What happens if the euro goes bust

simonb101

Can some one answer question for me. I'm no economist but I do watch stuff very closely. What happens if the Euro falls apart are my moderate savings safe in the bank and in Euro or am I safer changing it to another currency like Swiss franks.

km79

simonb101 wrote: »

Can some one answer question for me. I'm no economist but I do watch stuff very closely. What happens if the Euro falls apart are my moderate savings safe in the bank and in Euro or am I safer changing it to another currency like Swiss franks.

I'd be more interersted to know what would happen regarding mortgages ....

Godge

km79 wrote: »

I'd be more interersted to know what would happen regarding mortgages ....

Would expect tracker mortgage holders to be hit hard. If they want to keep their cheap ECB rate, they would have to repay mortgage in Euros when they are only earning in devalued Irish punts. If they switch to Irish punts, they would be paying a much higher repayment in Irish punts as the tracker is pegged to the new Irish central bank rate (likely to go above 7-8%).

simonb101

Godge wrote: »

Would expect tracker mortgage holders to be hit hard. If they want to keep their cheap ECB rate, they would have to repay mortgage in Euros when they are only earning in devalued Irish punts. If they switch to Irish punts, they would be paying a much higher repayment in Irish punts as the tracker is pegged to the new Irish central bank rate (likely to go above 7-8%).

but what would happen to any money people are holding in euros if the currency were to fall apart. Would you lose everything Would it be quick or happen over a period of time.

anoble66

the savings would be converted to the new currency, probably 1:1. The problem is, the new currency would devalue rapidly making your savings worth a lot less than they were.

I am seriously considering transferring my savings into a UK bank account just to be safe.

I am not really convinced yet that the euro will fail, but better be safe than sorry.

simonb101 wrote: »

but what would happen to any money people are holding in euros if the currency were to fall apart. Would you lose everything Would it be quick or happen over a period of time.

virino

I heard a guest on the Afternoon Show today warn about this, and Claire Byrne warned her about scaring people...however the guest persisted and someone said 'let's move on...' Perhaps this is the kind of thing that really scares people, not wanting to discuss the possibility. I mean, we can't all rush out and buy sterling, or move our money out of the country, causing a run on the banks...or even buy gold, which is so like the Midas story - you can't eat it...

One thing that does annoy me is the idea I see mentioned often that it is patriotic to go out and spend your hard-earned savings...so then, if you need money for some unforeseen event, what do you do? Throw yourself on the mercy of the banks for a loan? Good luck with that!

Isn't it true that leaving the Euro if we have to won't make a lot of difference if we live and shop in Ireland? Our money might be less but goods should be cheaper too, right? It might even do some good, boost 'buy Irish' etc.? Or have I got this completely wrong?

amacca

virino wrote: »

Isn't it true that leaving the Euro if we have to won't make a lot of difference if we live and shop in Ireland? Our money might be less but goods should be cheaper too, right? It might even do some good, boost 'buy Irish' etc.? Or have I got this completely wrong?

it will make a big difference in my opinion..there will be some significant upsides but there will be lots of downsides too

just one downside would be that the cost of imported goods/perceived luxury items would shoot up terms of what you would be earning in punts.................................if you think about it I'm willing to bet you dont even come close to buying a large percentage of all irish goods as part of your everyday life

anoble66

I wouldn't be any kind of expert on this, but I think the problem would be the cost of imports would rise massively - think oil, gas, petrol, diesel etc, in fact anything Ireland imports including food. Those costs would be passed on in the price of goods. The biggest problem would be the new currency would potentially be worth 50-70% less than euro.

virino wrote: »

I heard a guest on the Afternoon Show today warn about this, and Claire Byrne warned her about scaring people...however the guest persisted and someone said 'let's move on...' Perhaps this is the kind of thing that really scares people, not wanting to discuss the possibility. I mean, we can't all rush out and buy sterling, or move our money out of the country, causing a run on the banks...or even buy gold, which is so like the Midas story - you can't eat it...

One thing that does annoy me is the idea I see mentioned often that it is patriotic to go out and spend your hard-earned savings...so then, if you need money for some unforeseen event, what do you do? Throw yourself on the mercy of the banks for a loan? Good luck with that!

Isn't it true that leaving the Euro if we have to won't make a lot of difference if we live and shop in Ireland? Our money might be less but goods should be cheaper too, right? It might even do some good, boost 'buy Irish' etc.? Or have I got this completely wrong?

Nothingbetter2d

at this point it only a matter of time before the euro is a dead currency.

Hayte

Likely scenarios:

1) ECB intervenes by double timing their printing press and kick starting a new and huge round of quantitative easing in a period of higher than ECB mandate inflation (>2%), enabling Eurozone countries to inflate their debt away. Germany doesn't want this because of direct experience with hyperinflation after WW1 and fears the corollary of this would be Zimbabwe 2: Inflate harder.

