Greece, Italy and the Euro


by Ivan Seeking
Tags: euro, greece, italy
John Creighto
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Dec1-11, 01:13 PM
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Quote Quote by MarcoD View Post
I hope that the all of you are not too bored with the subject, but the situation is getting grim. Looks like they either solve it or maybe this, maybe next, year we will see countries defaulting and possibly banks topple over.

Interestingly, that means that maybe in a year I'll be standing in line for free food?
It seems like there are lots of good plans in place. It is just a matter of getting the political will to follow them and then implementing them properly
lisab
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Dec1-11, 01:52 PM
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Quote Quote by MarcoD View Post
I hope that the all of you are not too bored with the subject, but the situation is getting grim. Looks like they either solve it or maybe this, maybe next, year we will see countries defaulting and possibly banks topple over.
Boring? No way - I find it very interesting. Not interesting , more like interesting .

Interestingly, that means that maybe in a year I'll be standing in line for free food?
I surely hope not. If the Euro fails, it would be catastrophic for most large economies in the world.

Now some companies are making contingency plans (which is understandable - they have to manage risk). Problem is, such plans may make a breakup more likely. What a mess!
Hlafordlaes
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Dec2-11, 03:40 PM
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Quote Quote by AlephZero View Post
Spain not only has an economic depression caused by the property bubble collapse, but also some insanely protectionist employment laws.
So far, correct.

Employers are requred to give up to 5 years notice of redundancies, or keep paying people their full salary for doing nothing for that length of time.
Wildly inaccurate. There are many forms of contract, but the standard and "fearsome" one is the full-time, tenured position. The employee can only be fired "legally" if caught with his/her hands in the till, or for verbally abusing the owner, or something glaring. So, after dismissal, most ex-employees will file a civil suit, declaring the firing "improper," and getting as a financial reward 45 days pay for every year worked, pro-rated. Less often, an employer can be ordered to restore the employee to his former position, although more often than not that is when the firing has been fishy or broke some other formal agreement.

Today, the average spend for firing is around 30 days per year worked, pro-rated. That's not 5 years pay, but it still is a good chunk and can force companies to hold onto less productive dolts and not hire someone better. Lotsa satisficing, iow.

Having been there and done that as both employer firing and employee getting let go, I can say that this is not the greatest of our problems here. What we all do now is give people temp contracts, and let them go when the law would force us to change them over to tenured positions (>3 years on the job). So, what labor law has wrought is tremendously precarious job positions, and poor human capital development.

The main problem is that labor contracts are negotiated by industrial sector and are currently applied nation-wide, so that a smaller, weaker company, or a fledgling start-up, finds itself required to not only follow salaries, but also work rules, that were designed for the largest and strongest in the industry. Ridiculous.

...

Lest you believe the Spanish are completely insane, this mess was created by Franco, the country's former fascist dictator. He granted all these rights and rules to labor in order to reduce strife and prevent wild cat strikes, while otoh absolutely prohibiting organized strikes, most unions, and free speech. Back then it was a good deal for employers, too, since judges and rulings were slanted in their favor. Along came democracy, and when unions were allowed to form freely, and the right to strike restored, someone forgot to eliminate the insane tenured position and mad sectorial contract rules.
mheslep
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Dec2-11, 04:52 PM
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Quote Quote by Hlafordlaes View Post
...
Ridiculous.

...

