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PIIGS / Europe's Debt Troubles

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SocGen’s Edwards Sees Euro Breakup as Feldstein Predicts Change

By Alexis Xydias

 

Feb. 12 (Bloomberg) -- The Greek budget crisis is a symptom of imbalances that will lead to the breakup of the euro region, according to Societe Generale SA strategist Albert Edwards, and Harvard University Professor Martin Feldstein said monetary union “isn’t working” in its current form.

 

Southern European countries are trapped in an overvalued currency and suffocated by low competitiveness, top-ranked Edwards wrote in a report today. Feldstein, speaking on Bloomberg Radio, said a one-size-fits-all monetary policy has fueled big deficits as countries’ fiscal records differ.

 

The problem for countries including Portugal, Spain and Greece “is that years of inappropriately low interest rates resulted in overheating and rapid inflation,” Edwards wrote. Even if governments “could slash their fiscal deficits, the lack of competitiveness within the euro zone needs years of relative (and probably given the outlook elsewhere, absolute) deflation. Any help given to Greece merely delays the inevitable breakup of the euro zone.”

 

The euro has slumped 9.9 percent against the dollar since November on concern countries including Greece will struggle to tame their budget deficits. The common currency and stocks in the region dropped yesterday as European leaders closed ranks to defend Greece in a plan that investors said lacked details.

 

/more: http://www.bloomberg.com/apps/news?pid=new...id=aTuIlRl2MtUo

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Bill Fleckenstein:

 

Aristotle Contemplating the Bust of Credit

 

The topic was explored in "A Greek Crisis Is Coming to America" -- a terrific article by Niall Ferguson that ran in Thursday's FT. He notes: "This is more than just a Mediterranean problem with a farmyard acronym [PIIGS]. It is a fiscal crisis of the Western world. Its ramifications are far more profound than most investors currently appreciate."

 

Regarding the Greek problem itself, Ferguson cites three possible outcomes: (1) "One of the most excruciating fiscal squeezes in modern European history." (2) "Outright default." (3) "Some form of a bailout." Having laid those out, he continues:

 

"Yet, the idiosyncrasies of the eurozone should not distract us from the general nature of the fiscal crisis that is now afflicting most western economies. Call it the fractal geometry of debt: The problem is essentially the same from Iceland to Ireland to Britain to the U.S. It just comes in widely differing sizes." (His description of the monstrous debt here: "U.S. government debt is a safe haven the way Pearl Harbor was a safe haven in 1941.")

 

His summation of the global situation: "On reflection, it is appropriate that the fiscal crisis of the West has begun in Greece, the birthplace of Western civilization. Soon it will cross the channel to Britain. But the key question is when that crisis will reach the last bastion of Western power, on the other side of the Atlantic."

 

What he's really asking is, when the funding crisis will begin in America, and of course we don't know the answer to that question. All we know is that it's going to be virtually impossible to have U.S. interest rates remain absurdly low and have the market finance U.S. debt. Either the Fed will have to keep a bid in the Treasury or mortgage markets, which will ultimately put pressure on the dollar, ultimately pushing rates up; or the Fed will exit quantitative easing and it won't be long before rates start rising.

 

Before we see any of that -- either a weaker currency or higher interest rates in America -- perhaps we'll need to get through some sort of resolution of the Greek crisis. But given that the average maturity of the U.S. debt is under about four years, we will see our own variation of Greek angst somewhere down the road.

 

/more: http://www.financialsense.com/Market/wrapup.htm

 

++

 

David Walker sees the same problem

http://www.clipsyndicate.com/video/playlist/1778/1310927

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Wasn't sure where to put this so it has ended up here:

 

Spanish intelligence probing debt "attacks" - report

 

Fri, Jan 29 2010

MADRID, Feb 14 (Reuters) - Spain's intelligence services are investigating the role of investors and media in debt market turbulence over the last few weeks, El Pais reported on Sunday.

 

Citing unnamed sources, El Pais said the National Intelligence Centre (CNI) was looking into "speculative attacks" on Spain following the Greek debt crisis.

 

"The (CNI's) Economic Intelligence division...is investigating whether investors' attacks and the aggressiveness of some Anglo-Saxon media are driven by market forces and challenges facing the Spanish economy, or whether there is something more behind this campaign," El Pais said.

