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 Politicians are finally discussing what the markets figured out years ago - that Greece can't stay in the Euro.

 From the monetary fortress of the European Central Bank to the pro-European duchy of Luxembourg, policy makers are beginning to air their doubts that Greece can stay in the euro...
   “Politically speaking, Greece is already out of the euro zone,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in an e-mailed note. “The only question is about the timing and disorderliness of its exit.
 Already the Euro zone is debating witholding bailout funds from Greece. Greece has long since been locked out of the private debt markets. Without those funds, Greece can't pay its workers, and thus has no other choice but to leave the Euro.

 It was only last October that the idea of a country leaving the Euro was considered almost impossible.

 European treaties label the euro ‘‘irrevocable’’ and provide no legal procedure for a country to leave or be thrown out. A December 2009 study by the ECB’s legal department deemed an ouster or departure ‘‘so challenging, conceptually, legally and practically, that its likelihood is close to zero.’’
    Europe’s crisis managers put the odds at zero until last November, when German Chancellor Angela Merkel and French President Nicolas Sarkozy turned a planned Greek referendum on austerity into an in-or-out vote on Greece’s euro future.
 The dramatically split government in Greece will inevitably lead to more elections. In the meantime, it is unlikely that the government will be able to agree to anything important in the coming months, including more austerity measures that German political leaders are demanding.
   That means that several bailout agreement deadlines will not be met. Other European leaders are saying that renegotiating the bailout is not an option.

  So where does that leave us? With Europe cutting off funding to Greece, and Greece having no choice but to leave the Euro and go back to the Drachma.
   How will that work, especially with so much of their debt priced in Euros? I have no idea, but it won't be pretty. Major banks in France and Germany will take it on the chin, and Wall Street banks who insured that debt also losing money. Some of them will need to get bailed out, and that won't be popular with anyone.

   There is also another looming problem: Spain.

 Prime Minister Mariano Rajoy said the debt agency is the only borrower left in Spain that can finance itself on markets as banks, companies and regional administrations have been shut out.
    "Today, the Treasury is practically the only one that finances itself on the markets," he said in the Senate in Madrid today. Being locked out of debt markets isn't "theoretical" as it's "happening to the immense majority of regions, our whole financial sector and most big companies."
    Rajoy once again raised the threat of an international bailout as he seeks to convince Spaniards to accept spending cuts even as unemployment approaches 25 percent. His comments also underline the challenge the government faces as it tries to overhaul the banking industry without overburdening public finances.
 Spain's Treasury may be the only ones who can borrow these days, but their borrowing costs have just reached 6%, which is the level that Ireland and Portugal reached before needing to be bailed out.
   On top of that, Spain is expected to miss its budget goals, thus violating the same agreement that the EU is crushing Greece with.
   The reason for this upsurge in problems in Spain is the costs associated with a banking sector bailout that has just begun.

  So where does that leave Europe? With a world of problems.
Spain's economy is the 4th largest in Europe. They can't afford to bail it out like Portugal, or let it exit the Euro like Greece.
   But when Greece defaults and leaves the Euro, that will trigger fears in the market that are likely to further punish Spain.

  Greece's future is somewhat obvious. Spain's future is much harder to predict, and that complicates predictions of the future of the Euro.
  Most likely the Euro won't go away, but it has no chance of continuing to exist in its current form.

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Comment Preferences

  •  damage should be contained (4+ / 0-)
    Recommended by:
    karmsy, Rizzo, Azazello, Roadbed Guy

    your title is totally incorrect.

    -You want to change the system, run for office.

    by Deep Texan on Wed May 09, 2012 at 10:48:56 AM PDT

  •  People are more important than banks (4+ / 0-)

    Our friends in Europe seemed to be on the cutting edge with the European Union, and ironically the EU will now cause the big decision to be made- do we support the people or the banks?

    My call is the people will win, despite the mess. The entire world financial system is gamed in favor of the wealthy, this is an opening to eradicate this system and replace it with one that supports the needs of the People. True freedom on a scale that most folks will have a hard time grasping.

    "Political ends as sad remains will die." - YES 'And You and I' ; -8.88, -9.54

    by US Blues on Wed May 09, 2012 at 10:57:29 AM PDT

  •  Being the economically ignorant (2+ / 0-)
    Recommended by:
    wilderness voice, joe shikspack

    person that I am, I'd appreciate a bit more "meta-" than this diary provides, i.e., what general effects, local and international, would Greece's default from the Euro have.

