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

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

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Discussion

loafer123

15,445 posts

215 months

Thursday 6th October 2016
quotequote all

Now €677.5bn that the Bundesbank is owed.

To put this into context, if the Bundesbank called this debt, the countries who owe them would have to print that amount of Euros, which compares to a total ECB Quantitative Easing on Public Bonds to date of €995bn.

In terms of calculating the relative value of the amount owed to Germany, a discount reflecting the credit risk of each country, taking into account the additional QE each would have to do to pay, would seem appropriate.

Digga

40,334 posts

283 months

Thursday 6th October 2016
quotequote all
loafer123 said:
In terms of calculating the relative value of the amount owed to Germany, a discount reflecting the credit risk of each country, taking into account the additional QE each would have to do to pay, would seem appropriate.
Presumably, the subsequent reduction in the value of the Euro, due to the requisite additional QE would also need to be factored?

loafer123

15,445 posts

215 months

Thursday 6th October 2016
quotequote all
Digga said:
loafer123 said:
In terms of calculating the relative value of the amount owed to Germany, a discount reflecting the credit risk of each country, taking into account the additional QE each would have to do to pay, would seem appropriate.
Presumably, the subsequent reduction in the value of the Euro, due to the requisite additional QE would also need to be factored?
Not really...all assets and liabilities are in Euros, so no FX effect.

Mind you, it does make you wonder why the GBP is so weak against EUR. I suppose the reasoning is that it won't happen...

Digga

40,334 posts

283 months

Thursday 6th October 2016
quotequote all
loafer123 said:
Digga said:
loafer123 said:
In terms of calculating the relative value of the amount owed to Germany, a discount reflecting the credit risk of each country, taking into account the additional QE each would have to do to pay, would seem appropriate.
Presumably, the subsequent reduction in the value of the Euro, due to the requisite additional QE would also need to be factored?
Not really...all assets and liabilities are in Euros, so no FX effect.

Mind you, it does make you wonder why the GBP is so weak against EUR. I suppose the reasoning is that it won't happen...
I know there's not currency arb in the debts, but the fact that paying them requires QE effectively reduces the value of the denominator.

loafer123

15,445 posts

215 months

Thursday 6th October 2016
quotequote all
Digga said:
loafer123 said:
Digga said:
loafer123 said:
In terms of calculating the relative value of the amount owed to Germany, a discount reflecting the credit risk of each country, taking into account the additional QE each would have to do to pay, would seem appropriate.
Presumably, the subsequent reduction in the value of the Euro, due to the requisite additional QE would also need to be factored?
Not really...all assets and liabilities are in Euros, so no FX effect.

Mind you, it does make you wonder why the GBP is so weak against EUR. I suppose the reasoning is that it won't happen...
I know there's not currency arb in the debts, but the fact that paying them requires QE effectively reduces the value of the denominator.
Certainly does affect it in external currency terms, but it is not relevant in value terms, given the structure and that all counterparties are in a closed system, I would argue.

Andy Zarse

10,868 posts

247 months

Thursday 6th October 2016
quotequote all
loafer123 said:
Now €677.5bn that the Bundesbank is owed.

To put this into context, if the Bundesbank called this debt, the countries who owe them would have to print that amount of Euros, which compares to a total ECB Quantitative Easing on Public Bonds to date of €995bn.

In terms of calculating the relative value of the amount owed to Germany, a discount reflecting the credit risk of each country, taking into account the additional QE each would have to do to pay, would seem appropriate.
Of course the figure is a technical matter, so it is pretty irrelvant provided the Euro endures. It's only if the music stops that the game of pass the parcel turns nasty. No wonder they want to do "whatever it takes"...

loafer123

15,445 posts

215 months

Thursday 6th October 2016
quotequote all
Andy Zarse said:
loafer123 said:
Now €677.5bn that the Bundesbank is owed.

To put this into context, if the Bundesbank called this debt, the countries who owe them would have to print that amount of Euros, which compares to a total ECB Quantitative Easing on Public Bonds to date of €995bn.

In terms of calculating the relative value of the amount owed to Germany, a discount reflecting the credit risk of each country, taking into account the additional QE each would have to do to pay, would seem appropriate.
Of course the figure is a technical matter, so it is pretty irrelvant provided the Euro endures. It's only if the music stops that the game of pass the parcel turns nasty. No wonder they want to do "whatever it takes"...
Interesting point and drives to what Digga says...if the Euro goes pop, or even just one country, the country prints the number of Lira/pesetas/drachma based on the day 1 conversion rate, and then lets the currency float to its natural level...nasty indeed so the Germans end up with a load of illiquid depreciating paper.

