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Will the euro crash in 2011


Devon
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Markets have yet to realise what happened last week:

Not a single eurozone bank will be in trouble for at least 3 years because the ECB will provide unlimited funds for 3 years against low collateral.

The UK is unable to stop financial regulation of the City by the EU because the UK has no veto in this matter unless they leave the EU.

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Aha! does that mean the ECB will also print money against worthless bonds and use it to shore up the currency in meltdown...errr which is their own?

So we have vetoed out of havng any influence over a matter in which we have invested heavilly and which could yet scupper us?

How does one apply austerity measures in a country with a 35hr week and work to rule if the bog paper isn't warm enough?

I think I am as confused as ever I was :-(

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[quote user="BIG MAC"]

Aha! does that mean the ECB will also print money against worthless bonds and use it to shore up the currency in meltdown...errr which is their own?

So we have vetoed out of havng any influence over a matter in which we have invested heavilly and which could yet scupper us?

How does one apply austerity measures in a country with a 35hr week and work to rule if the bog paper isn't warm enough?

I think I am as confused as ever I was :-(

[/quote]

Sounds familiar that, probably because that's what the BofE has bee doing for the last two years now.

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[quote user="Quillan"][quote user="BIG MAC"]

Aha! does that mean the ECB will also print money against worthless bonds and use it to shore up the currency in meltdown...errr which is their own?

So we have vetoed out of havng any influence over a matter in which we have invested heavilly and which could yet scupper us?

How does one apply austerity measures in a country with a 35hr week and work to rule if the bog paper isn't warm enough?

I think I am as confused as ever I was :-(

[/quote]

Sounds familiar that, probably because that's what the BofE has bee doing for the last two years now.

[/quote]

And the november B of E report on Pension fund Deficits looks ominous.

[IMG]http://av.r.ftdata.co.uk/files/2011/12/Pension-Protection-Fund-Report-November-e1323772211678.jpg[/IMG]

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[quote user="Jako"]Markets have yet to realise what happened last week:

Not a single eurozone bank will be in trouble for at least 3 years because the ECB will provide unlimited funds for 3 years against low collateral.
The UK is unable to stop financial regulation of the City by the EU because the UK has no veto in this matter unless they leave the EU.

[/quote]

Wow! I'll sleep soundly now.

All this anxious time past I thought there was a solvency/debt issue.

Relieved it's just a liquidity hiccup.

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For the banks this is a liquidity problem, not for sovereign debt. As no eurozone bank will need go bankrupt for 3 years there is no need for ecb overnight deposits. It seems markets finally got the message as ecb deposits have fallen from roughly 300B€ to 100B€. This money can now flow into the real economy instead of back to the ecb.

This is not BoE style money printing. The BoE is simply monetising UK debt, thus ignoring the Maastricht treaty and is actually a soft-default. This looks like an easy short term solution and keeps intrest rates low (not government policy) , but creates humongous long-term problems.

And UK politicians accuse Europe of "kicking the can down the road"..
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  • 3 weeks later...
[quote user="Devon"]

I know there have been doom mongers since its birth but it is looking like 2011 will be the real test for the euro. What are the chances of  a 2 tier euro by the end of 2011 with poorer/bankrupt countries like Ireland and Greece being expelled by the stronger countries like Germany? [/quote]

Well it's been a pretty traumatic year for the euro. I think it is fair to state that the euro has crashed but it is too early to judge how serious the consequences are, as it is ongoing: the euro is in the financial equivalent of intensive care with the ECB flooding Europe's banks with money, preventing a catastrophic collapse in the financial sector and buying time for the politicians and their dream.

It would be interesting to know where the ECB got its euro 500 billion from to prop up the European banks? However I do not believe the time that has been given to the politicians can be used to prevent the poorer countries exiting the euro. The people of Greece and Italy have had their democratically elected leaders removed by Germany and France and placed under surveillance. Not good.

The Populations of the PIIGS countries in particular have been forced to endure the hardships of austerity and higher taxes by the very people who caused all the problems: the politicians and financial sector. Quite why the politicians think it is their job to protect the banks at the expense of the electorate they are supposed to be representing is a mystery: surely politicians should be protecting the people from the banks? The problem appears to be the euro zone needs to turn itself into the equivalent of the USA and that is politically impossible. My best guess now is a rockier ride in 2012 with the politicians continuing to hold monthly 'last chance' summits and mouth platitudes until the summer when massive riots by the disaffected populations in Greece, Spain and probably France (who have the best rioters in Europe, second only to London) will cause the break up of the present union. Hopefully, the Countries that are left in the remaining Northern Union will learn from events to evolve a smaller, fairer and democratic Europe.

