How to save the Euro?

SeanW

The continuous fall in the value seems to suggest that the currency is in peril. It has recently emerged that most of the short selling of Euros has been done by European banks, many of whom have been bailed out by the ECB. One possible explanation has come from this commentator:
[QUOTE=Franklin Sanders]One must suspect that the sharks in European banks and other parasites are swarming the euro with short sales. Drive it down, drive it down, sell more and drive further down, then cover and go long. It's a classic predatory raid. Long as it continues the dollar will rise, and silver and gold along with it.[/QUOTE]It seems that one French bank in particular has been hugely active in this area.

This brings to mind another quote from the great economist Ludwig von Mises:

Ludwig Von Mises wrote:

There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.

This suggests that saving the Euro will take some painful measures. Measures that I think we should all be prepared to take.

What actions should the ECB/Strasbourg now take to support the currency?
My suggestions, all rough but fair:

1. Regulate these banks with a temporary EU-wide law against short selling Euro.
2. Raise interest rates by 1/8 of a percent (i.e. from 1% to 1.125%) as a warning. More increases, in higher increments to follow if the falling € value continues.
3. Call in all the ECB credit to the banks - every penny of it - and put the banks on notice that they will only get it back (and then within 24 hours) if they disband their Forex trading operations completely, with the exception of OTC retail exchange.
4. Retain some profits this year to buy precious metals, forex and near cash assets to build a war chest against a large degree of future shorting.
5. Require all non PIIGS member states to take 1% off their deficit/GDP (i.e. if its 3.5% this year, must be reduced to 2.5%) ratio this year, require more for the PIIGS.

Any other ideas?

oppenheimer1

Well one has to remember the currency did fall to $1 to 81c. There was no talk of a crisis back then.

ei.sdraob

oppenheimer1 wrote: »

Well one has to remember the currency did fall to $1 to 81c. There was no talk of a crisis back then.

a fall from 1.6 to 1.25 in few short months is rather substantial

I trade in euro and dollars, its not the exchange rate that "gets me" its the sudden movements


@OP. Greece should have got cut loose, that would have send a strong message restoring confidence

instead they resorted to bailouts and worse printing money via QE

for two years money flocked into euro since it was viewed as stable while the dollar was volatile, now the confidence in the euro has been shattered

and what's worse Greece will default anyways

getting into deeper debt doesnt ever solve a debt problem

jacaranda

SeanW wrote: »

The continuous fall in the value seems to suggest that the currency is in peril. It has recently emerged that most of the short selling of Euros has been done by European banks, many of whom have been bailed out by the ECB. One possible explanation has come from this commentator:
It seems that one French bank in particular has been hugely active in this area.

This brings to mind another quote from the great economist Ludwig von Mises:
This suggests that saving the Euro will take some painful measures. Measures that I think we should all be prepared to take.

What actions should the ECB/Strasbourg now take to support the currency?
My suggestions, all rough but fair:

1. Regulate these banks with a temporary EU-wide law against short selling Euro.
2. Raise interest rates by 1/8 of a percent (i.e. from 1% to 1.125%) as a warning. More increases, in higher increments to follow if the falling € value continues.
3. Call in all the ECB credit to the banks - every penny of it - and put the banks on notice that they will only get it back (and then within 24 hours) if they disband their Forex trading operations completely, with the exception of OTC retail exchange.
4. Retain some profits this year to buy precious metals, forex and near cash assets to build a war chest against a large degree of future shorting.
5. Require all non PIIGS member states to take 1% off their deficit/GDP (i.e. if its 3.5% this year, must be reduced to 2.5%) ratio this year, require more for the PIIGS.

Any other ideas?

The one idea is one which we seem to forget and need to be reminded of from time to time. And that is you can't buck the markets.

Ban banks in the EU from short selling the Euro, ban them from forex trading, ban them from taking coffee breaks and ban them from anything you like. Unfortunately, you can't ban non EU banks from anything, so how do you propose to stop them short selling the Euro, or speculating against in in other ways, or trading in forex....

The Soviet Union tried all the tricks you suggest and more, and it doesn't work.

You seem to think that with a bit of clever manoeuvring we can control the value of the EURO and stop the nasty traders who have spotted it’s in crises. We can’t, and we shouldn’t, as you can’t buck the markets.

ei.sdraob

considering those traders in many cases are EU based

like those French banks shorting the euro, which might explain this....

@jacaranda

is right more regulation alone wont solve anything


the solution is simple, you allow banks/countries/people to fail
and learn a lesson

this whole socializing the risk crap has really gone out of control, first banks then countries, what next bailing out reckless mortgage holders??

all while trampling all over any remaining productive and sensible businesses/people all in the name of "fairness" and "sharing the pain"

SeanW

I agree with a lot of what has been posted in the 2 posts before me.