Lest you believe the Spanish are completely insane, this mess was created by Franco, the country's former fascist dictator....
Yes that's right, and US problems were created by King George III.
Hlafordlaes
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Dec2-11, 05:38 PM
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Quote Quote by mheslep View Post
Yes that's right, and US problems were created by King George III.
Actually, by Kings George I and II, as well and Ronald the Renowned, and all the magical thinking their counselors engaged in.
MarcoD
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Dec3-11, 06:49 AM
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Quote Quote by lisab View Post
Now some companies are making contingency plans (which is understandable - they have to manage risk). Problem is, such plans may make a breakup more likely. What a mess!
I doubt the Euro will break up, even if banks and governments topple over, it's near impossible to return to the previous situation. Just imagine Greece would leave, or kicked out of, the Eurozone. We have free transfer of money in the EU. It would take them a year to implement the Drachme, and meanwhile all Greeks would transfer their money to northern Europe, most of the Greek banks would fall since that's equivalent to a bank run, you'ld end up with a shadow Euro economy and the Drachme would be completely worthless and Greece's government would be unable to borrow any money. It would end up akin to a third world nation where everybody prefers to pay in dollars instead of its own currency. Completely impossible.

Meanwhile, if Germany and France would start their own currency, they might impose this scenario on the south, and their loans would be worthless, and their economies a lot weaker.

Everybody keeps on talking about the Euro, but really, the currency is irrelevant. It's a government debt and bank leverage problem, nothing else.
MarcoD
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Dec3-11, 06:57 AM
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Quote Quote by Hlafordlaes View Post
The main problem is that labor contracts are negotiated by industrial sector and are currently applied nation-wide, so that a smaller, weaker company, or a fledgling start-up, finds itself required to not only follow salaries, but also work rules, that were designed for the largest and strongest in the industry. Ridiculous.
Which is why I think Spain is not that badly off. Implement some structural change and the economy will be boosted by foreign investment, and the government debt would be relatively low. The deflated property bubble is pretty bad though (but if I am right, this debt is mostly owned by UK banks, so it's not Spain, but the UK which has problems.)
LaurieAG
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#98
Dec28-11, 04:23 PM
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I wondered about the attached NYT cartoon until I noticed that Angela Merkel had a PHD in Physics.
http://www.dw-world.de/dw/article/0,,4580585,00.html
Attached Thumbnails
tt111201.jpg  
AlephZero
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Dec28-11, 05:19 PM
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Quote Quote by LaurieAG View Post
I wondered about the attached NYT cartoon until I noticed that Angela Merkel had a PHD in Physics.]
I dunno about the PhD. I think it's a German translation of Zeno's paradox.
russ_watters
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Dec28-11, 07:47 PM
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Looks like an English version to me.....and I'm not going to have to explain irony to you, am I...?
AlephZero
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Dec28-11, 08:18 PM
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Quote Quote by russ_watters View Post
Looks like an English version to me.....and I'm not going to have to explain irony to you, am I...?
Well, he's got a Bavarian hat and beer stein ...

I don't do irony, I send my shirts to the laundry.
-- Scott Adams.
lisab
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#102
Jan13-12, 04:51 PM
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France and 8 other European nations saw their credit ratings downgraded today -

http://money.cnn.com/2012/01/13/mark...x.htm?iid=Lead

I think this news was expected and already build into the markets. But that's just my WAG - anyone think otherwise?
JonDE
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Jan13-12, 08:53 PM
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Quote Quote by lisab View Post
France and 8 other European nations saw their credit ratings downgraded today -

http://money.cnn.com/2012/01/13/mark...x.htm?iid=Lead

I think this news was expected and already build into the markets. But that's just my WAG - anyone think otherwise?
I agree that most of it was built in. I do feel however that some may have been surprised by France's downgrade. I had heard before (a few months ago) that it was possible, but I doubted they would actually do it, because France's debt really isn't that high. France's total debt actually went down in the third quarter (I don't believe fourth quarter has been announced yet).
I think the reason they downgraded France's rating was because they probably think that Europe is going to go into another recession, if it isn't already in one.
MarcoD
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#104
Jan14-12, 04:22 PM
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I also think it was built in. Moreover, I agree with the downgrades. The short term problems have been addressed, so now people are pooped off in Europe by the downgrades, but the long term solutions are not in place yet. Europe needs a manner, apart from financial markets, to pump money around. I.e., some process to stimulate the weaker economies, except for free trade, and not in the manner of financial abundance we did it before.

