Published: 8:14PM GMT 28 Jan 2010
Germany has triggered a near-panic flight from southern European debt markets by warning that there will be no EU bail-outs, even though it fears the region's economic crisis has turned dangerous and could prove "fatal" for the entire eurozone.

The yield on 10-year Greek bonds blasted upwards by over 40 basis points to 7.15pc in a day of wild trading. Spreads over German Bunds reached almost four percentage points, by far the highest since Greece joined the euro, and close to levels that risk a self-feeding spiral. Contagion hit Portuguese, Spanish, Irish, and Italian bonds.

George Papandreou, the Greek premier, said in Davos that his country had been singled out as the weak link in a "attack on the eurozone" by speculators and political foes. "We are being targeted, particularly by those with an ulterior motive."

Marc Ostwald, from Monument Securities, said the botched bond issue of €8bn (£6.9bn) of Greek debt earlier this week has made matters worse. Many of the investors were "hot money" funds that bought on rumours that China was emerging as a buyer, offering them a chance for quick profit. When the China story was denied by Beijing and Athens, these funds rushed for the exit.

However, a key trigger yesterday was testimony in Germany's parliament by economy minister Rainer Brüderle, who said there would be "no bail-outs" for struggling debtors and no move to a "European economic government".

"A few European nations are exhibiting dangerous weaknesses. That could have fatal consequences for all countries in the eurozone," he said. Despite the warning, he said each country must solve its own problems.

"Germany is not in a mood to be the deep pocket for what they consider profligate, southern neighbours," said hedge fund doyen George Soros.

Mr Brüderle's hard line contradicts a report in Le Monde that Franco-German officials are discussing a rescue for Greece in order to keep the International Monetary Fund at bay.

The paper cited a source saying that EMU partners were ready to "help" Greece. "It is a question of credibility for the eurozone. The IMF might want to impose monetary conditions."

Le Monde's story was shot down by Berlin and Paris, but there is little doubt that certain officials have been trying to build momentum for a rescue. It is clear that the EU family is split on the issue. Jean-Claude Juncker, head of the Eurogroup of finance ministers, backs "assistance", with support of EU integrationists hoping to nudge the EU towards full fiscal union.

This is fiercely opposed by Berlin, and the German-led bloc at the European Central Bank. There are reports that Berlin is deliberately bringing the crisis to a head, hoping to lance the boil early and force the Club Med states to reform before it is too late. If so, this is a risky strategy. German banks have huge exposure to Greek, Spanish, and Portuguese debt.

Hans Redeker, currency chief at BNP Paribas, said Greece will face "great trouble" if it has to pay 7pc rates for long. Athens must raise €53bn this year, mostly in the first half. It has a been relying on cheap short-term debt to fund the budget deficit of 13pc of GDP, but this raises "roll-over risk".

Tim Congdon, from International Monetary Research, said the danger is that wealthy Greeks may shift money to bank accounts abroad if they lose confidence (akin to Mexico's Tequila Crisis in 1994-1995). This would set off a banking crisis and become self-fulfilling.

Greece has been financing current account deficits – 15pc of GDP in 2008 – through its banks, which have built up €110bn foreign liabilities. "If foreign creditors want their money back, defaults and/or a macroeconomic catastrophe appear inevitable," Mr Congdon said.

Adding to worries, Moody's has issued an alert on Portugal's "adverse debt dynamics", saying Lisbon needs a "credible plan" to reduce a structural deficit stuck at 7pc of GDP rather than "one-off measures".

The deeper concern is Spain, where youth unemployment has reached 44pc and the housing bust has a long way to run. Nouriel Roubini – the economist known as 'Dr Doom' – said Spain is too big to contain. "If Greece goes under that's a problem for the eurozone. If Spain goes under it's a disaster," he said.

Jose Luis Zapatero, Spain's premier, replied wearily: "Spanish public debt (52pc of GDP) is 20pc lower than Europe's average; our treasury spends 5pc of revenues on debt costs, less than France and Germany. Nobody is going to leave the euro," he said.

Comments: 128
I'll bet Ambrose has a little voodoo doll shaped like a euro with pins sticking out of it. Check his desk, Telegraph managers.
Bill Simpson near New Orleans
on January 31, 2010
at 06:51 AM
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Investment tip:Sell Greek futures...they don't have one.
Dave
on January 31, 2010
at 06:29 AM
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Ambrose,
Thank you for another great column.
Since it is apparent that the 1st world is broke and our creditors are going to get the shaft,
what happens? Yes collapse and bread lines, etc, but beyond that?
What I would love to read is some speculation this from you.
The future beyond the world great depression...
Big C
on January 31, 2010
at 06:15 AM
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"Well, it seems most Telegraph readers love bashing the EU, the euro, Germany and France......"

Euro-fans like to comfort themselves with this idea; the notion that we just like to "bash" Europe.

They forget that as an EU member that is not part of the Euro-area, discussing the Euro is a legitimate area of British domestic politics.

It would in fact be highly irresponsible o us not to discuss and analyse the topic, given that there is still a rump of thoughtless people in the UK who do in fact advocate joining the Euro, mostly for misguide reasons of tribalism.

While it is certainly fun to tease the more plodding kind of European, the debate is really aimed at our own foolish virgins.
Jon Livesey
on January 30, 2010
at 11:41 PM
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GermanDude: "I found your reply to my comment (3) interesting. If the euro was launched by Germany to dominate the rest of Europe,..."

I'm afraid that you may not have read my comment closely enough. I specifically said "I can't tell if that was the intent, but it turns out to be the effect."

You really can't ask me to defend a claim I specifically disclaimed.
jon livesey
on January 30, 2010
at 11:23 PM
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"If you are correct about an imminent fall in the Euro this is excellent news. A competitive currency is just what is needed for Europe and for its more challenged members in particular."

