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Break up of the euro.. imminant.

Discussion in 'Off Topic' started by Slavik, Nov 9, 2011.

  1. Slavik

    Slavik XenForo Moderator Staff Member

    Anyone following the news on this?

    Basically Italy is hanging on the edge of bankruptcy, worse than the situation in Greece. With its interest rate on debts going above 7.4% (it was only 7% that crippled Greece), it looks very likely that within the next week we will know if the Euro will collapse or not.

    The lack of progress at the G20 didn't achieve has cost the eurozone deeply.

    Calls are being made on the stronger counties such as Germany and England to pump more into the funds to help bail out these countries, however I agree with the German chancellor, that the richer counties should not have to continue to bail out other countries who have shown bad judgement in their own internal policies.

    In my opinion, the proverbial dam is breaking, the previous months have involved shoring it up, but finally the weight of the debts is breaking through and it how far people can run (insulate themselves from the fallout) before it breaks.

    Personally, I am hoping that it does fail, I have always been opposed to the UK's involvement in the EU on many levels, and given how experts expect within 5 years the UK will be just as well off, if not better off than the alternative of us pumping more money into the EU to salvage these failing economies, it seems, in the long run, the Euro failing will be beneficial for all countries.

    On top of that, as an economist, watching the next few years unfold following a failing of the Euro would be of great interest and opportunity. Why opportunity? Well investors are looking for places to move their money to. British Sterling is currently a very attractive place to be, and a sudden influx of money would strengthen our currency in this poor climate.

    What are your thoughts?
  2. MGSteve

    MGSteve Well-Known Member

    Its worth pointing out that as we're not part of the Eurozone, we haven't pumped any money in to the Euro zone itself. (As far as I know).

    The 'rescue fund' setup was funded by basically Germany and France, not us.

    We did however loan Ireland quite a few million quid though.

    As much as a may sound like a good thing, the collapse of the Euro would hit the UK hard as Europe is one of our, if not the largest trading market for us. Yes, medium to long term it may be better for us, but that's no consolation for those who would loose their jobs in the invetiable resession we, along with a lot of other countries would have to endure.

    The Euro was a good idea, but to tie the hands of the eurozone members so that they couldn't have the flexibility to manage interest rates or devaluation of the currency (although that's pretty obvious) - that removed any chance of Greece or Italy being able to solve its own problems.

    If they were seperate, they'd simply devalue their currency as a major way out of the problems, as part of the Euro they can't.

    Europe has a lot of good points, sadly it also has big downsides as well.

    It really should have stayed put as a single market for trade.

    That said, had US banks not loaned money to those who could not afford them, we probably wouldn't be talking about this now.

    That also said, you can't keep borrowing forever, this crunch would have happened sooner rather than later, imo
  3. Fred Sherman

    Fred Sherman Well-Known Member

    The collapse of the Euro will rock markets around the world and usher in a new Great Depression, complete with the potential for WWIII. The events of the next 10-15 years are going to define this generation in history.
  4. Slavik

    Slavik XenForo Moderator Staff Member

    Currently the UK has got 40 billion in direct exposure to the IMF
    In terms of what you say about it hitting the UK economy hard, yes and no, maybe 5-7 years ago it would have crippled us, but in the current climate the actual impact may be as little as 0.5% of gdp.

    While that is still billions wiped out, it is deffinately manageable and better to happen now than in 10 years time.
  5. Anthony Parsons

    Anthony Parsons Well-Known Member

    Damn straight... Australia was not happy when the stupid PM here tried convincing everyone of sending more money to Greece and other such countries to help them... when it doesn't help them out, it enables more piss poor behaviour to occur.

    Just look at Greece... they just had to make some decisions for the overall good of their country, and when it all looked good, the stupid politicians collapsed and want to put it to a country vote... costing more money it doesn't have, so the supporting countries pulled their offers due to further stupidity.

    I wonder how these countries got this far without it being a problem much sooner. Where the hell did countries put their financial policy?

    America started this problem, its flowed around the world affecting every other country, but now the waves America initially created are coming back and constantly biting it, and others, on the backside due to the initial wave being created. America is starting to get itself out of the crap, but its initial waves impact on other countries who already had bad management, is collapsing them in force, constantly coming back round creating waves of there own.

