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The Fate Of The Euro

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Found this on the Guardian website:

Arturo de Frias, head of banks research at Evolution Securities, argued that the costs and consquences of the single European currency falling apart were too high for it to be allowed to happen. He wrote:

"If the euro goes, the whole European banking system – including the banking systems of the core nations - would be nearly bust.

If the euro is abandoned, and we go back to the peseta, lira, escudo, dracma, etc, devaluations would follow immediately. And devaluations mean write-offs of loans and investments - of a size that would render the whole European banking system completely insolvent.

According to Basel, last June, German banks had €250bn claims vis a vis Spain and Italy. If Spain and Italy devalue by 30% on their way back to the peseta/lira, the German banks lose €74bn. If you add Greece, Portugal, and Ireland, total losses would be €120bn. That is almost half of the total equity capital of German lenders.

The French banks have €430bn claims vis a vis Spain and Italy. A 30% devaluation would imply €129bn losses. Add Greece, Ireland and Portugal and the total losses would be €160bn. This is more than the capital of BNP, SocGen and CASA combined.

The UK banks have €132bn exposure vs Spain and Italy. That means €40bn losses. Add the smaller countries and we get to €80bn losses. That is nearly half of the equity of Barclays, Royal Bank of Scotland and Lloyds Banking Group.

Combined, the French, German and UK banks could lose €360bn if the euro goes.

The only way forward is fiscal union. It has become now 100% evident that monetary union without fiscal union does not make any sense. My gut feeling is, the decision has been taken already."

I actually found myself agreeing with him - does anyone else have any thoughts?

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They should have thought of this problem before with all their poison pills of debt economic policies. They likely did think of it before.

The last thing they want is for countries to exert sovereignty and/or to default on debt and start again.

Edited by billybong

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Found this on the Guardian website:

Arturo de Frias, head of banks research at Evolution Securities, argued that the costs and consquences of the single European currency falling apart were too high for it to be allowed to happen. He wrote:

"If the euro goes, the whole European banking system – including the banking systems of the core nations - would be nearly bust.

If the euro is abandoned, and we go back to the peseta, lira, escudo, dracma, etc, devaluations would follow immediately. And devaluations mean write-offs of loans and investments - of a size that would render the whole European banking system completely insolvent.

According to Basel, last June, German banks had €250bn claims vis a vis Spain and Italy. If Spain and Italy devalue by 30% on their way back to the peseta/lira, the German banks lose €74bn. If you add Greece, Portugal, and Ireland, total losses would be €120bn. That is almost half of the total equity capital of German lenders.

The French banks have €430bn claims vis a vis Spain and Italy. A 30% devaluation would imply €129bn losses. Add Greece, Ireland and Portugal and the total losses would be €160bn. This is more than the capital of BNP, SocGen and CASA combined.

The UK banks have €132bn exposure vs Spain and Italy. That means €40bn losses. Add the smaller countries and we get to €80bn losses. That is nearly half of the equity of Barclays, Royal Bank of Scotland and Lloyds Banking Group.

Combined, the French, German and UK banks could lose €360bn if the euro goes.

The only way forward is fiscal union. It has become now 100% evident that monetary union without fiscal union does not make any sense. My gut feeling is, the decision has been taken already."

I actually found myself agreeing with him - does anyone else have any thoughts?

I agree with him as well.

I have long since given up discussing or debating what is right or wrong - much easier to concentrate on what is most likely to happen.

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Found this on the Guardian website:

Arturo de Frias, head of banks research at Evolution Securities, argued that the costs and consquences of the single European currency falling apart were too high for it to be allowed to happen. He wrote:

"If the euro goes, the whole European banking system – including the banking systems of the core nations - would be nearly bust.

If the euro is abandoned, and we go back to the peseta, lira, escudo, dracma, etc, devaluations would follow immediately. And devaluations mean write-offs of loans and investments - of a size that would render the whole European banking system completely insolvent.

According to Basel, last June, German banks had €250bn claims vis a vis Spain and Italy. If Spain and Italy devalue by 30% on their way back to the peseta/lira, the German banks lose €74bn. If you add Greece, Portugal, and Ireland, total losses would be €120bn. That is almost half of the total equity capital of German lenders.

The French banks have €430bn claims vis a vis Spain and Italy. A 30% devaluation would imply €129bn losses. Add Greece, Ireland and Portugal and the total losses would be €160bn. This is more than the capital of BNP, SocGen and CASA combined.

