Posts Tagged ‘Euro’

“Only way out of the Eurocrisis is for Greece to leave the Euro”

June 16, 2011

Dagens Industri’s panel of finance and economy experts have a bleak view of Greece remaining within the Euro. Emergency loans will be necessary anyway but in the long term, they feel, Greece has to leave the Euro not only for their own sake but also for preventing a collapse of the EMU.

The only way out of the euro crisis is with Greece’s exit from EMU, says Dagen Industi’s expert panel. But only after a lengthy process with more emergency loans to avoid the risk of a new financial meltdown a la Lehman Brothers in 2008.

“Greece is actually already bankrupt. Market prices speak for themselves. The country would not survive a day without an emergency loan from the European Union and IMF” said Marie Giertz, chief economist at Länsförsäkringar.

A new global financial crisis threatens if Greece does not get emergency loans and are forced to suspend payments to private lenders, including German and French banks, warns the European Central Bank ECB and the large rating agencies. Germany and others complain that European taxpayers cannot just continue to sponsor Greece’s debt tangle with never-ending emergency loans.

Cecilia Skingsley, chief analyst of Swedbank’s foreign exchange and fixed income trading, believes that the new emergency loan is the solution only for the short term. But that Greece must eventually leave the EMU. “With a further loan program maybe the market calms for a while. Then in a few years we realize again that this is not sustainable. Therefore I think that Greece must leave the monetary union. In return, they may get a little waiver of some of the emergency loans from the EMU ” said Cecilia Skingsley.

Jan Häggström, chief economist at Handelsbanken, points out that the euro country taxpayers have to bear the Hellenic liabilities no matter how it goes. The alternative to providing further emergency loans is credit losses in the European banking system, which in turn would require government bailouts. “In the end somebody has to write this down and it is not unlikely that Greece will have to leave the euro, but that is further ahead in time” says Jan Häggström.

Greece, in principle, needs to step out of the EMU in order not to drag down other crisis countries into a major depletion of their treasuries, reasons Tomas Pousette, chief economist at SBAB. “Otherwise it is difficult to see why, for example, Portugal should endure ten years of very tough fiscal policy while Greece simply chops off their debt. For a Greece outside the EMU, debt would be burdened by high interest rates and bankruptcies would threaten the country’s banking sector. But the country would also get a chance to revive its tourist industry with its own, lower, exchange rate “, says Tomas Pousette.

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Eurozone crisis: Greece considering leaving the Euro and bringing back the drachma

May 6, 2011

The economic and fiscal variations within the Eurozone have become too large to be hidden away and perhaps it is time for the Euro to split. A two-tier Euro could be an interim solution but it makes no sense to force the currency to compensate for and match the wildly different shapes of the member economies.

Greece going back to the drachma or to an “olive” Euro may not be such a bad thing for the rest of the Eurozone though it will only probably lead the Greeks to delay taking the actions that will anyway be necessary. Fiscal profligacy cannot be sustained.

back from the euro to the drachma?

Der Spiegel:

The debt crisis in Greece has taken on a dramatic new twist. Sources with information about the government’s actions have informed 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.

Greece’s economic problems are massive, with protests against the government being held almost daily. Now Prime Minister George Papandreou apparently feels he has no other option: SPIEGEL ONLINE has obtained information from German government sources knowledgeable of the situation in Athens indicating that Papandreou’s government is considering abandoning the euro and reintroducing its own currency.

Alarmed by Athens’ intentions, the European Commission has called a crisis meeting in Luxembourg on Friday night. 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.

Given the tense situation, the meeting in Luxembourg has been declared highly confidential, with only the euro-zone finance ministers and senior staff members permitted to attend. Finance Minister Wolfgang Schäuble of Chancellor Angela Merkel’s conservative Christian Democratic Union (CDU) and Jörg Asmussen, an influential state secretary in the Finance Ministry, are attending on Germany’s behalf.

…… Sources told SPIEGEL ONLINE that Schäuble intends to seek to prevent Greece from leaving the euro zone if at all possible. He will take with him to the meeting in Luxembourg an internal paper prepared by the experts at his ministry warning of the possible dire consequences if Athens were to drop the euro.

“It would lead to a considerable devaluation of the domestic currency against the euro,” the paper states. According to German Finance Ministry estimates, the currency could lose as much as 50 percent of its value, leading to a drastic increase in Greek national debt. Schäuble’s staff have calculated that Greece’s national deficit would rise to 200 percent of gross domestic product after such a devaluation. “A debt restructuring would be inevitable,” his experts warn in the paper. In other words: Greece would go bankrupt.

It remains unclear whether it would even be legally possible for Greece to depart from the euro zone. Legal experts believe it would also be necessary for the country to split from the European Union entirely in order to abandon the common currency. At the same time, it is questionable whether other members of the currency union would actually refuse to accept a unilateral exit from the euro zone by the government in Athens.

What is certain, according to the assessment of the German Finance Ministry, is that the measure would have a disastrous impact on the European economy…..


Solid demand for bond issues by Spain, Portugal and Italy boost Euro

January 13, 2011
The euro sign; logotype and handwritten.