The above is more based on 'feeling' than actually studying the economic data, btw.
AlephZero
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Jan14-12, 05:10 PM
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The thing that probably isn't "built in" to the markets is the fact that the Greek debt restructuring still isn't done and dusted. That time bomb is still ticking away with the deadline to defuse it about 3 months off.
MarcoD
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#106
Jan14-12, 05:32 PM
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Quote Quote by AlephZero View Post
The thing that probably isn't "built in" to the markets is the fact that the Greek debt restructuring still isn't done and dusted. That time bomb is still ticking away with the deadline to defuse it about 3 months off.
I disagree with that. There will be a haircut, everybody knows it, and there is no alternative. So it has been defused anyway.

To be honest, the last problem, if it still exists, I think now boils down to making making the bean counters happy with a financial trick which will make their balance sheets look kind-of okay. It depends on the size of the debt hole in the books, I am not sure it is even needed. If cheap liquidity doesn't do it, some clever accounting will probably solve it.

(The meltdown of the US housing market probably left a trillion dollar hole in some accountants books. But at the same time, the Euros which were invested have no other alternative except for returning to the EU zone, so it should solve itself in time.)

As far as I can see the financial problem already has been solved, maybe a structural solution for Europe's economy is now needed.

If all fails, I am kind of warming up to the idea of Eurobonds to keep the nations' debt under control. Somewhat like a yearly allowance by a central bureaucratic EU office, also with some stimulation for the weaker economies built in.

And, maybe I am clueless. No idea.

(After looking at the problem, I got the feeling the bean counters are upset, but I doubt the ECB or any economist should be.)

(To be really honest: I have the feeling the presidents of our banks have hysterical laughing fits when they hear of the Euro breaking up, since nothing is the matter according to their data.)
JonDE
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#107
Jan14-12, 07:11 PM
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Quote Quote by MarcoD View Post
I disagree with that. There will be a haircut, everybody knows it, and there is no alternative. So it has been defused anyway.

To be honest, the last problem, if it still exists, I think now boils down to making making the bean counters happy with a financial trick which will make their balance sheets look kind-of okay. It depends on the size of the debt hole in the books, I am not sure it is even needed. If cheap liquidity doesn't do it, some clever accounting will probably solve it.

(The meltdown of the US housing market probably left a trillion dollar hole in some accountants books. But at the same time, the Euros which were invested have no other alternative except for returning to the EU zone, so it should solve itself in time.)

As far as I can see the financial problem already has been solved, maybe a structural solution for Europe's economy is now needed.

If all fails, I am kind of warming up to the idea of Eurobonds to keep the nations' debt under control. Somewhat like a yearly allowance by a central bureaucratic EU office, also with some stimulation for the weaker economies built in.

And, maybe I am clueless. No idea.

(After looking at the problem, I got the feeling the bean counters are upset, but I doubt the ECB or any economist should be.)

(To be really honest: I have the feeling the presidents of our banks have hysterical laughing fits when they hear of the Euro breaking up, since nothing is the matter according to their data.)
Personally I think the Euro needs to break up. As far as I can tell, the whole thing negates one of the most important factors in a self correcting market. That is devaluation.
Normally when a country goes into a recession, their currency is devaluated, which makes it easier for that coutnry to export, and essentially bring back jobs. The problem with the Euro is that certain countries now (namely Greece and Italy among others) will have to cut spending and raise taxes, which will be a slight disadvantage for their businesses, while other countries (namely Germany), wont need to do ethier, and since their economy is not really that weak, their businesses should have plenty of cash and capital.
This allows for Germany to help steal some of the self recovery from other countries. Instead of fixing the problem, it only seems to make it worse and drag it on.
edward
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#108
Jan14-12, 08:01 PM
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It is a bit Ironic that Standard & Poor's was giving AAA ratings to packaged sub prime mortgages just a few years ago.


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