Time is almost up for Spain as borrowing costs soar

BettyM

beeftotheheels wrote: »

How do you propose removing the euro without further wrecking the economies around Europe, including our own?

I make no proposals and make points for discussion. If your argument is that the practice to allow countries around Europe to revert to their own currencies would damage their economies more than remaining in the Euro is doing, and I look forward to your argument.

cson

10 years ago everyone was a property expert [see the Housing Bubble thread in Accom & Property] nowadays everyone is an economic expert. :pac:

kennyb3

Sea Sharp wrote: »

The ECB should print a large stimulus package and use it to buy up toxic/surplus property around the peripheral European countries such as ourselves. the vast majority of problems in banks around the world go back to bad property debts.
the announcement of such a measure would increase the cost of such properties and cause a large influx of capital into Europe with people recognising the potential for a quick buck.

And how would that pan out long term? Creating a false level of house prices, hmm i wonder how that will end up..

darkman2

Spain auctioning 10 year bonds tomorrow morning. This will be interesting. Who in their right mind would give Spain money at 6% for 10 years....other than Mario Draghi that is...

darkman2

Spain paid 5.74% for 10 year money this morning. Moodys states the obvious.


http://www.telegraph.co.uk/finance/financialcrisis/9213919/Spanish-and-Italian-borrowing-costs-already-at-unsustainable-levels-warns-Moodys-Analytics.html


Italy not too far behind Spain. Interestingly Moodys says for Italy to be able to borrow sustainably yields would have to be around 4.2%. Erm....

http://www.bloomberg.com/quote/GBTPGR10:IND/chart

Sand

@Later12

No I don't think that's realistic, fiscal equalisation measures and ECB support would prevent that degree of depletion of investor confidence ever emerging.

I don't think its realistic either because the ECB will fold like a cheap deckchair if it feels the Euro itself is threatened. If there is no Euro, there is no need for an ECB. Ireland and Germany will both outlive the Euro. The ECB will not.

However, the scenario was what would Ireland do about a deficit of 350 million per week once the Euro had collapsed (so no ECB around to support) and lacking official sources of support. This was posed as some sort of unsolvable conundrum, which is actually fairly revealing. Its quite clear what Ireland would have to do - cut immediately to match what it could raise via revenue. Because it would have no other option.

No the economy doesn't have to grow 'hugely'.

Yes it does, assuming you're not rigging the basis for the scenarios to give you the results you want.

Look at your scenario 2 where we start with GDP 160, Deficit of 20. Cutting the deficit by 20 leads to a drop in GDP of 16 (10% drop), and drop in revenue of 7 (20%).

That implies a couple of things: Your day 0 scenario starts with Revenue at 35 and Spending at 55. Plus your working from a model where a cut of 1 billion in spending leads to a drop of 0.8 billion GDP and 0.35 billion in revenue.

I took those assumptions ( I particularly don't agree with them) and I looked at two scenarios. I added one aspect - public debt, both as an absolute and relative to GDP which is funded at 3%. I started with an assumption of national debt being equal to GDP on Day 0 and worked from there.

The first is the simple "cut and burn" scenario. Cut the budget by 20 billion, and cut again if needed.

Cut 20 Billion ASAP GDP (-0.8) Revenue (-0.35) Spending (-1) Deficit Defict vs. GDP Cut By: Public Debt Public Debt vs. GDP
Day 0 160 35 55 -20 -12.50% -160 -100.00%
Year 1 144 28 35 -7 -4.86% Cut 20 -171.8 -119.31%
Year 2 138.4 25.55 28 -2.45 -1.77% Cut 7 -179.404 -129.63%


The second is the elegant, sophisticated "Cut tommorrow" scenario where you cut 6.5 billion per year.