2) Italian IMF bailout resulting in drastic austerity measures for Italian citizens. Nobody in the Eurozone wants this because Italy's economy in ginormous and righting this supertanker would cost a fortune (estimated at around €1 trillion). Italian government would probably have to be dissolved and reformed into a bipartisan technocratic jobbie similar to the one under Lamberto Dini in the mid 90s. Not likely either way because even if it was a good idea, who the hell can afford it right?

3) Ejecting Italy from the single currency. Also probably Ireland, Greece, Spain and Portugal too and anyone else who is slacking with greater than 100% debt to GDP ratio and a track record for running up huge debt without figuring out how to service it. Ejection from the single currency would allow said slacker states to devalue their own currency and regain export competitiveness, whilst Germany and friends forge stronger economic ties and unify fiscal policy in a super Euro union consisting of...well, probably Germany, France (gonna lose that AAA!), Austria, Belgium, Finland, Luxembourg and the Netherlands.

If ejected members get their fiscal house in order they can be readmitted to the Single European Currency with a more rigorous test. i.e. no more Greek book fiddling to get some of that Euro treaty pie. Mass ejection of Euro delinquents is disliked by Germany and friends because it would probably result in a super strong Euro and thus price German exports miles higher than all the ex Euro members, making them non competitive and probably sliding them back into recession.

4) Formation of the United States of Europe. A bit like the United States of America where fiscally irresponsible states like California (who have never managed to pass a balanced budget on time ever) cede control over most of the state's fiscal policy to Washington in exchange for them bailing them out when the monetary s**t hits the fan. Euro members just get fiscal policy directives from Brussels instead. Universally disliked by everyone who thinks there is already too much Brussels digging around in their sovereign food and forcing them to eat their sprouts before leaving the table. Requires radical changes to EU founding treaties which would take ages to be ratified assuming theres even majority support for it (there isn't) and so is highly unlikely.

5) Break up of the Eurozone. Disliked by everyone except nutjob anti Euro ultrahawks and half of the UK Tory party (who are nutjob anti Euro ultrahawks anyway) because waaaay too much time, effort and money has been invested into the Eurozone for it to go out like a wet fart. Will probably only happen if the German electorate demands it in a new wave of political extremism/ultra conservativism, which is more unlikely than the United States of Europe to be honest.

6) Razing of the earth in a blanket of nuclear fire. No, I'm just kidding.

Most likely scenarios are (1) and (3). Basically everything is disliked by Germany because everyone else in the union shows time and again that they are profoundly more rubbish than Germany is. It is so painfully consistently true that sovereign debt market players routinely bet against pretty much everyone...except Germany.

irishh_bob

Hayte wrote: »

Likely scenarios:

1) ECB intervenes by double timing their printing press and kick starting a new and huge round of quantitative easing in a period of higher than ECB mandate inflation (>2%), enabling Eurozone countries to inflate their debt away. Germany doesn't want this because of direct experience with hyperinflation after WW1 and fears the corollary of this would be Zimbabwe 2: Inflate harder.

2) Italian IMF bailout resulting in drastic austerity measures for Italian citizens. Nobody in the Eurozone wants this because Italy's economy in ginormous and righting this supertanker would cost a fortune (estimated at around €1 trillion). Italian government would probably have to be dissolved and reformed into a bipartisan technocratic jobbie similar to the one under Lamberto Dini in the mid 90s. Not likely either way because even if it was a good idea, who the hell can afford it right?

3) Ejecting Italy from the single currency. Also probably Ireland, Greece, Spain and Portugal too and anyone else who is slacking with greater than 100% GDP and a track record for running up huge debt without figuring out how to service it. Ejection from the single currency would allow said slacker states to devalue their own currency and regain export competitiveness, whilst Germany and friends forge stronger economic ties and unify fiscal policy in a super Euro union consisting of...well, probably just Germany, France, Belgium and the Netherlands.

If ejected members get their fiscal house in order they can be readmitted to the Single European Currency with a more rigorous test. i.e. no more Greek book fiddling to get some of that Euro treaty pie. Mass ejection of Euro delinquents is disliked by Germany and friends because it would probably result in a super strong Euro and thus price German exports miles higher than all the ex Euro members, making them non competitive and probably sliding them back into recession.

4) Formation of the United States of Europe. A bit like the United States of America where fiscally irresponsible states like California (who have never managed to pass a balanced budget on time ever) cede control over most of the state's fiscal policy to Washington in exchange for them bailing them out when the monetary s**t hits the fan. Euro members just get fiscal policy directives from Brussels instead. Universally disliked by everyone who thinks there is already too much Brussels digging around in their sovereign food and forcing them to eat their sprouts before leaving the table.

Requires radical changes to EU founding treaties which would take ages to be ratified assuming theres even majority support for it (there isn't) and so is highly unlikely.

5) Break up of the Eurozone. Disliked by everyone except nutjob anti Euro ultrahawks and half of the UK Tory party (who are nutjob anti Euro ultrahawks anyway) because waaaay too much time, effort and money has been invested into the Eurozone for it to go out like a wet fart. Will probably only happen if the German electorate demands it in a new wave of political extremism/ultra conservativism, which is more unlikely than the United States of Europe to be honest.

