Ok, Euro again, can someone explain?

[Hamishbear]

So markets have rallied and at the moment it isn't all going to collapse like a house of cards.

I read a commentator's remarks who said we should let some countries go bust. The news channel anchorman said 'that would lead to financial armageddon'. The commentator said that will come anyway if we keep paying off debt with debt etc, etc.

Is this inevitably the truth? And if not can anyone explain who we can get out of this unscathed? Thanks.

It seems to me that debt is simply being deferred and shifted around from one place to another.

What is needed is a write-off of debt.

The debt has to be written off BUT with the caveats of mahoosive changes to the economic systems in Italy and Greece and Spain and Portugal
once the debt has been written off there is no leverage - so all of this is just brinksmanship - trying to get change without anarchy.

The markets are under the delusion that the EU 'conference' over the weekend has changed things. They think that Germany is about to bail out all the indebted nations of the Eurozone.

Germany isn't about to do that. What'll happen over the next few days is that the markets will realise that Germany isn't about to hand over all its money, and the markets will fall again.

Financial armageddon is coming anyway.

It won't happen until autumn, as politicians will be on holiday soon.

Yes, ASillyPhase, I'd heard it was going to be 2013 or even 2014 before any day of real reckoning.

Flatpackhamster - if financial armageddon is coming, what will it likely look like and what's the best case scenario? How can we move on from this?

Where did you hear that, op?

ttosca "What is needed is a write-off of debt."

Bloody Nora, wonders will never cease - Ttosca has written something that I can totally agree with !!!

The Euro is stuck. Each and every bailout (of which there have now been several) heaps another load of un-repayable debt on the bailed out countries. Places like Greece and Spain have a choice whereby they can either try to pay back an un-repayable amount of money and watch their people slump into long term poverty, economic stagnation and all round disaster, or they can renege on their debts, default on their commitments and write off their debts with a pen stroke.

To us outsiders, this seems like a no brainer. The issue is that defaulting on their debts will inevitably lead to being kicked out of the Euro. This in turn triggers at least four other problems - which is where the politicians start getting cold feet.

Firstly, much of that Greek, Spanish, Irish, Portuguese and Italian debt is held by other Euro members. If any of the PIIGS default, the 'Northern' Europeans will feel the pinch as they will never see their money again.

Secondly, once one country defaults, there is little to stop the next country defaulting. This domino effect would create shock waves around the financial world. Whether it is better to get the shock over and done with, or draw it out over several years is also the subject of much discussion.

Thirdly, the countries which leave the Euro will need to issue their own currency, (be it New Escudos, Punts, Lire, Drachma or Pesetas) which may start with an exchange rate with whatever remains within the Euro zone of 1:1 (One Euro to One New [insert currency of choice]). Overnight, this will shift massively to wherever the market thinks the value of that currency lies. In Greece's case this is rumoured to be half the Euro's rate. In other words, the exchange rate will shift from 1:1 to 1:2 almost immediately. This will, to a Greek, immediately make buying anything manufactured abroad twice as expensive and, quite obviously, isn't too popular - it will, however, make holidaymakers money go twice as far as it currently does, boosting tourism.

Finally, the basket case economies in the Euro zone are keeping the value of the Euro artificially down. If any of the PIIGS get kicked out, the cost of buying stuff made in Germany will shoot up as the Euro readjusts to being a stronger currency. This may go so far as to create a knock on recession in Germany.

In truth, I think we are long passed the point of this being something Europe can get out of unscathed. It will be years, perhaps even generations, before Europe is, once again, as rich as it thought it was. Whatever happens now will cause havoc for someone somewhere and lives will be destroyed. I believe the Euro to be doomed to failure ? it may still take the whole European project with it. Let?s hope the Europeans are smart enough to not repeat the mistakes that their Grandparents made in the 1930?s, if they aren?t, then the misery we?ve seen so far is just the prologue.

Can you explain what these were, Judgey Pants: it may still take the whole European project with it. Let?s hope the Europeans are smart enough to not repeat the mistakes that their Grandparents made in the 1930?s

I have a rough idea...& how might we avoid?

Hamishbear

Flatpackhamster - if financial armageddon is coming, what will it likely look like and what's the best case scenario? How can we move on from this?

My view? Well my view is just formed by what I read - Bloomberg and the Telegraph finance pages, and the popular Cassandra blog Zerohedge. None of them think the crisis is in any way fixed, and none of them think that anything that happens at the moment is going to fix it.

