« BACK  |  PRINT

RS

FRONT PAGE CONTRIBUTOR

Have Some Irish Coffee

By: Francis Cianfrocca (Diary)  |  November 29th, 2010 at 10:23 AM  | 

RESIZE: AAA

Yesterday afternoon, Ireland finalized terms of a bailout valued at 85 billion euros, from the ECB, the IMF, a government pension fund, and several European states. (Details here.) So far, the bailout is NOT having a calming effect on Europe’s capital markets.

Credit spreads on so-called “peripheral” European sovereigns are blowing out this morning, and government bonds of Portugal and Spain are falling sharply. Italy managed to tap the credit markets earlier today, but the interest rate was high and the subscription level was disappointing.

This can’t keep up. If investors continue to dial up the interest rates they charge Europe’s governments, there’s little chance of a sustained recovery. And that makes European states even less credit-worthy.

The Germans are in good shape. Switzerland and the Scandinavian states are in decent shape. The UK is on the fence. Everyone else, possibly including even the French, could be looking into the barrel of a gun.

Tags: , ,

COMMENTS

POSTING RULES  |  LOGIN TO COMMENT  |  REGISTER TODAY
  • jackhammer

    I wish they would give up their war guilt and feel free to dump the ?.

    This has been a 10 year binge of less creditworthy countries taking the german credit card on a shopping spree.

    I bet agaisnt the ? with every cent I had early in the year, made some coin…rode it back up and down again…I still bet on hard assets in Germany, and feel comfortable when the ? disappears.

    It is an unnatural construct. It caused 10 years of the grossest misallocation of capital that ever existed. It is a manipulated currency which less accurately reflects German productivity than even the Chinese Yuan does the productivity of Chinese labor.

    Germany has become the country with the largest trade surplus for most fo the past 7 years. german wages have been stagnant, and their savings rate has jumped to record levels.

    Corporations have been happy with this development….but the people are sick of it…and most haven’t even realized it wa happening.

    The Euro is dropping like a 3rd world currency….It is killing me professionally, but it is completely understandable.

    Bondholders need to take a haricut….that is how capitalism works….these countries should default…the ? should be abolished….countries which decide they have the resources and the inclination to provide a social safety net can do so, but not all countries can live at the same level if they aren’t productive at the same level.

    It is basically a fannie mae subprime thing all over again….

    It might be jingoism on my part (I am part Irish) but I gotta say Ireland is not as abhorrent as Greece was….there was no false accounting, there was no massive tax evasion as national sport, there were no horrendously exorbinant pensions (on a european scale), and the Irish have taken to the streets, but not in a stone throwing way…jsut as sort of a parade mea culpa. It was a crazy real estate bubble that was willingly participated in by the local as well as the expat crowd. It is a country of 5 million people, so similar to a midsize US state (Alabama)…just wait for the insanity that is spain and italy to blow the currency up…..

    About time for the Germans to take to the streets and demand their DM back…and not continue to be held captive by the war guilt and the exporting interests that are happy to have a manipulated currency.

    • tlhanger

      Made it a little clearer for me.

  • IJB

    I’m convinced the verdict is in – bond holders are going to keep pounding everybody in Europe that they can until they fold the Euro.

    I think it’s just a matter of time now.

    The open question is whether the elite of Europe will actually accede to the verdict of the bond markets, or continue to fantastically paper over the obvious truth and try to hold on to the Euro a little longer.

    I think the over/under on the collapse of the Euro is Feb. or March of 2011…

    • texasgalt

      take the canolis. –The Obama Mafia

  • streetwise

    In your opinion, is this real? Or maybe just resentment?

    • jackhammer

      There is currently no real fear in Germany that the bailouts are actually damaging the german economy.

      No one really talks about the manipulated currency, they are all happy to be seen as the export world champion, with the highest trade surplus. The government has been good about making people think that is something positive, when in fact it represents a lower standard of living than what you should have. It is like your boss telling you how you are the most productive workforce ever….you should be asking for a raise, but if you actually think being the most productive is in and of itself a victory, then you are a moron…..so the germans have been collective morons for the past 10 years.

      But this whole facade is falling as they are comign to realize that they are on the hook for all these other countries who have not been as responsible. It is definitely a moral hazard situation. the germans have been the ones who have paid their mortgage, who have been mostly on the up and up with accounting, who have already implemented the retirment age of 67 (gradually), who have made soem of the social welfare cuts and the like. Now they are seeing they are going to not only pay for all those EU improvement programs that have given Spain, romania and Greece brand new roads and sewers and the like, but now they have to pay for all of them…that is not going to be politically tenable…

      But that will be when Merkel hands over the Reins to Guttenburg, who will be the only one with the political ability as well as public trust to shake off the war guilt and actually say, “enough is enough”.

