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Will the euro crash in 2011


Devon
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Do you Honestly?
I like to think I have a sense of humor and sometimes choose to treat things in that fashion, but the euro isn't one of them.

I've never bought into the likelihood that so many disparate economies could be financially moulded together, I believe that it is only the politically will of a few countries to create this false scenario. I remain staggered that it can continue, but whilst accepting that it does for the moment , I'm relieved to see so many others questioning the reality . . . 

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[quote user="krusty"]Mervyn King, the governor of the Bank of England, has sent a simple message to Britain: "Get ready for higher interest rates."[/quote]

Good - low interest rates only benefit people who borrow money and we don't.

John

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Funny really because I was in much the same place as John in the final years running up to the Euro actually arriving. I would often be heard to say that if the UK entered the Euro I would emigrate to somewhere like Australia or Canada (assuming they would take me [;-)] ), a touch of 'over my dead body'. The Euro arrived just prior to moving our money across to buy our French house (1.67 to the pound if memory serves, happy days) so not only did I 'complete' in Euros but I am now living in Euroland proper. I was also very sceptical about the EU even though it made my move to France so much easier, being and EU citizen and all.

Now I live in the EU (proper) and Euroland and its brilliant. I say 'proper' because now I realise that the UK is not really properly in the EU, it's sort of got one foot in but very reluctant to make the final jump. I also believe in some ways that the UK is very insular and that the 22 miles that separates it from mainland Europe may just as well be 2,000 miles. I consider myself to be European more than just British (or English, whichever). Working within the Euro and with the nature of my business dealing with people from other Euro states nothing could be more simpler for me. No more worrying about what to do with all those coins one collects when visiting another state. Cost of transactions no more than moving money across the street. I know the UK is catching up with some of this but I now see that the failure of the UK to embrace the Euro could be its downfall in the distant future as is it's reluctance to fully embrace the EU.

The UK is in a financial mess, the austerity cuts currently taking place are not enough, major reform of the NHS is required and further cuts also need to be made to other public institutions. It simply can't carry on paying out money when it simply does not have the money to spend. Now my comment about not being in the Euro possibly being it's downfall is simple. At some stage the UK will have to be bailed out, its not in the Euro so it will have big difficulties getting money from the ECB so it will have to go to the IMF. The UK will have to pay a higher interest rate borrowing from them rather than the ECB and the cuts the IMF will demand will make those currently taking place seem very small by comparison. It will also end up with Sterling being devalued. Some of us remember (just) what happened last time we borrowed from the IMF (under Callaghan - 1976 and the cuts imposed let to the famous 'Winter of Discontent'), the effect on the UK was quite dramatic and directly led to Thatcher taking power, its like watching (almost) history repeat it's self.

The UK, rightly or wrongly, seems content to keep it's financial links with the US, possibly because so many US investment banks operate within the UK. Nobody can help but notice how fragile both Sterling and the Dollar are, dramatic and large up and down movement against other world currencies and of course the Euro where as the Euro has maintained a fairly stable position with other world currencies. Yes it goes up and down against them but no where near the dramatic variances with Sterling and the Dollar.

The greatest fear the US has is the Euro and its evolution in to a world currency which was once the total domain of the dollar. The US is desperate to throw as many sticks in to the spokes of the Euro wheel as it can. The US controls, indirectly, both the IMF and the credit rating agencies. They constantly issue statements to try and destabilise the Euro, they also tamper with countries credit ratings. Greece is a typical example, yet another downgrading of its credit rating, yet another comment about the Euro not surviving and then the scare tactics by the IMF, all indirect chipping away at the periphery of the Euro to try and destabilise it because the US knows any attempt by them to 'take on' the Euro directly will result in a dramatic failure of the Dollar resulting in an equally dramatic failure of Sterling. This has been going on for years now, remember the link somebody gave on the forum last year saying the Euro would be dead within six weeks and that Greece would never make a single payment on their loan. Well, much to the dismay of the US, the Euro is still here, in the same format and Greece has not yet missed a loan repayment and neither at present has Ireland. Likewise the Euro has not collapsed against the Dollar or Sterling much to the dismay of many who yearn for the days of 1.50 (even 1.25 for some would be quite good) to the pound.

