http://t.co/eNBpc2Z7 Anleihentausch Griechenland verhandelt mit Gläubigern http://t.co/OjCQUDp4

November 15, 2011 11:30 am via HootSuiteReplyRetweetFavorite

@luxembourg_news

news luxembourg

Yes, it’s fitting that this is a little Luxembourg dog! (Actually, the piece to which it links – with the second link, not the first – itself passes on the original scoop from the Greek newspaper Kathimerini, via Reuters. But unfortunately we don’t do Greek here at €S.)

Here are the alleged options on the menu:

• Per €100 of debt, creditors will get somewhere between a €10 and €20 cash-payment; for the rest, they get between €30 and €40 (again, per €100 of debt) in a brand-new debt security with a term of between 20 and 30 years and yearly interest of about 6%.
  
• OR else they could have just €37 per €100 debt wiped out entirely and for the rest get a 15-year bond with interest “somewhat higher” than 6%. That sounds a bit better, yes; that’s the proposal from the Institute of International Finance (IIF) which is negotiating for the private creditors.

                          

Of course he is! Lately what has been dominating the economic front has been the Eurozone, especially Greece and Italy. Even when interviewed by a leading German newspaper, Krugman does not hold back, as we can see in the extended interview published on-line by Die Zeit last Friday: “The euro will mutate into an extended Deutschmark”.

Among his remarks:

• Krugman truly lets his freak flag fly when it comes to the European Central Bank as the only possible savior left for the Eurozone, the only institution left that can save Italy by buying as much of its state debt as necessary to push the interest rate it pays down way below the current ~7%. Yes, that sort of “lender of last resort” function is forbidden to the ECB by treaty; nonetheless, according to Krugman ECB officials should – and will – just say “Let’s forget the rules, we have to buy those [Italian] bonds . . . . Otherwise the whole euro-project fails.” Later, by way of mitigation, he even offers an example of the Bank of England “breaking rules” back in the 19th century – the reference is rather too obscure.
  
• The interviewer ventures “But this euro-project was pretty much destined to fail from the start” and Krugman readily agrees, calling it “a horrible mistake,” since “the requirements for a common currency were lacking” from the start.
  
• And oh, he later adds, “Greece is simply fundamentally insolvent.” Portugal, too. Probably also Ireland. But not Spain or Italy, actually – huh? You see, fiscally-speaking, Spain and Italy could handle their levels of state debt at interest-rates of around 4%, say, but not at the 6-7% that Italy is currently having to pay for new debt. He calls that a speculative attack, but was probably just using the most readily-available phrase for interview purposes – I wager that that is more accurately characterized, including by Krugman himself, as a self-reinforcing panic-attack (or even “run” on state securities) whereby fears about their solvency causes the interest-rates to rise, which spurs further fears about their solvency, etc.

A euro-exit is the better alternative for Greece. The risks for the rest of the Eurozone are exaggerated.

For many this will actually be a sort of “No sh*t, sherlock!” kind of article – the benefits of a Greece exit sound better the more you hear them although, yes, there will be some chaos – but maybe not for Prof. Caesar’s German audience. He also has a similarly cavalier attitude to rules and formal treaties as Krugman, like towards the fact that no exit from the Eurozone is actually provided for in the protocols: “The relevant currency-union treaties have already been so frightfully abused in so many ways (No-bail-out clause, prohibition of state-financing via the ECB) that one more violation for Greece would de jure be a mere trifle.”

Also in Die Zeit there is Crisis-talk for Dummies, in case you’ve fallen behind a bit on Eurozone developments and need to update your vocabulary. But alas, it is of course in German, although a few of the words (e.g. “Haircut”) are in English.

                          

#Referendum in #Griechenland: #Papandreou riskiert eine globale Finanzschmelze http://t.co/Q5z7zEYw #Geld

November 1, 2011 2:39 pm via bitlyReplyRetweetFavorite

@weltonline

Welt Online

Yes, every other newspaper is writing about this as well, but this particular Die Welt article, by D. Eckert and H. Zschäpitz, stands out for its headline: Papandreou risks a global financial meltdown, or rather the alarm such a headline evokes in contrast to the serious, mainstream sort of paper we all know Die Welt to be – i.e one that doesn’t usually resort to such headlines. Yes, there are no doubt similar-sounding titles in tabloid papers, and not just in Germany, but all that is mere dog-bites-man.

