The European Debt Crisis and the Euro - Page 55

On January 14 2012 22:56 Rassy wrote:
Interest is only so low becasue the fed buys 90% of the us bonds themselves lol (with monney they dont have, but create)
If you look up who owns the us foreign debt you will see that the fed owns like 90% of it, china owns 9% of it, and 1% is owned by other countrys/ investors/banks

How can debt ever be a problem when you can just print monney to pay it off.
The monney is just slowly devaluating.

On January 14 2012 23:10 paralleluniverse wrote:

Yes. Nearly all of the US debt is held by US citizens, so it's money the US owes itself in some sense. Governments don't really need to pay off debt in the traditional sense since economic growth and inflation washes away the value of the debt. And the Fed is rightly keeping interest rates low to make it easier to borrow and stimulate the economy, but they seem to have hit a snag at the 0 lower bound.

[toB]On January 14 2012 23:12 Lightwip wrote:
I think that this could compare to the Argentina crisis in which Argentina started guaranteeing a one for one exchange rate for their peso and the US dollar.
Losing monetary policy sucks when the dollar isn't doing well for a weaker country copying a strong one.

On January 14 2012 23:21 Robinsa wrote:

By Citizens I take it you mean banks. How is that different from Europe ? Im pretty sure at least 20-30% of the american debt is owned by foreign governments. Would be cool if anyone could find some figures.
Its proboably not bad if it doesnt do well. The real problem starts when it does well but youre not.

On January 14 2012 23:26 paralleluniverse wrote:

Here's a graph. Debt owed to foreign governments is miniscule.

http://krugman.blogs.nytimes.com/2011/12/28/debt-is-mostly-money-we-owe-to-ourselves/

And as I said in my previous post (http://www.teamliquid.net/forum/viewmessage.php?topic_id=114227&currentpage=54#1076) and as S&P has cited today, government debt isn't the cause of the European Debt Crisis, the cause is private debt, loss of comepetitiveness in exports (due to Germany), and one size fits all monetary policy by the ECB.

On December 02 2011 01:22 radiatoren wrote:


well newest news is that German short term bonds are sold at negative interest rates and Germany is therefore making money for lending them (now dragons will spawn and the five horsemen will make black holes in CERN. It is paradoxical!). Same goes for Switzerland as the only other country in the world.

A few blissful words from the biggest central banks in the world has stabilized the markets a lot. Even Italian bonds are taking a nosedive in interest rate.

It seems that part of the crisis is something the right people can make disappear with a nodge. Now the thing is more about starting the growth in economy again.

HOW DO WE INTERPRET THE CONCLUSIONS OF THE DECEMBER EUROPEAN SUMMIT?

We have previously stated our belief that an effective strategy that would
buoy confidence and lower the currently elevated borrowing costs for European
sovereigns could include, for example, a greater pooling of fiscal resources
and obligations as well as enhanced mutual budgetary oversight. We have also
stated that we believe that a reform process based on a pillar of fiscal
austerity alone would risk becoming self-defeating, as domestic demand falls
in line with consumer's rising concerns about job security and disposable
incomes, eroding national tax revenues.

The outcomes from the EU summit on Dec. 9, 2011, and subsequent statements
from policymakers, lead us to believe that the agreement reached has not
produced a breakthrough of sufficient size and scope to fully address the
eurozone's financial problems. In our opinion, the political agreement does
not supply sufficient additional resources or operational flexibility to
bolster European rescue operations, or extend enough support for those
eurozone sovereigns subjected to heightened market pressures. Instead, it
focuses on what we consider to be a one-sided approach by emphasizing fiscal
austerity without a strong and consistent program to raise the growth
potential of the economies in the eurozone. While some member states have
implemented measures on the national level to deregulate internal labor
markets, and improve the flexibility of domestic services sectors, these
reforms do not appear to us to be coordinated at the supra-national level; as
evidence, we would note large and widening discrepancies in activity and
unemployment levels among the 17 eurozone member states.

Regarding additional resources, the main enhancement we see has been to bring
forward to mid-2012 the start date of the European Stability Mechanism (ESM),
the successor vehicle to the European Financial Stability Fund (EFSF). This
will marginally increase these official sources' lending capacity from
currently €440bn to €500bn. As we noted previously, we expect eurozone
policymakers will accord ESM de-facto preferred creditor status in the event
of a eurozone sovereign default. We believe that the prospect of subordination
to a large creditor, which would have a key role in any future debt
rescheduling, would make a lasting contribution to the rise in long-term
government bond yields of lower-rated eurozone sovereigns and may reduce their
future market access.

