THE Eurozone Economics Thread pt 1 (merged) Archived

[smiley]

Who's exactly paying for this?

Apparently I am...

The loan is made by the ESM. Since the base capital of the ESM is provided in cash by the separate nations of the EU it is essentially payed for by the taxpayers.

But since this is offered as a preferred loan the chances that the money doesn't come back are slim,

and I guess that if it doesn't, that will be the least of my worries, as this implies some sort of catastrophal event.

Everyone else!

Including you. You just loaned (100 billion * 1.5%/4.5 million Paddies) =333 Euro's to Spain.

[dolanbaker]

Exactly, as I was referring to everyone else except the ECB etc...

[Quinny]

Does the ESM actually exist yet?

Who's exactly paying for this?

Apparently I am...

The loan is made by the ESM. Since the base capital of the ESM is provided in cash by the separate nations of the EU it is essentially payed for by the taxpayers.

But since this is offered as a preferred loan the chances that the money doesn't come back are slim,

and I guess that if it doesn't, that will be the least of my worries, as this implies some sort of catastrophal event.

Everyone else!

Including you. You just loaned (100 billion * 1.5%/4.5 million Paddies) =333 Euro's to Spain.

[Quinny]

It seems that Spain is being bailed out by a concept that doesn't yet exist yet alone have any money.

One of the few countries that have ratified the ESM and one of the major contributors is ..... You guessed it Spain.

I think some of the other Euro nations might just be finding the situation a tad unfair!

http://www.politics.ie/forum/economy/18 ... l-off.html

[dolanbaker]

http://www.bbc.co.uk/news/business-18438402
Germany's deputy finance minister has ruled out "eurobond-lite" plans to pool part of eurozone countries' debt.

Speaking exclusively to the BBC, Secretary of State Steffen Kampeter said "debt is a national responsibility".

"I don't see any strategies where we socialise and redistribute the bad political decisions made by some who are over-indebted."

The German government has already ruled out full "eurobonds" for now.

That may disappoint investors on international markets whose hopes had been raised by reports that the Germany might be inching toward the compromise mutualisation plan.

Looks like Germany is saying Nein! Nein! Nein!
Maybe they're looking ahead to a Euro without the (growing list of) Defaulters clogging up the system, maybe the consequences of a rising Euro, rather than taking on the risks of the weak, is the lesser of two evils.

Separate lifeboats for all, ours will not be tied to your sinking one!

[eXpat]

No relief for Spain
S&P: "Spanish Home Prices To Drop Another 25%"

For all the news out of Spain: tumbling sovereign bonds, bailed out banking sector, there really is just one driver of everything: the same one many have been warning about for years: the artificially inflated valuation of the Spanish housing sector. Because the only reason why banks are suddenly finding that their assets are worth much less than previously expected, is because it is now impossible for local banks to keep the real-estate "assets" on their books at marks-to-model (read par) as the bulk of them have long since become impaired, delinquent or outright defaulted.

The common theme of course is that they no longer generate cash inflows. What however is still there are bank liabilities, which most certainly generate cash outflows. And in the absence of retained earnings (but plenty of retained losses), there is just no more cash to mask the capital deficiency. That's the whole issue with not only Spain, but Europe in a nutshell, the same we have been banking the table on for the past year: the accelerating disappearance of money good and cash-flow generating assets. Furthermore, once the spigot has been turned on, there is no stopping it, and the marks-to-market start pouring in fast and furious.

Which is the worst news for holders of Spanish bonds, now that the entire banking sector is effectively pari passu with the sovereign debt courtesy of priming ESM debt: recall that every incremental dollar, or in this case, euro, of bank capital deficiency will be one more priming bailout euro behind. Effectively there is now an inverse relationship between the Spanish housing sector and the country's sovereign bonds. And for those who are still naively are clutching to Spanish bonds, even as they tumble to all time lows (that's the local law, as opposed to the legal arbitrage trade we have been promoting and which today is making even more money), we have some bad news: that perpetual of optimists, S&P, just said that the Spanish housing sector has, wait for it, another 25% to drop!

http://www.zerohedge.com/news/sp-spanish-home-prices-drop-another-25

[dolanbaker]

http://www.bbc.co.uk/news/world-europe-18474437
German Chancellor Angela Merkel has urged Greek voters to elect leaders who will stick to austerity measures.

Mrs Merkel was speaking on the eve of crucial elections which could determine the country's future in the eurozone.

She said Europeans cannot make commitments which they then ignore.

The main contenders, the left-wing Syriza and right-wing New Democracy, are at odds over whether to broadly stick with the tough EU bailout deal, or reject it and boost social spending.

This could be seen as direct interference in the internal affairs of another country and backfire badly!

[EnergyUnlimited]

This could be seen as direct interference in the internal affairs of another country and backfire badly!

Mrs Merkel is an intelligent woman.
Possibly she *wishes* for SYRIZA to win, what would facilitate throwing Greeks out of eurozone and possibly out of EU.

She may well understand that keeping Greeks in EU or at least in eurozone is not really feasible without indefinite and costly German assistance, something what Germans are not really willing to provide.

Throwing Greeks out would also send chilling warning to other parasites.

[dolanbaker]

Throwing Greeks out would also send chilling warning to other parasites.

It's not the Greeks who are the parasites, it's the banks who threw money at the poorer countries in the EU in the expectation of it growing and providing a great return!

And it would have worked if it wasn't for those limits to growth!

[EnergyUnlimited]

It's not the Greeks who are the parasites, it's the banks who threw money at the poorer countries in the EU in the expectation of it growing and providing a great return!

There are always 2 sides of the contract.
No one is forcing those Greeks to accept loans pushed by bankers... unless their politicians are corrupted enough to do just that - accept non repayable loans with full understanding of future consequences to Greek society.
Then again, they have democracy.
If they are voting for those promising pears on the pine tree, it is their fault.