    A cycle has started that some countries now continue to perpetuate due to the initial waves creation.

    Its getting ridiculous.
    Morgain likes this.
  6. Fred Sherman

    Fred Sherman Well-Known Member


    The US did not create the crisis in Europe. They did that one all on their own. Stow your anti-American attitude. If you want the biggest reason why the Euro fails, its the same reason for the US debt crisis - governments that spent money they didn't have supporting social programs that went well beyond mere societal safety nets. As it has elsewhere, the entitlement state has failed.
    RastaLulz and Pope Viper like this.
  7. Anthony Parsons

    Anthony Parsons Well-Known Member

    Fred, its not anti-America... just the facts. Yes, some European countries did have poor policy, however; they still functioned and continued forward quite ok until the GFC was created, which was created by America, then flowed through country after country as we're all linked in one global economy these days. One country does something stupid, hides it, and it then falls down, it takes most others with it obviously. That is what America did. Other countries invested within it, yet its internal policy (lack off) failed and crashed, thus created a ripple into all other countries which lost them enormous amounts of money. People invest globally nowadays, along with pension funds, etc... when they all lost money, it affected everyone.

    America created that... lets not play pro or anti America, as that is not what this is about.

    The waves created are flowing in circles right now, exposing lacking policy in countries, thus bringing those holes forward and with more punch now than ever.

    If Italy or Greece fell over uniquely, without America first crashing due to its hidden issues, then getting one of those countries out of the crap hole would be achievable, as they don't have the financial investment that was placed into America.

    So yes... America does have a lot of fault still in this, because its still part of the GFC. If this perpetuating effect wasn't still occurring, then America would be recovering much faster than it is... but the waves were created and perpetuate from the USA. Holes are holes in other countries uniquely, but those holes did not cause the issue their in now... it was the massive loss of funds invested in the USA that suddenly disappeared that put all countries concerned in the crap house now, magnifying flaws in their policies uniquely.

    You don't get to start it, then wipe your hands with the aftermath. That doesn't fly, sorry. America has nothing to do with you as an individual, its America at the political and commercial level that are responsible, not the citizens so much. You cannot blame a person if a bank is giving them more than that bank knows they can afford to repay. That isn't the citizens fault, its the bank... the bank has an obligation within a country to help manage that countries overall fiscal policy... those specific sectors failed America and the world, along with US politicians for allowing it to happen by taking money to make it easier for them.

    Again though, America doesn't just get to wipe its hands with what it created, and now still continues in countries globally due to its negligence.
  8. jadmperry

    jadmperry Well-Known Member

    Yeah, it strikes me as simplistic and erroneous to say that America caused the current crises in Europe.

    First, it is simplistic because the thrust of the argument suggests a direct cause and effect relationship between the US housing bubble and the current problems in Europe. The "but for" argument ("but for the US housing bubble, Europe would not be in its present condition") is a logic fail, because it does not accurately describe the relationship. One could similarly argue that, "but for the discovery of America, Europe would not be in its present condition." There may be a relationship, but it is neither direct and only tangentially related to the problems.

    It is erroneous because the real culprit was not the housing bubble, but rather the securitization of mortgages and the sale and purchase of the securitized debt. This was not an "American" problem, it was an international markets problem. To suggest otherwise I think misses what happened and also kind of paints all other countries, especially European countries as idiots or dupes of the masterful plan of America to sucker these poor ignorant countries (to be clear, the previous was sarcastic and not serious). No, what happened is that financial and banking institutions rode a wave that was way too exposed to risk. Then when the normal market corrections started to occur, they could not handle the losses. Does anyone really believe that the sneeky Americans pulled one over on the innocent and unsophisticated banks like Barclay's or Banco Santander? If so, I think you credit the US with much more power than we actually have.

    I will buy into and agree that lack of regulation in America contributed to conditions that allowed the financial crisis to occur. But, the culprits were the international banks that participated in the transactions in the first place and marketed the debt obligations as good investments. The point is that the blame is international, but focused on financial institutions rather than countries (again, except as to the lack of regulation). And, the same phenomena that happened in the US happened all over Europe. We neither invented nor were the only participants in bidding up houses way above their sustainable value.

