[y66]

From The Economist, June 23

Quote

No matter what fictions they concoct this week, the euro zone’s leaders will sooner or later face a choice between three options: massive transfers to Greece that would infuriate other Europeans; a disorderly default that destabilises markets and threatens the European project; or an orderly debt restructuring. This last option would entail a long period of external support for Greece, greater political union and a debate about the institutions Europe would then need. But it is the best way out for Greece and the euro. That option will not be available for much longer. Europe’s leaders must grab it while they can.

[mgoetze]

y66, on 2011-June-25, 07:35, said:

That option will not be available for much longer.

Why not? I mean they have already guaranteed Greek debt through some time in 2013, unless they renege on that I don't see what the rush is.

[Gerben42]

Darn, the Greek parliament accepeted the new budget plans. No good will come of this:

* the cuts will stagnate the Greek economy even more
* in 9 months, we will be in the same situation again
* our stupid government is investing more € into this financial black hole

Finally allow them to go broke!

[luke warm]

Gerben42, on 2011-June-29, 15:36, said:

Darn, the Greek parliament accepeted the new budget plans. No good will come of this:

* the cuts will stagnate the Greek economy even more
* in 9 months, we will be in the same situation again
* our stupid government is investing more € into this financial black hole

Finally allow them to go broke!

the whole world, it seems, is in a bailout mood

[Aberlour10]

Nowdays capitalism is on a very strange stage, profits are as always private thing, losses and debts are the public one.

[hrothgar]

Aberlour10, on 2011-June-30, 06:56, said:

Nowdays capitalism is on a very strange stage, profits are as always private thing, losses and debts are the public one.

Externalities are a bitch...

This might seem cynical, however, I don't think that the policy makers give a damn about the Greeks.

I think that their decisions are being driven by the fact that there are a large number of undercapitalized German and French banks that lent lots of money to the Greeks, Spanish, ... When this whole things blows up, the Greek economy is going to face a massive shock; however, its the German banking system that will be left holding the bag. (The US also has a fairly significant exposure. You know all those nice safe money market funds where people like to park their $$$... Guess where the banks went and parked a bunch of those funds).

To make things even more complicated, lots of folks knew that something was up and tried to hedge their exposure using derivatives and the like...
Sadly, these strategies assumed that the folks issuing the insurance policies have enough funds in place to cover their exposure. (Right now, a lot of very smart folks are spending a lot of effort trying to make sure that Greece doesn't formally go into default to prevent a whole wave of derivatives from flipping over)

Simply put, there is no way to draw nice clean lines and ensure that

1. The Greeks get screwed
2. The bankers who made bad loans go bust
3. The public at large doesn't get affected

The public at large wanted growth, growth, growth which meant that reserve requirements aren't what they should be and the bankers were forced to chase after ever more speculative investments to ensure a "competitive" return...

One way or another, we're going to be stuck paying to clean up this damn mess
I'm not sure whether the payment is going to take the form of bailout funds (which eventually need to be paid for with - gasp - taxes) or alternatively with a stock market crash. However, its clear that its going to cost real $$$ trying to get all this crap out of the system.

At the end of the day, this is going to boil down to a balancing act in which the banks try to figure out just how much of Greece can get auctioned off to cover some of these debts without triggering an outright default on the debt.

[mgoetze]

hrothgar, on 2011-June-30, 07:22, said:

You know all those nice safe money market funds where people like to park their $$$... Guess where the banks went and parked a bunch of those funds).

Huh? I would guess they parked those funds in CPs, T-Bills, etc. with a maximum duration of 1 year and often much less, and have no idea why they would still have any problem at this point. Isn't that what money market funds are all about?

[Aberlour10]

A warm welcome to Italy in this thread.

[mike777]

The euro was, and still is, based on the premise of the mobility of factors of production( i.e., people and capital).

In order for the euro to succeed two problems must be resolved:

The member states will have to loosen their grip on the financial system, which will lead to a decrease in public debt.

Workers' international mobility will have to be made more flexible and fluid at the cost of more restrained social protection.

The choice of a common currency was an excellent one, but the durability of the eurozone is not an established fact.

[helene_t]

Mike, people are free to move and work within the EU with some restrictions for citizens from a few countries but those are not members of the Euro zone.

[mike777]

helene_t, on 2011-July-11, 15:03, said:

Mike, people are free to move and work within the EU with some restrictions for citizens from a few countries but those are not members of the Euro zone.

Helene, not the point.

Europe is threatened with endemic, structural unemployment, linked especially to the lack of integration of young people into the workplace, the absence of retraining incentives, and the massive drain of industrial employment.


Workers will have to become extremely adaptable so that their mobility reflects the choices of monetary harmonization.

Labor mobility is easier to propose than do with realities to contend with such as the lack of linguistic, cultural, institutional and legal unity.

For the Euro to be a success it will require an adjustment of the social protection systems in the direction of more competivitness and flexibility.

The mobility of capital forces social and educational systems to compete against each other.

One can see the national tensions already being felt in Greece, Ireland, and Portugal.
---


Some of these thoughts borrowed from Bruno Colmant, CFA.

[Aberlour10]

mike777, on 2011-July-11, 14:57, said:

The euro was, and still is, based on the premise of the mobility of factors of production( i.e., people and capital).

In order for the euro to succeed two problems must be resolved:

The member states will have to loosen their grip on the financial system, which will lead to a decrease in public debt.

Workers' international mobility will have to be made more flexible and fluid at the cost of more restrained social protection.

