Are Greek Sovereign Debt Tremors a Start of a New Phase of the Crisis?

[Joanne98]

After the months of buoyant markets, a return to crisis-type headlines seems troublingly familiar, even though the perturbations of the last day or so are a pale shadow of the worst months of the crisis. And some are making the bull case. For instance, a headline at Clusterstock trumpetss, “Yesterday’s Bloodshed Sent The VIX Soaring 20%, Which Means Today Markets Will Rebound.”

But the Greece problem exposes several fracture lines. The most immediate is the strain on the euro. The monetary union left a lot of critical issues and mechanisms in the “to be sorted out later” category, and “later” has arrived. One long-noted problem is the limits on member nations in using fiscal and monetary policy, and the expected large differences in economic performance have resulted. The immediate problem for Greece is its interest rates have spiked up in the last few days based on the belief that its government debt burden is unmanageable; the only ways out look to be a rescue, either from the IMF (presumably on draconian terms) or the EU (which also looks set to keep Greece on a short leash), or the other choice, to abandon the euro, devalue its currency, and default. Gillian Tett points out that the dramatic increase in yields on Greek government bonds isn’t entirely the result of shifting investor perceptions; some ECB collateral rules played a role:

Back in the autumn of 2008,…the ECB loosened the rules which govern how banks can get central bank funds. In particular, it let banks use government bonds rated BBB or above in ECB money market operations, instead of merely accepting bonds rated A-, or more.

This was initially presented as a “temporary” policy, slated to last until late 2009. But last year the ECB extended the policy until the end of 2010. Thus, during 2009, banks which were holding Greek bonds have been merrily exchanging these for other assets via the ECB. This, in turn, has helped to support Greek bond prices (and, by extension, Greek banks that hold a large chunk of outstanding Greek bonds).

Continued>>>
http://www.nakedcapitalism.com/2010/02/are-greek-sovereign-debt-tremors-a-start-of-a-new-phase-of-the-crisis.html

[roamer65]

1. The ECB is nothing more than extension of the Deutsche Bundesbank

...and the Euro is a renamed Deutsche Mark.

Greece is not going to like the austerity measures ordered by the Bundesbank.

The fun is just beginning.

[Odin2005]

6. What's that joke? The EU is the German Empire without the Kaiser?

[westerebus]

2. Well now we know why the World Cup was moved.

Not enough riot police to go around all of the EU at one time.

[pscot]

3. Jane Jacobs argues,

in Cities and the Wealth of Nations, that economic vitality is a localized phenomenon and that broadly based currency schemes like the dollar, the euro, the yen, and the pound in its day, distort economic reality by creating a one size fits all system. In the end, less viable economic regions must be heavily subsidized or allowed to fall behind. The eurozone, based on the classical, bigger is better economic model, seems bent on proving her correct. I think the average German would be perfectly content to see the Eurozone and the euro slip quietly into oblivion. But the euro won't go quietly.

[Odin2005]

7. Societies go through a cycle of local-feudal, nation-state-, universal state, and back to local.

Western Society is currently undergoing the transition From nation-state to a universal empire with the US and EU being 2 proto-universal states. The elites will make sure there is no backsliding.

[abelenkpe]

4. Possibly but there is also this lovely chart from

zerohedge.

Seriously... Which Default Are You More Worried About?

http://www.zerohedge.com/article/seriously-which-default-are-you-more-worried-about

[westerebus]

5. The Left Coast.

May be time to split it up. You could have the State of Laid Back, the State of Surf's Up, the State of We're all Bozo's on this Bus, The State of Dude, 90210,like Duh! and LAX INC.

For this moment, the STUPIDS. Or the PIIGS. What ever they are calling them these days.

The smell of burning currency precedes that other burning event....like napalm in the morning...