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Will Greece drop the EURO....Whats ahead for the European and World Financial Markets if they do?.....................................................
Will Greece drop the EURO, & vote anti-austerity?
If they do, what will become of the Monetary structures of Europe, & the World?
Here are some views by the Media:
Bankers, governments and investors are preparing for Greece to stop using the euro as its currency, a move that could spread turmoil throughout the global financial system.
The worst case envisions governments defaulting on their debts, a run on European banks and a worldwide credit crunch reminiscent of the financial crisis in the fall of 2008.
A Greek election on Sunday will determine whether it happens. Syriza, a party opposed to the restrictions placed on Greece in exchange for a bailout from European neighbors, could do well.
If Syriza gains power and rejects the terms of the bailout, Greece could lose its lifeline, default on its debt and decide that it must print its own currency, the drachma, to stay afloat.
No one is sure how that would work because there is no mechanism in the European Union charter for a country's leaving the euro. In the meantime, banks and investors have sketched out the ripple effects.
They think the path of a full-blown crisis would start in Greece, quickly move to the rest of Europe and then hit the U.S. Stocks and oil would plunge, the euro would sink against the U.S. dollar, and big banks would suffer losses on complex trades.
What would Greece's exit look like? In the worst case, it starts off messy.
The government resurrects the drachma, the currency Greece used before the euro, and says each drachma equals one euro. But currency markets would treat it differently. Banks' foreign-exchange experts expect the drachma would plunge to half the value of the euro soon after its debut.
For Greeks, that would likely mean surging inflation - 35 percent in the first year, according to some estimates. The country is a net importer and would have to pay more for oil, medical equipment and anything else it imports.
Greece's government and banks currently survive on international loans, and if it dropped the euro, the country would probably be locked out of lending markets, says Athanasios Vamvakidis, foreign-exchange strategist at Bank of America-Merrill Lynch in London. So the Greek central bank would need to print more drachmas to make up for what it could no longer borrow from abroad.
That's one reason analysts say the switch to a drachma would lead the country to default on its government debt, possibly triggering losses for the European Central Bank and other international lenders.
Most assume foreign banks would have to write off loans to Greek businesses, too. Why would Greeks pay off foreign debts that effectively double when the drachma drops by half?
Say a small shop owner in Athens has a ?50,000 business loan from a French bank. She also has ?50,000 in savings in a Greek bank. The Greek government turns her savings into 50,000 drachma.
If the new currency fell by 50 percent to the euro as expected, her savings would suddenly be worth ?25,000. But she would still owe ?50,000 to the French bank.
European banks would take a direct blow. They've managed to shed much of their Greek debt but still held $65 billion, mainly in loans to Greek corporations, at the end of last year, according to an analysis by Nomura, a financial services company. French banks have the most to lose.
Here's where things get scary.
The European Central Bank and European Union would have to persuade investors in government bonds that they will keep Portugal, Spain and Italy from following Greece out the door. Otherwise, borrowing costs for those countries would shoot higher.
The main way European leaders have tried to calm bond markets is by lending to weaker governments from two bailout funds. Experts say these two funds, designed as a financial firewall to stop the crisis from spreading, need more firepower.
Much of the ?248 billion ($310 billion) left in one of them, the European Financial Stability Facility, was pledged by the same countries that may wind up needing it, Vamvakidis says.
There's also a ?500 billion European Stability Mechanism that's supposed to be up and running next month, but Germany has yet to sign off on it.
"If they fail to reassure bond investors, all of the nightmare scenarios come into play," says Robert Shapiro, a former U.S. undersecretary of commerce in the Clinton administration.
The biggest danger is a fast-spreading crisis known in financial circles as contagion - a term borrowed from medicine and familiar to anyone who has watched a disaster movie about killer viruses on the loose.
"It's like a disease that spreads on contact," says Mark Blythe, professor of international political economy at Brown University.
The bond market, where banks, traders and governments cross paths, provides the setting. If Greece dropped the euro, traders would become more suspicious of Spain, Portugal and Italy and sell those countries' government bonds, pushing their prices down and driving their interest rates up.
Higher borrowing costs squeeze those countries' budgets and push them deeper into debt. Plunging bond prices also would imperil Europe's troubled banks. The banks are big holders of government bonds, which they bought when the bonds were considered safe.
At this point, the risk would be high for a run on banks throughout Europe. People would worry that the banks might fail and would rush to withdraw what they could. Analysts and investors say that's the biggest fear.
