Jump to content
House Price Crash Forum
ralphmalph

Latvia Fails To Sell A Single Bond At Auction

Recommended Posts

http://www.telegraph.co.uk/finance/finance...ern-Europe.html

Is Eastern Europe going to bring down the Euro and the German banks?

I was having dinner with an Irish collegue the other night and he said that it is an open secret in Ireland that the Irish Govt is issuing debt that is 100% being bought be the nationalised Irish banks and they are immediately parking at the ECB special liquidity scheme in exchange for German Taxpayer Euro's. No wonder it is all being kept quiet.

Share this post


Link to post
Share on other sites
http://www.telegraph.co.uk/finance/finance...ern-Europe.html

Is Eastern Europe going to bring down the Euro and the German banks?

I was having dinner with an Irish collegue the other night and he said that it is an open secret in Ireland that the Irish Govt is issuing debt that is 100% being bought be the nationalised Irish banks and they are immediately parking at the ECB special liquidity scheme in exchange for German Taxpayer Euro's. No wonder it is all being kept quiet.

Well you could look on it as a kind of extended "reparations". I seem to remember the Irish supported the Nazis - though try explaining to them that being friends with the enemy of your enemy isn't necessarily a good thing.

Share this post


Link to post
Share on other sites
Not if blondes can help it. You obviously missed the scoop.

Blondes Cheer Up Latvia

blondes3_1413753c.jpg

I think I may take my summer hols there and throw a bit of cash around on cheering up some unemployed debt ridden blondes.

Share this post


Link to post
Share on other sites

Seems to be an anomaly in this story - devaluing the Lat might help the Latvian government if they issue their debt in lats, but surely all those mortgages taken out in Euros, Swiss Francs, Yen etc. become even more difficult to pay off?

Share this post


Link to post
Share on other sites
Not if blondes can help it. You obviously missed the scoop.

Blondes Cheer Up Latvia

blondes3_1413753c.jpg

If they put them up as collateral I guarantee more bidders at the next auction.

Notice that the same phrase keeps cropping up now in respect of governments curtailing state spending.

political will

Political will requires being prepared to be reviled (and equally admired) for the rest of your days, a la Margaret Thatcher.

I'm not sure in our none-can-suffer society that we can deal with these problems without experiencing some form of civil unrest first. Injin makes some valid points despite the nihilism.

Share this post


Link to post
Share on other sites
Seems to be an anomaly in this story - devaluing the Lat might help the Latvian government if they issue their debt in lats, but surely all those mortgages taken out in Euros, Swiss Francs, Yen etc. become even more difficult to pay off?

Correct it is a massive double edged sword. The theory is the private sector can go to hell as long as the govt can fund the public sector.

Share this post


Link to post
Share on other sites
Correct it is a massive double edged sword. The theory is the private sector can go to hell as long as the govt can fund the public sector.

Ah right - so I guess this is how the Swedish banks lose the money anyway "slowly over time" - everybody eventually defaults.

Share this post


Link to post
Share on other sites
I think I may take my summer hols there and throw a bit of cash around on cheering up some unemployed debt ridden blondes.

:lol:

Must confess, I think Riga is a great place. The debt ridden dark-haired girls are fairly OK too.

Wait a bit with your Ryanair flight, though. I suspect that Latvia will have to abandon pegging its currency to the Euro in the next few weeks. That will make holidays very affordable. And the women even cheaper. :lol:

Share this post


Link to post
Share on other sites
Not if blondes can help it. You obviously missed the scoop.

Blondes Cheer Up Latvia

blondes3_1413753c.jpg

Right thats my new desktop background.

Share this post


Link to post
Share on other sites
Seems to be an anomaly in this story - devaluing the Lat might help the Latvian government if they issue their debt in lats, but surely all those mortgages taken out in Euros, Swiss Francs, Yen etc. become even more difficult to pay off?

The IMF urged some of the Eastern European countries to either unofficially adopt the Euro or to be fast tracked into the Euro, therefore stabilising both sides of the balance sheet for external loans. But the ECB wouldn't have it.

I don't know enough to understand the reasons for their refusal. Like you and the IMF I'd have thought that this would have been win win. Maybe some other poster will shed some light.

