Sovereign debt bubble thread

[The Minsky Moment]

Or maybe Luxembourgeois banks are not sinking their funds into worthless Greek paper.

No doubt that is so.
But that is a very different kind of problem than living beyond one's means.

[Neil]

That would explain the collapse in the GDP/capita of Luxembourg.
Oh wait, that never happened . . .

Don't really know what you're talking about.

I'm talking about countries where the financial sector is supposedly too big to be sustainable.
Since Luxembourg's financial sector is about 5-10 times larger than Cyprus relative to economy and population, it must be doomed.

Or maybe the analysis of "living beyond means" is not sound.

Did Yi assert that all financial activity is unsustainable?  Well, I suppose it is in the long term, but that's not especially useful.

[The Minsky Moment]

Did Yi assert that all financial activity is unsustainable?

That was the implication of his comment.  If he meant something more specific, he should specify.

Comparing Lux to Cyrpus I think is instructive is some ways.  It illustrates the limits of solidarity in the EU, a political grouping in which some units or more equal than others.  Why has the Lux banking sector held up?   Because a large part of it consists of affiliates of groups headquartered in other states that received nice fat bailouts from their home countries: Commerzbank, Dexia, BNP Paribas, etc.  The Lux banking sector was the (perhaps unintended) beneficiary of this activity.  Cyprus, on the balkan periphery of the EU, was not so fortunate

[Admiral Yi]

I suppose I don't really know enough about the specifics of the Cypriot banking industry to sustain an argument and will thus vacate the field of battle.

[Neil]

Did Yi assert that all financial activity is unsustainable?

That was the implication of his comment.  If he meant something more specific, he should specify.

Comparing Lux to Cyrpus I think is instructive is some ways.  It illustrates the limits of solidarity in the EU, a political grouping in which some units or more equal than others.  Why has the Lux banking sector held up?   Because a large part of it consists of affiliates of groups headquartered in other states that received nice fat bailouts from their home countries: Commerzbank, Dexia, BNP Paribas, etc.  The Lux banking sector was the (perhaps unintended) beneficiary of this activity.  Cyprus, on the balkan periphery of the EU, was not so fortunate

All financial activity is unsustainable.

So, if your country can't afford to bail you out, then you're probably going to get into trouble.

[MadImmortalMan]

It all depends on how good the investments those Luxemburger banks have are. If it were all in Greek sovereign debt, they'd be Cyprus right now too.

[Sheilbh]

It was designed to punish exit? That one is new to me.

Worse, it was designed without an exit clause. Which makes sense because when you're establishing a new currency and members can leave it rather dents the credibility. Especially in the case of the Euro when it's generally a condition of EU membership that you work towards joining (I mean presumably if a country left the Euro and remained in the EU they wouldn't have a UK/Sweden opt-out so they'd leave only to try to join again). But it does also make it difficult if you then hit a crisis and there may be reasons for a country to want to leave.

My understanding was that the problem pointed out with the euro is there is no mechanism for kicking out a member, not that there are any legal requirements that prevent a member from leaving of their own volition.

No there's no legal way out of the Euro in the treaties. There is, since Lisbon, a way to leave the EU. In 2009 the ECB published a legal paper that the only way to leave the Euro was to leave the EU entirely. If it came to it I'm sure they'd find something to deal with the situation, but strictly speaking there's no way out (like the use of a treaty clause that was meant to enable aid to countries after, say, a natural disaster being used during the first Greek bailout, because of the no bailout clause).

Not Cyprus per se, since, as Iorm so graciously pointed out, their's is a banking crisis rather than a sovereign debt crisis, but if you haven't noticed I won't shut up about the US debt.

To be fair there's been three waves of banking crises in Europe so far - all of them in states that were fiscally conservative. The Spanish and the Irish, the Baltic states and Cyprus and Slovenia who've been hit by the Greek haircut and banking problems in privatised banks in Eastern Europe (I think Austria has a far smaller version of Slovenia's problem).

[Iormlund]

It all depends on how good the investments those Luxemburger banks have are. If it were all in Greek sovereign debt, they'd be Cyprus right now too.

Unlikely. It's rather who stands to lose money that dictates policy. If it had been German or French banks in trouble at Cyprus, there would have been a conventional bailout to let them escape mostly unscathed, as history shows. But it was Russians and locals. So fuck them.

[Syt]

Austria is currently the only contry in the EU not going along with easing up on bank secrecy.

The idea is that banks have to report foreigners' data to the financial authorities of those persons' country of origin.

Austria is blocking it, and politicians are insidiously arguing they're doing it to protect the savings of the little people in Austria, hinting at (but not explicitly saying) that the EU will know the financial data of all Austrians.

As one high ranking official put it, "We must keep bank secrecy, except for tax evaders." He was then asked how to find tax evaders if there's bank secrecy fully enforced. He babbled something about protecting the little people, but couldn't really answer that question.

Never mind that the average guy's data is with the local finance authorities anyways because of income tax reports, automatically deducted capital gains taxes etc.

Of course the real deal is that Austria wants to keep all those sweet monies that foreigners have parked here.

[Ed Anger]

Yay Slovenia! 

[Sheilbh]

Apparently Merkel is considering supporting a German-style Eurozone early retirement policy for countries with high youth unemployment.

This seems mad and very, very expensive

[Zanza]

I hope she's considering early retirement.

[Sheilbh]

Is there a clear successor?

[Zanza]

No, she knifed all of them in the back.

I guess if they needed a successor right now it would be Ursula von der Leyen.

[Ed Anger]

How about

http://en.wikipedia.org/wiki/Kristina_Schröder