I think the German's will finally relent when Italy and Spain threaten to give up the Euro, and not until then. The German's still have visions of wheelbarrow loads of marks for a loaf of bread, and the final straw where the woman is feeding marks to the stove because they are cheaper than wood or coal to use as fuel. The Italians and Spaniards aren't desperate, yet. Pretty soon they will run so low on gold to sell, that they will have to use whatever is left to back their new currency before they have none left to do it with.
I agree the US remembers the depression and Germany remembers hyperinflation and they each adjust their future fears accordingly.
Nice post brettman. I said this back in 2/2007. " Personally this is my take. Most nations are running troubling deficits. Japan has 2.6 times the per capita debt of the U.S. Gold is becoming an uber currency in itself. That's why even during periods of relative dollar strength, gold keeps chugging along." http://www.elitetrader.com/vb/showthread.php?s=&postid=1353366&highlight=uber#post1353366
A decision to opt out of the euro would have to be one of very, very last resort, especially when you're moving to a [perceived] weaker currency. It also could stoke inflation, something the Italians and Spanish have knowledge of and knowledge of it's repercussions.
I usually read ET with interest to have info about U.S. economy and a different point of view about markets, and it's really a surprise for me reading instead about Italy. Perhaps it's a sign of the times, and of the current financial difficulties, in particular for the dollar. I suspect that only two years ago, a lot of you guys may be didn't even know about the existence of the euro. The issue that you are talking about is of course a primary concern for us and our savings and investment. Of course it's true that there are different economies, Germany is known for being an unstoppable economic "locomotive". At present it has full employment, and Weber (Bundesbank president) is speaking, even today, about RAISING rates. http://www.bloomberg.com/apps/news?pid=20601068&sid=ay9yPUVEQ2VQ Rates are not a problem, high inflation is a problem. The fast growth of M3 is a problem. BCE is doing a good job to bolster confidence in our currency and our economy. The teaching from old Bundesbank is that stability is a parameter of key importance for medium term growth. Inflation brings poverty and social disorder. I can tell about Italy, not about Spain: we don't feel problems with our banks (they don't have subprime, or have only really small amounts) nor with real estates: it's slowing down, but home prices are NOT collapsing (I think -5% max). From my position I have first hand information about our economy and the consumer confidence, and I can tell you that in Italy in the last 2 month we had really a slowdown, but it's due to a massive TV campaign for the incoming polical election (on 13 April). Our media are spreading pessimism about crisis and inflation just to scare people and gain votes, and so people is scared to buy anything. I think that in May, after elections, it will be all over. The spread are NARROWING: I look daily at the spread of italian goverment bonds with german bonds (BTP-BUND). It has widened in the last 3 month, with a maximum at the peak of the crisis one month ago, now it's narrower at 52 bp on the 10 year. We discuss the matter a lot, and again, it's a reasonable sign of the times: low liquidity around, panic, repricing of risk, fly to quality towards the best German paper, so all the peripheral bond (Italy, Spain, Portugal, Belgium, France, etc etc) are suffering. In 1992 Italy had a really bad crisis, they feared the default, Argentina style. We came out simply with a lot of taxes, and the privatisation of national industries (someone says that that crisis was only a way of some powerful people and bankers to get control of italian national assets). However THAT was a crisis, not this. If there will be any problem with national debt, we are not worried, because we know how our govenment will make out: in the usual way, taxes, pension reforms and alike. (Any other italian here ? Sigh.) Sorry for being perhaps rude in the last message: talking about the old currency Lira is a nonsense, but of course feel free to do it because I read it with interest, I'm honored to see that you have discovered a world outside USA and are talking about us. Damn, it took me more than 20 minutes to write this message, I wish to be more fluent !
You got your point across well, I thought. It sounds like Italy might be in better shape than the US at the moment. How is inflation and unemployment, there? Here, the numbers are lies, so people feel bad about the economy, but they don't know why, exactly, and the government keeps saying all is well. For example, the government says unemployment is 4.8%, but they only include about 1/2 of the unemployed. and they say the inflation is 2 or 3%, but its really about 5 or 6% at least. As for asset values like houses, the problem with things going downhill is once they START going downhill, they go faster and faster. Its called a "snowball" effect. That's what's happening here now. The problem is that the debt, both public and private is huge, and exceeds the ability to repay. There is no easy way out, IMO.