Jump to content

Will the euro crash in 2011


Devon
 Share

Recommended Posts

Thank you Jako. The problem is the UK has it's head so far down the sandy hole it can't see whats happening. There are loads of things it can do to avoid this but as long as it ignores whats going on it does not stand much of a chance. Very sad really. I sort of agree with you on the papers but there are some little differences between the stories which you can pick up on then investigate yourself which often turn out to be quite interesting.
Link to comment
Share on other sites

  • 2 weeks later...
  • Replies 556
  • Created
  • Last Reply

Top Posters In This Topic

You have to put these things in to proper context. France and Germany, the main lenders in Euroland "According to Prof Sinn's numbers, the combined exposure of Germany, France and Italy to European bail-out funds, including known and hidden European Central Bank funding, already amount to nearly €1 trillion.", that's less than a quarter of what the UK owes.

Greece may well have to renegotiate its loan to make lower payments but that nothing new, Brown did that for the UK. Reducing the repayments is a bit different to not paying the money back.

Europe can till trade within it's self, it's none European countries that want to trade with it (like China, India and the US) rather than the other way round so who cares a fig what Standard & Poor's says, as the author of the article says they nearly always get it wrong. I bet all the 'T' shirt and ladies knickers in Greece are still made in China so China obviously has no problem with getting paid regardless of the poor credit rating.

People in the UK should be very worried if the Euro failed as Europe is it's biggest trading partner and the effect would tear through like UK economy like a Tsunami especially as the UK economy is so fragile at present.

So no I am not worried at all but then nobody took up my bet (not even one of the 'experts') which leads me to believe that I might be right regardless of what the papers may say. Still it's not over till the end of the year and the 'Fat lady sings'.

Link to comment
Share on other sites

Apropo a previous comment of yours Q, I have a genuine interest in the Euro exchange, and I'm not unaware of how the last socialist government experiment has left the UK finances, not that that is on topic or any compensation, unfortunately any bail out plan to the Euro I may have once entertained is looking decidedly unattractive, whichever which way it looks like we're going to hell in a bucket.

Link to comment
Share on other sites

Hi Quillan, I agree absolutely that if the euro disintegrates it will be terrible for the world economy, including the UK.  There would possibly be a relative strengthening of the pound against the euro in the lead up to such a disintegration but for us investors and (future) residents in France the pound would likely fare very poorly against a re-established French Franc.

Although I am no expert, I am not sure I agree that the UK is in such a hideous shape, despite the numbers.  For 2 years now there has been rumours of downgrading of UK debt by rating agencies and fear of rising bond yields but do you know what, it hasn't happened!  Why is that if things are so bad?  Is it maybe that the UK government's actions since June 22nd last year are genuinely reassuring markets.  Certainly the IMF seem to have had nothing but praise for what the government is doing?  It is about confidence at the end of the day, and currently there still seems confidence that the UK can recover.

I am not for or against the euro, just pro stable and reasonable exchange rates which allow for future planning and a comfortable future life in France.  Fingers crossed!  

 

Link to comment
Share on other sites

The Euro is and has been pretty stable against other currencies when compared against Sterling and the Dollar. It's also been around for a while now and countries external to the Eurozone are quite happy to trade with countries within the Eurozone and in Euro's. I personally believe that the chances of the Euro failing are about the same as Sterling or the Dollar failing. The US will try and protect Sterling because of banking interests in the UK and also in needs a country with is pro US and has a foot inside the EU. As to the Euro failing well the Chinese for a start have been buying Euro's by the trillion and I don't honestly think they are that stupid as to buy a currency that could end up being worthless. Sometimes I feel that the UK and in particular the US are trying to 'talk' the Euro in to failure although unfortunately for them it is not working, one only has to look back at all the old stories about the Euros failing in weeks or months that have appeared over the last two years or more and nothing has happened, it's a bit like the stories about the world coming to an end last weekend. [;-)]
Link to comment
Share on other sites

[quote user="Quillan"]Sometimes I feel that the UK and in particular the US are trying to 'talk' the Euro in to failure although unfortunately for them it is not working, [;-)][/quote]

Earlier you said "People in the UK should be very worried if the Euro failed as Europe is

it's biggest trading partner and the effect would tear through like UK

economy like a Tsunami especially as the UK economy is so fragile at

present.
"

Why would anyone try to talk the Euro down if failure would cause such chaos? Are you in fact saying that the people who are trying to talk the Euro down don't have a clue as to what would happen if it failed? I can't believe that. Seems to me you argue against yourself !

