Why is the Euro not completely tanking against the dollar because of the PIGS?

[JS80]

Well yeah real reason is that while Euro isn't in the best shape, Dollar is looking even worse with the deficits, talk of rating downgrades. But don't blame the Chinese, it's the American and their elected officials who decide to spend 1+ trillions of dollar they don't have every single year.

And the Chinese can blame themselves for cheating on their currency when they lose money on treasuries through inflation.

 

[JS80]

if they just default and tell their debtors to go f' themselves, wouldn't that put them on a black list for credit - from anyone?

haven't wars been started over stuff like this as well - debtors coming to claim what's theirs?

http://en.wikipedia.org/wiki/Argentine_debt_restructuring

 

[Infohawk]

can't western government impose import tariffs on imported goods so the pay difference is less desirable?

Absolutely but neither party has this in their platform. I imagine the first one that does could pick up a lot of support. People might complain that tarriffs caused WW2 but this is totally different because we have a huge deficit with China. I mean what do they buy from us? They specifically set things up so their goods are produced over there even if it's with Western technology.

 

[rchiu]

It's not really a moral blaming of the Chinese (well except for their IP infringement, corporate espionage, and unfair trade practices) but regardless of the US debt (which is within normal percentage of gdp) US labor can't compete with the super-low Chinese wages. That leads to less consumption which leads to even less jobs in the US and even less consumption. So in that sense what is going on with the US and European (and Japanese) economies is related to China.

I don't know how you can type all these with a straight face.....

1) Are you seriously saying the trillion + deficit over the past few years, and projected for the next few years is "normal"?

2) US competing with Chinese labor/wages? Really? A country with $47k GDP/Capita is trying competing with a country with $7k, something wrong with that picture? Doesn't matter what Chinese pull, US isn't gonna compete with that, no developed country can compete with that. Whose fault is it when the developed country can't come up with industries with economic value equivalent to the income level?

 

[lothar]

Regardless of what the ECB does, Greece will probably default.
If growth doesn't improve and social tension further increases, Greece and Portugal may go back to the drachma and escudo on the wave of populist governments.

 

[Doppel]

Well yeah real reason is that while Euro isn't in the best shape, Dollar is looking even worse with the deficits, talk of rating downgrades. But don't blame the Chinese, it's the American and their elected officials who decide to spend 1+ trillions of dollar they don't have every single year.

Euro is home to several countries that facing impending default without bailouts from their neighbors.

 

[tommo123]

but when they default, won't they leave the euro and therefore take their liabilities with them? in essence making the euro stronger?

 

[KAZANI]

but when they default, won't they leave the euro and therefore take their liabilities with them? in essence making the euro stronger?

If Greece defaults then the rest of the PIGS will fall like dominos, due to skyrocketing credit spreads. It will be a matter of a few weeks before the euro disintegrates and, as a consequence, the European Union as well. This is a watershed moment for the european project; it has to take the next logical step towards fiscal union or call it quits and regress to good ol' Old continent politics entrenchment. For all their dawdling with the Euro crisis and their egregious insistence on throwing tons of money at bankrupt european banks in the form of "bailouts", the big heads thus far appear willing to weather this out together and that hints to a coherent plan brewing that will deal with the inherent flaws of the monetary union.

 

[Infohawk]

2) US competing with Chinese labor/wages? Really?

Yes, are you denying there's an international labor market? Do you deny that a company can choose to open up shop in the US or China?

A country with $47k GDP/Capita is trying competing with a country with $7k, something wrong with that picture? Doesn't matter what Chinese pull, US isn't gonna compete with that, no developed country can compete with that.

Exactly that's my point.

Whose fault is it when the developed country can't come up with industries with economic value equivalent to the income level?

That doesn't really make sense. Income level is determined by supply and demand, not what industry you can "come up with." LOL.

 

[bfdd]

while most of the problems here are our fault, China keeping its currency pegged where it is is hurting both of us in the long run imo.

 

[piasabird]

My cousin is stationed at a US Air Force Base in Spain. He says most large transactions for goods in Europe are being conducted in US Dollars. I think the Dollar is actually holding up the economy of Europe because it is the international Currency of Choice for many large ticket items. In other words many countries are biggybacking on top of the USA economy.

So it is possible if the USA Dollar or economy would collapse, that we would take the rest of the world with us. Europe should be paying the USA not to default.

 

[PingviN]

My cousin is stationed at a US Air Force Base in Spain. He says most large transactions for goods in Europe are being conducted in US Dollars. I think the Dollar is actually holding up the economy of Europe because it is the international Currency of Choice for many large ticket items. In other words many countries are biggybacking on top of the USA economy.

So it is possible if the USA Dollar or economy would collapse, that we would take the rest of the world with us. Europe should be paying the USA not to default.

The Euro is growing on the dollars expense and it hasn't been around for long compared to the dollar (1999 vs 1792). Given time, I'm confident the Euro will be a more widely used currency than the US dollar. Hopefully this happens before US economy hits rock bottom.

