Can Italy, and thus the Euro, be Saved?

[JimBowie1958]

Italy collapse would be the 'end of the euro' - RT News

France and Germany have warned that a blow-out in Italy's giant debt mountain would signal "the end of the euro."

Italy had to pay record rates to raise €10bn this morning, while France and Germany warn that a blow-out in its giant debt mountain would signal "the end of the euro."

Meanwhile, EU Economic and Monetary Affairs Commissioner Olli Rehn has upped the pressure on Italian Prime Minister Mario Monti's new government, calling for "an ambitious timeline" on economic reforms.

"Italy is faced with formidable challenges," Mr Rehn told Italian lawmakers during a visit to Rome.

"The new government needs to deliver on fiscal consolidation and adopt bold measures to re-launch growth," he said.

''Full and effective implementation will be key," he said, adding: "It would be essential to give strong signals to citizens and markets with a clear and ambitious roadmap for reform and an ambitious timeline."

In its bond auction, Italy was forced to pay a rate of 6.504% on bonds due in six months and 7.814% on bonds due in two years - dangerous levels that analysts say could drive Italy insolvent within months.

Italies debt would seem to be the Gettysburg of the EU; they either win this or the whole thing gradually unravels.

But can they save Italy? If they do, maybe they can stop the contagion where it stands.

As I u nderstand it the growing problem is that the underlying poisonous real estate credit is destroying credit in Europe faster than it can be created.

 

[Toro]

The eurozone can be saved if there are structural changes.

But it won't survive as is if change is insufficient.

 

[william the wie]

The eurozone can be saved if there are structural changes.

But it won't survive as is if change is insufficient.

Maybe I misunderstand the politics but Bloomberg TV has been reporting that it will take a minimum of five years to change parts of the treaties to enable structural change.

 

[JimBowie1958]

The eurozone can be saved if there are structural changes.

But it won't survive as is if change is insufficient.

Maybe I misunderstand the politics but Bloomberg TV has been reporting that it will take a minimum of five years to change parts of the treaties to enable structural change.

And that assumes that they get complete unity in that reform as anyone member can block the whole union from doing anything, AIUI.

 

[cbirch2]

The eurozone has to have a functional lender of last resort. Structural changes would help, but the ECB should just do the job of every other central bank in the world. In general you need the perception that the ECB provides a backstop for rates to drop. Then you need lower spending in the GIIPS countries and higher spending in northern europe, mostly germany. And then you need slightly higher overall inflation, because slow overall inflation means deflation in the periphery, and deflation will cause a recession.

 

[JimBowie1958]

This map of Europe's debt/credit relationships would seem to suggest, in my mind anyway, that bailing out Italy with $2 trillion and letting Portugal, Greece and Irelands creditors take a 'haircut' just might work.

But the bankers are the creditors and the bankers seem to be in control, and they are not known for their willingness to sacrifice for the common good, lol.

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2011/10/who owes what.jpg

 

[cbirch2]

Im not an expert, but i feel like the euro will break up before italy is bailed out. Its the third largest eurozone economy, it was supposed to be part of the foundation. If italy defaults french banks will take a big hit, your link illustrates that very well. And then you just have north europe, and you can just have half a eurozone, it wont work. Credibility will be destroyed.

The problem is that the markets are begging for the central bank to do its job. Northern europe and conservatives in the US have been saying its all about budget deficits, now its becoming obvious that that wasnt true. Italy and spain had good finances before the crises, now italy is paying almost 8% to borrow. Prices on german bonds have even rose, and germany runs a surplus. The market is clearly demanding interest rates that would cover their loss from a return of individual european currencies, rather than simply viewing the balance sheet of the governments.

If the ECB would just lend to the periphery hundreds of billions in unnecessary interest would be saved and italy wouldnt need a bailout at all.

 

[william the wie]

I think the inability to make a decision will doom any strategy

 

[cbirch2]

I think the inability to make a decision will doom any strategy

Agreed

 

[JimBowie1958]

I think the inability to make a decision will doom any strategy

Agreed

That would appear to be unanimous.

 

[Wiseacre]

The following is from a weekly newsletter by John Mauldin, called "Thoughts From the Front Line", on this subject. Don't think for a minute that the impact on the US would be minimal. We do a lot of trade with the EU, and their aggregate GDP is significant. And our banks do carry some of their paper, or we have underwritten some of their loans. So even if we don't have much in the way of direct loans to Greece and Italy and the rest, we do have exposure to banks that do, or banks that have exposure to banks that do.

The guts of this to me that the Germans are not going to loan out any more bailout money until and unless the member countries agree to give up some of their sovereignty in so far as their budgets and fiscal policies are concerned. I wouldn't bet money on everybody getting onboard with that. Not a lot of love lost in some cases, and nationalism is still quite strong.