Anyone got a better guess?

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Well I lost my bet, it went 4 cents over what I predicted, still not up where its should be i.e. mid 1.40's. Mind you I did win the bit about the Euros not collapsing and I don't think it's fair to say it has, yet. What we are seeing is the weak Pound and Dollar regaining some of it's strength but keep in mind that a week Pound is good for the UK economy, creates jobs and increases exports.

I don't think the Italians and Greeks have much to complain about. What did they think was going to happen if they elected corrupt politicians. At some time or another you have to pay and that time has arrived for them. Who did they think was going to pay for these excellent pensions given at low retirement ages and all the other goodies their states have been lavishing on them, mainly to keep their vote. Neither Italy or Greece spent the EU money on what it was given for, they spent it on maintaining their massive public sector workforce and pension schemes. Hardly the fault of the EU initially (they were lied to) but they should have stopped giving the money once they knew what was really going on. So yes I think it was right that one or two of their extremely corrupt and inept elected leaders were replaced by people who would only spend the money given on what it was intended for. Actually it shows the immaturity and child like mentality of the people who had been elected. If they don't like these unelected people taking these posts then find they can't have the money either.

The UK will be next. The demonstrations and strikes we saw towards the end of the year were just the pre game warm up, there will be a lot worse to come. I think the next 20 to 30 years will be quite exciting in Europe. People are starting to wake up and realise that years and years of miss management by politicians of all parties have basically bankrupted them. These people always seem to get away with it whilst the rest of us suffer. The cost of food will continue to rise, people won't be able to afford to heat their homes in winter due to the continuing rise in fuel prices. We will start to see people dying of exposure and malnutrition, in particular the old and infirm. Old people will be confined to home because due to fuel prices public transport will be reduced and the individuals won't be able to afford to run any car of their own. We will see hospital treatment reduced to only those that work and contribute. Older people and those that don't contribute will be sent home immediately after treatment, there are things in motion to do this as I type (see today's Guardian and Times). Eventually it will snap and there will be mass public rebellions against all the governments in Europe and the whole face of politics will change, hopefully for the best, with governments becoming totally accountable to the electorate who will have the right to sack their local PM if he/she does not perform and therefore effectively by collective action be able to sack governments. No I am not a communist or even a socialist and even less of a Tory (although I was more the latter once) neither do I believe the Micky Mouse parties like the BNP or UKIP have any answers either and anyway they are not to be trusted.

I know this bit now goes off subject a little but we are still talking about the future. Whilst we all sit and worry about whats going to happen to the Euro we have all moved our eyes of other world events that we should all be very worried about.

Ultra-Orthodox Jews in Israel want the genders to be separated. They have attacked women praying in synagogues and they have even attacked an 8 year old girl walking to school because she was 'not wearing appropriate cloths' and called her a whore. Some have taken to the street wearing reproduced holocaust uniforms with the Star of David on their backs. They want men and women segregated in public places and on public transport. These are the same people who would like to nuke Palestine and a few other countries around the region. Imagine if they got their finger on 'the button'. (SOURCE one of many).

In the Maldives where luxury holidays bring in 30% of their income Spas and Massage's are to be banned by the government which is now (indirectly) controlled by Muslim extremists. The effect on their economy could be devastating. It shows the power of the extreme religious groups yet again (of whatever faith). (SOURCE again one of many).

Iran has test launched a long range missile capable of delivering a small tactical nuclear weapon up too 1,500 miles away. That means it can reach in to Israel and also attack the American 5th Fleet whilst it's in dock. All this just after it announced it might close the Strait of Hormuz and thus reducing our oil supplies by 40% (SOURCE one of many).

I could also mention Korea but it's early days yet. Another Nuclear power who thankfully have recently lost their loony leader, lets hope it does not run in the family.

My point being that the ups and downs of the Euro could end up being the least of our worries over the following year.

 

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Hans, a middle-aged German tourist on his first visit to Orlando, Florida, finds the red light district and enters a large brothel. The madam asks him to be seated and sends over a young lady to entertain him.

They sit and talk, frolic a little, giggle a bit, drink a bit, and she sits on his lap. He whispers in her ear and she gasps and runs away! Seeing this, the madam sends over a more experienced lady to entertain the gentleman.

They sit and talk, frolic a little, giggle a bit, drink a bit, and she sits on his lap. He whispers in her ear, and she too screams, "No!" and walks quickly away.

The madam is surprised that this ordinary looking man has asked for something so outrageous that her two girls will have nothing to do with him. She decides that only her most experienced lady, Lola, will do. Lola has never said no, and it's not likely anything would surprise her.