Cut 6.5 Billion Each Year GDP (-0.8) Revenue (-0.35) Spending (-1) Deficit Defict vs. GDP Cut By: Public Debt Public Debt vs. GDP
Day 0 160 35 55 -20 -12.50% -160 -100.00%
Year 1 154.8 32.725 48.5 -15.775 -10.19% Cut 6.5 -180.575 -116.65%
Year 2 149.6 30.45 42 -11.55 -7.72% Cut 6.5 -197.54225 -132.05%


That is with equivalent GDP growth outside of government spending effects (i.e. 0%). In either year 1 or year 2, but the "Cut tomorrow" scenario deficit to yield the the same % deficit of GDP as the "Cut and Burn" scenario the "Cut tomorrow" scenario would inherently require astronomical GDP growth* and certainly more growth than the "Cut and burn" scenario would require.

Also by Year 2 the states position is far worse off - not only is the deficit still hugely significant, but our public debt is also much worse and only going to get worse and worse, faster and faster than would be the case in the "Cut and burn" scenario and so is going to require increased spending cuts or tax hikes to service out of revenue.

* It would actually require astronomical growth but that's down to using your assumptions on the practically 1 for 1 relationship between government spending and GDP in the Irish economy, which isn't the case. Unrealistic assumptions bring unrealistic results. But they are the assumptions you built your scenario on so I used them for demo purposes.

The Irish economy is driven from outside of its borders these days, and any growth will be fed in from external sources.

Agreed - which is why I don't credit that a 20 billion cut in government spending would devastate GDP in the way you propose it could. But even if it did, its still a better scenario than dragging out a fiscally unsustainable spending binge out for as long as we can get away with.

Unless the plan is to drink official sources of funding dry, whilst spending and spending and then default which is a little too cynical for me.

Sea Sharp

kennyb3 wrote: »

And how would that pan out long term? Creating a false level of house prices, hmm i wonder how that will end up..

The ECB having slight control of property prices in Europe in 10-15 years time is a better scenario than Governments all over Europe being crippled with debt to the ECB for the next 40 years.

later12

Sand wrote: »

However, the scenario was what would Ireland do about a deficit of 350 million per week once the Euro had collapsed (so no ECB around to support) and lacking official sources of support. This was posed as some sort of unsolvable conundrum, which is actually fairly revealing. Its quite clear what Ireland would have to do - cut immediately to match what it could raise via revenue. Because it would have no other option.

Well that's not exactly correct either because Ireland would most likely restructure its debts and devalue its currency (in the unlikely event of a Euro breakup).

Look at your scenario 2 where we start with GDP 160, Deficit of 20. Cutting the deficit by 20 leads to a drop in GDP of 16 (10% drop), and drop in revenue of 7 (20%).

That implies a couple of things: Your day 0 scenario starts with Revenue at 35 and Spending at 55. Plus your working from a model where a cut of 1 billion in spending leads to a drop of 0.8 billion GDP and 0.35 billion in revenue.

I don't even know where to start on this.

Perhaps I will start by expressing my disbelief that you would assume that the relationship between a fiscal shock & economic activity is linear. One has to accept that where cuts are less front loaded, and pending a realistic consolidation-financing tradeoff (as some would suggest the MoU is) the economic cycle is re-inforced to a lesser degree, so in theory more growth should occur than would occur where blanket cuts extinguish all possibility of growth. This is not Newton's 2nd law of motion we're discussing here, you can't expect the economy to behave like a neat line in response to a shock.

But by assuming that abolishing €20 billion out of the economy overnight is not only going to have going to have a linearly proportional effect on revenues -- but that growth will end up no better off under a controlled consolidation with the anticipation effect -- is remarkable. I find it hard to believe that anyone could subscribe to that idea.

Furthermore, while Ireland is believed to have a small fiscal multiplier, though this is questionable and requires consideration of the various types of fiscal shocks that can be pursued), the fiscal multiplier can be enhanced by excess capacity in the economy in time of recession, so we should expect it to be more relevant now than it ever was before. I should hope that much is undisputed. I should also point out that I stated earlier that my hypothetical situation was an abstraction to illustrate that by wiping €20 billion out of the economy overnight, you would inevitably only be working to gradually close the deficit, which is also the pursuit of the Government.