Way it is, Latvia can't afford to prop up the Lat as well as pay teacher's salaries . . . it is nowhere street.

Share this post


Link to post
Share on other sites
Well you could look on it as a kind of extended "reparations". I seem to remember the Irish supported the Nazis - though try explaining to them that being friends with the enemy of your enemy isn't necessarily a good thing.

No, untrue. The Irish supported the Yanks. And laughed at the Brits.

Share this post


Link to post
Share on other sites
The IMF urged some of the Eastern European countries to either unofficially adopt the Euro or to be fast tracked into the Euro, therefore stabilising both sides of the balance sheet for external loans. But the ECB wouldn't have it.

I don't know enough to understand the reasons for their refusal. Like you and the IMF I'd have thought that this would have been win win. Maybe some other poster will shed some light.

Way it is, Latvia can't afford to prop up the Lat as well as pay teacher's salaries . . . it is nowhere street.

How are they propping up the Lat? (genuine question) and who'd pay the teachers' salaries if they adopted the euro?

Share this post


Link to post
Share on other sites
How are they propping up the Lat? (genuine question) and who'd pay the teachers' salaries if they adopted the euro?

havent you heard, the Firengy use Gold Pressed LATinum as a store of wealth.

Share this post


Link to post
Share on other sites
How are they propping up the Lat? (genuine question) and who'd pay the teachers' salaries if they adopted the euro?

Hello Huw.

Well. I posted a few days ago about Latvia propping up the LAT.

The Latvian central bank keeps having to buy the local currency (the Lat) to support the euro peg - last week the bank bought 6.4 million lati ($12 million), and this was the eighth consecutive week they have had to make such purchases. The longer it takes to reach agreement with the IMF - who are convinced that severe budget cuts will be expansionary in the short term (due to the improved confidence they will produce, see here), the more the bank will need to spend to counter those who are betting they will be forced to devalue.

The bank have now bought about 1.1 billion lati since September 2008, and such interventions have reduced Latvia’s foreign currency reserves by 36.7 percent compared with September last year.

How will they pay teachers' salaries? Um . . . from same article, link below . . . in food vouchers.

Some articles here about devaluation in the Baltics, all from Fistful Of Euros.

http://fistfulofeuros.net/afoe/economics-c...cher-in-latvia/

http://fistfulofeuros.net/afoe/economics-c...ation-in-latvia

http://fistfulofeuros.net/afoe/economics-c...in-the-baltics/

All looks very dire . . . for Latvia, Lithuania and Estonia. All these countries were bribed and cajoled into the extended EU by NATO to ring fence Russia. They enjoyed an entirely false economy for a few short years.

Share this post


Link to post
Share on other sites
Hello Huw.

Well. I posted a few days ago about Latvia propping up the LAT.

Thanks, it all seems a bit reminiscent of the UK in 1992 (or any previous sterling crisis you care to mention).

The thing about paying teachers' salaries is that if they don't have the wealth to do it while using the Lat, they won't (in the short term) have the wealth to do it in euros. Therefore it seems likely to me that the Germans would largely be expected to underwrite the bill, much as they seem to be underwriting Irish spending according to the recent thread discussing the mechanism Irish bonds -> Irish nationalised banks -> ECB liquidity scheme -> German taxpayer. There, I would guess, is you answer about why the ECB would disagree with the IMF on the issue (and the IMF will clearly prefer that the ECB picks up the tab so the IMF can keep its powder dry).

All looks very dire . . . for Latvia, Lithuania and Estonia. All these countries were bribed and cajoled into the extended EU by NATO to ring fence Russia. They enjoyed an entirely false economy for a few short years.

If that's the case then they've been had ... but surely it seemed like a good idea to them too, to underpin their own security/sovereignty which had clearly been demonstrated to be vulnerable?

Edit: fascinating articles you linked, thanks.

Edited by huw

Share this post


Link to post
Share on other sites
If that's the case then they've been had ... but surely it seemed like a good idea to them too, to underpin their own security/sovereignty which had clearly been demonstrated to be vulnerable?

