[frugalista]

http://www.guardian.co.uk/world/2009/dec/0...lowest-eurozone

frug.

[Billy Shears]

According to articles I read the other day, the only reason the UK wasn't downgraded (perhaps not as far as BBB+) was that Darling assured the rating agency that Britain would act to reduce its deficit.

[crashmonitor]

Billy Shears, on Dec 9 2009, 11:55 AM, said:

According to articles I read the other day, the only reason the UK wasn't downgraded (perhaps not as far as BBB+) was that Darling assured the rating agency that Britain would act to reduce its deficit.

But you can f**k off if you think the sacred cow of final salary pensions is adjustable. Gordie promised himself that 3 million pot and he is f**king well going to have it. One trillion pounds of inter-generational theft and Enron-style book-keeping to keep the trillion a secret is all about social justice today.

This post has been edited by crashmonitor: 09 December 2009 - 12:02 PM

[frugalista]

Billy Shears, on Dec 9 2009, 11:55 AM, said:

According to articles I read the other day, the only reason the UK wasn't downgraded (perhaps not as far as BBB+) was that Darling assured the rating agency that Britain would act to reduce its deficit.

Yup it's the triple prong of public debt resolution which can only be negative for house prices:

• Raise taxes --> lower disposable incomes --> lower house prices
  
• Cut public sector jobs --> lower disposable incomes --> lower house prices
  
• Do nothing --> bond market pushes interest rates up --> lower house prices

I think when the Tories get in they'll cut the public sector but not raise taxes, so it'll be a combination of 2. and 3.

frug.

[Cletus VanDamme]

frugalista, on Dec 9 2009, 12:14 PM, said:

Yup it's the triple prong of public debt resolution which can only be negative for house prices:

• Raise taxes --> lower disposable incomes --> lower house prices
  
• Cut public sector jobs --> lower disposable incomes --> lower house prices
  
• Do nothing --> bond market pushes interest rates up --> lower house prices

Now you just shut up about lower house prices. The value of my ickle North London terrace is just up on the price I paid for it (inflation adjusted) in 2004 and I want it to stay that way, comprende?

This post has been edited by Cletus VanDamme: 09 December 2009 - 12:19 PM

[sine270]

Cletus VanDamme, on Dec 9 2009, 12:19 PM, said:

Now you just shut up about lower house prices. The value of my ickle North London terrace is just up on the price I paid for it (inflation adjusted) in 2004 and I want it to stay that way, comprende?

Thats not bad. Only a loss of about 66% in real money then LOL :bigemo_harabe_net-62: :bigemo_harabe_net-77:

:fear2: Oops, its probably posts like this that got me my 10% warning here.

[PricesGoUpAndDown]

http://www.zerohedge.com/article/greece-ch...rops+to+zero%29

Quote

Greece, China, USA and the Euro - All Connected?
Bruce Krasting's picture
Submitted by Bruce Krasting on 12/10/2009 16:02 -0500

I spoke with some friends who are Greek and also in the shipping business. They hate the problems that Greece is facing. The 12.7% budget deficit is the highest in the EU and is not sustainable. Efforts to cut government expenses have caused a political backlash against PM Papandreou. The only available solution is to raise taxes and crack down on tax evaders.

The Shippers are largely untaxed on their global operations. Their status is ‘protected’ under the constitution. Taxing the shippers would go a long way toward closing the budget gap. The changes in tax laws will not come easy. There is no certainty of the outcome. The sense that I got from these discussions was that there is a short window open for Greece to come up with a plan to cut its deficit to approximately 9%. I asked for both a ”good” and a “bad” news scenario. Although the responses to the question I asked are speculation, they have interesting implications.
GOOD NEWS:
"If Greece is able to restructure its tax code and install a plan to reduce its deficits to 8% of GDP, then China will invest Euro 25 billion in Greek bonds."

The issue of the Chinese investing in Greece was first raised on November 29 by the WSJ. I think it was one of those well placed rumors. If this were to happen, it would be of significance. It would establish that China is assuming a role as some form of 'lender of last resort'. The bilateral trade conditions that would be attached to a deal of this magnitude would re-raise the issue of China’s trade hegemony and economic muscle. For me, the most significant aspect of this is that it would represent yet another significant diversion of China’s investable funds away from the US.

If this were to happen, the $40 billion under discussion would not impact the supply demand equation for US debt. But the direction of this would be significant. The US desperately needs China to significantly increase their holdings of US IOU’s in the coming years. They are under no obligation to do so. What if they were to take a stance with the US similar to Greece? We would get a headline that looked like:

China to Purchase $200 Billion of US Debt
Terms include: Higher interest rate, a commitment to buy Chinese goods and a promise to reduce the deficit.

Of course we are not going to see a headline like that anytime soon, but the developments in Greece are a possible first step in that direction. If China bails out Greece in 2010 it is a game changer from a number of perspectives.

BAD NEWS:
"If Greece is unable to address its budget deficit the Chinese will not invest and financial conditions for the country will deteriorate quickly. One consequence would be that Greece would be forced to separate from the Euro."

