Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Display:
The direct losses of 4 countries (Greece, Italy, Spain, Portugal) leaving the EZone are estimated at 17 trillion. This would be the worst economic crisis in modern times and take more than a decade to overcome.

It is not the 'losses of 4 countries' that matters so much as the 'losses occasioned by the default and debt repudiation of 4 countries' and what really matters is who would suffer those losses. The answer is that the losses would be suffered by the wealthiest elements of Germany and France, along with pension funds that have been suckered into sharing that risk. The losses have already occurred, but TPTB have agreed that they do not have to be recognized as it cannot be said with total certainty that these losses cannot be recovered. Rebellion against the Troika by, say Greece, Italy, Spain and Portugal could break the denial that has kept the financial system semi-functioning.

The problem with such an event is that those owning the debt that is being defaulted won't just accept that their claims have to be written down and they have to lose money. OH NO! They will be demanding to be made whole until every poor person in the EZ has been thrown into a meat grinder and sold as hamburger, regardless of whether that will or will not make them whole.

The situation in the Euro-zone is similar to the real estate melt down in the USA. Much of the debt has been created by fraud, but it has all been mixed together or comingled, so now all is tainted. But the most powerful people, many of whom were responsible for the fraud, are demanding to be made whole and those they are blaming are not capable of making them whole. So what we have is an ugly drama of vindictive spite inflicted mostly on those who had nothing to do with the origin of the problem other than, perhaps, having voted for politicians who colluded with fraud. I guess the assumption is that the citizens are not like investors in a corporation who are only liable to the extent of the value of their stock.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Mar 9th, 2013 at 11:01:32 PM EST
[ Parent ]
It is not the 'losses of 4 countries' that matters so much as the 'losses occasioned by the default and debt repudiation of 4 countries' and what really matters is who would suffer those losses.

The parenthesis (Greece ...) got in the way of comprehension. It should be "losses of 4 countries leaving", i.e., the direct financial losses including default and everything you mentioned.
The total economic damage is likely to be much bigger. Just imagine 2 to 3 trillion Euros leaving the Italian economy in a very short period of time because Italian savers aren't likely to cherish the idea of loosing 30 to 50% of their savings due to the devaluation that will invariably follow a EZone breakup. Such a vast drain of money will result in total economic collapse.
The fallout from a EZone collapse is likely to be worse, in economic terms, than the aftermath of WWII.
by The European on Sun Mar 10th, 2013 at 04:47:28 AM EST
[ Parent ]
Just imagine 2 to 3 trillion Euros leaving the Italian economy in a very short period of time

And the Italian central bank should permit this for what reason?

because Italian savers aren't likely to cherish the idea of loosing 30 to 50% of their savings due to the devaluation

Sucks to be an Italian saver, then. Why is this a problem for the Italian economy? Savers have no macroeconomic function.

Such a vast drain of money will result in total economic collapse.

Money can be printed. Please provide a plausible cause and effect story wherein "lack of money" is anything other than a purely political problem.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Mar 10th, 2013 at 06:55:18 AM EST
[ Parent ]
And the Italian central bank should permit this for what reason?

The alternative is to stop all cross-border transactions which would also result in a total collapse of the economy. But the savvy investors will park their ill gotten gains in safe havens long before that will happen. As always, it is the average Joe that's going to foot the bill.
Savers have no macroeconomic function.

Savings are necessary to fund industrial production.
Money can be printed.

Wealth cannot be printed. Printing money destroys wealth.
But if you just want cheap paper money to paper your walls, I dare say, the money printers have a point.
by The European on Mon Mar 11th, 2013 at 08:08:06 AM EST
[ Parent ]
Savings aren't wealth either. They are claims on wealth. Not exercising them now just leads to reduced demand in the present.
by generic on Mon Mar 11th, 2013 at 08:22:12 AM EST
[ Parent ]
Thus we are so sensible, have schooled ourselves to so close a semblance of prudent financiers, taking careful thought before we add to the "financial" burdens of posterity by building them houses to live in, that we have no such easy escape from the sufferings of unemployment. We have to accept them as an inevitable result of applying to the conduct of the State the maxims which are best calculated to "enrich" an individual by enabling him to pile up claims to enjoyment which he does not intend to exercise at any definite time.
(Keynes)

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Mar 11th, 2013 at 08:27:23 AM EST
[ Parent ]
Savings are necessary to fund industrial production.

Savings = Investment, eh?

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Mar 11th, 2013 at 08:28:06 AM EST
[ Parent ]
Oh boy, here we go again.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Mar 17th, 2013 at 11:23:16 AM EST
[ Parent ]
The alternative is to stop all cross-border transactions which would also result in a total collapse of the economy.

This is not the Argentine nor the Icelandic experience.

But the savvy investors will park their ill gotten gains in safe havens long before that will happen.

Some of them undoubtedly will, but invasive and heavy-handed money laundering laws and selective default on central bank balances against known pirate banking states can go quite a long way toward retroactively enforcing a corralito.

As always, it is the average Joe that's going to foot the bill.

If the average Joe's losses from the present depression can be stopped at merely wiping out his savings (what savings? The average Joe barely has any), then he should count his blessings. Under current policy, about 1 % of the average Joes are going to be dead within ten years, and even the ones who survive are going to get a one-way ticket to negative equity.

Savings are necessary to fund industrial production.

Loanable funds fallacy.

Wealth cannot be printed. Printing money destroys wealth.

[Citation needed]

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Mar 11th, 2013 at 03:37:18 PM EST
[ Parent ]
The 'two to three trillion Euros' is highly unlikely to be even mostly cash. Most will be real estate, the price of which can decline but which still retains its use value non-the-less. Most adult Italians have a good idea of how to survive with a currency that is fairly rapidly depreciating. That was their reality for most of the second half of the 20th Century.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Mar 10th, 2013 at 12:13:34 PM EST
[ Parent ]
Most adult Italians have a good idea of how to survive with a currency that is fairly rapidly depreciating.

Yes, and that is why they are going to hold on to the Euro teeth and claws. Latest polls suggest that 67% of Italians want to stay in the Euro and only the lunatic fringe of 10% wants the Lira back.
by The European on Mon Mar 11th, 2013 at 07:58:28 AM EST
[ Parent ]
Did you remember to look beyond the headline to see what the response was when retaining the Euro was made explicitly contingent on continued austerity economic suicide?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Mar 11th, 2013 at 03:39:25 PM EST
[ Parent ]
The 'two to three trillion Euros' is highly unlikely to be even mostly cash.

That is true, but even a fraction of that would be enough to completely floor the economy. Remember the bank run on Greek and Spanish banks last summer. Different from Greece and Spain, the ECB isn't going to put a single cent into Italy if the problem is perceived to be due to political instability in Italy.
by The European on Mon Mar 11th, 2013 at 08:16:10 AM EST
[ Parent ]
the ECB isn't going to put a single cent into Italy if the problem is perceived to be due to political instability in Italy
The ECB is going to do whatever it needs to ensure its own continued existence as an institution.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Mar 11th, 2013 at 08:17:33 AM EST
[ Parent ]
Fortunately, if the ECB refuses to do its job as lender of first and last resort to the Italian government, the Italian central bank can recover a large fraction of the exiting money simply by defaulting on its outstanding Target balances.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Mar 11th, 2013 at 03:40:43 PM EST
[ Parent ]

Display:

Occasional Series