      Small ? zone of mostly northern european countries might well be the result….

      the problem is how to convert back…but I would say where the bank is based where the money is….

      I am glad i owe so much more in ?’s than I have….(long term mortgages)

    • mikerazar

      The altruistic Germans have always put the well being of their neighbors above their own interests.

  • JSobieski

    I am specifically inquiring about former Eastern block ountries like Poland, Estonia, Czech Republica, et al?

    Will businesses move from Euro-Zone to Non-Euro-Zone Europe, or will non-Euro-Zone Europe sink wth Euro-Zone Europe?

    • jackhammer

      Whenever there i a shock to a system, there is a flight to quality. Eastern Europe makes claims of growth, or the opportunity for it. They don’t, and can’t make claims of quality or stability.

      If people want to flee the ?, it will be for switzerland or the scandinavian countries.

      Eastenr Europe does nto have a lot fo local cash, and they need FDI, but with more harsh currency fluctuations, expect people to play it safe.

  • Adjoran

    Me either. And the bond-buyers are sharper about these things than we are.

    A single currency can’t be made to fit vastly different economies. Ireland’s rapid growth and low taxes in the early part of the decade indicated a need for higher interest rates to moderate it, but the needs of the moribund mainland with their high unemployment and slow growth were low rates. Of course the heavy hitters (and their wannabe leader, Belgium) won.

    One size monetary policy does not fit all.

    • jackhammer

      since the ? came, the spread between german bunds and spanish, italian and greek bonds went from an average of 3-5 points to one of about 0.5 points….is that an accurate refelction of the risks?

      That is what lead to the housing bubbles in Iraland and Spain,a dn the other misallocation fo resources. Spain was using the German Credit Card,a nd it went on a shopping spree. It lead to a real estate bubble of biblical proportions. It’s banks are heavily exposed, and that is still being hidden through accounting….

      You used to buy italian bonds with 4 points higher interest than german ones knowing the chances of a zero being lopped off the end of the currency within any 10 year span was a real possibility….that was also a bond haircut you took.

      Making everyone whole,a dn kicking the can, is OK when I let my 4 year old daughter win at snakes and ladders, but not as a national policy…and when the Germans dare speak of a bondholder haircut….all hell breaks loose…If spain goes…then the ? goes….the germans will not stand for it….lucky brits.

  • texasgalt

    and this bailout mentality is about to run its course. The equity market is a sham and the governments of the world have made sure you can’t earn anything on cash.

    America’s super rich are demanding the productive class pays more taxes while the lames can’t agree on extending the Bush tax rates. Wouldn’t you love to see the effective tax rate Soros paid on his 1 billion dollars in earnings last year?

    Obama insults us by holding up the GM bailout as a giant success. Friends, the market just revalued the company at far, far less than the government put into it. And who came out of the deal smelling like a rose? Obama’s union pals, who were in large part responsible for tanking GM in the first place.

    I see GE, another of the Obama chosen, is buying thousands of Volts from GM. Why ever would they do that?

    This isn’t capitalism. It’s fascism or darn close to it.

    Strap in, folks.

    • jackhammer

      I am all for mainstreet….and all for the working man….and all for anyone who does not petition government for anything. Most large corporations don’t fall under this description. GE, GM and whoever….

      No subsidies for anything! just let the market show what makes sense and what brings a return….if windmills make money, and real money, not just steal my taxes int he form of guaranteed bribes and subsidies….

      But this si where Milton friedman comes into play again…nothing unsustainable can be sustained forever….

      • edintexas

        But the politicians can sustain it far longer with our money. In fact, they can give it birth via distributing our taxes to their favored cronies.

        What are the big differences between crony capitalism and Facism? Crony capitalism persuades businesses with tax favoritism (I was about to say “and not with decrees”, but that is no longer the case), does not have “National”, “Socialist”, “Worker’s” or “Party” (Or “Facist” for the Italian version) in the title. Crony Capitalism also doesn’t have a Secret State Police – at least by that title (Geheime Staatspolizei).

      • Common_Cents

        The misallocations are staggering when Govt and politics are involved.

      • texasgalt

        to the ruling class / Krugman fans.