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Eu 'haircut' Plans Rattle Bondholders

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http://www.telegraph.co.uk/finance/economics/8094324/EU-haircut-plans-rattle-bondholders.html

Germany has agreed to give the EU's €440bn (£383bn) bail-out fund permanent status rather than letting it expire in 2013 as planned, but only as part of a "Crisis Resolution Mechanism" that forces bondholders to share losses from any future bail-outs. The fund must be anchored in EU law through changes to the Treaties in order to head off legal challenges at Germany's constitutional court.

A draft proposal from Berlin – now serving as a working text for the European Commission – calls for "orderly insolvency" by eurozone countries in trouble. Details are sketchy but this "Chapter 11" for sovereign states would include an extension of debt maturities, a "holiday" on interest payments for as long as needed to let debtors recover, and a suspension of bondholder rights. The blueprint is akin to debt-restucturing schemes used by the International Monetary Fund.

Berlin is determined to avoid a repeat of the €110bn bailout for Greece when banks were shielded from losses, leaving eurozone taxpayers facing the full cost.

Silvio Peruzzo, Europe economist at RBS, said talk of "haircuts" for bondholder at this delicate juncture could backfire. "The debt crisis in the eurozone periphery has not been sorted out. These countries need markets to keep buying the bonds, but investors are going to stay away if you open the door to private sector pain," he said.

It is unclear whether the latest bond jitters in Greece, Ireland, and Portugal is linked to growing awareness of the German plans. Each country has its own troubles. Yields on Ireland's 10-year bonds briefly rose to a post-EMU high above 7pc on Thursday, partly due to a stand-off between Dublin and angry funds facing losses on the junior debt of Anglo Irish Bank.

However, EU officials fear that the proposals could make it harder for high-debt states to tap debt markets, risking a self-fulfilling crisis.

Germany is likely to win backing in principle at Friday's EU summit in Brussels since it has already struck a deal with France, and Britain has dropped its opposition to treaty changes.

AEP obviously been supercharged having being on his hols.

Haircuts all round.

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You have missed the point of what Germany is doing here.

Over the past 10 years of the Euro the profligate states have been able to borrow huge amounts of money at very low interest rates becuase the assumption was Germany would always pay if they got into trouble.

What Merkel is saying is no more German taxpayers money for bailout, Germany will not pay.

This is the start of the endgame, because all you hear from Greece, Spain, Portugal and Ireland is that they want rates to return to normal i.e they want to borrow at basically the rate that Germany borrows at i.e very low and let the good times roll again.

Well never again, this move will consign PIIGS borrowing to 6%+ for the forseeable future.

Merkel has just destroyed the PIIGS economies completely. They all need to default and quickly and get out of the Euro.

Edited by ralphmalph

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You have missed the point of what Germany is doing here.

Over the past 10 years of the Euro the profligate states have been able to borrow huge amounts of money at very low interest rates becuase the assumption was Germany would always pay if they got into trouble.

What Merkel is saying is no more German taxpayers money for bailout, Germany will not pay.

This is the start of the endgame, because all you hear from Greece, Spain, Portugal and Ireland is that they want rates to return to normal i.e they want to borrow at basically the rate that Germany borrows at i.e very low and let the good times roll again.

Well never again, this move will consign PIIGS borrowing to 6%+ for the forseeable future.

Merkel has just destroyed the PIIGS economies completely. They all need to default and quickly and get out of the Euro.

Their profligate spending has mostly been buying German manufactures, and the banksters she doesn't want German taxpayers to bail out are her own. She'd have to do it anyway.

But you're correct - they should default and leave the euro, although I think it's prob. far simpler for everyone if Germany exits and then her currency can find it's correct level rather than crushing the life out of the piggies to protect her precious ickle taxpayers.

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Their profligate spending has mostly been buying German manufactures, and the banksters she doesn't want German taxpayers to bail out are her own. She'd have to do it anyway.

But you're correct - they should default and leave the euro, although I think it's prob. far simpler for everyone if Germany exits and then her currency can find it's correct level rather than crushing the life out of the piggies to protect her precious ickle taxpayers.

Was buying German Product, Germany now has new consumers in the emerging markets that are more than making up the loss in Euroland.

