The Fate Of The Euro

[campervanman]

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

Nah, no thanks.

Why not. If it's good enough for the land of the free why not Europe? Anyway,it's inevitable as the world settles on 5 or 6 economic powers of which Europe is but one.

[cells]

How would it even work, how do you convert euro liabilities into lira or any new currency liabilities.

If you have been given a mortgage of E100k you owe 100k euros not 100k liras or whatnot. If your country owes 100B euros it still owes 100B euros no matter what currency it chooses.

If they devalued the new currency by 30% then the debt liability goes up by 43%

How does a country or people burdened by too much debt in euros devalue out of trouble by increase the debt Burdon?

The only way you could devalue is to exchange all the debt liabilities to the new currency. Why would the holders of this debt agree to that? No why will they agree.

The only option open is default of the debt before or after a conversion of currency. Well as pointed out if those countries and people owe so much money 30% of it will likely mean 30% of some 2-5T. the banking system would implode.

What is more feasible is for the big creditors, ie Germany to leave the euro and let it sink. That way they do take a real hit in savings. If the others owe Germany say 1T euro then germany loses 300B euro. Sure it stinks and Germans will hate it but few will understand it. They will think we lent them 1T euro and we got 1T euro back….all is fair when infact they would have got 1T much more devalued euros back.

[cells]

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.

Germany can leave without going bust. Their banks would keep euro liabilities and savings and also operate DM in Germany. Because Germany and Germans have so much net euro savings their real terms savings would depreciate perhaps 30% which isn’t nice at all. However 99% of the population will not understand and will not care the same way you can steal wealth off the masses via inflation and they don’t understand or care.

However in doing so Germany not only destroys a lot of its savings (in a way that doesn’t cripple the banking system). But destroys a lot of its markets as its nabours are now 30% poorer.

Actually I suspect many germans would be happy with the result as their Euro liabilities, ie mortgages etc are greatly reduced by a weaker euro as their wages in euro terms go up circa 43%!!!

[scepticus]

Germany can leave without going bust.

nope - their bank debt/GDP would end up somewhere near 250%.

[cells]

nope - their bank debt/GDP would end up somewhere near 250%.

no surely it would go down

for example lets say german banks have liabilities of 10T euro and savings of 10T euro. once germany leaves that still holds

however a new currency is created called the DM. at first it is 1E to 1DM.

quickly the DM would aprciate against the euro in effect the liabilities of the banks would go down relative to GDP as the GDP of germany in Euro would go up greatly (although the same in this new DM)

dont even think of it as someone leavings or entering, think of it as germany just deciding to use a new currency the DM. overnight all prices/wages/everything in germany is decreaed to change 1E to 1DM.

german liabilities drop in euros greatly.

if you have a euro mortgage it is much easier to pay

german banks still have 10T in euro liability and savings.

ofcourse the bitch here is anyone with euro savings in germany, be it a citizen with 10k euro or the government with 1T euro savings.

once converted to the DM they would take a real big haircut of perhaps 30%. but ofcourse that is offset by those who save a lot on their euro liabilities.

only people hurt are net euro savers in germany.

the government could reduce the casulities by offering the first 50k net euro savings to be covered/insured. that would cost the government but i suspect not a great deal.

[indirectapproach]

It seems pretty clear that the euro zone spends more than it can afford.

This will cease, eventually.

Whether this happens because of some controlled restructuring or chaotic default and euro collapse remains to be seen.

But it's looking like default and collapse because everyone is saying "it's not my fault" and "I won't pay."

[Tiger Woods?]

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.

It's called a banking holiday. The changes are announced and you have no chance to move. Argentina did it not so long ago. Devlaued everyone's savings by 50% overnight.

[aa3]

The Euro is too big to fail.. and the failure of even one nation would certainly cause a cascading failure across the Eurozone. So no matter what the cost they will bail out each nation as they default. The only debate is over the terms of the bailout, which they two sides will negotiate on.

