Originally Posted by jonwilly

Well Greece never had any intention of repaying it's debts and has been allowed to get away with much of them.
So now Portugal will have it's try at the game.
As for Italy, well you'd think they had El Gordo running their economy, almost as bad as UK.

john

Expect the wheels to come off the latest spin put out by the EU spinmeisters by Christmas and the stock markets to go south and the credit rating agencies to further downgrade PIIGS countries and maybe France and Belgium to boot.

Maybe the EU thinks another trillion euro can be squeezed from the German taxpayer and the private bank haircut raised to 75-80%.

And this was obvious.

Legal challenge over 50 per cent write-off agreement could delay eurozone's Greek debt plan | This is Money

A blizzard of lawsuits could push the eurozone’s near-£1 trillion bailout package off track, according to legal experts. Hedge funds and other investors may go to court to challenge the claim of eurozone leaders that Greece has not defaulted on its debt, despite writing off half of what it owes.

The agreement that holders of Greek bonds write off 50 per cent of the debt – taking a ‘haircut’ in City jargon – was a key feature of last week’s euro rescue deal. Bankers and politicians are determined the haircut should not legally count as a default by Greece. If it is a default, or ‘credit event’ as it is known, it could trigger billions of pounds of losses on Credit Default Swaps – a financial contract that pays out to the holder if a particular debtor fails to pay up.

The decision will be made by the International Swaps and Derivatives Association. But the ISDA and banks have indicated they would not regard the Greek deal as a default because it has been entered into voluntarily by the lenders. Some lawyers have said legal challenges were likely as some smaller wealthy traders and investors could have huge sums at stake.

But here's the sting in the tail...

Other critics have warned that if the Greek debt write-off is not regarded as a default it could undermine the entire market in credit default swaps. ‘If you bought a CDS to cover you against Greece defaulting and this doesn’t count, some people will ask what value they are at all,’ said one observer.

So there are going to be short term and long term effects from this.

Short term there are going to be legal challenges. If you were prudent and took out a CDS (a form of 'insurance' policy) to cover your risk in Greek sovereign debt, you'd have every right to be aggrieved if the 'insurer' used to small print in the policy to avoid paying out. It's difficult to see how a 50% haircut could be voluntary - particularly from institutions that have CDS to cover the debts and (on paper) have the right to have their losses covered by a third party.

Banks as a whole probably have an incentive to grit their teeth and call this voluntary. I would imagine that if Bank A has written a CDS to cover Bank B's exposure to sovereign debt, there will be a private arrangement between the two to split the losses. Neither will want the unpredictability of a 'Credit Event' (default) being declared and the knock on effects through the banking system.

But wealthy individuals and hedge funds, etc, have less to lose. By bringing a law suit, they have a lever to extract better terms for their debt. So in their case playing hard ball pays. Which in turn creates more uncertainty over the Euro zone's rescue plans.

Longer term, if the Greek default is not called a 'credit event', then it makes CDS instruments worthless for sovereign debt. The effect of that will to be to push up borrowing costs - if you can't get 'insurance' against those losses - you charge more to lend the money in the first place. And the two countries that will be in the firing line for that (because they're the next dominoes to fall) are Italy and Spain.

So the 'law of unintended consequences' kicks in again. Neither governments nor the big banks want a credit event (default on Greek debt) called because the effects in the banking system would be unpredictable. But if a credit event is not called for Greece, Italian and Spanish borrowing costs go up. Italy is getting closer to the edge of the precipice - this will give her another mighty shove towards the edge.

Wordsmith

Originally Posted by Le_addeur_noir

Expect the wheels to come off the latest spin put out by the EU spinmeisters by Christmas and the stock markets to go south and the credit rating agencies to further downgrade PIIGS countries and maybe France and Belgium to boot.

Funny you should mention Belgium - its not on the radar at the moment but may be soon. I quite like the 'Viable Opposition' blog - the writer is an economist with particular expertise in the mining and energy sectors. He's not the most conventional of economists, but it's usually thought provoking reading.

Viable Opposition: Belgium - The Eurozone's Small and Silent Debtor

Here's his conclusions...

While Belgium’s nominal debt and debt-to-GDP levels appear to be manageable should Europe's economy not contract, its debt level is rather large when looked at on a per capita and debt-to-GDP framework. Belgium's debt-to-GDP level is already very close to 100 percent, well above the median in the Eurozone, and shows only the faintest signs of slowing growth. Belgium’s lack of a government has meant that it has not yet enacted the austerity measures necessary to control future debt growth and deficit spending, a task that will have to be undertaken very soon, especially if the world slips into yet another economic contraction and Belgium wishes to retain its creditworthiness in the eyes of the world's bond traders. As well, should Belgium's housing market experience a correction as has been experienced in many of its Eurozone neighbours, economic projections for fiscal balance will be tossed out the window.

So:

- No effective government since June 2010
- Hence no austerity measures yet enacted
- Highish debt to GDP ratio
- Dependent on export markets
- Housing bubble yet to burst

It doesn't look good for Belgium if we tip back into recession in Europe.