6) Razing of the earth in a blanket of nuclear fire. No, I'm just kidding.

Most likely scenarios are (1) and (3). Basically everything is disliked by Germany because everyone else in the union shows time and again that they are profoundly more rubbish than Germany is.

the problem can be solved relativley smoothly whenever germany stops being so neurotic about printing

Hayte

irishh_bob wrote: »

the problem can be solved relativley smoothly whenever germany stops being so neurotic about printing

This is pretty much true but ZOMG Shadow of Zimbabwe. Merkel to mission control! The Euro lolcano is about to SPLODE

kennyb3

I assume if (or when as you seem to be suggesting) the QE begins via printing other currencies will appreciate - namely those that arent also following the same policy. I presume this is why people are getting into NOK and swedish krone?

Icepick

If euro "falls apart" the best scenario is to own guns and canned food.

Hayte

kennyb3 wrote: »

I assume if (or when as you seem to be suggesting) the QE begins via printing other currencies will appreciate - namely those that arent also following the same policy. I presume this is why people are getting into NOK and swedish krone?

I have no idea about the krone thing. You may need to educate me on that score.

What I do know is that central banks try to encourage spending instead of saving by cutting interest rates. Since they are ridiculously low already and nobody is spending because they are in investor panic mode, the central bank rides to the rescue by pumping money into the economy directly (which for the benefit of those who didn't know is quantitative easing in a nutshell).

If allowed to do so, the ECB will probably achieve this by bulk buying Italian bonds using money it has created out of thin air. The effect is likely to be two fold:

1) Italian banks can get affordable credit because the ECB will buy bonds these banks issue. Lets face it, nobody else will. This means Italian banks can get lots of cash quickly which they can lend out, which keeps small Italian businesses from going bust and keeps that grand old engine called capitalism alive and well in the boot of Europe. It should in theory aid economic growth.

2) The Euro will become weaker. A weak Euro could lead to inflation because countries that export to the Eurozone will just raise prices to compensate. In post WW1 Germany and 2008 Zimbabwe, inflation got out of control. In 2008/2009, the Zimbabwe dollar was so freaking worthless due to hyperinflation that a loaf of bread cost like half a billion Zimbabwe dollars. The government had to issue new bank notes with an extra 6 zeros at the end so that people didn't have to pay for groceries in wheelbarrows full of cash. Then again, Zimbabwe was in a deflationary spiral. Theres a reasonable argument to be made that this can never happen to the Euro if quantitative easing is only temporary in order to service debt and not a matter of routine monetary policy.

I use "in theory" alot because economics isn't a science and is incredibly responsive to irrational human behaviour. What we do know is that soul crushing austerity and spending cuts don't work. In fact, they seem to be making everything worse.

andrew

There are many possible outcomes, which people know. But it's impossible to know which outcomes will obtain; this current crisis is pretty uncharted territory.

Hayte

Irishh_bob is right on the money though. The only non insane solution is for the ECB to fire up the printing press. A distant second place is a forced exit for the really bad Euro delinquents so they can practice that crazy art of currency devaluation so they (we?) can magic the trade deficit away.

Whatever happens the treasury is depleted, interest rates are zero or near zero, so its not like you can do anything other than imagine big piles of money into existence to service debts so big you have to wonder if they were imagined into existence too.

At this point I will just trail off into inane ramblings about solipsism and you may safely ignore me...

Hayte

Oh, it also looks like S&P's downgrade of France's AAA rating was the result of a "technical error". What a bunch of clowns seriously.

ardmacha

I don't know if the Euro will go bust. But if it does, I am pretty sure that in this forum the Irish PS will be blamed.

mistermouse

What I would like to know is that if it does and we are kicked out as such, left to our own, what would be stopping us defaulting on the German and French Bank debts that we are paying.

I'd certainly be in favour of telling them where to go if they boot us out.

femur61

ardmacha wrote: »

I don't know if the Euro will go bust. But if it does, I am pretty sure that in this forum the Irish PS will be blamed.

And SW, governments, not just the Irish government are borrowing to fund all public services (including their own wages) so, really every government should rely on their own intake of taxes to fund their own country. If you think about it, in history books when this crisis is discussed it will be treated with disbelief and madness that people were borrowing money to pay their own public services, and in the process bankrupt their own country in the process.

Every country needs to get their house in order. Yes, PS as well.

Hayte

mistermouse wrote: »

What I would like to know is that if it does and we are kicked out as such, left to our own, what would be stopping us defaulting on the German and French Bank debts that we are paying.

I'd certainly be in favour of telling them where to go if they boot us out.

No EU member will be kicked out of the single currency. Merkel's Christian Democrat party is putting it out there to establish a Euro exit clause which would allow an EU member state to voluntarily remove themselves from the single currency (and still remain an EU member state) in order to do currency devaluation.

