Is the EU going to collapse?

[Baruch Menachem]

The EU is a set of laws and treaties regarding the shipment of goods. Politicans come and go, but the basic principles just keep going on regardless

 

[waltky]

Uncle Ferd says EU `bout to fall apart...

Europe Is A Dream We're Watching Die
Sep. 8, 2011, Ilargi: Earlier this week, there was a heart-rendering comment on Reddit by someone involved -boots on the ground- in the process of evicting people from their homes. Very much recommended reading, see here for the original comment and here for the follow-up. The commenter named his follow-up: Why my job is to watch dreams die. And that got me thinking.

For that is what it often feels like what we do here at The Automatic Earth: we watch dreams die. Only, we see them die -mostly- before the people do whose dreams we watch. That may sound convoluted, but it really isn't. While it may be hard to predict and see what stone may fall next, it is very obvious that the large majority of them will indeed topple over. There are big dreams, like that of a unified Europe, a dream that is age old, and has been shattered as often as it's been dreamt. This time will be no different. And neither will the consequences be any more bearable.

The German Federal Constitutional Court passed a judgment this week that seems to let Angela Merkel and her people off the hook: all EU bailouts to date passed the threshold of legality. For Merkel though, this is as Pyrrhic as it comes, and the same goes for the financial markets. The court, even as it condoned past actions, put very strict limits on future ones. Future bailouts will be very hard to pass, there will no longer be any last minute grand gestures, and a fiscal union for Europe was swept off the table in one fell swoop.

In case anyone still feels even this can be overcome, Slovakia of all places threatens the Euro project with imminent demise. The chairman of the parliament in Bratislava has said there will be no vote on the lift of EFSF funds until probably December. So even if there's a yes vote, no funds will be available until February 2012. Which is more than Europe can bear at this point in time. There are so many leaks in the system, it's already running out of fingers. Dutch Finance Minister De Jager sent a letter to his parliament yesterday saying the next chunk of Greek Phase 1 bailout funds will be delayed from mid September to end September at the earliest. Greece is not living up to the conditions put on the bailouts. Not enough austerity. Firing 20% of civil servants is apparently what it will take. Not enough austerity in Italy either, or so we hear.

We could go on for a long time pointing out signs that paint the inevitable picture, but it should be clear by now that Europe is a dream we see die before our very eyes. Swiss bank UBS has an idea what that will likely lead to: "We note that almost no modern fiat currency monetary unions have broken up without some form of authoritarian or military government, or civil war." The cause of the downfall of the Eurozone? Too much debt. It's no different from that of the people the Reddit commenter evicts from their homes. Too much debt. It's everywhere, and it will devour our societies.

Read more: The Automatic Earth: September 8 2011: Watching Dreams Die

 

[Trajan]

imho minus the Euro currency the rest of their agencies, bureaus and plethora of rules commissions etc. will begin to fade out of fashion and may be repealed wholesale in a decade or 2......it could be slow process but I think ti will happen. If I recall, several nations, France among them voted against the culmination of the membership in the EU......*shrugs*

the currency is dead- the issue now is the genius's who were the driving forces behind it ( one of which retired unexpectedly last Friday, Jurgen somebody) are like most academics and financiers in Europe of the socialist brand fighting a rear guard action, they deep down I think know its over, but don't want to admit it because, its a failure and they don't handle it well and will cocoon themselves in denial.

so they will make the EU ( and us) suffer before it either crashes or the people revolt ans crash it. I don't think they will just go out there and announce; "hey, its over we need 3 years to roll back to the previous national currencies..."

 

[Colin]

Is the EU going to collapse?

We can only hope so! The sooner the better!

 

[Baruch Menachem]

All they really need to do is design a new currency and not let the greeks or Italians or Spaniards have the plates.

England changes over its currency on a regular basis. I think most european countries did likewise. It will be no more than business as usual. If the Greeks, Italians and Spaniards want to continue with a hyper inflating southern euro, let them.

Did anyone think the Spaniards or the Greeks were going to live up to their commitments?

 

[Colin]

All they really need to do is design a new currency and not let the greeks or Italians or Spaniards have the plates.

England changes over its currency on a regular basis. I think most european countries did likewise. It will be no more than business as usual. If the Greeks, Italians and Spaniards want to continue with a hyper inflating southern euro, let them.

Did anyone think the Spaniards or the Greeks were going to live up to their commitments?

