The Euro mess
28 October 2011, 11:13 AM
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The Euro mess
Well I’ve been following this Euro crisis business quite closely and it all seems to me to be a dog’s dinner.
So have I got the scenario about right?
Greece got into a financial mess because of years of gov’t mismanagement and accumulated debts they couldn’t handle. Presumably because banks threw money at them without a proper financial check and assuming that a country would not go broke.
Europe decided to help them out because if Greece went belly up the “markets” would get all nervous about the next to go i.e.Italy then Spain etc putting their billions at risk. So Europe give them yet more cash and tell the banks to take a 50% hit in the hope that Greece could then manage its reduced debt. But they still owe so much that it is very likely the crisis will repeat itself in a year or so along with more misery for the citizens.
And to further reassure the markets the Euro zone leaders have come up with this Paul Daniels type scheme to establish a 1 trillion Euro fund to bail out Italy/Spain as, when and if needed (although just 1 trillion is probably not enough). Not that they put any actual money in the trillion kitty but somehow believe they can get default insurance to cover their promises. Now they are off to China asking for help and, of course, this is petty cash for the Chinese.
But success depends on Italy and the others actually getting to grips with their economy and starting a growth cycle. And they seem reassured by Mr Berluscone’s back-of-the-envelope plans to do just that, notwithstanding the fact that he will probably be out on his ear soon, locked up with some 15 year old no doubt.
Oh and when Italy does default in a couple of years Germany will take most of the hit and China will have muscled into the European market.
So what planet do these guys live on?
dl
So have I got the scenario about right?
Greece got into a financial mess because of years of gov’t mismanagement and accumulated debts they couldn’t handle. Presumably because banks threw money at them without a proper financial check and assuming that a country would not go broke.
Europe decided to help them out because if Greece went belly up the “markets” would get all nervous about the next to go i.e.Italy then Spain etc putting their billions at risk. So Europe give them yet more cash and tell the banks to take a 50% hit in the hope that Greece could then manage its reduced debt. But they still owe so much that it is very likely the crisis will repeat itself in a year or so along with more misery for the citizens.
And to further reassure the markets the Euro zone leaders have come up with this Paul Daniels type scheme to establish a 1 trillion Euro fund to bail out Italy/Spain as, when and if needed (although just 1 trillion is probably not enough). Not that they put any actual money in the trillion kitty but somehow believe they can get default insurance to cover their promises. Now they are off to China asking for help and, of course, this is petty cash for the Chinese.
But success depends on Italy and the others actually getting to grips with their economy and starting a growth cycle. And they seem reassured by Mr Berluscone’s back-of-the-envelope plans to do just that, notwithstanding the fact that he will probably be out on his ear soon, locked up with some 15 year old no doubt.
Oh and when Italy does default in a couple of years Germany will take most of the hit and China will have muscled into the European market.
So what planet do these guys live on?
dl
28 October 2011, 12:43 PM
#3
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Seems they are just prolonging the inevitable.
Heard Sarkozy saying earlier we don't need help from China we can sought this European mess out ourselves,and he would never had let Greece join the Euro.
Heard Sarkozy saying earlier we don't need help from China we can sought this European mess out ourselves,and he would never had let Greece join the Euro.
28 October 2011, 12:52 PM
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Italy is probably the most-mismanaged of the European economies - although Ireland is surely close. Tech bubble followed by property burble bursting dramatically and the credit crunch.
Greece is just a small rubbish economy.
So far - Ireland, Portugal, Spain and Greece are in trouble - but relatively small economies.
Greece is an irritant - the issue with Greece is that it is seen as a barometer for Spain and Italy.
The problem with Italy (and Spain to a lesser extent) is that they are a part of the core economy of the Euro. Italy is as big as Ireland, Portugal, Spain and Greece put together.
As for the 'insurance' you quote - should be pretty easy to get - lots of banks would happily provide CDS, especially as the believe that there will always be a bailout (moral hazard).
There has never been a better time to make money out of CDSs than the last three years (quantitative easing/moral hazard).
Greece is just a small rubbish economy.
So far - Ireland, Portugal, Spain and Greece are in trouble - but relatively small economies.
Greece is an irritant - the issue with Greece is that it is seen as a barometer for Spain and Italy.
The problem with Italy (and Spain to a lesser extent) is that they are a part of the core economy of the Euro. Italy is as big as Ireland, Portugal, Spain and Greece put together.
As for the 'insurance' you quote - should be pretty easy to get - lots of banks would happily provide CDS, especially as the believe that there will always be a bailout (moral hazard).
