How do we think EU negotiations will go? (Vol 8)

[anonymous-user]

youngsyr said:

Sound familiar? That's the basis of a thread from 2011 predicting the imminent fall of two of the PIIGS, quickly followed by the EU. It was the Brexit thread of its day, running to 125 big bog pages.

https://www.pistonheads.com/gassing/topic.asp?h=0&...

The prevailing thought then was a bail out was impossible, but as we all know, a bail out was achieved.

Ultimately it comes down to the fact that the lenders have no interest in letting the recipients of the debt fail. They can and will extend the loans, change the repayment terms and or print money to ensure that the PIIGs don't fail.

Edited by youngsyr on Sunday 10th February 10:03

That wasnt a bail out that stopped the failure, it was a new ECB head that made a statement to the markets ( at a UK event) that they will do whatever it takes to prop up the Euro. Prior to Draghi, Trichet was running the ECB as a currency board, not as a central bank of last resort.

The problem with that is we have now seen almost a decade of QE and ultra low interest rates and every time they try and tighten that money supply the Euro economies head for recession.

The system is fked and is heading for one enormous negative event, all bets are off when that happens.

This is a separate issue to the banking bail outs we saw for the Greek debt crisis. The two get conflated as the same thing when they are separate issues.

[Mrr T]

Sway said:

OK, let's run this through. An Italian airline buys €100M of A320s.

The money leaves their account, and moves to the holding account at the Italian Central Bank.

Under target2, the French central bank prints €100M and places it in airbus's account. No money moves between the Italian and French central banks.

What "collateral" is there?

You are missing the vital step. The payment needs to move through accounts with the domestic banks.

Say the Italian airline has the € in its bank account with domestic Italian bank. The domestic Italian bank credits the airline account and debits it's account with the domestic CB. The Italian CB does the same with the German CB using T2.

The Italian domestic bank can repay the Italian CB by reducing assets or borrowing. If it leaves it's debt with the Italian CB it must under BIS rules provide collateral.

[Sway]

Mrr T said:

Sway said:

OK, let's run this through. An Italian airline buys €100M of A320s.

The money leaves their account, and moves to the holding account at the Italian Central Bank.

Under target2, the French central bank prints €100M and places it in airbus's account. No money moves between the Italian and French central banks.

What "collateral" is there?

You are missing the vital step. The payment needs to move through accounts with the domestic banks.

Say the Italian airline has the € in its bank account with domestic Italian bank. The domestic Italian bank credits the airline account and debits it's account with the domestic CB. The Italian CB does the same with the German CB using T2.

The Italian domestic bank can repay the Italian CB by reducing assets or borrowing. If it leaves it's debt with the Italian CB it must under BIS rules provide collateral.

Except the domestic Italian Bank doesn't debit it's account with the Italian CB - the money transfers to the Italian CB.

The Italian CB tells the French CB to print the money and put it in Airbus's domestic bank.

There is no reclaim against that credit between the Italian and French CBs.

So, what has the Italian CB done with the cash?

[Mrr T]

Sway said:

Except the domestic Italian Bank doesn't debit it's account with the Italian CB - the money transfers to the Italian CB.

The Italian CB tells the French CB to print the money and put it in Airbus's domestic bank.

There is no reclaim against that credit between the Italian and French CBs.

So, what has the Italian CB done with the cash?

As I stated above your problem is you understand only 1/2 of the process.

Money in the system is not notes it's all debits and credits. It a fundamental accounting rule that every debit must have an equal and opposite credit, and visa versa.

So what I have described above is correct.

Banks do not create money.

Even CB follow basis accounting rules. QE still follows this it's just the CB creates a liability to no one

[frisbee]

Vanden Saab said:

Mrr T said:

Vanden Saab said:

You keep saying this without any justification whatsoever, 70% of tory constituencies voted to leave. Even many of the less motivated remain supporters now just want it to be over. The only way the tories have any hope of staying in power is to leave with no deal. Any other outcome will be suicide for them.
Support for no deal is growing by the day despite the barrage of scare stories from almost every quarter. Those who support remain, in both the press, big business and politics have learnt nothing over the past three years and continue to push more and more formally moderate, uninterested people into a no deal position.

You disagree with no justification at all. It's all opinion.

The Tories will have to choose between:

1. The WA or
2. Delaying brexit while they come up with a plan. This will have political fall out. But will be sold as just a delay or
3. No deal brexit which will have significant negative economic consequence. People never vote for a party which makes them poorer. So Tory maybe out of power for a generation.