We also believe that the agreement is predicated on only a partial recognition
of the source of the crisis: that the current financial turmoil stems
primarily from fiscal profligacy at the periphery of the eurozone. In our
view, however, the financial problems facing the eurozone are as much a
consequence of rising external imbalances and divergences in competitiveness
between the EMU's core and the so-called "periphery." In our opinion, the
eurozone periphery has only been able to bear its underperformance on
competitiveness (manifest in sizeable external deficits) because of funding by
the banking systems of the more competitive northern eurozone economies.
According to our assessment, the political agreement reached at the summit did
not contain significant new initiatives to address the near-term funding
challenges that have engulfed the eurozone.

The summit focused primarily on a long-term plan to reverse fiscal imbalances.
It proposed to enshrine into national legislation requirements for
structurally balanced budgets. Certain institutional enhancements have been
introduced to strengthen the enforceability of the fiscal rules compared to
the Stability and Growth Pact, such as reverse qualified majority voting
required to overturn sanctions proposed by the European Commission in case of
violations of the broadly balanced budget rules. Notwithstanding this
progress, we believe that the enforcement of these measures is far from
certain, even if all member states eventually passed respective legislation by
parliaments (and by referendum, where this is required). Our assessment is
based on several factors, including:


The difficulty of forecasting reliably and precisely structural deficits, which we expect will likely be at the center of any decision on whether to impose sanctions;
The ability of individual member states' elected governments to extricate themselves from the external control of the European Commission by withdrawing from the intergovernmental agreement, which will not be part of an EU-wide Treaty; and
The possibility that the appropriateness of these fiscal rules may come under scrutiny when a recession may, in the eyes of policymakers, call for fiscal stimulus in order to stabilize demand, which could be precluded by the need to adhere to the requirement to balance budgets.

Details on the exact content and operational procedures of the rules are still
to emerge and -- depending on the stringency of the rules -- the process of
passing national legislation may run into opposition in some signatory states,
which in turn could lower the confidence of investors and the credibility of
the agreed policies.

More fundamentally, we believe that the proposed measures do not directly
address the core underlying factors that have contributed to the market
stress. It is our view that the currently experienced financial stress does
not in the first instance result from fiscal mismanagement. This to us is
supported by the examples of Spain and Ireland, which ran an average fiscal
deficit of 0.4% of GDP and a surplus of 1.6% of GDP, respectively, during the
period 1999-2007 (versus a deficit of 2.3% of GDP in the case of Germany),
while reducing significantly their public debt ratio during that period. The
policies and rules agreed at the summit would not have indicated that the
boom-time developments in those countries contained the seeds of the current
market turmoil.

While we see a lack of fiscal prudence as having been a major contributing
factor to high public debt levels in some countries, such as Greece, we
believe that the key underlying issue for the eurozone as a whole is one of a
growing divergence in competitiveness between the core and the so-called
"periphery." Exacerbated by the rapid expansion of European banks' balance
sheets, this has led to large and growing external imbalances, evident in the
size of financial sector claims of net capital-exporting banking systems on
net importing countries. When the financial markets deteriorated and risk
aversion increased, the financing needs of both the public and financial
sectors in the "periphery" had to be covered to varying degrees by official
funding, including European Central Bank (ECB) liquidity as well as
intergovernmental, EFSF, and IMF loans.

http://www.standardandpoors.com/ratings/articles/en/us/?articleType=HTML&assetID=1245327305715

Greece will not cede control over its budget to the European Union as has been proposed by Germany as a condition for a second bailout, Greek government sources have said.

"There is effectively a 'non-paper' that was presented to the Eurogroup," one of the sources said on Saturday, referring to reports that Germany had submitted a proposal to have the eurozone assume control over the Greek budget before it receives a new bailout.

"Greece will not discuss such a possibility," said the source. "It is out of the question that we would accept it, these are matters of national sovereignty."

Al Jazeera’s Andrew Simmons, reporting from Davos, said the possibility of the EU having any oversight of a member-state's buget has huge implications for the future of the European bloc.

"This [condition] caused outrage in Greece and consternation in EU in general. Basically, the EU would be taking over the budget and telling the Greeks what they can do and they can't do," Simmons said.

"What their saying in Greece point blank is: you can't do this," he added.

Earlier, UK's Financial Times newspaper said it had obtained a copy of the proposal showing Germany wanted a new eurozone "budget commissioner" to have the power to veto budget decisions taken by the Greek government if they were not in line with targets set by international lenders.

"Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time," the document said.

Under the German plan, Greece would only be allowed to carry out normal state spending after servicing its debt, the Financial Times said.

On January 15 2012 15:52 paralleluniverse wrote:
A follow up on my last post (http://www.teamliquid.net/forum/viewmessage.php?topic_id=114227&currentpage=54) about the European's getting the cause of the crisis completely wrong.

