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More European Turmoil: Romanian Government Set To Topple Tuesday As Country Faces Financial Crisis
Latvia, Sweden, the Netherlands, and now EU-member country Romania: the European periphery is ablaze, even as the Euro is at 52 week highs. It would be joke if it really wasn't so sad. Clariden Leu reports that "Romania's parliament looks set to topple the minority government on Tuesday in a no-confidence vote ahead of a November presidential election and raises fresh concerns over the country's IMF aid." For a country, whose financial future is closely tield with IMF goodwill, this could well be a catalyst event: "Economists warn about the impact of political standoff on fiscal reforms and budget cuts needed to ensure the International Monetary Fund continues to disburse aid from its 20 billion euro anti-crisis package."
The centrist and leftist opposition have called Tuesday's vote after Prime Minister Emil Boc's coalition cabinet split earlier this month, plunging the country into political crisis at a time when it is trying to fight against recession.
The opposition is keen to lay the blame for rising unemployment and falling wages on the ruling Democrat-Liberal Party, closely allied to President Traian Basescu, now frontrunner in the Nov. 22 election.
If the government falls, Boc will continue to govern with limited powers until Basescu picks a replacement, which might happen only after the presidential vote. The second round of the election was set for Dec. 6.
A major overhaul of Romania's creaking and complex pension system has to be introduced by the end of the year and economists say the government risks overshooting the IMF's budget deficit target of 7.3 percent of gross domestic product.
After Latvia this creates another Eastern European currency crisis focus:
Regional markets are on high alert. Bucharest's coalition collapse battered the leu and dragged down currencies in neighbouring countries. Dealers say markets also fear that political turmoil in Poland may return and weaken currencies.
The market wants a government -- anybody out there!" said Nicolaie Alexandru-Chidesciuc, ING chief economist in Bucharest.
"Without a government there is no certainty. The market cannot be immune to that."
At the end of the day, you add up enough of these "minor" regional crises, and you have a big regional crisis. Yet nobody cares, as the "trade of the day" is long EUR, short USD, going against it would be "fighting the tape" and "getting in front of a speeding train" and other such trite soundbites. When you have a bubble nobody cares about facts until it is too late. If in the meantime, the status quo is irreparably damaged, it is all good. Mr. Bernanke will pull something out of his magical printing press for that as well.
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Go to war against the IMF. Take the money.
It's all ours anyway and ain't worth shit now. Let 'em keep it (just don't give them any more.)
Tic Toc, Tic Toc, Tic Toc...Anyone care to wager which European country will be the first to default?
http://www.publicpolicy.umd.edu/news/This_Time_Is_Different_04_16_2008%2...
gotta be in eastern europe, that should be a no brainer.
of the others, my money on Spain.
then again, Larry Summers just said that all is okay and improving; just look at the Dow mr. joe 6 pack.
I like your call on Spain. The real question there is which bond do they hold more sacred: their affiliation to the European Union, or the affiliations of their labor unions.
My guess: The euro takes it in the dumper.
Every single country that owes IMF money will default. European or not.
The Ukraine. Wall Street & The City are looking for a fresh set of hungry imports.
NOTE: And DH is looking for Robo page 3 girls of the CCE pics to go with the days news...
Obviously an emerging economy (Latvia?) goes first, but Austria (75% of GDP worth of bank exposure to emerging markets) is vapor.
I always had a suspicion that it would be Eastern Europe that triggered the second leg of the crisis.
It only takes a couple of these to fall over and the market does an '97 Asian style run from all Eastern European currencies and assets and that triggers national level defaults.
They may be small economies, but the exposure of Western banks is immense. Austria has some ungodly percentage of its GDP exposed as loans through its banks to Eastern Europe. I've seen estimates over 100% of GDP. German and Swedish banks are also extremely exposed.
Funnily enough British and American banks stayed out of it, but a crisis is a crisis and it'll spread contagion
Romania is (was?) on the Euro track, they were supposed to adopt going into 2014.
As much as i HATE the EU ( ok, i pretty much hate ( as in dislike, not actually hate ) everything, but this is a special kind of hate ) the major default wont happen in Europe, oh no, it will happen much much closer to you; CA, nuff said. That will be the trigger, the big bang, the opening curtain for the fat lady song; and Europe, the old hag, will just hand out the notes.
they have been talking about eastern european defaults for about two years now. but it never happens. maybe the austrians have figured out a way to sweep their losses under the rug....
good point on cali....it is already toast, just a question of how good can they make the crash look.
