Is the end nigh for the Euro? [vol. 3]

[anonymous-user]

Gargamel said:

Talk about dwonplaying it !

So the deal writes off 12bn in Bad loans, from two small regional banks in Veneto, helpfully avoids EU rules on state aid and of course takes over the assests. Great news for consumers.

Then you get to this bit

Bailout fund
Sunday's rescue is the latest twist in the drive to fix the Italian banking system, which is saddled with bad loans worth about 350bn euros - a third of the eurozone's total bad debt

Hmm - so 12bn Euro's of bad debt written off. Just another 338bn to go !

Not written off, Nationalised by the taxpayer.

[loafer123]

Gargamel said:

Talk about dwonplaying it !

So the deal writes off 12bn in Bad loans, from two small regional banks in Veneto, helpfully avoids EU rules on state aid and of course takes over the assests. Great news for consumers.

Then you get to this bit

Bailout fund
Sunday's rescue is the latest twist in the drive to fix the Italian banking system, which is saddled with bad loans worth about 350bn euros - a third of the eurozone's total bad debt

Hmm - so 12bn Euro's of bad debt written off. Just another 338bn to go !

€12bn written off against loans of €18bn.

If that loss rate were implied over the whole €350bn of Italian NPLs, the cost would be €233bn.

Ouch.

[stongle]

loafer123 said:

€12bn written off against loans of €18bn.

If that loss rate were implied over the whole €350bn of Italian NPLs, the cost would be €233bn.

Ouch.

Need to do the write offs now before FRTB and IFRS9 come in. These would make the full NPL hit Vs. Capital mandatory, hence the EC has gone into full can kicking mode to either delay or recalibrate.

The US proposals aired by Mnuchin to remove gold plating of regs and go for equivalence on all FSB recommendations (i.e. Capital, leverage and liquidity) is an existential crisis for European banking - we could be looking at the nationalisation of many of Europe's banks given legacy issues and an inability to compete.

[Driller]

€1.11 to the pound. Hasn't been here for a while.

[Driller]

So the UK's credit rating has now been downgraded to AA2 i.e. 2 points below AAA.

The doom mongers here were saying that, quote, "France is toast" and yet I believe France's credit rating is currently AA1.

It's a funny old world.

[jjlynn27]

Driller said:

So the UK's credit rating has now been downgraded to AA2 i.e. 2 points below AAA.

The doom mongers here were saying that, quote, "France is toast" and yet I believe France's credit rating is currently AA1.

It's a funny old world.

You just don't get it, do you? Credit rating agencies are in the pocket of international elites whose only aim is to perpetuate project fear and to make the greatest, the biggliest Brexit of all seems less successful.

[anonymous-user]

jjlynn27 said:

Driller said:

So the UK's credit rating has now been downgraded to AA2 i.e. 2 points below AAA.

The doom mongers here were saying that, quote, "France is toast" and yet I believe France's credit rating is currently AA1.

It's a funny old world.

You just don't get it, do you? Credit rating agencies are in the pocket of international elites whose only aim is to perpetuate project fear and to make the greatest, the biggliest Brexit of all seems less successful.

You believe incorrectly Driller. France has been AA2 for the last 2 years. https://www.moodys.com/research/Moodys-downgrades-...

current latest from moodys on France https://www.moodys.com/research/Moodys-France-has-...

The first reason given by Moodys for the downgrading of the UK was not the effects of Brexit, it was the change in government policy away from austerity policies. But that doesn't match your required rhetoric does it, everything negative is Brexit.

https://www.moodys.com/research/Moodys-downgrades-...

"RATIONALE FOR THE DOWNGRADE TO Aa2



FIRST DRIVER: WEAKENING PUBLIC FINANCES WITH HIGHER BUDGET DEFICITS IN THE COMING YEARS AMID PRESSURE TO RAISE SPENDING



Moody's expects weaker public finances going forward, partly linked to the economic slowdown under way but also reflecting the increasing political and social pressures to raise spending after seven years of spending cuts. Since 2015, the government has been finding it increasingly difficult to implement the spending cuts that it has been targeting, in particular on welfare spending. More recently, the government has yielded to pressure and raised spending in several areas, including for health and adult social care. It also agreed to above-budget pay increases for some public sector workers. While these additional expenditures will be funded out of current budgets, the pressure to continue to increase spending in the coming years is likely to remain high, in particular on health care and the public sector wage bill.



In addition, in order to secure a working parliamentary majority, the new government agreed a 'confidence and supply' arrangement that increases public spending by GBP1 billion for Northern Ireland. It also abandoned a pre-election promise to review the costly so-called "triple lock" on state pensions after 2020. Overall, Moody's expects spending to be significantly higher than under the government's current budgetary plans and higher than the rating agency expected when the negative outlook was assigned in June 2016.



At the same time, revenues are unlikely to compensate for higher spending. Earlier this year, the government abandoned a planned increase in national insurance contributions for the self-employed. Instead, the government has become reliant on highly uncertain revenue gains from tackling tax avoidance to fund tax cuts, as the Office for Budget Responsibility recently pointed out. Hence, while last year's general government budget deficit turned out somewhat lower than expected (3.0% of GDP on a calendar year basis), Moody's expects the (general government) budget deficit to remain at levels of 3-3.5% of GDP in the coming years, against the government's plan of a gradual reduction to below 1% of GDP by 2021/22.



