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The euro will face bigger tests than Greece

Discussion in 'The Economy' started by Tropo, 22nd Feb, 2010.

  1. Tropo

    Tropo Well-Known Member

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    By George Soros

    Published: February 21 2010 18:40 | Last updated: February 21 2010 18:46
    Otmar Issing, one of the fathers of the euro, correctly states the principle on which the single currency was founded.
    As he wrote in the FT last week, the euro was meant to be a monetary union but not a political one. Participating states established a common central bank but refused to surrender the right to tax their citizens to a common authority.
    This principle was enshrined in the Maastricht treaty and has since been rigorously interpreted by the German constitutional court.
    The euro was a unique and unusual construction whose viability is now being tested.
    The construction is patently flawed.
    A fully fledged currency requires both a central bank and a Treasury.
    The Treasury need not be used to tax citizens on an everyday basis but it needs to be available in times of crisis.
    When the financial system is in danger of collapsing, the central bank can provide liquidity, but only a Treasury can deal with problems of solvency. This is a well-known fact that should have been clear to everyone involved in the creation of the euro.
    Mr Issing admits that he was among those who believed that “starting monetary union without having established a political union was putting the cart before the horse”.
    FT.com / Comment / Opinion - The euro will face bigger tests than Greece
     
  2. Chris C

    Chris C Well-Known Member

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    Or they could just solve the problem by kicking out countries that regularly miss the budget and debt requirements or even better kick the countries out that lied to get their way in...

    Problem solvered.
     
  3. dudek

    dudek Well-Known Member

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    Chris,

    You not serous, are you?
     
  4. Chris C

    Chris C Well-Known Member

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    LOL in a slapstick way I sort of am... but that said the Euros problems extend way past Greece - half the countries in it are in serious risk of default over the next few years, and the others that aren't gave up their monetary policy over their previously strong currencies, and porbably won't be keen on paying for their neighbour's mistakes.

    Europe's got a lot of history, and a lot of variation between cultures and I, like many, question if they can all play house for long enough for them all to get on the same page.

    Plus I think what most are alluding to is that the Euro was not well designed to deal with individual member state crisises, and it looks like that it is on the brink of needing to handle a bunch of them.
     
  5. wdongli

    wdongli Well-Known Member

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    The time to make or break EU

    Greece slides inexorably to point of no return
    EU stands ready to bailout Greece

    Soros commented that Greece "have to be given some help from Europe or the IMF at concessional rates.'' "It is a make or break time for the euro and it's a question whether the political will to hold Europe together is there or not.''

    Greece was believed to ask the aid from EU or IMF very soon. But any aid request would risk re-opening EU political divisions, particularly if it were to come before a May 9 regional election in Germany, where opinion polls show public opposition to supporting Greece. The politicians have to get the gut to fight against the herd sentiment if they want to keep EU intact.

    German Chancellor Angela Merkel has insisted that no concession be made to Greece and that loans be extended at close to its cost of borrowing in the market. It is a test for Angela Merkel to see if she is a responsible, visionary, and brave "iron girl" with good enough knowledge of the modern economies.

    "Deflation takes a toll on growth and employment. So Greece won't grow its way out of debt. The only way Greece could tame its debt problem would be with savage spending cuts and tax increases, measures that would worsen the unemployment rate." A mad circle to put Greece into the hell if no external help.

    "Greece could alleviate some of its problems by leaving the euro, and devaluing. But it's hard to see how it could do that without triggering a catastrophic run on its banking system. "

    It is the time to make or break EU.
     
  6. Billv

    Billv Getting there

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    I agree. IMO it's stupid how some EU countries (having their own agenda) are playing games with Greece but sooner rather than later they'll have to bite the bullet and accept the debt restructuring needed or the EU will face a huge financial disaster.

    Germany is having difficulties facing reality because of domestic politics and will not agree to provide the huge and ongoing low interest finance needed to guide Greece through the crisis but Germany doesn't have to do this alone. The Germans are the founders of the EU and it's their responsibility to show initiative and to create the right climate for a solution to be found.

    The EU needs to create support mechanisms and to make them available to any member state who needs it. If the EU needs to change the constitution so be it. You can't have an ecomonic union without support mechanisms.

    Looking at the size of the Greek interest repayments it's a matter of time before Greece defaults on it's loans so they'll have to be bailed out.
    Lenders must agree to extend maturities on Greek debt, and must accept a lower interest rate or Greece will default on it's loans just like Russia and Argentina did and a default of this size will scar the EURO and the European foundations forever.

    The European problem is huge, and although Greece is the prime target they are not alone. The EU have to adjust to the times and the ECB has to take measures to support it's weaker member countries now before they start defaulting one after another.....
     
  7. wdongli

    wdongli Well-Known Member

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    I appreciate the guarded optimism about the EU and Greece very much. I do feel the politicians in EU just tried to pay less as much as possible for their own nations for a bail out solution.

