The future of the Euro

[y66]

Via Calculated Risk via Krugman

 

Aug 7 (Reuters) - The Euro system of central banks has decided to intervene decisively on markets to respond to the escalating debt crisis, a euro zone monetary source said after a European Central Bank conference call on Sunday.

 

Officials on the conference call carefully considered the situation in Italy and Spain, and took note of a statement by France and Germany which stressed their commitment to European financial reforms, the source said.

 

"The Euro system will intervene very significantly on markets and respond in a significant and cohesive way," the euro zone monetary source said, adding a statement by the ECB will be issued shortly. (Editing by Sophie Hares)

 

The ECB calls.

[mike777]

Via Calculated Risk via Krugman

 

 

 

The ECB calls.

 

 

Yes the next worry is the ECB hurting its balance sheet?

[y66]

Yes the next worry is the ECB hurting its balance sheet?

 

The inflationistas will probably have something to say about the next worry. Don't cry for them Berlusconi.

[gwnn]

By the way, what do people here think of Nigel Farage? His speeches seem funny, but sometimes I think he has a point..

[Aberlour10]

The current Swiss franc exchange rates are pure poison for swiss exports, what to do?

The speaker of the National Bank says a few words about possible coupling of the CHF to the Euro.... and franc lost immediately 5% on finance markets. That was really a cheap and smart move.

[y66]

Iceland to Ireland via Krugman:

 

Iceland still has high unemployment and is a long way from a full recovery; but it’s no longer in crisis, it has regained access to international capital markets, and has done all that with its society intact.

 

http://graphics8.nytimes.com/images/2011/09/01/opinion/090111krugman1/090111krugman1-blog480.jpg

 

Debt repudiation, capital controls, and currency depreciation work. Holy Trinity Batman.

[jdeegan]

Iceland to Ireland via Krugman:

 

 

 

http://graphics8.nytimes.com/images/2011/09/01/opinion/090111krugman1/090111krugman1-blog480.jpg

 

Debt repudiation, capital controls, and currency depreciation work. Holy Trinity Batman.

Ahhh... Krugman!! What a success story! Humble schoolteacher becomes the Rush Limbaugh of the American left!

[mike777]

I have no idea what any of this crap has to do with the Euro.

 

 

 

Do you want the Euro to be something?> If so what? based on these posts the euro is a huge joke.

 

If you want to the Euro to be a joke ok......I understand

 

If the euro is a way to build and make your society great and i think it maybe...then say so.... at this point these posts seem to think the euro is harmful

[Winstonm]

The current Greek crisis indicates a possible fallacy in the idea that a common currency and common central bank can succeed without a common government.

[jdeegan]

I have no idea what any of this crap has to do with the Euro.

 

 

 

Do you want the Euro to be something?> If so what? based on these posts the euro is a huge joke.

 

If you want to the Euro to be a joke ok......I understand

 

If the euro is a way to build and make your society great and i think it maybe...then say so.... at this point these posts seem to think the euro is harmful

I think most Americans want the Euro to succeed. It may eventually create a rival to the USD as a reserve currency, but these folks are our neighbors. The total value of issuing dollars for that use is 'only' about $30 to 50 billion per year - not much in the overall scheme of things.

The Euro's growing pains are mildly amusing to watch at a distance here in America. We had our own problems establishing the dollar back in the 19th century. Imagine, being swindled by a wily Greek. The Greek, much less the German, taxpayers are clearly not amused. The French and German bankers are squealing like pigs, but, alas, hardly anyone ever seems to feel sorry for bankers in distress.

A major motivation of the people who created the Euro was to eliminate the possibility of another war between France and Germany. It was also a logical extention of the EEC customs union, which was created, in part, for that same reason. The low countries loved it. Italy, Spain, Greece and (God love them) Ireland got carried along because of the success of the EEC.

How will it turn out? Who knows? The core group of France, Germany and the Benelux will almost surely hang in there and give it at least a second and third chance. The rest of the group really have something to think about.

[hrothgar]

Do you want the Euro to be something?> If so what? based on these posts the euro is a huge joke.

 

If you want to the Euro to be a joke ok......I understand

 

If the euro is a way to build and make your society great and i think it maybe...then say so.... at this point these posts seem to think the euro is harmful

 

Zhou Enlai was (famously) asked what he thought about the French Revolution.

He responded that "it was too soon to say".

 

It's ridiculous to try to objectively assess something as complex as a single currency in the middle of a short term crisis (almost regardless of a magnitude). I suspect that the average poster would have said very different things about the Euro five years ago; equivalently, I think that they'd say something very different five years from now.

 

Personally, I think that the Euro is somewhere between "highly desirable" and "an absolute necessity".

