Cross Atlantic interbank war on horizon : Economics & Finance - Page 2

Re: Cross Atlantic interbank war on horizon

by MrBill » Tue 08 Apr 2008, 03:54:04

$this->bbcode_second_pass_quote('Tyler_JC', 'B')y "Italian Central Bank" I was talking about the hypothetical new central bank of Italy that would have to be created if they left the EU and the Euro.

The ECB would then be bailing out another country, not a member state because Italy would be a non-member in this future scenario.

Again, highly unlikely because of the cost of that kind of radical move.

The Italian central bank is still in existance and supervises Italian banks as well as acts as a representative to the ECB not unlike the Bundesbank.

Ironically, there is no legal mechanism for a country to leave the ERM. Either they did not think of it at the time or they wanted to create a burning house, so that existing members were trapped inside the euro project with the costs of leaving to high a barrier to contemplate?

However, Italy would be a good candidate to leave if they cannot reform their economy; improve labor productivity; and reduce their fiscal deficits. The spreads of Italian bonds over German bunds is widening due to credit concerns even though both are in the ERM. It is rumored this is despite the fact that the Bundesbank may be buying Italian governments bonds to support their price.

$this->bbcode_second_pass_quote('', 'G')erman unit labour costs fall to lowest level since 1992

German unit labour costs fell during the forth quarter by 1.1% compared to the third quarter, a sign that Germany's drive to increase its competitiveness continues unabated, FT Deutschland reports. Since 2003, Germany's unit labour costs were down by 6.1%. The FT quotes German economists as saying that the main reasons for this improvement were job cuts and wage moderation. Also, during 2006, labour productivity increase by 2%.

Source: Italian government crisis

The cost for Italy to leave the ERM would be in the trillions of euros. The odds are low now, but in 10-15 years it is really not outside the realm of possibilities. Continued failure to adhere to the Maastricht Criteria with regards to debts and deficits must have consequences otherwise it threatens to undermine the euro's stability.

Not a problem when the euro is over-valued, but it may be a problem as Europe ages and future growth slows, while entitlement programs continue to suck up a high precentage of GDP. Never say never.

The organized state is a wonderful invention whereby everyone can live at someone else's expense.

Cross Atlantic interbank war on horizon

Re: Cross Atlantic interbank war on horizon

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