You should get out more. The Euro has already fallen against the Dollar.

Incidentally, a month ago you wrote here that readers should short the Dollar and buy Euros. Since you wrote that, the Euro has fallen from $1.51 to $1.39.

But don't worry. I use you as a contrary indicator, so what I did when I read that was keep my mouth shut, shorted foreign stocks and went long the Dollar.

It worked out quite well for me. Thank you so much.
Jon Livesey
on January 30, 2010
at 11:17 PM
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"The fact is that the recent Greek bond auction was four times over subscribed, much to the disappointment of europhobes."

This is what Goethe called the curse of energetic ignorance. Passive ignorance affects the individual, and active ignorance affects the whole world.

Sure, the Greeks sold their Bonds, but so what? If you offer distress interest rates, you can sell any Bonds whatsoever; just look at the "junk" corporate Bond market. Even second-hand car dealers can sell Bonds at the right rate.

The problem for the Greeks is that as they roll Bonds over they have to keep offering higher rates. That makes interest a higher and higher proportion of their budget, and automatically pushes them deeper in debt. It's like an individual who can only keep his credit card by paying higher interest on it.

If that's a success, I would hate to see failure.

And you comment about the EU being some kind of mutual aid society - that is re-writing history. As recently as a year ago, the proudest boast of Euro-fans was that the ECB did *not* bail out individual countries, but then a clever politician slipped a clause into the Lisbon Treaty that said the ECB can bail out members in an emergency.

We are watching the institutions of the EU decay before our eyes. A year ago, the credibility of the ECB depended on it being a stern Uncle who did not bail weak members out, and today we have all become used to thinking of it as a Sugar Daddy. An easy touch. First the Solidarity Pact started being ignored, even in good times, now members can use the ECB as a way to paper over their bad governance.

This is why I said that the politicians are making the job of the ECB impossible. From being a germanic central bank, the politicians are driving it more and more in the direction of being Latin.

Now both the ECB and Greece are in a box, courtesy of the politicians. If the ECB bails Greece out, then all that happens is that Greece never needs to reform. With an implicit ECB guarantee, it can always sell more debt, so why reform? Remember Fannie Mae and that implicit guarantee, and how it led to an inexorable decline of moral hazard?

But of course that guarantee has a higher and higher political price which the Greeks will gradually become aware of. There have already been several ECB "visits" to Athens, and they won't stop. The Greeks will now run more and more under EU supervision, until in the end even they will wonder i it might have been smarter to bite the bullet and call in the IMF. At least the IMF goes away sooner or later.
jon livesey
on January 30, 2010
at 11:16 PM
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Don't keep any money in a Greek bank.
Kevin Smith
on January 30, 2010
at 10:25 PM
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Would it not be brilliant if we, like the Chinese, pegged the Euro to the Dollar, 1 : 1?

As our internal trade is around 70% and trade with the US around 10%, if I am correctly informed, we have nothing to lose and only to gain bigger market share in US and the rest of the world. Exports would go up. Tourism would benefit. We could sell our gold, which is pegged to the dollar and will soon be $1500/oz at a fantastic profit. Oh yes, please let’s let’s do it! Why should only the Brits, Yanks and Chinese “beggar thy neighbour”. Euroland can do it too and, being the biggest economy by far, can do it with more panache.

Imagine how attractive Euroland goods would become to the Chinese. We could also bring plenty of our industry back from the Far East and have full employment in no time. There is nothing the Chinese can do, we cannot do better, if not cheaper! If only our politicians would have the guts and imagination our problems would disappear in no time. The weaker the Euro, the better for Euroland. Only a nice dream! We are too fair-minded, too decent, too playing by the rules, even if others don’t.

pumpernickel
on January 30, 2010
at 10:05 PM
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Richard Jessop 7.51pm 30 January

If you are correct about an imminent fall in the Euro this is excellent news. A competitive currency is just what is needed for Europe and for its more challenged members in particular.

Just look at what a truly competitive currency has done for China. It has amassed currency reserves beyond the dreams of Croesus.

Champagne corks will be popping in Athens, Dublin, Madrid and capitals in eastern Europe, and among bonus earning currency dealers in London.

As to the Greek debt problem it transpires that it has more to do with Olympic overspend (according to PWC) than any imagined problem with the Euro.



I trade currencies for a living - very successfully. I can tell your readers that euro will be down at 1.3350 or below to the US dollar within the next few weeks. I would give it 65%+ chance that it will continue falling to 1.1900 or so within the next 3 months.

The Euro was always a political idea - not a sensible economic one. To have one interest rate for all participating countries can work in good times - but not when there is a vast disparity in the interest rate needed for the PIGS and Germany, etc.
Richard Jessop
on January 30, 2010
at 07:51 PM
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Well, it seems most Telegraph readers love bashing the EU, the euro, Germany and France. The also love despising the other minor EU states experiencing hard times ...Greece, Ireland and Portugal...I think that instead of always trying to get bigger and bigger ( Turkish membership...hmm) we should focus on our Union and build a real federal Union . Briatin seems so happy to see the Euro falter...please, it's only dropped by 10cents . the pound has fallen by over 30%! Our euro politicains should really re-think the entire EU project. can we continue to refuse more integration and keep the euro as the sole currency? Britain is no threat to the Euro.....If you think your lives is outside the Union, well..leave it. You are already part -time members.
Pascal-Pierre
on January 30, 2010
at 07:39 PM
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So what tipped the balance of Greek debt, was it the cost of the 2004 Olympics?

Consider this,
"Olympics "may cost Greece dear", BBC.
http://news.bbc.co.uk/1/hi/business/3770981.stm

It looks like we've found the culprit. There is a warning here for London 2012.



