Weekending 28 October 2011


It is entirely clear that the ‘deal’ concocted by the 17 eurozone premiers and presidents at the Brussels summit and unveiled at 4am local time on Thursday 27 October is simply fancy and fantasy.

First one needs to sprinkle any analysis with large doses of ‘alleged’ – as in ‘alleged deal’, ‘alleged agreement’ ‘alleged action’, and ‘alleged welcome’ as in ‘We welcome Italy’s plans for growth …’

In the words of Wolfgang Munchau in the FT,

The day may yet come when the eurozone finally agrees a comprehensive package to end the crisis, but this was not the day.

The bounce on stock markets through Thursday was nothing much more than whistling past the graveyard and on the eve of Halloween weekend to boot – entirely appropriate and of course by Friday everything was beginning to feel eerie with markets beginning to go off and the alleged Italian plan looking more like The Italian Job.

Second the spectacularly disastrous condition of Greece – and what has caused this collapse – needs to be gleaned from the  communiqué. Third, the banks recap is smoke and mirrors while finally the general scheme of it all, EFSF2½, is imaginative fantasy in the tradition of that children’s tale, The Magic Pudding.

But first to return to the condition of Greece. Read the rest of this entry »


A Night at the Opera …

… with apologies to the Marx Brothers

On the evening of 19 October, the FT’s rolling blog reported, the most senior politicians, diplomats and officials of the eurozone (EZ) and with Christine Lagarde (of the IMF) in train, gathered in Frankfurt. They had an appointment – a night at the opera with M Trichet ECB president (retiring) and Draghi ECB president (incoming). They also decided to go through a pretence of wrestling with deep policy issues on the future of the eurozone with M Sarkozy dramatically dashing from a Parisian maternity ward to get to Frankfurt on time.

With the passage of the past few weeks one has gone from initial disbelief to growing incredulity to the final realisation that actually, in both the EU and the US there is a now almost complete incapacity to formulate and implement anything approaching a coherent set of economic and financial policies capable of addressing the series of interrelated problems besetting both economies. In Europe there is on the official view first the Greek problem, second, the banking crisis and third, the finalisation of EFSF2 – the package agreed in outline (which is to say not agreed at all and no more than a fraudulent pretence) three months ago.  All three issues are inter-related but they are also three quite separate bits. In the US the EZ crisis also has real implications for American banking – and thus the prospective triggering of a global contagion.  To be fair to the Americans they have banged on at the Europeans (Obama and Geithner in particular) but to no avail whatsoever. Again though (Democrat) Washington also is paralysed: a Republican/Tea Party politics, deeply reactionary but entirely coherent holds the political balance. They are using it in effect to unpick those small remnants of the New Deal and Johnson’s Great Society (as well as their antecedents in nineteenth century progressivism) that have survived the last couple of decades. They also believe the wrong side lost the Civil War, the Federal Government is unconstitutional, the Federal Reserve is adulterating the dollar – and an awful lot else. They have a visceral hatred of banks (but hate Washington much more) – something they share with Occupy Wall Street. Read the rest of this entry »

Links for Greek debt crisis (updated)

The following links may be useful in keeping track of developments and understanding issues arising.

  1. An essential resource is the financial information portal, capital.gr, a daily online newswire service available in both Greek and English.
  2. Also well worth following is the Greek and English language blog created by Aristides Hatzis of Athens University, Greekcrisis.net.
  3. The FT’s Alphaville blog is also a vital source of information.
  4. For anyone exploring legal aspects of the crisis and the issue of sovereign default the writings of American lawyer Lee Buchheit of New York law firm Cleary Gottleib on aspects of the issue in general and also specifically the Greek case are absolute must-reads. These include

Drafting a Model Collective Action Clause for Eurozone Sovereign Bonds (with G Mitu Gulati);

Greek Debt – The Endgame Scenarios (with G Mitu Gulati);

How to restructure Greek Debt (with G Mitu Gulati);

Sovereign Bonds and the Collective Will (with G Mitu Gulati);

The Pari Pasu Covenant in Sovereign Debt Instruments (with Jeremiah Pam); and

The Dilema of Odious Debt ( with G Mitu Gulati and Robert B Thompson).

The July 21 second bailout agreed by eurozone leaders worth €109 billion ($155 billion) included the use of voluntary private-sector involvement (PSI) in a debt swap that would extend maturities on existing debt. Banks and other private investors are expected to contribute €135 billion to the bailout. The Greek government gave bondholders until September 9 to say whether they intended to take up its debt exchange offer which foresees an average 21 percent haircut on portfolios. It also indicated on 26 August that it might not proceed with the swap if it did not get at least a 90 percent uptake: a development revealed by Reuters in a good old-fashioned scoop. The 9th of September has of course come and long gone with no news on uptake – but plenty of reporting of slowness of joining in the scheme.

Read the rest of this entry »