Athens Mulls Plans for New Currency; Greece Considers Exit from Euro Zone

[Zanza2]

Unlike the Fed, the ECB can't just create money from thin air.

??

If I understand it correctly, they have to sterilize their quantitative easing by increasing deposits from the member banks.

[Admiral Yi]

If I understand it correctly, they have to sterilize their quantitative easing by increasing deposits from the member banks.

I don't see how that's possible.  That means when the EU economy is growing the ECB would be pursuing a permanently deflationary policy.

[Slargos]

Well, the Euro is a bad idea (or at least a good idea badly implemented), so maybe Greece's idea isn't so bad after all.

It's a good idea in theory, as is the rest of the EU.  But they expanded far to quickly.

Where the Euro fails is that it doesn't take into account the different policy requirements across the EU.

What about this is untrue of ANY currency?

Is a common monetary policy in the US going to work equally well in every region?

[Zanza2]

If I understand it correctly, they have to sterilize their quantitative easing by increasing deposits from the member banks.

I don't see how that's possible.  That means when the EU economy is growing the ECB would be pursuing a permanently deflationary policy.

They increase lending to the member banks to increase the amount of money in the system. That's easily doable by lowering the interest rate so that borrowing becomes more attractive to the member banks.
The problem right now is that the collateral posted by Irish or Greek banks is probably junk - but now it is the ECB's junk and not the Irish banks' junk.

[Zanza2]

What about this is untrue of ANY currency?

Is a common monetary policy in the US going to work equally well in every region?

This. The optimal monetary policy for Michigan probably looks different than for some booming region. However, the USA has a much stronger federal government than the EU and redistributes way more wealth across the nation so that the differences are level much more. But that's exactly what the richer countries in the EU don't want.

[Zanza2]

[Slargos]

What about this is untrue of ANY currency?

Is a common monetary policy in the US going to work equally well in every region?

This. The optimal monetary policy for Michigan probably looks different than for some booming region. However, the USA has a much stronger federal government than the EU and redistributes way more wealth across the nation so that the differences are level much more. But that's exactly what the richer countries in the EU don't want.

Yep. This kind of bitching I simply can't relate to. Any growing country will suffer through the process of assimilating the new population and integrating the entire economy. Either we're in this project 100% or we might as well break it off and just form a military- and toll union.

Of course, when it comes to countries like Greece and Portugal, perhaps they simply shouldn't be in the union to begin with, given their fantastic financial acumen. It's far easier to convince people to support their neighbour in a time of need if the neighbour isn't a belligerent drunk who considers begging and whining to be honest work.

[Admiral Yi]

They increase lending to the member banks to increase the amount of money in the system. That's easily doable by lowering the interest rate so that borrowing becomes more attractive to the member banks.
The problem right now is that the collateral posted by Irish or Greek banks is probably junk - but now it is the ECB's junk and not the Irish banks' junk.

Now I'm completely lost.  The starting point of this particular discussion was you saying the ECB can not create money out of thin air.

[MadImmortalMan]

Of course, when it comes to countries like Greece and Portugal, perhaps they simply shouldn't be in the union to begin with, given their fantastic financial acumen. It's far easier to convince people to support their neighbour in a time of need if the neighbour isn't a belligerent drunk who considers begging and whining to be honest work.

The problem with that is that it's not really a question of Portugal and Greece being inept and France and Germany responsible. It's more like France and Germany are less inept. There's no rule written in stone that a country that has graduated from being a serial defaulter cannot return to the world where default is a possibility. Portugal is probably the fist of many examples of this ahead. It's a game of trust. The only way anyone can issue debt is if people are willing to buy it. Eventually, the perception of the bond market will be that Euro sovereigns are all a bunch of drunks in general. That's why the lazy drunks of today are important.

[Slargos]

Of course, when it comes to countries like Greece and Portugal, perhaps they simply shouldn't be in the union to begin with, given their fantastic financial acumen. It's far easier to convince people to support their neighbour in a time of need if the neighbour isn't a belligerent drunk who considers begging and whining to be honest work.

The problem with that is that it's not really a question of Portugal and Greece being inept and France and Germany responsible. It's more like France and Germany are less inept. There's no rule written in stone that a country that has graduated from being a serial defaulter cannot return to the world where default is a possibility. It's a game of trust. The only way anyone can issue debt is if people are willing to buy it. Eventually, the perception of the bond market will be that Euro sovereigns are all a bunch of drunks in general. That's why the lazy drunks of today are important.

Well. My point was that the Greeks in particular are spending other people's money like it's going out of fashion, and with that kind of game it's no wonder that people don't want to play.

A Greek has to work 35 years to earn a full pension. A German has to work 45. Why should the German worker be happy about spending 5 years of his life working for the Greek?

[Zanza2]

They increase lending to the member banks to increase the amount of money in the system. That's easily doable by lowering the interest rate so that borrowing becomes more attractive to the member banks.
The problem right now is that the collateral posted by Irish or Greek banks is probably junk - but now it is the ECB's junk and not the Irish banks' junk.

Now I'm completely lost.  The starting point of this particular discussion was you saying the ECB can not create money out of thin air.

They can't create money out of thin air to buy government debt. They can create money out of thin air to lend to member banks.

[MadImmortalMan]

Moody's is talking about multi-level downgrades on Greek sovereigns. I don't think going back to drachmas is going to work if they've still got all this existing debt still denominated in Euros. In order for any plan to leave the Euro to actually relieve the pressure, they will have to migrate those bonds over to drachmas too. Otherwise, the revaluation is going to double their debt. Of course, if they can move it over, the revaluation will give the bondholders a 50% haircut, but that's pretty much the point.

[Admiral Yi]

Greece's current rating implies a 67% chance of default.  Any further downgrades would be academic.

[Legbiter]

Greece's current rating implies a 67% chance of default.  Any further downgrades would be academic.

This.

Greece is bust. The sooner it's debts are restructured (say, a 50% writeoff at the very minimum), the better. Greece moves on with the euro but can only spend what it earns basically.

[Neil]

Greece's current rating implies a 67% chance of default.  Any further downgrades would be academic.

This.

Greece is bust. The sooner it's debts are restructured (say, a 50% writeoff at the very minimum), the better. Greece moves on with the euro but can only spend what it earns basically.

How can a European government in the shitty part of Europe possibly get by on spending what it earns?  Living in Athens would be like living in Dachau.