Financial mess in Europe - France to fall soon?

[ferrero]

http://www.cnbc.com/id/47946397/

With a gaping public deficit and record level of debt, the euro zone's second largest economy wants to be sure it is not sucked into the bloc's game of debt-crisis dominoes, hence Paris's forceful lobbying for ways to shore up Europe's banks.


George Kavanagh | Stone | Getty Images
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France is one of the strongest advocates of a Europe-wide banking union and, with an eye on its own banks' exposure to vulnerable debt in struggling countries, for immediate recapitalization of banks from euro zone rescue funds.

"I think the French are pushing this for a simple reason: They bloody well know they're next in line. They're after Italy," said Nicholas Spiro, head of consultancy Spiro Sovereign Strategy.

The debt crisis has already spread through Greece, Ireland and Portugal, all of which have international bailouts. Spain has asked for help for its banks. Cyprus may seek a broader bailout imminently. Italy has recently seen borrowing costs rise to dangerously high levels.

Eager to stop the snowball, France's new President Francois Hollande quickly championed ideas to fight contagion, some of which have brought him into direct opposition with Germany.

Investors are currently giving France the benefit of the doubt, driving French yields to historic lows as they seek the relative safety of debt issued by a core European country that nonetheless offers richer yields than Germany.

However, France's finances are nothing like as good as Germany's, and its banks have heavy exposure to Greece and Italy — a concern that has conditioned its response to the crisis.


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"It's clear that pressure from the debt crisis will come on France and other AAA countries if there is not significant progress in mutualising risks," said Michel Martinez, Societe Generale's chief economist for France.

Spain and Italy's borrowing costs have eased somewhat on expectations that an EU leaders' summit this week will produce bold new approaches to contain the crisis. Short of that, they run the risk of becoming too costly to manage, prompting the need for sovereign bailouts.

Hollande's Socialist government has thrown its support behind the idea of setting up a banking union in Europe, with a central supervisory authority, joint deposit guarantees and a fund to wind down dud banks.

But France is also pushing for more immediate solutions that could shelter banks from the risks associated with the sovereign debt of southern Europe, fully aware that the crisis could deteriorate with lightning speed.

Paris has been a vocal supporter of using the euro zone bailout funds to recapitalize banks directly, although Germany's opposition to the idea remains a major obstacle.

[JimJim]

That isn't an appropriate word to put in the title! Amended.

[jio]

Well, right now 4 countries have been bailed-out (Greece twice, Ireland, Portugal and Spain) and Cyprus just yesterday asked for a bail-out too. With Greece, Spain and Portugal all heading for a second bail-out and with the recession looming all over the southern EU and growth diminishing in northern EU and Germany still resisting the idea of pulling part of the debt and providing EU-wide guarantees, I think it's only gonna get worst. Austerity really does not help, it just worsens the problem as it diminishes the tax base, thus making impossible the fulfillment of fiscal goals which in turn leads to demands of more austerity and so on, so austerity is not the solution... I do believe that more countries will be affected but there are far more possible candidates for being after-next than France. Italy will most probably next and then maybe Malta or Belgium

[ferrero]

Bielefeld could bail out Cyprus, Bavaria could bail out belgium but nobody could possibly swallow french debt. nor should anyone

[Marius]

France won't fall soon but at some point a bit further in the future. Just to test the theory I bought US shares and sold French ones, I'll let you know in 12 months how I've done.

[Eamon]

Well, right now 4 countries have been bailed-out (Greece twice, Ireland, Portugal and Spain) and Cyprus just yesterday asked for a bail-out too. With Greece, Spain and Portugal all heading for a second bail-out and with the recession looming all over the southern EU and growth diminishing in northern EU and Germany still resisting the idea of pulling part of the debt and providing EU-wide guarantees, I think it's only gonna get worst. Austerity really does not help, it just worsens the problem as it diminishes the tax base, thus making impossible the fulfillment of fiscal goals which in turn leads to demands of more austerity and so on, so austerity is not the solution... I do believe that more countries will be affected but there are far more possible candidates for being after-next than France. Italy will most probably next and then maybe Malta or Belgium

That's exactly how I see it too.

[BlueScorpion]

There are other countries that might fall first than France. Italy is in a worst position, IMO. Here in Portugal I don't know why they still deny a second bailout. It's not helping the country at all, all the contrary... our economy is deteriorating and the small-medium companies are struggling to survive, leading to severe collapses. Plus, as jio said, the government couldn't take as much money as they thought they would get from taxes. I don't know what the future holds...

[stevyy]

it looks like everyone will continue to blame Germany for everything... well until Germany - as the last one standing - will fall also and then goodbye Fiscal Union, welcome back Deutsche Mark.

