The Euro meltdown - page 1 -

• The Euro meltdown by Mr Jules on 20 May, 2012 04:16
• Living in London UK and so very close to the rest of Europe, been following the news of the miserable, complex and unfolding financial chaos around our continent.
  
  The Greeks have no government and are likely to literally run out of money before the end of next month. For the last 2 years, they've been living on enormous financial help from most of the rest of the EU (European Union). They've endured spending cuts, wage cuts and tax rises of the kind I cannot imagine. There will be a general election in Greece on 17 June, and its possible the Greeks may elect politicians who reject the cuts and tax rises which have been condition of the billions of euro of financial help. It's anyone's guess if Greece can keep it together even until 17 June. It's a terrible mess.
  
  Other EU countries are embarking on similar rounds of tax rises and spending cuts. For these governments, borrowing money is just become ever more difficult.
  
  The UK is not exempt from any of this. British banks have lent to banks who've lent to indebted countries. And we do much trade with our European partners. The British prime minister, David Cameron looks worried. Experts here predict a Greek meltdown could drag the UK back into recession with more unemployment, banks running into yet more difficulty and more spending cuts and tax rises.  Indeed, our UK economy is fragile is mostly flat lining.
  
  In truth, I suspect no one really knows how this is going to play and the consequences. It's all too close for comfort.
  
  All we can do is follow this news which is pretty much the top story every single night.
  
  And all I can do is just keep my job and budget carefully. We really have no idea what is round the corner.
• #1 by Razor X on 20 May, 2012 06:35
• It is a mess, for sure, and one with worldwide implications.
• #2 by Mikekoz13 on 20 May, 2012 07:03
• And we all have to ask ourselves "Why?". To me, it's simple...... politicians and their spending policies (I'm talking about the USA, I'm not qualified to speak on other places in the world).
  
  As long as politicians continue to think that they can tax the people until the government is out of debt, we are doomed to fail. It CAN"T happen this way because even if you tax more, things won't get better if you DO NOT cut spending. I'm not talking about artificial cuts either...... the kind where $100 million is slated to be spent and they cut it back to $80 million...... YOU"RE STILL SPENDING $80 MILLION MORE YOU DUMBASSES!!! I'm talking about REAL cuts.
  
  This is a subject that REALLY gets me rolling and I have a lot to say about it BUT in the interest of Forum rules I will bite my tongue.
  PM me if you really care what a Harley guy living on the side of a mountain in the great state of Pennsylvania has to say.
  
  
• #3 by tomgallagher on 20 May, 2012 07:26
• I don't understand why the Greeks can't get it under control but speaking to the USA and as a senior citizen, I can't understand why when we are spending billions of dollars every week on Pork in the budget and billions every week propping up governments like Iraq and Afghanistan our government always starts sniffing around Social Security and Medicare and Medicaid etc. etc. As Mike says, don't get me started.
• #4 by Mr Jules on 20 May, 2012 07:47
• Thanks for your contributions.
  
  Here in the European Union, we are faced with a choice:
  
  Do we cut Greece free and that means leaving trying to sort their own mess with their own new worthless currency ? Who knows how the financial shock waves would ripple across the rest of Europe. Banks could collapse. There could be more financial chaos. And the Greeks could be in more trouble. Already many folks there have seen their salaries cut by 40%. A similar situation has occurred in Ireland, where public sector employees have taken 20% pay cuts. And unemployment in Ireland is now 14%. In the US, it's 8%.
  
  or...
  
  Do we continue to manage the problem by keeping Greece in the EU ? And continuing with the enourmous financial help with the condition that Greece carries on with ever greater spending cuts and tax rises.
  
  We will soon find out.
  
  
• #5 by tomgallagher on 20 May, 2012 08:22
• I would assume that you can't let Greece, like a gangrenous limb, infect the whole body of the EU.
• #6 by Mr Jules on 20 May, 2012 08:27
• Quote from: Tom Gallagher on 20 May, 2012 08:22

  I would assume that you can't let Greece, like a gangrenous limb, infect the whole body of the EU.
  

  
  It's already started.
  