 

Its clear that mistakes were made. In particular, that there is emerging agreement that it was much too easy for countries to join the Eurozone. (In retrospect, it would have been a lot better if Greece, Spain, etc. had been forced to demonstrate that they could peg their currency to the Euro for, say 15-20 years before actually joining the currency union). Even so, its far from clear that measures like this would have had any significant impact on the current financial crisis in Europe.

 

Consider the current crisis in Greece. The core of this crisis is twofold

 

1. The German and French banks are horrible over-exposed will large scale loans to Greece, Spain, etc.

2. These debts are denominated in Euros. Even if Greece tried to bring back the drachma they still can't devalue their way of their debts.

 

The situation would have been just the same if the Greeks were on the drachma and had Euro denominated debts.

 

The only reason that the "Euro" enters into the picture is that (arguably) the German banking system's evaluation of the credit-worthiness of the Greek's might have been inflated by Greek membership in the Eurozone. However, I think that this is a tough claim to make...

[Aberlour10]

I remember an interview with an ex-director of the Bundesbank short before the Euro has been established. This man kept watch over 20 years on stability of the D-Mark. He said that the major mistake in the planing of this monetary union is the beliving of the german goverment that the ECB will control Euro and watch over budget discipline in the same way the Bundesbank has done for more than 50 years. In his opinion this will not happen for sure. He has been proved right.

[Aberlour10]

As matters stand now, I would really not wonder if I have drachmas in my wallet during the next Greece holidays. " And some kind of " the controlled bankruptcy" seems to be the only real way out from this financial labyrinth. Argentina has managed to come back within'10 years... so why not?

[mgoetze]

Ah, who cares about Greece? (OK, I do, because I own some 4.3% Hellenic Republic 2012, but not much.) Just look at all that cheap hybrid capital of banks which are totally unaffected (e.g. Aareal Bank Cap. Fdg. Preferred Securities)! And stocks, too! Munich Re close to 8% dividend yield. Time to buy, if you ask me!

[phil_20686]

By the way, what do people here think of Nigel Farage? His speeches seem funny, but sometimes I think he has a point..

 

He is on the sensible end of the right wing fringe in the UK, so he is only sometimes a raving maniac. It seems like he was right about the euro, but I find it hard to take seriously anyone who bangs on the same message come rain or shine. If you predict the end of capitalism in a market crash, you will be right about the crashing part about once a decade. But that doesn't make your argument sensible. Nigel Farage has been anti everything Europe for years, he resigned over the masstricht treaty. Even a broken clock is right twice a day, but being right for the wrong reasons does not justify his arguments. That isnt to say i totally disagree with him. I think something like europe one is either entirely in, or should get out, partial integration is risky and expensive.

 

We knew about the euro's problems when it was founded. A few decades before a major crash would have helped everyone. The euro was part of an attempt to increase economic integration, but it was known to not be without risk. Giving up the chance to denominate your own currency is risky. Thats why there were strick rules on debt, but then we broke the rules, and this is the result. If we had kept to the rules europe would be in a much better position now. Economic cycles will synchronize with time, and then we will be able to have an inflation rate that suits everyone.

 

I think that with more time the euro could turn into a very good idea. It is just looking a bit dodgy in the middle of the worst financial crisis in a century. That is not particularly surprising.

[jdeegan]

:P People on this side of the Pond are getting nervous again about the Euro and its problems. The German taxpayers are going to have to bail out Greek swindlers, lest Italy and Spain go down the drain. Or so it is said on TV. Am I a poet and didn't know it.................................?

[Aberlour10]

tja Merkel is in the tight corner, the support for her (and Sarkozy's) bail out plans gets smaller and smaller in her own ranks.

[y66]

From Martin Wolfe's column yesterday via Krugman:

 

The annual meetings of the World Bank and International Monetary Fund over the weekend brought together frightened and angry people. The financial crisis that broke upon the world in August 2007 has entered a new and, in crucial respects, more dangerous phase. A positive feedback loop between banks and weak sovereigns is emerging, with a potentially calamitous effect on the eurozone and the global economy: the eurozone is no island. What makes this process particularly frightening is that weaker sovereigns are unable to cope on their own, while the eurozone has nobody in charge. The eurozone may lack the capacity to address the crisis.

 

The underlying danger is laid out in the latest global financial stability report from the IMF. This is surveillance at its best: clear, compelling, courageous. So what is the message? It is contained in two sentences: “Nearly half of the €6,500bn stock of government debt issued by euro area governments is showing signs of heightened credit risk”; and, “As a result, banks that have substantial amounts of more risky and volatile sovereign debt have faced considerable strains in markets.” (See charts.)