1 is TM plan if that fails I believe the Tories will choose 2 over 3.

And there you go again... you forgot the might / may / could qualifier.... No doubt you will say your post, like the forecasts presented before the referendum were just that and you never expected them to actually happen. The problem you have is that you have forecasted a catastrophe, any result of a no deal Brexit short of actual Armageddon will be accepted as a win by the general public. Who will just get on with their lives as normal.

Your delusion is comical.

If you think Brexit is being used as an excuse for anything bad up until this point, just wait until after a no deal exit.

And the Tories will take the flak for all of it.

[Sway]

Mrr T said:

Sway said:

Except the domestic Italian Bank doesn't debit it's account with the Italian CB - the money transfers to the Italian CB.

The Italian CB tells the French CB to print the money and put it in Airbus's domestic bank.

There is no reclaim against that credit between the Italian and French CBs.

So, what has the Italian CB done with the cash?

As I stated above your problem is you understand only 1/2 of the process.

Money in the system is not notes it's all debits and credits. It a fundamental accounting rule that every debit must have an equal and opposite credit, and visa versa.

So what I have described above is correct.

Banks do not create money.

Even CB follow basis accounting rules. QE still follows this it's just the CB creates a liability to no one

And the debit against the Italian retail bank is settled when it credits the CB with the funds from the Italian airline...

Retail banks don't create money but Central Banks do.

[youngsyr]

jsf said:

youngsyr said:

Sound familiar? That's the basis of a thread from 2011 predicting the imminent fall of two of the PIIGS, quickly followed by the EU. It was the Brexit thread of its day, running to 125 big bog pages.

https://www.pistonheads.com/gassing/topic.asp?h=0&...

The prevailing thought then was a bail out was impossible, but as we all know, a bail out was achieved.

Ultimately it comes down to the fact that the lenders have no interest in letting the recipients of the debt fail. They can and will extend the loans, change the repayment terms and or print money to ensure that the PIIGs don't fail.

Edited by youngsyr on Sunday 10th February 10:03

That wasnt a bail out that stopped the failure, it was a new ECB head that made a statement to the markets ( at a UK event) that they will do whatever it takes to prop up the Euro. Prior to Draghi, Trichet was running the ECB as a currency board, not as a central bank of last resort.

The problem with that is we have now seen almost a decade of QE and ultra low interest rates and every time they try and tighten that money supply the Euro economies head for recession.

The system is fked and is heading for one enormous negative event, all bets are off when that happens.

This is a separate issue to the banking bail outs we saw for the Greek debt crisis. The two get conflated as the same thing when they are separate issues.

Let's say you're right and your unspecified "enormous negative event" could bring the whole thing crashing down.

Do you think that event is more likely or less likely to occur because of Brexit?

Next, do you think the damage caused by it would be more or less severe with the UK inside or outside of the EU?

My point is that even if your prediction is correct, in my opinion, we'd be better off in the EU than out of it, as, although we'd be F'ed if it occured regardless, we would have more of a chance of avoiding the event with Britain in the EU.

[Vanden Saab]

jonnyb said:

Vanden Saab said:

Mrr T said:

Vanden Saab said:

You keep saying this without any justification whatsoever, 70% of tory constituencies voted to leave. Even many of the less motivated remain supporters now just want it to be over. The only way the tories have any hope of staying in power is to leave with no deal. Any other outcome will be suicide for them.
Support for no deal is growing by the day despite the barrage of scare stories from almost every quarter. Those who support remain, in both the press, big business and politics have learnt nothing over the past three years and continue to push more and more formally moderate, uninterested people into a no deal position.

You disagree with no justification at all. It's all opinion.

The Tories will have to choose between:

1. The WA or
2. Delaying brexit while they come up with a plan. This will have political fall out. But will be sold as just a delay or
3. No deal brexit which will have significant negative economic consequence. People never vote for a party which makes them poorer. So Tory maybe out of power for a generation.

1 is TM plan if that fails I believe the Tories will choose 2 over 3.

And there you go again... you forgot the might / may / could qualifier.... No doubt you will say your post, like the forecasts presented before the referendum were just that and you never expected them to actually happen. The problem you have is that you have forecasted a catastrophe, any result of a no deal Brexit short of actual Armageddon will be accepted as a win by the general public. Who will just get on with their lives as normal.

