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ITALeave. Italian exit from the EU thread.
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Hypno Offline
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Post: #26
RE: ITALeave. Italian exit from the EU thread.
(12-02-2016 11:43 PM)Travesty Wrote:  My gut feeling as a layman that doesn't know economics well, is why wasn't Brexit the first domino? Even if Italy is tied into the Eurozone more, Brexit seems psychologically much bigger and nothing bad has happened.

there are two reasons, one obvious and one subtle.

the obvious difference between the UK and Italy is the UK uses its own currency and the Italians use the Lira.

The subtle difference is this. Right now, UK debt is denominated in GBP. If an when they exit, that will not change. Now, the whole point of Italy leaving the Euro is to reinstate their own national currency so that they can devalue against the Euro. Just like Donald Trump says the dollar is too high, meaning a lower dollar will help U.S. exports, the Italians want a lower currency to boost their exports and hence employment, tax base, etc.

The subtle part is this. Around 15 years ago, the bank regulators worldwide changed how they calculated risk. This was reflected in what is now called "Basel III". Basel III looks at every asset a bank owns and measures its risk, and then requires the bank to hold capital based on that risk. So if a bank owns a government security or cash, it needs to have zero capital to hold that, but a risky asset like a securitization it might need to have a lot of capital to absorb potential losses.

In the U.S., this is not controversial. In Europe, the subtle thing is this. When they created the Euro and adopted these rules, they couldn't have a rule that said Germany was better than Greece or Italy. What they did instead is said a government security has zero risk. So as a result you have a lot of European banks - not just Italia, but German, French, British, etc. - who own Italian bonds, especially Italian government bonds or other thought-to-be-low-risk bonds. Well, if Italy exits the EU, the whole point of doing so would be to adopt its own currency and devalue. The devaluation could be anywhere from 25% - 50%. That will create huge losses on the balance sheets of banks, pension funds, and insurers, not to mention central banks. When those losses are triggered, folks will sell anything they can, including blue chip stock, gold, etc. to cover the loses. that's why in 2008 when risky names crashed the good names went down with them.

I'm not saying this dynamic is imminent, just inevitable. there has been a lot of kicking of the can down the road, and eventually the bill will come due. From the perspective of the Italians, it makes little sense to stay. From the perspective of the Northern Europeans, esp. the Germans, keeping the EU together makes a lot of sense. Germany has been the real winner with the Euro because it prevented other EU countries from devaluing to remain competitive. Even France, once of the architects of the Euro project, wants to leave.

the moment any country actually leaves - not just votes but I mean leaves - they will adopt their own currency and reset the exchange rate, which results in a huge transfer of wealth. there are huge imbalances that are building up and pushing for this. there are powerful vested interests on both sides. that is why its easy to say something is inevitable (because the imbalances keep growing) but difficult to say its imminent (because of the powerful vested interests - banks and governments). After all, Lincoln started a war to preserve the union, which is an odd thing if you think about it.
01-29-2017 05:59 PM
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Post: #27
RE: ITALeave. Italian exit from the EU thread.
someone sent me a PM with the following questions:

You basically made some predictions, but you didn't give a specific 'date' or 'year' as to when the whole house of cards will come down because of the reasons you wrote down.

What possibilities do you think are the most and least likely? What are you general predictions? To which extent will the countries specifically leaving the Eurozone suffer?

I'd like to hear your perspective on this, as I am a EU citizen [ ] myself.

Response, no, I didn't make any predictions, except to say that the imbalances between Germany and the other rich countries is so great and growing that its inevitable that countries try to leave the Euro and devalue. But I was careful to say that its not necessariliy imminent.

I can read the situation as can thousands of people smarter than me. The first step repurcussions are that the Euro will trade down, as would any liabilities (i.e. bonds) of countries, and maybe banks, and maybe corporates, in countries that exit the euro, which are Italy, maybe France, Greece, Portugal, Spain. UK exchange rate has already traded down about 20%. The Euro is already down. Listen guys, I'm knowledgeable but I'm not a genius and I certainly don't have inside information.

