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Why Germans and Dutch will exit ‘suicide pact’ eurozone

‘What you’re actually dealing with here... is a German population which has had a rotten deal,’ warns Lombard Street Research's top economist.

 
Why Germans and Dutch will exit ‘suicide pact’ eurozone

Germany and the Netherlands are likely to quit the eurozone rather than swallow an indefinite number of ‘unrequited transfers’ to the union’s crisis-stricken nations, according to Charles Dumas, chief economist at Lombard Street Research.

Speaking at an event in central London, he said that before joining the single currency, German incomes had stayed level but their purchasing power had increased as the Deutschmark appreciated.

With the weaker euro, the economist said, they have seen ‘tremendous’ wage restraint, leading to huge growth in German firms’ market share but ‘no serious growth of the economy’ and a squeeze on disposable incomes. Meanwhile, consumption rose elsewhere in the eurozone, he said.

‘So what you’re actually dealing with here... is a German population which has had a rotten deal – and that’s why they’re all so angry’ noted Dumas, who is also chairman of the macroeconomic forecasting consultancy.

Branding the monetary union a ‘suicide pact’, he continued: ‘So what this exercise in uniting Europe has achieved is to divide Europe.’

His remarks came as Reuters reported that German chancellor Angela Merkel reacted with reservation to calls for Germany to increase its contributions to eurozone rescue efforts after Standard & Poor's downgraded the region’s bailout fund.

Dumas noted that for the bloc to survive, it would have to become a ‘fiscal transfer’ union, saying that the ‘Club Med’ nations needed about 5% of gross domestic product in annual debt refinancing ‘more or less indefinitely’.

This would amount to €150 billion a year, of which Germany would have to stump up just over €60 billion, France a little under €50 billion and €15 billion from the Netherlands, he said. And this would be on top of the shortfall in consumer spending, in addition to the fact that wages and consumption may have to be held down in the future, Dumas warned.

The economist dismissed the notion that the region would be able to turn itself around so as to make such support from its ‘core’ unnecessary. Citing the example of the persisting transfers from west to east Germany, he pointed out: ‘The ones that need the money to flow in carry on needing the money to flow in, or just stay poor.’

Dumas also warned that austerity was only worsening Greece’s budget deficit, and that it was ‘difficult to imagine’ the deeply indebted state receiving the four quarterly batches of financing it is due this year.

‘It’s almost impossible to imagine people continuing to stump up the money, because they simply have not actually gone into this thing with the intention of unrequited transfers to Greece ad infinitum,’ he said as the country resumed talks with its creditors over a planned debt swap.

Calling the one-off damage of splitting up the eurozone ‘seriously exaggerated’, Dumas warned that as the crisis deepens, he believes ‘Germany and the Netherlands will actually realise that they had better call it a day and jump out.’

154 comments so far. Why not have your say?

Murdo McSponge

Jan 18, 2012 at 18:24

Now thast sounds like a very rational analysis of the on-going situation.

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Mark22

Jan 18, 2012 at 18:28

Its an interesting point of view. "The German economy has grown because of the weakness of the Euro but the German population's individual wealth has not grown as fast as they would like".

The Eurozone seems the perfect solution, NOBODY likes it :-).

Let's hope the German's leave and see what excuses they give.

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Mark22

Jan 18, 2012 at 18:28

Sorry Germans

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peter hart

Jan 18, 2012 at 18:34

The sooner the better for everyone's sake.

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kenneth douglas

Jan 18, 2012 at 18:36

How in gods name can this country keep on forking out billions and billons of our taxes, on top of all the handouts we are already providing year on year to this sleasy corrupt EU club? We have people being refused life saving drugs, we have pensioners, on the lowest State Pension in the western world, having their Winter Fuel Payment cut, even though they can't afford to heat their homes, and in many cases dying from cold. we have homless sleeping rough, Disability payments being reduced or even cut. We are being told over and over again we are financial in dire trouble and we have to tighten our belts. Yet we do not have any problem with handing out billions upon billions of OUR MONEY to this usless dictatorship through one channel or another. How much longer are our people going to put up with it. All three main parties have signed up to this cartel.

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Christopher Carter

Jan 18, 2012 at 18:38

I don't like it but it rings so true. However, granted that the Germans are fed up, what will the consequences be of them leaving the euro and letting Greece sink in its own brown stuff? The German banks will still be hit by the inevitable defaults. The only advantage will be the the resurrected Deutschmark will be able to float against the older plummeting Euro. Germany would probably not see the benefits for at least another decade afterwards.

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Rufus Dogg

Jan 18, 2012 at 18:53

Yet another rubbish bit of reporting in the UK media.

Here is the big scoop you are missing if you are reading UK sources of information: The Euro will survive. No question.

Germany and the Netherlands are not going to leave the Euro.

One set of comments by some guy (literally, some Dumass) fished from a sea of information for the delectation of the proles.

Give them what they want eh? No need to indulge in balanced reporting or accurate reflections.

No wonder so many UK Euro "sceptics" are so happy at the moment. Ignorance is, as they say, bliss.

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Murdo McSponge

Jan 18, 2012 at 19:01

I presume the confidence trick that is being played out on the peoples of Germany and other states in the Euro zone, is of no concern to you Rufus Dogg. "I'm alright Jack" is presumably your approach!

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an elder one

Jan 18, 2012 at 19:04

At last we begin to come to the point, it has seemed to me for the last year or so that this was the only rationale that made practicable sense. Removes the joker in the pack and lets the rest at least adjust the euro to some more manageable level of exchange.

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82 yo

Jan 18, 2012 at 19:08

No one can predict the outcome but we can examine the problems facing the €zone - Mrs Merkel seems to think that all we need is tighter fiscal rules which will be obeyed - but we have bankrupt states that simply cannot fall into line with populations that think "only fools obey the rules", consequently rules would not solve the problems - single currency cannot survive as now structured with widely divergent states in population and fiscal discipline - a concept that was doomed to failure from the start

The EU is not helping the situation by bringing out costly employment and other legislation which encourages waste and fiscal indiscipline - the original concept was a free trade zone and that should be so today

The manner of the breakup is anybody's guess

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banjofred

Jan 18, 2012 at 19:16

The Germans gave us a pretty rotten deal in 1914, which they never paid for

and again in 1939, which we all paid for, expect the Germans.

Having seen the recent documentary on Valkyrie, I reluctantly realise there were some worthy Germans, but given the choice ....

As for the French, General Patton said he would rather have a German Panzer division ot his front, than a French division assisting from behind ....

Ah Xenophobia, why did they ban it .....

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stormdog

Jan 18, 2012 at 19:23

Whilst I have no idea whatsoever if the Germans and the Dutch will actually leave the Eurozone - it seems a little unlikely at this moment, I do think that Finland will soon bail out of the euro.

Finland is doing very, very well indeed from huge deposits of nickel, quite a lot of gold and so on and on.

The Finnish population actively dislikes the euro and probably the EU as a whole, they simply don't see the point of it given their situation.

Who can disagree with them should they decide to ditch the euro for a starter?

What is so interesting is that most of the world seems not to have locked

on to Finland from a mineral investment point of view. We all keep on chucking our money into off the wall 'jurisdictions' such as Uzbekistan and Tajikistan when all along there are fantastic opportunities available in a safe haven with proper laws.

I have even found a Canadian quoted nickel/gold producer that is trading on a one p/e!!!!!!!!!

Please note they are actual producers and are selling nickel at a profit, under a recently renewed two year contract, to China.

One p/e - astounding!

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Murdo McSponge

Jan 18, 2012 at 19:27

Well said BanjoFred.

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Adam Murza-Murzicz

Jan 18, 2012 at 19:39

Playing the blame game seems to be a natural reaction for xenophobes on all sides. However, the fact is that billions/trillions of whatever currency you care to name are being taken out of the coffers of just about every developed country (Europe and the US) in order to bail out a banking system which would be defunct without the taxpayer - after ll who is goimg to fund the latest IMF demand for funding?

Either we adhere to the concept of a capitalist society whereby the weak go bust or we admit that capitalism failed and that only socialism will work in the future!

And as for the hedge funds holding Greece to ransom, let them go to hell. Let Greece go bust and Goldmans with it.

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an elder one

Jan 18, 2012 at 19:44

stormdog I reckon the germans will be out this year, and if the dutch as well, why not finland with them. whose this canadian?

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stormdog

Jan 18, 2012 at 19:58

Oh elder one,

I am not sure that I should be giving share tips on this site, particularly since I am a holder of this stock and don't want to be accused of ramping.

What to do?

You have ask a perfectly reasonable question.

Please let me think about it.

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stargazer

Jan 18, 2012 at 21:01

I have been watching stargazing on the beeb this week- why when describing black holes do I think of the eurozone. The IMF have now marked up another 600 billion to be sucked into this hole with vertical sides. Where does it all go - will it appear it appear in another universe!!

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Chris B (Slough UK)

Jan 18, 2012 at 21:07

1, 2, 10, then 100 Trillion and beyond and still never enough. In the end even the Bonds become valueless as the currencies become worthless and the whole system caves in on itself. What are people left holding... worthless bits of paper. What seems safe if far from it. Ask the Germans, they know what hyperinflation is like back in 1923 and it isn't too much fun! Mind you no shortage of toilet paper, which is just as well. Even Cameron said it, you cannot borrow your way out of debt. You have to fix the underlying problems.

Unsurprisingly Bankers keep getting Billions whilst the struggling populaces are somehow supposed to pay for all this. The 1% keep lining their pockets with money that does not belong to them, isn't that called fraud or theft? You know since Iceland came clean and declared itself bankrupt, their economy is starting to thrive, free of debt burden and the endless drag that it exerts on one's economy. Much better to get it all over and done with in a short sharp step, then start rebuilding again! Too much meddling and the fallacy of too big to fail has failed us all.

Banks own/are the governments and the people are the bugs on the windshield funding their bottomless pockets. I wonder what happens when they have sucked all the juice out of the coconuts and there are only dry husks left?

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snoekie

Jan 18, 2012 at 21:23

Weel, they took benefit whilst watching the massive over borrowing by the Club Med group, and that includes France. Being founding members of the Euro, with an obligation of eagle eye oversight, they must now reap the whirlwind.

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Rufus Dogg

Jan 18, 2012 at 21:35

I could not reply directly to "Murdo McSponge" but, the answer is no.

Unlike the misinformed haters on this site, I actually own property in Germany, and spend a lot of time in the Eurozone.

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Dave Duffy

Jan 18, 2012 at 23:09

Stormdog,

Is it one of these stocks on thus rather long link?

http://investdb.theglobeandmail.com/invest/investSQL/gx.stock_report?pi_report_type=DETAIL&pi_industry=2&pi_exchange_code=T&pi_prev_price_min=0.01&pi_prev_price_max=&pi_intra_volume_min=&pi_intra_volume_max=&pi_security_type=All&pi_index_member=0&pi_country=Canada&pi_report_def_id=261&pi_div_yield_max=&pi_div_yield_min=&pi_growth_profit_3yr_max=&pi_growth_profit_3yr_min=&pi_latest_moving_avg_50day_max=&pi_latest_moving_avg_50day_min=&pi_mkt_cap_min=&pi_mkt_cap_max=&pi_growth_revenue_3yr_max=&pi_growth_revenue_3yr_min=&pi_peps_max=1.99&pi_peps_min=0.01&pi_pbvps_max=&pi_pbvps_min=&pi_prev_price_max=&pi_prev_price_min=0.01&pi_revenue_max=&pi_revenue_min=&pi_earnings_max=&pi_earnings_min=&pi_return_period1=&pi_return_period2=&pi_operator1=&pi_operator2=&pi_percent1=&pi_percent2=&pi_return_1wk_min=&pi_return_1wk_max=&pi_return_ytd_min=&pi_return_ytd_max=&pi_filter_count_yn=&pi_hit_count=8&pi_action=stockFilter

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an elder one

Jan 18, 2012 at 23:10

Rufus Dogg, get that chip off your shoulder and cut the arrogance (clearly you imagine you have devine insight), and none are saying they hate the Germans as a people; in any case what did you expect with the provocation of your earlier post. As far as I can judge the article which somehow inflamed you is simply saying Germany may well leave the euro for their own good and for the rest of the EU, an opinion only, that we can all consider of its likelihood and possible merit. From your reaction you apparently can't bear to think about it, so have closed your mind. Incidently you are not the only one who has visited Germany or has had friends and colleagues there; not long lasting admittedly but nonetheless happy memories, in retirement.

