We could be into the last 10 days of the Euro according to the Financial Times...

carveone

beeftotheheels wrote: »

Equity markets follow bond markets. Forex follows equities.

You can see it in the whipsawing of the eurgpb numbers especially. My gut feeling is (and I'm not an expert) that people are dumping equities and fleeing to cash (eur goes up) and then dumping the cash (eur goes down).

It's giving me a headache at this stage. The data is just grim.

Germany may accept them in return for treaty changes (although even this is unclear) but we are out of time, we just don't have time for treaty changes which would take through to the end of 2012.

I agree. I think a mechanism might be for the ECB to fund the IMF which in turn funds countries but that's a big hack. I'm really concerned at this stage.

Scofflaw

beeftotheheels wrote: »

Let me rephrase. The Euro, if it survives, will either be a PIIGS currency absent Germany, or a core currency absent Italy and others. If the euro survives it will be minus at least one G7 nation (and numerous small ones).

Hmm - I'd go core currency absent Italy and several small nations. Still can't see the value to Germany in jumping ship, or the likelihood of the euro persisting without Germany - and, given the likely fallout, it would probably set Merkel's place in history as the German leader who destroyed the EU and pulled down much of the global economy.

cordially,
Scofflaw

The Corinthian

Scofflaw wrote: »

At the end of the day, the decision on whether to collapse the euro is a political one, and I still can't see it as to anyone's advantage to either leave it unilaterally or to agree to dissolve it. On the contrary, the most likely steps all seem to me to be strengthening of it.

Very true. A dissolution of the Euro would be catastrophic for all, including Germany; a new DM would appreciate sharply sending them into a recession, foreign debts would inflate for currencies that depreciate and that's before you consider the nightmare that would be all those Euro denominated contracts out there.

A Eurobond solution is regrettably necessary now, however - as the Germans have pointed out - on its own would only represent another stopgap solution, leading to greater problems down the line as we would then all be underlining fiscal mismanagement that would continue unregulated. Nonetheless, without a Eurobond to decrease interest rates, it is unlikely that some Eurozone countries could get their house in order - remember, Italy, for example, can afford it's debt, it's just that it cannot afford it if the interest rate gets too high.

A realistic solution would be to introduce a fiscal union on a par with federations such as the US and Switzerland; in those countries local tax rates are still controlled locally - our precious low corporate tax rates could be kept low, just as they are in the US state of Washington or Swiss canton of Zug. However, it also means that these states/cantons are on a short leash where it comes to spending.

My guess is that some form of limited fiscal union that would remove German objections, and allow the creation of Eurobonds, is the optimum solution, but it would require that countries such as Greece, Spain and Italy agree to serious reform. Failing that some form of two tier Euro is the next most likely, with the aforementioned countries being cut loose.

Scofflaw

Failing that some form of two tier Euro is the next most likely, with the aforementioned countries being cut loose.

I'd still see that as the fastest option - essentially a German drawn up set of entry criteria and strictures to either a euro 2.0 or a euro+, thrown down on the table with decisions needed by early in the New Year. Those countries being bailed out automatically fail the criteria - or, rather, are already known not to pass - but have the option to aim for qualification and hold any necessary referendums or votes when they do.

cordially,
Scofflaw

beeftotheheels

Scofflaw wrote: »

Hmm - I'd go core currency absent Italy and several small nations. Still can't see the value to Germany in jumping ship, or the likelihood of the euro persisting without Germany - and, given the likely fallout, it would probably set Merkel's place in history as the East German leader who destroyed the EU and pulled down much of the global economy.

cordially,
Scofflaw

But what is the benefit to the German economy of a core Euro?

It appreciates almost as a new D'mark would do and Germany tips into recession. If, and it is a big if (hence my "at least one G7") France can afford to stay in they may hold it back a little, but the creation of such a core euro creates an implicit German back stop for those it allows in the club so there's nothing to hold the euro back from $1.70 odd.

Only certain members at this moment in time would be Germany, Finland and the Netherlands (and maybe Luxembourg).

Permabear

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Scofflaw

beeftotheheels wrote: »

But what is the benefit to the German economy of a core Euro?

It appreciates almost as a new D'mark would do and Germany tips into recession. If, and it is a big if (hence my "at least one G7") France can afford to stay in they may hold it back a little, but the creation of such a core euro creates an implicit German back stop for those it allows in the club so there's nothing to hold the euro back from $1.70 odd.

