Sovereign debt bubble thread

[Zanza]

That is what eurobonds would be in the real world: Germany paying for the other forever. With such a possibility it's almost worth it to just let the thing crash, take the hit, rebuild and be rid of the southrons/northrons (depending on your georaphical location)

[Sheilbh]

I'm not willing to predict a year or two down the line far less a decade or two.

But you expect Germany to act very quickly and show bold leadership by signing up for an open-ended indefinite height scheme that will have influences on the budget perpetually without a way to opt out again? 

I think the open-ended scheme that will perpetually have influences on the budget without having an opt out was the Euro.  I'm saying make it work or end it.

In terms of mutual debt the time to worry about whether there was an Italian or a Greek debt problem that could affect Germany was when they weren't in the Euro and everyone knew they were lying about their finances.  A political decision was made to include them, despite that fact, all the while German Chancellors and other European leaders were talking about how it'd be impossible to go back to the nation state as it was.  This is the consequence.  It's too late to resile from that.

And I think Germany will need to show bold leadership because I think there's a potential crisis brewing that would have enormous economic effects.  Frankly, there won't be time for 2 years worth of Eurosummits and consensus building and I know that it's unlooked for and uncomfortable but Germany's the leader of Europe and needs to deal with it.

Maybe I misunderstand him, but I don't see anything on Eurobonds in the first paragraphs, but a lot on a lender of last resort. That's a different, independent thing as far as I understand it. The ECB could be a lender of last resort without Eurobonds.

It's the third part of a three parter on problems in the Eurozone, especially with the idea that a country that is solvent could default in the Eurozone - Spain's a risk.  The first part of that quote is why that risk exists for countries in a currency zone but not countries with floating currencies.  He then proposes that the solutions are either federalisation, or nationalisation.  In terms of Federalisation he has three suggestions: a full on fiscal union; Eurobonds; or ECB is lender of last resort.  But they'd all address the problem of a solvent state having to default due to a liquidity to finance their debt during a confidence crisis.

The whole series is worth reading and free in the FT's blog.

[Zanza]

I think the open-ended scheme that will perpetually have influences on the budget without having an opt out was the Euro.

How so? It didn't create any obligations to pay anything that was not under control of the national parliaments.

And I think Germany will need to show bold leadership because I think there's a potential crisis brewing that would have enormous economic effects.

Yes, I get that, just like you know that I believe your cure might be worse than the illness.

Frankly, there won't be time for 2 years worth of Eurosummits and consensus building and I know that it's unlooked for and uncomfortable but Germany's the leader of Europe and needs to deal with it.

I bet we'll still have summits on the currency union and the right policies in two years.

[citizen k]

Greece:  Armed militias prepare for the uprising

http://deutsche-wirtschafts-nachrichten.de/2012/04/17/griechenland-erste-bewaffnete-buergerwehren-aufgetaucht/

[Valmy]

Greece:  Armed militias prepare for the uprising

This is madness.

[Sheilbh]

Euro PMI is apparently at the lowest since mid-2009, though that doesn't capture how bad the situation is in the periphery because obviously it's Eurozone so France and Germany are big (mildly) positive weights.

I read today that the Greek stock exchange is now at the level it was in 1990.

Edit: Interestingly Monti said today that Eurobonds are coming and he thinks soon-ish, he also said a majority of Eurozone leaders now support them.

[Neil]

Greece:  Armed militias prepare for the uprising

This is madness.

That's the sort of talk that'll get you kicked into a well by screaming Greeks.

[Crazy_Ivan80]

Euro PMI is apparently at the lowest since mid-2009, though that doesn't capture how bad the situation is in the periphery because obviously it's Eurozone so France and Germany are big (mildly) positive weights.

I read today that the Greek stock exchange is now at the level it was in 1990.

Edit: Interestingly Monti said today that Eurobonds are coming and he thinks soon-ish, he also said a majority of Eurozone leaders now support them.

they can be in favour all they want: if the creditor nations say no it'll be no. The decade of low-cost debt (a gift of germany basically) hasn't led to better practices, neither will euro-bonds

[Sheilbh]

they can be in favour all they want: if the creditor nations say no it'll be no.

