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Euros are in a muddle for the next decade
alonso
post Posted: Jan 12 2013, 09:08 AM
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A BBC doco worth a listen discusses the shift in the power centre of the EU to the east and the emergence of the Berlin-Warsaw axis (axis ia something of a loaded word). The eastern bloc EU members have a combined population of about 100 million and have a more free market orientation, according to this report, whereas the old western bloc centred on France-West Germany had, and still has in the case of France & its neighbours, a more leftist regulation orientation.
The power shift has big implications for the future of the EU and perhaps its trade policy.

http://downloads.bbc.co.uk/podcasts/worlds...30108-0905a.mp3



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"The optimist proclaims that we live in the best of all possible worlds. The pessimist fears this is true"

"What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom." Adam Smith

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alonso
post Posted: Jan 8 2013, 01:49 PM
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Euro crisis is over, Commission chief says DateJanuary 8, 2013 - 11:05AM

The euro has been saved and the euro crisis is a thing of the past, European Commission president Jose Manuel Barroso has declared.

But his optimistic comments and the prospect of looser rules for banks failed to lift markets, which ended a strong run of recent gains.

''I think we can say that the existential threat against the euro has essentially been overcome,'' Mr Barroso said in Lisbon. ''In 2013 the question won't be if the euro will, or will not, implode,'' he said.

Mr Barroso has maintained an optimistic stance throughout the crisis, but his comments were in sharp contrast to the new year's message from German chancellor Angela Merkel, who told TV viewers last week that the currency zone faced another rocky 12 months.

City analysts are also deeply concerned that austerity measures demanded by Brussels as the price of bailout funds would lead to prolonged recessions in periphery countries and the need for steeper spending cuts.

Cuts to essential public services in Spain, Italy, Greece and Portugal are expected to increase unemployment and lead to further social unrest. Protests on the streets of Madrid on Monday highlighted the tensions inside the euro area after banner-waving protesters blamed Brussels, Berlin and the right of centre PP government of Mariano Rajoy for privatisations and cuts in healthcare spending.

Elga Bartsch, an analyst at Morgan Stanley, said she was anxious that Mr Barroso and his colleagues in Brussels would fail to resolve long-running disputes over the EU's new institutions.

''The euro crisis seems contained for now. But we think it is not resolved for good. In addressing the fundamental flaws in the euro's institutional set-up, progress on banking union will be key. Assuming no crisis escalation, the euro area should re-emerge from recession and return to sub-par growth. Politics is the main risk,'' she said.

Political deadlock, which has also characterised the reform agenda in Washington and Tokyo, could allow social unrest to grow and wreck any coherent reform plans, she said. ''An extended recession, diverging political positions and several elections create a difficult backdrop for in-depth reforms. We therefore expect only limited progress on an effective resolution of the crisis this year. We believe that progress on banking union, where preparations are under way for a Single Supervisory Mechanism (SSM) and where discussions continue on harmonising, and possibly pooling, bank resolution and deposit guarantee schemes, will be key.''

Ms Merkel faces a general election in the autumn against a resurgent Social Democratic party (SPD) while the Italians are expected to go to the polls next month in an election that could see a revived Silvio Berlusconi with enough votes to block reform measures.

Global stock markets, which have warmed to the message that the euro crisis is abating, drifted lower as some investors sought to cash in on last week's strong gains and worries grew of more political brinkmanship in Washington.

Major indices surged last week after the US Congress passed a bill to avoid a ''fiscal cliff'' combination of government spending cuts and tax increases. The deal, however, remains incomplete. Politicians will face another deadline in two months to agree on more spending cuts while a debate over the country's $US16 trillion debt ceiling is also looming.



Read more: http://www.smh.com.au/business/world-busin...l#ixzz2HLsmWT4G
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Mr Barroso is kidding himself isn't he? Well probably not, he's got to be smarter than that. And there's nothing wrong with
being an optimist. But most of Europe knows they have big problems and even Frau Merkel, coming up to an election which
will be difficult for her to win, is open & upfront about the outlook.



--------------------
"The optimist proclaims that we live in the best of all possible worlds. The pessimist fears this is true"

"What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom." Adam Smith

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triage
post Posted: Dec 29 2012, 08:49 AM
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Crisis? What crisis?

http://www.reuters.com/article/2012/12/28/...E8BR05Q20121228

At the risk of sounding defensive I have to point out that just because "it" didn't happen this year does not mean that the probability that it would happen this year was overestimated. But sometimes shit does not happen, and even when the probability of something happening is as high as 90% quite often that something will not happen.

