Been a pleasure, Europe

[Surlethe]

BTW, Thanas, if I do decide to do any betting worth more than a hundred dollars, it will be in the bond markets.

[J]

The only reason this doesn't work is because printing bills on the office photocopier is illegal. When a central bank does it, on the other hand, it works fine.

Except it's also illegal for the ECB to do it if my understanding is correct. There are allegedly ways around the treaties, of course.

And this of course ignores knock-on effects such as currency devaluation, possible trade sanctions, member nations being shut out of the bond markets, etc.

[Xisiqomelir]

Kicking bad debtors out of Europe is a solution that would allow the Euro to remain. It is much easier than simply restoring all former currencies, too. So when will you stop? Only Greece can be kicked out for the wager to remain workable, or does it also include Italy, Spain, Portugal and Ireland? Or if they're kicked out, but the Euro remains in the "core" zone with France, Benelux and Germany plus some Eastern nations, that still counts as a win in your book?

I have already stated numerous times in the past that a "true" Eurozone IMO must contain at least the core zone + four of the six periphery nations and at least one of the two larger periphery nations (Spain and Italy). I have not changed that stance. BTW, the OP was how the core group was now facing the dangers of the periphery and impending collapse.

Thanas, if you can tabulate this more clearly I'd be interested in giving you action. I assume we aren't escrowing because the timeframe is so long?

[Starglider]

And this of course ignores knock-on effects such as... member nations being shut out of the bond markets, etc.

You have to print a lot to cause enough inflation for that to happen. QE in the US and UK actually lowered government bond yields and market demand was not seriously impacted, largely because participants knew they'd be a strong buyer if they wanted to unload. Currency devaluation of course, but given a suitably fiddled inflation measure (chained CPI, lol) that reduces forward liabilities as well as improving industrial competitiveness. Trade sanctions, bah, if everyone is doing it's unlikely you will be singled out for retaliation.

So print and be merry, who cares about the private savers and pensioners relying on long bond coupons to keep them from freezing to death.

[Thanas]

I'm not willing to gamble with $500, but I will bet you $50 that Europe undergoes a financial collapse and a severe recession within the next two years (unless the ECB / Fed aggressively prints money), or that at least three of Portugal, Ireland, Spain, Italy, Greece leaves the euro.

Nice way you left yourself to weasel out of there. Define aggresively printing money and severe recession.

When you read the OP, you observe that I'm not claiming the euro will collapse.

When you start a post by writing "Been a pleasure, Europe" and then follow it up with "buh-bye" and end it with "Hellooo, 1932!" while posting an article on how the core group of Europe is now facing "severe problems" you are implying something far more drastic than just a recession. Get a grip - this is not the first recession the Euro has faced and weathered and it will not be the last.

How about this: 50$ that no more than two countries leave the Euro over the next two years.

Thanas, if you can tabulate this more clearly I'd be interested in giving you action. I assume we aren't escrowing because the timeframe is so long?

Yeah, the offer was only open to Surlethe. I am not going to bet with people who post nothing in the thread except when money is raised.

[Surlethe]

Nice way you left yourself to weasel out of there. Define aggresively printing money and severe recession.

Okay, let me throw out some definitions without thinking too hard to show that I'm willingly to make definitions and stick my them. "Aggressively printing money": persistent core CPI inflation higher than 3% annually, or M2 increase greater (more than 10%? 50%?) than the dollar's M2 increase in 2008, like that. "Severe recession": percent real (nominal?) GDP decline peak-to-trough more than one (1.5?) standard deviation greater than mean recession peak-trough percentage decline, or percent nominal GDP peak-trough decline greater than 5%, something like that.

I know I'm not being precise, but that's because I'm not putting a terrible amount of thought into crafting these definitions, not because I'm leaving myself wiggle room. I certainly don't have enough wiggle room to say "look, there was a 1% dip in nominal GDP and the GDP deflator was 2%, pay up!"

When you start a post by writing "Been a pleasure, Europe" and then follow it up with "buh-bye" and end it with "Hellooo, 1932!" while posting an article on how the core group of Europe is now facing "severe problems" you are implying something far more drastic than just a recession. Get a grip - this is not the first recession the Euro has faced and weathered and it will not be the last.

I see how you could have taken hyperbole like "Been a pleasure, Europe" and "buh-bye" literally, given that we do have Gloom'n'Doomers on this board. I know it's not the first recession the euro has faced, I know that it's not the end of the world, etc. Speaking seriously now, I do believe that the euro is now facing a severe recession comparable to 2008, that structural differences between the periphery and the core which will make a continuing real adjustment very painful for the periphery, and that the incentives facing various nations make the breakup of the euro a nonzero (but certainly not inevitable!) possibility.

