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Why are there no lines outside of Greek and Spanish Banks?
- Thread starter Swan Noir
- Start date
Quote from Ed Breen:
Swan, the reason they are moving now is because of the Banks. Under a EMU mandate last year the EU Banks had to meet a Basll III capital threshold by the end of this month.
If Greece or Spain reverts back to there old currency the new currency will be immediately reduced by an estimated 50% of value. That will reduce the value of all bank deposits. Debtors who have to pay back debt in Euro's will see the principle value of their debt double. There will be chaos in business and bank contracts...that will lead to widespread bankruptcies and increased unemployment. It won't end there...becuase Spain and Greece will default on their accumulated Euro debt obligations they will be essentially shut off from debt markets in all venues except maybe, just maybe, the IMF. They will have to match revenues with expenses...if they try to just print more of the new money the new currency will collapse...becuase it will not be backed by any external credit...soon only government will use the currency and the market will not accept it in trade...the currency will collapse inside of two years...think Zimbabwe, Weimar...they will begin using foreign currency, likely the dollar.
Why would they start using a foreign currency? That would put them in exactly the same situation they are in now.
If they exit the euro, they will simply devalue until their currency and therefore domestic assets become so cheap that foreign capital comes pouring in. Wages, prices etc will fall until the market clears. Bad banks and businesses will go bust, improving profits for the last men standing. It will be just like any other debt crisis we've seen countless times in emerging markets over the decades - Asia 1997-98, Brazil/Argentina 2000-2002, Mexico's tequila crisis, and so on. Prices will crash, the market will clear, the government will eventually be forced into decisive action, and after the point of maximum pessimism, the markets and then the economy will start recovering.
It's also IMO wrong to think they will be shut out of debt markets. What matters is their future creditworthiness, not their past creditworthiness. Russia was not shut out of debt markets, despite defaulting a mere 14 years ago. Investors will simply see that Spain/Greece got into an untenable situation, once they take steps to fix it and start over, they will then lend so long as the interest rate is sufficiently high to compensate for the perceived risks. Are you saying you wouldn't buy post-default Spanish debt at 100% interest if their debt/GDP ratio is something like 30%?
Ghost, Greece and now Spain are out of the credit markets now. When you take IMF or EFSF money that money gets a priority and you lose your access to public markets, becuase public investors don't want to be subordinated. That is why the Spanish bank bail out is falling apart in its first day.
All the countries you cited that went through a devaluation had export economies and natural resources that were the basis to obtain hard currency and post collateral for new credit. Greece has no such assets, their main source of hard currency is tourism and that may not do so well when they are in general domestic chaos.
Whenever a currency collapses, such as during the Weimar in Germany and Austria and in the modern case of Zimbabwe, the private sector refuses the domestic sovereign currency and will only accept foreign currency. Today, Zimbabwe uses the U.S. dollar for its currency in trade. When a currency collapses the only people who will take the currency is the Government and its employees becuase they have to...and they try to get rid of it as fast as possible. I am not suggesting that the Drachma would collapse into hyperinflation immediately, especially if the IMF or some other source provides a transitional credit accomodation; I am saying that the problems with the society, economy, and dearth of export potential in the near term, that the currency will collapse within two years.
My comment above assumes that Greece would change to the Drachma, probably at 1 to 1 bases. Then the market would value the drachma immediately at about 50% of the Euro...and then from the very begining the discount will grow because the Greek Government will have no access to foreign currency...because it has no export assets and it has no credit. Its businessess and social structure will be in chaos, so nobody is going to come in and set up a factory...hell tourists will be loath to come...foreign investment will not come to the rescue. Given that they are already shut out of the public credit markets it is not likely that those markets will open up when they default, devalue and collapse. They would be better off if they defaulted and stayed on the euro.
All the countries you cited that went through a devaluation had export economies and natural resources that were the basis to obtain hard currency and post collateral for new credit. Greece has no such assets, their main source of hard currency is tourism and that may not do so well when they are in general domestic chaos.
Whenever a currency collapses, such as during the Weimar in Germany and Austria and in the modern case of Zimbabwe, the private sector refuses the domestic sovereign currency and will only accept foreign currency. Today, Zimbabwe uses the U.S. dollar for its currency in trade. When a currency collapses the only people who will take the currency is the Government and its employees becuase they have to...and they try to get rid of it as fast as possible. I am not suggesting that the Drachma would collapse into hyperinflation immediately, especially if the IMF or some other source provides a transitional credit accomodation; I am saying that the problems with the society, economy, and dearth of export potential in the near term, that the currency will collapse within two years.
My comment above assumes that Greece would change to the Drachma, probably at 1 to 1 bases. Then the market would value the drachma immediately at about 50% of the Euro...and then from the very begining the discount will grow because the Greek Government will have no access to foreign currency...because it has no export assets and it has no credit. Its businessess and social structure will be in chaos, so nobody is going to come in and set up a factory...hell tourists will be loath to come...foreign investment will not come to the rescue. Given that they are already shut out of the public credit markets it is not likely that those markets will open up when they default, devalue and collapse. They would be better off if they defaulted and stayed on the euro.
M
morganist
Quote from Ed Breen:
Ghost, Greece and now Spain are out of the credit markets now. When you take IMF or EFSF money that money gets a priority and you lose your access to public markets, becuase public investors don't want to be subordinated. That is why the Spanish bank bail out is falling apart in its first day.
All the countries you cited that went through a devaluation had export economies and natural resources that were the basis to obtain hard currency and post collateral for new credit. Greece has no such assets, their main source of hard currency is tourism and that may not do so well when they are in general domestic chaos.