    Now, as a result of all of this mess, GDP worldwide was reduced and countries could not keep up with their debts incurred in high times. The bill came due, but revenues were slashed and now you have the current situation.
    Jason likes this.
  9. jadmperry

    jadmperry Well-Known Member


    I don't agree with this because it again makes the other side of the transaction, the European banks and institutions out to be dupes. There are two sides to every transaction, and plenty or European (and Asian) money was poured into these stupid over-leveraged debts....It is way too facile to say, "oh, America did this, its their fault." It's like if you go into a casino, bet your months wages on the roll of the dice, lose, and when the rent comes due, you say, "that casino made me lose my apartment." There is a relationship, but it is not one in which the casino should hold the blame.

    As I suggested before, though, I do think the US owns the part of the problem where we dismantled Glass-Steagall and therefore let the banks run amok. But, this still sticks the blame on banks....and there were plenty of international banks that had their greedy paws in the honey pot...it was good for them when times were good, hard to see them being able to complain about bad old America when times turn bad.

    Just my sense of things.
  10. Sadik B

    Sadik B Well-Known Member

    I agree that the credit (no pun intended) does indeed fall on the International financial institutions and their policies of securitization of bad debts which is at the heart of and the main driving factor behind the worldwide financial crisis now. However the policy was essentially pioneered and started by American financial institutions. However as matters stand today, no single country or financial institution can be singly blamed. If one wanted to pinpoint a central cause of failure, it has to be "unhindered greed". Imho, worldwide financial institutions need to review the fundamental basics of conventional banking and debt based policy of financial intermediation. If the worldwide economy emerges from this crisis, they would be well advised to look at the asset based financial intermediation system, like the one promoted by Islamic Banking.
    Anthony Parsons and MGSteve like this.
  11. Morgain

    Morgain Well-Known Member

    The INITIAL problem was American because it was American power elites which drove the so-called "free market" ideal. (Which is far from any real "free market" as certain interests are supported and protected more than others.)
    It was then American banks which began to over lend to weak borrowers. As Anthony says this then began to contaminate other economies.

    But certain European nations then joined the game notably Britain, who enthusiastically de-regulated the banks under Thatcher, and started similarly lending to weak borrowers.
    It needs adding in the analysis though that the British politicians who supervised this insanity were USA backed placeholders. You don't get political status in the UK unless you back American interests. Your career will be a nonstarter. The more you back America the higher you'll go both due to big financial American interests in the country, military supervision, and some pretty murky stuff behind the scenes. In Maggie Thatcher's case she actually seemed to believe in what she was doing. Others just toe the (American) party line.

    That means two very big economies on a wrecking jag.
    Thank God for Germany and the Scandinavians.
    But whether that will be enough is looking more and more unlikely. The politicians are too invested in trying to get back to 'busi9ness as usual.' That won't work because debt fuelled economics has FAILED. The populace can no longer sustain paying off the 1% at the levels it has been doing.

    There are three options, crudely.
    A command economy (planned markets),which works very well in a poverty econonomy developing fast. The human cost is high such as USSR or China but the economics work. But then once the basic industrial infrarstructure is in place the system breaks down under increased demand.
    A "free economy" which inevitably moves money upwards to the rich elites as the powerful players (try playing monpoly). This can work well as long as the rich elites allow just enough crumbs from the table to drop to the floor. But as the 1930s and our period now demonstrate, they always get too greedy in the end.
    A mixed economy where the rich elites are balanced by strong government, and collective organisations. In this scenario we have bargaining and negotiation which protects the vulnerable, and prevents the worst of corporate greed. The price is bureaucracy, and strikes. From where we site now this looks pretty attractive to me - I lived through the 45 - 85 period when this was the basic engine. It had its faults, but not the brutalities of today.

    Will a few economic leaders begin to think outside the box? Soros? Merkel? Not enough yet. But it doesn't take too many to tip the paradigm and as we saw with the USSR once the tip starts it moves VERY FAST.
    Our world will be unrecognisable in 3 years time whichever happens.
    Fuhrmann likes this.
  12. jadmperry

    jadmperry Well-Known Member

    Fascinating bit of history....the use of credit default swaps was pioneered in 1994 by a JP Morgan banker from the UK, Blythe Masters. The CDS was sold based on exposure JP Morgan had on an almost $5 Billion line of credit it had extended to Exxon. This CDS was sold to...wait for it...European Bank for Reconstruction and Development (EBRD). That bank was chartered by 40 European and Central Asian countries.