  For instance, British banks have lent to other European banks who have lent to the Greek government.
  Greeks are moving their money out Greece and into banks accounts in less risky parts of Europe
  Everyday, the British phone giant Vodafone, who has an operation in Greece, is moving its surplus money out of Greece and back to the UK
  
  and over in Spain, the government there has nationalised a large bank. Other banks are on credit watch including Bank of Santander, who have a operation in the UK. In turn, some UK customers are withdrawing their money from their British Bank of Santander accounts, just in case.
  
  The infection has started. It's how to manage the infection now.
• #7 by D.A.L.U.I. on 20 May, 2012 10:32
• My two cents--for what it's worth, today at least, probably less tomorrow.
  
  Greece, retire on a pension in your fifties, yup, fifties--and hairdressers are considered workers in a hazardous field so they get more!  No significant industrial production, they live on tourists!  They are running debt because among other things there is massive tax evasion, not avoidance--that's legal, this is evasion.  For the last year or more the wealthy have moved their money out of the country, think Swiss Francs, so the Greek banks are undercapitalized.  No one wants to pay, every one wants to take--that doesn't work any place.  Now the rest of the Eurozone says, "Live within your means."  Great, but there aren't any jobs so unemployment has gone through the roof.  Fire government workers to save money, great idea, unfortunately those workers spend their pay with their neighbor's grocery store, clothing etc., so now their customers are out of work, and they will be out of business.  Lesson, put the brakes on too hard to fast and you spin out of control--same as a car or a motorcycle, except this is an economy that's going to crash.  So, elect the so called far left or the far right, actually just good old populism that takes any political label available.  No solution, no economic growth pattern.  It's inevitable according to many European economists that Greece has to leave the Euro Zone, whether it stays in the Common Market with the drachma is still to be decided.  At least with the drachma what little they do produce becomes cheaper for foreign buyers so possible growth.  Unfortunately all imported goods, including those from the US, become very expensive, very fast--possible job losses in the US because just like the local Greek grocer, our customer doesn't have money to buy our stuff. 
  But what's scary is that the wealthy Spanish, Portugese and Italians are now moving their money out of their banks, their banks are becoming cash poor and the Europeans don't have a Federal Reserve as we do to cushion the cash erosion in their individual banking systems. Real estate markets have collapsed in Europe too!  This is incredibly complex, intertwined and definately will have an effect in the US--20% of our exports go to the Common Market!  That's a lot of people whose jobs are at stake here in the States, and it's going to start getting tight by the end of the year, just when our Congress and political leaders are going to try to deal with our own debt issues.  From past experience our politicians are demonstrating all the wrong characteristics right now and by this time next year these could be the good old days.  Swiss bankers on the other hand have a big problem, lots of money but no one to lend it to, and that's how they make their money!  Everyone has a real interest in this and it's changing daily, hourly.  Google "Euro Crisis" and read what the news in other country's newspapers is--it isn't pretty, not at all. 
• #8 by Mr Jules on 20 May, 2012 10:46
• Pretty much spot on, Saintc.
  
  The trouble is: in Greece, exactly how do you go about switching from the Euro to a new currency (New Drachma) which may lose 50% of its value ? One idea is that the Greek government announces the new currency, the banks close for re-domination. For a while, the Greek borders are financially sealed. All euro notes still inside Greece and then re-stamped 'New Drachma'.  For the European Union, there's no presence or mechanism for what's about to happen.
  
  And yes, real estate values in Europe have fallen. For instance, just across the Irish Sea in the Republic of Ireland, property prices there have fallen by 50% in recent years. British banks lend to Irish banks and speculators on the back of the Irish real estate boom. No wonder, the British taxpayer has contributed towards the bail out money given to the Irish government.
  
  The US is quite right to be concerned about the unfolding financial chaos here in Europe. And with the UK doing 40% of its trade with rest of the Europe, our prime minister is worried.
  
  Like you, it's a tangled mess. And we have no idea how it's going to play out or how awful it's going to be.
  
  Meanwhile the UK Bank of England (similar to the US Federal Reserve) is preparing contingency plans. But they won't give details. Speculation is that the focus will be ensuring that our banking system continues. We have already had one bank run on a British bank.
  