As goes California, so goes the country.
So CB, are you betting that EU will pretty much nationalize their banks? Won't solve the problem though.
When I was much smaller, I had a pleasure to overhear a convo with a former director of huge factory in the former USSR, whose husband was in charge of forest & related resources in what is now Ukraine & Belarus. She said that most of the problems with USSR were because production forces, factories etc do not have a REAL OWNER. (it was said by former high ranking communist, during socialism, who came from a very poor village and rose in ranks.)
I think most of the problems we are facing with banking are of the same nature. Those banks became faceless and don't have real PERMANENT owners. Just millions of shareholders and a few of CEO's but those are there only for a short time ride with varried interests. If City or BoA had a single owner owning more than 40% of voting rights, those banks would never be in the trouble they are.
Makes sense but consider that personal ownership is usually, but not always, a panacea. Pls do not forget tnat dumb is dumb and greedy is greedy no matter what rule set we use. The owner can do something stupid just as easily as the CEO hired by a board. On the plus side, stock markets let almost everyone participate. Rules that allow public owner through stock exchanges, but which require accountability, and a government with honest regulators and judiciary to enforce those rules, seems IMO to be the best answer to the who should own the economy questions. Zero out of three perhaps too many times.
As many have commented its weird what is happening to the markets. Stock specific bad news comes out with clear warnings matters will get worse--but the stocks actually rise. WTF
Breaking new ground cheeky, you're using nested parentheses in conversational writing. I wish I'd known that it was legal to do that!
This display of syntactical aplomb brings me to my sort of unrelated point, we don't have to change the laws to make what the governments are doing, we just have to change the meaning of the words that are in the current laws.
I mean, for example, the US Constitution, if you change the meaning of the world Welfare to mean 'free shit for the poor' instead of its former 'well being' then hell, you can do anything!
Liberty should be changed to mean "the repayment of debts by government edict." Then this would all be a moot point in the US. Since the US has the reserve currency, we'd be able to save eastern Europe too by just giving out all the money -- we won't even have to get Paul Krugman to stump for us. See the constitutionally protected logic?
One of these days Croatia will join the EU and you'll have to bite your tongue :-D And on Cali, they pay more to the Feds than they get. So while nobody is talking sucession, they can tell the Feds to stuff it, keep what they kill and be much better off than before.
At least for CA as of 2005 (best data i could find on the fly) they gave the Feds $1 for every $0.78 recieved.
http://www.taxfoundation.org/press/show/22659.html
From a pure financials perspective, that's true.
But from a financial infrastructure perspective -- CA has the benefit of the Fed.
Eastern Europe is more of a mess. The lending institutions (primarily in Austria, GB, Germany and Sweden) have the "protection" (ie: cooked books) of the ECB. But the economies of the wobbly Eastern European nations have no such mafia uncle.
Ultimately the only solution that the financial world has come up with is to close our eyes, cover our ears and pretend that all of this bad debt isn't actually bad at all.
But all it takes is one party to flinch...
Unity among the players in the US is higher than European unity. I wouldn't be so sure the first domino to fall is CA.
Gnarly Dude!
Mike, you like everything, well we thought you did...
What's up with WFC today? It looks like either blatant insider trading ahead of earnings report this week or a bull trap.
wfc is the biggest accident waiting to happen.
they are alive ONLY due to funny accounting and fasb 157 chicanery.
as to the trading, wfc has been trading today exactly as it has been for several weeks, i don't see any difference. if you do, please share. thank you.
Imagine a lot of stops being taken out in WFC today. But then, BAC is being pulled up with it.
meanwhile, European investors pile into US stocks due to a valuation mirage created by a sinking USD. If Bernanke et al cant keep the devaluation scheme going this USD trade is going to become so unbalanced it could lay the foundation for the mother of all crashes. personally, i think if the TYX yield moves above 4.65% on a closing weekly basis, the crash meter goes into the red zone.
Strange that Romania would not have its own Vampire Squids to save the day.
Next stop, Sofia.
I do try to keep up. Although I admit that my methods are a bit unorthodox. Thanks Andy for the professional confirmation of my attempt at research. You know, it is really gonna suck living in that region soon enough.
