Senate Greece and Illinois - the Public/Private debt crisis spiral

Going forward I guess some form of Greek default is inevitable. France and Germany will shift resources to try to shore up their own banks and Italy.

 

[image=http://i289.photobucket.com/albums/ll224/superwatto/eurozone.jpg]

 

I like it.

 

At this point I think its inevitable Greece leaves the eurozone. The question is whether that will trigger a further run on Italy that the Eurozone can't cope with.

 

The odds seem to favor collapse of the current government, possibly even mere hours from now, and a "disorderly default." Is "hyper-stagflation" a word?

 

Now Greece has cancelled the referendum, saying they'll do anything to stay in the Eurozone.

 

I believe there's still a no confidence parliament vote tomorrow. The referendum was Papandreou's high risk gamble to save his government, but I don't think it worked.

 

Look to the markets to see what will happen.

US markets are skyrocketing today. They tanked on news of the referendum. If they're rising, investors are confident that Greece will stay in the euro.

If they drop for more than 3 days straight, buy some gold .

Peace,

V-03

 

The Greek people don't have the stomach to endure the 50% default solution. If an enduring horrific Greek recession is inevitable, then they are going to want to be in charge of their own destiny as it unfolds. A 100% default that comes with the ability to print currency gets more tempting with each passing day. Every day that passes the chances of it happening increase.

 

Europe's rescue fiasco leaves Italy defenceless

This frightening article hints at the turmoil in the bond markets.

Greece is getting a new government. Italy may soon follow.

Europe is resorting to such antics because its richer states ? above all Germany -- still refuse to face up to the shattering implications of a currency that they themselves created, and ran destructively by flooding the vulnerable half of monetary union with cheap capital.

We can argue over details, but the necessary formula ? if they wish to save EMU -- undoubtedly entails some form of eurobonds, debt-pooling, fiscal transfers, and of course the constitutional revolution that goes with all of this. That would at least buy them time, though I doubt that even fiscal union can ever bridge the North-South gap.

Europe is in deep trouble. This all seems to end with Greece, Italy and Spain bailing out of the EMU.

 

The EU can survive Greece leaving until it straightens itself out. The EU could even survive Spain leaving for a while to straighten things out, though that would be more of a stretch.

But Italy? The 3rd biggest economy in the Eurozone, and one of the original founders of the European Coal & Steel Community that gradually became the EU?

If Italy goes, then the EU basically becomes a France-Germany alliance, and the smaller states might rethink their status.

 

Well, Berlusconi's announced resignation did nothing to help. Italy's ten year bond's broke 7%. This will probably end poorly for everyone except Mitt Romney. The main hope I have is that Draghi will be much more useful as a ECB head than Trichet was. But its a slim hope.

 

Italy: too big to fail, but also too big to bail out.

 

French banks hold $416 billion in Italian debt. U.S. banks hold $47 billion.

Meanwhile, Jefferson county, Alabama beats out Orange county, California for the largest municipal bankruptcy in U.S. history, over a debt of $3 billion.

 

The Greeks and EU have reached *another* bailout deal, only this time, no one really believes it's for real.

Even though the Greeks have reached an agreement (and it's full of holes, not having yet included an agreement on pension reform), there is very little guarantee that they will follow through on all the austerity measures. Even if they follow through, there is very little guarantee that the Greek people will quietly go along. Even if the Greek people go along, the ever-deepening recession that the austerity measures have caused and will certainly make much worse will undermine Greek solvency even further.

In short, the Greeks can't possibly make good on any agreement. Default is inevitable and there seems to be widespread understanding that the "bailout" process has become a play within a play, a pageant intended to defer the inevitable for a little bit longer perhaps with the hope that the ultimate outcome can be delayed long enough so that the strongest of the European economies will have time to engineer a recovery that will make them strong enough to withstand a Greek exit from the Euro.

 

Greece leaving the Euro wouldn't solve any of their problems, it would just make them worse. They would have crazy inflation, and enter a depression at the same time. It may somewhat isolate the crisis to Greece, but Greece would be worse off. And let's not pretend it's only Greece, there's many other Euro countries in the same situation. They need to reform and integrate their economies.

 

Greece is already in a "depression," which any added austerity measures will worsen.

 

And leaving the Euro would be even worse.

 

Maybe, but there are some fairly good arguments for why default would be better for Greece, the number one reason being that repayment is simply impossible under any realistic scenario for Greece's economic situation over the next decade.

?Greece Should Default Instantly,? Economics Professor Says
Defaulting but staying in the euro is politically impossible for now, so leaving the Euro is the next best option.
Greece?s interest burden, post-PSI, will remain huge

Greece Should Take the Money and Run

It wouldn?t need access to international markets once it didn?t have to worry about debt. A devaluation of the new drachma would make the economy instantly competitive, allowing it to eliminate its current account deficit.

What?s the downside? A bunch of irate Germans. But they?ll be irate whatever happens.

I'm not saying that kicking the default can down the road is a bad strategy for the EU, or for Greece in the very short term. But eventually it's going to happen barring a dramatic European-wide economic recovery.

 

Honestly, an orderly plan to divorce Greece from the Eurozone, and a orderly plan for it to default are probably the best option. A dose of inflation would be ideal; the wage cuts being proposed are causing turmoil and seem to be a political non-starter. A dose inflation would cause real wages to fall without political problems. It'd also help exports, though according to Hausmann in the FT yesterday they are not in a great position to take advantage of that.

The key is the ESM/EFSF, IMF, and especially the ECB need to be standing ready to firewall off Portugal/Spain/Italy. .

 

Again, in the "All the economically recoverable oil will power America for...a day. But it'll take us years to get it." category, like ANWR. But it's nice that they're thinking. Also, it's not Canada's main export.

 

All accounts seem to show that the costs of Greece leaving the Euro would be staggeringly high. The problem is, though, that there really isn't any alternative (and never really was). The structural reforms necessary to make the Euro-zone work (ie move closer to an "optimal currency area") are never going to happen politically, as no one is willing to give up the sovereignty necessary. So it seems like it's a choice between the lesser of two evils: (i) take the hard hit now an prop up Greece after it leaves the Euro or (ii) pump in the money needed to pull the Euro-zone from the brink right away (which is still a staggering sum, but still far less than what's needed under choice (i)), and know that you're probably going to have to again (and again) in the future.

Another thing for Merkozy to keep in mind. with unemployment among young Greeks at 40%, don't be surprised when extremist groups pick up a significant share of the vote in April's elections.

 

Didn't the early United States undergo a similar crisis, when we were governed under the Articles of Confederation? That's basically what the European Union is right now, a confederation. We solved it by creating a federal republic, one of the objectives of creating the Constitution was to have a federal government that absorbed the debts of all the states. Couldn't the European Union do something similar?

 

They could, but their own national identities are far more ingrained than the identification the former colonists had with their states. Of course, when they adopted treaties in the 80s/90s that created the Eu and the Euro-zone, they loved calling it "The United States of Europe". Of well.

 

A fun aside: