patrick.net

American in Japan says

Greece in itself isn't a big deal. The problem is that what they do may set a precedent (default or even leave the EU) for much larger economies like Italy, Spain and Ireland.

Exactly. Greece is the worst off, so they will set the tone.

What happens to the EU is still up in the air. My hope is default by those who can't pay their debts. It will be harsh, but less painful than 30 years of 'austerity' and giving up national sovereignty and democratic governence, like ripping off a bandaid quickly.

However, 30 years of austerity serves the interests of the international banking elite, who see national sovereignty and democratic governments as nuisances.

If Greece and its counterpart can drum up just enough national will to default, within the next 10 or so years, we'll see slow but consistant growth both in Europe and the global economies. If not, EU members will see their sovereignty eroded, while being placed on the hook for private losses over and over.

This is the real question, will the real economy that produces goods and services (and by extention most jobs) be able to muster the political will to take on the financial services/securitization sector.

The EU is fine. If Ireland didn't cause the EU to collapse, Greece certainly won't. America can survive a state of Alabama bankruptcy; the EU can survive their Alabama defaulting.

The EU will never disappear because of the trade links. They'll kick the can down the road, try to ignore problems and put in little patches here and there, but the EU isn't going anywhere.

Germany, Holland, and France love the EU as the main market for their goods.
Poland loves the EU because it's the lower cost manufacturing center of Europe.
Spain and Italy (Malta, Bosnia, Portugal, etc.) love the EU because of tourism and retirees and agricultural exports.
The UK needs the EU for the City of London.
Belgium needs the EU because it is HQ'd there.

The Baltic states need the EU as Russia Insurance.

The EU is not just a fiscal union, it's also a trade union.

The "Catholic Latin" core of Europe isn't going to break apart.

The question is will "Greece get booted out at some point?"...

http://www.youtube.com/embed/I5QwKEwo4Bc

American in Japan says

The question is will "Greece get booted out at some point?"...

There is no mechanism , law , process or procedure for some body to get booted out of the Euro or to even leave the Euro .

http://www.timesofmalta.com/articles/view/20111109/opinion/Can-Greece-be-kicked-out-of-eurozone-.392961

The Euro is a experiment . A monetary union without a political union is a completly new . It has never been tried before .

If Greece defaults it will trigger defaults in Portugal , Spain , Italy , Ireland , Belguim etc etc . It will trigger Credit Default Swaps all over the place and will make AIG look like some small store that went bust .

Greece is a poster boy for the Euros problem's , the real action will be in Spain , which really is ' Too Big to Fail '

http://www.creditwritedowns.com/2012/02/the-elephant-in-the-room-is-spain-not-italy.html

I was in Ireland at Christmas and the banks were full of little old ladies buying Canadian dollars and Australian dollars . US dollars were no good as it is widly known that the US is printing like crazy .
These are just ordinary people in a bank . That is how well up on economics and currency ordinary Europeans are and just hoe frightened they are . Weird times .

@grinderman

Thanks for the link.

Call me ignorant, but it may be that the US is bailing (or helping to bail out the EU) thanks to the Fed.

http://finance.yahoo.com/news/feds-dirty-little-secret-qe3-174333327.html

Again the roller coaster continues...
Any more analyses?

The stock market volume is low.
The rally is fake.

I wish to short, but the market can stay high for awhile despite the fundamentals. In fact, I wouldn't be surprised if it keeps going up and hits 1400.

Greece must go into Austerity in order to stop the increase of their debt to GDP ratio. However, being a welfare state, Austerity collapses their GDP. How do you stop this downward spiral?

grinderman says

The Euro is a experiment . A monetary union without a political union is a completly new . It has never been tried before.

Well, there was the Scandinavian Monetary Union. But it was really more like several countries pegging to gold, and using one currency, the Krone. This lasted until WWI. In the end, people have to go to their local post office and get their currency stamped, indicating that the stamped money belongs to that country.

thunderlips11 says

The EU is fine. If Ireland didn't cause the EU to collapse, Greece certainly won't. America can survive a state of Alabama bankruptcy; the EU can survive their Alabama defaulting.

