So whats with the rumors of Germany and France looking for a way out of the Euro currency?

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**Kilkrazy**

Orlanth wrote:
Kilkrazy wrote:
Shall we (germany, france ) join Liechtenstein and return to the old borders from 12th century?

Why not. Hand back Normandy you Frenchies!

And Picardy and Aquitaine!!

**squilverine**

I think it really depends upon who gets to make the decisions, if it is up to the beurocrats then the Euro will remain as it is the flagship project of the EU and it's colapse could see confidence in the European union undermined to the point where the stronger members such as Germany decide to go it alone. This would be a huge blow for smaller members who rely on subsidies such as Latvia.
If there is a referendum and it goes to the public vote the Euro will be droped faster than fat girl gobbling down a pork pie. The idea of a single econoomy was a good idea but it can only work when everyone using it is on a level playing field when it comes to taxation, trade laws and administration.

The one thing which will be great for non Euro countries will be that in reverting to individual currencies competition for tourism and trade will increase meaning cheaper holidays and better deals to be had for businesses.

**Orlanth**

Kilkrazy wrote:
Orlanth wrote:
Kilkrazy wrote:
Shall we (germany, france ) join Liechtenstein and return to the old borders from 12th century?

Why not. Hand back Normandy you Frenchies!

And Picardy and Aquitaine!!

If we went back to the 14th century then yes.

**egor71**

Soladrin wrote:
filbert wrote:Germany, and the German public, have been getting somewhat angst y over the continuing Greek saga - they don't want to bankroll propping up another country. The issue lies in that Greece being a Euro member is threatening to derail the currency and spoil it for the rest of the Euro-zone countries, who also don't want to bankroll propping up the Greek economy. There has been some quite hard-line rhetoric coming out of Germany with reference to the austerity measures that the Greek government needs to introduce to 'prove' they are responsible enough before they will get a financial bail-out. In turn, this has sparked huge riots in Athens from Greeks who don't want pay cuts and job losses. A further knock on to this is continuing uncertainty in the currency and financial markets over whether Greece will get a bail out and whether they can actually afford to pay back their loans. This situation is also mirrored in Portugal, who are close to 'doing a Greece' and Spain and Italy, who have seen their credit rating fall.

All in all, the richer and slightly more stable Euro countries are worried about having to bail out 'lesser' countries in order to preserve the stability of the currency and the financial markets. It's a very real possibility that the Euro may collapse.

I hope it does... I want my bloody guilders back!

Me too

**Mortified Penguin**

The first thing that comes to my mind when reading all this is that the Americans in this thread should cork it, since it was their free market proselytising that got us into this mess in the first place. The second thing is that the collapse of the Euro would be terrible for Ireland; we're an export economy that relies on easy access to the Euro-zone combined with an educated workforce and relative proximity to the US. No Euro means all those IT companies hop over to Scotland or Germany.

You can have my welfare state when you take it from my cold dead hands, but I'll tolerate temporary austerity cuts, since they worked for us back in the late 1980's.

**ounumen**

Mortified Penguin wrote:The first thing that comes to my mind when reading all this is that the Americans in this thread should cork it, since it was their free market proselytising that got us into this mess in the first place. The second thing is that the collapse of the Euro would be terrible for Ireland; we're an export economy that relies on easy access to the Euro-zone combined with an educated workforce and relative proximity to the US. No Euro means all those IT companies hop over to Scotland or Germany.

You can have my welfare state when you take it from my cold dead hands, but I'll tolerate temporary austerity cuts, since they worked for us back in the late 1980's.

I prefer to laugh at you folks in Europe much like you laughed at us. We didnt do gak. You joined us, so thanks for sharing in the misery and dont let the door hit you in the ass on the way out.

**filbert**

Mortified Penguin wrote:The first thing that comes to my mind when reading all this is that the Americans in this thread should cork it, since it was their free market proselytising that got us into this mess in the first place.

That's a wee bit unfair - I don't think European banks can absolve themselves of blame. But the Euro failing would be bad news for most, if not all, EU countries, even ones that aren't Eurozone members given the vagaries of import / exports. That's not to say the Euro can't or won't fail though.