Why do I get a really good and quite frequent loan offers of $ hundreds of thousands "to help me develop my existing business further" and yet I am invariably turning these down?
Why Greeks cannot do it?
It is not that difficult to turn a loan offer down.
*No, thanks* will do.

And it would have worked if it wasn't for those limits to growth!

Of course correct observation.

[dolanbaker]

No one is forcing those Greeks to accept loans pushed by bankers...

You wave food in front of hungry people, of course you aren’t forcing them to eat it, but you are putting an irresistible temptation before them which you will ultimately benefit from!

That is why I say that it's primarily the banking sectors fault!

Why do I get a really good and quite frequent loan offers of $ hundreds of thousands "to help me develop my existing business further" and yet I am invariably turning these down?
Why Greeks cannot do it?
It is not that difficult to turn a loan offer down.
*No, thanks* will do.

Because you know that the growth isn't there to allow you to benefit as well, the Greeks expected growth to continue in the same manner as previously, just like most people did a decade ago!

[Daniel_Plainview]

And it would have worked if it wasn't for those limits to growth!

No one is forcing those Greeks to accept loans pushed by bankers...

The Greeks expected growth to continue in the same manner as previously, just like most people did a decade ago!

And the Greeks still don't get it; nor do the PIIGS or Germany.

They all appear to believe that this contracting economy is just a hiccup; they don't realize that we've reached the limits to growth; they don't realize that the party is over.

As intelligent as they are, the Germans nevertheless will keep bailing out bankrupt financial institutions and keep throwing money at the PIIGS until the German taxpayers run out of money (or patience).

All the rest of us can do is sit back and watch. We can try to tell them that it's useless, but they won't believe us.

I can't tell whether this is a comedy or tragedy at this point ... maybe both.

[dsula]

That is why I say that it's primarily the banking sectors fault!

No it's not. It's primarily the loan-takers fault. Please grow up and accept responsability for your actions. I know it's so much easier to blame
1. parents
2. society
3. goverment
4. foreigners
5. corporations
7. globalisation
8. walmart
9. drugs
10. banks
11. schools

But in the end it's YOU. Because YOU are responsible for your actions and non-actions.

[careinke]

Soo.. Any quick predictions on the outcome of the Greek elections? I'm betting they vote to stay in the EU, and not for the radical left party. So the whole mess will once again be kicked a little farther down the road.

However, if they do elect the radical left, Monday could be very interesting!

[ColossalContrarian]

How likely is my scenario?

The Greek vote is too close to call (already confirmed on Bloomberg -> http://www.bloomberg.com/news/2012-06-17/greek-parliamentary-vote-too-close-to-call-exit-poll-shows.html).

The voting/counting process gets stretched out the entire week, EU orchestrators “buy time” if you will and kick the can a ways down the road and hope for bigger news to come out of Spain or Italy so everyone forgets about Greece’s problem.

I don’t believe anything will be determined on Monday but my theory is next Monday at the earliest.

[dolanbaker]

... But in the end it's YOU. Because YOU are responsible for your actions and non-actions.

I don't disagree to the principal that you're responsible for your actions, but as are the banks also responsible for their lending strategy.

You can use that analogy if you like but, the banks were so keen to lend the money, they would have continued to drop the interest rates until the offer was too good to be true, as it is they were (via third parties) giving out sub-prime mortgages left right and centre.

[dsula]

You can use that analogy if you like but, the banks were so keen to lend the money, they would have continued to drop the interest rates until the offer was too good to be true, as it is they were (via third parties) giving out sub-prime mortgages left right and centre.

Yes, but banks (like any other business) try to maximize profits. So it then was actually the governments fault to allow banks to operate under such relaxed rules, which they fully exploited. Or was it the people's fault, for voting in a goverment that promised (and delivered) quick and cheap money?

[dolanbaker]

Yes, but banks (like any other business) try to maximize profits. So it then was actually the governments fault to allow banks to operate under such relaxed rules, which they fully exploited. Or was it the people's fault, for voting in a goverment that promised (and delivered) quick and cheap money?

Ah Good, you accept that the banks were reckless in their lending!
It tends to be the fact that politicians gain from a profitable banking sector plus the fact that they are supported by business interests that thrive on a profitable banking sector, this in turn leads to well financed political parties that support a relaxed banking regulation, it's little wonder the average voter supports them.

Everyone wants a bigger slice of the cake, just the cake is only so big.

[EnergyUnlimited]

Yes, but banks (like any other business) try to maximize profits. So it then was actually the governments fault to allow banks to operate under such relaxed rules, which they fully exploited. Or was it the people's fault, for voting in a goverment that promised (and delivered) quick and cheap money?

The main fault of governments is the bank bailout strategy and other futile attempts to prevent banks from getting bankrupt.

Fault of banks was to recklessly issue loans to various groups of subprime customers, would that be a PIIGS states or American mortgage seeker applying for NINJA loan.

Fault of customers was to apply for loans despite of lack of credible strategy of repayment (speculation base on bubble economy doesn't count as such).

Remedy:
Liquidate insolvent customers including national assets of Greece, liquidate welfare state, liquidate insolvent individuals and liquidate insolvent banks.
That would lead to liquidation of 70% of first world economy or so but at least we would learn where we really stand.

Nothing short of that will really do and delaying inevitable with false hopes that incurred debts will simply go under the carpet will lead to liquidation of Western democratic system in due course.

Economic collapse is a Nature's proxy and financial engineering won't stop it.

[dolanbaker]

Taking away the banks right to issue money and having the sovereign states issue and control its supply would go a long way to creating the stability that is required.