This is not a high probability outcome. However, talk of it would have a very significant impact on the FX markets. The people who I spoke with made an interesting observation, "Switzerland is very much integrated with the EU and the Euro, but they have maintained their own currency. If Greece had its own currency it could adjust it to achieve a trade advantage that would address the fundamental imbalances." (Same argument as "the weak dollar is good for the USA"). These same people point to the fact that the Swiss National Bank has been intervening in the currency market to weaken the Swiss Franc in order to achieve a trade advantage. The thinking is, “If it works for the Swiss, then Greece should do it too!”

Consider where this could go. If there is talk of this happening, it would raise the same issue for Spain and Italy who are suffering from their association with they Euro. This could lead in the direction of a two-tiered Euro. One would be strong. The other weak. The implications for the dollar would be significant in both the short and long term. It could be the source of instability as the process unfolds.

The Greece story has already gotten the money moving. It is a story that could take us in some surprising directions. I got the sense that there was a short fuse on this. The next three months may put some powerful forces into play.

Is there anything behind the Chinese/Greece connection? I think so. I always assume there is something to it when you get statements like the following. Asked whether Greece is negotiating with China to sell bonds, a government spokesman said:

"It may be true, and if it is true, we do not want to comment. But even if it isn't true we wouldn't want to comment.”

[benborg]

Billy Shears, on Dec 9 2009, 11:55 AM, said:

According to articles I read the other day, the only reason the UK wasn't downgraded (perhaps not as far as BBB+) was that Darling assured the rating agency that Britain would act to reduce its deficit.

He didn't deliver though. According to bbc news today he was going to be much stricter on spending but Gordon Brown and Ed Balls beat him down. There's no way labour will cut spending while Brown and Balls are in charge.

[PricesGoUpAndDown]

http://www.ft.com/cms/s/0/54f4983e-e637-11...144feab49a.html

Quote

Greece admits it is riddled with corruption
By Tony Barber in Brussels
Published: December 11 2009 10:31 | Last updated: December 11 2009 20:53

George Papandreou, Greece’s prime minister, acknowledge to his fellow European Union leaders that the Greek public sector was riddled with corruption.

At an EU summit on Thursday night, The bloc’s 26 other national leaders sat in silence as Mr Papandreou delivered a short, blunt speech on Thursday night that said everything the rest of Europe had long known, or suspected, about Greek bureaucracy.

Greece is in the throes of the most serious fiscal emergency to strike the eurozone since the single currency’s launch in 1999. Mr Papandreou’s baring of the national soul capped a tumultuous week in which Greece’s creditworthiness was downgraded, its stock market plunged, the interest rate on its debt soared and even its survival in the eurozone was questioned.

José Manuel Barroso, European Commission president, praised Mr Papandreou’s determination to address the Greek economy’s problems, such as low business competitiveness and a public debt poised to rise far above the nation’s annual economic output.

“He recognised that there was a huge problem of corruption throughout the administration, including in public procurement,” Mr Barroso said.

“He spoke of a reduction in the levels of administration. Whereas there are four or five now, from regional to local level, he promised to suppress two of them, because they are expensive.”

Delegates at the EU summitsaid there had been little discussion of the Greek premier’s presentation, and most leaders – especially those of the 15 countries that share the euro with Greece – wanted to see more action and fewer words from Athens.

George Papandreou

George Papandreou, Greece's prime minister, told fellow European Union leaders that his country's public sector was riddled with corruption

Jean-Claude Trichet, the European Central Bank president, told the European parliament’s monetary affairs committee on Monday that Greece’s troubles demanded “very difficult, very courageous but absolutely necessary measures”.

“Our basic problem is systemic corruption,” Mr Papandreou said in Brussels on Friday. “We intend to take harsh measures to root it out.”

However, he made it clear that Greece would not follow Ireland’s example and enforce drastic wage cuts.

“If we were at the edge of the abyss, we would cut wages in half. But we are not and we are fighting hard not to get there. We will protect wage-earners and pensioners.”

His unwillingness to specify cost-cutting measures disappointed market-watchers, aware that Greece is expected to record a budget deficit of more than 12 per cent of gross domestic product this year. Its public debt is projected at 113 per cent of GDP.

Mr Papandreou is expected on Monday to outline how he intends to slash the deficit to 3 per cent of GDP – under EU rules, the upper limit in normal economic times – over the next four years.

The underlying problem is, however, one of Greek credibility. Other eurozone countries were incensed in October when the newly elected socialist government announced that Greece’s public finances were far worse than previously claimed. The socialists blamed the misreporting on faulty statistics and the errors of the previous conservative government.