This piece also stands out for the handy list it provides – you have to scroll down a little, look for Die größten Wertverluste . . . – of the banks which have lost the most market-capitalization, so far, from the plummeting prices of their shares. FYI, BNP Paribas stands at the top, with nearly €4.7 billion lost, followed by Deutsche Bank. (It also stands out for author “H. Zschäpitz”: isn’t that just a howler of a name? But no doubt the fellow has a Google Alert on it and will be reading this blogpost sooner or later – my apologies!)

Otherwise, though, I stand vulnerable to the charge of European tokenism. Because the piece that has really clarified things for me is in English, and written by our old friend Dana Blankenhorn. Greek Latest is Solar Scam is its title, it does spend a few paragraphs dissecting the faulty economics behind a Greek solar-energy investment plan. But then it addresses what Papandreou and the Greek authorities are really trying to do with this referendum. Given that Blankenhorn assumes that the result will be “No,” it’s simple: they are threatening to take the rest of Europe to down with them, unless they get an even-better debt-relief deal than the 50% they got from the EU last week.

You should check it out, and the article from Seeking Alpha that Blankenhorn links to as well. Strangely, his link to it reads “Sink the euro” even though that other article itself argues that there is still a chance for a “Yes” vote!

                          

Of course there will be others. For heaven’s sake, there were already two others (i.e. European bank nationalizations) happening even as Dexia hogged the headlines the past few days. (Details here, in English: namely a Greek bank – surprise! – that was nationalized after getting in trouble over money-laundering, and a Danish bank that made foolish real estate loans.) And now we have further explicit confirmation of this from Kleis Jager at the Dutch newspaper Trouw: French prepare in secret for more misery.

Topped by an unfortunate photo of current (unelected) Belgian Prime Minister Yves Leterme and France’s PM François Fillon with sly, conspiratorial smiles on their faces, Jager’s piece tells of how, even before Dexia, the French government realized that it needed to get ready to save at least “two or three” big banks – preferably by forcing them to sell themselves to outsiders with big money.

(Just as Luxembourg did with its part of Dexia, selling it to the Qataris, for example. You’ve got to admire the Luxemburgers, though – on the very Sunday (9 October) that Dexia was collapsing, finance ministers were feverishly meeting, and Qataris were presumably being wined-and-dined, they were also holding their national elections!)

Wait, you want names? No problem: according to Trouw, the French had in mind specifically BNP Paribas, Société Générale and Crédit Agricole as the banks where they would need to intervene. No Dexia on that list! But all of these have done good business through the years – “good” so far – providing loaned money to not only Greece, but also Spain and Italy.

To be fair, this is not Jager’s scoop, but rather one he credits to the French paper Journal du Dimanche. BNP Paribas and Société Générale immediately issued denials once the latter had published its report. But I refer you again to Finance Minister François Baroin’s comments cited above.

                          

Precious little, by most accounts. Perhaps that was the best to be expected, given how hard it is to get anything done in most parts of Europe in high summer-holiday season, and the fact that both, in effect, had terminated their own vacations early to meet.

(And no, rest assured that Chancellor Merkel does not regard such trips to the City of Light as recreational in any respect. Still, from the various photos emanating from that summit – check out for example this one from the De Morgen piece – one could even get the impression that they have become more comfortable in each other’s presence, something that was a problem before, as has been noted in this space.)

Continuing the beach theme, here’s one reaction, from Het Laatste Nieuws:

#geld Merkel en Sarkozy strooien zand in de ogen van de mensen: De plannen van de Franse president Nicolas Sarko… http://t.co/1cJEZ9c

August 17, 2011 8:41 am via twitterfeedReplyRetweetFavorite

@HLNlive

HLN Live

“Merkel and Sarkozy throw sand in people’s eyes” – but who is saying that? The HLN editors? No, that comes from former Belgian premier (now in the European Parliament) Guy Verhofstadt. He’s sort of a nerdy political guy – there’s a great shot of him in that HLN article, together with yet another shot of Merkel and Sarkozy posing happily together – but has been a prominent figure on the Belgian political scene for quite a while, and on the European level is mainly known as a convinced federalist.

