90 seconds at 9 am: Eurofailure

90 seconds at 9 am: Europe fails again to agree fresh Greek debt reduction deal; EU ministers also feud over new European budget; US stocks up after Gaza ceasefire

22nd Nov 12, 9:00am by Bernard Hickey

Here's my summary of the key news overnight in 90 seconds at 9 am, including news European ministers failed again overnight to agree a debt reduction plan for Greece that might give it a chance of digging its way out of its debt mountain.

Germany refused to agree to formal debt writeoffs, suggesting instead the European Central Bank should buy short term Greek debt, and that the terms of existing debt should be extended while interest payments should be suspended.

The IMF, meanwhile, was pushing for a meaningful debt writeoff that would reduce Greece's debt to GDP ratio.

This latest dispute is emblematic of the problem facing policymakers and central bankers globally. The key question is: when do they acknowledge growth will not rebound for years, if not decades, which means debt has to be restructured and written off to account for it being unsustainable. That moment of reckoning will be painful, which is why the procrastination is so drawn out and the debate so intense.

Meanwhile, the divisions within Europe were also evident in the debate about the European Union's own budget for the next 7 years.

Bloomberg reported European ministers could not agree on a budget with France refusing to accept cuts to agricultural subsidies and Britain refusing to accept a budget that did not include austerity for European bureaucrats. See more here at Bloomberg.

Elsewhere, US stocks were up around 0.4% in late trade after a ceasefire in Gaza helped boost oil prices by around 0.6% and lifted appetites for risk.

This helped lift the New Zealand dollar off its overnight lows of around 81.20 USc to be around 81.4 USc in morning trade.

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18 Comments

by SK | 22nd Nov 12, 9:07am 1353528430

Never mind all that - HOW MUCH DID U GET FOR YOUR HOUSE ??

by Bernard Hickey | 22nd Nov 12, 9:48am 1353530912

SK.

More than CV is all I can say.

cheers

Bernard

by Chris_J | 22nd Nov 12, 12:31pm 1353540692

Public auction sales prices are on public record!

So since I have my spies, I will let SK know it sold for $1,005,000. Which is pretty well done, Bernard! Through the magic million and right towards the top of my price range estimate (although I didn't go through it I earlier said that it would be $920,000 to $1,020,000 tops depending on condition).

By my calulation that is nearly +63% in 7 and a half years.

Still want a CGT? Perhaps you could gift the $100k+ tax you would have paid to the crown as a gesture of good will??

by Stephen Hulme | 22nd Nov 12, 12:38pm 1353541104

Just goes to show debt pays for some.

by SK | 22nd Nov 12, 12:55pm 1353542138

Donating notional CGT - where do you dream up such ideas?!

So the magic MILL - very good and you have taken your pound of flesh from the property circus.

by Stephen Hulme | 22nd Nov 12, 1:26pm 1353543968

Agree - but I guess we need to see less of this:

Bernard Hickey sifts through the angry reactions to his argument for an intergenerational wealth deal. He (sic) points out baby-boomer housing wealth fell from the skies - it was not earned or built. You agree?

by SK | 22nd Nov 12, 2:54pm 1353549291

Why pick out baby boomers - Gen X/Ys who are not risk averse have housing wealth falling on them right now also.

by @tony | 22nd Nov 12, 12:55pm 1353542157

NOW he wants CGT ;)

by Bernard Hickey | 22nd Nov 12, 2:51pm 1353549075

Chris J

Many thanks for that....

There's lots of things you don't know about how much we spent on renovation etc, so difficult for you and I to calculate returns.

And as for paying capital gains tax, I would pay it gladly if it existed and applied to the family home.

But it doesn't.

Just responding to incentives set for me Chris.

Which I guess is what you do to. Doesn't mean I agree with them.

cheers

Bernard

by Chris_J | 22nd Nov 12, 7:54pm 1353567299

Just being facetious about the tax to pay!

But you have just made the exact point I have made endlessly about why a CGT will never work!

How do you measure capital expenditure made over perhaps decades of property ownership?

Far too complex. Would you hold onto a receipt for a toilet roll holder for perhaps 40 years? CGT is unworkable unless you want to mire the IRD and taxpayers in more and more paperwork.

Taxing gains over short timeframes to discourage trading and reduce velocity is the only viable solution - which is what the current tax law is - although not widely enforced.

by SK | 22nd Nov 12, 10:11am 1353532278

Good on you mate and all the best for the move down Sth.

SK.

by Andy Rodgers | 22nd Nov 12, 11:02am 1353535342

"which means debt has to be restructured and written off to account for it being unsustainable."