The UK banks have €132bn exposure vs Spain and Italy. That means €40bn losses. Add the smaller countries and we get to €80bn losses. That is nearly half of the equity of Barclays, Royal Bank of Scotland and Lloyds Banking Group.

Combined, the French, German and UK banks could lose €360bn if the euro goes.

The only way forward is fiscal union. It has become now 100% evident that monetary union without fiscal union does not make any sense. My gut feeling is, the decision has been taken already."

I actually found myself agreeing with him - does anyone else have any thoughts?

Germans don't want to get any closer to their slack mediterranean cousins - it would cause riots. Come to think of it I expect the Irish to get a bit feisty over the latest debacle they feel they have been sold down the river. I'm sure they will dream up some kind of awkward bodge that will end in us all slowly falling apart instead of just those who caused the problems.

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What these idiot research wonks always neglect to add in to their "research" is that the UK does not use the Euro we have sterling and it has devalued from about 1.5 euros to the pound when the majority of the loans were made to 1.18 today.

So if the euro devalues to sterling by 30% this means 1.18 euro to £ would be 1.18 x 1.3 = 1.53 euro to the pound.

UK bank loses on the value of the original investments about 3c / 1.50 = 2%

Oh yeah UK banks facing armageddon, not.

Now Mr Osbournes loan to the Irish needs to have some currency hedging applied to it toot suite unless it is a sterling loan and then the Irish need to do the hedging.

Edited by ralphmalph

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Found this on the Guardian website:

Arturo de Frias, head of banks research at Evolution Securities, argued that the costs and consquences of the single European currency falling apart were too high for it to be allowed to happen. He wrote:

"If the euro goes, the whole European banking system – including the banking systems of the core nations - would be nearly bust.

If the euro is abandoned, and we go back to the peseta, lira, escudo, dracma, etc, devaluations would follow immediately. And devaluations mean write-offs of loans and investments - of a size that would render the whole European banking system completely insolvent.

According to Basel, last June, German banks had €250bn claims vis a vis Spain and Italy. If Spain and Italy devalue by 30% on their way back to the peseta/lira, the German banks lose €74bn. If you add Greece, Portugal, and Ireland, total losses would be €120bn. That is almost half of the total equity capital of German lenders.

The French banks have €430bn claims vis a vis Spain and Italy. A 30% devaluation would imply €129bn losses. Add Greece, Ireland and Portugal and the total losses would be €160bn. This is more than the capital of BNP, SocGen and CASA combined.

The UK banks have €132bn exposure vs Spain and Italy. That means €40bn losses. Add the smaller countries and we get to €80bn losses. That is nearly half of the equity of Barclays, Royal Bank of Scotland and Lloyds Banking Group.

Combined, the French, German and UK banks could lose €360bn if the euro goes.

The only way forward is fiscal union. It has become now 100% evident that monetary union without fiscal union does not make any sense. My gut feeling is, the decision has been taken already."

I actually found myself agreeing with him - does anyone else have any thoughts?

I am sure he is right, banks will go bust all over Europe.

Where I disagree with him is that this article infers that the powers that be can somehow stop the Euro from breaking up. I dont know why so many people have a belief in those in authority deliver impossible things. If we just take a step back and think for a while, we would question the daft promises that politicians make and which we then vote for.

The way the Euro works is a bit like the gold standard. The only problem with the gold standard is if you spend all the gold, what do you use for money? You need money to be able to transact and get things done.

The huge imbalances in Europe have meant that the PIGS have spent money, lent to them by Germany and others, because the money was on offer at very low interest rates. Now they are being asked to repay, they have little that they can sell back to their creditors to raise the funds necessary to repay. If they dont repay, many banks go under. How can they repay?

In a country like the US, with political and monetary union, the central government can allocate taxpayers funds to areas that have more people than industry, keeping the funds flowing. That doesnt happen with the EU, private money just goes where it wants to.

And now it has deserted Ireland, a nation that has fleeced the rest of Europe in a mad housing and benefits galore boom, and has no money to repay what is owed. Despite its largesse upon itself with the borrowed money of others, it still cannot bring itself down to earth, and pays benefits that many workers in the UK would consider a good wage. The Irish are even able to borrow more money at low rates of interest, from the ECB and other EU nations, and the UK, because declaring a default puts the world's banking system into cardiac arrest. The game of poker being played over the Irish budget could not be greater.

Nations in the EU will therefore continue to act like the Irish, and borrow all they can with little intent to repay, just so long they can blackmail other nation states in this way. In the end though, their creditors will run out of money too, and the bond markets will desert them. Even Germany will not be able to borrow if it just lends more and more to bankrupt nations. At that point we either get a banking collapse, or a massive amount of printing from the ECB. The latter will destroy the Euro through inflation. The former will destroy the Euro through civil unrest in both the debtor and the creditor nations.

