Impact on the markets

borntorum

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It is about the endemic problems. If (a big if) the EU can afford to give a similar deal to Portugal and Spain (and then Italy and Belgium) it will still not solve the problem. The point is that the countries in question cannot absorb the debt and that is simply a fact. Ireland is probably the worst of them because of the tie in with the banks. However, the fact applies across the economies in question. The only thing that will solve the macro issue is quantitative easing and the only thing that will solve the Irish problem is a debt forgiveness/equity swap programme. These policies are inevitable and the investors know this. If they don't come now they'll come at some stage and European bonds will just be shorted - one nation by the next - until the correct policy decisions are made, however hard, because the investors know that they can win every time in the current scenario. Only way to solve the problem is to change the rules.
But the market doesn't seem to know what it wants. When the possibility of bondholders having to take a hit is mentioned, they go mad and the yield on our borrowing shoots up because they don't want to lose out. Then when the IMF/EU loan is put in place without any provision for bondholders being discounted, they freak out because they don't think that it will solve the underlying problems.
 


Asparagus

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Ireland bailout fails to calm nervy Spain and Portugal | Business | guardian.co.uk

French economy minister Christine Lagarde said the Irish rescue deal was "sufficient" and that "irrational" markets were not correctly pricing the sovereign debt situation in Europe.

"The amount [of the bailout] is sufficient because that will keep Ireland afloat for three years," she told RTL radio. "I am confident in the ability of the Portuguese government to implement a rigorous [austerity] plan."

Lagarde said it was wrong to price the cost of Spanish debt at the same level as more risky countries such as Pakistan and Romania.

"Europe is difficult to understand for the markets. They work in an irrational way sometimes," she said.
Ireland to be kept afloat for 3 years.... and then what, sunk???
Go on the markets, pull them all down.
 

Asparagus

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But the market doesn't seem to know what it wants. When the possibility of bondholders having to take a hit is mentioned, they go mad and the yield on our borrowing shoots up because they don't want to lose out. Then when the IMF/EU loan is put in place without any provision for bondholders being discounted, they freak out because they don't think that it will solve the underlying problems.
The markets want consistency, they want sustainability - the IMF / EU / NPRF "rescue" fund is not what the market thinks will be a safe bet.
I.e. with the steps taken - they do not believe that lending to us assures them of a return.

If they thought it was they would be prepared to buy our bonds at 5.8 or less and portugal / spains at the samish price.
 

Squire Allworthy

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johnfás

Anyone with sense can see that the Eurozone needs QE and reform. The alternative is stagnation. The current instability is not a reasonable, or responsible, way to order affairs. It is living on a knife edge and is unnecessary. It is also costing the various countries much needed capital.

Why the reluctance to accept the inevitable? German resistance really does not adequately explain it. It is not of Weimar proportions and it is needed in both Germany and France. In fact Germany is likely to gain most in the long run.

Politically I would have thought that selling a comprehensive solution would have been a lot easier that the current shambles. The political fall out of the current situation is unpredictable and worth avoiding.

Bewildered and disappointed.
 

borntorum

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The markets want consistency, they want sustainability - the IMF / EU / NPRF "rescue" fund is not what the market thinks will be a safe bet.
I.e. with the steps taken - they do not believe that lending to us assures them of a return.

If they thought it was they would be prepared to buy our bonds at 5.8 or less and portugal / spains at the samish price.
The alternative to this bailout is a default, or something similar. The market doesn't want either option
 

Squire Allworthy

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But the market doesn't seem to know what it wants. When the possibility of bondholders having to take a hit is mentioned, they go mad and the yield on our borrowing shoots up because they don't want to lose out.

Then when the IMF/EU loan is put in place without any provision for bondholders being discounted, they freak out because they don't think that it will solve the underlying problems.

