The Eurozone Heads for Break Up

The Eurozone Heads for Break Up

www.economonitor.com

The muddle-through approach to the eurozone crisis has failed to resolve the fundamental problems of economic and competitiveness divergence within the union. If this continues the euro will move towards disorderly debt workouts, and eventually a break-up of the monetary union itself, as some of the weaker members crash out.

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...So given these three options are unlikely, there is really only one other way to restore competitiveness and growth on the periphery: leave the euro, go back to national currencies and achieve a massive nominal and real depreciation. After all, in all those emerging market financial crises that restored growth a move to flexible exchange rates was necessary and unavoidable on top of official liquidity, austerity and reform and, in some cases, debt restructuring and reduction.

Noriel Roubini is one of the few people I admire a lot. He predicted the financial crisis that begun in 2008 very accurately. Back in the days, he was ridiculed as being a doom thinker. No, a crisis wouldn't happen. Well, knowing where we are today, it's needless to say that seems to actually have a clue about economics, in contrast to the vast majority who were caught by surprised in 2008.

It wouldn't surprise if this is the scenario that awaits us. The pure idea of having one Union that would bring increased wealth and more importantly, peace to the once so bloody continent is a mere utopia. A chain is only as strong as its weakest link and with countries such as Greece and Portugal, it's obvious that an European Monetary Union was doomed to fail from the very beginning. It's not that their problems are of recent time. Just like cancer, it's there often for years before the symptoms first appear.

In the end, nations, especially the stronger links such as Germany, Austria, the Scandinavian countries, the Netherlands and France will increasingly think from a nationalistic point of view, rather than from an European point of view. That's happening already and the willingness of the relatively healthy nations to help out the weaker brothers of the union will become less when the burden beomes heavier and heavier. At a certain point, countries (read: the people) will think, is there any advantage left of staying in the union?

It's obvious that we're in the same boat as the US, except for the fact that Greece's debts equal €400 billion and the US' debts €14,000 billion and per capita respectively €26,000 and €30,000.

www.economonitor.com
(visit the link for the full news article)

Hopefully.

Countries like Greece should never have entered the Euro anyway. Their books were cooked with agreement of their political elites by Goldman Sachs to make it appear that their debt to GDP ratio was within the boundaries
set down in the Euro agreement.

But in the Greek case the US bankers devised a special kind of swap with fictional exchange rates. That enabled Greece to receive a far higher sum than the actual euro market value of 10 billion dollars or yen. In that way Goldman Sachs secretly arranged additional credit of up to $1 billion for the Greeks.

This credit disguised as a swap didn't show up in the Greek debt statistics. Eurostat's reporting rules don't comprehensively record transactions involving financial derivatives. "The Maastricht rules can be circumvented quite legally through swaps," says a German derivatives dealer.

www.spiegel.de...

The sooner Greece, Portugal and the bigger nations such as Spain & Italy return to their own currenices and get away from the jackboot of Germany the better, for their people anyway.

reply to post by Mdv2


Dear Mdv2,
I am not going to pretend I am a financial buff, but the concept of Europian countries bailing out of the Euro is kind of worrying. I am French and lived in France at the time of the Euro change, so I still remember the Franc, now I live in the UK who steadfastly didn't go with the Euro and I guess benefited from it.

I wonder what kind of impact this would have on European countries using the Euro, wouldn't this truly screw them up having to reconvert back to old currency?

Lordy!

Thanks,
T

reply to post by torqpoc


We ( as in our governments) didn't steadfaslty not enter the Euro. Bl**r and the rest wanted to take us in but they knew that the British public would not stand for it.

reply to post by Mdv2

In the end, nations, especially the stronger links such as Germany, Austria, the Scandinavian countries, the Netherlands and France will increasingly think from a nationalistic point of view, rather than from an European point of view. That's happening already and the willingness of the relatively healthy nations to help out the weaker brothers of the union will become less when the burden beomes heavier and heavier. At a certain point, countries (read: the people) will think, is there any advantage left of staying in the union?

Europe is crumbling down, and quite badly so. In France, revolutionary groups aim at bringing Nicolas Sarkozy to resign and reform a new economy. I am French, and I have friends in Paris involved in the organisation of these movements, it is quite serious. I can't find the links for that one, I am sorry. I will mainly focus on France in this post, and EU.