There is no way out, though you can kick the can a bit further down the road if you want. The wall at the end of the road is getting near, where kicking ceases to be an option.

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The euro will not go. There is no way of going back to individual currenices for weak economies like Ireland, Portugal, Spain etc. There is no question of it; it has never been suggested seriously. There is also no question of fiscal union either, there is no political will for it in Germany and France ( massive transfer of wealth north to south?) let alone the rest, it would solve nothing and probably make the problems worse.

The euro will stay but the strongest economies will leave. Germany bringing back the DM or forming a new euro is the only realistic solution. The old euro would devalue significantly, there would be no bank losses, southern Europe would become competitive again and begin to grow. Debt restructuring and significant QE would also have to be part of the deal in the old euro.

Germany has the most to lose from this solution so I would not expect it to be quick, there will have to be a lot more problems / desperation before such a solution is put in place.

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The euro will not go. There is no way of going back to individual currenices for weak economies like Ireland, Portugal, Spain etc. There is no question of it; it has never been suggested seriously. There is also no question of fiscal union either, there is no political will for it in Germany and France ( massive transfer of wealth north to south?) let alone the rest, it would solve nothing and probably make the problems worse.

The euro will stay but the strongest economies will leave. Germany bringing back the DM or forming a new euro is the only realistic solution. The old euro would devalue significantly, there would be no bank losses, southern Europe would become competitive again and begin to grow. Debt restructuring and significant QE would also have to be part of the deal in the old euro.

Germany has the most to lose from this solution so I would not expect it to be quick, there will have to be a lot more problems / desperation before such a solution is put in place.

What about the flights of capital from Southern Europe into Germany this would entail? There'd be no money left in the Med at all.

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I agree with him as well.

I have long since given up discussing or debating what is right or wrong - much easier to concentrate on what is most likely to happen.

Quite - sad but true.

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"The only way forward is to form a United States of Europe"

Nah, no thanks.

Care to expand?

creating the present day United States involved forcing millions of people into line and a massive, horrific civil war bloodbath.

But after that - they did rather well didn't they? And even deducting all the horrendeous debts of the recent past, and setting aside the fact that most of it is concentrated in a few hands, the net wealth of the good ol' USA is still vast.

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The euro will not go. There is no way of going back to individual currenices for weak economies like Ireland, Portugal, Spain etc. There is no question of it; it has never been suggested seriously. There is also no question of fiscal union either, there is no political will for it in Germany and France ( massive transfer of wealth north to south?) let alone the rest, it would solve nothing and probably make the problems worse.

The euro will stay but the strongest economies will leave. Germany bringing back the DM or forming a new euro is the only realistic solution. The old euro would devalue significantly, there would be no bank losses, southern Europe would become competitive again and begin to grow. Debt restructuring and significant QE would also have to be part of the deal in the old euro.

Germany has the most to lose from this solution so I would not expect it to be quick, there will have to be a lot more problems / desperation before such a solution is put in place.

That sounds like a slow death for the Euro to me.

Perhaps Germany should just leave - I'm sure capital is flooding into their banks, which will be doing yet more harm to the struggling Euro members. Germany would still have its Euros (although, no doubt somewhat devalued) to spend, but it would give the other countries a chance.

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But this assumes that the debt would be held in the counties own currency? So devaluing may work for individual nations. It depends on how the split of the EU would occur though... if the debt was kept in some form of central currency then the article is a load of nonesense.

Found this on the Guardian website:

Arturo de Frias, head of banks research at Evolution Securities, argued that the costs and consquences of the single European currency falling apart were too high for it to be allowed to happen. He wrote:

"If the euro goes, the whole European banking system – including the banking systems of the core nations - would be nearly bust.

If the euro is abandoned, and we go back to the peseta, lira, escudo, dracma, etc, devaluations would follow immediately. And devaluations mean write-offs of loans and investments - of a size that would render the whole European banking system completely insolvent.

According to Basel, last June, German banks had €250bn claims vis a vis Spain and Italy. If Spain and Italy devalue by 30% on their way back to the peseta/lira, the German banks lose €74bn. If you add Greece, Portugal, and Ireland, total losses would be €120bn. That is almost half of the total equity capital of German lenders.

The French banks have €430bn claims vis a vis Spain and Italy. A 30% devaluation would imply €129bn losses. Add Greece, Ireland and Portugal and the total losses would be €160bn. This is more than the capital of BNP, SocGen and CASA combined.