So the madam sends her over to Hans. The sit and talk, frolic a little, giggle a bit, drink a bit, and she sits on his lap. He whispers in her ear and she screams, "NO WAY, BUDDY!" and smacks him as hard as she can and leaves.

Madam is by now absolutely intrigued, having seen nothing like this in all her years of operating a brothel. She hasn't done the bedroom work herself for a long time, but she's sure she has said yes to everything a man could possibly ask for.

She just has to find out what this man wants that has made her girls so angry. Besides she sees a chance to teach her employees a lesson.

So she goes over to Hans and says that she's the best in the house and is available. She sits and talks with him. They frolic, giggle, drink and then she sits in his lap.

Hans leans forwards and whispers in her ear, "Can I pay in Euros?"
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''Eurozone collapse 'starts this year' says CEBR, (Centre for Economics and Business Research)
Europe's single currency is almost certain to disintegrate within the next decade, a leading think tank has predicted, with Greece and Italy potentially abandoning the euro this year. ''

http://www.telegraph.co.uk/finance/financialcrisis/8987886/Eurozone-collapse-starts-this-year-says-CEBR.html

The predictions continue, but now without much pretence of any salvation for the clumsy cobbled up curr€ncy.

 

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[quote user="just john "]

''Eurozone collapse 'starts this year' says CEBR, (Centre for Economics and Business Research)
Europe's single currency is almost certain to disintegrate within the next decade, a leading think tank has predicted, with Greece and Italy potentially abandoning the euro this year. ''

http://www.telegraph.co.uk/finance/financialcrisis/8987886/Eurozone-collapse-starts-this-year-says-CEBR.html

The predictions continue, but now without much pretence of any salvation for the clumsy cobbled up curr€ncy.

[/quote]

Great isn't it. I seem to remember last year it was given only six weeks to live and here it still is. As if to prove the point that these people really don't know what the hell they are talking about I came across the following whilst trying to find the old article about the it failing before.

(3 hours ago) - Euro could become world's leading currency - The Economic Times

Also reported in the IBTimesFX, XE and a few others.

The other thing I found was the Bank Stress Test results. The UK banks came out OK but their exposure, spread between Barclays, HSBC and RBS come to €1.8 Trillion. The stress test, as the FT article explains (source), means that if the Euro fails they have enough money elsewhere to cover the loss's. To me it's like saying its OK if I get a hole in my right trouser pocket and a £10 note falls out because I have another in my left pocket to cover it. The fact I have lost half my money is not important. Still I guess it's not a big problem for the 'experts' because it's not actually their money.

In the end I thinks nobody really knows whats going to happen because nobody actually has any control over the worlds economy because it has a life of it's own, it's become a self determining, living breathing animal.. Some are just hoping that if they either ignore it or sit around talking about it then it will either fix it's self or go away. I matters not what the experts say or do as it's totally out of their control now.

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[quote user="Devon"][quote user="Devon"]

I know there have been doom mongers since its birth but it is looking like 2011 will be the real test for the euro. What are the chances of  a 2 tier euro by the end of 2011 with poorer/bankrupt countries like Ireland and Greece being expelled by the stronger countries like Germany? [/quote]

 

It would be interesting to know where the ECB got its euro 500 billion from to prop up the European banks?

Anyone got a better guess?

[/quote]

In all probability the ECB operates a double-entry accounting system, popular since adoption by Venetian Banks.

The contra entry to the 36 month LTRO will probably record the nature and quality[:)] of the collateral lodged with the ECB.

[:D]

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10th anniversity of the introduction of the Euro 01/01/2012. Much celebration?

More questions. Is the current european financial crises the cause, or the consequence of the sovereign debt crisis? The current trampling of the EU Commission and EU Parliament by Germany to dictate the future of the EUR, would suggest they think it is the cause. By inference there is nothing wrong with the Maastricht rules, which Germany perpetually ignored, but Ireland and Spain religiously followed. I would like to hear Merkel's answer.

Meanwhile the fabric of the ‘identity’ that holds European integration together has also been torn, a community project, a post-war vision, a common future, has been undermined and even replaced by the worst prejudices and cultural stereotypes between North and South, East and West, Catholic and Protestant. Nationalism, protectionism, all on the rise.

At some point this year the EZ countries will be forced to choose between Greece, and UK/SWE/DK, as European partners. Losing Greece from the EZ would be a symbolic political catastropy, far beyond the simple loss of a small Mediterreanan country. Interesting from 01/01/2012 DK takes the EU Presidency, followed by SWE in June. 2 countries that have similar national popular support for joining the EZ as the UK. This will be fun!