The first question is will a country like Italy actually be able to leave. Greece was not able. Italy is Greece times 10. The collateral damage to others is 10-fold. There could be "suicides" or there could be a war (Lincoln). Who knows.

Even assuming a country is able to leave the currency union, create their own currency and thereby devalue against the euro, the question arises as to how to play it. Italian govt bonds are likely to be repaid in new Lira. Will Italian banks and corporates get the same benefit? If they do, the pain shifted from Italy to others grows. Will a homeowner who owes Euros be able to repay in Lira? Somehow, these sorts of benefits rarely trickle down to the little guy. Two academics, Reinhart and Rogoff, wrote a book called This Time Its Different which talk about this situation, but they don't go into detail about how to play it or the effect on the little guy. summary here: https://www.economist.com/media/pdf/this...hart-e.pdf

when something like this happens, inflation should happen. Ditto 2008. But in 2008 folks had to sell good assets to cover margin calls and stay afloat, so all financial assets even gold traded down. In retrospect the play was to have cash on the sidelines and buy cheaply, which took balls the size of church bells. Some say gold is he way to play it this time. But it traded down in 2008 and may be capped by central banks. I don't know, and there are no guarantees.

Finally, one additional difference between Italy and the UK is that Italian banks and the Italian government are in shambles, while the banks in the UK are relatively well capitalized and the government relatively well functioning. By that I mean the banking situation is more acute in Italy, and when the Lehman moment arrives in Italy the Italian authorities are likely not as coordinated as U.S. and U.K authorities were in reacting in 2008.
(This post was last modified: 01-29-2017 07:52 PM by Hypno.)
01-29-2017 07:51 PM
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Post: #28
RE: ITALeave. Italian exit from the EU thread.
Quote:After all, Lincoln started a war to preserve the union, which is an odd thing if you think about it.

Completely false. The south declared war on the north.

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01-30-2017 12:13 PM
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Hypno Offline
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Post: #29
RE: ITALeave. Italian exit from the EU thread.
(01-30-2017 12:13 PM)Samseau Wrote:  
Quote:After all, Lincoln started a war to preserve the union, which is an odd thing if you think about it.

Completely false. The south declared war on the north.

that's a technicality. here is the timeline:

secesssion occurred between December 1860 and May 20, 1861. By February 1, there were 7 states in the Confederacy. Hostilities began on April 12, 1861 only after union forces refuse to surrender occupancy of Fort Sumter. The South did not invade the North, rather they attacked a northern fort located in Sumter SOUTH CAROLINA.

In response, Lincoln called up Troops with the purpose of prosecuting a war to restore the Union. In contrast, The Confederacy commenced hostilities with the purpose only to remover a foreign power from their territory.

One can debate the details or causes of the U.S. civil war in another thread. Its an historical fact that Lincoln prosecuted the war with the goal of restoring the Union, and he succeeded. The relevance to this thread is that there is precedent for a war to preserve a union. Lincoln for his effort took a bullet and was enshrined at Mount Rushmore and with a prominent monument in Washington D.C. Whether that was a good thing can be debated, since the country was irrevocably altered. But history is written by the victors, and records Lincoln as a hero. That fact will not be lost on those running the EU.

I'm not predicting a European civil war, only noting that it is possible. Maybe a 5% chance today? What is significant in my view is not the fact that a civil war is possible but rather that the chance has increases from close to zero a few years ago to a not insignificant chance. The reason why is that the imbalances in trade and employment inherent in the EU are building larger, and now are spreading to Southern banks. The EU can put bandaids on the Italian banks like they did with other countries, but until they address the underlying causes the entire situation is just coasting towards an eventual war. What the EU needs to do is create policies that benefit producers and employers in the South, even if this is to the detriment of Germany and other strong northern economies. Eventually the imbalances will get so large that countries such as Italy and France will leave because it will be in their strong interest to do so, and that will beg the question of who Germany will respond. There are a lot of answers to these questions, and they vary depending where one sits. For example, a politician in Germany might have a very different answer than the man on the street in Germany.