Whenever a currency collapses, such as during the Weimar in Germany and Austria and in the modern case of Zimbabwe, the private sector refuses the domestic sovereign currency and will only accept foreign currency. Today, Zimbabwe uses the U.S. dollar for its currency in trade. When a currency collapses the only people who will take the currency is the Government and its employees becuase they have to...and they try to get rid of it as fast as possible.
My comment above assumes that Greece would change to the Drachma, probably at 1 to 1 bases. Then the market would value the drachma immediately at about 50% of the Euro...and then from the very begining the discount will grow because the Greek Government will have no access to foreign currency...because it has no export assets and it has no credit. Its businessess and social structure will be in chaos, so nobody is going to come in and set up a factory...hell tourists will be loath to come...foreign investment will not come to the rescue. Given that they are already shut out of the public credit markets it is not likely that those markets will open up when they default, devalue and collapse. They would be better off if they defaulted and stayed on the euro.
Would the rest of the Eurozone let them default and remain in the Euro?
M
morganist
Quote from Ed Breen:
I am not aware of any constitutional mechanism to throw a country out of the Euro.
I think from a practical sense if you witheld other subsidies in agriculture and such, you would encourage them to leave on their own.
I don't know I think if they wanted to throw them out they would. Anyway I think you are right for other reasons. Germany and other stronger countries success is dependent on the weaker states. Read my article below.
http://www.huffingtonpost.co.uk/peter-morgan/the-eurozone-is-a-polaris_b_1448011.html
Reuters reporting capital controls planned for Greece. Possibly more...
As for bank runs, if you follow depositor capital flows, Spain and Greece lost a tonne, over the past couple months. Like the other dude said, it's not the idiot on the street closing their 500 euro deposit account. Big fish wiring out millions, per clip.
BRUSSELS (Reuters) - European finance officials have discussed as a worst-case scenario limiting the size of withdrawals from ATM machines, imposing border checks and introducing capital controls in at least Greece should Athens decide to leave the euro.
http://money.msn.com/business-news/article.aspx?feed=OBR&date=20120611&id=15208663
As for bank runs, if you follow depositor capital flows, Spain and Greece lost a tonne, over the past couple months. Like the other dude said, it's not the idiot on the street closing their 500 euro deposit account. Big fish wiring out millions, per clip.
BRUSSELS (Reuters) - European finance officials have discussed as a worst-case scenario limiting the size of withdrawals from ATM machines, imposing border checks and introducing capital controls in at least Greece should Athens decide to leave the euro.
http://money.msn.com/business-news/article.aspx?feed=OBR&date=20120611&id=15208663
Shouldn't the EU do what is really required and needed, and that would be to set up a EUFed Bank...and just print...
The way they're going about this is, IMHO, a lot worse. The EU is throwing some Euros to this country, that country all the time saying THEY will not print.
If the EU doesn't get their act together, the experiment could (or is about to) blow up in their face. Germany included...
Trying to keep their deficits below, or close to, 3% in the face of unemployment of 20%+, youth unemployment around 50% is, as far as I can tell, suicidal.
If one looks at the US deficit, it's taken roughly 30 years to get to this point. Anyone want to get rid of it in 10 years? That would devastate the economy.
What is happening in several EU countries, will happen here also if such policies are implemented.
All these countries are in need of growth, and with growth comes increased revenues. That's the time for cuts (or less growth of government).
The way they're going about this is, IMHO, a lot worse. The EU is throwing some Euros to this country, that country all the time saying THEY will not print.
If the EU doesn't get their act together, the experiment could (or is about to) blow up in their face. Germany included...
Trying to keep their deficits below, or close to, 3% in the face of unemployment of 20%+, youth unemployment around 50% is, as far as I can tell, suicidal.
If one looks at the US deficit, it's taken roughly 30 years to get to this point. Anyone want to get rid of it in 10 years? That would devastate the economy.
What is happening in several EU countries, will happen here also if such policies are implemented.
All these countries are in need of growth, and with growth comes increased revenues. That's the time for cuts (or less growth of government).
Iceland refused to bail out its banks and its banks failed. The savings of the people of iceland were partly reimbursed by the Gov't, but the Gov't refused to stand behind Dutch and UK 'ice-savers' who lost high yield deposits in Iceland Banks. To rebuild its credit structure Iceland borrowed money from the IMF.
Iceland has an export industry, fishing...and they have natural resources...Artic Oil claims, and they have cheap energy from geo thermal sources that provide a basis for Aluminum manufacture and the possible manufacture of hydrogen. They have a small industrious well educated populaiton and a relatively small government footprint. Iceland is distinguishable from Greece which has a damaged culture with regard to industriousness and has no basis to expand export business. Iceland is more comparable to Ireland and it points out the mistake the Irish made in taking money to bail out thier banks only to find out that the bank losses were much greater than the government could absorb. Ireland shoul have let its banks default.
Iceland has an export industry, fishing...and they have natural resources...Artic Oil claims, and they have cheap energy from geo thermal sources that provide a basis for Aluminum manufacture and the possible manufacture of hydrogen. They have a small industrious well educated populaiton and a relatively small government footprint. Iceland is distinguishable from Greece which has a damaged culture with regard to industriousness and has no basis to expand export business. Iceland is more comparable to Ireland and it points out the mistake the Irish made in taking money to bail out thier banks only to find out that the bank losses were much greater than the government could absorb. Ireland shoul have let its banks default.