The future of the Euro

[y66]

Frau Nein says yes to more integration

 

In a remarkable about-face, Mrs. Merkel now wants more economic integration in the euro zone, including regular meetings of its leaders. That sounds similar to a French plan for a prototype economic government for Europe — something once considered so radical that Germany killed it.

 

... In Berlin, Mrs. Merkel’s adviser, Uwe Corsepius, briefed European Union ambassadors on the ideas this week and a draft document, prepared by one German ministry and circulating in Brussels, identified six priorities.

 

These are: abolition of wage indexation systems, agreement on mutual recognition of education qualifications, creation of a common base for assessing corporate tax, adjustment of the pension systems, establishment of a national crisis management regime for banks and new legal measures to force countries to commit to tough fiscal policies through a “debt alert mechanism.”

 

Under the plan, countries will be measured against economic indicators, their progress verified by the European Commission.

 

Though both Mrs. Merkel and Mr. Sarkozy have been fiercely critical of the commission and want to limit its powers, neither wants to create a new, parallel structure.

 

In fact much — though not all — of Germany’s plan was being pushed by the European Commission in its annual growth survey, or in its plans to strengthen the European Union’s rule book with six economic governance proposals.

 

But that Berlin wants to make these ideas its own gives them vital momentum.

 

The challenge now is for officials to make a series of interlocking reforms into a coherent package by March.

[Aberlour10]

Smaller EU countries like Austria and Belgium are not amused about this plan, non euro-zone members Poland and Hungary are afraid, they will be put to a backwater in european decision making process. So the negotations about details in March can end with compromise that completely diluting this idea >>> business as usual in Brussels.

[Aberlour10]

We have not an extra thread about the future of the USD, so a few words here.

It seems, China wants to destroy the domination of the greenback at the trading markets and plans to handle the entire own foreign trading in Yuan. This and tries by a lot of countries to finish the exclusively role of USD in oil trading may bring some troubles or?

[y66]

Who will pay for restructuring of Greek debt?

 

http://graphics8.nytimes.com/images/2011/06/18/world/europe/EURO/EURO-articleLarge.jpg

Fabrizio Bensch/Reuters

 

http://graphics8.nytimes.com/images/2011/06/18/world/europe/18euro-graphic/18euro-graphic-popup.jpg

 

NYT story by Alan Cowell and Judy Dempsey.

[y66]

How do you say "fast fix this" in German?

[Aberlour10]

<br />How do you say "fast fix this" in German?

 

"Bringe es schnell in Ordnung"

 

But you cannot fix anything throwing billions of Euro in a bottomless pits, and this is what happens at the moment.

[jdeegan]

:D Don't cry for me Argentina. Currency consolidation is a balance between the ease of lending in a common currency and the benefits of letting currency devaluations help you out when things go bad. I had lunch the other day with an fat Washington economist named Larry, which one I can't remember. He said that he had had dinner with an important German (like the chancellor or the head of the German central bank) who related his (and his wife's) extreme discomfort at the events just following the end of WWII. That experience forged, for him, the theoretical basis for a common Franco-German currency to minimize the potential for future conflict. Who else cabbages on to the Euro remains to be seen.

[Aberlour10]

In 1989 the french president F. Mitterand gave up his resistence to German Unification processing in this moment in Helmut Kohls goverment approved forcing of the European Monetary Union. That was the price.

[y66]

"Bringe es schnell in Ordnung"

 

But you cannot fix anything throwing billions of Euro in a bottomless pits, and this is what happens at the moment.

 

21 poll voters do not agree apparently. I am not so optimistic.

[mgoetze]

21 poll voters do not agree apparently. I am not so optimistic.

 

You do realise this thread is over a year old?

[y66]

Yes. "Fast fix this" was a lame attempt at humor.

[helene_t]

I think that the differences between Athens and Paris exceed the differences between San Francisco and New York, but probably the real issue is that, at least to a large extent, Athenians think of themselves as Greek and Parisians think of themselves as French, while people in New York, San Francisco and a mining town in West Virginia all think of themselves as Americans.

Yeah, this is crucial. Most New Yorkers would care about California going bankrupt. I think that most non-Greek Europeans (but OK I am largely speaking for myself) don't care if Greece goes bankrupt except for the implications it would have for our local economy. Greeks have never paid taxes to the government that provides services for me. I have never voted for politicians that have any say on what happens in Greece, nor have Greeks voted for politicians that have any influence on my life. I have no close friends or relatives that have ever lived in Greece. Theoretically I could be a very empathic person who cared about the welfare of the Greeks, but that is just like I could care about Zimbabwe or North Korea. The fact that Greece is an EU member while Zimbabwe and North Korea are not means nothing.

[hotShot]

Yeah, this is crucial. Most New Yorkers would care about California going bankrupt. I think that most non-Greek Europeans (but OK I am largely speaking for myself) don't care if Greece goes bankrupt except for the implications it would have for our local economy. Greeks have never paid taxes to the government that provides services for me. I have never voted for politicians that have any say on what happens in Greece, nor have Greeks voted for politicians that have any influence on my life. I have no close friends or relatives that have ever lived in Greece. Theoretically I could be a very empathic person who cared about the welfare of the Greeks, but that is just like I could care about Zimbabwe or North Korea. The fact that Greece is an EU member while Zimbabwe and North Korea are not means nothing.

