ECB Cuts Deposit Rate to Negative 0.1 Percent

[ni-co]

For those who think the Euro is unsustainable, what will drive folks out or cause it to fail?  Right now I don't see any incentive to break up only incentives to stay together.

 

Packer

 

I think something like this:

http://www.theatlantic.com/business/archive/2013/04/spain-is-beyond-doomed-the-2-scariest-unemployment-charts-ever/275324/

 

Sustaining high unemployment rates in southern Europe – especially among the youth. This and other economic pain is going to provide fuel to anti-European parties in debtor countries. Fear of loosing their savings is the fuel for equivalents within the creditor countries. 

 

The results of the European elections link directly back to this:

http://www.marketwatch.com/story/far-right-parties-post-strong-gains-in-europe-elections-2014-05-26

[constructive]

For those who think the Euro is unsustainable, what will drive folks out or cause it to fail?  Right now I don't see any incentive to break up only incentives to stay together.

 

Packer

 

I think Italy is the long term (10-20 year) problem. Greece and Portugal are too small to break up the union. Spain and Ireland can grow their way out of trouble.

 

Shorter term, the problem is more political than economic. Anti-Euro political parties are on the rise. If they find tactics that work in one country they can apply them elsewhere to gain momentum.

[gary17]

IF Canada and the US have a common currency today but two separate governments - would we want to break things up now? 

[Packer16]

I really question the impact of the "unemployment" numbers.  If these were comparable to the US in the 1930s then these economies would be like the US in the 1930s (Hooverville's and all).  From what I have heard and seen although these are problems they are not to the US 1930s level.  Young people out of work can move to places were there is work (isn't this what East Eurpoean folks do)?  The extremist parties have won votes but have they won a majority.  Far from it.

 

Packer

[yadayada]

yeah most people are still afraid that breaking up will cause a big mess. Unless there is some imminent banking collapse then the EU wont break.

[giofranchi]

yeah most people are still afraid that breaking up will cause a big mess. Unless there is some imminent banking collapse then the EU wont break.

 

Ok… then a political and a fiscal union will be the final outcome… that would be very fine! And I really hope we manage somehow to get there, and soon! But… do you really see a French ruled by a German President? Or… do you really see German money leaving for the south? How do you make 1 nation out of a geographic area in which 20 different languages are spoken? How do you make 1 nation out of a geographic area which has just sent 10 teams to the World Cup in Brazil?! ;D ;D

 

Gio

 

[giofranchi]

The second one is incentives to reform (more tax collection, lower state benefits and sale of state assets).  Staying in the  Euro keep the reforms on track but leaving provides no incentive to continue.

 

Packer,

Those are not incentives… those are threats… And they have never worked. Even if they were incentives, do you really see a whole continent that starts behaving like the German people?! I don’t think it works that way… You have a fiscal union in the US, because it doesn't work that way... But I hope I am totally wrong!! ;)

 

Gio

 

[Packer16]

I guess I have heard more encouraging information from Greece from folks like Wilbur Ross who recaped Eurobank with Fairfax.  Maybe he is being buffaloed but I think with both Prem and Ross investing in Greece they may be onto something.

 

Packer

[ni-co]

Gio, I side with you 100% in this. I also wish it would work out but I just can't see it. It's clearly unsustainable in the mid to long term.

 

Apart from a political and a fiscal union the only way this situation could sustain itself is if creditor countries would be willing to take haircuts time and time again – I can't see this happening. This might be feasible once or twice with smaller countries but at the latest when it comes to Italy's and France's debt it's just not possible. You can't build a political and monetary system on it.

 

I guess I have heard more encouraging information from Greece from folks like Wilbur Ross who recaped Eurobank with Fairfax.  Maybe he is being buffaloed but I think with both Prem and Ross investing in Greece they may be onto something.

 

Packer, don't forget how small the Greek economy is compared to e.g. France, Italy or Spain! Greece is not a model for the rest of the debtor countries. Greek public debt is around €300 bn, Italy's debt is more than € 2 trillion, France's also around € 2 trillion, Spain's around € 1.3 trillion.

[gary17]

I am curious as to people's opinion on how much would the Euro devalue when Germany leaves?

[Packer16]

I think the early US is a good model.  It took over 100 years (1776 to early 1870s) to develop a national identity after having a fiscal union.  Didn't Germany have a similar situation with a trade union that led to a unified Germany.  Before these countries unified there were many skeptics but compromises and common interests were found in order to build these unions.  I think the same will happen in the Euro. 

 

Packer