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

[anonymous-user]

YankeePorker said:

“Some [IMF] staff members warned that the design of the euro was fundamentally flawed but they were overruled.”

The economists advising the European Commission on the creation of the € said the same to no avail.

It was a deliberate policy to create the Euro in such a way it would force closer fiscal union, as nothing else will solve the problem of the Euro. Just a pity the people of Europe dont like that idea and are in ever increasing numbers waking up to the reality and voting for anti establishment choices.

[YankeePorker]

jsf said:

It was a deliberate policy to create the Euro in such a way it would force closer fiscal union, as nothing else will solve the problem of the Euro. Just a pity the people of Europe dont like that idea and are in ever increasing numbers waking up to the reality and voting for anti establishment choices.

I suspect that they also had the idea that in the years following €birth they would get on with the fiscal alignment to make it work. The reality was that they did nothing for 10 years until the st hit the fan.

[Vanden Saab]

YankeePorker said:

Still thinking about this. Yes of course you are right, the German state could not buy privately owned Italian infrastructure as the owners would have to be paid and the central Italian bank does not have the wonga. BUT, the Germans could “buy” Italian state owned assets and reduce Target2 debt in exchange. So we’re back to the concept of the Greeks giving Germany a few islands .....

Last time I was on a Greek Island there were so many Germans there I wonder if this has already happened on the quiet...

[smifffymoto]

Instead of investing in other countries,Germany could invest some money on its self.Berlin is a grubby,unkempt,graffiti ridden city that needs a population with some civic pride.

[Digga]

YankeePorker said:

AstonZagato said:

An interesting article from the Telegraph.

IMF admits disastrous love affair with the euro and apologises for the immolation of Greece

https://www.telegraph.co.uk/business/2016/07/28/im...

"The International Monetary Fund’s top staff misled their own board, made a series of calamitous misjudgments in Greece, became euphoric cheerleaders for the euro project, ignored warning signs of impending crisis, and collectively failed to grasp an elemental concept of currency theory. "

“Some [IMF] staff members warned that the design of the euro was fundamentally flawed but they were overruled.”

The economists advising the European Commission on the creation of the € said the same to no avail.

Joseph Stiglitz is unerringly critical of both the euro and the Troika's handling of the crisis, especially with regard to Greece, as debtor and Germany as creditor.

The EU is dead unless they kick out the dogmatic old guard.

[AstonZagato]

Digga said:

YankeePorker said:

AstonZagato said:

An interesting article from the Telegraph.

IMF admits disastrous love affair with the euro and apologises for the immolation of Greece

https://www.telegraph.co.uk/business/2016/07/28/im...

"The International Monetary Fund’s top staff misled their own board, made a series of calamitous misjudgments in Greece, became euphoric cheerleaders for the euro project, ignored warning signs of impending crisis, and collectively failed to grasp an elemental concept of currency theory. "

“Some [IMF] staff members warned that the design of the euro was fundamentally flawed but they were overruled.”

The economists advising the European Commission on the creation of the € said the same to no avail.

Joseph Stiglitz is unerringly critical of both the euro and the Troika's handling of the crisis, especially with regard to Greece, as debtor and Germany as creditor.

The EU is dead unless they kick out the dogmatic old guard.

If there is an argument for Brexit, it is the manner in which the EU implemented the Euro (monetary union without fiscal union) and then hoped for a crisis that would force fiscal union on the populace and then threw an entire generation of southern Europeans under the bus to hold onto that goal. It can be the most unnecessarily disgraceful organisation, for all the benefits it provides in other areas.

[Blackpuddin]

smifffymoto said:

Instead of investing in other countries,Germany could invest some money on its self.Berlin is a grubby,unkempt,graffiti ridden city that needs a population with some civic pride.

I think you'll find that's art

[Mrr T]

amusingduck said:

I don't think so.

My understanding is that if Mr Italian buys something from Mr German, the end result is that MI has lost €1000 and MG has gained €1000. Italy's TARGET2 balance is now €1000 higher, but it's never reconciled. Italy never pays their TARGET2 obligations to Germany.

