russ_watters said:Looks like an English version to me...and I'm not going to have to explain irony to you, am I...?
lisab said:France and 8 other European nations saw their credit ratings downgraded today -
http://money.cnn.com/2012/01/13/markets/sandp_europe_downgrade/index.htm?iid=Lead
I think this news was expected and already build into the markets. But that's just my WAG - anyone think otherwise?
AlephZero said: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 said: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 said:Personally I think the Euro needs to break up.
MarcoD said:All arguments you make can be made for the US too. Does Michigan pay for California's spending (or debt level), and does the US need to break up over that?
MarcoD said:There is no long term problem unless there isn't enough money being pumped to the deficit states from the surplus states. Until now, that probably happened with public debt, financial markets, the free commidity market, and other means.
Honestly, the system is pretty damned good since governments are, need to be, run like companies, and there's one central bank overseeing the banking system and currency.
MarcoD said:There are only two questions: Are the debt levels of the individual economies too high to be sustainable in this system? (I would say no, except for Greece.) And second, is there enough money being pumped around between the states?
The first is debatable, if not, then Eurobonds. The second is probably okay at the moment, with the addendum that the surplus states probably will need to pay some for Greek pensions, which honestly, is a whatever. And a second addendum that part of the current mess is the result of sending too much money to the periphery, not too less.
Everything else: The balance of trade, the external debt, the amount of money, the number of assets, look okay for the Eurozone. Most of the news, therefor, is short-term humbug. It can all be solved, and since it can be solved, it will be solved.
(There's also the point that devaluing in current day markets might not work as good anymore as it used to, since everything is hedged anyway.)
JonDE said:Also can you elaberate on the hedging part. I understand hedging from an investors standpoint, but I admit don't know anything for a country as a whole, or for an entire currency.
MarcoD said:I think an economy like Greece is probably too small to protect itself against hedging. Wall Street, or London, or Frankfurt, are just too big and filled with people way smarter than me; i.e., lots of currency traders. If they feel a currency will need/want to devalue, they'll just all short it - or protect their investment in some smart manner. And since there's that much money in all western economies, even the idea of devaluing it might actually annul whatever percentage they would want to devalue it. (Hmmm, I need to think this over a bit more, now I am not so sure anymore.)
EDIT: OKAY, HYPOTHESIS: If financial markets are really smart it is impossible to get rid of your debt since smart financial markets will find manners to protect themselves against it/protect their investment.
JonDE said:In a way it kind of does. If California was going through a recession and Michigan wasn't, California would be bringing in less then its share of federal tax. Whatever it was minus in this instance would be added to the federal deficit which the whole country is responsible for. To be the same as the countries that are involved in the Euro, in the above example, the US would have to tax California at a higher tax rate (to make up for lost tax revenue) while intentionally spending less money in California. Neither of these happen IRL.
The argument that Michigan doesn't pay for California's state debt is true and so that point is relevant, but what is state tax compared to federal tax? Federal taxes have to be at least 4X larger (couldn't find an exact number, and I'm really not going to spend time to calculate it)
I admit that this is good in theory, but are any countries actually run like companies?
Politics don't always work in the best manner to solve problems.
JonDE said:Shorting and hedging are not the same thing. Shorting can be used to hedge, but so can other things. In effect if people think that a currency is going to be devalued, shorting it would only make it drop sooner, and maybe even bigger, not stop it from dropping.
MarcoD said:Yeah, I thought of that too. And you usually short against another (outside) party, so that wouldn't really mean a lot.
Still, I am not sure devaluing is that good a tool still given current day complex financial markets. Let's say I want to invest in a country which constantly devalues, or is going to devalue, I guess I could -or would- protect my investment by just buying real estate instead of public debt, immediately annulling any devaluing effect. And devaluing makes any debt unattractive so how good a tool is it anyway?
(Anyway, I give up. I am not an economist, I've tried to understand it, and I don't. Or rather, I don't see the problem with the Eurozone, atm.)
AlephZero said: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 said:I disagree with that. There will be a haircut, everybody knows it, and there is no alternative. So it has been defused anyway.
AlephZero said:It hasn't been defused yet. The market doesn't think so either. Last time I looked, the market price of short term Greek debt put the effective interest rate at over 1,000%, up more than 100% in the last 24 hours. If you really think it is going to be defused, fill your boots while you can!
But now Germany has a Plan B: http://www.bbc.co.uk/news/world-europe-16773974
Hlafordlaes said:Hogwash. There is very little support for leaving the euro or the EU here in Spain. Yes, you get grumping about things having been better under Franco from some old folks, and quite a few do reminisce about the peseta. But no one in their right mind thinks leaving the euro is a good idea.
Because Spain does have a real economy...