I do think that the journo makes the mistake of assuming that it took something big, like Draghi going the full monty or Angela blinking, to avert the crisis and that it will take something big to eventually bring on the crisis. The reading I've done about complex systems suggest to me that it does not take a really big grain of sand to fall to cause a really big avalanche. The euro crisis did not happen this year because a whole bunch of decisions and events fell the right way to maintain the status quo. But surely the euro system is unstable and unsustainable in its current form and the chances are that sooner or later a single grain of sand will be dislodged that will trigger a real crisis.

But that is not to get away from the fact that anyone who placed an unhedged bet on the timing of the crisis being sometime in 2012 have been taken to the cleaners.



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"The market can stay irrational longer than you can stay solvent." John Maynard Keynes

"The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought." Rudiger Dornbush

"It is the mark of an educated mind to be able to entertain a thought without accepting it." Aristotle

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Nick1970
post Posted: Dec 26 2012, 10:35 AM
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In Reply To: triage's post @ Dec 25 2012, 04:19 PM

Thanks triage - enjoyed that doco.




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triage
post Posted: Dec 25 2012, 04:19 PM
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Some holiday viewing: this BBC documentary about the travails of Spain "feels" a bit dated but actually only came out earlier this month. It seems to arrive at one conclusion, that it is the euro that is at the core of Spain's problems, but it does not even attempt to explore any viable solution.

It identifies three things that contributed to Spain being the trainwreck it is today: fairly autonomous regional governments that were given enough space to behave irresponsibly, fairly unregulated unrestrained regional financial instututions and a freeing up of town planning rules that allowed an explosion of construction to occur. Together with the easy access to cheap credit that joining the EU gave Spanish entities these were enough to cause systemic havoc even though the national government of Spain was one of the better behaving governments in the EU. Nowadays the euro is offering the type of support to Spain that the noose offers to a hanged man in that it is preventing Spain from devaluing itself back into being competitive.

The program ends with the suggestion that if Spain continues on with the euro this may put unsustainable pressure on the unity of the country, with the possibility of the richest region, Catalonia, which has its own language (and football team), breaking away.

http://www.youtube.com/watch?v=ldu8X_UQPRA

I was not aware that modern Spain is as new as modern China (Franco only carked it a year before Mao).

h/t markco2 on hc



--------------------
"The market can stay irrational longer than you can stay solvent." John Maynard Keynes

"The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought." Rudiger Dornbush

"It is the mark of an educated mind to be able to entertain a thought without accepting it." Aristotle

Said 'Thanks' for this post: Nick1970  
 
Dave_vic_ozz
post Posted: Dec 12 2012, 07:36 AM
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In Reply To: sette's post @ Dec 12 2012, 06:49 AM

Agree and agree.

BUT - Rejection hurts. The rest of the EU would be horrified. Little gain long term, surely?

Dave



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My comments reflect the moment in which they were posted.
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sette
post Posted: Dec 12 2012, 06:49 AM
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This is for Dave,
http://www.theage.com.au/business/montis-e...1211-2b7oc.html

Again proof that things are much more complicated than we think. We underestimate the volume of private wealth in Europe and our thinking is very superficial at times.

 
nipper
post Posted: Dec 3 2012, 07:47 PM
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QUOTE
Merkel Signals Debt Write-Off Possible as Buyback Begins By Patrick Donahue - Dec 3, 2012

Chancellor Angela Merkel opened the possibility that Germany may ultimately accept a write-off of Greek debt, as policy makers this week attempt to engineer a buyback that's crucial for Greece to receive more funding.

With Greece announcing bids today to repurchase bonds issued earlier this year, Merkel told Bild newspaper yesterday that euro leaders might consider writing off debt once the country has a budget surplus. Germany has until now ruled out such a scenario as violating European Union treaties.

Greece one day can rely once again on its own revenue, without having to borrow, then we'll have to look at this situation and make an evaluation," German Chancellor Angela Merkel told Bild am Sonntag in an interview when asked about the prospect of debt forgiveness.

"If Greece one day can rely once again on its own revenue, without having to borrow, then we'll have to look at this situation and make an evaluation," Merkel told Bild am Sonntag in an interview when asked about the prospect of debt forgiveness. It wouldn't happen before 2014 or 2015, "if everything goes according to plan," the chancellor said.

The shift on Greece's mounting indebtedness, which triggered Europe's debt crisis three years ago, signals a growing consensus that a Greek exit could doom the 17-member single currency. German lawmakers approved the latest package to alleviate Greece's burden after Finance Minister Wolfgang Schaeuble said a default could foreshadow the euro's collapse.

