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The run on banks in Greece in progress; Euro collapse coming?

Discussion in 'Sports and News' started by The Big Ragu, Jun 13, 2012.

  1. cranberry

    cranberry Well-Known Member

    The euro zone nations will likely need to cede sovereignty over fiscal matters, something they should have done 15 years ago. This latest series events demonstrates that one currency among nations with greatly varying fiscal policy can't work.
     
  2. The Big Ragu

    The Big Ragu Moderator Staff Member

    What I've said all along. You can't have countries linked by currency, but have fiscal attitudes that are all over the place (although there are degrees -- there is not a fiscally-responsible country on the continent, nor is the U.S., which is slowly working its way into a similar crisis). It worked fine when economic growth was expanding for a decade plus, because they were able to spend without any limits and keep borrowing. Nothing predicated on endless economic growth is sustainable, though.

    The problem now is that everyone wants their cake and eat it, too. Yet, another possible short-term solution is for the countries in trouble to cede fiscal sovereignty in return for a bailout that keeps them from taking the currency hit that would come with a default. What you suggested. And that certainly could happen, although I don't think it is likely for several reason:

    The three problems with that (and why I called it a short-term solution) are that 1) Germany and France, which would shoulder a great deal of the burden with that shifting of liability, are carrying heavy debt loads already. Just because they have economies that can sustain it better, doesn't mean they have the ability to pile yet more debt onto their balance sheets and avoid turning into Spain or Italy. Here is what Angela Merkel was saying about this a few days ago: http://www.telegraph.co.uk/finance/financialcrisis/9332338/Angela-Merkel-Germany-cannot-save-the-euro-on-its-own.html. 2) Even if Germany and France and the Scandanavian countries could step to the table and we get some kind of Eurobond scheme that spreads the risk continent-wide, it doesn't fix the problem. They are still issuing more and more debt and have not fixed the imbalance in spending. 3) And all of that said, Europeans are loathe to cede any matters of sovereignty. Greece has shown this. Spain showed this last week. They want bailouts. They absolutely bridle about any conditions attached to the money, particularly if it means putting their fiscal management (which they have shown no ability to manage on their own) into the hands of Germany and France and Finland, et. al. They won't go for it.
     
  3. The Big Ragu

    The Big Ragu Moderator Staff Member

    http://www.bbc.co.uk/news/world-europe-18546584

    http://www.guardian.co.uk/business/2012/jun/22/mario-monti-week-save-eurozone

    Mario Monti says they have a week to save the Eurozone.

    I did find one of his comments completely ridiculous.

    He said unless they take action ("action" apparently means Germany being able to pull off a miracle Germany doesn't even have the money for), "there would be progressively greater speculative attacks on individual countries, with harassment of the weaker countries." And that the "attacks" would be focused on those who had abided by the rules, such as Italy, "but which carry with them from the past a high debt."

    Way to absolve your country of the responsibility for its fiscal situation.

    How is Italy the victim, the way he makes it sound?

    Italy is the only one responsible for the predicament that Italy is in. Even if everyone in the world has been putting itself into massive debt that is now a problem, Italy did the same exact thing and did it to a reckless degree.

    Italy spent itself into a situation in which it is drowning in debt, and it got in over its head. Add to it that it is part of a currency unit that has a half dozen member countries teetering the same way as Italy, and the risk is magnified because if one country exits the currency, it is going to cause panic in the other countries that are in trouble and potentially create a death spiral.

    He might see the market's reaction as "harassment," but all of this was brought on by Italy itself. 1) Italy chose to link itself to the other Euro countries, which means when it weakened itself through poor choices, its situation now has to be looked at in light of not just Italy's poor behavior, but in light of the behavior of the countries it linked itself to, as well. That magnifies its troubles. Italy should have been cognizant of that risk. 2) It's not like the world decided to gang up on Italy. Italy put itself in a situation in which the risk of lending to it is very high, and the debt markets are treating it the way it should be treated.

    Italy's debt load is 125 percent of its gross domestic product, and it still continues to run up new debt. When it gets treated accordingly by the debt markets, I find it really self-serving when the country's PM calls it "harassment" and plays itself as a victim.