**Mortified Penguin**

ounumen wrote:
Mortified Penguin wrote:The first thing that comes to my mind when reading all this is that the Americans in this thread should cork it, since it was their free market proselytising that got us into this mess in the first place. The second thing is that the collapse of the Euro would be terrible for Ireland; we're an export economy that relies on easy access to the Euro-zone combined with an educated workforce and relative proximity to the US. No Euro means all those IT companies hop over to Scotland or Germany.

You can have my welfare state when you take it from my cold dead hands, but I'll tolerate temporary austerity cuts, since they worked for us back in the late 1980's.

I prefer to laugh at you folks in Europe much like you laughed at us. We didnt do gak. You joined us, so thanks for sharing in the misery and dont let the door hit you in the ass on the way out.

Yes you did, considering the IMF and the World Bank basically parrot good old fashioned U.S. market liberalisation, which is what caused the whole "lend to people who can't pay" insanity that led to the collapse.

**Frazzled**

US banks are doing fine. European banks aren't.

This has jack squat to do with the thread.

**WarOne**

Frazzled wrote:US banks are doing fine. European banks aren't.

This has jack squat to do with the thread.

America banks are doing better because the U.S. government essentially had their bad loans bailed out by the government. While the government takes on the burden, those companies now can claw their way back to fiscal security and hopefully not eff up again.

I also don't think Frazzled wants to lock his own thread.

**Chaoslord**

Greece shouldn't have been included in the eurozone in the start anyways, but apparently somewhat made up statistics and such paved their way. Now it mostly comes down how well Italy and Spain (and Portugal to lesser extent) can keep their stuff together. Many could argue that those three weren't the best candidates for eurozone at the start, but keeping the 2 big ones out was probably impossible politically.

If one wants to check out why Greece was going to the gutter, even discounting the global economic climate, one can find pretty interesting stuff (government deskjobs retirement at 50-> pensions and then transfering said pension-plans to relatives when pensioner dies...). It's no wonder others are not happy lending them bailout-money, but unfortunately it just seems the best of the worst options. At least there are strings attached to the loans, as is previously mentioned here.

**Orlanth**

Greece is a nice place, decent people and have every right to consider themselves part of Europe.

The trouble is we dont all have th same agendas. In Greece for instance, and to some extent other countries of Club Med Public Enemy #1 is a hard days work.

By unifying currencies we allow responsiblity to be shifted onto stronger economies. The Euro on its own will not allow Greece to weaken Germany so long as Germany not Greece keeps hold of the purse strings. ok this is a simplification but essentially if Club Med want to unload the effects of their bad policies onto the EC as a whole they should be considered single currency users, not single currency contributors in the same way that some small nations use the pound or US dollar as their currency as a means of trade while forfeiting any actual control over it.

**Chaoslord**

Orlanth wrote:Greece is a nice place, decent people and have every right to consider themselves part of Europe.

Certainly. As always it's just easy to figure stuff out in retrospect and hope that the union would have scrutinized eurozone formation better, in the vein of "get your stuff in order->join eurozone if you wish" and not the other way around.

**Da Boss**

It all makes for pretty grim reading. I can totally understand the position the Germans are taking. The greeks have got to deal with their problems.

The corruption and waste in our own economy makes me worried that we'll be equally screwed if it all goes tits up. Glad I'm moving to the UK, I suppose...

**mattyrm**

Frazzled wrote:US banks are doing fine. European banks aren't.

This has jack squat to do with the thread.

Uh?

**Frazzled**

Wow people really are calling it the Club Med block

http://www.telegraph.co.uk/finance/comment/edmundconway/7770265/Is-Europe-heading-for-a-meltdown.html

Is Europe heading for a meltdown?
This financial crisis is worse than the sub-prime crash of 2008 because the sums are so much bigger and it is governments that are in dire straits. Edmund Conway explains the dangers.