Chelyabinsk
on January 30, 2010
at 05:41 PM
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I did not read all the comments so maybe someone posted it already.

Pls. consider also a wrong translation in this article. The original sentence was spoken in German language, because this is normaly used in German parliament. The German words: "Fatale Konsequenzen" can not be translated as "fatal consequences." The German word "fatal" does not mean "deadly", it just means "could have a very strong impact" Bring this wrong translated word than back in the headline in another sence that causes panic in finacial markets nevertheless shows that we are facing a critical situation. Just keep cool and buy bullions.
Translation Error
on January 30, 2010
at 05:30 PM
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It is remarkable how quickly a discussion on the euro turns into a general debate on Europe, Germany and Britain's place in it.

Let's face it. The euro was only introduced as a price that the Germans paid for French support to unification. Germany would not have easily given up on its currency. Furthermore, back in the Deutsche Mark days it was the German Bundesbank that was the effective European central bank, most currencies were pegged to the DM for either economic (Netherlands, Austria, Denmark) or political reasons (France). Any going back to these old days would only entrench German power and lead to a serious financial crisis as investors would sell their Club Med and British assets and buy German government bonds. I cannot imagine that this is in the interest either of Club Med or Germany. The former would suffer banking and devaluation crises while the latter would have to accept a sharply rising currency.
Ismail
on January 30, 2010
at 01:18 PM
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Once the private seigniorage fraud will be evident to 15pc of the European people, the EU will break apart and the ECB people risks a martial Court.
Marco Saba
on January 30, 2010
at 12:54 PM
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Let's put an end to EU. Let's give Greece but to the Greek people. EU was the biggest disaster. Back to Drahmas and the good old days
Giorgos
on January 30, 2010
at 12:38 PM
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Greece leads the way where the UK seems to be heading, pedal to the metal. The rest of the G20 is recovering while the UK is left behind with its oversized private & public debt and a distorted economy too dependent on unproductive consumption & real estate flipping. Until the "perverted" economy is fixed, any meaningful recovery can't happen. QE fluffs up the numbers but under the hood nothing has improved.
googlecat
on January 30, 2010
at 12:31 PM
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Where are the Colonels?
Basil
on January 30, 2010
at 12:14 PM
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Greece should be helped to overcome their problems but only if, like Ireland, they are prepared to put in place the harsh remedies necessary. Since they had obtained entry to the Euro zone by cheating about the real state of their economy we should not take their word for it that they will make the required adjustments without the need of close supervision by the countries helping them financially. This is standard procedure. Any bank giving a mortgage to an applicant will want to know that the applicant is responsible and in a position to pay back his debt. If the Greeks come clean on this score than by all means let’s give them all the help required. Yes, they could not really afford the cost of the Olympics and were, perhaps, too ambitious and, of course, did not foresee, like most of us, the economic crisis.
Spain also has huge problems mainly caused by their property bubble but their banks were not so foolish as in most European countries, especially UK and Germany, and, therefore, will be able to solve their problems with minimal help from the EU. Same applies, more or less, to Portugal.
Having recently spent a week in Rome I am more than ever convinced that Italy will get through this crisis with the help of their flourishing manufacturing industry mainly in the north of the country and their excellent tourist industry all over the place. Good services, good hotels, good infrastructure and a family oriented culture (same applies to Spain, Greece and Portugal, of course and is, perhaps, the strongest point to be made in favour of survival skills of these countries) they will succeed even despite Berlusconi
The elephant in the room is the UK. The biggest threat to the stability of the EU and the most vulnerable of the lot, because, unlike most of the above mentioned countries, it also does not have a saving culture. However, they have a marvelous ability to muddle through, as often proven in the past, so I am an optimist on the UK and wish them well.
In Germany we have huge problems caused mainly by the incompetence of our Landesbanken accumulating the rubbish sold to them from the US via London, gambling the money of German savers on sub-prime toxic waste. What will help is our manufacturing industry and, please, a weaker Euro and the large amount of savings by the average German family enabling them to steer through even several years of economic hardship. Sadly we do not have the family culture as in the southern countries but a fairly decent social welfare system.
We are all interdependent. Therefore, reading some of the poison directed against Europe mainland from some of the UK press and posters here seems to me rather foolish.

pumpernickel
on January 30, 2010
at 11:30 AM
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cantillon,

thank you so much for your sense of perspective. It is so rare these self indulgent dasys to see that it truly made me sit up (and smile)

Why is it so vanishingly rare to see such rational assessment? I think its a society level mental phenomenon. Perhaps this is the root of all the problems you perceive which are the effects of this underlying malaise? Does wealth and security rot the collective consciousness? Or is it just the UK?
RiskManager
on January 30, 2010
at 11:15 AM
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Chelyabinsk, Mr Livesey is a humble seeker after the truth.

The headline clearly states that "Funds flee Greece".

The fact is that the recent Greek bond auction was four times over subscribed, much to the disappointment of europhobes.

You state, "One thing that is starkly clear is that Greece cannot solve its problems unaided". Well done you've grasped the very heart of the matter. Europe is a club of states that aid each other in times of trouble. Just as in America.

The German economics minister warns of a "fatal" eurozone crisis - unless - aid is given. Were Greece not in a currency union with the rest Europe it would be in a sorry way indeed now. The City and Canary Wharf speculators and Mayfair hedge funds would have ripped it apart and all the other nations on their anti-euro hit list, as they did to the currencies of SE Asia in 1996. Their game has been stopped by the Euro, but they continue to whine on the sidelines.

The terrifying prospect financially, that awaits Britain is the Olympic Games, or rather the cost of holding them. Not once have they been mentioned in these columns as the cause of Greece's massive government debt.

