Might as well have one for these little nuggets.
http://www.bloomberg.com/news/2011-03-09/gross-drops-government-debt-from-pimco-s-flagship-fund-zero-hedge-reports.html
Quote
Pimco's Gross Eliminates Government Debt From Total Return Fund
By Susanne Walker - Mar 9, 2011 11:09 AM PT
Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co., eliminated government-related debt from his flagship fund last month as the U.S. projected record budget deficits.
Pimco's $237 billion Total Return Fund last held zero government-related debt in January 2009. Gross had cut the holdings to 12 percent of assets in January, according to the Newport Beach, California-based company's website. The fund's net cash-and-equivalent position surged from 5 percent to 23 percent in February, the highest since May 2008.
Yields on Treasuries may be too low to sustain demand for U.S. government debt as the Federal Reserve approaches the end of its second round of quantitative easing, Gross wrote in a monthly investment outlook posted on Pimco's website on March 2. Gross mentioned that Pimco may be a buyer of Treasuries if yields rise to attractive levels.
Treasury yields are about 150 basis points too low when viewed on a historical context and when compared with expected nominal gross domestic product growth of 5 percent, he wrote in the commentary. The Fed is scheduled to complete purchases of $600 billion of Treasuries in June.
Gross in his February commentary urged investors to reduce holdings of Treasuries and U.K. gilts and buy higher-returning securities such as debt from emerging-market nations. "Old- fashioned gilts and Treasury bonds may need to be 'exorcised' from model portfolios and replaced with more attractive alternatives both from a risk and a reward standpoint," Gross wrote.
Emerging-Market Debt
Gross last month increased holdings of emerging-market debt to 10 percent, the highest since October, from 9 percent in January. He cut holdings of mortgage securities to 34 percent from 42 percent in January.
The Zero Hedge website first reported the change in assets today. Pimco doesn't comment on changes in holdings.
Treasuries returned 5.9 percent in 2010, according to Bank of America Merrill Lynch Indexes. The securities lost 0.6 percent so far this year.
Ten-year Treasury yields have risen for each of the past six months, according to data compiled by Bloomberg, the longest run since June 2006, as the economy showed signs of improvement and prices of commodities climbed. The 10-year yield fell six basis points to 3.48 percent today.
Gross kept the holdings of non-U.S. developed debt at 5 percent in February.
Inflation Outlook
Gross' fund has returned 7.23 percent in the past year, beating 85 percent of its peers, according to data compiled by Bloomberg. It gained 1.39 percent over the past month.
As the Fed maintains its target rate at a record low range of zero to 0.25 percent and has made an increase in inflation a cornerstone of its monetary policy, Gross noted that inflation may be a bigger factor than many suggest.
Gains in so-called headline inflation matter more for the U.S. economy than Fed Chairman Ben S. Bernanke suggests and rising oil prices may cut U.S. gross domestic product by a quarter to half a percentage point, Gross said March 4 in a radio interview on "Bloomberg Surveillance" with Tom Keene.
"Bernanke tends to think this doesn't matter -- at least in terms of headline versus the core -- we do," Gross said.
Pimco's U.S. government-related debt category can include conventional and inflation-linked Treasuries, agency debt, interest-rate derivatives, Treasury futures and options and bank debt backed by the Federal Deposit Insurance Corp., according to the company's website. The fund can have a so-called negative position by using derivatives, futures or by shorting.
Derivatives are financial obligations whose value is derived from an underlying asset. Futures are agreements to buy or sell assets at a later specific price and date. Shorting is borrowing and selling an asset in anticipation of making a profit by buying it back after its price has fallen.
Pimco, a unit of the Munich-based insurer Allianz SE, managed $1.24 trillion of assets as of December.
Panic or smart?
I think that gross is correct that inflation will be far more of a problem than is commonly acknowledged over the next year or so.
If there were a US political party that advocated cuts across the board (including a deep cut in defense) and sensible tax increases to return to sustainable deficits, I'd vote for that party. There is no such party, however. I think the current US political system is destined to implement another train wreck.
:hmm: I have a position in an emerging market sovereign debt ETF fund right now.
Quote from: grumbler on March 10, 2011, 03:08:38 PM
I think that gross is correct that inflation will be far more of a problem than is commonly acknowledged over the next year or so.
If there were a US political party that advocated cuts across the board (including a deep cut in defense) and sensible tax increases to return to sustainable deficits, I'd vote for that party. There is no such party, however. I think the current US political system is destined to implement another train wreck.
How deep of a cut in defense?
Anyway, we've been down this road before but I'd go along with some sort of tax increase as long as it were combined with deep spending cuts in a serious effort to reduce the deficit.
If he was worried about an actual debt crisis in the US and UK he shouldn't be advising people to shift to more speculative debt classes: if there is a debt crisis, they are going to get creamed.
On the other hand, if you are bullish on the world economy, you probably want to cycle into more speculative debt grades as there isn't much upside room to owning US debt.
Quote from: grumbler on March 10, 2011, 03:08:38 PM
If there were a US political party that advocated cuts across the board (including a deep cut in defense) and sensible tax increases to return to sustainable deficits, I'd vote for that party. There is no such party, however. I think the current US political system is destined to implement another train wreck.
I am as hawkish as they come (mostly) when it comes to defense spending.
I would very much like to see a SERIOUS cut in defense spending.
I think inflation fears are vastly overblown, mainly because people assume that printing money always equals inflation. They don't realize that there are more variables in play than just quantity of money.
Quote from: Berkut on March 10, 2011, 04:08:44 PM
Quote from: grumbler on March 10, 2011, 03:08:38 PM
If there were a US political party that advocated cuts across the board (including a deep cut in defense) and sensible tax increases to return to sustainable deficits, I'd vote for that party. There is no such party, however. I think the current US political system is destined to implement another train wreck.
I am as hawkish as they come (mostly) when it comes to defense spending.
I would very much like to see a SERIOUS cut in defense spending.
You are contradicting yourself. :P
Heard an interview with this dude on NPR. He also said that our Debt/GDP ratio is that of a AA country, and headed towards single A level.
Quote from: Berkut on March 10, 2011, 04:08:44 PMI am as hawkish as they come (mostly) when it comes to defense spending.
I would very much like to see a SERIOUS cut in defense spending.
I think the US defence budget's ridiculous - and I imagine a lot of it's corrupt. It reminds me of Churchill's diary of a pre-war cabinet meeting. The Admiralty wanted six dreadnoughts, the Treasury suggested four, the cabinet decided to build eight.
Definitely not panic here. The driving force from Pimco appears to be poor yield. The point is that however one assesses the risk, the yields are too small to justify it. Not an unreasonable conclusion.
The yields on the "safe" bonds have been very low. It seems to me that there are better bargains out there in the form of the safer equities. If those companies fail then I can't see the government paper being safe either.
Quote from: DGuller on March 10, 2011, 04:22:02 PM
I think inflation fears are vastly overblown, mainly because people assume that printing money always equals inflation.
I think that, given that your assumption about what people assume is almost certainly untrue, your conclusion is unsupported. I don't know how anyone could conclude that "inflation fears are
vastly overblown" in any case, since inflation fears are seldom even expressed.
Certainly, one could find some specific examples of inflation fears that are vastly overblown, just as one could find specific examples of overblown complacency about inflation (like "mainly because people assume that printing money
always equals inflation" when people know that money is printed all the time and inflation is an intermittent problem).
Quote from: Sheilbh on March 10, 2011, 06:33:41 PM
Quote from: Berkut on March 10, 2011, 04:08:44 PMI am as hawkish as they come (mostly) when it comes to defense spending.
I would very much like to see a SERIOUS cut in defense spending.
I think the US defence budget's ridiculous - and I imagine a lot of it's corrupt. It reminds me of Churchill's diary of a pre-war cabinet meeting. The Admiralty wanted six dreadnoughts, the Treasury suggested four, the cabinet decided to build eight.
That wasn't really corrupt though. That was because of the huge public concern over national defence and the (for all practical purposes defunct) two-navy standard, stoked by the Opposition and the First Lord.
Quote from: grumbler on March 11, 2011, 07:19:03 AM
Quote from: DGuller on March 10, 2011, 04:22:02 PM
I think inflation fears are vastly overblown, mainly because people assume that printing money always equals inflation.
I think that, given that your assumption about what people assume is almost certainly untrue, your conclusion is unsupported. I don't know how anyone could conclude that "inflation fears are vastly overblown" in any case, since inflation fears are seldom even expressed.
Certainly, one could find some specific examples of inflation fears that are vastly overblown, just as one could find specific examples of overblown complacency about inflation (like "mainly because people assume that printing money always equals inflation" when people know that money is printed all the time and inflation is an intermittent problem).
You must be lucky then. I see fears of not just imminent inflation, but imminent hyperinflation, expressed pretty regularly. Usually it's correlated with being a gold bug or a related nut.
Even outside of the nutty fringe, I hear many people just assume that Bernanke's quantitative easing is a major inflationary threat. It's impractical to perform a valid statistical tests on all the things I observe, to determine whether my observations are accurate and unbiased, so I'll just have to live with the chance that occasionally my observations are not.
Quote from: Sheilbh on March 10, 2011, 06:33:41 PM
I think the US defence budget's ridiculous - and I imagine a lot of it's corrupt. It reminds me of Churchill's diary of a pre-war cabinet meeting. The Admiralty wanted six dreadnoughts, the Treasury suggested four, the cabinet decided to build eight.
Oh yeah it is the safest way to spread pork out to the constituencies.
http://www.bloomberg.com/news/2011-03-28/portuguese-bailout-costs-more-than-money-alone-commentary-by-matthew-lynn.html
Quote
Portuguese Bailout Costs More Than Money Alone
Is it 50 billion euros? Or perhaps 70 billion euros? The cost of bailing out Portugal varies according to who makes the calculation. No one will know the real price until officials from the International Monetary Fund and the European Central Bank tell us.
But it isn't the actual amount that counts. It is the price the euro area is paying for having a single currency.
And on that measure, a rescue package for the beleaguered Portuguese economy comes with far too high a price tag attached. It will raise too many questions about whether the euro can ever be made to work; it will mean there is no longer a firewall that stops the crisis from spreading to Europe's core; and the Portuguese don't seem willing to accept the same type of austerity package that Greece and Ireland got.
For all three reasons, the last thing the euro area can deal with right now is a Portuguese rescue.
It now seems inevitable that Portugal will be forced to accept a bailout from the rest of the euro area. Last week, the country's parliament rejected the package of budget cuts proposed by Prime Minister Jose Socrates, prompting him to offer his resignation. Fitch Ratings and Standard & Poor's both lowered the country's debt rating, and bond yields soared.
Debt Payments
The country needs money. It faces redemptions valued at about 9 billion euros ($12.7 billion) in total on April 15 and June 15, perhaps around the time of early elections to choose a new government. Portugal intends to sell as much as 20 billion euros of bonds this year to finance its budget and cover maturing debt. Right now, it doesn't look as if the markets are willing to come up with that kind of cash. That leaves the euro area and the IMF as the only viable alternative -- the same way it was for Ireland and Greece.
The money can be found if it has to be. A bill for 70 billion euros won't bankrupt Germany or France. But just because you can afford something financially doesn't mean you can afford it in other ways. The euro area can't take the cost of bailing out Portugal. Here's why.
First, there's no easy explanation for why Portugal needs a rescue. Greece got into trouble because it fiddled its way into the single currency. It never really met the entry criteria in the first place, and its first application was quite rightly turned down. Ireland had a huge property and banking bubble, which then popped, plunging the economy into a deep recession. In both cases, you could argue that some external event created the crisis. It wasn't the single currency as such.
No Bubble
But Portugal? It didn't fiddle any figures or have any kind of bubble. Ever since joining the euro, the country has had low growth, and that has worsened its debt position.
It is hard to conclude that the problem was anything other than the currency itself -- and the way it affects countries that aren't able to stay competitive with Germany. After this bailout, it will be impossible to claim that the euro represents a functioning monetary system with just a couple of rogue members. Its flaws will be impossible to ignore.
Second, once Portugal is bailed out, the hard questions are raised. For the last three months, the markets have been focusing all their firepower on this one tiny country on the western edge of Europe. Whether it is bust or not has never been a huge deal. It is the questions that come next that matter.
Bank Stability
Once Portugal is out of the way, the markets will start looking hard at Spain and Italy. And they will probe the stability of the euro area's banking system. The answers may well turn out to be explosive. Portugal has been a kind of shield -- and without it, the euro will look a lot more exposed.
Third, the Portuguese don't look willing to play by the rules -- at least as they are written in Frankfurt and Brussels. The indebted, peripheral countries are meant to accept massive austerity programs, and to allow the ECB and IMF to effectively run their economies. But the results elsewhere haven't been encouraging. Greece is still stuck in a recession, and bond yields remain high. Ireland's economy sinks further into the mud. It is no surprise the Portuguese have looked at the results of the medicine and wondered if it is a treatment they need.
But if the Portuguese refuse to accept the austerity measures, what is Plan B? So far there hasn't been any sign that anyone has thought of one.
The euro area can pay for a Portuguese bailout. The 70 billion euros won't matter much. But the final bill will end up being much costlier.
I thought the Portuguese had already had a big bout of austerity over the last year, but the economy shrank so that the deficit wasn't cut as much as was projected?
It's also worth saying that no-one wants to deal with Portugal now because they have to have an election, as the government's fallen, and no one in the EU/IMF wants to repeat the Irish experience of making a deal with the Fianna Fail government and then having Fine Gael and Labour try and renegotiate. The EU will keep Portugal going until after an election at least.
Plan B is to default. Duh.
Quote from: Berkut on March 10, 2011, 04:08:44 PM
Quote from: grumbler on March 10, 2011, 03:08:38 PM
If there were a US political party that advocated cuts across the board (including a deep cut in defense) and sensible tax increases to return to sustainable deficits, I'd vote for that party. There is no such party, however. I think the current US political system is destined to implement another train wreck.
I am as hawkish as they come (mostly) when it comes to defense spending.
I would very much like to see a SERIOUS cut in defense spending.
Same
Weirdly the Brazilians are looking into supporting Portugal by buying government debt. I think it's Lusophone solidarity and a left-wing Latin American nation's fear of the IMF.
Quote from: Sheilbh on March 30, 2011, 12:49:22 PM
Weirdly the Brazilians are looking into supporting Portugal by buying government debt. I think it's Lusophone solidarity and a left-wing Latin American nation's fear of the IMF.
Solution: merger. The Empress Dilma shall rule the reconstituted empire.
Currently about 70 percent of newly issued federal debt is being bought by the federal reserve. When QE2 ends this summer who will by all that debt? And at what interest rate? And how will the necessary increase in interest rates impact the financing of that massive debt? Or if the fed decides to go with QE3 to prevent interest rates from rising how long will it be until investors bail on the dollar because we're willing to inflate away our debt?
Throw in a President who is AWOL on that issue, and a Senate Majority leader whose cries that defunding the "Cowboy Poetry Festival" would be an extremist act and you're looking at a massive crisis in the making.
In early April the House GOP is supposed to unveil a budget that will address all spending, including entitlement programs, and is supposed to balance the budget. I predict the Obamateur, Pelosi and Reid will turn hysteric, claim that there is no problem and shut down the gov't in the hope that it will bring the public on their side of staying the course on the deficit.
And in europe the question is ow long will the North Europeans be willing to continue to bail out the irresponsible South Europeans? It is pretty clear that the SE are incorrigible, so the only question is how much will the NE waste on bailouts before quitting on the SE, killing the EMU in the process.
We are starting to see the collapse of the bismarckian system of gov't that has dominated western civ for the last 100 years. The question now is what will replace it?
Hans, explain to me how default of a member state would kill the EMU.
Quote from: Admiral Yi on March 30, 2011, 07:33:19 PM
Hans, explain to me how default of a member state would kill the EMU.
If default's not possible then it's screwed. I mean Greece and Ireland will almost certainly have to default and I think it's just working out how. I don't think Portugal will, hopefully.
I hear the cowboy poetry festival is kinda nice. They also have camel racing.
Quote from: Admiral Yi on March 30, 2011, 07:33:19 PM
Hans, explain to me how default of a member state would kill the EMU.
Whom would they default on? Northern European banks. The EMU has not only failed to achieve it's objective, it has had the opposite effect that was promised. The inefficient SE economies can't devalue their currency to stay competitive, while the NE economies are forced to subsidize their profligacy while crippling their own economies. The Euro has proven to be bad for both the north and the south. The only reason not to abandon the euro now is that would cause an immediate default of the exposed states. Once they start to default anyway there will be no reason to keep it around.
Quote from: Sheilbh on March 30, 2011, 07:40:33 PM
Quote from: Admiral Yi on March 30, 2011, 07:33:19 PM
Hans, explain to me how default of a member state would kill the EMU.
If default's not possible then it's screwed. I mean Greece and Ireland will almost certainly have to default and I think it's just working out how. I don't think Portugal will, hopefully.
Greece, Ireland and Portugal will certainly defaultin the near future. The question is when spain and Italy will. Italy can probably limp on for a while, they are masters at limping along, but Spain will be fucked due to its heavy exposure in the housing bubble.
Peoples' optimism in sovereign debt is astounding in its insanity and its irrationality. Look at the fictional nation of Poyais for example. They floated 200k worth of bonds on the London exchange, and the damn country didn't exist. People think that shit is safe.
So, I wouldn't be too eager to predict defaults in big nations so easily, but it's certainly a lot more likely now than it was before the Euro.
Quote from: Hansmeister on March 30, 2011, 10:15:11 PMGreece, Ireland and Portugal will certainly defaultin the near future. The question is when spain and Italy will. Italy can probably limp on for a while, they are masters at limping along, but Spain will be fucked due to its heavy exposure in the housing bubble.
I don't think Spain or Portugal will default.
I'd also say that this crisis has, in a perverse way, helped the strong Northern European recovery. It combined with Euro-fumbling has kept the Euro very low which has helped their export led recovery. I imagine they'd be moaning far more about China if the Euro membership was Finland, Germany and the Netherlands.
Quote from: MadImmortalMan on March 31, 2011, 01:04:34 AM
Peoples' optimism in sovereign debt is astounding in its insanity and its irrationality. Look at the fictional nation of Poyais for example. They floated 200k worth of bonds on the London exchange, and the damn country didn't exist. People think that shit is safe.
:blush: :shifty:
Quote from: Hansmeister on March 30, 2011, 10:11:00 PM
Quote from: Admiral Yi on March 30, 2011, 07:33:19 PM
Hans, explain to me how default of a member state would kill the EMU.
Whom would they default on? Northern European banks.
In the case of Portugal their debt is held mostly by Spanish banks.
Quote from: The Larch on March 31, 2011, 07:16:23 AM
Quote from: Hansmeister on March 30, 2011, 10:11:00 PM
Quote from: Admiral Yi on March 30, 2011, 07:33:19 PM
Hans, explain to me how default of a member state would kill the EMU.
Whom would they default on? Northern European banks.
In the case of Portugal their debt is held mostly by Spanish banks.
Even the most Europhile of civilized banks isn't so foolish as to invest in Portugal.
Quote from: Hansmeister on March 30, 2011, 07:29:48 PMWe are starting to see the collapse of the bismarckian system of gov't that has dominated western civ for the last 100 years. The question now is what will replace it?
You can at best count Caprivi as a continuation of the Bismarckian system of government, but it was over by the time Bülow was chancellor.
PS: What the fuck is this bismarckian system of government supposed to be? The social state?
Quote from: Neil on March 31, 2011, 08:19:14 AM
Quote from: The Larch on March 31, 2011, 07:16:23 AM
Quote from: Hansmeister on March 30, 2011, 10:11:00 PM
Quote from: Admiral Yi on March 30, 2011, 07:33:19 PM
Hans, explain to me how default of a member state would kill the EMU.
Whom would they default on? Northern European banks.
In the case of Portugal their debt is held mostly by Spanish banks.
Even the most Europhile of civilized banks isn't so foolish as to invest in Portugal.
If I invest 5 dollars, how much of Portugal will I own?
Quote from: Ed Anger on March 31, 2011, 05:03:34 PM
If I invest 5 dollars, how much of Portugal will I own?
More than you want to.
Quote from: Neil on March 31, 2011, 08:19:14 AM
Quote from: The Larch on March 31, 2011, 07:16:23 AM
Quote from: Hansmeister on March 30, 2011, 10:11:00 PM
Quote from: Admiral Yi on March 30, 2011, 07:33:19 PM
Hans, explain to me how default of a member state would kill the EMU.
Whom would they default on? Northern European banks.
In the case of Portugal their debt is held mostly by Spanish banks.
Even the most Europhile of civilized banks isn't so foolish as to invest in Portugal.
Funny you say that, considering a Spain-based bank is one of the most powerful banks in the world (and, unlike say many British banks, in a pretty good condition).
Quote from: DGuller on March 31, 2011, 05:11:57 PM
Quote from: Ed Anger on March 31, 2011, 05:03:34 PM
If I invest 5 dollars, how much of Portugal will I own?
More than you want to.
But would I own enough to make Slargos my Governor-General of Portugal? The cork must flow.
Quote from: Admiral Yi on March 30, 2011, 07:33:19 PM
Hans, explain to me how default of a member state would kill the EMU.
Will the poor ostrich die for nothing? :(
Quote from: Martinus on March 31, 2011, 05:14:21 PM
Funny you say that, considering a Spain-based bank is one of the most powerful banks in the world (and, unlike say many British banks, in a pretty good condition).
A Chinese bank might be the greatest bank in history, but that doesn't make the Chinese civilized.
What a surprise.
Quote
Portugal Seeks Financial Aid From European Union
Portugal's prime minister said Wednesday his country has asked for financing assistance from the European Union due to its high debts and difficulty raising money on international markets.
"The government decided today to ask the European Commission for financial help," Prime Minister Jose Socrates said.
Portugal becomes the third financially troubled eurozone country after Greece and Ireland to request assistance from Europe's bailout fund and the International Monetary Fund.
Analysts expect Portugal will need up to €80 billion ($114.4 billion). The precise amount of aid will be determined shortly, according to Economic and Monetary Affairs Commissioner Olli Rehn.
Such an announcement had long been expected as Portugal, one of the 17-nation eurozone's smallest and weakest economies, struggled to finance its economy. Following a rejection of additional austerity measures by its parliament last month, Portugal has seen its borrowing costs rise to unsustainably high levels.
Earlier Wednesday, the nation's finance minister acknowledged Portugal was considering asking for financial assistance.
"In this difficult situation, which could have been avoided, I understand that it is necessary to resort to the financing mechanisms available within the European framework," said Finance Minister Fernando Teixeira dos Santos.
Rehn called Portugal's move "responsible," and said it was made "for the sake of economic stability in the country and in Europe."
http://www.cnbc.com/id/42458440
And now for something a little different.
Quote from: Reuters
PIMCO bets against U.S. government debt
(Reuters) - The world's largest bond fund began betting against the United States last month by taking short positions on its debt on expectations the nation's shaky finances will drive interest rates higher and imperil its triple-A rating.
Bill Gross, PIMCO's oft-quoted co-chief investment officer, in January warned that "mindless" U.S. deficit spending could result in higher inflation and a weaker dollar.
He has also been raising alarms about a lack of buyers for Treasuries once the Federal Reserve ends its own bond purchase program, also known as quantitative easing, in June.
The portion of PIMCO's $236 billion Total Return Fund held in long-term U.S. government debt, including U.S. Treasuries, declined to "minus 3" percent in March from zero in February and 12 percent in January, according to PIMCO's website (www.pimco.com).
"They are one of the largest investors in the Treasury market, so yes, it is significant," said Gary Pollack, a portfolio manager with Deutsche Bank Private Wealth Management in New York.
"They have the ability to move the market, that is something that makes me a little nervous."
Investors in exchange-traded funds and futures have mirrored the PIMCO trend in recent weeks.
PIMCO expects the lingering U.S. budget deficit and the Fed's easy monetary policy will fuel faster inflation and hurt the dollar.
Gross' shorting of Treasuries in March preceded Washington's narrowly averting a government shutdown after Democrats and Republicans agreed late on Friday to cut $38 billion in spending for the fiscal year.
The 11th-hour compromise probably had little impact on the investment strategies of Gross, who said in an April newsletter that the U.S. government was "out-Greeking the Greeks," a reference to Greece's out-sized government debt that forced the country to ask for a bailout.
"We are smelling $1 trillion deficits as far as the nose can sniff" if the government fails to address the biggest entitlement programs: Medicare, Medicaid and Social Security, Gross said in his outlook.
Investors have pulled money from PIMCO's Total Return Fund, which registered $1.59 billion of outflows last month, according to Lipper. That was the fifth straight month of outflows, the longest streak of net redemptions since Lipper began tracking the data in 2004, totaling $18.05 billion of withdrawals.
Like other bond managers, PIMCO attracted huge net inflows in the wake of the global financial crisis, and oversees more than $1.1 trillion. The Total Return Fund has returned 1.48 percent this year, putting it in the top 22 percent of similar funds as cataloged by Morningstar, but it has lagged major U.S. stock indexes.
Treasuries have come under selling pressure on signs the U.S. economic recovery is strengthening, and the outflow that began in November has led to reallocation into other sectors, including stocks and commodities.
PIMCO's move echoes a broader dislike of U.S. Treasuries. Some ETFs that bet against the Treasury market have seen a jump in volume lately. Volume in the ProShares Short 20+ year Treasury, which shorts the Barclays Capital U.S. 20+ Year Treasury Bond Index, last Thursday had its most active session since February 24.
Speculators went net short on Treasuries for the first time in six weeks as of April 5, according to the latest data from the Commodity Futures Trading Commission. In a short position, an investor sells a borrowed security on a bet it can buy it back later at a lower price.
The Total Return Fund's cash equivalents, including Treasury bills and other debt with maturities of less than a year, rose to 31 percent of the fund's assets from 23 percent in February.
It also reduced mortgage-backed debt holdings to 28 percent in March from 34 percent in February.
Looks like they are really serious about this. I don't know whether to be spooked. I'm fairly sure the Pimco TRF is one I have money in...
Spooked about what? If (when) Treasury rates rise your fund will make money.
If you're spooked about the debt then I think you should be very, very spooked.
Quote from: Admiral Yi on April 12, 2011, 02:58:51 PM
Spooked about what? If (when) Treasury rates rise your fund will make money.
If you're spooked about the debt then I think you should be very, very spooked.
Yes. The debt. Rising rates would be catastrophic on the deficit.
My sovereign debt fund is down 0.08% today. It's an emerging markets fund (PCY).
It will be much more interesting what will happen with state and municpal bonds in the USA. They are seriously distressed from what the media reports.
Quote from: MadImmortalMan on April 12, 2011, 03:02:59 PM
Quote from: Admiral Yi on April 12, 2011, 02:58:51 PM
Spooked about what? If (when) Treasury rates rise your fund will make money.
If you're spooked about the debt then I think you should be very, very spooked.
Yes. The debt. Rising rates would be catastrophic on the deficit.
I can't say I'm surprised to see this on the US debt. Just have to hope that the govt gets its act together to prevent too much of a slide. And yeah, I'd think rising rates would be a nasty hit on the US! :hmm:
@zanza Yeah, I wouldn't touch any of those with a ten foot pole right now.
As long as the US keeps its ability to export inflation to emerging economies, they can just continue to print money like there is no tomorrow.
Quote from: Zanza2 on April 12, 2011, 03:20:20 PM
As long as the US keeps its ability to export inflation to emerging economies, they can just continue to print money like there is no tomorrow.
Please elaborate.
Quote from: Caliga on April 12, 2011, 03:17:30 PM
@zanza Yeah, I wouldn't touch any of those with a ten foot pole right now.
Depends. North Dakota? No problem. Illinois? Ah no.
Cal and MIM, you guys in the top tax bracket? My understanding is munis don't make any sense unless you are.
Quote from: Admiral Yi on April 12, 2011, 03:29:41 PM
Cal and MIM, you guys in the top tax bracket? My understanding is munis don't make any sense unless you are.
That's because people use them as a tax shelter. I don't know my tax bracket, actually.
@Yi:
http://online.wsj.com/article/SB10001424052748704405704576064252782421930.html
QuoteJANUARY 18, 2011
The Latest American Export: Inflation
In 2010, prices rose by more than 5% in major emerging markets such as China, Brazil and Indonesia.
What do the years 1971, 2003 and 2010 have in common? In each year, low U.S. interest rates and the expectation of dollar depreciation led to massive "hot" money outflows from the U.S. and world-wide inflation. And in all three cases, foreign central banks intervened heavily to buy dollars to prevent their currencies from appreciating.
When central banks issue base money to buy dollars, domestic interest rates are forced down and domestic inflationary pressure is generated. Primary commodity prices go up quickly because speculators can easily bid for long positions in organized commodity futures markets when interest rates are low.
The world saw a surge in the dollar prices of primary commodity prices in 1971-73 following the Nixon shock of 1971 when the U.S. abandoned the gold standard. There was also a commodity price surge during the Greenspan-Bernanke shock of 2003-04, when the federal-funds rate was reduced to an unprecedented low of 1% followed by a falling dollar.
Now we have what one might call the Bernanke shock. The Fed has set U.S. short-term interest rates at essentially zero since September 2008, followed in 2010 by quantitative easing to drive down long-term rates. Predictably, primary commodity prices in 2009-10 surged. In 2010 alone, all items in the Economist's dollar commodity price index rose 33.5%, while the industrial raw materials component soared a remarkable 37.4.%.
The longer-term inflationary and economic consequences over the next decade of this most recent U.S. loose money shock remain to be seen. But we can glean useful hints by looking at the aftermaths of the two earlier shocks. In the 1970s, "stagflation" (inflation combined with cyclical bouts of unemployment and wide swings in exchange rates) seemed intractable. Productivity growth in mature industrial countries fell sharply.
In the early 1980s, a necessary but savage disinflationary policy was instituted. Fed Chairman Paul Volcker imposed extremely high interest rates (the fed-funds rate touched 22% in July 1981), and he ultimately succeeded in killing stagflation. With credibility in America's long-run monetary policy restored, hot money, which had flowed out in the inflationary 1970s, came back with a vengeance. The dollar soared in the foreign-exchange markets and became extremely overvalued by the end of 1984.
To prevent even more precipitous depreciations of their currencies, foreign central banks were forced to sell dollars and let their domestic money supplies contract. At the storm's center, the combination of high interest rates, an overvalued dollar, and large fiscal deficits caused a sharp increase in the U.S. trade deficit—mainly in manufactures. The upshot was the world-wide recession of 1982-83 and the creation of America's "rust belt," particularly in the industrial Midwest.
The Greenspan-Bernanke interest rate shock of 2003-04, followed by a weakening dollar into the first half of 2008, created the bubble economy. Primary commodity prices began rising significantly in 2003-04, then flattened out before spiking in 2007 into the first half of 2008.
But the biggest bubble was in real estate, both commercial and residential. With low mortgage rates and no restraining regulation on mortgage quality, average U.S. home prices rose more than 50% from the beginning of 2003 to the middle of 2006. This led to an unsustainable building boom—with echoes around the world in countries such as the U.K, Spain and Ireland. The bubbles in primary commodity prices collapsed mainly in the second half of 2008. But the residue of bad debts, particularly ongoing mortgage defaults, led to the banking crisis and global downturn of 2008-09.
So what lessons can we draw from these episodes of U.S. easy money and a weak dollar for the stability of the American economy itself?
First, sharp general price increases in auction-market goods such as primary commodities or foreign exchange (i.e., a weakening dollar) is an early warning sign that the Fed is being too easy—a warning that the Fed is again ignoring as we enter 2011.
Second, beyond the rise in primary commodity prices, general price inflation in the U.S. only comes with long and variable lags. After the U.S. monetary shock, hot money flows into countries on the dollar standard's periphery cause a loss of monetary control and general inflation to show up there more quickly than in the U.S.
In 2010, consumer price indexes shot up more than 5% in major emerging markets such as China, Brazil and Indonesia, while the consumer price index in the U.S. itself rose only 1.2%. Similarly, after the Nixon shock of 1971, there was much more explosive inflation in Japan in 1972-73 than in the U.S. But by December 1979, inflation in America's producer and consumer price indexes was more than 13%.
The U.S. is a sovereign country that has the right to follow its own monetary policy. By an accident of history, however, since 1945 it is also the center of the world dollar standard—which remains surprisingly robust to the present day. So the choice of monetary policy by the Federal Reserve can strongly affect its neighbors for better or for worse.
Beginning with the Nixon shock in 1971, American policy makers have frequently ignored foreign complaints. But by ignoring inflationary early warning signs on the dollar standard's periphery, which in turn lead to rising domestic prices and asset bubbles, the Fed has made both the world and American economies much less stable.
Mr. McKinnon is a professor at Stanford University and a senior fellow at the Stanford Institution for Economic Policy Research.
QuoteAnd in all three cases, foreign central banks intervened heavily to buy dollars to prevent their currencies from appreciating.
Takes two to tango.
How valid would it be to compare the currency valuation mechanisms central banks use today with the tariff structures of the 1930s with regard to defending the "home" economy against damage abroad?
Quote from: Admiral Yi on April 12, 2011, 03:49:23 PM
QuoteAnd in all three cases, foreign central banks intervened heavily to buy dollars to prevent their currencies from appreciating.
Takes two to tango.
Not dancing and failing to prop up the US currency/debt would be better?
Quote from: crazy canuck on April 12, 2011, 03:56:27 PM
Quote from: Admiral Yi on April 12, 2011, 03:49:23 PM
QuoteAnd in all three cases, foreign central banks intervened heavily to buy dollars to prevent their currencies from appreciating.
Takes two to tango.
Not dancing and failing to prop up the US currency/debt would be better?
Do you mean not dancing and not failing or do you mean not dancing and yes, failing?
Quote from: Admiral Yi on April 12, 2011, 04:03:22 PM
Quote from: crazy canuck on April 12, 2011, 03:56:27 PM
Quote from: Admiral Yi on April 12, 2011, 03:49:23 PM
QuoteAnd in all three cases, foreign central banks intervened heavily to buy dollars to prevent their currencies from appreciating.
Takes two to tango.
Not dancing and failing to prop up the US currency/debt would be better?
Do you mean not dancing and not failing or do you mean not dancing and yes, failing?
:rolleyes:
I will simplify it for you. Do you think it would have been better for the US if foreigners did not buy US dollars?
Quote from: crazy canuck on April 12, 2011, 04:11:57 PM
:rolleyes:
I will simplify it for you. Do you think it would have been better for the US if foreigners did not buy US dollars?
Not interested in discussing with someone who jumps right to the rolleyes. Seeya.
Ok, maybe someone else can make sense of your position.
Quote from: crazy canuck on April 12, 2011, 04:11:57 PMDo you think it would have been better for the US if foreigners did not buy US dollars?
I'm starting to think that long-term it might have been. It contributed to the bubbles after all. And look at our debt. A little pressure against that rising, say, 30 years ago might have been a pretty good idea.
Quote from: MadImmortalMan on April 12, 2011, 04:15:55 PM
I'm starting to think that long-term it might have been. It contributed to the bubbles after all. And look at our debt. A little pressure against that rising, say, 30 years ago might have been a pretty good idea.
As with all macroeconomic policies, it's a trade off. A lower dollar means more competitive exports, smaller trade deficit, more jobs. And more expensive imports.
Yi, I wouldn't be buying a bond directly. I'm talking about bond funds. But I wouldn't touch those right now either (I have owned them in the past). Direct purchase of bonds isn't necessarily restricted to the very wealthy, but you typically do need a huge cash reserve to buy one. Sometimes munis are offered in smaller amounts, though in my experience the smaller bonds are offered by banks and corps.
Quote from: crazy canuck on April 12, 2011, 04:13:54 PM
Ok, maybe someone else can make sense of your position.
I will guess.
Perhaps he is suggesting that foreign governments could have simply allowed their currencies to adjust. That is a disinflationary response. It would also have the effect of tending to restore balance on the current account.
Quote from: crazy canuck on April 12, 2011, 04:13:54 PM
Ok, maybe someone else can make sense of your position.
This is only a problem because other nations peg to the dollar. Guess what, if you have a fixed peg to the dollar, then when the dollar inflates, so will your currency. Importing inflation is a very well-known side effect of pegging your currency to someone else rather than letting your own currency rise.
Quote from: DGuller on April 12, 2011, 06:34:48 PM
Quote from: crazy canuck on April 12, 2011, 04:13:54 PM
Ok, maybe someone else can make sense of your position.
This is only a problem because other nations peg to the dollar. Guess what, if you have a fixed peg to the dollar, then when the dollar inflates, so will your currency. Importing inflation is a very well-known side effect of pegging your currency to someone else rather than letting your own currency rise.
Isnt the article talking about other countries buying a weak US dollar to keep their currencies from appreciating? What does that have to do with a country pegging their currency to an "inflating" US dollar?
Quote from: The Minsky Moment on April 12, 2011, 05:48:19 PM
Quote from: crazy canuck on April 12, 2011, 04:13:54 PM
Ok, maybe someone else can make sense of your position.
I will guess.
Perhaps he is suggesting that foreign governments could have simply allowed their currencies to adjust. That is a disinflationary response. It would also have the effect of tending to restore balance on the current account.
Granted. But what of the other consequences? If other nations do not buy your dollar (in the form of debt instruments etc) how does the US fund itself?
The U.S. is not responsible for babying the financial policy of other nations
Quote from: crazy canuck on April 13, 2011, 03:49:30 PM
Isnt the article talking about other countries buying a weak US dollar to keep their currencies from appreciating? What does that have to do with a country pegging their currency to an "inflating" US dollar?
Because that's part of the peg, and a currency intervention in any case. The peg is there to keep the dollar artificially strong, which is also what buying up the dollar to keep it from appreciating does.
Quote from: crazy canuck on April 13, 2011, 03:50:39 PM
Granted. But what of the other consequences? If other nations do not buy your dollar (in the form of debt instruments etc) how does the US fund itself?
In theory, would be no need because the current account would come into balance.
The problem arises in the first instance when countries of sufficient economic weight (ie. China) adopt a developmental policy that is based on importing demand from the US and therefore running large current account surpluses. This is not meant to be critical of China - the policy made sense and helped vault it out of poverty but China is so large that the limitations of that policy in the context of an international economy have been reached earlier.
Quote from: The Minsky Moment on April 13, 2011, 06:00:06 PM
Quote from: crazy canuck on April 13, 2011, 03:50:39 PM
Granted. But what of the other consequences? If other nations do not buy your dollar (in the form of debt instruments etc) how does the US fund itself?
In theory, would be no need because the current account would come into balance.
The problem arises in the first instance when countries of sufficient economic weight (ie. China) adopt a developmental policy that is based on importing demand from the US and therefore running large current account surpluses. This is not meant to be critical of China - the policy made sense and helped vault it out of poverty but China is so large that the limitations of that policy in the context of an international economy have been reached earlier.
But the article is also talking about time periods when China was not engaged in this policy and I think had no or little impact on international currency valuation.
If other countries did not supported the value of the US dollar would its decreased value have diminished its status as the denomination for international business? Also, would the US have had to cut its spending?
In other words, doesnt the US also enjoy benefits by others buying its currency?
Quote from: crazy canuck on April 14, 2011, 12:36:54 PM
But the article is also talking about time periods when China was not engaged in this policy and I think had no or little impact on international currency valuation.
The only other such time period mentioned was the early 70s. That is a more complicated situation - and the author seems to be confusing an effect (the breakdown of Bretton Woods) as a cause.
QuoteIf other countries did not supported the value of the US dollar would its decreased value have diminished its status as the denomination for international business? Also, would the US have had to cut its spending?
1. no the US dollar is used to denominate certain international transactions either because of the predominance of US buyers or sellers or because dollar liquidity is plentiful and convertibility free.
2. What kind of spending are you referring to - consumption, business investment or government spending?
QuoteIn other words, doesnt the US also enjoy benefits by others buying its currency?
Not particularly.
The question you may have wanted to ask is whether the US benefits from the dollar's status as the principal reserve currency. the short answer is that there are some benefits but they are subtle, and there are downsides as well.
Google "triffin dilemma"
Quote from: The Minsky Moment link=topic=4552.msg242491#msg242491 2. What kind of spending are you referring to - consumption, business investment or government spending?
/quote]
I was thinking of government spending.
There is no obvious relationship between a government's ability to spend and the value of the national currency.
There is a belief by some that an issuer of an international reserve currency can afford to maintain higher levels of deficit because it is easier for them to place government debt securities.
Quote from: The Minsky Moment on April 14, 2011, 05:32:24 PM
There is a belief by some that an issuer of an international reserve currency can afford to maintain higher levels of deficit because it is easier for them to place government debt securities.
A belief which ignores the fact that since the end of Bretton Woods there are no fiat reserve currencies.
Quote from: Admiral Yi on April 14, 2011, 05:36:33 PM
Quote from: The Minsky Moment on April 14, 2011, 05:32:24 PM
There is a belief by some that an issuer of an international reserve currency can afford to maintain higher levels of deficit because it is easier for them to place government debt securities.
A belief which ignores the fact that since the end of Bretton Woods there are no fiat reserve currencies.
Not sure what you mean by that. Doesnt the US currency effectively act as such?
Quote from: Admiral Yi on April 14, 2011, 05:36:33 PM
A belief which ignores the fact that since the end of Bretton Woods there are no fiat reserve currencies.
Not de jure, but the $$ remains so de facto.
Quote from: crazy canuck on April 14, 2011, 05:38:13 PM
Not sure what you mean by that. Doesnt the US currency effectively act as such?
The US dollar is a desirable reserve currency because of its properties, such as extreme liquidity and relative stability. If and when it loses those properties it will no longer be a desirable reserve currency.
Anyway the article guy mentions China, Brazil, Indonesia. Before hypothesizing about the impact of the Fed, might it makes sense to inquire about whether there could be domestic contributions?
Don't know much about Indonesia, but I do know both China and Brazil responded to the financial crisis by having state banks pump massive amounts of credit into the domestic economy. Brazil tried to counteract the inflationary impact by having the central bank set tight policy, but closing the right hand doesn't help much when the left hand is throwing money out of the helicopter. The Chinese also tried to ratchet back, but the rise of trust companies and other nonbanks that escape the regulatory system has compromised the regime's ability to control the money supply. Both countries also suffer from the fact that food remains a large proportion of househehold budgets and international food prices have gone up due to supply conditions. So there are plenty of possible domestic explanations for inflation without the need to contemplate the bearded visage of Bernanke.
Another way to think of it is that if dollar liquidity is such the decisive factor, how come the problem didn't arise before when China was happily accumulating its first trillion or so in US dollar reserves?
Quote from: Admiral Yi on April 14, 2011, 05:42:00 PM
Quote from: crazy canuck on April 14, 2011, 05:38:13 PM
Not sure what you mean by that. Doesnt the US currency effectively act as such?
The US dollar is a desirable reserve currency because of its properties, such as extreme liquidity and relative stability. If and when it loses those properties it will no longer be a desirable reserve currency.
Which is what I am asking about. Hasnt the act of other nations buying US currency stabilized its value which in turn continues to make it desireable as the defacto reserve currency of the world.
Quote from: crazy canuck on April 14, 2011, 07:20:30 PM
Which is what I am asking about. Hasnt the act of other nations buying US currency stabilized its value which in turn continues to make it desireable as the defacto reserve currency of the world.
There's no disputing that the dollar is a de facto reserve currency. You go to various central bank web sites and there it is, in abundance.
That's different than saying the dollar is a fiat reserve currency. There is no global authority which requires central banks to hold reserves in any particular currency. There is no Bank of International Settlements for central banks.
As to central bank interventions propping up the value of the dollar, keep in mind that historically the transactions have gone both ways. If anything the more traditional approach has been to hold up the value of one's own currency by selling off dollar reserves. Until the emergence of China as a player about the only country I can think of that has followed a strategy of keeping the domestic currency undervalued is Japan.
Quote from: Admiral Yi on April 15, 2011, 07:29:03 AM
That's different than saying the dollar is a fiat reserve currency. There is no global authority which requires central banks to hold reserves in any particular currency. There is no Bank of International Settlements for central banks.
Exactly why I am asking about whether other countries have helped maintain the US dollar as the reserve currency of choice by buying US dollars during periods when the US dollar was beginning to drop in order to maintain its value.
Quote from: crazy canuck on April 15, 2011, 12:35:28 PM
Exactly why I am asking about whether other countries have helped maintain the US dollar as the reserve currency of choice by buying US dollars during periods when the US dollar was beginning to drop in order to maintain its value.
Not sure the question. Are "other countries" buying dollars/dollar-denominated securities? Some central banks are, yes, in order to maintain price/employment stability. Some nationals of other countries have also been doing so, as part of their business strategies. Not sure which of these "other countries" examples you are asking about.
Quote from: grumbler on April 15, 2011, 01:48:49 PM
Not sure the question. Are "other countries" buying dollars/dollar-denominated securities?
The article in question simply uses the term dollars.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2F1.bp.blogspot.com%2F_pMscxxELHEg%2FTDsNTMqDNgI%2FAAAAAAAAIxI%2FBZRPBRUTtcA%2Fs1600%2FPart3Defaults1.jpg&hash=6e590647060784609d84d1eaec4a07e8e06cdbff)
Geez how many times is Argentina going to default?
I'm surprised that Chile hasn't annexed Argentina yet. With all those defaults, Argentinian troops and forts must have near-zero morale.
So they figure that there's no chance whatsoever of a Canadian default? A bold prediction.
Quote from: Neil on April 21, 2011, 03:47:12 PM
So they figure that there's no chance whatsoever of a Canadian default? A bold prediction.
That's what I thought. Seems rather odd.
Quote from: Barrister on April 21, 2011, 03:55:40 PM
Quote from: Neil on April 21, 2011, 03:47:12 PM
So they figure that there's no chance whatsoever of a Canadian default? A bold prediction.
That's what I thought. Seems rather odd.
That prediction may change if the election goes badly. But if the same government is in charge surplus is just around the corner...
Quote from: Barrister on April 21, 2011, 03:55:40 PM
Quote from: Neil on April 21, 2011, 03:47:12 PM
So they figure that there's no chance whatsoever of a Canadian default? A bold prediction.
That's what I thought. Seems rather odd.
Maybe it's incomplete. Then again, can you think of a more solvent place than Canada?
Quote from: crazy canuck on April 21, 2011, 03:57:25 PM
Quote from: Barrister on April 21, 2011, 03:55:40 PM
Quote from: Neil on April 21, 2011, 03:47:12 PM
So they figure that there's no chance whatsoever of a Canadian default? A bold prediction.
That's what I thought. Seems rather odd.
That prediction may change if the election goes badly. But if the same government is in charge surplus is just around the corner...
So you're the guy the pay to write up all those ads :lol:
Quote from: HVC on April 21, 2011, 04:01:12 PM
Quote from: crazy canuck on April 21, 2011, 03:57:25 PM
Quote from: Barrister on April 21, 2011, 03:55:40 PM
Quote from: Neil on April 21, 2011, 03:47:12 PM
So they figure that there's no chance whatsoever of a Canadian default? A bold prediction.
That's what I thought. Seems rather odd.
That prediction may change if the election goes badly. But if the same government is in charge surplus is just around the corner...
So you're the guy the pay to write up all those ads :lol:
Meh, truth is truth.
Well now, look who else was lying (http://"http://www.telegraph.co.uk/finance/financialcrisis/8646189/Portugals-Prime-Minister-Pedro-Passos-Coelho-discovers-colossal-budget-hole.html") about the budget all along.
Quote
Portugal's Prime Minister Pedro Passos Coelho discovers 'colossal' budget hole
Portugal's new leader Pedro Passos Coelho has told the nation to brace for further austerity measures after his government discovered a "colossal" €2bn (£1.7bn) hole in the public accounts left by the outgoing Socialists.
Yields on two-year Portuguese debt rose to a fresh record of 20.3pc on Monday, reflecting fears by investors that the country would struggle to pull itself out of downward spiral without some form of debt restructuring.
Mr Passos Coelho also appeared to caution the European authorities that his government will not tolerate heavy-handed interference in the country.
"We want to take part in an ambitious European project and make our contribution so Europe can confront its problems in the most ambitious way, but as prime minister I will not stand by and let Europe govern Portugal," he told a party gathering.
There is growing rancor in Lisbon over the term of the €78bn rescue by the EU and the International Monetary Fund, and the sweeping powers of the inspectors as they impose a "structural adjustment" on the economy.
The penal rate of interest charged by the EU is expected to top 5.5pc and risks trapping the country in debt-deflation. At the same time fiscal austerity, without offsetting monetary stimulus or devaluation, may tip the economy into an even deeper downturn.
EU officials are pushing hard for a 100 basis points reduction in rates on rescue loans, hoping to win backing from a reluctant Germany at an EU summit on Thursday.
The revelation of a budget hole in Portugal has echoes of what occurred in Greece in late 2009, when an audit by the new Pasok government exposed a budget deficit twice the level previously declared to the European Commission.
Portugal's government will have to cover the gap with another round of spending cuts, mostly in the civil service and state-owned industries. The sacrosanct Christmas Bonus is already being slashed, effectively cutting salaries.
Portugal is obliged to cut the budget deficit to 5.9pc of GDP this year under its rescue terms. This looks like a Sisyphean task since the deficit was still 8.7pc in the first quarter, and further austerity will have the side-effect of choking tax revenue. The experience of Greece is that the country can find itself chasing its tail, with the deficit remaining stubbornly high in a shrinking economy. Portugal's central bank said the economy will contract a further 1.8pc next year.
"There are limits to cutting: you can't just cut blindly," said Mr Passos Coelho.
1.7bn isn't really "colossal" by our standards.
Good thing it broke after the trading day. Here are the current spreads. Expect them to go back up tomorrow.
Quote
Portugal 1175 -20 (-1.7%) 17:30
Italy 306 -24 (-7.2%) 17:30
Ireland 1160 -17 (-1.4%) 17:30
Greece 2500 -1 (0%) 17:30
Spain 358 -26 (-6.9%) 17:30
The Socialists were forced into lying by the banks. :mad:
Quote from: Admiral Yi on July 19, 2011, 04:19:07 PM
The Socialists were forced into lying by the banks. :mad:
:lol:
The verdict! (http://"http://www.telegraph.co.uk/finance/financialcrisis/8652386/Draft-eurozone-proposal-document.html")
Quote
STATEMENT BY THE HEADS OF STATE OR GOVERNMENT OF THE EURO AREA AND EU INSTITUTIONS
Since the beginning of the sovereign debt crisis in the euro area, important measures to stabilize the euro area, reform the rules and develop new stabilization tools have been taken. The recovery in the euro area is well on track and the euro is based on sound economic fundamentals. But the challenges at hand have shown the need for more far reaching measures. We reaffirm our commitment to the euro and to do whatever is needed to ensure the financial stability of the euro area as a whole. We also reaffirm our determination to reinforce convergence, competitiveness and governance of the Euro area.
Today, we agreed on the following measures:
Greece:
1. We welcome the measures undertaken by the Greek government to stabilize public finances and reform the economy as well as the new package of measures recently adopted by the Greek Parliament. These are unprecedented, but necessary efforts to bring the Greek economy back on a sustainable growth path.
2. We agree to support a new programme for Greece and to provide an additional amount of up to [xx] ¤. This programme will be designed, notably through lower interest rates and extended maturities, to decisively improve the debt sustainability and refinancing profile of Greece. We call on the IMF to contribute to the financing of the new Greek programme in line with current practices.
3. We have decided to lengthen the maturity of the EFSF loans to Greece to the maximum extent possible from the current 7.5 years to a minimum of 15 years. In this context, we will ensure adequate post programme monitoring. We will provide EFSF loans at lending rates equivalent t othose of the Balance of Payment facility (currently approx. 3.5%) without going below the EFSF funding cost. This will be accompanied by a mechanism which ensures appropriate incentives to implement the programme, including through collateral arrangements where appropriate.
4. We call for a comprehensive strategy for growth and investment in Greece. Structural funds should be re-allocated for competitiveness and growth under a European "Marshall Plan". Member States and the Commission will mobilize all resources necessary in order to provide exceptional technical assistance to help Greece implement its reforms.
5. Greece is in a uniquely grave situation in the Euro area. This is the reason why it requires an exceptional solution. The financial sector has indicated its willingness to support Greece on a voluntary basis through a menu of options (bond exchange, roll-over, and buyback) at lending conditions comparable to public support with credit enhancement.
6. All other Euro countries solemnly reaffirm their inflexible determination to honour fully their own individual sovereign signature and all their commitments to sustainable fiscal conditions and structural reforms. The Euro area Heads of States or Government fully support this determination as the credibility of all their sovereign signatures is a decisive element for ensuring financial stability in the Euro area as a whole.
Stabilization tools:
7. To improve the effectiveness of the EFSF and address contagion, we agree to increase the flexibility of the EFSF, allowing it to:
- intervene on the basis of a precautionary programme, with adequate conditionality;
- finance recapitalisation of financial institutions through loans to governments including in non programme countries;
- intervene in the secondary markets on the basis of an ECB analysis recognizing the existence of exceptional circumstances and a unanimous decision of the EFSF Member States.
Fiscal consolidation and growth in the euro area:
8. We welcome the progress made on the implementation of the programmes in Ireland andPortugal and reiterate our strong commitment to the success of these programmes. The EFSF lending conditions we agreed upon for Greece will be applied also for Portugal and Ireland. In this context, we note Ireland's willingness to participate constructively in the discussions on the Consolidated Common Tax Base draft directive (CCTB) and in the structured discussions on tax policy issues in the framework of the Euro+ pact framework.
9. All euro area Member States will adhere strictly to the agreed fiscal targets, improve competitiveness and address macro-economic imbalances. Deficits in all countries except those under a programme will be brought below 3% by 2013 at the latest. In this context, we welcome the budgetary package recently presented by the Italian government which will enable it to bring the deficit below 3% in 2012 and to achieve balance budget in 2014. We also welcome the ambitious reforms undertaken by Spain in the fiscal, financial and structural area. As a follow up to the results of bank stress tests, Member States will provide backstops to banks as appropriate.
10. We will implement the recommendations adopted in June for reforms that will enhance our growth. We invite the Commission to enhance the synergies between loan programmes and EU funds in all countries under EU/IMF assistance. We support all efforts to improve their capacity to absorb EU funds in order to stimulate growth andemployment.
Economic governance:
11. We look forward to the rapid finalization of the legislative package on the strengthening of the stability and growth pact and the new macro economic surveillance. Euro area members will do their utmost to help reaching agreement with the EP on voting rules in the preventive arm of the Pact.
12. We commit to introduce legally binding national fiscal frameworks as foreseen in the fiscal frameworks directive by the end of 2012.
13. We agree that reliance on external credits ratings in the EU regulatory framework should be reduced, and look forward to the Commission proposals in this respect.
14. We invite the President of the European Council, in close consultation with the President of the Eurogroup, to make concrete proposals byOctober on how to better organize crisis management in the euro area and improve working methods.
We call on the Eurogroup to implement expeditiously and as a matter of priority the decisions taken today.
The bundling of all Eurozone sovereign debt into one big collateralized debt obligation is nearly complete.
I'm still having difficulty see how the whole sovereign debt/banking crisis is going to end happily ever after; based on some figures I saw today I reckon UK bank exposure to Republic of Ireland debt is around 33,000 USD for every man, woman and child in the Ireland. :hmm:
How are they ever going to pay that off, or even a significant proportion ?
Quote from: mongers on July 21, 2011, 05:49:17 PM
I'm still having difficulty see how the whole sovereign debt/banking crisis is going to end happily ever after; based on some figures I saw today I reckon UK bank exposure to Republic of Ireland debt is around 33,000 USD for every man, woman and child in the Ireland. :hmm:
How are they ever going to pay that off, or even a significant proportion ?
By borrowing, with interest.
http://www.defenceweb.co.za/index.php?option=com_content&view=article&id=17495:stratfor-germanys-choice-part-2&catid=52:Human%20Security&Itemid=114
QuoteSeventeen months ago, STRATFOR described how the future of Europe was bound to the decision-making processes in Germany. Throughout the post-World War II era, other European countries treated Germany as a feeding trough, bleeding the country for resources (primarily financial) in order to smooth over the rougher portions of their systems. Considering the carnage wrought in World War II, most Europeans — and even many Germans — considered this perfectly reasonable right up to the current decade. Germany dutifully followed the orders of the others, most notably the French, and wrote check after check to underwrite European solidarity.
However, with the end of the Cold War and German reunification, the Germans began to stand up for themselves once again. Europe's contemporary financial crisis can be as complicated as one wants to make it, but strip away all the talk of bonds, defaults and credit-default swaps and the core of the matter consists of these three points:
* Europe cannot function as a unified entity unless someone is in control.
* At present, Germany is the only country with a large enough economy and population to achieve that control.
* Being in control comes with a cost: It requires deep and ongoing financial support for the European Union's weaker members.
What happened since STRATFOR published Germany's Choice [in February 2010] was a debate within Germany about how central the European Union was to German interests and how much the Germans were willing to pay to keep it intact. With their July 22 approval of a new bailout mechanism — from which the Greeks immediately received another 109 billion euros — the Germans made clear their answers to those questions, and with that decision, Europe enters a new era.
The Origins of the Eurozone
The foundations of the European Union were laid in the early post-World War II years, but the critical event happened in 1992 with the signing of the Maastricht Treaty on Monetary Union. In that treaty, the Europeans committed themselves to a common currency and monetary system while scrupulously maintaining national control of fiscal policy, finance and banking. They would share capital but not banks, interest rates but not tax policy. They would also share a currency but none of the political mechanisms required to manage an economy. One of the many inevitable consequences of this was that governments and investors alike assumed that Germany's support for the new common currency was total, that the Germans would back any government that participated fully in Maastricht. As a result, the ability of weaker eurozone members to borrow was drastically improved. In Greece in particular, the rate on government bonds dropped from an 18 percentage-point premium over German bonds to less than 1 percentage point in less than a decade. To put that into context, borrowers of $200,000 mortgages would see their monthly payments drop by $2,500.
Faced with unprecedentedly low capital costs, parts of Europe that had not been economically dynamic in centuries — in some cases, millennia — sprang to life. Ireland, Greece, Iberia and southern Italy all experienced the strongest growth they had known in generations. But they were not borrowing money generated locally — they were not even borrowing against their own income potential. Such borrowing was not simply a government affair. Local banks that normally faced steep financing costs could now access capital as if they were headquartered in Frankfurt and servicing Germans. The cheap credit flooded every corner of the eurozone. It was a subprime mortgage frenzy on a multinational scale, and the party couldn't last forever. The 2008 global financial crisis forced a reckoning all over the world, and in the traditionally poorer parts of Europe the process unearthed the political-financial disconnects of Maastricht.
The investment community has been driving the issue ever since. Once investors perceived that there was no direct link between the German government and Greek debt, they started to again think of Greece on its own merits. The rate charged for Greece to borrow started creeping up again, breaking 16 percent at its height. To extend the mortgage comparison, the Greek "house" now cost an extra $2,000 a month to maintain compared to the mid-2000s. A default was not just inevitable but imminent, and all eyes turned to the Germans.
A Temporary Solution
It is easy to see why the Germans did not simply immediately write a check. Doing that for the Greeks (and others) would have merely sent more money into the same system that generated the crisis in the first place. That said, the Germans couldn't simply let the Greeks sink. Despite its flaws, the system that currently manages Europe has granted Germany economic wealth of global reach without costing a single German life. Given the horrors of World War II, this was not something to be breezily discarded. No country in Europe has benefited more from the eurozone than Germany. For the German elite, the eurozone was an easy means of making Germany matter on a global stage without the sort of military revitalization that would have spawned panic across Europe and the former Soviet Union. And it also made the Germans rich.
But this was not obvious to the average German voter. From this voter's point of view, Germany had already picked up the tab for Europe three times: first in paying for European institutions throughout the history of the union, second in paying for all of the costs of German reunification and third in accepting a mismatched deutschemark-euro conversion rate when the euro was launched while most other EU states hardwired in a currency advantage. To compensate for those sacrifices, the Germans have been forced to partially dismantle their much-loved welfare state while the Greeks (and others) have taken advantage of German credit to expand theirs.
Germany's choice was not a pleasant one: Either let the structures of the past two generations fall apart and write off the possibility of Europe becoming a great power or salvage the eurozone by underwriting two trillion euros of debt issued by eurozone governments every year.
Beset with such a weighty decision, the Germans dealt with the immediate Greek problem of early 2010 by dithering. Even the bailout fund known as the European Financial Security Facility (EFSF) — was at best a temporary patch. The German leadership had to balance messages and plans while they decided what they really wanted. That meant reassuring the other eurozone states that Berlin still cared while assuaging investor fears and pandering to a large and angry anti-bailout constituency at home. With so many audiences to speak to, it is not at all surprising that Berlin chose a solution that was sub-optimal throughout the crisis.
That sub-optimal solution is the EFSF, a bailout mechanism whose bonds enjoyed full government guarantees from the healthy eurozone states, most notably Germany. Because of those guarantees, the EFSF was able to raise funds on the bond market and then funnel that capital to the distressed states in exchange for austerity programs. Unlike previous EU institutions (which the Germans strongly influence), the EFSF takes its orders from the Germans. The mechanism is not enshrined in EU treaties; it is instead a private bank, the director of which is German. The EFSF worked as a patch but eventually proved insufficient. All the EFSF bailouts did was buy a little time until investors could do the math and realize that even with bailouts the distressed states would never be able to grow out of their mountains of debt. These states had engorged themselves on cheap credit so much during the euro's first decade that even 273 billion euros of bailouts was insufficient. This issue came to a boil over the past few weeks in Greece. Faced with the futility of yet another stopgap solution to the eurozone's financial woes, the Germans finally made a tough decision.
The New EFSF
The result was an EFSF redesign. Under the new system the distressed states can now access — with German permission — all the capital they need from the fund without having to go back repeatedly to the EU Council of Ministers. The maturity on all such EFSF credit has been increased from 7.5 years to as much as 40 years, while the cost of that credit has been slashed to whatever the market charges the EFSF itself to raise it (right now that's about 3.5 percent, far lower than what the peripheral — and even some not-so-peripheral — countries could access on the international bond markets). All outstanding debts, including the previous EFSF programs, can be reworked under the new rules. The EFSF has been granted the ability to participate directly in the bond market by buying the government debt of states that cannot find anyone else interested, or even act pre-emptively should future crises threaten, without needing to first negotiate a bailout program. The EFSF can even extend credit to states that were considering internal bailouts of their banking systems. It is a massive debt consolidation program for both private and public sectors. In order to get the money, distressed states merely have to do whatever Germany — the manager of the fund — wants. The decision-making occurs within the fund, not at the EU institutional level.
In practical terms, these changes cause two major things to happen. First, they essentially remove any potential cap on the amount of money that the EFSF can raise, eliminating concerns that the fund is insufficiently stocked. Technically, the fund is still operating with a 440 billion-euro ceiling, but now that the Germans have fully committed themselves, that number is a mere technicality (it was German reticence before that kept the EFSF's funding limit so "low").
Second, all of the distressed states' outstanding bonds will be refinanced at lower rates over longer maturities, so there will no longer be very many "Greek" or "Portuguese" bonds. Under the EFSF all of this debt will in essence be a sort of "eurobond," a new class of bond in Europe upon which the weak states utterly depend and which the Germans utterly control. For states that experience problems, almost all of their financial existence will now be wrapped up in the EFSF structure. Accepting EFSF assistance means accepting a surrender of financial autonomy to the German commanders of the EFSF. For now, that means accepting German-designed austerity programs, but there is nothing that forces the Germans to limit their conditions to the purely financial/fiscal.
For all practical purposes, the next chapter of history has now opened in Europe. Regardless of intentions, Germany has just experienced an important development in its ability to influence fellow EU member states — particularly those experiencing financial troubles. It can now easily usurp huge amounts of national sovereignty. Rather than constraining Germany's geopolitical potential, the European Union now enhances it; Germany is on the verge of once again becoming a great power. This hardly means that a regeneration of the Wehrmacht is imminent, but Germany's re-emergence does force a radical rethinking of the European and Eurasian architectures.
Reactions to the New Europe
Every state will react to this new world differently. The French are both thrilled and terrified — thrilled that the Germans have finally agreed to commit the resources required to make the European Union work and terrified that Berlin has found a way to do it that preserves German control of those resources. The French realize that they are losing control of Europe, and fast. France designed the European Union to explicitly contain German power so it could never be harmed again while harnessing that power to fuel a French rise to greatness. The French nightmare scenario of an unrestrained Germany is now possible.
The British are feeling extremely thoughtful. They have always been the outsiders in the European Union, joining primarily so that they can put up obstacles from time to time. With the Germans now asserting financial control outside of EU structures, the all-important U.K. veto is now largely useless. Just as the Germans are in need of a national debate about their role in the world, the British are in need of a national debate about their role in Europe. The Europe that was a cage for Germany is no more, which means that the United Kingdom is now a member of different sort of organization that may or may not serve its purposes.
The Russians are feeling opportunistic. They have always been distrustful of the European Union, since it — like NATO — is an organization formed in part to keep them out. In recent years the union has farmed out its foreign policy to whatever state was most impacted by the issue in question, and in many cases these states has been former Soviet satellites in Central Europe, all of which have an axe to grind. With Germany rising to leadership, the Russians have just one decision-maker to deal with. Between Germany's need for natural gas and Russia's ample export capacity, a German-Russian partnership is blooming. It is not that the Russians are unconcerned about the possibilities of strong German power — the memories of the Great Patriotic War burn far too hot and bright for that — but now there is a belt of 12 countries between the two powers. The Russian-German bilateral relationship will not be perfect, but there is another chapter of history to be written before the Germans and Russians need to worry seriously about each other.
Those 12 countries are trapped between rising German and consolidating Russian power. For all practical purposes, Belarus, Ukraine and Moldova have already been reintegrated into the Russian sphere. Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Hungary, Romania and Bulgaria are finding themselves under ever-stronger German influence but are fighting to retain their independence. As much as the nine distrust the Russians and Germans, however, they have no alternative at present.
The obvious solution for these "Intermarium" states — as well as for the French — is sponsorship by the United States. But the Americans are distracted and contemplating a new period of isolationism, forcing the nine to consider other, less palatable, options. These include everything from a local Intermarium alliance that would be questionable at best to picking either the Russians or Germans and suing for terms. France's nightmare scenario is on the horizon, but for these nine states — which labored under the Soviet lash only 22 years ago — it is front and center.
:tinfoil: Wow, I never knew that bailing out Greek pensioners is actually the Fourth Reich.
Quote from: Zanza on July 26, 2011, 10:30:07 AM
http://www.defenceweb.co.za/index.php?option=com_content&view=article&id=17495:stratfor-germanys-choice-part-2&catid=52:Human%20Security&Itemid=114
:tinfoil: Wow, I never knew that bailing out Greek pensioners is actually the Fourth Reich.
We really need some kind of pickelhaube smile for this kind of post.
Map about to require an update.
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US Treasury CDS premiums hit over 80bp yesterday for 1 year protection. In addition - the CDS curve inverted - the cost of buying 1 year credit protection was higher than buying 5 year.
How in the world did Saudi Arabia ever aquire a credit rating?
Quote from: Admiral Yi on July 28, 2011, 06:19:15 PM
How in the world did Saudi Arabia ever aquire a credit rating?
There's oil in them thar sand dunes.
Quote from: Neil on July 28, 2011, 06:33:34 PM
There's oil in them thar sand dunes.
Which diminishes the need to borrow money on the bond market.
Quote from: Admiral Yi on July 28, 2011, 06:35:55 PM
Quote from: Neil on July 28, 2011, 06:33:34 PM
There's oil in them thar sand dunes.
Which diminishes the need to borrow money on the bond market.
Unless you have to make sudden, large purchases of US weapons while at the same time ensuring that all those princes have an adequate number of palaces.
Quote from: Neil on July 28, 2011, 06:39:22 PM
Unless you have to make sudden, large purchases of US weapons while at the same time ensuring that all those princes have an adequate number of palaces.
Yeah, I couldn't figure it out either.
Quote from: Admiral Yi on July 28, 2011, 06:35:55 PM
Quote from: Neil on July 28, 2011, 06:33:34 PM
There's oil in them thar sand dunes.
Which diminishes the need to borrow money on the bond market.
Doesn't mean you don't have to borrow sometimes. Despite huge gold and silver mines Spain defaulted a couple of times during it's empire.
Quote from: Razgovory on July 28, 2011, 06:42:00 PM
Doesn't mean you don't have to borrow sometimes. Despite huge gold and silver mines Spain defaulted a couple of times during it's empire.
Spain was constantly involved in ruinous wars.
Saudi Aramco - a company - owns most of the Saudi oilfields and receives the revenue. The oil revenue only flows to the government in the form of royalties and dividends from Aramco.
Quote from: Admiral Yi on July 28, 2011, 06:35:55 PM
Quote from: Neil on July 28, 2011, 06:33:34 PM
There's oil in them thar sand dunes.
Which diminishes the need to borrow money on the bond market.
Oil fell to around $10 a barrel back in 1999 (or thereabouts), the Saudis had to borrow quite a lot of money back then.
Our beloved leader has finally thrown in the towel. General elections in Spain this November.
Quote from: Iormlund on July 29, 2011, 11:13:34 AM
Our beloved leader has finally thrown in the towel. General elections in Spain this November.
Expect a terrorist attack to decide that one too.
Quote from: Neil on July 29, 2011, 12:43:21 PM
Quote from: Iormlund on July 29, 2011, 11:13:34 AM
Our beloved leader has finally thrown in the towel. General elections in Spain this November.
Expect a terrorist attack to decide that one too.
:XD:
Italy had basically fled the bond market and seems to be collapsing. Spain re-scheduled their auctions for September. The Italians are lashing out in their death throes though.
lol (http://"http://www.reuters.com/article/2011/08/04/us-italy-ratingagencies-prosecutors-idUSTRE7734FR20110804")
Quote
Italy prosecutors seize Moody's, S&P documents
Aug 4 (Reuters) - Italian prosecutors have seized documents at the offices of rating agencies Moody's and Standard & Poor's in a probe over suspected "anomalous" fluctuations in Italian share prices, a prosecutor said on Thursday.
The measure is aimed at "verifying whether these agencies respect regulations as they carry out their work," Carlo Maria Capistro, who heads the prosecutors' office in the southern town of Trani which is leading the probe, told Reuters.
The documents were seized at the Milan offices of the two agencies on Wednesday, he said, adding that prosecutors had also asked Italian market regulator Consob to provide documents relating to their registration in Italy.
S&P in Italy said in a statement it believed the probe was "groundless."
"We strongly defend our work, our reputation and that of our analysts," it said.
Moody's said it "takes its responsibilities surrounding the dissemination of market sensitive information very seriously and is cooperating with the authorities."
The Trani prosecutors have opened two probes -- one for each rating agency -- after a complaint by two consumer groups over the impact of their reports about Italy on Milan stock prices.
The first complaint was filed against Moody's after it published a report in May 2010 about the risk of contagion for Italian banks from the Greek crisis.
A second complaint filed in May this year targeted Standard & Poor's after it threatened to downgrade Italy's credit rating because of its huge public debt.
The prosecutors are also investigating whether any crimes were committed during a sell-off in Italian assets on July 8 and July 11 as fears spread that the euro zone's third largest economy is being sucked into the widening debt crisis.
One of the consumer groups behind the complaints said the probe was aimed at finding out whether the market's sharp drop was due to a "precise scheme by hedge funds and other unidentified players that could be linked to the negative comments about Italian public finances by the rating agencies."
Consob last month summoned Moody's and S&P for meetings and urged them not to release their statements during market hours.
I hope they shoot Silvio and hang his corpse from a gas station.
Quote from: Admiral Yi on July 28, 2011, 06:44:04 PM
Quote from: Razgovory on July 28, 2011, 06:42:00 PM
Doesn't mean you don't have to borrow sometimes. Despite huge gold and silver mines Spain defaulted a couple of times during it's empire.
Spain was constantly involved in ruinous wars.
Thank God we dodged that bullet.
:lol:
Quote from: Razgovory on August 04, 2011, 10:40:49 AM
Quote from: Admiral Yi on July 28, 2011, 06:44:04 PM
Quote from: Razgovory on July 28, 2011, 06:42:00 PM
Doesn't mean you don't have to borrow sometimes. Despite huge gold and silver mines Spain defaulted a couple of times during it's empire.
Spain was constantly involved in ruinous wars.
Thank God we dodged that bullet.
Indeed. The US has engaged in a couple of cheap, limited wars, but that's about it.
Bizarro-World.
Good PIIGS: Portugal, Ireland, Greece
Bad PIIGS: Italy, Spain
Quote
Name Level Change Time
Portugal 964 -22 (-2.3%) 17:30
Italy 392 27 (7.3%) 17:30
Ireland 835 -11 (-1.4%) 17:30
Greece 1713 -31 (-1.8%) 17:30
Spain 431 12 (2.9%) 17:30
Eurobond securitization continues as Italy steps up the the trough. They better settle on something convincing tonight.
Quote from: Telegraph
ECB to protect Europe by buying bonds
The European Central Bank is expected to signal it is stepping into the eurozone debt crisis on Thursday by reopening its purchases of government debt, amid fears the turmoil will claim the economy of a nation that is "too big to bail".
Officials on Wednesday night said the ECB's monthly meeting was expected to see a reversal on the buying of sovereign bonds after 18 weeks of staying out of the markets, because of an EU institutional vacuum that threatens to drag down Italy and Spain, the region's third and fourth-largest economies.
With EU officials scrabbling to fine-tune changes to allow the eurozone's €440bn (£384bn) bail-out fund to intervene in the markets, central bankers are expected to reluctantly accept the precedent of allowing ECB bond buy-backs in May 2010.
Measures allowing the European Financial Stability Facility (EFSF), the bail-out fund created last summer, new powers to buy the bonds of struggling countries were agreed at an emergency euro summit on July 21 in an attempt to protect Italy (whose public debt and bank exposure is shown in the interactive graphic above) and Spain.
However, legally changing the basis of the EFSF and ratifying the changes in 17 eurozone countries, where the expanded fund's role is controversial in German, Dutch and Finnish parliaments, could take weeks or even months, leaving a dangerous vacuum.
"We're watching the ECB which, unlike the eurozone, can intervene now and build a bridge until the EFSF can take up its new role in the autumn," said an official.
Meanwhile, European Commission President Jose Barroso urged governments to quickly approve the beefed-up fund, warning of market fears leaders have not found a "systemic" solution.
The need for a buyer of last resort is intensifying as the yield, or implied interest rates, on Italian and Spanish government debt sticks above the 6pc mark, well into the danger zone. Markets spooked by the recent threat of a US default have now returned their focus to the eurozone crisis, amid fears over a global economic slowdown which will make struggling nations' debts even harder to support.
Italy and Spain are seen as too big to rescue under the current system, which has already bailed out Greece (twice), Ireland and Portugal.
Silvio Berlusconi, the Italian prime minister, on Wednesday night insisted markets were misreading Italy's "solid economic fundamentals" after Rome's main FTSE MIB index closed down 1.5pc, leaving it 27pc off its recent peak in mid-February.
However, Italy, with a debt equivalent to 120pc of GDP, is on an unsustainable path and "bound to default" on its obligations, while Spain is better placed but may still get dragged down in the turmoil, according to forecasts from the Centre for Economics and Business Research. The think-tank is now "pessimistic" about the euro's survival. If one country defaults other euro members will face higher borrowing costs, making devaluing their currency by leaving the monetary union more attractive, it said.
My sovereign debt ETF has done extremely well over the past week or so. :hmm:
Germany says Italy is too big for EFSF to save and doesn't want in on a longer term bailout. The world will collapse. My capstone thesis is coming true. :bleeding:
Wasn't it always clear that Italy is too big? Germany and France have rather precarious fiscal positions too. If Italy goes down, the rest of the Eurozone will go down.
Quote from: Zanza on August 07, 2011, 03:19:34 AM
Wasn't it always clear that Italy is too big? Germany and France have rather precarious fiscal positions too. If Italy goes down, the rest of the Eurozone will go down.
First Europe, then the world. :cry:
Might as well get it out in the open? (http://"http://www.londonstockexchange.com/exchange/news/dow-jones/news-detail.html?newsId=20110807DN002533")
Quote
DJ Irish Minister:EU Debt Forgiveness Inevitable In Future -Report
07 Aug 2011 - 10:47
DUBLIN -(Dow Jones)- Pat Rabbitte, Ireland's Minister for Communications, Energy and Natural Resources, believes it is "inevitable" the European Union will allow some form of debt forgiveness to ease Ireland's crisis, the Irish Mail on Sunday reports.
"My personal view is that an element of debt forgiveness down the road is likely to become inevitable and I think in the meantime the leadership in Europe has to apply itself to the fault lines that we are exposed to in the architecture of the euro," the newspaper cites him as saying.
Rabbitte is a senior politician in the Labour Party, the junior partner in the coalition government that swept to power in March. The coalition had pledged to negotiate a better deal on a EUR67.5 billion bailout loan agreement the Irish authorities struck with the EU, International Monetary Fund and European Central Bank in November.
"The terms foisted on us in the deal between the EU, ECB and the IMF and the previous government were oppressive," Rabbitte tells the newspaper.
Euro-zone-wide solutions are now needed to solve Europe's debt crisis but he believes that the ECB will block any options for a U.S.-style quantitative easing.
"It would not be contemplated by the ECB. The ECB is very much influenced by the requirement to keep inflation under control. It may be interesting to see as the Obama thing unfolds, but I don't see the ECB giving that sanction in Europe," he says.
Last month, an EU leaders' meeting agreed to cut the near-6% interest rate Ireland is paying its European bailout lenders for their loans. Amid a severe banking crisis, Ireland's banks continue to require large amounts of short-term funding from the ECB to remain open.
The Irish government still aims to return to some sort of market funding next year. The yields on its debt paper remain at elevated levels even as the ECB bought more of the country's debt paper on secondary markets last week.
In July, Moody's Investor Services downgraded Irish debt into junk territory. However, on Friday, Standard & Poor's Corp. maintained its investment grade rating on Irish government debt. S&P forecast Irish debt will peak at over 110% of GDP in 2013 and fall to 103% in 2015, as the government caps the costs of rescuing its broken banks.
It said the direct bank rescue costs will now be no more than the EUR64 billion, or 41% of Irish GDP, already identified in recapitalization costs.
Germany is now demanding suggesting that the other Eurozone countries amend their constitutions with balanced budget rules. Italy has already announced that it will do so.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fimages2.wikia.nocookie.net%2F__cb20110707064131%2Froblox%2Fimages%2Fd%2Fd1%2FPicard-facepalm-hotlink.jpg&hash=3cf3ce98cf3ee73e613f759e4312611dea89b670)
I have to admit I'm softening on the budget amendment idea. I'm not quite as knee-jerk against it as I was a couple weeks ago.
Well we´ve had it (sort of) the last 15 years and have had lesser economical problems after than we had before.
Quote from: MadImmortalMan on August 09, 2011, 11:27:32 AM
I have to admit I'm softening on the budget amendment idea. I'm not quite as knee-jerk against it as I was a couple weeks ago.
Get knee surgery and get back int he game.
Quote from: DGuller on August 09, 2011, 11:24:06 AM
facepalm
Switzerland has been quite successful with their balanced budget act. Germany has added a balanced budget article to its constitution and will not be allowed to make more than 0.35% of GDP in new debt after 2016 - unless there are natural disasters or economic crises.
Quote from: Zanza on August 09, 2011, 01:52:44 PM
Quote from: DGuller on August 09, 2011, 11:24:06 AM
facepalm
Switzerland has been quite successful with their balanced budget act. Germany has added a balanced budget article to its constitution and will not be allowed to make more than 0.35% of GDP in new debt after 2016 - unless there are natural disasters or economic crises.
Such as making more than .35% in new debt.
Quote from: The Brain on August 09, 2011, 02:05:54 PM
Quote from: Zanza on August 09, 2011, 01:52:44 PM
Quote from: DGuller on August 09, 2011, 11:24:06 AM
facepalm
Switzerland has been quite successful with their balanced budget act. Germany has added a balanced budget article to its constitution and will not be allowed to make more than 0.35% of GDP in new debt after 2016 - unless there are natural disasters or economic crises.
Such as making more than .35% in new debt.
:lol:
Quote from: The Brain on August 09, 2011, 02:05:54 PM
Quote from: Zanza on August 09, 2011, 01:52:44 PM
Quote from: DGuller on August 09, 2011, 11:24:06 AM
facepalm
Switzerland has been quite successful with their balanced budget act. Germany has added a balanced budget article to its constitution and will not be allowed to make more than 0.35% of GDP in new debt after 2016 - unless there are natural disasters or economic crises.
Such as making more than .35% in new debt.
:lmfao:
Not really.
Anyway, an interesting side effect of this whole fiasco is that the Swiss Franc is now almost at parity with the Euro. At the current rate, it will be just a few more days until it is worth more than the Euro. I pity all those fools in Eastern Europe that took out mortgages in Swiss Franc.
You know, I was expecting the latest economic news out of the US would have increased the value of the loonie - since our budget deficit, balance of trade and general economic outlook is so much stronger than the US.
But it the wild way that economics works, the weakening US economy is weakening the price of oil (and other commodities), so the C$ is actually decreasing in value. :wacko:
Quote from: Zanza on August 09, 2011, 01:52:44 PM
Switzerland has been quite successful with their balanced budget act. Germany has added a balanced budget article to its constitution and will not be allowed to make more than 0.35% of GDP in new debt after 2016 - unless there are natural disasters or economic crises.
What is the point then? Spain, for example, was in surplus before the crisis. Such a measure would have made absolutely no difference.
Quote from: Iormlund on August 09, 2011, 03:57:33 PM
Quote from: Zanza on August 09, 2011, 01:52:44 PM
Switzerland has been quite successful with their balanced budget act. Germany has added a balanced budget article to its constitution and will not be allowed to make more than 0.35% of GDP in new debt after 2016 - unless there are natural disasters or economic crises.
What is the point then? Spain, for example, was in surplus before the crisis. Such a measure would have made absolutely no difference.
Might not have done a difference in Spain, but it could have done a difference in some other countries. Spain's rotten labour market is of course a much bigger problem than its government deficit.
Quote from: Zanza on August 09, 2011, 03:15:50 PM
Not really.
Anyway, an interesting side effect of this whole fiasco is that the Swiss Franc is now almost at parity with the Euro. At the current rate, it will be just a few more days until it is worth more than the Euro. I pity all those fools in Eastern Europe that took out mortgages in Swiss Franc.
Unfortunately it may become a problem not just for them, but for the entire banking market due to negative equity issues. Good I took my last loan in zloty.
It seems the potato head twins were right about one thing, btw: we would have been in much more shit now if we adopted the euro back in 2007-2008.
Quote from: Martinus on August 09, 2011, 05:36:42 PM
It seems the potato head twins were right about one thing, btw: we would have been in much more shit now if we adopted the euro back in 2007-2008.
Broken clocks and all that. :)
So is the Euro going to actually survive this?
Quote from: Zanza on August 09, 2011, 01:52:44 PM
Quote from: DGuller on August 09, 2011, 11:24:06 AM
facepalm
Switzerland has been quite successful with their balanced budget act.
Misleading because Switzerland is a diffuse federal system where significant fiscal authority resides in the cantons. Many of the cantons can and do run fiscal deficits.
Quote from: Iormlund on August 09, 2011, 03:57:33 PM
What is the point then? Spain, for example, was in surplus before the crisis. Such a measure would have made absolutely no difference.
Ireland and Iceland also had sound government finances. The point is well taken - all the fiscal orthodoxy in the world doesn't matter if the government faces a decision whether to intervene in a crisis or permit a complete collapse of the private economy.
Quote from: Zanza on August 09, 2011, 04:15:30 PM
Might not have done a difference in Spain, but it could have done a difference in some other countries. Spain's rotten labour market is of course a much bigger problem than its government deficit.
The labour market had little to do with the current crisis. It stems from the housing bubble. There was a whole host of other factors leading to it, such as regulation penalizing owners and thus preventing competition in rental market, fiscal incentives toward buying property, arrival of millions of immigrants in need of a place to live, a fucked up municipal funding system that depended on housing transactions... and guess what: chronically low ECB interest rates. Which is why I can't help but roll my eyes every time I read a German patronizing us.
Then there are are long-term structural problems such as rigid labour market, education imbalances and the like. Those were not really involved in the bubble, although obviously should have been addressed then and we'd be in slightly less deep shit.
Quote from: Iormlund on August 10, 2011, 01:15:39 PM
Which is why I can't help but roll my eyes every time I read a German patronizing us.
:pinch: Meooowww!
Quote from: The Minsky Moment on August 10, 2011, 08:32:09 AM
Quote from: Iormlund on August 09, 2011, 03:57:33 PM
What is the point then? Spain, for example, was in surplus before the crisis. Such a measure would have made absolutely no difference.
Ireland and Iceland also had sound government finances. The point is well taken - all the fiscal orthodoxy in the world doesn't matter if the government faces a decision whether to intervene in a crisis or permit a complete collapse of the private economy.
An alternative view is that they did not have sound finances: that whether you can balance a budget in a boom economy is not enough to be considered sound if you also a relatively small economy vulnerable to shocks in certain economic sectors (and even more so if you have a currency that won't depreciate with those shocks).
http://www.bloomberg.com/news/2011-08-10/societe-generale-leads-fall-in-french-banks-as-credit-default-swaps-climb.html
QuoteSocGen Denies Rumors About Credit as Shares Tumble
By Jacqueline Simmons - Aug 10, 2011
Societe Generale (GLE) SA, France's second-largest bank, denied "all market rumors" and asked the nation's market watchdog for an investigation after speculation France's creditworthiness was in doubt sent the shares tumbling.
The lender's performance in July and early August shows it will be able to post "solid" results in the future, Paris- based Societe Generale said in a statement after the market closed yesterday. The bank asked France's Autorite des Marches Financiers to open a probe into the origin of speculation that is "extremely harmful to the interests of its shareholders."
Societe Generale led European bank stocks to the lowest since the aftermath of the credit crisis yesterday, tumbling 15 percent to 22.18 euros in Paris, the biggest drop since Oct. 27, 2008. France's top credit rating was affirmed by all three major rating companies as speculation that Europe's debt crisis would spread to the region's second-biggest economy pushed the cost of insuring its government debt against default to a record.
"There is no indication whatsoever that France would waver in its determination to honor its obligations," Dirk Hoffmann- Becking, an analyst at Sanford C. Bernstein Ltd. in London, said in a report to clients. "The resilience of the French banks against a freeze in the short-term funding market is very high," he said, predicting that the sell-off in French banking shares "should be short-lived."
European banks tumbled to the lowest since March 2009, when stocks fell to the weakest since the collapse of Lehman Brothers Holdings Inc. six months earlier. The Euro Stoxx Banks Index fell 8.9 percent to 109.87. BNP Paribas (BNP) SA, France's largest bank, slid 9.5 percent to 35.61 euros and Credit Agricole SA (ACA) slumped 12 percent to 6.07 euros.
Watchdog 'Vigilant'
France's AMF said it's watching to ensure "good functioning" of markets with an eye toward financial shares in particular.
"Like in each period of turbulence, the AMF is vigilant," the regulator said in a statement read in a telephone interview.
Societe Generale said it has low exposure to peripheral European sovereign debt and has fulfilled "almost all" of its financing plan for 2011.
The company said Aug. 3 that it may miss its 2012 earnings target after second-quarter profit fell 31 percent because of a writedown on Greek government debt.
Societe Generale SA Chief Executive Officer Frederic Oudea defended the lender and said speculation that France's creditworthiness is in doubt is "absolute rubbish."
"I think the situation is really under control in France and in good hands," Oudea said in an interview yesterday with CNBC. "In such a market, you know, which is nervous, it's really easy to circulate absolutely unfounded information."
ECB Intervention
The London interbank offered rate, or Libor, for borrowing in euros for three months was 1.5 percent yesterday, according to the British Bankers' Association. Societe Generale reported a rate of 1.46 percent for the same period.
The European Central Bank was forced to buy Spanish and Italian bonds yesterday, according to four people with knowledge of the transactions. The amount of securities acquired by the central bank was smaller than in the previous two days, said one of the people, who asked not to be identified because the trades are confidential.
The extra yield investors demand to buy 10-year French debt rather than German bunds jumped to 90 basis points, even though both carry AAA grades from the major rating companies. That spread is almost triple the 2010 average of 33, and compares with 17 in the second half of the previous decade.
Francesco Meucci, a spokesman for Moody's Investors Service, said in a telephone interview that the country's Aaa grade is "stable," echoing his counterparts at Standard & Poor's and Fitch Ratings.
'Fear Effect'
French bonds are the most costly AAA government securities to insure as investors raise bets that top-rated euro-region nations may be next in the firing line after the U.S. was downgraded one notch to AA+ by S&P on Aug. 5. Credit-default swaps on France trade at more than double the rate to protect German securities, CMA data show.
Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
BNP options prices rose to the highest level since at least 2005 and Societe Generale's reached a two-year high.
The slide in French banking shares "seems to be prompted by concerns about the U.S. downgrade and the idea that France could be next, but that's something Standard & Poor's has denied," said John Raymond, a banking analyst at CreditSights Inc. in London. "I don't see any reason for what happened," he said. "It seems to be a fear effect."
To contact the reporter on this story: Jacqueline Simmons in Paris at [email protected]
To contact the editor responsible for this story: Frank Connelly at [email protected]
Quote from: Iormlund on August 10, 2011, 01:15:39 PMThe labour market had little to do with the current crisis. It stems from the housing bubble. There was a whole host of other factors leading to it, such as regulation penalizing owners and thus preventing competition in rental market, fiscal incentives toward buying property, arrival of millions of immigrants in need of a place to live, a fucked up municipal funding system that depended on housing transactions... and guess what: chronically low ECB interest rates. Which is why I can't help but roll my eyes every time I read a German patronizing us.
Then there are are long-term structural problems such as rigid labour market, education imbalances and the like. Those were not really involved in the bubble, although obviously should have been addressed then and we'd be in slightly less deep shit.
The reason the markets see Spain so critical definitely has to do with its labour market. After all, Spain's debt isn't that bad compared to most other countries and neither is its deficit. It's the long-term structural problems it faces. And those are mostly related to its labour market. But feel free to roll your eyes at me.
I no longer hold sovereign debt (sold it on Monday via a standing stop loss order)... made a very modest profit on it, not including some dividend payouts.
Quote from: alfred russel on August 10, 2011, 03:08:37 PM
An alternative view is that they did not have sound finances: that whether you can balance a budget in a boom economy is not enough to be considered sound if you also a relatively small economy vulnerable to shocks in certain economic sectors (and even more so if you have a currency that won't depreciate with those shocks).
yeah but what that view really comes down to is that small countries either can never have sound finances by virtue of their size or that they cannot be market economies.
I think the more logical way to see it is that those countries had sound government finances, but that small market countries either need to impose capital controls or need to be able to draw upon backup from a much larger pool of credit and liquidity.
Or have a savings pool from earlier years.
Quote from: MadImmortalMan on August 10, 2011, 08:27:50 PM
Or have a savings pool from earlier years.
But Ireland actually did that. They ran large surpluses for years.
Italy's reforms:
Quote
SPENDING CUTS
* Cuts to the budgets of central government ministries, worth a total of 6 billion euros in 2012 and 2.5 bln in 2013.
* Funding to town councils, regions and provinces reduced by 6 bln euros in 2012 and 3.5 bln euros in 2013.
* Unspecified changes to the pension system to save 1 billion euros in 2012.
* A progressive increase in the retirement age of women in the private sector to 65 from 60 to begin in 2016, instead of 2020 as previously planned.
* The retirement funds of public sector employees will be withheld for two years after they leave their jobs.
* A reduction the "cost of politics" resulting in a halving of elected officials and around 55,000 fewer positions in the apparatus of central and local government. However, Berlusconi did not give a timescale for these cuts.
* Abolition of 34 of Italy's 110 provincial governments and the merging of town councils with less than 1,000 inhabitants. However, this measure will be "for the future" and not become effective during the government's current term of office, Berlusconi said.
HIGHER REVENUES
* A "solidarity tax" on high earners, to be levied for two years, as an additional 5 percent on income above 90,000 euros per year and 10 percent on income above 150,000 euros.
* Increase in taxation of income from financial investments to 20 percent from 12.5 percent, excluding income from government bonds.
* Purchases worth more than 2,500 euros will no longer be allowed to be made in cash, as a means of curbing tax evasion. There will also be tougher penalties, such as suspension from professional bodies, for failure to issue receipts and invoices.
* All non-religious public holidays, such as the June 2 anniversary of the founding of the Italian Republic, will be celebrated on a Sunday in a bid to increase the number of working days in a year.
REFORMS
* A liberalisation of national labour contracts giving greater scope to strike accords at the company or local level.
So, which one or two of these will actually happen, and when do the riots begin?
QuotePurchases worth more than 2,500 euros will no longer be allowed to be made in cash, as a means of curbing tax evasion.
LOL.
Will the Italians also hold government-level meetings pondering about the use of water cannons when private residents in their capital will be set on fire?
Which reminds me, when I was leaving Cortina, Italian Alps several years ago, I had a Carabineri police car shadowing me for quite a while until they took a turn at a village. It was: unnerving.
Quote from: MadImmortalMan on August 12, 2011, 05:33:49 PM
Italy's reforms:
Quote
SPENDING CUTS
* Cuts to the budgets of central government ministries, worth a total of 6 billion euros in 2012 and 2.5 bln in 2013.
* Funding to town councils, regions and provinces reduced by 6 bln euros in 2012 and 3.5 bln euros in 2013.
* Unspecified changes to the pension system to save 1 billion euros in 2012.
* A progressive increase in the retirement age of women in the private sector to 65 from 60 to begin in 2016, instead of 2020 as previously planned.
* The retirement funds of public sector employees will be withheld for two years after they leave their jobs.
* A reduction the "cost of politics" resulting in a halving of elected officials and around 55,000 fewer positions in the apparatus of central and local government. However, Berlusconi did not give a timescale for these cuts.
* Abolition of 34 of Italy's 110 provincial governments and the merging of town councils with less than 1,000 inhabitants. However, this measure will be "for the future" and not become effective during the government's current term of office, Berlusconi said.
HIGHER REVENUES
* A "solidarity tax" on high earners, to be levied for two years, as an additional 5 percent on income above 90,000 euros per year and 10 percent on income above 150,000 euros.
* Increase in taxation of income from financial investments to 20 percent from 12.5 percent, excluding income from government bonds.
* Purchases worth more than 2,500 euros will no longer be allowed to be made in cash, as a means of curbing tax evasion. There will also be tougher penalties, such as suspension from professional bodies, for failure to issue receipts and invoices.
* All non-religious public holidays, such as the June 2 anniversary of the founding of the Italian Republic, will be celebrated on a Sunday in a bid to increase the number of working days in a year.
REFORMS
* A liberalisation of national labour contracts giving greater scope to strike accords at the company or local level.
So, which one or two of these will actually happen, and when do the riots begin?
That's more than the US Congress could agree on, no?
Moody's downgrades Japan to aa3. World yawns.
Edit: I'll have to find that chart of ratings projections from a couple years ago showing that more than half the world would be rated junk by 2050. We are right on schedule.
Everybody knows that Japan is fundamentally unsound, so I don't see how anyone could panic.
Quote from: Neil on August 23, 2011, 07:06:21 PM
Everybody knows that Japan is fundamentally unsound, so I don't see how anyone could panic.
Nikkei's reaction: UP
:P
Japan has been screwed for the past 20 years, the world going to hell is nothing new for them.
The world does increasingly seem screwed btw.
Unless you`re Chinese.
Quote from: Neil on August 23, 2011, 07:06:21 PM
Everybody knows that Japan is fundamentally unsound, so I don't see how anyone could panic.
Japan has a craptastic debt situation.
Still we remain hopeful for everyone!
Quote from: Tyr on August 23, 2011, 10:00:00 PM
Unless you`re Chinese.
I am growing more and more impatient with that fuckin' urban myth.
China is politically a hellhole, making a killing from loaning slaves to western companies and/or selling their shit to the mass-consuming developed world. And their citizens who has risen out of slave status are probably entangled in their very own housing bubble.
The moment real shit hits the fan in the 1st world, China will go fuckin' belly up.
Time to start the fights again. (http://"http://www.marketwatch.com/story/collateral-spat-sparks-new-greek-default-fears-2011-08-26")
Quote
Aug. 26, 2011, 5:36 a.m. EDT
Collateral spat sparks new Greek default fears
Finland's insistence on getting collateral stirs controversy
By William L. Watts, MarketWatch
FRANKFURT (MarketWatch) — Little more than a month after euro-zone leaders presented a united front on a second rescue package for Greece, a spat over collateral and other issues is renewing fears of a potential default.
Finland last week reached a deal with Greece that would see Athens provide cash guarantees in return for Helsinki's participation in the 109 billion euros ($157 billion) rescue plan. That caused an uproar in capitals across Europe, with Austria on Wednesday saying it would ask the collateral terms to be applied to all countries participating in the plan.
Germany has said it can't back a plan that favors Finland over other countries.
Subsequent talk has centered on the possibility of coming up with a plan that would see Greece offer collateral to all bailout participants. European officials will discuss the issue later Friday, Greek Finance Minister Evangelos Venizelos told the country's parliament, Dow Jones Newswires reported.
Regardless of the outcome, the conflict marks a "very, very dark episode in policy-making in Europe," said Piet Lammens, head of markets research at KBC Bank in Brussels.
The incident signals that Greece's euro-zone partners don't believe the package will ensure the country's solvency, sending a decidedly negative message to bond markets, he said.
The collateral controversy has in turn renewed fears of a possible Greek default. Greek bond yields soared anew, with the two-year yield trading well above 40% this week.
The cost of insuring Greek government debt against default via instruments known as credit default swaps, already extremely elevated, rose further. The annual cost of insuring $10 million of Greek debt rose $92,000 on Friday to $2.3 million, according to data provided by Markit.
The euro , however, has remained largely immune to the recent controversy, holding near the top end of its recent price range versus the dollar and changing hands at $1.4445 in recent action, a gain of 0.5% on the day.
Finland's demands
After weeks of wrangling and market turmoil, European officials on July 21 reached an agreement on a €109 billion bailout program designed to meet Greece's funding needs into 2014.
Greece's hopes of returning to the bond market in 2012 after last year's €110 billion bailout were dashed as its economy tanked and tax revenues failed to allow it to meet deficit-reduction targets. Moreover, officials also moved to revamp the European Financial Stability Facility, or EFSF, giving it the power to buy bonds in the secondary market.
The collateral dispute has its origins in that July 21 agreement. At the time, Finnish Prime Minister Jyrki Katainen demanded a collateral arrangement with Greece in return for Helsinki's participation, noted Mujtaba Rahman, European analyst with consulting firm Eurasia Group.
Katainen, who took office after a divisive election in April, had little choice amid rising opposition to participating in a new bailout within his own coalition and among Finnish taxpayers.
The joint leaders' statement issued at the end of the summit noted that "where appropriate, a collateral arrangement will be put in place so as to cover the risk arising to euro-area member states from their guarantees" to the European Financial Stability Facility.
But the plan was for Finland and Greece to reach an agreement, which would then be discussed for approval by the rest of the euro zone. Instead, details of the Finnish collateral arrangement leaked early, sparking protests from other euro-zone countries.
It underlined the ongoing "coordination and communication deficit" that has marked European leaders' efforts to tackle the crisis, Rahman said.
At this point, the most likely option is that Finland doesn't participate in the bailout but remains a contributor to the EFSF, he said, but warned that the controversy threatens to cause a "ripple effect" across the euro zone as national parliaments prepare to debate changes to the EFSF and other related measures.
Olli Rehn, the European Union's commissioner for economic affairs, has called on governments to wrap up technical details regarding changes to the EFSF by early September.
German Chancellor Angela Merkel on Thursday raised eyebrows when she cancelled a planned trip to Russia in early September in order to help push proposed EFSF changes through parliament.
The European Central Bank, meanwhile, is expected to continue purchasing Italian and Spanish government bonds in an effort to hold down borrowing costs for the euro zone's third and fourth-largest countries. The ECB stepped into the market earlier this month, helping drive 10-year yields, which had topped the 6% level in both countries, back below 5%.
Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, dismissed notions that the latest turmoil marks a threat to the survival of the euro.
Despite trepidation among taxpayers over the cost of euro-zone bailouts, the political imperative to maintain the euro remains strong, he said. Meanwhile, the European Union is following a longstanding pattern that has often seen it resolve conflicts and challenges in a drawn-out and often messy fashion.
Leaders of the euro zone's AAA-rated "saviors" realize they will have to pay up as the region becomes more integrated and are currently focused on negotiating the best possible terms for a "more civilized fiscal regime," he said.
Unfortunately, it will probably require more market turmoil for the euro zone to ultimately get its act together, Spiro said.
And swaps:
Quote
Name Level Change Time
Portugal 1020 -20 (-2%) 17:00
Italy 377 3 (0.8%) 17:00
Ireland 830 -3 (-0.3%) 17:00
Greece 2250 42 (1.9%) 17:00
Spain 375 2 (0.6%) 17:00
Quote from: Tamas on August 24, 2011, 02:13:45 AM
Quote from: Tyr on August 23, 2011, 10:00:00 PM
Unless you`re Chinese.
I am growing more and more impatient with that fuckin' urban myth.
China is politically a hellhole, making a killing from loaning slaves to western companies and/or selling their shit to the mass-consuming developed world. And their citizens who has risen out of slave status are probably entangled in their very own housing bubble.
The moment real shit hits the fan in the 1st world, China will go fuckin' belly up.
:huh:
It`s an urban myth that things are getting increasingly better in China?
Chinese are in fact very unhappy, they just don't know it.
Quote from: Tamas on August 24, 2011, 02:13:45 AM
Quote from: Tyr on August 23, 2011, 10:00:00 PM
Unless you`re Chinese.
I am growing more and more impatient with that fuckin' urban myth.
China is politically a hellhole, making a killing from loaning slaves to western companies and/or selling their shit to the mass-consuming developed world. And their citizens who has risen out of slave status are probably entangled in their very own housing bubble.
The moment real shit hits the fan in the 1st world, China will go fuckin' belly up.
Since China is a semi-closed society, it's difficult to know what's going on there. It's not as bad as the Soviet Union was, but it's still not transparent. In my mind China is in a state of flux. 10 years from now it could be like Russia in the 1990's, the same as it is today, or even a thriving new Democracy. I suspect that
some kind of drastic political change will occur in China in the next few decades. The last 20 years have shown us that one party states like China don't have the longest shelf life. Ideally, China will follow Taiwan's example in gradually removing one party rule and slowly evolve into a real (if idiosyncratic), democracy. I don't know how likely that is. Deng strengthened China immensely by resigning. It wasn't Washingtonian in scope, but it was an excellent example. I'm of the opinion that Deng should be regarded as the greatest Chinese statesman of the 20th century. Though that's not to difficult considering the piss poor leadership China has seen the 20th century.
How is a democracy of that size and savagery supposed to thrive?
Quote from: Neil on August 28, 2011, 10:44:58 PM
How is a democracy of that size and savagery supposed to thrive?
India's democracy has survived and they have been in cold/hot war with Pakistan the whole time.
Quote from: jimmy olsen on August 28, 2011, 10:56:33 PM
Quote from: Neil on August 28, 2011, 10:44:58 PM
How is a democracy of that size and savagery supposed to thrive?
India's democracy has survived and they have been in cold/hot war with Pakistan the whole time.
Survive != thrive, and those little skirmishes are irrelevant.
India is controlled by various party machines who tell the illiterate scum who to vote for, and run by people descended from Nehru.
Quote from: Razgovory on August 28, 2011, 09:36:33 PM
Deng strengthened China immensely by resigning. It wasn't Washingtonian in scope, but it was an excellent example. I'm of the opinion that Deng should be regarded as the greatest Chinese statesman of the 20th century. Though that's not to difficult considering the piss poor leadership China has seen the 20th century.
Deng
is generally regarded as the greatest Chinese statesman of the 20th century.
The Chinese have a system whereby the top of the Communist Party rules for ten years and is then replaced by the next generation, so the two-term limit rule applies as well.
Quote from: Zanza on August 29, 2011, 01:38:40 AM
Quote from: Razgovory on August 28, 2011, 09:36:33 PM
Deng strengthened China immensely by resigning. It wasn't Washingtonian in scope, but it was an excellent example. I'm of the opinion that Deng should be regarded as the greatest Chinese statesman of the 20th century. Though that's not to difficult considering the piss poor leadership China has seen the 20th century.
Deng is generally regarded as the greatest Chinese statesman of the 20th century.
The Chinese have a system whereby the top of the Communist Party rules for ten years and is then replaced by the next generation, so the two-term limit rule applies as well.
Cult of personality is still focused on Mao, and Deng was thought to have had considerable influence after retirement.
Quote from: Neil on August 28, 2011, 10:44:58 PM
How is a democracy of that size and savagery supposed to thrive?
Why wouldn't it?
Quote from: Zanza on August 29, 2011, 01:38:40 AM
Quote from: Razgovory on August 28, 2011, 09:36:33 PM
Deng strengthened China immensely by resigning. It wasn't Washingtonian in scope, but it was an excellent example. I'm of the opinion that Deng should be regarded as the greatest Chinese statesman of the 20th century. Though that's not to difficult considering the piss poor leadership China has seen the 20th century.
Deng is generally regarded as the greatest Chinese statesman of the 20th century.
The Chinese have a system whereby the top of the Communist Party rules for ten years and is then replaced by the next generation, so the two-term limit rule applies as well.
Just curious how do people feel about Sun Yat-Sen these days? Such a pity cancer got him young. Who knows how things might have gone otherwise.
Quote from: Valmy on August 29, 2011, 09:08:40 AM
Quote from: Zanza on August 29, 2011, 01:38:40 AM
Quote from: Razgovory on August 28, 2011, 09:36:33 PM
Deng strengthened China immensely by resigning. It wasn't Washingtonian in scope, but it was an excellent example. I'm of the opinion that Deng should be regarded as the greatest Chinese statesman of the 20th century. Though that's not to difficult considering the piss poor leadership China has seen the 20th century.
Deng is generally regarded as the greatest Chinese statesman of the 20th century.
The Chinese have a system whereby the top of the Communist Party rules for ten years and is then replaced by the next generation, so the two-term limit rule applies as well.
Just curious how do people feel about Sun Yat-Sen these days? Such a pity cancer got him young. Who knows how things might have gone otherwise.
I think he is highly respected by the communists for fulfilling some kind of Marxist prophecy or something.
Quote from: DGuller on August 28, 2011, 09:03:24 PM
Chinese are in fact very unhappy, they just don't know it.
The problem with that sentence is that you think the Chinese are people, when in fact they are the Chinese.
Spain close to passing budget amendment. (http://"http://www.bbc.co.uk/news/business-14721843")
Quote
Spain moves closer to constitutional budget deficit cap
Spanish politicians have overwhelmingly backed holding a vote on introducing a constitutional cap on budget deficits.
The move all but guarantees that the change will be adopted.
Members of the lower house of Spain's parliament voted 319 in favour and only 17 against holding the debate and vote later this week. The reform would then go to the upper house next week.
To change Spain's constitution requires three-fifths support in both houses.
The proposed reform calls for the broad principles of a balanced long-term budget to be enshrined in Spain's constitution.
It adds that the deficit limit could only be breached in times of natural disaster, recession, or extraordinary emergencies - and then only with approval of the lower house.
Public protests
"We have to take a coherent and forceful decision to strengthen our country's solvency," said Jose Antonio Alonso, spokesman for the ruling Socialist Party.
"There is no better way to dispel uncertainties than to elevate the principle of budget stability to the level of constitutional mandate so as to consolidate in the world a clear reality - we are a reliable country in the payment of our debts and there should be no doubt about it."
In 2010 Spain had a budget deficit equivalent to 9.2% of its annual economic output or GDP.
It is now continuing with cost-cutting measures to reduce this to 6% this year, and aims to reach the European Union target of 3% by 2013.
The government's work to lower the budget has come in the face of widespread public protests.
It the reform is based by both houses of the Spanish parliament it would only be the second time that Spain's constitution has been amended since it was first drawn up in 1978.
Germany already has a legal limit on its budget deficit level, and France is exploring the idea.
At the beginning of August, US politicians agreed to increase the country's prescribed debt level in an 11th hour deal.
The International Monetary Fund (IMF) warned last month that the Spanish economy still faced "considerable" risks.
It said the Spanish government had to continue work to reduce public spending and increase efforts to liberalise its jobs market.
Spain currently has an unemployment rate of 21% - the highest in Europe.
There have been concerns that Spain may have to follow Greece, the Republic of Ireland and Portugal in needing a bailout fund from the European Union and IMF.
CDS dropping except Greece:
Quote
Name Level Change Time
Portugal 970 -62 (-6%) 14:30
Italy 372 -7 (-1.9%) 14:30
Ireland 815 -22 (-2.5%) 14:30
Greece 2250 74 (3.4%) 14:30
Spain 370 -6 (-1.6%) 14:30
Quote from: Razgovory on August 28, 2011, 09:36:33 PMSince China is a semi-closed society, it's difficult to know what's going on there.
I don't think it's particularly hard to know what's going on there.
There's little transparency when it comes to high level political decision making, and the endemic corruption makes for significant risk in various scenarios, but the fundamental situation and factors are - political rhetoric aside - pretty well understood.
QuoteIt's not as bad as the Soviet Union was, but it's still not transparent. In my mind China is in a state of flux. 10 years from now it could be like Russia in the 1990's, the same as it is today, or even a thriving new Democracy. I suspect that some kind of drastic political change will occur in China in the next few decades.
Yeah, China is in a state of flux, and yeah I expect we'll see something significant there in the next few decades. The economic growth is unlikely to last forever and the realities of modern communication has permanently changed the way the party has to deal with the people. The excesses of a corrupt and arrogant ruling class can no longer be swept under the rug as effectively as earlier. (Most) people don't speak out publicly about it, but almost everyone knows and it registers. Eventually, something will have to give.
QuoteThe last 20 years have shown us that one party states like China don't have the longest shelf life. Ideally, China will follow Taiwan's example in gradually removing one party rule and slowly evolve into a real (if idiosyncratic), democracy. I don't know how likely that is. Deng strengthened China immensely by resigning. It wasn't Washingtonian in scope, but it was an excellent example. I'm of the opinion that Deng should be regarded as the greatest Chinese statesman of the 20th century. Though that's not to difficult considering the piss poor leadership China has seen the 20th century.
Yeah, Deng deserves a lot of credit I think; not just for resigning but also for initiating the economic reforms that has led China away from central planning and towards the current prosperity.
Quote from: Jacob on August 30, 2011, 12:48:32 PM
I don't think it's particularly hard to know what's going on there.
There's little transparency when it comes to high level political decision making, and the endemic corruption makes for significant risk in various scenarios, but the fundamental situation and factors are - political rhetoric aside - pretty well understood.
Are they? The Soviets were not honest about their rate of growth. It would surprise me if the Chinese didn't fudge their numbers a bit. Most Westerners who have visited China know it for it's affluent coastal areas. Few visit the slums or the poorer places in the inlands. That's how things like slave labor in brick factories or lead in children's toys, go unnoticed.
Obviously China is growing, but as government owned business are still a cornerstone of the economy there is significant opacity. And government officials a strong incentive to be dishonest.
Belarus Imploding (http://"http://www.bloomberg.com/news/2011-08-30/belarus-runs-out-of-meat-amid-currency-plunge.html")
Quote
Belarus Struggles With Meat Shortage as Russians Exploit Currency Plunge
By Aliaksandr Kudrytski - Aug 31, 2011 3:09 AM PT
Belarus's supermarkets are running out of meat as Russians take advantage of a currency crisis that a devaluation and the world's highest borrowing costs have failed to stem.
"All meat has gone to Russia," Alexander Andreyevich, an 82-year-old former tractor-plant worker, said Aug. 25 in Minsk, the capital. "My relatives near the Russian border called me a few days ago and said the shops are empty."
Belarus is grappling with a balance-of-payments crisis that forced a 36 percent devaluation of its ruble in May. It may need to raise $12 billion by 2013 through state-asset sales and international bailout loans to stave off economic collapse, Moody's Investors Service said Aug. 23.
The crisis has sparked protests as Belarusians vent their anger at President Alexander Lukashenko, dubbed Europe's last dictator by the administration of former U.S. President George W. Bush. While the authorities have sought to control food costs to quell public discontent, buyers from neighboring Russia have pushed meat prices higher.
"Private stall owners simply go and buy meat from state- owned vendors and sell it a couple of steps away for a hefty profit," Deputy Agriculture and Food Minister Vasily Pavlovsky told reporters in Minsk Aug. 24.
The government banned individuals in June from taking basic consumer goods such as home appliances, food and gasoline out of the country. Russians, buoyed by the removal of border checkpoints July 1 as part of a customs union, have circumvented the restrictions.
Free Float
Belarus will allow the ruble to float from mid-September and will remove restrictions on depositors seeking to exchange local currency for dollars and euros, Lukashenko said yesterday.
"The Belarusian ruble's exchange rate will be determined by supply and demand, as with any other commodity," he told the government and central bank, according to the Belta news service. "We will not support the exchange rate artificially."
Lukashenko pledged Aug. 25 to curb rising prices and increase pensions and wages to keep pace with inflation. Demonstrations after a 30 percent increase in gasoline prices on June 7 resulted in arrests and prompted the Belarusian leader to reverse the decision the following day.
Even so, Anton Dolgovechny, head of the Economy Ministry's macroeconomic forecasting department, announced the next day that state spending would be cut by about $2 billion in 2011, Belta reported.
Deficit, Reserves
Belarus's current-account deficit reached 16 percent of gross domestic product in 2010 after the government raised public wages and pensions. Gold and foreign-exchange reserves fell 22 percent to $4.2 billion in the year to August under International Monetary Fund methodology as the central bank sought to support the ruble.
The bank has raised its refinancing rate by 16.5 percentage points since January, making borrowing costs the highest among 50 countries tracked by Bloomberg. The latest increase to 27 percent from 22 percent is effective Sept. 1, the bank said yesterday on its website.
Belarus was granted a $3 billion loan by the Russia-led Eurasian Economic Community in June. A bailout from the IMF may be blocked by the U.S. and European Union, which have imposed sanctions on Belarus over its human-rights record, Lukashenko said June 17.
State assets to be offered to replenish reserves include potash maker Belaruskali and the Beltransgaz gas pipeline operator.
The yield on Belarus's dollar bond due 2015 advanced 6 basis points to 14.167 percent today, compared with 7.69 percent on Jan. 13, according to data compiled by Bloomberg.
Health Spas
As well as meat, services are also attracting Russians, who make up one in two visitors at the 'Lode' spa 160 kilometers (100 miles) north of Minsk and prefer luxury suites, a representative of the resort, Natalya Varvantseva, said Aug. 26 by phone.
Many of them pay with Russian rubles or dollars, the scarcity of which has pushed black-market exchange rates far below the central bank's official 5,061 rubles per dollar.
The unofficial rate slipped to 9,900 by Aug. 25, according to a survey of companies offering foreign currency conducted by Infobank.by, a financial-news website. Prokopovi.ch, a service that matches buyers and sellers of foreign currency online, quoted 8,842 rubles per dollar yesterday.
The only legal way for citizens to obtain foreign currency is by waiting at licensed exchange booths, where queues often exceed a hundred and the names of people who have left their details on previous visits are called daily.
'Structural Reforms'
The ruble may depreciate as much as 25 percent against the dollar by the end of September before currency inflows from loans and state-asset sales allow it to recoup the "temporary" losses, Julia Tsepliaeva, head of research at BNP Paribas SA in Moscow, said by e-mail yesterday.
"Further structural reforms are still needed to get Belarus out of crisis mode and to ensure sustainable economic growth in the future," Alexei Moiseev and Dmitry Fedotkin, economists at VTB Capital in Moscow, said in an e-mailed note today. The economy may expand 1.5 percent in 2011 before shrinking 5.2 percent next year, VTB said Aug. 26.
That's a Russian problem. Or rather not a problem, since the policy of the Russian empire is to loot and plunder their slave states.
Quote
"Very few of us realise with conviction the intensely unusual,unstable, complicated, unreliable, temporary nature of theeconomic organisation by which Western Europe has lived for the last half century. We assume some of the most peculiar and temporary of our late advantages as natural, permanent, and to be depended on, and we lay our plans accordingly. On this sandy and false foundation we scheme for social improvement and dress our political platforms, pursue our animosities and particular ambitions, and feel ourselves with enough margin in hand to foster, not assuage, civil conflict in the European family."
John M. Keynes
Sometimes shit just keeps being true.
Russia should just reannex Belarus and get it over with.
Quote from: jimmy olsen on September 02, 2011, 11:30:27 AM
Russia should just reannex Belarus and get it over with.
I wonder if they will do so openly if it looks like Lukashenko will be toppled.
Quote from: MadImmortalMan on September 02, 2011, 11:25:57 AM
Quote
"Very few of us realise with conviction the intensely unusual,unstable, complicated, unreliable, temporary nature of theeconomic organisation by which Western Europe has lived for the last half century. We assume some of the most peculiar and temporary of our late advantages as natural, permanent, and to be depended on, and we lay our plans accordingly. On this sandy and false foundation we scheme for social improvement and dress our political platforms, pursue our animosities and particular ambitions, and feel ourselves with enough margin in hand to foster, not assuage, civil conflict in the European family."
John M. Keynes
Sometimes shit just keeps being true.
Damn, that's from 1920, no? I think I'll use that as my new signature on Paradox.
Hehe, I just found that the next sentence of Keynes is: "Moved by insane delusion and reckless self-regard, the German people overturned the foundations on which we all lived and built."
That's fitting some perceptions of the current situation too. :D
From the Financial Times:
QuoteSeptember 5, 2011 10:06 pm
Hang on to your purse, Ms Merkel
By Gideon Rachman
"When she walks into the room, everybody falls silent. It's like the headmistress coming in." That, according to one senior politician, is the impact that Angela Merkel has when she enters the regular gatherings of conservative leaders from across Europe.
The chill spread by the German chancellor is easy to understand. Her colleagues know that the fate of the euro – and the European Union as a whole – now depends on decisions made by the German government. Many criticise Ms Merkel for lacking imagination, warmth and generosity – for being too slow and too cautious. The chancellor is even under attack from pro-Europeans back home. Helmut Kohl, her mentor and the man who took Germany into the euro, complained recently that he had no sense of "where Germany stands today, and where it is heading".
The general tenor of all this criticism is clear. Why won't Ms Merkel live up to her promise to do "whatever it takes" to save the euro? Why won't she finally get ahead of the crisis, by committing all of Germany's financial might to the project? Why can she not see that eurobonds – a pooling of credit risk across the EU – are the answer? Europe needs a leader and instead it has got a hausfrau.
But rather than lambasting the chancellor, the rest of Europe should be grateful that they have a calm and cautious leader in Berlin. It was bold visionaries such as Mr Kohl who created the euro in the first place – leaving future generations to sort out the subsequent mess.
There are (at least) five reasons why Ms Merkel is absolutely right to balk at some of the more dramatic courses of action that are being urged upon her.
First, the chancellor's critics often fail to acknowledge the real political and legal constraints that she is operating under. Tomorrow, the German constitutional court will rule on the legality of the proposals to increase the fund for bailing out debt-ridden members of the eurozone. Later this month, the German parliament will vote on the issue. It would be both arrogant and foolish for Ms Merkel to assume that she can simply win all these battles, when both German public opinion and many influential voices within the country are deeply opposed to further bail-outs. Similarly, any proposal to create eurobonds would require new EU treaties, which would be very hard to get ratified in Germany – let alone the rest of the eurozone. Those who are calling for ever bolder German actions, regardless of the legal and political difficulties, seem to have little respect for the country's democracy.
Second, saying that the German chancellor should do "whatever it takes" to save the euro, assumes that we know what it would take. Eurobonds are the latest panacea, recommended by many of the same people who assured us years ago that the euro would be a secure currency. Ms Merkel has no real idea whether they would work. But we do know that expanding the bail-out fund (as will almost certainly happen), or creating eurobonds, would mean piling more and more potential costs and liabilities on to the German taxpayer.
Third, it is not simply vulgar, tabloid prejudice to believe that if more money is funnelled to southern Europe, much of it will be wasted. In countries such as Greece and Italy, basic functions of the state – such as tax collection and the awarding of public contracts – are frequently corrupt. In the past, EU money has actually fostered corruption.
Fourth, the idea that Germany can automatically save the euro – if it summons the will and generosity – is based on an unjustified assumption of unlimited German economic strength. Take a look at the debt ratios across the EU, and you might notice that German debt at more than 83 per cent of gross domestic product is higher than that of France, Spain or Britain. At present, the markets have confidence in Germany. But that happy state of affairs cannot be counted on forever. Growth is slowing and the country's ageing population points to rising costs in the future. If Germany underwrites too much EU debt, the markets could easily change their view of the country.
Fifth, it is often said Ms Merkel fails to realise that saving the euro is profoundly in Germany's own interests. On one level, this is a truism. Of course a stable and prosperous Europe is in German interests. The question is whether the remedies being pressed on Ms Merkel would actually achieve this end, or simply create a worse crisis further down the road.
A slightly more sophisticated version of this argument holds that the German economy would suffer hugely if the euro broke up, because many German banks would go bankrupt or its currency would soar in value, making German exports uncompetitive. The banking problem is a real one. But it is possible that a one-off recapitalisation of German banks would be rather less costly than an open-ended commitment to the whole of southern Europe. The argument that German industry could not cope with a stronger currency also ignores the history of the postwar German economic miracle – which took place despite a steadily rising D-Mark.
The German chancellor clearly wants to support the single currency and the EU. Her good intentions cannot be doubted. But she would be foolish to endanger Germany's own economic and political stability, by endorsing whatever desperate plan is proposed to "save" the euro.
How anyone can think the Eurobond is a good idea is beyond me. What happens when Greece, Italy and Spain outstrip Germany's ability to repay?
You think bundling subprime loans and giving them an AAA rating could go wrong somehow? :P
Quote from: Zanza on September 06, 2011, 07:49:39 AM
You think bundling subprime loans and giving them an AAA rating could go wrong somehow? :P
The entire concept of subprime loans is wrong. If you've committed credit sins or are poor, then you should not have access to credit.
Quote from: Neil on September 06, 2011, 07:40:51 AM
How anyone can think the Eurobond is a good idea is beyond me. What happens when Greece, Italy and Spain outstrip Germany's ability to repay?
The same question can be posed in the absence of Eurobonds.
Quote from: Razgovory on August 30, 2011, 04:46:17 PMAre they? The Soviets were not honest about their rate of growth. It would surprise me if the Chinese didn't fudge their numbers a bit. Most Westerners who have visited China know it for it's affluent coastal areas. Few visit the slums or the poorer places in the inlands. That's how things like slave labor in brick factories or lead in children's toys, go unnoticed.
I'm not sure why you think it matters which parts of China Westerners have visited. The poverty and the corruption are no secrets to anyone, though of course local officials try to put a nice facade on it whenever they could be held responsible.
The fact that you, who've never been to China (in the affluent coastal areas or anywhere else) and who's not (I believe) any sort of expert on China or economics, can list the fundamental problems and challenges the Chinese are facing is a pretty good indication that those issues are well known.
QuoteObviously China is growing, but as government owned business are still a cornerstone of the economy there is significant opacity. And government officials a strong incentive to be dishonest.
No disagreement there at all. There's plenty of opacity, most of which comes down to fairly venal corruption, but the nature and distribution of the opacity is pretty well understood I think... even by some within the party. Zhu Rongji (the previous premier) said that for China to survive the corruption and cronyism must be rooted out, but if corruption and cronyism is rooted out, that would be the end of the Communist party.
I don't know if I can spot the fundamental problems with China. I'm not the big anti-China guy on this board. I just don't trust dictatorships that much. Dictatorships are more opaque then democracies, and as such one must be a more skeptical of information that comes out of a dictatorship then a democracy. If I'm not mistaken there are still closed areas in China, correct? For the same reason I'm skeptical of growth in Russia right now. Actually more skeptical of numbers coming out of Russia then I am China.
Quote from: Razgovory on September 06, 2011, 11:30:11 AM
I don't know if I can spot the fundamental problems with China. I'm not the big anti-China guy on this board. I just don't trust dictatorships that much. Dictatorships are more opaque then democracies, and as such one must be a more skeptical of information that comes out of a dictatorship then a democracy. If I'm not mistaken there are still closed areas in China, correct? For the same reason I'm skeptical of growth in Russia right now. Actually more skeptical of numbers coming out of Russia then I am China.
Russia had their natural resources. Yet every video from there looks like the camera is set to 'sad'*
* Yes, stole that joke.
Quote from: Razgovory on September 06, 2011, 11:30:11 AM
I don't know if I can spot the fundamental problems with China. I'm not the big anti-China guy on this board. I just don't trust dictatorships that much. Dictatorships are more opaque then democracies, and as such one must be a more skeptical of information that comes out of a dictatorship then a democracy. If I'm not mistaken there are still closed areas in China, correct? For the same reason I'm skeptical of growth in Russia right now. Actually more skeptical of numbers coming out of Russia then I am China.
I wouldn't be skeptical of Russian numbers. The last decade was a good decade to be in the commodity business.
The next one will be too.
Quote from: DGuller on September 06, 2011, 12:13:48 PM
Quote from: Razgovory on September 06, 2011, 11:30:11 AM
I don't know if I can spot the fundamental problems with China. I'm not the big anti-China guy on this board. I just don't trust dictatorships that much. Dictatorships are more opaque then democracies, and as such one must be a more skeptical of information that comes out of a dictatorship then a democracy. If I'm not mistaken there are still closed areas in China, correct? For the same reason I'm skeptical of growth in Russia right now. Actually more skeptical of numbers coming out of Russia then I am China.
I wouldn't be skeptical of Russian numbers. The last decade was a good decade to be in the commodity business.
I didn't say the Russian economy isn't growing, I'm suggesting the Russians fudge the numbers sometimes. They have a habit of doing that.
Europeans finally united:
http://blogs.reuters.com/felix-salmon/2011/09/16/the-euro-zone-shuns-geithner/
...in hating Tim Geithner.
Now that's hard core.
http://www.huffingtonpost.com/2011/09/16/greece-man-fire-debt_n_966956.html#s364171&title=Greece_Financial_Crisis
QuoteGreece: Man In Debt Sets Himself On Fire (PHOTOS)
First Posted: 9/16/11 05:40 PM ET Updated: 9/16/11 05:53 PM ET
Associated Press
THESSALONIKI, Greece -- Greek authorities say a 55-year-old man has been hospitalized with chest burns after dousing himself with gasoline and then setting his clothes on fire. The man shouted that he was in debt as he carried out the act.
Police said the incident occurred Friday in Thessaloniki, in northern Greece, in front of a bank. Police used fire extinguishers to put out the blaze.
The injured man was not identified, but police say he had also set himself on fire and suffered burns 15 months ago, after complaining he could not pay back the debts from his failed business.
Debt-plagued Greece is in its third year of recession, and is surviving on international rescue loans. Drastic cost-cutting measures have caused a rash of business failures and record unemployment.
WARNING: GRAPHIC CONTENT BELOW. Photos may be disturbing to some.
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Quote from: MadImmortalMan on September 19, 2011, 02:32:02 AM
Europeans finally united:
http://blogs.reuters.com/felix-salmon/2011/09/16/the-euro-zone-shuns-geithner/
...in hating Tim Geithner.
I don't think they hate Tim Geithner personally. They just feel that no American has any business telling Europeans how to handle economic problems, given that the US is now in an unrecoverable death spiral.
QuoteTim Geithner has experience flying around the world to address finance ministers and instructing them on how to solve their problems. He was a senior executive at the IMF from 2011 to 2003, after all — a period which coincided with major sovereign crises in South America.
:hmm: That guy must have a really fast plane.
Oh what now...Italy?
Jesus fuck I'm exhausted. Can you people just get this shit over with already?
I assume you guys already heard that 2 Frenchican banks got downgraded.
:rolleyes: Isn't it time to mandate AAA rating for every financial institution? I think we've seen plenty of evidence by now of how damaging downgrades can be.
Quote from: MadImmortalMan on September 19, 2011, 06:06:23 PM
Oh what now...Italy?
Jesus fuck I'm exhausted. Can you people just get this shit over with already?
I'm not even going to bother tomorrow. I'll just enjoy Cramer frothing at 9am, lust after the Korean chick and turn that shit off at 10am.
Let's just downgrade everyone to junk right now. At least it would be done.
Edit: Or maybe we can detonate an EMP bomb over Europe to create a news blackout there for a year or so.
Quote from: MadImmortalMan on September 19, 2011, 06:18:55 PM
Let's just downgrade everyone to junk right now. At least it would be done.
Edit: Or maybe we can detonate an EMP bomb over Europe to create a news blackout there for a year or so.
Or we just buy gold and short the euro.
Quote from: MadImmortalMan on September 19, 2011, 06:18:55 PM
Edit: Or maybe we can detonate an EMP bomb over Europe to create a news blackout there for a year or so.
Now, you are gonna give Zoups the queasies talking like that.
So, is this the end of the Euro?
http://bottomline.msnbc.msn.com/_news/2011/09/19/7841018-europe-braces-for-impact-of-greek-default
I don't see why.
Quote from: Admiral Yi on September 19, 2011, 06:47:42 PM
I don't see why.
Greece defaults, dominos fall and take out the other nations teetering on the brink.
Quote from: jimmy olsen on September 19, 2011, 06:53:25 PM
Greece defaults, dominos fall and take out the other nations teetering on the brink.
Go on.
Never have been keen on theories based on dominoes.
I can see a domino effect happening in the PIIGS, I just don't see how you get from serial default to the end of the Euro.
One advantage of an independent currency that's often mentioned for highly indebted currency is the ability to inflate yourself out of indebtedness. But if you default, you have no indebtedness to inflate away.
It's theoretically possible that some countries will view the ECB's German style tight money policies as not appropriate for their domestic situations and choose to leave, but that's a seperate issue than defaulting.
And even if some countries were to exit the Euro, there would be probably still be a number that saw it as advantageous to remain.
I don't think a Greek default would have that big an impact as to collapse the Euro. A Greek (and possibly an Irish) default are known unknowns and I think expected. From what I can tell the City have been saying it's inevitable for a very long time.
Read in the FT that Italy got downgraded too. From A+ to A IIRC.
Things finally starting to look up - had a great day in the market today. Huge ramp into the close. So guess what?
http://www.businessinsider.com/moodys-downgrades-italy-by-3-notches-2011-10
If you guessed "Europe pops up to ruin everything once again", you win.
Quote from: MadImmortalMan on October 04, 2011, 03:43:28 PM
Things finally starting to look up - had a great day in the market today. Huge ramp into the close. So guess what?
http://www.businessinsider.com/moodys-downgrades-italy-by-3-notches-2011-10
If you guessed "Europe pops up to ruin everything once again", you win.
Guess Moody didn't like Amanda Knox.
Quote from: Razgovory on October 04, 2011, 03:45:08 PM
Quote from: MadImmortalMan on October 04, 2011, 03:43:28 PM
Things finally starting to look up - had a great day in the market today. Huge ramp into the close. So guess what?
http://www.businessinsider.com/moodys-downgrades-italy-by-3-notches-2011-10
If you guessed "Europe pops up to ruin everything once again", you win.
Guess Moody didn't like Amanda Knox.
Google News certainly can't tell the two "Italy" stories apart and groups them together. :huh:
Quote from: MadImmortalMan on October 04, 2011, 03:43:28 PM
Things finally starting to look up - had a great day in the market today. Huge ramp into the close. So guess what?
http://www.businessinsider.com/moodys-downgrades-italy-by-3-notches-2011-10
If you guessed "Europe pops up to ruin everything once again", you win.
I think they also downgraded seven Hungarian banks :bleeding:
From 'Beet+' to 'Beet-'.
Quote from: Ed Anger on October 04, 2011, 04:47:30 PM
From 'Beet+' to 'Beet-'.
:bleeding: :bleeding: :bleeding:
Quote from: DGuller on September 19, 2011, 08:33:53 AM
QuoteTim Geithner has experience flying around the world to address finance ministers and instructing them on how to solve their problems. He was a senior executive at the IMF from 2011 to 2003, after all — a period which coincided with major sovereign crises in South America.
:hmm: That guy must have a really fast plane.
:lol:
Spain was downgraded today.
http://www.reuters.com/article/2011/10/19/eurozone-idUSL3E7LJ09P20111019
at least when europe goes, everyone goes.
We'll take all of you fuckers with us. :shifty:
Just read in the FT that Euronegotiators are asking holders of Greek bonds to accept 40 cents on the dollar.
They haven't actually reached an agreement on that. This is just going on and on and on and on. Trying to follow it is downright painful. Headlines are like: agreement reached on summit meeting, summit delayed, agreement reached to meet again, meeting adjourned with consensus to discuss possible options, framework agreed to recapitalize X-details to follow, finance ministers agree to meeting to discuss details of X, meeting delayed, meeting rescheduled but this time heads of state will be there...
Blah blah blah. Isn't anyone noticing that nothing is actually happening? In the meantime all this bullshit is pumping and dumping the markets and destroying vast quantities of wealth. It's been two years. Come on already.
Well, the bondholder committee was asking for 60 cents in the article so they're on the same page.
Quote from: Admiral Yi on October 25, 2011, 02:48:47 PM
Well, the bondholder committee was asking for 60 cents in the article so they're on the same page.
More like they're on the same chapter. Chapter 11, to be exact.
:weep:
Quote from: Iormlund on October 19, 2011, 01:23:40 PM
We'll take all of you fuckers with us. :shifty:
Heh, indeed you will!
Quote from: Admiral Yi on October 25, 2011, 02:34:18 PM
Just read in the FT that Euronegotiators are asking holders of Greek bonds to accept 40 cents on the dollar.
That's what's being talked about, but it looks like there's no deal - remember many Euro-states still haven't passed the July deal. I think a lot's based on the Troika's report here:
http://www.telegraph.co.uk/finance/financialcrisis/8843031/Troika-report-on-Greek-debt-full-text.html
We need to just lock these assholes in a room and tell them they aren't getting out and they aren't getting fed until they find a comprehensive solution and agree to it.
Quote from: Sheilbh on October 25, 2011, 05:22:25 PM
That's what's being talked about, but it looks like there's no deal - remember many Euro-states still haven't passed the July deal. I think a lot's based on the Troika's report here:
http://www.telegraph.co.uk/finance/financialcrisis/8843031/Troika-report-on-Greek-debt-full-text.html
Of course there's no deal. There won't be until the bondholder committee agrees.
Quote from: Admiral Yi on October 25, 2011, 05:38:02 PMOf course there's no deal. There won't be until the bondholder committee agrees.
I mean more widely that the Eurosummit on Wednesday's been cancelled and the EFSF may not be sufficiently capitalised. Rumours are that Berlusconi's still not delivered a credible plan (I read the government's on the edge of collapse over pension reform - the Northern League won't even consider it) and Merkel's having to be quite hard due to some Bundestag votes.
Edit: Also just read the IMF may be considering putting money into the EFSF.
Bossi's agreed to pensions reform, liberalisation and a bureaucracy cull, in exchange Berlusconi's going to step down in January and bring forward elections to early 2012 (I think that's when it was assumed they'd take place anyway). So Italy may not get laughed out the room by France and Germany this time.
Edit:
Not so serious after all, from the Guardian's man in Rome:
QuoteThis is going to be a day of fevered rumours, so perhaps we can start by sorting out the wheat from the chaff in the story of Berlusconi's reported pledge to resign.
All the Italian newspapers today are reporting that he and his chief ally, Umberto Bossi of the Northern League, cut a deal last night to increase the age at which Italians qualify for an old age pension to 67 – but only in 2026. The education minister, Mariastella Gelmini told a TV interviewer the idea was to raise the age "for men and women in the public sector and the private, gradually increasing the pensionable age from 2012 to 2025".
That only represents a modification of existing plans, and according to most reports this morning, it is the sole firm pledge contained in a long (14- or 15-page) letter that Berlusconi will take to Brussels to set before his fellow-European leaders. No one thinks they will be much impressed.
The key point is that Bossi has successfully blocked Berlusconi's plan to abolish Italy's separate time-in-work pensions, which allow some people in Italy to retire unusually early.
The opposition La Repubblica alone reports that, in order to get this minimal concession from his ally, the prime minister entered a "secret pact" to stand down in January, opening the way for elections in March. But this has been the expectation in Italy for months now, and the paper's story has prompted little interest here.
La Repubblica, by the way, is not making much of its scoop on its website. The link to the story is seven lines below the picture of Bossi where it says "Alle urne a marzo".
Quote from: MadImmortalMan on October 25, 2011, 05:29:07 PM
We need to just lock these assholes in a room and tell them they aren't getting out and they aren't getting fed until they find a comprehensive solution and agree to it.
That asssumes there is a comprehensive solution...
Bond auction today. US debt just hit 99.99% of GDP.
Quote from: MadImmortalMan on October 26, 2011, 12:26:07 PM
Bond auction today. US debt just hit 99.99% of GDP.
:yawn: Wake me up when it hits triple digits.
I hate early meetings.
Here we go with the "China will save us" BS we've heard a hundred times before. Markets spiking. My god I'm so sick of this. Please make it stop.
Quote from: MadImmortalMan on October 26, 2011, 12:57:01 PM
Here we go with the "China will save us" BS we've heard a hundred times before. Markets spiking. My god I'm so sick of this. Please make it stop.
I don't know what the ""China will save us" BS" is that you have heard, but you can count on high market volatility for the next year or two. If that bothers you, stop paying attention. It sucks, but there we are.
Banks are going to accept 50% losses.
http://www.msnbc.msn.com/id/45055736/ns/business-world_business/#.TqlwmHJ9ZFE
Quote'Huge relief': Banks agree to take big loss on Greek debt
'These are exceptional measures for exceptional times. Europe must never find itself in this situation again,' official says
msnbc.com news services
updated 10/26/2011 11:14:01 PM ET
BRUSSELS — European leaders clinched a deal Thursday they hope will mark a turning point in their two-year debt crisis, agreeing after a night of tense negotiations to have banks take bigger losses on Greece's debts and to boost the region's weapons against the market turmoil.
After months of dawdling and half-baked solutions, the leaders had been under immense pressure to finalize their plan to prevent the crisis from pushing Europe and much of the developed world back into recession and to protect their currency union from unraveling.
World stock markets surged higher Thursday on the news. Oil prices rose above $92 per barrel while the euro gained strongly — a signal investors were relieved at the outcome of the contentious negotiations.
"We have reached an agreement, which I believe lets us give a credible and ambitious and overall response to the Greek crisis," French President Nicolas Sarkozy told reporters after the meeting ended early Thursday. "Because of the complexity of the issues at stake, it took us a full night. But the results will be a source of huge relief worldwide."
The strategy unveiled after 10 hours of negotiations focused on three key points. These included a significant reduction in Greece's debts, a shoring up of the continent's banks, partially so they could sustain deeper losses on Greek bonds, and a reinforcement of a European bailout fund so it can serve as a €1 trillion ($1.39 trillion) firewall to prevent larger economies like Italy and Spain from being dragged into the crisis.
After several missed opportunities, hashing out a plan was a success for the 17-nation eurozone, but the strategy's effectiveness will depend on the details, which will have to be finalized in the coming days and weeks.
"These are exceptional measures for exceptional times. Europe must never find itself in this situation again," European Commission President Jose Manuel Barroso said after the meetings.
Japan and Canada welcomed the euro zone agreement. China's official Xinhua news agency said the outcome was "positive but filled with difficulties."
The most difficult piece of the puzzle proved to be Greece, whose debts the leaders vowed to bring down to 120 percent of its GDP by 2020. Under current conditions, they would have ballooned to 180 percent.
To achieve that massive reduction, private creditors like banks will be asked to accept 50 percent losses on the bonds they hold. The Institute of International Finance, which has been negotiating on behalf of the banks, said it was committed to working out an agreement based on that "haircut," but the challenge now will be to ensure that all private bondholders fall in line.
It said the 50 percent cut equals a contribution of €100 billion ($139 billion) to a second rescue for Greece, although the eurozone promised to spend some €30 billion ($42 billion) on guaranteeing the remaining value of the new bonds.
The full program is expected to be finalized by early December and investors are supposed to swap their bonds in January, at which point Greece is likely to become the first euro country ever to be rated at default on its debt.
"We can claim that a new day has come for Greece, and not only for Greece but also for Europe," said Greek Prime Minister George Papandreou, whose country's troubles touched off the crisis two years ago. "Let's hope the worst is over."
Since May 2010, Greece has been surviving on rescue loans worth €110 billion ($150 billion) from the 17 countries that use the euro and the International Monetary Fund since it can't afford to borrow money directly from markets.
In July, those creditors agreed to extend another €109 billion — but that plan was widely panned as insufficient.
Now, in addition to €30 billion in bond guarantees, the eurozone leaders and IMF said they will give Greece €100 billion ($139 billion) in new loans.
With the banks being asked to shoulder more of the burden, though, there were concerns they needed more money in their rainy-day funds to cushion their losses. So European leaders have asked them to raise €106 billion ($148 billion) by June.
"While the headlines look good, the devil is in the details," said Damien Boey, equity strategist at Credit Suisse in Sydney.
Protecting the weak
The last piece in the complicated plan was to increase the firepower of the continent's bailout fund to ensure that other countries with troubled economies — like Italy and Spain — don't get dragged into the crisis. The third- and fourth-largest economies of the eurozone are too large to be bailed out like the smaller euro nations Greece, Portugal and Ireland have already been.
To that end, the €440 billion ($610 billion) European Financial Stability Facility will be used to insure part of the potential losses on the debt of wobbly eurozone countries like Italy and Spain, rendering its firepower equivalent to around €1 trillion ($1.39 trillion).
With the banks being asked to shoulder more of the burden, though, there were concerns they needed more money in their rainy-day funds to cushion their losses. So European leaders have asked them to raise €106 billion ($148 billion) by June.
The last piece in the complicated plan was to increase the firepower of the continent's bailout fund to ensure that other countries with troubled economies — like Italy and Spain — don't get dragged into the crisis. The third- and fourth-largest economies of the eurozone are too large to be bailed out like the smaller euro nations Greece, Portugal and Ireland have already been.
To that end, the €440 billion ($610 billion) European Financial Stability Facility (EFSF) will be used to insure part of the potential losses on the debt of wobbly eurozone countries like Italy and Spain, rendering its firepower equivalent to around €1 trillion ($1.39 trillion).
That should make those countries' bonds more attractive investments and thus lower borrowing costs for their governments.
In addition to acting as a direct insurer of bond issues, the EFSF insurance scheme is also supposed to entice big institutional investors to contribute to a special fund that could be used to buy government bonds but also to help states recapitalize weak banks.
Such outside help may be necessary for Italy and Spain, whose banks were facing some of the biggest capital shortfalls.
Using the insurance promise, the eurozone also hopes to attract big institutional investors from outside the eurozone, such as sovereign wealth funds, to contribute to a separate fund that would back up the EFSF.
Wahoo! We all lost billions!
Just read an interesting commentary:
It was a good thing that the EU took so long. Why? Because no one was surprised by the Greek partial default anymore and thus there was no chaos in financial markets - quite the opposite, there was relief that it was finally spelled out in the open. If they had immediately cut the debt by 50% in early 2010, when all of this started, the financial markets would probably have been in turmoil like after the Lehman crash. But give them one and a half years to prepare and no one panics.
Quote from: Valmy on October 27, 2011, 10:23:59 AM
Wahoo! We all lost billions!
Valmy, you are just pretending to be French. You have to remind yourself you are not actually French.
Quote from: crazy canuck on October 27, 2011, 11:10:16 AM
You have to remind yourself you are not actually French.
Why would I do such a horrible thing? I do not get how finding the response to the deal funny makes me more French but I appreciate the sentiment. :hug:
Quote from: Valmy on October 27, 2011, 11:13:35 AM
Quote from: crazy canuck on October 27, 2011, 11:10:16 AM
You have to remind yourself you are not actually French.
Why would I do such a horrible thing? I do not get how finding the response to the deal funny makes me more French but I appreciate the sentiment. :hug:
I was confused by your comment "We all lost Billions" At first I thought you meant We as in we Europeans since the article is about a European funded bail out.
Now it appears you meant We as in non Europeans but I am happy to point out that We Canadians did not lose Billions because We Canadians have sane regulation. :P
Quote from: crazy canuck on October 27, 2011, 11:17:28 AM
I was confused by your comment "We all lost Billions" At first I thought you meant We as in we Europeans since the article is about a European funded bail out.
Now it appears you meant We as in non Europeans but I am happy to point out that We Canadians did not lose Billions because We Canadians have sane regulation. :P
I meant neither of those things. I was making a joke about the reaction. Clearly I should have quoted the relevent parts of the article.
Quote from: crazy canuck on October 27, 2011, 11:17:28 AMI was confused by your comment "We all lost Billions" At first I thought you meant We as in we Europeans since the article is about a European funded bail out.
Now it appears you meant We as in non Europeans but I am happy to point out that We Canadians did not lose Billions because We Canadians have sane regulation. :P
Greece will get Canadian taxdollar's via the IMF. :P
Quote from: Zanza on October 27, 2011, 11:26:43 AM
Greece will get Canadian taxdollar's via the IMF. :P
Where is your sanity now?
Well the deal is fine and indeed the half-default actually caused happiness rather than panic.
That said: the whole thing is about letting Greece have a Horrendously And Crippingly Huge deficit instead of an Unrepayable And Cripplingly Huge deficit, and color me unconvinced about the long term political resolve in a country where people burn their capital because public sector benefits come down from heaven and decrease to well-off-rich-country standards.
Plus the solution, as I see, is to have the strong countries create a fund from which they will give more loans to countries when they can't repay the previous loans they gave them. I know there is no better way for it sans hitting the reset button on the world's financial system, but the whole deal still clings on Europe-wide fiscal conservatism and discipline for years to come.
Quote from: Zanza on October 27, 2011, 11:26:43 AM
Quote from: crazy canuck on October 27, 2011, 11:17:28 AMI was confused by your comment "We all lost Billions" At first I thought you meant We as in we Europeans since the article is about a European funded bail out.
Now it appears you meant We as in non Europeans but I am happy to point out that We Canadians did not lose Billions because We Canadians have sane regulation. :P
Greece will get Canadian taxdollar's via the IMF. :P
Not bloody likely.
Not bloody likely? Really?
The IMF has directly loaned Greece 30 billion Euro and has pledged another 250 billion Euro to the EFSF. To allow it to do the latter, Canada has borrowed the IMF 10 billion US dollar in 2010. As far as the general funds of the IMF go, Canada has a quota of 2.68% on the SDRs, so as far as I understand the IMF mechanisms, Canada would be exposed with another about 800 million Euro from the first loan. Unless the IMF gets all its money back from Greece - which I would call "not bloody likely" - and the other broke Euro countries like Portugal and Ireland that got IMF money - not bloody likely either, Canada will eventually lose money on this. And probably a 10 digit figure.
Canada hasnt borrowed anything. :P
Meh. That's a false friend. The German word for lend sounds like borrow, that's why I confuse it sometimes.
Quote from: Zanza on October 27, 2011, 12:41:58 PM
Meh. That's a false friend. The German word for lend sounds like borrow, that's why I confuse it sometimes.
There is a joke in there about why the Euros are in so much trouble atm.
Quote from: Zanza on October 27, 2011, 11:08:30 AM
Just read an interesting commentary:
It was a good thing that the EU took so long. Why? Because no one was surprised by the Greek partial default anymore and thus there was no chaos in financial markets - quite the opposite, there was relief that it was finally spelled out in the open. If they had immediately cut the debt by 50% in early 2010, when all of this started, the financial markets would probably have been in turmoil like after the Lehman crash. But give them one and a half years to prepare and no one panics.
Don't know what market that guy's looking at. I've seen nothing but chaos out there for the past couple months. It's been jackknifing back and forth on every unsubstantiated rumor coming out of the EU.
Quote from: MadImmortalMan on October 27, 2011, 12:55:20 PMDon't know what market that guy's looking at. I've seen nothing but chaos out there for the past couple months. It's been jackknifing back and forth on every unsubstantiated rumor coming out of the EU.
What do think would have happened if the EU/Greece had announced a 50% haircut on Greek debt in March or April 2010 when all of this started? That was his comparison.
Quote from: Valmy on October 27, 2011, 10:23:59 AM
Wahoo! We all lost billions!
But only half the billions that would have been lost, at least for now.
Of course, it will all happen again in the near future. Europe is finished.
Quote from: Zanza on October 27, 2011, 11:26:43 AM
Greece will get Canadian taxdollar's via the IMF. :P
The IMF's finances are terribly complicated and the only person who fully understands them is Palmerston, but generally speaking the IMF's power to lend comes from member central banks, not treasuries, so it's not a charge on tax money.
What happens if the Bank of Canada's balance sheet takes a hit? Do they just print money to fill the gap or does the government inject new capital? The latter is how it is done here, which would eventually make the tax payer liable again...
Quote from: Admiral Yi on October 27, 2011, 04:25:05 PM
Quote from: Zanza on October 27, 2011, 11:26:43 AM
Greece will get Canadian taxdollar's via the IMF. :P
The IMF's finances are terribly complicated and the only person who fully understands them is Palmerston, but generally speaking the IMF's power to lend comes from member central banks, not treasuries, so it's not a charge on tax money.
But Palmerston is now long dead, just like Prince Albert and even the insane German professor must have passed away long ago :(
Quote from: Zanza on October 27, 2011, 05:25:36 PM
What happens if the Bank of Canada's balance sheet takes a hit? Do they just print money to fill the gap or does the government inject new capital? The latter is how it is done here, which would eventually make the tax payer liable again...
First of all I don't think central banks that issue fiat currency ever have to worry about their balance sheets and never need recapitalization.
Second it's longstanding IMF policy not to forgive or write off loans. Greece has defaulted but the full dollar amount of the IMF loan will stay on their books.
There have been exceptions for Highly Indedted Poor Countries (HIPC) like Mozambique but I think we're talking chump change.
Quote from: Zanza on October 27, 2011, 12:41:58 PM
Meh. That's a false friend. The German word for lend sounds like borrow, that's why I confuse it sometimes.
In northern English they're still interchangable.
Quote from: Zanza on October 27, 2011, 05:25:36 PM
What happens if the Bank of Canada's balance sheet takes a hit? Do they just print money to fill the gap or does the government inject new capital? The latter is how it is done here, which would eventually make the tax payer liable again...
What do you mean by "takes a hit"? How does the Bank of Canada ever take such a hit?
Bwahahahaha! (http://"http://www.guardian.co.uk/world/2011/nov/02/financial-crisis-berlusconi-love-song?newsfeed=true")
Quote
Financial crisis forces Berlusconi to delay release of latest love song CD
Rolling economic storm clouds scupper the publishing date of the Italian prime minister's "True Love" album
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fstatic.guim.co.uk%2Fsys-images%2FAdmin%2FBkFill%2FDefault_image_group%2F2011%2F11%2F2%2F1320247483423%2FITALY-BERLUSCONI-SONG-007.jpg&hash=100ca4501759e528d403ff39f5910e4997166d99)
The global financial crisis may have brought the eurozone to the verge of collapse, set stock markets tumbling around the world and pushed Greece to the brink of bankruptcy.
But these rolling economic stormclouds may contain a tiny silver lining: the downturn has reportedly prompted Silvio Berlusconi to delay the release of his latest CD of sentimental love songs.
Entitled True Love, the album – with words by the Italian prime minister and music by his long time guitarist partner Mariano Apicella – had been due for release in September, with a huge launch party planned in Milan.
But as he struggles to tackle Italy's massive public debt, hold together his crumbling coalition and defend himself in three trials, Berlusconi has been forced to push the release date back, according to the Italian daily La Stampa.
A former cruise ship crooner, Berlusconi teamed up on three previous albums with Apicella, who once worked as a Naples parking attendant before he was spotted playing guitar and invited by the prime minister to his luxury retreat in Sardinia to compose love songs.
Apicella and Berlusconi have since performed together at the Sardinian villa for guests including Tony and Cherie Blair, Vladimir Putin and George W Bush.
Apicella previously said the new album was ready in October 2010. On Wednesday Italian online music retailers were listing the latest release date as November 22. A spokesman for the prime minister declined to comment on the CD.
Angelo Valsiglio, another musician who has worked on arrangements, told an Italian music magazine Viva Verdi the album was a "really elegant and refined production with Brazilian hints". Touches of Neapolitan dialect are mixed into the lyrics and one track is inspired by Greek folk music, he added.
Berlusconi, who is currently on trial for paying for sex with an alleged underage prostitute, and has reportedly held "bunga bunga" parties for scores of young women at his villa outside Milan, has made no secret of his love of female company.
A sneak preview in La Stampa of one song, titled Music, reveals Berlusconi's lyrical style has lost none of its trademark passion.
"Listen to these songs, they are for you," it begins, "listen to them when you have a thirst for caresses, sing them when you are hungry for tenderness."
Quote from: Tyr on October 27, 2011, 07:17:57 PM
Quote from: Zanza on October 27, 2011, 12:41:58 PM
Meh. That's a false friend. The German word for lend sounds like borrow, that's why I confuse it sometimes.
In northern English they're still interchangable.
And often in southern American as well. Convergent evolution?
Quote from: Ideologue on November 02, 2011, 11:59:35 AM
Quote from: Tyr on October 27, 2011, 07:17:57 PM
Quote from: Zanza on October 27, 2011, 12:41:58 PM
Meh. That's a false friend. The German word for lend sounds like borrow, that's why I confuse it sometimes.
In northern English they're still interchangable.
And often in southern American as well. Convergent evolution?
Scum is scum.
Quote from: Ideologue on November 02, 2011, 11:59:35 AM
Quote from: Tyr on October 27, 2011, 07:17:57 PM
Quote from: Zanza on October 27, 2011, 12:41:58 PM
Meh. That's a false friend. The German word for lend sounds like borrow, that's why I confuse it sometimes.
In northern English they're still interchangable.
And often in southern American as well. Convergent evolution?
Probably retention of an old way of speaking by both groups.
Isle of Man and Guernsey have been downgraded! Sterling-periphery's looking shaky :o
Et tu Belgium?
Quote
BRUSSELS (AP) — Standard & Poor's downgraded Belgium's financial standing Friday, citing the country's government stalemate and a looming European recession.
Spurred on by the ratings agency's cut, six leading parties hurriedly resumed talks to agree on a 2012 budget to contain Belgium's high debt and deficit, two more reasons why the country has come under increasing pressure from financial markets this week.
In a sign that financial contagion is spreading across Europe, the agency cut Belgium's credit rating from AA+ to AA, a move coming two days after Germany fared surprisingly poorly at a bond auction.
Belgium has been without a permanent government for 530 days, as a series of negotiators has struggled without success to bridge the country's divide between its French and Dutch speakers.
"In our opinion, protracted political uncertainty remains a risk to its creditworthiness," the ratings agency said.
Caretaker Prime Minister Yves Leterme said "we really need strong signals now" from the six political parties trying to resolve the 2012 budget. He said the six parties needed a deal "tonight, the coming days — but preferably before we hit the market again" Monday.
After negotiators reached a constitutional deal two month ago giving regions more autonomy, talks are now stuck over how much austerity measures and increased taxes should be part of an euro11 billion ($14.8 billion) package to keep spending within limits.
"Now the time has really come for parties to take up their responsibility and form a government with full powers," Leterme said.
In a statement, Standard & Poor's said Leterme's caretaker government "lacks a mandate to implement deeper fiscal and structural reforms."
The country's yields on long-term bonds are closing in on 6 percent — getting closer to the 7 percent financial danger zone that has pushed other European nations into international bailouts.
"If we have to go to the markets next week to refinance our debt, the downgrading could make sure that we have to pay an even higher price," Leterme said on VTM network.
Leterme aims to get the budget deficit down to 2.8 percent of gross domestic product in 2012, but the European Union is far from convinced, forecasting a wider shortfall of 4.6 percent for the country. It is also forecasting that Belgium's debt-to-GDP ratio will break through the 100 percent barrier in 2013 without big budget reforms.
The record-long negotiations since the June 13, 2010, election have been hobbled by fundamental differences over Belgium's future. Some pundits have predicted the split of the kingdom of 6.5 million Dutch-speakers in Flanders and 4.5 million French-speakers in Wallonia.
QuoteItalian, Belgian Yields Rise; Bunds Sell-Off
Reuters
Italian two-year government bond yields rose to new euro era highs above 8 percent on Friday after a weak sale of T-bills and zero coupon bonds and despite the European Central Bank buying debt in the secondary market.
Italian bonds of other maturities were also under pressure, as was Belgian debt, with the 10-year OLO spread over Bunds widening to 368 basis points.
The German Bund future fell to a session low of 134.45, down 60 ticks on the day, with trade thinned one day after the U.S. Thanksgiving holiday.
The cost of insuring against a Belgian default hit a record high of 407 basis points, up 14 bps on the day.
"It's all over the place at the moment," said a trader.
"I think Belgium will be included in the ECB buying program...I don't see how they can avoid it now that yields are getting up towards 6 percent." Belgian 10-year yields were up 6 basis points at 5.82 percent, ahead of a bond auction on Monday.
Quote from: citizen k on November 25, 2011, 05:12:35 PM
Et tu Belgium?
Quote
BRUSSELS (AP) — Standard & Poor's downgraded Belgium's financial standing Friday, citing the country's government stalemate and a looming European recession.
Spurred on by the ratings agency's cut, six leading parties hurriedly resumed talks to agree on a 2012 budget to contain Belgium's high debt and deficit, two more reasons why the country has come under increasing pressure from financial markets this week.
In a sign that financial contagion is spreading across Europe, the agency cut Belgium's credit rating from AA+ to AA, a move coming two days after Germany fared surprisingly poorly at a bond auction.
Belgium has been without a permanent government for 530 days, as a series of negotiators has struggled without success to bridge the country's divide between its French and Dutch speakers.
"In our opinion, protracted political uncertainty remains a risk to its creditworthiness," the ratings agency said.
Caretaker Prime Minister Yves Leterme said "we really need strong signals now" from the six political parties trying to resolve the 2012 budget. He said the six parties needed a deal "tonight, the coming days — but preferably before we hit the market again" Monday.
After negotiators reached a constitutional deal two month ago giving regions more autonomy, talks are now stuck over how much austerity measures and increased taxes should be part of an euro11 billion ($14.8 billion) package to keep spending within limits.
"Now the time has really come for parties to take up their responsibility and form a government with full powers," Leterme said.
In a statement, Standard & Poor's said Leterme's caretaker government "lacks a mandate to implement deeper fiscal and structural reforms."
The country's yields on long-term bonds are closing in on 6 percent — getting closer to the 7 percent financial danger zone that has pushed other European nations into international bailouts.
"If we have to go to the markets next week to refinance our debt, the downgrading could make sure that we have to pay an even higher price," Leterme said on VTM network.
Leterme aims to get the budget deficit down to 2.8 percent of gross domestic product in 2012, but the European Union is far from convinced, forecasting a wider shortfall of 4.6 percent for the country. It is also forecasting that Belgium's debt-to-GDP ratio will break through the 100 percent barrier in 2013 without big budget reforms.
The record-long negotiations since the June 13, 2010, election have been hobbled by fundamental differences over Belgium's future. Some pundits have predicted the split of the kingdom of 6.5 million Dutch-speakers in Flanders and 4.5 million French-speakers in Wallonia.
it's a miracle it took this long
Belgium now... and the "hits" keep coming. :( Getting pretty alarming, so many nations, some with fairly large economies (Spain,Italy), in trouble. USA isn't getting any better quickly, and has a longer way to go to hit such troubles, but it's not out the realm of possibility that we could be in similar trouble too some years from now, if things remain the same path.
Belgae delenda est!
Germany's last bund auction was a bit scary. They were only able to raise 2/3 of their target, and it's beginning to look like investment buyers are going on strike. I'll take Greek unions burning banks ten times out of ten over investors giving up.
Why wouldn't they give up? Europe has chosen, much as the United States has, to run things into the ground until the government collapses. That's democracy in action. If an investor figured that the end might be coming within their lifetime, then why would they buy debt from those governments?
Quote from: MadImmortalMan on November 26, 2011, 02:28:39 PM
Germany's last bund auction was a bit scary. They were only able to raise 2/3 of their target, and it's beginning to look like investment buyers are going on strike. I'll take Greek unions burning banks ten times out of ten over investors giving up.
My understanding is that it looked scary from the outside but wasn't that scary in the context of German auctions in general:
QuoteIn Germany the debt auction process is similar to other countries'. Dealers can bid with size and price. The difference is that in Germany, the Debt Agency (Finanzagentur) will retain part of the new issuance all the time, usually 15-20%, so they do not need full demand to issue. Also, the requirement to be a dealer in Germany means making sure of a minimum allocation across auctions that is relatively low (0.05%), while in other countries this requirement is higher (3% for example in Italy). Germany doesn't grant greenshoe options to its dealers. Other countries do. A Greenshoe option gives the dealer the right to buy the bonds for a few day after the auction at the same price of the auction. Overall this means that demand for German auctions will tend to be lower—all else equal—than for other countries' auctions. Since 2008, Germany has seen uncovered auctions 1 out of 5 times. Today's retention amount was large, 39% of the 6bln target.
The Finanzagentur issued only 3.9bln cash. They gave 3.9bln bunds to the market and kept 2.1bln bonds on their books. In the future they can sell this retention amount into the secondary market, raising cash. You may have read that the Bundesbank bought the unfilled part of the auction; this is not correct. The Bundesbank is not financing Germany; it just operates as an agency for Finanzagentur. It is worth repeating that Finanzagentur always retains part of the bonds, so this part of the process is normal. Today the retention was larger than usual. This is probably due to low liquidity across market, lower incentive to place certain minimum size bids by dealers, and richness of bunds in general.
It does have that terrifying WW1 feeling about it though. That people will look back in a hundred years and wonder how governments (Germany) could be so stupid as to let this happen.
Quote from: Sheilbh on November 26, 2011, 08:47:59 PM
That people will look back in a hundred years and wonder how governments (Germany) could be so stupid as to let this happen.
What a truly odd thing to say.
Quote from: Sheilbh on November 26, 2011, 08:47:59 PM
It does have that terrifying WW1 feeling about it though. That people will look back in a hundred years and wonder how governments (Germany) could be so stupid as to let this happen.
You wonder, don't you? Will history blame the modern Germans for not standing together with the shitty parts of Europe, despite the fact that they've profited heavily because of their shittiness? Or will they wonder at how the Germans ever got into bed with people so worthless in the first place, since it would inevitably fail?
Quote from: Neil on November 26, 2011, 09:17:49 PM
You wonder, don't you? Will history blame the modern Germans for not standing together with the shitty parts of Europe, despite the fact that they've profited heavily because of their shittiness? Or will they wonder at how the Germans ever got into bed with people so worthless in the first place, since it would inevitably fail?
The way you say stand together with the shitty parts of Europe suggests it's just a matter of the right attitude and sufficient empathy. Germany is a large economy but her resources are not infinite. There's no way she can underwrite the debt of Italy, Spain, Portugal, and Belgium combined, and she can't afford to assemble bridge loans for countries that aren't serious about putting themselves on a long term sustainable track.
Quote from: Admiral Yi on November 26, 2011, 09:44:25 PM
Quote from: Neil on November 26, 2011, 09:17:49 PM
You wonder, don't you? Will history blame the modern Germans for not standing together with the shitty parts of Europe, despite the fact that they've profited heavily because of their shittiness? Or will they wonder at how the Germans ever got into bed with people so worthless in the first place, since it would inevitably fail?
The way you say stand together with the shitty parts of Europe suggests it's just a matter of the right attitude and sufficient empathy. Germany is a large economy but her resources are not infinite. There's no way she can underwrite the debt of Italy, Spain, Portugal, and Belgium combined, and she can't afford to assemble bridge loans for countries that aren't serious about putting themselves on a long term sustainable track.
Germany has already tied itself to the shitty parts of Europe. German prosperity is a direct result of the shittiness and subhuman, backwards, mouthbreathing retardation of places like Italy, Spain and Portugal.
Well, it's not like Germany doesn't have a history of tying itself to worthless nations to further its own ends.
For example, see: Hungary.
Germany could support Eurobonds - or the Commission's 'Stability Bonds' - to cover at least part of the Euro-zone government debt.
Similarly it's mainly German attitudes towards the ECB that have led it to be, in Martin Wolf's phrase, 'the magnificently orthodox central bank of a failed currency union'. The ECB should be lender of last resort - but there are genuine legal objections to that - but surely they could be launching QE and making purchases on the secondary markets? The irony is that in setting up the Euro the Germans specifically demanded an extreme independence for the ECB - it has to endure far less oversight than most central banks - to avoid political pressure for devaluation. Instead we've got an ECB that is actually politically cautious of stepping beyond the German, Bundesbank tradition. And it needs to. I've hope for Draghi though, he's already cut interest rates at least.
Incidentally more worrying than Belgium or the periphery is the spread that's no emerging on 'safe' Northern Eurozone countries like the Netherlands and Finland. This isn't about profligate countries any more it's about whether Europe wants the Euro.
QuoteThere's no way she can underwrite the debt of Italy, Spain, Portugal, and Belgium combined, and she can't afford to assemble bridge loans for countries that aren't serious about putting themselves on a long term sustainable track.
What makes you think they're not serious? With the exception of Belgium which is in a unique position due to not actually having a government.
Quote from: Sheilbh on November 26, 2011, 10:04:20 PM
Germany could support Eurobonds - or the Commission's 'Stability Bonds' - to cover at least part of the Euro-zone government debt.
What difference would that make? It's still a charge on the credit of the still credit-worthy EU members.
QuoteSimilarly it's mainly German attitudes towards the ECB that have led it to be, in Martin Wolf's phrase, 'the magnificently orthodox central bank of a failed currency union'. The ECB should be lender of last resort - but there are genuine legal objections to that - but surely they could be launching QE and making purchases on the secondary markets? The irony is that in setting up the Euro the Germans specifically demanded an extreme independence for the ECB - it has to endure far less oversight than most central banks - to avoid political pressure for devaluation. Instead we've got an ECB that is actually politically cautious of stepping beyond the German, Bundesbank tradition. And it needs to. I've hope for Draghi though, he's already cut interest rates at least.
I'm willing to be proved wrong, but a central bank that buys up distressed debt nonstop hardly fits my image of a grim Teutonic inflation fighting central bank.
QuoteWhat makes you think they're not serious? With the exception of Belgium which is in a unique position due to not actually having a government.
Greece is clearly not serious. Spain appears to be serious. It remains to be seen if Italy is serious.
Quote from: Sheilbh on November 26, 2011, 10:04:20 PM
What makes you think they're not serious?
I don't see any of them ending democracy anytime soon.
Quote from: Admiral Yi on November 26, 2011, 10:14:59 PMWhat difference would that make? It's still a charge on the credit of the still credit-worthy EU members.
Not really, the Commission's proposal sugggested that even Germany would be paying lower interest. Again I think this requires treaty changes - and almost certainly some pushing to far greater fiscal union, as Merkel wants - but there is I think a workaround option of partial Eurobonds that wouldn't require any renegotiations.
The combination of that and ECB actions, with EZ states actually contributing to the EFSF (I understand the last deal still hasn't been implemented) - would help save the Euro for now. But then there'd need to be treaty renegotiations and I don't know how they'd go or, if they succeeded, how we'd get an Irish 'yes' vote far less approval of the German Constitutional Court :mellow: :(
QuoteI'm willing to be proved wrong, but a central bank that buys up distressed debt nonstop hardly fits my image of a grim Teutonic inflation fighting central bank.
Exactly. We've got a German Central Bank, we need an Anglo0-Saxon one.
QuoteGreece is clearly not serious. Spain appears to be serious. It remains to be seen if Italy is serious.
What's your basis for these views?
Quote from: Neil on November 26, 2011, 10:22:01 PM
I don't see any of them ending democracy anytime soon.
To be fair two of them have governments appointed by Germany and Eurocrats :P
Quote from: Sheilbh on November 26, 2011, 10:36:07 PM
Not really
:mellow:
QuoteExactly. We've got a German Central Bank, we need an Anglo0-Saxon one.
You must have misunderstood. I said the opposite.
QuoteWhat's your basis for these views?
What the various countries have done in terms of cutting spending and raising revenue.
Quote from: Admiral Yi on November 26, 2011, 11:00:30 PM:mellow:
How can it be a charge if everyone's paying less?
Edit: And joint liability's the bit that's currently illegal under the treaties. So the countries would still be responsible for their own debt.
QuoteYou must have misunderstood. I said the opposite.
What's makes you think the ECB's been Anglo-Saxon?
QuoteWhat the various countries have done in terms of cutting spending and raising revenue.
Okay. So what have those countries done that make you think they're not serious?
Quote from: Sheilbh on November 26, 2011, 11:12:35 PM
How can it be a charge if everyone's paying less?
Someone borrows the money, someone has to pay it back. Or default and fuck their credit.
QuoteWhat's makes you think the ECB's been Anglo-Saxon?
Like I said, all the bond purchases.
QuoteOkay. So what have those countries done that make you think they're not serious?
Greece has consistently missed targets on tax collection and privatization, for starters. Italy under Berlusconni put together a pro forma austerity package. The market is telling them they need to do more.
Quote from: Admiral Yi on November 27, 2011, 02:30:34 AMSomeone borrows the money, someone has to pay it back. Or default and fuck their credit.
Eurobonds would enable refinancing of, I think, up to 60% of GDP as a Eurobond which would have some form of guarantee from other countries - but not an outright guarantee, treaties don't allow that - and that debt would be senior to any other debt the country takes on. Any subsequent debt would come with a market rate. That option would make a huge difference for a country like Spain - or even Italy where there's still the large institutional domestic purchasers. It would also make a large difference more generally for the number of countries who are adopting constitutional debt caps.
QuoteLike I said, all the bond purchases.
The bond purchases are sterilised. The ECB is legally forbidden from buying government bonds from government - like the Fed and the BofE have been - they can buy them from the secondary market, but not if they can be legally interpreted as helping the government. So when the ECB has made bond purchases, they've successfully drawn down liquidity of an equal amount. Generally they've been pretty strict on keeping net money the same - motivated by a fear of Germany, motivated by a fear of inflation and a fundamental disagreement with loose monetary policy.
I don't think this crisis would have been so bad had the ECB behaved as the Fed or BofE would have. The ECB's increased their assets by about half the amount the Fed and BofE have with QE and bond purchases - and even that peaked in December 2008. It would represent a massive shift in ideology for the ECB to proceed with all the bond purchases - God willing they will - and long-term it probably requires treaty amendment. But immediately we need something like QE2 and some unsterilised bond purchases.
QuoteGreece has consistently missed targets on tax collection and privatization, for starters. Italy under Berlusconni put together a pro forma austerity package. The market is telling them they need to do more.
Well their asset valuation of some of the privatisations have always struck most people as ambitious in the current climate.
More importantly though the Greeks have consistently done what they promised in terms of tax collection and spending cuts. They've had less effect than they were meant to - and than in every case the IMF suggested they would - because the recession's been consistently underestimated by the ECB, IMF and Commission. That's different from missing targets through a lack of seriousness.
I agree it's difficult to take the Berlusconi government serious. But I think Italy is more linked to Spain and the Netherlands and Finland. The fears are above all based on whether there's the political will to save the Euro. If Eurozone leaders can't take the sort of steps necessary to save Greece what hope the rest of them? Yields are returning to pre-Euro averages.
Quote from: Admiral Yi on November 26, 2011, 09:44:25 PM
Quote from: Neil on November 26, 2011, 09:17:49 PM
You wonder, don't you? Will history blame the modern Germans for not standing together with the shitty parts of Europe, despite the fact that they've profited heavily because of their shittiness? Or will they wonder at how the Germans ever got into bed with people so worthless in the first place, since it would inevitably fail?
The way you say stand together with the shitty parts of Europe suggests it's just a matter of the right attitude and sufficient empathy. Germany is a large economy but her resources are not infinite. There's no way she can underwrite the debt of Italy, Spain, Portugal, and Belgium combined, and she can't afford to assemble bridge loans for countries that aren't serious about putting themselves on a long term sustainable track.
If Germany finds itself in the position of bailing out most of those countries (and especially Italy and Spain) is in no small part because of her gross mismanagement of this crisis. If she had acted swiftly and unambiguously at the start of the crisis we wouldn't be right here now. Instead she focused on finding time for German money to divest from risky assets while the contagion spread. The one thing markets won't tolerate is doubt, and Merkel could hardly have done a worse job on that front.
Now everyone thinks Germany will happily stand aside as it all burns and thus everyone, solvent or not, is on the hook.
I was very optimistic in the beginning, but I think we're long past the point of no return by now. Austerity is soon going to trigger a second round of recession in Europe and the US that will make all efforts to rein on deficits fail.
Quote from: Iormlund on November 27, 2011, 07:02:39 AM
If Germany finds itself in the position of bailing out most of those countries (and especially Italy and Spain) is in no small part because of her gross mismanagement of this crisis. If she had acted swiftly and unambiguously at the start of the crisis we wouldn't be right here now. Instead she focused on finding time for German money to divest from risky assets while the contagion spread. The one thing markets won't tolerate is doubt, and Merkel could hardly have done a worse job on that front.
I agree. Let's not forget that some of the deals at Eurosummits were effectively delayed for German regional elections, which indicates why I think a lot of the blame should go to Merkel.
I was listening to Stephen King, head economist of HSBC today, and he was saying that this time last year had the French and Germans effectively guaranteed Irish and Greek debt - with austerity - then that would have ended these problems. But all through the year the problem's been the lack of political will. He said that his view is that the markets aren't worried about Spanish or Italian debt any more they're worried that Europe (effectively Germany) will let the Euro fail - which was something no-one had been thinking this time last year.
QuoteNow everyone thinks Germany will happily stand aside as it all burns and thus everyone, solvent or not, is on the hook.
I was very optimistic in the beginning, but I think we're long past the point of no return by now. Austerity is soon going to trigger a second round of recession in Europe and the US that will make all efforts to rein on deficits fail.
Another point King made was that he now thinks the second of economic problems is going to start hitting 'creditor' nations hard.
One thing that I only discovered recently, which scares me even more, is that apparently Dodds-Frank explicitly bans bailouts - which is madness, though probably popular. I think the way the Euro was designed never envisaged a crisis, that's one sort of stupid. Passing a law after a crisis that means the way you resolved it's now illegal is a whole other level of stupidity.
Given the that we're now facing a possible Euro-bank crisis, declining growth in China, almost certainly a recession in Europe I think it's more than possible that US banks could end up in trouble again - but no bailouts. It's a scary time.
Quote from: Iormlund on November 27, 2011, 07:02:39 AMIf Germany finds itself in the position of bailing out most of those countries (and especially Italy and Spain) is in no small part because of her gross mismanagement of this crisis. If she had acted swiftly and unambiguously at the start of the crisis we wouldn't be right here now.
If she had acted swift and unambiguously, she would not be here anymore right now. The idea that at the outset of the crisis, she could have acted more decisively ignores political realities in Germany.
And that also assumes that there was a swift and unambiguous solution that wouldn't have be shredded apart by financial markets and that was preferably also legal. Was there? What would have been the solution?
Quote from: Sheilbh on November 27, 2011, 11:18:37 AMI was listening to Stephen King, head economist of HSBC today, and he was saying that this time last year had the French and Germans effectively guaranteed Irish and Greek debt - with austerity - then that would have ended these problems.
That would most likely have been illegal under Germany's constitution and the EU treaties.
Quote from: Sheilbh on November 26, 2011, 10:36:07 PM
Not really, the Commission's proposal sugggested that even Germany would be paying lower interest.
:lmfao: Yeah, right. We already pay a negative real interest rate. How much lower can it get?
Eurobonds: Let's bundle up a lot of bad assets, put it into different tranches and sell those seperately with different ratings. Nothing could go wrong with that brilliant idea.
Quote from: Zanza on November 27, 2011, 11:48:16 AM
If she had acted swift and unambiguously, she would not be here anymore right now. The idea that at the outset of the crisis, she could have acted more decisively ignores political realities in Germany.
The political realities in Spain, Portugal, Greece or Italy were against action as well yet we enacted deeply unpopular measures.
The difference is Germans seem to think this shit we're in is in no part their responsibility. At least we have the common sense to understand our governments/saving institutions fucked up. It's about time Germany wises up. It takes two to tango.
Quote
And that also assumes that there was a swift and unambiguous solution that wouldn't have be shredded apart by financial markets and that was preferably also legal. Was there? What would have been the solution?
Draw the line from the very start. Implement a tiered plan that makes jointly-backed credit available based on the adherence to stringent structural reforms, supervised by Germany if needed be. A clear, unambiguous signal that Italy and Spain would have as much liquidity as necessary as long as they reformed their labour markets, education, etc.
That was the only important thing, to keep investors from freaking out about Italy or Spain.
I didn't know Stephen King was an economist.
Quote from: Iormlund on November 27, 2011, 12:58:09 PMThe political realities in Spain, Portugal, Greece or Italy were against action as well yet we enacted deeply unpopular measures.
The measures decided upon so far (EFSF, ESM, bilateral bailouts, ECB buying bonds etc.) were deeply unpopular in Germany in case you didn't notice. Germans didn't hit the streets (yet?), but the government lost massive support and legitimacy.
QuoteThe difference is Germans seem to think this shit we're in is in no part their responsibility. At least we have the common sense to understand our governments/saving institutions fucked up. It's about time Germany wises up. It takes two to tango.
What makes you think that Germans don't think our government and savings institutions fucked up? Because they do. Probably for other reasons that in Spain, but still.
QuoteDraw the line from the very start.
The line was drawn: Greece would be bailed out. The markets called that bluff.
QuoteImplement a tiered plan that makes jointly-backed credit available based on the adherence to stringent structural reforms,
That would of course not have been possible politically in Germany (and probably in other countries). And it took the massive pressure of the markets to make Spain or Italy move. Otherwise no reform would have happened.
Quotesupervised by Germany if needed be.
I think you misunderstand Germans. We don't want that.
QuoteA clear, unambiguous signal that Italy and Spain would have as much liquidity as necessary as long as they reformed their labour markets, education, etc.
That is not a policy that Germany can enact anyway. The only institution that could have done that would be the ECB.
QuoteThat was the only important thing, to keep investors from freaking out about Italy or Spain.
Do you think Italy would have done anything to reform if there hadn't been the massive pressure of the markets? If they had been guaranteed before that pressure set in, the reforms you think of would just not have happened in my and most Germans opinion.
Quote from: Sheilbh on November 27, 2011, 11:18:37 AM
One thing that I only discovered recently, which scares me even more, is that apparently Dodds-Frank explicitly bans bailouts - which is madness, though probably popular. I think the way the Euro was designed never envisaged a crisis, that's one sort of stupid. Passing a law after a crisis that means the way you resolved it's now illegal is a whole other level of stupidity.
Given the that we're now facing a possible Euro-bank crisis, declining growth in China, almost certainly a recession in Europe I think it's more than possible that US banks could end up in trouble again - but no bailouts. It's a scary time.
I didn't realize that bail outs were prohibited. While bail outs may annoy or anger some people, if this is a blanket ban of bail outs that would seem to be misguided. I'd think each case should be considered on its own merit.
Quote from: Iormlund on November 27, 2011, 07:02:39 AM
If Germany finds itself in the position of bailing out most of those countries (and especially Italy and Spain) is in no small part because of her gross mismanagement of this crisis. If she had acted swiftly and unambiguously at the start of the crisis we wouldn't be right here now. Instead she focused on finding time for German money to divest from risky assets while the contagion spread. The one thing markets won't tolerate is doubt, and Merkel could hardly have done a worse job on that front.
Now everyone thinks Germany will happily stand aside as it all burns and thus everyone, solvent or not, is on the hook.
I was very optimistic in the beginning, but I think we're long past the point of no return by now. Austerity is soon going to trigger a second round of recession in Europe and the US that will make all efforts to rein on deficits fail.
One of the problems with this line of reasoning is it assumes Germany is the only actor with agency. Any of the at-risk countries could have acted more forcefully at the start the crisis to cut spending and raise revenue. Italy doesn't need German permission to do that.
Quote from: Admiral Yi on November 27, 2011, 04:15:36 PM
One of the problems with this line of reasoning is it assumes Germany is the only actor with agency. Any of the at-risk countries could have acted more forcefully at the start the crisis to cut spending and raise revenue. Italy doesn't need German permission to do that.
I'm not saying these governments were not at fault. In case you haven't noticed, none of them are still in power. In fact we just kicked out a government because it was to slow to react to the crisis, voted in a new one that promised draconian cost-cutting measures. We let two strikes fail. We've gone up in productivity, down in salaries. We're doing our part.
As for Germany's interest in helping out before this spread, let me illustrate where I'm coming from:
My work involves millions in high-tech high-profit equipment and software. Most of that is German, or at least used to be. Right now we're buying from elsewhere, a lot less, or the shit we buy tends to be lower tier, even if it'll take us a lot more man-hours and trickery to finish a project. We're also developing in-house solutions as alternatives (yours truly being behind the project).
Competition is ridiculous, with established firms bidding at a loss not to disappear. People and integrators with ample experience in developing solutions with German products are getting the axe. And that was those products' main lure: local talent ready to intervene in case of the inevitable clustefuck to offset their higher cost.
Corners are cut which means less advanced solutions are used (no redundancy and such).
This very week we took the representative of certain German giant to a meeting with a client, who pretty much asked the former to drop his pants and get on all fours if he wanted the contract not to go to the Frogs. In another big project this giant is having to provide the funding to get orders, effectively buying its own shit. Things like this have been going on for a while but are getting worse as ongoing projects are finished and austerity programs kicked in.
Finally, since the local demand has dried up, we're involved in a lot more projects in foreign countries now, often competing with German firms with our lower wages.
That's how things are from my perspective. As you can imagine, I don't see Germany coming out too well from this situation.
You might have noticed Iormlund that I singled out Spain as a country that IMO is serious about getting its fiscal house in order. (Although as an aside I'd like to see some more evidence before I accept your judgement that Spaniards voted for more austerity.) Do you think the same can be said of Italy and say, Belgium?
As a further aside, is there some off the books Spanish liability that's driving bond yields? For example deposit guarantees on an insolvent banking system? I ask because Spain's debt/GDP is so puny I'm having a hard time understanding why the market is punishing youse guys.
Yes, I understand that Germany has a vested interest in the prosperity of its export markets. As does any country that exports to an at-risk country. But if you look at the history of bailouts and debt guarantees it almost always has been a case of a very large country (or countries) bailing out a relatively tiny one. The US could bail out Mexico, and if Mexico had left the US holding the bag it would have certainly hurt but it wouldn't have meant US insolvency. The same is not true for Germany and the rest of Europe. If Germany guarantees Italy's debt they could be fucked.
Shelf: OK, did not know that about ECB sterilization. Makes me wonder though whose bonds they're unloading to sterilize the purchase of shit bonds. Also Eurobonds sounds to me like smoke and mirrors, a way for German taxpayers to assume liability for at-risk country debt without knowing it.
Quote from: Admiral Yi on November 27, 2011, 05:07:53 PMAs a further aside, is there some off the books Spanish liability that's driving bond yields? For example deposit guarantees on an insolvent banking system? I ask because Spain's debt/GDP is so puny I'm having a hard time understanding why the market is punishing youse guys.
What we have are puny growth prospects and a terrifying unemployment %, particulary amongst the young. The low debt/GDP is always touted by pundits and politicians as a reason why market attacks on Spanish debt are mostly unjustified. The banking system is not exactly great and some particular banks have a lot of problems arising from the housing bubble, but they've been kept mostly in line by strict regulation from the Bank of Spain and so far no bank went under even if a couple of smallish ones had to be intervened and now they're merging like crazy.
Yi, you are missing the point. Of course Germany cannot bail out Spain or Italy. What it should have done was contain the contagion at an early stage, before it spread to those two, by allaying investor doubt in return for tangible and strong structural reforms.
That way everyone wins. We get much needed reforms in one go, our politicians can shield behind the evil market-Merkel conspiracy to implement them and the Germans get to keep exporting their shit.
By taking half-measures one at a time instead the Germans will lose their preponderance in the region and our politicians will have a very hard job asking for more austerity when things keep getting worse despite all previous belt-tightening exercises, like it is happening in Portugal.
Quote from: Iormlund on November 27, 2011, 05:58:13 PM
Yi, you are missing the point. Of course Germany cannot bail out Spain or Italy. What it should have done was contain the contagion at an early stage, before it spread to those two, by allaying investor doubt in return for tangible and strong structural reforms.
That way everyone wins. We get much needed reforms in one go, our politicians can shield behind the evil market-Merkel conspiracy to implement them and the Germans get to keep exporting their shit.
By taking half-measures one at a time instead the Germans will lose their preponderance in the region and our politicians will have a very hard job asking for more austerity when things keep getting worse despite all previous belt-tightening exercises, like it is happening in Portugal.
OK, how could Germany have allayed investor doubt without exposing itself to catastrophic liability?
Leopard 2s.
So how fucked is the world?
The Euro's collapsing on itself, the Chinese bubble is set to deflate and the US is not righting itself either... what's going to happen? Will the Brazillians take over?
Quote from: Jacob on November 27, 2011, 06:09:09 PM
So how fucked is the world?
The Euro's collapsing on itself, the Chinese bubble is set to deflate and the US is not righting itself either... what's going to happen? Will the Brazillians take over?
How could they? Latin America can't lead the world. We'll all just have to get used to having less. Our children will envy us, and the world bill descend into a permanent poverty, which will continue through to the eventual extinction of the species.
Quote from: Admiral Yi on November 27, 2011, 06:01:21 PM
OK, how could Germany have allayed investor doubt without exposing itself to catastrophic liability?
It would have been cheaper even to bail out Greece, killing any uncertainty in the markets, than any half measure Merkel is bound to take now. And certainly much cheaper than the global recession we're about to experience.
Quote from: Iormlund on November 27, 2011, 06:29:45 PM
Quote from: Admiral Yi on November 27, 2011, 06:01:21 PM
OK, how could Germany have allayed investor doubt without exposing itself to catastrophic liability?
It would have been cheaper even to bail out Greece, killing any uncertainty in the markets, than any half measure Merkel is bound to take now. And certainly much cheaper than the global recession we're about to experience.
Would the uncertainty around Spain and Italy still exist? After all, those countries will never be able to put their house in order.
Quote from: Jacob on November 27, 2011, 06:09:09 PM
So how fucked is the world?
The Euro's collapsing on itself, the Chinese bubble is set to deflate and the US is not righting itself either... what's going to happen? Will the Brazillians take over?
America will eventually get better. Even if everything else failed, we could always enslave the entire planet.
Quote from: Ideologue on November 27, 2011, 06:38:02 PM
Quote from: Jacob on November 27, 2011, 06:09:09 PM
So how fucked is the world?
The Euro's collapsing on itself, the Chinese bubble is set to deflate and the US is not righting itself either... what's going to happen? Will the Brazillians take over?
America will eventually get better. Even if everything else failed, we could always enslave the entire planet.
You guys don't have the courage, nor the work ethic, nor the superior morality.
Quote from: Neil on November 27, 2011, 06:28:58 PM
Quote from: Jacob on November 27, 2011, 06:09:09 PM
So how fucked is the world?
The Euro's collapsing on itself, the Chinese bubble is set to deflate and the US is not righting itself either... what's going to happen? Will the Brazillians take over?
How could they? Latin America can't lead the world. We'll all just have to get used to having less. Our children will envy us, and the world bill descend into a permanent poverty, which will continue through to the eventual extinction of the species.
We're doomed.... :unsure:
Quote from: Iormlund on November 27, 2011, 06:29:45 PM
It would have been cheaper even to bail out Greece, killing any uncertainty in the markets, than any half measure Merkel is bound to take now. And certainly much cheaper than the global recession we're about to experience.
Possibly,
if you assume that everyone elses' problems are solely a function of "contagion" and have nothing to do with fundamentals.
You're also overlooking the moral hazard. If lenders know that Germany is going to pick up the tab in case of default they'll keep on lending to deadbeats, and deadbeats will keep on borrowing.
Quote from: Jacob on November 27, 2011, 06:09:09 PM
So how fucked is the world?
The Euro's collapsing on itself, the Chinese bubble is set to deflate and the US is not righting itself either... what's going to happen? Will the Brazillians take over?
Troy will burn is what will happen. :rolleyes:
G.
Quote from: Jacob on November 27, 2011, 06:09:09 PM
So how fucked is the world?
The Euro's collapsing on itself, the Chinese bubble is set to deflate and the US is not righting itself either... what's going to happen? Will the Brazillians take over?
Brazil is surging right now on a commodity bubble financed by the Chinese. If Chinese demand goes so does Brazil.
Quote from: Ideologue on November 27, 2011, 06:38:02 PMAmerica will eventually get better.
What's the source of your certainty?
Quote from: Grallon on November 27, 2011, 07:16:10 PMTroy will burn is what will happen. :rolleyes:
I'm not overly concerned about a pile of ruins in Asia Minor, nor about a number of small towns in the US named by classics enthusiasts.
Quote from: Jacob on November 27, 2011, 07:22:53 PM
What's the source of your certainty?
Always has before.
Quote from: Admiral Yi on November 27, 2011, 07:17:42 PMBrazil is surging right now on a commodity bubble financed by the Chinese. If Chinese demand goes so does Brazil.
Yeah, I didn't figure Brazil would be able to do it on their own. In a similar vein, Canada, Australia and Russia (not to mention various African economies) are probably set for hard times should the Chinese start deflating.
So is that the prognosis right now? We're looking at global stagnation for the foreseeable future?
Quote from: Admiral Yi on November 27, 2011, 07:24:31 PMAlways has before.
So you share Ide's certainty? What would you say are the unchanged fundamentals that are the source of the US being able to pick itself up again? What are the biggest question marks, in your opinion?
It looks to me that there are some structural issues that it would be good to address, and the political climate seems fairly dysfunctional at present. But perhaps it's no worse than it's been at other times?
I mean, I hope you guys are right since that certainly is better for Canada and me personally.
My gut says things will get better. Eventually. And if not, I'm equipped for the fall. I'll use my Kentucky Colonel commission to enslave Hazard county.
Quote from: Jacob on November 27, 2011, 07:34:04 PM
Quote from: Admiral Yi on November 27, 2011, 07:24:31 PMAlways has before.
So you share Ide's certainty? What would you say are the unchanged fundamentals that are the source of the US being able to pick itself up again? What are the biggest question marks, in your opinion?
It looks to me that there are some structural issues that it would be good to address, and the political climate seems fairly dysfunctional at present. But perhaps it's no worse than it's been at other times?
I mean, I hope you guys are right since that certainly is better for Canada and me personally.
Technological innovation, work ethic, flexible labor markets.
Fiscal situation is unsustainable and needs to be addressed seriously.
Quote from: Jacob on November 27, 2011, 07:23:59 PM
I'm not overly concerned about a pile of ruins in Asia Minor, nor about a number of small towns in the US named by classics enthusiasts.
The whole thing is already collapsing you poor fool... Personally I can't wait! *wry grin*
When bloated toads such as Yi or that mongrel Minsk come tumbling down I'll be here cheering... That is - if I have any electricity/connectivity left *cackles*
G.
:lol: I don't have very far to tumble.
Quote from: Grallon on November 27, 2011, 07:42:35 PM
The whole thing is already collapsing you poor fool... Personally I can't wait! *wry grin*
When bloated toads such as Yi or that mongrel Minsk come tumbling down I'll be here cheering... That is - if I have any electricity/connectivity left *cackles*
Wouldn't you be dead?
Quote from: Jacob on November 27, 2011, 07:22:53 PM
Quote from: Ideologue on November 27, 2011, 06:38:02 PMAmerica will eventually get better.
What's the source of your certainty?
All kidding aside? We are already seeing attitudes toward taxation change; I believe that we will voluntarily assume a greater--i.e.,
normal--tax burden in order to partly fund the government spending required to lift us back into prosperity.
Quote from: Ideologue on November 27, 2011, 08:04:11 PM
Quote from: Jacob on November 27, 2011, 07:22:53 PM
Quote from: Ideologue on November 27, 2011, 06:38:02 PMAmerica will eventually get better.
What's the source of your certainty?
All kidding aside? We are already seeing attitudes toward taxation change; I believe that we will voluntarily assume a greater tax burden in order to fund the government services required to lift us back into prosperity.
You know full well that government services can't save you.
That and the inflation large-scale government spending would entail can save me personally. :P
But what else could help the U.S.? Besides a monarchy, Neil.
Quote from: Ideologue on November 27, 2011, 08:24:49 PM
That and the inflation large-scale government spending would entail can save me personally.
A large public sector does not cause inflation. A large deficit does not cause inflation.
Quote from: Ideologue on November 27, 2011, 08:24:49 PM
That and the inflation large-scale government spending would entail can save me personally. :P
But what else could help the U.S.? Besides a monarchy, Neil.
Eitzengruppen.
Quote from: Zanza on November 27, 2011, 11:51:57 AMThat would most likely have been illegal under Germany's constitution and the EU treaties.
I don't know about the German constitution but the EFSF is probably technically illegal under the treaties. My understanding is that the article used to justify it enables emergency relief for countries suffering from natural disasters. If we're going violently incongruent interpretations of the treaties let's at least have them be for sufficient solutions.
QuoteThe measures decided upon so far (EFSF, ESM, bilateral bailouts, ECB buying bonds etc.) were deeply unpopular in Germany in case you didn't notice. Germans didn't hit the streets (yet?), but the government lost massive support and legitimacy.
Everything Germany's agreed to so far in every summit has been the bare minimum necessary, for the previous summit. Every time commentators say there's a need for very decisive large-scale intervention and we get a statement that says that's happened and then two or three days later everyone realises that's not really the case.
I mean the latest (still unimplemented) program with the EFSF's an example of that and trying to hawk it to the Chinese they raised the very fair objection that if Europeans aren't willing to cover these debts to save the Euro, why should China?
QuoteOne of the problems with this line of reasoning is it assumes Germany is the only actor with agency. Any of the at-risk countries could have acted more forcefully at the start the crisis to cut spending and raise revenue. Italy doesn't need German permission to do that.
Well Ireland had serious cuts and tax rises for at least two years before they were bailed out. I think Spain and Portugal had some austerity measures prior to getting into trouble (much like France has over the past year).