As to the comments about BNP well they are not the only bank. Indeed ironically some of the Irish banks, owned by UK banks are also up to their necks in Greek bonds which one of the the reasons why the UK had no option other than to assist in the Irish bailout else the money it would have lost would have be far, far, more than it lent. I have an account with BNP with a few grand in it and I am not worried in the slightest and am very happy with them (much more so than I am with Banque Populair).

So I am quite willing to put my money where my mouth is and my bet covers a few things. The bet is for 12 months (starting today) and during that time the Euro will not go above 1.28 against Sterling. No country will leave the Euro. Greece and Ireland will continue to pay their debts (monthly) and of course the Euro will still be here in its current state. Now I am so sure of this that I am willing to bet 1,000 Euros on this with anyone interested but I do insist that, unlike last time I bet with a forum member about the exchange rate and won, people accepting my bet pay up when I win. You should make out two cheques, one for the British Heart foundation for 500 Euros and the other to Cancer Research UK for the remainder as I personally don't want the money.

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[quote user="andyh4"]Same situation different continent and 200 years of separation.[/quote]

they're not still fighting, currently printing wads and significantly devalued, Is Greece or Ireland? Is the UK obliged to offer them loans?

[quote user="Iceni"] Good - low interest rates only benefit people who borrow money and we don't. [/quote]

avec précision

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Q wrote:   So I am quite willing to put my money where my mouth is and my bet covers a few things. The bet is for 12 months (starting today) and during that time the Euro will not go above 1.28 against Sterling.

Considering that a short time ago Q, you were stating that the Pound and the Euro would be at parity very soon, you are not a bad judge, and it would appear not much of a gambler? [:D]

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[quote user="NickP"]

Q wrote:   So I am quite willing to put my money where my mouth is and my bet covers a few things. The bet is for 12 months (starting today) and during that time the Euro will not go above 1.28 against Sterling.

Considering that a short time ago Q, you were stating that the Pound and the Euro would be at parity very soon, you are not a bad judge, and it would appear not much of a gambler? [:D]

[/quote]

It may still get to parity, its back on its way down again. That does not mean of course it would stay there, I believe it will go up and like I said somewhere else sit around the 1.15 mark for quite a while, perhaps the foreseeable future, give or take a couple of cents. Another thing I would not be surprised about is that the Libdems either change side or simply split from any party in the next 18 months which will cause an election. Labour may well get back in but fail to actually change anything and that would effect quite a few things including the value of Sterling.

One strange thing I noticed (incidently) was that Greek Treasury Bonds started at 3.64% yield and are expected now (according to Bloomberg) to give a 4.65% yield. I wonder how that fits in with the doom and gloom analysis given by the IMF.

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[quote user="Quillan"]  **** is in a financial mess, the austerity cuts currently taking place are not enough, major reform of the Health Service is required and further cuts also need to be made to other public institutions. It simply can't carry on paying out money when it simply does not have the money to spend. 

The greatest fear the US has is the Euro and its evolution in to a world currency which was once the total domain of the dollar.  [/quote][blink]

I did manage to read it all, (just[:D]) let me say straight off that I'm not inclined to take the bet, I'm saving my euros to pay the proposed New tax on non resident home owners, and that reinforces my understanding that Politicians won't accept failure of Euro but would rather fleece the taxpayer to prop it up, and of course the horse might learn to talk.
Humour me if you will, but there is no smoke without fire, Sure both Britain and the US are in the mire, but are able to print money, effectively devaluing. (I dread to think what this is doing to the US debt in China) I also remember the previous devaluation of the £ through a labour government, and believe that during the last government significant mistakes were made in that cause again. Consequently I see the Euro is seen as perhaps as a middle safe ground investment for some, but IMHO this is based on the powerhouse of Germany, and one day no doubt they will want their pound of flesh, already from within some question it. [8-)]