The UK banks have €132bn exposure vs Spain and Italy. That means €40bn losses. Add the smaller countries and we get to €80bn losses. That is nearly half of the equity of Barclays, Royal Bank of Scotland and Lloyds Banking Group.

Combined, the French, German and UK banks could lose €360bn if the euro goes.

The only way forward is fiscal union. It has become now 100% evident that monetary union without fiscal union does not make any sense. My gut feeling is, the decision has been taken already."

I actually found myself agreeing with him - does anyone else have any thoughts?

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Fiscal union doesn't stand a prayer - Ireland tells you that.

Peacemeal ejections from the Euro bankrupt the countries that choose to do so.

North/South Euro sounds like putting all the bad eggs in one basket - great unless you are a bad egg.

Going on as we are loads further Euro indebtedness on the weaker states, and years down the line, civil instability.

Its got to be default.

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Care to expand?

creating the present day United States involved forcing millions of people into line and a massive, horrific civil war bloodbath.

But after that - they did rather well didn't they? And even deducting all the horrendeous debts of the recent past, and setting aside the fact that most of it is concentrated in a few hands, the net wealth of the good ol' USA is still vast.

Extrapolating this though, why not have one world government instead? If the USA is powerful now, just think how powerful a world government would be!

I'd rather just have a little corner of the planet to call home, with policies I can influence which affect me. I believe in less centralised power, not more.

Each to their own though, but I was pointing out what the aim of the EU and these suggested measures are. Surely, it's obvious what the aims of the EU are now, so let's have the debate of whether we want it. Do we want a free trade block or the USE?

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The only country that could get out of the euro easily is Germany. The German people never voted for the euro and would be glad to see the back of it. In all other countries the people would hang on to the euro like grim death. Imagine telling the Irish we're going to convert your savings into New Punts - they'd all withdraw euro cash the day before. (And be delighted if their debts were converted into a weak currency.)

To make it happen there would have to be paralle running of the euro and the New Punt for a year or more. In fact the euro would never really leave.

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Care to expand?

creating the present day United States involved forcing millions of people into line and a massive, horrific civil war bloodbath.

But after that - they did rather well didn't they? And even deducting all the horrendeous debts of the recent past, and setting aside the fact that most of it is concentrated in a few hands, the net wealth of the good ol' USA is still vast.

Will the UK become europes Cuba then?

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I am sure he is right, banks will go bust all over Europe.

Where I disagree with him is that this article infers that the powers that be can somehow stop the Euro from breaking up. I dont know why so many people have a belief in those in authority deliver impossible things. If we just take a step back and think for a while, we would question the daft promises that politicians make and which we then vote for.

The way the Euro works is a bit like the gold standard. The only problem with the gold standard is if you spend all the gold, what do you use for money? You need money to be able to transact and get things done.

The huge imbalances in Europe have meant that the PIGS have spent money, lent to them by Germany and others, because the money was on offer at very low interest rates. Now they are being asked to repay, they have little that they can sell back to their creditors to raise the funds necessary to repay. If they dont repay, many banks go under. How can they repay?

In a country like the US, with political and monetary union, the central government can allocate taxpayers funds to areas that have more people than industry, keeping the funds flowing. That doesnt happen with the EU, private money just goes where it wants to.

And now it has deserted Ireland, a nation that has fleeced the rest of Europe in a mad housing and benefits galore boom, and has no money to repay what is owed. Despite its largesse upon itself with the borrowed money of others, it still cannot bring itself down to earth, and pays benefits that many workers in the UK would consider a good wage. The Irish are even able to borrow more money at low rates of interest, from the ECB and other EU nations, and the UK, because declaring a default puts the world's banking system into cardiac arrest. The game of poker being played over the Irish budget could not be greater.

Nations in the EU will therefore continue to act like the Irish, and borrow all they can with little intent to repay, just so long they can blackmail other nation states in this way. In the end though, their creditors will run out of money too, and the bond markets will desert them. Even Germany will not be able to borrow if it just lends more and more to bankrupt nations. At that point we either get a banking collapse, or a massive amount of printing from the ECB. The latter will destroy the Euro through inflation. The former will destroy the Euro through civil unrest in both the debtor and the creditor nations.

There is no way out, though you can kick the can a bit further down the road if you want. The wall at the end of the road is getting near, where kicking ceases to be an option.

+1

The European bath-tub with the Germans and the Brits as the hot water taps and the PIIGS as the open plug-hole. Some people think this can work as a permanent status-quo?