Link to comment
Share on other sites

Isn't it the truth that all parties want relative stability in exchange rates as uncertainty kills investment and will kill off economic recovery (wherever you happen to be). It currently suits the UK to have a relatively weak pound to help boost exports, but the ECB have made mutterings that they don't want the euro to be too strong either for similar reasons. That's why, ultimately, governments will work to keep their currency in a trading range which suits their needs. None of the major currencies will collapse IMHO, unless one or more of the eurozone countries pulls out of the euro, then their new currency (probably Drachma) will collapse.

I agree entirely with Jay that everyone who should know will indeed be fully aware of the consequences of the euro failing and will do what they reasonably can to stop it happening.
Link to comment
Share on other sites

Something which I've tried to explain before http://www.spiegel.de/international/business/0,1518,764299,00.html

Written in dry German style, it goes some way to explain what might be going on in the Eurozone. Certainly explains why French and German bank and insurance shares are down over 50% in a couple of months.

Personally, I hadn't realised just how bad things were. No wonder the bail outs continue. Europe would literally grind to a halt if any default/s was allowed. Somewhat puts the bailout countries in the driving seat!

Link to comment
Share on other sites

I strongly believe that the Euro will not fail and the situation for countries like the UK is getting worse which is why they try to put on the attitude of 'hey don't worry about us look at the Euro' when in fact countries like the UK should be looking at themselves.

Just watch the financial report on the BBC News channel over lunch, seems Moody's are thinking of downgrading the credit ratings of 14 UK banks and building societies although in fairness I have had a look on the Moody's website and can't find anything on this (edit - just found this http://www.bbc.co.uk/news/business-13516492 ). Anaylists say that there will be a slow downward spiral in general high street sales over the next 6 months and that the main reason for this is that contrary to what they have been told to do the banks are not lending money, people have found that their disposable income is shrinking due to price increases and inflation in general.

The Chinese Dagong rating agency has already downgraded UK's rating today from AA- to A+ which puts the UK in with Chile and Belgium, reason they have done this is because they feel the cuts are not deep enough and Osbourn will not meet the targets he needs. Fitch has also backed this and said the cuts need to be bigger and quicker and have issued a 'warning' on the UK economy. In fact they compare negatively the UK economy debt with regards to the rest of the Euro zone.

And then if that was all not bad enough it has been released, on the QT, that the UK public sector, rather than cut it's borrowing actually increased it by £2.7bn in the first quarter of 2011. Finally there is inflation, 4.6% in the UK yet on average across Euroland its 2.8% for the first three months of 2011.

So all this and more in my book points to Euroland being in far better shape than Stirling and the UK.

Link to comment
Share on other sites

Quillan wrote "So all this and more in my book points to Euroland being in far better shape than Stirling and the UK"

The last time I was in Stirling it looked in fine shape to me.

The UK is still recovering from the last government in my opinion .Let's see what the position is in a couple of years when I believe Sterling and the UK will be in better shape.
Link to comment
Share on other sites

I agree, and let's see what happens when the one-off fire sale of state assets by the Greeks hasn't solved their problems.

My earlier point was that despite gloom and doom about the UK over the last 2 years and despite sluggish growth, increased PSBR and inflation at 4.6% the pound is relatively stable against the euro. No-one can predict what will happen next, but overall I expect a similar position in a years time with the pound trading between 1.10 and 1.20 euro/£ for most of it. Lets face it, neither currency is worth a light at present for various reasons, that's why both are at an all time low against the Swiss Franc, seen as immune from all the mayhem.