Huh?! Baruch, our currency, known as Sterling, is the world's oldest currency still in use! It hasn't changed in centuries.

 

[Trajan]

All they really need to do is design a new currency and not let the greeks or Italians or Spaniards have the plates.

England changes over its currency on a regular basis. I think most european countries did likewise. It will be no more than business as usual. If the Greeks, Italians and Spaniards want to continue with a hyper inflating southern euro, let them.

Did anyone think the Spaniards or the Greeks were going to live up to their commitments?

well, imho it would end when it came time to call it the euro "mark".

 

[percysunshine]

If the world's third largest economy falls apart, how will that effect the world's largest economy?

Um...affect

The effects of the collapsing US economy will probably bring everyone down.

 

[iamwhatiseem]

It ended a couple years ago.

 

[Baruch Menachem]

All they really need to do is design a new currency and not let the greeks or Italians or Spaniards have the plates.

England changes over its currency on a regular basis. I think most european countries did likewise. It will be no more than business as usual. If the Greeks, Italians and Spaniards want to continue with a hyper inflating southern euro, let them.

Did anyone think the Spaniards or the Greeks were going to live up to their commitments?

Huh?! Baruch, our currency, known as Sterling, is the world's oldest currency still in use! It hasn't changed in centuries.

They change the design on a regular basis. When I visited they had Shakespeare, Newton, Wellington and Clara Barton on the currency. Now they have Adam Smith and Darwin. It is the same currency of course, but new faces all the time.

here in the US they didn't change the design for 70 years. They still had the fliver making that turn onto Pennsylvania almost until 2000.

So if the Euro changes the design on the Greeks, they can keep the values.

I don't see why the rest of Europe should go back to the silliness of separate currencies every 100 miles or so when most of Europe is doing pretty well. Punishing the sensible for the sins of the jerkasses isn't fair.

 

[Baruch Menachem]

Aslo there is the little problem of inflation since the days of Henry II. Not quite as bad as it got in Hungary or Zimbabwe or Italy. Or for that matter Russia. (The Russian Rouble of 1917 has had three zeros lopped of 4 times and four zeros taken off three times. That means the rouble of 1917 is now worth .0000000000001 of its pre revolutionary value.

Of course, the horrific inflation since the 13th century means that it takes 312l in current money to equal the value of 1l of the days of Henry II.

 

[Baruch Menachem]

And there is the deal that the price of silver is 14 times higher now than it was in the days of Alexander Hamilton. Such an inflation. WE ARE DOOMED.

 

[PeteEU]

All they really need to do is design a new currency and not let the greeks or Italians or Spaniards have the plates.

England changes over its currency on a regular basis. I think most european countries did likewise. It will be no more than business as usual. If the Greeks, Italians and Spaniards want to continue with a hyper inflating southern euro, let them.

Did anyone think the Spaniards or the Greeks were going to live up to their commitments?

Err why bring Spain into the same boat as the Greeks? You do realize that Spain has less debt vs GDP than any of the major economies in the EU right? Its deficit is also lower than most of the major economies in the EU... The "Spaniards" are living fully up to their commitments.. Despite having 20% unemployment and massive structural changes, the Spanish economy still has grown... quite amazing if you ask me.

As for designing a new currency... lol, you do realize that the Euro falling plays right into German's hands right? In fact I would wager that Germany is in part at fault for the crazy markets and panic because they benefit hugely from a lower Euro. 90% of the rumours that are driving the Euro and markets up and down come from German "sources"... always "sources" and never factual.

Like it or not there is a massive currency war going on, and because of how the Euro is designed, the ECB cant do what the US and UK are doing.... devaluing their currency.

Germany might want to get rid of Greece because they are unsaveable thanks to the markets and speculators.... same for Ireland (but here the burden will fall on the UK), but they dont want to get rid of all the "weak" economies since they keep the Euro value in check. A Euro value if 1.40 is far too high for German tastes, and a 1.20 is much more realistic. The lower the Euro goes, the more Germany and the Eurozone can export and the better the economy will be.

As long as the UK and US are devaluing their currencies, then Germany will play the chicken game with the Euro..... and like it or not, Germany not only wants the Euro, but need the Euro.... else their currency would be insanely high right now.

 

[waltky]

Granny says ever'thin' goin' to hell inna handbasket...

World stocks tumble amid Europe debt worries
12 Sept.`11 – World stock markets fell sharply Monday amid fresh anxiety over Europe's debt problems and a potential default by Greece that would wreak havoc on the global economy. Japan's benchmark Nikkei index hit a 28-month low.