 

[Infohawk]

Given time, I'm confident the Euro will be a more widely used currency than the US dollar.

Base on what? I'm no Euro-hater but I don't think there's a reason the Euro will be more widely used. The Euro has political disadvantages that you've seen with Greece. Even if its value has not decreased as a result there is still the question of what happens when one country does something crazy. In the US, the states can't really affect the dollar.

 

[PingviN]

Base on what? I'm no Euro-hater but I don't think there's a reason the Euro will be more widely used. The Euro has political disadvantages that you've seen with Greece. Even if its value has not decreased as a result there is still the question of what happens when one country does something crazy. In the US, the states can't really affect the dollar.

The dollar is declining against the Euro, despite unrest in the world which usually leads to "safers" going to the dollar. The Euro does have political disadvantages, most of which can be (many already are) regulated. The situation in Greece is unfortunate, but it's not an international catastrophe yet.

The U.S is in the deep with it's finances and even if one state can't impact the dollar much, a nation-wide crisis will when there are alternatives (such as the Euro). Not saying the US will come to an end (at least not for some time), but the outlook is not to distant for Greece's - ie, large deficit, no solution presented in the parliament and, in general, a weak economic situation.

Now sure, the EU might come crashing down while the US makes a full recovery, but judging from what's been going down the last couple of years, the Euro will continue to grow on the dollars behalf.

 

[Infohawk]

The dollar is declining against the Euro, despite unrest in the world which usually leads to "safers" going to the dollar. The Euro does have political disadvantages, most of which can be (many already are) regulated. The situation in Greece is unfortunate, but it's not an international catastrophe yet.

The U.S is in the deep with it's finances and even if one state can't impact the dollar much, a nation-wide crisis will when there are alternatives (such as the Euro). Not saying the US will come to an end (at least not for some time), but the outlook is not to distant for Greece's - ie, large deficit, no solution presented in the parliament and, in general, a weak economic situation.

Now sure, the EU might come crashing down while the US makes a full recovery, but judging from what's been going down the last couple of years, the Euro will continue to grow on the dollars behalf.

http://en.wikipedia.org/wiki/List_of_sovereign_states_by_public_debt

Don't let the US media hype get to you. US debt is still relatively small compared to European countries. The economic outlook in the US and Europe are remarkably similar. They both face the same issues (increased competition from globalization).

You remind me of a lot of conservative American posters on this board routing against the Euro and companies like Airbus. You're infusing unnecessary competition into this. If the Euro did go up you realize that would mean less exports from Europe and consequently more economic activity in places like America, which would push investors to buy more greenbacks? Both currencies are valuable. I don't see a situation where 80% of the market is in euros and 20% is in dollars.

 

[PingviN]

You remind me of a lot of conservative American posters on this board routing against the Euro and companies like Airbus. You're infusing unnecessary competition into this. If the Euro did go up you realize that would mean less exports from Europe and consequently more economic activity in places like America, which would push investors to buy more greenbacks?

The Euro has gone up and keeps on going up, yet the Dollar declines. I'm not competing with anyone here, I have very little money invested in currencies and Sweden (where I am from and live) is not a part of the EMU. I am, on a personal level, unaffected by which currency is the most widely used. For us as a country dependent on export, a strong Euro and a strong Dollar is preferable, as this increases the incitement to buy Swedish goods.

Both currencies are valuable.

I can't remember having said the US dollar is not.

I don't see a situation where 80% of the market is in euros and 20% is in dollars.

I don't remember saying this either.

I am not trying to pick a fight with you and there is no universal truth when it comes to currencies, as you can only speculate.

 

[Munky]

A better question is why are the Euro bureaucrats desperately trying to "bail out" Greece with more debt, despite the fact that doing so is against the Maastricht Treaty?

 

[JS80]

A better question is why are the Euro bureaucrats desperately trying to "bail out" Greece with more debt, despite the fact that doing so is against the Maastricht Treaty?

http://www.youtube.com/watch?v=eJB7L1-iWt4

 

[rchiu]

http://en.wikipedia.org/wiki/List_of_sovereign_states_by_public_debt

Don't let the US media hype get to you. US debt is still relatively small compared to European countries. The economic outlook in the US and Europe are remarkably similar. They both face the same issues (increased competition from globalization).

You remind me of a lot of conservative American posters on this board routing against the Euro and companies like Airbus. You're infusing unnecessary competition into this. If the Euro did go up you realize that would mean less exports from Europe and consequently more economic activity in places like America, which would push investors to buy more greenbacks? Both currencies are valuable. I don't see a situation where 80% of the market is in euros and 20% is in dollars.

Oh really, maybe you want to take a better look at your source? The first figure from Eurostat doesn't include state debt and intra-government debt, if you look at the second stat from IMF, you'd see that US is at 92% debt to GDP. Even two of the PIGS (Portugal and Spain) has lower ratio, not to mention other major European countries.