Huh? What is up with the Netherlands? No default or change of government here.
hahahaha- cuz u can't make this up
( DJ ) 10/12 11:59AM *WSJ: IMF Mission Arrives In Ukraine For Talks
DJ ) 10/12 11:59AM *WSJ: IMF To Decide Whether To Recommend 4th Loan Tranche To Ukraine
based on this and Miles' comment above, I can only imagine that robottrader is getting pretty excited.
i am so looking forward to ukie pics today.
ssssh, please don't tell anyone, but my wife of 25+ yrs is a ukie.
Another part of the shield story DH? After all, Germany wants their gas supplies uninterrupted this winter.
Lizzy, once again... impeccable.
you forgot about Ukraine. A little birdy whispers that there will be a huge mess during their upcoming elections this winter. Anyone want to bet on Russia pulling a gas plug yet again? (Unless of cause our overlords from GS & JPM former division will lose on purpose or not their hold on oil above 60...)
Speaking of an upcoming government mess, Iceland looks imminent. Talk of the start of an International Debt Moratorium Coalition? (I know... just ignore the name of the author and take the info for just that)
http://www.globalresearch.ca/index.php?context=va&aid=15579
Ogmundur Jonasson is widely regarded as a possible candidate for prime minister. His resignation is considered the de facto start of a government crisis likely to lead to the fall of the current coalition, perhaps as early as mid-October.
Birgitta Jónsdóttir has now placed the question of a debt moratorium squarely on the international agenda. In recent months, political forces in the Philippines and Sri Lanka had raised the question of debt moratorium, as had the leaders of UNCTAD. With the news coming from Iceland, the formation of an international debtors’ cartel to confront London, Wall Street, and the IMF has suddenly become a real possibility.
I am a housecat who lives in Ukraine.
Ask a germane question and if I see it I will answer to the best of my feline abilities.
Nationalists and other dubious types: you may not like the answers you get.
We knew this was coming...Eastern Europe is to Germany, et al. what the sub prime crisis is to USD... Also Italy and Spain are not much better...
so why is the Euro strong?? This might knock it down a bit..
Bernanke will definitely pull something magical out of somewhere. But I don't think it'll be his printing press; unless his printing press prints shit.
today is a fast news day, eh?
There hasnt been any serious bank failures in eastern europe. All the major banks in the US have gone beyond bust. several hundred will go bust this year in the US. The crisis is much smaller in eastern europe compared to the US. The solutions are actually very simple in europe. Germany will assume the debts and assets of these financially bankrupt factories and industry. Ukraine is Russias problem. Latvia and Estonia will move back into the sphere of Russia where she belongs.
"Latvia and Estonia will move back into the sphere of Russia where she belongs."
Never, unless they are occupied by Russia. Those countries have never belonged to Russia and their cultures & languages are totally different.
Also there have been serious bank failures in the Eastern Europe, the press just doesn't mention those often.
The solutions for Europe are not simple because the problems are much better hidden. For starters, they are running out of energy, while we still have huge gas reserves. They are much more export oriented than us. They are battling their own trade wars with pretty much rest of the world. Most of those countries but Germany did have a RE bubble. Most of those countries do have substantial budget deficits. Their pension obligations are in even worse shape than ours, because of generous benefits and demographic situation.
Unfortunately, we are trying to catch up with the degree of EU troubles rather fast.
wow, this is simply erroneous on all counts. the crisis is much bigger in eastern europe. 75% of EM lending came from western Euro banks. Their domestic markets are already reeling (think PIIGS), without dealing with the spectre of currency devaluations that will cripple whatever is left of their equity in multiples.
this comment is so beyond stupid, it makes me wonder where on Broad u sit...
Thanks Oso and Chaos. +1
The black swans are circling...
Once upon a time members of the Euro and wannabe members had to keep their budget deficits to less than 3% of GDP.It was called the Stability Pact. Ah, the "Good Ol days".
It seems clear that for the first time since government stimulus and central bank priming began in earnest that liquidity is drying up.
Today is October 12th, the turning point. A double top on futures and Euro-trash countries are failing. The bears awaken...
The_Euro_Sucks. The US banks offloaded some of the subprime morgages to other parts of the world. Europe caught some, it also caught Easern Europe's subprime's and now are slowly starting to catch our own. Ofcourse the beauty of unfunded liabilities, aging population & collapsing states states didn't show all it's glory yet. The pleasent thought of having hardly any natural resources and being export oriented combined met subtle QE keeps the Euro strong. Only the collapsing banks gets irritating every now and then. But wait, the Euro is backed with 15% gold, yes that is it. That hasn't been leased out or sold or whatever. Really it amazes me that the Euro is this strong
Germany is the number one exporter to the world. Thats real wealth folks. We aint talkin about timber and coal but real high end, high priced finished goods.