The comments of an American economist about the euro wreak of the smell of sour grapes and are as self-serving as they are irrelevant. Mr Krugman is silent on the problems of the US and how California is dragging the dollar down. Better that California leave the US currency union and take its debts with it and become the independent republic it used to be.

As Andrew Marr reminded us last night on TV, British Prime Minister, Harold Macmillan was actually in tears at French President De Gaulle's "NON" to Britain's entry into the EC.

Chelyabinsk
on January 30, 2010
at 08:24 AM
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Thanks Jon.

I found your reply to my comment (3) interesting. If the euro was launched by Germany to dominate the rest of Europe, then why did the French demand we adopt it as a condition for their approval of reunification? It is well documented that in 1990 Mitterrand said to Kohl, "And now we should talk about the German nukes." Kohl said, "What nukes?" Mitterrand's reply: "Well, you know, the DM." Now if we're accused of dominating Europe without the euro AND with the euro, then maybe this has nothing to do with the euro at all. It has more to do with the quality of products that people want to buy. But isn't that what capitalism is all about? When I lived in the US, my boss was proud to point out that his BMW was not made in Spartanburg SC, but was "the real thing."

The PIIGS and France (and also the UK pre-1980) tried to gain a competitive edge over Germany before the euro was introduced by regularly debasing their currencies against the mark. But did it really help them? I would argue that all it ever did was drive out capital from their countries and precipitate the next round of economic misery for them. The Italian lira lost about half of its value vis-a-vis the mark between the mid 80s and the introduction of the euro. Wealthy Italians at the time preferred to keep their savings in mark, not lira, accounts. Talk about a vote of no confidence. I suggest everybody get their house in order before complaining about unfair competition from Germany. It's like England refusing to practice penalty shoot-outs before the World Cup and then complaining about how unfair the rules of the game are (didn't they invent those rules in the first place?).

Now, it's true that the PIIGS had a fantastic real estate boom and ensuing bust caused by artificially low interest rates that were acting as a European Greenspan of sorts for these countries. Above all else, this shows the folly of imposing interest rates on an economy through a central bank. The boom/bust cycles that Hayek showed to occur as a result of central bank interest rate planning are merely exacerbated if the planning happens on a supernational as opposed to national level. The US/UK's housing crises were not caused by the euro.

I doubt Kohl or anybody in his government had the vision of dominating Europe through the euro. He saw the EU mainly as a way to foster better relations between the countries of Europe so as to make another war impossible, and the euro, too, was sold to us on that premise. He couldn't care less about the economy. Before German reunification, the Bundesbank warned him that converting eastern to western mark 1:1 would result in widespread unemployment in the east, and he went ahead with it anyway for well-meaning but shortsighted political reasons. Sure enough, the east is still not on par with the west twenty years later and will not be for a long time. There are many examples in other countries, too, where "the road to hell is paved with good intentions."

The source of disillusionment with the EU in Germany and other countries is only partially explained by its economic inefficiency. Another aspect that people increasingly worry about is that more and more legislation coming out of Brussels supersedes and bypasses their national legislative processes. This is troubling because the EU commission has no democratic legitimacy. Concerns the EU is turning into a Soviet-like superstate should not be taken lightly, even if they are perhaps exploited by those who never liked anything European for entirely different reasons.

GermanDude
on January 30, 2010
at 07:13 AM
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We are living in a strange speculative TIMES, where finances and Financiers define all hat life is about. In case of a worst case scenario of greek financial disaster, permit me to speculate that I imagine the poor Greeks standing on a hill overlooking the Aegean Sea, and while sharing a piece of bread, some Feta cheese and a glass of wine, they speculate on which wave will last reach their shores. Permit me also to speculate, that in case of a financial crisis in England, I imagine the rich Britons jumping in the Thames. Ladies and Gentlemen of the Jury, Good Night!
Yiannis
on January 30, 2010
at 06:50 AM
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It is just a mtter of time before the EU splits and falls apart. This is the first crack. It will be evry country for themselves. What a surprise..
roberto
on January 30, 2010
at 06:46 AM
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Thanks Niall you made me laugh so much, if the french economy is so hopeless, what about the british economy and its great 0,1 growth lol (the finance is gone, no industry, no more natural ressources, the real estate collapsed).
Your inferiority complex towards France is huge,

PS don' t forget that it' s U PIGS (United Kingdom, Portugal, Ireland, Greece, Spain).
Tony
on January 30, 2010
at 06:42 AM
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When are you Europeans (only those who work hard for a living) that centralized power leads to corruption? Haven't you seen all yet after so many dictators throughout your history? You're all willing to give up control and money to a board of crooked bureaucrats? For what? Is it getting better? EU is a scam, a power grab to keep the global elite at the top of the pyramid while you, the peons, work hard to be taxed at the bottom. Have you noticed that every measure this corrupt EU and ONU pass is either to gain more control over you or to transfer more money from you to obscure accounts at IMF, World Bank, WHO, wars, bogus bogeyman like global warming and terrorism, etc. Now, the latest scam from the same centralized power: CAP-AND-TRADE. Wake up, Europeans, before is too late. Dismantle this EU nonsense, take your countries back, kick the mass immigration out.
Enzo
on January 30, 2010
at 06:37 AM
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Instead of all these countries selling bonds why not sell land...
Bosco De Bosco
on January 30, 2010
at 06:36 AM
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Any country that hasn't kept their books in order should be removed from the eurozone in order to protect the rest of the eurozone countries from being dragged down. I still remember when Greece first adopted the euro they had to get their financial house in order and it took some time before they were accepted. They obviously haven't kept it in order so now it is time for them to leave and go back to the drachma.
Joe
on January 30, 2010
at 06:31 AM
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Just glance at the photo at the top of the page - a typical abandoned building project in Athens. Will it ever be completed, I wonder.
JohnT
on January 30, 2010
at 06:23 AM
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Let us assume the attack on members of the eurozone is a diversionary tactic and distraction from the problems of sterling and British government debt, by europhobes.