[PricesGoUpAndDown]

I reckon Ambrose has called it correctly on Europe. I've always believed it to be a failed model. It can't work. One monetary policy and currency for such a diverse range of economies could never work. It was obvious before the Euro began and it is all too obvious now. The proof is in the pudding. The Euro is fucking countries up. It's a shit storm waiting to happen.

http://www.telegraph.co.uk/finance/comment...-escalates.html

Quote

ECB prepares legal ground for euro rupture as Greek crisis escalates
Fears of a euro break-up have reached the point where the European Central Bank feels compelled to issue a legal analysis of what would happen if a country tried to leave monetary union.
By Ambrose Evans-Pritchard
Published: 5:12PM GMT 17 Jan 2010
Comments 2 | Comment on this article

“Recent developments have, perhaps, increased the risk of secession (however modestly), as well as the urgency of addressing it as a possible scenario,” said the document, entitled Withdrawal and expulsion from the EU and EMU: some reflections.

The author makes a string of vaulting, Jesuitical, and mischievous claims, as EU lawyers often do. Half a century of ever-closer union has created a “new legal order” that transcends a “largely obsolete concept of sovereignty” and imposes a “permanent limitation” on the states’ rights.

Those who suspect that European Court has the power pretensions of the Medieval Papacy will find plenty to validate their fears in this astonishing text.

Crucially, he argues that eurozone exit entails expulsion from the European Union as well. All EU members must take part in EMU (except Britain and Denmark, with opt-outs).

This is a warning shot for Greece, Portugal, Ireland and Spain. If they fail to marshal public support for draconian austerity, they risk being cast into Icelandic oblivion. Or for Greece, back into the clammy embrace of Asia Minor.

ECB chief Jean-Claude Trichet upped the ante, warning that the bank would not bend its collateral rules to support Greek debt. “No state can expect any special treatment,” he said. He might as well daub a death’s cross on the door of Greece’s debt management office.

This euro-brinkmanship must be unnerving for the Hellenic Socialists (PASOK). Last week’s €1.6bn (£1.4bn) auction of Greek debt did not go well. The interest rate on six-month notes rose to 1.38pc, compared to 0.59pc a month ago. The yield on 10-year bonds has touched 6pc, the spreads ballooning to 270 basis points above German Bunds.

Greece cannot afford such a premium for long. The country must raise €54bn this year – front-loaded in the first half. Unless the spreads fall sharply, the deficit cannot be cut from 12.7pc of GDP to 3pc of GDP within three years. As Moody’s put it, Greece (and Portugal) faces the risk of “slow death” from rising interest costs.

Stephen Jen from BlueGold Capital said the design flaws of monetary union are becoming clearer. “I don’t believe Euroland will break up: too much political capital has been spent in the past half century for Euroland to allow an outright breakage. However, severe 'stress-fractures’ are quite likely in the years ahead.”

As Portugal, Italy, Ireland, Greece, and Spain (PIIGS) slide into deflation, their “real” interest rates will rise even higher. “It is tantamount to hiking rates in the already weak PIIGS,” he said. This is the crux. ECB policy will become “pro-cyclical”, too tight for the South, too loose for the North.

The City view is that the North-South split may cause trouble, but that there will always be a bail-out to prevent a domino effect. “If a rescue turns out to be necessary, a rescue will be mounted,” said Marco Annunziata from Unicredit.

It comes down to a bet that Berlin will do for Club Med what it did for East Germany: subsidise forever. It is a judgement on whether EMU is the binding coin of sacred solidarity, or just a fixed exchange rate system like others before it.

Politics will decide, and in Greece it is already proving messy as teams of “inspectors” ruffle feathers. The Orthodox LAOS party is not happy that an EU crew dared to demand an accounting from the colonels. “The Ministry of Defence is sacrosanct,” it said.

Greece alone in Western Europe treats the military budget as a state secret. Rating agencies guess it is a ruinous 5pc of GDP. Does the country really need 1,700 battle tanks, 420 combat jets, and eight submarines? To fight NATO ally Turkey? Merely to pose the question is to enter dangerous waters.

Who knows what the IMF surveillance team made of their mission in Athens. The Fund’s formula for boom-bust countries that squander their competitiveness is to retrench AND devalue. But devaluation is ruled out. Greece must take the pain, without the cure.

The policy is conceptually foolish and arguably cynical. It is to bleed a society in order to uphold the ideology of the European Project. Greece’s national debt will be 120pc of GDP this year. S&P says it will reach 138pc by 2012. A fiscal squeeze – without any offsetting monetary or exchange stimulus – will cause tax revenues to collapse. Debt will rise higher on a shrinking economic base.

Even if Greece can cut wages without setting off mass protest, it lacks the open economy and export sector that may yet save Ireland in similar circumstances. Greece is caught in a textbook deflation trap.

Labour minister Andreas Loverdos says unemployment would reach a million this year – or 22pc, equal to 30m in the US. He broadcast the fact with a hint of menace, as if he wanted Europe to squirm. Two can play brinkmanship.

[AgeingBabyBoomer]

...and yet, I would imagine the list of customers for drachma denominated debt
would be vanishingly small.
Ambrose is something of a prisoner of his euro-skeptic ideology.
ABB

[notmyrealname]

Little that is new here. Ambrose has found evidence and commentators that agree with Ambrose and now argues that Ambrose was right all along....