Whither the Euro?

I was hoping for 6000 Ftse before going short myself. Unfortunately it never quite made it there. Too many negatives out there for the index to appreciate significantly, despite the constant press comment that Equities are "cheap!"

And the Greece situation merely kicks the can down the road - am pretty sure they'll be back for another (aka third) bailout within 6 months. The United Europe dream is doomed imv. Just a matter of time. Unfortunately we are all going to pay for a misguided ideologically driven dream.....

Fangorn, do you recon a double top on the indexes, then possibly look to reduce?

Indeed, I tend to agree on the reversal looming front Elias.
Still, I think there is a bit more juice to come..Will definitely be selling in May this year!

A 75% hair cut is going to cause contagion, implications short term are bound to affect Portugal, Italian, Spanish and Irish bonds. China’s growth is slowing, false economy low interest rates, bailouts, stress tests etc it’s painting a bleak outlook. With the DOW having gained 100% since March 2009 I feel a reversal is looming.

Looks like the Telegraph has now credited some proper sources!

The Greek government says 85.8pc of bondholders have accepted bond swap offer - rising to 95.7pc after collective action clauses are triggered, securing the biggest bond restructuring and default in history.

Nevertheless, I would still think it quite likely that some of the hedgie hold-outs will mount a legal challenge, based on the contractual documentation of the bonds they hold. I do not expect this to be "the end of the matter"....far from it!!!

The next step is of course for ISDA to decide whether there has been a default that triggers CDS payments - and that could open a whole new can of worms.

Furthermore, there are going to be lots of countries thinking "if Greece can get away with reneging on its obligations, then why can't we?" - and that, in all probability, will mean much more market volatility for sovereign credits that are suffering economic problems.    Watch, for example, Ireland and Portugal.....and indeed various "developing world" credits.

Major investors will have swallowed hard on Greece - but they will certainly be modifying their risk profiles going forward to significantly reduce such risks in future.

ee

Will taking a bit hit have repercussions? Will they need to sell other assets to cover the book loss? Will they and their peers re look at their exposure profile?

Everybody has an agenda!!
Interestingly today's DT is now saying that the acceptances by creditors were between 60-75% - their source is "Greek Officials - so that makes it very likely (not!)
The DT are supposedly merely reporting the facts but these seem to me to be a bit "variable"!
I expect Greece to default eventually as I doubt the population there will accept the regime they are forced into. It may take a year it may be next week/month. But I think it is inevitable.
Also I think it likely that Greece will be followed by Portugal, Spain over the next year or two.
The undemocratic experiment of the "one size fits all" Euro is failing as it was inevitably going to. It would have only worked with a United State of Europe with a Central Bank. That was never the case of course and the idea that the economies of Germany and Greece could be forced to act similarly was always pie in the sky.
The one thing that we can regard as a success from Gordon Brown's disastrous reign as Chancellor is that he kept us out of the Euro disaster! Pity he sold so much of our gold reserves though!!

Hi p3dr036,

Whatever your views on the future of the Euro, it seems that DT has an 'agenda'.......as someone once said to me, when looking at a piece of information (in this case , not even 'news' ie fact, but really 'speculation') :
........"consider the source'.........

I personally set little store in what either the red-tops or the 'blue-tops' (?) say !

ATB

DT are now saying that, after all, the requisite 90-95% threshold of creditor acceptances was achieved

According to today's Daily Telegraph [Business News] Greece needs 95% of its creditors to back the proposed bond swap. The deadline is 8 pm tonight and the DT this morning reckoned that only 40.8%of Greece's creditors were in agreement so far.

This enormous shorfall seems hardly likley to become 95% this evening.

Analysts were reported [again by the DT today] to expect that Greece will have to resort to using the Collective Action Clauses [CACs] in their contracts with their lenders. This will force the lenders to accept a reduction of 75%. This is expected effectively to mean a Greek default tomorrow.

What interesting times we face!

EE,
Thanks for the Reuters article link, I tend to agree that, come down to the wire things tend to go through. But it all seems to be never ending and moving from one big potential flare point to the other, is it all just plugging the dam?

In 2008 I was slow to react and regret not being more in cash, with all the economic pressures we are facing, and it seems weekly we are hopping from one potential global flare point to the other my apprehension levels are increasing! With the DOW having gained 100% since March 2009, are we going to be manipulated down? Or is there another titanic situation due this year?