How about this: 50$ that no more than two countries leave the Euro over the next two years.

Sure, you're on.

[Xisiqomelir]

Thanas, if you can tabulate this more clearly I'd be interested in giving you action. I assume we aren't escrowing because the timeframe is so long?

Yeah, the offer was only open to Surlethe. I am not going to bet with people who post nothing in the thread except when money is raised.

I can do smaller/larger if you'd like?

[Surlethe]

The point is not to bet about the potential demise of the euro. If you want to do that, you should get into foreign exchange or the bond markets or Intrade. The point is to ensure that I am serious about what I'm claiming trying to have a serious discussion, not just trying to get status points on an internet message board by being SeriousTM about The Demise of Civilization as We Know ItTM. Hence a bet is only offered to me, and not to you.

Edit: Indicated above.

[Thanas]

When you start a post by writing "Been a pleasure, Europe" and then follow it up with "buh-bye" and end it with "Hellooo, 1932!" while posting an article on how the core group of Europe is now facing "severe problems" you are implying something far more drastic than just a recession. Get a grip - this is not the first recession the Euro has faced and weathered and it will not be the last.

I see how you could have taken hyperbole like "Been a pleasure, Europe" and "buh-bye" literally, given that we do have Gloom'n'Doomers on this board.

Yeah, I did take it literally. My apologies, I did not recognize the hyperbole.

I know it's not the first recession the euro has faced, I know that it's not the end of the world, etc. Speaking seriously now, I do believe that the euro is now facing a severe recession comparable to 2008, that structural differences between the periphery and the core which will make a continuing real adjustment very painful for the periphery, and that the incentives facing various nations make the breakup of the euro a nonzero (but certainly not inevitable!) possibility.

That is fair enough, I guess. I would not disagree with anything. For me however the breakup of the Eurozone is a non-starter because the Eurozone has always been a political, not a financial idea (one might argue that this is also the reason for its troubles as getting in was more of a political power decision than anything else). After all, there is no sound financial reason to get Greece into the Euro, this was pretty much done because of the political circumstances alone. Germany had a lot of discussion back at the time if Greece should be allowed into the Eurozone, but our chancellor back then did not want to have Germany look like a big meanie when Europe was excited about expanding influence.

Given the long history of political decisions trumping financial ones in Europe and given that in the struggle between political power and financial power in Europe the political power almost always won out, I do not see a breakup of the Eurozone simply because there is no political will to break it up. The only ones who are calling for it are right-wing idiots like Le Pen in France or isolated backbenchers like in Germany. Unless you have someone like Sarkozy or Merkel standing up and openly discussing a breakup, this will not happen. (Britain could also fulfill the role but Britain has been neutralized in the ongoing discussion and has no real effective power in Brussels to influence this as Merkel and Sarkozy have boxed the non-Euro countries out of the discussion).

[Starglider]

For me however the breakup of the Eurozone is a non-starter because the Eurozone has always been a political, not a financial idea (one might argue that this is also the reason for its troubles as getting in was more of a political power decision than anything else).

Yes, and that is the reason why massive, ongoing monetisation of sovereign debt is the most likely outcome; it only hurts savers, not politician egos. Either it continues to ramp up now, or if Eurobonds actually happen resumes a few years later.

(Britain could also fulfill the role but Britain has been neutralized in the ongoing discussion and has no real effective power in Brussels to influence this as Merkel and Sarkozy have boxed the non-Euro countries out of the discussion).

This is absolutely fine; there is no reason why non-euro countries should have a say, after all they made the decision not to join. Except of course that the Eurozone is begging for money and has to placate potential investors, but that is more relevant for BRICS (e.g. Germany recently refused Chinese conditions for significant EFSF purchases).

[LaCroix]

Actually, the situation is quite different, as Europe is only prolonging the debt, and actively cutting cost, everywhere, in almost every country, in order to get the situation under control.

And how is that working out for Spain, Portugal, Italy, and Greece?

Counter question:
What else would work out to help them?

Other than cutting expenses, raising income and avoid insolvency for as long as it takes to get back on your feet, the only alternative is a default and restart, but no one wants to go that route unless absolutely necessary.

[K. A. Pital]

Default is a good outcome, but when you say "Yes, pro-default! Look at Iceland, they refused to kowtow to the banks..." you get wrong looks.

[Fingolfin_Noldor]

Default is a good outcome, but when you say "Yes, pro-default! Look at Iceland, they refused to kowtow to the banks..." you get wrong looks.

The only problem is that in say Greece, the pension funds hold considerable government debt, so do their banks. Default is equivalent to nuking everything to the ground and then you have bread lines forming. So the question is more of whether the populace wants to suffer long sharp pain, or longer but slightly less pain...

