Could Italy collapse the euro?

KyussB

PeadarCo wrote: »

You are not talking about bonds fundamentally you are talking about printing money. This is something the Italian government has no authority to do.

Nothing which you have described(the exact details of which change from post to post) could be considered a bond. Or at least a product that anyone would actually buy.

This is the third time I've directly replied to you, stating that nobody buys these bonds from the government.

The details I give are consistent between posts - filling in the details more, as I'm asked more.

These are bonds. Bonds that are heavily warped to act like a quasi-currency, while still legally just being bonds - sidestepping currency laws.

PeadarCo

KyussB wrote:

It's not going to be used with existing contracts, they'd be new contracts... Taxes are paid routinely throughout the year - e.g. VAT 4 times per year.

Why not just pay in euro. What's the advantage of paying on this new currency.

PeadarCo

KyussB wrote:

This is the third time I've directly replied to you, stating that nobody buys these bonds from the government.

This is exactly my point. You are not taking about a bond. A bond has to be issued and bought by someone else. In this case it would be the Italian government. You cannot magic a bond out of thin air.
The fact that your idea does not take account of this very very basic point makes it very hard to talk about the rest of it.

KyussB

PeadarCo wrote: »

Why not just pay in euro. What's the advantage of paying on this new currency.

Peader I've spent pages and page explaining that - including to you - and you're asking me the same things you already asked me, ignoring my answers, and asking them again:
https://www.boards.ie/vbulletin/showthread.php?p=107159560#post107159560

It allows the government to expand public spending, and to break austerity - providing a boost to the economy.

That's at least the second time I've answered that to you (other things you've repeated up to 4 times now) - and I'm going to have to not answer any more questions from you, because you're asking the same things and ignoring answers.

PeadarCo

KyussB wrote:

That's at least the second time I've answered that to you (other things you've repeated up to 4 times now) - and I'm going to have to not answer any more questions from you, because you're asking the same things and ignoring answers.

I am not ignoring them your answers don't make sense and show a complete lack of understanding about basic finance principles. The point about bonds being a case in point.

KyussB

You asked me what the advantage of the bonds are - knowing that in this post here, I had already answered that:
https://www.boards.ie/vbulletin/showthread.php?p=107159560#post107159560

What is the story with that? There are at least a couple of things you keep asking in circles - knowing that I've answered them.

A government can write up a new type of bond, and then do whatever they like with it. Nothing you have posted, stops it from being a bond. A government can put a bond in someones hands, without any money changing place - there is nothing preventing that - they are just a form of IOU.

PeadarCo

KyussB wrote:

A government can write up a new type of bond, and then do whatever they like with it. Nothing you have posted, stops it from being a bond. A government can put a bond in someones hands, without any money changing place - there is nothing preventing that - they are just a form of IOU.

But you have already admitted that you are not talking about bonds. See the post below. I appreciate you do not realise this. Which brings me back to my point about not understanding basic finance principles. Which makes it very difficult to engage in a debate when you seem to think your idea as gospel. Despite the flaws that are obvious to anyone with basic training in finance.

KyussB wrote:

This is the third time I've directly replied to you, stating that nobody buys these bonds from the government.

A government cannot force a company to buy a bond(the traditional kind). That is getting heavily involved with how a company does business. The only way they could do that would be to nationalise a company. We have seen what happens in Zimbabwe and Venezuela when countries unalaterlly nationalise companies. It would be a disaster for Italy. It would take Italy out of the euro and EU.

KyussB

All that is happening is that you're just getting overly tied up on the word 'bond'. Bonds are just a form of IOU - precisely what this new type of bond would be. Nobody is forced to buy these new bonds.

KyussB

KyussB wrote: »

All that is happening is that you're just getting overly tied up on the word 'bond'. Bonds are just a form of IOU - precisely what this new type of bond would be. Nobody is forced to buy these new bonds.

Nobody is forced but yet they would have no choice...