I really don't know what's going to happen in 2012.

 

 

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I have always been astounded at some of the countries being allowed to join the EZ.  I mean shackling Bulgaria to Germany and expecting them to be able to keep up.  It's like tying my fat ancle to Ben Johnson's and expecting us not to run round in circles.  Why were there so many countries wanting to join or were the EZ member so keen to get others on board?

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I have just been sent a copy of this apparently open letter to Frau Merkel. It is a few weeks old now but was new to me:

Tuesday December  13th, 2011

By Frederick  Forsyth

Angela  Merkel backed attack on the City 

Dear Madame Chancellor,


Permit me to begin  this letter with a brief description of my knowledge of, and affection for, your country.

I first came to Germany as a boy student aged 13 in 1952, two years before you were born. After three extended vacations (with German families who spoke no English) I found at the age of 16, and to my pleasure, that I could  pass for German among Germans.

In my 20s I was posted as a foreign correspondent to East Germany in 1963, when you would have been a schoolgirl, just north of East Berlin where I lived.

I know Germany , Frau Merkel, from the alleys of Hamburg to the spires of Dresden , from the Rhine to the Oder, from the bleak Baltic coast to the snows of the Bavarian Alps. I say this only to show you that I am neither ignoramus nor enemy.

I also had occasion in those years to visit the many thousands of my countrymen who held the line of the Elbe against 50,000 Soviet main battle tanks and thus kept Germany free to recover, modernise and prosper at no defence cost to herself.  And from inside the Cold War I saw our decades of effort to defeat the Soviet empire and set your East Germany free.

I was therefore disappointed last Friday to see you take the part of a small and vindictive Frenchman in what can only be seen as a targeted attack on the land of my fathers.

We both know that every country has at least one aspect of its society or economy that is so crucial, so vital that it simply cannot be conceded.  For Germany it is surely your automotive sector, your car industry.

Any foreign-sourced measure to target German cars and render them unsaleable would have to be opposed to veto point by a German chancellor.

For France it is the agricultural sector. For more than 50 years members of the EU have been taxed under the terms of the Common Agricultural Policy in order to subsidise France's agriculture. Indeed, the CAP has been the cornerstone of every EU budget since the first day.  Attack it and France fights back.

For us, the crucial corner of our economy is the financial services industry. Although parts of it exist all over the country it is concentrated in that part of London known, even internationally, as "The City".

It is not just a few greedy bankers - we both have those - but the City is far more. It is indeed a vast banking agglomeration of more banks than anywhere else in the world. 

But that is the tip of the iceberg. Also in the City is the world's greatest concentration of insurance companies.

Add to that the brokers, traders in stocks and shares worldwide, second only, and then maybe not, to

Wall Street. But it is not just stocks. The City is also  home to the exchanges of gold and precious metals, diamonds, base metals, commodities, futures, derivatives, coffee, cocoa... the list goes on and on.

And it does not yet touch upon shipping, aviation, fuels, energy, textiles... Enough.  Suffice to say the City is the biggest and busiest marketplace in the world.

It makes the Paris Bourse look like a parish council set against the United Nations and even dwarfs your Frankfurt many times. 

That, surely, is the point of what happened in Brussels . The French wish to wreck it and you seem to have agreed.

Its contribution to the British economy is not simply useful nor even merely valuable.  It is absolutely crucial. The financial services industry contributes 10 per cent of our Gross Domestic Product and 17.5 per cent of our taxation revenue. 

A direct and targeted attack on the City is an attack on my country.  But that, although devised in Paris, is what you have chosen to support. 

You seem to have decided that Britain is once again Germany 's enemy, a situation that has not existed since 1945.

I deeply regret  this but the choice was yours and entirely yours. The Transaction Tax or Tobin Tax, you reserve the right to impose, would not even generate money for Brussels .

It would simply lead to massive emigration from London to other havens.  Long ago it was necessary to live in a city to trade in it.

In the days when deals can flash across the world in a nano-second all a major brokerage needs is a suite of rooms,

computers, telephones and the talent of the young people barking offers and agreements down the phone.

Such a suite of rooms could be in Berne, Thun, Zurich or even Singapore .  Under your Tobin Tax tens of thousands would leave London .

This would not help Brussels , it would simply help destroy the British economy.

Your conference did not even save the Euro. Permit me a few home truths about it.

The euro is a Franco-German construct.

It was a German chancellor (Kohl) who ordered a German banker (Karl Otto Pohl) to get together with a French civil servant (Delors) on the orders of a French president (Mitterrand) and create a common currency.

Which they did.  It was a flawed construct. Like a ship with a twisted hull it might float in calm water but if it ever hit a force eight it would probably founder.