Is there an economic forecast out there, written by someone sensible, that says a no deal will make us richer? Because I can’t find one.

I don’t think a no-deal will ever been seen as a win by the general public, only by those on an ideological power trip.

You say 70% of conservative constituencies voted leave, that still leaves them with 30% fewer MPs than they have now, and if you think those Northan labour towns are going to switch to the Torys you are much mistaken, the hatred is too deep.

It’s a no win for the conservatives, I see no way back for them for a generation at least. And if labour can get rid of Corbyn the conservatives are utter toast.

Was there a single economic forecast that predicted unemployment at historic lows or wages growing at 3.3% following the vote to leave?
By your own reckoning even if the conservatives pick up 30% of labour seats that voted leave they would win again.
Labour are not going to get rid of Corbyn before the next election unless they replace him with someone even more left wing or have you not been following the direction of travel activists in the party have been pushing it. I think you underestimate the despair many ordinary Labour supporters feel at what their party is becoming.

[Mrr T]

Sway said:

And the debit against the Italian retail bank is settled when it credits the CB with the funds from the Italian airline...

Retail banks don't create money but Central Banks do.

Your still not getting it. The domestic bank must have a debit and credit. So must the Italian CB. So must they all.

So as I said.

Domestic bank.
Debit - Italian airline account.
Credit - liability to Italian CB.

Italian CB
Debit - loan to Italian bank
Credit - liability to other CB.

Other CB
Debit - loan to Italian CB.
Credit - liability to airline seller bank

Airlines sellers bank
Debit - loan to CB
Credit - account of airline seller.

It's basis bookkeeping.

[crankedup]

Mrr T said:

S1KRR said:

Never underestimate the stupidity of career politicians.

I can now genuinely see them cancelling Article 50. Which they will frame as "a temporary pause" to "get us a deal we can all agree to"

The main problem is that over the last few decades no one has sought to stop the EU becoming ever more entangled with our lives. Whilst at the same time increasing their power over us since it became their "toybox" Inevitable when you get a situation where the majority of Politicians are not up to the job of governance of this country.

Trying to extract ourselves was always going to be hard, but when you have career politicians with one eye on their post UK parliament career at a cushy number just down the hall from Kinnock, there was never going to be much inclination to ACTUALLY leave the EU.

The problem for leave was that business had for the last 20 years built it's business model on friction less movement of goods across the EU. In my view the UK, because of lower levels of worker protection, had done well out of the arrangement. The UK was the Singapore of the EU.

These are the business which employ a lot of people who pay a lot of tax.

The ‘ City’ v the rest of U.K. Pretty much.

[Norfolkit]

jonnyb said:

And if labour can get rid of Corbyn the conservatives are utter toast.

There's Labour's problem in a nutshell. Momentum seem to be in complete charge behind the scenes, if they replace Corbyn for some reason (crushed by a giant courgette or something) it would be with another Momentum approved loon. likely to be McDonnell. It's no longer the Labour party in anything but name.

The socialist republics of London might buy it, the rest of the country wouldn't.

[s2art]

youngsyr said:

My point is that even if your prediction is correct, in my opinion, we'd be better off in the EU than out of it, as, although we'd be F'ed if it occured regardless, we would have more of a chance of avoiding the event with Britain in the EU.

Might be true if the EU comprised Germany, UK, Holland and a couple of others. But it doesnt, and some members are too big to bail.

[Sway]

Mrr T said:

Sway said:

And the debit against the Italian retail bank is settled when it credits the CB with the funds from the Italian airline...

Retail banks don't create money but Central Banks do.

Your still not getting it. The domestic bank must have a debit and credit. So must the Italian CB. So must they all.

So as I said.

Domestic bank.
Debit - Italian airline account.
Credit - liability to Italian CB.

Italian CB
Debit - loan to Italian bank
Credit - liability to other CB.

Other CB
Debit - loan to Italian CB.
Credit - liability to airline seller bank

Airlines sellers bank
Debit - loan to CB
Credit - account of airline seller.

It's basis bookkeeping.

And you're ignoring repeatedly that the Italian CB "loan to Italian Bank" is repaid. Yet the money is never used to repay the loan the French CB has extended to the Italian CB.

Even in your scenario, there's an enormous assumption that the BIS collateral is worth anything if the Italian CB calls it in. Free liquidity is lovely, until it's apparent the holder is actually illiquid.

