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Europe hits session lows, the Stoxx 50 -1% as Spanish government debt goes bidless, the 2-year...
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Monday, June 18, 2012, 8:33 AM ETEurope hits session lows, the Stoxx 50 -1% as Spanish government debt goes bidless, the 2-year note +46 bps to 5.46%, the 10-year +32 bps to 7.19%. Madrid and Milan equity indexes lead the decline, each down more than 2%. S&P futures -0.5%. Remember JPMorgan's call for a 2% gain in the S&P upon a New Democracy victory? Well, there's still a chance.
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This news story has 49 comments:
It is true that the 2-year spread against overnight and deposit rates is very high. But then, most of the focus here seems not to be on the relative rates (reflecting well-founded credit fears) but on the absolute rates. That's a catch-22: if Spain can't afford to pay such a modest rate of interest, that's a pretty paltry reward for taking on its credit risk. Because these rates are not particularly high by any reasonable historical standard; anyone who can't afford to borrow at 5.46% probably shouldn't be allowed to borrow at all. Politically-negotiated so-called austerity measures are anything but; the market is clearly stating that it is unwilling to lend, which means the state has to come up with a way to stop borrowing, or at least to limit its spending so that it can reduce the amount of paper it needs to roll over. A market-driven budgetary regime would by definition restore confidence: if Spain were to limit the supply of notes such that they yield 5% or less (or whatever level the budgetary authorities determine is affordable), they could never find themselves in a situation in which they cannot afford the interest. Of course, politicians throw temper tantrums worse than the most obnoxious 2-year-old's at the mere suggestion of any regime that limits their ability to buy votes, and so it goes. By far the most amazing thing about the entire situation is that the Spaniards haven't overthrown their government, but then I would say the same for almost anywhere else. Maybe they really think the politicians can find a way to get them a free lunch, in which case it'll really hit the fan when they're eventually disappointed.
http://reut.rs/MlMi1T
Same thing with Greece. They cut and cut and cut, and get further and further away from breaking even. Because governments aren't families. And there is no magical austerity fairy.
Most European States have big governments - that is not distinguishes good performers from bad performers. The difference lies in other areas such as labor market flexibility.
In the case of Spain, I am not impressed by their structural reforms. Each Spanish worker on a permanent labor contracts still gets 33 weeks of severance pay for every worked.
In some Northern European countries like Denmark, it doesn't exist. Fire and hire at will. That is how you run an economy.
It appalls to see how weak European society has become. My parents did not have 1/10th of the European social advantages and still able to climb the social economic ladder.
She doesn't exist.
http://bit.ly/MmD4CG
If you examine my link, there has been little cutting to Greek's budget; and this is why Senor Blankenhorn has not dispensed any numbers...
In that case, you might want to try reading the news now and then. You could start with the BBC link I posted.
What really needs to happen is that the bankers have to take a bigger hit than they have been willing to take. These are bad debts. They won't be collected. Deal with it.
" But in order to receive the new bailout, the Papademos government committed Greece to far-reaching spending cuts, equal to 1.5% of its output. Greece has now been in recession for five years."
?Far reaching cuts? of 1.5% of GNP...LOL There is no austerity, as it only happened in the 1920's and 1930's...This is leftwing propaganda..
Of course the bankers need to take a hit. Many of their assets are worthless. Their common and preferred shares should all be canceled, junior and subordinated debt converted into equity, managers and directors fired and barred from the industry. Many banks probably need to just be wound down and their assets auctioned off over time. The government should never provide, and should make clear now that it is not and will not provide, any kind of guarantee of bank debt.
All of that would certainly go a long way toward starting them down the right path forward, but none of it does anything about the enormous existing public debt or the fact that the government was running a deficit even during the housing bubble. If they couldn't live within their means under the best imaginable circumstances, it's clear that very large, extremely deep cuts are needed, and immediately. Others have touched on the competitiveness problems; those need to be addressed immediately as well and doing so consists primarily of doing away with regulations and restrictions on private enterprise. The short answer is that Spain (and a number of others who have the same problems) needs to take an all of the above bazooka approach. A couple of small, timid "budget cuts" and more banking can-kicking measures are absolutely nothing like what I am saying needs to be done. That was the whole point: politically-negotiated "austerity" is a complete joke. It consists of promising to do the minimum the can-kicking lenders will agree to, then doing even less. Market-negotiated austerity cannot be faked and is guaranteed to shrink the public debt to a manageable level. That's not sufficient by itself, but it is a sufficient component of a larger plan that could work, unlike what we're seeing today. If that plan "destroys the middle class" because the supposed middle class is completely dependent on government handouts, then it's not a middle class at all. That describes an underclass of peasants prostrating themselves before the lord in the hope of receiving charity. A middle class sustains itself with its own productive output and needs nothing more from the government than honest rule of law.