Only certain members at this moment in time would be Germany, Finland and the Netherlands (and maybe Luxembourg).

Sure - too core and you have the DM problem. Like I said, I'd see the likely solution as an inner "eurobonded" core with stricter targets and intense peer review, but with an outer group still in the euro but not eligible for the eurobond system. To a large extent, that formalises the current arrangements, and the inner eurobonded group would continue the policy of bailing out the peripherals in a way that doesn't land them legally perpetually liable for their debts, but does allow the peripherals to constitute a drag on the strength of the whole currency.

cordially,
Scofflaw

Scofflaw

Permabear wrote: »

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Without getting into questions of who might be profiting from what, I think there's a lot of truth in that. This is a political decision, not an economic one, and with the world economy at stake, so the financial indicators are not necessarily a good guide to outcomes. If it does all come down to it, the various powers involved may need to take off the gloves of legality for a while, but it would hardly be the first time that's been done.

cordially,
Scofflaw

beeftotheheels

Permabear wrote: »

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Yet the bond, derivative and equity markets are running for the hills due to their lack of faith in eurozone political leaders. Go figure.

I've clarified my position that the euro, if it exists come the end of March, will be minus at least one, if not more G7 economies. If you're happy to take that bet I'm in. In fact I can't lose because if the euro survives in any meaningful way I think that would be a good thing and thus would be happy to pay out for getting it wrong.

Dodge

Permabear wrote: »

This post had been deleted.

Sure that just means the Dollar will go first...

The Corinthian

Scofflaw wrote: »

I'd still see that as the fastest option - essentially a German drawn up set of entry criteria and strictures to either a euro 2.0 or a euro+, thrown down on the table with decisions needed by early in the New Year. Those countries being bailed out automatically fail the criteria - or, rather, are already known not to pass - but have the option to aim for qualification and hold any necessary referendums or votes when they do.

The fastest, but not the ideal solution. The ideal solution would be to keep everyone in, but that is looking increasingly unlikely. There may be a fudge on the criteria that would allow some countries to remain (on probation, as it were); Ireland being a fairly good candidate and Italy, if paying lower interest rates, could qualify too. Greece would be gone.

However, as you say, it would effectively require a redrawing of the Eurozone treaties, to include some form of fiscal union or rectitude. In the short term this could be done via bilateral treaties, but would ultimately mean a new EU treaty formalizing the process down the line.

beeftotheheels wrote: »

But what is the benefit to the German economy of a core Euro?

Trade. Germany's biggest trade partners in the Eurozone are France 10.2%, Netherlands 6.7%, Italy 6.3%, Austria 6%. Of those Italy is presently the only one that would likely not qualify. France is also entering the danger zone which is why they are pre-empting the issue directly with each other.

Scofflaw

The Corinthian wrote: »

The fastest, but not the ideal solution. The ideal solution would be to keep everyone in, but that is looking increasingly unlikely. There may be a fudge on the criteria that would allow some countries to remain (on probation, as it were); Ireland being a fairly good candidate and Italy, if paying lower interest rates, could qualify too. Greece would be gone.

Sure.

The Corinthian wrote: »

However, as you say, it would effectively require a redrawing of the Eurozone treaties, to include some form of fiscal union or rectitude. In the short term this could be done via bilateral treaties, but would ultimately mean a new EU treaty formalizing the process down the line.

Plenty of precedent for that. After all, the Stability & Growth Pact wasn't strictly part of the EU Treaties.

cordially,
Scofflaw

Permabear

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HellFireClub

http://en.wikipedia.org/wiki/Stability_and_Growth_Pact

Having read that wiki article, it is clear that we signed up to keeping our deficit at or below 3% of GDP.

It is also clear that the legal basis for the Stability & Growth Pact is based primarily on Articles 121 and 126 of the Treaty on the Functioning of the European Union, it consists of fiscal monitoring of members by the European Commission and the Council of Ministers and, after multiple warnings, sanctions[2] against offending members.

So here we are again, the problem, if the above is true, is yet again, one of regulation and a lack of a natural application of the rules.

So no need for any more treaties or elaborative waffling for years and referendums that need to be ran multiple times until the result that is required, is delivered.

