The Market Has Turned

[VirtualVagabond]

Originally Posted by Doodles

Something has got to give. This can't go on forever.

Anyone who thinks we can get out of this without something major going pear-shaped is naive.

The only question left is, will there be an opportunity to get a boat way above my punching weight for an absolute song, in the process...

[goboatingnow]

Originally Posted by VirtualVagabond

Anyone who thinks we can get out of this without something major going pear-shaped is naive.

The only question left is, will there be an opportunity to get a boat way above my punching weight for an absolute song, in the process...

Well if it goes pear shaped. It's going to be a huge frigging pear. I suspect you'll be more worried about how to buy cabbage then boats !!

Davr

[storyinframes]

Here is an article from WSJ which puts in a nutshell the domino effect that would be set in motion once Frankfurt legalises Greece's exit.




Exit the Euro Zone? Think Before You Leap
Greece’s departure from the monetary union would be legally difficult and financially ruinous



By Carol Matlack and Jeff Black

THIS WEEK



“Everything must be done to keep the euro zone together.” That was Chancellor Angela Merkel speaking on German radio on Sept. 13 as she denied reports that Germany was preparing for Greece’s exit from the monetary union.

That the leader of Europe’s biggest economy must dampen speculation of a breakup shows the rising unease about the common currency. Two years ago most politicians and investors believed firmly that the euro area was indivisible. As the finances of Greece, Portugal, Ireland, Spain, and Italy have fallen into crisis, that has changed. It’s still unlikely that any member state will bolt or be banished. Greek Prime Minister George Papandreou, for one, vows to keep Greece in the euro zone. Still, a growing number of policymakers and analysts are talking seriously about an exit.

In Greece, the issue is enmeshed with a possible default on its sovereign debt. Yields on credit default swaps on its short-term debt are at 98 percent, a sign that investors consider default inevitable. “If the Greeks don’t make it despite all of their efforts, you can’t rule out” their leaving the currency union, Horst Seehofer, chairman of Germany’s CSU party, a coalition partner of Merkel’s ruling CDU, said on Sept. 11.

Any country that dropped out of the euro would regain control over its monetary policy. Its central bank could set interest rates and would not be controlled by the European Central Bank in Frankfurt. It could reinstate and devalue its own currency, making exports more competitive. An exit would probably lead to sovereign debt restructuring or default, since the country couldn’t repay all its euro-denominated debt with a cheaper currency. Economists reckon that a reintroduced Greek drachma, for example, would be worth only half as much as a euro. Yet Greece seems likely to default anyway, so what’s the difference?

In reality, leaving could be a lot messier. The treaties that created the euro provide no opt-out mechanism. Legally, an exit would require a unanimous vote by euro member states to change the treaties, says Peter Becker, a researcher at the German Institute for International and Security Affairs. Expelling a country against its will is effectively impossible. A voluntary exit could be negotiated, but could take months.

What spooks Merkel and other leaders is that a Greek exit could unleash a chain reaction of departures from the euro by other weaker members. Also, an inside-the-euro default by Greece would be less complicated and costly than a default outside the zone, because the ECB and other European bodies could help reach a deal with creditors.

Quitting the euro looks even scarier for the Greeks. Their economy would shrink by at least 40 percent after an exit, predicts Stephane Deo, chief European economist at UBS (UBS). The banks and stock market would collapse, government and businesses would be frozen out of global credit markets, and corporate balance sheets and individual savings would be reset in a devalued currency. Devaluation wouldn’t help exports much, Deo wrote in a Sept. 6 note: Other countries would likely raise tariffs to protect, say, Spanish olive oil against cheaper Greek oil. Social turmoil would probably increase. “Greece is going to go decades back” if it leaves the euro, says Vassilis Korkidis, president of the National Confederation of Hellenic Commerce, “This is going to be a disaster.”

Greece spent many decades under foreign rule or domestic dictatorship, including a junta that imprisoned Papandreou’s father and exiled his family. The political class sees membership in the European Union and euro as a sign of how far Greece has come, and as a guarantee against slipping back. With Turkey growing powerful, Greece doesn’t want to be cut loose from its economic and political moorings. Moreover, Greece experienced devaluation and inflation in the 1980s that “not only failed to improve competitiveness but also eroded the value of people’s savings,” says Miranda Xafa, a senior investment strategist at Geneva-based IJ Partners and ex-board member for Greece at the International Monetary Fund.

So if no one wants an exit, how could it happen? Willem Buiter, chief economist for Citigroup (C) in London, offers a scenario in a Sept. 13 report: As Greece resists EU, ECB, and IMF demands for more austerity, the exasperated troika cuts off funding. Greek banks can no longer post Greek debt as collateral for loans from various EU agencies. With no funding available from the euro area, writes Buiter, “Greece could blunder into exiting.”