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Dave Duffy

Jan 18, 2012 at 23:15

That link sort of spread over the page a bit, so here are the precious metal stocks from the screener on p/e of less than 2 on Toronto Exchange

Caledonia Mining CAL-T

Dundee Precious Metals DPM.WT-T

Franco-Nevada Corp. FNV.WT.B-T

Kinross Gold K.WT.D-T

Kinross Gold K.WT.C-T

New Gold NGD.WT.B-

Vista Gold VGZ.WT.U-T (US$

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stormdog

Jan 18, 2012 at 23:37

We are talking nickel in production.

The gold mine is not yet in production here.

Forgive me please, I didn't put it properly in my original posting.

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Rufus Dogg

Jan 18, 2012 at 23:53

elder

"(clearly you imagine you have devine insight)"

It is just normal insight. Rare enough, perhaps, and sorely lacking in the UK on all matters Euro.

I point you to the idiotic comments on this board reveling in the difficulties being faced in the Eurozone, and the delusional comments that indicate the things that people believe.

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Rufus Dogg

Jan 18, 2012 at 23:56

Oh, and PS, I include you in that: "I point you to the idiotic comments on this board"

Germany is not leaving the Euro.

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Chris B (Slough UK)

Jan 19, 2012 at 00:24

It is often only the fool who can see the real truth. We are all deluded without a doubt!

These events have not occurred by accident, they have all been planned.

There is indeed a goal, one just has to figure it out for yourself.

So much bitternes, anger and hate, be at peace brothers and sisters make room for some love in your hearts. Sleep well.

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Leander

Jan 19, 2012 at 00:42

Rufus Dogg, you seem to have it in for us Eurosceptics, i.e. the majority of the UK population. We are merely responding to the chaos we see developing around us. Just remind me again just what a stunning, unqualified success the Euro/ EU has been.

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Cape Town

Jan 19, 2012 at 01:07

Rufus you make a very common mistake. You think that because the German will to stay in the Euro is high, therefore Germany will stay in.

But no. Other forces are stronger than this will. Reality will decide.

A schoolboy could tell you that repaying the debt is impossible. Restructuring the debt is almost impossible and would require armies of consultants to teach Club Med how to run a business.

The bras-de-force at the moment is between the holders of debt - hedge funds, banks and the like - and those who engaged to repay. Osborne's advice to Europe was to use the taxpayer to repay. But we are seeing that this approach has its limits and they arrive well before any dents in the debt have been made.

No, it is a truly calamitous situation from which no country and no currency is safe.

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Cape Town

Jan 19, 2012 at 01:07

Rufus you make a very common mistake. You think that because the German will to stay in the Euro is high, therefore Germany will stay in.

But no. Other forces are stronger than this will. Reality will decide.

A schoolboy could tell you that repaying the debt is impossible. Restructuring the debt is almost impossible and would require armies of consultants to teach Club Med how to run a business.

The bras-de-force at the moment is between the holders of debt - hedge funds, banks and the like - and those who engaged to repay. Osborne's advice to Europe was to use the taxpayer to repay. But we are seeing that this approach has its limits and they arrive well before any dents in the debt have been made.

No, it is a truly calamitous situation from which no country and no currency is safe.

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joe stalin

Jan 19, 2012 at 07:36

Oh dear another "economist" looking for his five minutes in the spotlight. How many times to these peopel have to be told that NOBODY IS LEAVING THE EURO. The Euro will survive simply because Germany and the Neherlands want it to. Germany more than the Netherlands have benefiited directly from its travails and will continue to do so. Ironically from a Dutch perspective what is good for Germany has been good for the Dutch beeing effectively one of Germany's key outlets and import portal. Sure the Euro is being tested by the outside but that is all part of growing up, poainful lessons are being learnt but then that was always going to be the case once the economic cycle was going to weaken. as far as we are concerned here and in reference to some of the posts above I wouod be careful what you wish for. I don't think that our good Chancellor would be capable of steering our ship into shallow waters as the much maligned Capatian Schettino managed to do thereby reducing the number of certain casualties by thousands. But then politicians are always the first in the lifeboats aren't they? I think we do well to smile sypathetically at these Euro obsessed economists and take pity on them. and hope they can find the appropriate treatment soon.

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Graham D-C

Jan 19, 2012 at 07:46

By refusing to bail out the most corrupt empire of the EU, Germany has a unique opportunity to save Europe from destroying itself ; how times have changed.

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Paul Barrett

Jan 19, 2012 at 07:54

Didn't Brazil default on it's debt some years ago.

To whom have the euro countries rquested to lend them money..........................oh yes Brazil!!

Default is the only way; get rid of the euro;countries banks print their own money and engage in as much QE as they want

Over the next 2 decades the debt will just inflate away.

Hopefully then countries will live within their means which means politicians don't go around spending money they haven't got.

Anybody bet on that not happening again!!

No thought not

And so the merrygoround will continue.

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Rufus Dogg

Jan 19, 2012 at 10:01

Leander

"Rufus Dogg, you seem to have it in for us Eurosceptics"

I find pride-in-ignorance distasteful.

"We are merely responding to the chaos we see developing around us."

You only see that which you are shown, and that which you wish to see.

"Just remind me again just what a stunning, unqualified success the Euro/ EU has been."

I am sure that in your mind both are a complete failure, which only serves to prove my point. All sorts of currencies go through all sorts of trouble. The Euro is much more complex than most. It requires serious reform on a country by country basis.

Greece, for example, has behaved in a way that would have caused ANY currency problems. They would have used their default move in times of calamity: devaluation. That is not a genuine solution, since 15 years from now they'd be back in the same position, solving the same problem with the same move.

The Euro is going to either expel Greece or force it to change its ways.

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Rufus Dogg

Jan 19, 2012 at 10:18

Cape Twon

"Other forces are stronger than this will. Reality will decide."

Look: people were saying "House prices are going to fall by 70%!" about 3 years ago. Then, measures were taken to ensure that it didn't happen.

This left the people *willing* house prices down by 70% to complain that "House prices would have fallen by 70% if the stupid bank of england and the government hadn't interfered with the free market"

The outcome of this problem will be similar. That is the reality.

Doubtlessly, a lot of people will call some elements of the overall resolution a "fudge" - but would you expect anything less?

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Murdo McSponge

Jan 19, 2012 at 10:27

Well said Rufus. While all this is going on, people in Greece are starving, and the Burgers of Brussels and Berlin couldn't give a toss - doing things their way is all they care about. Maybe the way Greece did things wasn't the best, but it worked for them, and if the bankers gave them too much money, that was the bankers fault!! Then the Urine came along and stuffed everyone into the same bag and all the differences where emphasied and the Burgers of Brussels and Berling said "It must not be. The people must starve to put it right! We must be paid our bribes and our huge salaries and expenses, and our bloated facilities."

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robert james

Jan 19, 2012 at 10:36

Of course the Euro will survive. There is too much invested in it politically now.

Anyway, Germany has benefited by giving its exports a currency advantage they would not have with the DMark and also by the feeling they are running Europe. It´s the countries with problems now, like Spain, that will continue to have problems far into the future, as they are condemned to poverty as they try to meet the Euro rules - or, alternatively, they will need bailing out every decade or so. On the other hand, these countries have received billions in hand-outs from the EU and certainly expect this to continue for the indefinite future. As for what the German and Dutch populations think about it, well, they won´t be asked. It´s a well-established tradition in the EU that you only have referendums involving the EU when governments are confident of winning.

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Rufus Dogg

Jan 19, 2012 at 10:50

Murdo McSponge

Either that is a poor attempt at trolling or the perfect example of Euro "sceptics" only seeing what they want to see.

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Rufus Dogg

Jan 19, 2012 at 10:57

Robert James

"condemned to poverty" - my arsch.

There is a big difference between being compelled to have a fiscally sound budget and being "condemned to poverty".

Not having a fiscally sound budget, in the old days, led to devaluation. That was being condemned to poverty, because it didn't matter how much money you amassed, at some point you were going to have 20% or more of it wiped out, once every 10 years. International business stayed away (or at least at arms length); people were kept in subsistence-jobs like small hold farming so they could be sure that they could eat when the sh1t hit the fan. The old way was condemnation to poverty.

Now there is a chance that there will be deep and lasting change for the better.

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an elder one

Jan 19, 2012 at 11:15

Rufus dogg, you exhibit all those disagreeable traits you accuse others of possessing, including Charles Dumas. There is more heat than light in your commentary.

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Eugen

Jan 19, 2012 at 11:45

I don't think that the single currency can survive if there is not re-distribution on the North Sud axe. So the German tax payer either agree to pay the pension for the poor Greek retired or EUR has little chance.

They have already started to pay because of devaluation of the currency but better make this official in the Treaty. If not we shallbfind an orderly way to get out of this currency.

The redistribution from EU is very little, we probably neded 5 times that.

Redistribution works well in US, works well here in UK for Walles and Northern Ireland and probably for Scots even they are so pround to admite it.

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Chris Powell

Jan 19, 2012 at 11:54

We need the Euro to survive. I feel Chris B needs to go back to the 30’s and let everyone else try and workout what is happening at this moment in time.

Every one bashes the bankers. Goldman Sachs will be paying billions to bankers in the city who will be paying billions in PAYE. If they did not the money would go to mainly US investors. Who would pay the Doctors? We should support the city for now and try and balance are economy over time. If we do weaken the city over night ‘WE ARE BUST’!

Foreign banks pay more tax in PAYE than UK banks we are shooting are selves in the foot for being so jealous!

Let’s get real and stop looking at the 30’s when everything economically and socially was so, so different it is stupid to compare (Ed Balls).

Europe I think will survive because it is in the World’s interest to do so. To compare Brazil with Greece is also stupid. Brazil has done well due to the huge amount of primary goods it exports. Greece has tourism and that’s it. Iceland is like Ireland a relatively good economy spoilt by inadequate banking regulation. Greece are socialist’s without an entrepreneurial brain among them.

Inflation will fall dramatically worldwide, China will start inflating their economy, America is creating jobs, their housing market is improving and recession in the US is now unlikely. Even in the UK the jobs report (if you look in the detail which the media don’t) the private sector looks like they are starting to create jobs again. The ECB is issuing banks cheap loans for 3 years (QE back door),which will ease the funding problem for both banks and European sovereign debt.

I think the discussion today is about 4 months out of date!

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Cape Town

Jan 19, 2012 at 11:58

Yes Rufus I am inclined ot agree with Elder One. You talk but the words are not substantiated arguments. I spen three mnths in Germany at the end of last year and it was the same thing - just a dogged belief that it would work out because anything else was unthinkable. Well, unthinkable is a synonym for putting your head in the sand, so tell us what you see that we don't.

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Cape Town

Jan 19, 2012 at 12:08

Chris Powell and others who believe that "where there is a will, there is a way". Resolution is not enough. As these countries could not print money, they borrowed instead. This is the origin of a problem of insolvency. They do not have the means to pay it back because their economies are too uncompetitive. Normally, such an economy would devalue its currency. Exchange rate imbalances and all these eurozone currencies pegged together under one are what is blocking a resolution.

Yes, throw more money in. Why are you advocating this? You imagine that in two years these economies will have become world beaters and sufficiently rich to be able to take repayments in their stride? I don't think so.

I do not know what Merkel and Sarkozy see as the long-term solution. I suspect that all they really want is that the Euro does not fold on their watch.

Just some simple maths. Tell me how EU countries are going to refinance 1 trillion of debt at new higher rates, and keep up repayments, whilst austerity and repayment, lowered tax take and growth are shrinking their economies. Explain to me how this magic act works.

Rufus. You are a man of many words. Explain it to us. In factual terms, without invoking the supreme Will of Merkozy.