Here's what S&P said about why they downgraded European credit ratings.



Seems like S&P has competent macroeconomists.

I've been hearing that the real solution to this crisis is for the ECB to lend to indebted countries at low rates, and policy to increase the competitiveness of periphery European countries (such as Portugal, Spain, Italy, Greece, etc) such as decreasing real wages through inflation, as well as a fiscal union.

Any rebalacing in the trade deficits, which S&P says is a large part the cause of the crisis, would be bad for countries with high surplus, like Germany, which is why Merkel isn't going for it, she prefers austerity, because it doesn't hurt Germany.

Crisis talks on a debt deal for Greece among the three leaders of parties supporting the coalition government has been suspended.

After five hours of discussions, Lucas Papademos, the Greek prime minister, said the talks would continue on Monday, saying that they had however reached an agreement on many issues.

Greece is racing to finalise austerity steps needed for a new 130 billion euro bailout without which it would face bankruptcy in late March.

That included measures to cut wages and non-labour costs to make the Greek economy more competitive and spending cuts worth 1.5 per cent of gross domestic product this year, the prime minister said.

Leaders must respond to proposals made by the country's international lenders for a new bailout deal by noon (10:00 GMT) on Monday, a spokesman for the PASOK socialist party said on Sunday.

"Political leaders should give a response in principle tomorrow afternoon [to the European Union]," Panos Beglitis said.

They would later discuss the plan by the "troika" of international lenders at a meeting chaired by Papademos.

Papademos had called the emergency meeting after Finance Minister Evangelos Venizelos warned that the government has only until Sunday night to produce a second financing package.

Venizelos made the statement after eurozone ministers threatened to cut off funds if Greece offers no proof of reforms. He said the moment is crucial, and that Greece is "on a knife edge".

A technocrat appointed in November, Papademos is trying to convince lenders and politicians to sign off on the bailout and ensure cash-strapped Greece avoids sinking into a chaotic default when big bond redemptions are due next month.

Papademos's first mission on Sunday was to at least agree to a preliminary deal with the "troika" of foreign lenders on reforms included in the bailout, after several days of talks failed to resolve the issue of cutting wages and spending.

Al Jazeera's John Psaropoulos, reporting from the capital Athens, said "the political leaders are still trying to find a formula for effectively horse-trading one concession for another gain."

On January 29 2012 06:10 BrTarolg wrote:
FYI, every bank i know is preparing for a currency switch right now

On February 06 2012 10:17 Rassy wrote:
So what you all think will happen?
Default or rescue (greece)
Time is running out and "everyone" always thought that greece would be saved in the end (at least i did think that)
Now since the past 3 days i am beginning to doubt and to think there is a serious risk that they will let greek default.
The other option is rescue now with huge sacrifices made by the greeks
But then there elections in april wich will definatly lead to a verry left wing government which might turn it back again due to social turmoil
For the first time i am beginning to see default as the most serious option,
The banking system seems to be made ready for it with the huge loans the ecb gave them and will give in the near future
(the 500 trillion and 1000 trllion to come)

would be nice to add a poll maybe, though i am not sure how to.
I would guess that they will let greek go bankrupt and out of the emu even though i agree it seems highly unlikely that the people in power are willing to take a step back with globalisation, it seems the only option now to prevent worse.

edit: monday 6th feb.
And another day passed without agreement, meeting greek ministers broke up to continue tomorrow.
Greek is now officially to late to get an agreement.
Greek unions are calling for a strike.
If whole country goes on strike for 1 week, thats 2% of gdp -.-

On February 09 2012 07:55 vetinari wrote:
Greece will have to default and leave the euro. Its going to be chaos for them, but staying in the euro is economic suicide, because austerity during a recession is unbelievably retarded.

On February 09 2012 07:58 Hider wrote:


If labour markets were very flexible they could continue staying in the euro. But since the labour markets aren't able to accept that wages need to be lower, and some people need to befired, the country would benefit from a devalulation of the currency.

So while austerity is the solution to the problem of too much spending, the crises will be prolonged when unions has too much power, and government insitutions interfer with the market.

On January 14 2012 23:21 Robinsa wrote:

By Citizens I take it you mean banks. How is that different from Europe ? Im pretty sure at least 20-30% of the american debt is owned by foreign governments. Would be cool if anyone could find some figures.

On February 09 2012 07:58 Hider wrote:


If labour markets were very flexible they could continue staying in the euro. But since the labour markets aren't able to accept that wages need to be lower, and some people need to befired, the country would benefit from a devalulation of the currency.

So while austerity is the solution to the problem of too much spending, the crises will be prolonged when unions has too much power, and government insitutions interfer with the market.