 

While I basically agree with you, I suggest you check your private pension plans, because your insurance or bank could hold (or held and sold them with a big loss) a significant amount of Greek loans.

A lot of people who don't care about the Greek now, will be surprised when they retire how big the impact to their pensions is....

[Aberlour10]

While I basically agree with you,  I suggest you check your private pension plans, because your insurance or bank could hold (or held and sold them with a big loss) a significant amount of Greek loans. A lot of people who don't care about the Greek now, will be surprised when they retire how big the impact to their pensions is....

 

From one side you are right, nobody is able to forsee how big would be this financial earthquake and this is the reason for what the european politicans do at the moment.

 

From the other these banks and insurances (you talk about) cashed and cash enormous intersts for these greek loans without any risk. This risk is averted only by the european tax payer. Is it still market economy? A. Merkel is willing to contribute banks (holders of the greek loans) compulsorily on the cost of this crisis, But Sarkozy said : Non mon ami! Why? Look at the diagram posted by y66 above and you will know.

[mgoetze]

I think that most non-Greek Europeans (but OK I am largely speaking for myself) don't care if Greece goes bankrupt

 

I care! They owe me money. ;)

[y66]

http://media.economist.com/images/images-magazine/2011/06/25/ld/20110625_ldp001.jpg

 

From The Economist, June 23

 

No matter what fictions they concoct this week, the euro zone’s leaders will sooner or later face a choice between three options: massive transfers to Greece that would infuriate other Europeans; a disorderly default that destabilises markets and threatens the European project; or an orderly debt restructuring. This last option would entail a long period of external support for Greece, greater political union and a debate about the institutions Europe would then need. But it is the best way out for Greece and the euro. That option will not be available for much longer. Europe’s leaders must grab it while they can.

[mgoetze]

That option will not be available for much longer.

 

Why not? I mean they have already guaranteed Greek debt through some time in 2013, unless they renege on that I don't see what the rush is.

[Gerben42]

Darn, the Greek parliament accepeted the new budget plans. No good will come of this:

 

* the cuts will stagnate the Greek economy even more

* in 9 months, we will be in the same situation again

* our stupid government is investing more € into this financial black hole

 

Finally allow them to go broke!

[luke warm]

Darn, the Greek parliament accepeted the new budget plans. No good will come of this:

 

* the cuts will stagnate the Greek economy even more

* in 9 months, we will be in the same situation again

* our stupid government is investing more € into this financial black hole

 

Finally allow them to go broke!

the whole world, it seems, is in a bailout mood

[Aberlour10]

Nowdays capitalism is on a very strange stage, profits are as always private thing, losses and debts are the public one.

[hrothgar]

Nowdays capitalism is on a very strange stage, profits are as always private thing, losses and debts are the public one.

 

Externalities are a bitch...

 

This might seem cynical, however, I don't think that the policy makers give a damn about the Greeks.

 

I think that their decisions are being driven by the fact that there are a large number of undercapitalized German and French banks that lent lots of money to the Greeks, Spanish, ... When this whole things blows up, the Greek economy is going to face a massive shock; however, its the German banking system that will be left holding the bag. (The US also has a fairly significant exposure. You know all those nice safe money market funds where people like to park their $$$... Guess where the banks went and parked a bunch of those funds).

 

To make things even more complicated, lots of folks knew that something was up and tried to hedge their exposure using derivatives and the like...

Sadly, these strategies assumed that the folks issuing the insurance policies have enough funds in place to cover their exposure. (Right now, a lot of very smart folks are spending a lot of effort trying to make sure that Greece doesn't formally go into default to prevent a whole wave of derivatives from flipping over)

 

Simply put, there is no way to draw nice clean lines and ensure that

 

1. The Greeks get screwed

2. The bankers who made bad loans go bust

3. The public at large doesn't get affected

 

The public at large wanted growth, growth, growth which meant that reserve requirements aren't what they should be and the bankers were forced to chase after ever more speculative investments to ensure a "competitive" return...

 

One way or another, we're going to be stuck paying to clean up this damn mess

I'm not sure whether the payment is going to take the form of bailout funds (which eventually need to be paid for with - gasp - taxes) or alternatively with a stock market crash. However, its clear that its going to cost real $$$ trying to get all this crap out of the system.

 

At the end of the day, this is going to boil down to a balancing act in which the banks try to figure out just how much of Greece can get auctioned off to cover some of these debts without triggering an outright default on the debt.

[mgoetze]

You know all those nice safe money market funds where people like to park their $$$... Guess where the banks went and parked a bunch of those funds).

 

Huh? I would guess they parked those funds in CPs, T-Bills, etc. with a maximum duration of 1 year and often much less, and have no idea why they would still have any problem at this point. Isn't that what money market funds are all about?

[Aberlour10]

A warm welcome to Italy in this thread.

[mike777]

The euro was, and still is, based on the premise of the mobility of factors of production( i.e., people and capital).

 

In order for the euro to succeed two problems must be resolved:

 

The member states will have to loosen their grip on the financial system, which will lead to a decrease in public debt.

 

Workers' international mobility will have to be made more flexible and fluid at the cost of more restrained social protection.

 

The choice of a common currency was an excellent one, but the durability of the eurozone is not an established fact.

[helene_t]

Mike, people are free to move and work within the EU with some restrictions for citizens from a few countries but those are not members of the Euro zone.