The problem is this is about far more than debt. The rising yields in Finland and the Netherlands indicate that. The next crisis is apparently possibly Austria - which is a Northern European, Germanic, creditor nation - but apparently due for a downgrade. The problem there is the banking system (same goes for Belgium and France to differing degrees) needs recapitalisation.
I think the problem's moved from one of debt in the periphery, to fundamental doubts about whether there's the political will to sustain the Euro and to a banking crisis that will probably end up requiring bank recapitalisation in Northern Europe and further debt crises.
QuoteYou're also overlooking the moral hazard. If lenders know that Germany is going to pick up the tab in case of default they'll keep on lending to deadbeats, and deadbeats will keep on borrowing.
The Greeks and Irish and everyone else would still need to be going through austerity. It's worth remembering that a degree of French and German policy has been driven by the need to save French and German banks from their bad investments in government debt - so I find their moaning about moral hazard somewhat self-interested.
Having said that I think everyone supports Merkel in using this opportunity to get governments to pass reforms and she wants treaty changes to institute fiscal oversight, to ratify the EFSF and so on. All of which is good but I do worry that it just won't work. I can't see the Irish agreeing in a referendum, the UK will use the reopening of treaties as an excuse to try and renegotiate membership, I can't imagine that the Eurosceptic right in Finland or the Netherlands will be keen either.
So far I think we're very lucky there's not been an anti-German backlash in one of these countries. I think the only reason Greece hasn't said 'fuck you, we're off' is because they've not had a charismatic enough figure to pull it off. Similarly we should be very glad that a populist like Berlusconi's been discredited for in large part causing Italy's crisis. If he were outside of the government and had clean hands I think someone like that'd be very dangerous. So far we've got two right wing parties who admit the need for very stern measures winning elections (Spain, Portugal), two technocratic regimes virtually appointed by Europe (Greece, Italy) and a country in which all main parties agreed with the EU-IMF program (Ireland).
QuoteSo how fucked is the world?
The Euro's collapsing on itself, the Chinese bubble is set to deflate and the US is not righting itself either... what's going to happen? Will the Brazillians take over?
If only. I'd note that there seem to be positive reports coming out of the US and if the US consumer's coming back then that's good news.
But I've read that China's growth is already slowing in response to the Euro-crisis. I think the UK expects a recession next year. I'd never previously thought it but I think the Euro could collapse (I feel it's 50-50 at this point). If that happens, to use Martin Wolf's phrase, the ECB will go down in history as the magnificently orthodox central bank of a failed currency union - Merkel will be the political equivalent.
If the Euro goes down I think we'll end up seeing bank failures on a scale far beyond 2008-09. There's a genuine chance that protectionism and competitive devaluations will start being a problem, I don't know if the EU can survive the failure of the Euro. My feeling is that if everything that could, very plausibly, go wrong over the next year does go wrong then we'll end up in a depression like situation that'll make 2008-09 look rather mild.
Quote from: Iormlund on November 27, 2011, 05:58:13 PM
Yi, you are missing the point. Of course Germany cannot bail out Spain or Italy. What it should have done was contain the contagion at an early stage, before it spread to those two, by allaying investor doubt in return for tangible and strong structural reforms.
That way everyone wins. We get much needed reforms in one go, our politicians can shield behind the evil market-Merkel conspiracy to implement them and the Germans get to keep exporting their shit.
By taking half-measures one at a time instead the Germans will lose their preponderance in the region and our politicians will have a very hard job asking for more austerity when things keep getting worse despite all previous belt-tightening exercises, like it is happening in Portugal.
It is hard to see how the problems in Greece could have been contained, if you accept that the problem is the underlying solvency of the governments. If the rest of the eurozone had stepped in early and completely bailed out Greece in one go, that doesn't mean the current concerns regarding Italy and Spain would be allayed since those countries are too big to bail out. If the problem is contagion spreading from Greece, then it seems the best course of action would be to cut the problem out of the eurozone by kicking Greece out at an early date. A direct bailout would be a precedent that would undermine efforts at fiscal responsibility throughout the eurozone (and couldn't be duplicated in the larger countries), while this drawn out process has not been helpful either. Obviously there was no appetite for kicking Greece out of the eurozone.
My $0.02 is that the current sovereign debt crisis isn't about contagion from Greece so much as the markets starting to price in the liklihood of a recession in Europe. The government accounts may not be unworkable now in Italy and Spain, but there will be severe strain if we end up in a recession in the next year or so.
Quote from: Admiral Yi on November 27, 2011, 08:27:31 PM
Quote from: Ideologue on November 27, 2011, 08:24:49 PM
That and the inflation large-scale government spending would entail can save me personally.
A large public sector does not cause inflation. A large deficit does not cause inflation.
I said partly in the previous post without fully explaining it; my understanding is that direct creation of money does cause inflation, all else being equal.
Quote from: Admiral Yi on November 27, 2011, 05:07:53 PMShelf: OK, did not know that about ECB sterilization. Makes me wonder though whose bonds they're unloading to sterilize the purchase of shit bonds. Also Eurobonds sounds to me like smoke and mirrors, a way for German taxpayers to assume liability for at-risk country debt without knowing it.
My understanding of the ECB's sterilisation is that they buy the bonds from banks and then offer a low interest rate one week deposit from the banks. This was criticised by Germany because of the threat of inflation.
Worryingly I believe the limit that economists have guessed the ECB has is going to be hit in January. Any bond purchases after that would be unsterilised, they'd be Anglo-Saxon style increases in net liquidity. There's already worries about whether that'll happen with Germans and Dutch calling it a massive expansion of the ECB's remit and other saying the bond purchase program has to carry on. For myself I hope Draghi acts like an Italian Central Banker.
Quote from: Ideologue on November 27, 2011, 08:24:49 PM
That and the inflation large-scale government spending would entail can save me personally. :P
But what else could help the U.S.? Besides a monarchy, Neil.
Hard to say. A profound cultural shift would be required.
I shouldn't steal from the FT, but I entirely agree with this article:
QuoteThe eurozone really has only days to avoid collapse
Wolfgang Munchau By Wolfgang Münchau
In virtually all the debates about the eurozone I have been engaged in, someone usually makes the point that it is only when things get bad enough, the politicians finally act – eurobond, debt monetisation, quantitative easing, whatever. I am not so sure. The argument ignores the problem of acute collective action.
Last week, the crisis reached a new qualitative stage. With the spectacular flop of the German bond auction and the alarming rise in short-term rates in Spain and Italy, the government bond market across the eurozone has ceased to function.
The banking sector, too, is broken. Important parts of the eurozone economy are cut off from credit. The eurozone is now subject to a run by global investors, and a quiet bank run among its citizens.
This massive erosion of trust has also destroyed the main plank of the rescue strategy. The European Financial Stability Facility derives its firepower from the guarantees of its shareholders. As the crisis has spread to France, Belgium, the Netherlands and Austria, the EFSF itself is affected by the contagious spread of the disease. Unless something very drastic happens, the eurozone could break up very soon.
Technically, one can solve the problem even now, but the options are becoming more limited. The eurozone needs to take three decisions very shortly, with very little potential for the usual fudges.
First, the European Central Bank must agree a backstop of some kind, either an unlimited guarantee of a maximum bond spread, a backstop to the EFSF, in addition to dramatic measures to increase short-term liquidity for the banking sector. That would take care of the immediate bankruptcy threat.
The second measure is a firm timetable for a eurozone bond. The European Commission calls it a "stability bond", surely a candidate for euphemism of the year. There are several proposals on the table. It does not matter what you call it. What matters is that it will be a joint-and-several liability of credible size. The insanity of cross-border national guarantees must come to an end. They are not a solution to the crisis. Those guarantees are now the main crisis propagator.
The third decision is a fiscal union. This would involve a partial loss of national sovereignty, and the creation of a credible institutional framework to deal with fiscal policy, and hopefully wider economic policy issues as well. The eurozone needs a treasury, properly staffed, not ad hoc co-ordination by the European Council over coffee and desert.
I am hearing that there are exploratory talks about a compromise package comprising those three elements. If the European summit could reach a deal on December 9, its next scheduled meeting, the eurozone will survive. If not, it risks a violent collapse. Even then, there is still a risk of a long recession, possibly a depression. So even if the European Council was able to agree on such an improbably ambitious agenda, its leaders would have to continue to outdo themselves for months and years to come.
How likely is such a grand deal? With each week that passes, the political and financial cost of crisis resolution becomes higher. Even last week, Angela Merkel was still ruling out eurobonds. She was furious when the European Commission produced its owns proposals last week. She had planned to separate the discussion about the crisis from that of the future architecture of the eurozone. The economic advice she has received throughout the crisis has been appalling.
Her own very public opposition to eurobonds has now become a real obstacle to a deal. I cannot quite see how the German chancellor is going to extricate herself from these self-inflicted constraints. If she had been more circumspect, she could have travelled to the summit with the proposal of the German Council of Economic Advisers, who produced a clever, albeit limited and not yet fully worked-out-plan. They are a proposing a "debt redemption" bond – another candidate for this year's top euphemism award. The idea is to have a strictly temporary eurobond, which member states would pay off over an agreed time period. At least this proposal would be in line with the more restrictive interpretation of German constitutional law.
Ms Merkel's hostility to eurobonds certainly resonates with the public. Newspapers expressed outrage at the commission's proposal. I thought both the proposal itself and its timing were rather clever. The Commission managed to change the nature of the debate. Ms Merkel can get her fiscal union, but in return she will now have to accept a eurobond. If both can be agreed, the problem is solved. It is the first intelligent official proposal I have seen in the entire crisis.
I have yet to be convinced that the European Council is capable of reaching such a substantive agreement given its past record. Of course, it will agree on something and sell it as a comprehensive package. It always does. But the halt-life of these fake packages has been getting shorter. After the last summit, the financial markets' enthusiasm over the ludicrous idea of a leveraged EFSF evaporated after less than 48 hours.
Italy's disastrous bond auction on Friday tells us time is running out. The eurozone has 10 days at most.
I think this is what he means by the increased fiscal union plans:
http://online.wsj.com/article/SB10001424052970204630904577062592535969680.html?mod=WSJEurope_hpp_LEFTTopStories
In the UK the Treasury have been wargaming the break up of the Euro and I've read that the starting assumption of civil service plans now is that the Euro will break up. I know from friends that the banks and asset management firms are making the same assumption and running the same preparations and I've got a friend working for a financial magazine who's saying the same.
Worryingly apparently Brussels hasn't been establishing contingency plans or wargames because they know they'll leak, if they're seen to prepare for a break up they make it more likely. So if the worst does happen chances are it won't be orderly and managed.
Here's Gavyn Davies's diagram of likely options from here:
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fblogs.ft.com%2Fgavyndavies%2Ffiles%2F2011%2F11%2Fftblog1901-590x472.gif&hash=82c2da0134dfb997be607c3e9e7e0d35b55661e8)
As completely dysfunctional as our government is, and as disasterous as Bush was, I have to say in regards to the US 2008 crisis and the current euro crisis:
Bush + Paulson + Bernanke + Democratic Congress (in the middle of a presidential election) > Europe
Quote from: alfred russel on November 27, 2011, 09:12:05 PM
Bush + Paulson + Bernanke + Democratic Congress (in the middle of a presidential election) > Europe
Agreed. I've always thought that when it mattered the Bush, Paulson and Congress got it right despite politics. It also started my suspicion of Congressional Republicans.
Here's a worry. If the Euro fails or even if we just have ongoing stalling growth for the next year will the Fed be able to act, independently, when one party is opposed to their actions during an election campaign?
Quote from: Sheilbh on November 27, 2011, 09:17:21 PM
Quote from: alfred russel on November 27, 2011, 09:12:05 PM
Bush + Paulson + Bernanke + Democratic Congress (in the middle of a presidential election) > Europe
Agreed. I've always thought that when it mattered the Bush, Paulson and Congress got it right despite politics. It also started my suspicion of Congressional Republicans.
Here's a worry. If the Euro fails or even if we just have ongoing stalling growth for the next year will the Fed be able to act, independently, when one party is opposed to their actions during an election campaign?
The Fed is independent of Congress so it should be able to act as it sees fit as far as I understand it, though that's another bone of contention with some in Congress who'd like to reign in the Fed.
Quote from: Sheilbh on November 27, 2011, 09:17:21 PM
Here's a worry. If the Euro fails or even if we just have ongoing stalling growth for the next year will the Fed be able to act, independently, when one party is opposed to their actions during an election campaign?
Don't see why not. Fed tenures are 5 years long so they don't coincide with elections.
I get that in theory but have you had an election before where one party hugely opposes the actions of the Fed. I think all Republican candidates are to a greater or lesser extent opposed to QE, for example, which the Fed may think is necessary. There have been a lot of attacks on the Fed as an institution and Bernanke as its Chair. Given that I'm not sure the Fed can act with the same sort of independence that it would in a non-election year even if it is being politically attacked. So I'm looking for a comparison.
Has there been an example of an election where the actions of the Fed are both controversially and roundly opposed by one party? I'd guess that possibly the Volker Fed was opposed by Democrats but I don't know? Beyond that surely you'd have go to pre-Fed campaigns like Bryan?
Quote from: Sheilbh on November 27, 2011, 09:17:21 PM
Quote from: alfred russel on November 27, 2011, 09:12:05 PM
Bush + Paulson + Bernanke + Democratic Congress (in the middle of a presidential election) > Europe
Agreed. I've always thought that when it mattered the Bush, Paulson and Congress got it right despite politics. It also started my suspicion of Congressional Republicans.
Here's a worry. If the Euro fails or even if we just have ongoing stalling growth for the next year will the Fed be able to act, independently, when one party is opposed to their actions during an election campaign?
I'm not sure what the fed can do? We have already implemented ZIRP forever.
Theoretically there could be more quantitative easing, but that isn't likely to be a solution. Hopefully the creeping interest rates in the eurozone's strongest members aren't a sign of increasing inflation concerns. If they are, those concerns will probably be here soon anyway.
Quote from: Sheilbh on November 27, 2011, 09:25:47 PM
I get that in theory but have you had an election before where one party hugely opposes the actions of the Fed. I think all Republican candidates are to a greater or lesser extent opposed to QE, for example, which the Fed may think is necessary. There have been a lot of attacks on the Fed as an institution and Bernanke as its Chair. Given that I'm not sure the Fed can act with the same sort of independence that it would in a non-election year even if it is being politically attacked. So I'm looking for a comparison.
Has there been an example of an election where the actions of the Fed are both controversially and roundly opposed by one party? I'd guess that possibly the Volker Fed was opposed by Democrats but I don't know? Beyond that surely you'd have go to pre-Fed campaigns like Bryan?
Bush I against Clinton. Bitching about the fed isn't new. I wouldn't worry about it, especially when the ECB was raising rates a few months ago.
Quote from: alfred russel on November 27, 2011, 09:29:22 PMBush I against Clinton. Bitching about the fed isn't new. I wouldn't worry about it, especially when the ECB was raising rates a few months ago.
The ECB's cutting rates again. The rate rises were pretty heavily criticised.
Quote from: Sheilbh on November 27, 2011, 09:35:14 PM
Quote from: alfred russel on November 27, 2011, 09:29:22 PMBush I against Clinton. Bitching about the fed isn't new. I wouldn't worry about it, especially when the ECB was raising rates a few months ago.
The ECB's cutting rates again. The rate rises were pretty heavily criticised.
As they should have been. They were very stupid.
Quote from: alfred russel on November 27, 2011, 09:29:22 PM
Bush I against Clinton. Bitching about the fed isn't new.
I don't remember any bitching about the Fed back then.
Anything's possible Shelf, but Fed chairman confirmations tend to be about the most uncontroversial activity Washington engages in. I'm pretty sure no nominee has ever been denied.
Quote from: Admiral Yi on November 27, 2011, 09:59:04 PM
Anything's possible Shelf, but Fed chairman confirmations tend to be about the most uncontroversial activity Washington engages in. I'm pretty sure no nominee has ever been denied.
I don't mean anything like that. Rather would the Fed feel constrained in what action it can take if it's become a political issue during an election campaign? I'm wondering if there's any examples.
Quote from: Iormlund on November 27, 2011, 05:58:13 PMWhat it should have done was contain the contagion at an early stage, before it spread to those two, by allaying investor doubt in return for tangible and strong structural reforms.
Germany doesn't believe there would be tangible and strong structural reforms without market pressures. And the containment of contagion is questionable too as the markets would have called that bluff. It's not particularly hard to notice that Germany can't do anything about Italy's debt without being the next in line itself.
Quote from: Sheilbh on November 27, 2011, 08:43:39 PMEverything Germany's agreed to so far in every summit has been the bare minimum necessary, for the previous summit.
Another interpretation is that it was the maximum it could agree on without being ripped apart by internal political divisions.
QuoteEvery time commentators say there's a need for very decisive large-scale intervention and we get a statement that says that's happened and then two or three days later everyone realises that's not really the case.
Our commentators are much more divided upon the issue than the ones in the English press.
QuoteWell Ireland had serious cuts and tax rises for at least two years before they were bailed out. I think Spain and Portugal had some austerity measures prior to getting into trouble (much like France has over the past year).
France was in trouble over the past year as there have been constant doubts about its AAA rating etc. No idea about Spain and Portugal. Ireland actually did what was necessary and is now on a path to growth again.
QuoteHaving said that I think everyone supports Merkel in using this opportunity to get governments to pass reforms and she wants treaty changes to institute fiscal oversight, to ratify the EFSF and so on. All of which is good but I do worry that it just won't work. I can't see the Irish agreeing in a referendum, the UK will use the reopening of treaties as an excuse to try and renegotiate membership, I can't imagine that the Eurosceptic right in Finland or the Netherlands will be keen either.
Everyone supports and it will not pass? So if there is no political will in Ireland or Finland, Merkel gets blamed?
QuoteSo far I think we're very lucky there's not been an anti-German backlash in one of these countries.
Read the news. There has been.
Edging towards a solution? God willing:
QuoteThe euro crisis
Could this be the plan?
Nov 28th 2011, 15:48 by R.A. | WASHINGTON
THERE is an inescapable sense that the euro zone is accelerating toward an uncertain and terrible end. At the Financial Times, Wolfgang Münchau writes that the euro zone has but days to save itself. At Bloomberg, Peter Boone and Simon Johnson say that the beginning of the single currency's end is upon us. And of course, The Economist continues to warn of the rising possibility of a break-up, and explains how one might occur, in the latest print edition. Everywhere one looks, there are portents of doom.
Except, that is, in the markets. Equities are soaring today, perhaps as a result of technical factors like short-covering but perhaps, some suggest, on hopes that the euro zone is finally rising to the challenge facing it. From whence cometh this hope?
Markets appear to see the prospect of salvation in reports of a new policy approach from Angela Merkel and Nicolas Sarkozy. The two are said to be putting together a framework for a rapid move toward greater fiscal integration. Such a plan would likely entail oversight of member-state budgets—and a corresponding loss of sovereignty—with the understanding that such ties would facilitate the way toward sovereign risk-sharing, as through euro bonds. The prospect of fiscal submission to the will of the euro zone's big powers is unlikely to appeal to peripheral countries, but many have already accepted some degree of oversight in exchange for emergency assistance, and the alternatives are likely to be far worse. To get around the need to go through a lengthy and uncertain treaty-change procedure, the plan may be drawn up along the lines of the Schengen agreement on geographic mobility. Countries may be able to sign on on a voluntary basis; it will not be an all or nothing approach. Given the scale of the current debt crisis, mutualisation of fiscal responsibilities won't fix the mess. The main hope for the plan is clearly that a major step toward better fiscal institutions will encourage the European Central Bank to substantially step up its intervention in bond markets.
The approach has several of the ingredients necessary to resolve the crisis, and it isn't crazy to think that it might represent the beginnings of a workable end-game. Yet significant question markets remain. One concerns timing. The euro-zone crisis is galloping forward. Can enough euro-zone governments arrive at an agreement before critical thresholds are reached? Can and will the ECB hold the single currency together for long enough?
Then of course, there are the pesky details. One supposes that peripheral economies may bite the bullet and sign on. To what, however, are Germany and France actually willing to agree? And Finland and the Netherlands? Is this actually going to be fiscal integration with bite? Even if one assumes that the relevant parties are prepared to throw themselves headlong into true fiscal integration, will that convince the ECB to dramatically increase its interventions? Hang-ups about fiscal institutions aren't the only thing deterring the central bank from broader action, remember; Bundesbank officials are also worried about the statutory limits on the ECB's behaviour. Without explicit orders from governments to act as lender-of-last-resort, the ECB may keep its role limited.
It also seems like greater levels of bond purchases aren't enough to save the situation. The ECB has been buying large amounts of debt, to little avail. Markets are looking for guarantees. Without an explicit promise from the ECB that it will stand behind member-state debt, markets will continue to take ECB buying as little more than an opportunity to dump risky bonds. A lot of moving parts have to move in just the right way for a plan like this to work.
Meanwhile, the backdrop against which this drama is taking place is growing ever more foreboding. The OECD declared today that the euro zone is likely in recession. Its latest projections for growth in 2012 are truly dismal—and probably overoptimistic. Real output may contract in France and Germany over the next year. Italy and Spain also face recession, and Portugal and Greece are looking at very deep contractions. Moody's warned today that all of Europe's sovereign ratings are at risk and that multiple defaults can't be ruled out. It is seen as good news that in an auction of 10-year debt this morning, Belgian yields rose to just 5.7%.
Hope is not yet dead. But markets will soon turn sceptical again as they wait for details to materialise. Unless euro-zone leaders can deliver the goods and fast, it won't be long—mere days, perhaps—before panic is once again ripping the single currency apart.
Those OECD estimates are scary. They probably are overoptimistic (given past OECD projections) but they also assume a reasonable outcome to the Euro. Their guess of what could happen if things fall apart is a depression and that could well be overoptimistic.
QuoteAnother interpretation is that it was the maximum it could agree on without being ripped apart by internal political divisions.
I would note that her ability to go a bit further always seems a bit greater immediately after regional elections.
I think British and American governments had to risk that when trying to save the financial sector. There's a time when politicians actually have to lead not follow opinion and I think Merkel's failing on that ground. As Wolf says of the ECB, that it's in danger of going down in history as a magnificently orthodox central bank, I think Merkel's the political equivalent. In ordinary times her instincts would be fine but I think there's a need for bold, unorthodox action.
As it stands I think if Europe fails it will be, above all, Merkel's fault which would be a damning failure for a successor (in office and party) of Adenauer.
Incidentally on past Chancellors I've been wondering how Schroeder's perceived? Given how much people are linking Germany's recent economic success with the Hartz agenda is his time in office being re-evaluated, or not so much?
QuoteOur commentators are much more divided upon the issue than the ones in the English press.
I don't just mean the press though. Though you're right there's a consensus from the Guardian to the Economist on that. Even the Telegraph spends half its time relishing the end of the EU and the other, saner half, fretting about whether it'll be safe in the end. But it's more than the press I mean people like Stephen King, who's head economist of HSBC, economists and asset managers who are commenting.
Quote from: Neil on November 27, 2011, 09:01:41 PM
Quote from: Ideologue on November 27, 2011, 08:24:49 PM
That and the inflation large-scale government spending would entail can save me personally. :P
But what else could help the U.S.? Besides a monarchy, Neil.
Hard to say. A profound cultural shift would be required.
In pretty much the entire free world. Not likely, IMO.
Quote from: Sheilbh on November 28, 2011, 12:35:40 PMQuoteAnother interpretation is that it was the maximum it could agree on without being ripped apart by internal political divisions.
I would note that her ability to go a bit further always seems a bit greater immediately after regional elections.
Yes, but that's not really contradictionary, is it? Of course a politician has more leeway after than before an election.
QuoteAs it stands I think if Europe fails it will be, above all, Merkel's fault which would be a damning failure for a successor (in office and party) of Adenauer.
The perception in Germany is different, so the party of Adenauer won't fault her.
QuoteIncidentally on past Chancellors I've been wondering how Schroeder's perceived? Given how much people are linking Germany's recent economic success with the Hartz agenda is his time in office being re-evaluated, or not so much?
Not sure. My impression is that his esteem is rising among many.
QuoteI don't just mean the press though. Though you're right there's a consensus from the Guardian to the Economist on that. Even the Telegraph spends half its time relishing the end of the EU and the other, saner half, fretting about whether it'll be safe in the end. But it's more than the press I mean people like Stephen King, who's head economist of HSBC, economists and asset managers who are commenting.
It's not just the press here either, but various economists etc. too.
It's interesting to see how in both Spanish and now also main OT fora at Paradox there is growing interest on how to take savings out of our government's reach. That's not a good sign.
Quote from: Iormlund on November 29, 2011, 06:02:56 PM
It's interesting to see how in both Spanish and now also main OT fora at Paradox there is growing interest on how to take savings out of our government's reach. That's not a good sign.
Because plenty of people are a bunch of histerics.
Maybe. But quite frankly, I'd say breakup of the EZ is now the most likely scenario. I can't see enough political will to keep it together.
How much of a clusterfuck would that be? And would it be for the better in the long term?
Quote from: DGuller on November 29, 2011, 06:32:08 PM
How much of a clusterfuck would that be? And would it be for the better in the long term?
A humongous one, which I don't think that people advocating for an euro split are completely aware of.
There is a UBS study about a single country exiting the EZ voluntarily I read sometime ago, but I have no idea how good its conclusions are.
IIRC it predicted a loss of something like 20 to 30% GDP in the first year and single digits afterwards for Germany, up to 50% GDP collapse during the first year and a third of that from then on for a weak member.
Quote from: Iormlund on November 29, 2011, 06:45:38 PM
There is a UBS study about a single country exiting the EZ voluntarily I read sometime ago, but I have no idea how good its conclusions are.
IIRC it predicted a loss of something like 20 to 30% GDP in the first year and single digits afterwards for Germany, up to 50% GDP collapse during the first year and a third of that from then on for a weak member.
:o Heil Merkel? :unsure:
If Germany left, I assume. Portugal certainly wouldn't cause all that.
That's the effect on each economy if that particular country left the Euro. Then there would also be effects on other countries.
Quote from: MadImmortalMan on November 29, 2011, 06:55:08 PM
If Germany left, I assume. Portugal certainly wouldn't cause all that.
The report's here:
http://www.scribd.com/doc/64020390/xrm45126
One of their interesting points is that generally curency breakups also involve authoritarian regimes or civil wars.
But if you think about it the consequences would be catastrophic.
Many countries would default on domestic debt, or see that debt effectively devalued due to conversion. That would almost certainly cause a collapse of the banking system in Europe - probably in the UK and possibly in the US too (and you've banned bailouts). The conversion and exchange rate fluctuations would be totally unexpected and difficult to predict - no institution's really prepared for them.
In addition there's all the legal questions of how to redenominate every single contract of the last 10 years - Nomura's produced a paper on this. (Edit: I think Nomura's also produced a paper advising investors how to try and do well out of a Eurocollapse - which surely is a bad sign.)
This is the OECD on a potential exit from the Euro following sovereign default: "[T]he political fall-out would be dramatic and pressures for euro area exit could be intense ... Such turbulence in Europe, with the massive wealth destruction, bankruptcies and a collapse in confidence in European integration and co-operation would most likely result in a deep depression in both the exiting and remaining euro area countries as well as in the world economy."
The OECD doesn't normally use that sort of language. There's war-gaming of Eurocollapse in Whitehall but we just had the independent economic forecasts or the year last year. The Office behind it effectively said that they couldn't guess at what the consequences of a Euro break down would be, it's just a significant down side risk.
As I've said, in my view, the collapse of the Euro would almost certainly lead to the collapse of the EU (that's why the Polish Foreign Minister made an extraordinary plea in Berlin yesterday).
All of this is assuming a disorderly exit though. That seems the most likely kind of Eurocollapse we'll see but I think some managed exits may not be nearly as bad, but who can say.
QuoteBecause plenty of people are a bunch of histerics.
Possibly. Both BNP Paribas and Citi have observed in recent days a shift in corporates withdrawing money from Italy, Spain, France and Belgium and moving it to the core or outside the Eurozone - Scandinavia's popular. It's not significant or a run at this point but it's a worrying trend given the stress banks are already under and if it grows it could be very significant.
Edit:
This is also relevant:
http://www.bloomberg.com/news/2011-11-28/mounting-euro-breakup-risk-seen-by-banks-as-debt-crisis-festers.html
Not to mention the head of Fitch's sovereign rating department saying investors are questioning the validity of the entire Eurosystem and the Eurobanks are getting antsy:
QuoteUpdate 08:57: There was a big jump in what eurozone banks deposited at the European Central Bank last night to just under 300bn euros - which shows that they're even more fearful than they were of lending to each other.
The increase over the past fortnight in what they are placing at the ECB is more than 100bn euros.
Eurozone banks are opting for the security of lending to the central bank at a paltry interest rate over earning a proper return by putting their money to work. It shows how anxious they are.
And it also shows that parts of the eurozone are close to a credit crunch, if not already in one.
Again I think a lot of the problems here are ones of confidence and liquidity. No-one's going to buy any sovereign debt in this market.
Quote from: Iormlund on November 29, 2011, 06:45:38 PM
There is a UBS study about a single country exiting the EZ voluntarily I read sometime ago, but I have no idea how good its conclusions are.
IIRC it predicted a loss of something like 20 to 30% GDP in the first year and single digits afterwards for Germany, up to 50% GDP collapse during the first year and a third of that from then on for a weak member.
Good God. Jews should probably start making their arrangements.
Quote from: Sheilbh on November 30, 2011, 12:35:18 AM
All of this is assuming a disorderly exit though. That seems the most likely kind of Eurocollapse we'll see but I think some managed exits may not be nearly as bad, but who can say.
I can't see how an orderly exit is even remotely realistic. As soon as rumors of negotiations were heard massive bank runs would take place.
This was unexpected:
QuoteBreaking news -- six of the world's central banks have just announced a co-ordinated move to boost liquidity in the world's financial system -- an attempt to avoid a new credit crunch.
Just hitting the wires now. The emergency measure involves the Federal Reserve, the European Central Bank, the Bank of England, the Bank of Japan, the Bank of Canada and the Swiss Central Bank. They are all cutting the interest rates on 'dollar swaps', which will effectively make it cheaper for commercial banks to get access to dollars.
The six central banks also said they could expand the move to other currencies if needed.
The move has sent stock markets surging, with the FTSE 100 now up 146 points.
More very soon.
Follow-up:
QuoteThe unexpected co-ordination announced by the world's major central banks has been prompted by the crisis in Europe. Analysts have warned in recent weeks that some of Europe's banks were struggling to access funding, on fears of a disorderly default within the eurozone.
In practice, the Federal Reserve sends dollars over to the European Central Bank, in return for euros. By cutting the cost of that transaction (the 'dollar swap rate'), the move should make it much cheaper for European banks to access dollars.
America isn't actually paying the bill to fix Europe's banks, of course -- the Federal Reserve is swapping greenbacks for euros. But, as Bloomberg put it, "the US is helping to fix the crisis in Europe."
But there'll be more coming. This is only the last hour or so.
Yep, unexpected, I was short :P
Isn't this:
-the exact same thing which has been lackluster for the US and failing in Europe for the last almost 3 years, just on a massive scale?
-The Final Shot? What else can they come up with if this won't help?
It's not QE which has been working in the US, lackluster in the UK and not tried in Europe.
I think the last time the central banks did something like this was after Fukushima.
Hopefully this is the first step in resolving this crisis and it's happened because the EcoFin meeting's made major decisions ahead of the Eurosummit - not just a rejigging of EFSF leverage. Hopefully.
Edit: The Observer's economic editor say this confirms we're in a second credit crunch now, the worry is starting to attach to banks as well as sovereigns. She also said that central banks only coordinate like this in moments of 'extreme crisis' :bleeding:
Quote from: Iormlund on November 29, 2011, 06:45:38 PM
There is a UBS study about a single country exiting the EZ voluntarily I read sometime ago, but I have no idea how good its conclusions are.
IIRC it predicted a loss of something like 20 to 30% GDP in the first year and single digits afterwards for Germany, up to 50% GDP collapse during the first year and a third of that from then on for a weak member.
That doesn't make sense. Countries switch currencies all the time.
I could see a major problem with a single country leaving in terms of a giant legal mess, but a lot of that could be avoided if the euro ceased to exist (perhaps technically replaced with a "european" or some other name).
Quote from: Sheilbh on November 30, 2011, 12:35:18 AM
One of their interesting points is that generally curency breakups also involve authoritarian regimes or civil wars.
That strikes me as silly. Multinational currency unions formed by stable democratic countries are rare: the eurozone is the only one I can think of at the moment. Currency unions are often driven by instability (outsourcing monetary policy to a third party to give confidence in the money supply that the government can't), so observing instability at a breakup isn't suprising either.
Quote from: alfred russel on November 30, 2011, 09:00:36 AMThat doesn't make sense. Countries switch currencies all the time.
What countries do you mean?
QuoteI could see a major problem with a single country leaving in terms of a giant legal mess, but a lot of that could be avoided if the euro ceased to exist (perhaps technically replaced with a "european" or some other name).
I think there'd be issues on their debt, almost certainly there'd be widespread defaults of banks. I don't know how a general collapse would work - beyond not well - but there's no way a country can leave the Euro. The only treaty provisions are for leaving the EU. There's no legal way out of the Euro. So if a country were to leave it would almost certainly have to leave the EU - which means no more common market. In addition the Commission's said of countries leaving the EU that they would compensate against any currency manipulation - which probably means tariffs.
So if you have a sovereign default, probably banking sector failure, being cut out of your export market and the general economic effects that you exit's caused for your neighbours then I think you'll see serious economic decline. The UBS assumption for a weak country, say, Greece is devaluation of around 60%, cut of 50% to volume of trade and basically the Argentine model for a banking failure. They consider these conservative estimates and they exclude the cost civil disorder (there would be riots) and possible national break-up (if we replaced Greece with Belgium, or Spain).
For a strong country domestic defaults not a problem but suddenly the banking sectors got a balance sheet full of New Drachmas, Escudos and Guilders which will be of fluctuating and unpredictable value. The banks would almost certainly require massive recapitalisation. The end of the single market would be the end of inter-European exports, in the short term, so it would not be okay for Northern Europe.
I think the reason you have to assume that things would happen legally and chaotically is that given that we're assuming that these governments have so failed that the Euro's collapsing, it seems ambitious to see them somehow creating a structure that allows the EU to remain more or less intact, or to get the necessary treaty changes for Euro-members to leave.
I've heard lots of ingenious getarounds by Eurosceptics of how Greece could leave the Euro while remaining in the EU, none of them seem that plausible.
QuoteThat strikes me as silly. Multinational currency unions formed by stable democratic countries are rare: the eurozone is the only one I can think of at the moment. Currency unions are often driven by instability (outsourcing monetary policy to a third party to give confidence in the money supply that the government can't), so observing instability at a breakup isn't suprising either.
There's no comparison of stable democratic countries. The examples they've got are more or less helpful but I think this is fair:
QuoteWith this degree of social dislocation, the historical parallels are unappealing. Past instances of monetary union break-ups have tended to produce one of two results. Either there was a more authoritarian government response to contain or repress the social disorder (a scenario that tended to require a change from democratic to authoritarian or military government), or alternatively, the social disorder worked with existing fault lines in society to divide the country, spilling over into civil war. These are not inevitable conclusions, but indicate that monetary union break-up is not something that can be treated as a casual issue of exchange rate policy.
Even with a paucity of case studies, what evidence we have does lend credence to the political cost argument. Clearly, not all parts of a fracturing monetary union necessarily collapse into chaos. The point is not that everyone suffers, butthat some part of the former monetary union is highly likely to suffer.
But the truth is Spain, Portugal and Greece were ruled by authoritarian regimes about 30-40 years ago. Many European countries have suffered from domestic terrorism or violent separatist movements. I don't think it's possible to rule out violence and authoritarianism rising in the sort of economic context that'd exist if the Euro failed.
Sheilbh, look at Latin America, there are periodic currency shifts there, usually after a bout of really bad inflation.
You are making the situation worse than it needs to be. Just because there isn't a mechanism to leave the eurozone doesn't mean the common market will fail if someone needs to leave. A mechanism will simply need to be created.
As for bank failures, I don't see why there would need to be bank failures because of a currency change. I would think that most of the bank liabilities would be in the new euro currencies (probably devalued), and as for dollar liabilities, the euro even with its recent collapse is still stronger vs. the dollar than it was recently including when it first opened. Any prudent risk management would contemplate potential gains for the dollar from where it is now.
As for authoritarian regimes, despite the recent past, I think democracy is quite durable in Greece, Spain, and Portugal.
What would be the mechanics of some country leaving the Euro? Surely it's not as simple as that country's central bank just printing some pieces of paper and offering to give that in exchange for a Euro?
Most of UBS's modelling for weak countries is based on Latin America - especially Argentine and Uruguayan currency collapses.
Your assuming a new Euro. That's only one of the potential options.
QuoteYou are making the situation worse than it needs to be. Just because there isn't a mechanism to leave the eurozone doesn't mean the common market will fail if someone needs to leave. A mechanism will simply need to be created.
There's simply no mechanism in the treaties. The treaties can't be amended without the agreement of all 27 countries according to their domestic arrangements - including an Irish referendum. I get the idea that we'll simply create a mechanism to sort this out but I can't think of an example of the EU ever doing anything like that. It would be like the US creating an extra-constitutional short-term arrangement.
Obviously you're right that if the Eurozone fails then it'll just fail. But I think if we've reached that point then it won't be happening in an orderly enough way to maintain the common market.
On the banks weaker countries will either default on domestic debt, pay it in Euros - difficult given the potential trade problems - or force convert it into a new currency. The government would probably force conversions at a set value - I don't know why they'd only do that to Euro assets either. That'll be significantly devalued which would damage the banks and the government would need to prevent runs on them and impose very strict capital controls.
For a stronger country it's dealing with the balance sheet of the weaker countries given currency fluctuations - basically the same problem the UK and (probably) the US would have to deal with. But more because Eurobanks are more exposed.
My general point, as I said earlier, is I think this is like a WW1 situation. We're rationally stepping towards a state that will reverse the progress of decades. We can see the crisis coming and ways of getting out of it but are continuing anyway. Generally I think democracy's durable, but I don't think we're doomed to a better tomorrow and I think faced with the sort of economic turmoil that could arise we shouldn't be too sanguine about it. Even the recent examples of countries that have gone through something similar - though democracy had a weaker tradition in those countries - are Russia and Argentina. They're pretty ambiguous.
Quote from: DGuller on November 30, 2011, 12:00:18 PM
What would be the mechanics of some country leaving the Euro? Surely it's not as simple as that country's central bank just printing some pieces of paper and offering to give that in exchange for a Euro?
There isn't a mechanism, but it would be a lot more complicated if the euro continued to exist. Otherwise, the governments would need to establish a new currency and exchange rate to euro, and declare debts public and private convert at that rate. There might need to be restrictions about moving currency across borders for a time. There would also need to be some understanding of how multinational contracts are interpreted, which would obviously be difficult considering the common market. It would be a mess.
This action makes me wonder if a big eurobank came close to failing last night.
Quote from: DGuller on November 30, 2011, 12:00:18 PM
What would be the mechanics of some country leaving the Euro? Surely it's not as simple as that country's central bank just printing some pieces of paper and offering to give that in exchange for a Euro?
Legally there's no way for a country to leave the Euro. When the treaties were being updated for the Euro it was decided not to include a withdrawal mechanism. The theory was that it would show a lack of commitment and that by creating a mechanism to leave you'd make leaving more likely. UBS suggest, I think plausibly, that it was thought that if you don't have a mechanism you make leaving so painful that no-one will ever do it.
Lisbon allows for a member state to leave the EU - but from what I understand there's no mechanism described and it's a bit like membership it's negotiated on an individual basis.
Quote from: alfred russel on November 30, 2011, 11:43:55 AM
You are making the situation worse than it needs to be. Just because there isn't a mechanism to leave the eurozone doesn't mean the common market will fail if someone needs to leave. A mechanism will simply need to be created.
Creating an orderly exit mechanism would be much harder and slower to do than actually saving the Euro. If we get there chances are it will be pretty much chaos simply because it derives from gross political failure in the first place.
Quote from: MadImmortalMan on November 30, 2011, 12:17:41 PM
This action makes me wonder if a big eurobank came close to failing last night.
This morning the Italian government asked the Italian Central Bank to extend overnight lending facilities to Italian banks - which was noted as being a bit strange as that's something the ECB do. I don't know what that means but I've read that it's possibly due to a funding problems? :mellow:
Quote from: Sheilbh on November 30, 2011, 12:14:15 PM
Most of UBS's modelling for weak countries is based on Latin America - especially Argentine and Uruguayan currency collapses.
Your assuming a new Euro. That's only one of the potential options.
QuoteYou are making the situation worse than it needs to be. Just because there isn't a mechanism to leave the eurozone doesn't mean the common market will fail if someone needs to leave. A mechanism will simply need to be created.
There's simply no mechanism in the treaties. The treaties can't be amended without the agreement of all 27 countries according to their domestic arrangements - including an Irish referendum. I get the idea that we'll simply create a mechanism to sort this out but I can't think of an example of the EU ever doing anything like that. It would be like the US creating an extra-constitutional short-term arrangement.
Obviously you're right that if the Eurozone fails then it'll just fail. But I think if we've reached that point then it won't be happening in an orderly enough way to maintain the common market.
On the banks weaker countries will either default on domestic debt, pay it in Euros - difficult given the potential trade problems - or force convert it into a new currency. The government would probably force conversions at a set value - I don't know why they'd only do that to Euro assets either. That'll be significantly devalued which would damage the banks and the government would need to prevent runs on them and impose very strict capital controls.
For a stronger country it's dealing with the balance sheet of the weaker countries given currency fluctuations - basically the same problem the UK and (probably) the US would have to deal with. But more because Eurobanks are more exposed.
My general point, as I said earlier, is I think this is like a WW1 situation. We're rationally stepping towards a state that will reverse the progress of decades. We can see the crisis coming and ways of getting out of it but are continuing anyway. Generally I think democracy's durable, but I don't think we're doomed to a better tomorrow and I think faced with the sort of economic turmoil that could arise we shouldn't be too sanguine about it. Even the recent examples of countries that have gone through something similar - though democracy had a weaker tradition in those countries - are Russia and Argentina. They're pretty ambiguous.
Sheilbh, I don't follow the mechanisms. It seems the steps are:
1. Countries decide to dissolve the eurozone.
2. ???
3. Common market is gone.
The common market is distinct from the eurozone, has members that are not in the eruozone, predates the euro, and has almost universal support. I see no reason to think it is going away.
As for banks failing--they might fail because of insolvency issues. That is distinct from a currency problem. But I don't follow how a currency change will make them fail. Both their assets and liabilities would presumably convert based on the exchange rate dictated by the government. It is true that the new currencies might lose value in some countries that could cause problems with non euro liabilities, but at least with the USD the governments have been extremely fortunate in the past. The euro has gained something like 40% against the USD in the past year--even after its recent struggles. Their risk management should be ready for an event that reverts exchange rates back to where they were during a 10 year period.
Quote from: Iormlund on November 30, 2011, 12:22:29 PM
Quote from: alfred russel on November 30, 2011, 11:43:55 AM
You are making the situation worse than it needs to be. Just because there isn't a mechanism to leave the eurozone doesn't mean the common market will fail if someone needs to leave. A mechanism will simply need to be created.
Creating an orderly exit mechanism would be much harder and slower to do than actually saving the Euro. If we get there chances are it will be pretty much chaos simply because it derives from gross political failure in the first place.
I completely agree. But I can't believe a 30-50% GDP contraction if it was to happen either.
Quote from: Sheilbh on November 30, 2011, 12:21:34 PM
Legally there's no way for a country to leave the Euro.
I don't see why this is so important--my understanding is that there aren't legal ways to do a lot of the solutions and actions being contemplated. This is why there are so many summits, etc. So agreements can be reached to create the authority needed to resolve the crisis.
Quote from: alfred russel on November 30, 2011, 12:30:20 PMSheilbh, I don't follow the mechanisms. It seems the steps are:
1. Countries decide to dissolve the eurozone.
2. ???
3. Common market is gone.
The common market is distinct from the eurozone, has members that are not in the eruozone, predates the euro, and has almost universal support. I see no reason to think it is going away.
They both come from the EU and draw their legal force from the treaties. There is no legal mechanism to leave the way to leave the Euro without leaving the EU. If you leave the EU then you're out of the single market. At the minute the situation is that a country can no more withdraw from the Euro and remain within the EU, and as a consequence the single market, than they could withdraw from the single market and remain within the EU.
So if we assume Greece leaves the Euro they will leave the EU. It's simply impossible to imagine a founder member like Italy leaving the Euro or the EU unless the whole thing's falling apart.
To be honest I think if this was easy and non-crippling the Greeks would already have done it.
Quote from: alfred russel on November 30, 2011, 12:36:12 PM
Quote from: Sheilbh on November 30, 2011, 12:21:34 PM
Legally there's no way for a country to leave the Euro.
I don't see why this is so important--my understanding is that there aren't legal ways to do a lot of the solutions and actions being contemplated. This is why there are so many summits, etc. So agreements can be reached to create the authority needed to resolve the crisis.
You'd have to amend an existing or create a new EU treaty. That means everyone giving their approval - including an Irish referendum. All while money vanishes from the area and banks fall left and right.
Quote from: Iormlund on November 30, 2011, 12:47:44 PM
You'd have to amend an existing or create a new EU treaty. That means everyone giving their approval - including an Irish referendum. All while money vanishes from the area and banks fall left and right.
Is that the only way? When push comes to shove, soveriegn governments tend to do what they want.
Quote from: alfred russel on November 30, 2011, 12:36:12 PMI don't see why this is so important--my understanding is that there aren't legal ways to do a lot of the solutions and actions being contemplated. This is why there are so many summits, etc. So agreements can be reached to create the authority needed to resolve the crisis.
There are always this many summits. They just normally don't matter to the world. But I don't think you're right, they've been creative and pushed the treaties to the limit but they have operated within them. All authority over the past few months has been based on the existing treaties and, I think, approved by the German Constitutional Court.
If we reach the point where it's all falling apart then you're right the treaties probably won't matter. And we'll already have seen so large a political failure that I think any salvaging operation would be very difficult.
But this isn't a case of the EU making a change so it's okay for a country to leave. It's about all 27 countries agreeing to that treaty change - so our government overcoming the British Eurosceptic Tories not going mad that we're not renegotiating everything - and that it's then passed - which includes an Irish referendum and (I think) the German Constiutional Court checking it out. It's effectively 27 countries having to make a change that's acceptable in their own domestic situation.
Saying that it should just be cobbled together is like suggesting Congress and the President should allow some extra-constitutional procedure on a bare majority justified by a crisis. I just don't think it'd fly.
Quote from: alfred russel on November 30, 2011, 12:54:28 PMIs that the only way? When push comes to shove, soveriegn governments tend to do what they want.
27 of them, in unison? Maybe. But given that they'll have failed to act together to save the Euro in the past 18 months I don't see them somehow managing this.
Quote from: Sheilbh on November 30, 2011, 12:41:18 PM
To be honest I think if this was easy and non-crippling the Greeks would already have done it.
Three reasons:
1) it actually isn't easy, I'm only saying 30-50% GDP contraction is crazy.
2) if Greece leaves the euro will still exist, which makes things messier.
3) the rest of the eurozone and EU is prone to telling Greece to get lost in a way it isn't for Spain or Italy.
Also, there are some prominent voices that think leaving the euro is still the best course for Greece.
Quote from: alfred russel on November 30, 2011, 12:58:24 PMAlso, there are some prominent voices that think leaving the euro is still the best course for Greece.
I don't think many of them know much about the EU though and it's worth noting that I think only the Communists - in Greece - support withdrawing from the Euro. The rest are committed to whatever it takes to stay in.
Over here the hardline Eurosceptics are pretty supportive of Greece leaving.
Quote from: Sheilbh on November 30, 2011, 12:56:16 PM
Quote from: alfred russel on November 30, 2011, 12:54:28 PMIs that the only way? When push comes to shove, soveriegn governments tend to do what they want.
27 of them, in unison? Maybe. But given that they'll have failed to act together to save the Euro in the past 18 months I don't see them somehow managing this.
If Germany, France, the UK, Spain, and Italy come to an agreement and are serious enough about it, the rest don't really matter, right? If it is deemed serious enough, they can just leave and form a duplicate EU without the euro. If Slovakia doesn't like it, they can of course decline to join up.
I don't see why even a disorderly exit of Greece (or others) from the Eurozone would destroy the Common Market. We ignored the treaties when starting the bailouts and EFSF too, so legality is not really an argument. Even with the New Drachma, Greece and everybody else would still benefit from the Common Market. They would probably need to institute capital controls for a time to make the switch, but that's all really.
Quote from: alfred russel on November 30, 2011, 12:58:24 PM3) the rest of the eurozone and EU is prone to telling Greece to get lost in a way it isn't for Spain or Italy.
Why? It's not like any argument about the benefits of the single market and EU membership rely on Euro membership - for both Greece and the rest of the EU.
Quote from: alfred russel on November 30, 2011, 01:08:54 PM
Quote from: Sheilbh on November 30, 2011, 12:56:16 PM
Quote from: alfred russel on November 30, 2011, 12:54:28 PMIs that the only way? When push comes to shove, soveriegn governments tend to do what they want.
27 of them, in unison? Maybe. But given that they'll have failed to act together to save the Euro in the past 18 months I don't see them somehow managing this.
If Germany, France, the UK, Spain, and Italy come to an agreement and are serious enough about it, the rest don't really matter, right? If it is deemed serious enough, they can just leave and form a duplicate EU without the euro. If Slovakia doesn't like it, they can of course decline to join up.
Germany and France are supposedly considering a "Coalition of the Willing" that will be in parallel to the current EU treaties and will be open to Eurozone members that are willing to go further on common fiscal policy. If that thing flies, we'll have a "core" that is defined not like it is defined now but rather by willingness to commit to common fiscal policy. The "periphery" will be those Eurozone countries that prefer to stay out. The advantage is that it can be implemented faster than a general EU treaty change.
Quote from: Zanza on November 30, 2011, 01:21:56 PM
Quote from: alfred russel on November 30, 2011, 12:58:24 PM3) the rest of the eurozone and EU is prone to telling Greece to get lost in a way it isn't for Spain or Italy.
Why? It's not like any argument about the benefits of the single market and EU membership rely on Euro membership - for both Greece and the rest of the EU.
Because Greece is a small enough country that its benefits in the common market are small, so having them exit wouldn't be a big deal to the rest of the eu. But if you wanted to prevent countries from leaving the euro, then the precedent of letting them drop the currency but stay in the eu could be big.
Yes, but throwing them out of the EU would reverse 50 years of progress as Sheilbh said. Why would any EU politican want that? I think leaving the Euro will be painful enough to prevent other countries from dropping out.
If the Greeks were sent to Madagascar the better areas of Greece could be sold off to pay the debt. As they are now, with Greeks in them, they are worthless.
Quote from: The Brain on November 30, 2011, 01:29:14 PM
If the Greeks were sent to Madagascar the better areas of Greece could be sold off to pay the debt. As they are now, with Greeks in them, they are worthless.
Or maybe they'll use their freedom of movement and move to the EU country with the best economy: Sweden. ;)
Quote from: Zanza on November 30, 2011, 01:28:58 PM
Yes, but throwing them out of the EU would reverse 50 years of progress as Sheilbh said. Why would any EU politican want that? I think leaving the Euro will be painful enough to prevent other countries from dropping out.
Sheilbh is the talking about the threat to the common market, I'm the one arguing with him. :cool:
Yes, but you think that one of the reasons why Greece hasn't left yet is that it fears that "the rest of the eurozone and EU is prone to telling Greece to get lost in a way it isn't for Spain or Italy". I don't think that the rest of the EU would do that.
The aftershocks of the financial crisis have really exposed the respective institutional weaknesses of the US and the EU respectively. The fact that the US nearly defaulted on its sovereign bonds and ate a rating downgrade is pretty serious indictment of the current American political process; but the inability of the EU to act in a decisive manner is really quite staggering. A problem that could have been resolved months ago with some common sense and willingness to bend a few principles has now mestatisized into a fiasco that threatens to take down what just a year ago was being debated as a potential successor to the dollar as the pivotal world reserve currency.
Quote from: Sheilbh on November 30, 2011, 12:54:57 PM
There are always this many summits. They just normally don't matter to the world. But I don't think you're right, they've been creative and pushed the treaties to the limit but they have operated within them. All authority over the past few months has been based on the existing treaties and, I think, approved by the German Constitutional Court.
If we reach the point where it's all falling apart then you're right the treaties probably won't matter. And we'll already have seen so large a political failure that I think any salvaging operation would be very difficult.
But this isn't a case of the EU making a change so it's okay for a country to leave. It's about all 27 countries agreeing to that treaty change - so our government overcoming the British Eurosceptic Tories not going mad that we're not renegotiating everything - and that it's then passed - which includes an Irish referendum and (I think) the German Constiutional Court checking it out. It's effectively 27 countries having to make a change that's acceptable in their own domestic situation.
Saying that it should just be cobbled together is like suggesting Congress and the President should allow some extra-constitutional procedure on a bare majority justified by a crisis. I just don't think it'd fly.
Did anyone ever stop and think that maybe modeling EU after a Polish-Lithuanian Commonwealth is not the best thing? Constitution should be hard to change, but there is a balance to be struck. You don't want to make it so hard to change that you're stuck with a relic of a system and no exit strategy, because the ultimate end-game for those systems is a violent disintegration.
Quote from: Zanza on November 30, 2011, 01:40:45 PM
Yes, but you think that one of the reasons why Greece hasn't left yet is that it fears that "the rest of the eurozone and EU is prone to telling Greece to get lost in a way it isn't for Spain or Italy". I don't think that the rest of the EU would do that.
Presumably the only way to exit the euro without rewriting the rules is to exit the EU. So there was some literary license taken when I wrote that: the EU wouldn't actively tell Greece to get lost, it would rather be a question of how hard they would actively work to keep them in sans euro after Greece took steps that would lead toward an exit.
I don't see what interest the EU or Greece would have in making the situation even worse after a disorderly exit from the Eurozone.
There may not be any rules regarding a country leaving the Euro, but what is going to stop the Greeks from just up and doing it? It's not like they have complied with any of the rules while being in the Eurozone and nothing ever happened to them...
Superior airborne equipment and tactics should ensure that the Second Battle of Crete goes better.
Quote from: DGuller on November 30, 2011, 01:57:27 PMDid anyone ever stop and think that maybe modeling EU after a Polish-Lithuanian Commonwealth is not the best thing? Constitution should be hard to change, but there is a balance to be struck. You don't want to make it so hard to change that you're stuck with a relic of a system and no exit strategy, because the ultimate end-game for those systems is a violent disintegration.
The US could transform its Articles of Confederation into the highly successful US constitution.
The talk about the 27 countries misses the point that the real problem here lies with the core, not the periphery. The new states with a couple exceptions are realtively sound, and they are not in the ones standing in the way of effective resolution, as Sikorski's extraordinary intervention reminded us. The Franco-German-Italian core never took the stability pacts seriously and set the tone for everyone else. Italy dug itself into an impossible hole while the others rolled their eyes, tolerated Silvio's antics and made ethnically condescending jokes - now the joke is on them. Germany, Holland and the Nordics reaped the benefits of the Euro but have done everything they can to avoid confronting the consequences and side effects of those benefits.
Dumping on Greece, howevery psychically satsifying, is just gross hypocrisy - it is like the corner liquor store owner casting moral opprobrium on the town drunk while counting up his Night Train receipts.
The tragedy is that I do think Merkel wants to do the right thing and is moving in the right direction, but it is all too little, too late.
Quote from: DGuller on November 30, 2011, 01:57:27 PM
Did anyone ever stop and think that maybe modeling EU after a Polish-Lithuanian Commonwealth is not the best thing? Constitution should be hard to change, but there is a balance to be struck. You don't want to make it so hard to change that you're stuck with a relic of a system and no exit strategy, because the ultimate end-game for those systems is a violent disintegration.
Yes, thus the attempt to rewrite the treaties in the form of the much maligned Constitution. Unfortunately, that didn't go that well.
Quote from: The Minsky Moment on November 30, 2011, 02:24:13 PM
The tragedy is that I do think Merkel wants to do the right thing and is moving in the right direction ...
What makes you think that?
Germany's one year bond yields are negative now. People are paying to own short-term German debt.
Quote from: Zanza on November 30, 2011, 02:35:22 PM
Germany's one year bond yields are negative now. People are paying to own short-term German debt.
the crash from this sudden insane optimism today will be quick and spectacular.
Quote from: Tamas on November 30, 2011, 02:38:42 PM
the crash from this sudden insane optimism today will be quick and spectacular.
Looks to me like a safe haven, not insane optimism.
Wonder what's happing to Swiss securities.
Yep. Money is in full flight mode from any potentially affected country now. I know I would do the same if I had any significant savings.
Quote from: The Minsky Moment on November 30, 2011, 01:48:47 PM
A problem that could have been resolved months ago with some common sense and willingness to bend a few principles
Please elaborate.
Quote from: Admiral Yi on November 30, 2011, 02:41:16 PMLooks to me like a safe haven, not insane optimism.
Wonder what's happing to Swiss securities.
Switzerland hasn't paid interest for several months now on its government debt. They also had to set an upper limit on the CHF - EUR exchange rate, which means their Central Bank is willing to print unlimited amounts of CHF to buy Euro if necessary. Ironically, they would only buy safe Euro assets, meaning German and possibly French or so securities. Which will widen the spread to Italian and Spanish bonds. And the CHF goes up to a good degree because people from the Euro periphery look for a safer asset and buy CHF...
Quote from: MadImmortalMan on November 30, 2011, 12:17:41 PM
This action makes me wonder if a big eurobank came close to failing last night.
Jim Cramer just tweeted:
Quote
jimcramer Jim Cramer
I believe a major European Bank would have gone under this weekend....That's why they did this....
Maybe I should be worried. If I start thinking Cramer-style I'll have to quit investing.
I expect that the ECB will start monetizing government debt within days.
France will need 37 billion Euro in December, Italy needs more than 50 billion Euro in February.
Quote from: Zanza on November 30, 2011, 01:31:11 PM
Quote from: The Brain on November 30, 2011, 01:29:14 PM
If the Greeks were sent to Madagascar the better areas of Greece could be sold off to pay the debt. As they are now, with Greeks in them, they are worthless.
Or maybe they'll use their freedom of movement and move to the EU country with the best economy: Sweden. ;)
Unlikely. Here you pay taxes.
Quote from: The Minsky Moment on November 30, 2011, 02:24:13 PM
Dumping on Greece, howevery psychically satsifying, is just gross hypocrisy - it is like the corner liquor store owner casting moral opprobrium on the town drunk while counting up his Night Train receipts.
Which is it? Make up your mind.
Quote from: Admiral Yi on November 30, 2011, 02:46:23 PM
Quote from: The Minsky Moment on November 30, 2011, 01:48:47 PM
A problem that could have been resolved months ago with some common sense and willingness to bend a few principles
Please elaborate.
Firing a Paulson-Bernanke sized bazooka and committing $1 trillion in real money to the stability fund. Biting the bullet on the eurobond concept. Earlier and more aggressive provision of liquidity from ECB to the banking sector. Shock and awe the market and convince them that Eurozone institutions and member states put the integrity of the single currency as the top priority - even over inflation risks or other particular national concerns.
Instead the member states have convinced the markets that they will rather see the euro fall apart over compromising other principles. The market reacts accordingly and the prophecy becomes self-fulfilling.
Quote from: Zanza on November 30, 2011, 04:15:58 PM
I expect that the ECB will start monetizing government debt within days.
France will need 37 billion Euro in December, Italy needs more than 50 billion Euro in February.
It has already happened in fact if not as a matter of policy; the ECB's latest sterilization auction came up short.
There's an interesting article suggesting that the Fed could buy Eurozone bonds in order to prevent a collapse and a subsequent deflationary effect it would have on the US.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8918784/Should-the-Fed-save-Europe-from-disaster.html
JR, so how bad do you think things will be? I'm trying to decide between 3 options: not so bad, bad, and very bad.
Not so bad: Plan is to reallocate into canned goods and basic medical supplies.
Bad: society violently collapses. Stores of value will be of little use and will only leave you a target. Plan is to reallocate in guns and ammunition.
Very bad: Rambo might no last a day where we are headed. Immediately reallocate all savings into taco bell and die in an epic binge of gluttony.
The Taco Bell plan sounds best.
Quote from: PJL on November 30, 2011, 04:48:12 PM
There's an interesting article suggesting that the Fed could buy Eurozone bonds in order to prevent a collapse and a subsequent deflationary effect it would have on the US.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8918784/Should-the-Fed-save-Europe-from-disaster.html
I don't know why that would be deflationary; I would think it would be inflationary.
Quote from: Zanza on November 30, 2011, 04:55:53 PM
The Taco Bell plan sounds best.
It is the only way for a 21st century american to go.
Quote from: alfred russel on November 30, 2011, 04:54:07 PM
Very bad: Rambo might no last a day where we are headed. Immediately reallocate all savings into taco bell and die in an epic binge of gluttony.
Sounds like a horrible way to die.
Quote from: alfred russel on November 30, 2011, 04:59:19 PM
Quote from: PJL on November 30, 2011, 04:48:12 PM
There's an interesting article suggesting that the Fed could buy Eurozone bonds in order to prevent a collapse and a subsequent deflationary effect it would have on the US.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8918784/Should-the-Fed-save-Europe-from-disaster.html
I don't know why that would be deflationary; I would think it would be inflationary.
I read somewhere (forget where) that it could be deflationary. I actually have no idea. All I know is that a serious deflationary turn for the U.S. dollar would not help me/ruin me, whereas moderate-to-hyperinflation could, conceivably, get me out of a jam. So should I root for the collapse of the Euro or not? (I guess on principle I don't but these aren't principled times and it's not like I can wish European integration into being anyway.)
Quote from: alfred russel on November 30, 2011, 04:59:19 PM
Quote from: PJL on November 30, 2011, 04:48:12 PM
There's an interesting article suggesting that the Fed could buy Eurozone bonds in order to prevent a collapse and a subsequent deflationary effect it would have on the US.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8918784/Should-the-Fed-save-Europe-from-disaster.html
I don't know why that would be deflationary; I would think it would be inflationary.
No, you read it wrong, I mean the move would be counter-deflationary.
Quote from: The Minsky Moment on November 30, 2011, 04:41:37 PM
Firing a Paulson-Bernanke sized bazooka and committing $1 trillion in real money to the stability fund. Biting the bullet on the eurobond concept. Earlier and more aggressive provision of liquidity from ECB to the banking sector. Shock and awe the market and convince them that Eurozone institutions and member states put the integrity of the single currency as the top priority - even over inflation risks or other particular national concerns.
Instead the member states have convinced the markets that they will rather see the euro fall apart over compromising other principles. The market reacts accordingly and the prophecy becomes self-fulfilling.
Seems to me like you would still have the same credibility issue that exists now. If the market decides that all the PIIGS (and friends) are at risk, then the credit worthy countries don't have enough resources to back them up.
BTW, I don't see why continuation of the single currency should be the highest priority. I think the highest priorities should be the continued solvency of those countries with manageable fiscal positions and the continued existence of the banking system.
Quote from: Ideologue on November 30, 2011, 05:17:38 PM
Quote from: alfred russel on November 30, 2011, 04:59:19 PM
Quote from: PJL on November 30, 2011, 04:48:12 PM
There's an interesting article suggesting that the Fed could buy Eurozone bonds in order to prevent a collapse and a subsequent deflationary effect it would have on the US.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8918784/Should-the-Fed-save-Europe-from-disaster.html
I don't know why that would be deflationary; I would think it would be inflationary.
I read somewhere (forget where) that it could be deflationary. I actually have no idea. All I know is that a serious deflationary turn for the U.S. dollar would not help me/ruin me, whereas moderate-to-hyperinflation could, conceivably, get me out of a jam. So should I root for the collapse of the Euro or not? (I guess on principle I don't but these aren't principled times and it's not like I can wish European integration into being anyway.)
If they buy the bonds without sterilizing them it would be inflationary. They would be creating the money to buy the bonds.
You shouldn't root for the euro to collapse because it isn't going to be easier for you to find a job in a worse economy. Offsetting that, you could probably get a better exchange rate on a european vacation.
Quote from: PJL on November 30, 2011, 05:23:12 PM
Quote from: alfred russel on November 30, 2011, 04:59:19 PM
Quote from: PJL on November 30, 2011, 04:48:12 PM
There's an interesting article suggesting that the Fed could buy Eurozone bonds in order to prevent a collapse and a subsequent deflationary effect it would have on the US.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8918784/Should-the-Fed-save-Europe-from-disaster.html
I don't know why that would be deflationary; I would think it would be inflationary.
No, you read it wrong, I mean the move would be counter-deflationary.
Gotcha.
Quote from: alfred russel on November 30, 2011, 04:54:07 PM
JR, so how bad do you think things will be? I'm trying to decide between 3 options: not so bad, bad, and very bad.
Not so bad: Plan is to reallocate into canned goods and basic medical supplies.
Bad: society violently collapses. Stores of value will be of little use and will only leave you a target. Plan is to reallocate in guns and ammunition.
Very bad: Rambo might no last a day where we are headed. Immediately reallocate all savings into taco bell and die in an epic binge of gluttony.
Buy real estate in the wilderness and retire to a fortress?
Quote from: alfred russel on November 30, 2011, 05:25:19 PM
Quote from: Ideologue on November 30, 2011, 05:17:38 PM
Quote from: alfred russel on November 30, 2011, 04:59:19 PM
Quote from: PJL on November 30, 2011, 04:48:12 PM
There's an interesting article suggesting that the Fed could buy Eurozone bonds in order to prevent a collapse and a subsequent deflationary effect it would have on the US.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8918784/Should-the-Fed-save-Europe-from-disaster.html
I don't know why that would be deflationary; I would think it would be inflationary.
I read somewhere (forget where) that it could be deflationary. I actually have no idea. All I know is that a serious deflationary turn for the U.S. dollar would not help me/ruin me, whereas moderate-to-hyperinflation could, conceivably, get me out of a jam. So should I root for the collapse of the Euro or not? (I guess on principle I don't but these aren't principled times and it's not like I can wish European integration into being anyway.)
If they buy the bonds without sterilizing them it would be inflationary. They would be creating the money to buy the bonds.
You shouldn't root for the euro to collapse because it isn't going to be easier for you to find a job in a worse economy. Offsetting that, you could probably get a better exchange rate on a european vacation.
Ok, I thought you meant the collapse itself would be inflationary and I was like "huh?"
Well, it's not easy for me to find a job now. I don't think it's a linear relationship. But I suppose the point is well made.
Quote from: Admiral Yi on November 30, 2011, 05:24:43 PM
Seems to me like you would still have the same credibility issue that exists now. If the market decides that all the PIIGS (and friends) are at risk, then the credit worthy countries don't have enough resources to back them up.
If decisive action had been taken at the Greek stage of the crisis, and a clear message sent that others would have full liquidity action, the contagion wouldn't have spread. Take Italy - the spread of the 10yr over bunds was under 2% as late as June this year (as opposed to over 5% now). There has been no adverse change in Italy's fiscal fundamentals in the intervening period - to the contary, the fall of Silviocracy is a net plus.
QuoteBTW, I don't see why continuation of the single currency should be the highest priority. I think the highest priorities should be the continued solvency of those countries with manageable fiscal positions and the continued existence of the banking system.
The banking system is a euro-based system. Sovereigns have viable options if a currency union breaks up, but the private banking system will bear the brunt of any adjustment.
Quote from: Admiral Yi on November 30, 2011, 05:24:43 PM
Quote from: The Minsky Moment on November 30, 2011, 04:41:37 PM
Firing a Paulson-Bernanke sized bazooka and committing $1 trillion in real money to the stability fund. Biting the bullet on the eurobond concept. Earlier and more aggressive provision of liquidity from ECB to the banking sector. Shock and awe the market and convince them that Eurozone institutions and member states put the integrity of the single currency as the top priority - even over inflation risks or other particular national concerns.
Instead the member states have convinced the markets that they will rather see the euro fall apart over compromising other principles. The market reacts accordingly and the prophecy becomes self-fulfilling.
Seems to me like you would still have the same credibility issue that exists now. If the market decides that all the PIIGS (and friends) are at risk, then the credit worthy countries don't have enough resources to back them up.
BTW, I don't see why continuation of the single currency should be the highest priority. I think the highest priorities should be the continued solvency of those countries with manageable fiscal positions and the continued existence of the banking system.
You are starting from the conclusion and going backwards. Italy and Spain had no solvency problem. Spain was coming along relatively well for months, after enacting painful measures without noticeable unrest. And there was still plenty of room to maneuver.
Our spreads didn't skyrocket until very recently, when investors were convinced by Merkel and the ECB that the Euro was in actual danger, something most would have thought crazy talk a few months ago.
Quote from: The Minsky Moment on November 30, 2011, 05:43:38 PM
If decisive action had been taken at the Greek stage of the crisis, and a clear message sent that others would have full liquidity action, the contagion wouldn't have spread. Take Italy - the spread of the 10yr over bunds was under 2% as late as June this year (as opposed to over 5% now). There has been no adverse change in Italy's fiscal fundamentals in the intervening period - to the contary, the fall of Silviocracy is a net plus.
You're making the assumption that <2% over Bunds is the "right" spread for Italian debt.
Also, what was the change in Greece's fundamentals in the period leading up to their meltdown?
Quote from: Admiral Yi on November 30, 2011, 06:01:59 PM
Also, what was the change in Greece's fundamentals in the period leading up to their meltdown?
The incoming government revealed their books were cooked. Pretty fundamental change, if you ask me.
Kay.
Quote from: Admiral Yi on November 30, 2011, 06:01:59 PM
You're making the assumption that <2% over Bunds is the "right" spread for Italian debt.
It is just as right then as the current spread is now. The only that has changed is the market perception that in a pinch Eurozone institutions and fellow member state governments would let Italy go down the drain before doing what needs to be done to prevent that outcome.
At the low yields the Italian debt burden is managable; thus there is only a solvency problem for Italy if there is a perception of a solvency problem.
Quote from: The Minsky Moment on November 30, 2011, 06:49:14 PM
It is just as right then as the current spread is now. The only that has changed is the market perception that in a pinch Eurozone institutions and fellow member state governments would let Italy go down the drain before doing what needs to be done to prevent that outcome.
At the low yields the Italian debt burden is managable; thus there is only a solvency problem for Italy if there is a perception of a solvency problem.
I agree with you. The only thing that can possibly justify the pre-crisis yields is belief in a de facto guarantee.
Perception is reality in cases like this. Perception might be wrong by the resulting prices are real.
Quote from: Zanza on November 30, 2011, 01:19:32 PM
I don't see why even a disorderly exit of Greece (or others) from the Eurozone would destroy the Common Market. We ignored the treaties when starting the bailouts and EFSF too, so legality is not really an argument. Even with the New Drachma, Greece and everybody else would still benefit from the Common Market. They would probably need to institute capital controls for a time to make the switch, but that's all really.
I was talking about overall total collapse of the Euro. I think if the Euro goes and we're back to national currencies all over the EU's failed. We may have a free trade zone but nothing as ambitious as the Common Market.
If Greece left then I think they'd be frozen out - and the Commission would probably compensate for any 'competitive devaluation' by increasing tariffs on Greece. But then if Greece leaves I think the market would just start betting on who'd leave next until we were down to a core. I used to think it was impossible to imagine the Euro failing at all, now I'm not so sure. My current impossibility is the idea of Italy leaving :mellow:
QuoteThere may not be any rules regarding a country leaving the Euro, but what is going to stop the Greeks from just up and doing it? It's not like they have complied with any of the rules while being in the Eurozone and nothing ever happened to them...
Nothing. The legal way to do that would be to leave the EU. If they just left the Euro then I think they'd have been assumed to have left.
QuoteThe US could transform its Articles of Confederation into the highly successful US constitution.
My favourite argument is that this is Europe's Hamiltonian moment. Sadly we don't have a Hamilton.
QuoteGermany and France are supposedly considering a "Coalition of the Willing" that will be in parallel to the current EU treaties and will be open to Eurozone members that are willing to go further on common fiscal policy. If that thing flies, we'll have a "core" that is defined not like it is defined now but rather by willingness to commit to common fiscal policy. The "periphery" will be those Eurozone countries that prefer to stay out. The advantage is that it can be implemented faster than a general EU treaty change.
I don't know if that's plausible though. You'd still have the same problems with, for example, Irish referendums. Also I think the Poles went mental about this idea. The only countries with a total Euro opt-out are the UK and Denmark so the remaining states have an interest in the development of any fiscal rules - just like the EU-10 had an interest in the negotiation of Nice.
I think the UK government would (stupidly) allow a Euro-core of treaties but I don't know that the other member states who have to join the Euro would. Given all that and the trouble it would take to set up I'm not sure that a coalition of 25 is going to find things much easier than 27.
Quote from: Admiral Yi on November 30, 2011, 06:57:52 PM
I agree with you. The only thing that can possibly justify the pre-crisis yields is belief in a de facto guarantee.
The entire project was premised on de facto cross-guarantees. Greece's admission would have made no sense otherwise. Only when the bill came due, the factum skipped town.
Quote from: Iormlund on November 30, 2011, 05:59:54 PMOur spreads didn't skyrocket until very recently, when investors were convinced by Merkel and the ECB that the Euro was in actual danger, something most would have thought crazy talk a few months ago.
The "PIIGS" thing has been around for much longer than just "very recently", so arguing that everything was fine in Italy and Spain before Merkel and the ECB "convinced" investors that there was danger is a bit strange.
Quote from: Sheilbh on November 30, 2011, 11:52:47 PMI was talking about overall total collapse of the Euro. I think if the Euro goes and we're back to national currencies all over the EU's failed. We may have a free trade zone but nothing as ambitious as the Common Market.
Yes, I got that. But why would we not have the Common Market anymore? We had it before the Euro, we still have it with various currencies. The Euro is not an integral component of having a Common Market, so I don't see the relationship between the possible collapse of the Eurozone and the end of the Common Market.
QuoteIf Greece left then I think they'd be frozen out - and the Commission would probably compensate for any 'competitive devaluation' by increasing tariffs on Greece.
Why would the Commission be so vindictive?
QuoteBut then if Greece leaves I think the market would just start betting on who'd leave next until we were down to a core.
Yes. But what's even worse is that there would be immediate bank runs in the candidate countries as people would try to get as many Euros out of the banking system as possible.
QuoteNothing. The legal way to do that would be to leave the EU. If they just left the Euro then I think they'd have been assumed to have left.
But why would people assume that? The acquis communitaire is so much more than the Euro and there are countries that participate in the EU without being in the Euro.
QuoteGermany and France are supposedly considering a "Coalition of the Willing" that will be in parallel to the current EU treaties and will be open to Eurozone members that are willing to go further on common fiscal policy. If that thing flies, we'll have a "core" that is defined not like it is defined now but rather by willingness to commit to common fiscal policy. The "periphery" will be those Eurozone countries that prefer to stay out. The advantage is that it can be implemented faster than a general EU treaty change.
I don't know if that's plausible though. You'd still have the same problems with, for example, Irish referendums.[/quote]
Not really. If they can't pass a referendum, they would not be part of it.
QuoteAlso I think the Poles went mental about this idea.
Definitely.
QuoteI think the UK government would (stupidly) allow a Euro-core of treaties but I don't know that the other member states who have to join the Euro would. Given all that and the trouble it would take to set up I'm not sure that a coalition of 25 is going to find things much easier than 27.
It wouldn't be a coalition of 25. It would be a coalition of Germany and France and those countries that are willing to make a quick step towards fiscal union. Non-Euro members would not be part of it by design. If they feel excluded, that's exactly what Sarkozy wants to achieve. ;)
Can the chart on the second page of this be real?
http://www.scribd.com/doc/74335711/Hayman-Nov2011
Holy fuck if it is.
Quote from: Zanza on December 01, 2011, 02:32:40 AMYes, I got that. But why would we not have the Common Market anymore? We had it before the Euro, we still have it with various currencies. The Euro is not an integral component of having a Common Market, so I don't see the relationship between the possible collapse of the Eurozone and the end of the Common Market.
Both the Euro and the Common Market are core parts of the EU treaties. Countries can't pick and choose which bits of the treaty they're following. If the Eurozone collapses completely and all 17 members are launching new currencies or renegotiating currency unions then, under the current rules, it's hard to see how they'd still be in the EU. If those 17 are gone then the EU's over - including the Common Market.
QuoteWhy would the Commission be so vindictive?
It's not vindictive. It's entirely understandable if a country's making competitive devaluations - which is presumably a major reason the Greeks would want to leave.
QuoteBut why would people assume that? The acquis communitaire is so much more than the Euro and there are countries that participate in the EU without being in the Euro.
Not really. Participation in the Euro is a legal requirement of EU membership. With the exception of the UK and Denmark all countries are either members or working towards membership.
The understanding of the ECB is that there's two possible interpretations. It's either inconceivable to withdraw from EMU without also withdrawing from the EU or there is no right to withdrawal from EMU, it can't be done unilaterally so even if the Greeks wanted out they could still be told no. Obviously neither's terribly satisfactory and the ECB paper avoids choosing which one it prefers but does say that this was one of the major flaws of the constitution and it's now a flaw of Lisbon.
An additional reason a country is possibly the difficult of negotiating back their reserves from the ESCB system, some of which is, I believe, held by the ECB?
QuoteNot really. If they can't pass a referendum, they would not be part of it.
But how would that work to protect the Euro or develop any fiscal oversight. What's the point of a treaty within a treaty that doesn't bring all Euro members within a fiscal integration zone? This problem could still have happened anyway. I can see how it would avoid it if it was binding on all Euro members but short of that it seems ineffective.
QuoteIt wouldn't be a coalition of 25. It would be a coalition of Germany and France and those countries that are willing to make a quick step towards fiscal union. Non-Euro members would not be part of it by design. If they feel excluded, that's exactly what Sarkozy wants to achieve. ;)
But non-Euro members are working to Euro membership. I get that they wouldn't be part of it by design but that seems to go against the point of all EU members working towards the Eurozone. In the same way as the EU-10 would resent it if the EU of 15 decided to rig the voting system at Nice.
Euro membership might be part of the treaties, but there is both a precedent for countries opting out de jure (UK, Denmark) and countries opting out de facto (Sweden) and that's tolerated by the rest of the EU. Your idea that the non-Eurozone countries are actively working towards Euro membership is factually incorrect for some of them (e.g. Czechia). Do they want a say? Yes. Will they get it? Unlikely as there is already special EZ-17 meetings which don't include the rest.
There is also precedent of floating currencies and what could be called competitive devaluations (e.g. Britain in the last years) in the EU, without the Commission taking any action at all.
And everybody agrees that the Common Market is a tremendous benefit, no matter whether we have or don't have a currency union.
In the end, the countries of the EU are sovereign. No one can tell them "no" if they want out of the Euro. Certainly not the ECB.
The fact that the treaties don't have a provision to let a country quit the Euro doesn't mean anything. The EU Council can just make that decision unanimous and everything is fine.
And even if it is an unilateral decision by one country, I don't see what the other countries would gain by making the situation even worse by kicking it out of the EU completely. It's just not convincing. A dissolution of the Eurozone is bad enough, a dissolution of the EU is even worse.
EZ EcoFin meetins is totally different from a new treaty arrangements though. You could have something like Schengen but again the default is that countries are included. The UK's okay with a EZ core but I don't think many other of the remaining outs would allow it.
Also would it fly in Germany? My understanding was that the Constitutional Court had said that no further integration should happen unless there was more democracy. Surely that's difficult to square with a fiscal union with no further democratic element, especially if it's created outside the normal EU treaties.
QuoteIn the end, the countries of the EU are sovereign. No one can tell them "no" if they want out of the Euro. Certainly not the ECB.
The fact that the treaties don't have a provision to let a country quit the Euro doesn't mean anything. The EU Council can just make that decision unanimous and everything is fine.
You're right about sovereignty and, possibly, about the Council. My point is if we've reached that point chances are the failure's already been so large that it'll be very difficult to save the EU as we know it
Quote from: Sheilbh on December 01, 2011, 04:52:04 AM
EZ EcoFin meetins is totally different from a new treaty arrangements though. You could have something like Schengen but again the default is that countries are included. The UK's okay with a EZ core but I don't think many other of the remaining outs would allow it.
It's not like they can stop it.
QuoteAlso would it fly in Germany? My understanding was that the Constitutional Court had said that no further integration should happen unless there was more democracy. Surely that's difficult to square with a fiscal union with no further democratic element, especially if it's created outside the normal EU treaties.
As long as the German Parliament has enough influence, the Constitional Court won't stop anything.
QuoteYou're right about sovereignty and, possibly, about the Council. My point is if we've reached that point chances are the failure's already been so large that it'll be very difficult to save the EU as we know it
I don't see the big threat to the EU as a whole.
Map of European unemployment. Damn, it seems that someone threw a bomb in Andalucía.
(https://p.twimg.com/AfDpgcLCMAEU1Oj.png)
Quote from: The Minsky Moment on December 01, 2011, 12:37:17 AM
The entire project was premised on de facto cross-guarantees. Greece's admission would have made no sense otherwise. Only when the bill came due, the factum skipped town.
How was the entire project premised on de facto guarantees? The US states issue dollar denominated debt without a federal guarantee. Argentina issued dollar debt while operating under a currency board without a guarantee. African franc countries aren't guaranteed.
If the entire project was premised on de facto gurantees it would have been a real good idea to get the most likely guarantors agreement in principle.
I thought the entire project was premised on eliminating exchange rate risk and providing the southerners instant central bank credibility.
Quote from: Zanza on December 01, 2011, 04:30:53 AM
Euro membership might be part of the treaties, but there is both a precedent for countries opting out de jure (UK, Denmark) and countries opting out de facto (Sweden) and that's tolerated by the rest of the EU. Your idea that the non-Eurozone countries are actively working towards Euro membership is factually incorrect for some of them (e.g. Czechia). Do they want a say? Yes. Will they get it? Unlikely as there is already special EZ-17 meetings which don't include the rest.
IIRC, in the last couple of expansion rounds (EU 25 and EU 27) the requiriment to eventually join the Euro was included in all accesion treaties with the new members.
Quote from: The Larch on December 01, 2011, 05:40:10 AM
IIRC, in the last couple of expansion rounds (EU 25 and EU 27)
And I thought EU3:Complete was fail. :bleeding:
Quote from: The Larch on December 01, 2011, 05:40:10 AMIIRC, in the last couple of expansion rounds (EU 25 and EU 27) the requiriment to eventually join the Euro was included in all accesion treaties with the new members.
It was already included in the EU15 expansion, but Sweden doesn't give a fuck.
Quote from: Zanza on December 01, 2011, 06:18:14 AM
Quote from: The Larch on December 01, 2011, 05:40:10 AMIIRC, in the last couple of expansion rounds (EU 25 and EU 27) the requiriment to eventually join the Euro was included in all accesion treaties with the new members.
It was already included in the EU15 expansion, but Sweden doesn't give a fuck.
Don't they have some kind of peg? Or is that Denmark?
Denmark has a +- 2.25% peg to the Euro. It had a similar peg to the Deutsche Mark before.
Quote from: Tamas on December 01, 2011, 02:46:42 AM
Can the chart on the second page of this be real?
http://www.scribd.com/doc/74335711/Hayman-Nov2011
Holy fuck if it is.
What does it say? It's just gibberish on my work computer.
Quote from: Zanza on December 01, 2011, 06:59:30 AM
Quote from: Tamas on December 01, 2011, 02:46:42 AM
Can the chart on the second page of this be real?
http://www.scribd.com/doc/74335711/Hayman-Nov2011
Holy fuck if it is.
What does it say? It's just gibberish on my work computer.
That currently global debt is the highest in history for a peacetime period, and has grown yearly by 11% since 2002, while global GDP has only grown 4%.
Quote from: The Larch on December 01, 2011, 08:18:32 AM
That currently global debt is the highest in history for a peacetime period, and has grown yearly by 11% since 2002, while global GDP has only grown 4%.
Just sovereign debt, or all kinds of debt?
Quote from: Admiral Yi on December 01, 2011, 08:22:40 AM
Quote from: The Larch on December 01, 2011, 08:18:32 AM
That currently global debt is the highest in history for a peacetime period, and has grown yearly by 11% since 2002, while global GDP has only grown 4%.
Just sovereign debt, or all kinds of debt?
They present three categories, public debt securities, private debt securities and bank assets, and group them as "global debt", if I read it well.
Quote from: The Larch on December 01, 2011, 08:41:49 AM
They present three categories, public debt securities, private debt securities and bank assets, and group them as "global debt", if I read it well.
Well I'm wondering how much of that is expansion of consumer credit in previously underserved markets, like China and India.
Quote from: Zanza on December 01, 2011, 02:19:18 AM
Quote from: Iormlund on November 30, 2011, 05:59:54 PMOur spreads didn't skyrocket until very recently, when investors were convinced by Merkel and the ECB that the Euro was in actual danger, something most would have thought crazy talk a few months ago.
The "PIIGS" thing has been around for much longer than just "very recently", so arguing that everything was fine in Italy and Spain before Merkel and the ECB "convinced" investors that there was danger is a bit strange.
Take a look at hard data. As Minsky has already pointed out, Spanish, Belgian, Italian and French spreads started climbing this summer, all at the same time. Driven not by change in their fundamentals, but by widespread loss of confidence in the EZ, years after the crisis started.
Quote from: Admiral Yi on December 01, 2011, 05:36:03 AM
How was the entire project premised on de facto guarantees?
Because that was the message that was communicated to the market. Greece for example was allowed to enter despite the fact that it had not satisfied the entrence criteria, with the explanation being that it didn't really matter because the Greek economy was so small it didn't pose an overall risk to the Eurozone. The markets interpreted that as a de facto guarantee of Greek national debt, and interest rates converged accordingly. The same phenomenon occurred with Portugal and other "peripherals" although at least there the convergence criteria were applied more seriously.
QuoteThe US states issue dollar denominated debt without a federal guarantee.
Different institutional arrangement. Most US states can't run budget deficits; in return, they get large block grants and other aid from the federal government. State capital projects can be bonded but they are stand-alone obligations.
QuoteIf the entire project was premised on de facto gurantees it would have been a real good idea to get the most likely guarantors agreement in principle.
In part that was what the debate over the growth and stability pact in the 90s was about. Germany sought to cabin the de facto guarantee risks by insisting the other countries abide by strict fiscal rules. But the pact proved ineffective when all the core countries -- including Germany itself- breached it and then refused to impose any meaningful sanction.
Its true is retrospect, there should have been a more open and honest discussion about what would happen in the event of crisis. But the politicians had little interest in raising such matters directly in front of their electorates.
QuoteI thought the entire project was premised on eliminating exchange rate risk and providing the southerners instant central bank credibility.
The latter is an incomplete statement. The project assumed that there would have to be economic convergence of the weaker Eurozone members. Concretely that was achieved to a significant extent by convergence in interest rates. Thus, for example, Portugal's candidacy and eventually admission was accompanied by an extraordinary reduction in interest rates.
The mechanisms for interest rate convergence were twofold: (1) improved inflation-fighting credibility and (2) lower perceived credit risk. But of those two, #2 was the more important factor. Because part of the Maastricht criteria for admission in the first place was that the candidate had to have a credible central bank and establish a track record of low inflation performance. So while admission bolstered that credibility somewhat by making even more difficult to interfere with central bank independence, it was only an incremental impact.
The big impact was the market perception of lower credit risk, and that is the only way to explain the extraordinary convergence in rates prior to the financial crisis. Foe example, in early-mid 2008 Italian 10 yr spreads over Bunds were only 20bp despite a debt-GDP ratio over 100%; Portugese spreads were in the range of 12-15bp, and Greece around 25 bp(!) That was just 3 years ago.
But joining a currency union in itself does nothing to lower national credit risk. On the contrary, it tends (all else equal) to make it worse, because it removes devaluation as a potential tool for economic adjustment and locks in less competitive countries into what may be them an uncompetitive exchange rate. So the only basis for the market perception of lower national credit risk was the assumption that Eurozone states and the ECB would take care of the weaker players if push came to shove.
Not much to disagree with there Joan. The big difference between us is you think Germany is a dirtbag for running out on its undeclared, unwritten, and unspoken obligations, whereas I think lenders were retards for assuming a guarantee where none existed.
Quote from: Admiral Yi on December 01, 2011, 12:14:33 PM
The big difference between us is you think Germany is a dirtbag for running out on its undeclared, unwritten, and unspoken obligations, whereas I think lenders were retards for assuming a guarantee where none existed.
Kind of, but I don't like using the language of value judgments in this context (the Night Train thing was just for show). Everyone is trying to pursue what they think their interests are and respond to those incentives that exist.
My criticism of German policy is that it has been self-defeating. Germany talked the moral hazard talk, but when it come time to walk the walk, it suddenly noticed that it was out on a plank. Skipping the mixed metaphors - the Euro has been very good to Germany overall, and from a purely rational self-interested calculation, it makes sense to pay a price to keep it together. But by talking tough and dragging its feet in the early stages, Germany raised that price substantially.
As for the market participants and dealers in European sovereign bonds, the nature of markets is to seek comfort in the herd, and extrapolate out from past experience. For well over a decade, the markets have acted as though the Eurozone had eliminated single country credit risk through collective solidarity, and the national members acted consistently with that assumption, and certainly didn't do or say anything to counter that impression. It is easy to say that market participants shouldn't have been so trusting in their assumptions, and that their mistake is their problem. Only it is not just their problem - because the exposure to loss is concentrated heavily in systemically important financial institutions, and in the customers, counterparties and debtors of those institutions. So like it or not, it is a national problem.
Changing the subject slightly, one theme running through your posts is the notion that default and dissolution of the EZ are inextricably linked. I don't see why that's the case. As I've mentioned before, once a country has defaulted their primary motivation to leave the common currency--independent monetary policy and the ability to inflate away debt--is gone. Or the obverse: the country doesn't default but can't inflate away the debt because its denominated in a foreign currency. Latin America couldn't inflate away dollar bonds.
Quote from: Zanza on December 01, 2011, 05:30:47 AMI don't see the big threat to the EU as a whole.
Okay. I suppose I don't trust the pilots who lose control of the plane to somehow successfully negotiate the crash landing. I also think if it's reaching the point where we're effectively saying 'well Europe's a collection of sovereign states, so Euro-legal structure be damned we'll do this anyway' then the EU's effectively failed. The credibility's gone and we're moving to something else entirely.
QuoteDifferent institutional arrangement. Most US states can't run budget deficits; in return, they get large block grants and other aid from the federal government. State capital projects can be bonded but they are stand-alone obligations.
The Federal nature matters. I don't know that the dollar would hold together so well if, say, New Hampshire had to vote for block grants and subsidies to Alaska. The central arrangement in Washington, with credibility and legitimacy everywhere allows that to happen in a way that simply isn't the case in Europe.
Quite a scary interview with former deputy governor of the BofE just now. Though he still thinks Europe'll resolve the crisis. Though it's 60-40.
Personally I wonder if we've enough political capital to solve it. I don't know that we can get something like the global action taken in 2008-09 :mellow:
Quote from: Admiral Yi on December 01, 2011, 08:56:32 AM
Quote from: The Larch on December 01, 2011, 08:41:49 AM
They present three categories, public debt securities, private debt securities and bank assets, and group them as "global debt", if I read it well.
Well I'm wondering how much of that is expansion of consumer credit in previously underserved markets, like China and India.
Can't tell just from the graph, but the rate of growth over the last 3 years is nowhere near 11%--in fact it looks flat for the last 2. The 11% is the average rate over the last 10 years.
There's nothing really surprising here. I don't find the statement, "currently global debt is the highest in history for a peacetime period, and has grown yearly by 11% since 2002, while global GDP has only grown 4%" to be at all unexpected. I might not have been able to guess the numbers particularly accurately, but the overall situation is about what most people would think to be the case.
Quote from: Admiral Yi on December 01, 2011, 01:31:45 PM
Changing the subject slightly, one theme running through your posts is the notion that default and dissolution of the EZ are inextricably linked. I don't see why that's the case. As I've mentioned before, once a country has defaulted their primary motivation to leave the common currency--independent monetary policy and the ability to inflate away debt--is gone.
A primary motivation to leave the common currency is to be able to devalue and restore competitiveness to the real economy.
Start with Greece. Let's say Greece were to default and the immediate collateral damage contained, which is theoretically possible to do. Greece would be left with a managable debt - but it would also still have a shrunken economy, no way using state spending for stimulus . . . and, it would still have its unsustainable 9% current account deficit. So the immediate problem is solved but the underlying problem remains. And within the Eurozone the only solution is massive deflation in Greece or inflation in the net exporting countries.
If the problem can't be contained within Greece, the problem takes on a different dimension. Italy alone has over Euro 2 trillion in debt and a default could wipe out banks all over Europe (French banks in particular are heavy investors). If things get tough, the Italians may decide they are better off exiting the Euro and paying off their debt in depreciated lira AND getting the side benefit of an export boom.
At this point an interesting game theory exercise plays out. Lets say you are an Italian or Spaniard with a nice fat bank account currently denominated in Euro. If you start to think (rightly or wrongly) that an exit from the Eurozone is a plausible outcome, you have a strong incentive to move that money to a "center" country like Germany, rather than risk possible forced conversion to new peseta or lira. Of course if such capital flight occurs, it deepens the hole by weakening domestic lenders and removing taxable funds from the country, thus increasingly the likelihood that a exit will occur or at least that the increasing the perception of the risk that an exit may occur.
Now imagine you are a German central banker or Chancellor and contemplating the possibility of an influx of Italian or Spanish deposits. Seems real nice for Germany . . . unless of course Italy/Spain ditches the Euro. Then you have an inflationary disaster scenario on your hands as Spaniards and Italians now have massive Euro denominated claims which can be used to purchase German goods and assets, but in return the German banking system now only has claims on Italian banks that are denominated in depreciated new peseta and lira (assuming they are collectible at all). Since imposing capital controls would breach EU rules, the only surefire protection against this scenario is if Germany pre-emptively exits the Euro itself before this can all play out.
So the danger is a prisoner's dilemma scenario where all sides would be better off staying in if everyone would agree to stick together, but absent foreknowledge of what the others will do in the future, there is a powerful incentive to defect. The more people start thinking that exit is a possible outcome, the more likely it is to actually come true.
Mind if I repost that on pdox Minsky?
Quote from: MadImmortalMan on December 01, 2011, 04:01:36 PM
Mind if I repost that on pdox Minsky?
Information wants to be free.
I don't intend to assert any copyright rights in my anonymous internet postings. :)
Quote from: The Minsky Moment on December 01, 2011, 04:04:18 PM
I don't intend to assert any copyright rights in my anonymous internet postings. :)
Communist.
Quote from: The Minsky Moment on December 01, 2011, 03:56:32 PMNow imagine you are a German central banker or Chancellor and contemplating the possibility of an influx of Italian or Spanish deposits. Seems real nice for Germany . . . unless of course Italy/Spain ditches the Euro. Then you have an inflationary disaster scenario on your hands as Spaniards and Italians now have massive Euro denominated claims which can be used to purchase German goods and assets, but in return the German banking system now only has claims on Italian banks that are denominated in depreciated new peseta and lira (assuming they are collectible at all). Since imposing capital controls would breach EU rules, the only surefire protection against this scenario is if Germany pre-emptively exits the Euro itself before this can all play out.
Germany is probably the biggest beneficiary of the status quo though, so it has very little incentive to destroy that status quo.
Quote from: Zanza on December 01, 2011, 04:26:55 PM
Germany is probably the biggest beneficiary of the status quo though, so it has very little incentive to destroy that status quo.
it has no incentive to do so, unless it believes that the status quo will be broken anyways, and on terms much less favorable to it than if it is the one dictating the terms of the breakup. That's what makes this a potential prisoner's dilemma problem.
Quote from: The Minsky Moment on December 01, 2011, 03:56:32 PM
If things get tough, the Italians may decide they are better off exiting the Euro and paying off their debt in depreciated lira AND getting the side benefit of an export boom.
Then you have an inflationary disaster scenario on your hands as Spaniards and Italians now have massive Euro denominated claims which can be used to purchase German goods and assets, but in return the German banking system now only has claims on Italian banks that are denominated in depreciated new peseta and lira (assuming they are collectible at all).
First of all, I don't see how a borrower in an exiting state gets to redenominate its debt. I can't borrow 100 euros from you and pay you back in baht.
Second of all, it's not as if demand for lira and peseta zone goods and services is going to disappear because of the flight to the center. A business man in Madrid is not going to drive to the Pyrenees every day to get his breakfast just because he's holding large euro balances offshore.
The borrower doesn't get to redenominate its debt. The state will do it for him, just as it will redenominate whatever savings it can get tis hands on.
Quote from: Iormlund on December 01, 2011, 04:49:35 PM
The borrower doesn't get to redenominate its debt. The state will do it for him, just as it will redenominate its savings.
I'm not sure that's possible. You owe me 100 euro, and tomorrow the Spanish government tells me you owe me 100 pesetas?
Quote from: Admiral Yi on December 01, 2011, 04:52:37 PM
Quote from: Iormlund on December 01, 2011, 04:49:35 PM
The borrower doesn't get to redenominate its debt. The state will do it for him, just as it will redenominate its savings.
I'm not sure that's possible. You owe me 100 euro, and tomorrow the Spanish government tells me you owe me 100 pesetas?
If the Spanish goverment doesn't do that, the country goes broke within hours. And I don't mean the central government. I mean everyone. What chances do you think a small business or your average guy has to pay back a loan or mortgage denominated in strong Euros while earning weak New Pesetas?
Quote from: Admiral Yi on December 01, 2011, 04:52:37 PM
Quote from: Iormlund on December 01, 2011, 04:49:35 PM
The borrower doesn't get to redenominate its debt. The state will do it for him, just as it will redenominate its savings.
I'm not sure that's possible. You owe me 100 euro, and tomorrow the Spanish government tells me you owe me 100 pesetas?
Of course it's possible.
Quote from: Iormlund on December 01, 2011, 04:55:53 PM
If the Spanish goverment doesn't do that, the country goes broke within hours. And I don't mean the central government. I mean everyone. What chances do you think a small business or your average guy has to pay back a loan or mortgage denominated in strong Euros while earning weak New Pesetas?
Less than 1.
Beeb: what do you base your answer on? I've never heard of this happening before.
Quote from: Admiral Yi on December 01, 2011, 04:42:47 PM
First of all, I don't see how a borrower in an exiting state gets to redenominate its debt.
A sovereign borrower gets to if the legislature says so and if the bonds are issued under local law (almost all eurozone bonds are).
QuoteSecond of all, it's not as if demand for lira and peseta zone goods and services is going to disappear because of the flight to the center. A business man in Madrid is not going to drive to the Pyrenees every day to get his breakfast just because he's holding large euro balances offshore.
Demand will not disappear, it will just go down by a significant degree.
Wait a minute, in one of the BeetMasters threads there was something about Hungary unilaterally redenominating Swiss franc mortgages into Hungarian cooties, wasn't there?
It gets more complicated if a purely private debt is at issue.
In that case the leglisature can declare the new currency legal tender for all debts effective immediately and with retroactive effect; barring constitutional challenge, that pretty much ends the matter for all purely domestic debt and probably all cross-border transactions under domestic law.
For foreign law cross-border transactions, the creditor can enforce the original terms overseas; but if the debtor has no property outside the exiting country, as a practical matter that judgment will be hard to enforce against him.
Quote from: The Minsky Moment on December 01, 2011, 05:17:40 PM
It gets more complicated if a purely private debt is at issue.
In that case the leglisature can declare the new currency legal tender for all debts effective immediately and with retroactive effect; barring constitutional challenge, that pretty much ends the matter for all purely domestic debt and probably all cross-border transactions under domestic law.
For foreign law cross-border transactions, the creditor can enforce the original terms overseas; but if the debtor has no property outside the exiting country, as a practical matter that judgment will be hard to enforce against him.
How will transnational corporations deal with this? They'll both owe and be owed large amounts of euro. Sounds like it could get pretty messy.
When we all started posting on Paradox, there were not yet any euros in circulation.
...Amazing how quickly things happen.
Quote from: Admiral Yi on December 01, 2011, 04:52:37 PM
Quote from: Iormlund on December 01, 2011, 04:49:35 PM
The borrower doesn't get to redenominate its debt. The state will do it for him, just as it will redenominate its savings.
I'm not sure that's possible. You owe me 100 euro, and tomorrow the Spanish government tells me you owe me 100 pesetas?
Of course. The state's power is pretty much unlimited.
Quote from: Admiral Yi on December 01, 2011, 04:52:37 PMI'm not sure that's possible. You owe me 100 euro, and tomorrow the Spanish government tells me you owe me 100 pesetas?
It's necessary. Either the government force converts everything or it defaults. Especially if, as is likely, there's disruptions to trade which would make getting Euros difficult and capital controls fail.
As I say a couple of banks have noticed corporates starting to move their Euros from Spain and Italy into Germany.
One thought I have is what happends to Central Bank reserves? I know some would have to be negotiated back from the ECB. But in general isn't a large proportion of Euro-Central Bank reserves in Euros? How will they be able to exchange if it looks like the Euro is collapsing? What about other banks holding Euro reserves? :mellow:
The reason I think it is important for the euro to disappear if some countries break away, is what happens in a contract between a US and Spanish entity that is denominated in euros and lists a US jurisdiction as the applicable governing law? I would guess in some of these cases the Spanish party is going to need to pay in euro, which would not be good with their new depreciated pesata. But if the remaining eurozone countries formally retired the euro for a new currency (maybe the "european"?), then it would seem more likely the company could pay in pesatas.
Seems to me that even if the euro were to completely disappear as a national currency you'd still have swap and forward contracts operating until all euro denominated positions are unwound. Couldn't these be used to fix the amount of pesetas needed to fulfill the contract?
Quote from: The Minsky Moment on December 01, 2011, 10:55:54 AM
Quote from: Admiral Yi on December 01, 2011, 05:36:03 AM
The US states issue dollar denominated debt without a federal guarantee.
Different institutional arrangement. Most US states can't run budget deficits; in return, they get large block grants and other aid from the federal government. State capital projects can be bonded but they are stand-alone obligations.
I disagree on the details, not the result. Some states inability to run a deficit doesn't reduce their chance of default--it actually increases it in some cases (see California). They also don't get federal for the arrangement.
The differences are that a) with 50 states and the federal government responsible for most government spending, no state is going to produce a large contractionary effect through a default, b) the effect if a state does need to pursue a severely contractionary fiscal policy is reduced by the federal transfer payments that will go to the state and reduced tax burdens on the citizens, c) the federal government will be able to stand by the banks in the state.
Quote from: Admiral Yi on December 02, 2011, 08:23:09 AM
Seems to me that even if the euro were to completely disappear as a national currency you'd still have swap and forward contracts operating until all euro denominated positions are unwound. Couldn't these be used to fix the amount of pesetas needed to fulfill the contract?
I don't know, but that seems incredibly complicated. I would think the best course would be to rapidly get all euros and euro related assets and liabilities out of circulation asap, including the swap and forward contracts.
I thought this may be of interest given your conversation:
QuoteEurozone crisis: Britain's companies prepare for life after the single currency
Contingency planning for a breakup of the eurozone is already under way at UK-based multinationals
Britain's biggest companies are thinking the unthinkable and planning for the collapse of the euro. Multinationals such as Diageo, GlaxoSmithKline, Unilever and Vodafone are looking at contingency measures in case the single currency falls apart.
Pharmaceuticals giant GSK says: "As part of our standard risk management practice, GSK has undertaken planning to optimise its operations in the event of a country leaving the eurozone. This includes preparations to ensure uninterrupted flow of the funds that are needed to continue the operations of our business."
A Vodafone spokesman says the company is looking at each market individually as events unfold. It has already cut tariffs in Spain to take account of the weak economy and constraints on consumer spending. Asked what the company would do if the eurozone broke up, the spokesman says: "We are ready to implement contingency plans if the situation were to change significantly."
Companies are reluctant to go into detail about what they would do if faced with what analysts agree would be a financial catastrophe. But audit and risk committees, staffed by non-executive directors, are examining worst-case scenarios across Britain. "It would be remiss if they weren't looking at things very carefully at this stage," says one City consultant. "And that goes for any large British company with European exposure, especially if they are trading within the southern periphery."
Diageo, whose labels include Johnnie Walker and Smirnoff, is understood to have run computer models of how the business would look if the euro imploded, although that doesn't mean it is forecasting a meltdown. But Andrew Morgan, president of Diageo Europe, told the Financial Times: "We have started thinking what [a break-up] might look like. If you get some much bigger change around the euro, then we are into a different situation altogether. With countries coming out of the euro, you've got a massive devaluation that makes imported brands very, very expensive."
Unilever, whose brands include Ben & Jerry's ice cream and Dove soap, is apparently well placed because it generates more than half its sales outside Europe, from emerging markets. "But obviously a breach in the euro would hardly be good news for Diageo, or anyone else," says Graham Jones of Panmure Gordon.
Graham Leach, chief economist at the Institute of Directors, says that if "Club Med" countries came out of the euro, their national currencies would face "a dramatic devaluation of around 40%"; put another way, profits derived by UK firms in those countries would plummet when converted to sterling.
Leach says that an added risk would be significant asset writedowns for companies with operations in countries that had left the single currency. And there would also be "the most awful problems" over the honouring of contracts that were based on payment in euros. "There is no precedent for what could happen, so forward planning is difficult, to say the least," says Leach. He agrees that small firms could be disproportionately hit if they depend on exports to the continent, and some would inevitably go the wall.
Financial firms have been at the forefront of contingency planning in recent weeks. City interdealer broker Icap is testing its electronic trading platforms in case Greece leaves the eurozone and reintroduces the drachma. Spokesman Richard McCready said: "We have been testing our systems to allow customers to trade the drachma against the dollar and the euro. What we are doing would be a template that could be exploited if other countries also leave the euro."
Thomson Reuters says: "Our currency dealing systems are specifically designed so that we can add and remove currencies very easily and quickly. The systems are built and tested to cope with very significant volumes."
Hector Sants, the chief executive of the Financial Services Authority, has ordered Britain's banks to accelerate their contingency planning and his message was reinforced on Thursday when Bank of England governor Sir Mervyn King said UK banks should brace themselves to withstand the "extraordinarily serious and threatening" economic situation.
The Bank's financial policy committee said the eurozone crisis was the biggest threat to the UK's banking system, and banks should build up their financial buffers to withstand that. King said the Bank itself was making "contingency plans" itself in case of a eurozone break-up, without going into details.
Bank of America Merrill Lynch says a partial break-up of monetary union, with only some countries exiting the euro, is the most probable scenario, but still thinks a break-up is a far-fetched event. But that hasn't stopped financial institutions from hedging their bets. Barclays has slashed its debt exposure to Portugal, Italy, Ireland, Greece and Spain by 31%, from £11.6bn at the end of June to £8bn by the end of September. As well as allowing some government bonds to mature, Barclays has sold debt to willing buyers such as hedge funds.
And Prudential has taken "avoiding action" to dodge the European financial crisis with only £49m tied up in the debt of the worst-affected countries. Tidjane Thiam, the insurer's boss, said: "We started moving out of the eurozone countries after looking at their financial balance, the sovereign debt levels and their promises to pay."
The difficulty settling contracts would be enormous I think, especially as the guy quoted says, for small and medium businesses. I imagine short-term it would simply mean a lot of contracts using third nation currencies like Swiss Francs or US Dollars surely? But I've no idea practically
So I read that the Italians announced austerity which at first glance sound promising.
Now Rome will burn but if they manage to keep control, it may benefit Europe. :hmm:
Quote from: Jacob on December 01, 2011, 05:21:06 PM
Quote from: The Minsky Moment on December 01, 2011, 05:17:40 PM
It gets more complicated if a purely private debt is at issue.
In that case the leglisature can declare the new currency legal tender for all debts effective immediately and with retroactive effect; barring constitutional challenge, that pretty much ends the matter for all purely domestic debt and probably all cross-border transactions under domestic law.
For foreign law cross-border transactions, the creditor can enforce the original terms overseas; but if the debtor has no property outside the exiting country, as a practical matter that judgment will be hard to enforce against him.
How will transnational corporations deal with this? They'll both owe and be owed large amounts of euro. Sounds like it could get pretty messy.
I was suggesting there might be problems with this kind of thing a few years ago. The resident Euro-philes assured me that it wouldn't be an issue.
Quote from: Tamas on December 04, 2011, 05:20:59 PM
So I read that the Italians announced austerity which at first glance sound promising.
Now Rome will burn but if they manage to keep control, it may benefit Europe. :hmm:
Bossi needs to march on Rome.
Quote from: Tamas on December 04, 2011, 05:20:59 PM
So I read that the Italians announced austerity which at first glance sound promising.
Now Rome will burn but if they manage to keep control, it may benefit Europe. :hmm:
Is there any country whose outlook has improved after undertaking austerity measures?
Quote from: Iormlund on December 04, 2011, 07:05:20 PM
Quote from: Tamas on December 04, 2011, 05:20:59 PM
So I read that the Italians announced austerity which at first glance sound promising.
Now Rome will burn but if they manage to keep control, it may benefit Europe. :hmm:
Is there any country whose outlook has improved after undertaking austerity measures?
Argentina
Quote from: Iormlund on December 04, 2011, 07:05:20 PM
Quote from: Tamas on December 04, 2011, 05:20:59 PM
So I read that the Italians announced austerity which at first glance sound promising.
Now Rome will burn but if they manage to keep control, it may benefit Europe. :hmm:
Is there any country whose outlook has improved after undertaking austerity measures?
if:
a) the state is spending more than it's income
and
b) the state can only get loans on interest rates which are far, far, far above the projected growth in the country,
then yes, austerity is the way to go.
In general, deficit spending should be the thing of the past for the everyday operation of a country. To rely on loans for welfare spending and pensions and whatnot, it is suicidal, as we can so easily see it nowadays.
We should combine austerity with some kind of investment program, if necessary financed by printing money. Deflation alone won't solve this crisis. That said, I think that austerity is necessary to regain confidence in the midterm.
Quote from: stjaba on December 04, 2011, 11:42:34 PMArgentina
They didn't though. They kicked the IMF out, defaulted and negotiated a settlement with their creditors over the next 10 years - when those creditors decided they'd rather receive something than nothing. It's like Iceland.
Now the Argentine finance minister's flying around telling Americans and Europeans to reject austerity and reject the IMF.
QuoteIs there any country whose outlook has improved after undertaking austerity measures?
Ireland's looking good after three years. If you go back through recent examples then the UK, Canada and Sweden after their 1990s austerity packages. I think that in the years that followed all countries had above average growth - Sweden and Canada even managed to avoid the worst of this recession.
Italy's a country that I actually think could pull this off. They're running a primary surplus and over the past decade only Somalia and Haiti have grown less. The Italians have a pretty diverse economy from my understanding. All told, if the rest of the world doesn't plummit - so if the Franco-German differences are hammered out so we've a credible deal, and the ECB acts - Italy's could do reasonably well with some degree of liberalisation especially in the service sector. Italy is, I believe, the country who basically stopped once they got into the Euro (roughly the time Berlusconi came to power). Since then they've just stalled at best.
QuoteWe should combine austerity with some kind of investment program, if necessary financed by printing money. Deflation alone won't solve this crisis. That said, I think that austerity is necessary to regain confidence in the midterm.
I agree. But the austerity plan needs to have a route to growth. Endless rounds of spending cuts and deflation won't do. There needs to be a sunny uplands for the people of these countries. I see austerity more as necessary for short-term credibility necessary to implement economic reforms that will help in the medium term.
Different things are needed for different countries. The Greeks clearly needs far more than austerity. Ireland on the other hand needs help paying down her debt - not least because the rest of Europe benefited from the Irish guaranteeing their banks - but fundamentally they should be able to grow strongly again. There's no need for massive structural reforms.
QuoteIn general, deficit spending should be the thing of the past for the everyday operation of a country. To rely on loans for welfare spending and pensions and whatnot, it is suicidal, as we can so easily see it nowadays.
But of the PIIGS countries I believe three of them had seen national debt as a % of GDP decline over the past decade. Spain and Ireland especially were held up as models of thrifty states paying down their national debt with healthy surpluses. I think the biggest problem of the talk of austerity and the acronym is that it's confused the nature of the problems each of these countries faced. They were just all the profligate periphery and they've all, it seems to me, been defined by Greece, the worst and most peculiar of them.
Similarly if you look at these countries they've not got the best pension or welfare schemes in Europe - so let's not damn them - the Northern European core which has the most successful and well-integrated welfare state's done pretty well. But the truth is we look at those Northern European countries and praise them now, five years ago I remember reading how much they need to reform, how their systems were ossifying and that they really need to follow countries like Ireland and Spain.
Quote from: Sheilbh on December 05, 2011, 04:03:38 AM
QuoteIs there any country whose outlook has improved after undertaking austerity measures?
Ireland's looking good after three years. If you go back through recent examples then the UK, Canada and Sweden after their 1990s austerity packages. I think that in the years that followed all countries had above average growth - Sweden and Canada even managed to avoid the worst of this recession.
Italy's a country that I actually think could pull this off. They're running a primary surplus and over the past decade only Somalia and Haiti have grown less. The Italians have a pretty diverse economy from my understanding. All told, if the rest of the world doesn't plummit - so if the Franco-German differences are hammered out so we've a credible deal, and the ECB acts - Italy's could do reasonably well with some degree of liberalisation especially in the service sector. Italy is, I believe, the country who basically stopped once they got into the Euro (roughly the time Berlusconi came to power). Since then they've just stalled at best.
Also the Baltic countries, apparently, which were very badly hit a couple of years ago. I think that it was Latvia that pulled them off quite well on the macro level, although the population and particulary the middle class has suffered and is still suffering a bloody lot because of them.
QuoteQuoteIn general, deficit spending should be the thing of the past for the everyday operation of a country. To rely on loans for welfare spending and pensions and whatnot, it is suicidal, as we can so easily see it nowadays.
But of the PIIGS countries I believe three of them had seen national debt as a % of GDP decline over the past decade. Spain and Ireland especially were held up as models of thrifty states paying down their national debt with healthy surpluses. I think the biggest problem of the talk of austerity and the acronym is that it's confused the nature of the problems each of these countries faced. They were just all the profligate periphery and they've all, it seems to me, been defined by Greece, the worst and most peculiar of them.
Similarly if you look at these countries they've not got the best pension or welfare schemes in Europe - so let's not damn them - the Northern European core which has the most successful and well-integrated welfare state's done pretty well. But the truth is we look at those Northern European countries and praise them now, five years ago I remember reading how much they need to reform, how their systems were ossifying and that they really need to follow countries like Ireland and Spain.
What? Prejudiced people are associating a group of countries and diagnosing them the same way while being ignorant about their details, situation and particulars? Say it aint' so!
Quote from: Tamas on December 05, 2011, 01:40:29 AM
if:
a) the state is spending more than it's income
and
b) the state can only get loans on interest rates which are far, far, far above the projected growth in the country,
then yes, austerity is the way to go.
I'm not saying Italy has an alternative. I'm just disputing the notion that killing things like R&D, education or infrastructure investment is somehow going to improve things.
Quote from: Iormlund on December 05, 2011, 10:19:51 AM
I'm not saying Italy has an alternative. I'm just disputing the notion that killing things like R&D and infrastructure investment is somehow going to improve things.
Nobody disputes that austerity causes pain and I sure hope nobody thinks that balancing a budget automatically generates high, sustained growth.
It shouldn't take a rocket scientist (or a trained economist) to figure out that deficit spending can't be sustained forever.
Quote from: dps on December 05, 2011, 10:58:32 AM
It shouldn't take a rocket scientist (or a trained economist) to figure out that deficit spending can't be sustained forever.
You'd be surprised.
Of course deficit spending can be sustained forever; sustainability is a function of the scale of such spending to GDP and long run growth rates. Pretty much any developed country can easily sustain annual deficit spending averagin about 2% per year indefinitely.
Yes, with 2% inflation and 4% nominal growth, nice figures for a mature economy, a country could borrow 2% of GDP and maintain a debt of 50% of GDP :cool:
Quote from: dps on December 05, 2011, 10:58:32 AM
It shouldn't take a rocket scientist (or a trained economist) to figure out that deficit spending can't be sustained forever.
It definitely doesn't take a trained economist to figure this stuff out. In fact, not being a trained economist is a necessary condition to come to this conclusion.
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100013600/germany-is-the-ultimate-victim-of-emu/ (http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100013600/germany-is-the-ultimate-victim-of-emu/)
QuoteGermany is the ultimate victim of EMU
Enough is enough. Please stop defaming Germany out there in the blogosphere.
The Germans are not engaged in a mercantilist conspiracy to subjugate and milk southern Europe. They are not conducting "warfare by other means", or heaven forbid, trying to establish a Fourth Reich.
The German people entered monetary union for honourable motives, believing they were acting as good Europeans. It is excruciating for them to see those Athens banners in Syntagma Square showing Chancellor Angela Merkel wearing the Swastika, or read that sign "Arbeit Macht Frei".
They gave up the D-Mark reluctantly under French and Italian pressure, as the price for acquiescence in Reunification.
They entered EMU at an overvalued rate after the Reunification bubble, leaving them in semi-slump for half a decade. They slowly clawed back competitiveness the hard way, by squeezing wages and driving up productivity.
It is entirely understandable that they now think Club Med can and should do the same. (They are profoundly wrong, of course, because Germany was able to lower relative wages during a) a global boom, b) against other EMU states that were inflating c) and with benchmark borrowing cost that stayed low even during the dog days. None of these factors apply to Italy or Spain now. But this is hard to explain this to the man or woman on the Berlin tram.)
If EMU now puts Germany in mercantilist ascendancy – an untenable position politically – it is by accident. They make good products (and for that reason they should have a strong currency that rises to reflect the fact). The euro is the cause of all the trouble, not German ambitions or motives. Germany is now hated in Europe more than at any time since World War Two because it allowed itself to roped into this ruinous currency experiment, and for no other reason whatsoever.
Chancellor Merkel gave an emotional defence of German conduct today in the Bundestag. Her country is not trying to dominate anybody, she said. "Politics has destroyed all trust," she said.
"German and European unity have been and are two sides of the same coin. We will never forget that."
She is entirely right in one sense to continue ruling out Eurobonds as "unthinkable" under current structures, and a violation of German constitution, but that is not really an answer to the historical challenge that she faces in late 2011.
Germany cannot unwind the clock. It did take the fateful step of joining monetary union, and from that awful error follows a string of strategic imperatives.
As the wise professors warned at the time, EMU would lead ineluctably to full fiscal union because an orphan currency would not endure without an EU Treasury and government to back it up, but it would a fiscal union accountable to nobody, because no European democracy exists, or can exist.
It would lead to debt pooling and shared budgets.
It would lead – fatally – to loss of the Bundestag's sovereign powers to tax and spend. The core functions of parliament would slip away to EU mandarins.
It would lead to the emasculation of Germany's exemplary post-War democracy.
It would lead in essence to the abolition of Germany as a nation state, even if the window flowers remained in place.
All else was illusion and wishful thinking.
That is what monetary union always meant and means now, though the trick being played on Europe's citizens was fudged by dishonest treaties, themselves dishonestly ratified.
It is why so many of us on this side of the Ärmelkanal have fought tooth and nail for twenty years to stop Britain being subsumed into this plaything of unaccountable elites, this Project so profoundly threatening to our self-government and constitutional order.
But this is where Germany now is. It must either immolate itself and dismantle the Bismarckian state for the cause of EMU, or prepare to finance an orderly withdrawal from monetary union (with the Finns, Dutch, and Austrians) so that the South can breathe again and hope to recover.
That is the choice. All else is can-kicking, denial, obfuscation, muddle, and self-delusion. As is now becoming obvious, the failure to resolve the matter one way or the other is becoming a danger to the global financial system. It threatens to uncork a global depression. Germany must at last decide.
It is a horrible choice. My sympathies go to the German people who were never given a vote on this ensnarement and infeudation of their peaceful country, and who were egregiously deceived by their own leaders, and who cannot now begin to understand why they suddenly are target of such furious and venomous global criticism.
The Germans too are victims of this ruinous project, the greatest victims of all. Their elites have led them into a diplomatic and economic Stalingrad.
You guys should all feel sorry for us. ;)
WW3 is coming. And since WW1 was "The Great War" and WW2 was "The Good War" it will likely be "The Meh War".
Quote from: Richard Hakluyt on December 05, 2011, 11:29:21 AM
Yes, with 2% inflation and 4% nominal growth, nice figures for a mature economy, a country could borrow 2% of GDP and maintain a debt of 50% of GDP :cool:
...That is constantly increasing. Now all you have to do is wait until GDP is no longer growing faster than the borrowing and you've got a problem. I think it's disingenuous to assert that a nation can maintain deficit spending indefinitely, just because it can theoretically work under the right conditions. In the real world those conditions are not possible. Therefore, the assertion is a lie. At some point, running a surplus has to be necessary, if for no other reason than to create leverage room to borrow for stimulus when it becomes required.
Quote from: MadImmortalMan on December 05, 2011, 11:51:08 AM
Quote from: Richard Hakluyt on December 05, 2011, 11:29:21 AM
Yes, with 2% inflation and 4% nominal growth, nice figures for a mature economy, a country could borrow 2% of GDP and maintain a debt of 50% of GDP :cool:
...That is constantly increasing. Now all you have to do is wait until GDP is no longer growing faster than the borrowing and you've got a problem. I think it's disingenuous to assert that a nation can maintain deficit spending indefinitely, just because it can theoretically work under the right conditions. In the real world those conditions are not possible. Therefore, the assertion is a lie. At some point, running a surplus has to be necessary, if for no other reason than to create leverage room to borrow for stimulus when it becomes required.
The point is that governments took this advantage for granted and then systematically borrowed even more, thus getting into trouble. If you broadly aim for a balanced budget then there is a lot of fiscal firepower available when times get rough, and the debt incurred during those rough times should not prove to be too problematic. I know that Britain was borrowing throughout the last boom, there should have been several years of surplus.
There is definitely a lot to be said for being counter-cyclical with the budgets, and that few governments have the foresight to do it. However, the fundamental reality is that the neutral point of sustainability is not a zero percent deficit, so to say that you obviously can't run sustainable deficits forever is mathematically false.
Quote from: DGuller on December 05, 2011, 12:17:49 PM
There is definitely a lot to be said for being counter-cyclical with the budgets, and that few governments have the foresight to do it. However, the fundamental reality is that the neutral point of sustainability is not a zero percent deficit, so to say that you obviously can't run sustainable deficits forever is mathematically false.
If you accept the premise that resources are finite, you can't grow an economy forever and thus can't run a sustainable deficit forever either.
Quote from: Zanza on December 05, 2011, 12:28:01 PM
If you accept the premise that resources are finite,
False premise.
Quote from: Zanza on December 05, 2011, 12:28:01 PM
Quote from: DGuller on December 05, 2011, 12:17:49 PM
There is definitely a lot to be said for being counter-cyclical with the budgets, and that few governments have the foresight to do it. However, the fundamental reality is that the neutral point of sustainability is not a zero percent deficit, so to say that you obviously can't run sustainable deficits forever is mathematically false.
If you accept the premise that resources are finite, you can't grow an economy forever and thus can't run a sustainable deficit forever either.
If resources are finite, then the whole economic theory goes out the window. Sustainable deficits would be the least of the worries.
Quote from: The Minsky Moment on December 05, 2011, 01:49:58 PM
Quote from: Zanza on December 05, 2011, 12:28:01 PM
If you accept the premise that resources are finite,
False premise.
I don't think this premise is either true or false, it's one of those premises that's somewhere in the middle. Some very key resources, like water, are limited, so sooner or later that limitation has to manifest itself somehow.
Even if it were probable that economic conditions could support continual deficit spending for more than several decades straight, why would you consider it wise to do so? I mean, there are definitely reasons to support doing it for a while, maybe even extended periods, but not indefinitely. Eventually, the wall must be hit. Investor confidence in the bond market is subject to whim, and putting ourselves at the mercy of such a fickle master can't be a good thing. I mean borrowing to cover operating expenses rather than one-time shots like buying a bridge. Once we are using new debt issuance to cover operations, it's too far imo.
Quote from: MadImmortalMan on December 05, 2011, 02:04:17 PM
Even if it were probable that economic conditions could support continual deficit spending for more than several decades straight,
I think it can for centuries, not just decades.
Quote from: alfred russel on December 05, 2011, 02:10:56 PM
I think it can for centuries, not just decades.
Then why has every attempt to do so resulted in some sort of default?
Eventually there's a big war or something.
Quote from: MadImmortalMan on December 05, 2011, 02:12:15 PM
Quote from: alfred russel on December 05, 2011, 02:10:56 PM
I think it can for centuries, not just decades.
Then why has every attempt to do so resulted in some sort of default?
Eventually there's a big war or something.
Look at the UK or the US. Yes both have run supluses for a few years here or there, but the overwhelming trend is deficit spending.
In real terms, if you have 3% inflation, you have reduced your debt by 3%. You can increase your debt by that amount without increasing the real debt burden. Increases in hours worked due to population growth and improvements in productivity also make sustaining debt easier.
I do understand the inflation-weighted debt accrual thesis. I would go so far as to change the definition of a balanced budget to one which borrows less than the inflation rate. For non-recurring expenditures.
The problem is, why hasn't someone been able to do it for a couple centuries straight? They always wind up defaulting on it or wiping it out with a period of very high inflation or some other form of default. My guess is that externalities jump in and change the equation. Suddenly that inflation rate isn't what they expected it to be, or Nappy invades, or the English king decides he's inherited your throne or something. Yes it works. Sometimes for a really long time. But not forever.
Quote from: MadImmortalMan on December 05, 2011, 02:26:44 PM
I do understand the inflation-weighted debt accrual thesis. I would go so far as to change the definition of a balanced budget to one which borrows less than the inflation rate. For non-recurring expenditures.
The problem is, why hasn't someone been able to do it for a couple centuries straight? They always wind up defaulting on it or wiping it out with a period of very high inflation or some other form of default. My guess is that externalities jump in and change the equation. Suddenly that inflation rate isn't what they expected it to be, or Nappy invades, or the English king decides he's inherited your throne or something. Yes it works. Sometimes for a really long time. But not forever.
I don't think it is so much a thesis as math.
However, how many countries haven't defaulted for a couple of centuries? If you start with that, you will have a very small list of countries. It is quite a burden to hold them to a requirement to never run a surplus in any year, because that is several hundred years of budgeting. But certainly the US has typicaly run a deficit and is still okay.
Quote from: Zanza on December 05, 2011, 11:34:44 AM
You guys should all feel sorry for us. ;)
I've sympathy for what he's saying though you need to look past the Daily Telegraph house style to get there.
I think one of the aspects that must be really difficult for Germany and especially her leaders is the psychiatric wrench required to lead Europe. It seems that that could be more challenging than using military force in Kosovo. I always suspect that this is part of the reason Merkel's brought the Franco-German engine back at this moment.
I worry the markets are far too hopeful ahead of this week. It seems that even a slight disappointment could send them mad. But I think their hopes seem so high that a few slight disappointments seem possible.
I don't think the ECB will start bond purchases on Thursday (or know how their sterilisation auction will go tomorrow). I'm not convinced that the fiscal union plans will be sufficiently detailed or plausible when they're released. I still don't think the EFSF's large enough and I don't think we'll see any movement on Eurobonds whether in the form the Commission's suggested or the bond idea Germany's wise men have floated. This feels like a weird situation of politicians possibly managing to solve the long-term problems but completely avoiding the short-term.
Nomura released this today which is interesting, if it all fell apart:
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fav.r.ftdata.co.uk%2Ffiles%2F2011%2F12%2FNomura_PostEZcurrencies.png&hash=995e55da44bfcf1493201cb72e1f07418e0cba76)
Edit: And S&P have put the Eurozone's six AAA nations on creditwatch. That's France, Germany, Netherlands, Austria, Luxembourg and Finland. I do wonder how they've any credibility but it's a warning I suppose.
Sheilbh, another point of view is that they need to solve the long term in order to credibly backstop Italy (and/or Spain). Unless there is a strong mechanism to prevent another debt crisis, a backstop would just create a big moral hazard problem that could doom the eurozone to lots of future crises.
So does that mean that the external value of the Euro is almost exclusively based on Germany at the moment? Shouldn't the value be lower now?
If Germany's currency appreciates a mere 1.3% versus the rest of the world, our trade with the rest of the world shouldn't be affected that much. The adjustment within the EU is of course harsh, but at 7-9% with our main trading partners it doesn't seem that terrible. Predictions by the USB for example were much worse.
Quote from: alfred russel on December 05, 2011, 02:46:37 PM
Sheilbh, another point of view is that they need to solve the long term in order to credibly backstop Italy (and/or Spain). Unless there is a strong mechanism to prevent another debt crisis, a backstop would just create a big moral hazard problem that could doom the eurozone to lots of future crises.
I entirely agree, I don't oppose this or austerity plans. My view is that this needs everything: a credible fiscal union plan (the long-term); some form of Eurobond, a strong, large EFSF and ECB bond purchases, interest rate cuts and support for banks (the short-term guarantee); and credible austerity and growth plans in the debtor countries - especially Spain and Italy.
I think we may not get the credible fiscal union plan. The difference between Sarko and Merkel's views are quite important and none of the ideas I've seen, even that suggested by Merkel, seem to be going far enough beoynd a reheated Stability and Growth Pact. None of these plans seem to acknowledge that there will be difficulty with treaty negotiations and approvals and that it'll take months for that process to work. In addition I don't see how these plans meet what Zanza said was the German Constitutional Court's view on ceding more sovereignty. None of the plans seem to be strengthening the position of the Bundestag or increasing the democratic oversight within Europe. I think those problems are why there's so much focus on it but that's also where there's a lot of danger and I fear we'll get the standard 4am Euro-summit fudge that gets everyone excited until they realise there's no small print.
The short-term stuff I don't think'll necessarily happen. I think Draghi's speech to the EU Parliament suggested bond purchases if there's a plan to fiscal union so it may be depending on that - but the interest rate decision's on Thursday and I think the ECB have to give everyone a hint that they're willing to print. I'm simply not convinced on the EFSF or Eurobonds, but again I think we need a big statement on them ideally at the summit.
I think Monti and Rajoy should be able to present and pass bold plans. That bit is the bit I'm most confident of.
All 17 Eurozone countries just put on creditwatch negative by S&P.
Quote from: Iormlund on December 04, 2011, 07:05:20 PM
Quote from: Tamas on December 04, 2011, 05:20:59 PM
So I read that the Italians announced austerity which at first glance sound promising.
Now Rome will burn but if they manage to keep control, it may benefit Europe. :hmm:
Is there any country whose outlook has improved after undertaking austerity measures?
Canada.
Quote from: alfred russel on December 05, 2011, 02:17:52 PM
Look at the UK or the US. Yes both have run supluses for a few years here or there, but the overwhelming trend is deficit spending.
In real terms, if you have 3% inflation, you have reduced your debt by 3%. You can increase your debt by that amount without increasing the real debt burden. Increases in hours worked due to population growth and improvements in productivity also make sustaining debt easier.
Both are also special circumstances given the historical strength of their currencies. The US is a very special case given that world trade is largely denominated in US currency. For the rest of us prudent budgeting becomes more important.
Quote from: MadImmortalMan on December 05, 2011, 03:09:39 PM
All 17 Eurozone countries just put on creditwatch negative by S&P.
Good. Otherwise some unsuspecting bond trader could have missed that there are problems with Eurozone sovereign debt.
Quote from: Zanza on December 05, 2011, 03:51:49 PM
Quote from: MadImmortalMan on December 05, 2011, 03:09:39 PM
All 17 Eurozone countries just put on creditwatch negative by S&P.
Good. Otherwise some unsuspecting bond trader could have missed that there are problems with Eurozone sovereign debt.
:lmfao:
Quote from: Zanza on December 05, 2011, 03:51:49 PM
Good. Otherwise some unsuspecting bond trader could have missed that there are problems with Eurozone sovereign debt.
The fact that there are problems should be reflected in the current ratings. The negative outlooks mean the problems are expected to get worse.
Quote from: S&P
S&P hopes to complete its review of EU sovereign ratings as soon as possible following this week's summit on Dec. 8 and 9. The AAA countries - Germany, France, Finland, Luxembourg, and Netherlands, as well as AA Belgium - face a one notch downgrade. All other countries are looking at up to two notches.
So unless the summit drops a nuke, there will be six downgrades and eleven double-downgrades.
The dean put Greece on double-secret probation.
QuoteUS VP Biden jokes in Greece about bringing much aid
Mon, Dec 05 05:16 AM EST
ATHENS, Dec 5 (Reuters) - U.S. Vice President Joe Biden joked during a visit to debt-choked Athens on Monday about bringing money to help Greece out of its deepest financial crisis in decades.
Introducing a member of his delegation during a meeting with Greek President Karolos Papoulias, Biden said: "This man represents the Treasury department. He's brought hundreds of millions of dollars."
His comments drew laughs from both the Greek and U.S. delegations.
Euro zone ministers will meet on Friday for a summit billed key to finding a way out of a growing debt crisis and may turn to the International Monetary Fund for more aid.
A senior U.S. Treasury official said last week that the United States was not planning to make such loans to the Fund and said the lender's resources were adequate.
Asked what his message to Europe was, Biden said: "Hang in there."
I :wub: Joe.
Looks like S&P's own ratings projections from last years base case scenario were wildly optimistic.
Quote from: Sheilbh on December 05, 2011, 02:55:15 PM
I think Monti and Rajoy should be able to present and pass bold plans. That bit is the bit I'm most confident of.
Rajoy has remained carefully hidden since he won the elections while our spreads skyrocketed. Don't expect anything bold from him, whatever that means.
I'm glad it's Euro and not Mero.
Quote from: Iormlund on December 06, 2011, 07:14:34 AM
Rajoy has remained carefully hidden since he won the elections while our spreads skyrocketed. Don't expect anything bold from him, whatever that means.
Which let's him be all the more bold. If you've not promised anything in particular your options are far wider.
This looks nonsensical to me. Can anyone explain it except as, effectively, the Eurozone doing what Ireland did in 2008?
QuoteThe eurozone's 'terrible mistake'
December 5, 2011 2:17 pm by Ralph Atkins
UPDATE: Angela Merkel, German chancellor, in Paris has just announced a u-turn: under the new ESM, private sector investors will not be required to bear some losses. The ECB will be pleased. See ft.com for more.
European Central Bank policymakers have become more outspoken in attacking "private sector involvement" in Greece's bail-out. The plan to persuade banks to take a "haircut" on their Greek bonds was "a terrible mistake," according to Athanasios Orphanides, Cyprus's central bank governor and ECB governing council member.
"By forcing the impairment of any state bond we have triggered concern internationally of all state bonds in the eurozone and that's one of the key reasons we have a problem," he told his country's parliament.
I have noted before the ECB's strong opposition to PSI generally and in Greece's case specifically. The view from Frankfurt is that it simply undermines investor confidence in the whole eurozone. In other words, if Greece's difficulties had been better managed earlier, Italy and Spain would not have been caught up in the contagion and the eurozone would not now be facing an existential crisis.
It is the polar opposite view of many economists outside the eurozone -that the crisis has erupted because of a dogged refusal by eurozone policymakers to accept at a Greek debt restructuring is inevitable and to get on with putting Greece's finance back on a sustainable basis.
But my hunch is that the ECB's view has not changed.
I suspect it is privately urging eurozone government leaders, especially in Germany, to think again about PSI in Greece, and once the European stability mechanism, the European Union's planned long term stabilisation fund, is in place. If compromises have to be sought this week, the ECB would certainly hope this was one area where there was room for manoeuvre.
I think, looking at the British press and the government, that if there's a new treaty we may have to have a British referendum.
My understanding is the ECB has an issue with haircuts because of all the shyte bonds they bought up.
There's a LOT of bitching and wailing about that going on in the interwebz (http://blogs.reuters.com/felix-salmon/2011/12/06/the-eurozone%E2%80%99s-terrible-mistake/) today. I dunno. Maybe the best thing for Germany to do is just say fuck it and pay for all the bags of snacks while they can borrow at rates likely to be less than their rate of inflation over the next dozen years.
I can't see how Merkel stays in power though.
Quote from: Admiral Yi on December 06, 2011, 01:00:46 PM
My understanding is the ECB has an issue with haircuts because of all the shyte bonds they bought up.
I don't think this isn about haircuts in general, it's only about private sector haircuts.
Quote from: Sheilbh on December 06, 2011, 01:06:36 PM
I don't think this isn about haircuts in general, it's only about private sector haircuts.
If the ECB is holding a bunch of Greek debt that gets written off at 50 cents on the dollar, presumably the stuff they are holding will fetch less than par in an auction.
According to these guys, Germany is paying for it all anyway.
http://www.voxeu.org/index.php?q=node/7391
Figure 4. Claims on the Eurosystem (up to September 2011)
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fwww.voxeu.org%2Fsites%2Fdefault%2Ffiles%2Fimage%2FFromAug2011%2FTornellFig4.gif&hash=3dd4079d75cd6d905e2c9351a8e0d5741329b2b6)
Quote from: Admiral Yi on December 06, 2011, 01:27:38 PMIf the ECB is holding a bunch of Greek debt that gets written off at 50 cents on the dollar, presumably the stuff they are holding will fetch less than par in an auction.
Actually I don't think that's the case. My understanding, I think confirmed by MIM's link (which is worth a read), is that the ECB and EFSF bond purchases are like the IMF's they won't get cut and they haven't with Greece so far, from my understanding.
What does "claims on the Euosystem" mean?
Quote from: Admiral Yi on December 06, 2011, 01:36:25 PM
What does "claims on the Euosystem" mean?
I'm not sure. I've read another perspective on the assets of the Bundesbank (another chart in that link) that said the Bundesbank's position right now looks like the BofE before the speculative attacks on Black Wednesday - the ERM disaster. Although they suggested it could be resolvable because the ECB can print more Euros the BofE couldn't print more DMarks.
Basically, the gist is that the Bundesbank is expending most of its lending power in this effort.
Quote from: Admiral Yi on December 06, 2011, 01:36:25 PM
What does "claims on the Euosystem" mean?
It's about TARGET2 ("Trans-European Automated Real-time Gross Settlement Express Transfer System"), the cross-border clearing system in Europe.
If a Greek buys something from Germany and no Germans buy anything in Greece, the involved banks will clear the transaction via their respective central banks. The massive claims the Bundesbank has on other ESCB banks mean that the current account balance of the various Eurozone states is no longer balanced (unlike before 2009 when the money earned from German exports was reinvested in the periphery).
JR mentioned this before here. Here is the post:
http://languish.org/forums/index.php?topic=4699.msg266495#msg266495 (#62)
Quote from: Admiral Yi on December 06, 2011, 01:36:25 PM
What does "claims on the Euosystem" mean?
Claim of a national central bank (like the Bundesbank) on the ECB.
Let's say Germany exports goods to Greece but Greece does not export back goods of equivalent value. The difference must be financed. Let's further say that instead of paying cash immediately, the importer finances the purchase on credit. Assuming the vendor wants to receive cash, the financing is achieved by the Greek importer borrowing the euros from the importer's local Greek bank so that the euros can be transmitted to the German exporter's bank in Germany.
But if Greece runs a large current account deficit (and it does and did) - then over time there is big flow of euros coming out of Greece to Germany, raising the risk of euro (liquidity) shortage in Greece. The way this is handled is that the central bank infrastructure steps into place as an intermediary. So the Greek central bank borrows Euros from the ECB and uses those Euros to supply the needed liquidity to the Greek banking system. But where does the ECB get those Euros from? It must be from another member state central bank - in this case this Bundesbank. If this continues over time, then the ECB will end up owing the Bundesbank lots of money (ie the Bundesbank will have claims on the ECB) and there will be a corresponding amount the Greek central bank owes the ECB (i.e. the Greek Central Bank will have negative claims on ECB).
What is really happening here is that the Bundesbank has been effectively underwriting or subsidizing German exports to the eurozone periphery by providing cheap trade finance to the importer, but the true nature of that economic reality is hidden by the layers of intermediaries in the Eurosystem. The consquence is that the Bundesbank is exposed in the event of an economic meltdown in the PIIGS.
EDITL noticed Zanza's intermediate post but kept this anyway for additional explanation.
By the way, the ECB does not think it creates any risk:
http://www.ecb.int/pub/pdf/mobu/mb201110en.pdf
QuoteIn EMU, a claim in TARGET2 does not, in itself, refl ect the relevant NCB's exposure to fi nancial risk. The risk exposure of the central banks forming the Eurosystem (i.e. the NCBs and theECB) relates to the monetary policy operations themselves, not to the associated TARGET2 balances. As always, a central bank faces counterparty risk when implementing monetary policy.
The risk associated with the provision of central bank liquidity as part of the implementation of monetary policy is mitigated by a risk management framework.10 The Eurosystem's collateral framework is based on a public list of securities fulfi lling the relevant eligibility criteria, together with risk control measures. In particular, securities pledged as collateral are valued on a daily basis, at market prices (where available) or using conservative valuation methods, with haircuts also being applied. The residual risk associated with the provision of central bank liquidity that may emerge despite the risk mitigation measures, is, as a rule, shared among the NCBs of the Eurosystem in accordance with their respective shares in the ECB's capital and is not related to the TARGET2 positions of individual central banks.
If counterparties have to pledge collateral then of course there's risk, the risk that your national central bank has to forfeit big chunks of its reserves.
Anyone know the motivation for this system? Why not just let importers pay for stuff like normal countries do?
You can't have a monetary union without such a clearing system. Otherwise an Euro in Greece wouldn't be the same as an Euro in Germany.
Quote from: Zanza on December 06, 2011, 02:40:23 PM
By the way, the ECB does not think it creates any risk:
Yeah . . . that's the ticket.
The ECB is saying that in the event of a default by a borrowing NCB, the ECB bears the credit risk, and not the lending NCB. It is also saying the risk it mitigated by requiring pledges of good collateral.
However:
1) A principal form of collateral accepted by the ECB is member state government bonds. Which means the collateral securing the obligations of the Greek Central bank is . . . Greek government bonds. How's that working out for ya, ECB?
2) If the ECB takes a big loss, it either has to print a ton of money to cover it, or get refunded by the solvent members of the Eurosystem. I.e by Germany. Either way, it is a bad outcome for Germany.
Quote from: Zanza on December 06, 2011, 02:48:52 PM
You can't have a monetary union without such a clearing system. Otherwise an Euro in Greece wouldn't be the same as an Euro in Germany.
Why would anyone have a monetary union with Greece?
Quote from: Admiral Yi on December 06, 2011, 02:46:01 PM
If counterparties have to pledge collateral then of course there's risk, the risk that your national central bank has to forfeit big chunks of its reserves.
But sticking with the Greek example, other than a few bars of gold, what reserves does it have? The latest balance sheet shows over Euro 100 billion in TARGET2 liabilities. The largest two items on the asset side of the balance sheet availble to cover this are: (1) Euro 72 billion in "Long-term refinancing operations" - long term loans to Greek private banks, and (2) Euro 41 billion in "Sundry" assets (!)
Good luck getting blood out of that stone.
Quote from: Zanza on December 06, 2011, 02:48:52 PM
You can't have a monetary union without such a clearing system. Otherwise an Euro in Greece wouldn't be the same as an Euro in Germany.
I don't follow. I'm a Greek dude. I want to buy a Hercules candy bar in Athens, I have to hand over euros. I want to buy a Schicklegruber candy bar from you, I have to hand over euros.
Quote from: Admiral Yi on December 06, 2011, 03:01:09 PM
Quote from: Zanza on December 06, 2011, 02:48:52 PM
You can't have a monetary union without such a clearing system. Otherwise an Euro in Greece wouldn't be the same as an Euro in Germany.
I don't follow. I'm a Greek dude. I want to buy a Hercules candy bar in Athens, I have to hand over euros. I want to buy a Schicklegruber candy bar from you, I have to hand over euros.
It's the little differences.
It's called a Fuhrer with Cheese.
Quote
* EU OFFICIALS WEIGH RUNNING TWO RESCUE FUNDS TOGETHER, FT SAYS
* EU WEIGHS RUNNING TWO RESCUE FUNDS, MORE IMF SUPPORT: FT
* EU WEIGHS GIVING ESM ACCESS TO ECB FUNDING, FT SAYS
Hmm. Maybe if they have two different funds, they can loan to each other and then leverage that collateral. :)
Quote from: Admiral Yi on December 06, 2011, 03:01:09 PM
I don't follow. I'm a Greek dude. I want to buy a Hercules candy bar in Athens, I have to hand over euros. I want to buy a Schicklegruber candy bar from you, I have to hand over euros.
If you buy the Hercules candy bar, the euros go from a Greek payor to a Greek payee. Assuming for simplicity that both you and the Hercules company use the same bank, all that happens is that the bank just makes a series of electronic entries: first it adds 1 euro to your bank account and balances that by adding 1 euro to your loan balance with the bank. Then it debits the euro from your bank account and adds it Hercules. From the bank's perspective, the 1 euro increase in loan balances owed to it are balanced by a 1 euro increase in deposits so everything is honky-dory. Now if you and Hercules have different banks it gets a little more complicated with interbank payments, but from the viewpoint of the entire Greek banking system, there is a matching increase in deposits and additional loans extended.
Now go to the Schikelgruber candy example. Schikelgruber banks at BayernLB. Now when you buy the candy bar on your credit card, your Greek bank has to send the Euro to BayernLB. So loan balances go up in the Greek banking system but without a corresponding increase in deposits - that deposit goes to the German banking system.
This is not a huge problem for a 1 euro candy bar purchase. But if you buy 100 billion candy bars, it starts being a problem. Now you have got 100 billion euros in deposits going from the Greek banking system to Germany and the Greek system will be badly short euro reserves. Normally what would happen here is that your bank will stop extending credit before you get to 100 billion candy bars. But that is bad news for the Schicklegruber company which will now lose sales.
So what happens is that the Greek central bank provides billions of euros in cheap loans to your Greek bank, which now has the reserves and liquidity to finance your massive candy bar buy. The Greek central bank can do that because it can get the money from the ECB. And the ECB can give the Greeks the money because it gets it can borrow from the Bundesbank. And the Bundesbank is willing to lend the money because it knows it will all end up going to their Bavarian friends at the Shicklegruber company. Everyone is happy once again. Only at some point it turns out you can't pay for 100 billion candy bars after all, and your bank can't repay its loans to the Greek central bank once you stiff your bank. Which wouldn't be a problem for anyone outside Greece were it not the fact that now the Greek central bank can't pay the ECB the 100 billion and the only collateral the ECB has to collect on are Greek government bonds.
S&P going to cut the Eurozone's credit rating? Be ready for a whole bunch of rhetoric against 'speculators'.
Quote from: The Minsky Moment on December 06, 2011, 03:30:45 PM
This is not a huge problem for a 1 euro candy bar purchase.
Unless you're Greece.
Quote from: The Minsky Moment on December 06, 2011, 03:30:45 PM
This is not a huge problem for a 1 euro candy bar purchase. But if you buy 100 billion candy bars, it starts being a problem. Now you have got 100 billion euros in deposits going from the Greek banking system to Germany and the Greek system will be badly short euro reserves. Normally what would happen here is that your bank will stop extending credit before you get to 100 billion candy bars. But that is bad news for the Schicklegruber company which will now lose sales.
OK, what's wrong with this? Greek customers run out of money to buy Schikelgrubers, so no more Schikelgrubers. What's the problem?
The problem is the Greek customers ran out of money to buy Schickelgrubers a long time ago, but they kept getting loans to buy more. The Schickelgruber company was making a good portion of its money selling to Greece, and some of the money it was making was being loaned to Greece to buy more Schickelgrubers. Now the Greeks are way underwater and the Schickelgruber's bank is wondering if it's going to get its money back and if they can even pay the Schickelgruber company its money back. Hosage all around.
No, my question is why do you need the clearing blahdy blah in the first place. People who have money buy stuff. People who don't, don't.
So that people who don't can buy stuff. Duh. :P
Quote from: Admiral Yi on December 06, 2011, 04:57:43 PM
No, my question is why do you need the clearing blahdy blah in the first place. People who have money buy stuff. People who don't, don't.
What's the point of the Euro, or for that matter the EU, if you can't have cross-border payments and transactions? The entire reason behind a massive chunk of the European project's gone.
I think he's asking why the transfers have to match the purchases.
Quote from: Sheilbh on December 06, 2011, 05:08:54 PM
What's the point of the Euro, or for that matter the EU, if you can't have cross-border payments and transactions? The entire reason behind a massive chunk of the European project's gone.
:huh:
Who says you can't have cross border transactions?
Quote from: Admiral Yi on December 06, 2011, 05:11:25 PM:huh:
Who says you can't have cross border transactions?
I may not be understanding this at all, so apologies if I'm not.
But to enable transactions across the Eurozone you need a Euro-wide clearing system (?).
From what I gather what the Eurozone's got is basically all national clearing systems, run by central banks linking together rather than a centralised European one. Every national central bank is effectively providing the liquidity in the national economy and enabling transfers across national borders in a large, balanced Euro wide system with the ECB kind of guaranteeing it.
I could have misunderstood but as far as I can see you'd either need a centralised system to enable transactions or you'd have member states with I suppose internal balance of payment crises every other week.
Quote from: Sheilbh on December 06, 2011, 05:23:30 PM
But to enable transactions across the Eurozone you need a Euro-wide clearing system (?).
You don't need a clearing system of this type to enable transactions. Transactions were possible before the euro was invented.
Quote from: Admiral Yi on December 06, 2011, 05:29:10 PMYou don't need a clearing system of this type to enable transactions. Transactions were possible before the euro was invented.
But domestic central banks were in charge of their own currencies and reserves then.
Quote from: Admiral Yi on December 06, 2011, 04:31:17 PM
OK, what's wrong with this? Greek customers run out of money to buy Schikelgrubers, so no more Schikelgrubers. What's the problem?
It's a problem for the Greek customer who wants to buy them and the Schikelgruber company that wants to sell them.
It became a problem for Bundesbank, the ECB and the Greek banking system when all three jointly decided to facilitate such transactions.
Quote from: Admiral Yi on December 06, 2011, 04:57:43 PM
No, my question is why do you need the clearing blahdy blah in the first place. People who have money buy stuff. People who don't, don't.
Because you have a bunch of separate countries with separate national banking systems sharing a single currency, where no individual country has the power to print that currency as would normally be the case in a fiat money system.
Thus, without the TARGET balances, the Eurozone would effectively act as a gold standard for all international transactions within the zone. That is, all current account imbalances would have to be resolved by immediate payment of cold hard cash. Adjustment would occur because those transfers would cause inflation in the net exporter and deflation in the importer.
This was considered undesirable for the reasons that the gold standard is typically deemed undesirable. (eg it is not hard to understand why neither Germany nor Greece would be keen on an adjustment mechanism that causes price inflation in Germany and deflation in Greece).
Apparently the ECB's rate cut was rather divisive within the bank, and Draghi sounded very luke warm on further actions.
The Finns have said they need private sector involvement and their Parliamentary Constitution Committee thinks the suggested fiscal union plan would be unconstitutional.
As ever before a summit this could be just staking out negotiation positions. But given the importance and expectations of this summit I think we need a little more.
Also I've seen March as the projected date for a new treaty which strikes me as hugely optimistic given the negotiating and ratification procedures needed.
Hopefully this'll all work out.
Interesting post on the underlying reasons for the malaise of the Greek economy:
http://aristosd.posterous.com/greeks-behaving-badly-the-micro-origins-of-cr
Big G20 plan to inject money into Europe spiked the market for about a half hour before everyone realized it was just a rumor. Anybody here have the ability to tweet for one of the major newswires? If so, I have a business proposition for you...
Quote from: Zanza on December 08, 2011, 12:13:03 PM
Interesting post on the underlying reasons for the malaise of the Greek economy:
http://aristosd.posterous.com/greeks-behaving-badly-the-micro-origins-of-cr
Yes. The guy explains very well the reasons why I have been so adamant about the imposition of structural reforms rather than austerity. It is something that also happens over here, though admittedly to a much lesser extent.
It also explains why austerity is mostly going to hurt those who had nothing to do with the problem in the first place, those who not enjoy the perks of public employment or the ease of tax evasion of the wealthy self employed. Or in other words, why the "hard-working" countries' moral argument is complete bollocks.
Austerity has its role in forcing structural reforms:
QuoteThis is where the crisis becomes an opportunity. Fiscal constraints are making it very difficult for the state to continue to award incomes to special groups. Those rents that have a direct fiscal cost are already being cut.
You guys operating under the hope that if they keep austerity up long enough the rentseeking culture will begin to change due to the strict limitations on the public teat?
Quote from: Iormlund on December 08, 2011, 02:46:56 PMIt also explains why austerity is mostly going to hurt those who had nothing to do with the problem in the first place, those who not enjoy the perks of public employment or the ease of tax evasion of the wealthy self employed. Or in other words, why the "hard-working" countries' moral argument is complete bollocks.
Isn't how the hits are distributed determined more or less by the country itself?
Quote from: Zanza on December 08, 2011, 03:01:25 PM
Austerity has its role in forcing structural reforms:
QuoteThis is where the crisis becomes an opportunity. Fiscal constraints are making it very difficult for the state to continue to award incomes to special groups. Those rents that have a direct fiscal cost are already being cut.
Only to a certain extent. It makes it harder to buy votes, which is a surprisingly extended phenomenon in Greece. It doesn't make it harder for the most privileged to keep perks and strangling regulations, which is the root of the problem.
For example, those who went into public service via legitimate exams lately will get the axe. Those who entered by virtue of being X's nephew will continue living the good life, entrenched in their positions.
Quote from: Jacob on December 08, 2011, 03:09:40 PM
Quote from: Iormlund on December 08, 2011, 02:46:56 PMIt also explains why austerity is mostly going to hurt those who had nothing to do with the problem in the first place, those who not enjoy the perks of public employment or the ease of tax evasion of the wealthy self employed. Or in other words, why the "hard-working" countries' moral argument is complete bollocks.
Isn't how the hits are distributed determined more or less by the country itself?
Yes, that's the whole point. The country in this case means the government and various lobbies and unions who are responsible for this malaise in the first place. That's why someone OUTSIDE the system has to tear it down. It can't be done within Greece itself.
I have no problem with Greece being placed in receivership.
Quote from: Admiral Yi on December 08, 2011, 03:17:09 PM
I have no problem with Greece being placed in receivership.
Yeah, but who would want to receive that shit?
There is no way the troika can do that though. The Greeks will have to do that by themselves.
Quote from: Iormlund on December 08, 2011, 03:15:35 PMYes, that's the whole point. The country in this case means the government and various lobbies and unions who are responsible for this malaise in the first place. That's why someone OUTSIDE the system has to tear it down. It can't be done within Greece itself.
You may well be right, but who is in any kind of position to actually do that?
Quote from: Jacob on December 08, 2011, 03:57:12 PM
Quote from: Iormlund on December 08, 2011, 03:15:35 PMYes, that's the whole point. The country in this case means the government and various lobbies and unions who are responsible for this malaise in the first place. That's why someone OUTSIDE the system has to tear it down. It can't be done within Greece itself.
You may well be right, but who is in any kind of position to actually do that?
The bond market.
Quote from: MadImmortalMan on December 08, 2011, 03:59:04 PMThe bond market.
I'm not sure about that.
I mean, the bond markets can punish them for not fixing that shit, but it can't implement any kind of reforms.
Interesting post on ZH today (surprisingly without "Game Over" in the title), that the euro today is acting like the gold standard in the 1930's. With the assertion that the nations who left the GS sooner had less severe depressions and recovered more quickly.
http://www.zerohedge.com/news/euro-today-gold-standard-1930s-eu-economies
Quote from: MadImmortalMan on December 13, 2011, 04:17:45 PM
Interesting post on ZH today (surprisingly without "Game Over" in the title), that the euro today is acting like the gold standard in the 1930's. With the assertion that the nations who left the GS sooner had less severe depressions and recovered more quickly.
http://www.zerohedge.com/news/euro-today-gold-standard-1930s-eu-economies
See post 588
You write for Zerohedge?
Aren't you lacking the requisite end-of-the-worldiness? :P
From the Guardian liveblog of the Anglo-French spat:
QuoteBreaking news from the rating agencies, but it's not the announcement we're all waiting for*.
Fitch has put eight eurozone countries on Rating Watch Negative -- Belgium, Spain, Slovenia, Italy, Ireland and Cyprus. The decision means each country could soon see its credit rating cut, by at least one notch.
Fitch said it took the decision having analysed last week's EU Summit, and concluded that:
a 'comprehensive solution' to the eurozone crisis is technically and politically beyond reach.
Fitch said it was particularly concerned by "the absence of a credible financial backstop:, adding that:
In Fitch's opinion this requires more active and explicit commitment from the European Central Bank to mitigate the risk of self-fulfilling liquidity crises for potentially illiquid but solvent Euro Area Member States.
None of the six countries have a AAA rating - the highest is Belgium with AA+ (one notch below). They were already on negative watch, but Rating Watch Negative moves each one closer to a downgrade - with a decision due by the end of next month.
* - there is a lot of chatter in the City and elsewhere that Standard & Poor's will do the deed tonight, and cut France's AAA rating.
This isn't looking good. Let's hope Christmas calms everyone down...
Edit: And Ireland's economy shrank again. I think -2% or so last quarter. They've gone from the hopeful posterchild of austere growth to one of the Eurozone's worst performers over the last 9 months of dithering.
I am fully prepared to panic.
Quote from: Sheilbh on December 16, 2011, 03:03:01 PM
Edit: And Ireland's economy shrank again. I think -2% or so last quarter. They've gone from the hopeful posterchild of austere growth to one of the Eurozone's worst performers over the last 9 months of dithering.
Gosh, I can't imagine why.
http://www.costco.com/Browse/Product.aspx?prodid=11487214'
So tempting.....
?
QuoteWe're sorry, this product is not available. [no picture, nada]
The brain is the biggest erogenous zone I guess.
Quote from: Ideologue on December 16, 2011, 06:24:12 PM
Quote from: Sheilbh on December 16, 2011, 03:03:01 PM
Edit: And Ireland's economy shrank again. I think -2% or so last quarter. They've gone from the hopeful posterchild of austere growth to one of the Eurozone's worst performers over the last 9 months of dithering.
Gosh, I can't imagine why.
Keynesian pants are a dairy?
History will prove us right. They can put it on our tombstones.
If we can afford tombstones.
Quote from: Ideologue on December 16, 2011, 06:58:32 PM
History will prove us right. They can put it on our tombstones.
If we can afford tombstones.
You're talking about Keynes, right?
You don't have to wait, history already knows you're right. Deficit spending increases GDP when there is unused capacity.
Those Eurozone countries are not practicing austerity because they doubt Keynes' model, they're doing it because nobody will lend them the money to do it.
Quote from: Ideologue on December 16, 2011, 06:53:38 PM
?
QuoteWe're sorry, this product is not available. [no picture, nada]
The brain is the biggest erogenous zone I guess.
HOLY SHIT. SUPPLIES ARE RUNNING OUT. PANIC.
Anyways, it was this:
http://www.shelfreliance.com/basic-1-year-dehydrated-food-supply.html
If they've got astronaut ice cream, I'm so there. If you want a vision of the future, imagine me clutching an AK-47 that I have no idea how to properly maintain, camped out in the Cape Canaveral gift shop with chalky deliciousness smeared all over my face.
Quote from: Admiral Yi on December 16, 2011, 07:01:54 PM
Quote from: Ideologue on December 16, 2011, 06:58:32 PM
History will prove us right. They can put it on our tombstones.
If we can afford tombstones.
You're talking about Keynes, right?
You don't have to wait, history already knows you're right. Deficit spending increases GDP when there is unused capacity.
Those Eurozone countries are not practicing austerity because they doubt Keynes' model, they're doing it because nobody will lend them the money to do it.
I'm not blaming Ireland. I'm blaming the ECB. They demanded the austerity measures in the Eurozone crapholes, right?
Quote from: Ideologue on December 16, 2011, 07:32:41 PM
If they've got astronaut ice cream, I'm so there. If you want a vision of the future, imagine me clutching an AK-47 that I have no idea how to properly maintain, camped out in the Cape Canaveral gift shop with chalky deliciousness smeared all over my face.
There is a supply of that shit at Wright Patterson in the Museum cafeteria. And the Gift shop. I'm surprised there wasn't a astronaut ice cream dispenser in the restrooms.
I really, really wish they sold it grocery stores. I mean, I know I can order it online, but that does not meet my impulse consumption needs. You can't plan ahead for the snack attack.
Quote from: Ideologue on December 16, 2011, 07:37:56 PM
I really, really wish they sold it grocery stores. I mean, I know I can order it online, but that does not meet my impulse consumption needs. You can't plan ahead for the snack attack.
Got a planetarium nearby? They usually show up in those.
Quote from: Ed Anger on December 16, 2011, 07:27:11 PM
Quote from: Ideologue on December 16, 2011, 06:53:38 PM
?
QuoteWe're sorry, this product is not available. [no picture, nada]
The brain is the biggest erogenous zone I guess.
HOLY SHIT. SUPPLIES ARE RUNNING OUT. PANIC.
Anyways, it was this:
http://www.shelfreliance.com/basic-1-year-dehydrated-food-supply.html
That stuff is crap and it'll give you the craps as well.
Plus how come it's only going be be giving you 1300 cals per day, that's not sustainable for a year.
For $1200 you could buy a much better balance selection of emergency food.
It.was.a.joke.
I don't see anyone laughing.
Quote from: Ideologue on December 16, 2011, 07:32:41 PM
If you want a vision of the future, imagine me clutching an AK-47 that I have no idea how to properly maintain
AK-47 are a piece of cake to maintain.
Great news! :)
http://www.nytimes.com/2011/12/29/business/global/italys-borrowing-costs-drop-sharply-at-auction.html?_r=1
QuoteItaly's Borrowing Costs Plummet, Reducing Pressure
By HARVEY MORRIS
Published: December 28, 2011
Italy's short-term borrowing costs dropped sharply on Wednesday at an auction of government bills, easing the immediate pressure on the country's economy.
The sale of 9 billion euros ($11.8 billion) of six-month Treasury bills was seen as the first postholiday indication of the condition of the beleaguered euro zone, the 17 members of the European Union that use the euro.
The bills were sold at a yield of 3.251 percent, down from 6.504 percent at a previous auction in late November. Demand was 1.7 times the amount offered, compared with 1.47 times previously.
In an auction of two-year bonds, which raised 1.7 billion euros, the yield fell to 4.853 percent from 7.814 percent last month. The auctions raised a total 10.7 billion euros.
The lower borrowing costs appeared to reflect the adoption of a new austerity package in Italy, as well as a huge infusion of low-cost, long-term liquidity into euro zone banks by the European Central Bank last week.
With the central bank now charging only 1 percent interest on three-year loans, banks can take the cash, buy short-term securities and earn a quick profit.
In anticipation of the loans, Spain's borrowing costs fell drastically at an auction on Dec. 20. And the central bank will offer the three-year loans again in late February.
On Thursday, Italy plans a sale of 8.5 billion euros ($11 billion) in long-term debt, which analysts said would be a more significant indicator of market sentiment.
The brighter outlook for Italy was reflected elsewhere in the debt markets, where Spain's long-term borrowing costs fell to almost 5 percent. German bonds, a benchmark for the euro zone, edged lower to 1.89 percent.
"The target size of the auction was in line with the intended amount," analysts at IFR Markets wrote in a note after the Italian debt sale, "so over all a smooth auction."
The sale of long-term debt on Thursday probably will "go the same way," they added, "as domestic players come in to support" the bonds.
Nevertheless, there was evidence that the financial system remained stressed. The central bank reported that banks in the euro zone had deposited a record amount of overnight funds for the second day in a row. Banks parked 452.03 billion euros ($584 billion) for 24 hours, beating a previous record of 411.8 billion euros set on Tuesday.
The heavy use of the deposit facility indicates that banks in the euro zone remain wary of lending to one another, although analysts note that market activity has been muted because of the year-end holidays, and there is more cash in the system after the central bank's action.
Italy has been in the spotlight as a result of slow growth combined with escalating borrowing costs and a debt equal to 120 percent of gross domestic product. It needs to raise 450 billion euros ($582 million) in 2012.
Italy suffered its biggest decline in Christmas retail sales in 10 years, according to data released this week by the consumer group Codacons.
Good news but . . . the Italian 10 year yield did not improve in secondary trading, which indicates long term sentiment is still poor. And not surprising because even at 3.25 - 4.85 percent, the interest costs are still too high for ultimate sustainability.
I thought today's 10 year auction was less joyous. They didn't sell as much as hoped and the yield was back under 7% but barely. Hopefully things'll improve once Monti presents his 'Grow Italy' plans.
Maybe a few more demonstrations will lower those 10 year rates. :)
Despite the time differences, Sheilbh and I precisely synchronize our reading of the FT leaders.
Is the decline in short term rates for Italy really just a function of the spike in lending to banks by the ECB? Parking the money in high yielding (but relatively short term and liquid) government debt is probably better than many other options.
Merkel and Sarkozy in a spoof of Germany's New Year's Eve favorite "Dinner for One" with English subtitles:
http://www.youtube.com/watch?v=CC6f2RB9iO8
I think that sketch is also well-known in Scandinavia, no?
Quote from: The Brain on December 17, 2011, 04:46:33 AM
I don't see anyone laughing.
Are you sure you wanna be like common people?
QuoteGreece: No second bailout, no euro
By NICHOLAS PAPHITIS, Associated Press – 2 hours ago
ATHENS, Greece (AP) — Greece's government warned Tuesday that the debt-crippled country will have to ditch the euro if it fails to finalize the details of its second, euro130 billion ($169 billion) international bailout and that more austerity measures may need to be implemented. [...]
Would a second bail out solve their problems? What is to prevent them repeating this stunt again?
It wouldn't solve anything, neither their short-term debt problem nor the long-term imbalances of the Eurozone.
Quote from: Valmy on January 03, 2012, 02:19:26 PM
Would a second bail out solve their problems? What is to prevent them repeating this stunt again?
It's not a stunt. The second bailout is the one agreed in principle at the October Eurosummit. The problem is it takes a long time to move from a Eurosummit agreeing to something and it getting acted upon.
It would seem extraordinary if the Greeks got a technocratic government that everyone wants to succeed but wasn't extended the support promised to the previous government.
I think they are still scheduled to have an election in February. By the time this next tranche is necessary, they might have a new government.
Quote from: Zanza on January 03, 2012, 02:35:46 PM
I think they are still scheduled to have an election in February. By the time this next tranche is necessary, they might have a new government.
I think you're right, though my understanding's that's a provisional date. I thought the point of this government was to enact the reforms necessary on the Greek side - and possibly finish negotiations with Greek debt-holders to confirm the haircut - before the election and that the election date was contingent on that process.
I also think a problem throughout this crisis has been waiting until things were necessary.
The technocratic government is powerless and won't be able to do any reforms. And I doubt they'll have anywhere near the voluntary haircuts they need.
Is Greece leaving the EZ bullish or bearish for the euro itself?
It's bad as it means de facto default and that means a lot of losses that may not yet be written down will materialize in the exposed financial institutions. Furthermore it will set a precedent.
Quote from: Zanza on January 03, 2012, 04:36:31 PM
The technocratic government is powerless and won't be able to do any reforms. And I doubt they'll have anywhere near the voluntary haircuts they need.
What are you basing that on?
The technocratic government's backed by all parties in the Parliament except for the Communists (I think that's how they're able to choose the election date, they'll vote to dissolve). They've got far more official political support than Monti. They've got a limited mandate, unlike Monti who got his for two years. They've passed a very austere budget for 2012 that was supported by most parties (though I think New Democracy hinted that they weren't happy with the tax portions) and have been negotiating for the haircut.
I think you're right on the haircuts though. I don't know if they'll get the 50% that was proposed at the October summit, and even that won't be nearly enough.
Edit: Incidentally they've pushed back the election date to 'around April'.
I read an article recently which basically said that they haven't passed a single meaningful reform yet. They haven't been able to cut more than a 1000 of the 750,000 state employees apparently. They have still not been able to open up closed jobs such as truck or taxi drivers. And so on and so forth.
Passing an austerity budget is easy when you know you won't make it anyway.
I was a little surprised to learn that Spain is running an 8% deficit. That's almost as big as the US'!
Quote from: Zanza on January 03, 2012, 05:03:01 PM
I read an article recently which basically said that they haven't passed a single meaningful reform yet. They haven't been able to cut more than a 1000 of the 750,000 state employees apparently. They have still not been able to open up closed jobs such as truck or taxi drivers. And so on and so forth.
A lot of what they're doing is not replacing staff who are retiring, they're not replenishing the police or army at the full rate (I think they're going 1:5 compared to a hiring freeze in the rest of the public sector) and there are tens of thousands of furloughed employees.
But it's a mistake simply to see the number of public employees as entirely bad. One of the problems Greece has is that their state bodies simply don't have the the administrative capability or capacity to implement the reforms. This is especially a problem with revenue collection.
One of the most unpopular reforms has been to effectively outsource the collection of some property taxes to the utilities companies. It's bundled in with your bill. If you fail to pay then you get prosecuted for not paying your taxes and your electricity cut off. But one of the reasons that reform was passed was because the Greek Inland Revenue wasn't really capable of fully collecting property tax.
Another part of the problem the Greeks have is that they're struggling to successfully privatise anything given the current economic climate. My understanding is that some of these projected privatisations have also been hugely overvalued. The privatisation of assets so far were, according to the plan, meant to net the Greeks €1.7 billion. They didn't even hit €400 million.
The latest IMF report said on strucutral reforms that most of the legislation has been passed, but that the Greek state is struggling to implement. This is again an issue of state capacity. But there have been reforms. But if you simply think about it this government's furloughing employees and not replacing them and implementing largescale reforms in almost every sector from the judiciary to social security. That's inevitably going to cause problems getting from legislation - which is easy to pass - the full enactment. Though it's ongoing.
On the fiscal side in addition to the general austerity I believe they've halved the percent of the population able to retire early with social security, and cut pensions - this is probably necessary because Greek social security will be decimated by the haircuts. It's also worth remembering that so far the Greeks have actually delivered the austerity requested in all of their budgets - if any of the projections on their economy were right. They've always been very optimistic.
On the structural reforms the IMF have said there's the same problem of implementation. But they have liberalised the labour market and the energy market. The restricted professions you've mentioned are apparently an issue and full implementation's been pushed back. But they've actually cut them by around 20% and have gone from a level near Scandinavia to the OECD average.
Having said that taxi drivers should be a restricted profession.
QuotePassing an austerity budget is easy when you know you won't make it anyway.
As I say the budget was passed by all parties but the Communists. That makes it difficult for anyone to run against it.
Quote from: Admiral Yi on January 03, 2012, 05:06:11 PM
I was a little surprised to learn that Spain is running an 8% deficit. That's almost as big as the US'!
2011 has been a pretty shitty year.
And 2012 is going to be worse.
On the bright side, we've entered the new year with enough projects to last it all. With a bit of luck most of our clients will survive and pay us as well. :hmm:
Quote from: Iormlund on January 03, 2012, 07:19:56 PM
And 2012 is going to be worse.
On the bright side, we've entered the new year with enough projects to last it all. With a bit of luck most of our clients will survive and pay us as well. :hmm:
Heh, I just finished my contract and I'm looking for a new job. I'll take it reeeeeally easy, given the circumstances. :lol:
When I started in early 2009 I thought "wow, I'm so lucky, I can weather out the worst part of the crisis and when I'll be out things will surely be better". Oh how I was wrong.
Damn, that sucks.
But at least you've got options. These days I'm commissioning a production line at a big factory. There are a lot of young people working at the assembly lines with nothing to fall back on*.
*Including a surprisingly large number of HOTT girls.
Quote from: Iormlund on January 03, 2012, 07:32:04 PM
Damn, that sucks.
But at least you've got options. These days I'm commissioning a production line at a big factory. There are a lot of young people working at the assembly lines with nothing to fall back on*.
*Including a surprisingly large number of HOTT girls.
Well, the last year was particulary bleak, and the perspectives don't look any better. Almost all public funding for my line of work is being gutted, so I don't have any particular hope for finding work in that in the short term in Galicia, or even in Spain. I'll most probably explore my possibilities abroad.
Meanwhile, Germany is having a pretty good crisis...
The federal government can sell short-term debt at negative yields, meaning people pay for the privilege of lending money.
Unemployment is lowest in 20 years.
Economy in 2011 probably grew at more than 2%.
Exports grew, breaking one trillion Euro for the first time ever (higher in absolute terms than 2007 and 2008).
The important automotive industry just had its best year ever, despite Western Europe struggling.
Germans don't feel the crisis. It's very abstract for us. :blush:
Quote from: Zanza on January 09, 2012, 03:02:45 PM
Meanwhile, Germany is having a pretty good crisis...
The federal government can sell short-term debt at negative yields, meaning people pay for the privilege of lending money.
Unemployment is lowest in 20 years.
Economy in 2011 probably grew at more than 2%.
Exports grew, breaking one trillion Euro for the first time ever (higher in absolute terms than 2007 and 2008).
The important automotive industry just had its best year ever, despite Western Europe struggling.
Germans don't feel the crisis. It's very abstract for us. :blush:
Of course it's easy to prosper economically when you prey on other countries with your sound fiscal policies.
Quote from: DGuller on January 09, 2012, 03:10:54 PM
Of course it's easy to prosper economically when you prey on other countries with your sound fiscal policies.
What's shocking is that more countries don't take this easy way out. :hmm:
Quote from: Admiral Yi on January 09, 2012, 03:13:26 PM
Quote from: DGuller on January 09, 2012, 03:10:54 PM
Of course it's easy to prosper economically when you prey on other countries with your sound fiscal policies.
What's shocking is that more countries don't take this easy way out. :hmm:
Incorrect. Austerity IS the easy way out compared to the alternative. However bad it is for them now, goverrnments in problem countires know it will instantly get worse if/when they leave the Eurozone, and they will get the blame for it whatever happens, even if they make a faster recovery later out of the currency union than in. Perversely it's the actual short-termism of politicians to prevent a very nasty shock that is actually making them do things that would rather not do, and forces their hands to at least try mend their economies structurally etc.
Quote from: Admiral Yi on January 09, 2012, 03:13:26 PM
Quote from: DGuller on January 09, 2012, 03:10:54 PM
Of course it's easy to prosper economically when you prey on other countries with your sound fiscal policies.
What's shocking is that more countries don't take this easy way out. :hmm:
That's like saying the easy way out of America's problems is that she becomes China.
Hope Germany continues to have a good crisis. If they don't then I imagine things will be even worse for the rest of us, and we need someone to do well in Europe :lol:
Languish down for two days has not helped out y'all's sense of irony. :mellow:
Quote from: DGuller on January 09, 2012, 03:10:54 PM
Of course it's easy to prosper economically when you prey on other countries with your sound fiscal policies.
What sound fiscal policies may those be? :unsure:
Quote from: Admiral Yi on January 09, 2012, 04:20:04 PM
Languish down for two days has not helped out y'all's sense of irony. :mellow:
Sorry. It seemed too close to your views :blush:
Quote from: Sheilbh on January 09, 2012, 04:08:41 PM
Hope Germany continues to have a good crisis. If they don't then I imagine things will be even worse for the rest of us, and we need someone to do well in Europe :lol:
The only reason someone doing well in Europe benefits the rest of us is if they either transfer us money, buy our shit or we move there. First one is understandably unpopular. But they aren't that keen on the whole buying concept either. I wonder how hard can it be to pick up German again after over 15 years ... :P
http://www.monstersandcritics.com/news/business/news/article_1684804.php/Austria-and-Finland-biggest-winners-from-euro-study-shows (http://www.monstersandcritics.com/news/business/news/article_1684804.php/Austria-and-Finland-biggest-winners-from-euro-study-shows)
QuoteBerlin - A study by an international consultancy shows Austria and Finland have gained the most from the euro common currency, though every eurozone country had profitted to some extent, a German newspaper reported Tuesday.
Die Welt said it had had exclusive access to the findings by McKinsey.
A widespread view that some nations had profited at the expense of others was false, said McKinsey spokesman, Eckart Windhagen. Without the euro, every nation would have been worse off.
'There is no single euro nation that has not profited from the common currency,' he said.
The data showed that having the common currency between 1999 and 2010 had increased Austrian gross domestic product (GDP) by 7.8 per cent. Comparable figures for Finland, Germany and the Netherlands were 6.7, 6.4 and 6.2 per cent respectively.
A chart in Die Welt showed the gains for Italy, Portugal, Spain and Greece, all nations that have suffered in the sovereign debt crisis, were 2.7, 2.1, 0.7 and 0.1 per cent respectively.
It said that in 2010, 332 billion euros of output or 3.6 per cent of overall GDP had been attributable to the convenience of the euro. McKinsey counted the effects of stepped-up trade, lower interest rates and the elimination of foreign exchange risks.
Weaker economies profited less because they had had to sustain more pressure to become competitive, Windhagen said.
Here is the chart from Die Welt. Left column shows the absolute effect on GDP, right column shows the relative effect on GDP.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fwww.welt.de%2Fmultimedia%2Farchive%2F01543%2Fgrafik_euro_DW_Wir_1543385z.jpg&hash=0603fde7662a9b7d239cd9e5a4f88dc031f9a9a7)
EDIT: One important detail - it's the GDP growth from the start of the Euro until 2010 ... so maybe by now the situation is different.
Osterreich is eastern europe?
Yes. :P
The country that really surprised me is France.
Quote from: Zanza on January 10, 2012, 01:08:37 PM
Yes. :P
The country that really surprised me is France.
it kinda is, they could use something like Spain or Portugal, no?
After all they call the french language, französische
Eh? I was not surprised by its name, but by the small benefit they apparently got out of the Euro so far.
Quote from: Zanza on January 10, 2012, 01:15:29 PM
Eh? I was not surprised by its name, but by the small benefit they apparently got out of the Euro so far.
Yeah, that makes more sense. :Embarrass:
That data is quite depressing actually. Unless they took into account real inflation (not just official figures) it means Spaniards have lost quite a bit by joining the Euro.
I reread the article in Die Welt. The diagram actually shows the gain made by each country in 2010 only. And it considers inflation. So it means that in 2010, Spain's GDP was 0.7% higher than it would have been without the Euro. It does not say how much the effect was over the entire period of the currency union.
Quote
EU's chicken-and-egg conundrum
FLEURUS, Belgium (AP) — When Eric Pierart takes in the chaotic wiggling of thousands of hens caged in his renovated barn, he's reminded of how tough it is for Europe to unite on anything.
And how much time it takes.
A dozen years after the European Union set Jan. 1, 2012 as the date to eliminate the most cramped cages to improve the living standards of egg laying hens, half of the 27 European Union nations have failed to fully comply — a flop seen as a metaphor for Europe's current state of disarray.
"In all, they have been talking about it for 30 years," complained the ruddy-cheeked Pierart, who adhered to the new rules.
"Now, it shows that common ideas for everyone are still hard to come by."
Such is the way of the EU, where legislation seeps through layers of political and institutional granite in 27 nations at barely a trickle. And it affects a lot more than just the happiness of chickens.
Take the global economy.
For nearly two years, the world has been crying out for immediate and drastic measures to combat a debt crisis that has threatened to trigger a worldwide depression.
For nearly two years, the world has come away frustrated with explanations that Europe is not a legislative superhighway.
Now the fate of the lowly laying hen is again underscoring how slow a process it is to get everyone in the quilt of nations that is the European Union to unite on a common cause.
Many chicken farmers who made the heavy investment on time are now at a competitive disadvantage from laggards who didn't. Pierart says he spent some euro1.5 million ($1.9 million) on new equipment for 100,000 chickens.
In this chicken-and-egg situation, it's hard to pinpoint who's ultimately to blame.
Some fault the glacial pace of continentwide legislation, as well as the EU's poor checks, controls and enforcement.
Others point the finger at the perceived bad faith of some EU nations, seen as turning a laudable ideal into a logistical mess.
"If it is already so difficult for this, then how tough is it for 27 nations on much bigger issues?" Pierart asked.
It's all deepened well-worn stereotypes that have long dogged the European Union — about how the less affluent south and east skirt the rules, about how upright nations like Germany end up paying for it all, and about the bloated EU institutions that seem unable to do anything about it.
Those institutions, often identified simply as "Brussels", can be a soft target. Fix something, and they're accused of meddling. When things goes wrong, they're accused of inaction or incompetence.
"It's an absolute joke," said Ian Plant, the owner of Plants Eggs in England's Lincolnshire, who, like Pierart, made the switch on time.
"This is such a serious situation that someone at the end of the day has to get to grips with it."
Even EU Consumer Policy Commissioner Dalli has said the hen imbroglio is undermining the EU's credibility.
His office said that 14 member states are still not complying with the rules, including France, Italy, Poland and Spain.
That has particularly irked Britain, which has deep animal rights traditions and often seizes on any perceived slight from the European Union.
"It is unacceptable that after the ban on battery cages comes into effect around 50 million hens across Europe will still remain in poor conditions," said British Agriculture Minister Jim Paice.
The European Commission says the total stands at 46 million hens still kept in illegal battery cages out of 330 million, or roughly 14 percent.
The new rules require cages to boost living space per hen to at least 750 sq. centimeters (115 sq. inches) from at least 550 square centimeters (85 square inches), among other measures.
"We have all had plenty of time to make these changes," Paice said. "It would be unthinkable if countries continuing to house hens in poor conditions were to profit from flouting the law."
The European Commission says it will be sending inspectors and starting legal proceedings against the recalcitrant nations as soon as possible. But those, too, can be lengthy, and meanwhile member states are left to deal with the potentially unfair competition as best they can.
"It can go all the way to the European Court of Justice," said EU Commission spokesman Frederic Vincent, referring to the EU's highest court. "It can lead to penalties."
To many farmers, though, that is too little too late.
And animal welfare activists are equally frustrated. The cock-up with the hens reminds Michel Vandenbosch, leader of Belgian animal rights group Gaia, of how Greece — whose debt woes triggered the financial crisis — cooked its budgetary books for years until it was found out in 2009.
"Greece made a fool of the EU for years," Vandenbosch said. "And now in this case too, they see things when it is too late."
After all the years of work, Vandenbosch said the campaign to win hens a bit more wiggle room almost wasn't worth the effort.
"Chickens won't notice the difference," he said. Instead of working with EU politicians, he said his organization has had at least as much success working on market players like Unilever, which is now moving well beyond EU rules and toward using only eggs from cage-free birds in their food products.
"Politics will have to realize how the market reacts, and they will have to follow," Vandenbosch said.
In England, Plant said his renovations cost several million pounds.
"Having made this sort of investment, having been told by our government all the way along that this legislation was gold-plated, that it had to be completed by Jan. 1, we are now very disillusioned to find that substantial parts of Europe haven't complied," he said.
And when Europe fails, many still look to national borders as a line of defense.
"We're now faced with a situation where something has to be done about these illegal eggs coming onto the British market," said Plant.
Greek talks with private investors are apparently on the brink of collapse:
QuoteElsewhere in the Eurozone crisis, talks between Greece and its private sector creditors appear to be on the brink of collapse tonight.
In a very worrying development, the negotiations have been suspended after the two sides were unable to make progress on Greece's debt reduction.
The IIF, which represents the investors who hold Greek debt, released this statement this afternoon:
Discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach.
We very much hope, however, that Greece, with the support of the Euro Area, will be in a position to re-engage constructively with the private sector with a view to finalizing a mutually acceptable agreement on a voluntary debt exchange.
The two sides have been trying to hammer out a deal under which private investors take a haircut of up to 50% on their Greece's sovereign bonds, along with up to €100bn of debt forgiveness.
If that deal cannot be agreed, then Greece will not get its next aid tranche (Angela Merkel made that very clear on Monday).
Without that money, Greece cannot repay €14bn of debt which mature in March.
The chances of Greece defaulting, in a disorderly manner, have just risen significantly.
Gary Jenkins of Swordfish Research reckons that we've just seen the 'nuclear option' deployed in Greece. A disorderly default could leave the European Central Bank facing huge losses:
In a default scenario who is holding bonds becomes largely irrelevant, its what you are holding that matters.
9 Eurozone countries had their rating cut by S&P tonight. Austria, France, Malta, Slovenia and Slovakia by one notch. Cyprus, Italy, Portugal and Spain by two. The rest have been affirmed. S&P's statement said fiscal austerity 'risks becoming self-defeating' and 'does not address the full spectrum of financial turmoil'.
That leaves Germany as the only major AAA country behind the EFSF, which isn't good.
Edit:
QuoteThe outcomes from the EU summit on Dec. 9, 2011, and subsequent statements from policymakers, lead us to believe that the agreement reached has not produced a breakthrough of sufficient size and scope to fully address the eurozone's financial problems. In our opinion, the political agreement does not supply sufficient additional resources or operational flexibility to bolster European rescue operations, or extend enough support for those eurozone sovereigns subjected to heightened market pressures.
We also believe that the agreement is predicated on only a partial recognition of the source of the crisis: that the current financial turmoil stems primarily from fiscal profligacy at the periphery of the eurozone. In our view, however, the financial problems facing the eurozone are as much a consequence of rising external imbalances and divergences in competitiveness between the eurozone's core and the so-called "periphery". As such, we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers' rising concerns about job security and disposable incomes, eroding national tax revenues.
No shit.
Soon Spain will be below Poland's rating. :huh:
This is taking a heavy toll on Polish currency. This may be good for international competitiveness, but may cause our publc debt to balloon over 55-60% of GDP when the constitutional brakes kick in.
Quote from: Martinus on January 15, 2012, 05:57:29 AM
Soon Spain will be below Poland's rating. :huh:
This is taking a heavy toll on Polish currency. This may be good for international competitiveness, but may cause our publc debt to balloon over 55-60% of GDP when the constitutional brakes kick in.
Is Poland's debt foreign currency denominated? And what is this constitutional brake?
Some may remember my post a few weeks ago about the state of things over here and how Merkel might be killing the future of German industry.
I just found out that my employer, after 2 decades of monogamous relationship with certain German giant is about to become a partner of a Frog competitor. We live in interesting times.
Because he dislikes Merkel's policy?
Because the factors that kept our usual partner as main supplier in the region (ample local talent pool, brand recognition, amount of already installed hardware) are now second to things like cost. We cannot win enough contracts with their products anymore.
It says a lot that one of, if not their main local integrator is looking for new pastures. If we are doing this you can bet most integrators are diversifying their expertise as well. When this is all over there will be dozens of integrators and big clients adept in rival technologies and their main advantage will be forever gone.
Quote from: Admiral Yi on January 15, 2012, 01:00:27 PM
Quote from: Martinus on January 15, 2012, 05:57:29 AM
Soon Spain will be below Poland's rating. :huh:
This is taking a heavy toll on Polish currency. This may be good for international competitiveness, but may cause our publc debt to balloon over 55-60% of GDP when the constitutional brakes kick in.
Is Poland's debt foreign currency denominated? And what is this constitutional brake?
Yes. And the break prevents the government from taking on more credit once 60% of GDP is reached.
German cars have an advantage over French ones: People would actually buy them.
Good thing the biggest employer in the region is the Opel factory then.
Quote from: Iormlund on January 15, 2012, 05:05:00 PM
Good thing the biggest employer in the region is the Opel factory then.
I guess you can always count on governments to subsidize the auto manufacturing sector, no matter what country you're in.
Ours certainly does.
Quote from: Iormlund on January 15, 2012, 05:13:37 PM
Ours certainly does.
Yeah. It just provides too many jobs in every sector of the economy to just ignore it.
Does Spain have any surviving domestic auto companies?
No. SEAT was bought by the Volkswagen group some time ago.
Just read the head of the IIF about the Greek-bondholder negotiations. He said the Greeks are proceeding in good faith, other Eurozone negotiators aren't. He said that all of them agreed to a 50% haircut at a government level but some of the negotiators don't seem to be trying to achieve that.
The story mentioned that the latest German proposal would effectively mean bondholders' losses would increase from 60% to 80% which is why some bondholders think they'd be better dealing with a default than a 'voluntary' restructuring.
Well................100% + additional unknown consequences is even worse :huh:
Quote from: Richard Hakluyt on January 17, 2012, 02:19:05 AM
Well................100% + additional unknown consequences is even worse :huh:
If there's no voluntary restructuring and the Greeks default then there's been a 'credit event' and the bondholders could see how their CDSs work. I think the suggestion is that could be a better bet for them than an 80% loss.
I'm not at all sure that I would enjoy seeing how the CDS work out :P
Things are getting pretty grim in Greece, even the Albanians are packing up and going home :(
This article from the Economist is pretty interesting:
QuoteThe hangover
America is recovering from the debt bust faster than European countries. Why?
Jan 21st 2012 | from the print edition
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fmedia.economist.com%2Fsites%2Fdefault%2Ffiles%2Fimagecache%2Ffull-width%2F20120121_FNC429_1.gif&hash=233adfb7b23fe8c1d050be4f43ab8ad3b54d46fe)
ALMOST half a decade after the onset of the rich world's credit bust, depressing evidence of its after-effects is visible in everything from feeble output figures to swollen jobless rolls. But for a truly grim picture, read a new report on deleveraging by the McKinsey Global Institute. It points out that in many rich countries the process of debt reduction hasn't even started. America has begun to pare its debt burden, although the drop is small compared with the build-up in 2000-08 (see chart). But many European countries are more, not less, in hock than they were in 2008. There the hangover could last another decade or more.
These transatlantic differences stem from the trajectory of private debt. Government borrowing soared everywhere after 2008 as government deficits ballooned. But in America the swelling of the public balance-sheet has mirrored a shrinking of private ones. Every category of private debt—financial, corporate and household—has fallen as a share of GDP since 2008. The financial sector's debt is now at its 2000 level. Corporate indebtedness, never very high, has shrunk. So, more importantly, has household debt. America's ratio of household debt to income is down by 15 percentage points from its peak in 2008, after rising by over 30 percentage points in the eight preceding years. McKinsey reckons America's households are between a third and halfway through their debt-reduction process. They think the household-debt hangover could end by mid-2013.
In Europe private debt has fallen much less and in some cases even risen. In Britain the financial sector's debts have grown since 2008. In Spain corporate debt, far higher as a share of GDP than in most rich countries, has barely budged. But the biggest difference is among households. Even countries which saw the biggest surges in household debt during the bubble era, such as Britain and Spain, have scarcely seen a dent since 2008. McKinsey's analysts reckon it will take British households up to a decade to work off their debt burdens.
It's not that American households have been more frugal or disciplined. Household debt has fallen largely thanks to defaults, particularly on mortgages. America had a bigger housing bust; in some states non-recourse lending rules make default easier (people can walk away from home loans without fear of losing other assets). Some two-thirds of America's $600 billion decline in household debt is due to defaults. With another $250 billion of mortgages in the process of foreclosure, further reduction is likely.
Europe's post-bubble economies, in contrast, have seen smaller drops in house prices, lower mortgage costs thanks to variable interest-rate mortgages, and gentler treatment from banks. The Bank of England suggests that around 12% of British mortgages receive some kind of forbearance. Fewer people are turfed out of their homes, but the millstone of debt weighs for longer.
America's private-sector debt reduction has also taken place against the backdrop of loose fiscal policy. Although state and local governments have been cutting back, the federal government has (at least until now) put off most fiscal tightening. In Europe, however, the sovereign-debt crisis means governments have been forced, or chosen, to undertake swingeing budget cuts long before the private sector's deleveraging is done.
Note the Nordics
That stands in stark contrast to most successful bouts of debt reduction. The McKinsey report pores over two episodes that it considers most relevant for today: the experiences of Sweden and Finland following their banking busts in the early 1990s. Debt reduction took place in two stages. In stage one, the private sector reduces its debts; the economy is weak and public debt soars. In stage two, growth recovers and the longer-term process of reducing government debt begins. In both these cases growth was buoyed by booming exports, a boon that seems unlikely this time. But it is telling that Sweden did not begin its budget-cutting until the economy had recovered; and that when Finland tried an early bout of austerity, this worsened its recession.
The McKinsey analysts carefully avoid suggesting this means Europe's austerity is misguided. Circumstances today are different, they argue: European governments began with higher debt and deficits, leaving them with less room for manoeuvre. But the message is clear: America is closer to Sweden's successful template than Europe is. Debt reduction is very difficult without economic growth, and the scale of Europe's austerity makes it hard to see where that growth will come from.
That's all the more true because Europe's governments have been remarkably timid, compared with the Nordics, in exploiting another avenue to growth—structural reform. The report underscores just how dramatically Sweden and Finland overhauled their economies in the wake of their debt crises. Banks were nationalised and restructured; whole sectors, such as retailing, were deregulated. Thanks to a slew of efficiency-enhancing reforms, productivity soared and investment boomed.
Nothing so bold has been attempted this time. America has not managed much in the way of growth-enhancing structural reforms and has a long to-do list, from improving worker training to reining in health-care costs. But it is in Europe where the potential gains from structural reforms are greatest and where the policy focus has nonetheless been overwhelmingly on austerity.
That may change. With much of the euro zone in recession, structural reforms are getting higher billing. Spain's new government began with an extra dollop of austerity; it now wants to accelerate the freeing of its rigid labour rules. Italy's prime minister, Mario Monti, first raised taxes and cut spending; now he is about to take on the unions. Angela Merkel, the German chancellor, is saying that Europe's leaders need to focus on growth. But a shift in the policy mix will not stop many European countries' debt burdens from spiralling yet higher. Depressing, indeed.
Am I right in thinking that most states have since got rid of non-recourse mortgages? I thought they were a significant factor in the crisis.
And the welfare states continue to fall as a failed historical experiment. :)
Early 90s was great in Sweden, we got rid of so much Soc Dem garbage.
If those numbers are correct, there must have been a massive reduction of private debt in Germany as public debt went up a lot more than just 1.2% over the last three years.
I agree with the general message that we need structural reforms to allow for more growth again.
Quote from: Tamas on January 23, 2012, 03:03:52 AM
And the welfare states continue to fall as a failed historical experiment. :)
Incorrect. Only the flawed European model that involves funneling massive amounts of money to beggar countries with no central control, and when the inevitable happens, enacting draconian austerity measures that cripple GDP for a generation.