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Chris Powell

Jan 19, 2012 at 12:31

Cape Town

You have missed the point that things have moved on. I am not saying Greece won’t leave in fact they might not have what it takes to ever have a strong currency. However, Greece has got a get out of jail card for now and without causing mass inflation. Most of their debts will be cut in half and refinanced over 30 years on a low rate. Without them leaving the Euro! If they have to leave then they will become an emerging economy but everyone who lives there will have their wealth cut in half at the very least. Greece’s banks will all go bankrupt. The public sector will be paid with monopoly money. That will not be very nice. Greece does not have an easy option!

Italy is not the basket case everyone thinks. Their deficit is much lower than the UK, their net worth per capita is higher than Germany; they do have the resources. The issue 4 months ago was that Europe would bring down the world but that looks increasingly like it won’t happen.

Yes we might be biding time and yes the Euro might collapse but that was more likely 4 months ago. Let’s hope Europe can muddle through.

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an elder one

Jan 19, 2012 at 12:41

Cape Town - if I may be allowed a moment of banter - if Rufus has his head in the sand, then all he can see is sand I'm afraid; but then that is the whole point.

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Rufus Dogg

Jan 19, 2012 at 14:13

Cape town

"You talk but the words are not substantiated arguments."

I have neither the time nor the inclination to explain the obvious to those who cannot see.

There is no universally accepted set of comprehensive solutions *right now*

But only a fool would interpret that as "these problems cannot be solved"

The EZ will muddle-along and occasionally throw out temporary, or longer term measures, until it finally works it all out. And threats to the core will result in other - broader - measures. Perhaps not as rapid as the market would like. But always before things become untenable.

E.g. the ECB has just managed to throw 3 year loans out to banks the value of 1tr Euro.

Those on the side of "its all doomed!" didn't foresee the ECB doing any such thing, or do not understand the implications if they don't think that it was a game-changing move.

It was obvious that the ECB was going to act. The only question was: what action would it take that it could justify as being acceptable.

The same holds true of the other issues. You see no immediate solution and come to the conclusion that the circumstances will not change - no solution will be found; things will worsen to the point of catastrophic failure.

I, on the other hand, expect solutions to be found. Because that is generally what happens when so many people expend so much energy on solving a problem. And have so much money at their disposal.

The unknown quantity, at this stage, is whether or not Greece will remain in the Euro. But, either way, the Euro itself will go on, as will the membership of the core northern nations.

And that is not going to change without a major, major shift in public opinion. Which, as you may have noticed yourself, remains in favour of fixing the problems rather than abandoning the currency. And it would require a massive stimulus, not yet seen, to force any such change in public opinion.

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Rufus Dogg

Jan 19, 2012 at 14:19

PS - Cape Twon

As for simple maths - Greece cannot repay its debts. So it will default.

Is that simple enough for you?

It will either be a "structured" default or a calamitous one but a default (or a series of defaults) none the less.

The rest of the EZ that is in trouble will refinance over longer terms - that is something so simple that even individuals do it.

As for being able to "afford" the debt - I cannot afford to pay off my mortgage in one go. Does that mean I cannot afford my mortgage?

No.

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Rufus Dogg

Jan 19, 2012 at 14:22

An "elder"

I make a point of reading articles and analysis that I do not agree with in case there is some thing I have missed.

So far, no, nothing.

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Mark22

Jan 19, 2012 at 15:21

I am always intrigued on posts like this how irate we all get, in amongst which I think we sometimes lose the plot.

I agree with various people who have said the Euro cannot fail, it is politically unacceptable (that doesn't mean its necessarily a "good thing"). I also agree that Germany and the Netherlands won't leave the Euro, however much their population may dislike the effect on their personal wealth, their current governments will not ask the general public and by the time there are elections, some other topic will be "important".

The politicians still don't seem to have found a solution to the problem that is damaging the economies of Europe and the USA whilst having little effect upon China.

I would be interested in knowing (particularly from Rufus) what happens after Greece defaults? I can't see anybody lending money to Greece (almost regardless of the interest rate), nor will they loan to the other failing countries. Does Germany buy them all up?

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an elder one

Jan 19, 2012 at 15:21

Rufus Dogg, you have an opinion regarding the finances of the Euro zone, fair enough! if presented in a level headed manner. There is no need for the arrogant and insulting manner in which so much of your view is presented. Many of us, but not all, clearly disagree with your view; get over it! only in time will the truth be revealed.

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Graham D-C

Jan 19, 2012 at 15:51

The German government might think it right to prop up the EU and its debt problems, however the government in its present form exists by the will of the people and they can change that existence at the first opportunity with a stroke of the pen. The German people are not going to standby and see their wealth squandered by any politician who chooses to ignore ther wishes. If the lenders are not prepared to take a 50% loss on their loans to the likes of Greece, then Merkel is unlikely to attempt to fill a bottomless pit of debt. with German voting taxpayers money. Greece will have to leave the EU and face the music, if only to serve as a warning to others who are unwilling/unable to make the necessary cuts in their budgets.

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Robert Hutchins

Jan 19, 2012 at 15:58

Of course a "solution" will be found for the present crisis. Then there will be a period of a few years when the Euro goes up and everyone says: "Look at that!!" Then something will trigger reality to kick in again. Why did the DMark go up year after year against other European currencies? Several reasons. German folk memories of what happened to them after WW1 led to their paranoia about inflation. Then, they work hard and efficiently and they have built a technical and reputational advantage over most other countries in Europe. The other countries compensated in the past by devaluing their currencies from time to time, to restore some competitiveness. Only, with the Euro they can´t do that anymore, so either they have to drastically reduce their living standards by reducing real wage rates or suffer very high unemployment - probably both. Spain currently has about 5.5 million unemployed, 21% of the work force and nearly half of the young. Spain is also currently working on lowering incomes for civil servants and the labour force as a whole. It´ll probably work - until the next time.

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Adam Murza-Murzicz

Jan 19, 2012 at 16:21

Reading these posts it would seem that there is a huge disconnect between what the politicians deem to be acceptable and what reality dictates be done.

Because most of our politicians (excluding probably 0.01%) have no clue about economics or the financial markets, they believe the b-s being fed them by economists who did not see the debt bubble and the bankers who tell them that the end of the world is nigh if they regulate bank bonuses (I am trying to keep this simple so that most Citywire readers can understand). Consequently, the solutions being adopted are those proposed by the same duo of duffers.

So far as I am aware the principle of "cut your losses" still prevails (I'm a geriatric by modern standards).

If I am right, then ALL governments should default on their debts and see how the investment banking community (hedge funds included) which has been holding governments to ransom for years squeam.

THE TIME FOR BRINKMANSHIP NEGOTIATION IS HERE. THE QUESTION IS WHO WILL BLINK FIRST.

Unfortunately, I do not think that our politicians have the requisite cochones.

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Chris Powell

Jan 19, 2012 at 16:32

What a stupid socialist coment. If all government bond default all private pension would go bust.

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Adam Murza-Murzicz

Jan 19, 2012 at 16:47

This is so far from socialism that you cannot comprehend. This is about pure capitalism. Governments have something which the banks (and their clients) want - their debt, from which they earn fees/interest. Now it's time for the Governments to wield their muscles and say to the banks "You want to play, then on our terms!!"

I'm not sure that you realise this but the system is BUST and unless we all get together and find an equitable solution then 2015 could see a crash like you've never seen - and I've lived through a few!

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Robert Hutchins

Jan 19, 2012 at 16:48

Adam Murza-Murzicz:

Do you mean our politicians don´t have the requisite cojones ("balls") or colchones (mattresses)¿

The immediate problem is quite simple - in fact, I think Dickens already came up with it. Income $ 100, expenses $ 125, year after year, then, sooner or later, big problems. That´s why it´s crucial to cut the UK spending deficit right now - not sometime in the future. The idea that the government should not only carry on spending as though they´ve just won the inter-galactic lottery, but should increase spending - called "investment" by those who favour this idea - is lunatic. Eliminating the deficit is likely to be very disagreeable.

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Chris Powell

Jan 19, 2012 at 16:57

But what you do not understand and I am not saying that Greece is not bust is that it will affect private pensions more than bankers. Bankers short markets pension funds go long. Governments have no muscle. Don't you understand what has happend since Gordon Brown lectured every country to spend like there is no tomorrow!

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Foston Yokel

Jan 19, 2012 at 16:59

Fascinating - if EZ continues to vacillate as it has through 2011 we are all doomed to a decade of stagnation - or riots. If the Germans don't expell the fringe from the Euro we are also doomed to repeating this set of follies ad infinitum. The current membership of EZ is an emulsion of oil and water, guaranteed to separate unless beaten regularly.

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Adam Murza-Murzicz

Jan 19, 2012 at 17:02

OK, so the spelling is a bit dodgy. However, I think that looking at the UK's problem alone is too narrow. The simple fact is that the majority of developed and advanced developing countries are in the same boat. I agree that eliminating the deficit could be "disagreeable". Thus, why not default all at the same time?? See what happens.

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Adam Murza-Murzicz

Jan 19, 2012 at 17:07

Chris Powell

Did I mention Greece? I think that you may be obsessed with your personal pension. I took mine out and bought real, live farm land in central Europe which generates a vvv nice income. So please stop whining.

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Chris Powell

Jan 19, 2012 at 17:26

Adam I am not talking about my pension you selfish person I am talking about the billions of people living of a pension or are saving through a with profits type pension.

What will land prices do if no can afford to eat!!!!!!!!!!

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Rufus Dogg

Jan 19, 2012 at 17:43

Mark

To suggest that no one would lend to Greece post default kind of ignores the fact that they have still managed to sell debt when everyone knows a default is imminent.

Greece's debt will be "underwritten" by the EFSF and ECB liquidity.

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Rufus Dogg

Jan 19, 2012 at 17:48

Elder

"There is no need for the arrogant and insulting manner in which so much of your view is presented."

You underestimate the degree to which I see the misinformation persistently delivered as though it is "fact" as an insult to my intelligence - and first hand knowledge.

From my perspective it is akin to living in the bible belt of America where everyone "knows" that creationism is true.

No one is particularly interested in looking at any facts, evidence, or developments, since they already know. The conclusion is foregone.

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Rufus Dogg

Jan 19, 2012 at 17:56

Adam

A mass default would hurt the tax payers significantly more than you seem to give credence to. It would probably result in the collapse of all money. Then it would be anarchy. It might sound fanciful, but as many have already twigged, cash only has a value if everyone agrees that it has a value. If people think that cash is worthless, then cash is worthless.

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Adam Murza-Murzicz

Jan 19, 2012 at 18:05

ChrisPowell

Why is it that when I refer to farm land every Brit seems to think that I just invest in it. I FARM it and it generates a hell of a lot more than bonds or stocks. It's called getting your hands dirty! And it keps your money away from the fund managers.

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an elder one

Jan 19, 2012 at 18:23

Rufus, there's no excuse for bad manners!

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an elder one

Jan 19, 2012 at 18:27

Rufus, and you apparently don't see the irony in you own statement, which equally applies to yourself.

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Robert Hutchins

Jan 19, 2012 at 18:28

Adam Murza-Murzicz:

I think the results of everyone defaulting at once could be interesting but it´s evening and I´m tired, so I can´t think of the possibly obvious economic arguments against it.. What I think is quite frightening at the moment is the likelihood of sky-high inflation over the next few years. I don´t know a lot about economics, but I´m pretty sure that if you increase the supply of anything, including "money" and golf balls, the price or value comes down. Come to think of it, I think the government is actually carrying out your suggestion in a discreet sort of way. If the Bank of England is buying gilts with specially printed money, that is a big step on the way to your suggestion. Instead of defaulting, just make the debts a lot smaller in real terms by creating inflation.

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an elder one

Jan 19, 2012 at 18:33

and Rufus, since you raise the matter of the creation in the bible belt of the USA, one wonders if you do not regard yourself, a god.

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Robert Hutchins

Jan 19, 2012 at 18:38

Adam Murza-Murzicz:

Thinking about it, in so far as I´m able, if everyone reneged on their debts, that would still leave a big deficit on spending. How would we finance that? I think the solution is to get the yearly budget in balance - and then renege on the debts. (In case of doubt, the bit of the last sentence after the "-" is not necessarily meant seriously. On the other hand............................)

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Adam Murza-Murzicz

Jan 19, 2012 at 18:39

Robert Hitchins

Bingo!