For the time being I’m uncomfortably sitting on my hands.

fuiseog,

10 years ago, I did a scuba dive at Port Bou, a small Mediterranean town on the Spanish - French border. The dive lasted about 40 mins, and I did not see a single living thing; no fish, even tiny ones, and not even one baby prawn.

Foreign nations, including those from the EU, with a reputation of overfishing; must be barred from our waters.

MadDutch

Reportedly there are already 57% acceptances for the Greek bond swap and the markets are trading up on optimism that the deal will go through and pass the two-thirds hurdle for acceptances by 8pm tonight.

Others will have a better idea than me of the amounts held by certain hedge funds and other potential hold-outs, but I would still ignore all the optimistic talk until it can be definitively announced that the threshold for acceptance has been passed.  One simply HAS to sound optimistic at this point - but it is still no guarantee.......and I can easily see some of the hedgies holding firm and then challenging the outcome in the courts if the vote goes against them. Though I'd still expect the two-thirds number to be passed.....just.

ee

Not sure if this is the correct thread for this question, so sorry if not!!

Q. Is it time to start reducing and/or closing?

The markets have a had a good run, so feeling a tad apprehensive that we might get a wallop again this year. Any thought as to how the funds are going to play the market for the remainder of 2012? Long? Short?
Is the end near for 3-year-old bull market?

http://www.usatoday.com/money/perfi/stocks/story/2012-03-07/bull-market-turns-three-years-old/53404148/1

German Chancellor Angela Merkel said there is no easy solution to the European crisis after rejecting an increase in the upper limit of funding for the region’s permanent bailout mechanism.

http://www.bloomberg.com/news/2011-12-14/commodities-fall-most-in-four-weeks-on-european-debt-woes-macro-malaise-.html

Well one easy solution would be if you're not going to provide meaningful support then just SHUT UP.

I have been surprised by the tone of some posts on bulletin boards and reports in the media. You would think that all other 26 members of the EU had signed a new treaty on Friday. It seems that many have forgotten that it hasn't even been written yet. The FT reports that there are already some having second thoughts (four governments) depending on what the detail will be.

http://www.ft.com/cms/s/0/3d75ccb8-25b5-11e1-856e-00144feabdc0.html#axzz1gVCC8gAv

I find the whole process hugely irritating, sometime ago at a summit that was supposed to fix the Euro the then trumpeted plan was to leverage the EFSF to €1 Trillion. Now it seems the EFSF and its replacement the ESM are to be limited to €500 Billion in total. I predict that the plan as announced last Friday will either morph immensely or fail completely. Politicans seem oblivious to the damage being done to confidence that may well push parts of the EU in recession, further aggravating the problem

I am finding it difficult to motivate myself to research individual stocks at the moment as share prices seem dominated by the macro picture which itself is dominated by the Eurozone crisis. The effect is far reaching across equity markets all around the globe.

Given the track record so far the potential exists for this to carry on for years rather than months.

Unwise

isn't Labour's posturing on this whole thing just nauseating?

http://www.telegraph.co.uk/news/politics/nick-clegg/8949920/Nick-Clegg-attacks-Camerons-EU-treaty-veto-as-bad-for-jobs-and-families.html
On Friday morning the Liberal Democrat leader had declared himself supportive of Mr Cameron’s unexpected decision to veto the treaty because of concerns that it would damage the City. But after two days of Eurosceptic jubilation at the move, Mr Clegg felt unable to resist calls from within his party for him to denounce it.

Remind me not to stand alongside Nick Clegg if we all find ourselves together in the trenches! What a yellow bellied gutless politician of the most obnoxious kind he's turned out to be!

Hi Mark,

I find it interesting to look at where we are now compared to the original article in the header.

It seems that the 23(4/5/6?) are proposing to try plan a). Given political constraints, I think Cameron had little realistic choice but to adopt the stance that he did. This may have been a "trap" by Merkozy, designed to designate Cameron/the UK as a whipping boy for failing to allow the fundamental treaty change they desired. However, I also think that this squabble is a sideshow.

Yes - similar thoughts were occurring to me. I think Cameron has done precisely the right thing - and the Eurozone will simply have to find its own way forward (and they have done very little indeed on that front!)

I thought there was an EXTREMELY good point in the FT today, buried amongst the pile of partizan comments and tough-to-follow eurobabble:

The only way to save the eurozone is to destroy the EU

So we have two crises now. A still-unresolved eurozone crisis and a crisis of the European Union. Of the two, the latter is potentially the more serious one. The eurozone may, or may not, break up. The EU almost certainly will. The decision by the eurozone countries to go outside the legal framework of the EU and to set up the core of a fiscal union in a multilateral treaty will eventually produce this split.