Quote from: Ideologue on January 23, 2012, 03:34:05 AM
Quote from: Tamas on January 23, 2012, 03:03:52 AM
And the welfare states continue to fall as a failed historical experiment. :)
Incorrect. Only the flawed European model that involves funneling massive amounts of money to beggar countries with no central control, and when the inevitable happens, enacting draconian austerity measures that cripple GDP for a generation.
You have perhaps one or two of the biggest European powers who can maintain a welfare state with their huge economies. Ergo, they are the EXCEPTION. If you read the article, even the scandis cut back on stuff to avoid falling in the pit.
When you have to take loans to finance the daily running of your country, well that is when you cleary failed and should backtrack to a sustainable model. That is what many European states have failed to do, for decades, but now that the financial crisis has dried up available loans and due to the euro they can't inflate their debtors money into oblivion, they are being kept honest.
Boo fucking hoo.
Quote from: Sheilbh on January 23, 2012, 01:58:00 AM
Am I right in thinking that most states have since got rid of non-recourse mortgages? I thought they were a significant factor in the crisis.
Doesn't sound right at all. I haven't heard of a single instance of a state changing the recourse status of the mortgages.
Quote from: DGuller on January 23, 2012, 04:03:43 AM
Quote from: Sheilbh on January 23, 2012, 01:58:00 AM
Am I right in thinking that most states have since got rid of non-recourse mortgages? I thought they were a significant factor in the crisis.
Doesn't sound right at all. I haven't heard of a single instance of a state changing the recourse status of the mortgages.
Maybe that's the wrong phrase. I remember this being a digression in a lecture on Land Law. I'll try and remember.
The welfare state is supremely successful political experiment. And it is possible to keep the spending and revenue balanced. If you don't do that, it won't work obviously, but that's true for every policy.
Quote from: Zanza on January 23, 2012, 06:27:16 AM
The welfare state is supremely successful political experiment. And it is possible to keep the spending and revenue balanced. If you don't do that, it won't work obviously, but that's true for every policy.
Agreed. I think there are two challenges that are largely unaddressed with the welfare state that are long term threats. The welfare state is designed generally for growing populations and generally for full employment. Those elements can't be taken for granted any more and I think reform needs to reflect that. Those are core structural issues that affect spending, but balancing spending and revenue's a failure of politicians that doesn't necessarily indict the policy itself.
Quote from: Tamas on January 23, 2012, 03:03:52 AM
And the welfare states continue to fall as a failed historical experiment. :)
I think you missed the point of the Economist article.
From a macro perspective, a key function of the welfare state is to substitute public for private indebtenedness during a severe recession, thus accomodating reduction in private debt and counteracting the dangers of debt deflationary spiral.
Quote from: The Minsky Moment on January 23, 2012, 01:46:42 PM
From a macro perspective, a key function of the welfare state is to substitute public for private indebtenedness during a severe recession
It has certainly accomplished that with aplomb.
Quote from: The Economist on January 23, 2012, 01:58:00 AM
That may change. With much of the euro zone in recession, structural reforms are getting higher billing. Spain's new government began with an extra dollop of austerity; it now wants to accelerate the freeing of its rigid labour rules. Italy's prime minister, Mario Monti, first raised taxes and cut spending; now he is about to take on the unions. Angela Merkel, the German chancellor, is saying that Europe's leaders need to focus on growth. But a shift in the policy mix will not stop many European countries' debt burdens from spiralling yet higher. Depressing, indeed.
While I have been saying for a while that the focus should have been structural reform and not austerity, I have to warn that my impression is that it is way too late for said reforms to spur growth on their own. Nobody will hire over here even if you can fire older people on the spot (young people have been free or almost free to fire for ages). Simply because there's little work to do as it is. You'll get less failed businesses as they are able to shed some weight. Nothing more.
Apparently Greece is now in a position to say sod off to the bankers & the troika and default without having to go back to the markets as their taxes now cover all their spending less interest payments. Which means it has strengthened their position with respect to everyone else.
Source - http://www.bbc.co.uk/news/business-16746455 (http://www.bbc.co.uk/news/business-16746455)
QuoteTables are turning on Greek debt deal
The time for reaching a Greek debt deal is fast running out. That's one thing everyone can agree on here in Davos.
But what's less often noticed is that the balance of power around the negotiating table has also shifted lately; against the Eurozone institutions and politicians who most want to see a deal, and in favour of the Greeks themselves.
There are three reasons for this shift.
First, the need for more debt relief for Greece has become even more blindingly apparent.
Second, it has become clear that the official sector has to contribute if it's going to happen politely.
Finally, and more quietly, the Greek government has slashed its way to a primary budget surplus: as of now it is only borrowing money to pay off the debt. That could change things quite a bit.
Skyrocketing cost
Let me say a bit more about all of this.
To see the need for greater debt relief, you need only look at the skyrocketing cost of servicing Greek debt. For all the "cheap" loans flowing to Greece from the Europeans and the IMF, the Greek government had to pay 23% more in debt interest in 2011 than in 2010.
Forecasts for its total debt relative to GDP get revised up almost every week and look less and less plausible.
The second new reality follows directly from the first. To put it bluntly, the truth is slowly dawning that no "voluntary" arrangement to cut the value of debt held by the private sector is going to provide Greece with enough relief.
Either the haircut for the private sector has to be a lot more than 50%, in which case it is very unlikely to be classed as "voluntary" by any stretch of the meaning of that word, or the stock of debt that's part of the deal needs to grow to include bonds held by public sector institutions like the ECB, which has bought around €40bn (£34bn; $53bn) of them.
As we have seen this week, Germany and the ECB are still dead set against this.
They say it might not be legal under the Treaty. They also think, reasonably enough, that there's an important principle at stake. If the official sector runs into a burning building when the private sector are all running out, the rescuers shouldn't be the ones to get burned.
But, you might say, that is why firemen have trouble getting insurance. It's a dangerous line of work no matter how much protective clothing you have.
Maybe it's not fair, but if the Germans want their first - and supposedly last - foray into "private sector involvement" to happen in an orderly way, it's looking as though they're going to have to swallow some losses for the ECB, or find some other way for the public sector to be involved.
Ambitious debt reduction
You might ask why any of this strengthened the hands of the Greeks, as I suggested at the start.
One reason is that the IMF is now firmly behind a more ambitious debt reduction. As we have seen this week, the IMF's managing director is also on Greece's side pushing for public sector involvement in the deal.
But another key factor, which few seem to have tumbled to, is that the costs to Greece of the government walking away from the table and suffering a disorderly default have fallen noticeably since last summer, at least when compared to any plausible (orderly) alternative.
The key to this is to look at the Greek government's budget outturns for the second half of 2011, published earlier this month.
As Graham Turner of GFC Economics has noted, these show a real step-change in the effort to cut spending and actually collect more Greek taxes.
You'll remember it was the Greeks' inability to get a grip on spending or taxes in the first half of 2011 that caused the big overshoot in their deficit, and such paroxysms in Berlin and Brussels (not to mention the markets).
The primary budget - excluding debt interest payments - for the first 6 months of the year had a deficit of €5.1bn, which was almost exactly the same as the year before.
Tax revenues had fallen by more than 5%, year-on-year, and non-interest spending had risen by more than 8%.
That was when the fiscal equivalent of Eurozone special forces parachuted into Athens as part of the second rescue package, with EU tax officials seconded to the Greek finance ministry. If the numbers are to be believed, they have made a massive difference.
In the second half of 2011 the latest figures show tax revenues up 1.4% year on year and non-interest spending falling by an impressive 7.4%. As a result, the Greeks seem to have managed a 1.8bn euro primary surplus in that period: the overall deficit was still massive, but all that borrowing was going toward debt interest, not domestic spending.
Less terrifying
Here's why this matters: traditionally, countries that need a massive write-down of debt will try very hard to avoid a disorderly default when they are still borrowing from the markets to fund basic government services.
However, the balance of arguments shifts a bit, when they "only" need to raise money in the markets to service their debt. Further budget cuts, simply to pay investors their interest, are harder to defend politically. And the immediate fallout for basic services of losing access to the markets gets slightly less terrifying.
Don't get me wrong. If it happens, as so many people now expect, a full-blown Greek default would still be horrendous for its financial system, and its domestic economy - at least in the short run. (That's quite apart from the impact on its eurozone neighbours. I'm only thinking here about the implications for Greece.)
For all that, the balance of costs and benefits to Greece relative to the current path is not what it was years ago, when it's primary deficit was 5% or 6% of GDP.
And, let's face it, the stick-with-it scenario is not looking so hot either.
Earlier this week, the IMF's chief economist, Olivier Blanchard, spoke eloquently about the dangers of the crisis.
He noted that one of the more pernicious things about the current situation was that countries under pressure were doing the "right thing" in terms of budget cuts, but were not getting rewarded for it, either by the markets or by their supposed eurozone allies. That's more than unfair; it's dangerous.
The irony is that Germany's very emphasis on putting fiscal tightening before everything else has actually now put Greece in a stronger position to default.
If that is not what Angela Merkel intended to happen, she will almost certainly need to give some ground in these debt negotiations to prevent it. Assuming it is not already too late.
[quote author=The Minsky Moment link=topic=4552.msg368231#msg368231 I think you missed the point of the Economist article.
From a macro perspective, a key function of the welfare state is to substitute public for private indebtenedness during a severe recession, thus accomodating reduction in private debt and counteracting the dangers of debt deflationary spiral.
[/quote]
Please explain to me how a country with unlimited central bank money creation power can ever be caught in a deflationary spiral.
New jobless figures are out. Up to almost 23%. There are over 1.5 million families without a single employed member. Oh yeah! :showoff:
23% ... that's crazy.
Fitch downgraded Belgium, Spain, Cyprus and Italy today.
Quote from: Jacob on January 27, 2012, 03:07:11 PM
23% ... that's crazy.
Greek youth unemployment's over 50% now. I can't comprehend it.
Quote from: Jacob on January 27, 2012, 03:07:11 PM
23% ... that's crazy.
Back in the 80s the Spanish unemployment would be around 35%. I never understood it but Larch and company explained to me at one point that there is a large sector of unofficial employment.
Unofficial employment? Is that like the tax-evasion sector?
In any case, I think I'd be headed to the colonies too. Go West, young man.
Yes, it means working outside the system. It's not as bad as in Greece, but it's definitely there. Otherwise there would have been riots at Andalucia or the Canary Islands already.
In any case we'll break 25% soon. And IIRC that doesn't even include those undergoing retraining or those who have given up ...
Quote from: Sheilbh on January 27, 2012, 03:09:52 PM
Quote from: Jacob on January 27, 2012, 03:07:11 PM
23% ... that's crazy.
Greek youth unemployment's over 50% now. I can't comprehend it.
:huh: What's there to comprehend?
My entire generation is heavily indebted and will be for the next 30 years. Our parents are on the hook if we fail to meet payments. Add the chances of losing your job (very high for <40 year olds) and it's no wonder people won't spend in this climate of uncertainty.
Meanwhile low-class families and the <25 generation bear the brunt of unemployment and can't spend either.
The rich are probably busy moving their shit to Germany, Switzerland and the like.
Businesses are deep in debt as well. Confidence nowhere to be seen. Credit completely frozen. And so is hiring, obviously.
Quote from: Iormlund on January 27, 2012, 03:44:17 PM
:huh: What's there to comprehend?
I just can't imagine a Euro-society with 50% youth unemployment. As Jacob said, it's just crazy.
It's only logical. In a two-tiered employment environment young workers are always the first to go when there's trouble. They are pretty much cost-free to fire.
I wouldn't hire a young Greek or Spaniard.
What about a not-so-young one? :P
Quote from: Iormlund on January 27, 2012, 04:07:18 PM
What about a not-so-young one? :P
No problem. I just hate young people.
Quote from: Admiral Yi on January 26, 2012, 02:17:08 PM
Please explain to me how a country with unlimited central bank money creation power can ever be caught in a deflationary spiral.
A conventional central bank can only influence money supply through issuance of base money. But ultimately the money supply is determined by private actors - lending banks and financiers. The banks can make an expansion of base money ineffective by (for example) using the money to build reserves, depositing it with the central bank, or simultaneously shedding their asset (loan) base. This actually happened in 09.
A non-conventional central bank, like the present day Fed, can counteract this in part by non-fiscally neutral interventions or directly supporting asset prices through asset purchases.
Bad day for Portugal. Ten-year yield hit the roof.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fstatic7.businessinsider.com%2Fimage%2F4f269d216bb3f7cb3300000d-602-421%2Fchart.jpg&hash=71500dae62c0eba943eaacd1ae708a626d5f08ef)
The graph makes it look like Armaggedon but the yields only rose a point and change.
Very misleading graph.
(Which is not to say that Portugal looks ossum.)
An entire point in bond yield is an awful big move. Probably an all-time record for that instrument.
My decision to remain in Japan another year looks wise then. No jobs to be had in Europe yet....
Quote from: Tyr on January 30, 2012, 07:02:27 PM
My decision to remain in Japan another year looks wise then. No jobs to be had in Europe yet....
Until Japan implodes. They are starting to be mentioned on the financial channels.
Quote from: Ed Anger on January 30, 2012, 07:21:19 PM
Quote from: Tyr on January 30, 2012, 07:02:27 PM
My decision to remain in Japan another year looks wise then. No jobs to be had in Europe yet....
Until Japan implodes. They are starting to be mentioned on the financial channels.
Japan imploded 20 years ago, the government still spends like its the boom.
I'm not worried that this job will suddenly disappear. At worst they'll cancel the programme and stop taking on new people some year....and I'm limited to 3 max anyway (which I don't want to do) so...yeah.
Quote from: Ed Anger on January 30, 2012, 07:21:19 PM
Quote from: Tyr on January 30, 2012, 07:02:27 PM
My decision to remain in Japan another year looks wise then. No jobs to be had in Europe yet....
Until Japan implodes. They are starting to be mentioned on the financial channels.
Japan imploded a long time ago.
No shit sherlocks.
Quote from: Sheilbh on January 27, 2012, 03:48:18 PM
Quote from: Iormlund on January 27, 2012, 03:44:17 PM
:huh: What's there to comprehend?
I just can't imagine a Euro-society with 50% youth unemployment. As Jacob said, it's just crazy.
I can imagine it. I can imagine an America with 50% youth unemployment. It's still coming; no one is doing what has to be done to prevent it.
QuoteAll on the line for Papademos ahead of talks with leaders
Prime Minister Lucas Papademos is preparing for a make or break meeting with Greek political leaders and is said to be considering resigning if the three parties in his coalition government cannot agree on the set of reforms Greece should adopt so it can qualify for more loans.
Papademos is expected to meet PASOK's George Papandreou, New Democracy's Antonis Samaras and Giorgos Karatzaferis of the Popular Orthodox Rally (LAOS) on Saturday. The three politicians will have to agree on measures that will satisfy Greece's lenders and pave the way for a new bailout.
However, a number of sticking points remain. One of the main issues on which the party leaders are finding it difficult to agree is the private sector wage reductions that are being demanded by the troika of the European Commission, European Central Bank and International Monetary Fund.
Sources told Kathimerini that the troika is demanding that the minimum wage of 751 euros per month (gross) be reduced and that labor costs in the private sector drop by 25 percent in a bid to help Greece regain competitiveness.
Labor unions and employers wrote to Papademos on Friday to inform him that they cannot agree on a wage cut.
Papademos needs the agreement of the political leaders so the prospect of Greece receiving a new bailout can be discussed at the meeting of eurozone finance ministers on Monday.
Greece will have to set out the measures it plans to take over the next two years to reform its economy and create a primary budget surplus as well as the framework for the debt restructuring agreement with its bondholders.
Skai TV and radio reported on Friday that should the leaders fail to agree a deal, he will tender his resignation on Monday.
Edit: Apparently there's also worries the Greeks may need another €15 billion on top of the €130 billion, if they get that, to recapitalise Greek banks after they take the private sector haircut necessary to get the €130 billion.
That's bullshit and won't solve anything. It might buy a bit more time, but that's about it.
I don't understand why they are demanding this. Is it an attempt to improve their trade balance?
Quote from: MadImmortalMan on February 03, 2012, 12:05:12 PM
I don't understand why they are demanding this. Is it an attempt to improve their trade balance?
Basically Greece needs to become competitive. In a single market the only real way to do that is a prolonged internal deflation. So they a 25% cut to private sector costs, a 35% cut to supplementary pensions and so on to reduce the labour costs of Greece.
Couple of points that I've read recently. Apparently the Greeks are not yet running a primary surplus. So even if they were to default they'd still need another extreme bout of austerity immediately. However, as Megan McArdle argues, when you're angry you're not rational and in addition to all the new taxes and the spending cuts to their pensions and services, for the private sector worker to now have to take a 25% wage cut would possibly be the sort of thing that would make everyone angry enough to prefer default.
The other thing I find striking is the mentions of the LAOS and their leader who hadn't been that prominent before.
I'd be interested to read some articles on the Greek election that's coming up in April (or, possibly not, if they go bankrupt). I imagine this will be like Ireland with PASOK getting wiped out like FF and loads of new independents. But in Ireland Fine Gael's been out of power since the nineties and are generally associated with good Garret Fitzgeraldy type things, whereas from what I know the main opposition in Greece were in power from 2000-10 and were the ones who ran the deficits for the past decade and fiddled the books. So presumably they won't do well?
The really scary thing is that Spain has very similar salaries as Greece.
A 25% cut on the typical 1000€ salary leaves you 750€. With a reasonable 350€ monthly mortgage payment you are looking at a 40% loss of available income for a great part of the population. A massive decrease in consumption. Whoever thought of this must be a complete lunatic.
It's perfectly logical. In a currency union, the only way structural external deficits can be remedied is through deflation in deficit country or inflation in the surplus country.
Now consider the probability Germany will agree to inflate.
That leaves only two options - "internal devluation" or exiting the currency union.
Interestingly the FT quoted a Deutsche Bank which argued that the solutions are either fiscal transfers, 'Latvian-style' internal devaluation; or 'the Latin countries could exert their influence over the ECB to pursue a monetary policy that leads to higher inflation in the Germanic countries'. Though the last one sounds impossible they think it could end up happening because it's the path of least resistance:
QuoteWith outright budgetary transfers from the creditor to the debtor countries unlikely and the latter also probably unable to achieve internal real depreciation through deflation of goods, services and asset prices, the path of least resistance seems to be an appreciation in creditor countries through the inflation of goods, services and asset prices. With representatives of debtor countries holding a majority of votes in the ECB"s Governing Council, a policy of easy money and exchange rate depreciation that leads to overheating in the creditor countries seems most likely.
Edit: Whether that just leads to Germanic, creditor countries withdrawing is another question.
Over the last decade, inflation in the Germanic countries was lower than in the Latin countries. I wonder how one would go to change that.
Eliminate the Clearing House.
Quote from: Zanza on February 07, 2012, 02:32:30 AM
Over the last decade, inflation in the Germanic countries was lower than in the Latin countries. I wonder how one would go to change that.
Not going to happen. Any policy that deliberately leads to higher inflation in Germany is out of the question, even if that would be the easier path for southern countries.
By the way, I have to clarify one thing:
Quote from: Iormlund on February 06, 2012, 07:35:22 PM
A 25% cut on the typical 1000€ salary leaves you 750€. With a reasonable 350€ monthly mortgage payment you are looking at a 40% loss of available income for a great part of the population. A massive decrease in consumption. Whoever thought of this must be a complete lunatic.
Note, Iormlund, that we are talking about a 25% cut on labour costs, not wages. Southern countries (and not only) have extra 'social taxes' that an employer must pay to the State, in addition to the money he pays the worker, to fund Social Security.
In Portugal, for example, if you employ someone for 800€ pre-tax (the average wage), then you have to pay not only the 800€, but an additional 200€ (25%) in social tax.
In order to minimize the pain the workers feel in their pockets (and to keep them consuming), the Troika is asking for these social taxes to be reduced, so as to lower labour costs without hurting wages.
Problem is, governments and unions resist this, and so they tend to cut wages, which in turn depresses the economy. The Troika has warned governments often against keeping the social taxes and hittling low wages instead.
The local media, however, sadly gloss over this and just blame Merkel for the wage cuts, when in fact Germany and the other EU nations are actually arguing against excessive wage cuts and for the reduction of other taxes. <_<
In Spain it's a third of your salary, more or less.
And I'd be very much surprised if Berlin was suggesting tax decreases in the PIGS.
Quote from: Iormlund on February 07, 2012, 10:57:34 AM
And I'd be very much surprised if Berlin was suggesting tax decreases in the PIGS.
Yeah, that struck me as bizarre.
Quote from: Admiral Yi on February 07, 2012, 08:09:32 AM
Eliminate the Clearing House.
I still don't understand what you think this would achieve.
Not on the elections per se but I saw a poll today that has New Democracy on 30%, PASOK on 8% and LAOS on 5% (the government parties), government disapproval is 96%. Aside from the government parties the Democratic Left on about 18% and the Coalition of the Radical Left on around 12%, I don't think either are currently in Parliament. The Communists (and Greek Communists are hard-core Commies) are on about 12%, but won't work with any other party in a coalition. Apparently some fringe far-right party's also 'surging' and may meet the Parliamentary threshold.
Edit: The fringe far-right party are actual neo-Nazis. The Communists, it turns out, are Marxist-Leninists. The Radical Left are Eurocommunists. I can't work out the Democratic Left, they look like vaguely greenish social democrats, but I'm not sure.
Quote from: Sheilbh on February 08, 2012, 04:19:13 AM
I still don't understand what you think this would achieve.
Prevent the recycling of liquidity from trade surplus countries to trade deficit countries.
Quote from: Iormlund on February 07, 2012, 10:57:34 AM
In Spain it's a third of your salary, more or less.
And I'd be very much surprised if Berlin was suggesting tax decreases in the PIGS.
You can be surprised now.
http://www.agenciafinanceira.iol.pt/economia/tsu-fmi-troika-ugt-cip-passos/1319606-1730.html
It's in Portuguese, but you can probably get the gist of it. The TSU stands for Single Social Tax, and it specifically refers to the tax employers pay in addition to their employee's gross wage (the worker often doesn't even realize this tax is paid by the company).
The Troika's idea is that all efforts should be taken to avoid destroying the population's purchasing power (which would crush all hopes of a decent recovery). Infortunately, the government - with ministers who were economic professors in the liberal universities of the US and Canada - prefer the path of least resistance, which is to 'tax the poor'.
Quote from: Admiral Yi on February 08, 2012, 07:41:53 AM
Quote from: Sheilbh on February 08, 2012, 04:19:13 AM
I still don't understand what you think this would achieve.
Prevent the recycling of liquidity from trade surplus countries to trade deficit countries.
That's not a given, though. If you check the graph provided when the original discussion on the TARGET2 system, you'll see that it was only AFTER the crisis started that the PIGS found themselves in the red in the system, despite running big trade deficits for quite a while. Ireland, OTOH doesn't even have that much of a trade balance problem, yet owes quite a lot to the ECB clearing house system.
Quote from: Admiral Yi on February 07, 2012, 08:09:32 AM
Eliminate the Clearing House.
The surplus countries will oppose because the effect is to interpose the ECB to insulate their own banks from potential losses.
Quote from: Iormlund on February 08, 2012, 12:36:50 PM
That's not a given, though. If you check the graph provided when the original discussion on the TARGET2 system, you'll see that it was only AFTER the crisis started that the PIGS found themselves in the red in the system, despite running big trade deficits for quite a while. Ireland, OTOH doesn't even have that much of a trade balance problem, yet owes quite a lot to the ECB clearing house system.
This is a bit of a guess on my part since I don't know exactly how the clearing house works, but I think the difference is that before the crisis the outflow of the current account was counteracted by the natural working of the capital account.
Quote from: Martim Silva on February 08, 2012, 08:25:21 AM
Quote from: Iormlund on February 07, 2012, 10:57:34 AM
In Spain it's a third of your salary, more or less.
And I'd be very much surprised if Berlin was suggesting tax decreases in the PIGS.
You can be surprised now.
http://www.agenciafinanceira.iol.pt/economia/tsu-fmi-troika-ugt-cip-passos/1319606-1730.html
It's in Portuguese, but you can probably get the gist of it. The TSU stands for Single Social Tax, and it specifically refers to the tax employers pay in addition to their employee's gross wage (the worker often doesn't even realize this tax is paid by the company).
The Troika's idea is that all efforts should be taken to avoid destroying the population's purchasing power (which would crush all hopes of a decent recovery). Infortunately, the government - with ministers who were economic professors in the liberal universities of the US and Canada - prefer the path of least resistance, which is to 'tax the poor'.
That's interesting. Has the Troika suggested where Portugal might find the money to do that?
Quote from: Admiral Yi on February 08, 2012, 12:46:35 PM
before the crisis the outflow of the current account was counteracted by the natural working of the capital account.
That's true, almost tautologically, beause the flows have to balance.
But "natural" is the tricky word here.
The capital account counteracted here by extending cross-border loans to finance net imports. The problem with that is once the stock of loan commitments gets quite large, the lender/exporter is badly exposed in the event of a default in the importing country. The value of the clearing function to the exporter is that the ECB steps in the middle although in reality (IIRC) the credit exposure remains, at least in law in not in fact. It's not clear that the TARGET2 system has a substantive impact other than to obscure somewhat where the exposures really lie; although due to pretty decent EU data transparency it doesn't really even do that.
FT is reporting the Byzantines have signed off on the deal.
Prediction: They'll break the terms of the deal eventually. Not that I can blame them.
Has anybody ever kept an EU deal? I mean, the stability pact got raped to death the second it became inconvenient, didn't it?
You know, even though they're not real civilized people, it's hard not to feel a little bad for the Greeks in all this.
I love Monti. His press conference today was full of good points (not least among them that Cameron should have asked for a single market in services in exchange for signing the treaty, it's long been a British goal and we'd probably have got it). But he did deny that Italy needed financial aid. Because it's Monti I'll believe him, but in most other cases when a PM says that the state goes to the EFSF in days.
Also worrying is that one of the questions asked of Draghi after the Greek deal was whether Ireland now needs debt restructuring (they do) he didn't answer.
QuoteHas anybody ever kept an EU deal? I mean, the stability pact got raped to death the second it became inconvenient, didn't it?
Apparently one of the delays over the last few days has been translating the terms of the agreement into Greek for the LAOS leader whose English isn't very good (all the other party leaders were educated in the US). This was considered very important because a number of cabinet ministers hadn't read the first bailout agreement when they signed up to it :bleeding:
Edit: Even then the Guardian liveblog had an entry on the politics tonight which doesn't sound promising:
Quote7.47pm: In Athens tonight, the squabbling has started again between rival political parties – just hours after they appeared to put their differences aside and back the tough austerity measures demanded in return for its second bailout, worth €130bn.
Politicians have been engaged in an unseeemly rush to distance themselves from the deal. As we flagged up at 4.17pm, a deputy minister swiftly quit.
This was followed by the resignation of a senior member of the conservative New Democracy party. Yiannis Manolis claimed the deal would condemn Greeks to "Bulgarian salaries in a country with Brussels prices."
Aleka Papariga, the communist party leader, had already fired up the rhetoric, claiming that international lenders were determined to force the Greek people into "concentration camp conditions."
The junior party in the coalition is even claiming that it is not part of the agreement. As Helena Smith explains from Athens:
If there was any sense that the brinkmanship on display in the last few weeks is over, it was put to rest last night when Laos, the junior party in the ruling coalition said it had not even been informed about the bailout agreement.
As such, it had played no role in resolving the issue of cuts in supplementary pensions, the final obstacle to consensus being reached over the accord.
"We've had no contact all day with the prime minister's office," said Nikos Vasilliades a party spokesman. "The deal only represents the two main parties, Pasok and New Democracy."
Edit: Greek economic statistics released earlier today:
QuoteGreece's manufacturing output contracted by 15.5pc in December from a year earlier.
Industrial output fell 11.3pc, compared to minus 7.8pc in November.
Unemployment jumped to 20.9pc in November, up from 18.2pc a month earlier.
Quote from: Neil on February 09, 2012, 01:43:36 PM
Has anybody ever kept an EU deal?
The EU entirely relies on the member countries acting in good faith. And in virtually all EU policy areas they do. There is no central executive to enforce compliance with EU legislation.
LOAS only has 16 seats so their jumping ship has no real significance.
Still, the move seems to have spooked the markets a bit.
Quote from: Admiral Yi on February 10, 2012, 10:30:28 AM
LOAS only has 16 seats so their jumping ship has no real significance.
Still, the move seems to have spooked the markets a bit.
It's not the numbers that matter. It's the end of the national unity government. Greece has now effectively got a grand coalition.
There's two things to remember about this bailout, which needs to go through before March 20.
The first is that there's an election in April. Is the next government likely to keep to the terms of the deal? By my rough guesswork anti-austerity parties will have over 50% of Parliament, based on current polls.
The second is that the deal with Greece is designed to get their debt as a percent of GDP down to 120% by 2020 and I think under 100% a decade or so later. So the issue with Greece isn't about this government agreeing to a deal, it's about permanently shifting Greek revenue and spending levels (and growth) for at least the next decade. I can't see this government achieving that so chances are they'll approve this round of austerity and then the next government will just have to do more of the same.
So the question isn't has this government agreed to a deal, it's has Greece?
Though I don't get the LAOS position of staying in the government but not voting for the measures:
QuoteLAOS leader says will not vote for debt deal
Karatzaferis calls on PM to replace PASOK MPs in Cabinet with technocrats
The leader of the rightwing Popular Orthodox Rally (LAOS), Georgios Karatzaferis, on Friday called on Prime Minister Lucas Papademos to reshuffle his government, installing technocrats in the place of Socialist PASOK ministers, adding that he would not approve a new debt deal agreed between the government and foreign creditors but neither would he withdraw from the coalition as he had threatened to do earlier this week.
"The creditors are asking for 40 years of submission,» Karatzaferis told a press conference. «Greece will not give itself up,» he said, adding that «Greece can survive outside the EU but cannot survive under a German boot.»
Insisting that the creditors' insistence on cuts to auxiliary pensions had been the last straw, he said that had the cuts passed, the leader of the mission of the International Monetary Fund in Greece, Poul Thomsen, would be 'persona non grata' in the country.
The rightwing leader accused the creditors of trying to «deprive Greece of the last trace of national sovereignty,» and said that the country should be given a five-year grace period to pay off its debts at a favorable interest rate.
karatzaferis did not determine whether his party's 16 MPs to approve new austerity measures in a parliamentary vote expected on Sunday or Monday. If his deputies vote down the bill, the government will retain a comfortable majority of 236 in the 300-seat House. But his party's votes would be useful as several coalition MPs in both PASOK and New Democracy have indicated that they object to certain measures and may vote against them.
Speaking an hour before a scheduled Cabinet meeting, Karatzaferis repeated an earlier demand for Papademos to replace ministers of PASOK with technocrats.
Our government announced the terms of the new labour reform. It changes nothing. The dual-tiered job market is here to stay.
Quote from: Iormlund on February 10, 2012, 11:58:49 AM
Our government announced the terms of the new labour reform. It changes nothing. The dual-tiered job market is here to stay.
:thumbsdown:
Quote from: Iormlund on February 10, 2012, 11:58:49 AM
Our government announced the terms of the new labour reform. It changes nothing. The dual-tiered job market is here to stay.
Can we blame Angela Merkel for this somehow?
Greek parliament passed the austerity package. A shitload of rioting resulted and dozens of MPs were expelled from their party for voting against party line.
http://www.guardian.co.uk/business/2012/feb/13/eurozone-crisis-greece-austerity-package-vote?newsfeed=true
Quote from: jimmy olsen on February 13, 2012, 05:38:06 AM
Greek parliament passed the austerity package. A shitload of rioting resulted and dozens of MPs were expelled from their party for voting against party line.
http://www.guardian.co.uk/business/2012/feb/13/eurozone-crisis-greece-austerity-package-vote?newsfeed=true
This is like the 3rd or 4th "omg mostest importantest greek votehing!!!!!" in the last few months.
I will go bankrupt trying to catch a short before they are finally let go
Apparently the ECB has Greek sovereign bonds they bought with nominal value in their balance sheets. If they would write down those to purchasing price and reduce Greece's debt load by the same amount, they would at most lose some interest payments from Greece, but as they don't really need that anyway, it seems to be a simple way to substantially reduce Greece's debt (the ECB is Greece's biggest creditor).
Yeah. The ECB's been incredibly resistant to any haircut on their bonds, so it would actually make a small profit on Greek debt. But obviously that means PSI in Greece has to be far, far higher and will make banks more reluctant to buy other troubled sovereigns that the ECB's bought debt from. My understanding is that the ECB basically plan to write-down Greek debt to what they paid for it, but no-one's sure how yet.
Ideally the status of debt held by the ECB does need to be clarified though rather than basically being an institutional fight.
I wonder if that's part of the reason the ECB's to some extent bought up bonds at a distance. They've pumped a lot of liquidity into banks who have then bought sovereign debt. That would make PSI haircuts easier, less severe and more effective in, say, Ireland or Portugal. But then I think the ECB is, with the Finns, entirely opposed to PSI happening again so I'm not sure.
Edit: Incidentally I don't know that after the election, that Greece will have the 177 votes for austerity that they had last weekend. Surely if PASOK collapses (as it looks like they will) the austerity consensus will be dead. Also Samaras apparently said that after elections his party will probably win in April that they will renegotiate the agreement. To be fair Enda Kenny said the same in Ireland's election. But, well, Greece isn't Ireland.
Sheilbh, it is all well and good to be against austerity when no one likes it and you aren't in power, but what choice do they have? Greece is running a large deficit that needs to be financed. If they reject the deal they are getting, they impose on themselves a harsher austerity package as they need to immediately balance the budget.
Quote from: alfred russel on February 13, 2012, 10:11:44 PM
Sheilbh, it is all well and good to be against austerity when no one likes it and you aren't in power, but what choice do they have? Greece is running a large deficit that needs to be financed. If they reject the deal they are getting, they impose on themselves a harsher austerity package as they need to immediately balance the budget.
Default which would be worse. Especially if they are still running a primary deficit as there'd need to be far more severe, immediate cuts and near dictatorial powers of the state over the economy.
But as I've said before I think that people can endure that sort of thing. My view is that the only reason Greece hasn't defaulted and rejected all of this is because they lack a leader with populist charisma enough to pull it off. If they find their Kirchner it'll be ochi-ochi-ochi and I think that goes across Europe. As I say I think there's a very real threat (especially if Monti fails) that Orban is the future of Europe, not a Hungarian aberration and that we'll see a grass-roots dissolution of Europe.
This is I think one of the real problems with the way this is being handled is that the choice is being set up between economic aid and national pride and dignity. I think eventually the latter'll win out. Countries can deal with lots of austerity, I think they struggle more with a sense of humiliation and emasculation. Especially a country with a history like Greece.
I am quite convinced we will see a Greek default. Allegedly, they are nearing a point where they could live off of their income if they didn't have to pay their loans. They will default and possibly collapse the banking system due to all the CDSes and the big unkown knowns they represent.
But, if the CDS chain does not ignite, we might end up being better off with flushing Greece down the drain and letting them become the Thailand of Europe. Except that the women will stay ugly there I guess.
What you can see nowadays is increasangly better economic data from the US, so-so, but not declining data from Europe, yet the stock markets are moved almost exclusively by Greek news. I don't think the world economy can live in this suspense until 2015 or more.
I agree. I don't know how it'll end though. On the one hand I think Greece is reasonably cauterised. The banks seem relatively well hedged against a Greek default. I also think there's a sense that PIIS are progressing, though they've problems, and that Greece is of a totally different magnitude.
All of that's true but I still don't know if I'd bet that a Greek default wouldn't lead to contagion. It seems a pretty big gamble to me - probably best way to avoid it would be to really do as much as possible to make the PIIS more secure and steady.
Sadly, I think default and exit is the only answer - and not just for Greece - as long as long term implications of the € are not addressed. And nobody seems to care about that part.
Zanza's link to that €-benefit study has me convinced that the whole Eurozone project was a truly terrible idea. In return for minuscule growth we lost a huge amount of purchasing power during the last decade, got ourselves in deep debt and to top it off killed our exporting industries since the high € made them uncompetitive. And those won't be back. Even if our salaries were cut by half, who in his right mind would invest hundreds of millions here in the face of truly horrendous consumption? It makes much more sense to do it in Slovakia, Vietnam, Brazil or Mexico, where you have access to growing markets and even lower costs.
But why is the "live on loan, inflate to hell when can't pay it back" circle such a better alternative?
I'm not saying default and exit is great. I'm saying long term is better than staying at the Euro, because long term trade imbalances are not being realistically addressed in any way whatsoever.
Germany's solution for that is to lower salaries to a point where we export shit to the core. And that's never going to work for the reasons I already pointed out. With an imploding domestic market nobody is going to opt for Spain or Greece to site their new manufacturing plant. It makes much more sense to do so closer to the consumer or where salaries are even lower. Especially since the € is unlikely to remain this low long term if it survives, thus increasing future costs significantly.
Structural reforms are a good idea and I've been pointing that out from the very start, but they won't work on their own. In fact in this climate they will only end in more unemployment as less productive or expensive workers are laid off but not replaced. There needs to be growth for inefficient businesses and workers to be replaced by others. Hiring and firing can be as cheap as you want, but there has to be a market for those businesses, and credit for entrepreneurs to create jobs.
Internal devaluation does not lead to 'Hey salaries are so low I should create a business in my country'. It leads to 'Why am I going to buy a new car/house/service, when not only I don't how much I'll get paid in a year or in which currency, but if I will be paid at all? And how the fuck do I get my savings from being force-converted into New Pesetas?'
Quote from: Iormlund on February 14, 2012, 09:45:32 AM
Sadly, I think default and exit is the only answer - and not just for Greece - as long as long term implications of the € are not addressed. And nobody seems to care about that part.
Maybe they are just too busy to take care of the short-term dangers? By now, everybody should have understood the longer-term implications.
QuoteZanza's link to that €-benefit study has me convinced that the whole Eurozone project was a truly terrible idea.
Rereading the German article that came with it I have to say that I made a mistake in the description. Apparently the graph only shows the gains each country made in 2010, not in the entire timeframe from 1999-2010. So for all we know, some countries might have benefitted a lot more than displayed here in the years 1999-2009.
QuoteIn return for minuscule growth we lost a huge amount of purchasing power during the last decade, got ourselves in deep debt and to top it off killed our exporting industries since the high € made them uncompetitive. And those won't be back. Even if our salaries were cut by half, who in his right mind would invest hundreds of millions here in the face of truly horrendous consumption? It makes much more sense to do it in Slovakia, Vietnam, Brazil or Mexico, where you have access to growing markets and even lower costs.
Spain is considered to be significantly more competitive than Slovakia, Vietnam, Brazil or Mexico according the Global Competitiveness Report by the World Economic Forum. Wage costs are hardly the only factor that matters for investment. The most problematic factors for doing business in Spain are apparently access to financing, restrictive labor regulations and inefficient government bureaucracy. At least the second two are things that Spain can and should address. Financing is probably a direct effect of the crisis, but once everything has calmed down, it should no longer be a big problem. And arguably it should be easier to get financing inside than outside the Euro.
As far as lost purchasing power goes, I don't have absolute figures. But according to Eurostat, Spain started at about 96% of the EU27 average per capita purchasing power, went all the way up to 105% by 2007 and since fell back to 100% in 2010. Germany for example went from 121% of the EU27 average to 118% in the same timeframe. So while Germans are still richer than Spaniards on average, the difference between them is much less pronounced than it was in 1999. Greece went from 83% to 93% from 1999-2010, while Italy went from 118% to 101%, which looks very, very bad to me at least. Ireland still had considerably more purchasing power than Germany in 2010 by the way, so they are suffereing on a fairly high level...
Quote from: Zanza on February 14, 2012, 12:57:52 PM
Maybe they are just too busy to take care of the short-term dangers? By now, everybody should have understood the longer-term implications.
More like everyone doing as little as they can to patch things up as they go along, until the ECB was forced to undertake a massive injection of money in the banking system last December to stave off an Italian or Spanish default. Every EU summit we are told about long term plans, yet the only two things proposed (and approved) have been deficit constitutional amendments - useless in the face of Spanish and Irish surpluses - and self-defeating austerity.
Granted, a few politicians like the Polish foreign minister and Monti have spoken out about long term problems, but nothing has really been done.
QuoteRereading the German article that came with it I have to say that I made a mistake in the description. Apparently the graph only shows the gains each country made in 2010, not in the entire timeframe from 1999-2010. So for all we know, some countries might have benefitted a lot more than displayed here in the years 1999-2009.
Our trade balance deficit was even greater in previous years. And the Euro higher. If anything the results back then should be worse.
Quote
Spain is considered to be significantly more competitive than Slovakia, Vietnam, Brazil or Mexico according the Global Competitiveness Report by the World Economic Forum. Wage costs are hardly the only factor that matters for investment.
Yes, like R&D investment, which is getting the axe; access to talent, which is already leaving for greener pastures as well as facing cuts in education; a big, growing, healthy market, which by definition would be asphyxiated by internal devaluation ...
We do have very nice infrastructure and health care services, for as long as we can maintain them at least.
QuoteThe most problematic factors for doing business in Spain are apparently access to financing, restrictive labor regulations and inefficient government bureaucracy. At least the second two are things that Spain can and should address. Financing is probably a direct effect of the crisis, but once everything has calmed down, it should no longer be a big problem. And arguably it should be easier to get financing inside than outside the Euro.
The reform I would want is not going to happen during this recession. The likely effect in this atmosphere of widespread losses would be a few million more unemployed in the blink of an eye. It can't happen unless there's room for job creation first. And it's not the cost of hiring that's hampering that now. That's practically free.
It's simply that everyone is enacting its own version of austerity. Banks are deleveraging like mad, government is cutting left and right and those still with a job are either saving in case things go south (like me) or providing for someone who lost his.
There was a discussion about public sector reform on Spanish EUOT this last week. A major overhaul of the entire concept of public service is badly needed, but I'd be very surprised if it happened at all. Despite how popular it seems to be, it might result what Sir Humphrey would call a 'courageous' move. And it might not even be constitutional.
Quote from: Zanza on February 14, 2012, 01:32:56 PM
As far as lost purchasing power goes, I don't have absolute figures. But according to Eurostat, Spain started at about 96% of the EU27 average per capita purchasing power, went all the way up to 105% by 2007 and since fell back to 100% in 2010. Germany for example went from 121% of the EU27 average to 118% in the same timeframe. So while Germans are still richer than Spaniards on average, the difference between them is much less pronounced than it was in 1999. Greece went from 83% to 93% from 1999-2010, while Italy went from 118% to 101%, which looks very, very bad to me at least. Ireland still had considerably more purchasing power than Germany in 2010 by the way, so they are suffereing on a fairly high level...
You forget inflation. Real inflation, not just official figures which are tied to certain products and arbitrary weights. To put forward two examples, the weight of housing in our official inflation index in the middle of the bubble was a bit over 10%, when many young couples were dedicating
a full salary to cover mortgage payments. In addition many flats were bought with only certain proportion of legit money, so official prices don't reflect their real cost.
Mind you this has not been at all uniform. It has hit especially hard people in their 20s or 30s, that purchased their homes in the last decade. This is also the group most vulnerable to the dual-tiered labour market, the first generation of Spaniards that hop from job to job.
Quote from: Iormlund on February 14, 2012, 03:26:57 PMYou forget inflation. Real inflation, not just official figures which are tied to certain products and arbitrary weights. To put forward two examples, the weight of housing in our official inflation index in the middle of the bubble was a bit over 10%, when many young couples were dedicating a full salary to cover mortgage payments. In addition many flats were bought with only certain proportion of legit money, so official prices don't reflect their real cost.
Mind you this has not been at all uniform. It has hit especially hard people in their 20s or 30s, that purchased their homes in the last decade. This is also the group most vulnerable to the dual-tiered labour market, the first generation of Spaniards that hop from job to job.
Well, I can't really argue with you based on perceptions and anecdotal evidence, I can only argue based on the official statistics and those suggest that inflation was lower than ever and that purchasing power relative to the rest of the union rose. That's not to say what you write is not correct, but I have no way to refute you or even to comment on it because I don't actually know the situation in Spain.
Spending half of your household income on mortgage payments seems to be a bad economic decision to me.
Quote from: Zanza on February 14, 2012, 03:44:09 PM
Spending half of your household income on mortgage payments seems to be a bad economic decision to me.
Which is why I don't have a mortgage. To the disbelief of everyone around me, who back then told me I was wasting money on rent. Guess who's laughing now. Or would be, if my taxes weren't up and my job in peril ...
Quote from: Zanza on February 14, 2012, 03:44:09 PM
Spending half of your household income on mortgage payments seems to be a bad economic decision to me.
It's the way of the future, especially for the working class.
Doesnt many of these, at the end of the day, come down to two things:
-there really isn't as much need for workforce, comperatively, than in the past
-the lenient, comfy, and worker-friendly welfare states of western europe, like Spain, must compete with not only the Far East, but east euro EU-member shitholes as well? And skilled labor is accessible at these places, on a rising level.
I think this is globalization, and I think at the end it will be good, but the balance which will set in will mean worse conditions for the workers of the current first world, and better for the rest.
Or we will just start WW3 and nuke the third world to dust.
Quote from: Tamas on February 15, 2012, 05:28:31 AM-the lenient, comfy, and worker-friendly welfare states of western europe, like Spain
:lmfao: :lmfao: :lmfao: :lmfao: :lmfao: :lmfao:
We already know that you're biased as hell, but please don't bring even more ridicule upon yourself with this kind of comments.
Well, Spain has got to be pretty comfy when compared to Orbanist Hungary.
Quote from: Neil on February 15, 2012, 05:08:18 PM
Well, Spain has got to be pretty comfy when compared to Orbanist Hungary.
Even if you're living in Hell it doesn't mean that everything outside of it is Paradise.
Quote from: The Larch on February 15, 2012, 05:14:45 PM
Quote from: Neil on February 15, 2012, 05:08:18 PM
Well, Spain has got to be pretty comfy when compared to Orbanist Hungary.
Even if you're living in Hell it doesn't mean that everything outside of it is Paradise.
It is to you.
Quote from: Zanza on February 14, 2012, 03:44:09 PM
Well, I can't really argue with you based on perceptions and anecdotal evidence, I can only argue based on the official statistics and those suggest that inflation was lower than ever and that purchasing power relative to the rest of the union rose. That's not to say what you write is not correct, but I have no way to refute you or even to comment on it because I don't actually know the situation in Spain.
I've found some figures from the Housing Office. They are about renting, which is relatively rare, and from 2010, when prices had gone down significantly in the renting market. But in essence they estimate renting costs as percentage of young people's income as going from 38% in Larchie's region to 48% in Balear Islands. Madrid and Cataluña, where many young people move to, were at 45%.
Maybe Larchie can add some other data or insight, since IIRC he has lived in Madrid.
Quote from: Iormlund on February 15, 2012, 05:37:40 PM
Quote from: Zanza on February 14, 2012, 03:44:09 PM
Well, I can't really argue with you based on perceptions and anecdotal evidence, I can only argue based on the official statistics and those suggest that inflation was lower than ever and that purchasing power relative to the rest of the union rose. That's not to say what you write is not correct, but I have no way to refute you or even to comment on it because I don't actually know the situation in Spain.
I've found some figures from the Housing Office. They are about renting, which is relatively rare, and from 2010, when prices had gone down significantly in the renting market. But in essence they estimate housing costs as percentage of young people's income as going from 38% in Larchie's region to 48% in Balear Islands. Madrid and Cataluña, where many young people move to, were at 45%.
Maybe Larchie can add some other data or insight, since IIRC he has lived in Madrid.
That was a loooong time ago (2003-05). Things have changed a lot since then, as renting prices went down in the last few years, IIRC. Still, there's a reason why most young people share their homes with a couple of housemates at that point in life, and it's in order to meet rent.
Quote from: The Larch on February 15, 2012, 05:14:45 PM
Quote from: Neil on February 15, 2012, 05:08:18 PM
Well, Spain has got to be pretty comfy when compared to Orbanist Hungary.
Even if you're living in Hell it doesn't mean that everything outside of it is Paradise.
Yeah, but what if you're living in Hungary?
Ok so we have Spaniards telling us how it is impossible to fire old pipple from jobs over there, and when I point out that aspect of their laws, I am being ridicoulous?
If it's so funny, then YOU tell me why it is that so many Spanish young people are unemployed, and jobs are still being created in India and China instead of there.
Quote from: Tamas on February 16, 2012, 03:26:38 AM
Ok so we have Spaniards telling us how it is impossible to fire old pipple from jobs over there, and when I point out that aspect of their laws, I am being ridicoulous?
If it's so funny, then YOU tell me why it is that so many Spanish young people are unemployed, and jobs are still being created in India and China instead of there.
Obviously you only read what you want to read. It's very expensive to fire the small subset of workers in indefinite contracts, while the young workers get the sharp end of the stick with pitiful job security. Where's the leniency, confiness and welfare state, besides in your warped worldview?
Quote from: Tamas on February 16, 2012, 03:26:38 AM
Ok so we have Spaniards telling us how it is impossible to fire old pipple from jobs over there, and when I point out that aspect of their laws, I am being ridicoulous?
If it's so funny, then YOU tell me why it is that so many Spanish young people are unemployed, and jobs are still being created in India and China instead of there.
But the trouble with too simply blaming the welfare state is that, for the most part, Northern Europe has a far, far larger and more comprehensive welfare state than Southern Europe. I would take your point if the Netherlands, Finland, Germany and the Scandis were going through an economic and debt crisis.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fi43.tinypic.com%2Fvi7ti.jpg&hash=9ff1bbfb5d3c21cdd9150427aa3725a6127ab9e4)
Quote from: Sheilbh on February 16, 2012, 07:39:37 AM
But the trouble with too simply blaming the welfare state is that, for the most part, Northern Europe has a far, far larger and more comprehensive welfare state than Southern Europe. I would take your point if the Netherlands, Finland, Germany and the Scandis were going through an economic and debt crisis.
Tamas wasn't talking about the welfare state in general, he was talking about labor market rigidity.
Quote from: Tamas on February 16, 2012, 07:47:29 AM
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fi43.tinypic.com%2Fvi7ti.jpg&hash=9ff1bbfb5d3c21cdd9150427aa3725a6127ab9e4)
I'm enjoying the Greeks bowing up at the rest of Europe.
Quote from: Admiral Yi on February 16, 2012, 08:25:40 AM
Tamas wasn't talking about the welfare state in general, he was talking about labor market rigidity.
Which is a problem and may be helpful for the necessary reforms to get some growth again.
But the idea that the problems boil down to the decadent welfare states of Western Europe simply doesn't make sense when the countries that are growing in Europe have far stronger welfare states than the ones that aren't.
Quote from: Sheilbh on February 16, 2012, 10:16:30 AM
Which is a problem and may be helpful for the necessary reforms to get some growth again.
But the idea that the problems boil down to the decadent welfare states of Western Europe simply doesn't make sense when the countries that are growing in Europe have far stronger welfare states than the ones that aren't.
Tamas wasn't talking about the welfare state in general, he was talking about labor market rigidity.
:mellow:
Quote from: Admiral Yi on February 16, 2012, 10:18:01 AM
Quote from: Sheilbh on February 16, 2012, 10:16:30 AM
Which is a problem and may be helpful for the necessary reforms to get some growth again.
But the idea that the problems boil down to the decadent welfare states of Western Europe simply doesn't make sense when the countries that are growing in Europe have far stronger welfare states than the ones that aren't.
Tamas wasn't talking about the welfare state in general, he was talking about labor market rigidity.
:mellow:
Is this a closed loop or can anyone join in?
Quote from: Admiral Yi on February 16, 2012, 10:18:01 AM
Tamas wasn't talking about the welfare state in general, he was talking about labor market rigidity.
:mellow:
QuoteDoesnt many of these, at the end of the day, come down to two things:
-there really isn't as much need for workforce, comperatively, than in the past
-the lenient, comfy, and worker-friendly welfare states of western europe, like Spain, must compete with not only the Far East, but east euro EU-member shitholes as well? And skilled labor is accessible at these places, on a rising level.
How does Germany, the Netherlands, Sweden or Denmark fit into that? They can compete fine.
They've not got a two-tier labour system, but there's plenty of worker protection in those countries (largely through the huge unions who also deliver part of the welfare state) and they are far more lenient and comfy - the Southern European welfare state is incredibly weighted towards the retired. So I'm not sure that's the sole issue that this all boils down to, no.
As I understand it, in Spain you are either on an indefinido contract (which makes it prohibitively expensive to fire you or make you redundant if you've been there for any length of time) or you must be on a fixed term or temporary contract.
If that's right then it is extremely inflexible and very much a bar to hiring people on permanent contracts and must be at least partially responsible for why Spain had such a huge unemployment rate even when it was booming.
Quote from: Sheilbh on February 16, 2012, 10:24:20 AM
How does Germany, the Netherlands, Sweden or Denmark fit into that? They can compete fine.
They've not got a two-tier labour system, but there's plenty of worker protection in those countries (largely through the huge unions who also deliver part of the welfare state) and they are far more lenient and comfy - the Southern European welfare state is incredibly weighted towards the retired. So I'm not sure that's the sole issue that this all boils down to, no.
I don't know the particulars, I can only discuss in the abstract.
Aspects of the welfare state that are tied to employment are a drag on competitiveness and hiring, whereas those that are funded out of general revenue are not. If an employer has to provide X euros for pensions, Y euros for unemployment compensation, Z euros for maternity leave, etc, he's going to care and be aware of it when making hiring decisions. Whereas if a state offers free university (it's not free, someone has to pay for it!!) and free healthcare not tied to employment it's not going to affect hiring decisions.
I though that was what Tamas was referring too, combined with the de facto impossibility of firing anyone.
Quote from: Gups on February 16, 2012, 10:41:06 AM
As I understand it, in Spain you are either on an indefinido contract (which makes it prohibitively expensive to fire you or make you redundant if you've been there for any length of time) or you must be on a fixed term or temporary contract.
If that's right then it is extremely inflexible and very much a bar to hiring people on permanent contracts and must be at least partially responsible for why Spain had such a huge unemployment rate even when it was booming.
Yes that's it. About 7% of contracts signed are
indefinidos.
In any case, there are a couple factors I think are at least as important if not more than rigid labour laws:
I think Larchie posted it here some time ago, that the number of skilled employees has actually gone up since the crisis began. While it is true that this group is more likely to be under an indefinite contract and thus more protected, the truth is many < 40 yo are not really insiders since unlike our parents we hop around a lot (I've only been 5 years at my current job for example so I'm pretty cheap to let go).
So that brings us to one of the main reasons behind unemployment in Spain: lack of proper education. The number of vocational trained workers is especially scarce. And that's something that's not going to be fixed anytime soon. It also explains fairly well why all that money from cheap loans went into real state. There was just no skilled workforce to work in anything else. And it eventually created a feedback, with young men dropping out to work construction because of the lure of inflated salaries there.
Another big factor is that we like to own. A lot. Less than 20% of homes are rented. That ties people out of job opportunities and makes them more averse to risk. It is, by the way, also common in some of the other troubled economies.
Quote from: Sheilbh on February 16, 2012, 07:39:37 AMif the Netherlands, Finland, Germany and the Scandis were going through an economic and debt crisis.
A couple ticks in interest rates, and they might be.
It's kind of interesting that US unfunded liabilities are often mentioned when discussing total national debt but I've never seen them mentioned in terms of Yurodebt.
Youse guys ever see this in your local press?
Quote from: Sheilbh on February 16, 2012, 10:24:20 AM
How does Germany, the Netherlands, Sweden or Denmark fit into that? They can compete fine.
They've not got a two-tier labour system, but there's plenty of worker protection in those countries (largely through the huge unions who also deliver part of the welfare state) and they are far more lenient and comfy - the Southern European welfare state is incredibly weighted towards the retired.
Don't know about the rest, but Germany had the Hartz reforms in the early part of the century.
Quote from: Admiral Yi on February 16, 2012, 12:43:05 PM
It's kind of interesting that US unfunded liabilities are often mentioned when discussing total national debt but I've never seen them mentioned in terms of Yurodebt.
Youse guys ever see this in your local press?
Sure. Usually in relation to pensions for state workers.
Greece to default on 23rd of March according to this article:
http://hat4uk.wordpress.com/2012/02/16/greek-default-exclusive-senior-us-bankers-given-explicit-timetable-for-athens-default/
QuoteGREEK DEFAULT EXCLUSIVE: SENIOR US BANKERS GIVEN EXPLICIT TIMETABLE FOR ATHENS DEFAULT
Wall Street...who gave it a map of the future?
DOCUMENTS RAISE AWKWARD QUESTIONS FOR WASHINGTON, IMF & BERLIN
A written document giving firm dates and detailed actions for a planned Greek default has been in the possession of two top Wall Street bank currency trading bosses since the second week in January. The Slog has separate but corroborative sources affirming the existence of the document, and a conviction among senior bank staff that – at least at the time – the plan represented "a timetable, not a contingency". The plan gives a firm date of March 23rd for default to be announced after the close of business.
Senior bankers on Wall Street have been given detailed documentation setting out a timetable to Greek default, including firm dates and technical 'orders' about last use of the euro as a currency there. The revelation arrived at Slogger's Roost last Monday, since when I have been trying to obtain corroboration. This arrived in the early hours of today (Thursday). One of the banks is Barclays Capital (Barcap) run by controversial figure Bob Diamond. The other must remain anonymous for the time being, in order to protect sources.
The document asserts that Greece will officially be declared in default by all the ratings agencies after the close of business on Friday march 23rd . At the weekend all Greek bank accounts will be frozen, with emergency measures detailed to prevent the flight of capital. Included in the paperwork is a list of very limited exceptions to the 'no withdrawals' order. All major banks 'are instructed not to deal with euro exchange as of open of business in Greece on Monday 25th march. All Greek markets will close for one day 'at least'.
As yet, I have been unable to establish the source of the documents. But one of my informants admitted, "I have strongly suggested to Greek business friends and clients that they sell up fast, do a sale and leaseback on property, empty bank accounts, and change to a hard currency."
I have little doubt that such a critical path analysis leading to default in Athens can be easily brushed aside as contingency planning. But this is not the impression Slog sources were given: and its existence is bound to further raise suspicions in ClubMed about the real intentions of 'EU Nord', Washington and the Troika – especially the IMF. In particular, the alleged creation of the document both supports (and/or coincides closely with):
1. Washington going cold on further IMF funding
2. IMF intervention in the Athens debt talks
3. Persistent rumours surrounding Wolfgang Schauble's plans
4. Evidence previously assembled by The Slog concerning Americo-German coordination
5. A string of delaying tactics by senior EU and Troika officials since mid January.
Reviewing the timeline of the Greek Debt Marathon, the back end of it is pretty obviously one of persistent sabotage from Berlin, Brussels, and the IMF:
1. It's the second week of January 2012, and the bondholder deal is a few small steps away from lawyers crossing t's and dotting i's. Enter Schauble saying the haircut is nowhere near short enough. Bondholders' leader Charles Dalloran walks out.
2. The Troika barges into the Athens/Bondholder talks, and they turn into chaos, then grind to a halt.
3. FinMinCom meets in Brussels and several encouraging noises are made about progress towards a deal 'over the weekend'. Enter Merkel bearing demand to fire the Greek Government and replace it with an EU commissioner. This produces four more days of circular delay, following which Nicolas Sarkozy declares that the German demand was never a demand.
4. Lucas Papademos gets personally involved and strikes a deal with Dalloran. Then he extracts the support of all Party leaders for the deal. We're almost there. Enter Schauble and Brussels saying no, your economy's worse than we thought – we need a closer haircut and more savings.
5. The troika is now talking direct to the bondholders with Athens outside the loop. The creditors feel on the back foot. They agree to a lower percentage rate for the new bond issues and a 70% haircut. Venizelos meanwhile focuses on finding additional savings. Papademos intervenes again with leaders and creditors. We are now 'hours away'. Mario Draghi says no, the haircut is too close for the ECB, and not enough for everyone else.
6. Draghi relents a little, the bondholders say they are "tentatively flexible". We're two small steps away from a deal. Enter Schauble moaning about £325m of savings unaccounted for...a thousandth of the total Greek debt.
6. Tempers get inflamed back in Athens. Greek leaders start muttering about doing what they have to do, getting the deal signed, and then having elections. Berlin and FinMinCom demand that all Greek Party leaders sign a document ordering them to stick to the deal regardless of election results. This loses another two days....but the bondholders are still keen to sign.
7. The German Bundesbank leaks a story to German newspaper Handelsblatt saying the Greeks will not be able to satisfy bondholder demands, and thus technical default is now a certainty. The story is traced back to the office of anti-bailout hawk Jens Weidmann.
8. Deutsche Mittelstands Nachtrichen runs a story claiming another 2.5 bn euro hole has been found in the Greek budget proposals. The story is deconstructed by The Slog and others and turns out to be complete bollocks. But the FinMinCom meeting in Brussels is postponed, and replaced with a conference call.
9. Merkel says she doesn't trust New Democracy leader Antonis Samaras. Athenian leaders must now sign another pledge after the additional 325m euros of savings have been found and agreed. They all sign (Wednesday morning – yesterday – 15th February).
10. Yesterday afternoon, the EU finance ministers' conference call begins to talk about cutting its losses. A firm proposal is tabled – by Berlin, it seems – to divide the next bailout tranche into smaller slices. The next Com meeting is put off for six days.
11. Schauble describes the Greek debt as "a bottomless pit". Merkel joins the fray by suggesting the bailout be put back until after the April elections. This clearly makes no sense, as from March 16th Greece will be in technical default without more money. But Schauble adds that indeed, Greece should postpone its elections.....and "install a technocrat government similar to Italy's."
12. Wen Jiabao makes nice noises about what a fine place Europe is to visit, but van Rompuy and Barroso come away predictably empty-handed.
13. Thursday dawns with everyone wondering where we are. Venizelos accuses "forces trying to push Greece out of the eurozone". German government spokesman Steffen Seibert calls this "false" and adds, "I can state quite clearly on behalf of the federal government that Germany has taken no such decision." Nobody said you had, Ducky. Berlin briefs on amphetamines about Angela Merkel being 'resolutely opposed to default'. A majority of market opinion leaders and bondholders think the EU is bluffing, reports the FT. But a French source tells The Slog earlier today he thinks Germany "is talking from a position of strength. There is no doubt in our minds [in the Elysees] that Berlin has the necessary plans in place."
We're but an hour into the working day EU time (1hr ahead of GMT) and already the main EU players are busy installing further roadblocks. Boss of radio Luxembourg Jean-Claude Juncker said, "Further considerations are necessary regarding the specific mechanisms to strengthen the surveillance of programme implementation and to ensure that priority is given to debt servicing." An intention as vague as that could take forever to fulfil....or until March 23rd.
A senior German official quoted by Reuters has added: "Questions remain that are very important to Germany and other member states about the sustainability of the programme."
Ultimately, not even the Germans can see into the future: this is get off the pot time....but only if you've been devious for some time about being on the pot in the first place. The Slog's recent profile of Angela Merkel demonstrated beyond too much doubt that the Fuhrerine in Berlin is more than capable of being devious.
In the last three weeks, several EU officials have pumped out the line – over and over again – that Greek default is no longer the bogeyman people thought it was....or to be more precise, they told us it was. "It would have led to a credit crunch immediately and hurt us all," said a senior eurozone official. "Now, the odds [of such a catastrophic impact] are something like 10-20%. It's still possible, but it's not a certainty."
First of all Draghi pumps money into the banking system, then the Troika/Berlin axis slows everything down. Now awkward facts come to light about the existence of 'a plan' which would protect America – by dumping the Greek contagion – and help the eurozone by concentrating the bailout cash available to save the bigger players: Italy, Spain and France. An unpleasant phrase is doing the rounds in Brussels at the moment: 'amputate and corterise'. It's certainly beginning to look like that. And without doubt, that's the way Mario Monti sees it.
Were I Greek, Portuguese or Irish, I'd be a worried man this morning.
Quote from: Sheilbh on February 16, 2012, 10:24:20 AMHow does Germany, the Netherlands, Sweden or Denmark fit into that? They can compete fine.
They've not got a two-tier labour system
Germany is developing a two-tier labor system in the last few years. Low-wage, temporary jobs, often via temporary staffing agencies have created hundreds of thousands, if not millions of jobs in the last decade. These employees often do exactly the same job as the "core" employees of a company, but are not paid according to the union wage bargaining agreement.
Quote from: Gups on February 16, 2012, 10:41:06 AM
As I understand it, in Spain you are either on an indefinido contract (which makes it prohibitively expensive to fire you or make you redundant if you've been there for any length of time) or you must be on a fixed term or temporary contract.
Same in Germany. You either have an indefinite contract and then it is hard and often expensive to fire you or you have a temporary contract (also: see above).
Quote from: Admiral Yi on February 16, 2012, 10:47:50 AMAspects of the welfare state that are tied to employment are a drag on competitiveness and hiring, whereas those that are funded out of general revenue are not. If an employer has to provide X euros for pensions, Y euros for unemployment compensation, Z euros for maternity leave, etc, he's going to care and be aware of it when making hiring decisions.
These non-wage labor costs are actually very much in focus of policy making in Germany in the last years. They attempt to lower them where possible or at least to shift them from employer to employee. There was recently a proposal by OECD to lower them further and finance that with a higher VAT. Might be worth it.
Quote from: Admiral Yi on February 16, 2012, 12:43:05 PM
It's kind of interesting that US unfunded liabilities are often mentioned when discussing total national debt but I've never seen them mentioned in terms of Yurodebt.
Youse guys ever see this in your local press?
Of course. Mostly in context of raising the retirement age or when discussing whether parents have to pay less than childless persons for something called "compulsory long term care insurance", which will pay for nursing homes of old people.
Whoa. PLJ--that's big if true. How reputable is the source? I've never heard of them.
Edit: It's not even on Zero Hedge. They'd be all over that like Koreans on Starcraft.
Quote from: MadImmortalMan on February 16, 2012, 01:27:42 PM
Whoa. PLJ--that's big if true. How reputable is the source? I've never heard of them.
It looks like one of those Usenet rants you used to see back in the day.
It reads very much like a conspiracy theory rag.
And a quick read through shows them mischaracterizing things. Schauble didn't call Greece a bottomless pit, he said he doesn't want Greece to become a bottomless pit.
Well it's from a blog, and although some people will dismiss it as a conspiracy thing, it defintely has a ring of truth about it. I certainly wouldn't dimiss it out of hand, and I'm not the sort of person to believe any old conspiracy. Apart from the odd misquote or whatever, I'd consider a credible and consistant.
Quote from: PJL on February 16, 2012, 01:54:48 PM
Well it's from a blog, and although some people will dismiss it as a conspiracy thing, it defintely has a ring of truth about it.
Not really. It has the ring of a conspiracy screed.
Some excerpts from an opinion piece by a Harvard prof who advised Papandreou informally: http://www.ft.com/intl/cms/s/0/48b55f8a-57d3-11e1-b089-00144feabdc0.html#axzz1mZV03g27
QuoteBut almost none of the moralising clichés were true. Greek taxes were more than a third of gross domestic product, near the European average. And if Greeks were anti-business, why then were there more small entrepreneurs per capita than anywhere else in Europe? Government was not bloated in terms of employees – at a fifth of the labour force, it was about the European average. Corruption was clearly a problem, but our data showed it was concentrated – incomprehensibly to non-Greeks – in the health sector, where minor "gifts" to doctors secured early scheduling of surgeries.
What government suffered from most was a lack of technology and human-resource management. There was no computerised budget management; social security records and property rolls were maintained manually; sharing of routine data or work assignments across ministries was almost non-existent.
Fast-forward to Greeks' current agony over the latest austerity measures, exacted for a 50 per cent writedown of privately-held bond debt and Europe's second enormous aid package. Will the Greeks now finally make the reforms work, as optimists hope – or inevitably default, as the cynics keep warning?
My own guess, paradoxically, is both. The momentum for most reforms is there, as the latest "troika" report makes clear – desperately-needed computerisation is under way, work patterns are being reorganised, protected sectors of the private economy opened. But because there is no growth plan – austerity is not a growth plan – Greece faces a long, dark path.
A third of its economy depends on tourism and international shipping; neither is "controlled" by Greece. "Modernisation" of its internal economy means the spread of large firms in place of micro-enterprises, a structural shift complicated for a small economy searching for a niche between the hyper-efficient Germans and the low-cost Chinese.
Some interesting additional facts:
1) Greek trade with the ROTW outside of the EU is roughly in balance. But its trade within the EU is grossly unbalanced - imported goods are almost double exported goods. Thus the Greek "competitiveness" problem is not truly an international phenonomenon but entirely a problem within the trade bloc. The main individual country sources of imbalances are Germany, Benelux, France and Italy.
2) One of the largest categories of EU origin imports into Greece - amounting to 20% of all such imports - consists of food and live animals. Greece runs a very sizable deficit on agricultural trade.
3) As the article above indicates, the principal way Greece has filled the current account gap from the trade imbalance is through shipping and tourism. Both are suffering historically brutal recessions.
4) When Greece entered the Euro, debt-GDP was at about 109%.
The reason why Greek self-employed is so high at the moment is that doctors and various other professsions are desperately getting themselves burdened with less tax, and self-employment is a good option to do this with. Nothing to do with entrepenurial spirit at all.
Barrister - read a few other articles in the blog and then tell me it's still a conspiracy rag. Certainly not you're hard core one at least.
Quote from: PJL on February 16, 2012, 02:18:38 PM
The reason why Greek self-employed is so high at the moment is that doctors and various other professsions are desperately getting themselves burdened with less tax, and self-employment is a good option to do this with. Nothing to do with entrepenurial spirit at all.
That's not true. That's part of the reason but actually the Greek economy has lots of small businesses and self-employed people in general. The proportion of independent retailers, for example, is one of the highest in Europe. The number of small businesses per 1000 people is almost double the EU average. Over 80% of Greek employment is in SME (compared with 65% EU wide). What's really striking is the amount of 'microbusiness' though (self-employed - 9 workers). They form 97% of Greek businesses and employ over 55% of the workforce. In EU terms it's totally unique.
Although from a cold-hearted perspective even that has played a part in the Greek problems. The focus on small businesses have probably exacerbated the black economy - so things like unofficial employees and not necessarily paying VAT because you don't need a receipt between friends.
Quote3) As the article above indicates, the principal way Greece has filled the current account gap from the trade imbalance is through shipping and tourism. Both are suffering historically brutal recessions.
Worth pointing out that tourism's especially difficult for Greece because the sort of countries they're competing with are Turkey, Bulgaria and Croatia who are significantly cheaper.
Edit: I think there's something to this argument:
http://www.bloomberg.com/news/2012-02-16/germany-must-decide-what-the-european-union-is-for-clive-crook.html
Also Monti's remarks to the European Parliament yesterday were worth a listen.
Quote from: Sheilbh on February 16, 2012, 02:45:09 PM
Quote from: PJL on February 16, 2012, 02:18:38 PM
The reason why Greek self-employed is so high at the moment is that doctors and various other professsions are desperately getting themselves burdened with less tax, and self-employment is a good option to do this with. Nothing to do with entrepenurial spirit at all.
That's not true. That's part of the reason but actually the Greek economy has lots of small businesses and self-employed people in general. The proportion of independent retailers, for example, is one of the highest in Europe. The number of small businesses per 1000 people is almost double the EU average. Over 80% of Greek employment is in SME (compared with 65% EU wide). What's really striking is the amount of 'microbusiness' though (self-employed - 9 workers). They form 97% of Greek businesses and employ over 55% of the workforce. In EU terms it's totally unique.
Although from a cold-hearted perspective even that has played a part in the Greek problems. The focus on small businesses have probably exacerbated the black economy - so things like unofficial employees and not necessarily paying VAT because you don't need a receipt between friends.
Well all that ndicates that the Greece is less developed than the EU, and nothing do to with entrepenural spirit either. More family run firms that have gone on for centuries. By that measure you could argue that India has more SMEs per 1000 people than the EU average, for much the same reason.
Regarding small-businesses in Greece I found this interesting: http://aristosd.posterous.com/greeks-behaving-badly-the-micro-origins-of-cr
Quote from: PJL on February 16, 2012, 02:54:59 PM
Well all that ndicates that the Greece is less developed than the EU, and nothing do to with entrepenural spirit either. More family run firms that have gone on for centuries. By that measure you could argue that India has more SMEs per 1000 people than the EU average, for much the same reason.
It suggests they're not necessarily anti-business. But you're probably right. Although Zanza's link is interesting. It reminds me of what I've read about Italian businesses with a huge number being very highly skilled, expensive, smallscale producers. These are signs of development perhaps, but also reflect and stem from culture which will be difficult to change. As the guy in Zanza's link says 'only a revolution in institutions' would change that.
Edit: And again in Zanza's link there's a lot about flexibility and diversification of 'family' business income. Which is rather entrepenurial.
Quote from: PJL on February 16, 2012, 02:54:59 PM
Well all that ndicates that the Greece is less developed than the EU
Sure Greece is less developed. That's always been the case.
But given Greece's geographic and demographic position, it is unlikely that even under the best conditions, it would develop into a major player in industrial manufacturing. The significance of the shipping and tourism industries, which in part drives the fragmented nature of the economy, arguably reflects true competitive advantages, not accident.
Interesting info MM, so that means you're not offering up Greece and the other PIGS for ritual slaughter ?
Things are a bit more complicated than poor people over extent themselves ? :hmm:
http://www.ft.com/intl/cms/s/0/ca04f9fa-58ba-11e1-b118-00144feabdc0.html?ftcamp=published_links/rss/world_europe/feed//product#axzz1mZvFCuPn (http://www.ft.com/intl/cms/s/0/ca04f9fa-58ba-11e1-b118-00144feabdc0.html?ftcamp=published_links/rss/world_europe/feed//product#axzz1mZvFCuPn)
QuoteFebruary 16, 2012 7:14 pm
Berlin keeps unearthly hush on eurozone crisis
By Quentin Peel in Berlin
Sitting in Berlin in the midst of the eurozone crisis feels like being trapped in the eye of a hurricane. All around Europe the storms of alarm and despondency rage, but in the German capital there is an unearthly hush.
No one seriously doubts that Berlin holds the key to the crisis: as the largest and most prosperous economy in the eurozone, Germany is the one country that can provide the guarantees needed to stabilise the 17-nation European monetary union.
But it is not just economic leadership that the federal republic enjoys inside the European Union. It now has political leadership of the EU thrust upon it. That is a situation in which many Germans feel deeply uncomfortable. They want to be a big Switzerland, prosperous and neutral, not the decisive European power that dictates the rules to the rest.
It seems as if Germany just cannot win. If Berlin spells out what it wants, it is accused of being a jack-booted bully. Even perfectly sensible suggestions get taken the wrong way.
Yet if Angela Merkel, the German chancellor, keeps quiet, or simply repeats the same constant mantra – "if the euro fails, Europe will fail" – she is accused of failing to provide the leadership Europe so urgently needs.
Thus it was, this week, when Wolfgang Schäuble, her wise but sharp-tongued finance minister, spoke out about Greece. In a radio interview, the man widely regarded as the most passionate pro-European in the German government repeated several times his determination to rescue the Greek economy. Then he dared to express his deepest concern: that the political parties in Athens might fail to carry through the drastic reform and austerity programme to which they are nominally committed.
He wanted to reassure German taxpayers they were not pouring their money into a bottomless pit. Comparing Greece with Italy, he suggested that it might be better to postpone elections scheduled for April, and install a government of technocrats – with cross-party backing – to take those unpopular measures.
"Who is Mr Schäuble to insult Greece?" retorted Karolos Papoulias, Greek president. A Greek newspaper warned of the country being taken over by a "Schäuble junta".
There is no doubt Greece is going through hell these days trying to meet the demands of its eurozone partners. Greeks feel humiliated at having to beg for cash. Germany is instantly identified as the culprit. The problem lies on both sides. Mr Schäuble thought he was simply stating the obvious, but in the febrile atmosphere in Athens it was bound to produce an hysterical reaction. As for Mr Papoulias's response, it reveals a fundamental misunderstanding of modern Germany. Greek politicians are not alone in that.
Postwar Germany is both profoundly provincial and committed to Europe. The federal system keeps central government in check, locked into a system of coalition government that is consensual and slow-moving. Both politics and the bureaucracy are dominated by lawyers (Mr Schäuble is one) who believe passionately in the need for rules and respect for the law. It makes for a confusing mixture of compromise and inflexibility. Mixed messages emerge from the different centres of power, not least from the finance ministry and the chancellor's office, until they can agree a common line.
Angela Merkel is the personification of that balancing act: both stubborn and pragmatic. She is a conciliator, not a visionary. In spite of the best efforts of cartoonists, she neither looks nor behaves like a bully. After years of Germany's failing to punch its weight in Brussels, she manages to dominate the European Council through a mixture of conviction, charm and an ability to master her brief better than anyone else at the table.
In learning to be a leader, Germany can still be clumsy and insensitive. The finance ministry's idea of sending a Sparkommissar to run the Greek budget was a case in point. Yet the reality is that the EU will end up controlling Greek spending for the foreseeable future. The Greek finance ministry has proved itself incompetent, but Berlin now knows it cannot be seen to suggest it. That's why there's a hush at the eye of the storm.
One more article...
http://www.ft.com/cms/s/0/9d38ffee-5639-11e1-8dfa-00144feabdc0.html#axzz1mZx9uJuL
QuoteFebruary 13, 2012 7:13 pm
Germany faces a machine from hell
By Gideon Rachman
The press review from around Europe does not make pleasant reading for the German foreign ministry these days. "Look at this stuff, it's just unacceptable," laments one diplomat – pointing to a front-page article from Il Giornale, an Italian newspaper owned by Silvio Berlusconi. The piece links the euro crisis to Auschwitz, warns of German arrogance and says that Germany has turned the single currency into a weapon. The Greek papers are not much better. Any taboos about references to the Nazi occupation of Greece have been dropped long ago.
Across southern Europe, the "ugly German" is back – accused of driving other nations into penury, deposing governments and generally barking orders at all and sundry.
There is also a much more polite form of German-bashing going on at the official level. At the recent World Economic Forum in Davos, Christine Lagarde, the International Monetary Fund's head, Tim Geithner, the US Treasury secretary, and David Cameron, the British prime minister, all made essentially the same point. Germany has to pay up. The argument goes that if the eurozone is to survive – and the world economy is to avoid disaster – Germany has to do much more, and pay much more, to keep the single currency afloat.
These arguments are deeply unfair. They fail to recognise how much Germany has already done for southern Europe. And they make demands for financial commitments that would risk economic and political disaster back in Germany.
Three main policies are being urged on the Germans. First, they should commit more money to a "firewall" – creating a fund so large that it would frighten the markets from speculating against southern European bonds. Second, they should commit to Eurobonds– mutualising the national debts of the eurozone. Third, they should stimulate their own economy, so that German consumption provides a market for southern European goods.
As it happens, Germany has already committed €211bn to the various European rescue funds – which is equivalent to about 70 per cent of its annual national budget. By contrast, many of the countries urging Germany to be more generous are notably backward in coming forward. Britain is not participating in the bail-outs for southern Europe – and is agonising about committing an extra £15bn to the IMF. The US has made it clear that it will provide no more money for the IMF to use in Europe.
More German money is likely to be forthcoming. But the Germans are wary, knowing that loans to southern Europe may never be repaid and that, if things go wrong, Germany could also be on the hook for billions more to bail out the European Central Bank. The argument that by building a bigger firewall of euros, Germany will ultimately save money, is rightly treated with deep scepticism. As one adviser to Angela Merkel puts it: "The southern Europeans don't want this money just to frighten the markets, they want to spend it."
The Germans are also right to resist Eurobonds. Under current EU structures, this amounts to a demand that Germany and other solvent euro users should underwrite the debts of southern European countries, while being given no control over their spending. When a leaked German paper suggested that an EU overseer should be given some control over the Greek budget, the proposal was shot down amid the usual volley of complaints about resurgent Nazism.
The third demand is that Germany must do more to rebalance the European economy. German consumption is, in fact, already rising. But it is difficult to see how Germans can be commanded to buy more goods from southern Europe. Perhaps they could all be given a tax cut in the form of a voucher, redeemable only for a package holiday by the Mediterranean?
Much of the current German-bashing is wild and unfair. But there is one respect in which Germany does bear responsibility for the current crisis. Germany was in the forefront of the countries pushing for the creation of the euro. And yet it is increasingly apparent that creating a single currency, without a single nation behind it, is at the root of the current crisis.
When Chancellor Merkel talks of the need for "political union" in Europe as the long-term solution to the current crisis, she is acknowledging this design flaw. But political union must involve deep losses of national sovereignty. And the current crisis shows that Greeks, Germans and Italians do have one important thing in common – a deep aversion to ceding control of their national budgets.
The result is that the euro is in a dangerous and unstable position. The actions that are being urged on Germany are unreasonable. But Germany's own solution – structural reform now, political union later – is unworkable.
Amid all these dangers, German officials remain outwardly calm. They shrug off the insults, while continuing to pledge financial aid to southern Europe and to make the case for supply-side reforms as the only long-term solution to the woes of the European periphery.
Behind the scenes, however, some of the brightest minds in the German government have a sense of deep foreboding. Twice in the past year I have found myself sitting next to different senior German officials at a dinner who have proceeded to tell me that the whole single currency was a terrible mistake. Speaking of the euro, one of my companions said: "It seems to me that we have invented a machine from hell that we cannot turn off." The image was so bleak and Strangelovian that I laughed. But, I am afraid, it's not really very funny.
The Clive Crook (from the FT) article I posted was written in response to that Rachmann one :lol:
While we're on links, I think this article on Italy is interesting if a bit worrying:
http://www.foreignaffairs.com/articles/137200/mark-gilbert/mario-monti-and-italys-generational-crisis?page=show
Quote from: Sheilbh on February 16, 2012, 02:45:09 PM
Worth pointing out that tourism's especially difficult for Greece because the sort of countries they're competing with are Turkey, Bulgaria and Croatia who are significantly cheaper.
So they should lower their prices.
Quote from: mongers on February 16, 2012, 03:22:55 PM
Interesting info MM, so that means you're not offering up Greece and the other PIGS for ritual slaughter ?
Things are a bit more complicated than poor people over extent themselves ? :hmm:
They all have different problems.
Greece's problem was tax collection problems and its use of international capital markets to finance chronic current account deficits. But private indebtedness levels in Greece are quite low and thus total national debt levels are pretty tame.
Italy is like Greece in that public debt levels are high and private sector indebtedness is low. But Italy is more competitive on the current account and has run structural fiscal surpluses for some time.
Spain had the opposite profile from Italy and was more like Ireland - until the crisis public debt and deficit was low, but the private sector and the banking system heavily leveraged in the property market. The impact of the crisis was to force the publicization of private debt. Similar to the US but without having the luxury of issuing the worls' leading reserve currency as a national currency.
Quote from: The Minsky Moment on February 16, 2012, 04:37:06 PM
Quote from: mongers on February 16, 2012, 03:22:55 PM
Interesting info MM, so that means you're not offering up Greece and the other PIGS for ritual slaughter ?
Things are a bit more complicated than poor people over extent themselves ? :hmm:
They all have different problems.
Greece's problem was tax collection problems and its use of international capital markets to finance chronic current account deficits. But private indebtedness levels in Greece are quite low and thus total national debt levels are pretty tame.
Italy is like Greece in that public debt levels are high and private sector indebtedness is low. But Italy is more competitive on the current account and has run structural fiscal surpluses for some time.
Spain had the opposite profile from Italy and was more like Ireland - until the crisis public debt and deficit was low, but the private sector and the banking system heavily leveraged in the property market. The impact of the crisis was to force the publicization of private debt. Similar to the US but without having the luxury of issuing the worls' leading reserve currency as a national currency.
I was thinking about this the other day, is there some worst case scenario which ends up with the USA being 'last man standing', because of the dollars reserve status ?
And if so what would happen then ?
Quote from: mongers on February 16, 2012, 06:53:36 PM
I was thinking about this the other day, is there some worst case scenario which ends up with the USA being 'last man standing', because of the dollars reserve status ?
And if so what would happen then ?
We take over the world.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fimages.wikia.com%2Fvillains%2Fimages%2F8%2F84%2FPinky_brain.gif&hash=0ec74caa256d5d81dcfb78b01e7841712e240615)
Quote from: MadImmortalMan on February 16, 2012, 08:08:37 PM
Quote from: mongers on February 16, 2012, 06:53:36 PM
I was thinking about this the other day, is there some worst case scenario which ends up with the USA being 'last man standing', because of the dollars reserve status ?
And if so what would happen then ?
We take over the world.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fimages.wikia.com%2Fvillains%2Fimages%2F8%2F84%2FPinky_brain.gif&hash=0ec74caa256d5d81dcfb78b01e7841712e240615)
:D
Europe learns the hard way why Amurrikans moved fiscal and monetary policy onto the federal government. Film at 11.
"The Germans are also right to resist Eurobonds. Under current EU structures, this amounts to a demand that Germany and other solvent euro users should underwrite the debts of southern European countries, while being given no control over their spending. When a leaked German paper suggested that an EU overseer should be given some control over the Greek budget, the proposal was shot down amid the usual volley of complaints about resurgent Nazism."
If the Germans have any smarts they must resist this completely. Do not become the Flanders of the EU. If you're going to pump money in those states be damn sure that you control how the money is used.
This is an interesting scoop:
QuoteMore on leaked Greek debt deal documents
February 15, 2012 3:37 pm by Peter Spiegel
This morning, the dead tree edition of the FT has a story based on some leaked documents we got our hands on regarding the massive Greek debt restructuring that needs to begin in a matter of days.
The documents make clear the schedule is slipping dangerously; the meeting of eurozone finance ministers tonight that has been cancelled was supposed to approve the launch of the restructuring so the process can begin Friday. The whole thing needs to be done before a €14.5bn Greek bond comes due for repayment March 20. Time is running out.
But perhaps more interestingly is the fact that eurozone finance ministries asked for financial advice from New York financial advisors Lazard and legal advice from the New York firm of Cleary Gottlieb Steen & Hamilton about what the consequences would be if they launched the debt restructuring – but were forced to scrap it after it had started.
As is our tradition, we thought we'd give Brussels Blog readers a bit more on what the documents had to say.
The two separate notes, distributed to members of the "euro working group" – senior national finance ministry officials who have been doing all the spadework on the Greek programme – make pretty clear eurozone officials are suddenly finding themselves worried about the whole deal collapsing because of all the moving parts that need to be tied down for a successful restructuring to be completed.
They also make clear the biggest problem they're worried about is parliamentary approval of the €93.5bn in cash and bonds needed to execute the restructuring, which will happen through a bond swap where private debt holders trade in their €200bn in bonds for new ones worth half that. It may sound counterintuitive that eurozone governments have to cough up €93.5bn in order to wipe €100bn of debt off of Greece's books, but we'll get back to that in a moment.
The real problem, according to a memo sent last week to accompany the legal and financial advice, is that eurozone parliaments that need to approve the funds – which include the increasingly obstinate German, Dutch and Finnish legislatures – will not know for sure if Greece has lived up to its side of the bargain before they vote.
"(I)t is likely that not all prior actions [by Greece] can or will be implemented by the time Member States need to start the parliamentary approval procedure for the second increase," the memo reads.
The most recent in a series of a constantly-changing "tentative timetable" for the debt swap, which we also got our hands on, has the parliamentary approval process beginning tomorrow. Given the cancelled finance ministers meeting tonight, that will not happen.
So what happens if a parliament rejects the funds after Greece has already made the debt swap offer? The Cleary Gottlieb memo makes clear that they could withdraw the offer as easily as they made it. For the uninitiated, "HR" refers to the "Hellenic Republic" (Greece's formal name) and "GGBs" are "Greek government bonds":
QuoteThe HR will only be required to indicate whether it has accepted eligible GGBs and consents once the invitation expires, as further described in the invitation. Until such time, the HR is not bound by the invitation, and can call it off, in whole or in part, at any time. It is currently estimated that the invitation will be open at least for approximately 10 to 12 calendar days.
But Cleary, which is also advising Greece on the debt swap, clearly doesn't like the idea of pulling the offer once it's made:
QuoteAs with any transaction of this nature, it would be highly preferable to go to the market (launch the invitation) once the issuer (HR) has confidence that the conditions within its control (and within the control of the other official sector entities involved) reasonably can be expected to be satisfied. Each sovereign restructuring is unique and sets precedent. The adverse reputational consequences (for the HR as well as the rest of the EU) of launching a transaction that fails as a result of their collective failure to meet the conditions should be assessed very carefully.
Which raises the second issue dealt with in the memos: Should Greece make the offer without the €93.5bn in place? The timetable we obtained makes clear this is the route being contemplated.
The cash and bonds need to be raised by the eurozone's rescue fund, the European Financial Stability Facility, but several national parliaments must sign off before the EFSF can act. If the bond swap offer went forward on Friday, as was originally planned, national parliaments were not expected to finish their approvals until next Thursday, six days later. And all government officials involved would not have finalised the funding until the following Monday. In other words, funding would not be fully in place until two days before the bond swap offer was due to close, on February 29. Talk about your tight deadlines.
This is the topic of the Lazard memo. It noted that previously, all of this was due to be in place before the bond swap began – including the entire second €130bn Greek bail-out. But Lazard dryly notes that they have since been otherwise informed, and EFSF bonds, which will be used as "sweeteners" to attract bondholders to the swap, may not be ready beforehand after all.
QuoteThe procedure that has been contemplated up to now is that prior to launch of Greece's invitation to tender, the EFSF would have agreed to extend credit to Greece [through a second bail-out] and issue the EFSF notes, subject only to the conditions set forth in the related Financial Assistance Facility Agreement. We understand that there is a possibility that the EFSF may be unable to commit to make the EFSF notes available to Greece before the launch of the offer as certain European parliaments may not have acted to approve the EFSF financing by the date of the launch.
Lazard, like Cleary an advisor to Greece, does not like this new set up much either. As with the Cleary advice, Lazard says it is indeed possible to launch the offering without all the money in place. But they don't recommend it:
QuoteWe would expect this uncertainty to reduce the chances that the offer succeeds. Greece would in effect be asking creditors to commit the tender their GGBs and to block them for a period of as long as three weeks without having any assurance that Greece will be able to deliver the EFSF notes that it needs to deliver to close the exchange.
Lazard asks officials to put themselves in the place of a Greek bondholder. If you hold a Greek bond, even at current distressed levels, at least you can sell it. On the other hand, if you decide to agree to a swap and the deal falls through, you suddenly have a bond committed to a swap that won't occur as the market to sell it collapses. So why would you participate at all?
Quote[C]reditors may miss opportunities to sell their bonds in the secondary market at a much higher price than will be available if the offer fails. Furthermore, this unusual condition could even expose creditors to the added risk that the secondary market shuts down and they will be unable to sell their GGBs at any reasonable price. In our view, the offer will be much stronger and the likelihood of obtaining the desired level of participation significantly higher if Greece can, as the market no doubt expects it will, announce in its invitation that the EFSF notes and the [related EFSF funding have been committed to Greece.
But that's not going to happen. Time has basically run out for all that to be done before the offering occurs.
Why does so much money need to be in place beforehand? Because the direct and knock-on costs of such a debt restructuring are enormous. First, there are the straight forward costs: €30bn has been promised to private bondholders as "sweeteners" to participate in the deal.
According to the documents, these will come in the form of €30bn in EFSF bonds, which are about as secure as you can get in Europe these days. So private investors give up €200bn in Greek bonds and get €30bn in EFSF bonds plus €70bn in new, long-term Greek bonds. That will cost €30bn from the EFSF, plus another €5.5bn in interest payments due on the bonds being traded in.
Then there are the indirect costs: Because Greek banks are the biggest holders of Greek sovereign bonds, they will basically be wiped out in the debt restructuring, meaning €23bn in recapitalisation needs to be in place immediately.
Then there is the slightly more complicated issue of liquidity for Greek banks. In order to finance their day-to-day operations, Greek banks have essentially been living on a lifeline from the European Central Bank. The ECB lends them money in return for collateral, and that collateral has been Greek bonds. Well, if the Greek bonds are suddenly worthless (they will be declared in "selective default" once the bond swap begins), another €35bn needs to be in place to back the bonds as "credit enhancements". Otherwise, Greek banks would shut down.
Add the €35.5bn for Greek bondholders and €58bn for Greek banks and you get a whopping €93.5bn. One caveat: the €35bn for "credit enhancements" will not be needed once the selective default period ends, which is expected to only be a few weeks, so in the end that money will likely be returned.
Still, it's a lot of money that needs to be raised very quickly on a timetable that is growing narrower by the day.
A friend of mine's a financial journalist who had some sort of scoop on Greek debt last week. He explained it to me and meant nothing :weep:
Edit: Also I think this is the perfect Telegraph article on Greece:
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100015016/greece-and-the-melian-dialogue-of-thucydides-obscure/
It's a lengthy quote of Thucydides, hinting at the Germans as Athens and the Greeks as the Melians :lol:
I like this choose-your-own-adventure version of the Greek crisis:
http://crookedtimber.org/2012/02/16/so-what-would-your-plan-for-greece-be/
I got 27. Official and private sector takes a debt haircut, IMF structural reforms, capital investment from creditor nations and the Greeks giving up a lot of political independence.
Edit: Also Euro-solidarity lives, I heard that German enquiries into holidays in Greece are at a record high after a suggestion by some politician :)
Quote from: Sheilbh on February 17, 2012, 05:19:51 PM
I like this choose-your-own-adventure version of the Greek crisis:
http://crookedtimber.org/2012/02/16/so-what-would-your-plan-for-greece-be/
I got 27. Official and private sector takes a debt haircut, IMF structural reforms, capital investment from creditor nations and the Greeks giving up a lot of political independence.
Edit: Also Euro-solidarity lives, I heard that German enquiries into holidays in Greece are at a record high after a suggestion by some politician :)
I think you'll find that's properly called 'an Invasion' :(
Quote from: mongers on February 17, 2012, 05:25:11 PM
Quote from: Sheilbh on February 17, 2012, 05:19:51 PM
I like this choose-your-own-adventure version of the Greek crisis:
http://crookedtimber.org/2012/02/16/so-what-would-your-plan-for-greece-be/
I got 27. Official and private sector takes a debt haircut, IMF structural reforms, capital investment from creditor nations and the Greeks giving up a lot of political independence.
Edit: Also Euro-solidarity lives, I heard that German enquiries into holidays in Greece are at a record high after a suggestion by some politician :)
I think you'll find that's properly called 'an Invasion' :(
Only if they stay 4 years or longer
Spain, for the first time, obtained a surplus in its trade within the EZ in 2011. Despite very strong growth in exports to BRICs, overall trade deficit remains at over 10 percent however, mostly due to energy imports.
This has become very, very ugly. The leak of the IMF memo proves that not only is the proposed restructuring doomed to fail badly (which it doesn't take John Maynard Keynes to figure out) but that the trio (EC, ECB, IMF) already know that but are proceeding anyways. This could never happen in America, because the Constitution still prohibits cruel and unusual punishment.
The restructuring proposal at this point involves a quantum of debt reduction that the Trio believes will be sufficient to wall off risk of further contagion but will do nothing at all to save Greece. In return for this dubious benefit, the Greeks are being given an ultimatum to enforce a grab bag of measures that at best are pointless Titantic deck chair shuffling and at worse harmful and likely to make things worse.
it was a mistake to allow Greece to enter, but it was a mistake all the players made knowing full well of the issues, and on the explicit assumption Greece was too small to matter. What should have been done in hindsight is just to bailout Greece in 2010 when it still could have made a difference and relatively cheaply at that. Ideally by having the ECB create new money and pay off the "northern" creditors. Of course that would not be permitted . . .
The US and and the EU get into spats at times - some silly and some more serious. But this is a matter of a whole different magnitude. The EU is throwing one of their to the wolves so they can get a safer getaway. It is a failure of solidarity that strikes at the entire rasion d'etre of the institution.
Alastair Darling said something rather similar:
http://www.scotsman.com/scotland-on-sunday/opinion/comment/interview_alistair_darling_1_2125370
QuoteNot that it's all Osborne's fault, he says. The Eurozone crisis is more than half of it. His assessment of the Greek crisis is astonishingly frank. "The policy they [European leaders] are pursuing towards Greece is sheer lunacy. Nobody actually believes it will work privately, if you speak to people." Even if everything worked, he notes that Greece would still have debts worth 120 per cent of its national income. "It will still leave the country so indebted and so crippled that it will never pay its way. Frankly, the solution is that it is going to default and the only question in my mind is does it do it in an orderly way, or does it do it in a disorderly way." Of course the Greeks have fiddled their books and leaders such as Germany's Angela Merkel have every right to be angry. "I understand all that, but I think to visit on a country like Greece frankly something that would have been worthy of the Treaty of Versailles is absolutely ludicrous. It just isn't going to work. And the risk is, of course, that if something goes wrong in Greece, then it spreads around the rest of the Mediterranean and Ireland."
The escrow account and apparent amendment to the Greek constitution is particularly astounding. From what I understand Europe is now wanting the Greeks to have a constitutional amendment that makes the running of the Greek state subordinate to their official creditors.
Greece should spike them out of spite.
I understand the position that they don't want to rely on trust in Greece anymore, but all these demands... they are making compliance with them a non-option pretty fast.
Of course, that may very well be the political goal here right? If they contain the Greek default within their borders, we will be all the better for it, but no politican will admit that openly, especially not because of the "EU is letting a member roll over and die" angle.
So instead of being honest about it, they push Greece into defaulting, while the EU looks like it tried.
http://www.economist.com/blogs/graphicdetail/2012/02/daily-chart-15 (http://www.economist.com/blogs/graphicdetail/2012/02/daily-chart-15)
Rolling back the years
Feb 23rd 2012, 14:35 by The Economist online
America has lost almost a decade of progress to the financial crisis
TALK of a Japanese style "lost decade" has abounded ever since the financial crisis took hold in 2008. The Economist has crunched the numbers and on the basis of seven indicators covering economic output, wealth and labour markets, the United States has already gone back in time some ten years. Its GDP per person, for example, was at a higher level than today back in 2005 and its main stockmarket index was higher in 1999. Of the countries considered, Greece has fared the worst. In economic terms, it is just entering the new millennium again. As a whole the rich world has been hardest hit by the financial crisis. Just six of the 34 "advanced" economies categorised by the IMF have GDP per person higher in 2011 than in 2007. Notable among them are Germany and Australia.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fmedia.economist.com%2Fsites%2Fdefault%2Ffiles%2Fimagecache%2Ffull-width%2Fimages%2F2012%2F02%2Fblogs%2Fgraphic-detail%2F20120225_WOC642.gif&hash=ca13403241b96a0396d8db39c808417cf55e63f9)
I've found out today that another two people I know have been fired or will be shortly. And it's only been a week since the labour reform was enacted.
We'll get to 25% soon.
Wow. 25% is just a completely non-functional economy. You could have Ide running strategic bombing missions against you night and day and not reach that level of unemployment. It's truly a remarkable achievement.
That's impressive. As to some of the recent commentary about Greece, wow. Greece should send people over to Iran and tell them, "THIS is what an attack on a nation's sovereignty REALLY looks like."
Quote from: DontSayBanana on February 23, 2012, 03:24:37 PM
That's impressive. As to some of the recent commentary about Greece, wow. Greece should send people over to Iran and tell them, "THIS is what an attack on a nation's sovereignty REALLY looks like."
codswallop
German Minister of the Interior is now calling for the expulsion of Greece from the EZ: "I'm not saying that Greece should be thrown out but rather to create incentives that it can't say 'no' to."
At the same time that the ruling coalition is trying to pass a resolution that would forbid further contributions to firewalls in place to avoid contagion to Italy and Spain.
It looks like they've finally figured out the € wasn't worth it in the first place and it's time to tear the whole thing down.
How much does the interior minister have to do with it? Could it just be for internal consumption, and he's a safe mouthpiece?
Quote from: Iormlund on February 25, 2012, 10:09:35 PM
German Minister of the Interior is now calling for the expulsion of Greece from the EZ: "I'm not saying that Greece should be thrown out but rather to create incentives that it can't say 'no' to."
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fwww.transparencyrevolution.com%2Fwp-content%2Fuploads%2F2011%2F03%2Fdon-corleone.jpg&hash=0a5ea4200645dd25d2ab328e232db58981e08249)
Rajoy has replaced several key figures at the IRS, including the anti-fraud squad leader that had uncovered a corruption ring involving his party.
He has promoted instead the former head of a financial regulatory commission under Aznar, who back then had to step down under suspicion of corruption and tax fraud. :lol:
Uh, oh!
It seems Rajoy has finally grown a pair. He has presented a budget with 5.8% deficit, well over the 4.4% our northern friends demanded. Any bet on what will be the response?
Quote from: Iormlund on March 02, 2012, 11:18:04 AM
Uh, oh!
It seems Rajoy has finally grown a pair. He has presented a budget with 5.8% deficit, well over the 4.4% our northern friends demanded. Any bet on what will be the response?
Deploy the Condor Legion?
Quote from: citizen k on March 02, 2012, 12:09:01 PM
Quote from: Iormlund on March 02, 2012, 11:18:04 AM
Uh, oh!
It seems Rajoy has finally grown a pair. He has presented a budget with 5.8% deficit, well over the 4.4% our northern friends demanded. Any bet on what will be the response?
Deploy the Condor Legion?
Don't say it too loud, turning our cities to rubble could be considered a good way to revitalize the construction industry again. :P
Quote from: The Larch on March 02, 2012, 12:42:06 PM
Quote from: citizen k on March 02, 2012, 12:09:01 PM
Quote from: Iormlund on March 02, 2012, 11:18:04 AM
Uh, oh!
It seems Rajoy has finally grown a pair. He has presented a budget with 5.8% deficit, well over the 4.4% our northern friends demanded. Any bet on what will be the response?
Deploy the Condor Legion?
Don't say it too loud, turning our cities to rubble could be considered a good way to revitalize the construction industry again. :P
You might be onto something there. Rajoy is one cunning sob! :o
Quote from: Iormlund on March 02, 2012, 11:18:04 AM
Uh, oh!
It seems Rajoy has finally grown a pair. He has presented a budget with 5.8% deficit, well over the 4.4% our northern friends demanded. Any bet on what will be the response?
Hm, what can happen? The EU does nothing, undermining the just-accepted fiscal pact and potentially causing panic, plumetting EU economics? Or, escalate the situation with Spain, after which either Spain yields with worse conditions than it had, or Spain leaves the euro, collapsing the EU and possibly the world economy as wel.
Cleary a benefical move for Spain!
Apparently Dutch budget forecasts mean they're breaking the fiscal rules this year and are projected to break them for the next 3 years. It'll be interesting to see the response to the Dutch (a fiscal Saint) and the Spanish (an important member) breaking them. This a very early test of credibility.
I feel a bit sorry for Rajoy on this. Isn't part of the reason because it turned out the deficit for last year was far worse than estimated? So it's actually far more difficult to achieve the deficit agreed. At some point I think the Eurozone statisticians should stop having such positive estimates for everything (like the Greek economic rebound they're projecting :lol:). It makes them look ridiculous and means that our leaders, instead of addressing the world as it is, are fearlessly solving a much milder economic crisis that exists in Eurostat projections.
Quote from: Tamas on March 02, 2012, 01:37:33 PM
Quote from: Iormlund on March 02, 2012, 11:18:04 AM
Uh, oh!
It seems Rajoy has finally grown a pair. He has presented a budget with 5.8% deficit, well over the 4.4% our northern friends demanded. Any bet on what will be the response?
Hm, what can happen? The EU does nothing, undermining the just-accepted fiscal pact and potentially causing panic, plumetting EU economics? Or, escalate the situation with Spain, after which either Spain yields with worse conditions than it had, or Spain leaves the euro, collapsing the EU and possibly the world economy as wel.
Cleary a benefical move for Spain!
It's actually a pretty good move. The current "solution" to the crisis is not only not working but actually making things worse. By ignoring the demands he's forcing the issue and avoiding a still deeper recession. It also plays well at home, where he can be seen as resisting the diktats of Germany - instead of people focusing on the 2% rise in unemplyment. We're almost at 24% now.
Jeesus fuck. 24%. That's insane.
Quote from: Jacob on March 02, 2012, 02:14:38 PM
Jeesus fuck. 24%. That's insane.
We'll get close to 30% soon. And that doesn't even count those studying or those who have given up.
The last reform was supposed to become a vehicle for businesses to reduce working hours and wages. My entirely anecdotal experience is that lots of people are getting the axe instead.
Quote from: Iormlund on March 02, 2012, 02:19:25 PM
The last reform was supposed to become a vehicle for businesses to reduce working hours and wages. My entirely anecdotal experience is that lots of people are getting the axe instead.
I guess the theory is that because they can fire more easily, companies will be less afraid of hiring in the future...?
Quote from: Jacob on March 02, 2012, 02:22:56 PM
Quote from: Iormlund on March 02, 2012, 02:19:25 PM
The last reform was supposed to become a vehicle for businesses to reduce working hours and wages. My entirely anecdotal experience is that lots of people are getting the axe instead.
I guess the theory is that because they can fire more easily, companies will be less afraid of hiring in the future...?
It's a nice theory. Problem is firing an employee that has only been working for you for a few years is dirt cheap. Free for unskilled labour, since you can chain temp contracts for 2 years, then get someone else.
As I said a few pages pack, the problem of enacting reforms now is that not only there's no actual work, but there are so many unemployed that you can pressure whoever you hire into work overtime for free if the need arises. This (or rather deeper) reform would have been fine 6 years ago, when it was quite a feat to be unemployed (longest I managed was 3 days and I wasn't even looking for work, they called me).
Yes well, we can't really expect politicans to think ahead and take unpopular measures when it is not absolutely necessary. It is against their interests.
Quote from: Iormlund on March 02, 2012, 11:18:04 AM
Uh, oh!
It seems Rajoy has finally grown a pair. He has presented a budget with 5.8% deficit, well over the 4.4% our northern friends demanded. Any bet on what will be the response?
Grown a pair? Greek politicians must be the manliest in the world then.
Somehow I don't think this is the reaction the ECB was hoping for when it flooded the Eurozone with cheap bank credit.
Quote from: Admiral Yi on March 02, 2012, 03:57:51 PM
Grown a pair? Greek politicians must be the manliest in the world then.
The Greeks don't bother with this kind of thing. They simply pass the budget they were asked to knowing perfectly well they'll miss it.
Quote
Somehow I don't think this is the reaction the ECB was hoping for when it flooded the Eurozone with cheap bank credit.
Even the people at the ECB must now realize austerity is a gigantic failure. I'll concede that are quite a few morons on that board, but Draghi at least seems intelligent enough.
Quote from: Iormlund on March 02, 2012, 09:42:14 PM
Even the people at the ECB must now realize austerity is a gigantic failure. I'll concede that are quite a few morons on that board, but Draghi at least seems intelligent enough.
I get the impression you don't understand what the objective of austerity is. It's not to increase growth or decrease unemployment. It's to decrease deficits to a level that the bond markets won't get freaked out by.
Not really. Spain has very low debt compared to most developed economies. A few more points wouldn't make a difference.
Investors are scared shitless precisely because there's no light at the end of the tunnel. Austerity doesn't make a difference to the bond markets. The only thing keeping us from dragging all of you with us is the rabbit Draghi pulled out of his hat in December.
Quote from: Admiral Yi on March 02, 2012, 09:56:41 PM
I get the impression you don't understand what the objective of austerity is. It's not to increase growth or decrease unemployment. It's to decrease deficits to a level that the bond markets won't get freaked out by.
But the problem in Spain and Italy isn't purely one of debt or deficit. The Spanish have low debt and the Italians are running a primary surplus. The problem is the lack of structural reform over the last decade and the worries about potential growth. But you're right austerity and structural reforms don't necessarily work well together. That's Europe's dilemma and the problem many people have with the proposed 'solution'.
And Iorm's right. Monti's had an effect in Italy but generally the biggest the biggest impact on the bond market has been the hints at expansionary ECB policy and cheap loans to banks. But even now when Europe's facing a serious possibly existential recession the ECB's measures are far short of what the Fed or the BofE have done in the past few years.
Quote from: Iormlund on March 02, 2012, 10:09:51 PM
Not really. Spain has very low debt compared to most developed economies. A few more points wouldn't make a difference.
Investors are scared shitless precisely because there's no light at the end of the tunnel. Austerity doesn't make a difference to the bond markets. The only thing keeping us from dragging all of you with us is the rabbit Draghi pulled out of his hat in December.
If bond markets are indifferent to austerity, why did the Greek spread jump when it was announced that their debt was signficantly higher than previously stated?
I've said before that looking solely at debt/GDP Spain is in fact the odd man out. But look at the debt/GDP ratios of the rest of the PIIGS and compare them to the northern Europeans. It's not some Protestant global conspiracy that's driving bond prices.
You can't just compare one country to another. While the underlying problem is the same, low competitiveness and a flood of cheap credit, how it manifested itself varied greately.
While Greek governments threw away money and cooked their books, Ireland and Spain paid back debt. Italy still has a strong manufacturing sector and primary surplus, Greece and Spain have primary deficits and shrinking industries. Ireland and Spain are coming down from housing bubbles and private indebtedness is very high. And so on.
I understand that debt may not be the most immediate problem for Spain and Italy but if they don't decrease their reliance on loans (dunno Spain but I do remember that Italy was running it's budget on deficit), it WILL eventually become a problem as they will get loans on ridicoulous terms. Like it was happening for Italy for a while.
I don't think you understand. I'm not saying debt isn't a problem. I'm saying the problem is not the amount, but that investors think we aren not in a position to pay it back. That's a very different thing and requires a different approach.
Quote from: Tamas on March 03, 2012, 06:48:57 AMI understand that debt may not be the most immediate problem for Spain and Italy but if they don't decrease their reliance on loans (dunno Spain but I do remember that Italy was running it's budget on deficit), it WILL eventually become a problem as they will get loans on ridicoulous terms. Like it was happening for Italy for a while.
No-one's disputing that debt's a problem. But I think the PIIGS acronym has made this one problem with a single solution when that's not really the case.
Debt is a huge problem in Italy. It's got a debt of 120% of GDP. Its running a primary surplus, so without the cost of servicing the debt they're fine. The cost of servicing their debt means they need to make cuts but they've not got an enormous deficit, I think it's around 4% of GDP at the minute and falling. I actually think the current Italian deficit and the projected Italian deficit is one of the smallest in the Eurozone (average deficit of around 6%) and is roughly the same as Germany's. The projections of the Italian deficit are smaller than, say, in the Netherlands.
The problem the Italians have had is that over the last decade their economic growth has been slower than every country except for Haiti. They averaged annual growth of 0.5% in the 2000s. They've not had any of the necessary structural reforms that would help encourage growth and instead have been hindered by a government that was primarily concerned with limiting the PM's criminal liability. Ironically the period of post-war Italian history when they've had a strong stable government has turned out to be the worst for them.
On the upside Italian debt and deficit is still smaller than it was when Berlusconi's first government collapsed and he was replaced by a technocratic Prime Minister...
But given the size and importance of Italy I think that right now Mario Monti's the most important politician in Europe. If his deficit and debt reduction and structural reforms don't work then the Euro's in real trouble. Which is why I think he needs all the support he can get. Unfortunately that doesn't seem forthcoming. I think Italy needs credible deficit reduction, structural reforms plus support on their debt by the Eurozone to reduce the cost of the debt if possible and support by the EU as a whole to increase growth. Monti's suggested some serious EU liberalisation (backed by the UK and Northern European liberals and Spain) apparently the French are dead opposed, especially in an election year, and the Germans don't want to fight the French over liberalisation as well as austerity - at least that's what the British press have been told.
But it's worth remembering that the deal on Greece is that the private sector take a haircut, which they won't be able to claim the insurance on. The Greek government continues to cut at an extreme rate and pass difficult and unpopular reforms. The Greeks deal with 8 more years of austerity. The Eurozone will probably have to bail them out again once or twice. At the end of all that Greece will have government debt roughly approaching the level of Italy. That's assuming the Troika's rather optimistic growth forecasts are accurate. The Greek economy shrank by 6.8% last year, 7% (annualised) in the last quarter. The Troika's downside assumptions are that they'll get that down next year and the economy will only shrink by 1% in 2013. Even that seems optimistic, but, if Greece follows the downside assumptions then they reduce their debt to 160% of GDP.
That's one thing that baffles me--why in the world would a Greek bond holder voluntarily take a haircut when the alternative is to force a default and collect the CDS?
Because he will be under pressure from governments and central banks to do so. Because he might also be in the business of selling CDS. Or because he holds substantial debt from other PIIGS and doesn't want to rock the boat and lose it all for what is relatively small potatoes.
I think 90% of Greek private sector debt is held by Greek creditors. Given that the government's retroactively legislated collective action clauses into all of those bonds they presumably only need a certain percentage to approve and then they all do. From what I can tell the EU negotiations were pretty hard with the IIF, I think there's a lot of leaning on them by the Eurozone but I think some bondholders are going to participate in the complex ECB-national central bank bond sharing thing.
The real worry is if bondholders start to worry about whether there's any point in insuring their Eurozone sovereign bonds. If there's not, then that'll be reflected in the cost.
It looks like the Dutch deficit situation's a bit more serious than I thought. Apparently the government could collapse if negotiations on new budget cuts fail. The problem is it's a minority coalition government that depends on Geert Wilders for a majority. He's said that they're unlikely to agree if they discuss 'just finance'. The problem for the government is that Wilders is okay with there being new elections, while neither of the governing parties are, in fact the minority party's in a leadership election. So Wilders has a lot of influence.
If the Dutch fall it could be a really interesting year. From what I've read the Netherlands isn't like Germany, with the main opposition party being even more supportive of the bailouts. There's a lot of opposition on the right and the left which would make their election interesting. But we'd have elections in the Netherlands and Greece who are the achetypal creditor and debtor nations. The French elections and Irish referendum may not even be the most important.
Now Holland in danger of collapse? Ireland, Spain, Portugal, Greece, Italy. Others that I've not included? Would it be easier to name the nations in Europe which are not in danger? Not making a snide comment, because the US may be headed the same way. Just a worry that so many advanced economies are in such trouble.
Holland's not in danger of collapse. They're fine in the long run. But their budget deficit is over EU targets and likely to stay over-target for a few years. The Dutch have been very strict on the fiscal sinners though, their Finance Minister put on a bit of a show about it at the last summit. So it's embarrassing for them more than anything and they like to follow the rules.
The problem is getting the budget cuts they need to meet deficit targets will be tough because they've got a minority government and from what I understand Wilders is opposed to cuts but could support them if he gets what he wants in other areas. Which probably means they'll have to pass more anti-immigration laws or some anti-Muslim laws.
Quote from: KRonn on March 05, 2012, 08:53:31 AM
Now Holland in danger of collapse? Ireland, Spain, Portugal, Greece, Italy. Others that I've not included? Would it be easier to name the nations in Europe which are not in danger? Not making a snide comment, because the US may be headed the same way. Just a worry that so many advanced economies are in such trouble.
The Eastern European economies mostly have fairly healthy levels of public debt. The Western European economies are all very heavily indebted and a crisis of confidence would doom every single of them, including e.g. Germany, France or Britain.
http://www.economist.com/blogs/freeexchange/2012/03/productivity
QuoteFree exchange
Decline and small
Small firms are a big problem for Europe's periphery
COSTA NAVARINO is a luxury resort in the south-western Peloponnese, a 270km (168-mile) drive from Athens. It has two large luxury hotels, an assortment of pricey homes, a sports centre, some posh shops and two golf courses, one designed by Bernhard Langer, a German golf star of the 1980s and 1990s. The well-heeled traveller looking for more than a beach holiday can also choose from watersports, bird-watching or guided nature walks.
It is a world away from the austerity and social tension that is gripping most of Greece. Yet any long-term revival in the Greek economy hinges on this sort of enterprise. Around 15% of Greek GDP comes directly or indirectly from tourism, according to McKinsey, a consultancy. But tourism, like other Greek industries, is short of the kind of large developments, such as Costa Navarino, that can reap economies of scale and squeeze more year-round revenue from each euro invested.
Greece stands out among European Union countries as having the most stunted firms. Around a third of Greek manufacturers are "micro" firms with fewer than ten workers, compared with 4.3% of firms in Germany (see left-hand chart). But the small-firm problem also afflicts the other troubled economies at the euro zone's southern periphery. Spain lacks biggish manufacturers; Italy's small-firm bias derives in part from a reverence for family firms. Only 19% of Portuguese manufacturers have 250 or more workers, compared with 55% of industrial firms in Germany. "The incredible shrinking Portuguese firm" is the title of a research paper* by three economists at Carnegie Mellon University, which shows that Portugal had more small firms and fewer big ones in 2009 than it had in the 1980s. The authors find the trend has been towards larger firms in America, as well as in Denmark, a country of comparable size to Portugal.
A bias to small firms is costly. The productivity of European firms with fewer than 20 workers is on average little more than half that of firms with 250 or more workers (see right-hand chart). The deeper roots of the euro-zone crisis lie with the loss of competitiveness in the region's trouble spots. This problem owes more to dismal productivity growth in the past decade than to rapid wage inflation. If the best small firms were able to grow bigger, Greece and the rest might solve their competitiveness problems without having to cut wages or leave the euro.
The periphery's productivity malaise is the result of the rigid rules that govern jobs and goods markets. In theory the key to prosperity is the amount of physical capital and skilled workers in an economy, and how they are combined. But the quality of companies will vary so it matters greatly where—as well as how well and how much—capital and skills are deployed. If restrictive rules mean that resources are trapped in inefficient firms, it leaves the best companies starved of them. The result is sluggish productivity. The Carnegie Mellon economists blame Portugal's shrinking firms on its employment laws, which are among the strictest in the OECD (though becoming more forgiving) and act as a tax on firm size, because small firms are sheltered from them.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fmedia.economist.com%2Fsites%2Fdefault%2Ffiles%2Fimagecache%2Ffull-width%2Fimages%2Fprint-edition%2F20120303_FNC653.gif&hash=bab4f1746b129f1511e9f93ae5a221576cd3c3ba)
Growth hormones wanted
Establishing a direct link between regulation and firm size is tricky, as different rules apply at different-sized thresholds. In France, however, lots of rules kick in once firms employ 50 workers. A study* by Luis Garicano, Claire LeLarge and John Van Reenen of the London School of Economics (LSE) uses this boundary to test whether French manufacturers are kept small by regulation, and found a steep fall in firms with precisely 50 workers (see top chart). The bunching before this mark suggests that firms that might have grown bigger chose to stay small.
The barriers to growing are far higher in Greece, one of Europe's most regulated economies. In addition to rigid jobs rules, its licensing set-up is almost comically cumbersome. It can take visits to ten or more bureaus at several ministries and the filing of dozens of documents to get final approval for a business plan. Restrictions on land use keep Greek ventures from quickly reaching an efficient scale. It took 30 years for developers to assemble the plots for the Costa Navarino resort; little wonder that most Greek hotels have fewer than 100 rooms. Land-use restrictions are a problem in retailing, too. Greece has almost double the number of shops per head as the western European average, says McKinsey. As a consequence, Greek stores yield 40% less output than they might from each square foot of retail space.
The prescription for Greece and others is a familiar one: relaxing the rules that govern jobs, wages and land development will allow the best enterprises to grow bigger and the duds to fail, boosting productivity, GDP growth and tax revenues. Yet the idea that small firms are best persists even in less regulated places, such as America and Britain. This fixation owes much to the idea that small businesses create the most jobs. But a study by John Haltiwanger of the University of Maryland, with two researchers at the US Census Bureau, finds that young firms, most of which happen to be small, account for much of America's jobs growth. Mature small firms often destroy jobs, as do small start-ups that do not survive. It is better to be young than petite.
Quote from: Admiral Yi on March 03, 2012, 09:54:44 PM
That's one thing that baffles me--why in the world would a Greek bond holder voluntarily take a haircut when the alternative is to force a default and collect the CDS?
This piece is pretty good:
http://www.piie.com/realtime/?p=2709
It sort-of covers your question.
Quote from: Admiral Yi on March 02, 2012, 09:56:41 PM
I get the impression you don't understand what the objective of austerity is. It's not to increase growth or decrease unemployment. It's to decrease deficits to a level that the bond markets won't get freaked out by.
As the Greek example demonstrates, that exercise can be akin to catching a falling knife.
Lulz, Greek 1 Year Bond = 1006%
http://www.zerohedge.com/news/greek-1-year-bond-1006
Quote from: jimmy olsen on March 05, 2012, 10:42:36 PM
Lulz, Greek 1 Year Bond = 1006%
http://www.zerohedge.com/news/greek-1-year-bond-1006
Well that implies that Greece is going to default in 36 days or so, which it almost certainly will do. Personally I tihnk it could happen as soon as this Thursday.
Wasn't there a rumor that the going to declare bankruptcy this month? I guess we'll all see if it's true.
There will be published US bank stress tests coming out around that time too. They have asked the government not to publish the results because it "may cause negative reactions", but they are not going to hold back. Part of D-F I think. The last few months have been decent, but I think we're headed for another rocky patch.
QuoteECB Balance Sheet Jumps Above €3 Trillion
FRANKFURT—The European Central Bank's balance sheet soared past the €3 trillion mark last week after the ECB flooded banks with more than €500 billion in cheap loans, an indication of just how much risk the central bank has taken onto its books as it scrambles to limit the fallout from Europe's debt crisis.
The ECB's balance sheet easily surpasses those of other central banks such as the Federal Reserve and Bank of England as a share of its economy.
The balance sheet, which includes assets such as gold, government bonds, covered bank bonds and loans to banks, rose by more than €300 billion last week to a record €3.02 trillion, or one-third of the euro zone's gross domestic product. That easily surpasses the Federal Reserve's $2.9 trillion balance sheet, which equals 19% of U.S. GDP.
The ECB's balance sheet has doubled since the collapse of Lehman Brothers in September 2008 and has risen 50% since the central bank decided, in May 2010, to purchase government bonds of Greece and other fragile euro members.
The ECB has purchased around €220 billion in government bonds. But its main crisis measure—with the biggest effect on the central bank's balance sheet—has been the twin three-year loan operations in December and late February that pumped more than €1 trillion into the banking system. A significant share of these loans was taken up by Spanish, Italian and other banks in Europe's struggling periphery.
[...]
http://online.wsj.com/article/SB10001424052970203458604577265373668388122.html?mod=googlenews_wsj#articleTabs%3Darticle (http://online.wsj.com/article/SB10001424052970203458604577265373668388122.html?mod=googlenews_wsj#articleTabs%3Darticle)
Massive quantitative easing by the ECB in the last months.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fcdn3.spiegel.de%2Fimages%2Fimage-324806-galleryV9-nijm.jpg&hash=4fbfd7cc4edd53fbe1914780ff9ef1a3cde273dd)
AFAIK the difference between the Anglo-saxon programs like the one in the US and the ECB is that by buying bonds directly, the Fed injects money into the economy, because the government will use it to pay expenses.
The ECB OTOH just hands the money to the banks in debtor coutries, who pay other banks in creditor countries, who then park it in the ECBs own overnight deposit facility. Only a quarter of the LTRO money has escaped this fate, the rest went back to ECB the very next day it was loaned.
Quote from: Razgovory on March 06, 2012, 02:38:13 PM
Wasn't there a rumor that the going to declare bankruptcy this month? I guess we'll all see if it's true.
Correct, the dates vary slighty, but certainly W/C 19th March is the crucial week. It all revolves around the Greek bond rollover which takes place on March 20th (what the bailout money is for, which about 80% will go to the banks rather than the Greeks themselves). There are reports that if 66 / 75 / 90% of bondholders don't agree to the haircut deal than Greece will impose collective action clauses (CACs) which will be considered a default by the ratings agencies (certainly Moodys). However for the whole thing to go through smoothly then the threshold has to be reached by the 8th March.
BTW, the group that have already accepted the agreed haircut only account for 20% of the total debt. So it's reasonable to assume that the deal has about a 70% chance of failure on that basis alone.
Some news trickling over that several major Greek pension funds are refusing the deal. I don't know how much of a chunk the refusers represent though.
Incidently, I am seriously considering investing in gold or a least a gold ETF right now. I think we are ultimately going to see some serious inflation soon. Not necessarily the scaremongering hyperinflation, but certainly I think some 70s rates of 20-30% at times is a realistic end game for the whole thing, if only because the alternatives would be worse.
Been reading this report (http://es.scribd.com/doc/83928584/Netherlands-and-the-Euro-Full-Report-Final) commissioned by a Dutch party.
Its counclusion is basically the same as mine.
QuoteWith unchanged Eurozone membership, the only method of adjusting costs and prices in Med-Europe to be competitive without extreme and constantly reinforced austerity, leading to depression, would be stimulation of rapid inflation in The Netherlands and Germany for a decade or two; and acceptance over that adjustment period of large fiscal subsidy payments to the deficit countries – not loans to be repaid later, but unrequited transfers.
'Unchanged Eurozone membership' here means avoiding PIGS exit, as well as maybe French one as well.
Quote from: Zanza on March 06, 2012, 02:44:34 PM
Massive quantitative easing by the ECB in the last months.
It's not really like QE, though it's very helpful and a reason to be thankful for Mario. But as Iorm points out this isn't like QE which, from my understanding is based on government bonds from the market rather than specifically from banks and the banks are actually still depositing more in the overnight facility at the ECB. Which makes sense. This chart from the FT a while back suggests that there is some loose correlation between banks who need to refinance a lot of debt in the next three years and take-up:
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fav.r.ftdata.co.uk%2Ffiles%2F2012%2F01%2FECB_rollover.png&hash=fc072eab85189875783e3cb7ebd37d07b34391de)
This isn't QE. It looks more like a pre-emptive bank bailout to stop a credit crunch moment, massive deleveraging to save Eurozone banks over the next few years. It doesn't have the same potential stimulative effect of QE, it's what the Fed and the BofE were doing in late 2008-09 not what they've been doing since.
As the FT put it before the second round of LTRO:
QuoteOK, so, the LTRO is mostly about banks having cash to roll over their funding. That's important to nail down, because — as opposed to full QE — it's not clear this will arrest, rather than assist and help to fund, European bank deleveraging over the next few years.
There was a quote from Stephen Jen of SLJ Macro Partners doing the rounds last week, to the effect that the three-year LTRO could have kept even Bernie Madoff afloat. It's a comment about the ECB's loosened collateral criteria, but it's actually a pretty apt analogy beyond that, if you think about European bank balance sheets as a "bezzle" overall.
Since the bezzle is shrinking, European lenders are focused on paying off clients – the circa €1,700bn of bank debt maturing from 2012 to 2014 – versus taking in new investments that have to be funded. The LTROs come at the same time as the EBA's capital requirements, fresh capital to absorb bad loans will be difficult to find, etc.
Look at the LTRO that way, and you wonder if the actual QE is still to come.
And this is inevitably going to be larger.
If you look at the BofE, for example, their balance sheet from £100 billion to almost £350 billion in the past few years through QE and other policies. But the special liquidity scheme, bank bailouts for three years, are off balance sheet. I'm not sure about the situation at the Fed.
As an aside I thought this was interesting on the possible options if a sovereign, or big bank were to go bust, and the ECB would be in negative equity:
http://ftalphaville.ft.com/blog/2012/02/29/903061/how-deep-are-the-ecb%E2%80%99s-pockets/
QuoteThere are reports that if 66 / 75 / 90% of bondholders don't agree to the haircut deal than Greece will impose collective action clauses (CACs) which will be considered a default by the ratings agencies (certainly Moodys). However for the whole thing to go through smoothly then the threshold has to be reached by the 8th March.
The Greeks need 90% of bondholders to agree for the PSI deal to have the effect agreed in the terms of the bailout - if that doesn't happen then the bailout's doubtful and certainly the IMF have said they won't participate. They need 66% of bondholders to agree to activate the CAC clauses they've retroactively inserted into all sovereign bonds. I think that decision is in the next day or two. But the date for the debt Greece needs to refinance is March 20th.
What role do the ratings agencies play in this? I thought it was all decided by ISDA whether there's been a default or not.
Quote from: PJL on March 06, 2012, 04:08:08 PM
Incidently, I am seriously considering investing in gold or a least a gold ETF right now. I think we are ultimately going to see some serious inflation soon. Not necessarily the scaremongering hyperinflation, but certainly I think some 70s rates of 20-30% at times is a realistic end game for the whole thing, if only because the alternatives would be worse.
I read an article somewhere, a while back, that argued that rating agencies should start to take account of inflation. They used the example of the UK. We've never defaulted. We're a AAA nation who will always pay our debts. But apparently if you look at the history of British debt we almost always inflate it away. But that isn't taken account of by ratings agencies who are interested in the chance of default.
I think it may have been part of the Anglo-French spat on who should lose their AAA status first :lol:
The UK defaulted on its WWI debts to the US, along with virtually every other country in the war.
Quote from: Admiral Yi on March 06, 2012, 05:47:10 PM
The UK defaulted on its WWI debts to the US, along with virtually every other country in the war.
MAY GOD DAMN THEM.
I'll take my share in Jaffa cakes. And not them weird Serb ones either.
WELCH WELCH WELCH
Quote from: Admiral Yi on March 06, 2012, 05:47:10 PM
The UK defaulted on its WWI debts to the US, along with virtually every other country in the war.
Everyone defaulted on us too. Hoover issued a moratorium in 1931 pending a deal on how to fix repayments going forward. The deal never happened, everything just sort-of stopped in 1932. We owed you £800 million, the rest of the world (Germany and France <_<) owed us £2.3 billion. And we paid off our WW2 debt :lol:
Anyway you don't count. I meant to real bondholders :P
Henry VIII defaulted three times.
Quote from: MadImmortalMan on March 06, 2012, 06:39:15 PM
Henry VIII defaulted three times.
But he was King of England.
Quote from: Sheilbh on March 06, 2012, 05:36:46 PM
QuoteThere are reports that if 66 / 75 / 90% of bondholders don't agree to the haircut deal than Greece will impose collective action clauses (CACs) which will be considered a default by the ratings agencies (certainly Moodys). However for the whole thing to go through smoothly then the threshold has to be reached by the 8th March.
The Greeks need 90% of bondholders to agree for the PSI deal to have the effect agreed in the terms of the bailout - if that doesn't happen then the bailout's doubtful and certainly the IMF have said they won't participate. They need 66% of bondholders to agree to activate the CAC clauses they've retroactively inserted into all sovereign bonds. I think that decision is in the next day or two. But the date for the debt Greece needs to refinance is March 20th.
What role do the ratings agencies play in this? I thought it was all decided by ISDA whether there's been a default or not.
The ISDA is made up of the big banks who don't want this to fail. Which is like turkeys voting for Christmas - it's not going to happen. Therefore the real deciders of what constitutes a Greek defauilt will be the wonderful infallable ratings agenices as ever. And that will be decided this Thursday depending on the threshold (which I believe is actually 75% rather than the 66% you mentioned).
Quote from: PJL on March 06, 2012, 07:45:28 PM
The ISDA is made up of the big banks who don't want this to fail. Which is like turkeys voting for Christmas - it's not going to happen. Therefore the real deciders of what constitutes a Greek defauilt will be the wonderful infallable ratings agenices as ever. And that will be decided this Thursday depending on the threshold (which I believe is actually 75% rather than the 66% you mentioned).
Don't ISDA decide if there's been a 'credit event' or not? Although it's automatic in case of the CAC's being activated anyway, right?
This is the FT blog on the CAC. I think the Greeks are currently briefing they expect 75% to approve:
QuoteThe first part makes plain that collective action clauses, which would let a majority of quorate bondholders bind others, will be triggered. There's been a lot of fuss about this, but it's worth remembering that the CACs now in Greek law bonds provide for a 50 per cent quorum within the 66 per cent threshold. That is it. The end.
I'm not sure what that would mean in practice though.
Quote from: Sheilbh on March 06, 2012, 07:52:49 PM
I'm not sure what that would mean in practice though.
It means Grandpa Mataxis' pension is screwed.
So I just finished reading that report. It calls in no ambiguous terms for the Dutch to immediately exit the EZ and engage in zero-interest rates and QE to keep expected appreciation under control.
Quote from: MadImmortalMan on March 06, 2012, 03:57:08 PM
Some news trickling over that several major Greek pension funds are refusing the deal. I don't know how much of a chunk the refusers represent though.
Better to get something than nothing. Why are they refusing?
Quote from: Sheilbh on March 06, 2012, 07:52:49 PM
Quote from: PJL on March 06, 2012, 07:45:28 PM
The ISDA is made up of the big banks who don't want this to fail. Which is like turkeys voting for Christmas - it's not going to happen. Therefore the real deciders of what constitutes a Greek defauilt will be the wonderful infallable ratings agenices as ever. And that will be decided this Thursday depending on the threshold (which I believe is actually 75% rather than the 66% you mentioned).
Don't ISDA decide if there's been a 'credit event' or not? Although it's automatic in case of the CAC's being activated anyway, right?
This is the FT blog on the CAC. I think the Greeks are currently briefing they expect 75% to approve:
QuoteThe first part makes plain that collective action clauses, which would let a majority of quorate bondholders bind others, will be triggered. There's been a lot of fuss about this, but it's worth remembering that the CACs now in Greek law bonds provide for a 50 per cent quorum within the 66 per cent threshold. That is it. The end.
I'm not sure what that would mean in practice though.
The ISDA decided it wasn't a credit event, which suited the members since they don't want anything like that to upset their positions. And I've read that because of how it was it was set up, it's actually under UK law not Greek law which demands a 75% threshold, which the Greek ministries subsequently corrected..
Quote from: PJL on March 06, 2012, 08:07:54 PMAnd I've read that because of how it was it was set up, it's actually under UK law not Greek law which demands a 75% threshold, which the Greek ministries subsequently corrected..
The FT's reported that it's been 66% for a while, but I think the Greek government were confusing issues. Reuters reported that they toughened and clarified their line quite significantly today:
QuoteToday's press release, by contrast, is a lot simpler. Never mind the old distinctions about what happened if the take-up was less than 66%, or between 66% and 75%, or between 75% and 90%, or above 90%. Instead, we just get one, simple rule:
Quote
The Republic confirmed that if it receives sufficient consents to the proposed amendments of the Greek law governed bonds identified in the invitations for the amendments to become effective, it intends, in consultation with its official sector creditors, to declare the proposed amendments effective and binding on all holders of these bonds.
In other words, there are collective action clauses, and if Greece can trigger them, it will. End of story.
You're right it only covers Greek law bonds but there's only a few English law bonds (which require 75%) but I think all future Greek sovereigns will be issued under English law. Presumably to reassure investors that the Greek government won't retroactively insert new clauses into their bonds :bleeding:
Quote from: Iormlund on March 06, 2012, 05:24:51 PM
Been reading this report (http://es.scribd.com/doc/83928584/Netherlands-and-the-Euro-Full-Report-Final) commissioned by a Dutch party.
It's Geert Wilders party. I don't say that it changes the study, but it's certainly something worth considering when reading it.
QuoteWith unchanged Eurozone membership, the only method of adjusting costs and prices in Med-Europe to be competitive without extreme and constantly reinforced austerity, leading to depression, would be stimulation of rapid inflation in The Netherlands and Germany for a decade or two; and acceptance over that adjustment period of large fiscal subsidy payments to the deficit countries – not loans to be repaid later, but unrequited transfers.
Won't happen.
On the topic of QE, an insightful explanation of it:
http://www.youtube.com/watch?v=j2AvU2cfXRk
Quote from: Zanza on March 07, 2012, 02:12:45 AM
QuoteWith unchanged Eurozone membership, the only method of adjusting costs and prices in Med-Europe to be competitive without extreme and constantly reinforced austerity, leading to depression, would be stimulation of rapid inflation in The Netherlands and Germany for a decade or two; and acceptance over that adjustment period of large fiscal subsidy payments to the deficit countries – not loans to be repaid later, but unrequited transfers.
Won't happen.
I know, which is why I said a few months ago:
Quote from: Iormlund on November 29, 2011, 06:27:53 PM
...I'd say breakup of the EZ is now the most likely scenario. I can't see enough political will to keep it together.
Quote from: Zanza on March 07, 2012, 02:12:45 AM
QuoteWith unchanged Eurozone membership, the only method of adjusting costs and prices in Med-Europe to be competitive without extreme and constantly reinforced austerity, leading to depression, would be stimulation of rapid inflation in The Netherlands and Germany for a decade or two; and acceptance over that adjustment period of large fiscal subsidy payments to the deficit countries – not loans to be repaid later, but unrequited transfers.
Won't happen.
There was excerpts of a note by an investment bank in the FT a while ago. It said if the Euro keeps going that to survive there'll either be fiscal transfers on a regular basis from the North to the South, serious depression-inducing austerity in the South or ECB policies that are far more inflationary than at present.
Of the three it suggested the latter most likely, because it's the most politically easy and it's plausible in the long-term because of the balance of the ECB's monetary policy-setting board.
Edit: As an aside I thought this was interesting:
http://www.rte.ie/blogs/european/2012/03/07/anglo-promissory-notes-dilemma-enters-critical-phase/
It cracks me up that non-Depression inducing reduction in wages is not even considered an option.
Quote from: Admiral Yi on March 07, 2012, 05:13:15 PM
It cracks me up that non-Depression inducing reduction in wages is not even considered an option.
Hasn't the Greek economy already collapsed into Depression?
Quote from: jimmy olsen on March 07, 2012, 07:26:41 PM
Quote from: Admiral Yi on March 07, 2012, 05:13:15 PM
It cracks me up that non-Depression inducing reduction in wages is not even considered an option.
Hasn't the Greek economy already collapsed into Depression?
More or less. They have to cut private sector wages by 25% in the old bailout agreement. The economy shrank by about 7% last year after shrinking by about 3-4% in 2009 and 2010. Their PMI has been negative for fifty months. Here's the chart comparing PMI's within the Eurozone which gives an indication of how severe the problem is in Greece:
http://fingfx.thomsonreuters.com/2011/10/04/121854e213.htm
Quote from: jimmy olsen on March 07, 2012, 07:26:41 PM
Hasn't the Greek economy already collapsed into Depression?
The implication of Shelf's post above is that the only way for Greece to achieve competitiveness and macro balance is through *continued* endemic Depression.
Quote from: Admiral Yi on March 07, 2012, 08:05:11 PM
The implication of Shelf's post above is that the only way for Greece to achieve competitiveness and macro balance is through *continued* endemic Depression.
Not for Greece particularly, but for the Eurozone if you read it as a balance of payments crisis. Either there's fiscal transfers - probably full fiscal union/federalism - or the surplus nations have inflation or the debtor nations have deflation.
Here's the quote from the Deutsche Bank note I was referring to:
QuoteWith outright budgetary transfers from the creditor to the debtor countries unlikely and the latter also probably unable to achieve internal real depreciation through deflation of goods, services and asset prices, the path of least resistance seems to be an appreciation in creditor countries through the inflation of goods, services and asset prices. With representatives of debtor countries holding a majority of votes in the ECB"s Governing Council, a policy of easy money and exchange rate depreciation that leads to overheating in the creditor countries seems most likely.
One thing the EU's possibly thinking about is current account targets. But the Commission's starting to study economic imbalances within the EU, in much the same way it issues 'excessive deficit' suggestions. It's EU wide, not Eurozone specific. The problem is it turns Europe's very imbalanced and the Commission's understanding seems rather German. I think 15 or so of the 27 are going to get recommendations from the Commission. An example of the Commission being philosophically German is simply that they don't seem to view surpluses as part of an imbalance. They're sending a recommendation to Poland with an internal current account deficit of 5%, but not to Germany with an internal current account surplus of 5.9%.
Well that note from the ECB is quite a bit different in tone and substance from your original post Shelf. In particular in how it discusses reduction in Greek factor costs.
Quote from: Admiral Yi on March 07, 2012, 09:15:52 PM
Well that note from the ECB is quite a bit different in tone and substance from your original post Shelf. In particular in how it discusses reduction in Greek factor costs.
Of course it is, they're professional analysts working for Deutsche Bank providing a briefing note on current account deficits in the Euro. I'm eating Pringles, watching Breaking Bad on the internet and citing a thing I read a few months ago from memory :P
Though sorry, I did get depression inducing fiscal austerity mixed up with depression-esque Latvian style internal devaluation.
Quote from: Tamas on March 07, 2012, 02:18:47 AM
On the topic of QE, an insightful explanation of it:
http://www.youtube.com/watch?v=j2AvU2cfXRk
Come on, it was funny :P
Quote from: Admiral Yi on March 07, 2012, 05:13:15 PM
It cracks me up that non-Depression inducing reduction in wages is not even considered an option.
Heh. How can a nation-wide 20/30% reduction in wages NOT result in depression?
Greek employment figures were out today. Their unemployment rate is actually better than Spain's at around 21%, the youth unemployment rate, though, is 51% :bleeding:
lolz, 1988:
QuoteRon Paul: A $220 Billion dollar deficit last year by "conservatives?" I mean, there's something wrong going on here.
Ron Paul: That's why they need the federal reserve system - in order to monetize all of this debt as well.
William F. Buckley: Well, you don't have to monetize the debt as long as you have foreign capital willing to to take it up.
Ron Paul: They do monetize a bit of it too, but what happens when Japan quits buying our debt, which they probably will soon, and then there is going to be a monetary crisis on top of a stock market crisis?
William F. Buckley: When that happens, you can run for office and be elected.
http://www.calibratedconfidence.com/2012/02/ron-paul-and-william-f-buckley.html
Back to Greece - latest news is that 75% of bondholders will agree to the deal, which means that CACs will need to be imposed, and the ratings agencies will declare Greece to be in default.
correct me if I am wrong, but it has been declared that the swap will not trigger a CDS event?
Quote from: Tamas on March 08, 2012, 12:18:24 PM
correct me if I am wrong, but it has been declared that the swap will not trigger a CDS event?
Only if at least 90% of the bondbolders take it up. Otherwise it will be considered an orderly default.
One of them has already declared Greece to be in selective default.
Looks like Greece is going to default tomorrow now, or least it's the least worst option, according to Robert 'Dr Strangelove' Peston in his latest article
http://www.bbc.co.uk/news/business-17304618
Quote from: Iormlund on March 07, 2012, 11:07:34 AM
Quote from: Zanza on March 07, 2012, 02:12:45 AM
QuoteWith unchanged Eurozone membership, the only method of adjusting costs and prices in Med-Europe to be competitive without extreme and constantly reinforced austerity, leading to depression, would be stimulation of rapid inflation in The Netherlands and Germany for a decade or two; and acceptance over that adjustment period of large fiscal subsidy payments to the deficit countries – not loans to be repaid later, but unrequited transfers.
Won't happen.
I know, which is why I said a few months ago:
Quote from: Iormlund on November 29, 2011, 06:27:53 PM
...I'd say breakup of the EZ is now the most likely scenario. I can't see enough political will to keep it together.
And in another thread I wrote this:
Quote from: Zanza on February 04, 2012, 09:42:38 AMBut if an open-ended, unlimited fiscal transfer or imperial administrators being sent from Brussels to right Greece's economy or the central bank losing its independence and mandate not to finance governments is what it takes to keep it together, I am not sure if that price isn't too high.
There only seem to be terrible options left and I am not sure which of the various terrible options is better. I am starting to think we should cut our losses and end the whole thing here and now.
Scrap whatever I said about Greece defaulting (orderly or otherwise) tomorrow. They are 100% guarenteed to the get the 90% take up, since the Greeks are adding up the numbers themelves. :lol:
Quote from: PJL on March 08, 2012, 03:48:33 PM
Scrap whatever I said about Greece defaulting (orderly or otherwise) tomorrow. They are 100% guarenteed to the get the 90% take up, since the Greeks are adding up the numbers themelves. :lol:
gotta' be kidding me :lol:
Quote from: Zanza on March 08, 2012, 03:04:01 PM
There only seem to be terrible options left and I am not sure which of the various terrible options is better. I am starting to think we should cut our losses and end the whole thing here and now.
Yeah. I'm not as "optimistic" about exit as the Lombard report, but I can't see a viable alternative.
The masterminds behind the Euro thought it would force us to drop national biases and advance toward a united Europe. Time has proven them terribly wrong. Nationalism is alive and well, and the result from this experiment is much poorer, euroesceptic Europe.
Quote from: Iormlund on March 08, 2012, 08:17:40 AM
Heh. How can a nation-wide 20/30% reduction in wages NOT result in depression?
It can't. What I'm disputing is whether equilibrium after that reduction requires continuous, ongoing contraction of the economy.
Quote from: Admiral Yi on March 08, 2012, 06:46:22 PM
Quote from: Iormlund on March 08, 2012, 08:17:40 AM
Heh. How can a nation-wide 20/30% reduction in wages NOT result in depression?
It can't. What I'm disputing is whether equilibrium after that reduction requires continuous, ongoing contraction of the economy.
The problem is we don't even know where that equilibrium is, if it exists at all.
It would have to exist somewhere. The problem is it might be a lot farther off than we want it to be.
Quote from: Iormlund on March 09, 2012, 10:10:59 AM
The problem is we don't even know where that equilibrium is, if it exists at all.
It should be somewhere around the point where unit labor costs are equal.
Quote from: Admiral Yi on March 09, 2012, 12:52:33 PM
It should be somewhere around the point where unit labor costs are equal.
Not really. Far more goes into deciding where to invest. Spain is well positioned in some indicators (as most developed countries) but quite badly on others, and it's not going to improve:
- Logistics suffer if your components are made far away, so there's a great deal of inertia involved and that doesn't help when you want to to build new industries.
- Surprisingly if you just look at the number of unemployed, there are not that many skilled workers available, the crisis mostly hitting people with no useful education or experience (and preventing them from getting any). Austerity will affect further education as well.
- Financing is frozen due to toxic real state assets and capital flight.
- You have to compete against established firms in a contracting domestic market. Savings rates are ridiculously high as a result of uncertainty, unemployment and massive private debt, and will be so for one or two decades. Further wage depression can only exacerbate this. And to top it off, our closest markets are in a similar situation.
- Any future appreciation of the € would eat into unit labor costs.
Truth is we don't have the capital, neither human or otherwise, to compete with Germany or Sweden. And we lack low salaries as well. We used to have a big ass market, but those days are over.
So even Spanish multinationals like Teka have been closing plants here and moving them to, in this particular case, Turkey. This despite having to pay quite a bit in severance payments.
Quote from: Iormlund on March 08, 2012, 08:17:40 AM
Quote from: Admiral Yi on March 07, 2012, 05:13:15 PM
It cracks me up that non-Depression inducing reduction in wages is not even considered an option.
Heh. How can a nation-wide 20/30% reduction in wages NOT result in depression?
Hell, a nationwide 20/30% reduction in wages sounds like a depression.
Quote from: Admiral Yi on March 09, 2012, 12:52:33 PM
Quote from: Iormlund on March 09, 2012, 10:10:59 AM
The problem is we don't even know where that equilibrium is, if it exists at all.
It should be somewhere around the point where unit labor costs are equal.
When the country you need to compete with has flat or sinking unit labor costs itself, that's almost impossible to do.
Quote from: Iormlund on March 09, 2012, 01:29:27 PMTruth is we don't have the capital, neither human or otherwise, to compete with Germany or Sweden.
Actually, German companies are constantly complaning about a lack of well-trained employees, yet wages are almost flat as they offshore what they can't get at home.
And German companies don't really invest in Germany anymore, most of it is abroad. That's why we had and still have economic problems with domestic demand.
Quote from: Zanza on March 05, 2012, 10:48:36 AM
The Eastern European economies mostly have fairly healthy levels of public debt. The Western European economies are all very heavily indebted and a crisis of confidence would doom every single of them, including e.g. Germany, France or Britain.
Basically most governments borrow as much as they can get away with. People have confidence in Western Europe, so they can borrow a lot. Eastern Europe is a bit more sketchy, so they have less debt as a percent of GDP. Truly sketchy countries like those in Africa tend to have very little debt, because while lenders may be stupid enough to give a illegal migrant farmworker a million dollar mortgage in California, come on, they aren't brain dead.
Quote from: Zanza on March 09, 2012, 01:39:20 PM
Actually, German companies are constantly complaning about a lack of well-trained employees ...
They do that here too, then offer €1000/month to junior engineers when housing costs over half that already. :lol:
Okay, so this is a credit event officially. Markets shuddered for a minute or two. Only about 3B in triggers though. It's a drop in the bucket if true. Of course, everyone's had three years to get rid of their exposure, so no surprise.
The question now is, will Portugal, Spain and Italy want this deal too?
Wasn't the total private sector loss something like 107 billion? Another 3 billion don't seem to matter with numbers like that.
Quote from: Iormlund on March 09, 2012, 01:45:25 PM
Quote from: Zanza on March 09, 2012, 01:39:20 PM
Actually, German companies are constantly complaning about a lack of well-trained employees ...
They do that here too, then offer €1000/month to junior engineers when housing costs over half that already. :lol:
Only the worst paid junior engineers here will make less 3000€/month. Average entry level salary is probably around 3500€/month. They should really offer German classes in your engineering schools. :P
Quote from: Zanza on March 09, 2012, 04:02:44 PM
Quote from: Iormlund on March 09, 2012, 01:45:25 PM
Quote from: Zanza on March 09, 2012, 01:39:20 PM
Actually, German companies are constantly complaning about a lack of well-trained employees ...
They do that here too, then offer €1000/month to junior engineers when housing costs over half that already. :lol:
Only the worst paid junior engineers here will make less 3000€/month. Average entry level salary is probably around 3500€/month. They should really offer German classes in your engineering schools. :P
it's okay, we will steal those jobs too! :thumbsup:
Quote from: Zanza on March 09, 2012, 04:02:44 PM
Quote from: Iormlund on March 09, 2012, 01:45:25 PM
Quote from: Zanza on March 09, 2012, 01:39:20 PM
Actually, German companies are constantly complaning about a lack of well-trained employees ...
They do that here too, then offer €1000/month to junior engineers when housing costs over half that already. :lol:
Only the worst paid junior engineers here will make less 3000€/month. Average entry level salary is probably around 3500€/month. They should really offer German classes in your engineering schools. :P
That's what my brother did, and now he's in Vienna building trams. Half of his German class were engineering students.
Is he happy with his choice? I can imagine worse places to live than Vienna.
Quote from: Tamas on March 09, 2012, 04:04:46 PMit's okay, we will steal those jobs too! :thumbsup:
As far as I can tell, that's unlikely as our companies like to keep their core skills and the jobs with the highest value-add at home. So engineering jobs should be relatively safe. The competition is rather with manual labor jobs.
Quote from: Zanza on March 09, 2012, 04:22:07 PM
Is he happy with his choice? I can imagine worse places to live than Vienna.
Oh, absolutely. He already studied there the last year of uni with an Erasmus, and has been back there working for almost a couple of years, and was in Bavaria before that, in Augsburg.
Quote from: Zanza on March 09, 2012, 04:02:44 PM
Quote from: Iormlund on March 09, 2012, 01:45:25 PM
Quote from: Zanza on March 09, 2012, 01:39:20 PM
Actually, German companies are constantly complaning about a lack of well-trained employees ...
They do that here too, then offer €1000/month to junior engineers when housing costs over half that already. :lol:
Only the worst paid junior engineers here will make less 3000€/month. Average entry level salary is probably around 3500€/month. They should really offer German classes in your engineering schools. :P
My uni offers German classes, but they are not required to graduate. Anyway, quite a few engineers do end up there. Though the people I know have mostly gone to The Netherlands where AFAIK taxes are significantly lower at least for a few years and it's easy to get by just with English.
My brother's initial plan with his Turkish gf was to work in Germany while she took a Masters there (she is curiously enough an electronics engineer and her siblings already live there).
I might have taken that path some time ago if not for my personal circumstances. While I haven't spoken German in over 15 years I doubt I'd have much trouble picking it up if the need arises.
Quote from: Iormlund on March 09, 2012, 06:12:32 PM
My uni offers German classes, but they are not required to graduate. Anyway, quite a few engineers do end up there. Though the people I know have mostly gone to The Netherlands where AFAIK taxes are significantly lower at least for a few years and it's easy to get by just with English.
The Dutch have a really generous amount of tax allowances for expats. It's horrible if you're a national though :lol:
Mark Grant making Spain look less good than we thought:
Quote
Fighting With Spanish Windmills
When I first attempted to find a more realistic debt to GDP ratio for Spain, Belgium, Italy et al I did it on a stand-alone basis; no inclusion of their European liabilities. When I approached Germany, given their size and importance in the EU, I focused upon their liabilities to the European Union. Several institutions have since asked me to consider the total liabilities for each country as every nation in the European Union has national debts as well as debts for their percentage of ownership for the EU and the European Central Bank. Using the combination of national liabilities and any nation's percentage of EU/ECB liabilities one then could ascertain a final and complete picture of a real debt to GDP number that, unlike the Eurostat data, would be inclusive of sovereign guarantees, contingent liabilities and their responsibilities to the EU and the ECB. This schematic then would tell each of us what a given country actually owed so the total reality could be assessed for judgment. Given that Spain is currently in focus and that nowhere that I have ever seen has there been an accurate national debt coupled with Spain's European debt schematic; I have decided to provide you one.
The Data
Spain's GDP $1.295 trillion
SPAIN'S NATIONAL DEBT
Admitted Sovereign Debt $732 billion
Admitted Regional Debt $183 billion
Admitted Bank Guaranteed Debt $103 billion
Admitted Other Sovereign Gtd. Debt $ 72 billion
Total National Debt $1.090 trillion
SPAIN'S EUROPEAN DEBT
Spain's Liabilities at the ECB $332 billion
Spain's Cost for the EU budget $ 20 billion
Spain's Liabilities for the Stabilization Funds $125 billion
Spain's Liabilities for the Macro Fin. Ass. Fund $ 99 billion
Spain's Guarantee of the EIB debt $ 67 billion
Spain's Total European Debt $643 billion
--------------------------------------------------------------------------------------------------
Spain's National and European Debt $1.733 trillion
Spain's OFFICAL debt to GDP Ratio 68.5%
Spain's ACTUAL Debt to GDP Ratio 133.8%
http://www.scribd.com/doc/88388379/Investment-Focus-The-Pain-in-Spain (http://www.scribd.com/doc/88388379/Investment-Focus-The-Pain-in-Spain)
http://www.scribd.com/doc/87800486/Spanish-Banks-Will-Need-Bailout (http://www.scribd.com/doc/87800486/Spanish-Banks-Will-Need-Bailout)
The pain in Spain throws investors before trains. :P
Focus looks to be turning back to Spain (and maybe Italy):
QuoteEuropean stock markets rocked by panic selling as debt crisis reignites
Investors demanding high premiums for holding Italian and Spanish bonds as fears of double-dip recession grow
Heather Stewart, Larry Elliott and Giles Tremlett in Madrid
guardian.co.uk, Tuesday 10 April 2012 20.13 BST
Europe's sovereign debt crisis exploded back into life on Tuesday, with markets across the continent rocked by a wave of panic selling amid renewed fears about the impact of savage austerity measures in Spain and Italy.
The mood of uneasy calm seen across Europe since the Greek bailout in February was shattered as financial markets took fright at evidence of a double-dip recession and growing popular opposition to welfare cuts and tax increases.
Italy and Spain, the eurozone's third and fourth biggest economies, were at the centre of the market turmoil, with investors demanding an increasingly high premium for holding their bonds.
"Spain is right in the centre of a European storm," admitted finance minister Luis de Guindos, who declined to rule out an eventual bailout but insisted it could be avoided.
In Italy, Mario Monti's coalition government is facing growing hostility to reforms of its labour market, while the sheer size of the country's public debt made it an obvious target for nervous traders. The prospect of Greek voters rejecting austerity and the French electorate denying Nicolas Sarkozy a second term as president was also weighing on the markets.
The Greek government said it would hold a general election on 6 May, with opinion polls showing support for the mainstream pro-austerity parties is too weak to allow them to form a government.
"Spain is a big focus right now and even Greece will be coming back into the picture as it looks for another tranche of aid, so this eurozone debt tragedy is not going away, but seems to be getting worse," said Daniel Hwang, senior currency strategist at Forex.com in New York.
Interest rates on 10-year Spanish bonds hit 6% for the first time since January, when Europe's leaders were battling to agree a bailout deal for Greece and secure the future of the eurozone. Shares in Madrid dropped by almost 3% to hit their lowest level since March 2009.
In Italy, share prices slumped by 5% on rumours that the government was preparing to downgrade its growth forecasts, and trading in the shares of several of its banks was suspended after they fell sharply.
Shares were also much lower on Wall Street, where the fallout from Europe exacerbated fears that the US recovery is petering out. Disappointment at last week's unemployment figures had already been weighing heavily on investor confidence.
By lunchtime in New York, Wall Street appeared to be heading for a fifth successive day of decline, with the Dow Jones having lost 170 points, or 1.33%. In London, the FTSE 100 closed down 128 points, at 5,595.55. Oil prices also fell sharply amid concerns about the prospects for growth on both sides of the Atlantic and in Asia, with the price of a barrel of crude falling by more than $2.
In contrast, safe haven assets such as gold, the US dollar and bonds in the US, Germany and Britain were all in demand. "The market went up on a wave of liquidity-induced euphoria, and as usual overshot. Now the clever boys have decided to get out," said Charles Dumas of Lombard Street Research.
Europe's politicians had hoped that Greece's second bailout, and a battery of emergency measures unleashed by the European Central Bank, including its long-term "repo" operation, which offered cheap money to troubled banks, would draw a line under months of economic chaos. But Erik Britton, of City consultancy Fathom, said: "The LTRO [long term refinancing operation] and all those things, all it's done is bought a bit of time, but it hasn't addressed the structural problems, even slightly, even for Greece."
He predicted that the ECB could be forced to take fresh rescue measures in the next few weeks to prevent strains in Europe's banking sector from turning into a credit crunch, while in the longer term several more countries – including Spain and Italy – would eventually be forced to write off a proportion of their debts before the crisis is over.
The euro came under pressure on the foreign exchange markets as the mood darkened on Tuesday, losing 0.2% against the dollar, to $1.3080, and more than 1% against the yen. David Song, Currency Analyst at DailyFX, said: "The single currency is likely to face additional headwinds over the near term as the region continues to face a risk for a prolonged recession."
Spanish prime minister, Mariano Rajoy, speaking in the country's senate, warned that his government must stick with its austerity plans, saying: "There's no doubt that much of Spain's future is at stake and also economic growth and the creation of jobs over the coming years."
But the central bank governor, Miguel Angel Fernández Ordóñez, added to the mood of anxiety by warning that unless the economy improves, the country's struggling banks will need a new government bailout. Successive waves of austerity measures have already driven Spanish unemployment to 23%. Some 50% of young people are out of work.
Jane Foley, currency strategist at Rabobank, said: "The Spanish government appears to be losing the battle to restore budgetary credibility while each additional austerity measure serves to feed the recessionary backdrop."
In London, Barclays shares fell by 6% to 206p and were the second-biggest faller in the FTSE100 amid fears about its troubled Spanish operation. In February Barclays borrowed €6bn from the ECB's cheap loans scheme to pour into its Spanish operations.
The fresh bout of turbulence comes as the world's finance ministers and central bank governors prepare to fly to Washington next week for the half-yearly meeting of the International Monetary Fund. Following the measures taken by the ECB, the fund had been hopeful that the talks would be less fraught than those last autumn, when Europe's leaders were told to get to grips with their problems.
Christine Lagarde, the IMF's managing director, will almost certainly use the renewed crisis in the single currency zone to seek support for an increase in the fund's resources. But several countries, including the UK, have signalled that they would be reluctant to contribute significant new funds to the IMF unless they can be convinced eurozone leaders have done everything possible to tackle sovereign debt.
No doubt the best response will be to fulminate against Anglo-Saxon speculators and impose more austerity measures.
Your irony is lost on me Shelf. Generally it's one or the other.
Quote from: Admiral Yi on April 10, 2012, 05:51:16 PMYour irony is lost on me Shelf. Generally it's one or the other.
Germany tends to go for both. The impression I've got is that the German elite broadly think they've settled the Eurozone's problems or are on their way to, only sulking Brits or speculators would bet against the Eurozone.
Quote from: Sheilbh on April 10, 2012, 05:02:37 PMNo doubt the best response will be to fulminate against Anglo-Saxon speculators and impose more austerity measures.
Nah, we have moved on from blaming Anglo Saxon speculators to solely blaming German politicians.
Quote from: Sheilbh on April 10, 2012, 05:02:37 PM
Focus looks to be turning back to Spain (and maybe Italy):
Which is odd b/c what facts do we suddenly know now about Spain that we didn't know last month or the month before?
I guess that news that Greece would default in on the 20th of March turned out to be untrue. Who posted that, originally?
Quote from: The Minsky Moment on April 11, 2012, 10:39:59 AM
Which is odd b/c what facts do we suddenly know now about Spain that we didn't know last month or the month before?
True enough.
Is it clearer that Spanish banks may need a bailout? I ask because the Commission said they don't think Spanish banks will need recapitalising from the Eurozone.
QuoteI guess that news that Greece would default in on the 20th of March turned out to be untrue.
That's because they got a bailout and restructured their debt.
Quote from: The Minsky Moment on April 11, 2012, 10:39:59 AM
Quote from: Sheilbh on April 10, 2012, 05:02:37 PM
Focus looks to be turning back to Spain (and maybe Italy):
Which is odd b/c what facts do we suddenly know now about Spain that we didn't know last month or the month before?
We now know that the focus is on Spain.
Quote from: The Larch on April 11, 2012, 05:41:17 AM
Quote from: Sheilbh on April 10, 2012, 05:02:37 PMNo doubt the best response will be to fulminate against Anglo-Saxon speculators and impose more austerity measures.
Nah, we have moved on from blaming Anglo Saxon speculators to solely blaming German politicians.
As much sa I like teasing Zanza that's not really true. :P
Quote from: The Minsky Moment on April 11, 2012, 10:39:59 AM
Quote from: Sheilbh on April 10, 2012, 05:02:37 PM
Focus looks to be turning back to Spain (and maybe Italy):
Which is odd b/c what facts do we suddenly know now about Spain that we didn't know last month or the month before?
I don't know who 'we' is, but in that time Spaniards have lost any confidence or even hope in Rajoy and his goverment. Their gross incompetence in most areas has already reached Zapatero-like magnitude. There will be no Monti Effect in Spain.
Quote from: Sheilbh on April 11, 2012, 11:20:35 AM
Quote from: The Minsky Moment on April 11, 2012, 10:39:59 AM
Which is odd b/c what facts do we suddenly know now about Spain that we didn't know last month or the month before?
True enough.
Is it clearer that Spanish banks may need a bailout? I ask because the Commission said they don't think Spanish banks will need recapitalising from the Eurozone.
A couple have already been bailed out. More will undoubtedly follow. Most banks have been hiding their toxic loans by allowing borrowers to defer payments. Problem is time is running out and unemployment not only has not improved in the last couple years: it is getting worse fast. So when the time comes those who couldn't meet mortgage payments before are not likely to do so now either.
Quote from: The Minsky Moment on April 11, 2012, 10:39:59 AM
Quote from: Sheilbh on April 10, 2012, 05:02:37 PM
Focus looks to be turning back to Spain (and maybe Italy):
Which is odd b/c what facts do we suddenly know now about Spain that we didn't know last month or the month before?
What makes you think that facts and reason have anything to do with a panic-based economic system?
I know Iceland is a special case, but seeing how they did a swift recovery after letting their moronic banks fail, isn't that an option for Spain? Spending the bailout money on shooting the fall of The People affected by the bank bust? Just asking.
If Iceland were the size of Spain, they would have brought others down with them.
Quote from: MadImmortalMan on April 13, 2012, 01:51:48 AM
If Iceland were the size of Spain, they would have brought others down with them.
So the swift recovery would have spread? :P
Many a true word is spoken in jest :D
Quote from: Tamas on April 13, 2012, 01:47:14 AM
I know Iceland is a special case, but seeing how they did a swift recovery after letting their moronic banks fail, isn't that an option for Spain? Spending the bailout money on shooting the fall of The People affected by the bank bust? Just asking.
Spain would still be on the hook for insured deposits. One thing that made Iceland a special case is that other European countries paid off the deposits that Iceland should have up front.
I have been reading Spain-related writings here and there, and, am I correct to feel like I am reading early writings about the Greek situation?
If so, shouldnt the EU just go the fuck ahead and help Spain into a 75% default like it eventually did with Greece?
Quote from: Iormlund on April 12, 2012, 08:18:59 PM
I don't know who 'we' is, but in that time Spaniards have lost any confidence or even hope in Rajoy and his goverment. Their gross incompetence in most areas has already reached Zapatero-like magnitude. There will be no Monti Effect in Spain.
We being shorthand for investors, bankers and traders throughout the world.
The problem in Spain is economic fundamentals, within the institutional context of the EU. Those have been baked in for months and haven't changed. Whether Rajoy is a good or bad politican should be of little relevance. Spanish banks have been walking wounded for about 4 years now, the fundamentals have been lousy for about as long, the fiscal issues are what they are, and the limitations of the eurozone system are what they are. Swapping out Rajoy for Superman wouldn't have made any meaningful difference on any of those things.
The LTROs may have saved Europe from a massive collapse and in that sense some return of optimism was rational but in itself it did nothing to fix any of the underlying problems; it just bought time.
Quote from: The Minsky Moment on April 13, 2012, 09:26:04 AM
The LTROs may have saved Europe from a massive collapse and in that sense some return of optimism was rational but in itself it did nothing to fix any of the underlying problems; it just bought time.
Europe's Collapse Explained in 3 minutes:
http://www.youtube.com/watch?feature=player_embedded&v=NOzR3UAyXao (http://www.youtube.com/watch?feature=player_embedded&v=NOzR3UAyXao)
Amusing but there is a serious answer to the question of where the money can come from. The EU has a central bank. It's just limited in what it is permitted to do.
It can breastfeed, FWIW.
Quote from: The Minsky Moment on April 13, 2012, 03:18:06 PM
Amusing but there is a serious answer to the question of where the money can come from. The EU has a central bank. It's just limited in what it is permitted to do.
Serious question: what are the main reasons behind not letting it unleash the printers EU style? I don't like the idea of ad infinitum money printing, but what do I know.
There must be a reason why Bernanke ended up with a situation where the amount of dollars on the market could triple overnight if the banks unloaded their QE reserves in a hissy fit, while the EU just won't do anything similar.
Is it to prevent the few economies still working from getting fubared by it?
Quote from: Tamas on April 13, 2012, 03:35:41 PM
Serious question: what are the main reasons behind not letting it unleash the printers EU style?
The rules don't permit it and the ze Germans would flip.
Quote from: Tamas on April 13, 2012, 03:35:41 PMSerious question: what are the main reasons behind not letting it unleash the printers EU style? I don't like the idea of ad infinitum money printing, but what do I know.
There must be a reason why Bernanke ended up with a situation where the amount of dollars on the market could triple overnight if the banks unloaded their QE reserves in a hissy fit, while the EU just won't do anything similar.
Is it to prevent the few economies still working from getting fubared by it?
Not really.
The ECB's role is far more limited than the Fed or the BofE. The Maastricht Treaty is quite strict on what the ECB can do.
There is also a problem in that, politically, there's pressure from Germany on how far the ECB can go. So the impression I get is that there's an attempt to push the treaty as far as is legally possible (like LTRO) and German tolerance for printing as far as is politically possible (probably LTRO).
Also the ECB's sole care is price stability and inflation in the Eurozone is above target (just above 2%) so they probably don't want to try a more expansionary monetary policy until that's down. Remember the ECB increased interest rates in 2009 because they got spooked by inflation.
Personally I think a lot of this is political. The Lisbon Treaty includes an explicit prohibition on the bailing out of member states - that became politically necessary, so a legal workaround was found. I'm sure the same could happen if there was sufficient political consensus or will to go for something like QE.
Quote from: The Minsky Moment on April 13, 2012, 09:26:04 AM
The problem in Spain is economic fundamentals, within the institutional context of the EU. Those have been baked in for months and haven't changed. Whether Rajoy is a good or bad politican should be of little relevance. Spanish banks have been walking wounded for about 4 years now, the fundamentals have been lousy for about as long, the fiscal issues are what they are, and the limitations of the eurozone system are what they are. Swapping out Rajoy for Superman wouldn't have made any meaningful difference on any of those things.
I mostly agree with that. But part of fixing Spain long-term are painful reforms. It's hard for the average Joe to swallow them when, for examaple, Rajoy raises taxes on the poor and middle class and at the same time enacts a fiscal amnesty for those that evaded billions from the IRS.
Quote from: Tamas on April 13, 2012, 08:48:42 AM
I have been reading Spain-related writings here and there, and, am I correct to feel like I am reading early writings about the Greek situation?
If so, shouldnt the EU just go the fuck ahead and help Spain into a 75% default like it eventually did with Greece?
There are a couple differences.
For all the talk about profigalcy, individual Greeks (or business) are not excessively indebted. It's the government that spent like there was no tomorrow.
In Spain the case is the opposite. For the most part governments kept spending in check, but private debt ballooned. When the sub-prime crisis hit, the real estate bubble burst and 10 to 15% of the Spanish economy vanished overnight. And with it the revenues it generated. This left a huge gap in both public and bank finances. The latter are slowly causing banks to fail and eventually the State will not be able to bail them out.
Quote from: Iormlund on April 14, 2012, 11:08:41 AM
Quote from: Tamas on April 13, 2012, 08:48:42 AM
I have been reading Spain-related writings here and there, and, am I correct to feel like I am reading early writings about the Greek situation?
If so, shouldnt the EU just go the fuck ahead and help Spain into a 75% default like it eventually did with Greece?
There are a couple differences.
For all the talk about profigalcy, individual Greeks (or business) are not excessively indebted. It's the government that spent like there was no tomorrow.
In Spain the case is the opposite. For the most part governments kept spending in check, but private debt ballooned. When the sub-prime crisis hit, the real estate bubble burst and 10 to 15% of the Spanish economy vanished overnight. And with it the revenues it generated. This left a huge gap in both public and bank finances. The latter are slowly causing banks to fail and eventually the State will not be able to bail them out.
:(
At least Hungary chose to not overcomplicate this: here both private citizens AND the state are in heavy debts in foreign currencies. :P
Anyways, what you describe points (should) point toward fiscal unity then, is it not?
We (the EU) cannot simply kick Spain out and let them rot, that would undermined the whole concept of the union. They can't really solve their problems in the present model either, not without spending a few decades in torpor, right? They could, however, do stuff if they had money from EU-bonds.
But that will never happen, because while Average Hans is very fine with not having to change currency before his spanish or greek holiday, he is very not fine with guaranteeing Spanish debt.
I generally think that you have to be a psychopath to want to be a world leader in the modern media environment, but even for them running a European country must appear rather thankless right now.
Just read an Economist article on Spanish debt. Simple explanation for the rise in rates: the ECB easy credit is all gone.
http://www.youtube.com/watch?feature=player_embedded&v=T0_0A1K7dlE (http://www.youtube.com/watch?feature=player_embedded&v=T0_0A1K7dlE)
QuoteProject Syndicate: Reversing Europe's Renationalization
George Soros
NEW YORK – Far from abating, the euro crisis has taken a turn for the worse in recent months. The European Central Bank managed to relieve an incipient credit crunch through its long-term refinancing operation (LTRO)...
The fundamental problems have not been resolved; indeed, the gap between creditor and debtor countries continues to widen. The crisis has entered what may be a less volatile but potentially more lethal phase.
At the onset of the crisis, the eurozone's breakup was inconceivable...
If [ECB encumbrance] continues for a few more years, a eurozone breakup would become possible without a meltdown – the omelet could be unscrambled – but it would leave the creditor countries' central banks holding large, difficult-to-enforce claims against the debtor countries' central banks.
The Bundesbank has become aware of the danger. It is now engaged in a campaign against the indefinite expansion of the money supply, and it has started taking measures to limit the losses that it would sustain in case of a breakup. This is creating a self-fulfilling prophecy: once the Bundesbank starts guarding against a breakup, everybody will have to do the same. Markets are beginning to reflect this.
The Bundesbank is also tightening credit at home. This would be the right policy if Germany was a freestanding country, but the eurozone's heavily indebted member countries badly need stronger demand from Germany to avoid recession. Without it, the eurozone's "fiscal compact," agreed last December, cannot possibly work. The heavily indebted countries will either fail to implement the necessary measures, or, if they do, they will fail to meet their targets, as collapsing growth drives down budget revenues. Either way, debt ratios will rise, and the competitiveness gap with Germany will widen.
Whether or not the euro endures, Europe faces a long period of economic stagnation or worse. Other countries have gone through similar experiences. Latin American countries suffered a lost decade after 1982, and Japan has been stagnating for a quarter-century; both have survived. But the European Union is not a country, and it is unlikely to survive. The deflationary debt trap is threatening to destroy a still-incomplete political union.
The only way to escape the trap is to recognize that current policies are counterproductive and change course. I cannot propose a cut-and-dried plan, but three observations stand out. First, the rules governing the eurozone have failed and need to be radically revised. Defending a status quo that is unworkable only makes matters worse. Second, the current situation is highly anomalous, and some exceptional measures are needed to restore normalcy. Finally, the new rules must allow for financial markets' inherent instability.
...
Most importantly, some extraordinary measures need to be invented to bring conditions back to normal. The EU's fiscal charter compels member states annually to reduce their public debt by one-twentieth of the amount by which it exceeds 60% of GDP. I propose that member states jointly reward good behavior by taking over that obligation.
The member states have transferred their seignorage rights to the ECB, and the ECB is currently earning about €25 billion ($32.7 billion) annually. The seignorage rights have been estimated by Willem Buiter of Citibank and Huw Pill of Goldman Sachs, working independently, to be worth between €2-3 trillion, because they will yield more as the economy grows and interest rates return to normal. A Special Purpose Vehicle (SPV) owning the rights could use the ECB to finance the cost of acquiring the bonds without violating Article 123 of the Lisbon Treaty.
Should a country violate the fiscal compact, it would wholly or partly forfeit its reward and be obliged to pay interest on the debt owned by the SPV. That would impose tough fiscal discipline, indeed.
By rewarding good behavior, the fiscal compact would no longer constitute a deflationary debt trap, and the outlook would radically improve. In addition, to narrow the competitiveness gap, all members should be able to refinance their existing debt at the same interest rate. But that would require greater fiscal integration, so it would have to be phased in gradually.
The Bundesbank will never accept these proposals, but the European authorities ought to take them seriously. The future of Europe is a political issue, and thus is beyond the Bundesbank's competence to decide.
In related news, the Spanish government reveals the much denied Plan B does exist. It is indeed studying exit from the Eurozone as alternative to the likely intervention.
Most likely an empty threat IMHO. At least for now.
Quote from: Iormlund on April 15, 2012, 01:36:23 AM
In related news, the Spanish government reveals the much denied Plan B does exist. It is indeed studying exit from the Eurozone as alternative to the likely intervention.
Most likely an empty threat IMHO. At least for now.
so is it a "give us more free money so we survive 'til next election, or we take you down with us" threat?
Quote from: Tamas on April 15, 2012, 02:41:30 AM
so is it a "give us more free money so we survive 'til next election, or we take you down with us" threat?
I've read one British commentator who was writing last week, describing a change in tone in Spain. He quoted one Spanish writer as saying that threatening to leave the Euro is the only way to get Brussels and, above all, Berlin to allow the ECB to act 'as it should' as a lender of last resort. But he said even if the threat has to be acted on it wouldn't be as difficult as the current situation and could actually be part of the solution.
Quote from: Iormlund on April 15, 2012, 01:36:23 AM
In related news, the Spanish government reveals the much denied Plan B does exist. It is indeed studying exit from the Eurozone as alternative to the likely intervention.
Most likely an empty threat IMHO. At least for now.
A threat against whom?
Quote from: Admiral Yi on April 15, 2012, 07:46:53 AM
Quote from: Iormlund on April 15, 2012, 01:36:23 AM
In related news, the Spanish government reveals the much denied Plan B does exist. It is indeed studying exit from the Eurozone as alternative to the likely intervention.
Most likely an empty threat IMHO. At least for now.
A threat against whom?
Everyone? A spanish exit would probably prompt a shitstorm of 2008 proportions on the stockmarket, I assume that Italian and other vulnerable bond yields would shoot through the roof, making Italy follow the Spanish example, with people fleeing their euros to Germany, which would be a problem of it own, etc.
They would rather destroy Europe than enact drastic reforms.
Quote from: Tamas on April 15, 2012, 10:59:09 AM
They would rather destroy Europe than enact drastic reforms.
That's really not the situation at all.
Quote from: Admiral Yi on April 15, 2012, 07:46:53 AM
A threat against whom?
As Tamas I can't see the Euro surviving a Spanish exit. It would put immense pressure on France, Italy and Belgium and create a precedent of exit for all of them and Portugal, Ireland and Greece.
Spain (and Italy) are in a far more powerful position towards the rest of the Eurozone than Ireland or Greece. They're dealing with different issues but are also core, essential parts of the Euro.
Quote from: Sheilbh on April 15, 2012, 12:20:26 PM
Quote from: Tamas on April 15, 2012, 10:59:09 AM
They would rather destroy Europe than enact drastic reforms.
That's really not the situation at all.
Well, they have structural problems. But, in theory at least, the country as a whole should be able to operate without ruining itself. So, they are doing something wrong, in the context of their reality. And I am including euro membership in this reality for now.
They might not know how to undo those wrongs, or they are not willing to pay the heavy price to undo them, or undoing it in anything but the very long term is totally impossible. Either way, there are alternatives between
a) ruining the euro by not changing their failing model
b) ruining the euro by leaving it
Quote from: Tamas on April 15, 2012, 12:59:02 PMWell, they have structural problems. But, in theory at least, the country as a whole should be able to operate without ruining itself. So, they are doing something wrong, in the context of their reality. And I am including euro membership in this reality for now.
They might not know how to undo those wrongs, or they are not willing to pay the heavy price to undo them, or undoing it in anything but the very long term is totally impossible. Either way, there are alternatives between
a) ruining the euro by not changing their failing model
b) ruining the euro by leaving it
They're doing structural reform. But this is an economy in deep recession, with very extreme fiscal tightening and no exchange rate devaluation or expansionist monetary policy to offset it.
The alternative as I see it is ruining Spain to preserve the Euro.
Here's the latest data:
QuoteThe latest data show that output fell 5.1% (y/y) in February, after 4.3% in January and 3.5% in December.
Durable goods fell 14.8pc, the sixth successive monthly fall. Capital goods output fell 10.6pc, according to Raj Badiani from IHS Global Insight.
This is politically untenable. Unemployment is already 23.6pc on the Eurostat measure. David Owen from Jefferies Fixed Income expects this to reach 27.5pc by the end of the year (which is roughly 32pc using the old measure from the 1990s, based on a Bank of Spain study).
When has Spain ever been able to operate without ruining itself?
Quote from: Sheilbh on April 15, 2012, 12:29:53 PM
Quote from: Admiral Yi on April 15, 2012, 07:46:53 AM
A threat against whom?
As Tamas I can't see the Euro surviving a Spanish exit. It would put immense pressure on France, Italy and Belgium and create a precedent of exit for all of them and Portugal, Ireland and Greece.
Spain (and Italy) are in a far more powerful position towards the rest of the Eurozone than Ireland or Greece. They're dealing with different issues but are also core, essential parts of the Euro.
given the state of belgium it might trigger the collapse of this mistake of a country. Though I'd rather not find out that way.
anyway, keep an eye out for news about Dexia/Belfius. There's a shitstorm in the making right there. One that might push belgium's finances right over the cliffs and into whatever is down there.
Quote from: Tamas on April 15, 2012, 12:59:02 PM
Quote from: Sheilbh on April 15, 2012, 12:20:26 PM
Quote from: Tamas on April 15, 2012, 10:59:09 AM
They would rather destroy Europe than enact drastic reforms.
That's really not the situation at all.
Well, they have structural problems. But, in theory at least, the country as a whole should be able to operate without ruining itself. So, they are doing something wrong, in the context of their reality. And I am including euro membership in this reality for now.
They might not know how to undo those wrongs, or they are not willing to pay the heavy price to undo them, or undoing it in anything but the very long term is totally impossible. Either way, there are alternatives between
a) ruining the euro by not changing their failing model
b) ruining the euro by leaving it
You are making the same mistake as Germany does. You assume these magical reforms will fix everything. They won't. They worked in Germany 10 years ago because they had consumers (us) and low borrowing costs. We have neither.
The argument is that if you make hiring cheaper unemployment will go down. Yet hiring has been virtually _free_ since the 93 crisis* and businesses are still downsizing. In fact every reform results in the short term in higher unemployment, which leads to more saving and less demand and yet more unemployment in a vicious cicle. And there's no way out of there but a) inflation in the Euro core or b) exit from the Eurozone. Since the first is unlikely we'll have to go for the latter.
These reforms are necessary in the long term, but unless they come hand in hand with growth, they'll only lead to disaster. Take a look at Ireland, tell me how things are working out for them despite one of the most flexible eonomies in Europe.
* And the segment where it is not (workers with advanced education) is the only one with increased employment figures since the crisis started.
Quote from: Admiral Yi on April 15, 2012, 07:46:53 AM
Quote from: Iormlund on April 15, 2012, 01:36:23 AM
In related news, the Spanish government reveals the much denied Plan B does exist. It is indeed studying exit from the Eurozone as alternative to the likely intervention.
Most likely an empty threat IMHO. At least for now.
A threat against whom?
Against Germany. As the saying goes:
'O follamos todos, o la puta al río'.
I understand your sentiment - bleak future for your country and the big boys enforcing rules on you are on a questionable path. But do you and other spaniards understand that if your bluff is called and your leaders decide to make good on it, it will destroy everything in Europe? Decades of progress in cooperation, a hope of remaining significant in the long run, and the economic prospects of a generation?
Quote from: Tamas on April 15, 2012, 05:24:40 PMI understand your sentiment - bleak future for your country and the big boys enforcing rules on you are on a questionable path
So Spain should take one for the team? They lock themselves into a depression for the sake of Germany's current account surplus?
Quoteit will destroy everything in Europe? Decades of progress in cooperation, a hope of remaining significant in the long run, and the economic prospects of a generation?
Nonsense.
Quote from: Sheilbh on April 15, 2012, 05:35:44 PM
So Spain should take one for the team? They lock themselves into a depression for the sake of Germany's current account surplus?
Spain should not take one for anyone. It's a variation on the IMF conditionality theme. Spain can accept the conditions and borrow 5% of GDP from Germany and friends, or it can reject the conditions, and borrow nothing from no one.
Quote from: Tamas on April 15, 2012, 05:24:40 PM
I understand your sentiment - bleak future for your country and the big boys enforcing rules on you are on a questionable path. But do you and other spaniards understand that if your bluff is called and your leaders decide to make good on it, it will destroy everything in Europe? Decades of progress in cooperation, a hope of remaining significant in the long run, and the economic prospects of a generation?
If anything, exit is the only way to save whatever remains of a European project before we start seeing svastikas in Madrid or Rome.
I wouldn't even bluff about it. Some people think eventually the austeritarians will see the light and try another way before shit hits the fan in Italy and Spain. I doubt it. And even in that case, the cost is just too high.
If it was up to me I'd just take Spain out this very weekend.
Quote from: Admiral Yi on April 15, 2012, 05:41:03 PMSpain should not take one for anyone. It's a variation on the IMF conditionality theme. Spain can accept the conditions and borrow 5% of GDP from Germany and friends, or it can reject the conditions, and borrow nothing from no one.
Spain's still borrowing from the markets. The yields are increasing because of pressures on Spanish banks without further LTRO but there's not been a bailout yet. The austerity measures are to meet with the conditions of the fiscal pact.
The worry for the Spanish is that LTRO's finished. Draghi's said that in his view the ECB's done its bit to solve the Eurozone crisis and there's now worries about inflation. The Bundesbank member of the ECB board has agreed and the Bundesbank has hinted at imposing national credit controls because they think monetary policy's got dangerously loose and too inflationary for Germany.
So the Spanish either have structural reform, severe austerity, probably an eventual bailout, no devaluation and tight monetary policy or they have structural reform, severe austerity, possibly an IMF bailout, devaluation and loose monetary policy. I think there's more potential for growth in the latter scenario which could help avoid the need for a bailout.
Or the Eurozone could engage in massive QE as the Fed and BofE have and the Eurozone governments could increase the size of the bailout funds to (at least) the trillion Euro mark they've been talking about for the past 2 years.
Kay. Doesn't change my position much though. Spain is free to run its deficit through the roof and take its chances on the bond market.
Quote from: Admiral Yi on April 15, 2012, 07:01:07 PM
Spain is free to run its deficit through the roof and take its chances on the bond market.
No-one's proposing that (the Spanish government did announce that they'd only be reducing the deficit from 8.5% of GDP to 5.8% of GDP this year, instead of the 4.4% agreed) and Spain's not free to run its deficit through the roof. That's the entire point of the fiscal pact.
Quote from: Sheilbh on April 15, 2012, 07:04:16 PM
No-one's proposing that (the Spanish government did announce that they'd only be reducing the deficit from 8.5% of GDP to 5.8% of GDP this year, instead of the 4.4% agreed) and Spain's not free to run its deficit through the roof. That's the entire point of the fiscal pact.
What is Iormlund proposing? I thought he was bitching about the failures of austerity.
Quote from: Admiral Yi on April 15, 2012, 07:06:07 PM
What is Iormlund proposing? I thought he was bitching about the failures of austerity.
He is and I am. Not because austerity isn't necessary but because it's basically all the Eurozone's come up with as a solution. They haven't addressed the structural problems in EMU and austerity alone isn't helping, if anything I think it's intensifying Spain's problems.
Edit: As an aside I think George Soros's proposed solution (or part of a solution) is very interesting and could be helpful.
Quote from: Admiral Yi on April 15, 2012, 07:06:07 PM
What is Iormlund proposing?
EZ-wide automatic stabilizators, some sort of Eurobond, QE ... In essence, further economic integration of the EZ beyond the useless fiscal compact.
But since I think that's unlikely, the only other choice is dissolution of the Eurozone, the sooner the better.
Quote from: Iormlund on April 15, 2012, 07:21:34 PM
EZ-wide automatic stabilizators, some sort of Eurobond, QE ... In essence, further economic integration of the EZ beyond the useless fiscal compact.
But since I think that's unlikely, the only other choice is dissolution of the Eurozone, the sooner the better.
That's fine. I just don't want you to operate under the illusion that exiting causes Spain's fiscal issues to disappear.
Of course not. But it'd be easier to lower the trade deficit (since things like gas, BMWs or smartphones would become a lot more expensive) and we'd wipe out quite a lot of debt via devaluation (floating the Neopeseta) and inflation (due to high energy costs and such). It would also make our products a bit more competitive abroad.
Quote from: Iormlund on April 15, 2012, 07:40:59 PM
we'd wipe out quite a lot of debt via devaluation (floating the Neopeseta) and inflation (due to high energy costs and such)
If Spanish debt is governed by Spanish law you could do that now, without exiting. If it's governed by other law exiting won't help.
And of course devaluation and inflation get factored into nominal bond yields. There's no running away from real interest rates. That's why Latin American countries all issued dollar bonds.
Plus you would have to add the "fuckers changed the currency on my old bonds" premium.
I think a national Bank of Spain would also help ameliorate the banking crisis. There'd be a lender of last resort which I don't think exists in the Eurozone. That's part of the reason there's so much pressure on Spanish bonds. Without LTRO, without a Spanish central bank the assumption is that the Spanish state will eventually have to help recapitalise their banks. The Commission's said the Eurozone won't help.
Edit: Incidentally here's an interesting piece on the pace of fiscal consolidation in Spain:
http://www.voxeu.org/index.php?q=node/7848
By comparison the much praised and market-credible British fiscal consolidation (with a higher deficit and higher debt) is happening over 5-6 years.
Quote from: Admiral Yi on April 15, 2012, 07:45:58 PM
If Spanish debt is governed by Spanish law you could do that now, without exiting. If it's governed by other law exiting won't help.
And of course devaluation and inflation get factored into nominal bond yields. There's no running away from real interest rates. That's why Latin American countries all issued dollar bonds.
Plus you would have to add the "fuckers changed the currency on my old bonds" premium.
Whereas now we have to add the 'no fucking light at the end of the tunnel' premium. The question is: which one is bigger. I'd say the latter.
With the current scenario, as being played in Greece you get bailed out, spend years in depressionary limbo and never get to access the market again because as the economy shrinks, debt to GDP keeps growing year after year. And in the meantime you've lost an entire generation to emigration or unemployment.
But if you exit from the EZ, you suffer for some time, start growing again, lower unemployment to the low tens or so and in 3 to 5 years tops you are back in the markets.
My bet, and history seems to agree, is that an investor doesn't care so much about whether a country paid its creditors back in the past. What he really cares about is whether it is in a position to pay him back in the future. That's what we should be working on.
Not just position. Venezuela has a tiny debt and they're paying 14%. Argentina's is small and they're paying 9%.
That's still much better than Ireland, Portugal or Greece which can't even access the market. And absent further ECB intervention Spain will be there soon.
Quote from: Admiral Yi on April 15, 2012, 08:30:43 PM
Not just position. Venezuela has a tiny debt and they're paying 14%. Argentina's is small and they're paying 9%.
That's around the level Spain was paying for much of the 90s.
Quote from: DontSayBanana on April 08, 2012, 09:47:52 AM
The pain in Spain throws investors before trains. :P
http://www.zerohedge.com/contributed/2012-15-15/pain-spain-too-big-be-contained (http://www.zerohedge.com/contributed/2012-15-15/pain-spain-too-big-be-contained)
Quote from: Sheilbh on April 15, 2012, 08:37:35 PM
Quote from: Admiral Yi on April 15, 2012, 08:30:43 PM
Not just position. Venezuela has a tiny debt and they're paying 14%. Argentina's is small and they're paying 9%.
That's around the level Spain was paying for much of the 90s.
Which proves what?
Quote from: Sheilbh on April 15, 2012, 05:35:44 PM
Nonsense.
I admire your optimism. When the euro collapses, I imagine that keeping up the economic treaties will be pretty hard, as economic chaos will ensue, tariffs and protectionism have to rise. Hell, we are nowhere near that and Sarko is already campaigning with backtracking from the EU.
Quote from: citizen k on April 15, 2012, 10:45:04 PM
Quote from: DontSayBanana on April 08, 2012, 09:47:52 AM
The pain in Spain throws investors before trains. :P
http://www.zerohedge.com/contributed/2012-15-15/pain-spain-too-big-be-contained (http://www.zerohedge.com/contributed/2012-15-15/pain-spain-too-big-be-contained)
ZH is obviously looking to score points on the **OMG we're all gonna DIE** front, but the numbers are tough to look at and not cringe. :(
Quote from: MadImmortalMan on April 16, 2012, 04:34:52 AM
Quote from: citizen k on April 15, 2012, 10:45:04 PM
Quote from: DontSayBanana on April 08, 2012, 09:47:52 AM
The pain in Spain throws investors before trains. :P
http://www.zerohedge.com/contributed/2012-15-15/pain-spain-too-big-be-contained (http://www.zerohedge.com/contributed/2012-15-15/pain-spain-too-big-be-contained)
ZH is obviously looking to score points on the **OMG we're all gonna DIE** front, but the numbers are tough to look at and not cringe. :(
linked there, doom and gloom, but I am not sure about anything anymore:
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/4/12_Richard_Russell_-_Crime,_Chaos,_Collapse_%26_Skyrocketing_Gold.html
Quote from: Tamas on April 16, 2012, 01:47:51 AM
Which proves what?
With the exception of Ireland these current unsustainable bond yields are actually just returning to what they were before the Euro. I think a large part of that is because the market mispriced debt - in large part because European politicians went around talking about unity and solidarity so much. For example Helmut Kohl said this 'one thing is certain when this Europe in 1997 or 1999 has a common currency from Copenhagen to Madrid and from The Hague to Rome, when more than 350 million people live in a common space without border controls, then no bureaucrat in Europe is going to be able to stop the process of political unification ... The member states of the European Community are now bound in such a way that it is impossible for them to split apart and fall back into the concept of the nation-state, with all of its consequences. That means that we have achieved a key goal of German policy toward Europe.' I think the markets took that sort of rhetoric at face value and assumed that the EU was pretty unified and that the nation-state didn't matter any more because they were all guaranteeing one another.
It turns out they were wrong. If you look at the Eurozone as a whole it's still got lower national debt and a lower deficit than the US or the UK. But now it's clear we're dealing with individual member states and the risk attached to their debt, especially in the case of Italy, is, if anything, worse than it was in the 90s.
QuoteI admire your optimism. When the euro collapses, I imagine that keeping up the economic treaties will be pretty hard, as economic chaos will ensue, tariffs and protectionism have to rise. Hell, we are nowhere near that and Sarko is already campaigning with backtracking from the EU.
I agree it'll be difficult to maintain the EU if the Euro collapses. But I think the progress in Europe over the last 60 years will mean that we'd replace it with some sort of trading agreement pretty quickly. Even the French would agree to that after the economic problems of a failing customs union.
Also I just object to your line because it reminds me of the sort of doom and gloom threats you hear from Brussels whenever the European project fails.
Well, you are easy to speak, you are a Brit, your life and death does not depend on continental Europe :P
Quote from: Tamas on April 16, 2012, 09:03:34 AM
Well, you are easy to speak, you are a Brit, your life and death does not depend on continental Europe :P
:lol: Our economy depends on Europe to a large extent. European peace and prosperity are successes of the EU, but they don't depend on the EU and I've no time for the argument made by Brussels that the alternative is chaos, protectionism and probably war.
In good news:
Quote3.54pm: Fitch has been commenting on the situation in Italy to Reuters, and it is vaguely positive.
The agency's David Riley said it had no plans to take any action on Italy's ratings "at this time." In January it downgraded the country from A+ to A-. Riley said Italy's budget measures would gradually lower its debt, but the government would fall short of balancing its budget by the end of next year. He said in an email:
QuoteThe fiscal plan is broadly credible and consistent with stabilising and gradually bringing down public debt even with some modest slippage against the balanced budget target.
It indicates again that a credible plan to reduce the deficit is more important and sustainable than one that tries to eliminate it in a year or two. Monti :wub:
Edit: Of course Brussels analysis was recently leaked. They worry more about slippage than the markets:
QuoteStill, Italy's efforts to meet the headline budgetary targets may be hampered by the depressed growth outlook and relatively high interest rates. The government should stand ready to avoid any slippage in budgetary execution and take further action if needed. Also, any reduction in interest expenditure as well as proceeds from privatisations and real estate sales should be used to accelerate debt reduction.