[Mrr T]

Sway said:

And you're ignoring repeatedly that the Italian CB "loan to Italian Bank" is repaid. Yet the money is never used to repay the loan the French CB has extended to the Italian CB.

Even in your scenario, there's an enormous assumption that the BIS collateral is worth anything if the Italian CB calls it in. Free liquidity is lovely, until it's apparent the holder is actually illiquid.

I am not avoiding anything. I am explaining how the systems work so you and others can understand the issues.

The problem with the Euro is that it's a currency union not a monetary union.

The T2 balances show a number of things:
1. Normally CB borrowing is expensive. So the banks in some countries are clearly struggling to borrow at competitive rates.
2. The countries with T2 assets are funding and subsidising those with liabilities.
3. The risk to the system is a default by a domestic bank and the collateral posted with the CB is insufficient. Look at the list of eligible collateral allowed by the ECB then you should worry.

[Vaud]

Norfolkit said:

There's Labour's problem in a nutshell. Momentum seem to be in complete charge behind the scenes, if they replace Corbyn for some reason (crushed by a giant courgette or something) it would be with another Momentum approved loon. likely to be McDonnell. It's no longer the Labour party in anything but name.

The socialist republics of London might buy it, the rest of the country wouldn't.

And then... Diane Abbott, shadow Chancellor...

[loafer123]

Mrr T said:

I am not avoiding anything. I am explaining how the systems work so you and others can understand the issues.

The problem with the Euro is that it's a currency union not a monetary union.

The T2 balances show a number of things:
1. Normally CB borrowing is expensive. So the banks in some countries are clearly struggling to borrow at competitive rates.
2. The countries with T2 assets are funding and subsidising those with liabilities.
3. The risk to the system is a default by a domestic bank and the collateral posted with the CB is insufficient. Look at the list of eligible collateral allowed by the ECB then you should worry.

Good post.

It does show how the EU needs to turn into a superstate with fiscal union and transfer of money from those who have to those who don’t in order to survive.

The Brexit vote is partly about not wanting to do those things.

[Mrr T]

crankedup said:

The ‘ City’ v the rest of U.K. Pretty much.

If you mean FS then it's not the city. FS is in Birmingham, Bournemouth, Norwich, Edinburgh, etc, etc.

It's also manufacturing industry.

You know all those companies which employ lots of people who pay lots of tax so pensioners get pensions, people get treatment on the NHS etc, etc

[s2art]

Mrr T said:

3. The risk to the system is a default by a domestic bank and the collateral posted with the CB is insufficient. Look at the list of eligible collateral allowed by the ECB then you should worry.

I think that is correct. Initially they were taking good quality collateral, but recently (years) have been accepting any old crap. The value just isnt real.

[isaldiri]

Mrr T said:

I am not avoiding anything. I am explaining how the systems work so you and others can understand the issues.

The problem with the Euro is that it's a currency union not a monetary union.

The T2 balances show a number of things:
1. Normally CB borrowing is expensive. So the banks in some countries are clearly struggling to borrow at competitive rates.
2. The countries with T2 assets are funding and subsidising those with liabilities.
3. The risk to the system is a default by a domestic bank and the collateral posted with the CB is insufficient. Look at the list of eligible collateral allowed by the ECB then you should worry.

^ this.

Some seem to be convinced that the T2 imbalance is something that is guaranteed to blow up. The problem with that theory is it's something that has repeatedly been brought up for a long time and everyone in the bond markets has long been aware of it. every serious credit hedge fund will have had a bloody good look at it in 2010 and if it was going to be a serious systemic risk it'd have blown up in 2010-2012 already.

[Tuna]

youngsyr said:

In case you missed the implication - the article you linked supports my argument - analysts have been predicting the downfall of the PIIGS for a decade for myriad sensible reasons.

This is an amazing logical fallacy... predictions get the timing wrong, so they cannot possibly come true? The 2008 crash was predicted by a whole bunch of people for at least two years before it happened. A lot of them thought it would happen sooner. They were wrong about "when" (not surprising, how do you predict the arrival of the last straw?) but not about why and what would happen.

That's not to say the EU will collapse completely, just that the structural problems cannot be ignored indefinitely, and the cyclical nature of all economies means that there will be a 'down'. When that down hits, those economies that are already under strain will be least able to cope and the most likely to have severe problems.

Betting that there will be a down cycle is a sure fire winner in every economy. When and why is often a lot harder.