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EU to Set Up Fund to Prevent Spread of Greek Crisis

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donsutherland1

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The EU agreed to set up a foreign exchange stabilization fund to help defend the Euro on foreign exchange markets. While it remains unclear whether speculation, more than uncertainty, had been driving the Euro lower, there have been cases in the past where explicit or implicit currency guarantees have been attacked by speculators to test the credibility of such guarantees. It remains to be seen whether some could test the EU's resolve.

At the same time, the decision signals that the European Union is determined to preserve the common currency. IMO, this decision undermines arguments made by some that the Greek debt crisis would shatter the European Union.

From Bloomberg.com:

European leaders agreed to set up an emergency fund to halt the spread of Greece’s fiscal woes, seeking to prevent a sovereign debt crisis from shattering confidence in the 11-year-old euro...

European officials declined to disclose the size of the stabilization fund, to be made up of money borrowed by the European Union’s central authorities with guarantees by national governments. Finance ministers will meet at 4 p.m. tomorrow in Brussels to flesh out the details.
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EU to Set Up Fund to Prevent Spread of Greek Crisis (Update1) - Bloomberg.com
 
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There's no point, Spain, Portugal and Italy are gonna collapse the same way any day now, the whole thing's just gonna end up incredibly badly and there won't be any money to help anyone, cause all the other Euro countries will run for the hills and shore up their own countries.
 
Jetboogieman said:
There's no point, Spain, Portugal and Italy are gonna collapse the same way any day now, the whole thing's just gonna end up incredibly badly and there won't be any money to help anyone, cause all the other Euro countries will run for the hills and shore up their own countries.
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The ECB will have to do what the Fed did. That is allow this debt to go onto their balance sheet. Massive quantitative easing.

This would stop the short term liquidity problem. Long term it looks like all developed nations have their backs to the wall.
 
washunut said:
The ECB will have to do what the Fed did. That is allow this debt to go onto their balance sheet. Massive quantitative easing.

This would stop the short term liquidity problem. Long term it looks like all developed nations have their backs to the wall.
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It was inevitable. The only way to save ourselves is to reset the world. So who's up for World War 3?
 
Jetboogieman said:
There's no point, Spain, Portugal and Italy are gonna collapse the same way any day now, the whole thing's just gonna end up incredibly badly and there won't be any money to help anyone, cause all the other Euro countries will run for the hills and shore up their own countries.
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I don't believe things are quite so dire. There is a lot of concern about some of those states. I suspect anxious market participants will be watching to see whether European Union leaders make good on their commitments today to accelerate budget cuts and assure that budget deficit targets are achieved.

The EU has too much at stake to permit the whole experiment unwind, much less without a substantial fight. Given the adverse global macroeconomic and financial impact such an outcome would have, I would expect that the U.S. and various Asian countries would also attempt to aid the EU under such circumstances, i.e., intervening in the foreign exchange markets to buy the Euro, possibly curbing short sales of the Euro, among other steps, to prevent speculators from toppling the currency.

I do believe the experience with Greece will renew the EU's determination to assure that prospective members do not pose the kind of fiscal risks Greece did. That will not bode well for Turkey's delayed admission, as Turkey experienced a sovereign debt default as recently as 1978. The economic literature indicates that states that experience such defaults are more likely than others to experience them again. Greece had an especially sordid record on that front in the past and was in default for much of the 19th century until WW II. In what might be a worst-case scenario, were Greece to fail to follow through with its austerity program, the EU might well suspend Greece's membership or even expel it. That no expulsion mechanism currently exists does not mean that the EU could not undertake an extraordinary action toward that end.

In short, I'm fairly confident that the Greek debt crisis will not break the EU or shatter the common currency.
 
donsutherland1 said:
In short, I'm fairly confident that the Greek debt crisis will not break the EU or shatter the common currency.
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I didn't think it would shatter the common currency, but what I think it will do is is create deep divisions, it's already been seen with this crisis. If Britain, which is gonna face deep cuts in the coming months, is pissing off their population with their cuts, which all Euro countries will have to do... they're gonna demand no money go to foriegn countries to help with their crisis.
 