Anyone feeling too comfortable about the Euro should ask if the first paragraph does not equally apply to it and ask if the money propping up Greece, Ireland et al is realistic; just what is the end game for Euro other than a single state? dominated by who? Does anybody really see France sat at the top table with Germany?[Www] IMHO it's overblown to see the Euro as any kind of powerhouse compared to either the US, China, India, or a bit down the road perhaps Africa.

 

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China is probably the one to watch which incidently has been buying trillions of Euros over the last few years. I wonder what they are planning to do with them? [:D] The US 'attack' on India will probably come via restrictions on their manufacturing in the form of tax's due to the amount of pollution their manufacturing creates.

While I was typing the above I heard the EU GDP figures on the BBC midday news for the last quarter. Seems like they are raising the annual prediction from 1.5 to 1.6% as the EU continues to grow. The only 'thawn's' seem to be the UK and Portugal. Germany top again with 1.5% and France coming in with 1%, the UK 0.5%

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[quote user="Quillan"] China is probably the one to watch which incidently has been buying trillions of Euros over the last few years. I wonder what they are planning to do with them? [:D] [/quote]

Having spent some time in China, they pay lipservice to lots of their ''trading partners''but the inward investment (imports) from ~Germany I found staggering, everything from cars to plant, '' more mercedes V12's than you could shake a stick at.'' 

 

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 [quote user="Quillan"] While I was typing the above I heard the EU GDP figures on the BBC midday news for the last quarter. Seems like they are raising the annual prediction from 1.5 to 1.6% as the EU continues to grow. The only 'thawn's' seem to be the UK and Portugal. Germany top again with 1.5% and France coming in with 1%, the UK 0.5% [/quote]

Says something doesn't it?, let me think, how long would the average german want to prop the rest up . . .  what opposition is there in elections?

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[quote user="Quillan"]One strange thing I noticed (incidentally) was that Greek Treasury Bonds started at 3.64% yield and are expected now (according to Bloomberg) to give a 4.65% yield. I wonder how that fits in with the doom and gloom analysis given by the IMF.[/quote]It fits quite well.  I think you may be misunderstanding the bond market.  When yields increase, it's a sign that investors are willing to pay less for the bonds, i.e. they are demanding a higher return on their money to compensate for greater risk.

I don't know which bond issue your numbers refer to, but as an example: yields on ten-year Greek bonds have recently been more than 10% higher than on similar German bonds (same currency, same maturity).  That's doom and gloom for Greece.  Their borrowing cost is that much higher; they can always issue more bonds, but they can't sell them at their face value.

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These are just guesses. As always the guesstimates in Eurozone will be downgraded by 0.5% when the actuals are available in about 6 months time. UK figures will, as always, be increased by 0.5%. Been happening since Adam was a lad. Unfortunately the UK media has decided it's audience has lost interest by then, so never report the Actual Figures widely!

Q, did you used to be in Dad's Army? We're doomed. We're doomed!

Couple of reports out this week. HSBC, no lover of UK PLC, released their Q1 Results. At the same time they released their Strategic Plan. Now, bearing in mind they are the world's biggest bank, have 400,000 employees, and never took a sou from any Govn when the Credit Markets seized, they have a right to be heard. Perhaps even over the voice of Q? The original Report is limited release, but I've checked for an English lang version, try Robert Peston's blog on the BBC website from a couple of days ago. In brief, they are looking at the global economy over the next 30-40, and how they will position themselves best to remain topdog.

UK remains the world's 6th largest economy, behind China, US, India, Brasil, Japan and Germany (just). France drops to 21st. The Eurozone is expected to remain, however as a reserve currency, it will be about the same as CHF, negligable. The main reserve currencies will be the USD, REM and GBP. Again, bear in mind, this is in all but  name a HK Chinese bank.