I think, like the re-unification of Germany, it was a triumph of emotion over economics.

For sure, the Balts and the Russians are not friendly. (Lots of WW2 history.) But the idea of Russia wanting back loss leader states of the former Soviet Union is looney. Even now many Russian Federation states cannot afford to pay taxes to the centre. Russians would not take back basket cases like the Ukraine or Belarus if you paid them.

The idea of places like Poland and Czech having missile bases - and Georgia having an army - is mindless Russophobia put about by old cold-war warriors. Like the former East Germany, all these countries lost all their traditional trade almost overnight.

East Germany used to build most Russian railway rolling stock. That business went to China.

Sprats was one of Latvia's biggest exports. After they got involved with NATO, Russian health inspectors began the exclusion. Imported Polish beef was blocked by Russia following the Schengen wall around Kaliningrad. Georgia lost its huge wine market in Russia thanks to NATO and Israeli involvement.

Yet the next day too, all had to pay EU rates for Russian oil and gas.

All these countries have been pawns in a game and look to lose out big time. The US bought some friends for a while, that's all. Now the US has bigger problems of its own. Basically, the Baltics have been dumped.

Share this post


Link to post
Share on other sites
I think, like the re-unification of Germany, it was a triumph of emotion over economics.

For sure, the Balts and the Russians are not friendly. (Lots of WW2 history.) But the idea of Russia wanting back loss leader states of the former Soviet Union is looney. Even now many Russian Federation states cannot afford to pay taxes to the centre. Russians would not take back basket cases like the Ukraine or Belarus if you paid them.

(snip)

Could be an inevitable reaction to a resented departing imperial power ... with small, newly independent countries with leaders that haven't had time to develop statesmanlike detachment.

Share this post


Link to post
Share on other sites
Could be an inevitable reaction to a resented departing imperial power ... with small, newly independent countries with leaders that haven't had time to develop statesmanlike detachment.

The funny part is, many of the Baltic politicians are old-style apparatchiks and former communists. You are correct, Russian 'occupation' resentment will last for years yet, but there is growing EU resentment too. When states like Latvia fall off the peg to the Euro, there could be a domino effect.

The new states probably need to split from the EU and form their own economic block. This was a piece from March. The situation now is more acute, with the EU and Germany particularly only willing to aid Euro currency countries.

Return of the East-West divide: European Union in chaos as global recession deepens

The European Union is falling victim to disputes and backbiting, with warnings that its future is in jeopardy because of divisions over global economic crisis.

Just when its inhabitants most need the European Union to speak with a clear voice and to adopt a concerted strategy, to counter the effects of the world economic crisis, its members are falling out in a cacophony of backbiting, disputes and disagreements.

And the growing sense of an east-west divide in Europe, along the lines of the iron curtain which once separated communist from capitalist states, is exacerbated by the desire of richer western countries to protect their own industries - car-making, engineering, even banking - by whatever means is still permitted.

East European leaders are furious over recent decisions by Germany and the Netherlands to block further EU expansion - and at a plan by Germany, Austria and Belgium to extend the ban on workers from central and eastern European countries, a full five years after they joined the EU.

Latvia faces 30% devaluation, 50% falls in property values and massive wage cuts. European banks are horribly exposed too. It is a real crisis for the EU.

Share this post


Link to post
Share on other sites
The funny part is, many of the Baltic politicians are old-style apparatchiks and former communists. You are correct, Russian 'occupation' resentment will last for years yet, but there is growing EU resentment too. When states like Latvia fall off the peg to the Euro, there could be a domino effect.

The new states probably need to split from the EU and form their own economic block. This was a piece from March. The situation now is more acute, with the EU and Germany particularly only willing to aid Euro currency countries.

Latvia faces 30% devaluation, 50% falls in property values and massive wage cuts. European banks are horribly exposed too. It is a real crisis for the EU.

dont worry, the G7 arranged "Special Drawing Rights" obtainable without penalty at the IMF store near you.

Share this post


Link to post
Share on other sites

Getting very interesting.

