Roubini Does An Aep

[Deckard]

Many here think Ambrose Evans-Prichard a lunatic - but Dr Doom (who seems to enjoy a near-deity reputation on HPC) is now backing him up.

Jan. 27 (Bloomberg) -- New York University Professor Nouriel Roubini said he’s never been more pessimistic about the future of European monetary union, saying Spain poses a looming threat to the euro region holding together.

“Down the line, not this year or two years from now, we could have a breakup of the monetary union,” Roubini said in a Bloomberg Radio interview from the World Economic Forum’s annual meeting in Davos, Switzerland. “It’s a rising risk.”

...

“The euro zone could drift essentially with a bifurcation, with a strong center and a weaker periphery and eventually some countries might exit the monetary union,” said Roubini, who predicted the recent financial crisis a year before it began. “This is the very first test” of the single currency bloc.

Economies including Spain and Greece are threatened by fiscal imbalances and declining competitiveness, Roubini said. Membership in the euro means they can no longer devalue the currency to export their way out of recession, he said.

...

Roubini said for all the focus on Greece, Spain may eventually pose a bigger threat to the euro zone because it’s the region’s fourth-largest economy and has higher unemployment and weaker banks. Spain’s jobless rate is more than 19 percent, almost twice the EU average.

“If Greece goes under that’s a problem for the euro zone,” he said. “If Spain goes under it’s a disaster.”

AEP should sue him for plagiarism

Edited January 27, 2010 by VoteWithYourFeet

[interestrateripoff]

If the Euro survives this recession it will be a long standing currency, this is it's first major test.

The problem is the entry criteria got fudged and that could be it's undoing.

[Georgia O'Keeffe]

Many here think Ambrose Evans-Prichard a lunatic - but Dr Doom (who seems to enjoy a near-deity reputation on HPC) is now backing him up.

AEP should sue him for plagiarism

theres a few people who have had this opinion for a few years that the EU is simply a product of the great bull market of the last 40 years and as it unravels the great bear will cause social and therefore political will in countries to become protectionist destroying the union. Personally on a currency front i see this as a likely outcome which is why the 2 currencies id avoid like the plague over the next 5-10 years are GBP and EUR

[Gone baby gone]

theres a few people who have had this opinion for a few years that the EU is simply a product of the great bull market of the last 40 years and as it unravels the great bear will cause social and therefore political will in countries to become protectionist destroying the union. Personally on a currency front i see this as a likely outcome which is why the 2 currencies id avoid like the plague over the next 5-10 years are GBP and EUR

Personally I think the Euro is exactly what it's intended to be - a first step to a single federal state of Europe - and nothing more. By design it will fail unless the various countries are merged into a single whole where the deficits of countries like Italy and Greece can be offset by Germany and (to a lesser extent) France.

How else could anyone, even at the best of times, think that there would be long term fiscal policy suitable for Greece while simultaneously being suitable for the world's biggest exporter by value - Germany?

[Deckard]

All down to will and cohesion.

Yep, and there's the rub.

[CokeSnortingTory]

How is this different from Barnsley and Chelsea or Oklahoma and New York City?

Strict limits on borrowing by the constituent parts must be enforced (the root of the Argentine crisis was the borrowing of the regions). Of course this may then have to be replaced with transfer payments. Not easy for anyone really. All down to will and cohesion.

If Barnsley and Oklahoma were seperate sovereign states with their own language and culture, which had formed independently over 2000 years, it would be exactly the same.

[Trampa501]

Guess which country is Spain's biggest export market? yes, that's right - Germany! As the German economy pulls out of recession you will see the Spanish economy benefit. I think also they (and other Med countries) will benefit from the cold winter this year - many in northern Europe who did the "staycation" thing this year may well revert back to a warm Med holiday.

[lowrentyieldmakessense(honest!)]

If the Euro survives this recession it will be a long standing currency, this is it's first major test.

The problem is the entry criteria got fudged and that could be it's undoing.

its undoing will be the fact that is made of ink and paper

[Tonester]

Isn't there a chance they all just need time to sync their economies? The effort to get Germany into growth with low interest rates fueled a boom in Spain, Ireland etc. It may not be possible to achieve equality easily. Kind of a big risky experiment to go through wasn't it?

[Deckard]

Isn't there a chance they all just need time to sync their economies?

Yeah, give it a couple thousand years more and they'll all be synched up.

[Gone baby gone]

Isn't there a chance they all just need time to sync their economies? The effort to get Germany into growth with low interest rates fueled a boom in Spain, Ireland etc. It may not be possible to achieve equality easily. Kind of a big risky experiment to go through wasn't it?

How do you sync economies with not only different tax rates, but different tax structures?

[Trampa501]

Spanish companies taking advantage of current climate to expand in the UK

link to articla

Falling high street rentals and the low value of the pound are making Britain increasingly attractive to Spanish retailers, who are suffering a tough time in their home market, with consumer spending in freefall. Zara, Massimo Dutti, Desigual and Mango all have plans to expand this year in the UK.