 

Officials at the CNI were not available for comment.

 

The report comes days after Public Works Minister Jose Blanco protested "somewhat murky manoeuvres" were behind financial market pressure on Spain.

 

"None of what is happening in the world, including the editorials of foreign newspapers, is coincidental or innocent," Blanco said.

 

Economists have cast doubt on forecasts that Spain's economy will grow by some 3 percent by 2012, on which the government has based predictions it will cut back on its gaping budget deficit.

 

Some economists have said Spain's deficit could be more of a threat than Greece to the euro, the common currency of 16 European countries.

 

Spain's deficit has soared to 11.4 percent of its gross domestic product amid its deepest recession in decades, but the government has pledged to cut the gap back to a eurozone limit of 3 percent by 2013 by cutting 50 billion euros in spending.

 

Markets doubt that Spain will be able to cut back drastically on spending with unemployment running at 20 percent and a big slice of the budget in the hands of fiercely independent regional governments.

 

Underscoring those doubts, the premium demanded by investors for buying Spanish rather than German government bonds ES10YT=RR has risen in recent weeks and the cost of insuring Spanish bonds against default by the government has also risen.

 

(Reporting by Martin Roberts; Editing by Louise Ireland)

http://www.reuters.com/article/idUSLDE61D0...ype=usDollarRpt

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I must admit to feeling very much like a "bear of little brain" when it comes to the current situation in Europe, and I'd really appreciate it if any of you can explain what is going on?

 

It seems to me that everyone has suddenly woken up to the fact that the Greeks have been cooking the books (and to a lesser extent so have a few others), that the Spanish and Portuguese finances are also in parlous state. What makes these countries better will make Germany and France unwell, and vice versa. In Addition, the UK economy is about as bad as it's ever been and the government debt breaks new records monthly for all the wrong reasons.

 

Yet....

 

A quick look at the stock markets shows no massive changes (Ok, the FTSE is down 10% since the start of the year but it's been half a percent daily rather than a trapdoor being opened). In addition, the FX markets don't seem to be moving much either.

 

"Everyone" now admits it's bad and that the debt needs to be paid down and no-one has yet credibly articulated how that might happen.

 

So why are the markets not in absolute despair? I thought markets moved between fear and greed? Which emotion are they showing now?

 

I'm seriously confused!

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The way the rulebook was ripped up to bail out the banks and car makers makes it difficult evaluate a investment based on the fundementals.

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So why are the markets not in absolute despair? I thought markets moved between fear and greed? Which emotion are they showing now?

There still is delusion and...

the-nile.jpg

... denial. The central banks have been sucessful in temporarily papering over the problem. If they continue to do so, then inflation will make it at some stage painfully obvious that nothing has been solved.

 

I will continue to accumulate gold, and I can see no reason whatsoever why I should stop doing this anytime soon.

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So why are the markets not in absolute despair? I thought markets moved between fear and greed? Which emotion are they showing now?

 

I'm seriously confused!

 

Because unfortunately the market can stay irrational longer than you can stay solvent ;)

 

 

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The difference is the PIIGS will be bailed out, so no one needs to worry... :blink: The markets started to turn, but reversed when the good news (cough, cough!) came out!

 

I must admit to feeling very much like a "bear of little brain" when it comes to the current situation in Europe, and I'd really appreciate it if any of you can explain what is going on?

 

It seems to me that everyone has suddenly woken up to the fact that the Greeks have been cooking the books (and to a lesser extent so have a few others), that the Spanish and Portuguese finances are also in parlous state. What makes these countries better will make Germany and France unwell, and vice versa. In Addition, the UK economy is about as bad as it's ever been and the government debt breaks new records monthly for all the wrong reasons.

 

Yet....

 

A quick look at the stock markets shows no massive changes (Ok, the FTSE is down 10% since the start of the year but it's been half a percent daily rather than a trapdoor being opened). In addition, the FX markets don't seem to be moving much either.

 

"Everyone" now admits it's bad and that the debt needs to be paid down and no-one has yet credibly articulated how that might happen.

 

So why are the markets not in absolute despair? I thought markets moved between fear and greed? Which emotion are they showing now?

 

I'm seriously confused!

