Euro Area

[gaelic cowboy]

Basically if one scans the news media in a broad sense you can see a trend here that Portugal is next and therefore Spain.

If this all comes to pass the EFSF fund will run out and the Euro has a major problem lots of debt and no money left to bail out Spain.

The debt will be devalued and banks will be wound up the Euro will be severely weakened and what little gra anyone has for the Euro will go with them.

It seemed such a good idea at the time save the Euro by preventing a default of the PIIGS debt but I don't think it is going to work.

On Morning Ireland a few hours ago, Amadeu Altfaj Tardio, Spokesman for the European Commissioner Olli Rehn, was asked by RTE’s Rachael English (about 5.08 minutes in) whether the EU would countenance senior bond holders sharing the burden as part of the Irish bailout.

Possibly Amadeu didn’t quite understand the question (though he was asked it twice in pretty clear terms.) Anyway, my understanding of his response was that he could countenance this type of burden sharing. He said the issue “was under discussion” though it seems as though he meant this in the sense of a general Euro-area policy in this area was being discussed, rather than that he knew that this issue was being discussed in the current Irish bailout negotiations.

Further clarifications on this issue should probably be sought.

http://www.irisheconomy.ie/

Some more economists on our debt if your bored enough

http://trueeconomics.blogspot.com/Let's do some arithmetic again:
Leni's Proposition 2: Through 2011 IRL Gov will need
€18bn in deficit financing +
€30-40bn in deposits shoring +
€15bn in banks capital (note - some this can be spread over couple of years)+
Banks losses cover of, say, another €10bn =
Grand Total of 73-83bn.

http://www.independent.ie/opinion/co...t-2432959.htmlSo the Government finally gave up the charade last weekend and asked for help from the IMF and EU. Following a week when everyone, save certain government ministers, seemed to know what was coming, it came as a great relief to the markets when Finance Minister Brian Lenihan made his announcement.

When markets opened on Monday, the crisis was over. Bank shares were up, our bond spreads moved to levels only slightly above German bunds and investors were tripping over themselves to throw money into the Irish economy.

Hang on, that's not right, is it?

If anything, things in the market have gotten worse. If we ignore the political implosion here and look to the wider European situation for a moment, we can see how little all the 'will we, won't we' agonising that happened here last week actually mattered.

The markets know Ireland's economy is not going to recover any time soon, and that rolling over our debt is going to do nothing to solve our problems. Furthermore, whatever chance Ireland has of recovery will be extinguished by a four-year austerity plan.

Having made that assessment of our prospects, the market has moved on. Ireland to them is yesterday's news. Today's news is Portugal, which announced a worsening deficit yesterday -- despite months of austerity measures. (Sound familiar?) Tomorrow's news will be Spain, the '800-pound gorilla' of the peripheral EU states -- so-called because of its huge €1.1 trillion economy. Spain had an auction of short-term debt yesterday that failed to sell the expected amount even at higher yields, an exact mirror of Ireland's experiences in the bond market in September.

But why do market reactions to developments in the Iberian Peninsula matter to us?

First, the problem with Spain is that it is probably too big to save. Neither the EU nor the IMF has the money to bail them out, and it is unlikely Germany would be willing to foot another reunification-sized bill to save their Spanish cousins. As Olli Rehn put it on Monday: "It is essential to stop the financial bushfire concerning Ireland before it becomes a European-wide forest fire."

For Mr Rehn, it seems it might be too late. In fact, if there was ever a 'sell' signal to the markets, it was Olli's comments.

Secondly, the EU-wide crisis is an opportunity for Ireland.

In 'Follow the Money' I explained the domino theory of international relations that led the US into Vietnam. The idea was to stop the spread of communism in Vietnam before the whole region became lost to US influence. That same theory is being applied to the EU's actions in the peripheral states. They are fighting in Ireland to prevent a national bankruptcy in order for the whole euro project to avoid a similar fate.

How is this an opportunity for us? Let's look at the numbers. Taking account of sovereign bond redemptions and deficits, Ireland needs about €74bn over the next four years. The banks are getting €90bn of funding from the ECB and another €35bn from the Irish Central Bank. So, to get everyone off the hook, €199bn is needed. We can add that number to the national debt (net of redemptions by 2014 and cash balances) of €76bn and come up with a total of €275bn. Or just over 200pc of GNP.