What was the main thing this “royal couple” could offer the press after their meeting? It was the formation of a so-called “economic government” within the framework of the Eurozone, chaired by the President of the European Council (currently Herman van Rompuy) and meeting perhaps twice a year. But that clearly is a frequency of consultation which is way under what is appropriate. The plan also falls short on the personnel side as well – and I’m not even referring here to Van Rompuy, whom many regard as a colorless, ineffective figure. No, if there is to be an “economic government,” then it needs to be run by experts, namely by officials from the relevant Directorates General of the European Commission.

That is basically Verhofstadt’s reaction to that one-day Franco-German summit yesterday, which he is plainly putting forward with a full-court press: not only are there newspaper articles such as in HLN, but I also heard him putting forward his points in English on the BBC World Service and listened to a similar report on the local Belgian news even as I was writing this post.

Basically, to translate things into popular current American language, the “royal couple” meeting in Paris in merely “kicked the can down the road.” In so doing, they left themselves vulnerable to letting outside events take control of further developments instead. For example, they rejected the idea of “Eurobonds,” i.e. debt securities issued in the name of the EU and therefore taking advantage of German levels of interest. But, as Verhofstadt noted in that BBC interview, the next crisis around Spain/Italy will likely make them change their minds on that fairly quickly.

                          

If you weren’t alarmed enough yet by the European situation, try this interview on for size (use Google Translate): http://t.co/K6EyrTs

August 16, 2011 4:23 am via webReplyRetweetFavorite

@B_Eichengreen

Barry Eichengreen

Turns out that the interview in question is of UC Berkeley Prof. Barry Eichengreen himself, conducted by Die Welt writer Tobias Kaiser. (That link in his tweet opens a PDF of the interview. Of course it is in German, but no need for Google Translate when you’ve got the EuroSavant!)

Well, who among us who publishes on the Net can ever be immune from such cross-posting temptation? Besides, he has some interesting things to say on the current transatlantic debt crises, and his piece was even retweeted, and so implicitly endorsed, by Doctor Doom himself.

Prof. Eichengreen emphasizes that, whatever else might be going on currently in the Eurozone, Italy and Spain must now be the focus of policy-makers’ attention. That is not so insightful per se – German Chancellor Angela Merkel is in Paris today to meet with President Sarkozy and presumably the public finances of those two ailing Mediterranean states will be high on their agenda. (Not that top-level officials from either will be present; that’s not always necessary when the EU’s two big powerhouse-states are having discussions.)

Rather, the interesting nugget from Eichengreen’s interview is his “tough love” stance towards Italy. Economic growth there is vital for resolving that country’s fiscal problems, and by extension for averting a general economic crisis and euro-collapse. The problem is that the Italian economy has not exhibited very much growth in the past few years. Something drastic has to change there, meaning that there have to be substantial reforms in the way the economy is run, and Eichengreen is confident that the Italian economic elites realize this and are ready for same.

But of course it is the political types – currently with Silvio Berlusconi at their head – who have to be convinced to carry through any such reforms. What if they refuse? Then, according to Eichengreen, the European Central Bank should be ready to withdraw its support, by ceasing its purchase of Italian government bonds.

Of course, as he recognizes, this will inevitably lead to debt “rescheduling,” another way of expressing the concept of default. But Eichengreen does not flinch from the possibility; rather, he says that other Eurozone countries (especially Germany and France) should get ready for it in the sense of getting their banks prepared to absorb losses from any Italian default, by building up their capital. They probably have at least until the end of 2011 to do this, in the worst case.

On the one hand, it is probably true that Italy won’t be able to dig itself out of its mess without some thoroughgoing reforms. But on the other, Prof. Eichengreen is being rather blasé about what happens if the ECB’s bluff is called so that it might feel its credibility requires it to stand aside and allow an Italian default. Maybe that sort of thing is contemplated a bit more easily from way over on the Pacific coast.