Image via Wikipedia

The countries are considered among those dragging down the Eurozone but strong demand for Portugese bonds on Wednesday was followed by solid demand for those issued by Spain and Italy today. Earlier this week both Japan and China had pledged to buy the bonds in Europe. Both countries have large cash reserves and are probably attracted by the higher yields but are also making a political statement in supporting the Eurozone. China is on a charm offensive and wishes to be seen to be reaching out to Greece and Portugal.

BBC:

Spain has raised 3bn euros ($3.9bn; £2.5bn) in an auction of five-year government bonds. The average yield on the bonds was 4.542%, which was nearly one percentage point higher than the rate reached in the last auction in November. However, analysts had feared the yield would be even higher.

The debt sale, which follows a similar auction by Portugal on Wednesday, is soothing fears over the eurozone’s ability to service its debts. Michael Lister, strategist at West LB in Dusseldorf, said: “The figures look really good, it’s the perfect sequel to the Portugal auction yesterday.”

Wall Street Journal:

The Hong Kong dollar rose against the U.S. dollar Thursday as a successful bond auction in Portugal helped ease concerns about the euro zone’s debt problems, encouraging investors to shift funds from the U.S. currency to riskier assets.

Traders said gains in the local stock market will continue to boost demand for the Hong Kong dollar. They said they expect the U.S. dollar to trade between HK$7.7720 and HK$7.7780 Friday.

“Portugal’s bond auction temporarily eased concerns over European debt. Also, the U.S. dollar isn’t likely rise sharply ahead of (Chinese) President Hu Jintao’s visit to the U.S. next week,” said a senior trader at a Chinese bank. Hu plans to meet U.S. President Barack Obama in Washington on Jan. 19.

The Portuguese government sold EUR1.25 billion worth of bonds in an auction overnight, offering good news to investors worried an unsuccessful bond sale could signal tougher austerity measures in parts of the euro zone.

Financial Times:

Spain and Italy on Thursday followed Portugal by holding successful bond auctions, providing a glimmer of optimism in the eurozone debt crisis. Italy sold €6bn of five-year and 15-year debt while Spain issued €3bn in five-year bonds, but both countries were forced to pay higher interest rates than in previous auctions.

The three successful auctions this week from peripheral eurozone countries provide a small amount of breathing room in the crisis. But the elevated yields paid by all of them and their high funding needs mean that investors are still waiting for decisive action from European policymakers.

Italy sold €3bn of 15-year bonds at a yield of 5.06 per cent, up from 4.81 per cent at a previous auction in November. Likewise, the yield on €3bn of five-year debt rose from 3.24 per cent two months ago to 3.67 per cent. Both auctions were fully covered. Spain paid almost a percentage point more than it did in November with a five-year yield of 4.54 per cent.

Time to bring in an “Olive Euro” or to bring back the Deutsche Mark?

December 30, 2010

50 Deutsche Mark banknote: image commons.wikimedia.org

As long as there is no economic and fiscal union in Europe, the Euro is going to be plagued by the inherent weaknesses of errant nations. The current economic weakness in Greece, Portugal, Spain and Italy and the political inability – or unwillingness – to deal with the simple financial housekeeping that any competent housewife would handle as a matter of course suggests that the fiscal union will never happen. Non-compliance with the stability rules by nations lead to few sanctions. This in turn leads to the question whether the Euro has any long term future in the absence of fiscal rectitude across all the participating nations.

100 Euro banknote from Germany

100 Euro banknote from Germany

The weakness of the Euro has in fact helped to boost exports from Germany and the relatively strong growth in Germany is mainly export driven. Nevertheless many Germans are beginning to worry about the value of their Euro when this value is being diluted by the “less responsible” nations. Germans are remembering that “German” Euro notes are easily identifiable (as are the notes printed in the different countries). There are calls for the German government to maintain the value of the “German” Euro when the Euro loses value! (German Euro banknotes can be identified by their serial number, which will always start with the letter “X”.) It is already noticeable that money changers in Asia are beginning to check the country of origin of the Euro banknotes they are dealing with. I can imagine their future reluctance to deal with notes having serial numbers beggining with “Y” (which would be a note from Greece). Some are calling for the Euro to be separated into a “Northern Euro” and an “Olive Euro”. It is only a short step to different values appearing unofficially for Euros from different countries.

Der Spiegel reports on the growing calls for the return of the Deutsche Mark:

Surveys show that many Germans are worried about the future of the euro, but the country’s political parties are not taking their fears seriously. The number of grassroots initiatives against the common currency is increasing, and political observers say a Tea Party-style anti-euro movement could do well.

Rolf Hochhuth is campaigning against the euro — and his stage is Germany’s Constitutional Court. “Why should we help rescue the Greeks from their sham bankruptcy?” he asks. “Ever since Odysseus, the world has known that the Greeks are the biggest rascals of all time. How is it even possible — unless it was premeditated — for this highly popular tourist destination to go bankrupt?”In the spring, he joined a group led by Berlin-based professor Markus Kerber that has filed a constitutional complaint against the billions in aid to Greece and the establishment of the European stabilization fund, which was set up in May 2010. Hochhuth wants the deutsche mark back. “I don’t know if this is possible. I only know that Germany lived very well with the mark.”

It’s an opinion that suddenly places this nearly 80-year-old man in a rather unusual position, at least for him: on the side of the majority of Germans.

(more…)


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