“The European Commission on November 23 proposed a new package including budget previews at EU level, the establishment of independent fiscal councils and growth forecasts, closer surveillance of bailout recipients and a consultation paper on Eurobonds. There is also a growing consensus among EU policy makers on the need for the adoption of fiscal rules in national legislation. However, it is far from clear whether EU countries would accept the implicit loss of sovereignty this would involve and agree to treaty changes enshrining legally enforceable fiscal oversight at EU level. The German Chancellor, Angela Merkel, is willing to support a change in Germany’s own constitution if the EU Treaty change to that effect is agreed first.” ( Roubini Global Economics - Home)
But this means a major treaty change that must be approved by all member countries. Note that Merkel wants the treaty change first, or at least the language, before she takes it to German voters, which will certainly be required, since what she is suggesting is not allowed by the present German constitution. Without the changes stated clearly and explicitly in advance, it is unlikely, as I read the polls, that German voters will go along. Merkel has made it clear that any proposed changes will be limited to fiscal issues and central control and not touch on the ECB’s independence. She is adamant against eurozone bonds and putting the German balance sheet at risk.

 

[cbirch2]

The following is from a weekly newsletter by John Mauldin, called "Thoughts From the Front Line", on this subject. Don't think for a minute that the impact on the US would be minimal. We do a lot of trade with the EU, and their aggregate GDP is significant. And our banks do carry some of their paper, or we have underwritten some of their loans. So even if we don't have much in the way of direct loans to Greece and Italy and the rest, we do have exposure to banks that do, or banks that have exposure to banks that do.

The guts of this to me that the Germans are not going to loan out any more bailout money until and unless the member countries agree to give up some of their sovereignty in so far as their budgets and fiscal policies are concerned. I wouldn't bet money on everybody getting onboard with that. Not a lot of love lost in some cases, and nationalism is still quite strong.


“The European Commission on November 23 proposed a new package including budget previews at EU level, the establishment of independent fiscal councils and growth forecasts, closer surveillance of bailout recipients and a consultation paper on Eurobonds. There is also a growing consensus among EU policy makers on the need for the adoption of fiscal rules in national legislation. However, it is far from clear whether EU countries would accept the implicit loss of sovereignty this would involve and agree to treaty changes enshrining legally enforceable fiscal oversight at EU level. The German Chancellor, Angela Merkel, is willing to support a change in Germany’s own constitution if the EU Treaty change to that effect is agreed first.” ( Roubini Global Economics - Home)
But this means a major treaty change that must be approved by all member countries. Note that Merkel wants the treaty change first, or at least the language, before she takes it to German voters, which will certainly be required, since what she is suggesting is not allowed by the present German constitution. Without the changes stated clearly and explicitly in advance, it is unlikely, as I read the polls, that German voters will go along. Merkel has made it clear that any proposed changes will be limited to fiscal issues and central control and not touch on the ECB’s independence. She is adamant against eurozone bonds and putting the German balance sheet at risk.

There are two choices.

A) Europe moves toward a more federal system, similar to the united states. Whether you realize it or not, our federal system is an implicit money transfer system. money is partially transferred from surplus states to deficit states. The ECB would have to expand its power, act more like the fed. This would be similar to a United States of Europe. When Sarkozy talks about a "federal core EU", hes essentially talking about this.

B) we say good bye to the eurozone.

Right now we know what needs to be done, at least the outside observers do. But it relies on a concord of dissonate parties.

 

[Mad Scientist]

Why would one want to be "saved" when it means "debt bondage" for the entire country?

Fuck the EU!

Declare bankrupcy or default, have a few (2-3) bad years, re-establish your own currency and start fresh with no EU Banker Debt/Bondage.

 

[cbirch2]

Why would one want to be "saved" when it means "debt bondage" for the entire country?

Fuck the EU!

Declare bankrupcy or default, have a few (2-3) bad years, re-establish your own currency and start fresh with no EU Banker Debt/Bondage.

Or go the other direction.

Remember, the united states was once a partial union not too different from europe. A stronger union may not allow excesses to the degree they have existed so far. You dont see this problem in the US, because states generally have to balance their books.

 

[Wiseacre]

The following is from a weekly newsletter by John Mauldin, called "Thoughts From the Front Line", on this subject. Don't think for a minute that the impact on the US would be minimal. We do a lot of trade with the EU, and their aggregate GDP is significant. And our banks do carry some of their paper, or we have underwritten some of their loans. So even if we don't have much in the way of direct loans to Greece and Italy and the rest, we do have exposure to banks that do, or banks that have exposure to banks that do.

The guts of this to me that the Germans are not going to loan out any more bailout money until and unless the member countries agree to give up some of their sovereignty in so far as their budgets and fiscal policies are concerned. I wouldn't bet money on everybody getting onboard with that. Not a lot of love lost in some cases, and nationalism is still quite strong.