Whilst going on about the problems of Greece etc they conveniently forget the dire state of UK government debt.

This ya boo stuff belongs in the playground.

Europe is Britain's biggest export market and hope for the future. Let us wish it well. It is Britain's only real hope of being pulled out of recession, and something which Mervyn King and an incoming British government are fervently hoping for.

If the Euro were to collapse we don't want to end up fighting them on the beaches.
Chelyabinsk
on January 29, 2010
at 11:43 PM
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As usual an intersting and provactive article but one would expect more competent and apolitical analysis in the financial pages of a serious paper. More worring from a UK perspective is how little the columnist writes or even refers to the effect of all this on the UK or indeed how poor the ecomomic situation is in the UK. Perhaps he is leaving it to others to do that but it is disturbing that there is so little intigrated thinking or reporting by this columnist. One is left to wonder for whose gain (or loss ) this and similar emotive articles are written for.
Donal
on January 29, 2010
at 11:25 PM
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As usual an intersting and provactive article but one would expect more competent and apolitical analysis in the financial pages of a serious paper. More worring from a UK perspective is how little the columnist writes or even refers to the effect of all this on the UK or indeed how poor the ecomomic situation is in the UK. Perhaps he is leaving it to others to do that but it is disturbing that there is so little intigrated thinking or reporting by this columnist. One is left to wonder for whose gain (or loss ) this and similar emotive articles are written for.
Donal
on January 29, 2010
at 11:20 PM
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"the largest foriegn(sic) investor in Britain is GERMANY"

No, not even close. The most recent figures I can find for inward fdi give 55% to the US 25% to the EU and 2-% to rest of world.

Even the EU taken all together does not come close to the US.
jon livesey
on January 29, 2010
at 11:11 PM
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I think it's interesting that the most rational and level-headed comment here is from a German "GermanDude". My take on his comments are:

1. Most likely true.

2. About how I would put things.

3. Yes but. The "but" being that countries can achieve domination economically as well as militarily. It's hardly an accident that the PIIGS in the Euro can't devalue to protect themselves from German exports. I can't tell if that was the intent, but it turns out to be the effect.

4. Most likely true. Anglo-Saxons do tend to be a bit parochial.

I can't make head or tail of most of the other comments. I don't think the EU is some gigantic plot; incompetent, and a failure economically, but no worse than that.

I doubt if the value of the Euro will collapse; once it sheds the PIIGS, or some of them, it will be what it ought to have been all along, a common currency for about a half dozen to a dozen already converged economies, and all the stronger for it.

I don't think the "theory" of the Euro will work out. Economies that have already converged can share a common currency, but a common currency does not make economies converge. We've tried the experiment - it failed. We need to recognize failure and not persist until failure becomes disaster.

Oh, and the usual hysteria about Sterling and plots and bankers. Is that really worth replying to? It'll be 9/11 truthies next.

Perhaps just one thing:

"There is no threat that any member of the Euro will leave it."

Yes, there is. That's what we are talking about. A decade ago you could have dismissed this; five years ago it was controversial; today it's a live issue.

One thing we do know is that if Greece, for example, does not leave the Euro, it must get a bailout from the ECB, and after that Greece will be wearing an electronic ankle bracelet. That will put a chill up quite a few spines.
jon livesey
on January 29, 2010
at 10:54 PM
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To what extent does this posting, from pajamasmedia.com describe the
Greek Problem:

Sarah F.:

I personally know that this administration and congress have killed 3 full time seasonal jobs. My husband works full time for a company that hires seasonally. We had saved enough money to open a small snow cone stand, and we wanted to open it as soon as possible. However, my husband has a full time job, and our oldest is only 9 so the problem is that we cannot staff even one stand. Our solution was going to be to hire 3-4 trustworthy people to work the stand for us. We wanted to pay them above minimum wage, make a sizable dent in the small loan we would have to obtain, set aside an amount for the next year’s business, pay ourselves a reasonable salary, and then make sure that we gave our employees as sizable a bonus as possible. Our long term goals were to be able to pay those employees a very good wage, and grow a business that our children would eventually take over (with parental oversight)to learn the importance of being a producer.

We had already lined up 3 ladies to work for us, they knew our plans, and were as excited to work for us as we were for them. But, because we don’t know what the cost of doing business will be we have had to put our plans on hold indefinitely. Our projections showed a smallish profit the first year, but with the impending taxes, mandates, etc. we weren’t sure that we would be able to afford any employees, much less pay them more than minimum wage. A snow cone business may not sound very glamorous, but for our family it would have been a way to finish paying off student loans, keep our children from having to take out student loans, a pathway into entrepreneurship, and a life lesson for our children that if you work hard you can and will eventually be successful.

By the way, before anyone berate my husband for betraying those with whom we had spoken, my very generous, loving, and compassionate husband helped those three people find jobs for the summer until they came to work for him again in the fall.

If this administration really wants to help create jobs, he and our overly intrusive congress will do what they have been telling us to do this entire past year: Shut up and get out of our way!

David W. Lincoln
on January 29, 2010
at 10:45 PM
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Some of us have better memories than others. Daniel Hannan was a little known (at least from my perspective on the west side of the pond), until his 3 and a half minute rebuttal of the current British Prime Minister.

Now, here is what he said: http://www.youtube.com/watch?v=94lW6Y4tBXs

How does what Mr. Hannan said square with the mess that the eurozone is in? After all, a reliable gauge, as well as stanard, is hardly optional.
David W. Lincoln
on January 29, 2010
at 10:36 PM
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james cairns...must improve his knowledge bank...most British exports go to the EUROPEAN UNION. Admitedly we have less and less British companies making anything however the largest foriegn investor in Britain is GERMANY.
BMW MINI
BMW Rolls-Royce
Volkswagen-Bentley
Siemens
Bosch-Worcester
BOC
EON
Channel 5
Bertlesman
....and many others.