I think that in the near future we'll see another seizing up of the credit markets, just as happened in 2007/8. The colossal bailout we all funded thanks to Gordon Brown's amazing genius was just a short-term action to stop the economy collapsing on his watch. It'll happen all over again, except this time the bailout cupboard is bare - governments can't take on any more debt without risking their credit ratings.

This time the problem will be slightly different. The banks will ask the governments to bail them out. However, this time it won't be the British banks but the Eurozone ones. This will induce lots of unwarranted smuggery in the British papers which will last all of a fortnight.

This will cause further problems in the Eurozone, which is frantically trying to pretend it can afford to bail out Greece, Portugal, Ireland, Italy, Spain, France and Belgium. Germany will be bullied by the EU Commission to bail out the whole of the EU. What happens next? No idea. Germany may say yes, but it'd be a brave person who would bank on it.

This is all ignoring the disaster waiting to happen in the USA, where government spending is even more out of control than it is in the UK or the Eurozone. And there's China, of course, which has a huge property bubble and asset bubble - and when demand from the West collapses due to the credit crunch it'll devastate the Chinese property market.

There are several phases to the disaster and any one of them could trigger the others off.

The social implications of a long economic depression don't need to be imagined. We saw them in the 1930s. It's a bitter irony that the EU, which was supposed to stop another European war, may actually cause one. But I don't think it'll come to war.

The economic implications? Well, if the economic crisis sticks a quivering stake through the socialist mantra that you can spend your way out of trouble, then it'll be a worthwhile crisis. Governments have lied for 60 years about being able to spend their way out of recession.

I partially agree with Ttosca. Certainly some of the debt will have to be written off or whatever creative name they come up for it to make it sound like it's not a write off. Hair cut mk2 perhaps.

BUT

That can only come once the Eurozone countries which are are in serious trouble tame their deficits and there are sufficient mechanisms in place not to stop it from happening again.

Until then what people are in effect asking for is Germany to underwrite the debts of all the other Euro nations without any guarantees that Greece, Portugal etc. will stop borrowing money. Quite understandably the Germans are not keen on that.

It's like this. You have a brother who has always been careful all his life with money. He's got quite a bit stashed away and everyone trusts him and believes his word. But he's got a couple of other brothers who have large debts and asking the careful brother to bail them out. Of course he could....but unless he can be sure that they have changed their ways, it's just throwing good money after bad.

Hamishbear Flatpack has probably answered your question for me but I think that its worth reiterating that financial meltdowns have, in the past, led to extreme authoritarian governments. One would hope that the world has moved on since the twin evils of communism and fascism combined to make the 20th century so bloody lethal, but at times like these, history has shown that the populace is prepared to welcome politicians who preach that all of a countries woes can be eradicated by eliminating one or two groups within their society.

I admit that right now, a new age of the great dictators? looks like a remote possibility but this crisis is only just beginning and, in many ways, it's worst effects are yet to occur. I mentioned earlier that this crisis may take a generation to work through; who would seriously like to predict what odious turds might be running the show in twenty to thirty years? time?

MrJudgeyPants makes an important point about dictators. Dictators offer security and in hard times security is what people want. But don't imagine that dictators means swivel-eyed authoritarian socialists with little toothbrush moustaches sending goose-stepping sturmtruppen along the Champs Elysees. Dictatorship comes in many forms. It requires a subversion of the democratic process to begin with. We're already seeing that with the way the EU works. The next European dictatorship may not be a military one but it may still be oppressive and wicked.

'nice'guy-

That can only come once the Eurozone countries which are are in serious trouble tame their deficits and there are sufficient mechanisms in place not to stop it from happening again.

Until then what people are in effect asking for is Germany to underwrite the debts of all the other Euro nations without any guarantees that Greece, Portugal etc. will stop borrowing money. Quite understandably the Germans are not keen on that.

It's like this. You have a brother who has always been careful all his life with money. He's got quite a bit stashed away and everyone trusts him and believes his word. But he's got a couple of other brothers who have large debts and asking the careful brother to bail them out. Of course he could....but unless he can be sure that they have changed their ways, it's just throwing good money after bad.

It's not like that at all. Firstly, countries continue to borrow money because they are paying off the interest of the money already owed. If you write off the debts, you write off the interest payments.

Secondly, most of the countries find themselves in this predicament primarily because of the financial crisis and recession. Your portrayal of countries doing 'lavish spending' is innacurate, once again.