The EU has no central taxation and wealth redistribution. We don't feel so bad if the federal government gives money to Alabama. In fact, we feel that it's our responsibility because we belong to one country.

The EU consists of sovereign nations. Before all this haircut business, one country lends to another. It is debt and must be repaid. The haircut only reduces the payment to 50 or 40 percent. This is really a defacto default, but they're calling it a haircut (instead of a default) to prevent all the CDS mess from kicking in.

If one U.S. state has economic problems and loses jobs, lots of people pack their things and head to another city in another state. You don't see Greeks packing up and heading for Germany. They don't even speak the same language.

American in Japan says

@grinderman

Thanks for the link.

Call me ignorant, but it may be that the US is bailing (or helping to bail out the EU) thanks to the Fed.

http://finance.yahoo.com/news/feds-dirty-little-secret-qe3-174333327.html

You have to wonder who the counterparty is to credit default swaps on European sovereign debt . My guess is the US .

Here is a interesting link from Ireland

http://articles.businessinsider.com/2011-05-08/markets/30004787_1_banking-sector-ecb-european-central-bank

You have to ask why would the Tim Geithner would want to put the boot into a little country like Ireland .

The situation in some parts of Europe is dire. The govt. and banksters will survive any crisis nonetheless. The residents will get less welfare, the bondholders will get "haircuts", the anemic growth will remain anemic or worse, and eventually some countries will get out of the EU currency, or default, or both. Greece is already defaulting but calling it something else.
Sooner or later Greece will get out. The other countries may also, like Portugal which is an interesting case of a third world latin american style bunch right in Europe, how quaint! To get Portugal's low education rate, you would have to go to Africa or Mexico usually.
It of course has nothing to do whatsoever with the ability of US stocks to go up because the growth is outside the loser countries of the EU and the USA for that matter.

clambo says

The situation in some parts of Europe is dire. The govt. and banksters will survive any crisis nonetheless. The residents will get less welfare, the bondholders will get "haircuts", the anemic growth will remain anemic or worse, and eventually some countries will get out of the EU currency, or default, or both. Greece is already defaulting but calling it something else.
Sooner or later Greece will get out. The other countries may also, like Portugal which is an interesting case of a third world latin american style bunch right in Europe, how quaint! To get Portugal's low education rate, you would have to go to Africa or Mexico usually.
It of course has nothing to do whatsoever with the ability of US stocks to go up because the growth is outside the loser countries of the EU and the USA for that matter.

Greece will default . When the other PIGS see the benifit of default , you will see a rush for the exit .

Both Spain and Italy are too big to save . The Euro will crash and the contagion will spread to the US .

Etc etc etc

http://www.huffingtonpost.com/ellen-brown/greece-default_b_1287970.html

They didn't call it a default, but the Greek bondholders lost about 75% of their investment.

American in Japan says

They didn't call it a default, but the Greek bondholders lost about 75% of their investment.

It's called a haircut: http://www.youtube.com/embed/mnrExEHUipU

John,
maybe.

Demographic trends being what they are, it will soon enough be The Islamic Republic of Europe.

Will this "3/4 default" termed as a "refinancing" of Greek debt influence Spain, Italy or Portugal in a similar way?

American in Japan says

Will this "3/4 default" termed as a "refinancing" of Greek debt influence Spain, Italy or Portugal in a similar way?

Greece is just a little guy compared to the other states. I doubt that they'll be able to give this deal to another state.

The troika strong-armed the bond holders to voluntarily take a haircut. It has to be "voluntary", albeit coerced, otherwise it's a default.

I think Portugal will need a second bailout sometime in the middle of this year.

Italy is sort of ok. They're exactly at the Keynesian endpoint. No problems unless there is a contraction in the GDP, another downgrade, or unexpected increase in spending.

Somehow nobody ever talks about Japan, even though they have the heaviest debt burden.

And those who predicted the euro would collapse have yet to proven right. It is in the $1.300-$1.35 range.