There is no hope of Ireland ever being able to repay this amount. Nominally, if there is a large growth of inflation in the European and Irish economy, it might be possible, but with tight monetary control from Frankfurt, that is not going to happen.

So we need burden sharing with bank bondholders to reduce the liability the State has encumbered itself with through the mishandling of the bank guarantee. The alternative being presented by the run on Spain is that sovereign default is not only more likely, but should be viewed as being in Ireland's best interest. Loading up on IMF and EU debt right now -- in order to bail out the banks -- only makes sense for us if we have no intention of paying the money back.

The European-wide 'forest fire' referred to by Olli Rehn will burn through all sovereign debt as weakness in the unbailout-able Spain causes an existential crisis for the euro. We would default because we would have to. It would be chaotic, and it would probably spell the end of the euro.

It could easily be seen as dishonest for Ireland to take on this debt while aware of what is probably coming down the tracks, but considering how distracted our leaders are at the moment about saving their own skins in the upcoming election, there is a good chance they do not know how bad the situation is in southern Europe.

There is also a chance they have not yet figured out the gravity of the threat the Spanish situation poses to the euro project. But the 'nobody saw this coming' argument is tired by now, and cannot be allowed as an excuse any more. It is dishonest to fill our boots with IMF and EU money, but the IMF/EU are being equally dishonest about the situation by giving the money to us.

The honest thing to do is to realise what the problem is (the banks) and admit that pouring further cash into those black holes is theft -- from either the Irish taxpayer if we pay the loans back or from the IMF/EU if we default on their loans. The honest thing to do is pass a bank resolution which swaps the debt for shares -- a debt-equity swap in the banks -- and get that €120bn liability off the national and international balance sheet.

Then we can start to sort out the real problems in the Irish economy, and show the IMF the madness that is contained in their latest spin on 'expansionary fiscal contraction' which they published on Monday.


- David McWilliams

I get the feeling this will not turn out the way everyone wants it too.

[Louis VI the Fat]

I get the feeling this will not turn out the way everyone wants it too.

Here's my thoughts about Europe's financial stability and the future of the Euro:

[gaelic cowboy]

IMF your our only Hope

[Furunculus]

stories in papers today about spain denying its needs a bailout as bond spreads creep up, i think we have seeen this trend before, no?

[Philippus Flavius Homovallumus]

So William Hague was right in 1998 when he said Britain shouldn't join the Euro?

Wow, and everybody was Soooooo mean!

[Childishness - off]

If Britain had joined the Euro we would probably be Spain, and Spain would be Ireland, and Ireland would be a minor irritant by comparison.

The problem is structural to the EU project, and it's the forseeable result of arse-backwards attempts at political union under the theory that monetary union will lead to the ultimate goal of - The Project.

[Beskar]

The Euro isn't faulty. It was the economical ministers of various countries who didn't use the opportunity of the Euro to reform and invest, opposed to blowing it all on partying.

[Vladimir]

So you're saying that government intervention makes private sector failures worse.

To big to fail is an excuse.

[Kadagar_AV]

Government intervention has to be decisive. Either you really step in and fix the problem (which has not happened in any of the recent Bailouts, in Europe or the USA) or you leave well enough alone and let competition step in.

This half-assed bailout strategy that's become so common is just wasteful procrastination on a grand scale.

I am no financial expert by any means... But one thing I have learnt from life at large is that that the old saying "We don't solve today's problems with today's solutions" by and large holds true.

Tracy Chapman's "talkin' bout a revolution" comes to mind..

[InsaneApache]

It is one of the tragic delusions of the human race that we believe in the inevitability of progress. We look around us, and we seem to see a glorious affirmation that our ruthless species of homo is getting ever more sapiens. We see ice cream Snickers bars and in vitro babies and beautiful electronic pads on which you can paint with your fingertip and – by heaven – suitcases with wheels! Think of it: we managed to put a man on the moon about 35 years before we came up with wheelie-suitcases; and yet here they are. They have completely displaced the old type of suitcase, the ones with a handle that you used to lug puffing down platforms.