By Edmund Conway
Published: 8:21AM BST 27 May 2010

Comments 103 | Comment on this article

Photo: BLOOMBERG NEWS
Mervyn King, the Bank of England Governor, summed it up best: "Dealing with a banking crisis was difficult enough," he said the other week, "but at least there were public-sector balance sheets on to which the problems could be moved. Once you move into sovereign debt, there is no answer; there's no backstop."

In other words, were this a computer game, the politicians would be down to their last life. Any mistake now and it really is Game Over. Or to pick a slightly more traditional game, it is rather like a session of pass-the-parcel which is fast approaching the end of the line.

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Moody's predicts default rate will exceed peaks hit in Great DepressionThe European financial crisis may look and smell rather different to the American banking crisis of a couple of years ago, but strip away the details – the breakdown of the euro, the crumbling of the Spanish banking system to take just two – and what you are left with is the next leg of a global financial crisis. Politicians temporarily "solved" the sub-prime crisis of 2007 and 2008 by nationalising billions of pounds' worth of bank debt. While this helped reinject a little confidence into markets, the real upshot was merely to transfer that debt on to public-sector balance sheets.

This kind of card-shuffle trick has a long-established pedigree: after the dotcom bust, Alan Greenspan slashed US interest rates to (then) unprecedented lows, which helped dull the pain, but only at the cost of generating the housing bubble that fed sub-prime. It is not so different to the Ponzi scheme carried out by Bernard Madoff, except that unlike his hedge fund fraud, this one is being carried out in full public view.

The problem is that this has to stop somewhere, and that gasping noise over the past couple of weeks is the sound of millions of investors realising, all at once, that the music might have stopped. Having leapt back into the market in 2009 and fuelled the biggest stock-market leap since the recovery from the Wall Street Crash in the early 1930s, investors have suddenly deserted. London's FTSE 100 has lost 15 per cent of its value in little more than a month. The mayhem on European bourses is even worse, while on Wall Street the Dow Jones teeters on the brink of the talismanic 10,000 level.

Whatever yardstick you care to choose – share-price moves, the rates at which banks lend to each other, measures of volatility – we are now in a similar position to 2008.

Europe's problem is that the unfortunate game of pass-the-parcel came at just the wrong moment. It resulted in a hefty extra amount of debt being lumped on to its member states' balance sheets when they were least-equipped to deal with it.

Europe was always heading for a crunch. For years, the German and Dutch economies pulled in one direction (high saving, low spending) while the Club Med bloc – Greece, Portugal, Spain, Italy (and their Celtic outpost Ireland) – pulled in the other. At some point, there was always going to be a problem, given that these two economic blocs were yoked together in the same currency, controlled by the same central bank. By triggering the global recession and shovelling an unexpected load of debt on to Greece's balance sheet, the financial crisis has effectively smoked out the European folly.

The Club Med nations – and in many senses Britain – were not so different to sub-prime households: they borrowed cheap in order to raise their standards of living, ignoring the question of whether they could afford to take on so much debt. But, as King points out, sub-prime households – and the banks that lent to them – can usually be bailed out. The International Monetary Fund simply does not have enough cash to bail out a major economy like Spain, Italy or, heaven forfend, Britain. So, again, we find ourselves in unknown territory.

There are plenty of episodes in history when countries have been as indebted as they are now, but they are all associated with periods of war. History shows that when nations reach as high a level of indebtedness as Greece, and have as few prospects of growth, they will almost certainly default. Indeed, the IMF, which has pretty good experience of fiscal crises, privately recommended that Greece restructure its debt (a kind of soft default, renegotiating payment terms). It was refused point-blank by the European authorities.

To understand why, step back for a moment. It is fashionable to compare the current situation to the Lehman Brothers collapse, but that understates its severity. The sub-prime property market in the US, together with its slightly less toxic relatives, represented a $2 trillion mound of debt. The combined public and private debt of the most troubled European countries – Greece, Portugal, Spain and so on – is closer to $9 trillion.

Moreover, whereas the pain from sub-prime was spread out relatively widely, with investors hailing from both sides of the Atlantic, the owners of the suspect European debt tend almost exclusively to be, gulp, Europeans. No one is suggesting all of this debt will go bad, but the European policymakers fear that the merest hint that Greece might default would spark a chain reaction that would cause a more profound crisis than in 2008.