I'm not making specific prediction. I'm just noting that the imbalances in trade and employment are large and getting larger. If they continue then something dramatic is going to happen, either by design or by accident.
01-30-2017 01:02 PM
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Post: #30
RE: ITALeave. Italian exit from the EU thread.
Hypno Wrote:..a politician in Germany might have a very different answer than the man on the street in Germany.

Can echo that statement.
Many adult germans that lived the transition from the D-Mark to the Euro have told me that the currency screwed them over - although the common knowledge is that it was great for the german *companies*.
I was quite surprised to hear the same words I always heard from the Spaniards, Portuguese and the italians being repeated by the citizens of the EU economic powerhouse of Germany.

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01-30-2017 02:34 PM
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Post: #31
RE: ITALeave. Italian exit from the EU thread.
Quote:Hostilities began on April 12, 1861 only after union forces refuse to surrender occupancy of Fort Sumter.

Laugh It was federal property long before the South "seceded." If the South was merely about independence, then why did they insist on taking federal property?

Moreover your facts are all wrong, the South opened fire on routine federal workers heading to the fort.

At Stone mountain, in the heart of Georgia, there is a plaque that states the Civil War started when the South opened fire on "spies" being sent to Fort Sumter. Can you believe this? Killing people because they might be "spies"? Give me a break. They were the same federal workers who always went there. No reason to kill ANYONE for this.

Those who defend the Southern slave state rebellion have their own hamster on this topic, but you are right it belongs in another thread.

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01-30-2017 07:04 PM
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Hypno Offline
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Post: #32
RE: ITALeave. Italian exit from the EU thread.
(01-30-2017 07:04 PM)Samseau Wrote:  
Quote:Hostilities began on April 12, 1861 only after union forces refuse to surrender occupancy of Fort Sumter.

Laugh It was federal property long before the South "seceded." If the South was merely about independence, then why did they insist on taking federal property?

because the union's "property" was located in their country.

if Italy or France exit, they will need to address what happens to EU property.

When Czech and Slovakia split up, they reached and agreement fairly promptly - maybe 30 days if i recall correctly - about how to compensate each other for properties which involved a few trades.

the point isn't to debate the origins of the U.S. civil war but rather to note the historical precedent for a war to preserve the union. the precedent is so strong that Lincoln is enshrined as a hero. any analogy has its limits. but the prospect of a EU civil war has gone from zero a few years ago to maybe 5% today. that is a huge development.
01-31-2017 06:58 AM
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Nowak Away
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Post: #33
RE: ITALeave. Italian exit from the EU thread.
(01-31-2017 06:58 AM)Hypno Wrote:  
(01-30-2017 07:04 PM)Samseau Wrote:  
Quote:Hostilities began on April 12, 1861 only after union forces refuse to surrender occupancy of Fort Sumter.

Laugh It was federal property long before the South "seceded." If the South was merely about independence, then why did they insist on taking federal property?

because the union's "property" was located in their country.

if Italy or France exit, they will need to address what happens to EU property.

When Czech and Slovakia split up, they reached and agreement fairly promptly - maybe 30 days if i recall correctly - about how to compensate each other for properties which involved a few trades.

the point isn't to debate the origins of the U.S. civil war but rather to note the historical precedent for a war to preserve the union. the precedent is so strong that Lincoln is enshrined as a hero. any analogy has its limits. but the prospect of a EU civil war has gone from zero a few years ago to maybe 5% today. that is a huge development.

Hard Eurosceptics still believe in pre existing multilateral agreements. Especially a beefed up frontex and basic contract law/property rights protections.


Preserving the union meant preserving territorial integrity. How is this analogous to a disunified Europe? Is Canadian owned property in the Florida keys at huge levels of risk.

