Sovereign debt bubble thread

[Iormlund]

There's no common market in services yet, and in terms of export we now have more trade with non-EU than EU countries.

There'd be a hit, for sure, but I don't think it would necessarily be as catastrophic as people have suggested.  My view is that overall the costs of EU membership are now, probably, slightly more than the benefits - especially if Europe decides to try to regulate the City.

London has a lot of firms providing services to the rest of the EU in finance, law, IT infrastructure ...

All those could find themselves out of the loop. It wouldcertainly  be much easier to bypass the City altogether if the UK withdrew than to regulate it.

[Zanza]

There's no common market in services yet, and in terms of export we now have more trade with non-EU than EU countries.

The British Office for National Statistics disagrees with you for 2012 until May (latest figures on their website) for goods exports. The latest figures for services exports I could find also show that in 2010 you sold roughly half of your service "exports" in Europe (however that includes e.g. Switzerland).
By the way, leaving the Common Market won't make a common market in services more likely.

There'd be a hit, for sure, but I don't think it would necessarily be as catastrophic as people have suggested.  My view is that overall the costs of EU membership are now, probably, slightly more than the benefits - especially if Europe decides to try to regulate the City.

Europe would still regulate the city just that Britain would no longer have a say on it. If you want to remain part of the Common Market, you would at best get the same deal as Switzerland or Norway - membership, but no influence.

You're flattering them by only extending that to EU policy

I don't really follow British domestic politics so I can't say anything about that.

[Zanza]

I think the idea is that they somehow leave the EU without leaving the Common Market. I am not sure why the rest of the EU would agree to that when they have nothing to gain from it.

Cameron's policy is ridiculous.  From what I can tell he wants a referendum (but not in/out), he would never support leaving the EU and he wants to renegotiate our membership to get lots more opt-outs.  It's almost like he designed it to annoy the maximum number of people

What does he want to offer the rest of the EU for his opt-outs? Why should they even talk to him about that?

[Sheilbh]

What does he want to offer the rest of the EU for his opt-outs? Why should they even talk to him about that?

He's offering nothing.  And because he would 'never' campaign for EU exit he's even given away the potential threat.

Europe would still regulate the city just that Britain would no longer have a say on it. If you want to remain part of the Common Market, you would at best get the same deal as Switzerland or Norway - membership, but no influence.

Nowhere near as much.  For example the UK government wants to require British banks to have a higher rate of capital than the Basel III minimum.  During those negotiations the US and UK were pushing for higher levels and Germany and France for lower ones (largely because of their exposure to European debt).  Because Switzerland's banks form such a big part of their economy they're requiring around double the Basel requirements.   For the same reason the UK government wants to do roughly the same.  So far the Commission is opposed to this because it would make Britain's banks safer which would give them an unfair competitive advantage in terms of access to funding and the rest.

But I don't think most British Euro-sceptics would be for staying in EFTA and leaving the EU - and I don't think other EU members would support Britain in EFTA anyway.

The British Office for National Statistics disagrees with you for 2012 until May (latest figures on their website) for goods exports.

Yep, but all goods exports are a far smaller part of the economy than services.  It is new, but I think it's good news, because practically the rest of the world's economy is going to grow faster than Europe's and the more we're exposed to that the better.

[Tamas]

I guess:

France wanted to form the French USA. Turns out nobody except them wants to speak French
Germany likes the common market under their thumb
UK, well, I reference Yes Minister here
East Euros and Mediterranians? They wanted free money.

[Zanza]

He's offering nothing.

Then he hasn't understood yet how the EU works. He should better talk to Sir Humphrey again.

Nowhere near as much.  For example the UK government wants to require British banks to have a higher rate of capital than the Basel III minimum.  During those negotiations the US and UK were pushing for higher levels and Germany and France for lower ones (largely because of their exposure to European debt).  Because Switzerland's banks form such a big part of their economy they're requiring around double the Basel requirements.   For the same reason the UK government wants to do roughly the same.  So far the Commission is opposed to this because it would make Britain's banks safer which would give them an unfair competitive advantage in terms of access to funding and the rest.

Having higher capital requirements is an unfair competitive advantage now?  If that's really what the Commission, Germany and France say, that's retarded. It's not like any bank couldn't just decide to up their capital too. Anyway, I was more thinking about stuff like mandating that clearing business in Euro has to happen in the Eurozone or so, which could hurt the City.

Yep, but all goods exports are a far smaller part of the economy than services.  It is new, but I think it's good news, because practically the rest of the world's economy is going to grow faster than Europe's and the more we're exposed to that the better.

Based on the figures on their website, goods exports are still considerably more significant than services exports. A lot of services can't be exported in the first place, so their relative share of the total economy is pretty meaningless when considering external trade. Higher exposure to growing markets is good of course, but then how does that fit with your statement that Britain isn't a great exporter?