On that note, I would refer you to the following graphic taken from an IMF paper on fiscal shocks and output



You people seem to think that when the deficit is closed on day1, it is closed forever or reduced to insignificance forever. My illustration was to show that such is not the case, and that in fact there is a legitimate question as to what kind of benefit would ultimately arise. I am suggesting that if the effect of such a dramatic and un-necessary cut were in any way significant, you could ultimately end up worse off than under the programme.

I should also point out, as an aside, that the €20 billion figure only relates to a world without the IMF & EU in the land. The IMF and EU Commission (who lend credibility to the following process) agree to discount the effects of (usually under)performance of revenues and receipts as well as bank recapitalizations as part of the deficit under the TMU adjusters. These have to be fully faced up to in a world without an adjustment programme, they do not have to be counted as part of the deficit in a world where the adjustment programme is adhered to.

I really don't think the kind of suggestions your making here can or should be taken seriously.

antoobrien

later12 wrote: »

You people seem to think that when the deficit is closed on day1, it is closed forever or reduced to insignificance forever.

I don't recall anybody claiming that or anything like it.

If external funding (e.g. bond markets) is cut off, it will be cut off for a significant time frame i.e. years if not decades. To give you an example Iceland was frozen out of the bond markets for 5 years after they defaulted. To me that would be a minimum.

Our banks can't provide the kind of money required so there can be no deficit if the only major source of funding is taxation.

BluntGuy

BettyM wrote: »

I make no proposals and make points for discussion. If your argument is that the practice to allow countries around Europe to revert to their own currencies would damage their economies more than remaining in the Euro is doing, and I look forward to your argument.

Then why don't you discuss, how and why you come to the conclusion implied by your statements:

The underlying cause of Europe’s problems is the Euro itself, and all attempts to save it don’t resolve the problem, but merely exacerbate it.

the main problem is the Euro. Their folly and vanity in trying to save the Euro is wrecking not only the EU itself, but also many economies around Europe.

that the euro (in its "present guise") should be allowed fail. And what do you think would need to be put in its place. The onus is actually on you to explain your position as the person putting across these points. You can't just state them as though they're self-evident;

Those who state the Euro will survive seem to do so more from a position of blind faith, rather than from a position of reasoned economic argument.

And expect that to suffice.

BettyM

BluntGuy wrote: »

that the euro (in its "present guise") should be allowed fail.

I think the point is its not a decision that we make while sitting around in a circle all stroking our beards. The Euro will stand or fail on its own merits, and on its economic strengths, and no amount of "decisions" made by no amount of beard strokers will alter the fact that the Euro operates in a market, and the markets will decide its fate.

The very point I made was that the arguments in favour of the Euro seem to reply mainly on political arguments, and rarely seem to be economic arguments. Indeed, most economists seem to agree that the Euro itself is the problem, and the dogged insistence of the politicians to hang on to it at all costs (a political decision) is making a bad situation worse.

In the end, the politicians will find that you can't force bad political decisions on the world markets, and the longer it takes for them to realise that, the worse the situation will become for the Eurozone. The hubris of the political decision makers in this area staggers belief, where they seem to prefer to adhere to not only a bad policy, but a policy which has caused so much damage and misery to millions around the EU.

I am sure we all wish it were different, but to simply pretend the Euro has not caused the very obvious problems it has around the EU seems to be head-in-the-sand stuff.

later12

BettyM wrote: »

Indeed, most economists seem to agree that the Euro itself is the problem, and the dogged insistence of the politicians to hang on to it at all costs (a political decision) is making a bad situation worse.

No, I don't think that's true at all.

The Euro is not the problem. The currency itself is quite sound, and monetary union in itself is not under an immediate threat.