McCoy
on January 29, 2010
at 10:30 PM
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Urban myths.

"Most of our trade is outside the EU", said a UKIP spokesman. Wrong.

"Funds flee Greece". Wrong.
As the Greek bond auction is four times over-subscribed.

Roubini thinks the Eurozone might bifurcate.
Is the dollarzone also a potential bifurcator.

Best to stick to the facts.
Chelyabinsk
on January 29, 2010
at 10:30 PM
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A couple comments:

(1) Rainer Brüderle is from my home state of Rheinland-Pfalz in SW Germany, and in these parts people will use the word "fatal" with slightly less dramatic connotations than would be implied by the dictionary definition. Basically he said that the situation looks pretty menacing, but if you know his vernacular it's pretty clear he wasn't implying that all euro countries were doomed or anything like that.

(2) I do think there's a real chance of a euro break-up. As a German taxpayer, I have a hard time seeing why that would be a bad thing for us. Those in the Anglosphere who expect the German government to bail out the PIIGS are badly mistaken. Germans are not as fond of the EU as you might think in the UK, and by now many of us resent paying for the whole show.

(3) I was born in 1975. I didn't lose the war, and a Briton my age didn't win it. If you can't let bygones be bygones then maybe you should consider where the Angles and the Saxons originally came from. And btw, they left for Britain AFTER the Huns, an Asian tribe, invaded Germany in the 3rd century.

(4) Germans can and do read foreign newspapers like this one. How many of you read German newspapers...?
GermanDude
on January 29, 2010
at 10:17 PM
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Nothing but nothing Evans Pritchard says ever comes to pass. He always screams like a Sun headline, it's embarassing. Britain, as the biggest one of the next economic group to fail ie Cyprus, UK, Netherlands (prospective member) Turkey and Slovakia, would do well to join the Euro.
shaun9528
on January 29, 2010
at 09:56 PM
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"Britain depends on Europe for its recovery" !!! Are my ears deceiving me? We are giving over £ 45 MILLION A DAY to a bunch of unelected, self serving eurocrats who are responsible to no one. The EU is a playground for crooks and conmen. Our companies both large and small are drowning in a sea of rules & regulations. The EU forces us to accept unlimited immigration from 26 other countries!! We are in short paying them shed loads of money to tell us what to do!. We don't need the EU,they need us. Most of our trade is with countries outside the EU anyway. FOR GOODNESS SAKE WAKE UP OUT THERE-VOTE UKIP
james cairns
on January 29, 2010
at 09:48 PM
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I really wonder when the EU morons are going to wake up to how much damage they have done. They have done everything possible to undermine the concept of the nation state, with all that this means for rights and responsibilities, and they have done nothing to come up with an effective substitute. These people are not smart, they are reckless and stupid and the abortion they created is bound to fail.
Christopher Holland
on January 29, 2010
at 09:33 PM
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Roubini is not stupid.
Real estate toxic assets in spanish banks are about 325bn euro.
That means 35% of spanish gdp.
Besides during last year ECB hidden quantitative easing has financed massively Spain and its banks.
A sort of cover up that can’t last forever.
The burst of the greatest real estate bubble on earth combined with a fixed exchanging rate which doesn’t allow you to devaluate your own currency it’s the worst thing that it may happen.
To you and to the Euro zone as whole.
Roubini is wright.
Club_Med
on January 29, 2010
at 09:29 PM
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Mr Livesey 6.57pm 29 Jan

Britain depends on Europe for its recovery and its future - never forget it and don't kid yourself otherwise.

If the speculators in the City and Canary Wharf get their way and smash every government debt from Greece to Britain to obtain their obscene bonuses then the casualties of their speculation can sit crying in the ruins of their hubris. To suggest otherwise is plainly ridiculous and grossly irresponsible.

This is a very bad period for sterling and if this contagion spreads, sterling, which does not have the umbrella of the euro, is finished. The City folks will then do the unpatriotic thing and turn on UK government debt and sterling. The US will not bail out the UK, there is no such thing as a sterlingzone.

There is no threat that any member of the Euro will leave it. There is the very real prospect that Britain will beg to join the Euro in the years to come.

Chelyabinsk
on January 29, 2010
at 08:55 PM
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It is funny how obsessed are all these Eurosceptics with the development of the Euro. When it was launched, there were cheers as it went below parity against the dollar and it was categorically stated that the experiment would not last. More than ten years later, the euro is indeed facing challenging circumstances, but so is the dollar and sterling. The situation for sterling in particularly bleak as the prospects for the UK economy are certainly not better than for the economies of Spain, Ireland and Italy. In fact, it is probably worse, as the UK government has spent, spent spent, pretending to be following keynesian principles and creating a huge deficit when in fact they are cynically delaying tough decisions until after the election in a desperate effort to continue in power. To all those Euro and EU haters in Britain, please sort out your own house before criticizing others. The UK is no longer an empire, but a little country in a hostile world. Membership of the EU is something that you should appreciate and not berate. All this German and PIGS bashing is childish schoolyard politics. If you do not like Europe, just leave it and we will see how you fend for yourselves on your own.
Peter
on January 29, 2010
at 08:35 PM
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Isn't it time the German's pulled their finger out and did some work. The fruschtuck makes the English tea break seem like an Italian downing an espresso.
sabcarrera
on January 29, 2010
at 08:03 PM
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Burn Baby Burn. I want these EU New World Order-Global Warming scam creeps to go down in flames. European sissies gave up their guns as soon as the elite came confiscating them, and now live under 24/7 monitoring like cattle. How's that socialism working for ya? When was the last time you invented anything revolutionary like Internet, microchip, cellular, fiber optics, or GPS? How's Ericson and Nokia doing? Now I let you all go back to smashing grapes with feet and posing as "intellectuals" on cafes (while unemployed). And don't come to the US, stay there under 5 ft of snow. No doubt, the Germans and Americans carry the rest of the planet on their backs. China is just a big Xerox machine.
Enzo
on January 29, 2010
at 07:54 PM
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the euro will never work one size fits all , dont think so so , greece spain ireland portugal etc were already poor relations before being allowed to join the euro now look at the straight jacket they are in should hate to be a o .a .p in greece
oldtimer
on January 29, 2010
at 07:26 PM
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Just as a battle is waged in a physical or political sense, so must the war be fought in economics. We actually have the power to take down these criminals who manipulate the world's financials. Let THEM be left behind holding the empty bag of derivatives and worthless paper. Cash in your chips and drop out of the game or go for all or nothing and play the game to win. Call them on their bets. I am willing to bet they have been bluffing all along. The house of cards will collapse and the world will breathe a sigh of relief.
Solia
on January 29, 2010
at 07:07 PM
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"Talking down Greek debt is merely a covert attack on the Euro by speculators....."

