The debt crisis in Greece has taken on a dramatic new twist. Sources with information about the government's actions have informed the German news service, Spiegel Online that Athens is considering withdrawing from the euro zone.
The common currency area's finance ministers and representatives of the European Commission are holding a secret crisis meeting in Luxembourg on Friday night. HT AndrewJ.
Alarmed by Athens' intentions, the European Commission has called a crisis meeting in Luxembourg on Friday night.
The meeting is taking place at Château de Senningen, a site used by the Luxembourg government for official meetings. In addition to Greece's possible exit from the currency union, a speedy restructuring of the country's debt also features on the agenda.
One year after the Greek crisis broke out, the development represents a potentially existential turning point for the European monetary union - regardless which variant is ultimately decided upon for dealing with Greece's massive troubles.
The Germans have reportedly gone into the meeting to fight the move. It would involve bankruptcy for Greece, and huge consequences in every other euro member.
The German finance minister has prepared a paper setting out the dire consequences of such a move.
"The currency conversion would lead to capital flight," they write. And Greece might see itself as forced to implement controls on the transfer of capital to stop the flight of funds out of the country. "This could not be reconciled with the fundamental freedoms instilled in the European internal market," the paper states. In addition, the country would also be cut off from capital markets for years to come.
In addition, the withdrawal of a country from the common currency union would "seriously damage faith in the functioning of the euro zone," the document continues. International investors would be forced to consider the possibility that further euro-zone members could withdraw in the future. "That would lead to contagion in the euro zone," the paper continues.
At this stage it is imporant to note that this story is only sourced from one place, Spiegel Online.
Following this report, both Greece and the EU issued statements distancing themselves from the idea that Greece wants out. The New York Times noted that the Greek prime minister was "irked by speculation on debt".
Mr. Papandreou, European finance ministers and others on Saturday denied any thought of restructuring Greece’s debt, let alone having Greece exit the euro, which would allow it to devalue. And quitting the euro is considered enormously complicated and even self-defeating by numerous economists, since Greek debt is denominated in euros.
"I call on everyone, inside and outside Greece, in the E.U. in particular, to leave Greece in peace to do its job," Mr. Papandreou said on Saturday. "Greece is doing its job."
But that same report detailed the immense stresses both the Greeks and the EU are under, adding that skeptics believe "in the end, Greece and Ireland will have to restructure their debt - paying back less than face value."
23 Comments
Calm down ...
"Juncker denied a report in Germany's Spiegel Online magazine that the talks were held to discuss the possibility, raised by Athens, ...
"We have not been discussing the exit of Greece from the euro area. This is a stupid idea. It is in no way -- it is an avenue we would never take," he told reporters."
http://www.reuters.com/article/2011/05/07/us-greece-eurozone-exit-idUSTRE74546320110507
I think the Greeks just called their bluff and came out on top.
"Finance ministers from Germany, France, the Netherlands and Finland met their Greek counterpart, Giorgos Papaconstantinou, in Luxembourg as part of efforts to draw a line under the eurozone's sovereign debt crisis.
"A restructuring of Greek debt, which would see the terms of the loans extended and borrowing rates reduced, is understood to have been central to the talks.
Thanks....its been coming, the only Q is thre degree of the haircut....75% looks possible...
Once that happens of course ALL the private investors with money in the PIIGS will run....huge bank runs.....I cant see why this wouldnt happen....the only buyer would be the ECB....if they are actually the only one now I wouldnt be surprised.....the next S is someone has to foot the bill....so thats the tax payer....
regards
This from a commenter in the Telegraph.
From an article that is going to literally "explode" in the Irish media tomorrow!
"National survival requires that Ireland walk away from the bailout. This in turn requires the Government to do two things: disengage from the banks, and bring its budget into balance immediately." Morgan Kelly This is the crux of it and we had better get on with it. Dissolve NAMA now and let the ECB swing in the wind instead of going along with their dastardly plan to grab our national assets before making us a pariah bankrupt state. Serves them right.
lol, people have vigorously discussed the end of the Euro since at least 2005 when a Minister in the cabinet of Italy's parliament posited Italy's exit from the Eurozone during one of their recurrent recessions.
Roberto Maroni is Italy's labor and social welfare minister. A few months ago, he broke a serious taboo during an interview when he said, "reintroducing the lira is not an absurd idea." It was the first time a member of a eurozone government had publicly broached the idea of withdrawing from the currency union.
http://www.atlantic-times.com/archive_detail.php?recordID=453
The problem with Euro is that it is concessionary gesture to garner support for what is fundamentally a political project, that of the European Union. An economic union is impossible without true political integration, but without cultural and lingual integration, the objective is futile and without sustained and enormous effort it will forever be so.