And to put the icing on the cake, Argentina has just announced that it is nationalizing YPF. This'll turn mad-max-esque over here at this rate. I'll grab a shotgun just in case.
How would returning to the peseta solve Spain's problems of high private euro-denominated debts and extremely high unemployment?
A solution of the former would require a private-sector default. However, if e.g. Santander defaults on its euro-denominated debt, its assets in foreign countries would be seized in the bankruptcy proceedings, wrecking Santander. However, if the Spanish people en masse default on their euro-debts to Santander, that might become inevitable.
Not sure how changing to the peseta would all of a sudden create millions of jobs when according to Iormlund and Larch one of the main groups of jobseekers is unskilled workers that used to work in Spain's huge construction industry. Because even with the new peseta I don't see how that industry could be easily restarted. Massive public works?
Returning to the peseta would be crippling, even moreso than our current shitty situation, I don't think that it's a realistic choice.
I'll believe that we're in deep shit when public employees start getting laid off. Which hasn't even happened yet.
Quote from: The Larch on April 16, 2012, 01:01:18 PM
I'll believe that we're in deep shit when public employees start getting laid off. Which hasn't even happened yet.
Heh. We have had to do alot of that in Texas with the economic downturn and everybody says we are a model of prosperity.
Quote from: The Larch on April 16, 2012, 11:08:29 AM
And to put the icing on the cake, Argentina has just announced that it is nationalizing YPF. This'll turn mad-max-esque over here at this rate. I'll grab a shotgun just in case.
What's YPF?
Quote from: Jacob on April 16, 2012, 01:21:10 PM
Quote from: The Larch on April 16, 2012, 11:08:29 AM
And to put the icing on the cake, Argentina has just announced that it is nationalizing YPF. This'll turn mad-max-esque over here at this rate. I'll grab a shotgun just in case.
What's YPF?
Spanish owned oil firm:
http://www.bbc.co.uk/news/business-17732910
Quote from: Jacob on April 16, 2012, 01:21:10 PM
Quote from: The Larch on April 16, 2012, 11:08:29 AM
And to put the icing on the cake, Argentina has just announced that it is nationalizing YPF. This'll turn mad-max-esque over here at this rate. I'll grab a shotgun just in case.
What's YPF?
The Argentinian branch of Repsol - YPF, Spain's flagship oil company.
http://www.zerohedge.com/news/nationalizations-begin-argentina-takes-over-oil-and-gas-producer-ypf (http://www.zerohedge.com/news/nationalizations-begin-argentina-takes-over-oil-and-gas-producer-ypf)
Quote
Update 2: SPAIN SEES FIRMS' INTERESTS AS NATIONAL INTEREST, OFFICIAL SAYS; SPAIN ANALYZING RESPONSE TO ARGENTINA OVER YPF, OFFICIAL SAYS. Oops.
Update: TRADING HALT: YPF (NYSE)-NEWS DISSEMINATION. Translation: YPF shareholders - you have been Corzined. The money has vaporized. Jon Corzine has been appointed to the newly formed Argentina based Board of Dictators. Have a nice day
Quote from: The Larch on April 16, 2012, 11:08:29 AM
And to put the icing on the cake, Argentina has just announced that it is nationalizing YPF. This'll turn mad-max-esque over here at this rate. I'll grab a shotgun just in case.
what is YPF?
Quote from: Tamas on April 16, 2012, 01:57:06 PM
Quote from: The Larch on April 16, 2012, 11:08:29 AM
And to put the icing on the cake, Argentina has just announced that it is nationalizing YPF. This'll turn mad-max-esque over here at this rate. I'll grab a shotgun just in case.
what is YPF?
RTMFT
Quote from: The Larch on April 16, 2012, 01:58:29 PM
Quote from: Tamas on April 16, 2012, 01:57:06 PM
Quote from: The Larch on April 16, 2012, 11:08:29 AM
And to put the icing on the cake, Argentina has just announced that it is nationalizing YPF. This'll turn mad-max-esque over here at this rate. I'll grab a shotgun just in case.
what is YPF?
RTMFT
TLDR
As an aside I just saw this from the European Council on April 1:
http://blogs.r.ftdata.co.uk/brusselsblog/files/2012/03/Eur-Council-1-April.pdf
Quote from: Zanza on April 16, 2012, 12:55:24 PM
How would returning to the peseta solve Spain's problems of high private euro-denominated debts and extremely high unemployment?
A solution of the former would require a private-sector default. However, if e.g. Santander defaults on its euro-denominated debt, its assets in foreign countries would be seized in the bankruptcy proceedings, wrecking Santander. However, if the Spanish people en masse default on their euro-debts to Santander, that might become inevitable.
Not sure how changing to the peseta would all of a sudden create millions of jobs when according to Iormlund and Larch one of the main groups of jobseekers is unskilled workers that used to work in Spain's huge construction industry. Because even with the new peseta I don't see how that industry could be easily restarted. Massive public works?
I'm not saying exit is a panacea. It will be really painful for everyone. It's just better than a decade-long depression via internal devaluation:
a) Everyone is saving. Capital controls and higher inflation resulting from costlier imports (energy above all) would encourage to put savings into circulation before they were eroded.
b) With current policy everyone's debt is getting harder to repay as time goes by because we are decreasing wages and earnings while mortgages or business debt stay the same. With a Neopeseta debts would also go down as the new currency fell. They would be easier and faster to repay leading to a quicker recovery.
c) Money circulating in the black market would have to come out or lose all its value.
And yeah, some banks would be on the hook for their foreign assets. But if those assets are so significant, they will probably be healthy enough to reach an agreement with their creditors. If most of their operations are in Spain proper and especially in real estate, they are fucked nevertheless and will have to be rescued eventually anyway.
Quote from: Iormlund on April 16, 2012, 05:56:18 PMIt's just better than a decade-long depression via internal devaluation
Japan has had that for two decades, and they have their own currency. There's no guarantee.
Quote
Repsol Demands $10.5 Billion From Argentina (And Argentina's Counteroffer)
Sure enough, just out from the FT: Argentina will not pay Repsol of Spain what it is asking ($10.5bn) in compensation for nationalization of YPF, says deputy economy min
... but will settle for what it ends up getting: nothing. Of course, in the meantime, there will be a lot of kicking and screaming, but that's great: Risk On - Off markets demand distractions. From the FT: "These acts will not go unpunished" said Antonio Brufau, Repsol's executive chairman during a two-hour press conference on Tuesday, at which he attacked Argentina's "revisionism" over YPF's success, and its energy policy over the past decade." Said otherwise, this aggression will not stand, man. Ok, fine. Here is Argentina's counteroffer.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fwww.zerohedge.com%2Fsites%2Fdefault%2Ffiles%2Fimages%2Fuser5%2Fimageroot%2F2012%2F04%2Flebowskicheck_0.jpg&hash=96143f659c2a39e9a5a0de5ec234a193d1d6124e)
And since we now know what the true value loss to Repsol is, we can now see why CDS sellers would be even more concerned.
More from the FT:
"The Argentinian president has committed an illegal and unjustifiable act following a campaign intended to push down the share price of YPF and allow expropriation at a low price," he said. "This is just a way of covering up the social and economic crisis facing Argentina."
Spain has promised "clear and decisive action" against the move in the areas of trade, diplomacy, industry and energy, and summoned Argentina's ambassador on Tuesday morning.
Madrid has expressed its confidence that fellow European Union members will support it against Argentina, while Mariano Rajoy, prime minister, is using a previously scheduled trip to Latin America to rally allies.
And it is not just Spain: the EU, best known for nationalizing Greece recently, has also decided to throw its "economic weight" into the fray:
The European Union signalled it would throw its full diplomatic and economic weight behind the Spanish government. José Manuel Barroso, president of the European Commission, said he was "seriously disappointed" by the Argentine move and called on Ms Fernandez to find a "mutually agreed solution" to the stand-off that does not harm Argentina's business environment.
"We expect Argentinian authorities to uphold their international commitments and obligations," Mr Barroso said, noting that Buenos Aires has existing bilateral agreements with Madrid to protect Spanish investments in Argentina.
Much more humor pending. In the meantime, guess who is the winner:
Responding to speculation that Argentina had begun contacting Chinese state-owned oil companies in a search for investment in the new YPF, Mr Brufau said: "The Chinese are very serious, and no one serious enters through the back door."
That's right: as the broke serfs fight amongst each other for the scraps in a world becoming increasingly lawless, China wins again.
Quote from: Iormlund on April 16, 2012, 05:56:18 PMa) Everyone is saving. Capital controls and higher inflation resulting from costlier imports (energy above all) would encourage to put savings into circulation before they were eroded.
Capital controls are against the four freedoms of the EU. So what you are talking about is not just abolishing the Euro, but abolishing the EU.
As long as people are afraid of their future and the state's ability to pay a reasonable pension, they'll save. If you create inflation, they'll just try to find inflation hedges. Unless you make that utterly impossible, which also means that the Spanish people will have no means to privately take care of their retirement time, I don't see it working. It could possibly even make the situation worse by increasing the savings rate to overcompensate for inflation losses.
Quoteb) With current policy everyone's debt is getting harder to repay as time goes by because we are decreasing wages and earnings while mortgages or business debt stay the same. With a Neopeseta debts would also go down as the new currency fell. They would be easier and faster to repay leading to a quicker recovery.
Yes, but that doesn't help with the current stock of debt.
Quotec) Money circulating in the black market would have to come out or lose all its value.
That assumes the Euro ceases to exist, which is not a necessity. If the Euro still buys stuff in say Northern Europe, the black market money will just shift there, no?
So far your plan to me looks like this:
1) Leave Euro
2) ???
3) Profit!
Quote from: Zanza on April 17, 2012, 01:14:29 PM
Capital controls are against the four freedoms of the EU. So what you are talking about is not just abolishing the Euro, but abolishing the EU.
Not necessarily. In the case of a currency or balance of payments crisis capital controls could be introduced, dispensation can be granted by the Commission. One of the Bundesbank Governors (I'm not sure what the German term is) has said it's arguably the last line of defence by countries in certain situations. I think that's about right. It should only be used when necessary and should be transparent and targeted.
But I think in the case of a country withdrawing from the Euro it would be granted by the Commission almost just because. There's no way that country's economy could survive without capital controls and it would be highly destabilising for the rest of the EU.
Iormlund suggests long-term capital controls as short-term capital controls in the weeks of changing the currency wouldn't have the effect he hopes for.
The EU commission has neither the legal right nor any inclination to allow that because as I said, it violates one of the four freedoms, which are the cornerstone of the EU's internal market. That's the very core, the raison d'être of the EU. If we abolish that, we can just abolish the EU wholesale as it will have lost its point. The rest can be administrated by a beefed up Council of Europe.
Quote from: Zanza on April 17, 2012, 02:10:33 PMThe EU commission has neither the legal right nor any inclination to allow that because as I said, it violates one of the four freedoms, which are the cornerstone of the EU's internal market.
It's in the Lisbon Treaty. The Commission has the right to authorise capital controls and mutual assistance to EU members who are not part of the Euro if they suffer a balance of payments crisis that's so severe that it threatens the stability of the internal market then the Commission can take steps that would allow the member state to impose capital controls, or to grant a bailout loan. One of the early suggestions during the Euro crisis was to extend this to Eurozone members - it would have created a better legal basis bailouts.
It would be madness if the Commission couldn't allow further intervention even in the case of a balance of payments crisis that was threatening the internal market. We'd be in a situation where the internal market had to die to preserve the four freedoms. It's absurd.
Edit: As I say it's clear this is a last resort but it is legally possible.
Quote from: Sheilbh on April 17, 2012, 02:22:19 PMIt's in the Lisbon Treaty. The Commission has the right to authorise capital controls and mutual assistance to EU members who are not part of the Euro if they suffer a balance of payments crisis that's so severe that it threatens the stability of the internal market then the Commission can take steps that would allow the member state to impose capital controls, or to grant a bailout loan. One of the early suggestions during the Euro crisis was to extend this to Eurozone members - it would have created a better legal basis bailouts.
Do you know the article by chance? I never heard that before.
Quote from: Zanza on April 17, 2012, 02:38:43 PM
Do you know the article by chance? I never heard that before.
I'll look it up.
My understanding is it allows EU bailout and protective balance of payment measures in accordance with the treaties. If that fails then the Commission's allowed to design protective measures with the member state - presumably that go further than the initial measures. It's all in agreement with the Council and governed by proportionality of course.
But my understanding is that there are times when non-Eurozone but EU members could be allowed to impose credit controls. All of the four freedoms have exceptions within the treaties and I think a balance of payments crisis threatening the internal market is an area in that's an exception to the principle of freedom of capital.
Articles 143 and 144. They're also listed on the Commission's website as a treaty exception to the principle of free movement of capital.
Quote from: Zanza on April 17, 2012, 01:14:29 PM
Capital controls are against the four freedoms of the EU. So what you are talking about is not just abolishing the Euro, but abolishing the EU.
As long as people are afraid of their future and the state's ability to pay a reasonable pension, they'll save. If you create inflation, they'll just try to find inflation hedges. Unless you make that utterly impossible, which also means that the Spanish people will have no means to privately take care of their retirement time, I don't see it working. It could possibly even make the situation worse by increasing the savings rate to overcompensate for inflation losses.
Sheilbh has already addressed this part. In any case I'm not suggesting long-term controls, mjust during the transition.
Quote
Yes, but that doesn't help with the current stock of debt.
Sure it does. It stops it from growing relative to income/earnings/GDP AND erodes it via inflation/floating devaluation.
QuoteThat assumes the Euro ceases to exist, which is not a necessity. If the Euro still buys stuff in say Northern Europe, the black market money will just shift there, no?
I'm assuming the shock of a Spanish exit would trigger the exit of Greece, Portugal and Italy. Maybe Ireland, France and others., or at least pose such a significant threat that the Core itself would want to issue capital controls of their own to avoid massive appreciation/inflation.
Quote
So far your plan to me looks like this:
1) Leave Euro
2) ???
3) Profit!
More like:
1) Leave Euro
2) Great suffering
3) Recovery
Whereas the current plan is:
1) Kick the can down the road
2) ??
3) Endless depression
I'm sorry but I can't see how the country can survive with 30 to 40%
real unemployment for one or two decades while it bleeds young talent and the baby boomers retire en masse.
Quote from: MadImmortalMan on April 17, 2012, 10:14:11 AM
Quote from: Iormlund on April 16, 2012, 05:56:18 PMIt's just better than a decade-long depression via internal devaluation
Japan has had that for two decades, and they have their own currency. There's no guarantee.
Of course. The only thing guaranteed is that the current path leads to disaster.
Apparently Wilders has walked out of budget negotiations ...
Quote from: Iormlund on April 21, 2012, 10:48:59 AM
Apparently Wilders has walked out of budget negotiations ...
who is he again?
Dutch populist with fancy hair.
The leader of that anti-Muslim party. AFAIK the government needs his votes to pass stuff.
Quote from: Iormlund on April 21, 2012, 11:07:23 AM
The leader of that anti-Muslim party. AFAIK the government needs his votes to pass stuff.
Yeah. I think he wouldn't be tied down to responsible coalition government, but the government generally needs his votes.
The Dutch PM's said he'll consult with Parliament but chances are it'll go for early elections (that's what Wilders wanted). It'll be interesting to see what Wilders wanted and if he was actually just being a spoiler all along aiming for early elections that, presumably, he thinks he can do well in.
I love the Dutch, in 2010 when the last had elections there was a large budget deficit and all of the parties (except for the single-issue ones) ran with quite detailed proposals of what they'd cut and what taxes they'd raise etc. It was refreshing.
Quote from: Sheilbh on April 21, 2012, 12:36:17 PM
ran with quite detailed proposals of what they'd cut and what taxes they'd raise etc. It was refreshing.
OMG how I envy that :(
Quote from: Tamas on April 21, 2012, 01:35:13 PMOMG how I envy that :(
Here's a blogpost on it:
QuoteDemocracy and deficits
Competing with Dutch budgetary responsibility
Jun 4th 2010, 15:12 by M.S.
SPEED-READING through Matthew Yglesias's chapter-length output of blog posts yesterday, I emerged with a general impression of exasperation with conservatives for not empirically caring about budget deficits and wariness of the "competing against foreigners" frame for thinking about America's economy and governance. A quick sentence that also caught my eye noted the Netherlands is in very good fiscal shape even though the Dutch are always putting themselves down. Starting with the last point: Last week I went to a voters-abroad meeting organised by the Dutch embassy to raise awareness for the coming elections. Admirably, the meeting didn't just tell people how to register and so forth, as an American voters-abroad meeting would; it actually involved a debate between panelists on various campaign issues with lots of audience participation, and each issue was followed by a straw poll and then an overhead projection of where each of the country's dozen or so political parties stood on that issue, to help people figure out how to vote. Also admirably, the meeting was held in the performance space of a really nice bar with Carlsberg on tap. But to get back to the main point: almost every Dutch political party, Labour included, appears to be obsessed with the country's budget deficit. This is true even though, as Mr Yglesias says, the Dutch national debt was just 59% of GDP in 2009, heading to 66% in 2010. (America's national debt was 83% of GDP in 2009, heading to 94% in 2010. The Dutch budget deficit is projected at 6.6% of GDP for 2010; America's, 10.6%.)
If there's an area where Americans should feel out-competed by foreigners, I'd say we should feel out-competed by the transparency and responsibility of Dutch democracy. American politicians generally claim they want to cut the budget deficit. When a Dutch political party says it wants lower deficits, it actually outlines an electoral programme with details about how it plans to cut spending and/or raise taxes. For example, the most economically laissez-faire Dutch party, the VVD or "Liberals", wants to slash 34 billion euros out of the budget by 2015, and it lays out how it will do this: limiting unemployment insurance to 12 months, raising the retirement age to 67, freezing educational spending on special-needs children, and all kinds of unpopular stuff. The Labour Party wants to cut the budget by 15 billion euros, including raising the retirement age to 66 and cutting defence spending by 1.6 billion, and raise business and environmental taxes while cutting taxes in a progressive fashion on individuals, ultimately coming out with 500m euros more in revenues. The Christian Democrats want to cut spending by 21.4 billion euros and cut taxes by 2 billion euros. Most importantly, all these details I'm providing come from the Dutch Central Planning Bureau, which evaluates all the parties' electoral programmes and assesses how much they would save compared to baseline assumptions. It would be like American parties and candidates submitting their full programmes to the CBO for an assessment before the elections, so you could decide who to vote for.
The closest thing American parties have to an electoral programme, the Republican and Democratic platforms from back in 2008, essentially don't contain any budget numbers. The only American candidate who's produced a complete budget plan, as far as I'm aware, is Paul Ryan, and it's not endorsed by the rest of the Republican leadership. Since party discipline is far less important in the American system, party platforms aren't much use anyway. And to be fair, party programmes are no guarantee of anything in the Dutch system either, since governments are formed by coalitions and the policy you wind up with is some form of compromise between the parties in the coalition. But at least the Dutch system forces the parties to reckon publicly, in a rational and coherent fashion, with budgeting choices, so that those discussions form the framework for political debate. Mr Yglesias's posts took off from Jonathan Chait's post yesterday wondering why the only Republican who really did cut the deficit in recent memory, George H.W. Bush, is reviled by conservatives. It's certainly true that conservatives have, empirically, spent their time in power over the past two decades cutting taxes and growing government. But a lot of that represents the broader failure of American voters to grasp what their government actually spends its money on; that incomprehension is partly voters' own fault and partly a feature of our political system, in which nothing forces politicians to make any honest reckoning of their taxing and spending plans. It's no wonder voters drive the budget towards deeper and deeper deficits when the political process doesn't do anything to inform them of what's actually in the budget. If you had no idea what your income was and no idea what you were spending it on, your household budget would probably be pretty far in the red, too.
Quote
Pushing The Euro To The Brink
There is no more risk that the euro will implode," declared French President Nicolas Sarkozy on Friday, two days before the first round of the presidential election. Europe is "recovering," he said desperately. Thanks to his leadership. To make sure that Europe doesn't fall back into the hole, the French would need to reelect him. A few weeks ago, he'd proclaimed "The crisis is finished." But Spain may require an emergency bailout of such proportions that the IMF is already collecting hundreds of billions of dollars from around the world. Then there is Italy....
However, François Hollande, the socialist challenger and likely winner, has a prescription for fixing the very crisis that Sarkozy declared finished, he confirmed on Friday. If elected on May 6, he would immediately set out to implement his ambitious plan—though it might lead to the break-up of the Eurozone.
http://www.zerohedge.com/contributed/2012-16-20/pushing-euro-brink
Quote from: citizen k on April 21, 2012, 09:36:21 PM
Quote
Pushing The Euro To The Brink
There is no more risk that the euro will implode," declared French President Nicolas Sarkozy on Friday, two days before the first round of the presidential election. Europe is "recovering," he said desperately. Thanks to his leadership. To make sure that Europe doesn't fall back into the hole, the French would need to reelect him. A few weeks ago, he'd proclaimed "The crisis is finished." But Spain may require an emergency bailout of such proportions that the IMF is already collecting hundreds of billions of dollars from around the world. Then there is Italy....
However, François Hollande, the socialist challenger and likely winner, has a prescription for fixing the very crisis that Sarkozy declared finished, he confirmed on Friday. If elected on May 6, he would immediately set out to implement his ambitious plan—though it might lead to the break-up of the Eurozone.
http://www.zerohedge.com/contributed/2012-16-20/pushing-euro-brink
Well, he might have a point with giving imaginary money straight to the states so they can make people feel the problems are solved. Now the same thing happens, except five percent or so of the make-believe money gets to the bankers, while it could go directly to politicans
I'm getting the feeling I'm going to have to nursemaid my stocks every weekday again for awhile. :mad:
Quote from: Ed Anger on April 22, 2012, 02:24:23 PM
I'm getting the feeling I'm going to have to nursemaid my stocks every weekday again for awhile. :mad:
Hopefully not. This chart from the FT is rather striking:
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fblogs.r.ftdata.co.uk%2Fgavyndavies%2Ffiles%2F2012%2F04%2Fftblog243-590x440.gif&hash=f277ecb22d9a62bfbf186bdc2a6d036f4448853e)
None of that really matters when the after hours market wets itself at 4am because the eurofaggits shoot themselves in the ass.
In other words, I'll trust my gut over your chart.
On the Netherlands:
QuoteDutch crisis puts eurozone debt rescue plans at risk
The Dutch prime minister will on Monday launch a bid to salvage his austerity budget amid political chaos that could cost the country its AAA credit rating and plunge Europe's debt rescue plans into disarray.
By Louise Armitstead9:00PM BST 22 Apr 2012
Mark Rutte, who is a key ally of Germany and the eurozone's "hardliners" on financial discipline, has called an emergency cabinet meeting after budget talks collapsed at the weekend.
He is expected to resign today and announce snap elections, pushing yet another "core" eurozone country into political and economic uncertainty.
In France, early polls pointed to a victory of Francois Hollande in the first round of the presidential elections setting the stage for a run-off between the socialist challenger and incumbent Nicolas Sarkozy on May 6th. Mr Hollande has pledged to renegotiate the European fiscal pact that binds countries to a 3pc deficit limit by next year.
The "non-negotiable" fiscal pact, which was vetoed by David Cameron, triggered the collapse of the coalition government in the Netherlands.
Geert Wilders, the far-right leader, said he could not support the €16bn (£13bn) of cuts needed to meet the 3pc target. He wouldn't allow Dutch citizens to "pay out of their pockets for the senseless demands of Brussels" he said.
"We don't want to follow Brussels' orders. We don't want to make our retirees bleed for Brussels' diktats," he said.
Last week Fitch warned that the Netherlands faces a credit downgrade if it failed to deliver its austerity cuts or let political conflict disrupt economic management.
Traders are braced for another volatile week as uncertainty over debt reduction plans spreads to the eurozone's northern core.
Hopes that the European Central Bank (ECB) will intervene and re-start its bond buying programme were doused by officials' comments at the International Monetary Fund (IMF) meeting in Washington.
Luc Coene, member of the ECB's governing council, told Bloomberg: "We have done what we can do so far within our mandate and within the possibilities we have. The only thing we could do is overstretch ourselves and then we would even lose the credibility we have at that moment."
The mounting crisis in Spain and Italy has already exposed the eurozone's rescue mechanisms as woefully under-resourced.
Christine Lagarde, the head of the International Monetary Fund (IMF), secured $430bn (£266.7bn) of extra funds from members to create a "global firewall" against the debt crisis. However experts said it is not enough to reassure markets that the debt crisis can be contained. Chinese Premier Wen Jiabao yesterday warned the crisis "is not over" during a visit to Germany.
Meanwhile Argentina accused the IMF of focusing too much of its resources on the debt crisis. Economy Minister Hernan Lorenzino, who was also speaking in Washington, said "far too much effort and human and financial resources have been devoted" to solving the crisis at the expense of other countries.
Argentina is being ostracised by some IMF members following its repatriation of YPF-Repsol last week.
Is it just me or is it madness for the Netherlands to be facing a downgrade or any real market pressures? :blink:
Edit: Here's Gilders this morning, 'We want to be the master of our own house and our own country, so we say yes to the guilder. Bring it on.' I could be wrong but I don't think he was ever going to back a deal.
This piece on the background's pretty good:
http://www.guardian.co.uk/business/2012/mar/13/dutch-government-lockdown-eu-rulebook
http://www.knack.be/opinie/columns/johan-van-overtveldt/wat-komt-na-merkozy-mer-lande-of-kortweg-mer-de-johan-van-overtveldt/opinie-4000084528884.htm
Merkozy to be replaced by Mer-lande or just Mer-de?
http://www.knack.be/opinie/columns/johan-van-overtveldt/imf-vernedering-voor-eurozone/opinie-4000084398748.htm
IMF refinancing not all that good for Europe.
You'll have to run both through a translator though, but the general gist is that things keep going the wrong way. And that they'll keep going wrong if Hollande tries to execute a left-wing economic policy* in France (with, basically, german money).
*Like Mitterand tried to do back in the 80s
Quote from: Crazy_Ivan80 on April 23, 2012, 05:52:00 AMIMF refinancing not all that good for Europe.
On the IMF I broadly agree with this article:
http://www.cer.org.uk/in-the-press/eurozone-chutzpah-and-imf
Quote from: Sheilbh on April 23, 2012, 04:01:17 PM
Quote from: Crazy_Ivan80 on April 23, 2012, 05:52:00 AMIMF refinancing not all that good for Europe.
On the IMF I broadly agree with this article:
http://www.cer.org.uk/in-the-press/eurozone-chutzpah-and-imf
Lots of valid points in that one.
Is the Eurozone member of the IMF or are the separate countries members?
Quote from: Zanza on April 23, 2012, 04:21:40 PM
Is the Eurozone member of the IMF or are the separate countries members?
Isn't the issue here the Eurozone firewall, whether the ESM or a combination of it and EFSF? In which case, surely, they're dealing with a Eurozone institution. They're helping provide some of the finance and technical guidance needed by the Eurozone.
It's different from, say, the Greek or Irish IMF programs.
Quote from: Zanza on April 23, 2012, 04:21:40 PM
Is the Eurozone member of the IMF or are the separate countries members?
Separate countries.
I think there might be an EU observer, but don't quote me on it.
https://www.facebook.com/home.php?ref=home#!/notes/jean-pierre-van-rossem/13042012-dexia-of-de-koninginneweg-naar-een-verzekerd-griekenland-aan-de-schelde/10150740699228734
not sure if this'll be accessible.
Run it through the translator.
It's about Dexia.
De Standaard -referred in article- is one of the big newpapers in the country.
(http://www.standaard.be/artikel/detail.aspx?artikelid=ME3OI5II&word=dexia: the article in the newpaper, only for subscribers though :( )
I'm sure you'll be aware that DExia is/was one of the many bad banks Belgium-France has produced.
what is less well known is that our government -in their endless stupidity- has guaranteed that bank for 50 billion euro. Money that isn't available.
However, the situation is now of this nature that if things go wrong the belgian state could end up as owner of the whole badbank. Meaning that not 50 billion would be added to the debt, but a staggering 400 billion. More than the GDP of the country.
Greece of the North indeed but without the redeeming weather.
Horrible set of news for Spain today. The worst is that the unemployment rate is now around 25% another increase of over 1% in the last quarter, apparently a third of the Eurozone's unemployed (17.1 million) now live in Spain (5.6million) :bleeding:
Quote
However, the situation is now of this nature that if things go wrong the belgian state could end up as owner of the whole badbank. Meaning that not 50 billion would be added to the debt, but a staggering 400 billion. More than the GDP of the country.
Greece of the North indeed but without the redeeming weather.
Sounds nearer to Ireland. A bank with a state attached :(
It's not like any of these things are slowing the stock markets!
Quote from: Sheilbh on April 27, 2012, 07:04:11 AM
Horrible set of news for Spain today. The worst is that the unemployment rate is now around 25% another increase of over 1% in the last quarter, apparently a third of the Eurozone's unemployed (17.1 million) now live in Spain (5.6million) :bleeding:
I told you we'd get close to 30% this year. Only Hod knows what the real number is though.
We are now officially back in recession, as predicted.
I don't think we're going to be able to get away with a non-trigger default (http://"http://blogs.wsj.com/marketbeat/2012/04/30/isda-set-to-decide-on-cds-rules-revamp-within-weeks/") again.
Quote from: WSJ
ISDA Set to Decide on CDS Rules Revamp Within Weeks
By Katy Burne
When is a default a default and when does a default trigger payouts on credit default swaps?
CDS market watchers and participants have been raising those questions for more than a year. But the issue has garnered greater urgency in the wake of grievances from CDS buyers who felt they weren't adequately covered going into the Greek debt restructuring.
Now International Swaps and Derivatives Association is set to provide answers.
A lawyer for ISDA says the financial-market trade group will decide on potential revisions to legal wording governing the $32 trillion CDS market "within weeks."
David Geen, general counsel for ISDA in London, said in an interview that the association had been "actively reviewing" potential changes to its credit-derivatives definitions for some time and is "looking to make possible amendments in the near future."
The comments come as the association is set to kick off its 27th annual general meeting on Monday night in Chicago.
ISDA and some analysts said the Greek CDS settlement auction was a success, but detractors complained of quirks in the process that fixed payouts on the insurance-like contracts. Some parties that bought protection were worried they might not be able to secure payouts if Greece structured its debt exchange in such a way as to avoid triggering CDS.
Now, with Portugal and other sovereigns still struggling, there are concerns from some industry participants that these issues and potential new ones could undermine market confidence in CDS anew and roil the underlying bonds the contracts are designed to protect.
Geen declined to comment on specific fixes to the contract language that are under discussion but said the list of possible amendments is not limited to sovereign-related issues.
After the Greek restructuring, which triggered nearly $3 billion of payouts to holders of CDS in March, there is "a bit more momentum" to make changes, said Geen, but "whether it is a series of small fixes or a root-and-branch rewrite is still to be decided."
Sovereign CDS constitutes $2.9 trillion of the overall CDS market; the other $29.5 trillion of CDS offers protection against corporate-debt defaults, according to the latest available figures from the Bank for International Settlements.
The part of the definitions addressing debt restructurings already have been amended three times, in 1999, in 2001 after the Argentina debt crisis and most recently in 2003.
ISDA went to members of its Credit Steering Committee–including banks and asset managers–a year ago about some of the things that it believed needed changing, but they didn't have time to make it a priority then, Geen said. Now it has zeroed in on select parts of the definitions that could be changed and, where necessary, will work with members to recommend amendments to the steering committee which has to approve them.
Over the last year, market participants criticized existing definitions for not offering enough assurance that CDS would protect buyers. Some users of the instruments–and several outside observers who were worried about CDS roiling the fragile sovereign-bond market–said the definitions needed an urgent revamp.
Quote from: Ed Anger on April 22, 2012, 09:42:05 PM
None of that really matters when the after hours market wets itself at 4am because the eurofaggits shoot themselves in the ass.
In other words, I'll trust my gut over your chart.
I pulled out of whatever foreign stuff I had in my pitiful 401k. It actually served me well the past couple years, but everyone's telling me to get out now. Moved it all into a Large Cap fund that seems like a safer bet.
I've moved my assets into a large building I'll call a 'money bin'.
Watching MSNBC and one of the oil traders was talking revolution in Yurope. HEIL HITLER!
:lol: :homestar: :ph34r:
EURUSD has been below 1.30 a couple times today. Market's shitting its pants. Vive le France.
Quote from: Tamas on April 27, 2012, 08:15:20 AM
It's not like any of these things are slowing the stock markets!
The stock markets are the value of typically larger companies, and even if the rest of the economy is crappy they are well capitalized and making money hand over fist. In the US at least.
Quote from: alfred russel on May 08, 2012, 11:31:04 AM
Quote from: Tamas on April 27, 2012, 08:15:20 AM
It's not like any of these things are slowing the stock markets!
The stock markets are the value of typically larger companies, and even if the rest of the economy is crappy they are well capitalized and making money hand over fist. In the US at least.
This is what bugs me about the stock index fetish. It doesn't really represent the well-being of the economy at large, it just represents the well-being of those owning the call options on the assets of corporations.
Say you are a young person in Spain. Why would you stay in the country right now? Even if you are lucky enough to get a job, the wages and conditions have to be depressed since the employer knows you are expendable. I think it would be easier to learn German or English than to deal with that.
If many people think that way, then Spain is really screwed. The educated and ambitious will disproportionately go (with their associated future earnings), leaving behind people more likely to be a burden on the welfare state. I know this isn't a new phenomena--the US is populated with people of European descent for this reason--but never has it been easier to move within europe, due to a converging culture, easy access to language education, the internet, a common currency, lack of border controls, collapse of nationalism, etc.
Quote from: DGuller on May 08, 2012, 11:36:49 AM
This is what bugs me about the stock index fetish. It doesn't really represent the well-being of the economy at large, it just represents the well-being of those owning the call options on the assets of corporations.
It is going to be less and less relevant. There are some US companies that now earn most of their money overseas. The day is coming, or maybe already here, when economic data indicating the relative slippage of the US economy is a positive for them, because that will weaken the US dollar more than offsetting their deteriorated US outlook.
Quote from: MadImmortalMan on May 08, 2012, 11:24:29 AM
EURUSD has been below 1.30 a couple times today. Market's shitting its pants. Vive le France.
France isn't the worry. It's Greece and Spain. The Spanish report on the economy said industrial output declined 7.5% last month - far worse than expected - and I think there's a lot more worry about the banks.
Quote from: Sheilbh on May 08, 2012, 12:40:49 PM
Quote from: MadImmortalMan on May 08, 2012, 11:24:29 AM
EURUSD has been below 1.30 a couple times today. Market's shitting its pants. Vive le France.
France isn't the worry. It's Greece and Spain. The Spanish report on the economy said industrial output declined 7.5% last month - far worse than expected - and I think there's a lot more worry about the banks.
Of course France is one of the worries.
Either Hollande, or Merkel, (or both) must retreat from their stance and lose political face back home, or their disagreement on wether more spending will save you from overspending will disable, and then destroy the eurozone.
Quote from: Valmy on May 08, 2012, 12:49:01 PM
:angry:
Vive LA France. Geez
I'm not practically French like you. :P
Quote from: Tamas on May 08, 2012, 12:47:46 PMOf course France is one of the worries.
Either Hollande, or Merkel, (or both) must retreat from their stance and lose political face back home, or their disagreement on wether more spending will save you from overspending will disable, and then destroy the eurozone.
Yeah, but traders can read polls. They've been expecting a socialist victory and an Hollande victory, with all that entails, for the past six months. That's expected and I think has largely been priced in. The market perhaps would have responded to a Sarko victory.
The surprises are that over 60% of Greeks voted for anti-bailout parties and the country's now bordering on the ungovernable, the severity of the economic decline in Spain and the effect that will have on Spanish banks (who would have to be recapitalised by the Spanish state, putting further strain on Spain's fiscal situation).
Quote from: Sheilbh on May 08, 2012, 12:40:49 PM
France isn't the worry. It's Greece and Spain. The Spanish report on the economy said industrial output declined 7.5% last month - far worse than expected - and I think there's a lot more worry about the banks.
I read a story a few weeks ago about lots of Spanish engineers working in Germany. Question: Do these people pay taxes in Germany or Spain? Do they generate money transfers back home like Mexicans in the US do? It might not be as bad as it looks if so.
They'll pay taxes in Germany. I don't think there's a lot of intra-European transfers, though I could be wrong.
My anecdotal experience in London is that in the past year there's been a huge increase in the number of Spaniards (and Italians) over here.
Parents (especially middle class) will be protected by our dual-tiered labour market, so it doesn't make much sense to send them money. It's the young folk that have no jobs.
Interesting comment by Monti this evening on Eurobonds:
'I am convinced it will happen, not immediately, but the time is getting nearer and I consider it positive and important.'
:wub:
Quote from: Sheilbh on May 08, 2012, 01:43:39 PM
Interesting comment by Monti this evening on Eurobonds:
'I am convinced it will happen, not immediately, but the time is getting nearer and I consider it positive and important.'
:wub:
germany is not going to pay for the union. cause that is what bonds would be atm.
Yep. But of course that raises the question: if the biggest beneficiary doesn't want to pay for it, why should anyone else?
In related news bankrupcies in Spain went up 21% last quarter.
Quote from: Iormlund on May 08, 2012, 02:06:24 PM
Yep. But of course that raises the question: if the biggest beneficiary doesn't want to pay for it, why should anyone else?
In related news bankrupcies in Spain went up 21% last quarter.
If Germany doesn't want to, I don't think anyone else has the option. The major eurozone countries are Spain, Italy, France, and Germany; Spain and Italy are obviously in trouble, and while France isn't in trouble right now it isn't especially strong either.
Quote from: Crazy_Ivan80 on May 08, 2012, 02:01:32 PM
germany is not going to pay for the union. cause that is what bonds would be atm.
That's not how Eurobonds work.
But this is what the markets still don't know - which is the biggest problem with all of the 'solutions' the Eurozone's gone through - is how far will Europe (mainly Germany) go to save its currency.
Another indication that France isn't the problem is that their bond yields dropped today. There was a flight to safety towards, not from M. Hollande. I think that's an indication of the risks in the rest of the Eurozone.
The yields just tell us who is going to hurt the most if the ship is scuttled. Safety is relative. The guy who sinks the boat might not be the first to drown.
Quote from: MadImmortalMan on May 08, 2012, 03:26:40 PM
The yields just tell us who is going to hurt the most if the ship is scuttled. Safety is relative. The guy who sinks the boat might not be the first to drown.
Yeah. But yields went down on French and German debt, they increased on Spanish, Italian, Portuguese and most other Euro-debts. That the markets think French debt is a better bet than most of Europe undermines the argument that his election is what's caused this panic. It isn't, it's the far more substantial problems in Greece and Spain.
Lord Mandelson is on magnificent form explaining everything on Newsnight :wub:
Quote from: Sheilbh on May 08, 2012, 05:07:29 PM
Quote from: MadImmortalMan on May 08, 2012, 03:26:40 PM
The yields just tell us who is going to hurt the most if the ship is scuttled. Safety is relative. The guy who sinks the boat might not be the first to drown.
Yeah. But yields went down on French and German debt, they increased on Spanish, Italian, Portuguese and most other Euro-debts. That the markets think French debt is a better bet than most of Europe undermines the argument that his election is what's caused this panic. It isn't, it's the far more substantial problems in Greece and Spain.
I think you missed my point. French debt is a safer bet than Spanish if the euro breaks. Even if it's the French who break the euro. So even if it's all France's fault, the logical thing for the bond trader to do is dump Spanish bonds and buy French and German.
So the yield changes in no way discount the election as a catalyst.
Quote from: Sheilbh on May 08, 2012, 02:49:09 PM
That's not how Eurobonds work.
It's part of how Eurobonds work.
QuoteBut this is what the markets still don't know - which is the biggest problem with all of the 'solutions' the Eurozone's gone through - is how far will Europe (mainly Germany) go to save its currency.
Seems to me a much bigger problem that markets don't know how far the problem countries will go.
http://www.forexlive.com/blog/2012/05/08/spain-fell-into-the-abyss-and-no-one-even-noticed/
Quote from: Admiral Yi on May 08, 2012, 05:59:56 PM
Seems to me a much bigger problem that markets don't know how far the problem countries will go.
What do you mean?
Quote from: Admiral Yi on May 08, 2012, 05:59:56 PM
Seems to me a much bigger problem that markets don't know how far the problem countries will go.
What do you mean by "how far"?
Quote from: Sheilbh on May 08, 2012, 06:01:37 PM
What do you mean?
Greece throwing the deal under the bus, Ireland poised to, Spain blowing off the fiscal target, Hollande making socialist noises.
Quote from: Admiral Yi on May 08, 2012, 06:04:51 PM
Quote from: Sheilbh on May 08, 2012, 06:01:37 PM
What do you mean?
Greece throwing the deal under the bus, Ireland poised to, Spain blowing off the fiscal target, Hollande making socialist noises.
No sane person has invested in the periphery lately. Whether you follow austerity or not doesn't make a difference. If you don't, they won't buy because of the deficit. If you do, they won't buy because the economy tanks and you won't be able to repay.
As Sheilbh says, the only remaining question is whether Germany will make a move when Greece exits or Spain is about to come crashing down. And how much will it cost by then.
Quote from: Iormlund on May 08, 2012, 06:10:46 PM
No sane person has invested in the periphery lately. Whether you follow austerity or not doesn't make a difference. If you don't, they won't buy because of the deficit. If you do, they won't buy because the economy tanks and you won't be able to repay.
That doesn't seem to describe Italy.
And someone is lending money to Spain at 6%.
Hollande's noises are exactly the same as Monti has made - and Rajoy has made.
The Spanish said they were going to miss their fiscal target. Then Brussels forced them to walk that back. Here's the FT BrusselsBlog on S&P's response:
QuoteSpain, S&P and the austerty-growth debate
April 27, 2012 11:18 am by Peter Spiegel
The recent turn in market sentiment against Spain has led to a somewhat unanswerable debate in European policy circles about what, exactly, the markets are worried about: Is it that the new Rajoy government tried to break from tough EU-mandated deficit limits last month...or the fact they eventually agreed to stick to next year's stringent target?
If Standard & Poor's downgrade of Spanish debt last night is any indication, it appears the markets are more concerned about the latter than the former.
Most senior EU officials have a different view, arguing that by unilaterally declaring he was going to ignore the EU-mandated 4.4 per cent debt-to-gross domestic target for 2012, prime minister Mariano Rajoy spooked the bond market by signalling Spain had lost its sense of discipline.
But S&P makes a different argument.
After his rebellious flourish, Rajoy reversed course and agreed at EU urging to reduce the deficit to 3 per cent of GDP by the end of next year – a huge undertaking, considering Spain's deficit was at 8.5 per cent at the end of last year. By front-loading severe austerity measures, the credit rating agency argues, Spain's already shrinking economy is likely to suffer an even more severe recession, making current debt projections look overly rosy:
QuoteIn light of the rapid rise in public debt since 2008, we expect the Spanish government to implement a sustained budgetary consolidation effort – including strengthening fiscal surveillance frameworks at the regional government level – aimed at gradually reducing the government's net financing needs. Balancing this commitment to stabilising public finances with policymakers' clear interest in preventing an acceleration of the economic downturn will be challenging in the absence of fiscal transfers from abroad, or private-sector credit creation at home. At the same time, we believe front-loaded fiscal austerity in Spain will likely exacerbate the numerous risks to growth over the medium term, highlighting the importance of offsetting stimulus through labour market and structural reform.
[Their highlighting]
The Spanish government's response to the downgrade has been to insist that S&P hasn't taken into account the growth-oriented reforms that have accompanied Rajoy's new austerity push. But, in fact, S&P did take them into consideration – and praised them with great enthusiasm. The agency just doesn't think such restructuring will have an immediate impact on growth, something most European officials have long acknowledged:
QuoteDespite the unfavourable economic conditions, we believe that the new government has been front-loading and implementing a comprehensive set of structural reforms, which should support economic growth over the longer term. In particular, authorities have implemented a comprehensive reform of the Spanish labour market, which we believe could significantly reduce many of the existing structural rigidities and improve the flexibility in wage setting.... At the same time, we do not believe the labour market reform measures will create net employment in the near term. As a consequence, the already-high unemployment rate – especially among the young – will likely worsen until a sustainable recovery sets in.
[Their highlighting]
Apart from the growth-vs-austerity debate, S&P warns that there are two other things weighing on their minds. The first is the worry shared by most analysts and officials who think about Spain: it's shaky banking sector. S&P expects further shoring up of banks to add another 3.75 per cent of GDP to Spain's already burgeoning sovereign debt.
But perhaps more interestingly, S&P once again – much like it did during a swath of downgrades earlier this year – takes a whack at the eurozone's collective crisis response, saying that even Spain's good work on economic reform and financial sector restructuring could be washed out by ineffectual decisions made in Brussels. The lack of a firm response two years into the crisis, S&P argues, has led to rising borrowing costs, further threatening Spain's ability to invest and grow its economy:
QuoteIn our view, the strategy to manage the European sovereign debt crisis continues to lack effectiveness. We think credit conditions, and hence the economic outlook for Spain, could now deteriorate further than we anticipated earlier this year unless offsetting eurozone policy measures are implemented to support investor confidence and stabilise capital flows with the rest of the world.
European leaders have spent much of the last week proposing ideas to stimulate growth. But S&P clearly views many of these ideas – including those put forward this week by France's François Hollande, the front-running Socialist in next week's presidential vote – as inadequate.
For S&P, the steps that need to be taken are things that have gained little traction or have been outright blocked in Brussels. One idea they advocate is "greater pooling of financial resources and obligations", a thinly veiled reference to eurozone bonds, which have been blocked by Berlin. Another is "direct bank support mechanisms to weaken the sovereign-bank link," an apparent reference to allowing the eurozone's €500bn rescue system to inject capital directly into struggling banks – again, a policy resisted in Berlin.
S&P makes clear that the gloomy road ahead for such measures is part of the reason for keeping Spain's long-term outlook as "negative". Only if economic growth returns, and the bond market becomes more willing to lend Madrid cash at more reasonable levels, will S&P change its mind. At this point, neither looks likely.
But I still think a real problem is that the Eurozone hasn't actually addressed the crisis - as I say I think the fiscal pact could be a long-term solution but there's no short or medium term solution. Every summit we hear a new figure for the Eurozone bailout fund, normally it's somewhere between 1 and 3 trillion Euros. Every summit they announce the same €500 billion (which is mostly taken up by Portugal, Ireland and Greece) and the rest will be made up by the IMF and Chinese. Then it's a wonder that a serious economy like Spain or Italy get in trouble.
The socialists, the technocrats, the markets, the Economist, the Guardian, Paul Krugman and the Telegraph are pointing in broadly the same direction.
I agree that Greece is worrying. Polls so far show the Irish supporting the fiscal pact but it's difficult to predict - I imagine the 'no' side will be far more enthusiastic. But Greece's GDP is the same as Dallas-Fort Worth, the only reason it's an issue is because the Eurozone still hasn't developed an answer to the crisis and it's still unclear how far the Eurozone states will go to save their currency. This is possible - they've got a lower deficit and debt, in the aggregate, than the US or the UK.
Edit: Incidentally I still think it would have been cheaper for Germany and other creditor nations if they'd bailed out Greece and set up an enormous Eurozone bailout fund (a bazooka you don't need to use as Cameron put it) right at the start. As it is the crisis is just constantly moved along with the Eurozone doing just enough to avert collapse but never enough to actually save the Euro. So another make-or-break summit happens every 3-6-9 months.
Quote from: Sheilbh on May 08, 2012, 12:54:59 PM
Quote from: Tamas on May 08, 2012, 12:47:46 PMOf course France is one of the worries.
Either Hollande, or Merkel, (or both) must retreat from their stance and lose political face back home, or their disagreement on wether more spending will save you from overspending will disable, and then destroy the eurozone.
Yeah, but traders can read polls. They've been expecting a socialist victory and an Hollande victory, with all that entails, for the past six months. That's expected and I think has largely been priced in. The market perhaps would have responded to a Sarko victory.
The surprises are that over 60% of Greeks voted for anti-bailout parties and the country's now bordering on the ungovernable, the severity of the economic decline in Spain and the effect that will have on Spanish banks (who would have to be recapitalised by the Spanish state, putting further strain on Spain's fiscal situation).
It wasn't a surprise to many, it was in part what I was trying to explain about the Respect Party's success in Bradford; it went a lot future than the racial, religious explanation some in the media have painted as.
As things stand, the UK, being very small 'c' is still lacking in 'credible' rejectionist parties on the left and the right, but give austerity time and who knows what may emerge.
Quote from: Admiral Yi on May 08, 2012, 06:14:45 PM
That doesn't seem to describe Italy.
And someone is lending money to Spain at 6%.
Italy is a very peculiar case. They've got a primary surplus, low private debt, a strong industry and healthy exports. The only reason it is in this mess is the absurdly huge amount of debt, which is mostly held by Italians themselves.
As for Spain, the ones lending us money are our own distressed financial institutions, with cheap ECB credit. Healthy banks like Santander are no longer buying our bonds.
Shelf: Who's Peter Spegel? His generalizations don't fit his citations.
Iormlund: the ECB money ran out, which is why Spain's yield rose from 4%. Apparently someone out there is lending at 6.
Quote from: Admiral Yi on May 08, 2012, 06:28:30 PM
Shelf: Who's Peter Spegel? His generalizations don't fit his citations.
FT's Brussels Bureau Chief.
Edit:
Quote from: Iormlund on May 08, 2012, 06:26:11 PM
As for Spain, the ones lending us money are our own distressed financial institutions, with cheap ECB credit. Healthy banks like Santander are no longer buying our bonds.
Which is precisely the sovereign-bank link which is a huge problem for Spain.
Quote from: Admiral Yi on May 08, 2012, 06:28:30 PM
Iormlund: the ECB money ran out, which is why Spain's yield rose from 4%. Apparently someone out there is lending at 6.
It hasn't run out entirely. According to a RBS study, Spanish banks still hold on to over half their LTRO loot.
In the first quarter foreigner participation in Spanish debt fell from 50% to 37%. Spanish banks almost doubled their exposure from 16% to 29%
37% is a lot of someone.
Quote from: Sheilbh on May 08, 2012, 02:49:09 PM
Quote from: Crazy_Ivan80 on May 08, 2012, 02:01:32 PM
germany is not going to pay for the union. cause that is what bonds would be atm.
That's not how Eurobonds work.
But this is what the markets still don't know - which is the biggest problem with all of the 'solutions' the Eurozone's gone through - is how far will Europe (mainly Germany) go to save its currency.
Another indication that France isn't the problem is that their bond yields dropped today. There was a flight to safety towards, not from M. Hollande. I think that's an indication of the risks in the rest of the Eurozone.
I agree with you that Hollande was priced in and isn't really the cause of the trouble.
But I think the case that he is the cause isn't that Hollande is unsafe for France, but that he will break the Merkozy hardline regarding Southern Europe insisting on austerity and at least strong resistance to debt restructuring.
Quote from: Admiral Yi on May 08, 2012, 06:49:56 PM
37% is a lot of someone.
Not when it was 50% very recently. No matter how you spin it the drop in foreign involvement in a single quarter is huge. And it's pretty clear who's "making up for it". I bet you a gazillion internet dollars that the trend continues in the next auctions.
Quote from: Sheilbh on May 08, 2012, 06:18:03 PM
But I still think a real problem is that the Eurozone hasn't actually addressed the crisis - as I say I think the fiscal pact could be a long-term solution but there's no short or medium term solution. Every summit we hear a new figure for the Eurozone bailout fund, normally it's somewhere between 1 and 3 trillion Euros. Every summit they announce the same €500 billion (which is mostly taken up by Portugal, Ireland and Greece) and the rest will be made up by the IMF and Chinese. Then it's a wonder that a serious economy like Spain or Italy get in trouble.
.
If years of this crap could have been averted by 1 trillion euro, Europeans should lose any rights to criticize American government for the next decade. Even Bush knew to get the bailouts rolling when it hit the fan.
Quote from: Iormlund on May 08, 2012, 07:03:15 PM
I bet you a gazillion internet dollars that the trend continues in the next auctions.
Careful, by the next auctions those may be worth more than a gazillion euro.
Quote from: Admiral Yi on May 08, 2012, 06:28:30 PM
His generalizations don't fit his citations.
I think I've found the S&P report cited. Other relevant bits:
QuoteOverview
We believe that the Kingdom of Spain's budget trajectory will likely deteriorate against a background of economic contraction in contrast with our previous projections.
At the same time, we see an increasing likelihood that Spain's government will need to provide further fiscal support to the banking sector.
As a consequence, we believe there are heightened risks that Spain's net general government debt could rise further.
We are therefore lowering our long- and short-term sovereign credit ratings on Spain to 'BBB+/A-2' from 'A/A-1'.
The negative outlook on the long-term rating reflects our view of the significant risks to Spain's economic growth and budgetary performance, and the impact we believe this will likely have on the sovereign's creditworthiness.
...
Rationale
The downgrade reflects our view of mounting risks to Spain's net general government debt as a share of GDP in light of the contracting economy, in particular due to:
• The deterioration in the budget deficit trajectory for 2011-2015, in contrast with our previous projections, and
• The increasing likelihood that the government will need to provide further fiscal support to the banking sector.
Consequently, we think risks are rising to fiscal performance and flexibility, and to the sovereign debt burden, particularly in light of the increased contingent liabilities that could materialize on the government's balance sheet.
...
We had previously forecast real GDP growth of 0.3pc in 2012 and 1pc in 2013.
We believe that negative drags on GDP include:
• Declining disposable incomes;
• Private-sector deleveraging;
• Implementation of the government's front-loaded fiscal consolidation plan; and
• The uncertain outlook for external demand in many of Spain's key trading partners.
...
Despite the unfavorable economic conditions, we believe that the new government has been front-loading and implementing a comprehensive set of structural reforms, which should support economic growth over the longer term.
In particular, authorities have implemented a comprehensive reform of the Spanish labor market, which we believe could significantly reduce many of the existing structural rigidities and improve the flexibility in wage setting.
Even if, in our opinion, the reform is unlikely to eliminate the structural duality in the Spanish labor market, we believe it will ultimately benefit employment growth once a sustainable recovery sets in. In the near term, increased labor market flexibility is likely to accelerate the necessary wage adjustment and reduce the pace of job-shedding. At the same time, we do not believe the labor reform measures will create net employment in the near term.
As a consequence, the already high unemployment rate - especially among the young - will likely worsen until a sustainable recovery sets in.
...
We believe the ECB's recent long-term repurchase operations (LTROs) have significantly reduced the risks the Spanish banking sector faced in refinancing its medium-term external debt and its short-term interbank liabilities maturing in the first half of 2012. The LTRO also helped banks to finance their government debt portfolios cheaply. Nevertheless, we do not view the provision of liquidity support by the monetary authorities as a substitute for financial sector restructuring and economic rebalancing.
In our view, the strategy to manage the European sovereign debt crisis continues to lack effectiveness. We think credit conditions, and hence the economic outlook for Spain, could now deteriorate further than we anticipated earlier this year unless offsetting eurozone policy measures are implemented to support investor confidence and stabilize capital flows with the rest of the world. Such measures at the eurozone level could include a greater pooling of fiscal resources and obligations, possibly direct bank support mechanisms to weaken the sovereign-bank links, and a consolidation of banking supervision or a greater harmonization of labor and wage policies.
In light of the rapid rise in public debt since 2008, we expect the Spanish government to implement a sustained budgetary consolidation effort - including strengthening fiscal surveillance frameworks at the regional government level - aimed at gradually reducing the government's net financing needs.
Balancing this commitment to stabilizing public finances with policymakers' clear interest in preventing an acceleration of the economic downturn will be challenging in the absence of fiscal transfers from abroad, or private-sector credit creation at home. At the same time, we believe front-loaded fiscal austerity in Spain will likely exacerbate the numerous risks to growth over the medium term, highlighting the importance of offsetting stimulus through labor market and structural reforms.
Following budgetary slippage of 2.5pc of GDP in 2011 beyond the 6pc target, the government has committed to a target of 5.3pc of GDP in 2012 and 3pc in 2013. In our opinion, these targets are currently unlikely to be met given the economic and financial environment. We forecast a budget deficit of 6.2pc of GDP in 2012 and 4.8pc in 2013 (our previous forecasts were 5.1pc and 4.4pc). We also believe the delay to adopting the 2012 budget could reduce the government's capacity to prevent deviations from its budget plans.
Given the significant and regular budgetary slippages at the regional level - the main contributor to the deviations from the government's targets - the national government's willingness to fully enforce its new budget will likely be tested as we expect the regions to post a shortfall of around 0.4pc of GDP in 2012, above their 1.5pc of GDP 2012 target. Because of higher-than-previously-expected deficit projections, and other debt-increasing items such as arrears resolutions (estimated at 3.9pc of GDP in 2012), we forecast net general government debt at 76.6pc of GDP in 2014, against our previous projection of 64.6pc of GDP. State guarantees to the European Financial Stability Fund, the European Stability Mechanism, and the Electricity Deficit Amortization Fund, which are included in the government's own debt projections, are not part of our debt estimate and are instead classified with other state guarantees.
In line with the increasing risks we see to Spain's recovery, we have also considered a downside scenario that, if it were to eventuate, could lead us to lower the ratings again. This downside scenario assumes a deeper recession in
Spain this year, as a result of weaker external and domestic demand, with real GDP declining by 4pc in real terms, followed by a contraction of 1pc in 2013 and a weak recovery thereafter. Under this downside scenario, the current account would adjust faster, but the general government deficit trajectory would deteriorate further. The net general government debt ratio would breach 80pc of GDP.
...
We could also consider a downgrade if political support for the current reform agenda were to wane.
Moreover, we could lower the ratings if we see that Spain's external position worsens or its competitiveness does not continue to approach that of its trading partners, a key factor for Spain to return to sustainable economic and employment growth.
We could revise the outlook to stable if we see that risks to external financing conditions subside and Spain's economic growth prospects improve, enabling the net government debt ratio to stabilize below 80pc of GDP.
That seems broadly congruent with what Spiegel described:
http://www.telegraph.co.uk/finance/financialcrisis/9230382/SandP-downgrades-Spain-the-full-document.html
QuoteIf years of this crap could have been averted by 1 trillion euro, Europeans should lose any rights to criticize American government for the next decade. Even Bush knew to get the bailouts rolling when it hit the fan.
I agree. I think that's the comparison. It's as if instead of actually bailing out the banks, with implicit bailout for the rest of the financial sector, the US had allowed each bank to individually almost-collapse then provide enough funding to keep them going for a few years while they sort out their balance sheet. They've done nothing to address confidence in the Eurozone.
QuoteBut I think the case that he is the cause isn't that Hollande is unsafe for France, but that he will break the Merkozy hardline regarding Southern Europe insisting on austerity and at least strong resistance to debt restructuring.
I agree, but France is the next country that could come under threat if the Euro-debt crisis continues to deteriorate.
from Spiegel.de:
Quote
Operation Self-Deceit: New Documents Shine Light on Euro Birth Defects
By Sven Böll, Christian Reiermann, Michael Sauga and Klaus Wiegrefe
Newly revealed German government documents reveal that many in Helmut Kohl's Chancellery had deep doubts about a European common currency when it was introduced in 1998. First and foremost, experts pointed to Italy as being the euro's weak link. The early shortcomings have yet to be corrected.
Many of the euro's problems can be traced to its birth defects. For political reasons, countries were included that weren't ready at the time. Furthermore, a common currency cannot survive on the long term if it is not backed by a political union. Even as the euro was being born, many experts warned that currency union members didn't belong together.
Pushing Ahead Regardless
But it wasn't just the experts. Documents from the Kohl administration, kept confidential until now, indicate that the euro's founding fathers were well aware of its deficits. And that they pushed ahead with the project regardless.
In response to a request by SPIEGEL, the German government has, for the first time, released hundreds of pages of documents from 1994 to 1998 on the introduction of the euro and the inclusion of Italy in the euro zone. They include reports from the German embassy in Rome, internal government memos and letters, and hand-written minutes of the chancellor's meetings.
The documents prove what was only assumed until now: Italy should never have been accepted into the common currency zone. The decision to invite Rome to join was based almost exclusively on political considerations at the expense of economic criteria. It also created a precedent for a much bigger mistake two years later, namely Greece's acceptance into the euro zone.
Of course, financial data doesn't play much of a role when it comes to war and peace. Italy became a perfect example of the steadfast belief of politicians that economic development would eventually conform to the visions of national leaders.
However, the Kohl administration cannot plead ignorance. In fact, the documents show that it was extremely well informed about the state of Italy's finances. Many austerity measures were merely window dressing -- either they were accounting tricks or were immediately dialed back when the political pressure subsided. It was a paradoxical situation. While Kohl pushed through the common currency against all resistance, his experts essentially confirmed the assessment of Gerhard Schröder, the center-left Social Democratic Party (SPD) candidate for the Chancellery at the time. Schröder called the euro a "sickly premature baby."
A Miraculous Cure
Operation "self-deception" began in December 1991, in an office building in the Dutch city of Maastricht, the capital of the southeastern province of Limburg. The European heads of state and government had come together to reach the decision of the century, namely to introduce the euro by 1999.
As luck would have it, Italy fulfilled all requirements as the date approached -- surprisingly so, given that it had acquired a reputation for notoriously imbalanced budgets. But the country had undergone a miraculous cure -- on paper at least.
A few months later Jürgen Stark, a state secretary in the German Finance Ministry, reported that the governments of Italy and Belgium had "exerted pressure on their central bank heads, contrary to the promised independence of the central banks." The top bankers were apparently supposed to ensure that the EMI's inspectors would "not take such a critical approach" to the debt levels of the two countries. In early 1998, the Italian treasury published such positive figures on the country's financial development that even a spokesman for the treasury described them as "astonishing."
Snail's Pace
In Maastricht, Kohl and other European leaders had agreed that the total debt of a euro candidate could be no more than 60 percent of its annual economic output, "unless the ratio is declining sufficiently and is rapidly approaching the reference value."
But Italy's debt level was twice that amount, and the country was only approaching the reference value at a snail's pace. Between 1994 and 1997, its debt ratio declined by all of three percentage points.
"A debt level of 120 percent meant that this convergence criterion could not be satisfied," says Stark today. "But the politically relevant question was: Can founding members of the European Economic Community be left out?"
Government experts had known the answer for a long time. "Until well into 1997, we at the Finance Ministry did not believe that Italy would be able to satisfy the convergence criteria," says Klaus Regling, at the time, the Director-General for European and International Financial Relations at the Finance Ministry. Currently, Regling is the chief executive of the temporary euro bailout fund, the European Financial Stability Facility (EFSF).
The skepticism is reflected in the documents. On Feb. 3, 1997, the German Finance Ministry noted that in Rome "important structural cost-saving measures were almost completely omitted, out of consideration for the social consensus." On April 22, speaker's notes for the chancellor stated that there was "almost no chance" that "Italy will fulfill the criteria." On June 5, the economics department of the Chancellery reported that Italy's growth outlook was "moderate" and that progress on consolidation was "overrated."
'Not Without the Italians'
Horst Köhler wrote to the chancellor in mid-March. Formerly the German chief negotiator in the Maastricht Treaty negotiations, Köhler had moved on to become the president of the German Savings Bank Association. Enclosed with his letter was a study by the Hamburg Institute of International Economics, which concluded that Italy had not fulfilled the conditions "for permanent and sustainable deficit and debt reduction," and that it posed "a special risk" to the euro.
At a European Union special summit in Brussels in early May 1998, Kohl felt the "weight of history" and, without further ado, provided his unreserved support. "Not without the Italians, please. That was the political motto," says Joachim Bitterlich, Kohl's foreign policy advisor.
The head of the economics division at the Chancellery, Sighart Nehring, noted in mid-March 1998 that "enormous risks" were associated with Italy's "high debt levels." The debt structure, Nehring added, was "unfavorable" and outlays would increase considerably if interest rates rose by only a small amount.
A Love for Italy
But the memo had no repercussions. The chancellor, it would seem, wasn't terribly interested in the details. There was a "built-in flexibility" among politicians when it came to the Maastricht criteria," says Dieter Kastrup, German ambassador to Italy at the time.
Italy, after all, was a founding member of the EU.
Tricks and Luck
In the end, the Italians formally fulfilled the Maastricht criteria with a combination of tricks and fortunate circumstances. The country benefited from historically low interest rates, and Ciampi proved to be a creative financial juggler. He introduced, for example, a "Europe tax" and carried out a clever accounting trick, which involved selling national gold reserves to the central bank and imposing a tax on the profits. The budget deficit shrank accordingly. Even though EU statisticians ultimately did not acknowledge this trickery, it symbolized the fundamental Italian problem: The budget was not structurally balanced, but in fact had benefited from special effects.
The general secretary of the Dutch prime minister and a state secretary from the finance ministry wanted to put pressure on Rome. "Without additional measures on the part of Italy to provide credible proof of the longevity of the consolidation, Italy's acceptance into the euro zone is currently unacceptable," the Dutch officials argued.
Germany's Growing Debt
Kohl, fearing for his most important project since German reunification, refused. He told the Dutch officials that the government in Paris had warned him that France would withdraw from the agreement if Italy were excluded.
The Germans were in a weak negotiating position.
The Chancellery was aware of the problem. "In contrast to Belgium and Italy, the German debt level has risen since 1994," they wrote in a March 24, 1998 memo to Kohl and Chief of Staff Friedrich Bohl. The consequences were unpleasant. "In our view, there is a legal problem in Germany's case, because the Maastricht Treaty only provides for an exception if the debt level is declining," the memo continues.
Still, the situation made it difficult for Germany to play judge, particularly given the lack of formal proof that Italy was in violation. In the spring of 1998, the statistical office of the European Union certified that the Italians had satisfied the deficit criteria of the Maastricht Treaty. This meant that there was "no longer any reason to bar the Italians accession to the euro," as Waigel recalls. After this hurdle had been removed for the Italians, "they had a sort of legal claim to be allowed to be part of the euro from the very beginning," Waigel's former top official Regling says today.
Italy Turns Away from Austerity
Many knew that the figures were sugarcoated, and that they hardly represented real debt reduction. But no one dared draw the consequences. Kohl trusted Ciampi's reassuring claims that the Italians would continue to pursue the "cammino virtuoso" ("virtuous path") they had embarked upon and would "be unrelenting in efforts to clean up the budget." The government in Rome predicted that its debt level would sink to 60 percent of GDP by no later than 2010.
Things didn't turn out that way. As early as April 1998 -- that is, prior to the official decision on which countries would be part of the euro -- there were growing indications that Prodi's coalition partners, the neo-communists, were just waiting to return to their old habits. On April 3, the German embassy in Rome warned that this risk should "not be ignored."
'A Qualitative Shift'
This didn't change after the election, either, no matter how many alarming messages Financial Attaché Stenglin sent to Bonn. On Oct. 1, he submitted a blunt analysis of the Italian fiscal policy, which he hid behind the harmless subject line "Italian Government Approves Draft for the 1999 Budget." Stenglin, who had been sent to Rome from his position at the Bundesbank, saw that the development in Italy was moving completely in the wrong direction. The Italian government's draft budget, he reported to Bonn, signified a "qualitative shift in budget policy."
According to Stenglin, the budget showed the lowest cost-cutting figures since the beginning of the consolidation course in the early 1990s. Additional tax revenues, he noted, would no longer be used solely to reduce the deficit, but also to pay for new spending, particularly on social programs.
When Prodi was replaced a short time later by former Communist Massimo d'Alema, the situation deteriorated even further. D'Alema proposed financing a European economic stimulus program through euro bonds and not factoring the associated expenditures into the national deficits.
The Maelstrom of Crisis
A few weeks before the launch of the common European currency, Stenglin's assessment of the situation took on a dramatic undertone, when he wrote: "The question arises as to whether a country with an extremely high debt ratio doesn't risk gambling away the success of its consolidation efforts to date, thereby harming not only itself, but also the monetary union." It was a prophetic remark. In the fall of 2011, when the country was pulled into the maelstrom of the crisis, the debt ratio had risen above 120 percent of GDP once again.
Meanwhile, European leaders are trying to correct the defects of the founding phase of the euro. Austerity and reform measures are being implemented in large parts of Europe, and all countries support the idea of joint responsibility for the currency. Nevertheless, the new euro architecture doesn't differ all that much from the old one.
No Solution Yet
The government files from the founding phase of the monetary union reveal that this construct cannot function. The message the documents convey is that political opportunism will ultimately prevail. A monetary union amounts to more than shifting several billion euros back and forth. It is also a community of fate. Shared money requires shared policy and, in the end, shared institutions.
The euro is now in its 14th year, and after two years of ongoing crisis, there is a growing realization in Berlin and other capitals that the status quo cannot continue. All reform efforts still resemble small steps to nowhere, and yet politicians are beginning to think in terms of broader categories as they cope with the crisis.
All of these measures boil down to individual countries relinquishing more authority and the central government in Brussels acquiring more power in return.
Quote from: MadImmortalMan on May 08, 2012, 11:24:29 AM
EURUSD has been below 1.30 a couple times today. Market's shitting its pants. Vive la France.
Fixed it for you. :)
Still 5 weeks before the end of the election cycle in France...
Quote from: alfred russel on May 08, 2012, 07:06:45 PM
Quote from: Sheilbh on May 08, 2012, 06:18:03 PM
But I still think a real problem is that the Eurozone hasn't actually addressed the crisis - as I say I think the fiscal pact could be a long-term solution but there's no short or medium term solution. Every summit we hear a new figure for the Eurozone bailout fund, normally it's somewhere between 1 and 3 trillion Euros. Every summit they announce the same €500 billion (which is mostly taken up by Portugal, Ireland and Greece) and the rest will be made up by the IMF and Chinese. Then it's a wonder that a serious economy like Spain or Italy get in trouble.
.
If years of this crap could have been averted by 1 trillion euro, Europeans should lose any rights to criticize American government for the next decade. Even Bush knew to get the bailouts rolling when it hit the fan.
all of this could have been averted by using '0' euro's
It as known from the beginning that Greece and Italy (and who knows who else) were cheating
http://www.spiegel.de/international/europe/euro-struggles-can-be-traced-to-origins-of-common-currency-a-831842.html
Dammit, ninja'd by citizen k
Well, I hope that a proper laissez faire economy will be built up after we clear up the rubble of the current one. :)
Also, about that spiegel article. Looks like the Germans might manage to ruin Europe for the 3rd time? Marvelous.
Quote from: Tamas on May 09, 2012, 04:25:09 AM
Also, about that spiegel article. Looks like the Germans might manage to ruin Europe for the 3rd time? Marvelous.
Well, it's not like everybody can boast of having an Orban like you :P
Quote from: Duque de Bragança on May 09, 2012, 05:04:09 AM
Quote from: Tamas on May 09, 2012, 04:25:09 AM
Also, about that spiegel article. Looks like the Germans might manage to ruin Europe for the 3rd time? Marvelous.
Well, it's not like everybody can boast of having an Orban like you :P
AT LEAST, we will crash and burn in a magnificent fashion, like we usually do, instead of the slow collapse of the euro :P
Quote from: Tamas on May 09, 2012, 06:18:12 AM
Quote from: Duque de Bragança on May 09, 2012, 05:04:09 AM
Quote from: Tamas on May 09, 2012, 04:25:09 AM
Also, about that spiegel article. Looks like the Germans might manage to ruin Europe for the 3rd time? Marvelous.
Well, it's not like everybody can boast of having an Orban like you :P
AT LEAST, we will crash and burn in a magnificent fashion, like we usually do, instead of the slow collapse of the euro :P
Bela Kun, Romanian invasion, Trianon and co are what you call i magnificent fashion ? Well, have fun with Orban then ;)
Quote from: Duque de Bragança on May 09, 2012, 07:37:17 AM
Quote from: Tamas on May 09, 2012, 06:18:12 AM
Quote from: Duque de Bragança on May 09, 2012, 05:04:09 AM
Quote from: Tamas on May 09, 2012, 04:25:09 AM
Also, about that spiegel article. Looks like the Germans might manage to ruin Europe for the 3rd time? Marvelous.
Well, it's not like everybody can boast of having an Orban like you :P
AT LEAST, we will crash and burn in a magnificent fashion, like we usually do, instead of the slow collapse of the euro :P
Bela Kun, Romanian invasion, Trianon and co are what you call i magnificent fashion ? Well, have fun with Orban then ;)
I meant other things :P
And let's not detrack the discussion from the fact that France probably just welfare-voted Europe into oblivion, thankyouverymuch :P
Quote from: Tamas on May 09, 2012, 02:39:42 AM
Well, I hope that a proper laissez faire economy will be built up after we clear up the rubble of the current one. :)
You know full well that isn't going to happen. Agitating for a return to laissez-faire is like advocating to ban the usage of electricity: Foolish.
Quote from: Neil on May 09, 2012, 07:52:54 AM
Quote from: Tamas on May 09, 2012, 02:39:42 AM
Well, I hope that a proper laissez faire economy will be built up after we clear up the rubble of the current one. :)
You know full well that isn't going to happen. Agitating for a return to laissez-faire is like advocating to ban the usage of electricity: Foolish.
Like hell it is. It is impossible to steer and control a global economy. On the long term it would be healthier on it's own.
Quote from: Tamas on May 09, 2012, 07:43:46 AM
And let's not detrack the discussion from the fact that France probably just welfare-voted Europe into oblivion, thankyouverymuch :P
At most, Holland will crash and burn by 2017, he can't get a Orban-like grip on France and you know it ;)
Quote from: Tamas on May 09, 2012, 08:00:36 AM
Quote from: Neil on May 09, 2012, 07:52:54 AM
Quote from: Tamas on May 09, 2012, 02:39:42 AM
Well, I hope that a proper laissez faire economy will be built up after we clear up the rubble of the current one. :)
You know full well that isn't going to happen. Agitating for a return to laissez-faire is like advocating to ban the usage of electricity: Foolish.
Like hell it is. It is impossible to steer and control a global economy. On the long term it would be healthier on it's own.
No, it really is. You might think it's more desirable, but the people running things don't.
Quote from: Neil on May 09, 2012, 08:15:07 AM
Quote from: Tamas on May 09, 2012, 08:00:36 AM
Quote from: Neil on May 09, 2012, 07:52:54 AM
Quote from: Tamas on May 09, 2012, 02:39:42 AM
Well, I hope that a proper laissez faire economy will be built up after we clear up the rubble of the current one. :)
You know full well that isn't going to happen. Agitating for a return to laissez-faire is like advocating to ban the usage of electricity: Foolish.
Like hell it is. It is impossible to steer and control a global economy. On the long term it would be healthier on it's own.
No, it really is. You might think it's more desirable, but the people running things don't.
hehe, well yeah, thats the problem isn't it? We are separating branches of power, except for the economy, which we give to a few officials who can then do whatever they desire with very minimal checks and balances.
And then we wonder we live in a cycle of booming and busting ponzi schemes.
Quote from: Tamas on May 09, 2012, 04:25:09 AM
Also, about that spiegel article. Looks like the Germans might manage to ruin Europe for the 3rd time? Marvelous.
And in each act of their trilogy they were fatally undermined by the Italians.
Quote from: alfred russel on May 09, 2012, 08:26:43 AM
Quote from: Tamas on May 09, 2012, 04:25:09 AM
Also, about that spiegel article. Looks like the Germans might manage to ruin Europe for the 3rd time? Marvelous.
And in each act of their trilogy they were fatally undermined by the Italians.
:lmfao:
Quote from: Tamas on May 09, 2012, 08:22:51 AM
hehe, well yeah, thats the problem isn't it? We are separating branches of power, except for the economy, which we give to a few officials who can then do whatever they desire with very minimal checks and balances.
And then we wonder we live in a cycle of booming and busting ponzi schemes.
So wait, you're telling me that laissez-faire can defeat the business cycle? When the major economies were using laissez-faire, did that happen?
Quote from: Neil on May 09, 2012, 08:38:41 AM
Quote from: Tamas on May 09, 2012, 08:22:51 AM
hehe, well yeah, thats the problem isn't it? We are separating branches of power, except for the economy, which we give to a few officials who can then do whatever they desire with very minimal checks and balances.
And then we wonder we live in a cycle of booming and busting ponzi schemes.
So wait, you're telling me that laissez-faire can defeat the business cycle? When the major economies were using laissez-faire, did that happen?
Laisez faire deprives the business cycles their most powerful tool: the government.
Quote from: Tamas on May 09, 2012, 09:08:28 AM
Laisez faire deprives the business cycles their most powerful tool: the government.
Put aside for a moment the basic fact that capitalist economies cannot exist without government.
What is the the theory of business cycles that you are propounding that would suggest that laissez faire policy would defeat them? And is there any empirical evidence to support it?
Quote from: citizen k on May 09, 2012, 02:20:12 AM
from Spiegel.de:
The Germans are like a man in a hot air balloon preparing to throw a large concrete block out to increase lift, without realizing that it is chained to their leg.
Quote from: Sheilbh on May 08, 2012, 07:12:55 PM
That seems broadly congruent with what Spiegel described:
What is lacking in the S&P document is any suggestion that a loosening of fiscal policy would increase Spain's credit rating and therefore lower borrowing costs.
The people who are trying to advance the "growth, not austerity" argument all conveniently overlook the question of where the financing for growth is supposed to come from.
Quote from: The Minsky Moment on May 09, 2012, 09:39:12 AM
Quote from: Tamas on May 09, 2012, 09:08:28 AM
Laisez faire deprives the business cycles their most powerful tool: the government.
Put aside for a moment the basic fact that capitalist economies cannot exist without government.
What is the the theory of business cycles that you are propounding that would suggest that laissez faire policy would defeat them? And is there any empirical evidence to support it?
Well this is your field, not mine, so it is much easier for me to make grand sweeping statements :P
In general, I dislike : bailouts, money printing for winning elections/staying in power/bailouts/whatever else short term plan, and too much government influence on the economy.
Where you draw the line for these is subject of debate, granted, especially the last one. But to my layman eyes the crash we are trying to avoid nowadays seems just coded into the present system, and is bound to happen, sooner or later. And a system based on actual savings, and not artifically printed money used as investment, appears to me to be more stable and predictable, even it it means slower growth.
Quote from: Admiral Yi on May 09, 2012, 10:41:50 AM
The people who are trying to advance the "growth, not austerity" argument all conveniently overlook the question of where the financing for growth is supposed to come from.
They are not overlooking it, they are hiding it. The logical place for it come from is money creation in one form or another but that is the most foul heresy in the Church of the Eurozone.
The simple fact is that if the euro is stay intact they only way out is Great Depression-level deflations in the weak countries or inflation in the strong. The former is not politically feasible, as the recent election results in Greece and the Rajoy flip-flops have demonstrated. Germany faces now the difficult choice between politically toxic inflationism and the collapse of the euro project. The fact that Schauble is publicly talking up wage increases demonstrates this is sinking in among the senior leadership.
Quote from: Neil on May 09, 2012, 08:38:41 AMWhen the major economies were using laissez-faire, did that happen?
lol
When was this?
Quote from: Neil on May 09, 2012, 07:52:54 AM
Quote from: Tamas on May 09, 2012, 02:39:42 AM
Well, I hope that a proper laissez faire economy will be built up after we clear up the rubble of the current one. :)
You know full well that isn't going to happen. Agitating for a return to laissez-faire is like advocating to ban the usage of electricity: Foolish.
Yeah, it's like advocating for unicorn cavalry.
Quote from: The Minsky Moment on May 09, 2012, 10:51:14 AM
Quote from: Admiral Yi on May 09, 2012, 10:41:50 AM
The people who are trying to advance the "growth, not austerity" argument all conveniently overlook the question of where the financing for growth is supposed to come from.
They are not overlooking it, they are hiding it. The logical place for it come from is money creation in one form or another but that is the most foul heresy in the Church of the Eurozone.
The simple fact is that if the euro is stay intact they only way out is Great Depression-level deflations in the weak countries or inflation in the strong. The former is not politically feasible, as the recent election results in Greece and the Rajoy flip-flops have demonstrated. Germany faces now the difficult choice between politically toxic inflationism and the collapse of the euro project. The fact that Schauble is publicly talking up wage increases demonstrates this is sinking in among the senior leadership.
:hmm:
Don't we have a scenario C, where Germans attempt to solve this via intense money printing and inflation, but fail, tank their own economy and moderate political parties, and some people will have to eventually start wearing color-coded badges? :(
Quote from: The Minsky Moment on May 09, 2012, 09:39:12 AM
Quote from: Tamas on May 09, 2012, 09:08:28 AM
Laisez faire deprives the business cycles their most powerful tool: the government.
Put aside for a moment the basic fact that capitalist economies cannot exist without government.
What is the the theory of business cycles that you are propounding that would suggest that laissez faire policy would defeat them? And is there any empirical evidence to support it?
I just realized you interpreted my answer as if I envision some kind of anarcho-capitalism. No. Government is of course needed to guard over the rules. What it shouldn't do, is bend them constantly for various interest groups. That's what I meant.
Quote from: The Minsky Moment on May 09, 2012, 10:51:14 AM
They are not overlooking it, they are hiding it. The logical place for it come from is money creation in one form or another but that is the most foul heresy in the Church of the Eurozone.
The simple fact is that if the euro is stay intact they only way out is Great Depression-level deflations in the weak countries or inflation in the strong. The former is not politically feasible, as the recent election results in Greece and the Rajoy flip-flops have demonstrated. Germany faces now the difficult choice between politically toxic inflationism and the collapse of the euro project. The fact that Schauble is publicly talking up wage increases demonstrates this is sinking in among the senior leadership.
I agree that running the presses is a reasonable solution. I disagree that the advocates of growth over austerity have made the logical connection. In most of the statements I've read or heard they seem to treat it as a purely ideological choice.
And I also think an absolute prerequisite is to smash up that retarded system of recycling liquidity back to economic dead zones.
In response to your question to Tamas, the empirical evidence for the laissez-faire solution to the business cycle is in every downturn and recovery that preceded the Great Depression.
Quote from: Admiral Yi on May 09, 2012, 10:41:50 AMThe people who are trying to advance the "growth, not austerity" argument all conveniently overlook the question of where the financing for growth is supposed to come from.
The mainstream argument isn't 'growth, not austerity'.
But I'd suggest Eurobonds, Euro-QE and a change to the structure of banking in Europe so that there's a lender of last resort - ie. so state's don't have to assume that role which is a big problem for Spain (and Belgium) - and inevitably a common Euro-regulator. I'd add that I think economies within the Eurozone that can take steps to stimulate demand should. The other side of that is ongoing structural reforms both national and I think EU wide - we should be, as Monti suggested, pressing forward with a single market in services.
Going along with all of that is austerity. Remember Rajoy's sin wasn't that he wanted to spend a huge amount of money, he wanted to reduce the pace of deficit reduction this year. His government proposed reducing the deficit from 8.5% of GDP to 5.3%, the EU insisted he stick to the original plan (made when the Spanish deficit was projected to be 6.6%) of cutting to 4.4%. The UK is proceeding at a far slower pace and I think because of that our deficit reduction plan is actually far more credible.
The issue that people like me have isn't that Euro-austerity's wrong it's that it's going at an artificially fast pace and there's very little policy support elsewhere such as an expansionary monetary policy, increased demand in countries like Germany or reforms that are likely to stimulate growth in the short-term.
My position in the UK - where we need a plan B - is that the government should do pensions and welfare reform and a shift in defence budget to demonstrate medium term credibility. But that they should also take advantage of record low gilt prices to fund a temporary VAT cut, or capital investment in public housing for example.
Quote from: Admiral Yi on May 09, 2012, 11:07:58 AM
I agree that running the presses is a reasonable solution. I disagree that the advocates of growth over austerity have made the logical connection. In most of the statements I've read or heard they seem to treat it as a purely ideological choice.
I think you either need to read more widely or more selectively because what you're describing is SYRIZA's view but not many other people's.
Quote from: Sheilbh on May 09, 2012, 11:09:12 AM
The mainstream argument isn't 'growth, not austerity'.
It's more growth, less austerity. Quibble noted.
Quote from: Sheilbh on May 09, 2012, 11:11:53 AM
I think you either need to read more widely or more selectively because what you're describing is SYRIZA's view but not many other people's.
No clue who or what SYRIZA is.
Quote from: Sheilbh on May 09, 2012, 11:09:12 AM
Quote from: Admiral Yi on May 09, 2012, 10:41:50 AMThe people who are trying to advance the "growth, not austerity" argument all conveniently overlook the question of where the financing for growth is supposed to come from.
The mainstream argument isn't 'growth, not austerity'.
But I'd suggest Eurobonds, Euro-QE and a change to the structure of banking in Europe so that there's a lender of last resort - ie. so state's don't have to assume that role which is a big problem for Spain (and Belgium) - and inevitably a common Euro-regulator. I'd add that I think economies within the Eurozone that can take steps to stimulate demand should. The other side of that is ongoing structural reforms both national and I think EU wide - we should be, as Monti suggested, pressing forward with a single market in services.
Going along with all of that is austerity. Remember Rajoy's sin wasn't that he wanted to spend a huge amount of money, he wanted to reduce the pace of deficit reduction this year. His government proposed reducing the deficit from 8.5% of GDP to 5.3%, the EU insisted he stick to the original plan (made when the Spanish deficit was projected to be 6.6%) of cutting to 4.4%. The UK is proceeding at a far slower pace and I think because of that our deficit reduction plan is actually far more credible.
The issue that people like me have isn't that Euro-austerity's wrong it's that it's going at an artificially fast pace and there's very little policy support elsewhere such as an expansionary monetary policy, increased demand in countries like Germany or reforms that are likely to stimulate growth in the short-term.
My position in the UK - where we need a plan B - is that the government should do pensions and welfare reform and a shift in defence budget to demonstrate medium term credibility. But that they should also take advantage of record low gilt prices to fund a temporary VAT cut, or capital investment in public housing for example.
I agree with this, looks like things are so fucked up that barring a collapse, we need euro-bonds to flush Spain (at the very least) with lotsa' monopoly money so they can recover. In the meantime, austerity where it is possible, and a gradual switch to more sane budgets, and EU-wide financial system.
HOWEVER, you know that is not going to happen. The Spiegel article is the very latest evidence that the leaders knew the problems very well. But the train was going well then. Politicans have ZERO, and I mean ZERO incentive to institute unpopular steps (like making a budget which does not run on loans for regular spending) when the going is good. Why? Because there will be at least one asshole in the campaign saying "I think this is not necessary!!!" and win the election.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fi11.photobucket.com%2Falbums%2Fa184%2FToniaBarone%2FIcons%2FIndiana%2520Jones%2FWeAreGoingToDiebyjadeblood.gif&hash=1608e176fef9a4b033062c5f34dffdec5ec93786)
Quote from: Admiral Yi on May 09, 2012, 10:41:50 AM
The people who are trying to advance the "growth, not austerity" argument all conveniently overlook the question of where the financing for growth is supposed to come from.
As Minsky says, there's no need to specify where that money must come from. Everyone knows perfectly well.
In order to avoid that path German leadership has plunged the Eurozone into this mess. If there is still an actual viable solution by this point, it will be extremely expensive.
What remains to be seen is in what way German citizens will pay the price: bearing the brunt of periphery rescues and subsequent defaults, transfering billions in subsidies, or watching as hundreds of billions are wiped out during the collapse of the EZ.
Quote from: Sheilbh on May 09, 2012, 11:09:12 AMBut that they should also take advantage of record low gilt prices to fund a temporary VAT cut, or capital investment in public housing for example.
Those are among the last things I would do with that money. I would use to fund R&D (which has been gutted) and slash the part of salaries that employers pay as tax (reducing labor costs).
Quote from: Admiral Yi on May 09, 2012, 11:15:23 AMNo clue who or what SYRIZA is.
SYRIZA's the Greek party that's leading the bailout rejectionists.
QuoteIt's more growth, less austerity. Quibble noted.
It's not a quibble and you're still wrong I think. I want more growth and slower austerity. The goal should be to get to the fiscal pact deficit limit and to reduce national debt in accordance with the pact. As I say this isn't an extreme view as you seem to think it is.
QuoteHOWEVER, you know that is not going to happen. The Spiegel article is the very latest evidence that the leaders knew the problems very well. But the train was going well then. Politicans have ZERO, and I mean ZERO incentive to institute unpopular steps (like making a budget which does not run on loans for regular spending) when the going is good. Why?
I actually think the problems Spiegel identifies were political. The EU couldn't envisage the Eurozone without Italy and the Germans were in a bad fiscal state so they couldn't insist on too strict application of rules. Two other points though.
The first is Spain and Ireland did have the good fiscal management during the boom years and they were reducing the national debt. There were policy mistakes during that time. But I think their problems - basically a credit bubble caused in part by the Eurozone - were the sorts of things that Central Banks used to try and sort out by rate rises or, in extreme cases, credit controls. I don't think we realised that without the monetary policy lever the management of the economy on a national level is almost entirely fiscal policy based. So they were running surpluses but they needed bigger ones and more deflationary budgets during the boom. I think that is a lot of responsibility for politicians - it's why I think there needs to be a change to Eurozone-wide regulation.
The second is that I think it's like the bank bailouts. They were hugely unpopular but they were the right thing to do. As I've said before I think a big problem here is that Merkel hasn't shown the leadership that Bush and Brown (and Strauss-Kahn for that matter) did in a crisis. My view is still that this long-drawn out crisis will end up costing the German economy far more than the alternative.
Quote from: Iormlund on May 09, 2012, 11:27:41 AM
Those are among the last things I would do with that money. I would use to fund R&D (which has been gutted) and slash the part of salaries that employers pay as tax (reducing labor costs).
I don't think we fund R&D very much anyway and there's not so much of an unemployment crisis here. Obviously different economies have different needs. But with temporary tax cuts I'd want them focused on consumption and investment, and the public housing is because it would help construction, boost demand and address our housing shortage.
I thought the UK had also had a bubble recently (less spectacular than ours). Don't you have millions of vacant homes over there?
Quote from: Sheilbh on May 09, 2012, 11:29:14 AM
It's not a quibble and you're still wrong I think. I want more growth and slower austerity. The goal should be to get to the fiscal pact deficit limit and to reduce national debt in accordance with the pact. As I say this isn't an extreme view as you seem to think it is.
Sounds like a quibble to me.
I never claimed it was an extreme view. If I thought it were I wouldn't be paying it much attention.
Sheilbh, if the UK has housing shortage we can ship you a few thousands of our surplus ones, nobody would miss them.
Quote from: Iormlund on May 09, 2012, 11:35:26 AM
I thought the UK had also had a bubble recently (less spectacular than ours). Don't you have millions of vacant homes over there?
Not really, perhaps some ancient terraced houses in a few of the more depressing Northern towns. Our housing bubble was driven by a shortage of housing; due to restrictive planning regulations it did not lead to much housebuilding, the bubble is consequently deflating very slowly.
Quote from: Iormlund on May 09, 2012, 11:35:26 AM
I thought the UK had also had a bubble recently (less spectacular than ours). Don't you have millions of vacant homes over there?
Not really. It's a regional problem. In parts of the north there are vacant homes. In the south and especially around London there is a massive shortage. The bubble in London never really burst. Prices went down a bit for a little while but are way above their pre-Lehman Bros levels.
Quote from: Iormlund on May 09, 2012, 11:35:26 AM
I thought the UK had also had a bubble recently (less spectacular than ours). Don't you have millions of vacant homes over there?
No. We had a credit bubble not a construction bubble, our construction hasn't even kept pace with population growth. Generally I think housing prices are now broadly back to where they were and constant or mildly falling in most of the country. In London prices are back and climbing.
Quote from: Admiral Yi on May 09, 2012, 11:38:22 AM
Sounds like a quibble to me.
There's a huge difference between growth and austerity, regardless of the timeline, and growth not austerity.
QuoteI never claimed it was an extreme view. If I thought it were I wouldn't be paying it much attention.
Ok, that it's a purely ideological position. That description sort of does it down while implying that the the current path is rational and pragmatic and not motivated by ideology.
Quote from: Gups on May 09, 2012, 11:42:09 AM
Quote from: Iormlund on May 09, 2012, 11:35:26 AM
I thought the UK had also had a bubble recently (less spectacular than ours). Don't you have millions of vacant homes over there?
Not really. It's a regional problem. In parts of the north there are vacant homes. In the south and especially around London there is a massive shortage. The bubble in London never really burst. Prices went down a bit for a little while but are way above their pre-Lehman Bros levels.
Ok then, we'll send you like half of Seseña (http://en.wikipedia.org/wiki/Sese%C3%B1a (http://en.wikipedia.org/wiki/Sese%C3%B1a)), to begin with.
Quote from: Sheilbh on May 09, 2012, 11:45:17 AM
Ok, that it's a purely ideological position. That description sort of does it down while implying that the the current path is rational and pragmatic and not motivated by ideology.
I'm happy that it "does it down." It's supposed to do it down. If you propose a policy without considering the obvious repercussions you deserve to be done down.
And the implication that it implies the current path is rational (which it happens to be BTW) is very much an ideological "us vs. them" kind of argument.
Would the destruction of the German economy be a good thing? That way, all the Europeans could be poor and happy together.
Quote from: Neil on May 09, 2012, 12:19:42 PM
Would the destruction of the German economy be a good thing? That way, all the Europeans could be poor and happy together.
Doesn't solve the fiscal issues. :(
Quote from: Admiral Yi on May 09, 2012, 12:14:39 PM
I'm happy that it "does it down." It's supposed to do it down. If you propose a policy without considering the obvious repercussions you deserve to be done down.
But this is my point. You're fighting a straw man. You're describing the argument made by the rejectionists, the SYRIZA argument and using that to do down the line taken by, as I've said before, Monti, Hollande, the FT, Economist, Guardian, Telegraph and more of less everyone in between.
They aren't arguing for growth, not austerity. As their ideological diversity suggests it's not a purely ideological reaction. They do all address the policy repercussions.
Quote from: Sheilbh on May 09, 2012, 12:32:33 PM
But this is my point. You're fighting a straw man. You're describing the argument made by the rejectionists, the SYRIZA argument and using that to do down the line taken by, as I've said before, Monti, Hollande, the FT, Economist, Guardian, Telegraph and more of less everyone in between.
They aren't arguing for growth, not austerity. As their ideological diversity suggests it's not a purely ideological reaction. They do all address the policy repercussions.
Oh really? Have the Guardian and Hollande explicitly stated that the only possible way for this program to work is if the ECB/Bundesbank abandons its antiinflationary hard line?
I start to wonder if it would have been better to just not do anything about the Euro crisis. Sure, some countries would likely have crashed out, but that might still happen anyway. However, the upside would have been that there wouldn't have been the political fallout, namely Germany being considered the dominant bully. We would still have been blamed for not showing solidarity, but that's easier to stomach than being seen as the Fourth Reich.
Quote from: Admiral Yi on May 09, 2012, 12:35:14 PM
Oh really? Have the Guardian and Hollande explicitly stated that the only possible way for this program to work is if the ECB/Bundesbank abandons its antiinflationary hard line?
Yes. The Guardian certainly has in its numerous editorials on the subject. Hollande's policy, which in terms of austerity takes one year longer than Sarko's, is that Germany should accept Eurobonds or loose monetary policy:
http://www.lemonde.fr/europe/article/2012/05/07/pour-hollande-l-allemagne-doit-accepter-les-obligations-europeennes-ou-le-renflouement-des-etats_1697349_3214.html
Your link blew up on me.
Eurobonds and loose euro can't be Hollande's policy because he doesn't directly control them. It's wishful thinking. I've read a few articles on his campaign in the Economist and elsewhere (mostly dire) and not once did they mention that Hollande thinks his spending plans are conditional on looser money. That's the crux.
Explain that step-by-step for me. I don't understand what you're saying.
Nigel Farage: "The EU Titanic Has Now Hit The Iceberg"
http://www.youtube.com/watch?feature=player_embedded&v=hJ6_Ey_MJV4 (http://www.youtube.com/watch?feature=player_embedded&v=hJ6_Ey_MJV4)
Quote from: Sheilbh on May 09, 2012, 12:53:09 PM
Explain that step-by-step for me. I don't understand what you're saying.
The question the "growth yes, auserity no" school(1) has to answer is who or what will supply the financing for the increased deficits that will create this growth come from. The market does not seem interested in doing so. Germany does not seem interested. China doesn't seem interested, although they have expressed some interest in buying up real assets if the price is right. That leaves the ECB.
I agree with Joan that's a consistent and reasonable position. But unless the ECB agrees to go along with the plan growth first is not an option. So the only way growth first can be logically defended is if it is conditional on loose money.
(1) Or to be more precise, somewhat less austerity now and a really smashing and delightful amount of austerity just the moment we've achieved the delicious growth that is bound to follow on the heels of relaxing this mindless austerity.
What do you think the growth school are arguing for?
Quote from: Sheilbh on May 09, 2012, 01:27:19 PM
What do you think the growth school are arguing for?
we keep up deficit spending, growth will commence, we grow out the ever-growing bond interests
Quote from: Tamas on May 09, 2012, 01:37:08 PM
we keep up deficit spending, growth will commence, we grow out the ever-growing bond interests
I wouldn't even go that far.
That's the problem Shelf. The arguments I've been hearing from Occupy Growth First have not been economic arguments with cause and effect. They're more like comp-lit arguments; the economics doesn't matter as long as the rhetoric you use is stirring enough. To wit, Hollande's comment about not being a slave to the bond market.
But this is the same issue of what you're reading and addressing though. Are we talking about the 'Occupy Growth First' crowd or are we talking about the pro-growth camp within the EU?
Do you have that quote about being a slave to the bond markets?
To take the example of Hollande, his policy for example is, fundamentally, austerity in France but growth in the Eurozone. He wants more taxes than Sarko and a some spending in other areas. But, as I say, his policies would balance France's budget one year later than Sarko. With a couple of exceptions (like a youth works program for 150 000) his growth policies are for a Euro 'growth pact' (even Draghi's called for a 'growth compact') like Merkel's fiscal pact. The article I linked to was Hollande's saying to Germany that the choice in terms of encouraging growth was between QE or Eurobonds (though he also mentioned 'project-bonds' which I think would be a disaster, but which Germany's apparently more keen on).
Quote from: Sheilbh on May 09, 2012, 02:08:18 PM
austerity in France
like 60k new teachers, right?
Quote from: Tamas on May 09, 2012, 02:11:12 PM
Quote from: Sheilbh on May 09, 2012, 02:08:18 PM
austerity in France
like 60k new teachers, right?
Yeah. I mean even there he said he'd pay for it by cutting other departments.
I wonder if one problem is that the Eurozone debate's been sort of transposed over into the American one when they're totally different.
Edit: Though that's what I meant by one of the exceptions.
Quote from: Sheilbh on May 09, 2012, 02:08:18 PM
But this is the same issue of what you're reading and addressing though. Are we talking about the 'Occupy Growth First' crowd or are we talking about the pro-growth camp within the EU?
I'm talking about anyone who argues that austerity should be relaxed in the Eurozone in the interest of generating growth.
QuoteDo you have that quote about being a slave to the bond markets?
Of course not.
QuoteTo take the example of Hollande, his policy for example is, fundamentally, austerity in France but growth in the Eurozone. He wants more taxes than Sarko and a some spending in other areas. But, as I say, his policies would balance France's budget one year later than Sarko.
This is not what I have been reading about Hollande's proposals.
Quote from: Admiral Yi on May 09, 2012, 02:20:48 PMI'm talking about anyone who argues that austerity should be relaxed in the Eurozone in the interest of generating growth.
That's helpful for you. It allows you to include everyone but Merkel in a lump, ignore the serious arguments and focus on the 'Occupy Growth First' crowd.
QuoteThis is not what I have been reading about Hollande's proposals.
He will balance France's budget by 2017 (same as the UK), Sarko wanted it done by 2016. The only candidate who was really about austerity and spending cuts was Bayrou.
It's like the argument between the Tories and Labour in 2010 the actual difference was over a very small amount.
But it's not how Hollande (or Sarko) presented it. The Economist joked that while the UK government boasts that it's 'inflexibly committed to austerity' and Hollande announces his election is a 'rejection of austerity' both propose to balance their budgets over five years.
Edit: Here's the Bloomberg article. He promises to increase spending by €20 billion and to raise taxes by €29 billion, and though he vows to fight austerity, 'The budget plan aims to eliminate the deficit in 2017, one year later than under Sarkozy's plan, with a 3 percent of gross domestic product deficit target for 2013.':
http://www.bloomberg.com/news/2012-05-06/hollande-defeats-sarkozy-in-shift-of-power-to-french-socialists.html
Quote from: Sheilbh on May 09, 2012, 02:39:49 PM
That's helpful for you. It allows you to include everyone but Merkel in a lump, ignore the serious arguments and focus on the 'Occupy Growth First' crowd.
The serious arguments??
QuoteHe will balance France's budget by 2017 (same as the UK), Sarko wanted it done by 2016. The only candidate who was really about austerity and spending cuts was Bayrou.
It's like the argument between the Tories and Labour in 2010 the actual difference was over a very small amount.
But it's not how Hollande (or Sarko) presented it. The Economist joked that while the UK government boasts that it's 'inflexibly committed to austerity' and Hollande announces his election is a 'rejection of austerity' both propose to balance their budgets over five years.
And what's he going to do between now and 2017?
BTW, if you're offering up Sarkozy as an examplar of domestic discipline, that might not work very well.
Quote from: Admiral Yi on May 09, 2012, 02:45:40 PM
The serious arguments??
The argument I outlined earlier being made by Monti, Hollande and the rest that you described as coherent and reasonable.
QuoteAnd what's he going to do between now and 2017?
He'll pass budgets cutting the deficit over the period until the budget's balanced and, because of the fiscal pact, the French deficit'll be under 3% of GDP (from 5.2% in 2011) by 2013.
Honestly, I don't know why we're squabbling about "austerity" versus "anti-austerity" here. Politicians have been putting their own slants on their respective measures for months- Politician A will brag about "austerity" in the form of shrinking specific programs, all the while continuing to support increases in certain departmental budgets; Politician B will brag about the ability to retain jobs while "regretfully" shrinking certain programs. Most of these measures are starting to look pretty similar, and I doubt you're going to find an exemplar of "austerity" in the definitive sense within any government in the world right now.
Quote from: Sheilbh on May 09, 2012, 02:51:12 PM
The argument I outlined earlier being made by Monti, Hollande and the rest that you described as coherent and reasonable.
Could you refer me to a thread page? I don't know what you're talking about.
QuoteHe'll pass budgets cutting the deficit over the period until the budget's balanced and, because of the fiscal pact, the French deficit'll be under 3% of GDP (from 5.2% in 2011) by 2013.
Are you sure you're not Jimmy Carter pitching Hamas? This is not jibing with what I've read in The Economist.
Quote from: The Minsky Moment on May 09, 2012, 09:48:28 AM
Quote from: citizen k on May 09, 2012, 02:20:12 AM
from Spiegel.de:
The Germans are like a man in a hot air balloon preparing to throw a large concrete block out to increase lift, without realizing that it is chained to their leg.
:hmm:
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fupload.wikimedia.org%2Fwikipedia%2Fen%2Fb%2Fb3%2F127_Hours_Poster.jpg&hash=36c5dbf53cc5757bd170e4f20d34e5526e410062)
Quote from: Admiral Yi on May 09, 2012, 02:58:12 PM
Could you refer me to a thread page? I don't know what you're talking about.
The quibble post here:
http://languish.org/forums/index.php/topic,4552.msg413576.html#msg413576
QuoteAre you sure you're not Jimmy Carter pitching Hamas? This is not jibing with what I've read in The Economist.
I think the Economist leader set out a lot of worries, but that's what it's elegantly for. The reporting about Hollande is slightly different.
The fiscal pact's still going ahead, so he'll have to meet the 3% target. I'll quote Bloomberg's article again:
'The budget plan aims to eliminate the deficit in 2017, one year later than under Sarkozy's plan, with a 3 percent of gross domestic product deficit target for 2013.'
The Economist's caustic remark:
'TAKE two countries. One has a government "inflexibly committed to austerity", lacking a Plan B and dragging the economy down, according to its critics. The second country has a new President who has just declared that his victory is a rejection of austerity. The victory has been hailed as a new dawn for European politics.
The first country, the UK, is aiming to balance its budget by 2017. The second country, France, plans to balance its budget by, er, 2017. Funny old world.'
Here's the Economist after his first round victory:
'Mr Hollande promises to stick to France's 3% deficit-reduction target next year, and to balance the budget by 2017 (which would be the first time since 1974). But his manifesto is a wish list of tax-and-spend policies. By his own calculations, his extra spending plans amount to €20 billion over five years. This is only a small fraction of the country's spending, but it is still a step in the wrong direction. The IMF says the 2013 deficit will be 3.9%. On that basis meeting the 3% objective may mean an extra €18 billion in cuts next year alone.'
Edit: The real significance of Hollande's election is what he means for Eurozone policy. French policy will change a bit, but we're not talking Mitterrand '81, alas :weep:
France doesn't exactly need more taxes and more spending in my humble opinion.
Quote from: Zanza on May 09, 2012, 03:09:45 PM
France doesn't exactly need more taxes and more spending in my humble opinion.
I agree. But they're French.
All this talk about pacts just betrays the fundamentally flawed design of the Eurosystem. From the point of view of each member of the system, the euro is basically a foreign currency that is being used as a domestic currency. They don't issue it, they don't control it, but they use it and have to get access to it to do transactions. That imposes a hard fiscal (budgetary) constraint as well as a current account constraint. Those constraints can only be evaded temporarily by getting credit from other system members. So what you have is basically like a gold standard, or like sub-national units that are sharing a single national currency.
Only in a gold standard, when a sovereign blows their fiscal or current account constraints, they leave the system - that is why historically commodity money standards are unstable and don't last.
The sub-national analogy also doesn't work both because the members here are independent sovereign states and because there is no national issuer of currency in the Eurozone, i.e. there is no sovereign Eurozonia. The EU does have some aspects of nation-ness but the EU and the Eurozone are not coterminus which just adds to the confusion. The only Eurozone-wide institution of significance is the ECB, and its authority was deliberately hobbled to prevent it from acting effectively in a sovereign-like capacity. So what we have is a train with no one in the driver's seat and each separate car with the ability to steer whichever way it wants.
Quote from: Sheilbh on May 09, 2012, 03:07:52 PM
The quibble post here:
http://languish.org/forums/index.php/topic,4552.msg413576.html#msg413576
I offer you this deal Shelf. I will agree that talk of easing austerity in the context of more expanisve monetary policy is reasonable, if you will agree that arguing for easing austerity divorced from monetary policy is retarded.
The Economist has been predicting dire results for France since I first subscribed some 30 years ago, yet they seem to thrive on it :hmm:
Re budget balances and austerity, looking at the back of the aforementioned magazine; the USA and UK have budget deficits of 7.6% and 7.7% of GDP, the Eurozone has one of 3.5%; Italy, considered to be a weak link, has one of 2.2%. I don't see how a lack of austerity is the Italian problem, I guess the bond markets are pricing in future growth in the UK and USA, but are sceptical about future growth in Italy.......... :hmm:
Quote from: The Minsky Moment on May 09, 2012, 03:37:10 PM
Only in a gold standard, when a sovereign blows their fiscal or current account constraints, they leave the system - that is why historically commodity money standards are unstable and don't last.
Technically, all money standards "are unstable and don't last". There have been commodity-based standards that lasted much longer than anything currently in use, but eventually they all failed. I assume everything we're using now will also fail.
Quote from: Admiral Yi on May 09, 2012, 03:41:36 PM
I offer you this deal Shelf. I will agree that talk of easing austerity in the context of more expanisve monetary policy is reasonable, if you will agree that arguing for easing austerity divorced from monetary policy is retarded.
Obviously but monetary policy or something like that (eg. Eurobonds) is what the growth camp have always been arguing for. My view is roughly what Clive Crook says. Fiscal contraction won't help Spain's creditworthiness - it hurts growth and in most of the Eurozone so far the effects of declining GDP have swamped their deficit cuts. On the other hand if Spain were to ease up on their contraction then that will hurt their creditworthiness because the markets get a bit jittery about their commitment to cutting the deficit. I think either strategy would undermine the goal of helping European sovereigns.
If these are all countries acting alone with the occasional bail-out then they're screwed into a constant spiral higher deficits, greater cuts and lower growth. But if the Euro area as a whole were to act to stimulate growth en that would help reinforce not undermine (like national measures) the austerity programs in each country. I think the best of the proposed solutions at the Euro level are monetary (plus Euro-structural reforms).
Unfortunately the most likely is European project bonds financed by the European Investment Bank - Hollande wants them and Germany is apparently happier with this than any other idea. Personally I think it'll be like 90s Japanese infrastructure spending.
The Bundesbank has said that it will accept higher than EZ-average inflation in Germany to help with adjustment.
http://www.ft.com/intl/cms/s/0/5a40a056-99fb-11e1-accb-00144feabdc0.html#axzz1uRREwaan (http://www.ft.com/intl/cms/s/0/5a40a056-99fb-11e1-accb-00144feabdc0.html#axzz1uRREwaan)
Spanish premium at almost 500 points today.
Quote from: Richard Hakluyt on May 09, 2012, 03:42:58 PM
The Economist has been predicting dire results for France since I first subscribed some 30 years ago, yet they seem to thrive on it :hmm:
Re budget balances and austerity, looking at the back of the aforementioned magazine; the USA and UK have budget deficits of 7.6% and 7.7% of GDP, the Eurozone has one of 3.5%; Italy, considered to be a weak link, has one of 2.2%. I don't see how a lack of austerity is the Italian problem, I guess the bond markets are pricing in future growth in the UK and USA, but are sceptical about future growth in Italy.......... :hmm:
I think something else is driving the disparity. The UK and US have their own currency. If they end up against it, their currency will devalue. This will make them more competitive internationally (even as their national income declines relative to the rest of the world)--thus there is a built in buffer against trouble. And if push really comes to shove, the US and UK could just print the money needed to make debt payments.
Italy doesn't have its own currency.
Apparently markets in London have built a New Drachma into their systems in case there's a Grexit.
The Austrian Finance Minister said that Greece can't leave the Euro. They can leave the EU and then reapply for membership to the EU (including eventual Euro membership).
Gilts are now at their lowest level in 300 years.
Apparently the Greeks think they spotted a slight change in tone by Germany and so there may be a ND-PASOK-DL coalition for a few months. I suspect, though, that would just further discredit the centre of Greek politics.
Quote from: alfred russel on May 14, 2012, 11:11:41 AM
The UK and US have their own currency. If they end up against it, their currency will devalue. This will make them more competitive internationally (even as their national income declines relative to the rest of the world)--thus there is a built in buffer against trouble.
No it won't. Possibly for the UK, but every central bank on earth will devalue right along with the US. They can't risk losing that market. Any attempt by the Fed to devalue will only export the inflation abroad.
Quote from: Sheilbh on May 14, 2012, 11:20:15 AM
The Austrian Finance Minister said that Greece can't leave the Euro. They can leave the EU and then reapply for membership to the EU (including eventual Euro membership).
A very interesting game is about to take place.
On one hand, if just one of the countries decides to act against Greece upon exit, as is stipulated in Lisbon, the move will prove disastrous for Greece, and only Hod knows what will happen when Spain fails to meet the terms of its future rescue.
If, on the other, Greece is allowed to stay in the EU, it will encourage Portugal and Spain to follow the precedent once the pain is high enough.
It may not be possible according to the treaties now, but I am sure they'll find a way when they need it.
Unless they really want to fuck with Greece to make it a daunting example.
Quote from: MadImmortalMan on May 14, 2012, 11:23:16 AM
Quote from: alfred russel on May 14, 2012, 11:11:41 AM
The UK and US have their own currency. If they end up against it, their currency will devalue. This will make them more competitive internationally (even as their national income declines relative to the rest of the world)--thus there is a built in buffer against trouble.
No it won't. Possibly for the UK, but every central bank on earth will devalue right along with the US. They can't risk losing that market. Any attempt by the Fed to devalue will only export the inflation abroad.
No one needs to actively intervene; both the US and UK have currencies that float. When a country with a floating currency goes in the (relative) crapper, so does the currency--hence it devalues.
Is the US dollar really comparable to "normal" currencies though? After all, it is used to denominate trade all over the world. When China buys oil from Saudi Arabia, they probably don't pay in Yuan or Dinar, but in US dollar. That should give the US dollar a value regardless of current US economic performance or Fed policy.
Quote from: alfred russel on May 14, 2012, 12:11:07 PM
No one needs to actively intervene; both the US and UK have currencies that float. When a country with a floating currency goes in the (relative) crapper, so does the currency--hence it devalues.
Doesn't matter how floaty the dollar is. It's a reserve currency and the one used by the US population--one of the most sought-after sales markets on earth. Yuan will be pegged to it no matter how low it goes, and most of the world will want to devalue at the same rate. Deliberately.
So, we might get more Arab Springs, but we won't get relative competitive advantage for the US of the cannibalistic kind that devaluing currencies usually hope for.
The Yuan is now pegged to a basket of currencies, not just the US dollar.
The USD is hardly immune to depreciation. It has probably lost 75-80% of its value the past 30 years or so against the Yen. At the height of the euro (circa 2007-2008), the dollar had probably depreciated 50% from just a few years before. Those are the most major currencies: the experience is even more volatile if we look at emerging markets.
AFP, May 11:
Quote
The eurozone would cope if Greece left the currency union, Germany's finance minister said in an interview on Friday as Greek parties continued with efforts to form a government coalition.
Asked by the regional Rheinische Post whether the eurozone could withstand a Greek exit, Finance Minister Wolfgang Schaeuble said: "Europe won't sink that easily."
"We want Greece to remain in the eurozone. But it also has to want this and to fulfill its obligations. We can't force anyone.
"We have learned a lot these past two years and have built protection mechanisms. The danger of contamination for other countries in the eurozone have become weaker and the eurozone as a whole has become more resistant."
"The crisis has shown that one must act quickly and that Europe can act quickly... the notion that we would not be capable of reacting in the short term to something unforeseen is false."
Schaeuble's comments came as Germany's foreign minister kept up the pressure on Greece on Friday, saying there could be no more payments of aid unless Athens enacted reforms it has agreed with its international partners.
"We want to help Greece and we will help Greece. But Greece has to want to be helped. If they deviate from the agreed reform path, then the payment of further tranches of aid is not possible," Guido Westerwelle told lawmakers.
"We are sticking to our pledges to help. But that means as well that the agreed reforms in Greece must be carried out.
"We want to keep the eurozone together. The future of Greece in the eurozone now lies in the hands of the Greece," he stressed.
Socialists in Greece continued trying to cobble together a government, the third party to attempt to do so since Sunday's elections gave a razor-thin majority in parliament to anti-austerity parties.
Germany and the EU have made it clear to Greece that it must abide by its austerity pledges if it wants to receive bailout funds, money that Athens needs to avoid a default.
If no party manages to form a coalition, the president will call new elections that observers say are likely to hand a greater majority in parliament to anti-austerity parties.
"No-one is threatening anyone here," Schaeuble said in the interview. "But we must be honest... and tell our Greek friends and partners that there is no other way that the one that we have chosen together."
"We have already done a lot," he said, referring to two bailouts for Greece. "Greece must understand that in exchange, it must fulfill its obligations."
It is "dangerous to tell tales to citizens telling them that there was another, simpler way to heal Greece avoiding all the trials. It's absurd," he said.
Nobody thinks Greece will sink the Eurozone. We're worried about Spain and Italy.
Quote from: Deranged lunatic
"The crisis has shown that one must act quickly and that Europe can act quickly... the notion that we would not be capable of reacting in the short term to something unforeseen is false."
:lmfao:
The most likely probability is the Greece will leave the euro, but the ECB/EU/IMF etc will use their WMDs (Weapons of Monetary Destruction) to help save everyone else.
I'm not sure we'll be around by then. Yields are already almost as high as the ones that prompted LTRO last winter. If this keeps up for a couple weeks we might have to be rescued before the next Greek elections.
Quote from: Zanza on May 14, 2012, 12:17:03 PM
Is the US dollar really comparable to "normal" currencies though? After all, it is used to denominate trade all over the world. When China buys oil from Saudi Arabia, they probably don't pay in Yuan or Dinar, but in US dollar. That should give the US dollar a value regardless of current US economic performance or Fed policy.
Why is that? If you and Tamas made a $100 bet on something that wouldn't affect the dollar exchange rate.
Quote from: MadImmortalMan on May 14, 2012, 02:23:19 PM
Nobody thinks Greece will sink the Eurozone. We're worried about Spain and Italy.
Yeah. Greece is at once a very odd and unique set of circumstances (and the only one that fits the sovereign debt morality tale) and the canary in the tunnel. Once the precedent's been set then it is difficult to see why, say, Portugal would necessarily survive in the Eurozone. There would inevitably be massive pressures on Spanish and Italian banks (26 were downgraded tonight) which could change their situation overnight. So the Eurozone would either need a massive response by the ECB or an enormous political commitment, like Eurobonds and bailouts, to indicate that the Euro is unshakeable.
I read an interesting comment in the Economist earlier today that financial markets were basically renationalising. There's not sufficient faith in the Euro for the sort of cross border lending that was happening a while ago. In part this is good because that was part of the problem in Spain and Ireland, but those cross border loans were also a very good sign for the Euro's health.
QuoteThe most likely probability is the Greece will leave the euro, but the ECB/EU/IMF etc will use their WMDs (Weapons of Monetary Destruction) to help save everyone else.
Maybe. They've not been willing to use them to save Greece. I'm still not sure that they would be willing or able to do it - not just for Portugal, Spain or Italy - but for them and any other country in trouble. So far the nearest the EZ's come has been the ECB's LTRO and that's nowhere near enough and very controversial.
Did we lose that old "Who Will Default and Leave the Euro" prediction thread during one of our cinder block episodes?
Won't having the shitty countries leave the Euro devastate the German economy?
Meanwhile, Germany continues to have a pretty good crisis.
QuoteBERLIN/PARIS, May 15 (Reuters) - Germany's economy confounded expectations by posting robust growth in the first quarter of the year while France could summon up none at all, data showed on Tuesday.
Gross domestic product in Germany, Europe's biggest economy, rose by 0.5 percent on the quarter, bouncing back from a 0.2 percent slide in the last three months of 2011. France's economy stagnated, although it grew slightly at the end of last year.
The figure for the euro zone as whole, due at 0900 GMT, is forecast to show it shrank by 0.2 percent, following a 0.3 percent contraction in the last three months of 2011 - putting it back into recession - although Germany's strong showing could give it a lift.
[...]
A Reuters poll of 41 economists had forecast growth of 0.1 percent on the quarter. The actual figure beat even the highest forecast for expansion of 0.2 percent in the Reuters poll.
Strength was broadly based with both exports and domestic consumption gaining ground.
As far as trade goes, exports to Europe declined and imports grew (so adjustment is slowly happening, still a trade surplus of about 1 billion Euro per month with the rest of the Eurozone though), but that was overcompensated by strong growth in overseas markets.
Quote from: Neil on May 14, 2012, 07:21:14 PM
Won't having the shitty countries leave the Euro devastate the German economy?
well, a big part of their new Lebensraum is in eastern europe I think. They are in the EU, but not in the eurozone.
Quote from: Iormlund on May 14, 2012, 02:49:28 PM
Quote from: Deranged lunatic
"The crisis has shown that one must act quickly and that Europe can act quickly... the notion that we would not be capable of reacting in the short term to something unforeseen is false."
:lmfao:
:lmfao: who the fuck said that
Schäuble
:lol:
Quote from: Zanza on May 15, 2012, 02:20:38 AM
As far as trade goes, exports to Europe declined and imports grew (so adjustment is slowly happening, still a trade surplus of about 1 billion Euro per month with the rest of the Eurozone though), but that was overcompensated by strong growth in overseas markets.
For an exporting country, that's the upside of a very low Euro.
Hollande's plane was hit by lightening while on the way to Berlin for a meeting with Merkel :o
He's now returned to Paris and got on a second plane, but still :o
:shifty:
In related news the Bundeswehr announced that it plans to have tesla coils operational soon. :P
Quote from: Sheilbh on May 15, 2012, 12:08:18 PM
Hollande's plane was hit by lightening while on the way to Berlin for a meeting with Merkel :o
He's now returned to Paris and got on a second plane, but still :o
The Lord is speaking to Europe. :pope:
Quote from: MadImmortalMan on May 15, 2012, 01:04:19 PM
Quote from: Sheilbh on May 15, 2012, 12:08:18 PM
Hollande's plane was hit by lightening while on the way to Berlin for a meeting with Merkel :o
He's now returned to Paris and got on a second plane, but still :o
The Lord is speaking to Europe. :pope:
It is a lightening strike to save Greece: this is the work of Zeus.
Quote from: Sheilbh on May 15, 2012, 12:08:18 PM
Hollande's plane was hit by lightening while on the way to Berlin for a meeting with Merkel :o
Coup de foudre :wub: between Hollande and Merkel! :D
So things are falling apart again. Time for another emergency summit to save things. This should be interesting as it is Mr. Hollande's debut but also because there isn't a government in Greece that can agree to a bunch of nonsense that won't happen in order to be rescued.
Read the scary headlines of a bank run in Greece underway. Actually read the story and they don't know what time period it encompasses. THANKS DRUDGE.
Quote from: Ed Anger on May 15, 2012, 05:21:52 PM
Read the scary headlines of a bank run in Greece underway. Actually read the story and they don't know what time period it encompasses. THANKS DRUDGE.
Lots of those rumors going around the twitter machine this morning. Pics of lines at ATMs and stuff.
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.
Quote from: MadImmortalMan on May 15, 2012, 05:51:37 PM
Quote from: Ed Anger on May 15, 2012, 05:21:52 PM
Read the scary headlines of a bank run in Greece underway. Actually read the story and they don't know what time period it encompasses. THANKS DRUDGE.
Lots of those rumors going around the twitter machine this morning. Pics of lines at ATMs and stuff.
I need to git one of those thar titter machines.
Quote from: alfred russel on May 15, 2012, 05:15:44 PMSo things are falling apart again. Time for another emergency summit to save things. This should be interesting as it is Mr. Hollande's debut but also because there isn't a government in Greece that can agree to a bunch of nonsense that won't happen in order to be rescued.
The EU always has this many summits. They've just started assuming emergency proportions. Until the Eurocrisis most summits would involve very little of significance plus a (failed) push to reform CAP/British rebate/structural funds :lol:
It is interesting though. The Eurozone seems to be really struggling with Greece - not because they lack a government but because an elected government that rejects the bailout is about as good an example as you could get of the tension between democracy and the Euro. It'll be even more striking if, knowing the risks the Greeks, as polls suggest they will, elect an even more strongly anti-austerity Parliament.
QuoteApparently 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.
If Greece exits, unless there's some strong plans in place then we'll that but in Spain or Italy :bleeding:
If I lived in one of those countries, there is no way I would hold any significant money in a Greek, Spanish, Italian, or Portuguese bank right now. The best thing about dragging this out for so long is people should have had time to prepare if it comes to that.
Quote from: alfred russel on May 15, 2012, 07:34:26 PM
If I lived in one of those countries, there is no way I would hold any significant money in a Greek, Spanish, Italian, or Portuguese bank right now. The best thing about dragging this out for so long is people should have had time to prepare if it comes to that.
I'm sure the governments would figure out a way to steal the money. Theft is what the Southern Europeans excel at.
Quote from: alfred russel on May 15, 2012, 07:34:26 PM
If I lived in one of those countries, there is no way I would hold any significant money in a Greek, Spanish, Italian, or Portuguese bank right now. The best thing about dragging this out for so long is people should have had time to prepare if it comes to that.
It doesn't appear, in a large way, they have yet.
Quote from: Sheilbh on May 15, 2012, 06:49:05 PM
as good an example as you could get of the tension between democracy and the Euro.
Or rather, a good example of the tension between a country's long term interests, and elected politicans' short term interests
Quote from: PJL on May 15, 2012, 06:06:16 PM
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.
Not terribly related but, assuming no Eurogeddon, the BofE projects that the British economy will recover to 2007 levels in 2018 :bleeding:
Quote from: Sheilbh on May 16, 2012, 04:53:57 AM
Not terribly related but, assuming no Eurogeddon, the BofE projects that the British economy will recover to 2007 levels in 2018 :bleeding:
that sounds about right for the next bubble, yeah
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fmedia.economist.com%2Fsites%2Fdefault%2Ffiles%2Fimagecache%2Ffull-width%2Fimages%2F2012%2F02%2Farticles%2Fbody%2F20120225_FNC642.gif&hash=fd3bf049387ab673e2a33ce33851ded953ab979e)
apparently, ECB stops monetary policy operations for some greek banks, as recapitalisation is not in place or something.
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.
edit: I am worried about they leaving the euro, and possibly the EU as well, of course
Quote from: alfred russel on May 15, 2012, 07:34:26 PM
If I lived in one of those countries, there is no way I would hold any significant money in a Greek, Spanish, Italian, or Portuguese bank right now. The best thing about dragging this out for so long is people should have had time to prepare if it comes to that.
Define significant money.
Quote from: The Larch on May 16, 2012, 10:35:00 AM
Define significant money.
I'm not trying to start a panic, and maybe I'm a hypochondriac, but there seems to be a non zero chance that spanish accounts end up in a devalued currency. If I had a chance to open a foreign account in a euro currency (and I was Spanish), I would do so. I wouldn't withdraw my life savings and put them under my mattress--that carries risks too (fire, robbery). Maybe I would do that if I were Greek.
I think I would be more interested in getting a foreign account if I was Hungarian. Tamas, wtf?
Quote from: alfred russel on May 16, 2012, 12:28:43 PM
Quote from: The Larch on May 16, 2012, 10:35:00 AM
Define significant money.
I'm not trying to start a panic, and maybe I'm a hypochondriac, but there seems to be a non zero chance that spanish accounts end up in a devalued currency. If I had a chance to open a foreign account in a euro currency (and I was Spanish), I would do so. I wouldn't withdraw my life savings and put them under my mattress--that carries risks too (fire, robbery). Maybe I would do that if I were Greek.
I think I would be more interested in getting a foreign account if I was Hungarian. Tamas, wtf?
I am tapping the table as we speak. I already have a significant portion of the family savings in british pounds, and now await the non-resident serving section of a British bank finally get through my application for a savings account. The moment I can access that on the Internet, I am wiring the pounds over to it.
Quote from: Tamas on May 16, 2012, 10:32:02 AM
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. In my view it should be to receiving Eurobailout and IMF funds for Euro states what devaluing is to everyone else. The bailout should come afterwards to help keep the country going while they cut their deficit and pass structural reforms. Mervyn King made the point this morning that the can-kicking is because the EZ is trying to treat a liquidity crisis when they actually have a solvency crisis - which is more astute than his own performance :P
I think precedent was a large part of it. So far the reaction to this crisis seems to under-worry about contagion, the exception is with a default because if we're honest chances are Portugal's more or less insolvent and, with their bank debt, so's Ireland. In addition I think it would create a serious banking crisis for other Eurozone states who would have to recapitalise - this wasn't an enormous issue with Greece, but when taken with the fear of contagion it is. So it was a combination of precedent and, I think, national politics.
The problem for Greece now is that it's going to be incredibly difficult to default. Because the bailouts from the ECB and EFSF and IMF effectively crowded out private sector loans from Greek, French and German banks their remaining debt is almost entirely publicly held. You don't default on the IMF - there's very few countries that have and they're African failed states. Similarly the ECB's pushing for a similar position. Which means that all of the massive amount of Greek debt is now institutional and very difficult for the Greeks to default on (on the other hand none of it's due for 30 years and if they could renegotiate interest payments or the like that could help ease the pressure).
So the Greeks have massive debts that are very difficult to default on and even if the ECB/EU/IMF plan works as planned they will, after a decade of austerity and structural reforms, manage to reduce their debt to 120% of GDP by 2020. A further problem is that the plan for Greece is still based on very optimistic GDP figures - the ECB/EU/IMF have made this mistake far too many times - so I believe the economic situation this year is already projected to be far worse than was needed for the plan to work.
Edit: Though the story you mentioned wasn't quite as important as it seemed. Here's the FT blog on it:
http://ftalphaville.ft.com/blog/2012/05/16/1003391/shifting-ecb-liquidity-to-ela-greek-bank-recap-edition/
One further thought on Greek default or a Grexit which was raised by A Fistful of Euros (very good blog) is whether Greece has the institutional capacity to do it. A lot of the problems of collecting tax and delivering structural reforms in Greece is because their state is weak and riddled with clientilism and corruption. I think the British civil service or, say, the French state could manage a short-notice transition from Euro to national currency, or vice-versa, pretty smoothly and get enough contingency plans in place to make it relatively safe. The Greeks? :ph34r:
Edit: One final thought is that I think a big part of Greece staying in the Euro and not defaulting has been that they've lacked a Kirchner, all of their politicians have been deflatingly dull. I'm not sure they've not found one in Tsipras.
Quote from: Sheilbh on May 16, 2012, 04:53:57 AM
Not terribly related but, assuming no Eurogeddon, the BofE projects that the British economy will recover to 2007 levels in 2018 :bleeding:
So basically returning to it's 1830-2010 trend line then. Even despite the recession it was still above this line in 2010.
Quote from: Sheilbh on May 16, 2012, 02:06:12 PM
Edit: One final thought is that I think a big part of Greece staying in the Euro and not defaulting has been that they've lacked a Kirchner, all of their politicians have been deflatingly dull. I'm not sure they've not found one in Tsipras.
You're probably right in that. The political consensus is that Greece should stay in the euro. It's just the austerity package that has divided them. But the irony is that it's the Euro and the lack of release valves that the problem NOT the austerity.
Quote from: PJL on May 16, 2012, 03:04:48 PM
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.
Quote from: Sheilbh on May 16, 2012, 04:57:20 PM
Quote from: PJL on May 16, 2012, 03:04:48 PM
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.
Well the possiblilty that it won't recover to 2007 levels until 2018 is bad, but it's the not the worst in British history though. The post WW1 depression was so bad that the 'Great' depression was more like a double dip, and our economy didn't fully recover its 1919 level until the late 1930s..
As for trend growth, you're right there. The markets reckon it'll be 2025 before that happens.
I got that from Andrew Neil so he could be exaggerating, but I'd assume he included that. It's certainly a worse recovery than the 70s, 30s or 90s recessions and depression. Obviously for people it's fine because we've got the welfare state and a different society now, but purely in terms of lost potential it's still quite shocking that'll it take around 10 years to recover - and the BofE's growth figures for this year at least look rosy, and it doesn't include the potential for a disorderly collapse of the Euro.
Did you guys somehow miss the news that Greece did in fact default on its debt in March? It didn't exactly mean the end of the world.
Quote from: Zanza on May 16, 2012, 06:31:22 PM
Did you guys somehow miss the news that Greece did in fact default on its debt in March? It didn't exactly mean the end of the world.
What's that to do with now? I do think if the Greeks default again - on the ECB and IMF - it would be the end of the world for them :(
Quote from: Sheilbh on May 16, 2012, 04:57:20 PM
Quote from: PJL on May 16, 2012, 03:04:48 PM
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?
Quote from: Syt on May 16, 2012, 02:58:20 AM
Quote from: PJL on May 15, 2012, 06:06:16 PM
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.
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?
Quote from: Tamas on May 17, 2012, 01:48:02 AM
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
Wouldn't that just counter Germany's gigantic current account surplus of the last decade?
Now in Spain:
QuoteUPDATE 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 :ph34r:
Edit: Trading suspended.
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).
Quote from: Sheilbh on May 16, 2012, 02:06:12 PM
Quote from: Tamas on May 16, 2012, 10:32:02 AM
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. :unsure:
Dark days in Europe*, one of the worst crisis since May 1940 ?
* I include Cameron's and Osborne's Britain in this.
Quote from: Martim Silva on May 17, 2012, 07:46:47 AM
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).
:hmm: :ph34r:
Quote from: jimmy olsen on May 17, 2012, 07:49:05 AMCities have, but I don't recall states going bankrupt. :unsure:
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.
Quote from: Sheilbh on May 17, 2012, 08:18:02 AM
Quote from: jimmy olsen on May 17, 2012, 07:49:05 AMCities have, but I don't recall states going bankrupt. :unsure:
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 (http://www.nytimes.com/2011/01/23/weekinreview/23davey.html)
Quote from: Tamas on May 17, 2012, 07:58:34 AM
Quote from: Martim Silva on May 17, 2012, 07:46:47 AM
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).
:hmm: :ph34r:
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.
The word "corralito" is all people at work have been talking about for a couple days. Fear has finally reached the masses.
Quote from: Tamas on May 17, 2012, 01:48:02 AM
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.
Quote from: Iormlund on May 17, 2012, 08:57:25 AM
The word "corralito" is all people at work have been talking about for a couple days. Fear has finally reached the masses.
Quote from: Tamas on May 17, 2012, 01:48:02 AM
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 ?
Quote from: mongers on May 17, 2012, 08:30:47 AM
Quote from: Tamas on May 17, 2012, 07:58:34 AM
Quote from: Martim Silva on May 17, 2012, 07:46:47 AM
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).
:hmm: :ph34r:
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.
What is the punishment for buglary in your typical euro country? Two weeks of no television?
This might be a lucrative time for such activities in southern europe. :ph34r:
Quote from: mongers on May 17, 2012, 09:33:54 AM
Time for people to be reading up on the history of crowd psychology ?
Or just game theory under assumptions of rationality.
Quote from: alfred russel on May 17, 2012, 09:38:51 AM
Quote from: mongers on May 17, 2012, 08:30:47 AM
Quote from: Tamas on May 17, 2012, 07:58:34 AM
Quote from: Martim Silva on May 17, 2012, 07:46:47 AM
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).
:hmm: :ph34r:
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.
What is the punishment for buglary in your typical euro country? Two weeks of no television?
This might be a lucrative time for such activities in southern europe. :ph34r:
In other words, a normal day.
I wouldn't like to have my euros turned into drachmae or escudos overnight and lose some high percentage of their value. I'd say the people taking out their money (especially in Greece of course) are being rational.
Quote from: alfred russel on May 17, 2012, 09:38:51 AMWhat is the punishment for buglary in your typical euro country? Two weeks of no television?
The market value of your loot is deducted from your monthly welfare check. :P
Quote from: Richard Hakluyt on May 17, 2012, 11:39:52 AM
I wouldn't like to have my euros turned into drachmae or escudos overnight and lose some high percentage of their value. I'd say the people taking out their money (especially in Greece of course) are being rational.
Many tragedies in economics are due to individually rational decisions adding up to be a collectively irrational decision. Confidence is a foundation made of C4.
And yet, it is the source of all value.
Are we dead yet?
Quote from: Richard Hakluyt on May 17, 2012, 11:39:52 AM
I wouldn't like to have my euros turned into drachmae or escudos overnight and lose some high percentage of their value. I'd say the people taking out their money (especially in Greece of course) are being rational.
I agree.
CNBC reported this morning, ths is going on increasingly in Spain as well. Of course as long as said banks can cover, no problem.
If someone falls we are in for big trouble IMHO. I feel we are in a very dangerous period.
Quote from: MadImmortalMan on May 17, 2012, 12:03:51 PM
And yet, it is the source of all value.
Productive activity is the source of value. Money is just an efficient and convenient technology that facilitates exchanges of disparate types of commodities and services that are generated by value-creating productive activity.
Quote from: The Minsky Moment on May 17, 2012, 01:01:31 PM
Quote from: MadImmortalMan on May 17, 2012, 12:03:51 PM
And yet, it is the source of all value.
Productive activity is the source of value. Money is just an efficient and convenient technology that facilitates exchanges of disparate types of commodities and services that are generated by value-creating productive activity.
No. Buyer perception is the source of value. Doesn't matter how productive I am if nobody is willing to pay for the stuff I'm making or service I'm providing.
Quote from: MadImmortalMan on May 17, 2012, 02:38:07 PM
No. Buyer perception is the source of value. Doesn't matter how productive I am if nobody is willing to pay for the stuff I'm making or service I'm providing.
I'll flip the proposition on it head - it doesn't matter what someone is willing to pay for a commodity or service if no one has it to offer for sale.
My point above is not a point about about intrinsic vs. conventional value but rather about the relationship between a monetary system and the confidence reposed in it, and real economic activity. Whether value is a function of intrinsic qualities of economic product, or the collective perception concerning that product, it is a judgment about some real product. Regardless of whether one accepts or not that a tulip is really worth the same as a small house because the last guy paid that amount, one still has to grow and harvest the tulip, transport it, and market it. That activity is the pre-requisite for the creation of economic value; perceptions of market participants simply play a role in setting the precise terms of exchange for that particular activity vis-a-vis other forms of productive activity.
Confidence in a monetary system, OTOH, is not a source of economic value. It only helps determine the terms of exchange between the conventional phenomenon that has been selected to serve as the standardized means of exchange and the real goods and services produced. Of course, the absence of a viable monetary system will have severe negative impact on trade and commerce, and hence the real economy; but confidence in the monetary system itself does not help create that value - it only helps faciliate favorable conditions for the manifestation of that value.
Quote from: Richard Hakluyt on May 17, 2012, 11:39:52 AM
I wouldn't like to have my euros turned into drachmae or escudos overnight and lose some high percentage of their value. I'd say the people taking out their money (especially in Greece of course) are being rational.
Indeed. Similarly if I was investing, I wouldn't bet against the Euro but right now I wouldn't be betting on it either. This is the only crisis I can think of when politicians have possibly addressed the long-term issues but done nothing to help the immediate short-term problem.
If this does intensify in Spain then we're at the point when moral hazard needs to be thrown out to restore confidence.
Edit: Also I can't think of another example of the sort of public pressure being put on Merkel. Obama, Cameron, Hollande have all publicly stated that there needs to be a change of policy - the Canadians have said it before. Get Monti and the Japanese involved and that's the entire G7.
Edit: Apparently Monti and the Japanese said there needs to be a change. So that's everyone.
Quote from: Sheilbh on May 17, 2012, 05:05:49 PM
If this does intensify in Spain then we're at the point when moral hazard needs to be thrown out to restore confidence.
I think we are at a major tipping point now, but what is crazy is in the US at least this is getting almost no mainstream attention. Donna Summer is the top story on CNN, on Fox News it is some space story, and neither has this featured prominately--CNN doesn't even have it in the business section on the first page (and Fox tangentially as a cause of falling stocks).
I'm interested to see how this plays out, especially since Greece doesn't have a government. I'm not as up on this as some people, but it seems likely some hard decisions are going to need to be made before then.
Quote from: alfred russel on May 16, 2012, 12:28:43 PM
Quote from: The Larch on May 16, 2012, 10:35:00 AM
Define significant money.
I'm not trying to start a panic, and maybe I'm a hypochondriac, but there seems to be a non zero chance that spanish accounts end up in a devalued currency. If I had a chance to open a foreign account in a euro currency (and I was Spanish), I would do so. I wouldn't withdraw my life savings and put them under my mattress--that carries risks too (fire, robbery). Maybe I would do that if I were Greek.
I think I would be more interested in getting a foreign account if I was Hungarian. Tamas, wtf?
Well, I don't know, I have my monies split amongst two banks, the main share in one of the big two of Spanish banking (BBVA) and the smaller share in the Spanish branch of Barclays, so I don't fear for those banks' survival. Most of my stuff is not in cash in a savings account, though, but in shares and a few funds, so I don't think that I could make those liquid on the short term. Personally I feel rather secure, it's not as if I had the money in one of the former cajas that are going down the drain as we speak.
Quote from: alfred russel on May 17, 2012, 06:43:20 PMit seems likely some hard decisions are going to need to be made before then.
Like how quickly can the brokers roll out a 3x short ETF on European financials. EUFNx3
Don't forget we all have Facebook mania atm.
Quote from: The Larch on May 17, 2012, 06:46:54 PM
Well, I don't know, I have my monies split amongst two banks, the main share in one of the big two of Spanish banking (BBVA) and the smaller share in the Spanish branch of Barclays, so I don't fear for those banks' survival. Most of my stuff is not in cash in a savings account, though, but in shares and a few funds, so I don't think that I could make those liquid on the short term. Personally I feel rather secure, it's not as if I had the money in one of the former cajas that are going down the drain as we speak.
I think the risk most folks are focusing on is redenomination of deposits, not bank failure.
When Argentina went off its currency peg residents had both dollar and peso deposit accounts. Afterwards everything was a peso account.
Quote from: The Larch on May 17, 2012, 06:46:54 PM
Well, I don't know, I have my monies split amongst two banks, the main share in one of the big two of Spanish banking (BBVA) and the smaller share in the Spanish branch of Barclays, so I don't fear for those banks' survival. Most of my stuff is not in cash in a savings account, though, but in shares and a few funds, so I don't think that I could make those liquid on the short term. Personally I feel rather secure, it's not as if I had the money in one of the former cajas that are going down the drain as we speak.
It isn't just the collapse of a bank I'd be worried about, but also if you get new pesatas. Foreign shares and funds should be protected: they represent ownership of foreign entities. The Spanish share values would relate to assets that would be devalued, but then hopefully the devaluation should give them a competitive advantage.
Good luck.
Quote from: Admiral Yi on May 17, 2012, 06:50:28 PMI think the risk most folks are focusing on is redenomination of deposits, not bank failure.
But the one could lead to the other. If the banks start failing and there's a run on them because people are worried about the safety of their deposits then, short of ECB support, it may be necessary for the government to issue some alternative currency to keep the economy going - at that point Euro-collapse is a fait accompli. The risk is we reach that point in Greece before the Greek elections which means the Eurozone leadership could have to decide whether to take extraordinary measures to keep Greece in the Euro before they know if the government will be committed to implementing the bailout programme or not.
Here's an interesting positive spin from the Bank of America, via a fiercely Euro-sceptic doomsaying Telegraph blogger:
QuoteBank of America has a nice twist on a Greek exit, or "Grexit" as everybody now calls it.
The euro would shoot up to $1.40 against the dollar (after first falling to $1.20 in the immediate panic). It is $1.27 now.
Risk assets would enjoy a "powerful short squeeze". Bond yields in Spain, Italy, and the rest of the EMU periphery (and presumably the soft colonies of Eastern Europe too) would come down smartly.
Battered bank stocks would rally. "The Bund curve would likely bear steepen as some of the flight to quality risk premium gets unwound in the back end of the curve" (I couldn't resist quoting this Canary Wharf dialect, but that is how global banks actually talk).
Translation. Investors would come crawling out their safe-haven bunkers, blinking but happy to be alive, and suddenly wondering what the fuss was about.
The Boa team led by Laurence Boone (French), Ralf Pressuer (German) and Athanasios Vamvakidis (Greek) – ie a typical City bank – assumes that the EU and world authorities would take dramatic action to contain the damage.
Central banks around the wold would act in concert as in 2008-2009; the EU would take a big stride towards "fiscal union" (real fiscal union, not phoney German Fiskalunion); a system of pan-European deposit guarantees (ie, a euro version of America's FDIC); and capital injections to stop contagion in the banking system.
The ECB would cut rates, launch quantitative easing, blitz euroland with liquidity, and drive down Club Med yields with mass bond purchases. There may be a Swedish-style nationalisation of the banks accompanied by EMU-wide deposit guarantees. Capital controls are unlikely within the residual eurozone.
Greece's economy would contract, but only by 10pc in the first year after Grexit. This is based on IMF estimates. Given that it may contract 6pc this year anyway, that is hardly Armageddon.
The report is a good counter to the escalating alarm figures we have been hearing. It depends on the EU behaving in a rational fashion. That is a political – and psychiatric – judgment.
You need to be able to penetrate the mind of Wolfgang Schauble to assume such a benign outcome, and few of the thousands of economists opining on this issue are qualified to do so. Still, the Boa view is perfectly plausible.
QuoteThe euro would shoot up to $1.40 against the dollar
SONOFABITCH
Quote from: alfred russel on May 17, 2012, 06:43:20 PM
Quote from: Sheilbh on May 17, 2012, 05:05:49 PM
If this does intensify in Spain then we're at the point when moral hazard needs to be thrown out to restore confidence.
I think we are at a major tipping point now, but what is crazy is in the US at least this is getting almost no mainstream attention. Donna Summer is the top story on CNN, on Fox News it is some space story, and neither has this featured prominately--CNN doesn't even have it in the business section on the first page (and Fox tangentially as a cause of falling stocks).
I'm interested to see how this plays out, especially since Greece doesn't have a government. I'm not as up on this as some people, but it seems likely some hard decisions are going to need to be made before then.
Thought not mainstream, this morning CNBC was very much covering Europe. Bloomberg was almost all about the Facebook IPO.
Everything You Need To Know About Europe's Dilemma In 4 Minutes:
http://www.youtube.com/watch?feature=player_embedded&v=_o9KV477qO8 (http://www.youtube.com/watch?feature=player_embedded&v=_o9KV477qO8)
Quote from: Sheilbh on May 17, 2012, 05:05:49 PMEdit: Also I can't think of another example of the sort of public pressure being put on Merkel. Obama, Cameron, Hollande have all publicly stated that there needs to be a change of policy - the Canadians have said it before. Get Monti and the Japanese involved and that's the entire G7.
Edit: Apparently Monti and the Japanese said there needs to be a change. So that's everyone.
Merkel agrees that there needs to be a change in policy towards stimulating growth. It's just that she has different measures for that in mind than most of the others probably have. :P And I am sure she doesn't really care what Obama, Cameron, Harper or the Japanese PM think anyway. Hollande and Monti will have an influence, but not outsiders.
I could be wrong, but I feel we're moving rapidly beyond the growth-austerity debate into a crisis of confidence that needs bold leadership. Really I think it needs the kind of leadership that Merkel's failed to provide for the past 2 years which has allowed this to drag on. I think she may not listen to 'outsiders' though I hope she does, having said that I've seen no evidence she's listened to Monti while he's been in office.
On the growth thing though I've read that the German government's most keen on Hollande's idea of project bonds. Which of all the 'growth' policies I've seen looks to me the most set to be an unhelpful distraction and a possibly a disaster :lol:
I thought we had a crisis of confidence for the last two years already. What's new?
The hysterical panic peaks of the English media are not really reflected over here and I don't really see what has changed that this time is really the time where it all comes to a climax.
Quote from: Zanza on May 18, 2012, 01:58:54 AMI thought we had a crisis of confidence for the last two years already. What's new?
What's new is that I think the probability of a Greek exit is significantly higher and I think the market response to that reflects a serious lack of belief in the Eurozone's preparedness for that, or ability to deal with it. I also think that the Spanish banking crisis is starting to come to a head which, if it is solved by the Spanish government bailing out the banks, would cause the sovereign debt problems to become far, far more serious.
I think so far the problem's been about sovereign debt - and the banking sector. Behind that all has been a gnawing confidence crisis. I think they've now switched round, and I could be wrong, but I think the doubts are becoming stronger.
QuoteThe hysterical panic peaks of the English media are not really reflected over here and I don't really see what has changed that this time is really the time where it all comes to a climax.
The media 'panic peak' just reflect what's going on in the market. I think Schauble said this morning that market turmoil could go on for another 2 years which just doesn't seem sustainable, especially because each bit of turmoil seems to be escalating.
They're reporting the repeated falls of market confidence in the Eurozone followed by summits that produce temporary rallies before the doubts return, Dan Drezner called it Eurogoggles:
http://drezner.foreignpolicy.com/posts/2011/10/28/a_very_importantr_post_about_eurogoggles
I think his jokey prediction about a Greek exit rings true too:
Quote1. Greece's departure is announced at the same time as an EU summit announces a boost to its new rescue fund and modest pro-growth German policies. Markets initially react to this news favorably.
2. Within 48 hours, negative news about the Spanish and Italian economies, combined with a second wave of stories revealing that the rescue fund isn't as big as anyone thought it was, rattles financial markets and triggers the behavior described by Krugman.
3. The ECB does nothing, calling on Merkel European political leaders to take "decisive action."
4. After a week or two of agnonizing non-action, Germany announces half-measures that end the immediate panic gut set up Spain for more stagnation and a new crisis in 2013.
Edit: I suppose if you think they're panic peaks - which, you know, they could be - do you think the crisis is basically solved it's just a case of following policies already established?
Quote from: Sheilbh on May 18, 2012, 03:33:58 AMWhat's new is that I think the probability of a Greek exit is significantly higher and I think the market response to that reflects a serious lack of belief in the Eurozone's preparedness for that, or ability to deal with it. I also think that the Spanish banking crisis is starting to come to a head which, if it is solved by the Spanish government bailing out the banks, would cause the sovereign debt problems to become far, far more serious.
Both of these aren't exactly new. Greece leaving the Euro and Spain having to bail out its banking sector have been discussed for years now.
QuoteI think so far the problem's been about sovereign debt - and the banking sector. Behind that all has been a gnawing confidence crisis. I think they've now switched round, and I could be wrong, but I think the doubts are becoming stronger.
Both the sovereign debt crisis and the banking sector problems are about confidence since day one. What do you think people are losing cofidence in now that they didn't before?
QuoteThe media 'panic peak' just reflect what's going on in the market. I think Schauble said this morning that market turmoil could go on for another 2 years which just doesn't seem sustainable, especially because each bit of turmoil seems to be escalating.
I don't see the escalation really.
Quote1. Greece's departure is announced at the same time as an EU summit announces a boost to its new rescue fund and modest pro-growth German policies. Markets initially react to this news favorably.
2. Within 48 hours, negative news about the Spanish and Italian economies, combined with a second wave of stories revealing that the rescue fund isn't as big as anyone thought it was, rattles financial markets and triggers the behavior described by Krugman.
3. The ECB does nothing, calling on Merkel European political leaders to take "decisive action."
4. After a week or two of agnonizing non-action, Germany announces half-measures that end the immediate panic gut set up Spain for more stagnation and a new crisis in 2013.
Possible, except that Germany most certainly won't do any stimulus or whatever is meant in point 1. But that's hardly the end of the world, is it? The expectation that Merkel can somehow solve this economic crisis by just showing "bold leadership" at the next EU summit is naive and silly.
QuoteEdit: I suppose if you think they're panic peaks - which, you know, they could be - do you think the crisis is basically solved it's just a case of following policies already established?
Yes and no. We should follow the policies already established, but I am sure there will be more policy initiatives necessary. But I don't see a reason for hysteria really. But that obviously doesn't sell newspapers.
All I know is that the stockmarkets have been surprisingly depressive these last few days, steadily grinding themselves down.
A rip up must come or this will become highly unusual and worrying.
Oh noes. The stock markets were depressive these last few days. The end is nigh! Really?
Anyway, I find the unemployment numbers in the Southern countries much more depressing than some stock market movements. That's real economic pain.
Quote from: Zanza on May 18, 2012, 03:59:55 AM
Both of these aren't exactly new. Greece leaving the Euro and Spain having to bail out its banking sector have been discussed for years now.
They're not new but the chances of Greece leaving the Euro are significantly higher than they were a fortnight ago and, not unrelatedly, the problems in Spanish banks are escalating. There's good news in Spain this morning, but the central bank's still confirmed that bad loans are at their highest level since 1994, and escalating, and deposit insurance in Spain is at a record high.
Despite these problems not being new I don't think anyone has any real confidence that the EZ's put enough in place to address them, which is why as the probability of a Greek exit or Spanish banking crisis increases, so does market concerns and the flight to safety. We've been discussing them for years and the sum total of the EZ response is the same.
QuoteBoth the sovereign debt crisis and the banking sector problems are about confidence since day one. What do you think people are losing cofidence in now that they didn't before?
Increasingly, I think, the Euro.
QuoteI don't see the escalation really.
Well investors are looking for safety, bunds and gilts are both at record lows. Here's a chart of bund yields:
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fav.r.ftdata.co.uk%2Ffiles%2F2012%2F05%2FGerman-2-5-10-and-30-year-yields1.png&hash=56b546caa0b9a871243d08ef3234437ce8b05759)
I don't think this is a media storm I think the media's reflecting the market.
QuotePossible, except that Germany most certainly won't do any stimulus or whatever is meant in point 1. But that's hardly the end of the world, is it? The expectation that Merkel can somehow solve this economic crisis by just showing "bold leadership" at the next EU summit is naive and silly.
I don't think Merkel can solve the economic crisis, but I think she is the largest obstacle to solving the confidence crisis in the Eurozone largely because I think it's a political not an economic problem.
Quote from: Zanza on May 18, 2012, 04:12:14 AM
Oh noes. The stock markets were depressive these last few days. The end is nigh! Really?
Anyway, I find the unemployment numbers in the Southern countries much more depressing than some stock market movements. That's real economic pain.
This is true but at the same time the longer this goes on for, and the longer capital is looking for a safe berth then the longer the economic crises in the periphery will go on for which will only increase unemployment (and make their debt and deficit more onerous).
And I think the jitteriness of investors represents very real doubts in the Eurozone.
Edit: And of course the problem with a confidence crisis matters if it goes it can destroy a system that's actually solid.
Quote from: Zanza on May 18, 2012, 04:12:14 AM
Oh noes. The stock markets were depressive these last few days. The end is nigh! Really?
Anyway, I find the unemployment numbers in the Southern countries much more depressing than some stock market movements. That's real economic pain.
This is a matter of sentiment. The situation will become hopeless when enough people decide it's hopeless.
Of course these problems have been well known for years. Heck, Kohl knew about them. But time after time after time again a real solution fails to surface, because the strong powers refuse to stop being selfish in order to correct the selfish mistakes of the weak ones. And the weaks one won't stop being selfish, even if it means Europe-wide chaos.
They have every right to do so, but then the current setup must be changed, or it will just break.
Quote from: Sheilbh on May 18, 2012, 04:17:00 AM
Quote from: Zanza on May 18, 2012, 04:12:14 AM
Oh noes. The stock markets were depressive these last few days. The end is nigh! Really?
Anyway, I find the unemployment numbers in the Southern countries much more depressing than some stock market movements. That's real economic pain.
This is true but at the same time the longer this goes on for, and the longer capital is looking for a safe berth then the longer the economic crises in the periphery will go on for which will only increase unemployment (and make their debt and deficit more onerous).
And I think the jitteriness of investors represents very real doubts in the Eurozone.
Yep, it is what we have on a tinyer scale in Hungary: no investor in their right mind will go to a place where the rules may either change drastically any moment, or the roof might fall on their head any moment.
Uncertainity is the worst thing.
The Euro is not a goal in itself. If it is detrimental to the economic prosperity of some countries, these countries should leave it.
What shouldn't happen is that we find a "solution" which basically consists of perpetually curing the symptoms, but not the reasons for imbalances in the Euro.
Of course, there would be a shock when countries leave. But that's inevitable now. Life will go on.
Without a widespread Euro there is no further integration of Europe. Which means the unevitable sinkage of the continent into obscurity in the world economy.
Life goes on........I can agree with that..........but the level of comfort is important.
Quote from: Tamas on May 18, 2012, 04:38:56 AM
Without a widespread Euro there is no further integration of Europe. Which means the unevitable sinkage of the continent into obscurity in the world economy.
thing is that most people no longer want integration. Especially not if the democratic deficit isn't rectified (it won't).
And that the germans don't want to waste their wealth on a bunch of freeriders like the greeks is quite understandable. Mentalities will have to change before southerners might be allowed to spend northerners money. We can't all be Flanders (north) and Wallonia (south)
Quote from: Tamas on May 18, 2012, 04:38:56 AM
Without a widespread Euro there is no further integration of Europe. Which means the unevitable sinkage of the continent into obscurity in the world economy.
Europe will matter in the world if it prospers. I don't know if the Euro is a net benefit or not for that. If it isn't, Europe is better off without it or with a smaller Eurozone or so.
There is no will for further integration right now, neither among the electorates nor the elites.
We are screwed, then.
I'm a Euro-federalist at heart, but dreaming of further integration is silly. What's really important now is whether the EU itself survives the collapse of the Eurozone. There needs to be an orderly exit mechanism put in place ASAP.
Quote from: Zanza on May 18, 2012, 04:12:14 AM
Oh noes. The stock markets were depressive these last few days. The end is nigh! Really?
Anyway, I find the unemployment numbers in the Southern countries much more depressing than some stock market movements. That's real economic pain.
Low market confidence -> high interest rates -> more cuts -> more unemployment.
Spain reached the 500 point spread a couple days ago. Another month like this one and it'll be rescue time.
Quote from: Sheilbh on May 18, 2012, 01:54:36 AM
I could be wrong, but I feel we're moving rapidly beyond the growth-austerity debate into a crisis of confidence that needs bold leadership. Really I think it needs the kind of leadership that Merkel's failed to provide for the past 2 years which has allowed this to drag on. I think she may not listen to 'outsiders' though I hope she does, having said that I've seen no evidence she's listened to Monti while he's been in office.
This sounds like another way of saying Germany needs to give more free money to the PIIGS.
Quote from: Admiral Yi on May 18, 2012, 11:01:50 AMThis sounds like another way of saying Germany needs to give more free money to the PIIGS.
What?
Quote
Sky News Newsdesk @SkyNewsBreak
AFP: German Chancellor Angela Merkel suggests Greece hold a referendum on its euro membership alongside general elections next month
Quote from: Admiral Yi on May 18, 2012, 11:01:50 AM
Quote from: Sheilbh on May 18, 2012, 01:54:36 AM
I could be wrong, but I feel we're moving rapidly beyond the growth-austerity debate into a crisis of confidence that needs bold leadership. Really I think it needs the kind of leadership that Merkel's failed to provide for the past 2 years which has allowed this to drag on. I think she may not listen to 'outsiders' though I hope she does, having said that I've seen no evidence she's listened to Monti while he's been in office.
This sounds like another way of saying Germany needs to give more free money to the PIIGS.
that's because that is what it means
Quote from: Sheilbh on May 18, 2012, 12:19:56 PM
What?
The phrase "what's needed is more leadership" usually has one of two meanings:
"I have no idea how to do it myself, but I demand that guy over there magically produce a good outcome."
or
"Here's something that sucks, I want that guy over there to pay to fix it."
Quote from: Admiral Yi on May 18, 2012, 12:58:21 PMThe phrase "what's needed is more leadership" usually has one of two meanings:
Okay. I think that's one possible angle. What I actually mean is I think the problems have been slow-burning for the last two years. That's allowed for Merkel's passive leadership style, though I still think it's been a failure for Europe. I think if we move to a confidence crisis in the Euro then it will require bold leadership, decisive prompt action to reassure Eurozone citizens and the markets because that can quickly escalate in a matter of days.
Ultimately Merkel's always stumped up so far, if required I think Germany would again. My worry would be that even if that were the case it may not be enough if we follow the normal pattern of, from Dan Drezner again, letting a problem fester, dithering, losing a regional election, dithering and then announcing a new policy at the next 'make or break Euro-summit', only for it all to fall apart in the morning. If there's a crisis of confidence, which I think would happen with Greek exit or Spanish banking crisis, and we go through that again, then I think the risk is by the time we get to the Euro-summit it's already over and no new institutional framework, or new money would restore confidence and credibility in the Euro.
Do you think, based on the past two years of European leadership, that that would be sufficient if there's a Greek exit or a Spanish banking crisis? Either of which would quite possibly (probably, in my view) overwhelm the institutions and 'firewalls' put in place so far. Let's not forget the permanent European bailout fund still isn't operational.
Edit: I think if there's been better leadership in 2010 we wouldn't be reaching this point. The situation in Greece, Ireland, Portugal, Italy or Spain and the markets constant panic peaks would have provided the warning that not enough had been done. A perfect, non-costly example, is the stress tests. In the US Geithner was mocked for the idea but they were rigorous and did actually stabilise market worries about a lot of banks. In the EU they did them a bit later, they were far less rigorous and what wasn't reported actually increased market nerves about a lot of Eurozone banks.
The Economist leader this week gets at what I mean, the last section:
http://www.economist.com/node/21555572
QuoteThese dangers require urgent action. First, to prevent a mass run, the European Central Bank must be ready to flood the Greek banks with liquidity—raising the losses to European taxpayers if Greece does eventually leave. And second, to stop a Greek exit being followed by a cascading loss of confidence in other peripheral economies, the euro zone must undergo much faster acceleration towards fiscal and financial integration than most European politicians will admit.
To safeguard banks in Portugal or Spain from runs, European policymakers will have to set up some form of euro-wide deposit insurance. And to reassure investors in the sovereign-debt markets, there will have to be much quicker progress to some form of debt mutualisation among the single currency's members. The Europeans should have started work on these things during the lull in the crisis earlier this year. Germany resisted that. Now these changes must be done in a rush.
A vote to rock democracy's cradle
The Greek election is in effect a referendum on whether the country will stay in the euro. It is not completely without hope. A new Greek coalition which vowed to stick to the rescue deal would in fact gain some help from the rest of Europe. At the same time, with the promise of a common banking backstop and some form of Eurobonds, the euro would at last start to look as if it could survive and the dangers of contagion would fall away. And if Greece were an isolated problem, it would be much easier to nurse slowly back to health.
The financial re-engineering of Europe is a prerequisite for the euro to survive. Greece is bringing forward that moment of truth. And yet politicians, particularly in Germany, have still to accept the logic, let alone explain it to voters. The prospect of a Greek exit means they must begin to do so—and fast.
I agree with you Sheilbh, that quick, decisive action would be needed. Hell, it is needed right now.
However, sadly, we cannot speak of a European public. Hence, decisive action to calm the European public, is not possible.
There is a Spanish, a Greek, a French, a German, etc. public and their perceived (not necessarily real!) interests differ and sometimes at direct odds with each other.
Quote from: Sheilbh on May 18, 2012, 01:17:21 PM
I think if we move to a confidence crisis in the Euro then it will require bold leadership, decisive prompt action to reassure Eurozone citizens and the markets because that can quickly escalate in a matter of days.
OK, so you want Germany to cover every body else's bets. What does that have to do with leadership?
Quote from: Admiral Yi on May 18, 2012, 01:33:04 PM
OK, so you want Germany to cover every body else's bets.
That's a big leap.
QuoteWhat does that have to do with leadership?
Time matters, so does preparation. I don't think Merkel's style of leadership over the past 2 years has shown any ability to act decisively quickly. I also think, though I could be pleasantly surprised on this, that there's been insufficient preparation within the Eurozone and I imagine within the German state and German politics for the sort of tough choice that could be coming - not least because Germany's had such a good crisis.
Regardless of if they decide to kick the Greeks out, or to save the Euro at all costs, or to leave the Euro themselves (sick of ever increasing exposure to the feckless South) then if it were done 'twere well it were done quickly, as it were.
It's not really a tough choice for us when Greece leaves the Euro. Most people will just shrug and everything goes on as usual.
Forget about Germany leaving the Euro. What would we gain from that?
Quote from: Sheilbh on May 18, 2012, 01:41:51 PM
That's a big leap.
Not any bigger than the one you made when you posted the Economist article as support for your argument. They suggest European deposit insurance and Eurobonds. Both of those are Germany covering everybody else's bets.
QuoteTime matters, so does preparation. I don't think Merkel's style of leadership over the past 2 years has shown any ability to act decisively quickly. I also think, though I could be pleasantly surprised on this, that there's been insufficient preparation within the Eurozone and I imagine within the German state and German politics for the sort of tough choice that could be coming - not least because Germany's had such a good crisis.
Regardless of if they decide to kick the Greeks out, or to save the Euro at all costs, or to leave the Euro themselves (sick of ever increasing exposure to the feckless South) then if it were done 'twere well it were done quickly, as it were.
My hunch is if Merkele had boldy, quickly and decisively told the Greeks to take a flying fuck on day one you would not have been applauding her leadership.
Quote from: MadImmortalMan on May 18, 2012, 12:37:50 PM
Quote
Sky News Newsdesk @SkyNewsBreak
AFP: German Chancellor Angela Merkel suggests Greece hold a referendum on its euro membership alongside general elections next month
The German government denies she proposed that.
Quote from: Zanza on May 18, 2012, 01:44:12 PM
It's not really a tough choice for us when Greece leaves the Euro. Most people will just shrug and everything goes on as usual.
I don't think everything will go on as usual though.
QuoteForget about Germany leaving the Euro. What would we gain from that?
It's always been my favourite mad idea to solve the crisis. Split the Euro into a sort of core Hanseactic Euro and a Club Med Euro. The latter can devalue and inflate away their debt, the former no longer have any reason to be paying for peripheral sins and the EU sets a new set of far more rigorous convergence criteria before eventually merging the two.
Edit: Also which one would France go in? :ph34r:
QuoteNot any bigger than the one you made when you posted the Economist article as support for your argument. They suggest European deposit insurance and Eurobonds. Both of those are Germany covering everybody else's bets.
I think those steps and more will be necessary if Greece leaves and Germany wants to save the Euro. But that's the policy content. For me the important bit is this 'And yet politicians, particularly in Germany, have still to accept the logic, let alone explain it to voters. The prospect of a Greek exit means they must begin to do so—and fast.' That lack of preparation is the failure of leadership, after two years, that will make it more difficult to take those steps now.
Also, as I say, if crisis of confidence then speed is of the essence and if there's already significant capital flight, or a run on banks in Italy and Spain, then I don't think even those policies would solve things.
QuoteMy hunch is if Merkele had boldy, quickly and decisively told the Greeks to take a flying fuck on day one you would not have been applauding her leadership.
In retrospect I think that would have been best. Greece needed (needs) to default, but it still wouldn't have answered the problems of contagion. At the time you're right I'd disagree with her, but I can think someone's wrong and a good leader - she'd finally have lived up to all that Iron Lady hype :P
Quote from: Zanza on May 18, 2012, 01:55:18 PMThe German government denies she proposed that.
Inevitably. The European Commission denied that the Trade Commissioner said they were making contingency plans for a Greek exit, despite the fact that he'd given an interview in which he said 'we're making contingency plans for a Greek exit' :lol:
The German government have said 'this is false and we completely dismiss this.' The technocratic Greek PM (President of the Administrative Court) had issued a statement saying 'she [Merkel] also conveyed to the President of the Republic thoughts about the holding of a referendum parallel to the elections on the question of whether the Greek citizens wish to remain in the eurozone.'
Edit: It's worth saying there is a difference between 'suggesting' something and conveying thoughts about something.
Edit: And now the Greek government have rejected Berlin's denial, they're insisting Merkel did suggest holding a referendum.
Edit: Some British journos are interpreting this as Merkel asking Greece to leave. Basically the chance of a no vote is high enough that there'd probably be mass bank runs before then, forcing Greece out before the referendum.
Edit: And now apparently both sides are saying they think it was a mistranslation :lol:
I think this on Twitter is accurate 'So, Greece is denying a denial by Merkel that she suggested Greece hold a referendum, which it is doing anyway' :bleeding:
Quote from: Sheilbh on May 18, 2012, 02:01:18 PM
Quote from: Zanza on May 18, 2012, 01:55:18 PMThe German government denies she proposed that.
Inevitably. The European Commission denied that the Trade Commissioner said they were making contingency plans for a Greek exit, despite the fact that he'd given an interview in which he said 'we're making contingency plans for a Greek exit' :lol:
The German government have said 'this is false and we completely dismiss this.' The technocratic Greek PM (President of the Administrative Court) had issued a statement saying 'she [Merkel] also conveyed to the President of the Republic thoughts about the holding of a referendum parallel to the elections on the question of whether the Greek citizens wish to remain in the eurozone.'
How lucky we are that we don't let the economy manage itself. Instead, we have it on the shoulders of these titans.
If the Euro is to move past this crisis, you're really going to need a common "Euro" bond instead of bonds for each country. I don't see how that is achieved politically.
Quote from: Admiral Yi on May 18, 2012, 01:50:33 PM
My hunch is if Merkele had boldy, quickly and decisively told the Greeks to take a flying fuck on day one you would not have been applauding her leadership.
Why not? Greece did cook its numbers. It could have been left out in the cold for that. I think it's a clear enough line for the markets.
The Greeks would have been better off, and so would the Germans.
Quote from: Iormlund on May 18, 2012, 02:58:55 PM
Quote from: Admiral Yi on May 18, 2012, 01:50:33 PM
My hunch is if Merkele had boldy, quickly and decisively told the Greeks to take a flying fuck on day one you would not have been applauding her leadership.
Why not? Greece did cook its numbers. It could have been left out in the cold for that. I think it's a clear enough line for the markets.
The Greeks would have been better off, and so would the Germans.
Cooking the numbers is only damning if you actually deceived someone. If everyone was in on the charade, and the numbers were cooked just so that a letter of the rule would be satisfied when everyone wanted it satisfied, then moral indignation is kind of hard to support.
I can't see how hypocrisy would be an obstacle. It isn't now when imposing austerity.
Quote from: Admiral Yi on May 18, 2012, 01:50:33 PM
My hunch is if Merkele had boldy, quickly and decisively told the Greeks to take a flying fuck on day one you would not have been applauding her leadership.
No but even that would have been better than half-assing it for 2 years.
Quote from: Iormlund on May 18, 2012, 02:58:55 PM
Why not? Greece did cook its numbers. It could have been left out in the cold for that. I think it's a clear enough line for the markets.
The Greeks would have been better off, and so would the Germans.
Because I was talking to Shelf, and for Shelf the whole point of the excercise is maintaining the euro and the EU.
Quote from: The Minsky Moment on May 18, 2012, 03:25:51 PM
Quote from: Admiral Yi on May 18, 2012, 01:50:33 PM
My hunch is if Merkele had boldy, quickly and decisively told the Greeks to take a flying fuck on day one you would not have been applauding her leadership.
No but even that would have been better than half-assing it for 2 years.
Do you really think so? At least now institutions have had a chance to protect themselves.
Quote from: The Minsky Moment on May 18, 2012, 03:25:51 PM
No but even that would have been better than half-assing it for 2 years.
I question the sincerity of this statement.
The previous version you were offering was that Merkele blew it by not throwing enough money at Greece to stop the "contagion."
Quote from: Admiral Yi on May 18, 2012, 04:15:58 PM
Quote from: The Minsky Moment on May 18, 2012, 03:25:51 PM
No but even that would have been better than half-assing it for 2 years.
I question the sincerity of this statement.
The previous version you were offering was that Merkele blew it by not throwing enough money at Greece to stop the "contagion."
And that's the version I am sticking to. Two years ago this could have been fixed up for a good deal less money and trouble.
But the worst option was what was taken - to fall between the two stools.
What would have been this cheap solution two years ago?
Quote from: Zanza on May 18, 2012, 05:41:26 PM
What would have been this cheap solution two years ago?
To eject the Greeks from the EU and sell them to the Turks.
Quote from: Neil on May 18, 2012, 06:17:38 PM
Quote from: Zanza on May 18, 2012, 05:41:26 PM
What would have been this cheap solution two years ago?
To eject the Greeks from the EU and sell them to the Turks.
How much would the Turks have demanded for taking them?
Quote from: The Brain on May 18, 2012, 06:21:30 PM
Quote from: Neil on May 18, 2012, 06:17:38 PM
Quote from: Zanza on May 18, 2012, 05:41:26 PM
What would have been this cheap solution two years ago?
To eject the Greeks from the EU and sell them to the Turks.
How much would the Turks have demanded for taking them?
They would have paid. As shitty as they are, slaves are still worth something.
Quote from: Admiral Yi on May 18, 2012, 03:27:13 PMBecause I was talking to Shelf, and for Shelf the whole point of the excercise is maintaining the euro and the EU.
What? :blink:
QuoteDo you really think so? At least now institutions have had a chance to protect themselves.
Which they've failed to take. I wish the EZ had spent the last year building an institutional framework that could either enable member state defaults, or addressing the banking problem in the Eurozone, or reforming the position of the ECB (especially in relation to the banking sector), or establishing a bailout fund large enough to implicitly guarantee all EZ debt. But they've done none of that. The permanent Euro bailout fund is too small to deal with a Spanish or Italian debt crisis, I think it's not allowed to lend to banks and it's not even operational. The bailout fund's size was meant to increase through IMF and Chinese participation and by leveraging it.
I know the Dutch FinMin and Schauble have spoken about how the last two years have strengthened the institutions and no-one can doubt the Euro now and their ability and resolution to take immediate decisions have been demonstrated. But I think they're delusional.
Apparently Greek euronotes (whose serial number begns with a Y) are being withdrawn from circulation. Looks like they're preparing for a Greek exit from the euro in the not too distant future.
Just read an article in the NYT Sunday Review about Spain. It's mostly space-filler, but I did notice a comment about Spaniards who are coping with the crisis by working in the gray market while collecting unemployment.
That's not helpful. So Yuros should take note of one feature of the American system of unemployment insurance: benefits here are a function of the legitimate jobs you've held in the recent past and how much you earned in them. So people are incentivized to work on the books.
Quote from: Admiral Yi on May 20, 2012, 05:55:26 PM
Just read an article in the NYT Sunday Review about Spain. It's mostly space-filler, but I did notice a comment about Spaniards who are coping with the crisis by working in the gray market while collecting unemployment.
That's not helpful. So Yuros should take note of one feature of the American system of unemployment insurance: benefits here are a function of the legitimate jobs you've held in the recent past and how much you earned in them. So people are incentivized to work on the books.
It's the same over here.
Quote from: Admiral Yi on May 20, 2012, 05:55:26 PM
That's not helpful. So Yuros should take note of one feature of the American system of unemployment insurance: benefits here are a function of the legitimate jobs you've held in the recent past and how much you earned in them. So people are incentivized to work on the books.
That's also true in all Euro countries I know of in some way or other - the UK doesn't link it to what you used to earn, it's a flat rate. I once got trained by a guy who set up a perfectly legal EU social security scam that allowed French bankers getting fired from the City to go work a MacDonalds in Paris for one day and claim very generous income-based French unemployment benefits, rather than the less attractive British Jobseeekers Allowance.
An Argentinian working in Greece telling his memories of their 2001 default.
A sobering reminder for the "what could possibly go wrong with a Greek default" crowd:
http://www.athensnews.gr/issue/13462/48005
Quote from: Sheilbh on May 20, 2012, 11:24:48 PM
Quote from: Admiral Yi on May 20, 2012, 05:55:26 PM
That's not helpful. So Yuros should take note of one feature of the American system of unemployment insurance: benefits here are a function of the legitimate jobs you've held in the recent past and how much you earned in them. So people are incentivized to work on the books.
That's also true in all Euro countries I know of in some way or other - the UK doesn't link it to what you used to earn, it's a flat rate. I once got trained by a guy who set up a perfectly legal EU social security scam that allowed French bankers getting fired from the City to go work a MacDonalds in Paris for one day and claim very generous income-based French unemployment benefits, rather than the less attractive British Jobseeekers Allowance.
I believe this loophole has been closed recently, but yes it definitively existed.
Quote from: Tamas on May 21, 2012, 02:14:09 AM
An Argentinian working in Greece telling his memories of their 2001 default.
A sobering reminder for the "what could possibly go wrong with a Greek default" crowd:
http://www.athensnews.gr/issue/13462/48005
I don't think there are many of those. Maybe Brit Euro-skeptics. The rest of us know it's going to hurt.
But what's the alternative? I haven't seen a single argument on how or why the downward spiral will stop. Lots of predictions, yes, that invariably prove too optimistic.
Quote from: Zanza on May 18, 2012, 05:41:26 PM
What would have been this cheap solution two years ago?
Fire a Geithner-style bazooka at it.
Quote from: Tamas on May 21, 2012, 02:14:09 AM
An Argentinian working in Greece telling his memories of their 2001 default.
Not quite the same thing.
Quote from: The Minsky Moment on May 21, 2012, 08:54:52 AM
Quote from: Tamas on May 21, 2012, 02:14:09 AM
An Argentinian working in Greece telling his memories of their 2001 default.
Not quite the same thing.
Yeah, Argentina had an agriculture and natural resources to stay alive without foreign loans and trade.
But all that said, let Greek default, just make sure the EU leaders handle the aftermath well (lulz)
Quote from: Tamas on May 21, 2012, 09:10:26 AM
Yeah, Argentina had an agriculture and natural resources to stay alive without foreign loans and trade.
That makes absolutely no difference in a global market. Food was exported -- poor Argentinians could not afford international prices.
Quote from: Iormlund on May 21, 2012, 09:14:10 AM
Quote from: Tamas on May 21, 2012, 09:10:26 AM
Yeah, Argentina had an agriculture and natural resources to stay alive without foreign loans and trade.
That makes absolutely no difference in a global market. Food was exported -- poor Argentinians could not afford international prices.
Populist Kirchner policies limited certain food exports-- IIRC beef was banned altogether for a period of time around 2006. There were also price controls that must have sounded great at the time but caused shortages.
Quote from: The Minsky Moment on May 21, 2012, 08:54:16 AM
Quote from: Zanza on May 18, 2012, 05:41:26 PM
What would have been this cheap solution two years ago?
Fire a Geithner-style bazooka at it.
I am not sure what that means. Care to explain? I am not even sure whether you would have fired at public or private debt with that bazooka. Or both.
The point of a bazooka is that you don't have to fire it.
At what would you not have fired the bazooka then? Private or public debt? And how would not firing a bazooka have solved Greece's solvency problems?
Quote from: Zanza on May 21, 2012, 12:29:57 PM
At what would you not have fired the bazooka then? Private or public debt? And how would not firing a bazooka have solved Greece's solvency problems?
I'm guessing he means monetizing the debt. You do that for Greece at the very start -- which would have been much cheaper than this whole mess -- and it doesn't make sense to speculate on the rest of the troubled economies, since investors know the ECB can print as much as it desires and keep going at it.
Of course there would have to be some structural changes attached, but that's the same now, except they become politically untenable when they lead to a worse situation for the average citizen.
Monetizing debt is "not firing the bazooka"? What is firing it then?
QuoteOf course there would have to be some structural changes attached, but that's the same now, except they become politically untenable when the "reward" of implementing them is worsening of the situation for the average citizen.
Why would anybody change anything when you can rely on the ECB monetizing your debt anyway? There are barely any structural changes in Greece now, so I find it naive to expect any when there is no pressure anymore.
And wouldn't the ECB monetizing debt be a Bernanke-style bazooka instead of a Geithner-style bazooka? I am admittedly not well-versed in the relationship between US Treasury and Fed, but I had so far associated Geithner more with the implementation of TARP, i.e. buying toxic assets through leveraging public money.
And even if the ECB had monetized all of Greece's debt, that would still have left them with something like a 10% primary budget deficit. How would the bazooka have solved that?
And what happens if you implement a non-firing bazooka and your bluff gets called? Monetizing the debt of the entire Eurozone?
The "unfired" bazooka part is about Spain and Italy. Once investors witnessed the resolve in dealing with Greece it would make little sense to speculate against other targets knowing the ECB could print them out of trouble. And thus the bigger part of the bazooka never would never be fired.
As for compliance, I can't see why any rational government would reject such a bargain. That leaves Greece. The ECB could have always withdrawn from the agreement if there was no compliance and tried the same with Portugal and Ireland governments which I'm sure would have jumped at the opportunity, since they are doing much more painful things now for no gain.
Either way, you have dealt with the situation long before reaching critical mass.
[edit] As for primary deficits, that's where structural reforms come in. Yes, it would have been necessary to subsidize certain areas for a while. That's hardly any different to what is happening now, except the cost would have been much lower.
And I can't see why anyone would "call the bluff". How many investors do that when the Fed prints money to buy US treasuries? That's not a rational decision.
Interesting development in Italy. Beppe Grillo's outsider pro-exit party has taken control of Parma.
Okay, so "unfired" means that you fire it once to show you mean it. Gotcha.
And let's assume investors believe the ECB will do so again if necessary and don't ask for higher risk premiums for certain countries. Would not the effect be that the interest spread narrows to zero, as all countries are presumed to be equally risky now? Wasn't that presumption one of the reasons that allowed Greece to build such a mountain of debt in the first place?
To me, that market distortion takes away one of the incentives for fiscal prudency, namely the risk of higher interest rates.
That leaves the last party to the sovereign debt crisis, our Eurozone governments. Which have a terrible track record at doing painful structural reforms when it is much easier to buy off voters with easy money. How would the ECB enforce compliance when the governments know fully well that they will get bailed out in the name of the greater Euro well-being if necessary? Or if the ECB would publicly say that it doesn't cover a certain country anymore, wouldn't we see an immediate implosion of that country as it would immediately lose the ability to borrow from anyone? I mean who would still lend money to say Portugal if the ECB publicly declares that it considers Portugal hopeless because of non-compliance? That's a nuclear weapon, not something they can actually use.
You seem to have much more faith in our governments than I do.
And your caveat that certain areas need subsidies for a while is contradicted by the history of other federations such as Belgium, Germany, the USA and I assume Canada, where it has been the same states that pay and the same states that receive money for decades without any incentive for the receivers to ever change. I don't see how the cost of that would have been lower. It would have been perpetual and high.
Quote from: Zanza on May 21, 2012, 11:59:48 AM
I am not sure what that means. Care to explain? I am not even sure whether you would have fired at public or private debt with that bazooka. Or both.
Greek debt was only 300 billion euro as late as 2010. That is a small fraction of Eurozone GDP.
So in 2010, let's say the Eurzone puts up a rescue fund, that buys out all outstanding debt at 90%, writes off 150, and then sells back 120B with a long-term fixed rate of 10-20bp over bunds. In return Greece agrees that until the 120 is paid back it shall not exceed a balanced budget -- exclusive of interest -- without approval from the Eurozone. Problem solved.
Private debt has never been the concern with Greece. Private debt/GDP ratios are lower than: Denmark, France, Austria, Germany, Netherlands, Sweden and the UK, among others.
Quote from: The Minsky Moment on May 21, 2012, 02:11:10 PMGreek debt was only 300 billion euro as late as 2010. That is a small fraction of Eurozone GDP.
So in 2010, let's say the Eurzone puts up a rescue fund, that buys out all outstanding debt at 90%, writes off 150, and then sells back 120B with a long-term fixed rate of 10-20bp over bunds.
Okay.
QuoteIn return Greece agrees that until the 120 is paid back it shall not exceed a balanced budget -- exclusive of interest -- without approval from the Eurozone. Problem solved.
And how would they have balanced their 10+% primary deficit? Without painful austerity of the kind we see now which is considered a German diktat and shrinks their economy making the debt crisis worse? :huh:
And why would they do that in the first place? Once their debt is reduced, why would they not exceed their budget balance again? After all, they are credit-worthy again and as a sovereign state, the EU has no means to stop them.
QuotePrivate debt has never been the concern with Greece. Private debt/GDP ratios are lower than: Denmark, France, Austria, Germany, Netherlands, Sweden and the UK, among others.
Okay, so your bazooka would only have solved the Greek part of the Eurozone crisis?
Quote from: Zanza on May 21, 2012, 02:20:37 PM
And how would they have balanced their 10+% primary deficit?
Even with the half-ass plan in place, the primary deficit shrunk to under 3 percent by 2011. If one assumes reasonable positive knock-on effects from solving the debt problem in '10, it isn't hard to imagine a position of near primary balance.
QuoteOnce their debt is reduced, why would they not exceed their budget balance again?
The reorganized debt could include a priority clause over all new issue debt, and a blow-up clause, that if Greece exceeds certain triggers without E-Zone permission, penalties would apply.
Of course, no solution to the Greek public debt problem short of exit from the Euro can possible succeed long run without addressing the current account/competitiveness problem. That was always the tricky part.
QuoteOkay, so your bazooka would only have solved the Greek part of the Eurozone crisis?
The first shot would have solved that problem. You can always reload.
Quote
Forget The "Bazookas": Here Come The "Tomahawks" And "Howitzers" - An R-Rated Walk Thru The Greek Endgame
We have already provided much cold, hard, clinical facts on the hypothetical Greek EMU exit on countless occasions before. Yet Jefferies' David Zervos has done it with such peculiar aplomb which we have not encountered before, that we felt compelled to share with it readers. Zervos' Paulsonesque 'apocalyptic' flair shines particularly when analyzing what happens at T-0, i.e., June 16, i.e., the day before Greek election day, i.e., the last Greek free call option on physical euros if all hell breaks loose: "On June 16th why wouldn't every Greek go to the bank with a sack and ask for the cash. Why hold Euros into the 17th? By that logic why not get them out earlier in case they shut the ELA pre-election. From the north's perspective, one could argue that Merkel should shut the ELA right now. Allowing the Greek people to access all their Euros physically, while still holding the option to default on June 17th, is insane. She and the ECB would NOT be acting in the best interest of the Eurozone if they let this happen - there would be 300b in Target2 losses to split up between 16 member NCBs if the Greeks choose to leave after taking out all the Euros." So where does the chaos from a Greek bank run and exit lead us, as Zervos puts it. "The end is of course ECB printing, Eurobonds and every developed market central bank dumping massive liquidity into the global financial markets as systemic risks rise - QE, LTROs, Currency swaps, and every funding facility under the sun come into play. The path to this end game will be bumpy, but make no mistake, the developed market central banks will dump so much fiat on the system to cover the losses, that risk free real rates will plummet to levels so negative that anyone left holding cash or cash equivalents will see massive destruction of real wealth. We may have to push risk assets a bit lower from here, but the global central banks will be firing howitzers and tomahawks very shortly, not bazookas! And you best be owning some risk when those bad boys are launched!!"
Of course, owning fiat-based assets in a system that is about to be drowned in what effectively amounts to infinitely more fiat, makes one wonder: what will be the point owning risk if the "currency" in which risk is denominated becomes meaningless virtually overnight?
Which is why we are happy to paraphrase Zervos: "And you best be owning some hard, real assets when those bad boys are launched."
Extracted from Jefferies' David Zervos: No ELA, No Euros! The End!
So lets "run" through the mechanics of a Greek bank run. As the Greek people begin to smell a Greek exit and a conversion of their hard earned Euro deposits back to Drachmas, they will withdraw Euros from Greek banks. So the Greek banks will head to the BoG with some dubious collateral to beg for Euros to pay depositors. The BoG takes the collateral, gives it a minuscule haircut, and draws Euros via the ELA. This of course creates an increase in BoG Target2 liabilities. The BoG then sends the Euros to the Greek bank and the Greek bank then gives the Euros to the hard working Greek depositor standing in line waiting to empty the account.
Importantly, Greek banks ONLY run out of Euros if the ECB can justify a shut down in funding to the BoG ELA facility or the Greek banks directly. Now, as we heard last week, the ECB has already stopped OMOs with 4 Greek banks (which one could safely assume are the big ones). So the ONLY thing standing between a Greek depositor and his/her Euros is the ELA. No ELA, no Euros!! And, as mentioned above, the ECB has once before threatened to turn off NCB access to Euros via the ELA in the case of Ireland. So there is a precedent for this to happen again!
Now we have to look at the conditions under which the ELA could be turned off by the ECB. Looking back to the Irish case, it was the potential for a default on senior bank debt that triggered the ECB threats to the central bank of Ireland. As the rules stand, ELA lending can only be done to "sound" institutions. So the ECB in theory can shut down all lending, including ELA, if the NCB is failing to abide by the rules. And clearly, Irish banks that default on senior debt are easily proven NOT sound!
In the case of Greece, in the middle of a bank run, will it be hard to prove that banks are not sound? Hardly! But more importantly, the soundness of the Greek banks is 100 percent dependent on the 65b Euro capital injection coming as a part of the previous government's agreement to the MoU (Memorandum of Understanding, or what Tsipras calls the Memorandum of Barbarity).
That 65b is the ONLY reason why Greek banks have a chance of being deemed sound. Without the 65b, there is no way anyone could claim the BoG is lending to sound institutions and there is no way the ECB could continue to authorize the BoG to lend under ELA.
And that takes us squarely to Mr Tsipras, SYRIZA, the MoU/MoB and the Greek election. It will be very easy for Merkel and company up north to lay out a case for an ELA shut down for the BoG if the MoU is discarded by the Greek voters via a win for Tsipras! In a sense, Merkel's phone call on Friday to the Greek president was just that. It was actually the same call that was made to the Irish president a while back - and of course the Irish balked, caving to the German demands. At that time however there wasn't an Irish presidential vote. This time, with Greece, Merkel's message is really to the Greek people. And what is that message exactly? Vote for Tsipras and I turn off the Euros. Or, in other words, choosing Tsipras means choosing to leave the Eurozone. Of course, Greece could vote for Tsipras, discard the MoU, repudiate the dni8ceebt (including Target2 debts), still use the Euro and stay in the EU - but they would become Montenegro! The chances of that however are zero. The Greeks will want to print and control their destiny if they get cut off. No ELA will almost surely bring back the Drachma. And doing so would, in Merkel's view, be the choice of the Greek people. At least that's how it will be sold to the rest of Europe.
The problem for Merkel is that the Greeks will understand this and run the banks BEFORE June 17th - it is happening right now. On June 16th why wouldn't every Greek go to the bank with a sack and ask for the cash. Why hold Euros into the 17th? By that logic why not get them out earlier in case they shut the ELA pre-election. From the north's perspective, one could argue that Merkel should shut the ELA right now. Allowing the Greek people to access all their Euros physically, while still holding the option to default on June 17th, is insane. She and the ECB would NOT be acting in the best interest of the Eurozone if they let this happen - there would be 300b in Target2 losses to split up between 16 member NCBs if the Greeks choose to leave after taking out all the Euros. If she gives the directive to shut off the ELA early she will at least keep the Target2 losses to 150b. And she will be telling the Greek people that if they vote for Tsipras, their Euros in the bank will not be available. This is a dangerous game for sure! But this way she can also blame the Greek voters for an exit, and hide behind ECB rules that imply access to funding can only be done to sound institutions. With this strategy she can have the Greeks decide on the 17th to keep the MoU, get the 65b and have access to their 150b Euros OR abandon the MoU, watch their Euros turn to Drachmas and leave the Eurozone. She didn't kick them out, they chose to leave!! Of course the few weeks leading up to the election with ELA turned off and a multi week Greek bank holiday would make for some crazy headlines.
As I said in Friday's piece, deciding what to do with the ELA for the BoG as we head into the Greek election "is the most important decision in the history of EMU". By turning it off, Merkel might scare the Greek people into complying, as she did with the Irish. By leaving it on, she makes it much easier for the Greeks to vote Tsipras and leave the rest of the zone to pay. She also makes it much more likely she will have to cave to Tsipras' demands.
The stakes are high, and while the decision is crucial for Greece, and their creditors, there are even bigger second order issues in play. A Greek run will certainly cause the Spanish and Italian folks to question the access of their respective NCBs to ECB funding and the ELA. It will be VERY hard to argue that Italian banks are sound if 100s of billions in deposits flow to Germany! And why wouldn't every Eurozone resident put their hard earned money in the safest bank possible if we start to see Greek depositors threatened? As soon as retail sniffs that there is a chance of a loss, a full scale Eurozone bank run ensues. If the Germans can turn off the Greeks or the Irish, could they turn off the Italians?
The Germans have tried to play hard ball for 3 years. Every time it backfires and the Fed and ECB have to ride to the rescue with bazookas. My money is on the Germans going to battle with Tsipras. And in the end we create a Greek exit and a bank run throughout the periphery. The endgame looks like what I described in the commentary entitled "Angie ain't it time we said goodbye". In that analysis the Italians and the Spaniards, through the chaos of bank run and Greek default, force the Germans to wrap their debts via Eurobond or some sort of system wide European bank deposit scheme. In actuality, the Rajoys and Tremontis of the world may even try to incite a run in Greece - it gets them the German wrap they have always dreamed of! Using Greece as a pawn in the big Eurobond chess game is dangerous, but likely effective!
So where does the chaos from a Greek bank run and exit lead us. The end is of course ECB printing, Eurobonds and every developed market central bank dumping massive liquidity into the global financial markets as systemic risks rise - QE, LTROs, Currency swaps, and every funding facility under the sun come into play. The path to this end game will be bumpy, but make no mistake, the developed market central banks will dump so much fiat on the system to cover the losses, that risk free real rates will plummet to levels so negative that anyone left holding cash or cash equivalents will see massive destruction of real wealth. We may have to push risk assets a bit lower from here, but the global central banks will be firing howitzers and tomahawks very shortly, not bazookas! And you best be owning some risk when those bad boys are launched!!
http://www.zerohedge.com/news/forget-bazookas-here-come-tomahawks-and-howitzers-r-rated-walk-thru-greek-endgame (http://www.zerohedge.com/news/forget-bazookas-here-come-tomahawks-and-howitzers-r-rated-walk-thru-greek-endgame)
Inflation is out of control as it is. How did we get from punch bowls to bazookas to howitzers in the space of a couple of years? At this rate, central bankers will be having ICBMs at their disposal next year.
The Bernanke asteroid strike!!!111
Quote from: Zanza on May 21, 2012, 02:05:50 PM
Okay, so "unfired" means that you fire it once to show you mean it. Gotcha.
Of course. How else are investors going to believe you are serious? Fortunately Greece is small potatoes, unlike the real objectives of the bazooka: Spain and Italy.
Quote
And let's assume investors believe the ECB will do so again if necessary and don't ask for higher risk premiums for certain countries. Would not the effect be that the interest spread narrows to zero, as all countries are presumed to be equally risky now? Wasn't that presumption one of the reasons that allowed Greece to build such a mountain of debt in the first place?
To me, that market distortion takes away one of the incentives for fiscal prudency, namely the risk of higher interest rates.
I'm operating under the assumption that the objective is to save the Euro and thus parallel to the bazooka long-term solutions for the imbalances would be undertaken (partly under the reforms-for-bazooka agreements).
Quote
That leaves the last party to the sovereign debt crisis, our Eurozone governments. Which have a terrible track record at doing painful structural reforms when it is much easier to buy off voters with easy money. How would the ECB enforce compliance when the governments know fully well that they will get bailed out in the name of the greater Euro well-being if necessary? Or if the ECB would publicly say that it doesn't cover a certain country anymore, wouldn't we see an immediate implosion of that country as it would immediately lose the ability to borrow from anyone? I mean who would still lend money to say Portugal if the ECB publicly declares that it considers Portugal hopeless because of non-compliance? That's a nuclear weapon, not something they can actually use.
You seem to have much more faith in our governments than I do.
But that boat sailed years ago. What you say you fear is exactly what happened when someone told investors that every state was to bail out its banks on its own.
Quote
And your caveat that certain areas need subsidies for a while is contradicted by the history of other federations such as Belgium, Germany, the USA and I assume Canada, where it has been the same states that pay and the same states that receive money for decades without any incentive for the receivers to ever change. I don't see how the cost of that would have been lower. It would have been perpetual and high.