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Up to 25 bln euros in aid mulled for Greece-magazine

 

BERLIN, Feb 20 (Reuters) - Germany's finance ministry has sketched out a plan in which countries using the euro currency will provide aid worth between 20 billion and 25 billion euros ($27-$33.7 billion) for Greece, a magazine reported on Saturday.

 

Citing "initial considerations" by the ministry, German weekly Der Spiegel said the share of financial aid for Greece would be calculated according to the proportion of capital each country holds in the European Central Bank.

 

 

Full article: http://www.reuters.com/article/idUSLDE61J0...ype=marketsNews

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[quote name='Paddles' date='Feb 19 2010, 12:07 AM' post='157338'

 

"Everyone" now admits it's bad and that the debt needs to be paid down and no-one has yet credibly articulated how that might happen.

 

So why are the markets not in absolute despair? I thought markets moved between fear and greed? Which emotion are they showing now?

 

I'm seriously confused!

In cartoons, the character runs off a cliff, and hangs there until he looks down, and realises where he is.

 

When he realises the reality, he begins to fall.

 

Markets put prices on assets, so they work like that

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So why are the markets not in absolute despair?

 

In an article in the Business section of the Daily Telegraph a couple of days ago, A.E-P. quoted some EU bod (name escapes me) as saying they were addressing market disquiet through the use of "constructive ambiguity" - Lol!

 

Fudge, in other words!

 

 

 

 

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Ambrose Evans-Pritchard

 

http://uk.finance.yahoo.com/news/greek-res...db8fb1.html?x=0

The escalating dispute came as a general strike in Greece spilled over into violent clashes between hooded youths and riot police in Athens. Chants of "burn the banks" are a foretaste of tensions once austerity measures bite in earnest later this year.

 

Public and private sector unions joined forces to bring the country to a standstill for 24 hours, halting flights, trains, and shipping, and shutting schools and hospitals.

 

Theodoros Pangalos, deputy prime minister, said Germany had no right to reproach Greece for anything after it devastated the country under the Nazi occupation, which left 300,000 dead. "They took away the gold that was in the Bank of Greece (Stuttgart: 910622 - news) , and they never gave it back. They shouldn't complain so much about stealing and not being very specific about economic dealings," he told the BBC.

 

Twisting the knife further, he said the current crop of EU leaders were of "very poor quality" and had botched this month's crisis summit in Brussels. "The people who are managing the fortunes of Europe were not up to the task," he said.

 

One banker said the situation was surreal. "How can they call the Germans incompetent Nazis and still expect a bail-out?"

 

Mr Panagalos has gone even further than premier George Papandreou, who said Greece had become a "guinea pig" for squabbling eurocracts playing power games.

 

Athenian rhetoric has confirmed fears in North Europe that the ruling PASOK party is still in denial about the crisis and will not deliver on promises. The insults have caused bitterness in Germany, increasing the possibility that Europe's paymaster will lose patience and leave Greece to its fate after all.

 

Hans-Werner Sinn, head of Germany's IFO economic institute, said Athens was holding Euroland to ransom, threatening to set off mayhem if there is no bail-out. "Greece should never have entered the euro zone because they did not qualify and they are now blackmailing other European countries via the euro. It's not for the EU to help Greece. We have an institution that is very experienced in bailing-out activities: the IMF," he said.

 

Dr Sinn said Europe should call Greece's bluff. If the euro falls, so much the better. "The euro is overvalued anyway. It is way out of line, and a weaker euro would be quite useful for Europe to stimulate exports."

 

Otmar Issing, former doyen of the European Central Bank, echoed the view in Germany's Bundestag on Wednesday, warning that a Greek rescue would "open the floodgates" for serial bail-outs and destroy EMU discipline. "The crisis is made in Greece. It is the result of bad policy, not outside forces like an earthquake."

 

Edgy investors have begun to question whether the EU really does have a support package up its sleeve. Spreads on 10-year Greek bonds over German Bunds rose to 332 basis points.

 

Greece's problems are mounting by the day. Fitch Ratings downgraded four of the largest Greek banks on Tuesday, fearing a double hit from the EU-imposed fiscal tightening 10pc of GDP over three years and withdrawal of ECB stimulus. Wealthy Greeks have reportedly shifted large sums to Cyprus, eroding the Greek deposit base.

 

Investors fear austerity protests could spread in Europe. Portuguese unions have called a general strike for early March. Spanish unions held marches in Madrid and Barcelona on Tuesday over pensions, but turnout was low.