If we signed up to a budget deficit of no greater than 3% of GDP, you'd have to question the competence of the EU Commission and the Council of Ministers who let that climb up, year after year after year, to 13% or 15% or whatever it peaked at.

beeftotheheels

HellFireClub wrote: »

http://en.wikipedia.org/wiki/Stability_and_Growth_Pact

Having read that wiki article, it is clear that we signed up to keeping our deficit at or below 3% of GDP.

It is also clear that the legal basis for the Stability & Growth Pact is based primarily on Articles 121 and 126 of the Treaty on the Functioning of the European Union, it consists of fiscal monitoring of members by the European Commission and the Council of Ministers and, after multiple warnings, sanctions[2] against offending members.

So here we are again, the problem, if the above is true, is yet again, one of regulation and a lack of a natural application of the rules.

So no need for any more treaties or elaborative waffling for years and referendums that need to be ran multiple times until the result that is required, is delivered.

If we signed up to a budget deficit of no greater than 3% of GDP, you'd have to question the competence of the EU Commission and the Council of Ministers who let that climb up, year after year after year, to 13% or 15% or whatever it peaked at.

Yes and no. If you look at 121 and 126 you'll note that they require a qualified majority at the council (i.e. heads of Government) to kick them off (but thank you for doing that research, always cheers me up when people actually look into things).

Germany and France were running deficits so made clear that they would not countenance a vote on their compliance so as such 121 and 126 could not be invoked. Italy always breached the debt limit so they didn't want to be voted on either.

So when Germany talks about treaty changes the key one would be to give the powers under Arts 121 and 126 to the Commission (which has to act in the interests of the EU, not in the interests of any one or more member state) to prevent Germany and France from stopping those articles working as designed.

As a small nation we always had to comply, so a change to 121 or 126 means nothing to us, we never had the muscle to prevent a vote so 121 and 126 are binding on us. The change is to make them binding on the big boys which is why, if that is the only change proposed, it would be daft for the Irish people to reject it out of hand.

Great piece from the Polish foreign minister on this in today's FT by the way

http://www.ft.com/intl/cms/s/0/b753cb42-19b3-11e1-ba5d-00144feabdc0.html

Scofflaw

HellFireClub wrote: »

http://en.wikipedia.org/wiki/Stability_and_Growth_Pact

Having read that wiki article, it is clear that we signed up to keeping our deficit at or below 3% of GDP.

It is also clear that the legal basis for the Stability & Growth Pact is based primarily on Articles 121 and 126 of the Treaty on the Functioning of the European Union, it consists of fiscal monitoring of members by the European Commission and the Council of Ministers and, after multiple warnings, sanctions[2] against offending members.

So here we are again, the problem, if the above is true, is yet again, one of regulation and a lack of a natural application of the rules.

So no need for any more treaties or elaborative waffling for years and referendums that need to be ran multiple times until the result that is required, is delivered.

If we signed up to a budget deficit of no greater than 3% of GDP, you'd have to question the competence of the EU Commission and the Council of Ministers who let that climb up, year after year after year, to 13% or 15% or whatever it peaked at.

The problem is not that Ireland ran large deficits before the crisis - it generally had a positive balance - but that it moved the tax base largely onto the property bubble while increasing public spending. While the bubble was bubbling, that still produced surpluses - and the moment it burst, it produced large deficits.

cordially,
Scofflaw

SupaNova

Don't know if this was posted in a thread already, but even if a break up was purely economic and not political at all, according to UBS research the cost of leaving for the PIIGS or Germany is far greater than the cost of keeping it together.

http://bruxelles.blogs.liberation.fr/UBS%20fin%20de%20l%27euro.pdf

Pg1

The economic cost (part 1)

The cost of a weak country leaving the Euro is significant. Consequences include sovereign default, corporate default, collapse of the banking system and collapse of international trade. There is little prospect of devaluation offering much assistance. We estimate that a weak Euro country leaving the Euro would incur a cost of around EUR9,500 to EUR11,500 per person in the exiting country during the first year. That cost would then probably amount to EUR3,000 to EUR4,000 per person
per year over subsequent years. That equates to a range of 40% to 50% of GDP in the first year.