Not if those reforms are as effective as we are told. We'd all be Germans. ;)
If further integration is not your thing, then the bazooka might not make sense. Just limit your losses, return to the DM and re-capitalize German banks. Or alternatively do nothing and face the same question years later, as Merkel did. It's just that the price of whatever the final choice is will be more expensive now (especially if someone does something stupid and Greece is forced out of the EU).
To make it a little more clear Zanza, Joan's bazooka is Germany writing a check for $200 billion.
Quote
At G8, President Obama Suggests Germany Stop Austerity and Start Spending (ECB Likely to Start Quantitative Easing)
21 May
This is a puzzling headline at the New York Times and MSNBC: "G8 lean toward Obama growth, not Merkel austerity"
Obama growth? Apparently, the New York Times and MSNBC have forgotten about John Maynard Keynes and Sir John Hicks, the fathers of borrow and spend policies to get out of a recession. Not to mention Paul Krugman and his followers. Besides, the U.S. growth model is sluggish and nothing to brag about it.
"President Obama for the first time gained widespread support for his argument that Europe, and the United States by extension, cannot afford Chancellor Angela Merkel's one-size-fits-all approach emphasizing austerity."
When President Obama says "growth," he really means more stimulus spending. President Obama is pleading with Germany's Angela Merkel to open her heart purse strings and spend, spend, spend to help the EU change its downward momentum. That is, the time isn't right for cutting government spending (there is NEVER a good time for austerity for Keynesians).
Bear in mind that this is a path the U.S. and European Union have already followed, adding trillions of dollars of ruinous debt to the West's economies, without any growth in jobs or the economy to show for it.
But why is President Obama appealing to Germany? Is it because they have positive account balances as a percentage of GDP unlike much of Europe?
http://confoundedinterest.wordpress.com/2012/05/21/obama-wants-germany-to-stop-austerity-st-curse-of-being-fiscally-well-managed-and-act-reckless-like-the-u-s-and-greece/ (http://confoundedinterest.wordpress.com/2012/05/21/obama-wants-germany-to-stop-austerity-st-curse-of-being-fiscally-well-managed-and-act-reckless-like-the-u-s-and-greece/)
Quote from: Admiral Yi on May 21, 2012, 09:26:48 PM
To make it a little more clear Zanza, Joan's bazooka is Germany writing a check for $200 billion.
Well so far the bailouts of Greece, Ireland and Portugal have hit around €400 billion. From what I've read everyone expects at least Greece and Portugal to need another round, and maybe Ireland too. The way those bailouts have been handled, however, hasn't dealt with the confidence issue which is problem that I think has increased costs over the last 2 years. The target of the bazooka, after all, is Italy and Spain.
It wasn't just Obama. Cameron, Monti and Hollande all asked for a policy change, but that seems different from what the article's describing.
Edit: The Eurocrisis reminds me of when banks were getting special liquidity from the Fed and Treasury. Except they never decided to resolve the issue through something like TARP or in the UK the odd nationalisation, so the crisis just drags on and gets more and more costly while never actually being solved.
QuoteThat is, the time isn't right for cutting government spending (there is NEVER a good time for austerity for Keynesians).
Someone really, really needs to read some Keynes :mellow:
Quote from: Sheilbh on May 21, 2012, 11:52:56 PM
Someone really, really needs to read some Keynes :mellow:
Yeah like Keynesians. Yi has a point. They tend to be all over the Keynes when it's stimulus time, but even when it's not stimulus time, they think it's stimulus time. They're like crack addicts, and they are using Keynes' name to do evil. It makes rational economists look foolish because they're at the whim of dumbass politicians.
I don't remember any out and out Keynesians calling for massive spending or tax increases in the 00s or 90s.
Edit: I should add that I think the West in general's moving into a far more straitened time than the 90s or 00s. So I think we should be passing lots of reforms of pensions, benefits, healthcare and those sort-of permanent costs which in my view matter far more in terms of budget balance. But there are economies with space for further stimulus right now, so long as those reforms are being passed, it's certainly the case in the UK.
Quote from: DGuller on May 21, 2012, 05:27:45 PM
Inflation is out of control as it is. How did we get from punch bowls to bazookas to howitzers in the space of a couple of years? At this rate, central bankers will be having ICBMs at their disposal next year.
You know what I am going to say on this, so I won't bother typing it.
Quote from: Iormlund on May 21, 2012, 08:02:47 PMQuote
That leaves the last party to the sovereign debt crisis, our Eurozone governments. Which have a terrible track record at doing painful structural reforms when it is much easier to buy off voters with easy money. How would the ECB enforce compliance when the governments know fully well that they will get bailed out in the name of the greater Euro well-being if necessary? Or if the ECB would publicly say that it doesn't cover a certain country anymore, wouldn't we see an immediate implosion of that country as it would immediately lose the ability to borrow from anyone? I mean who would still lend money to say Portugal if the ECB publicly declares that it considers Portugal hopeless because of non-compliance? That's a nuclear weapon, not something they can actually use.
You seem to have much more faith in our governments than I do.
But that boat sailed years ago. What you say you fear is exactly what happened when someone told investors that every state was to bail out its banks on its own.
So what you say is that reality shows us that it wouldn't work.
QuoteNot if those reforms are as effective as we are told. We'd all be Germans. ;)
East Germans. :P
QuoteIf further integration is not your thing, then the bazooka might not make sense.
I very much start to doubt that. I am slowly turning into Nigel Farage and I think so is the German electorate. Europe will be truely fucked if Germany develops anti-bailout or even anti-EU parties.
QuoteJust limit your losses, return to the DM and re-capitalize German banks. Or alternatively do nothing and face the same question years later, as Merkel did. It's just that the price of whatever the final choice is will be more expensive now (especially if someone does something stupid and Greece is forced out of the EU).
Pff, we can do something much more cynical: We wait until the Southern nations drop out of the Euro by themselves. Our industry currently benefits from the low value of the Euro. Why give that up?
Quote from: MadImmortalMan on May 22, 2012, 01:00:29 AM
Quote from: Sheilbh on May 21, 2012, 11:52:56 PM
Someone really, really needs to read some Keynes :mellow:
Yeah like Keynesians. Yi has a point. They tend to be all over the Keynes when it's stimulus time, but even when it's not stimulus time, they think it's stimulus time. They're like crack addicts, and they are using Keynes' name to do evil. It makes rational economists look foolish because they're at the whim of dumbass politicians.
Is that really such a surprise? Do you think there was ANY other reason why politics subscribe to the Keynesian model rather than the Austrian school? Any other than the fact that the Keynesian one gives them more excuse to buy votes and spend money, and extort influence and power over the economy?
Quote from: Tamas on May 22, 2012, 02:35:05 AM
Is that really such a surprise? Do you think there was ANY other reason why politics subscribe to the Keynesian model rather than the Austrian school? Any other than the fact that the Keynesian one gives them more excuse to buy votes and spend money, and extort influence and power over the economy?
But politics generally isn't Keynesian. That's why, in response to the crash, there was talk about the 'return of Keynes'. His wasn't the dominant economic school of the last 30 years.
Although I hate the way people talk about economic schools, it makes them sound like cults you sign into for life.
QuoteI very much start to doubt that. I am slowly turning into Nigel Farage and I think so is the German electorate. Europe will be truely fucked if Germany develops anti-bailout or even anti-EU parties.
True. I think I'll be voting to withdraw from the EU when we get a referendum.
Leaving the sinking ship, ha? :P
I shall also be voting to leave the EU when we get our referendum on the matter. In principle I am in favour, but the execution has been abysmal.
Quote from: Sheilbh on May 22, 2012, 02:54:50 AM
But politics generally isn't Keynesian. That's why, in response to the crash, there was talk about the 'return of Keynes'. His wasn't the dominant economic school of the last 30 years.
Although I hate the way people talk about economic schools, it makes them sound like cults you sign into for life.
Well, I can be easily convinced otherwise as I am not educated enough on the matter, but I would think that an economy based on fiat money and boom cycles generated by cheap artifical credit could be qualified as Keynesian.
As for the economic theory cults, yes, you have a good point there, but also this is understandable.
The very basic distinction between the main schools (for the laymen at least), largely depends on their take on politics and personal freedom. As such, it is not less a matter of conviction and character than political affiliation.
Quote from: Tamas on May 22, 2012, 03:18:03 AM
Well, I can be easily convinced otherwise as I am not educated enough on the matter, but I would think that an economy based on fiat money and boom cycles generated by cheap artifical credit could be qualified as Keynesian.
I'm not educated enough either. I'd simply make two points. The first is that the presiding economic tone of the last 30 years was set by Reagan, Volcker, Thatcher and shock therapy. It was one of low inflation, at the risk of high unemployment (not Keynesian). Now I think it was a necessary corrective that went too far, but there's no way it was Keynesian. You can't say the economic policies that initially did well in the post-war era and then led to stagflation were Keynesian and then that the liberalising and monetarist policies that initially did well after that and then led to a financial crisis were also Keynesian.
Secondly my view of the cheap credit boom is that basically what's happening in the Eurozone happened on a global scale. There were large capital imbalances that were looking for investments and ended up building houses in America and Ireland and Spain and just going everywhere in the UK. I think the failure in the US and UK was that our central banks were a bit too laid-back (again, Greenspan's a Rand fan, not a Keynesian) and lending wasn't being well-regulated enough. The credit wasn't artificial it was based on the surpluses all over the developing world, built up because their financial crises destroyed them and they mostly didn't get bailed out by anyone unlike our banks. There was insufficient control or understanding global capital in my view. It wasn't based on printing which is what you seem to imply.
QuoteThe very basic distinction between the main schools (for the laymen at least), largely depends on their take on politics and personal freedom. As such, it is not less a matter of conviction and character than political affiliation.
I don't see economics as like politics though. Politics is about choices, that's why I always get annoyed when people talk about 'rational' politics because there are lots of rational policies that deliver different, perfectly justifiable results and what defines ideology is how you prioritise and choose.
Whereas for me economics is more like history - it's too dismal to be a science - in that it's a sum of knowledge and theory that you can use to explain how things work and to try and shape politics. I disagree with Marxist theory, but it is a useful thinking tool and made important insights. Similarly Keynesianism or the Austrian school have useful perspectives and explanations but they're not holy dogma. But I'm not an economics buff so, I don't know, maybe that's how they should be.
On the Euro-crisis apparently there's some hope before the summit (as usual), but from what I can see Hollande's proposal of Eurobonds have been shot down by three separate senior German figures and were called a 'nonsense proposal' by Austria's Finance Minister (who does she think she is? <_<) and Germany's opposing allowing the EFSF or ESM to recapitalise banks. On the upside it looks like a deal's being agreed on project bonds - which I think'll be a disaster and are the worst of the proposals floating around, but hey-ho.
Quote from: Sheilbh on May 22, 2012, 06:32:00 AM
Austria's Finance Minister (who does she think she is? <_<)
Austrians wonder that, too. She's a bit tactless in general and not really known for her subtlety. She used to be a rather hard-ass minister of interior before cabinet reshuffling (esp. getting tough on asylum seekers).
Quote from: Admiral Yi on May 21, 2012, 09:26:48 PM
To make it a little more clear Zanza, Joan's bazooka is Germany writing a check for $200 billion.
Yes. But you have to keep in mind that just German TARGET2 claims are already over half a trillion € and growing.
Quote from: Zanza on May 22, 2012, 02:16:37 AM
East Germans. :P
Hey, not below the belt! :lol:
Quote
I very much start to doubt that. I am slowly turning into Nigel Farage and I think so is the German electorate. Europe will be truely fucked if Germany develops anti-bailout or even anti-EU parties.
I know how you feel.
I did everything right. I don't have a mortgage, bought a practical car made in Slovenia instead of a big German saloon, only used my CC for emergencies and generally lived within my means. I voted out the government that started the bubble. Voted against the next one, that once in power pretended it didn't exist.
And yet I find myself bailing out those who acted irresponsibly with my taxes, suffering lack advancement and rises due to the general economic malaise.
Quote
Pff, we can do something much more cynical: We wait until the Southern nations drop out of the Euro by themselves. Our industry currently benefits from the low value of the Euro. Why give that up?
Because instead of a managed crisis, you'll get a clusterfuck when the € collapses. What you are doing now is no different than what Spain did the last decade. Things are coming along fine, why change anything?
Quote from: Sheilbh on May 22, 2012, 02:54:50 AM
Although I hate the way people talk about economic schools, it makes them sound like cults you sign into for life.
That's generally true for the Austrian school. I have yet to hear from an Austrian who tries to shape the model to fit the reality, rather than try to shape the reality to fit the model.
Quote from: DGuller on May 22, 2012, 07:08:43 AM
Quote from: Sheilbh on May 22, 2012, 02:54:50 AM
Although I hate the way people talk about economic schools, it makes them sound like cults you sign into for life.
That's generally true for the Austrian school. I have yet to hear from an Austrian who tries to shape the model to fit the reality, rather than try to shape the reality to fit the model.
Yeah, interventionalists don't want to bend reality. NOT ONE BIT!
Quote from: Tamas on May 22, 2012, 07:16:44 AM
Yeah, interventionalists don't want to bend reality. NOT ONE BIT!
Not nearly to the same extent, not least of which because their theory actually does have some predictive power as an economic theory, especially during a crisis.
Quote from: DGuller on May 22, 2012, 07:25:00 AM
Quote from: Tamas on May 22, 2012, 07:16:44 AM
Yeah, interventionalists don't want to bend reality. NOT ONE BIT!
Not nearly to the same extent, not least of which because their theory actually does have some predictive power as an economic theory, especially during a crisis.
Right. Much good it is doing to us.
Quote from: Tamas on May 22, 2012, 07:28:02 AM
Quote from: DGuller on May 22, 2012, 07:25:00 AM
Quote from: Tamas on May 22, 2012, 07:16:44 AM
Yeah, interventionalists don't want to bend reality. NOT ONE BIT!
Not nearly to the same extent, not least of which because their theory actually does have some predictive power as an economic theory, especially during a crisis.
Right. Much good it is doing to us.
The Great Depression has not been renamed the World Depression I yet, has it? And to the extent that the risk is still there, it is there because of misguided and utterly predictable austerity-led disaster.
Quote from: DGuller on May 22, 2012, 07:34:44 AM
Quote from: Tamas on May 22, 2012, 07:28:02 AM
Quote from: DGuller on May 22, 2012, 07:25:00 AM
Quote from: Tamas on May 22, 2012, 07:16:44 AM
Yeah, interventionalists don't want to bend reality. NOT ONE BIT!
Not nearly to the same extent, not least of which because their theory actually does have some predictive power as an economic theory, especially during a crisis.
Right. Much good it is doing to us.
The Great Depression has not been renamed the World Depression I yet, has it? And to the extent that the risk is still there, it is there because of misguided and utterly predictable austerity-led disaster.
That thing ended for good only when the war broke out. We might have the same conclusion this time as well but let's try not to.
And the risk is from the inbalance of direct or implied government intervention, be it artifical credit around, or just the "the government won't let us fail".
Quote from: Tamas on May 22, 2012, 07:44:39 AM
That thing ended for good only when the war broke out. We might have the same conclusion this time as well but let's try not to.
And the risk is from the inbalance of direct or implied government intervention, be it artifical credit around, or just the "the government won't let us fail".
Sure it is, sure it is. :rolleyes:
Quote from: DGuller on May 22, 2012, 08:12:17 AM
Quote from: Tamas on May 22, 2012, 07:44:39 AM
That thing ended for good only when the war broke out. We might have the same conclusion this time as well but let's try not to.
And the risk is from the inbalance of direct or implied government intervention, be it artifical credit around, or just the "the government won't let us fail".
Sure it is, sure it is. :rolleyes:
This debate of ours is much more well done here:
http://www.youtube.com/watch?v=GTQnarzmTOc
:P
Quote from: Tamas on May 22, 2012, 07:44:39 AM
That thing ended for good only when the war broke out. We might have the same conclusion this time as well but let's try not to.
A major difference between the 1930s and today is that there is much more debt today. The US is just a few years away from the debt / GDP ratio at the end of WWII. If that global war were to break out now, we might end up throwing rocks at each other because there won't be money for guns.
Quote from: Iormlund on May 22, 2012, 06:53:09 AMYes. But you have to keep in mind that just German TARGET2 claims are already over half a trillion € and growing.
I found what Sheilbh posted a few pages ago on how it doesn't matter compelling.
Quote from: Sheilbh on May 22, 2012, 06:32:00 AM
On the Euro-crisis apparently there's some hope before the summit (as usual), but from what I can see Hollande's proposal of Eurobonds have been shot down by three separate senior German figures and were called a 'nonsense proposal' by Austria's Finance Minister (who does she think she is? <_<) and Germany's opposing allowing the EFSF or ESM to recapitalise banks. On the upside it looks like a deal's being agreed on project bonds - which I think'll be a disaster and are the worst of the proposals floating around, but hey-ho.
Hasn't Germany said that for several years now? Why should our position change just because France gets a new government? :huh:
Hope springs eternal.
Edit: More practically the German government's style all through this crisis has been to be unyielding right until the point when everything'll fall apart and damage is already done, at which point they agree to an unsatisfactory compromise that doesn't resolve things but delays the next crisis. I hope the anti-Eurobond position might go the same way as the anti-inflation, the anti-bailout and the anti-haircut position.
Quote from: Sheilbh on May 21, 2012, 11:52:56 PM
Well so far the bailouts of Greece, Ireland and Portugal have hit around €400 billion.
That's 400 billion in credit. The bazooka is a gift. Alms. Charity. A handout. Free money.
Quote from: Sheilbh on May 22, 2012, 02:54:50 AM
But politics generally isn't Keynesian. That's why, in response to the crash, there was talk about the 'return of Keynes'. His wasn't the dominant economic school of the last 30 years.
Clinton ran a small surplus for 2 years. Other than that it's been consistent deficit spending. Europe too AFAIK.
Quote from: Admiral Yi on May 22, 2012, 10:02:47 AM
Quote from: Sheilbh on May 22, 2012, 02:54:50 AM
But politics generally isn't Keynesian. That's why, in response to the crash, there was talk about the 'return of Keynes'. His wasn't the dominant economic school of the last 30 years.
Clinton ran a small surplus for 2 years. Other than that it's been consistent deficit spending. Europe too AFAIK.
The more I think about it, the more I think that the concept of budget surplus/deficit is unhelpful for anything except a talking point. Yes, it's simple, as long as you have the skill and experience to tell a negative number from a positive one, but it doesn't seem that useful.
It seems like the real neutral point, or at least the approximation of one, where one side is good, and the other side is not good, is the point where debt/GDP change is zero. The point where actual debt change is zero is overly conservative, and only makes sense in a zero growth environment.
Quote from: DGuller on May 22, 2012, 10:20:18 AM
The point where actual debt change is zero is overly conservative, and only makes sense in a zero growth environment.
The problem with this thinking is you end up either reducing deficit spending in recessionary times, which exacerbates rather than counteracts the business cycle, or you end up running small deficits in good times and larger ones in bad times. Repeat the second enough times and you run out of credit.
Quote from: Admiral Yi on May 22, 2012, 09:58:45 AM
Quote from: Sheilbh on May 21, 2012, 11:52:56 PM
Well so far the bailouts of Greece, Ireland and Portugal have hit around €400 billion.
That's 400 billion in credit. The bazooka is a gift. Alms. Charity. A handout. Free money.
That's assuming it works out and the overall costs of, say, a disorderly exit don't cost a lot more. I'm doubtful.
But I think the Eurozone's overemphasised moral hazard at the expense of confidence.
Quote from: Sheilbh on May 22, 2012, 10:38:11 AM
That's assuming it works out and the overall costs of, say, a disorderly exit don't cost a lot more. I'm doubtful.
But I think the Eurozone's overemphasised moral hazard at the expense of confidence.
Talk to Joan, it's his bazooka. After it's fired, everyone lives happily ever after.
Quote from: Admiral Yi on May 22, 2012, 10:02:47 AM
Quote from: Sheilbh on May 22, 2012, 02:54:50 AM
But politics generally isn't Keynesian. That's why, in response to the crash, there was talk about the 'return of Keynes'. His wasn't the dominant economic school of the last 30 years.
Clinton ran a small surplus for 2 years. Other than that it's been consistent deficit spending. Europe too AFAIK.
So?
Quote from: Admiral Yi on May 22, 2012, 10:31:01 AM
Quote from: DGuller on May 22, 2012, 10:20:18 AM
The point where actual debt change is zero is overly conservative, and only makes sense in a zero growth environment.
The problem with this thinking is you end up either reducing deficit spending in recessionary times, which exacerbates rather than counteracts the business cycle, or you end up running small deficits in good times and larger ones in bad times. Repeat the second enough times and you run out of credit.
Over the long term, of course. Obviously I didn't mean that every single year's budget should be set at a level that would bring about zero change in debt/GDP. I was just making a point that the neutral point of zero deficit is in general way too high, and not mathematically justified.
Quote from: Admiral Yi on May 22, 2012, 10:54:29 AM
Quote from: Razgovory on May 22, 2012, 10:52:40 AM
So?
So politics is generally Keynesian.
Only if you judge by faulty criteria. EDIT: Actually, despite using fauly criteria. The point is generally correct, as debt grew even when adjusted by GDP, but the argument is invalid for the reason mentioned previously.
Quote from: DGuller on May 22, 2012, 10:57:44 AM
Over the long term, of course. Obviously I didn't mean that every single year's budget should be set at a level that would bring about zero change in debt/GDP. I was just making a point that the neutral point of zero deficit is in general way too high, and not mathematically justified.
It's not in general way too high and it is mathematically justified if you account for the fact that total credit is not an infinite resource.
Quote from: DGuller on May 22, 2012, 10:59:28 AM
Quote from: Admiral Yi on May 22, 2012, 10:54:29 AM
Quote from: Razgovory on May 22, 2012, 10:52:40 AM
So?
So politics is generally Keynesian.
Only if you judge by faulty criteria.
Please elaborate, because so far your argument seems to be along the lines of "if it can be showcased as a good thing, it is Keynesian. If it's not, it's not".
Quote from: Admiral Yi on May 22, 2012, 11:01:34 AM
Quote from: DGuller on May 22, 2012, 10:57:44 AM
Over the long term, of course. Obviously I didn't mean that every single year's budget should be set at a level that would bring about zero change in debt/GDP. I was just making a point that the neutral point of zero deficit is in general way too high, and not mathematically justified.
It's not in general way too high and it is mathematically justified if you account for the fact that total credit is not an infinite resource.
By that logic, neither is GDP. However, if we go there, then the whole economic theory crumbles.
Quote from: DGuller on May 22, 2012, 11:04:21 AM
Quote from: Admiral Yi on May 22, 2012, 11:01:34 AM
Quote from: DGuller on May 22, 2012, 10:57:44 AM
Over the long term, of course. Obviously I didn't mean that every single year's budget should be set at a level that would bring about zero change in debt/GDP. I was just making a point that the neutral point of zero deficit is in general way too high, and not mathematically justified.
It's not in general way too high and it is mathematically justified if you account for the fact that total credit is not an infinite resource.
By that logic, neither is GDP. However, if we go there, then the whole economic theory crumbles.
well, yes.
:P
Quote from: DGuller on May 22, 2012, 11:04:21 AM
By that logic, neither is GDP. However, if we go there, then the whole economic theory crumbles.
What the fuck are you talking about?
Quote from: Admiral Yi on May 22, 2012, 10:49:03 AM
Talk to Joan, it's his bazooka. After it's fired, everyone lives happily ever after.
I agree with Joan. What I was saying was about the bailouts which I think you support.
QuoteSo politics is generally Keynesian.
That seems a reductive and frankly dishonest interpretation of Keynesianism. It's like judging whether a country's following monetarist policies based on their unemployment rate.
Quote from: Admiral Yi on May 22, 2012, 11:05:51 AM
Quote from: DGuller on May 22, 2012, 11:04:21 AM
By that logic, neither is GDP. However, if we go there, then the whole economic theory crumbles.
What the fuck are you talking about?
Almost any argument that relies on "X can't grow indefinitely" without any further qualifiers is undercut by the fact that GDP is assumed to grow indefinitely. And if GDP doesn't grow indefinitely, then economics becomes a zero-sum game, which changes the rules dramatically.
Quote from: Sheilbh on May 22, 2012, 11:08:30 AM
That seems a reductive and frankly dishonest interpretation of Keynesianism. It's like judging whether a country's following monetarist policies based on their unemployment rate.
Yeah, that too. Just to clarify, when I said that Yi was making a true statement despite supporting it with a bad argument, I meant just the debt part. Obviously the Keynesian part is idiotic, and uses the hysterical assumption about its result as a criteria for spotting it.
Quote from: DGuller on May 22, 2012, 10:20:18 AM
The more I think about it, the more I think that the concept of budget surplus/deficit is unhelpful for anything except a talking point. Yes, it's simple, as long as you have the skill and experience to tell a negative number from a positive one, but it doesn't seem that useful.
It seems like the real neutral point, or at least the approximation of one, where one side is good, and the other side is not good, is the point where debt/GDP change is zero. The point where actual debt change is zero is overly conservative, and only makes sense in a zero growth environment.
On the one hand I agree with you on a mathematical basis (and have made the same point before).
But we also need to remember that so much of governmental accounting is off balance sheet. For example, I've read the argument that Spain is an example of a "victim" of this crisis because they didn't have much debt and had a surplus headed into it. While that is true, they also set up a system with progressive taxation that would lead to automatic tax reductions in a recession, while at the same time creating for itself obligations for social spending that would increase in a recession. It is almost Enronesque in the way revenues, expenses, and liabilities were all set up to go the wrong way if any turbulence came to the economy. Spain being able to balance a budget and sustain itself with "only" a 40% debt to GDP ratio (or whatever it was) during an epic post Franco economic boom described as a "miracle" maybe wasn't such an accomplishment after all.
I'm not trying to call out Spain--certainly the US went into the crisis in worse shape and the lack of their own currency doesn't help. But this is certainly a mild crisis in the US compared to the Great Depression and our balance sheet is in awful shape after just a few years.
Quote from: alfred russel on May 22, 2012, 11:27:26 AM
I'm not trying to call out Spain--certainly the US went into the crisis in worse shape and the lack of their own currency doesn't help. But this is certainly a mild crisis in the US compared to the Great Depression and our balance sheet is in awful shape after just a few years.
But in large part it's a milder crisis because of the automatic stabilisers in the economy. Without that social spending this would have been a far worse and more painful recession.
As I've said before I think the thing with Spain (and Ireland) was that they had this massive amount of credit, in part because of the single currency. Because they were in the Euro their currencies didn't really appreciate as much as they should have, there wasn't any central bank to raise rates based on their situation or to impose credit controls or anything like that. It reminds me of reading about the early post-war when you've got the Breton Woods system. From what I understand the only way they could have deflated that bubble was by hugely deflationary budgets. That's a flaw in the Eurozone system that I don't think was known about and needs addressing, though I could be wrong.
I also think you're wrong to point out progressive taxation, I'm not sure about Spain but I know Ireland which is similar, a big problem in the revenue side was that they lifted lots of people out of paying tax at all (about as many as in the US) and really over-depended on property taxes. Also Spain's not got a great welfare state, from what I understand it's like other Mediterranean systems, so very strong on pensions but not so great for things like unemployment. The costs are always high, but don't fluctuate as much with the economy. The other side of this is that I think Mediterranean countries have far more family dependence and support than Northern Euro countries, so often a person on a pension will be helping support their unemployed kids or grandkids.
Quote from: Admiral Yi on May 22, 2012, 10:54:29 AM
So politics is generally Keynesian.
Sheilbh may be more correct about Britain than the US. I know that for us, it never went away, and while monetarist theory did wax for a while, it cannot really be said to have ever surpassed Keynes as the predominant theory in politics, IMO. Even Reagan and Bush were Keynesian in approach with their "tax cut stimulus" justification, which was essentially the same one used by Galbraith and JFK in the 60s.
Quote from: Sheilbh on May 22, 2012, 11:08:30 AM
I agree with Joan. What I was saying was about the bailouts which I think you support.
Then I don't understand what you mean.
QuoteThat seems a reductive and frankly dishonest interpretation of Keynesianism. It's like judging whether a country's following monetarist policies based on their unemployment rate.
It's a little dishonest. Keyenes himself can't be faulted for endemic deficit spending. But by the same token modern Keynesians haven't raised many objections.
But Keynesianism is about balancing a business cycle. Thatcher, certainly, was about allowing busts and tolerating large unemployment to tame inflation, crush the unions and embrace the creative destruction of capitalism - unlike a Keynesian like, say, MacMillan. I don't know the extent that goes for Reagan. They may have used the language of tax cuts for stimulus but I always thought the greater part was because they believed in them ideologically, that people should be taxed less, and to starve the beast.
Quote from: DGuller on May 22, 2012, 11:11:26 AM
Almost any argument that relies on "X can't grow indefinitely" without any further qualifiers is undercut by the fact that GDP is assumed to grow indefinitely. And if GDP doesn't grow indefinitely, then economics becomes a zero-sum game, which changes the rules dramatically.
Don't be a nitpickinig semantic ass. We've been talking about debt/GDP ratios. Debt/GDP is not an infinite resource.
Quote from: Admiral Yi on May 22, 2012, 11:48:46 AM
Then I don't understand what you mean.
The bailouts are only cheaper if they work out. Given the situation in Greece and the likelihood of disorderly exit, with all of those economic costs I'm far from convinced.
A bazooka addresses market confidence in the Euro, at the cost of moral hazard. The current approach has, in my view, got lots of moral hazard but done nothing to address confidence.
Quote from: Richard Hakluyt on May 22, 2012, 03:13:17 AM
I shall also be voting to leave the EU when we get our referendum on the matter. In principle I am in favour, but the execution has been abysmal.
The polls are something ilike 51% against vs 28% for right now, so such a referendum would likely win. Also UKIP are consistantly polling as much as the LibDems at the moment.
Quote from: PJL on May 22, 2012, 11:53:12 AMAlso UKIP are consistantly polling as much as the LibDems at the moment.
:huh: Wow.
Quote from: Sheilbh on May 22, 2012, 11:51:32 AM
The bailouts are only cheaper if they work out.
The bailouts are cheaper if Germany gets back 50 cents on the dollar. If the bazooka doesn't work out it's not terribly cheap either.
Quote from: Sheilbh on May 22, 2012, 11:40:15 AM
part it's a milder crisis because of the automatic stabilisers in the economy. Without that social spending this would have been a far worse and more painful recession.
As I've said before I think the thing with Spain (and Ireland) was that they had this massive amount of credit, in part because of the single currency. Because they were in the Euro their currencies didn't really appreciate as much as they should have, there wasn't any central bank to raise rates based on their situation or to impose credit controls or anything like that. It reminds me of reading about the early post-war when you've got the Breton Woods system. From what I understand the only way they could have deflated that bubble was by hugely deflationary budgets. That's a flaw in the Eurozone system that I don't think was known about and needs addressing, though I could be wrong.
I also think you're wrong to point out progressive taxation, I'm not sure about Spain but I know Ireland which is similar, a big problem in the revenue side was that they lifted lots of people out of paying tax at all (about as many as in the US) and really over-depended on property taxes. Also Spain's not got a great welfare state, from what I understand it's like other Mediterranean systems, so very strong on pensions but not so great for things like unemployment. The costs are always high, but don't fluctuate as much with the economy. The other side of this is that I think Mediterranean countries have far more family dependence and support than Northern Euro countries, so often a person on a pension will be helping support their unemployed kids or grandkids.
I think you are misinterpreting what I was getting at. It isn't that we should get rid of automatic stabilizers, but that if we were rather irresponsible prior to the crisis.
Also, I think you are taking a narrow view of progressive taxation. I would classify property taxes as a form of progressive taxation, as well as removing the less well off from the tax rolls. As for the liability side, I'm not saying Spain was unusual.
Quote from: alfred russel on May 22, 2012, 11:59:45 AMAlso, I think you are taking a narrow view of progressive taxation. I would classify property taxes as a form of progressive taxation, as well as removing the less well off from the tax rolls. As for the liability side, I'm not saying Spain was unusual.
I think raising the personal allowance so less people pay tax is 'progressive' and wrong. I'm not sure that I'd say property taxes are a form of progressive tax though. Like all taxes they're useful in a tax mix but you can be far too reliant on them because they're comparatively painless. I think that happened in some US states as well as Ireland.
Quote from: Admiral Yi on May 22, 2012, 11:50:16 AM
Quote from: DGuller on May 22, 2012, 11:11:26 AM
Almost any argument that relies on "X can't grow indefinitely" without any further qualifiers is undercut by the fact that GDP is assumed to grow indefinitely. And if GDP doesn't grow indefinitely, then economics becomes a zero-sum game, which changes the rules dramatically.
Don't be a nitpickinig semantic ass. We've been talking about debt/GDP ratios. Debt/GDP is not an infinite resource.
I'm not being nitpicking, though may be I may be not understanding your point. Are you saying that you can't run debt/GDP to infinity, or are you saying that you can't keep debt/GDP constant indefinitely? If you mean the first thing, then duh, but I don't know what it has to do with anything. If it's the second thing, then you're saying exactly what I thought you were saying. Maybe there's a third way?
Quote from: MadImmortalMan on May 22, 2012, 01:00:29 AM
Yeah like Keynesians. Yi has a point. They tend to be all over the Keynes when it's stimulus time, but even when it's not stimulus time, they think it's stimulus time.
As is often the case, this is a definition of Keynesianism that excludes Keynes.
Maybe. But, if there is a ruling economic theory governing our world, and that is based on the works of Keynes, and this allows the politicans the irresponsibility they are showing, their errors are the errors of "Keynesianism" even if Keynes himself would disagree with them. It is interventionalism, and the public's acceptance of that, which puts this great power in the hands of the few, to abuse and fuck up freely.
Quote from: Admiral Yi on May 22, 2012, 09:58:45 AM
Quote from: Sheilbh on May 21, 2012, 11:52:56 PM
Well so far the bailouts of Greece, Ireland and Portugal have hit around €400 billion.
That's 400 billion in credit. The bazooka is a gift. Alms. Charity. A handout. Free money.
Yes.
I think a real gift that gets the job done is better than a bailout that costs twice as much, with strings that don't in fact stay intact, and which doesn't get the job done.
Moral hazard can be addressed in the manner I discussed and in other ways as well. Would it be totally effective? No. Is it a good solution? No. The time for good solutions passed a long time ago. This analysis is about looking for the bad solutions with the least amount of warts on them.
Quote from: alfred russel on May 22, 2012, 11:27:26 AM
I'm not trying to call out Spain--certainly the US went into the crisis in worse shape and the lack of their own currency doesn't help. But this is certainly a mild crisis in the US compared to the Great Depression and our balance sheet is in awful shape after just a few years.
But the US issues its own currency, and even better it issues the world's dominant reserve currency. A big part of the problem for the Eurozone periphery is that they can't benefit from exchange rate adjustment and their lack of control over the currency makes fiscal constraints hard. Spain (and Portugal and Ireland and Italy etc.) simply have a lot less room to manuever than the US.
Quote from: Admiral Yi on May 22, 2012, 11:48:46 AM
It's a little dishonest. Keyenes himself can't be faulted for endemic deficit spending. But by the same token modern Keynesians haven't raised many objections.
Some US Keynesians in the mid-oughts advocating dumping the 01/03 tax cuts and cut back on war expenditures, with an attempt to get to fiscal balance oncer the economy recovered in 04. On the same theory that some Keynesians supported going to a balanced fiscal position in the late 90s.
Quote from: Tamas on May 22, 2012, 01:12:47 PM
Maybe. But, if there is a ruling economic theory governing our world, and that is based on the works of Keynes, and this allows the politicans the irresponsibility they are showing, their errors are the errors of "Keynesianism" even if Keynes himself would disagree with them. It is interventionalism, and the public's acceptance of that, which puts this great power in the hands of the few, to abuse and fuck up freely.
I don't think there is any ruling economic theory that in the real world drives fiscal excess. In the US at least historically since 1980, key driving factors have been domination of the Hill by interest groups -- think Mancur Olson more than JM Keynes -- and the mystical hold of the Laffer curve. The supply-side sheen has gotten duller, but the intrest groups have grown more powerful than ever. The 01 tax cuts were justified in part on bastard Keynsian grounds and obviously ARRA had Keynsian boosters, but that is only part of the story.
Quote from: The Minsky Moment on May 22, 2012, 01:18:03 PM
Quote from: alfred russel on May 22, 2012, 11:27:26 AM
I'm not trying to call out Spain--certainly the US went into the crisis in worse shape and the lack of their own currency doesn't help. But this is certainly a mild crisis in the US compared to the Great Depression and our balance sheet is in awful shape after just a few years.
But the US issues its own currency, and even better it issues the world's dominant reserve currency. A big part of the problem for the Eurozone periphery is that they can't benefit from exchange rate adjustment and their lack of control over the currency makes fiscal constraints hard. Spain (and Portugal and Ireland and Italy etc.) simply have a lot less room to manuever than the US.
I agree (and was trying to allude to that).
QuoteGermany will for the first time sell two-year bonds on Wednesday that won't make scheduled interest rate payments
http://blogs.wsj.com/eurocrisis/2012/05/22/germany-to-sell-zero-coupon-bonds-for-first-time/?mod=google_news_blog
Next step should be to demand a fee for being allowed to buy a bond. :P
Quote from: Zanza on May 22, 2012, 09:16:05 AM
Hasn't Germany said that for several years now? Why should our position change just because France gets a new government? :huh:
The Guardian quoted an analyst from Investec on much the same:
QuoteGermany risks appearing a bit like Jim Trott in the Vicar of Dibley, 'no, no, no, no, no.....yes'. It remains firmly against common bond issuance and measures to increase the lending power of the European Stability Mechanism (ESM) such as granting it a banking licence or lending directly to banks. All are likely proposals at today's leaders' meeting, and some way of boosting the firewall is required fairly soon. The OECD and the IMF both joined the chorus calling for greater fiscal liability-sharing yesterday. But the single currency probably has to be closer to the end of the cliff before Germany's 'no' turns to a 'yes'.
My worry with this is that by that time it may not be enough.
what's the problem with a common euro bond?
I know it would be suicidal for Germany in the current conditions, but surely nobody proposes to have it without seriously overhauling the way EU finances work?
This should be the perfect timing of curbing the independence of national central banks and governments in regards to fiscal policy. Austerity, if you will. Rationalization, say I.
And, the transitional period could be eased with the issue of eurobonds, and the growth programs launched in the perifery by them.
But noooo, they just draw a line in the sand, and will only rush to some hasty half-assed solution when we will be about to burn.
There is no will for further fiscal integration anywhere. And frankly, as the right to set the budget is the core competency of parliaments, I am wary to give that authority to the EU commission or Council. The democratic deficit on EU level means they shouldn't have that competency.
Quote from: Tamas on May 23, 2012, 03:41:55 AM
what's the problem with a common euro bond?
I know it would be suicidal for Germany in the current conditions, but surely nobody proposes to have it without seriously overhauling the way EU finances work?
Why would it be suicidal for Germany? What do you mean by the way EU finances work?
German objections are that it removes the incentives for countries to deal with their debt and has a moral hazard issue. In addition German borrowing costs would rise. Those are all true but I think the fiscal pact has put those incentives in place anyway and the moral hazard problem doesn't over-worry me because I think the alternative is a collapse of confidence in the Euro.
If they leave everything as is, except that euro countries will be abe to issue bonds guaranteed by germany, we will postpone the crash by a decade. Maybe two. But when it happens, Germany will go down too.
Why? because no greek leadership, or spanish for that matter, will fix their state if they dont have to. Plenty of evidence for that.
Quote from: Sheilbh on May 23, 2012, 03:37:37 AM
My worry with this is that by that time it may not be enough.
And our worry is that all those premature bazooka shots wouldn't solve anything in the medium or long-term and maybe even make it worse and more expensive in the long-term.
Quote from: Tamas on May 23, 2012, 04:19:38 AM
If they leave everything as is, except that euro countries will be abe to issue bonds guaranteed by germany, we will postpone the crash by a decade. Maybe two. But when it happens, Germany will go down too.
Why? because no greek leadership, or spanish for that matter, will fix their state if they dont have to. Plenty of evidence for that.
That's not what Eurobonds are though.
I'm not willing to predict a year or two down the line far less a decade or two.
QuoteAnd our worry is that all those premature bazooka shots wouldn't solve anything in the medium or long-term and maybe even make it worse and more expensive in the long-term.
This is where we disagree. I think the fiscal pact and structural reforms will be important in solving the long-term problems - though not sufficient the European banking sector's a problem that needs addressing long-term. But that that may come to nothing if the short-term crisis is allowed to continue escalating.
Quote from: Tamas on May 23, 2012, 03:41:55 AM
This should be the perfect timing of curbing the independence of national central banks and governments in regards to fiscal policy. Austerity, if you will. Rationalization, say I.
Everyone seems to agree on curbing the other guy's sovereignty. When it comes to their own ... If this crisis has taught us anything is that Europeans are not over nationalism.
Truth is a workable Euro means confederated Europe. And that can't be a step by step program because European institutions are largely irrelevant so politics naturally devolve to national interests. We would need an elected president, a meaningful parliament divided along ideological lines and so on to start the process not as an eventual goal.
Quote from: Sheilbh on May 23, 2012, 04:27:32 AM
I'm not willing to predict a year or two down the line far less a decade or two.
Even a month or two could completely change the picture at this point.
Quote from: Iormlund on May 23, 2012, 07:03:06 AM
Quote from: Tamas on May 23, 2012, 03:41:55 AM
This should be the perfect timing of curbing the independence of national central banks and governments in regards to fiscal policy. Austerity, if you will. Rationalization, say I.
Everyone seems to agree on curbing the other guy's sovereignty. When it comes to their own ... If this crisis has taught us anything is that Europeans are not over nationalism.
Truth is a workable Euro means confederated Europe. And that can't be a step by step program because European institutions are largely irrelevant so politics naturally devolve to national interests. We would need an elected president, a meaningful parliament divided along ideological lines and so on to start the process not as an eventual goal.
Quote from: Sheilbh on May 23, 2012, 04:27:32 AM
I'm not willing to predict a year or two down the line far less a decade or two.
Even a month or two could completely change the picture at this point.
I agree completely.
Quote from: Sheilbh on May 23, 2012, 04:27:32 AM
Quote from: Tamas on May 23, 2012, 04:19:38 AM
If they leave everything as is, except that euro countries will be abe to issue bonds guaranteed by germany, we will postpone the crash by a decade. Maybe two. But when it happens, Germany will go down too.
Why? because no greek leadership, or spanish for that matter, will fix their state if they dont have to. Plenty of evidence for that.
That's not what Eurobonds are though.
that's what they would be in reality.
Free money for states that don't deserve it.
I will refer here to the belgian situation (again): The only reason the walloon part of the country isn't the third-world shithole it should be is because of unlimited flowing from the north (unchecked) to the south, as well as a lot of money from the European Union. Since WW2 the southern part of the country has only managed to decline despite all those innumerable billions in transferts, handouts, investments, structural funds and what-else. The southern part of the country hasn't even bothered to present a balanced bugdet yet... or ever since it was granted the ability to actually make a budget. And why should they? The north (flanders) and the EU pay the bills anyway.
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)
Quote from: Zanza on May 23, 2012, 01:43:03 AM
QuoteGermany will for the first time sell two-year bonds on Wednesday that won't make scheduled interest rate payments
http://blogs.wsj.com/eurocrisis/2012/05/22/germany-to-sell-zero-coupon-bonds-for-first-time/?mod=google_news_blog
Next step should be to demand a fee for being allowed to buy a bond. :P
US has been issuing zero-coupon bonds for some time. Not that revolutionary. Interest is implied by the discount to par they are bought at.
Although it is still possible for bonds to pay negative interest at issue. I think Japanese govt. bonds are paying negative interest.
The Commission proposal for Eurobonds (supported by Hollande, the IMF, OECD, Draghi, Monti, Barosso and, in a slightly adapted form, the German Economic Wise Men) only covers 60% of GDP and those bonds have senior status. It's not total debt mutualisation.
Here's Martin Wolf's on the particular problems of the Eurozone and how Eurobonds help address it:
QuoteOne of the questions raised in the subsequent discussions is why the possibility of illiquidity-induced default (as in the Spanish sovereign debt market) should be any different in impact from the possibility of a devaluation and inflation (as in the gilt market).
I have three suggested answers.
The first is that the chance of illiquidity in the government bond markets is an additional risk. A freeze on liquidity may drive a solvent sovereign into default: we are then in the world of multiple equilibria. Thus a sovereign that could perfectly well avoid default if it had market confidence is, in the absence of a central bank, vulnerable to a run. The bonds of governments that lack their own central banks are exposed to an extra risk, in exactly the same way that the liabilities of banks without lenders of last resort are also exposed to risks that banks with lenders of last resort do not face.
The second answer is that investors believe they will be able to get out in time if a particular bond becomes vulnerable to inflation. Inflation is, initially at least, a slow-motion form of default for conventional bonds. Alert investors may well feel confident in their ability to escape in time. Defaults are a different matter. These may be sudden and so difficult to anticipate. Moreover, the loss of value in the case of a default is inherently unpredictable, being vulnerable to legal and other risks, while inflation is relatively predictable and also has no legal implications.
The third answer is that the risk of inflation or devaluation is, for an investor with domestic currency assets and liabilities, neutral for the balance-sheet. That is, it should not affect the relationship between the two sides of the balance sheet. This being so, neither inflation nor devaluation should expose the investor to increased risk of bankruptcy, which is always highly disruptive. But suppose a Spanish investor owes euro liabilities and holds Spanish government bonds subject to default risk (unlike, say, sterling bonds, which are exposed to inflation and devaluation risk). Such an investor is exposed to significant balance sheet risk associated with the chances of illiquidity-induced default.
For these reasons and those in the previous posts, as well as the evidence, it seems clear that eurozone sovereigns are exposed to risks that sovereigns with floating exchange rates and central banks are not.
...
A second and less radical possibility would be to create a class of debt that is liquid in all circumstances. This would be some form of eurobonds or eurobills. These would cover a substantial portion of all the outstanding government debts (maybe, up to 60 per cent of each country's GDP, this being limit set in the Maastricht treaty). All members would issue joint and several guarantees of such eurobonds and the European Central Bank would use such bonds (and bills) in all its market interventions. Being collectively issued and guaranteed and senior to all other public debt, these bonds would be safe. Moreover, the ECB would promise to keep this market liquid if necessary.
Quote from: Sheilbh on May 23, 2012, 04:27:32 AMI'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? :wacko:
Quote from: Sheilbh on May 23, 2012, 11:28:12 AM
The Commission proposal for Eurobonds (supported by Hollande, the IMF, OECD, Draghi, Monti, Barosso and, in a slightly adapted form, the German Economic Wise Men) only covers 60% of GDP and those bonds have senior status. It's not total debt mutualisation.
Here's Martin Wolf's on the particular problems of the Eurozone and how Eurobonds help address it:
QuoteOne of the questions raised in the subsequent discussions is why the possibility of illiquidity-induced default (as in the Spanish sovereign debt market) should be any different in impact from the possibility of a devaluation and inflation (as in the gilt market).
I have three suggested answers.
The first is that the chance of illiquidity in the government bond markets is an additional risk. A freeze on liquidity may drive a solvent sovereign into default: we are then in the world of multiple equilibria. Thus a sovereign that could perfectly well avoid default if it had market confidence is, in the absence of a central bank, vulnerable to a run. The bonds of governments that lack their own central banks are exposed to an extra risk, in exactly the same way that the liabilities of banks without lenders of last resort are also exposed to risks that banks with lenders of last resort do not face.
The second answer is that investors believe they will be able to get out in time if a particular bond becomes vulnerable to inflation. Inflation is, initially at least, a slow-motion form of default for conventional bonds. Alert investors may well feel confident in their ability to escape in time. Defaults are a different matter. These may be sudden and so difficult to anticipate. Moreover, the loss of value in the case of a default is inherently unpredictable, being vulnerable to legal and other risks, while inflation is relatively predictable and also has no legal implications.
The third answer is that the risk of inflation or devaluation is, for an investor with domestic currency assets and liabilities, neutral for the balance-sheet. That is, it should not affect the relationship between the two sides of the balance sheet. This being so, neither inflation nor devaluation should expose the investor to increased risk of bankruptcy, which is always highly disruptive. But suppose a Spanish investor owes euro liabilities and holds Spanish government bonds subject to default risk (unlike, say, sterling bonds, which are exposed to inflation and devaluation risk). Such an investor is exposed to significant balance sheet risk associated with the chances of illiquidity-induced default.
For these reasons and those in the previous posts, as well as the evidence, it seems clear that eurozone sovereigns are exposed to risks that sovereigns with floating exchange rates and central banks are not.
...
A second and less radical possibility would be to create a class of debt that is liquid in all circumstances. This would be some form of eurobonds or eurobills. These would cover a substantial portion of all the outstanding government debts (maybe, up to 60 per cent of each country's GDP, this being limit set in the Maastricht treaty). All members would issue joint and several guarantees of such eurobonds and the European Central Bank would use such bonds (and bills) in all its market interventions. Being collectively issued and guaranteed and senior to all other public debt, these bonds would be safe. Moreover, the ECB would promise to keep this market liquid if necessary.
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.
Quote from: Crazy_Ivan80 on May 23, 2012, 11:13:19 AMThat 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)
:yes:
Quote from: Zanza on May 23, 2012, 11:39:54 AM
Quote from: Sheilbh on May 23, 2012, 04:27:32 AMI'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? :wacko:
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.
QuoteMaybe 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.
Quote from: Sheilbh on May 23, 2012, 11:56:17 AMI 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.
QuoteAnd 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.
QuoteFrankly, 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.
Greece: Armed militias prepare for the uprising
http://deutsche-wirtschafts-nachrichten.de/2012/04/17/griechenland-erste-bewaffnete-buergerwehren-aufgetaucht/ (http://deutsche-wirtschafts-nachrichten.de/2012/04/17/griechenland-erste-bewaffnete-buergerwehren-aufgetaucht/)
Quote from: citizen k on May 24, 2012, 01:21:01 PM
Greece: Armed militias prepare for the uprising
This is madness.
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.
Quote from: Valmy on May 24, 2012, 01:48:07 PM
Quote from: citizen k on May 24, 2012, 01:21:01 PM
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.
Quote from: Sheilbh on May 24, 2012, 01:58:57 PM
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
Quote from: Crazy_Ivan80 on May 24, 2012, 04:01:47 PM
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?
QuoteThe 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.
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.
QuoteGreece'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 (http://www.guardian.co.uk/world/2012/may/24/police-urge-greeks-money-bank?CMP=twt_fd)
Quote from: Sheilbh on May 24, 2012, 04:10:56 PM
Quote from: Crazy_Ivan80 on May 24, 2012, 04:01:47 PM
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?
QuoteThe 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.
Quote from: Sheilbh on May 24, 2012, 01:58:57 PM
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?
Quote from: Zanza on May 25, 2012, 01:40:45 AM
Quote from: Sheilbh on May 24, 2012, 01:58:57 PM
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.
QuoteThere 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?
Quote from: Sheilbh on May 25, 2012, 02:59:38 AMIf 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? :huh: And why would it mean a real split? It's obviously less of a split than right now.
Obviously if all countries sign up then there's lower borrowing costs. More importantly it's an important step by the Eurozone towards securing the Eurozone as a currency area, it's action that follows all of the words about what the Euro means. It's a very clear statement and a strong move towards greater fiscal union which is where the Euro needs to go to survive.
If, say, the Euro-core or the Euro-periphery starts issuing their own bonds then in effect they'd be taking the first step to running a parallel currency and I think the markets would see that as a de facto separation that would be followed with a real separation. Also it's not less of a split than now, there's arguments and divisions within the Eurozone but all action that's been taken has been by the Eurozone - so the establishment of the EFSF, and ESM, and the fiscal pact. If one part of the Eurozone starts offering their own bonds, or going through further fiscal integration then you'd have an institutional split in the Eurozone which I don't think it could stand. You'd end up, whether you wanted it or not, with that Eurosceptic solution of a Northern Thaler and a Southern Euro - which as I say maybe could work but I think should be decided rather than being bounced into.
Edit: Interestingly Greek revenue collection's down by almost a third. I wonder if this is a sort of revenue Gresham's law as, a while back, the Economist suggested may happen. Why give up good Euros to the revenue when you know or suspect that the drachma's on its way.
Quote from: Sheilbh on May 23, 2012, 11:28:12 AM
The Commission proposal for Eurobonds (supported by Hollande, the IMF, OECD, Draghi, Monti, Barosso and, in a slightly adapted form, the German Economic Wise Men) only covers 60% of GDP and those bonds have senior status. It's not total debt mutualisation.
If it isn't, then it won't fix the problem. Spain is over 60% debt to GDP. Spain doesn't have access to debt markets at decent market rates. If you were really to mutualize 60% and then throw Spain to the wolves on the rest, it would still be subject to severe distress.
What seems likely to me is that the 60% is mutualized, and then when Spain continues to experience severe distress the argument is made, "we are already on the hook for 60% of Spain's economy, should we really let them take us all down rather than give them just a bit more help?"
Quote from: Zanza on May 25, 2012, 04:08:26 AM
Quote from: Sheilbh on May 25, 2012, 02:59:38 AMIf 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? :huh: And why would it mean a real split? It's obviously less of a split than right now.
I can explain it. Sheilbh says a majority of eurozone countries are now in favor. I can tell you a good chunk of that list: Greece, Cyprus, Ireland, Portugal, Spain, Italy, and Belgium. That is 7 countries. 2 more and we have a majority. When you put a bunch of pieces of shit together, you don't get a wonderful bouquet of flowers, you just get a pile of shit.
Quote from: alfred russel on May 25, 2012, 08:32:03 AM
If it isn't, then it won't fix the problem. Spain is over 60% debt to GDP. Spain doesn't have access to debt markets at decent market rates. If you were really to mutualize 60% and then throw Spain to the wolves on the rest, it would still be subject to severe distress.
It depends what you think the problem is. Spain's got debt of around 80%, so under the EU average. If they were able to refinance up to 60% as senior, Euro-debt that would relieve pressure quite significantly. Obviously they still need to shrink their deficit - and to that they need to resolve the banking crisis somehow - and continue with structural reforms. That would possibly become even more urgent because the non-Eurobond debt would be higher risk and costlier.
More importantly it would fix the problem that Martin Wolf's discussing up there which is that you could have a liquidity crisis in a Eurozone state's bonds, with a run on their debt, causing a solvent country to default - that's the big risk with Spain. In addition I think Eurobonds would be enough to stop the contagion and confidence crisis in the Euro.
Quote from: Sheilbh on May 25, 2012, 09:11:18 AM
It depends what you think the problem is. Spain's got debt of around 80%, so under the EU average. If they were able to refinance up to 60% as senior, Euro-debt that would relieve pressure quite significantly. Obviously they still need to shrink their deficit - and to that they need to resolve the banking crisis somehow - and continue with structural reforms. That would possibly become even more urgent because the non-Eurobond debt would be higher risk and costlier.
More importantly it would fix the problem that Martin Wolf's discussing up there which is that you could have a liquidity crisis in a Eurozone state's bonds, with a run on their debt, causing a solvent country to default - that's the big risk with Spain. In addition I think Eurobonds would be enough to stop the contagion and confidence crisis in the Euro.
This isn't a liquidity crisis. It has been going on for years, during which the central banks of the world have been flooding the world with liquidity, and the more secure nations of europe are having no problem rolling over debt--and doing so at historically low interest rates.
This is clearly a question of solvency. Spain, like every other first world government, has massive unfunded future obligations. I think that any intelligent person looking at Spain is going to have to question whether it is going to meet those obligations in light of the fact it has sustained ~25% unemployment, much worse in the youth population, and a european labor market that allows them to leave without restriction. To an extent whether the debt to GDP ratio is 60%, 80%, 100%, or 120% is not especially relevant--the question is whether the current Spanish model is sustainable in the current competitive environment. I'm not saying the answer is no, but there is certainly more risk there than in Germany, and the thought seems to be out there that interest rates with the market level of risk premium will send Spain into a death spiral.
Quote from: Sheilbh on May 25, 2012, 09:11:18 AM
Spain's got debt of around 80%, so under the EU average.
Does that include provincial debt, bank recapitalization predictions, and obligations to the EU rescue fund, or is that just central government debt?
Quote from: Admiral Yi on May 25, 2012, 09:57:16 AM
Does that include provincial debt, bank recapitalization predictions, and obligations to the EU rescue fund, or is that just central government debt?
I believe it includes central government debt, EU obligations, recapitalisations to date and regional debt too.
I'll get back to you later AR. I'd just say the Euro crisis overall isn't a liquidity criss, the ECB hasn't flooded the world but, as the Wolf article I mentioned explains, Spain's at risk from a illiquidity induced default.
Dad has three kids, and the kids want a new car each but they don't have jobs. They can't get the loan to buy a car, but they could if dad cosigned the loan for them. Now the family decides to vote on whether dad should do this. Dad loses three to one.
http://www.zerohedge.com/news/about-european-stress-test-2011-edition-and-where-pain-spain-raining-next (http://www.zerohedge.com/news/about-european-stress-test-2011-edition-and-where-pain-spain-raining-next)
Quote
About That European Stress Test, 2011 Edition... And Where The Pain In Spain Is Raining Next
Back when Dexia was nationalized in the fall of 2011, one of the running jokes was that it was the bank that had one of the highest grades in the European Stress Test conducted just months prior. Here is another joke: we now know that Spain's Bankia is the next major financial institution which is being nationalized, and whose bailout costs are literally growing by the hour. Was Bankia one of the Stress Test 2011 failures? Why of course not... But 5 other Spanish banks were.
Source: EBA
As a reminder:
Greece's EFG Eurobank Ergasias SA (EUROB) and Agricultural Bank of Greece (ATE) SA, Austria's Oesterreichische Volksbanken AG (VBPS) and Spain's Banco Pastor SA (PAS), Caja de Ahorros del Mediterraneo (CAM), Banco Grupo Caja3, CatalunyaCaixa and Unnim failed. They were found to have insufficient reserves to maintain a core Tier 1 capital ratio of 5 percent in the event of an economic slowdown. All banks examined in Italy, Germany, France, the U.K. and Ireland passed.
"The problem children are going to be the 16 banks between 5 and 6 percent, and what happens to those," said Joseph Dickerson, a banking analyst at Espirito Santo Investment Bank in London. "The market will put substantial pressure on those banks to raise capital."
Those banks include Banco Comercial Portugues SA (BCP), Espirito Santo Financial Group SA (ESF), Germany's HSH Nordbank AG and Norddeutsche Landesbank. BCP and Espirito Santo will bolster capital or sell assets in the next three months, the Bank of Portugal said yesterday.
In other words, if the bank that passed the stress test has now failed less than a year later, we would be very curious what the true state of the other 5 Spanish banks that did fail the stress test is currently. Again, these are Pastor SA (PAS), Caja de Ahorros del Mediterraneo (CAM), Banco Grupo Caja3, CatalunyaCaixa and Unnim. And that excludes all the non-Hispanic banks that also failed or were on the endangered species list.
Finally, if anyone is still confused where the pain is headed next, here is a list from Morgan Stanley of all Euro banks with a Core Tier 1 ratio that is so low, that the banks will soon regret not raising more capital in the period of calm that the ECB's LTRO bought them.
Hint: CASA is Credit Agricole...
Also, one bank is missing from the list above: Deutsche Bank. CT1/TA: 1.68%. Oops.
As far as I know those banks have already been rescued and undergone mergers with healthier banks. What remains to be seen is how much more money they'll need. CAM in particular must be knee deep in toxic assets.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fi.imgur.com%2Fh0rYj.png&hash=c5ab97c0232faa9bd51e3a9e57d439b8e1d71e91)
:lol:
Even if Germany takes on 60% of Spains GDP in debt, the market is still going to know that Spain isn't good for the rest of the money, and so their ability to finance their debt won't really improve.
I think so as well. It's just waaaaaay too late to fix things now. With a bit of luck we'll refuse to be rescued when the moment comes, but I'm not holding my breath.
Quote from: Iormlund on May 25, 2012, 04:25:03 PM
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fi.imgur.com%2Fh0rYj.png&hash=c5ab97c0232faa9bd51e3a9e57d439b8e1d71e91)
:lol:
:mellow:
It's a Venn diagram Yi, I thought it summed things up pretty well.
If Greece were to run a surplus of 20% of GDP, surely Germany would accept.
Quote from: Admiral Yi on May 25, 2012, 06:41:33 PM
If Greece were to run a surplus of 20% of GDP, surely Germany would accept.
Yeah, but "Will work" wouldn't accept.
Quote from: DGuller on May 25, 2012, 07:01:39 PM
Yeah, but "Will work" wouldn't accept.
Of course it would. Greek debt would decrease. At some point it would be small enough that Greece could re-enter the market and stop relying on concessionary credit.
Quote from: Admiral Yi on May 25, 2012, 07:03:26 PM
Quote from: DGuller on May 25, 2012, 07:01:39 PM
Yeah, but "Will work" wouldn't accept.
Of course it would. Greek debt would decrease. At some point it would be small enough that Greece could re-enter the market and stop relying on concessionary credit.
:huh: I don't know if you're playing dumb, or being genuine.
Genuine.
The subtext of "will work" of course is if austerity doesn't generate growth quickly, then it's "not working." Or if austerity makes people really mad then it's 'not working."
Quote from: Admiral Yi on May 25, 2012, 07:22:14 PM
The subtext of "will work" of course is if austerity doesn't generate growth quickly, then it's "not working."
Quickly? :lol:
Quote from: Iormlund on May 25, 2012, 07:43:35 PM
Quickly? :lol:
At all then. [shrugs]
The purpose of austerity is not to generate growth.
Quote from: Admiral Yi on May 25, 2012, 06:41:33 PM
If Greece were to run a surplus of 20% of GDP, surely Germany would accept.
Greece has been implementing austerity that is too mild for Germany and doesn't even balance the budget. Tax revenues have plummeted. To actually get a surplus that big on more than just paper, government spending would be cut to the point they would have to consider things such as abandoning a western style school system, abolishing the military, replacing the police with community based watch volunteer efforts, etc.
The Venn diagram is hilarious btw. :lol:
Maybe the Greeks should consider abolishing their military. After all, the only thing that the Greek military is good for is nursing Greek irredentism.
I wonder if Greece paid the shipping for those 400 free M1 tanks they was offered.
UPS IS GONNA BE PISSED.
Quote from: alfred russel on May 25, 2012, 08:22:52 PM
Greece has been implementing austerity that is too mild for Germany and doesn't even balance the budget. Tax revenues have plummeted. To actually get a surplus that big on more than just paper, government spending would be cut to the point they would have to consider things such as abandoning a western style school system, abolishing the military, replacing the police with community based watch volunteer efforts, etc.
There are countries with a fraction of Greece's budget which provide those things. Cut everyone's wages. Sell off state owned enterprises. Collect some taxes.
Quote from: Admiral Yi on May 25, 2012, 08:33:48 PM
Quote from: alfred russel on May 25, 2012, 08:22:52 PM
Greece has been implementing austerity that is too mild for Germany and doesn't even balance the budget. Tax revenues have plummeted. To actually get a surplus that big on more than just paper, government spending would be cut to the point they would have to consider things such as abandoning a western style school system, abolishing the military, replacing the police with community based watch volunteer efforts, etc.
There are countries with a fraction of Greece's budget which provide those things. Cut everyone's wages. Sell off state owned enterprises. Collect some taxes.
I just did a search to find government spending as a percent of gdp.
http://anepigone.blogspot.com/2008/03/government-spending-as-percentage-of.html
Obviously I can't vouch at all for the accuracy, but until other data comes in, I'm going to go with it.
I think that Greece has tax revenues in the lower 30% of GDP, lets say they get that to 35% (if I am right on the current tax revenue rate, then to get to 35% will require massive tax increases/improvements in collection, as property taxes and income taxes will plummet with the fall in spending).
To get a 20% of GDP surplus, that mean spending needs to get under 15%. Here is the comprehensive list of countries under that threshold:
157. Cambodia 13.3
158. Bangladesh 12.8
159. Turkmenistan 9.6
160. Afghanistan 9.2
You know Fredo, a 20% surplus wasn't really all that serious a proposal.
Quote from: Admiral Yi on May 25, 2012, 08:54:56 PM
You know Fredo, a 20% surplus wasn't really all that serious a proposal.
Fuck.
Quote from: alfred russel on May 25, 2012, 08:22:52 PM
Quote from: Admiral Yi on May 25, 2012, 06:41:33 PM
If Greece were to run a surplus of 20% of GDP, surely Germany would accept.
Greece has been implementing austerity that is too mild for Germany and doesn't even balance the budget. Tax revenues have plummeted. To actually get a surplus that big on more than just paper, government spending would be cut to the point they would have to consider things such as abandoning a western style school system, abolishing the military, replacing the police with community based watch volunteer efforts, etc.
greece is theoretically implementig austerity. In practice they have hardly implemented anything, or have only implemented it half-assed.
Quote from: Admiral Yi on May 25, 2012, 08:33:48 PM
There are countries with a fraction of Greece's budget which provide those things. Cut everyone's wages. Sell off state owned enterprises. Collect some taxes.
They've been cutting the wages.
They've also been trying to privatise lots of things. There are no buyers because no-one knows if the Greeks will still be in the Euro next year, or when the economy'll recover. No sane investor's going to put their money into Greece right now so privatisation won't work without restoring confidence.
On tax there's a similar problem. The Economist suggested that revenue collection is down particularly sharply because people don't want to give up potentially valuable Euros when there's reason to suspect the Drachma's coming back. Aside from that the Greeks have made progress in improving revenue collection. One problem is the revenue department's severely underfunded, so they've done things like rolling property tax into your electricity bill, the electricity company passes it onto the revenue and if you fail to pay they cut you off.
QuoteThe purpose of austerity is not to generate growth.
No. But I think without a floating currency it's essential or countries just end up in a debt trap, as Greece has. In addition I think the conditions imposed on Greece were motivated by a desire to deter other Eurozone states (and to an extent to punish for the deceit) than any analysis of how to get Greece back to the markets. That's why the IMF's suggested program was rejected and why the IMF's support of Greece defaulting was opposed.
QuoteThe subtext of "will work" of course is if austerity doesn't generate growth quickly, then it's "not working."
I think that's to an extent true in a currency union. The other point is that 'will work' could mean would address market confidence in the Eurozone, while 'acceptable to Germany' is something that's frankly rather moralist.
QuoteIt's a Venn diagram Yi, I thought it summed things up pretty well.
It came out in 2010. Still true now, but the problems are bigger.
Quote from: Crazy_Ivan80 on May 26, 2012, 02:15:59 AM
greece is theoretically implementig austerity. In practice they have hardly implemented anything, or have only implemented it half-assed.
Bullshit. All data from the IMF:
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fmedia.economist.com%2Fsites%2Fdefault%2Ffiles%2Fimagecache%2Ffull-width%2Fimages%2F2012%2F05%2Fblogs%2Ffree-exchange%2Fstructuralbalance.jpg&hash=f9fe00f66ea133a0b9b48043b9fac3b1aabdf6d9)
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fmedia.economist.com%2Fsites%2Fdefault%2Ffiles%2Fimagecache%2Ffull-width%2Fimages%2F2012%2F05%2Fblogs%2Ffree-exchange%2Fexpenditure.jpg&hash=1f987ea2e59e1e58464224ba64c7f598a1d9126c)
This one's the same source but includes more countries:
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fwww.washingtonpost.com%2Frf%2Fimage_606w%2FWashingtonPost%2FContent%2FBlogs%2Fezra-klein%2FStandingArt%2Fausterity%2520in%2520euro%2520zone.jpg%3Fuuid%3DdvVxjJkyEeGs5Ajbv4Lf3A&hash=562a88cffc888a59d1ee729851f853acaf51272d)
In fact the Greek government's managed to exceed IMF targets on their spending in nominal terms, problem is the economy's shrunk more and faster than expected. In terms of previous internal devaluations the only example of one going on this long without a return to some semblance of growth is Argentina 1998-end of convertibility.
Your argument's true of Britain, incidentally, where we've record low interest on gilts.
Edit: And the Greek bailout program is based on a scenario where Greece has 0% growth in GDP in 2013 and returns to around 3% growth in 2014. I'd suggest that doesn't really deal with reality.
Quote from: Sheilbh on May 26, 2012, 02:20:26 AMso they've done things like rolling property tax into your electricity bill, the electricity company passes it onto the revenue and if you fail to pay they cut you off.
We would be much more impressed with that, if the government hadn't postponed the payments until after the election, then a court decided that you can't be cut off even if you don't pay and now after the election it was removed from the power bills completely.
Quote from: Zanza on May 26, 2012, 02:35:37 AMWe would be much more impressed with that, if the government hadn't postponed the payments until after the election, then a court decided that you can't be cut off even if you don't pay and now after the election it was removed from the power bills completely.
Why would you find a de facto return to tax farming impressive? It's a dreadful idea.
The Court's ruling does make sense by the way. It's based on EU regulations which would make it illegal for your electricity company to cut you off for something unrelated like not paying your tax.
QuoteYou know what confidence crisis means here? We have no confidence that the Greek government has either ability or will to actually do anything.
But I think, with respect, that's the German equivalent of British media hysteria, German media self-righteousness or something :P
Even if that's the case though, why not do more to help the Irish and Portuguese who, everyone has said, have been exemplary in this.
http://www.guardian.co.uk/world/2012/may/25/payback-time-lagarde-greeks
QuoteThe International Monetary Fund has ratcheted up the pressure on crisis-hit Greece after its managing director, Christine Lagarde, said she has more sympathy for children deprived of decent schooling in sub-Saharan Africa than for many of those facing poverty in Athens.
In an uncompromising interview with the Guardian, Lagarde insists it is payback time for Greece and makes it clear that the IMF has no intention of softening the terms of the country's austerity package.
Using some of the bluntest language of the two-and-a-half-year debt crisis, she says Greek parents have to take responsibility if their children are being affected by spending cuts. "Parents have to pay their tax," she says.
Greece, which has seen its economy shrink by a fifth since the recession began, has been told to cut wages, pensions and public spending in return for financial help from the IMF, the European Union and the European Central Bank.
Asked whether she is able to block out of her mind the mothers unable to get access to midwives or patients unable to obtain life-saving drugs, Lagarde replies: "I think more of the little kids from a school in a little village in Niger who get teaching two hours a day, sharing one chair for three of them, and who are very keen to get an education. I have them in my mind all the time. Because I think they need even more help than the people in Athens."
Lagarde, predicting that the debt crisis has yet to run its course, adds: "Do you know what? As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time. All these people in Greece who are trying to escape tax." She says she thinks "equally" about Greeks deprived of public services and Greek citizens not paying their tax.
"I think they should also help themselves collectively." Asked how, she replies: "By all paying their tax."
Asked if she is essentially saying to the Greeks and others in Europe that they have had a nice time and it is now payback time, she responds: "That's right."
The intervention by Lagarde comes after the caretaker Greek government met to discuss a sharp fall in tax revenues – down by a third in a year. Under the terms of the country's bailout, Athens has agreed to improve Greece's poor record for tax collection in order to reduce its budget deficit, and Lagarde's remarks are evidence of a growing impatience in the international community. Reports surfaced in Germany and France of preparations being made to cope with Greece's possible departure from the single currency after its election on 17 June.
Belgium's deputy prime minister, Didier Reynders, said it would be a "serious professional error" if central banks and companies did not prepare for an exit.
The euro came under fresh attack on the foreign exchanges, dropping below €1.25 at one point on Friday, as the Spanish government was in talks to pump up to €19bn of rescue finance into Bankia, one of the country's biggest banks, and the Catalan regional government sought financial help from Madrid to deal with its debts.
Signs emerged of a widening gulf between Germany and France over whether common eurobonds should be issued to help those countries, such as Greece and Spain, with high interest rates on their debt.
Jens Weidmann, president of the Bundesbank, poured cold water on the idea – which is strongly backed by the French president, François Hollande – and also said financial aid to Greece should be cut off if it failed to keep to the bailout deal.
Jürgen Fitschen, joint head of Germany's biggest bank, Deutsche, described Greece as "a failed state ... a corrupt state". Separately, however, there were reports suggesting that the chancellor, Angela Merkel, was dusting down the economic modernisation plan used to revive East Germany after the fall of communism in the belief that similar measures could be applied to Greece and other struggling eurozone countries. Today's Der Spiegel magazine says Merkel will present a six-point plan based on the East German blueprint as a growth strategy. It includes measures such as privatisation, looser employment law and lower tax rates.
Opinion polls are pointing to a close race between parties backing and opposing the terms of Greece's €130bn bailout, but neither Germany nor the IMF has demonstrated any willingness to water down Greece's austerity programme.
In her interview Lagarde says Greece is not getting softer treatment than a poor country in the developing world, and that the IMF does not find it harder to impose strong conditions on a rich nation.
"No, it's not harder. No. Because it's the mission of the fund, and it's my job to say the truth, whoever it is across the table. And I tell you something: it's sometimes harder to tell the government of low-income countries, where people live on $3,000, $4,000 or $5,000 per capita per year, to actually strengthen the budget and reduce the deficit. Because I know what it means in terms of welfare programmes and support for the poor. It has much bigger ramifications."
(Interview article here: http://www.guardian.co.uk/world/2012/may/25/christine-lagarde-imf-euro )
given the past experiences about greece statitistics about the country are to be taken as bullshit indeed.
Quote from: Sheilbh on May 26, 2012, 02:35:01 AM
In fact the Greek government's managed to exceed IMF targets on their spending in nominal terms, problem is the economy's shrunk more and faster than expected.
Who would have thought, cutting pay and firing people doesn't grow the economy.
Quote from: Sheilbh on May 26, 2012, 02:43:38 AM
But I think, with respect, that's the German equivalent of British media hysteria, German media self-righteousness or something :P
Even if that's the case though, why not do more to help the Irish and Portuguese who, everyone has said, have been exemplary in this.
Nah, they are perfectly right to distrust the Greek politicians. The question for German leadership is: how to deal with that? You shut down financing and set up an orderly exit mechanism, and risk others to follow suit? Or you let Greece burn but close the door to your own clean exit if it became necessary?
As for Portuguese and Irish, http://www.youtube.com/watch?v=R9gKfOJpk6I. I love Schäuble's rolleyes. :lol:
There's rumours going roiund that Greece may leave the Euro as early as next weekend. I think we certainly have weeks rather than months left of this now. Once enough people think Greece is going to leave the Euro, then it will be forced to do so by events.
Quote from: Sheilbh on May 26, 2012, 02:43:38 AM
Why would you find a de facto return to tax farming impressive? It's a dreadful idea.
Where in the world do you get tax farming from?
Quote from: Crazy_Ivan80 on May 26, 2012, 09:48:52 AMgiven the past experiences about greece statitistics about the country are to be taken as bullshit indeed.
Greece doesn't produce her own statistics any more, because of that. Those are by Eurostat and IMF bods.
QuoteWhere in the world do you get tax farming from?
What's the key difference?
Maybe it's different in Britain, but over here, the biggest source of revenue for the government are taxes on consumption and those are generally levied not by state bodies but rather by private companies. The best-known examples are VAT (more revenue than income tax) and taxes on stuff like fuel or cigarettes. Is that tax farming too? If so, I don't really see anything wrong with that.
Clearly not. The coercive element and risk of tax evasion rests with the state, as it should.
Quote from: Sheilbh on May 26, 2012, 02:34:53 PM
What's the key difference?
The electricity company didn't bid for the right to collect taxes. It's not incentivized to collect more than is due.
Do you maybe have some Latin blood in you Shelf? :hmm:
Quote from: Sheilbh on May 26, 2012, 02:48:31 PM
Clearly not. The coercive element and risk of tax evasion rests with the state, as it should.
The only way not to pay VAT here is to starve to death. That's pretty coercive.
Quote from: Zanza on May 26, 2012, 02:52:51 PM
Quote from: Sheilbh on May 26, 2012, 02:48:31 PM
Clearly not. The coercive element and risk of tax evasion rests with the state, as it should.
The only way not to pay VAT here is to starve to death. That's pretty coercive.
What's that got to do with an electricity company cutting off someone's power because they didn't pay their property taxes?
QuoteDo you maybe have some Latin blood in you Shelf?
:mellow: If only. Today was very sunny and my Englishness is, alas, very clear :Embarrass:
Quote from: Sheilbh on May 26, 2012, 02:58:18 PMWhat's that got to do with an electricity company cutting off someone's power because they didn't pay their property taxes?
You only get the service/product when you pay your taxes. :mellow:
Quote from: Zanza on May 26, 2012, 03:05:43 PMYou only get the service/product when you pay your taxes. :mellow:
But that's a tax on the good you're buying, this is totally unrelated. It's like if you couldn't buy something from Tesco because you hadn't paid your speeding ticket.
So rename it to electricity tax.
Quote from: Sheilbh on May 26, 2012, 03:07:50 PM
But that's a tax on the good you're buying, this is totally unrelated. It's like if you couldn't buy something from Tesco because you hadn't paid your speeding ticket.
Tesco is a private company. Surely Greek unitilities are state-owned. Every other goddamn thing in the country is.
It's more like saying you can't attend public university if you're deliquent on taxes.
Quote from: Admiral Yi on May 26, 2012, 03:36:33 PM
Tesco is a private company. Surely Greek unitilities are state-owned. Every other goddamn thing in the country is.
Again I think there's probably a fair bit of ignorance and preconceptions about how much of Greece is state owned. The biggest energy company is 51% owned by the state. But they're not the entire market and they've got successful competitors, like ENEL. It's like a more private Electricite de France (85% state owned but competing a private market).
Edit: Also lots of state owned companies operate under private law. They're not necessarily emanations of the state
Quote
Are The Europeans About To Start The Second Half Of Our Great Depression?
"Just when we think the worst is over - and let's face it we have been in this crisis for five years - we get the second half; are the Europeans about to start the second half our Great Depression with massive bank runs" are the Jaws-music-inspired words that recent media-favorite (yes, us too) Niall Ferguson uses in an interview with CBC [10]. His main concern is that this kind of (bank-run) event can quickly spiral out of the control of even the ECB as he uncomfortably conjures the image of the initial US stabilization that occurred in 1930 to May 1931 only to be knocked back into a greater depression by the failure of Credit-Anstalt, which set off bank failures and eventually defaults in 1932 on many government debts. The deposit run potential is the single-biggest reason to care about Greek-exit - in itself it is not large enough economically to interfere with global growth but it is the message and contagion that it sends that is critical in bringing forth a pan-European banking crisis and implicitly spilling over to the US and Asia via global trade and banking transmission channels. An excellent brief interview that summarizes the exact fears that face Europe and implicitly the US, explains the rather simple solution of fiscal federalism and the fact that today's German politik is very different from 1989's Helmut Kohl-era with regard to their commitment to the Federal outcome. His conclusions are worrisome. Germany is the key - and there is not a good understanding of financial markets in Berlin.
Six minutes well-spent on a Saturday evening...
http://www.cbc.ca/video/#/News/TV_Shows/Lang_&_O%27Leary_Exchange/1308689786/ID=2239470660 (http://www.cbc.ca/video/#/News/TV_Shows/Lang_&_O%27Leary_Exchange/1308689786/ID=2239470660)
Europe is a part of North America's destiny because the financial systems are so intertwined - and remember even the all-knowing Fed massively under-estimated the second-order effects of Lehman.
"It's a total fantasy to think that the meltdown that I am discussing that could happen in a matter of weeks would not have a major impact on North America's prospects of sustained recovery."
Europe is the most fiscally mismanaged continent on Earth.
The government won't issue bonds to meet the €19 billion needed to rescue Bankia as it did in previous bail outs. Instead, it will give it new bonds directly, and the bank will use them as collateral at the ECB.
Quote from: Iormlund on May 27, 2012, 06:31:25 AM
The government won't issue bonds to meet the €19 billion needed to rescue Bankia as it did in previous bail outs. Instead, it will give it new bonds directly, and the bank will use them as collateral at the ECB.
Tricky. And is the ECB obliged to accept the junk bonds?
Spanish government's briefing that the ECB's accepted the idea.
Quote from: Neil on May 27, 2012, 11:26:26 AM
Quote from: Iormlund on May 27, 2012, 06:31:25 AM
The government won't issue bonds to meet the €19 billion needed to rescue Bankia as it did in previous bail outs. Instead, it will give it new bonds directly, and the bank will use them as collateral at the ECB.
Tricky. And is the ECB obliged to accept the junk bonds?
No, but imagine the consequences if the ECB said Spanish debt is no longer valid collateral.
I am not particularly good in accounting, but how does giving them government bonds that they use to get cash from the ECB recapitalize the bank? It doesn't seem to change the equity and just gives them a bit of liquidity.
Quote from: Zanza on May 28, 2012, 07:20:26 AM
I am not particularly good in accounting, but how does giving them government bonds that they use to get cash from the ECB recapitalize the bank? It doesn't seem to change the equity and just gives them a bit of liquidity.
Perhaps the bonds were traded for equity?
Quote from: Zanza on May 28, 2012, 07:20:26 AM
I am not particularly good in accounting, but how does giving them government bonds that they use to get cash from the ECB recapitalize the bank? It doesn't seem to change the equity and just gives them a bit of liquidity.
When Spain gives them the bonds, the entry would be:
debit Invested Assets
credit Paid in Capital
(increases long term assets and increases equity)
When the bonds are exchanged for cash:
debit Cash
credit Invested Assets
(increases cash and decreases long term assets)
Net effect: increase cash and equity.
Swiss 3-month treasuries went for -0.61% yield at today's auction. When people are paying you to take their money, isn't that a sign that something isn't balanced? Somewhere, there is a big pile of collected energy waiting to be released.
Quote from: MadImmortalMan on May 29, 2012, 02:44:27 PM
Swiss 3-month treasuries went for -0.61% yield at today's auction. When people are paying you to take their money, isn't that a sign that something isn't balanced? Somewhere, there is a big pile of collected energy waiting to be released.
Two things to keep in mind with sovereign yields is that banks get to count them at face value for Tier 1 capital and they can be used to collateralize other transactions, like central bank borrowing. For some transactions I think they're the *only* permitted form of collateral.
Quote from: MadImmortalMan on May 29, 2012, 02:44:27 PM
Swiss 3-month treasuries went for -0.61% yield at today's auction. When people are paying you to take their money, isn't that a sign that something isn't balanced? Somewhere, there is a big pile of collected energy waiting to be released.
Wait - so people bought 3 month Swiss treasuries that will be worth less 3 than the purchase price on maturity?
:wacko:
:hmm:
Okay, I get it. At least it'll be Swiss Francs, not Euros.
On a slightly related note I know the Bank of Canada would absolutely LOVE to raise Canadian interest rates in order to cool our own housing bubble, but are afraid that'll cause the loonie to absolutely skyrocket given all the instability everywhere around the world.
Quote from: MadImmortalMan on May 29, 2012, 02:44:27 PM
Swiss 3-month treasuries went for -0.61% yield at today's auction. When people are paying you to take their money, isn't that a sign that something isn't balanced? Somewhere, there is a big pile of collected energy waiting to be released.
Well if bond rates are negative in some countries, then perhaps negative interest rates aren't such a weird idea. I know there was a report recently that suggested the the BoE should try doing just that.
Quote from: MadImmortalMan on May 29, 2012, 02:44:27 PM
Swiss 3-month treasuries went for -0.61% yield at today's auction. When people are paying you to take their money, isn't that a sign that something isn't balanced? Somewhere, there is a big pile of collected energy waiting to be released.
And when it is, winnings for those shorting long term government bonds! :yeah:
Quote from: Admiral Yi on May 29, 2012, 02:51:14 PM
Quote from: MadImmortalMan on May 29, 2012, 02:44:27 PM
Swiss 3-month treasuries went for -0.61% yield at today's auction. When people are paying you to take their money, isn't that a sign that something isn't balanced? Somewhere, there is a big pile of collected energy waiting to be released.
Two things to keep in mind with sovereign yields is that banks get to count them at face value for Tier 1 capital and they can be used to collateralize other transactions, like central bank borrowing. For some transactions I think they're the *only* permitted form of collateral.
I don't know of any system that counts even the most secure bonds as preferable to cash.
However, cash needs to be held in a bank. Us little people don't worry about bank collapses because we have insurance, but institutions don't have that luxury. A modestly negative yield can be seen as insurance the money won't vanish in the night, or convert to some crappy southern european monopoly money.
Quote from: Sheilbh on May 28, 2012, 05:16:08 AM
Spanish government's briefing that the ECB's accepted the idea.
The Spanish government changed their line on this yesterday. The ECB's now issued a forceful statement saying they don't accept it and weren't briefed.
It's amazing how Rajoy has managed to surpass Zapatero's incompetence in such a short time. Most would have considered such a feat impossible. :wacko:
Looks like we're going into another season of herky jerky euromarkets. The stair-step charts caused by after-hours moves back in the fall were just silly. Best way to go was buy a straddle at the close every day and sell it in the morning. :rolleyes:
Whatever they're doing at this conference is not going over well.
Quote from: Sheilbh on May 30, 2012, 05:46:11 AM
The Spanish government changed their line on this yesterday. The ECB's now issued a forceful statement saying they don't accept it and weren't briefed.
Yes, Rajoy just popped this out of nowhere. Needless to say, Frankfurt was NOT happy about suddenly being made to pay for possibly all the bankrupting spanish banks :mad:
And with financial holes being found all over the spanish autonomous regions (Catalunya already asked for State aid to pay its bills), there seems to be no way out for Spain other than to get a bailout.
Which they don't want, because they say that the results in other countries was "disastrous". But they also don't have alternatives and seem to be in a state of severe dellusion about their ability to face this disaster. The country is doomed, but nobody wants to admit it. They're in the deck of the Titanic, drinking champagne and listening to the Orchestra.
In the meanwhile, Rösler dropped by Portugal to tell us how to cure our economic problems... someone get this idiot out of there, he's been spouting babble on and off camera! He's like Rajoy and Zapatero combined.
Quote from: Martim Silva on May 30, 2012, 11:39:12 AM
In the meanwhile, Rösler dropped by Portugal to tell us how to cure our economic problems... someone get this idiot out of there, he's been spouting babble on and off camera! He's like Rajoy and Zapatero combined.
We have to listen to his prattle the rest of the year. :P
:lol:
Quote from: Martim Silva on May 30, 2012, 11:39:12 AM
In the meanwhile, Rösler dropped by Portugal to tell us how to cure our economic problems...
Don't leave us hanging!
Quote from: Zanza on May 30, 2012, 11:55:02 AM
Quote from: Martim Silva on May 30, 2012, 11:39:12 AM
In the meanwhile, Rösler dropped by Portugal to tell us how to cure our economic problems... someone get this idiot out of there, he's been spouting babble on and off camera! He's like Rajoy and Zapatero combined.
We have to listen to his prattle the rest of the year. :P
Germany's Clegg? :P
We now have Q1 data on capital flight from Spain. It accelerated quickly, and in March alone set a new record at €66 billion (IIRC ~6% GDP).
Yeah I think that data's worrying. It would make the crisis existential, either everyone's all in to save the Euro or it's time to break-up.
I saw a few other interesting details today. Monti's campaign continues today he said the German government must reflect 'quickly and profoundly' on the popular backlash. I think that's wise. Also the day after the Commission suggested Eurobonds and banking union (I think the latter could be an even bigger ask than the Eurobonds), everyone seems to be thinking that redemption bonds or Eurobills might allay German concerns - I don't fully understand them yet but here's to hoping. Also French yields are falling rapidly in the flight to safety, which is odd given how the Anglo-Saxon press has portrayed Hollande.
The people who need to reflect quickly and profoundly on the popular backlash are the the ones involved in the popular backlash.
The German government needs to worry about popular backlash from Germans, not from assorted foreigners trying to rob them.
Maybe they should try the old German practice of robbing foreigners instead? :hmm:
QuoteFrance cuts pension age for some despite EU unease
Reuters
PARIS (Reuters) - France's new left-wing government announced on Wednesday a cut in the pension age to 60 for some long-time workers, carrying out an election pledge in the face of economic troubles and an EU warning that it would overburden an already creaking social welfare system.
Socialist President Francois Hollande, who took power in mid-May on a pro-growth ticket for the economy, had promised a partial rollback of his predecessor Nicolas Sarkozy's pension reform if he won.
"Promise made, promise met," said Prime Minister Jean-Marc Ayrault.
He said in an interview on TV channel TF1 that the move was fully funded by a small rise in contributions and France would still meet European commitments gradually to reduce its public deficit to zero in 2017.
The cut, announced by decree, was anticipated but still drew stinging criticism from the conservative opposition.
The change, taking effect in November, partly reverses Sarkozy's 2010 reform that raised the pension age to 62 from 60 and affects workers who have spent at least 41 years in labor-intensive jobs.
Social Affairs Minister Marisol Touraine told reporters after a cabinet meeting that the measure would cost 1.1 billion euros per year up to 2017 and 3 billion euros thereafter, less than the 5 billion euros previously estimated.
This would be financed by increased pension contributions, she said, adding: "We committed to put this measure in place quickly for social justice for those who started working early."
The reform will also create vacancies at a time when unemployment is at its highest level this century.
The number of French jobseekers rose in April for the twelfth month running to 2.89 million, the highest since September 1999, data showed last week. The labor ministry said it was braced for more layoffs in the months ahead.
A BVA opinion poll suggested that economic morale had risen significantly since Hollande's election victory on May 3.
The poll showed that the percentage of people who said they were "relatively confident" about the economic situation in France had risen to 53 at the end of May from 33 percent at the start of the month.
CREDIT RATING THREAT?
The European Commission warned last week that France would struggle to meet its fiscal targets without spending cuts, and that financing of the pension system had to be closely monitored despite savings from Sarkozy's reforms.
While Ayrault said the government was committed to meeting its target of cutting the public deficit to within 3 percent of gross domestic product next year and balancing the books in 2017, the rollback on pensions drew fire from the conservatives who put the initial reform in place.
The head of Sarkozy's conservative UMP party, Jean-Francois Cope, called the change "madness."
"It risks the downgrade of France's credit rating and at this rate tempts fate," Cope said at a weekly party news conference. "It is not possible for Francois Hollande to continue to bury his head in the sand."
Sarkozy's pension reform, adopted despite street protests by millions in 2010, was welcomed by financial markets and credit ratings agencies concerned about France's ability to cut its debt and deficit levels in the face of stagnant economic growth.
Quote
Cameron and Obama increase pressure on Merkel over eurozone crisis
Following phone call with US president, British PM will tell German chancellor eurozone has just weeks to act decisively
David Cameron will deliver a blunt message to Angela Merkel in Berlin on Thursday that he and Barack Obama have agreed on the need to flesh out an "immediate plan" to tackle the eurozone crisis.
Amid concerns in London and Washington that the German chancellor is dragging her feet – noticeably in declining at the moment to countenance eurobonds – the prime minister will tell Merkel the eurozone has just weeks to act to shore up the single currency.
Cameron, who has a meeting in Berlin on Thursday afternoon with the German chancellor, believes that agreement needs to be reached at two crucial summits this month. They are the G20 summit in Mexico next week and the EU's annual summer summit in Brussels at the end of the month.
The prime minister started a short European tour on Wednesday afternoon, flying to Oslo for dinner with Jens Stoltenberg, the prime minister of Norway, which is not an EU member state. Cameron and Stoltenberg will then travel to Berlin on Thursday for a town hall question-and-answer session with Merkel. The German chancellor invited Cameron and Stoltenberg. The town hall event will be followed by Cameron's meeting with Merkel.
Downing Street highlighted the transatlantic impatience with Berlin when it said the prime minister had agreed in a telephone call with Obama late on Tuesday on the need for urgent action.
Cameron's spokeswoman said: "They agreed on the need for an immediate plan to tackle the crisis and to restore market confidence as well as a longer-term strategy to ensure a strong single currency.
"The prime minister's view has always been that decisive action needs to be taken in order to underpin the eurozone. Confidence in the markets is essential, and in order to regain that confidence decisive action needs to be taken."
Cameron has caused some irritation in Berlin and Paris by appearing to lecture eurozone leaders on the action they need to take to save the single currency. In a video conference with Merkel and the new French president, François Hollande, ahead of last month's G8 summit at Camp David, the prime minister recited passages from a speech in Manchester in which he warned of a "remorseless logic" that stronger parts of a single currency help weaker parts.
In his meeting with Merkel in Berlin, Cameron is expected to highlight one particularly sensitive area for Germany – the need for eurobonds, which Merkel is currently resisting.
In his Manchester speech on 17 May, the prime minister said: "The eurozone needs to put in place governance arrangements that create confidence for the future. And as the British government has been arguing for a year now, that means following the logic of monetary union towards solutions that deliver greater forms of collective support and collective responsibility of which eurobonds are one possible example. Steps such as these are needed to put an end to speculation about the future of the euro."
But Britain does not detect any current moves in Berlin towards accepting eurobonds – jointly issued bonds which would enable debt-laden countries to benefit from the strong financial position, and lower borrowing costs, of Germany.
Merkel has said it would be wrong to demand eurobonds without accepting the "next step in European integration" – fiscal union.
The prime minister's spokeswoman said: "There are some immediate issues in the eurozone that need to be sorted, as we have said all along, in order to ensure that the eurozone deals with the issues that it is facing right now. The prime minister has discussed at length what he thinks those issues are."
She highlighted Cameron's blueprint in his Manchester speech, in which he said Europe needed to:
• Build an effective firewall
• Ensure their banks are well capitalised
• Create a system of fiscal burden sharing
• Enact a supportive monetary policy across the eurozone
• Promote competition.
His spokeswoman added: "The issues still need to be sorted out. Our position hasn't changed on that. They remain his pressing concerns. The prime minister has always been very clear that the eurozone needs to act decisively and needs to put in place some robust contingencies for all eventualities.
"In terms of what needs to be done in order to underpin the eurozone, he has been clear from the start what those issues are and how they should be resolved. They still need to be resolved.
"Clearly the eurozone has taken some steps in order to get its house in order with the fiscal stability compact. But more needs to be done and the prime minister has set out what needs to be done."
http://www.guardian.co.uk/business/2012/jun/06/cameron-obama-merkel-eurozone-crisis (http://www.guardian.co.uk/business/2012/jun/06/cameron-obama-merkel-eurozone-crisis)
Some commentary from zh:
Quote
As France Lowers Retirement Age, Germany Better Be Ready To Pay For Austerity's Unwind
As noted earlier, Europe has been so obviously crippled by years of brutal austerity (which, as we pointed out before never actually happened), that it has had to experience the supreme indignity - a miserable two years of plunging flat GDP growth. Because under the old normal, it appears that unless one is issuing massive debt, pardon "growing", society grinds to a halt. Well, it appears that France has finally had enough, and as of today, "the French government approved a measure Wednesday that will lower the retirement age to 60 from 62 for a narrow group of workers, partly reversing unpopular pension reforms made by former President Nicolas Sarkozy as he sought to improve France's public finances." Obviously, this means that more welfare funding will have to be sourced as all else equal, this means less money will be produced by the country's workforce, and more money will be consumed by its retirees. Who will do it? Why German of course. Because after Merkel caved first on Greece, and then on Spain, it is now game over for German "prudence" and everyone will line up at the trough. Congrats Berlin: we can only hope you have discovered those magical money-growing trees. You will need them.
From Dow Jones:
The reform, which is less sweeping than promised by new President François Hollande during his election campaign, comes just days ahead of legislative elections in France and is likely to further fuel questions about Mr. Hollande's ability to make a serious dent in France's deficit against a backdrop of the deepening euro-zone crisis.
The government's decision will authorize people who contributed to the pension system for more than 41 years to retire at 60, Social Affairs Minister Marisol Touraine told reporters after the weekly cabinet meeting. The government will also take into account maternity leave and unemployment periods in the contribution period, she said.
Ms. Touraine said the reforms will cost €1.1 billion ($1.37 billion) in 2013 and €3 billion in 2017. The extra expenditure will be covered by increased contributions by employees and employers, she added.
The measures will allow people who started working early in life and who have paid the required amount of pension contributions over the course of their working life to retire at age 60, instead of the normal minimum retirement age of 62.
Ms. Touraine said 110,000 people will be affected by the reform.
We don't know about 110,000 people but we know about one: Angela Merkel. Have fun paying for French early retirement as austerity dies a miserable death.
QuoteShe highlighted Cameron's blueprint in his Manchester speech, in which he said Europe needed to:
• Build an effective firewall
• Ensure their banks are well capitalised
• Create a system of fiscal burden sharing
Excellent. How many billions of British tax money is Cameron willing to spend/risk on these splendid proposals? :bowler:
Quote from: Zanza on June 07, 2012, 01:46:28 AM
Excellent. How many billions of British tax money is Cameron willing to spend/risk on these splendid proposals? :bowler:
It's not our currency-union to save :blink:
Having said that I think there've been projections of how much we'd need to bailout the banks in case of a Eurozone collapse and it's pretty terrifying.
So it is just warm words of advice?
As you say, Britain has a lot of exposure to this and all your prime minister suggests is that other people solve it by spending hundreds of billions? David Cameron, declared opponent of European integration, suggests that other countries should sign away their sovereignity in order to safeguard what in the end is also British interests? And all Britain will contribute is words?
Your foreign policy in the Euro crisis reminds me of Germany's during the Iraq War. Giving good advice, but not actually participating in a solution. And if I remember correctly, that wasn't particularly well received in Britain back then either.
Here is what Merkel should do when David Cameron gives her advice: :moon:
Quote from: Zanza on June 07, 2012, 08:53:34 AM
So it is just warm words of advice?
As you say, Britain has a lot of exposure to this and all your prime minister suggests is that other people solve it by spending hundreds of billions? David Cameron, declared opponent of European integration, suggests that other countries should sign away their sovereignity in order to safeguard what in the end is also British interests? And all Britain will contribute is words?
Your foreign policy in the Euro crisis reminds me of Germany's during the Iraq War. Giving good advice, but not actually participating in a solution. And if I remember correctly, that wasn't particularly well received in Britain back then either.
Here is what Merkel should do when David Cameron gives her advice: :moon:
I think you sum up the UK attitude to the EU pretty well and how the rest of us should respond :P
V
In fairness the UK did voluntarily contribute to the Irish bailout and has increased our funding of the IMF to participate in other bailouts. But I think that attitude is a bit like Greece to be honest. Your line is basically - we'll blow up the world economy unless someone else pays.
I don't like Cameron or Osborne. I think they're incompetent spivs who deserve to lose the next election. But their position doesn't seem too outlandish to me.
Our economy is enormously affected by the Eurozone crisis.
In addition we're members of the EU.
The extent of Cameron's suggestion is that the German leadership, perhaps, listens to other involved people like the Economic wisemen, the European Commission, the French leadership, the German-backed Italian technocrat, and it just so happens that their solutions are broadly what the British government, the American government, the OECD and much of the IMF think too.
Also the Tories aren't opposed to European integration in itself - though they think it's doomed - they're only opposed to it for Britain - and we'll probably be out within a decade anyway. But it seems consistent to me. The Eurosceptic right have said for years that you can't have a currency union without a country so either Europe integrates far more or the Euro would fall apart. I don't entirely agree with them but I think that's a fair point.
Having said all of that I think if the EZ crisis does explode then we're probably going to spend billions and billions bailing out our banks again.
QuoteYour foreign policy in the Euro crisis reminds me of Germany's during the Iraq War. Giving good advice, but not actually participating in a solution. And if I remember correctly, that wasn't particularly well received in Britain back then either.
Wait, are you seriously suggesting that W's foreign policy leadership is the model Merkel should follow in the Euro-crisis? :blink:
Good advice is good regardless of the source.
Edit: Incidentally I think Martin Wolf was on great form yesterday, with the headline 'Panic has become all too rational':
QuoteHow much pain can the countries under stress endure? Nobody knows. What would happen if a country left the eurozone? Nobody knows. Might even Germany consider exit? Nobody knows. What is the long-run strategy for exit from the crises? Nobody knows. Given such uncertainty, panic is, alas, rational. A fiat currency backed by heterogeneous sovereigns is irremediably fragile.
Before now, I had never really understood how the 1930s could happen. Now I do. All one needs are fragile economies, a rigid monetary regime, intense debate over what must be done, widespread belief that suffering is good, myopic politicians, an inability to co-operate and failure to stay ahead of events. Perhaps the panic will vanish. But investors who are buying bonds at current rates are indicating a deep aversion to the downside risks. Policy makers must eliminate this panic, not stoke it.
In the eurozone, they are failing to do so. If those with good credit refuse to support those under pressure, when the latter cannot save themselves, the system will surely perish. Nobody knows what damage this would do to the world economy. But who wants to find out?
The Chief Economist of Commerzbank also made interesting comments today that if Spain taps the EFSF then 'the dam will burst'. Does anyone have the context for that line because I'm not sure what he means?
Quote from: Sheilbh on June 07, 2012, 09:12:08 AMWait, are you seriously suggesting that W's foreign policy leadership is the model Merkel should follow in the Euro-crisis? :blink:
You misunderstood me: Cameron shouldn't model his foreign policy on Schröder.
Quote from: Zanza on June 07, 2012, 09:31:26 AM
Quote from: Sheilbh on June 07, 2012, 09:12:08 AMWait, are you seriously suggesting that W's foreign policy leadership is the model Merkel should follow in the Euro-crisis? :blink:
You misunderstood me: Cameron shouldn't model his foreign policy on Schröder.
I think you overestimate Schroeder's impact over here. He was nearer Putin in terms of leading opponents to the war. Chirac kind of drew all the attention and the anger :lol:
But I think there's something to the Schroeder comparison in that in neither case did the leader have any real leverage, but it's still right for them to put their view.
The other thing I'd say which slightly contradicts that is as far as I can see Cameron's giving tacit support to Schauble's view. He doesn't want Eurobonds before fiscal union and right now the Euro-Federalists have a British, Tory Prime Minister saying he'd support Eurozone fiscal union - that's a big deal, if he were to follow through.
Having said that I think it's fair to say that Cameron could probably have found a better way of making his point than reciting passages of his own speech to Merkel and Hollande :bleeding: :lol:
As an aside I just saw this Martin Wolf blog, in response to a letter from a senior German Ministry of Finance official:
Quotehttp://blogs.ft.com/martin-wolf-exchange/2012/06/07/the-german-response/#ixzz1x7W51s9M
The German response
June 7, 2012 12:48 pm
Last week I wrote a column entitled The riddle of German self-interest. To my surprise, it received a lengthy response from a senior and highly respected official of the German finance ministry. I am very grateful for this reply, because it clarifies the German finance ministry's position and raises a number of profound issues.
In the interests of clarifying these issues further, I comment below on some of the statements made in that letter.
From Mr Ludger Schuknecht:
QuoteSir, Martin Wolf ("The riddle of German self-interest", May 30) voices a fundamental critique of the European fiscal and economic policy strategy in the context of the current debt crisis. He argues that the "eurozone is now on a journey towards break-up that Germany shows little will to alter" given its many "neins" to anything that would break the "doom loop".
Mr Wolf's solution for the current problems is risk transfer via eurobonds (of some sort), and demand stimulation via cheaper money and less fiscal consolidation in Germany. But the public and markets have been led to believe in short-term measures for far too long. And they know there is too much moral hazard already. Eurobonds would only make it worse and the healthier countries − mainly Germany and France − cannot even afford them.
Comment: At least three points are worth making here.
First, the aim is not risk transfer, but rather substantially to reduce the problems members of the currency union now have in retaining liquidity in their sovereign bond markets. Mr Schuknecht argues that such multiple equilibria are impossible. There is good reason to believe he is wrong, as the Belgian economist, Paul de Grauwe has written. I discussed this issue at length here .
Second, I do not know what "short-term measures", Mr Schuknecht is referring to. But the public presumably expects the eurozone at least to hit its inflation target. At present, there is good reason to doubt that it will.
Third, "moral hazard" is not the clincher Mr Schuknecht believes it is. We have fire brigades, despite moral hazard, because it is bad for the neighbourhood for a house to burn down. Nobody enjoys the experience of watching his house – or in this case, his economy – burn down. The idea that offering countries a cap on borrowing costs would encourage them to repeat the current experience is, to put it mildly, implausible. Governments really do dislike having 25 per cent unemployment rates (as in Spain today). The penalty is sufficient to discourage repetition.
Mr Schuknecht:
QuoteI would rather believe that the public and markets want to see a credible path towards a prosperous, sustainable and competitive euro area. This is what they were promised at the start of the economic and monetary union. Indeed, it is expansionary policies and weak fiscal positions that created the current problems of high debt and low competitiveness in the crisis countries in the first place. This is why the European strategy to deal with the crisis seeks to regain confidence through a combination of fiscal consolidation and structural reforms that will improve competitiveness and growth prospects. Such reforms have invariably succeeded wherever they have been implemented.
Comment: Mr Schuknecht surely knows that "expansionary policies and weak fiscal positions" did not create "the current problems of high debt and low competitiveness in the crisis countries in the first place".
As the chart below (taken from the International Monetary Fund's World Economic Outlook database) shows, Ireland and Spain had exceptionally low net public debt before the crisis. Portugal's was close to that of France. Only Greece and Italy had relatively high debt. Italy's net public debt fell substantially, relative to GDP, in the period leading up to the crisis, though not perhaps enough.
What did cause the crisis were huge balance of payments deficits, induced by excessive private lending, most of it to private borrowers (with the exception of Greece). The responsibility for such lending and borrowing surely rests on the shoulders of both lenders and borrowers.
As to the claim that "Such reforms have invariably succeeded wherever they have been implemented", I can think of important cases where they failed: Argentina in the 1990s, for example. I fear this is a tautology: where such policies failed, they were not tried, by definition.
Moreover, "structural reform" is a woolly term. If by this Mr Schuknecht means that falling prices, induced by ultra-high unemployment, debt deflation and sovereign and banking insolvencies, will ultimately restore competitiveness, he is correct, provided the country is able to stick with such policies, for a very long period indeed (probably a decade, or even far longer). This is what is required if a country with a large private sector debt overhang and a sizable structural current account deficit is to eliminate its fiscal deficit, regain competitiveness and restore growth, particularly in a currency union whose core country has a structural current account surplus and low inflation. The question is whether democratic politics (or the eurozone) will survive the experience. I doubt it.
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Mr Schuknecht:
QuoteRebuilding confidence also entails making European Union institutions more credible. Fiscal and macroeconomic surveillance and banking regulation and supervision are being strengthened. Firewalls worth about €1tn euro have been erected and supplemented by International Monetary Fund money. Given what we have achieved, any decision to disregard the rules or introduce ill-suited tools such as eurobonds could undermine this effort to rebuild confidence.
Comment: Mr Schuknecht must recognise that the firewall he mentions is in conflict with his desire to eliminate moral hazard. So we are really just talking abut its size. The question is whether the available firewall is big enough to deal with likely crises. The answer is: no. I agree that eurobonds (which would need to be conditional) are only one way to provide a firewall. I agree, too, that long-run fiscal transfers are undesirable (and have said so). The whole of southern Europe must not be turned into a large Mezzogiorno.
Mr Schuknecht:
QuoteMoreover, just as the European Central Bank has a duty to focus on the goal of maintaining price stability, Germany must not undermine its role as an anchor of stability via inappropriate and ineffective fiscal stimuli. Incidentally, the social implications of Mr Wolf's recipe are highly problematic too. The short-term measures he puts forward focus on countering the deflationary tail-risks arising from financial instability. They would benefit those whose considerable fortunes were built or bolstered through excessive risk-taking during the pre-crisis boom. By neglecting the tail-risk of a destabilising loss of confidence in our money, his approach would put at risk the savings of those who have no way out: the cash-holding lower and middle classes.
Comment: I do not think an attempt at symmetrical adjustment inside the eurozone would undermine German stability. But it would certainly be helpful to eurozone stability if, during the lengthy adjustment period ahead, German policymakers focused on policies likely to expand domestic demand. It does not really matter to the outside world what those policies are. An investment boom or a rapid rises in real wages would also be excellent.
As to the question of benefiting those who created the crisis, may I point out that German lenders were part of the problem. Are they (and other creditors) paying the penalty for their mistakes or are taxpayers in debtor countries being forced to assume the bulk of the costs?
Mr Schuknecht:
Quote"Finally, let me reflect on Mr Wolf's riddle of German self-interest. If one accepts the narrative that the risk of shipwreck comes from excessive "short-termism", then there is no riddle at all. German and European interests are indeed very much aligned and they are reflected in the jointly agreed strategy. Germany will play its full role in implementing it − in its own and Europe's interest."
Ludger Schuknecht, Director General, German Ministry of Finance, Berlin, Germany
Comment: I fear that austerity without end will bring about a return to the unstable populist politics the European Union was designed to prevent. That could shatter the eurozone and, with it, the EU, thereby ending the most successful attempt to build peace and prosperity in Europe since the fall of the Roman Empire.
Moreover, it is clear – and has long been so – that the responsibility for preventing that outcome rests on Germany, Europe's central power, in every sense. As Charles Kindleberger argued, in a panic, the creditworthy country has to lend freely if a fixed exchange rate system (or in this case a currency union) is to survive.
It is often forgotten, not least in Germany, that the rise of Adolf Hitler to power was preceded not by the great inflation, which occurred a decade before, but by the great depression and the austerity of Heinrich Brüning, in response. Thus, votes for the Nazi party jumped from a relatively insignificant 810,000 in 1928, to 6.4m in 1930, and 13.7m in July 1932. Deep economic collapses are dangerous.
Deep economic collapses are very dangerous. Mr Schuknecht, with his emphasis on the long term, completely ignores these dangers. If trying to avoid such a dire outcome is "short-termism", so be it. I think of it as trying to find a practical exit from the current trap. Without it, the eurozone may never reach the long term.
Fiat justitia, et pereat mundus (let justice be done, even if the world perishes) is a dangerous motto.
Quote from: citizen k on June 07, 2012, 01:28:24 AM
Some commentary from zh:
Quote
As France Lowers Retirement Age, Germany Better Be Ready To Pay For Austerity's Unwind
As noted earlier, Europe has been so obviously crippled by years of brutal austerity (which, as we pointed out before never actually happened), that it has had to experience the supreme indignity - a miserable two years of plunging flat GDP growth. Because under the old normal, it appears that unless one is issuing massive debt, pardon "growing", society grinds to a halt. Well, it appears that France has finally had enough, and as of today, "the French government approved a measure Wednesday that will lower the retirement age to 60 from 62 for a narrow group of workers, partly reversing unpopular pension reforms made by former President Nicolas Sarkozy as he sought to improve France's public finances." Obviously, this means that more welfare funding will have to be sourced as all else equal, this means less money will be produced by the country's workforce, and more money will be consumed by its retirees. Who will do it? Why German of course. Because after Merkel caved first on Greece, and then on Spain, it is now game over for German "prudence" and everyone will line up at the trough. Congrats Berlin: we can only hope you have discovered those magical money-growing trees. You will need them.
From Dow Jones:
The reform, which is less sweeping than promised by new President François Hollande during his election campaign, comes just days ahead of legislative elections in France and is likely to further fuel questions about Mr. Hollande's ability to make a serious dent in France's deficit against a backdrop of the deepening euro-zone crisis.
The government's decision will authorize people who contributed to the pension system for more than 41 years to retire at 60, Social Affairs Minister Marisol Touraine told reporters after the weekly cabinet meeting. The government will also take into account maternity leave and unemployment periods in the contribution period, she said.
Ms. Touraine said the reforms will cost €1.1 billion ($1.37 billion) in 2013 and €3 billion in 2017. The extra expenditure will be covered by increased contributions by employees and employers, she added.
The measures will allow people who started working early in life and who have paid the required amount of pension contributions over the course of their working life to retire at age 60, instead of the normal minimum retirement age of 62.
Ms. Touraine said 110,000 people will be affected by the reform.
We don't know about 110,000 people but we know about one: Angela Merkel. Have fun paying for French early retirement as austerity dies a miserable death.
someone nuke france from orbit please, and hit Wallonia too while you're at it.
ZH's assertion that austerity is not happening is false. It's just that it's mostly coming in the form of higher taxes.
Fitch downgraded Spain to BBB (lower than Ireland) from A apparently large downgrades of banks are on their way. Here's a quote the Guardian picked up on:
QuoteThe dramatic erosion of Spain's sovereign credit profile and ratings over the last year in part reflects policy missteps at the European level that in Fitch's opinion have aggravated the economic and financial challenges facing Spain as it seeks to rebalance and restructure the economy.
The intensification of the eurozone crisis in the latter half of last year pushed the region and Spain back into recession, exacerbating concerns over sovereign and bank solvency. The absence of a credible vision of a reformed EMU and financial 'firewall' has rendered Spain and other so-called peripheral nations vulnerable to capital flight and undercut their access to affordable fiscal funding.
Here's the Guardian's read on the 5 main problem Fitch have:
Quote• The likely fiscal cost of restructuring and recapitalising the Spanish banking sector is now estimated by Fitch to be around €60bn (6% of GDP) and as high as €100bn (9% of GDP) in a more severe stress scenario compared to Fitch's previous baseline estimate of around €30bn (3% of GDP);
• Gross general government debt is projected by Fitch to peak at 95% of GDP in 2015 assuming a €60bn bank recapitalisation, compared to Fitch's forecast at the beginning of the year of 82% by the end of 2013;
• Spain is forecast to remain in recession through the remainder of this year and 2013 compared to Fitch's previous expectation that the economy would benefit from a mild recovery in 2013;
• Spain's high level of foreign indebtedness has rendered it especially vulnerable to contagion from the ongoing crisis in Greece; and
• The much reduced financing flexibility of the Spanish government is constraining its ability to intervene decisively in the restructuring of the banking sector and has increased the likelihood of external financial support.
Here's the statement:
http://www.fitchratings.com/creditdesk/press_releases/detail.cfm?pr_id=751942&origin=home
Euro dropping now. US stocks too. Thanks, French bastards. :mad:
Don't blame the French. The market went up yesterday, and so you knew that it was going to come down today. There is no confidence out there.
Man, Spain might as well be spiraling down into a black hole, there's no escape from this gravity well.
This thread now can be closed.
The Hungarian Finance Minister said on CNN that the European crisis is over, and Hungary will experience a big economy boost next year.
That's a relief.
Quote from: Tamas on June 08, 2012, 08:58:40 AM
This thread now can be closed.
The Hungarian Finance Minister said on CNN that the European crisis is over, and Hungary will experience a big economy boost next year.
:lol: I can't understand why you'd say something that's going to be so obviously and clearly massively wrong probably within the next month.
Edit: This from Barclays - quoted by the Guardian - is grim:
QuoteFollowing the Bankia announcement, our estimates increased roughly EUR20-30bn, bringing total baseline recapitalisation needs to EUR70-80bn. Our stress level estimate is EUR126bn under an extreme yet plausible scenario. Recently, both Fitch and S&P mentioned amounts on the order of EUR90-100bn under severe stress.
...
Even if the government argues that it does not need a programme, other governments have also denied programmes only to request them soon after. It is clear that official support would come with conditionality attached, even if focused largely on bank recapitalisation. This is perhaps why the government may be hesitant to request a programme, given the stigma attached, and the potential for strict conditionality even in areas beyond banking reforms (eg, fiscal and structural reforms), depending on the type of programme.
...
The overall cost to the sovereign will likely be c.EUR70-80bn, so a programme may not make a large difference in terms of market reaction. Fundamentally, Spain is likely to remain solvent after accounting for those bank recapitalisation costs (see Spain: Dealing with sudden reversal, 4 May 2012). This is crucial because solvency is the benchmark to understand potential PSI discussions in the future, which at this juncture appear unlikely (note that only about 20% of the Spanish government bonds are now owned by non-residents). Obviously, the higher the recapitalisation costs, the less clear-cut solvency is. This is also true because this would generally happen in a scenario of stress macroeconomic conditions, which would be reflected in worse public debt dynamics as well. One aspect in which a programme may help is to add credibility to the completion of the bank clean-up process through strict conditionality.
However, a programme may not be a "choice" but a "need" if Spain were to be forced by market events into an EU-IMF bail-out. If markets events accelerate the ongoing capital reversal, and spreads continue to widen, given the contagion to other weak economies (eg, Italy has been trading at a spread versus Spain of c.30-70bp for 10y bonds), it would be unlikely that the programme could be circumscribed to the banks only or even to Spain alone. And for that, there are no sufficient rescue funds readily available (ie, for multi-year full-fledged programmes for Spain and, depending on contagion dynamics, for Italy as well).
And here comes the rescue ...
[Dr. Evil]100 billion dollars![/Dr. Evil]
http://www.reuters.com/article/2012/06/10/us-eurozone-idUSBRE8530RL20120610
Yay now Bankia can buy up a bunch of US Treasuries and bunds to boost their reserves and Spain will still need someone to buy their bonds.
From what I've read and I've not seen much details, I don't think this is enough or done the right way to have a positive effect for Spain/Eurozone. Hope I'm wrong though.
I'm assuming all other Spanish debt is now given junior status, which makes buying our bonds even less attractive.
It might alleviate somewhat the lack of credit, but not lack of demand for it.
Markets are not responding well after the bailout. I'm a bit suprised.
Quote from: alfred russel on June 11, 2012, 01:27:49 PM
Markets are not responding well after the bailout. I'm a bit suprised.
We had a quick pop but it sputtered out quickly. Spanish CDS is up today even after this. Euro dropping most of the day too. Neither of those had the initial pop our market had. So maybe not that surprising.
Quote from: alfred russel on June 11, 2012, 01:27:49 PM
Markets are not responding well after the bailout. I'm a bit suprised.
Still too few details I think. But it looks like too little, done the wrong way and with seniority which means Iorm's point's a worry.
Plus there's still the Greek election and underlying market concern. All that's really happened is that the halflife of Euro-fudge credibility is rapidly diminishing.
Why is it surprising? A lot of the details are still unknown and in any case it looks like the latest in a series of half measures cobbled up at the last minute. Plus it's not like previous bail outs have worked out.
Quote from: Iormlund on June 11, 2012, 01:44:58 PM
Why is it surprising? A lot of the details are still unknown and in any case it looks like the latest in a series of half measures cobbled up at the last minute. Plus it's not like previous bail outs have worked out.
I don't think anyone think it solves any long term problems, but it at least keeps Spanish banks from failing in the short term. I thought that was worth a positive response, but I guess I was wrong.
Well, that didn't last long. Seems Italy will need a bailout soon as well.
Quick bump, then lost it. What is that, 40 basis points?
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Apparently the details of the deal is that bonds purchased by the EFSF/ESM bailout funds will take priority over private sector bonds in terms of repayment etc, a situation will is likely to the make the bond rates even worse for Spain. Hence the jump in the bond rates today.
http://www.ft.com/intl/cms/s/0/bfc6959c-b158-11e1-bb9b-00144feabdc0.html#axzz1xW3Mbe8x (http://www.ft.com/intl/cms/s/0/bfc6959c-b158-11e1-bb9b-00144feabdc0.html#axzz1xW3Mbe8x)
QuoteJune 11, 2012 7:10 pm
We isolate and overload Germany at our peril
By Gideon Rachman
Visiting the Financial Times a couple of weeks ago, Luis de Guindos, Spain's economy minister, predicted: "The battle for the euro will be fought in Spain."
With Spain's decision this weekend to accept international aid to save its banks, the battle is now joined. The stakes are very high. Writing in this paper, Niall Ferguson and Nouriel Roubini warn that Europe is "perilously close" to "repeating the disasters of the 1930s".
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As in the 1930s, a conflict in Spain is now seen as critical to a wider struggle for the fate of Europe. It cannot be long before an international brigade of Keynesian economists sets off for Catalonia. Once again, Germany is cast as the villain in a pan-European drama.
Of course, nobody questions modern Germany's democratic credentials. Only in the wilder fringes of the Greek press has Chancellor Angela Merkel been compared with Adolf Hitler. But the picture that emerges from the world's press is of a stubborn Germany, whose actions threaten the world. This weekend's Economist magazine cover showed the global economy as a sinking ship and beseeches Ms Merkel to "start the engines".
The magazine summarises an international "consensus on what Ms Merkel must do", including "shifting from austerity", "a banking union with euro-wide deposit insurance" and a "limited form of debt mutualisation". Privately, world leaders from London to Washington and Rome are urging similar actions on Berlin.
The demands being made of the German government spring from a sincere desire to avoid a rerun of the 1930s, when economic disaster provoked political catastrophe.
However, while these demands may make economic sense, they are politically unrealistic and dangerous. They are textbook solutions that fail the real-world test. Worse, if enacted, they would risk provoking the very political radicalisation they are ultimately meant to prevent.
Consider just one of the proposals on the shopping list: a Europe-wide bank deposit insurance scheme. As a senior Dutch politician who shares the German view, puts it: "We cannot push through a banking union when the French have just cut their retirement age to 60 and we have raised ours to 67." From the Dutch and German point of view, it is unfair for their citizens to underwrite the banks of countries using their own money to pay social benefits that are more generous than those on offer in Germany or the Netherlands.
This dilemma illustrates why a relatively technical-sounding exercise such as bank-deposit insurance has profound implications for national sovereignty. Once you take a big step towards the mutualisation of debt across Europe, you are forced towards much deeper political union. It is not just the much-discussed need for a European "minister of finance", with the power to override national governments. To avoid bitter disputes over fairness, you would also need to harmonise European social-security systems. That would be the work of decades.
The Merkel government is not ruling out eurozone bonds or EU deposit insurance for ever. It is arguing that any such moves can come only as part of a bigger project – the formation of a political union. Anything else will feel like giving southern Europe a German credit card, without setting a credit limit.
It is hard to see how European politicians could achieve such profound reforms within weeks or months – as the Americans and others are urging. A recent Pew opinion poll showed strong majorities across Europe against ceding national sovereignty over budgetary matters to a central authority. The same poll showed that Ms Merkel was widely admired – not just in Germany but across Europe.
On this, the public shows more sense than the intellectuals who are lining up to give Berlin a kicking. While Ms Merkel's handling of the crisis has not been faultless (whose has?), she has one huge achievement to her name. She has prevented the political extremes from gaining a foothold in the country.
Anybody who thinks that is a phantom danger should take a look at Germany's neighbours. In France, a third of the electorate recently voted for a far-right or a far-left candidate for the presidency. In the Netherlands – like Germany, a creditor nation that is sick of bailing out southern Europe – the far right and the far left are running first and second in the opinion polls. In Austria, the far right are at nearly 30 per cent in the polls.
Germany has all the conditions for a similar backlash. The country's voters have every reason to feel misled about the euro. They were once promised that the single currency involved a no-bailout clause that would prevent German taxpayers from having to support other eurozone countries. But Germany has already had to accept potential liabilities of €280bn to fund Europe's various bailouts – and there will be further demands to come. Simply funding Germany's capital contribution to the European Stability Mechanism will increase the country's budget deficit this year from €26bn to €35bn.
And yet despite the burdens and risks that Germany has already taken on, the country's government finds itself abused for not doing even more. Isolating and berating Berlin, while trying to force the country to underwrite the finances of the whole of the eurozone, is a politically dangerous course. The rise of far-right nationalists in Greece or the Netherlands is deeply regrettable. The rise of the far right in Germany would be a disaster.
Right now, that's just scaremongering. But I wonder if the conservatives and free democrats won't get more sceptic in the run-up to the next election...
Quote from: Zanza on June 11, 2012, 02:55:30 PM
Right now, that's just scaremongering. But I wonder if the conservatives and free democrats won't get more sceptic in the run-up to the next election...
100 billion bandaid here, 100 billion bandaid there; before long the cost of bandaids will add up to something resembling a bailout. Do you think Merkel has the political capital to cut off southern europe or pull off a long term solution (dissolution of the euro, genuine fiscal integration)?
I saw an article today about how the German government had come begging to the US and Canada for us to put some money in to bail out the EU. There didn't seem to be much support for the idea.
Quote from: Neil on June 11, 2012, 08:42:28 PM
I saw an article today about how the German government had come begging to the US and Canada for us to put some money in to bail out the EU. There didn't seem to be much support for the idea.
If Germany wanted to waste money so badly they should have just sent the cash for those two international calls to Spain.
The fed has already dumped a ton of cash into the EU.
Spain's 10-year up another 30 basis points today. This is not good.
Quote from: Legbiter on June 11, 2012, 02:15:16 PM
Well, that didn't last long. Seems Italy will need a bailout soon as well.
Italy? We haven't been properly bailed out yet, and at this rate we'll need to by the time the Greeks vote.
I agree with the Rachman article in this respect: Germany will not do whatever it takes to make the Eurozone system work, and it is not realistic to expect Germany to do that. On the flip side, the same thing can be said of Greece, Spain, Italy, and now La France Hollandaise. The Euro was designed as a political mechanism to help force members into closer economic and political union, only the members once in, refused to be force. And that refusal was underwritten by an ECB that decided to treat all member sovereign credits equally, despite the fact that manifestly they were not. So in the place of real economic integration, there was an illusion of financial equality.
Now it all comes down to whether the euro members can muddle through the rest of this crisis with spit, string and scotch tape - but even if they succeed they are just buying a second round at some later date.
Hollandaise is difficult not to screw up. Too cold and the butter coagulates, too hot and the egg separates. You have to keep stirring it constantly to make the emulsification right, and overdo it with the lemon juice and you'll curdle the whole thing. Nobody ever gets it right the first time they try. Even if you don't screw it up it has a very short shelf life and goes bad very quickly.
I agree with Joan and the Rachman article. I think that German official Rachman quoted in another article was right, for Germany this is a machine from hell they can't turn off.
As I see it the Euro is stuck between policies that are impossible from a German perspective such as inflation, long-term open ended fiscal transfers (like in the UK or the US) or policies that won't work for anyone else decade long austerity and internal devaluation (as George Soros put it a vibrant German core with a denuded periphery). Given that maybe dissolution with all the costs associated with that is most likely.
Quote from: alfred russel on June 11, 2012, 08:37:36 PM100 billion bandaid here, 100 billion bandaid there; before long the cost of bandaids will add up to something resembling a bailout. Do you think Merkel has the political capital to cut off southern europe or pull off a long term solution (dissolution of the euro, genuine fiscal integration)?
She doesn't need any domestic political capital to cut off Southern Europe. That would actually be a rather popular policy here.
The problem with dissolution is that the first ones to get out will be the Greeks, and it'll be chaos.
We all seem to be in agreement that further integration is politically dubious (at least at Languish we do). So what we need is a proper exit mechanism.
Merkel's current standard speech is something like "we can't share the risks without sharing the decision-making too".
Merkel's problem is she's focused on a path that at best would take 10 years to bear fruits, while we might see the Eurozone collapse in a matter of weeks.
Quote from: Zanza on June 12, 2012, 02:12:29 PM
Merkel's current standard speech is something like "we can't share the risks without sharing the decision-making too".
I agree with that position. The problem is that I don't think there's time for the required negotiations and treaty changes establishing further integration and shared decision making. The markets don't trust Eurozone communiques and the rather leisurely Brussels way of doing things - I remember the response to Van Rompuy's statement that if there was time, after dinner, the Council leaders would informally discuss the Eurozone crisis :bleeding:
I think Germany's position is a bit like the ECB's if there's a run on Greek banks. The current approach will probably lead to some sort of crisis that's a real and final test of Euro credibility. The choice then is a bit like the ECB if there's a run on Greek banks. They can either pump money in to keep it going in the Euro, though it could still fail or they can not pump money in, in which case it will definitely fail. It's not a desirable choice.
Maybe. But - in Germany's view - many of the proposed short term measures to save it have potential downsides which are considered worse in the long-term than risking an outright failure of the Eurozone. The Euro is not worth saving at any price. I know the risk perception might be different elsewhere. That just leaves a calm and measured longer-term approach.
I don't think that goes away from what I'm saying. My view is that Germany needs to decide what is best. What is perhaps seen as a calm and measured approach in Germany - with your benignly growing economy and lack of populist parties - is I think actually inadequate, confused and muddled. It is contributing to extreme and systemic economic problems in the periphery (20-25% of private sector workers in Greece haven't been paid in 3 months for example) and the hollowing out of the centre in those societies leading to the rise of populist politics - I think Hungary isn't going to be an unusual aberration in Europe. The consequences of that policy will eventually be some sort of crisis in Europe which will effect Germany. I actually think this approach could have the worst effects of all. SYRIZA and Golden Dawn and the rest don't matter so much in Greece, but God help us if that sort of politics gains traction in Italy or Spain or the FN and PdG continue to do well in France. Economically as well I think if the Euro collapsed now there could be enough effort put in to save the EU, I don't know if that would happen if things continue the way they are in some countries. Luckily I think market pressure is starting to undermine this approach.
My view is that Germany needs to either commit to saving the Euro - which does bear significant risks and could fail - or to end the Euro. Whatever happens there's a chance that we'll end up with a recession far more severe than in 2008.
For myself I think an ordered Euro-exit - which would basically be a German led and a coordinated Euro-exit, not Greece just failing - would probably be the best option.
But I'm amazed that that view is strong in Germany given, from my understanding, the central importance of the European project in post-war German politics. As I say this is the party of Adenauer and Kohl, I'd find it amazing if they ended the Euro.
Edit: In addition the short-term problem is what I think Martin Wolf said. Right now, panic is rational.
How can the end of the euro as a currency be considered? It would eliminate decades of progress in European integration, as the failure of the common currency would be interpreted by the masses as the failure of the EU as a project.
Quote from: Sheilbh on June 12, 2012, 02:49:24 PM
I don't think that goes away from what I'm saying. My view is that Germany needs to decide what is best. What is perhaps seen as a calm and measured approach in Germany - with your benignly growing economy and lack of populist parties - is I think actually inadequate, confused and muddled. It is contributing to extreme and systemic economic problems in the periphery (20-25% of private sector workers in Greece haven't been paid in 3 months for example) and the hollowing out of the centre in those societies leading to the rise of populist politics - I think Hungary isn't going to be an unusual aberration in Europe. The consequences of that policy will eventually be some sort of crisis in Europe which will effect Germany. I actually think this approach could have the worst effects of all. SYRIZA and Golden Dawn and the rest don't matter so much in Greece, but God help us if that sort of politics gains traction in Italy or Spain or the FN and PdG continue to do well in France. Economically as well I think if the Euro collapsed now there could be enough effort put in to save the EU, I don't know if that would happen if things continue the way they are in some countries. Luckily I think market pressure is starting to undermine this approach.
The success of these extremist parties is at best slightly increased by German policies and nothing Germany can do will have enough influence on domestic policies in other countries to change that (which is good!). So frankly, if you say Europe is slowly growing more extremist, then that's an argument against binding ourselves closer to these countries.
QuoteMy view is that Germany needs to either commit to saving the Euro - which does bear significant risks and could fail - or to end the Euro.
Germany has commmitted to saving the Euro - just not unconditionally. Can you name any other example of a country committing more than 10% of its GDP to guarantee other countries' debt? And ending the Euro is not in Germany's interest, but then I don't see why the initiative for that would have to come from Germany. Every other country or a group of countries can both start that and even if they want to implement it with or without Germany.
QuoteFor myself I think an ordered Euro-exit - which would basically be a German led and a coordinated Euro-exit, not Greece just failing - would probably be the best option.
Will never happen. Germany is committed to European integration and will never lead an initiative to go back.
QuoteIn addition the short-term problem is what I think Martin Wolf said. Right now, panic is rational.
Germany of course considers its policy as rational too. That's the problem of the Euro crisis - the rational policy for various stakeholders is conflicting.
I dunno - it sounds like you guys have a lot of reasons why you can't do anything in particular. You can't abandon the euro, you can't reward profligacy, you can't have inflation.
Somethings got to give.
Quote from: Barrister on June 12, 2012, 03:17:23 PM
I dunno - it sounds like you guys have a lot of reasons why you can't do anything in particular. You can't abandon the euro, you can't reward profligacy, you can't have inflation.
Somethings got to give.
No, we'll just continue doing anything in particular and wait what happens.
Quote from: Zanza on June 12, 2012, 03:19:19 PM
Quote from: Barrister on June 12, 2012, 03:17:23 PM
I dunno - it sounds like you guys have a lot of reasons why you can't do anything in particular. You can't abandon the euro, you can't reward profligacy, you can't have inflation.
Somethings got to give.
No, we'll just continue doing anything in particular and wait what happens.
In the meantime though you are bailing them out, just in short term ways that keeps impending doom right around the corner.
It may be too late for the inflation fix to work, without another major initiative that no one wants.
Quote from: Zanza on June 12, 2012, 03:14:45 PMGermany of course considers its policy as rational too. That's the problem of the Euro crisis - the rational policy for various stakeholders is conflicting.
This is the issue. I'm not really talking about countries but I think as you say at the moment all stakeholders' policies are rational, but cumulatively they're having a very destructive effect on individual economies and the Eurozone in general. So for example I think the things that savers, investors, policy makers, unions are doing are all, in the current situation, rational.
QuoteGermany has commmitted to saving the Euro - just not unconditionally. Can you name any other example of a country committing more than 10% of its GDP to guarantee other countries' debt? And ending the Euro is not in Germany's interest, but then I don't see why the initiative for that would have to come from Germany. Every other country or a group of countries can both start that and even if they want to implement it with or without Germany.
I get that. My point is that either Germany does commit or the markets will keep on testing right up until the point of collapse.
Other Eurozone countries are committing a lot to save the Euro - all of the Northern countries and France for example. The reason the initiative has to come from Germany is because Germany is the leader of Europe, whether you like it or not.
No non-Euro country is in a similar situation but that's because we're not in an imperfect currency union. Internally there's a different situation, I believe studies have been done that show the contribution of, say, New York, to poorer states through the Federal government is huge. I think Nevada is close to Ireland in situation and is receiving annual help from the Federal government of up to 6% of GDP. We don't have these problems with other countries and nationality is still enough of a binder that we don't mind the money from London going to support Gateshead. But my understanding is that all told the measures taken by the US and the UK (and Ireland) to save their banks were similarly large and similarly unpopular. We just replaced lazy Greeks with coked up bankers.
QuoteThe success of these extremist parties is at best slightly increased by German policies and nothing Germany can do will have enough influence on domestic policies in other countries to change that (which is good!). So frankly, if you say Europe is slowly growing more extremist, then that's an argument against binding ourselves closer to these countries.
If you think this you are naive in the extreme as to the effect Germany's policy choices are having in the rest of Europe, if you think it's slight at best.
QuoteWill never happen. Germany is committed to European integration and will never lead an initiative to go back.
That seems to contradict what you were saying earlier. But this is what the market's testing. How strong is the German commitment to Europe? If it's the choice between betting the house and watching the whole thing collapse, what will Germany do?
QuoteIn the meantime though you are bailing them out, just in short term ways that keeps impending doom right around the corner.
And will in some ways lead to a worse conclusion if the Euro does fail. There's no-one left for the Greeks or Portuguese to default on except Germany (and by extension the rest of the Eurozone) and the IMF. Plus the TARGET 2 imbalances could be an issue for the Bundesbank if the Euro collapses.
QuoteNo, we'll just continue doing anything in particular and wait what happens.
No you won't. The markets will force your hand eventually.
It won't be long in any case. Spain has met most its financing needs for the year, but with the rates closing on 7%, a full bailout seems anything but unlikely. And now we're talking real money, especially with Italy right behind us (their contribution to a Spanish bailout alone would tip the scales). The German public has to come to a decision this summer.
Quote from: Tamas on June 12, 2012, 02:54:05 PM
How can the end of the euro as a currency be considered?
Quote from: Sherlock HolmesWhen you have eliminated the impossible, whatever remains, however improbable, must be the truth.
Quote from: Sheilbh on June 12, 2012, 03:38:47 PMIf you think this you are naive in the extreme as to the effect Germany's policy choices are having in the rest of Europe, if you think it's slight at best.
As far as I know, e.g. France had the FN and some left extremists for decades. A general disillusionment and disenchantment with politics is seen in all Western democracies to a degree. Blaming the particular upswing of that sentiment in the Eurozone on Germany is ignoring the underlying political currents in the various countries. Greece has long been corrupt, people there are right to blame their elites, and thus it is easy to understand that they turn to extremists. But decades of bad governance in Greece are the reason why people turn away from the established parties, which are thoroughly discredited. Yes, austerity is obviously strengthening that process and Germany as the champion of austerity has its share in that. But pretending that anything Germany could realistically do would somehow stop the Greeks from being rightfully pissed with their previous political elites is what I would call naive in the extreme. That's suggesting that the Greeks are completely remote controlled from Berlin, which is just not reality.
QuoteThat seems to contradict what you were saying earlier. But this is what the market's testing. How strong is the German commitment to Europe? If it's the choice between betting the house and watching the whole thing collapse, what will Germany do?
Betting the garage and the summer cottage. ;)
QuotePlus the TARGET 2 imbalances could be an issue for the Bundesbank if the Euro collapses.
That's controversial.
Quote
No you won't. The markets will force your hand eventually.
That's what I mean with "wait what happens".
Quote from: Iormlund on June 12, 2012, 03:53:51 PMThe German public has to come to a decision this summer.
The German public won't decide anything this summer. It may be that our political elites decide something. If the German public would decide, Greece would leave the Euro in about one hour. :P
Isn't Merkel a "weathervane" politician? I thought she would take the path of least resistance vis a vis public opinion.
Quote from: Iormlund on June 12, 2012, 04:04:18 PM
Isn't Merkel a "weathervane" politician? I thought she would take the path of least resistance vis a vis public opinion.
Yes, but mostly in domestic policy and then that's just one consideration. Her main motivation is to stay in power, so she'll do whatever is expedient towards that.
That said, foreign policy is not such a big topic in German policital discourse as the four big parties (conservatives, liberals, social democrats and greens) pretty much agree on the general guidelines and it is just the details where they differ. It's rare that the opposition openly criticises foreign policy.
I'm not saying Germany's responsible for the rise of extremist parties. But they're responsible for Eurozone policies.
Those policies are causing long-term economic problems in a number of countries of frankly depression level extremity - especially in Greece. In addition because they're Eurozone policies and all the mainstream parties want to stay in, and because there's no flexibility regardless of how well the government performs, if voters want to reject those policies the only way to do it is by voting for an extreme. In addition I think the current policy is weakening democracy and democratic legitimacy in the EU in general. But as I say I think this is a two-edged sword, so far we've seen it happen in debtor nations but I think we'll also see it happen in creditor nations - like Finland and the Netherlands - sick of their countries having to pay to be 'good Europeans'.
What's the significant difference between ND and PASOK, or Fine Gael and Fianna Fail, or the PSOE and PP? Monti gets treated the same as Berlusconi, model pupils in Ireland get no more assistance or support than the recalcitrant dunces in Greece. As I think I've said in Greece I'd be voting SYRIZA, in France I would've voted PdG.
But I don't think we've killed off a Europe of national borders and competitive trade policies with one another, or of nationalism and borders. I think the risk we have is throwing out the baby with the bathwater which I think is more likely with the current policy path than with other options.
QuoteThat's controversial.
It is. I don't think it's a problem while the Euro survives. I think it will be a problem if the Euro collapses messily.
QuoteThat's what I mean with "wait what happens".
I can tell you. The choices will be the same but the economic costs of either will be significantly higher :P
Quote from: Zanza on June 12, 2012, 04:09:57 PM
Quote from: Iormlund on June 12, 2012, 04:04:18 PM
Isn't Merkel a "weathervane" politician? I thought she would take the path of least resistance vis a vis public opinion.
Yes, but mostly in domestic policy and then that's just one consideration. Her main motivation is to stay in power, so she'll do whatever is expedient towards that.
That said, foreign policy is not such a big topic in German policital discourse as the four big parties (conservatives, liberals, social democrats and greens) pretty much agree on the general guidelines and it is just the details where they differ. It's rare that the opposition openly criticises foreign policy.
Indeed, has that Ever happened ?
:P
Quote from: Zanza on June 12, 2012, 04:09:57 PMThat said, foreign policy is not such a big topic in German policital discourse as the four big parties (conservatives, liberals, social democrats and greens) pretty much agree on the general guidelines and it is just the details where they differ. It's rare that the opposition openly criticises foreign policy.
How was Fischer's intervention about Germany accidentally destroying the European order for a third time in a century taken in Germany? It seemed extraordinarily strong to me. Sincere no doubt, but very strong indeed.
QuoteYes, but mostly in domestic policy and then that's just one consideration. Her main motivation is to stay in power, so she'll do whatever is expedient towards that.
Sounds like Cameron. With the crucial difference that she'll do it well :(
Quote from: Barrister on June 12, 2012, 03:17:23 PM
I dunno - it sounds like you guys have a lot of reasons why you can't do anything in particular. You can't abandon the euro, you can't reward profligacy, you can't have inflation.
Somethings got to give.
As Zanza said, they will just sit and wait what happens, who collapses first, and then work from there. In panic.
Quote from: Sheilbh on June 12, 2012, 04:12:08 PM
Quote from: Zanza on June 12, 2012, 04:09:57 PMThat said, foreign policy is not such a big topic in German policital discourse as the four big parties (conservatives, liberals, social democrats and greens) pretty much agree on the general guidelines and it is just the details where they differ. It's rare that the opposition openly criticises foreign policy.
How was Fischer's intervention about Germany accidentally destroying the European order for a third time in a century taken in Germany? It seemed extraordinarily strong to me. Sincere no doubt, but very strong indeed.
QuoteYes, but mostly in domestic policy and then that's just one consideration. Her main motivation is to stay in power, so she'll do whatever is expedient towards that.
Sounds like Cameron. With the crucial difference that she'll do it well :(
Hang on, Shelf, I thought you praised Cameron the other day for his use of the 'veto' over the still born Euro-treaty ?
edit:Oops, I see his 'principles' coincide with playing to the Tory right and the wider swing middle classes.
Quote from: mongers on June 12, 2012, 04:16:16 PMedit:
Oops, I see his 'principles' coincide with playing to the Tory right and the wider swing middle classes.
Don't give him too much credit. I don't think he'd recognise the wider swing middle classes if he fell over them in a Morrisons car park.
But I think he had to do that for survival. If he'd okayed any treaty change he'd be gone. The Tory right on Europe aren't rational - and I say that as someone who'll probably vote to withdraw when we get a referendum.
Quote from: Sheilbh on June 12, 2012, 04:18:46 PM
Quote from: mongers on June 12, 2012, 04:16:16 PMedit:
Oops, I see his 'principles' coincide with playing to the Tory right and the wider swing middle classes.
Don't give him too much credit. I don't think he'd recognise the wider swing middle classes if he fell over them in a Morrisons car park.
But I think he had to do that for survival. If he'd okayed any treaty change he'd be gone. The Tory right on Europe aren't rational - and I say that as someone who'll probably vote to withdraw when we get a referendum.
Oh we can agree on that.
But you'd still be prepared to vote alongside people who readily seem to bleed into and out of the UKIP camp ?
On an EU vote, the person's opinion I'd probably take the most notice of on the mater, would be Ken Clark's.
Quote from: Sheilbh on June 12, 2012, 04:10:13 PMIn addition I think the current policy is weakening democracy and democratic legitimacy in the EU in general.
Definitely. As I wrote months or years ago either here or on Paradox, a messy exit from the Eurozone that gives countries back the ability to forge their own fortune might be a better choice. Staying in the Euro is not worth sacrificing democracy.
QuoteBut as I say I think this is a two-edged sword, so far we've seen it happen in debtor nations but I think we'll also see it happen in creditor nations - like Finland and the Netherlands - sick of their countries having to pay to be 'good Europeans'.
Or as Rachman said - Germany. It's very fortunate that most of our parties are very mellow and the extremists lack charisma and are generally idiots. I hope it stays that way.
QuoteAs I think I've said in Greece I'd be voting SYRIZA, in France I would've voted PdG.
Your point being? You like unpayable freebies and unrealistic policies?
QuoteIt is. I don't think it's a problem while the Euro survives. I think it will be a problem if the Euro collapses messily.
Maybe. I don't understand central bank balance sheets enough to actually make an intelligent comment on it.
QuoteI can tell you. The choices will be the same but the economic costs of either will be significantly higher :P
Let's see.
Quote from: Zanza on June 12, 2012, 04:25:15 PM
Or as Rachman said - Germany. It's very fortunate that most of our parties are very mellow and the extremists lack charisma and are generally idiots. I hope it stays that way.
I agree. I didn't mention Germany because you've not got a Wilders or a True Finns Party to take advantage of the creditor resentment.
QuoteYour point being? You like unpayable freebies and unrealistic policies?
Not quite. I support austerity and structural reform. But I think the policies being imposed are wrong and should be changed - my point is that there's no-one else to vote for.
QuoteDefinitely. As I wrote months or years ago either here or on Paradox, a messy exit from the Eurozone that gives countries back the ability to forge their own fortune might be a better choice. Staying in the Euro is not worth sacrificing democracy.
Agreed. And it's sad that this is even being considered. We should have listened to Delors :(
Quote from: Sheilbh on June 12, 2012, 04:12:08 PMHow was Fischer's intervention about Germany accidentally destroying the European order for a third time in a century taken in Germany? It seemed extraordinarily strong to me. Sincere no doubt, but very strong indeed.
He is just a political commenter nowadays and has to use strong words to get printed. I doubt that even his own party cares much.
QuoteSounds like Cameron. With the crucial difference that she'll do it well :(
She is very, very good at that actually. It's well possible that no government might be feasible without her in 2013 either and then she'll stay until 2017.
Moody's downgraded Spain to Baa3. Sheep, 3rd class.
from zh:
Quote
Helmet time.
From Oanda:
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What do you get when you mix counterparty and agency risk, and throw in some currency collapse fear for good measure? This.
Quote
It was only a matter of time before the stoic Germans, long abused as the piggy bank pinatas of Europe's monetary experiment, said something. And after last week's confused Spanish campaign demanding that Merkel stop (what exactly - bailing out the Spanish banks? Funding Spanish current account deficits?), Germany has found its retort. As of a few hours ago, the German empire has decided to strike back using the #StoppESM hashtag on twitter. Are we about to have our first European twitter war? And while we know what the hashtag for Greece wil be (#StopTaxes), and Ireland (#StopSobriety), we have yet to figure out the appropriate terms for all the other insolvent European countries. There are many.
For now the campaign is modest, as it is sourced by people not on the receiving end of the Second Great October Revolution. We expect that, with typical German efficiency, it will only pick up steam and traction with time, instead of burning out promptly and fizzling into obscurity.
Quote
Wolf Richter www.testosteronepit.com
Josef Ackermann, Deutsche Bank's CEO until a couple of weeks ago, who knows a thing or two about skeletons hidden in the bank's vast closets, said at the Atlantic Council that he is "grateful the US is pushing Europe to act faster." Just like his US counterparts on Wall Street in 2008, he wanted massive taxpayer-funded bailouts of the banks and exhorted the Eurozone to complete the latest bailout fund, the ESM, quickly. Together with the existing EFSF, they would create a €1 trillion firewall—enough to bail out Spain and its banks, but not enough to do the same for Italy.
He pushed Chancellor Angela Merkel to permit banks to draw on these funds directly—though these funds were designed to bail out countries, not corporations. And the German parliament approved them on that basis. He had "no doubt" that the German people would support rescuing the Eurozone, he said, though he left unclear why he exempted, for example, the French or his own compatriots, the Swiss, who're also suffering from the Eurozone's woes [Read... Bracing for a Euro Crash: The Swiss Caught in a Vice]. And he was confident that "everything would be done to bail out the Eurozone."
But the German people weren't so sure about that—and started to demonstrate. So they were in the streets in Munich to express their opposition to what was being shoved down their throats. The demonstration was organized by Freie Wähler (Free Voters), an organization of voter groups with 19% of the seats in the Bavarian parliament. In addressing the crowd (video), their leader Hubert Aiwanger called for a "Europe of democracy" that would be "open to the world." He was worried about the "future of our children," a future where a "child, just after being born, is already liable for the bailout umbrella that great-aunt Merkel had signed." Rousing applause.
"It's on us to take our fate into our own hands so that we don't learn by watching TV what was signed once again in Brussels," he said. "These people believe they can turn this very big wheel, but they're historically forgetful and don't remember what they promised two or three years ago."
Money that people put aside during a life of hard work would be "taken hostage by the policies of speculation," he feared, and would "lose its value in a few years because now we calculate in trillions...." And he added, "we must create a future for our children and grandchildren where not every euro is already in hock."
But President Obama, feeling Mitt Romney's hot breath on his neck, didn't care about German children. He cared about being reelected—and any effluent from the Eurozone quagmire oozing into the US economy over the next few months would impact his chances. So Friday, he exhorted Europeans to act, and as fast as possible. He had a whole laundry list of tasks for them. Most importantly: recapitalize the banks—that is, socialize their losses across borders. He sounded increasingly desperate. Earlier in the week, he'd had a private phone conversation with Merkel. Fruitless probably. But the one he'd had with British Prime Minister David Cameron led to a message targeted at Merkel and her government: come up with an "immediate plan" to solve the crisis and to reestablish the "confidence of the markets."
And French President François Hollande was dealt a resounding defeat in Germany ... that went mostly unnoticed in Germany. But it was front and center in France. He and his country had been under the illusion that he could impose his campaign promises on Merkel's government—after having antagonized them during the campaign by coddling up to the opposition SPD. So he pushed for Eurobonds and for more government deficit spending to create stimulus. Merkel vehemently brushed off his Eurobonds, though she left a door open for them way in the future, if the Eurozone ever became a political and fiscal union.
Then he tried to implement his campaign promise to renegotiate the fiscal union pact, a hastily drawn-up treaty to induce budgetary discipline into the 25 governments that signed it. Merkel's grand oeuvre. Hollande wanted to include provisions for additional deficit spending, his "measures of growth," and he'd block ratification if he had to. He even had the German opposition SPD and EU officials in his camp. But EU officials were just decoration. And Merkel made a side deal with the SPD; she'd support their pet project, a financial transaction tax, and they'd support the fiscal union pact. Hollande was left to twist in the wind.
Humiliation was the word used in the French media. Perhaps the French had thought that the election would change everything in Europe, but it changed nothing.
The German government hasn't deviated from its principles yet, despite rumors to the contrary: cleanup of budget deficits and implementation of structural reforms in exchange for bailout billions. Growth would come through the private sector, increased competitiveness, and removal of barriers—not from government boondoggles. And her nod towards a political union appeased the federalists in Brussels, but the conditions she attached to it, including ceding sovereignty to Brussels, remain unpalatable everywhere (except in Brussels), thus eliminating any risk it would ever be accepted.
And in Greece, tourism, its second largest industry after the shipping industry, took another hit as tour-bus drivers went on strike; owners had demanded that they take a 50% pay cut on top of the 20% cut they already suffered! And Greece is the model for Spain and Italy.
How smart was it to give money to Spain, anyways?
Money to Spain = higher debt for Spain = worse credit rating for Spain = Spanish government loan bonds lose value, of which most are held by Spanish banks, increasing their problems.
I generally don't like the people who tell such things, but I do get the feeling sometimes that still the only real priority behind the scenes is to prevent or ease the fall for the big bank execs. They are the ones with personal connections (and possibly hold on) to the decision-makers. Not your average Irish or Spanish citizen.
Quote from: Syt on June 14, 2012, 06:23:23 AM
How smart was it to give money to Spain, anyways?
Money to Spain = higher debt for Spain = worse credit rating for Spain = Spanish government loan bonds lose value, of which most are held by Spanish banks, increasing their problems.
Just as smart as the rest of the half measures taken until now. Or in other words, not at all.
We hit 7% today, by the way.
Quote from: Tamas on June 14, 2012, 06:30:48 AM
I generally don't like the people who tell such things, but I do get the feeling sometimes that still the only real priority behind the scenes is to prevent or ease the fall for the big bank execs. They are the ones with personal connections (and possibly hold on) to the decision-makers. Not your average Irish or Spanish citizen.
In our case most of the troubled banks were previously regional savings institutions (
cajas) controlled by regional politicians. Which is why both Populares and Socialists have blocked attempts to look for those responsible in the Bankia fiasco. They know perfectly well whose responsible: them.
Quote from: Iormlund on June 14, 2012, 07:06:44 AM
Quote from: Syt on June 14, 2012, 06:23:23 AM
How smart was it to give money to Spain, anyways?
Money to Spain = higher debt for Spain = worse credit rating for Spain = Spanish government loan bonds lose value, of which most are held by Spanish banks, increasing their problems.
Just as smart as the rest of the half measures taken until now. Or in other words, not at all.
Indeed. Giving the money directly to the banks would have worked better IMHO.
Quote from: Syt on June 14, 2012, 07:12:11 AM
Indeed. Giving the money directly to the banks would have worked better IMHO.
But that's verboten.
Quote from: Syt on June 14, 2012, 06:23:23 AM
Money to Spain = higher debt for Spain = worse credit rating for Spain = Spanish government loan bonds lose value, of which most are held by Spanish banks, increasing their problems.
That was why people (including the Spanish government) were arguing the money should go straight to the banks, so that the sovereign-bank link is broken.
My understanding is that's not allowed for the ESM, but is allowed under the EFSF rules. But the reasons against it were mainly political.
Quote from: citizen k on June 14, 2012, 01:53:48 AM
from zh:
Quote
Helmet time.
From Oanda:
Due to the extreme volatility some market analysts foresee could result in the coming days, OANDA fxTrade will not accept any trading activity from 6:00 AM EST until approximately 3:00 PM EST, on Sunday, June 17, 2012. OANDA believes the convergence of a major market event during off-market hours represents a potential trading risk and has taken this rare step to protect traders from excessive rate fluctuations.
Please note that during this halt in trading, you can still access your account details but no trading activity will be accepted. For this reason, OANDA strongly recommends that all traders consider minimizing currency exposures prior to the trading halt.
If you do intend to maintain open positions during this period, be aware that OANDA will hold exchange rates steady during the trading halt. However, when trading resumes, rates will immediately adjust to the current market rate and it is possible that the updated rate could result in a margin closeout if the price has moved significantly against your positions.
Therefore, it is your responsibility to ensure you have adequate funds in your account to prevent a margin closeout.
OANDA apologizes for any inconvenience this may cause.
For more information, please contact a Customer Service representative.
Best regards,
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What do you get when you mix counterparty and agency risk, and throw in some currency collapse fear for good measure? This.
Wow. Maybe I'll go into the weekend holding a straddle. That way, I win no matter which way it moves as long as it moves big.
Quote from: Iormlund on June 14, 2012, 07:06:44 AM
In our case most of the troubled banks were previously regional savings institutions (cajas) controlled by regional politicians. Which is why both Populares and Socialists have blocked attempts to look for those responsible in the Bankia fiasco. They know perfectly well whose responsible: them.
Sounds delightfully Dexia. Everyone knows who did it but the enquiry didn't yield any results. They need to fu***** hang.
Soit, there will be no happy end here.
Rumor: G20 central banks preparing for coordinated action following the Greek election.
Market spiking like mad.
BofE is planning to flood the UK with cheap pounds too.
It's hard to deflate the bubble that is the modern economy.
The Telegraph blog posted this, from Lombard Street Research:
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fblogs.telegraph.co.uk%2Ffinance%2Ffiles%2F2012%2F06%2Fchart-2.jpg&hash=76d94f178723e15de9f6b1785a9348926daa7c6a)
The head their described it as showing the effect of Europe's 'fiscal suicide pact'. The Netherlands is a creditor country, with a strong current account surplus imposing austerity because their budget, surprisingly, failed to meet EU targets. That with bank deleveraging and tight money from the ECB looks like driving them into a recession - worryingly the housing market's falling too and the Dutch have a lot of personal debt.
Here's more from Lombard's Chief Economist, who is trenchantly anti-Euro and a bit negative generally. But I don't think his views are out of the mainstream in the City:
QuoteMrs Merkel has very little time left to get a grip. The point the German leadership has yet to hoist on board is that continuation of current euro membership (with or without Greece, but with Spain and Italy in) will only be possible without a prolonged Mediterranean depression if several conditions are met:
GERMANY PAYS. The German leadership thinks it has agreed to pay (provided everybody commits economic and political suicide) but it does not understand what paying means. The money has to be given to Club Med, not lent. (See below for how this affects the recent Spanish deal.)
The requirement is broadly comparable to what has been needed for East Germany since 1991 – except that the Eurozone, unlike pan-Germany after 1991, is not a political union. Is this a rough deal for Germany, ordinary Germans? Yes. But that is what is going to be required, to keep Club Med in.
GERMANY INFLATES. Rebalancing relative costs between Germany/Holland and Club Med requires either breaking Mediterranean society (and probably politics) to destroy long-established wage-formation habits, inevitably entailing depression, or German inflation of 4% or so for at least ten years.
BUDGET DEFICITS. Germany can only inflate if it overheats with excess demand. But the Chinese investment growth of the past few years has been the mainspring of the good recent recovery, supported by strong capex in export industries. This is now likely to stagnate, as China grows more slowly and lowers its grotesque, 49%-of-GDP investment rate. Other German exports are falling. There is a modest construction upswing owing to extremely low interest rates, but the demand necessary to achieve 4% inflation will probably require government deficits, now banned by constitutional amendment – one of the follies of the previous "Grand Coalition" government.
The chances of Germany accepting this programme are nil. But Mrs Merkel is being inched down that road, "crisis by crisis", and if she does not get a grip soon she will be wiped out as Chancellor next year. The Spanish bail-out was a typical example of half-measures.
It seemed clever to insulate Spain a week ahead of the Greek elections, so that "Grexit" could be possible without immediate major contagion into Spain. But Spanish banks needed equity, not debt funding that would leave them as insolvent as before.
So the provision of debt funding by the Eurozone required the Spanish government as intermediary, to turn the debt – now effectively national debt – into equity for its banks. So private holders of Spanish government debt have effectively been subordinated – and will be for each further tranche of aid that is needed in future. Thus contagion was worsened, and quickly spread to Italy, which can only too clearly not afford its share of the Spanish bail-out.
The truth of the matter is that any policy that holds Club Med in the euro will ensure that Mrs Merkel's Christian Democrats are annihilated next year, as it involves entirely unreasonable burdens for ordinary Germans. So Berlin should be rooting for Grexit after Sunday's elections and an anti-euro balance of power in the new Dutch parliament, to provide cover for German exit from this failed euro-project.
Edit: One interesting point I read this morning was about a UBS survey of central bank reserve manages. Apparently most think someone will leave Eurozone and reserves are being gradually biased towards non-Euro currencies.
"The money has to be given to Club Med, not lent"
not without receiving control over how and where the money is used. Otherwise it will be wasted, the giving will last forever and the southrons will call you fascist if you indicate that maybe they should -you know- actually do something decent with it instead of wasting the money (for all points: see Wallonia)
Quote
Whatever euro's fate, Europe's reputation savaged
LONDON (Reuters) - Whether the euro lives or dies, the chaotic way Europe has tackled the crisis could undermine the region's geopolitical clout for years to come and leave it at a distinct disadvantage in a rapidly changing world.
With an apparently never-ending series of last-minute summits and telephone calls, Europe's leaders and finance ministers have held the bloc together in the face of growing strains between states, a rising political backlash and market alarm.
But with hindsight, outsiders say each measure proved too little, too late. US officials in particular complain European leaders have either failed to grasp the scale of the problem or proved unwilling to countenance the awkward political decisions necessary to fix it.
As a result, they say, what should have been one of the most stable parts of the world has now become one of the most unpredictable.
At one extreme, the euro area might be about to embark on a journey towards further fiscal and political union as an almost totally unitary "super state". At the other, it could unravel and collapse into an unstable mess of regional rivalry.
"From almost every conversation I've had in the last year - with Chinese, with Indians, with just about anybody - the message is always the same," says Fiona Hill, a former senior officer for the US National Intelligence Council and now head of the Europe program at Washington think tank the Brookings Institute. "Europe can no longer be trusted. It seems to be moving from being a source of stability to a driver of instability"
Long-held certainties were being challenged, she said. Even non-euro member Britain suddenly appeared at risk of breaking up, with Scotland due to hold a referendum on independence that experts say could yet go either way.
The slow burning euro zone debt and banking crisis is accelerating. Last weekend brought a decision by euro zone political leaders to bail out Spain's banks. This weekend Greece holds a parliamentary election which many observers fear could spell the end of its euro membership.
Some argue it is too soon to write Europe - or the EU institutions - off altogether. Under foreign policy chief Catherine Ashton, some credit Europe with making real progress in talks with Iran and other powers over the future of its disputed nuclear program. But their energy for anything beyond their immediate problems is seen decidedly limited.
"The Europeans are completely consumed with a battle to save the euro zone," says Ian Bremmer, president of political risk consultancy Eurasia Group. "It's a deep and ongoing crisis bigger than any they've experienced in decades... it's an environment where European leaders could hardly be expected to prioritize anything else."
That could leave the continent being increasingly sidelined as emerging powers - not just the BRIC powers of Brazil, Russia, India and China but other states such as Turkey, Indonesia and South Africa - grow in importance.
At the very least, it could undermine the ability of the continent's leaders to persuade the rest of the world to take them seriously on a range of issues, from trade to the importance of democracy and human rights.
"Europe probably isn't going to stop preaching to the rest of the world," says Nikolas Gvosdev, professor of national security studies at the US Naval War College. "But it's much less likely that others are going to be inclined to listen."
EUROPE AT CROSSROADS
At the Copenhagen climate summit in 2009, European states suffered the indignity of being outside the room when the final deal was struck between the United States and emerging powers. In the aftermath of the euro zone crisis, it's a position European leaders may simply have to get used to.
But for the rest of the world, it's not just the continent itself that is rapidly losing its shine. The whole European political model - generous welfare systems, democratic decision-making, closer regional integration and the idea of a currency union as a stabilizing factor - no longer seems nearly as appealing to other, still growing regions.
"Europe is at a crossroads, with the very future of the EU at stake," says Brahma Chellaney, professor of strategic studies at New Delhi think tank the Centre for Policy Research. "If the euro dies, it will mark the end of the European experiment in forging closer financial and political integration. But it will also have wider international implications."
Not everyone agrees what those will be, however. Chellaney argues the demise of the euro might help secure the primacy of the dollar - and therefore perhaps of the United States itself - for years to come.
But others believe a European collapse would be a sign of things to come for the US as well. Bharat Karnad, a colleague of Chellaney at the Centre for Policy Research, argues that whatever happens powers such as China are on the rise and that the West will be increasingly challenged regardless of what happens to the euro.
"The health of the euro or the EU, for that matter, will have a marginal impact on gold and power that is tending any way towards Asia, especially China," he said.
Washington takes the potential threat of Europe's unraveling very seriously. In the short-term, the Obama administration is clearly concerned over the electoral fallout should the crisis in Europe cross the Atlantic before November's presidential election.
But in the longer term, whether the euro survives or not US planners are beginning to face up to the fact that the continent will likely be poorer and rather more self-centered than Washington had hoped.
Washington has long been pushing European powers to take more responsibility for their own immediate neighborhood. While Britain and France took the political lead in Libya last year, US Defense Secretary Robert Gates complained European NATO forces were in fact almost entirely dependent on US munitions, logistics and other backup.
But the change in European thinking and the additional defense spending Washington called for now looks all but impossible in this time of austerity.
WASHINGTON WORRIED
"It's doubtful any future US Defense Secretary is even going to bother to make that kind of pitch," says Gvosdev at the US Naval War College. "We'd hoped Europe could take the lead in some parts of North Africa as well as the Balkans and Eastern Europe. That now looks very unlikely."
US planners were also waking up to the fact that European states were no longer likely to match US donor pledges when it came to humanitarian or financial aid for war zones and troublespots, he said. Then, there were longer term strategic concerns.
Washington's military "pivot " towards Asia, he said, had been based in part on the assumption that Europe would remain stable and wealthy and the US now had little or nothing to worry about on its North Atlantic flank. A weakened Europe could make US planners much less confident of that, particularly if China extends its influence.
Beijing has upped its investments in Europe in recent years, including major port projects in Greece and Italy.
Some political analysts contend the weaknesses and drivers behind the euro zone crisis go much further and can be found in most western economies - including the United States itself.
"The jettison involves essentially the ballast which used to provide stability to the vessel of post-war society," Jin Liqun, chairman of the supervisory board for China's sovereign wealth fund the China Investment Corporation, wrote on May 21 in Communist Party-run newspaper the People's Daily, making it clear he saw similar problems in the US.
Some waning of Europe's international influence was always likely, experts say, with an ageing population chewing up ever more resources and emerging economies inevitably growing faster. But the current crisis could supercharge its decline. Whether the continent's leaders realize that, however, is another matter.
"Europe's main source of influence (should) be the success of its political and economic model in providing high living standards and democratic freedoms," says Jack Goldstone, professor of international affairs at George Mason University near Washington DC "If the current crisis undermines both of those as well, Europe will look like a rather weak, badly run system of ageing and economically stagnant states. Irrelevance awaits."
@Sheilbh:
Quote
The truth of the matter is that any policy that holds Club Med in the euro will ensure that Mrs Merkel's Christian Democrats are annihilated next year, as it involves entirely unreasonable burdens for ordinary Germans.
This part here shows how little the Chief Economist of Lombard understands about German domestic politics. It's possible that Merkel's party loses, but if so, it won't be because of her handling of the Euro crisis, but rather for purely domestic reasons.
:huh: You think giving in on Eurobonds, QE and other transfers wouldn't lose her the election?
No, that's way too abstract.
This guy is quite interesting.
http://yanisvaroufakis.eu/
Quote from: Scipio on June 16, 2012, 07:14:58 AM
This guy is quite interesting.
http://yanisvaroufakis.eu/
The video there suggests that the European Redemption Fund is a great big con for Germany to take everyone's gold.
First projections of Greek election from state broadcaster:
Skai TV gives first seat projections from their exit polls: Syriza 28% 124 seats, ND, 27.5% 73 seats, Pasok 13% 33 seats.
Difficult to see a government emerging. And, apparently, the leader of Syriza's wife has given birth to their second kid :)
Tsipras has conceded the election. The question now is whether ND can form a government.
Quote from: Iormlund on June 17, 2012, 02:28:46 PM
Tsipras has conceded the election. The question now is whether ND can form a government.
:yeah:
Quote from: Iormlund on June 17, 2012, 02:28:46 PM
Tsipras has conceded the election. The question now is whether ND can form a government.
There was an analyst area who said it looked like whoever won would get 130 seats - both Syriza and ND were around that level according to exit polls. But that it would depend on how their potential coalition parties do.
ND want a grand coalition. PASOK have apparently said they won't form a government without Syriza (presumably they want to drag them down too) while Syriza are probably looking forward to aggressive opposition.
Sheilbh, who is that in your profile picture?
Quote from: Queequeg on June 17, 2012, 04:17:41 PM
Sheilbh, who is that in your profile picture?
A young Thom Gunn. One of my favourite poets and I'm reading a lot of him lately.
Fitch update:
QuoteFitch: Greece and Europe: Back from the Brink, Crisis Unresolved Ratings Endorsement Policy
18 Jun 2012 10:16 AM (EDT)
Fitch Ratings-London-18 June 2012: The narrow victory of New Democracy in the Greek parliamentary elections means the near-term risk of a Greek disorderly debt default and exit from the euro has fallen. A new government that is supportive of the EU-IMF programme is likely to be in place prior to the EU Leaders Summit on 28-29 June.
Consequently, Fitch will not place all eurozone sovereigns on Rating Watch Negative as it had indicated would be the case if a Greek euro exit were a probable near-term event.
The crisis in Greece and the eurozone remains intense. Fiscal austerity and painful structural reform combined with a strong parliamentary opposition led by Sryzia means that the new Greek government is likely to be fragile.
The pace of economic contraction is almost certainly accelerating. The country's liquidity position is fast deteriorating, underscoring the urgency of forming a new government and the resumption of disbursements under the EU-IMF programme. It will be challenging to significantly ease the austerity programme without receiving additional funds, although there is some room for manoeuvre on the financing profile of the existing programme.
While the risks from Greece have fallen for now, the severity of the systemic crisis engulfing the eurozone is unlikely to diminish until European leaders articulate a credible road-map that would complete monetary union with much greater fiscal and financial integration.
Downward pressure on the sovereign credit profile and ratings of eurozone sovereign governments will intensify so long as a credible path to closer union and a more coherent and united policy response are absent. This includes further boosting the financial backstops against contagion.
http://www.abc.net.au/news/2012-06-19/europe-fires-back-at-g20/4079008
QuoteEurope fires back over G20 criticism
European leaders have fired back at criticism from G20 countries about their handling of the economic crisis.
Prime Minister Julia Gillard and Treasurer Wayne Swan wrote to world leaders ahead of this week's G20 summit in Mexico, urging them to adopt policies designed to stimulate the economy while also implementing austerity measures.
The US and Canada are also pressuring Europe to act, with Canadian prime minister Stephen Harper calling on eurozone leaders to make structural changes to solve the debt crisis.
But European Commission president Jose Manuel Barroso has hit back at those critical of Europe's approach, telling reporters: "We are not coming here to receive lessons in terms of democracy or in terms of how to handle the economy".
"By the way, this crisis was not originated in Europe," he said.
"This crisis originated in North America and much of our financial sector was contaminated by, how can I put it, unorthodox practices, from some sectors of the financial market."
Mr Barroso said he expected G20 leaders to "speak very clearly in favour of the approach the EU is following."
The G20 talks have so far been dominated by a focus on how to deal with the debt-laden economies of European nations.
Ms Gillard has told delegates they should follow Australia's lead in dealing with the financial crisis, by putting in place carefully targeted stimulus measures and spending cuts aimed at restoring budgets.
Speaking in Australia, Opposition Leader Tony Abbott has ridiculed the Prime Minister's offer of "wisdom" for other countries.
"A Government that has delivered the four biggest deficits in Australian history hardly has the credentials to lecture the G20," Mr Abbott told a conference in Canberra.
"[The] Prime Minister would be better advised to actually deliver a surplus, as opposed merely to forecast one before she starts giving lectures to other countries on economic and fiscal rectitude."
Mr Abbott said Australia's economy remained vulnerable to further setbacks in the economies of Europe and the United States, and also the possibility of slower growth in China.
"The Government can't assume that everything is going well. It shouldn't assume that the $1.5 billion surplus is in the bag," he said.
At the last election, the Coalition promised to make budget savings of $50 billion - although some of the measures were rejected by Treasury officials - and is promising to take a similar approach at the next election.
"It will be tougher to get savings this time than last time because the stimulus programs that we were able to cut last time largely won't be available to cut this time," Mr Abbott said.
He says the Coalition is going through the budget "line by line" looking for wasteful spending.
And Americans think Obama's bad for blaming the last guy :lol:
It reminds me of the almost surreal tweets the official European Commission account churns out. Some recent gems:
'Did you know? in 2011 EU27 had a lower govt debt (83% of GDP) than the #USA (102.9%) and #Japan (229.8%) http://bit.ly/ECPresidentG20 #G20'
'Did you know? in 2011 EU27 had lower govt deficit (-4.5% of GDP) than the #USA (-9.6%) and #Japan (-8.2%) http://bit.ly/ECPresidentG20 #G20'
'Did you know? EU GDP grew by nearly 35% over 1995-2008 and reduced by less than 1% over 2008-2010 http://bit.ly/ECPresidentG20 #G20'
Maybe this is decent PR in Portugal :lol:
Edit: Also is the President of the European Commission really in a position to lecture anyone about democracy. I mean that selection process is about as transparent as the National People's Congress :blink:
Edit: The video's even worse:
http://www.bbc.co.uk/news/business-18496985
Sometimes blaming the last guy is perfectly understandable. I'm sure Adenauer was justified in blaming the last guy. Of course, ideally praising the last guy when the economy is booming should be done as well, but, oh, well.
This combo of news, from the Guardian, looks ominous for coming weeks:
QuoteSpain, meanwhile, has sold €640m of 18-month bills with an average yield of 5.1%, compared with 3.3% at the last auction. It also sold €2.4bn of 12-month bills with an average yield of 5.07%, compared with 2.98% at the last auction.
...
German business confidence fell in June at its fastest rate since October 1998, with uncertainty over the Greek elections likely to blame for the drop. The ZEW survey fell to -16.9 from 10.8 in May, way below forecasts for a drop to 4.
A ZEW economist said this was not just a monthly fluctuation in sentiment; the slide is too pronounced to interpret it as a temporary fluctuation. The survey results came in mainly before the Greek elections, but the results coming in after the elections were not significantly better.
The think-tank said diminishing exports, global growth and eurozone rescue packages were the main reasons for the slide in expectations. It does not, however, expect Germany to go back into recession.
...
Still the key point is that if Spain is paying those kind of levels for its debt, it needs not only an ESM package to recapitalize its banks, it also needs an outright bail-out package, and it is becoming very difficult to see how it can manage without that beyond the end of Q3, unless yields fall dramatically!
...
The full audit of the Spanish banks has been delayed from July to September, fuelling fears that the banks may need more than originally thought (see 8.25am). Spain's central bank has apparently agreed the delay with the government, the IMF and the ECB. Accendo Markets' head of research wonders what's keeping them.
I'm also reading more chatter about Italy which is scary :ph34r:
Edit: Apparently the Cypriots need a bailout to bailout their banks. They say they need it by 30th of June. That should be manageable though.
"But European Commission president Jose Manuel Barroso has hit back at those critical of Europe's approach, telling reporters: "We are not coming here to receive lessons in terms of democracy or in terms of how to handle the economy"."
...........and how many votes did you get Mr. President?
Quote from: Richard Hakluyt on June 19, 2012, 06:18:57 AM
"But European Commission president Jose Manuel Barroso has hit back at those critical of Europe's approach, telling reporters: "We are not coming here to receive lessons in terms of democracy or in terms of how to handle the economy"."
...........and how many votes did you get Mr. President?
can't have been more than 25 or 27
Quote from: DGuller on June 19, 2012, 12:24:39 AM
Sometimes blaming the last guy is perfectly understandable. I'm sure Adenauer was justified in blaming the last guy. Of course, ideally praising the last guy when the economy is booming should be done as well, but, oh, well.
What was wrong with Lucius D. Clay? :huh:
Quote from: Richard Hakluyt on June 19, 2012, 06:18:57 AM
"But European Commission president Jose Manuel Barroso has hit back at those critical of Europe's approach, telling reporters: "We are not coming here to receive lessons in terms of democracy or in terms of how to handle the economy"."
...........and how many votes did you get Mr. President?
345 of 345 in the EU Council
382 for, 219 against, 117 abstained in the EU Parliament
Do British prime ministers usually get more support in the House of Commons?
They have to win their own seat, so usually need around 30,000 actual voters to vote for them.
Quote from: Richard Hakluyt on June 19, 2012, 01:57:13 PM
They have to win their own seat, so usually need around 30,000 actual voters to vote for them.
Okay. But then he only needs the confidence of the House of Commons not both parliamentary chambers like in the EU, right?
As the president of the EU commission is nominated by the upper chamber (the Council) as opposed to the lower chamber as usual in most parliamentary democracies, he doesn't have a constituency to win first. But I am not sure whether that alone is a democratic deficit. Our federal chancellor theoretically doesn't have to be a member of the lower chamber either, but I don't consider that a major democratic deficit as that office, like the EU commission president has to command the confidence of the lower chamber.
Where I see a democratic deficit is how the lower chamber of the EU, the parliament, is elected as Maltese votes count much more than German votes. That's a good point for criticism in my opinion.
The European parliament is a broken reed and can hardly be compared to the House of Commons in terms of its prestige and authority, or the Bundestag for that matter.
Voter participation rates in Euro elections, throughout the EU, are low and on a downward trend; so I don't think that my concerns about the levels of democratic accountability within the EU are some peculiar insular foible.
But I have to leave it at that, we are off-topic in an already huge thread and the Cold War beckons in the form of Smiley's People (the TV series) :cool:
I generally agree with your criticism of the EU parliament.
Quote from: Zanza on June 19, 2012, 01:48:50 PM
Quote from: DGuller on June 19, 2012, 12:24:39 AM
Sometimes blaming the last guy is perfectly understandable. I'm sure Adenauer was justified in blaming the last guy. Of course, ideally praising the last guy when the economy is booming should be done as well, but, oh, well.
What was wrong with Lucius D. Clay? :huh:
:mad:
Does anyone know how much Greece gets annually in EU transfers?
I ask because it seems such a no-brainer for Greece to default on its official debt that I'm led to believe the only reason they don't is fear of getting kicked out of the EU.
They don't have a primary surplus yet, so they'd need help nevertheless.
Apparently there's an agreement for the next half-measure: resuming purchases of Italian and Spanish debt, using both EFSF (which by now should be almost depleted) and ESM (which doesn't event exist yet). Any bets on how short a life will this one have?
Quote from: Admiral Yi on June 19, 2012, 04:54:43 PM
Does anyone know how much Greece gets annually in EU transfers?
I assume you mean the structural development funds? That and the CAP are the major transfers in the EU.
QuoteWhere I see a democratic deficit is how the lower chamber of the EU, the parliament, is elected as Maltese votes count much more than German votes. That's a good point for criticism in my opinion.
I don't think that's the major democratic deficit problem. That exists in the UK Parliament too - a vote in the Western Isles constituency counts far more than one in the Isle of Wight. But it's also arguably a problem in the US. It's not necessarily problematic democratically. Isn't there any real variation in population in German single-member constituencies?
Quote from: Sheilbh on June 19, 2012, 07:23:56 PM
Quote from: Admiral Yi on June 19, 2012, 04:54:43 PM
Does anyone know how much Greece gets annually in EU transfers?
I assume you mean the structural development funds? That and the CAP are the major transfers in the EU.
I would imagine he means all the various transfers and subsidies, major and minor. Still, it's not like those are especially important, since most of them are more or less direct transfers to assorted Greek criminals, due to the fact that the Greek government is corrupt.
QuoteQuoteWhere I see a democratic deficit is how the lower chamber of the EU, the parliament, is elected as Maltese votes count much more than German votes. That's a good point for criticism in my opinion.
I don't think that's the major democratic deficit problem. That exists in the UK Parliament too - a vote in the Western Isles constituency counts far more than one in the Isle of Wight. But it's also arguably a problem in the US. It's not necessarily problematic democratically. Isn't there any real variation in population in German single-member constituencies?
Indeed, although that whine is common amongst inhabitants of heavily-populated regions in democracies. It should be dismissed out of hand.
Quote from: Neil on June 19, 2012, 08:03:03 PM
I would imagine he means all the various transfers and subsidies, major and minor. Still, it's not like those are especially important, since most of them are more or less direct transfers to assorted Greek criminals, due to the fact that the Greek government is corrupt.
CAP and the various regional development funds are the only real transfers and, together, for the entire EU they're under €100 billion. I believe Greece is a big net recipient though, around €3 billion pa. But the reason I ask about the development funds is it's not clear how much of those Greece are getting at the minute.
For the infrastructure projects and the like the EU requires a 50-50 contribution from either the national or regional (lots of the funds are spread on a regional basis, so I believe Athens is a net contributor while some of the islands are among the biggest net recipients) governments. The Greeks haven't been able to match that. A while ago Barroso suggested cutting the requirement for Greece to 15% contribution, but I don't know if that got anywhere.
Interesting IMF preliminary Eurozone findings:
http://www.imf.org/external/np/ms/2012/062112.htm
Bob Zoellick recently suggested there could be a big EZ-IMF bust up this summer because it's not clear that the EZ can deliver the things the IMF want for continued support and it's more open to renegotiating with the Greeks especially. It looks like the IMF is at least getting more open about their policy preference - ECB easing, fiscal union (with some form of common debt issuance), banking union, single market in services and direct bank recapitalisation.
Hopefully the EZ can deliver something at this coming summit that comes somewhere close to the market expectations they've stoked. According to the FT's tea-leaf reader the proposals Van Rompuy's making are still to be confirmed with member states (there's just a placeholder in the draft communique) and it looks like the single patent system could be moving forward which is good. Apparently the only issue left is deciding where it'll be based - London, Paris or Munich - but no-one looks like giving in :lol:
Word is, the ECB is easing up on it's ABS collateral requirements.
Now, I am not exactly sure what that means, so tell me: does that mean that it will accept ever crappier stuff as valid-value backings for the imaginary money it hands out to banks?
Which allows the banks to package utter shit into a package of value? And re-sell it as such?
what could POSSIBLY go wrong, I ask!
Quote from: Tamas on June 22, 2012, 08:29:33 AM
Now, I am not exactly sure what that means, so tell me: does that mean that it will accept ever crappier stuff as valid-value backings for the imaginary money it hands out to banks?
yes.
Soon you'll get euros for verbal promises.
Greek PM is in hospital due to "detached retina" and brand-new finance minister was taken to hospital as well due to fainting.
WHAT NEWS DID THEY HEAR? :D
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Quote from: Tamas on June 22, 2012, 09:18:55 AM
Greek PM is in hospital due to "detached retina" and brand-new finance minister was taken to hospital as well due to fainting.
WHAT NEWS DID THEY HEAR? :D
They must have seen the books :hmm:
Quote from: Tamas on June 22, 2012, 08:29:33 AM
Word is, the ECB is easing up on it's ABS collateral requirements.
Yeah from A- rated mortgage backed securities to BBB- rated ones. I think they're also accepting other types of securities. But they're not accepted at face value, they get a variable haircut because of the extra risk.
Given the state many EZ banks are in this isn't a helpful move so much as it's a grudging and miserable acknowledgement of reality.
Edit: Also this is laughable:
http://www.guardian.co.uk/business/2012/jun/22/eurozone-big-four-pledge-gdp
Quote from: Sheilbh on June 22, 2012, 02:31:59 PM
Yeah from A- rated mortgage backed securities to BBB- rated ones.
No doubt to keep the bonds of the stressed euro nations inside the definition of valid collateral.
Probably. Spanish bonds are a sneeze away from junk and when that happens our banks will take a huge hit.
Quote from: MadImmortalMan on June 22, 2012, 04:13:02 PM
No doubt to keep the bonds of the stressed euro nations inside the definition of valid collateral.
I don't think so. My understanding is that the ECB accepts all EZ sovereign debt as valid collateral subject to a haircut in some cases. I believe that their acceptance of Greek debt has only been 'suspended' before and even that was only during the PSI-deal. No doubt this is necessary though, without that we'd see a far wider banking collapse in, at least, Spain, Italy and Belgium which would have Euro-wide effects.
I think this is more to keep the Spanish banks safely able to operate as more and more Spanish mortgage backed securities get junk status.
It is worth saying that this move only makes the ECB operate in the same way that the Fed and BofE have been operating for years, they've always accepted these securities as collateral, subject to a haircut. So it's not even anywhere near unconventional monetary policy that could help the EZ.
Edit: Incidentally has anyone else read about the Russians offering money to bailout Cyprus and they might do the same for access to Piraeus, especially to get out of Syria.
AFAIK they have already loaned money to Cyprus once. I had not thought of the Med port angle but it makes sense.
I read that the new greek government will ask for a two years delay on making good on the stuff they promised to the EU
:lmfao:
Quote from: Tamas on June 23, 2012, 05:44:49 PM
I read that the new greek government will ask for a two years delay on making good on the stuff they promised to the EU
:lmfao:
Does that imply two more years' worth of bailout cash too? If not, how will they fund themselves?
Quote from: MadImmortalMan on June 23, 2012, 06:16:24 PM
Does that imply two more years' worth of bailout cash too? If not, how will they fund themselves?
Almost certainly. But everyone at the time of the second bailout said that they would, inevitably, need a third bailout.
QuoteI read that the new greek government will ask for a two years delay on making good on the stuff they promised to the EU
Still not enough. They need to default.
Quote from: Sheilbh on June 24, 2012, 02:02:31 AM
Still not enough. They need to default.
Seriously. That faucet that the ECB turned on was leaky to begin with, and now nobody seems to be able to turn it off.
Greek finance minister has resigned. I guess it's health issues. He saw the balance sheet and had a heart attack.
ONly 3 days to Armageddon!!!111
Quote
Soros' Countdown to EU Armageddon: 3 Days
June 25, 2012 1:10 PM EDT
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Billionaire investor Geroge Soros made a dire prediction about the situation in the eurozone today. Soros, famous for being a brilliant investor and something of a guru, said that unless officials in Europe take the necessary steps to solve the crisis in the next three days, then the summit will turn out to be a "fiasco" and ultimately "fatal" to the European union.
His comments came during an interview with Fancine Lacqua of Bloomberg TV, where he weighed in on the ongoing difficulties leaders in Europe are having managing the a financial crisis that is threatens to splinter the European Union.
"Basically there is an interrelated problem of the banking system and the excessive risk premium on sovereign debt - they are Siamese twins, tied together and you have to tackle both," he said. "It's the beginning of a banking union and there is a disagreement on the fiscal side and unless that is resolved in the next 3 days then I am afraid that the summit could turn out to be a fiasco, and that could be fatal."
Soros believes that Germany is doing Europe a disservice by standing in the way of fiscal reforms. The tragedy of it all, in his view, is that Angela Merkel is acting in good faith, but she is leading Europe in the wrong direction. Instead of an open society, if it survives, the EU will be "transformed it into a hierarchical system where the division between creditors and debtors would become permanent... It would lead to Germany being in permanent domination. It would become like a German empire, and the periphery would become permanently depressed areas."
http://online.wsj.com/article/SB10001424052702304870304577487673011875972.html (http://online.wsj.com/article/SB10001424052702304870304577487673011875972.html)
QuoteFrance Is Main Obstacle To A Euro Solution
By SIMON NIXON
Two statements last week following the four-way summit in Rome between the German, French, Italian and Spanish leaders capture the essence of the euro crisis and show why a solution is as far away as ever.
Responding to the latest demands that euro-zone bailout funds be allowed directly to recapitalize Spanish banks, German Chancellor Angela Merkel replied: "If I give money to Spanish banks, I'm the German chancellor but I can't say what these banks do." Later, French President Francois Hollande was asked about his willingness to accept further political union as the price of greater pooling of debt, he replied: "There can be no transfer of sovereignty if there is not an improvement in solidarity." Boiled down, this is a debate over whether Germany should write blank checks.
There is no chance of this debate being resolved at this week's summit of European leaders. The euro zone is now at one minute to midnight. Its financial system has fragmented, confidence is evaporating, demand is drying up and deposits are leaking out of the banks. There is now an international consensus on the measures needed to halt the immediate crisis: Massive bond buying by the European Central Bank, the direct recapitalization of banks by bailout funds and the creation of common euro-zone bonds.
But none of this is likely to be agreed at Wednesday and Thursday's European Council meeting. Expectations are low and unlikely to be exceeded, according to people involved in preparations for the summit. At best, the leaders may agree a timetable for common supervision of euro-zone banks: Useful, but hardly enough to satisfy the markets.
The conventional wisdom blames Germany and its leader Ms. Merkel for this impasse. She has been harangued by world leaders, attacked in print and lampooned on magazine covers for saying "nein" to the pooling of euro-zone debt while focusing instead on long-term reforms. On Ms. Merkel's insistence, much of this week's summit will be taken up with discussions of proposals by the presidents of the European Council, European Commission, ECB and Eurogroup for banking, fiscal and political union. The case against Ms. Merkel is that this agenda is focused on preventing the next crisis rather than solving the current one.
But the idea the euro zone can pool debt without significant sacrifices of sovereignty is a dangerous illusion. To create a fiscal and banking union without a political union would multiply the original mistakes in the creation of a monetary union. And there is one country that has historically said "non" to the transfers of sovereignty that might put the euro zone on a long-term stable footing: France.
France has always been reluctant to cede sovereignty to the European Union. It prefers intergovernmental -- as opposed to supranational -- solutions to European challenges, reflecting its long history as a centralized state. That is why the euro zone was largely designed along French lines, as a club of sovereign states.
In theory, it wasn't a bad plan: a no-bailout rule and a ban on the ECB financing governments were supposed to force countries to manage their economies prudently. Unfortunately, this plan didn't survive contact with reality. Governments didn't manage economies prudently during the boom and are unwilling or unable to address economic weaknesses now. But if France now believes the answer to the current crisis is a monetary union where responsibility for debts are shared then it follows that a new set of political arrangements are required in which responsibility for economic decision-making is also shared. The inter-governmental model in which one currency is backed by 17 sovereign nations is surely obsolete.
Nothing in the euro zone's history suggests the offer of blank checks, whether from the ECB or bailout funds, will do anything other than buy time -- time that will be squandered rather than used to address deep structural problems arising from inflexible labor markets, inefficient bureaucracies and unaffordable welfare systems.
Greece has failed to implement many of the structural reforms agreed as a condition of its two bailouts. Italy's reform effort quickly ran out of steam the moment the ECB made its offer of cheap, long-term loans to banks, while Spain offered only a half-baked reform of its banks. Even when governments do try to be virtuous, voters may have other ideas. No incumbent has won re-election since the start of the euro crisis. The new Greek government is vowing not to lay off a single civil servant, despite the previous government's commitment to cut 150,000 jobs by 2015. Meanwhile Mr. Hollande won election on a platform that made no concessions to the deep structural challenges facing the French economy, promising to lower the retirement age from 62 to 60 for some workers, introduce a new top tax rate of 75% for the highest earners and make it even harder to fire workers.
Against this dysfunctional political backdrop, it makes no sense for Germany or the ECB to agree to pool debts, even assuming the legal obstacles could be quickly overcome. The markets won't be fooled for long if there is no robust mechanism to ensure countries address long-term solvency problems and or to allocate losses if all the debt sours remains unresolved.
Those calling for immediate action may be right that losses should fall mainly on creditors in the form of higher inflation and fiscal transfers since the alternative of forcing citizens of indebted countries to bear the cost of adjustment is politically impossible and likely to lead to a collapse in the euro. But this cannot be decided by stealth: The allocation of losses is an act of violence against individual property rights. Only a supranational body with a high degree of public trust can decide, for example, what proportion of the losses from Spain's banking bust should be borne by Slovak pensioners as opposed to the investors, managers and employees of those banks. To allocate losses any other way would be a recipe for long-term political and financial instability.
Mr. Hollande is wrong: The debate over sovereignty isn't a peripheral issue. It goes to the heart of the debate over solidarity. And France is the biggest obstacle to a solution.
Does anyone still remember the time when dollar's value kept falling, and Euro seemed like a potential competitor to the status of the world's currency? What happened to that notion? :hmm:
Quote from: DGuller on June 25, 2012, 12:43:40 PM
Does anyone still remember the time when dollar's value kept falling, and Euro seemed like a potential competitor to the status of the world's currency? What happened to that notion? :hmm:
What about the when the crisis was just starting and members of the Greek government said the apparent trouble was just due to unfounded attacks by speculators?
again the french. always the french.
Quote from: DGuller on June 25, 2012, 12:43:40 PM
Does anyone still remember the time when dollar's value kept falling, and Euro seemed like a potential competitor to the status of the world's currency? What happened to that notion? :hmm:
I'm still awaiting America's decline. We ARE DOOMED.
Quote from: DGuller on June 25, 2012, 12:43:40 PM
Does anyone still remember the time when dollar's value kept falling, and Euro seemed like a potential competitor to the status of the world's currency? What happened to that notion? :hmm:
I'm supporting the drachma when it returns.
Quote from: Ed Anger on June 25, 2012, 02:58:15 PM
Quote from: DGuller on June 25, 2012, 12:43:40 PM
Does anyone still remember the time when dollar's value kept falling, and Euro seemed like a potential competitor to the status of the world's currency? What happened to that notion? :hmm:
I'm still awaiting America's decline. We ARE DOOMED.
It already happened. It's been done.
I thought this was a really interesting bit of work from a research student and his prof in Italy:
QuoteContagion in Europe: Evidence from the sovereign debt crisis
Paolo Manasse Luca Zavalloni
25 June 2012
If Greece defaults, what about Spain, what about the rest of the Eurozone, and what about the rest of Europe? "Contagion" has become a buzzword in international economics. This column asks whether markets are responding irrationally to the nightmare scenario or finally waking up to reality.
"Contagion" is today's buzzword (de Haan and Mink 2012, Manasse and Trigilia 2011).
- The troika's bailout of the Greek government and the heavy haircut imposed on private bond holders have failed to reassure markets about Greece's permanence in the Eurozone.
- The relief brought about by the recent election results waned in a matter of hours.
- Similarly, the decision by the EU to pour about €100 billion into Spanish banks has not proved sufficient to convince investors that the umbilical cord between the State's and the banks' balance sheets have been severed.
- In the meantime, confidence on peripheral sovereign bonds and banks has been crumbling, as interest rates and CDS spreads rose in the past weeks.
While proposals for a banking union, Eurobonds (Manasse 2010) and fiscal union still belong to the realm of dreams (or nightmares, depending on who should be footing the bill), the question is whether the flight out of Europe's periphery will become a flight out of the euro full stop.
Irrationality or delayed realisation? Empirical evidence on contagion
But are financial markets behaving 'irrationally' or – following a long period of benign neglect – are they simply rediscovering market fundamentals (Manasse 2011b)? And crucially, what policies should southern Europeans, Italy in particular, implement to maintain market access?
In order to address some of these questions we look at the recent evidence on contagion across EU sovereigns CDS spreads. Our empirical model builds on Bekaert et al. (2009) by using time-varying factor loadings and market indexes in order to proxy the dynamics of common and specific risk factors. In the empirical model the daily change in a country sovereign's spread depends on four elements:
- The change in a global risk factor, measured by an index of the most important (non-European) sovereigns' CDS,
- The change in a European risk factor, measured by an index of Western European sovereigns' CDS;
- The change in a financial risk factor, measured by an index of the CDS on private European Financial Institution;
- A (time-varying) idiosyncratic component captures the market participants' assessment of the individual country sovereign risk.
We proceed in two steps. First we estimate the model on daily observations (1630) from 1 January 2006 to 29 march 2012, separately for 15 European countries, 11 of which belong to the Eurozone (Germany, France, Italy, Spain, Belgium, Greece, Portugal, Ireland, Netherland, Austria, and Finland), and four of which who do not (Sweden, Norway, UK, and Denmark). Unlike the previous literature, we run a series of rolling regressions, on a moving window of 200 observations, estimating 1427 regressions for each country and retaining the time series of parameters relating the spread change to the Global, European and Banking indexes. The evolution of these parameters is quite interesting in itself, as it reveals comparatively when and to what extent each country reacted to 'external risks' through the recent waves of crises (we do not discuss these results here for reasons of space). In addition, our approach allows us to trace the systematic movements in the country-specific risk, the drift in the CDS spread daily change. This captures the idiosyncratic component that is unrelated to the remaining 'external' factors accounted by the model. When this parameter spikes simultaneously for many countries, we have an indication of 'pure contagion' in the sovereign CDS market, possibly resulting from herd behaviour, a rise in risk aversion, agents' coordination on a 'bad equilibrium'.