    It is evident that a default Greece would put everyone into the water. It is unlikely for them to be so stupid to let the default happen since it is a matter unaffordable.

    The risks usually are not risky if people know the risks. I guess if we could see, the policy makers should know the consequences from what they decide. Britain didn't want to bail out its banks at the very beginning of the financial crisis but the dismal outlook of the bank running forced it to bail out its banks.

    If the politicians have the bargain chips they would do so for their political future and reelection.

    ***
    The key to us, the market players, is how we adjust our position in the market to maximize the profit but limit the risks affordable. Each of us has to choose which camp we want to join in, the camp of the world is about to end or that of the world will return to normal.

    I believe the world will eventually sort out all this financial mess and that asset prices will start to rise again at some point.

    Actually the global economies as a whole are much better than the March 2009. US is stabilized. Emerging economies have moved into the consolidation stages after the dramatic recovery.

    I view the financial crisis as the cost for the human kind to make the better tomorrow. We want to get the chances and then we could not too far away from the risks.

    The financial crisis has shown the risks enough and then the not-giving-up human kind has to move forward. We do need to find our offensive position now to get the future profit once the boom comes back.

    Boom makes everyone get the profit and the propensity to make the profit. Bust or crisis make everyone get the loss and the propensity to flee away the risks. We need to buy low and sell high. We need the low made by the crisis to maximize our profit in the boom and ride the boom as long as we could.

    ***
    In Chinese, any biggest risk would generate some greatest opportunities somewhere around the risk. The global economies have been in its structure shifting for nearly a decade. We have multiple small engines in BRIC and two big engines in EU and US. EU has to clean up its messes of the deficit crises. US has shown its stability of the economy.

    US policy makers have shown the resolution to keep the stimulus and low rate policy in extended time period to be sure the unemployment rate could drop down without help of the stimulus package.

    Yes US deficit level is worrisome but it could not afford the deflation without economy driving forces for the employment which would decide the economy output at last. Before the full employment is in sight, there are a lot of room for US policy makers in my view.

    The financial crisis if not end with EU disintegration, would set up the rock for the expansion of the global economies. The hot spots would be around emerging economies. Good to see the emerging economies tried their best to get out of crisis but alerted by the asset bubbles.

    ***
    Australia has the huge resource but nearly full employment just two years later after the crisis. RBA seems very concern about the asset bubble but don't want to miss the great resource boom. It is a boom with huge supply deficit and the demand would be in cascade. Now it is China, later it could be India...

    The financial crisis still leave too much darkness in people's mind but it could surprise us at some time which not too long from now when everyone wants something in the Australia stock market.

    Reading the XAO historical chart shown between 1975 - 2000, we could not ignore a upward channel which is quiet different that between 1967 - 1975. The expansion of the Japan economy and Australia economy system reform played their part for this new upward channel.

    I believe the driving forces to Australia old economy(two speed economies) are much bigger than those between 1975 -2000. Before the crisis I did hope this new upward channel would have been generated, which actually shew its sign but the crisis put its in its premature.

    Demand would define the supply and the demand would greatly drive the propensity of the investment, which would drive the propensity of the consumption and the employment. The problem is if the investment exceed over the demand for full employment, the inflation would risks the system stability.

    In this sense I am very happy to see what RBA has been down. It tries to deflate the asset bubbles and inflation risks but doesn't want to cool the resource boom too much. I do feel the next boom would be much bigger and longer than most of the public expect.

    ***
    Personally I like the Cigar butts. So I have accumulated 30 pennies in my portfolio most of which come from the resource sector. I thought I know the risks of the pennies some of which could be dead fishes.

    I believe if the water rises and rises big enough most of them would float higher and higher. The problem is if we could pay at the lowest price or relative lower price than the future price.

    I bet on the Australia old economies. I bet on the emerging economies' demand to the resource. I bet on the stabilization of EU and US economies with the risks in the mind.

    Before the crisis I mainly act as a trader(not day trader, which I feel too hard to fit in each blip of the market wind). I am still working as a speculators even I really hope I could get the qualities at the panic. I am greedy to use the leverage from the pennies and thought they could provide a life opportunities for a life turning point.

    Without matter what the consequences of the betting(threw in all of my cashes more than two years family expenses as reserve into the pennies). Feel no pressure now since I have ride the recovery in full. Really struggling but I have decided to hold all I have got if not big enough profit happens.

    I do hope to sell some winners when I feel nervous about the profit. I do hope I could buy hard and hold hard for the coming boom.
     
  8. Billv

    Billv Getting there

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    It's hard to isolate ourselves from the problems of the world
    but if we have to invest at this point of time then IMO our resource stocks are a relatively safe bet.

    I agree, the question is how long it will take and what will be the price we pay.
    The dark clouds are still on the horizon :eek: and IMO even if they don't come our way, the storms are likely to hit our business partners so we won't be walking away without a scratch.