But will we are at it, does budget cuts of 8% sound like austerity?
Instead, make the bankers take the hit. There is no debt crisis. There is a panic among creditors who need to take the kind of hit the people of Greece and Spain are being told they must take.
I mean a big hit.If the pain isn't equal on both sides it doesn't count.
Austerity always fails. Always. There is no austerity fairy. Calls for austerity are made by creditors who don't want to write off bad loans.
Bearfund, is correct regarding the small sums of money that the EUzone spends on military defense spending...
Why do you think they welcome American troops?
As to why they (you mean Greece, I suppose) like American troops, the reason is that the American troops spend American dollars.
Here's a comprehensive report on Spanish military spending and investment with full breakdown by area of spending, which concludes that total 2010 spending was less than 19B euros: http://bit.ly/NAzffT. That represents about 1.7% using the CIA's (http://1.usa.gov/NAzho5) figures for GDP. The report also makes clear that SIPRI/NATO criteria actually include far more spending than many other sources including the government's own.
Here's Jane's stating that Spain spent 8.15B euros in 2008 on military matters: http://bit.ly/Nq1quG. That's very comparable to the more restricted spending figures in the previous report, and represents less than 1% of GDP for that year.
Here's the Spanish government's own 2012 budget covering that same portion of military spending: http://bit.ly/Nq1qKU. It shows about 7.4B euros, consistent with the fact that the military budget and actual spending have declined slightly over the last few years.
Get over yourself. Military spending certainly doesn't help, but it's such a miniscule portion of the problem as to be almost completely irrelevant. I've already presented sourced concrete data, and now I've given you another pile of consistent data showing the same thing. You personally don't like the military or military spending and have chosen, foolishly, to assert that it's a major source of Spain's fiscal problems. You are wrong. If we were talking about the US or even Russia or China, you might have a point. We weren't, we aren't, and you're wrong. And it wouldn't have taken you more than 5 minutes to figure that out before spewing nonsense.
"You personally don't like the military or military spending"
Huh? You were the one saying gov't spending cuts should start at 90%. What I pointed out is that your defunding at those levels would be similar to what happened in Somalia, which has not worked out well at all. Additionally, there's a requirement on these nations to maintain national security. How did you came up with that as a personal dislike of military spending??? And even if that were the case, it would be completely irrelevant. Sounds like you have some sort of need to be angry and hateful because you're just making up stuff to be angry and spiteful about.
Hear are ten Euro states, with only two spending above 2% of GNP...
http://bit.ly/LtqfsC
BTW, it is always great to hear from you!
US will be in this same situation by the end of this decade. . .
Historically, Greece got revenue from several sources -- all of which are currently not viable:
- Shipping. The Greek shipping industry used to be significant but global recession and competition from China have cut deeply into shipping profits
- Bauxite. This is the ore used to make aluminium. But there's a worldwide glut of aluminium at present and this resource is essentially worthless until that changes
- Geography. Thanks to its strategic position, Greece has historically hosted foreign (mostly U.S.) military bases quite profitably. However, the U.S. now prefers to station these bases in Turkey and the EU expects Greece to develop and pay for its own military bases. In other words, what was once an asset is now a liability for as long as Greece is an EU member state.
service economies are very competitive and usually price sensitive, as the service value is often times hard to value or distinguish.
Shipping does not employ many people at 30 per ship, mining is not a growth industry with limited land, there is only so many mines and smelters, and geography is subject to competitive rents, but still is not a growth industry due to limited resources. Meaning in the service world, growth is very limited due to size and efficiencies.
Therefore, the issue is a cost issue of supporting a limited employable society to prevent anarchial forces taking hold and destroying what is left, though that accomplishes nothing but the realization that anger doesn't solve any problems.
So, as the industrial age competitiveness moves west from the beginnings in europe, what is left of nations with limited service opportunities? and limited natural resources?