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The Ayatollah Buggeri

Italy May Leave The Euro

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AEP article in the Torygraph

While the surface level scenario he describes is a familiar one from recent events in Greece and Spain - mass unemployment, productive economy contracting, etc. etc., it's what he noted towards the end that caught my eye:

Italy is not a basket case. Its net international investment position is -30pc of GDP, compared with -92pc for Spain, and -100pc for Portugal. It has very low mortgage debt. Their median wealth is €173,500, making them four times richer than Germans at €51,400. It is the most virtuous of the big EMU states, with a primary surplus of 2.5pc of GDP. This of course means it can leave the euro whenever it wants without a funding crisis, and it is big enough to weather the shock.

Everything comes down to the national mood in the end. There was a time when the cause of Europe was unquestioned in Italy, but the long slump has taken its toll. An Ipsos poll this week found that a record 74pc of Italians are dissatisfied with the euro. It is a loveless marriage now. One more spat with Berlin and it will turn acrid.

No wonder the EU elites wanted Berlusconi out and a 'technocratic' (i.e. unelected) government installed in his place!

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My take is that all of the major EU leaders know that the Euro is doomed but no one wants to be the first to leave, instead they are playing a game of pass the parcel with a ticking bomb.

The Germans talk a good game but won't accept any policy that would actually remedy the situation, the Italians are economically strong enough to leave but lack a strong enough government, the Spaniards are in serious trouble, Greece & Portugal are beyond salvation.

The issue is that the debtor countries have all gone through deep austerity measures to stay in the Euro and that the leaders now have so much political capital tied up in the project that they cannot be seen to be the ones to break it. Quite simply the leaders can't turn around and say "all that austerity, the 50% youth unemployment etc, it was all for nothing".

My guess is that at some point during the next year Greece will be forced out, once that happens and the taboo is broken I expect the others to leave in quick succession (the bond markets would virtually guarantee that anyway). In the meantime the people of Europe must suffer to protect their leaders' face.

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My take is that all of the major EU leaders know that the Euro is doomed but no one wants to be the first to leave, instead they are playing a game of pass the parcel with a ticking bomb.

I'd agree no one wants to be the first, as they'll take the "blame" for the collapse. Whether in the long term that's the view is another matter, but certainly in the short term the failure of the Euro will be on their shoulders as they walked out first.

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Either Germany is forced to inflate or Italy, Spain etc will ultimately kick them out.

Germany is hanging on until the balance of writing off the piggy debts is manageable/controllable then they'll be off.

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Their median wealth is €173,500, making them four times richer than Germans at €51,400.

It would have been interesting if he'd published how those figures were arrived at because they don't ring true.

That is unless debt is being counted as wealth.

Italy has never seemed to be in the same economic ball park as Germany - at least since WW2.

Certainly not for the majority of their people although since their involvement in europe likely they've gone up the ranks a bit but not to the extent suggested by those figures.

Italy is well below Germany in terms of GDP as well as GDP/Capita.

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It would have been interesting if he'd published how those figures were arrived at because they don't ring true.

That is unless debt is being counted as wealth.

Italy has never seemed to be in the same economic ball park as Germany - at least since WW2.

Certainly not for the majority of their people although since their involvement in europe likely they've gone up the ranks a bit but not to the extent suggested by those figures.

Italy is well below Germany in terms of GDP as well as GDP/Capita.

I've seen similar figures for Spain to with the "median" Spaniard having around Euro 150k wealth compared to only about 50k in Germany

It is because the majority of German' rent so have few assets

The majority of Spaniards (85%) own their own home (or have a mortgage on one). But your average Spanish family doesnt own only one home, they may have one, two or three properties in the village of their grandparents, or a holiday flat on the Costas or a flat granny used to live in, in the city. And no mortgages on any of them

But as there is no property market because everybody is still asking ridiculous amounts of money for these properties, then there is no liquidity and the actual asset value in questionable. The cheap properties the banks are offering are those that have actually foreclosed, many from immigrants who had no family support or new developments that couldnt find a buyer in the first place. It is much cheaper to buy a new flat now than an cr*ppy 1950s flat, although you will be located on the edges of the city/village as all the prime location has been built on

I live in a Spanish city and rather than fork out nearly half a million euros for a flat that hasnt been refurbished since the 70s, we are moving to the flat my wife grew up in, which has been sat empty since her parents retired back in the country. It has been up for sale for 3 years but has not had even one viewing. So we have spent a bit of money to do it up and are going to live rent and mortgage free!