KyussB wrote: »

It would likely be restricted to domestic business - since they could use the bonds to pay their tax. People directly employed by the government would have no choice on whether to accept it or not - contractors could pass it up if they like, but the work would just go to someone else willing to take it.

It's not exposure like regular bonds - if it led to yield increases elsewhere, it wouldn't be through that dynamic.

The bonds would spawn their own financial markets and channels, yes - this would be a cost, which can be offset by increased pay...in bonds

They're shoved in their hands because no one would buy them.

KyussB wrote: »

Why is it that so many posters trying to understand the functioning of the bond/quasi-currency, preface what they say with some variation of "but you don't understand..." - and then need to have me patiently explain to them (repeatedly), how they are missing things that I've already explained. It would be nice to lose that rhetorical posturing.

If you set a 100 year maturity on those bonds, then realistically they are going to be redeemed not through exchange into Euro's, but through use as tax payments. In 100 years, GDP growth will have whittled them down to a fraction of a percent, of GDP.

That's just one of many different ways of eliminating the debt 'exposure' of these bonds.

If they're bonds that you can shove into peoples hands, at 0% interest and a maturity date so long it's as good as not having one - then people who hold those bonds have bugger all leverage over a country - and there is zero burden to this supposed 'debt'.

What creditors? These bonds aren't exchanged for Euro by the government. They're shoved into peoples hands as partial payment - the government doesn't go asking people to buy them - that wouldn't be useful.

The purpose of the bonds is to allow greater expenditure and tax cuts - and without relying on raising Euro externally - so those aren't concerns.

There'll certainly be a limit to how much of these bonds can circulate - and it will need to be kept in balance with the states need for actual Euro's - yet that's all just a question of quantity and careful economic management, not of feasibility.

KyussB

No, nobody buys the bonds from the government. Yes - they're shoved into peoples hands. Don't like the terms of your work contract, then that's tough.

ancapailldorcha

Stay on topic please. An in-depth discussion of bonds can be had in Economics or a new thread.

Kermit.de.frog

And the selloff of Italian debt resumed today after a few days relief.

The market realises once again that Italy has in fact elected a populist government following the PM's maiden speech.

This could get ugly very quickly unless the new government can demonstrate how it weighs it's spending policies with revenue generation.

listermint

Kermit.de.frog wrote: »

And the selloff of Italian debt resumed today after a few days relief.

The market realises once again that Italy has in fact elected a populist government following the PM's maiden speech.

This could get ugly very quickly unless the new government can demonstrate how it weighs it's spending policies with revenue generation.

https://www.bloomberg.com/news/articles/2018-06-05/shortest-euro-area-crisis-ever-italian-risk-melts-from-market

As Giuseppe Conte prepares to take the reins in Italy and macro-strategists fret the meaning of last week’s blowout in markets, the latest asset prices are signaling the worst of the panic is over.

The best gauge of risk in any European bond market is a comparison with yields of Germany, the continent’s safest country to lend money to. Before the recent political flare-up, Italy was paying a premium of just over 1 percentage point compared to Germany to borrow in euros for 10 years. That gap -- which almost tripled last week -- has dropped back to around 2.2 percentage points.

This seems to counter what youve just wrote

An Ciarraioch

Rising now, anyway:

https://m.investing.com/rates-bonds/italy-10-year-bond-yield

Kermit.de.frog

listermint wrote: »

https://www.bloomberg.com/news/articles/2018-06-05/shortest-euro-area-crisis-ever-italian-risk-melts-from-market






This seems to counter what youve just wrote

That is not what happened today.


https://invst.ly/7ncjb


The selloff driven by speech of PM today.

He has promised "radical change" - but that means spending far more, not less when Italy can not afford that given it's massive debt pile.

They have promised large welfare increases, universal income, tax cuts etc.

This is irresponsible and does not add up.

Dohnjoe

Kermit.de.frog wrote: »

And the selloff of Italian debt resumed today after a few days relief.

The market realises once again that Italy has in fact elected a populist government following the PM's maiden speech.