We're going to wake up one day and find everywhere is owned by the Spanish (well those companies which aren't already owned by the French, Americans....)

But there's a big cloud on the horizon:

Even the Café y Te (Coffee and Tea) chain plans to open three branches in London. If it does, then the Spanish will be selling tea to the British.

[The Masked Tulip]

“Down the line, not this year or two years from now, we could have a breakup of the monetary union,”

Well, so never then? So it will not be this year, not two years from now - so when? Ambiguous.

[Gone baby gone]

States in America have different tax structures. Why do you need identical tax structures.

America also has a federal rate of tax, and numerous other federal structures and laws missing in Europe.

Come to that matter, why do you need to sync economies to have a single currency?

Because if you are setting a single base rate, something that fits one country & economy may not fit another. IRs are one of the few economic levers that nation state governments can use.

Citizens in Euro member states can vote their governments out, but can't vote for the ECB base rate.

[leicestersq]

European Monetary Union can fall apart due to internal or external forces.

The previous attempt at it suffered little internal tension. What it failed to grapple with effectively, was D-Day.

Looking a little bit further back in time, again the forces of monetary union floundered at Waterloo.

Only the Romans managed to succeed in bringing the whole of Europe and the UK into a super monetary union. And they are still paying the cost of that now.

Edited January 27, 2010 by leicestersq

[leicestersq]

What happened to the Renaissance?

It was still born.

The best bits of art from that period are hanging in museums outside of Italy.

The best bits of architecture proved to be a popular setting in the hit UK film, "The Italian Job".

[Deckard]

Only the Romans managed to succeed in bringing the whole of Europe and the UK into a super monetary union. And they are still paying the cost of that now.

I was born in Rome.

Are you saying I should be asking myself "what did the British ever do for us?"

[R K]

How is this different from Barnsley and Chelsea or Oklahoma and New York City?

Strict limits on borrowing by the constituent parts must be enforced (the root of the Argentine crisis was the borrowing of the regions). Of course this may then have to be replaced with transfer payments. Not easy for anyone really. All down to will and cohesion.

Nationalismo or Globalismo.

Who wins.

You decide.(We'll get a clue when the Greeks really start to kick off).

Edited January 27, 2010 by Le Karma Rouge

[Gone baby gone]

Apart from London, virtually everywhere else in the UK would have been better off under the Bundesbank for the last 30 years.

London with its pressures, is naturally inflationary and volatile. Higher rates than what most of the country needed was a key factor in destroying much of this country's industry.

So you think that one-size-fits-all IRs are a bad idea.

I would agree there.

But what makes you think having a single IR for almost an entire continent is a good move?

In the UK it would make sense for a London/SE IR and a different IR (and tax rates) in the regions.

Can I vote the BoE in London out?

No, but you can vote out the government that directly appointed 4 of them!

True, the ECB Governing Council includes the governors of the national central banks of the 16 euro area countries. Unfortunately, most of those governors will be civil servants, like our own BoE governor, and thus not answerable to voters in their respective countries.

[Godley]

America also has a federal rate of tax, and numerous other federal structures and laws missing in Europe.

Because if you are setting a single base rate, something that fits one country & economy may not fit another. IRs are one of the few economic levers that nation state governments can use.

Citizens in Euro member states can vote their governments out, but can't vote for the ECB base rate.

Agree totally in the points you make.

Just to add:

The USA has a single culture, common language , federal law and labour is much more mobile (because of the first three). The Euro could only succeed if they had created the Super State needed to underpin it's viability.

[CokeSnortingTory]

The Euro could only succeed if they had created the Super State needed to underpin it's viability.

No, it would fail all at once instead of bit by bit as it is currently doing. I think the age of supersized economies is coming to an end. Resource issues will see to that.

[Godley]

No, it would fail all at once instead of bit by bit as it is currently doing. I think the age of supersized economies is coming to an end. Resource issues will see to that.

It didn't in the USA in 1930.

For it to have worked you needed the Super State first, I did not offer an eventual outcome. The Euro was always doomed because Europe could never be one nation.

[CokeSnortingTory]

It didn't in the USA in 1930.

For it to have worked you needed the Super State first, I did not offer an eventual outcome. The Euro was always doomed because Europe could never be one nation.

There were no resource issues in 1930. I expect at the very least authority in the US to drift from the Federal Government back to the individual states.

Agree that Europe could never be one nation, though.

[huw]

Isn't there a chance they all just need time to sync their economies? The effort to get Germany into growth with low interest rates fueled a boom in Spain, Ireland etc. It may not be possible to achieve equality easily. Kind of a big risky experiment to go through wasn't it?

Quite so, they could call this process "economic convergence" and have some "criteria" to measure it, with strict requirements to be met before EMU entry.

What a shame they didn't write such things into the Masstricht treaty

[huw]

The USA has a single culture, common language , federal law and labour is much more mobile (because of the first three). The Euro could only succeed if they had created the Super State needed to underpin it's viability.

And even then the cultural and linguistic differences would remain, meaning US-style labour mobility would not be achieved.