'Pure' idiosyncratic sovereign risks during the US subprime and the Greek crises
Figure 1 in the appendix plots the evolution of the systematic change in the idiosyncratic risk component (only when significantly different from zero at 5%) for the countries in the sample. The US subprime crisis (September 2008 and March 2009) and the Greek crisis (around November 2009) are evident in the data, as jumps in risks are clustered around these episodes. As regards to the crises' impact, countries naturally divide themselves into three sizes: Smalls (Finland, Germany and Norway), Mediums (Sweden, Denmark, the Netherlands, Belgium, France, the UK, and Austria on the high side) and Larges (the 'periphery'). More fundamentally, while the US subprime earthquake affected all Europeans, albeit with different magnitudes (Ireland, followed by Austria and the UK being the most affected for reasons due to the role of their financial institutions), the Greek crisis is largely a matter for the Eurozone. Norway, Sweden, the UK and Denmark, which do not belong to the Eurozone, were hardly affected. But differences inside the Eurozone were at least as remarkable, with France, Belgium, Italy, Spain, Ireland and Portugal showing large and recurrent spikes in idiosyncratic risk. Thus an explanation requires more than the one-size-fits-all corset provided by the euro.
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The role of fundamentals
In order to understand what makes a country vulnerable to changes in 'market sentiment', we perform a second round analysis. We use panel estimation in order to explain cross-country differences in the model parameters on the basis of each country's (lagged) economic fundamentals (trade openness, the public debt/GDP ratio, the budget deficit/GDP ratio, the current account balance as percentage of GDP, the rate of unemployment, the monthly change in industrial production, the country's sovereign rating (Moody's), an index of market volatility (the VIX), of liquidity-shortage in the inter-bank market (the TED spread). We also include a 'crisis' dummy which takes the value of one from November 2009, when the numbers for the Greek 2009 budget deficit was revised from 5% to 12.7%, and a Eurozone dummy.
Table 1, in the appendix below, presents the results.
The first column shows the effects of the countries' lagged economic fundamentals on the time-varying risk coefficients, outside the crisis. The second column shows the additional effects of each variable during the Greek crisis (e.g. the coefficient of the interaction of each variable with the crisis dummy). It appears that before the outset of the European debt crisis (first column) three variables significantly affect the idiosyncratic risk: the rate of growth in industrial production (which significantly reduces the risk), the budget deficit/GDP (which significantly raises it), and the volatility index (which significantly raises it). However, things change dramatically during the crisis. First, markets sentiments shift against the Eurozone countries, as documented by the fact that the Eurozone dummy becomes significant during the Greek crisis with positive sign; second, the systematic change in the spread is higher in countries where the public debt-to-GDP ratio is higher, as this variable now becomes positively associated to the systematic risk. Moreover, the real economy matters more inside the crisis: idiosyncratic risks respond positively and significantly to the rate of unemployment, and the coefficient for the rate of growth of industrial production becomes larger during the recent crisis. Another difference with the pre-crisis period is that countries' systemic risks become sensitive to credit rating: this variable, which was not significantly different from zero outside the crisis, becomes positive and significant. Overall, our measures for economic fundamentals explain more than 50% of the cross-country variation in idiosyncratic risks.
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Conclusions
Our evidence supports the conclusion that after a long period of benign neglect in the Eurozone, financial markets have rediscovered that fundamentals and structural fragilities matter for sovereign risks.
- In the crisis, markets have increasingly focused on the public debt (8), on the real economy, and on the labour market in particular.
The implications for the appropriate policy response required in order to become more resilient are straightforward:
- More emphasis should be placed upon the employment and growth so that fiscal consolidation does not backlash by plunging the economy into recession.
Here the reason it is not because the recession widens the deficit through the automatic stabiliser. The effect works via a direct link from lower employment and growth to spreads.
- Although not necessarily the panacea for solvency (Bekaert et al. 2011), privatisations should be accelerated, not only because they do not adversely affect the economy, but also because they may well work to calm fears of debt insolvency;
- Labour market reforms that reduce unemployment should have priority.
However, structural reforms aimed at increasing flexibility and reducing firing costs – such as the one currently being voted by the Italian Parliament – may backlash if they raise unemployment in the short run. They should be accompanied by reforms in the wage bargaining system in order to make real wages more flexible (Manasse 2011a).
- The evidence seem to reject the naïve 'credibility' view of multiple equilibria and sunspots, according to which 'credible promises' of future reforms may be all that is needed to select the 'good equilibrium' of low interest rates and solvency (Manasse 2012).
If this were true, past economic fundamentals should not explain cross-country differences in 'fear perceptions'. However, to a large extent, they do.
Apparently Monti's said that if they don't get Eurobonds and an immediate change of Eurozone policy, then he'll resign.
Of course Berlusconi still has a majority :bleeding:
I think Berlusconi's come out in favour of a new Lira too.
Edit: Monti's office is now denying that's what he said.
As an aside Barclays have released a report saying that Spanish banks need a bailout and, in addition Spain and Italy need bailouts.
In potentially good news which is again unconfirmed, apparently Germany's planning to give way and remove seniority from the ESM. That would be a big help to Spain.
Edit: Also from the CDU meeting, apparently Germany's considering allowing the ESM to funnel money directly into national bank resolution funds - so basically the bodies governments set up to hoover up bad debt, recapitalise the good banks and so on. That would also be a hugely positive move.
http://www.nytimes.com/2012/06/27/opinion/germany-the-euro-winner-hardly.html?_r=1
Quote from: Jacob on June 26, 2012, 01:29:32 PM
http://www.nytimes.com/2012/06/27/opinion/germany-the-euro-winner-hardly.html?_r=1
Sounds plausible.
Quote from: Sheilbh on June 26, 2012, 11:07:19 AM
In potentially good news which is again unconfirmed, apparently Germany's planning to give way and remove seniority from the ESM. That would be a big help to Spain.
Quote
A Change To ESM Seniority Status Is Not Coming
In a world desperate for any positive news, today's borderline idiotic rumor du jour, of course after Monti's gambit blew up in his face literally in minutes, comes from Germany where interested parties leaked that Germany is considering changing the seniority status of the ESM, obviously to ameloirate subordination concerns of Spanish and soon, Italian, bonds. To wit, the headline machine has focused on this part of the recent Reuters report: "A leading ally of German Chancellor Merkel told a closed-door meeting of her conservatives on Tuesday that euro zone governments were discussing removing the preferred creditor status of the bloc's new permanent rescue fund, sources told Reuters." What is very conveniently missed out is what actually matters: "Neither Merkel nor Finance Minister Wolfgang Schaeuble spoke out in favour of such a move at the meeting, the sources said, leaving it unclear whether the idea had the firm backing of the German government." And whatever Merkel (and Schauble, of course), wants Merkel (and Schauble, of course) gets. Because both of them realize that investing €500 billion of what will in the end be purely German cash as more and more countries move from ESM guarantors to ESM recipients, in addition to the hundreds of billions in sunk TARGET2 costs, amount to a number increasingly roughly the same size as German GDP, as we explained last July. Also, as we explained last July, lots of angry Germans are getting angrier by the day.
So... next rumor?
http://www.zerohedge.com/news/change-esm-seniority-status-not-coming (http://www.zerohedge.com/news/change-esm-seniority-status-not-coming)
Now where that Venn diagram again.....
The NYT article doesn't make any sense. of course exports to non-eurozone grew faster than to the EZ. Newsflash, developing markets grow faster.
The question is how much slower would have exports grown with a stronger DM, and whether exports to the periphery would have increased at all.
Quote from: Iormlund on June 26, 2012, 05:41:50 PM
The NYT article doesn't make any sense. of course exports to non-eurozone grew faster than to the EZ. Newsflash, developing markets grow faster.
The question is how much slower would have exports grown with a stronger DM, and whether exports to the periphery would have increased at all.
So your argument is that the German economy would have performed even worse than it did and yet the DM would inevitably have been stronger than the Euro?
This is a slightly worrying chart, from BNP:
(https://d3j5vwomefv46c.cloudfront.net/photos/full/606405566.jpg?key=555352&Expires=1340791673&Key-Pair-Id=APKAIYVGSUJFNRFZBBTA&Signature=KTUO9rtoFXn9QIPY04vgxcRN6LsRNMxHP3ySQI13wAb1qzGNVY43EqkQQSkzIRivqrmnGCGXTN0JL2t9Irf1RX2sHedTh2LVN7FXdpt3uihAFaiSaXTu5crkkXrAHXQcna4RyVBkJwBQZmHMX6TChqrg68uWLpANz9~DTNeVvCM_)
This, from the BBC's Robert Peston is interesting:
QuoteWhy 'encumbrance' and 'forbearance' are crippling banks and the economy
There are two huge and related problems in the global banking system.
First is a growing credit crunch within the eurozone, as weak eurozone banks cut back their cross-border lending and - increasingly - their domestic lending too (there is a chilling analysis today of the so-called Balkanisation of eurozone banking by Morgan Stanley, which is critical of the limited banking union proposed by eurozone leaders as a solution).
This lending constriction worsens a eurozone recession, which in turn exacerbates the weakness of banks: a financing or liquidity crisis morphs into a solvency crisis, as has already happened in Spain and looks set to happen in Italy (yesterday's refinancing of Italy's Banca Monte dei Paschi di Siena augurs ill).
Now that first source of systemic weakness plays into a second source - that the way banks of all developed economies finance themselves has become hideously dysfunctional. Banks in the UK and US, as well as continental Europe, are finding it harder to raise money from conventional, commercial sources and are become excessively dependent on borrowing from central banks.
There are two implications. It is impossible to say when banks, including British banks, will be capable of standing on their own two feet again. And because banks hate being beholden to central banks, they are reluctant to lend as much as the economy needs - even when, as is happening in the UK, the Bank of England and Treasury try to chuck unlimited quantities of cheap money at them.
I am going to introduce you at this stage to two pieces of banking jargon, which help to explain the pernicious trends in finance of our new age of economic stagnation and - in part - why the banking system is in a dire condition. They are "forbearance" and "encumbrance".
Forbearance is when creditors relax their normal lending criteria and conditions, so that their debtors don't go bust. So, for example, up to 8% of all those with mortgages in Britain are enjoying a holiday on payments, or have changed to paying interest only, or are enjoying some other relaxation of normal lending conditions, according to an analysis by the Financial Services Authority for the Bank of England.
And in the commercial property market, the lending terms on some £50bn of troubled loans have been waived.
The idea behind forbearance is a laudable one: if the mortgage borrowers in financial distress had been thrown out of their homes, the social and economic impact would have been nasty. There would have been tens of thousands of people with nowhere to live, house prices would have plunged, losses for banks would have been exacerbated. And if the banks had foreclosed on all the commercial property loans in breach of covenants, there would again have been an acceleration of losses for borrowers and lenders.
But there is a problem with forbearance: it undermines the confidence of those who lend to banks. They fear - rightly - that the banks are not as strong as their accounts would indicate. The point is that forbearance may only defer the pain for the borrower and the losses for the bank, rather than avoid it altogether. So if you are a creditor of a bank, you are legitimately concerned that forbearance is a way for banks to avoid raising the amount of capital the banks need to absorb potential losses.
If you want a bang up-to-date lesson on forbearance as an accident waiting to happen, you only have to look at the £60bn plus capital shortfall at Spain's banks, identified only after independent consultants took a look at the quality of their loans.
Or to put it another way, forbearance is another contributor to the undermining of trust in the integrity and strength of the financial system.
Which brings us on to so-called "asset encumbrance," because it has become the funding trend of this moment precisely because trust in the integrity and strength of the financial system has been wiped.
Asset encumbrance is when a bank has to pledge its assets - the loans and investments it has made - to a creditor when borrowing from that creditor. It is the security or collateral that banks provide to those from whom they borrow.
Now before the great crash of 2007-8, most banks were able to borrow as much as they liked in an unsecured way. To employ the appropriate lingo, liquidity seemed to be unlimited and cheap. Banks could borrow as much as they needed purely on the strength of their names and reputations from other banks and financial institutions without providing any collateral or security.
But that unsecured interbank market more-or-less closed down in 2007 and 2008, and has never properly recovered. And part of the reason it has never properly recovered is that those who control vast pots of money in Boston, Singapore, Geneva and so on are concerned that big Western banks are weaker then they seem (so a big hello again to "forbearance").
Banks have become increasingly dependent on various forms of secured borrowing, especially in what's known as the repo market, which is where banks swap bonds and other assets for loans from hedge funds and specialist parts of banks (yes there are banks at both ends of this market).
Now you may have worked out there is a fundamental problem when - as is happening - the banking industry moves from a system of unsecured borrowing to one of secured borrowing: we move from a world where there is unlimited money for banks to one in which banks can only borrow up to the value of their unencumbered assets (actually they can borrow rather less than that, since lenders always apply a discount or haircut to the assets they take as security).
What is more, the increasing use of secured borrowing by banks becomes self-reinforcing: as any bank pledges more and more of its assets to creditors, so it has fewer free assets, which means it looks weaker, which in turn means that anyone thinking of providing an unsecured loan to that bank will charge a penal rate; so, in effect, the growth of the secured lending market militates against any recovery in the unsecured lending market.
Here are the trends, according to the latest annual report from the central bank's central bank, the Bank for International Settlements: a fifth of all European banks' assets were encumbered, or pledged to borrowers, in 2011.
Please don't take any great comfort from the fact that "only" a fifth of European bank's assets are pledged to borrowers. First that understates the true position, because the statistic is months out of date. Second, some assets can't be converted into a form suitable for secured borrowing. Third, and most important, it would be a disaster if banks pledge massively more than that, because there would be nothing left over to underpin the savings of European citizens.
Here is the thing: we haven't talked about the ginormous elephant in the room, which is that banks borrow most of their money in the form of deposits provided by you and me. And if the banks pledge all their assets to institutional lenders of various sorts, we might worry whether there is anything left to pay us back with.
As you would expect, in stressed parts of the eurozone the growth in secured borrowing has been exceptionally rapid: between 2005 and 2011, the ratio of encumbered assets to total assets increased tenfold for Greek banks, to one third of the total.
That implies Greek banks have almost no spare assets to pledge for secured loans, if they are to keep anything back to cover the money they have borrowed in the form of deposits from ordinary Greek citizens. The pledging of all these assets by Greek banks is a tragedy waiting to happen to Greek savers.
To state the bloomin' obvious, encumbrance has potentially lethal consequences.
Now this vicious contraction of banks' capacity to borrow or fund themselves is exacerbated by the downgrading of their credit-worthiness by ratings agencies.
These downgrades are a treble whammy:
1) when banks' credit ratings fall below a certain threshold, it becomes impossible for them to borrow from certain non-financial lenders, such as some local authorities, sovereign wealth funds, companies and so on (Royal Bank of Scotland, for example, has already fallen through this threshold);
2) after a downgrade, lenders demand that banks pledge even more of their assets for a specified value of loan, so downgrades accelerate the rate at which assets become encumbered;
3) banks that engage in what are known as over-the-counter derivatives transactions have to put up more of their assets as margin or security in these deals.
Here are two indications of the damaging impact of downgrades.
First, Royal Bank of Scotland has disclosed that it will have to pledge an additional £9bn of assets as collateral following its downgrade last week by Moody's (and I'll return to the position of British banks in the coming days).
Second, the European Central Bank took action on Friday in advance of the shocking downgrades on Monday of Spain's banks by Moody's, by relaxing the criteria for the loans that it and Spain's central bank make to Spanish banks.
Or to put it another way, the ECB exercised forbearance on Spanish banks: Moody's downgraded large numbers of Spanish banks to junk; so the response of the central bank was to soften the lending terms on the loans it makes to Spain's banks.
You will have gathered by now that there is a final chapter in this encumbrance story, which is that when banks can no longer raise money by pledging assets to commercial lenders they are forced to raise what they need by pledging assets to central banks in return for loans.
This is when banks go on life support, and it accurately describes the parlous condition of a large number of banks in Spain and others scattered throughout the eurozone.
However, so long as these banks retain assets of sufficient quality, they can continue to claim to be viable, or at least potentially viable - even if they are only alive because of credit they've received from the European Central Bank, for example, or from their national central banks.
But the assessment of requisite quality is tricky. As we have seen in the case of Spain, in response to a verdict by Moody's that the quality of Spanish banks' collateral had deteriorated, the response of the ECB was to lower the quality threshold for lending to those banks - which, in theory, significantly increases the risks for all eurozone taxpayers from the finance provided by the ECB and the Bank of Spain to Spanish banks.
Here is the big imponderable: what will the ECB do at the moment that a big bank runs out of unencumbered assets? This is a very real possibility, according to regulators and bankers. And they simple don't know how the ECB would react - whether it would do something that central banks are never supposed to do, which is provide unsecured loans, or whether it would allow the bank to fall over, and risk a chain reaction of collapsing banks.
All of which is a very long-winded explanation of why many - including the governor of the Bank of England - argue that the fundamental problem of the eurozone banking system is that it is seriously insolvent in parts. And until the requisite capital is raised, the eurozone will continue to live dangerously on the brink of potential catastrophe.
Quote from: Admiral Yi on June 19, 2012, 04:54:43 PM
I ask because it seems such a no-brainer for Greece to default on its official debt that I'm led to believe the only reason they don't is fear of getting kicked out of the EU.
Incidentally just to return to this.
Firstly there is no clear way out of the Eurozone, legally speaking, except for leaving the EU. This was reinforced by the statement of the Austrian Finance Minister. I'm sure a way out could be found, after all the Treaties explicitly forbid bailouts and the first Greek bailout was done under an article meant for national disasters.
Secondly almost all Greek debt is to official creditors. It's to the IMF, ECB, ESM and EFSF all of whom claim some form of seniority. If they default it's difficult to see how the Greeks fund their state given that they'd have burned the official lenders - though, interestingly I've read that Washington, Beijing, London and others have made it clear that they won't allow the Europeans to 'punish' the Greeks. If they default they want Greece to be treated as a normal country in need of IMF aid, subject to IMF conditions - not to be totally frozen out for political purposes.
Thirdly there's political reasons. For almost all countries in the EU and EZ it means more than the sum of its parts. I think the most Eurosceptic countries (UK, Scandis, maybe, increasingly, the Dutch) are the ones with least political investment in Europe as a concept. For the Greeks I think it anchors them in the West, is a guarantee of democracy not a return of the colonels and I think at times the EU has been seen as an easy route to good government for the Greeks (and possibly Spanish and Italians). Brussels has been a convenient excuse for good, but necessary decisions (this in my view is how the current crisis should have ended up).
Fourthly I think there's real benefits and fears. Greece used to have 15% or higher interest rates. They haven't had that for the past decade, they've also not had the old inflationary problems. Both of which matter to individuals, now I imagine they've all refinanced at that lower rate and would quite possibly be financially killed if the old Greek financial sector came back.
Really the pretty small development funds and CAP that Greece get are the least of their concerns for defaulting/leaving. It is worth remembering though that Greece could default and stay in the Euro. There's no mechanism for them to be forced out, just as there's no mechanism for them to leave. So depending on how much pain Greeks are willing to suffer, they could stay.
Edit: Also I think Simon Nixon has a point. Federalism is absolutely fine and normal for Germany. But asking the President of the Republic to subordinate himself a Brussels budget czar is never going to work. I'd also guess that the Eastern European states like Estonia and Slovakia and maybe even Finland would be less keen on a Federal Europe. I imagine the smaller countries would be suspicious of it and I'm absolutely certain that Ireland would not consider it acceptable.
Quote from: Zanza on June 26, 2012, 11:35:36 PM
Quote from: Iormlund on June 26, 2012, 05:41:50 PM
The NYT article doesn't make any sense. of course exports to non-eurozone grew faster than to the EZ. Newsflash, developing markets grow faster.
The question is how much slower would have exports grown with a stronger DM, and whether exports to the periphery would have increased at all.
So your argument is that the German economy would have performed even worse than it did and yet the DM would inevitably have been stronger than the Euro?
The Euro is naturally dragged down by net importers. Take those out of the picture and the currency should go up.
Quote from: Sheilbh on June 27, 2012, 05:10:43 AM
But asking the President of the Republic to subordinate himself a Brussels budget czar is never going to work.
then maybe that president should not be trying to spend germany's money
Quote from: Crazy_Ivan80 on June 27, 2012, 07:59:53 AM
Quote from: Sheilbh on June 27, 2012, 05:10:43 AM
But asking the President of the Republic to subordinate himself a Brussels budget czar is never going to work.
then maybe that president should be trying to spend germany's money
Well that's not what's happening.
This does highlight the problem of any further union though. The sort of federalism Germany imagines makes sense to Germany given her history and political structure, but I don't think it applies to any other EZ, far less EU member, with the possible exception of the Netherlands. The structure that'll be required to deal with the sovereignty of the 5th Republic (which that writer discovered 50 years too late) far less countries like Ireland or Estonia is probably going to be very different than what Van Rompuy's suggested (which seems madly anti-democratic) or that's acceptable to Germany.
Also the statement on the Spanish bailout suggests it'll be under €100 billion which is, I think, what the markets were expecting after the amount that figure got bandied about. If it's significantly below that it may be counter-productive.
Whether it's 100b or 80b doesn't really matter, since we're going to need a proper rescue regardless. And that's going to dwarf this one.
Quote from: Sheilbh on June 27, 2012, 09:28:18 AM
Quote from: Crazy_Ivan80 on June 27, 2012, 07:59:53 AM
Quote from: Sheilbh on June 27, 2012, 05:10:43 AM
But asking the President of the Republic to subordinate himself a Brussels budget czar is never going to work.
then maybe that president should be trying to spend germany's money
Well that's not what's happening.
assuming that you read the not that is abviously needed there (and is there now in the original post):
yes, that is what's exactly what is happening.
that president is engaging in mad plans until he runs out of other peoples' money.
I put a small spec bet on that Angie will succumb to the gangbang and agree to eurobonds or something similar tomorrow or Friday and spike the market.
France is a creditor country, still. It's the second largest contributor to the ESM and the EFSF (in fairness, Spain and Italy are the third and fourth). All analysts put France as a country that could be either North or South, core or periphery in the future.
Just yesterday the French Finance Minister confirmed that they were looking for an extra €7-10 billion to cut so that they'd meet their fiscal target this year - which is a deficit of around 4.5% compared to 5.3% in 2011. They've committed to a deficit of 3% by 2013 with the rest of the Eurozone and seem likely to meet that, given Moscovici's moves so far - though he says his proposed budget cuts aren't 'austerity'.
I cannot, for the life of me, understand why, even in a Federal Europe it's any of Germany's business that France meets its fiscal rules through 75% surtaxes and with whatever pension system they choose - so long as they meet their agreed targets, which they are. If France wants to tax her citizens to death (and she does) and to fund an extraordinarily generous welfare state (as she has) then that's her right so long as it doesn't break the EU's roles - which it doesn't.
Though, of course, those rules are of limited use given that they'd have totally missed any of the problems in Spain or Ireland.
At the moment a genuinely liberal Italian PM, a conservative Spanish PM, a Socialist French President and Anglo-Saxon bond vigilantes and speculators are in agreement about the steps the Eurozone should take. I've read analysts in the City saying they were celebrating when Hollande won because he'd increase the pressure on Merkel to change course. When that happens it's worth thinking about whether they've maybe got a point. And if Germany disagrees, they should gracefully leave.
Quote from: MadImmortalMan on June 27, 2012, 11:48:02 AM
I put a small spec bet on that Angie will succumb to the gangbang and agree to eurobonds or something similar tomorrow or Friday and spike the market.
She was quoted yesterday saying there would not be Eurobonds while she's alive.
Quote from: Iormlund on June 27, 2012, 12:07:05 PM
Quote from: MadImmortalMan on June 27, 2012, 11:48:02 AM
I put a small spec bet on that Angie will succumb to the gangbang and agree to eurobonds or something similar tomorrow or Friday and spike the market.
She was quoted yesterday saying there would not be Eurobonds while she's alive.
No problem. They'll just call them something else.
Edit: Or some jackass journalist will leak a rumor that they do like we've seen every single time before and I can cash in before the German government can dispel it. :lol:
You guys are fetishing eurobonds as if they're a magic spell. People seem to agree they'd lower rates on the senior 60% of debt by around a quarter percent for the deadbeats.
Don't overstate the impact of a proposal just because Merkele is opposed to it.
Have to agree. Common banking is now far, far more important if we want to avoid an eventual bank run and exit. If.
No-one wants just Eurobonds. They want Eurobonds, banking union and the ECB to stand behind states and banks - as the Fed or BofE does and the ECB have hinted at if there's movement by politicians.
Eurobonds would, however, address the confidence crisis in the markets and could address a potential liquidity crisis.
The issue isn't that Merkel opposes Eurobonds it's that she's opposed everything. The cumulative impact of all the proposals Merkel's opposed to could be quite significant.
The Eurosummit's instead considering a financial transactions tax. Though Monti (God bless him :wub:) has said he'll join the UK in opposing it if there's not more steps to help reduce bond interest.
Quote from: Sheilbh on June 27, 2012, 03:53:26 PM
Eurobonds would, however, address the confidence crisis in the markets and could address a potential liquidity crisis.
But they do nothing to help reduce the leverage of the banks and states, and thus do not address the core problem.
Quote from: MadImmortalMan on June 27, 2012, 04:30:21 PM
Quote from: Sheilbh on June 27, 2012, 03:53:26 PM
Eurobonds would, however, address the confidence crisis in the markets and could address a potential liquidity crisis.
But they do nothing to help reduce the leverage of the banks and states, and thus do not address the core problem.
Eurobonds have nothing to do with the core problem. The core problem is political in nature. Eurobonds would ideally be a consequence of solving the core problem.
As weird as it may seem, I completely agree with Merkel on this issue. What I don't share with her is the idea that pain gets us any closer to that solution. In fact, quite the contrary.
Quote from: Sheilbh on June 27, 2012, 03:53:26 PM
The issue isn't that Merkel opposes Eurobonds it's that she's opposed everything. The cumulative impact of all the proposals Merkel's opposed to could be quite significant.
The cumulative cost to the German taxpayer of all the proposals Merkel's opposed to could be quite signifcant..
The same could be said of not doing anything. Germany has pledged a third of its GDP already to bailouts of dubious success. And soon they'll have to commit to monetize Spain and Italy or endure a default of both countries (since there's not enough money to bail us both out).
Quote from: Iormlund on June 27, 2012, 05:02:52 PM
The same could be said of not doing anything. Germany has pledged a third of its GDP already to bailouts of dubious success. And soon they'll have to commit to monetize Spain and Italy or endure a default of both countries (since there's not enough money to bail us both out).
Not sure I understand. Are you saying these are arguments supporting further German commitments?
I'm just saying Germany is acting exactly like Spain was prior to this crisis. It is enjoying a clearly extraordinary and transitional set of circumstances -- doing its best to ignore a problem that doesn't fit their narrative while the future cost of solving it is ever increasing.
Like us, they might find that kicking the can down the road was not the best path after all.
Quote from: Admiral Yi on June 27, 2012, 04:57:29 PM
The cumulative cost to the German taxpayer of all the proposals Merkel's opposed to could be quite signifcant..
Yes. But there is no cheap option. Maybe there was two years ago, when Greece could have defaulted or a credible firewall have been established. Since then debt-to-GDP levels have increased, not least because the periphery's been plunged into a depression, there's a proper dumb-bell of yields in the Eurozone now and I think the markets no longer have any faith in European leadership.
If the current plan continues it will, in my view, probably lead to a disorderly breakup of the Euro. The German finance ministry recently estimated that would cost 10% of GDP and double unemployment. In addition I think if there's a breakup TARGET 2 imbalances could become an issue. It's also likely that Greece would default on their bailouts and more than possible that the Irish and Portuguese would too.
As I see it the alternatives are either an orderly breakup (Germany leaves) which will also have costs. Or ECB printing as lender of last resort (because Germany's not big enough), plus banking union (to address the problems identified in Spain and Ireland), plus fiscal union with commitment to future political integration (to address lack of confidence in the Euro itself) and the fiscal pact (to reduce government indebtedness over the medium to long-term).
Quote from: Sheilbh on June 27, 2012, 12:01:34 PM
I cannot, for the life of me, understand why, even in a Federal Europe it's any of Germany's business that France meets its fiscal rules through 75% surtaxes and with whatever pension system they choose - so long as they meet their agreed targets, which they are. If France wants to tax her citizens to death (and she does) and to fund an extraordinarily generous welfare state (as she has) then that's her right so long as it doesn't break the EU's roles - which it doesn't.
France has funded its extraordinarily generous welfare state through debt in the last forty years. If there was no talk about debt burden sharing, you would be right and it would be no ones business. However, if the policies proposed make it dubious whether France will in the future be able to meet their agreed targets, then yes, it becomes an issue for the EU.
QuoteAt the moment a genuinely liberal Italian PM, a conservative Spanish PM, a Socialist French President and Anglo-Saxon bond vigilantes and speculators are in agreement about the steps the Eurozone should take. I've read analysts in the City saying they were celebrating when Hollande won because he'd increase the pressure on Merkel to change course. When that happens it's worth thinking about whether they've maybe got a point.
The only thing they all agree on is one thing: someone else (remaining AAA countries in the Eurozone) should pay.
QuoteAnd if Germany disagrees, they should gracefully leave.
If reality could be reloaded like a computer game, I would love to see what would happen if Angie would go to the Bundestag and announce that Germany would be leaving the Euro next week. I expect a financial markets clusterfuck of truly epic proportions then. And not just in Germany.
I would expect the Euro to end very shortly after Germany left by the way.
Quote from: Zanza on June 28, 2012, 01:29:58 AM
France has funded its extraordinarily generous welfare state through debt in the last forty years. If there was no talk about debt burden sharing, you would be right and it would be no ones business. However, if the policies proposed make it dubious whether France will in the future be able to meet their agreed targets, then yes, it becomes an issue for the EU.
That's the key here.
And why we sadly have more chance of seeing a breakup of the euro (and the EU) than true reform: eurobonds could only work if the member states were told that they cannot buy votes with loaned money anymore.
That is not going to happen.
Quote from: Sheilbh on June 27, 2012, 03:53:26 PM
No-one wants just Eurobonds. They want Eurobonds, banking union and the ECB to stand behind states and banks - as the Fed or BofE does and the ECB have hinted at if there's movement by politicians.
But they don't want the shared governance that is required for all of that to work. And that's the crux and that's why Merkel is right not to agree to that.
Quote from: Zanza on June 28, 2012, 03:13:38 AM
Quote from: Sheilbh on June 27, 2012, 03:53:26 PM
No-one wants just Eurobonds. They want Eurobonds, banking union and the ECB to stand behind states and banks - as the Fed or BofE does and the ECB have hinted at if there's movement by politicians.
But they don't want the shared governance that is required for all of that to work. And that's the crux and that's why Merkel is right not to agree to that.
:yes:
I am all for Eurobonds if the necessary restrictions on spending by member states is in place and is actually enforcable by a federal authority. Otherwise this scharade would continue until all reserves of Germany are spent and we just collapse into anarchy and WW3.
Quote from: Zanza on June 28, 2012, 01:29:58 AMFrance has funded its extraordinarily generous welfare state through debt in the last forty years. If there was no talk about debt burden sharing, you would be right and it would be no ones business. However, if the policies proposed make it dubious whether France will in the future be able to meet their agreed targets, then yes, it becomes an issue for the EU.
And they've still got a debt-to-GDP level that's roughly the same as Germany's - I think there's 4-5% difference. Despite that the reports leaking out of the French spending review is that to protect that welfare state (and their defence budget) they're planning cuts of around 40% in other departments. So they are taking steps to meet their fiscal pact targets, which is all that should be required of them.
I mean is the fiscal pact what matters or some EZ body examining whether countries can, in the future, be likely to meet their targets because that seems rather different.
QuoteIf reality could be reloaded like a computer game, I would love to see what would happen if Angie would go to the Bundestag and announce that Germany would be leaving the Euro next week. I expect a financial markets clusterfuck of truly epic proportions then. And not just in Germany.
I would expect the Euro to end very shortly after Germany left by the way.
I agree on the first point and you're probably right on the second one too. But I think Germany could manage a Euro-divorce well and we'd be back to some growth relatively quickly. If it's forced on us by the disorderly exit of member states then I think the consequences will be far more severe.
QuoteBut they don't want the shared governance that is required for all of that to work. And that's the crux and that's why Merkel is right not to agree to that.
Again we can hardly be surprised to discover that France and Ireland etc are proud of their independence and their sovereignty. I mean this was a big issue with the fiscal pact. But I think it's a case of finding the right system. The sort of shared governance Germany wants is, I think, the sort that only Germany, and possibly the Netherlands, could support. Similarly I think the Van Rompuy proposals are woolly and, perhaps inevitably, seem to focus power in the less democratic bits of the EU's institutions.
But it's certainly a leap into integration (to restore confidence in the currency) and then build the institutions and the required treaty changes afterwards. It's a bit like the Euro in that sense...:ph34r:
I think the odd thing is that Germany's not the perfect EU member when it comes to integration, but I think, and I could be wrong, that German sovereignty and rights are sort of embodied and protected in the Federal Constitutional Court which has always had an odd relationship with the EU and EU law. In other countries that's more embodied in their political system.
Personally I think the Schmidt-Delors proposals are more promising:
http://www.notre-europe.eu/uploads/tx_publication/CompletingTheEuro_ReportPadoa-SchioppaGroup_NE_June2012.pdf
So for example Eurobonds would be issued for 10% of GDP by a European Debt Agency (headed by a Euro-FinMin accountable to a Euro finance committee from the 17 national parliaments and the European parliament). If a country then needs access to issuing more then they can apply to the EDA for that, each increas (say to 20% of GDP) requires more oversight by the EDA FinMin. If they need more than 60% then the country can either default and restructure their national debt (excluded from EDA) or accept EDA issued debt over 60% but the EDA FinMin more or less takes over their fiscal situation.
They also want a European fund to pay for temporary counter-cyclical policies, which is important given how eye-wateringly pro-cyclical the fiscal pact is.
Quote from: Tamas on June 28, 2012, 03:22:46 AM
I am all for Eurobonds if the necessary restrictions on spending by member states is in place and is actually enforcable by a federal authority. Otherwise this scharade would continue until all reserves of Germany are spent and we just collapse into anarchy and WW3.
What's the fiscal pact for? Constitutional debt and spending limits that can be enforced by the ECJ (via the Council) and charge countries up to 1.5% of GDP.
I think the debate with fiscal union is going beyond that, because the EU has that and countries are driving themselves into recession to meet its terms (the Netherlands, for example).
http://www.guardian.co.uk/business/economics-blog/2012/jun/27/eurozone-summit-germany-merkel
QuoteEurozone summit: Germany v Italy, Spain and FranceThe summit will fail because Germany will not give the rest of the Big Four what they want: financial aid without any political terms
Let's be clear. The two-day meeting of European heads of state that begins in Brussels on Thursday will not come up with a solution to the sovereign debt crisis. It won't even get close, so any investor going long on the euro in anticipation of a successful outcome had better ought to have an exit strategy.
The reason for pessimism about the summit's outcome is not just based on historical experience, although this is certainly part of it. Nor is that the big players have done their usual trick of generating unrealistic expectations in the run-up to the talks. In the past that has been the case, but not this time.
Instead, the issue this time is that there appears to be differences between Germany and the other three members of the Big Four – France, Italy and Spain – that cannot be reconciled, at least for the moment.
Paris, Madrid and Rome have forged what might be called, for shorthand purposes, a Latin bloc. They have a long list of suggestions for how the single currency could work more effectively: a banking union, commonly issued eurozone bonds, a willingness by the European Central Bank to intervene directly in financial markets to buy the bonds of troubled countries. Put simply, what they want is a Europe in which Germany continues to write the cheques but has no greater say than now in how sovereign countries raise their taxes or run their banks.
The immediate demand is for help to Spain's banks to be provided directly rather than through Madrid. Why? Because this would mean assistance without the political guarantees demanded by Angela Merkel. The German chancellor knows that this would set a precedent and will therefore dig in her heels. This will mean the crisis gets worse but that will strengthen Germany's bargaining position.
Anatole Kaletsky wrote an article last week in Reuters on this division:
QuoteCan the rest of Europe stand up to Germany?
By Anatole Kaletsky JUNE 20, 2012
As financial markets slide toward disaster, scarcely pausing to celebrate the "success" of the Greek election or the deal to recapitalize Spanish banks, the euro project is finally revealing its fatal flaw. One country poses an existential threat to Europe – and it is not Greece, Italy or Spain. Every serious proposal to resolve the euro crisis since 2009 – haircuts for bank bondholders, more realistic fiscal consolidation targets, jointly guaranteed eurobonds, a pan-European bailout fund, quantitative easing by the European Central Bank – has been vetoed by Germany, and this pattern looks likely to be repeated next week.
Nobody should be surprised that Germany has become the greatest threat to Europe. After all, this has happened twice before since 1914. To state this unmentionable fact is not to impugn Germans with original sin, but merely to note Germany's unusual geopolitical situation. Germany is too big and powerful to coexist comfortably with its European neighbors in any political structure ruled purely by national interests. Yet it isn't big and powerful enough to dominate its neighbors decisively, as the U.S. dominates North America or China will dominate the Far East.
Wise German politicians recognized this inherent instability after 1945 and abandoned the realpolitik of national interest in favor of the idealism of European unification. Instead of trying to create a "German Europe" the new national goal was to build a "European Germany." Unfortunately, this lesson seems to have been forgotten by Angela Merkel. Whatever the intellectual arguments for or against German-imposed austerity or the German-designed fiscal compact, there can be no dispute about their political import. Merkel's stated goal is now to create a "German Europe," with every nation living, working and running its government according to German rules.
Merkel doubtless believes that she is helping Europe when she maternally instructs the Greeks, Italians and Spaniards to "do their homework" and so become good little Germans. But like its less benign predecessors, this effort to impose German hegemony is guaranteed to fail. Europe's leaders must therefore start considering a previously unmentionable question, perhaps as soon as next week's summit, if the euro crisis intensifies. This question is not whether Europe will agree to live under German leadership, but whether Germany will agree to live under EU leadership – or whether the other nations must form a united front against Germany to prevent the destruction of Europe, as they have repeatedly in the past.
To be specific, the euro's only chance of survival now depends on a decisive move toward political and fiscal union. Angela Merkel plays lip service to such political union, even claiming that democratic accountability is her main condition for financial rescues; but what she means is accountability to German voters, German newspapers and German constitutional judges. She promises to "do whatever it takes to save the euro" but vetoes anything that might actually work, claiming deference to German public opinion or national interests.
Europe must now call this bluff. At next week's summit, France, Italy and Spain can turn the tables on Merkel by presenting her with an ultimatum: Led by President Hollande, who has abandoned President Sarkozy's Gaullist pretensions of parity with Germany, the big three Mediterranean countries could agree on a program that really might save the euro: a banking union, followed by jointly issued eurobonds and backed by ECB quantitative easing. If Merkel tried to block these policies, the others could politely invite her to leave the euro, since Germany's political pressures evidently made membership impossible on terms its partners could accept – essentially the proposition Merkel put last month to Greece. Without Germany, the euro zone would have much smaller internal imbalances and much more political coherence, with a much weaker currency and higher inflation, both of which would make debts easier to resolve.
Merkel would probably insist on Germany's legal right to remain within the euro, ironically echoing the Greek position. At this point the other nations could play their trump card: To reduce interest rates and make their economies more competitive by weakening the euro, the debtor nations could vote for unlimited bond purchases by the ECB. The Germans on the ECB council would doubtless oppose this, but even with support from Finland, Slovakia, and perhaps Austria and Holland, Germany could command no more than 7 votes out of 23. Germany would then face the very same existential choice about its relations with Europe that Merkel has inflicted on Greece and other debtor nations.
Germans will almost certainly support the political concessions that might give the euro a chance of survival, including fiscal transfers and some mutualization of debts, once they realize that their only alternative is isolation from the rest of Europe. But before they agree to a European Germany, voters may need to be reminded that trying to create a German Europe always leads to disaster.
Quote from: Sheilbh on June 28, 2012, 06:27:57 AM
Anatole Kaletsky wrote an article last week in Reuters on this division:
heh, germany might very well leave. The euro is not popular there, never has been. and if germany leaves the other rich countries will leave too I think. Will it be hard? sure. But it'll be a phyrric victory for sauce hollandaise and other southrons.
Quote
Anatole Kaletsky
Wow, lots of inflammatory and insulting language in there. I'm not sure the points he makes are not overpowered and nullified in value by it.
Quote
I mean is the fiscal pact what matters or some EZ body examining whether countries can, in the future, be likely to meet their targets because that seems rather different.
Depends on whether the goal is to fix the problem or just put it off for a few years.
Like a lot of commentators, this dude seems more focused on adding to the narrative that the inevitable collapse was all Germany's fault rather than analyzing the solutions.
Apparently Greece's new FinMin is projecting that their economy will shrink by 6.7+% this year. That's rather worse than the EU/IMF projected in the second bailout. No doubt when the Greeks inevitably fail to meet their fiscal targets this will be down to Southern European laziness/moral failings and insufficient austerity.
Quote from: MadImmortalMan on June 28, 2012, 12:34:26 PMWow, lots of inflammatory and insulting language in there. I'm not sure the points he makes are not overpowered and nullified in value by it.
Nonsense. I don't think it's that strong and the language doesn't matter if the point's valid.
It also seems in a similar vein to the Economist worrying that Merkel may go down as Bruning II or Fischer noting the painful irony of a peacefully restored, well-meaning Germany destroying herself and the 'European order' for the third time in a century. I think George Soros goes to far when he's talking of a new German Empire of a German core with a denuded periphery.
QuoteDepends on whether the goal is to fix the problem or just put it off for a few years.
I've said all along I think Merkel's approach is the only time I've seen politicians failing to address a crisis because they're too busy trying to deal with the long-term issues. Fiscal pacts and precise details of sovereignty sharing won't matter if the currency union doesn't exist in a year.
Quote from: Sheilbh on June 28, 2012, 01:11:16 PM
Apparently Greece's new FinMin is projecting that their economy will shrink by 6.7+% this year. That's rather worse than the EU/IMF projected in the second bailout. No doubt when the Greeks inevitably fail to meet their fiscal targets this will be down to Southern European laziness/moral failings and insufficient austerity.
And no doubt that will be right in part.
I don't understand why all the "austerity" countries are doing their austerity in the most self-destructive way. It's like they didn't want to do it in the first place, so they're making sure it's as harmful as possible to make the public hate it. The way it is, it's both insufficient and too severe. :P
Quote from: Sheilbh on June 28, 2012, 01:11:16 PM
I've said all along I think Merkel's approach is the only time I've seen politicians failing to address a crisis because they're too busy trying to deal with the long-term issues. Fiscal pacts and precise details of sovereignty sharing won't matter if the currency union doesn't exist in a year.
Do you honestly think it will ever happen once the pressure is off?
Quote from: MadImmortalMan on June 28, 2012, 01:22:54 PM
I don't understand why all the "austerity" countries are doing their austerity in the most self-destructive way. It's like they didn't want to do it in the first place, so they're making sure it's as harmful as possible to make the public hate it. The way it is, it's both insufficient and too severe. :P
That would certainly explain the coalition :lol: :P
Quote from: MadImmortalMan on June 28, 2012, 01:32:33 PMDo you honestly think it will ever happen once the pressure is off?
What will ever happen? Changing treaties to share sovereignty on fiscal matters?
As I say if the Eurozone collapses it will probably happen in the next year and the events leading to collapse will, in my view, probably be to rapid for Eurozone leaders to contain. Once it starts I think it'll pretty irreversible and the costs will be huge. If the goal's to keep pressure up then it's working but I think it's a potentially lethal game of chicken.
Quote from: MadImmortalMan on June 28, 2012, 01:22:54 PM
I don't understand why all the "austerity" countries are doing their austerity in the most self-destructive way.
Yilaborate.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Ffarm9.staticflickr.com%2F8002%2F7460229744_3502a5624d_b.jpg&hash=abb3c1f012bb03bafc52636d5246b5d25e8b8f37)
I'll never understand economics.
Quote from: Sheilbh on June 28, 2012, 06:27:57 AM
Anatole Kaletsky wrote an article last week in Reuters on this division:
QuoteCan the rest of Europe stand up to Germany?
By Anatole Kaletsky JUNE 20, 2012
As financial markets slide toward disaster, scarcely pausing to celebrate the "success" of the Greek election or the deal to recapitalize Spanish banks, the euro project is finally revealing its fatal flaw. One country poses an existential threat to Europe – and it is not Greece, Italy or Spain. Every serious proposal to resolve the euro crisis since 2009 – haircuts for bank bondholders, more realistic fiscal consolidation targets, jointly guaranteed eurobonds, a pan-European bailout fund, quantitative easing by the European Central Bank – has been vetoed by Germany, and this pattern looks likely to be repeated next week.
Nobody should be surprised that Germany has become the greatest threat to Europe. After all, this has happened twice before since 1914. To state this unmentionable fact is not to impugn Germans with original sin, but merely to note Germany's unusual geopolitical situation. Germany is too big and powerful to coexist comfortably with its European neighbors in any political structure ruled purely by national interests. Yet it isn't big and powerful enough to dominate its neighbors decisively, as the U.S. dominates North America or China will dominate the Far East.
Wise German politicians recognized this inherent instability after 1945 and abandoned the realpolitik of national interest in favor of the idealism of European unification. Instead of trying to create a "German Europe" the new national goal was to build a "European Germany." Unfortunately, this lesson seems to have been forgotten by Angela Merkel. Whatever the intellectual arguments for or against German-imposed austerity or the German-designed fiscal compact, there can be no dispute about their political import. Merkel's stated goal is now to create a "German Europe," with every nation living, working and running its government according to German rules.
Merkel doubtless believes that she is helping Europe when she maternally instructs the Greeks, Italians and Spaniards to "do their homework" and so become good little Germans. But like its less benign predecessors, this effort to impose German hegemony is guaranteed to fail. Europe's leaders must therefore start considering a previously unmentionable question, perhaps as soon as next week's summit, if the euro crisis intensifies. This question is not whether Europe will agree to live under German leadership, but whether Germany will agree to live under EU leadership – or whether the other nations must form a united front against Germany to prevent the destruction of Europe, as they have repeatedly in the past.
To be specific, the euro's only chance of survival now depends on a decisive move toward political and fiscal union. Angela Merkel plays lip service to such political union, even claiming that democratic accountability is her main condition for financial rescues; but what she means is accountability to German voters, German newspapers and German constitutional judges. She promises to "do whatever it takes to save the euro" but vetoes anything that might actually work, claiming deference to German public opinion or national interests.
Europe must now call this bluff. At next week's summit, France, Italy and Spain can turn the tables on Merkel by presenting her with an ultimatum: Led by President Hollande, who has abandoned President Sarkozy's Gaullist pretensions of parity with Germany, the big three Mediterranean countries could agree on a program that really might save the euro: a banking union, followed by jointly issued eurobonds and backed by ECB quantitative easing. If Merkel tried to block these policies, the others could politely invite her to leave the euro, since Germany's political pressures evidently made membership impossible on terms its partners could accept – essentially the proposition Merkel put last month to Greece. Without Germany, the euro zone would have much smaller internal imbalances and much more political coherence, with a much weaker currency and higher inflation, both of which would make debts easier to resolve.
Merkel would probably insist on Germany's legal right to remain within the euro, ironically echoing the Greek position. At this point the other nations could play their trump card: To reduce interest rates and make their economies more competitive by weakening the euro, the debtor nations could vote for unlimited bond purchases by the ECB. The Germans on the ECB council would doubtless oppose this, but even with support from Finland, Slovakia, and perhaps Austria and Holland, Germany could command no more than 7 votes out of 23. Germany would then face the very same existential choice about its relations with Europe that Merkel has inflicted on Greece and other debtor nations.
Germans will almost certainly support the political concessions that might give the euro a chance of survival, including fiscal transfers and some mutualization of debts, once they realize that their only alternative is isolation from the rest of Europe. But before they agree to a European Germany, voters may need to be reminded that trying to create a German Europe always leads to disaster.
The difference being that Germany, unlike Greece, can't be pushed out of the Euro by cutting it off. Quite the opposite. If France, Spain and Italy would push Germany out of the Euro, I predict the Euro would collapse within weeks, not months.
Quote from: Zanza on June 28, 2012, 04:20:26 PM
Quote from: Sheilbh on June 28, 2012, 06:27:57 AM
Anatole Kaletsky wrote an article last week in Reuters on this division:
QuoteCan the rest of Europe stand up to Germany?
By Anatole Kaletsky JUNE 20, 2012
As financial markets slide toward disaster, scarcely pausing to celebrate the "success" of the Greek election or the deal to recapitalize Spanish banks, the euro project is finally revealing its fatal flaw. One country poses an existential threat to Europe – and it is not Greece, Italy or Spain. Every serious proposal to resolve the euro crisis since 2009 – haircuts for bank bondholders, more realistic fiscal consolidation targets, jointly guaranteed eurobonds, a pan-European bailout fund, quantitative easing by the European Central Bank – has been vetoed by Germany, and this pattern looks likely to be repeated next week.
Nobody should be surprised that Germany has become the greatest threat to Europe. After all, this has happened twice before since 1914. To state this unmentionable fact is not to impugn Germans with original sin, but merely to note Germany's unusual geopolitical situation. Germany is too big and powerful to coexist comfortably with its European neighbors in any political structure ruled purely by national interests. Yet it isn't big and powerful enough to dominate its neighbors decisively, as the U.S. dominates North America or China will dominate the Far East.
Wise German politicians recognized this inherent instability after 1945 and abandoned the realpolitik of national interest in favor of the idealism of European unification. Instead of trying to create a "German Europe" the new national goal was to build a "European Germany." Unfortunately, this lesson seems to have been forgotten by Angela Merkel. Whatever the intellectual arguments for or against German-imposed austerity or the German-designed fiscal compact, there can be no dispute about their political import. Merkel's stated goal is now to create a "German Europe," with every nation living, working and running its government according to German rules.
Merkel doubtless believes that she is helping Europe when she maternally instructs the Greeks, Italians and Spaniards to "do their homework" and so become good little Germans. But like its less benign predecessors, this effort to impose German hegemony is guaranteed to fail. Europe's leaders must therefore start considering a previously unmentionable question, perhaps as soon as next week's summit, if the euro crisis intensifies. This question is not whether Europe will agree to live under German leadership, but whether Germany will agree to live under EU leadership – or whether the other nations must form a united front against Germany to prevent the destruction of Europe, as they have repeatedly in the past.
To be specific, the euro's only chance of survival now depends on a decisive move toward political and fiscal union. Angela Merkel plays lip service to such political union, even claiming that democratic accountability is her main condition for financial rescues; but what she means is accountability to German voters, German newspapers and German constitutional judges. She promises to "do whatever it takes to save the euro" but vetoes anything that might actually work, claiming deference to German public opinion or national interests.
Europe must now call this bluff. At next week's summit, France, Italy and Spain can turn the tables on Merkel by presenting her with an ultimatum: Led by President Hollande, who has abandoned President Sarkozy's Gaullist pretensions of parity with Germany, the big three Mediterranean countries could agree on a program that really might save the euro: a banking union, followed by jointly issued eurobonds and backed by ECB quantitative easing. If Merkel tried to block these policies, the others could politely invite her to leave the euro, since Germany's political pressures evidently made membership impossible on terms its partners could accept – essentially the proposition Merkel put last month to Greece. Without Germany, the euro zone would have much smaller internal imbalances and much more political coherence, with a much weaker currency and higher inflation, both of which would make debts easier to resolve.
Merkel would probably insist on Germany's legal right to remain within the euro, ironically echoing the Greek position. At this point the other nations could play their trump card: To reduce interest rates and make their economies more competitive by weakening the euro, the debtor nations could vote for unlimited bond purchases by the ECB. The Germans on the ECB council would doubtless oppose this, but even with support from Finland, Slovakia, and perhaps Austria and Holland, Germany could command no more than 7 votes out of 23. Germany would then face the very same existential choice about its relations with Europe that Merkel has inflicted on Greece and other debtor nations.
Germans will almost certainly support the political concessions that might give the euro a chance of survival, including fiscal transfers and some mutualization of debts, once they realize that their only alternative is isolation from the rest of Europe. But before they agree to a European Germany, voters may need to be reminded that trying to create a German Europe always leads to disaster.
The difference being that Germany, unlike Greece, can't be pushed out of the Euro by cutting it off. Quite the opposite. If France, Spain and Italy would push Germany out of the Euro, I predict the Euro would collapse within weeks, not months.
Given the fact that the crisis is exhibiting a sin(1/x) formula in terms of raised and then fallen expectations, I reckons the euro is likely to collapse within weeks anyway.
Quote from: Razgovory on June 28, 2012, 04:17:29 PM
I'll never understand economics.
Then by definition you must be an economist.
edit:
Oops, many of them aren't that self-aware and so think they do understand.
Quote from: Iormlund on June 28, 2012, 02:47:22 PM
Yilaborate.
Yeah. With the partial exception of Greece all EU leaders, including Germany, go out of their way to praise the rest of the leaders. Portugal and Ireland are the model pupils, Rajoy and Monti are seen as ideologically committed to austerity and reform (Monti certainly is, I'm not so sure on Rajoy).
Quote from: Zanza on June 28, 2012, 04:20:26 PMThe difference being that Germany, unlike Greece, can't be pushed out of the Euro by cutting it off. Quite the opposite. If France, Spain and Italy would push Germany out of the Euro, I predict the Euro would collapse within weeks, not months.
Depending on how the Greeks respond you might not even be able to push them out - and they're more supportive of staying in the Euro than Germans are.
As the research I posted earlier suggests currency unions do normally collapse because the 'stronger' member(s) leave. However Kaletsky wrote about this for his economics research company (bolding his):
QuoteNow that the Greek election is over, with the pro-bailout parties gaining enough seats for a slim majority, Europe can return to the regular cycle of panic, relief, disappointment and renewed panic, that we have observed for the past two years. This time, however, the relief rally may be even shorter than usual, since the market's attention will soon shift from Athens to Madrid, Paris and, above all, Berlin. Since Greece has no chance of meeting its financial targets, the new government will soon need significant new concessions from the troika. Assuming that Germany resists such concessions, as well as the much larger ones that will soon be required by Spain, the fundamental contradiction of the euro project will again be brought into focus. A single currency can only be sustained within a fiscal and political union that can mutualise and monetize the debt— something that Germany refuses even to discuss.
If this situation persists, then one of two things could happen. The debtor countries could resign themselves to permanent depression and bankruptcy as they sink further into debt traps and Greek-style crises which will ultimately push them out of the euro one by one. Or they could turn the tables on Germany. Instead of letting Germany impose its economic and political philosophy on Greece, Ireland and Portugal—and in the near future on Spain, Italy and probably France—the Club Med countries could unite and impose their economic philosophy on Germany.
With every day that passes, and especially since the French election, it is becoming clearer that the problem country for the euro—the odd man out in terms of economic structure and the chief obstacle to any political resolution of the euro crisis—is not Greece, Spain or Italy. It is Germany. It is Germany that refuses even to talk about mutual debt and banking guarantees. It is Germany that insists on self-defeating fiscal austerity and intolerable political conditions for the debtor countries. It is Germany that vetoes quantitative easing by the ECB, which could cap bond yields and relieve deflationary debt traps. And it is Germany that makes the other euro countries uncompetitive, discourages devaluation of the euro against the dollar and refuses even to relax its own domestic fiscal policies to reduce its trade surplus and support growth.
Suppose then that Angela Merkel refuses to make any compromise on debt mutualisation or ECB monetisation when a political or market crisis next strikes one of the debtor countries, as it surely will. The obvious answer would be for the Club Med governments to point out that Germany has become the obstacle to a resolution of the euro crisis. Mrs Merkel could then be asked, one last time, to abide by majority decisions that are necessary for the survival of the euro and in the interests of all its members. If she refused to do this, Germany could be politely asked to leave. And if Mrs Merkel refused to fall in line or voluntarily leave the euro, the other countries could easily call her bluff by creating conditions that would be unacceptable to the German public. The obvious way to do this would be to force a vote in the ECB for unlimited quantitative easing to monetise government debts.
German public opinion would surely oppose this, but they could not prevent it because Germany has just two votes on the Council of the ECB —and even assuming support from Austria, Finland, the Netherlands and Slovakia, the German faction would command only 6 votes out of 23. If the two German ECB representatives were forced to resign in protest (again!), it is easy to imagine German public opinion demanding immediate withdrawal. A new Deutschemarks could rapidly be issued by the Bundesbank and, while the German banks and insurance companies would suffer large losses because of a mismatch between their euro assets and their New D-Mark liabilities, they could be readily recapitalised by a government suddenly freed of the contingent liabilities imposed by the rest of the eurozone.
This kind of euro break-up triggered by German revaluation would be much less disruptive than a "break-down" caused by devaluation in Greece or Spain. In the case of a German revaluation, there would be no contagion or capital flight, as there would be if Greece, then Spain, then Italy and France were knocked out of the euro one by one. There would be no lawsuits by disgruntled creditors.
Best of all, from both the legal and the economic standpoint, the legacy euro created by a German withdrawal would survive as a more viable common currency for the remaining countries of the eurozone. With Germany outside the euro, France, Italy and Spain could rapidly devalue their way back to competitiveness within Europe—and also internationally, by encouraging the new euro to devalue rapidly against the dollar, yen and RMB. Without German opposition, the ECB could imitate the Fed and the Bank of England, buying bonds without limit so as to slash long-term interest rates. And if quantitative easing produced an even weaker euro or higher inflation, so much the better, since the Club Med countries have always relied on devaluation to promote export growth and inflation to eliminate debts.
A break-up of the euro caused by Germany's departure would be very bullish for practically all global risk assets, with the obvious exception of German export and bank stocks. German bonds would also suffer huge losses, since the German government could decide to repay its bonds in legacy euros, rather than redenominating all its obligations into appreciating new Deutschemarks. For a government that had just spent hundreds of billions on recapitalising its banks for the losses they suffered in France, Spain and Italy, it would be tempting to burn foreign bondholders, rather than offering them a further currency windfall.
Having said all of that last night's deal looks, from what I've read, to be a really positive first step. What's even better is that it looks like everyone acknowledges it's a first step - banking union will, apparently, be completed over the summer and a concrete schedule for political union (with fiscal union) will be in place in October (this may be too slow). We'll probably need more steps over the summit but this deal is very good news - especially for, in Hollande's phrase, the virtuous countries like Italy and Spain. But other great news is that Monti and Rajoy have realised they've got leverage.
Hollande's €120 billion 'growth plan' is less consequential - also I got Sarko-flashbacks when he gave an hour long press conference while everyone else was still negotiating :blink:
One striking feature, however, is that the main opposition last night - after Merkel had given in - was Mark Rutte. He may only be a caretaker PM but he's facing an election against an anti-Euro populist. I think that sort of intransigence for that reason may happen more.
Edit: And Monti's line that 'we've avoided a black Friday' is absolutely true. Given his Commission history (:wub:) he seems to get what's happening in the markets a bit better than most.
What would be really helpful is if this could extend to Ireland and even Greece who've had to use €45 billion of their bailout to recapitalise their banks.
Here's Sony Kapoor's useful summary of the deal:
QuoteThe Good Bad and Ugly from the European Council
The short but important conclusions from the all night summit of Euro area leaders can be found here.
First the good news, four very important decisions were taken 1) A decision to eventually hand the European Central Bank direct supervision of Eurozone banks 2) A decision to allow, in principle, the European Crisis funds the EFSF/ESM to directly inject equity into troubled banks 3) A decision to waive seniority or preferred creditor status that Member States had claimed for the ESM, for Spain's rescue 4) An agreement to activate crisis support for Spain and Italy through the EFSF/ESM buying bonds in order to bring borrowing spreads down.
Then the bad news 1) The decision to give supervision to the ECB will take years to properly implement and raises serious question marks about accountability, concentration of power, manpower and the future of the single market in financial services amongst other things
2) The decision to inject equity, it has been stated, can only be carried through once ECB supervision is in place – hence not in the foreseeable future so its short term impact is rather limited. And it would mean a change in the mandate of the ESM which would take a long time to enact if political agreement can be found at all. Also, as a prerequisite for this, subordinated and even senior bondholders in banks being considered for aid would probably be asked to take haircuts, something for which the legal mechanisms don't yet exist and the political willingness may never come about.
3) The decision to waive seniority for Spain is being given a lot of importance by commentators but we think it's not quite that important as I have highlighted in my note "The Spanish Bailout and the myth of Seniority". It would in any case have been impossible to have kept a preferred creditor status while injecting equity – as by definition equity is junior to bondholders. Also, what really matters is whether seniority will be waived for Italy as the support there is expected to come in the form of bond purchases not equity injection into banks.
4) The decision to agree to activate the purchases of Italian and Spanish government bonds by the EFSF/ESM is not fleshed out i.e. whether this would happen when interest rates hit a certain ceiling? What this ceiling might be? Whether these would be senior or pari-passu with private bondholders? Without these it's impossible to say how important this is. What is very clear however is that the limited firepower of the EFSF/ESM and the fact that 25% of their backing comes from the crisis ridden countries limits how much this program can achieve.
Why is this good news? And why it may be bad news? Let us consider each of the conclusions in turn.
The ECB as supervisor for Eurozone banks
In the run up to the crisis, banking supervision standards across EU member states were generally shoddy but with a great difference in exactly how shoddy. The variance in the quality of supervision has been high with the quality of supervision inversely related to the cosiness between the banking sector and regulators and with competence. This has continued after the crisis hit and has manifested itself in several forms, including the very different standards that supervisors have applied in the European Banking Authority stress tests and recapitalization exercises.
Hiving off supervisory authority to the ECB would mean that the quality of supervision across the Eurozone would become more even and hopefully also uniformly better.
Central banks, in their role as lenders of last resort, are supposed to lend as much as needed to solvent but illiquid central banks. But often, as in this crisis, the hardest thing to do is to distinguish between insolvency and illiquidity. One of the reasons the ECB has offered for not having done (even) more to support the banking system is that it's trust in national supervisors is rather limited. Its fear that national supervisors would overplay the strength of their wards and understate their weaknesses has come true for example when the truly shoddy state of Spanish and Irish banks was revealed soon after they had been given a clean bill of health by their national regulators. It has said that it would be more willing to support banks and sooner if it had greater confidence that it knew the true state of affairs. The decision to put supervision in the ECB's hands will thus make it more comfortable playing its lender of last resort role.
Central bankers are, particularly if they cannot be fired as those at the ECB can't be, more likely to be independent and less beholden to particular political or financial interests to which national supervisors have been shown to be vulnerable. So ECB supervision may not just be more uniform but tougher and more independent.
The less good news takes several forms. The first and foremost is that any realistic effective transfer of supervisory powers to the ECB will take several years. The ECB has no capacity on this yet, and given the experiences internationally it would really take a long time for it to develop effective capacity no matter how accelerated a program of recruitment it carries out. A compromise in the form of the ECB being given power over national supervisors may be politically effective but all of the current problems with national supervision will remain. This can be no more than an interim solution.
The second concern we have is about institutional overstretch. Supervision is manpower intensive and the ECB's six-person executive council is already complaining of being overstretched when one out of their six seats is vacant. How will they ever do a quality job with the same top management when the job expands so much? And ultimate responsibility cannot be given to hired staff as it has to rest with the executive board itself.
The third concern we have is that with this move the European Central Bank is becoming the European (Super) Central Bank. As a central bank which is the sole backer of a currency with no equivalently powerful fiscal authority that sits atop or besides it, the ECB is already disproportionately powerful compared to other central banks. Also, given that nothing less than a treaty change could take power away from the ECB and its well-nigh impossible to get treaty change in the EU, the ECB enjoys much more independence than the Bank of England or the Fed do. The 8 year terms for its executive council members are also longer than those at most other central banks and they cannot be fired in most states of the world. This is an unprecedented concentration of power and with the ECB's letter to PM Berlusconi asking for reforms in exchange for ECB support, many people feel that the ECB has been overstepping its powers and prescribing to fiscal authorities what they should so even as it reasserts its independence from what they may ask it to do.
The fourth related concern is that of the very limited accountability the ECB has to any democratically elected body. The president of the ECB makes regular presentations to and takes questions from the ECON committee of the European Parliament but is not formally accountable to them. Nor it is obliged to answer the questions they ask the ECB. In practice, the situation is even worse with most Members of the European Parliament being deferential in how they speak to the ECB – almost as bad as Bundestag Members are when they speak to the Bundesbank. The complete lack of democratic accountability and the very little transparency in how the ECB works should be matters of grave concern that need to be set right before the ECB is given more powers.
The fifth and the last concern is that the narrow inflation specific mandate of the ECB is insufficient for it to be an effective supervisor and would need to be expanded to include growth and financial stability, without which the ECB's supervision of banks may be lop-sided.
Injecting equity into banks
We have long complained about the vicious sovereign-bank dance of death underway in the Eurozone and the need to break the far too strong links between banks and sovereigns. In order to do this, we have long called for ESM to be given the ability to inject funds directly into Eurozone banks. This has finally been agreed to in principle which represents significant progress. Also, this would apply not just to Spain but also to countries such as Greece and Ireland and could significantly reduce the burden of debt on the sovereigns by taking the support they have been providing their respective banks off the books and on to the balance sheet of the ESM instead.
However there are several caveats here. First, this will happen only after the ECB has been handed supervision powers – which as we have discussed in the previous section may take years. So this is not going to translate into real support in the short term, but could possibly be used as a mechanism to take over bank stakes from weak sovereigns thus reducing their debt burden and weakening the links with banks.
Second, it is unlikely that this would be allowed to happen without a clean-up of the banks in question first. This would mean a bigger upfront recognition of losses and possible haircuts for subordinated bondholders and even senior bondholders. This would almost surely involve a writing-off or writing down of some of the equity holdings, including some held by the sovereign so the reduction in the debt burden of sovereigns may not be as large as hoped for. Also, as things stand now, there is no European resolution mechanism, which would need to be set up. Even national resolution mechanisms, which may work in the interim, don't exist in most of the troubled economies.
Third, this would make the EFSF/ESM much more risky and subject them to real risks of losses which would make the whole process highly contentious politically. Any country could choose to pull the plug so the long-term viability and effectiveness of this mechanism remains in doubt.
Waiving seniority
The most important point to remember here is that there is less than meets the eye. Seniority, as I have explained extensively in my note "The Spanish Bailout, the Eurocrisis & the myth of Seniority" was never a big problem with the Spanish bailout. It was that it took the form of a loan rather than equity injection. If the European Council had merely agreed to waive seniority without changing what form this bailout would take, the effect on market confidence would have been very limited.
It's the decision to allow the ESM to inject equity which is the critical one. This of course, as any sensible person would tell you, cannot happen when it is senior. Equity injections are by definition junior to bonds so the ESM, once it is allowed to inject equity will effectively become subordinated to the claims of existing bondholders.
What really would matter, in terms of the discussion on seniority, is whether or not this would apply to Italy. As I have explained in my note yesterday, "Yet another European Council! Recuing the Eurozone", renouncing seniority for Italy really matters particularly if the support for it will be in the form of bond purchases by the EFSF/ESM. Secondary market purchases of the kind the ECB made through its SMP program are not effective when they are 1) limited and 2) have embedded seniority. Because an ESM/EFSF program would always be seen to be more limited than an ECB program, the renunciation of seniority for Italy is very important.
Another point I have made in my note on seniority is that it's one thing to waive it, and it's quite another thing for markets to believe it. It's difficult to see how a credible commitment can be made about this, particularly as the amount of support provided to Italy starts to rise.
Supporting Italy and Spain through bond purchases
This part of the declaration of the European Council has almost no flesh on the bone whatsoever. With such few details it hard to make a judgement but we will try.
The good news is that something will be done to lower the borrowing costs for Italy and Spain, which were threatening to snowball. The bad news is that it will at best buy some time and will almost certainly not be enough.
Politically, it is important for the leaders of Spain and Italy not to be seen to be prescribed conditionality by the European Authorities. The governments of each of the countries that went for an EU program with conditionality were voted out of power. So an in-principle agreement that the only conditions that would apply for activating this program would be policies that the Member States are already legally obliged to adhere to under the newly beefed up EU economic governance rules. We have shown how, for example in the case of Spain, these are almost as far-reaching as explicit new conditionality prescribed in the case of a country such as Portugal.
The agreement which will simply transpose existing commitments into a memorandum of understanding and add a timeline for results to be delivered is a good compromise between the interests of the creditor and debtor countries and one which Re-Define has been promoting for several months. There is another added caveat, which is that only countries 'with good behaviour' will be able to access these facilities. This is good in terms of discipline and will help hold Monti's successor government to account, but at the same time undermines belief in the effectiveness of the support by introducing an element of uncertainty.
We don't know yet, whether the scheme would be automatically activated to provide a ceiling on borrowing costs, which would be good policy. We also don't know what this ceiling, if agreed, may be – A 4%-5% ceiling would be good, a 7% ceiling would be bad. We have discussed this topic of capping borrowing costs in a note we did on the ECB that can be accessed here.
Another limitation of this scheme that we discussed extensively in our note yesterday is that its size is limited and that this would reduce its credibility and effectiveness. As we wrote yesterday
"The limited size of the ESM/EFSF is yet aspect of this strategy that may limit its effectiveness , as borrowing costs can best be credibly brought down if it is demonstrated that the sovereigns in trouble have access to reasonable cost funding for as long as they need it.
Another complication is that fact that when one includes Italy and Spain, the effective capacity of the crisis funds could shrink by almost 25% as then the bailed-out countries would constitute nearly a quarter of the fiscal capacity that supposedly stands behind these funds."
Quote
The Long Memory of "The Sick Man of Europe"
It's astounding just how distorted the coverage of Germany's role in some grand Eurozone bailout scheme has been—well, at least in the English-speaking mainstream media. Time after time, we're confronted with the inanest headlines and reports that place German politicians, and particularly Chancellor Angela Merkel, on some kind of invisible verge where they will suddenly, and under tremendous international pressure, come to their senses and ... blink.
And by blinking, Germany would agree to, guarantee, and fund all the panaceas regularly trotted out by those that need them, particularly Spain, Italy, and now loudest of all, due to its shaky megabanks, France. The lasted blast came from the Wall Street Journal where Berlin Blinks on Shared Debt. Others regurgitated it, including MarketWatch. Yet, it contradicted everything that either German Finance Minister Wolfgang Schäuble or Chancellor Merkel had ever been quoted saying in the German press. And indeed, not much later, a spokesman at the Ministry of Finance made it clear, once again: "This is not true," he said.
In addition to Eurobonds, the basket of panaceas includes other forms of "mutualization" of debt, a Eurozone-wide banking union with the power to bail out banks with taxpayer or ECB funds, a similarly endowed modified version of the still non-existing ESM bailout fund, and an ECB that can buy even the crappiest sovereign bonds of the most bankrupt Eurozone countries to keep them afloat another day (similar to the Fed and its purchases of treasuries and other securities).
But the 17-member Eurozone isn't a country. It's but a monetary union within a 27-member free-trade block. And any mutualization of debt would simply transfer financial responsibility from those who spend to those who end up having to pay for it, without any kind of reciprocal control. Even in the US, California can't shuffle off its pile of debt and its never-ending deficits—though it's supposed to have a balanced budget—to the Federal Government and its taxpayers. So why should Spain be able to shuffle off its debt to taxpayers in other countries?
That's how it's seen in Germany—where Eurobonds are despised by 79% of the people. The ESM, which continues to be pushed by Merkel, has been running the gauntlet ranging from street demonstrations to the Federal Constitutional Court, where it is currently hung up. It should have been ratified by July 1, and while it is likely to get through the process with some delay, any steps beyond it, such as Eurobonds, are considered unconstitutional.
But as if all these reasons still weren't good enough, George Dorgan—a portfolio manager based in Switzerland—has put his finger on another powerful reason:
The first full-blown bailout Germany undertook, namely the integration of East Germany (only 17 million people), caused the German debt to nearly triple from €430 billion in 1989 to €1,200 billion in 1999, a decade during which even the US managed to reduce its debt for a couple of years. Germany greatly underestimated the integration costs. It led the country into a long phase of slow growth till 2006; and still now the west pays subsidies to the east. Spain, Italy, Portugal, Ireland, Cyprus, and Greece might be better developed than the former communist GDR. But they count over 100 million people and might need even more time to adjust than the 20 years the former Eastern Germans needed.
Merkel hails from former East Germany and experienced firsthand how difficult the adjustment has been for East Germans—and how expensive for West Germans. Reunification wasn't only funded by debt that will be around for generations, but also by a special income tax, the Solidaritätszuschlag—lovingly called Soli—introduced in 1991. And it's still around as well. As George points out, the entire period until 2006 was tough on Germany—by then "the sick man of Europe." That's what it took to bail out a country of 17 million people, raise the standard of living, and make its industries competitive in a globalized economy.
Bailing out in this manner the growing stable of Eurozone countries will be beyond the feasible. As with East Germany, costs will be underestimated, but will then balloon for years or decades. Merkel knows that. Hence her limits on how far Germany would be willing to go.
But the beleaguered Chancellor just can't catch a break. She has already committed hundreds of billions of taxpayer euros to propping up collapsing countries. In return, she wants them to live within their means and restructure their economies so that the bailouts wouldn't have to continue for years. For that, she got tossed into the Axis of Evil. And then the Swiss Minister of Defense spoke up.
"These hordes of Eurocrats should be summarily fired and their agencies totally abolished," said Doug Casey during a pungent interview. Governments in the EU "are all bankrupt," and Europeans "will be indentured servants of the Chinese." Europe is like a skydiver, and if they pull the bailout ripcord, "they'll find there's no chute... just a bunch of dirty laundry their economists packed as a joke."
"Global joy - Merkel makes Eurobonds possible!"
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fwww.titanic-magazin.de%2Ftypo3temp%2Fpics%2Fb8b86f81ea.jpg&hash=253b02114d8b4b7aa6129a098d53f12d8be72b19)
Quote from: Sheilbh on June 29, 2012, 03:21:17 AM
What would be really helpful is if this could extend to Ireland and even Greece who've had to use €45 billion of their bailout to recapitalise their banks.
I would say the deal was specifically aimed at excluding Greece, setting its dubious compliance track record as an example of what makes a country non-eligible for this favored status.
I think the markets are assuming it's a bit wider. Ireland's yields are down 80 bps, I think on the basis of the bank deal. Which is great for them but could also mean they can return to the market's on schedule which would also, I think, be good for the Eurozone as a whole. It'd be very useful if there was a demonstration, for both sides, that there is an end.
Edit: You could be right that it excludes Greece. But they need a third bailout/renegotiation anyway. I think it would make sense to use this tool as part of that.
Edit: Irish yields are now lower than Spanish ones. This really totally changes the picture for them.
Regarding Greece, this could be seen as a carrot to encourage compliance. However, I doubt any European decision maker has any faith left in their Greek counterparts.
Quote from: MadImmortalMan on June 27, 2012, 11:48:02 AM
I put a small spec bet on that Angie will succumb to the gangbang and agree to eurobonds or something similar tomorrow or Friday and spike the market.
50 calls. $11,000. Thanks Merkel!
Edit: 13,500 at the close.
Gavyn Davies in the FT says this raises more questions than answers. But it's certainly the first time I've felt any sort of hope that the Eurozone might actually resolve this crisis. Inevitably, therefore, the Finns are vetoing key bits of it :lol:
QuoteMore questions than answers after the summit
June 29, 2012 4:55 pm by Gavyn Davies
This blog contains Gavyn's initial response to the eurozone summit. As more news emerges, he may add further comments below if his assessment changes during the weekend.
In the wake of yet another summit, we need to ask our usual question: is this the eurozone's game changer, or in football parlance the "Balotelli moment"? Clearly, there have been some late night concessions from Germany, which could turn out to be very significant in the long term. Spanish and Irish debt ratios will markedly benefit as the costs of their bank bail-outs are removed from the sovereign balance sheets and absorbed by the eurozone.
The markets have welcomed these developments, and rightly so. In particular, the opening sentence of the statement, which says boldly and simply that "we affirm that it is imperative to break the vicious circle between banks and sovereigns", could prove to be a major breakthrough. Some think it might be the beginning of a Euro-tarp.
But my fear is that, as so often in the past, the devil will prove to be in the detail. The more carefully one examines the text of the statement, the more questions are raised about how the proposed measures will actually work.
In particular, it is debatable whether there are any terms for direct eurozone recapitalisation of Spanish banks which will be acceptable both to the Spanish government and to the German Bundestag. (The latter will be empowered to "monitor" the new arrangement, according to Mrs Merkel's spokesman.) And the shortage of remaining funds in the EFSF/ESM, which I discussed here last week, has certainly not been solved.
I would like to discuss each of the key points raised by the summit separately.
1. Direct bank recapitalisation by the ESM
This is clearly the critical new development which potentially allows the costs of recapitalising troubled banks to fall on the eurozone as a whole, rather than on an individual sovereign country. It could therefore represent a very large step towards debt mutualisation, and it directly addresses the point which the markets so disliked in the Spanish bank deal two weeks ago. The statement says that this can only be done after the eurozone's new bank supervisor is "established", and that this should only be "considered" by the Council before the end of the year. In view of the disputes which could arise over this thorny issue, the risks of slippage are considerable.
The ESM will need to negotiate precise terms for each of the bank injections, and these terms will in effect determine the extent of any transfer of funds across national boundaries. As James Mackintosh argues in an important piece, Germany will have an incentive to wipe out existing shareholders and bondholders in Spanish banks so that they will obtain greater ownership for each euro of rescue money expended. The incentives on Spain will be the exact opposite. So this could prove very contentious indeed.
Furthermore, the statement says that conditions will be set for these bank injections, including "economy wide" conditions. This is mysterious but could mean that conditions will be required from the sovereign, for example that the ESM would be compensated if there are any losses on the capital injected into the Spanish banks. That would seem to meet Mrs Merkel's pre-summit demand that sovereigns can only deal with sovereigns, not with foreign banks.
I understand that such conditions would obviously eliminate the whole principle of breaking the link between the sovereign debt crisis and the banking crisis, but I suspect that Germany will be quite demanding is setting these terms. Otherwise, there could be great problems with the constitutional court in Karlsruhe.
2. Seniority of debt
The markets initially became excited by this, but should not have done. There is very little change here. The statement "reaffirms" (a word which in effect implies "this is not new") that the Spanish bank injection, made by the EFSF and then transferred to the ESM, will not gain seniority status over private debt holders. Careful observers knew that already, since it has always been the intention, stated in the preamble to the ESM treaty. The key point is that there is no general change intended for the seniority of ESM debt, so this problem is not alleviated.
3. ESM support for the Spanish and Italian bond markets
The final paragraph of the statement gives the strong impression that the ESM will in future be able to stabilise these bond markets in a "flexible and efficient" manner. This appears to be a major victory for Mario Monti, but actually it does not contain anything really different from the status quo. Ever since last year, the EFSF/ESM has been empowered to buy both primary and secondary market debt, on a request from a member state, which then has to sign a Memorandum of Understanding. This memorandum involves less onerous conditions than a full Troika programme.
There is also an emergency procedure available, which can be triggered by the ECB. It has always been a bit obscure whether this requires a formal request from a member state. Today's statement reminds everyone that there should be conditions written into a Memorandum, so the basic principle appears to be unchanged.
Another point to bear in mind is that any bond buying by the ESM may result in less bond purchases by the ECB under the Securities Markets Programme. This is a key objective of the ECB, and it means that net support for the bond markets may not increase very much.
4. The availability of funds for the ESM
German Finance Minister Schauble emphatically said yesterday to the Wall Street Journal that there would be no increase in the size of the ESM, and that position has been maintained by Germany at the summit. Furthermore, Mrs Merkel has repeatedly stated that there will be no "joint financing" of eurozone debt (ie eurobonds, or eurobills) before full fiscal union has taken effect. Again, there is no change in that position. Indeed, that is the basis for the German government's insistence that they have not taken on any extra "joint liabilities" as a result of this summit.
In summary, the summit has given the ESM some new tasks, but no new money with which to discharge these tasks. And many details are obscure. To quote the lyrics of the great Johnny Nash:
There are more questions than answers
Pictures in my mind that will not show
There are more questions than answers
And the more I find out the less I know
Yeah, the more I find out the less I know.
Missed this last month.
http://www.reuters.com/article/2012/06/08/argentina-dollar-idUSL1E8H8EJA20120608
Quote
Argentina loses a third of its dollar deposits
* Argentines reacting to foreign exchange restrictions
* About $100 mln in dollars withdrawn every day
* Rush toward greenback started in November
By Jorge Otaola
BUENOS AIRES, June 8 (Reuters) - Argentine banks have seen a third of their U.S. dollar deposits withdrawn since November as savers chase greenbacks in response to stiffening foreign exchange restrictions, local banking sources said on Friday.
Depositors withdrew a total of about $100 million per day over the last month in a safe-haven bid fueled by uncertainty over policies that might be adopted as pressure grows to keep U.S. currency in the country.
The chase for dollars is motivated by fear that the government may further toughen its clamp down on access to the U.S. currency as high inflation and lack of faith in government policy erode the local peso.
"Deposits keep going down," said one foreign exchange broker who asked not to be named. "There is a disparity among banks, but in total it's about $80 million to $120 million per day."
U.S. dollar deposits of Argentine banks fell 11.2 percent in the preceding three weeks to $11.5 billion, according to central bank data released on Friday. The run on the greenback has waxed and waned since November, after President Cristina Fernandez won a second term on promises of deepening the state's role in the economy.
From May 11 until Friday, data compiled by Reuters from private banks showed $1.9 billion in U.S. currency had been withdrawn, or about 15 percent of all greenbacks deposited in the country.
Feisty populist leader Fernandez was re-elected in October vowing to "deepen the model" of the interventionist policies associated with her predecessor, Nestor Kirchner, who is also her late husband.
Since then she has limited imports, imposed capital controls and seized a majority stake in top energy company YPF.
A spokesman for the central bank said on Friday that the rate of dollar withdrawal from Argentina's financial system shows signs of slowing.
"We have seen a tendency toward fewer withdrawals, to about $90 million (per day) over the last week from $120 million the week before," the spokesman said a day after the bank lifted daily reserve requirements on dollar deposits to help banks respond to steady drum beat of withdrawals.
DITCHING HER DOLLARS
The near-impossibility of buying dollars at the official rate is driving some savers and investors to pay a hefty premium in the black market.
Many are taking what dollars they can get their hands on and stashing them under the mattress or in safety deposit boxes, fearing moves by the government to forcibly "de-dollarize" the economy. Officials have strongly denied any such plan.
The president's battle to slow capital flight and fatten the central bank reserves needed to pay the public debt has prompted even tighter controls in recent weeks, making it almost impossible to buy dollars at the official rate. The effects have been felt throughout the South American country's economy.
For example. Argentines, who normally pay for new homes with stacks of dollar bills, have been struggling to get their hands on U.S. currency since Fernandez started imposing stringent controls on dollar buying late last year. [ ID :nL1E8H6EZ8]
She wants Argentines to end their love affair with the greenback and start saving in pesos despite inflation clocked by private economists at about 25 percent per year.
Fernandez set an example on Wednesday by vowing to swap her only dollar-denominated savings account for a fixed-term deposit in pesos.
But savers in crisis-prone Argentina are notoriously jittery. Memories of tight limits on bank withdrawals and a sharp currency devaluation remain fresh a decade after the country's massive sovereign debt default.
"There is a lot of fear, considering everything that has happened before," another foreign exchange broker said. "Confronted by risk, whatever kind of doubt, depositors pull their dollars out of the bank and wait to see what happens.
Everybody's favorite sovereign default lovechild isn't really doing so great.
TL;DR
Quote from: MadImmortalMan on July 05, 2012, 05:30:44 PM
Everybody's favorite sovereign default lovechild isn't really doing so great.
Who, ever, anywhere outside the Casa Rosada has claimed Argentina's doing great? :lol:
Quote from: Sheilbh on July 05, 2012, 06:57:32 PM
Quote from: MadImmortalMan on July 05, 2012, 05:30:44 PM
Everybody's favorite sovereign default lovechild isn't really doing so great.
Who, ever, anywhere outside the Casa Rosada has claimed Argentina's doing great? :lol:
That I've seen? Mostly some default-happy kids on euot. :P
After learning that not only in Portugal there is legal obligation to pay a month-worth sum of bonus money at the start of summer, and before Christmas to all employees, but also their constitutional court just decided that removing this was unconstitutional, I have come to fully support Germany in not being willing to accept run-away euro inflation to save these regimes.
It boggles the mind. WTF imaginary fairy-tale world have they built up there with loaned money?!
Quote from: Tamas on July 06, 2012, 07:36:48 AM
After learning that not only in Portugal there is legal obligation to pay a month-worth sum of bonus money at the start of summer, and before Christmas to all employees, but also their constitutional court just decided that removing this was unconstitutional, I have come to fully support Germany in not being willing to accept run-away euro inflation to save these regimes.
That's quite common in continental Europe. It exists in Austria for example. Though I think most countries prefer a 13th month of salary - that's in Switzerland, Belgium and others. My company helped work these out for expats and it just changes salary calculations so you divide a salary by 14 rather than 12. It doesn't lead to someone being given a salary of, say £24k a year, with an extra £4k in Christmas and Summer payments. Rather they're given £24k across the year over 14 payments.
The Constitutional Court ruling in Portugal was because the government abolished it for public sector workers but not private sector workers. They held that that went against the principle of equality of treatment in Portuguese law.
Having said that the Portuguese government's generally been pretty respected by Germany and others for their austerity measures.
Also no-one wants runaway inflation, we're just suggesting there's room for a bit more of an expansive attitude towards inflation:
http://www.wolframalpha.com/input/?i=inflation+germany+eurozone+usa
The 14-pay thing is the norm here. One at Christmas, one at the start of summer (used to be 18th July in commemoration of Franco's uprising against the Republic). As Sheilbh says, it's just another way of dividing your total salary.
Quote from: Iormlund on July 06, 2012, 07:50:55 AM
The 14-pay thing is the norm here. One at Christmas, one at the start of summer (used to be 18th July in commemoration of Franco's uprising against the Republic). As Sheilbh says, it's just another way of dividing your total salary.
if it just decreases your monthly wage in effect, than what's the point? If it does not decrease it, it is then a state-enforced competitive disadvantage for all affected employers.
Regardless, having perks which are constitution-guaranteed seem... very socialist
Quote from: Sheilbh on July 06, 2012, 07:45:32 AM
Quote from: Tamas on July 06, 2012, 07:36:48 AM
After learning that not only in Portugal there is legal obligation to pay a month-worth sum of bonus money at the start of summer, and before Christmas to all employees,
That's quite common in continental Europe. It exists in Austria for example.
:yes:
You also get tax breaks on the extra salaries.
Quote from: Syt on July 06, 2012, 07:53:46 AM
Quote from: Sheilbh on July 06, 2012, 07:45:32 AM
Quote from: Tamas on July 06, 2012, 07:36:48 AM
After learning that not only in Portugal there is legal obligation to pay a month-worth sum of bonus money at the start of summer, and before Christmas to all employees,
That's quite common in continental Europe. It exists in Austria for example.
:yes:
You also get tax breaks on the extra salaries.
:bleeding:
if the east euro countries would manage to be more stable and less corrupt, they would steal even more jobs, I am sure.
Quote from: Syt on July 06, 2012, 07:53:46 AM
:yes:
You also get tax breaks on the extra salaries.
That's not quite as neutral then as Shelf and Iormlund were suggesting.
Quote from: Tamas on July 06, 2012, 07:53:43 AM
if it just decreases your monthly wage in effect, than what's the point? If it does not decrease it, it is then a state-enforced competitive disadvantage for all affected employers.
Well that's all employers.
It decreases your monthly salary but not your annual salary and it significantly increases your salary at points when most people need money most (Christmas and/or Summer). As Syt says in Austria there's also tax benefits. The 14 month payments have a separate tax allowance and are taxed separately for payroll and personal taxes. So in terms of effect on net pay it comes from being taxed differently.
I think that used to be the case in Portugal but they've started taxing it the same as an austerity measure - which is fine because it wasn't only affecting public or private sector workers.
Generally though it's really about salary delivery and structure not salary amount.
Quote from: Tamas on July 06, 2012, 07:53:43 AM
Quote from: Iormlund on July 06, 2012, 07:50:55 AM
The 14-pay thing is the norm here. One at Christmas, one at the start of summer (used to be 18th July in commemoration of Franco's uprising against the Republic). As Sheilbh says, it's just another way of dividing your total salary.
if it just decreases your monthly wage in effect, than what's the point? If it does not decrease it, it is then a state-enforced competitive disadvantage for all affected employers.
Regardless, having perks which are constitution-guaranteed seem... very socialist
I guess the point is that people are used to getting money that way. Which should be neutral or next-to-neutral from the employer's perspective, no matter how you slice it. I can't see the reason for your gripe with it.
Quote from: Syt on July 06, 2012, 07:53:46 AM
Quote from: Sheilbh on July 06, 2012, 07:45:32 AM
Quote from: Tamas on July 06, 2012, 07:36:48 AM
After learning that not only in Portugal there is legal obligation to pay a month-worth sum of bonus money at the start of summer, and before Christmas to all employees,
That's quite common in continental Europe. It exists in Austria for example.
:yes:
You also get tax breaks on the extra salaries.
That's as stupid as, e.g. giving bankers tax breaks on their bonuses.
Quote from: Tamas on July 06, 2012, 07:53:43 AM
if it just decreases your monthly wage in effect, than what's the point? If it does not decrease it, it is then a state-enforced competitive disadvantage for all affected employers.
Regardless, having perks which are constitution-guaranteed seem... very socialist
As far as I know, 14-pay scheme is not compulsory in Spain. It's just tradition. And it's origins are paternalistic, not socialist.
Quote from: Syt on July 06, 2012, 07:53:46 AM
You also get tax breaks on the extra salaries.
We pay less taxes on those, but IIRC it's balanced with more on regular paychecks.
Quote from: Iormlund on July 06, 2012, 08:01:36 AM
As far as I know, 14-pay scheme is not compulsory in Spain. It's just tradition. And it's origins are paternalistic, not socialist.
Yeah. I can't remember all the countries with it but it seemed to be a mostly Catholic/Christian Democrat style thing.
QuoteRegardless, having perks which are constitution-guaranteed seem... very socialist
:bleeding: The perk isn't constitutionally guaranteed. The government tried to abolish this statutory right for workers in the public sector. The Constitutional Court said that they couldn't do that. They could abolish it if it was for all workers. There's nothing socialist about it.
The Constitutional Court said they couldn't do it but it's not constitutionally guaranteed?
Quote from: Admiral Yi on July 06, 2012, 08:22:07 AM
The Constitutional Court said they couldn't do it but it's not constitutionally guaranteed?
Yes. Constitutional protections can be substantive (there is a constitutional right to a 13th and 14th month salary) or procedural (you can only abolish legal provisions in certain ways). This is the latter. The 14th month isn't constitutionally guaranteed. The government couldn't abolish that statutory right of workers for just one class of worker. In this case they couldn't change the law governing working conditions only for public sector workers.
If the government wants to abolish the 13th and 14th month they can, but they need to do it for all workers or it goes against the principle of equality at law in the Portuguese constitution. Though obviously I don't know anything about the Portguguese that's what the news articles I've read on the subject say and it seems fair enough to me.
Yeah. Imagine the congress ruled that black people (and only black people) can be denied entry into restaurants. That would be unconstitutional even if there is no constitutional right to enter restaurants.
If the ruling means Portugal is free to reduce public sector salaries then cut the smaller amount into 14 parts, I see no reason to criticize it. But if the ruling means public sector salaries can't be reduced that's retarded.
Quote from: Admiral Yi on July 06, 2012, 08:31:25 AMIf the ruling means Portugal is free to reduce public sector salaries then cut the smaller amount into 14 parts, I see no reason to criticize it. But if the ruling means public sector salaries can't be reduced that's retarded.
My understanding is that public sector salaries can be reduced - by normal process under Portuguese law - and the lower salaries would be divided into 14 parts. Similarly they could abolish the 13th and 14th month for all workers, which would reduce everyone's salaries.
What they can't do is change the law to remove the 13th and 14th month from public sector workers alone. That cuts the salary without following the legal process to do so and it goes against the principle of equality at law.
The right to have whatever salary you get cut into 14 parts instead of 12 seems like a fucking silly-ass right.
Quote from: Admiral Yi on July 06, 2012, 08:39:05 AM
The right to have whatever salary you get cut into 14 parts instead of 12 seems like a fucking silly-ass right.
Right is perhaps the wrong word - it's a bit freighted with meaning when discussing constitutions. It's just part of their labour law that this is how salary is delivered.
Personally I'd love 13 month salary because December-January's a nightmare. I've less need for the 14 month wage.
Quote from: Sheilbh on July 06, 2012, 08:44:22 AM
Personally I'd love 13 month salary because December-January's a nightmare. I've less need for the 14 month wage.
that doesn't make sense. If that "extra month" is coming down from the other 12, in terms of averages, then what is the difference between not spending every single penny you have when you have 12 payments, and when you get one extra near christmas?
Quote from: Tamas on July 06, 2012, 08:48:41 AMthat doesn't make sense. If that "extra month" is coming down from the other 12, in terms of averages, then what is the difference between not spending every single penny you have when you have 12 payments, and when you get one extra near christmas?
It makes life easier :mellow:
except for those other 11 months, doesn't it? you'd get less money during those :P
Quote from: Tamas on July 06, 2012, 08:48:41 AM
that doesn't make sense. If that "extra month" is coming down from the other 12, in terms of averages, then what is the difference between not spending every single penny you have when you have 12 payments, and when you get one extra near christmas?
It's based on the feudal/paternalistic notion that employees are all children and will drink up their paychecks as soon as they get them. With 14 payments they get to go on extra-long benders in the summer and the winter.
Quote from: Tamas on July 06, 2012, 08:53:46 AM
except for those other 11 months, doesn't it? you'd get less money during those :P
The amount of money isn't the issue though :mellow:
Quote from: Sheilbh on July 06, 2012, 08:55:46 AM
Quote from: Tamas on July 06, 2012, 08:53:46 AM
except for those other 11 months, doesn't it? you'd get less money during those :P
The amount of money isn't the issue though :mellow:
why not? I thought we established that this isn't an extra strain on employers, since they are just dividing the yearl wage by 14 instead of 12.
Which means that all one have to do is not live off all his pennies of the 12-parts scheme, and would end up with the same amount of saved money as the insta-sum he gets in the 14-parts scheme
Quote from: Tamas on July 06, 2012, 08:56:44 AMwhy not? I thought we established that this isn't an extra strain on employers, since they are just dividing the yearl wage by 14 instead of 12.
Exactly.
The ease for me isn't that I don't have enough money. It's that it's easier for me to automatically receive less of a year and then receive it when there's a big gap between pay days and lots of extra costs (January-December) than having to consciously save up for it. It's also more equally spread over the year rather than just after summer which is when people normally start saving for Christmas. It's like (before it collapsed) Farepac or something.
Having a little bit less money over the other 11 months doesn't affect the easiness. Also I've always had savings or overdraft but I'd quite like the security of knowing that I got double the normal amount in December just in case :ph34r:
Looking it up it's also common in some German states and statutory in the Philippines. So I'd definitely guess it's a Catholic/Christian Democrat thing.
So Yi is right then :P
Quote from: Tamas on July 06, 2012, 09:02:57 AM
So Yi is right then :P
Basically. The difference is I don't think paternalism's a bad thing.
Quote from: Sheilbh on July 06, 2012, 09:04:01 AM
Quote from: Tamas on July 06, 2012, 09:02:57 AM
So Yi is right then :P
Basically. The difference is I don't think paternalism's a bad thing.
The older I get the more closer I get to agreeing with you, as I think people in general are stupid and ignorant.
But it is not a very nice take to have. Because paternalism means exactly like that - you deem your fellow citizens incapable of taking care of themselves in a proper manner.
Quote from: Tamas on July 06, 2012, 09:06:09 AMBut it is not a very nice take to have. Because paternalism means exactly like that - you deem your fellow citizens incapable of taking care of themselves in a proper manner.
I count myself among my fellow citizens. Like me, I imagine most of them don't struggle with Christmas because they'e got savings or credit. But this just makes their life easier and provides a little peace of mind. That's a good thing and not because we're stupid and ignorant.
The problem with paternalism is not the assumption that people are stupid, since most are. It's how rational people are constricted in their choices as well.
Quote from: Admiral Yi on July 06, 2012, 09:10:21 AM
The problem with paternalism is not the assumption that people are stupid, since most are. It's how rational people are constricted in their choices as well.
I disagree on both points.
Also people who declare themselves rational - contra everyone else - tend to be arrogant pricks and wrong. They also tend to be libertarian. That's not coincidental :P
paternalism means, in both theory and practice, that citizens are -to a degree- children of the state.
That might be practical, but eventually a block for further cultural development. Just like it was pretty practical to have the Church install a yoke on the barbaric savages of the dark ages, but became quite the limiting factor for further development.
Quote from: Sheilbh on July 06, 2012, 09:12:05 AM
I disagree on both points.
Also people who declare themselves rational - contra everyone else - tend to be arrogant pricks and wrong. They also tend to be libertarian. That's not coincidental :P
You've already demonstrated that you're incapable of putting away a little each month for Chistmas spending you know is coming. Don't know how we can take your opinion seriously after that. :P
Quote from: Martinus on July 06, 2012, 08:00:53 AM
Quote from: Syt on July 06, 2012, 07:53:46 AM
Quote from: Sheilbh on July 06, 2012, 07:45:32 AM
Quote from: Tamas on July 06, 2012, 07:36:48 AM
After learning that not only in Portugal there is legal obligation to pay a month-worth sum of bonus money at the start of summer, and before Christmas to all employees,
That's quite common in continental Europe. It exists in Austria for example.
:yes:
You also get tax breaks on the extra salaries.
That's as stupid as, e.g. giving bankers tax breaks on their bonuses.
They've reduced/removed the tax breaks for high earners in the latest tax package. Also, only 2x your normal monthly salary has tax breaks on them. E.g., in my old company, I would get the "normal" two payments (colloquially called vacation money and christmas money), and an additional month's worth from the company as corporate bonus. The first two (corp bonus, vacation money) had tax breaks on them, the last payment of these (christmas) would be fully taxed.
Quote from: Sheilbh on July 06, 2012, 07:45:32 AM
Quote from: Tamas on July 06, 2012, 07:36:48 AM
After learning that not only in Portugal there is legal obligation to pay a month-worth sum of bonus money at the start of summer, and before Christmas to all employees, but also their constitutional court just decided that removing this was unconstitutional, I have come to fully support Germany in not being willing to accept run-away euro inflation to save these regimes.
That's quite common in continental Europe. It exists in Austria for example. Though I think most countries prefer a 13th month of salary - that's in Switzerland, Belgium and others. My company helped work these out for expats and it just changes salary calculations so you divide a salary by 14 rather than 12. It doesn't lead to someone being given a salary of, say £24k a year, with an extra £4k in Christmas and Summer payments. Rather they're given £24k across the year over 14 payments.
The Constitutional Court ruling in Portugal was because the government abolished it for public sector workers but not private sector workers. They held that that went against the principle of equality of treatment in Portuguese law.
Having said that the Portuguese government's generally been pretty respected by Germany and others for their austerity measures.
It's not exactly unheard of in Germany either. I get 69% of my monthly salary extra in May and 55% extra in November, so I get a total of 13,24 monthly salaries. It's part of the union collective bargaining though, not state law. In April, we get the voluntary bonus from the company, which can be very little or up to a monthly salary depending on economic success. Unlike Austria, I have to pay full tax on that though.
Quote from: Admiral Yi on July 06, 2012, 09:16:29 AMYou've already demonstrated that you're incapable of putting away a little each month for Chistmas spending you know is coming. Don't know how we can take your opinion seriously after that. :P
:lol: I've said repeatedly that I do. I just think this would be easier and give a bit of peace of mind. I'd still save more over the summer just in case.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fimages.zeit.de%2Fwirtschaft%2F2012-07%2Fmerkel-monti-2%2Fmerkel-monti-2-540x304.jpg&hash=fb43577d93593bb6463d6406175662df9d5f92a7)
Van Rompuy looks like he should be hiding behind a wall :lol:
Quote from: Syt on July 06, 2012, 10:18:44 AM
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fimages.zeit.de%2Fwirtschaft%2F2012-07%2Fmerkel-monti-2%2Fmerkel-monti-2-540x304.jpg&hash=fb43577d93593bb6463d6406175662df9d5f92a7)
a closeup of Van Rompuy.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fmorisset.files.wordpress.com%2F2009%2F06%2Fmenator.jpg&hash=eb4123b2c2a39e7b3f68ef51938457e87376237a)
Shaving the sideburns didn't help to make him unrecognisable...
Incidentally today wasn't a good day for the Eurozone. It looks like the Finns threatened to leave the Euro rather than bail anyone else out, but they've since walked that back. This story could be a worry too:
QuoteWill Europe Really Break the Spanish Sovereign-Banking Loop?
By Charles Forelle
The signal achievement of the European Union's much-heralded summit last week was an agreement to allow the euro zone's bailout fund to rescue Spanish banks directly.
Up to that moment, the bloc's method–in Greece, Ireland and Portugal–was to lend money to the troubled government and tell it to deal with its banks. That led to the dreaded sovereign-bank loop: weak banks dragging down weak sovereigns dragging down weak banks... The summit agreement was meant to cut it.
But some comments out today are calling into question just how cleanly that loop will be severed. Our colleague Matina Stevis reports on Dow Jones Newswires that a senior EU official said today the ultimate responsibility for the banks would actually fall with Spain, and not the European Stability Mechanism. Writes Matina:
Quote"I need to make clear what the ESM can do: the ESM is able–if one were to decide ever on such an instrument–to take an equity share in a bank. But only against full guarantee by the sovereign concerned," the official said. "What you have is that it cuts out the effect of that loan on the debt-to-GDP ratio of the sovereign. Does it still remain the risk of the sovereign or [does it go to] the ESM? It remains the risk of the sovereign."
Those comments undermine the euro zone's statement last week that it would . The statement said:
QuoteWe affirm that it is imperative to break the vicious circle between banks and sovereigns. .... When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly.
The statement said nothing about Spain's guaranteeing the ESM's recapitalization. We'll see how this develops, but it is an essential point.
Many in financial markets have assumed the ESM would recapitalize banks on its own–by giving them cash or high-quality bonds in return for equity stakes (or some sort of hybrid instrument, like contingent-convertible notes) in the banks. That way, the whole of the euro zone, and not just Spain, would bear the risk of the banks' rescue.
Indeed, this mutualization of responsibility has been viewed as an early step on the path to the broader risk-sharing inside the currency union that, many observers believe, is vital for its survival.
But what the senior official describes is less of a bold step and more of an exercise in accounting footwork. Yes, structuring the aid as a direct recapitalization does avoid the need for Spain to incur an actual liability to the bailout fund (and pay interest on its borrowing), but requiring that Spain indemnify the fund against losses just saddles the country with a contingent liability instead of an actual one.
Follow @charlesforelle on Twitter.
I suspect the Portuguese thing goes something like this: the government is in essence trying to levy a new tax on those months, rather than cutting their wages directly for some reason or another. Since that tax is only for public workers, the Court struck it down.
Quote from: Wolfgang Münchau@ft
Eurozone crisis will last for 20 years
I always wondered who buys risky assets after one of these "historic" statements from the European Council. Sometimes the rally lasts for hours. Other times it lasts for days. The last one ended after less than a week; Italian and Spanish spreads are now above pre-summit levels.
The consensus among observers had been that the EU had taken an important step in the right direction by agreeing a pathway towards a banking union, but that they did not do enough on crisis resolution. I disagree with that statement. I think it was a very large step – in the wrong direction. The summit made a concrete crisis resolution decision contingent on a future decision, which will be even harder to reach, and thus even more likely to fail.
They agreed that there shall be no common bank recapitalisation until a full banking union is established. And the Bundesbank has reminded us that the latter is not possible without a political union. The logical implication is that we won't solve the crisis for the next 20 years.
What we know now is that Germany will not agree to mutualised deposit insurance. It cannot even agree to give the European Stability Mechanism a banking licence so that it can leverage itself. If Germany cannot do the minimum necessary now, why should anybody think it can agree a political union? This is less credible than the promise by an alcoholic to give up drinking in five years.
The politics of the euro rescue has crossed an important threshold in Germany. A narrow majority is still in favour of the euro, but a majority is against further rescues. A group of 160 economists, led by Hans-Werner Sinn, president of the Ifo economics institute, last week published a manifesto against a banking union. It was full of sound and fury, but the importance of this document is that it reflects a consensus view.
Angela Merkel's answer was revealing. She told them that there is nothing to worry about. The banking union was about joint supervision, she said. There will be no joint deposit insurance. She has a very different understanding of a banking union than the European Central Bank. At most, I expect this new banking union to cover the 25 largest banks, and leave those cajas and Landesbanken in national control. This is like an alcoholic who promises to drink only the better cognacs from now on.
The banking union that is required is the one Germany will not accept: central regulation and supervision, a common restructuring fund and common deposit insurance. It would take years to create. If done properly, it would require a change of national constitutions and European treaties, if only to redefine the role of the ECB. It is sheer madness to make crisis resolution contingent on the success of what would be the biggest European integration exercise in history.
With interest rates on 10-year government bonds over 6 per cent, neither Italy nor Spain can sustain their membership in the eurozone. This is what Mario Monti and Mariano Rajoy should have made clear to Angela Merkel at the summit. They should have told her that their governments would make preparations for a withdrawal from the eurozone if there was no change in policy. A resolution requires either a eurozone bond – or some other form of debt mutualisation –in both the public and private sectors, and ECB bond purchases. Germany does not accept the former. The ECB does not accept the latter.
If something is neither sustainable nor self-correcting, there are only two courses of action left. The first is to wait patiently until the situation breaks down. This is the strategy pursued by the European Council – and by alcoholics. The alternative is to start making preparations – and be careful not to trigger a breakdown in the process. It is hard to envisage an exit without breaching hundreds of national and European laws. This is why nobody is doing it. One would have to use a force majeure defence. One cannot prepare for such an event. It took a decade to create the euro. It will take more than a long weekend to undo it. A collapse would constitute the biggest economic shock of our age. But among a list of bad breakup choices, some are a better than others. I will write about these in a future column.
Back in November, I wrote that the European Council had ten days to save the euro. If they had laid the groundwork for a banking and a fiscal union back then, they might now be in a position to agree an effective crisis resolution strategy – consisting of bank recapitalisation and bond purchases. They did not do it then. And they are not in a position to solve the crisis now.
The message I took away from the summit is that the eurozone will not resolve the crisis. In that sense, it was indeed a "historic" meeting.
Quote from: Tamas on July 06, 2012, 09:15:56 AM
paternalism means, in both theory and practice, that citizens are -to a degree- children of the state.
That might be practical, but eventually a block for further cultural development. Just like it was pretty practical to have the Church install a yoke on the barbaric savages of the dark ages, but became quite the limiting factor for further development.
This can be largely mitigated by what is called "soft paternalism", though.
Spanish 10-year is at 7.08% right now.
France has joined the club of negative borrowing costs.
Quote from: Iormlund on July 09, 2012, 04:57:10 PM
France has joined the club of negative borrowing costs.
Flanby
über alles! :w00t:
Krugman taken to woodshed by Pedro Schwartz:
http://www.youtube.com/watch?v=EX55BH97quk&feature=player_embedded (http://www.youtube.com/watch?v=EX55BH97quk&feature=player_embedded)
Quote from: citizen k on July 09, 2012, 10:38:46 PM
Krugman taken to woodshed by Pedro Schwartz:
http://www.youtube.com/watch?v=EX55BH97quk&feature=player_embedded (http://www.youtube.com/watch?v=EX55BH97quk&feature=player_embedded)
the following is from someone I know who was there
Quote from: Brecht Arnaert
Madrid, 4th of July 2012. Question for Mr. Paul Krugman: "You seem to focus on the question what macro-economic policy we need to get out of the crisis, but you do not adress the more fundamental question what policies have lead us here. If you would do so, I think you would have to conclude that it was Keynesian policies - creating inflation to combat unemployment - who got us in this mess in the first place. Why do you think the measures you propose will have a different effect this time?
Nervous answer: "All data point in that direction".
My reply: "But surely, Mr. Krugman, you must know that the way in which data is validated as evidence is subject to a certain methodological theory too. I am sure you are familiar with the critique of the Austrian School of Economics, which claims that the cardinal data required for Keynesian equilibrium calculus can only be generated in a free market, in which only ordinal valuations take place, rendering the whole theory of aggregate demand as a tool of government intervention and central planning useless. How do you defend your methodological assumptions about economic reality?"
Annoyed answer: "Excuse me. I promised to be home for dinner".
Paul Krugman, Nobel Prize Winner 2008
Re Krugman - I'm not going to slog through a two hour video.
But the Q&A cited by Ivan does not impress.
The first question is based entirely on false premises. Neither fiscal deficits nor inflation caused the present mess - fiscal deficits have been a symptom not a cause, and inflation has been notoriously non-existent. I very much doubt that Krugman's response to that question was "nervous" unless the delivery (alongside the content) caused him to be concerned about the questioner's sanity.
The second question, though phrased as a critique of "Keynsian equilibrium calculus," actually is a critique that has nothing to do with Keynes or Keynsianism. The questioner appears to have read old writings in the Austrian school criticising the British marginalists (especially Alfred Marshall) and Walras for their reliance on axioms of cardinal utility. This has nothing to do Keynes - the General Theory doesn't rely on any formal utility model at all, and the mainstream adaptations of Keynsianism to develop equilibrium models are all based (like their neo-classical counterparts) on ordinally-based axioms of preferences. In short, the question suggests that the person asking is either a quack or someone who autodidactially read some articles on mises.org without really understanding them. Either way, Krugman's response would be appropriate.
Quote from: The Minsky Moment on July 10, 2012, 06:11:11 PM
Neither fiscal deficits nor inflation caused the present mess - fiscal deficits have been a symptom not a cause
What in the world are you talking about?
Quote from: Admiral Yi on July 10, 2012, 06:38:19 PM
Quote from: The Minsky Moment on July 10, 2012, 06:11:11 PM
Neither fiscal deficits nor inflation caused the present mess - fiscal deficits have been a symptom not a cause
What in the world are you talking about?
What I assume the questioner was asking about - the European economic crisis, c. 2008 - present.
Quote from: The Minsky Moment on July 10, 2012, 06:39:40 PM
What I assume the questioner was asking about - the European economic crisis, c. 2008 - present.
Ho ho.
So fiscal deficits are not the cause of rising sovereign yields? Was that, as rumored, a Jewish conspiracy?
Quote from: Admiral Yi on July 10, 2012, 06:42:31 PM
So fiscal deficits are not the cause of rising sovereign yields?
Was the European economic crisis cause by rising yields on sovereign debt?
Or are rising sovereign debt yields one of the adverse impacts of the European economic crisis?
Quote from: The Minsky Moment on July 10, 2012, 06:50:16 PM
Was the European economic crisis cause by rising yields on sovereign debt?
There was no crisis when Greece was paying 12 bps over Bundt cakes.
Quote from: Admiral Yi on July 10, 2012, 06:52:17 PM
There was no crisis when Greece was paying 12 bps over Bundt cakes.
And?
Is the theory that Greek government debt levels caused the collapse of the real economy of the entire Eurozone? Because that would be backwards.
Greece in itself is a non-issue. The EU could have assumed the entire stock of Greek public debt at any time without breaking a sweat.
No Greece started a wave of skepticism in the debt market that caused higher levels of investor scrutiny on previously ignored problems, which caused higher bond yields for others as well. Which then caused greater weakness in the balance sheets due to higher debt service costs.
It's not particularly Greece's fault. They're just a catalyst. The problem was the underlying debt all along. It's a question of potential energy waiting to be unleashed. When I say underlying debt I mean everyone's. Banks, consumers and especially sovereigns since that's who winds up holding the bag in the end.
Quote from: The Minsky Moment on July 10, 2012, 06:11:11 PM
Re Krugman - I'm not going to slog through a two hour video.
At around 39:00, the Spanish professor addresses the demand-side description of the world
Krugman's less-than-happy response (which sparks quite a rowdy argument) begins around 48:20
Quote from: The Minsky Moment on July 10, 2012, 07:13:29 PM
And?
Is the theory that Greek government debt levels caused the collapse of the real economy of the entire Eurozone? Because that would be backwards.
Greece in itself is a non-issue. The EU could have assumed the entire stock of Greek public debt at any time without breaking a sweat.
The theory is that the bond market woke up one morning, realized that PIIG debt levels were unsustainable, and started demanding substantial risk premia. The PIIGs responded by cutting deficits, which is tautologically contractionary.
Quote from: Admiral Yi
The theory is that the bond market woke up one morning, realized that PIIG debt levels were unsustainable, and started demanding substantial risk premia. The PIIGs responded by cutting deficits, which is tautologically contractionary.
Nah, not really. That wasn't the problem, and Germany knows that.
Very short version of the problem:
- The current economic system requires ever-increasing amounts of debt to keep going;
- Banks eventually had to lend to people they shouldn't, and also developed financial instruments that were quite risky.
- The burst of the housing bubble in the US put an end to all this.
- The increase of bad loans eventually turned the tables on the banks, which started to incur huge losses; their capital ratios were wiped out repeately;
- Banks thus became unable to fufill their role and stopped lending to anything but the safest options; Whithout aid, most ever effectively dead in the water.
- The US had to do a 1st bailout after the collapse of Lehman shown that the financial system is so interconnected that it cannot survive the shock of so many institutions failing;
- As a result, governments in the West now have to hand out large sums to the banks, while at the same time facing increasing costs due to unemployment, facing reduced revenues, etc. the US deficit explodes and has no chance to be reduced, despite the politicians' claims.
- Central Banks have no option but to create money to give to the banks, whilst at the same time keep their lending rates low, so as to allow banks to (far too slowly) recapitalize themselves, by borrowing at very low rates and loaning at higher rates (often investing in sovereign bonds). The Banks are now zombies.
- This made investors abandon countries with weaker finances (starting with Greece, who was lying about their deficit for a long time). Effectively these became incapable of financing themselves and have no chance of escaping bankruptcy.
- Their bankruptcy, thanks to the 'miracle' of the multiplication of money made possible by the derivative markets, would also bankrupt the vast majority of European banks (those that are not already effectively busted, that is). That would destroy the european economy, and THAT would crush the US one in just a few days should it happen. Which would bring down the current economic system.
- Bottom line, the money that banks will need to survive exceeds by an awful lot the GDP of the entire planet, so governments can't just handle this like they would a normal crisis.
- Realising this, and knowing it would have to pay dearly just to try to keep things afloat (as the odds of success were never really over 50%, as Berlin effectively does not have the financial capability to do everything that would be demanded of it) Germany decided the best way to go is to push forward with european integration, not only because a single currency without a common government doesn't truly work, but also because this is an unparallelled chance to end up with the corruption and cronysm that were always so rampant in Southern Europe. Trying to get some good out of an incredibly bad situation, really.
- So, coupled with several bailouts that cost hundreds of billions, Germany is also pushing for an unprecedented integration, while asking fror cuts in southern europe that should allow these countries to actually be competitive should this crisis be defeated - it's the region's chance to get rid of excess fat.
- This is recessive and hurts those countries, but the reality is that the reverse option (as defended by Dr. Krugman) would make the deficits of those countries explode beyond all proportion, shutting them out of the markets. The ECB would have to intervene, and what effectively guarantees the ECB is the German taxpayer. The level of debt needed to stave off collapse (like the Fed is doing in the US) would eventually make people realise that it is more money than Germany can possibly have within a lifetime. Eventually, ALL european states would be shut out of the markets, a catastrophe that not even the IMF, World Bank or the US could avoid.
- Also, this increase in debt and avoidance of austerity is not sustaineable even by America; while the Fed can do more QE for some time - as the US does not have the same restrictions Europe has - eventually the debt would bring the economic system crashing down.
(although in this case, the european collapse will probably cause that, so future americans will blame Europe for what happened, when in fact the original cause was the american banks and the american-sponsored economic system. This was what made the President of the EC so angry last time the US tried to lecture Europe on the crisis, reminding them that all this started in North America, not Europe)
Quote from: Martim Silva on July 11, 2012, 07:26:44 AM
Very short version of the problem:
:lol:
Quote(although in this case, the european collapse will probably cause that, so future americans will blame Europe for what happened, when in fact the original cause was the american banks and the american-sponsored economic system.
:lol:
Quote from: Martim Silva on July 11, 2012, 07:26:44 AM...Germany decided the best way to go is to push forward with european integration, ... because this is an unparallelled chance to end up with the corruption and cronysm that were always so rampant in Southern Europe.
Yeah, that's why they were so intent on a Samaras victory. To get rid of corruption and cronyism in Greece. :lol:
Quote from: MadImmortalMan on July 10, 2012, 08:40:13 PM
No Greece started a wave of skepticism in the debt market that caused higher levels of investor scrutiny on previously ignored problems, which caused higher bond yields for others as well. Which then caused greater weakness in the balance sheets due to higher debt service costs.
But this account flies completely in the face of the facts. The economic crisis commenced in 2008 - in that year GDP plummeted across the Eurozone. But as of New Year's Day 2009, Greek bond yields were barely over 5 percent and Greek bonds still carried the same A rating they had since 2004. In fact Greek bond yields actually
fell below during the latter half of 2009, and did not commence their veritginous rise until around 10/09.
Here's another way to look at the issue - let's start with the situation in 2008, just as the crisis gets under way. Here are the Total Government net Debt/GDP ratios for 5 selected European countries:
Country A - 61%
Country B - 58%
Country C- 50%
Country D- 30%
Country E- 23%
Country A is Portugal, Country B is France, C is Germany, D is Spain, E is Ireland. Basically there is zero correlation between pre-crisis fiscal position and what would happen in the financial crisis.
What about Italy? Italy's debt/GDP was high (89%) but Italy was already running the austerity playbook and running primary fiscal surpluses.
What about Greece? Greece's debt/GDP was over 100% but that was no different than what it had been back in 2001/2002. Greece was always Greece but that played zero triggering role in the crisis.
This is not a matter for argument or equivocation. The facts are unambiguous. Fiscal deficits and government debt levels did not cause the European economic crisis - the causal arrow goes 180 degrees in the other direction. The sharp decline in the real economy drove down tax receipts and forced governments to incur massive debt to bail out their private sector banking systems. That's what drove up debt levels, particularly in Ireland, Spain and Portugal, but clearly also Greece, Italy and the rest of the Eurozone.
To say that government spending and debt caused the crisis is economic flat earthism.
Private sector spending and debt levels (particularly over-extension in the financial sector) caused the crisis.
Quote from: Admiral YiThe theory is that the bond market woke up one morning, realized that PIIG debt levels were unsustainable, and started demanding substantial risk premia. The PIIGs responded by cutting deficits, which is tautologically contractionary.
yes, sure that happened, but that was two years into the process.
Quote from: citizen k on July 10, 2012, 10:18:29 PM
At around 39:00, the Spanish professor addresses the demand-side description of the world
He makes the following points
1. Krugman focuses on short run economic growth not long run.
Response: Krugman is focusing on the short run because there is an immediate crisis. This is like saying that when the Fukushima crisis occurred, Japan should have delayed releasing the sea water into the plant until the legislature passed a full-scale nuclear regulatory reform law to deal with long-run implications. It also creates a false conflict between short and economic growth. Economic growth is compound - if a country reduces its growth rate in the short run, it reduces the economic base on which to grow in the long run. Iis like stopping running on a treadmill while increasing the speed.
2. "Aggregate demand expansion got us here"
If one is talking about aggregate demand expansion in the Krugman/Keynes fiscalist sense that is obviously false. In fact, Schwartz is talking about the effects of monetary policy on demand, not fiscal policy. Looking on a Euro-wide basis, the point is still wrong because on average pre-crisis, the ECB took a moderate restrictionist policy stance. Where Schwartz is correct is that ECB rates were nonetheless arguably too low for Spain and thus contributed to the local private sectors bubbles in real estate and finance. But that is not product of deliberate policies to boost demand a la Krugman, rather it was an artifact of Spain's membership in the Euro and its one size fits all monetary policy.
3. "Saving is good - not some sort of mistake"
Keynes never argues that savings is a mistake - this is a serious misreading of the General Theory. Keynes' key point is that investment drives savings (by increasing income), not the other way around and that if everyone attempts to increase their savings of economy-wide, it may have the preverse effect of reducing the stock of savings.
Imagine 2 countries: Country A has per capital income of 1000 and consumption of 500; Country B has per capital income of 5000 and consumption of 4000. Country A has much higher savings rates but Country B has a much higher stock of savings.
4. Aggregate demand expansion only works in the short run
True. It's only designed for the short run (which was why retaining the Bush tax cuts after 03 was a bad idea). See point 1 above.
5. Public works investment failed in Japan
This is a common misconception. Japan increased public works spending significantly from 1993 to 2000. By the end of the period, debt/GDP levels were still a managable 60%. But after 2000, Japan actually cut public works and total governement expenditures, particularly during the "reformist" ministries of Koizumi who opposed the demand pumpting strategy. From 2000-2004, while this strategy was in effect, real GDP declined continuously. By 2008, government spending was still 5% below the 2000 peak, but real GDP had not budged since that time, and despite the reduced level of spending, debt levels had increased to over 90% of GDP due to a massive collapse in tax revenue. Ironically, given Schwartz's intended point, the Japanese experience in 2000-2008 is a pretty good illustration of the pitfalls of using state spending cuts to bring down public debt levels.
6. Spain got screwed trying to run deficits
That is actually pretty true, but the reason is that Spain is effectively in a hard money monetary system and thus its state budget is subject to relatively strict constraints. No question the policy-driven demand expansion will not work well outside a fiat money system.
QuoteKrugman's less-than-happy response (which sparks quite a rowdy argument) begins around 48:20
I don't know what Krugman was talkign about re credentials - I didn't hear anything from Schwartz about it.
His subsequent comment about the "natural experiment" is a correct analysis of the data. Anti-keynsians in the US predicted that the stimulus program would cause interest rates to spike, and some hard monetarists predicted inflation. The facts turned out quite to the contrary.
Quote from: Iormlund
Yeah, that's why they were so intent on a Samaras victory. To get rid of corruption and cronyism in Greece. :lol:
Samaras is hardly popular in Berlin. No Greek politician is; everybody is pissed at the fact that Athens did not do anything of what they promised (not even the reduction of civil servants; they secretly hired more to replace those that left, against all promises).
It's just that the alternative would by a SYRIZA win (with a probable alliance with the KKE), and that prospect terrifies politicians: they all fear a regime change that will jeopardize their priviledges.
Also, the troika is annoyed at some of the efforts made to reduce deficits, as they fall more on 'tax the people' than in 'cutting inefficient and corrupt organisms'.
Portugal, for example, is now required to report in August because the government is planning (AGAIN) to massively raise the taxes on the middle class (which will kill off consumption), instead of abolising the public institutes (we have 14,500, of which only 1,700 present their accounts; the rest just serves to pay huge wages to their highborn 'collaborators').
It is also asked why does the government does not renegotiate its 'Public-Private Partnerships' (PPPs), which cost the budget 15 billion euro per year (without those highborn-run 'partnerships', where all profits go to the private managers and all losses are taken by the State, Portugal would have a budget surplus and would easily pay off the bailout without any taxes on the poor. BUT those partnerships are ran by MPs and their families, so the Government doesn't touch them....)
Joan: so you're saying if there had been no global downturn in 2008 lenders would have been happy to roll over Greek debt at 3% until the end of time?
Your narrative also doesn't fit my recollection of events as regards bank recapitalization. Of course Irish banks went belly up and got nationalized (foolishly IMO) before yields started to rise in other countries. But I'm unaware of any other bank recapitalizations that took place before the exit from Greek bonds.
Quote from: Admiral Yi on July 11, 2012, 02:55:18 PM
Joan: so you're saying if there had been no global downturn in 2008 lenders would have been happy to roll over Greek debt at 3% until the end of time?
Your narrative also doesn't fit my recollection of events as regards bank recapitalization. Of course Irish banks went belly up and got nationalized (foolishly IMO) before yields started to rise in other countries. But I'm unaware of any other bank recapitalizations that took place before the exit from Greek bonds.
Germany recapitalized some of its biggest banks in 2008/2009 (roughly at the same time as Ireland). I am pretty sure that happened in other countries as well (Netherlands, Belgium etc.).
Also Ireland didn't just bailout their banks. They guaranteed all of their banks' creditors. Madness, but at the time described 'as the cheapest bailout' ever.
Spain decided to wait the crisis out rather than bailout its banks in 2008. Turns out that was a big mistake. Portugal is also bailing them out now. And then there's France, Belgium, Germany, Austria ...
Ireland is certainly not alone when it comes to banking troubles.
Quote from: Admiral Yi on July 11, 2012, 02:55:18 PM
Joan: so you're saying if there had been no global downturn in 2008 lenders would have been happy to roll over Greek debt at 3% until the end of time?
I can't answer a pure counterfactual. What I do know is that Greece's lenders were perfectly happy to roll over Greek debt for 10 years at minimal spreads over Bunds. Absent the downturn, I can't think of any particular reason why that wouldn't have continued.
QuoteYour narrative also doesn't fit my recollection of events as regards bank recapitalization. Of course Irish banks went belly up and got nationalized (foolishly IMO) before yields started to rise in other countries. But I'm unaware of any other bank recapitalizations that took place before the exit from Greek bonds.
Germany and Spain were exposed because of the state's effective responsibility for the liabilities of quasi-public institutions like the Landesbanken and IKB in Germany and the cajas in Spain. In both cases the exposure of the central government was obscured by the fact that regional governments took the immediate hit. Most Eurozone countries also conducted "stealth" recaps in the sense that expanded deposit guarantee schemes and asset purchase programs were used to bolster bank stability but at the cost of taking on significant liability exposure which did not take long to materialize. The recaps that Spain is doing now is just the other shoe dropping.
Do you have some stats to back up your argument, something that shows the share of deficits going to bank recapitalizations perhaps?
And tell me how you reconcile this story with your "Germany could have fixed everything with a Greek bazooka to end contagion" argument.
And a quick side question Joan: why don't companies auction their bonds like Treasury, instead of paying an underwriting fee?
Quote from: The Minsky Moment on July 11, 2012, 09:05:03 AMThe economic crisis commenced in 2008
That crisis is over.
It's not operative to talk about it as the current one. It caused a lot of problems and got us where we are, but the current crisis is a sovereign debt one. We've nationalized the 2008 bubble and now we're stuck with too much debt. Even more than we were before. That's the current issue. Not 2008.
Quote from: MadImmortalMan on July 11, 2012, 06:25:55 PM
Quote from: The Minsky Moment on July 11, 2012, 09:05:03 AMThe economic crisis commenced in 2008
That crisis is over.
It's not operative to talk about it as the current one. It caused a lot of problems and got us where we are, but the current crisis is a sovereign debt one. We've nationalized the 2008 bubble and now we're stuck with too much debt. Even more than we were before. That's the current issue. Not 2008.
Same crisis, different spot it's raging in other words.
Quote from: MadImmortalMan on July 11, 2012, 06:25:55 PM
That crisis is over.
GDP has not come back to pre-crisis levels, and employment remains way off.
So not only is the crisis not over, but what is being seen as a fiscal problem is actually just a side effect of the 08 crisis.
It is tautological that the sum total of net household savings plus net business savings (retained income - investment) plus government savings (negative of the deficit) plus the current account must sum to zero. This crisis was and remains one of recovery from an investment and consumption bubble and is worldwide. Its resolution required (and still requires) the private sector to reduce their debt exposure. Since every nation cannot run a current account surplus, that means government had to increase indebtedness to give the private sector room to liquidate.
Government deficits are the inevitable and unavoidable by-product of the recovery process.
I think we should just let the private sector run up its own debt to make room for their deleveraging. I don't think that government should be involved in this, individuals know much better how much they need to borrow to deleverage.
Quote from: DGuller on July 12, 2012, 08:38:15 AM
I think we should just let the private sector run up its own debt to make room for their deleveraging. I don't think that government should be involved in this, individuals know much better how much they need to borrow to deleverage.
The private sector, at least here, cannot provide that stimulus. There's no financing to be had, and those few with access to it, don't want it. They'd rather pay down debt or save for a rainy day (outside Spain if possible).
Quote from: Admiral Yi on July 11, 2012, 06:03:23 PM
Do you have some stats to back up your argument, something that shows the share of deficits going to bank recapitalizations perhaps?
The easiest example is Ireland, because they were the most transparent about assuming private bank liabilities without subterfuge.
But Spain - which is the pivotal country in the Eurozone - is a useful example here.
First, on the revenue side, both direct tax receipts and total revenue fell about 5 percent since 2008. That includes a year-on-year decline from 2010 to 2011, indicating the real economic impacts are still working there way through to the fiscal side.
Second, in 2008, the central government comitted 200 billion Euro to guarantee the liabilities of the banking sector, and another 50 billion to purchase distressed assets. The guarantee did not involve the actual expenditure of cash at the time, but it did leave the state on the hook. What has happened in the last 6 months is that bill came due - because of the losses in the real economy, Spanish banks are not viable without recapitalization - and the estimates I have seen are that the amount required will ultimately be . . . 200 billion Euro. The initial bailout plan proposals all provided that recap funds were to be funneled through the treasury, which would have the effect of adding about 20 percent to Spain's debt/GDP levels overnight. That prospect has been a key driver of Spanish bond yields, and the failure to specify a clear path to direct recapitalization from a European fund explains why the recent deal and austerity commitments have had little effect on yields.
QuoteAnd tell me how you reconcile this story with your "Germany could have fixed everything with a Greek bazooka to end contagion" argument.
Nobody could have fixed anything, there is no fix. There is only the option to staunch the flow of blood so the patient can heal.
Right now, even though the crisis first manifested in Europe, the US is now about 2 years ahead of Europe in terms of resolving the damage to the financial system. The Geithner/Paulsen bazooka gave the banks cover to recapitalize, with the assistance and further accomodation of the Fed. The US coupled that carrot with the stick of hard "stress test" to set targeted capital levels.
The US did all this before mid-year 09. Most of Europe, OTOH just fiddled during this time period -- credible stress tests were not performed until July 2011, and the EU is not now cobbling together its own bazooka - asssembling it in the field with spare parts. The consequence is as the new Basel standards worked their way through committee, the Eurozone banks were exposed as badly under-capitalized.
A big reason why peripheral bonds yields have been rising is because the markets are pricing in the risk that governments will have to absorb the cost of recapitalization in one form or another. Even now, the Spanish debt/GDP ratio is only 68 percent. That in itself should not cause panic. What is causing panic, however, is that if Spanish contigent liaibilities to the ECB and under the bailout process are included, the ratio balloons quickly to over 100 percent.
QuoteAnd a quick side question Joan: why don't companies auction their bonds like Treasury, instead of paying an underwriting fee?
A lot of companies issue in private placements although they still typically pay a fee to a placement agent. Direct sales are not unknown, but less common. The reason is that if a company wants to reach a broad investor base, they usually need to access to investment bankers relationships with big securities buyers. Because of the central position of Treasury securities, the US government doesn't have that problem - they just need to put up a sign and the investors come to it.
Quote from: Iormlund on July 12, 2012, 08:54:01 AM
The private sector, at least here, cannot provide that stimulus. There's no financing to be had, and those few with access to it, don't want it. They'd rather pay down debt or save for a rainy day (outside Spain if possible).
Taking Basel 3 as a proxy for amount of deleveraging that is required to bring the financial sector back into balance, that sector probably needs to increase net savings by at least a half a trillion dollars over the next 5 years or so.
I assume that most would agree that it would not be a good idea for private US and European households to increase their net indebtedness to ease this adjustment by boosting consumption.
Non-financial business enterprises could in theory bridge the gap by radically increasing investment, but that is very unlikely in present circumstances.
China has its own over-leveraging problems it is working out and Japan obviously is in no position to be a source of strength to the world economy.
Thus, the alternative to net government dis-savings is and still remains a deflationary spiral or at a minimum a partial collapse of the international banking system
The anti-keynsian position to square this circle is that austerity will have such a massive positive boost to business confidence, that non-financial enterprises will turn on the dime and ramp up investment in response.
If you believe that, there is this bridge in Brooklyn, really nice bargain, special price this week only . . .
Joan: you've repeated the savings and investment accounting identity many times. The part you fail to address is what to do if governments' need to deleverage is as great or greater than the private sector. Governments don't have infinite capacity to supply investment opportunities to households and businesses.
Quote from: The Minsky Moment on July 12, 2012, 08:30:24 AMSince every nation cannot run a current account surplus,
Why not?
Quote from: MadImmortalMan on July 12, 2012, 11:27:18 AM
Why not?
Because for every surplus there has to be an offsetting deficit.
Quote from: MadImmortalMan on July 12, 2012, 11:27:18 AM
Quote from: The Minsky Moment on July 12, 2012, 08:30:24 AMSince every nation cannot run a current account surplus,
Why not?
Because current account balances equal out to zero. It is the net balance between exports and imports. If one country exports more than it imports, by definition another country must import more than it exports.
Oh, I thought he meant the state fiscal accounts. I don't see what the trade balance has to do with it.
Quote from: MadImmortalMan on July 12, 2012, 11:37:14 AM
Oh, I thought he meant the state fiscal accounts. I don't see what the trade balance has to do with it.
It has to with external accounts because a current account surplus means a capital account deficit--savings moving out of your country to be invested somewhere else. It's just a fancy-schmantzy Jew way of saying all countries can't dump their saving overseas at the same time.
Quote from: Iormlund on July 12, 2012, 08:54:01 AM
Quote from: DGuller on July 12, 2012, 08:38:15 AM
I think we should just let the private sector run up its own debt to make room for their deleveraging. I don't think that government should be involved in this, individuals know much better how much they need to borrow to deleverage.
The private sector, at least here, cannot provide that stimulus. There's no financing to be had, and those few with access to it, don't want it. They'd rather pay down debt or save for a rainy day (outside Spain if possible).
Why do people always think I'm being serious when I say patently stupid things? :(
Quote
Five Things I've Learned On The Ground In Portugal
by Simon Black
Portugal is a country that I've always enjoyed, full of warm, welcoming people, excellent wine, and great weather.
I came to Porto, the country's second largest city of some 1.5 million, to get a sense of what's been happening since the eurocalypse.
1. Capitulation of hope
Excluding the city's still-bustling tourist areas, it's very quiet around the city.
Street-level retail shops and restaurants are either devoid of customers or have been vacated. On many blocks I've seen more "for lease" signs than operating businesses.
Officially, the unemployment rate is 15.2% in Portugal, and the economy will contract 3% this year... yet the clear lack of economic activity suggests the real figures are much greater.
Without doubt, reality has set in. Locals have capitulated 'hope' that the good times will magically re-appear and have adjusted their habits accordingly.
2. Austerity: too little, too late
For the last several years, national government spending has contributed nearly 40% of Portugal's GDP. In Europe, this has only been bested by (you guessed it) Greece and Ireland.
Including local and provincial governments, in fact, total government expenditure here surpasses 50% of GDP. It's insane.
Under the terms of their bail-out last year, they've been forced to cut back. Sort of.
The government recently tried reforming public worker benefits, for example. But Portugal's Constitutional Court overturned the move, ruling that cutting public workers' Christmas bonuses and generous paid holidays is unconstitutional.
They've also made attempts at overhauling the broken pension system. But then the president himself, Mr. Anibal Cavaco Silva, began complaining about his own pension being trimmed.
You really can't make this stuff up.
All the national and local governments have really been able to do is cut small, rounding-error line items from the budget... landscaping, trash collection, things like that.
You can see the results on the streets– the grass is growing knee-high in public areas away from Porto's main tourist spots.
But none of this is going to make a dent in the budget. 'Austerity' here is truly meaningless, and these guys are going to slide right back into insolvency. I'd expect Portugal's 10-year yield (currently 10.3%) to rise.
3. Absurdly cheap.
Portugal is now one of the cheapest civilized places in the world to live. As part of the contraction, both asset prices and many retail prices in Portugal have dropped substantially.
The middle/upper-middle class segments of the real estate market have gone no-bid, and investment property owners with mortgages to service are getting desperate.
To give you an idea, I'm renting a spacious 3-bedroom, 2000 square foot luxury apartment in a new(ish) development that was completed during the real estate boom a few years ago. It's costing me a whopping $60/night.
The complex is a ghost town. I've seen four human beings in as many days, and as I stand on the terrace surveying the other units, most of what I see is vacant.
Property owners I've spoken to say that they don't want to rent to locals under a long-term lease because the locals can't pay. And when they stop paying, the government makes eviction very difficult.
This makes their market of potential lessees quite small, hence cheap prices.
4. Gold businesses are doing well
All over town you can see these new 'cash for gold' type franchises being set up. It's crazy, you'll even see two or three of them on the same block across the street from one another. It's like Starbucks.
Many of them are doing brisk business as locals look to raise spare cash. And the businesses are only buying gold, not selling.
5. Lack of productive youth
There is a noticeable, disproportionate lack of young people between the ages of 15 to 35 or so.
It seems that much of Portugal's youth is heading to greener pastures, most notably to Brazil where they can easily obtain residency, find a job, and integrate into society... or to frontier markets like Angola (a former colony with a booming resource economy).
No doubt, people with skills and courage are getting the hell out.
Quote from: DGuller on July 12, 2012, 12:32:40 PM
Why do people always think I'm being serious when I say patently stupid things? :(
I think you know the answer, you just don't like it.
Quote from: Admiral Yi on July 12, 2012, 11:24:34 AM
Joan: you've repeated the savings and investment accounting identity many times. The part you fail to address is what to do if governments' need to deleverage is as great or greater than the private sector. Governments don't have infinite capacity to supply investment opportunities to households and businesses.
Governments of large states with fiat currencies have enormous capacity to supply investment opportunities to the private sector, especially if the private sectors is operating well below capacity. (see Abba Lerner's Functional Finance) The government can simply write a checks; the only constraints are the willingness to risk inflation and the political need to maintain appearances vis the Ron Pauls of the world. And where private resources are badly under-employed, the inflation risk is not significant.
the alternative is that if the government deleverages one of three things must happen: (1) either an investment boom magically materializes (unlikely but one can always hope) or (2) consumers launch a massive spending binge (unlikely and probably not desirable), or (3) the corporate or household sectors go into deficit either due to a collapse in income or profits (deflation). Not pleasant.
The problem that Europe has is that while the Eurozone as a whole has a fiat currency, it is not a coherent state, is subject to various artificial rules constraining monetary activities, and has no real Treasury funcion. The member states on the other hand control various economic policy levers and are coherent state actors, but in effect have hard currencies they can't control.
Quote from: citizen k on July 12, 2012, 01:45:30 PM
Quote from: DGuller on July 12, 2012, 12:32:40 PM
Why do people always think I'm being serious when I say patently stupid things? :(
I think you know the answer, you just don't like it.
Yeah. It's kind of depressing to accept that languish in aggregate prefers to think the worst of people :(
Quote from: The Minsky Moment on July 12, 2012, 02:01:24 PM
Quote from: Admiral Yi on July 12, 2012, 11:24:34 AM
Joan: you've repeated the savings and investment accounting identity many times. The part you fail to address is what to do if governments' need to deleverage is as great or greater than the private sector. Governments don't have infinite capacity to supply investment opportunities to households and businesses.
Governments of large states with fiat currencies have enormous capacity to supply investment opportunities to the private sector, especially if the private sectors is operating well below capacity. (see Abba Lerner's Functional Finance) The government can simply write a checks; the only constraints are the willingness to risk inflation and the political need to maintain appearances vis the Ron Pauls of the world. And where private resources are badly under-employed, the inflation risk is not significant.
the alternative is that if the government deleverages one of three things must happen: (1) either an investment boom magically materializes (unlikely but one can always hope) or (2) consumers launch a massive spending binge (unlikely and probably not desirable), or (3) the corporate or household sectors go into deficit either due to a collapse in income or profits (deflation). Not pleasant.
The problem that Europe has is that while the Eurozone as a whole has a fiat currency, it is not a coherent state, is subject to various artificial rules constraining monetary activities, and has no real Treasury funcion. The member states on the other hand control various economic policy levers and are coherent state actors, but in effect have hard currencies they can't control.
That's all true, but doesn't really answer the question of how to handle it in the case that the government deleveraging has to happen. You can't just approach it from the standpoint that it's not good. I mean, that's obvious.
An even more extreme example than Ireland is Slovenia, who are expected to need a bailout soon. Their debt to GDP is under 50%.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fa6.sphotos.ak.fbcdn.net%2Fhphotos-ak-ash4%2F319464_362785100456447_1970658385_n.jpg&hash=11bf193933718561c4a80c5183698c4008d40177)
Who will bail out Germany next year?
Why the ECB, of course.
With a bit of luck we'll see the guillotines in action first, though. Maybe when the Troika gets them to cut pensions at last ...
Quote from: MadImmortalMan on July 12, 2012, 06:02:12 PM
That's all true, but doesn't really answer the question of how to handle it in the case that the government deleveraging has to happen. You can't just approach it from the standpoint that it's not good. I mean, that's obvious.
In the European case, the answer is there: either break up the Euro or do what what was always supposed to happen - move to common economic governance and a joint fiscal and financial regime across the Eurozone. Ze Germans get bashed a lot, but to give credit to the Merkel government, it appears they get this. They problem is that for domestic political reasons and to handle the delicate relationship with France, they have moved too slowly under the circumstances.
Quote from: citizen k on July 12, 2012, 01:43:55 PM
Quote
Five Things I've Learned On The Ground In Portugal
by Simon Black
Portugal is a country that I've always enjoyed, full of warm, welcoming people, excellent wine, and great weather.
I came to Porto, the country's second largest city of some 1.5 million, to get a sense of what's been happening since the eurocalypse.
1. Capitulation of hope
Excluding the city's still-bustling tourist areas, it's very quiet around the city.
Street-level retail shops and restaurants are either devoid of customers or have been vacated. On many blocks I've seen more "for lease" signs than operating businesses.
Officially, the unemployment rate is 15.2% in Portugal, and the economy will contract 3% this year... yet the clear lack of economic activity suggests the real figures are much greater.
Without doubt, reality has set in. Locals have capitulated 'hope' that the good times will magically re-appear and have adjusted their habits accordingly.
2. Austerity: too little, too late
For the last several years, national government spending has contributed nearly 40% of Portugal's GDP. In Europe, this has only been bested by (you guessed it) Greece and Ireland.
Including local and provincial governments, in fact, total government expenditure here surpasses 50% of GDP. It's insane.
Under the terms of their bail-out last year, they've been forced to cut back. Sort of.
The government recently tried reforming public worker benefits, for example. But Portugal's Constitutional Court overturned the move, ruling that cutting public workers' Christmas bonuses and generous paid holidays is unconstitutional.
They've also made attempts at overhauling the broken pension system. But then the president himself, Mr. Anibal Cavaco Silva, began complaining about his own pension being trimmed.
You really can't make this stuff up.
All the national and local governments have really been able to do is cut small, rounding-error line items from the budget... landscaping, trash collection, things like that.
You can see the results on the streets– the grass is growing knee-high in public areas away from Porto's main tourist spots.
But none of this is going to make a dent in the budget. 'Austerity' here is truly meaningless, and these guys are going to slide right back into insolvency. I'd expect Portugal's 10-year yield (currently 10.3%) to rise.
3. Absurdly cheap.
Portugal is now one of the cheapest civilized places in the world to live. As part of the contraction, both asset prices and many retail prices in Portugal have dropped substantially.
The middle/upper-middle class segments of the real estate market have gone no-bid, and investment property owners with mortgages to service are getting desperate.
To give you an idea, I'm renting a spacious 3-bedroom, 2000 square foot luxury apartment in a new(ish) development that was completed during the real estate boom a few years ago. It's costing me a whopping $60/night.
The complex is a ghost town. I've seen four human beings in as many days, and as I stand on the terrace surveying the other units, most of what I see is vacant.
Property owners I've spoken to say that they don't want to rent to locals under a long-term lease because the locals can't pay. And when they stop paying, the government makes eviction very difficult.
This makes their market of potential lessees quite small, hence cheap prices.
4. Gold businesses are doing well
All over town you can see these new 'cash for gold' type franchises being set up. It's crazy, you'll even see two or three of them on the same block across the street from one another. It's like Starbucks.
Many of them are doing brisk business as locals look to raise spare cash. And the businesses are only buying gold, not selling.
5. Lack of productive youth
There is a noticeable, disproportionate lack of young people between the ages of 15 to 35 or so.
It seems that much of Portugal's youth is heading to greener pastures, most notably to Brazil where they can easily obtain residency, find a job, and integrate into society... or to frontier markets like Angola (a former colony with a booming resource economy).
No doubt, people with skills and courage are getting the hell out.
A lot of that reminds me of West Virginia, though hope was abandoned there decades ago.
Quote from: Jacob on July 12, 2012, 05:21:56 PM
Yeah. It's kind of depressing to accept that languish in aggregate prefers to think the worst of people :(
You're kinda guilty of that, you know.
Quote from: derspiess on July 13, 2012, 11:40:54 AM
Quote from: Jacob on July 12, 2012, 05:21:56 PM
Yeah. It's kind of depressing to accept that languish in aggregate prefers to think the worst of people :(
You're kinda guilty of that, you know.
Me? :hmm:
I'll cop to thinking the worst of a few specific people :blush:
Quote
In Shocking Development, ECB Demands Impairment For Senior Spanish Bondholders; Eurocrats Resist
In a landmark shift in its bank "impairment" stance, the WSJ reports that "in a sharp turnaround" the ECB has advocated the imposition of losses on senior bondholders at the most "damaged" Spanish savings banks, "though finance ministers have for now rejected the approach, according to people familiar with discussions." The WSJ continues: "The ECB's new position was made clear by its president, Mario Draghi, to a meeting of euro-zone finance ministers discussing a euro-zone rescue for Spain's struggling local lenders in Brussels the evening of July 9. It marks a contrast from the position the central bank adopted during the 2010 bailout of Irish banks--which, like Spain's, were victims of a property meltdown--when it prevailed in its insistence that senior bondholders in bailed-out banks shouldn't suffer losses." Needless to say, if indeed the fulcrum impairment security is no longer the Sub debt, but Senior debt, as the ECB suggests, it is only a matter of time before wholesale European bank liquidations commence as the ECB would only encourage this shift if it knew the level of asset impairment is far too great to be papered over by mere pooling of liabilities (think shared deposits, the creation of TBTF banks, and all those other gimmicks tried in 2010 when as a result of Caja failure we got such sterling example of financial viability as Bankia, which lasted all of 18 months). It also means the European crisis is likely about to take a big turn for the worse as suddenly bank failures become all too real. Why? Senior debt impairment means deposits are now at full risk of loss as even the main European bank admits there is no way banks will have enough assets to grow into their balance sheet.
Obviously, the ECB's 'revolutionary' suggestion will be met by harsh criticism at the FinMin level across Europe because if taken seriously it would mean the threat of wholesale bank runs. Sure enough, as the WSJ reports:
The ministers rejected the advice out of concern that financial markets would react badly to the decision. A draft of the rescue agreement, which will provide as much as EUR100 billion ($122.5 billion) for the Spanish banking system, requires Madrid to force losses only on shareholders and junior bondholders in banks receiving bailout money, and doesn't mention creditors higher up in the pecking order.
A spokesman for the European Commission, the EU's executive arm, said: "It is clear that senior bondholders won't be involved in burden sharing."
The ministers' decision confirmed a pattern in the euro zone for dealing with bank troubles, in which senior bondholders have been spared even in the most brutal failures. But the ECB's shift may also be a sign that the tides are turning on the issue, as the euro zone embarks on a fundamental overhaul of the way bank failures are dealt with within the currency union.
During the July 9 meeting, Mr. Draghi argued in favor of including senior bank creditors in burden sharing between taxpayers and investors in the case of Spain, three people familiar with the discussions said. Two said Mr. Draghi favored forcing losses on senior bondholders only when a bank was pushed into liquidation.
Of course, if Senior bondholders are impaired, even in one-off instances, revisionism, primarily out of Ireland will hit a fever pitch, where everyone will demand an answer why Ireland had to bailout Senior debt holders, while Spain, and soon Italy, will get away with bank impairment.
But a chief reason ministers decided not to make more privileged bondholders take losses was the Irish precedent, two people said. Dublin has had to pump more than EUR60 billion, equivalent to around 40% of its annual gross domestic product, into several struggling lenders, forcing it to request a EUR67.5 billion bailout from other European countries and the International Monetary Fund in 2010.
Forcing senior creditors to take losses in Spain would raise more questions in Ireland about why taxpayers were forced by the EU to take on the huge burden of repaying high-ranked bondholders.
So while Europe vacillates, there is still not definitive method to restructure failed and failing banks:
"We have general company law [on bankruptcy cases], but we have so far no bank-specific law," said Karel Lannoo, chief executive of the Brussels-based Centre for European Policy Studies.
The EU is now trying to rectify this situation and in June proposed a new legal framework for dealing with failing banks, which is cited in the Spanish bailout accord as a model. Crucially, the new rules would force national authorities to force losses on--or "bail in"--all creditors, for instance by converting debt into shares, when a bank has to be recapitalized by its governments.
Yet the question of why the ECB would even propose this revolutionary shift to all out impairment remains: after all, as anyone who had done even one Chapter 11 corporate case knows, at the end a company's assets must be just greater than its liabilities for fresh start restructuring: something that the banking sector has not seen once since the Lehman collapse.
And while such a return to reality would mean the potential to actually fix the situation, it would also mean the possibility of not only continent-wide bank runs, but all out balance sheet impairments courtesy of daisy-chained balance sheets, where one bank's liabilities are rehypothecated as another banks' assets in a virtually infinite loop, and where even the tiniest impairment causes the house of cards to fall.
Draghi is well aware of this, and the only reason he could bring it up is if he knows that absent full loss recognition, initially at selected venues, but gradually everywhere, there is simply not enough cash-good assets for the European financial system to "grow into its balance sheet."
The only question is how long until depositors, whose €10 trillion in cash makes the backbone of European bank liabilities, also figure out that their cash is backed by worthless assets, and then how long until they decided to, well, simply withdraw it...
holy shit.
But if that is true, why european stocks aren't tanking? DAX has been open for like 15 minutes.
The WSJ article that's based on is a bit less excitable though it's still important:
QuoteECB Shifts View on Bond Losses
By GABRIELE STEINHAUSER in Brussels and BRIAN BLACKSTONE in Frankfurt
The European Central Bank, in a sharp turnaround, has advocated imposing losses on holders of senior bonds issued by the most severely damaged Spanish savings banks, though finance ministers have for now rejected the approach, according to people familiar with discussions.
The ECB's new position was made clear by its president, Mario Draghi, to a meeting of euro-zone finance ministers discussing a euro-zone rescue for Spain's struggling local lenders in Brussels the evening of July 9. It marks a contrast from the position the central bank adopted during the 2010 bailout of Irish banks—which, like Spain's, were victims of a property meltdown—when it prevailed in its insistence that senior bondholders in bailed-out banks shouldn't suffer losses.
The ministers rejected the advice out of concern that financial markets would react badly to the decision. A draft of the rescue agreement, which will provide as much as €100 billion ($122.5 billion) for the Spanish banking system, requires Madrid to force losses only on shareholders and junior bondholders in banks receiving bailout money, and doesn't mention creditors higher up in the pecking order. A spokesman for the European Commission, the EU's executive arm, said: "It is clear that senior bondholders won't be involved in burden sharing."
The ministers' decision confirmed a pattern in the euro zone for dealing with bank troubles, in which senior bondholders have been spared even in the most brutal failures. But the ECB's shift may also be a sign that the tides are turning on the issue, as the euro zone embarks on a fundamental overhaul of the way bank failures are dealt with within the currency union.
During last Monday's meeting, Mr. Draghi argued in favor of including senior bank creditors in burden-sharing between taxpayers and investors in the case of Spain, three people familiar with the discussions said. Two said Mr. Draghi favored forcing losses on senior bondholders only when a bank was pushed into liquidation.
This would mean that senior creditors would be safe in cases where a bank was merely being downsized—so far the most common way national authorities have chosen to deal with struggling banks. In Spain, in any case, larger banks are expected to continue operations after restructuring and wouldn't have been affected.
A spokeswoman for the Frankfurt-based ECB declined to comment on the July 9 discussions with finance ministers. She stressed that the ECB wasn't a signatory to the bailout deal between the euro zone and Madrid, which was a matter for the governments involved. "National authorities regulate bank-resolution processes," the spokeswoman said, adding that the ECB only provided advice, which "aims to ensure that the treatment of senior bondholders is in line with EU rules."
Imposing losses on bondholders reduces the amount of money taxpayers need to inject into struggling banks. One euro-zone official said the desire to avoid putting more public money at risk than necessary was one reason behind the ECB's change of heart since 2010. The ECB's new stance can also be explained by the different scenarios, including the existence of a bank-restructuring framework for Spain that didn't exist for Ireland, and the fact that the Irish government, unlike Spain's, guaranteed much of its banks' debts.
But a chief reason ministers decided not to make more privileged bondholders take losses was the Irish precedent, two people said. Dublin has had to pump more than €60 billion, equivalent to around 40% of its annual gross domestic product, into several struggling lenders, forcing it to request a €67.5 billion bailout from other European countries and the International Monetary Fund in 2010.
Forcing senior creditors to take losses in Spain would have raised more questions in Ireland about why taxpayers were forced by the EU to take on the huge burden of repaying high-ranked bondholders.
One element likely to increase pressure to force losses on senior creditors is a plan, agreed by euro-zone leaders at a summit last month, to soon allow the euro zone's bailout fund to directly recapitalize failing banks—instead of lending the funds, as at present, to the banks' host governments. That would put European taxpayer money directly on the line for saving banks in other countries. Officials from rich northern countries, led by Germany, have said that taking joint responsibility for bank rescues is possible only if recapitalizations don't create major losses—a strong case for putting a heavier burden on private investors.
In fact, European Union rules on how to deal with bank failures are murky. There is no harmonized legal framework for closing or restructuring banks that run into trouble. Rules on state support for banks seek to limit the amount of taxpayer money a government can inject into one of its lenders so the aid doesn't amount to unfair subsidies.
Normal insolvency procedures, meanwhile, are ill-suited to deal with banks that are closely tied into the wider financial system and where defaulting on creditors can easily trigger fears about other firms. The untangling and selling of assets during a regular bankruptcy also takes time, which is usually in short supply when a bank threatens to fail. "We have general company law [on bankruptcy], but we have so far no bank-specific law," said Karel Lannoo, chief executive of the Brussels-based Center for European Policy Studies.
The EU is now trying to rectify this situation and in June proposed a new legal framework for dealing with failing banks, which is cited in the Spanish bailout accord as a model. Crucially, the new rules would force national authorities to force losses on—or "bail in"—all creditors, for instance by converting debt into shares, when a bank has to be recapitalized by its governments.
EU officials claim that taxpayer money would have been unnecessary in most bank rescues in recent years had the new rules already existed. But the "bail in" proposal hasn't been approved by EU governments and, even then, is foreseen to come into effect only in 2018. That's far too late for Spain, which is expected to recapitalize its banks by the end of the year.
— Stephen Fidler in Brussels contributed to this article.
Write to Brian Blackstone at [email protected]
Edit: Here's the FT blog's take on it:
QuoteThe bail-in Spain — ECB edition
Posted by Joseph Cotterill on Jul 16 09:01.
Banking crisis U-turn of the year?
From the WSJ's Gabriele Steinhauser and Brian Blackstone:
Quote
The European Central Bank, in a sharp turnaround, advocated imposing losses on holders of senior bonds issued by the most severely damaged Spanish savings banks—though finance ministers have for now rejected the approach, according to people familiar with discussions.
The ECB's new position was made clear by its president, Mario Draghi, at a meeting of euro-zone finance ministers discussing a rescue for Spain's struggling local lenders in Brussels the evening of July 9...
In the July 9 meeting, Mr. Draghi argued in favor of including senior bank creditors in burden-sharing between taxpayers and investors in the case of Spain, three people familiar with the discussions said. Two said Mr. Draghi favored forcing losses on senior bondholders only when a bank was pushed into liquidation.
That's the central bank 'arguing in favour' of what is still a highly rare event in markets — and an unheard-of event in the eurozone — which the ECB itself once feared would wreck financial stability.
A few thoughts...
1. This condition of "only when a bank was pushed into liquidation". That's about where the policy-maker consensus is, though resolution isn't quite bankruptcy law. The reason it's been so rare for the holders of senior unsecured bank debt to take losses is that normally they've ranked pari passu with a bank's depositors in bankruptcy. Governments have tried to pick their way around that problem. Amagerbanken, a Danish bank, imposed a 41 per cent loss on senior bondholders last year, under a government wind-down of assets.
But even with the liquidation rider — for the ECB to advocate senior burden-sharing as a central bank, right now in the crisis, and in Spain, would be remarkable.
2. Liquidity and liquidation of Spanish banks. The July 9 meeting was about Spain. If Draghi was talking about taking bail-ins all the way up to senior unsecured debt, that's a sign that the ECB is ready for some banks to be declared 'non-viable'.
As last week's draft bailout MoU already stated:
QuoteBanks that are deemed to be non-viable will be resolved in an orderly manner... Orderly resolution plans should be compatible with the goals of maintaining financial stability, in particular by protecting customer deposits, of minimising the burden of the resolution on the taxpayer and of allowing healthy banks to acquire assets and liabilities in the context of a competitive process.
(Incidentally, it's intriguing to re-read this now and note that senior creditors weren't mentioned as protected alongside depositors...)
It would be quite a grasping of the nettle.
After all, the ECB must know very well that some Spanish banks have likely been continuous borrowers from its crisis liquidity ops since they started in 2007. One problem with a bank's liquidation would be managing down this liquidity. Another might be ensuring that other (stronger) banks don't remain long-term borrowers because the bail-in precedent drives up the cost of private funding.
3. The ECB would also be talking about senior bail-ins in resolution long before 2018. That's when formal EU powers to impose senior burden-sharing are supposed to come into force, and not before, as per rules unveiled just one week before Spain first asked for a bank bailout.
So, 2018 isn't set in stone. We sort of knew this already, and wondered about it during Spain's initial bailout request. We pointed to these official guidelines for bank recaps by the EFSF, for whom 2018 wasn't set in stone either:
QuoteWhere appropriate, additional conditionality could draw from the future EU bank crisis resolution framework, which will be proposed by the Commission after summer. In particular, such a conditionality could include requirements to enhance the supervisory toolbox in the three crucial phases of crisis management identified (preparation, early intervention and resolution) such as recovery and resolution plans, early intervention tools for supervisory authorities, asset separation tools, bail-in tools.
At that time, we were being told how silly we were for believing that the losses of Spanish banks would be big enough to need any bail-in, even of junior bank debt.
Well, the sub-debt burden-sharing arrived, as did the "asset separation tools," a bad bank. While finance ministers rejected senior bail-ins "for now" as the WSJ puts it — it all looks more malleable than ever.
4. Not least, the ECB is leading on senior debt bail-ins just as it might become the eurozone-wide bank supervisor. As the WSJ also mentions, governments might come round to full burden-sharing the more they see it as a way to minimise the loss they'd face on holding equity in direct ESM bank recaps. There's been some loose talk of 'resolution' as a condition for these direct recaps, when they come into force in 2013 or 2014 (the timeline really isn't clear). ECB advocacy of senior bail-in narrows it down a bit, again well before 2018.
It's also worth remembering what Draghi said about "democratic accountability" for the ECB, if it takes up the supervisor role. Senior bank bond bail-ins would mean accountability to taxpayers who'd otherwise bear banks' risk, we suppose...
5. Finally — Ireland, the ghost at the table. From the WSJ story, on the finance ministers' rejection of the ECB:
QuoteForcing senior creditors to take losses in Spain would have raised more questions in Ireland about why taxpayers were forced by the EU to take on the huge burden of repaying high-ranked bondholders.
Well, as P O Neill has already pointed out, path dependence isn't a policy.
Though it might show why retroactive change to Ireland's bank bailout is tricky. Ireland also seems to be cursed special because the government backstopped so much senior unsecured bank debt (in the Eligible Liabilities Guarantee scheme).
So what about all that Spanish (or Italian) government guaranteed bank debt?
This entry was posted by Joseph Cotterill on Monday, July 16th, 2012 at 9:01 and is filed under Capital markets. Tagged with bank bonds, bank resolution, burdensharing, ecb, ireland, senior debt, Spain, spanish banks.
Liep saved 9 grand.
Quote
Denmark avoided massive euro bill
EuropeNews 15 July 2012
By Nicolai Sennels
Every single Dane would have had to pay nine thousand euro if we had voted yes, when we voted about the Euro in 2000. At that time 53.2 percent voted no, 46,8 percent voted yes - a relatively close call. The politicians and commentators that urged and threatened us to vote yes back then still owe us an apology.
Denmark avoids 45 billion euro bill because of not having the Euro.
"Economists calculate that Denmark would have had to dole out an additional 338 billion kroner if it had adopted the euro Economists are claiming that it was fortunate Danes voted against adopting the euro in the 2000 referendum. ...
"It was smart then but it has shown to be even smarter than we had thought," Christian Bjørnskov, a lecturer in international economics at Aarhus University, said. ...
The calculations show that had Denmark been in the monetary union it would have had to pay 338 billion kroner to bailout other Eurozone members. This sum consists of 87 billion kroner and 95 billion kroner, respectively, for to the two financial stability funds, the ESM and the EFSF. Denmark would also have had to contribute to the European Central Bank's purchase of government bonds from the troubled countries. This would have amounted to 156 billion kroner.
"There is no-one else to pay the bills except the euro countries and we are exempt because we never adopted the euro," Bjørnskov said, adding that the common currency had problems from the start. "The euro is a construction that encourages countries to behave irresponsibly, since eurozone countries are liable for each other's debt, regardless of the political promises they make."
That's pretty dishonest. The bailout funds are supposed to be loans, not grants.
And the part about paying money to the ECB makes no sense at all.
Quote from: MadImmortalMan on July 16, 2012, 11:22:52 AM
Every single Dane would have had to pay nine thousand euro if we had voted yes,
:huh:
High quality financial journalism there.
Quote from: Sheilbh on July 12, 2012, 07:10:10 PM
An even more extreme example than Ireland is Slovenia, who are expected to need a bailout soon. Their debt to GDP is under 50%.
First, by global standards a debt to GDP is quite high. Western democracies are able to borrow so much because they are considered safe. Slovenia was a part of Yugoslavia.
Second, the nature of government accounting means there are truly massive off balance sheet liabilities that are not being recorded. There are reasons not to record them: for example, the liabilities are based on laws that can be changed. However, as we have seen, countries seem more willing to default on debt obligations than adjust payment schemes to pensioners. These massive liabilities can be funded if economies stay healthy, but it is unrealistic to believe they can if economies tank. Hence we have the current situation in Spain.
Fredo: I believe the riddle to Spain's relatively low debt/GDP and poor credit rating is explained mostly by provincial debt. Similar situation to Argentina right before they defaulted.
Quote from: Admiral Yi on July 16, 2012, 01:32:37 PM
Fredo: I believe the riddle to Spain's relatively low debt/GDP and poor credit rating is explained mostly by provincial debt. Similar situation to Argentina right before they defaulted.
Any idea what the real figure would be if they combined the national and provincial debts together?
I wonder what ours would be if you added up the states with the federal...
Quote from: Admiral Yi on July 16, 2012, 01:32:37 PM
Fredo: I believe the riddle to Spain's relatively low debt/GDP and poor credit rating is explained mostly by provincial debt. Similar situation to Argentina right before they defaulted.
And the implicitly guaranteed bank liabilities, along with the rest. I don't think it is so much a riddle: the way finances are organized in most western states, sustained unemployment of ~20-25% will break the government. We are beginning to creak at just 8% unemployment and our own currency.
Afaik Spanish debt includes the regional one (which is peanuts when compared to the national one), if I understood you right.
Quote from: MadImmortalMan on July 16, 2012, 01:36:17 PM
Any idea what the real figure would be if they combined the national and provincial debts together?
I wonder what ours would be if you added up the states with the federal...
Someone posted an article in this thread with exact numbers, but you would have to slug through 30 pages to find it.
Don't quote me on this, but I think the Spanish central government might explicitly guarantee provincial debt. Obviously that is not true in the US.
I don't know about explicitly but the central government is certainly on the hook for regional imbalances. It is also the sole source of income of regions (except Basque Country and Navarre that have their own tax authorities).
In any case I'd say the main factor driving for higher rates is the combination of EZ exit uncertainty and the likely depressionary spiral we're in, not the amount of debt itself. Even adding bank liabilities and regional debt it would be manageable with a sound economy.
Quote from: alfred russel on July 16, 2012, 01:26:46 PMSecond, the nature of government accounting means there are truly massive off balance sheet liabilities that are not being recorded. There are reasons not to record them: for example, the liabilities are based on laws that can be changed. However, as we have seen, countries seem more willing to default on debt obligations than adjust payment schemes to pensioners. These massive liabilities can be funded if economies stay healthy, but it is unrealistic to believe they can if economies tank. Hence we have the current situation in Spain.
All of your post's fair. Do you think it's the cause of market concern about any of these countries (Greece, Portugal, Spain, Ireland, Italy, Cyprus and Slovenia) - while countries like France and the UK are borrowing at negative interest rates?
QuoteAny idea what the real figure would be if they combined the national and provincial debts together?
The full Spanish debt is around 80% - their provincial system's different though. They haven't federalised taxes for example. If you do Zero Hedge maths then I think you get around 130%. Obviously you shouldn't.
Quote from: Sheilbh on July 16, 2012, 06:30:44 PM
Quote from: alfred russel on July 16, 2012, 01:26:46 PMSecond, the nature of government accounting means there are truly massive off balance sheet liabilities that are not being recorded. There are reasons not to record them: for example, the liabilities are based on laws that can be changed. However, as we have seen, countries seem more willing to default on debt obligations than adjust payment schemes to pensioners. These massive liabilities can be funded if economies stay healthy, but it is unrealistic to believe they can if economies tank. Hence we have the current situation in Spain.
All of your post's fair. Do you think it's the cause of market concern about any of these countries (Greece, Portugal, Spain, Ireland, Italy, Cyprus and Slovenia) - while countries like France and the UK are borrowing at negative interest rates?
I'm not an economist, and I haven't studied the books of these countries, but I think that is the answer. In finance, the standard for long term is generally considered 5 years. We aren't that far off from that in terms of when the crisis started. At a certain point, you have to look at a country like Spain and price in the possibility that this isn't a short term downturn but a new norm. Maybe not as bad as right now, but still bad.
Places like the US and the UK obviously benefit from having their own currency, but also by being close to the only games in town. Imagine you are a multi national with $50 billion in cash. All you want to do is keep the money safe for a future use. You don't get deposit insurance. Are you going to put the money in a European bank? That seems a bit risky. I'd also be uneasy about putting it all in a US bank like JP Morgan at the moment. At the end of the day the safest option you may have are the most secure soveriegn debt issuances, which is going to create a lot of demand for them and very low rates.
Quote from: alfred russel on July 16, 2012, 07:01:02 PM
Imagine you are a multi national with $50 billion in cash. All you want to do is keep the money safe for a future use. You don't get deposit insurance. Are you going to put the money in a European bank? That seems a bit risky. I'd also be uneasy about putting it all in a US bank like JP Morgan at the moment. At the end of the day the safest option you may have are the most secure soveriegn debt issuances, which is going to create a lot of demand for them and very low rates.
The German multinationals like Siemens, Volkswagen, Daimler etc. have founded their own banks with banking license and all and park their money with the ECB.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fi406.photobucket.com%2Falbums%2Fpp143%2Fricardomb00%2F1343291614_197941_1343321872_portada_normal.png&hash=f5647592cb3c9b7206748ecb897f79325c6ee437)
Super Mario to the rescue!
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fwww.onlinesupermario.com%2Fimages%2Frealmario.JPG&hash=40a3da12c51f6a8764735a7f3cb6c881ee7ad5d5)
We're the champions! :yeah:
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fwww.fedeablogs.net%2Feconomia%2Fwp-content%2Fuploads%2FGrafico3_coste.alquiler.jpg&hash=8c3ab0c1e13d475c0da70bff374b46613c53cd3b)
Graph shows renting costs to household income for younger folk. With utilities and related costs, it goes up to 85%.
How is that possible? Aren't there a bunch of empty houses built during the construction boom?
1) High youth unemployment -- a result of dual labor market -- means young people make very little.
2) Most jobs are in expensive cities (Madrid, Barcelona and so on).
3) Renting market is severely dysfunctional due to excessive tenant protection.
Quote from: Iormlund on July 27, 2012, 08:19:49 AM
1) High youth unemployment -- a result of dual labor market -- means young people make very little.
3) Renting market is severely dysfunctional due to excessive tenant protection.
you know what I want to tell about state interventionalism :P
Over here the troika is at odds with the government.
The highborns want to cut wages on everybody, to make up from the cuts that were considered unconstitutional by the courts, and hike VAT to 27% of stuff like milk.
The troika is arguing that, instead of stiffiling any hope of growth with those measures, they should dramatically increase property tax.
This is horrifying the highborns, who own extensive estates - I mean, that means they'll have to pay something, instead of putting the burden of deficit reduction squartely upon the shoulders of the poor. The government can't have any of THAT.
The tug between the two continues. Who will be the winner?
Quote from: Iormlund on July 27, 2012, 08:19:49 AM
1) High youth unemployment -- a result of dual labor market -- means young people make very little.
2) Most jobs are in expensive cities (Madrid, Barcelona and so on).
3) Renting market is severely dysfunctional due to excessive tenant protection.
Wouldn't it make more sense for the young people in Spain to turn to crime than to go on in that system?
Quote from: Martim Silva on July 27, 2012, 12:28:47 PM
Over here the troika is at odds with the government.
The highborns want to cut wages on everybody, to make up from the cuts that were considered unconstitutional by the courts, and hike VAT to 27% of stuff like milk.
The troika is arguing that, instead of stiffiling any hope of growth with those measures, they should dramatically increase property tax.
This is horrifying the highborns, who own extensive estates - I mean, that means they'll have to pay something, instead of putting the burden of deficit reduction squartely upon the shoulders of the poor. The government can't have any of THAT.
The tug between the two continues. Who will be the winner?
Is property tax collected at the national level in Portugal?
Quote from: Martim Silva on July 27, 2012, 12:28:47 PM
This is horrifying the highborns, who own extensive estates - I mean, that means they'll have to pay something, instead of putting the burden of deficit reduction squartely upon the shoulders of the poor. The government can't have any of THAT.
If you prefer to pay your taxes through higher rents rather than higher milk prices I have no problem with that. If while doing so you delude yourself that you've won a resounding victory over the feudal lords I'm still indifferent.
Quote from: Neil on July 27, 2012, 01:28:46 PM
Is property tax collected at the national level in Portugal?
It is paid to the local authorities, who then transfer a large % of it to the central government (the exact amount is determined by the state, with different provisions for each area of the country, in order to make it cheaper to have land/houses in the undeveloped interior than in the developed cities.
Quote from: Admiral Yi
If you prefer to pay your taxes through higher rents rather than higher milk prices I have no problem with that. If while doing so you delude yourself that you've won a resounding victory over the feudal lords I'm still indifferent.
The percentage amount a landlord may increase a rent is set by the State at the end of the year; it cannot be raised willy-nilly by the landlords.
Quote from: Martim Silva on July 27, 2012, 02:12:46 PM
The percentage amount a landlord may increase a rent is set by the State at the end of the year; it cannot be raised willy-nilly by the landlords.
Then I take it all back. That truly would be a resounding victory over the feudal lords. :cheers:
Canada's budget deficit is shrinking and it is claimed on target to be eliminated by 2014.
http://www.theglobeandmail.com/news/politics/ottawas-deficit-shrinks-as-world-economies-struggle/article4444087/
Quote from: crazy canuck on July 27, 2012, 02:14:56 PM
Canada's budget deficit is shrinking and it is claimed on target to be eliminated by 2014.
http://www.theglobeandmail.com/news/politics/ottawas-deficit-shrinks-as-world-economies-struggle/article4444087/
Can you please have some of your politicians give lessons to some of ours in the US??
Quote from: KRonn on July 27, 2012, 07:23:22 PM
Quote from: crazy canuck on July 27, 2012, 02:14:56 PM
Canada's budget deficit is shrinking and it is claimed on target to be eliminated by 2014.
http://www.theglobeandmail.com/news/politics/ottawas-deficit-shrinks-as-world-economies-struggle/article4444087/
Can you please have some of your politicians give lessons to some of ours in the US??
You need fundamental change.
Quote from: crazy canuck on July 27, 2012, 07:24:54 PM
Quote from: KRonn on July 27, 2012, 07:23:22 PM
Quote from: crazy canuck on July 27, 2012, 02:14:56 PM
Canada's budget deficit is shrinking and it is claimed on target to be eliminated by 2014.
http://www.theglobeandmail.com/news/politics/ottawas-deficit-shrinks-as-world-economies-struggle/article4444087/
Can you please have some of your politicians give lessons to some of ours in the US??
You need fundamental change.
We have enough fundamentalist pols on the left and right. We need what Canada is doing. :)
Quote from: KRonn on July 27, 2012, 07:32:17 PM
We have enough fundamentalist pols on the left and right. We need what Canada is doing. :)
Politicians largely reflect the will of the electorate. As long as the American public is in denial about the deficit our government is not going to do much about it.
Quote from: Admiral Yi on July 27, 2012, 07:59:23 PM
Quote from: KRonn on July 27, 2012, 07:32:17 PM
We have enough fundamentalist pols on the left and right. We need what Canada is doing. :)
Politicians largely reflect the will of the electorate. As long as the American public is in denial about the deficit our government is not going to do much about it.
I think a lot of this depends on how people talk about things and how sterile political debate is.
The US deficit has fallen by around the same amount as a % as the UK deficit since the crisis. The effect's the same but because of how the argument/debate is in our countries you have a do nothing government, while we have a government whose 'central mission' is to reduce the deficit. In your debate we're used as an example austerity (gone good or bad depending on whose side you are) while here you're the example of what we should be doing rather than this destructive austerity plan.
Personally I'm with Cheney, I don't think deficits matter. I think the medium to long-term costs matter far, far more and they're rather more difficult to deal with.
That's a seperate issue than what I was thinking of Shelf. At the risk of generalizing, in the US the left thinks the deficit disappears once you raise taxes on fat cats, and the right thinks it disappears once you cut Public Radio and food stamps.
Quote from: Admiral Yi on July 27, 2012, 08:12:26 PM
That's a seperate issue than what I was thinking of Shelf. At the risk of generalizing, in the US the left thinks the deficit disappears once you raise taxes on fat cats, and the right thinks it disappears once you cut Public Radio and food stamps.
I think it's even worse on the left. They don't want to raise taxes on the rich to cut the deficit, they want to do it just because. I could support that idea if it was to cut the deficit. As it is I think it's one of the least attractive features of the left in the US.
I'm with you on the right though. Romney's fiscal plan is awesome in its dishonesty. You can raise the DoD budget enormously, cut taxes hugely (and not even through revenue neutral reform) and somehow the deficit will just disappear :blink:
The President and both parties need to speak about getting spending under better control, do it together, rather than each side bashing each other for political gain for every idea and proposal. Of course that won't happen. Meanwhile we have some serious warnings by objective people regarding the entirety of the issue from the economy to devaluation of the dollar.
You know, I wonder if Republican candidates actually believe that increasing public spending and lowering revenue is good for the economy. I make a point of not attributing to malice what can be explained by stupidity, but sometimes you have to wonder.
Quote from: Neil on July 27, 2012, 09:07:33 PM
You know, I wonder if Republican candidates actually believe that increasing public spending and lowering revenue is good for the economy. I make a point of not attributing to malice what can be explained by stupidity, but sometimes you have to wonder.
This sounds more like the view of Democrats, though I wouldn't put this kind of tag on either party to be fair.
http://www.economist.com/node/21559636
QuoteCharlemagne
Euro EUphemism
François Hollande is trying to wriggle out of Germany's demand for more political union
Jul 28th 2012 | from the print edition
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fmedia.economist.com%2Fsites%2Fdefault%2Ffiles%2Fimagecache%2Ffull-width%2Fimages%2Fprint-edition%2F20120728_EUD000_0.jpg&hash=bc77bedcc24ca2c931afd1aad74d401feb5b7c4a)
FRANCE'S political discourse these days is rich with euphemisms. The words austérité or rigueur are shunned, though everybody knows that spending cuts must come soon. Instead the government of François Hollande prefers to speak of redressement, or "putting right" public finances. And when it comes to the euro crisis and Germany's demand for greater political union, Mr Hollande responds with the artful phrase: intégration solidaire, or integration with solidarity.
Precisely what Mr Hollande means by this is as important to the future of the euro as Germany's willingness to accept further risk-sharing. The euro zone is descending into the next circle of misery, with investors fleeing Spain and the mess in Greece returning to the fore. Above all, markets have lost confidence in the future of the single currency. The task of political leaders is to prove that they intend to keep it.
So Germany is being urged to stand behind the euro by accepting the pooling of sovereign debt and collective action to shore up the banking system. Angela Merkel, the German chancellor, says that if there is to be any mutualisation of liabilities, there must be greater central control. That means giving European institutions more power to determine national budgets and economic policies, and to oversee the financial sector. And such power must be legitimised by democratising EU bodies and strengthening the European Parliament.
How does Mr Hollande respond? Surrendering sovereignty is hard for any government in France, with its tradition of a powerful centralised state. Under the Fifth Republic the president enjoys ample discretion. The notion is particularly painful for Mr Hollande, whose Socialist party was split in the 2005 referendum on the EU's constitutional treaty, rejected by French voters. As party leader, Mr Hollande, a declared pro-European, had supported the treaty. But senior party figures campaigned for a no vote, and Mr Hollande did not dare expel the rebels. Indeed, he has appointed prominent nonistes to his government: Laurent Fabius, a former prime minister and rebel figurehead, is now foreign minister. Another noniste, Bernard Cazeneuve, serves as minister for European affairs.
Mr Hollande wants to avoid a real discussion. "Nobody has explained to us what political union means," say his lieutenants. They argue that any big EU institutional change would require a referendum in France; and it would almost certainly be lost, given the mood of discontent. It would be better to wait until the crisis is overcome. In any case there is a limit to European integration.
"The French people will never accept that France would just become a region of Europe," says one Elysée source. Political integration for the sake of fiscal discipline could never be sold; it needs a big projet to grab the popular imagination. Veteran nonistes, such as Marie-Noëlle Lienemann, a Socialist senator, say they do not object to more European integration as such, but dislike the EU's quest to promote internal competition and the German obsession with fixed economic rules. Why should the rest of Europe pay for the German connerie of hyperinflation in 1923? Instead she wants greater convergence of social policies across Europe. It is high time there was a European minimum wage to stop factories moving to low-wage EU countries.
It is hard to tell whether Mr Hollande feels discomfited. In a sense he invited Germany's call for political integration by publicly pushing for joint Eurobonds. Unlike his predecessor, Nicolas Sarkozy, Mr Hollande is happy to make public his disagreements with Berlin. After the Merkozy era, he wants to show that he and Mrs Merkel "sleep in separate bedrooms", says Thomas Klau of the European Council of Foreign Relations, a think-tank.
Mr Hollande may also be holding out for the 2013 elections in Germany, when Mrs Merkel may be forced into a grand coalition with the Social Democrats, Mr Hollande's allies. Yet France is not best placed to play the waiting game. Its borrowing costs may still be low, but France is more vulnerable to the crisis than Germany. After Spain and Italy, France may be next in line.
Chicken and egg
There is a circularity about the argument across the Rhine. Germany wants control and political integration before more solidarity; France wants solidarity before integration. Both may be politely saying no to each other. Or they may conceivably be working out a grand bargain. In practice, Mr Hollande is more likely to try to seek a succession of smaller deals, each with a bit of chicken and a bit of egg, and avoid a revision of the treaties for as long as possible. If Eurobonds are impossible for the moment, say officials, then perhaps one could start with some short-dated bills, limiting the size and duration of the liabilities.
The latest European summit reveals some of this thinking. The euro zone agreed to set up a single supervisor for banks, which is less contentious than scrutinising governments. Thereafter European rescue funds should be allowed to inject capital directly into ailing banks, so sharing the burden. The markets' hope that this would help Spain was short-lived, as the details remained vague and leaders bickered over whether Spain would remain on the hook for bank losses. Without an agreed destination, all sides fear the precedent that each step may create.
For now, both France and Germany are reluctant to take the measures needed to create a coherent and stable euro zone. The worsening crisis may well push them, grudgingly, to take more half-steps. But a reluctant union is unlikely to be credible or lasting. So when he talks of intégration solidaire Mr Hollande cannot speak only of solidarity. He needs to say what sort of integration he is prepared to envisage. The euro crisis is a moment of truth, not only for Germany but for France as well.
typical for the frenchies: always asking for other people's money but never reciprocating.
Quote from: Neil on July 27, 2012, 09:07:33 PM
You know, I wonder if Republican candidates actually believe that increasing public spending and lowering revenue is good for the economy. I make a point of not attributing to malice what can be explained by stupidity, but sometimes you have to wonder.
Well I have heard the "reasoning" that doing so will promote a crisis which will be the opportunity to massively and permanently shrink the size of government.
That sounds a bit conspiracy theory to me. I wouldn't apply malice where incompetence is a perfectly reasonable explanation.
Quote from: Barrister on July 31, 2012, 02:04:46 PM
Quote from: Neil on July 27, 2012, 09:07:33 PM
You know, I wonder if Republican candidates actually believe that increasing public spending and lowering revenue is good for the economy. I make a point of not attributing to malice what can be explained by stupidity, but sometimes you have to wonder.
Well I have heard the "reasoning" that doing so will promote a crisis which will be the opportunity to massively and permanently shrink the size of government.
I've also been hearing the conspiracy theory that if the US keeps spending hugely, while keeping the economy sputtering, financial markets continue to hurt, then a much bigger crash will occur, eroding faith in Capitalism to a point that uber lefties can more easily put in place ideas for more government control and dependency. Something like that. Not saying I buy into it, just more conspriacies going around.
So if both sides are actually working to their respective conspiracies, then I guess we're kind of screwed! ;)
Government control and dependency? I think that bridge has already been crossed.
QuoteA Hint From Draghi on the Euro?
Submitted by Bruce Krasting on 08/02/2012
So Mr. D spoke and said nothing at all. Those that expected a "big stick" from the boss at the ECB are very disappointed. The initial market reaction to this dud is a down move in equities and the Euro while Italian and Spanish yields soar. Given the high expectations Draghi set the market up for, I can't imagine a worse outcome.
I read through the (very carefully worded) press release looking for something. There are few sentences that have me wondering. The first comes from the summary section where Draghi says:
decisive and urgent steps need to be taken to improve competitiveness
Okay, that sounds nice. But what does Draghi mean when he says "competitiveness"? Does he mean between Spain and Germany? Maybe.
One way to achieve the competitiveness that Draghi seeks, is to further punish the Spanish economy, and push unemployment higher (it's now 24%) in a desperate attempt to push unit labor costs down. That would be an insane approach. Spain is already on its knees. Pushing the economy further into depression is not going to help at all. Also, a process like this would take years before the pain is converted into some gain.
Draghi used the word "decisive". To me, this word implies something that might be considered a "game changer". A multi year depression is not decisive, It is slow death. It is also politically unacceptable. Spain (and Italy) are not going to accept that they must have a depression to save France and the rest of northern Europe.
A step that would be "decisive" would have to be on the currency front. This gets us back to the talk of bringing back the Peseta (and the Lire), or some form of two tiered Euro. But I don't think Draghi was suggesting that there would be a Euro breakup at this time in history. He was very clear on this when he said:
The euro is irreversible.
He also confirmed (to me) that there ways no "Euro breakup" in his mind when he made clear that the ECB/SMP would be buying more Spanish bonds at some point in the future. If there were a two-tiered Euro, the portfolio losses at the ECB/SMP would be enormous. The losses would be larger still if more purchases are made.
I conclude from all this that the probability of some kind of currency reshuffle within the Euro Zone is not in the cards at this time. But I'm still confused how Draghi thinks he can achieve the "urgent" improvement in competitiveness. There might be a clue from Draghi in the press release. I thought these words were odd:
Downside risks (to the economy) also relate to possible renewed increases in energy prices
Huh? What's this about? Does Draghi know something about energy prices that I don't?
In the statement, Draghi makes it clear that the Euro area is slowing. He also is no dope, he knows full well that the USA, S. America, India and most of Asia are also slowing down. There is nothing in the global economic mix today that would suggest that energy prices are going to rise anytime soon. So why would he make a point about it? Even more curious is why he would repeat his warning in the next paragraph when he speaks about the risk of rising inflation:
Upside risks pertain to further increases in indirect taxes, owing to the need for fiscal consolidation, and higher than expected energy prices over the medium term.
What is the one thing that Draghi could do that would cause energy prices within the Euro Zone to rise? The answer is he could cheapen the Euro versus the dollar. Absent a global increase in the price of crude, the only thing that would cause energy prices to rise in the EU would be a significant depreciation of Euro versus the dollar (and the Yen).
If Draghi was really serious about the "competitiveness" issue, then he would certainly be looking for a cheaper Euro that would "decisively" and "urgently" address a fundamental flaw of the Euro. It is dramatically overvalued.
We know that the Germans hate all the monetary options that Draghi would like to use in his war with the bond markets. Things like more bond buying, LSAPs and QE are not going to happen because of German opposition. However, the titans of German industry would jump for joy at the prospect of a 20% devaluation of the Euro. Merkel is up for reelection and she desperately needs those titans on her side. She also needs to have some improvement in the domestic economy. More workers making BMWs and VWs are just the ticket for Angela.
There is one other piece in this puzzle. What would the USA have to say about a plan that would cheapen the Euro versus the buck? On that score, I do wonder about the meeting last week that Timmy Geithner had on an island in the middle of the North Sea with those EU "deciders."
If the Euro were to weaken it would be a body blow to the US economy. It would be exactly the type of situation where the US Fed would act. A "decisive" effort to depreciate the Euro would give Bernanke the excuse he needs to put a big QE package on the table.
I was very surprised that Ben chose to "do nothing" yesterday. I wonder if this is not all being orchestrated behind closed doors. Ben needs the ECB to act first, and then he will quickly follow suit with an action plan of his own. This could happen between the scheduled meetings.
Is this far-fetched? I admit it is, but I don't see any other options on the table. A significant change in the EURUSD rate is not out of the question.
I would not be long the Euro for a bit, just in case.
With Bernanke and Draghi both at MIT together, maybe we should just ask MIT what to do.
Or Mitt. He has a secret plan.
A lot of people seem to be interpreting Draghi's comments today as an implied threat to outvote/overrule the Bundesbank. Which is interesting.
How could Draghi push the Euro down? :unsure:
Quote from: Sheilbh on August 03, 2012, 08:09:46 AM
A lot of people seem to be interpreting Draghi's comments today as an implied threat to outvote/overrule the Bundesbank. Which is interesting.
Nothing implied about it. He called out Weidmann by name and said he was in a minority of one.
Berlusconi owned newspaper:
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fimages.zeit.de%2Fpolitik%2Fausland%2F2012-08%2Fil-giornale%2Fil-giornale-180xVar.jpg&hash=f05e8e690411852c06902cb1d2f6e2011919800e)
Quote from: The Minsky Moment on August 03, 2012, 09:31:42 AM
Quote from: Sheilbh on August 03, 2012, 08:09:46 AM
A lot of people seem to be interpreting Draghi's comments today as an implied threat to outvote/overrule the Bundesbank. Which is interesting.
Nothing implied about it. He called out Weidmann by name and said he was in a minority of one.
I am sure Asmussen (http://en.wikipedia.org/wiki/J%C3%B6rg_Asmussen) shares Weidmann's concerns. They were the architects of Germany's crisis response from the start.
:huh:
I wasn't aware that Germany had a response to the crisis.
I wish we had one of those. :(
Quote from: Iormlund on August 03, 2012, 08:18:47 AM
How could Draghi push the Euro down? :unsure:
By increasing its supply.
Quote from: Syt on August 03, 2012, 10:23:45 AM
Berlusconi owned newspaper:
Will the readership interpret that as an insult or an endorsement?
Quote from: Admiral Yi on August 03, 2012, 11:33:03 AM
Quote from: Iormlund on August 03, 2012, 08:18:47 AM
How could Draghi push the Euro down? :unsure:
By increasing its supply.
So far he's only been able to supply money to banks, that use it to deleverage so it doesn't enter the economy.
If, OTOH, he managed to monetize troubled debt the Euro would go up rather than down, since the current market is already pricing a messy end to the common currency.
Quote from: Admiral Yi on August 03, 2012, 11:33:03 AM
Quote from: Iormlund on August 03, 2012, 08:18:47 AM
How could Draghi push the Euro down? :unsure:
By increasing its supply.
Which he can only influence indirectly.
Quote from: Iormlund on August 03, 2012, 12:38:42 PM
So far he's only been able to supply money to banks, that use it to deleverage so it doesn't enter the economy.
A big chunk was used by banks to buy sovereign debt.
Article in the Economist on Spanish regional debt: debt/regional GDP ratios range from 10 to 20%.
Quote from: MadImmortalMan on August 03, 2012, 03:04:05 AM
... maybe we should just ask MIT what to do.
They'll say a bigger and better algo is the solution.
Quote from: Admiral Yi on August 03, 2012, 01:43:28 PM
Quote from: Iormlund on August 03, 2012, 12:38:42 PM
So far he's only been able to supply money to banks, that use it to deleverage so it doesn't enter the economy.
A big chunk was used by banks to buy sovereign debt.
Article in the Economist on Spanish regional debt: debt/regional GDP ratios range from 10 to 20%.
Spanish regional debt's normally included. I think central government debt's around 60-70%.
Also it's not clear that very much LTRO money went on sovereigns. That's one of the problems with the program. It's closer to the off balance sheet aid the Fed and BofE gave banks than anything to help sovereigns.
Quote from: Sheilbh on August 03, 2012, 03:52:31 PM
Spanish regional debt's normally included. I think central government debt's around 60-70%.
Not in the articles I read.
QuoteAlso it's not clear that very much LTRO money went on sovereigns. That's one of the problems with the program. It's closer to the off balance sheet aid the Fed and BofE gave banks than anything to help sovereigns.
I don't know what you are saying. The ECB lent banks a bunch of money at cheap rates. The banks turned around and bought home country sovereigns, causing a temporary dip in Italian and Spanish yields to 4%.
Some Spanish and Italian banks used part of the money to buy their own sovereign bonds. But for the most part the money reached creditor banks and was then parked at the ECB overnight deposit facility instead of entering the economy. The ECB had to slash interest rates paid to 0% to discourage this behaviour.
That's similar to what Sweden did in the 90s. It looks like it worked well for them.
Quote from: Admiral Yi on August 03, 2012, 04:02:17 PM
I don't know what you are saying. The ECB lent banks a bunch of money at cheap rates. The banks turned around and bought home country sovereigns, causing a temporary dip in Italian and Spanish yields to 4%.
Basically what Iorm said. The majority of the money went straight back to the ECB, though it's clear that some bought sovereign bonds first. There was an improvement in the issuance of bonds for some peripheral states but it wasn't that massive.
That helped bring yields down but a more significant benefit was that LTRO looked to break the sovereign-bank link, which as the suggestion of banking union at the last Eurosummit demonstrated is something the markets are desperate to happen. It also had a big effect in removing some of the problems with European banking system in general was having. It's worth observing that LTRO had a big effect on Spanish yields especially because Spanish banks bought home country sovereigns, after all they're probably safer than, say, mortgage backed securities or much else in Spain at the minute. The reverse was the case in Italy.
In terms of its operation LTRO wasn't like QE, but like the (off balance-sheet) short-term refinancing support extended to British and American banks by the BofE and Fed in 2008.
Monti made an interesting point today about the challenge for leaders being to stop psychological differences between Europe as old, negative national stereotypes and attitudes begin to dictate politics. I think he's right in identifying a sort-of cultural reversal of Euro success, the same's happening with capital, apparently its renationalisation is continuing at a very rapid pace :(
:huh:
LTRO didn't break bank-sovereign loop at all. It just bought time. Time politicians everywhere wasted.
In fact during that time foreign holdings of Spanish debt decreased considerably. And that's the only card we can still play ...
Quote from: Iormlund on August 05, 2012, 06:58:28 PM
:huh:
LTRO didn't break bank-sovereign loop at all. It just bought time. Time politicians everywhere wasted.
The markets thought it was a step in that direction, like the last Eurosummit. They were then disappointed by Euro-disagreements and vacillation.
Quote from: Iormlund on August 05, 2012, 06:58:28 PM
:huh:
LTRO didn't break bank-sovereign loop at all. It just bought time. Time politicians everywhere wasted.
In fact during that time foreign holdings of Spanish debt decreased considerably. And that's the only card we can still play ...
It's like a march into the inevitable...
Latest polling data for Spain (before the latest austerity measures were announced):
(https://p.twimg.com/AznBXpNCIAAOVid.jpg:large)
Backed by this strong popular mandate, PP is focusing on what counts. For starters, fetal malformation won't be grounds for abortion anymore ...
Shell are pulling their money from peripheral banks due to the credit risks. They're also re-evaluating their credit relationships down the supply chain. Apparently they're worried about whether their suppliers will be able to access credit if they have to rely on local banks.
The problem's already happened in Greece, solvent businesses have gone under because their partners in other countries won't extend Greek banks a line of credit.
Quote from: Iormlund on August 05, 2012, 06:58:28 PM
:huh:
LTRO didn't break bank-sovereign loop at all. It just bought time. Time politicians everywhere wasted.
In fact during that time foreign holdings of Spanish debt decreased considerably. And that's the only card we can still play ...
Unfortunately, not really wasted. Most of that time was meant to reduce exposure to the PIIGS... it is appearently clear that it is safer to try to rebuild the periphery (adfter painful reform) than to try and hold it indefinitely in the way it was now.
It's also for the survival of the EU as a whole: without the risk of general crisis from a southern european financial collapse, the EU can concentrate itself better in fixing what's wrong down here. The main doubt is, will the local populations endure it?
(for Portugal, I can guarantee that they will; for Greece, Italy and Spain, I'm not so sure...)