There has never been a better time to make money out of CDSs than the last three years (quantitative easing/moral hazard).
28 October 2011, 12:52 PM
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Surely it would make sense to let Greece default and go back to the Drachma. Thus devaluing their currency and promoting growth from outside investment.
I mean, i'd snap up a cheap villa and i'm sure many more would if they were realistically priced.
I mean, i'd snap up a cheap villa and i'm sure many more would if they were realistically priced.
28 October 2011, 01:12 PM
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28 October 2011, 01:18 PM
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I cannot for the life of me understand how Greece got into the Euro 
Did nobody bother checking their books first, or were the Federalists so desperate to boost their membership that they ignored it
Did nobody bother checking their books first, or were the Federalists so desperate to boost their membership that they ignored it
28 October 2011, 01:37 PM
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Italy is probably the most-mismanaged of the European economies - although Ireland is surely close. Tech bubble followed by property burble bursting dramatically and the credit crunch.
Greece is just a small rubbish economy.
So far - Ireland, Portugal, Spain and Greece are in trouble - but relatively small economies.
Greece is an irritant - the issue with Greece is that it is seen as a barometer for Spain and Italy.
The problem with Italy (and Spain to a lesser extent) is that they are a part of the core economy of the Euro. Italy is as big as Ireland, Portugal, Spain and Greece put together.
As for the 'insurance' you quote - should be pretty easy to get - lots of banks would happily provide CDS, especially as the believe that there will always be a bailout (moral hazard).
There has never been a better time to make money out of CDSs than the last three years (quantitative easing/moral hazard).
Greece is just a small rubbish economy.
So far - Ireland, Portugal, Spain and Greece are in trouble - but relatively small economies.
Greece is an irritant - the issue with Greece is that it is seen as a barometer for Spain and Italy.
The problem with Italy (and Spain to a lesser extent) is that they are a part of the core economy of the Euro. Italy is as big as Ireland, Portugal, Spain and Greece put together.
As for the 'insurance' you quote - should be pretty easy to get - lots of banks would happily provide CDS, especially as the believe that there will always be a bailout (moral hazard).
There has never been a better time to make money out of CDSs than the last three years (quantitative easing/moral hazard).
No problem for China of course. And premiums won't come cheap.dl
28 October 2011, 04:29 PM
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The reason that Greece got "into the Euro" is the fact that the Euro is a political project, not a financial one. If it was purely financial there would be one member - Germany. And IIRC even Germany has been outside the rules in a couple of years. Italy (amount of debt) and France (French banks are exposed to huge amounts of debt in Greece and Italy - way to go the French banks!) are the ones to watch at the moment. Hence the French Poison Dwarf expending so much energy on the "EU crisis". He doesn't give a monkey's about the "EU crisis", just the **** his banks are in ....
Dave
Dave
28 October 2011, 04:33 PM
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28 October 2011, 04:49 PM
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The reason that Greece got "into the Euro" is the fact that the Euro is a political project, not a financial one. If it was purely financial there would be one member - Germany. And IIRC even Germany has been outside the rules in a couple of years. Italy (amount of debt) and France (French banks are exposed to huge amounts of debt in Greece and Italy - way to go the French banks!) are the ones to watch at the moment. Hence the French Poison Dwarf expending so much energy on the "EU crisis". He doesn't give a monkey's about the "EU crisis", just the **** his banks are in ....
Dave
Dave
Les
28 October 2011, 05:55 PM
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With regards to Ireland, isn't their economy now growing faster than ours?
I'm surprised Cyprus hasn't been dragged into this mess - massive cash economy and little in the way of tax receipts, like Greece.
I'm surprised Cyprus hasn't been dragged into this mess - massive cash economy and little in the way of tax receipts, like Greece.
29 October 2011, 10:30 PM
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dl
29 October 2011, 10:41 PM
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The laugh is that the average Chinese citizen has a far lower standard of living than us in Europe yet we are asking them to bail us out rather than adjusting our standard of living to suit our now much reduced means.
29 October 2011, 11:10 PM
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dl
31 October 2011, 03:41 PM
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31 October 2011, 09:53 PM
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b) Lots of investment funds lend / lent cash to countries (by buying government bonds usually) because the rating agencies rated them as a much safer risk than they were in reality. i.e. not just banks (other governments, insurance companies, pension funds etc).
I only mention this as you've inadvertently joined the populous bank bashing nonsense in your comment "because banks threw money at them". Too easy to blame government fiscal mis-management on others (though that's what they want). Odd how the rating agencies aren't being pilloried (and are still being relied upon). Incredible how people continue to confuse a small number of investment banks which dishonestly re-packaged mortgages in the US with mainstream retail banking.
