Euro Area

[Papewaio]

If Mohammed won't go to the mountain...

So if Greece being part of the Euro is an issue and they won't leave it.

Why not other EU nations form another currency ie New Euro, former currencies or the UK pound.

It would be funny to see all the Northern EU on UK currency.

[SoFarSoGood]

When/If Greece leaves, the situation there will get worse, probably look at revolution levels (it is bad enough as it is). It will end up an international pariah in the political and economical circles. If we are going to look at the facts, Greece leaving the Eurozone will benefit the Eurozone members more than Greece remaining a member, a fact Greece is willing to exploit politically.

So it is a choice being propping up Greece or letting it fall. Structured Devaluation of the Euro would help aid the situation for Greece though and most of the other southern states at the expense of Germany, Netherlands and other states. It is these states which do not want that.

This is why the whole thing is a political quagmire. national self-interest is being put before the collective good of the whole. This is why the expression "In order to fix it, more EU is required" which you scoff at. But in order to fix the situation as in, to make it economically and politically stable for all current members, there needs to be more collective will than divided self-interest. No one is disagreeing with the notion that more EU will place more burden upon the stronger economies, this is exactly what it does as that is a solution to the problem.

But "Anti-EU" banter aside, I would like you to do me a favour which in turn will help the both of us communicate so we progress. Could you define where the "Problem" is in your mind and your proposed solutions to it.

So for example with devaluation, the Euro devaluing would aid Greece, but on the flipslide, it would be a "con" to Germany. Do you believe Germany should take the hit for the devaluation to aid Greece? Should Greece be forced out of the Euro and be allowed to descend anarchy as it prints money which will have no effect upon Euro-rate Loans so would be forced simply not pay anything at all, causing European economies, including Britain to take a "hit" and decimating the Greek political and economical reputation for the next 20 years minimum. Should all the sovereign debt be bought up by the ECB then repayment split between all the Eurozone members?

The Feel free to contribute your own speculations or solutions, I am interested to hear them!

Argentina 1999-2005. They left the US $ peg in 2002 and inflation hit about 10% highest for one month. By 2005 they were fine.

[gaelic cowboy]

Printing more money is the solution to everything.

Everyone keeps waving that around like a voodoo doll and yet it hasn't happend despite printing billions in LTRO and emergency banking liquidity by the ECB.

Clearly people are forgeting the lesson of the hyperinflation episode because the payment of the debts were to be in gold form or foreign currency. Hmm a currency that cannot devalue and has very little domestic/international faith in it's value while it's debts MUST be paid back. (does that sound familiar at all)

After the Germans defaulted on some of there debts the newer currency actually became more stable, seeing as both currencies tracked gold it would seem that having a currency that couldnt devalue was not a total loss. (as long as people were sensible and forced losses on creditors)


So far no creditors like major banks or by extension the governments or ECB have lost out so were stuck with a sinking boat.

[SoFarSoGood]

LTRO actually created landed Spanish banks in worse problems.

[gaelic cowboy]

LTRO actually created landed Spanish banks in worse problems.

No that's not correct the reason Spains banks are in bad shape is because they were bust.

Basically injections of liquidity wont solve a credit crisis at a bank if the real problem is insolvency to begin with.

[SoFarSoGood]

Made it worse because the money the Spanish banks borrowed they invested in Spanish Government bonds, which they now face losses on.

[gaelic cowboy]

Made it worse because the money the Spanish banks borrowed they invested in Spanish Government bonds, which they now face losses on.

It wont matter the capital injections from the ESM are meant to cover all sorts of losses, remember that the LTRO was basically stealth QE by the ECB. The ECB intended to flood the interbank system with liquidity to enable weaker banks and governments to get some capital injections on the QT from the ECB.

Once they get that ESM cash they can mark down the government bonds or sell em on the secondary market.

[SoFarSoGood]

Well aware of the intention of the LTRO 1 and 2. It worked for a bit. Fact is that the banks that took LTRO money still owe it back to the ECB (was one year loans). If the Spanish banks sell their Government bonds who pays back the ECB? Will the ECB take a 'haircut'? Not bloody likely.