None of this is set in stone and is more of a long term/future contingency anyway as one of the big problems of the single currency is that it has 1 central bank, and 17 different states with different fiscal policy, but no means for individual states with deficit problems to devalue the currency without messing up everyone else in the union. Germany totally doesn't want this because it is a mega exporter and a super strong Euro would be kind of bad for them when they are literally surrounded by trade partners with super weak currency.

You can default on sovereign debt but then nobody will give you credit for an indeterminate period of time (it depends on how long you are locked out of debt markets and how much confidence investors have that you can realistically pay them back). So the answer to the default question should be "if we can't get credit from the sovereign debt market, or the ECB, where can we get it from?"

antoobrien

Hayte wrote: »

Irishh_bob is right on the money though. The only non insane solution is for the ECB to fire up the printing press. A distant second place is a forced exit for the really bad Euro delinquents so they can practice that crazy art of currency devaluation so they (we?) can magic the trade deficit away.

We don't have a trade deficit we have a budget deficit. We actually export more than we import (trade surplus).

beeftotheheels

Hayte wrote: »

No EU member will be kicked out of the single currency. Merkel's Christian Democrat party is putting it out there to establish a Euro exit clause which would allow an EU member state to voluntarily remove themselves from the single currency (and still remain an EU member state) in order to do currency devaluation.

None of this is set in stone and is more of a long term/future contingency anyway as one of the big problems of the single currency is that it has 1 central bank, and 17 different states with different fiscal policy, but no means for individual states with deficit problems to devalue the currency without messing up everyone else in the union. Germany totally doesn't want this because it is a mega exporter and a super strong Euro would be kind of bad for them when they are literally surrounded by trade partners with super weak currency.

You can default on sovereign debt but then nobody will give you credit for an indeterminate period of time (it depends on how long you are locked out of debt markets and how much confidence investors have that you can realistically pay them back). So the answer to the default question should be "if we can't get credit from the sovereign debt market, or the ECB, where can we get it from?"

I've been puzzling about the German proposal overnight because it makes no sense.

Lets put it in context. Right now there are some who believe that the ECB wouldn't force a member state out and while that state of affairs continues what is to encourage any peripheral governments from ratifying the change?

But there is an analysis that makes more sense to me. What if a State that the ECB couldn't force out were to seek to leave? Right now that cannot be done (err, maybe see below), but were Germany to seek to leave then the euro would significantly weaken (it is still up against the dollar for the year) which would provide a competitive boost to PIIGS (and France, Belgium and Austria who are all now in play).

A German departure would also unshackle the ECB to some extent.

In theory Germany could announce that it is leaving the EU but using the whole 2 year time period to withdraw fully and immediately reapplying to join. If the application can be processed within 2 years (no reason why it cannot because as an existing member they already meet the criteria) Germany could cease to be an EU and eurozone member but become an EU member without ever actually spending a day out of the club.

This would be popular to the German punters, wildly unpopular with German industry, but it would resolve the issue of Germany wanting to have her cake and eat it too which is what has escalated the crisis to this level.

kennyb3

Hayte wrote: »

Irishh_bob is right on the money though. The only non insane solution is for the ECB to fire up the printing press. A distant second place is a forced exit for the really bad Euro delinquents so they can practice that crazy art of currency devaluation so they (we?) can magic the trade deficit away.

Whatever happens the treasury is depleted, interest rates are zero or near zero, so its not like you can do anything other than imagine big piles of money into existence to service debts so big you have to wonder if they were imagined into existence too.

At this point I will just trail off into inane ramblings about solipsism and you may safely ignore me...

I don't know, i know you ve recognised the germans reluctance to print due to the hyper inflation pre the hitler era. But i still think there seems to be an assumption/belief that the German will relent and let this happen.

Personally i don't think it will - the Germans are staunchly against it, added to the fact that they have contempt for a lot of the other EU countries and cant figure out why they cant just balance their books. If you read between the lines of what most of their MP's are saying (and one guy on the BBC 10 news even said it straight out), I think its far more likely they just booth countries (okay maybe not kick them out but slowly apply unsustainable pressure) who cant comply.

It's not in their interests to write europe a blank cheque - they have helped up to a point but have said no more. And i can see no reason why they d say yes to inflation.

Makes much more sense to cut lose the club meds and other peripherals - they don't lose much that way.

sensibleken

Hayte wrote: »

Oh, it also looks like S&P's downgrade of France's AAA rating was the result of a "technical error". What a bunch of clowns seriously.

for the love of god. these 'technical errors' can bankrupt a country. these days it should be marked as high treason. why in the name of god does the world pay so much attention to these muppet agencies who right before the bubble burst were saying throw your money at anglo.

its been demonstarted loud and clear, many times, that they are no authority on the matter

seamus

Godge wrote: »

Would expect tracker mortgage holders to be hit hard. If they want to keep their cheap ECB rate, they would have to repay mortgage in Euros when they are only earning in devalued Irish punts. If they switch to Irish punts, they would be paying a much higher repayment in Irish punts as the tracker is pegged to the new Irish central bank rate (likely to go above 7-8%).