Let's review. America's financial panic ended in the spring of 2009. But Europe has been seized by a series of rolling banking and fiscal crises. So far, three constituent members of the euro zone have officially cried uncle and asked for bailouts — Ireland, Greece and Portugal. A fourth — tiny Cyprus, whose banks are heavily exposed to Greece and has been relying on direct loans from China and Russia — is poised to ask for help.
And Then There's Spain
. . . .
Eventually liberals run out of other people's money to spend.
The bargaining has begun over a deal to rescue Spain's ailing banks, which have hoped to avoid onerous bailout conditions like those that hobbled Greece, Portugal and Ireland.
German officials have said they are prepared to weather a Greek exit from the euro if necessary, but no such claims are made about Spain. As such, Spanish leaders, who feel Madrid has already made many painful changes and spending cuts, are holding out for a deal that requires only a tightening of oversight on the financial sector and no strings attached to the country’s budget powers.
Spain also appears to be forcing a reckoning about the expensive steps political leaders in Europe need to take if they want to hold the euro zone together. . . .
. . . .
The wrangling over Spain underlines the way the European Union stumbles to solutions for each problem as it arises. Frustration has grown over the uncertainty afflicting the global economy as a result of Europe’s instability and the toll it takes on an already slowing growth rate. . . . .
That's largely backwards. What's happened is Bank Loans -> sovereign nations exactly because of the profligate spending to which Naty refers. Some of those nations now threaten to default on those loans, hence the banks are in trouble. The applicable cases include Spain, Portugal, Greece, Italy so far. Hollande just dropped France's retirement rate to 60. Greece's is 55 BTW, Italy 57, Spain 60. More relevant is the age 55-59 employment rate:Hlafordlaes said:@Naty1
The genesis of the crisis has absolutely nothing to do with the issues you frame above, nor do the subsequent events. The only applicable case is Greece, who set a retirement age of 50 and are nuts.
Think bank troubles -> bailouts with sovereign debt -> banks buy sovereign debt -> bank troubles -> bailout with sovereign debt - > banks troubles, ad nauseum. As for the success of austerity only, think 1937.
MADRID (AP) -- Spain's grinding economic misery will get worse this year, despite the country's request for a European financial lifeline of up to €100 billion ($125 billion) to save its banks, Prime Minister Mariano Rajoy said Sunday.
A day after the country conceded it needed outside help following months of denying it would seek assistance, Rajoy said more Spaniards will lose their jobs in a country where one out of every four are already unemployed.
"This year is going to be a bad one," Rajoy said Sunday in his first comments about the rescue since it was announced the previous evening by his economy minister.
. . . .
mheslep said:That's largely backwards. What's happened is Bank Loans -> sovereign nations exactly because of the profligate spending to which Naty refers. Some of those nations now threaten to default on those loans, hence the banks are in trouble. The applicable cases include Spain, Portugal, Greece, Italy so far. Hollande just dropped France's retirement rate to 60. Greece's is 55 BTW, Italy 57, Spain 60. More relevant is the age 55-59 employment rate:
Germany 64%
Switzerland 77%
Greece 31%
Italy 26%
Spain 46%
All have aging populations, which is unsustainable in the latter three. So the 'genesis of the crisis has absolutely nothing to do with' ... bank bailouts, which are a symptom, not a cause.
France and Germany's debt-to-GDP were more like 65% prior to the financial crisis; they are at ~85% currently, though debt alone is not the main issue.Hlafordlaes said:Spain's debt-to-GDP ratio prior to the crisis was 62%, far lower than the 80-90% of Germany and France...
Agreed, Spanish banks are in trouble in part due to a housing bubble.Here the impact of the financial crisis hit an overheated housing segment, leading to bank weaknesses.
For lenders setting the cost of money, the sustainability of the current *deficit* spending is the issue. Spain's deficit-to-GDP exceeded 10% in 2009 and is now ~9%, while Germany is at 1% and France 5%. Spain's deficit was brought on not so much by the financial crisis, but by large government spending increases: a 60% increase from 2004-2010, while France and Germany increased 30% over the same period. Furthermore, with Spanish unemployment at catastrophic levels there is little hope for the revenue side to bring Spain out of trouble.So, the profligate spending was actually more an issue elsewhere. ...
Indeed. I find the level of denial about European government spending baffling. Likewise with the claims of spending austerity where, with a couple of exceptions, spending is flat or even continues to increase (UK, France, Germany) in absolute terms.Watch out for confirmation bias, looking for data to prove a theory rather than finding an explanation for real data.
