View topic - Death Knell of the Euro • Redscape

: rickyp; Statesman; Posts: 11324; Joined: 15 Aug 2000, 8:59 am

09 Nov 2011, 4:23 pm

dan

There is more to it than simple 'living beyond your means' arguments

One thing that you havbn't addressed is that it used to be easy for a country to make themselves more competitive in trade simply by lowering the value of their currency. Now it happens as a matter of course, except in China. By tieing together under the Euro, Greece and the others have lost this flexibility.

: danivon; Ambassador; Posts: 15994; Joined: 15 Apr 2004, 6:29 am

09 Nov 2011, 4:36 pm

True enough (although it should be pointed out that the Euro being weaker than the Mark might be provides great benefits to Germany, which the Germans are conveniently forgetting as they lecture everyone else on prudence).

Clearly what is a possible outcome (based on the reports today) is a combination of Mach's prediction and my alternative proposition. The Eurozone will lose a country or so, but won't completely implode, and the remainder will be much more fiscally united.

The Euro wouldn't be the same as before, but it would not die either. Of course, greater fiscal union would have been a better idea from the off, but I think people were looking back to the German currency unions of the mid-1800s and assuming that it wasn't necessary.

: Sassenach; Emissary; Posts: 3405; Joined: 12 Jun 2006, 2:01 am

10 Nov 2011, 2:48 pm

I'd strongly recommend everybody to have a read of this:

http://www.spiked-online.com/index.php/ ... icle/11388

Dan will hate it because of the site it came from, but I personally think it's the most interesting piece of commentary I've seen on the Euro crisis to date. There are some very scary political implications to this which are currently being overlooked, but shouldn't be.

: Machiavelli; Emissary; Posts: 7378; Joined: 16 Feb 2000, 9:55 am

10 Nov 2011, 4:08 pm

Note one of my very first posts in this thread, Dan. I continue to stand by it (though I reckon Belgium is no longer part of "strong" Europe). It would appear that you are coming around to agreement with me:

Machiavelli wrote:My best guess is that the more stable countries of northern Europe (Germany, Benelux (possibly exluding an independent Flanders), Denmark (even though it isn't currently a Euro user) and possibly Finland and one or two of the Baltic states) will end up in a currency union essentially dominated and directed by Germany. It's possible that France may somehow hang in with Germany for at least a few more years, or it may head up a second currency union (though why anyone would want to be part of it is beyond me). If that constitutes "survival" of the Euro, then I suppose the Euro will survive. It's very hard for me to see how a pan-European currency union, including the PIIGS, France and the less stable economies of the former east bloc and Germany/Benelux can possibly continue much longer.

: Machiavelli; Emissary; Posts: 7378; Joined: 16 Feb 2000, 9:55 am

10 Nov 2011, 7:04 pm

Then there's this--consistent with what I've been hearing lately.

Who could possibly have foreseen this?

: Archduke Russell John; Dignitary; Posts: 3239; Joined: 29 Jan 2003, 9:54 am

10 Nov 2011, 8:59 pm

Did I see a headline that had an Italian Minister saying if the ECB and/or Germany didn't bail Italy out they would pull out of the Euro?

: danivon; Ambassador; Posts: 15994; Joined: 15 Apr 2004, 6:29 am

12 Nov 2011, 4:33 am

Italy has a strong economy, but a weak governmental system. The other Eurozone countries won't want it to leave.

Mach, you are clearly predicting a much smalller Euro, and I think you go too far. I expect even with reduction in members, at least 2 of the PIIGS will remain. The last week or so has been worrying, but also seems to have provoked a reaction. Brinkmanship will playn a part, but we all know that most brinkmen don't wantto have their bluff called.

: Machiavelli; Emissary; Posts: 7378; Joined: 16 Feb 2000, 9:55 am

12 Nov 2011, 8:57 am

Which two of the PIIGS do you see as continuing with the new, leaner Euro? I don't see it--all seem to have pretty serious structural problems that will make it hard for them to stay tied to the German juggernaut--but I'd be interested in your take. Indeed, as I said early on in this discussion, I think France will have trouble hanging in (especially after it has to come to the rescue of its banks--leaving it in a situation very analogous to that Ireland faced).

: danivon; Ambassador; Posts: 15994; Joined: 15 Apr 2004, 6:29 am

12 Nov 2011, 9:56 am

Italy and Spain at least. Ireland is over the worst, too.

Germany is not as safe as many think, as it has banks of its own with exposure, so like it or not the Germans will stay in and not cut loose the big countries. They will also want to ensure that either the likes of Greece and Portugal stay in, or they can be cut off from the Euro without hitting Italy or Spain.

: Machiavelli; Emissary; Posts: 7378; Joined: 16 Feb 2000, 9:55 am

12 Nov 2011, 7:09 pm

Agree Ireland is probably over the worst--at least internally. I think Germany will find it easier to bail out its banks than its neighbors. Problem with Italy is that it just keeps going deeper in the hole--if nothing else it's very ugly demographic curve will ensure that. Spain's a coin toss, IMHO, but if Italy goes the way of Greece (which I think it will), Spain doesn't really matter. Note also that France is looking none too stable. It's banks are among the shakiest in Europe and have liabilities of something like three times French GDP. If they suffer a major write-down on their large exposure to PIIGS sovereign debt, France will be another Ireland.

: Machiavelli; Emissary; Posts: 7378; Joined: 16 Feb 2000, 9:55 am

13 Nov 2011, 12:23 am

Another point worth making is that all of the PIIGS are dependent on constantly rolling debt. As it becomes more and more obvious that they are unlikely to repay that debt, their access to credit markets will quickly dwindle and they will, quite literally run out of cash. If the ECB declines to monetize those nations' debt (that is, to print money to buy their bonds), they'll collapse pretty quickly. There just doesn't seem to be much time for wholesale structural changes.

: Archduke Russell John; Dignitary; Posts: 3239; Joined: 29 Jan 2003, 9:54 am

25 Nov 2011, 9:36 am

I saw this article yesterday about the German bonds. Is this as big as I think it is? As I understand it, the German economy is supposed to be the glue keeping things together. If they are having problems selling bonds, what does that do?

Also, I remember a few months ago there was talk about tighter political integration to handle the financial issues. Did that agreement ever come about?

: danivon; Ambassador; Posts: 15994; Joined: 15 Apr 2004, 6:29 am

25 Nov 2011, 11:27 am

There is likely to be a proposal soon on treaty changes, which I think is likely to mean more integration within the Eurozone.

I think that the bond sale not being fully subscribed might help to convince the Germans to accept some QE from the ECB, which until now they've been pretty set against.

: Machiavelli; Emissary; Posts: 7378; Joined: 16 Feb 2000, 9:55 am

26 Nov 2011, 7:41 pm

Your foreign ministry does not appear to be as confident of the Euro's future as you do, Dan.

: danivon; Ambassador; Posts: 15994; Joined: 15 Apr 2004, 6:29 am

27 Nov 2011, 10:54 am

Well, they'd be stupid not to put contingencies in place, given that there have been riots in Greece already.

To be honest, I've been less than impressed by the UK government on this, with public pronouncements that are not really helpful, and saying that they would back a transaction tax in principle (following Archbishop commentary) before coming out as dead set against it when the Europeans put it forward.

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Death Knell of the Euro