This could get ugly very quickly unless the new government can demonstrate how it weighs it's spending policies with revenue generation.

My guess is that they'll be all Syriza about everything at the beginning, then economic reality will come crashing into their novice hands and they'll end up at the brink, having to take a centrist sensible economic approach

Either that or they'll turn Italy into Europe's Venezuela

BonnieSituation

Dohnjoe wrote: »

Either that or they'll turn Italy into Europe's Venezuela

I suppose you could consider them "Grande Venezia" in that case.

Kermit.de.frog

Italian borrowing costs surging again this morning.

The Prime Minister's populist speech yesterday is costing Italy dear.

As a previous poster suggested - this might be like Syriza - talk tough at the start and then reality sinks in.

They probably don't have as much time for reality to sink in...

Zubeneschamali

Kermit.de.frog wrote: »

this might be like Syriza - talk tough at the start and then reality sinks in.

They probably don't have as much time for reality to sink in...

In fairness, the Italian 10 year rate spiked to what, 3.2%?

In 2012 the Greek rate hit 36%.

Ours peaked at 11.8

Kermit.de.frog

Zubeneschamali wrote: »

In fairness, the Italian 10 year rate spiked to what, 3.2%?

In 2012 the Greek rate hit 36%.

Ours peaked at 11.8

Different debt dynamics and maturities. Italy's debt/GDP is 132%.

Can not last for long at elevated rates. It was 5 - 7% for Italy that was thought to be bailout point in the middle of crisis. It's debt burden is higher now.

Treshold is lower for requiring assistance. The market won't wait though. It will simply surge to double figures in terms of the borrowing costs but the country will be locked out long before that.

Unless, of course, some reassurance for the market comes from the government.

Danzy

Can Italy survive or thrive in the Euro, no.

Can the Euro survive Italy leaving it, no.

While the Italian State has always been run as a joke, its private business sector was fantastic and for the 60s to 90s more often than not outperformed Germany.

That ended with the Euro.

Danzy

Zubeneschamali wrote: »

In fairness, the Italian 10 year rate spiked to what, 3.2%?

In 2012 the Greek rate hit 36%.

Ours peaked at 11.8

Italian debt is considerable on a global scale, it is one of the largest debtors in the world.

As its economy stagnates in the Euro its debt grows relative, while it can still carry the payments, being one of the few Western Countries with a primary surplus, that can only go on for so long.

At least the problem is going to have to be faced now, the traditional EU approach of can kicking can no longer go on, they will try though.

Dohnjoe

Danzy wrote: »

Can Italy survive or thrive in the Euro, no.

Can the Euro survive Italy leaving it, no.

While the Italian State has always been run as a joke, its private business sector was fantastic and for the 60s to 90s more often than not outperformed Germany.

That ended with the Euro.

Thank god no other countries switched to the Euro

Danzy

Dohnjoe wrote: »

Thank god no other countries switched to the Euro

It has been problematic for more than Italy, even some if those involved in its foundation have pointed that out.

Blind allegiance Is just jingoism and you can see that in buckets in both pro and anti EU camps everyday in the British media.

Dohnjoe

Danzy wrote: »

It has been problematic for more than Italy, even some if those involved in its foundation have pointed that out.

Blind allegiance Is just jingoism and you can see that in buckets in both pro and anti EU camps everyday in the British media.

Tax evasion, corruption, a massive black market and political instability were the real culprits to Italy's decline since early 90's peaks. It's just easier for populists to blame something "foreign" or "external", and for people to accept that.

Danzy

Dohnjoe wrote: »

Tax evasion, corruption, a massive black market and political instability were the real culprits to Italy's decline since early 90's peaks. It's just easier for populists to blame something "foreign" or "external", and for people to accept that.

Yet Italy is less corrupt than it was in the 80s but is significantly weaker than it was economically, it is not populists that are blaming foreigners, forget them, look to those who were involved in creating the Euro who point out its serious flaws, they want it reformed so it will survive, they do not deny its deep problems.