American in Japan says

And those who predicted the euro would collapse have yet to proven right. It is in the $1.300-$1.35 range.

Like I said, we keep kicking the can down the road. We haven't solved anything have we? We just keep preserving the status quo. The problem with manufactured stability is that everything stays the same, 'till one day SNAP! All hell breaks loose! Say hello to The Black Swan.

EU ain't goin' anywhere. Greece and a few periphery members might be put out, they weren't ready to be in yet.

Spain was the most obedient to EU deficit spending rules; Germany was one of the first to break them. No case for kicking out Spain: They followed the EU fiscal guidelines to a "T" prior to the crisis. Italy is Italy.

France, Germany, Holland, Poland, Austria all depend on the EU as the primary market for their own goods. Italy is also a big manufacturer as well as a big agricultural exporter. Spain is loaded with copper and iron.

We might see a few of the poorer states give up the Euro for now: It would be ideal for Greece. A common currency or currency peg shared between highly developed countries and underdeveloped ones is a bad idea.

thunderlips11 says

EU ain't goin' anywhere.

Well, no matter how bad things get, a few countries are guaranteed to stay in the EU, even if they're down to just a handful. So that statement is true... at least technically. However, there is no painless way to reduce debt.

thunderlips11 says

Spain was the most obedient to EU deficit spending rules

The problem with Spain has nothing to do with its government or government debt. The problem is private sector debt. When things go bad, I think it's best if they don't do any bail outs. Their GDP may temporarily contract, but I think they'll be ok. Ireland also has high private sector debt.

thunderlips11 says

Italy is also a big manufacturer as well as a big agricultural exporter.

If the only thing you're looking at are the positives, then things will always look great. There is a reason they had to be ring-fenced last year. That only means they're not as great as you might think the are. There won't be any problems so long as the ring fence holds.

thunderlips11 says

We might see a few of the poorer states give up the Euro for now

That needs to happen, but it's not that simple. There is no protocol as to how a country is supposed to leave the EU. What about the debt? What about the money supply?

As for debt, if a country's debt is in another currency but its own currency is weak (higher inflation), that country is screwed. Argentina's debt was in USD. The other EU countries can either bailout the departing country (not likely) or take over the debt. As it is, the rest of the countries already have a lot of debt.

As for the money supply, when a country leaves the Euro Zone (but not necessarily the EU) and switches to another currency, there will be less people but with the same quantity of money.

The whole world is going to go through the pain of moving from a growth model to a sustain model. In the USA and EU, Japan, and Korea, the standard of living drop will be astonishing. In the rest of the world, it will be significant. In the african bush and australian outback, nobody will notice a thing.

Mick Russom says

The whole world is going to go through the pain of moving from a growth model to a sustain model

Islamic countries are still in growth phase. Soon enough Europe will be an Islamic Republic of Europe. When that happens, growth phase again. And it will be a nuclear Islamic Republic of Europe.

tdeloco says

As for debt, if a country's debt is in another currency but its own currency is weak (higher inflation), that country is screwed. Argentina's debt was in USD. The other EU countries can either bailout the departing country (not likely) or take over the debt. As it is, the rest of the countries already have a lot of debt.

Argentina is doing fantastic ever since it defaulted:
Argentine real GDP growth (adj. for inflation):

What is the state of the EU? It's a complete clusterfuck.

A currency union w/o political union? How's that working so far?

Their demographics are even worse than ours. Too many old people w/o enough young to support them. So they have to import conservative Muslims with radically different values and correspondingly higher birthrates.

At least in the US, we're importing conservative Catholics from Mexico et al rather than conservative Muslims from the Middle East.

thunderlips11 says

I'm much more gung ho about just wiping the slate clean than austerity, which has a lousy track record.

I agree. The question is, who are the creditors? If they're mostly private citizens, they can bitch and bicker, but there isn't much they can do. Now, if your creditor is a powerful country, there's the possibility of war.

