What could other countries give to Germany in exchange for German support?

[Beet]

Here are some ideas.

One is a balanced budget amendment. Spain and Austria have passed balanced budget amendments. If Germany were confident that the countries whose bonds the ECB finances will move to balanced budgets as a function of domestic law, then it would know that there is a limit to the amount the ECB will be called on to buy and the countries will not use ECB support as an excuse to leverage further.

Another is specific fiscal targets. This would work very much like existing IMF/EFSF plans, however the goal would be to target reductions in the primary deficit or increases in the primary surplus. Also, cuts would be instituted on an automatic basis, based on performance, much like the built-in automatic cuts under the US budget compromise of August. The ECB would step in to finance interest payments. Under such a regime, the Papandreou government would have succeeded because what happened to Greece was that although they reduced their primary deficit to only 1% of GDP, due to high interest payments, their debt level spiralled out of control and fed upon itself. The key factor is to remove market uncertainty from the equation and set specific goals for politicians to reach.

[opebo]

They should kick them out of the Euro - they are the problem.

[Wonkish1]

Yeah of course! Produce a primary surplus large enough to cover both A) spending and B) debt service and the bond markets will calm down and Germany will tolerate the amount level of monetization that has been occurring.

But I don't see how Germany has changed from that position since the beginning. And I don't see countries that have been willing to go that far.

[Insula Dei]

The Sudetenland would do just fine, I'm sure.

(Just kidding, just kidding)

[Lief 🗽]

Perhaps they could fly the German flag above their own? EU on top, German flag in the middle, Spanish/Greek/etc flag on the bottom. Or you know what, save some time and money, and just fly the EU and German flag by themselves over the Cortes Generales.

[CultureKing]

The Sudetenland would do just fine, I'm sure.

(Just kidding, just kidding)

Yeah, I was thinking that Greece could hand over Rhodes and Italy Sardinia or something along those lines.

[Beet]

Yeah of course! Produce a primary surplus large enough to cover both A) spending and B) debt service and the bond markets will calm down and Germany will tolerate the amount level of monetization that has been occurring.

But I don't see how Germany has changed from that position since the beginning. And I don't see countries that have been willing to go that far.

What must be avoided is the debt-interest spiral however. The debt-interest spiral means politicians are chasing a moving target, hence mission impossible.

[opebo]

What must be avoided is the debt-interest spiral however. The debt-interest spiral means politicians are chasing a moving target, hence mission impossible.

This is why it is preferable to have the ECB be the lender rather than 'private investors' or 'the bond market'.  The ECB can charge whatever interest it likes, or none, or even just forgive the debt.

[Wonkish1]

Yeah of course! Produce a primary surplus large enough to cover both A) spending and B) debt service and the bond markets will calm down and Germany will tolerate the amount level of monetization that has been occurring.

But I don't see how Germany has changed from that position since the beginning. And I don't see countries that have been willing to go that far.

What must be avoided is the debt-interest spiral however. The debt-interest spiral means politicians are chasing a moving target, hence mission impossible.

If you think its mission impossible than just default.

The issue is that they have cut enough to actually account for any moving target. They haven't even been willing to even first come to a balanced budget given current forecasts let alone any reasonable adjustments.

Look the same thing happens when you are a massive portfolio that is massively leveraged and getting margin called. You sell into the market and the future value falls because your selling into it, but you can't just not sell and pray everything gets better. You are actually going to end up losing more than your estimates based on the variable of you selling.

People instead want to lie to themselves and think that if they just keep on doing what they are doing the economy will turn around and fix the problem. It wont. So you have to take the hit and either aggressively cut spending or default(which will also force you to aggressively cut spending).

[Beet]

Yes, default is an option, but if so, then it is best if it is admitted at the outset, rather than shovelling billions or trillions and failing. However, no-one will admit that straight away, which is why it is important to have a viable plan from the start. If you look at the plan and find it impossible, then you know your answer.

The key here is certainty. The markets must have certainty in future outcomes. I see this as being guaranteed from two sides-- from one side by the ECB, and from the other side by the recipient country itself, in the form of automatical fiscal adjustment to meet targets, and/or balanced budget amendments and the like.

[Wonkish1]

Yes, default is an option, but if so, then it is best if it is admitted at the outset, rather than shovelling billions or trillions and failing. However, no-one will admit that straight away, which is why it is important to have a viable plan from the start. If you look at the plan and find it impossible, then you know your answer.

The key here is certainty. The markets must have certainty in future outcomes. I see this as being guaranteed from two sides-- from one side by the ECB, and from the other side by the recipient country itself, in the form of automatical fiscal adjustment to meet targets, and/or balanced budget amendments and the like.