Germans want social and economic imperialism (for now when the going is good) they don't want war and invasion.

even this is slowly changing .

http://www.zerohedge.com/news/2017-02-05...rio-draghi
02-07-2017 12:19 PM
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Post: #34
RE: ITALeave. Italian exit from the EU thread.
(01-30-2017 02:34 PM)El_Gostro Wrote:  
Hypno Wrote:..a politician in Germany might have a very different answer than the man on the street in Germany.

Can echo that statement.
Many adult germans that lived the transition from the D-Mark to the Euro have told me that the currency screwed them over - although the common knowledge is that it was great for the german *companies*.
I was quite surprised to hear the same words I always heard from the Spaniards, Portuguese and the italians being repeated by the citizens of the EU economic powerhouse of Germany.

Most Germans will tell you they support the Euro, but with deconvergance this is changing. Almost all currencies in western Europe had fixed pegs to the DM as did many in the east after the fall of the wall, they immediately went for this. Remember the Germans had to compete with a post 70's,80's global economy as an export powerhaus. They didn't get the inflationary effects they would have had to deal with otherwise and are currently the biggest freeloaders of the Euromark. Only now is this starting to change with the ECB's policies and Navaros potential policies.

I support a return to the Mark only because it's better in the long run as the world starts to go under a much needed revaluation.

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02-07-2017 12:28 PM
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Hypno Offline
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Post: #35
RE: ITALeave. Italian exit from the EU thread.
what you have to realize about the Euro is that while it continues and formalizes the "fixed peg" that a lot of Germany's trading partners previously had, its a fiction that that pegs were fixed. Italy constantly devalued the Lira, and Soros made his billions as the guy who anticipated England having to devalue.

what is different is that there is no ability to devalue once you are in the Euro. So Germany's exports increase, Italian unemployment rises, and the market value of the Pound Sterling goes down but employment stays relatively steady. Germany has benefitted remarkably from the Euro. Initially its EU trading partners did as well with lower funding costs, and that kept them from complaining, but now the hidden costs of trade imbalances and reduced employment dwarf the benefit of lower external interest rates.

You are either going to need a massive federalization and transfer payments among the EU states like we have in the U.S. or you are going to have member states leave. I don't think the Germans want the former so the most likely result is the latter. A third option is that the wealthy/successful countries, like Germany and some northern neighbors, depart the EU and make their own currency bloc. That's a possibility because its easier for Germany to unilaterally leave than it is to expel a member.
02-07-2017 12:37 PM
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Post: #36
RE: ITALeave. Italian exit from the EU thread.
The idea of having a foreign and seemingly hostile power in control of a fort, with the ability to cut off access to an important port, would be abhorrent to any nation. I think it is a pretty straight forward answer as to why the Confederates wanted control of Ft. Sumter. In addition several attempts to supply and reinforce the fortress were made. Including new garrison forces.

Indeed Lincoln was sending supplies to Ft. Sumter. In fact he sent notice to the Governor of South Carolina in advance of this. The Southern response was to deliver an ultimatum to the fort demanding its surrender. Numerous offers for surrender were refused, and even attempts to purchase the strategic position were rebuffed. Neither side wished to fire the first shot, but to allow the Fort to be resupplied was too much for the State of South Carolina and the provisional Confederate government.

In any event, I say the purchasing of EU property within leaving nations would be the most likely and reasonable outcome in the advent of scessesion. The historical precedents also show how confusing scessesion and independece movements can be. That's likely why so many dissolve into the much bloodier but simpler meathod of deciding the issues by force of arms instead of diplomacy.

"All tyranny needs to gain a foothold is for people of good conscience to remain silent."
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(This post was last modified: 02-07-2017 04:23 PM by DChambers.)
02-07-2017 04:22 PM
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Hypno Offline
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Post: #37
RE: ITALeave. Italian exit from the EU thread.
(02-07-2017 04:22 PM)DChambers Wrote:  In any event, I say the purchasing of EU property within leaving nations would be the most likely and reasonable outcome in the advent of scessesion. The historical precedents also show how confusing scessesion and independece movements can be. That's likely why so many dissolve into the much bloodier but simpler meathod of deciding the issues by force of arms instead of diplomacy.

