Is the end nigh for the Euro? PIGS going bust? This Autumn?

[loafer123]

ChairsWithHairs said:

It's now at the stage where the only acceptable outcome for the Greek people is to leave the euro. Severe cuts and indebtedness to the EU won't be acceptable to them and in any case is not sustainable in any case. The next few months will be interesting.

The interesting bit is not whether they leave the Euro - I think that is inevitable. The French and Germans have a huge motivation to help because of the problems it default will trigger in their banks, but to my mind there is no feasible way Greek citizens will stand for permanent servitude, which is what would be required to even service existing debt levels, let alone repay them.

The interesting bit, I think, is whether they actually leave the EU because they need to set taxes, especially import taxes, which would not be allowed within EU rules.

[Steffan]

Seems my timeframe of Augst for the Greek collapse is still looking reasonable.

See:

http://www.thisismoney.co.uk/news/article.html?in_...

http://www.dailymail.co.uk/money/article-2004839/E...

Usual caveats about Daily Mail standards but still I think the point is made.

As more observers are saying the Greek collapse is inevitable I think August.

In reality the question now is what happens when the Greeks collapse.

European Central Bank will need massive recapitalisation because they are major creditors of Greece. Also the other three defaulters will come under renewed pressure. Markets will react badly and be scared of further defaults.

This will change the Eurozone totally and the restructured European Union will be a lot less about Politics and a lot more about Economics.

We live in interesting times. I just pray Sterling holds value.

[DJRC]

Steffan said:

I began a thread in February highlighting the problem of the PIGS (Portugal.Ireland, Greece, Spain) and the possible solutions.

The response was interesting and informative. In general the tenor of the replies was that there was little alternative to a bailout and the PIGS would recover in time and all would be well.


What do others thyink?

I think you over-estimate yourself. The general consensus was not that the PIGS would recover and all would be well, in fact much the opposite. This though has been the default feeling and oft talked about situation ph for a cpl of years now, that things are actually a lot worse than they seem and that there is a great deal of trouble out there, indeed the general tone of ph could almost be said to welcome and encourage such a situation.

[Hooli]

Why does Greece leaving the Euro matter? surely they'll still owe the money no matter what name they give to it?

Forgive me if it's a stupid question.

[MrLou]

Hooli said:

Why does Greece leaving the Euro matter? surely they'll still owe the money no matter what name they give to it?

Forgive me if it's a stupid question.

No, that's the point. If they default they're choosing to not pay back what they owe.

[smifffymoto]

MrLou said:

No, that's the point. If they default they're choosing to not pay back what they owe.

Yes ,they're choosing not to pay but really they have no choice.If they pay it back they are putting the population into poverty.

[daddyov8]

smifffymoto said:

Yes ,they're choosing not to pay but really they have no choice.If they pay it back they are putting the population into poverty.

They had every choice when they decided to create the problem.

Their debt and economic management are long standing issues. question is why keep bothering to bail people out and why keep lending to people who can't pay back. Looks like we've invested far more than anyone other than the piigs stood to lose?

[jonah35]

1. the greek people will not accept the cuts - see the riots

2. france and germany and europe will bail them out in the short term, a bit like we bailed our banks out and have ZIRP and QE but this just delays the inevitable

3. they'll prob extend things for much longer than we think they can, a bit like our house prices not falling, as they find new inventive ways to stave this off.

4. but, sooner or later, in a year or two or three things will come to a head when no one has any money

so yes, the end is nigh for the euro imho

[davepoth]

daddyov8 said:

They had every choice when they decided to create the problem.

Their debt and economic management are long standing issues. question is why keep bothering to bail people out and why keep lending to people who can't pay back. Looks like we've invested far more than anyone other than the piigs stood to lose?

It's as much everyone else in the Eurozone's fault for letting them in really; the die was cast at that point, and it was just a matter of time.

[Chipper]

I totally agree with the OP that Greece will default and return to the drachma within 6 months. I'm no economist but can anyone really see Spain , Portugal , Ireland and Italy recovering from their debt let alone the UK?

The repercussions of this will drag America and us all back into a full and deep recession.