There is no certainty in markets and politics. And you are fool to think that a country with 120%+ debt to GDP is going to get out of the trap its put itself in unless they balance the budget *now*. Its just not going to happen. If the deficit makes it 130% next year do you think it gets any easier? Hell no! To expect anything less than at least a very, very tiny budget deficit will pull a country back off a ledge like that is crazy. The % is just to big.

Either balance the budget *this year* or default that is the two choices.

[Beet]

Yes, default is an option, but if so, then it is best if it is admitted at the outset, rather than shovelling billions or trillions and failing. However, no-one will admit that straight away, which is why it is important to have a viable plan from the start. If you look at the plan and find it impossible, then you know your answer.

The key here is certainty. The markets must have certainty in future outcomes. I see this as being guaranteed from two sides-- from one side by the ECB, and from the other side by the recipient country itself, in the form of automatical fiscal adjustment to meet targets, and/or balanced budget amendments and the like.

There is no certainty in markets and politics. And you are fool to think that a country with 120%+ debt to GDP is going to get out of the trap its put itself in unless they balance the budget *now*. Its just not going to happen. If the deficit makes it 130% next year do you think it gets any easier? Hell no! To expect anything less than at least a very, very tiny budget deficit will pull a country back off a ledge like that is crazy. The % is just to big.

Either balance the budget *this year* or default that is the two choices.

Balance the budget in one year is not impossible for a country like Italy (or Spain). It is already running a primary budget surplus. It just needs help in paying off its interest.

[Wonkish1]

Yes, default is an option, but if so, then it is best if it is admitted at the outset, rather than shovelling billions or trillions and failing. However, no-one will admit that straight away, which is why it is important to have a viable plan from the start. If you look at the plan and find it impossible, then you know your answer.

The key here is certainty. The markets must have certainty in future outcomes. I see this as being guaranteed from two sides-- from one side by the ECB, and from the other side by the recipient country itself, in the form of automatical fiscal adjustment to meet targets, and/or balanced budget amendments and the like.

There is no certainty in markets and politics. And you are fool to think that a country with 120%+ debt to GDP is going to get out of the trap its put itself in unless they balance the budget *now*. Its just not going to happen. If the deficit makes it 130% next year do you think it gets any easier? Hell no! To expect anything less than at least a very, very tiny budget deficit will pull a country back off a ledge like that is crazy. The % is just to big.

Either balance the budget *this year* or default that is the two choices.

Balance the budget in one year is not impossible for a country like Italy (or Spain). It is already running a primary budget surplus. It just needs help in paying off its interest.

Well then do it and the interest rates will fall. Are you actually trying to tell me that if Italy announced 3 months from now that they had succeeded in coming to a balanced budget that the BTPs wouldn't rally substantially more than anything the EFSF, Eurobonds, etc. could do?

And that goes to show you that when you have huge debt loads its not enough to just produce a primary budget surplus you have to make it large enough to cover the huge debt service as well. That is the reality.

[Beet]

Yes, default is an option, but if so, then it is best if it is admitted at the outset, rather than shovelling billions or trillions and failing. However, no-one will admit that straight away, which is why it is important to have a viable plan from the start. If you look at the plan and find it impossible, then you know your answer.

The key here is certainty. The markets must have certainty in future outcomes. I see this as being guaranteed from two sides-- from one side by the ECB, and from the other side by the recipient country itself, in the form of automatical fiscal adjustment to meet targets, and/or balanced budget amendments and the like.

There is no certainty in markets and politics. And you are fool to think that a country with 120%+ debt to GDP is going to get out of the trap its put itself in unless they balance the budget *now*. Its just not going to happen. If the deficit makes it 130% next year do you think it gets any easier? Hell no! To expect anything less than at least a very, very tiny budget deficit will pull a country back off a ledge like that is crazy. The % is just to big.

Either balance the budget *this year* or default that is the two choices.

Balance the budget in one year is not impossible for a country like Italy (or Spain). It is already running a primary budget surplus. It just needs help in paying off its interest.

Well then do it and the interest rates will fall. Are you actually trying to tell me that if Italy announced 3 months from now that they had succeeded in coming to a balanced budget that the BTPs wouldn't rally substantially more than anything the EFSF, Eurobonds, etc. could do?

And that goes to show you that when you have huge debt loads its not enough to just produce a primary budget surplus you have to make it large enough to cover the huge debt service as well. That is the reality.

That is fine. That's what they should do. But the ECB should help them too. The world will not end if the ECB helps.

[Wonkish1]

That is fine. That's what they should do. But the ECB should help them too. The world will not end if the ECB helps.