Aren’t they grand? Life seems impossible without them, and soon they will no doubt be joined by so many other improvements – acne cures, electric cars, electric suitcases – that we will be strengthened in our superstition that history is a one-way ratchet, an endless click click click forwards to a nirvana of liberal democratic free-market brotherhood of man. Isn’t that what history teaches us, that humanity is engaged in a remorseless ascent?

On the contrary: history teaches us that the tide can suddenly and inexplicably go out, and that things can lurch backwards into darkness and squalor and appalling violence. The Romans gave us roads and aqueducts and glass and sanitation and all the other benefits famously listed by Monty Python; indeed, they were probably on the verge of discovering the wheely-suitcase when they went into decline and fall in the fifth century AD.

Whichever way you look at it, this was a catastrophe for the human race. People in Britain could no longer read or write. Life-expectancy plummeted to about 32, and the population fell. The very cattle shrunk at the withers. The secret of the hypocaust was forgotten, and chilblain-ridden swineherds built sluttish huts in the ruins of the villas, driving their post-holes through the mosaics. In the once bustling Roman city of London (for instance) we find no trace of human habitation save for a mysterious black earth that may be a relic of a fire or some primitive system of agriculture.

It took hundreds of years before the population was restored to Roman levels. If we think that no such disaster could happen again, we are not just arrogant but forgetful of the lessons of the very recent past. Never mind the empty temples of the Aztecs or the Incas or the reproachful beehive structures of the lost civilisation of Great Zimbabwe. Look at our own era: the fate of European Jewry, massacred in the lifetimes of our parents and grandparents, on the deranged orders of an elected government in what had been one of the most civilised countries on earth; or look at the skyline of modern German cities, and mourn those medieval buildings blown to smithereens in an uncontrollable cycle of revenge. Yes, when things go backwards, they can go backwards fast. Technology, liberty, democracy, comfort – they can all go out of the window. However complacent we may be, in the words of the poet Geoffrey Hill, “Tragedy has us under regard”. Nowhere is that clearer than in Greece today.

Every day we read of fresh horrors: of once proud bourgeois families queuing for bread, of people in agony because the government has run out of money to pay for cancer drugs. Pensions are being cut, living standards are falling, unemployment is rising, and the suicide rate is now the highest in the EU – having been one of the lowest.

By any standards we are seeing a whole nation undergo a protracted economic and political humiliation; and whatever the result of yesterday’s election, we seem determined to make matters worse. There is no plan for Greece to leave the euro, or none that I can discover. No European leader dares suggest that this might be possible, since that would be to profane the religion of Ever Closer Union. Instead we are all meant to be conniving in a plan to create a fiscal union which (if it were to mean anything) would mean undermining the fundamentals of Western democracy.

This forward-marching concept of history – the idea of inexorable political and economic progress – is really a modern one. In ancient times, it was common to speak of lost golden ages or forgotten republican virtues or prelapsarian idylls. It is only in the past few hundred years that people have switched to the “Whig” interpretation, and on the face of it one can forgive them for their optimism. We have seen the emancipation of women, the extension of the franchise to all adult human beings, the acceptance that there should be no taxation without representation and the general understanding that people should be democratically entitled to determine their own fates.

And now look at what is being proposed in Greece. For the sake of bubble-gumming the euro together, we are willing to slaughter democracy in the very place where it was born. What is the point of a Greek elector voting for an economic programme, if that programme is decided in Brussels or – in reality – in Germany? What is the meaning of Greek freedom, the freedom Byron fought for, if Greece is returned to a kind of Ottoman dependency, but with the Sublime Porte now based in Berlin?

It won’t work. If things go on as they are, we will see more misery, more resentment, and an ever greater chance that the whole damn kebab van will go up in flames. Greece will one day be free again – in the sense that I still think it marginally more likely than not that whoever takes charge in Athens will eventually find a way to restore competitiveness through devaluation and leaving the euro – for this simple reason: that market confidence in Greek membership is like a burst paper bag of rice – hard to restore.

