Sovereign debt bubble thread

[Iormlund]

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

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 ...

[Zanza]

http://www.monstersandcritics.com/news/business/news/article_1684804.php/Austria-and-Finland-biggest-winners-from-euro-study-shows

Berlin - 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.


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.

[MadImmortalMan]

Osterreich is eastern europe?

[Zanza]

Yes.

The country that really surprised me is France.

[Grey Fox]

Yes.

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

[Zanza]

Eh? I was not surprised by its name, but by the small benefit they apparently got out of the Euro so far.

[Grey Fox]

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. 

[Admiral Yi]

Osterreich is eastern europe?

Austria.

[Iormlund]

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.

[Zanza]

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.

[citizen k]

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.

[Sheilbh]

Greek talks with private investors are apparently on the brink of collapse:

Elsewhere 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.

[Sheilbh]

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:

The 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.

[Iormlund]

No shit.

[Martinus]

Soon Spain will be below Poland's rating. 

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.