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Eurozone Financial Crisis

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Aussiejeff

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Just as the Rest Of The World economies are scrambling to dust themselves off from the effects of the GFC, what could be termed the "EFC" is doing it's best to suck everyone back down into the mire.

Here is an interesting link to a thread referenced to a Danske Bank report that raises the issue how Greece will have to slash public spending - but at the expense of jobs. Their unemployment rate is already high (9.2% in Q2, 2009 - now?) so one can imagine the flow-on effects, both politically and socially of a massive slash in public spending.

Not only that, but this very same public spending accounts for a large part of their per capita GDP anyway, so slashing it will in turn WORSEN their debt ratios?

Looks like a tough road ahead... http://fistfulofeuros.net/afoe/econ...zone-debt-the-peril-of-internal-devaluations/

Also a Bloomberg graph & story on same (click on GRAPHIC tag)... http://www.bloomberg.com/apps/news?pid=20601109&sid=aCrRNlbKtrss&pos=15

and not forgetting some Wiki background info too... http://en.wikipedia.org/wiki/Economy_of_the_European_Union
 
It strikes me that all these smaller economies joining the euro have backed themselves into a corner. The obvious strategy for the PIGS in the past would have been to devalue their pesos, thereby increasing manufacturing, tourism etc and the TOT. Now, having joined the Euro, that is impossible.

So they will need to slash government spending instead in an attempt to deleverage over time. As Jeffrey says, this will lead to a long and painful period of high unemployment especially given the size of the government sector in economies with a more, ahem, European socialist/capitalist structure like Greece.

The net outcome will be social upheaval and a return to the socialist and/or millitary pressures that have been such a disaster for European society in the 20th century. The difference this time is that the balance of global power lies with the US, China and the other BRICs. So the threat of a global conflict has been lessened.

What will be fascinating to watch is the impact on the Euro experiment in the face of these rogue fiscal states? The burden on Germany and France will be great and I have already outlined the pressures that will be placed on the PIGS. Maybe the English were right after all in not tying their monetary policy to the mainland. Then again when your main export is financial services and football, then your good old pound is heading to Lands End.

This will be an interesting year for the Euro buffs. Pass me the popcorn.
 
It's going to be like the Asian Financial Crisis in the late 90's where there was a massive devaluation of the currency.

Since all those countries use the same currency, they'll just devalue the currency til the debt is inflated away.

Bye bye EURO.
Hopefully they will use a commodity backed currency since Fiat currency hasn't worked in the last 2000 years
 
Dowdy said:
It's going to be like the Asian Financial Crisis in the late 90's where there was a massive devaluation of the currency.

Since all those countries use the same currency, they'll just devalue the currency til the debt is inflated away.

Bye bye EURO.
Hopefully they will use a commodity backed currency since Fiat currency hasn't worked in the last 2000 years
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If you devalue the currency and your debt is in say USD then your debt will be greater not less. If you print money (Inflation)and pay off your debt before the rest of the world realises they will devalue your currency but your debt is paid off.
Why use a commodity backed currency and risk price swings as per the commodity or worse still an honest government Now that hasn't worked in hundreds of thousands of years
 
Bushman said:
It strikes me that all these smaller economies joining the euro have backed themselves into a corner. The obvious strategy for the PIGS in the past would have been to devalue their pesos, thereby increasing manufacturing, tourism etc and the TOT. Now, having joined the Euro, that is impossible.

So they will need to slash government spending instead in an attempt to deleverage over time. As Jeffrey says, this will lead to a long and painful period of high unemployment especially given the size of the government sector in economies with a more, ahem, European socialist/capitalist structure like Greece.

The net outcome will be social upheaval and a return to the socialist and/or millitary pressures that have been such a disaster for European society in the 20th century. The difference this time is that the balance of global power lies with the US, China and the other BRICs. So the threat of a global conflict has been lessened.

What will be fascinating to watch is the impact on the Euro experiment in the face of these rogue fiscal states? The burden on Germany and France will be great and I have already outlined the pressures that will be placed on the PIGS. Maybe the English were right after all in not tying their monetary policy to the mainland. Then again when your main export is financial services and football, then your good old pound is heading to Lands End.

This will be an interesting year for the Euro buffs. Pass me the popcorn.
Click to expand...

I agree BM.