"What we're seeing is the payback for the fact that the currency union wasn't based on economic logic. Instead, it was a political project led by then-German Chancellor Helmut Kohl and former French President François Mitterrand. The two politicians wanted to push European union. Letting go of the German mark was also Germany's concession to France for its willingness to support German reunification."
http://www.atlantic-times.com/archive_detail.php?recordID=453
."...In January of 1989, for example, a delegation of the Trilateral Commission came to see Gorbachev. It included [former Japanese Prime Minister Yasuhiro] Nakasone, [former French President Valéry] Giscard d’Estaing, [American banker David] Rockefeller and [former US Secretary of State Henry] Kissinger. They had a very nice conversation where they tried to explain to Gorbachev that Soviet Russia had to integrate into the financial institutions of the world, such as Gatt, the IMF and the World Bank.
In the middle of it Giscard d’Estaing suddenly takes the floor and says: “Mr President, I cannot tell you exactly when it will happen – probably within 15 years – but Europe is going to be a federal state and you have to prepare yourself for that. You have to work out with us, and the European leaders, how you would react to that, how would you allow the other Easteuropean countries to interact with it or how to become a part of it, you have to be prepared.”
http://www.brusselsjournal.com/node/865
A single currency union, which requires uniform fiscal and economic dynamics can never be optimal when the economies within the union are so differentiated in terms of economic performance and fiscal and economic policy. As long as cultural and language barriers remain in Europe to prevent the necessary converge, a shoehorned economic and monetary union is doomed to failure.
"In Europe, by contrast, few mechanisms exist to bring the euro area’s widely divergent business cycles into sync. The ECB has been trying to chart a middle course between slow- and fast-growing countries while establishing its credibility as an inflation-fighter. The result has been a monetary policy that is too “hot” for some, too “cold” for others, and “just right” for almost no one."
http://www.economist.com/node/4051116?story_id=4051116
However much the German's portray themselves as prudential saints in their management of their economic affairs, they share as much of the blame for the mess in Europe as leaders in Spain, Portugal, Ireland, and Greece, largely due to their calls in 2005 for the interest rate to be cut from record lows in order to rescue them from dismal economic performance that was largely of their own making. Interest rates are the only means to manage demand for money in the modern monetary regime, because their are no fundamental constraints on its supply. In a booming economy money demand will be high, but without the rationing effect of the interest rate, economic activity will inevitably be directed into malinvestments with limited capacity to generate sustainable returns.
-On top of all that, Jean-Claude Trichet, ECB president, may have set himself up for a damaging clash with politicians - including Silvio Berlusconi, Italy's prime minister, and Wolfgang Clement, Germany's economics minister - who have demanded a cut in ECB rates to stimulate growth. Mr Trichet has publicly ruled out this option; he fears such a move would undermine the ECB's inflation-fighting credentials. http://www.ft.com/cms/s/1/c41a8c4e-ce1a-11d9-9a8a-00000e2511c8.html#ixzz1LdJqkdw8
"The situation is a “precise reverse” of the period before December 2005, when the ECB last began raising rates, said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. Then Germany was weak, with growth of 0.8 percent that year, while the Irish and Spanish economies expanded 6 percent and 3.6 percent."
“We were in a world where rates were much too accommodative for the periphery and much too tight for the core,” Kounis said. “Now, the situation is the same, only the countries are different. It’s a problem with their one-size- fits-all policy.”
I don't think Greece will be allowed to exit, because if it does Greece will be under effective siege by the big players in Europe's capital markets who as I discussed in an early series of comments, are given special privileges terms of access to the developed world's sovereign debt markets. Greece will be given no thanks for the wild volatility that the threat alone that they will leave the Euroone will generate. Expect to see the screws to be put on Greece by the Europe's political and financial elite in the years ahead.
Morgan Kelly is a Professor of Economics at University College Dublin.[
http://www.irishtimes.com/newspaper/opinion/2011/0507/1224296372123.html
"WITH THE Irish Government on track to owe a quarter of a trillion euro by 2014, a prolonged and chaotic national bankruptcy is becoming inevitable. By the time the dust settles, Ireland’s last remaining asset, its reputation as a safe place from which to conduct business, will have been destroyed.