I think all mortgage holders would be royally screwed tbh. At the end of the day the lenders would be repaying their own borrowings in Euro to European banks, so a direct 1:1 switch from Euros to Punts just would mean their borrowers aren't paying enough to service their debts.

So depending on how far the punt collapses compared to the euro, variable rate holders could see their rates shoot up to 15% or higher in order to service the Euro debts which underpin their mortgages. Those on fixed or tracker wouldn't fare any better, as you point out they would likely have to keep repaying their debt in Euros (or voluntarily jump to a variable rate in punts), so their repayments will jump by whatever amount the punt devalues.

Not ridiculous possibilities (or rates), we've been there before. But given how tightly a lot of people borrowed over the last ten years, a sudden jump in repayments costs could instantly cause hundreds of thousands of mortgage holders to default, which would likely lead to a second banking crisis and possible default of Irish banks.

irishh_bob

ardmacha wrote: »

I don't know if the Euro will go bust. But if it does, I am pretty sure that in this forum the Irish PS will be blamed.

if the euro dies , the public sector will notice it a lot more than the private sector , irish goverment will be forced to cut wages by at least 20% over night

irishh_bob

mistermouse wrote: »

What I would like to know is that if it does and we are kicked out as such, left to our own, what would be stopping us defaulting on the German and French Bank debts that we are paying.

I'd certainly be in favour of telling them where to go if they boot us out.

we wont be kicked out but if we decided to leave , of course we should default on our bank debt , the IMF never cared about our bank debt , we can deal with them and forget the ecb but as i said , it will mean cutting spending by about three budgets in one

Madd Finn

ardmacha wrote: »

I don't know if the Euro will go bust. But if it does, I am pretty sure that in this forum the Irish PS will be blamed.

People in "this forum" are the least of the public sector's worries. The simple fact is that it is costing us more than we can afford (it's called our fiscal deficit) and that if the euro collapses or we are forced out of it, our public expenditure will have to be more closely realigned with our fiscal income. The ECB will no longer need to, and certainly won't want to, shore us up to protect a currency we are no longer part of.

That means cuts. Whether in terms and conditions of existing employees (and pensioners) or total numbers or both.

A return to the punt will also see a return to local hands (eventually, once the IMF's work here is done) of the levers of control of the economy. But of course these levers can only control our reaction to the conditions pertaining in the wider world outside. If they are in prudent hands, interest and tax rates can be adjusted to suit our particular needs.

Interest rates will go up. That is inevitable. The punt will plummet against the euro and some sort of interest rate hike will be needed to retain any sort of bank deposit funding at all.

Those on tracker mortgages will feel the pain; so will those on variable rates but perhaps not as much. Not because banks are munificent or even vindictive against those who have been costing them so much in recent times but because variable rate mortgages will be the only types of mortgages in which banks can exhibit some flexibility to operate in a competitive market.

The falling punt will not be universal bad news. Our DFI sector will be salivating at the prospect and provided that the tarrif situation with regard to the rest of the EU (assuming there is an EU) remains largely unchanged, our track record, our infrastructure, our "clustering" of vital industries, our location and our familiarity with foreign companies, especially Americans, will all be positive factors influencing the health of that sector.

Tax rates may be adjusted slightly but there is a balance to be sought between wanting to attract inward investment and wanting to pay for public services. They will likely go up, but not by so much as to furnish a public sector of the same size and remuneration as the period immediately prior to the Croke Park agreement.

This is just a simple statement of facts and likely outcomes. My feelings on the matter are immaterial.

Tora Bora

In the end, the outcome to all this Euro problem, will be decided by Germany. Sarkozy, will hide under Merkels wing, and pretend he had a say, but he won't have any real say.
Probably the biggest beneficiary of the Euro since it's inception has been Germany itself. The value of the euro against all other big currencies, has been kept down, by virtue of the fact, that it has carried weak, and politically incompetent countries, such as the PIIGS.
Meanwhile, a super efficient and well run economy, driven on by a massive export sector, has benefited disproportionaly, on the back of a weak euro, which has made it's products very competitive on the world market.

Now, if Germany and a few other countries, go with a hard euro, and put the PIIGS, into the soft euro category, their new hard euro will appreciate by 20 to 30% in no time at all. Exports will fall, imports and energy costs will rise, factories will slow down, citizens income will drop, goverment income will drop, recession will follow. Germany will soon look like Italy:o

Do you think, the Germans will stand idly by, and sleep walk into a scenario like that

bryaner

Hayte wrote: »

Likely scenarios:

1) ECB intervenes by double timing their printing press and kick starting a new and huge round of quantitative easing in a period of higher than ECB mandate inflation (>2%), enabling Eurozone countries to inflate their debt away. Germany doesn't want this because of direct experience with hyperinflation after WW1 and fears the corollary of this would be Zimbabwe 2: Inflate harder.

