# Greece, Italy and the Euro

by Ivan Seeking
Tags: euro, greece, italy
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P: 3,680
 Quote by mgb_phys Germany is still borrowing at German bond rates and lending at Greek bond rates - quite a spread.
And taking on its risk, of course.
 Emeritus Sci Advisor PF Gold P: 12,493
 Emeritus Sci Advisor PF Gold P: 4,612 That's funny and sad at the same time, the whole situation is ridiculous. I hope the Greek will take responsibility for their actions soon, the population needs to step up and actually do something to improve their economy. In little over a week there will be elections to vote for a new Dutch government. Naturally the financial crisis is the major subject of the elections and some major cuts need to be made to stop the deficits from rising. The polls indicate that we've never had people voting so much for the right parties before, this indicates that people realize something needs to be done and we can't lay back and expect problems to be solved.
 P: 229 Well it's not just the greek as I understand it most of the states in the us have a bit of debt. Of course the question is debt to who? Mother nature imo.
 P: 229 Did you say the dow went down 1000 on one day? I was fairly sure they passed regulation that states it can't go down more then 500 in a given day.
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P: 8,961
 Quote by CRGreathouse And taking on its risk, of course.
Yes thats the real point. Germany is really just taking over the loan payments Greece has to make. So this is really a bailout of German banks by German taxpayers - it's just a bit more palatable to the voters if you pretend it's either a generous gesture to the poorman of europe or a sound financial sense to protect the euro.
 PF Gold P: 3,021 Well the Greek referendum effectively dumps the EU backed debt deal. Next up, Italy. Italy's debt is ~$2.2 trillion which it will now have to roll over at 6+%. 10 year Italian bond European banks hold ten times more Italian debt than they do Greek. Going, going, ....  Engineering Sci Advisor HW Helper Thanks P: 6,342 The fundamental disinterest in democracy of the EU "project" has finally met a nemesis, and it's just ironic that it happens to be Greece. Remember the situation over the last EU treaty changes, where some member states had a constitutional requirement to hold a referendum? The EU attitude was "OK, that's fine, but if you get the wrong result you will have to keep holding referendums till you agree with what WE want." You can only play that game for so long before something turns nasty. PF Gold P: 3,021 Question: Do you thing the recent introduction of the euro will lead to formation of other common-currency areas?  Quote by Milton Friedman, 2000 Keynote Address, Bank of Canada That’s an extremely interesting question. I think that the euro is one of the few really new things we’ve had in the world in recent years. Never in history, to my knowledge, has there been a similar case in which you have a single central bank controlling politically independent countries. The gold standard was one in which individual countries adhered to a particular commodity—gold—and they were always free to break or to leave it, or to change the rate. Under the euro, that possibility is not there. For a country to break, it really has to break. It has to introduce a brand new currency of its own. I think the euro is in its honeymoon phase. I hope it succeeds, but I have very low expectations for it. I think that differences are going to accumulate among the various countries and that non-synchronous shocks are going to affect them. Right now, Ireland is a very different state; it needs a very different monetary policy from that of Spain or Italy. On purely theoretical grounds, it’s hard to believe that it’s going to be a stable system for a long time. On the other hand, new things happen and new developments arise. The one additional factor that has come out that leads me to raise a question about this is the evidence that a single currency—currency unification— tends to very sharply increase the trade among the various political units. If international trade goes up enough, it may reduce some of the harm that comes from the inability of individual countries to adjust to asynchronous shocks. But that’s just a potential scenario. You know, the various countries in the euro are not a natural currency trading group. They are not a currency area. There is very little mobility of people among the countries. They have extensive controls and regulations and rules, and so they need some kind of an adjustment mechanism to adjust to asynchronous shocks—and the floating exchange rate gave them one. They have no mechanism now. If we look back at recent history, they’ve tried in the past to have rigid exchange rates, and each time it has broken down. 1992, 1993, you had the crises. Before that, Europe had the snake, and then it broke down into something else. So the verdict isn’t in on the euro. It’s only a year old. Give it time to develop its troubles. http://www.bankofcanada.ca/wp-conten...08/keynote.pdf That's so prescient I suspect the guy had his own time machine.  P: 813 I initially thought the Austerity measures were hard on Greece but it seems to have gotten spending under control there. Greece has been offered a deal which will forgive 20% of their debt (although it is pitched as 50% by 2020) to get their debt to a sustainable level. I think it would be wise to take it but if they don’t then I presume Greece will be forced to leave the Euro and spending will be corrected by having inflation eat at wages. Their needs to be a plan B for the case that Greece leaves the Euro and how much debt will be allowed to be converted to the New Greek currency which will emerge. To help make the terms of the deal easier the EU should do a round of quantitative easing to inflate away some of the debt in Europe. P: 77  Quote by mheslep European banks hold ten times more Italian debt than they do Greek. So you're saying the Greek issue is merely a weatherbell? P: 98  Quote by DoggerDan So you're saying the Greek issue is merely a weatherbell? Nobody knows at the moment. The Italian interest on government bonds skyrocketed after Greece's downfall such that it is barely manageable for them. At the same time, the Italian debt is smaller than Greece's, and the economy is much stronger. The only deal which came out of Cannes is that Italy now will be monitored by the IMF. Probably they just want lower interest rates, I don't think anyone will buy into it. They need to get their debt down, like everyone else. Italy doesn't seem to need IMF support at the moment, but it may fall at some point. P: 66  Quote by mheslep Well the Greek referendum effectively dumps the EU backed debt deal. The Greek PM only used the democratic card of last resort to get support for the bailout from opposition politicians, he did not really want to give the Greek people a referendum vote. So, instead of a quick and bloody correction there will just be a very long and drawn out opportunity for making money out of volatility, especially if the opposition gets a new election. But if Greece still continues its downward trend then separation from the Euro will be necessarilly imposed on Greece by external forces for wider political/economic survival reasons. The only problem with this approach, when compared with the one taken in Iceland, is that the amounts of money involved will get larger while delaying the inevitable will only weaken any governments/citizens ability to manage this eventuality in the future. PF Gold P: 3,021  Quote by DoggerDan So you're saying the Greek issue is merely a weatherbell? Yes. PF Gold P: 3,021  Quote by LaurieAG The Greek PM only used the democratic card of last resort to get support for the bailout from opposition politicians, he did not really want to give the Greek people a referendum vote. ... Plausible but how do you know this? P: 66  Quote by mheslep Plausible but how do you know this? If you read the articles on NYT or any other major newspaper you would probably get the general idea. Paul Krugman has been analysing the differences between Iceland and Greece. Its much of a muchness now as the Greek PM looks like resigning anyway.  P: 588 Well, I did back up my hunch in the OP. You guys saw the market panic today? damn, a shame though a bit interesting. People are actually afraid that Italy & Greece will go for the worse due to some political instability which most likely will be over soon (the politicians know the seriousness of the situation). The main problem though, is that people stop buying Italian government bonds. Since most of these bonds take 5-10 years to mature, Italy is bound to get in bigger trouble than Berlusconi the mafiaso finally being booted + some economic insecurity (which has lasted for years, anyway), thus the fear is irrational. Or my guessing is rubbish. PF Gold P: 3,021  Quote by mheslep Well the Greek referendum effectively dumps the EU backed debt deal. Next up, Italy. Italy's debt is ~$2.2 trillion which it will now have to roll over at 6+%. 10 year Italian bond European banks hold ten times more Italian debt than they do Greek. Going, going, ....