Ireland is facing economic ruin.
and yet before the GFC the right wing retard; economists, ratings agencies, banks and OECD all thought it was AAA+ and a great lend...."a celtic tiger" more like a half drowned kitten in a bag in the river...
So if they get this and so much else wrong....its pretty obvious listening to them for advice is a huge NO NO....at your peril........and of course they are saying how good the future looks, we are recovering, watch for inflation....a un-blinkered man might well do the other way me thinks.....
regards
drjonathanwilson
And wrapped around the load carrying beams of German and
French banks are packets of Semtex manufactured not from PETN and RDX but from Greek debt.
Who placed this Semtex there and primed it to cause maximum damage?
None other than the hubristic French politicians Valéry
Giscard d'Estaing, François Mitterrand and Jacques Chirac
As these charges explode the hand holding of Mitterrand and Helmut
Kohl on the Champs-Élysées will be seen as the fraud it always was. The Germans thinking of their European and foreign ambitions and the French milking it for all it is worth.
How will the most mismatched dance partners in Europe react as the music stops playing?
The real problem is not Greece or any of the indebted southern countries; it is the fraudulent relationship between France and Germany.
This will not end well.
Jonathan http://www.telegraph.co.uk/finance/economics/gilts/8499652/Europe-meets…
France for the firing line?
http://www.bloomberg.com/news/2011-05-02/bond-vigilantes-ignore-next-st…
I think France is a very militant country (comapred to the UK, my home country anyway), worse than the greeks probably....in which case if its started to look ikky in France it could move to chaotic quickly........
regards
Steven
The author of the article appears to have an agenda. He cherry picks statistics and attempts to make a narrative supporting his spurious thesis.
"That is certainly true of France. German labor costs shrank 0.7 percent in the fourth quarter, while in France they rose 1.1 percent. The difference was even wider in the previous two quarters. The gap isn’t massive in any single year, but enough to make France steadily less competitive against its neighbor to the east. "
This just means that in aggregate, people in France have more spending power, than in Germany, rather than liquidity being needlessly locked up in capital.
One can never know the true state of Europe's public accounts, because all governments use an array of devices to fudge the numbers. As the phrase popularised by Mark Twain says, There are three kinds of lies, lies, damned lies, and Statistics.
Germany for example uses its compliant state banks to offload the cost of Greek financial aid off its public balance sheet and there are accusations that they pressured Ireland and other PIGs to guarantee their respective financial industries, because the largest bondholders were German financial institutions who would otherwise have been bailed out by the German government.
"It just continues to grow -- and soon it will grow further if Germany provides €8.4 billion ($11 billion) in financial aid to Greece. Initially, that assistance will only come in the form of credit guarantees from the federal budget for state development bank KfW, which will then provide the money in the form of loans to Greece. So they aren't technically debts. But what happens if cash-strapped Greece is unable to pay back its loan? Then Germany's deficit would grow in real terms by several billion."http://www.spiegel.de/international/germany/0,1518,691802,00.html
Is the Irish government under pressure from the European Central Bank in Frankfurt to protect German investors?
The result was a postponement of the end of issuance of state guaranteed debt for all banks from 2001 to 2005, where the last bonds guaranteed would have to mature by 2015. The salient point is that there was only a time limit set in the agreement, but there was no volume limit, so the German state banks started to issue massive amounts of state-guaranteed debt after 2001. This money was not used to finance German or even European lending but simply to park funds in investment vehicles and make more money on it to boost their bottom lines.
http://www.ritholtz.com/blog/2009/05/german-subprime-meltdown-interview-with-achim-dubel/
Britain also uses creative accounting and is up to the same shenanigans as the Germans. For example, keeps two sets of books, one of which accounts for the cost of Gordon Brown's Bank bailouts, of which the liability to the British taxpayer would arguably have been greater if not for the creative use of its anti-terror laws against Iceland. The figure also excludes the British equivalet of PPPs, which the public sector uses to take the cost of public sector investment off its books.