The market knows exactly what it is about. It is the politicians who don't.
 

johnfás

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But the market doesn't seem to know what it wants. When the possibility of bondholders having to take a hit is mentioned, they go mad and the yield on our borrowing shoots up because they don't want to lose out. Then when the IMF/EU loan is put in place without any provision for bondholders being discounted, they freak out because they don't think that it will solve the underlying problems.
The markets want a restructure over the long term because they know that with this overhang of debt economies will not grow and if economies don't grow they can't make a profit in the bond market. The problem is in the short run any holder of the bonds would lose money. That is the confusion in the market. But it is time that the European Union institutions had the balls (like the Fed actually does in America, whether one agrees with its policies or not) to say that our institutions are more powerful than the market, that the long term goals of the Community are served by policy X and therefore that is what we are doing fullstop. Investors (lets drop the word market, the 'market' are investors) will have a strop but will then adjust to the reality and make lots of money on the back of supporting growing economies. If you try to simply satisfy investors they will just burn through your cash again and again and again - it can't be satisfied - it is essentially free money - who could say no and who wouldn't want more and more.
 

Asparagus

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The alternative to this bailout is a default, or something similar. The market doesn't want either option
That's an assumption - this "bailout" is neither what they want nor need... but maybe a default is what the need

They want to return to a lean, mean ireland full of growth and prosperity - maybe a default is the quickest way....
 

Squire Allworthy

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ze Jurmens will never do QE

NEVER is a long time.


Why? Pride, but that is stupid, it is failing to face reality and comes before fall.

Do the Germans think that they are somehow isolated from this? If they do they really are fools.
 

johnfás

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johnfás

Anyone with sense can see that the Eurozone needs QE and reform. The alternative is stagnation. The current instability is not a reasonable, or responsible, way to order affairs. It is living on a knife edge and is unnecessary. It is also costing the various countries much needed capital.

Why the reluctance to accept the inevitable? German resistance really does not adequately explain it. It is not of Weimar proportions and it is needed in both Germany and France. In fact Germany is likely to gain most in the long run.

Politically I would have thought that selling a comprehensive solution would have been a lot easier that the current shambles. The political fall out of the current situation is unpredictable and worth avoiding.

Bewildered and disappointed.
I find it very confusing. As I have said (and I think you agree) this long term instability which we face does not suit any party, not even Germany. I have a suspicion that they want to maintain a strong currency (QE will inevitably weaken it) because a strong currency supports their industry. Unlike Ireland which thrives on a weak currency because it makes our exports cheaper, Germany can function quite happily with a strong currency because it needs to buy up raw materials from outside the Eurozone to support its industry, which is largely heavy in nature. People still buy German products even if it is expensive because it is often the best and most reliable product (all the textiles you see made in China are still made with German equipment, not Chinese equipment). However, this still does not seem enough of a reason to be opposed to a proper well thought out policy to deal with this crisis - which simply continues to multiply and will keep on muliplying.
 

daveL

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NEVER is a long time.


Why? Pride, but that is stupid, it is failing to face reality and comes before fall.

Do the Germans think that they are somehow isolated from this? If they do they really are fools.
it's a cultural hangover from the post war days..

they don't do inflation

plus the Germans have their own political battles at home.. QE to make life easier for fiscally reckless nations is not seen as good enough reason for the average German to have their effective wealth lessened almost over night...

I'd agree if it wasn't for the fact that under it all reckless German banks are a key factor in the destabilisation of the Euro.
 

Asparagus

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NEVER is a long time.


Why? Pride, but that is stupid, it is failing to face reality and comes before fall.

Do the Germans think that they are somehow isolated from this? If they do they really are fools.
Germans don't do inflation... it leaves them with a nazi taste in their mouth

:)
 

Doodah

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Assume the Germans have a degree of control.

Then peripheral debt anxiety represents an inflation-free alternative to QE.

Peripheral debt is exactly that- peripheral. The periperal/insignificant countries can be sacrificed, asset-stripped and kept on life-support for the greater good of the Euro and it's bondholders.
Multinationals can be induced to relocate from instability, for the greater good etc.

If the Germans are not in control, the next few months will be fun.
No direct transfer of PR Funds would be advisable- a few "promissory notes" should suffice for a while, while the sh1te hits the proverbial fan.
 

sport02

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Just watched CNBC for a few moments, their european correspondant in Dublin, is painting a bleak picture of the situation, it isn't having the same effect as the Greek did intially, our politicans need to grow a pair, and instead of kicking the can down the street, deal with the root which is burning bondholders.