The "dogged insistence", which is a problem, relates only to insisting that almost uniform fiscal tightening measures across the zone (simultaneously) will be good for Europe, and that assistance/ sustainability policy toward the peripherals is somehow working. This is demonstrably false.

But no, I don't believe the Euro itself or monetary union is "the problem", even though the financial architecture of the euro is a serious aggravating factor.

CrackisWhack

later12 wrote: »

No, I don't think that's true at all.

The Euro is not the problem. The currency itself is quite sound, and monetary union in itself is not under an immediate threat.

The "dogged insistence", which is a problem, relates only to insisting that almost uniform fiscal tightening measures across the zone (simultaneously) will be good for Europe, and that assistance/ sustainability policy toward the peripherals is somehow working. This is demonstrably false.

But no, I don't believe the Euro itself or monetary union is "the problem", even though the financial architecture of the euro is a serious aggravating factor.

Personally, I would say the euro is a very big problem for certain countries, who don't have the option of devaluing anymore and in the same vain the euro has been very good for large exporting economies like Germany.

later12

Yes but that's part of what I mean by the financial architecture being a serious aggravating factor.

But something had to come before the "need to devalue", and that's where these countries' problems originate; not in the Euro itself, nor in membership of EMU.

Sand

@Later12

Well that's not exactly correct either because Ireland would most likely restructure its debts and devalue its currency (in the unlikely event of a Euro breakup).

Devaluing the currency the spending is denominated in is just another (inefficient) way of cutting that spending. Whilst I cant rule out total incompetence given the government strategy so far, one would assume the government would prioritize monetary stability to improve their chances of being able to issue debt in Punt Nua at less than ridiculous rates.

Perhaps I will start by expressing my disbelief that you would assume that the relationship between a fiscal shock & economic activity is linear

You'd be right to express your disbelief. As I noted they were your assumptions and I didn't particularly agree with them or find them realistic. You presented a pretty simplistic model with assumptions and presumptions pulled mostly out of thin air which aligned almost exactly with your preferred solution. I was surprised. The worst aspect of my response was that I built it on the back of your unrealistic assumptions and conditions.

I also noted that if you were rigging the assumptions to give you the result you wanted you could always get it. You can assume that cuts up front are always inherently worse then cuts down the tracks - and you'll find politicians eager to listen to that logic and eager to fund reports and research that advise them that they can have their cake and eat it, being both fiscally responsible and avoiding political troubles inherent to tacking unions and special interest groups.

The current government strategy is a stimulus (not austerity) strategy, as we are spending vastly more than we can afford during a recession. So wheres the growth?

Keynes said that if government spending consisted of burying money in jars and paying men to dig it up it would still help growth. But he was thinking of large closed economies of a protectionist era practically unrecognizable to us now. Irish government spending subsidizes car sales - where does the growth go? To Germany. As you note, Ireland GDP benefits from external growth. But its a double edged sword - the benefit of Irish "stimulus" goes abroad, spent on imports.

Look - here's the public spending allocations growth between 2000 and 2008, versus GDP growth over the same period. Public spending grew hugely, but GDP growth was significantly less during a massive credit fuelled bubble during which bank lending literally took off like a rocket. No 1 for 1 relationship between Irish GDP and government spending. Apartments in Bulgaria, foreign holidays, German cars... that's where a large proportion of it went.

Public Spending Allocation 2000 2008 %Change
Social Welfare €6,829.00 €17,741.00 159.79%
Education €3,716.00 €8,465.00 127.80%
Health €5,362.00 €15,356.00 186.39%
Capital Investment €3,930.00 €9,011.00 129.29%
Total Expenditure €25,925.00 €62,395.00 140.68%
GDP €105,018.00 €179,989.00 71.39%


This tells us what we both already know - Irish fiscal multipliers are very low. We import a hell of a lot. We are a tiny, tiny open economy. As you said yourself Irish economic growth is defined by external factors, not by Irish government spending - once our governments stopped trying to block out the world as an economic strategy, Ireland grew after decades of failure. The best strategy for Ireland is to get our fiscal house in order ASAP (this is 2012, practically half a decade after the outbreak of the crisis - that's how long we've been waiting for growth to stave off fiscal reality) whilst looking to benefit from those economic growth patterns you have such faith in. Basically we should cut and cut whilst encouraging the US and Germany to spend and spend.