Certainly, some countries like Greece could make sure that taxes are collected, but the main reason europe is in such a dire state is not 'lavish' or 'irresponsible public spending', but because we're in the midst of the worst recession since the 1930s, caused by the financial crisis.

From what I've been reading Euro financialgeddon is looking increasingly likely & even wider financial Armageddon. When the borrowing & happiness with ever increasing debt stops the hammer falls. They are saying 1-2 years at most probably far earlier.

So if this happens what's the best we can hope for? That's what I don't understand. Also why are most not bothered? Am I missing something? Not particularly worried as there's not much we can do & feel strangely optimistic. Any thoughts?

Op, I think people on the whole worry about their own lives and think we will never end up like Greece.

Lots of groups protested and got nowhere, only pastygate etc get u turns. Opposition parties aren't helping the man on the street making it hard for u turns by their comments.

Ttosca

Your ability to only select parts of the truth is quite breathtaking. Greece has been heading for a massive fall for years. They fiddled the books on a criminal scale to get into the Euro club. They hid debts from the public ledger and tax evasion was seemingly a national sport. And on top of that a completely OTT public sector which pays generous pensions not just to the ex-worker but also sometimes their children then trouble was always coming.

Even if there was political will to write off the interest payments for Greece, such is the hole they are in, they'd still need to make cuts. They are not simply borrowing to pay off their interest payments.

Your logic is always to blame the person who has lent them the money on good faith and the person who cooked the books and borrowed money they clearly couldn't afford is whiter than white.

its not the recession that cause the debt - its overspending in the goodtimes on the hope that the growth will continue forever and future interest payments easily met.

the boom masked the personal, organisational, governmental overspending & the success of Germany masked failure going on other EU countries.

it went wrong years ago.

there have been numerous write offs going on since the crunch which is gives everyone time to adjust. a gentle landing is better than a sudden jolt.

governments should pay off debt in the goodtimes and over spend in hte bad times to even them out - but if you are a politian, you milk it while times are good and hope some other sucker has to deal with the aftermath.

'From what I've been reading Euro financialgeddon is looking increasingly likely & even wider financial Armageddon' 'Also why are most not bothered? Am I missing something?

I don't believe them. Usual scare tactics, same as the chorus of catastrophic climate change. Before the crash, all the ratings agencies spotted nothing amiss, and Gordon Brown announced that he had abolished "boom and bust". It is possible that he meant that we had now got permanent bust, but I doubt it. He also told us we had only 50 days left to save the planet.

When the chorus sings from the same hymn sheet about doom and catastrophe, do as Odysseus did and block your ears to avoid being deceived.
Remember the BBC programme warning against going to the Euros, and how it all seemed to be more scaremongering.

In fact, I think that the trick is that the Euro will come out much stronger. The siren voices of doom are to steer the public off course while a stronger union is formed, just as the bullish voices of boom and no bust steer the public off course and hit them with austerity when they least expect it.

'even wider financial Armageddon'

this is like the global warmer who cried polar bear. The more they speak of catastrophic conseqiuences, the less the public believe them - they've heard it all before, every week they are saving us from something, but they won't do a public inquiry on what we really need saving from.

'The euro zone refuses to stick to the script. The currency bloc was predicted to slide back into recession in the first quarter; instead, the economy flat-lined, an improvement on the previous quarter's 0.3% contraction and well ahead of consensus forecasts for a 0.2% decline, Eurostat data showed Tuesday. The euro zone may be more resilient than its detractors admit.'

'The bigger losers from Tuesday's data look to be U.K. policy makers. They have been presenting the euro-zone crisis as the reason for the recent poor performance of the U.K. economy. The relative resilience of the euro zone exposes the fact that much U.K. weakness is homegrown.'

Euro-zone economy defies doom mongers

''The euro zone refuses to stick to the script.' and the Euros in Poland and Ukraine didn't stick to the BBC programme's script.

We saw more New Labour scripts from spinners and catastrophic climate chinners than we have had hot dinners; it's time to pour some cold water over the heated tales of hellfire and catastrophe conveyed by our paid-for spinners.

A spinner who is worth listening to is Mandelson. I think he has a good idea of what is coming. I think the Euro will get stronger and possibly we may not recover so soon. I think one day we will be forced to join the Euro too.

www.dailymail.co.uk/news/article-1254179/Mandelson-insists-Britain-WILL-join-euro-despite-single-currency-crisis.html