To make the Euro more credible, full stop, I did (among other things) suggest that there should now be a push for balanced budgets throughout the Eurozone. This I think is perfectly responsible. I also suggested raising interest rates, thusly constricting the supply of currency and making speculation less attractive.

I also pointed out that most of the short-selling has been done by banks bailed out by the ECB. Which is why I think it's only fair to threaten those same banks with the withdrawl of bailout funds.

I fail to see what is "Soviet" about my suggestions.

I agree that kicking out Greece would have been a desirable option, but unfortunately there is not yet a mechanism to do so. We must now hope that Greece (among others) can balance its bonkers budgets, while simultaneously seeking an "eject" mechanism for Eurozone members with incorrigable budget deficits.

ei.sdraob

@sean

the budgets were meant to be "balanced" in order to stay within the 3% rule before

pretty much everyone ignored these eurozone rules

whats there to stop the members ignoring the new rules and regulations, and not acting on feedback?

when you have people rioting and burning each other, "austerity" becomes a dangerous word, politicians like to play it safe

all the EUrozone has done is buy some time, now whether they get their act together in this time remains to be seen

Scofflaw

You lost me at "the great economist Ludwig von Mise".

cordially,
Scofflaw

ei.sdraob

Scofflaw wrote: »

You lost me at "the great economist Ludwig von Mise".

cordially,
Scofflaw

Well considering that for Keynesian policies to work (in theory of course) you need to save during the good time, and that wasnt done...

Scofflaw

ei.sdraob wrote: »

Well considering that for Keynesian policies to work (in theory of course) you need to save during the good time, and that wasnt done...

So having missed the opportunity to do what might have worked, we should therefore try what never has?

amused,
scofflaw

SeanW

Scofflaw wrote: »

So having missed the opportunity to do what might have worked, we should therefore try what never has?

amused,
scofflaw

I guess you've never heard of the Crash of 1920.

Scofflaw

SeanW wrote: »

I guess you've never heard of the Crash of 1920.

So your proof that doing nothing works is that doing nothing has solved "crises" nobody knew about...? Perhaps, then, I can sell you some medicine for the disease you don't know you have?

cordially,
Scofflaw

SeanW

No, I don't believe that doing "nothing" works. I do however, believe that choosing to live within your means, and having restraints on government, does work. As to the reason no-one knows about the Crash of 1920, two reasons:

1. Despite initially being worse than the crash 1929, the ensuing recession ended quickly because - not in spite of - the lack of government intervention. Due to its limited final severity, it has partially been erased from history.
2. Keynesian economic have prevailed since then and I rather imagine it represents a thorny question for Keynesian economists, who have largely glossed over it if they discuss it at all.

In contrast, the Crash of '29 was followed by an unimaginable blitz of government - they devalued the currency drastically and made it illegal to own gold, they paid people to do make-work jobs like digging ditches (sound familiar?) and intervened massivley to distort prices in the market, even going so far as to destroy huge amounts of food while the poor died of starvation by the thousands. Most of the economic madness of the 1930s was totally preventable.

Scofflaw

SeanW wrote: »

No, I don't believe that doing "nothing" works. I do however, believe that choosing to live within your means, and having restraints on government, does work. As to the reason no-one knows about the Crash of 1920, two reasons:

1. Despite initially being worse than the crash 1929, the ensuing recession ended quickly because - not in spite of - the lack of government intervention. Due to its limited final severity, it has partially been erased from history.
2. Keynesian economic have prevailed since then and I rather imagine it represents a thorny question for Keynesian economists, who have largely glossed over it if they discuss it at all.

In contrast, the Crash of '29 was followed by an unimaginable blitz of government - they devalued the currency drastically and made it illegal to own gold, they paid people to do make-work jobs like digging ditches (sound familiar?) and intervened massivley to distort prices in the market, even going so far as to destroy huge amounts of food while the poor died of starvation by the thousands. Most of the economic madness of the 1930s was totally preventable.

I'm sorry, but you're still asking me to take it on faith that your policies would work because apparently they prevented a crash I've never heard of - so successfully that it's been "largely erased from history" - the only evidence for said crash being a blog entry by another believer in the same policies.

You're not making a case here. Currently you'd be done for wasting court time.

cordially,
Scofflaw

SeanW

I don't understand, are you seriously suggesting that the crash of 1920-1921 didn't actually happen?

Becuase here's a link clearly showing otherwise.

Scofflaw

SeanW wrote: »

I don't understand, are you seriously suggesting that the crash of 1920-1921 didn't actually happen?

Becuase here's a link clearly showing otherwise.