  
  
  
  
  
• #9 by buddha on 20 May, 2012 13:22
• http://www.washingtonpost.com/politics/federal-reserve-grants-first-approval-for-chinese-bank-to-purchase-us-bank/2012/05/09/gIQA0VpVDU_story.html
  
  Well, we ain't far behind. I am not an economist and I have really very little interest in the topic other than fear for the future. I just hate the idea of having to shoot someone over the contents of the dumpster behind McDonald's but I'm betting that is pretty much where we'll be here in the good ol' U. S. of A. in fairly short order.
  
  I think the problem is that all these financial meltdowns have been engineered for decades by people waaaay more brilliant than anyone I know. In the meantime the gubmint here at home has been dividing the population into smaller and smaller segments who can never see eye to eye because of single issues like gay marriage or abortion/birth control. Believe me, these folks are not the dummies they make themselves out to be. They are absolute evil geniuses in that they know that the average American would rather shop than read and they are using that to their advantage. And we play right into their hands.
  
  And I'm gonna apologize in advance because I am absolutely certain that my contribution to this thread will result in it being pulled. But I lack the self-control of Koz or Tom, I had to launch the rant. Sorry. 
• #10 by Morton on 20 May, 2012 16:14
• I'm glad I got out of the UK a long time ago (I'm also hapy to be earning in yen, at least at present).
  
  I feel that this has gone on for too long and with no end in sight. People are fatigued and jaded by the whole debackle. I think the bullet has to be bitten and Greece , who lied to join the Euro zone, be let go. It will be tough but the bottom will have been hit and the only way will be up. Up in many, many senses but the most important one will be confidence.
• #11 by Mr Jules on 20 May, 2012 16:21
• Quote from: Morton on 20 May, 2012 16:14

  People are fatigued and jaded by the whole debackle.
  

  
  Exactly.
  
  I'm starting to think we should let Greece go. But it's difficult to see how.
  
  One suggested course of action would be seal Greece borders, or at least financially seal them. Then all euro notes within the Greece at the point of currency conversation would re-stamped 'new drachma'. At the same, Greeks banks would close while all bank accounts re-dominated from euro to 'new drachma'.
  
  Then watch the new drachma slide in value. Anyone with savings still in Greece would their money disappear - or least when they tried to convert into another currency.
  
  And of course Greece would still owe the rest of Europe hundred of billion of Euros.
  
  I guess it's a question of deciding what is the least worst option. All are awful. And all will reverberate around the rest of the European Union. 
  
• #12 by Laser Man on 20 May, 2012 16:47
• The euro situation is enormously complex because it was a monetary union without a politcal union, so in that regard it is very different than the U.S.  What makes it even more difficult is that the Germans are prescribing the same solution regardless of the underlying cause. Greece's government was overextended. Ireland, Spain and Italy were not. Forcing government spending cuts on those three was the wrong solution.
  
  Look back ten years: Argentina had pegged its currency to the US dollar to get inflation and spending under control. It worked for a time, but pressure began to build and the peg couldn't be sustained. A huge devaluation occured and overnight the Argentine middle class was effectively finanicially wiped out. Greece will have to leave the euro and I believe the government will be dominated by radicals as the Greek people vent their rage at the pols who go them into the mess.
  
  The Banks have been profligate lenders with no lessons learned from the Mexican debt crisis and the other crises of the past 30 years. "It's different this time" is a common banler's refrain. Only it never really is different. Bankers are supposed to be cautious and prudent, not the speculators they've become. 
  
  Remember this important fact: currency is based upon confidence and trust alone. There is nothing underlying it. No gold or silver. No store of value. When people no longer trust the euro, it is finished as a currency.  The dollar still has the world's confidence until our Congress farts around with foolish delays on raising the debt ceiling. That's what Americans should worry about in the short term!
• #13 by Mr Jules on 23 May, 2012 10:58
• Quote from: npsbg on 20 May, 2012 16:47

  The euro situation is enormously complex

  
  The BBC explains what happens if Greece switches from the Euro to a new currency.
  
  It makes grim reading: http://www.bbc.co.uk/news/business-18074674
  
  Almost wished I hadn't read it. 
  
  
• #14 by Laser Man on 23 May, 2012 11:19
• It is scary - and think about it: Greece is a relatively small country in terms of both population and economy.  Greece could find itself with hyprinflation as its new drachma plunges in value.  What happens if Spain or Italy needs to follow the same course and pull out of the euro?