                          

Definition of “crisis”: when officials need to huddle up on a weekend before Asia opening to take decisions & do statements a turmoil rages

August 6, 2011 1:43 pm via webReplyRetweetFavorite

@Nouriel

Nouriel Roubini

The Czech daily Mladá fronta dnes, as caught by the @Zpravy Twitter-feed, has the details on this particular edition:

iDnes: Lídři EU chtějí rychle realizovat závěry summitu. Uklidní tak trhy: Vlády musí urychleně dokončit dohody … http://bit.ly/oLaqvt

August 6, 2011 11:30 am via twitterfeedReplyRetweetFavorite

@Zpravy

Zpravy

Turns out, if you like, that you can blame everything on European vacation syndrome (e.g. “No one touches my August holiday!”): EU leaders want to quickly carry out changes from summit, that way they’ll calm markets is the headline here.

• “Summit”? That’s the one they just had, of course, an extraordinary convening in Brussels on July 21 in reaction to the Italy/Spain funding troubles.
  
• “Changes”? That has to do with the European Financia Stability Facility (EFSF), which leaders at that summit agreed would be beefed up to better be able to intervene to assist eurozone member-states in financial need, eventually even becoming a sort of European Monetary Fund.

The result according to the Czech paper has been a recent series of extraordinary conference-calls, at one point simultaneously featuring German Chancellor Merkel, French President Sarkozy, Spanish premier Zapatero, Italian premier Berlusconi, and British PM David Cameron all on the line, with US Treasury Secretary Timothy Geithner also allowed to listen in. Afterwards, it is reported here, they all called President Obama for good measure.

We’ll see what they came up with from any official announcements during the rest of this weekend, and then of course get market reaction starting from the Asian opening late Sunday night/early Monday morning (European time). But one thing these conversations are said to have produced was a pledge by Berlusconi to balance the Italian budget a year ahead of schedule, in 2013, and even to put a balanced budget amendent into the Italian constitution. (At least that is how I interpret the key phrase here ústavního dodatku, although ústavní can mean merely “institutional” in addition to “constitutional.”) If such an ironclad balanced-budget imperative would be a foolish move for the US – which everyone agrees it would be – how can it make any more sense for Italy?

                          

The key figure at the summit, as always, will be German Chancellor Angela Merkel, fresh and possibly even slightly sun-tanned off an official visit to various African countries. Just as she is preparing for Thursday’s meeting, however, scattered press speculation has arisen to the effect that Helmut Kohl – the German Reunification Chancellor, and probably the mentor who did most to make Merkel what she is today – now cannot hold himself back from criticizing her Eurodebt policy. Die macht mir mein Europa kaputt! is the catchy quote from Kohl – “She’s destroying my Europe!” – and it comes from a fairly reputable source, namely the German news-magazine Der Spiegel. Ed Harrison over at Credit Writedowns identifies this Spiegel article and provides his own translation.

The thing is, Kohl himself recants everything; Harrison even writes of him “vehemently [denying] the Spiegel account” but at the same time ventures that “it is likely true in substance if not form.” Still, there is an alternate source to this story, one pointed out by Presseurop, namely from the respected Berlin newspaper Der Tagesspiegel: Kohl disputes Merkel’s Europe policy. (By the way, Kohl is quoted in this piece as dismissing the Spiegel report as “freely invented,” i.e. out of whole cloth – but Der Tagesspiegel would print that about a competitor’s piece, wouldn’t they?)

So what does the Berlin paper put forth that Helmut Kohl does not deny? He is said to have issued some remarks to the Bild Zeitung – a considerably more down-market paper, but never mind – expressing his concern that the euro be shored up and that the current problems be seen not as structural, but as merely “the results of home-made mistakes.” Der Tagesspiegel also claims to know that Kohl is certainly willing to criticize Merkel, but only in private when people come to visit him, which he often takes as opportunities to decry her lack of vision for Europe and her neglect of the all-important Franco-German relationship. (It’s true that she and French President Sarkozy don’t like each other much.)

Der Tagesspiegel is also able to quote another former German heavy-hitter very close to Kohl, namely his foreign policy advisor Horst Teltschik, about Merkel:

She has developed no concept for Europe’s future, although that’s just what we now need. For this systematic crisis [sorry, Helmut!] Europe must find a systematic answer. It’s obvious that we need a common European budget-, debt- and financial policy.

So yes, it’s fair to say that those who are supposed to be in Angela Merkel’s corner are starting to grow rather nervous at the recent turn of events.