“The European Commission on November 23 proposed a new package including budget previews at EU level, the establishment of independent fiscal councils and growth forecasts, closer surveillance of bailout recipients and a consultation paper on Eurobonds. There is also a growing consensus among EU policy makers on the need for the adoption of fiscal rules in national legislation. However, it is far from clear whether EU countries would accept the implicit loss of sovereignty this would involve and agree to treaty changes enshrining legally enforceable fiscal oversight at EU level. The German Chancellor, Angela Merkel, is willing to support a change in Germany’s own constitution if the EU Treaty change to that effect is agreed first.” ( Roubini Global Economics - Home)
But this means a major treaty change that must be approved by all member countries. Note that Merkel wants the treaty change first, or at least the language, before she takes it to German voters, which will certainly be required, since what she is suggesting is not allowed by the present German constitution. Without the changes stated clearly and explicitly in advance, it is unlikely, as I read the polls, that German voters will go along. Merkel has made it clear that any proposed changes will be limited to fiscal issues and central control and not touch on the ECB’s independence. She is adamant against eurozone bonds and putting the German balance sheet at risk.

There are two choices.

A) Europe moves toward a more federal system, similar to the united states. Whether you realize it or not, our federal system is an implicit money transfer system. money is partially transferred from surplus states to deficit states. The ECB would have to expand its power, act more like the fed. This would be similar to a United States of Europe. When Sarkozy talks about a "federal core EU", hes essentially talking about this.

B) we say good bye to the eurozone.

Right now we know what needs to be done, at least the outside observers do. But it relies on a concord of dissonate parties.

Of the 2 options, I'm guessing #2 is more likely. But not for awhile, I wouldn't be surprised if they try to get the IMF to give them more money, hopefully the US says no. They might also print a lot more euros too, but eventually they'll end up with at least some countries pulling out.

 

[cbirch2]

The following is from a weekly newsletter by John Mauldin, called "Thoughts From the Front Line", on this subject. Don't think for a minute that the impact on the US would be minimal. We do a lot of trade with the EU, and their aggregate GDP is significant. And our banks do carry some of their paper, or we have underwritten some of their loans. So even if we don't have much in the way of direct loans to Greece and Italy and the rest, we do have exposure to banks that do, or banks that have exposure to banks that do.

The guts of this to me that the Germans are not going to loan out any more bailout money until and unless the member countries agree to give up some of their sovereignty in so far as their budgets and fiscal policies are concerned. I wouldn't bet money on everybody getting onboard with that. Not a lot of love lost in some cases, and nationalism is still quite strong.


“The European Commission on November 23 proposed a new package including budget previews at EU level, the establishment of independent fiscal councils and growth forecasts, closer surveillance of bailout recipients and a consultation paper on Eurobonds. There is also a growing consensus among EU policy makers on the need for the adoption of fiscal rules in national legislation. However, it is far from clear whether EU countries would accept the implicit loss of sovereignty this would involve and agree to treaty changes enshrining legally enforceable fiscal oversight at EU level. The German Chancellor, Angela Merkel, is willing to support a change in Germany’s own constitution if the EU Treaty change to that effect is agreed first.” ( Roubini Global Economics - Home)
But this means a major treaty change that must be approved by all member countries. Note that Merkel wants the treaty change first, or at least the language, before she takes it to German voters, which will certainly be required, since what she is suggesting is not allowed by the present German constitution. Without the changes stated clearly and explicitly in advance, it is unlikely, as I read the polls, that German voters will go along. Merkel has made it clear that any proposed changes will be limited to fiscal issues and central control and not touch on the ECB’s independence. She is adamant against eurozone bonds and putting the German balance sheet at risk.

There are two choices.

A) Europe moves toward a more federal system, similar to the united states. Whether you realize it or not, our federal system is an implicit money transfer system. money is partially transferred from surplus states to deficit states. The ECB would have to expand its power, act more like the fed. This would be similar to a United States of Europe. When Sarkozy talks about a "federal core EU", hes essentially talking about this.

B) we say good bye to the eurozone.

Right now we know what needs to be done, at least the outside observers do. But it relies on a concord of dissonate parties.

Of the 2 options, I'm guessing #2 is more likely. But not for awhile, I wouldn't be surprised if they try to get the IMF to give them more money, hopefully the US says no. They might also print a lot more euros too, but eventually they'll end up with at least some countries pulling out.

The ECB isnt willing to print euros even to lend to solvent but illiquid companies. So i dont think it will just print euros.

 

[Wiseacre]

Death of a currency as eurogeddon approaches - Telegraph


The above link is to a column in the London Telegraph about the end of the Euro.

 

[Toro]

"Eurogeddon."

I like that.

 

[Wiseacre]

Yeah, I did too. But things really could get ugly over there, some are forecasting a recession or even depression for them, which probably would impact everybody, including us.

 

[Toro]

Currency crises are bad. If we get into one with the euro, all bets are off.