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Default is the only solution and so it will occur. The argument at the minute is between the German government who want the scumbag banks and financial institutions that caused the mess to take some of the pain and the attempt by the rich to make the taxpayer take the pain - all of it.

I'm never sure what people mean by the "failure" of the Euro. It has "failed" inasmuch as the covenants that were signed up to at its creation have been breached. The Greek bailout was technically illegal. The politics are failing every day, but I can still get a loaf from the local baker for €0.85 so the money works just fine. "Failure" IMHO means a default to the bankers and this is what they fear. The wingnut halfwits in the anti-EU camp is think probably imagine some catastrophic failure with Germany returning to the DMark on Friday week. This is impossible, never mind unlikely. The lead time to exit is about three years.

The "breakup" of the EZ is also a far fetched (though not impossible) outcome. Notwithstanding our Hungarian little Napoleon wannabee dick of a president neither France nor Germany have anything to gain from leaving the currency union. The smaller countries less so. I could contemplate a small country, notably Eire (pop 4.5M) making the pull-out in the face of public unrest, but TBH I think that is a long way off yet.

If the haircut is hard enough then the argument that the European banks will fall is correct. They are already bust and many are hanging on only by a thread - property prices are their Achilles heel and the previous problems of falling property prices are far from over. (see http://www.independent.ie/business/commercial-property/irish-commercial-property-market-now-the-most-vulnerable-in-world-2434765.html) There is zero possibility that non Euro banks would not get sucked into the failure and the UK would collapse as well and sterling with it.

I don't see an easy answer. If I'm honest I don't see a difficult answer either :) My best guess is that the ECB will have to increase money supply in some QE style stimulus. This is unequivocal "failure" of the Euro, but do not think for a moment that it will be the end of the actual currency or that any of the members will leave it.

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The Euro will remain, but in broken form. The peripheral economics will go back to their own currencies and the big northern countries will retain the Euro. They may well invite the some of the Nordic countries to join them at that point as the Euro will become more attractive to the Nords once the basket-case economies have been jettisoned.

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The only country that could get out of the euro easily is Germany. The German people never voted for the euro and would be glad to see the back of it. In all other countries the people would hang on to the euro like grim death. Imagine telling the Irish we're going to convert your savings into New Punts - they'd all withdraw euro cash the day before. (And be delighted if their debts were converted into a weak currency.)

To make it happen there would have to be paralle running of the euro and the New Punt for a year or more. In fact the euro would never really leave.

I believe a few countries such as Cuba run dual currencies - one for the locals and one for external business (e.g.tourism). Not quite sure how it works, but I guess it requires a large amount of governmental control to force people to use a particular currency, especially when everyone expects it to devalue.

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...The peripheral economics will go back to their own currencies ...

How? How will they pay for the change over? How will they pay their EU taxes in the new bongo-bongo-beans currency? How will they stop their citizens squireling their last few Euros into another EU bank before the change over? How will they stop becoming Zimbabwe and their shops and commercial institutions using Euro rather than the newly minted Green Shield Stamp? Who will pay for the new machines to accept recycled chicken manure coins for every launderette, car park, phone booth? Where will they be able to borrow the millions of real money needed to buy the new printing presses and paper for the notes?

Not a chance.

http://www.bbc.co.uk/news/business-11838596

Edited by non frog

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How? How will they pay for the change over? How will they pay their EU taxes in the new bongo-bongo-beans currency? How will they stop their citizens squireling their last few Euros into another EU bank before the change over? How will they stop becoming Zimbabwe and their shops and commercial institutions using Euro rather than the newly minted Green Shield Stamp? Who will pay for the new machines to accept recycled chicken manure coins for every launderette, car park, phone booth? Where will they be able to borrow the millions of real money needed to buy the new printing presses and paper for the notes?

neither germany nor the PIGS can exit the euro without going bust.

of course technically any EZ leavers can print their way out.

I would agree with the notion that therefore germany is more likely to leave because they'll get away with the printy right now and the PIGS will not.

However as soon as germany and or or other northern eurpean countries have left and printed to restore their banks to solvency the pigges will get away with printing as long as they stick together.

The key take away is this: the germans are going to have to print soon regardless, the only question is whether they print DM or Euros.

The germans are to the euro what the US is to the world - once the anchor zone printe, so can everyone else and the markets will suck it up because once the anchor prints they have nowhere to hide.

PVRINTY PVRINTY. YA.

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  • 259 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% +
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      • Even
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      • up 5%



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