On the plus side property prices should drop by about 30% to 50%

[Beardy10]

CzechItOut said:

Can someone explain to me why this situation doesn't happen in the USA? It is roughly the same size as the Eurozone in terms of population and GDP, it has a single currency and has states with wildly different economies.

Is it because individual states are not allowed to run up massive debts like the Euro countries have?

Simple Europe has Political but not Economic union.... i.e. countries retained the right to determine their own taxation and economic systems (or not in Greece's take) but gave up the right to set interest rates and obviously the exchange rate. Different US states have slightly different state taxes but broadly it's all the same system.....and they have a hugely mobile labour force which Europe doesn't.

[Beardy10]

munky said:

Why do we need so many threads on the same topic? Also a little weird that the PIIGS has become PIGS.. Italy not being in a great state. It was Goldman Sachs that invented the acronym over a year and a half ago, not some bloke off the internet in February this year.

bks Goldman Sachs invented it 18 months ago.....it's been around for twenty plus years.

[Steffan]

DJRC said:

Steffan said:

I began a thread in February highlighting the problem of the PIGS (Portugal.Ireland, Greece, Spain) and the possible solutions.

The response was interesting and informative. In general the tenor of the replies was that there was little alternative to a bailout and the PIGS would recover in time and all would be well.


What do others thyink?

I think you over-estimate yourself. The general consensus was not that the PIGS would recover and all would be well, in fact much the opposite. This though has been the default feeling and oft talked about situation ph for a cpl of years now, that things are actually a lot worse than they seem and that there is a great deal of trouble out there, indeed the general tone of ph could almost be said to welcome and encourage such a situation.

At the time of the original post in February there was widespread belief that I was wrong and the PIGS would recover. That is why I alluded to the post. I do not claim in any way to be the first or only observer or indeed the best informed or most well read observer to anticipate this. I was merely concerned that the true reality of an unrecoverable situation was now demonstrably, before us and needed to be recognised and understood.

Little has changed in the three nonths: what has happened, is that the real truth about the situation, has gradually come to the fore and the European politicians have been unable to spin the facts in such a way as to continue the deliberate misleading information flow. The truth is outed.

Hence my reference to the post.

I appreciate that the majority of observers have now come round to the view that the situation is out of control and will not be controlled. I think that Greece will be broke within 6 months or very much less depending on the levels of EU Money Merkel and Sarkozy are prepared to throw away.

At the time of the rescue of Ireland Alistair Darling was preaching that 'The loan to Ireland from the UK will be repaid in full.'

In common with many observers then I was highly doubtful.

The reality is, as can now be clearly seen by virtually everyone, these countries are NOT going to repay the loans. It will be easier for them not to so they will not shoulder their responsibilities.

My real concern in all of this is the majority of same group of senior administrators in Brussels and the European Central Bank and the same set of European Ministers are still in post. Once again we are being led into a massive financial catastrophe by Politicians whose track record cries out for them to be replaced with more measured and competent individuals.

In the same way that the FSA demonstrated utter incompetence in failing to anticipate, control, adjust or prevent or even recognise the problem of the Banking crisis, as it came, the structures and attitudes of the European leaders in charge currently also demonstrated utterly flawed and incompetent procedures.

The FSA is being replaced: sadly the incompetent and self serving administrative process of Europe remains unchanged.

As a nation we are actually getting into a much more favourable economic position in comparison to the countries in the EU who are throwing good money after bad in huge volumes. Not because we are better organised but just because we are NOT in the Euro.

If a another bailout of Greece occurs when the final inevitable collapse comes, which it will, the EU will lose Three Hundred Million Euros (aprox).

The European Central Bank will be insolvent and will only continue if the EU bails them out.

These are HUGE figures and added to the losses in the rest of the PIGS will result in major change in Europe.

I wish this were not the case I would far rather this was resolved in a reasonable way. But with idiots like Sarkozy and Merkel throwing other peoples money about like fools this is hopeless.

[Welshbeef]

If Greece defaults I've heard on the news that many of the biggest US bank have derivatives that Greece will not default running into the 100-200billion £ territory. So if tree is a default or haircut there will be mega issues.

I wonder if the USA will help out Greece to avoid harming the USA banks??