2) Italian IMF bailout resulting in drastic austerity measures for Italian citizens. Nobody in the Eurozone wants this because Italy's economy in ginormous and righting this supertanker would cost a fortune (estimated at around €1 trillion). Italian government would probably have to be dissolved and reformed into a bipartisan technocratic jobbie similar to the one under Lamberto Dini in the mid 90s. Not likely either way because even if it was a good idea, who the hell can afford it right?

3) Ejecting Italy from the single currency. Also probably Ireland, Greece, Spain and Portugal too and anyone else who is slacking with greater than 100% debt to GDP ratio and a track record for running up huge debt without figuring out how to service it. Ejection from the single currency would allow said slacker states to devalue their own currency and regain export competitiveness, whilst Germany and friends forge stronger economic ties and unify fiscal policy in a super Euro union consisting of...well, probably Germany, France (gonna lose that AAA!), Austria, Belgium, Finland, Luxembourg and the Netherlands.

If ejected members get their fiscal house in order they can be readmitted to the Single European Currency with a more rigorous test. i.e. no more Greek book fiddling to get some of that Euro treaty pie. Mass ejection of Euro delinquents is disliked by Germany and friends because it would probably result in a super strong Euro and thus price German exports miles higher than all the ex Euro members, making them non competitive and probably sliding them back into recession.

4) Formation of the United States of Europe. A bit like the United States of America where fiscally irresponsible states like California (who have never managed to pass a balanced budget on time ever) cede control over most of the state's fiscal policy to Washington in exchange for them bailing them out when the monetary s**t hits the fan. Euro members just get fiscal policy directives from Brussels instead. Universally disliked by everyone who thinks there is already too much Brussels digging around in their sovereign food and forcing them to eat their sprouts before leaving the table. Requires radical changes to EU founding treaties which would take ages to be ratified assuming theres even majority support for it (there isn't) and so is highly unlikely.

5) Break up of the Eurozone. Disliked by everyone except nutjob anti Euro ultrahawks and half of the UK Tory party (who are nutjob anti Euro ultrahawks anyway) because waaaay too much time, effort and money has been invested into the Eurozone for it to go out like a wet fart. Will probably only happen if the German electorate demands it in a new wave of political extremism/ultra conservativism, which is more unlikely than the United States of Europe to be honest.

6) Razing of the earth in a blanket of nuclear fire. No, I'm just kidding.

Most likely scenarios are (1) and (3). Basically everything is disliked by Germany because everyone else in the union shows time and again that they are profoundly more rubbish than Germany is. It is so painfully consistently true that sovereign debt market players routinely bet against pretty much everyone...except Germany.

Wow I like this guy, very well explained thanks..

kennyb3

Tora Bora wrote: »

In the end, the outcome to all this Euro problem, will be decided by Germany. Sarkozy, will hide under Merkels wing, and pretend he had a say, but he won't have any real say.
Probably the biggest beneficiary of the Euro since it's inception has been Germany itself. The value of the euro against all other big currencies, has been kept down, by virtue of the fact, that it has carried weak, and politically incompetent countries, such as the PIIGS.
Meanwhile, a super efficient and well run economy, driven on by a massive export sector, has benefited disproportionaly, on the back of a weak euro, which has made it's products very competitive on the world market.

Now, if Germany and a few other countries, go with a hard euro, and put the PIIGS, into the soft euro category, their new hard euro will appreciate by 20 to 30% in no time at all. Exports will fall, imports and energy costs will rise, factories will slow down, citizens income will drop, goverment income will drop, recession will follow. Germany will soon look like Italy:o

Do you think, the Germans will stand idly by, and sleep walk into a scenario like that

I agree with alot of what you say - but Germany survived and performed quite well under the DM wouldnt you agree?

I'd say they'd much prefer that option to a) hyperinflation b) having to basically write a blank cheque to europe to cover Italy (and whoever else follow - e.g Spain)

Tora Bora

kennyb3 wrote: »

I agree with alot of what you say - but Germany survived and performed quite well under the DM wouldnt you agree?

I'd say they'd much prefer that option to a) hyperinflation b) having to basically write a blank cheque to europe to cover Italy (and whoever else follow - e.g Spain)

Prior to reunification, the German economy, was actually stagnating. Strong DM, and strong labour unions, held back the big corporations, like VW, Audi, Siemens, etc,.
Reunification, opened up a vast new labour force, right on their own door step, with the same language, etc,. Also the cost of that reunification, helped to keep the DM value down.
But that is now past. Germany, valued their DM, against the new currency, with one clear objective in mind. To gain a competitive advantage in the global market. The presence of the PIIGS, helped keep the new euro down, whilst Germany, revved up it's engine, and gained an ever increasing share of the market for it's highly engineered products.
The single currency market right in it's borders, has been a massive boon, for it's corporations and by extention, it's national coffers.

Germany, will get one hell of a belly ache, if the euro unravels, and they adopt a new currency like hard euro, or old DM.

beeftotheheels

kennyb3 wrote: »

I agree with alot of what you say - but Germany survived and performed quite well under the DM wouldnt you agree?

