In-depth analysis on Credit Writedowns Pro.

Chart of the Day: The Future of the Euro

By Global Macro Monitor

Euro decision tree

Source: Gavyn Davies, FT

About 

Global Macro Monitor is a site designed as a “go to” source for traders, investors, policymakers and any interested in markets and the global economy. It provides informed opinion, timely market information, sources, and links.

3 Comments

  1. User says:

    I like the flowchart concept. It should include several ways to kick the can down the road. All involve printing in some form.
    1. A deal whereby ECB lends to banks, “emergency overnight” style, everyday, indefinitely. banks buy more sovereign bonds at moderate (5%) rate, profit from the spread.
    2. ECB gives everyone a bailout. German objections mollified by also giving Germany a big bailout, even though it’s not needed
    3. A deal whereby several banks are sacrificed, allowed to fail or nearly fail, nationalized, then privatized cheaply to the surviving banks. the surviving banks also receive ECB money like in #1, fund the deficits like #1, but they also get the reward of their former competitor’s market share, and the sacrificial bank’s failure scares the public and technocrats into allowing the deal to take place.

    • Anonymous says:

      I am still no wiser as to the eventual outcome. Though personally I think that the worst option is probably most likely because of the delay in any rescue scheme being agreed. Never underestimate politicians playing to national politics and sacrificing the grand program for political necessity. 

  2. User says:

    I like the flowchart concept. It should include several ways to kick the can down the road. All involve printing in some form.
    1. A deal whereby ECB lends to banks, “emergency overnight” style, everyday, indefinitely. banks buy more sovereign bonds at moderate (5%) rate, profit from the spread.
    2. ECB gives everyone a bailout. German objections mollified by also giving Germany a big bailout, even though it’s not needed
    3. A deal whereby several banks are sacrificed, allowed to fail or nearly fail, nationalized, then privatized cheaply to the surviving banks. the surviving banks also receive ECB money like in #1, fund the deficits like #1, but they also get the reward of their former competitor’s market share, and the sacrificial bank’s failure scares the public and technocrats into allowing the deal to take place.

    • Anonymous says:

      I am still no wiser as to the eventual outcome. Though personally I think that the worst option is probably most likely because of the delay in any rescue scheme being agreed. Never underestimate politicians playing to national politics and sacrificing the grand program for political necessity. 

  3. JakeS says:

    The left-most scenario is not possible: The fiscal targets being imposed on the periphery are pure quackery with no basis in economic reality, and attempting to meet them will only increase the fiscal deficit as the economy collapses faster than the government’s revenue’s share of the economy increases.

    So the correct leftmost scenario splits into 3a and 3b: In 3a the austerity quackery is abandoned, money is printed in whatever quantity is required to support unrestricted fiscal defense of full employment throughout the Eurozone. Core wages are gradually allowed to rise to a level that remove the internal current accounts imbalances by allowing core residents to buy more stuff from the periphery, thereby reducing (but, in a modern economy, never wholly eliminating) the need for active fiscal defense of full employment.

    In 3b the austerity quackery is continued, which will require the suspension of democracy and installation of banana republic dictators, Latin America style.

    - Jake

  4. JakeS says:

    The left-most scenario is not possible: The fiscal targets being imposed on the periphery are pure quackery with no basis in economic reality, and attempting to meet them will only increase the fiscal deficit as the economy collapses faster than the government’s revenue’s share of the economy increases.

    So the correct leftmost scenario splits into 3a and 3b: In 3a the austerity quackery is abandoned, money is printed in whatever quantity is required to support unrestricted fiscal defense of full employment throughout the Eurozone. Core wages are gradually allowed to rise to a level that remove the internal current accounts imbalances by allowing core residents to buy more stuff from the periphery, thereby reducing (but, in a modern economy, never wholly eliminating) the need for active fiscal defense of full employment.

    In 3b the austerity quackery is continued, which will require the suspension of democracy and installation of banana republic dictators, Latin America style.

    - Jake