[Furunculus]

the growing distrust between france and germany:

http://www.spiegel.de/international/...-a-850197.html

"Why, he asks, don't the Germans see the writing on the wall, and why do they use the "fictitious threat" of inflation and an imaginary wealth destruction machine as an argument?"

Is it not obvious?

Germany cannot articulate the fact that it does not recognise a common Demos that is capable of accepting a common fate, so it is inventing reasons to artificially separate what would otherwise be a common finance.

[edit]

and this image articulates the problem:

http://www.spiegel.de/international/...88-377687.html

this is what is required for the euro to work, but imagine replacing bavaria and berlin with germany and greece.

show. me. your. demos.

[gaelic cowboy]

and this image articulates the problem:

http://www.spiegel.de/international/...88-377687.html

this is what is required for the euro to work, but imagine replacing bavaria and berlin with germany and greece.

show. me. your. demos.

Well that's an interesting picture after all the rubbish talk about protestant work ethic.

[Kralizec]

Northrhine-Westphalia is a recipient? WTF?

[Fragony]

Northrhine-Westphalia is a recipient? WTF?

Needs more EU-flags

[HopAlongBunny]

So we come full circle.

Its like watching 27 people in a lifeboat that's sinking; all 27 ppl in the boat know what needs to be done, but they would rather discuss the obvious than actually do anything...lifeboat going down!

[Beskar]

http://www.spiegel.de/international/...88-377687.html
this is what is required for the euro to work, but imagine replacing bavaria and berlin with germany and greece.

Yes it does and it requires "More EU" to make Germany do it.

Even then, that would be mostly short-term, as in the longterm after the harmonalisation of various economical policies such as all the members having the same retirement age will lessen the differences.

But I agree, there needs to be political reform of the European Union, politics and economics go together, they are not separate. Wealth is Power and Power is Wealth.

[Tellos Athenaios]

Northrhine-Westphalia is a recipient? WTF?

Largely agrarian but with some old industry and most importantly lots of run down/in need of update inner cities thrown in for good measure. A bit like Limburg, really.

So we come full circle.

Its like watching 27 people in a lifeboat that's sinking; all 27 ppl in the boat know what needs to be done, but they would rather discuss the obvious than actually do anything...lifeboat going down!

No that's precisely the point: it isn't. From the Germanic perspective there is not one lifeboat in danger of sinking. There are 27 boats and in some boats there are grossly irresponsible captains at the helm (like a certain cruise ship...) and then there are more reasonable captains with competent crews who are willing to do the work to navigate the waters properly and watch out for rocks.

The key is that German (and Dutch, and perhaps Nordic) economic success (and standard of living) is bought and paid for by a cautious, conservative economic policy which aims to mediate between what business want (very high productivity at decent wage equals cheap costs of manufacture equals competitiveness) and what workers want (purchasing power). The balance struck is one of low inflation as it means you can keep both parties reasonably happy with modest wages .

This is also why any and all talk of austerity or haircuts on the part of the paymasters is not received very well: margins are, by definition kept "thin". Germans for example have settled for virtually no real term increase in purchasing power since the early 2000's. They do not feel very convinced that they should settle for even less purchasing power in order to be able to wipe out some debt on the parts of others that did enjoy booming wages.

[SoFarSoGood]

Does anyone realise this was Hitlers plan?

[Beskar]

Does anyone realise this was Hitlers plan?

Thank you for randomly implementing Godwin in the EU thread.

[HopAlongBunny]

Oh my, irresponsible captains.

Let's not forget, the ppl in the engine room could have said: "She can't handle anymore capt! She's breaking up!" But they continued to pour on the coal.

Now we have the loan-sharks coming back to say: "Ok, we made a bad bet; not only are you going to make good on that bet, but you're going to cough up our "winnings" if it kills you!"

I fail to see the "nobility" of either position.

[Sarmatian]

Does anyone realise this was Hitlers plan?

Quick, somebody call Soviets and Americans!

[Tellos Athenaios]

Oh my, irresponsible captains.