 

In their seminal book, This Time is Different, Kenneth Rogoff of Harvard and Carmen Reinhart, of the Peterson Institute for International Economics, explained that big financial crises have often led to sovereign debt crises. This is the stage the world has reached, no longer in small peripheral member countries of the eurozone, but in Spain and Italy. The emergence of doubt about the ability of sovereigns to manage their debt undermines the perceived soundness of the banks, both directly, because the latter hold much of the debt of the former, and indirectly, via the dwindling value of the sovereign insurance.

 

The IMF’s report lays out the processes: “Spillovers from high-spread euro area sovereigns have affected local banking systems but have also spread to institutions in other countries. In addition to these direct exposures, banks have taken on sovereign risk indirectly by lending to banks that hold risky sovereigns. Banks are also affected by sovereign risks on the liabilities side of their balance sheets as implicit government guarantees have been eroded, the value of government bonds used as collateral has fallen, margin calls have risen, and banks’ ratings downgrades have followed cuts to sovereign ratings.” As funding comes under pressure, credit shrinks and the private sector becomes more cautious, weakening economies and undermining both fiscal and financial solvency.

 

At worst, the world stands on the brink of a big crisis. For this reason, the likes of Tim Geithner, US Treasury secretary, and Christine Lagarde, the IMF’s new managing director, have put eurozone officials under fierce pressure to act: the days of too little, almost too late, are over; failure to act promptly would just be too late, they argue.

 

So what are the outsiders demanding? The answer is twofold: a recapitalisation of weak banking institutions, on a credible scale, and sufficient liquidity to prevent the panic from ending up in the collapse of banks and vulnerable sovereigns. Different estimates of the sums required are circulating. The Americans, mindful of their experience in 2008 and 2009, recommend “shock and awe”. Given the funding needs of banks and sovereigns, this translates into well more than €1,000bn, and, quite plausibly, several times that number.

 

It is enough to make a cautious German’s head spin.

 

What's a few trill for a good cause?

[mike777]

It is starting to seem that the cure(bailouts) may indeed be worse than the disease(default by Greece).

 

In the long run I still strongly believe keeping the Euro union intact is by far more desirable than having Greece drop out and try and devalue its way to prosperity and trade.

 

Default is starting to look like the best option for all here rather than continuing to increase leverage, increase risk and ruining even more whatever creditworthy banks are left in Europe.

[jonottawa]

Sorry if this has already been posted, it's a little late but pretty funny.

 

http://www.youtube.com/watch?v=PTUY16CkS-k

[Aberlour10]

Do you know russian Matryoshka doll? ( a set of many wooden dolls of decreasing size placed one inside the other)

For me is reading the daily news to the theme € bailout like opening one of them, and everyday I find "GREECE" inside but, I already know what will be in the last one >>>EUROPEAN BANKS >>>no matter how many smokescreens will be put up by the politicans.

[Fluffy]

I think most Americans want the Euro to succeed. It may eventually create a rival to the USD as a reserve currency, but these folks are our neighbors. The total value of issuing dollars for that use is 'only' about $30 to 50 billion per year - not much in the overall scheme of things.

The Euro's growing pains are mildly amusing to watch at a distance here in America. We had our own problems establishing the dollar back in the 19th century. Imagine, being swindled by a wily Greek. The Greek, much less the German, taxpayers are clearly not amused. The French and German bankers are squealing like pigs, but, alas, hardly anyone ever seems to feel sorry for bankers in distress.

A major motivation of the people who created the Euro was to eliminate the possibility of another war between France and Germany. It was also a logical extention of the EEC customs union, which was created, in part, for that same reason. The low countries loved it. Italy, Spain, Greece and (God love them) Ireland got carried along because of the success of the EEC.

How will it turn out? Who knows? The core group of France, Germany and the Benelux will almost surely hang in there and give it at least a second and third chance. The rest of the group really have something to think about.

Hey, where is your smily/emothicon?, perhaps just because you didn't care to put it I read a your comment fully, and it even made sense!.

[mike777]

I guess at this point I would ask western europe...how many of you want to keep the euro.

 

 

If you hate it what do you want?

 

I would also ask if you were ever an adult under a different currency or grew up under the euro?

[Oof Arted]

I guess at this point I would ask western europe...how many of you want to keep the euro.

 

 

If you hate it what do you want?

 

I would also ask if you were ever an adult under a different currency or grew up under the euro?

 

 

The 'Normality' of ones own currency The Euro is/was/and always will be a disaster

 

Before the Euro Currencies 'Worked' you just did an Exchange oooo it was difficult :unsure:

[Fluffy]

I travel europe 2-5 times a year, my brother lives in Ireland and comes 2-4 times a year also, I don't want to exchange money every time I travel.