    The "rules" Monti is talking about had Italy supposed to lower its rate of new debt in 2012 to 1.7 percent of its GDP. That isn't eradicating its policy of creating more and more debt, mind you. It is still adding to its debt. It is just reducing the rate of new debt creation. And it still isn't reaching that goal for the year, according to its Treasury secretary yesterday.

    So what exactly are the "rules" that Italy has been playing by?
     
  4. Michael_ Gee

    Michael_ Gee Well-Known Member

    I note that the Alphaville blog of the Financial Times (must reading if you give a shit about this issue) reports that among the countries successfully voting in the European Council to block EU legislation requiring more transparency in government accounting of liabilities, especially pension obligations, was virtuous Germany.
    It is both hilarious and terrifying to think it might be broke, too.
     
  5. Bob Cook

    Bob Cook Active Member

    I'm not the first to note the irony of Germany recoiling from an easy opportunity to take over Europe.
     
  6. The Big Ragu

    The Big Ragu Moderator Staff Member

    The three other countries are Italy, France and Portugal. It's no secret that all of these countries have massive pension liabilities oncoming as their populations age. They have been way more generous with government entitlement programs that give out benefits (without having been paid for) than the U.S. is, even. I've said all along to anyone suggesting that Germany can save the rest of Europe that Germany is plagued by many of the same problems. The saving grace for Germany was an economy that actually produced stuff (unlike, for example, Greece, which produces nothing). And that kept Germany a step ahead of its borrowing and borrowing costs. Germany is not on the brink of insolvency (even if there are hidden liabilities we don't know about), if you look at the world in a vacuum. But Germany is vulnerable within the context of the weak countries that are carrying so much debt that there is no bailout -- there is no white knight ready to ride in with sacks full of cash, including Germany, which is more akin to the U.S. -- more stable economy, larger economy that produces more (which buys time on borrowing costs), but at the same time has created a serious debt situation for itself, too.

    I don't find it hilarious. It's not even terrifying. At some point, Europe (and the U.S. and China, because they are on the same course) are going to have to stop with the politicized decisions that try to buy time, while creating more debt, and face the reality of the situation. There is going to be tremendous fallout. There will be defaults on debt. I don't think the Euro is going to survive. It certainly won't survive under its current parameters. The, after some economic misery -- and I can't predict how long that will last -- a rebuilding will start. Regardless of the mess they have created, and the inevitable consequences, and how I believe it is going to affect us all (I can't say exactly when, but I wouldn't expect 2013 or 2014 to be particularly great years worldwide), the sun will continue to rise and it will continue to set. It's a shame it came to this. It was irresponsibility that a lot of people saw coming the whole way, and yet seem to always get shouted down by politicians who don't want to face the messes they create, so dig in deeper, and the people like the Paul Krugmans of the world who use dishonest rhetoric to give rationale to do the irresponsible things that have just made the situation worse (and the potential fallout worse).
     
  7. The Big Ragu

    The Big Ragu Moderator Staff Member

    The point was that Germany is no position to take over Europe. ... That is why all of these notions of Germany bankrolling all of this debt -- which is more enormous than people realize -- is ridiculous. Germany has a heap of its own problems. As for their genetic disposition to take over things, no comment.
     
  8. Football_Bat

    Football_Bat Well-Known Member

    In other news, Ralston-Purina dog food futures are skyrocketing.
     
  9. LongTimeListener

    LongTimeListener Well-Known Member

    Heavens me! World saved! Euro bailout established! Stocks up! Spanish and Italian yields fall! Ragu pissed!

    http://online.wSportsJournalists.com/article/SB10001424052702303649504577496232944181156.html?mod=WSJ_hpp_LEFTTopStories
     
  10. Armchair_QB

    Armchair_QB Well-Known Member

  11. amraeder

    amraeder Well-Known Member

    So, it didn't seem worth starting another Euro is @#$@ed thread when we had one just 3 or 4 pages back.