If the bailout costs get so large that the strong nations cannot back them up, then certainly the ECB will print and bail.

[madpenguin]

The Euro is too big to fail.. and the failure of even one nation would certainly cause a cascading failure across the Eurozone. So no matter what the cost they will bail out each nation as they default. The only debate is over the terms of the bailout, which they two sides will negotiate on.

If the bailout costs get so large that the strong nations cannot back them up, then certainly the ECB will print and bail.

It would also almost certainly take the UK down too, something the people who revel in the prospect of the Euro's demise seem to ignore, just Ireland alone defaulting would kill RBS and Lloyds, and God knows how much they and others have owing in Spain and maybe Portugal.

When you look at the Western economies we all seem to be pretty much in the same position, and all because of a banking crisis.

Thing is If Europe goes, followed by the UK, which would probably also affect the US, what happens to the rest of the World, countries like India and China would find their "economic miracles" coming to a pretty abrupt halt with their major customers insolvent.

Edited November 26, 2010 by madpenguin

[non frog]

It seems pretty clear that the euro zone spends more than it can afford.

This will cease, eventually.

Whether this happens because of some controlled restructuring or chaotic default and euro collapse remains to be seen.

But it's looking like default and collapse because everyone is saying "it's not my fault" and "I won't pay."

The capitalist world spends more than it can afford. The UK the US, Japan, whoever, they all spend more than they can collect in taxes. Globalisation is a zero sum game. Ireland made its money by getting companies like Google and Microsoft to domicile there to avoid paying corporation tax. Take that away (as the Germans want) and Ireland goes back to being a (very pleasant) land of farming and (very pleasant) black beer.

The governments of the "west" are trying their best to screw their citizens and in particular their poorest citizens to balance the books. Whatever the rights or wrongs of this morally it cannot work as the poor don't have enough money. Therefore the "middle income" or whatever you want to call us are being targeted. This is breaking an implied promise by the political parties that by and large represent the interests of this group. This is happening throughout the world. A massive fall in the standards of living for ordinary people is not acceptable to them and so we have the "cuts" being fought by groups of people throughout the world. Centre right governments like the UK or US are not alone and the protests are also taking place where there are centre left or left governments. The population can see that they are getting shafted to pay for bankers who are currently living it up and paying themselves huge sums of money, unimaginable wealth compared to someone in a well paid job like a brain surgeon or similar.

Therefore it isn't everyone's fault and no they will not pay, so you are right it is default and whatever the fallout of that may be. The current "crisis" is simply the protracted argument over who pays what. Expect the press to move up a gear soon in its attempts to scapegoat anyone and everyone to protect the rich (who own the media).

[madpenguin]

The capitalist world spends more than it can afford. The UK the US, Japan, whoever, they all spend more than they can collect in taxes. Globalisation is a zero sum game. Ireland made its money by getting companies like Google and Microsoft to domicile there to avoid paying corporation tax. Take that away (as the Germans want) and Ireland goes back to being a (very pleasant) land of farming and (very pleasant) black beer.

The governments of the "west" are trying their best to screw their citizens and in particular their poorest citizens to balance the books. Whatever the rights or wrongs of this morally it cannot work as the poor don't have enough money. Therefore the "middle income" or whatever you want to call us are being targeted. This is breaking an implied promise by the political parties that by and large represent the interests of this group. This is happening throughout the world. A massive fall in the standards of living for ordinary people is not acceptable to them and so we have the "cuts" being fought by groups of people throughout the world. Centre right governments like the UK or US are not alone and the protests are also taking place where there are centre left or left governments. The population can see that they are getting shafted to pay for bankers who are currently living it up and paying themselves huge sums of money, unimaginable wealth compared to someone in a well paid job like a brain surgeon or similar.

Therefore it isn't everyone's fault and no they will not pay, so you are right it is default and whatever the fallout of that may be. The current "crisis" is simply the protracted argument over who pays what. Expect the press to move up a gear soon in its attempts to scapegoat anyone and everyone to protect the rich (who own the media).