Nervous investors unloaded equities amid concerns that Greece's problems would spread across Europe, and headed for safer havens like bonds and the Japanese yen. The euro hit a 10-year low against the yen Monday. European shares plummeted in early trading. Britain's FTSE 100 2.2 percent at 5,100.41. Germany's DAX fell 3 percent to 5,034.71 while France's CAC-40 plunged 4.5 percent. Wall Street also was headed for a sullen start to the trading week, with Dow Jones industrial futures 1.5 percent down at 10,789 while S&P 500 futures sank 1.5 percent to 1,135. "Greece basically has its back against the wall," said Tom Kaan, head of equity sales at Louis Capital Markets in Hong Kong. "Having said that, the concern I have is no longer Greece. Greece has to default."

The bigger concern, he said, was whether other European countries like Italy would follow. "We'll see still more sludge on the downside before things get better," Kaan said. Trading in Asia wasn't any better. The Nikkei 225 stock average in Tokyo lost 2.3 percent to 8,535.67 — its lowest closing level since April 2009. Japan's powerhouse export sector was hit hard amid the strength of the Japanese currency, which makes products more expensive overseas. Honda Motor Co. tumbled 3.8 percent while Nissan Motor Corp. lost 3 percent. Electronics giant Sharp Corp. slid 5 percent.

In Hong Kong, meanwhile, the benchmark Hang Seng index shed 4.2 percent to 19,030.54 as worries about Europe's massive debt problem as well as a possible recession in the United States weighed on investors. Hong Kong-listed shares of the Industrial and Commercial Bank of China, the world's biggest bank by market value, tumbled 5.3 percent. China Overseas Land & Investment Ltd., a blue chip property developer, plummeted 7.5 percent.

In Australia, the S&P/ASX 200 plunged 3.7 percent to 4,038.50. Losses were broad-based, with energy, materials and financial shares slumping. BHP Billiton Ltd., the world's largest mining company, fell 3.9 percent. Rival Rio Tinto Ltd. slid 4.3 percent. "After escalating concerns that a Greek default was inevitable caused a precipitous plunge across European and US markets on Friday, it is of little surprise to see our market getting hammered today," said Ben Potter, market strategist with IG Markets in Melbourne. "No one really has any idea where this whole situation may end up."

Benchmarks in New Zealand and Singapore also retreated. Financial markets in South Korea, mainland China and Taiwan were closed Monday for national holidays. Wall Street sustained heavy losses before the weekend following the surprise resignation Friday of a key European Central Bank official. The decision by Jergen Stark revealed deepening rifts over how to solve Europe's economic problems and heightened concerns that the continent's heavily indebted economies could collapse.

MORE

See also:

Greek default fears return
September 9, 2011: Investors were rattled Friday as worries the Greek government may default on its debts resurfaced.

Stocks markets in Europe and the United States plunged. The euro sank 1.6% versus the dollar. Yields on U.S. Treasuries and German bonds fell to record-lows as investors took shelter in safe-haven assets. The market turmoil was driven by fears that Athens may not get its next installment of bailout money from the European Union, International Monetary Fund and European Central Bank.

Concerns about Greece had eased somewhat after the EU agreed in July to provide a second bailout for the debt-stricken nation. But the 109 billion euro package, which must be approved by the individual governments of all 17 nations that use the euro, has been called into question over the last few weeks. The sell-off on Friday "is a continuation of an ongoing process of decay," said Carl Weinberg, chief economist at High Frequency Economics.

Last week, IMF and EU officials unexpectedly left Athens during a review of the government's progress on its debt reduction program. That gave rise to speculation that Greece may not be able to hit certain fiscal targets that are a condition for its bailout loans from the so-called troika. Greece received the final installment of its first bailout in July. The $17 billion it received was expected to keep the nation afloat for three months. "The concern now," said Weinberg, "is that having been declared unfit in previous reviews, Greece might not get the money it needs this time, and that would put them into a default situation."

In addition, investors are worried that Greece may not go through with a proposed bond swap with private sector investors if the participation rate falls short of expectations. "There is still uncertainty over whether sufficient private sector investors have been incentivised to participate in the debt swap arrangements involving Greek debt," economists at Nomura Securities wrote in a research report.