A great podcast on the Argentine Default (20 mins):
http://www.npr.org/blogs/money/2011/10/14/141365144/friday-podcast-the-price-of-default

Argentina sends representatives to these international settlement claims, but pretty much just refuses to pay anything back.

tdeloco says

I agree. The question is, who are the creditors? If they're mostly private citizens, they can bitch and bicker, but there isn't much they can do. Now, if your creditor is a powerful country, there's the possibility of war.

I hear you. Unfortunately, a lot of our debt is foreign, but not as much as I thought:

The threat of default gives us a chance to correct the one-way Free Trade.

But short of nukes, or by sinking neutral shipping (since most of the world's shipping is flagged Liberian, Panamanian, etc. and almost none of it US flagged), China has no means to really hurt us, not for a few more decades at least. Sinking neutral cargo ships would not make China any friends, and erase decades of international soft power they've been trying to build up.

I suppose if China wanted to intimidate us into paying us back without adjusting our trade relationship, they could seize US assets in China.

I'd be hard pressed not to laugh if some of these Multinational Scum didn't witness all their "Better factories in China, run by hard working Chinese and not lazy Americans" nationalized by China and then sold to Chinese. That irksome 50% ownership requirement for foreign enterprises in China.

But, since most of the production in China by US companies is contracting, the Chinese could simply be forbidden to honor contracts to produce. IE Foxconn is told to stop making iPads until US debt interest payments resume.

Or, better yet, the Chinese would simply impound the iPads, GM vehicles, etc. made in China for US companies, sell them, and apply the dollar value to our debt with them.

This exercise led me to think:

Having the world's reserve currency is nice, but being the worlds' #1 manufacturer is even better. You can't turn electronic digits into wealth if you can't access the manufacturing. Outside of military gear and food products, we simply no longer have the industrial base to mass produce a wide range of consumer goods.

When those US corps left for China, or went bankrupt, the machines were sold off or exported.

thunderlips11 says

I'd be hard pressed not to laugh if some of these Multinational Scum didn't witness all their "Better factories in China, run by hard working Chinese and not lazy Americans" nationalized by China and then sold to Chinese. That irksome 50% ownership requirement for foreign enterprises in China.

Great point. +1.

thunderlips11 says

You can't turn electronic digits into wealth if you can't access the manufacturing.

Well put. Especially when so much American talent is funneled into financial "engineering" and "innovation" (read: ingenious swindles and cons).

What is Spain thinking...What is Spain thinking...?

http://news.yahoo.com/spain-leads-europes-rebellion-against-german-austerity-183315940.html

Europe still has problems ahead, but does Germany deserve to be blamed like this?

http://www.japantoday.com/category/politics/view/italian-pm-blames-germany-france-for-eurozone-debt-crisis

There hasn't been much in the news about Greece lately? did they default yet? or is it just not being reported anymore?

A currency union w/o political union? How's that working so far?
Eurobonds are a comin' I tell ya. United we stand, divided we fall.

ATK says

There hasn't been much in the news about Greece lately

1. They got a bailout
2. They restructured by swapping their old bonds for new ones with a much lower value

European headline risk will be back.

Europe is in recession right NOW.

Is it odd that no news about it?
That is because we have an election in November.

The problem is that the EU cannot be run like the USA.

12 years after independence the USA had a constitution. europe is still working on one.

Although there have been wars in both areas the idea of a loyalty to a state is dead in the USA (for the most part). States (except vermont) must balance their budgets...while in the EU that is not the case. It is hard to have a monetary union without a real political union.

Europe is simply too diverse. Of course they know more than one language but the expansion of the USA and EU differs dramatically. With the USA states became states when they had enough of a population (for the most part). In Europe many simply lied about their debts.

It can be argued that maybe German needs Greece. If Germany and France formed their own union the currency would have a high value due to the export nature of Germany. However, that would hurt their exports and thus in keeping it that would weigh down the Euro value.

The other problem in the EU is frankly the expansion was out to the former communist east. To expect the same level of standards when it is has only been 20 years is a bit of a joke. So under what grounds would any support go from the west to the east? What does the west get and what does the east get?

Thanks for the comments Mdovell, Xenbogear3.