Let's not forget, the ppl in the engine room could have said: "She can't handle anymore capt! She's breaking up!" But they continued to pour on the coal.

Yes someone in the PIIGS could have seen their bubble swelling to dangerous proportions. They did, and they ignored it anyway for some reasons. That is pretty much what we learned from the whole Greek saga: even the Greek accountants in chief did not have a clue as to how large their debts were, as to how large their deficit was...

Now we have the loan-sharks coming back to say: "Ok, we made a bad bet; not only are you going to make good on that bet, but you're going to cough up our "winnings" if it kills you!"

Loan sharks? By now pretty much all outstanding debt the Greeks have to make good on is all ECB debt. It's the sweetest deal they ever got, considering their position; and make no mistake they didn't get it from private investors but German (and other) taxpayers. The EU and each of its treaties is driven by mutual self interest, not altruism. So really what would you expect Germany to do? Ignore its own (citizens) interests and simply write out a blank cheque? That would not go down well in Germany, so it is not going to happen.

In essence it is what is being asked from the Germans since the PIIGS have yet to demonstrate a credible way forward. Assuming the debts were wiped off the balance sheets overnight, how would this fix things? How would this fix the structural issue feeding such debts? The only solution proposed thus far is for the Germans to pay for the bill and then subsequently pay some more and more and more by relinquishing their economic strength so PIIGS might be able to siphon off some of that. I.e. the Germans are not expected to simply pay out trebles all around, but they are also expected to give up jobs, standard of living and economic security all in one go. On top of that, there is not an actual guarantee for this to work because it assumes the lost economic strength goes to the PIIGS rather than, say, Poland, Czech Republic or the Baltic countries or even India, China etc. Countries which are tied very strongly to Germany already and which do have a track record of stepping in to replace or provide an alternative to German industries (cars, bio/med, software, agriculture).

I do not see why Germany should voluntarily cave into such demands, and I find the German insistence that this is not going to happen until hell freezes over entirely reasonable.

I fail to see the "nobility" of either position.

It's nothing to do with being noble. The EU never was, is not, and never will be.

[Fragony]

Mention the war a few times and Germany will cough it up, always worked so far

[HopAlongBunny]

Ah! Thank you for that info; I thought this was still all about the banks covering their butts with taxpayer money.

I still fail to see how enforced economic contraction will lead Greece out of the hole. The rent-seekers will line up for privatized goodies; money now and higher costs down the line. While this will shrink gov't economic share, how will it spur demand/growth/revenue?

[gaelic cowboy]

Ah! Thank you for that info; I thought this was still all about the banks covering their butts with taxpayer money.

I still fail to see how enforced economic contraction will lead Greece out of the hole. The rent-seekers will line up for privatized goodies; money now and higher costs down the line. While this will shrink gov't economic share, how will it spur demand/growth/revenue?

Exactly

More and more taxpayers money gets diverted to pay creditors and all the while people are distracted by governments waving voodoo dolls of inflation or WW3.

[SoFarSoGood]

Seems like the Finns might have enough.

“There are no rules on how to leave the euro but it is only a matter of time. Either the south or the north will break away because this currency straitjacket is causing misery for millions and destroying Europe’s future. It is a total catastrophe. We are going to run out of money the way we are going. But nobody in Europe wants to be first to get out of the euro and take all the blame.” Timo Soini

[Fragony]

Don't get your hopes up, he said it as a member of the somewhat shady 'true fins' a bit like our Wilders, he isn't speaking on behalf of the government. He is right of course, it's inevitable that the euro-zone will become a northern and southern union. Everybody can see that comming except europhiles.

[Sarmatian]

Hah!

May be, indeed. Eisen und Blut, and all that...

[SoFarSoGood]

"Ein Volk, ein Reich, ein Führer" springs to mind.

[Kralizec]

Hah!

May be, indeed. Eisen und Blut, and all that...

That's Bismarck

[Sarmatian]

That's Bismarck

Well, I hardly thought it was Robert E. Lee.

[Kralizec]

"Ein Volk, ein Reich, ein Führer" springs to mind.

Hah. How clever.

Didn't you say you have a history degree?