darkman2

Both Spain and Italy have ended the trading week in the danger zone

Spain's cost of borrowing on the benchmark is 5.96%

http://www.bloomberg.com/quote/GSPG10YR:IND/chart


The Italian sell off continued forcing their yields to 5.66%

http://www.bloomberg.com/quote/GBTPGR10:IND

This is the most dangerous phase of the crisis in the Eurozone so far. Hopefully a line can be drawn somewhat by Spain opting for some form of assistance sooner rather then later. The longer they wait the worse it will get.

later12

Sand wrote: »

You'd be right to express your disbelief. As I noted they were your assumptions and I didn't particularly agree with them or find them realistic. You presented a pretty simplistic model with assumptions and presumptions pulled mostly out of thin air which aligned almost exactly with your preferred solution.

With respect, I explained why I used those specific GDP/revenue shortfall figures, and I stressed that I was using them as an abstraction. You are free to pull your own figures out of the realms of possibility - my stated interest was merely in demonstrating that the picture painted by the "cut it all now" brigade is not as clear cut as some would make out.

I happen to agree with you that it would be crazy to base my arbitrary possibility on alternative scenarios as thought it were some carefully mustered dataset to build a model - it wasn't. As you point out, if you rig the data, you can easily find a desirable outcome. But that applies to the "cut it all now" brigade too.

So what are we left with? The bothersome question of evidence, I'm afraid. And although it applied to G7 countries, I've already posted a reference to demonstrate the effects of discretionary fiscal shocks on an economy depending on how front loaded it was.

Now you might argue that the fiscal multiplier is negligible in Ireland, but (while disputable) at best, that's just a rejection of my evidence.

I'm afraid if anyone is going to take this concept of cutting the debt overnight seriously, they are going to want to see something more concrete than a rejection of the opposite viewpoint.

And by the way, I don't argue with your suggestion that we should cut, cut cut. Not in the slightest. I just happen to think that it needs to be done in a controlled manner - quicker than how the government are doing it - but not overnight.

Sand

Sand wrote: »

The best strategy for Ireland is to get our fiscal house in order ASAP...

What would you do?

paddy0090

later12 wrote: »

No, I don't think that's true at all.

The Euro is not the problem. The currency itself is quite sound, and monetary union in itself is not under an immediate threat.

The "dogged insistence", which is a problem, relates only to insisting that almost uniform fiscal tightening measures across the zone (simultaneously) will be good for Europe, and that assistance/ sustainability policy toward the peripherals is somehow working. This is demonstrably false.

But no, I don't believe the Euro itself or monetary union is "the problem", even though the financial architecture of the euro is a serious aggravating factor.

You can reasonably argue that the currency is not the problem and if markets just calmed down the currency is fine.

Politicians and casino policy are the reality and markets react accordingly. Which brings us back to the root of the policy the currency.

There's no point in expecting anything less than politics from politicians If any instrument grants them the ability to borrow cheaply it should be viewed with deep suspicion. Ask the Germans what they think of the deal that Goldman did with Greece(they did a similar deal themselves - it worked out) and they'll agree. Again the origin of this deal is the Euro.

Any deal for Eurobonds will likely yield a simialr result. If I were German I'd be lookin for a something the same as the fiscal compact.

I would argue that the Euro is exactly the problem as it gave politicians (many of who are no retired) a cheap method of borrowing they couldn't resist. A peg is just the same. None of this will help change any of the countries that need change.

In fact prior to the Euro we had a well EU renowned system for cost/benefit analysis for Eu funds that was lost in the boom. blame the politicians if you want but a floating currency keeps there ambitions in check.

darkman2

Italy, Spain, France and Netherlands under pressure today on the bond market. Alot of bad news in Europe today on the economic and political front.

