Research (Investicniweb.cz)
Macroeconomics  |  June 11, 2012 10:26:20

Armageddon Week in Europe



The upcoming Greek elections may trigger a crisis postlehmanovských parameters. There are many experts agree. This underlines the only certainty in a sea of ??uncertainty, which is dominated on both sides of the barricades, then in Greece and abroad. Investment site in the City of London interviewed two respected analysts with a different idea of ??what to expect.

Nick Beecroft, Saxo Bank: Is 80% probability that Greece leave the euro area this year, and 25% likely to be filled during the next three months, the worst case scenario, a messy exit from the euro area and Greece postlehmanovských crisis proportions.

James Knightley, ING: On this market, I think about 50 to 50 We then always wins just the idea that Greece remains. I would say that it is 55 to 45 percent that Greece is a member of the European Monetary Union and the 17th elections June.

First Policy and politics: Cheap undercutting and dangerous illusion

JK: If everyone behaved rationally, so he managed to solve this crisis. Politicians, unfortunately, in this case behave very populist. They want re-election. He tries to save his own skin, own political career, so do not do what would be best for the country, but what voters want. Voters often have no idea yet about what are the advantages and disadvantages - and thus the possible consequences - some steps.

NB:There are many options to underestimation or poor reading of the situation, and by all those involved. An example is the Greek opposition, which claims to handle in case of victory, to negotiate a less harsh conditions of foreign aid. Allowed anything like Germany? I do not think so. Nevertheless, Greek voters may believe something similar, which means that on their part may be underestimating the seriousness of the situation.

Second Factor (Greek) Street: stabilizer or accelerator?

JK: The Greek parties supporting the rescue program, according to recent polls, after all leads to something better. This may indicate that the Greek voters realize what could happen if the upcoming elections won by refusing to austerity measures.

Third Gloss or plebiscite misery, part 1: a turn for the better

NB: Whether we manage to avert disaster, now probably depends mainly on the Greek voters. Elections are, in essence, a referendum on whether to stay in the euro area. While I do think that the Greeks realize that the new conditions of international aid fails to negotiate, build SYRIZA vzdušené locks. I also think that the Greeks are afraid to leave the euro area - 70 to 80% of people do not want the euro to come. When it comes to the crunch - circled the candidate - will probably feel that they have done what was possible. In the first election, protested, but more do not. About the retreat from the edge of the abyss and selects the largest party, which give a chance to form a coalition.This will, however, only delay doomsday, when the leaves Greece in the euro area. This is from the perspective of Greece, the best scenario.

JK: Perhaps appears consensus on key matters, which I am thinking in particular of Eurobonds. Access François Hollande, who is pushing for fiscal coordination and Eurobonds, is promising in this context. Dutch and other countries in a way, grind their unfavorable opinions. The only opponent is Germany, but neither his position is not as clear-cut, because the costs associated with the rescue of the euro area are compared with the costs associated with its decay is negligible. Eurobonds and similar steps are medium-term issue, however. If the markets nervous about the short and get to the edge of the imaginary abyss, apparently the ECB intervenes.This would in practice mean that the bank has entered into an exceptionally aggressive game and started to purchase bonds from the periphery of the eurozone countries.

4th Gloss or plebiscite misery, part II: a turn for the worse

JK: The winner of Greek elections could decide nesplácet debts, that is default. The country would then flip has received from the euro area. Greek banks would have found themselves on their knees and the ECB would be denied funding. The Greek government would have to print money, which would recapitalize the domestic banking sector. Moreover, if Greece left the euro area, it would still be a major problem - the deficit. So even if they defaulted on debts in the past, if not their interest, it would not be able to stand on its own feet. This would in practice probably meant high unemployment and printing new money, in a big way.The impact on the home front would be enormous. And the impact on the EU and the IMF would also be great. In Greece has invested € 300 billion rescue fund by providing liquidity and lines, and if Greece left the euro area - and had its own currency, which would most likely collapse - and the Europeans could fund the money written off.

NB: A lot of opportunities to underestimate or to read the bad situation now exists not only in Greece itself. I Berlin, respectively, European leaders may fail illusions. The most dangerous is the feeling that Greece could leave the euro area, without causing a catastrophe. I think it would be just the opposite, it might resemble the situation after the collapse of Lehman Brothers. It would be a hard impact on the economy of the eurozone.In reality there is that the infection occurred, which might not allow some politicians.

5th Greek virus infection: and they even France?

NB: Politicians might fall through the illusion that the problems would be chaotic, possibly leaving the euro zone extended from Greece to Spain, Portugal, Italy, Ireland, perhaps, they even into France. If so - if there are several erroneous interpretations of these at once - Greece will have to leave the eurozone. In that case, I am convinced that the repeated what we have witnessed the collapse of Lehman Brothers, including the fact that there were queues in front of the weaker banks in the euro area.

JK:If Greece leave the euro area, the market will look for another country that it will follow. Many would probably come to Portugal. Similarly, it would probably focus attention on Spain, probably Ireland. What would happen? If interest rates rose as banks would like to compensate for what would be considered newly established foreign exchange risk. It was not there yet, because in the euro area dominated by the euro. Suddenly, however, left Greece should own currency, and there would be a risk that further add to it. It would need to include. Loans should therefore more expensive. At the same time there were massive withdrawals of deposits. If Greece goes, we can not wait to see the snowball effect. Concerns of firms and households will increase, causing people will save, which is squeezing the economy, and finally filled with what they feared in the beginning.

6th Spain: Too big to fail

JK: Spain market now really worried, because what is happening in the banking sector. It is not clear whether it will recapitalize. If it had yet to go to Spain and knees, it would mean much greater losses than in the case of Greece. At that moment would probably reflected the principle of "too big to let fail." The Spanish economy is one of the largest in the world, Spanish debt as well. If Spain collapsed, it would mean a huge write-off, which the banks and the euro area is difficult to stabilize. In addition, it would mean hard direkt for the Spanish economy: sharp currency devaluation, the rise in unemployment, fall deeper into recession and so on.

7th Kill Bill: Axe and the German GDP

NB:Estimates of the damage varies considerably. And there are a lot. They reach up to half a trillion dollars that would be affected countries and institutions across the euro area. Something like that is hard to estimate. Certainly, this would significantly - in the hundreds of units - reflected in GDP. Certainly in Greece but in Germany. After this shock, however, Greece could issue the Argentine way. Successfully devalued the currency and re-establish the economy within a decade. I just see it, it would be best for the Greeks had left the euro area as soon as possible.

8th The threat of mutual destruction: Stem, which decides

JK: I think that this argument is really very, very relevant. And it is also the string to which the Greek austerity refusing to play. They know that Greece would exit from the euro area had huge implications, and therefore say, "Forgive us something and we will not go away or do not help us, and we'll do a step that ultimately damaged them all." In other words, it is dancing on the edge of the abyss, unfortunately. And that goes for Spain and its banks.

NB:I think it's about 40% chance that the threat of mutual destruction eventually forcing all - Greek voters, German politicians, German voters and so on - backs from the edge of the abyss. The result will be that Greece even after 17 June remains in the euro area. But his problems go away. Probably in the second half of the year, a situation where you have enough savings measures Greeks. Politicians should therefore now be preparing to leave Greece in the euro area as it is preparing a number of private companies.

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