Bollitics - Ireland, the Euro and the future of the EU

[snowychap]

Euro plunges after reports Greece could leave currency

The euro has fallen sharply on the foreign exchange markets in late trading after reports Greece is preparing to leave the eurozone. Athens has denied the reports.

The Greek deputy finance minister, Filippos Sachinidis, told Reuters: "The report about Greece leaving the eurozone is untrue. Such reports undermine Greece and the euro and serve market speculation games."

The euro has had its worst week since January, and has fallen 1% to below $1.4400 after a report on the Der Spiegel website that a secret crisis meeting is being held in Luxembourg on Friday evening to discuss the situation of the heavily indebted Greek nation.

The report said that the Greek prime minister, George Papandreou, felt he had no option but to leave the eurozone and that Germany intended to prevent the country tearing up the decade-old single currency.

...more on link

[Awol]

Athens has denied the reports.

Yes, just as they denied needing a bailout right up until they got it, and an extention to their bailout right up until they got it. If they do intend to quit the euro then pre-anouncing that fact would see them slaughtered in the markets.

It makes sense for them to get out, default and devalue. Ditto Ireland and Portugal. Then the European banks fall over and it gets really interesting.

[Meath_Villan]

ahh so this is what all the worry about Greece is again ....could get slippery alright

[Gringo]

The report said that the Greek prime minister, George Papandreou, felt he had no option but to leave the eurozone

There is no alternative, this has to happen, followed by Ireland and Portugal

[Awol]

The report said that the Greek prime minister, George Papandreou, felt he had no option but to leave the eurozone

There is no alternative, this has to happen, followed by Ireland and Portugal

Well, as you're here....

Putting Ireland and Portugal to one side for a minute, I seem to remember that central European banks were very exposed to Greek debt and that in turn, RBS and others here were heavily exposed by loans to those banks.

If Greece leave what's your best guess as to how it plays out across the banking system?

[Gringo]

Well there's been a year and a half of legitimised money laundering where banks have traded their greek debt for euro debt via the ECB, but the french, german and UK banks (mainly RBS) still hold a lot of the debt. Of course if we have a default then the CDS trades come into play and that drags in the swiss and american banks. Following the failure of lehmans banks have been busy hedging their CDS exposures so it's difficult to see one big bank taking the whole hit and going under - bail out for a couple of the french banks probably. And when the tide goes out we'll see who's swimming naked - ie there's always fraud in the system, and someone will be caught with their pants down.

It does however hit capitalisation of the banks and makes debt more expensive for everyone else.

[Awol]

Cheers. Sorry to labour the point but I assume the situation must be the same with Ireland and Portugal -banks laundering money through the ECB but still exposed to the sovereign debt at some level?

If they follow the Greek lead of exit-default-re/devalue then presumably the required bank bailouts would be even more widespread? I wonder to what extent the ECB can maintain its lender of last resort status when it is sitting on oodles of junks bonds and as the bad money is chased through the system, won't the debt-default-start again scenario move right up the chain until there is no one left to bust?

I suggested at the time Brown started all of this that transferring private bank debt to soveriegn nations would eventually bust the entire system (apart from, ironically, the recapitalised banks). It's clearly a doomsday scenario but can it now go down any other way?

[Ads]

How long before Germany gets fed up and pulls the plug on the EU? I’d be bloody furious as a German voter.

[thetrees]

The great urban myth at the moment is that the Bundesbank have billions of Deutschmarks printed and ready to go into circulation.

Not too likely, I think.

[Gringo]

Cheers. Sorry to labour the point but I assume the situation must be the same with Ireland and Portugal -banks laundering money through the ECB but still exposed to the sovereign debt at some level?

As per above - debt is going to become more expensive as the banks try to shore up their capital levels - so even though Ireland don't need to go to the markets again til the end of 2012 (and no one's going to lend them money just before the end of the world) - the markets are already pricing irish debt at above 10%. So they're going to go bust in 18 months time regardless. This actually gives Enda a stronger hand to play than he had after the election. Does he pour the EUR9bn in interest to the ECB and IMF down the drain for the next 18 months or does he tell them to do one, and use the 9bn as part of a settlement with the debtholders. Odds are Enda will just end up with a (pointless) reduced interest rate of 5% and it will go titsup in 18 months time anyway - I doubt he has the balls to take on the big boys.

[thetrees]

How long before Germany gets fed up and pulls the plug on the EU? I’d be bloody furious as a German voter.

History has shown that all German expansionism ends in tears.

[Awol]

How long before Germany gets fed up and pulls the plug on the EU? I’d be bloody furious as a German voter.

History has shown that all German expansionism ends in tears.

They thought they'd cracked it with the 'banks not tanks' strategy this time. I guess some things just aren't meant to be..

On a serious note I agree with Ads' point, how long is your average Herman going to keep sucking it up on behalf of countries he sees as feckless and irresponsible?

[thetrees]

On a serious note I agree with Ads' point, how long is your average Herman going to keep sucking it up on behalf of countries he sees as feckless and irresponsible?

Talking of fecklessness and irresponsibility, can you imagine how much further advanced their thinking would be had we entered the EURO with Brown 'managing' the economy?

[peterms]

The great urban myth at the moment is that the Bundesbank have billions of Deutschmarks printed and ready to go into circulation.

Not too likely, I think.

Since only about 3% of money created is created by physically printing banknotes, yes, it's extremely unlikely.

[Gringo]

Or Norman Lamont even - another free market chancellor opposed to the joining the euro who helped **** the economy.

[Awol]

Or Norman Lamont even - another free market chancellor opposed to the joining the euro who helped **** the economy.

We do seem to have a bit of a cross party problem on that score, although for all his other odd views Ken Clarke did seem to manage things pretty well.

[thetrees]

The great urban myth at the moment is that the Bundesbank have billions of Deutschmarks printed and ready to go into circulation.

Not too likely, I think.

Since only about 3% of money created is created by physically printing banknotes, yes, it's extremely unlikely.

Is that relevant? If they were to do the unthinkable and exit the EUR, they would still require paper money.

[Gringo]

The great urban myth at the moment is that the Bundesbank have billions of Deutschmarks printed and ready to go into circulation.

Not too likely, I think.

Since only about 3% of money created is created by physically printing banknotes, yes, it's extremely unlikely.

Is that relevant? If they were to do the unthinkable and exit the EUR, they would still require paper money.

Plenty still stuffed in mattresses

Germans are still holding on to billions of Deutschmarks, nearly eight years after the currency was phased out, Germany's central bank says.

The Bundesbank has given an overall figure of 13.6bn Deutschmarks - worth about 7bn euros (£6.3bn).

[snowychap]

BBC reporting that there is 'speculation' (interesting word to choose ) that Greece may need more financial aid (hardly a surprise if true).

[tonyh29]

Or Norman Lamont even - another free market chancellor opposed to the joining the euro who helped **** the economy.

did he ? or did the country actually benefit from the decisions Lamont made ....

After the 2009 budget, the Sunday Times editorialised that Lamont's budget had been so badly received that he was out of his job within two months, "but it fixed the public finances and set up the prosperity of the 1990s and beyond"

"all the difficult and correct decisions that produced this happy state of affairs were taken and implemented by Norman Lamont, who thus showed himself, in his Mark 2 post ERM version, to be not only the most effective but also the bravest Chancellor since the War."

"He leaves behind an economy with a faster growth rate than that of any other of the main G7 countries and an underlying rate of inflation lower than in most."

etc etc