Without a resolution, without clarity, I am afraid the suffering will go on. The best way forward would be an orderly bisection into an old eurozone and a New Eurozone for the periphery. With every month of dither, we delay the prospect of a global recovery; while the approved solution – fiscal and political union – will consign the continent to a democratic dark ages.

http://www.telegraph.co.uk/comment/9...dark-ages.html

[Sarmatian]

What a piece of bull....

Boris Johnson really needs a piece of reality

[Furunculus]

i thought it was pretty incisive stuff myself.

[Vladimir]

Hate wheeled suitcases. It's one cubic foot! How heavy could it be?

Is Greece really like Alabama?

[Major Robert Dump]

So hypothetically, were one to have some excess currency available to him, one could travel to Greece with one's leveraged currency and possibly buy property for cheap, or possibly open a non profit for cheap, or possibly, were one so inclined, hire cheap Talent for one's amatuer "art" movies??

Oh wait, the Euro. Right. It has the same value/exchange rate to the dollar in all the member countries, right? Whose stupid idea was that?

[Vladimir]

Bankruptcy?

[Sarmatian]

So, barring some acceptable form of unification, Europeans will simply have to accept that some areas will be poorer than others.

Que?

Aren't some areas of US poorer than others?

[Furunculus]

Que?

Aren't some areas of US poorer than others?

indeed they are, but federal taxation is ~25% of GDP and the variation in spending levels between rich and poor states is ~5% of GDP, so a variation of roughly 20% of federal spending.

How big a budget would the EU need to be able to slosh around 5% of combined GDP into the poor regions (bearing in mind the current budget is only 1% and heavily constrained by CAP payments)?

The other point is that americans accept this, they are all american, whereas we are rapidly finding out just how german the germans are, and finnish the finns are, when it comes to firehosing cash at nations they consider to be essentially delinquent!

This 'sloshing' occurs in the form of:
1. national pay-bargaining which benefits poorer regions (teachers, nurses, etc)
2. national social benefits more generous than poorer regions could afford alone (eg.housing benefit in glasgow)
3. targeted regional development grants/discounts to encourage business growth (objective 1 EU/WEFO funds)
4. additional infrastructure spending to support the local economy (the mainland-skye bridge)
5. operating national services hubs from depressed regions to boost wages (DVLA in swansea, etc)

[Fragony]

This is just too funny, the socialist ex-mp of Greece somehow managed to put half a billion euro on his mother's bank account. Dear Greeks, isn't it about time you give your political elite a French shave. I know it isn't really your fault. Over here we will be cheering for ya

[gaelic cowboy]

Speaking of Greece did ye all notice they managed to default on payments again and the world didnt collapse, maybe there finally copping that Greece needs to be allowed to walk away from these debts.

If they don't then Angela will have to continue shoveling money into the fire.

[Lemur]

[D]id ye all notice [Greece] managed to default on payments again and the world didnt collapse

I expect that any institution holding Greek debt has partially or completely written it down by this late date.

[gaelic cowboy]

I expect that any institution holding Greek debt has partially or completely written it down by this late date.

indeed and the euro politicians are still running scared of the gnomes of zurich

[Fragony]

Yikes! The international socialism wants control over the funding and legitamcy of political parties, not pro-superstate, no go, you have to be pro-EU to be represented in the EP. Parties like the UKIP or the PVV will simply be banned, more and more is it's true form comming into shape, there cannot be any doubt about the international socialism if they get their way. These guys are truly scary. Even the most rabidly europhile party D66(6) are not 100% sure about this

(Dutch) http://imgur.com/OuvzY

[InsaneApache]

Rumour has it that Troops based in cyprus threatened to storm the banks and take their money, hence the scramble to compensate them.

I'd forgotten about Akrotiri. A couple of rounds from a smooth bore 120 mm cannon should do nicely.

http://en.wikipedia.org/wiki/RAF_Akrotiri

[Husar]

Would've been better to just let everyone go bankrupt, devalue the Euro and then rival China's production.

Also british tanks don't have 120mm smoothbore guns, the Challenger 2 has a rifled gun.

[InsaneApache]

Haha I thought you'd know a thing about tanks!

They might have the odd Abrams hanging around.