People in Spain, for example, have already seen what's happened in Greece and have started pulling euros out of their accounts in fear the country will switch back to cheaper pesetas.
"People see their banks in trouble," Shapiro says.
In less frantic times, the government would come to the rescue with cash or take over the banks. Individual European countries insure bank deposits, so if one bank fails people can still get their money out. But all this is happening in the middle of a government debt crisis, and if the crisis gets worse, the Spanish or Italian government couldn't raise enough money in the bond markets to save the day.
"They can't afford to guarantee deposits or money market balances," Shapiro says. "They don't have the ability to borrow internationally from bond markets. Where are they going to get the funds?"
From here, the crisis could get much worse: Banks could fail, the surviving banks could stop lending to each other, and a credit freeze could shut down commerce in Europe as assuredly as a blizzard did last winter.
One way to stem the contagion would be to create so-called eurobonds - bonds backed by all 17 countries that use the euro. They could be sold to raise money to buy the bonds of troubled European governments. With the backing of 17 countries, including mighty Germany, eurobonds would have a yield far lower than the bonds of countries like Spain and Italy.
Germany, which has the strongest economy of the euro countries, has slowly warmed to the idea but wants weak governments to fix their finances first. "Germany's strength is not infinite," Chancellor Angela Merkel said Thursday.
Cash-strapped European governments should be able to turn to the International Monetary Fund for help, but the IMF's money comes from 188 member countries. Peter Tchir, who runs the TF Market Advisors hedge fund, says the U.S. and other countries may balk if the IMF asks for help supporting Europe.
He worries that the IMF may take a loss on the roughly $28 billion it has already loaned to Greece.
"People are happy to put money in if they think they won't lose it," Tchir says. "In this case, the IMF loses money, then everybody gets scared."
A full-blown crisis would cross the Atlantic through the dense web of contracts, loans and other financial transactions that tie European banks to those in the U.S., experts say.
Blythe, the professor at Brown, believes credit default swaps, the complex financial instruments made infamous by the 2008 financial crisis, would provide the path.
Banks created the swaps to sell as insurance for loans. After lending money to a business or government, investors can turn to a bank and take out protection on the amount they lent. If the borrower runs into trouble and can't pay - say, the government of Spain defaults - the banks that sold the insurance cover the loss.
A $2 billion trading loss that JPMorgan Chase revealed in May, traced to a hedge against the Europe crisis, shows just how easy it is for even the safest and savviest of banks to slip up.
And it doesn't even take a default for a credit default swap to go bad.
If traders think other countries will follow Greece, they'll drive up borrowing rates by selling government bonds, which also pushes up the cost of insuring their debt. That's similar to how your neighborhood insurance agent handles a teenage driver.
In the derivatives market, where credit default swaps are traded, there's a twist. When markets treat Spain like a bad credit risk, those who took out insurance on Spanish debt to protect against a default can force the banks that sold the insurance to prove they can make good on the claim.
To do that, banks cash out something else - U.S. government debt, gold, or anything easy to sell. In normal times, it's no big deal. In a crisis, it can lead to a cascade of selling, spreading trouble from one market to another.
Another problem: It's not clear how much U.S. banks have at risk to Europe through credit default swaps because regulations let banks keep that information a secret.
"You could have American banks up to their necks in CDS liabilities," Blythe says. "We don't even know."
There are other paths the turmoil could take into the U.S.
Money market mutual funds, which hold more than $2.5 trillion, have an estimated 15 percent of their investments in Europe. European banks are also large buyers of U.S. mortgage bonds. If they're forced to sell them, mortgage rates could jump, imperiling the U.S. housing market. Frightened banks in Europe and the U.S. might also pull the credit lines companies depend on for global trade.
So what's the good news? It's hard to find anybody who believes the crisis will get that far.
The bankers planning for a Greek exit from the euro say they think European leaders will get scared into action. The Federal Reserve and other central banks learned from the financial crisis in 2008, they believe, and will jump in to stop the nightmare scenario from unfolding.
Just in case the worst comes to pass, analysts at Barclay's have attempted to estimate the fallout. They say it would be like the days after the investment bank Lehman Brothers collapsed in September 2008. This time, they project that oil would fall to $50 a barrel, stock markets outside of Europe would plunge 30 percent, and the dollar would soar to trade nearly even with the euro.
Blythe is skeptical that it will get that bad because he hopes the previous financial crisis has left governments and central banks prepared.
However the Greek story ends, Blythe believes it's bound to be ugly. Putting 17 countries together to share a common currency worked well when Europe prospered. Now that they're struggling, "all the design flaws are becoming apparent," he says. And every solution that's supposed to fix a problem creates another problem....