[jio]

it looks like everyone will continue to blame Germany for everything... well until Germany - as the last one standing - will fall also and then goodbye Fiscal Union, welcome back Deutsche Mark.

Of course Germany is getting blamed because the bail-out prescription currently followed is made in Germany, dictated by Germany (which is OK since Germany provides most of the money), does not work anywhere (except perhaps Ireland), it benefits Germany in the short run (the fall of the euro makes its exports cheaper thus more competitive) and it is not followed or even supported by other major markets such as the USA which by the way,despite its own financial crisis it is doing far better than the EU. The crisis could have been contained in Greece and the bill could have been far lower had a different course of action been followed in the beginning. As it is one country after another fall like dominoes, most of the bailed-out countries will need another bail-out soon (third for Greece, second for Spain and Portugal) and more countries will be added in the list.

Moreover yeah Germany will be affected sooner or later. Spain has been bailed-out and if Italy or France need a bail-out too, that will be impossible to handle, it would just mean the end of the euro and possibly the EU in its current form too. Fiscal union is an interesting idea but it is far from the solution as it requires treaty changes and raises a lot of questions of legitimacy and democratic governance.

[spiritboy]

I'm glad they didn't allow Turkey to EU. It's really sad to watch EU ship tanking.

[jio]

I'm glad they didn't allow Turkey to EU. It's really sad to watch EU ship tanking.

Yeah, there is much talk here as well that we shouldn't have entered the eurozone either but frankly I don't think anything would have been different for Cyprus had it not been in the EU/Eurozone since the investment in Greece was always huge.

But yeah, Turkey seems to be the only mediterranean country with a fastly growing economy right now, so yes you were pretty lucky to be left out of the EU mess

[Serby]

My country is "working" on getting into EU, but by the time we get there (if that ever happens), EU will be one peace of sh*t

btw I'm not into politics, but it's strange to see EU being in such mess.

[stevyy]

Today at the Bundestag /German Parliament/ Merkel declared:

"Eurobonds only over my dead body", "Every country is responsible for their own debts"

[jio]

... which means she is under serious pressure from the rest of the eurozone

[Titan3510]

I'm not surprised.

Globalism <<<

[android]

I'm not surprised.

Globalism <<<

The reality is we live on a globe. I don't blame globalism I blame flawed human nature that lead to greed and speculation that has now turned to fear and flight and now we enter the downward spiral. Civilisation could collapse as it has happened before. We could enter a new dark age but I doubt it we will muddle through somehow. The world is too intergrated for people like Merkel to think she can be isolated from the contagin. A global solution is called for.

[spiritboy]

I'm glad they didn't allow Turkey to EU. It's really sad to watch EU ship tanking.

Yeah, there is much talk here as well that we shouldn't have entered the eurozone either but frankly I don't think anything would have been different for Cyprus had it not been in the EU/Eurozone since the investment in Greece was always huge.

But yeah, Turkey seems to be the only mediterranean country with a fastly growing economy right now, so yes you were pretty lucky to be left out of the EU mess

I really hope Greece and Cyprus gets out of this economical mess cause you guys deserve much better. I love everything about Greece, people, food, culture, islands, etc

[jio]

I'm glad they didn't allow Turkey to EU. It's really sad to watch EU ship tanking.

Yeah, there is much talk here as well that we shouldn't have entered the eurozone either but frankly I don't think anything would have been different for Cyprus had it not been in the EU/Eurozone since the investment in Greece was always huge.

But yeah, Turkey seems to be the only mediterranean country with a fastly growing economy right now, so yes you were pretty lucky to be left out of the EU mess

I really hope Greece and Cyprus gets out of this economical mess cause you guys deserve much better. I love everything about Greece, people, food, culture, islands, etc

Well, I think it's too late (for Greece at least). I remember there was a British politician around 20 years ago who had commented on the idea of a monetary union without a political and trasfer union saying that "it's a building on fire with no exits". I guess he was right after all.

But yeah, the eurozone was built mostly to ensure that a united Germany won't dominate the rest of Europe. It is dominating now of course but in the mid-term I don't think it is possible to isolate itself from contagion. And then we'll see how fondly the Germans will remember their current government which is responsible for the gradual unravelling of the biggest thing we created in Europe during the last century: the EU

[stevyy]

The resentment against Germany bothers me a bit. Haven't people learned by now that all european countries depend on each other? Well OK, maybe Germany could do more than what it is doing now to find a way out of this crisis but the thought of restricting Germany's influence as the most populated country with the biggest and strongest economy has never been the masterplan either, it caused world wars in the past.