    It's here they got the range/ and the machinery for change/ and it's here they got the spiritual thirst. --Leonard Cohen

    by karmsy on Wed May 09, 2012 at 11:00:37 AM PDT

    •  good question (3+ / 0-)
      Recommended by:
      Deep Texan, karmsy, joe shikspack

      other than the banks possibly needing more bailouts as the diary mentioned, not clear.  If this happens and the financial world does not come to an end the markets may decide the whole thing is "ho-hum"

    •  Predicting the future is hard (2+ / 0-)
      Recommended by:
      karmsy, joe shikspack

      especially when there is so much politics involved.
      a lot depends on how this plays out, and those events will be shaped by politics as much as by economics.

        So if you are looking for a specific answer, no one can give you one. There are too many variables.
         Anyone that tells you otherwise is yanking your chain.

      Callate o despertaras la izquirda! - protest sign in Spain

      by gjohnsit on Wed May 09, 2012 at 01:09:52 PM PDT

      [ Parent ]

    •  Greece's default would have practically (3+ / 0-)
      Recommended by:
      Deep Texan, karmsy, gjohnsit

      no impact.

      Greece's forcible expulsion from the euro would destroy the euro because people with savings account in banks, as well as investors, would realize that there money isn't safe in eurozone countries where their money could be converted into much less valuable currency overnight. This means bank runs and currency controls (in other words, exits from the eurozone).

      The real interesting question is what happens WHEN Greece defaults and stays in the euro. If that were to happen, the euro would be fine. The only question would be, would Germany attempt to punish Greece by expelling it?

      There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

      by upstate NY on Wed May 09, 2012 at 01:44:37 PM PDT

      [ Parent ]

  •  Good, the Euro prevented trade balance (5+ / 0-)

    The currencies of different countries need to float relative to eachother, to balance the playing field between week and strong.

    Greece will be better off going back to it's old currency.  The entire Euro system should be scrapped.

  •  Negative Treasuries... (3+ / 0-)
    Recommended by:
    TheMomCat, gjohnsit, joe shikspack

    as far as the eye can see.

    Yuan my ass.

  •  with Sarkozy out, the Euro has less than 1 year... (4+ / 0-)
    Recommended by:
    ek hornbeck, TJ, TheMomCat, gjohnsit

    Time for a new series: Countdown to No Euro.

    I expect all the littorals to be gone by this time next year.

    Happy little moron, Lucky little man.
    I wish I was a moron, MY GOD, Perhaps I am!
    —Spike Milligan

    by polecat on Wed May 09, 2012 at 11:14:48 AM PDT

  •  Greek parliament's been dissolved (1+ / 0-)
    Recommended by:

    They literally can't do anything if new elections are called.  

    TPTB in Europe obviously think they've financially ring-fenced Greece.  Don't think it's going to work out the way they think.

  •  Typo? (1+ / 0-)
    Recommended by:
    The dramatically split government in Greece will inevitably lead to more elections. In the meantime, it is (un) likely that the government will be able to agree to anything important in the coming months...
    Otherwise, thanks.

    The important and difficult job is never to find the right answers, it is to find the right question. For there are few things as useless–if not dangerous–as the right answer to the wrong question. -- P. Drucker

    by The Angry Architect on Wed May 09, 2012 at 11:36:35 AM PDT

  •  Back in history class (2+ / 0-)
    Recommended by:
    Roadbed Guy, gjohnsit

    I remember that WW1 was caused by "entagling alliances".

    Something I just thought of, but havent seriously considered.... can we use the phrase  "entagling alliances" to describe the EU today?

    FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

    by Roger Fox on Wed May 09, 2012 at 11:49:30 AM PDT

  •  I always rec your diaries but (4+ / 0-)

    I'm not sure what you even mean here--the end of the euro, what? Zone? Currency?

    I don't think either is the case, really anyway. What we are looking at is a 2 tier euro zone, with much of the south providing cheap labor for the north, much like it used to be when they had 'guest worker' programs, and with much of the southern nations paying interest on 'debt' to the north, while being forced to buy their stuff (especially MI stuff) , and give up public assets to vultures.    

    I don't even think it's 100% that Greece is out yet, although, yes, it's maybe 90%, but anyway Greece alone is barely a ripple in the economic pond. The Greeks are screwed though, at least in the short term.

    •  Intuitively, it would seem that the Euro would (2+ / 0-)
      Recommended by:
      Rizzo, gjohnsit

      be stronger (if anything) if Greece opts out (or is forced out, as the case may be)

      •  I don't think (1+ / 0-)
        Recommended by:
        Roadbed Guy

        Greece matters much to the EU, it's just to small. What happens in Spain, Portugal, Italy will matter more.