The Troika has absolutely no intention of fixing what's wrong in Club Med. It just wants its money back.
Quote from: Iormlund on August 06, 2012, 07:45:37 AM
The Troika has absolutely no intention of fixing what's wrong in Club Med. It just wants its money back.
They can't fix it if you don't want to.
Quote from: Tamas on August 06, 2012, 07:50:05 AM
Quote from: Iormlund on August 06, 2012, 07:45:37 AM
The Troika has absolutely no intention of fixing what's wrong in Club Med. It just wants its money back.
They can't fix it if you don't want to.
So that's Greece. Portugal, Spain, Ireland and Italy have all been doing what they should or what they've been told, with gusto.
Even with all that it's not clear that internal devaluation will work, without a common language there's not practically the same opportunity for labour mobility as in, say the US. The IMF blog had a post on internal devaluation and lessons from the Baltics. They concluded that the conditions for is success are a small, open economy with a flexible labour market. At best, it could work for Ireland.
But the Shell story I think matters and highlights a difference. I think that the Euro will live or die based on what happens in Wall Street and the City, I think that's the general Anglo-Saxon view. I think the Euroview is that what matters is Brussels and Frankfurt, with national capitals. That view and suspicion of Anglo-Saxon speculators seems universal.
Quote from: Tamas on August 06, 2012, 07:50:05 AM
Quote from: Iormlund on August 06, 2012, 07:45:37 AM
The Troika has absolutely no intention of fixing what's wrong in Club Med. It just wants its money back.
They can't fix it if you don't want to.
There's no way any party will run on cutting pensions or removing protection from older workers. You just have to take a look at demographic data to understand why.
But the Troika can easily do that by specifying those (and others) as pre-conditions for turning Draghi loose.
The idea that the Troika can suggest or even implement any policy that doesn't at least have some local support is unrealistic.
Not really. The history of the EU is, often, about the EU forcing local politicians to do things that they should but probably couldn't without it being required by the EU. So people may oppose the actual policies but support it because it's required to join the EU/to join the Euro/to get a bailout. As the saying goes the problem's Spain, the answer's Europe.
You really still believe that? After all that has happened?
Quote from: Zanza on August 06, 2012, 10:46:12 AM
The idea that the Troika can suggest or even implement any policy that doesn't at least have some local support is unrealistic.
How many people do you think were anxious to borrow €100bn for the banks? To suffer one tax hike after another? See hospitals closed?
Quote from: Iormlund on August 06, 2012, 12:25:53 PM
Quote from: Zanza on August 06, 2012, 10:46:12 AM
The idea that the Troika can suggest or even implement any policy that doesn't at least have some local support is unrealistic.
How many people do you think were anxious to borrow €100bn for the banks? To suffer one tax hike after another? See hospitals closed?
At the very least one:
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fwww.spanien-spanien.com%2Fwp-content%2Fuploads%2F2011%2F05%2FRajoy.jpg&hash=d8f1e680365227874df73f4b673e6e1c17aa85ef)
Quote from: Razgovory on August 06, 2012, 12:17:14 PM
You really still believe that? After all that has happened?
No. It's a saying that I think's been around in Spanish politics for a while.
Zanza to answer about the markets I don't think the City or Wall Street should be got rid of because the Euro's fate will be determined by the markets, roughly for three reasons.
If it wasn't Wall Street and the City, it would be Dubai and Hong Kong. The Euro's fate will be determined by whether the response to the crisis is credible and can instil confidence in the financial markets. That's true no matter where those markets are based. The benefits from having them in London and New York are immense. Not least that they're transparently regulated by democratic governments and are required to meet global standards on things like Basel, tax evasion and money laundering. What's more, because they're there those global requirements are largely shaped by democracies.
Secondly I think it's generally as much an error for democratic governments to try to direct or control the economy just as it is for authoritarian regimes. Economy's should be regulated and mixed, for sure, but they shouldn't be about encouraging or discouraging certain forms of economic behaviour unless it's so damaging (insider trading, potentially LIBOR). This is why I always think of King Cnut when I see that Europe's banned short-selling, again.
Finally the markets normally act as a necessary corrective to policies pursued by democratic governments. Arguably this current crisis is the market response to the political error Germany (and others) made when they let Italy and Greece into the Euro, knowing they were lying. Similarly the markets fixed the error of Britain's entry into ERM, the democratic meddling was precisely the problem with Cajas and Landesbanks (the German regional banks) and recessions allow for creative destruction. They're a positive and, as I say, necessary balance to democratic politics.
The problem I have with current policies is that they're leading to a self-inflicted depression in Southern Europe - that's the real issue, not the markets. Solutions are agreed to problems that are consistently underestimated (according to the 2010 program, this is the quarter Greece returns to growth; according to the autumn 2011 program this year the Greek economy should only shrink by 3%; in fact the Greek economy is on course to shrink by 7%, like last year making it a 21% decline in 4 year). The destruction in the periphery isn't even creative. Both good and bad businesses are failing (who would extend a Greek bank a line of credit now, regardless of the success of their clients), both solvent and insolvent banks are struggling to finance themselves and a generation is being trashed - over 50% youth unemployment in two Eurozone states and unemployment in Greece that's reaching the peak Germany suffered during the depression. In this context governments that have lower deficits and debts than the US or UK are having to make swingeing cuts to meet an artificial, political timetable (2013, or 2014 for Spain) in a context of restrictive monetary policy.
Understandably the financial markets look at all of that and at the political difficulties of bailouts, or fiscal transfers, and at Bundesbank opposition to ECB bond buying and conclude that something's got to give. While that goes on Europe's leaders will continue to lose their credibility and confidence will continue to seep out of the periphery, reinforcing all of the above problems in a vicious cycle. If something doesn't change soon, then I think economists will look back on this period with amazement, as they look at policymakers in the Great Depression.
And the problem all of this poses for the core of the European project is, I think, quite serious - I don't think European unity is irreversible. I'm reminded of the Stefan Zweig line on World War I that Paul Mason recently quoted, Europe's common optimism betrayed us.
Sorry, I deleted my posts because I felt like I was just rehashing discussions we had before.
Quote from: Sheilbh on August 06, 2012, 01:03:25 PMI don't think European unity is irreversible.
I am no longer sure if that's a bad thing. If the EU isn't right for Britain - as you say yourself - it might not be the right thing for us either. I used to be a convinced euro-federalist, but I am no longer sure that's the right way forward.
Quote from: Zanza on August 06, 2012, 01:43:38 PM
I am no longer sure if that's a bad thing. If the EU isn't right for Britain - as you say yourself - it might not be the right thing for us either. I used to be a convinced euro-federalist, but I am no longer sure that's the right way forward.
Same. I was a committed believer in Europe (and weirdly when I'm studying EU law my flame's rekindled). Though I wonder if our motivations were always different? I saw Europe, as Blair recently put it, as being about power. By pooling together we'd have more clout and influence on the world stage. My vision of Europe was basically mildly Gaullist. But I think that's probably a way that only pro-Europe Brits and French see it.
For Germany it's always probably been different. Europe for Germany's decidedly not about power. I imagine for Eastern Europeans it's largely about economics and not being Russia. I don't know if you can build 'Europe' when that means something different in each political climate.
As I say if we were to vote now I'd withdraw from the EU, not least because we're not a great exporting country. But I think the best solution could be the old British vision of a looser, borderless free-trade union. Given Europe's history it's still an enormous achievement, but given the hopes I can't help but feel that's still kind of sad and limited :(
Sir Humphrey's "Pig's Breakfast".
Quote from: MadImmortalMan on August 06, 2012, 01:57:29 PM
Sir Humphrey's "Pig's Breakfast".
That suggests some kind of planned policy with goals and actions. My impression of the current British government is that it is completely clueless and reactive regarding its EU policy.
The UK might not manufacture as much as Germany, but contrary to commonly held belief, it does have significant industry. And then there's the service sector that serves other EU markets, starting with the City itself.
I can't see how the UK can walk away from the Common Market without taking a massive hit.
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.
Quote from: Iormlund on August 06, 2012, 02:05:18 PM
The UK might not manufacture as much as Germany, but contrary to commonly held belief, it does have significant industry. And then there's the service sector that serves other EU markets, starting with the City itself.
There's no common market in services yet, and in terms of export we now have more trade with non-EU than EU countries.
QuoteI can't see how the UK can walk away from the Common Market without taking a massive hit.
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.
QuoteThat suggests some kind of planned policy with goals and actions. My impression of the current British government is that it is completely clueless and reactive regarding its EU policy.
You're flattering them by only extending that to EU policy :P
Quote from: Zanza on August 06, 2012, 02:12:17 PM
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 :lol:
Quote from: Sheilbh on August 06, 2012, 02:14:50 PM
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.
Quote from: Sheilbh on August 06, 2012, 02:14:50 PMThere'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.
QuoteThere'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.
QuoteYou're flattering them by only extending that to EU policy :P
I don't really follow British domestic politics so I can't say anything about that.
Quote from: Sheilbh on August 06, 2012, 02:17:53 PM
Quote from: Zanza on August 06, 2012, 02:12:17 PM
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 :lol:
What does he want to offer the rest of the EU for his opt-outs? Why should they even talk to him about that?
Quote from: Zanza on August 06, 2012, 02:34:17 PM
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.
QuoteEurope 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.
QuoteThe 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.
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 :P
East Euros and Mediterranians? They wanted free money.
Quote from: Sheilbh on August 06, 2012, 02:49:11 PMHe's offering nothing.
Then he hasn't understood yet how the EU works. He should better talk to Sir Humphrey again.
QuoteNowhere 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? :lol: 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.
QuoteYep, 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?
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.
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 :lol:
Quote from: Sheilbh on August 14, 2012, 03:46:39 PM
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.
Quote from: Sheilbh on August 14, 2012, 03:46:39 PM
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 :lol:
:huh: Why do you need to trust the troika? They're not making any backloaded promises.
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.
Quote from: Admiral Yi on August 14, 2012, 04:02:39 PM
Quote from: Sheilbh on August 14, 2012, 03:46:39 PM
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 :lol:
:huh: 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.
Quote from: Sheilbh on August 14, 2012, 04:15:55 PM
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.
Of course they need to be credible. How are they supposed to sell the pain if nobody believes there'll be any gain?
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.
Quote from: Iormlund on August 14, 2012, 05:26:36 PM
Of course they need to be credible. How are they supposed to sell the pain if nobody believes there'll be any gain?
Bingo. Here's the 600 pound gorilla. Greece provides austerity in exchange for growth, and the troika is not meeting their half of the bargain.
That's not the deal. The deal is austerity in exchange for loans.
Quote from: Sheilbh on August 14, 2012, 05:29:25 PM
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.
This reminds me of Neil's comment about disfunctional state voters and the federal government. The primary responsibility for stupidity lies with the people being stupid.
What do you mean by that comparison?
I'd add the issue isn't austerity for growth but averting a depression caused as much by factors aside from austerity (like the stability of the banking sector) which is beneficial for all of Europe. And austerity according to a program that works - none of the Troika countries are close to being able to return to the market or reducing their debt (with the partial exception of Ireland because of a potential bank bailout), even model patients like Portugal and Ireland. In that context it's worth noting that all rating agencies say the major problem is the economic situation and the effects of the Eurozone crisis in general, like the renationalisation of capital.
Quote from: Iormlund on August 14, 2012, 05:26:36 PM
Of course they need to be credible. How are they supposed to sell the pain if nobody believes there'll be any gain?
I don't think "no pain, no gain" is applicable in this case. The point of austerity is not to painfully pump iron to gain muscle mass. The point of austerity is to put your hand in the hot oven, and keep it there, just to show others that you're man enough to do it.
Quote from: Admiral Yi on August 14, 2012, 05:37:03 PM
Quote from: Iormlund on August 14, 2012, 05:26:36 PM
Of course they need to be credible. How are they supposed to sell the pain if nobody believes there'll be any gain?
Bingo. Here's the 600 pound gorilla. Greece provides austerity in exchange for growth, and the troika is not meeting their half of the bargain.
That's not the deal. The deal is austerity in exchange for loans.
You're being deliberately obtuse here. The question is whether the current strategy can deliver better living standards than default and dissolution of the Eurozone.
If every single projection fails miserably eventually the will to carry on will naturally wane.
Quote from: Iormlund on August 14, 2012, 06:01:37 PM
You're being deliberately obtuse here. The question is whether the current strategy can deliver better living standards than default and dissolution of the Eurozone.
If every single projection fails miserably eventually the will to carry on will naturally wane.
No I'm not. You're not facing reality. Default automatically, overnight, reduces your deficit to zero. That's 6% of current consumption (or whatever the current Greek deficit) that disappears. *That* is a reduction in living standards. The purpose of an IMF style bailout is *not* to boost everyone's standard of living, it's to cushion the blow while the program country takes the necessary--and by definition unpleasant and painful--measures needed to return the country to fiscal stability.
Quote from: Sheilbh on August 14, 2012, 05:52:27 PM
What do you mean by that comparison?
I mean it's not Merkel's job to convince Greek voters they would be even more fucked if they default.
QuoteIn that context it's worth noting that all rating agencies say the major problem is the economic situation and the effects of the Eurozone crisis in general, like the renationalisation of capital.
I'm pretty sure if asked the question directly they would say the major problem from their point of view is the likelihood bond investors will be repaid.
Quote from: DGuller on August 14, 2012, 06:00:35 PM
Quote from: Iormlund on August 14, 2012, 05:26:36 PM
Of course they need to be credible. How are they supposed to sell the pain if nobody believes there'll be any gain?
I don't think "no pain, no gain" is applicable in this case. The point of austerity is not to painfully pump iron to gain muscle mass. The point of austerity is to put your hand in the hot oven, and keep it there, just to show others that you're man enough to do it.
I disagree. Austerity's necessary. What is unhelpful though is a politically imposed timeline (2013) and unsupportive monetary policy. Especially when there's very real concerns about the viability of the banking sector (Europe-wide, it's why Slovenia may need a bailout despite its debt of around 45%) and the survival of the currency union.
I support UK austerity, over several years with a loose monetary policy, though I think it's been mishandled and agree with the IMF that the government should be prepared to ease of and backload it more of the economy continues to slide.
Similarly I think austerity is necessary in the US.
Quote from: Admiral Yi on August 14, 2012, 06:13:45 PM
Quote from: Sheilbh on August 14, 2012, 05:52:27 PM
What do you mean by that comparison?
I mean it's not Merkel's job to convince Greek voters they would be even more fucked if they default.
Again I'm not sure what you mean here about the Troika and the Eurozone, including Germany.
There's a third option, that the Eurozone sort of muddles through for a good few more years in the way it has already ie mini-crisis that threaten, but never bring down the whole edifice, whilst politicians sticking plastic policies in an ad hoc fashion.
And yet it still rumbles one as no one is willing to take their own personal, political or national leap into the dark/unknown.
Quote from: Sheilbh on August 14, 2012, 06:23:30 PM
Again I'm not sure what you mean here about the Troika and the Eurozone, including Germany.
I'm not sure what you're not sure about.
QuoteNo I'm not. You're not facing reality. Default automatically, overnight, reduces your deficit to zero. That's 6% of current consumption (or whatever the current Greek deficit) that disappears. *That* is a reduction in living standards. The purpose of an IMF style bailout is *not* to boost everyone's standard of living, it's to cushion the blow while the program country takes the necessary--and by definition unpleasant and painful--measures needed to return the country to fiscal stability.
OK, maybe not deliberately obtuse.
Nobody is talking about boosting living standards. It's about minimizing loss of those.
In any case, Greece is already losing over 6% GDP a year and it's getting worse every year. And it's not just raw numbers that matter. What are economies like Spain going to do in one or two decades when the boom generation is retired, with our best talent abroad, an entire generation that hasn't worked and no R&D investment for a decade?
Quote from: Admiral Yi on August 14, 2012, 06:28:22 PM
Quote from: Sheilbh on August 14, 2012, 06:23:30 PM
Again I'm not sure what you mean here about the Troika and the Eurozone, including Germany.
I'm not sure what you're not sure about.
My point is that politically the system needs to suow that it can work to survive. If that doesn't happen the Germans might decide they're pouring good money after bad and refuse further support even to model countries like Ireland and Portugal. The Greeks might leave (not for lack of growth but lack of prospect of growth) with all those unpredictable consequences and costs to the rest of the Eurozone and world economy. Or potential patients like Italy (who UBS think would benefit most from Euro-exit) decide to leave. If the Troika isn't working in restoring countries to the markets or dealing with their debts then all sides will lose political faith.
Also, the Troika's responsible to more than Merkel and the IMF, most of the ECB and I'd guess most contributors aren't happy with the current course.
Quote from: Iormlund on August 14, 2012, 06:34:23 PM
OK, maybe not deliberately obtuse.
I'm not terribly interested in getting into a name-calling contest.
Quote from: Sheilbh on August 14, 2012, 06:49:54 PM
My point is that politically the system needs to suow that it can work to survive. If that doesn't happen the Germans might decide they're pouring good money after bad and refuse further support even to model countries like Ireland and Portugal. The Greeks might leave (not for lack of growth but lack of prospect of growth) with all those unpredictable consequences and costs to the rest of the Eurozone and world economy. Or potential patients like Italy (who UBS think would benefit most from Euro-exit) decide to leave. If the Troika isn't working in restoring countries to the markets or dealing with their debts then all sides will lose political faith.
Also, the Troika's responsible to more than Merkel and the IMF, most of the ECB and I'd guess most contributors aren't happy with the current course.
What you seem to be suggesting is a technical failure. If only the troika had a much more clever austerity program in place then Greece's contraction would be less severe and there would be no need for additional funding. If you've got something in mind I'd love to hear it.
That is *not* the same debate that I hear taking place. The "less austerity" debate is at bottom line about Germany coming up with even more money.
It's established that the IMF proposed a different program for Greece, including partial default/debt forgiveness in place of devaluation. That was rejected by France and Germany because it would hit their banks hard (in 2010 BBC correspindents suggested it seemed like bailout for Euro banks via Greece), as deterrence and, according to Papandreou to make it so unpleasant no one else would want it.
All I want is something closer to a traditional IMF program, run by the IMF who have more experience at this and at providing technical assistance than the EU, which has next to none.
In addition I think the current system is producing those psychological barriers Monti's talks about, as well as real effects like nationalising capital. I think part of the reason the risk of Euro failure is increasing is because of growing distrust and difficulty cooperating (Germany seeing everyone as Greek, Berlusconi papers depicting a fourth Reich). If everyone sees it in zero sum terms I think the outcome's more unpredictable and negative which is why the Troika needs to show it can work.
The bottom line for me is Germany enduring a bit more inflation and longer time frames for austerity, other parts of Europe reforming and cutting and the whole of Europe taking credible steps on fiscal and banking union (first step, allowing the ECB as common regulator, with power to wind up banks).
No one in Europe is talking about less austerity, that's decided, but about slower austerity. I often get annoys with the American commentators because the debate seems to be entirely about the US by proxy. Paul Krugman's the worst and he didn't really survive a BBC interview because he as basically projecting regardless of the facts here or in Europe, his ostensible topic.
Quote from: Sheilbh on August 14, 2012, 07:18:48 PM
It's established that the IMF proposed a different program for Greece, including partial default/debt forgiveness in place of devaluation. That was rejected by France and Germany because it would hit their banks hard (in 2010 BBC correspindents suggested it seemed like bailout for Euro banks via Greece), as deterrence and, according to Papandreou to make it so unpleasant no one else would want it.
Greece did partially default. :huh:
QuoteAll I want is something closer to a traditional IMF program, run by the IMF who have more experience at this and at providing technical assistance than the EU, which has next to none.
Tell me how Greece's program is different from a traditional IMF program. I don't see it. The IMF comes up with numbers for spending cuts and revenue increases, and funds the rest.
QuoteIn addition I think the current system is producing those psychological barriers Monti's talks about, as well as real effects like nationalising capital. I think part of the reason the risk of Euro failure is increasing is because of growing distrust and difficulty cooperating (Germany seeing everyone as Greek, Berlusconi papers depicting a fourth Reich). If everyone sees it in zero sum terms I think the outcome's more unpredictable and negative which is why the Troika needs to show it can work.
And I think Greek voters need to wake up and smell the roses. They can take the pain Germany is offering, or decline the offer and have it even worse. Beggars can't be choosers.
QuoteThe bottom line for me is Germany enduring a bit more inflation and longer time frames for austerity, other parts of Europe reforming and cutting and the whole of Europe taking credible steps on fiscal and banking union (first step, allowing the ECB as common regulator, with power to wind up banks).
No one in Europe is talking about less austerity, that's decided, but about slower austerity. I often get annoys with the American commentators because the debate seems to be entirely about the US by proxy. Paul Krugman's the worst and he didn't really survive a BBC interview because he as basically projecting regardless of the facts here or in Europe, his ostensible topic.
Slower austerity means more German money. More front-loaded to cover a bigger deficit, and for a longer time.
Quote from: Admiral Yi on August 14, 2012, 05:42:36 PM
Quote from: Sheilbh on August 14, 2012, 05:29:25 PM
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.
This reminds me of Neil's comment about disfunctional state voters and the federal government. The primary responsibility for stupidity lies with the people being stupid.
Calling people stupid and being judgemental is a hard way to operate public policy. Especially when you would really like these people to go along with your program.
Quote from: Admiral Yi on August 14, 2012, 07:59:08 PM
Slower austerity means more German money. More front-loaded to cover a bigger deficit, and for a longer time.
It does, but like you say, the alternative is worse.
Shelf seems to have a good grasp on this, and I agree that Krugman is an idiot recently. Well, since Bush was elected really.
I see over and over people saying this shit will not create growth. Well duh. The point is not that any of these policies will create growth. The growth already happened, it just hasn't been paid for yet. None of the austerity stuff out there now is intended to create growth.
Not sure who you are agreeing with Mimsy. :unsure:
Quote from: Admiral Yi on August 15, 2012, 12:48:02 PM
Not sure who you are agreeing with Mimsy. :unsure:
I think there is an inherent agreement between you and Sheilbh, you're just saying it in different ways.
Quote from: Admiral Yi on August 14, 2012, 03:24:24 PM
The troika set a target of 50 billion euros in privatization proceeds.
Why not make it trillion and put the pinky in the mouth?
Quote from: The Minsky Moment on August 15, 2012, 02:04:26 PM
Why not make it trillion and put the pinky in the mouth?
Not sure. Maybe the Greek state doesn't possess a trillion euros worth of assets.
Quote from: Admiral Yi on August 15, 2012, 02:09:15 PM
Quote from: The Minsky Moment on August 15, 2012, 02:04:26 PM
Why not make it trillion and put the pinky in the mouth?
Not sure. Maybe the Greek state doesn't possess a trillion euros worth of assets.
Likely. Their GDP is like a third of that. :P
Quote from: Admiral Yi on August 14, 2012, 06:09:33 PM
No I'm not. You're not facing reality. Default automatically, overnight, reduces your deficit to zero. That's 6% of current consumption (or whatever the current Greek deficit) that disappears. *That* is a reduction in living standards.
More than half of the Greek deficit is interest on the existing debt and it is growing. that also goes away on default.
QuoteThe purpose of an IMF style bailout is *not* to boost everyone's standard of living, it's to cushion the blow while the program country takes the necessary--and by definition unpleasant and painful--measures needed to return the country to fiscal stability.
That only makes sense if there is a realistic path to recovery of the real economy. But there isn't. The austerity proposals don't address that. And without out, fiscal stablization is not possible, it is a death spiral.
Quote from: Admiral Yi on August 15, 2012, 02:09:15 PM
Quote from: The Minsky Moment on August 15, 2012, 02:04:26 PM
Why not make it trillion and put the pinky in the mouth?
Not sure. Maybe the Greek state doesn't possess a trillion euros worth of assets.
So where are the assets that could fetch 50 billion?
Not feasible is not feasible.
Quote from: The Minsky Moment on August 15, 2012, 02:23:30 PM
So where are the assets that could fetch 50 billion?
Not feasible is not feasible.
No clue. The only assets I've seen mentioned in print are the lottery and the Athens airport.
Obviously if Greece doesn't own 50 billion worth of assets it's unreasonable. Do you have any evidence that suggests that true other than my inability to list them?
Quote from: The Minsky Moment on August 15, 2012, 02:21:22 PM
That only makes sense if there is a realistic path to recovery of the real economy. But there isn't. The austerity proposals don't address that. And without out, fiscal stablization is not possible, it is a death spiral.
What do you mean there's no realistic path to recovery? Go back and re-read your own article about the deflationary spiral. It's a very specific linkage between deleveraging and money supply. It's not, as your posts often suggest, a generalized tendency of contracting economies to contract forever.
isn't one of the reasons the greeks dn't get their assets sold is because the rest of their economy is still so very closed? Locked up in what are essentially closed guilds.
Quote from: Admiral Yi on August 14, 2012, 07:59:08 PM
Greece did partially default. :huh:
The IMF proposed a partial default in 2010, before the first bailout. At that point the majority of Greek debt was private sector held and debt to GDP was around 125%. By the time Greece did default only around 20% of their debt was private sector and their debt to GDP was over 150% so it had far less effect. A large part of the reason for that (as well as debt held by core banks like those in Germany and France) was to avoid contagion, ironically enough.
QuoteTell me how Greece's program is different from a traditional IMF program. I don't see it. The IMF comes up with numbers for spending cuts and revenue increases, and funds the rest.
I'm not sure, I can say what they're arguing for now. The IMF are currently, reportedly, wanting 'more realistic' reforms and timetables for reform implementation. They also think the program should be more ambitious so instead of aiming to get 120% debt to GDP by 2020, they want 100%. At the same time they don't think that's plausible without either the ECB or the EFSF taking a haircut, or the Eurozone taking on the €50 billion cost of the Greek bank bailout. Needless to say Europe's reluctant to take any of those steps.
QuoteAnd I think Greek voters need to wake up and smell the roses. They can take the pain Germany is offering, or decline the offer and have it even worse. Beggars can't be choosers.
Your perspective on this depends on how much you think the Eurozone's done. As I see it the Greeks are beggars with a nuke. It's a bit like Vince Cable's (lefty Lib Dem Business Secretary) description of his position in cabinet. He doesn't have much leverage to shift policy most of the time, but he does have a nuclear option which is that by resigning he would bring the government down. So he can only be taken for granted so far. If you think - and from what I can tell, the German government does - that enough has been done to establish that the Eurozone can respond quickly and has large enough firewalls then it's fine, the Greeks are beggars. If not then the calculation changes.
The situation's the same with Ireland and Portugal but different for Italy and Spain. Those two countries can, from my understanding, more or less veto anything the EU wants to do unless they get their way - this is what Monti did at the last summit, which is why they won't be so easily dictated to by the Troika.
QuoteSlower austerity means more German money. More front-loaded to cover a bigger deficit, and for a longer time.
No it doesn't.
First of all it's not German money. Germany's the most important creditor because it's the biggest and the last AAA big country in the Eurozone. But all countries have contributed an equal amount proportionate to GDP. The Germans have contributed around about a third, but the French, Italians and Spanish have also contributed around 3-4% of their GDP to these bailout funds.
Secondly I'm not talking about the program countries - of them I think Greece and Portugal probably need renegotiation and possibly a further bailout and Ireland needs that promised Euro-help with their banks. I'm talking about the fiscal pact that means all Eurozone countries are required to cut their deficit to under -3% by 2012. This was a political deadline set by Euro leaders, and subsequently extended to 2014 for Spain. If they don't they face a 1.5% of GDP fine. This means that countries with low levels of debt and a relatively low deficits are making far steeper cuts than, say, the UK despite the lack of market pressure - often their yields are falling to record lows. The effect is that the core economies are, at best stalling, and some are seeing governments fall and slides into recession (the Netherlands). The problem with this is it really is the paradox of thrift. All of these countries need austerity but they need it far less than the Anglo-Saxon world and it needs to be less precipitate. As it is it seems singularly unsupportive of the Eurozone to simultaneously require these budget cuts periphery while taking steps that remove demand from the core economies that as major trading partners could help them recover.
Just today Danske said they didn't expect growth in the Eurozone until 2013 citing austerity, uncertainty, renationalisation of capital and banks as the major problems.
QuoteNo I'm not. You're not facing reality. Default automatically, overnight, reduces your deficit to zero. That's 6% of current consumption (or whatever the current Greek deficit) that disappears. *That* is a reduction in living standards.
Actually the Greek primary deficit is 2.5% - down from over 10% a couple of years ago.
Incidentally the EU is supposed to issue its report on banking union next month, due for implementation by the end of the year. Here's an update from the FT:
QuoteSearching for common ground on a European banking union
Posted by Masa Serdarevic on Aug 15 14:56.
With the EC set to outline its proposals for a European banking union in less than a month's time, leaked documents detailing the initial discussions indicate differences of opinion remain as wide as ever.
A key area of contention seems to be delegation of banking oversight tasks. From Bloomberg (our emphasis):
QuoteThe ECB should have a core set of central powers to oversee all banks in the 17-nation currency bloc while delegating some tasks to individual countries, under one option favored by the U.K. and European Union economic policy officials. The ECB supports a similar "light touch" approach that would leave day-to-day supervision for most banks in the hands of national authorities, the documents show.
Another approach, backed by officials working on EU financial rules, would require the ECB to take major oversight decisions for all banks, the papers show. Officials opposed to this approach say it could compromise the central bank's reputation and perceived independence, according to the documents, which include EU-level and U.K.-based analysis of the policy debate.
"Light touch" versus "major oversight"? That's quite a gulf and no sign of a bridge.
But at least there seems to be agreement that the ECB would "directly supervise" banks that have actually been bailed-out:
QuoteThe ECB could become the day-to-day supervisor for euro- area banks considered systemically significant worldwide or within Europe, as well as for lenders that tap euro-zone rescue funds, according to the documents. The papers show that the central bank agrees that it should directly supervise institutions receiving EU bailouts and could delegate daily supervision of small banks to national regulators. The central bank would be able to override decisions taken by local authorities, according to the proposals.
And the UK wants to see other banks move to the new regime over the next three years (unless they need to be bailed out sooner) according to the docs.
Then there is the question of accountability. All policymakers are agreed that the ECB will have to be publicly accountable for its bank-supervision decisions. But the Commission also wants to give the European Parliament a say, whereas London prefers some kind of oversight role for national parliaments.
Checks and balances will need to go in multiple directions:
QuoteThese calls for accountability must be balanced by measures to preserve the ECB's independence as central bank and monetary- policy setter, according to the documents. As the banking-union plan takes shape, EU lawyers are examining how to make sure the ECB does not have an unfair advantage over other regulators because of its autonomy, the documents show. The central bank will need to remain insulated from political interference as it takes on its new powers.
There's also a Dutch/British clash, regarding who these new rules should cover and how the costs of the bank bailouts are shared. Unsurprisingly, the UK wants just be the 17 euro nations to be affected. The Dutch disagree, and have also called on the new bank supervisor to "carry out stress tests and for investors to take losses before accessing capital from the euro rescue fund".
Perhaps even more difficult is the question of how countries not part of the euro will fit in:
QuoteThere's also debate on whether non-euro nations will be able to participate in board meetings of the new single supervisor and related joint activities. If non-euro members are allowed as observers, the U.K. would like all EU nations to be included, while the European Commission favors granting access only to countries that have committed to join the common currency eventually, the documents say.
Coming less than a month before the Commission is expected to present its proposals on September 11, these documents are unlikely to soothe markets.
From a friendly trader, despairing at the lack of agreement:
QuoteIn a taste of the obstacles ahead, a leaked report on the initial discussions shows significant differences of opinion.
Does it cover Banks in the EU27 or EZ17? Is it a "light touch" ECB sharing powers and responsibilities with national Regulators, or an all powerful ECB? And then what is the oversight set-up for such an ECB? Does the ECB cover ALL EZ banks? or just the "systemically important", or even just the "rescued" ones....?
It's still unclear what level of detail the EC's proposals might contain. Mario Draghi didn't give away too much when he addressed the EU parliament last month:
Quote"We should expect from the commission a strong proposal, a strong proposal that would put the ECB in a position to carry out its duty with effectiveness, rigor, independence and without risk to its reputation."
But we should at least get some kind of feel for the scope of ECB involvement and how its relationship with the European Banking Authority might work. Still, Mariano Rajoy's hopes for a banking union to be approved at the December EU summit are likely to prove over-optimistic.
With the Dutch elections and the German constitutional court decision on ESM both due on September 12, expect bumpy week markets.
It's worth noting that 'systemically important' bit is, I believe, because Germany especially doesn't want the regional banks regulated by Europe. The trouble is its precisely those types of regional banks that, from my understanding, needed to be bailed out in Germany and are causing such problems in Spain.
Actually I agree with your first point Shelf. It was stupid to roll over private debt with official debt that was nonreducible. Should have performed the tonsure first.
Your second point about Greece's negotiating position I don't buy. Germany could hold the eurozone hostage just as easily as Greece.
Your third point about excessive austerity in the creditor countries I disagree with as well. One ratings agency has already put Germany on negative outlook (or is it a watch list?).
Strange that in the current context a fiscal deficit of 3% of GDP gets described as austere.
Quote from: Admiral Yi on August 15, 2012, 03:37:26 PMYour second point about Greece's negotiating position I don't buy. Germany could hold the eurozone hostage just as easily as Greece.
Indeed. As I say the programs need to show that they can work so that Germans keep faith with the Euro just as much as Greeks - though Germany's position is closer to Italy and Spain. They can block policies they don't like without the nuclear option.
QuoteYour third point about excessive austerity in the creditor countries I disagree with as well. One ratings agency has already put Germany on negative outlook (or is it a watch list?).
But why are they paying such low rates?
I don't think you can have it both ways. Either they're paying record low rates because of the dangers of Eurozone break-up - such as a Greek exit, or they're paying record low rates because markets have faith in their creditworthiness. If it's the former more steps need to be taken to limit the damage/save the Euro (the IMF are now publicly saying that Europe needs banking union and a far larger firewall), if it's the latter they can slow the pace.
As I say even if they went to the comparatively leisurely fiscal consolidation of Osborne (praised today by John Chambers for his serious fiscal and growth policies :lol:) I think they'd retain market faith.
I think it helps that all of Europe has some form of Parliamentary government. They can and have to pass budgets - austerity doesn't involve 3D chess the way it does in the US.
I think the rating agencies are useless to be honest. They downgraded France and they're now paying the lowest rates ever and, like the UK, Switzerland and Germany, even experienced negative interest rates on their debt.
QuoteStrange that in the current context a fiscal deficit of 3% of GDP gets described as austere.
I think it assumes a return to normality at some point, a deficit of around 3% is generally sustainable in a period of average growth. There's other conditions though - debt to GDP down to under 60%, for example - leeway of 1% of GDP during a recession. It's a dangerously pro-cylical policy in my view.
Quote from: Sheilbh on August 15, 2012, 03:50:03 PM
But why are they paying such low rates?
The same reason the US is paying nothing: there's no where else that people can park money with a reasonable expectation they will get it back.
But this expectation is not a galactic constant.
Quote from: Admiral Yi on August 14, 2012, 07:59:08 PM
Tell me how Greece's program is different from a traditional IMF program. I don't see it.
It's quite huge, actually. IMF programs make use of monetary policy to provide room for growth via exports. In this crisis, absurd monetary policy is the most important factor dragging economies to the bottom.
Quote from: Admiral Yi on August 15, 2012, 03:57:36 PMThe same reason the US is paying nothing: there's no where else that people can park money with a reasonable expectation they will get it back.
But this expectation is not a galactic constant.
No, if anything that reason is very worrying.
But I think a better solution would be for them to submit multi-year deficit reduction plans to, say the EC, who taking account their debt and deficit sets a timetable for implementation of the fiscal plan rather than a flat 2 year period. There's simply no need for the Dutch to head into a recession and for the government to fall because they couldn't agree on a budget that would meet the fiscal pact by next year. So the pact should have been designed that if you're reducing a deficit of, say 8%, you should be able to take longer than reducing a deficit of 4%.
As I say multi-year plans are possible in Parliamentary systems (in the Netherlands competing parties actually submit their manifestos to the equivalent of the CBO to be costed before an election). So George Osborne can credibly say 'we'll reduce the deficit this much over this four year Parliament etc.', I think that option should be available for Euro leaders too.
Quote from: Sheilbh on August 15, 2012, 04:04:06 PM
So the pact should have been designed that if you're reducing a deficit of, say 8%, you should be able to take longer than reducing a deficit of 4%.
So you want to reward spendthrifts? That's a terrible idea. As mentioned before, bond investors don't hand out extra credit points for the amount of pain you expeirience.
Quote from: Iormlund on August 15, 2012, 04:02:21 PM
It's quite huge, actually. IMF programs make use of monetary policy to provide room for growth via exports. In this crisis, absurd monetary policy is the most important factor dragging economies to the bottom.
Actually a few IMF programs in Latin America have involved fixing the exchange rate to cure hyperinflation, but generally I concede the point.
However, an article in The Economist on a comparison of Japan's Lost Decade with the Eurozone leads me to believe that EU monetary policy is not quite as post-Weimarish as the conventional wisdom suggest. I could be wrong though, some of those Economist graphs are a litte tricky to read.
Quote from: Admiral Yi on August 15, 2012, 02:34:58 PM
No clue. The only assets I've seen mentioned in print are the lottery and the Athens airport. Obviously if Greece doesn't own 50 billion worth of assets it's unreasonable. Do you have any evidence that suggests that true other than my inability to list them?
Athens airport - net income is about 100 million euro/yr and the government owns 55%. So even if they could get 10x earnings that would get them to about 1% of the way to 50 billion. State lottery, revenue was at 400 million euro for last year statistics available (2006). Maybe it could fetch a few billion euro.
Most of what is left is land, and some loss-making state companies. The essential problem is that doing a fire sale in the middle of a depression. At best you can expect to get liquidation value and given that Greek assets are not so enticing for global risk averse investors, maybe not even that.
QuoteWhat do you mean there's no realistic path to recovery? Go back and re-read your own article about the deflationary spiral. It's a very specific linkage between deleveraging and money supply. It's not, as your posts often suggest, a generalized tendency of contracting economies to contract forever.
I'm not referring to debt deflation a la Fisher. I'm referring to the fact that the Greek economy is structurally uncompetitive which is a key fundamental factor driving the fiscal problem. In in this context that the deal has to involve pro-growth policies from the center to ease the structural adjustment. Putting the entire brunt of structural and fiscal adjustment would mean forcing the public sector to become a net saver while savaging the private sector ability to spend. That's a formula for cutting GDP in half.
Quote from: Admiral Yi on August 15, 2012, 04:13:57 PM
So you want to reward spendthrifts? That's a terrible idea. As mentioned before, bond investors don't hand out extra credit points for the amount of pain you expeirience.
Your morals are showing :P
I want there to be some flexibility - determined by the Commission - so that a country's fiscal consolidation reflects their levels of debt and deficit (so for example the guys with 40% debt but bad banks and a high deficit may take longer to adjust than the guys with 90% debt but solid banks and a much smaller deficit - who of those two is the spendthrift?). I think their policies should be decided based on that much politics and bond market response, not a general Euro-wide policy.
Quote from: Sheilbh on August 15, 2012, 04:24:09 PM
Your morals are showing :P
I want there to be some flexibility - determined by the Commission - so that a country's fiscal consolidation reflects their levels of debt and deficit (so for example the guys with 40% debt but bad banks and a high deficit may take longer to adjust than the guys with 90% debt but solid banks and a much smaller deficit - who of those two is the spendthrift?). I think their policies should be decided based on that much politics and bond market response, not a general Euro-wide policy.
It's a refutation of *your* moral POV that the object of the excercise is to distribute the pain evenly.
Which you have jettisoned in this current post, so we can put the issue behind us.
Quote from: The Minsky Moment on August 15, 2012, 04:22:43 PM
I'm not referring to debt deflation a la Fisher. I'm referring to the fact that the Greek economy is structurally uncompetitive which is a key fundamental factor driving the fiscal problem. In in this context that the deal has to involve pro-growth policies from the center to ease the structural adjustment. Putting the entire brunt of structural and fiscal adjustment would mean forcing the public sector to become a net saver while savaging the private sector ability to spend. That's a formula for cutting GDP in half.
I'm afraid you lost me after structurally uncompetitve Joan.
Quote from: Admiral Yi on August 15, 2012, 06:10:49 PM
It's a refutation of *your* moral POV that the object of the excercise is to distribute the pain evenly.
Where have I said that? I'm not even sure what you mean.
Quote from: Sheilbh on August 15, 2012, 06:14:57 PM
Where have I said that? I'm not even sure what you mean.
What other possible argument is there for allowing a large deficit country more leeway than a small deficit country?
Quote from: Admiral Yi on August 15, 2012, 06:18:46 PM
Quote from: Sheilbh on August 15, 2012, 06:14:57 PM
Where have I said that? I'm not even sure what you mean.
What other possible argument is there for allowing a large deficit country more leeway than a small deficit country?
The reasons I gave. Overall debt and economic situation, to which I'd possibly add debt sustainability. If you include those factors I think there's plenty of reasons and they should be part of the factors - as well as credibility of proposals presented to the Commission (I imagine Berlusconi's plan may be viewed with some scepticism) - that give a reasonable timeline. Most important though is that this is an artificial political policy, it should be as flexible and able to accommodate and reflect reality as possible rather than a one-size-fits-all.
Once everyone's at the same size of deficit, roughly, those terms of the fiscal pact should operate and the same process should begin with reducing debt levels in countries above the limit.
Quote from: Sheilbh on August 15, 2012, 06:34:13 PM
The reasons I gave. Overall debt and economic situation, to which I'd possibly add debt sustainability. If you include those factors I think there's plenty of reasons and they should be part of the factors - as well as credibility of proposals presented to the Commission (I imagine Berlusconi's plan may be viewed with some scepticism) - that give a reasonable timeline. Most important though is that this is an artificial political policy, it should be as flexible and able to accommodate and reflect reality as possible rather than a one-size-fits-all.
Once everyone's at the same size of deficit, roughly, those terms of the fiscal pact should operate and the same process should begin with reducing debt levels in countries above the limit.
Your original post didn't mention any of that. It just talked about 8% country getting more leeway than 4% country.
Not in the bit you quoted :P
I mentioned debt and thought I implied credible deficit reduction plan (the Dutch costing of election promises for example), but you're right I didn't talk about economic situation or debt sustainability.
Quote from: Admiral Yi on August 15, 2012, 06:12:05 PM
Quote from: The Minsky Moment on August 15, 2012, 04:22:43 PM
I'm not referring to debt deflation a la Fisher. I'm referring to the fact that the Greek economy is structurally uncompetitive which is a key fundamental factor driving the fiscal problem. In in this context that the deal has to involve pro-growth policies from the center to ease the structural adjustment. Putting the entire brunt of structural and fiscal adjustment would mean forcing the public sector to become a net saver while savaging the private sector ability to spend. That's a formula for cutting GDP in half.
I'm afraid you lost me after structurally uncompetitve Joan.
It's like hauling a leaky boat out of the ocean, draining out all the water, and then putting it back in.
Result: it still sinks.
So, things aren't looking good over here. We have won no projects in the last few months. After this week's 13-hour marathon in Madrid there's pretty much no work in sight for the foreseeable future. And the few local firms still afloat are all in the same boat.
So here am I: Mid thirties, fluent English, salvageable German, many years of useful experience in SCADA/PLC systems ... and Crohn's. Fuck. Anyone knows how much of an obstacle will that pose to obtain access to health coverage and work in Schengen countries that still have jobs?
I hear the Argies have a new oil company that might need some of that kind of work. :P
Quote from: Iormlund on August 16, 2012, 03:35:46 PM
So, things aren't looking good over here. We have won no projects in the last few months. After this week's 13-hour marathon in Madrid there's pretty much no work in sight for the foreseeable future. And the few local firms still afloat are all in the same boat.
So here am I: Mid thirties, fluent English, salvageable German, many years of useful experience in SCADA/PLC systems ... and Crohn's. Fuck. Anyone knows how much of an obstacle will that pose to obtain access to health coverage and work in Schengen countries that still have jobs?
Any interest in coming to latin america? Know any portuguese (Brazil)?
I heard a story on NPR the other day about German firms that are turning down work because they can't find workers.
Quote from: Barrister on August 16, 2012, 03:47:32 PM
Any interest in coming to latin america? Know any portuguese (Brazil)?
Latinamerica wouldn't be my first choice, to be honest. Not wild about wide income disparity and I'm not sure how much expertise on IBDs I would find, incidence seems to lag industrial development, so it is a somewhat new development there.
Come to Laramie.
Quote from: Iormlund on August 16, 2012, 04:00:54 PM
Quote from: Barrister on August 16, 2012, 03:47:32 PM
Any interest in coming to latin america? Know any portuguese (Brazil)?
Latinamerica wouldn't be my first choice, to be honest. Not wild about wide income disparity and I'm not sure how much expertise on IBDs I would find, incidence seems to lag industrial development, so it is a somewhat new development there.
Some parts of latin america sound better than others (and more developed). Brazil, Argentina, Chile, Mexico.
Chile seems to have the least drama.
Quote from: The Minsky Moment on August 16, 2012, 09:36:26 AM
It's like hauling a leaky boat out of the ocean, draining out all the water, and then putting it back in.
Result: it still sinks.
It's not like that at all. You're asserting that Greece's root problem is uncompetitive unit labor costs. Fine so far. But there's no requirement that says a country with uncompetitive labor *must* run a fiscal deficit.
Quote from: Admiral Yi on August 16, 2012, 05:23:18 PM
It's not like that at all. You're asserting that Greece's root problem is uncompetitive unit labor costs. Fine so far. But there's no requirement that says a country with uncompetitive labor *must* run a fiscal deficit.
No . . .
go back to the basic sectoral balances.
An increase in public saving must be offset by an increase in private dis-saving or improvement on the current account.
If we assume there isn't going to be an export boom in Greece, then private dis-savings is the key mechanism. That can be achieved either by higher household expenditure or business investment OR by having GDP decline.
If a country is undergoing a fundamental adjustment by cutting labor costs, it makes it very difficult to maintain private spending levels, so in such a situation allowing the public deficit to grow in the short run can cushion the adjustment. I.e. let the government take of the slack of the decline of domestic speding and demand. It is what Germany did in the Schroeder era BTW when they busted the G&S Pact.
What makes this concerning with Greece is that both the fiscal and fundamental adustment programs are so aggressive in goals that doing both simultaneously cannot be achieved without causing income (GDP) to decline very severely. That of course makes the fiscal adjustment that much harder and has a negative feedback effect loop with declines the real economy and greater difficulty in hitting the deficit target. Which just happens to dovetail very closely with what has actually happened to Greece.
Quote from: The Minsky Moment on August 16, 2012, 06:14:45 PM
If we assume there isn't going to be an export boom in Greece,
Why do we need to assume this? The first place a lowering of unit labor costs should show up is the current account. Lower the price of an Aegean vacation. Lower the prices of olives and Authentic(tm) feta cheese.
Quote from: The Minsky Moment on August 16, 2012, 06:14:45 PM
An increase in public saving must be offset by an increase in private dis-saving or improvement on the current account.
Then how can you ever possibly fix the boat? In order to fix the holes that are in the hull, you have to stab different ones? You can see where this sounds intuitively wrong.
Of course GDP will shrink if there is public saving. That's taking a 1:1 number off the GDP calculation for every euro in spending decrease. Why is that bad? Besides, Greece is not in a state of public saving.
Might be a good idea to make structural policy changes that attract foreign investment to offset the public surplus. Since the export-competitiveness angle will take too long, and the state has lost the ability to operate in the bond market.
Quote from: MadImmortalMan on August 16, 2012, 07:30:58 PM
Might be a good idea to make structural policy changes that attract foreign investment to offset the public surplus. Since the export-competitiveness angle will take too long, and the state has lost the ability to operate in the bond market.
that's nigh on impossible for Greece. the rest of their economy is so closed off to outsiders that you'd have to be insane to even invest there. Sometimes it appears as if the whole of greece is a closed shop employer (or how do you call those companies where the union has such a grip on employment that you can't get in without being a member?)
Seems to me that based on all your discussion, the conclusion is just about remains the layman simple one: Greece's setup (economy and politics) was never meant to produce the kind of life they have been giving themselves, and it WILL collapse back to the shitty levels it was supposed to be at, no matter what.
Even if Greece were a more open economy, there's no way it could live off exports.
Take a look at Spain. We've seen dramatic increases in exports for the last couple years, yet they cannot offset the rest of the economy crashing down.
Furthermore, foreign investment is not taking flight just because the market is closed. You'd have to be insane to invest in peripheral countries unless you can secure loans from their banks to avoid currency convertibility risk -- but those banks are bleeding deposits themselves and can only count on the ECB to keep liquid, so they cannot lend and still meet leverage targets.
Quote from: Tamas on August 17, 2012, 01:52:30 AM
Seems to me that based on all your discussion, the conclusion is just about remains the layman simple one: Greece's setup (economy and politics) was never meant to produce the kind of life they have been giving themselves, and it WILL collapse back to the shitty levels it was supposed to be at, no matter what.
Greek private debt is actually very low. With proper reforms and management (ha!) Greece would have no problem maintaining their living standards.
Quote from: Admiral Yi on August 16, 2012, 06:26:06 PM
Why do we need to assume this? The first place a lowering of unit labor costs should show up is the current account. Lower the price of an Aegean vacation. Lower the prices of olives and Authentic(tm) feta cheese.
Tourism - which is in fact an important source of earnings - is acually down quite substantially. Not 100% clear why, but the potential cost benefit is watered down by the fact that Greece is still on the euro and the fact that a big part of travel expense - air fare - is not going to be much lower if at all.
Agriculture - not as an significant export earner for Greece as you might think. The fact that the EU ag market is rigged via CAP obviously doesn't help with that.
The single biggest export item for Greece is actually refined petroleum products, for which lower labor costs doesn't have that big an impact.
What would really help of course would be currency adjustement but that isn't possible.
Overall the current account has nonetheless improved quite a bit but it is still very negative.
Quote from: MadImmortalMan on August 16, 2012, 06:30:49 PM
Of course GDP will shrink if there is public saving. That's taking a 1:1 number off the GDP calculation for every euro in spending decrease. Why is that bad? Besides, Greece is not in a state of public saving.
If GDP goes down then revenue goes down so reducing the deficit becomes like running on a treadmill that accelerates whenever you try to go faster. Question is whether you will get to the button before getting thrown off or having a heart attack.
Right now interest on the outstanding debt is over 60 percent of the deficit and with interest rate divergence that will only get worse - that is another factor ramping on speed on the treadmill. So even if Greece got into primary balance, it would still be screwed.
To my mind this is a ludicrous situation - the EU clearly has the resources to help Greece out of the hole without breaking a sweat. Insisting on unrealistic conditions like Euro 50 billion in privatization receipts or suddenly evolving a highly trained cadre of fiscal administrators armed with a fully functional and integrated IT system overnight is absurd to the point of cruelty. And while the Greeks bear responsibility for getting into this mess - there is plenty of moral hazard to go around - recall that Greece was voted into the eurosystem despite open acknowledgment of abject failure to meet criteria on the theory that it didn't matter because their economy was so small. The core nations then took advantage of Greece's integration into the euro and the fixed exchange rate to make billions exporting goods; core banks, backed by their local central banks, happily extended unlimited trade credits without any concern for the consequences.
QuoteMight be a good idea to make structural policy changes that attract foreign investment to offset the public surplus
International capital markets are currently dominated by risk aversion so this is not a propitious time for a high risk debtor to try to attract foreign funds.
The last time Europe had to save Greece's finances, their fiscal policy was dictated from London and Paris for fifty years.
I can think of another analogy.
Back in the 1980s the US had something called the savings and loan crisis.
This was and is still recalled by most people to have been an "American" banking crisis.
The reality was that the crisis was actually very strongly concentrated in Sun Belt - the vast majority of the losses were in just a few states, and Texas in particular.
The solution to the crisis was that the FDIC stepped in protect all the deposit holders and RTC was created to take on the bad assets and work them out.
Basically the rest of the country bailed out the Sun Belt. it just happened as a side effect of our federal system. I suppose someone could have said - hey screw Texas, they got into this problem, let them get out of it and started on about moral hazard. But that was never seriously raised because the reality is the US has a national financial system, and it is only as strong as the weakest link.
The EU has to decide whether it is really serious about being a single economic and financial bloc or not. Greece is just a litmus test.
Quote from: PDH on August 16, 2012, 04:09:17 PM
Come to Laramie.
He said health coverage. That rules out the US.
Quote from: The Minsky Moment on August 17, 2012, 11:27:14 AM
I can think of another analogy.
Back in the 1980s the US had something called the savings and loan crisis.
This was and is still recalled by most people to have been an "American" banking crisis.
The reality was that the crisis was actually very strongly concentrated in Sun Belt - the vast majority of the losses were in just a few states, and Texas in particular.
The solution to the crisis was that the FDIC stepped in protect all the deposit holders and RTC was created to take on the bad assets and work them out.
Basically the rest of the country bailed out the Sun Belt. it just happened as a side effect of our federal system. I suppose someone could have said - hey screw Texas, they got into this problem, let them get out of it and started on about moral hazard. But that was never seriously raised because the reality is the US has a national financial system, and it is only as strong as the weakest link.
The EU has to decide whether it is really serious about being a single economic and financial bloc or not. Greece is just a litmus test.
I think it's politically likely that at least some of the northern states will leave the union if that happens. WAG, Finland leaves before Greece does.
Another analogy would the the US States in the 1840s.
Quote from: MadImmortalMan on August 17, 2012, 11:53:22 AM
I think it's politically likely that at least some of the northern states will leave the union if that happens. WAG, Finland leaves before Greece does.
That's the best possible outcome right now.
Quote from: The Minsky Moment on August 17, 2012, 09:56:01 AM
To my mind this is a ludicrous situation - the EU clearly has the resources to help Greece out of the hole without breaking a sweat. Insisting on unrealistic conditions like Euro 50 billion in privatization receipts or suddenly evolving a highly trained cadre of fiscal administrators armed with a fully functional and integrated IT system overnight is absurd to the point of cruelty. And while the Greeks bear responsibility for getting into this mess - there is plenty of moral hazard to go around - recall that Greece was voted into the eurosystem despite open acknowledgment of abject failure to meet criteria on the theory that it didn't matter because their economy was so small. The core nations then took advantage of Greece's integration into the euro and the fixed exchange rate to make billions exporting goods; core banks, backed by their local central banks, happily extended unlimited trade credits without any concern for the consequences.
On the other hand, there are a lot of small countries in Europe. Greece can be helped without too much expense, but then the same can be said about Belgium, and Portugal, and Ireland. And some the eastern europeans, such as the Baltics, have come under considerable stress recently. Those aren't remote textbook fears of creating moral hazard, they are problems that are here now, and even if you convince German voters to give Greece an open checkbook, what about all those other countries?
The eurozone is either going to need to operate by having the EU (or some other transnational body) with a strong hand in fiscal decisions, or the EU needs to stay out. What I am certain will never work is to have spending entirely controlled by the nation with other nations covering losses if a debt crisis comes up.
Quote from: The Minsky Moment on August 17, 2012, 09:38:05 AM
Overall the current account has nonetheless improved quite a bit but it is still very negative.
Then obviously Greek demand needs to be reduced and exports made more competitive.
Quote from: Admiral Yi on August 17, 2012, 01:12:50 PM
Quote from: The Minsky Moment on August 17, 2012, 09:38:05 AM
Overall the current account has nonetheless improved quite a bit but it is still very negative.
Then obviously Greek demand needs to be reduced and exports made more competitive.
I did some checking, and Greece is not entirely devoid of export industries. They have decent exports in light manufacturing especially along with agriculture and oil products. Plus tourism needs to be counted on that side of the scale as well since it's on the same side of the current account. I'm really not so pessimistic about their chances of being competitive as others seem to be.
Interesting comments from Schaeuble today. First he did the usual Euro-nonsense about investors not getting it, that the Euro's forever, that the Eurozone is better placed than the US and that rates are unjustifiably high.
But then he said Merkel was considering loosening the Greek program and Germany might support ECB intervention to keep yields below certain limits. From what I've seen this is him testing the waters but very positive if it leads to something.
Edit: Sorry got that wrong Schaeuble's just responsible for the nonsense. It's sources in the Chancellor's office and ECB respectively for the other two.
Quote from: Admiral Yi on August 17, 2012, 01:12:50 PM
Quote from: The Minsky Moment on August 17, 2012, 09:38:05 AM
Overall the current account has nonetheless improved quite a bit but it is still very negative.
Then obviously Greek demand needs to be reduced and exports made more competitive.
LIMBO . . . how low do you go?
Answer - until it becomes politically unfeasible, a point that likely has already passed.
Democratic countries can't demand that their citizens reduce their incomes by more than half for the sake of macro-adjustment.
Quote from: MadImmortalMan on August 17, 2012, 01:20:39 PM
I did some checking, and Greece is not entirely devoid of export industries. They have decent exports in light manufacturing especially along with agriculture and oil products. Plus tourism needs to be counted on that side of the scale as well since it's on the same side of the current account. I'm really not so pessimistic about their chances of being competitive as others seem to be.
Already addressed above.
Oil products is the top earner but it is very difficult to become more competitive through wage cuts.
Textiles (that is big piece of the "light industry") is more labor cost dependent but when your main competition is Vietnam you probably aren't competing on labor cost to begin with.
The Greek economy is just not set up as an export powerhouse, not surprisingly given endowments and economic geography. Traditionally they cover structural trade deficits with indirect revenue from tourism and shipping. But both the latter are way down despite considerable internal devaluation.
I don't see where the magical export boom is going to come from or the mechanisms to pull it off, especially since the main tool available for small open country exporters - currency devaluation - is off the table.
I am not pessimistic as a matter of sentiment, I am pessimistic because the facts lead ineluctably to that conclusion.
Quote from: The Minsky Moment on August 20, 2012, 10:16:02 AM
Democratic countries can't demand that their citizens reduce their incomes by more than half for the sake of macro-adjustment.
Greece doesn't have to demand their citizens do anything. They need to reduce government spending. This will reduce aggregate demand. They need to collect more taxes. This will reduce aggregate demand. Then they need to sit back while the labor market clears at a competitive level.
Quote from: Admiral Yi on August 20, 2012, 10:23:48 AM
Quote from: The Minsky Moment on August 20, 2012, 10:16:02 AM
Democratic countries can't demand that their citizens reduce their incomes by more than half for the sake of macro-adjustment.
Greece doesn't have to demand their citizens do anything. They need to reduce government spending. This will reduce aggregate demand. They need to collect more taxes. This will reduce aggregate demand. Then they need to sit back while the labor market clears at a competitive level.
This isn't a classroom exercise in Macro 101 where the only effect is that a chalkboard line moves on a graph. The jargon you are using "aggregate demand" and "labor market clearing" has real meaning in the real world. The way that markets clear through a reduction in agg demand via fiscal contraction and simultaneously internal devaluation (real wage cuts) is that output and incomes decline, and becuase of feedback effects, the decline can be very steep. That means real human beings people have their actual incomes reduced, by a lot. And real human beings who have that experience and also have votes tend to act on those facts.
Quote from: The Minsky Moment on August 20, 2012, 10:22:40 AM
The Greek economy is just not set up as an export powerhouse, not surprisingly given endowments and economic geography. Traditionally they cover structural trade deficits with indirect revenue from tourism and shipping. But both the latter are way down despite considerable internal valuation.
I don't see where the magical export boom is going to come from or the mechanisms to pull it off, especially since the main tool available for small open country exporters - currency devaluation - is off the table.
No one is asking Greece to be an export powerhouse, or relying on a magical export boom. We are asking them to stop importing so much stuff on credit and reprice their labor so that the tourist trade comes back from Bulgaria. And stop all the transportation strikes.
Quote from: The Minsky Moment on August 20, 2012, 10:29:11 AM
This isn't a classroom exercise in Macro 101 where the only effect is that a chalkboard line moves on a graph. The jargon you are using "aggregate demand" and "labor market clearing" has real meaning in the real world. The way that markets clear through a reduction in agg demand via fiscal contraction and simultaneously internal devaluation (real wage cuts) is that output and incomes decline, and becuase of feedback effects, the decline can be very steep. That means real human beings people have their actual incomes reduced, by a lot. And real human beings who have that experience and also have votes tend to act on those facts.
No kidding Joan. People with inflated incomes become unhappy when their inflated incomes are taken away. So fucking what?
Quote from: Admiral Yi on August 20, 2012, 10:31:46 AM
No one is asking Greece to be an export powerhouse, or relying on a magical export boom. We are asking them to stop importing so much stuff on credit and reprice their labor so that the tourist trade comes back from Bulgaria. And stop all the transportation strikes.
Those are just words, reinforced with the royal "we". The question is whether factually they make any sense.
Bulgaria's GDP/capita is half of Greece - so when you talk about "repricing" we are talking about the same thing - cutting incomes in half.
The entire tourism revenue of Bulgaria is less than Euro 3 billion - compared to a Greek current account deficit of over Euro 20 billion.
The "we" you mention presumably would include the Bundesbank - but it that case it doesn't apply because they have been very happy to underwrite trade finance to Greece on credit without any concern over unsustainability because German exporters reaped the profits from those sales.
As for strikes - when a government adopts policies designed to cut people's incomes in half and then responds to citizen complaints with "so fucking what," it doesn't take a PhD in political science to predict labor strife could occur.
You're assuming perfect price elasticity between Bulgarian and Greek beaches. That's silly.
And of course the Greek government hasn't said "so fucking what." I did. The Greek government has been begging its creditors for more income support.
So how would a state theoretically break the debt-default cycle without the ability to inflate? Is it possible? Is that cycle simply what should be done until the end of time?
I mean, should we all simply accept the fact that if we buy government bonds of any kind, we are taking the chance that whatever state issued those bonds will inevitably default at some point in the future and we're simply gambling that it doesn't happen before we get our money back?
Quote from: MadImmortalMan on August 20, 2012, 11:01:55 AM
So how would a state theoretically break the debt-default cycle without the ability to inflate?
Keep it's average deficit/GDP at or under average GDP growth rate.
Quote from: Sheilbh on August 19, 2012, 06:37:50 PM
Interesting comments from Schaeuble today. First he did the usual Euro-nonsense about investors not getting it, that the Euro's forever, that the Eurozone is better placed than the US and that rates are unjustifiably high.
But then he said Merkel was considering loosening the Greek program and Germany might support ECB intervention to keep yields below certain limits. From what I've seen this is him testing the waters but very positive if it leads to something.
Edit: Sorry got that wrong Schaeuble's just responsible for the nonsense. It's sources in the Chancellor's office and ECB respectively for the other two.
I flat-out ECB guarantee of certain level of bond yields sounds like a bad idea to me.
It would be heaven for irresponsible spendrift governments, until a mega-Soros comes by and break the neck of the whole system
Quote from: Tamas on August 20, 2012, 11:08:57 AM
I flat-out ECB guarantee of certain level of bond yields sounds like a bad idea to me.
It would be heaven for irresponsible spendrift governments, until a mega-Soros comes by and break the neck of the whole system
Soros made his money betting against fixed exchange rates. That's the opposite of what's being discussed here.
Quote from: Admiral Yi on August 20, 2012, 11:07:32 AM
Quote from: MadImmortalMan on August 20, 2012, 11:01:55 AM
So how would a state theoretically break the debt-default cycle without the ability to inflate?
Keep it's average deficit/GDP at or under average GDP growth rate.
State spending is part of the GDP calculation. What if all the growth is there and not in the actual economy?
On the other hand an interest rate target is pretty stupid monetary policy too. Targetting nominal yield will generate inflation, which pushes up nominal yield.
Quote from: MadImmortalMan on August 20, 2012, 11:13:12 AM
State spending is part of the GDP calculation. What if all the growth is there and not in the actual economy?
Shouldn't make a difference. Public sector salaries can be taxed just like private sector salaries.
Quote from: Tamas on August 20, 2012, 11:08:57 AM
It would be heaven for irresponsible spendrift governments,
Just tie it to reforms. NOT targets. Targets don't make sense in a free-fall situation. Reforms do.
Quote... until a mega-Soros comes by and break the neck of the whole system
Why? What does a mega-soros win by shorting Spanish debt when the ECB can keep printing till the end of days?
Quote from: Admiral Yi on August 20, 2012, 11:10:38 AM
Quote from: Tamas on August 20, 2012, 11:08:57 AM
I flat-out ECB guarantee of certain level of bond yields sounds like a bad idea to me.
It would be heaven for irresponsible spendrift governments, until a mega-Soros comes by and break the neck of the whole system
Soros made his money betting against fixed exchange rates. That's the opposite of what's being discussed here.
Ok, but then, if the ECB guarantees your state, say, no more than 4% yields on your bonds, you end up with the ECB printing money to finance the spending of badly managed budgets, right? How else would they be able to fight speculative worsening of yields without money-printing?
Quote from: Tamas on August 20, 2012, 11:19:52 AM
Ok, but then, if the ECB guarantees your state, say, no more than 4% yields on your bonds, you end up with the ECB printing money to finance the spending of badly managed budgets, right? How else would they be able to fight speculative worsening of yields without money-printing?
It's stupid, just not for the reason you mentioned. :P
It boils down to monetizing debt. Check your Argentinian and Brazilian economic history to see how well that turns out.
Quote from: Bloomberg
Belize will miss a coupon payment on about $544 million of bonds and is unlikely to pay creditors during a 30-day grace period that starts today, Finance Secretary Joseph Waight said.
The Central American nation, which owes investors about $23 million today, can't make the payment, Waight said in a phone interview from Belmopan City. The government has been in talks with debt holders about a restructuring, its second since 2007.
"We simply do not have the capacity to make the payment," Waight said. "We are hoping to engage with creditors as quickly as possible."
The price of Belize's so-called superbond due in 2029 fell 0.17 cent to 34.83 cents on the dollar at 11:50 a.m. New York time, according to data compiled by Bloomberg.
Belize has hired the law firm Cleary Gottlieb to advise the government on the restructuring, Waight said. Cleary Gottlieb aided Argentina in its debt restructurings following the country's default on $95 billion of bonds in 2001.
You are again getting fixated on debt (not to mention so far non-existent inflation). With the notable exception of Greece, public deficit is not the underlying cause of the crisis. It's a symptom.
Just like a critical patient, we need to stabilize the situation so we can fix the actual causes, then we can fix the deficits. Won't work the other way around.
I work for a few multinationals over here. Strong exporters. Companies like these are behind Spain's export success (~15% growth in the last two years).
You would think investors would take advantage of this success. They are not. They are taking money _out_ of their Spanish subsidiaries despite great performance and ample supply of dirt cheap labour. They only bring money in to meet operating costs. They will rather park money in negative interest Bunds and gilts than invest it in their own productive, growing businesses.
How exactly do your proposals deal with that behaviour?
Companies park their money when they don't know what kind of regulatory environment changes and tax hikes they might have to deal with. As long as things are seen as unstable in those areas, you can expect it to continue.
Spain is to my mind a fascinating example. Because at least at the national level, they basically did everything "right". Fiscal balance was reached and debt maintained at low levels. State enterprises were privatized. Spain was one of the few countries in the world to implement a formal system of dynamic provisioning forcing domestic banks to accumulate extra capital during boom periods, and indeed the banking system appeared solid.
None of that prevented Spain from the bearing the full force of the crisis. Because one thing Spain didn't do was meddle in the property market, which driven by the operation of maket forces, developed an enourmous bubble.
Once conclusion to draw from this is that capitalism just doesn't work and we all should move to a Chinese economic model where the government controls sectoral bubbles by administrative measures and its direct control of large blocs of the economy.
Another conclusion - is to recognize that that capitalism is just inherently cyclical and to a certain extent crisis prone, and that accepting that is just the price for the advantages it brings. That when crises come, they do not like Santa Claus carefully disntinguish between naughty and nice - indeed, if one seriously accepts the basic theoretical roots of capitalist economics, then moral judgments of that sort are analytically useless and counterproductive. That the proper policy response to crisis is pragmatic not judgmental, and focuses on remedying the deleterious effects on the population at the least cost possible.
Tax changes so far: Income, alcohol, tobacco, gas, VAT -> Up. Payroll -> Down.
Plus larger hiring incentives and more flexible labor regulation.
The chances of anti-business regulation popping up short of a revolution are pretty much nil. Not to mention Rajoy has absolute majority and over 3 years before next elections are due.
If I was the ECB, I would just buy one or two trillion Euros of Greek, Portuguese, Irish and Italian debt from the market and/or recapitalize banks and/or buy bad private debt, write it off so they are at sustainable debt levels (which might be close to zero for Greece, but probably higher for the others) and then institute that interest cap they are talking about. Surely printing money at this point can't be as bad as the consequence of full-scale failure of the Eurozone. Tie it to reforms and wait two or three years if it works. If not, we can use the time to negotiate some kind of orderly Eurozone break-up.
If they did it in that size, the Fed and the BOJ and the BofE and every other major currency issuer would have to respond with something similar. And they would.
So? The external value of the Euro is currently hardly a major concern. It's the internal imbalances that are killing us.
Quote from: MadImmortalMan on August 20, 2012, 11:53:07 AM
Companies park their money when they don't know what kind of regulatory environment changes and tax hikes they might have to deal with. As long as things are seen as unstable in those areas, you can expect it to continue.
In this present crisis, can-kicking is not the solution to our problem; can-kicking is the problem
Quote from: MadImmortalMan on August 20, 2012, 11:01:55 AM
I mean, should we all simply accept the fact that if we buy government bonds of any kind, we are taking the chance that whatever state issued those bonds will inevitably default at some point in the future and we're simply gambling that it doesn't happen before we get our money back?
You're not gambling, you're taking a risk. I read a piece about how bonds tend to price the risk of default but normally don't with the risk of inflation (the UK's historical way of dealing with debt).
As to the ECB idea it would only cover reforming countries and the fiscal pact will stop it simply propping up spendthrifts. That's what it's there for.
I think insecurity about currency risk and banking solvency are another good reason. And you don't even have to pay to park their money in bunds or French bonds.
Quote from: MadImmortalMan on August 20, 2012, 12:15:14 PM
If they did it in that size, the Fed and the BOJ and the BofE and every other major currency issuer would have to respond with something similar. And they would.
They all have already. And it's still less than their response to a Euro breakup. Plus as Zanza says the problemse are internal, the current account imbalances are all internal, many suspect countries have an overall current account surplus.
Quote from: Iormlund on August 20, 2012, 11:42:59 AM
You are again getting fixated on debt (not to mention so far non-existent inflation). With the notable exception of Greece, public deficit is not the underlying cause of the crisis. It's a symptom.
Just like a critical patient, we need to stabilize the situation so we can fix the actual causes, then we can fix the deficits. Won't work the other way around.
I'm guessing this is directed at me? :unsure:
OK, what is the underlying cause of the crisis?
And I don't see how pointing out that monetizing debt leads to severe inflation risk equates to fixating on inflation.
Quote from: MadImmortalMan on August 20, 2012, 12:15:14 PM
If they did it in that size, the Fed and the BOJ and the BofE and every other major currency issuer would have to respond with something similar. And they would.
If the Fed did it, they could call it:
Targeted
Action
Response
Plan
2
;)
QE7
:P
Quote from: Admiral Yi on August 20, 2012, 12:47:19 PM
Quote from: Iormlund on August 20, 2012, 11:42:59 AM
You are again getting fixated on debt (not to mention so far non-existent inflation). With the notable exception of Greece, public deficit is not the underlying cause of the crisis. It's a symptom.
Just like a critical patient, we need to stabilize the situation so we can fix the actual causes, then we can fix the deficits. Won't work the other way around.
I'm guessing this is directed at me? :unsure:
OK, what is the underlying cause of the crisis?
And I don't see how pointing out that monetizing debt leads to severe inflation risk equates to fixating on inflation.
You and Tamas both.
The underlying cause is an heterogeneous monetary union without political union. We can either ditch it or try to fix it. To fix it we need political will, which diminishes every day as costs increase, both for the core taxpayers (in bailouts, TARGET2 claims and so on) and the periphery (in massive unemployment, emigration, reduced services and buying power).
Now, a political solution will take years we don't have. Years of negotiations, vetos, referenda and the like. We need to buy time. That means making clear that the Euro is here to stay. Now. For this we need some kind of mutualization (especially in banking deposit guarantees and thus supervision) and an unequivocal commitment to monetizing debt from collaborating partners if needed be. Doing this in return for concrete structural reforms makes sense, since it takes away moral hazard (short maturities help here) and facilitates eventual convergence. Lord knows there are zillions of proposals from each country as to how those reforms should look like. We just need to choose some.
Finally, the only entity with the de facto (not de iure) power to do this, and do it now, is the ECB.
WRT inflation fears, both UK and US have been monetizing debt since the crisis blew up. Where is the inflation? It is one thing to watch for it. It is entirely another to cower in terror when core inflation is nowhere to be seen, causing distress all over the world with your inaction.
I somehow doubt it causes inflation when you basically just write-off bad debt. It's not exactly inserting any new money into the system, just taking bad obligations out. Money will still be scarce in Greece et al. just not as terribly scarce as it is now. I don't see why writing off even a trillion of peripherial debt would cause inflation in the core either. It's not like any consumer would all of a sudden have more money. Just some bad banks would have less obligations.
Quote from: Iormlund on August 20, 2012, 01:25:45 PM
The underlying cause is an heterogeneous monetary union without political union.
Monetary union didn't *force* Greece to run ginormous deficits. Monetary union didn't *force* a housing bubble in Spain.
QuoteWRT inflation fears, both UK and US have been monetizing debt since the crisis blew up. Where is the inflation? It is one thing to watch for it. It is entirely another to cower in terror when core inflation is nowhere to be seen, causing distress all over the world with your inaction.
The difference is that the Fed is blasting out money supply while keeping an eye on inflation. That's why the market jumps every time the inflation number comes in, because it knows that the Fed has another month to keep interest rates at zero.
What is WRT?
with respect to
Quote from: Admiral Yi on August 20, 2012, 01:44:02 PM
Monetary union didn't *force* Greece to run ginormous deficits. Monetary union didn't *force* a housing bubble in Spain.
Monetary union without political union *allowed* Greece to run those without supervision. We all knew Greece shouldn't have been admitted. It got in anyway.
Likewise it created a perverse set of incentives that resulted in a real estate bubble in Spain. Interest rates were below inflation for years here. You were actually losing money by not going into debt.
While the real estate bubble is the foremost example, almost everyone played the game. The _only_ sector that didn't accumulate debt was the central government and even they were wary of regulating the whole mess.
For everyone, be it households, bank CEOs, business owners or politicians, debt seemed the rational choice. If you didn't take that loan and buy that machinery your competitor would, and drive you out of the market. If you didn't buy that house now it would be twice as expensive in a few years. If you didn't leverage and sell mortgages you would lose long-term market share. If you didn't obtain funding that massive $·"%" project you would lose the elections.
Quote
The difference is that the Fed is blasting out money supply while keeping an eye on inflation. That's why the market jumps every time the inflation number comes in, because it knows that the Fed has another month to keep interest rates at zero.
I don't quite understand how can inflation take place when money in circulation is quickly decreasing due to uncertainty.
In my admittedly amateur view monetizing now would simply do one of two things: if the money ends in the core, it gets stashed in safe havens. If it ends up in the periphery it decreases the time needed to deleverage. In neither case it actually ends circulating unless confidence in the system returns ... which is precisely what we wanted in the first place.
It might circulate if the core creditor countries could compensate the collapse of the periphery with increased exports to the RotW. "Fortunately" it seems we have managed to fuck up everyone else's economy with our own brilliant performances. :P
But monetary union itself didn't allow Greece to run those deficits. Else they would still be allowed to run those deficits, since they're still in the union. Deeply retarded Euro banks allowed them to run those deficits. Then they sort of wised up.
I had no sympathy for US financial institutions that held CDOs or for retard borrowers that bought McMansions with no income, and I likewise don't have any for Spanish banks or mortgage holders. Even less for Spanish politicians that need to buy votes with deficit spending.
WRT to monetary policy, you seem to be confusing money in circulation with the money mutiplier. A purchased Bund is money in circulation--Germany uses the money to pay salaries and such.
What makes you think I have sympathy for those people? I didn't get a mortgage or buy a tricked out M3. I don't even have a smartphone. I've voted against every government for I don't know how many years.
I'm all for moral outrage, but what help is it to me if I get laid off in a couple months because there's just no work to be done? Will it help me deal with Crohn's if my medication isn't covered anymore for lack of funds? Does it allow me an exemption on the 30% hike in VAT so far?
Moral outrage can be many things, but it's not a solution.
You're right, sympathy was a poorly chosen word. What I mean is that monetary union didn't force any of those people to do what they did.
Quote from: Admiral Yi on August 20, 2012, 02:45:55 PM
You're right, sympathy was a poorly chosen word. What I mean is that monetary union didn't force any of those people to do what they did.
The bad macro outcome was rational on a micro level though. And that's something you can blame on our politicians and central bankers, but can't really blame on the indvidual. Individuals are expected to act according to their rational individual benefit.
Quote from: Admiral Yi on August 20, 2012, 02:45:55 PM
You're right, sympathy was a poorly chosen word. What I mean is that monetary union didn't force any of those people to do what they did.
No it didn't
People did what they did because they responded in a rational fashion to the economic incentives and signals they received from the market.
Quote from: Zanza on August 20, 2012, 02:57:10 PM
Quote from: Admiral Yi on August 20, 2012, 02:45:55 PM
You're right, sympathy was a poorly chosen word. What I mean is that monetary union didn't force any of those people to do what they did.
The bad macro outcome was rational on a micro level though. And that's something you can blame on our politicians and central bankers, but can't really blame on the indvidual. Individuals are expected to act according to their rational individual benefit.
Oh yeah, that too. ;)
Quote from: Zanza on August 20, 2012, 02:57:10 PM
The bad macro outcome was rational on a micro level though. And that's something you can blame on our politicians and central bankers, but can't really blame on the indvidual. Individuals are expected to act according to their rational individual benefit.
How's that? It's not rationale to conclude that easy money will continue indefinitely. It's not rationale to conclude that bubble prices will rise indefinitely.
Or rational, even.
You don't need to believe prices will keep rising forever. Just long enough.
Also, we are looking at it with tremendous amount of hindsight. The collapse was triggered and greatly amplified by the sub-prime crisis first and the Greek fiasco later. How many "normal" people could predict that?
And what Joan said is right, Spanish banks did have fairly decent regulation (a result of the Banesto affair in the 90s I guess). That's why they could hold so long (which it turned out to be a bad idea). And also why the ones that were professionally managed are quite healthy (Santander, BBVA, Caixa, Ibercaja to name both banks and cajas).
I don't see how it's relevant what triggered it and when. The collapse of the subprime bubble and the Tulip mania weren't triggered by anything but they burst none the less.
It's all about perception. It's relevant first because everyone took for granted they would be able to see the slowdown (or even affect it in the case of politicians). But instead it exploded on their faces.
And second because Spain is not isolated. In an otherwise healthy European and world economy the rest of Spain wouldn't have had this much trouble recovering from the mess. But when everyone around is deleveraging and competing for the same reduced export markets it gets much harder.
So people thought at most it would be rough for some time and then life would go on as usual. Except as it turned out it's not just a little rough. It's no-longer-noticing-people-scavenging-for-food rough.
Quote from: Admiral Yi on August 20, 2012, 03:14:40 PM
It's not rationale to conclude that bubble prices will rise indefinitely.
It's rational to think the prices accurately reflect all available market information.
In fact, the very economic model you rely upon assumes the truth of that statement.
So from the POV of an rational economic agent, if the price of capital (measured by interest rate) is at a level that "purchasing" it (by borrowing) and then investing in RE, given the price that such assets command in the market, will make money compared to other outlets, then that is what rational economic agents will do. Rising prices are a part of the feedback loop that accompanies that process. The rational agent can recognize that at some point prices will cease to rise, but the transaction still works from their individual perspective.
Which economic model am I relying on Joan?
Quote from: Admiral Yi on August 20, 2012, 05:34:20 PM
Which economic model am I relying on Joan?
One in which prices adjust so that markets clear on a macro level.
Quote from: The Minsky Moment on August 20, 2012, 05:36:24 PM
One in which prices adjust so that markets clear on a macro level.
In my model markets clear with a lag in some cases.
Also I think the currency union does prevent countries from being able to take appropriate steps after a banking failure (though Spain should've acted earlier). They need to be able to write down bad debts, recapitalise the banks that can survive and wind down the others. Without a national central bank and currency, or a Eurozone procedure, then it destroys state finances as happened in Ireland and Spain and is currently happening in Slovenia (had the UK joined the Euro we'd have blown it apart by now). The other effect of this is that to avoid needing a bailout states let banking crises linger - again, Spain and Slovenia with Ireland's cautionary tale.
Also the union did make it easier for surpluses in Germany to fund bubbles in Spain - the other aspect of moral hazard. The global debt crisis was in large part caused by unprecedented savings in the developing world funding debt in the US and the rest. The Euro was an extreme and local version of that.
Apparently Germany's willing to back the ECB (with Asmussen's support) against the Bundesbank, which is a big deal. Even Telegraph Euro doomsayers think it could survive if this turns out.
Quote from: Admiral Yi on August 20, 2012, 05:42:20 PM
In my model markets clear with a lag in some cases.
In that case Greece should be compelled to reach fiscal stability.
With a lag. ;)
Quote from: The Minsky Moment on August 20, 2012, 05:47:37 PM
In that case Greece should be compelled to reach fiscal stability.
With a lag. ;)
I don't follow.
Meanwhile Germany's general government budget (federal, state, local, social security) was in the black the first time since 2007 in the first half of 2012. Let's see if the second half gets as gloomy as predicted.
Low unemployment and windfall from capital flight from the periphery might help explain that one.
Speaking of Germany, I was looking at info on lack of qualified labor and stumbled on an interesting article on Der Spiegel last week about booming German towns trying to recruit youngsters over here. The last paragraph in particular was enlightening:
Quote
This was precisely the problem in Düren, a town near Aachen in the western state of North Rhine-Westphalia. Local companies had invited Spanish trainees, including a group from Seville, to complete training programs in the area. The employers were enthusiastic about the trainees, including Javier Saintmartin, 26.
But when he completed the training program, Saintmartin, like his fellow Spaniards, turned down the job he was offered as an automobile mechanic. "The coworkers are all very nice," he wrote in his farewell note. But, he added, in Düren people ate dinner at 6 p.m., and there was almost nothing going on after 8 o'clock.
Under those circumstances, he preferred to stay in Seville. He is now working as a garbage collector there.
This is something I witnessed in Switzerland as well. How big does a city have to get over there to have nightlife?
You consider that a dealbreaker? Sheesh.
Quote from: MadImmortalMan on August 23, 2012, 12:07:54 PM
You consider that a dealbreaker? Sheesh.
Yeah, seriously.
Also, Düren is not a big city, it has barely 100k inhabitants. You would find a few bars and dance clubs, but certainly not a vibrant nightlife like in, say, Berlin or Hamburg.
Quote from: Syt on August 23, 2012, 12:10:29 PM
Quote from: MadImmortalMan on August 23, 2012, 12:07:54 PM
You consider that a dealbreaker? Sheesh.
Yeah, seriously.
Also, Düren is not a big city, it has barely 100k inhabitants. You would find a few bars and dance clubs, but certainly not a vibrant nightlife like in, say, Berlin or Hamburg.
:huh:
I've lived in cities of just a few thousand people, and they managed to have bars, dance clubs, and a general "night life".
Yeah, but in your case it was the biggest city in a 100 mile radius and nights lasted 14 hours. :P
Quote from: The Minsky Moment link=topic=4552.msg463321#msg463321
It's rational to think the prices accurately reflect all available market information.
In fact, the very economic model you rely upon assumes the truth of that statement.
I've always had a lot of doubt that that assumption actually holds true. In fact, it's quite clear to me that it's often untrue, at least on a micro level.
Here's an idea: Start a nightclub in Düren or Aachen and corner the nightlife market. Then invite all your friends from Seville to come up and party.
Maybe it is just a cultural difference rather than a lack of clubs. If you come from a place where you are used to dining/hanging out late with friends and restaurants don't open until 8:30, then everyone eating dinner at 6 and then staying in with their families could be jarring.
Quote from: MadImmortalMan on August 23, 2012, 12:07:54 PM
You consider that a dealbreaker? Sheesh.
As a young single guy? Of course I do. What's the point of life if you don't socialize?
Now, I can see the appeal of working your ass off for a couple years as an investment, but that's not what we are talking here. These businesses want regular-hours long-term employees.
Quote from: alfred russel on August 23, 2012, 03:58:14 PM
Maybe it is just a cultural difference rather than a lack of clubs. If you come from a place where you are used to dining/hanging out late with friends and restaurants don't open until 8:30, then everyone eating dinner at 6 and then staying in with their families could be jarring.
That may be it. Before I went part time I got home from work no earlier than 19:30.
Quote from: Syt on August 23, 2012, 12:10:29 PM
Quote from: MadImmortalMan on August 23, 2012, 12:07:54 PM
You consider that a dealbreaker? Sheesh.
Yeah, seriously.
Also, Düren is not a big city, it has barely 100k inhabitants. You would find a few bars and dance clubs, but certainly not a vibrant nightlife like in, say, Berlin or Hamburg.
Nightlife in Düren? It's got a name, it's called Aachen or even Cologne ;). Besides the last two are well connected by ICE and Thalys to Paris, Brussels, Amsterdam, Frankfurt and Berlin.
I imagine it's like the bankers who moved from London to Zurich. If you got a guy from rural Spain it'd probably be a different story.
Although language obstacles to labour mobility are a big problem with internal devaluation in Europe.
Anecdotally I think there's been a huge increase in Spaniards in London, which is wonderful. Our chef at work's a Spanish mechanical engineer and about half the company's Spanish.
Quote from: MadImmortalMan on August 23, 2012, 12:07:54 PM
You consider that a dealbreaker? Sheesh.
he's from Seville. There ideas of what constitutes nightlife are different. A 10PM dinner reservation is considered early bird.
So, Iorm come to London. You've experience and the language so could get relevant work. I think we've still got an economy. Just about.
Quote from: The Minsky Moment on August 23, 2012, 05:20:45 PM
Quote from: MadImmortalMan on August 23, 2012, 12:07:54 PM
You consider that a dealbreaker? Sheesh.
he's from Seville. There ideas of what constitutes nightlife are different. A 10PM dinner reservation is considered early bird.
I'm from Zaragoza, not Seville (that's the guy mentioned in the article). But yeah, you are completely right.
Quote from: Iormlund on August 23, 2012, 05:22:45 PM
(that's the guy mentioned in the article).
Right that's what I meant.
Quote from: Sheilbh on August 23, 2012, 05:22:20 PM
So, Iorm come to London. You've experience and the language so could get relevant work. I think we've still got an economy. Just about.
I've been to London once and loved it. It'll definitely be on the list if I have to move.
I recommend you stay away from Utah.
:lol:
I will, thanks.
Incidentally I had an interesting evening. I met a foreign-born school-mate who I hadn't seen in over 20 years. He's an extremely intelligent, 'can do' kind of guy and has lived a very peculiar life all over the place -- but always came back. He's done everything from playing The Game as a teen to training police in martial arts. He's worked as a DJ, an electrician, a manager or a mainframe operator. He boarded a plane to NYC when he was 21, found a gap in the US-Spanish import market and made a killing while it was open.
He says he gets asked a lot: "Why are you still in Spain?". His response: "It's the best place to actually live in".
I do like Spain and I could almost agree with Iormland's friend were it not for the fact that Spanish cooks have this strange compulsion to put pieces of pork into everything.
The Marranos are gone guys, and no one really cares anymore anyways. You can lay off Miss Piggy now.
:lol:
We do love pork. Especially iberian ham. I have some with pretty much everything, yes. In fact there's some in the lentils I'm eating right now. :mmm:
Quote from: Iormlund on August 23, 2012, 06:02:29 PM
:lol:
We do love pork. Especially iberian ham. I have some with pretty much everything, yes. In fact there's some in the lentils I'm eating right now. :mmm:
Spain might be my new favorite country...
Going back to the nightlife thing, I'm not sure it's just Spaniards. Why else aren't young Germans filling these positions then instead of moving to Berlin or wherever?
Quote from: Iormlund on August 23, 2012, 06:34:42 PM
Going back to the nightlife thing, I'm not sure it's just Spaniards. Why else aren't young Germans filling these positions then instead of moving to Berlin or wherever?
Based on what I've read they've run out of Germans.
Quote from: Admiral Yi on August 23, 2012, 06:36:38 PM
Quote from: Iormlund on August 23, 2012, 06:34:42 PM
Going back to the nightlife thing, I'm not sure it's just Spaniards. Why else aren't young Germans filling these positions then instead of moving to Berlin or wherever?
Based on what I've read they've run out of Germans.
I can help them make more.
Quote from: Admiral Yi on August 23, 2012, 06:36:38 PM
Quote from: Iormlund on August 23, 2012, 06:34:42 PM
Going back to the nightlife thing, I'm not sure it's just Spaniards. Why else aren't young Germans filling these positions then instead of moving to Berlin or wherever?
Based on what I've read they've run out of Germans.
Unemployment is very low for Spanish standards, but there's certainly room to improve. Youth unemployment was a bit under 8% IIRC, and there are a LOT of part-time workers.
Quote from: The Minsky Moment on August 23, 2012, 05:54:37 PM
I do like Spain and I could almost agree with Iormland's friend were it not for the fact that Spanish cooks have this strange compulsion to put pieces of pork into everything.
The Marranos are gone guys, and no one really cares anymore anyways. You can lay off Miss Piggy now.
Seems like Germany. Weren't it for the obnoxious vegetarianism, seems Germans only like pork.
Quote from: Iormlund on August 23, 2012, 06:02:29 PM
:lol:
We do love pork. Especially iberian ham.
Serrano . . . :mmm:
On night life - my friends and I are in our mid-30s. If we come home after 11pm after going out it's pretty unusual. We used to go out till 2, 3 am on weekends a few years ago, though. Those things happen with age.
Quote from: Duque de Bragança on August 24, 2012, 02:07:46 AM
Seems like Germany. Weren't it for the obnoxious vegetarianism, seems Germans only like pork.
I guess it's mostly because it's cheaper than beef.
Quote from: Syt on August 24, 2012, 02:13:09 AM
Quote from: Duque de Bragança on August 24, 2012, 02:07:46 AM
Seems like Germany. Weren't it for the obnoxious vegetarianism, seems Germans only like pork.
I guess it's mostly because it's cheaper than beef.
Beef is very expensive indeed there and good beef is not that common.
It does seem like a lack of night clubs is a pretty superficial reason to not do it for a guy who is an aspiring auto mechanic. No offense. I'm resisting the urge to start posting First World Problems and shit.
Quote from: Iormlund on August 23, 2012, 05:28:33 PM
Quote from: Sheilbh on August 23, 2012, 05:22:20 PM
So, Iorm come to London. You've experience and the language so could get relevant work. I think we've still got an economy. Just about.
I've been to London once and loved it. It'll definitely be on the list if I have to move.
Talked with my doctor for a bit about patients of her that have moved abroad. Apparently the NHS sucks.
Quote from: Duque de Bragança on August 24, 2012, 02:07:46 AM
Seems like Germany. Weren't it for the obnoxious vegetarianism, seems Germans only like pork.
The cities have lots of hallal options.
Quote from: The Minsky Moment on August 24, 2012, 08:49:48 AM
Quote from: Duque de Bragança on August 24, 2012, 02:07:46 AM
Seems like Germany. Weren't it for the obnoxious vegetarianism, seems Germans only like pork.
The cities have lots of hallal options.
Not interested, according to Marine Le Pen, 100% of the meat in Île-de-France is hallal so I want something different. :D
Yeah and casher too. Not good for the real boudin noir though ;) Quality pork is something the Germans lack as well.
It's not an issue in Vienna. Most non-chain take-out places are run by Muslims, so they'll usually serve chicken or fish or turkey based stuff. And there's a few Israeli/Jewish places, too.
I have come to dislike pork.
Quote from: Tamas on August 24, 2012, 09:37:27 AM
I have come to dislike pork.
Allahu Akbar! :ph34r:
Quote from: DGuller on August 24, 2012, 09:42:09 AM
Quote from: Tamas on August 24, 2012, 09:37:27 AM
I have come to dislike pork.
Allahu Akbar! :ph34r:
Tamas drinks alcohol though so that only makes him a wannabe Jew. :D
Quote from: Tamas on August 24, 2012, 09:37:27 AM
I have come to dislike pork.
Stop over cooking it then.
Pink is alright.
Quote from: Tamas on August 24, 2012, 09:37:27 AM
I have come to dislike pork.
stop eating it with beets then :p
Quote from: MadImmortalMan on August 24, 2012, 12:34:32 PM
Shame on you. :mad:
Actually you're right. I puked before I thought.
http://www.zerohedge.com/news/can-it-happen-again-again (http://www.zerohedge.com/news/can-it-happen-again-again)
Quote
Many have talked about it. More have eschewed it. But Minsky's hugely important insight in asking the question "Can 'It' Happen Again?" regarding the Depression remains critical reading for any- and every-one who opines day-in and day-out on how much we need or do not need Central Bank money-printing. As Bill Gross put it:
Minsky, originator of the commonsensical "stability leads to instability" thesis; the economist with naming rights for 2008's "Minsky Moment"; the exposer of the financial fragility of modern capitalism; probably couldn't imagine the liquidity trap qualities of zero-based money, because who could have conceived 30 or 40 years ago that interest rates could ever approach zero per cent for an extended period of time? Probably no one.
Nor, more importantly I suppose, can Ben Bernanke, Mario Draghi or Mervyn King. In their historical models, credit is as credit does, expanding perpetually after brief periods of recessionary contraction, showering economic activity with liquid fertiliser for productive investment and inevitable growth.
For a long-weekend, the full 30 year-old must-read paper here:
http://www.scribd.com/doc/104546616/Minsky-Can-It-Happen-Again (http://www.scribd.com/doc/104546616/Minsky-Can-It-Happen-Again)
Quote from: citizen k on August 31, 2012, 11:14:26 PM
http://www.zerohedge.com/news/can-it-happen-again-again (http://www.zerohedge.com/news/can-it-happen-again-again)
Quote
Many have talked about it. More have eschewed it. But Minsky's hugely important insight in asking the question "Can 'It' Happen Again?" regarding the Depression remains critical reading for any- and every-one who opines day-in and day-out on how much we need or do not need Central Bank money-printing. As Bill Gross put it:
Minsky, originator of the commonsensical "stability leads to instability" thesis; the economist with naming rights for 2008's "Minsky Moment"; the exposer of the financial fragility of modern capitalism; probably couldn't imagine the liquidity trap qualities of zero-based money, because who could have conceived 30 or 40 years ago that interest rates could ever approach zero per cent for an extended period of time? Probably no one.
Nor, more importantly I suppose, can Ben Bernanke, Mario Draghi or Mervyn King. In their historical models, credit is as credit does, expanding perpetually after brief periods of recessionary contraction, showering economic activity with liquid fertiliser for productive investment and inevitable growth.
For a long-weekend, the full 30 year-old must-read paper here:
http://www.scribd.com/doc/104546616/Minsky-Can-It-Happen-Again (http://www.scribd.com/doc/104546616/Minsky-Can-It-Happen-Again)
:huh: The liquidity trap is common knowledge. I learned about it as an undergrad.
Meanwhile, Germany presents its Poverty Report which comes out every four years.
In the past 20 years the privately held wealth has more than doubled from 4.6 to over 10 billion Euros. The top 10% of households own 53% of that (their share grew by 8% between 1998 and 2008).
The bottom 50% of households have 1% of the wealth.
Source: http://www.zeit.de/wirtschaft/2012-09/armuts-und-reichtumsbericht-2012 (in German)
A lot of private money is withdrawn from the Southern EU states and parked in Switzerland. That drives up the price of the Swiss Franc. To keep the Franc at the level of 1.20 Euro, the Swiss National Bank had to buy gigantic amounts of Euros with Swiss Francs so it now has about 250 billion Euro on its books. To do something with these Euros, it invested mostly into government debt from Germany, France, Netherlands, Finland and Austria. Estimates are that the Swiss National Bank bought about 80 billion Euro worth of debt in 2012. Which is about half the debt issued by these countries in 2012, meaning they are mostly financed by the Swiss National Bank recycling Euros from Southern Europe. At very low interest rates. Which creates the perverse situation that the interest spread widens and debt from e.g. Italy or Spain looks worse which makes private citizens of these countries more likely to park their money in Switzerland. This effect was already known before, but the sheer size, namely financing half the government debt of the Eurozone core is still surprising.
Quote from: Zanza on September 25, 2012, 11:38:30 AM
A lot of private money is withdrawn from the Southern EU states and parked in Switzerland. That drives up the price of the Swiss Franc. To keep the Franc at the level of 1.20 Euro, the Swiss National Bank had to buy gigantic amounts of Euros with Swiss Francs so it now has about 250 billion Euro on its books. To do something with these Euros, it invested mostly into government debt from Germany, France, Netherlands, Finland and Austria. Estimates are that the Swiss National Bank bought about 80 billion Euro worth of debt in 2012. Which is about half the debt issued by these countries in 2012, meaning they are mostly financed by the Swiss National Bank recycling Euros from Southern Europe. At very low interest rates. Which creates the perverse situation that the interest spread widens and debt from e.g. Italy or Spain looks worse which makes private citizens of these countries more likely to park their money in Switzerland. This effect was already known before, but the sheer size, namely financing half the government debt of the Eurozone core is still surprising.
So now we need Eurozone countries to start going bankrupt, so Switzerland can go bankrupt and the Swiss franc can depreciate. :P
Quote from: Zanza on September 25, 2012, 11:38:30 AM
A lot of private money is withdrawn from the Southern EU states and parked in Switzerland. That drives up the price of the Swiss Franc. To keep the Franc at the level of 1.20 Euro, the Swiss National Bank had to buy gigantic amounts of Euros with Swiss Francs so it now has about 250 billion Euro on its books. To do something with these Euros, it invested mostly into government debt from Germany, France, Netherlands, Finland and Austria. Estimates are that the Swiss National Bank bought about 80 billion Euro worth of debt in 2012. Which is about half the debt issued by these countries in 2012, meaning they are mostly financed by the Swiss National Bank recycling Euros from Southern Europe. At very low interest rates. Which creates the perverse situation that the interest spread widens and debt from e.g. Italy or Spain looks worse which makes private citizens of these countries more likely to park their money in Switzerland. This effect was already known before, but the sheer size, namely financing half the government debt of the Eurozone core is still surprising.
Interesting.
Doesn't that start to call into question the stability of the Swiss Franc itself?
Quote from: Barrister on September 25, 2012, 11:49:44 AM
Interesting.
Doesn't that start to call into question the stability of the Swiss Franc itself?
They can't do that repeatedly and expect it to keep working.
Quote from: Barrister on September 25, 2012, 11:49:44 AM
Interesting.
Doesn't that start to call into question the stability of the Swiss Franc itself?
The instability of the Franc is a given. They're buying euros to keep the franc from appreciating.
As long as the Swiss National Bank doesn't figuratively run out of paper and ink, I don't see what would stop them to buy ever more Euros with freshly printed Francs. The problem is that it creates some inflation in Switzerland, e.g. in real estate as foreigners now hold huge amounts of Swiss Francs and buy real estate in Switzerland. If the Swiss Franc ever falls again against the Euro, the Swiss National Bank may make gigantic balance sheet losses as they'll have to mark down their Euro denominated debt.
The "problem" Switzerland has is that it is one of the very few western countries in the world with its own currency, a good banking system and rule of law, and little public debt. The result is that much of the world is trying to park their money in this small country, and the demand for francs is off the charts. All that is fine, but the place has become outright unaffordable. When prices get to the point of $60 for a pizza at Pizza Hut or $20 for a sandwich at Burger King, there is a problem.
The Swiss are trying to keep currency at sane levels, so they have communicated a level at which they won't let the franc appreciate past and to defend that point simply print a bunch more money. They have to use that money for something, so they buy safe euro debt. So if Germany defaults, it will be a sad day in Switzerland, but it isn't as though they paid for those bonds with tax revenue and they really don't have much choice.
http://www.zerohedge.com/news/2012-09-25/live-spanish-protestcam (http://www.zerohedge.com/news/2012-09-25/live-spanish-protestcam)
Quote from: citizen k on September 25, 2012, 01:53:24 PM
http://www.zerohedge.com/news/2012-09-25/live-spanish-protestcam (http://www.zerohedge.com/news/2012-09-25/live-spanish-protestcam)
Spanish cops went up 5 notches on the
Ed Anger Respect Scale when I saw the footage on CNNI of the Spanish cops beating the living hell out of people.
I hate Switzerland. €1.50 for a glass of tap water :rage:
Quote from: Ed Anger on September 25, 2012, 06:05:13 PM
Spanish cops went up 5 notches on the Ed Anger Respect Scale when I saw the footage on CNNI of the Spanish cops beating the living hell out of people.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fl.yimg.com%2Fbt%2Fapi%2Fres%2F1.2%2FCA39j7tsx.ypV8ZAnpWvOQ--%2FYXBwaWQ9eW5ld3M7Zmk9aW5zZXQ7aD00MjU7cT04NTt3PTYzMA--%2Fhttp%3A%2F%2Fmedia.zenfs.com%2Fen_us%2FNews%2FReuters%2F2012-09-25T200542Z_221525676_GM1E89Q0B9Y01_RTRMADP_3_SPAIN-BUDGET.JPG&hash=7bb3111df4eac751955b80f0064aed6ae7e1fd8c)
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fl3.yimg.com%2Fbt%2Fapi%2Fres%2F1.2%2F.WM.Nlnony4fIb_BtZUtlQ--%2FYXBwaWQ9eW5ld3M7Zmk9aW5zZXQ7aD00MDE7cT04NTt3PTYzMA--%2Fhttp%3A%2F%2Fmedia.zenfs.com%2Fen_us%2FNews%2FReuters%2F2012-09-25T195903Z_1833747579_GM1E89Q0AZH01_RTRMADP_3_SPAIN-BUDGET-PROTESTS.JPG&hash=94994a303bb875f9bf28edd2587003880e2ec831)
The Thin Blue Line
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fl3.yimg.com%2Fbt%2Fapi%2Fres%2F1.2%2FLrrMmy1DX2v2MAc8SWa9Sw--%2FYXBwaWQ9eW5ld3M7Zmk9aW5zZXQ7aD00NjI7cT04NTt3PTYzMA--%2Fhttp%3A%2F%2Fmedia.zenfs.com%2Fen_us%2FNews%2FReuters%2F2012-09-25T185713Z_881778475_GM1E89Q081P01_RTRMADP_3_SPAIN-BUDGET-PROTESTS.JPG&hash=9a5d9358f4df0fefd12ba3f53855f1b7a68487aa)
The problem with the ultra-rich is that many of them don't seem to be spending it, instead parking it in various tax havens. It's a massive drain on demand. I wonder, also, to what extent the ageing of society leads to this playing safe; which damages the very economies which old people rely on to keep comfortable in old age.
Quote from: Richard Hakluyt on September 26, 2012, 01:53:17 AM
The problem with the ultra-rich is that many of them don't seem to be spending it, instead parking it in various tax havens. It's a massive drain on demand. I wonder, also, to what extent the ageing of society leads to this playing safe; which damages the very economies which old people rely on to keep comfortable in old age.
I wonder if this power of the ultra-rich to effectively remove/add a good chunk of potential spending/investment from the economy is one of the reasons societies with less income inequality tend to be more stable. Instead of the normal highs and lows being exacerbated by sudden movements of capital it's gentler and less drastic decisions by many actors rather than a few.
Quote from: frunk on September 26, 2012, 07:45:20 AM
I wonder if this power of the ultra-rich to effectively remove/add a good chunk of potential spending/investment from the economy is one of the reasons societies with less income inequality tend to be more stable. Instead of the normal highs and lows being exacerbated by sudden movements of capital it's gentler and less drastic decisions by many actors rather than a few.
Shouldn't be, as long as hot money can enter and exit a high equality country as easily as it can a low equality country.
Quote from: Richard Hakluyt on September 26, 2012, 01:53:17 AM
The problem with the ultra-rich is that many of them don't seem to be spending it, instead parking it in various tax havens. It's a massive drain on demand. I wonder, also, to what extent the ageing of society leads to this playing safe; which damages the very economies which old people rely on to keep comfortable in old age.
It's pretty bad when people are emigrating to
Belgium for tax reasons.
http://www.cnbc.com/id/48998008/Arnault_Move_Highlights_Belgian_Links
Quote from: Admiral Yi on September 26, 2012, 08:11:21 AM
Shouldn't be, as long as hot money can enter and exit a high equality country as easily as it can a low equality country.
I doubt it can, since there are economies of scale associated with larger amounts of money. It doesn't make sense to set up an offshore account for a couple thousand or tens of thousand nearly as much as for millions or billions.
Quote from: frunk on September 26, 2012, 11:22:18 AM
I doubt it can, since there are economies of scale associated with larger amounts of money. It doesn't make sense to set up an offshore account for a couple thousand or tens of thousand nearly as much as for millions or billions.
I'm afraid I don't see the connection between that and income inequality.
Quote from: Ed Anger on September 25, 2012, 06:05:13 PM
Spanish cops went up 5 notches on the Ed Anger Respect Scale when I saw the footage on CNNI of the Spanish cops beating the living hell out of people.
The bigger problem in Spain is that the country is, quite literally, falling apart.
I'm surprised nobody has mentioned it, but Catalonia has scheduled elections to pave the way for a referendum on independence.
Basically, the richest regions in the North have become fed up with the South (the catalonian government spokesman said the southerners use the money 'to go to the bar' (Sic)) and are not willing to take it any more. They wanted freedom to control the tax revenues generated in their territory, something Madrid will not accept.
As a result, the government will hold a referendum to break from Spain, no matter if the central government approves it or not. The fact that 20% of the population came down to the streets on September 11th to demand independence helped the local politicians to make up their minds.
In Portugal, the goverment of highborns had in the meanwhile decided to ignore the troika and move in with their usual solution to the budget problems: a massive rise in the taxes on the poor (the poorest, for example, got their tax burden hiked by 70%), to finance tax brakes to the companies.
This led to a national revolt, as such a measure would collapse the national economy (not even the companies that would benefit accepted the measure). The government had to pull back after severe demonstrations and revolt by even the top brass of the government parties [the VP of the state bank stated on his Facebook account that if his taxes represented again 7 months of his income he'd 'scram outta here' [Sic]], but to compensate they're readying another massive hike on the IRS, despite the fact that the troika is insisting that the reduction of the deficit must be done through cuts on government expenditure, not through massive tax hikes on the private sector.
(but the government can't do that, because those expenses come from ruinous deals that gave control of many public companies to highborns).
Currently the government has no legitimacy (but nobody wants their job), no idea on where or how to get money, and everybody against it. And we're the most stable of Europe's austerity plans...
It's been the same story for 30 years.
What they Catalonian politicians want is to have their hands on all the loot. They've increased their part of the pie by acting as kingmaker in Madrid for as long as I remember. Now they just want it all.
Catalonian socdems know perfectly well that Catalonia would suffer immensely on its own. Every major company would relocate before finding itself outside the Common Market and Catalonia would be placed between two very big and hostile neighbours who would veto any chance of accession. Yet they think playing the nationalist angle is a good move to keep them in power.
Knuckleheads. Catalonia is running a massive deficit and need a bailout already from the central government. How does seceding help them?
Quote from: Admiral Yi on September 26, 2012, 11:27:34 AM
I'm afraid I don't see the connection between that and income inequality.
It's easier and less expensive (per unit money involved) to move a single large pool of money out of a system and into another one then it is many pools of smaller amounts. Income inequality means that the large pools of money carry a greater percentage of the wealth in the economy, and hence are better able to enter or leave it as circumstances dictate.
Quote from: Admiral Yi on September 26, 2012, 12:35:26 PM
Knuckleheads. Catalonia is running a massive deficit and need a bailout already from the central government. How does seceding help them?
If you are oblivious as to how reality actually works (as nationalists are prone to do) you might think Catalonia is running a deficit because it does not collect its own revenue (not all of it anyway). Since it's one of the richest regions, some of that money leaves for places like Extremadura or Larchie's Galicia, just like it happens in any other country.
Basically nationalists think Catalonia would keep all its wealth in case of secession, and they would get to tap it all.
Quote from: Iormlund on September 26, 2012, 12:19:47 PM
Catalonian socdems know perfectly well that Catalonia would suffer immensely on its own. Every major company would relocate before finding itself outside the Common Market and Catalonia would be placed between two very big and hostile neighbours who would veto any chance of accession. Yet they think playing the nationalist angle is a good move to keep them in power.
The thing is, it is not clear that Catalonia would be outside the EU. They are already in as part of Spain, and don't want to be "out". Nor would Europe gain anything by having them "out", either. So a can of worms would be opened.
The biggest headache in Brussels is that this would be a precedent for other regions in Europe that have the same separatist reasons - like Flanders, for example.
Quote from: Admiral Yi
Knuckleheads. Catalonia is running a massive deficit and need a bailout already from the central government. How does seceding help them?
Catalonia runs a deficit in part, as they see it, because it has to send most of its money to the central government. Alone, it is the 50th largest exporter in the planet (not bad for a nation of 7 million people: per capita, it's WAY richer than Portugal).
Besides, the fact is that Spain faces many years of austerity and that will only mean more money going out of Catalonia to help the rest of the country. Facing 20% unemployment (50% amongst the young), Barcelona feels that it can put its money to better use by helping its own instead of the others.
This is also a massive failure of the Spanish state as it stands now. The spanish socialist party has now opened the doors to a federal Spain, but this solution by no means implies the end of the problem. Maybe it would only delay it enough for the economic situation to improve.
Quote from: Martim Silva on September 26, 2012, 12:45:43 PM
The thing is, it is not clear that Catalonia would be outside the EU. They are already in as part of Spain, and don't want to be "out". Nor would Europe gain anything by having them "out", either. So a can of worms would be opened.
The biggest headache in Brussels is that this would be a precedent for other regions in Europe that have the same separatist reasons - like Flanders, for example.
Spain and France would veto any attempt of including any seceding party within the EU. There's just no question about the result of such a vote. Catalonia would lose pretty much every market it sells to.
Quote from: MadImmortalMan on September 26, 2012, 11:12:08 AM
Quote from: Richard Hakluyt on September 26, 2012, 01:53:17 AM
The problem with the ultra-rich is that many of them don't seem to be spending it, instead parking it in various tax havens. It's a massive drain on demand. I wonder, also, to what extent the ageing of society leads to this playing safe; which damages the very economies which old people rely on to keep comfortable in old age.
It's pretty bad when people are emigrating to Belgium for tax reasons.
http://www.cnbc.com/id/48998008/Arnault_Move_Highlights_Belgian_Links
Belgium has always been a taxhaven if you have enough money.
Quote from: frunk on September 26, 2012, 12:41:57 PM
It's easier and less expensive (per unit money involved) to move a single large pool of money out of a system and into another one then it is many pools of smaller amounts. Income inequality means that the large pools of money carry a greater percentage of the wealth in the economy, and hence are better able to enter or leave it as circumstances dictate.
I understand how income equality can produce more global capital flows; what I'm having trouble seeing is why that money would only flow in and out of countries which also income inequality.
Quote from: Iormlund on September 26, 2012, 12:43:41 PM
If you are oblivious as to how reality actually works (as nationalists are prone to do) you might think Catalonia is running a deficit because it does not collect its own revenue (not all of it anyway). Since it's one of the richest regions, some of that money leaves for places like Extremadura or Larchie's Galicia, just like it happens in any other country.
Basically nationalists think Catalonia would keep all its wealth in case of secession, and they would get to tap it all.
I can't tell if you're saying Catalonia would be better off in or out of Spain.
Their size of the pie would increase. Actual size of the pie would drastically decrease.
Quote from: Admiral Yi on September 26, 2012, 01:14:26 PM
Quote from: Iormlund on September 26, 2012, 12:43:41 PM
If you are oblivious as to how reality actually works (as nationalists are prone to do) you might think Catalonia is running a deficit because it does not collect its own revenue (not all of it anyway). Since it's one of the richest regions, some of that money leaves for places like Extremadura or Larchie's Galicia, just like it happens in any other country.
Basically nationalists think Catalonia would keep all its wealth in case of secession, and they would get to tap it all.
I can't tell if you're saying Catalonia would be better off in or out of Spain.
Spain's regions, from my understanding don't collect taxes but have powers of varying spending. The central government collects taxes, retains some and then disburses the rest to the regions, my understanding is that this isn't entirely linked to the size of the region's contribution to the economy.
Catalonia's rich and says that they've been underfunded by the central government for years. In addition they've recently said the central government (of an anti-regionalist, centralist political party) has been keeping more money to prove their international credibility/deficit and to weaken the regions. Catalan estimates put their lost revenue (going to poorer bits of Spain and Madrid) at around 8-9% of GDP, way above their deficit.
But all the reading I've done makes me think all stuff about regional Spanish debt needs to be taken sceptically, because it's such a live political issue.
Suggesting that the central government is cooking the fiscal books is a pretty serious allegation.
Quote from: Admiral Yi on September 26, 2012, 02:30:13 PM
Suggesting that the central government is cooking the fiscal books is a pretty serious allegation.
My understanding is the system's not terribly transparent. I think the Catalan government's currently suing the central government for nearly €1billion, or 0.5%, which they claim's been wrongfully kept. But the Spanish legal system's quite slow.
Edit: And the allegations aren't from a fringe, they were made by the Catalan Economy Minister, not just some pressure group. But as I say both sides are highly politicised.
With the kind of provincial deficit I've been reading about, a billion euros is not going to make much difference.
It would make a difference to Catalonia, but I don't think anyone's arguing it would be huge.
On Catalonia:
QuoteMadrid and Catalonia clash over independence referendum
MADRID | Thu Sep 27, 2012 2:50pm EDT
(Reuters) - The parliament of Spain's powerful but heavily indebted region of Catalonia voted in favor of holding a referendum on independence on Thursday, in defiance of Madrid which said it would stop any such move towards secession.
The vote in Catalonia, responsible for a fifth of the country's economic output, was backed by 84 parliament members including those of ruling party CiU, while 25 abstained, and 21 voted against holding a referendum.
The vote was held minutes after Deputy Prime Minister Soraya Saenz de Santamaria told reporters the national government was prepared to prevent any referendum.
Catalonia brought forward regional elections to November 25 after regional leader Artur Mas' proposal to create a separate Catalan tax agency was flatly rejected by Prime Minister Mariano Rajoy, who said it went against Spain's Constitution. Mas then said he would seek a referendum on an independent Catalonia.
Mas's conservative CiU party would likely win an absolute majority in elections, polls show, strengthening the push towards independence and delivering a blow to Rajoy who has called for national unity to counter the country's economic crisis.
Independence fervour has been growing in Catalonia during the deep recession.More than half of Catalans say they want a separate state.
Catalonia's regional government says it pays 16 billion euros more to the Spanish state than it receives in transfers.
(Reporting by Julien Toyer and Fiona Ortiz; Writing by Nigel Davies; Editing by Paul Day and Jason Webb)
Tough choice for Brussels. On the one hand, destroying the nation-states is an essential part of creating their superstate. On the other hand, balkanized areas are rarely sane, stable or good for business.
Incidentally the Germans, Dutch and Finns look like they're backing out of the European Council agreement on banking. From the Guardian:
QuoteSpanish hopes threatened by 'shocking' statement
The European Stability Mechanism row damages the notion that the eurozone countries are capable of acting quickly
Nils Pratley
The Guardian, Wednesday 26 September 2012 20.35 BST
The plan to recapitalise banks was meant to be the easy part of the latest scheme to save the euro. Didn't everybody agree that breaking the link between weak sovereigns and weak banks was a vital and urgent step? Wasn't the central European Stability Mechanism (ESM) deemed the perfect vehicle to strengthen the balance sheets of teetering banks and thus offer a helping hand to the governments of the likes of Spain and Ireland?
Yes and yes. But now comes a powerful "no" in the form of a joint statement from the German, Dutch and Finnish finance ministries. The critical paragraph began with the words "regarding longer-term issues", a giveaway that a classic piece of foot-dragging was on the way.
The ESM, declared the trio, can only go to work on bank recapitalisations "once the single [bank] supervisory mechanism is established and its effectiveness has been determined". That latter could take years. Further, "legacy assets" should remain the responsibility of national governments. So are saying there should be no central hand-outs to cover past government-funded bailouts of banks.
The statement is a shocker. Even if there had not been riots in euroland yesterday, stock markets would have slumped on the news and bond yields in the periphery would have soared. If the will of the trio of northern objectors prevails, the €60bn (£47.8bn) needed to save the Spanish banking system will go directly on the Spanish government's books, thereby making the arithmetic of the inevitable bailout of Madrid bigger and uglier. And poor old Ireland – the one country that the austerity disciplinarians could promote as a story of recovery – would get a slap in the face.
More fundamentally, the row over the role of the ESM damages the already-fragile notion that the eurozone countries are capable of acting quickly. Germany and the others seem guilty of sharp practice here – they are attempting to re-write an agreement whose general meaning had seemed clear. The time to argue these points was when use of the ESM was being debated by all.
But, if that's the true picture of the state of eurozone relations, you can't blame investors for wondering what other agreements could be challenged in future. It is a terrible climate in which to negotiate the conditions of the Spanish bailout. The backdrop to those delicate talks will now be poisonous.
The Economist:
QuoteThe other moral hazard
If the euro zone is to survive, Germany too must keep its promises to reform
Sep 29th 2012 | from the print edition
STITCH by stitch, Germany is unravelling the carefully knitted deal that offered the euro zone the best chance yet of overcoming its crisis. Until this week European officials dared to imagine they had got ahead of the markets with two big moves. First, the ECB declared that it will act as a lender of last resort for troubled countries like Spain (if they agree to a reform programme). And second, the euro zone pledged to create a banking union to sever the death loop between weak banks and weak sovereigns. Now that the ECB had averted the threat of the euro breaking up, others have space and time to repair its design flaws.
If only it were so easy. Protests and strikes against austerity have restarted in debtor states, and secessionism is stirring in Spain. Just as worrying, creditor states are showing every sign of going slow, and even reneging, on their promises to strengthen the euro zone. Rückfall, the German word for backsliding, is one reason the euro zone is being pushed back into an acute phase of the crisis.
Start with the conditional promise of intervention by the ECB's president, Mario Draghi. This is designed to hold down a country's borrowing costs, especially for short-dated bonds, and dispel "unfounded fears" about the future of the euro.
In his campaign to delegitimise the policy, Jens Weidmann, the Bundesbank chief, has resorted to drawing a parallel between Mr Draghi and Mephisto in Goethe's "Faust". The German government, though in favour of the ECB's scheme, is uncomfortable. It has told Spain not to ask for more help—the essential first step that would allow the ECB to act.
Worse, the Rückfall over banking union seems almost designed to rekindle the crisis. At a summit in June euro-zone leaders declared that it was "imperative to break the vicious circle between banks and sovereigns". To do so, they would create a single banking supervisor "as a matter of urgency". And once established, euro-zone rescue funds could be used directly to recapitalise troubled banks. It is no secret that the plan was meant to help Spain, by shifting some of the burden of supporting crippled banks to the euro zone—retroactively if necessary. Ireland was told it could expect similar assistance.
This bargain was done on terms that Germany has always advocated: more central control in exchange for more solidarity. But even before the European Commission this month rushed out its proposals for a banking supervisor (an offshoot of the ECB), Germany was undermining the deal. Drafts of the commission's plan included a commitment to complement the new supervisor with a euro-zone resolution authority to wind up failed banks (known as Edira), and a European bank-deposit guarantee scheme (aka, Edgar). Under German pressure, these were removed from the final version.
Many worry that, with the abortion of Edira and Edgar, the ECB will be responsible for overseeing banks but lack the means to deal with the bad ones. At the same time, Germany is fighting the commission's plan for the ECB to have authority to supervise all 6,000-plus banks in the euro zone. Berlin wants to exclude smaller banks, including its own often-troubled regional lenders.
And Germany has tried to slow down the timetable for the supervisor to start work on January 1st 2013, on the grounds that such an important task should not be rushed. Thereafter, direct bank recapitalisation should only take place once the system has shown itself to be effective. This week, Wolfgang Schäuble, the German finance minister, and his über-hawkish colleagues from the Netherlands and Finland, sought greatly to limit the scope of the commitment: direct bank recapitalisation should apply only to new problems, not "legacy assets" and should only be a "last resort", after using private capital and then national funds.
Germany knows it has to look after its own banks, so it wants to limit its liability for those of other countries. Angela Merkel, the German chancellor, has already staked much treasure on helping others. At some point, Germany may have to write off part of the loans it made to Greece. Mrs Merkel already lost her "chancellor's majority" in this summer's vote to lend Spain up to €100 billion ($129 billion) to restructure its banks. She is not rushing back to the Bundestag to ask for more money, not least because any debate would turn to the ECB and Mephisto.
Economics and morality
Mario Monti, Italy's prime minister, quips that, for Germany, "economics is a branch of moral philosophy". Countries must pay for sins of commission (budget deficits) and omission (poor bank supervision). Only then can there perhaps be more European integration to avert problems in the future.
Yet there is little point in worrying about tomorrow's woes when today's crisis is unresolved. Germany is right to fret that relieving market pressure on debtors could create moral hazard and slow down badly needed reforms. Equally, though, moral hazard applies to creditors. When the pressure is off, Germany shows too little urgency about repairing the euro.
There is a cost to delay and prevarication. It is harder for countries to reform without hope that their agony will end. Germany's unwillingness to act except in the most dire moments condemns the euro zone to one acute crisis after another. In the short term Mrs Merkel may thus find herself fighting for re-election next year with the euro zone back in flames. In the longer term a chronic crisis is already creating permanent damage: prolonged economic stagnation and depression in deficit countries, loss of confidence in the credibility of governments and the future of the euro, and increasingly poisonous politics. Germany may fear the "legacy" costs of past mistakes. But it should also worry about the legacy of its hesitation and inaction.
And the doom-laden Telegraph comment page:
QuoteEurope's betrayal of Spain
By Ambrose Evans-Pritchard Economics Last updated: September 27th, 2012
We discover – yet again, you might say – that Germany, Holland, and Finland will not stand behind their solemn pledge of solidarity when push comes to shove.
Spain's premier Mariano Rajoy has been betrayed. Nobody should be entirely surprised if he and the Spanish arch-nationalists in his circle offer a condign riposte, and bring down the entire temple on the heads of the creditor powers.
He bit the bullet and agreed to the highly intrusive terms of a €100bn eurozone rescue for the Spanish banking system on a specific understanding: that the ESM bail-out fund would ultimately take over the burden by recapitalising Spain's banks directly.
This deal has been breached. Can we believe anything that the Chancellor of Germany, the prime minister of Holland, and the prime minister of Finland say from now on? The EMU rescue edifice is built on sand.
You might say Mr Rajoy had no choice. But he did. There were those whispering in his ear that Spain should instead retake control over its own monetary, exchange, and sovereign policy levers, and break out of its debt-deflation trap.
Such a course might or might not be disastrous for Spain, depending on your analysis of EMU's structural flaws, but it would certainly be disastrous for German and Dutch banks. (Given that it would cause the collapse of monetary union in the worst possible way).
The Spanish bubble was after all a joint venture. Spain was flooded with cheap capital from Germany and Holland that it could not prevent or control under the EMU system. Did the German and Dutch regulators recognise the danger, or try to stop the excesses? Not really. They were complicit.
The ECB's uber-loose money (to help Germany when it was in slump) led to negative real interest rates for Spain – minus 2pc for years – that fuelled a massive credit boom. Policy was far too lax for a fast-growing Tiger economy.
Did the Spanish make big mistakes? Of course. But the ECB and the European Commission did not make that critique at the relevant moment. They too were smoking weed.
Be that as it may, Mr Rajoy now learns that the AAA trio will not permit direct recapitalisation of the Spain's "legacy" banks by the ESM, even after the new European bank regulator is up and running.
The burden will fall entirely on Spain, or so it seems. Spain must raise €60bn in fresh debt on the capital markets to plug the hole, or nearer €150bn if City sceptics are right.
The accord signed by EMU leaders in June is crystal clear, as the European Commission remind the Northern powers yesterday. The purpose was to break the "vicious circle" between banks and sovereign states.
QuoteEURO AREA SUMMIT STATEMENT
- 29 June 2012 -
• We affirm that it is imperative to break the vicious circle between banks and sovereigns. The Commission will present Proposals on the basis of Article 127(6) for a single supervisory mechanism shortly. We ask the Council to consider these Proposals as a matter of urgency by the end of 2012. When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly. This would rely on appropriate conditionality, including compliance with state aid rules, which should be institution specific, sector-specific or economy-wide and would be formalised in a Memorandum of Understanding. The Eurogroup will examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme. Similar cases will be treated equally.
• We urge the rapid conclusion of the Memorandum of Understanding attached to the financial support to Spain for recapitalisation of its banking sector. We reaffirm that the financial assistance will be provided by the EFSF until the ESM becomes available, and that it will then be transferred to the ESM, without gaining seniority status.
The Germans, Dutch and Finns (in particular) say they were bounced into this deal. It would not surprise if they were outmanoeuvred by Italy's Mario Monti, and if too-clever-by-half Council officials tweaked the language at the last minute. But this was the accord.
It was a key foundation of the global market rally of the last two months. The Nordics have now ripped it up. Investors in Asia and the Middle East might justifiably conclude that the Chancellor of Germany is blowing smoke in their eyes, that Germany will not in fact "save the euro". Eurozone rhetoric is a sham.
So we are back to crisis.
I have no idea what Spain will do, but emotions are running high and the country – in the words of Confidencial this morning – risks "disintegrating". We watch and wait to see whether the Basque revolt or the Catalan revolt will detonate first, and whether the Spanish will really use "all means" to hold the union together.
The newspapers ABC and La Razon both called on the government to deploy " the arms of the state" to stop Catalonia holding an independence referendum.
It is as if the Daily Telegraph were to call for coercion to stop Scottish independence. Imagine the response in Scotland.
Mr Rajoy's authority is collapsing. Some 84pc of Spaniards have lost confidence in his leadership. The current course is becoming hopeless.
Today he will announce a fresh round of austerity measures to meet EU targets that cannot be met, adhering to reactionary strategy of "internal devaluation" imposed by Germany that is destroying his country.
And now he has just been betrayed by the German bloc anyway. Es el colmo. If he were to request full sovereign rescue, he would most likely be shafted again. Who can blame him for dragging his feet?
The temptation to tell the Germans and Dutch to go to Hell – and to pull the pin on their banking systems – must be growing mightily. Desperate men do desperate things.
You're supposed to be waiting until after the election you bastards.
Maybe we should hold an auction to decide the timing of the rescue. Who would pay more, the Dems or the GOP? :unsure:
Quote from: Iormlund on September 28, 2012, 09:00:37 AM
Maybe we should hold an auction to decide the timing of the rescue. Who would pay more, the Dems or the GOP? :unsure:
The GOP would probably pay a lot of money--but only for Europe to collapse into anarchy asap and before the election. So I don't know if their bids would be credible.
That was always how it was presented by Merkel, so I don't see any change in German policy.
QuoteWe affirm that it is imperative to break the vicious circle between banks and sovereigns. The Commission will present Proposals on the basis of Article 127(6) for a single supervisory mechanism shortly. We ask the Council to consider these Proposals as a matter of urgency by the end of 2012. When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly. This would rely on appropriate conditionality, including compliance with state aid rules, which should be institution specific, sector-specific or economy-wide and would be formalised in a Memorandum of Understanding.
To suggest that's some kind of decision is laughable. It clearly states that the decision will be made later and is at best some kind of expression of intent. It's not making any committments, so there is nothing the Dutch, Finnish and German prime ministers can even go back on. They are just detailling what their policy proposals are regarding this.
Quote from: MadImmortalMan on September 27, 2012, 08:31:50 PM
You're supposed to be waiting until after the election you bastards.
The next relevant election is only in September 2013. :P
Quote from: Zanza on September 28, 2012, 09:52:48 AM
That was always how it was presented by Merkel, so I don't see any change in German policy.
I'm usually the first to leap to the creditor nations' defense, but in this case what I think is worrying is the language in one of Shelf's articles about setting up the bank supervision and "making sure that it's doing the job well" before authorizing joint recapitalizations. That's a formula for inaction.
On the creditor side, of course winding up failed banks should be the sole responsibility of the host country. Winding up a failed bank involves money out of pocket, not the provision of liqudity.
Quote from: Admiral Yi on September 28, 2012, 02:43:19 PMI'm usually the first to leap to the creditor nations' defense, but in this case what I think is worrying is the language in one of Shelf's articles about setting up the bank supervision and "making sure that it's doing the job well" before authorizing joint recapitalizations. That's a formula for inaction.
As I said, not a change in German policy. :P
Quote from: Zanza on September 28, 2012, 09:52:48 AM
That was always how it was presented by Merkel, so I don't see any change in German policy.
I disagree.
June -
QuoteWe affirm that it is imperative to break the vicious circle between banks and sovereigns.
September -
Quotedirect bank recapitalisation by the ESM should take place based on an approach that adheres to the basic order of first using private capital, then national public capital and only as a last resort the ESM.
June -
QuoteThe Commission will present Proposals on the basis of Article 127(6) for a single supervisory mechanism shortly. We ask the Council to consider these Proposals as a matter of urgency by the end of 2012.
September -
QuoteWe agreed that it is important to achieve rapid progress on this issue, but it cannot happen at a cost of the quality of the new supervision.
June -
QuoteWe affirm our strong commitment to do what is necessary to ensure the financial stability of the euro area, in particular by using the existing EFSF/ESM instruments in a flexible and efficient manner in order to stabilise markets for Member States respecting their Country Specific Recommendations and their other commitments including their respective timelines, under the European Semester, the Stability and Growth Pact and the Macroeconomic Imbalances Procedure
September -
Quotethe recapitalisation should always occur using estimated real economic values
June -
QuoteThe Eurogroup will examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme. Similar cases will be treated equally.
September -
Quotethe ESM can take direct responsibility of problems that occur under the new supervision, but legacy assets should be under the responsibility of national authorities
In each of those cases there's backsliding at best and contradiction at worst. The condition that there be a banking supervisor in place before the ESM could directly recapitalise was pushed for by Germany, who are now objecting most strongly to the Commission's proposals and wanting it weakened (according to reports in the FT). I think the way this has been reported in the Anglo-Saxon (and Irish press) and elsewhere I believe suggests that if this has been the position, it's certainly not been clear over the summer.
Here's some briefing from the Commission:
Quote"There are a couple of countries that are trying to backtrack but I don't think they will be able to muster the force to succeed," the official said, referring to Finland and the Netherlands.
"'Legacy' problems is a newcomer to the debate. It is one more case of this habit of walking away from decisions taken."
Publicly the Commission downplayed it - saying it's simply a negotiating position over the technicalities:
QuoteEurozone leaders "agreed on 29 June that the future European Stability Mechanism should have the possibility to recapitalise banks directly once the new supervision mechanism is in place," European Commission spokesman Olivier Bailly said Wednesday.
"This is, as far as we are concerned, the position of the (eurozone) member states," Bailly said.
QuoteTo suggest that's some kind of decision is laughable. It clearly states that the decision will be made later and is at best some kind of expression of intent. It's not making any committments, so there is nothing the Dutch, Finnish and German prime ministers can even go back on. They are just detailling what their policy proposals are regarding this.
Sort of. That's how all European Council summit statements read, but it's an unusually urgent Council decision, it ends 'We task the Eurogroup to implement these decisions by 9 July 2012.' They did handing it over to the Commission to draft the rules, which will then have to be agreed - but the principle and timescale were agreed and Germany, the Netherlands and Finland want to resile from both.
I should say I think there'll be a sense of schadenfreude in Whitehall because Germany sounds almost British :lol: Every government we've had moans. First they think they did okay during the Council. Then the Commission starts presenting proposals. Suddenly it dawns on them that they've agreed to something rather more far-reaching than they suspected.
Incidentally I'm not sure what this supervisor would be able to achieve? It would miss the problems in the regional banks, it would miss the Spanish crisis for example - and the systemic risks that came from that. It looks like it might be able to spot the Irish or Slovenian problems - but may not be able to solve them.
Meanwhile Spain and France presented their budgets - the French looks quite canny. The reaction to Spain seems to be that they are basically taking many of the same steps as Ireland in 2009 - and their stress test wasn't very credible (the adverse scenario projects a smaller banking bailout than in Ireland). Add in Rajoy's denials and it looks like Cowen all over again.
At least my distant cousin won't go on national TV an hour before Ireland accepts a bailout to say that the government hasn't asked for a bailout :lol:
Quote from: Zanza on September 28, 2012, 10:14:03 AM
Quote from: MadImmortalMan on September 27, 2012, 08:31:50 PM
You're supposed to be waiting until after the election you bastards.
The next relevant election is only in September 2013. :P
I think April 2013 matters too :o :shudder:
Where are the contradictions?
Quote from: Admiral Yi on September 28, 2012, 08:26:53 PM
Where are the contradictions?
Requiring that national public money is used prior to ESM recapitalisation doesn't sever the sovereign-bank cycle, it makes it EZ policy.
Not necessarily a contradiction, but difficult to reconcile is that the EZ policy of direct recap ends with a reference to helping Ireland after their bank bail-outs. That's far more difficult if the ESM can't take on legacy assets from mistakes under national supervisors.
Quote from: Sheilbh on September 28, 2012, 08:06:04 PMIn each of those cases there's backsliding at best and contradiction at worst. The condition that there be a banking supervisor in place before the ESM could directly recapitalise was pushed for by Germany, who are now objecting most strongly to the Commission's proposals and wanting it weakened (according to reports in the FT). I think the way this has been reported in the Anglo-Saxon (and Irish press) and elsewhere I believe suggests that if this has been the position, it's certainly not been clear over the summer.
Merkel's government policy statement to the German parliament on the day of the EU summit said so:
Quote from: Deutscher Bundestag – 17. Wahlperiode – 188. Sitzung. Berlin, Freitag, den 29. Juni 2012Diese Euro-weite Bankenaufsicht soll durch einen Vorschlag der Kommission, durch einstimmige Beschlussfassung im Rat und natürlich anschließende Umsetzung in den nationalen Staaten mit Parlamentsbeschlüssen geschaffen werden. Das passiert nicht in einem Tag und auch nicht in zwei Wochen, sondern das ist ein längerer Prozess. Ein Vorschlag dazu soll bis Ende des Jahres vorliegen.
Wenn diese Aufsicht geschaffen ist, dann haben wir eine europäische Institution im Euro-Raum, die in der Lage ist, Kontrolle auszuüben, und gleichzeitig auch befugt sein muss, Auflagen zu erteilen.
Damit ändern sich die Voraussetzungen für die Frage: Wie können wir mit Banken im Euro-Raum umgehen?
Deshalb wird in dem Beschluss dargelegt, dass in Zukunft – das geht, wie gesagt, in mehreren Monaten oder vielleicht in einem Jahr – erkundet werden soll, ob auch eine direkte Kapitalisierung von Banken aus dem ESM nach Ausarbeitung eines Memorandum of Understanding durch die Europäische Zentralbank und nach Antrag des entsprechenden Landes erfolgen kann.
Can't read it? Well, I guess that's the same problem the now surprised English press has. :P
Quote"There are a couple of countries that are trying to backtrack but I don't think they will be able to muster the force to succeed," the official said, referring to Finland and the Netherlands.
"'Legacy' problems is a newcomer to the debate. It is one more case of this habit of walking away from decisions taken."
That's true. I hadn't heard the legacy part before and it doesn't make sense to me either.
QuoteQuoteTo suggest that's some kind of decision is laughable. It clearly states that the decision will be made later and is at best some kind of expression of intent. It's not making any committments, so there is nothing the Dutch, Finnish and German prime ministers can even go back on. They are just detailling what their policy proposals are regarding this.
Sort of. That's how all European Council summit statements read, but it's an unusually urgent Council decision, it ends 'We task the Eurogroup to implement these decisions by 9 July 2012.' They did handing it over to the Commission to draft the rules, which will then have to be agreed - but the principle and timescale were agreed and Germany, the Netherlands and Finland want to resile from both.
The devil is always in the details, so agreeing to the general principle is meaningless. Handing it over to the Commission to draft the rules is not a pre-emptive agreement of the result of that drafting of the rules.
QuoteI should say I think there'll be a sense of schadenfreude in Whitehall because Germany sounds almost British :lol: Every government we've had moans. First they think they did okay during the Council. Then the Commission starts presenting proposals. Suddenly it dawns on them that they've agreed to something rather more far-reaching than they suspected.
I am pretty sure Merkel knew what she did. Her parliament speech certainly sounds like it.
Quote from: Zanza on September 29, 2012, 02:19:03 AM
Can't read it? Well, I guess that's the same problem the now surprised English press has. :P
:lol: Fair point, on me at least. But a lot of what I read was from the Brussels press and a quick look at the Spanish, Irish and Italian media show they've all reported this as countries re-opening an agreement and, at best, putting the brakes on. The Commission itself referred to this being backtracking and I think Brailly's statement was delicately pointed in stating what the Commission considers to have been agreed.
QuoteThat's true. I hadn't heard the legacy part before and it doesn't make sense to me either.
Yeah, here's a briefing from a City analyst (incidentally his view was that both sides went away on 29 June reasonably thinking totally different things because of Euro-ambiguity of the agreement - that they mixed up tactical (Ireland and Spain) with strategic design of institutions and confusion's inevitable and 4am):
QuoteWe think the implications of this row are potentially serious, if Germany et al stand behind the position they have laid out (some form of further clarification is certainly possible and talks are ongoing).
Firstly, whatever the ambiguities around the June communiqué, the statement from Germany et al will still be taken as bad faith by the periphery, particularly Ireland. The leader of Ireland's Opposition declared yesterday that the EU had just told them to 'drop dead'. This will have implications for further negotiations on banking union, fiscal integration and the rest of the region's agenda, and we expect the October Summit to go badly as a result.
Secondly, there will be ramifications for perceptions of the debt sustainability of parts of the periphery, which will look worse now that the chance of shifting a chunk of the debt burden appears to have been closed off. The Spanish sovereign will likely remain on the hook for the €60 billion it may announce its banking sector needs this week (and might be incentivised to pitch a lower figure as a result).
Thirdly, there will be domestic political repercussions for the Governments impacted; we think the credibility of the Irish Government in particular may have been seriously harmed by this. Anti-European sentiment will have been boosted.
Fourthly, we think this move significantly ups the pressure on Mariano Rajoy to deliver measures to improve confidence relatively quickly if he is to avoid being overtaken by renewed negative sentiment around the region.
Finally, we think this move reflects the ongoing strength of feeling on transfers and burden sharing in parts of the European core. Germany, Finland and the Netherlands have made their nervousness about the direction the region is going fairly clear this week. We expect more concerns to emerge over the OMT (as we suggested in our note yesterday, the region is still constructed in a way that makes setbacks almost an inevitability).
QuoteThe devil is always in the details, so agreeing to the general principle is meaningless. Handing it over to the Commission to draft the rules is not a pre-emptive agreement of the result of that drafting of the rules.
Not really, for a start it had an effect on the markets which want reassuring about EZ intentions as much as anything else. Also when the general principle agreed is direct recapitalisation of banks as a matter of urgency, including Ireland and Spain and countries then say they agreed to direct recapitalisation of banks, at some point, excluding Ireland and Spain then there's an issue - it's not about the details.
My understanding is that generally speaking all of the politics over the details takes place while the Commission's working on drafting of rules. That's the time when they're trying to find one that will be approved by the Council. I suppose because they only meet every few months it's not like a normal executive which can hash the details out and go through numerous plans - hence the Commission's role, in communication with all the countries in drafting the rules and finding an acceptable consensus for the Council to approve.
Edit: Even my German's good enough to understand what this means and whether there's a serious intention to meet it given the new emphasis on getting everything right: 'Ein Vorschlag dazu soll bis Ende des Jahres vorliegen.'
Maybe the London Whale bet right, but his timing was just too soon...
Merkel will visit Greece tomorrow. They mobilized 7000 police officers to protect her from the angry populace. :ph34r:
Quote from: Zanza on October 08, 2012, 12:20:00 PM
Merkel will visit Greece tomorrow. They mobilized 7000 police officers to protect her from the angry populace. :ph34r:
Why would she do that? Is she retarded?
I'm really surprised that it's her first visit there since the crisis began.
What's the point? They hate her anyway.
Quote from: Sheilbh on October 08, 2012, 06:16:09 PM
I'm really surprised that it's her first visit there since the crisis began.
What does she have to gain by going there? Everybody knows that Eurosolidarity is a lie, and that's part of the problem.
It's consistent with Shelf's theory that the eurozone crisis is largely a function of the lack of German leadership and engagement.
Quote from: Admiral Yi on October 08, 2012, 07:02:11 PM
It's consistent with Shelf's theory that the eurozone crisis is largely a function of the lack of German leadership and engagement.
His theory doesn't take into account that no political preparation was ever made for this sort of European crisis. The entire EU project was based on the post-Cold War prosperity lasting forever.
Quote from: Neil on October 08, 2012, 07:14:45 PM
His theory doesn't take into account that no political preparation was ever made for this sort of European crisis. The entire EU project was based on the post-Cold War prosperity lasting forever.
His theory is a transplantation to the metropole of the post-colonial belief that only imperalists posess agency and anything bad that an oppressed people does is because of improper incentives by their oppressors.
Quote from: Admiral Yi on October 08, 2012, 07:26:25 PM
Quote from: Neil on October 08, 2012, 07:14:45 PM
His theory doesn't take into account that no political preparation was ever made for this sort of European crisis. The entire EU project was based on the post-Cold War prosperity lasting forever.
His theory is a transplantation to the metropole of the post-colonial belief that only imperalists posess agency and anything bad that an oppressed people does is because of improper incentives by their oppressors.
What a load of bollocks. Both about my views and any post-colonial theory I've ever read (for a start it perpetuates the myth of a passive, suffering native waiting and almost requiring the imperial response). I think you need to read your post-colonial theory more. That description is a well-meaning Victorian clergyman talking. At best it's Passage to India.
Interesting paragraph from the lastest IMF WEO report:
Quote from: IMFIn line with these assumptions, earlier analysis by the IMF staff suggests that, on average, fiscal multipliers were near 0.5 in advanced economies during the three decades leading up to 2009. If the multipliers underlying the growth forecasts were about 0.5, as this informal evidence suggests, our results indicate that multipliers have actually been in the 0.9 to 1.7 range since the Great Recession. This finding is consistent with research suggesting that in today's environment of substantial economic slack, monetary policy constrained by the zero lower bound, and synchronized fiscal adjustment across numerous economies, multipliers may be well above 1.
Predictions were made using a 0.5 multiplier (for every € cut in spending the GDP would be reduced by half an €). As it turns out, the multiplier during the crisis has proven to be much larger, from 0.9 to 1.7.
Not really news to anyone but the IMF.
Of course, if they are using some kind of multiplier in their calculations at all they should realize the thing is flawed from the start.
...And Spain gets downgraded again by S&P. Outlook: Negative
That 0.5 multiplier is kind of strange. That seems to indicate that for every dollar of public spending, 50 cents just disappears.
Quote from: Admiral Yi on October 10, 2012, 04:22:05 PM
That 0.5 multiplier is kind of strange. That seems to indicate that for every dollar of public spending, 50 cents just disappears.
That's a fitting model for Russia. :ph34r:
Spain has it tough. Back here we devalued, spent 2 years eating shit but things are back on the upswing and if the eurozone blows up like a toilet I'll have to play psychotic squirrel again. <_<
Incidentally the rating agencies also think the German, Finnish and Dutch statement was a change of policy, from their S&P's downgrade of Spain:
QuoteA severe and deepening economic recession that could lead to increasing social discontent and rising tensions between Spain's central and regional governments;
A policy setting framework among the eurozone governments that in our opinion still lacks predictability. Our understanding from recent statements is that the Eurogroup's commitment to break the vicious circle between banks and sovereigns – as announced at a summit on June 29 – does not extend to enabling the European Stability Mechanism to recapitalise large ongoing European banks. Our previous assumption was that official loans to distressed Spanish financial institutions would eventually be mutualised.
The French Finance Minister said this 'I participated in a number of decisions that were without ambiguity. Change (by Germany) is possible. But not a misunderstanding.' Barroso was also asked about it and said the Commission is acting on the agreement reached on June 29th and he's very clear what it means, 'I remember. I was there when we agreed it.'
Looks like Greece is going to get more time:
QuoteLagarde urges 2 years for Greece. What will it cost?
October 11, 2012 12:47 pm by Peter Spiegel
IMF chief Christine Lagarde's declaration this morning that Greece should be given two more years to hit tough budget targets embedded in its €174bn bailout programme – coming fast on the heels of German chancellor Angela Merkel's highly symbolic trip to Athens – are the clearest public signs yet of what EU officials have been acknowledging privately for weeks: Greece is going to get the extra time it wants.
But what is equally clear after this week's pre-Tokyo meeting of EU finance ministers in Luxembourg is there is no agreement on how to pay for those two additional years, and eurozone leaders are beginning to worry that the politics of the Greek bailout are once again about to get very ugly.
The mantra from eurozone ministers has been that Greece will get more time but not more money. Privately, officials acknowledge this is impossible. Extending the bailout programme two years, when added to the policy stasis in Athens during two rounds of elections and a stomach-churning drop in economic growth, means eurozone lenders are going to have to find more money for Athens from somewhere.
The starkness of the task ahead of them was made clear in the IMF's just-released World Economic Outlook. Buried in the 250-page report is a table that shows the Fund has radically downgraded its outlook for Greece's economy. The IMF now believes Greece's will shrink by 6 per cent this year and 4 per cent next year.
That's a stunning downgrade, particularly considering just in March, when the IMF signed onto a second Greek bailout, the Fund had estimated Greece would only shrink by 4.8 per cent this year and return to flat growth in 2013. It is perhaps no surprise the IMF made such a drastic change in the same report in which it concluded it has been underestimating the impact of austerity measures for years.
Such a dramatic cut in growth will mean an equally dramatic drop in tax revenues, which likely means billions of estimated euros will go uncollected. Add to that a privatisation programme that has gone nowhere because private investors remain spooked that their euro-denominated purchases could be turned into drachma-denominated assets – complete with the full-scale devaluation such a currency change would come with – and the funding gap grows even bigger.
According to one senior eurozone official, the amount of additional financing Greece will need through a two-year extension is about €30bn. There are really only four ways to find that money, each with its unique problem.
The most direct way would be to simply increase the size of Greece's bailout to €204bn. But because eurozone finance minsters have said they won't provide any more money, that's basically been ruled out.
Greece could instead be forced to make additional budget cuts. But by extending the programme two years, IMF and EU lenders are already acknowledging the austerity medicine delivered in March is too much for Greece to handle. So piling more austerity on top does not seem to be a palatable solution.
Athens could try to raise the money itself. Almost unnoticed during the ongoing wrangling over the Greek budget – and Athens' repeated warnings that it is about to run out of money – the government has remained able to raise short-term funding in the private debt markets. The borrowing costs are exorbitant –Greece's 1-year t-bill is currently trading at about 12 per cent, for example – but there's apparently private money out there willing to take the risk. But it's not a long-term solution. Heavy reliance on short-term borrowing only exacerbates the problem, since it adds to Greece's debt burden.
That leaves the most fraught choice for eurozone members: taking losses on their own bailout loans to Greece. According to a recent Commerzbank analysis, about €126bn in Greece's outstanding €326bn in sovereign debt is now in bailout loans.
And it is the only big piece left that can be restructured, since both the IMF and the ECB – both of which are large Greek creditors – have rules against write-downs. Private bondholders – who hold most of the rest of the debt – have already been through a painful restructuring earlier this year.
Eurozone ministers made clear their opposition to any restructuring of their own loans during the Luxembourg meetings, but the IMF is insisting that any realistic re-evaluation of Greece's programme – particularly if it is extended for two years – must include some kind of official "haircut". Otherwise, they argue, the numbers just aren't credible.
The most likely fudge, officials say, is extending the repayment schedule for the bailout loans and cutting the interest rates on those loans, something that has already been done twice. But any further cuts in interest rates will likely mean eurozone governments will actually be losing money on those loans, since in many cases they're already lending below cost.
In other words, an extension of maturities and lowering of interest rates will be a "haircut". But it will probably be a more politically palatable haircut than a full-scale debt restructuring.
Can eurozone countries really find €30bn by just tweaking the bailout loans? According to bailout reports from the IMF, Greece will have to make €48bn in interest payments form 2013 through 2016. They do not detail who that money is owed to, but since nearly 40 per cent of all outstanding Greek debt is made up of bailout loans, it's possible that nearly €20bn is owed to eurozone lenders during the next four years. So a "tweak" of those loans could save some serious money.
But make no mistake. It will still be a loss for eurozone lenders. It's not something they'll want to brag about.
http://blogs.ft.com/brusselsblog/2012/10/lagarde-urges-2-years-for-greece-what-will-it-cost/?#axzz292UhA06H
I thought Lord Turner (head of the Financial Services Authority and probably leading candidate for next BofE Governor) said something interesting about the Eurozone today, he said there was 'enormous national self interest in the eurozone either taking the steps required to succeed or if that is politically unattainable, dissolving in a controlled rather than a chaotic fashion'. It's considered to be sort of breaking the taboo in commenting on the Eurozone but I think the fact that a man in his position is saying it shows just how much this is now the city consensus.
Quote from: Admiral Yi on October 10, 2012, 04:22:05 PM
That 0.5 multiplier is kind of strange. That seems to indicate that for every dollar of public spending, 50 cents just disappears.
IMF is talking here about reverse multipliers - i.e. the effect on overall output from cuts in spending. A 0.5 multiplier would mean that a $1 cut in government spending reduces output by 50 cents, not by a full dollar or more. That could make sense if for example, there were crowding out effects from public spending, such that reducing government spending resulted in redployment of capital to the private sector. What the IMF is saying is that their data suggests that such effects are not happening now, and instead the more traditional Keynesian negative multiplicative fiscal effect of public spending cuts seems to be in operation.
Interesting counter-briefings from the European Council meeting. The French line, after Hollande's rather public statements this morning:
Quote• FRENCH GOVT SOURCE: DEAL REACHED AT EU SUMMIT ON
HAVING LEGAL FRAMEWORK FOR BANKING UNION BY END 2012, COMPLETION BY EARLY 2014
• FRENCH GOVT SOURCE: GERMANY HAS AGREED
FOR 6,000 BANKS TO BE UNDER UNIQUE SUPERVISION OF ECB, DAY-TO-DAY SUPERVISION COULD BE DELEGATED TO NATIONAL SUPERVISORS
•FRENCH GOVT SOURCE: ECB TO START SUPERVISING BANKS UNDER STATE AID FIRST
• FRENCH GOVT SOURCE: DIRECT RECAPITALISATION OF BANKS TO BE A REALITY IN 2013, LIKELY IN FIRST QUARTER FOR SOME BANKS
• FRENCH GOVT SOURCE: ISSUES OF LEGACY ASSETS FOR BANKS ALREADY UNDER STATE AID TO BE DISCUSSED BY DECEMBER, GERMANY NOT OPPOSED IN PRINCIPLE
• FRENCH GOVT SOURCE: ONE POSSIBILITY WOULD BE TO SHARE BANKS' LEGACY ASSETS BETWEEN STATES AND EURO ZONE RESCUE FUNDS
Reportedly the German position is no direct recapitalisation or banking supervision before Germany elections - which is being interpreted as a victory for Merkel over Hollande.
The press interpretation, via the Guardian is this:
QuoteSpecifically, from "with the aim of completing banking union legislation" by the end of this year, to "with the aim of agreeing banking union legislation".
It looked like this was going to be a record European Council meeting and finish around two, an hour ago they were finishing the last paragraph. But according to the Reuters correspondent they're now having a 'little pause' to consider Greece - so this could go on to the traditional 4am finish.
Apparently there's also a rather unseemly fight over who gets to pick up the Nobel prize. First it was Van Rompuy and Barosso, then the President of the Parliament (Schultz) said he should go as the representative of the European people (Van Rompuy of governments and Barosso of the Commission). But then the Cypriots (who hold the rotating Presidency) said that they'd quite like to go too. So Van Rompuy's suggestion (seconded by Merkel) is that everyone (all heads of state/government and all four Presidents) should go. Some leaders (like Cameron) are less keen on the idea. Everyone's unhappy with Schultz's suggestion that the national leaders should go not to collect the award, but to applaud the four President's collecting :lol:
The Norwegians have said they'll accept at most three representatives to collect the prize.
Incidentally Yi, on Merkel's leadership I entirely agree with Steinbrueck's comments below:
QuoteSteinbrück challenges Merkel in parliament
Germany has witnessed the first rejoinder in parliament from the opposition Social Democrats' new top nominee for next year's election. Peer Steinbrück accused Chancellor Angela Merkel of mismanaging the eurozone crisis.
In the Bundestag, Steinbrück used the full half-hour of the Social Democrats' right-of-reply to a speech just delivered by Merkel before she departed Berlin for a further EU summit in Brussels on Europe's economic woes.
The former SPD finance minister accused Merkel of failing to deter members of her own center-right coalition government from "bullying" European partners when several months ago they openly called for a Greek exit from the eurozone.
Failed to intervene
"You didn't intervene," Steinbrück told Merkel across the chamber. "You didn't speak out for Europe and you vacillated," said Steinbrück who was named by the SPD's executive late last month to lead its campaign for the elections due in September 2013.
Referring to a former conservative pro-Europe chancellor, Steinbrück said, "Neither Helmut Kohl nor any of your predecessors would have allowed a European neighbor to be abused for domestic political purposes like that."
"Rarely has Germany been as isolated as today," Steinbrück added.
Steinbrück asked why Merkel had not declared her commitment to Greece back in 2010 and why she was reluctant to tell voters that Germany and its EU partners would still have to contribute more bailout funding.
Greece to cost more
"Looking at Greece, Germany will have to take on more obligations together with European countries - say it, finally," Steinbrück said.
He also accused Merkel of failing to sell the benefits of eurozone membership to German voters and of placing too much emphasis on a "one-sided therapy of save, save, save."
Instead, said Steinbrück, Europe needs a "true" growth and jobs creation pact and "effective" banking and finance sector regulation.
The current problem is more than just a currency crisis, Steinbrück said, adding that a "socially just Europe" would offer opportunities for all and answers for global challenges such as climate change and migratory pressures.
Avoid bottomless pit
Replying to Steinbrück, Rainer Brüderle, the parliamentary group leader of the liberal Free Democrats, Merkel's junior coalition partners, said Greece must not become a "bottomless pit" without reciprocal obligations to perform.
Merkel, in her speech earlier, told parliament that the EU's economic affairs commissioner should have the authority to intervene when a member state's budget was declared "invalid."
The euro is "much more than a currency," she added and pointed to last Friday's award of the Nobel Peace Prize to the EU in the midst of the crisis.
In June, EU leaders responded to the crisis's impact on Spain by agreeing to move toward tighter coordination of economic policy to safeguard the euro.
In surveys, the SPD as main opposition party lags well behind Merkel's conservative Christian Democrats (CDU), but has declared its hope to gather enough votes next year to rule in coalition with the smaller Green Party.
ipj/pfd (dpa, AFP, Reuters)
Cameron suggested the EU should send a kid from each member state to symbolise European peace into the future - a very Cameronian suggestion. Needless to say it was not popular :lol:
Edit: And the Council's informed the press it'll be another hour while they have a further readthrough.
Edit: Council finished. As Sony Kapoor put it Grexit may still happen, Spain's unresolved and the banking timetable's still uncertain. The ECB intervenes, the markets calm and Europe's political leaders respond with complacency. I'm starting to think Merkel's right about Europe needing market pressures to do anything, but I don't think it's a uniquely peripheral problem.
Quote from: Sheilbh on October 18, 2012, 07:16:14 PM
Instead, said Steinbrück, Europe needs a "true" growth and jobs creation pact and "effective" banking and finance sector regulation.
Isn't this sort of a paradox though? For an area determined not to strip all natural resources, how are they supposed to continue to drive more illusory growth without wild, irresponsible financialization?
Charlemagne's review:
QuoteEU Summit
The kiss of life, or of death?
Oct 19th 2012, 15:57 by Charlemagne | BRUSSELS
SOME in the Irish opposition are already calling it the "Judas Kiss". Angela Merkel, the German chancellor, greeted the Irish prime minister, Enda Kenny, with a kiss at the start of the European summit that ended today. But then she betrayed his hope that the euro zone would lift at least some of the burden of saving Ireland's banks from the shoulders of the Irish sovereign.
At the end of the summit, the French and European officials had claimed a points victory over the Germans by getting them to agree more firmly to a target date of January 1st next year to entrust the European Central Bank (ECB) with the ultimate authority to supervise the euro zone's 6,000-odd banks.
The importance of this "Single Supervisory Mechanism" (SSM) is that, once up and running, and deemed "effective" in the course of 2013, the euro zone's rescue funds could start directly recapitalising troubled banks. When the deal was first agreed in June, Spain hoped this would save it from taking on more debt to salvage its banks, and Ireland had been led to believe it could benefit retroactively.
The Taoiseach, or prime minister, Enda Kenny, left Brussels in upbeat mood, insisting that EU leaders had given a clear reaffirmation of the June promise. And the Spanish prime minister, Mariano Rajoy, declared himself to be "very satisfied".
But down the corridor, Mrs Merkel was quickly disabusing them. "There will not be any retroactive direct recapitalisation," she said, "If recapitalisation is possible, it will only be possible for the future." In the case of Spain, she said, the timetable is such that "when the banking supervisor is in place we won't have any more problems with the Spanish banks, at least I hope not." The problem of Spain's banks would be dealt with by euro-zone loans already approved earlier this year. By implication, Ireland would also have to lump it.
Her comments inverted the familiar cycle of European summits: leaders arrive in a climate of crisis, and leave after having decided action that, they hope, will control the fire. This time they gathered in Brussels with markets relative calm, but left in disarray.
One senior eurozone source claimed, improbably, that the issue of recapitalising Spanish and Irish banks had, in fact, not been discussed directly. Instead the leaders debated the preliminary steps needed to get to the stage of direct recapitalisation. Many issues remain open and were left for finance ministers to settle in the coming months, not least how to deal with "legacy assets". But the source added: "Mrs Merkel's declaration is a surprise for me. She is prejudging decisions that ministers of finance will take."
Germany often worries that easing market pressure on troubled countries will dent their zeal for budgetary and economic reforms. But this week the feeling is that the reduction in bond yields in recent weeks had blunted Mrs Merkel's readiness to fix the flaws of the euro zone – not least because she is entering her campaign for re-election in autumn next year.
Some diplomatic sources think Germany's stance is a negotiating position, and that direct recapitalisation of Spanish and Irish banks will eventually take place – though perhaps not before the German election. If such measures did not apply to Spain and Ireland, say Eurocrats, to whom are leaders referring in their communiqué restating that "it is imperative to break the vicious circle between banks and sovereigns"?
The Spanish prime minister at least had the foresight to sense the obstacle: he said that having to take on another €40 billion worth of bank recapitalisation on to its books, or about 4% of GDP, was "not the biggest worry". Instead he welcomed the evidence that the euro zone was moving towards banking union.
A more immediate question is whether Mr Rajoy will formally seek a wider bailout from the rescue fund, the European Stability Mechanism. This would come with strings attached (how onerous remains unclear) but would activate the commitment by the ECB to intervene in bond markets to bring down Spain's borrowing costs. Mr Rajoy must calculate whether the relief is worth the political humiliation and, more importantly, be sure that it would not be blocked by sceptical German leaders. Both sides may be still hoping that the gradual but steady narrowing of bond spreads in recent weeks (see the charts in my earlier post here) will obviate the need to ask the restive Bundestag for more money.
Though ostensibly "independent", the ECB president, Mario Draghi, participates in European summits and proved instrumental on setting out a clearer timetable. "He is the only expert in the room," says one source.
Another thorny problem is how to reconcile the ECB-linked supervisor with the interests of the ten EU members who do not use the euro.
Most want to take part in the system, but fear they will be left without a voice as the treaties give decision-making power to the ECB's governing board, from which they are legally excluded. The strategy will be to create a supervisory arm where euro-outs will enjoy "equitable treatment and representation", as the conclusions put it.
But Britain is principally concerned with not being over-ruled by a giant euro-zone supervisor, carrying the weight of 17-plus EU members, in the European Banking Authority, which co-ordinates supervisors' work and sets rules.
Part of the summit was taken up in a row about the impact of a proposed new budget for the eurozone on current negotiations for the EU's regular seven-year budget.It had been sparked off by comments in recent days by the British prime minister, David Cameron, who appeared to argue that the proposed "fiscal capacity" for the euro zone reduced the need for an increase in the EU's budget, to be fought over at a special summit next month (Mr Cameron said he was ready to veto a budget deal he did not like). The communiqué insisted any "fiscal capacity" for the euro zone would be "unrelated" to the EU budget.
The "fiscal capacity" will be part of a final report to be submitted by Herman Van Rompuy, who presided over the summit, setting out a "specific and time-bound roadmap" to fix the euro zone's flaws. But nobody expects it to be the final report on reforming the euro zone, and there is a growing belief that the EU will have to start renegotiate its treaties some time in 2014.
David Cameron, the British prime minister, seized on these momentous changes to argue that Britain's relationship with the EU would also change, though he insisted that membership of the EU was in Britain's national interest:
QuoteAm I happy with the status quo in Europe? No I am not, I think there are changes that we need. There are opportunities opening for what I have said should be a new settlement between Britain and Europe and there will be opportunities to seek that new settlement.
It is a state of mind that is worrying liberal-minded allies of Britain. Finland's Europe minister, Alexander Stubb*, told Reuters:
QuoteI think Britain is right now, voluntarily, by its own will, putting itself in the margins. We see it in foreign policy, we see it in economic policy, we see it linked to the single currency. And I, as someone who advocates the single market and free trade, find that very unfortunate, very unfortunate.
* In an earlier version of this post I had mistakenly spelled Alexander Stubb's name as Studd. Sorry
Since then I believe the Germans and Irish have issued a joint statement after talking about the specific circumstances of the Irish bailout and financial crash.
Quote from: The Minsky Moment on October 12, 2012, 04:39:47 PM
IMF is talking here about reverse multipliers - i.e. the effect on overall output from cuts in spending. A 0.5 multiplier would mean that a $1 cut in government spending reduces output by 50 cents, not by a full dollar or more. That could make sense if for example, there were crowding out effects from public spending, such that reducing government spending resulted in redployment of capital to the private sector. What the IMF is saying is that their data suggests that such effects are not happening now, and instead the more traditional Keynesian negative multiplicative fiscal effect of public spending cuts seems to be in operation.
I thought this was interesting on the subject:
QuoteHigh fiscal multipliers undermine austerity programmes
October 21, 2012 3:25 pm by Gavyn Davies
Nothing in economics is more potent than a simple idea whose time has come. Illustrating this maxim, a 3-page article in the IMF's latest World Economic Outlook promises to have a greater effect on global economic policy than all of the interminable meetings held at the Annual Meetings of the IMF and the World Bank in Tokyo a week ago.
That article, written by IMF Chief Economist Olivier Blanchard and Daniel Leigh, presented evidence that the fiscal multiplier [1] in the advanced economies is considerably larger than had been assumed when fiscal austerity plans were set in train in most economies in 2010. The implication, if they are right, is that austerity is much more damging to output in the near term than was anticipated. As a result, the planned fiscal retrenchment could be hard to sustain in the next few years, not only in the eurozone but in the US and UK as well. In fact, we are already seeing signs of this in peripheral Europe and the UK.
It is no wonder that many Keynesians (see for example this blog by Paul Krugman) have welcomed the IMF article as a vindication of their earlier warnings about the dangers of austerity. The Blanchard/Leigh paper shows that there is a cross-country relationship between GDP performance in 2010/11 and the relative size of the fiscal tightening which was announced in 2010: those countries with the largest tightening tended to have the worst outcome for GDP growth, relative to 2010 expectations.
The authors believe that this is because the fiscal multipliers have turned out to be higher than was assumed when the austerity programmes were designed. In fact, they suggest that the multiplier under current circumstances might be as large as 0.9-1.7, compared to the initial assumption of 0.5.
If true, the implication of this would be critical. If the multiplier is 0.5, then an initial public expenditure reduction of 1 per cent of GDP reduces real output by 0.5 per cent. Using normal rules of thumb, this drop in output would in turn reduce taxation or increase public transfers by about 0.2 per cent of GDP, leaving the budget deficit improving by 0.8 per cent of GDP. This ratio of budget improvement to reduced growth might be just about acceptable to democratic governments.
If, however, the multiplier is 1.7, then the same initial public spending cut of 1 per cent of GDP would reduce real output by 1.7 per cent. The second round effects of this reduction in output would reduce tax or raise transfers by 0.68 per cent. The net overall improvement in the budget deficit would therefore be only 0.32 per cent. The economy would be in recession, and the budget deficit would hardly improve at all. Even if this were acceptable to governments, it would not be acceptable for very long to their electorates.
This pessimistic arithmetic is not that far away from describing what has actually happened in some countries, like the UK, in the past two years. Furthermore, if we take this arithmetic as a given, there is more bad news to come. The major four advanced economies are now all planning to tighten fiscal policy in the years ahead by an average of 1 per cent of GDP per annum. The following graph shows the latest IMF estimates for planned fiscal tightening:
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fblogs.r.ftdata.co.uk%2Fgavyndavies%2Ffiles%2F2012%2F10%2Fftblog320-e1350738313343.gif&hash=887b2733cd892d48be47a6d140ec15491419013a)
With a fiscal multiplier anywhere near the upper end of the Blanchard/Leigh suggested range, the effects of these policy changes would eliminate any chance of a rebound to normal growth rates in the advanced economies for some time to come. Interestingly, the planned fiscal tightening in the troubled economies of the eurozone is no longer any greater than it is for the major economies, because of the recent relaxation of some budget targets. Even so, it is hard to see how these plans could be sustained if the fiscal multiplier is at the upper end of the possible range.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fblogs.r.ftdata.co.uk%2Fgavyndavies%2Ffiles%2F2012%2F10%2Fftblog3211-e1350737849594.gif&hash=370ac1a046d6a343e4da0cb56778cc34406c6b88)
Much therefore hinges on whether Blanchard and Leigh are right. Their methodology is certainly not watertight. Cross-sectional country studies are notoriously unreliable. As demonstrated by Chris Giles in the FT, if we exclude Greece and Germany from the 28 countries in their study, then their result largely melts away. It is also sensitive to the time period chosen, and does not appear to work for other similar periods. It is surely asking a lot to change the entire course of global economic policy on the basis of a result as flimsy as that.
Having said that about this particular study, there are other, stronger, reasons for believing that fiscal multipliers are higher than many governments have been assuming. In the 1950s and 1960s, when Keynesianism was at its height, the multiplier was generally assumed to be around 2. Then in the 1990s and 2000s, these estimates gradually dropped, leaving the consensus range around 0.5-0.7 by 2009.
The decline occurred mainly because economists became much more aware of the need to make assumptions about monetary policy when making the estimates. If the central bank is assumed to hold monetary growth or inflation at a given target rate when fiscal policy is tightened, then interest rates will decline and this will offset some of the negative effects of the fiscal change on output. The multiplier will be lower.
The opposite is also true. Now that interest rates are stuck at the zero lower bound, central banks cannot reduce policy rates when fiscal policy is tightened, and the multiplier is correspondingly increased.
Kudos to the Keynesians for predicting this in advance, but in many ways this is a fairly standard result from dozens of econometric simulations and it should not really have come as a total surprise to policy makers.
So how high should we assume the multiplier is today? [2] That will always be subject to great uncertainy. A very important paper earlier this year by Summers and DeLong, analysed in this earlier blog, argued that the multiplier should be assumed to be a minimum of 1.0 under present circumstances. It explains very clearly why the multiplier should be much higher than normal when the economy is stuck in a recession with interest rates at the zero lower bound. [3] Another noteworthy empirical paper, by Auerbach and Gorodnichenko, says that the multiplier during recessions might be around 1.5-2, while in expansions it drops to zero.
No-one really knows for sure. However, what does not seem plausible is that the multiplier, in the current recession, is as low as governments assumed when they embarked on their austerity programmes in 2010. And that will make austerity much harder to sustain.
———————————————————————————-
Notes:
[1] The fiscal multiplier is usually defined as the change in real GDP which is produced by a shift in the fiscal stance equivalent to 1 per cent of GDP. The maintream approach to the multiplier used by most policy-makers is well summarised in this IMF work published in 2009 .
[2] It should be added that classical economists believe that the fiscal multiplier is around zero, either because the economy rapidly approaches equilibrium output after a fiscal shock (because prices are flexible), or because the private sector anticipates that future taxes will need to be increased when fiscal expansions are announced. These approaches are not, however, usually adopted by current policy-makers, though they are often influenced by them.
[3] Interestingly DeLong and Summers argue that in normal times the multiplier should be assumed to be zero.
http://blogs.ft.com/gavyndavies/2012/10/21/high-fiscal-multipliers-undermine-austerity-programmes/?#axzz29z25rTyo
Worth having a look at his links.
This is just like everyone saying invest in real estate in 2007.
jumping into this thread about 147 pages late- but any interest in Modern Monetary Theory? My friend has been pushing it on me for about half a year. Long story short, MMT argues that in countries that control their own currency (notably NOT countries in the EU) deficits only matter to the extent they cause inflation, and in fact government deficits create private wealth. I'm not sure if I totally buy it, but it frames the European crisis in a different way.
http://en.wikipedia.org/wiki/Modern_Monetary_Theory
Quote from: Sheilbh on October 21, 2012, 07:36:46 PM
I thought this was interesting on the subject:
QuoteHigh fiscal multipliers undermine austerity programmes
October 21, 2012 3:25 pm by Gavyn Davies
. . .
If the central bank is assumed to hold monetary growth or inflation at a given target rate when fiscal policy is tightened, then interest rates will decline and this will offset some of the negative effects of the fiscal change on output. The multiplier will be lower.
The opposite is also true. Now that interest rates are stuck at the zero lower bound, central banks cannot reduce policy rates when fiscal policy is tightened, and the multiplier is correspondingly increased.
Kudos to the Keynesians for predicting this in advance, but in many ways this is a fairly standard result from dozens of econometric simulations and it should not really have come as a total surprise to policy makers.
Pulling out key portions of the Sheilbh post. It's been so long since the developed world outside of Japan went through a sustained deflationary, low interest rate period that lots of econfolks seem to have forgotten the basics.
Quote from: Count on October 22, 2012, 08:50:53 AM
jumping into this thread about 147 pages late- but any interest in Modern Monetary Theory? My friend has been pushing it on me for about half a year. Long story short, MMT argues that in countries that control their own currency (notably NOT countries in the EU) deficits only matter to the extent they cause inflation, and in fact government deficits create private wealth. I'm not sure if I totally buy it, but it frames the European crisis in a different way.
http://en.wikipedia.org/wiki/Modern_Monetary_Theory
I've followed it a bit. In essence, it is an elaboration on Abba Lerner's theory of "Functional Finance" (Lerner was a heterodox Keynsian active during the postwar period).
The basic concept of Functional Finance is sound, arguably a truism - i.e. a fiat currency issuer need only recognized a budget constraint to the extent it chooses (and is willing to tolerate the inflationary impact). The MMTers go farther and really get down in the weeds of how Fed monetary management operates on a detailed level. I believe the MMTers take the position (for example) that Fed open market operations just involve maturity and liquidity transformations of assets and don't affect the quantity of money.
Randall Wray who was a student of Hyman Minsky's is a significant player among this group.
Quote from: The Minsky Moment on October 22, 2012, 11:45:45 AM
Pulling out key portions of the Sheilbh post. It's been so long since the developed world outside of Japan went through a sustained deflationary, low interest rate period that lots of econfolks seem to have forgotten the basics.
Both the US and Eurozone are inflationary.
Quote from: The Minsky Moment on October 22, 2012, 12:06:21 PM
Quote from: Count on October 22, 2012, 08:50:53 AM
jumping into this thread about 147 pages late- but any interest in Modern Monetary Theory? My friend has been pushing it on me for about half a year. Long story short, MMT argues that in countries that control their own currency (notably NOT countries in the EU) deficits only matter to the extent they cause inflation, and in fact government deficits create private wealth. I'm not sure if I totally buy it, but it frames the European crisis in a different way.
http://en.wikipedia.org/wiki/Modern_Monetary_Theory
I've followed it a bit. In essence, it is an elaboration on Abba Lerner's theory of "Functional Finance" (Lerner was a heterodox Keynsian active during the postwar period).
The basic concept of Functional Finance is sound, arguably a truism - i.e. a fiat currency issuer need only recognized a budget constraint to the extent it chooses (and is willing to tolerate the inflationary impact). The MMTers go farther and really get down in the weeds of how Fed monetary management operates on a detailed level. I believe the MMTers take the position (for example) that Fed open market operations just involve maturity and liquidity transformations of assets and don't affect the quantity of money.
Randall Wray who was a student of Hyman Minsky's is a significant player among this group.
My friend's been running a seminar series on it, so I've seen a few of the big names in MMT. It's interesting but a) I don't understand the finer points of banking b) people I trust like Krugman don't like MMT and c) they seem very dismissive about inflation.
this is the seminar series if anyone's interested: http://www.modernmoneyandpublicpurpose.com/
Quote from: alfred russel on October 22, 2012, 12:11:11 PM
Both the US and Eurozone are inflationary.
The only thing that is missing is the inflation.
Quote from: Count on October 22, 2012, 12:20:39 PM
My friend's been running a seminar series on it, so I've seen a few of the big names in MMT. It's interesting but a) I don't understand the finer points of banking b) people I trust like Krugman don't like MMT and c) they seem very dismissive about inflation.
Krugman is a pretty traditional Keynsian type and guys like that see MMT as fringe. And with some justification because there is a whiff of cultishness about it. I do think there are interesting ideas in there but the ability to breakthrough to the mainstream may be hampered by the stance of some of those involved as lonely prophets subject to persecution by their academic peers. Perhaps they should take a page from the Rothbardians and Randians who seem to have had success penetrating into public consciousness even though the quality of the ideas is considerably less (IMO).
Your point (c) is concerning (notwithstanding my response to Alfred below). For Lerner, the use of fiscal tools for inflationary control is a key element of Functional Finance and inflation was the last thing he would be dismissive about.
Re (a) - I think this a key value-adder for MMT because the details sometimes really do matter .
Quote from: The Minsky Moment on October 22, 2012, 12:28:44 PM
Quote from: alfred russel on October 22, 2012, 12:11:11 PM
Both the US and Eurozone are inflationary.
The only thing that is missing is the inflation.
Without looking up numbers, I think CPI in the US is around 3%, and the eurozone a point or so behind that. It isn't much inflation, but still positive (and all the central bankers seem willing to allow).
Quote from: alfred russel on October 22, 2012, 12:37:29 PM
Without looking up numbers, I think CPI in the US is around 3%, and the eurozone a point or so behind that. It isn't much inflation, but still positive (and all the central bankers seem willing to allow).
it was up to 3 last year but it is down again this year.
Also, CPI is just consumer prices; it doesn't take into account asset values. Housing is just starting to turn around in the US.
The key question re multipiers is whether spare capacity exists and whether monetary policy is available to stoke demand.
Quotethe ability to breakthrough to the mainstream may be hampered by the stance of some of those involved as lonely prophets subject to persecution by their academic peers.
This. I understand the frustration on some level -a lot of them think we could have full employment today, and governments have not covered themselves in glory in responding to the financial crisis- but this stance makes it hard to distinguish them from any other unpopular person on a soap box.
re: inflation, the argument i've seen is that right now there shouldn't be inflationary concerns (which I believe Krugman agrees with). Proponents of MMT tend to sound like they're saying deficits don't matter, as opposed to deficits don't matter
except for the risk of inflation. To counter that perception, MMT proponents in my experience (which, granted, is limited) go out of their way to acknowledge that inflation is an issue. But while they acknowledge inflation, they don't talk nearly enough about at what point inflation would come into play.
edit: i will say i've enjoyed being exposed to MMT because I think I've learned a decent amount about finance / the economy / whatever along the way even if I remain cautiously skeptical
Quote from: The Minsky Moment on October 22, 2012, 12:45:02 PM
it was up to 3 last year but it is down again this year.
Also, CPI is just consumer prices; it doesn't take into account asset values. Housing is just starting to turn around in the US.
The key question re multipiers is whether spare capacity exists and whether monetary policy is available to stoke demand.
Using the bls data here:
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
CPI is up this year: 2.0% over the past 12 months.
The problem with looking at asset prices the way you are: housing is generally acknowledged to have been a bubble. If we look at such asset prices as indicators of deflation, then almost by definition a post bubble environment is deflationary because prices are going to be lower.
Other asset prices: stocks and bonds, are not lower. Bonds have had significant run ups in value (obviously interest rate driven), and stocks have also appreciated quite a bit and aren't far off the all time highs despite the real impairment or bankruptcy of some previously significant companies.
Quote from: alfred russel on October 22, 2012, 12:58:40 PM
[Using the bls data here:
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
CPI is up this year: 2.0% over the past 12 months.
2 percent is less than 3 percent. Hence "down" since 2011.
It is extremely difficult for a modern developed economy that lacks serious distortions in retail/distribution (i.e. like Japan) to have sustained, year-on-year declines in consumer prices. 1.5-2 percent is about as low as it can go absent formal controls. For economies like the US or Europe that is basically zero inflation and modern central banking practice recognizes that (even the Bundesbank-influenced ECB never targeted under 2).
QuoteThe problem with looking at asset prices the way you are: housing is generally acknowledged to have been a bubble. If we look at such asset prices as indicators of deflation, then almost by definition a post bubble environment is deflationary because prices are going to be lower.
Yes exactly.
Since housing is such a large part of the US economy and such a big chunk of household wealth a collapse in prices has huge deflationary impact. The vital question becomes how to counteract that impact to allow private households to clean up their balance sheets - a massive burst of priviate business investment would be ideal but absurdly unrealistic. Here is where fiscal policy has a key role. The alternative is a liquidation equilibrium driven by Fisherian debt deflation dynamics.
the flip side is true as well of course. The CPI was quite restrained during the entire periods of the housing bubble, which was the thin tissue of justification Greenspan used for explaning inaction. Chinese policy kept consumer prices down worldwide but that didn't mean inflationary pressure went away, it just got channelled into different directions.
QuoteOther asset prices: stocks and bonds, are not lower. Bonds have had significant run ups in value (obviously interest rate driven), and stocks have also appreciated quite a bit and aren't far off the all time highs despite the real impairment or bankruptcy of some previously significant companies.
Stocks have only managed to get back to their pre-crisis peaks. Also the total value of US real estate (residential and commercial) is probably about double the value of the market cap of all listed US companies; and that doesn't take into account that many companies carry a significant amount of their value in terms of owned or leased real estate (listed REITs in particular).
As for bonds, biggest run up has been in the increase in the value of US government securities, which is reflective of a desperate flight to safety, not a potential dangerous overheating investment in the real private economy.
Germany's federal auditors were bitten by the gold bug:
QuoteGerman auditor office urges central bank to control gold reserves held in US, France, Britain
By Associated Press, Updated: Monday, October 22, 8:05 PM
BERLIN — Germany's central bank has failed to properly oversee the country's massive gold reserves, which have been stored abroad since the Cold War in case of a Soviet invasion, independent auditors say.
The central bank must renegotiate its contracts to gain the right to inspect its gold bars, which are worth tens of billions of dollars and are stored in the United States, Britain and France, the Federal Auditors' Office said in a report to lawmakers obtained by The Associated Press on Monday.
The report says the gold bars "have never been physically checked by the Bundesbank itself or other independent auditors regarding their authenticity or weight." Instead, it relies on a "written confirmations by the storage sites."
Most of Germany's gold reserves — some 3,400 tons worth an estimated $190 billion at current rates — have been kept in the vaults of the U.S. Federal Reserve, the Bank of France and the Bank of England since the postwar days, when Berlin worried about a possible land war with the Soviet bloc.
The auditors maintain that the central bank must be able to at least inspect samples of its gold bars in regular intervals to verify their book value.
The report acknowledges that such inspections might be logistically complicated, but it stresses that "this cannot discharge from the necessity to carry out an inventory."
The central bank said in a reaction to the report that was also sent to lawmakers Monday that it sees no reason for a physical inspection of the bars. "There is no doubt about the integrity of the foreign storage sites in this regard," it stated.
The debate on most of the gold reserves being held by foreign authorities has caused some inevitable conspiracy theories questioning their very existence, but several German politicians have also voiced unease.
Philipp Missfelder, a leading lawmaker from Chancellor Angela Merkel's center-right party, has asked the Bundesbank for the right to view the gold bars in Paris and London, but the central bank has denied the request, citing the lack of visitor rooms in those facilities, German daily Bild reported.
Given the growing political unease about the issue and the pressure from auditors, the central bank decided last month to repatriate some 50 tons of gold in each of the three coming years from New York to its headquarters in Frankfurt for "thorough examinations" regarding weight and quality, the report revealed.
An initiative backed by some German economists, industry leaders and a few lawmakers dubbed "bring home our gold" launched in May has attracted some 10,000 supporters online so far.
But Finance Minister Wolfgang Schaeuble and others maintain that there is no reason to worry.
"I currently have no doubt about the stock and the storage of the gold reserves," said Priska Hinz, the opposition Greens top lawmaker on the budget committee. "I do not doubt the reliability of the foreign central banks," she told the AP.
Several passages of the auditors' report were blackened out in the copy shared with lawmakers, citing the Bundesbank's concerns that they could compromise secrets involving the central banks storing the gold.
The report said that the gold pile in London has fallen "below 500 tons" due to recent sales and repatriations, but it did not specify how much gold was held in the U.S. and in France. German media have widely reported that some 1,500 tons — almost half of the total reserves — are stored in New York.
That is a lot of teeth.
Quote from: alfred russel on October 22, 2012, 12:37:29 PM
Without looking up numbers, I think CPI in the US is around 3%, and the eurozone a point or so behind that. It isn't much inflation, but still positive (and all the central bankers seem willing to allow).
Most of the consumer prices' growth in peripheral Europe is made up of tax hikes. The core (notably Germany) is not experiencing significant inflation at all when you factor in energy prices.
Quote from: Iormlund on October 22, 2012, 06:50:25 PM
Most of the consumer prices' growth in peripheral Europe is made up of tax hikes. The core (notably Germany) is not experiencing significant inflation at all when you factor in energy prices.
We don't have much CPI inflation right now, but there is certainly a housing price bubble forming in Germany. Credit is cheaper than ever and people are afraid about what might happen to their wealth in case of an Eurozone breakup or printing money to finance governments.
BOJ is starting up QE9. 20 Trillion yen.
This time it will work!
A Capitalist's Dilemma (http://www.nytimes.com/2012/11/04/business/a-capitalists-dilemma-whoever-becomes-president.html?pagewanted=3&smid=tw-share)
Quote
A Capitalist's Dilemma, Whoever Wins on Tuesday
By CLAYTON M. CHRISTENSEN
Published: November 3, 2012
WHATEVER happens on Election Day, Americans will keep asking the same question: When will this economy get better?
In many ways, the answer won't depend on who wins on Tuesday. Anyone who says otherwise is overstating the power of the American president. But if the president doesn't have the power to fix things, who does?
It's not the Federal Reserve. The Fed has been injecting more and more capital into the economy because — at least in theory — capital fuels capitalism. And yet cash hoards in the billions are sitting unused on the pristine balance sheets of Fortune 500 corporations. Billions in capital is also sitting inert and uninvested at private equity funds.
Capitalists seem almost uninterested in capitalism, even as entrepreneurs eager to start companies find that they can't get financing. Businesses and investors sound like the Ancient Mariner, who complained of "Water, water everywhere — nor any drop to drink."
It's a paradox, and at its nexus is what I'll call the Doctrine of New Finance, which is taught with increasingly religious zeal by economists, and at times even by business professors like me who have failed to challenge it. This doctrine embraces measures of profitability that guide capitalists away from investments that can create real economic growth.
Executives and investors might finance three types of innovations with their capital. I'll call the first type "empowering" innovations. These transform complicated and costly products available to a few into simpler, cheaper products available to the many.
The Ford Model T was an empowering innovation, as was the Sony transistor radio. So were the personal computers of I.B.M. and Compaq and online trading at Schwab. A more recent example is cloud computing. It transformed information technology that was previously accessible only to big companies into something that even small companies could afford.
Empowering innovations create jobs, because they require more and more people who can build, distribute, sell and service these products. Empowering investments also use capital — to expand capacity and to finance receivables and inventory.
The second type are "sustaining" innovations. These replace old products with new models. For example, the Toyota Prius hybrid is a marvelous product. But it's not as if every time Toyota sells a Prius, the same customer also buys a Camry. There is a zero-sum aspect to sustaining innovations: They replace yesterday's products with today's products and create few jobs. They keep our economy vibrant — and, in dollars, they account for the most innovation. But they have a neutral effect on economic activity and on capital.
The third type are "efficiency" innovations. These reduce the cost of making and distributing existing products and services. Examples are minimills in steel and Geico in online insurance underwriting. Taken together in an industry, such innovations almost always reduce the net number of jobs, because they streamline processes. But they also preserve many of the remaining jobs — because without them entire companies and industries would disappear in competition against companies abroad that have innovated more efficiently.
Efficiency innovations also emancipate capital. Without them, much of an economy's capital is held captive on balance sheets, with no way to redeploy it as fuel for new, empowering innovations. For example, Toyota's just-in-time production system is an efficiency innovation, letting manufacturers operate with much less capital invested in inventory.
INDUSTRIES typically transition through these three types of innovations. By illustration, the early mainframe computers were so expensive and complicated that only big companies could own and use them. But personal computers were simple and affordable, empowering many more people.
Companies like I.B.M. and Hewlett-Packard had to hire hundreds of thousands of people to make and sell PC's. These companies then designed and made better computers — sustaining innovations — that inspired us to keep buying newer and better products. Finally, companies like Dell made the industry much more efficient. This reduced net employment within the industry, but freed capital that had been used in the supply chain.
Ideally, the three innovations operate in a recurring circle. Empowering innovations are essential for growth because they create new consumption. As long as empowering innovations create more jobs than efficiency innovations eliminate, and as long as the capital that efficiency innovations liberate is invested back into empowering innovations, we keep recessions at bay. The dials on these three innovations are sensitive. But when they are set correctly, the economy is a magnificent machine.
For significant periods in the last 150 years, America's economy has operated this way. In the seven recoveries from recession between 1948 and 1981, according to the McKinsey Global Institute, the economy returned to its prerecession employment peak in about six months, like clockwork — as if a spray of economic WD-40 had reset the balance on the three types of innovation, prompting a recovery.
In the last three recoveries, however, America's economic engine has emitted sounds we'd never heard before. The 1990 recovery took 15 months, not the typical six, to reach the prerecession peaks of economic performance. After the 2001 recession, it took 39 months to get out of the valley. And now our machine has been grinding for 60 months, trying to hit its prerecession levels — and it's not clear whether, when or how we're going to get there. The economic machine is out of balance and losing its horsepower. But why?
The answer is that efficiency innovations are liberating capital, and in the United States this capital is being reinvested into still more efficiency innovations. In contrast, America is generating many fewer empowering innovations than in the past. We need to reset the balance between empowering and efficiency innovations.
The Doctrine of New Finance helped create this situation. The Republican intellectual George F. Gilder taught us that we should husband resources that are scarce and costly, but can waste resources that are abundant and cheap. When the doctrine emerged in stages between the 1930s and the '50s, capital was relatively scarce in our economy. So we taught our students how to magnify every dollar put into a company, to get the most revenue and profit per dollar of capital deployed. To measure the efficiency of doing this, we redefined profit not as dollars, yen or renminbi, but as ratios like RONA (return on net assets), ROCE (return on capital employed) and I.R.R. (internal rate of return).
Before these new measures, executives and investors used crude concepts like "tons of cash" to describe profitability. The new measures are fractions and give executives more options: They can innovate to add to the numerator of the RONA ratio, but they can also drive down the denominator by driving assets off the balance sheet — through outsourcing. Both routes drive up RONA and ROCE.
Similarly, I.R.R. gives investors more options. It goes up when the time horizon is short. So instead of investing in empowering innovations that pay off in five to eight years, investors can find higher internal rates of return by investing exclusively in quick wins in sustaining and efficiency innovations.
In a way, this mirrors the microeconomic paradox explored in my book "The Innovator's Dilemma," which shows how successful companies can fail by making the "right" decisions in the wrong situations. America today is in a macroeconomic paradox that we might call the capitalist's dilemma. Executives, investors and analysts are doing what is right, from their perspective and according to what they've been taught. Those doctrines were appropriate to the circumstances when first articulated — when capital was scarce.
But we've never taught our apprentices that when capital is abundant and certain new skills are scarce, the same rules are the wrong rules. Continuing to measure the efficiency of capital prevents investment in empowering innovations that would create the new growth we need because it would drive down their RONA, ROCE and I.R.R.
It's as if our leaders in Washington, all highly credentialed, are standing on a beach holding their fire hoses full open, pouring more capital into an ocean of capital. We are trying to solve the wrong problem.
Our approach to higher education is exacerbating our problems. Efficiency innovations often add workers with yesterday's skills to the ranks of the unemployed. Empowering innovations, in turn, often change the nature of jobs — creating jobs that can't be filled.
Today, the educational skills necessary to start companies that focus on empowering innovations are scarce. Yet our leaders are wasting education by shoveling out billions in Pell Grants and subsidized loans to students who graduate with skills and majors that employers cannot use.
Is there a solution? It's complicated, but I offer three ideas to seed a productive discussion:
CHANGE THE METRICS We can use capital with abandon now, because it's abundant and cheap. But we can no longer waste education, subsidizing it in fields that offer few jobs. Optimizing return on capital will generate less growth than optimizing return on education.
CHANGE CAPITAL-GAINS TAX RATES Today, tax rates on personal income are progressive — they climb as we make more money. In contrast, there are only two tax rates on investment income. Income from investments that we hold for less than a year is taxed like personal income. But if we hold an investment for one day longer than 365, it is generally taxed at no more than 15 percent.
We should instead make capital gains regressive over time, based upon how long the capital is invested in a company. Taxes on short-term investments should continue to be taxed at personal income rates. But the rate should be reduced the longer the investment is held — so that, for example, tax rates on investments held for five years might be zero — and rates on investments held for eight years might be negative.
Federal tax receipts from capital gains comprise only a tiny percentage of all United States tax revenue. So the near-term impact on the budget will be minimal. But over the longer term, this policy change should have a positive impact on the federal deficit, from taxes paid by companies and their employees that make empowering innovations.
CHANGE THE POLITICS The major political parties are both wrong when it comes to taxing and distributing to the middle class the capital of the wealthiest 1 percent. It's true that some of the richest Americans have been making money with money — investing in efficiency innovations rather than investing to create jobs. They are doing what their professors taught them to do, but times have changed.
If the I.R.S. taxes their wealth away and distributes it to everyone else, it still won't help the economy. Without empowering products and services in our economy, most of this redistribution will be spent buying sustaining innovations — replacing consumption with consumption. We must give the wealthiest an incentive to invest for the long term. This can create growth.
Granted, mine is a simple model, and we face complicated problems. But I hope it helps us and our leaders understand that policies that were once right are now wrong, and that counterintuitive measures might actually work to turn our economy around.
The capital investment tax change sounds like a bad idea. The two reasons you'll pull money out of investment are either you need the money or there's a better investment elsewhere. In the first case you'll pull the money out anyway, and in the second why encourage the funding of less attractive investments?
Yay, we are not alone!
QuoteGovernment Report Reveals China Debt Bomb
Debt-crippled Western nations who have hopes that China will rescue them should think again: a new report from a Chinese regime think tank reveals that China has debt problems of its own.
The State Council Development Research Center's (DRC) Oct. 22 report, "Research on China's Financial Risks," shows the combined central and local government debt at 23.76 trillion yuan ($3.8 trillion), or 59 percent of 2010 GDP. While this number is lower than most Western governments, it is the distribution that is most troubling.
Local governments' short term debt is the most critical, with the highest potential for a financial blow up. In fact, the debt is so high that 78 cities and 99 counties would need to allocate 100 percent of their budget to service it.
A $640 billion central government stimulus plan enabled local governments to borrow heavily in 2009, in the wake of the global 2008 financial crisis. In order to borrow from banks, local governments set up special financial entities that carried out local infrastructure projects, mostly highways and airports.
According to the DRC report, 42 percent of these local debts mature at the end of 2012 and 53 percent by the end of 2013. The report examined 1734 of the special entities and found that more than 26 percent of them are losing money.
Since many local governments are experiencing difficulties in paying the interest on their loans, the probability is low that they will retire the debt on time. Many of the projects aren't generating enough cash to service the debts, so some local governments have taken on new loans to retire old ones, compounding the problem.
It is very likely that the China Banking Regulatory Commission (CBRC) will be forced to introduce a new policy, extending the deadline for entities that cannot pay back the debt, according to the National Audit Office.
There is no sign that investment activity is leveling off, however. On the contrary, it is increasing. Because officials' performance is measured by how much they boost the GDP, the incentive is high for them to overspend in order to create a track record of political achievement, leaving the debt for the next generation.
Wu Jinglian, a well-known Chinese financial scholar and State Council expert, points out that the current investment plan presented by local governments has reached 17 trillion RMB ($2.72 trillion). Addressing the 2012 International Financial Forum, he warned that the Chinese regime's current economic growth stimulus plans are not sustainable, and will create dire consequences if deployed, as this paper reported in a Sept. 19 article.
Speaking in a closed door forum in Shenyang, Liaoning Province, in October 2011, economic scholar Larry Lang predicted that the local debt would cause an economic tsunami, as The Epoch Times earlier reported.
He warned: "Every province in China is Greece. All levels of government will go bankrupt in all aspects."
http://www.theepochtimes.com/n2/china-news/government-report-reveals-china-debt-bomb-307579.html (http://www.theepochtimes.com/n2/china-news/government-report-reveals-china-debt-bomb-307579.html)
http://www.bloomberg.com/news/2012-11-08/ecb-holds-rates-as-economy-worsens-spain-resists-aid-request.html
QuoteThe European Central Bank kept interest rates on hold today as the economic outlook worsens and Spain resists asking for a bailout that would open the door to ECB bond purchases.