No, I'm asking you to demonstrate that the reason it was not as severe as it otherwise could have been is as the result of the application of Austrian economic policies. That is your claim, is it not? I have no idea how you plan to demonstrate it, but I am all ears.

cordially,
Scofflaw

SeanW

Scofflaw wrote: »

No, I'm asking you to demonstrate that the reason it was not as severe as it otherwise could have been is as the result of the application of Austrian economic policies. That is your claim, is it not? I have no idea how you plan to demonstrate it, but I am all ears.

cordially,
Scofflaw

As I am simply an amaetur observer with no training in economics, I cannot do this conclusively.

If on the other hand, you believe that government intervention helps in times of recession, in particular the Great Depression that started in 1929, you are welcome to demonstrate how allowing industry groups to rig prices and throwing businesspeople in jail for charging too little, or destroying huge quantities of food during a time of grave mass starvation helped the U.S. get out of the Crash of 1929 and the ensuing great depression.

Or how the Crash of 2008 - brought about by too much spending, too much inflating and too much debt - can be cured by doing more of exactly the same thing.

You might also tell us what would be so horribly wrong with a balanced gov't budget.

Frederich A Hayek wrote:

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

F.A. Hayek, The Fatal Conceit

Scofflaw

SeanW wrote: »

As I am simply an amaetur observer with no training in economics, I cannot do this conclusively.

If on the other hand, you believe that government intervention helps in times of recession, in particular the Great Depression that started in 1929, you are welcome to demonstrate how allowing industry groups to rig prices and throwing businesspeople in jail for charging too little, or destroying huge quantities of food during a time of grave mass starvation helped the U.S. get out of the Crash of 1929 and the ensuing great depression.

Or how the Crash of 2008 - brought about by too much spending, too much inflating and too much debt - can be cured by doing more of exactly the same thing.

You might also tell us what would be so horribly wrong with a balanced gov't budget.

I don't think there's anything wrong with a balanced budget, nor do I think there's anything right with destroying food stocks at a time of hunger. Indeed, I believe that it's often useful to communicate one's feelings and reach out to people, and I don't disagree with those notions even if they appear in a horoscope. However, they don't make me think astrology is anything other than a crock of snake oil, and much the same goes for Austrian economics.

You're operating, as far as I can see, on the basis of "things haven't worked so well with the current system, so we must be right because we have a different system" - a bit like "hey, our marriage isn't working, let's try becoming Trappist monks". You need to ignore the fact that most people agree that the failures of the last while were avoidable, that they occurred because governments took a lazy and populist pro-cyclical route, and that they occurred where governments took a lazy and populist pro-cyclical route - as a cure for which, rather than tightening up fiscal discipline, you want to throw everything out and try something that's never been shown to work. Why not try communism? We're pretty sure that doesn't work either, and the argument for it on the basis of current difficulties is at least as strong.

cordially,
Scofflaw

SeanW

Scofflaw wrote: »

I don't think there's anything wrong with a balanced budget, nor do I think there's anything right with destroying food stocks at a time of hunger.

:cool:

Indeed, I believe that it's often useful to communicate one's feelings and reach out to people, and I don't disagree with those notions even if they appear in a horoscope.

Could you rephrase that.

You need to ignore the fact that most people agree that the failures of the last while were avoidable, that they occurred because governments took a lazy and populist pro-cyclical route, and that they occurred where governments took a lazy and populist pro-cyclical route

In government at least, only the Austrians like Ron Paul, and his friends outside government like Peter Schiff, saw what was coming. Any plans for more government have the sole effect of putting the economy in the hands of the same people who didn't see the crash coming, don't know what caused it and haven't the faintest idea about what do about it except do more of the same.

And rather than government having caused the crisis by not regulating the banks, rather there was always a "moral hazard" in that the government, it seems to have been understood, would bail out the banks if they got into difficulty - this moral hazard has now been formalised.

as a cure for which, rather than tightening up fiscal discipline, you want to throw everything out and try something that's never been shown to work.

Umm ... I suggested tightening up fiscal discipline in terms of Eurozone deficit:GDP rules and a selective tightening of monetary policy as you might have seen in my OP, and also some restrictions on banks recieving Euro bailouts.

I am not however aware of any time in history where the advice "live within your means" has not been shown to work (grave emergencies like WW2 excepted)

astrology is ... a crock of snake oil ... same goes for Austrian economics.

If I understood this part correctly, we will have to agree to disagree.

View

oppenheimer1 wrote: »

Well one has to remember the currency did fall to $1 to 81c. There was no talk of a crisis back then.

Indeed, and when a few years later, the Euro rose in value against the Dollar (or, to view it another way, the Dollar fell in value against the Euro), there was also no talk of the Dollar being in peril.

Scofflaw

SeanW wrote: »

I am not however aware of any time in history where the advice "live within your means" has not been shown to work

I'm not aware that that piece of good and sound advice is in any way unique to Austrian economics, nor that it adequately covers the whole of Austrian economics. Therefore, while it's something I would hardly disagree with, it's also barely relevant to the value of Austrian economics.