Wordsmith

Slovak Prime Minister suggesting live on TV that European Union will implode CT24. Czech Finance Minister praising her for her words of wisdom...

Originally Posted by Kromeriz

Slovak Prime Minister suggesting live on TV that European Union will implode CT24. Czech Finance Minister praising her for her words of wisdom...

Thank you for the reference. I found an English language Czech newspaper with the following gem of an article. It rather explains the Czech finance ministers comments...

http://www.ceskapozice.cz/en/news/po...ns-czech-gov’t

Czech economic advisory council advises the government to prepare for the worst – disintegration of the eurozone

The Czech government’s economic advisory council (NERV) has advised Prime Minister Petr Nečas to support efforts to stabilize the eurozone while warning the EU monetary union’s disintegration is a real possibility; it also advised the creation of emergency budgetary measures. Nečas said that to emerge from the debt crisis, the eurozone needs fiscal discipline and measures to boost competitiveness.

“[NERV] in no way wants to say that there’s a catastrophe knocking at the door, but we consider that we should advise the government to prepare for one,” said Vladimír Dlouhý, a member of the council and a former minister of industry and trade, who is also an advisor to Goldman Sachs, at Tuesday’s meeting. “We unequivocally conclude that of all the possible scenarios for the development of European Monetary Fund, the worst for the Czech Republic would be the collapse of the eurozone and a consequent deep recession. We’re not putting forward alarmist opinions that it would be the end of the world, but the economic consequences would be very severe,” he warned. Dlouhý also advised the government that a large write-off of Greek’s debt, which is currently being discussed in Brussels and is likely to be part of the EU’ measures to resolve the debt crisis, would lead to considerable destabilization of the EU banking sector.

They're also very clear headed about analysing the problems:

The NERV experts and Finance Minister Miroslav Kalousek (TOP 09) agreed that the root causes of the current debt crisis lie well before the financial crisis of 2008: “This is not a classic currency crisis, or a ‘euro crisis,’ as it’s sometimes called. First and foremost, this is a budgetary and consequential debt crisis generated by the disproportionate demands of the inhabitants of European countries, and also the general demands of public budgets. It stems from the 1970s,” Dlouhý said.

Kalousek said the problems have also arisen from the very structure, or lack of one, within the eurozone. “The fundamental problem that emerged at the very birth of the eurzone is the problem of a single regulator [the European Central Bank – ECB]. Every space with a common currency must have two regulators: one regulator for private money, which is a central bank, and one regulator for public money, which is either a ministry of finance or a government,” he said.

In Kalousek’s view, the eurozone must act now to define its future shape because it’s inevitable that it will have to change if it is to survive. This could mean a smaller eurozone with stricter rules and harsher sanctions for failure to adhere thereto, or the creation of a fiscal union and a second regulator which he says is so necessary. “But nobody knows how,” he added.

Someone's got their blinkers off and is trying to prepare their economy for the forthcoming economic shock.

Wordsmith

www.praguemonitor.cz They collate the reports

Sums it up.....

And the contagion spreads...

MF Global - a US based brokerage firm has filed for Chapter 11 bankruptcy in the states due to problems with European sovereign debt.

MF Global: Likely Among the 10 Biggest Bankruptcies Ever - Deal Journal - WSJ

MF Global, the brokerage run by former Goldman Sachs chief Jon Corzine, today filed for bankruptcy protection, becoming one of the highest-profile U.S. victims of bad bets on European government debt. With the Chapter 11 filing, MF Global also is likely to be added to the ignominious list of the 10 largest bankruptcies in U.S. corporate history.

And Italian sovereign debt prices continue to come under pressure...

Italian Bonds Fall Sharply - WSJ.com

Italian government bonds buckled Monday, with five-year yields climbing to euro-era highs and the 10-year yield rising above the psychologically important 6% level as the post-European Union summit enthusiasm in risky assets fizzled out. The five-year Italian bond yield rose 0.25 percentage point to 5.97%, the highest level since the inception of the common currency. The 10-year yield increased by 0.17 percentage point to 6.15%, rising further from Friday when an Italian bond sale received feeble demand.

This is a direct consequence of the Greek default.

1) Financial institutions wanting to invest in government debt from the rest of the PIGGS now know they could be forced to take haircuts of 50% of more.
2) Because the EU has managed to avoid called the default a default, CDS 'insurance' against default of sovereign debt has been shown to be worthless.
3) Therefore investors charge more interest on loans to financially shaky countries like Italy.

Italy is too big to fail....

Wordsmith

1 question is cash in accounts safe?

Originally Posted by thegimp

1 question is cash in accounts safe?

In UK bank accounts - up to £85,000 in an account in a specific bank is safe. If you have more savings that that (I wish I did) spread it around a number of accounts in different banks.

Someone with more expertise will be able to tell you what happens with banks like Santander that are licensed to operate in the UK but have their headquarters elsewhere. I believe the £85,000 limit still applies to the UK subsidiary, but would not swear to it.

Foreign banks are a different matter - you need to check on the regulations in that country.

Read this link for more information:

Are Your Savings Safe?: Full guide to protect your cash...

Wordsmith