Czech and Slovokia did this, but their interests with respect to each other were very different from Italy vis a vis the EU. Italy would exit in order to partially default, that is the whole point. The EU, like Lincoln, would want to preserve the union. I'm not saying Brussels will attack Italy, only that their interests would be similar to Lincoln's.

Lincoln suspeded habeas corpus to imprison anti-war northern journalists, and also printed greenbacks, both of which were unconstitutional. similarly, the EU came up with some questionable bailout funds. Ironically, if the UK exits, they have to pay up their commitment to the bail out fund that was created when Greece was in default.

all of these trends are continuing, and Trump's plan to lower the dollar and strengthen the U.S. balance of trade are only going to make things worse for the EU economy.
02-07-2017 04:49 PM
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Post: #38
RE: ITALeave. Italian exit from the EU thread.
The eurozone should have been restricted to Germany, Benelux, and France. The dwarves delved too deep, and too greedily.

"If you will it, Dude, it is no dream."
02-07-2017 05:28 PM
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Post: #39
RE: ITALeave. Italian exit from the EU thread.
Indeed that is likely what the largest point of contention would be. How much would a country owe to the EU after leaving to meet the obligations it had as a member state. That and what could the EU do in the event former member states refused to pay up. Take it to the courts, economic actions, gunboat diplomacy etc...


Greenbacks however are not unconstitutional. The Constitution grants the Federal government the power to "...coin money and regulate the value there of...." In fact a new national currency, well managed with sound fiscal policy, might allow some leaving countries to pay off their debts to the EU witjout too much hardship.

"All tyranny needs to gain a foothold is for people of good conscience to remain silent."
Thomas Jefferson
02-07-2017 05:34 PM
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Hypno Offline
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Post: #40
RE: ITALeave. Italian exit from the EU thread.
(02-07-2017 05:34 PM)DChambers Wrote:  Greenbacks however are not unconstitutional. The Constitution grants the Federal government the power to "...coin money and regulate the value there of...." In fact a new national currency, well managed with sound fiscal policy, might allow some leaving countries to pay off their debts to the EU witjout too much hardship.

"coining money" and regulating the weight thereof is not the same as issuing unbacked paper money. Article I, Section 10 of the Constitution explicitly forbids the states from issuing "bills of credit" (promissory notes) or making anything but gold and silver coin legal "tender", whereas there are no corresponding explicit prohibitions against the federal government, nor any explicit authorization. The Tenth Amendment refers to reserved powers that only the states can exercise, as well as powers not delegated that continue to reside in the people.

The Legal Tender Cases primarily involved the constitutionality of the Legal Tender Act of 1862, 12 Stat. 345, enacted during the American Civil War.[3] This act authorized issuance of paper money, United States Notes, to finance the war without raising taxes.[4] The paper money depreciated in terms of gold and became the subject of controversy, particularly because debts contracted earlier could be paid in this cheaper currency.[5]

In Hepburn, Chief Justice Salmon P. Chase held for a 5-3 majority[6] of the Court that the Act was an unconstitutional violation of the Fifth Amendment. On the same day that Hepburn was decided, President Ulysses Grant nominated two new justices to the Court, Joseph Bradley and William Strong, although Grant later denied that he had known about the decision in Hepburn when the nominations were made.[7] Bradley and Strong subsequently voted to reverse the Hepburn decision, in Knox v. Lee and Parker v. Davis, by votes of 5-4. The constitutionality of the Act was more broadly upheld thirteen years later in Juilliard v. Greenman.

https://en.wikipedia.org/wiki/Legal_Tender_Cases
02-07-2017 09:08 PM
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