MORE

 

[pgm]

Paul Krugman on what Europe needs to do

Listen to many European leaders — especially, but by no means only, the Germans — and you’d think that their continent’s troubles are a simple morality tale of debt and punishment: Governments borrowed too much, now they’re paying the price, and fiscal austerity is the only answer. Yet this story applies, if at all, to Greece and nobody else. Spain in particular had a budget surplus and low debt before the 2008 financial crisis; its fiscal record, one might say, was impeccable. And while it was hit hard by the collapse of its housing boom, it’s still a relatively low-debt country, and it’s hard to make the case that the underlying fiscal condition of Spain’s government is worse than that of, say, Britain’s government.

These countries are facing something very much like a bank run, except that the run is on their governments rather than, or more accurately as well as, their financial institutions. Here’s how such a run works: Investors, for whatever reason, fear that a country will default on its debt. This makes them unwilling to buy the country’s bonds, or at least not unless offered a very high interest rate. And the fact that the country must roll its debt over at high interest rates worsens its fiscal prospects, making default more likely, so that the crisis of confidence becomes a self-fulfilling prophecy. And as it does, it becomes a banking crisis as well, since a country’s banks are normally heavily invested in government debt.

Now, a country with its own currency, like Britain, can short-circuit this process: if necessary, the Bank of England can step in to buy government debt with newly created money. This might lead to inflation (although even that is doubtful when the economy is depressed), but inflation poses a much smaller threat to investors than outright default. Spain and Italy, however, have adopted the euro and no longer have their own currencies. As a result, the threat of a self-fulfilling crisis is very real — and interest rates on Spanish
and Italian debt are more than twice the rate on British debt.

He suggests the European Central Bank should be buying Italian and Spanish debt.

 

[Divine Wind]

The end of the euro would not mean the end of the EU.

But the euro isn't ending, though in five years it will probably look different than today. It's untenable as is.

Disagreed about the Euro's effect upon the EU, but agreed the present situation is untenable and that things will have to change for it to survive. I think the EU is much like the US was before our Civil War in 1860; several strong states loosely held together with a weak Federal government. The Civil War ended up making the Federal government stronger than the States, a point of contention which still exists today. While I support stronger State's rights, the benefits of a Federal government can be seen in our avoiding the problems now seen in the EU.

Likewise, one solution for the EU economic problems is a stronger central government, at least in regards to financial practices. It's not right, nor durable, for a state to run it's finances however it pleases, then demand a bailout from its more sensible neighbors whenever it screws up.

 

[waltky]

Greece draggin' markets down...

World markets sink on Greek worries
September 19, 2011: World markets tumbled Monday as investors worried that Greece's debt problems were worsening.

Late Friday, European leaders pushed a decision about the next installment of Greece's bailout to October. "Time is running out," wrote Marc Chandler, global head of currency strategy for Brown Brothers Harriman. "The two day meeting between European finance ministers ended without substantial progress on Saturday." Later Monday, EU leaders and IMF officials are scheduled to hold a conference call to discuss what steps Greece is taking to solve its budget issues. The DAX (DAX) in Frankfurt led the declines, with a drop of nearly 3%, followed by a decline of 2.5% with the CAC 40 (CAC40) in Paris and a drop of 2% with the FTSE 100 (UKX) in London.

Among a series of possible changes is the expansion of the European Financial Stability fund, which was created last year to facilitate low-cost loans for struggling EU members including Portugal and Ireland. Under changed proposed by EU leaders in July, the fund would be able to buy government bonds directly from banks and investors. But many analysts say there's not enough money in the fund to make it an effective tool. The euro was also under pressure against the U.S. dollar early Monday, falling more than 1% to $1.36, due to "negative European sentiment," wrote Deutsche Bank fixed income analysts Jim Reid and Colin Tan in a note to clients,

On the CAC 40, French bank Societe Generale fell more than 5%, BNP Paribas slide 3% and Credit Agricole edged down 0.5%. Signs of market queasiness spread to Wall Street, with stock futures selling off sharply. The biggest decliners were U.S. banks. Shares of Bank of America dropped 1.5% in premarket trading. Goldman Sachs, Citigroup, JPMorgan Chase and Morgan Stanley also declined between 1% and 2% in early trading. Concerns over European debt, particularly with Greece, weighed heavily on Asian markets, with the Hang Seng (HSI) in Hong Kong dropping 2.7%, and the Shanghai Composite (COMP), sliding 1.8%. The Nikkei (N225) in Japan was closed.