The problem is not merely that holders of Greek government debt would dump their investments, or even that they would ditch their Spanish and Portuguese bonds while they were at it. It is that government debt is the very bedrock of the financial system: should Greek government bonds collapse, the country's banking system would become insolvent overnight. In fact, banks throughout the euro area would be at risk, given that they tend to hold so much of their neighbours' government debt. That, at least, is the theory, but as was the case in the aftermath of Lehman's collapse, no one really knows how great their exposure is.

The other, more cynical, explanation for Brussels' refusal to countenance default is that it fears that this would fatally destabilise the euro project itself – which of course it would. But as the politicians are discovering, organising a European sovereign bail-out is far, far more difficult than rescuing a bank. It took barely more than a few days in September 2008 for the Government to push through the semi-nationalisation of Royal Bank of Scotland and HBOS.

Earlier this month, when the French President Nicolas Sarkozy announced that the continent would be saved by a "shock and awe" $1 trillion bail-out package, markets convinced themselves for a moment that the politicians might be able to manage it. But the challenge of having to co-ordinate an unprecedented rescue across a
16-nation region without a common language or central Treasury is proving too much for Europe's leaders. Add to this the fact that most citizens (particularly in Germany) resent the idea of bailing each other out at all, and are willing to vote out their governments to prove it, and you get the idea of the challenge at hand.

Despite his rather aloof appearance, European president Herman Van Rompuy put it pretty well this week, saying: "Today, people are discovering what a 'common destiny' in monetary matters means. They are discovering that the euro affects their pensions, savings, and jobs, their very daily life. It hurts. In my view, this growing public awareness is a major political development. It forces the governments to act."

That action, so far as Van Rompuy is concerned, means more integration and some eye-watering spending cuts across the continent. Unfortunately, both are being carried out in haphazard fashion. The bail-out package may pave the way for a central EU Treasury, but it is still being muddled through the legislative process, and could well fall foul of voters in France or Germany. Spain and Italy are, rightly, inflicting severe cuts on their budgets, but so is Germany, which ought, according to a host of economists including Mervyn King, to be spending more, not less.

In the meantime, European politicians, torn in one way by their voters, in another by Brussels, emit even more confusing signals which only destabilise markets further. Angela Merkel's ban on investors short-selling German bank shares, and the collapse of a swathe of Spanish savings banks have hardly helped, either. And all the while, the euro continues to fall as investors mull its fate. The single currency can survive – but only if its members agree to more political union, and the prospect of that would be about as palatable to the people of Europe this summer as an ouzo and retsina cocktail.

**Kilkrazy**

The Spanish are cutting civil services salaries by 5%, which is what we should do in the UK too.

**ShumaGorath**

ounumen wrote:
Mortified Penguin wrote:The first thing that comes to my mind when reading all this is that the Americans in this thread should cork it, since it was their free market proselytising that got us into this mess in the first place. The second thing is that the collapse of the Euro would be terrible for Ireland; we're an export economy that relies on easy access to the Euro-zone combined with an educated workforce and relative proximity to the US. No Euro means all those IT companies hop over to Scotland or Germany.

You can have my welfare state when you take it from my cold dead hands, but I'll tolerate temporary austerity cuts, since they worked for us back in the late 1980's.

I prefer to laugh at you folks in Europe much like you laughed at us. We didnt do gak. You joined us, so thanks for sharing in the misery and dont let the door hit you in the ass on the way out.

I do so love stereotypical economic zone patriotism fights by people that don't know much about globalized economics.

**mattyrm**

I didnt laugh at anyone... :(

**dogma**

ounumen wrote:
I prefer to laugh at you folks in Europe much like you laughed at us. We didnt do gak. You joined us, so thanks for sharing in the misery and dont let the door hit you in the ass on the way out.

On the way out of what?

**gorgon**

Frazzled wrote:Despite his rather aloof appearance, European president Herman Van Rompuy put it pretty well this week, saying: "Today, people are discovering what a 'common destiny' in monetary matters means. They are discovering that the euro affects their pensions, savings, and jobs, their very daily life. It hurts. In my view, this growing public awareness is a major political development. It forces the governments to act."