If the ECB tries to buy up enough to actually put a dent into this you will have high inflation. If they want to continue to engage in tons of swaps with banks and buy every time the bottom is about to fall out with the BTPs they can do what they want, but the amount they would need to monetize to affect the overall picture here would be insane. And the dozens of German central bankers that have come out and said this have been spot on!

[Beet]

That is fine. That's what they should do. But the ECB should help them too. The world will not end if the ECB helps.

If the ECB tries to buy up enough to actually put a dent into this you will have high inflation. If they want to continue to engage in tons of swaps with banks and buy every time the bottom is about to fall out with the BTPs they can do what they want, but the amount they would need to monetize to affect the overall picture here would be insane. And the dozens of German central bankers that have come out and said this have been spot on!

If the ECB buys enough to end the crisis it will end the crisis. Things will be much better than the alternative. There will be no hyperinflation. That is absurd. And if the markets were convinced the ECB was determined, it would not even need to monetize that much. The longer they delay, the more they need to monetize.

[Wonkish1]

That is fine. That's what they should do. But the ECB should help them too. The world will not end if the ECB helps.

If the ECB tries to buy up enough to actually put a dent into this you will have high inflation. If they want to continue to engage in tons of swaps with banks and buy every time the bottom is about to fall out with the BTPs they can do what they want, but the amount they would need to monetize to affect the overall picture here would be insane. And the dozens of German central bankers that have come out and said this have been spot on!

If the ECB buys enough to end the crisis it will end the crisis. Things will be much better than the alternative. There will be no hyperinflation. That is absurd. And if the markets were convinced the ECB was determined, it would not even need to monetize that much. The longer they delay, the more they need to monetize.

You're acting like you can get out of a mess caused by 100%+ debt to GDPs in these countries without pain. Its just not going to happen. Someone has to take the pain. If what you were saying was true that you could just print a little and the bond holders are fine, the countries are fine, purchasing power stays the same, etc. than what your saying is that a central bank can print wealth. Not only are can they print money, but they can print GDP and give it to somebody. Its not going to happen. You can't get out of a debt crisis, pay the bondholders, keep prices stable, etc. with nobody taking a hit or feeling any pain.

A central bank can't print GDP or wealth and hand it to people. They can print money and increase its supply, but the printing of money is not the adding of any new value to an economy. Your just naive to think that its a magic bullet. Its not!

[Beet]

That is fine. That's what they should do. But the ECB should help them too. The world will not end if the ECB helps.

If the ECB tries to buy up enough to actually put a dent into this you will have high inflation. If they want to continue to engage in tons of swaps with banks and buy every time the bottom is about to fall out with the BTPs they can do what they want, but the amount they would need to monetize to affect the overall picture here would be insane. And the dozens of German central bankers that have come out and said this have been spot on!

If the ECB buys enough to end the crisis it will end the crisis. Things will be much better than the alternative. There will be no hyperinflation. That is absurd. And if the markets were convinced the ECB was determined, it would not even need to monetize that much. The longer they delay, the more they need to monetize.

You're acting like you can get out of a mess caused by 100%+ debt to GDPs in these countries without pain. Its just not going to happen. Someone has to take the pain. If what you were saying was true that you could just print a little and the bond holders are fine, the countries are fine, purchasing power stays the same, etc. than what your saying is that a central bank can print wealth. Not only are can they print money, but they can print GDP and give it to somebody. Its not going to happen. You can't get out of a debt crisis, pay the bondholders, keep prices stable, etc. with nobody taking a hit or feeling any pain.

A central bank can't print GDP or wealth and hand it to people. They can print money and increase its supply, but the printing of money is not the adding of any new value to an economy. Your just naive to think that its a magic bullet. Its not!

I didn't say it's a magic bullet. I know it's not, and I know there is pain. But right now, it, along with some other measures like balanced budget amendments, is the best course.

[Wonkish1]

I didn't say it's a magic bullet. I know it's not, and I know there is pain. But right now, it, along with some other measures like balanced budget amendments, is the best course.

Well since its your agreeing that it isn't a magic bullet. And since it sounds like you would agree that a printing press can't create wealth. Than who might you suggest takes the pain from printing because somebody does in order to pay those bond holders with money that hasn't existed before.

[Beet]

I didn't say it's a magic bullet. I know it's not, and I know there is pain. But right now, it, along with some other measures like balanced budget amendments, is the best course.

Well since its your agreeing that it isn't a magic bullet. And since it sounds like you would agree that a printing press can't create wealth. Than who might you suggest takes the pain from printing because somebody does in order to pay those bond holders.

Economics is complicated and I've explained my position here many times before.

