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skuthorp
05-19-2010, 04:34 AM
"European recession looms as Spain crumbles
The eurozone is tipping into a deeper downturn than America itself despite the tremors in the US mortgage industry, and may already be in full recession for the first time since the launch of the single currency.

Industrial production for the EMU bloc fell 1.9pc in May, according to fresh Eurostat data. It is the sharpest one-month decline for the region since the exchange rate crisis in 1992. Officials in Berlin have warned that Germany's economy could contract by as much as 1.5pc in the second quarter as export orders crumble.

Industrial output in both Italy and Greece has slumped 6.6pc over the past year. Portugal is off 6.2pc. "It is a very ugly picture: we're on maximum alert," said Emma Marcegaglia, head of Italy's business federation Confindustria.

Rome is now lobbying for a "New Deal" to revive Italy's economy through massive infrastructure projects.

The idea is to use bonds issued by the European Investment Bank, allowing EU states to circumvent the 3pc limit on budget deficits imposed by the Maastricht Treaty."

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/2793239/European-recession-looms-as-Spain-crumbles.html

The fear is that Merkel may not get the German loan through and Greece will default, then all bets are off. Round two of the WWR.

shamus
05-19-2010, 05:38 AM
How long till it reaches us Jeff?

Antonio Majer
05-19-2010, 05:52 AM
Yes it's a tremendous situation, I can testify. Our public debt is huge, but luckily there is no significant private debt, Italians are used to spare. All in all, we will survive once more.

PeterSibley
05-19-2010, 06:03 AM
y. Our public debt is huge, but luckily there is no significant private debt,.

Our situation is precisely the reverse , quite moderate public debt but our personal debt levels are very high .

skuthorp
05-19-2010, 06:13 AM
G'day Antonio, Shamus the spinnoff has already. The market slump here is caused more by trade fears than Kev's tax. Not a great time to have an election, maybe not a great time to win one either. The real estate bubble may bite us yet, has to in some ways, all that money may be recalled and that would leave us in an awkward place.

PeterSibley
05-19-2010, 06:20 AM
What , you mean the billions we borrowed to buy our own housing stock ?:rolleyes:

Great policy settings from all involved ...and still running under the current administration .

peb
05-19-2010, 09:10 AM
It is tough to get out of. Many people view the sagging economy as the cause for the growing debt: decreased revenues and increased government stimulas spending. And of course, that is simple math and obviously correct. But, just as the egg obviously comes from the chicken, so too does the chicken come from the egg. When government debt gets to certain levels, it starts having significant drag on a GDP. IIRC, a paper I recently read showed that debt above 100% GDP would cost a country at least 1% of growth in GDP annually. And of course it goes up from there. On top of that, at least for the short term, if you turn off the Keynsian spickets, gdp will suffer even more.

I am starting to think, the best solution for the PIGS would be to abandon the Euro, go back to their currency, and immediately devalue it significantly. This at least gets the debt service under control and maybe leaves room for a more gradual reduction of government spending. Countries never devalue their way to prosperity, but they possibly can use it as a one time measure to change the game. Of course, I have no idea how much the private economy in Greece is dependant on foriegn investment. If it is dependant on foriegn investment to any great extent, this idea probably doesn't work too well (ok, ok, no idea works too well, but its all relative).

On a side note, I also must say that it is time to make bond holders start taking losses in some of these cases. We in the US have failed in that regard with our bailouts(except for the completely schizophrenic behavior regarding the auto-industry, where bond holders were actually demonized). The EU is now failing with their bailouts. I am having a hard time understanding why Germany/France and other taxpayers have to foot the bill and Greeks and Portugese have to turn policies on a dime, all in an effort keep bond holders from loosing money. In the US, it was said it was due to too many credit default swaps intanglements and a bank failure would cascade through the system. Is that the case with Greek bonds?

All idle speculation.

Antonio Majer
05-19-2010, 10:25 AM
Anyway, a minor note: I don't understand why we are bombing the Talebans, and do not bomb Standard & Poor's as well. A mystery for me. Talebans are sweet angels - or amateur killers - compared with Standard & Poor's. Why don't we start bombing these pigs instead?

Kaa
05-19-2010, 10:44 AM
I am having a hard time understanding why Germany/France and other taxpayers have to foot the bill and Greeks and Portugese have to turn policies on a dime, all in an effort keep bond holders from loosing money.

Because the bondholders are predominantly European banks.

To put it crudely, Merkel has a choice between bailing out Greece and bailing out her own banking system.

Kaa

Andrew Craig-Bennett
05-19-2010, 11:49 AM
And we have to remember that the Euro has kept German industry super - competitive in the export markets by preventing what used to happen - a rise in value of the Deutsche Mark.

This is analogous to the RMB Yuan hitching its coat tails to the US Dollar.

The PIIGS are in the same sort of position, vis a vis Germany, as the USA is vis a vis China (but Germany makes better cars).

Peter Malcolm Jardine
05-19-2010, 11:54 AM
Quite apart from the recessionary issues, Nancy and I paid a lot of stuff off in the last two years... I am selfishly glad I did, given that I am in a vulnerable industry. Here's hoping some strategies will work.

peb
05-19-2010, 12:43 PM
Because the bondholders are predominantly European banks.

To put it crudely, Merkel has a choice between bailing out Greece and bailing out her own banking system.