SeanW wrote: »

If I understood this part correctly, we will have to agree to disagree.

Yes, and I wish you all the best with your horoscopes.

cordially,
Scofflaw

jacaranda

SeanW wrote: »

I don't understand, are you seriously suggesting that the crash of 1920-1921 didn't actually happen?

Becuase here's a link clearly showing otherwise.

The present crises has arises largely because many governments have been borrowing more and more money to pay the political equivalents of their milk and bread bills.

IF the GDP is rising every year, this may be sustainable as the size of the debt to GDP shrinks if the GDP keeps growing. I use the word "may" deliberately, as this only makes the size of the debt appear to be more manageable if the governments keep taking more and more tax out of the growing economy each year.

The problem is exposed if the GDP doesn't grow, and if the GDP shrinks the debt keeps growing, even if the country doesn't borrow another penny.

The problem is further exacerbated if the country needs to borrow further amounts of money to pay the milk and bread bill, thus increasing the size of its debt, while the GDP shrinks.

That's more or less where we are in Ireland at the moment, and in Greece and Spain and the UK and right across the EU.

The solution would be to learn the lesson that governments who spend more and more of our money ( or borrow to spend more and more while increasing our debt) should never be voted in by the electorates. Hopefully, this time we'll learn the lesson for a few years before we get back to the cycle of governments think that the way to get elected is to spend more and more money.

ieH

The euro is dead, the only way is to get rid of the euro.

Scofflaw

jacaranda wrote: »

The present crises has arises largely because many governments have been borrowing more and more money to pay the political equivalents of their milk and bread bills.

IF the GDP is rising every year, this may be sustainable as the size of the debt to GDP shrinks if the GDP keeps growing. I use the word "may" deliberately, as this only makes the size of the debt appear to be more manageable if the governments keep taking more and more tax out of the growing economy each year.

The problem is exposed if the GDP doesn't grow, and if the GDP shrinks the debt keeps growing, even if the country doesn't borrow another penny.

The problem is further exacerbated if the country needs to borrow further amounts of money to pay the milk and bread bill, thus increasing the size of its debt, while the GDP shrinks.

That's more or less where we are in Ireland at the moment, and in Greece and Spain and the UK and right across the EU.

The solution would be to learn the lesson that governments who spend more and more of our money ( or borrow to spend more and more while increasing our debt) should never be voted in by the electorates. Hopefully, this time we'll learn the lesson for a few years before we get back to the cycle of governments think that the way to get elected is to spend more and more money.

And electorates who vote for the party promising the most spending. Unfortunately, we're wroking very hard on not learning that lesson, by pretending that the problem is the banks rather than the deficit.

cordially,
Scofflaw

ei.sdraob

Scofflaw wrote: »

And electorates who vote for the party promising the most spending. Unfortunately, we're wroking very hard on not learning that lesson, by pretending that the problem is the banks rather than the deficit.

cordially,
Scofflaw

We agree on something at last
does that make you an austrian now :P


anyways back to the subject interesting article here

Mr Trichet was ash-white at the Brussels summit a week ago. He distributed charts of credit stress to every eurozone leader. By the time he had finished his hair-raising discourse, everybody round the table finally understood what they faced.

The markets had ceased to function, he told Der Spiegel . There is still a risk of contagion. It can happen extremely fast, sometimes within hours.

The spreads on Greek, Iberian, and Irish bonds have, of course, dropped since the ECB stepped in with direct purchases. But the euro rally fizzled fast, to be followed by a fresh plunge to a 18-month low of $1.24 against the dollar. European bank stocks have buckled again. Spains IBEX index fell 6.6pc in capitulation fever on Friday.

Geneva professor Charles Wyplosz said EU leaders made the error of overselling up their shock and awe package before establishing any political mechanism to mobilise such sums. The fund is an empty shell, he wrote at Vox EU. Worse still, crucial principles have been sacrificed for the sake of unconvincing announcements.

from a euro politics perspective

Or was Mr Trichet alluding to something else after witnessing the Brussels tantrum by President Nicolas Sarkozy? According to El Pais, Mr Sarkozy threatened to pull France out of the euro and break the Franco-German axis at the heart of the EU project unless Germany capitulated. To utter such threats is to bring them about. You cannot treat Germany in that fashion

The above is very interesting in the context of French banks shorting the euro...

Vinegar Hill

The question is: Do we really want to save the Euro? The government is talking about more taxes and possibly a reduction in the old age pensions. Let us not forget the inflation that will hit the Eurozone soon because of the decrease in the value of the Euro. This is going to lead to higher interest rates and prices. Countries are struggling now! Not to mention ordinary citizens.

getz

ieH wrote: »

The euro is dead, the only way is to get rid of the euro.

many leading experts said from the start that the euro would not work,thank god britain get into it

ei.sdraob

Vinegar Hill wrote: »

The question is: Do we really want to save the Euro? The government is talking about more taxes and possibly a reduction in the old age pensions. Let us not forget the inflation that will hit the Eurozone soon because of the decrease in the value of the Euro. This is going to lead to higher interest rates and prices. Countries are struggling now! Not to mention ordinary citizens.