                          

You’ll be glad to know that this is not about the Winter Games again (although with the tropically-situated Sochi, Russia having won them for 2014, why not?), but rather the 2020 Summer Games. And yes, Madrid is still interested in those even after having lost in the last two Summer Game bids – somewhat. Polls showed a full 91% of madrileños were behind the city’s bid for the 2012 Games, as compared to only 68% of Londoners. But the latter won anyway. It was a similar situation for the 2016 Games, which Madrid nonetheless lost to Rio de Janeiro. Still, as of last year at least 54% are ready to have a go again, as are all the city’s leading politicians.

In the meantime, though, the Spanish economy has fallen into quite a bit of a rough patch. While the Olympic spirit there may still be willing, the financial flesh is rather weak. Advocates are still trying hard to get a Madrid 2020 application up. They point out that the city built most of the sporting facilities it needs during its bid for the 2016 Games. (Here’s a map about that accompanying the article, they may be right: only those facilities you can see marked with a star were not built). They claim that much of any additional cost can be borne by the private sector, which after all would enjoy the touristic gold-rush that staging the Games would bring. (And here’s yet another argument from the Madrid politicians that Gallo reports here: “the [economic] crisis won’t last forever!”)

Nonetheless, we saw in yesterday’s post about Pyeongchang’s 2018 Winter Olympics triumph that selection usually boils down to money. The parsimonious attitude which Madrid will have to take to any new bid seriously argues against success. Plus, look at the competition, as Gallo does here: Rome already intends to submit a 2020 bid, as does Japan, which could have powerful sympathy on its side due to last March’s series of disasters. But most of all there will also be Durban, South Africa – and how could Durban lose? The 2010 World Cup in that country was certainly a success and, most importantly, Africa has never hosted any Olympic Games!

The piece ends: “But as one expert [sic!] commented, imagine that Madrid doesn’t present itself for 2020 in order to avoid Durban but in the end they award the Games to Rome . . .” ¡Ay caramba!

                          

It’s almost like what happened back when the EU sovereign debt crisis first broke in January, after the new Greek government took office and felt obligated to announce that the country’s debt and fiscal situation was much worse than the previous regime had led everyone to believe. Then, Germany for a long time resisted coming to Athens’ assistance, and thereby succeeded in little more than spreading doubts about their fiscal probity to Portugal, Ireland, and Spain as well, before finally in May rallying Eurozone countries to set up a huge and unprecedented EU sovereign debt support fund.

This time the story is slightly different, although the Germans are still the villains of the piece. It has to do with the proposal Finance Minister Wolfgang Schäuble recently unveiled for the establishment of a mechanism to deal with future sovereign debt crises: first, a program of intensified fiscal austerity for the deadbeat country, accompanied by a mandatory lengthening of their debt’s maturity date; then (if that does not work to calm investor fears of a default) intervention with EU funds, but with required provisions for the lenders to get back less than they are otherwise due, i.e. to take a loss on their investment. Schäuble: “The EU was not created to enrich financial investors.”

All that seems reasonable in itself, but in the first place the Germans here are explicitly raising the prospect again of sovereign defaults. That’s supposed to be unmentionable, and when it is mentioned it tends to make investors sit up in alarm and take notice. More importantly, though, the German proposals also amount to a change of the rules of the game for lending money to Eurozone countries; for one thing, before this investors weren’t expected to have to take a loss if the EU and/or IMF had to come in to cover the debts (and the later maturity date is not something designed to thrill them either).

Given that this is the proposal being pushed by Germany, the EU’s paymaster, these investors are naturally adjusting their expectations for such a near-future development now: the Greek, Portuguese, Irish, Spanish and even Italian debt they are holding no longer seems quite so attractive in the light of this likely rules-change, and so we see the effective rates on those debts lately rising up dangerously to levels potentially high enough to ensure that, in effect, they never can be repaid by those countries themselves.

The result: in trying to address the problem of how to handle sovereign debt crises in the future, the EU has come close to bringing about such a crisis in the here-and-now, and has plunged countries which had thought themselves at least on the margins – namely Spain and Italy – squarely back into the danger-zone. It’s no wonder they’re not happy about it. Unfortunately, there’s a limit to how much of substance can be accomplished by secret consultations among the EU member-states. Such a crisis was probably inevitable, given that top EU leaders refused to simply stick their heads in the sand and pretend that such serious international financial trouble could never come around again.