I repeat that I haven't actually agreed with you on anything. You say that the Euro will fail with certainty. I strongly disagree. The odds of the Euro failing have gone up very significantly of late, but that is still not my central scenario.
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The weekly: Greece to default/restructure THIS weekend? thread
- Thread starter TGregg
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morganist
Quote from Martinghoul:
I repeat that I haven't actually agreed with you on anything. You say that the Euro will fail with certainty. I strongly disagree. The odds of the Euro failing have gone up very significantly of late, but that is still not my central scenario.
The only way it will not happen is if they find an alternative Sovereign Debt Restructuring Mechanism.
You have two current options the IMF and the Paris Club. I actually prefer the latter but think it is unlikely they will be able to deal with the size of Europe.
It is my central scenario, unlike the ghoulish one, but not for the reason you think.
Any currency union, in the abstract, will favor the strongest economy in the union. This would be Germany in this case.
The reason is simple: the price of money - interest and exchange rates - will reflect the conditions in the dominant economy, and the dominant economy only. This is exactly what has happened in the eurozone; just look at the fact that Trichet has raised rates twice this year, despite what we're talking about. Why? Overwhelmingly, because Germany is doing well.
So, a few years ago, when, say, Ireland needed higher rates to put a damper on its burgeoning economy, it instead got lower rates that because that's what was required for Germany.
Now, when Ireland requires lower rates to recover, it instead gets rate increases. Why? Because that's what's best for Germany.
This is NOT a knock on Germany; it's simply the way currency unions work.
Countries are currency unions too, and if you look at countries, what you see is elephantine dominant cities surrounded by atrophying secondary cities.
Tokyo dominates Japan to an extent that is really pretty amazing.
London dominates the UK in the same way.
Paris dominates France similarly, and has for a very long time, practically since the king maneuvered Languedoc's lords into acknowledging the authority of the king way back in the Middle Ages. Languedoc once had an economy, a culture, and a language (langue d'oc; that's how it got its name) that was distinct; no more.
My expectation is that the eurozone will gradually shrink to a point where it only includes a few countries that orbit around Germany. Those countries will at first be proud to be in it, natch, but over time, longer than any of us will be around, so this is a completely abstract argument, they will find their economies atrophying as well.
Will the satellite countries eventually leave the euro as well? Who knows? That far out, anything can happen.
Any currency union, in the abstract, will favor the strongest economy in the union. This would be Germany in this case.
The reason is simple: the price of money - interest and exchange rates - will reflect the conditions in the dominant economy, and the dominant economy only. This is exactly what has happened in the eurozone; just look at the fact that Trichet has raised rates twice this year, despite what we're talking about. Why? Overwhelmingly, because Germany is doing well.
So, a few years ago, when, say, Ireland needed higher rates to put a damper on its burgeoning economy, it instead got lower rates that because that's what was required for Germany.
Now, when Ireland requires lower rates to recover, it instead gets rate increases. Why? Because that's what's best for Germany.
This is NOT a knock on Germany; it's simply the way currency unions work.
Countries are currency unions too, and if you look at countries, what you see is elephantine dominant cities surrounded by atrophying secondary cities.
Tokyo dominates Japan to an extent that is really pretty amazing.
London dominates the UK in the same way.
Paris dominates France similarly, and has for a very long time, practically since the king maneuvered Languedoc's lords into acknowledging the authority of the king way back in the Middle Ages. Languedoc once had an economy, a culture, and a language (langue d'oc; that's how it got its name) that was distinct; no more.
My expectation is that the eurozone will gradually shrink to a point where it only includes a few countries that orbit around Germany. Those countries will at first be proud to be in it, natch, but over time, longer than any of us will be around, so this is a completely abstract argument, they will find their economies atrophying as well.
Will the satellite countries eventually leave the euro as well? Who knows? That far out, anything can happen.
Spot on... The refusal of the ECB to acknowledge this and their insistence on adhering to their flawed mandate is another thing that makes me more skeptical.Quote from trefoil:
It is my central scenario, unlike the ghoulish one, but not for the reason you think.
Any currency union, in the abstract, will favor the strongest economy in the union. This would be Germany in this case.
