Brussels deal is another sticking "band-aid" to patch up a brocken eurozone - First, it is woefully short on detail. The euro bailout fund (the EFSF) is to be leveraged up to €1 trillion (£878bn) but we are not told how. Greek bond holders will take a haircut of 50pc but we don't know how this will work or even that Greece's creditors will accept it. European banks will need to raise an extra €100bn to recapitalise themselves, but we don't know whether they will be able and willing to raise this money from the markets. (They might instead react by cutting their lending, which would be catastrophic for the economy.) So the deal may yet disintegrate, but let us assume it holds together. Will it work? Apparently, after the haircut, the Greek debt to GDP ratio will be brought down to 120pc by 2020. Supposedly, creditors of the Greek government can then sleep easy. Come off it! Most observers put the danger point for sovereign indebtedness at about 90pc-100pc of GDP. And, by the way, all these numbers rest on forecasts that the Greek economy grows reasonably well. That looks hardly likely. Similarly, if the eurozone economy is weak then bad debts will rise and European banks will need more capital. Moreover, the sum of €1 trillion for the EFSF is rather low. Just a few weeks ago, the talk was of the fund needing to be €2 trillion, which is about the size of Italian government debt.
Access Investments-Building Awareness - European Union-ROMANIA
Monday, October 31, 2011
Band-aid for the Eurozone - nothig else !
Brussels deal is another sticking "band-aid" to patch up a brocken eurozone - First, it is woefully short on detail. The euro bailout fund (the EFSF) is to be leveraged up to €1 trillion (£878bn) but we are not told how. Greek bond holders will take a haircut of 50pc but we don't know how this will work or even that Greece's creditors will accept it. European banks will need to raise an extra €100bn to recapitalise themselves, but we don't know whether they will be able and willing to raise this money from the markets. (They might instead react by cutting their lending, which would be catastrophic for the economy.) So the deal may yet disintegrate, but let us assume it holds together. Will it work? Apparently, after the haircut, the Greek debt to GDP ratio will be brought down to 120pc by 2020. Supposedly, creditors of the Greek government can then sleep easy. Come off it! Most observers put the danger point for sovereign indebtedness at about 90pc-100pc of GDP. And, by the way, all these numbers rest on forecasts that the Greek economy grows reasonably well. That looks hardly likely. Similarly, if the eurozone economy is weak then bad debts will rise and European banks will need more capital. Moreover, the sum of €1 trillion for the EFSF is rather low. Just a few weeks ago, the talk was of the fund needing to be €2 trillion, which is about the size of Italian government debt.
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"if Europe is in trouble, the solution must be more Europe"
“You cannot solve a problem from the same consciousness that created it. You must learn to see the world anew.” - Albert Einstein
The insistence of the Euro-mob to keep on doing what they have always done only goes to prove how unwilling they are to imagine they are wrong.
"A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines." - Ralph Waldo Emerson
Meanwhile, the Greek debt write–off is going to poison the politics of austerity. According to the usual burst of euro-twaddle in the press release, summit participants recognised that Greece was a special case and they solemnly pledged that all countries would stick to their austerity programmes. Yet, given that Greece has been partially let off the hook, how do you persuade voters in Italy and elsewhere that they must accept austerity until the crack of doom?
And when the Greek deficit turns out to be worse than assumed how do you tell Greek voters that there is no alternative to yet more fiscal stringency? That's the thing about default; it's difficult to prevent the habit from catching on.
Most delightful in this farce has been the deployment of the Chinese cavalry just over the horizon. Apparently, China may put in about $100bn (£62bn). So what? If she demands guarantees, then this will be tantamount to European governments putting up the money themselves, only without this appearing in their official debt numbers. Nice little wheeze. But you can be sure China will not be providing charity.
If this deal enables the eurozone to hold together it will be an economic and political disaster. More likely, it will unravel, or the system will suffer another major debt shock and a banking crisis. Yet the optimists believe the eurozone is heading towards some sort of closer union which is going to make all well: if Europe is in trouble, the solution must be more Europe. You really couldn't make it up.
From 2005 until 2010 Greece’s public debt as a percentage of GDP grew from 100% to 150%. In less than a year, the debt went up by a further ten percent, and is currently at 160% of GDP, which indicates that despite the tough austerity measures, there is a limit beyond which things can no longer be controlled, and the “end” becomes unavoidable.
Officials in Tokyo are increasingly concerned that the strength of the yen will result in local companies relocating factories and jobs from Japan to more competitive destinations like the US. Thus foreign exchange investors should expect continuing intervention in the currency markets if the dollar keeps falling from its weak historic levels against the yen.
Japanese policymakers are likely to continue to intervene periodically in the currency markets - as they have done again this morning - while undertaking further quantitative easing measures at home to curb the strength of the yen.
8.04am: The London stock market has just opened, and as feared most shares are falling. The FTSE 100 dropped 51 points, or nearly 1%, at the start to 5650.
Mining stocks, that perennial measure of economic optimism, are leading the fallers. Kazakhmys, Vedanta, BHP Billiton and Xstrata are all down 3% or more.
This follows a weak day's trading in Asia, where Japan's Nikkei index closed 0.7% lower. The main South Korean index is down around 1%.
Not big moves, but perhaps a sign that investors are again accepting that the world economy faces a very tough time. As Michael Hewson, market analyst at CMC Markets, put it:
The overstated market reaction to last week's European bailout package will be tested this week with scepticism already rising about the durability of the measures
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