Well what do you think?
If you're European, how does this potentially affect you?
As for Europe, I just wish they would damn well do something. Instead they huff and puff and blether till the cows come home and do noting to stop the rot. Thankfully Great Britain is not in the Euro but we have been previously dragged into helping. Of course with much trading beteen GB and the rest of the EEC what goes on there still effects us. An awful lot of peole here just want out the dashed European farce anyway and if there was a Referendum tomorrow it would prove that very practically. Those that have always said we would be in a disaster situ are waffling. There is no way Europe would suddenly stop dealing with a nation of over 61 million or so. Spain, Portugal, Ireland are all in dire straits just like Greece. Italy is not far behind and even France may slip too. The EEC and the Euro were trumpeted as great signs of co-operation safety and progress. Yeah, right. I don't know what will happen but this diabolical repeated discussions are producing sod all. On top of previous financial output for us we even gave the Irish a loan at reasonable interest - what is it - £7,000,000 or so on top. Personally, i don't think Britain will ever join the Euro and am I glad of that.
Greece should never have been in the farce in the first place it has always been a dubious place financially. Skipping taxes, odd working practices and so on. It wasn't strong enough to be there but like then others in southern list (and parts of the east) they thought it would save them from their usual languishing state by holding out the begging bowl instead. And why is it the EEC has never managed to have it's books even cleared by the Auditors for over a decade or so now? For Germany it was a great opportunity but for much of the rest a cop-out at not being able to run their own ship. The unrest spreading across Europe is not abating and the EEC needs to start doing something instead of useless political claptrap conferences that produce sweet damn all.
With the wide variety of types of countries and the constant entry of new ones that couldn't run a jumble sale but depend on others bailing them out there was a built-in weakness. You can feel sorry for many people but the political system is dead oss yet the political class want more integration when it is danger of falling apart due to it's own hands. If they are unable to do something worthwhile for goodness sake just scrap the damn thing.
17. June 2012, 01:30:09 (edited)
Originally posted by rjhowie:
....Greece should never have been in the farce in the first place it has always been a dubious place financially.....If they are unable to do something worthwhile for goodness sake just scrap the damn thing......
So basically, you think that Greece should just drop out, & end it's burden on Europe's financial stability by doing so----the banks, & governments that have deep investments in Greece, will all be fine. Am I right with that? Does that partially sum up your feelings about the Greek situation?
What about France, & Italy, & Portugal, & Eiré, & Spain when their times come---or do you think that they will never come to this?
17. June 2012, 02:08:19 (edited)
.......The election is expected to be very close, and there is still more than a possibility that its results will eventually end with Greece reneging on its debts and pulling out of the eurozone.
If so, this will only add to the desperate economic situation in the country. Already, more than 20,000 Greeks are homeless with 10,000 people, including children, sleeping on the streets of Athens. Greek unemployment is more than 20 per cent and is rising, and the Greek Orthodox Church currently provides emergency rations to more than 250,000 people a day. The situation, already described by many as a genuine humanitarian crisis, threatens to get worse.
The hope in Greece is that Europe’s obsession with austerity will end and that a pro-growth approach will be taken. As one Greek economist wrote this past week in Forbes magazine, Europe’s policy so far is like Albert Einstein’s definition of insanity: “. . . doing the same thing over and over again, but expecting different results.”
Also, one Greek's point of view from The Guardian --- Greece: chronic insecurity and despair – welcome to life in a broken state
To me, it's just like what the Iron Maiden said long ago:
"Socialism fails when it runs out of other people's money!".... M.T.
Well, hells bells, she wasn't kiddin'!
I figure Syriza will grab power, want to stay in the Eurozone, but will realize it isn't possible without starting a civil war.
Greece returns to the Drachma, The Great Recession, part 2, starts, and more and more people around the world get angry again. Especially middle class people.
"Americans should not go abroad to slay dragons they do not understand in the name of spreading democracy." -President John Quincy Adams
My country was right in staying out of the Euro and one of our leading financial people Lord Lawson a former Chancellor of the Exchequer warned years ago it would fail. It is up to Europe to sort it's house in order but instead careers about dithering and posturing. If they want more political integration let them damn well do it if they want. Thankfully it won't include us. We hae helped and di so as I pointed out to our neighbour across the Irish Sea which caused it's own near baknruptcy. Germany wants it to succeed because it is the powerhouse of Europe but the thing is shaky. If Europe cannot get itself sorted and wants to be some kind of Federal set-up then that's up to them -we won't be in it. If on the other hand that is too hot a potato let them get rid of the Euro and then we can move on. The EU is incompetent, a waste of money and a political and economic mess all by their own hand. It's collapse would have a temporary effect then the world would have to move on. In the future it wil be another area of the world which may well become the economic inheritor after the mess. Like many Britons, I just want us out of the damnable waste of our taxes in a bloated and interfering nigh, corrupt system.