    But I wanted to throw this quote out from Bloomberg via Paul Krugman's NYTimes blog:

    That's ... not good. It stuns me that it's possible for such a major currency like the Euro to fail, especially considering how strong it seemed when it started. (I'm also quite Bearish on the medium-range prospects of China, but that's a different subject for now).

    Krugman, for his part, has been an interesting evolution on the subject for anyone who reads him. He's gone from believing the Euro was going to be OK (Slightly, I think, because he underestimated the crisis at one point, but also because he felt it was fixable), to being convinced things were screwed (because he no longer believes that European politicians will do what needs to be done to save the Euro).

    He is especially harsh on Europe's Central bank in his post
    Interesting times.
     
  12. The Big Ragu

    The Big Ragu Moderator Staff Member

    am, Paul Krugman is the last person on earth with any credibility regarding what is going on. His commentary stems from a political agenda. He wants the ECB to step in and buy up bad debt (with money that the ECB doesn't have), because it is all that is left to keep up the charade he has endorsed. But Europe is in trouble in the first place because of ideas like the ones Krugman endorses.

    When you build up that much debt, eventually it comes crashing down on you. For the past few years, central banks have been using all the tricks in their arsenal to monetize that debt to put off that crash. The Federal Reserve is doing it. The ECB has been doing it. They are out of rabbits to pull out of a hat. The ECB lowered rates to .75 percent. It had will have no impact to stimulate money flow. Eventually they will lower then to .5 percent. It is useless.

    So now the countries that are in massive debt, but don't want to face the consequences of that debt, are calling for any and every scheme to buy themselves time before their crash. Spain, Italy and France (which inexplicably continues to try to turn its fiscal situation into that of Italy and Spain) want Eurobonds or some form of the ECB buying up the toxic debt.

    The problem is that the ECB, unlike the Fed, is a public institution and it doesn't work at the behest of one government. Everyone is focused on Germany as the stumbling block to something like Eurobonds, but it isn't just Germany. It is the Netherlands and Finland, too, for example. Spain, Greece, Portugal, Cyprus, Italy, etc. have created messes. Those other countries have no desire to make those messes into their problems.

    Krugman, of course, thinks they should, because his prescription for everything is "spend more!" We are at the point where that not only isn't possible, but even with a Eurobond scheme to buy time, it doesn't erase the massive amounts of debt that are about to come crashing down, it just prolongs the status quo and will create an even bigger crash in the future -- and by the future, we are no longer talking a long time from now.

    It's fine that Krugman thinks that way (well, actually not. He's dangerous), but what rankles a lot of people is how dishonest he is. He wrote something on his blog last month attacking the economic recovery in Estonia, which was one of the only Euro countries to bite the bullet and stop the madness by cutting its spending.

    Here is what he wrote: http://krugman.blogs.nytimes.com/2012/06/06/estonian-rhapsdoy/

    As lots of people pointed out at the time, it was extremely dishonest. He cherry picked data in a ridiculously selective way in his chart in an attempt to mislead people. His chart shows Estonia's economy tanking in 2008, but that was a year that spending in Estonia was way up -- by more than 17 percent. Estonia attacked its debt in 2009. So it's a stupid chart, unless his cas was that the economy tanked in 2008 because of an "austerity" (hate that word -- spending what you can afford is not austerity, it is fiscally responsible) plan that was put into place in 2009.

    But where he got slammed, was for starting his chart in 2007. About 10 dozen sites printed the actual long-term growth chart for Estonia, and it's long-run economic performance has been fantastic, doubling economic output in a decade and a half. By selectively starting his chart right at the economic downturn (that affected the whole world), he deliberately painted a false picture. Estonia has had one of the highest growth rates in Europe over the long term, including the economic downturn.

    When it realized it was in spending trouble, it didn't do things the Krugman way. They didn't use a weak economy as excuse to put in place more government spending. They did the sane thing and cut their spending. It's worth noting that growth has resumed (unlike in Spain, Italy, Greece, Cyprus, Portugal, etc.). Krugman hates that. He would have been better off just not commenting. But his dishonesty got him nailed. To the point that the President of Estonia took it right to him on Twitter to everyone's delight.
     
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