Greece is a window to the future. This is what happens when entitlements trump funding. And the violence is people who can't accept they have to give up their entitlements.
 
Jetboogieman said:
I didn't think it would shatter the common currency, but what I think it will do is is create deep divisions, it's already been seen with this crisis. If Britain, which is gonna face deep cuts in the coming months, is pissing off their population with their cuts, which all Euro countries will have to do... they're gonna demand no money go to foriegn countries to help with their crisis.
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I agree about the divisions and challenges associated with fiscal consolidation. Nevertheless, fiscal consolidation is essential. The alternative would be much worse. IMO, the developed world--or large parts of it--are moving toward what will either become an age of austerity or age of sovereign default down the road. It will become necessary for governments to make the unpopular changes necessary to put them on a fiscally sustainable path. Whether the political courage will be present remains to be seen. Historically, odds are against such courage until a crisis has unfolded or is imminent.
 
yes, this emergency summit was announced and rushed together on friday in a panicked response to what's clearly catastrophically dangerous

FT.com / Brussels - Eurozone leaders vow to tighten fiscal discipline

unfortunately, this convention and its actions are exactly NOT what some have so clearly, consistently, courageously and correctly called for

this is the worst of headless chicken hystrionics, pure politics, and the results show

why, if we were in september, 2008, john the maverick mccain would suspend his campaign

the reasons leadership must LOOK like it's doing something are dire---15% slide in euro since november, stixx slips 12% since last month, nikkei negative 3.1% on friday, 973 basis points jump in premiums on greek bonds, 354 on spain's, 173 on portugal's...

it's no wonder that:

Bank Risk Soars to Record, Default Swaps Overtake Lehman Crisis - Bloomberg.com

ominous: "plans for a european credit rating authority are already under consideration"

president borroso, asked about restricting short sales and default swaps: "some of the points you have mentioned will be contemplated"

hardly the answer to frantic uncertainty

papandreou is still SENDING MESSAGES, far from taking the serious steps necessary

the summit announced from the start (friday, noon?) it's pursuit of "relatively low key accords"

as solution-bereft as obama

this inspires confidence? in supposedly sophisticated people?

against the backdrop of athens, and beyond?
 
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some expect the us and others will attempt to aid the eu?

with what?
 
Look -- some European economies are going through a tough time. This is certainly the first major crisis the Eurozone is facing, but I suspect they will come through it -- though it will be painful and could well take a few years.

Perhaps they will also realize what Americans are beginning to realize. Unless China and Japan start playing according to the rules and principle of both free and fair trade, the Western economies will continue to be bludgeoned by the East Asian economies who still practice neo-mercantilist policies (mostly Japan, South Korea and China -- Taiwan to a lesser extent though it has opened up more than the other three have).
 
Jetboogieman said:
what I think it will do is is create deep divisions
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absolutely

FT.com / Brussels - Eurozone leaders vow to tighten fiscal discipline

One obstacle to faster European action lies in the different perspectives of France and Germany. Both countries agree on the immediate need for new pan-European market supervisory authorities and are keen to impose more controls on credit rating agencies.

But whereas Paris sees the crisis as providing a compelling case for closer economic and fiscal policy integration, Berlin is wary of proposals that it suspects might force it to prop up other countries’ economies, undermine Germany’s competitiveness and compromise the ECB’s legally enshrined independence from political pressure.
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Greece erupts as men from IMF prepare to wield axe - Times Online

Some young Greeks prefer to blame their elders for the mountain of debt that has resulted in Greece, like a wayward child, being placed under the tutelage of the men from the IMF.

“I cannot help but blame my parents a little for what’s happened,” said Achilles Zacharoulis, a 36-year-old cardiologist. “They were here all that time,” he added, referring to the past three decades of mismanagement and fiscal insanity. “But what did they do to stop it?”