I must say this is all lighthearted banter, but it does slightly amuse me how some people take an extreme (and political) view of things, presenting those views almost soapbox-like, when they are, like all of us almost completely ignorant of the full facts and completely bereft of a crystal ball!
Link to comment
Share on other sites

If you watch BBC News there would be a natural assumation you are get UKcentric information. Moody's assessed the German banks last week, and the French banks late last month. A total of 28 were downgraded. I doubt the BBC would report that information. My point is, that it is no big deal, though if you take the information you were hearing today, in isolation, it would sound important. To honest, French TV would not report such a story, as the viewers are simply not interested.

I get paid in Euros, all our savings and investments are currently in Euros. Married to a Frenchwoman for 20 years. I have a very serious commitment to the Euro and France. However, as the weeks tick by, more and more, horror stories are coming out from the Eurozone. I seems the official line from the Finance Ministers, and ECB, was "Ignore everything, and hope it goes away". Now we have ECB directors saying different things, Finance Ministers saying different things, and I am getting worried, that they, don't know what to do as a collective unit, so everyone is doing their own thing. The Markets get jittery about the lack of consistancy, or any form of plan, and react accordingly negatively. Even worse with elections in Germany, and France in the next 12 months, absolutely nothing is going to be resolved in the foreseable future. If you read the De Spiegal, the figures are starting come out of the woodwork, same sort of things as we all learnt about the UK2-3 years ago. Why did it take the Eurozone to admit things? what else is going to come out of the woodwork?

I see don't the forx rates moving much, but that is a function of competitive devaluation. I see the Chinese buying USD and EUR to drive up those currencies. I see our orders dropping month in, month out. We're a German company, turnover about USD 10billion. China has been the cash cow, but the orders are down 50% in 2 months. The miracle, has proved to be a mirage. We will be shutting plants for maintanance shutdown in France and Germany at the end of July, many will not reopen in September.

Link to comment
Share on other sites

The current UK government is not recovering from the last one, the public spending figures show this in that instead of going down they are actually going up (by over 25%) , its all smoke and mirrors.

Politically every country is going to omit things in it's press to influence people attitudes in that country. Strange thing about Der Spiegel is one one hand it says one thing and on the other it says something contradictory like for example having read the link given I followed some other links within their website and found that they believe the ECB should control centrally all banking in Europe (well the Euro zone) and that Europe in general should become more integrated.

It isn't Europe's fault if Greece is ailing or Ireland is faltering. Philip Stephens, always worth reading, writes in the Financial Times that it is not the right time for the Anglo-Saxon model to elevate itself above the continental European model. According to Stephens, "Ireland's property boom turned banking bust" has little to do with its membership of the euro zone. He said that there are far more parallels with Iceland and Great Britain, two non-euro countries and members of the Anglo-Saxon boom-bust system. Iceland has already failed, and Great Britain will also fail.

Anyway tonight (depending on how long this afternoons debt is) the UK parliament votes on sending £19bn in to the pot to further help out Greece and Ireland.

Link to comment
Share on other sites

[quote user="Quillan"]

 Iceland has already failed, and Great Britain will also fail.

[/quote]

Fail in what way? The one place where our orders are dramatically up.

Q. Chiil out. I really think you should become more French, and less British. Just ignore the problem, or pretend it doesn't exist. Been working fo them for the last 30odd years. One thing for which I always criticise the Brits. They just get told too much. Be more French. Nobody tells them anything[:)] Ignorance is BLISS[:)]. Who cares[:)]...................And that's how the Gallic world turns [:D]

Link to comment
Share on other sites

[quote user="breizh"][quote user="Quillan"]

 Iceland has already failed, and Great Britain will also fail.

[/quote]

Fail in what way? The one place where our orders are dramatically up.