Seems that you are the only chap on this forum who has more than two grey cells to rub together

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Adam Murza-Murzicz

Jan 19, 2012 at 18:54

Robert Hitchins

The basic thesis behind my devagations is to bring the banks to order. They seem to have assumed that they rule the roost. However, some 500 years ago Charlemagne (at the time the Emperor of most of Europe - whatever the Brits may say) was so up to his eyes in debt that he took the simple way out - he burned the bond certificates and said "sue me boys".

Governments have the power and if they had the bottle...............

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Adam Murza-Murzicz

Jan 19, 2012 at 18:58

As an afterthought.... reneging on your debts is not the same as unilaterally cancelling them. Think of the implications.............

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Mark22

Jan 19, 2012 at 19:02

Rufus,

What has happened so far is that people have loaned to Greece on a risk that they may default. They similarly loan to the UK on a risk that we may devalue. That isn't the same as loaning once they have defaulted once. Not only that but if/when Greece defaults, it raises the probability of other countries defaulting (get divorced once and the second time is easier). So the whole house of cards collapses. I ask again, what do you think will happen? (Please don't suggest that it will "all come right", a default does nothing to correct the underlying problems).

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an elder one

Jan 19, 2012 at 19:09

To my mind despite all the first year economics running through this thread, the problem with the eurozone, is not monetary at all but political, that is what the people will stomach in what is still hopefully a democratic domain despite the undemocratic Merkozy solutions exercised thus far. The monetary aspect is easily resolved once the political aspect is resolved to the peoples' satisfaction; you can't bulldoze a solution over a community like Europe in any acceptable fashion (within the current perception of civilised behaviour that is), which many have observed many times was tried and failed in the USSR.

Thus far the people have been given little or none opportunity to judge and in those cases where they were and answered NAY, were told to think again.

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Adam Murza-Murzicz

Jan 19, 2012 at 19:41

Elder one

Whatever you think of the eurozone , your dissertation does not seem to hang together. The problem with the EZ is obviously monetary because the politicians are incapable of resolving the monetary problems. Democracy is a term used by those in power who who want to deprive the populace of a right of expression/decision.

The current attempted solutions to the EZ problem show the weakness of political decisionmaking not just in Europe but in the US as well.

We elected the politicians and allowed them to appoint the dipsticks who run our economices, so we are the ones who bear the blame. TUFFTITTY

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Robert Hutchins

Jan 19, 2012 at 20:20

Adam Murza-Murzicz

I have been thinking about this question of not repaying debts - maybe it needs to be part of a carefully-worked out plan. In general, there are a few countries that I´d rather we paid - Australia, New Zealand, Canada, the US (maybe), Holland and Burkina Faso. But what we should aim for is a solid union with those countries and India and, if pos, Pakistan and Sri Lanka. That would make us the biggest trading block in the World and there would, of course, be other huge benefits. To set the mood, I think Cameron should start discretely attending the Commons wearing a turban and perhaps he could also change his name to Cameron-Singh. That should get things off to a good start and other cabinet ministers can follow on soon after. We should negotiate continued trading arrangements with our friends in the EU, so everyone will be happy at the end. Do you think I need any more detail in the Plan before I send it to all the relevant PM´s?

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Rufus Dogg

Jan 19, 2012 at 20:23

an Elder

"one wonders if you do not regard yourself, a god."

No, I am just a man. A well-informed and information-hungry man.

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Rufus Dogg

Jan 19, 2012 at 20:46

Mark

"people have loaned to Greece on a risk that they may default ......That isn't the same as loaning once they have defaulted once."

There is not a *risk* that Greece will default. There is a certainty. The only unknown is to what extent they will default. The ranges touted are 30-70% losses, general consensus is that it will be an average of about 50% loss of the principle.

Greece has been meeting with creditors to decide precisely how much it will default. If they fail to reach an agreement, there may well be a full default.

Yet Greece has been able to sell debt in November, December and even January.

"a default does nothing to correct the underlying problems"

It does, of course, remove debt. The whole point of defaulting on debt is that you don't repay it. So the underlying problem of that specific debt will be cut in about half.

" it raises the probability of other countries defaulting "

Not really. The Greek default is being managed as best as it can be. But Greece will have consequences for years: higher rates and lower denomination debt auctions. They are, very obviously, a failure.

It raises the possibility of other nations defaulting, but does not make it a probability of any kind.

"what do you think will happen?"

Greek default agreed within six to eight weeks. A controlled-fire in the European banks as a result - most likely reported as the end of the world, again.

Beyond that, you'll have to be more specific about 'who', 'what' and 'when' if you want more detail about what I think will happen.

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Rufus Dogg

Jan 19, 2012 at 21:02

R Hutchins

" Australia, New Zealand, Canada, the US (maybe), Holland and Burkina Faso. But what we should aim for is a solid union with those countries and India and, if pos, Pakistan and Sri Lanka."

Yeah right.

You know why we won't have free trade with India and Sri Lanka in your life time?

Give it a bit of a think. It involves the UK being flooded with all kinds of goods and agricultural produce that are currently banned or restricted from places like that. At prices we could not compete with. It would be devastating.

As for free trade with the USA - you have any idea how protectionist the US is at first whiff that someone, anyone, can do something better than they can?

You have a good look at how "free" the so called NAFTA is.

This commonwealth plus USA one of the more frequent pipe-dreams proffered by people that are anti EU.

But it makes no sense.

What makes infinitely more sense is being part of the largest and richest trading bloc in the world. And instead of sitting on the periphery and moaning all the time, we could actively join-in; try to steer things our way.

But first we'd need accurate, honest and above all balanced media reporting, instead of slavering lies, idiotic lies, gross exaggerations, and dangerous lies about the EU and Europe in general. You cannot make well informed decisions without good information.

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Chris B (Slough UK)

Jan 19, 2012 at 22:10

Perhaps you should take a look at this article on Iceland: http://news.bbc.co.uk/1/hi/programmes/from_our_own_correspondent/9550667.stm

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an elder one

Jan 19, 2012 at 23:39

Adam Murza-Murzicz, the europeans politicians are incapable of resolving the monetary problem thus far because of the democratic question (which actually constrains the rulers, not the populace or the proles as Rufus Dogg likes to call them) Angela Merkel cannot put forward an obvious solution because she knows her people - including the German legal establishment - won't stand for it, currently; it's not basically a monetary problem because given an appropriate political environment that problem can be resolved by the transfer of monies from the richer to the needful to help them service their debts; with overall management of the currency and accountancy by a central authority leading to some eventual normalisation of the various national industrial behaviour, and allow an appropriate re-evaluation of the euro in the global market place, there is no absence of wealth in europe as a whole we all know, your argument goes nowhere by turning semantics on its head.

This argument has been presented many many times for those who will care to read and consider. It may be an irritation to the EZ membership coming from the UK and the USA, but there, is some experience to be found; far from gloating it is also in our interests that the EZ problem is soon properly resolved.

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Cape Town

Jan 20, 2012 at 01:09

Rufus - who wrote this "I have neither the time nor the inclination to explain the obvious to those who cannot see."

A bit of respect dear boy.

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Rufus Dogg

Jan 20, 2012 at 09:23

Cape Town

"A bit of respect"

I am a firm believer in giving respect where it is due. So I stand by the comments herein.

But you may also note that I did, when asked, expand a little on some specific areas.

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Robert Hutchins

Jan 20, 2012 at 09:27

It doesn´t seem to have sunk in yet! The current crisis probably will end quite soon, with the Euro surviving. But the basic underlying problem will still be there and will at intervals in the future cause further similar crises. Southern Europe and large chunks of the rest of the EU as well is not competitive with Germany and some other countries. If this lack of competitiveness cannot be compensated by periodic devaluations, then it will show up in unemployment and relative poverty. This is already happening in Spain, Greece and Portugal, with soaring unemployment and declining real incomes. Probably those countries will have to fall back on tourism and agriculture, though the agriculture bit will only be productive if they are protected from the competition of Morocco (say) and tourism might struggle due to costs being tied to the Euro. It is also interesting that those three countries have received, every year, large net subsidies from the EU, which will, presumably, have to fall very sharply as new entrants to the EU expect to get "their share". It is not obvious why countries in northern Europe should have to increase their net contributions to the EU, to finance further subsidies. In the first place, these payments would have to continue for the indefinite future and in the second place, electorates might quite reasonably object.

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Rufus Dogg

Jan 20, 2012 at 09:44

An elder

Again you give some very good examples of completely backward understanding of the issues.

Firstly, before I get to any of the issues, I used the term "proles" to describe the people of the UK. Not general populations everywhere. I used the term within the specific context of its original meaning: i.e. inhabitants of a 1984 style society where ugly propaganda is the only only information available.

The European leaders are having trouble coming to an acceptable conclusion because the obvious solution would damage the rest of Europe more than it would help Greece. Finding a highest common factor will be a longer process than finding the lowest common denominator.

And there is a need for deep seeded change - the Greeks need to learn to do things differently. You do not learn new tricks by doing old ones.

" that problem can be resolved by the transfer of monies from the richer to the needful to help them service their debts"

To start with, that is what is happening. German, French, Dutch, etc. tax-payer money has been used to bail-out Greece. To follow, Greece are not "needful" - they have not had a failed harvest, or something like that. they are "wasteful" - they borrowed money they could not afford to buy things they do not need. Including more than half a million new public-sector jobs. And they are still running at a very high rate of spend for those things.

You are right about one thing though:

"it is also in our interests that the EZ problem is soon properly resolved."

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Adam Murza-Murzicz

Jan 20, 2012 at 10:03

It doesn´t seem to have sunk in yet! This bit of your statement I agree with Robert. However, we seem to be missing the point that austerity - i.e. taking money out of the economy in order to pay off the banks (and other hangers on) - will, in the long run, lead to the demise of Government finances as a result of a decline in tax income - less people in jobs, less consumer expenditure, less productions etc., etc.

This is not a problem which will just affect the so-called Club Med but is already affecting the UK and the other "major" economies of the "developed" world.

Unless we all tackle the debt burden aggressively we will have problems with our economies for the foreseeable future. Unemployment and income discrepancy will, eventually, lead to social problems.

Anyone who poo-poos that view is an ostrich.

1917 could be round the corner - but not just on a localised scale.

Why is it that the Communists (in all parts of that block) always ensured that the young had jobs? Because they knew that the young could form the basis of an uprising against the powers that be.

In the West we view the Arab Spring in a patronising way - "those primitive nations eventually had to rise up against their dictators".

The same awaits us - the dictators are different and, perhaps, more benevelant (they do not beat or torture us) but they still dictate to us and our governments what we shall and shall not do.

God forbid that anyone considers me to be a socialist - I am a realist and those who cannot see where the "unaccepable face of capitalism" (Ted Heath 1970 something) is leading have their heads truly buried in the sand.

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Foston Yokel

Jan 20, 2012 at 10:10

Rufus Dogg is howling again! We have a broad range of pro EZ media - BBC, Guardian, Indy etc - whilst EZ sceptic media is also well arrayed. Admittedly the BBC and Grauniad both fit the description "ugly propaganda" on many fronts but I guess that's not what you mean?

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Adam Murza-Murzicz

Jan 20, 2012 at 10:29

Foston,

Are we so stupid as to listen to know-nothing journalists spouting the viewsof whichever political/lobbyist group they represent. Or can we actually think for ourselves? Or is this too difficult?

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Robert Hutchins

Jan 20, 2012 at 11:04

Adam Murza-Murzicz:

Arguing (or discussing) this subject makes me realise just how ignorant I am on economics. Who, for instance, holds the net UK national debt of 70% odd of GDP? Banks or governments? When you talk about taking money out of the economy to pay off banks, I assume you are talking about paying maturing gilts - but I´m not sure that they are held by banks. (The bailing out of some of the banks was substantially a one-off exercise and may well result in a profit when the government is able to sell off the stakes it acquired.) Although it´s popular to slam the banks as being responsible for the crisis, I don´t think this is true. The crisis was triggered by particular banks in the US (Lehmans, for example) selling junk mortgages, packaged as top grade and this packaged junk was then bought by banks in the rest of the world. UK banks, in particular, who bought this junk were, in effect, the victims of fraud and I´m surprised that, as far as I know, no-one in the US has been criminally charged for this. The huge losses then caused knock-on effects in the rest of the economy. HBOS, which needed inter-bank loans as part of its business model, found that suddenly what had been normal and routine was no longer available. Major problem! Bankruptcy!!

