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Thread: EU to Set Up Fund to Prevent Spread of Greek Crisis

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    EU to Set Up Fund to Prevent Spread of Greek Crisis

    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.
    EU to Set Up Fund to Prevent Spread of Greek Crisis (Update1) - Bloomberg.com
    Last edited by donsutherland1; 05-07-10 at 10:13 PM.

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    Re: EU to Set Up Fund to Prevent Spread of Greek Crisis

    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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    Re: EU to Set Up Fund to Prevent Spread of Greek Crisis

    Quote Originally Posted by Jetboogieman View Post
    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.
    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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    Re: EU to Set Up Fund to Prevent Spread of Greek Crisis

    Quote Originally Posted by washunut View Post
    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.
    It was inevitable. The only way to save ourselves is to reset the world. So who's up for World War 3?

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    Re: EU to Set Up Fund to Prevent Spread of Greek Crisis

    Quote Originally Posted by Jetboogieman View Post
    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.
    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.

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    Re: EU to Set Up Fund to Prevent Spread of Greek Crisis

    Quote Originally Posted by donsutherland1 View Post
    In short, I'm fairly confident that the Greek debt crisis will not break the EU or shatter the common currency.
    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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    Re: EU to Set Up Fund to Prevent Spread of Greek 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.
    Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other.

    John Adams

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    Re: EU to Set Up Fund to Prevent Spread of Greek Crisis

    Quote Originally Posted by Jetboogieman View Post
    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.
    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.

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    Re: EU to Set Up Fund to Prevent Spread of Greek Crisis

    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?
    Last edited by The Prof; 05-08-10 at 12:44 AM.

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    Re: EU to Set Up Fund to Prevent Spread of Greek Crisis

    some expect the us and others will attempt to aid the eu?

    with what?

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