Welcome to the new version of European Tribune. It's just a new layout, so everything should work as before - please report bugs here.
Display:
Leading to an interesting situation:

The bond market cannot allow the euro to collapse.  If the euro collapses their bonds are wastepaper.


Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Wed Aug 10th, 2011 at 09:49:21 PM EST
[ Parent ]
But the bond markets are not so constructed to be able to save the euro. That would require euro zone wide cooperation and statesmanship along the lines Yanis Varoufakis has suggested in his "Modest Proposal". But, more fundamentally, it would require the major players to accept that euro-zone economics is not a game that one country can win because pursuing such an attempt will destroy the euro in proportion to the extent the policy succeeds. A policy to make all members prosperous would be most valuable to the largest players, but accepting this is highly unlikely. Such a change would likely only come about through the deaths of the leaders of the existing policy, along the lines Thomas Kuhn has suggested.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Aug 10th, 2011 at 10:56:04 PM EST
[ Parent ]
The problem is that an exit from the current situation requires a mature, adult approach that takes into consideration the needs and the lives of all involved and the vast majority of leadership on offer is by raging sociopaths who care only for their own aggrandizement or frightened, superannuated children who live in terror of the sociopaths.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Aug 10th, 2011 at 10:59:23 PM EST
[ Parent ]
... new institutions and demolition of obsolete existing past-bound institutions, when the thinking of the people with power to do so are informed by the obsolete past-bound institutions.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Aug 11th, 2011 at 11:30:29 AM EST
[ Parent ]
One of the reasons for the US Constitutional Convention and the resulting ratification of the current Constitution was a situation similar to the one the EU is in.

Deutsche Bank, et.al., have shown they could give a rat's ass about the EU Project® simultaneously they have shown they deeply care about getting their money back, with interest.  If the euro goes ker-blewie the financial instruments denominated in euros has as much value as German bonds denominated in Reichmarks.

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Thu Aug 11th, 2011 at 01:44:35 PM EST
[ Parent ]
If the euro goes ker-blewie the financial instruments denominated in euros has as much value as German bonds denominated in Reichmarks.

No, if the €-Mark goes boom, those instruments will have as much value as ones denominated in D-Mark, as long as you possess sufficient political connections to the German government.

Of course the rest of the Eurozone may well be a wasteland by that point, and the German economy may well find itself fresh out of customers. But the currency will be sound.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Aug 12th, 2011 at 05:16:55 AM EST
[ Parent ]
It will depend on the nationality of the issuer. Everyone will try to pretend their obligations were issued by greek entities and are therefore in Drachmas.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Fri Aug 12th, 2011 at 07:22:21 AM EST
[ Parent ]
Not if the way the €-Mark falls apart is by ejecting the internal deficit countries one by one. Bailouts will then be decided on a case by case basis. Which means that what matters is how on how tight your political connections are to the CDU and the Quisling wing of the SPD.

Clearly, a number of bondholders view themselves as quite secure on that count. They may end up being surprised, of course, but by then the rest of us will be too busy trying to keep our heads above water to have much fun pointing and laughing.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Aug 12th, 2011 at 09:35:43 AM EST
[ Parent ]
Overall, the history of a currency collapse is the holders of bonds, etc., in that currency can suck eggs.  There's no global agency to enforce a legal decision on a national government.  Offsetting that, ss you rightly say. who, what, and how much of these instruments are backed in the new currency depends on the Decision Making of the elites in the defaulting country and the connections (being "one of the kewl kidz") the holders have.

Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Fri Aug 12th, 2011 at 12:39:27 PM EST
[ Parent ]
The bond markets can perfectly well endure a collapse of the Eurozone, if the way it plays out is that all the non-German members are ejected one by one, with the various three- and four-letter agencies bailing out the holders of these "feckless swarthy Southerners'" bonds. Every time, obviously, with the resolution "never again." Which is an incredible threat, in the game theory definition of that term.

That will be hard on the German (and possibly French) taxpayers. But turkeys don't get to vote on the Thanksgiving menu.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Aug 11th, 2011 at 07:11:22 AM EST
[ Parent ]
If the three and four letter agencies can actually bail out all of the bond holders, given the existing diameter of the Euro faucet. There is likely to be cascading failures, with most of the worst on a single day, certainly within a single week. Of course, Bernanke will offer unlimited dollar swaps. That is what he is there for.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Aug 11th, 2011 at 08:02:59 PM EST
[ Parent ]
They can, of course, bail out anybody important (NB: "Important" means "important to Angela Merkel," not "important to the national interest"). That was always within their capacity, and this whole theatre with the three- and four-letter agencies has been about concealing the bailout from the internal surplus countries' taxpayers and fraudulently cooking up a crisis to impose even tighter adherence to the Grief and Stupidity Pact.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Aug 12th, 2011 at 05:17:06 AM EST
[ Parent ]
But Merkel won't let them open the faucet wide enough to bail out Italy, Spain, Belgium and France, especially if the crises occur simultaneously. They could do it but for the rules they have set in place. Of course Germany has, in the past, had no trouble bending the rules when it is in its interest to do so.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Aug 12th, 2011 at 12:59:50 PM EST
[ Parent ]
Which gets back to the observation the EU is undergoing a political crisis with the overt symptoms being the economic crisis.

Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Fri Aug 12th, 2011 at 01:25:43 PM EST
[ Parent ]

Display:

Recent Diaries

Meddlesome Commissioner?

by afew - Aug 19
51 comments

Gaza

by Frank Schnittger - Jul 25
14 comments

Through MIT's Nuclear Goggles

by gmoke - Jul 21
6 comments

More Diaries...

Occasional Series