Then maybe you should tell Rainer Brüderle, the German Economy Minister, to cut that stuff out.

Seriously, you are being very silly. This is in fact a bad period for the Euro, because all the predictions that sceptics have made over the past twenty years, all the stuff about "one size does not fit all" is finally being recognized in Brussels and Frankfurt.

German economy ministers don't talk about fatal threats to the Euro unless there is a real issue. Germans simply don't have that kind of sense of humour.

Today, there is a real threat that the Euro will have to shed some of its weaker members. That is causing Euro weakness in the short term, but when reality hits home and the ECB realises that it cannot bail out all the PIIGS, then the Euro will shed three or four weak members, and the Euro will be stronger for it.

I don't think the guys at the ECB are fools. As central bankers they have been put into an impossible situation by the politicians. When the politicians finally see sense and dis-invite Greece, Portugal and maybe even Spain, then the central bankers in Frankfurt will be able to start doing their job again.

But this problem has to be solved "so oder so". It does not help to come out with a load of happy-talk clap-trap and try to ignore it. That's like ignoring those little pains in your chest.
jon livesey
on January 29, 2010
at 06:57 PM
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Ismail, your comments about Greece cutting defense spending
sounds interesting. Wrong, mind
you, but interesting.

Egypt was spending heavily on its military because it feared invasion from Israel. But, it
did not answer why Israel would
invade.

Turkey is across the Bosphorus
from Greece, and frankly the expansionist tendencies of Erdogan, et al, are as worrisome
as Khomeini and his crowd just over 30 years ago.

So, why not simplify the red tape because a lot of money is passed around to get around the
rules.
David W. Lincoln
on January 29, 2010
at 06:49 PM
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The second wave of the financial mess (and collapse) is already at work for the Club Med’s countries.
Mr Zapatero should rather take,in my opinion,a winter-tour with his brand new staff (Gonzales, Solana and,last but not least folks,Delors) along the warm south coast of Spain (Costa del Sol) and have a look at the collapsing commercial real estate where everything
“se alquila”,shops to let,flats to let and boats as well.
Very soon the most safe banks in the western world will be striken down by thousands of insolvent borrowers and the spanish government will have to do something ballooning its public debt beyond
100% GDP.
Moreover Spain,compared to Greece,at the moment can’t bear draconian cuts (or an increase in taxation) as unemployment is already outcontrol and such measures would worsen beyond every limit a situation which is already catastrophic.
The recent proposal from the spanish PM (raising retirement age from 65 to 67 and from 2012 or so) makes me think as well that all these politicians have no idea about what it’s happening and what it’s going to happen very soon.
Moreover one thing is bailing out the small Greece,another thing is to bail out Spain (or Italy).
Probably Italy can’t be bailed out as too big and so it will be quite interesting to see the domino’s effects on this country as well.
And sure the effects on Germany as well.
Germany can’t stand the collapse of few euro countries and it needs someone who buys its exports as domestic demand is very weak due to an ageing (and falling) population.
The weakness of euro is not only the weakness of periphery countries but also of its main member which is obliged to export to go on.
A reliable monetary system should have been build instead on a really strong country both in exporting and in its internal demand.
"Club_Med"
on January 29, 2010
at 06:43 PM
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Gosh! What a heap of nonsense!
The euro is under attack? ughhh come on....what happened to the dollar is now happening to the euro and happened to the pound well before. As soon as more positive signs become known in the EU the Euro will shoot up again.As for the weak members, it's up to our institutions to sort it out. Some US states are in worse situation than Greece or Portugal. 1.39 is a pretty good rate and a pretty fair one. What puzzles me is the fall of the euro vs the OZ or Kiwi or Loonie.....now, some here in britain are all the more happy but they shouldn't....how much did the UK grow? a meager 0.1%?....the pound is around 86 p to the euro? That's a good rate for both countries....Some poster here should really stop insulting the Germans...it's sickening stupid and so British!
pascal-pierre
on January 29, 2010
at 06:40 PM
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Gosh! What a heap of nonsense!
The euro is under attack? ughhh come on....what happened to the dollar is now happening to the euro and happened to the pound well before. As soon as more positive signs become known in the EU the Euro will shoot up again.As for the weak members, it's up to our institutions to sort it out. Some US states are in worse situation than Greece or Portugal. 1.39 is a pretty good rate and a pretty fair one. What puzzles me is the fall of the euro vs the OZ or Kiwi or Loonie.....now, some here in britain are all the more happy but they shouldn't....how much did the UK grow? a meager 0.1%?....the pound is around 86 p to the euro? That's a good rate for both countries....Some poster here should really stop insulting the Germans...it's sickening stupid and so British!
pascal-pierre
on January 29, 2010
at 06:40 PM
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"The British public are fined for leaving a wheelie bin open an inch. Where are the prosecutions and imprisonments for the momnentous financial crimes? There are none." - Harry Fredericks

Well said Sir. The Greek question is just another sideshow in the Great Game the International Financiers are playing, for their own benefit.

