What's going on in Greece?
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Rick Chasey wrote:I bow to rdt's knowledge. Is superior to mine.
Not so sure about that... but different views make both a market and a BB!0 -
rdt wrote:Germany would have the largest part of the bill to pay, they're not yet ready to sign up for that. They may well do eventually, but it might require a deeper crisis to prod them into agreeing to such a compact, where the writing is on the wall that their failure to bear the fiscal burden will mean the end of the EZ project (and the benefit Germany derives from it).
Just curious in what respect you mean this?
Are they not able or is Merkel not willing?
I guess if she were to sign up to this she'd be gone pretty sharpish. The German peeps won't like it one bit.0 -
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EKIMIKE wrote:rdt wrote:Germany would have the largest part of the bill to pay, they're not yet ready to sign up for that. They may well do eventually, but it might require a deeper crisis to prod them into agreeing to such a compact, where the writing is on the wall that their failure to bear the fiscal burden will mean the end of the EZ project (and the benefit Germany derives from it).
Just curious in what respect you mean this?
Are they not able or is Merkel not willing?
I guess if she were to sign up to this she'd be gone pretty sharpish. The German peeps won't like it one bit.
It may sound glib, but the critical thing with debt crises is to never to get into them in the first place, because once in them there are no good choices, all routes are difficult, and electorates will complain every step of the way. In the Euro Zone, these problems are compounded because, for largely political reasons, they don't have appropriate tools and mechanisms in place to deal with the situation they now face.
Two things are both needed to credibly and permanently stop the EZ crisis:-
(1) A true fiscal transfer mechanism between member states (e.g. via shared Eurobonds), to ensure that poorer areas benefit from richer areas without imbalances reaching dangerous levels;
(2) A central bank (ECB) able to act as a true "lender or last resort" to distressed financial institutions, and able to perform unlimited QE (money printing) in order to temporarily finance distressed EZ governments; this helpsv ensures that crises are contained.
Germany (Merkel, its institutions and its electorate) is unwilling to countenance either of these options at the moment. Like other countries (e.g. Greece), they want the benefits of EZ membership but without bearing the costs that such membership should entail.
Fiscal tranfer mechanisms - Point (1) - means that German workers are understandably afraid they'll be saddled with the bill for subsidising "lazy" Latins who pay hardly any tax ("Greeks") on an ongoing basis, while simultaneously Germany's cost of borrowing rises, impacting its Government finances (and thus the services it can afford to deliver to Germans).
A central bank able to perform unlimited QE - Point (2) - would likely have inflationary repercussions ultimately that are absolute anathema to Germans because of deeply ingrained memories of the Weimar hyperinflation in the 1920s, and the warranted belief that the destruction this caused paved the way for Hitler's eventual rise.
NB in the UK and the US we have both of the mechanisms (1) and (2). We transfer money around from the wealth producing areas to poorer areas (e.g. London -> Sunderland, or New Jersey -> Mississippi)), and we have central banks as true lenders of last resort able to undertake (for a while at least) monetary financing of their governments' deficits. Without these mechanisms it's unlikely either could have remained as unified states for as long as they have.
The EZ should have had such mechanisms in place from day one. Now in crisis, they're still unwilling to do what it takes. However, it's possible that if/as the crisis worsens, they may be dragged screaming and kicking to accepting that this is what's required and prove willing to step up, but the danger then is it may well be too late. Belatedly and reluctantly agreeing to do essential things does not promote confidence; being prepared, standing tall and preempting problems does. Therefore, a "death-bed conversion" of Germany to these two essential steps may prove too late, because confidence may already have crumbled, and untold damage already occurred.
Interesting times, unfortunately. Still, the Tour starts in a couple of months.0 -
rdt wrote:NB in the UK and the US we have both of the mechanisms (1) and (2). We transfer money around from the wealth producing areas to poorer areas (e.g. London -> Sunderland, or New Jersey -> Mississippi))
Slightly off-topic but we do not evenly apportion state capital in the UK or US, something like 84% of state investment is made in the South East of England when really the investment is needed most in the peripheries.
I think that is partly the trouble/future of the Eurozone. Individual nation states want an equal share of the pie but capital will go to the core and economic policy will be framed in favour of the core states not the periphery ones. Up until now the EU has been successful in trying to drive development in the peripheries through the European Development Fund, but now fundamental economic questions of balance across the nations of the Eurozone are being raised.
The concept of nationhood, and the cultural unit the nation represents, has smoothed out the tensions this economic disparity causes within a single state but what is the binding mechanism for the people's of Europe? Is the concept of Europe and our Europeaness sufficient to accept the disparities of wealth that are inevitable and insoluble? This crisis highlights the fault lines fairly well.0 -
Euro is forecast to drop in value and safe haven currencies like sterling and dollars will rise. Our purchases from euro suppliers like canyon for example should go further0
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rdt wrote:
....
