Why Canada Should Be the EU's Model - If the European Union wants to endure, perhaps its architects should look at how Canada keeps disparate regions together in one union. One of the magic ingredients, as we Canadians know only too well, is equalization payments — i.e. transfers of income from the richest to the poorest provinces – specifically, from Alberta and Ontario (although Ontario is faltering) to the Maritimes and Quebec.
Does the EU have the same capacity to make equalization payments? It would seem not. The Germans, who pay their taxes, are quite disenchanted about supporting Greek citizens, who, by and large, avoid taxes and have more generous social programs (e.g. 57 as the retirement age for civil servants versus 67 for civil servants in Germany). Yet financial markets are skeptical of the current approach to dealing with spendthrift EU members — which involves bailout packages conditional on austerity measures. That’s the way it works in Canada, more or less. Want more from this author? Follow Larry MacDonald. Ignore the doom-mongers. The euro’s end is not nigh | Oliver Kam. Ireland Is The Eurozone's Bright Spot.
It is remarkable that Irish 10-year yields have completely decoupled from Greece. At the beginning of the year, the 60-day correlation between Irish and Greek 10-year yields was above 0.90. Today, the correlation stands at -0.42. At the same time, Irish 10-year bonds yields have become significantly more correlated with German bund yields. That 60-day rolling correlation is near 0.85 today. With speculation still running high that Greece will be forced into a disorderly default and possibly leave EMU, the eurozone problems seem to be intensifying. In the deluge of negative news, there is, if not a silver lining, at least a bright spot that does not seem to enjoy wide recognition: Ireland. Irish bond yields have also tumbled. Irish equities are modestly outperforming as well. The reason for the better-performing Irish assets is that it has found a way to square the proverbial circle.
Want more from this author? Follow and be the first to know when they publish. Follow Marc Chandler. Now This Explains Why Everyone Thinks Europe Is Fine And The US Is Screwed. Should Germany Quit the EU Rather Than Rescue Greece? « naked ca. Ambrose Evans-Pritchard today has his usual type of offering: extreme, but nevertheless based on a valid observation, on his favorite hobbyhorse, the EMU. His key observation comes at the end: EMU architects were warned in the early 1990s that monetary union would prove unworkable as constructed. They scoffed, sure that any crisis could be exploited to force the pace of economic union. Commission chief Romano Prodi later admitted as much. “The euro will oblige us to introduce a new set of economic policy instruments. It is politically impossible now. The interesting conundrum is that Greece does not appear prepared to accept the austerity measures demanded of it, particularly since unemployment is projected to reach 20% by the end of 2010 before budget cuts have an impact.
A German exit would allow Club Med to uphold contracts in euros and devalue with least havoc to internal debt markets. Most people expect the Greece drama to be contained…my, that has a familiar ring, now doesn’t it? Suddenly People Are Starting To Ask: How Screwed Is Germany? Greek Debt: Lehman Brothers Redux? - Yesterday's commentary appearing in Spiegel Online about the ongoing mess in Greece contains a disturbing analogy about debt - Lehman Brothers in 2008 and Greece in 2010: [The situation is reminiscent of] Lehman Brothers, that seemingly unimportant New York investment bank whose September 2008 bankruptcy led the world into a crisis that is still affecting us.
First came Lehman and the banking crisis, now it's Greece and its national crisis. History is repeating itself.Similarities can be seen in how the crises emerged -- but perhaps not in terms of how they are dealt with. EU governments still have the opportunity to respond, and they may come up with a better reaction than President George W. The European Union is certainly being put to the test and it is not at all clear if or when this will all be resolved.
But, there is some good news here - the U.K. never adopted the common currency. In absolute terms, there's no comparison. Want more from this author? Follow Tim Iacono. Greek crisis intensifies as Joe Stiglitz calls for Europe to 'te. Greece? Just a Side Show if the U.K. Defaults - In our younger years we were quite accomplished at the “Match Game” on Sesame Street – to some we have just hopelessly dated ourselves, to others we hope to have given you a nostalgic boost. Whichever group you find yourself, please indulge us as we revert to times past and play the game once again… German PMI – Manufacturing & Services, both rising…. Euro-zone PMI – Manufacturing & Services, both rising… UK PMI – Manufacturing & Services… Want more from this author? Follow and be the first to know when they publish. Follow Brian Kelly (16,223 followers) (You’ll be notified by email with new articles from your favorite authors.)
New! Follow these related stocks (Click to add stocks to your portfolio) Share this article with a colleague. The Real Problem with PIIGS Debt - The European exit strategy, revisited. Why Germany Should Leave The Eurozone. The Euro zone crisis will remain the largest threat to economic stability and growth in 2012. The four options for the current situation have been thoroughly discussed at seekingalpha.com and elsewhere: complete (or at least fiscal) integration, complete breakup, weak members leave the Euro zone or strong members leave the Euro zone. In the following I'd like to discuss the fourth option and contradict the conventional wisdom which forecasts total disaster for Germany and the fiscally stronger countries if they should leave the Euro zone.
Why the first three options are not viable 1) Complete Integration Even if the willpower were in place (anybody care to execute referendums?) The political process itself would take a decade. The European Union is a body of 27 members and the Euro zone a subset of 17 members all with strongly differing cultures and languages. 2) Complete Breakup The sovereign bonds in question have been tendered in Euros. 3) Weak members leave Is this author on the ball?