Macron at least has a plan to try to save it but Merkel gave that short shrift.

Countries like Germany, Netherlands etc aren't willing to implement the changes needed to ensure the Euro, even strongly pro EU people like Merkel. Ultimately it is that which precludes a solution, not whatever Italy or those like it do.

McGiver

Danzy wrote: »

Yet Italy is less corrupt than it was in the 80s but is significantly weaker than it was economically, it is not populists that are blaming foreigners, forget them, look to those who were involved in creating the Euro who point out its serious flaws, they want it reformed so it will survive, they do not deny its deep problems.

Macron at least has a plan to try to save it but Merkel gave that short shrift.

Countries like Germany, Netherlands etc aren't willing to implement the changes needed to ensure the Euro, even strongly pro EU people like Merkel. Ultimately it is that which precludes a solution, not whatever Italy or those like it do.

What changes? Macron want's a banking union or some sort of EU budget. That's a no go for many member states who are fiscally sound (Centre and
North in general - Netherlands, Germany, Austria, Czechia, Poland, Estonia, Latvia, Lithuania, Finland, Sweden, Denmark), because why they should pay for or be penalised because of other countries which can't handle their budgets and/or are in serious deficits as well as debt as % GDP with no improvement whatsoever. This is not going go through unless some solid rules and especially oversight as well as enforcement policies are put in place. Having rules in place haven't worked much so far, there was a lot of fudge. For example Italy has never had debt <60% as required by Maastricht criteria/Stability Pact criteria, so shouldn't have been in Euro actually. And I don't even talk about another criterion - having budget deficit %.

The Stability Pact introduced some oversight, penalties and other measures to enforce this, so it was a good move, but it's not sufficient. Italy seems to rather want to elect populist and fudge this instead of actually trying to sort this out. It would need much stronger overisight, rules and enforcement so that centre-north memeber states agree to some sort of a EU budget union.

EdgeCase

The only thing I'd say is Italian politics is notoriously unstable. There's very little ability to drive an insane plan through, unlike the UK.

If things get tricky, the Italian government will simply collapse and people will try something else.

It's actually a strength in Italian democracy rarher than a weakness. The worst cases are usually countries with strong man leaders and inability to change their mind. That's the polar opposite to modern Italy.

It's flexible, loud, sometimes unpredictable but doesn't get bogged down in dogma.

View

Danzy wrote: »

Dohnjoe wrote: »

Tax evasion, corruption, a massive black market and political instability were the real culprits to Italy's decline since early 90's peaks. It's just easier for populists to blame something "foreign" or "external", and for people to accept that.

Yet Italy is less corrupt than it was in the 80s but is significantly weaker than it was economically, it is not populists that are blaming foreigners, forget them, look to those who were involved in creating the Euro who point out its serious flaws, they want it reformed so it will survive, they do not deny its deep problems.

Macron at least has a plan to try to save it but Merkel gave that short shrift.

Countries like Germany, Netherlands etc aren't willing to implement the changes needed to ensure the Euro, even strongly pro EU people like Merkel. Ultimately it is that which precludes a solution, not whatever Italy or those like it do.

Italy has had decades to reduce its debt:gdp ratio. That’s up to Italians to sort out and it’s a problem that will face irrespective of what currency they use. Blaming a currency for their domestic political failure to tackle their economic problems is pointless.

McGiver

View wrote: »

Italy has had decades to reduce its debt:gdp ratio. That’s up to Italians to sort out and it’s a problem that will face irrespective of what currency they use. Blaming a currency for their domestic political failure to tackle their economic problems is pointless.

Exactly. But in fairness, Euro didn't help them with competitiveness, because before the Euro they had always been using devaluation as a quick and easy way to increase competitiveness (at the expense of inflation and reduction of the value of everyone's assets of course). They can't do this with euro and they are unwilling / unable to take the other longer, harder but more sustainable path to competitiveness - efficiency, R&D, investment in education and research, sound fiscal discipline etc.