The UK's broader fiscal framework -- previously one of the strengths of the sovereign's credit profile -- has also weakened in recent years as illustrated by repeated revisions to medium-term fiscal targets and delays in reversing the rising debt trend. In contrast to the government's earlier plans to have public sector net borrowing in surplus by 2019-20, the current objective is for the structural deficit to be below 2% by 2020-21; and the supplementary objective of having net debt as a percentage of GDP decline every year has been delayed to 2020-21 (from 2015-16 before). While these targets may be more realistic, the changes signal weaker predictability.



Weaker public finances will imply a further delay in reversing the rising public debt ratio. This places the UK among the few highly-rated European sovereigns where the public debt ratio continues to rise. Moody's expects the ratio to increase to close to 90% of GDP this year and to reach its peak at close to 93% of GDP only in 2019, two years later than the latest government plans. Moreover, while the UK government benefits from one of the longest average maturities of its debt stock among advanced economies, the cost of the debt is comparatively high with Moody's preferred metric -- interest payments as a share of government revenues -- at 6.3% compared to a ratio of around 3.6% for most other Aa2-rated peers. "

I wouldn't be at all surprised if Frances rating increases, but to do that you will likely see France burning as Macrons reforms kick in, should be interesting to see that play out.

[Driller]

jjlynn27 said:

You just don't get it, do you? Credit rating agencies are in the pocket of international elites whose only aim is to perpetuate project fear and to make the greatest, the biggliest Brexit of all seems less successful.

I'm not the one who doesn't get it. Multiple posters on this thread used credit ratings as evidence of their "PIIGS are toast" analysis. You can't have it both ways.

As for the French rating, my mistake, I see now that the AA1 rating was older news. But having exactly the same credit rating as the U.K. still doesn't exactly help the argument does it?

A lot certainly has happened since 2011 though!

[anonymous-user]

No problem Driller.

Based on the results that are coming out of Germany right now, I expect the Euro to take a kicking on the markets tomorrow.

[majordad]

We'll see tomorrow then !

[Driller]

Chris Tarrant said:

Well, it was €1.13 to the pound....................................and it's still €1.13 to the pound, ohhhhhh!

[anonymous-user]

Driller said:

Chris Tarrant said:

Well, it was €1.13 to the pound....................................and it's still €1.13 to the pound, ohhhhhh!

Its held up pretty well against the GBP, not so well against the USD.

£ is 0.54% higher against the Euro
$ is 1.04% higher against the Euro

Japan PM calling a snap general election and pumping an extra $18 Billion into a stimulus package overnight may have affected things a tad also.

[Driller]

Yes but we're British not American

And I won't make myself look more ignorant by pretending to know what hand Japan has in it all

[smifffymoto]

All I know is that it's costing me a hell of alot more than it was previously.

At least the weather is better in France.

[Driller]

smifffymoto said:

All I know is that it's costing me a hell of alot more than it was previously.

At least the weather is better in France.

You have income in pounds Sterling then? Euros here so loving it right now.

Totally agree about the weather, always 2-3 degrees warmer and more chance of clear skies.

[anonymous-user]

Looks like control of the Euro is finally having an impact in the German elections/government.

A major sticking point is what the potential German coalition government partners will allow to happen when the Euro gets in trouble again.

https://www.bloomberg.com/news/articles/2017-11-17...

[b2hbm]

What's the betting it ends up being something like "this government believes financial transfers aren't the way to solve Euro crises" as one example ? Both sides claim a win but it doesn't mean that under severe duress they can't do it.

I'm more surprised that after weeks of talking they still haven't sorted themselves out with a government. And TM was supposed to be in trouble when she hadn't got a coalition sorted by day 3......

[anonymous-user]

i think its 50/50 they will make a deal. I think the only reason they are still talking is because they are terrified the AFD will gain ground should another election be called, because the psychological barrier for the Germans of voting for them has been broken. The reality may play out different if another election is called, but i think the leaders of the various parties are scared of the risk.

What they are trying to do is unite a far left green party, with a centre ground EU loving conservative party and a euro-sceptic conservative party. It's just like the UK conservative internal fractions, but with separate leaders of each fraction, with the greens thrown in for good measure.

You could even argue its really four parties in talks with the CDU/CSU both under Merkel, there is nothing to say that couldn't split too.

Even if it succeeds, Merkel is severely weakened and we may find it falls apart when the first issue raises its head.

I predicted at the time of the election result the Euro would suffer, it didn't really because the real effect wasn't seen because of the nature of the politics and how they kick the can down the road for a while whilst they try and form a government. If they fail in sorting this out and we get another election called, i'd be surprised if that doesn't trigger a market reaction.

But then, since when has the market been logical with regards to the Euro, its got the feel of the pre 2008 period where everyone is drinking the same cool aid and no one wants to call the emperor has no cloths, so on it continues to march.

[b2hbm]

Yep, I'd agree with all that but I'm more like 90/10 on a deal being made because Merkel can't afford another election. I'm beginning to think she's overdue for replacement but is grimly hanging on and so weasel words will be found and a deal of some sorts agreed at 17:59 on Sunday evening.

But as you say, the first Euro crisis will test just how strong the coalition really is and it'll be a rocky ride for the Euro if Germany looks to be in trouble.

[anonymous-user]

The inconvenient truth :-
After 4.5 years of the imminent demise of the Euro, it’s stronger than the pound