Historically financial crises in London / New York eventually feed into a cycle of sovereign default in less developed economies as debt cost rise and commodity prices collapse. See for example:

"Eight hundred years of financial folly"

http://www.voxeu.org/index.php?q=node/1067

So far emerging economies have braved the storm very well, largely because China and India are net creditor nations, and have managed to slow down the general commodity collapse.

However it looks looks like another financially steamy summer:

http://www.telegraph.co.uk/finance/finance...its-Sweden.html

European banks in spotlight as Baltic crisis hits Sweden

Sweden is preparing to part-nationalise banks exposed to the economic collapse in Baltic states, raising fears that a string of Western European countries could face similar fallout from rising defaults in the former Communist bloc.....

....Swedish banks have lent more than $75bn (£46bn) to Latvia, Lithuania and Estonia, led by Swedbank and SEB.

Hakan Berg, Swedbank's head of operations in the Baltics, said his bank can cope with the shock losses from devaluations across the region. "We have tested the worst-case scenarios. We have adequate capital. It would not bring the bank down," he said.

...The dramatic situation in Latvia went from bad to worse on Thursday as overnight rates reached 140pc, a sign that the country's currency peg in Europe's Exchange Mechanism is close to snapping. Credit default swaps measuring risk on Latvian debt rocketed above 750 after Latvia's treasury failed to sell a single note at a $100bn debt auction on Wednesday....

...It is unclear whether Sweden's bank troubles are the first sign of broader strains for West European banks, which have lent $1.6 trillion to the former Communist bloc. Sweden's exposure to the region at 22pc of GDP is not the highest. Austria's exposure is 70pc of GDP, with $246bn outstanding in Central Europe, Ukraine and the Balkans.

The situation varies from country to country, with the lowest risk in Poland and the Czech Republic. Even so, Danske Bank warns that Austria could face losses reaching 11pc of GDP in an "ugly scenario". Sweden's losses would be 6pc, and Belgium's 3.6pc, the Netherlands' 2.3pc, and Italy's 1.5pc.

"The risk of contagion is serious, Nobody thought Iceland would set off a crisis in Hungary last year, but it did, and the same could happen again," said Lars Christensen, East Europe expert at Danske Bank.

Personally I think even Ambrose is underestimating the severity of this. An eastern european serial collapse would cause havoc in the EU, which is already dangerously close to deflation.

The knock on effects on the rest of the world will be substantial, an immediate run on all emerging nation stock markets, and extensive repatriation of capital. Reduced demand for manufactures, collapse in commodity prices, and quite possibly serial collapse of South American and some asian countries.

In the west this means a further collapse in trade and economic demand, as well as another wave of very large bank losses.

Meanwhile the yield curve is already steepening, there simply isn't enough real capital around to deal with further substantial government debt write-offs.

Deleveraging.2 about to commence, meanwhile this is my estimation of Latvia's current economic position:

wife_shoe_dangling.jpg

In Douglas Adam's terms we may be approaching a shoe event horizon.

post-7856-1244213547_thumb.jpg

Edited by kagiso

Share this post


Link to post
Share on other sites
Getting very interesting.

Personally I think even Ambrose is underestimating the severity of this.

In Douglas Adam's terms we may be approaching a shoe event horizon.

Absolutely. They'll be throwing more than shoes in Latvia.

The Government is closing schools and hospitals so it can fund the Euro currency peg. This is madness. It might please the Swedish banks but no one locally is the least bit impressed.

Reckless lending, reckless borrowing leaving the nation a wreck. And all for property and shopping malls full of tat no one could afford.

Recipe For A Riot

The “challenges†for the Latvian population will be “substantialâ€

Latvia plans to cut spending and implement reforms that include closing some hospitals and schools so it can receive transfers from a 7.5 billion-euro ($10.6 billion) loan from a group led by the European Commission, the International Monetary Fund and Sweden

Share this post


Link to post
Share on other sites
:lol:

Must confess, I think Riga is a great place. The debt ridden dark-haired girls are fairly OK too.

Wait a bit with your Ryanair flight, though. I suspect that Latvia will have to abandon pegging its currency to the Euro in the next few weeks. That will make holidays very affordable. And the women even cheaper. :lol:

Buy 2 and get the third free.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   289 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.