Yes we in Ireland, need the euro, badly

it provides (provided?) stability at a bad time

its only thing separating us from becoming a total banana republic at this stage


now whether Germany and few others need the euro is the right question to be asking, if the Germans walk away then thats the day you dont want to hold any euros in your pocket....

Scofflaw

We agree on something at last
does that make you an austrian now

No one can be wrong all the time, not even Austrians. Also - Ambrose Evans-Pritchard? Really?

amused,
Scofflaw

ei.sdraob

Scofflaw wrote: »

No one can be wrong all the time, not even Austrians. Also - Ambrose Evans-Pritchard? Really?

amused,
Scofflaw

I know (read my past posts) hes been banging on about euro collapsing for a long time...


tho the quotes/paragraphs i highlighted are not from him and you missed the point of my post

Sarcozy did throw a hissy fit at the Germans
and Trichet is ****ting his pants

jacaranda

Vinegar Hill wrote: »

The question is: Do we really want to save the Euro? The government is talking about more taxes and possibly a reduction in the old age pensions. Let us not forget the inflation that will hit the Eurozone soon because of the decrease in the value of the Euro. This is going to lead to higher interest rates and prices. Countries are struggling now! Not to mention ordinary citizens.

I have it on good authority that the German government has already signalled to the EU that it is planning to exit the Euro. The Eu have been pressing the Germans to stay in to see if they can't create the conditions that would encourage the germans to stay in. These conditions largely revolve around a considerable degree of fiscal and budgetary control passing from the member states to the EU, and the EU flew its first flag about this last week in what one member here said was only a suggestion to "cast an eye" over our budgets. This is an attempt at a first stage to try to convince the Germans to remain in the Euro, as the EU knows that without the Euro, it will lose some power and influence.

It is now rumoured that the French are also making plans to exit the Euro at the same time as the Germans, as they realise the currency appears finished if the Germans pull out and resort to the "New Deutsche Mark" the name being floated for the new German currency. Apparantly, the plan is to issue one new Deutsche Mark for every one Euro, and then let the currency be traded like all other currencies. the expectation is that the New Deutsche Mark is expected to rise and become a strong and valuable currency, while the Euro is expected to sink without a trace.

What will happen the rest of us if we are left with a currency backed by Greece, Italy, Spain, Portugal and Ireland.

Scofflaw

jacaranda wrote: »

I have it on good authority that the German government has already signalled to the EU that it is planning to exit the Euro. The Eu have been pressing the Germans to stay in to see if they can't create the conditions that would encourage the germans to stay in. These conditions largely revolve around a considerable degree of fiscal and budgetary control passing from the member states to the EU, and the EU flew its first flag about this last week in what one member here said was only a suggestion to "cast an eye" over our budgets. This is an attempt at a first stage to try to convince the Germans to remain in the Euro, as the EU knows that without the Euro, it will lose some power and influence.

It is now rumoured that the French are also making plans to exit the Euro at the same time as the Germans, as they realise the currency appears finished if the Germans pull out and resort to the "New Deutsche Mark" the name being floated for the new German currency. Apparantly, the plan is to issue one new Deutsche Mark for every one Euro, and then let the currency be traded like all other currencies. the expectation is that the New Deutsche Mark is expected to rise and become a strong and valuable currency, while the Euro is expected to sink without a trace.

What will happen the rest of us if we are left with a currency backed by Greece, Italy, Spain, Portugal and Ireland.

What "good authority", though? What I can see is some conspiracy websites retailing a rumour that was probably floated by currency traders shorting the euro.

cordially,
Scofflaw

Vinegar Hill

jacaranda wrote: »

I have it on good authority that the German government has already signalled to the EU that it is planning to exit the Euro. The Eu have been pressing the Germans to stay in to see if they can't create the conditions that would encourage the germans to stay in. These conditions largely revolve around a considerable degree of fiscal and budgetary control passing from the member states to the EU, and the EU flew its first flag about this last week in what one member here said was only a suggestion to "cast an eye" over our budgets. This is an attempt at a first stage to try to convince the Germans to remain in the Euro, as the EU knows that without the Euro, it will lose some power and influence.

It is now rumoured that the French are also making plans to exit the Euro at the same time as the Germans, as they realise the currency appears finished if the Germans pull out and resort to the "New Deutsche Mark" the name being floated for the new German currency. Apparantly, the plan is to issue one new Deutsche Mark for every one Euro, and then let the currency be traded like all other currencies. the expectation is that the New Deutsche Mark is expected to rise and become a strong and valuable currency, while the Euro is expected to sink without a trace.