    The development of selling these debt securities seems to have been very much a joint American-European venture. Again, it is silly to suggest that European banks were not a part of the development of the system that was the root of the problem in the financial crisis.
    Jason likes this.
  13. SchmitzIT

    SchmitzIT Well-Known Member

    Why would banks lend money to weak borrowers? The answer to that question is the real reason for the crisis.
  14. EasyTarget

    EasyTarget Well-Known Member

    And luckily the US Federal Reserve helped bail out foreign banks.
    First off, there is no country in the world called America. Unless you are talking about the continent, but which one, North or South.

    Secondly no one country is responsible for the economic disaster that started in the 2006. Yes it started when back in 2006. USA Banks were not on the only ones culpable in the situation. Here's a partial list of foreign banks there were involved in the economic disaster and received bailout money.
    BNP Paribas Securities Corp.
    Barclays Capital Inc.
    Credit Suisse Securities
    Daiwa Capital Markets America Inc.
    Deutsche Bank Securities Inc.
    HSBC Securities Inc.
    Mizuho Securities Inc.
    Nomura Securities International, Inc.
    RBC Capital Markets, LLC
    RBS Securities Inc.
    SG Americas Securities, LLC
    UBS Securities LLC.

    Pretty much all of the major world banks had a hand in it. Banks and other corporations aren't limited by geographic boundaries.
  15. MGSteve

    MGSteve Well-Known Member

    *sigh*, I'm pretty sure you know what Anthony meant.

    Sure, it helped in the fire damping as did other governments and I think you'll find they only helped the North America arms of them, i.e. those who's collapse would have had a direct impact on the US.

    The point is, it started in the US with people who shouldn't have had loans given to them defaulting. This then started to snowball and effect other those institutions who had bought the bundled debts as the lenders started defaulting when they collapsed.

    No the US isn't directly responsible for how Greece spent beyond its means, to say otherwise would be ridiculous and that wasn't what I was saying. The point is though, that the credit crisis, which this is all centred around started as above, with US sub prime mortgages and once the contagion was in the system it spread like wildfire.

    The real issue facing governments is the level of debt they are in - even the United States of America (to satisfy EasyTarget) was teetering on the edge of default a few months ago and isn't making any inroads into paying down that debt. Its not alone of course, Italy is the latest country to teeter, Spain and Portugal aren't far behind. About the only country sitting pretty is China - although they won't be so pretty if the world economy around them collapses! They need customers for their products.

    We need to hit a reset button somehow, but I don't think anyone knows what it looks like, let alone where it is at the moment.

    As Morgain says, the world in 3 (probably at most 5) years will look different to today. It needs to.
  16. SchmitzIT

    SchmitzIT Well-Known Member

    The only ones responsible for the Greek situation are the Greeks. They retire over a decade earlier than the rest of the Europeans, government workers receive additional months of salaries, people who died twenty years earlier still get paid, and all of this in a country where more than half the country does not pay taxes. Heck, there's towns where the number of Porsche Cayennes exceeds the number of people paying income tax for over 50k USD/year.

    They expect Europe to bail them out, but are annoyed when the bailout comes with demands for fiscal responsibility. If I were in charge, I'd have stopped the senseless wasting of European taxpayer money a long time ago.
  17. Anthony Parsons

    Anthony Parsons Well-Known Member

    I actually agree with what you say here... hence why I "didn't" blame America, I said, "America started this problem." Difference, agreed? You can interpret a blame game, which as I clarified, nothing to do with blame, merely citing where it started and those waves continue to ripple around the globe in circles. This is why I was clear it had nothing to do with anti or pro American anything...

    The majority of the world banks, which you left off Citi-Bank, reside in the USA, and it was there push specifically due to, as mentioned above accurately, "greed" and "capitalism" that they lined the pockets of US politicians and officials who had the power to cut fiscal policy, literally deregulate the economy from Political and Economical team management, to just Economical sector management left to their own devices.