Exactly it's an exciting time...but not in a good way

Edited November 26, 2010 by madpenguin

[indirectapproach]

Although the bankers bonuses are an obscene mickey take, aren't they quite small compared to the structural deficits and accumulated national debts of Ireland, Portugal, Spain, Italy, Greece and France?

Don't these nations have healthcare systems, unemployment, welfare and pension provision and state bureaucracies they can't afford?

The failure of these nations to recognise that and their delusion that taxing their already over taxed rich is the answer, when their social provision already renders them uncompetitive in a global low wage, low benefit economy, is why they will go bankrupt.

Whose fault it is doesn't matter so much. The poor and the middling sort are no saints even if they are not as ghastly as the rich but fair or not they will pay for this either through austerity, which will be bad (probably very) or bankruptcy, which will be worse.

[madpenguin]

Although the bankers bonuses are an obscene mickey take, aren't they quite small compared to the structural deficits and accumulated national debts of Ireland, Portugal, Spain, Italy, Greece and France?

Don't these nations have healthcare systems, unemployment, welfare and pension provision and state bureaucracies they can't afford?

The failure of these nations to recognise that and their delusion that taxing their already over taxed rich is the answer, when their social provision already renders them uncompetitive in a global low wage, low benefit economy, is why they will go bankrupt.

Whose fault it is doesn't matter so much. The poor and the middling sort are no saints even if they are not as ghastly as the rich but fair or not they will pay for this either through austerity, which will be bad (probably very) or bankruptcy, which will be worse.

Bankers bonuses aren't the problem, the bad deals, and investments they made are, and it is these deals that countries in the Western economies are feverishly trying to shore up, everything you say could apply to the UK, and we have just as bad a problem, the US which doesn't have the same social provisions but does have big government spending on other things is also similarly afflicted.

I just think focusing on small European countries debt issues is helping the US and UK in particular to distract people away from their issues, when you look at the UK in particular things look extremely grim particularly as the coalitions cost cutting has already been shown to be an illusion, in terms of reducing the UK's deficit.

[indirectapproach]

Things are grim in the UK but I think a balance of the population realise something has to be done about it.

On the continent I think they are in denial.

And I suppose it may well be institutional mal-investment that finally busts the euro and if it isn't that I am, sadly, coming round to the view it will be the structural deficits.

[Scott Sando]

Problem, Reaction, soloution.

[madpenguin]

Things are grim in the UK but I think a balance of the population realise something has to be done about it.

On the continent I think they are in denial.

And I suppose it may well be institutional mal-investment that finally busts the euro and if it isn't that I am, sadly, coming round to the view it will be the structural deficits.

Do you think Spain, Greece, Portugal or Ireland are in denial, any more than our Government are?, aren't they all introducing austerity programs just like the UK?

Come to that do you think Germany is in denial, do you think their politicians making speeches about the crisis bringing down the Euro is denial?

when you look at the size of the debts the bankers have created in comparison with the stupid spending Governments indulged in there really is no comparison, and in a sense the availability of one fed the other.

It's the same guilt trip laid on for personal debt but on a national scale, "ohh, your the cause of this buying all those naughty plasma TV's and iPods, and taking on huge mortgages", never one mention of "but then again we were stupid for letting you have the cash in the first place, but then again we did have targets to meet"

In every case so far the subtext is "If we don't bail out these countries then various banks internationally go bust"

Look at this graphic from the Guardian regarding Ireland's debt then tell me where the greatest losses will be if they default?:

Ireland datablog

From what I hear with the other problem EU countries the story is similar, certainly is with Greece.

Edited November 26, 2010 by madpenguin

[alexw]

Bankers bonuses aren't the problem, the bad deals, and investments they made are, and it is these deals that countries in the Western economies are feverishly trying to shore up, everything you say could apply to the UK, and we have just as bad a problem, the US which doesn't have the same social provisions but does have big government spending on other things is also similarly afflicted.