The best way to go, is founding the United States of Europe (USE). But I guess all european countries have still not accepted the fact that nationality is worth nothing when the price for it is restrained relations to neighbors and economic recession.

[jio]

Stevyy, if the resentment against Germany bothers u imagine how the resentment felt against Greece bothers me. Greece is in its 5th year of recession averaging 6-7% per year, wages have dropped around 40-50% since the meltdown began, society is in disarray, 25-30% of all businesses have shut down, unemployment has climbed from 11 to 22%, crime has risen enormously as well and here we are still listening to what are in effect racist things coming from the whole German society (politicians, government, the press) on how we are lazy, not doing enough, need to be punished more, leave the EU etc...

On the EU level there is a massive transfer of wealth from poor to rich, the EU principles of economic convergence, consensus-making in decisions and solidarity are dead as is the EU's standing in the world and its region as an example to immitate and as a global player and leader.

The fact is that the solution of this problem is not in Athens, Madrid, Lisbon or Brussels, it is in Berlin and Berlin is dragging its feet doing absolutely nothing. Worse, it is catering and feeding a misinformed public opinion which assumes that eurozone's membership of mediterranean countries did not affect positively Germany's growth, that Germany has already paid too much and that Germany can continue its current economic model with the Deutch Mark. This is a really good and short article about Germany's relation with the euro.

People tend to believe that Greece suffers chronically from very bad leadership and they are absolutely right. But the fact of the matter is that Germany's leadership is as bad as ours right now, albeit with a lot of money in its pocket.

PS: I agree with Germany that eurobonds is not the solution because it would just boost the incentive to overspend in the south and that could potentially end in another disaster of even greater magnitude. But I think it is more than obvious now that austerity is not the solution either, nor is an economic policy dictated from Brussels or Berlin (USE so called). The solution is EU guarantees for excessive debt (over 60%) which would be done only once, it would allow the south breathing space and stricter controls on deficits. We have learned our lesson by now. And the accumulation of debt was made possible by eurozone membership and inefficient application of rules so the eurozone as a whole has to finally admit its responsibility and its consequences

[ferrero]

I'm glad they didn't allow Turkey to EU. It's really sad to watch EU ship tanking.

Yeah, there is much talk here as well that we shouldn't have entered the eurozone either but frankly I don't think anything would have been different for Cyprus had it not been in the EU/Eurozone since the investment in Greece was always huge.

But yeah, Turkey seems to be the only mediterranean country with a fastly growing economy right now, so yes you were pretty lucky to be left out of the EU mess

I really hope Greece and Cyprus gets out of this economical mess cause you guys deserve much better. I love everything about Greece, people, food, culture, islands, etc

Well, I think it's too late (for Greece at least). I remember there was a British politician around 20 years ago who had commented on the idea of a monetary union without a political and trasfer union saying that "it's a building on fire with no exits". I guess he was right after all.

But yeah, the eurozone was built mostly to ensure that a united Germany won't dominate the rest of Europe. It is dominating now of course but in the mid-term I don't think it is possible to isolate itself from contagion. And then we'll see how fondly the Germans will remember their current government which is responsible for the gradual unravelling of the biggest thing we created in Europe during the last century: the EU

Nigel Farage?
Stevvy: No one should resent Germany since the main culprit of the European mess is.... france

[MichielMC]

The biggest fault of the europeon zone was the economic unity with a huge lack of social unity. Financially we are very dependent on each other, but we feel far from one. They should work more on a social policy.

[preyan]

My heart goes out to the Greeks and everyone else but they've been living for decades above their means. Sorry to say but my overall perception of Greece, Spain and Portugal are that they are lazy and needed a real life and real job....

Well, now they have it.

When the EU launched in 2000, I remember thinking to myself "Besides Germany and France, who else will contribute their fair share to this union and currency?"

I believe all the politicians should be taken to court and tried for whatever. They manipulated people hard earned money... Well, whatever little!

[android]

A bit of stereotyping there me thinks Preyan.

Can someone help me out, Merkel thinks she speaks for German interest (I think Stevey does a far better job), France has François Hollande and Antonis Samaras represents Greece but who actually speaks for Europe in this crisis? Anyone? I think Jio has the right idea time for the eurozone as a whole to finally admit its responsibility and deal with the crisis. Mmmm not much chance of that.

The European Union has a population of 502,486,499 with a combined GDP of $15.821 trillion. With that kind of capital the problem can be resolved it just takes unity and leadership.

[summer]

But the thought of restricting Germany's influence as the most populated country with the biggest and strongest economy has never been the masterplan either, it caused world wars in the past.

I thought there were other causes