The government then twisted the arm of what had been a relatively healthy bank, Lloyds, to take over HBOS - the result being that both ended up in trouble. I blame the UK government, led by that economic genius, Brown, for the problems far more than I do the banks. Banks have to operate in the environment in which they find themselves - it´s the government that can change that environment. I think for the world to renege on government (and private?) debts would inevitably cause a world-wide depression and that is the sort of thing that causes wars. A major war is, of course, another possible solution to the crisis.

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an elder one

Jan 20, 2012 at 11:05

Rufus Dogg, can you not make your points without resort to extreme rudeness; though you may think it adds emphasis to your argument, it does in fact put it outside of the bounds of reasonable debate only to be dismised as mindless rant. Incidently we all are familiar with the derivation of prole, namely the diminutive form for proletariate (of ancient Rome), the lowest status in any society and used nowadays as a form of insult; it is noticeable that you restrict its application to people of the UK, though the natural general populace of Europe is much the same throughout.

Commenting on the rest of your piece, yes Greece has to learn how to behave if they intend to stay in the Euro, I use the term needful in the sense they will never be able to compete with Germany even when their books are put in order, and a central fiscal authority - which is a political matter - is needed to bring that about; but good gracious! this has been widely discussed in the public domain; but then I overlook the fact you regard all such as rubbish.

The saving grace in all this angry exchange is that in the goodness of time all will be revealed.

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Rufus Dogg

Jan 20, 2012 at 11:10

Yokel

"We have a broad range of pro EZ media - BBC, Guardian, Indy etc "

Woefully inadequate.

And it is not so much a matter of being "pro" as being accurate.

If you spend any time in other EU states, Europe and what is going on in the EU is given a LOT of news time. Similar to the goings-on in any local parliament. Here, it is treated as largely irrelevant.

The UK public find out after the fact that something important has been debated and decided.

As for the BBC, I actively complain to them about factual inaccuracies re: the Euro frequently. The quality of their reporting has shown scant signs of improving.

They have even had their knuckles rapped over poor standards of reporting on the EU by broadcasting watchdogs. Still, nothing has changed.

In your mind they may be "pro" EU because they are not openly anit-EU. It is not the same thing.

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Chris Powell

Jan 20, 2012 at 11:18

Robert

Most of the sovereign debt will be pension funds who pay annuities to pensioners, banks so that they will give you a loan/mortgage (Hedge funds are just as likely to short sovereign debt).

To suggest we hold these institutions to ransom just show the complete and utter lack of intelligence within this discussion.

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Rufus Dogg

Jan 20, 2012 at 11:28

An elder

"can you not make your points without resort to extreme rudeness"

I direct you to my earlier point about insults to my intelligence.

A mindless rant would be one that had nothing mindful in it.

"we all are familiar with the derivation of prole"

I was not speaking of the derivation of "prole"

I was, as I laid out, speaking of the term in some of the context in which it was coined. Which was, again, in George Orwell's 1984. Where information is not freely available.

I am reinforcing that specific point as you don't seem to have attached the necessary relevance. I was not referring to the proletariat of Europe.

"this has been widely discussed in the public domain; but then I overlook the fact you regard all such as rubbish."

Not everything that is in the public domain is rubbish. Just almost everything that is popular in the UK media.

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Robert Hutchins

Jan 20, 2012 at 11:29

Rufus Dogg:

I live in another EU state and I have lived in the past in a further 3 EU states.

As a consequence of this, I watch what the media of three of those states has to say . (Not the fourth, as I don´t speak German). At least in the three that I´m familiar with, the level of debate on the problems and possible solutions to the financial crisis is far behind the norm in the UK.. Burying their heads in the sand is one phrase that could be used. The BBC is phenomenal - they don´t just read the news out, but they explain it. Where I live, there is very little qualified analysis or explanation anywhere. The "serious" UK press gives a wide range of opinion and comment and you´ll find that the Guardian, the BBC, The Economist and the Financial Times are all cited very frequently in such comment as there is. I personally consider The Economist as being, very probably, the best magazine of its type anywhere - and, as you probably read it cover to cover, you will know that it is packed with informed comment.

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Adam Murza-Murzicz

Jan 20, 2012 at 11:36

Robert

1. I am not talking about taking money out of the economy to repay maturing gilts - QE is doing that. I am talking about the taxpayers' money which has been fed into keeping commercil banks solvent - a complete anathema to any capitalist! If they were bust, they should have been allowed to go down!

Your view that British banks were solely victims of the sub-prime mortgage fraud is somewhat naive, since RBS, particularly, and others also "securitised" mortgage debt in the UK (I once worked at one such bank)

2. Arguing that the British banks were victims is also naive, since fiduciary duty would dictate that those banks exercise due diligence regarding their investments.

3.There can be no doubt that Brown's Government was culpable in the Lloyds/HBOS situation, there can also be little doubt that Lloyds could have, legally, turned down the "opportunity".

4. Whether we look at the source of the problem - the USA - or the impact in the UK, the fact is that a combination of Greed and Stupidity played a large role in the crisis.

My problem with this whole game is that the Greed and Stupidity (Political and Financial) are being allowed to continue. Unless a mechanism is found to halt this, then ...........

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an elder one

Jan 20, 2012 at 12:08

Rufus Dogg you simply emphasise my point, what have you truly got against the UK, your rant on this subject suggests something else underlies it,

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Foston Yokel

Jan 20, 2012 at 12:13

R Dogg

I have to agree with Robert about the relative merits of mainland and UK news. I don't know where you have been hiding but I find it difficult to avoid daily (hourly) news of the goings on in the EU - and the mind boggling levels of incompetence/ intransigence being displayed by our "leaders". It would be amusing were it not so serious and expensive but I am afraid that for the forseeable future all that we will get is more of the same . . . .

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an elder one

Jan 20, 2012 at 12:14

Is it that the real truth hurts?

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Rufus Dogg

Jan 20, 2012 at 12:55

Robert

"the level of debate on the problems and possible solutions [in the rest of the EU] to the financial crisis is far behind the norm in the UK"

This is part of the problem. You, and many others in the UK are mistaking quantity for quality.

The article above illustrates this perfectly! I.e. it is beyond rubbish. And yet, here it is, delivered as though it constitutes analysis, and received as thought-provoking, or an accurate reflection of what will transpire!

There is a good reason why this kind of crap is absent from the rest of Europe's media - at least in the same tonnage - and that is because it *is* crap. If their media was delivering this kind of rubbish there would be uproar because, having had a reasonably good diet for so long it is easy to spot the junk-food.

During "normal" times over the last decade, the Euro and the machinations of the EU barely get a mention in the UK (unless it is "straight banana" or "you can't sell in pounds" rubbish).

Now that there are a series of problems to resolve, it is wall to wall Euro news. All bad news, of course, and wall to wall poppy-cock. Eagerly swallowed by those incensed by the EU's interference in the shape of our bananas!

"The BBC is phenomenal - they don´t just read the news out, but they explain it."

Good god, if that is your idea of "phenomenal" the UK is in serious trouble.

Yesterday on the lunchtime news they:

1. Spelled "Labour" as "Labpur" in a caption

2. Said that Kodak "is no more" despite the fact that Chapter 11 bankruptcy protection is not the same as a business closing, or going bankrupt.

and

3. "Balanced" the 3 Parent Mitochondrial gene therapy argument with a few stock comments from an "anti" side that could have been in relation to Anything, not the specific question of this new research.

The BBC is pretty poor. If that is the best we can do, then there is scant hope for the UK's future.

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Chris Powell

Jan 20, 2012 at 13:17

Rufus

I actually agree with you on the UK news.

I think the FT, Times/Sunday and ITV are OK but most of the other is crap.

BBC is the biggest load of crap. Radio 4 excluded

I would like the BBC to shut down News 24 because Sky News is better and the tax payers do not lose out. The BBC news online should also be shut down. This would either release funds for decent programmes or save the tax payer loads of money.

20 years ago the BBC was King now it is crap.

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Robert Hutchins

Jan 20, 2012 at 13:18

Adam Murza-Murzicz:

We are drifting into disagreement - much more entertaining!

Part of my reason for not blaming British banks much is that virtually all the large banks in Europe have had the same problems and I find it hard to believe that they all made the same culpable mistakes at the same time. (The British bank that did make a culpable mistake was RBS, when they paid a large sum for a Dutch bank, that then turned out to be virtually worthless.) It is not the losses from the American junk bonds in themselves - but the fact that this was the trigger for the world financial crisis, which only developed virulently after the Bear Stearns and Lehman collapses. The banking system everywhere is based on quite flimsy foundations - classical pyramid structures, a great pile of loans supported on a very small capital base. Most of the time this works just fine, but when confidence is suddenly removed from the system as a whole - well, we´ve seen some of the consequences.

I don´t know whether Lloyds was actually pressured by the government into buying HBOS, but I expect it was - and the government, particularly when led by a thug like Brown, has considerable arm-twisting powers.

I think some bankers are obviously hugely overpaid, but I don´t think this was the cause of the problems. (I think sports stars, lawyers, TV personalities and some film actors are overpaid even more, but I don´t know what we can unilaterally do about this that does not lead to a brain-drain.) Part of the problem may be that banking deals in intangibles and a lot of what they do is subjective. Long before this little problem arose, there have been periodic scandals and huge losses in banks - Barings, UBS, Banesto and a string of others. I´m afraid that most people, when criticising the banks, are being wise after the fact. There are a lot of things I´ve done, in my personal life ,which I would not have done had I known the consequences beforehand.

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an elder one

Jan 20, 2012 at 13:24

Yes Rufus D, if the European media were delivering this 'UK kind of crap' to their people, there would be uproar since it is fair debate of the truth of the matter; and I daresay some EZ members do read it - since it's there for all to see - and fairly consider the matter with open minds, unlike yourself who imagines everyone else in the EZ is of your mind with regard to the UK.

Certainly, some in the EZ have been feasting on the fat of the land and thus skewed their tastes to the niceties of good diet (using borrowed euro cash) thus the mess we are in today, where we all must suffer for the nonsense of the euro-idea, and the likes of Greece and others like them will have to learn to like 'junk' food and scraps from the others' plates.

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Robert Hutchins

Jan 20, 2012 at 13:53

Rufus Dogg:

I don´t live in the UK, I wasn´t born there and I´ve spent less than a third of my life there. ("You, and many others in the UK are mistaking quantity for quality.")

The BBC puts out a lot of what I would consider crap, because, unfortunately, it´s what people want to watch. You refer to "quality" - but this is subjective and relative to what others do. In the overseas channels that I´m familiar with, there is practically no quality TV at all, except imported programmes which are often BBC ones - so the BBC wins, by default, on both quantity and quality. As it´s difficult to be familiar with broadcasting standards all over the world, one can only form an opinion based on talking to many people from many countries. I´ve done this, over a period of many years. There is no doubt that the BBC is the most respected broadcaster in the world, particularly for news and comment and they have won a high % of international TV prizes.

I have often found that while people will talk loftily about media standards, when you look at the TV programmes they actually watch and the newspapers they actually read you find they are the crap end. Eastenders, rather than Newsnight (say), the Sun rather than the Guardian. I think it´s amazing that the BBC continues to maintain a pretty high standard, in the face of non-stop criticism from people whose idea of a great programme is Big Brother.

If you are suggesting that to get good reporting on world affairs in general and the present crisis in particular, one should look to the Continent, you are probably rather badly mistaken. You will certainly get the news but virtually no comment or explanation at all. You will certainly have been familiar with the term "risk premium" long ago, for example, but most people on the Continent would have been glad of a clear explanation early on, rather than having to deduce it over a period of time.

Have you ever read the Economist? Do you read the Sun? I wonder at which end of the spectrum you fall.

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Rufus Dogg

Jan 20, 2012 at 13:54

An elder

"Rufus Dogg you simply emphasise my point, what have you truly got against the UK, your rant on this subject suggests something else underlies it,"

That is what is inside your own head. I cannot help you with that, save to point out the obvious paranoid delusion.

