Analysis: For euro zone, the heat is on again

Was just about to come in and ask other ATS members why the sudden disappearance of the EZ crisis from the headlines of late. Was going to speculate that perhaps it had something to do with the Euro dropping to record lows (among other things) and that the media have been perhaps told in no uncertain terms that they keep the rhetoric down. But alas, this analysis states that the headlines are about to reappear with more interesting and disturbing news stories on the EZ sovereign debt crisis.

Reuters

The euro zone crisis seemed to vanish from the headlines for a brief moment as 2011 ticked over into 2012, but it is about to return with a vengeance.

The coming months will be decisive in determining whether European leaders can hold their increasingly fragile currency bloc together or will stumble in the face of a daunting set of political, economic and financial obstacles lined up in their path at the start of the new year.

In Greece, where the crisis started over two years ago, the government is in a race against time to agree a bond-swap deal with banks that is crucial to a new 130 billion euro bailout package from European partners and the International Monetary Fund (IMF).

Without that package, Athens faces the threat of a debt default in March.

But talks with the banks and investment funds that are being asked to accept 50 percent losses on their Greek bonds to help pay for the bailout have dragged on for weeks, sowing doubts about whether Athens can really deliver.

"The risk of a disorderly Greek default is once again on the rise, with the threat of contagion to Italy and others," economists at Barclays Capital said last week.

Compounding the challenge, both Greece and France face elections within months that could complicate decision-making at the national level in two key states and thwart the broader bloc's ability to act swiftly at a time when pressure is high to bed down agreements sealed at an EU summit last month.

A key element of the summit package was a deal to funnel 200 billion euros to the IMF, money that could be used to offer precautionary credit programs to Italy and possibly Spain.

But the euro zone is struggling to get the 50 billion euros it needs from nations outside the currency bloc to meet its goal. A senior German official told Reuters on condition of anonymity that securing the participation of Britain, which has shown no inclination to contribute, was absolutely crucial.

Italian 10-year bond yields have pushed back above the 7 percent mark over the past week, approaching record euro-era highs, and both Rome and Madrid must sell bonds this week in the first major market tests of 2012 for the euro zone's third and fourth biggest economies.

And after years of frustration with the French president's shoot-from-the-hip style, government officials in Berlin say they are now worried about the end of "Merkozy," the most important relationship in Europe, in the middle of the crisis.

A cut in France's triple-A credit rating in the weeks ahead could also upset the delicate Franco-German balance, although some economists believe it could force the French to accept more far-reaching fiscal reforms, regardless of who wins the two-round election in April and May.

"It won't be Merkozy anymore. It will be Angela Merkel and (IMF chief) Christine Lagarde dictating policy in Europe," said French economist Jacques Delpla.

Fittingly, Merkel and Sarkozy kick off 2012 with a Monday meeting in Berlin to prepare an EU summit scheduled for January 30 that is expected to focus on efforts to boost growth.

That is perhaps the biggest challenge of all for the bloc. After several years of fiscal consolidation to push down debts and deficits swollen by the global financial crisis of 2008/09, the euro zone is headed for recession -- a factor that has pushed the euro down to 16-month lows against the dollar.

Even the bloc's economic powerhouse Germany is at risk of recession. Greece is entering its fifth straight year of contraction, with no hope of paying down its massive debt.

But restoring market confidence in the finances of struggling euro area countries and getting their economies working again seem like contradictory goals at this point.

"In the current market environment there is no room for using a Keynesian-type expansionary fiscal policy to boost demand in countries with low growth - the markets will simply not accept such a strategy," Deutsche Bank said in a confidential note on the crisis prepared for the German government late last year.

The big question is whether this buys Europe's leaders the time they need to overcome the formidable challenges they face in the new year.

I guess they are trying to find some breathing space to come up with a plan to save the Eurozone from further crisis, but I have to agree that the silence is rather deafening.

But then what more can be said? everyone seems on the face of it to have accepted and/or are preparing for a crash/(dis)orderly exit of one or more nations from the EZ.

Yeah true but there were a few publications, especially UK Telegraph, that were rolling out articles delivering the bad news continuously. Made me wonder that perhaps conditions had deteriorated to the point where such media hype was further destroying any hopes of recovery by way of dragging down investor confidence. We'll soon see I guess, but pretty sure there's some big issues being faced by the EZ and EU countries, and it's quite extraordinary, and even coincidental, that there has been relatively little said.

The people of the EZ nations were sold a bill of goods that has never transpired in our favor. Our prices have only increased steadily but our buying power has really only declined at about the same rate. Pay rises are harder to get for anyone but politicians who keep their pay levels on par with those of other nations - nice for them, eh?