Even then it might have worked for it was launched with a manual of rules, the Growth And Stability Pact.

If the terms of that book of rules had been complied with the Good Ship Euro might have survived.

But compliance was entrusted to the European Central Bank which catastrophically failed to insist on that compliance.

Rules governing the growing of cucumbers are more zealously enforced. This was a European bank in a German city under a French president and it failed in its primary, even its sole, duty.

This had everything to do with France and Germany and nothing whatever to do with Britain .

Yet in Brussels last week the EU pack seemed intent only on venting its spleen on the country that wisely refused to abolish its pound.

You did not even address yourselves to saving the Euro but only to seeking a way to ensure it might work in some future time.

But the Euro will not be saved. It is crumbling now. And since you have now turned against my country, from this side of the Channel, Madame Chancellor, one can only say of the euro: YOU MADE IT, YOU MEND  IT.

 

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[quote user="pachapapa"][quote user="Devon"][quote user="Devon"]

I know there have been doom mongers since its birth but it is looking like 2011 will be the real test for the euro. What are the chances of  a 2 tier euro by the end of 2011 with poorer/bankrupt countries like Ireland and Greece being expelled by the stronger countries like Germany? [/quote]

 

It would be interesting to know where the ECB got its euro 500 billion from to prop up the European banks?

Anyone got a better guess?

[/quote]

In all probability the ECB operates a double-entry accounting system, popular since adoption by Venetian Banks.

The contra entry to the 36 month LTRO will probably record the nature and quality[:)] of the collateral lodged with the ECB.

[:D]

[/quote]

EZ banks set their own credit risk ratings internally, collateralise GR debt at 100%, and borrow from the ECB at 1%.

Happy days. Lend me the printing press[:D][:D]

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I think that if you go back through history the whole idea of a European community first came about after the WW1 and the main country that wanted it was America. The reason being that it thought that by doing this it would stop any further possible wars in Europe and it's need to 'get involved', as we know it never happened and they did. It wanted the UK to play a big role in this. Unfortunately the old politicians of the day were more interested in protecting trade within the Empire back then. They wanted a 'free trade' agreement within the Empire and heavily tax imports from none Empire countries but it never got off the ground although it was 'revisited several times as a bill but constantly got thrown out.

I liked the comments from Forsyth "It is not just a few greedy bankers - we both have those - but the City is far more. It is indeed a vast banking agglomeration of more banks than anywhere else in the world. But that is the tip of the iceberg. Also in the City is the world's greatest concentration of insurance companies. Add to that the brokers, traders in stocks and shares worldwide, second only, and then maybe not, to Wall Street."

Well I think we all know about Wall Street, American banks and insurance companies. They are the ones that's started the banking crisis with sub-prime mortgages and dodgy loans insured with dodgy insurance companies, hardly an association I would be proud of.

As for Mr (Frederick) Forsyth, he is an excellent writer but considering he is now 74 years old (born August 1938) many of the things he talks about he would have been only seven at the most when they happened. His ramblings very definitely smack of 'old school', fortunately things have moved on and the UK stopped being a world power just after WW2.

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[quote user="breizh"] At some point this year the EZ countries will be forced to choose between Greece, and UK/SWE/DK, as European partners. Losing Greece from the EZ would be a symbolic political catastropy, far beyond the simple loss of a small Mediterreanan country.  [/quote]

 telegraph.co.uk/finance/debt-crisis-live

Greece warns it will have to leave the euro if it fails to reach an agreement with bondholder and international lenders on a second $130bn bailout by March  . . .

 

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The 2nd tranche of ECB "QE-by-another-name" is due end of Feb. EUR 250billion. The banks will pile into it. They been told explicitly by Merkel they will not be required to take any further haircuts, future or retrospective. Coincidence? Cynic? Moi?

More worrying maybe, is the IMF EZ bail out fund really looks like a non-starter now the Brits won't play ball. Wonder what the Dwarf will promise Cameron in order save his tiny, corrupt, political skin? Si tu plait mon cher David.

Love the bit where Dombret says everyone must share the burden. Yeah right! You created it, you fix it!

http://www.spiegel.de/international/business/0,1518,806457,00.html

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The UK should eschew the german exhortation regarding IMF EZ funding.

The UK should call War Loan, with Gilts as low as the times of Queen Victoria it would make good fiscal sense and housekeeping.

The average holdings are relatively small so attractive not to roll over but to pay out the Principal before the due date for the next coupon and create a nice little fillip for the economy.

http://conservativehome.blogs.com/.a/6a00d83451b31c69e201675fe787c3970b-pi

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