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| Eurozone: make or break? | |
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| Topic Started: Nov 18 2011, 12:20 AM (577 Views) | |
| FuckBuddy | Nov 18 2011, 12:20 AM Post #1 |
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Pensioner
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with recent dramatic developments involving italy and now affecting spain and france, do u think the euro has a future? a year ago greece and to a far less extend portugal and ireland were blamed for all problems concerning the common currency. it now appears the problem's way deeper. am i being too naive to assume germany has trapped the whole of europe into a death spiral for their own merit and the british were too clever not to be involved in this scheme in the first place? discuss |
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| Riverwide | Nov 18 2011, 12:30 AM Post #2 |
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It appears that Britain was certainly right not to join the Euro. Right from the start, they always said that countries with such dramatic difference in economies, could never successfully share the same currency. But surely Germany must have known this was going to be the case also? They aren't fools, or did they simply assume that all other countries would be as fiscally astute and restrained as they are. If so...big mistake! The thing is, if the Euro goes down, then Britain will be dragged down too, so it's not as if they're immune to all this crisis. I really have no idea what way this whole thing is going to turn out. It's insane. At least the heat is kind of off Greece for the moment I suppose?
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| FuckBuddy | Nov 18 2011, 12:59 AM Post #3 |
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um, not really. if anything, the climate hints we're about to exit the euro any time soon this is saddening not just because we greeks as a nation are gonna be doomed for decades to come-maybe some would reckon we had it coming and it was our own fault for voting those bound to destroy the country-i could actually second to that. it's just that i'm being romantic when it comes to such issues. i thought that as europeans we kind of share the same cultural and ethical values and stick to each other just like a married couple vows to stay united for better or worse. little did i know. |
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| Riverwide | Nov 18 2011, 01:08 AM Post #4 |
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I used to think the same too. I just don't get it. I keep hearing that the European Central Bank could end this entire crisis in a few weeks if it wanted to, yet nobody is doing anything about it. We hear lots of talk from Merkel and Sarkosy, but it's always way too late by the time they act. This crisis has been allowed to spiral out of control by the inactivity of the big politicians. Even now, they could force the ECB to step in, but they won't. Is there something they aren't telling us? Does someone(or a few people) actually WANT this all to happen for some reason? It's just madness. I'm so shocked that it's been allowed to get this bad. As you say though, each country has to share the blame themselves. The Greeks for electing bad politicians and we Irish voted in absolute greedy scum for years. Italy elected Berlusconi etc. It's interesting that in Italy the new Primeminister has assembled a group of economists around him, not politicians. In some ways, that's hugely undemocratic, but then the politicians are shit too, so perhaps some change is better than nothing. Fuck it though, what can any of us do about it? Sweet fuck all.
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| FuckBuddy | Nov 18 2011, 01:46 AM Post #5 |
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we all can do something about it, i think. it's called support. though jobless, i have to pay an emergent tax of 2000euros by the end of the year just because my parents had worked their asses off to buy property in the past decades. what's even more insane is that i don't get to have an income out of that property as nobody's attempting to rent it.... and yes, riv, i think this european crisis was planned from the get go. it really is up to germany to give a solution or not. |
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| bulgar | Nov 18 2011, 01:58 AM Post #6 |
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that is simply insane, depressing and shameful at the same time! i mostly feel bad for the young people there. i would so migrate to some euro country if i were greek. most of my greek friends (including that imbecile i dated for while) live elsewhere. have you considered moving back to London, FB? |
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| FuckBuddy | Nov 18 2011, 02:07 AM Post #7 |
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migrating is the only route for me i just need to finish off my phd thesis. sooner or later i just know i should go away i don't want to, though
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| Riverwide | Nov 18 2011, 02:13 AM Post #8 |
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That's what so utterly tragic about it all. People are having to leave their familes, friends and country behind, in order to eek out a living in a foreign land. I know that some people are fine with that, but not everyone wants to. I'm incredibly close to my family, so would never move away, no matter what...but a lot of Greek and Irish people simply have no choice. It's devastating so many familes across Europe already. |
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| Riverwide | Nov 18 2011, 01:38 PM Post #9 |
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On a lighter note: Q: What's the capital of Greece? A: About €2.50
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| FuckBuddy | Nov 19 2011, 12:37 AM Post #10 |
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good one it's so weird that europeans are coming up with such jokes about greece. within our state of misery, i don't think we've ever been so talked about internationally. but then, bad publicity is still publicity looking things from a more objective point of view, it's quite a paradox how such a small country with a limited economic power is in the position to pose a threat to a global giant such as the eurozone. i mean, had greece been the sole problem for the euro, we would have been kicked out long ago. but then portugal and ireland's economies exploded, too (though to a far less extend and for different reasons), now italy and spain are about to enter the same tunnel. i really do think there's no future to the euro the way it's been originally conceived. apparently brussels headquarters are considering two euro currencies, one for the likes of germany, austria, finland, the netherlands and some eastern european countries that suck deutsch dick and a weaker currency for countries of the south and ireland - cause we all know the irish are southern at heart it'd be like the boring euro vs the FUN EURO
Edited by FuckBuddy, Nov 19 2011, 12:38 AM.