Mike, I thought you loved everything about the EU, you sure are twisted kinda like a clown.
Germany wont finance the losses of estonia or latvia. Russia can help to some extent. There is no AIG/Citi/Goldman/Bear/Lehman/ style bust in eastern europe. Most of their loans are for factories and industry NOT McMansions. They dont have a Miami/Las Vegas/Phoenix/LA/Orange County/ style collapse.
"Most of their loans are for factories and industry NOT McMansions. They dont have a Miami/Las Vegas/Phoenix/LA/Orange County/ style collapse."
ok...but if they financed all the factories, why did Latvia have a trade deficit of -25% GDP?
http://englishrussia.com/?p=802#more-802
The Netherlands are doing just fine.
Latvia, Sweden and Romania don't have the euro as their currency. Only 16 of the 27 member states of the EU use the euro. Sweden is in far better shape than Latvia and Romania, and no, a Latvian (or Baltic) collapse will not cause a Swedish collapse.
Remember that Latvia is a midget (0,2 % share of the EUs GDP in 2008), which so far also has implemented impressive counter measures to improve their state finances. Latvia will probably not devalue or default on their debt, and even if they do, the impact is minimal.
Poland (non-Euro), the largest economy from Eastern Europe in the EU, is performing strong. No housing bubble or excessive credit leverage, and economic growth in 2009.
So why is the euro so strong? Well, the EU (and the euro area) has a positive trade balance. The ECB hasn't implemented quantitative easing like the Bank of England. Nevertheless, I doubt the euro will strengthen much more against USD.
Economic turmoil in Europe? Yes, for sure, but keep it in perspective.
Sure, the Netherlands are fine. Even the central bank is cooking its books acording to some 'unofficial' blogsites and now morgage to GDP is over 160% of GDP according to them. What makes the Dutch different is that the housingbubble didnt yet start to deflate seriously. Banking sector is in serious problems with the failure of the DSB highlighting its (subprime) troubles. the ING as a systembank being to big for the country and already received 45 billion in support (to a population of 17 million), state debt near doubling since last year... sure just doing fine.
Really I guess my definition of fine needs to be adjusted I guess. Sweden being fine, sure Spain, Ireland, Italy and Greece are also fine. Just as plummeting exports, shrinking GDP, killing unemployment, out of control budget deficits are signs of strenght. Just have to adjust my perspective of doing fine. Sure monetary base took 6 years to double instead of 1. Man normality keeps getting stranger.
The states are in a vise, with California on the live end and Vermont on the dead end. This vise is inside another vise, with Eastern Europe on the live side, and the US on the dead side. The program is automatically closing the vise.
Latvia is interesting. Home prices are down 70% year-to-date, and almost all mortgages are in Euros or Swedish krona. The Presdident wants to lower mortgages on all homes to current appraised value. Understandably, the Scandanavians gagged.
Latvia held a bond auction last week with a bid-to-cover of exactly zero. No bids. CNBC-Riga no doubt spun this as saying everyone was too busy shopping to bid.
I have the feeling that the world is subject to this immense force of status quo and inertia. We all have the water up to our eyeballs but nothing seems to change anywhere.
If there's some wizard in psychology out there, I'd like somebody to explain how in the midst of such gigantic crisis, it is possible for nothing to change. If we don't change when the water is up to the eyeballs, then we will just have to roll in the barrel over the edge of the waterfall and crash below. Maybe then something will change. Maybe everything has to collapse in order that new structures can emerge. Right now it seems we are living a never ending episode of the Simpsons.
I have the feeling that the world is subject to this immense force of status quo and inertia. We all have the water up to our eyeballs but nothing seems to change anywhere.
If there's some wizard in psychology out there, I'd like somebody to explain how in the midst of such gigantic crisis, it is possible for nothing to change. If we don't change when the water is up to the eyeballs, then we will just have to roll in the barrel over the edge of the waterfall and crash below. Maybe then something will change. Maybe everything has to collapse in order that new structures can emerge. Right now it seems we are living a never ending episode of the Simpsons.