[K. A. Pital]

A sovereign default is not the equivalent of nuclear war. It also gives the nation a chance to start anew, try a new economic or political direction and so on without leaving the unbearable burden to constantly become a playing point for political games and a huge pain in the ass for future generations.

But hey. I guess the state is so inept it can't fucking provide its own people with pensions, even if currency devalues. That's bullshit, sorry. Devaluation will make it easier, not harder, to provide people with pensions. What it would make harder is buy shit - for everyone, pensioneer or not - but debt is not a fucking solution.

[Thanas]

We are talking about a state that
- does not know how much it owns
- does not know how much property each citizen owns
- has never been efficient in collecting taxes (one infamous example: everybody got swimming pools but pays no property taxes because they are all allegedly so very poor despite living in McMansions)
- does not know how many civil servants it employs
- does not know what the purpose of many civil servants is
- Has not managed to fix the problem of not knowing who owes what in taxes despite having EU assistance for over a year to do so
- Does not know how many people draw a pension for what reason

What exactly of that does fill you with confidence that they would be able to competently manage the pension system?

[Fingolfin_Noldor]

A sovereign default is not the equivalent of nuclear war. It also gives the nation a chance to start anew, try a new economic or political direction and so on without leaving the unbearable burden to constantly become a playing point for political games and a huge pain in the ass for future generations.

But hey. I guess the state is so inept it can't fucking provide its own people with pensions, even if currency devalues. That's bullshit, sorry. Devaluation will make it easier, not harder, to provide people with pensions. What it would make harder is buy shit - for everyone, pensioneer or not - but debt is not a fucking solution.

Well. After defaulting, the pension funds will be devoid of money, and then.... what is there left to even give out?

[K. A. Pital]

Are you seriously saying a First World state defaulting would result in its pensioneers starving en masse, or are you just trolling me with your daily Greek-bashing, Thanas? Seriously. Get a grip. Even a fucked up First World state is still a First World state. With... stuff, you know. Most importantly with a bunch of 100% literate people, most of them educated.

We're talking about a government which doens't know shit (or is actively stealing and embezzling shit), and that government might go down in flames soon if it fucks up bad enough in Greece. So once it is replaced, who can say what awaits Greece? I certainly don't. But maybe some of us are Oracles.

After defaulting, the pension funds will be devoid of money, and then.... what is there left to even give out?

Greek sovereign debt is an estimated €8bn of pension funds' total €26bn of assets, leaving a €4bn hole to be filled. The government is considering a proposal to transfer control of unspecified state assets to the funds to make up the shortfall, possibly via a special purpose fund.

You were saying?

[Thanas]

Are you seriously saying a First World state defaulting would result in its pensioneers starving en masse, or are you just trolling me with your daily Greek-bashing, Thanas?

Are you incapable of reading or are you just trolling me with your giant freaking strawmen, Stas?

Seriously. Get a grip. Even a fucked up First World state is still a First World state. With... stuff, you know. Most importantly with a bunch of 100% literate people, most of them educated.

How about you get a grip and read what I actually wrote?

[K. A. Pital]

Fingolfin is running around with his "nuke everything" bullshit.

Greek sovereign debt is an estimated €8bn of pension funds' total €26bn of assets

So pension funds hold 26 billion and only 8 of that is sovereign debt. Greece defaults, pensions will get fucked up (like everything else), but "nuke everything" and "nothing to pay with"? Really?

[Fingolfin_Noldor]

After defaulting, the pension funds will be devoid of money, and then.... what is there left to even give out?

Greek sovereign debt is an estimated €8bn of pension funds' total €26bn of assets, leaving a €4bn hole to be filled. The government is considering a proposal to transfer control of unspecified state assets to the funds to make up the shortfall, possibly via a special purpose fund.

You were saying?

Ok fine. But is it honestly simple? How about bank bonds and whatever other things that they hold on? This entire affair smells of a tangled web and all the points haven't exactly been connected.

[K. A. Pital]

Oh, I never said this is a "simple" affair, I merely said that "no sovereign default" is a position which does not examine an option that is critically important in the debate. The prior governments accumulated so much debt that it is nigh impossible to pay it out. At which point reality must return?

[Thanas]

Merkel has revealed her plan.

[D.Turtle]

I am surprised at how strident Merkel and most of the CDU and FDP have stayed so far in viewing everything through the lens of austerity, lowering deficits, and opposing any form of shared sacrifice.

The results of all of this have the potential to overshadow everything they've done and achieved since the fall of the Iron Curtain (or that Merkel has achieved in her entire career).

[Thanas]

I am surprised at how strident Merkel and most of the CDU and FDP have stayed so far in viewing everything through the lens of austerity, lowering deficits, and opposing any form of shared sacrifice.

Well, they did try to tax the markets....