Whatever way you throw the balls up in the air, for a recovery to occur the Euro and UKP will have to fall.

gg
 
News overnight that China has again announced another increase in reserve requirements for Chinese banks to try and curb investment lending, along with rhetoric indicating more aggressive tightening to follow during 2010, must be sending shudders through the EU. http://www.bloomberg.com/apps/news?pid=20601087&sid=as0HUabddOQo&pos=3

Even more frightening is this assessment of Beijing's vacant office space by Richard Ellis RE Group.... http://www.bloomberg.com/apps/news?pid=20601109&sid=a6i2PSZD.Jr4&pos=11

Considering China's rapidly overheating financial, manufacturing & RE sectors and their increasingly urgent attempts to rein back by continuously raising "bank reserve requirements", I agree with gg in that the main self-styled "creditor" countries (England, France, Germany et all) who are proposing to "save" Greece are backing themselves into a very dark corner right now.

IF they now decide to go ahead and announce a specific value for a significant "bailout package", they WILL have set a binding precedent that will likely come back to haunt them big time, perhaps even break their economies - faster than they ever contemplated - since all the other "sick" Euro puppies facing "official" bankruptcy will have a definitive precedent that they can legally hang their hats on.

It is all heading for blood, sweat & tears, so of course I fully expect a biblical flood of "uber-positive polly spin" + massive amounts of clandestine central bank currency propping etc, to try and get Mr Market's Magic Numbers up a bit in the interim.

However, we all know by now that the worst excesses of blind optimism always reach a crescendo on the very eve before the next big drop, whenever that may be (and vice-versa).
 
Just saw this, regarding Greece :

The council of EU finance ministers said Athens must comply with austerity demands by March 16 or lose control over its own tax and spend policies altogether. It if fails to do so, the EU will itself impose cuts under the draconian Article 126.9 of the Lisbon Treaty in what would amount to economic suzerainty.

While the symbolic move to suspend Greece of its voting rights at one meeting makes no practical difference, it marks a constitutional watershed and represents a crushing loss of sovereignty.
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From the Ambrose Evans-Pritchard in The Telegraph
http://www.telegraph.co.uk/finance/...s-EU-voting-power-in-blow-to-sovereignty.html
 
Had to look up this word! :eek:


Suzerainty
From Wikipedia, the free encyclopedia

Suzerainty occurs where a region or people is a tributary to a more powerful entity which controls its foreign affairs while allowing the tributary vassal state some limited domestic autonomy.[citation needed] The superior entity in the suzerainty relationship, or the more powerful entity itself, is called a suzerain. The term suzerainty was originally used to describe the relationship between the Ottoman Empire and its surrounding regions. It differs from sovereignty in that the tributary has some (often limited) self-rule. A suzerain can also refer to a feudal lord, to whom vassals must pay tribute.

Although it is a concept which has existed in a number of historical empires, it is a concept that is very difficult to describe using 20th- or 21st-century theories of international law, in which sovereignty either exists or does not. While a sovereign nation can agree by treaty to become a protectorate of a stronger power, modern international law does not recognize any way of making this relationship compulsory on the weaker power.
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That Article 126.9 doesn't seem as though it'll be happily adhered to by all so this could be tricky, nasty or a real **** fight there yet... but a storm in a tea cup, in the total scheme of things eh... unless they end up at war!!! :eek:
 
Its baaaccckkkk. Sovereign debt default that is. Stressed sovereign debt will remain the buzzword for 2010. First Dubai, the Greece, now Portugal? Lol. Go the PIIGS.

From The Age:
Fitch cuts Portugal's credit rating as debt crisis heightens March 25, 2010 - 6:57AM

Portugal's credit grade was cut by Fitch Ratings for the first time, underscoring growing concern that Europe's weakest economies will struggle to meet their debt commitments as finances deteriorate.

The rating was lowered one step to AA- with a "negative" outlook, Fitch said in a statement today, adding that further economic or fiscal underperformance this year or in 2011 may lead to another downgrade. The euro extended its decline, dropping against all but one of the 16 most-traded currencies. Portuguese stocks and bonds fell.

http://www.theage.com.au/business/w...g-as-debt-crisis-heightens-20100325-qx3e.html
 
Bushman said:
Its baaaccckkkk. Sovereign debt default that is. Stressed sovereign debt will remain the buzzword for 2010. First Dubai, the Greece, now Portugal? Lol. Go the PIIGS.