They have perpetrated the greatest systematic fraud in living memory with their toxic slice and diced CDOs, their hyper-leverage, their corrupted AAA-awarding ratings agencies, taken millions from you and me when the sh*t hit the fan, trashed the savings income of millions of prudent, decent people, and now?

Now, having escaped even the suggestion of prosecution, their snouts are stuffed right back into the trough.
Hawkwind
on January 29, 2010
at 06:23 PM
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Talking down Greek debt is merely a covert attack on the Euro by speculators in the City & Canary Wharf.

Watch out!

The same speculators will turn on British gilts and sterling when it suits them, with an aristocratic disregard to the cost and consequences to the British and global economy.

This is anti-capitalism at its worst and leads to the fall of regimes and economic systems with often disastrous consequences for society leading to wars, famines and pestilence.

Those who wish the worst for Greece are the same siren voices that would bring down the whole temple upon them.

Capitalism can provide a better monetary system than others but, if not held in check, also sows the seeds of its own self-destruction and the destruction of civilisation. This is the lesson of history.

This is not about Greece, the Euro or the dollar. It is about the naked greed of a few that would destroy every economy and every nation purely for their own private gain and award themselves obscene bonuses for doing so!

For its recovery and future Britain relies principally on a strong and economically viable Europe as a market for its goods and services.

Britain's emergency from recession relies entirely on growth in Europe.

As John Donne said, "No man is an island entire of itself; every man is piece of the continent, a part of the main; if a clod be washed away by the sea, Europe is the less.......
And therefore never send to know for whom the bell tolls; it tolls for thee.
Chelyabinsk
on January 29, 2010
at 05:25 PM
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I hate the EU with a vengeance so would love to see the whole crappy, corrupt house of cards come tumbling down - but unfortunately it won't.
Anthony Farrar
on January 29, 2010
at 04:33 PM

Lets tell the truth here.

Germany only entered the EU as part of its application to be re-admitted to the human race.

As such they let the French lead then around by the nose whilst paying for half of the show (UK pays the other half thank you Mr. Heath).

Germany has now been reintegrated. The Nazis removed from Germany history books and as the only EU country in budget surplus they are recoiling from funding half the show indefinitely and being lashed to the hopeless Greek, Spanish, Portuguese, Italian and French economies through the Euro.

Do they have the politic will to pull the plug on the Euro? Maybe not now but in 10 years time sure. We in UK should steer well clear.
Niall
on January 29, 2010
at 04:11 PM
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WTTR...."Germany needs a strong army". What a load of old cobblers! The sheer ignorance in Britain never ceases to astound. Start building your Anderson air-raid shelter?
max factor
on January 29, 2010
at 03:50 PM
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Its all a nasty plot to make the Euro more competitive against sterling,I expect those beastly Germans are behind it all.
Tony
on January 29, 2010
at 03:48 PM
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Chelyabinsk
on January 29, 2010
at 10:25 AM

But I wonder who bought those Greek Bonds?.
I also wonder how Santander can stroll around buying UK banks when the Spanish property market is in such dire straits?
wasted
on January 29, 2010
at 03:27 PM
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Zapatero is a fool, but Spain which has done nothing but retreat from the war on Mohammedanism and obsess about Israelis since the socialists came into power deserves everything she gets.
Henny Penny
on January 29, 2010
at 02:07 PM
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Greg

I'm talking about the 7 years CCT issue that was auctioned yesterday... I said "CCT" in my post, not "BTP", you can read that in my post

http://it.finance.yahoo.com/notizie/tit ... 6.html?x=0
Paolo
on January 29, 2010
at 02:06 PM
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Hurray for Cantillon's comment.

The Euro will last, despite the wishes of many. The UK is actually a great place to live.

What a shocking thing to say...

Ignore the doomsters!
johnl
on January 29, 2010
at 01:46 PM
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Whatever 'Paulo' is talking about, it is certainly not the Italian 10-year government BTP. That traded at a low of about 4.12% just after midday before widening to around 4.16% by the end of the day. Over the same time period, the Spanish 10-year benchmark moved from 4.14% to almost touch 4.20% before close of business.
Greg
on January 29, 2010
at 01:43 PM
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"All countries should default and start again."

Like hell they should, north/west europe has already been a cashcow for the rest long enough, the last we need is a global coalition of freeloaders going through our pockets. It'd be the death of us.
Anonymous
on January 29, 2010
at 01:16 PM
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I am minded to a second comment here. Isn't it a given that if we swallow the federal EU confection then Germany bailing out Greece is merely the same thing as the UK government taking tax revenue from the wealthy SE and using to subsidise poorer regions in the north?

What you see here is that nation states are dominant to the bogus federal EU - citizens of Germany are not Greek and don't want to pay for Greece's woes. How long before we are all powerless within the EU to perceive that distinction - is that not exactly where it is trying to take us? Clients and Donors...
simon coulter
on January 29, 2010
at 01:11 PM
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This is good news for Euro exporters who need a weaker Euro. For the UK, printing £200bn of "funny money" was just a stop gap to maintain feckless Govt spending until an election. Now lets see the reality of the money markets bring Govts down to size.

The State must shrink so that the individual can grow!
Stephen Marchant
on January 29, 2010
at 12:33 PM