In addition, the market and analyst look at trends and future projection. US debt to GDP ratio has been quite stable @~65% since the 2000's but jump to ~92% in just 3 short years starting from 2008. The trillion+ deficit is going to continue. Easy money policy by the Fed is going to continue, the drastic worsening of the debt situation is going to continue.

Even though the PIGS situation is bad in Euro zone, those economy are relatively small compare to the major ones in Europe. But US as a whole still don't have the fiscal discipline. That's why market is talking about down grading US sovereign debt rating, and that's why the market is continuing to punish USD.

 

[Bitek]

if they just default and tell their debtors to go f' themselves, wouldn't that put them on a black list for credit - from anyone?

haven't wars been started over stuff like this as well - debtors coming to claim what's theirs?

Not necessarily. Iceland, who's crisis was as bad if not worse than (some of) the PIGS, basically did default and their bond spreads are lower than Ireland's. Iceland has its own currency as well, so it can inflate its way out of debt rather than have to suffer painful internal wage deflation (where the PIGS are stuck due to being on the euro.)

Your bond spread will depend on the risk the market perceives of you being able to pay it back. Its not like some CC agreement. If your economy sucks and has little capacity for growth, you will pay more. Iceland is seen as a more viable econ than the others.

Greece is hopeless. Austerity measures and internal factors are leading to Neg GDP growth, falling incomes, and lower tax receipts. If the value of your debt is not decreasing w/ net inflation, how do you ever pay it back? You can't. Devalue currency to become a more competitive exporter (like China) and decrease the real value of their debts? Can't, they don't control the euro. Ergo, high rates. The bailouts benefit their creditors (Germany, EU banks), not the Greeks. They are just buying time hoping for a miracle that won't come, that's why they keep coming back to this crisis every year or so with a bigger bailout and worse terms than the last.

is it feasible for greece to leave the single currency and go back to their own? at least at that point, they'd once again be a cheap vacation spot for brits etc (i assume their own currency would have a poor exchange rate) and would probably get a big increase in tourism/money bought into the country.

Basically this is what they need to do, but Germany, France, eu banks, etc don't want this to happen as they hold the debt and benefit from the currency. If Greece leaves they may start a trend that no one knows where it will stop. Way too many weak countries were let into the eurozone and are getting Fk'd by it now.

 

[PingviN]

A better question is why are the Euro bureaucrats desperately trying to "bail out" Greece with more debt, despite the fact that doing so is against the Maastricht Treaty?

Pragmatic action that works is preferable to uncompromisable action that's inefficient. Obviously, no one considers the Maastricht Treaty as uncompromisable.

Greece is hopeless. Austerity measures and internal factors are leading to Neg GDP growth, falling incomes, and lower tax receipts. If the value of your debt is not decreasing w/ net inflation, how do you ever pay it back? You can't.

You keep cutting costs and raise taxes until, which is what Greece will do. Salaries in the governmental sector decreases, pensions decreases, taxes go up, privatizing, etc. In times, we'll probably see a "voluntary" debt reconstruction. That Greece is doomed to fail is not true. Sure, 140% Debt/GDP is not to be taken lightly, but it's manageable. What's important now is that working Greeks accept the necessary reforms put forth by the government.

Basically this is what they need to do, but Germany, France, eu banks, etc don't want this to happen as they hold the debt and benefit from the currency. If Greece leaves they may start a trend that no one knows where it will stop. Way too many weak countries were let into the eurozone and are getting Fk'd by it now.

Greek probably wouldn't afford switching from the Euro. First, doing so would invalidate the deals struck with the Commission, ECB and IMF. This would make Greece force to default by July - September. Second, changing currencies takes a toll on the national economy, things get very expensive very fast. With no new loans (due to the default), this would probably be worse than sticking with the Euro.

 

[KAZANI]

Sure, 140% Debt/GDP is not to be taken lightly, but it's manageable. What's important now is that working Greeks accept the necessary reforms put forth by the government.

No, it's not manageable. Even if the extremely unrealistic fiscal goals of the new austerity package are reached, this will create little more than a small dent on the debt. Stop pretending that selling public assets, worsening employment conditions and demolishing education and healthcare is a recipe for healthy economy!

 

[amyklai]

You need to put things in perspective.
Greece is a desaster, but it's a relatively small country. On the whole, the Euro countries are still less indebted than the US is.

 

[Munky]

Pragmatic action that works is preferable to uncompromisable action that's inefficient. Obviously, no one considers the Maastricht Treaty as uncompromisable.

Pragmatic action to me is Greece defaulting and leaving the Euro. It wasn't the end of the world for other countries who did the same, and in the long run they're better off for it.

 

[wuliheron]

Because of these problems, I was expecting that the Euro would slide considerably against the dollar but it's still at 1,43. Just wondering

Yeah right. The one estimate I've seen is that some 44 states will be in the red next year, California is about to sink into the pacific, the federal government is 13 trillion dollars in debt and going down the toilet, and you can't understand how a bunch of socialistic commies are beating the pants off us.