Euro exit scenario gives Greece 46 hours to manage process. Euro exit scenario gives Greece 46 hours to manage process By Jana Randow and Gabi Thesing Greece may have only a 46-hour window of opportunity should it need to plot a route out of the euro. That’s how much time the country’s leaders would probably have to enact any departure from the single currency while global markets are largely closed, from the end of trading in New York on a Friday to Monday’s market opening in Wellington, New Zealand, based on a synthesis of euro-exit scenarios from 21 economists, analysts and academics. Over the two days, leaders would have to calm civil unrest while managing a potential sovereign default, planning a new currency, recapitalizing the banks, stemming the outflow of capital and seeking a way to pay bills once the bailout lifeline is cut. The risk is that the task would overwhelm any new government in a country that has had to be rescued twice since 2010 because it couldn’t manage its public finances.
[Bloomberg] Global Economics - RGE Monitor -- Europe EconoMonitor. First, we would like to clarify that we are strong supporters of the European monetary integration project. Our view is that the single currency involves significant potential economic and political benefits for all its participants which far outweigh its potential costs. We thus believe it is right to spare no effort to ensure the euro’s continued stability and success.
Having said so, however, we cannot but admit that we are currently faced with hard facts that cannot be ignored by Europe’s policy-makers. The present turmoil in the Greek sovereign bonds market, as well as the increasing pressure on Spanish and Portuguese bonds, is not coincidental but symptomatic of a fundamental truth. This is that the eurozone is not an optimum currency area. A significant body of academic research shows that since euro’s introduction in 1999 the EMU periphery countries not only did not achieve real convergence towards the union’s core countries but, on the contrary, have diverged further. Deep Trouble at the Core of the Eurozone. In France, new vehicle registrations have been plunging.
Already down 17.8% in December and 20.7% in January compared to prior year, they sank 20.2% in February. Year to date, the results were even worse than they appear. With 43 selling days in 2012, against 41 in 2011, sales per selling day were down 24.2%. French automakers suffered the most. Last year, the prime à la casse—the cash-for-clunkers à la Française—was doping sales through March 31, 2011. Layoffs and plant closings will be tough to undertake during the election, as they become highly politicized. And layoffs might even be tougher to undertake after the election if socialist François Hollande wins. The German auto industry, which is far larger than its French counterpart and plays a disproportionate role in the German economy, is still basking in last year’s glow. It's not helping that gas prices are at an all-time record high—$8 a gallon. But layoffs aren’t easy in Germany.
Euro rise *alert* Global Economics - RGE Monitor -- Europe EconoMonitor. Should the “Greek case” infect the other high (public and foreign) debt – low competitiveness countries, the PIIGS (Greece, Ireland, Portugal, Spain, and Italy), the stability of the euro and the cohesion of the Euro zone would be in jeopardy. Are we on the verge of a new domino effect, a replay of the European crisis of 1992, but this time with a flight from the sovereign debts, rather the currencies? Or, absent painful reforms, are the PIIGS in for a slow agony of the fixed exchange rate and fiscal tightening? And which will be, after Greece, the next target? 1 The Worst Case Scenario A roll-over crisis, namely the refusal of underwriters to renew the maturing debt, would precipitate Greece into default, forcing a restructuring of the debt, and sending the signal that even euro countries may fail. In the worst case scenario, the flight from debt will spread to all PIIGS, and that would not be a pleasant ride: the PIIGS’s short-term foreign debt (not total!)
Figure 1 Figure 2 Figure 3. Sharks Are Coming For The Euro - MarketBeat. The uncertainty that could ensue in the near-term is “too great for me to fathom,” blog says. “The EU has gone ‘all-in’ with a very poor hand. The market will eventually call their bluff and when it does it will not be pretty.” It does seem as if all the stars are aligning for the euro in the wrong way. Capital Economics altered its view of the level of the euro at the end of the year, cutting it to $1.10, from the previous forecast of $1.20. Says while some of the forces bearing down on the euro over recent months may now be easing, there are plenty of other reasons to expect the currency to fall further.
Also expects the euro to fall to parity by the end of 2011, as euro zone GDP growth will lag well behind that in the US, while worries about the fiscal crisis and future of the euro should persist. (Peter Nurse contributed to this post.) THE UGLY MATH BEHIND ITALY’S SOVEREIGN DEBT CRISIS…. Peter Boockvar posted some ugly figures at Barry’s site yesterday. He notes the depressing math behind the Italian sovereign debt situation: “REVISED: Here’s a back of the envelope calculation on Italy, highlighting the impact that a rise in financing costs coupled with a lack of growth can have on their finances. Italy needs to refinance about 310b euros of debt in 2012.
I estimate the average interest rate they are paying on this maturing debt is 2.7% (short term rates collapsed in ’09-’10). As we know with Greece, growth is the key. “I had a very long chat with our Italian economist, Vladimir Pillonca. The math just doesn’t add up here. Unfortunately, the Germans are in the driver’s seat hoping the situation will fix itself so they can go along their merry way with record low unemployment and decent relative growth. The Irony Of The Euro Crisis: This Is What The World Would Be Li.