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After the Euro crash and some News

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  • After the Euro crash and some News

    I was thinking what happens after.

    Assuming the Euro melts down due to Italy or some other country going insolvent while trying to rollover debts that are clearly unsustainable and the whole currency goes insolvent (due to banks holding overvalued paper assets etc...)
    Help for Poorer Neighbors: Designing a Transfer Union to Save the Euro - SPIEGEL ONLINE - News - International{this will not fly and melt down, "transfer" union lol}

    Perhaps a re-invigorated Europe?

    I think a few regional currencies or simply trade associations would be better than the currency union is now. Everyone would be responsible for their own fiscal house while trade competition would be based on competency instead of access to capital and the ability to finance yourself buy buying up competitors ergo deeper pockets rather than more efficient productive capacity and ability to serve the consumer.

    "Radicalization" of Northern Europe ergo Scandinavia/England/Netherlands seems likely to be more assertive. If by radicalization people simply assert how they want to exercise sovereignty within their countries.

    Certain small but incremental things...
    Denmark reintroduces border controls with Germany etc...
    Denmark reinstates border controls | euronews, world news
    video from earlier
    Denmark border plans | euronews, Europe

    Gert Wilders wins the case for Free Speech in Netherlands btw
    BBC News - Geert Wilders cleared of hate charges by Dutch court
    Geert Wilders Wins a Retrial in Dutch Anti-Islam Case :: Hudson New York
    Originally from Sochi, Russia.

  • #2
    I envisage a 3, or possible 4 'bloc' Europe: The Southern (PIGS) Bloc being Greece, Italy, Spain and Portugal. As Eastern Bloc (sometimes called 'New Europe'); Poland, Czech Republic, Slovakia, the Baltic States, Slovenia and possibly Hingary and Romania (perhaps later Ukraine too). A Franco-German Bloc; including Belgium, Luxembourg for sure. The question is where will UK, Holland, Sweden, Denmark and Finland go? (Ireland will stay with the UK as their economies are too tightly entwined). In theory they could form a bloc of their own. There again they might all join the Franco German Bloc. Or they may go some to the Eastern Bloc and some to the Franco German Bloc, for example Finlands economic ties wih the Baltic States may induce then Eastward, while Denmark may be wise to maintain it's trade with Germany etc. In terms of NOBODY keeping the Euro these are plausible scenarios.

    However the real answer to your question lies in predicting precisely how the Euro falls apart. For those who were never in the Eurozone, UK, Poland, Sweden, Romania etc, if a core Eurozone remains (for example Franco-German countries) then not much changes and free trade continues. The 'never were Eurozone' as well as the remaining Eurozone menbers could in theory still keep trading with those who had left the Euro (in this scenario the PIGS). However those who had left the Euro would certainly devalue, which long term would undermine the competitveness of the remaining Eurozone countries, particularly the French agricultural sector. So presumable the remaining Eurzone countries would PIGS access to their markets and we are then in an anything goes situation, where the solution above is one of the more likely.

    Also should the PIGS withdraw from the Euro and devalue alot of German, French and British banks (and the the ECB) must substabtialy devalue their assets. Currently such 'assets' are held in Euros - if, for example, Greece left the Euro and returned to the Drachma do the Greek debts become drachmas? If so they will be substantialy devalued. Currently Germany is holding aprox 200 billion Euros worth of debt.

    I cannot say how I know but I can assure you that HMG is currently studying the 'what if' scenarios. Currently the UK supports fiscal union as shown from this exchange of 11 August:

    William Cash (Stone, Conservative)

    "The Chancellor will know that our trade balance between 2002 and 2009-10 with the other 26 member states has gone up from minus £14 billion to minus £53 billion in one year? Does he not agree that even Edward Heath would have repudiated and vetoed a fiscal union with a hard-core Europe with such an incredible trade deficit against us? The coalition agreement, according to the latest answer I got from the Prime Minister, determines our relationship with the European Union. Does the Chancellor disagree with the Deputy Prime Minister, because we must have radical renegotiation of the treaties and the repatriation of powers so that we can achieve growth for all our businesses?"