I just think focusing on small European countries debt issues is helping the US and UK in particular to distract people away from their issues, when you look at the UK in particular things look extremely grim particularly as the coalitions cost cutting has already been shown to be an illusion, in terms of reducing the UK's deficit.

In a way the bank bonuses were the problem. The bonuses/salary given were generally only a small fraction of the loan made. Thus to earn a 1 million income they'd have to make deals in the hundreds of millions. When we get to the city giving out total renumeration of over 10 billion per year and similarly multiply that up we get big problems.

[madpenguin]

In a way the bank bonuses were the problem. The bonuses/salary given were generally only a small fraction of the loan made. Thus to earn a 1 million income they'd have to make deals in the hundreds of millions. When we get to the city giving out total renumeration of over 10 billion per year and similarly multiply that up we get big problems.

Actually as a motive for causing the Bankers to loose any sense of prudence, or risk aversion in making deals which in turn caused the crisis, that's correct

Edited November 26, 2010 by madpenguin

[leicestersq]

Actually as a motive for causing the Bankers to loose any sense of prudence, or risk aversion in making deals which in turn caused the crisis, that's correct

I fully agree, the motivation is key.

FWIW, I would introduce a law that introduces unlimited liability for any board member on a bank in the UK where the bank has its deposits insured by the taxpayer via the FSA. (Anyone know why the FSA is underwriting deposits in foreign banks?) And just for bankers, their pension pots would also be unprotected by bankruptcy, wherever they earned that pension.

If the bank were to need state assistance, from 6 months after they joined the board (it gives them time to find out any nasties at the bank already and blow the whistle on them before they become liable), until 5 years after they left (they cant be held liable for all the bad things that happened after they left), then the board member becomes personally liable for the difference.

Faced with personal bankruptcy, board members would not introduce daft bonus schemes, and ensure credit risk was under tight control. And if not, we would take their houses and money and pensions off of them.

[Odysseus]

I heard the roman empire was too big to fail.

[madpenguin]

I fully agree, the motivation is key.

FWIW, I would introduce a law that introduces unlimited liability for any board member on a bank in the UK where the bank has its deposits insured by the taxpayer via the FSA. (Anyone know why the FSA is underwriting deposits in foreign banks?) And just for bankers, their pension pots would also be unprotected by bankruptcy, wherever they earned that pension.

If the bank were to need state assistance, from 6 months after they joined the board (it gives them time to find out any nasties at the bank already and blow the whistle on them before they become liable), until 5 years after they left (they cant be held liable for all the bad things that happened after they left), then the board member becomes personally liable for the difference.

Faced with personal bankruptcy, board members would not introduce daft bonus schemes, and ensure credit risk was under tight control. And if not, we would take their houses and money and pensions off of them.

Funnily enough I had the same thought myself a while ago, we desperately need some kind of moral hazard bought back into their lives.

I once worked for a large merchant bank and the size of personal bonuses some people got were beyond belief, I remember one woman who looked to still be in her mid-late twenties reportedly saying she was probably going to buy a painting with a 2 million pound bonus, I mean come on, if 2 million landed in your lap would your first thought be "I'll buy a painting with this"?, how much had she had before? (derivatives team lead).

With those kind of rewards I think virtually anyone would be corrupted.

[madpenguin]

I heard the roman empire was too big to fail.

Yeah but to be fair it did last about 400 years, and the Roman Republic had lasted about 500 years before that, hardly a flash in the pan

Edited November 26, 2010 by madpenguin

[Odysseus]

Yeah but to be fair it did last about 400 years, and the Roman Republic had lasted about 500 years before that, hardly a flash in the pan

About the same length of time as anglo-saxon capitalism then?

[stoobs]

http://www.politicalworld.org/showthread.php?t=5731

[leicestersq]

About the same length of time as anglo-saxon capitalism then?

So if the Euro has been going about 10 years, it has another 890 before it collapses then?

Phew, panic over.