[Wonkish1]

I didn't say it's a magic bullet. I know it's not, and I know there is pain. But right now, it, along with some other measures like balanced budget amendments, is the best course.

Well since its your agreeing that it isn't a magic bullet. And since it sounds like you would agree that a printing press can't create wealth. Than who might you suggest takes the pain from printing because somebody does in order to pay those bond holders.

Economics is complicated and I've explained my position here many times before.

Alright I'll lay off! I'm assuming you'll respond to a couple more before you read this and so I'll respond to those and then lets take a break for a while.

[Beet]

I didn't say it's a magic bullet. I know it's not, and I know there is pain. But right now, it, along with some other measures like balanced budget amendments, is the best course.

Well since its your agreeing that it isn't a magic bullet. And since it sounds like you would agree that a printing press can't create wealth. Than who might you suggest takes the pain from printing because somebody does in order to pay those bond holders.

Economics is complicated and I've explained my position here many times before.

Alright I'll lay off! I'm assuming you'll respond to a couple more before you read this and so I'll respond to those and then lets take a break for a while.

The truth is I really have a life to live, and I feel very strongly about this (obviously) so I keep wanting to respond to you but I should just drop it.

[Wonkish1]

I didn't say it's a magic bullet. I know it's not, and I know there is pain. But right now, it, along with some other measures like balanced budget amendments, is the best course.

Well since its your agreeing that it isn't a magic bullet. And since it sounds like you would agree that a printing press can't create wealth. Than who might you suggest takes the pain from printing because somebody does in order to pay those bond holders.

Economics is complicated and I've explained my position here many times before.

Alright I'll lay off! I'm assuming you'll respond to a couple more before you read this and so I'll respond to those and then lets take a break for a while.

The truth is I really have a life to live, and I feel very strongly about this (obviously) so I keep wanting to respond to you but I should just drop it.

I'm starting to be surprised how much time I've spent on here the last few weeks. Luckily for me I don't have a wife and kids, but wow I've racked up quite a few posts.

I have enjoyed some of our conversations though. Your definitely one of my fav's on here.

[Sbane]

Beet's point makes sense to me. If the countries are balancing their budget-debt service, why shouldn't the Euro zone help them out by giving them money to pay off their old debts at a lower interest rate? Balancing their budgets is key though, and a promise to keep the budget balanced needs to go hand in hand with that. Having countries default just due to an insane interest rate is nonsense. Countries defaulting due to not balancing the primary budget is a different story.

[Wonkish1]

Beet's point makes sense to me. If the countries are balancing their budget-debt service, why shouldn't the Euro zone help them out by giving them money to pay off their old debts at a lower interest rate? Balancing their budgets is key though, and a promise to keep the budget balanced needs to go hand in hand with that. Having countries default just due to an insane interest rate is nonsense. Countries defaulting due to not balancing the primary budget is a different story.

First of all, you have to admit that if the countries did balance their budget this year they wouldn't need help from the Eurozone because their cost of capital would fall considerably.

Second, the interest on their old debt isn't a huge problem. That is fixed debt at reasonable interest rates. The problem is that their future debt as some of this old debt rolls over is looking like its going to come with very high interest rates. Again if they only balanced their budget this year they would avoid that problem altogether and the interest rate would fall considerably.

Third, when you are referring to the "Euro zone helping them out by giving them money" are you referring to the ECB printing money and buying the debt? Or are you referring to the EFSF's now hilarious attempt to lever up and through a few different complicated mechanisms that would make Goldman proud lower the interest rates on new debt as well as buy some? Or are you referring to Germany allowing the issuance of Eurobonds which means all the countries would be liable for that debt? Or something else?

Lastly, if you think even Germany is in all that much of a strong position here to even allow risk transfer onto their balance sheet, fiscal transfers, or assumption of debt you are sorely mistaken. Germany is at 80% debt to GDP, but it hasn't recapitalized its banks yet and they will certainly try to when that time comes. All of Europe's(including Germany) banks are 3 times more levered than our banking system today and they are more exposed than our banks were in 2007. Today Bank of America makes Deutsche Bank look like Freddie Mac. So as soon as this stuff comes to a head in Europe Germany possesses just enough "credit limit" to stabilize its financial system and they know this. If they try to help the rest of Europe out now then they have no room to save themselves down the road.

And the moment this really bad situation becomes not just something that is going to take down the profligate spenders of Greece, Portugal, Spain, most likely Italy, etc., but also the European core of France, Belgium, Austria, Germany, etc. is the moment you decide to take the easy route of transferring risk from the screwed countries to the more solvent ones. And then they all go down together and you really have f**ked up!