    George Osborne (Chancellor of the Exchequer, HM Treasury; Tatton, Conservative)

    "My hon. Friend and I will have to agree to disagree on this issue. The remorseless logic of monetary union leads towards fiscal union, and that was one of the reasons that I opposed joining the single currency. However, it is now in our interests to allow that to happen more in the eurozone, because it is in our absolute national economic interest that the eurozone is more stable. It is clear that that means that they need to have more fiscal powers to reduce instability. That means, of course, that Britain must fight hard to ensure that its interests are represented and that we are not part of this fiscal integration. Important decisions, such as on financial services, must continue to be taken at the level of 27. He talks about treaty changes and so on, but the prospect of a major treaty change to bring about eurozone fiscal integration is not imminent, although I imagine that there will be a lively debate if and when it comes about."


    Could some moderator maybe put this bit with the other bit, or vice versa?

    Comment


    • #3
      Originally posted by snapper View Post
      The question is where will UK, Holland, Sweden, Denmark and Finland go?
      Not really a question. UK forming its own very loose bloc with Ireland and Denmark (don't forget: Denmark is the one who's got the most opt-outs from the EU after the UK), Holland absolutely making sure it stays with Germany for economic reasons because otherwise it'll starve, Sweden and Finland possibly forming a loose neutral Scandinavian bloc of their own (keeping the Euro of course).

      Originally posted by snapper View Post
      if, for example, Greece left the Euro and returned to the Drachma do the Greek debts become drachmas?
      As long as the debt isn't held with a Greek bank Greece has zero influence on this.

      Comment


      • #4
        "As long as the debt isn't held with a Greek bank Greece has zero influence on this." How does the bail out get repayed?

        Comment


        • #5
          In Euro, of course.

          Comment


          • #6
            Originally posted by kato View Post
            Not really a question. UK forming its own very loose bloc with Ireland and Denmark
            Ireland is a given, but why does the UK need to be part of a bloc? Over exposure to international finance and debt is part of the problem for central banks. Why wouldn't the UK step back and let Europe do as it will and then look for opportunities as they arise. This is the historical model and seems to have worked well for them for centuries.

            Comment


            • #7
              A. kato; if the Greek bailout is repayed in Euros after the Greeks have returned to the drachma then essentialy the German creditors (who keep the Euro) are paying themselves. If it is repated from a new drachma Greek economy (worth perhaps 1/3rd of their Euro) then the value of the debt must either be reduced by a 1/3rd or it will take 3 times longer to repay (same thing).

              B. zraver; about 75% of UK trade is with Europe, and we have by some way the largest financial sector in Europe as well having Banks with 'assets' worth 500% of our GNP. Until we restructure our economy to repair the last Governments policies of just creating more Government jobs, we need our recovering private sector to have an export market. Realisticly this means retaining our markets in Europe though I have heard some wierd suggestions recently... union with Canada etc. Thus, for now, HMG regards fiscal union for Euroland the lesser evil (see Mr Osbournes statement above).

              However the fiscal union 'solution' seems likely to be too late. The Financial Times summarises what I have been arguing thus:

              "Italy is the hinge of the eurozone. The 17-member bloc can survive a crisis engulfing Greece, Portugal, Ireland, and maybe even Spain. If Italy becomes infected, however, the eurozone has neither the financial nor the political resources to go to Rome’s rescue. Italy must inoculate itself against the sovereign debt virus. Yet an incompetent political system has left it paralysed in the face of an abrupt re-pricing of Italian risk by increasingly nervous investors. A new bout of fiscal temporising will not solve Italy’s problem this time.

              Since the start of July, Italy has been hit by a double collapse – of global economic growth predictions and of the credibility of its policy-making. In that time, the yield on 10-year Italian bonds has risen by 65 basis points, and on two-year bonds by 100bp. If the European Central Bank had not been an active buyer of Italian bonds over the past few days – market gossip suggests around four times as much as Spanish bonds – the yields would be even higher. A €45bn fiscal package has been watered down so much that it represents no more than sleight of hand. And the collapse in the bond market has devastated the share prices of Italian banks – UniCredit has fallen by 42 per cent since July 1 – partly because of the collapse in the value of their bond portfolios.

              The austerity package on offer is likely to worsen the Italian economy rather than accelerate growth. This has been the experience in Greece and Portugal; there is no reason for Italy to be different, especially with key export markets in Europe and the US heading into a recession. The government has ducked, once again, any structural reform that might actually boost the underlying growth rate, which is likely to be no more than 0.7 per cent this year and 0.4 per cent in 2012, Deutsche Bank notes, below the official targets of 1.1 and 1.3 per cent.