Now, when you talk about the stronger links, it is true only when compared to the rest of the countries. Because by themselves, they wouldn't be considered as strong, this is an illusion. Objectively, look a these stats regarding public debt (internal and external):

France 83.5% of GDP (2010 est.)
77.6% of GDP (2009 est.)
CIA factbook

Public debt per head per capita: 25000.0 Euro = 36086.1274822 US Dollar
Planetoscope.com



Okay, and if the internal debt wasn't enough, once this will be sorted, there is more ! External debt:

Rank Country External debt USD Date Per capita USD % of GDP

1 United States 14,392,451,000,000 30 September 2010[7] 46,577 97%
— Euro symbol.svg Eurozone 14,166,135,000,000 3rd quarter of 2010[8] 43,110 120%
— Flag of Europe.svg European Union 13,720,000,000,000 30 June 2010[9] 27,382 83%
2 United Kingdom 8,981,000,000,000 30 June 2010 144,757 398%
3 Germany 4,713,000,000,000 30 June 2010 57,646 143%
4 France 4,698,000,000,000 30 June 2010 74,410 188%
5 Netherlands 2,344,296,360,000 3rd quarter of 2010[10] 226,503 344%


And if u don't like numbers, please have a look at these videos

These guys are brilliant at explaining things in an humoristic and funny way !

Can you guys see the Youtube videos, or is my plugin that is bugging ?

And please, can one of you tell me how to put image straight into the post without having this "link"

Thanks

reply to post by Animus974


I can see the videos, I just watched the second one and had a good laugh (well, in between the tears, eh?)

I can't help you on the other question, though, sorry.

We, as a collective whole, as a species...are so doomed.

We are the pawns in a world-size chess game and the players are a bunch of greedy and/or foolish nitwits.

Guess who loses? All of us.

Check.

I don't bellieved we are doomed, I just believe that it will be the end of the system as we know it, with very likely chaos during the transition.

We do only do the best we can, at every given moment. If it lead us to this situation, than so be it. Things will sort thhemselves out, they always do somehow.

It certainly is interesting that the countries in the EU that took the Euro currency are the ones doing the worst most of the time. I'm from England and recently moved to Denmark and was amazed by how well they are doing without the Euro. People are spending, theres jobs to be had with only 5%ish unemployment (which the Danes actually consider a bad number amazingly).

The UK itself isn't exactly thriving, but I can't help but think that it would be a whole lot worse if they had taken the Euro over the GBP. Compared to the rest of the world, the politics of the Union arn't that bad to live with. But the currency is clearly a rotten apple.

Originally posted by kundalini
It certainly is interesting that the countries in the EU that took the Euro currency are the ones doing the worst most of the time. I'm from England and recently moved to Denmark and was amazed by how well they are doing without the Euro. People are spending, theres jobs to be had with only 5%ish unemployment (which the Danes actually consider a bad number amazingly).

The UK itself isn't exactly thriving, but I can't help but think that it would be a whole lot worse if they had taken the Euro over the GBP. Compared to the rest of the world, the politics of the Union arn't that bad to live with. But the currency is clearly a rotten apple.

I have only returned the other day from having lived in Denmark for more than a year and read that Denmark has officially entered recession. Besides, the DKK is pegged to the Euro, so they have substantially benefited from the strength of the Euro during the crisis and if you talk to Danes, you will understand that finding a job, especially for fresh graduates, is rather hard. Besides, my own country, the Netherlands has adopted the Euro while we have, together with Austria, the lowest unemployment rate (4.2%) of the entire union (vs 7.2% in Denmark). Moreover, annual inflation equals 2.2% vs. 0.9% for the Netherlands over 2010.

So to say that the Euro has effected the economic situation in a country in a good or bad way based on these economic statistics alone doesn't hold true. However, one should ask whether the benefits of the Euro outweigh the drawbacks. Like you said, Denmark (and Sweden too) have done remarkably well without the Euro and while I am of opinion that the Euro does help bolster economic growth, with countries like Greece, you end up off worse due the billions you are forcefully made to waste on such countries that are doomed to default anyway.