If I criticize my own football team's manager, does that mean I am *against* my own team?

Of course not.

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Rufus Dogg

Jan 20, 2012 at 14:03

cont ..

"Yes Rufus D, if the European media were delivering this 'UK kind of crap' to their people, there would be uproar since it is fair debate of the truth of the matter;"

It is akin to devoting serious news time to discussing WWE Wrestlers. You may think it important and derive great entertainment from it, but it is not genuine and it has no impact on reality.

If you cannot tell the difference between the above article and genuine news, then more fool you.

"unlike yourself who imagines everyone else in the EZ is of your mind with regard to the UK."

I imagine no such thing.

All I have commented on is the ignorance of the readers and watchers of UK news, based on the diet of rubbish being fed to them by the UK media. The above article (and the attendant praise for its balance and insight) being a prime example.

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Rufus Dogg

Jan 20, 2012 at 14:10

Robert

My comments were specifically about the BBC News. All my comments have been restricted to be, specifically, about UK media and their reporting on Europe and the Euro.

For the record, I like the BBC (but not so much BBC1) and think the UK makes the best TV in Europe.

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an elder one

Jan 20, 2012 at 14:16

Oh dear Rufus, are you actually coming round to love us ordinary folk after all. Be careful, in the analogy you use, is the team manager our government, and what of the UK media? are they part of the team or government/management and what about the owners quite often foreigners to us - whom presumably know where their bread is likely to be best buttered.

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an elder one

Jan 20, 2012 at 14:24

And as to paranoia, you may know, the saying familiar in rural England, a fox will always recognise its own hole; a childish retort, to a childish insult.

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Adam Murza-Murzicz

Jan 20, 2012 at 14:29

Robert Hitchins in your response to Rufus Dogg

Media covereage of anything to do with business/economics is abysmal. Most of the stories which appear are often straight copies of press releases - I have a few at hand.

However, let's not be too scathing - the US press is even worse.

Financial journalism no longer involves analysing/questioning the CEO's response but printing his statement without criticism - one of the reasons for the crashes over the past 20/30 years.

And please do not get me on the question of institutional investors who allow corporate management to dilute investors' earnings by taking out huge bonuses.

E.G. If the Goldman Sachs bonus pool had been made available to its shareholders, the EPS would have jumped by at least 20%

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Robert Hutchins

Jan 20, 2012 at 14:51

Rufus Dogg:

Hey! Your tone just changed and that´s great!

When talking about 27 countries and how they report the Euro problems, it´s difficult to have an overall view. I´ve no idea, say, on what the Scandinavians are thinking. In the countries I do (more or less) know, I think their news and comment on the crisis tends to have a big hole in it. It´s a bit like burying your head in the sand and hoping the monster´s not really there. I think the Euro will survive and the problems will appear to have gone away - but they will resurface again some time in the next five or ten years. The only place I´ve seen that view reflected or discussed is in the British media. Certainly, where I live there is no discussion on this at all, though there is a little bit of nervous comment about whether Greece might end up leaving. A lot of the news, or its implications, really need explanation for people who are not experts and this explanation is entirely lacking.

Up until a year ago, I had British TV via satellite - but since moving I no longer do. It may be that the BBC has "gone off". I don´t know - but certainly while I did have access, the only serious competition on news seemed to me to be Channel 4 with Jon Snow. I am at the "euro-sceptic" end of the argument and I do remember that the BBC used to irritate me sometimes by what I saw as a tone that implied that eurosceptics were loony. Also, I sometimes wondered whether there was a leftward tilt in their reporting. (This would not be surprising, as a lot of key BBC staff are Arts graduates.)

On the whole, though, I think they did a terrific job.

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joe stalin

Jan 20, 2012 at 15:03

Fixed income clents of anks and institutions were demanding ever higher returns. US investment banks in conjunction with a coiple of hege funds were quick to spot a market and created CDO's and the like to meet the need..In order to flog it they paid the rating agencies to give the crapo a AAA rating the investment banks and hedgies knew the garbage they loaded into the product.Once everyone was onboardall wascoolmuntil the housing market began to tanks.the hedgies and Goldmans etc began to short the very same stuff they flogged all over the world.By the time the cinema was well and truly on fire nobody knew who held how much because it been diced and sliced over and over again. So nobody trusted anyone because nobody knew who held the garbage and ifso how much. ergo a complete collapse of the finacial system.The irony is is that defaults are still relatively low yet at the time verything was written down to zero. A bit like a dirty bomb really you cant feel what is happening to you but you assume the worst 08 and 09 in nutshell. US investment banks, rating agencies and hedgies have yet to be brought to justice alas as the good and the great debate on whether Fred should retain his knighthood- what a moronic state of affairs

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Robert Hutchins

Jan 20, 2012 at 15:09

Adam Murza-Murzicz:

(You might get my name right!!)

Yes, from an investment point of view I agree with you - but that´s a gap in the specialised media market. I used to do a lot of speculating and successfully lost loads of money following the advice of the Investor´s Chronicle, Fleet Street Letter etc. - not to mention traded options, which tended to be OK if covered, but eventually lethal when not. There was, and perhaps still is, a gap there.

This Comments stuff is a hell of a time-waster, isn´t it? I started putting forward my right-wing opinions in some of the Comment sections of the Guardian (and received a storm of illiterate abuse, which was surprising for Guardian readers.) There is something else that I should be doing right now, instead of having meaningless arguments with total strangers! I think you said somewhere that you are a central European farmer, in which case you should probably be sowing something or checking that Maisy hasn´t really got Mad Cow disease.

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Rufus Dogg

Jan 20, 2012 at 15:12

Elder

"Be careful, in the analogy you use, is the team manager our government, and what of the UK media?"

I have not changed subjects. I am speaking solely about the media. Perhaps football "manager" was too confusing an example for you to follow?

Football press officer then?

If you cannot see that the above rubbish article IS rubbish then there is little more to say.

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Robert Hutchins

Jan 20, 2012 at 15:19

joe stalin:

Great stuff - you´ve jogged my memory! Brought all the fun back.

The US is usually pretty quick at prosecutions and I don´t know why the guys who put the crap together are still sitting on their yachts. After all, they caused the biggest financial crisis the world has had in a very long time. Or maybe they should get honorary knighthoods.

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an elder one

Jan 20, 2012 at 15:27

Rufus, you've gone lame! enough is enough, let's end the duel; no hard feelings! go relax and good luck in your endeavours.

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Rufus Dogg

Jan 20, 2012 at 15:28

Robert

"I think their news and comment on the crisis tends to have a big hole in it. It´s a bit like burying your head in the sand and hoping the monster´s not really there."

Leaving crap out of news does not put a "hole" in it.

And this is probably the 3-4th reference to those on the continent 'burying their heads in sand.'

I disagree with that take.

There is little point devoting time and energy discussing "solutions" like the above, since it does not constitute a solution.

Nor is there any real point discussing the above as a possible, or even probable, outcome at any real length. Because it is

a) highly improbable and

b) does not get anyone closer to any solution

So, a waste of time and effort.

It is neither a realistic, nor desirable outcome. And there are enough real problems that need to be addressed without the unwelcome distraction of "monsters" that do not exist.

"I think the Euro will survive and the problems will appear to have gone away - but they will resurface again some time in the next five or ten years."

I am not sure that Euro based problems will resurface once the current ones have been contained and fixed - certainly I would expect nothing as serious as this.

But at the same time I expect nothing less of the UK media than continued "Euro-Armageddon!" with ongoing reports of how the Euro is seconds away from death, and proffering a series of solutions such as moving the whole of Ireland to the Mediterranean by filling the North with all the UK's wind-turbines and sticking them in reverse.

Good day gentlemen.

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Cape Town

Jan 20, 2012 at 15:39

To return to the subject of the article and the discussion here.

Schoolboy maths tells us that neither Greece, nor Portugal, and probably the rest of the bunch of PIIGS, cannot pay their debts. Here’s why.

Greece must find 14.4 billion euros for a payment due on 20 March. This requires agreement between government and its private sector financers – Greece owes 338 b in total of which 200 is held by private creditors. There has been lots of selling of this debt by banks to hedge funds at 40c in the Euro and Hedge funds are now baying for full repayment – without agreement it will be a disorderly default and all the insurance payments will kick in to add to the hell that will ensue. If agreement is reached at 50c in the euro, this will reduce debt by 100b of 30%. Let’s say it happens this way and agreement is reached.

The parameters to insolvency, ie current account cannot pay all commitments, are the amount of debt times the interest rate, the growth rate for expansion of economy and its ability to generate sufficient revenue, and the government’s fiscal policy for its tax take that is used to pay off interest.

If we assume 4% interest rate on remaining debt (this is the sticking point at the moment with creditors), and using IMF growth forecast, a budget surplus of 3.2% + interest payments is needed to stabilize the debt. To obtain 3.2% surplus today, the austerity measures would need to further reduce spending by 10b a year which is two thirds of current social spending. And Greks are in the streets already.

Portugal, which gets no haircut relief and must repay all its debt, at least the moment, needs a surplus of 2%.

I could do the story for Italy which is truly lamentable as it needs to find 440b this year. The ESFS could not manage that.

These debts incidentally arose from lax government and weak politicians looking for re election. In the States it was a different beginning. But where the red lamps started coming on first is of no import now as the whole economies are ablaze really. And the response of the governments has been to buy up the toxic debt abd add it to their balance sheets, for repayment by more prudent taxpayers who still have some savings or a job at least.

History says neither country will manage this target. Plus austerity measures are known to be self-defeating in reality.

So what are the chances of success of Merkozy getting agreement on budgetary control and restoring confidence in Europena finances when Greece and Portugal, at leqst, start the compact as lame insolvents?

And anyway if these two go, the remainder will need haircuts and on such a scale that the world banking system will collapse.

So there is little point in pouring good money after bad as after a couple of years, more will be needed and finally there will be none left and all the investment by European taxpayers will have been to nought.

Best to admit defeat and try something different.

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Adam Murza-Murzicz

Jan 20, 2012 at 16:01

Robert Hutchins (is that right?)

Some time ago I decided that food was what people wanted (surprise!!) so I bought some land to grow veg. The idea worked and expanded. But as a former investement wanker I cannot let go and see the that world as it should not be.

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Robert Hutchins

Jan 20, 2012 at 16:02

Rufus Dogg:

You say various times that the UK reporting of the Euro crisis is "crap". Who knows - you may be right, but as you give no arguments it´s hard to say.

As for why the problem will return, I covered that a while ago and it´s a bit lengthy even for copy/paste. Really, it boils down to competitiveness and the cost, particularly for the southern countries, of staying in the Euro.

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Cape Town

Jan 21, 2012 at 00:20

I ve lived in a number of European countries and there is quality press everywhere I have been. The internet has made the voice of mavericks, or out-of-the-box thinkers, more accessible.

Problem is that there is official media constantly formatting us to their ways of thinking and rendering us uncritical mouthpieces for more-of-the-same and status-quo politics. Rufus is an example of this kind victim - brain removed and he is on life-support from Central Office. You can tell people who are unable to think for themselves because they have no facts to support their arguments and they become arrogant and aggressive when cornered.

The real difficulty is not access to information. It is that these problems are complex, we don't have degrees in economics, and the need for some kind of a theoretical background poses big "entry problems" to our understanding and ability to critically review what is going on.

The financial crisis has obliged me to learn a lot about what is going on, just in order to preserve the little wealth that I have. It has taken years, it has been great fun, and I feel I have almost acquired a second career here.

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Cape Town

Jan 21, 2012 at 00:36

And I agree with Robert Hutchins that the fundamental problem is not liquidity but insolvency, caused by uncompetitive economies joining a pegged currency at rates that do not reflect their currencies' real worth. The value of a currency should be decided by propsects for growth and inflation and this value is relative to other economies so it should be allowed ot float. IF it is not allowed to float, then one part whould be making payments to the other to sustain thier economy. Austerity measures cannot deal with uncompetitive economies on their own, indeed they will only aggravate things.

Shovelling money into the economies is choosing to see the problem as insolvency. Which is true, but in the medium term, armeis of consusltants are needed to teach the feckless Latins the more stringent ways of the Germanic North.