              With a credit rating downgrade looming – one reason European equities fell sharply on Monday – Italy’s risk premium may well rise further. Italy, not Spain, will decide the fate of the eurozone."


              http://www.ft.com/cms/s/3/79b39db8-d...#axzz1XBbXBleD

              It is time to start hoarding food!
              Last edited by snapper; 07 Sep 11,, 19:06.

              Comment


              • #8
                Originally posted by snapper View Post
                It is time to start hoarding food!
                Big brother produces it.Me&friends kill would be robbers(and there will be).The rebirth of capitalism.Or is it feudalism.Whatever the ''ism'',I'll spare a crate or two for a fellow wabbit in need.
                Those who know don't speak
                He said to them, "But now if you have a purse, take it, and also a bag; and if you don't have a sword, sell your cloak and buy one. Luke 22:36

                Comment


                • #9
                  Originally posted by snapper View Post

                  B. zraver; about 75% of UK trade is with Europe, and we have by some way the largest financial sector in Europe as well having Banks with 'assets' worth 500% of our GNP. Until we restructure our economy to repair the last Governments policies of just creating more Government jobs, we need our recovering private sector to have an export market. Realisticly this means retaining our markets in Europe though I have heard some wierd suggestions recently... union with Canada etc. Thus, for now, HMG regards fiscal union for Euroland the lesser evil (see Mr Osbournes statement above).
                  Being in a bloc reduces rather than increases that access.

                  Comment


                  • #10
                    Originally posted by snapper View Post
                    "As long as the debt isn't held with a Greek bank Greece has zero influence on this." How does the bail out get repayed?
                    Originally posted by kato View Post
                    In Euro, of course.
                    In whatever currency it is in the contract (in this case Euro). If the Euro seize to exist it will be the creditor's choice and I doubt it will be in Drachmas.
                    No such thing as a good tax - Churchill

                    To make mistakes is human. To blame someone else for your mistake, is strategic.

                    Comment


                    • #11
                      The problem with all of us is that we are still thinking in "financial" terms.

                      Currency is a facilitator to some degree but it is not the actual derivative of demand.

                      I think if the Euro falls, we get into a goods mind set. People are looking down on their ever declining purchasing power created by the financial inflation machinations of governments and are simply starting to equate what they can get with what they have. Loaves of bread or barrels of oil, it matters not.

                      My feeling is the blocs will be formed more on historical/ethnic/goods necessity and trade gravity rather than on fiscal ties. Scandinavians among themselves perhaps including the three small Baltic states due to trade in commodity goods and a lot of direct investment, (basically Scandinavian businessmen owning/operating assets that generate goods for cross border trade).

                      The Visehrad 4 Poland/Hungary/Czechs/Slovakia also seem more likely to create a trade area if the Euro falls.

                      I actually think that some countries in Europe like Spain/Portugal would be better off with the collapse and a currency change the new world ties might reinvigorate themselves more strongly if they are separated from the Franco-German axis trade-wise. Italy to some degree could play the role of Britain in Southern Europe and/or Mediteranian trade wise at least. The problem is they are not competing due to beuracratic malaise due to Eu/Sovergnty issues similar can be said of Iberia. Balkan state are more interesting since they are smaller and could specialize in a certain aspect.

                      The problem to some degree is value added most cannot compete with German in efficiency nor quality and due to currency constraints their commodity produced goods are not competitive with others outside the Eu. So you have a trapped market that is slowly constrained from supplying itself commodity wise (unless subsidized and trade barriers make it impossible for outsiders to compete) which simply gets walked around by big firms who can skirt regulations and play by different rules. Anyhow normalization of commodity production post collapse might be a good thing that reinvigorates inter and outer european trade.

                      P.S. you are ignoring that the Greeks could simply throw their hands in the air and say we are stopping payments and default.
                      Ergo simply good old sovereign default be it euro or whatever else. The reality is if that happens and French/German banks end up eating most if not all of the debt held as loss due to non-recovery (or renegotiation to 1/3rd or less of former value etc...) Debt is not meant to be paid forever but that is in fact what is attempted here with Sovereign debt being cross collaterlized among nation states to have a super nation states forcing them to guarantee it beyond their cash flow payability. Which is impossible, can't force a dead person to pay you. If you can't pay no matter how much you play with the numbers it doesn't change that fact.
                      Last edited by cyppok; 08 Sep 11,, 03:33.
                      Originally from Sochi, Russia.