If all financial sector intervention is included (e.g. Royal Bank of Scotland, Lloyds) , the Net debt was £2,252.1 billion or 149.1 per cent. This is known as the unadjusted measure of public sector net debt.
http://www.economicshelp.org/blog/uk-economy/uk-national-debt/
``The reason we took this action which was extraordinary action was in order to protect the interest and to try to ensure there was money there for creditors and depositors in the U.K,'' Prime Minister Gordon Brown's spokesman, Michael Ellam, told reporters in London today. ``In the view of the chancellor there was clearly a potential systemic risk, and that is why the action was taken yesterday in relation to depositors.'' http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aXjIA5NzyM5c
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aXjIA5NzyM5c
The Centre for Policy Studies (at end of 2008) argues that the real national debt is actually £1,340 billion, which is 103.5 per cent of GDP. This figure includes all the public sector pension liabilities such as pensions, and Private Finance Initiative contracts e.t.c (Northern Rock liabilities).
http://www.economicshelp.org/blog/uk-economy/uk-national-debt/
hey Cristov,
No worries. No I'm no stranger. I've been watching this particular drama unfold since mid 2007 and was convinced that the end of the world as we know it was imminent. If not for the unprecedented intervention of the world's powerful governments we'd be in the midst of an economic catastrophe far more severe than the Great Depression. More severe, because the leverage in the world's financial markets was that much greater and the modern economy of the West is no longer underpinned by massive industrial capacity or access to resource rich colonies. Europe would discover that they have little to provide those who supply them with the necessities underpinning their lifestyles.
An economic catastrophe of that scale would finish China's particular relationship with the United States. China would then have problems enough of its own and would have little room to spare attention to the rest of the world. China whether we like it is the engine of the world economy. The United States rely upon it for their consumer driven economy and added value industries, the BRICs and Australia are reliant on its vast hunger for resources, Germany for their high value capital products and the fates of countries like us and Britain are intertwined with China because of the dependance of our main trading partners.
The consequences despite unparalleled actions by world governments, have yet to unravel and will be with us for some time ahead. Interesting times indeed
"agenda" could be.....however have to wonder how far the contagion will spread.
"Britain also uses creative accounting and is up to the same shenanigans as the Germans"
indeed.......underlying condition does not look good....
PPPs....nice way to hide debt, except it compromises revenue stream...yet the costs look significant....and detrimental....crazy.
regards
In what way would his 'spending time in France' help in any way.....ditto Greece.....steven seems to have hit your nerve tor lawn......
I reckon it'll be breadsticks at dawn in a paddock for the pair of you.......don't trip over the stack of skulls remaining from the days of the great slaughter will you...remind me, how many heads rolled during that pleasant French period of mutual love and kindness to each other!
Are you some sort of on / off or maybe things are black or white sort of person? the world isnt that simple.
Who said the world was going to collapse (short term)? but an interesting statistic, if you look back to the long depression in the 1870s and compare real wages etc it is as bad so far as the GFC....so why dhouldnt ppl be wary of that? and act to minimalise it?
Im from Europe, I spent my first 35 years there....France is next door, Greece a little further....I grew up on French farmers blocking motorways with their tractors etc....it must be something to do with the french revolution but the french have always been a bit up'ity....that's no bad thing IMHO....I think the Brits for instance are to "mousey" they could learna few things from the french....
I odnt need to justify someone who's been registered here for all of 13 hours...its quite simple, if you dont like what I write, ignore what I say....
Im not sure if you understand Peak oil at all, its simply the point in time where the maximum oil production is reached.....so the candidates for max crude oil production are 2005, 2006, or 2008, its probably happened....its possible 2012 might see higher but not significantly...especially as Saudi is making noises its cut back "voluntarily" yeah right I wonder. Part of the prediction of the effects of peak oil is high price volitility and peak and throughs....and guess what we are seeing them....
NB The point (on one level) of identifying risks is to avoid / mitigate them....then you can get on with enjoying life, and actually I do....
What I will say is, my training for the first decade was around hvy engineering, large steam systems etc and some 1/3rd of that is nuclear subs, f*ck that up and its not a nice way to die, mind you so is being scolded to death by high pressure steam, and Ive seen that happen to two colleages, kind of colours you when in your early 20s.......you learn to be very safety concious, even borderline paranoid....
I dont spend my time waiting for the world to end, within that context of that statement I spend some of my time trying to make sure it doesnt. Simple there are risks, ppl should look at them, and decide if the are worth mitigating or not, wandering through life on prozac is one sure wyat to come unstuck.
There is a saying fools rush in where angels fear to tread....not that I consider myself an angel......just I want to live to a ripe old age.
regards
"In a booming economy money demand will be high, but without the rationing effect of the interest rate, economic activity will inevitably be directed into malinvestments with limited capacity to generate sustainable returns."
oh look USA/OZ/UK/Ireland/NZ housing boom...about sums up our mess really.
regards
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