Originally posted by Mdv2
I have only returned the other day from having lived in Denmark for more than a year and read that Denmark has officially entered recession. Besides, the DKK is pegged to the Euro, so they have substantially benefited from the strength of the Euro during the crisis and if you talk to Danes, you will understand that finding a job, especially for fresh graduates, is rather hard. Besides, my own country, the Netherlands has adopted the Euro while we have, together with Austria, the lowest unemployment rate (4.2%) of the entire union (vs 7.2% in Denmark). Moreover, annual inflation equals 2.2% vs. 0.9% for the Netherlands over 2010.

So to say that the Euro has effected the economic situation in a country in a good or bad way based on these economic statistics alone doesn't hold true. However, one should ask whether the benefits of the Euro outweigh the drawbacks. Like you said, Denmark (and Sweden too) have done remarkably well without the Euro and while I am of opinion that the Euro does help bolster economic growth, with countries like Greece, you end up off worse due the billions you are forcefully made to waste on such countries that are doomed to default anyway.

I'm no economist and you clearly know the stats behind this a lot better than me so I certainly won't argue with you on the figures. I'm just saying what I see really. Could just be this area (Fyn). Although Denmark being in the EU makes my life a bit easier with freedom of movement laws and such, I would still love to see them independent. I think they thrive that way. And as you say, any monetary gain is forfeit when you consider how much you have to pay to bailout the weaker failing countries.

I guess I just think it could be a lot worse. England is in a lot worse state than here. But hey, maybe its a slippery slope and this is just the begining. It can still get a lot worse very easily.

Originally posted by Animus974
I don't bellieved we are doomed, I just believe that it will be the end of the system as we know it, with very likely chaos during the transition.

We do only do the best we can, at every given moment. If it lead us to this situation, than so be it. Things will sort thhemselves out, they always do somehow.

If any European collapse spreads to collapse other world economies, and pretty much the entire world economy, I agree, it will be replaced by another system commonly known as the new international economic order under the New World Order. The current problems stemming from nation and regional states having authority over the manipulation of their currencies and banks will probably be cited as reason to introduce a global financial and banking authority and one world currency. I have absolutely no proof of this and is all speculation of course, but it merits consideration of the possibility that from the ashes of collapsed world economies that such a system can emerge to replace the current one, all debts forgiven.

Originally posted by Mdv2

Originally posted by kundalini
It certainly is interesting that the countries in the EU that took the Euro currency are the ones doing the worst most of the time. I'm from England and recently moved to Denmark and was amazed by how well they are doing without the Euro. People are spending, theres jobs to be had with only 5%ish unemployment (which the Danes actually consider a bad number amazingly).

The UK itself isn't exactly thriving, but I can't help but think that it would be a whole lot worse if they had taken the Euro over the GBP. Compared to the rest of the world, the politics of the Union arn't that bad to live with. But the currency is clearly a rotten apple.

I have only returned the other day from having lived in Denmark for more than a year and read that Denmark has officially entered recession. Besides, the DKK is pegged to the Euro, so they have substantially benefited from the strength of the Euro during the crisis and if you talk to Danes, you will understand that finding a job, especially for fresh graduates, is rather hard. Besides, my own country, the Netherlands has adopted the Euro while we have, together with Austria, the lowest unemployment rate (4.2%) of the entire union (vs 7.2% in Denmark). Moreover, annual inflation equals 2.2% vs. 0.9% for the Netherlands over 2010.

So to say that the Euro has effected the economic situation in a country in a good or bad way based on these economic statistics alone doesn't hold true. However, one should ask whether the benefits of the Euro outweigh the drawbacks. Like you said, Denmark (and Sweden too) have done remarkably well without the Euro and while I am of opinion that the Euro does help bolster economic growth, with countries like Greece, you end up off worse due the billions you are forcefully made to waste on such countries that are doomed to default anyway.

Yes we have a hard time here in Denmark... In fact 80% of newly educated carpenters are sent directly into unemployment. This is the same for a lot of other studies. There simply isn't created any jobs.
While I'm not entirely sure that the Euro is to blame, I don't see why we should have entered this cooperation in the first place, which is basicly only about catering the larger EU countries like Germany and France.

The problem that none of them realise is that the bigger the country the more at risk it is at falling apart economically and create vast difference in social relations... ie. few rich more poor people.
I firmly believe that the EU was created with one sole purpose: to control the masses and feed the larger countries on the expense of the smaller member countries.