    Easy Target raises a good point about these entities being global banks, however; its country by country policy these banks comply with, not this idealistic attitude that you can look at those banks exclusively, because it was within America that these banks were allowed to run stupid and do whatever they wanted because of greed.

    These banks collapse started due to American political and fiscal, lack off, policy. That is where the GFC started, no other country.

    America made a mistake, I'm over it... I think most Americans are over it and looking forward to moving on, however; it doesn't stop it being fact that it started in America... or USA if you want to anal.

    Watching the news this morning they had some financial guru's on a specific segment to discuss this most recent issue. They concluded they don't see the Euro ending as such, but they do see that the European Bank is in a little trouble come next year when they have to refinance their debt. It will be then that they believe European countries will go into a lengthy recession, which will come back around and bite America and Asia on the backside again. American figures show jobless figures down, growth is on the rise for the country... so mistakes are being rectified and getting back to getting the country up and running again.

    The problem though is fighting these other countries ripples that continue from the initial effect. China import / export is down, and that will hurt a lot of our countries as a result, due to Europe's current debacle.

    The problem we're all in now, collectively, is that as each country recovers, another's flaws get revealed and tumble downwards, starting the cycle all over again. The Euro is, from memory, the third or fourth largest bonds provider in the world. When it goes into recession, all countries will once again be affected, including the US and China, the two largest players in our global economy.... China is the bigger issue, as its three times the power of the US... and that would hurt the world dearly if it drops too much.

    It was good to see a new President and temporary government assigned to Greece... markets responded positively quickly, even with Italian issues looming in the foreground. Fix one, another becomes broken. Becoming a little more difficult to help each country the longer this continues, as other more fiscal countries are now being bled dry trying to help the others along as they crash uniquely.... which most are already at their limits and can no longer sustain pumping money into other countries to help them get out of the crap house.

    I think the financial guru's summed it up well this morning here... "The global economy is still at the tipping point!"
  18. jadmperry

    jadmperry Well-Known Member

    I still think the "but for" analysis is all wrong. It would be like saying, "Going to the bank killed him" when a person goes to the bank and gets killed in a robbery. Or in the same example, "His car killed him" because he drove a car to the bank.

    I also think, while the global financial crisis has some impact on the current issues in the Eurozone (I think I referenced this earlier talking about borrowing in high times), I think the issues are different now.

    A smart guy, Paul Krugman, just wrote this:

    If the PIIGS had the flexibility that would have come with having their own currency, than they could have used some of the fiscal policy tools to mitigate their debt. With that flexibility gone, the current situation is much worse. At least that's my thought.
    MGSteve likes this.
  19. jadmperry

    jadmperry Well-Known Member

    This article shows that the US housing bubble and associated crises based on debt that was considered risk fee is quite a different crisis than the current crisis: http://www.nytimes.com/2011/11/11/b...ign-debt-turns-sour-in-euro-zone.html?_r=1&hp

    The earlier crisis based on US investments by European and international banks in fact just shows that it's dumb to think an investment can be risk free and it also shows the real problem...banks and financial institutions (purely European in thie present case) having an incentive to ignore risk and are rewarded handsomely for convincing others to take what turns out to be unjustified risk. This crisis belongs to the Europeans and not the US. It's like the lessons of the global financial crisis in 2008 were never learned and the banks just moved on to the next scheme to make fees, systemic risks be damned.
  20. Anthony Parsons

    Anthony Parsons Well-Known Member

    This reminds me exactly of the US issues... the bounce is already happening. Markets crash based on one aspect, then they put in a new president or as of right now, are only stating what is going to be done, and markets recover. Then the cycle keeps repeating, as it has done from Europe for the most couple of months now.

    It seems Italy have concluded they're going to sell off a lot of un-required assets to raise billions to pay off their debt, along with other measures.

    The world is going to live in some tough times for the next decade the way things continue going. This is now all affecting France, which is far bigger than the other two... but the ripples created continue to perpetuate into country after country, showing and/or creating flaws that never existed / were known before due to country after country collapsing.

    Its like riding a very obnoxious roller-coaster right now.

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