Q. Chiil out. I really think you should become more French, and less British. Just ignore the problem, or pretend it doesn't exist. Been working fo them for the last 30odd years. One thing for which I always criticise the Brits. They just get told too much. Be more French. Nobody tells them anything[:)] Ignorance is BLISS[:)]. Who cares[:)]...................And that's how the Gallic world turns [:D]

[/quote]

I am only repeating what Philip Stephens of the FT said and he was of course talking mainly about banks and financial institutions. Out of interest what does your company make? How do you get paid by Iceland, he was talking about the place I think rather than the shop.

Link to comment
Share on other sites

[quote user="Quillan"]People in the UK should be very worried if the Euro failed as Europe is

its biggest trading partner and the effect would tear through like UK

economy like a Tsunami... [/quote]

Why?

I am amazed at the number of people who seem to think that a common currency is automatically good for trade.  When the euro was first established, it was widely proclaimed that Europe was Britain's biggest trading partner and it would be essential to join the euro to preserve that trade.  Guess what? We stayed out and the sky did not fall in; Europe is still Britain's biggest trading partner.*

If you want to trade with a country, or a region, the most important thing is its economic health: its people need to be able to buy what you produce.  The currency of payment hardly matters.  Greece (for example) has suffered because of its insistence on keeping the euro, even though its productivity can't keep up.  I'm sure that if it abandons the euro it will benefit: not because its new drachma will keep its initial value against the euro (it won't) but because it will be able to increase its level of employment and production.

I don't deny that a common currency has some advantages.  Some transaction costs are reduced, and some accounting and administrative effort is saved (but not much: there are plenty of systems that will handle more than one currency, and if you can handle two you can handle five or ten). It also makes life easier for travellers, of course.  But I don't think the advantages come close to outweighing the costs; ask anyone trying to run a business in Greece or Ireland or Portugal. 

Alternatively, ask anyone in Germany how he feels about his taxes being used to keep foreign banks in business.

*For at least the last ten years, the value of the UK's trade with the EU has been greater than with all other countries combined; I assume that's what Quillan means, and I'm not disputing it. 

Link to comment
Share on other sites

  • 4 weeks later...
Of course a common currency is essential - you only have to count the number of starving bankers in Geneva and Zurich!

Greece isn't suffering from the euro, it's suffering from living on borrowed money, just like the UK.

Link to comment
Share on other sites

[quote user="allanb"]Guess what? We stayed out and the sky did not fall in; Europe is still Britain's biggest trading partner.[/quote] The sky is falling, you just prefer not to noticed it.

Obviously Europe will always be Britain's biggest trading partner, even if the UK could only afford to import one potato from Ireland: the UK has no alternative.

For the Eurozone however, most of the trade is within the zone, outside the zone its China, India, US, Japan.  As a trading partner for Europe the UK is quite irrelevant nowadays.

All that is mentioned here what Greece should do has already been done by the UK (print money, devalue, become more competitive etc) and has it helped the UK in any way?- old economics, the old 'beggar thy neighbour' approach  has had a 'beggar thyself' effect. ( as predicted by Stiglitz in 1999)

The UK is moving from recession into depression and the US government is currently spending 60% more than they collect.

The double dip has already begun in the US and the UK, but all the 'analysts' prefer to speculate over the future of a bunch of irrelevant islands in de south of Europe. [8-)]

Link to comment
Share on other sites

Funny enough I was thinking about Allanb's comments the other week when they were talking about the fact that the price of fresh veg in the UK has gone up by over 4% in a month. This is something I mentioned might happen ages ago when Stirling started to collapse. As the likes of Tesco renegotiate their contracts with Pedro in Spain for his tomatoes, cucumbers etc, he is not concerned about the exchange rate, he just wants the same 'X' Euros per kilo. With a poor exchange rate the Stirling price therefore goes up whilst his selling price in Euros stays the same, but if the UK was in the Euro it wouldn't matter. There are loads of examples of this sort of thing if you look around and with failing crops due to the recent drought the UK more food will be imported from within the EU than normal hence prices will continue to rise.

