The Eurozone response... adequate? countries, direction, control, problem

atate2007

So, finally, after much of rumblings, there seems some sort of response to the Greek debt problem, enhanced functionalities for the EFSF so that it may provide support to other debt ladden eurozone countries to hopefully preventing their debt to also spiral out of control, which is what happened with the Greek case. But is the step that has been made, a baby step in the right direction or the final say on the matter? Personally i think its somewhere in the middle though more of a baby step than the final word. I think this because first of all all that has been planned has to happen without a hitch, including the participation of the private sector in the restructuring of the greek debt. moreover it is not clear that the eurozone members have made a response for the eurozone-wide debt, rather than just the greek debt, but Greece is only part of the porblem, and a small part at that. On the contrary they have sought to frame Greece as a unique and etraordinary case for which extraordinary measures are required. I guesse they think that the enhanced EFSF will prevent other countries, like Ireland and Portugal from every requiring such a large-scale rescue, howver the funds that EFSF has in its disposal have not been extended, and extending them may be a prolonged case...

In the mean-time the US has its own default-related issues...

any thoughts?

cfalevel2011

AntonioY Wrote:
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> tl;dr


Fvck yes.

TIL other smart people browse Reddit.

___________________________________________________
ChickenTikka Wrote:
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> Being Born Wealthy > Being Jewish or WASPY > Born
> Pretty > Top 5 MBA > CFA > Avg MBA > Born middle
> class > Born lower class > Born in crack house >
> Born middleclass in Asia and working in IT but
> looking to switch to buyside

Unforseen

too long?!! are you kidding me? is your ability to contain information about as high as that of a fish? back in the toolbox for you

SeanWest

It sucks to be China right now; the Euro is in trouble, the Dollar is on a kamikaze mission; where do you park that $4 Trillion plus foreign reserve that China has. This might be a rationale that investment in emerging markets may surge as China seeks out other currencies/investment opportunities to park their cash (maybe the Real, the Lira or maybe increased investment in commodity rich Africa - the Rand?). Thoughts?

SFoyil

Well the way I see it, countries like Ireland and Greece, and other PIIGS nations have chosen this path (well more like pushed into it, by the pushy EU politicians). They have chosen years and years of austerity, and poor growth as a result (well maybe Ireland has a chance through its exports, but this is not enough to sustain a crippled economy)

Now look at the rating cuts these countries are getting, nearly on a semi-monthly basis, the 'disaster' is becoming a self fulfilling prophecy, ratings are going down, yields are going higher and higher. The euro solution is to give them more debt, so they can pay their current debt.

What Ireland and Greece should have done about 2 years ago is, simply take their hands out of their pockets, and just raise the middle finger to both Merkel and the rest of the European Commission. Just simple say we cant pay the debt, investors bought this debt knowing that there was a probability of default, I mean it was probably built into the yield they were getting. Investing in Bonds was never risk-free.

Ok so they default (Its not as bad as it sounds).
Ratings agencies looking at these countries might suddenly realize.. wait they have no big piles of debt hanging over their heads, and investors two (I think this idea of investors suddenly shunning these countries because of a default is absurd, ok maybe it may take a while, but better then years and years of torture.

(jeopardize the Euro?.. i doubt it, they are very small countries)

yodacaia

Zesty Wrote:
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> It sucks to be China right now; the Euro is in
> trouble, the Dollar is on a kamikaze mission;
> where do you park that $4 Trillion plus foreign
> reserve that China has. This might be a rationale
> that investment in emerging markets may surge as
> China seeks out other currencies/investment
> opportunities to park their cash (maybe the Real,
> the Lira or maybe increased investment in
> commodity rich Africa - the Rand?). Thoughts?


What exactly are they going to invest in? Building high speed rails? That doesn't seem to be working out so well...

Several points:

1) There are not many markets that are large enough to trade in trillions. The market cap for all EM equities is less than $2T (source: Goldman Sachs), and the largest component of that is China itself!

2) If China wants to keep their currency undervalued relative to the dollar in order to be able to export to the US, it must accumulate US assets (treasuries) to offset its current account surplus. The accumulation of the large reserves is a consequence of China's trade policy, not of American profligacy. The so-called "nuclear option" where China dumps its treasuries on the market, is smoke and mirrors.

3) The dollar as a global reserve currency is a public good, which benefits the entire world while having both costs and benefits to the US itself. The largest cost is that it serves as a large drag on aggregate demand since all other countries want to export to the US and accumulate its assets as a reserve. The largest benefit is that financing purchases is less expensive in the US because of the liquid capital markets.


Food for thought: China now holds $3.2T of foreign reserves, which is ~5.1% of global GDP ($62T). This has only happened twice before in history: in the US prior to the Great Depression and in Japan in the late 1980s prior to the Lost Decade.

transferpricing

Any response that does not solve the underlying problem of lack of competitiveness in the periphery of the Euro Zone will obviously be insufficient. The forced austerity is a colossal waste of time: "the beatings will continue until moral improves".

They need to either go back to individual currencies which can float to resolve the imbalances, or they need to go to a full on fiscal union with a central fiscal authority, labor mobility, etc. Either option is painful and undesirable for member nations.

Every step they take pulls them a bit closer to fiscal union, kicking and screaming...



Edited 2 time(s). Last edit at Tuesday, July 26, 2011 at 07:53AM by Dwight.