Merkel's signal of openness to eventual debt forgiveness marks "the end of denial," Carsten Brzeski, an economist for ING Groep in Brussels who, said in a phone interview. "It's definitely a shift, but on the other hand, it's obvious," said Brzeski, who called an eventual debt writedown inevitable.

Extra Time
Last week's agreement by European finance ministers to give Greece more time to meet its debt targets helped ease concerns over the crisis. Spanish 10-year bonds posted a third monthly gain, with yields sliding last week to 5.3 percent from 5.6 percent. The euro rose almost 2 percent in two weeks.

EU finance ministers will meet again in Brussels today as Greece starts the repurchase operation. The Public Debt Management Agency in Athens announced an offer to spend as much as 10 billion euros ($13 billion) to buy back bonds, swapping them for six-month bills issued by the euro area rescue fund.

Greek debt rallied after the buyback specifics were published. Ten-year yields fell 41 basis points to 15.7 percent, the lowest in more than 15 months.

The transaction lies at the center of new measures aimed at helping scale back Greece's debt load to a level policy makers consider sustainable: 124 percent of gross domestic product by 2020, down from a projected 144 percent if policy makers hadn't acted.

The complex repurchase measure accounts for 11 percentage points, or more than half, of that drop, according to a letter Schaeuble wrote to German lawmakers Nov. 28. Should it fail, Greece's creditors will have to go back to the negotiating table and try something else, Schaeuble said last week.

New Bonds
What constitutes sustainable debt has spawned tension between the EU and the IMF. IMF Managing Director Christine Lagarde, who has taken a harder line on the 2020 target, said the fund's contribution to the next aid tranche will hinge on the success of the buyback.

The repurchase will target about 62 billion euros of new bonds issued as part of a swap of privately held debt earlier this year, the biggest debt restructuring in history, according to a draft troika report. Greek banks hold some 15 billion euros of those bonds, while the country's pension funds hold 8 billion euros.

The success of the measure, considered risky because of bondholders' reluctance to part with securities they might be able to hold to maturity, could rest with cajoling Greek banks to participate, ING's Brzeski said. Greek Finance Minister Yannis Stournaras has called the repurchase voluntary.

'Peer Pressure'
"It can only work if there is some kind of peer pressure on the Greek banks," Brzeski said, estimating that that alone could take 20 billion euros in Greek debt off the market.

The amount to be raised has been left open, giving an element of leeway for euro policy makers and freeing them to fill in the blanks after the buyback ends. European Union Economic and Monetary Affairs Commissioner Olli Rehn told reporters in New York on Nov. 30 that he was refraining from giving an "explicit target figure" for the repurchase.

While Greece has gotten pledges for 240 billion euros of aid, the funds have been frozen since June as the government tries to get its bailout program back on track after it was disrupted by two elections and a deepening recession.

The efforts to wrest Greece from collapse is part of a move toward moderation among leaders in northern Europe who earlier led a drive of austerity measures and often flirted with the prospect of expelling the country. Merkel's visit to Athens in October ushered in a period of detente.

"The idea that Greece would have to leave the euro against its will would still cost us much more money than the path we've chosen -- and cause great harm to our economy," Merkel told Bild in yesterday's interview. "We need to avoid all this uncertainty."


http://www.bloomberg.com/news/2012-12-02/m...es-buyback.html


Merkel's signal of openness to eventual debt forgiveness marks "the end of denial". (or , more likely, the beginning of the end of denial)



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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time."
- Dr John Hussman
 
triage
post Posted: Dec 3 2012, 09:34 AM
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Here is a recent blogentry and a link to an article by the (moderately right of centre) US economist Tyler Cowen. His prognosis is that things will likely just muddle along for some time, with some debt foregiveness needed for a "positive" resolution (which apparently he thinks an unlikey development).

http://marginalrevolution.com/marginalrevo...one-doomed.html

What he describes where the reaction to improving conditions is for the pollies to slacken off and the reaction to souring conditions is for the pollies to do enough to pull things back from the brink seems to me to be a classic example of the "reflexivity" that George Soros uses to explain how markets work. According to that theory things often don't develop as expected because people see what is developing and change their behaviour which in turn changes how things develop.



--------------------
"The market can stay irrational longer than you can stay solvent." John Maynard Keynes

"The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought." Rudiger Dornbush

"It is the mark of an educated mind to be able to entertain a thought without accepting it." Aristotle

Said 'Thanks' for this post: Dave_vic_ozz  
 
bam_bamm
post Posted: Nov 30 2012, 12:29 PM
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In Reply To: nipper's post @ Nov 30 2012, 11:45 AM

QUOTE
Key events to keep an eye out for over the next week

Sound like more gabfests to me.



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