What is the chance of this happeing in a timeframe that is determined by how long Northern taxpayers are prepared to continue bailing out their Southern cousins?

I would say, chances are zero and this plan is only being tried because of pride in the Euro, fear of post collapse, and to preserve the reputations of politicians while they are in office.

Someone earlier suggested ignoring the debt and this was widely scoffed at because iit would mean destroying savings and pension pots and so on. This is true, but it is happening anyway, in an uncontrolled fashion.

If anyone wants to keep the Euro, the only real solution is to apply haircuts that are substantial enough to bring borrowing costs into line with the abilities of Club to repay; and to embark on a giant cultural change program that will teach these folks how to run government and business, how to be innovative and competitive. For it is a cutthroat world and we cannot afford to keep the sick on life support, alas.

I have worked in supply chain management and I can say with hand on heart that it is possible to to teach suppliers lower down in the supply chain how to run a quality and managed business. And it can be done in a couple of years. But it takes a great deal of effort and the suppliers need to really want to stay in the chain.

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Robert Hutchins

Jan 21, 2012 at 10:41

When the UK was forced to leave the ERM (Exchange Rate Mechanism, which preceded the formal introduction of the Euro), the pundits predicted calamity. In fact, the pound rose and the economy boomed. I think exactly the same would happen with Greece, Italy, Spain and Portugal, were they to leave the Euro.

Southern Europe has a much better quality of life than (say) Germany - they implicitly recognise that "life" is not just about how big your car is or how many TV´s you´ve got. I think it would suit them, and the rest of Europe that enjoys going there on holiday, to leave the Euro and revert to lire, pesetas etc..

Their economies would boom, just as the UK´s did on abandoning the ERM - but it´s a mistaken pride that stops them even talking about this.

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Chris Powell

Jan 21, 2012 at 11:39

Robert

To compare the UK with South Europe is completely miss guided. The Uk was never going to default on debt. Yes I agree these 17 countries should not have got in bed together but Greece and co need to take a lot of pain for spending money they will never pay back. They have enjoyed massive increases in pay and public sector spending in the years prior to the melt down. The Greek's still have a much lower pension age and do not inforce their taxe collecting. The Greeks have only themselves to blame.

If the Greeks leave and default the best country to compare them is Argentina!

A stongish currency keeps inflation at bay and restores wealth. The South might feel poor now but if they all default and leave the Euro they will be third world like an African Nation! All the peoples Euro debts will have doubled or trippled because they will be using their own currenry which is like monopoly money, their import costs will tripple and no one will lend to them. Do you really understand if all off these countries leave what will happen!

I am fed-up with people claiming that countries are better of defaulting and leaving the Euro. There are no easy solutions! The default option and leaving the Euro should be the last option and that will make the 1930's look like christmas!

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Robert Hutchins

Jan 21, 2012 at 12:06

I don´t think I suggested default, though that is exactly what Greece is negotiating now, even without leaving the Euro.

I don´t agree with your implied criticism of Argentina, either - but then maybe I´m a little biassed. I was born there and return frequently. Their economy has boomed since they defaulted - GDP increase in 2010 (last year for which I´ve seen a figure) of 7.5%. It is the most "European" country in Latin America, but also more than a little crazy. Nevertheless, I do think it is wrong to renege on one´s debts, whether at an individual level or at a national one.

However, southern Europe is likely to find that it continues to struggle as long as it remains in the euro. Spain, say, has had a huge boom since they joined the EC.. This was fuelled by large net receipts from the EU, a ridiculous and unsustainable building boom and private credit expansion, as people thought they had joined the rich and it was OK to borrow to do so.

The problems in Greece and Italy are similar. (There are echoes in the UK too. The average property price was and remains ridiculous.)

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an elder one

Jan 21, 2012 at 12:26

Robert, I do agree absolutely with your second para with its implication that those southern countries - including France to a degree from a UK perspective - will never see eye to eye with the German industrial ethic, nor need to. I don't pretend to know much in economics terms of where that will take Greece (the birthplace of democracy) for instance, but before they were in the Euro they seemed to have survived pretty well for the pleasure of many. Daresay they thought the Euro a place for easy pickings, but hopefully they've now learnt their lesson.

Another solution might be for Germany to abandon the Euro as Adam Dumas speculates and I favoured earlier; to my mind Germany is truly the joker in the pack that distorts any attempt to keep the Euro alive for the rest; but then the Euro was a daft idea anyway, and it would nice to see the back of it.

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robert james

Jan 21, 2012 at 12:49

Chris :

I googled the Argentine default, as it seems quite interesting from the point of view of Greece and other euro states in trouble. I found the following article in the New York Times - extracts only here:

http://www.nytimes.com/2011/06/24/business/global/24peso.html?_r=1&pagewanted=all

"A decade ago, as Argentina slid toward financial collapse, banks barricaded themselves behind sheet metal to keep out protesters demanding access to their life savings. It was a low moment for Argentina as it abandoned an experiment to peg the peso to the dollar, froze bank accounts and defaulted on $100 billion in mostly foreign debt.

-----------------------

For one thing, a decade later, Argentina has still not been able to re-enter the global credit market.

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............., at the time of its default Argentina had a fiscal deficit of 3.2 percent of gross domestic product. Greece’s deficit was 10.5 percent of G.D.P. last year, according to the European Commission — well above the European Union’s limit of 3 percent.

And as a percentage of G.D.P., Greece’s debt of 150 percent is far worse than the 54 percent Argentina had when it defaulted.

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Despite the financing challenges, Argentina’s economy has grown by more than 8 percent a year since 2003, and many industries have benefited from the devaluation. Argentina has resumed exporting cars to Brazil. Tourism has flourished from an influx of Brazilians and other foreigners.

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“The big problem for Greece is that they have a strong currency, much stronger in relation to their productivity,” said Eric Ritondale, a senior economist at Econviews, an economic consulting firm here.

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And yet — buoyed by its ability to devalue its currency back during the crisis — Argentina’s economy is growing.

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In the end, Argentina may have one more lesson to teach Greece: the danger of fatalism.

“A lot of people were saying that Argentina would never recover, that the peso would never regain value, that this country was damned,” said Mr. Kerner, the analyst. “And it didn’t happen.” "

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I disagree with the article´s pessimism on Greeces lack of resources. As The Elder One says, Greece was doing something before joining the euro, they are an ingenious people and leaving the euro would suddenly liberate them.

The Elder One: I agree that it would be terrific if the euro disappeared, but Europe kept the trading zone. Unfortunately, though, I think there is too much political capital invested in it now for it to disappear.

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Chris Powell

Jan 21, 2012 at 13:03

Argetine defaulted 2002 and yet their 6 year coupon is yielding 55%. They are not rated by any agency, no one will lend to them and it is no woner they want to take over an island next to them because thats the only way that they might get any economic credibility back in the world!

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Chris Powell

Jan 21, 2012 at 13:18

My issue is that a small country (economically) can fail and they will have decades of pain. Argetina had no choice it was forced on them.

The Pigs if they all leave then all their household debt will incease massively because it is denoted in Euros. All their houses will be priced in their own currency but they will have a Euro mortgage. The Euro mortgages in most case will be worth more than their home. This is the wealth effect! All Euro banks/pensions have PIG assets. These will have to revalued. Getting out of the Euro is not easy when things are brilliant never mind it being forced on you.

To try and compare this is impossible because of the Euro and countries defaulting. For me Argitina is the closes becuase they defaulted and they were reliant on the US dollar.

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Robert Hutchins

Jan 21, 2012 at 13:29

Chris:

I think you may have misread something on whatever website you looked up.

The coupon is, of course, the nominal interest rate on issue of a bond - and it is, in any case, highly unlikely that would be 55%. (!!!) What is more relevant is the actual yield and in that context, I found the following Bloomberg item. (I forgot to save the address, but the article was from 2010):

"The record difference in yields between two Argentine bonds due in 2017 is prompting Gramercy and Aberdeen Asset Management to bet that the local securities will outperform their overseas peers.

The yield on Argentine dollar bonds sold under local law rose to 11.42 percent on Sept. 23, or 188 basis points more than similar-maturity securities issued overseas, according to data compiled by Bloomberg. The gap shrank to 132 by Oct. 1 and may fall to 50, said Ajay Jani, who helps manage about $2.5 billion with Gramercy, a Greenwich, Connecticut-based investment fund.

The domestic notes “are a compelling value,” Jani, who bought the local debt last week, said in a telephone interview. "

You will note that the yield was 11.42% on dollar-issue bonds at that point.

That does give you a loophole, in that you can say "Ah! What about peso bonds?" Foreigners, however, would only buy $ ones. In fact, the Argentine government is running a big surplus and, I think, is not issuing much debt.

It would also be interesting to see what has happened to Iceland since they defaulted.

Regarding the Falklands, I think they really do not have much of an argument. It´s an issue built into the national psyche, just as Gibraltar is in Spain. The Falklands situation is dangerous.

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Chris Powell

Jan 21, 2012 at 13:39

FT today coupon 11.38, bid price 27.13, yield 55.85%. Buy the paper!

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Robert Hutchins

Jan 21, 2012 at 13:46

Chris:

Your second post must have arrived just as I was composing the above sage comments.

If Greece and, perhaps, other countries were to leave the euro, there would certainly be an awful lot of "organising" to do and problems to solve. I think the pain in Greece would probably last about a year and then they would find that tourism was rocketing, exports of fetta cheese (and presumably some other things too) would also soar. Imports would shrink dramatically, as the drachma went down, thus encouraging local production.

If they stay in the euro, they are likely to have permanent pain - reduced living standards and high prices. The basic problem will re-erupt at unforecastable times and they will find they have lost their economic independence. And all for what? The increased standard of living since joining the EU was to a great extent a mirage and now there is a price to pay. I could dramatically increase my standard of living too, if I went out and borrowed - but I think you´d probably agree that would not be a good long-term plan.

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Chris Powell

Jan 21, 2012 at 14:19

In the late 70's after the labour party tried to spend ourselves out of a debt crisis we had to give up and go to the IMF. We did not default we cut public spending and we can thank Thatcher for giving us a second chance and taking difficult decisions.

Greece might survive and yes we might be just be waiting for time. However, the default option for certain will be very painfull for Greece. They have not seen nothing like this before. They will be a third will country. It will force them to work much harder for their buck which I expect has happened in Argetina.

Yes Greece will start to grow. You would expect it from such a low base. They will start to export because they cannot afford to buy German goods. This is what happens but most people will be bust who have foreign loans unless they have invested abroard. Why do you think house prices in Mayfair have gone up?

Greece needs to stick to the EURO but they might have no joice but to leave. The article suggested that Germany will leave but the cost for them leaving is also extremely high. That's how it is.

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Robert Hutchins

Jan 21, 2012 at 14:28

Chris:

I think either you should examine the FT price/yield you quote with a magnifying glass - or, alternatively, borrow all the money you can and BUY those bonds yielding 55%!!! Below, is a copy of the prices of Buenos Aires 2015 bonds, yielding 9.40% to maturity. Unfortunately, where I live I can´t buy the FT..

http://www.cbonds.info

Issue Price,

avg. YTM,

% Dur.,

years Rating

M/S&P/F

El Salvador, 2034

110.00 6.87 11.38 Ba2/BB-/BB

BBVA Bancomer, 2020

99.25 7.51 6.24 —/—/—

Buenos Aires, 2015

109.00 9.40 2.68 —/—/—

Bahamas, 2033

103.00 6.47 11.72 A3/BBB/—

Jamaica, 2019

99.50 8.26 5.10 B3/B-/B-

Vale, 2016

112.28 2.98 3.60 —/—/—

Banco do Brasil, 2020

109.88 4.57 6.38 —/—/—

It was as of yesterday. Sorry it´s come out garbled.

A further item is the following:

http://www.tradingeconomics.com

The benchmark interest rate in Argentina was last reported at 9 percent. In Argentina, interest rate decisions are taken by The Central Bank of Argentina (Banco Central de la República Argentina, BCRA). From 1995 until 2010, Argentina's average interest rate was 9.77 percent reaching an historical high of 125.00 percent in August of 2002 and a record low of 0.95 percent in April of 2004. This page includes: Argentina Interest Rate chart, historical data and news.