The German banks have placed thier crap PIIGS debt at the ECB so now it is not a German problem it is a EU problem. They just needed time to do it.

I agree that the simplest solution is for Germany to leave the Euro.

Edited by ralphmalph

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Was buying German Product, Germany now has new consumers in the emerging markets that are more than making up the loss in Euroland.

The German banks have placed thier crap PIIGS debt at the ECB so now it is not a German problem it is a EU problem. They just needed time to do it.

I agree that the simplest solution is for Germany to leave the Euro.

There is no easy option, if the Germans leave it creates problems, if the PIIGS leaves it creates problems.

If you where in Euroland and you knew Germany was going to leave where would you dump your Euro's to benefit?

Similar if the PIIGS try to leave there will be capital flight from those nations into Euroland.

Either way I fear everyone is equally fooked.

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...

If you where in Euroland and you knew Germany was going to leave where would you dump your Euro's to benefit?

...

I am and I would "dump" them into A N Other currency.

This is the beginning of the next bank crisis and the next bail out. All this talk of one or another or multiple countries "leaving" the Euro is tosh. Just think about the practical implications and the short-term cost. I'll bet anyone the Euros I have got that there will be no break up, more likely in fact there will be another new member to the club. (You can pay me in another currency when you lose).

The whole point of the single currency was to make trade easier and to build a single trading block. Those goals still stand. As long as the current political thinking remains the majority view in the EU no one will want separatism, not even the UK. The principles behind the Euro were to have a solid and well managed currency that prevented devaluation and protectionism. These principles have been ignored and governments (notably Greece) have broken the "rules". The Germans want Greece to cough up, but be sure of one thing - the Germans do not want a wheelbarrow full of worthless Drachmas in return for their debt.

The Telegraph runs story after story about the break up of the Euro but it is total cr@p and just what a few wingnuts want to believe - it is prejudice pure and simple and a steadfast refusal to accept they are wrong. Writing for a eurosceptic and British-supremacist audience of financial illiterates.

Its just political life - governments lie and cheat, rich people avoid tax (like the UK chancellor :)) and newspapers try to persuade people of one point of view or another. Much as it pains me to agree with Ferguson he is right - the way out is default or some euphemism of default. This is the start of that process.

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This made me laugh -

Silvio Peruzzo, Europe economist at RBS, said talk of "haircuts" for bondholder at this delicate juncture could backfire. "The debt crisis in the eurozone periphery has not been sorted out. These countries need markets to keep buying the bonds, but investors are going to stay away if you open the door to private sector pain," he said.

So private sector wants to buy high yielding PIIGS bonds, but does not want even the prospect of feeling any pain.

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snip

The idea to improve trade between EU countries is laudable and there are obvious benefits to tourism and easy trade within the zone. However, there are several major structural problems with the current eurozone set up.

The debt crisis in Greece itself is not really a problem. The bond mispricing that occurred that allowed Greece to borrow such a large amount will not occur again. They are financed for the medium term by the bailout fund, Ireland also.

The real problem with the Eurozone is it's effect on the growth and employment in non competitive member states. The massive competitive / productivity divergence between Spain, Greece, Portugal, Ireland etc with Germany and France.

The southern European economies need to generate high levels of growth to reign in budget deficits and pay back debt. The high levels of unemployment and austerity measures, wages cuts, job losses, will make growth from domestic demand / consumerism impossible.

They need to rebalance externally and generate a current account surplus and growth from net trade. This is not possible in the current eurozone structure.

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I am and I would "dump" them into A N Other currency.

This is the beginning of the next bank crisis and the next bail out. All this talk of one or another or multiple countries "leaving" the Euro is tosh. Just think about the practical implications and the short-term cost. I'll bet anyone the Euros I have got that there will be no break up, more likely in fact there will be another new member to the club. (You can pay me in another currency when you lose).

The whole point of the single currency was to make trade easier and to build a single trading block. Those goals still stand. As long as the current political thinking remains the majority view in the EU no one will want separatism, not even the UK. The principles behind the Euro were to have a solid and well managed currency that prevented devaluation and protectionism. These principles have been ignored and governments (notably Greece) have broken the "rules". The Germans want Greece to cough up, but be sure of one thing - the Germans do not want a wheelbarrow full of worthless Drachmas in return for their debt.