Dithering over Greek debt drags down world markets - Sep. 19, 2011

See also:

Greece: Is this the end game?
September 19, 2011: Greece is quickly running out of the cash it needs to keep the lights on as the latest lifeline from the rest of Europe remains just out of reach.

Evangelos Venizelos, the Greek finance minister, will discuss his country's plight with officials from the European Commission, the International Monetary Fund and the European Central Bank during a conference call Monday. The call comes on the same day that representatives from that so-called troika were originally scheduled to return to Athens to review Greece's progress on reforms needed to obtain its latest installment of emergency funding. After abruptly leaving the country earlier this month, officials from the troika delayed a decision on whether to pay out the next portion of Greece's loan until October.

The fraught negotiations have revived fears that Greece could default on its debts in a disorganized way, something that investors and economists fear could ripple throughout the global financial system. Greece is expected to run out of the cash it needs to fund all of its operations in about a month without more bailout money. The country is due to receive an estimated €8 billion from a €110 billion rescue package the troika set up last year as Greece came to the brink of default.

"The timing of a Greek default remains in the hands of the troika and it is difficult to believe that they will decide to pull the plug at this stage because of the potential impact upon the other troubled sovereigns and the banking sector," Gary Jenkins, head of fixed-income at evolution securities in London, wrote in a note to clients. "That said, who knows what contingency plans they have prepared behind closed doors." In July, European leaders agreed to provide an additional €109 billion bailout for Greece as it again came to the verge of default.

The second bailout has yet to be approved by all 17 nations that use the euro. But it was the immediate threat of a default that upset global financial markets and pushed the euro sharply lower Monday. Stock markets in London (UKX), Frankfurt (DAX) and Paris (CAC40) fell between 2% and 3%. The euro sank 1.1% against the U.S. dollar. "In the near-term, the market is speculating over the potential of the troika not releasing the sixth tranche of financing, which would leave the mid-October Greek coupon payment at risk," said Camilla Sutton, chief currency strategist at Scotia Capital.

How bad is it?

 

[mawlarky]

The EU was never going to suceed since it allowed any penniless eastern European third world country to join, I have never heard of half of the countries that have joined in recent years and when I studied geography Russia was a lot bigger than it is now. This years Eurovision song contest was won by a country in Asia, the borders of Europe as a continent are getting bigger every day so its a massive failure imo since half the countries that join bring nothing but take other countries hard earned dosh instead.

 

[waltky]

Greece and European banks threaten world economy...

European Banks' Exposure to Greek Debt Erodes Market Confidence
September 20, 2011 - As Athens scrambles to meet the conditions for more bailout funds, alarm is also mounting about European banks that have lent Greece and other debt-strapped nations hundreds of billions of dollars. Some of the biggest lenders are located in Europe's two biggest economies: Germany and France.

Pushing a stroller on a weekday afternoon, 29-year-old Lucas Sulej ran an ordinary errand: he took out money at a bank machine in eastern Paris. But these days Sulej no longer takes his French bank, Societe Generale, for granted - not since Moody's cut its rating last week, partly because of its large exposure to Greek debt. "I have money in Societe Generale and maybe tomorrow it may disappear. Because you know the problems of Societe Generale," said Sulej.

Analysts say banking insurance and governments will protect ordinary European savers like Sulej. But the young father is not the only one concerned about the health of Societe Generale and other European banks which have lent hundreds of billions of dollars to debt-strapped governments like Greece. At issue, says Thomas Klau, head of the Paris office of the European Council on Foreign Relations, is not the downgrading of banks like Societe Generale - which overall still has a good credit rating. "The trouble is that the loss of confidence within the financial markets - but also within the core parts of the financial industry themselves - has now reached such proportions that any negative move can have extremely bad consequences," he said.

Analysts say part of the problem is a lack of transparency within Europe's banking sector and that is deepening the alarm in the markets. Simon Tilford is chief economist at the London-based Center for European Reform. "They don't know which banks are sitting on which debt, so they are becoming increasingly loathe to loan to European banks," said Simon Tilford, chief economist at the London-based Center for European Reform.

In a move to restore market confidence, major central banks around the globe agreed last week to inject dollars into Europe's banking system to fight fears it is running short of cash. But Tilford says the move is not enough. "All it does really is provide liquidity and that's useful, but the underlying problem is essentially a solvency one, in that there is an awful lot of debt that's going to get written off in Europe and that is going to impose very, very considerable losses on financial institutions," he said.

MORE