If Germany buys Italian Infrastructure, who is paying for it? Italy doesn't have €400-odd billion sat around doing nothing.

It seems to me that Germany would have to spend €400-odd billion of their own money to reduce Italy's TARGET2 liability with them. Which would go down well

This article explains TARGET2 well IMO https://moneymaven.io/mishtalk/economics/fuse-is-l...

Its different because T2 is a central bank system and domestically only banks have access to the local central banks. So you need consider what is happening locally as well.

In your example if Mr Italian has 1000 in his account at Italian bank. That bank will have 1000 liability but also an asset of 1000. If Mr Italian buys something from Mr German the Italian bank will deduct the 1000 from Mr Italian account when it makes the payment via T2. It now has liability to the its local central bank of 1000. However, it still has 1000 in assets.

So the liability of local central banks to Germany via T2 will be represented by assets of the local central banks which will be loans to local banks. Such loans must under central bank rules be collateralised.

So effectively German is providing loans to banks across the euro. The question then is not the risk of a country leaving but of a bank default and the real value of collateral held by the local central banks.

Happy to be corrected as I am not an expert on T2, I am an expert on the BOE systems so am extrapolating.

[Digga]

Mrr T said:

amusingduck said:

I don't think so.

My understanding is that if Mr Italian buys something from Mr German, the end result is that MI has lost €1000 and MG has gained €1000. Italy's TARGET2 balance is now €1000 higher, but it's never reconciled. Italy never pays their TARGET2 obligations to Germany.

If Germany buys Italian Infrastructure, who is paying for it? Italy doesn't have €400-odd billion sat around doing nothing.

It seems to me that Germany would have to spend €400-odd billion of their own money to reduce Italy's TARGET2 liability with them. Which would go down well

This article explains TARGET2 well IMO https://moneymaven.io/mishtalk/economics/fuse-is-l...

Its different because T2 is a central bank system and domestically only banks have access to the local central banks. So you need consider what is happening locally as well.

In your example if Mr Italian has 1000 in his account at Italian bank. That bank will have 1000 liability but also an asset of 1000. If Mr Italian buys something from Mr German the Italian bank will deduct the 1000 from Mr Italian account when it makes the payment via T2. It now has liability to the its local central bank of 1000. However, it still has 1000 in assets.

So the liability of local central banks to Germany via T2 will be represented by assets of the local central banks which will be loans to local banks. Such loans must under central bank rules be collateralised.

So effectively German is providing loans to banks across the euro. The question then is not the risk of a country leaving but of a bank default and the real value of collateral held by the local central banks.

Happy to be corrected as I am not an expert on T2, I am an expert on the BOE systems so am extrapolating.

It's worse than that, because anyone in the PIIGS will think "fk having my savings bailed-in to another rescue by the troika, I'm going to bung them somewhere safe". So the Target 2 imbalances are further compounded by deposit flight.

[Tuna]

Digga said:

It's worse than that, because anyone in the PIIGS will think "fk having my savings bailed-in to another rescue by the troika, I'm going to bung them somewhere safe". So the Target 2 imbalances are further compounded by deposit flight.

Equally if you can magic away debts by claiming the value of some distant deposit, aren't you back in sub-prime lending land where there is positive encouragement to over-estimate the value and security of local assets, safe in the knowledge that the owner of the debt is five times removed?

[Mothersruin]

Blackpuddin said:

smifffymoto said:

Instead of investing in other countries,Germany could invest some money on its self.Berlin is a grubby,unkempt,graffiti ridden city that needs a population with some civic pride.

I think you'll find that's art

He's right though - the most disappointing thing about a recent rip to Vienna was how much graffiti there was, everywhere, and on some stunning classical architecture.

That said, Berlin is a total dogs dinner building wise.

Oh well, they started it....

[Driller]

Digga said:

It's worse than that, because anyone in the PIIGS will think.

Soon to be PIIGGS with a no-deal on Brexit? Pound-Euro at €1.11 today.

[hidetheelephants]

Mrr T said:

Blackpuddin said:

But that's all history. Where we're at now is all that matters. Carrying on with a social experiment that has now been proved not to work (Greece already, with Italy and all the other usual dominoes next to drop) is counter productive at best and ruinously perverse at worst. Better, surely, to endure the pain of lancing a boil early on rather than ignoring it until it goes septic.

