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Eurozone Out Of The Woods As Optimism Spreads

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Euro optimism builds, crisis strategy in focus
Noah Barkin, 17:32, Wednesday 26 January 2011
) - Ireland (Berlin: IIK.BE - news) 's government survived a budget vote on Wednesday and a rating agency cautiously welcomed Spain's efforts to shore up its savings banks as market pressure on weaker euro zone states eased and the single currency extended gains.
A day after the debut bond from Europe (news) 's financial rescue fund drew surprisingly strong interest from investors, a senior European Central Bank official praised efforts by euro members to address their fiscal woes and said this was boosting confidence in the currency area.
"The optimism that the euro will survive is optimism stemming from (the fact that) large fiscal projects are being implemented not only in those countries directly threatened but also in others," ECB Governing Council member Jozef "Joey" Makuch told an economic conference in Bratislava.
The euro rose for a seventh straight day to reach a two-month high against the dollar before falling back, with traders citing expectations euro zone interest rates will rise faster than those in the U.S. as a driving factor.

Not only contained, but no longer a problem. I wonder if our debt issues will evaporate as quickly and as easily. A few words here, a few there and hey-presto its all tickity boo. :D

I, however, remain bearish on the Eurozone as it all sounds too good to be true. And if a curreny rises because of higher IR it is rising for the wrong reasons as higher rates will not be good for business.

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Haven't the banks in Europe (and some sovereigns) got to roll over some humungous amount of debt this year?

Ssssshhhhhh! :angry: You will only draw attention to the elephant sitting in the corner of the Eurozone.

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Randall just pointed to the Elephant:


Buy euros the single currency is finished
Jeff Randall, 17:58, Wednesday 26 January 2011
The debt bill is too high for the Club Med (Paris: FR0000121568 - news) nations and they will have to leave the zone, says Jeff Randall .
Rather than work hard, live within his means and save for the future, a dissolute student decided to invent a system for beating the bank at roulette. After months of experimentation with betting patterns, his quest bore fruit: a foolproof way of creating riches or so he thought.
The problem was, in order to exploit his genius a bankroll was required. At this point, a credulous father was inveigled into the scheme. Suspending disbelief, the hapless parent signed a six-figure cheque and wished his son good fortune as the boy left for Las Vegas.
After a few days with no contact, Dad started to fret and sent the lad a tentative message: “How are we doing?” No reply.
A week later, he tried again, only this time was rather more panicky: “What’s happening?” Still no reply.
Finally, the desperate man sent an ultimatum: “Get in touch or else!”
His delusional offspring eventually replied: “Delighted to inform you system is working. Please send more money.”
This, now, is the position of the Club Med countries within the eurozone. The single currency is functioning so brilliantly, its vulnerable members are sliding towards bankruptcy. Frittering away their credibility in remorseless bond markets, they turn to Das Scheckbuch in Berlin for hard cash.
On current form, Greece will be paying nearly 10 per cent of its GDP in interest by 2015. Portugal’s 10-year borrowing costs are close to an unsustainable 7 per cent and would be even higher were it not for market manipulation by the European Central Bank. And Spain is sitting on 700,000 unsold homes, 20 per cent unemployment and a 33 per cent deterioration in competitiveness against Germany since the euro was formed.
Yes, the system is working a treat. No luck required, just more money. But from where will it come?
The bail-out fund of 750 billion euros, cobbled together by the European Union and IMF (Berlin: MXG1.BE - news) , will not be enough. It may buy time, allowing Athens, Lisbon and Madrid to play the wheel for longer than they should, but their financial attrition grinds on.
Of the six eurozone countries that still have triple-A credit ratings Austria, Finland, France, Germany, Luxembourg and the Netherlands only one really matters: Germany. As the EU’s economic powerhouse (GDP growth was 3.6 per cent in 2010), it has become the lender of last resort. So far, Berlin has paid up, but 62 per cent of Germans now oppose further rescue packages for EU losers. Faced with choosing between Europe’s olive belt and her own electorate, Chancellor Angela Merkel will turn off the aid tap.
So what can be done? Some are calling for the issuance of an all-embracing euro bond, enabling the weaklings to access credit on terms similar to those enjoyed by more muscular neighbours. Last week, I asked Finland’s prime minister, Mari Kiviniemi, if this was a good idea. She (news) responded in the way that an exasperated teacher might scold a classroom dunce: “No, it is a very bad idea”.
What about the ECB? Can it be relied upon to loosen monetary policy and allow rising inflation to ease the pain of the over-borrowed and inefficient? Not while Jean-Claude Trichet is in charge. The central bank piper is unmistakeably French, but the tune he plays is that of a Bavarian oompah band. Forget a cut in the ECB’s interest rate; it’s more likely to go up.
In short, there is no get-out-of-jail card. As the Bank of England’s governor explained this week, eurozone countries that binged on cheap money and self-indulgent pay awards must face up to improving competitiveness: “But because they are part of a monetary union and so do not have their own currency, they can do so only through outright falls in nominal wages. And to force that adjustment, unemployment has had to rise very sharply, compounding the impact on living standards.”
What, I suspect, Mervyn King believes, but dare not say, is that the excruciating realignment of income to output in the Club Med has much further to run.
Greece has barely scratched the surface of a sprawling and corrupt public sector, where standards of book-keeping shame a country that lays claim to the oldest counting board yet discovered (300BC).
Greece is learning the hard way that cutting the budget deficit and reducing overall debt are not the same thing. There comes a point where austerity alone cannot deliver a solution, because the burden of unaffordable obligations is rising faster than savings can be made. Long after the bullet has been bitten, total mortgage arrears continue to deteriorate.
As long as Greece remains locked in a currency that is deutsche mark with only a hint of garlic, its economy cannot recover. A lethal combination of rising unemployment, falling wages and an exodus of talent will force it to confront reality. That will occur when either the voters decide they can no longer stand the hair shirt or the country’s creditors run of out patience.
The same will apply to Portugal and, eventually, Spain. Thus the euro, as we know it, is finished. Which is why… I’m a buyer of the euro. When the crunch comes and the laggards secede or are expelled the residue will be a group of solvent nations, unhindered by chronic budget and trade imbalances. As veteran investor Jim Rogers explains: “The more I look at it, the more I see Germany taking control of the euro.” That’ll do nicely.

There must be a flaw in Randalls' reasoning somewhere. I know! Germany won't bail the rest of the EZ out and there will be another European war. WW3. Long ovedue.

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Haven't the banks in Europe (and some sovereigns) got to roll over some humungous amount of debt this year?

Not a problem anymore each nation can simply print some nice Euro's to fill the hole. It's no longer a major issue. Please keep up with events. :P:ph34r:

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Very little has been solved and the problems will be back. This whole crisis has been marked by loads of people willing to predict nothing will happen and everything will get better. For example Stephanie Flanders at the BBC predicted that "Ireland and Greece would get nowhere near default". But these people then move onto something else when more bad news appears...

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Tis interesting watching the rates on ten year bonds move upwards.

France and Germany are seeing their interest rates rise, as presumably they are the ones that will have to pay for all these bailouts. France is catching up with UK rates, which have themselves been creeping up.

That said, I would want a bit more interest than 3.7% on a ten year gilt given the rampant inflation, currency devaluation and ballooing government deficits to buy such a bond. Who is mad enough to buy one at that rate of interest ?

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  • 312 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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