(1) A true fiscal transfer mechanism between member states (e.g. via shared Eurobonds), to ensure that poorer areas benefit from richer areas without imbalances reaching dangerous levels;
(2) A central bank (ECB) able to act as a true "lender or last resort" to distressed financial institutions, and able to perform unlimited QE (money printing) in order to temporarily finance distressed EZ governments; this helpsv ensures that crises are contained.
....
Good post. I broadly agree.
Point 1 is why the euro should never have been created in the first place. One currency / interest rate will always favour one area over another and without a way of transferring the wealth imbalance, it's doomed.
On point 2. The ECB should act as a lender of last resort (as any central bank should) to swap collateral for cash when an institute becomes illiquid. However, I totally disagree with QE as a mechanism for (as stated) protecting asset prices, lowering interest rate and (as not stated) directly funding government borrowing. By making money cheap, speculation is much easier than real production and governments are no longer accountable to any normal financial rules.
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Spain's in the firing line again.
16 banks have been downgraded by ratings agencies.
Greece can't be thrown out of the Euro, there's no mechanism for that. A voluntary withdrawl is the only way, but who's going to make the call, as Greece has no government currently.Remember that you are an Englishman and thus have won first prize in the lottery of life.0 -
OffTheBackAdam wrote:Spain's in the firing line again.
16 banks have been downgraded by ratings agencies.
That's because there's a bit of a run on Spanish banks rather than a solvency issue for the country.
They're related, but it's different. This is the Greek 'contagion' everyone is talking about.0 -
You're right, there is no official mechanism for leaving the Euro because the architects of the single currency never thought it could fail - whoops. But if the Euro powers that be need Greece to leave because they think it will save the rest of the Eurozone or because it's in their interests they'll find a way. Given what's being said about Greece leaving it sounds like they've already considered how.OffTheBackAdam wrote:Spain's in the firing line again.
16 banks have been downgraded by ratings agencies.
Greece can't be thrown out of the Euro, there's no mechanism for that. A voluntary withdrawl is the only way, but who's going to make the call, as Greece has no government currently.
Re: Spain, I agree with Rick :shock:
Spain is as much (or more?) of a banking crisis as a sovereign crisis, whereas Greece's problems are mainly re: the solvency of the country. "I spent most of my money on birds, booze and fast cars: the rest of it I just squandered." [George Best]0 -
Did anyone watch the Robert Peston programme on BBC2 last night about the Euro?Tail end Charlie
The above post may contain traces of sarcasm or/and bullsh*t.0 -
Frank the tank wrote:Did anyone watch the Robert Peston programme on BBC2 last night about the Euro?
Far too depressing. Get enough of it at work
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Been doing some work in the sovereigns ratings space and they seem to think Spain is on track as long as 'contagion' doesn't occur.
But that was last week!0 -
I am not sure how you can separate the two at this point in time - 2008 was a true banking crisis but now sovereign states are overstretched and can no longer afford to support the bank debt so it looks like the ever present bank crisis has returned.Stevo 666 wrote:Re: Spain, I agree with Rick :shock: Spain is as much (or more?) of a banking crisis as a sovereign crisis, whereas Greece's problems are mainly re: the solvency of the country.
What do you all imagine the situation will be in 5 years time? For me that is the really interesting question, is this a crisis of a moribund system or a catalyst for a stronger union.
Personally, I think Germany will eventually have to play ball and Eurozone debt will be restructured into Eurobonds. Germany has already said that no other Eurozone state will be allowed to default and the collapse of the Eurozone will cost too much. I don't see how the European Union could survive that. Whilst Germany has tried to use its leverage to create a fiscal union, the baggage of WW2 has made it hard for them to try and create the full economic union that is necessary.
It is also interesting to see this as a conflict of state vs market, ratings agencies timing their downgrades to be as big bombs as possible, haircuts + regulation being imposed on the market.0 -
Latest polling from Greece: http://www.ekathimerini.com/4dcgi/_w_ar ... 012_442991"That's it! You people have stood in my way long enough. I'm going to clown college! " - Homer0
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MaxwellBygraves wrote:Latest polling from Greece: http://www.ekathimerini.com/4dcgi/_w_ar ... 012_442991
So no closer to agreeing on austerity/bailout.
Noticed the OBR said that a messy Grexit would knock the UK into a harder recession than Lehman did, to the point where it may be 'permanently scarred' < which presumably refers to people under the age of 25.0