Vaggelis Gettos, 24, is just as alarmed at the burden being heaped on the young by austerity measures expected to be announced today, and has pledged to resist them in more protests this week against what he sees as a plot to impoverish Greece.

“We will live much worse than our parents,” he said. “Why should we be made to pay for their mistakes?”

The question of who was to blame and who should pay for the greatest crisis to afflict the single currency was a subject of heated debate, particularly after a leading credit rating agency put the cradle of civilisation in the same category as Azerbaijan by reducing its government bonds to “junk” status.

Economists regard the bloated civil service with its jobs for life and generous pensions as a cancer consuming the country’s resources. The older generation, the experts grimly concur, turned the state into a giant cash machine to be plundered at will.

Even greater social unrest is expected as resentment simmers among poorer families at being told to tighten their belts when wealthy Greeks can protect their fortunes by moving their money abroad, some of it into property bargains in London.

As if in the path of an advancing army, Greeks are hiding their money. In the end, Stefanos, the retired captain, opted like his friends for a safety deposit box. The super rich, for their part, have shifted an estimated €11 billion to Cyprus and other havens since the start of the year, according to Konstantinos Michalos, president of the Athens chamber of commerce.
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finally, for now:

AFP: Merkel blasts 'treacherous' banks in Greek crisis
 
The latest news from the European Union...

From Bloomberg.com:

European Union finance ministers moved toward agreement on an unprecedented loan package worth at least $645 billion to prevent Greece’s fiscal woes from triggering a broader sovereign-debt crisis and shattering confidence in the euro...

Jolted into action by last week’s slide in the currency to a 14-month low and soaring bond yields in Portugal and Spain, the 16 euro governments sketched out plans to make 440 billion euros ($570 billion) available, with 60 billion euros more from the EU’s budget, according to three officials at the talks in Brussels. An additional, unspecified sum may come from the International Monetary Fund, the officials said.
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EU Preps $645 Billion Fund to Fight ?Wolfpack,? Debt Crisis - Bloomberg.com
 
Update from Bloomberg.com:

European finance ministers put together an unprecedented loan package that may be worth 720 billion euros ($928 billion) for debt-swamped governments in a bid to restore faith in the euro and prevent Greece’s fiscal woes from unleashing a global crisis...

The European Central Bank will announce “intervention” in financial markets, Luxembourg Finance Minister Luc Frieden told reporters, without giving further details.
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EU Crafts $928 Billion Show of Force to Halt Crisis (Update1) - Bloomberg.com
 
For those who are interested, the European Union's press statement describing the extraordinary measures undertaken to contribute to financial stability in Europe can be found here.

For those who have difficulty accessing the site from clicking on the link, one can copy and paste the following URL into the address bar to access the site "http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/114324.pdf"
 
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donsutherland1 said:
The EU agreed to set up a foreign exchange stabilization fund to help defend the Euro on foreign exchange markets. While it remains unclear whether speculation, more than uncertainty, had been driving the Euro lower, there have been cases in the past where explicit or implicit currency guarantees have been attacked by speculators to test the credibility of such guarantees. It remains to be seen whether some could test the EU's resolve.

At the same time, the decision signals that the European Union is determined to preserve the common currency. IMO, this decision undermines arguments made by some that the Greek debt crisis would shatter the European Union.

From Bloomberg.com:



EU to Set Up Fund to Prevent Spread of Greek Crisis (Update1) - Bloomberg.com
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I wonder if this is related.

Fed Restarts Currency-Swap Tool as Sovereign-Debt Crisis Flares - Bloomberg.com
 
American said:
I wonder if this is related.

Fed Restarts Currency-Swap Tool as Sovereign-Debt Crisis Flares - Bloomberg.com
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Although the swaps arrangement wasn't mentioned in the EU's press release, I believe it helps assure orderly market function. That should also help ease some of the problems that arose in recent days when market function begain to break down.