        •  Or Poland (1+ / 0-)
          Recommended by:

          Don't forget Poland!!

          •  Poland: (2+ / 0-)
            Recommended by:
            Roadbed Guy, gjohnsit

            In Poland they are taking out 100 year mortgages on Sovient era flats to live in -- in other words, your grandkids would be liable to pay the mortgage. How is that going to work out?

            This kind of lending is spreading too.

            Again, for banks, they care about the interest, not the principle - they hope they never get that back, so they can keep recouping every month / year / decade and now century.

        •  Egad, I just looked it up and Poland (0+ / 0-)

          doesn't even use the Euro.

          I was there in 2008 and the buzz was that its adoption was imminent, to take place as early as 2009.  I wonder what happened?

        •  Err, Portugal? (2+ / 0-)
          Recommended by:
          Deep Texan, gjohnsit

          It's bigger than Portugal.

          But, Spain and Italy surely matter more. The problem is you can't say Greece doesn't matter when its forbile eviction will create havoc and possibly destroy the entire eurozone.

          Then there's the geostrategic dimension. Greece is located in some pretty important territory.

          There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

          by upstate NY on Wed May 09, 2012 at 01:35:31 PM PDT

          [ Parent ]

      •  The reverse (0+ / 0-)

        It would be weakened to the point of being destroyed. The sort of thing going on in Greece is happening in most eurozone countries. If Greece gets knocked out, then investors will not want to put money in countries which are not surplus countries because they could lose their investments. That will cause bank runs.

        There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

        by upstate NY on Wed May 09, 2012 at 01:36:48 PM PDT

        [ Parent ]

  •  And Spain, which is teetering already... (1+ / 0-)
    Recommended by:
    gjohnsit heavily invested in Greece.

  •  Won't go away? (1+ / 0-)
    Recommended by:
    Deep Texan
    Most likely the Euro won't go away, but it has no chance of continuing to exist in its current form.
    Excuse me, didn't you predict last year the Euro would be dead by Jan 1st 2012, or am I confusing you with someone?

    Freedom is not just a word. 'Freedom' is a noun.

    by intruder from Old Europe on Wed May 09, 2012 at 01:22:17 PM PDT

    •  Re: (0+ / 0-)

      You must be confusing me, because I am certain that I have always said "in its current form". I've never believed that the Euro would simply vanish.
        Plus I don't remember ever giving that date.

      Callate o despertaras la izquirda! - protest sign in Spain

      by gjohnsit on Thu May 10, 2012 at 05:40:55 AM PDT

      [ Parent ]

  •  There are many important steps missing (1+ / 0-)
    Recommended by:
    Deep Texan


    Greece can default and NOT leave the euro. It has been flipping back and forth between a primary surplus. They can have a go of it. The only question is the amount of reserves in its banking system. But if the EU decides to implode Greek banks by withholding currency, then that will be interpreted by everyone as a forcible expulsion, and a forcible expulsion will lead to the eventual total destruction of the euro---which I guess is your original point.

    Nonetheless, the eurozone doesn't have to give Greece any bailout money. Greece can default and stay in the zone. The real question is what happens to Greece's banking system.

    There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

    by upstate NY on Wed May 09, 2012 at 01:40:41 PM PDT

  •  OT, but related: Iceland's mortgage adjustments (1+ / 0-)
    Recommended by:

    There was an internet flurry a week or so ago: "Iceland mortgages trimmed to 110% of value" or to that effect.

    So if you were paying a mortgage of say $100,000, but the real market had the house now at $60,000, then the adjustment had your mortgage at $66,000. So I understand.

    The bankers taking the loss. (And btw, it seems 200 bankers there are under criminal charges, 3 of them the top guys at banks).

    I could find no other sourcing for that anywhere at all, except one Spanish TV report.

    Bloomberg just confirmed a couple of days ago:

    Icelandic Anger Brings Debt Forgiveness in Best Recovery Story
    ...“You could safely say that Iceland holds the world record in household debt relief,” ...“Iceland followed the textbook example of what is required in a crisis. Any economist would agree with that.”

    ...Iceland’s economy will this year outgrow the euro area and the developed world on average, the Organization for Economic Cooperation and Development estimates. It costs about the same to insure against an Icelandic default as it does to guard against a credit event in Belgium. Most polls now show Icelanders don’t want to join the European Union, where the debt crisis is in its third year.