If you mean Italy (and Greece) should leave the euro then you should consider the implications. Italy would immediately lose access to the capital markets, it would have to apply to the IMF for emergency lending, this would require it to make immediate and very substantial spending cuts. It would almost certainly default on existing debt much of which will be held as domestic saving. This will wipe out the saving of many. The banking system would fail and have to be nationalised. Restructuring would again have to come from bail in so further effecting savers. You would see an immediate significant upturn in unemployment as business fail. You could argue the pain will be high but the lower currency value should aid recovery. My own view is the pain would be to great and could easily see the state being overthrown.

Unfortunately, there are no quick fixes.

Excuse my financial stupidity, but what if savers were protected by allowing them to keep their savings in euro, at least for a while, after nuova lira was introduced?

[Digga]

hidetheelephants said:

Excuse my financial stupidity, but what if savers were protected by allowing them to keep their savings in euro, at least for a while, after nuova lira was introduced?

If the bank itself - the one in which the saver has placed their capital - falls over, it matters not what the currency is; eyore, lira, Polish zloty, the risk is the same and people decide they don;t want to take it and place their money elsewhere, out of hard's way.

In essence, what you say is right, but there is currently no comprehensive pan-Eurozone system for the running of banks, the protection of deposits and banking institutions. Nor is there the same for the governmental level. This is at the heart of the issue; the Euro needs more EU in order to survive, but there are opposing tensions (both in debtor and creditor nations) that prevent it.

[YankeePorker]

So they successfully saved Greece then?!

https://www.bbc.com/news/business-45243088

Who do they think that they’re kidding?

Chronic unemployment, lost generations, and “While Greece's economy has stabilised, its accumulated debt pile stands at about 180% of GDP.” That’s unsustainable.

I’d say that calling that a successful bailout is complete BS. All they’ve done is lent Greece money that it has used to repay the private banks that had lent it money, basically handing the debt to the EU taxpayers via the ESM.

[WyrleyD]

Yes, and the other bit that was not emphasised on the BBC report this morning is that there ain't no way they can repay the debt in a reasonable amount of time, if ever and the ECB says that it DOES have to be repaid so they are still stuffed.

[Frank7]

smifffymoto said:

Instead of investing in other countries,Germany could invest some money on its self.Berlin is a grubby,unkempt,graffiti ridden city that needs a population with some civic pride.

I was there in 1974, and you weren’t far off, but since around 1998 it’s been a different place, I’ve been there 3 or 4 times since 2000, and it’s buzzing.
My elder German grandson lives and works there, in the German Diplomatic Service, and his younger brother loves to visit him, and party the night away.
Unless you were thinking of Berlin, West Virginia.

[Blackpuddin]

WyrleyD said:

Yes, and the other bit that was not emphasised on the BBC report this morning is that there ain't no way they can repay the debt in a reasonable amount of time, if ever and the ECB says that it DOES have to be repaid so they are still stuffed.

And they're still in austerity, presumably for ever.
This so-called 'story' about how the lovely EU has successfully 'helped' Greece is total PR baloney by Druncker and his croneys 'pour encourager les autres' as we reach the crunch point with Brexit.

Edited by Blackpuddin on Monday 20th August 15:39

[nikaiyo2]

Blackpuddin said:

And they're still in austerity, presumably for ever.
This so-called 'story' about how the lovely EU has successfully 'helped' Greece is total PR baloney by Druncker and his croneys 'pour encourager les autres' as we reach the crunch point with Brexit.

Edited by Blackpuddin on Monday 20th August 15:39

The bailouts have done the world of good....

From the BBC Article :

According to the International Monetary Fund (IMF), only four countries have shrunk economically more than Greece in the past decade: Yemen, Libya, Venezuela and Equatorial Guinea.

[tobinen]

I see Italy has thought it a good idea not to cut back on spending but to increase it

https://www.bloomberg.com/news/articles/2018-09-28...

https://www.telegraph.co.uk/business/2018/09/28/it...

Only in Italy.