The economic cost (part 2)
Were a stronger country such as Germany to leave the Euro, the consequences would include corporate default, recapitalisation of the banking system and collapse of international trade. If Germany were to leave, we believe the cost to be around EUR6,000 to EUR8,000 for every German adult and child in the first year, and a range of EUR3,500 to EUR4,500 per person per year thereafter. That is the equivalent of 20% to 25% of GDP in the first year. In comparison, the cost of bailing out Greece, Ireland and Portugal entirely in the wake of the default of those countries would be a little over EUR1,000 per person, in a single hit.

The argument that people could leave and devalue and everything would be much better doesn't hold and I think the quoted text below is a very likely scenario which would obviously be a political and economic disaster for everyone. I cannot see the Euro, a decades long project that still has a lot of potential, just rolling over and dieing.

Pg9

Trade, tariffs and protectionism
The idea that a seceding state would immediately have a competitive advantage through devaluing the NNC against the Euro is not likely to hold in reality. The rest of the Euro area (indeed the rest of the European Union) is unlikely to regard secession with tranquil indifference. In the event that a NNC were to depreciate 60% against the Euro, it seems highly plausible that the Euro area would impose a 60% tariff (or even higher) against the exports of the seceding country. The European Commission explicitly alludes to this issue, saying that if a country was to leave the Euro it would “compensate” for any undue movement in the NNC.

beeftotheheels

Permabear wrote: »

This post had been deleted.

Absent yesterday's little bear market rally equities have had their longest losing stretch since 2003, European Financials are down 35% on the year (although many banks are a lot worse) and that fall has been since July.

Permabear wrote: »

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Actually my position is that either Germany or Italy will leave, I think France is too close to call either way. Right now I think they'd stick with Germany but at the rate things are progressing I'm not convinced they'll be able to afford to by the time push comes to shove, especially if Germany leaves to a new D'mark.

The Corinthian

Scofflaw wrote: »

The problem is not that Ireland ran large deficits before the crisis - it generally had a positive balance - but that it moved the tax base largely onto the property bubble while increasing public spending. While the bubble was bubbling, that still produced surpluses - and the moment it burst, it produced large deficits.

This is the main problem with deficit caps - crisis events have a tendency to break them. A major earthquake off the coast of Malta would likely do the same for them.

And while the effects of the property bubble are not exactly an act of God, it's still fair to say that the caps were imposed more as a means to reign in overspending, not to cover costly shocks to the system.

SupaNova

The Corinthian wrote: »

This is the main problem with deficit caps - crisis events have a tendency to break them. A major earthquake off the coast of Malta would likely do the same for them.

I quoted an ECB board member in this thread:

http://www.boards.ie/vbulletin/showthread.php?t=2056464331

No-one wants an optimistic Euro thread but the following is relevant to how this could be handled in the future:

fiscal authorities have to build up sufficient buffers in good times to withstand adverse conditions.

But is this in fact a disadvantage for Europe? In a sense, euro area countries have given up sovereignty over their national currency. This implies that maintaining their public debts at reasonable levels requires commensurately more convincing fiscal and economic policies. It also requires that they “tie their hands” in a credible manner through stronger and more automatic economic governance.

gizmo555

HellFireClub wrote: »

If we signed up to a budget deficit of no greater than 3% of GDP, you'd have to question the competence of the EU Commission and the Council of Ministers who let that climb up, year after year after year, to 13% or 15% or whatever it peaked at.

They didn't.

On the face of it, the conduct of fiscal policy in Ireland in the two decades prior to the onset of the current crisis was exemplary. After running very large double-digit budget deficits during the late 1970s and most of the 1980s, racking up a huge debt which had grown to 113% of GDP by 1987, Ireland staged a remarkably successful fiscal consolidation in the late 1980s. By 1989 the deficit had dropped below 3% of GDP, never to breach this level again until 2008, and the debt ratio had fallen below 100%, a prelude to it falling a good deal further.