The Netherlands faces losing it's AAA credit rating this week after voting against austerity.

battle_hardend

darkman2 wrote: »

Italy, Spain, France and Netherlands under pressure today on the bond market. Alot of bad news in Europe today on the economic and political front.

The Netherlands faces losing it's AAA credit rating this week after voting against austerity.

a reaction the likely looming defeat of sarkozy by a socilist president , markets dont like that

beeftotheheels

battle_hardend wrote: »

a reaction the likely looming defeat of sarkozy by a socilist president , markets dont like that

Eh, I suspect that the PMIs may have had something to do with it.

The aversion of markets to mainstream socialist leaders is, I suspect, somewhat over stated.

The aversion of markets to political uncertainty and rising nationalism remains to be tested but I wouldn't discount it given the lessons of nationalism and protectionism in the great depression.

darkman2

Spain back above 6% on it's 10 year bond



http://www.bloomberg.com/quote/GSPG10YR:IND/chart


The Dutch situation is not helping things neither are political developments in France.

karlth

antoobrien wrote: »

I don't recall anybody claiming that or anything like it.

If external funding (e.g. bond markets) is cut off, it will be cut off for a significant time frame i.e. years if not decades. To give you an example Iceland was frozen out of the bond markets for 5 years after they defaulted.

Just to clarify: Icelandic government didn't default, the private banks defaulted. The Icelandic government was out of the international bond market from the summer of 2008 until the summer of 2011, so for around 3 years.

darkman2

Spanish economy in "huge crisis" after credit downgrade

Reuters – Fri, Apr 27, 2012 12:34 PM EDT


MADRID (Reuters) - Spain's sickly economy faces a "crisis of huge proportions", a minister said on Friday, as unemployment hit its highest level in almost two decades and Standard and Poor's downgraded the government's debt by two notches.

Unemployment shot up to 24 percent in the first quarter, one of the worst jobless figures in the developed world. Retail sales slumped for the twenty-first consecutive month as a recession cuts into consumer spending.
"The figures are terrible for everyone and terrible for the government ... Spain is in a crisis of huge proportions," Foreign Minister Jose Manuel Garcia-Margallo said in a radio interview.

...

http://finance.yahoo.com/news/spanish-economy-huge-crisis-credit-082833321.html

I suppose it's positive that some ministers finally openly acknowledge the gravity of the situation.

darkman2

France elects socialist, Greeks reject austerity policy. The euro is falling like a stone. All the futures suggest this will be a bad week. The periphery is going to be tested again. Italy, Spain and Portugal face surging yields this week due to contagion. A sell off of French bonds seems likely aswell. Big week for the Eurozone!

darkman2

http://www.bloomberg.com/news/2012-05-09/asian-stocks-fall-to-three-month-low-kiwi-declines.html

http://www.bloomberg.com/quote/GSPG10YR:IND/chart

Up, up and away

liammur

darkman2 wrote: »

http://www.bloomberg.com/news/2012-05-09/asian-stocks-fall-to-three-month-low-kiwi-declines.html

http://www.bloomberg.com/quote/GSPG10YR:IND/chart

Up, up and away

Looking bad alright. I can't believe how the yanks are still managing to creep under the radar!

darkman2

Spain preparing to nationalise it's first bank this afternoon. We all know where this is going! They say imitation is the sincerest form of flattery. The market is not impressed. Not one bit. 6.093% Spain 10 year.


Italy is not far behind in the race to the bailout either (over 5.6% 10 year bond). France also under new pressure. The EFSF goes with it.

darkman2

Bankia becomes first Spanish bank to be partially nationalised. Spain = Ireland for slow learners. The start of quite a number of banks. Spanish NAMA on the way too.