Scottish are no different. My country - he says - the English servant.
Greece as a nation has got it's just desserts. Their ethnic attitude is as one Greek put it on tv the other day "We take we don't give anything." Kind of sums up the attitude of that baskecase land. Another said that some cafes had two different prices. One for tourists and one for locals. I do hope he was joking? They have a long habit of not paying taxes and I discoverd today that includes the VAT laid down by the EEC they sivel towards for money. They'll take it but don't expect them to do anything for it. Between, deep tax avoidance, dishonourable working practices and putting far too many into public service employment at EEC cost shows what Greece is like. As I previously said they should never have been allowed to be in that stupid Euro in the first place due to their incompetence and fiscal corruption and misdeeds.
Ten years ago we were hailed at the great Euro and there would be full emplyment, Europe would be a much admired powerhouse of the world. Yeahm right.
Instead it is racked by corruption. Small countries that couldn't fuinance their own existence getting mioney dolloped at them like Portugal, Ireland, Greece for example. So they then lived high on the hog and spent andthe truth has come back to haunt them. Add to that more and more Europeans seeing the growth of nationalist parties. So much for unity, a great powerhouse. The damn EEC is a shambles and still everyone shuts a blind eye to that disgusting fact that Brussels cannot get the books audited year after year. It was started to keep Germany and France as happy bunnies having fought 3 wars in a hundred or so years and developed into a total mess-up. Even Germans in the subtle fourth Reich are getting tetchy at their own politicians dishing out money to bandit economies who don't want any reasonable restrictions. The sooner it goes the better. And in the meantime? They are incapable of solving the thing and I prohesise the mess will continue not for months or this year but years. It will limp along and not be solved as there is no unity except for the fat cats at the top living on inflated salaries. Nationalism will continue to grow as a reaction to the inability to get a solving until it spils over into something worse.
I will feast on the bonfire of it's vanities.
History has shown that Nationalisation does not work, if you give industry (any industry) to politicians and their cronies to run then that industry will ultimately fail, the tax take to the exchequer will fall, unemployment will go up, taxes will go up, the country will start to borrow money it can't afford, and the country will suffer as a result. Politicians cannot run anything, they just do not have the practical experience.
However saying that, we cannot allow people at the top to swindle the country again, i.e. relying on tax payers money to bail them out. These people, like the former chief exec of Northern Rock, Fred the Shred, and many other banking execs who took the money and ran, should be hunted down and thrown in prison for all the economic destruction they have caused.
That said, the single currency Euro cannot and will not work, the whole idea behind it was flawed from the start, and although the Euro was seen as a way of preventing Europe from falling back into it's bad old habits, the only way the Euro can realistically work is if there is a united states of Europe under one government, and that dear forum members will never happen.
My comments were not all about Greece, my first comment, contained within my first para was about "nationalisation" and it's inherent ability to fail at everything.
My second para was about the banks, which are now run by wide-boys, spivs, con men and wannabe rock stars. Those advocates of "Light Touch" regulations should be rounded up and put in the Tower of London, because of this stupidity the thieves now have the controls to our economy.
And my final para was partially about Greece but also pointed out that the wishful thinking of those politicians that cobbled together the "single currency" was nothing more than "pie in the sky". Anyone with an ounce of foresight could see that the Euro would never work, our European economies and mindset are just too different.
Turn to the Vatican? What the deuce for?
That morally, spiritually and financially corrupt pile of unmentionables. I take this opportunity as it hasn't been given front page headlines for some odd reason that the Vatican Bank is deep in the finnacial meltdown and brown stuff. The old red scocks bank is in a critical state and could collapse due to it's own shennanigans. The clerics fain they have nothing to do with it. Yeah, right. For long years this same bank laundered and fiddled money including Mafia mob loot and such. Remember the baker hanged under Blackfriar's Bridge in London with she symbols of that rogue P2 Lodge that was up to it's ears in corruptiopn including the Pope's private secreatry a Cardinal who was a member of that proscribed bunch. So too was the general in charge of the Itialian financial police amongst others. That is the real news.