I'd say they'd much prefer that option to a) hyperinflation b) having to basically write a blank cheque to europe to cover Italy (and whoever else follow - e.g Spain)

But the bit the Germans cannot grasp is that inflation need not equal hyperinflation. The ECB could set an inflation target of 4-5% which would render peripheral recoveries easier (weakening the euro to make us more competitive), would provide a boost to domestic economies as the higher inflation target would promote spending, and would allow everyone's debt to GDP (and Germany's ain't to be sneezed at either) to become more manageable.

The theory is that in the short term if they engaged in QE of up to €2-3 trn it wouldn't increase inflation at all and that is more than enough firepower to keep bond yields manageable.

Inflation isn't necessarily hyperinflation, but the Germans cannot see that. So they're insisting that everyone else become like Germany while failing to grasp that everyone else not being like Germany is what has made Germany so successful, and that Germany couldn't be Germany were everyone else operating similar policies.

So Germany really should think about leaving (which will cost them and then they will learn).

kennyb3

I take both your points on board but there is a big difference between what the rest of europe thinks should happen and what Germany think should happen (and as a result what probably will happen as a result).

I agree in a perfect world that Germany would just go along with the QE.

It's all about the lesser of evils - they fear hyperinflation - nothing you or i say will change that. They don't want to write a blank cheque to cover other countries. The return to a DM is the lesser evil. They believe in themselves. A belly ache will is not going belly up. They know they will come through. And if things did go pear shaped the DM would devalue therefore restoring competitiveness!

Anyway much more likely is a 2 tier euro. They want others to fall in line or else.

beeftotheheels

kennyb3 wrote: »

I take both your points on board but there is a big difference between what the rest of europe thinks should happen and what Germany think should happen (and as a result what probably will happen as a result).

I agree in a perfect world that Germany would just go along with the QE.

It's all about the lesser of evils - they fear hyperinflation - nothing you or i say will change that. They don't want to write a blank cheque to cover other countries. The return to a DM is the lesser evil of all of these but anyway i think its unilkely. Much more likely is a 2 tier euro. They want others to fall in line or else. They decide.

But I think that this is worrying because now Italy and France and Austria and co are in play only Germany, Finland and maybe the Netherlands can afford to be in the hard euro.

Ironic is it not that the euro was the price for German reunification and an East German who is only an EU national because of that decision is about to allow the euro go bust.

More worryingly though is that anti-German sentiment is on the rise throughout the EU, and the founding logic of the EU was a peaceful solid Europe. By enforcing misguided German economics on the rest Germany runs the risk of being alienated again within Europe.

Domestic politics always involve butressing national barriers in a crisis, exactly what the EU was intended to prevent, and such nationalism always makes a crisis worse.

It is 1931 and we are in Austria and Italy is the next Creditanstalt.

mambo

simonb101 wrote: »

Can some one answer question for me. I'm no economist but I do watch stuff very closely. What happens if the Euro falls apart are my moderate savings safe in the bank and in Euro or am I safer changing it to another currency like Swiss franks.

If I moved some Euro savings into another currency account (e.g. AUD, GBP, etc.) with an Irish bank, is there a significant hit on the currency conversion? Putting some savings in a PTSB AUD account (at 5% interest rate!) seems like it could be a wise decision in case the Euro/Punt Nua is devalued?

OS119

mambo wrote: »

If I moved some Euro savings into another currency account (e.g. AUD, GBP, etc.) with an Irish bank, is there a significant hit on the currency conversion? Putting some savings in a PTSB AUD account (at 5% interest rate!) seems like it could be a wise decision in case the Euro/Punt Nua is devalued?

i doubt it - if the Euro falls apart its going to be pretty dramatic - flimsey bits of financial engineering aren't going to insulate you.

you'd probably be looking at an overnight change of currency announced with about a minutes warning, ideally over a weekend. the government would introduce a state of emergency, initiate border and electronic currency controls, have the banks closed for the best part of a week while they print the new currency - and possibly nationalise them, with the government dictating the value of that new currency vs the old Euro by law with severe penalties for black market currency exchanges and profiteering (think of this as wartime without the bombs...).

after a week of this the controls would relax and the new currency would freefall, and its recovery would be dictated by the markets views on how the government had handled the changeover, and how realistic their plans for surviving outside of the Euro would be.

if you have money in an Irish bank, or a non-Irish bank on Irish territory, then your money, in whatever currency, is going to be subject to whatever the hell the IG decides is its best course of action - personally i would not be surprised to see foriegn currency held in banks confiscated by the IG and used to pay for absolute essentials like oil/wheat/pharmacuticals etc, with the owner of that foreign currency then compensated on a 1:1 basis with the new currency, regardless of its market value.

in that situation the only 'safe' options would be to have money in a non-Euro bank in a non-Euro state (assuming of course that you'be able to access it), in diamonds under the floor boards, or in diesel buried in the garden.

note, the definition of 'safe' has changed somewhat in the last decade...

phonejacker

beeftotheheels wrote: »

I've been puzzling about the German proposal overnight because it makes no sense.