    The island’s households were helped by an agreement between the government and the banks, which are still partly controlled by the state, to forgive debt exceeding 110 percent of home values. ...

    Except for this article, it seems there's a complete news blackout here in the U.S.

    Love the "textbook example of what is required in a crisis. Any economist would agree with that." Guess he doesn't know about the European and American economists.

    The Internet is just the tail of the Corporate Media dog.

    by Jim P on Wed May 09, 2012 at 03:02:48 PM PDT

    •  That's not accurate. (0+ / 0-)

      Iceland had the sort of mortgages that people are used to in the states, and also a weird kind of foreign-currency-indexed mortgage.

      Now, think of all the bad things that happen to a homeowner during a normal crash.

      Now picture what happens if the home is also indexed to a foreign currency and your currency becomes half its value.

      Yeah.  Really, really sucks.  Imagine that your home value falls at the same time your principle owed doubles.

      Anyway, the high court ruled that a broad spectrum of such mortgages were illegal.  The debt was not forgiven; however, the loans were converted to normal loans.  At a higher interest rate, mind you.

      Anyway, most of the stuff you read about Iceland these days in the foreign press is pretty much garbage.  Pick-and-choose facts mixed in with some outright made-up stuff designed to portray some sort of radical leftist policies and some shimmering vibrant economy.

      Alls ekki.  :P

      •  Still... (0+ / 0-)

        I have a hard time picturing Bloomberg as a radical leftist outlet.

        And, whatever the details, people got a real reduction in their monthly payments on their mortgage. An example which could be followed here or anywhere else.

        Again, the Organization for Economic Cooperation and Development is not a leftist organization so their estimate that Iceland will grow faster than Europe, indeed the world, must reflect something going better in Iceland than elsewhere.

        It'll be Jubilee sooner or later in the West. That or massive uprisings with plenty of hangings.

        The Internet is just the tail of the Corporate Media dog.

        by Jim P on Wed May 09, 2012 at 05:27:37 PM PDT

        [ Parent ]

        •  No, it doesn't. It reflects selective reporting. (1+ / 0-)
          Recommended by:

          Iceland is growing faster because it fell further down, sooner.  It's hard to overstate the scale of the financial collapse; let's put it this way: per-capita, it was like 300 Lehman Brothers going down at once.  When you're hit that hard, you really don't have anywhere else to go but up.  And the sort of policies Iceland used during the kreppa are anything but what most Kossaks would support, including 30% across-the-board austerity cuts and taking out large loans from the IMF to help get the banks back on their feet.  FYI, the banks did pay back the money they owed (not like it stopped the British and Dutch from suing -- the suit is still ongoing), and the IMF holds up Iceland as their latest poster child.  The markets are not worried about an Icelandic default because Iceland never defaulted.

          I could run down the list of glaring omissions or distortions in this article, but why even bother?  Whenever these "Iceland is a shimmering leftist beacon on a hill because of it's response to the crisis!" stories crop up, it's just annoying.  Unemployment is over 7% here, in a country where unemployment rates under 1% weren't unknown before the kreppa and 2% was high.  It's bad enough that the current ruling coalition is losing ground in a major way in the polls to Sjálfstæðisflokkurinn, the party that caused this whole mess.  The new mayor of my town is a Sjálfstæðismann.  :Þ

          As for the particular article you linked, did you bother to look up who wrote it?  He's the CEO of an Icelandic PR firm.  Rather scummy, too, he was a shill for Kárahnjúkar, the biggest scar ever put on the Icelandic landscape.  Then threatened to sue a blogger who criticized him for doing so.

  •  Politically speaking, (0+ / 0-)

    the Greek and French revolt against German austerity policies is a good thing. The European working class needs austerity about as much as the American working class does.

    Iceland seems to be handling its refusal to buckle to the bankers as well as Argentina has done. The future is for those who throw the monetarist monkeys off their backs.

    PS: Recent by-elections in Germany indicate a solid rejection of Frau Merkel's austerty for the 99% to save the ass of the 1%.

    The euro as we know it may become the euro as we would rather it be if the current trend continues. I can easily live with a red euro.

    We cannot win a war crime - Dancewater, July 27, 2008

    by unclejohn on Wed May 16, 2012 at 06:51:59 PM PDT

    •  Iceland never "refused to buckle to the banksters" (0+ / 0-)

      FYI.  "Banksters" were never involved; it was a clash between governments over whether Icesave retirement / municipal accounts should be insured.  Iceland likewise never went bankrupt and did pretty much everything the IMF asked of it (including major austerity), and is now held up by the IMF as a poster child.

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