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My take is that all of the major EU leaders know that the Euro is doomed but no one wants to be the first to leave, instead they are playing a game of pass the parcel with a ticking bomb.

The Germans talk a good game but won't accept any policy that would actually remedy the situation, the Italians are economically strong enough to leave but lack a strong enough government, the Spaniards are in serious trouble, Greece & Portugal are beyond salvation.

The issue is that the debtor countries have all gone through deep austerity measures to stay in the Euro and that the leaders now have so much political capital tied up in the project that they cannot be seen to be the ones to break it. Quite simply the leaders can't turn around and say "all that austerity, the 50% youth unemployment etc, it was all for nothing".

My guess is that at some point during the next year Greece will be forced out, once that happens and the taboo is broken I expect the others to leave in quick succession (the bond markets would virtually guarantee that anyway). In the meantime the people of Europe must suffer to protect their leaders' face.

Or to protect their leaders' cosy consultancy gigs with various financial institutions (which might melt away if they caused said financial institutions to lose zillions)?

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I've seen similar figures for Spain to with the "median" Spaniard having around Euro 150k wealth compared to only about 50k in Germany

It is because the majority of German' rent so have few assets

The majority of Spaniards (85%) own their own home (or have a mortgage on one). But your average Spanish family doesnt own only one home, they may have one, two or three properties in the village of their grandparents, or a holiday flat on the Costas or a flat granny used to live in, in the city. And no mortgages on any of them

But as there is no property market because everybody is still asking ridiculous amounts of money for these properties, then there is no liquidity and the actual asset value in questionable. The cheap properties the banks are offering are those that have actually foreclosed, many from immigrants who had no family support or new developments that couldnt find a buyer in the first place. It is much cheaper to buy a new flat now than an cr*ppy 1950s flat, although you will be located on the edges of the city/village as all the prime location has been built on

I live in a Spanish city and rather than fork out nearly half a million euros for a flat that hasnt been refurbished since the 70s, we are moving to the flat my wife grew up in, which has been sat empty since her parents retired back in the country. It has been up for sale for 3 years but has not had even one viewing. So we have spent a bit of money to do it up and are going to live rent and mortgage free!

Even though fewer Germans might own their own homes the property they live in still exists - then possibly to balance it Germans will also have pensions and savings etc and maybe more secure jobs and income streams.

AEP might have done an analysis of the different proportions in the two populations owning their own homes alongside current property valuations plus mortgage debt, pensions and savings etc and it would have been interesting to see some figures. Too often journalists make claims without justification.

Edited by billybong

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Even though fewer Germans own their own homes the property they live in still exists - then possibly to balance it Germans will also have pensions and savings etc. and maybe more secure jobs and income streams.

AEP might have done an analysis of the different proportions in the two populations owning their own homes alongside current property valuations plus mortgage debt, pensions and savings etc and it would have been interesting to see some figures. Too often journalists make claims without justification.

The claim is based on the "median" i.e. average German/Italian/Spaniard, not the mean

The average German isnt very wealthy actually. Wages for non-professionals are very low, especially in the East. Tens of millions of people have 1, 2 or 3 "mini-jobs" that pay 500 euros per month for 20 hours per week. Meaning they can never buy a property. The professional class in Germany get paid very well, and own all the property, but they are not the "median" German

Spanish and Italian household economics aren't so devisive, wages are low for almost everyone relatively, and so are the spread of assets

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The claim is based on the "median" i.e. average German/Italian/Spaniard, not the mean

The average German isnt very wealthy actually. Wages for non-professionals are very low, especially in the East. Tens of millions of people have 1, 2 or 3 "mini-jobs" that pay 500 euros per month for 20 hours per week. Meaning they can never buy a property. The professional class in Germany get paid very well, and own all the property, but they are not the "median" German

Spanish and Italian household economics aren't so devisive, wages are low for almost everyone relatively, and so are the spread of assets

Yes, you beat me to it.

