Wednesday, May 05, 2010
Spain Says
Independent: World markets tumble as contagion fears take hold
Spain's Prime Minister yesterday attacked rumours that the country would be forced to ask for a €280bn (£241bn) bailout as "complete madness", as world markets tumbled over the fear that financial contagion was set to spread beyond Greece's borders. The Spanish markets fell 5.4 per cent on talk that the country would call for an emergency loan. (Does this mean that ECB interest rates go up?)
Posted by alan @ 08:39 AM (1186 views) Add Comment
21 Comments
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2. mrflibble said...
It's amazing what a little fear can do to a market. There is one market in particular that needs the bejesus scared out of it...
3. Indian said...
In case EURO goes down. It will help UK comes up. atleast investor will have more confidence in sterling than euro. That means house prices going up in UK
4. inbreda said...
and yet bond prices going in an odd direction???
5. mrmickey said...
They won't stop bailing until the Euro/Sterling/Dollar is destroyed, the whole point is the only thing holding this mess together is confidence once that's gone there's nothing left till you hit the pavement with a splat.
6. alan said...
Even if all the austerity measures are carried through, Greece will still be in a precarious state in 2 years time. The yield on the Greek bonds will therefore remain high.
What happens in this situation? Greece can't devalue (on its own) can it? Could Greece exit the Euro?
Not to worry, Greece is a small country - unlike Spain. This will cause a rapid evaporation of confidence.
7. cat and canary said...
"Greece will still be in a precarious state in 2 years time"
...Greece will be in a precarious state in 15 years time,
..at lesat according to several finance "experts" i spoke to.
8. mken said...
Greece can't devalue currency or adjust interest rates ...
But it can reduce wages and drop prices and improve the quality of its exports
9. mark wadsworth said...
According to this handy website, Euro yields have been drifting downwards all year.
10. mountain goat said...
I am not surprised that now eventually some "fear has taken hold", but I have been surprised there was any confidence in the first place. Surely no one really expected massive bailouts to replace profitable economic activity? A bad-debt crisis caused the first round of fear in 2008. The bailouts just made the bad debt problem appear somewhere else. Just like that hit the gopher game. Europe is just the start, looks bad for them because diverse economies are hog tied to the Euro. But the UK and US governments are basically the owners of most of their country's mortgage debt, easy loans handed out in the biggest Ponzi bubble of all time. I'm waiting for that penny to drop.
11. 51ck-6-51x said...
MG said, "The bailouts just made the bad debt problem appear somewhere else. Just like that hit the gopher game."
W07, 57473 D1570275 M42K37? Nah!!
12. uncle tom said...
alan @ 4
"Could Greece exit the Euro? "
Yes, and more easily than the federalists ever dare to admit. Here's how:
1) Greek legislators pass emergency law (probably over a weekend) to break Greece from the ECB. Remember that sovereign countries can do pretty much what they like, that treaty agreements between nations can be, and frequently are, revoked; and that unless you believe that the rest of europe would retaliate with punitive sanctions, or send tanks over the border; the Greeks CAN do this.
2) In breaking with the ECB, the Greeks would not have to suddenly change all their money into new Drachmas. They would still use euros, except that Greek euros and other euros would now be separate currencies. Telling them apart is not a major issue, as all Greek euro notes have a serial number pre-fixed with the letter Y.
3) In the short term, foreign exchange controls would need to be imposed to prevent capital flight, and Greek banks would probably be forced to maintain current interest rates on outstanding loans.
4) The Greek central bank, having regained control of its own currency; now creates new money electronically, much as the BoE did with quantitative easing; in order to pay the nations debts. This will cause the Greek euro to fall in value. While this will cause imports to Greece to cost more, with attendant increases in inflation; life will go on pretty much as before.
5) In time, and probably to make peace with the rest of the eurozone, Greek euros would be likely to be replaced, one for one, with new Drachmas. Greek exports would become more competitive, and their tourist industry would be revived.
6) This is not a process that is without pain for the Greeks; but it makes it possible to inflate away their national debt, and have a positive outlook for the future. As such, the popular rebellion currently seen could be expected to subside.
13. mountain goat said...
51ck-6-51x - what does it mean?
Sorry I'm am pretty thick with cryptic stuff.
14. rumble said...
WOT, STATE DISTORTS MARKET?
15. rumble said...
And now in context:
"W07, 57473 D1570275 M42K37?"
WOT, STATE DISTORTS MARKET?
16. rumble said...
I like the gopher game metaphor, I always thought of it as being like trying to compress a balloon. Is there a principle that describes this properly? A bit like the law of conservation of energy - never created or destroyed, only transferred.
17. mountain goat said...
Ah!
18. mark wadsworth said...
Uncle Tom, good plan.
As Vaclav Klaus once said, when Czechoslovakia separated into two countries, they sorted out the accounts and currencies in the space of an afternoon. See also UK leaving ERM in a huff in the space of a day or two.
As to your step 3, I don't think it's required - coins and notes in circulation are less than one per cent of all "money" sloshing around - allowing free exchange of 1 Greek Euro into 0.9 or 0.8 or 0.7 normal Euros merely speeds up the process by which fair value is arrived at.
19. uncle tom said...
Mark,
Re. step 3 - I think some measures to counter de-stabilising elements might be desirable for a short period. There would be no need to prevent private citizens from changing small quantities of currency, but there could be some issues if those who play in a bigger league were not kept under control.
20. fjcruiser said...
What are the benefits for Greece of staying in the Euro ? none whatsoever. I think the Greek politicians will soon realise it and get the country out of it. Of course if Greece leaves the Eurozone, it will put a big question mark on the validity of the Euro itself hence why Germany and France are forcing down a bailout. Fixed parities have never worked in the past. IMHO, the Euro is doomed.
21. techieman said...
"2. techieman said...
bystander: 1. Euro - forget it, its a flawed system because you have divirgent cultures, economies, etc etc. Really was only a political football which the germans and French have used to score own goals (open to debate there).
Friday, March 28, 2008 10:06AM "
http://www.housepricecrash.co.uk/newsblog/2008/03/blog-euro-rate-cut-april-may-or-june-11600.php