Unless a way is found to bring the UK back into the fold (before the deal is finally signed in the spring), there is a serious problem that most of the EU members appear to consider the Eurozone and the EU itself to amount to much the same thing - and show little evidence of ability to consider the two as distinctly separate. What we effectively now have is a fat Eurozone cuckoo growing in an EU nest - and pushing out everything else in the nest over the side. As Wolfgang Munchau puts it:

These latest developments have reaffirmed my conviction that the only way to save the eurozone is to destroy the EU. But European governments may, of course, end up destroying both. All they did in the early hours of Friday morning was to create a new crisis without resolving the existing one.

Unless there is clear action to reassert the primacy of the EU itself, then I suspect that things could move very fast indeed, with the Eurozone imploding and taking the institutions of the EU with it. In some ways that might be quite good in the long run. The EU has increasingly shown itself to be a bloated bureaucracy, unaccountable and unfit for purpose. It has been a textbook example of financial mismanagement and graft (witness the lack of approved accounts for many years!). If a Eurozone blow-up took the EU institutions with it, then that may not be all a bad thing, because we and others would then have a shared interest in starting once again from the basic raison d'etre ...which is the encouragement of free trade.

The EU itself is in grave danger unless its bureaucrats ruthlessly sever the various ties that bind their operations to the eurozone project. If they don't, then the EU will be deservedly dragged down with the eurozone "Titanic".

I suspect Cameron's decision will come to be looked upon as a crucial turning point in the history of Europe......the moment when the Euro-bureaucrats were forced to face the fact that the game is up for their bloated, interfering gravy-train. It will take some time to play out, of course, and may well mean a great deal of pain for 3-4 years....but I suspect European trade and cooperation as a whole will eventually emerge in a much more sustainable form.

ee

I find it interesting to look at where we are now compared to the original article in the header.

It seems that the 23(4/5/6?) are proposing to try plan a). Given political constraints, I think Cameron had little realistic choice but to adopt the stance that he did. This may have been a "trap" by Merkozy, designed to designate Cameron/the UK as a whipping boy for failing to allow the fundamental treaty change they desired. However, I also think that this squabble is a sideshow.

Short term, has enough been done to stablise bond markets and allow Eurozone markets to muddle on? Doesn't look like it to me or to John Authers.

Longer term, I'm even less optimistic about the "austerity union", which is what the proposals amount to. I somehow suspect that the electorates of the nations that will come under the cosh don't yet fully appreciate the loss of sovereignty that the proposals (and imposition of "technocrat governments") entail. If the proposals are actually implemented and take effect, I suspect Greek protests may look like a walk in the park, against the social disorder that I fear may follow.

...Namely the fostering of economic growth, job creation, and the paying down of excessive debt

Trouble is, that is an oxymoron. You can't both prioritise debt repayment and economic growth. Prioritising debt repayment will, IMO inevitably lead to a self-defeating downward spiral. Unpalatable as it may seem, hard or soft default  (via inflation) is a necessary precondition to restoring economic progress. Yes, once that's done, public spending needs close scrutiny and budgets need to be set accordingly - but counter-cyclical, not pro-cyclical action is what's needed now, until economic growth is firmly embedded.

Unfortunately it appears (though it may turn out only to be an appearance) that Merkozy are determined to follow the Austrian school. Sadly, if they actually do, I fear that I'll be proved right and we'll end up with econonomic collapse and a violent outcome.

Looks like a rough ride, both short- and medium-term to me. :0(

Mark

Given all the criticism Cameron is getting from the likes of the BBC (never impartial when it comes to the EU), Cable, Millitwit and co it is clearly obvious that he has indeed done then right thing.

I've no doubt we will indeed be better off out of the EU (assuming one gets to enter free trade agreements with Eu nations, which was the whole idea in the first place, not the political union it has morphed into). Not only will we safeguard the right to make our own decisions, fish in our own waters unencumbered, but we will no longer have to pay 7.5bn per annum(and rising) to an unelected entity that is so corrupt it hasn't been able to get it's accounts signed off EVER.

It seems even the European people don't want political union, at least 50% of Germans and French don't want it. And we've all seen how other nations feel (the ones that voted No but where then ignored/told to vote again.)