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Robert Hutchins

Jan 21, 2012 at 14:42

Chris:

Further to my evincing of my part-Argentine nationalism, it is interesting that in about 1920, Argentina was the 6th largest economy in the world and the Economist published a serious article as to which was destined to be the country of the future - the USA or the Argentine.. Sounds incredible now, but it is so. I expect my grandfather had a lot to do with it and when he died, it all went to pot. It´s a crazy place, not unlike Italy, which accounts for the origins of about half the population there. Individually, terrific people, full of drive and ideas - but totally incapable of working together.

We do seem to have drifted off-track somewhere in this thread! Maybe we could move on to where the World´s best Bath buns are made?

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Chris Powell

Jan 21, 2012 at 14:59

I think you should think about the word LOCAL. No other investor in the world will pay that rate because they are worried about the Argentine dollar. Argentina was the only country who also did not have a credit rating in the paper. The yield is based on the bid price that investors will pay outside Argentina. Who cares what the locals will pay for their countries debt. Before you insult my eye sight you should start to understand financial markets!

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an elder one

Jan 21, 2012 at 15:23

Robert James, I guess that since so much euro junk has found its way into pensions and other investment funds then many ordinary people would suffer undeservedly if the euro did disappear; I guess those who speculated in the euro for personal gain, knew the risks and have stashed away their gains; so we are stuck with the euro in some shape or form for their sake. I can't help feeling though that if Germany came out it would cause the least problem judging from comments read, but the economic equations are beyond me.

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Robert Hutchins

Jan 21, 2012 at 16:20

Chris:

I did, in fact, have my own investment business, basically selling off-shore funds, in Rome for 5 years - so, I have a little knowledge of financial markets. (Also, in those 5 years my eye-sight went from 20/20 to needing reading glasses, thro´ reading FT prices.)

If you have some credible evidence for the difference between local investors and foreign ones, on the buying of Argentine government bonds, I´ll be happy to say :"OK - I was wrong." But it would have to be quite strong evidence, because the comments I read about Argentine bonds being a good deal at a yield of about 9% were in Bloomingdale. I do remember, when I was in the investment business, that yields on some bonds, relatively close to maturity, could at times look very odd. This was because, as redemption date approached, the price - and hence the yield - took account of the loss or profit on redemption that someone buying at that day´s price would incur on redemption. I don´t remember how these anomalies arose, but they were common. I can quite imagine, though, that in this case the Argentine might have issued, at $20 (say) $ 100 dollar bonds at 10%

( nominal) at a time when interest rates were sky-high. That is the kind of thing that can cause all sorts of oddities when you look at the current price/yield. Or, maybe "your bonds" were issued before default and that has caused an anomaly. Either way, if you really believe that you can get an "uncluttered" 55% then BUY!

I looked up /www.cbonds.info, whom I´d never heard of before (Aha!!) and find they seem to be a Russian company, with its website in Russian and in English. No hint that they quote prices on Argentine bonds for Argentine locals!

I don´t know why you´re so keen to argue the matter. I´m almost certainly right, but what does it matter?

PS. the Argentine doesn´t have "dollars" as its local currency.

An Elder One: The equations involved are beyond me too - and, what is probably more alarming, I think they seem to be beyond economists as well. I think that "experts" would come up with solutions to problems on pensions, euro mortgages etc.. Obviously, Greece is in a spot and whether they stay in or leave the euro, bad times are going to continue for a while. If I were a Greek, though, I´d try to ditch national pride and say:"let´s get out now" a year or twos´ pain, followed, probably, by a booming economy. It sounds a lot better than misery into the indefinite future.

Now, I must get down to work!!!!!!!!!!!!!!!!

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Cape Town

Jan 22, 2012 at 02:06

es when buying bonds lke this look at the spread in case you sell before redemption, look at the evolution of the currency relative to you currency, look carefully at the risk and ratings, and look at the charges you get involved in.

No such thing as a free lunch - look for that price tag!

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Robert Hutchins

Jan 22, 2012 at 10:23

Cape Town:

You´re right! Chris wouldn´t in fact get 55% anyway - right now he´d get about 9%. I wouldn´t touch them, or the bonds of other "volatile" countries, - but then, I´m temperamentally unlikely to buy any bonds. I certainly wouldn´t buy UK or US ones either at the moment, with ridiculous yields. I´d rather leave the money under the mattress.

Chris: In the event that you still look at this thread, which is long past its "best before" date, and further to your insistence on the difference between local buyers and overseas ones for Argentine bonds, here is a further clipping from Bloomberg for your consideration:

By Drew Benson - Jul 16, 2010 11:43 PM GMT+0200Fri Jul 16

IRSA, the country’s biggest real estate developer, issued $150 million of bonds due in 2020 to yield 11.875 percent yesterday, the first overseas sale since Pan American Energy LLC sold $500 million of 11-year debt on April 30. Yields on Argentine government dollar debt, a benchmark for corporate borrowing costs, have dropped 82 basis points in the past two weeks to 10.92 percent and touched the lowest since May 4 on July 14, according to JPMorgan Chase & Co.

You would find that bonds from countries with a dubious reputation but a high yield - about 9% in this case - are bought by, amongst others, High Income International Bond Funds, Emerging Market Funds etc.. It is interesting that in its default year, the Argentine government spending deficit was 3.5% and their total debt/GDP ratio was 55%. The UK is, I think, currently on something like 8% and 80%.

What brought the Argentine down was trying to peg the peso to the $ and what turned the situation round was dropping the peg. There were a couple of years mayhem, followed by a boom, with annual growth rates of about 7%, which has been going on now for about 8 years. Greece and the other countries in trouble have a similar problem, through pegging their economies to the euro.

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ClothKap2

Jan 22, 2012 at 10:41

Yes well, the trouble is that they don't seem to understand that the main reason for soveriegn debt in the whole EU is the ludicrous amount of regulation and brueaucracy piled onto every country by the EU itself.

If they forgot about their insane and perverted desries to control every aspect of every minute of our waking lives, and went back to being the barrier free trade organisation that we voted for in 1972, a great deal of the problems would disapper quite quickly

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Cape Town

Jan 22, 2012 at 11:07

If you'll excuse the pun, ClothKap you're talking crap.

Brussels is a model of efficiency and has currently sent techicians to Greece in an effort to counsel them on how to run a country.

The controls they mainly want are to protect the consumer from predatory business practices and to ensure level playing fields for all businesses.

The massive debt is not from overblown bureaucracy but from overblown projects of state spending.

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82 yo

Jan 22, 2012 at 11:51

If you want to see a serious review of the problems facing €zone and the impact of the proposed solutions please visit John Mauldin weekly e-letter review this week "Staring into Abyss" - very interesting and instructive - jb

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Cape Town

Jan 22, 2012 at 13:50

82yo

The comment above of Jan 21, 2012 at 00:36, and earlier ones, makes the same points as Staring into the Abyss by John Mauldin.

Basically, ther eis an immedaite problem of insolvency - these Southern members are not going to pay their debt, Northern folk will run out of patience transferring to them (right or wrong). The problem comes from uncompetitive economies. Normally, adjusting excahnge rates would deal with this but in the pegged Euro this is not open to them.

Merkozy can carry on deying realiry until their terms in office are up, but at an even more terrible cost to Europe and the world.

There are answers. Short term insolvency can be solved by haircuts, bt do not exect only the private sector to "aprticipate". Public bodies that have lent to these folks must tell their electorates that their money has been wasted.

This could give a short breathing space - say a couple of years - in which to rebuild the capab ilities of the Southern countries to manage their governments and their business. Probably a forlorn hope.

One solution I proposed earlier in another column here - and it is paer f the idea to teach them how to manage their affairs - was to onshore the production that Europe foolishly offshored, and onshore it to the South of Europe, creating opportunities and jobs and a revitlised tax base and ultimately saving the Euro and relieving the North of sending regular bail out payments. Of course, the Northern members, heads of the Supply Chain, would need to teach the Southern suppliers how to organise to meet targets set byt he Heads. This falls foul of open trade policies and exchange sales agrreements (these offshore countries agree to buy our superior European goods if we set up production facilities chez eux.)

82yo - many thanks for this splendid lead and congratualtions on getting to 82. My Dad is 80, probably would contribute to these columns, and is a sharp cookie too.

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Adam Murza-Murzicz

Jan 22, 2012 at 14:56

Folks!

I've been following this very interesting discussion over the past few days and it has convinced me that EVERYONE has been at fault in this current situation, to some extent or another - politicians, bankers/investors and electorates/consumers (in that order of culpability).

The politicians have been culpable for two reasons:

a) they tried to bribe their electorates - their financial supporters by introducing policies which benefited those "policies" which they believed the electorate would go along with;

b) they were stupid enough to believe that the chickens would never come home to roost - or if they did "the other lot" would be in power.

The bankers/investors are a canny lot (surprise!). They took all the above on board and provided the "tools" (in more than one sense of the word) with which to satisfy the needs of the politicians by providing them with PFIs, swaps, derivative - anything to hide the given country's real indebtedness [as an aside, how does the UK's "REAL" debt look like - horrendous, I expect]

And then we have the least culpable - but not free of blame - the electorate (consumer) who was unable to decide what he/she could afford - WHO THE HELL NEEDS A POSCHE/FERRARI just because some plonker from Goldmans/Barclay has got one.

An old Polish song says "You only need one house to live in, only one field to walk in with your dog and you can only eat three meals a day [the song says nothing about vodka].

Can we really be surprised that the debt crisis came along, since every level of society wanted to be a part of it.

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82 yo

Jan 22, 2012 at 16:35

Cape Town - thank you for your contributions and kind comments - regrettably 82 was 2 years ago - Adam - kind regards - Jarek

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Chris Powell

Jan 23, 2012 at 09:08

I have quoted the FT which is a worldwide finacial paper. The reason Argintine has low debt is becasue no one will lend to them and they are tying to rebuild credibility which takes decades!

S&P ratings- B Argentina alon with, Benin, Fiji Islands, Ghana, Honduras, Lebanon just above Greece but below Cambodia and Zambia!

I think that says everything!

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Robert Hutchins

Jan 23, 2012 at 09:30

Chris:

Yes - I have heard of the FT. When I was in the investment business, there was a booklet called something like: "How to Read the FT." I wonder if it still exists.

The reason the Argentine has low debt is because they have been running a surplus for years. I think I included copies of Bloomberg items, including one about Argentine companies issuing overseas $ debt? They have no problem issuing $ debt bought by overseas entities, albeit, it presently costs them about 9.5% a year.

I think you are a bit out of your depth, arguing about these things, Chris. There is no point in "debating" if the debate is turned into argument for arguments sake.

At any rate, if you reply to this, you will have the satisfaction of the last word.

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Chris Powell

Jan 23, 2012 at 09:40

Zambia!

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Chris Powell

Jan 23, 2012 at 09:48

By definition you cannot have a deficit if no one will lend to you. You have to have a surplus. You just print money!

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Ganderdonk

Jan 23, 2012 at 12:08

There is nothing like a religious squabble - little rational exchange, speculation on speculation about some over which the speculators have no influence, let alone control - and all generating antipathy and heat but little or no light.

In passing, the Anglo-enjoyment of the Euro-travails is not more seriously xenophobic than the routine approach to France - something of a national pastime.

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Robert Hutchins

Jan 23, 2012 at 17:21

Ganderdonk:

Yours is a late, but valuable contribution to the debate. I think I get the drift of your argument, but I´m hazy on some of the details.

Probably, you´re relying too much on the Kalām cosmological argument.

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Dutchie via mobile

Jan 30, 2012 at 01:52

The dutch DO want to leave the euro. We never even wanted it. That is the reason why anti-EU parties do so well in the dutch political polls. If the dutch PVV party retracts it's support from the gouvernment there will be elections that most likely transform the ruling political landscape rigorously. Then we'll serve the 'club-med' some dutch treat. That is, if we (the dutch) aren't misled by our opposition leaders. But then again, if that would be the case, we know how to resolve such a problem. I refer to the 'de Witt' brothers. The dutch are not violent people, but don't mess around with our money.

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