[Admiral Yi]

From The Economist, some things Greece said they would do and have not done:

The troika set a target of 50 billion euros in privatization proceeds.  Greece cut this year's target from 3 billion euros to 300 million euros.

200 regional tax offices were supposed to be merged or closed by June. "Little progress has been made."

Last year 30,000 public sector workers were supposed to be sent to a "strategic reserve" (shades of the UAW) at lower pay.  Fewer than 10,000 were sent.

[Sheilbh]

I've not read the article, but I think a huge problem with privatisation is that the target's unrealistic given the uncertainty. You'd have to be mad to invest billions in a country when you don't know and can't even expect that they'll have solvent banks or what currency they'll be in in six months. The IMF have said the Greeks are trying to privatise what they've agreed with the Troika. They've not had many offers. The OECD did a report in January that found the Greeks had passed the laws required but none of the reforms were having the expected impact because their institutional capability is so low.

Having said that Greece doesn't matter except to the Greeks and if they exist. The issue now is the problems in economies that matter, and are reforming like Italy and Spain.

Edit: I'd add the Toika also projected solid growth this year or a return to growth this quarter. Given their projections so far I'd trust a psychic over them (and market faith is similar, the derision at the projections with the 2011 bailout was extraordinary). I think you can trust them about as much as an official Greek statistician

[Admiral Yi]

The OECD did a report in January that found the Greeks had passed the laws required but none of the reforms were having the expected impact because their institutional capability is so low.

The way The Economist phrased it is that they've passed the legislation but not implemented it.

[Admiral Yi]

Edit: I'd add the Toika also projected solid growth this year or a return to growth this quarter. Given their projections so far I'd trust a psychic over them (and market faith is similar, the derision at the projections with the 2011 bailout was extraordinary). I think you can trust them about as much as an official Greek statistician

Why do you need to trust the troika?  They're not making any backloaded promises.

[Sheilbh]

Okay the OECD basically said the same, but their conclusion was that currently the Greek civil service lacks the institutional capacity or capability to deal with all of the reforms that have been passed. I imagine forced redundancies and cuts to pay and pensione haven't helped that.

I'll return to my example of the Greek tax system. Many offices don't even have computers far less a computerised national system. When the EU sent a modern technical assistance team revenue in that period increased 48% on the previous year, unfortunately it was short-term. The trouble is the Greeks have, as required, shown willing by legislating a big bang of reform but are struggling to implement it because the state is stuck in the 70s (at best).

No doubt a lot of that was caused by failure's and corruption and nepotism in previous Greek governments, but I think if you want to see the reforms work you should provide far more help implementing them.

[Sheilbh]

Edit: I'd add the Toika also projected solid growth this year or a return to growth this quarter. Given their projections so far I'd trust a psychic over them (and market faith is similar, the derision at the projections with the 2011 bailout was extraordinary). I think you can trust them about as much as an official Greek statistician

Why do you need to trust the troika?  They're not making any backloaded promises.

If the work of the Troika is, in part to help the Euro through implementation of EFSF or ESM bailouts, then I'd argue they need market credibility to have effect. If they're so consistently over-optimistic about everything then I'd argue they start to resemble something closer to a not terribly trustworthy Chinese state bank. I think it's especially important if the ESM, as reported, tries to attract outside investment.

[Admiral Yi]

If the work of the Troika is, in part to help the Euro through implementation of EFSF or ESM bailouts, then I'd argue they need market credibility to have effect. If they're so consistently over-optimistic about everything then I'd argue they start to resemble something closer to a not terribly trustworthy Chinese state bank. I think it's especially important if the ESM, as reported, tries to attract outside investment.

The ECB does not need market credibility*, neither does the IMF.  The attractiveness of the ESM to private sector investors depends on the credit-worthiness of its members, not on the accuracy of their GDP forecasts.

Central banks do need credibility in order to fight inflation, but that's not what we're talking about here.

[Iormlund]

Of course they need to be credible. How are they supposed to sell the pain if nobody believes there'll be any gain?

[Sheilbh]

They need credibility if it's to reassure markets to have an effect on other peripheral states.

The IMF are fine, they always get their money, but as widely predicted at the time of the second Greek bailout they're likely to need another one or to default which would affect the credit worthiness of creditor countries (like Germany, Italy and France) and make other investors even warier (as, probably did the treatment of private sector creditors).

It doesn't depend on accuracy of GDP projections but credibility of their program's (which Europe, unlike the IMF, is sorely lacking), if your downside projection is everyone else's best case scenario, that's a problem.

And as Iorm said there's a political element here. They need countries to think it's better than the alternatives - and that goes for Germany and Finland as much as Ireland and Greece.

I agree on inflation, luckily that's not a serious problem anywhere in the West.