Zerohedge puts it best

The only thing funnier than a nationalization statement spun as positive, or favorable for taxpayers, is one that has been Google translated, in this case from Spanish, courtesy of Bank of Spain, which has just formally bailed out Bankia, leaving the best for last: "In any case, BFA-Bankia is a solvent entity that continues to function quite normally and customers and depositors should have no concern." Move along. Nothing to see here. Nobody should be concerned.

A Spanish Patrick Neary too!

screamer

Solvent- yes, it must be involved at some level if they believe that clap-trap. The end is nigh, they're just prolonging the inevitable at this stage. Interesting to sit watching it though.

darkman2

Contagion from Greek crisis is a going directly to Spain. 10 yr yield @ 6.3%.


Italy @ 5.8% 10 yr

Ireland up to 7.3% for 9 year bond pending referendum and some contagion.

Portugal 11.7%.

screamer

Darkman, that is exactly what I thought, ....... I hear the new currency in Greece will be called the Drachmail..... it'd be funny if it wasn't true.
Germany's lack of any sort of real action is what has killed the Euro, too little and too late, the ironic thing, is that as the Euro goes, so too will Germany's booming export driven economy..... there will be no winners out of this, just a game of the biggest loosers.

darkman2

screamer wrote: »

Darkman, that is exactly what I thought, ....... I hear the new currency in Greece will be called the Drachmail..... it'd be funny if it wasn't true.
Germany's lack of any sort of real action is what has killed the Euro, too little and too late, the ironic thing, is that as the Euro goes, so too will Germany's booming export driven economy..... there will be no winners out of this, just a game of the biggest loosers.

If they don't act soon they won't have a bazooka big enough to act. The Euro is falling apart before our eyes and no one seems to be in charge.:(

kennyb3

Way more worrying. anyone for a bank run in spain? 85% of their loan book is 'problematic'

darkman2

Spain's banks are bust. Harsh reality about to dawn. Don't worry though Spain's economy secretary has just said...



"It's not true that there is an exit of deposits at this moment from Bankia."

screamer

Hmmm.... now why does that sound so familiar? Time to stock up on tinned food methinks......

darkman2

Moodys is going to downgrade alot of Spanish banks this evening and maybe even the sovereign debt according to Spanish media. 8pm announcement due.

Of course they do it on a Thursday so their trading friends can get their short positions for tomorrow.

BostonB

screamer wrote: »

Darkman, that is exactly what I thought, ....... I hear the new currency in Greece will be called the Drachmail..... it'd be funny if it wasn't true.
Germany's lack of any sort of real action is what has killed the Euro, too little and too late, the ironic thing, is that as the Euro goes, so too will Germany's booming export driven economy..... there will be no winners out of this, just a game of the biggest loosers.

But isn't that where it all started. Giving out cheap loans to other countries caused all this in the first place. Granted it takes two to tango, but thus far Germany doesn't seem to want to take any responsibility for this. They are literally biting the hand that feeds them now though. That said Greece doesn't want to take responsibility either.

screamer

Well, as the Fool in King Lear put it
"'Let go thy hold when a great wheel runs down a hill, lest it break thy neck with following it: but the great one that goes up the hill, let him draw thee after." pretty much sums it up, the big wheel is just about to come down, and those who were dragged up with it, don't want to be dragged down, but you can't stop gravity, unless you have mighty force, all we have is a mighty farce, the Euro will fall soon unless someone gets in there with muscle and does something.

Lantus

A currency this big cannot be controlled people! All we have been seeing so far is the 'illusion' of control over a situation which has been and has always been uncontrolable.

If politicians had that much control over currency and economies there would be no such thing as free trade or boom and bust cycles.

They dont.

The euro as in all past crisis like this needs to devalue massivley. Iceland is now proving us all to be wrong as it bounces back to good health.

And a devalued euro benefits germany as worldwide exports become cheaper.