By 1997, the Irish government was running a budget surplus and that outcome was repeated in all but one of the next ten years. Over the 1997-2007 period the budget surplus averaged 1.7% of GDP and the debt-GDP ratio fell from 74% to 25%. In the five years prior to the onset of the current crisis the average budget surplus was somewhat less than this at 1.3% of GDP.

http://www.google.ie/url?sa=t&rct=j&q=irish%20budget%20deficit%202001&source=web&cd=3&ved=0CCcQFjAC&url=http%3A%2F%2Fwww.irisheconomy.ie%2FNotes%2FIrishEconomyNote11.pdf&ei=OffUTtG7FIexhAebpvR4&usg=AFQjCNE7Mn83M1_pkwKTswCq3n0SHA02_g

The Corinthian

SupaNova wrote: »

No-one wants an optimistic Euro thread but the following is relevant to how this could be handled in the future:

The system we have now in place for Euro is unfortunately much like many of the other systems in place with the EU; a compromise between federalism and regionalism. It's a motif that has plagued EU policy for decades as it inevitably ends up being ineffective and satisfies no one.

Permabear

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beeftotheheels

Permabear wrote: »

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FYP

[MOD]Please don't do FYP.[/MOD]

Fair enough. I just thought it was the most elegant way of pointing out that it is a very big "if"!

beeftotheheels

On a more serious note though, financial stocks are well down on the year. They're not down to 2009 levels but it took them over a year from 2008 to bottom out, two years if you spot the 2007 was the start of the sell off.

The thing is that they are moving in one direction, down.

True without the volatility of August, but neither are we getting the daft relief rallies when something comes out of the EU, we saw one yesterday but it is gone by today.

We're in a cyclical bear market and the rationale behind that is that the eurozone is going to tip the global economy back into recession. There's no confidence in the equity markets and this is clearest in the pricing of financials.

Amtmann

Scofflaw wrote: »

I'd still see that as the fastest option - essentially a German drawn up set of entry criteria and strictures to either a euro 2.0 or a euro+, thrown down on the table with decisions needed by early in the New Year. Those countries being bailed out automatically fail the criteria - or, rather, are already known not to pass - but have the option to aim for qualification and hold any necessary referendums or votes when they do.

cordially,
Scofflaw

What do you think will happen to Ireland in this scenario, Scofflaw? Would we keep the euro throughout, or revert to something else?

Scofflaw

Tremelo wrote: »

What do you think will happen to Ireland in this scenario, Scofflaw? Would we keep the euro throughout, or revert to something else?

Initially outside, because in our current condition we wouldn't qualify. We'd be part of the bailed out periphery, not the core. We'd retain the euro in the same way we have it now - we wouldn't be subject to the additional strictures of the core group, but wouldn't be able to partake in eurobonds either.

Almost immediately, though, our government would announce its intention to work towards qualifying for entry to the core group - something which would involve at least a couple more years of the programme exactly as at present, and then a referendum on entry.

A major point is that the official dividing line is not euro/non-euro, or even formally "euro core/periphery", but between those states that qualify for pooled debt and those that don't. That avoids the appearance of a two-tier euro in a formal sense - it bears the same relation to the euro as Schengen does to free movement, being "only" a closer cooperative group within the euro.

Speculative, obviously.

cordially,
Scofflaw

FreudianSlippers

irishh_bob wrote: »

i think you could be usefull in fronting the vote YES campaign in whatever referendum we are asked to vote on in the near future

meglome wrote: »

Do you think he's incorrect? Because from my reading of it he's on the money (so to speak).

I was fully prepared to take that as a compliment

FreudianSlippers

beeftotheheels wrote: »

Let me rephrase. The Euro, if it survives, will either be a PIIGS currency absent Germany, or a core currency absent Italy and others. If the euro survives it will be minus at least one G7 nation (and numerous small ones).

I would disagree. We have been left out of the PIIGS for months now (down to PIGS, I being Italy). We have proven that we are capable of managing our own affairs when nudged in the right direction by Troika and IMF, we have made meaningful attempts at austerity across part of the board... there is no real reason, other than the Irish people themselves, that if we don't get our act together in the next budget that we couldn't be a part of an inner Eurozone. Well, there are other reasons... but no reasons prima facie without knowing what/when/if a tiered Eurozone would look like or be in practice or if it would even happen.

There is just a lot of supposition on very little actual evidence.


IMO - the Euro goes nowhere, changes are made and they do not include an overtly tiered system. My point is merely that if there were a tiered system, we are not the worst offenders.

Boulevardier

"We have proven that we are capable of managing our own affairs when nudged in the right direction by Troika and IMF..."

This is a prime example of Euro-establishment doubletalk.

Either we can manage our own affairs or we can't. If we need to be "nudged" By anyone, then obviously we can't.