I don't see why not.  This is the flipside of the democratic problem.  What if European policy established and agreed by the Council requires contributions for bailout funds, or to mutualise debt but a party campaigns against it in, say, the Netherlands or Finland and wins?

The decade of low-cost debt (a gift of germany basically) hasn't led to better practices, neither will euro-bonds

I don't think it was a gift.  I think it was an effect of the markets taking Eurozone leaders at their word when they talked about dissolving nation states.

Also no-one's saying Eurobonds would lead to better practices.  That's like objecting to universal healthcare because it won't reduce crime.

[Neil]

If the market believed that Germany was going to transfer unlimited amounts of cash to places like Greece and Spain, then the market deserves to be punished for being so stupid.

[citizen k]

Greece's national police spokesman, Thanassis Kokkalakis, told Reuters: "Many people have withdrawn their money from the banks fearing a financial crash, and they either carry it on them, find a hideout at home or in storage rooms.
"We urge people to trust the banking system, leave their money there, or at least in a safe place, not hide it at home, where they must anyway take the basic security measures."

http://www.guardian.co.uk/world/2012/may/24/police-urge-greeks-money-bank?CMP=twt_fd

[Crazy_Ivan80]

they can be in favour all they want: if the creditor nations say no it'll be no.

I don't see why not.  This is the flipside of the democratic problem.  What if European policy established and agreed by the Council requires contributions for bailout funds, or to mutualise debt but a party campaigns against it in, say, the Netherlands or Finland and wins?

The decade of low-cost debt (a gift of germany basically) hasn't led to better practices, neither will euro-bonds

I don't think it was a gift.  I think it was an effect of the markets taking Eurozone leaders at their word when they talked about dissolving nation states.

Also no-one's saying Eurobonds would lead to better practices.  That's like objecting to universal healthcare because it won't reduce crime.

There is no way that the EU would be able to enforce such a decision. Basic reality is that if these nations don't want to prop up the southrons and their bad behaviour then there's no one that can force them to do it. The creditors will need concrete guarantees, even proof, that things are changing. That proof, and those guarantees, currently don't exist and won't be existing in the near future either.

[Zanza]

Edit: Interestingly Monti said today that Eurobonds are coming and he thinks soon-ish, he also said a majority of Eurozone leaders now support them.

Excellent. Then I suggest he forms a coalition of the willing and implements Eurobonds with them. Mutualization of debt should work even if not everybody participates, right?

[Sheilbh]

Edit: Interestingly Monti said today that Eurobonds are coming and he thinks soon-ish, he also said a majority of Eurozone leaders now support them.

Excellent. Then I suggest he forms a coalition of the willing and implements Eurobonds with them. Mutualization of debt should work even if not everybody participates, right?

If only.  That might  be worse than doing nothing.  It would mean the Euro was effectively split into two currencies, a real split would inevitably follow.  That could be a decent solution to the Euro problem overall but we should get there intentionally not as an unintended consequence.

There is no way that the EU would be able to enforce such a decision. Basic reality is that if these nations don't want to prop up the southrons and their bad behaviour then there's no one that can force them to do it. The creditors will need concrete guarantees, even proof, that things are changing. That proof, and those guarantees, currently don't exist and won't be existing in the near future either.

Indeed, on the first point, that's precisely the issue.  Isn't the current austerity, structural reforms and the fiscal pact meant to be providing proof that things are changing and that that change is institutionalised?

[Zanza]

If only.  That might  be worse than doing nothing.  It would mean the Euro was effectively split into two currencies, a real split would inevitably follow.  That could be a decent solution to the Euro problem overall but we should get there intentionally not as an unintended consequence.

Can you explain why the advantages of debt mutualisation work if all countries sign up, but not if only some countries sign up?  And why would it mean a real split? It's obviously less of a split than right now.