Then there is the likes of Nissan and Toyota who it is alleged produce over 80% of their cars in LHD for export to the EU, shame the money goes of to Japan when the cars are sold. There's all the little companies in the UK that make the bits and bobs that go in to these cars. I believe you need 70% of the car to be sourced from withing the EU to make it an EU car although they don't benefit from the current exchange rates. Whilst not exporting directly their products nether the less are exported to the EU. I read somewhere that the EU has created between 3.5m and 4.0m jobs in the UK.

Mind you there is some good news, the amount of money the UK pays to be a member of the EU has gone down, it's now about £3.2m a month once you have subtracted all the grants etc which of course translate in to more pounds due to the good exchange rate when sending Euros to the UK.

Link to comment
Share on other sites

[quote user="Quillan"]

Then there is the likes of Nissan and Toyota who it is alleged produce over 80% of their cars in LHD for export to the EU, shame the money goes of to Japan when the cars are sold. There's all the little companies in the UK that make the bits and bobs that go in to these cars. I believe you need 70% of the car to be sourced from withing the EU to make it an EU car although they don't benefit from the current exchange rates. Whilst not exporting directly their products nether the less are exported to the EU. I read somewhere that the EU has created between 3.5m and 4.0m jobs in the UK.

[/quote]

Not true. As with anything to do with multinationals production and finance, things are enormously more complicated than lazy journos make out.

The sales entity is CarCo GB Ltd. The sale is then booked through that legal entity, either as a direct sale to the applicable foreign legal entity of CarCo GB Ltd , or via Transfer Pricing. Either way the full value of the vehicle is credited to CarCo GB Ltd. Tax is paid as applicable, NI and PAYE as applicable. The only "benefit" for CarCo Japan is if the vehicle imported into the sales sphere of CarCo Japan and they apply their local sales mark up. If you produce locally, you pay tax locally, and HMRC is red hot on Transfer Pricing. It would not be possible to divert products to a foreign legal entity under the true value of the product.

Re the "little companies that make the bits and bobs". 86% of the sales price of a car are in the components. These are mega companies! And with JIT production, everything has to be produced locally, the suppliers hold the stock, but they will only hold a few days worth, certainly not even a week. 3 months on a boat from Japan is 10 years out of date. The only components shipped in from abroad, will be by airfreight. Small components like memory chips for electric seats, CPU and EMU components.

The relatively small value of the labour costs into the sales price of a vehicle is why you haven't seen the mad rush to China, like the white goods manufacturers such as Bosch. Any Chinese factories are purely the service the Chinese market.

I'll waffle on about Transfer Pricing at another time. Suffice to it is highly creative accounting, hence why national tax authorities look so carefully, historically it was the way profits were transferred to countries with generous corporate tax regimes. That all stopped about 10 years ago.

 

Link to comment
Share on other sites

Sorry I didn't make myself clear. What I meant was that after tax and everything the likes of Toyota take the profit back to Japan. They don't 're-invest' in the UK that much except perhaps a new production line for a new car as most of their R&D is done in Japan, USA and Belgium. Their R&D facility in the UK is just for testing production line equipment for the UK production line which does not take much money.

My comment about the 'little companies' is because whilst they may be large by some standards they are actually quite small in the way of things. Any expansion is often only as a result of getting the contract for the 'widget' in the first place.

I was under the impression that other EU countries get charged a 'landed price' by Toyota UK and any profit they then make is 'theirs' yet the UK still makes a profit on the 'landed price' they charge say Toyota France (as an example). The good thing of course for Toyota (again I am only using them as an example) is by manufacturing in the UK they don't pay any import or other purchase taxes inside the EU. If the UK left the EU there would be no benefit as they would then have to pay such taxes and you would find the likes of Toyota moving it's production to another EU country and as I said all the 'little companies' would move as well or would simply have their contracts revoked with the result of most of their employees being out of work. As I said the number of people who are employed in the UK because of the EU is up to 4m (probably even more) and when parties like UKIP 'bang on' about leaving the EU they fail to explain the consequences that it would have, just like they fail to mention all the grants and stuff we get from the EU which makes membership quite cheap in reality.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share


×
×
  • Create New...