The default feared by investors would then occur. European banks—which according to the Bank for International Settlements hold a total of $128.8 billion in Greek debt, including $42.9 billion in public debt—would take a hit. Investors would push up the cost of government borrowing in Ireland, Portugal, Spain, and Italy, and funding for those countries’ banks would dry up, predicts Nick Kounis, head of macro research at ABN Amro Bank. “You’d wonder,” he says, “if the euro zone would fall apart.”

The bottom line: The costs to Greece, not to mention the entire EU, would be enormous if the Greeks were to leave the euro zone.

With Simon Kennedy and Tom Stoukas

Matlack is a Paris correspondent for Bloomberg Businessweek. Black is a reporter for Bloomberg News.

READER DISCUSSION

LikeNo


Post as …


Hugo van Randwyck
2 days ago
The Greek people could benefit from having 2 referendums.
First, an EFTA referendum: EFTA/EEA or EU/EEA? www.efta.int - this would allow them to be in the European Economic Area and have free movement of: goods, services, capital and people.
Second referendum: Euro or Drachma, as currency.
As the article said, the Drachma would fall by 50%, which means the Greek economy has no chance, within the current Euro, of prospering and creating jobs. Yes, Turkey is doing well and has it's own currency and is not part of the EU - there's the clue.
Also, how many times has Greece gone bankrupt in the last 200 years, 4 times? or more. It's probably better if each Euro country had a referendum on re-introducing their own currency again. Norway and Switzerland are in EFTA = European Free Trade Association. EFTA = less EU regulations = more jobs
reply

Brickina Wall
2 days ago
Either the EU project has to be completed or it has to be abandoned
reply

Passive Observer
1 day ago
Yep. It would be a total disaster for Greece to regain control of its own currency and default.

Just look at Argentina
reply

gerald
1 day ago
This is no more than a temporary pain of giving birth to the united Europe. Everybody has known for the last two decades, that some particularly archaic economies would never adapt themselves voluntarily to the rules of the game for a REAL European Union, as designed by Germany and France. Now it's the bitter reality that forces them to change, for good. Within 15 years we will have a much stronger and homogeneous euro and EU. If Greece doesn't apply the political and economical structures of the "modern" and competitive Europe, they will end in poverty. It may happen, but it wouldn't benefit anybody, so it's VERY unlikely.
reply

[storyinframes]

Asking prices for 2nd homes have dropped 15-30% across Spain Portugal Italy and Greece. Prices of some of the properties are half as what they were 2 years ago.
Sellers want to dispose now but buyers are scared too. Fear of a revalued euro or the extreme case of some countries losing the eurozone membership: either of which could dramatically devalue their property.
Via WSJ.

If second homes face this crises, the analogy could in a similar way fit for boats too.

[storyinframes]

In reference to @goboatingnow 's previous comment.
If the worst happens for the eurozone, starting with the Greece, and then with other affected countries. Then part of his statements could come true - like hoarding cash and getting armed.
In order to best understand such a scenario plz dig out and read about the fall of Yugoslavia. Not the bloody ethnic violence but the financial mayhem how it took a toll on the people and made certain the country would be balkanised. Inflation was running at a goddamn 5000%. Your 1$ today is 1cent tomorrow.
I think I have misplaced the link. Will look for it.

Economic collapse is million times worse than a bloody civil war.

If Europe collapses and America slows down further, it's after shocks and tremors will be felt all over the world.

God help all of us. I pray intelligent people on top handle the inevitable fiscal crises with utmost care and tranquility so that it doesn't explode in the faces of common middle class people like most of us here. It should be more of a controlled demolition.

In order to fully grasp this situation plz read about yugoslavia's balkanisation.
Media reported all the sensational bloodbath and political tussle but no body told you the cancerous growth of economic failure because it doesn't grab eyeballs for tv channels and newspapers because of the scholarly nature of the content.

[VirtualVagabond]

Storyinframes, you post some thought provoking concepts.

Do you have any research or thoughts on the 'semi bystander' economies and currencies such as Canada, Australia, New Zealand. Maybe also S. Africa, and some Asian and S. American countries?

[boatman61]

Originally Posted by VirtualVagabond

Very droll, Boatman

Sometimes you really crack me up...

Subtle VV... very subtle....

[storyinframes]

@virtual vagabond.
Thanks.
Trade in the developed Anglo-Saxon (incl aust+nz) is pretty interconnected and fluid because of cultural and historical bondings. Movements of goods and personnel is fast and easy among these countries. If western Europe and US hv already taken a partial hit but if they go for worse, then the bystanders get affected too. :-) logic and plausibilities I will provide after some detailed studies and referrals.