The reason is simple: the price of money - interest and exchange rates - will reflect the conditions in the dominant economy, and the dominant economy only. This is exactly what has happened in the eurozone; just look at the fact that Trichet has raised rates twice this year, despite what we're talking about. Why? Overwhelmingly, because Germany is doing well.
So, a few years ago, when, say, Ireland needed higher rates to put a damper on its burgeoning economy, it instead got lower rates that because that's what was required for Germany.
Now, when Ireland requires lower rates to recover, it instead gets rate increases. Why? Because that's what's best for Germany.
This is NOT a knock on Germany; it's simply the way currency unions work.
Countries are currency unions too, and if you look at countries, what you see is elephantine dominant cities surrounded by atrophying secondary cities.
Tokyo dominates Japan to an extent that is really pretty amazing.
London dominates the UK in the same way.
Paris dominates France similarly, and has for a very long time, practically since the king maneuvered Languedoc's lords into acknowledging the authority of the king way back in the Middle Ages. Languedoc once had an economy, a culture, and a language (langue d'oc; that's how it got its name) that was distinct; no more.
My expectation is that the eurozone will gradually shrink to a point where it only includes a few countries that orbit around Germany. Those countries will at first be proud to be in it, natch, but over time, longer than any of us will be around, so this is a completely abstract argument, they will find their economies atrophying as well.
Will the satellite countries eventually leave the euro as well? Who knows? That far out, anything can happen.
Quote from trefoil:
Countries are currency unions too, and if you look at countries, what you see is elephantine dominant cities surrounded by atrophying secondary cities..
That's an interesting post. Now whether economic concentration is due to currency union is not that clear. One can see economic concentration in most sectors with few companies establishing oligopoly as time goes by.
Quote from Martinghoul:
I repeat that I haven't actually agreed with you on anything. You say that the Euro will fail with certainty. I strongly disagree. The odds of the Euro failing have gone up very significantly of late, but that is still not my central scenario.
I think trefoil's assessment is accurate. If Greece pulls out, the Euro will quite possibly rally, and vice versa if it is Germany that decides to pull out. But the Euro is likely to survive in some form or other.
There is still a way out of this mess, but I don't feel that Merkel/Sarkozy are the ones to steer us through it. Maybe when these two clowns have moved on then there will be some feasible solutions put on the table.
What is your central scenario?
Kaminsky on Strategy Session yesterday said he heard that Greece may default this weekend. Maybe it's finally time. But I have been wondering about the meeting occuring in Poland. In January 2011 Poland and Czech Republic were anxious to join the EU but decided to bide their time, waiting for the zloty/euro situation to improve (according to Bloomberg Businessweek at least). PLN EUR chart looks good to me.
That they ultimately integrate... With or without Greece, but Greece is a special case. I think it's important to recall that the US has gone through this and managed to make it. Obviously, there are some differences, but still.Quote from benwm:
I think trefoil's assessment is accurate. If Greece pulls out, the Euro will quite possibly rally, and vice versa if it is Germany that decides to pull out. But the Euro is likely to survive in some form or other.
There is still a way out of this mess, but I don't feel that Merkel/Sarkozy are the ones to steer us through it. Maybe when these two clowns have moved on then there will be some feasible solutions put on the table.
What is your central scenario?
Quote from Martinghoul:
That they ultimately integrate... With or without Greece, but Greece is a special case. I think it's important to recall that the US has gone through this and managed to make it. Obviously, there are some differences, but still.
I'd say Portugal as well, should they succeed in holding this together semi-permanently. They've been suffering under the euro for a real long time, and most of their exports go to Spain. They could use a devaluation badly.
Quote from jrkob:
No, it means that you need to pay 36% per annum of the notional you want to "insure", and this is for a maturity of 5y (Bloomberg doesn't know yet how to deal with upfront+running but can't blame them as market participants change the way they quote all the time).
In the real world, no one will agree for you to pay on a running basis only. At the moment (as in today), if you want to insure 5y Greek debt, you will need to pay 58% of your notional upfront, and 5% per annum.
1) IN that case, does any1 has a link as to the actual figure of the cost of these CDS to insure Greece for 5 yr.?
2) Also, the CDS is to insure Greece of a default, pay out $50M. But what if it's a partial (structure) default? Does the institution who underwrite those CDS, for e.g., Goldman Sach, still have to honor the CDS if it's a partial default? What's in the fine print?