Eurozone debt crisis

[Iron]

Greek default jitters hammer French banks and euro - http://uk.reuters.com/article/2011/09/1 ... 4V20110912

It's interesting that the Euro is drifting today. Perhaps some traders are betting that, rather than the Euro breaking up completely, a euro of economically stronger countries will emerge from the crisis.

Jeff

[Iron]

Greece Default Risk Jumps to 98% - http://www.bloomberg.com/news/2011-09-1 ... ?cmpid=bit

[superfrank]

Greece Default Risk Jumps to 98% - http://www.bloomberg.com/news/2011-09-1 ... ?cmpid=bit

Thu Jun 02, 2011 10:39 am
Greece default risk at 50:50 says Moody's
http://www.bbc.co.uk/news/business-13625084

I'd put the likelihood at roughly 100%! They, like many other countries, are in a compound debt spiral - it is only wishful thinking keeping the PIIGS afloat.

Not long to go now.

There are 3 end-game possibilities:

1. Full Euro break-up and Germany gets the DM back.
2. The PIIGS are forced out of the Euro.
3. Eurobonds (the EZ remains as is with the northern countries sharing the debts of the PIIGS).

Only option 3 would result in a weak currency for Germany.

Assuming option 3 does not happen then, if the Euro plummets in value at the same time as stock markets get hammered (the DAX has been hit hardest so far), there could be some bargains to be had in German blue-chips imho.

[CaerMyrddin]

Option 3 is the answer. It's much cheaper to issue Eurobonds rather then kicking anyone out of anywhere.

The markets will force politicians to do it, no matter what and I see this as an opportunity to discipline the expendors. The other options you posted are not cost effective. Even Germany would have their rating slashed if the Euro was to fail.

[superfrank]

Option 3 is the answer. It's much cheaper to issue Eurobonds rather then kicking anyone out of anywhere.

The markets will force politicians to do it, no matter what and I see this as an opportunity to discipline the expendors. The other options you posted are not cost effective. Even Germany would have their rating slashed if the Euro was to fail.

maybe you're right (recent moves in the Euro/Euro denominated investments seem to indicate the markets are at least accepting it as a possibility) although I'm not sure how much cheaper it is - it means Germany's debt costs will probably double (but it would be great for the PIIGS).

[CaerMyrddin]

If you look at the astronomical debts that the PIIGS, altogether have and if you look to the countries who own them, it's a no brainer. If the PIIGS default well, it's like hell brake loose! France and Germany would face huge imparities (can I say that?) and it's simply cheaper to issue the Eurobonds.

The main threat to this will be political. The deficit reduction programs will have to be realistic, with broader times, countries will have to make laws to limit deficits (and imho to force countries savings when in economic growth - limit public spending to create superavits) but it will really hard to convince both the rich and the piigs public opinions about the generousity of these measures.

Strange times we are living in...


Disclaimer: I'm a proud citizen of one of the PIIGS

[superfrank]

yeah strange times... if the German's go for Eurobonds (or any scheme that in practice is the same thing) then they are signing their own economic death warrant (relative to their previous high performance).

like you say politically it will be very difficult to sell to the German public, and also for the PIIGS to accept their future budgets being prescribed by Germany (the German's would want strict fiscal controls in return for saving them).

if it happens I think even the sickly £ will recover to pre-crisis levels (against the Euro only!), and not sure where that would leave the US' weak dollar policy.

[CaerMyrddin]

These are all million dollar questions, aren't they?

Personally I'd like to see a 'germanization' of my own country's economy, I look around and see money being wasted in poor investments with no return and absolutely no logic. It would hurt a lot to a lot of people, but leaving the euro to have instant inflation and devaluation of all assets would be even worse.

Imho it would also rationalise behaviours, investments, etc.

Back to trading now

[Euler]

Interesting interview with Geithner on CNBC over lunchtime. I guess they will archive it so you should be able to view it on line I suspect.

[Iron]

JP Morgan explains the euro crisis with lego - http://blogs.reuters.com/felix-salmon/2 ... with-lego/

[superfrank]

Interesting interview with Geithner on CNBC over lunchtime. I guess they will archive it so you should be able to view it on line I suspect.

This one?! http://www.youtube.com/watch?v=WIMabG0NH_4

"TARP incredibly successful; stress tests a huge success".

Nauseating rather than interesting. It's a love in not an interview! The youtube comments sum it up nicely.

[Iron]

I was surprised that Cramer didn't constantly interrupt Geithner, given his style is very 'in yer face'!

Jeff

[Iron]

Italy's sovereign debt rating cut by S&P on growth fear - http://www.bbc.co.uk/news/business-14981718

[superfrank]

Europe's four big dilemmas
http://www.bbc.co.uk/news/business-14934728

Rate at which markets are willing to lend to governments for 10 years:

Germany: 1.92%
France: 2.65%
Spain: 5.25%
Italy: 5.39%
Ireland: 8.24%
Portugal: 10.61%
Greece: 19.12%

Source: Bloomberg. Data as of 16 September 2011

The shocking figure to me is Germany's... if Eurobonds happen then surely German bond prices will crash?

Pity the Greeks
http://www.bbc.co.uk/news/world-europe-14972539

Scary stuff. Greece was only allowed into the Euro because Goldman Sachs cooked the books for them (for a huge fee I imagine).

Edit: $300m!...

In 2001, Goldman's financial alchemists formulated a scheme to allow the Greek government to hide the extent of its rising debt from the public and the European Community's budget overseers. Under this diabolical deal, Goldman funneled new capital from super-wealthy investors into the government's coffers.

Fine. Not so fine, though, is that, in exchange, Greek officials secretly agreed that the investors would get 20 years' worth of the annual revenue generated by such public assets as Greece's airports. For its part, Goldman pocketed $300 million in fees paid by the country's unwitting taxpayers.

The financial giant dubbed its airport scheme "Aeolus," after the ancient Greek god of the wind -- and, sure enough, any long-term financial benefit for Greece was soon gone with the wind. By hiding the fact that the government's future revenues had been consigned to secret investors, Goldman bankers made the country's balance sheet look much rosier than it was, allowing Greek officials to keep spending like there was no tomorrow.

How the Monsters at Goldman Sachs Caused a Greek Tragedy
http://www.alternet.org/economy/145884/ ... ek_tragedy

[Euler]

Italy debt rating cut

http://www.bbc.co.uk/news/business-14981718

Until somebody steps in to decisively break this cycle, it's not going to get any better.