Finito?

[C0ckney]

which one and why?

[DanS]

This summit actually has so far had a bigger positive impact than I expected. Probably, this is due to everyone agreeing that investors would not have to take a "haircut" on any country's bonds other than Greece's.

[notyoueither]

which one and why?

I'm thinking of the ineffectiveness of the nobles' democracy that weakened the state. I don't know a whole lot about it, just what I've read in passing.

Europe does not seem capable of taking the steps that are needed to sustain the Euro.

[C0ckney]

I'm thinking of the ineffectiveness of the nobles' democracy that weakened the state. I don't know a whole lot about it, just what I've read in passing.

Europe does not seem capable of taking the steps that are needed to sustain the Euro.

there's not even the pretence of democracy when it comes to the EU anymore.

there are a number of problems, including the fact that saving the euro is not going to sort out the economic problems in various countries. indeed the euro is a cause of some of the problems they face.

[C0ckney]

i should also point out that anything to do with the euro address the biggest problem at all. the fact that the european banking system is insolvent. this whole 'crisis' is really a banking crisis at its heart.

[OneFootInTheGrave]

It is a structural crisis, #1, structure of EU, which is fuelled by strucutural failure of Greece predominately which is more just a symptom, or a focal point for overall EU "unfinished" integration situation. Banks just come there in the follow up, ie if the governments go bust, banks will as well, but the buck stops with the EU integration itself, as there is plenty of € firepower to sort it all out if the zone was actually financially integrated and not only a group of squablling countries with the same currency.

Greece itself is a basket case, run like a third world country with resources to previously unlimited first world finance ... but as bad as it is, that would only be a blip on the EU radar if the supporting institutions actually had a mandate to support the currency.

[C0ckney]

there are massive structural problems with the EU and the euro. having 17 countries, with very different economies, cultures and ways of doing business but with a single currency and interest rate was never going to work. it has taken a banking crisis to expose these flaws to even the most determined of europhiles.

if european banks were solvent, then greece would have been allowed to default. if french banks weren't about to go bust we wouldn't have seen sarkozy bending over backwards to ensure that banks will not have to take 'haircuts' on debts, i.e. losses on their bad investments. instead, naturally, these will be passed to taxpayers. we wouldn't see emergency credit being extended (recently in larger amounts and for longer terms, primarily US dollar funding) to banks. if european banks weren't scared witless about the solvency of their counterparties, we wouldn't see them depositing money with the ECB instead of lending to each other. all of these bailouts to countries, are, in reality, bank bailouts. to protect them from their enormous losses on sovereign debt. why do you think that greece is still being given money, why every 'tranche' is approved despite the fact that greece misses every target and breaks every agreement imposed by its creditors? it's not because the troika are goodhearted people, it's because they know full well that the default of even a small country like greece will bring the whole sorry house of cards crashing down.

the other problem is our long lost friend democracy. the european political class have just imposed a move towards fiscal union without asking for the consent of their electorates. their currently scrambling around for ways to avoid asking the people, because they are afraid (as well they might be) that the people of europe do not support what is being done. what will happen when the people of greece or italy or another country decide they are not happy with the austerity being imposed from ber....sorry brussels, by people they never elected and have no democratic control over?

[C0ckney]

bah!

[OneFootInTheGrave]

Yes, the nondemocratic nature of EU and the institutions is a major problem, also the political drive to unify on "less important" issues first and wait for the "right time" to sort out the major ones. Well the right time came too early (now), but it would most likely be too early if it came at any time over at least next 20 years, and it forces the hand from mostly not elected politicans to draw up the plan and make it into a functional superstate. Which in itself looks destined to failure before it starts, like all those false start conferences they have been having over the crisis during the past months.

The banks vs the governments - you can call it catch 22, but ultimately this does not really matter which one comes first, as it will ultimately be up to the structural integration or disintegration of EU where the solution will be found. It is basically an outcome "as expected" with the eventual crisis, which is resolving right now, with no necessarily good outcome in sight.