I, for one, will be quite happy to see the end of the Euro and in fact the entire EU, if we could push it so far. Europe was far better still in the '90s than it is now. Brussels has ruined everything that made these countries their own beautiful places. I will definitely have a big party the day the EU dies.

reply to post by surrealist


The hype has be quite extraordinary, especially the talk of evacuating expats and shutting borders.. But when things seem to going tits up, I tend to take a side step on these things and try to take a peek behind the scenes at what is being suggested in an area I've worked (Business Continuity and Disaster Recovery Planning)

Some advice floating around for business at the moment include:

* Reviewing the impact of the potential risk within the context of the current risk management profile
* Considering the company’s exposure to the Eurozone: finance, cash, revenue assumptions, clients and supply chains.
* Preparing for possible supply chain disruption – possibly with precautionary inventories of critical items and identification of alternative suppliers
* Examining which clients may experience difficulties that could impact payment or contracts
* Considering contingencies arrangements for possible unrest in Euro countries, and consider security and other needs.

While things like the piggy flu pandemic where rampant in the media they really had little impact on BC or DR planners since it was considered a very low risk to business operations, but this crisis is having an impact on planners..

I know a number of companies/corporates that are moving away from doing all they can to reinforce their profit margins to doing all they can to reinforce their share position in preparation for an expected crash.

To my mind this shift in resource and planning indicates that there is a high probability something will hit, I would expect governments would be doing all they can to buy those companies and corporates enough time to get a decent BC plans in place.

Here is an example if you dig deeper on this topic.

Multinational drinks firms are among those planning for all outcomes. A Heineken spokesperson told just-drinks today (5 December): "Heineken is a firm believer in the euro and the eurozone. However, like every other international company of our size and scope, we are following the euro crisis closely and are updating our business continuity plans accordingly."

He said that Heineken has increased efforts to pool cash resources in countries that are considered more financially stable. The Netherlands-based brewer is placing a greater focus on storing cash resources outside of the eurozone, "in case European money transfers get hampered".
www.just-drinks.com...

Hope you find the direction Interesting!

Yeah interesting! So you either work for a transnational company, or are situated in Europe, or otherwise the company you work for has at least some level of exposure to the EZ?

reply to post by CosmicEgg


Agreed...lets dismantle the EU and go back to the original deals in EF (European federation consisting of souverign countries working together to create free markets and trade).

It looks like England wont join the fiscal treaty and theres problems in Denmark too, even thou our government keeps pressing foreward like it is nothing

In Denmark 2/3 of the population is against what the union has become, if the rest actually cared about European poletics it would be closer to 90%.

Our current government will try to get around a national refferendum on the new fiscal treaty, which also will result in treason unless the words of agreement is changed. According to our constitution, Denmark CANNOT give away souverignity to foreign powers unless they have 80% acceptance of the national parliament of Denmark or acceptance in from a national refferendum. The sentence on this is lifetime in jail.

Problem is noone want to make the charges and start up the trials......"all" the poleticians are currupt covering each others ass. Police is "bought" by the parliament, so they wont press charges either. It has to come from the public, which could get expensive when you make charges against the system.

Our participation in the Lisabon-treaty is also nonebinding because our primeminister did not have the mandate to sign it, so I argue that Denmark leave the Lisabon-agreements instantly and put the culprints (Anders Fogh Rasmussen and Per Stig Møller) at a national court charged with treason.

The EURO never going to work the cultures and history of the souvereign countries weigh to much, we wont be able to agree on a reasonable approach...I give the EURO no more than 10 years of lifetime from today. We might aswell jump out of this hotair ballon before it reach the atmosphere and bursts causing a lot of casualties.

reply to post by surrealist


I'm a specialist Project Manager, and have had responsibility for planning projects like DR and BC covering multi billion revenue streams in the EMEA (Europe, ME, Africa), Oceania and/or Western Hemisphere, and what those planners plan for usually indicates to me the degree of probability something is about to kick off.

Tho at the moment decent work is quite hard to come by since I can't find it in myself to go along with the corporate games and BS any more, to put it simply I would rather be labouring with a shovel digging holes than working in that back stabbing environment.

reply to post by thoughtsfull


You would be a lot better off in the long run doing an honest day's work anyway. It really is time to just let this whole system we live under to die. Just let everything crash and die. If we don't, we're going to end up with some sort of Frankenstein's monster that will take eons to sort out. If it just dies, something better will rise from those ashes. It's just fear that prevents us from seeing the disgusting monster in our midst. It's fear that prevents us from putting it out of its (and our) misery. Best case scenario is we kill it and take the lessons learned forward with us when we look at building anew. Maybe the next time will involve less ego and more sharing. Let's think more about the Earth as a whole and focus on epitomizing care for the bit where we stand. Look at the big picture but keep your focus on making sure we all get to live our dreams. We need the humble as much as we need the daring. There is room for all of us and we're all equal contributors to the path of humankind. No one is more important than the next. We all deserve a fair shake.

reply to post by surrealist


i noticed this about 2 wks ago, a thought just crossed the top of my head,if scotland get independence,it's most likely they will not be part of the muppet EU carry on,that means whats left of the union would have to foot the bill an stump up for bail outs,financial suicide comes to mind if they do this,hense the idea behind scotland not leaving the union..just a thought.

reply to post by dunc4


Personally I think that any referendum on the Union will be well after any next batch of bailouts and/or crash so that the only cash left in the whole of the country will be those few pennies caught in the side of the sofa.

reply to post by surrealist


Check out what's going down in Hungary: Hungarian Prime Minister v. the IMF

Very reminiscent of the Greek situation...