                      Comment


                      • #12
                        I would cetrainly agree with you regarding the Visegrad Group. It seems nothing less than a post EU Eastern Bloc.

                        Comment


                        • #13
                          and here are the choices...

                          Mish's Global Economic Trend Analysis: "Euro Death Wish" and Global Finger-Pointing: U.S. Senior Official Blames Eurozone for "75% of the Dark Things Happening in the World"

                          My guess is after Greece the great unraveling happens. The tender for exchange right now is a joke and my guess won't solve the insolvency, sure the payments are constant or smaller but the principal is unpayable either way, ergo collapse of debt repayment sooner or later with sooner coming sooner every day.
                          Originally from Sochi, Russia.

                          Comment


                          • #14
                            Saw some other choices today: "does the eurozone end up as a D-Mark bloc (Germany/Austria/Finland/Netherlands)? Or a shrunken eurozone (same plus France, Slovakia, Estonia)?" BBC News - Could there be a German 'Marshall Plan' for Europe?

                            I do not believe Finland, Estonia or Slovakia will go for either of those options.

                            Currently is seems the Germans are increasingly unwilling to fund the next part of the Greek bailout; "At the weekend, German Economy Minister Philipp Roesler suggested that Greece would need an "orderly default" on its debts" despite Mrs Merkels protestations that "Everything I hear from Greece is that the Greek government has hopefully seen the writing on the wall and is now doing some of the things that are required,".

                            Greek 10 year bonds rose to 24% yesterday and without a further loan they will inevitably default before next month. Italian also "raised 3.85bn euros (£3.3bn) in five-year bonds - but the interest rate rose to 5.6%, up from 4.93%." http://www.bbc.co.uk/news/business-14894779 This would put Italian 10 year bonds in a new issue about 6% yield (currently trading at 5.6%) http://www.bloomberg.com/apps/quote?ticker=GBTPGR10:IND Above 6% yield on Italian 10 year bonds and they must institute heavier cuts, above 7% yield and it's over.

                            Mrs Merkel says: "I have made my position very clear that everything must be done to keep the eurozone together politically. Because we would soon have a domino effect". She is possibly correct but not necessarily.

                            Lets make this crystal clear: IF Germany and/or others refuse to the second part of the Greek bail out Greece will leave the Euro within 17-19 days. We shall then see if Chancellor Merkels 'domino effect' theory is correct. What WILL happen then however without any doubt, as I predicted in the other thread, is that the banks in Germany, France and Britain will have to downgrade their 'assets' and may need further Government support... What we delayed from 2008 will have caught us up.

                            Banks and Greek exposure interview: http://news.bbc.co.uk/today/hi/today...00/9589399.stm Sir Howard Davies, former deputy governor of the Bank of England "I think it's all over for Greece".
                            Last edited by snapper; 13 Sep 11,, 17:19.

                            Comment


                            • #15
                              Originally posted by snapper View Post
                              Currently is seems the Germans are increasingly unwilling to fund the next part of the Greek bailout; "At the weekend, German Economy Minister Philipp Roesler suggested that Greece would need an "orderly default" on its debts" despite Mrs Merkels protestations that "Everything I hear from Greece is that the Greek government has hopefully seen the writing on the wall and is now doing some of the things that are required,".
                              Deja vu the last time as well.

                              Originally posted by snapper View Post
                              Lets make this crystal clear: IF Germany and/or others refuse to the second part of the Greek bail out Greece will leave the Euro within 17-19 days. We shall then see if Chancellor Merkels 'domino effect' theory is correct.
                              That puts showtime in the first week of October. You say Germans & others refuse second bailout then Greece has to exit.

                              I think they will make the bailout so the above isn't necessary. As this domino theory was used as the basis for the first bailout. Which when you think about it must be true. If there is no unity here then what does that say about the euro ? Not much and then confidence drops.

                              Originally posted by snapper View Post
                              What WILL happen then however without any doubt, as I predicted in the other thread, is that the banks in Germany, France and Britain will have to downgrade their 'assets' and may need further Government support... What we delayed from 2008 will have caught us up.
                              IOW a bad situation. Idea is to hold that away for as long as possible in the hope of overcoming the smaller problems. Otherwise there is a bigger problem to deal with.

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