If the EU stays, it is too nondemocratic to start with, and that bad taste will stay with everyone going forward, seeding the seed for eventual dissolution - if it ever comes to it. The dissolution itself will be just a massive economic blow for everyone involved, with no real winners and just economic losers all around, the only positives may be personal liberties and such not exactly tangible positives like local flexibility that would come out of the dissolution. Nothing else to do other than sit and watch.

[KrazyHorse]

i should also point out that anything to do with the euro address the biggest problem at all. the fact that the european banking system is insolvent. this whole 'crisis' is really a banking crisis at its heart.

Are you a ****ing idiot? If euro banks are insolvent it's because the value of the euro sovereign bonds they hold have dropped through the floor.

Furthermore, the euro governments are twisting the arms of their banks to load up even further on domestic sovereign debt (which they may or may not be succeeding at).

[C0ckney]

Are you a ****ing idiot? If euro banks are insolvent it's because the value of the euro sovereign bonds they hold have dropped through the floor.

Furthermore, the euro governments are twisting the arms of their banks to load up even further on domestic sovereign debt (which they may or may not be succeeding at).

no, but unlike you it seems, i actually know what i'm talking about. banks are in trouble for a variety of reasons, losses on sovereign debt, housing bubbles bursting, mortgages in foreign currencies going sour etc.

the euro governments have been trying to get everyone to buy their bonds or contribute to the 'rescue' funds. the oil states, the chinese, the other BRIC nations, heck if the martians landed tomorrow, we'd no doubt see a headline by friday about them being asked to buy some european government bonds. the ECB has bought a huge amount of bonds, creating a false market, to help out banks with large bond exposures. in actual fact banks have been reducing their exposure using the ECB since it began its bond buying program.

[DanS]

C0ckney: I think you mostly have the cause and effect backward, as KH says. Most of the banks in France, for instance, are very close with their government -- unfortunately they are almost arms of the government. As a first measure to solve the sovereign debt crisis in Greece, the French banks were requested to buy add'l Greek bonds. Same thing with the German banks. The German economy didn't have a bubble.

I can see where you are coming from with regard to Spain only. Spain's sovereign debt was well under control until the real estate bubble burst. As far as I can tell, Spain's banks are very much under water. The gov't may eventually take on that burden, so that's why Spain's yields are trading so high, even though its debt-to-GDP isn't all that bad (about 80%, including the regional gov't debt).

As far as I can tell, Spain's real estate has a ways to fall. But it's tough to know for sure, because the Spanish real estate market makes me very thankful for the hyper-transparent and efficient US real estate market (on a comparative basis). The price discovery mechanism in Spain is something of a mystery to me.

[Dauphin]

I thought the logic was that Spain's yields are so high because Spain's tax revenue forecasts were so poor - a result of non-government debts being so high leaving little room for growth, profits, consumer spending (etc) and ultimately tax revenues. All points intertwine, I guess.

[DanS]

Well, they may intertwine, but it seems pretty clear where the Spain bank problems originated -- i.e., the real estate bubble. The easiest explanation for the high yields, even though the Spanish public debt load is more or less manageable, seems to be the expectation that the public debt load will soon become unmanageable. What rational private pocket would put money into the Spanish banks to make them solvent?

[C0ckney]

dans, ireland as well. its banking system collapsed as a result of a property bubble bursting. so that's two of the six eurozone countries who are most in danger.

the problem of foreign currency mortgages (swiss franc denominated ones) is very serious in easten europe and some balkan countries. however as well as affecting banks in those countries (to say nothing of the people who've seen their mortgage payments climb by 40% or more), it has also affected swiss, austrian and italian banks, as well as some in nordic countries.

there was also the problem of many banks having business models which became unsustainable when the credit crunch hit. northern rock in the UK, several irish banks, banks in the baltic states, which led directly to their difficulties.

all these things combined, together with sovereign debt issues have led to a perfect storm of tight credit conditions and a lack of confidence which continues and is in fact worsening. it's a complex picture and it helps no one to over simplify it.