What will happen the rest of us if we are left with a currency backed by Greece, Italy, Spain, Portugal and Ireland.

Yes, I have heard the same and have read some recent articles on the matter. The German people are also fed up with having to suffer because they are forced to bailout other Eurozone countries that did not abide by the rules. This will be an interesting week in politics and the economy. Here are some of the articles if anyone wishes to review them.

http://uk.news.yahoo.com/22/20100516/tot-uk-eurozone-4b7b872.html?

http://www.telegraph.co.uk/news/worldnews/europe/germany/7729082/Germans-turn-against-the-EU-as-eurozone-meltdown-heaps-misery-on-Angela-Merkel.html

jacaranda

Vinegar Hill wrote: »

Yes, I have heard the same and have read some recent articles on the matter. The German people are also fed up with having to suffer because they are forced to bailout other Eurozone countries that did not abide by the rules. This will be an interesting week in politics and the economy. Here are some of the articles if anyone wishes to review them.

http://uk.news.yahoo.com/22/20100516/tot-uk-eurozone-4b7b872.html?

http://www.telegraph.co.uk/news/worldnews/europe/germany/7729082/Germans-turn-against-the-EU-as-eurozone-meltdown-heaps-misery-on-Angela-Merkel.html

I haven't read any articles on it, but have been told by sources in the EU that it's caused complete panic there as they judge the germans are serious about exiting the Euro, as they see it as unsaveable and they see themselves being bankrupted in what they regard as hopeless attempts to bale out less prudent countries, especially Greece and Spain.

dogbert27

jacaranda wrote: »

I haven't read any articles on it, but have been told by sources in the EU that it's caused complete panic there as they judge the germans are serious about exiting the EU, as they see it as unsaveable and they see themselves being bankrupted in what they regard as hopeless attempts to bale out less prudent countries, especially Greece and Spain.

Your first post said they're planning to exit the euro and this post says they're planning to leave the EU.

Which is it?

jacaranda

Scofflaw wrote: »

What "good authority", though? What I can see is some conspiracy websites retailing a rumour that was probably floated by currency traders shorting the euro.

cordially,
Scofflaw

I don't view conspiracy websites or even know what they might be called. I am surprised at someone of your apparently urbane nature seems to be saying you do, or are, looking at such sites.

My information comes from officials in the EU with whom I have a connection, and if your judgement is that the Germans are not contemplating such an exit strategy, and are happy to continue along in the Euro propping up countries such as Greece and Spain ,. and probably bankrupting Germany in the process, then I am surprised.

There is panic in the EU at the moment about it, as anyone who has any dealings with those involved can attest to.

jacaranda

dogbert27 wrote: »

Your first post said they're planning to exit the euro and this post says they're planning to leave the EU.

Which is it?

Apologies, the Germans are planning to exit the Euro and not the EU! I have changed the post to correct the error.

Scofflaw

jacaranda wrote: »

I don't view conspiracy websites or even know what they might be called. I am surprised at someone of your apparently urbane nature seems to be saying you do, or are, looking at such sites.

My information comes from officials in the EU with whom I have a connection, and if your judgement is that the Germans are not contemplating such an exit strategy, and are happy to continue along in the Euro propping up countries such as Greece and Spain ,. and probably bankrupting Germany in the process, then I am surprised.

There is panic in the EU at the moment about it, as anyone who has any dealings with those involved can attest to.

There's certainly a high grade of worry over the currency crisis, but when I say the "only source for the 'New Deutschemark idea is conspiracy sites" I mean I've run searches, and the only sites that claim this are conspiracy sites.

The only less credible source than conspiracy sites, to my mind, is "people I know who are in the know, but you don't know them and they won't talk on the record". Unless your sources are better than those available to the world's media (and, indeed, better than my own EU sources), I'm not really inclined to believe you, I'm afraid. No offence, but anonymous posters on boards.ie aren't exactly high-grade sources for world-changing information.

cordially,
Scofflaw

jacaranda

Scofflaw wrote: »

There's certainly a high grade of worry over the currency crisis, but when I say the "only source for the 'New Deutschemark idea is conspiracy sites" I mean I've run searches, and the only sites that claim this are conspiracy sites.

The only less credible source than conspiracy sites, to my mind, is "people I know who are in the know, but you don't know them and they won't talk on the record". Unless your sources are better than those available to the world's media (and, indeed, better than my own EU sources), I'm not really inclined to believe you, I'm afraid. No offence, but anonymous posters on boards.ie aren't exactly high-grade sources for world-changing information.

cordially,
Scofflaw

I am not looking to make anyone believe me and of course take no offence at your decision. I'm not looking to be a "hi-grade source" and am only looking to share my experience and discuss with others who want to discuss.