I think we all have a duty to email our local TD'S and put a stop to this, it is not working, european bonds are worse, Spain quite bad indeed, dow jones and european indices down also.

Enough is enough.
 

Squire Allworthy

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I find it very confusing. As I have said (and I think you agree) this long term instability which we face does not suit any party, not even Germany. I have a suspicion that they want to maintain a strong currency (QE will inevitably weaken it) because a strong currency supports their industry. Unlike Ireland which thrives on a weak currency because it makes our exports cheaper, Germany can function quite happily with a strong currency because it needs to buy up raw materials from outside the Eurozone to support its industry, which is largely heavy in nature. People still buy German products even if it is expensive because it is often the best and most reliable product (all the textiles you see made in China are still made with German equipment, not Chinese equipment). However, this still does not seem enough of a reason to be opposed to a proper well thought out policy to deal with this crisis - which simply continues to multiply and will keep on muliplying.
I agree, but for one point. When your currency devalues your cost at home (labour etc) falls and therefore your production costs drop.

Because the currency drops it does not follow you have to drop your costs abroad. So if your BMW costs 50,000 dollars today it can still cost 50,000 dollars tomorrow, but your profits jump. It gives you a better margin to work with. Imports into your business are therefore paid for.

The trick in business is selling your goods or services with a workable margin. Selling cheap, and just gaining market share, and not profit is often the road to ruin.

Weaker Euro (within reason) would help Germany.

The risk is inflation and that is the one we should all prepare for.
 

Squire Allworthy

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Germans don't do inflation... it leaves them with a nazi taste in their mouth

:)
Very good.

it's a cultural hangover from the post war days..

they don't do inflation

plus the Germans have their own political battles at home.. QE to make life easier for fiscally reckless nations is not seen as good enough reason for the average German to have their effective wealth lessened almost over night...

I'd agree if it wasn't for the fact that under it all reckless German banks are a key factor in the destabilisation of the Euro.
I agree, but I also think the position regarding Germany is a lot worse than they seem to realise. They are fast becoming exposed to the risk of speculation themselves.

If their effective wealth is dependant on the value of the Euro how do they expect the value of the Euro to go after a series of bailouts and possible defaults?

It is a no win situation, so better to accept reality now.
 

Asparagus

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Very good.



I agree, but I also think the position regarding Germany is a lot worse than they seem to realise. They are fast becoming exposed to the risk of speculation themselves.

If their effective wealth is dependant on the value of the Euro how do they expect the value of the Euro to go after a series of bailouts and possible defaults?

It is a no win situation, so better to accept reality now.
Germans have a termendous discipline and maturity when dealing with currency crises - after unification they traded east german marks for german ones at a 1 for 1 ratio despite huge inequity and "moral hazardability"
they sucked it up for the national interest

The realised then that a sort of debt forgiveness was required (all money is debt)
Now they must realise that debt forgiveness is the only way out of this mess.
If they try and control it anglo will take them down

it is time for Germany to become a major power or not.

P1ss or get off the pot.... forgive debt or try and control the markets until they beat their way into down town berlin
 
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I find it very confusing. As I have said this long term instability which we face does not suit any party, not even Germany.

However, this still does not seem enough of a reason to be opposed to a proper well thought out policy to deal with this crisis - which simply continues to multiply and will keep on muliplying.
Unless the plan is for the crisis to continue to escalate increasingly untill system collapse is inevitable?
I mean people say the politicians are incompetent blah blah but come on like seriously thats seems really naive..
There is obviously a high level of complicity by europes politicians on behalf of the international banking community. The level of financial fraud and reform (or lack of) has made this very apparent.
Back to the point however - the reason for the 'long term instability' as i see it has something to do with what a third gen wall st financier and big shot investor said on cnbc late last year. That being ''it may resolve itself into a global currency crisis, if that unfolds - inevitably you get an allignment under a global world government, a new global currency and a new world order. We may be moving towards that.''
 


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