2cool4school

screamer wrote: »

Well, as the Fool in King Lear put it
"'Let go thy hold when a great wheel runs down a hill, lest it break thy neck with following it: but the great one that goes up the hill, let him draw thee after." pretty much sums it up, the big wheel is just about to come down, and those who were dragged up with it, don't want to be dragged down, but you can't stop gravity, unless you have mighty force, all we have is a mighty farce, the Euro will fall soon unless someone gets in there with muscle and does something.

ya wha?

darkman2

Moody's has just announced that it has downgraded four Spanish regions: Catalunya, Murcia, Andaluca, and Extremadura.

It confirmed its ratings on two other regions - Valencia, and Castilla-la Mancha.

Moody's said it had taken the decision because it believes there is little chance that authorities in these areas will hit their deficit goals. That's worrying – Spain missed its overall deficit target in 2011 because its regions borrowed too much.

The move comes as speculation grows that Moody's will downgrade as many as 21 Spanish banks tonight. According to the FT's fine Alphaville blog, the downgrade is definitely coming, and it's going to be big....

http://www.guardian.co.uk/business/2012/may/17/eurozone-crisis-cameron-greece-euro-exit

darkman2

The cost of the bailout for Bankia SA seems to be doubling by the day. Today the figure is up to €15bn

http://online.wsj.com/article/BT-CO-20120524-714439.html

This will be Spain's Anglo Irish Bank.


And as the market digests the fact that the Spanish banking system is in fact insolvent the sovereign 10 year yields remain well above 6%. Unless Spain can secure external EU/IMF assistance it's sovereign is hopelessly compromised. As the Spanish PM admitted this week his country is gradually being locked out of the market. When Spain comes knocking for assistance the Eurozone crisis gets real.

http://www.bloomberg.com/quote/GSPG10YR:IND/chart

darkman2

Shares in the Bankia banking group suspended this morning. Bailout negotiations are under way. The bank is expected to come forward tomorrow and ask for over €15bn from the Spanish government. The derisory laughter with which that figure elicits from trading floors around the world must surely be heard in Madrid. It's going to be ALOT more than that.

darkman2

Catalonia is requesting a bailout off the Spanish government.

13.36 BREAKING NEWS...

The president of Catalan has said his region needs help from the Spanish government. It is running out of debt and financing options.

Artur Mas: "We don't care how they do it, but we need to make payments at the end of the month. Your economy can't recover if you can't pay your bills."

http://www.telegraph.co.uk/finance/debt-crisis-live/9289109/Debt-crisis-live.html


Spanish bond yields are surging.

Nearly over 6.3%.


http://www.bloomberg.com/quote/GSPG10YR:IND/chart

Euro has fallen to under $1.25.

Maura74

Surely the euro falling is good it will be cheaper to export goods and will bring in tourism

darkman2

Maura74 wrote: »

Surely the euro falling is good it will be cheaper to export goods and will bring in tourism

It is. But the Eurozone is in real, real trouble. And that outweighs any proxy benefits of a weaker Euro.

darkman2

5 Spanish banks have just had their credit ratings downgraded including Bankia S.A., Banco Popular Espanol S.A. cut to junk status by S&P


Banco Popular is the next that needs a bailout.

What a horrible day for Spain.

Sand

It'll be intriguing to see if anything is done to solve the Spanish problem. The Euro zone was too principled and dignified to solve the Greek problem. It may too poor and ill-equipped to solve the Spanish problem.

Its interesting how relatively small the amounts required to solve the problem are, but how weak the leadership and solidarity is. Having engaged in a poisonous and incorrect analysis of the Eurozone problem being "lazy" or "feckless" and "greedy" periphery states out to rob ordinary, decent hard working core states the past few years have been wasted on burning down all European solidarity in favor of national narratives. We may be about to reap the whirlwind. Can we truly expect the Germans electorate will accept a sudden shift in Merkel's position - that having been the gatekeeper of Germany's wealth, Merkel will now volunteer a theoretically limitless Marshall aid plan at German expense? And does Merkel even have the credibility to bring along the various peripheral states she's been denouncing for the past 5 years?