Also if Greece decide to not accept the cuts then isnt that in effect a default and they are buggered

[ATG]

Yeah, the EU is a "monetary" union ...i.e. they share a single currency. The USA is a monentary and a fiscal union ... i.e. a significant amount of tax is raised and spent at a federal level, allowing a certain amount of wealth redistribution between the states. (Whilst we in the UK tend to whine about how much money we pay to the EU, it is absolute peanuts in the grand scheme of things.)

When the st starts to hit the fan, the similarity between Irealnd, Spain, Portugal and Greece really dissapears and you have to look at them on a case by case basis. Politics is the only way for a country to dig itself out of the st, and the Greek general public really seem to be the only ones in complete denial about the situation they've created for themselves.

I don't think anything much has fundametally changed in the last few months. I suspect there will be a "partial" default and debt restructuring. It would be a very good thing if bond holders shared the cost. That's the bloody discipline; if you buy high yield debt, your potential reward is predicated on running signicant credit risk. If you didn't understand that when you bought it, tough st.

So, I'd say it'll probably go something like this: Greece doesn't collapse politically, but comes up with some sort of government of national unity. On the basis of promises of fiscal reform, EU govts provide Greece with a borrowing facility to allow them to keep afloat for the next 12 to 18 months. Greece simultaneously announces that it is restructuring its debt - swapping existing debt for longer dated debt paying somewhat lower interest. This will force bondholders to write down the value of the debt they hold, and it will trigger Credit Default Swaps etc. Some EU commercial banks may in turn need state aid to bail them out. Worth noting that the aid required to EU banks who are exposed to Greece is not a big deal compared to the bail outs of the last few years.

Greece can not avoid fiscal reform. Defaulting and walking away from the EU will be every bit as economically crippling as taking the pain and staying in the Euro zone. Fiscal reform is needed either way. Investor confidence after a default is not going to be helped one iota by adopting a new currency - quite the reverse in fact.

[MrLou]

ATG said:

Investor confidence after a default is not going to be helped one iota by adopting a new currency - quite the reverse in fact.

If they drop the Euro and bring back the drachma or something else they'll be looking at Zimbabwe style inflation.

[Welshbeef]

Isn't the moat worrying thing that IF Greece defaults and the other PIGS see the real outcome isn't that bad for Greece post default may make them consider why not do the same default on the entire sovrign debt. Then twenty years later you may be offered credit.
Surely they must be doing the numbers and it is a physical option though not that palatable

[MrLou]

Welshbeef said:

Isn't the moat worrying thing that IF Greece defaults and the other PIGS see the real outcome isn't that bad for Greece post default may make them consider why not do the same default on the entire sovrign debt. Then twenty years later you may be offered credit.
Surely they must be doing the numbers and it is a physical option though not that palatable

Argentina was the last country to default in 2001, they serve as an example to the rest.

[ATG]

Welshbeef said:

If Greece defaults I've heard on the news that many of the biggest US bank have derivatives that Greece will not default running into the 100-200billion £ territory. So if tree is a default or haircut there will be mega issues.

There is no way that any bank would be taking outright risk on that scale. I wouldn't be suprised if there is one bank in particular that does have some huge derivative positions hedging other exposure. But anyone buying or selling protection on Greece in the last few years will have taken the risk of default very seriously, and they'll have taken their counterparty risk very seriously, and will also have thought about the mechanics of settling their derivative positions should a default occur. They have very recently had their noses rubbed in the consequences of failing to do this sort of thing, and they haven't forgotten that lesson, nor have their regulators. (Given 10 years, they'll have forgotten, but not yet.)

[ATG]

Welshbeef said:

Isn't the moat worrying thing that IF Greece defaults and the other PIGS see the real outcome isn't that bad for Greece post default may make them consider why not do the same default on the entire sovrign debt. Then twenty years later you may be offered credit.
Surely they must be doing the numbers and it is a physical option though not that palatable

The outcome will only be "not too bad" if Greece only reduces the value of its debt by a relatively small amount. All Greece will really be doing is buying more time to pay its debt back (and "buying" is the operative word, because they sure as hell will pay for this priviledge). If a country decided to write off its entire national debt as a matter of convenience, they would be committing economic suicide.