Sovereign debt bubble thread

[Crazy_Ivan80]

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.

[MadImmortalMan]

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.

[Sheilbh]

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.

[Iormlund]

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.

[MadImmortalMan]

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. 

[Admiral Yi]

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.

[Iormlund]

Have to agree. Common banking is now far, far more important if we want to avoid an eventual bank run and exit. If.

[Sheilbh]

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 ) has said he'll join the UK in opposing it if there's not more steps to help reduce bond interest.

[MadImmortalMan]

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.

[Iormlund]

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.

[Admiral Yi]

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..

[Iormlund]

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).

[Admiral Yi]

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?

[Iormlund]

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.

[Sheilbh]

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).