http://www.voxeu.org/article/one-more-summit-crisis-rolls
One more summit: The crisis rolls on
Charles Wyplosz, 30 Jun 2012
Reading the official documents from the June 28 summit requires linguistic and divination skills. The texts are convoluted and clearly aim at giving various positive impressions while shying away from deep commitments.
- The clearest result is that EFSF/ESM funds can be used directly to support banks.
The summit attendees seem to have successfully drawn the conclusion that this was necessary from the disastrous impact of their mid-June decision on new lending to Spanish authorities to shore up their banks. Within hours, the main conclusion drawn by the markets was that the Spanish public debt had grown by €100 billion, bringing Spain closer to the fate of Ireland (bad bank debt dragging down a government with an otherwise healthy fiscal position).
The new agreement suggests that in the future, banks will be bailed out by the collective effort of Eurozone countries. This means that should the bank rescue turn sour, losses will jointly assumed, in proportion to each country’s size – so, for examples, Greek taxpayers could take a share in poorly managed rescues of Italian banks. This is solidarity, but…
- First, this arrangement is to be finalised by the end of the year.
This means that, in the end, the Spanish debt will rise by €100 billion (the market participants who enthusiastically celebrated the decision by raising the price of Spanish bonds will eventually understand that). Ditto in the not unlikely case that some Italian or French banks wobble before December.
- Second, conditions will be attached to such a rescue.
These recommendations could be clever if they require “Swedish-style” bank restructuring whereby shareholders and other major stakeholders are made to absorb first the losses, and if a new clearly untainted management replaces the previous one.
Such interventions limit the costs to taxpayers; they can even turn a profit. Of course, the conditions could also be silly, raising the costs to taxpayers to huge levels.
At this stage, both outcomes are possible.
- Third, the arrangement is linked to the establishment of a “single supervisory mechanism involving the ECB”.
This could be a single Eurozone supervisor built inside the ECB, which would go a long way to plugging one the worst mistakes in the Maastricht Treaty (lack of a joint regulation and resolution regime for banks).
But this is not what the official text says, which makes one suspect that policymakers have not agreed to something simple and clean. Most likely, they will keep negotiating and come with the usual 17-headed monster that exhausted diplomats are wont to invent.
This is important because a contagious banking crisis that hits several large banks would require much more money than is available in the EFSF-EMS facilities. In that case, the ECB will have to step in. In fact, the whole idea to have a single supervisor trusted by the ECB is to make it possible for the ECB - at long last act - to as a lender of last resort.
Unless the supervision regime is clear and clean, the ECB will not be able to do its job and a contagious crisis would turn into a full-blown disaster.
Compact for Growth and Jobs
The summit also agreed on a “Compact for Growth and Jobs”. This is a long and familiar litany of all the good supply-friendly reforms that have been advocated bi-weekly by the Commission for some twenty years plus a present to President Hollande. The present has been crafted in Berlin to give the new president a face-saving “victory”: he can go home and claim that he has obtained a victory in his determined war on austerity.
The pact allows for the mobilisation of various EU facilities for a total amount of some 1% of EU. Given that these amounts are tied to all sorts of criteria (small and medium enterprises, energy and broadband infrastructure, and other great causes), that they will be spent “across the whole European Union, including in the most vulnerable countries”, and that “fast disbursement” by the European bureaucracy does not operate on the same time scale as a financial crisis, this compact costs little and will do nothing for the Eurozone debt crisis.
Conditionality Lite
Finally, the official texts include vague references to the possible use of EFSF/ESM funds to bail out governments with limited conditionality. It is very hard to understand what that really means beyond pleasing prime ministers Monti and Rajoy. Light conditionality, as they requested, is bound to collapse at the foot of the Bundestag, which must approve every single loan.
Conclusion
At the end of the day, the summit was a little move in the right direction on bank supervision, but keep watching; we still don’t know what will actually be put in place. There was nothing on collapsing Greece, nothing on unsustainable public debts in several countries, and no end in sight to recession in an increasing number of countries.
There was no knock-out winner in this summit, but on points I’d have to say that the winner is the crisis.
and......
http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_01/07/2012_449937
Government braces for troika
PM Samaras expected to push for EU pact on banks to be extended to Greece 
With officials representing Greece’s foreign creditors back for talks delayed by weeks of political upheaval, Prime Minister Antonis Samaras and his new government are bracing for a tough week of talks as Athens seeks concessions to the conditions of its second debt deal while the creditors push for swift reforms.
