T Nation

Meltdown in the Eurozone


#1

Rumour has been floating round the market now for several weeks that Greece is going to default on its debt and needs a FURTHER bailout in addition to the one already made. There are huge protests in Spain, with youth unemployment at 45% (By contrast here in the UK it's 20% and that's considered a national crisis) . Portugal has just secured a bailout, and of course Ireland as well, rumours are Belgium is next. The UK's economic austerity policies have made had to borrow $40 billion more this month than they were expecting, as our economy is pretty much stagnant

If Greece defaults on its debt, and readopts the drachma, as is very possible, it risks completely breaking up the Eurozone - investors would pile out of Greece because why would they want Greek bonds when they could have stronger German ones - and a double dip recession all over the Eurozone. The great european federalisation project is at risk.

A few points

1) Thank our lucky stars Gordon Brown told Tony Blair not to adopt the Euro.
2) Europe seems poised between the industrial countries who have emerged or are in the process of emerging from the financial criis (France, Germany, to a lesser extent the UK) and the other countries who are suffering recession. Investment in Europe is pre-recession levels.
3) Political will. The success of the True Finns, opposed to EU bailout, will make politicians consider there own careers against the great european project. It's a sticky situation to say the least.

What does everyone across the pond think? Are we in Europe doomed or is this market hysteria?


#2

Doomed. Fucking doomed. So is the US. Massive worldwide depression and a third world war coming. This is pretty much an historical certainty. And I'm not the type to wander the streets wearing a sandwich board and ringing a bell.


#3

It's good news for freedom loving people. The Eu must be brought down.


#4

For once we agree :slight_smile:


#5

Ah the benefits of all banding together and making 1 big happy European country!
Maybe people should pay better attention to stereo types, cuz it looks like the groups everyone expected to not to maintain their books, didn't. Now they will blow everyone else's wads. Funny the amount of money that has to go in to keep Spain afloat is several times more than to fix the 'Communist' East Germany upon the reunification. Isn't capitalism supposed to beat Communism?


#6

The EU is far from doomed to be quite honest- all this hysterics is a bit funny to see.

The USA will default well before the Euro dies.

How much does the USA owe now - we are beyond all sensible debt levels at this stage... come end of year reckoning of 15 TRILLION Dollars.... EU Debt will be lucky to hit 1 Trillion !??

Greece won't leave the Euro - what will happen is the ECB will start rolling the printing presses. Greece manages the interest - inflation will take care of the big debt.

Ireland is far from insolvent either - the Banks make up most of our debt level, again we manage the interest - inflation takes the debt bundle.

If you look at the ACTUAL Stats you will see at the end of 2012 Ireland's debt wallops down. We currently have a team in China asking them to buy our Debt like they are doing with Portuguese & Spanish.

China is frantically looking for an out from the precarious Dollar situation and compared to the USA even Greece may seem more of an option.

Those in Glass Houses and all that folks.

:slightly_smiling:


#7

Well I hope you're right that it's not as bad as it seems but I don't really see inflation as the way out personally


#8

Of course it's the way out.... do you ACTUALLY think the debt will be re-paid in actuality ?

ECB has the power at any time to start printing and use that money to pay off debt..... ECB have backed themselves into a corner to be fair, now they must deal with the mess.

They pretty much now OWN all Irish Banks - and I'm not joking they own it all. As 1 professor in Ireland said;

The belief is that Greece will have to restructure, but the legislators will string it out for two years in order to give Ireland and Portugal time to get themselves out of the firing line.

Remember my past point of end of 2012

:slight_smile:


#9

This is an honest question not an attack. Why do you feel money printing will get you out of debt when it has failed so miserably in the US?


#10

Becauuuussse, most structural deficits in the EU are not as severe as in the US, with the onvious exception of the PIIGS.

Therefore, all they have is debt, and debt becomes smaller in real terms if we have decade of solid inflation.

The problem with it is, that the EU central bank is not nearly as monolithic and top down as the FED, they have a board of directors and those answer to their nation states governments and it remains to be seen whether they will be able to reach a consensus.

Anyhow, the Swiss Franc looks better and better now.


#11

Because we rarely do it - in fact we have never done it.

Which is why it will work.

The US Fed is un-comparable to anything in this world - it answers to no one as far as anyone can see and makes some horrendous policy decisions.

edit; Orion has answered it perfectly.


#12

Ok, that does make some sense. I am very familiar with Fed policy and history but not really well informed with the European setup. I totally agree about the Fed. Thanks.


#13

Who is the 2nd "I" Italy ?


#14

Yes.


#15

I fail to see why Italy is included to be fair ?

Their Govt debt is pretty high, but they have little or no bad bank debt - they didn't buy Govt debt during the idiotic times.

I dearly hope in 2 years time, Ireland is removed from that acronym.


#16

I have read that while they were included, their balance sheet is far better than the other countries as their debt is not that sizable in comparison. As stated earlier I think Belgium is supposed to be worse off. Personally (as a dual US-Italian citizen) I really hope Italy doesn't run into too much trouble.


#17

Well Belgium are a unique case... they have had no Government for the last closing on a year !

I do not forsee them ever forming a Govt, and would expect them to split in 2 in the coming years. There is no resolving their issues.

Italy like the US has a higher standard of whats declarable as "In trouble"

Which is why they have not been hounded by the idiotic Rating Agency's yet. They would be considered "To big to fail"


#18

Not to be too much of a stickler, but EU debt is closer to 10 trillion euros, aka ~ 14 trillion dollars. EU debt is ~ 80% GDP, US >90%, so I'd say we're both in for some trouble.


#19

You are delusional and have no understanding of how the euro works. Weak economies like Greece serve an important purpose in the Euro. Without them the strong export driven economy of Germany would drive up the value of the Euro to the point that it would hurt their exports. The Germans will never go for printing money and inflating their prices. Especially not to bail out people who have been criminally irresponsible with their finances.

The Euro has only made it this far because the French head of the IMF, Dominique Strauss-Kahn was a dedicated supporter of the Euro. Now that Strauss-Kahn has been arrested for rape the Euro has lost it's most important supporter at the IMF.

I would not take it for granted that the status quo is going to continue. The Euro is a house of cards whose foundation was never sound to begin with. In the megalomaniacal rush to expand the Euro some of the agreed upon rules for allowing countries to join the Euro were ignored or broken. Some of the countries having trouble now, did not meet the conditions for membership when they joined. The problems they are having now were inevitable.


#20

The EU goes first, then America follows.

As I said when they first bailed out Greece they where just delaying the inevitable. Perhaps they bought 2 years but now the crash will be even worse.