At some point in situations involving unemployment/underemployment in younger workers, it can be quite helpful to let older workers get out of the way and provide job opportunities for the younger ones. This is not a popular concept in some circles, but it is a form of "spending" on pensions, etc, that can provide stability and revenues for the countries involved... Too bad, because as the US population ages, and the numbers of young people who can find no work increases, we need to be willing to "spend" to find a balance.
Spanish leaders, who feel Madrid has already made many painful changes and spending cuts, are holding out for a deal that requires only a tightening of oversight on the financial sector and no strings attached to the country’s budget powers.
mheslep said:When and if the time comes, the Euro will leave the faltering country before the country leaves the Euro.
http://online.wsj.com/article/SB10001424052702303822204577464783282542366.htmlWSJ said:"There has been a deterioration in the situation in the past few days; I estimate that between €600 million euros ($750 million) and €900 million have been leaving the [Greek] system per day," said a senior banker at one of Greece's leading lenders.
Spanish banks are indeed in trouble from a real estate bubble, but I think it is a myopic mistake to see the banks themselves as fundamental to Spain's troubles, which might lead to, for instance, a call for more banking regulation and all will be well next time. Instead the banks a symptom of long term policy mistakes: the Euro, restrictive labor laws, business laws and other laws that inhibit productivity and encourage dependency.Astronuc said:The Spanish problem - borrowing from international banks/markets and making loans/mortgages on real estate - houses, resorts, commercial buildings. It was the huge volume of loans, in the billions of euros, that became problematic.
http://www.npr.org/blogs/money/2012/06/12/154876489/episode-378-how-spain-created-a-banking-monster
mheslep said:Spanish banks are indeed in trouble from a real estate bubble, but I think it is a myopic mistake to see the banks themselves as fundamental to Spain's troubles, which might lead to, for instance, a call for more banking regulation and all will be well next time. Instead the banks a symptom of long term policy mistakes: the Euro, restrictive labor laws, business laws and other laws that inhibit productivity and encourage dependency.
Sudden economic meltdowns do not create long term large sovereign debts, nor even untenable large deficits given restrained government spending. The major problem in Spain is the likelihood of the *government*, not the banks, finding itself unable to borrow more money and/or the *government* defaulting on its debts, all while Spanish policy puts it on the hook for rapidly rising entitlement spending. Look at Spanish government spending over the last ten years. The numbers tell the story. The bank troubles are merely the bump in the road that the top heavy government finally stumbled over.JonDE said:I'm not following you at all. The bursting of the housing bubble is what caused the economic meltdown. The economic meltdown led to their debt problem.
Interestingly, some European leaders are mentioning reform regarding labor and business laws.mheslep said:Spanish banks are indeed in trouble from a real estate bubble, but I think it is a myopic mistake to see the banks themselves as fundamental to Spain's troubles, which might lead to, for instance, a call for more banking regulation and all will be well next time. Instead the banks a symptom of long term policy mistakes: the Euro, restrictive labor laws, business laws and other laws that inhibit productivity and encourage dependency.
European Leaders to Present Plan to Quell the Crisis QuicklyThe plan will include measures to prevent bank runs and push for the repeal of regulations that hinder competition, keep young people out of the work force or make it difficult to start businesses.
. . . . In addition, the plan will push for countries to remove the regulations and layers of bureaucracy that inhibit competition, keep young people out of the work force or make it difficult to start a new business.
. . . .
. . . .
THE ultimate answer, Mr. Krygier says, is for European governments, led by his native Germany, to agree “on concrete and credible steps toward greater fiscal and political integration,” including the issuance of broader euro zone debt. That would eventually allow Spain and Italy to borrow what they need with Continentwide backing. In addition, he says, leaders should come up with a euro zonewide bank guarantee to avert full-scale bank runs in shaky countries.
. . . .
Well I suppose theoretically I agree, a common currency is not *necessarily* a mistake, but it requires some basic assumptions to work and the EU as assumed the opposite. Absent some kind of fiscal union, the assumption *must* be that yes of course their will come a Greece sooner or later. Of course their will be a country using the common currency to enable huge deficits while cooking its books. Then their *must* be an assumption that the response to the inevitable Greece will be that it will default on its debts, and that many banks in Greece will allowed to fail and many banks outside Greece that loaned it money will be allowed to fail.Astronuc said:A common currency such as the Euro is not inherently a mistake. It depends on how it is implemented, then how folks behave.
mheslep said:So I should have said: given human nature the Euro was a mistake.
Astronuc said:I remember quite a few folks expressing misgivings about the Euro precisely for the reasons that the EU or Eurozone is now in trouble. Quite a few expressed concerns about the lack of fiscal discipline in some economies.
Pro-bailout conservatives win Greek election
http://news.yahoo.com/pro-bailout-conservatives-win-greek-election-205901474.html
So watch for a jump in the stock markets tomorrow.