The Federal Reserve's statement can be found at: FRB: Press Release--Federal Reserve, European Central Bank, Bank of Canada, Bank of England, and Swiss National Bank announce re-establishment of temporary U.S. dollar liquidity swap facilities--May 9, 2010
 
Even as the EU's package and extraordinary monetary policy measures seek to stabilize Europe's financial markets, it should be noted that there is an expectation that Europe's heavily-indebted countries will take the measures necessary to address their fiscal challenges.

For example, the ECB's statement from this morning that discusses the ECB's policy decision explains:

In making this decision we have taken note of the statement of the euro area governments that they “will take all measures needed to meet [their] fiscal targets this year and the years ahead in line with excessive deficit procedures” and of the precise additional commitments taken by some euro area governments to accelerate fiscal consolidation and ensure the sustainability of their public finances.
 
what would you expect the bank to say?
 
The Prof said:
what would you expect the bank to say?
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That the ECB's short-term efforts to help the EU mitigate potential liquidity issues is related to helping the EU's heavily-indebted states to address their long-term solvency issues and that there is an explicit expectation that those states would do so with the breathing room they have gained from the emergency policy measures.
 
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well, then, you got what you wanted

of course, there was zero chance you'd hear any different
 
trouble is, talk, unlike bailouts, is cheap

worthless, actually, kinda like greek, spanish and portuguese paper
 
Just over a month after some in the financial community joined the mini-panic that had engulfed currency and debt markets in forecasting a breakup of the European Union or plunge to dollar parity in the Euro, it increasingly appears that the establishment of the EU fund has finally calmed nerves. With Germany and France, among others, committing themselves to address their budget issues and Spain just having a successful debt offering, it appears that the mini-panic has ended. This morning, the Euro is reaching for $1.24 after having fallen to just under $1.19 during the worst of the Euro debt mini-panic.

As frequently is the case, those that got swept by the emotions driving markets at the time and lost sight of underlying fundamentals (challenging but not grim and hopeless), face seeing their dire predictions stranded by reality. Even as more challenges lie ahead, the easing of the mini-panic provides yet another reminder that market developments are in part driven by fundamentals, but in part (sometimes the larger part) driven by psychology. Moreover, psychology can be fickle.
 
donsutherland1 said:
The EU agreed to set up a foreign exchange stabilization fund to help defend the Euro on foreign exchange markets. While it remains unclear whether speculation, more than uncertainty, had been driving the Euro lower, there have been cases in the past where explicit or implicit currency guarantees have been attacked by speculators to test the credibility of such guarantees. It remains to be seen whether some could test the EU's resolve.

At the same time, the decision signals that the European Union is determined to preserve the common currency. IMO, this decision undermines arguments made by some that the Greek debt crisis would shatter the European Union.

From Bloomberg.com:



EU to Set Up Fund to Prevent Spread of Greek Crisis (Update1) - Bloomberg.com
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LOL... a Fund... from where will they get the money? Germany again?

How about fundamental restructuring of their welfare states?
Start by freezing everything for 5-years.
Then start paring away at the fat, ideally with a chain saw, but even a scalpel will do.
A thousand small cuts to a frozen corpse can lighten the burden some.

A fund... ROTFLOL... while Rome burns they create a fund to feed the fire...

.
 
zimmer said:
LOL... a Fund... from where will they get the money? Germany again?

How about fundamental restructuring of their welfare states?
Start by freezing everything for 5-years.
Then start paring away at the fat, ideally with a chain saw, but even a scalpel will do.
A thousand small cuts to a frozen corpse can lighten the burden some.

A fund... ROTFLOL... while Rome burns they create a fund to feed the fire...

.
Click to expand...

The fund was not created to address the debt crisis, but to alleviate the panic that was developing so as to buy the highly-indebted countries some time to address their fiscal imbalances. It remains to be seen whether all of those countries will make sufficient progress toward that end. The fiscal consolidation process is still in its very early stages. I suspect that a mixed outcome on that front is more likely than not e.g., among other things, some but not all of the highly-indebted countries will meet their deficit reduction targets within 3 years.
 
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