If Canada thinks they can do a Japan on US that won't happen. I don't mean pearl harbour :-) what I mean to say is like building a protective firewall around it's economy just what the japanese did in 90s against the US to get the balance of trade in their favour. Very difficult for bystanders not to get affected by the financial crises all around them. But as I said a study with a critical eye is needed.

Question to ask is how is BRIC going to brace with this economic super recession (my heart palpitates if I hv to say depression :-))?

Have you realised if Euro collapses, Iran is screwed big time. Their oil payments comes through a European midwife in Euros.

Pretty complex, the whole thing. If we get three factors right then there are other 5 subtle political factors that we miss out.

We are doing some grt brain storming sessions on twitter about the various scenarios that might unfold.
Will keep you posted.

[sailingfool]

It may seem simplistic, but imagine if the Greeks decided pull an "Iceland". Start fresh, and maybe become a tax haven. I imagine their economy would turn around in no time. The Euro was a economic solution for a perceived political problem to begin with. I always thought it would be better to let the TBTF's fail. The people with the most to lose can afford to take the loss, and we should also rid ourselves of this inflationary debt-based fractional reserve system, as well as the obviously destructive derivative markets. Good economies are only sustainable with sound money as a foundation, and you gotta start somewhere. Can't just keep kicking the can down the road/digging the hole deeper.

[tropicalescape]

Originally Posted by sailingfool

It may seem simplistic, but imagine if the Greeks decided pull an "Iceland". Start fresh, and maybe become a tax haven. I imagine their economy would turn around in no time. The Euro was a economic solution for a perceived political problem to begin with. I always thought it would be better to let the TBTF's fail. The people with the most to lose can afford to take the loss, and we should also rid ourselves of this inflationary debt-based fractional reserve system, as well as the obviously destructive derivative markets. Good economies are only sustainable with sound money as a foundation, and you gotta start somewhere. Can't just keep kicking the can down the road/digging the hole deeper.

We can kick the can as long as some think that they can have their cake and eat it too..the writings on the wall ie.One BRI.."C" member in particular..

[goboatingnow]

There won't be a default nor an exit. The consequences would be an undoing of whole eurozone, followed by the EU The resulting backwash would take the US out ( remember its hugely in deficit) The Germans will however reluctantly step up to the plate and support both the bailout and Eurobonds. The price will be fiscal union. There will be brinkmanship and all sorts of politics. In the end there's no choice. You cannot have Germany inside the Eurozone while refusing to get involved. One for all and all for one.

The alternative as Poland pointed out could be war.

[VirtualVagabond]

I wasn't really aware of the Iran/euro aspect.
That becomes an even more complex issue... Iran's ambitions are not just economic. Ambitions for control and Sunni/Shia rivalry issues are just as important in their thinking, possibly more so.
The reaction to a sudden devaluation of their euro based assets could be interesting to say the least...
Anyone know if they've upped their purchase of military assets recently in anticipation of a plunging euro?
I'm sure the Saudis are watching closely!

[boatman61]

The Euro's unlikey to plunge anytime soon... in spite of Greece...
To much money has been moved from $'s by to many countries and 'Hedged' in the Euro... the Euro itself is pretty strong... its the political guts that are weak.
Personally I think Brussels is happily rubbing their hands and anticipating this forcing Europe into Fedralism... its their dream..
The USoE.....

[VirtualVagabond]

Originally Posted by boatman61

The Euro's unlikey to plunge anytime soon... in spite of Greece...
To much money has been moved from $'s by to many countries and 'Hedged' in the Euro... the Euro itself is pretty strong... its the political guts that are weak.
Personally I think Brussels is happily rubbing their hands and anticipating this forcing Europe into Fedralism... its their dream..
The USoE.....

Big call. Most of those "states" don't even like each other... and the official language is.... (drum roll)... Esperanto..?? ROFL

[tropicalescape]

Originally Posted by goboatingnow

There won't be a default nor an exit. The consequences would be an undoing of whole eurozone, followed by the EU The resulting backwash would take the US out ( remember its hugely in deficit) The Germans will however reluctantly step up to the plate and support both the bailout and Eurobonds. The price will be fiscal union. There will be brinkmanship and all sorts of politics. In the end there's no choice. You cannot have Germany inside the Eurozone while refusing to get involved. One for all and all for one.

The alternative as Poland pointed out could be war.

Gotta nice ring to it..The United States Of Europe..then..The United States Of Aisa..then one day when we are all gone ...The (four) United States Of The World Union..and all this time I thought that old WWII vet Preacher of mine was crazy..shake down for a one world government