And breathe
Gordo
31 October 2011, 10:14 PM
#22
Can ANYONE explain to me in simple terms how, when the Euro is in such a mess, it's STILL massively over-valued agaisnt the £?
Please?
because I'm sick and tired of "Gordon's puny Pound" causing me to pay 50% more for everything I buy in France from rates to heating to renovation items to fuel to food.
Please?
because I'm sick and tired of "Gordon's puny Pound" causing me to pay 50% more for everything I buy in France from rates to heating to renovation items to fuel to food.
31 October 2011, 10:35 PM
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a) Most Western governments have mismanaged their debts for many years (e.g. the UK has spent more than its tax take for 19 out of the last 20 years).
b) Lots of investment funds lend / lent cash to countries (by buying government bonds usually) because the rating agencies rated them as a much safer risk than they were in reality. i.e. not just banks (other governments, insurance companies, pension funds etc).
I only mention this as you've inadvertently joined the populous bank bashing nonsense in your comment "because banks threw money at them". Too easy to blame government fiscal mis-management on others (though that's what they want). Odd how the rating agencies aren't being pilloried (and are still being relied upon). Incredible how people continue to confuse a small number of investment banks which dishonestly re-packaged mortgages in the US with mainstream retail banking.
And breathe
Gordo
b) Lots of investment funds lend / lent cash to countries (by buying government bonds usually) because the rating agencies rated them as a much safer risk than they were in reality. i.e. not just banks (other governments, insurance companies, pension funds etc).
I only mention this as you've inadvertently joined the populous bank bashing nonsense in your comment "because banks threw money at them". Too easy to blame government fiscal mis-management on others (though that's what they want). Odd how the rating agencies aren't being pilloried (and are still being relied upon). Incredible how people continue to confuse a small number of investment banks which dishonestly re-packaged mortgages in the US with mainstream retail banking.
And breathe
Gordo
No it's not good enough to absolve the banks for their part in all this. They have CEOs earning millions, apparently because they are in the super league in judging what they do with shareholder's money. And if I ran a bank that was lending billions then I would make damn sure the investment was sound before writing the cheque. The fact that others got it wrong is no excuse. The only factor in mitigation is that it seems Greece, for example, provided dodgy historical data.
dl
Last edited by David Lock; 31 October 2011 at 10:37 PM.
31 October 2011, 11:16 PM
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Just when you thought is was safe to go back in the water.....
It is now reported that Greece's Prime Minister has now said govt will hold a referendum asking if country is prepared to accept EC deal.
There is such anger in country that vote may go against EU which really will set the cat among the pigeons.
dl
There is such anger in country that vote may go against EU which really will set the cat among the pigeons.
dl
31 October 2011, 11:49 PM
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Yep, see here ... http://www.reuters.com/article/2011/...79U5PQ20111031 ... but the opposition are already saying any referendum will be illegal as referendums can't be put to the people regarding economic issues ....
The sooner the whole political class in Europe is put to sleep the better the rest of us will be ....
Dave
01 November 2011, 11:01 AM
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More stunning Greek headlines....
There are more Porsche Cayennes registered in Greece than taxpayers declaring an income of 50,000 euros (£43,800) or more, according to research by Professor Herakles Polemarchakis, former head of the Greek prime minister’s economic department.
01 November 2011, 11:13 AM
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Love it. I came across this article on the Daily Telegraph yesterday.
Goes with some of the comments above about the Euro being political...
What is needed, urgently, is a clean, transparent Greek default – allowing this flailing semi-developed economy to leave the eurozone, re-establish a weaker drachma and regain its self-respect. Portugal should leave too, its membership of the same currency bloc as Germany is as absurd, and self-defeating, as that of Greece. There would be further market turmoil, yes, but a few more months of volatility, leading to an ultimately more stable outcome, is surely better than the current situation where the entire world is living in fear of a massive "euroquake".
01 November 2011, 11:21 AM
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So the stupid french banks have paid for Greek porsches ? If thats true then well done Greece I hope the superbly committed to free market bankers are made to suffer for thier mistakes the same as any small business would. I love that Milton Friedman is king when it helps the elite profit from thrid world misery but they forget all about the notion of a free market when they **** up.
01 November 2011, 12:07 PM
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I certainly object to the idea of bailing Greece out of its parlous economic situation brought on by their own overborrowing and spending as well as avoiding paying any significant taxes.
Let then stew I say!
Les
Let then stew I say!
Les