Kaa

Yes, I know this. But I still think it is a problem that many entities today who issue bonds become printers of someone else's money. Which of course is likely to happen in the US if the federal government ends up having to bail out any state, eg Catlifornia.

Kaa
05-19-2010, 12:52 PM
Yes, I know this. But I still think it is a problem that many entities today who issue bonds become printers of someone else's money.

Oh, yes, it is most definitely a problem.

However at this point you're choosing not solutions but lesser evils.

Kaa

peb
05-19-2010, 12:53 PM
And we have to remember that the Euro has kept German industry super - competitive in the export markets by preventing what used to happen - a rise in value of the Deutsche Mark.

This is analogous to the RMB Yuan hitching its coat tails to the US Dollar.

The PIIGS are in the same sort of position, vis a vis Germany, as the USA is vis a vis China (but Germany makes better cars).

Not quite the same. In the China vs US case, the yuan being tied to the US dollar is the choice of the chinese and they do it because of the growing US economy is a good customer. Do the germans export that much to the Greeks?
OTH, as I have posted a couple times in the last couple of weeks, if the day of reckoning hits the US that is hitting the Greeks right now, a large amount of political power in the US will shift to the bond holders (ie the Chinese). So in general I do agree.

But your point raises a rather interesting question. Does it not seem like for some developing countries pegging their currency to the dollar has worked out quite well? I think it would have made more sense for some of the less economically developed countries of Europ to stay out of the Euro and rely on a peg of some sort that they can control. The Euro's downfall will be that there is simply too much economic disparity between member nations.

peb
05-19-2010, 12:59 PM
Oh, yes, it is most definitely a problem.

However at this point you're choosing not solutions but lesser evils.

Kaa

I am becoming less and less convinced that letting large banks fail is a lesser evil. I don't doubt that the people who put through TARP did so with the best of intentions and it was all they could see to do at the time. But at the end of the day, we saved a lot of large banks whose function it now seems is to lend money to federal government (thanks to the banking capital requirements structure). I guess we also saved a couple of GSEs whose function is to do what they did before in spades, ie lend money utilizing absurd amount of leverage.

Kaa
05-19-2010, 01:26 PM
I am becoming less and less convinced that letting large banks fail is a lesser evil. I don't doubt that the people who put through TARP did so with the best of intentions and it was all they could see to do at the time. But at the end of the day, we saved a lot of large banks...

Well, letting large banks fail is a lesser evil only provided you can keep your banking system alive afterward.

That, really, *is* the issue -- Western banking systems became very much intertwined, mutually dependent, and so incredibly fragile. They are a house of cards.

In fact, I would think that the main task of the regulators now would be to make the system more robust, more fault-tolerant, more capable of graceful degradation. But I'm not holding my breath.

Kaa

TomF
05-19-2010, 01:29 PM
From a wee bit of discussion on CBC lately, the few places in the world which had a somewhat less bumpy ride through the worst of the most recent recession ... had regulations on their banks mandating larger capital reserves, and ruling out some of the riskier "opportunities" which sank others.

The opinion in the discussion was that such things might work elsewhere too, if folks could be brought to consider them. But fat chance.

Andrew Craig-Bennett
05-19-2010, 01:44 PM
I spent an hour this morning in the London headquarters of a major European bank discussing container leasing. Basically we were discussing whether we could shave another eight basis points off a two hundred million dollar transaction running for several years that already had forty basis points knocked off the most competitive cost of funds. They were offering a nice deal for us - exchange risk free, almost tax risk free, and they could do this because they could be confident of hedging out these risks through swaps.

"Simplifying" the banks may have quite unexpected consequences.

Antonio Majer
05-19-2010, 03:48 PM
PIIGS

?

Andrew, you have typed two I, hope it was a mistake.
---
This crisis is the consequence of the American/English Creative Financing, point. From a moral point of view, the pigs are others.

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sorry Andrew (nothing personal, because you know how much I like the American/English cultural world), I add a couple of other things I had forgotten.
a) We Italians are paying our own public debts (the main reason why Left and Right economic policies are practically the same in Italy is because we have been tightening our belt since 15 years). On the contrary the crisis triggered by the American/English creative financing is being payed by all of us.
b) in Europe this crisis is much more severe because we haven't a strong political unification. And we have no political unification, because we "continentals" have always had a drag: United Kingdom. You have never chosen between Europe and USA (the Splendid Isolation is staff for nostalgic persons, you are too clever for not admitting it).

I hate the PIGS definition. I hate this arrogance. Because we are speaking of countries, i.e. of people, of human beings, sometimes suffering so much, that they commit suicide only because they have lost their job.

peb
05-19-2010, 04:47 PM
?

Andrew, you have typed two I, hope it was a mistake.
---
This crisis is the consequence of the American/English Creative Financing, point. From a moral point of view, the pigs are others.

Although this was partly true for the 2008 crisis, there is no way this one can be blamed on anything except a) too much government spending and b) an implied guarantee on all eu member nations' bonds.

peb
05-19-2010, 04:51 PM
?

Andrew, you have typed two I, hope it was a mistake.
---
This crisis is the consequence of the American/English Creative Financing, point. From a moral point of view, the pigs are others.

Portugal, Italy, Ireland, Greece, Spain. Andrew is correct. But in order for you not to be the only person on this thread from one of the countries, I propose the WBF policy to use two Gs, PIIGGS. What say you Andrew?

:):):)