I liked that line.

dogma wrote:
ounumen wrote:
I prefer to laugh at you folks in Europe much like you laughed at us. We didnt do gak. You joined us, so thanks for sharing in the misery and dont let the door hit you in the ass on the way out.

On the way out of what?

The Cracker Barrel? *shrug*

**Frazzled**

Mmmm Cracker Barrel!
http://www.crackerbarrel.com/virtualtour/restaurant/photos.cfm

**WarOne**

Frazzled wrote:Mmmm Cracker Barrel!

Mmmm.... Crack in a Vial!

**Albatross**

Well, we Euroskeptics are starting to look less xenophobic and shortsighted by the day. I am so unbelievably glad that we didn't sign up for the Euro - even so, if the eurozone goes tits-up we'll have all kinds of trouble. I'm just grateful that our government is taking immediate steps to deal with our debt now, instead of waiting for our economy to start circling the plug-hole...

**Stormrider**

I don't know how the government forcing banks to loan to people who can't pay them is a free market idea.

Large financial companies packaging them and calling them "good investments" is bad, but the banks were forced to loan or get no money to use from the Fed. The corrupt government here in the US used our own currency as a mighty cudgel to promote "equality" and smash businessmen with scruples over the head.

**dogma**

Stormrider wrote:I don't know how the government forcing banks to loan to people who can't pay them is a free market idea.

Large financial companies packaging them and calling them "good investments" is bad, but the banks were forced to loan or get no money to use from the Fed. The corrupt government here in the US used our own currency as a mighty cudgel to promote "equality" and smash businessmen with scruples over the head.

I assume you're talking about the CRA. If that's the case, the penalty for CRA non-compliance is, potentially, the denial of a request for expansion, acquisition, or merger. There is no prescription which requires that the Fed withhold currency held on account with the reserve, and it would be illegal to do so.

The biggest issue with the CRA is way in which it interacted with Fannie and Freddie to incentivize risk taking with respect to financing home purchase.

**Frazzled**

Spain was just downgraded.

**Miguelsan**

Stormrider wrote:I don't know how the government forcing banks to loan to people who can't pay them is a free market idea.

There is forcing as "You bank!, give loans" and forcing in which really low interest rates set by the Central Banks (FED in the US IIRC) force the banks to almost give away money either by lending or investing. That´s one of the reasons of the housing bubble, banks across the world were borrowing money from the Central Banks at 1% (in Japan even at 0.25%), now banks could go and invest in safe public debt at 2-3% or go for higher rates with housing loans. After a certain point all the A level customers were covered so the banks went one step forward and started lending money to the B level (more risk of foreclosure but higher interest rate) and so on helping creating the bubble.

This is an oversimplification of the origin of the crisis but for the most part it was not the Big Bad Government forcing banks to lend money or else but rather the Cost of Opportunity in a historically low interest rate market of going for safer options versus higher benefits. In an ideal free market world, managers are aware and can balance risk and benefits, in RL managers, CEO, board members were more interested in the next bonus rather than that so the warning sings (there were a few) were ignored.

Then the politicians jumped on the cart and tried to fix things with public debt but that's another story...

M.

Automatically Appended Next Post:
Ohhhhh! the Rating Agencies upgrading and downgrading public debt like they never had a finger in the pie. Frankly I don´t know what to think, on the one hand I recognize that Spanish`s public debt is not that good but on the other hand these were the same agencies that were spreading AAA*****+++++++ (and a little bit more

))ratings on very, very risky investments just before the bubble went POOF!.

Tho the option that has been spreading around of a European rating agency is a thousand times worse.

M.

**Kilkrazy**

Are US banks required by law to set their interest rate to match the Federal Reserve rate?

UK banks aren't.

**Orlanth**

Kilkrazy wrote:Are US banks required by law to set their interest rate to match the Federal Reserve rate?

UK banks aren't.

Just as well seeing as the Federal Reserve is a private enterprise.