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| quoideneuf | Nov 27 2011, 10:25 PM Post #11 |
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http://trueeconomics.blogspot.com/2011/11/27112011-even-with-imfs-600bn-italy-is.html 27/11/2011: Even with IMF's €600bn - Italy is too big to bail Posted by Dr. Constantin Gurdgiev There are some interesting reports in the media over the weekend, speculating that the IMF is preparing a super package for Italy, rumored to reach €600 billion. Here's a link from zerohedge that outlines the details of these rumors (here). There are several reasons to be skeptical as the feasibility of such a package and the potential effectiveness of it. Here are these reasons. Firstly, the IMF is a rules-based organization that normally can lend only 4-5 times (400-500%) of the country quota. Italy's country quota is SDR7.8823 billion or €10.7bn which can allow IMF to lend under normal arrangements up to €53.5 billion (at a severe stretch, I must add as the fund prefers not to lend to the full leverage of 500%). In addition, IMF has announced two new programmes last week (discussed here). The Flexible Credit Line programme - whereby IMF does not specify lending leverage to be achieved, applies only to "members with very strong track records... based on pre-set qualification criteria to deal with all types of balance of payments problems." So IMF would have to qualify Italy as a country with "strong track record" and its solvency problems as "balance of payments problem". This, of couse, is possible, though not probable, as Italy's "strong track record" is hardly that "strong". In addition, the new lending will have to take place outside the normal arrangements mentioned above, as the deployment of such arrangements would not be consistent with "strong track record" even in theory. So to raise €600 billion, IMF will have to leverage Italy's SDR allocation 6,000%. Let's put this number into perspective. Lehman Bros TCE leverage ratio was 4,400% at the time of collapse and its average TCE leverage ratio prior to collapse was 3,100%. At any rate, IMF is most likely to assign Italy a precautionary borrower status under Precautionary Credit Line (see link above) which allows for 24 months leveraging up to 1,000%. This, of course means Italy will be able to raise just €107 billion through IMF loans or about 1/3rd of its roll-over requirements (not to mention new borrowings demand) through 2012. Secondly, suppose IMF does indeed lend Italy €600 billion - enough to barely cover the country refinancing needs for 2012-2013. Then, two things happen: 1/3rd of Italy's total Gross Government Debt becomes overnight senior to the rest of its debt - as IMF always assumes seniority in lending. This will push existent Italian bonds yields to 15% or 18% or more. We do not know, of course, exactly where the debt will be traded, but what we do know with almost certainty is that there is not a snowball's chance in hell Italy will be able to refinance maturing debt after 2013 on its own. So IMF lending Italy today commits IMF to lend to Italy in 2014 and on. €600 billion is unlikely to cover all Italian needs for 2012-2013, especially if Italian banks are to take a hit on other sovereign bonds. let me run through the EBA banks stress tests model under the following assumptions: Greece haircut 80%, Italy haircut 10%, Portugal haircut 25%, Spain haircut 10% (notice - all very benign) and CT1 ratio of 9%. Italian banks shortfall on capital is €34 billion. Now, recall that Italy also has insurance companies (e.g. A.Gen) and pensions funds - which will see some fall-outs from the haircuts as well. Say €10 billion. Italian bonds downgrade due to IMF lending (see item 1 above) is likely to cost banks and other financial sector companies another €11 billion and €4 billion. So we are into total bill of ca €60 billion right there. Italian deficits in 2012-2014 are expected to gross €76 billion per IMF latests forecasts. As shown in the chart above, debt maturity, plus new deficits financing will consume some €453.4 billion in 2012-2014 and €630.5 billion in 2012-2016. So the total funding that Italy might require is in the neighborhood of €510-690 billion, depending on which period we assume the package will cover (2012 through either 2014 or 2016 respectively). And this assumes no deterioration in GDP growth (tax revenues) or deficit spending etc. It also assumes that market funding costs IMF built into its deficit forecasts (4% 10-year average pre-November 2010) remain under the IMF lending deal. In fact, of course, that is open to speculation if IMF can lend Italy €600 billion at anything below 5.3-5.8%. So overall, folks, I am skeptical as to the IMF's ability to conjure €600 billion for Italy. And furthermore, I am skeptical as to Italy's ability to manage cover for its deficits, banks and roll-over needs under such a package. This doesn't even begin to address my concerns as to Spain waiting in the shadows. Now, lastly, you might suggest that the IMF loans can come in conjunction with EFSF loans. Alas, the EFSF has some serious troubles itself - the following two posts from the zerohedge amply illustrate: here and here. You see, Italy is too big to bail. Even if it is also too big to fail. at 9:51 AM |
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