Your experience is that the only source for the New Deutsche Mark is some conspiracy web sites. My experience is different. I imagine that even conspiracy sites get things right sometimes, but really I have not seen any of them so have no idea what they may or may not be saying.

You are free to believe or disbelieve anyone, just as we all are!

Scofflaw

Funnily enough, it doesn't look like Germany have any intention of leaving - instead they want to tighten things up: Berlin calls for eurozone budget laws

The German government is to press other eurozone countries to adopt their own versions of Berlin’s balanced budget law as part of a set of sweeping reforms to stabilise the euro.

Germany last year enshrined in its constitution a law that prohibits the federal government from running a deficit of more than 0.35 per cent of gross domestic product by 2016. German states will not be allowed to run any deficit after 2020.

Applied across the eurozone, that would imply much tighter fiscal discipline than the bloc’s existing rules requiring deficits of less than 3 per cent of GDP.

Wolfgang Schäuble, the German finance minister, is working on a set of sweeping reforms for the stricken eurozone, which he will present on Friday at the first meeting of a working group set up to consider closer economic policy co-operation.

Of course, one could claim that this is merely a diversionary trick - part of insulting everybody before actually injuring them. Or, and more likely in the real world, not.

cordially,
Scofflaw

SeanW

Scofflaw wrote: »

Funnily enough, it doesn't look like Germany have any intention of leaving - instead they want to tighten things up: Berlin calls for eurozone budget laws



Of course, one could claim that this is merely a diversionary trick - part of insulting everybody before actually injuring them. Or, and more likely in the real world, not.

cordially,
Scofflaw

Fair f***s to the Germans, they can see Keynesian economics (which in a recession is all about borrowing, spending and inflating, circular flow, boosting aggregate demand etc.) for what it is.

We need more of that - and across the entire Eurozone.

View

jacaranda wrote: »

I have it on good authority that the German government has already signalled to the EU that it is planning to exit the Euro.

Really? Golly, that's strange as I was assured by good authorities that Merkel and Sarkozy are all set to declare they will immediately establish an Economic United States of Europe. All other Eurozone member states will be invited to join them bar Ireland - we'll have an opt-in to it where, in the upcoming referendum, we can chose between joining or throwing ourselves on the tender mercies of the financial speculators.

Union or Destitution, it's your call.

jacaranda

View wrote: »

Really? Golly, that's strange as I was assured by good authorities that Merkel and Sarkozy are all set to declare they will immediately establish an Economic United States of Europe. All other Eurozone member states will be invited to join them bar Ireland - we'll have an opt-in to it where, in the upcoming referendum, we can chose between joining or throwing ourselves on the tender mercies of the financial speculators.

Union or Destitution, it's your call.

No, its not my call, that is the call of others.

Angela Merkel doesn't have the power to establish a United States of Europe.

She does, however, have the power to exit the Euro at any time.

Which is more likely? Only time, of course, will tell, and I will be surprised if the German people will let her continue to write blank cheques which may well bankrupt Germany in what appears will be futile attempts to shore up other Euro countries who have been and continue to be, profligate.

If Germany do decide to go it alone, exit the Euro and form the New Deutsche Mark, then that leaves those who have been and are still overspending in a perilous position.

View

jacaranda wrote: »

No, its not my call, that is the call of others.

Angela Merkel doesn't have the power to establish a United States of Europe.

Merkel and Sarkozy have the power to open negotiations to establish a "United States of Europe" anytime they want. They also have the power to invite other member states to participate if they so choose.

Whether they would get the resulting treaty through their respective parliaments is another question. Then again there was a time when the notion that Germany and France could place their "engines of war" - their coal & steel industries - under a common High Authority would have seemed unlikely to put it mildly.


The "Union or Destitution, it's your call" comment was a reference to a possible slogan in a possible referendum on the resulting Treaty here in Ireland.


It's not one I actually expect to happen - the member states like operating the EU as a de facto quasi-confederation. That doesn't mean, though, if they were faced with an either/or choice of "much greater integration" or "letting part or all of the EU fall apart", that they'll choose to abandon the EU.

jacaranda

The real problem here is debt as a proportion of GDP. We have a combinatino of factors which is not only unusual but which can conspire together to make the very serious problems worse.

(i) the debt to GDP ratio is now out of control in some countries

(ii) those countries are unable to continue to function without increasing their borrowing every day

(iii) ordinarily they can "trade out" of their difficulties if their GDP continues to grow. Unfortunately their GDP's are shrinking, magnifying the existing debt problem, and that they keep increasing their borrowing every day by vast amounts is compiling the problem, and increasing their debt burden.