The choice of a common currency was an excellent one, but the durability of the eurozone is not an established fact.

Workers mobility increased rapidly and cuts in social protection systems took place in mostly european countries during the last decade. In low loan sector we have everywhere now the "US circumstances" = you need 2-3 such a jobs to have enough to live.

For Euro full success it needed and need still compliance of only 2 rules by all euro-zone countries.

The ratio of the annual government deficit to gross domestic product (GDP) must not exceed 3% at the end of the preceding fiscal year.

The ratio of gross government debt to GDP must not exceed 60% at the end of the preceding fiscal year.

Ignoring of these both Maastricht Criterias by a lot of members led Europe to the current desaster, so simply is the truth.

[mike777]

If you think labor markets in Euro countries are mobile then we disagree.


They are still very uncompetitive and inflexible.

I would only point how many protesters and unemployed/underemployed are youth.

If the best, hardest, most productive workers dont have jobs and others do.....that says labor is not mobile.

I understand many disagree. One of the main reasons are social protections but I have listed many other reasons above.

[y66]

That Greek financing offer — annotated
From Joseph Cotterill on Jul 22 12:49 at FT Alphaville via Krugman

Quote

And lo — the cherubim descended on the Institute of International Finance’s Greek bond exchange, and sang… well, what were those dulcet tones, exactly? The Ode to Joy – or the Argentine national anthem…

Way too much like the latter, we think.

[pdmunro]

A very interesting analysis of the European monetary crisis by Yanis Varoufakis, a Greek economist
http://www.abc.net.a...11/s3276182.htm

I really loved this sentence: "This is how Europe works, it dithers, it delays, it makes cowardly small steps towards the truth and at some point that which it has admonished as impossible it embraces as inevitable."

He comments: "It's a crisis that has spread well without the limits of Greece. It has, as of course you all know, moved to Ireland and from there south to Portugal; recently it has contaminated Italy and Spain. Currently it's spreading its wings over Belgium, the French banks and so on."

He advocates three immediate steps:
1) "The first thing we need to do is unify the banking sector. It's preposterous to have France responsible for the French banks, it's like ... having Wall Street supervised and recapitalised in times of crisis by the state of New York."
2) "We need a common bond. Something like the US Treasury Bills"; and
30 "If you have a Eurobond, at the European level, you could co-finance a Marshal Plan for the whole of Europe using the European Investment Bank, which is twice the size of the World Bank."

[Aberlour10]

These 3 immediate steps will make from EU the full version of the ETU European Transfer Union, where will no more need for budget discipline, structure reforms etc...the tax payers from "rich countries" will pay all the bills one way or another.

[jdeegan]

The best size for a nation state (often based on a shared language or religion or some other values) and the best size for a currency union are evidently not the same. HA HA! Working this out is going to take a while. Perhaps we can take some comfort in the fact that the optimal size for a computer world of bridge players is apparently global.

[Vampyr]

jdeegan, on 2011-July-31, 03:29, said:

The best size for a nation state (often based on a shared language or religion or some other values) and the best size for a currency union are evidently not the same.

A New Yorker looking for her first job will consider positions in Florida, Texas and California; and often information about jobs in these and other states will be readily available at the same source.

A Portuguese job seeker, however, will not readily investigate positions in Austria or the Netherlands, even if information about them is easy to find. Leaving one's family in New York and moving to California is far easier and more comfortable than leaving one's family in Finland and moving to Greece, even though the latter involves a considerably shorter distance. And if, suddenly, a vast majority of people became more inclined to live in a foreign country, the language barriers alone would make mobility an illusion.

[helene_t]

Lots of people here see the fact that I moved from Lancashire to Yorkshire (appr 100 kilometers) as a major change in my life. Personally I wouldn't consider it a big deal if I were offered a job in Estonia or Spain, if the job is better than what I have now I would just take it. But yes, the language barrier is a problem for most workers.

The EUR was largely considered a success story until a few years ago. I still see it that way. I don't quite understand thiss debt problem but I feel like rambling about it anyway: IMHO it was a terrible mistake to allow the Greek and Portuguese to borrow all that money. As I understand it, before the EUR, Greek loans were risky because they were in Drachma which could be devaluated at any moment. This made it difficult for the Greeks to borrow excessively. The risk associated with a Greek EUR loan is not devaluation but rather a debt reconstruction, as seems necessary now. Presumably the lenders assumed that while a devaluation would be the problem of the lenders, a debt reconstruction would largely be the problem of the tax payers. The EU should have given a very clear signal right at the beginning, when Greece joined the EUR: that non-Greek tax-payers will take zero responsibility for Greece's debt and that the fact that Greece is now an EUR country makes no difference in that respect.

[Vampyr]

helene_t, on 2011-July-31, 05:05, said:

Lots of people here see the fact that I moved from Lancashire to Yorkshire (appr 100 kilometers) as a major change in my life.

When I first moved to England I was very amused at the approach to distance! But anyway I used the United States as an example because it is a territory approximately the size of Western Europe, with a single currency, and where mobility is easy and even quite attractive to a majority of people.

Quote

The EU should have given a very clear signal right at the beginning, when Greece joined the EUR: that non-Greek tax-payers will take zero responsibility for Greece's debt and that the fact that Greece is now an EUR country makes no difference in that respect.

I don't think that this is possible. The other countries which foolishly use the Euro have no choice but to protect the integrity of what is also their own currency. A significant devaluation of the Euro would not be in the interest of all the Eurozone countries.