The current moves by Merkozy are nothing more than an audacious power grab.

Why on earth would anyone expect Britain to roll over and take it from the French of all people. Hopefully this is the beginning of the end for the whole United States of Europe. Then perhaps we can ditch all the restrictive legislation that emanates from it that reduces the EU's global competitiveness and get back to the real job in hand -

Namely the fostering of economic growth, job creation, and the paying down of excessive debt.

"...The UK has a much higher proportion of arseholes, than all those countries that you mentioned..."

I have found loathing of one's mother country to be an unfortunate, but not rare phenomenon akin to falling out with your own family.

It's a lot easier to see the flaws in your own family/country than to see them in strangers. You know more about them for starters and you have seen them at their worst and in the crucible of family life and coping with change. Which is why it is so common for family relationships to be dysfunctional even when the members of the family are balanced and mature individuals when taken separately.

When ex-pats loath their home country there is of course an element of post-hoc rationalisation. "It's their fault I had to leave." "They don;t deserve me". And of course when they express over-inflated opinions of their adopted country it's just the other side of the same coin. Put together the love/hate thing is a justification for their choice of place of residence.

But it is hardly ever balanced and insightful.

Look at the problems of inner city Paris - the banlieus - they dwarf those of London. Look at the economic problems of Greece and Portugal - they are on a different scale from ours.

Look at Africa, the far East, America North and South. You are entitled to prefer them to the UK, but I wonder if that opinion would survive actually living there (as opposed to holidaying for a few weeks).

We certainly have problems, but that is the human condition. I do not accept that Belgium is some kind of Shangri-La where people live in a heightened state of civilisation compared with the UK. I mean the driving is the worst in Northern Europe for a start. That alone betrays a deep well of agression and homicidal instinct. I make it a policy to get out of the way of any car with Belgian number plates.

I don't think we should hog/clog this thread so will leave it there.

T

PS - for someone who dislikes chav behaviour, you do seem to express yourself in very coarse language. If it walks like a duck.......

If there are treaties in existene which protect the city, then what was/is all the fuss about, why did Cameron need to ask for "quite modest" assurances? I am far from an expert in these matters, but I suspect that past treaties cannot ultimately protect the city.

As for the Scots, I never underestimate their dislike of the English and the ability of Salmond, the smartest political operator in the UK by a wide margin, to revive the auld alliance with France!

Interesting times indeed. The tectonic plates are shifting in Europe and the world. It is I think impossible to predict where we shall be in a decade.

What allies do you think the UK will have in its defence of the city of London.
Interesting to hear the reaction of the UKIP leader, who is taking a similar view to mine: we are going to have so little influence we should get out. He would say that wouldn't he, but it has a certain resonance I think.

I will be interested as to how this plays out in Ireland and Scotland. I could see a future for Edinburgh as a financial centre within the Eurozone.

I think this serves Sarkozy's purposes very well, particularly with an election coming along.

I think it will be very difficult for the UK to have any real influence in the EU now, which cannot be good news for the UK financial services sector on which we are over dependent.

Indeed. Agree completely.

Have to say I didn't think Cameron would have the balls to veto. Pleasant surprise.

My personal opinion is that the sooner we have a referendum on EU membership the better. There's no better time than now to renegotiate our membership when the "enemy" is weak. This costly adventure far outweighs the benefits, the sooner we are out, the sooner we can bin all the needless anti business and healthy&safety legislation that so restricts business these days. Europe is paralysed by excessive regulation.

There's a good quote this morning from Terry Smith::

The UK is "as isolated as somebody who refused to join the Titanic just before it sailed" following treaty veto, says Terry Smith of the money brokerage firm, Tullett Prebon on BBC Radio 4.

Hi SW10

seems to me that the time required to go down the path you suggest would be much too long for it to represent a way out of our short-term difficulties

what's that famous quotation - "desperate times require desperate remedies" - I'd paraphrase it that "urgent problems require urgent solutions"

no idea what they are but I don;t see a gradual reconfiguration as a contender simply on timing grounds

T

Living in the eurozone, and with incomes in GBP and EUR, I find myself contemplating this in odd moments - usually in the company of a small apéritif.

My experience is that big, surprising events rarely come to pass. Sure we can all think of some, but on the whole they are very rare - and all the more memorable for it. Generally we look back and find that we have been slowly overtaken by a number of incremental, apparently inevitable and individually-justifiable events. With that in mind, I propose a fourth possibility to ee's list: that business and the markets create their incentives and the EUR slowly withers away.