Lets put it in context. Right now there are some who believe that the ECB wouldn't force a member state out and while that state of affairs continues what is to encourage any peripheral governments from ratifying the change?

But there is an analysis that makes more sense to me. What if a State that the ECB couldn't force out were to seek to leave? Right now that cannot be done (err, maybe see below), but were Germany to seek to leave then the euro would significantly weaken (it is still up against the dollar for the year) which would provide a competitive boost to PIIGS (and France, Belgium and Austria who are all now in play).

A German departure would also unshackle the ECB to some extent.

In theory Germany could announce that it is leaving the EU but using the whole 2 year time period to withdraw fully and immediately reapplying to join. If the application can be processed within 2 years (no reason why it cannot because as an existing member they already meet the criteria) Germany could cease to be an EU and eurozone member but become an EU member without ever actually spending a day out of the club.

This would be popular to the German punters, wildly unpopular with German industry, but it would resolve the issue of Germany wanting to have her cake and eat it too which is what has escalated the crisis to this level.

Why is Austria in trouble? i no why France and Belgium are in trouble

GSF

http://blogs.telegraph.co.uk/finance/jeremywarner/100013438/return-to-sovereign-currencies-wouldnt-be-as-traumatic-as-assumed/

Interesting piece about the BoA Merrill Lynch report on where an independent currency would trade versus the $. Suggests that an IR£ would actually trade higher. I do think that the problems with re introducing the old currrencies are deliberately exagerrated by those with an interest in retaining the euro, but the real problem remains the debt overhang and who picks up the bill - regardless of what currency it is denominated in

daithi09

Does this mean property is going to take another massive hit? What does it mean for people paying back on variable mortgages?

mistermouse

So then would opening a sterling account in NI not be a better bet, unless sterling got a battering in the fallout of a Euro crash. It kind of seems quite a practical thing to do now and less uncertain than holding out hope all will turn out well with the Euro

I would however wonder what state Sterling would end up in

femur61

mistermouse wrote: »

I would however wonder what state Sterling would end up in

Wondering the same. I have some cash and was going to put it in the bank but actually thought when I'm up the north I was just going to put it straight into my bank account up there.

Actually, does anyone know if I've to put the cash into my account here first, or can I put cash (euro) straight into my account in the north. Won it playing poker as far as I van see thats what the lads in Europe are doing now with our livelihoods.

phonejacker

be sure of what ever happens that germany will do what suits germany. it doesnt seem imaginable that such a big thing as euro could bloom up but look at the titanic it was to big to sink:rolleyes:

touts

What happens when the euro collapses (I'm afraid it is now when not if). Well look at Argentine in 2000. A few weeks of chaos and riots followed by a return to a normal life just this time with scarcity (not just austerity) and high crime. Crazy tax laws will be introduced so just because you managed to get money out of the country before the collapse dont assume you will be able to bring it back without a whopper of a tax bill. And that assumes the currency you fled to will still be worth something. Remember the US and UK are both heavily in debt and could be the next dominos to fall after the EU. Mortgages will switch to the Irish Central Bank rate so Trackers will be 8 to 9% while variable rate holders will be mid to high teens. Fuel will Basically double or triple in price. Unless you live within cycling distance of your job you are in trouble. Home Heating will also be expensive so get that chimney swept. Food will be expensive because it will be a valuable source of exports and producers will want to export what they can. Tht flat screen TV or ipad or car you want. Forget it. They will be beyond the reach of 90% of average working families. Basically it will be a terrible decade of scarcity and pain and crime and poverty. After a decade we will be used to it.

NIMAN

Sounds like the Ireland of old. The one that maybe our parents lived through.

Hal Emmerich

touts wrote: »

.

I'm going to bed early, your're after depressing me with your positivitey.

beeftotheheels

phonejacker wrote: »

Why is Austria in trouble? i no why France and Belgium are in trouble

Italy - more precisely Italian banks. And Central and Eastern Europe or more precisely the banks of that region. If Austria had to stand over her banking sector she'd be just like we are now because her banks are heavily exposed to Italy and CEE.

It is called contagion and is how the markets tend to react when one engages in bondholder burning.

strandroad

Have access to a bank account abroad, in Polish zloty. Should I move our savings there (losing on the transfer and currency exchange). Why, why not. Head wreck!

touts

mhge wrote: »

Have access to a bank account abroad, in Polish zloty. Should I move our savings there (losing on the transfer and currency exchange). Why, why not. Head wreck!

It's impossible to know. Currency exchange rates are hugely volitile at the best of times. If the Eurozone goes down Poland will take a hit also. Will they be in or out of any new Germanic arrangement. Will Russia sit on the sidelines or try to re-establish their zone of influence as the EU implodes. Will there be taxes on money being transferred back into Ireland after a collapse.

Best thing to do is look at your financial situation and decide what portion of your savings you would be happy to gamble on a 50-50 chance in the grand national. Then look at the various exchange rates (USD, Sterling, Swiss Fr, Polish, Chinese, etc etc) and decide which nag you fancy putting your money on.