No wonder the EU is in trouble and no wonder the people and Danes too, are about to say "enough is ENOUGH!". People are waking up and I wouldn't be surprised if we in my lifetime will see an armed revolt against these dictator governments controlling the EU and some of the nations in EU at the moment.

Like someone else ealier said, things might go bad, but they will recover in a new shape. So let this plagued, corrupt and outlived entity DIE! Let it fall apart, and let's pick our own pieces back up. We were doing FINE before the EU, and we will do fine again.

I just can't wrap my head around a possible Eurozone break up which wouldn't also seriously affect the global financial system completely in the same minute as one Euro country defaults.

Everything is so intertwined that it would be almost impossible to only lift out the problem of Greece or isolate Greece - or even put Greece in quarantine without seriously affecting the whole sickened financial system AND the €uro and the US dollar in that process.

And exactly in the same moment that Greece would default the rest of the PIGGS could fall like dominoes because of the enormous ticking derivative time bomb - the default of Greece could trigger a chain reaction through Europe which would seriously affect the ECB - and that would in the same minute set financial London & European banks and Goldman Sachs and all other banks in New York on fire with their mountains of derivatives that would be in deep crap in the same minute as ECB goes into deep problems - that in turn could completely strike against the US dollar and the €uro, instantly. The rest of the world's central banks and nation-states would then follow one after one, since everything is tied up to the US dollar and the same $600 TRILLION derivative bomb with all the credit default swaps, interest rate swaps and the plethora of other exotic derivatives etc, which are currently on life support as we speak.

Likewise, the same scenario could perhaps be true the other way around if this chain reaction started by defaulting states in the US and then affected the banks on W.S and its subsidiaries in financial London and then spread to ECB and then around the world.

I can only see two scenarios coming from all this because of all the intertwined toxic derivatives involved - either we reset the system, destroying/defusing this ticking derivative bomb in that process and start from zero again OR a completely new financial system, implementing a completely new world currency which would bypass the derivative bomb, making the derivatives in US dollar and the €uro totally worhtless which would set us, in the Western world back to a financial stone age.

Or maybe a combination of the two scenarios, either way, we're pretty much screwed as it is, and doom is certainly coming sooner or later if nothing radical is done about this, soon!

Whithout a radical solution, we can either choose between pest and cholera and wait for an explosive scenario, which we would have absolutely no control over what-so-ever, which could happen anytime during these circumstances - and a timed scenario where we try as much as we can, to delay and defuse every upcoming situation on the fly and implement new solutions as we go - which would be like patching holes in a sinking ship with duct tape during 20 years of depression waiting for some non-existing miracle to happen until the final explosion.

Either way, the explosion and the final blow out is coming sooner or later - it's probably game over for the current system!

What a mess! :shk:

Originally posted by Animus974
I don't bellieved we are doomed, I just believe that it will be the end of the system as we know it, with very likely chaos during the transition.

We do only do the best we can, at every given moment. If it lead us to this situation, than so be it. Things will sort thhemselves out, they always do somehow.

I am always thinking of the individual people who suffer innocently through such times. Humans survive, as a whole, but many suffer needlessly because of poor leadership, by getting caught up in the gears of the machinery of society.

Greece was the first EU country to be bailed out about a year ago. Part of the deal was the country was to accept tough belt tighening measures. None of these have happened, so one year on the first bail out money is lost, wasted, and now incredibly the talk is of another bailout. What is that supposed to do ? You might as well take the money outside and set a match to it.

The people of Greece dont want any cutbacks, they go on strike at the mere mention of it. Why should I in UK pay for some Greek guy to carry on living outside his means. I say to hell with them let em sink or swim. Only then will other countries take notice and get their houses in order.

The UK has not required bailing out just yet. The government has suggested various cutback measures to avoid that scenario and what to we get, and immeditate threat from public sector workers to go on strike. If i was in UK governmet I would let them go on strike, because each day of the strike they are not paid and it will save us money. My guess is the strike would last maybe 3 days before they all caved in and went back to work. Those who went on strike should be first up for sacking.

Public sector workers, I used to be one myself for 20 years, are the bain of this country. We need to get rid of them asap.