Steffan

10,362 posts

228 months

Thursday 6th October 2016
quotequote all
loafer123 said:
Andy Zarse said:
loafer123 said:
Now €677.5bn that the Bundesbank is owed.

To put this into context, if the Bundesbank called this debt, the countries who owe them would have to print that amount of Euros, which compares to a total ECB Quantitative Easing on Public Bonds to date of €995bn.

In terms of calculating the relative value of the amount owed to Germany, a discount reflecting the credit risk of each country, taking into account the additional QE each would have to do to pay, would seem appropriate.
Of course the figure is a technical matter, so it is pretty irrelvant provided the Euro endures. It's only if the music stops that the game of pass the parcel turns nasty. No wonder they want to do "whatever it takes"...
Interesting point and drives to what Digga says...if the Euro goes pop, or even just one country, the country prints the number of Lira/pesetas/drachma based on the day 1 conversion rate, and then lets the currency float to its natural level...nasty indeed so the Germans end up with a load of illiquid depreciating paper.
Good to see another series of very relevant contributions on here! I do think this reasoning does substantially explain the "Whatever it Takes" reasoning of Mario Draghi at the ECB because, if the confidance in the Euro does slip, then the game is over and financial collapse would be upon the EU. However I do not think that the EU can keep this pretence running successfully because reality is snapping at their heel's wth the continuing steady decline of the ailing Sovereign states and very little real growth within the EU and escalating debts all round.

Deutsche Bank in in the headlines again with another 1000 jobs axed on top of the earlier 3000 job cuts announced recently. See: http://www.bbc.co.uk/news/business-37574210

All in all I really do think some method of enabling the failing of Sovereign states and total insolvency to be admitted and addressed by the EU, has to be found. The EU clearly thinks that throwing QE money at hiding the problems is the answer. I do not think it can be any answer, longer term, and in consequence a major bust up and various collapses will be the inevitable result, unless some other way of actually admitting and addressing the problem can be found. We live in economically challenging times which are worsening steadily because of the delibertely deceit at international level.

The crunch will come, the question is by what means and at what time. But constantly pretending everything s asolutely fine, within the EU, when sovereign states within the EU are being crippled by the consequences of year upon year upon year of steady economic decline and reduction of economic output with unsustainable consequences to youth unemployment et al, can never address or solve these economic downsides. Quite when and how that could be acheved I am bound to admit that I cannot predict, but the alternative of an almighty collapse of several EU economes is surely unthinkable?

What do others on here, think??

Edited by Steffan on Thursday 6th October 20:34


Edited by Steffan on Thursday 6th October 20:36

LongQ

13,864 posts

233 months

Thursday 6th October 2016
quotequote all
I thought that, historically, the most common solution for impassable problems like these was a "good war".

A war induces a natural affinity to some sort of austerity amongst the more malleable masses, requires Government spending whether the "money" exists or not, usually results in enormous waste of goods produced "for the war effort", very likely offers opportunities for infrastructure spending post conflict and can, in some way, reverse (or at least slow) population increases for a few years. There is however a subsequent risk of a breeding explosion after the war and the resulting problem of a lot of non-taxpayers to be supported for a couple of generations by an "adult" population that may have been somewhat reduced in numbers.

Naturally such a course of action will likely come with a few negative effects and will tend to do no more than blast the can a few years further down the road.

On the positive side the employment figures would probably look good for a decade or so.

Clearly there would be some unique business opportunities available over the period and afterwards thus allowing "revaluation" of the world - a potential answer to the problematic economics of our times.

scratchchin

B'stard Child

28,421 posts

246 months

Thursday 6th October 2016
quotequote all
Steffan said:
What do others on here, think??
LongQ said:
I thought that, historically, the most common solution for impassable problems like these was a "good war".

A war induces a natural affinity to some sort of austerity amongst the more malleable masses, requires Government spending whether the "money" exists or not, usually results in enormous waste of goods produced "for the war effort", very likely offers opportunities for infrastructure spending post conflict and can, in some way, reverse (or at least slow) population increases for a few years. There is however a subsequent risk of a breeding explosion after the war and the resulting problem of a lot of non-taxpayers to be supported for a couple of generations by an "adult" population that may have been somewhat reduced in numbers.