Secondly was the report both from McKinseys and World Economic Forum. Again, neither lovers of UK PLC. In short the UK will move from a current deficit, to surplus, by 2018, and continue. Germany is expected to slip into deficit in 2020, and continue. France will maintain it's record of the last 32 years, and remain in deficit! (even I could have called that one!!). Rather an expensive Report, but my German employers love Reports!

In short, I think you really should try reading the original Reports wherever possible. Letting some bimbo on the BBC, who did Media Studies, give you the information is probably not the right way to go. Personally, of the UK papers, I only read the FT, I simply know the others are talking politically motivated rubbish! Stick to German/French/Spanish papers, though bear in mind the big subsidies the French papers get from the Govn!

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I don't think the UK is doomed, I think the damage done can be undone but it will be an extremely bitter pill to swallow. Any UK government who has the testicals to sort it out will probably spend a long time in the political wilderness, I wonder where that is by the way?

I remember on TV when a reporter stood in Central Lobby and asked a stream of MP's and ministers as they exited the chamber what the true national debt was. Some said it wasn't their business, others referred to the current years debt, only about one in ten actually knew what it was. They then went out and asked some of the general public and of course most didn't have a clue and again anyone giving a figure only managed the current years debt.

My point is this, it's like people ignoring the electricity bill coming through their letter box hoping eventually they will stop which they do shortly before the electricity is turned off and they are taken too court. I think many people in the UK do not have a clue and they need to be 'educated' so they understand and realise they cannot continue with all the 'goodies' they have because they will become bankrupt. Whilst I do get sick and tired of Cameron keep saying the huge debt is all Labours fault, OK a lot of it is but not all, he should continue to remind the country just how much it owes and why it can't have the things it wants. The thing is things will have to get a lot tougher before things get better. The thing that annoys me is all the doom and gloom over the Euros and the EU printed in the papers when what they should be doing is concentrating on the UK and helping it get out of debt.

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Sovereign Debt is absolutely nothing whatsoever like an electricity bill!!

Dog, that bloo*y Vampire Witch which did in the coal mines has got this stupid myth to answer for as well.

Think of Sovereign Debt as more like a mortgage. You can have loan bigger than your salary (GDP), and as long as you keep paying the interest everything is hunkydory. The problem comes when you have to repay the Capital, and in effect ask your mortgage company for another loan. Dumb countries like Greece (and France) roll over their loans every 2-3 years. Give Mr Brown his due, UK is pretty well all 25 years. Nothing to worry about for a very long time yet. No IMF, no cutting off the electricity, no bailiffs knocking on the door. Sorry!

This myth about a "true" National Debt is equally as dumb. Again think of it as a mortgage. You borrow GBP100K for example. You have a GBP100K debt. However, that completely ignores the future earnings, and the period the loan is spread over. The "pension time bomb" is a perfect example. Headline UK owes £9999999trillion (or whatever!) in pensions, and it must be added to the National Debt immediately. Well, no. It's spread over many, many years, and totally ignores future income. Your age group was in charge of the country when all this happened, you dreamt all this up, be proud of youselves!!

 

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So what your saying is Brown got a mortgage, using the working man and his ability to produce something worth selling as collateral over a 25 year period so he only has to pay the interest at which point the capital still does not have to be paid back, you simply renegotiate the mortgage. I wish mortgages were really like that, happy days if they were. I am sorry but this is a typical example of how the 'experts' think these days and why the UK is in such a mess. Borrow today, forget about tomorrow as I won't be here and some other schmuck will have to deal with it. Without the pensions the national debt is about £3.3 trillion and one day it will have to be paid back just like any loan. With GDP going up and down like a yoyo and our biggest trading partner being the EU I would have to think very hard about lending the UK any money and if I had done already I would be wondering if I would ever get the money back.