The Telegraph runs story after story about the break up of the Euro but it is total cr@p and just what a few wingnuts want to believe - it is prejudice pure and simple and a steadfast refusal to accept they are wrong. Writing for a eurosceptic and British-supremacist audience of financial illiterates.

Its just political life - governments lie and cheat, rich people avoid tax (like the UK chancellor :)) and newspapers try to persuade people of one point of view or another. Much as it pains me to agree with Ferguson he is right - the way out is default or some euphemism of default. This is the start of that process.

I believe that the Euro will either fail completely or some countries will have left the club by 2015. The currency has only been running for 10 years and look at the state it's in.

It's not that I have anything against the Euro, it's an ok idea. But the political pressures will become too great for Brussels as member states begin to reassert their authority. Look what happens when citizens are given a referendum on further EU integration, they vote no yet their wishes are ultimately ignored by the euro elites. Goodwill for EU experimentation is at an all time low.

But the only way to stabilise the Eurozone (according to the EU) is to experiement a little more and see if further integration pays off: the Eurozone needs a full on fiscal union. As this is a step too far for even the governments of member states I don't see how the EU will be able to shoehorn this one through.

The euro has reached it's zenith. It's downhill all the way from here.

Edited by Chef

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The German banks have placed thier crap PIIGS debt at the ECB so now it is not a German problem it is a EU problem. They just needed time to do it.

As I understand it, the PIIGS debts weren't actually *EXCHANGED* they were used as collateral for loans from the ECB.

If the PIIGS debts drop in value, as I understand it, the banks would still be liable for the difference.

I don't beleive the ECB loans were non-recourse... if the PIIGS default, all the stuff with the German banks will kick off again as they all disappear down the drain and end up owned by the ECB who they would owe hundreds of billions to.

All shuffling the debts to he ECB has done is add a bit of shine to the banks accounts for a while by hiding the problem off balance sheet, allowing bonuses all round again.

Edited by RufflesTheGuineaPig

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As I understand it, the PIIGS debts weren't actually *EXCHANGED* they were used as collateral for loans from the ECB.

If the PIIGS debts drop in value, as I understand it, the banks would still be liable for the difference.

I don't beleive the ECB loans were non-recourse... if the PIIGS default, all the stuff with the German banks will kick off again as they all disappear down the drain and end up owned by the ECB who they would owe hundreds of billions to.

All shuffling the debts to he ECB has done is add a bit of shine to the banks accounts for a while by hiding the problem off balance sheet, allowing bonuses all round again.

Correct and when the SHTF, Merkel and Sarko will have a Deauville II meeting and decide that in the interests of Eurozone financial stability the ECB will take the hit.

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.....

The real problem with the Eurozone is it's effect on the growth and employment in non competitive member states. The massive competitive / productivity divergence between Spain, Greece, Portugal, Ireland etc with Germany and France.

...

These though are political problems not ones of currency or fiscal management. Neither Germany nor France are really much more competitive nor indeed productive than other EZ countries. Germany's "secret" is the SME sector which is backed by the local banking system. France has a network of national banks and a much more big company economy. France is screwed by any measure you like to put forward, its economy is much closer to that of the UK than any French person would ever admit. What we did not have here in France was such a bubble in housing. France's economy is heavily reliant on tourism and this will be hit hard if other countries austerity means fewer tourists and more people staying in their own country. European geography and the Euro will help France preserve its position as a favoured holiday destination. Sarkosy's threat to leave the Euro is as pathetic as he is personally, drunk at state meetings and obsessed with his own position. No one here thinks he will be in office after the elections.

The great error of recent times IMHO was the decision to let the A8 countries into the "rich man's club" to provide cheap labour for the developed economies. The Euro and the pegging of other currencies to the Euro makes it all too obvious that a burger flipper in Berlin earns more than a Surgeon in Talin. The result is people understandably move about in search of the better pay. At the same time its cheaper to live in Riga than Richmond so move there and make your retirement income go further, further in fact than your neighbour who works 60 hours a week. The EU brought Spain and Portugal up to a decent standard of living, but the A8 were too many people and too fast. With patience and a bit more planning the trick could have been repeated, but the enthusiasm for cheap plumbers and cabbage cutters was misplaced.

Edited by non frog

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  • 150 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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