It depends on the wealth distribution. Such figures can be misleading when looking at median alone rather than median vs mean.

The following figures are wealth per adult and don't match AEP's but they demonstrate the point. These are from the databook accompanying Credit Suisse's Global Wealth Report 2013 which was released this month:

GlobalWealth2013a.gif

The US has even lower median wealth per adult than Germany, but the mean is far higher.

GlobalWealth2013b.gif

https://publications.credit-suisse.com/tasks/render/file/?fileID=1949208D-E59A-F2D9-6D0361266E44A2F8

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It would have been interesting if he'd published how those figures were arrived at because they don't ring true.

That is unless debt is being counted as wealth.

Italy has never seemed to be in the same economic ball park as Germany - at least since WW2.

Certainly not for the majority of their people although since their involvement in europe likely they've gone up the ranks a bit but not to the extent suggested by those figures.

Italy is well below Germany in terms of GDP as well as GDP/Capita.

Not sure if that's true, much of northern Italy where most of the population live is very prosperous - perhaps closer to Switzerland economically and culturally than it is to the poor south. Italy did extraordinarly well after WW2, going from less than half UK GDP to overtaking us around 1980. It's actually the last 20 years where it's lost ground again for various reasons, demographics, the Euro, competition from devloping world in the products they used to make like clothing.

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Either Germany is forced to inflate or Italy, Spain etc will ultimately kick them out.

Germany is hanging on until the balance of writing off the piggy debts is manageable/controllable then they'll be off.

Bundesbank warns over German house price boom

Monthly report says properties may be overvalued by 5%-10%, with apartments 20% higher in Berlin, Hamburg and Munich

The property boom has mainly affected larger cities such as Berlin, Hamburg and Munich, where apartment prices were up to 20% higher than could be accounted for by economic factors alone, the report says. In Berlin prices per square metre have risen by more than 30% between 2007 and 2012. Houses in rural areas, meanwhile, have been largely untouched by the trend for now.

http://www.theguardian.com/business/2013/oct/22/bundesbank-warns-german-house-price-boom

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Cant believe how much anti euro propaganda you people put up with.

Yes, there is absolutely no desire to get rid of the Euro here in Spain. Spaniards blame their own politicians for the economic crisis, mainly, and the capitalist system second, but not Europe and definitely not the Euro

The only country that wants to leave the Euro is the UK, and they were never in it :)

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Yes, there is absolutely no desire to get rid of the Euro here in Spain. Spaniards blame their own politicians for the economic crisis, mainly, and the capitalist system second, but not Europe and definitely not the Euro

The only country that wants to leave the Euro is the UK, and they were never in it :)

:lol::lol::lol:

Edited by Damik

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Yes, there is absolutely no desire to get rid of the Euro here in Spain. Spaniards blame their own politicians for the economic crisis, mainly, and the capitalist system second, but not Europe and definitely not the Euro

The only country that wants to leave the Euro is the UK, and they were never in it :)

I don't think everything is as merry in Europe as you make out.

There is definitely a media blackout on protests going on across Europe.

This is happening today in Rome, according to Twitter.

BX7B4KLCMAE02pT.jpg

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I don't think everything is as merry in Europe as you make out.

There is definitely a media blackout on protests going on across Europe.

This is happening today in Rome, according to Twitter.

BX7B4KLCMAE02pT.jpg

That's indeed the first I've heard of it.

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I don't think everything is as merry in Europe as you make out.