So we now have:

a) full fiscal union
b) formal defaults by Greece, Italy, Spain etc
c) dividing the euro into a hard euro and a soft euro
d) let the markets do their thing and watch as the euro becomes sidelined.

What I'm suggesting is that, rather than the weaker countries abandoning the euro, it could actually be the Germans that lead the way. I agree that the idea of recreating one of the pre-euro currencies is impractical and fraught with risk. Apart from anything else, it would require a political party to stand and ask for that mandate, and then to have a pretty resounding and durable majority to be able to pull it off.

I don't see this being voted for in the weaker countries - and it would almost certainly never happen in France for political reasons. I also think that the Germans would find themselves in political check if the explicitly tried to withdraw. But I think the impetus may be generated by businesses rather than politicians. Consider this unfolding not over months, but over years -- and maybe decades:

What if companies in these countries, particularly Germany, chose to denominate more and more of their contracts in another currency? What if they chose to define their productivity in terms of a currency they viewed as having more long-term stability than the euro? What if companies in a particular sector acted together?

Imagine, for the sake of argument, that the automotive sector led by a dominant player such as VW started to denominate in CHF. Suppliers would have to fall into line pretty quickly and ripples could spread through the supply-chain and even beyond. After a while, we might find the CHF becoming an 'acceptable currency' alongside the euro in certain centres such as Wolfsburg (VW's home town.)

It's diffcult to envisage the German government issung bonds in CHF, but if over the years things spread far enough there would certainly be a good argument for saying that the people had spoken and that,

just this once, for this very small issue, we're going to be issuing in CHF. Oh, and by the way, civil servants in VW's home state of Lower Saxony are already being paid some of their wages in CHF because, well, that's pretty much how things work down there now.

With the Germans out of the way, we're starting along the road of creating the so-called 'soft' euro - which would be the euro itself. How do other countries follow? Which other countries might exit? Would French companies also want to adopt the CHF? Or would they seek another currency?

Of course, we'd also be faced with the knotty problem of the Swiss becoming the junior partners in a currency union without any consultation...

SW10

PS. If the French followed suit through a similar reverse-takeover of the Swedish Krona, the idea of buying my apéritif using a note decorated with Greta Garbo has some whimsical appeal...

Mark

"...wouldn't the "switch back" be somewhat easier if the system had already had to be changed to cater for a currency transition?..."

Only if the dual currency feature had been maintained during the past 10 years or so - which I am prepared to bet is not the case. As I remember in the systems in the company I worked in, the dual currency aspect was designed to be removed at the end of an extended transitional period, which will be long since past.

In effect the systems analysis and design work would have to be done from scratch in order to revert. OK maybe some of the database design consequences might be easier in some cases, where second currency fields have been left dormant/unused for 10 years, but you can't simply make the assumption that every system can simply be reset by pressing the page back button....

T

What happened when Slovakia and Czechia separated? I seem to recall reading that it was all done ina morning and they went down the pub at lunch time - all quite undramatic!

One perhaps secondary/oblique issue that occurs to me is that it seem to me that the technical problems to be overcome by any country leaving the euro are very substantial in terms of modifying systems and processes throughout every company and organisation in the country to process the new currency, You can;t simply say that transactions and balances are in euros up to next Tuesday and in drachmas or pesetas or whatever, thereafter. You have to have dual currency capabilities with both currencies running in parallel for a period. The time required to make changes like that would be at least 12 months and there would need to be a 6 month transitional period thereafter - so 18 months absolute minimum.

I was responsible for systems in a French company in the 90's. We had a large Y2K remedial project running over several years but the Euro project was much bigger, more complex and more difficult. As I remember it, our approach was to make all our systems dual currency - which meant changing the structure of all our records, including balances and transactions, changing every screen, every report, every form and document. The first stage of implementation was to show euro figures as information only with the franc remaining the prime currency. Then at switchover the roles were reversed with the franc carrying on being displayed throughout the transitional period. The work involved in specifying, coding, testing and implementing this was very substantial and the cost was significant.

What I am taking from this is that ISTM that any decision by any member of the Euro to revert to a separate currency would likely be pretty difficult to implement without a significant lead time (not to mention cost and risk). So I can;t see this as a solution that could be implemented anytime soon.

Does anyone know of a a data source which shows the net contribution/benefit paid/received by each member state?

I have little sense of just how much Germany (and others?) is spending on the Euro project.