Here is one source (one of many) http://www.debtbombshell.com not totally accurate (it is more on the cautious side) but well worth a read and then punt around the web. Our national repayments on this loan is currently sitting around £43bn per year, that's more than the defence budget. According to a Times article the interest on the national debt is already £70bn pa and will rise to £73.8bn by 2014/15 based on figures from the Institute of Fiscal Studies. The reason fo the rise is due to projects put in motion and contracted to by the last government which cannot be cancelled (like the aircraft carriers and the North South dedicated high speed train link, none of which are actually needed).

Bond dealers will always 'talk it up' because they have a lot to loose if the public find out what really is going on.

EDIT

Just to add that McKinseys is an American company so of course they are totally unbiased when it comes to the Dollar and the Euro. [:(]

UK pension funds have invested (or contributed) around 38% of the money lent o the government via UK bonds which may explain why they are getting a bit 'twitchy'.

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[quote user="allanb"][quote user="Quillan"]One strange thing I noticed (incidentally) was that Greek Treasury Bonds started at 3.64% yield and are expected now (according to Bloomberg) to give a 4.65% yield. I wonder how that fits in with the doom and gloom analysis given by the IMF.[/quote]It fits quite well.  I think you may be misunderstanding the bond market.  When yields increase, it's a sign that investors are willing to pay less for the bonds, i.e. they are demanding a higher return on their money to compensate for greater risk.

I don't know which bond issue your numbers refer to, but as an example: yields on ten-year Greek bonds have recently been more than 10% higher than on similar German bonds (same currency, same maturity).  That's doom and gloom for Greece.  Their borrowing cost is that much higher; they can always issue more bonds, but they can't sell them at their face value.
[/quote]

If your one of these 'experts' it would be easy enough for you to have worked out that I was talking about 5 year bonds.

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[quote user="Quillan"]If you're one of these 'experts' it would be easy enough for you to have worked out that I was talking about 5 year bonds.[/quote]No, sorry, I don't know how to work that out.  I'd be glad to learn how it's done. 

Since you mention it, I think your rates are wrong, anyway: yields on ten-year Greek bonds are now around 15% and it doesn't seem possible that 5-year yields would be anything like the rates you quoted.

It doesn't really matter, though; what I wrote is still true.  When bond yields rise, it's bad news for the bond issuer; his borrowing cost is higher.

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for loan "oft loses both itself and friend", as Polonius reminds

''The cause was that too much money was lent against assets that could not support that debt – the asset in this case being the long-run growth potential of the Greek economy''

Greek default would mean the shareholders in the lending banks would lose heavily, and the banks themselves would need to be recapitalised, largely by German and French taxpayers. Our estimates suggest a 70pc loss on their loans to Greece. In effect, that is a fiscal transfer from German and French to Greek taxpayers.

 telegraph. Greek-debt-restructuring-delay-is-the-deadliest-form-of-denial

a tax on maison secondaires seems small beer for what else is to come . . .

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Been out for a while, did not see the remarks. It is getting more and more obvious that it is the UK that needs a bailout sooner than later, I completely agree with Jim Rogers. (click)

Osborne will need to eat his own words about the UK being an example for southern-European states. Interest rates on UK gilts are low because of money-printing, not his policy.

'Brave' Cameron is claiming he will not give any money to the  EFSF while the rest of Europe is actually  manoeuvring the UK in a position where the EFSF will not be available to the UK. Greece, Ireland and Portugal are just a sideshow, it is a lot of smoke but no guns.Even a complete default of this 6% of the Eurozone is no systemic risk. You don't die when you slash a hammer on your thumb, but it hurts a lot.

As each and every hard data coming out of the UK is worse than expected,  markets will eventually accept the inevitable and the pound will fall. This weeks inflation figures will probably be up again, but the BoE will not raise rates.

And yes, German and other European newspapers are lazy and are just rewriting UK and US press releases without even checking the facts.

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