(iv) the other great thing for borrowers is inflation, as this can also reduce the amount of ones debt. Unfortunately, many countries now have deflation, which means the existing debt gets more expensive simply by doing nothing. By borrowing more every day, the problem is clearly out of control for many countries.

there was a tacit understanding that, so long as countries GDP continues to grow and there is some inflation in the economy, then borrowing is tolerable.

Now that the opposite is happening, the GDP's are shrinking, and there is deflation, it makes the borrowing more and more expensive. Many countries are so used to governments spending like drunken sailors, they are simply unable to stop spending and are forced to plug the gap between receipts and spending with borrowing. Even if they stopped borrwing, the real value and cost of their debt increases due to the double whammy of GDP shrinking and deflation. Add to that their borrowings, and the situation seems unsupportable.

Meanwhile the Euro creaks ever downward in its spiral of doubt, and the ECB madly tries to buy up the bonds being sold by those holding the loans, and this continues to weaken its balance sheet.

oncevotedff

jacaranda wrote: »

The one idea is one which we seem to forget and need to be reminded of from time to time. And that is you can't buck the markets. ...

I love that idea. The Irish banks were great believers in The Market until it came to their turn to fail. All of a sudden it became vital for the government to step in and "Buck The Market". The one thing that should be obvious to everybody is that the worldwide economic crisis was caused solely by The Market. It follows therefore that markets, banks and the unscrupulous bottom feeders who swim in that sea need to be heavily regulated from now on.

silverharp

if the original question is how to save the Euro? The ECB needs to build up its gold reserves instead of backing crappy bonds. Its worth noting that central banks including the European ones were net sellers since 2000 (great market timing:rolleyes:) now European central banks are slowing down their sales and Asian CB's have become net buyers.
Pensonally I'll trust the currency that has the most gold behind it and engages in the least "printing". The risk is that Germans either individually or collectively will dump the Euro for gold, thats how Germans will protest!

yuloni

This post has been deleted.

jacaranda

silverharp wrote: »

if the original question is how to save the Euro? The ECB needs to build up its gold reserves instead of backing crappy bonds. Its worth noting that central banks including the European ones were net sellers since 2000 (great market timing:rolleyes:) now European central banks are slowing down their sales and Asian CB's have become net buyers.
Pensonally I'll trust the currency that has the most gold behind it and engages in the least "printing". The risk is that Germans either individually or collectively will dump the Euro for gold, thats how Germans will protest!

The ECB is , in fact, doing the opposite of building up its gold reserves, as it is spending all its money on buying bank debt, and actually building down its gold reserves in the sense that it is weakening its balance sheet all the time.

We haven't seen yet if the banks, for all the billions they are getting from taxpayers across the world, will buck the market. This particular song is far from over, and the fat lady has not even begun to rehearse, let alone sing.

thebman

silverharp wrote: »

if the original question is how to save the Euro? The ECB needs to build up its gold reserves instead of backing crappy bonds. Its worth noting that central banks including the European ones were net sellers since 2000 (great market timing:rolleyes:) now European central banks are slowing down their sales and Asian CB's have become net buyers.
Pensonally I'll trust the currency that has the most gold behind it and engages in the least "printing". The risk is that Germans either individually or collectively will dump the Euro for gold, thats how Germans will protest!

Cold isn't a fast fix though. So many people are obsessed with gold at the moment, it is heading into a bubble in itself. When to get out of gold will see many people lose out IMO.

Whether they will lose out as much as if they invested in a currency that is printing money remains to be seen. I think the ECB will be forced to engage in quantitative easing shortly. They don't want to which will be good as they'll do as little as possible as a result. Germans may be angry but most like most people in other countries won't invest in other assets like gold to get their money out of the currency as most people simply don't have the time/interest/knowledge to do this.

silverharp

thebman wrote: »

Cold isn't a fast fix though. So many people are obsessed with gold at the moment, it is heading into a bubble in itself. When to get out of gold will see many people lose out IMO.

Whether they will lose out as much as if they invested in a currency that is printing money remains to be seen. I think the ECB will be forced to engage in quantitative easing shortly. They don't want to which will be good as they'll do as little as possible as a result. Germans may be angry but most like most people in other countries won't invest in other assets like gold to get their money out of the currency as most people simply don't have the time/interest/knowledge to do this.

there is still a long way to go. For example it took 1oz of gold to buy the Dow in 1980, in 2000 it took 40oz of gold to buy the dow. Now its about 9 and buy the end of this it will probably get down below 5 down to maybe 1. This is why gold makes a great reserve asset. When bonds are defaulting and the stockmarkets are crashing gold is one of the few assets to remain standing.
If they go down the QE route then the euro will deflate against gold anyway.
I dont think it matters in absolute terms how many people end up buying gold. I'd guess 95% of the population never bought an internet company in the 90's, it only matters what the "smart" money is doing.

The question is how serious is the ECB about defending the currency?