 

The EU has always found ways to master crises over the last 60 years, and will most likely do so again, but this one feels different to EU veterans. Germany's top court has left doubts about the legality of any bail-out. There is deep resistance in both Germany and Holland to calls for an EU fiscal authority or debt union a quantum leap in EU integration.

 

Such a move would imply an open-ended guarantee for over 3trillion in Club Med debt, and a violation of the political contract behind EMU. Bavarian leader Edmund Stoiber once famously derided warnings that the euro would leave German taxpayers on the hook for foreigners as no more likely than "a famine in Bavaria". Pledges come back to haunt.

 

:blink:

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WOW! That's a useful reminder that the relations between member states in the EU zone are going to be seriously tested!

The bail-out is not a done deal yet. It isn't inconceivable that they let Greece default... and then let the cards fall where they may. Investors will panic out of the Euro... which will be good for trade [the EU needs to trade outside Europe not inside, and need a weaker currency]. But with club med sorted out, the Euro could well end up one of the strongest currencies in the end. Cheap Euros anyone?

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'We will not offer Greece a cent': German economy minister deals hammer blow to Athens as rioters attack police on the streets

 

 

Greece's centre-left government is seeking a total of 16billion euros in savings to reduce its bloated budget deficit of nearly 30billion euros.

The cuts are key in convincing bond markets to loan the country money and to win support from the EU.

 

'Greece will have to borrow and refinance with higher rates for a longer period of time,' he said.

 

'There is a European solidarity with Greece - at least in the euro zone - a solidarity that can be activated if the financial markets were not to acknowledge that the Greek government is acting systematically.

 

'The Greeks won't be left alone.'

 

Asked if this solidarity meant financial aid, Mr Juncker replied: 'No, we're not doing that.

 

'We are just saying to the financial markets "pay attention, we're not leaving the Greeks alone and we're not giving the Greeks the impression that we will simply pass money across the table".'

Greece dipped into the financial markets yesterday and drew strong demand for a crucial bond issue to raise some much needed cash.

 

But it is having to pay investors in the bonds a steep risk premium that underscored its plea to Germany and other EU countries for support to help it cut its debt mountain.

 

http://www.dailymail.co.uk/news/worldnews/...l#ixzz0hQepDWFW

 

 

 

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One german minister suggested they sell off some of their uninhabited islands. Another idea would have been to turn them into tax free jurisdictions a la Cayman islands etc but alas I doubt whether they could not do this because of EU reporting requirements. Having said that, Gibraltar and Monaco are not fully accountable to the EU regulatory regime.

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NO TEETH and No Bite (ie no willingness to bite)

 

Greece's current crisis—which has weakened the euro and sown concerns about the debt levels of some other European countries—shows Europe's political ambitions for a broad euro are clashing with economic realities. It also suggests Greece's economic success was partly a mirage created by misreported economic statistics.

 

This is a consequence of a weakness that economists and historians say was built into the common currency at birth: the lack of a coordinated fiscal policy to go with monetary union. From the beginning, the euro has been replete with unresolved tensions, says David Marsh, author of "The Euro," a 2009 book chronicling the birth of the currency. The currency union was seen by some politicians as a way to pull the EU toward political union; others, mainly in Germany, emphasized the need for fiscal and monetary rectitude.

 

Once a country is in the currency, little can be done to a wayward member because the euro's architects built in no real means of enforcement.

 

/more: http://online.wsj.com/article/SB2000142405...0234925746.html

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I read Greece has over 100 tons of Gold. Why does it not sell it to settle some of its debts?

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I read Greece has over 100 tons of Gold. Why does it not sell it to settle some of its debts?

It is most likely leased to the hilt already.

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112.4 tonnes of gold (75% of reserves) http://en.wikipedia.org/wiki/Gold_reserve#...d_gold_holdings

$405.7Bn of debt http://www.reuters.com/article/idUSTRE6212YZ20100302

 

Gold is worth $4Bn at $1110/toz. 1% of debt.

 

 

So is the plan to default on the debt, then wait for the eventual hyperinflation and then subsequently use whatever gold is left to create a reasonable economy based on sound money. Lol. That seems to be lot like what we all are planning to do. Is it not? :P

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