From The Age:
Fitch cuts Portugal's credit rating as debt crisis heightens March 25, 2010 - 6:57AM

Portugal's credit grade was cut by Fitch Ratings for the first time, underscoring growing concern that Europe's weakest economies will struggle to meet their debt commitments as finances deteriorate.

The rating was lowered one step to AA- with a "negative" outlook, Fitch said in a statement today, adding that further economic or fiscal underperformance this year or in 2011 may lead to another downgrade. The euro extended its decline, dropping against all but one of the 16 most-traded currencies. Portuguese stocks and bonds fell.

http://www.theage.com.au/business/w...g-as-debt-crisis-heightens-20100325-qx3e.html
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Its never gone away.
Now as the bunnies scramble for a US safe haven the grass is not greener.
Its a nightmare.
The US is like the big bad wolf...The US dollar needs to collapse to deflate the debt and perhaps boost US trade
 
Bushman said:
Greece was bailed out today by the EU and the IMF. So the risk of a double dip has alleviated somewhat.
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Hmm, not sure about that? Isn't Greece's government debt about €300m? While a €40m bailout loan is obviously handy, Greece is still facing the ongoing need to finance that huge debt when it's deficit is still running at 10%, so it is effectively adding to that debt all the time.

From Wikipedia

Public debt $405.7 billion (125% of GDP)[4]
Revenues $108.7 billion (2009 est.)
Expenses $145.2 billion (2009 est.)
Click to expand...

So at those figures, they are running about a 25% deficit:eek:? As well as having to fork out, what, 5% interest, or $20bn a year, although that would be part of their expenses. So yes, a $60bn bailout is good news, but still looks pretty shaky IMO.
 
They are not bailed out yet, but an announcement of one as a backstop was on Friday night.

Greece still has to go to the market for bill auctions (short-term debt) and did so tonight. They will not get funded for longer term debt with the risks they face, so the main problem at the moment is liquidity. Though I believe they have another auction later this wk and then one for bonds out the curve nxt wk.

However, Germany still won't come to the 'bailout party', they have elections mid may I believe and won't commit until then at risk of loosing votes. Hence, the short-term liquidity Greece is going for now to get them through.

If Portugal goes nxt, Euro to 1.2 in no time.
 
PIIGS - contagion has now spread to Portugal, with S&P slashing its sovereign rating on both. If it spreads to Italy and Spain, watch out!

From today's The Age:

'The cost of insuring Greek and Portuguese debt against default rose to record highs after rating agency Standard and Poor's slashed the sovereign ratings of both countries.'

http://www.theage.com.au/business/markets/global-debt-worries-signal-stocks-skid-20100428-tqfm.html

Greece's sovereign risk rating is now below investment grade (BBB-). What a disaster for a sovereign nation. At least they are tied to the Euro and will not suffer hyperinflation. But this will wipe out prosperity for years. I am sure the Athens Olympics would have something to do with this.

Where to now the Euro? I read that up to 95% of Germans want Greece out of the Eurozone. Lol, pass the popcorn.
 
Ok now Spain's rating has been cut by S&P. Getting scary again.

'Standard & Poor's lowered Spain's long-term sovereign credit rating to "AA" from "AA+" and said the outlook was negative, meaning there could be a further downgrade.'

More pressure on the Euro.

Lol; Germany is refusing to bail-out Greece until its government agrees to more budget cuts.
 
Sarkozy, Merkel Seek EU Action on Short Selling, Credit Swaps

June 9 (Bloomberg) -- French President Nicolas Sarkozy and his German counterpart Angela Merkel said the European Union should consider banning naked short-selling of some or all securities and some sovereign credit-default swaps.

In a joint two-page letter to European Commission President Jose Manuel Barroso, the leaders said the commission should accelerate region-wide initiatives to supervise such markets and present possible measures in July.

“Since the international community is unanimously committed to leaving no market, no product, no actor or territory outside regulation and supervision, the return of strong volatility in the markets makes it necessary to question certain financial methods and certain products such as naked short-selling and credit default swaps,” they said.
Click to expand...
http://www.bloomberg.com/apps/news?pid=20601087&sid=aqUQXyI3gfkA&pos=3

LOL. What next? **All Selling Banned!** :eek:

I can imagine Mutti Merkel muttering under her breath to her Treasury lackeys...

"Ve must not haf der marketen volatility! Der marketen must only go uppen... NEIN downen!!!"

Heil Mutti!

:D

[size=-4]Fair dinkum, this lot of Euro ponzies is getting more desperate by the day, wot?[/size]
 
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