I didn't say things are merry in Spain. I said people are not against the Euro

There are weekly protests in most of the Spanish cities. Every week people are on the streets protesting (99.9% peacefully, I have even taken by little kids to them), mainly against the cuts to health and education, but also against the corrupt politicians and the political system in general

But nobody is even discussing the Euro. It is completely irrelevant to Spain's problems as far as Spaniards are concerned

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I didn't say things are merry in Spain. I said people are not against the Euro

There are weekly protests in most of the Spanish cities. Every week people are on the streets protesting (99.9% peacefully, I have even taken by little kids to them), mainly against the cuts to health and education, but also against the corrupt politicians and the political system in general

But nobody is even discussing the Euro. It is completely irrelevant to Spain's problems as far as Spaniards are concerned

Well they haven't figured it out yet then.

The cuts, corruption etc is continuing because of the desire to maintain the Euro currency.

PS: I recognize I was overstating your view of things in Europe being merry.You didn't say that. smile.gif

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Not sure if that's true, much of northern Italy where most of the population live is very prosperous - perhaps closer to Switzerland economically and culturally than it is to the poor south. Italy did extraordinarly well after WW2, going from less than half UK GDP to overtaking us around 1980. It's actually the last 20 years where it's lost ground again for various reasons, demographics, the Euro, competition from devloping world in the products they used to make like clothing.

The relative GDPs Germany/Italy are true assuming the tables from Wikipedia are reasonably accurate. Those tables also suggest that GDP as well as GDP/Capita for the UK is significantly higher than for Italy. That's not to say there aren't some areas in Italy better off than others such as northern Italy but that's a bit like defining the whole of the UK by London.

http://

en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nominal%29_per_capita

http://

en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nominal%29

Italy did extraordinarly well after WW2, going from less than half UK GDP to overtaking us around 1980. It's actually the last 20 years where it's lost ground again for various reasons, demographics, the Euro, competition from devloping world in the products they used to make like clothing.

Is that true? The UK didn't do that great overall after WW2 but I have doubts that it's true to say that Italy did better - considering the UK still had most of the the benefits of a lot of the Commonwealth etc and quite a lot of industry upto the late 60s etc. Mind you it depends on what the figures are based on and as it was not long after the end of WW2 it wouldn't be a total surprise if the news that Italy's prosperity was rapidly rising wasn't widely broadcast in the UK or even broadcast at all.

Do you have any links about the relative prosperity of Italy versus the UK since WW2 and in the last 20 years.

So far as Germany is concerned for sure the East German figures would pull the West German figures well down (likely both median as well as mean) but AEP also didn't make any reference to that factor either. East Germany was part of the Soviet Bloc before it was reunited with West Germany - with a Soviet Bloc level of "wealth".

It also depends on what's included in the definition of wealth but that's another thing that AEP didn't go into. I'm not saying that he's necessarily wrong but that he doesn't supply any stuff to back his claim up (or mention the impact of East Germany on the figures) and the media over the years have been happy to present an image of Italy as consistently relatively poor compared to Germany (and the UK for that matter). Maybe they're trying to change that but something in the article to justify the claim would have been helpful.

Over several decades the UK media have been drumming it into people in the UK how Germany's economy is the example to be followed but from AEP's figures maybe the UK's economy should have been trying to be more like Italy's economy.

Edited by billybong

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Yes, you beat me to it.

It depends on the wealth distribution. Such figures can be misleading when looking at median alone rather than median vs mean.

The following figures are wealth per adult and don't match AEP's but they demonstrate the point. These are from the databook accompanying Credit Suisse's Global Wealth Report 2013 which was released this month:

GlobalWealth2013a.gif

The US has even lower median wealth per adult than Germany, but the mean is far higher.

GlobalWealth2013b.gif

https://publications.credit-suisse.com/tasks/render/file/?fileID=1949208D-E59A-F2D9-6D0361266E44A2F8

Interestingly the Credit Suisse table shows Iceland and Finland as also having higher median wealth than Germany - and Iceland not far short of Italy.

Iceland is also higher than Germany on the mean wealth figure.

Edited by billybong

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