Naturally such a course of action will likely come with a few negative effects and will tend to do no more than blast the can a few years further down the road.

On the positive side the employment figures would probably look good for a decade or so.

Clearly there would be some unique business opportunities available over the period and afterwards thus allowing "revaluation" of the world - a potential answer to the problematic economics of our times.

scratchchin
Well to reduce the risk of war wasn't that one of the reasons the EU was founded???

Bit ironic if the only salvation for the EU is a war.......

Hang on - now didn't they want their own army??? Perhaps they are thinking ahead - pretty obvious if history teaches us anything - they'd want to be the winning side biggrin

PS thanks to the contributors on this thread - it's one I keep up with but don't often comment as clearly there are some great thinkers/thought provokers on here...


Edited by B'stard Child on Thursday 6th October 23:41

Driller

8,310 posts

278 months

Saturday 8th October 2016
quotequote all
€1.11 to the pound!

Bleeding heck, I'm getting the Sterling in.

Welshbeef

49,633 posts

198 months

Saturday 8th October 2016
quotequote all
coyft said:
Wonder if we should change the title. "Is the end nigh for Sterling?" :-)
What do you mean?

B'stard Child

28,421 posts

246 months

Saturday 8th October 2016
quotequote all
coyft said:
Wonder if we should change the title. "Is the end nigh for Sterling?" :-)
Is the UK going to join the Euro then?



loafer123

15,445 posts

215 months

Saturday 8th October 2016
quotequote all
coyft said:
Wonder if we should change the title. "Is the end nigh for Sterling?" :-)
Sterling is doing what it should do, and float to take account of economic circumstances. If the EU ends up imposing tariffs at 10% on cars made in the U.K., for example, then that tariff is already more than compensated for by a lower Fx rate.

Many Southern European countries are watching the fall in the pound with envy.

Digga

40,334 posts

283 months

Saturday 8th October 2016
quotequote all
B'stard Child said:
coyft said:
Wonder if we should change the title. "Is the end nigh for Sterling?" :-)
Is the UK going to join the Euro then?
It's definitely a last ditch attempt by the ECB to try and enlist us by default. The plot thickens. I'm long on tin foil.

turbobloke

103,978 posts

260 months

Saturday 8th October 2016
quotequote all
loafer123 said:
coyft said:
Wonder if we should change the title. "Is the end nigh for Sterling?" :-)
Sterling is doing what it should do, and float to take account of economic circumstances. If the EU ends up imposing tariffs at 10% on cars made in the U.K., for example, then that tariff is already more than compensated for by a lower Fx rate.

Many Southern European countries are watching the fall in the pound with envy.
Indeed. Some people still won't get it, by design.

Driller

8,310 posts

278 months

Saturday 8th October 2016
quotequote all
You guys are incredible.

When the Euro weakens "it's doomed", when the pound weakens it's " doing what it's supposed to do".

It's like the BBC article saying the recent fall in the pound was due to a "stray algorithm" laugh

Digga

40,334 posts

283 months

Saturday 8th October 2016
quotequote all
There's. Some very good comment on the 'flash trading' aspect of this week's GBP spike by PHer CarlManchester (on the Brexit thread IIRC). From the trading side, it is the inability to devalue which is crippling the majority of PIIGS economies.

Then there's the magnitude of the balance of payments issue between Germany and the rest of the Eurozone, which in itself is a key vulenerability.

Not really sure what else there is to say. Sterling is not in the same vulnerability as the Euro; they need to keep a whole bunch of disparate economies within the currency in order to maintain stability and keepmthenproject rolling. The U.K. And sterling are autonomous - there is no conflict of interest.

Not sure what to say really. We are discussing apples and oranges here.

PhillipM

6,524 posts

189 months

Saturday 8th October 2016
quotequote all
There's a big difference when the currency isn't tied to your own economy.

loafer123

15,445 posts

215 months

Saturday 8th October 2016
quotequote all
Driller said:
You guys are incredible.

When the Euro weakens "it's doomed", when the pound weakens it's " doing what it's supposed to do".

It's like the BBC article saying the recent fall in the pound was due to a "stray algorithm" laugh
The Euro isn't doomed because of its relative strength or weakness in the market now. It is doomed because it is designed for fiscal integration and a federal superstate structure like the US, but is made up of a disparate collection of countries, cultures, languages, fiscal approaches and economies.

The Euro will survive if they follow the path of political and economic integration, but I don't think the people of Europe will let them.