Policy makers meeting in Frankfurt left the benchmark rate at its historic low of 0.75 percent, as predicted by 62 of 63 economists in a Bloomberg News survey. One forecast a cut to 0.5 percent. ECB President Mario Draghi will brief reporters on the decision at 2:30 p.m.
Draghi yesterday fueled speculation that the ECB might put rate reductions back on the agenda, saying the debt crisis is starting to hurt Germany -- the pillar of economic strength in the euro area -- and inflation risks are "very low." Still, Draghi has acknowledged in the past that rate moves are less effective than they should be because distorted financial markets are interrupting the transmission of ECB policy.
"In normal times, with the economic outlook in Europe, a rate cut would probably be justified," said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. "But we're not in normal times and a rate cut won't achieve anything."
The Bank of England today left its key interest rate at a record low of 0.5 percent and refrained from expanding its quantitative-easing program.
Spanish Reluctance
While the ECB's pledge to buy government bonds has calmed markets and reduced borrowing costs in Spain and Italy, Spanish Prime Minister Mariano Rajoy is resisting making a request for aid from Europe's bailout fund, a pre-requisite for the ECB to consider intervention.
Rajoy said on Nov. 6 he needs to know how much the ECB would push down Spain's bond yields before his government applies for aid and signs up to the conditions attached.
"We fully expect Mr. Draghi to continue to emphasize that the decision on calling for help rests solely in the hands of the Spanish government," said Nick Matthews, senior European economist at Nomura International Plc in London.
Spanish bond yields rose today after Market News International, citing unidentified Eurosystem and European Union officials, said the ECB hopes it doesn't have to use its bond- purchase program and that Spain is unlikely to seek aid this year.
Spain's 10-year yield climbed six basis points to 5.75 percent. It's still down from 7.62 percent on July 24, two days before Draghi declared he would do whatever is needed to preserve the euro.
Euro-Area Recession
Economic confidence in the 17-member euro area fell to a three-year low in October, adding to signs that the region is in recession after gross domestic product shrank 0.2 percent in the second quarter. Third-quarter GDP is due on Nov. 15.
In Germany, Europe's largest economy, reports this week suggested growth is grinding to a halt. Exports, factory orders and industrial production all fell more than forecast in September. Last month, business confidence dropped to a 2 1/2 year low.
"Germany has so far been largely insulated from some of the difficulties elsewhere in the euro area," Draghi said at a conference in Frankfurt yesterday. "But the latest data suggest that these developments are now starting to affect the German economy." In the euro area, "overall economic activity is weak and it is expected to remain weak in the near term," he added.
Rate Cut?
"In the past two weeks, the euro-area economy has taken a turn for the worse," said David Kohl, deputy chief economist at Julius Baer Group in Frankfurt. "A rate cut is needed and sensible. The earlier it happens, the better."
The European Commission yesterday lowered its 2013 growth forecast for Germany to 0.8 percent from 1.7 percent and said the euro-area economy will expand just 0.1 percent after contracting 0.4 percent this year.
At least five of the 17 euro nations are in recession, including Spain and Italy, and there are still concerns that Greece will be forced to leave the bloc as it struggles to meet the conditions of its bailout.
Greek Prime Minister Antonis Samaras yesterday gathered the support of enough lawmakers to pass austerity measures needed to unlock European funds, after more than 50,000 protestors surrounded Parliament.
Approval of the austerity bill, which raises the retirement age by two years to 67 and cuts wages and pensions a second time this year, is the first of the votes required by Nov. 12 to get a 31 billion-euro ($40 billion) aid tranche and avert a financial collapse that may drive the country from the euro.
So has the domino effect of economic collapse started yet?
G.
I'm in a room with literally dozens of people (two dozen, roughly) watching Jan Kregel speak. He started off by saying he learned under Joan Robinson and I could only think of the Languishite.
http://www.modernmoneyandpublicpurpose.com/seminar-4-real-vs-nominal-economy.html
Quote from: Count on November 13, 2012, 06:56:56 PM
I'm in a room with literally dozens of people (two dozen, roughly) watching Jan Kregel speak. He started off by saying he learned under Joan Robinson and I could only think of the Languishite.
http://www.modernmoneyandpublicpurpose.com/seminar-4-real-vs-nominal-economy.html
And he just mentioned Meyer Minsky! I think I've found the real JR. :ph34r:
(or these are just big names in econ, but my familiarity with them stems entirely from languish)
For some reason despite discovering that they underestimated the fiscal multiplier of austerity the EU and IMF have chosen to use the old one in their latest report on Greece :huh:
The expected proceeds of privatisations in Greece have been halved in the new report and, apparently, the IMF is sceptical that even that's attainable. The report also doesn't include the debt sustainability section because there's arguments within the Troika about it, apparently the IMF think debt will be 160% of GDP by 2020 and the EU 140% (remember that the Troika thinks 120% is sustainable - based on Italy - which is the official target by 2020 (the EU as argued by Jean-Claude 'we all know what to do, we just don't know how to get re-elected after we've done it'-'when it becomes serious, you have to lie' Juncker) or by 2022 (as Lagarde argued for in their public spat)).
One interesting thing - and I really regret the media narrative of feckless Greeks - is that the EU Council's 2010 decision only foresaw the need for a fiscal consolidation of 10% by 2014. Due to the declining economy and the need to make deeper cuts so far the Greeks have cut it by 13% of GDP and are now projected to go over 15% by 2014. Apparently the primary budget deficit is now only 1.5%, from over 10% a few years ago.
From what I can tell it looks like the Greeks are definitely getting two years more, but there's no agreement on how to pay for it. They'll need an extra €32 billion or so to cover that (there's some jiggery-pokery going on to cover their needs through November) another bailout simply adds to their debt and goes against the policy of trying to reach a sustainable level of debt some time in a decade or so. But the creditor countries are entirely opposed to official sector haircuts.
One other note is how feeble this has been. The Troika was supposed to provide quarterly updates on Greece to enable decision making and monitoring. This is the second report produced in 2012 and even then it's only a leaked and unfinished version. I don't think it helps that, from what I remember, politicians in the summer were saying they wouldn't make any decisions until after the EU Council meeting, then it was after the Troika's report which then got repeatedly delayed as the date when they'd have to make a decision was pushed further into the future. Even now I'd read that the bills due on 16 November would mean there'd have to be a decision by then, but reportedly there's now a plan to provide the Greeks short-term financing to cover that.
Quote from: Count on November 13, 2012, 06:56:56 PM
I'm in a room with literally dozens of people (two dozen, roughly) watching Jan Kregel speak. He started off by saying he learned under Joan Robinson and I could only think of the Languishite.
http://www.modernmoneyandpublicpurpose.com/seminar-4-real-vs-nominal-economy.html
The intellectual lineage of that modern money crowd is Hyman Minsky and the Cambridge crowd around Keynes whose names I keep using. (plus Abba Lerner who was at LSE but turned apostate)
Quote from: Sheilbh on November 14, 2012, 01:13:02 AM
One other note is how feeble this has been.
It's called "kicking the can" down the road.
Yet another general strike today. Maybe the unions thought third time's the charm.
Quote from: Sheilbh on November 14, 2012, 01:13:02 AM
For some reason despite discovering that they underestimated the fiscal multiplier of austerity the EU and IMF have chosen to use the old one in their latest report on Greece :huh:
Gee I wonder why.
Greece is proving to be a useful experiment in the limitations of austerity as a debt reduction program; too bad for the human guinea pigs who pay the price.
Maybe you can try it yourself soon when you boldly take a step forward while standing on the edge of the fiscal cliff. :P
Quote from: The Minsky Moment on November 14, 2012, 10:40:26 AM
Quote from: Sheilbh on November 14, 2012, 01:13:02 AM
For some reason despite discovering that they underestimated the fiscal multiplier of austerity the EU and IMF have chosen to use the old one in their latest report on Greece :huh:
Gee I wonder why.
Greece is proving to be a useful experiment in the limitations of austerity as a debt reduction program; too bad for the human guinea pigs who pay the price.
They benefited earlier from the debt so it's all good.
I doubt they did, actually. Unless "they" means the cleptocratic elite, that is.
ECB loans to Spanish banking system:
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Festaticos03.expansion.com%2Fimagenes%2F2012%2F11%2F14%2Fempresasbanca%2F1352884344_0.jpg&hash=06129202ef7384705fb6eff327aa05b29d9597c7)
Quote from: MadImmortalMan on November 14, 2012, 02:18:05 PM
They benefited earlier from the debt so it's all good.
I doubt that - I would suspect a good deal of that money was siphoned off in corruption and sweetheart deals and went disproportionately to a wealthy and powerful few.
Quote from: Iormlund on November 14, 2012, 02:28:15 PM
I doubt they did, actually. Unless "they" means the cleptocratic elite, that is.
Yeah - I meant this.
The IMF seems to be digging in their heels about debt sustainability. They've said that Greek of 120% or less by 2020 is a red line for their participation in the program and that the EU institutions 'must' take other actions to cut Greek debt. Perhaps leading by example, or providing a hint for the ECB and ESM, they've extended their Greek debt maturity and cut rates for Greece.
Greece has now got a growing National Socialist party, this is getting way beyond the "idle Greeks borrowed the money so they should pay it back".
Cypriot bailout is delayed again. Apparently the IMF are refusing to participate unless there's direct bank recapitalisations from ESM, without them they think Cyprus would have unsustainable debt levels.
No banking union for a while, talks didn't end well today and the French are briefing that Germany arrived unwilling to agree. Apparently the small, regional banks are still a big sticking point.
I wonder how long markets will give Europe benefit of the doubt.
Edit: Also, Greece now has a primary budget surplus.
I'm reading that Rajoy has finally pledged to reconsider the insane austerity drive. No, he will still close hospitals and tax us to to death. He seems to be, however, backing down on his plans to reduce the number of local political posts and salaries ...
In other news the former chairman of the national business association, who clamored for lower salaries and living standards as the only way out of the crisis is under arrest for tax evasion, fraud and who knows how much more shit.
Man, sometimes I love this place.
Man, if you have to choose between the salaries and the taxes, why would you choose to keep the taxes?
Quote from: Iormlund on November 14, 2012, 02:28:15 PM
I doubt they did, actually. Unless "they" means the cleptocratic elite, that is.
Really? I was under the distinct impression the money went to keep 2/3 of the work force on the public payroll and pay pensions.
Quote from: Admiral Yi on December 04, 2012, 03:04:59 PM
Really? I was under the distinct impression the money went to keep 2/3 of the work force on the public payroll and pay pensions.
I'm sure you envision us taking three-hour
siestas clad in our
matador outfits as well. Meanwhile, and I quote the OECD here:
QuoteGreece has one of the lowest rates of public employment among
OECD countries, with general government employing just 7.9% of the
total labour force in 2008
That's about half the OECD average.
Huh. That piece in the Atlantic that came out around the time Greece started imploding said the public sector was 1 in 4 workers in Greece. I'm pretty sure I'm remembering that correctly. Is the difference a change since then, or are they measuring it differently?
Edit: Maybe it was Spiegel.
I'm pretty sure one can arrive at that figure if you put in the numerator every worker in a public or semi-public entity (thus including most healthcare and education workers) and use as denominator those who still have work rather than total available workforce.
It's the beauty of statistics.
Lately I've been shopping for an Omega watch on ebay. I'm noticing that there are a lot of them being sold from Greece and Spain. I wonder if it's a case of heirlooms for cash.
Might have been bought during the bubble by people that lost his job or whose businesses crashed. A friend of mine was able to get a very nice price on a BMW M3 last year that way.
After the summit apparently it's been agreed to allow direct recapitalisation of banks in 2013. Common banking supervisor will be introduced in 2014 :blink:
Quote from: Sheilbh on December 13, 2012, 08:56:17 PM
After the summit apparently it's been agreed to allow direct recapitalisation of banks in 2013. Common banking supervisor will be introduced in 2014 :blink:
Are we happy, Vincent?
Quote from: Tamas on December 14, 2012, 07:40:06 AM
Are we happy, Vincent?
It seems mad to have Eurozone direct recapitalisation before having Eurozone single supervisor :blink:
I mean I'm not sure how it'd work. Presumably the ECB will temporarily act as supervisor....
The British journalists said there were a couple of decisions but those will probably be the last decisions now until the German election. Apparently Eurozone leaders and Eurocrats think 2012 was the year they turned a corner.
Edit: I do find the EU's attitude complacency genuinely startling. Blair for President 2014 :w00t:
good point.
And, turned a corner? :lol: there are no corners in a circle
Quote from: Sheilbh on December 14, 2012, 08:54:25 AM
Blair for President 2014 :w00t:
Will Britain even be an EU member by 2014?
Quote from: Zanza on December 14, 2012, 10:17:42 AM
Quote from: Sheilbh on December 14, 2012, 08:54:25 AM
Blair for President 2014 :w00t:
Will Britain even be an EU member by 2014?
:lol: I doubt we'll get an in-out referendum that soon. Most likely it'll be in the next Parliament. Ironically the Lib Dems were the only mainstream party promising one in 2010.
A more pertinent question is 'will Britain even be in 2014?' The Scottish independence referendum's then, so...
I predict that the Euro will still be around on 31st December 2013 and all current members will still be in.
Any thoughts Viking or Legbiter?
QuoteDan White: The economic return of Iceland has proved that the joke was on use
By Dan White
Sunday December 16 2012
WAY back in the autumn of 2008, the joke in financial circles was that the only difference between Ireland and Iceland was a letter and six months. Now, with the Icelandic banks preparing to issue foreign currency bonds once again, it turns out that the joke was on us.
Remember when the Icelandics did the unthinkable and, unlike Ireland, told bank creditors to take a hike? They also imposed capital controls and allowed the value of their currency to fall – the Icelandic krona has lost almost half of its value against the euro over the past five years.
The "experts" queued up to assure us that these latter-day Vikings would be severely punished for their impertinence. While no one forecast that a hole would open up in the North Atlantic and swallow Iceland whole, some of the predictions came pretty darned close.
Meanwhile, we in Ireland did what we were told and repaid over €70bn of bank bonds at par. By doing so, even at the cost of bankrupting the State, the "experts" assured us that we would retain the confidence of the markets. Now, four years later, it is clear that, not for the first time, the "experts" have got it wrong. Catastrophically and utterly wrong.
Since putting the taxpayer on the hook for the banks' debts, the domestic economy has shrunk by almost a quarter in nominal or cash terms. And any real recovery is still a long way off. The documents along with this month's Budget reveal that the Department of Finance is expecting Irish GNP, basically the domestic economy, to grow by 1.4 per cent in 2012 and 0.9 per cent next year. Other forecasters are taking a far more pessimistic view.
Way out in the North Atlantic, things have turned out rather differently. Economic growth is expected to be 3.1 per cent this year and 2.2 per cent in 2013. But surely after stitching up its bank creditors – the Icelandic banking default cost $85bn, a massive amount for a country with a population of 320,000 people – the country remains persona non grata with the international financial markets. Having been so badly bitten once, the markets must be twice or even thrice shy of Iceland.
Not so. The Icelandic treasury successfully flogged $1bn of 10-year bonds to investors in May. These bonds were initially priced to yield a spread of 407 basis points (4.07 per cent) over comparable US treasuries, a margin which has since narrowed to 296 basis points.
In the financial markets, as elsewhere in life, eaten bread is soon forgotten. Would-be investors in Icelandic bonds focus most of their attention, not on what happened in the past, but on what is likely to happen in the future.
What these investors see is that, by burning the bank bondholders rather than taking these debts on to the national balance sheet, the Icelandic sovereign is in a far stronger position to repay any future debts.
Compare this to the Irish situation. By being good boys did we retain the confidence of the markets? No we didn't. We too were locked out of the markets and were bounced into accepting an EU/IMF bailout in November 2010. Far from doing better than the Icelandics, we have ended up with the worst of all possible worlds. We are still stuck with the banks' legacy debts and, a few carefully choreographed fund raisings by the NTMA notwithstanding, the State remains largely reliant on official lenders to fund its activities. This is because investors can see that, with the debts of the Irish State likely to exceed €200bn – the equivalent of more than 150 per cent of GNP – by the end of 2013, there is no way the Irish sovereign can repay existing borrowings let alone any new loans it may seek to raise.
Now, as if to add insult to injury, the Icelandic banks are preparing a return to the markets. Unlike Ireland, Iceland immediately nationalised its bust banks in the autumn of 2008 but refused to assume responsibility for their liabilities. The cleaned-up Icelandic banks are now getting ready to issue foreign currency bonds, the proceeds of which will be used to help finance the thriving, export-driven Icelandic economy.
When we look at what has happened in Iceland, the proposed deal on legacy Irish bank debt tastes like very thin gruel indeed. Once again the Irish Government is talking up the chances of such a deal following last week's apparent agreement by EU finance ministers on a new eurozone banking supervision regime. The latest "deadline" for such a deal is supposedly the end of March 2013. Given that several previous "deadlines" have come and gone, don't hold your breath.
Maybe, instead of being the good boys it's time we followed the Icelandic example and indulged in some Viking-style plunder and pillage.
- Dan White
Also in Ireland the IMF has advised the Irish not to impose any further austerity (than that already announced) next year even if they miss targets, due to weaker growth. They're advising the Irish to protect growth and defer any further austerity until 2015. They've also said that Ireland would really be helped by the 'forceful delivery of European pledges' to break the vicious cycle between sovereigns and banks.
Is this the guy that Marty goes on about for killing Harvey Milk?
I never understood the decision to nationalize all that bank debt. The only thing I can imagine is that the politicians who decided it were big shareholders set to lose big personally if it didn't happen.
Quote from: MadImmortalMan on December 18, 2012, 09:12:10 PM
I never understood the decision to nationalize all that bank debt. The only thing I can imagine is that the politicians who decided it were big shareholders set to lose big personally if it didn't happen.
There was a lot of international pressure not least from the UK, most Eurozone governments and the ECB. Even now UK and Eurozone banks are very exposed to Ireland. Remember the court cases by many UK councils suing Iceland when they let the banks fail.
But it was madness for the Irish government to guarantee all banks' depositors and bondholders :(
Edit: I believe EU banks' exposure to Ireland was around €600 billion, with Germany and the UK each having over €200 billion.
Quote from: Razgovory on December 18, 2012, 09:03:26 PM
Is this the guy that Marty goes on about for killing Harvey Milk?
:lol:
Quote from: Sheilbh on December 18, 2012, 09:22:04 PM
Quote from: MadImmortalMan on December 18, 2012, 09:12:10 PM
I never understood the decision to nationalize all that bank debt. The only thing I can imagine is that the politicians who decided it were big shareholders set to lose big personally if it didn't happen.
There was a lot of international pressure not least from the UK, most Eurozone governments and the ECB. Even now UK and Eurozone banks are very exposed to Ireland. Remember the court cases by many UK councils suing Iceland when they let the banks fail.
But it was madness for the Irish government to guarantee all banks' depositors and bondholders :(
Edit: I believe EU banks' exposure to Ireland was around €600 billion, with Germany and the UK each having over €200 billion.
Yes, it's worth remembering that splendid isolation from the Euro crisis isn't an option for the UK; we're involved in a possibly deadly embrace with the Irish republic and some of the debt is really junk, like an astonishing amount of retail property.
Not many people will be fuelling a consumer led recover on Ireland's for quite sometime to come.
Well, Greece got an upgrade today. :D
Not sure why people would think that the ability of Iceland's government to borrow would be negatively impacted by losses to bank bondholders. If anything it makes the government bonds look more secure.
I wanted to point out that this magnificent interest rate the Icelandic government managed to secure is one that Italy and Spain decided could only be a result of a plot by Jewish finance to ruin their countries.
Now compare the relationship between interest rates and growth. Iceland is paying a bit more in interest than it grows, so it can service debt pretty well. While we are experiencing a big gap between (negative) growth and rates.
You mean growth of the tax revenue, or growth of the economy?
The economy.
Taking money from somewhere else to increase revenue doesn't make debt easier to repay.
Monti resigns after parliament passes his budget. Will he run in the coming elections? :unsure:
Speaking of Iceland, could this be one of those situations were the confusion between the level of the economy and the growth rate of the economy is fundamental? Could Iceland be growing simply because it crashed so hard already, while other countries are contracting because they're still fighting for control, and have avoided the carnage so far?
Quote from: Iormlund on December 21, 2012, 01:53:41 PM
Monti resigns after parliament passes his budget. Will he run in the coming elections? :unsure:
Doubt it. A potential 'Monti party' gets 4% in the polls, though people approve of him and many would want him as PM again. I think that might happen if there's a grand coalition situation.
Shame to see my favourite world leader go :(
Edit: DG, Ireland's not avoided the carnage. The total contraction's been about 20% of GNP. And that's in the best placed crisis country.
Quote from: DGuller on December 21, 2012, 02:04:55 PM
Speaking of Iceland, could this be one of those situations were the confusion between the level of the economy and the growth rate of the economy is fundamental? Could Iceland be growing simply because it crashed so hard already, while other countries are contracting because they're still fighting for control, and have avoided the carnage so far?
Even if that were the case, in my not so humble opinion that's a much better strategy than stretching the crisis for a decade. What is going to happen with the millions of 30 year olds with virtually no job experience? What about demographic imbalances? While an ever increasing number of seniors retire birthrates are collapsing since young people lack job security.
Quote from: Iormlund on December 21, 2012, 02:30:53 PM
Quote from: DGuller on December 21, 2012, 02:04:55 PM
Speaking of Iceland, could this be one of those situations were the confusion between the level of the economy and the growth rate of the economy is fundamental? Could Iceland be growing simply because it crashed so hard already, while other countries are contracting because they're still fighting for control, and have avoided the carnage so far?
Even if that were the case, in my not so humble opinion that's a much better strategy than stretching the crisis for a decade. What is going to happen with the millions of 30 year olds with virtually no job experience? What about demographic imbalances? While an ever increasing number of seniors retire birthrates are collapsing since young people lack job security.
The implication of your statement is that the journey is more important than the destination. Taken to extreme, we should obliterate the economy at random times averaging about once in 20 years, to make sure that there is always potential for economic growth.
The journey creates the destination. For example if there's a widespread perception that things are going to be shitty, chances are they will be shitty because people won't spend, companies won't hire and so on.
Maybe if the 30-year-olds didn't still live at home they'd land more jobs? Just a thought.
Iceland's nominal GDP in USD is more than a third below its peak. That must be painful considering that Iceland doesn't make very many things and must import a lot of stuff. Not sure if that's the best policy in this crisis.
Such a correction was inevitable, since pre-crash GDP was a mirage. Shackling themselves to debts for decades to come, as the Irish did, seems far worse a choice than what they did.
In happier news Spain will likely post in 2012 its best trade balance figures in 40 years, only 2% in the red, down from a pre-crisis 10%.
The good part is that most of the change this year is down to yet another robust increase in exports. Despite all the stupidity in the Eurozone if the US manages to avoid a meltdown and the BRICs continue growing we might still export our way out of this.
Quote from: Iormlund on December 21, 2012, 06:55:51 PM
Such a correction was inevitable, since pre-crash GDP was a mirage. Shackling themselves to debts for decades to come, as the Irish did, seems far worse a choice than what they did.
Yeah and if pre-crash GDP was a mirage, then so was pre-crash debt-to-GDP ratio.
It was actually quite low (by Western standards) before the financial bubble.
Iormlund has the right of it even if it felt rather painful when the crash happened. The Icelandic banks had built up liabilities to the tune of 10-12 times the annual GDP of Iceland when they went bust. All mostly in the space of 5 years. It wasn't an inspired genius that led Iceland to torch the bank's bondholders, it was literally the only option left.
If Icelandic politicians at the time could have secured the funding to bail out the banks, they'd have done so in a heartbeat, no matter the cost.
If Iceland was fortunate, it was only so by being too dumb to save by conventional means.
A long time ago i heard on NPR that Iceland was holding a referendum (or maybe just debating in the Icestag) whether to pay back the various countries whose depositors had been left high and dry. But i never heard how that turned out. You know Leg?
With all due respect, is Iceland's experience much of a guide, it does after all have barely one thousandth of the US population.
Quote from: Admiral Yi on December 21, 2012, 08:11:25 PM
A long time ago i heard on NPR that Iceland was holding a referendum (or maybe just debating in the Icestag) whether to pay back the various countries whose depositors had been left high and dry. But i never heard how that turned out. You know Leg?
Two referendums on that were held, in 2010 and 2011, and both rejected the terms of the state guarantees for the repayments to the UK and the Netherlands.
http://en.wikipedia.org/wiki/Icelandic_loan_guarantees_referendum,_2010 (http://en.wikipedia.org/wiki/Icelandic_loan_guarantees_referendum,_2010)
http://en.wikipedia.org/wiki/Icelandic_loan_guarantees_referendum,_2011 (http://en.wikipedia.org/wiki/Icelandic_loan_guarantees_referendum,_2011)
In case anyone is interested, this has been making the rounds in the social networks lately. It's an Icelander's rebuke of Iceland being some sort of poster child for lefties and occupy-ers on how to beat the economic crisis while giving the fat cats the finger:
http://studiotendra.com/2012/12/29/what-is-actually-going-on-in-iceland/ (http://studiotendra.com/2012/12/29/what-is-actually-going-on-in-iceland/)
Maybe Legbiter or Viking can shed some additional light, but his point is that Iceland is still quite fucked.
The part about inflation-indexed mortgages is quite interesting (though a reader later points out he is mistaking real for nominal growth).
BoJ is gonna do a QEternity too. I think this is the tenth round for them. That place is like a black hole.
http://www.reuters.com/article/2013/01/17/japan-economy-boj-idUSL4N0AM82220130117
Quote
TOKYO Jan 18 (Reuters) - The Bank of Japan will next week mull scrapping its 0.1 percent floor on short-term interest rates and pledging to buy assets open-endedly until 2 percent inflation is foreseen, sources familiar with the central bank's thinking said.
Such steps would surprise the markets, which have been expecting the central bank to settle on the more conventional step of topping up its asset-buying and lending programme by another 10 trillion yen ($113 billion).
Under relentless pressure from Prime Minister Shinzo Abe for bolder steps to beat deflation, the central bank is likely to double its inflation target to 2 percent and consider expanding monetary stimulus again at its two-day rate review that ends next Tuesday, sources told Reuters last week.
Instead of topping up the asset-buying and lending programme again, the BOJ may pledge to buy assets open-endedly until 2 percent inflation is in sight, without setting a specific date for completing the purchases, the sources said.
Another idea being floated is for the central bank to pledge that it will keep the balance of its asset-buying and lending programme intact even beyond its end-2013 deadline, they said.
The BOJ will also consider scrapping the 0.1 percent interest it pays on excess reserves that financial institutions park at the central bank, according to the sources, who spoke on condition of anonymity due to the sensitivity of the matter. That rate has effectively served as a floor to money market rates and kept them from falling to zero.
Quote
During the 1990s I spent much of my time focusing on economic crises around the world — in particular, on currency crises like those that struck Southeast Asia in 1997 and Argentina in 2001. The timing of such crises is hard to predict. But there are warning signs, like big trade and budget deficits and rising debt burdens.
And there's one thing I can't help noticing: a third world country with America's recent numbers — its huge budget and trade deficits, its growing reliance on short-term borrowing from the rest of the world — would definitely be on the watch list.
I'm not the only one thinking that. Lehman Brothers has a mathematical model known as Damocles that it calls "an early warning system to identify the likelihood of countries entering into financial crises." Developing nations are looking pretty safe these days. But applying the same model to some advanced countries "would set Damocles' alarm bells ringing." Lehman's press release adds, "Most conspicuous of these threats is the United States."
O.K., let's run through some reassuring counterarguments.
First, economists are very good at devising models that would have predicted past crises, but each new crisis tends to happen where and when they didn't expect it. So even though our budget deficit is bigger relative to the economy than Argentina's in 2000, and our trade deficit is bigger relative to the economy than Indonesia's in 1996, our experience needn't be the same.
Second, nasty crises in third world countries have a lot to do with the fact that their debt is in foreign currency, usually dollars. As a result, when the peso or the rupiah plunges, debts explode while assets don't, and balance sheets collapse. By contrast, thanks to the special international role of the dollar, America's burgeoning foreign debt is in our own currency.
Finally, financial markets are generally willing to give advanced countries the benefit of the doubt. Even when an advanced country seems to be deep in a financial hole, lenders usually assume that it will somehow find the resources and political will to climb back out.
So is America safe, despite its scary numbers?
Third world countries typically suffer from institutional weaknesses. They have poor corporate governance: you can't trust business accounting, and insiders often enrich themselves at stockholders' expense. Meanwhile, cronyism is rampant, with close personal and financial links between powerful politicians and the very companies that benefit from public largesse.
The crisis won't come immediately. For a few years, America will still be able to borrow freely, simply because lenders assume that things will somehow work out.
But at a certain point we'll have a Wile E. Coyote moment. For those not familiar with the Road Runner cartoons, Mr. Coyote had a habit of running off cliffs and taking several steps on thin air before noticing that there was nothing underneath his feet. Only then would he plunge.
What will that plunge look like? It will certainly involve a sharp fall in the dollar and a sharp rise in interest rates. In the worst-case scenario, the government's access to borrowing will be cut off, creating a cash crisis that throws the nation into chaos.
I know: it all sounds unbelievable. But would you have believed, three years ago, that the U.S. budget would plunge so quickly from a record surplus to a record deficit? And would you have believed that, confronted with that plunge, our leaders would offer excuses rather than solutions?
Paul Krugman, 2003
Quote from: MadImmortalMan on January 17, 2013, 03:22:08 PM
BoJ is gonna do a QEternity too. I think this is the tenth round for them. That place is like a black hole.
http://www.scmp.com/news/asia/article/1133350/aso-says-japanese-elderly-should-hurry-and-die (http://www.scmp.com/news/asia/article/1133350/aso-says-japanese-elderly-should-hurry-and-die)
In any science textbook you will find simple diagrams of various cycles, such as the carbon or water cycles. These will include sinks that lead to the loss of carbon (or whatever) more or less permanently from the cycle. It seems to me that the money cycle has two major sinks that are causing much of our problems. Firstly there is the apparent inability to tax the seriously wealthy, there are many trillions of dollars held in various offshore accounts and more money is drained from the cycle every year. Secondly we have the ageing population, in order to make provision for their pensions either vast sums are put aside in various investments or huge unfunded liabilities are created. The productive part of the economy, meanwhile, is chronically short of money and faces unfavourable tax arrangements; governments try and square this circle with QE.
I suspect we are buggered until we can either tax the wealth of the ultra-rich or get them to spend it on stuff. We also need to redefine and extend working lives so that older people are tempted to continue making some contribution rather than living off their rents (pensions paid for by tax, bonds, shares etc).
Quote from: Richard Hakluyt on January 22, 2013, 02:38:25 AM
In any science textbook you will find simple diagrams of various cycles, such as the carbon or water cycles. These will include sinks that lead to the loss of carbon (or whatever) more or less permanently from the cycle. It seems to me that the money cycle has two major sinks that are causing much of our problems. Firstly there is the apparent inability to tax the seriously wealthy, there are many trillions of dollars held in various offshore accounts and more money is drained from the cycle every year. Secondly we have the ageing population, in order to make provision for their pensions either vast sums are put aside in various investments or huge unfunded liabilities are created. The productive part of the economy, meanwhile, is chronically short of money and faces unfavourable tax arrangements; governments try and square this circle with QE.
I suspect we are buggered until we can either tax the wealth of the ultra-rich or get them to spend it on stuff. We also need to redefine and extend working lives so that older people are tempted to continue making some contribution rather than living off their rents (pensions paid for by tax, bonds, shares etc).
Interesting analysis Tricky. :thumbsup:
Wherever the monkey is, it SAH ain't here. :D
Quote
Germany Vs Japan Currency War Heats Up
Germany and Japan have a long tradition of cooperating, at least when it comes to various iterations of world war, generically in the conventional sense (and where they tend to end up on the less than winning side). Which is why it may come as a surprise to some that earlier today German politician Michael Meister launched what is now the third shot across Japan's bow in what is rapidly escalating as the most dramatic case of global currency warfare between the world's net exporters (at least legacy net exporters: thanks to Japan's recent political snafus, it has now become a net importer as it is rapidly losing the Chinese market which accounts for some 20% of its exports) which started as long ago as 2010 when it was quite clear that currency warfare is what the insolvent world can expect, before it devolves into outright protectionism, and finally regular war as Kyle Bass explained recently. To wit: "What can Japan's competitors do?" Meister said today in a telephone interview. "Either we're all smart and do nothing, or we follow suit and create a spiral that hurts us all."
Something tells us the "we will follow suit" is the right answer, as the only option left for the world which has no internal demand (i.e., consumer credit capacity to fund in house purchases of goods and services) and is destined to seek outside trade markets and inbound flows to generate inflation. But then again, none of this should be news, although perhaps it is to the EUR which has seen a rather rapid deterioration now that it is becoming very clear that what we have said, namely that Germany needs a weaker EUR to boost exports, is the only option for Europe.
And, as noted, he is not the first, nor the second, but the third in just one week to warn of what is coming. From Bloomberg: "Meister is the third senior German official to take issue with Abe in a week. Finance Minister Wolfgang Schaeuble attacked Japan's "false understanding" of monetary policy in a Jan. 16 speech to the lower house, saying it will pump "excessive liquidity" into global financial markets. Bundesbank President Jens Weidmann said in a speech in Frankfurt yesterday that Abe risked "politicizing" the yen's exchange rate."
Japan's response: Open-Yended monetization as reported last night. Certainly everyone will just sit there and watch as Japan does all it can to control an even greater portion of the export market and boost its GDP at the expense of all other trade deficit surplus nations. Certainly. This, naturally, ignores the very "GDP boosting" almost real war that Japan and China are increasingly finding themselves in.
From Bloomberg:
Prime Minister Shinzo Abe's move to invigorate exports by pushing the yen lower against competitors is "very worrying," said Michael Meister, a senior member of Merkel's Christian Democratic Union who is due to meet with government officials in Japan starting on Feb. 7. Germany will probably seek support from fellow G-20 nations to urge Japan to change its course, he said.
Meister is the third senior German official to take issue with Abe in a week. Finance Minister Wolfgang Schaeuble attacked Japan's "false understanding" of monetary policy in a Jan. 16 speech to the lower house, saying it will pump "excessive liquidity" into global financial markets. Bundesbank President Jens Weidmann said in a speech in Frankfurt yesterday that Abe risked "politicizing" the yen's exchange rate.
German discomfort at Japan's monetary policy occurs at a critical juncture in the health of the euro-area economy, including that of its German motor. Merkel, who is seeking a third term at federal elections this fall, may have to fall back on German exports to help bolster economic growth that the government forecasts to be just 0.4 percent this year.
Germany, Europe's biggest economy, whose exports are forecast to grow 2.8 percent this year from 4.1 percent in 2012, will probably seek the support of fellow Group of Eight and G-20 states to persuade Japan to rethink manipulating the yen's exchange rate, said Meister.
Aside from a potential backlash from Japan's G-20 partners, any economic gains from the policy may be short-lived as monetary steps to reflate the economy bring higher import prices, said Meister. "The Japanese economy's real problems are structural and beg structural remedies, not tampering with the exchange rate," he said.
Abe, sworn in as Japan's prime minister on Dec. 26, has called on the Bank of Japan to unleash unlimited monetary easing and accept a higher central bank inflation target to help revive the world's third-biggest economy. The yen rallied today after the Bank of Japan said it will wait a year to begin open-ended asset purchases. The yen has declined 12 percent in the past three months, leveraging its competitiveness against its main competitors.
The market's response to what is now a loud and clear piling of German and Japanese FX currency troops? Green.
http://www.zerohedge.com/news/2013-01-22/germany-vs-japan-currency-war-heats (http://www.zerohedge.com/news/2013-01-22/germany-vs-japan-currency-war-heats)
A challenger appears!
Quote from: Reuters
Chile finance minister would support central bank intervention on peso
Reuters | Jan 26, 2013
DAVOS, Switzerland (Reuters) - Chile's government would support any intervention by the country's independent central bank to weaken the strong peso, Finance Minister Felipe Larrain said on Saturday.
"The central bank may decide to intervene but it is their own decision ...if they do, we would certainly support them," Larrain told Reuters in a television interview at the World Economic Forum in Davos.
"We're trying to prevent further appreciation," he said.
The peso, which has been boosted by Chile's robust economic growth and healthy prices for top export copper, ranked among the strongest foreign currency performers against the U.S. dollar among 152 currencies tracked by Reuters in 2012.
Last month, central bank president Rodrigo Vergara reiterated that intervening in the local peso currency market was a tool at the bank's disposal, but that if it hadn't intervened so far it was because it hadn't been deemed necessary.
The central bank deployed a dollar-purchasing program in 2011 to curb peso strength after it appreciated to its highest level in more than 2-1/2 years at 465.50 per dollar.
Larrain said it was hard to counter the weight of U.S. quantitative easing: "Against this massive QE, we have a few tools but not many."
Chile's central bank has kept rates steady since a surprise cut in January 2012, as it weighs external risks against a buoyant domestic economy.
Due to robust domestic demand and investment, Chile's small, export-dependent economy has for the most part fared better than expected despite slowing demand from top trade partner China and fallout from the euro zone crisis.
Larrain added that the global economic picture was somewhat rosier at this year's Davos than in 2012.
"We're not yet out of the woods. The real economy still needs to undergo some tough work and the financial markets are helping but it's not to say this is over," Larrain said.
"It is the emerging markets that will continue pulling the world economy again in 2013."
So I guess we're entering full-blown currency war at this point.
Was reading an Economist article the other that made the perhaps obvious point than when you're trying to appreciate your own currency (through high interest rates) it's relatively straightforward, but when the whole world is trying to pursue loose monetary policy, keeping the value of your currency down is not that easy a job.
Quote from: Admiral Yi on January 27, 2013, 06:30:03 PM
Was reading an Economist article the other that made the perhaps obvious point than when you're trying to appreciate your own currency (through high interest rates) it's relatively straightforward, but when the whole world is trying to pursue loose monetary policy, keeping the value of your currency down is not that easy a job.
It is straightforward if you are a smaller country (such as Switzerland)...announce a target exchange rate against a major currency and commit to keeping the inkjet going until it is reached.
EFTA tribunal has cleared Iceland from wrongdoing in the handling of the bank crisis.
Quote from: Iormlund on January 28, 2013, 02:27:16 PM
EFTA tribunal has cleared Iceland from wrongdoing in the handling of the bank crisis.
Yeah, dodged a bullet there.
Viking started a seperate thread on Iceland. Top of the 2nd page.
Meanwhile, in Spain ...
Quote from: BBC News31 January 2013 Last updated at 13:52 GMT
Spain ruling Popular Party denies slush fund allegations
A screenshot of the El Pais online edition, 31 January El Pais splashed photos of the alleged ledgers on its website on Thursday
Spain's ruling conservative Popular Party has denied allegations that Prime Minister Mariano Rajoy and others benefited from secret party accounts.
Photographs of ledgers showing business donations and payments to party figures were published by the centre-left daily El Pais on Thursday.
Allegedly kept by two former party treasurers, they cover nearly 20 years.
The party's secretary general has told reporters all payments to its leaders were clean and legal.
"We have only one set of books and they are clean," Maria Dolores de Cospedal told a news conference in Madrid. "We have absolutely nothing to hide."
Mr Rajoy and his party were elected by a landslide in November 2011 on a promise to reduce the high public deficit.
Spaniards have been asked to accept painful austerity measures as the government battles to avoid an international bailout. Meanwhile, the unemployment rate has reached a record 26%.
'Rajoy resign'
El Pais said Mr Rajoy had collected 25,200 euros (£22,000; $34,000) a year between 1997 and 2008.
It published photographs of what it said were ledgers kept by former treasurers Luis Barcenas and Alvaro Lapuerta between 1990 and 2009.
Spanish Prime Minister Mariano Rajoy in parliament in Madrid, 30 January Mariano Rajoy first entered government in 1996
Money was allegedly paid by outside firms via Mr Barcenas, who stepped down in 2009 and is currently under investigation for money-laundering.
Investigators recently revealed that Mr Barcenas held a Swiss bank account which at one point held as much as 22m (£19m; $30m) euros.
Until 2007, Spanish political parties were allowed to receive anonymous donations. If the party leaders declared the income in tax statements, it may not be illegal, Reuters news agency notes.
"This does not help to calm down the difficult moments that we are going through, economically, politically and the climate on the street"
Jose Antonio Monago Popular Party politician
However, the allegations raise ethical questions about the Popular Party's dealings during the period of Spain's building boom, when politicians granted large numbers of development contracts.
In a statement, the party denied making any "systematic payment to certain people of money other than their monthly wages".
"Given the information published today by El Pais, the Popular Party insists that its remuneration of top Popular Party officials and staff has always respected the law and its tax obligations," it said in a statement.
"The People's Party has no knowledge of the handwritten notes that were published and of their content, and it cannot be recognised, in any case, as this political party's books."
But one senior Popular Party figure, Jose Antonio Monago, who is the president of the Extremadura region, expressed concern.
"This does not help to calm down the difficult moments that we are going through, economically, politically and the climate on the street," he was quoted as saying by Reuters.
"This is a time for maximum transparency."
On Thursday morning, as news of the allegations spread, the hash tags lospapelesdebarcenas (the Barcenas papers) and RajoyDimision (Rajoy resign) were among the top terms trending among Spanish users of Twitter.
A few years ago a corruption network was revealed with certain Popular politicians at the heart of it. Rajoy acted fast: soon after the elections the IRS fraud squad that had lead the investigation was replaced with "friendlier" people, including the former head of our stock oversight organization, that had been forced to step down after another corruption scandal broke out during Aznar's administration.
However, it appears they could not shut it down in time: Recently the Swiss unveiled that at least €22 million in bribe money were stored at a bank there until some time ago. 10 of those million were brought here under the tax amnesty enacted by Rajoy (at a nice 10% tax rate while the fuckers bleed us dry).
The thing is, the man in charge of the accounts apparently had every movement on his books, and today the press has published names. And
everyone is there, including the PM.
The worst thing is this will change nothing. It has happened quite a few times before. Not 20 years ago we all heard wire tapes of Popular politicians bragging about their corrupt deals. Not only they were acquitted, they ruled one of the richest regions in Spain for two decades. The most notorious of the ring members became minister and Gov Speaker for Aznar. He now collects what he is owed "working" for telcom giant Telefónica, privatized for peanuts by that government.
stop voting for these people then.
that said: sounds like belgium
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fresearch.stlouisfed.org%2Ffred2%2Fdata%2FBASE_Max_630_378.png&hash=3eb47fdebefe138448f29395ee266df5af5a5817)
How far should this go?
Until we see imminent signs of higher inflation and/or another asset bubble developing.
On the other hand, some of that expansion in base money might be accounted for by the fact that the Fed is paying a positive rate on reserves and banks are therefore parking much more than is legally required with the Fed. IIRC most models about the relationship of base money to money supply assume nothing above the reserve requirement.
Quote from: Crazy_Ivan80 on January 31, 2013, 02:34:39 PM
stop voting for these people then.
that said: sounds like belgium
Never did in my life. :P Anyway, for a hefty % of their voters this will slide off. Rajoy could appear on national TV gutting a puppy tomorrow and PP would still get at least 30% on the national elections.
The end is nigh!
Even the loony right is joining the attacks on President Rajoy. Will we see a party coup d'etat soon?
(https://pbs.twimg.com/media/BCNd9XWCUAEfdsc.jpg:large)
Always a good idea. (http://www.washingtonpost.com/business/argentina-tries-freezing-prices-to-break-30-percent-annual-inflation-spiral/2013/02/04/08ab14ae-6efa-11e2-b35a-0ee56f0518d2_story.html)
Quote
Argentina tries freezing prices to break 30 percent annual inflation spiral
By Associated Press, Published: February 4
BUENOS AIRES, Argentina — Argentina announced a two-month price freeze on supermarket products Monday in an effort to stop spiraling inflation.
The price freeze applies to every product in all of the nation's largest supermarkets — a group including Walmart, Carrefour, Coto, Jumbo, Disco and other large chains. The companies' trade group, representing 70 percent of the Argentine supermarket sector, reached the accord with Commerce Secretary Guillermo Moreno, the government's news agency Telam reported.
The commerce ministry wants consumers to keep receipts and complain to a hotline about any price hikes they see before April 1.
Polls show Argentines worry most about inflation, which private economists estimate could reach 30 percent this year. The government says it's trying to hold the next union wage hikes to 20 percent, a figure that suggests how little anyone believes the official index that pegs annual inflation at just 10 percent.
Economist Soledad Perez Duhalde of the abeceb.com consulting firm predicted on Monday that the price freeze will have only a very short term effect, and noted that similar moves in Argentina had failed to control inflation. Consumers shouldn't be surprised if the supermarkets are slow to restock their shelves and offer fewer products for sale, she added.
A more effective way to contain inflation would be to "reduce government spending, which is financing an expansion of the money supply, and to have a credible price index."
The government announced the price freeze on the first business day after the International Monetary Fund formally censured Argentina for putting out inaccurate economic data. The IMF has given Argentina until September to bring its inflation and economic growth statistics up to international standards. If Argentina doesn't comply, it could face expulsion from the world body in November.
President Cristina Fernandez and her economy minister, Hernan Lorenzino, responded over the weekend with a flurry of attacks on the IMF, saying the agency's data-gathering efforts had lost credibility in the lead-up to Argentina's historic 2001 debt default. They said IMF advice also is leading Europeans astray by favoring big banks over measures that can grow economies out of crisis.
However, Lorenzino also said that the government will begin using a new inflation index starting in fourth-quarter 2013 — just in time for the IMF's decision.
The IMF censure "is not just a new error ... it's also a clear example of the organization's unequal treatment and double standards in regard to certain member countries," Lorenzino said. "Argentina, just as it agreed with the IMF to do, will keep working to improve its statistical procedures in accordance with good international standards."
"Later this year, the new General Household Spending Survey will enable the tracking of spending in Argentine households nationwide" and generate a new national consumer price index whose design was agreed to by IMF technical experts, he said.
Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
:lol: Death to the middlemen and profiteers.
Awesome. :lol:
Greek chief statistician charged for revealing true size of debt (http://www.spiegel.de/international/europe/chief-greek-statistician-charged-for-revealing-true-size-of-debt-a-882942.html)
:pinch:
Quote
Moody's downgrades United Kingdom from AAA
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fi2.cdn.turner.com%2Fmoney%2Fdam%2Fassets%2F130222171911-britain-moody-downgrade-620xa.jpg&hash=4eaf530da96ae11b15cfa20760ef5a7a4024d40e)
NEW YORK (CNNMoney)
Rating agency Moody's stripped the United Kingdom of its AAA credit rating on Friday, making it the latest European country to face a downgrade amid the continent's grim growth prospects.
The U.K. was knocked down one notch to Aa1, with its ratings outlook at stable. Moody's said the key drivers of the downgrade included the country's rising debt burden and tepid growth outlook over the next few years.
"[A]lthough the UK's debt-servicing capacity remains very strong and very capable of withstanding further adverse economic and financial shocks, it does not at present possess the extraordinary resilience common to other Aaa-rated issuers," Moody's said.
A year ago, Moody's switched the outlook on the U.K.'s AAA rating to negative, in a prelude to Friday's downgrade. At the same time, the firm cut the ratings of half a dozen European countries.
Moody's (http://www.moodys.com/research/Moodys-downgrades-UKs-government-bond-rating-to-Aa1-from-Aaa--PR_266844)
Quote
The key interrelated drivers of today's action are:
1. The continuing weakness in the UK's medium-term growth outlook, with a period of sluggish growth which Moody's now expects will extend into the second half of the decade;
2. The challenges that subdued medium-term growth prospects pose to the government's fiscal consolidation programme, which will now extend well into the next parliament;
3. And, as a consequence of the UK's high and rising debt burden, a deterioration in the shock-absorption capacity of the government's balance sheet, which is unlikely to reverse before 2016.
At the same time, Moody's explains that the UK's creditworthiness remains extremely high, rated at Aa1, because of the country's significant credit strengths. These include (i) a highly competitive, well-diversified economy; (ii) a strong track record of fiscal consolidation and a robust institutional structure; and (iii) a favourable debt structure, with supportive domestic demand for government debt, the longest average maturity structure (15 years) among all highly rated sovereigns globally and the resulting reduced interest rate risk on UK debt.
The stable outlook on the UK's Aa1 sovereign rating reflects Moody's expectation that a combination of political will and medium-term fundamental underlying economic strengths will, in time, allow the government to implement its fiscal consolidation plan and reverse the UK's debt trajectory. Moreover, although the UK's economy has considerable risk exposure through trade and financial linkages to a potential escalation in the euro area sovereign debt crisis, its contagion risk is mitigated by the flexibility afforded by the UK's independent monetary policy framework and sterling's global reserve currency status.
In a related rating action, Moody's has today also downgraded the ratings of the Bank of England to Aa1 from Aaa. The issuer's P-1 rating is unaffected by this rating action. The rating outlook for this entity is now also stable.
...snip
They got the BofE too.
Guess the Tory austerity program didn't work so well.
Guess not. Better try jacking up the deficit and see if that does the trick.
Quote from: Razgovory on February 22, 2013, 07:26:13 PM
Guess the Tory austerity program didn't work so well.
Yeah if I wasn't so involved I'd be laughing my ass off at the Con-Dem government; all of that grandstanding on the sidelines of Europe last year looks a lot less sensible now.
The whole, we're so fine, oh look how bad Europe is doing, they really need to follow our policies has a greater hollow ring to it.
Quote from: Admiral Yi on February 22, 2013, 09:17:11 PM
Guess not. Better try jacking up the deficit and see if that does the trick.
The deficit's increasing because of the failure of the government's economic policy.
Although this is exactly what the Tories want to do. Among other suggestions being pushed at the Chancellor are cutting corporation tax to 11% (to undercut the Irish by 1%), to eliminate capital gains tax and to eliminate the air passenger levy. Needless to say none of these suggestions include paying for these :bleeding:
I don't understand why the Bank of England has a credit rating. Is it for them borrowing in foreign currencies or what?
Quote from: Sheilbh on February 24, 2013, 11:34:51 AM
The deficit's increasing because of the failure of the government's economic policy.
If more deficit spending is not the answer, what it?
Quote from: Admiral Yi on February 24, 2013, 01:09:47 PM
If more deficit spending is not the answer, what it?
More deficit spending is what we're getting, without any benefits.
In my view what would have been right is what Cable and Darling suggested. No protected budgets (the Tories won't cut the NHS or schools, or anything for the elderly, which is 50% of the welfare budget) so the cuts have a disproportionate effect because they fall very harshly on non-protected budgets. In addition the government should have protected capital spending - it's most likely to help growth - instead they really cut it in the first year because that's how you make easy savings. I'd also add that I think the frontloading of tax rises and capital cuts with backloading of spending cuts probably wasn't the best policy. And of course it could all be done at a deliberately slower pace (rather than being forced into a slower pace because of constantly failing to meet self-set targets). Also the Chancellor made this his overwhelming goal (austerity and maintaining the AAA rating), which means he can't have any nimbleness or shifts of policy without admitting political defeat. It was a mistake.
But this is where we are and I don't think there's much to do except to stick with it.
And he is back .... :lol:
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fwww.theepochtimes.com%2Fn2%2Fimages%2Fstories%2Flarge%2F2012%2F10%2F31%2FSilvio-Berlusconi-51396343.jpg&hash=1259aaf62d1acb467c27960d86394210ae5293e3)
:lol:
Meanwhile in Spain, the former treasurer of the Popular Party -- whose "secret" books are at the center of the latest scandal implicating even Rajoy on corruption -- has sued the party for wrongful termination.
But the best part is the Popular Party's defense: our beloved government is openly stating both parts were engaged in a fraudulent relationship. That's its defense. :wacko:
In an astounding move, the bailout for Cyprus will include losses for depositors. What's even more shocking to me, those with more than € 100k won't see all that money gone first (they will just lose a little more).
The message this sends is clear: get your money out of the danger zone.
That's good news for Canada. Europe is the danger zone, and the US is a crash just waiting to happen.
Quote from: Admiral Yi on February 24, 2013, 01:09:47 PM
Quote from: Sheilbh on February 24, 2013, 11:34:51 AM
The deficit's increasing because of the failure of the government's economic policy.
If more deficit spending is not the answer, what it?
It would appear you are asking the wrong question. The question should be, "If deficit reduction programs don't actually reduce deficit, what does?"
Quote from: Iormlund on March 16, 2013, 03:48:58 PM
In an astounding move, the bailout for Cyprus will include losses for depositors. What's even more shocking to me, those with more than € 100k won't see all that money gone first (they will just lose a little more).
The message this sends is clear: get your money out of the danger zone.
........and the danger zone would include Italy, Spain, Greece, Portugal......
I'm amazed and appalled by this move. Interesting times.
Quote from: Iormlund on March 16, 2013, 03:48:58 PM
In an astounding move, the bailout for Cyprus will include losses for depositors. What's even more shocking to me, those with more than € 100k won't see all that money gone first (they will just lose a little more).
The message this sends is clear: get your money out of the danger zone.
da fuq? They are taking a 10% tax on people's
savings? :wacko:
Quote from: Phillip V on March 17, 2013, 05:06:50 AM
Quote from: Iormlund on March 16, 2013, 03:48:58 PM
In an astounding move, the bailout for Cyprus will include losses for depositors. What's even more shocking to me, those with more than € 100k won't see all that money gone first (they will just lose a little more).
The message this sends is clear: get your money out of the danger zone.
da fuq? They are taking a 10% tax on people's savings? :wacko:
Not really. When bailing out the bank, they only bail out 90% of the deposits. The alternative for the customers is that their bank goes down.
Quote from: Zanza on March 17, 2013, 06:35:40 AM
Not really. When bailing out the bank, they only bail out 90% of the deposits. The alternative for the customers is that their bank goes down.
The alternative is to wipe out bondholders and people with a lot of money in deposits first. But since those have power, they get to keep much of their stuff by ripping off your average Cypriot.
Quote from: Iormlund on March 17, 2013, 10:39:46 AM
Quote from: Zanza on March 17, 2013, 06:35:40 AM
Not really. When bailing out the bank, they only bail out 90% of the deposits. The alternative for the customers is that their bank goes down.
The alternative is to wipe out bondholders and people with a lot of money in deposits first. But since those have power, they get to keep much of their stuff by ripping off your average Cypriot.
:yes:
Cypriots Rush to Get Their Money Out of Banks
"In a move that could set off new fears of contagion across the euro zone, anxious depositors drained cash from automated teller machines in Cyprus over the weekend, hours after European officials in Brussels required that part of a new €10 billion bailout be paid for directly from the bank accounts of ordinary savers.
...
Under an emergency deal reached early Saturday in Brussels, a one-time tax of 9.9 percent is to be levied on Cypriot bank deposits of more than €100,000 effective Tuesday. But even deposits of less than that amount are to be taxed at 6.75 percent, meaning that Cypriot creditors will be confiscating money directly from retirees, workers and regular depositors to pay off the bailout tab."
http://www.nytimes.com/2013/03/18/business/global/facing-bailout-tax-cypriots-rush-to-get-their-money-out-of-banks.html
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fgraphics8.nytimes.com%2Fimages%2F2013%2F03%2F17%2Fworld%2F17cyprus_inline%2F17cyprus_inline-articleInline.jpg&hash=9b9684c09971df3980ca69246cca088208a51106)
One-time. :lol:
Only a complete idiot will believe that and keep his money at the bank instead of withdrawing what remains.
Why in the world did they announce it ahead of time? :wacko:
They didn't. Banks are shut down and ATMs won't give you over your post-"tax" balance. Not to mention by now they'll have run out of money.
Quote from: Iormlund on March 17, 2013, 10:39:46 AM
Quote from: Zanza on March 17, 2013, 06:35:40 AM
Not really. When bailing out the bank, they only bail out 90% of the deposits. The alternative for the customers is that their bank goes down.
The alternative is to wipe out bondholders and people with a lot of money in deposits first. But since those have power, they get to keep much of their stuff by ripping off your average Cypriot.
Is there a special advantage to ripping one group off and not the other? By rights, both groups should lose everything after all.
"Jeroen Dijsselbloem, the president of the group of euro area ministers, declined Saturday to rule out taxes on depositors in countries beyond Cyprus."
Quote from: Neil on March 17, 2013, 11:59:39 AM
Is there a special advantage to ripping one group off and not the other? By rights, both groups should lose everything after all.
Deposits are in theory guaranteed, where investments are not. I'm not against losses for savers, as long as it the last resort and everything is wiped out first.
From a more pragmatic standpoint it is also counter-productive. What makes them think depositors are going to keep the rest of their money there now? What happens when another country needs a bail-out (for example to access Draghi's program)?
They are simply encouraging bank runs. Moving small quantities of money to safe havens like Germany or the UK might not be worth it for your average Giorgio, but now you made hiding cash under the mattress better than keeping it at the bank as well!
Quote from: Iormlund on March 17, 2013, 11:57:26 AM
They didn't. Banks are shut down and ATMs won't give you over your post-"tax" balance. Not to mention by now they'll have run out of money.
Ah.
What a terrible way to do things...apparently Cyprus depositors were insured up to 100k. If you are going to allocate losses to the depositors, they should first go to the uninsured, and then (if needed) to the insured.
But then isn't the point of the bailouts to keep these countries from collapsing? Allocating losses to depositors is going to contribute to bank runs (not that those runs haven't been going on for years). If there isn't the money to stand behind Spain or Italy--that might make sense. But to go through years of the bailout/austerity cycle and have this happen in a country like Cyprus? Seems penny wise and pound foolish. It almost seems like the design is to kill of banking in the eurozone periphery.
I like this approach. We should adopt it here. Should really put a dent in that deficit.
Quote from: CountDeMoney on March 17, 2013, 12:31:41 PM
I like this approach. We should adopt it here. Should really put a dent in that deficit.
HEY NOW
You 1%ers can afford to give up 1%. Eat shit.
And there's another beautiful side-effect of people foregoing deposits for cash: tax collection is much easier with electronic transactions. So a nice boost for the submerged economy in those countries that need to decrease it the most.
Jesus, you'd think these guys can't get any dumber ... but apparently they can.
:cry:
Quote from: CountDeMoney on March 17, 2013, 12:33:50 PM
You 1%ers can afford to give up 1%. Eat shit.
The 1% doesn't have that much money in deposits. They'll have it in stock, real estate, commodities and so on.
The ones paying this tax will be salaried workers, pensioners and such.
Quote from: Iormlund on March 17, 2013, 12:37:28 PM
Quote from: CountDeMoney on March 17, 2013, 12:33:50 PM
You 1%ers can afford to give up 1%. Eat shit.
The 1% doesn't have that much money in deposits. They'll have it in stock, real estate, commodities and so on.
Those are electronic transactions as well. Easy peasy, melon squeezy.
It's not a tax on transactions. It's a tax on whatever money you had on your normal bank account earlier this week.
Quote from: Iormlund on March 17, 2013, 12:35:05 PM
And there's another beautiful side-effect of people foregoing deposits for cash: tax collection is much easier with electronic transactions. So a nice boost for the submerged economy in those countries that need to decrease it the most.
Jesus, you'd think these guys can't get any dumber ... but apparently they can.
It really prompts one to think in terms of conspiracy theories...Is Germany trying to push some countries into dropping out of the eurozone? Did Cyprus push to screw ordinary people to try to stay a viable tax haven for the wealthy?
Quote from: alfred russel on March 17, 2013, 12:29:30 PM
What a terrible way to do things...apparently Cyprus depositors were insured up to 100k. If you are going to allocate losses to the depositors, they should first go to the uninsured, and then (if needed) to the insured.
Agree with this part. It sounds to me like breech of contract by the government.
QuoteBut then isn't the point of the bailouts to keep these countries from collapsing? Allocating losses to depositors is going to contribute to bank runs (not that those runs haven't been going on for years). If there isn't the money to stand behind Spain or Italy--that might make sense. But to go through years of the bailout/austerity cycle and have this happen in a country like Cyprus? Seems penny wise and pound foolish. It almost seems like the design is to kill of banking in the eurozone periphery.
Less so with this part. The logic for holders of bank liabilities to take a hair cut is the same as for bond holders of any other entity's bonds. And bank runs don't only come from small depositors withdrawing their funds; you get the same affect if large depositors withdraw funds or the bank is unable to roll over maturing bonds.
Quote from: CountDeMoney on March 17, 2013, 12:39:04 PM
Quote from: Iormlund on March 17, 2013, 12:37:28 PM
Quote from: CountDeMoney on March 17, 2013, 12:33:50 PM
You 1%ers can afford to give up 1%. Eat shit.
The 1% doesn't have that much money in deposits. They'll have it in stock, real estate, commodities and so on.
Those are electronic transactions as well. Easy peasy, melon squeezy.
ok, Ide.
Quote from: Tamas on March 17, 2013, 01:19:23 PM
Quote from: CountDeMoney on March 17, 2013, 12:39:04 PM
Quote from: Iormlund on March 17, 2013, 12:37:28 PM
Quote from: CountDeMoney on March 17, 2013, 12:33:50 PM
You 1%ers can afford to give up 1%. Eat shit.
The 1% doesn't have that much money in deposits. They'll have it in stock, real estate, commodities and so on.
Those are electronic transactions as well. Easy peasy, melon squeezy.
ok, Ide.
Don't worry, your vegetables are safe.
BRING IT ON DOWN TO BEETVILLE
Quote from: Admiral Yi on March 17, 2013, 12:57:06 PM
Quote from: alfred russel on March 17, 2013, 12:29:30 PM
What a terrible way to do things...apparently Cyprus depositors were insured up to 100k. If you are going to allocate losses to the depositors, they should first go to the uninsured, and then (if needed) to the insured.
Agree with this part. It sounds to me like breech of contract by the government.
QuoteBut then isn't the point of the bailouts to keep these countries from collapsing? Allocating losses to depositors is going to contribute to bank runs (not that those runs haven't been going on for years). If there isn't the money to stand behind Spain or Italy--that might make sense. But to go through years of the bailout/austerity cycle and have this happen in a country like Cyprus? Seems penny wise and pound foolish. It almost seems like the design is to kill of banking in the eurozone periphery.
Less so with this part. The logic for holders of bank liabilities to take a hair cut is the same as for bond holders of any other entity's bonds. And bank runs don't only come from small depositors withdrawing their funds; you get the same affect if large depositors withdraw funds or the bank is unable to roll over maturing bonds.
Yi, the point I was getting at in the second paragraph was (not very clearly I admit) disconnected from the first paragraph. What I was trying to say was that if you are effectively backing up the financial systems of Greece, Spain, Portugal, and Italy, it really isn't in your interests to contribute to bank runs in those countries. Also, if you are trying to push an unpopular agenda in those countries, it probably doesn't help to announce that their citizens wealth will be at risk.
Cyprus is a very small country, and not particularly wealthy. I have to think that the incremental cost of completely bailing out the depositors (including the wealthy) will be less than the risk of trouble in other parts of the eurozone.
That would be my concern as well, Monday morning dawns with queues of anxious Spanish and Italian savers outside their banks........
We shall see soon enough.
Quote from: alfred russel on March 17, 2013, 01:33:11 PM
Yi, the point I was getting at in the second paragraph was (not very clearly I admit) disconnected from the first paragraph. What I was trying to say was that if you are effectively backing up the financial systems of Greece, Spain, Portugal, and Italy, it really isn't in your interests to contribute to bank runs in those countries. Also, if you are trying to push an unpopular agenda in those countries, it probably doesn't help to announce that their citizens wealth will be at risk.
Cyprus is a very small country, and not particularly wealthy. I have to think that the incremental cost of completely bailing out the depositors (including the wealthy) will be less than the risk of trouble in other parts of the eurozone.
I got that Fredo. What I was trying to rebut (in a manner perhaps even less clear than your horribly botched attempt :P) was that it's not a black and white issue. Yes, any time lenders get penalized it will deter future lending. On the other hand it's more natural and just for for the beneficiaries of a bank's reckless lending (such as bond holders and owners) to take the hit than it is for Syt and Zanza to do so. This is true when the borrower is a bank, a sovereign, a corporation, an individual, anyone.
(Speaking of owners, anyone know what happened to Cypriot bank shareholders? I hope they were wiped out.)
I'm guessing shares are worth less than crap. No idea about bondholders, but seeing how the guarantee is being broken despite almost €40 billion in uninsured deposits I wouldn't be surprised bondholders get to keep some or most of their money as well.
Quote from: Iormlund on March 17, 2013, 02:04:57 PM
I'm guessing shares are worth less than crap.
But it should go/have gone further than that. Before any depositors take a hit shareholders should get wiped out via nationalization.
Quote from: Admiral Yi on March 17, 2013, 01:58:29 PM
I got that Fredo. What I was trying to rebut (in a manner perhaps even less clear than your horribly botched attempt :P) was that it's not a black and white issue. Yes, any time lenders get penalized it will deter future lending. On the other hand it's more natural and just for for the beneficiaries of a bank's reckless lending (such as bond holders and owners) to take the hit than it is for Syt and Zanza to do so. This is true when the borrower is a bank, a sovereign, a corporation, an individual, anyone.
Okay, but I think it is an apples and oranges comparison.
Yes lenders accepting losses will deter future lending. But lenders are investors who supposedly weight risk and reward to make decisions. The public subsidizing losses will only lead to excess loans and debt.
There is an angle where you can argue that it is the same with depositors. That angle has largely been defunct since the 1930s, but regardless, in this case that means the banks of Spain, Italy, Greece, etc. are unsound and by this way of thinking the citizens of those countries should instead keep their money in German banks. Aside from the practical obstacles of not banking in the country where you live, I don't think it is in anyone's interest to move eurozone banking to frankfurt.
Quote from: alfred russel on March 17, 2013, 02:22:31 PM
Okay, but I think it is an apples and oranges comparison.
Yes lenders accepting losses will deter future lending. But lenders are investors who supposedly weight risk and reward to make decisions. The public subsidizing losses will only lead to excess loans and debt.
There is an angle where you can argue that it is the same with depositors. That angle has largely been defunct since the 1930s, but regardless, in this case that means the banks of Spain, Italy, Greece, etc. are unsound and by this way of thinking the citizens of those countries should instead keep their money in German banks. Aside from the practical obstacles of not banking in the country where you live, I don't think it is in anyone's interest to move eurozone banking to frankfurt.
Now you really have lost me. Previously I thought you were arguing against punishing bank creditors, now it sounds as if you're arguing in favor.
Iorm: You seem to be suggesting that bond holders are bad, and deserve to take a hit, whereas as other types of bank creditors, such as holders of time deposits (we call them certificates of deposit here, time deposits are what i think they're called in Yuroland) are virtuous, and deserve to be kept whole. If so, I would take exception with that.
Quote from: Admiral Yi on March 17, 2013, 02:33:59 PM
Now you really have lost me. Previously I thought you were arguing against punishing bank creditors, now it sounds as if you're arguing in favor.
I'm arguing against hitting bank depositors.
Quote from: alfred russel on March 17, 2013, 02:37:02 PM
I'm arguing against hitting bank depositors.
And in favor of hitting holders of bank bonds?
Quote from: Admiral Yi on March 17, 2013, 02:40:19 PM
Quote from: alfred russel on March 17, 2013, 02:37:02 PM
I'm arguing against hitting bank depositors.
And in favor of hitting holders of bank bonds?
I don't really have an opinion. I understand the theory. But in reality, after so many years of crisis, are the holders government institutions and insolvent institutions backed by governments (basically, other banks)?
Quote from: alfred russel on March 17, 2013, 02:46:14 PM
I don't really have an opinion. I understand the theory. But in reality, after so many years of crisis, are the holders government institutions and insolvent institutions backed by governments (basically, other banks)?
Banks are huge holders of government debt (partly because they're stupid and partly because the capital requirements rig the game in favor of holding sovereigns) and the government of Cyprus probably doesn't have a stack of money to lend out, so I'm guessing not. My guess would be that bank bond holders are run of the mill institutional investors--bond funds, pension funds, etc.
On a tangent, I bought some JPMorgan bonds for my mom and some BoA bonds for myself back when there was that miniscare about US bank exposure to Europe and rates jumped. Got about 6 1/2 yield.
Quote from: Admiral Yi on March 17, 2013, 02:55:22 PM
Quote from: alfred russel on March 17, 2013, 02:46:14 PM
I don't really have an opinion. I understand the theory. But in reality, after so many years of crisis, are the holders government institutions and insolvent institutions backed by governments (basically, other banks)?
Banks are huge holders of government debt (partly because they're stupid and partly because the capital requirements rig the game in favor of holding sovereigns) and the government of Cyprus probably doesn't have a stack of money to lend out, so I'm guessing not. My guess would be that bank bond holders are run of the mill institutional investors--bond funds, pension funds, etc.
On a tangent, I bought some JPMorgan bonds for my mom and some BoA bonds for myself back when there was that miniscare about US bank exposure to Europe and rates jumped. Got about 6 1/2 yield.
I really don't know anything about cyprus, but I would think that the banks lost access to traditional private debt markets roughly 5 years ago.
Quote from: Admiral Yi on March 17, 2013, 02:33:59 PM
Iorm: You seem to be suggesting that bond holders are bad, and deserve to take a hit, whereas as other types of bank creditors, such as holders of time deposits (we call them certificates of deposit here, time deposits are what i think they're called in Yuroland) are virtuous, and deserve to be kept whole. If so, I would take exception with that.
I'm not saying bond holders are bad. I make no moral judgment on them. But as investors, they should bear the risk of their operations.
Depositors, OTOH, enjoy an explicit guarantee up to €100k. In addition, it is impossible to operate without an account these days, at least in Europe. And finally, you are hitting yourself in the foot, inducing bank runs and submerged economy. They should only take a hit when everyone else has been wiped out. This is not the case in Cyprus.
Quote from: Iormlund on March 17, 2013, 03:04:24 PM
I'm not saying bond holders are bad. I make no moral judgment on them. But as investors, they should bear the risk of their operations.
Depositors, OTOH, enjoy an explicit guarantee up to €100k. In addition, it is impossible to operate without an account these days, at least in Europe. And finally, you are hitting yourself in the foot, inducing bank runs and submerged economy. They should only take a hit when everyone else has been wiped out. This is not the case in Cyprus.
But as I pointed out earlier, killing institutional lending to banks can have the same effect as a bank run.
And I guess the other point I'm trying to make is that mom and pop depositors with balances above 100K euros aren't that much different from bond holders.
Quote from: Admiral Yi on March 17, 2013, 03:10:36 PM
But as I pointed out earlier, killing institutional lending to banks can have the same effect as a bank run.
I have to disagree. Bankia still has a humongous amount of deposits, and thus a crapload of potential clients. You scare those off, and who are you going to sell your products to?
Plus the only institution that will lend any money to a Cypriot bank is the ECB in any case.
Quote
And I guess the other point I'm trying to make is that mom and pop depositors with balances above 100K euros aren't that much different from bond holders.
I have no issue with rich depositors taking it in the rear. They don't fall under the guarantee.
I have an issue with fucking everyone else so those Russian oligarchs can enjoy the fruit of their "labor".
Quote from: Admiral Yi on March 17, 2013, 03:10:36 PM
And I guess the other point I'm trying to make is that mom and pop depositors with balances above 100K euros aren't that much different from bond holders.
I disagree. Bondholders have options, and it is a good thing to encourage them to take into account risk when they invest.
Your mom and pop depositors have some practical problems if they want to stop banking in their own country, and in any event the implication of them doing so (banking moves out of the eurozone periphery) is quite bad.
Quote from: alfred russel on March 17, 2013, 04:23:51 PM
Your mom and pop depositors have some practical problems if they want to stop banking in their own country, and in any event the implication of them doing so (banking moves out of the eurozone periphery) is quite bad.
As Iorm pointed out one function that banks perform is much like a utility: having access to a recognized method of making payments and transferring funds is more or less a prerequisite for living in an advanced economy.
But individuals with balances above 100K euros are doing more than than maintaining a pool of funds to pay expenses as they are incurred. They're seeking a return. Grandpa and grandma with 200K euros in CDs are not very different from an institutional bond holder. Actually I would go so far as to argue that 100K euros might be too high a limit for deposit insurance.
Quote from: Admiral Yi on March 17, 2013, 04:31:00 PM
Quote from: alfred russel on March 17, 2013, 04:23:51 PM
Your mom and pop depositors have some practical problems if they want to stop banking in their own country, and in any event the implication of them doing so (banking moves out of the eurozone periphery) is quite bad.
As Iorm pointed out one function that banks perform is much like a utility: having access to a recognized method of making payments and transferring funds is more or less a prerequisite for living in an advanced economy.
But individuals with balances above 100K euros are doing more than than maintaining a pool of funds to pay expenses as they are incurred. They're seeking a return. Grandpa and grandma with 200K euros in CDs are not very different from an institutional bond holder. Actually I would go so far as to argue that 100K euros might be too high a limit for deposit insurance.
Grandma and Grandpa with 200k euros may be working class people that saved all their lives and don't know the first thing about evaluating the risk inherent in financial institutions or how to move their banking offshore. I don't think it is accurate to compare them to institutional bond holders.
Part of the reason it is important to have deposit insurance is that people can participate in the financial system without being financially sophisticated. Grandma and Grandpa losing confidence and putting their money under the mattress isn't healthy for anyone (except perhaps the criminal element).
I'll agree that bonds should be junior yo uninsured deposits, however that scenario is unlikely. Grandma and Grandpa won't have €200k in deposits. Unless Cyprus is exceptional within Club Med the lion share of their savings - if they have any - will be in real estate.
Looks like the shit is already hitting the fan in the Asian markets. Euro is down 1.5 cents on the dollar. Next few days are definitely going to be interesting.
Quote from: PJL on March 17, 2013, 05:08:12 PM
Looks like the shit is already hitting the fan in the Asian markets. Euro is down 1.5 cents on the dollar. Next few days are definitely going to be interesting.
I for one will be withdrawing all of my savings, first thing Monday; I'll need a substantial small wallet to take them away in. :bowler:
I'm in the nearest Swiss Francs ETF as soon as the market opens.
Quote from: Admiral Yi on March 17, 2013, 12:57:06 PM
Quote from: alfred russel on March 17, 2013, 12:29:30 PM
What a terrible way to do things...apparently Cyprus depositors were insured up to 100k. If you are going to allocate losses to the depositors, they should first go to the uninsured, and then (if needed) to the insured.
Agree with this part. It sounds to me like breech of contract by the government.
It's breech of the public trust more than breech of contract, I'd say, at least in legal terms.
Though it does show just what a government's word on something is worth.
Throughout the EU there is a government guarantee for small deposits. Typically about 100k Euro. Most people assumed that this meant that their deposits were safe. But the deposit guarantee does not cover a tax on deposits.
According to this article http://www.bbc.co.uk/news/world-europe-21825981 Germany and the IMF wanted to respect ".....the deposit guarantee for accounts up to 100,000" but were overruled by the other players.
Yeah it seems terribly stupid. If this fact sinks in for the EU public, some serious bank runs can commence.
Why risk a systemic contagion over the relative pittance it costs to backstop the Cyptriot banks? Plus why not torch the bondholders or unsecured deposits over the minimal guarantee instead of ripping off the small fry? The Russian oligarch money will flee Cyprus ASAP regardless of which way they choose so better burn them good now.
Quote from: Legbiter on March 18, 2013, 09:32:54 AM
Why risk a systemic contagion over the relative pittance it costs to backstop the Cyptriot banks? Plus why not torch the bondholders or unsecured deposits over the minimal guarantee instead of ripping off the small fry? The Russian oligarch money will flee Cyprus ASAP regardless of which way they choose so better burn them good now.
because the "state is in the economy to protect the citizens" is the biggest scam of this last two centuries. They are there to protect the interests of whoever can influence the politicans. And that's not Average Cypriot Joe with his tiny deposit.
Unless the biggest influence is a couple millions of average joe.
Quote from: Grey Fox on March 18, 2013, 09:55:29 AM
Unless the biggest influence is a couple millions of average joe.
yeah. Then you get what WE have, and what Chavez did.
Quote from: Grey Fox on March 18, 2013, 09:55:29 AM
Unless the biggest influence is a couple millions of average joe.
Not the case here. Most of the deposits are over the €100k mark, and most of those from Russia. That's likely why they stupidly tried to spread the pain to the little guy.
Quote from: Tamas on March 18, 2013, 09:52:47 AM
because the "state is in the economy to protect the citizens" is the biggest scam of this last two centuries. They are there to protect the interests of whoever can influence the politicans. And that's not Average Cypriot Joe with his tiny deposit.
Quote from: Tamas on March 18, 2013, 10:03:58 AM
Quote from: Grey Fox on March 18, 2013, 09:55:29 AM
Unless the biggest influence is a couple millions of average joe.
yeah. Then you get what WE have, and what Chavez did.
Tamas you can't have it both ways.
Quote from: Richard Hakluyt on March 18, 2013, 04:26:08 AM
According to this article http://www.bbc.co.uk/news/world-europe-21825981 Germany and the IMF wanted to respect ".....the deposit guarantee for accounts up to 100,000" but were overruled by the other players.
Wait, I thought we are behind every bad move of the Eurozone?
Quote from: Richard Hakluyt on March 18, 2013, 04:26:08 AM
Throughout the EU there is a government guarantee for small deposits. Typically about 100k Euro. Most people assumed that this meant that their deposits were safe. But the deposit guarantee does not cover a tax on deposits.
That almost makes it worse. Instead of just saying, "Hey, we're not going to completely honor those guarantees" it amounts to saying, "Well, technically, we're honoring the guarantees, but we're going to screw you over anyway. Nah-nah-nah-nah-nah".
Agree that calling it a tax is weaselific.
Quote from: Iormlund on March 18, 2013, 10:27:31 AM
Quote from: Grey Fox on March 18, 2013, 09:55:29 AM
Unless the biggest influence is a couple millions of average joe.
Not the case here. Most of the deposits are over the €100k mark, and most of those from Russia. That's likely why they stupidly tried to spread the pain to the little guy.
That's not stupid. The people will vote them out. The Russians would kill them.
Channel 4 news reporter Faisal Islam is now in Cyrus and is treating some interesting stuff, this one part of a longer exchange/conversation :
Quote& no moral hazard dealt with by EU/ Berlin becoming responsible for confiscating people's savings for crime of sharing a bank with oligarch
Guess Faisal didn't get the memo about Germany being opposed.
Even if Schauble/Merkel were opposed they agreed to the damned thing, and unlike some others they can't excuse themselves behind being under pressure since they are the ones holding the purse strings. So it is gross negligence at best.
Quote from: Richard Hakluyt on March 17, 2013, 01:55:36 PM
That would be my concern as well, Monday morning dawns with queues of anxious Spanish and Italian savers outside their banks........
It's madness. They've spent a year trying to calm down the banking sector in the periphery precisely, including planning deposit insurance and now, as a condition of a bailout, they can make governments seize part of your savings too.
Apparently the Eurozone FinMins had an emergency video conference today and are considering letting the Cypriots only take money from people with more than €20 000 deposited. But it still looks chaotic.
QuoteI don't really have an opinion. I understand the theory. But in reality, after so many years of crisis, are the holders government institutions and insolvent institutions backed by governments (basically, other banks)?
Yeah. My understanding is Cyprus was doing fine until the Greek haircut which wiped out their banks.
QuoteEven if Schauble/Merkel were opposed they agreed to the damned thing, and unlike some others they can't excuse themselves behind being under pressure since they are the ones holding the purse strings. So it is gross negligence at best.
They've the pressure of an election and the SPD making hay of bailing out Russian oligarchs.
Draghi holds the purse strings, but blaming Germany for every bad decision taken in Europe is good for your peace of mind, I guess...
Daghi's room for manoeuvre is limited, he's done a lot that's helped though. But so far it's just words. His bluff hasn't been called yet.
I love the Cypriot central banker's called Panicos.
Also I wonder how this'll affect the debate or any future election in Italy. They're big savers after all.
Just for the record I don't blame Germany directly for any of this. It is fashionable to regard Germany as an economic powerhouse but after reunification they had a pretty tough couple of decades. They started a reform program about 10 years ago and are now reaping the benefits; it is only natural that they don't want yet more German money wasted bailing out southern Europeans.
The fault lies with the euro and the EU, the program of ever greater union has moved way beyond what most EU citizens want (at the moment). It is a case of more haste leading to less speed, European integration is receding into the far distance as all these resentments build up.
The Cypriot finance minister is flying to Moscow for "talks". :lol:
Maybe he can sucker the Russians into bailing Cyprus out. Or at least play them and the EU against each other for better bailout conditions.
I don't just blame the Germans. Pierre Moscovici, for example, echoed today Schäuble's idiotic statement that how to distribute the levy is an internal matter. It is definitely not. Not when it violates deposit insurance and sets a precedent for all future bailouts.
How these complete dumb asses are in charge of a continent is something I'll never understand.
Isn't deposit insurance also an internal matter?
Quote from: Legbiter on March 19, 2013, 07:36:06 AM
The Cypriot finance minister is flying to Moscow for "talks". :lol:
Maybe he can sucker the Russians into bailing Cyprus out. Or at least play them and the EU against each other for better bailout conditions.
:lol: Its crazy to get into business with Russians.
Quote from: Neil on March 19, 2013, 08:09:24 AM
Isn't deposit insurance also an internal matter?
Sort of. It was harmonized via EU directive IIRC.
Quote from: Tamas on March 19, 2013, 08:10:40 AM
Quote from: Legbiter on March 19, 2013, 07:36:06 AM
The Cypriot finance minister is flying to Moscow for "talks". :lol:
Maybe he can sucker the Russians into bailing Cyprus out. Or at least play them and the EU against each other for better bailout conditions.
:lol: Its crazy to get into business with Russians.
I hope he's got a good Geiger counter at hand. :contract:
This levy on insured deposits seems to be the bastard child no one wants to take credit for.
Yeah, kinda makes you wonder how it ever got approved when apparently nobody but the ones being buttfucked was in favor.
By the way, it seems there aren't enough votes today either.
Quote from: Tamas on March 19, 2013, 08:10:40 AM:lol: Its crazy to get into business with Russians.
"Yoo haff wery nice country here. Would be wery beeg shame if somethink should happen to eet."
Quote from: Iormlund on March 19, 2013, 08:43:16 AM
Yeah, kinda makes you wonder how it ever got approved when apparently nobody but the ones being buttfucked was in favor.
By the way, it seems there aren't enough votes today either.
The only people who would obviously be in favor of a tax on mom and pop are Russian corruptocrats (since it would reduce their own haircut). So the next question is who in the bailout process do they have the most influence on. The natural answer IMO is Cypriot politicians.
Yes that part is no mystery at all. The question is why everyone else agreed to it.
Quote from: Sheilbh on March 19, 2013, 12:49:37 AM
Apparently the Eurozone FinMins had an emergency video conference today and are considering letting the Cypriots only take money from people with more than €20 000 deposited. But it still looks chaotic.
I find it hard to believe that they don't understand that the issue is the levy itself, not the level it's set at.
They're taking money from depositors to recapitalise Cyprus' banks now while guaranteeing a flight of capital from Cyprus' banks in the near future.
Even in the local case, that of Cyprus itself rather than the general one of peripheral Europe, it does not make sense. :hmm:
If the level is set at or above the insured amount then it's no different than asking sovereign bond holders to take a hair cut as part of a bailout.
Well the Euro is falling like a stone. And even Ben Benarnke's 'helicopter money' is becoming true:
From the BBC. link here:
http://www.bbc.co.uk/news/uk-21847013 (http://www.bbc.co.uk/news/uk-21847013)
Quote
MoD flies 1m euros to Cyprus for British personnel
An RAF plane carrying 1m euros is flying to Cyprus from Britain as a contingency measure to provide military personnel with emergency loans, the Ministry of Defence says.
The move comes after a controversial one-off levy of up to almost 10% on savings in Cyprus was announced.
The money will be used for British personnel and their families if cash machines and debit cards stop working.
The tax is a condition for Cyprus to get a loan from the EU and IMF.
Cyprus needs a 10bn euro (£8.7bn; $13bn) bailout to rescue its banks.
Salary needs
A revised version of the tax, which has yet to pass through the Cypriot parliament, would mean a 6.75% levy on deposits over 20,000 euros, with those over 100,000 euros charged at 9.9%.
The move could affect many of the 3,000 UK military personnel in Cyprus, and up to an estimated 25,000 expatriates.
An MoD spokesman said the situation was being kept under review and that it would consider further shipments if required.
"The MoD is proactively approaching personnel to ask if they want their March, and future months' salaries paid into UK bank accounts, rather than Cypriot accounts.
"We're determined to do everything we can to minimise the impact of the Cyprus banking crisis on our people."
Chancellor George Osborne has already said the UK will compensate any British troops in Cyprus hit by plans to introduce the bank levy.
And British government workers would also be protected, he said.
Quote
In a brief 30-second clip during a Bloomberg TV interview, none other than Anthanasios Orphanides, the former Central Bank of Cyprus Governor, explains the terrible reality of what just happened in Europe: "What we have seen in the last few days is a very serious blunder by the European governments that are essentially blackmailing the government of Cyprus to confiscate the money that belongs rightfully to the depositors in the banking system in Cyprus." He then concludes quite clearly, "It is not clear how this can affect in a positive manner the European project going forward." The Cypriot then goes on to explain how the EU is making a mockery of the idea of a banking union...
http://www.bloomberg.com/video/eu-blackmailing-cyprus-government-orphanides-BHwGo6fQS6K_53m0i3cmSg.html (http://www.bloomberg.com/video/eu-blackmailing-cyprus-government-orphanides-BHwGo6fQS6K_53m0i3cmSg.html)
http://www.bloomberg.com/video/eu-making-a-mockery-of-banking-union-orphanides-Ssl75SA7TtWpXiZIGvtdNA.html (http://www.bloomberg.com/video/eu-making-a-mockery-of-banking-union-orphanides-Ssl75SA7TtWpXiZIGvtdNA.html)
Quote from: Iormlund on March 19, 2013, 08:58:24 AM
Yes that part is no mystery at all. The question is why everyone else agreed to it.
You gave the answer yourself already: they considered an internal matter of the sovereign nation of Cyprus. If they had dictated something, surely someone would have hated that too and pointed fingers at Schäuble and Moscovici. Damned if you do, damned if you don't, I guess.
Threatening to cut off Cyprus if deposits are not tapped is fine, but enforcing an EU directive made local law is going too far? Please ...
Threatening to cut off Cyprus if uninsured deposits are not tapped seems fine. And that's all Schäuble claims he did.
Looks like Cyprus MPs have rejected the deal. Curiously nobody actually voted for the deal. I suspect they'll hand the island over to the Russians.
Russia stepping in and providing aid actually doesn't look like an unlikely scenario to me.
We've heard about China participating in bailouts before as well and that never happened. I'll believe it when Putin actually puts up a few billion...
Russia stepping in is a definite possibility. There might be billions worth of gas in their waters and the Russians are very interested in getting their hands on them. Plus they would probably welcome the chance to gain another naval base in the Med in case the situation in Syria goes south for them.
Quote from: mongers on March 18, 2013, 10:51:18 AM
Tamas you can't have it both ways.
Sometimes the state needs to protect people from themselves :P
Which, granted, is hard to do in a Democracy.
Time for Putin to play a blinder ?
Why not make a generous deal, secure access for Russian oil/gas companies to some of the future gas reserves, buy a bank or two in exchange and back the Cypriot government.
As a 'confidence building measure', agree to lease a naval base in Cyprus, just in time for when Russia loses their somewhat short term Syrian base as that regime goes down the toilet. :cool:
Quote from: Zanza on March 19, 2013, 11:50:24 AM
Quote from: Iormlund on March 19, 2013, 08:58:24 AM
Yes that part is no mystery at all. The question is why everyone else agreed to it.
You gave the answer yourself already: they considered an internal matter of the sovereign nation of Cyprus. If they had dictated something, surely someone would have hated that too and pointed fingers at Schäuble and Moscovici. Damned if you do, damned if you don't, I guess.
We are talking about a country that has 1 million people, which doesn't even qualify as a big city.
Maybe the Cyprus leadership and the supporting civil service are incompetent (and I mean in a different sense then the euro / North American countries we geenrally discuss)?
Well, according to several posters in this thread the leadership and supporting civil service of another country with about 82 million inhabitants is also incompetent in handling the crisis, so why not let them decide by themselves if the other countries can only come up with disastrous policies anyway. Germany's policies in the last three years have been nothing short of lunacy and idiocy if you can believe e.g. Iormlund and Sheilbh. No need to compound that.
In the end, it's better if they by themselves make a bad decision than someone else making a bad decision for them.
Quote from: Admiral Yi on March 19, 2013, 11:05:37 AM
If the level is set at or above the insured amount then it's no different than asking sovereign bond holders to take a hair cut as part of a bailout.
Functionally maybe you are correct; in terms of the perceptions of depositors both large and small? Not a chance that it will be seen like that.
Quote from: Agelastus on March 19, 2013, 03:22:51 PM
Functionally maybe you are correct; in terms of the perceptions of depositors both large and small? Not a chance that it will be seen like that.
They have a vested interest in presenting themselves as different from holders of sovereigns. You on the other hand don't.
I don't see much competence in our elites, honestly. The ones up north are inept, the ones down south are inept criminals.
Quote from: Admiral Yi on March 19, 2013, 03:26:31 PM
Quote from: Agelastus on March 19, 2013, 03:22:51 PM
Functionally maybe you are correct; in terms of the perceptions of depositors both large and small? Not a chance that it will be seen like that.
They have a vested interest in presenting themselves as different from holders of sovereigns. You on the other hand don't.
Really? I suppose you think I'm a hermit somewhere who isn't affected by self-inflicted bank runs and the ongoing shambles of the "Sovereign Debt Crisis"?
And I don't really buy your argument that there's no functional difference anyway. Give my bonds a haircut? Shit, I'm still stuck with them unless I can pass them off to someone willing to take a risk on them and willing to pay a decent enough price...which means I'm probably stuck with them and I just have to hope you don't haircut me again. You give my deposits a haircut? Fine, here's my however many days notice I need to tell you I'm moving it to a bank in another country, go fuck yourself.
So, what am I missing here?
Of course you're affected by bank runs, just as you're affected by the inability of sovereigns to finance deficits. Don't see much difference there.
Don't see the other difference either. Both are cases of lending money to institutions that are incapable of repaying those loans.
Quote from: Richard Hakluyt on March 19, 2013, 03:00:42 AM
Just for the record I don't blame Germany directly for any of this.
I agree that the structural problems of the Euro are to blame for all of this. And I've said before I can't stand the replacement of one morality tale for another that blames Germany (the Krugman response).
I blame Germany for setting the wrong direction on policy for the last 3 years. I also think their vacillating leadership (it reminds me of that line about Israel, actually a Goliath but attitude of a David) doesn't help allowed real damage to happen to economies for months while they deny they'd take certain steps, then takes them at a 4 am summit in the Lipsius and then causes further uncertainty by spending weeks clarifying what they meant at the summit. I also think that Merkel as a politician has failed to communicate well on this subject and I think that allowed the morality tale populism of some other politicians and parties to fill the vacuum - which in turn influences policy.
I'd be amazed if many Germans were aware that, for example, the Greeks have gone way beyond anything they promised in delivering austerity. That disconnect is damaging for the German government's ability to respond flexibility but is also I think a little harmful to the ideas of European solidarity - which this whole crisis has undermined in all countries and I think made the Euro-future a bit more uncertain.
QuoteWe've heard about China participating in bailouts before as well and that never happened. I'll believe it when Putin actually puts up a few billion...
Russia's already loaned Cyprus €2.5 billion. They threatened to withdraw it if the EU plan was passed - 'unfair, unprofessional and dangerous' as Putin described it. Until last month Russia was talking about extending the loan an lowering the interest if the Cypriots needed it.
QuoteThe only people who would obviously be in favor of a tax on mom and pop are Russian corruptocrats (since it would reduce their own haircut). So the next question is who in the bailout process do they have the most influence on. The natural answer IMO is Cypriot politicians.
To defend Cypriot politicians for a second, their financial sector is a big chunk of their economy. There's more than just corruption in wanting to keep Russians using their banks - or for that matter the many Middle Eastern and Indian companies who use Cyprus as an entrepot for their European operations. I've already read that most Russians are planning to move their money to Latvia now, but the overall effect of even taxing very rich depositors would be terribly damaging for that sector. It's probably gone anyway now.
I feel really sorry for Cyprus they were doing fine until the Greek haircut damaged their banks so much and, in the same year, a naval base exploded at an estimated cost of around 20% of GDP :bleeding:
IIRC the explosion took out their main power plant as well ...
Quote from: Iormlund on March 19, 2013, 04:42:23 PM
IIRC the explosion took out their main power plant as well ...
Yep. Wiped out 50% of power generation for a while.
Quote from: Sheilbh on March 19, 2013, 04:38:55 PM
And I've said before I can't stand the replacement of one morality tale for another that blames Germany (the Krugman response).
I blame Germany...
:D Maybe a quick proof read was in order Shelf.
Quote from: Admiral Yi on March 19, 2013, 04:45:39 PM
Quote from: Sheilbh on March 19, 2013, 04:38:55 PM
And I've said before I can't stand the replacement of one morality tale for another that blames Germany (the Krugman response).
I blame Germany...
:D Maybe a quick proof read was in order Shelf.
That was the point I was making :P
I blame Germany for the policies of the crisis - because they're wrong, nothing else. Germany is Europe's more competent George Osborne.
But I don't agree with the whole 'Germany benefited from the Euro therefore they should pay and smile about it' that Krugman and others go in for. That's replacing one morality tale ('feckless lazy Southerners') with another. I don't think it's true and I don't think it's helpful because, like the lazy Southerner morality, it builds up resentments and breaks down Euro-solidarity.
Edit: Incidentally I thought this from someone who supports depositor bail-ins was interesting:
http://conservativehome.blogs.com/platform/2013/03/andrew-lilico-cyprus-how-not-to-bailin-depositors.html
I blame myself. Or rather the people of the indebted societies. We're the ones who have been voting for the policies that got us here all these years. It's our fault. When the day comes that my bank account gets raided, I won't like it, but I'll sure as hell understand it.
Quote
David Ljunggren @reutersLjungg
French budget minister quits amid allegations he had secret Swiss bank account
:lmfao:
What a pussy. Everyone in Spain knows our whole government was receiving bribe money via secret accounts on Switzerland for decades. Hell we've all seen the books with their names and amounts. Do you see anyone resigning? Of course not. That's not how we roll.
Quote from: Sheilbh on March 19, 2013, 04:38:55 PMI'd be amazed if many Germans were aware that, for example, the Greeks have gone way beyond anything they promised in delivering austerity.
I'd be amazed if you could actually point out any meaningful reforms of the Greek state in the last three years. What did they do so far? And not just on paper.
Went from a primary deficit of over 10% to a primary surplus while their economy shrank by 20%. Which ain't nothing.
Edit: And because of their depression, that's involved a far larger fiscal consolidation than anything any member of the Troika projected or asked for. Shame they're so lazy really.
I am sure many Germans are aware of the deep cuts Greece had to endure.
However, Greece didn't reach a primary surplus yet.
And from what I read when I still cared, they didn't really put into action very many reforms to make them more competitive either.
Quote from: Iormlund on March 19, 2013, 03:42:54 PM
I don't see much competence in our elites, honestly. The ones up north are inept, the ones down south are inept criminals.
Is it possible that modern economies have grown too complex to govern effectively? It seems that the only person in all the world who can do it is Stephen Harper.
Quote from: Neil on March 20, 2013, 02:00:10 PM
Quote from: Iormlund on March 19, 2013, 03:42:54 PM
I don't see much competence in our elites, honestly. The ones up north are inept, the ones down south are inept criminals.
Is it possible that modern economies have grown too complex to govern effectively? It seems that the only person in all the world who can do it is Stephen Harper.
Julia Gillard would like to have a word with you.
Quote from: Zanza on March 20, 2013, 02:07:07 PM
Quote from: Neil on March 20, 2013, 02:00:10 PM
Quote from: Iormlund on March 19, 2013, 03:42:54 PM
I don't see much competence in our elites, honestly. The ones up north are inept, the ones down south are inept criminals.
Is it possible that modern economies have grown too complex to govern effectively? It seems that the only person in all the world who can do it is Stephen Harper.
Julia Gillard would like to have a word with you.
I a woman, and thus incapable of governing effectively.
Quote from: Neil on March 20, 2013, 02:00:10 PM
Is it possible that modern economies have grown too complex to govern effectively?
They always have been. Even the most centrally-planned states had massive black markets.
Quote from: Iormlund on March 19, 2013, 03:42:54 PM
I don't see much competence in our elites, honestly. The ones up north are inept, the ones down south are inept criminals.
Some comments on the EZ crisis sound like Merkel and Schäuble are downright evil, not just inept.
Quote from: Neil on March 20, 2013, 02:00:10 PM
Is it possible that modern economies have grown too complex to govern effectively? It seems that the only person in all the world who can do it is Stephen Harper.
No. Follow one rule. Don't let your debt get too high. That's it.
How high is too high and which debt? (public, household, company, financial company?)
Quote from: Zanza on March 20, 2013, 02:21:34 PM
How high is too high and which debt? (public, household, company, financial company?)
Public debt. Lower the better. For most countries 80-100% of GDP seems to be the danger zone.
Of the other ones the only one you as a economic manager have to worry about is financial sector capital adequacy.
Quote from: Admiral Yi on March 20, 2013, 02:14:50 PM
No. Follow one rule. Don't let your debt get too high. That's it.
I think you need a bit more than that. It's pretty easy to have public policies that cause your economy to tank without technically going into debt. Does North Korea have any government debt?
Quote from: frunk on March 20, 2013, 02:28:50 PM
I think you need a bit more than that. It's pretty easy to have public policies that cause your economy to tank without technically going into debt. Does North Korea have any government debt?
Good point. I left unspoken the assumption that you let markets work and don't try to manage anything.
Quote from: Zanza on March 20, 2013, 11:20:19 AM
I am sure many Germans are aware of the deep cuts Greece had to endure.
However, Greece didn't reach a primary surplus yet.
There is still more work to be done.
The key is to get GDP down to zero, with zero government spending and no taxes collected. Then they will reach primary balance.
Quote from: The Minsky Moment on March 20, 2013, 03:02:24 PM
Quote from: Zanza on March 20, 2013, 11:20:19 AM
I am sure many Germans are aware of the deep cuts Greece had to endure.
However, Greece didn't reach a primary surplus yet.
There is still more work to be done.
The key is to get GDP down to zero, with zero government spending and no taxes collected. Then they will reach primary balance.
Yeah, it's not like country's can ever grow themselves out of problems; they need to consider themselves as a household with one single fixed income and maintain a rigid budget, never going even a cent into debt.
Anyone who feels like financing the inevitable surge in Greek output is more than welcome to do so.
Quote from: mongers on March 20, 2013, 03:09:35 PM
Yeah, it's not like country's can ever grow themselves out of problems; they need to consider themselves as a household with one single fixed income and maintain a rigid budget, never going even a cent into debt.
Maybe my recollection is wrong, but I was under the impression that Greece did in fact have a cent or two of debt. Didn't seem to have worked out that well for them. So I am not sure what your point here is.
For all I care, Greece can start borrowing again tomorrow to invest into its economy and show us all how austerity was just a big folly.
Quote from: The Minsky Moment on March 20, 2013, 03:02:24 PMThere is still more work to be done.
Seems so. I still haven't heard about a single meaningful reform Greece implemented to make its economy more competitive.
Quote from: Admiral Yi on March 20, 2013, 03:12:41 PM
Anyone who feels like financing the inevitable surge in Greek output is more than welcome to do so.
That's what Europe signed up to in 2001. Now they want to run out when the check is due.
Quote from: Zanza on March 20, 2013, 03:20:36 PM
Quote from: The Minsky Moment on March 20, 2013, 03:02:24 PMThere is still more work to be done.
Seems so. I still haven't heard about a single meaningful reform Greece implemented to make its economy more competitive.
As long as we are using private economy metaphors - usually in a restructuring, more money has to be put in. The altnernative is liquidation. You can't liquidate and restructure at the same time.
Quote from: The Minsky Moment on March 20, 2013, 03:21:43 PM
That's what Europe signed up to in 2001. Now they want to run out when the check is due.
The check for all the fun and games Greece had stuffing their faces on deficit spending? Why does Europe have to pick up that tab? You eat it, you pay for it.
No, that's not what we signed up to. It may be what we should have signed up to, but in the end, the monetary union didn't have policies in place for crisis or to handle imbalances.
Quote from: Zanza on March 20, 2013, 03:17:12 PM
Quote from: mongers on March 20, 2013, 03:09:35 PM
Yeah, it's not like country's can ever grow themselves out of problems; they need to consider themselves as a household with one single fixed income and maintain a rigid budget, never going even a cent into debt.
Maybe my recollection is wrong, but I was under the impression that Greece did in fact have a cent or two of debt. Didn't seem to have worked out that well for them. So I am not sure what your point here is.
For all I care, Greece can start borrowing again tomorrow to invest into its economy and show us all how austerity was just a big folly.
See the paradox of thift and how it interacts with the fallacy of composition.
More generally austerity isn't working in Greece either for the government or the majority of the people.
I'm not suggesting they indulge in a reckless bout of pump-priming, but there has to be better alternative policies/mixes thereof, than the current grind everything into the dust approach.
Yes. Default, print drachmas.
Quote from: Zanza on March 20, 2013, 03:25:31 PM
No, that's not what we signed up to. It may be what we should have signed up to, but in the end, the monetary union didn't have policies in place for crisis or to handle imbalances.
Right. You built a roller coaster without guard rails, seat restraints and brakes, and are shocked, shocked to find that the twerpy kid riding on the back has fallen out. And while the kid is in mid-air falling, everyone is too busy pointing fingers of blame to catch him.
Quote from: Zanza on March 20, 2013, 03:29:24 PM
Yes. Default, print drachmas.
See, it wasn't too hard. :P
Quote from: The Minsky Moment on March 20, 2013, 03:30:26 PM
Right. You built a roller coaster without guard rails, seat restraints and brakes, and are shocked, shocked to find that the twerpy kid riding on the back has fallen out. And while the kid is in mid-air falling, everyone is too busy pointing fingers of blame to catch him.
Jeez Joan, for a guy who harps on human agency as much as you do (and rightly so) you sure are using an odd metaphor to describe Greece's actions.
Quote from: mongers on March 20, 2013, 03:09:35 PM
Yeah, it's not like country's can ever grow themselves out of problems; they need to consider themselves as a household with one single fixed income and maintain a rigid budget, never going even a cent into debt.
I would have considered this a joke before...but it looks like my government is systematically unable to responsibly deficit spend or manage debt. At this point this sounds better than destroying the country through debt and inflation.
Quote from: Admiral Yi on March 20, 2013, 03:33:03 PM
Jeez Joan, for a guy who harps on human agency as much as you do (and rightly so) you sure are using an odd metaphor to describe Greece's actions.
The agency that I am focused on was the decision to bring Greece into the Euro in 2001, despite everyone knowing they weren't ready. That decision was made on the understanding that the Greek economy was so small that it wouldn't matter economically and politically it would be a nice thing to do.
Quote from: The Minsky Moment on March 20, 2013, 03:39:05 PM
The agency that I am focused on was the decision to bring Greece into the Euro in 2001, despite everyone knowing they weren't ready.
The agency which you completely ignore is the decision to run deficits of 14% of GDP once they were in the Euro. No one held a gun to their head.
Quote from: Admiral Yi on March 20, 2013, 03:42:32 PM
The agency which you completely ignore is the decision to run deficits of 14% of GDP once they were in the Euro. No one held a gun to their head.
No, no one did.
To the contrary, the rest of the continent fell all over themselves to finance their current account deficits and deal in their securities.
Quote from: The Minsky Moment on March 20, 2013, 03:45:43 PM
No, no one did.
To the contrary, the rest of the continent fell all over themselves to finance their current account deficits and deal in their securities.
And?
Quote from: mongers on March 20, 2013, 03:31:31 PM
Quote from: Zanza on March 20, 2013, 03:29:24 PM
Yes. Default, print drachmas.
See, it wasn't too hard. :P
I just checked and I wrote that two years ago on Paradox already. I can't find similar posts here, but I wonder if they were lost in one of the forum hickups.
Quote from: The Minsky Moment on March 20, 2013, 03:30:26 PM
Quote from: Zanza on March 20, 2013, 03:25:31 PM
No, that's not what we signed up to. It may be what we should have signed up to, but in the end, the monetary union didn't have policies in place for crisis or to handle imbalances.
Right. You built a roller coaster without guard rails, seat restraints and brakes, and are shocked, shocked to find that the twerpy kid riding on the back has fallen out. And while the kid is in mid-air falling, everyone is too busy pointing fingers of blame to catch him.
The twerpy kid shouldn't have gotten in then.
Sounds like the twerpy kid isn't fit to govern himself.
In this analogy, the twerpy kid is wearing a suicide vest, and if not caught softly he would blow up the rest of the shitty rollercoaster upon impact.
The twerpy kid knew the risks when he got on the roller coaster but didnt care. Problem is no one else seems to have considered the risks.
The problem with the analogy is that the the twerpy kid was infact a fully-grown and self-responsible adult when he got into the roller coaster. Sure, some of his friends called for him to jump in, but he could always have joined the dour, no-fun Swede standing at the sidelines.
Quote from: DGuller on March 20, 2013, 04:03:20 PM
In this analogy, the twerpy kid is wearing a suicide vest, and if not caught softly he would blow up the rest of the shitty rollercoaster upon impact.
The issue is whether it might be better to let the ride get demolished and use the space for something better.
Just don't go to the amusement park.
Quote from: Zanza on March 20, 2013, 04:05:01 PM
The problem with the analogy is that the the twerpy kid was infact a fully-grown and self-responsible adult when he got into the roller coaster. Sure, some of his friends called for him to jump in, but he could always have joined the dour, no-fun Swede standing at the sidelines.
That obviously, but what i think is worst about the analogy is that there's aboslutely nothing instrinsic about the roller coaster that makes random riders fall out.
Maybe a roller coaster in which each rider is given the power to release their own safety bar.
Quote from: Admiral Yi on March 20, 2013, 04:08:42 PM
Maybe a roller coaster in which each rider is given the power to release their own safety bar.
There was a safety bar? Isnt that the problem. There was supposed to be one but it was never installed?
Quote from: Zanza on March 20, 2013, 04:05:01 PM
The problem with the analogy is that the the twerpy kid was infact a fully-grown and self-responsible adult when he got into the roller coaster. Sure, some of his friends called for him to jump in, but he could always have joined the dour, no-fun Swede standing at the sidelines.
The twerpy kid may have been physically an adult, but he was still repeating the classes in the elementary school until he was finally socially promoted out of pity. Had he not been socially promoted, he wouldn't have been part of the class that went on the field trip to ride the shitty rollercoaster.
Rollercoasters actually rely on centrifugal forces to make sure no one falls out. The problem is that the Eurozone isn't a rollercoaster and doesn't have such forces, but rather some kind of trampoline where you can easily jump off and fall hard. :P
Quote from: crazy canuck on March 20, 2013, 04:10:31 PM
There was a safety bar? Isnt that the problem. There was supposed to be one but it was never installed?
The safety bar is common sense.
Quote from: Admiral Yi on March 20, 2013, 03:48:51 PM
Quote from: The Minsky Moment on March 20, 2013, 03:45:43 PM
No, no one did.
To the contrary, the rest of the continent fell all over themselves to finance their current account deficits and deal in their securities.
And?
And so the whole game about casting moral blame is a fool's errand. Greece was always a basket case, but the entire Eurozone acting together decided to make it into a Euro basket case.
If 10% of the effort spent on the blame game was spent on fixing the problem, it would have been resolved long ago. The amounts of money involved are trivial when placed in the European scale.
Quote from: Zanza on March 20, 2013, 03:51:43 PM
The twerpy kid shouldn't have gotten in then.
So much for Euro-solidarity.
Quote from: Admiral Yi on March 20, 2013, 02:31:36 PM
Good point. I left unspoken the assumption that you let markets work and don't try to manage anything.
What do you mean by "don't try to manage anything"? Anything the government does has some effect on the market, intentional or not, and can be considered a form of management.
Quote from: The Minsky Moment on March 20, 2013, 04:22:05 PM
Quote from: Zanza on March 20, 2013, 03:51:43 PM
The twerpy kid shouldn't have gotten in then.
So much for Euro-solidarity.
https://www.youtube.com/watch?v=qVrN-gkzVYI
Quote from: Zanza on March 20, 2013, 11:20:19 AM
I am sure many Germans are aware of the deep cuts Greece had to endure.
Are they aware that Greek cuts have been deeper than has ever been asked by the Troika?
QuoteHowever, Greece didn't reach a primary surplus yet.
They're meant to reach it in 2014. But so far it looks like they may do it this year.
QuoteAnd from what I read when I still cared, they didn't really put into action very many reforms to make them more competitive either.
Well there's the piece of paper problem - which is one of perception and confidence. The Greeks have passed lots of reform laws. So did Mario Monti. Greece is far further along implementing their reforms than Italy (so far the Italians have begun implementation on around 5-10% I believe). But I think because of past failures by the Greeks and the poisonous bigotry about them that's swilled around Europe these past 3-4 years that's not been noticed, a bit like their fiscal achievements.
For one example they've passed significant labour market reform. Like austerity the effect has been far greater than anyone had expected. Average wages have fallen by around 7.5% while averages for individual contracts and firm-level agreements have fallen by 20%. The problem with structural reforms is that, I believe, on average they take about 5 years to start having positive effects (the Economist posted some research on it) and they take more time during recessions.
QuoteMore generally austerity isn't working in Greece either for the government or the majority of the people.
Yep. The biggest problem with these programs is that in the medium term they're increasing debt and decreasing debt sustainability which is the opposite of the goal. I don't get on what measure they're working.
The National Institute of Economic and Social Research did some research based on the IMF's new fiscal multiplier. According to that current rates of austerity is increasing debt in every program country (with the exception of Ireland) more than lower rates of austerity would.
QuoteThe problem with the analogy is that the the twerpy kid was infact a fully-grown and self-responsible adult when he got into the roller coaster. Sure, some of his friends called for him to jump in, but he could always have joined the dour, no-fun Swede standing at the sidelines.
What about Italy?
Quote from: The Minsky Moment on March 20, 2013, 04:19:40 PM
And so the whole game about casting moral blame is a fool's errand. Greece was always a basket case, but the entire Eurozone acting together decided to make it into a Euro basket case.
If 10% of the effort spent on the blame game was spent on fixing the problem, it would have been resolved long ago. The amounts of money involved are trivial when placed in the European scale.
I see. So when you accused the Germans of building a rollercoaster with no safety features, that was a morally neutral observation? When you said buyers of Greek bonds didn't want to pay the check, that was morally neutral?
I think Greece got offered a pretty fucking good deal. You're now in the eurozone so you automatically get bundesbank rates. If you're smart, you'll use the interest savings to reduce your indebtedness. If you're a goddamn retard, you'll go on a 3 year bender. Then smash up a couple banks and cry for free money when the bender is over.
Quote from: Sheilbh on March 20, 2013, 04:37:52 PM
For one example they've passed significant labour market reform. Like austerity the effect has been far greater than anyone had expected. Average wages have fallen by around 7.5% while averages for individual contracts and firm-level agreements have fallen by 20%. The problem with structural reforms is that, I believe, on average they take about 5 years to start having positive effects (the Economist posted some research on it) and they take more time during recessions.
Not only that but the immediate impact in those kinds of cuts is a big drop in income tax collections, which makes fiscal consolidation even more difficult.
Quote from: Admiral Yi on March 20, 2013, 04:55:07 PM
I see. So when you accused the Germans
I accused "the Germans" of nothing.
IIRC Germany had little role in the Greek admission other than not opposing. It was non-controversial. That was despite the fact that no one believed the Greek fiscal figures (which were in fact disproven conclusively way back in 2004), and despite the fact the Greeks breached the deficit criteria every year after, including the year they joined.
The decision was non-controversial because the euro was conceived first and foremost as a political project, not an economic one, and admitting Greece served the political purpose of creating a seemingly irresistable wave to universal adoption, and to overcome the few stubborn dissenters left.
Unfortunately, the political project failed, but the Eurozone never really got around to formulating an alternative economic project that would work effectively.
What's the deadline on Cyprus getting a deal? Surely the banks can't remain closed indefinitely? :mellow:
Quote from: Sheilbh on March 20, 2013, 07:18:53 PM
What's the deadline on Cyprus getting a deal? Surely the banks can't remain closed indefinitely? :mellow:
Close-of-play Monday, I believe - by which time Cyprus should, apparently, have brought in formal capital controls rather than the more informal "Bank holiday" being used now.
Although apparently the idea of capital controls across the whole Eurozone as a temporary measure is being floated.
:hmm:
Surely that's something you set up the groundwork for in secret first then implement and announce at the same tim to prevent a pre-controls flight of capital?
I think they need to let Cyprus fall. If they keep financing them despite all shenangians, Greeks and Italians will learn the lesson and sink the EU with themselves.
Reuters says the Euro FinMin are freaking out after the Cypriots wouldn't even answer their conference call. :lol:
One thing does surprise me about Germany and the Euro, namely that Germany had recent experience of the pitfalls of currency unions with their reunification. There were huge transfers of money (something like $100bn a year IIRC) from the West to the former DDR, these were necessary because the East's businesses were simply not competitive with the rate 1 Ostmark = 1 Dm. These transfers caused some tensions between Ossis and Wessis, even though they were all Germans and citizens of the same state. I'm wondering how many German politicians and opinion-makers picked up on this while the plans for the euro were being made?
I think I would be correct in saying that many (a majority?) of the ordinary German citizens were very nervous and concerned about losing the Dm. Events have proven them to be wiser than their political leaders.
Quote from: Iormlund on March 21, 2013, 08:30:25 AM
Reuters says the Euro FinMin are freaking out after the Cypriots wouldn't even answer their conference call. :lol:
They have dumped the EU and are dating Russia :P
Quote from: Richard Hakluyt on March 21, 2013, 08:37:53 AM
One thing does surprise me about Germany and the Euro, namely that Germany had recent experience of the pitfalls of currency unions with their reunification. There were huge transfers of money (something like $100bn a year IIRC) from the West to the former DDR, these were necessary because the East's businesses were simply not competitive with the rate 1 Ostmark = 1 Dm. These transfers caused some tensions between Ossis and Wessis, even though they were all Germans and citizens of the same state. I'm wondering how many German politicians and opinion-makers picked up on this while the plans for the euro were being made?
I think I would be correct in saying that many (a majority?) of the ordinary German citizens were very nervous and concerned about losing the Dm. Events have proven them to be wiser than their political leaders.
That's why Germany demanded both the Stability & Growth Pact and the no-bailout clause. ;)
"Systemic risk" never sounds good.
Quote from: Zanza on March 21, 2013, 08:48:23 AM
That's why Germany demanded both the Stability & Growth Pact and the no-bailout clause. ;)
So why was the SGP so ignored afterwards? :P
All the cool kids were doing it.
Quote from: The Larch on March 21, 2013, 10:01:51 AM
Quote from: Zanza on March 21, 2013, 08:48:23 AM
That's why Germany demanded both the Stability & Growth Pact and the no-bailout clause. ;)
So why was the SGP so ignored afterwards? :P
Convenience, negligence, realpolitik.
Quote from: Richard Hakluyt on March 21, 2013, 08:38:44 AM
Quote from: Iormlund on March 21, 2013, 08:30:25 AM
Reuters says the Euro FinMin are freaking out after the Cypriots wouldn't even answer their conference call. :lol:
They have dumped the EU and are dating Russia :P
The Cypriot finance minister has come back, but unfortunatly, Russia refused to put out.
I think the Cypriots are in denial, their offshore model is now as dead as disco, this is now a question of restarting a basic banking system for the locals without indebting the state too much. Smash & grab the Russian oligarch money, resign and go into hiding, that'd be my advice. Tourism and gas is what will give Cyprus an economy from now on.
Seeing how their banking system is dead, it would make sense to take advantage of captive funds. Instead of 15% go for 50% tax of big deposits and you don't need a bailout anymore. Only good life insurance.
The Troika has rejected their proposal with a solidarity fund and the ECB has said it would stop funding Cypriot banks on Monday.
What does "with a solidarity fund" mean Zanza?
C'mon silver prices. CLIMB.
@Yi: A fund made of several things like Church property or gas futures. But most importantly, a raid on pension schemes, which Germany has rejected outright.
Quote from: Legbiter on March 22, 2013, 08:35:52 AM
Quote from: Richard Hakluyt on March 21, 2013, 08:38:44 AM
Quote from: Iormlund on March 21, 2013, 08:30:25 AM
Reuters says the Euro FinMin are freaking out after the Cypriots wouldn't even answer their conference call. :lol:
They have dumped the EU and are dating Russia :P
The Cypriot finance minister has come back, but unfortunatly, Russia refused to put out.
I think the Cypriots are in denial, their offshore model is now as dead as disco, this is now a question of restarting a basic banking system for the locals without indebting the state too much. Smash & grab the Russian oligarch money, resign and go into hiding, that'd be my advice. Tourism and gas is what will give Cyprus an economy from now on.
Sounds like a workable possibility.
Yesterday channel 4 news interview a successful Cypriot business man and he said of the four strands of the Cypriot economy; tourism, banking, financial services and real estate, this crisis has killed off three, leaving them with just tourism.
Cyprus now has capital controls.
Quote from: Ed Anger on March 22, 2013, 09:25:29 AM
C'mon silver prices. CLIMB.
silver is not going to climb if gold doesn't climbe too iirc. And gold has been going up and down the past two years. be patient.
http://www.telegraph.co.uk/news/worldnews/europe/cyprus/9948545/Southern-Europe-lies-prostrate-before-the-German-imperium.html (http://www.telegraph.co.uk/news/worldnews/europe/cyprus/9948545/Southern-Europe-lies-prostrate-before-the-German-imperium.html)
QuoteSouthern Europe lies prostrate before the German imperium
[...]
Lord Salisbury, who won control of Cyprus for Britain from Turkey in 1878, once sent an envoy there. People complained that the man knew neither Greek nor Turkish. "Good," said Salisbury, "then he will hear fewer lies."
That is the authentic tone of an imperial power. Today that power is Germany. We have heard enough lies, the Germans are saying haughtily to the Cypriots, now shut up and do what we want. Yesterday, Angela Merkel, the German Chancellor, ordered that "Cyprus must realise that its business model is dead".
[...]
So let us look at this question not from an economic but an imperial point of view. One problem of imperial rule is that it can be worse for the satellites of the empire if the centre is democratic. A benign despot can at least take a long view about the welfare of his fiefdom. Elected rulers usually cannot. Television footage this week has been of weeping, angry crowds in Nicosia and Limassol, but the crowds that matter are the ones that have not taken to the streets in Berlin or Munich or Hamburg. They get their next vote in the German general election in September. They dislike shelling out for what they see as feckless Mediterraneans: they detest the idea of doing so for what they see as crooked Russians. [...]T
It is another feature of democratic regimes that they are instinctively uncomfortable with imperial pretensions; so they seek the moral high ground, like a mountaineer who just keeps climbing higher when he's lost in the fog. We British liked to think that we were bringing civilisation and the rule of law to our colonies. The Americans have tended to deny an imperial role altogether and talk about safeguarding democracy.
Now it is the Germans' turn to exercise an imperium. Their re-entry into the comity of nations has been based on the idea that they are peaceful, law-respecting, internationalist, politically vegetarian. They support an ever-closer European Union because they want to be a "European Germany" to avoid a "German Europe". They are perfectly genuine about wishing to overcome what is euphemistically called "the problem of history". So they are obsessed with the importance of rules, of obeying them and being seen to obey them. They have been good boys, and by doing so, they have prospered mightily.
But as they have grown stronger, their love of rules has turned into an instrument of their power. We are good European citizens, the Germans argue, and we have done well. So the answer is for everyone in the eurozone to behave just like us and they will do well too. One size must fit all, and that size is made in Germany.
[...]
Today, most of southern Europe lies prostrate before Germany.
Mrs Merkel does not see it this way, but if she were to impose upon her own country the levels of unemployment which her eurozone policies inflict upon Spain or Greece or Italy, she would be out of office tomorrow. It is in the nature of imperial power that it is very much slower to feel the pain of those it rules at a distance than that of its own people. That is why its colonial subjects tend to dislike it, even when it is well-intentioned and orderly.
By this point, many people, especially Germans, will be furiously objecting to my line of argument. This is not imperialism, they will say, this is a new concept of doing things called the European Union. The eurozone is on its way, they go on, to the safe harbour of a banking union and a fiscal union, to a United States of Europe in all but name. Then all will have equal rights and equal protection. To get this union right, though, we mustn't have "legacy debts": these problems of transition are tough, but if they are firmly dealt with, all will be well.
And possibly, one distant day, it will be. Possibly, just as people all over the known world could once say "Civis Romanus sum" ("I am a Roman citizen"), so they will be able to say, "I am a European", and know that they are safe and free under the blue flag with its golden stars. It may be for that reason that the eurozone decision-makers decided to make an example of Cyprus. They knew that it was puny. They believed, probably correctly, that it would have to obey. They hoped to show the world, which doubts, that they mean what they say.
But the exertion of such power is a very ugly thing. When you see it exerted you also see who is accorded respect and who isn't. In this case, ordinary depositors have been disrespected and parliamentary processes have been bullied into giving the "right" answer. Cyprus is capitulating not out of euro-patriotism, but out of fear. This is not European "solidarity" but coercion.
[...]
http://blogs.telegraph.co.uk/news/iainmartin1/100208951/margaret-thatcher-had-a-point-about-germany/ (http://blogs.telegraph.co.uk/news/iainmartin1/100208951/margaret-thatcher-had-a-point-about-germany/)
QuoteMargaret Thatcher had a point about Germany
[...]
When Charles Powell, Thatcher's private secretary, summoned a group of leading historians to Chequers, on 24 March 1990, to discuss the implications of reunification, the news leaked. Powell had prepared a paper for the occasion which summarised the German national characteristics as "angst, aggressiveness, assertiveness, bullying, egotism, inferiority complex (and) sentimentality."
[...]
Conditioned by the aftermath of the Second World War and the Great Power interplay of the decades that followed, Thatcher missed that Germany had become a largely pacifist nation which rejected its martial past. But the idea that unification, followed by European monetary union, would strengthen Germany to the point that it would again dominate the continent looks pretty prescient now.
It is hard to see Cyprus as "plucky little Cyprus". Its political class seems so inept that it makes our lot look like latter-day Bismarcks. No one forced the Cypriots to blow up their banks on such a scale and then bankrupt their country. However, the "rescue" looks like bullying, instigated by the Germans who are determined to keep their single currency together and hang the human cost.
The other countries of the European Union seem so far to have given little thought to how to deal with being under what Charles Moore the other day referred to as the German imperium. The empire is civilian rather than military, but the German power to command is still strong and getting stronger with every euro rescue. In the UK the Eurosceptic response is generally that the single currency will collapse soon under the weight of its own contradictions. Actually, it seems perfectly possible that, barring an asymmetric shock, it won't, and that eventually Germany will sit calling the shots at the centre of an economic empire.
In the face of this some of the non-German leaders prefer wittering brainlessly about European harmony and solidarity, rather than attempting to deal with reality. Germany is becoming too powerful for its own good and ours, again.
The Fourth Reich is upon us apparently.
Well, the fact that a united Germania would dominate Europe was pretty clear from, what, the early middle ages? There were several major wars over stopping that from happening. I do find it extremely ironical that after utterly destroying themselves to stop the Germans from getting hegemony, Europe now hands power to them willingly, creating the Mitteleuropa the Germans wanted to get in a victorious WW1. One could say that all those 50+ million people died in vain, especially since I sure prefer German overlordship over the self-defeating style of the PIIGS, or the, well, Frenchness of the French. Not to mention Russians.
What a bunch of silliness from the Telegraph.
Are other countries lining up for the golden opportunity to imperially bail out Cyprus' banks? Of course not.
Quote from: Tamas on March 27, 2013, 12:01:56 PM
Well, the fact that a united Germania would dominate Europe was pretty clear from, what, the early middle ages? There were several major wars over stopping that from happening. I do find it extremely ironical that after utterly destroying themselves to stop the Germans from getting hegemony, Europe now hands power to them willingly, creating the Mitteleuropa the Germans wanted to get in a victorious WW1. One could say that all those 50+ million people died in vain, especially since I sure prefer German overlordship over the self-defeating style of the PIIGS, or the, well, Frenchness of the French. Not to mention Russians.
Um nobody died to stop Germany from gaining economic dominance. They pretty much had that already. But the other main difference between then and now is the power of the US in Euro affairs.
Quote from: Admiral Yi on March 27, 2013, 12:13:23 PM
What a bunch of silliness from the Telegraph.
Are other countries lining up for the golden opportunity to imperially bail out Cyprus' banks? Of course not.
Euros seem to throw around the word "imperialism", a lot.
Quote from: Zanza on March 27, 2013, 11:49:17 AM
The Fourth Reich is upon us apparently.
Can you be our Admiral Canaris?
Quote from: Admiral Yi on March 27, 2013, 12:13:23 PM
What a bunch of silliness from the Telegraph.
Are other countries lining up for the golden opportunity to imperially bail out Cyprus' banks? Of course not.
Tamas writes for the Torygraph now ? :hmm:
So I read in a Danish paper that the terms of the Cyprus bailout were distinctly pointed at Russia. German politicians are on record as saying that German tax payers are not going to bail out Russian gangsters.
Apparently 25% of Russian foreign capital flows go (or went) through Cyprus. Putin is, allegedly, displeased.
I guess the next big natural resource discovery in Cyprus would be polonium, lots of it.
The ECB shipped five billion Euro cash to Cyprus by air freight. That could have been the heist of a century.
Trucks full of cash:
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fstatic.euronews.com%2Farticles%2F219182%2F600x400_2803-cyprus-money-transfer2.jpg&hash=f65ce3d9fc44b5b18eb88ef4929e7fc85d9d2106)
Quote from: Zanza on March 28, 2013, 11:59:16 AM
The ECB shipped five billion Euro cash to Cyprus by air freight. That could have been the heist of a century.
Trucks full of cash:
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fstatic.euronews.com%2Farticles%2F219182%2F600x400_2803-cyprus-money-transfer2.jpg&hash=f65ce3d9fc44b5b18eb88ef4929e7fc85d9d2106)
It's ironic as the aircraft used to air-freight them in were probably Russian made.
Bye bye money.
Look on the bright side. They won't be suffering a liquidity trap.
Quote from: mongers on March 28, 2013, 12:10:57 PM
It's ironic as the aircraft used to air-freight them in were probably Russian made.
As it was flown in by Lufthansa, it's more likely that it was a MD-11. The whole amount apparently came from the vaults of Germany's Bundesbank.
Quote from: Zanza on March 28, 2013, 01:09:36 PM
Quote from: mongers on March 28, 2013, 12:10:57 PM
It's ironic as the aircraft used to air-freight them in were probably Russian made.
As it was flown in by Lufthansa, it's more likely that it was a MD-11. The whole amount apparently came from the vaults of Germany's Bundesbank.
:thumbsup:
Has to be one of the very biggest peace time transfers.
I guessed an Antonov simple because I assumed, probably wrongly the container where shipped already loaded. But apparently that was done at the island airport.
It must have been tempting for the pilots to just fly somewhere that doesn't have an extradition treaty. ;)
Quote from: Zanza on March 28, 2013, 01:34:34 PM
It must have been tempting for the pilots to just fly somewhere that doesn't have an extradition treaty. ;)
Maybe they put timed bombs around the necks of everyone on the plane, and flown the key to disarm them on a separate flight. That's what I would've done anyway.
Quote from: Zanza on March 28, 2013, 01:34:34 PM
It must have been tempting for the pilots to just fly somewhere that doesn't have an extradition treaty. ;)
They could have kept the pilots in the dark about what they were carrying.
Quote from: mongers on March 22, 2013, 09:59:06 AM
Yesterday channel 4 news interview a successful Cypriot business man and he said of the four strands of the Cypriot economy; tourism, banking, financial services and real estate, this crisis has killed off three, leaving them with just tourism.
Apparently real estate and banking are around a third of the economy and their two largest banks are being restructured. I imagine that'll also have a hit on high-end tourism. Their biggest trading partner is Greece. And they'll be going through austerity. I can't imagine how severe the internal devaluation will have to be before they're competitive within the Eurozone, and that'll presumably be more or less based solely on tourism while the EU/ECB keeps enough money in the system to keep them alive. Apparently the Troika's predicting -8% GDP this year, but I think that might be optimistic.
I wonder if Krugman's right and the Cypriots should have left and devalued.
Edit: On the other hand it's apparently causing serious negotiations with the North and Turkey for the first time in ages so they can negotiate a deal on gas. Which is a good thing. Cyprus shouldn't have been let in after they rejected the Annan plan <_<
Quote from: Sheilbh on April 04, 2013, 06:40:12 PM
I wonder if Krugman's right and the Cypriots should have left and devalued.
Until somebody tries it, everyone will just keep wondering.
Quote from: Sheilbh on April 04, 2013, 06:40:12 PM
Quote from: mongers on March 22, 2013, 09:59:06 AM
Yesterday channel 4 news interview a successful Cypriot business man and he said of the four strands of the Cypriot economy; tourism, banking, financial services and real estate, this crisis has killed off three, leaving them with just tourism.
Apparently real estate and banking are around a third of the economy and their two largest banks are being restructured. I imagine that'll also have a hit on high-end tourism. Their biggest trading partner is Greece. And they'll be going through austerity. I can't imagine how severe the internal devaluation will have to be before they're competitive within the Eurozone, and that'll presumably be more or less based solely on tourism while the EU/ECB keeps enough money in the system to keep them alive. Apparently the Troika's predicting -8% GDP this year, but I think that might be optimistic.
I wonder if Krugman's right and the Cypriots should have left and devalued.
But really, isn't this a correction? Hasn't quality of life been far too high in Cyprus?
High living standards? Must put a stop that nonsense at once!
If the Euro is the worst thing since unsliced bread, why does no one leave?
Quote from: The Minsky Moment on April 05, 2013, 08:52:43 AM
High living standards? Must put a stop that nonsense at once!
No need to lift a finger. High living standards built on borrowing tend to self-correct.
Jesus fucking Christ. What's with the moral outrage, the fixation with debt and "living beyond your means"? Cypriots were not borrowing shit. They went down because their banks were tightly coupled with Greece, and faced crippling losses after the haircut last year.
Quote from: Iormlund on April 05, 2013, 09:26:53 AM
Jesus fucking Christ. What's with the moral outrage, the fixation with debt and "living beyond your means"? Cypriots were not borrowing shit. They went down because their banks were tightly coupled with Greece, and faced crippling losses after the haircut last year.
If you construct a "it's their own fault" narrative you feel less guilty about enjoying other peoples' suffering while also feeling less likely that it will happen to you.
Quote from: Zanza on April 05, 2013, 09:02:58 AM
If the Euro is the worst thing since unsliced bread, why does no one leave?
It's not that hard to guess. For starters, it was specifically designed to punish any exit. Furthermore, those with the means of triggering such course of action would not benefit from it. Except maybe in Ireland (where it doesn't make sense) or Italy, exiting will certainly be followed by a lot of pain before any recovery. No one wants to be responsible for that. Better to do nothing and blame the current predicament on the previous guy. Finally the longer you stay, the less advantageous it seems, as private external creditors are replaced by local and governmental creditors (LTROs, bailouts, etc).
That being said, the successes of M5S and Berlusconi show that exit is not anywhere near taboo anymore (though as mentioned Italy is IMHO the perfect candidate for exit).
It was designed to punish exit? That one is new to me.
Quote from: Iormlund on April 05, 2013, 09:26:53 AM
Jesus fucking Christ. What's with the moral outrage, the fixation with debt and "living beyond your means"? Cypriots were not borrowing shit. They went down because their banks were tightly coupled with Greece, and faced crippling losses after the haircut last year.
The financial sector was a major contributor to Cypriot GDP. It turns out the value added by that sector was not sustainable. Cypriots who earned their living in the financial sector, or by providing goods and services to people in the financial sector, were in fact living beyond their means.
Quote from: Jacob on April 05, 2013, 09:33:42 AM
If you construct a "it's their own fault" narrative you feel less guilty about enjoying other peoples' suffering while also feeling less likely that it will happen to you.
Quite the opposite.
Quote from: Zanza on April 05, 2013, 09:43:01 AM
It was designed to punish exit? That one is new to me.
How else do you explain the lack of exit mechanism?
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.
Quote from: Admiral Yi on April 05, 2013, 09:04:43 AM
Quote from: The Minsky Moment on April 05, 2013, 08:52:43 AM
High living standards? Must put a stop that nonsense at once!
No need to lift a finger. High living standards built on borrowing tend to self-correct.
That would explain the collapse in the GDP/capita of Luxembourg.
Oh wait, that never happened . . .
Quote from: The Minsky Moment on April 05, 2013, 11:20:33 AM
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.
Quote from: Iormlund on April 05, 2013, 10:08:09 AM
Quote from: Zanza on April 05, 2013, 09:43:01 AM
It was designed to punish exit? That one is new to me.
How else do you explain the lack of exit mechanism?
They didn't see the necessity? When it was created the EU also didn't have an exit mechanism and they must have assumed that the Euro was for perpetuity. Otherwise you don't join a currency union in the first place.
Quote from: Admiral Yi on April 05, 2013, 12:47:08 PM
Quote from: The Minsky Moment on April 05, 2013, 11:20:33 AM
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.
It's called 'grasping at straws'.
Quote from: Admiral Yi on April 05, 2013, 09:47:21 AM
Quote from: Jacob on April 05, 2013, 09:33:42 AM
If you construct a "it's their own fault" narrative you feel less guilty about enjoying other peoples' suffering while also feeling less likely that it will happen to you.
Quite the opposite.
You see events in Cyprus as an object lesson for America? You fear you'll go down that road?
... or something else?
Quote from: Jacob on April 05, 2013, 01:11:32 PM
You see events in Cyprus as an object lesson for America? You fear you'll go down that road?
... or something else?
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.
Quote from: Admiral Yi on April 05, 2013, 01:15:18 PMNot 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.
Yes yes, I did notice that.
Quote from: Admiral Yi on April 05, 2013, 09:46:06 AM
Quote from: Iormlund on April 05, 2013, 09:26:53 AM
Jesus fucking Christ. What's with the moral outrage, the fixation with debt and "living beyond your means"? Cypriots were not borrowing shit. They went down because their banks were tightly coupled with Greece, and faced crippling losses after the haircut last year.
The financial sector was a major contributor to Cypriot GDP. It turns out the value added by that sector was not sustainable. Cypriots who earned their living in the financial sector, or by providing goods and services to people in the financial sector, were in fact living beyond their means.
Well put.
Quote from: Admiral Yi on April 05, 2013, 12:47:08 PM
Quote from: The Minsky Moment on April 05, 2013, 11:20:33 AM
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.
Quote from: The Minsky Moment on April 05, 2013, 01:41:33 PM
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.
Or maybe Luxembourgeois banks are not sinking their funds into worthless Greek paper.
Quote from: The Minsky Moment on April 05, 2013, 08:52:43 AM
High living standards? Must put a stop that nonsense at once!
Indeed. There are only so many resources on the Earth, and the fewer that are consumed by third-world barbarians, the better.
Quote from: Admiral Yi on April 05, 2013, 01:42:48 PM
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.
Quote from: The Minsky Moment on April 05, 2013, 01:41:33 PM
Quote from: Admiral Yi on April 05, 2013, 12:47:08 PM
Quote from: The Minsky Moment on April 05, 2013, 11:20:33 AM
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.
Quote from: Neil on April 05, 2013, 01:50:42 PM
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
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.
Quote from: The Minsky Moment on April 05, 2013, 02:12:19 PM
Quote from: Neil on April 05, 2013, 01:50:42 PM
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.
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.
Quote from: Zanza on April 05, 2013, 09:43:01 AM
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.
QuoteMy 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).
QuoteNot 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).
Quote from: MadImmortalMan on April 05, 2013, 05:35:28 PM
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.
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.
Yay Slovenia! :glare:
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 :blink:
I hope she's considering early retirement.
Is there a clear successor?
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 (http://en.wikipedia.org/wiki/Ursula_von_der_Leyen).
How about
http://en.wikipedia.org/wiki/Kristina_Schröder
:licklips:
She's 35, a mp since 2002. So basically everything she will have ever done is being a politician. Atleast she wasn't a lawyer for 30 years before. :puke:
Quote from: Grey Fox on April 16, 2013, 12:15:23 PM
She's 35, a mp since 2002. So basically everything she will have ever done is being a politician. Atleast she wasn't a lawyer for 30 years before. :puke:
SHE'S CUTE. All that matters.
That is true.
Quote
Profession Sociologist
No thanks.
Quote from: Ed Anger on April 16, 2013, 12:10:47 PM
How about
http://en.wikipedia.org/wiki/Kristina_Schröder
:licklips:
Bah, she is not cute. And she is really unpopular in Germany, way too conservative for a mainstream politician. She will never be German chancellor.
The realistic alternative to von der Leyen is Thomas de Maizière (http://en.wikipedia.org/wiki/Thomas_de_Maizi%C3%A8re).
But Merkel is by far the most popular politician in Germany and short of some freakish scenario, she'll be reelected in September to rule
Europe Germany for another four years.
Quote from: Zanza on April 16, 2013, 01:15:09 PM
But Merkel is by far the most popular politician in Germany and short of some freakish scenario, she'll be reelected in September to rule Europe Germany for another four years.
The most popular politician, or just party leader? After eight years that's extraordinary :mellow:
How is her popularity within the party though?
She is the most popular politician among Germany's top politicians. There is a regular poll with government members and some opposition politicians (party, faction leaders and top candidates). She has been number one for years.
Her party is extremely loyal. No way an internal revolt can threaten her.
Meanwhile, in Orwellian Spain, our beloved leaders are congratulating themselves for curbing unemployment the day a new record is reached. We're up to 27.16% unemployment (not counting "students"). Almost 2 million families have no breadwinner.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fcdn.20minutos.es%2Fimg2%2Frecortes%2F2013%2F04%2F25%2F117843-970-327.jpg&hash=3d97d98948ca400a9c9bd61c13e9679e5c5cdffb)
At what point of unemployment does a society cease to function? Anyone knows?
Quote from: Bluebook on April 25, 2013, 03:21:55 PM
At what point of unemployment does a society cease to function? Anyone knows?
I think the US and Germany had comparable unemployment during the Great Depression. c. 33%
I don't think you can say there's a certain unemployment rate at which all societies are certain to fall apart.
Quote from: Bluebook on April 25, 2013, 03:21:55 PM
At what point of unemployment does a society cease to function? Anyone knows?
At the point at which the bastille is stormed.
Rescuing a post from Tamas from a way back ...
Quote from: Tamas on June 12, 2012, 02:54:05 PM
How can the end of the euro as a currency be considered? It would eliminate decades of progress in European integration, as the failure of the common currency would be interpreted by the masses as the failure of the EU as a project.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fstatic.guim.co.uk%2Fsys-images%2FGuardian%2FPix%2Fmaps_and_graphs%2F2013%2F4%2F24%2F1366823979395%2FEU-lack-of-trust-008.png&hash=080ac9678cb271b376d448be57e6cc5b9b590ae1)
Spain now more euro-esceptic than the UK.
Wow that's a big swing. I wonder how Portugal compares. I no longer know any pro-euro Portuguese. They all changed their minds. Even the ambassador, who I spoke with just the other day.
Also, 9% unemployment before the crisis hit is still crazy high in my mind. I think if it were here, 25% unemployment would be a bigger destabilizing factor since we're just not used to that shit.
I guess that if you're making a union you shouldn't make it retarded.
Quote from: MadImmortalMan on April 25, 2013, 04:38:12 PM
Also, 9% unemployment before the crisis hit is still crazy high in my mind. I think if it were here, 25% unemployment would be a bigger destabilizing factor since we're just not used to that shit.
There's a big geographical component to unemployment here. Mostly the further south you live, the more unlikely it is to have a job. Back in the good old bubble days unemployment here in Aragón was something like 3%. Now it's over 20%. In Andalucía it must have been well over 10% back then. Now it's up to 40%.
Quote from: Iormlund on April 25, 2013, 04:51:58 PMNow it's up to 40%.
Jesus. So if I go to Malaga or Seville, almost half the people I see will be unemployed? I don't understand how a society can function like that. These dudes must be doing all kinds of off the books cash transactions with each other.
It's worst in Huelva and especially Cádiz. And yes, there has to be all sorts of submerged economy, though bear in mind those numbers do not include people that went back to school or are receiving any kind of training so it goes both ways.
Many people down there work during tourist season and live off benefits or savings the rest of the year. And then there's PER, which is basically a subsidy for those who work a few weeks a year in agriculture.
IIRC there are three Andalusian provinces (Cádiz, Huelva and Jaén) where unemployment is higher than 40%, the highest in all of Spain. The top 5 provinces by unemployment are all Andalusian. It must be a hellhole down there.
Yeah. It's bad enough here and it's half of that.
How did your situation work out, btw?
So when do the political streetfights start that will lead the Nazis or commies to power?
Quote from: Iormlund on April 26, 2013, 07:18:27 AM
Yeah. It's bad enough here and it's half of that.
How did your situation work out, btw?
I've been freelancing since last year.
Quote from: Neil on April 26, 2013, 07:56:11 AM
So when do the political streetfights start that will lead the Nazis or commies to power?
Won't happen. Kids are used to rely on their parents well into their 30s (it was the only way to access a home). Can't have violence without them.
That being said, support for the commies has risen lately. OTOH nazis are still irrelevant.
Quote from: The Larch on April 26, 2013, 07:58:02 AM
I've been freelancing since last year.
I've been wondering if I should do my own thing if (when) I get laid off as well, but I can't see any chance of success in the current climate. How's that working out for you?
Quote from: Iormlund on April 26, 2013, 09:11:10 AM
Quote from: Neil on April 26, 2013, 07:56:11 AM
So when do the political streetfights start that will lead the Nazis or commies to power?
Won't happen. Kids are used to rely on their parents well into their 30s (it was the only way to access a home). Can't have violence without them.
That being said, support for the commies has risen lately. OTOH nazis are still irrelevant.
Nazis are already in government. Or parading outside politicians' homes, depending on your side. :P
QuoteQuote from: The Larch on April 26, 2013, 07:58:02 AM
I've been freelancing since last year.
I've been wondering if I should do my own thing if (when) I get laid off as well, but I can't see any chance of success in the current climate. How's that working out for you?
If you can manage to snatch foreign clients it can be doable. I've worked most of last year for Brits and this year for Dutchies.
Wow, that's nasty unemployment in parts of, or most of Spain. How does Spain fare among other EU nations with unemployment? I assume Greece is worse but aside from that, are unemployment rates getting better or worse overall in the EU?
Quote from: KRonn on April 26, 2013, 10:36:30 AM
Wow, that's nasty unemployment in parts of, or most of Spain. How does Spain fare among other EU nations with unemployment? I assume Greece is worse but aside from that, are unemployment rates getting better or worse overall in the EU?
No, I believe Spain's unemployment rate is the worst in all the EU by far. It has always been like that, our unemployment rates are atrocious since long before the crisis.
Greece has recently overtaken you...
Data (http://www.google.com/publicdata/explore?ds=z8o7pt6rd5uqa6_&ctype=l&strail=false&bcs=d&nselm=h&met_y=unemployment_rate&fdim_y=seasonality:sa&scale_y=lin&ind_y=false&rdim=country_group&idim=country_group:eu:non-eu&idim=country:es:el:de&ifdim=country_group&tstart=412383600000&tend=1356476400000&ind=false&xMax=79.12798317500005&xMin=-53.938423074999946&yMax=28.96367712554422&yMin=67.86053048664498&mapType=t&icfg&iconSize=0.5)
@KRonn: unemployment is at a record high in the EU this month, so it's getting worse.
Damn, can't even win at that anymore. :mad: First Bayern, then Borussia, now this?
What solutions are being proposed?
Within Spain, I mean.
Quote from: crazy canuck on April 26, 2013, 11:17:09 AM
What solutions are being proposed?
Within Spain, I mean.
Nothing. The government is trying to sell us that, since unemployment isn't growing so fast anymore their policies are a success.
Quote from: The Larch on April 26, 2013, 11:25:54 AM
Quote from: crazy canuck on April 26, 2013, 11:17:09 AM
What solutions are being proposed?
Within Spain, I mean.
Nothing. The government is trying to sell us that, since unemployment isn't growing so fast anymore their policies are a success.
You have to admit, if you stick with the current policies long enough, it is only a matter of time before unemployment stops going up.
Governments have a very limited range of policy choices to reduce unemployment, and none of them have proved particularly successful. Make-work programs, tax breaks for new hires, and retraining programs.
Quote from: alfred russel on April 26, 2013, 11:39:08 AM
You have to admit, if you stick with the current policies long enough, it is only a matter of time before unemployment stops going up.
Yes, once it gets up to 100% the only way is down.
Quote from: Admiral Yi on April 26, 2013, 11:44:32 AM
Governments have a very limited range of policy choices to reduce unemployment, and none of them have proved particularly successful. Make-work programs, tax breaks for new hires, and retraining programs.
Can't be worse than the current situation.
Quote from: crazy canuck on April 26, 2013, 11:17:09 AM
What solutions are being proposed?
Within Spain, I mean.
Firing workers has been much cheaper for a year now.
Quote from: Zanza on April 26, 2013, 12:18:45 PM
Can't be worse than the current situation.
They all cost money.
Quote from: Admiral Yi on April 26, 2013, 12:29:55 PM
Quote from: Zanza on April 26, 2013, 12:18:45 PM
Can't be worse than the current situation.
They all cost money.
So? Can't have a higher cost to society than this unemployment.
Quote from: Admiral Yi on April 26, 2013, 11:44:32 AM
Governments have a very limited range of policy choices to reduce unemployment ...
Not really. There are lots of things the government can do.
It could change regulations, encouraging owners to rent vacant flats thus promoting renting (and thus work mobility).
It could at least attempt to fix our disgraceful education system (privatizing universities, promoting on-the-job training ala Germany, increasing vocational school capacity and a long etcetera).
It could stop punishing entrepeneurs. Apple is allowed to post losses and record sales in the same exercise. Meanwhile, if I want to create a business I have to start paying taxes before I make a single sale. And let's not talk about how long it'll take to set up that business ...
It could promote R&D instead of killing it.
It could engage in actual diplomacy to set up saner policies in Brussels/Frankfurt.
Hell, it could even stop robbing us blind. Pretty much the entire government was receiving illegal donations from construction companies for at least 10-15 years. On top of innumerable scandals at regional or local level. Now wonder nobody wanted to kill the bubble.
And those are just a few off the top of my head.
QuoteMake-work programs, tax breaks for new hires, and retraining programs.
We've got all of the above.
Quote from: Zanza on April 26, 2013, 11:04:00 AM
@KRonn: unemployment is at a record high in the EU this month, so it's getting worse.
Sad to hear that things are worsening after several years of stagnation already.
Quote from: Zanza on April 26, 2013, 12:44:08 PM
So? Can't have a higher cost to society than this unemployment.
So Spain doesn't have a pile of unused money sitting around.
Quote from: The Larch on April 26, 2013, 10:48:32 AM
Quote from: KRonn on April 26, 2013, 10:36:30 AM
Wow, that's nasty unemployment in parts of, or most of Spain. How does Spain fare among other EU nations with unemployment? I assume Greece is worse but aside from that, are unemployment rates getting better or worse overall in the EU?
No, I believe Spain's unemployment rate is the worst in all the EU by far. It has always been like that, our unemployment rates are atrocious since long before the crisis.
Ok, I'm a bit surprised. I wouldn't have thought of Spain as having the worst unemployment, and as such a longstanding type issue.
Quote from: Iormlund on April 26, 2013, 12:44:19 PM
And those are just a few off the top of my head.
You should run for office :)
I would invade Portugal, liquidate the eggplants and form midnight basketball leagues.
Spain has always had a uniquely high unemployment, although we also have a higher work force participation than some of our neighbors with technically lower unemployment figures (Italy I'm looking at you).
The elephant in the room is, however, the massive foreign-born population. We received maybe close to 10 million immigrants in a decade, most of those uneducated, looking for jobs in booming construction, elderly care and such.
Some of them are leaving now, but many are not. The woman who cleans my flat, for example, came from a tiny village in Romania. As bad as things are here, they are much worse at home.
There are indeed voices that point out that we have more foreigners than unemployed, but lacking a New Dawn, Lega Nord or FN, they are not politically relevant.
Quote from: crazy canuck on April 26, 2013, 01:15:33 PM
Quote from: Iormlund on April 26, 2013, 12:44:19 PM
And those are just a few off the top of my head.
You should run for office :)
:lol:
Too late for that. You have to join one of the two parties as a teen and start to climb the ladder. A law degree helps. Friends or relatives in the loop help much more*. Actual work experience is strongly discouraged.
*It is amazing how many politicians from both parties are related to players in the dictatorship
Quote from: Iormlund on April 26, 2013, 01:56:26 PM
Quote from: crazy canuck on April 26, 2013, 01:15:33 PM
Quote from: Iormlund on April 26, 2013, 12:44:19 PM
And those are just a few off the top of my head.
You should run for office :)
:lol:
Too late for that. You have to join one of the two parties as a teen and start to climb the ladder. A law degree helps. Friends or relatives in the loop help much more*. Actual work experience is strongly discouraged.
*It is amazing how many politicians from both parties are related to players in the dictatorship
heh, same story everywhere... though we got a whole bunch of newbs into the system during last elections. No wonder if you have a party that goes from a few percent to circa 25% in one election (communal this time)
Quote from: Admiral Yi on April 26, 2013, 12:53:38 PM
Quote from: Zanza on April 26, 2013, 12:44:08 PM
So? Can't have a higher cost to society than this unemployment.
So Spain doesn't have a pile of unused money sitting around.
Spain might not, but we can always make more money. Inflation is currently not a problem at all for Europe.
Quote from: Zanza on April 26, 2013, 03:06:30 PM
Spain might not, but we can always make more money. Inflation is currently not a problem at all for Europe.
Hey, knock yourself out. It doesn't affect me directly if the ECB monetizes debt.
Another job creator would be a single market in services and more free trade deals, especially with China.
In other news the PS have proven yet again that they're the least reformed party of the left in Europe and by some distance the most amazingly French :lol:
QuoteFrench socialists attack 'selfish' Merkel
By Hugh Carnegy in Paris
©Reuters
Simmering tensions in the eurozone have been laid bare by a ruling French Socialist party document denouncing Chancellor Angela Merkel's "selfish intransigence" over austerity and Britain's "Thatcherite" prime minister.
The attack, in a leaked draft paper on European policy, capped a week in which calls have mounted from several European leaders for a review of austerity policies championed by Germany. The leak is likely to embarrass President François Hollande, who insists he has a good working relationship with Ms Merkel, despite acknowledging "friendly tension" between them.
The document bitterly attacked the conduct of right-leaning administrations during the eurozone crisis, including David Cameron's British government, but reserved its harshest words for Ms Merkel.
"The [European] project is today battered by a marriage of convenience between the Thatcherite leanings of the current British prime minister – who only conceives of a Europe à la carte and of rebates – and the selfish intransigence of Chancellor Merkel, who thinks of nothing but the deposits of German savers, the trade balance recorded by Berlin and her electoral future."
Ms Merkel's government has resisted calls from José Manuel Barroso, European Commission president, and Enrico Letta, Italy's prime minister designate, for a softening of austerity. On Friday, Spain said it needed two more years to meet its EU deficit targets.
But arguably the greatest strains are between Germany and France, the eurozone's biggest economies and traditionally the joint motor of EU co-operation. François Fillon, prime minister under Nicolas Sarkozy, Mr Hollande's centre-right predecessor, said on Friday during a visit to Berlin that relations between the two had "rarely been so bad".
Socialist party officials said personal remarks about Ms Merkel would be removed from the final policy document, but that the party had "a huge problem" with austerity.
The paper attacked Mr Sarkozy's strategy of working closely with Ms Merkel. "Friendship between France and Germany is not the (same as) friendship between France and the European policy of Chancellor Merkel," it said.
Mr Hollande, battling a weakened economy, badly needs Berlin's support for his own appeal to delay hitting EU budget deficit targets. Senior German ministers this week made public statements of support for his government policies – regarded privately by many in Berlin as insufficient to turn around the French economy.
But the document, revealed by Le Monde newspaper on its website, exposed a raw resentment against Germany's dominant position that lurks below the surface. Claude Bartolone, the socialist speaker of the National Assembly, this week called for "confrontation" with Germany over its insistence on austerity.
The socialist document, drafted ahead of a party conference on Europe scheduled in June, said Mr Hollande had offered an alternative vision of growth for Europe to the "cynicism" of conservative governments who proposed only free trade and austerity. "France has the only sincerely European government among the big states of the EU," it declared.[/u] (:blink: :lol:)
It sharply criticised Mr Barroso as a "prisoner of the great feudal conservatives". It called for a renegotiation of austerity plans "imposed on Greece and Spain" and a revision of the eurozone's stability pact, which introduced stricter budgetary controls on member states by Brussels.
It backed other longstanding German-opposed French positions on the crisis, including giving the European Stability Mechanism, the eurozone's rescue fund, a banking licence and access to European Central Bank funds, and the mutualisation of eurozone sovereign debt.
"French socialists want Europe. What they fight is a Europe of the right and its triptyque: deregulation, deindustrialisation and disintegration," the document said.
Bravo! :frog: :wub:
Spanish regions with similar unemployment rates as other countries...
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fi.imgur.com%2Fbb2rB6z.jpg&hash=8cee03604f1bb7eb64cce27a52f1b8a1ea21a174)
Down, Tim.
Is that good ... bad? I don't have the employment statistics of Micronesia, Gabon or the Marshall Islands at hand.
I guess this one is easier to read, but I found the comparison to Afghanistan and Gaza interesting. It tells you more than just a percentage...
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fi.imgur.com%2FoPT7U27.png&hash=f9bc6f8eb101c0925f02edbb2945e16951c90b0e)
What bugs me about Austrian unemployment statistics is that the monthly report usually focuses on the change in percent, not so much the actual levels, which usually means you have to dig a bit.
A typical statistic in the news would look like this:
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fdiepresse.com%2Fimages%2Fuploads%2F6%2F3%2Fa%2F403002%2FArbeitslose_OEsterreich_Grafik_%2C20080801120102.jpg&hash=02de0ff72a107731c661a0a664e687e440efed5c)
This has a bit more data:
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Foesterreich.orf.at%2Fstatic%2Fimages%2Fsite%2Foeka%2F2013025%2Foest_arbeitslosigkeit_jaenn.5121320.gif&hash=828001d85383417df666efb31c663d13714f5812)
Please note that Austria counts unemployed differently at home than the EU does (they put the registered unemployed in relation to the registered employed people - self employed people are not part of the equation, for example)), resulting in higher numbers than the Eurostat ones.
Even inflated, we can beat you guys just with those that haven't had a job in over two years. :P:wacko:
Someone linked in P'dox to the latest Commission's forecast reports. I found amusing that the prediction for unemployment for Spain was obsolete before the ink was dry. 2013 Forecast: 27.0%. Actual 1Q figure: 27.2%.
It's like they are not even trying anymore. :lol:
So it is completely unthinkable that the next three quarters have unemployment at 26.9%? That's not really such a great achievement and it would be all that's needed to make the prognosis true. Just takes some more workers in tourism and agriculture in summer and it works out.
Quote from: Admiral Yi on April 26, 2013, 03:35:16 PM
Quote from: Zanza on April 26, 2013, 03:06:30 PM
Spain might not, but we can always make more money. Inflation is currently not a problem at all for Europe.
Hey, knock yourself out. It doesn't affect me directly if the ECB monetizes debt.
Inflation has fallen to 1.2% in the Eurozone. That leaves a lot of room to print money to write off bad debt.
Damn that's bad. :(
Had in interesting chat with an economic historian yesterday, we'll I say chat, mostly me listening intently and not trying to show my own ignorance too much.
But good grief, I seem to know very little about early 19th century economic and social history. :blush:
Quote from: mongers on May 06, 2013, 03:13:15 PM
Damn that's bad. :(
Had in interesting chat with an economic historian yesterday, we'll I say chat, mostly me listening intently and not trying to show my own ignorance too much.
But good grief, I seem to know very little about early 19th century economic and social history. :blush:
What an absolutely appalling display of ignorance on your part. :mad:
Quote from: Barrister on May 06, 2013, 03:14:05 PM
Quote from: mongers on May 06, 2013, 03:13:15 PM
Damn that's bad. :(
Had in interesting chat with an economic historian yesterday, we'll I say chat, mostly me listening intently and not trying to show my own ignorance too much.
But good grief, I seem to know very little about early 19th century economic and social history. :blush:
What an absolutely appalling display of ignorance on your part. :mad:
I don't deny it, I need a reading list. :blush:
Quote from: Barrister on May 06, 2013, 03:14:05 PM
What an absolutely appalling display of ignorance on your part. :mad:
Well... he didn't display it, did he? He mostly listened.
Quote from: Jacob on May 06, 2013, 03:26:04 PM
Quote from: Barrister on May 06, 2013, 03:14:05 PM
What an absolutely appalling display of ignorance on your part. :mad:
Well... he didn't display it, did he? He mostly listened.
'Twas a joke Jake.
Quote from: Zanza on May 06, 2013, 03:10:57 PM
Inflation has fallen to 1.2% in the Eurozone. That leaves a lot of room to print money to write off bad debt.
It certainly does. Like I said, knock yourselves out. I've got no skin in the game.
Quote from: mongers on May 06, 2013, 03:15:57 PM
I don't deny it, I need a reading list. :blush:
Try Jeffrey Williamson and Robert C. Allen.
Quote from: The Minsky Moment on May 06, 2013, 04:52:16 PM
Quote from: mongers on May 06, 2013, 03:15:57 PM
I don't deny it, I need a reading list. :blush:
Try Jeffrey Williamson and Robert C. Allen.
Thanks t's a start, but I should point out I know next to nothing about the British economics of the period 1750-1900. And my knowledge of the political and social history is only slightly better.
It's odd as I was reading about the swing riots, corn laws and so forth the other day and thinking to myself, this is both an interesting and quite important period, I should know more and a few days later I'm chatting with this guy/professor whose area of expertise in early 19th century British economic history. :hmm:
This is a pretty low difficulty factor book that covers the period, focusing on trade: http://www.amazon.com/War-Wine-Taxes-Political-Anglo-French/dp/0691129177
Quote from: The Minsky Moment on May 06, 2013, 05:05:04 PM
This is a pretty low difficulty factor book that covers the period, focusing on trade: http://www.amazon.com/War-Wine-Taxes-Political-Anglo-French/dp/0691129177
Thanks for that, I'll look into it, I note it's on one of your favourite 'subjects' :cheers:
Quote from: Zanza on May 06, 2013, 03:06:01 PM
So it is completely unthinkable that the next three quarters have unemployment at 26.9%? That's not really such a great achievement and it would be all that's needed to make the prognosis true. Just takes some more workers in tourism and agriculture in summer and it works out.
I guess it could happen (actually last month's employment went up by 46k most likely due to Easter). However summer tourist season hasn't been enough to compensate the negative trend of the rest of the economy during the crisis (only mildly during the hopeful 2010).
I spent a couple hours this afternoon at a European job fair. About a hundred job seekers while I was there, pretty much all engineers by the look of it (most under 40 years old).
Busiest stands by far: Denmark and Norway.
The German stand was virtually empty and, unlike the Scandies, the staff was not particularly helpful.
Quote from: Iormlund on May 16, 2013, 03:36:37 PM
Busiest stands by far: Denmark and Norway.
The German stand was virtually empty and, unlike the Scandies, the staff was not particularly helpful.
Find success where nobody else wants to go. :)
I'm guessing it's mostly down to the language barrier. The first thing the Germans asked was 'sprechen Sie Deutsch?' while the Scandies merely looked hungrily at you and said: 'so, my dear, what kind of engineer are you?' :lol:
My problem with the German (and Dutch) delegations is they weren't able to tell me how would I be able to deal with my condition. The Scandies, OTOH, were very straightforward: In Norway you are entitled to full coverage once you've worked 4 weeks. In Denmark, as soon as you have a signed contract.
My current employer hired me on the condition that they provide me no health coverage. :)
Quote from: Phillip V on May 16, 2013, 04:15:02 PM
My current employer hired me on the condition that they provide me no health coverage. :)
That's going to become more and more common, thanks to Obamacare.
(https://pbs.twimg.com/media/BI8UoVXCAAE3C9e.jpg)
If current estimates prove to be true* and the trend holds, over 15% of the workforce will be pretty much unemployable by the time firms start hiring again.
* :lol:
How is Spanish GDP not utterly tanking? Were those unemployed people that useless?
Quote from: DGuller on May 25, 2013, 01:15:04 PM
How is Spanish GDP not utterly tanking? Were those unemployed people that useless?
Are the GDP numbers to be trusted? Serious question for resident Spaniards.
Quote from: DGuller on May 25, 2013, 01:15:04 PM
How is Spanish GDP not utterly tanking? Were those unemployed people that useless?
Have you ever been to Spain?
Quote from: DGuller on May 25, 2013, 01:15:04 PM
How is Spanish GDP not utterly tanking? Were those unemployed people that useless?
To a degree, yes. The work culture here emphasizes work-hours, rather than actual productivity.
In any case, the most affected sectors are inherently low-productivity, like construction. It would also make sense for the weakest companies to disappear first. In addition, with unemployment rampant and firing being much cheaper, bosses can now easily ask for overtime without pay from the remaining employees.
Finally, there's been a huge boost to exports since the crisis started, led by larger, more productive businesses.
Quote from: Iormlund on May 25, 2013, 11:29:20 PM
To a degree, yes. The work culture here emphasizes work-hours, rather than actual productivity.
Like the Japanese service sector.
QuoteFinally, there's been a huge boost to exports since the crisis started, led by larger, more productive businesses.
Exports still count towards GDP.
http://www.econclubny.org/events/Transcript_VolckerMay2013.pdf
Volcker: Effects of QE are "limited and diminishing". Pushing on a string. We should end the dual mandate.
Quote
Spain's obsession with high-speed trains runs into budget reality
(Reuters) - A one-track dirt road used by local farmers is the main access to a magnificent glass-and-steel train station in the small city of Villena, on Spain's latest high-speed rail route.
It is a spanking new 4,500 square meter building - essentially in the middle of nowhere.
The central government financed the rail route, inaugurated on Monday, between Madrid and Alicante on the Costa Blanca. The Valencia regional government was supposed to fund works to connect it to the nearby motorway and Villena, home to 35,000.
But it ran out of money, leaving the station high and dry.
The disconnect says a lot about both Spain and its current finances, about a love affair with grand projects to showcase its modernity and a diminishing ability to pay for them.
The Valencia government has pledged to complete the works but it is now not clear when and where it will be able to find the funds as it is already cutting spending on schools and hospitals as it tries to reduce a deficit.
Ximo Puig, the head of the Socialist opposition in Valencia, says the station is likely to become yet another white elephant in a country where dozens of airports, train stations, motorways or cultural centers built during a decade-long property boom are under-used or have been abandoned.
"The new route was a much needed infrastructure but there was a lot of improvisation and a complete lack of planning and it could all come to nothing, starting with Villena," he told Reuters in a telephone interview on Monday.
Spain has been in and out of recession since its credit-driven expansion ended abruptly in 2008, pushing millions into unemployment and putting the country on the brink of requesting an international bailout.
In order to meet tough Europe-agreed deficit targets, Spain has pledged to reform its administration, its public pensions scheme, its tax system and its energy sector among a list of close to 100 reforms it committed to implement by 2015.
One thing it will not cut, however, is its plan to add more fast trains - called AVE, the initials for high-speed in Spanish and also meaning "bird" - to what is already the second-biggest high-speed network in the world after China.
MORE TRAINS
Far from scaling down the previous Socialist government's plans, the center-right administration of Prime Minister Mariano Rajoy intends to invest more than 25 billion euros over the next decade to almost double the existing 3,100-kilometers network to reach regions such as the Basque Country, Galicia or Murcia.
Rajoy, who rode the debut train service from Madrid to Alicante on Monday with Spain's Prince Felipe, said in a speech in Alicante that building AVE trains would remain a priority.
"Despite our budget woes, one of the objectives of the government is to stimulate investments that are truly productive so that they'll contribute to the shared objective of the government and the society: the economic recovery and job creation," he said.
Although Spain's train system as a whole loses money, most of its high-speed lines break even. However Spain earlier this month cut service on 41 routes, including some AVE lines, praised for their comfort and reliability but expensive to maintain.
Spain's government is drafting a law to reform the railway system and make it more sustainable.
On many routes, Spanish cities lack the critical size to make the system sustainable, partly explaining why the state-owned Renfe train operator and Adif station and rail company are losing money.
Renfe has a 5 billion-euro debt while Adif, rated as junk by Moody's investors service, has debt of more than 11 billion euros.
SPANIARDS ENTHUSIASM
The government aimed to avoid repeating previous mistakes on the Madrid-Alicante line by using second-hand trains and reducing the number of daily train journeys. But the 2-billion-euro project may struggle for profitability.
The biggest town on the route is Albacete with only 170,000 inhabitants and the cost of a ticket for a return trip between Madrid and Alicante on the coast - 125 euros - will be unaffordable for most Spaniards.
The official projection for passenger capacity on the route was raised by 40 percent to put it at 2.2 million people every year, twice the number of people who used the 50-minutes-slower existing train service in 2012.
AVE believers say that Spain's obsession for high-speed trains has helped Adif winning majors contracts abroad such as the one to build a high-speed train to Mecca in Saudi Arabia. It now plans to compete for other projects in Brazil and Russia.
But on board the opening train and at the unfinished stations along the route, there was little enthusiasm.
In Alicante, about 200 people staged a demonstration against the new infrastructure and no more than 50 people welcome the new train at the Villena station.
They are pretty trains, though.
There are a couple routes where AVE makes a lot of sense (like the original Seville-Madrid-Zaragoza-Barcelona). It is cheaper, faster, cleaner and more comfortable to jump into the train at your local station and step down at Atocha than going to the airport, passing security checks, checking in, flying, checking out, and taking a taxi downtown. Imagine travelling from downtown DC to Manhattan in less than two hours.
However, for regional politicians having a high-speed connection became a matter of prestige (like having an airport or university). Thus, all the useless lines (and airports and universities).
The Greens in France are now against (high-speed) trains and use Hollande's floppyness and money shortage to get lots of projects cancelled. Including the important Bordeaux-Hendaye (Spanish border) at the European level linking at last on international gauge France with Spain via the Basque Country. A project criticised and attacked by ETA for Blut und Boden reasons not so far away from those given by the Greens, the ignorant, sometimes xenophobic and at least willingly obtuse local NIMBY folks.
Of course, having congested national roads and motorways or planes for short trips does not seem to bother them.
Saying the traffic predictions are always optimistic is one thing but what they do not seem to know is the link is international gauge which would allow Iberian freight trains to access the European market. Something limited to links with Iberia which never happened before when linking the French high-speed railway system with Germany, Belgium, Switzerland, Italy or even the UK.
Not all goods and people can go through Figueres/Figueras (Catalonia)...
First they say there's not more room to expand the local railway from 2-track then 4-track, and insist on a detour to avoid the Landes natural zone (acceptable) then they complain about the detour since it will mean more km and less time gain :rolleyes:
Of course, they seem to ignore than having multiple train types e.g local trains, freight, intercity and TGVs with different speeds on the same line does not work wonders as in saturating it. But then one cannot expect much from peasants not exactly known for travelling or interesting to things beyond their villages...
Blame it on Das Kapital, the public works lobby, the Parisians bourgeois (all of them are of course?!) and voilà.
The last part of the current link is so crappy that for 90 km (Dax-Hendaye) it takes more an hour and a half now for the TGV to cross it but that does not bother them. Some of it is linked to works on the track but still...
Last thing, the last part of the proposed track was a mixed freight/passenger train devised for speeds around 220 kph (à la Figueres/Perpignan) so the bobo leftist criticism about the TGV being for the bourgeoisie only is way off.
/rant over
PS : seems the Spanish mixed high-speed rail link between San Sebastian and Hendaye is cancelled, one the critical high-speed train projects :frusty:
High-speed trains make much sense, but not if you do it à la belge: HS trains from Ostend to Brussels (ridiculous) and from Liège to Brussels (also ridiculous) as in both cases the distances are so short that the train can't be used efficiently, nor do the trains ride with many passengers (sometimes less than 10). result: millions of euros wasted
Quote from: Zanza on April 16, 2013, 11:41:48 AM
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 (http://en.wikipedia.org/wiki/Ursula_von_der_Leyen).
I know this is a weird thing to notice on a politician's wiki but holy crap she has seven kids? Nobody can accuse her of not doing her part in combatting the German demographic decline.
Quote from: Valmy on July 25, 2013, 10:03:48 AM
Quote from: Zanza on April 16, 2013, 11:41:48 AM
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 (http://en.wikipedia.org/wiki/Ursula_von_der_Leyen).
I know this is a weird thing to notice on a politician's wiki but holy crap she has seven kids? Nobody can accuse her of not doing her part in combatting the German demographic decline.
Yep. And she was held up as a model for how family and career are both possible together. Never mind that she can probably afford a live-in nanny, unlike most people.
Quote from: Valmy on July 25, 2013, 10:03:48 AM
Quote from: Zanza on April 16, 2013, 11:41:48 AM
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 (http://en.wikipedia.org/wiki/Ursula_von_der_Leyen).
I know this is a weird thing to notice on a politician's wiki but holy crap she has seven kids? Nobody can accuse her of not doing her part in combatting the German demographic decline.
And what is wrong with that young man? I note a hint of disapproval in your post.
Quote from: Ed Anger on July 25, 2013, 10:27:44 AM
And what is wrong with that young man? I note a hint of disapproval in your post.
I do not disapprove, I am rather just amazed. I did not think Euros did that sort of thing anymore.
Quote from: Ed Anger on July 25, 2013, 10:27:44 AM
Quote from: Valmy on July 25, 2013, 10:03:48 AM
Quote from: Zanza on April 16, 2013, 11:41:48 AM
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 (http://en.wikipedia.org/wiki/Ursula_von_der_Leyen).
I know this is a weird thing to notice on a politician's wiki but holy crap she has seven kids? Nobody can accuse her of not doing her part in combatting the German demographic decline.
And what is wrong with that young man? I note a hint of disapproval in your post.
I'll outright disapprove.
Quote from: Valmy on July 25, 2013, 10:03:48 AM
Quote from: Zanza on April 16, 2013, 11:41:48 AM
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 (http://en.wikipedia.org/wiki/Ursula_von_der_Leyen).
I know this is a weird thing to notice on a politician's wiki but holy crap she has seven kids? Nobody can accuse her of not doing her part in combatting the German demographic decline.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fcdn1.spiegel.de%2Fimages%2Fimage-23510-galleryV9-xevc.jpg&hash=97cbdd523340ed27dee1d18ddeddcca22cc467f4)
She and her husband are both from old money (her father was governor of Lower Saxony, her husband's family has princes of the HRE among its ancestors, you can't get more old money than that), so she could always afford it. I am sure she never needed to work a minute of her life, it's all just ambition.
She also had two ponies and two goats as well? Yowzers,
Quote from: Zanza on July 25, 2013, 01:17:25 PM
She and her husband are both from old money (her father was governor of Lower Saxony, her husband's family has princes of the HRE among its ancestors, you can't get more old money than that), so she could always afford it. I am sure she never needed to work a minute of her life, it's all just ambition.
Well I would hate to think one would be so irresponsible as to have seven kids one could not afford.
Anyway so she burns with a desire to gain power and rule over Germany and Europe like a God-Empress? That just means she is a politician...and how many German politicians are actually doing it to pay the bills? I am shocked that she would dress her identical twins in identical outfits though. That is just cruel.
Quote from: The Larch on July 25, 2013, 01:22:44 PM
She also had two ponies and two goats as well? Yowzers,
Even I don't have that.
Quote from: Valmy on July 25, 2013, 01:26:03 PM
Anyway so she burns with a desire to gain power and rule over Germany and Europe like a God-Empress? That just means she is a politician...and how many German politicians are actually doing it to pay the bills?
Our previous chancellor Schröder was raised by a single mum (his father fell in WW2) who worked as a cleaner in very humble circumstances. I guess our politicians are generally well-off, but they aren't all plutocrats like American politicians nowadays seem to be.
Quote from: Zanza on May 06, 2013, 03:06:01 PM
Quote from: Iormlund on May 06, 2013, 02:27:52 PM
Someone linked in P'dox to the latest Commission's forecast reports. I found amusing that the prediction for unemployment for Spain was obsolete before the ink was dry. 2013 Forecast: 27.0%. Actual 1Q figure: 27.2%.
It's like they are not even trying anymore. :lol:
So it is completely unthinkable that the next three quarters have unemployment at 26.9%? That's not really such a great achievement and it would be all that's needed to make the prognosis true. Just takes some more workers in tourism and agriculture in summer and it works out.
You might have been on to something here. The government is gloating about the best second quarter in ages, with unemployment down to 26.26%.
What they are not saying, though, is that much of that is because of people that have given up on finding a job, have retired, migrated, or will be working just for the tourist season. The latter will of course find themselves without a job come October. But if enough people give up hope, we might hit those forecasts. :cool:
Quote from: Zanza on July 25, 2013, 01:58:48 PM
Quote from: Valmy on July 25, 2013, 01:26:03 PM
Anyway so she burns with a desire to gain power and rule over Germany and Europe like a God-Empress? That just means she is a politician...and how many German politicians are actually doing it to pay the bills?
Our previous chancellor Schröder was raised by a single mum (his father fell in WW2) who worked as a cleaner in very humble circumstances. I guess our politicians are generally well-off, but they aren't all plutocrats like American politicians nowadays seem to be.
Obama?
Quote from: Ed Anger on July 25, 2013, 01:37:15 PM
Quote from: The Larch on July 25, 2013, 01:22:44 PM
She also had two ponies and two goats as well? Yowzers,
Even I don't have that.
Proper German offensives still rely on mobility, man.
Quote from: CountDeMoney on July 25, 2013, 06:38:07 PM
Quote from: Ed Anger on July 25, 2013, 01:37:15 PM
Quote from: The Larch on July 25, 2013, 01:22:44 PM
She also had two ponies and two goats as well? Yowzers,
Even I don't have that.
Proper German offensives still rely on mobility, man.
My kampfgruppe is fully motorized.
Quote from: alfred russel on July 25, 2013, 03:32:33 PM
Quote from: Zanza on July 25, 2013, 01:58:48 PM
Our previous chancellor Schröder was raised by a single mum (his father fell in WW2) who worked as a cleaner in very humble circumstances. I guess our politicians are generally well-off, but they aren't all plutocrats like American politicians nowadays seem to be.
Obama?
Compared to the average American, he's wealthy.
Quote from: Zanza on July 25, 2013, 01:58:48 PM
Quote from: Valmy on July 25, 2013, 01:26:03 PM
Anyway so she burns with a desire to gain power and rule over Germany and Europe like a God-Empress? That just means she is a politician...and how many German politicians are actually doing it to pay the bills?
Our previous chancellor Schröder was raised by a single mum (his father fell in WW2) who worked as a cleaner in very humble circumstances. I guess our politicians are generally well-off, but they aren't all plutocrats like American politicians nowadays seem to be.
Which is why he decided he was never going to be poor, and he sold his country out to the Russians.
Quote from: citizen k on July 25, 2013, 06:49:42 PM
Quote from: alfred russel on July 25, 2013, 03:32:33 PM
Quote from: Zanza on July 25, 2013, 01:58:48 PM
Our previous chancellor Schröder was raised by a single mum (his father fell in WW2) who worked as a cleaner in very humble circumstances. I guess our politicians are generally well-off, but they aren't all plutocrats like American politicians nowadays seem to be.
Obama?
Compared to the average American, he's wealthy.
So is Schröder. The point is he didn't have the background of a plutocrat.
Quote from: alfred russel on July 25, 2013, 08:14:32 PM
So is Schröder. The point is he didn't have the background of a plutocrat.
Neither did Obama or Clinton.
Quote
EU executive sees personal savings used to plug long-term financing gap
By Huw Jones
LONDON (Reuters) - The savings of the European Union's 500 million citizens could be used to fund long-term investments to boost the economy and help plug the gap left by banks since the financial crisis, an EU document says.
The EU is looking for ways to wean the 28-country bloc from its heavy reliance on bank financing and find other means of funding small companies, infrastructure projects and other investment.
"The economic and financial crisis has impaired the ability of the financial sector to channel funds to the real economy, in particular long-term investment," said the document, seen by Reuters.
The Commission will ask the bloc's insurance watchdog in the second half of this year for advice on a possible draft law "to mobilize more personal pension savings for long-term financing", the document said.
Banks have complained they are hindered from lending to the economy by post-crisis rules forcing them to hold much larger safety cushions of capital and liquidity.
The document said the "appropriateness" of the EU capital and liquidity rules for long-term financing will be reviewed over the next two years, a process likely to be scrutinized in the United States and elsewhere to head off any risk of EU banks gaining an unfair advantage.
The EU executive will also complete a study by the end of this year on the feasibility of introducing an EU savings account, open to individuals whose funds could be pooled and invested in small companies.
The Commission also plans to study this year whether changes are needed to help fund small businesses by creating a liquid and transparent secondary market for trading corporate bonds in the EU.
It is also seeking to revive the securitization market, which pools loans like mortgages into bonds that banks can sell to raise funding for themselves or companies. The market was tarnished by the financial crisis when bonds linked to U.S. home loans began defaulting in 2007, sparking the broader global markets meltdown over the ensuing two years.
The document says the Commission will "take into account possible future increases in the liquidity of a number of securitization products" when it comes to finalizing a new rule on what assets banks can place in their new liquidity buffers. This signals a possible loosening of the definition of eligible assets from the bloc's banking watchdog.
The Commission will also "review" how EU rules treat covered bonds by the end of this year, the document says, a step that will be welcomed by Denmark with its large market in bonds used by banks to finance home loans.
Other steps to boost financing in the EU include possible steps to aid crowdfunding, where many people contribute relatively small amounts of money to create a sizeable funding pool.
The document said investors and asset managers also have a role and it will propose a revision of EU rules on shareholder rights to "ensure better disclosure of institutional investors' engagement and voting policies".
More controversially, the Commission will consider whether the use of fair value or pricing assets at the going rate in a new globally agreed accounting rule "is appropriate, in particular regarding long-term investing business models".
http://www.reuters.com/article/2014/02/12/us-eu-banks-savings-idUSBREA1B1ZI20140212 (http://www.reuters.com/article/2014/02/12/us-eu-banks-savings-idUSBREA1B1ZI20140212)
I believe it's called stealing.
The death of the Hypo Alpe Adria bank in Austria will rest solely on the tax payer. €13 billion. Other banks were not interested taking on any of the bad debt. Some of the total sum might get deflected to the Bavarian bank that was also a shareholder of the Hypo Alpe Adria.
Ouch. €13b sounds like quite a chunk for a country as small as Austria. Is it an isolated incident or an indication of the state of banking over there?
Isolated. A result of bad management (there were criminal investigations, actually) as well as the financial crisis. The amount will be covered by a state owned bad bank and will stretch over a few years. Saw a headline today: roughly €1200-1300 per person living in Austria.
http://online.wsj.com/news/articles/SB10001424052702304104504579374842733926408
QuoteAustrian Banks Won't Participate in Hypo Alpe-Adria 'Bad Bank'
Privatization of Debt-Laden Bank No Longer Possible, Says Finance Minister
Austria's banks have refused to participate in a "Bad Bank" carved out of the wreckage of failed regional lender Hypo Alpe Adria AG, raising the risk that the government may declare the bank insolvent.
Austrian Finance Minister and Vice Chancellor Michael Spindelegger acknowledged Monday that he had failed to persuade the country's largest private-sector banks to fund a new institution that would wind down the bulk of operations at the bank, which was nationalized at the end of 2009 after a disastrous expansion into southeastern Europe during the boom.
That leaves the government effectively with two options: it can either assume the bad assets itself, and allow any further losses to hit the public accounts, or it can put the bank into an insolvency process. Hypo's estimated liabilities far exceed its assets, so insolvency would almost certainly impose losses on the bank's creditors—the first time since the financial crisis that an EU member state's government had failed to honor debts owed by a bank wholly under its control.
The government in December sold Hypo's domestic operations to a private investor, leaving only the bank's operations in the Balkans and Italy. As such, there is no direct risk to Austrian depositors any more—only to the bank's bondholders, its owner the government and Bayerische Landesbank, its former owner, which still has 2.3 billion euros of deposits tied up in the group as a result of the 2009 nationalization deal.
Talking to journalists after his meeting with representatives from the banks broke down, Mr. Spindelegger said the government will look at the establishment of a state-owned bad bank first, similar to the model used repeatedly in Germany since the crisis. Mr. Spindelegger's predecessor, Maria Fekter, had refused to countenance such a step, fearing that the extra debt load would cause credit ratings firms to cut Austria's sovereign rating.
"We have to look the facts in the face," Mr. Spindelegger said.
Neither he nor anyone else in Austrian officialdom was willing to venture an opinion on how much could still be lost on Hypo's remaining assets, which have shrunk to under €30 billion ($41 billion) from a peak of €50 billion as a result of successive write-downs and asset sales.
However, Helmut Ettl, joint head of the banking supervisor the Financial Market Authority, told journalists the only remaining models will all be expensive, but warned against experimenting with insolvency.
"A bankruptcy scenario is clearly a scenario where at the end of the day no one knows exactly how large the risks are," Mr. Ettl said.
The government and central bank have also shied away from the latter course for the last two years, saying it would have far-reaching consequences for the borrowing costs not only of the government itself, but for all government-controlled entities and for the whole Austrian economy.
However, the public has become increasingly impatient with the government's management of Hypo and the repeated capital injections needed to keep it going. The state has injected €3.6 billion into the bank since it bought it back from Germany's Bayerische Landesbank for a nominal sum in 2009.
A report prepared for the government by consultants Oliver Wyman suggested that insolvency would have the smallest direct impact on taxpayers in terms of losses, and that the effect on refinancing costs would only be temporary. One advantage for the Austrian taxpayer from insolvency could be that the remaining losses at the bank are imposed not only on Hypo's remaining private bondholders, but also on Bayerische Landesbank.
Mr. Spindelegger also said that privatization of the debt-laden bank was "de facto no longer possible." He was speaking to journalists after a meeting between government ministers, the head of the Austrian National Bank, Ewald Nowotny, and a banking task force created to advise on dealing with Hypo.
Hypo Alpe-Adria was nationalized in the wake of the financial crisis after overstretching itself in the Balkan region. The Austrian government had been hoping for major Austrian banks to participate in its wind-down to minimize the impact on the country's budget.
Mr. Spindelegger said the government would now consider an "institute" or traditional bad bank model.
Quote from: Crazy_Ivan80 on February 13, 2014, 04:56:05 AM
I believe it's called stealing.
When a person does it, that's what it's called. When a government does it, they put little pink dresses on the turd by calling it "malappropriation."
Or "taxation."
Interesting IMF paper on debt and growth:
http://www.imf.org/external/pubs/ft/wp/2014/wp1434.pdf
The European Debt Crisis Visualized
http://www.youtube.com/watch?v=C8xAXJx9WJ8 (http://www.youtube.com/watch?v=C8xAXJx9WJ8)
Quote from: Sheilbh on February 13, 2014, 05:48:11 PM
Interesting IMF paper on debt and growth:
http://www.imf.org/external/pubs/ft/wp/2014/wp1434.pdf
Thanks for that. I read it all.
Interesting findings that the overall debt level has a smaller effect on growth than the rate of increase. It does sort of sully the idea of spending as a stimulant. I guess if you think about it, governments can do their own version of quantitative easing by simply issuing less debt than they did the previous year.
QuoteI have gone on record that the most dangerous organization is the now French led IMF with Christine Lagarde at the helm, which has presented a concept report that debt cuts for over-indebted states are uncompromising and are to be performed more effectively in the future by defaulting on retirement accounts held in life insurance, mutual funds and other types of pension schemes, or arbitrarily extending debt perpetually so you cannot redeem. Yes you read correctly, The new IMF paper is described in great detail exactly how to now allow the private sector, which has invested in government bonds, to be expropriated to pay for the national debts of the socialist governments.
I have been warning that there is an idea that has been running around behind the curtain that the national debt of the USA could be settled by usurping all pension funds in the country. Here is a remarkable blueprint that throws all previous considerations concerning the purchase of government bonds over the cliff. The IMF working paper from December 2013 states boldly:
"The distinction between external debt and domestic debt can be quite important. Domestic debt issued in domestic currency typically offers a far wider range of partial default options than does foreign currency–denominated external debt. Financial repression has already been mentioned; governments can stuff debt into local pension funds and insurance companies, forcing them through regulation to accept far lower rates of return than they might otherwise demand."
id/Page 8 (IMF-Sovereign-Debt-Crisis)
Already in October 2013, the International Monetary Fund (IMF), suggested the Euro Crisis should be handled by raising taxes. The IMF lobbied for a property tax in Europe that should be imposed where there are no such taxes. The IMF has advocated for a general "debt tax" in the amount of 10 percent for each household in the Eurozone, which also has only modest savings.
People are blind. They think this is authorization to go get the rich. They are going after everyone for the "rich" are tiny players in the game. People do not want to hear that. They want to think the rich can pay the bills for everyone else. That is not practical and even Julius Caesar recognized that they may be a small group, but they are the engine of the economy that creates jobs. It would have been popular for him to wipe out all the rich who he was against. But in the end, he had to solve the debt crisis by simply retroactively attribute all interest to capital in order to solve the debt crisis that led to the first civil war.
There is no discussion whatsoever of reforming the system. They are merely planning to default on savers expropriating their savings, but continue to borrow forever. Nobody is even bothering to look at the structure that simply cannot work.
The money people have saved the IMF maintains should be used for debt service by sheer force. To reduce the enormous national debt, they maintain that government has the right to directly usurp the savings of citizens. Whether saving money, securities or real estate, about ten percent could be expropriated. This is the IMF view.
Because the government debt of the euro countries has increased a total of well over 90 percent of gross domestic product, they suggest that the people should sacrifice their savings for the benefit of the state. Socialism is no longer to help the poor against the rich, but to help the government against the people. The definition has changed.
In January 2014, the Bundesbank joined the IMF project focusing on a "wealth tax". In its monthly report they had announced: "In the exceptional situation of an imminent state bankruptcy a one-time capital levy could but cheaper cut than the then still relevant options" if higher taxes or drastic limitations of government spending did not meet or could not be implemented.
In the latest June 2014 working paper of the IMF, they have set forth yet another scheme – extending maturity. So you bought a 2 year note? Well, the IMF possible solution would be to simply extend the maturity. Your 2 year note now become 20 year bond. They do not default, you just can never redeem.
Possible remedy. The preliminary ideas in this paper would introduce greater flexibility into the 2002 framework by providing the Fund with a broader range of potential policy responses in the context of sovereign debt distress, while addressing the concerns that motivated the 2002 framework. Specifically, in circumstances where a member has lost market access and debt is considered sustainable, but not with high probability, the Fund would be able to provide exceptional access on the basis of a debt operation that involves an extension of maturities (normally without any reduction of principal or interest). Such a "reprofiling" operation, coupled with the implementation of a credible adjustment program, would be designed to improve the prospect of securing sustainability and regaining market access, without having to meet the criterion of restoring debt sustainability with high probability.
(THE FUND'S LENDING FRAMEWORK AND SOVEREIGN June 2014)
Now the June 2014 report has a new, far-reaching proposal. This shows how lawyers think in technical definitions of words. There is no actual default if they extend the maturity. You could buy 30-day paper in the middle of a crisis and suddenly find under the IMF that 30 day note is converted to 30 year bond at the same rate.
The huge national debts could be reduced also according to the IMF by just expropriating all private pension funds. The vast amount of people are watching TV shows, sports, or something other than government and they know that. The press will not report the real risk for that is boring news. Hence, where his occupational pensions exist, you can suddenly wake up and find your future is now applied as a contribution to government – thank you for your patriotism. They have successfully convinced the evil is the rich so pay attention to them and you will miss the political hand in your back pocket.
What investor can really judge what is hidden in his fund when the government is denying democratic processes and control the press?
One thing is certain: For years, all pension funds bought government bonds because they were "conservative" and "safe". I have been warning that the threat would be the Sovereign Debt Crisis. The idea of a pension fund is really now seriously an outdated assumption that government bonds are extremely safe. And you want to even think that the stock markets are over priced and will crash? Where will money go? Government bonds again?
The IMF is an unelected dictatorship over people's lives and it is now calling the "New profile" of the strategy for public debt must be reassessed. The paper is nothing more than an orderly liquidation of government debt – at the expense of bondholders who can be forced pensioners without their knowledge. The focus is on countries that either have no access to the financial market, or "whose debt is considered sustainable, but not with a high probability."
The Eurozone is trying to federalize because they know what is coming. The IMF is telling them the path of options ahead but all are designed to sustain the power-base, not what is good for the people. The Euro-leaders have now given up and decided to make more debt while maintaining lip-service to savings. Thus, the Eurozone is likely to soon be directly affected by the IMF plans for when the market get wind of this on the horizon, it will be too late. For you see, pension funds do not THINK out of the box. Nobody will be the first to sell-out government bonds entirely. What if they are wrong and nothing happens? Then the manager loses their job. Even if they find themselves trapped by government either extending their maturities or expropriating all their assets, they will justify themselves as everybody else lost so they did nothing wrong.
Obviously, these ideas from the IMF would mean that if the debt is no longer manageable, then the power of government entitles them to just usurp everything to maintain the power-base. The plan of the IMF I believe will result in widespread civil unrest AFTER the fact. The mere fact that these proposals target investors in government bonds who must adjust to debt forgiveness or negative interest rates shows this is all about sustaining government power. Recently, the IMF has argued the ECB must purchase government bonds in the euro countries to sustain the Eurozone. They are like the terrorist leaders who brainwash kids to blow themselves up for the good of the cause while they would never do the same thing themselves.
It is noteworthy that the IMF imagines this haircut on private creditors as a kind of condition that bankrupt states must do to get any further loans from official creditors. Do as we direct of else. This is what the IMF is doing to Ukraine, no less what they did to Cyprus.
However, unlike private corporate debt where there are the real balances and tangible assets secured by real products and business, the IMF proposal amounts to a global nationalization of public finances, which are unsecured debt. This distinction is important. You get nothing from defaults in government debt but a portion of what remains in private debt. Because the states with the this infinite loop of perpetual borrowing with no intent on paying anything back, we are captured in a world of financing that has become completely corrupted.
The debt load of governments on a global basis is so oppressive, we are rapidly approaching not just the collapse in Democracy, but the collapse or the elimination of all market mechanisms in the public finance. If they cannot sustain the debt, default and FORCE the so many unsuspecting pensioners to surrender their future to allow politicians to live comfortably. They see no problem with people holding government debt should be punishable with massive losses, and are blame for extorting government even demanding interest.
The IMF proposal comes during the World Cup knowing that the press will not cover it much and the average person cares more about who wins what than the sneak attack upon their own lives. This far-reaching plan for the expropriation of savers, investors and retirees clearly shows the reality of socialism.
http://www.zerohedge.com/news/2014-07-03/expropriation-back-christine-lagarde-most-dangerous-woman-world
Strident.
How are the rich the source of all jobs? I mean I am not for pulverizing them to pay for evol socialism but...um they do not consume that much and do not spend all their capital hiring people. They make lots of investments, but if capital generation created lots and lots of jobs we would not have employment problems in the first world because we have crap loads of capital being generated. If that is all we need why not just have 100s of lotteries a year and just create tons and tons of new rich people. Surely then we would reach full employment right?
Though I guess when he talks about how the First Roman Civil War (um...Marius and Sulla? Or...) was brought on by a sovereign debt crisis that sparing the rich (because proscribing tons of rich people and handing their stuff to supporters was sparing them?) was the solution to I guess I shouldn't expect a good clear explanation on that.
It looks like Spain finally bounced off the deep end in 2013. A couple days ago we heard year-to-year employment grew for the first time since the crisis started. What is even more surprising, as of late there were as many open-ended contracts signed as short-term ones.
The situation in my sector (car manufacturing) is markedly improving, though I don't know whether this pattern of investment will hold. Nobody does. We're having a lot of problems with this kind of thing because most companies are VERY reluctant to re-hire, which hurts a lot with delivery dates. There's a shortage of engineers and techs, since the younger generation has no experience and are thus useless.
Quote from: Admiral Yi on July 03, 2014, 07:49:35 PM
Strident.
Who to believe, Christine Lagarde or "Tyler Durden"
Personally, I am not inclined to take financial advice from someone whose assumed nom de guerre is the insane alter ego of a fictitious anarchist.
Quote from: The Minsky Moment on July 28, 2014, 11:24:09 AM
Quote from: Admiral Yi on July 03, 2014, 07:49:35 PM
Strident.
Who to believe, Christine Lafarge or "Tyler Durden"
Personally, I am not inclined to take financial advice from someone whose assumed nom de guerre is the insane alter ego of a fictitious anarchist.
You clearly have an institutional bias against zerohedge. :rolleyes:
Quote from: mongers on July 28, 2014, 12:23:42 PM
You clearly have an institutional bias against zerohedge. :rolleyes:
My bias is personal, not institutional. ;)
It is based mostly on reading what they write. But the handles don't supply confidence either.
Quote from: The Minsky Moment on July 28, 2014, 05:47:09 PM
Quote from: mongers on July 28, 2014, 12:23:42 PM
You clearly have an institutional bias against zerohedge. :rolleyes:
My bias is personal, not institutional. ;)
It is based mostly on reading what they write. But the handles don't supply confidence either.
whoosh ?
Quote from: mongers on July 28, 2014, 07:17:41 PM
Quote from: The Minsky Moment on July 28, 2014, 05:47:09 PM
Quote from: mongers on July 28, 2014, 12:23:42 PM
You clearly have an institutional bias against zerohedge. :rolleyes:
My bias is personal, not institutional. ;)
It is based mostly on reading what they write. But the handles don't supply confidence either.
whoosh ?
:lol: :whoosh: indeed!
Ah crap