian deposits if/when those countries switch back to their own currency?

That was Keynes/Joan/Minsky.

Time for people to be reading up on the history of crowd psychology ?