The reason why it is so difficult to resolve is, while you are correct in saying that the debt has to be wriiten off, however this would mean huge losses for the Euro banks, particularly French and German. So the choice is either Greece is cast off from the EU or the Euro banks have to declare bankruptcy/ seek a bailout from their sovereigns.

by waymad | 22nd Nov 12, 11:16am 1353536166

Or as Reggie Middleton and (fitfully) the ToryGraph Finance pages crew posit:

Germany leaves, along with a handful of the northern pocket empires (Belgium, Netherlands, Denmark) as a 'DeutschPlusMark' deal, which will stand on its own feet currency-value-wise.

This leaves the rest of the sorry bunch (including France and of course the PIIGS) to a weak small-e euro which will rapidly decline to something like it's true value - 30-60% of current face.

As an external devaluation is exactly what these states need but cannot get under a one-size-fits-all Euro, this idea has quite some legs, but it does mean that the Grand Projet est Finee....or perhaps Kaput is more appropriate. Or even KerBlooey.

The fate, one might add, of every Grand Project in history...file under Central Planning.

by steven | 22nd Nov 12, 11:43am 1353537823

If Germany leaves however then the Greeks default and the German banks are bailed out by the german voter (I assume). The EU then of course has no cash cow to suck on and collapses in short order anyway.

regards

by steven | 22nd Nov 12, 11:29am 1353536945

I dont understand why (you? think) this is a either / or...

Whether Greece stays or exits the debt is defaulted on and the banks go bye bye and are bailed by the voter. If it exits its 100% certain they default (either they dont pay or they print the money owing in greek new-dracma and hand over the worthless paper). If Greece stays well its the same as makes no odds IMHO....

The advantage for Greece leaving is it can then devalue its currency and that is a huge help to its recovery. The only reasons for staying is the ever coming handouts....if those stop, or maybe its when the Greece might as well exit and default. Or that the banks they own money to still can claim what they are owed is worth something....(which it isnt).

regards

by Chris-M | 22nd Nov 12, 11:49am 1353538146

Why do these banks have to be bailed. If they got it wrong they should go broke like any buisness. That is the point when the government takes ownership and later down the track, when all is stabilised, sell them to recoupe their costs and perhaps a profit for the trouble and risk. Their is no way that the bank shareholders should retain their investment. (or is this the process that everybody means by "bailed")

It was amazing how quickly how things got sorted when the Iceland Government refused to bail their bank(s?)

by steven | 22nd Nov 12, 3:45pm 1353552326

Well conventioanlly....Because if you dont you get bank runs and banks closing and no one can buy food.

or in more detail, cut and paste of wiki....

"The financial crisis had serious consequences for the Icelandic economy. The national currency fell sharply in value, foreign currency transactions were virtually suspended for weeks, and the market capitalisation of the Icelandic stock exchange dropped by more than 90%. As a result of the crisis, Iceland underwent a severe economic recession; the nation's gross domestic product (GDP) dropped by 5.5% in real terms in the first six months of 2010.^[7] Outside Iceland, more than half a million depositors (far more than the entire population of Iceland) found their bank accounts frozen amid a diplomatic argument over deposit insurance."

Hence the OBR.

But Iceland is an interesting case...I need to read up on it...

"The 2008–2012 Icelandic financial crisis is a major economic and political crisis in Iceland that involved the collapse of all three of the country's major commercial banks "

Mind you that was commercial so I guess ppls bank accounts still worked...

but do you really want to see NZ's GDP dropping by 5.5% in a 6 month window?

or,

"unusual market conditions",^[83] with share prices having fallen 30% since the start of the month...

GBH would spit the dummy on that one....

but Im out of shares thank god.

Depends on what you mean by "sorted"

regards

by Chris-M | 23rd Nov 12, 9:46am 1353617165

Hi Steven

Have a look at this http://krugman.blogs.nytimes.com/2010/06/30/the-icelandic-post-crisis-m…

In the case of Iceland, the crisis was short and sharp. The GDP droped but that is well on the road to recovery. The consequences were sheeted home to the perpertrators, ie the slithery banksters and the population were not unjustly saddled with bailing them out. Fish were still caught, power was still generated, research was still researched .... The collapse of the currency is a natural positive corrective reaction which is denied to the poor sods in Southern Europe who have also been conned into bailing out their rotten banks who should have gone under as in Iceland. I would much rather have endured the short sharp shock of Iceland than what appears to be uneading depression in Greece and Spain. God knows where that is all going to end up.