Samaras, who missed a crucial European Union summit last week while recovering from eye surgery, was locked in meetings with Finance Minister-designate Yiannis Stournaras and other members of the cabinet over the weekend, as sources indicated that the premier is likely to push for the agreement reached by EU leaders last week -- for banks to receive direct funding from the European Financial Stability Facility (EFSF) -- to apply to Greece. Greek officials believe that this could lighten Greece’s debt burden by 50 billion euros.
The issue was reportedly discussed during a meeting at Samaras’s residence in Kifissia, north of Athens, on Saturday evening, which also involved Stournaras. The meeting is said to have focused on upcoming negotiations with officials representing the European Commission, European Central Bank and International Monetary Fund, known as the troika, and to have examined ways of speeding up planned privatizations.
Samaras and his ministers also reportedly discussed the government’s policy program, which Samaras will present in Parliament this week, probably on Thursday, as well as a list of names to head key state companies and corporations. Before this, Stournaras, who is expected to lead negotiations with the troika, is to be sworn into his new role.
There were mixed messages regarding the outlook for Athens. Joerg Asmussen, a member of the ECB’s executive board indicated in an interview with Sunday’s Kathimerini that the bank could make concessions to Greece. Asked about the possibility of a debt haircut for the official sector, he did not rule it out, noting however that the ECB had a “limited mandate.” “We would have to do the utmost to make sure that the debt is sustainable and Greece can return to the financial markets,” he said.
Meanwhile Greece’s former representative to the IMF, Panayiotis Roumeliotis spoke to private television channel Mega of “a strategy to isolate Greece with the intention of expelling it from the European Union.”
and....
http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_01/07/2012_449920
Agenda
MONDAY The head of the European Commission’s Task Force for Greece, Horst Reichenbach arrives in Athens for meetings with Greek officials. The Economist conference titled “16th Roundtable with the Government of Greece: Transforming uncertainty into stability, wisdom and growth” opens, lasting until Tuesday. Speakers are to include Development Minister Costis Hatzidakis, PASOK leader Evangelos Venizelos, Poul Thomsen of the International Monetary Fund and Joerg Asmussen of the European Central Bank. At the Athenaeum Inter-Continental Hotel, 89-93 Syngrou. (Info: www.hazliseconomist.com) Nanotexnology Expo 2012, the second international exhibition on nanotechnologies and organic electronics, opens at the International Exhibition Center in Thessaloniki. Through Friday. (Info: 2310.257.813, nanotexnology@artion.com.gr) The Athens Institute for Education and Research is holding its annual management conference at the Metropolitan Hotel of Athens, 385 Syngrou. To Thursday. (Info: www.atiner.gr) TUESDAY EU and IMF inspectors begin their meetings with Greek government officials in Athens. The Athens Natural Gas Forum is taking place at the Grande Bretagne Hotel at Syntagma Square. (Info: 210.661.7777, dtravlou@boussias.com) The 11th Protection and Restoration of the Environment international conference opens in Thessaloniki, organized by the Stevens Center for Environmental Engineering of the Stevens Institute of Technology, USA, and the Division of Hydraulics and Environmental Engineering, together with the Environment Council of the Aristotle University of Thessaloniki. To Friday. At the MET Hotel, 48 Ikostis Ektis Oktovriou, Thessaloniki. (Info: www.pre11.org) WEDNESDAY The US Embassy in Athens and its Consular Section, the US Consulate General in Thessaloniki, and all US government offices in Greece will be closed in observance of American Independence Day. The 5th International Conference from Scientific Computing to Computational Engineering opens at the Divani Caravel Hotel, 2 Vassileos Alexandrou, Athens. To Saturday. (Info: www.scce.gr) The Hellenic Institute of Marketing of the Hellenic Management Association is holding its Marketing Success Stories event at the association’s Giorgos Kontogiorgis conference hall, from 4 p.m. to 8 p.m. (Info: 210.211.2000, eim@eede.gr)
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Saturday, June 30, 2012 10:08 PM
Can Greece Buy Freedom From Debt For a Mere €3,000 Per Person?
Greek shipping heir Peter Nomikos has a plan wipe out Greek debt. His idea is to buy all the Greek bonds then forgive the debt.
Given that Greek bonds sell for 12 cents on the dollar, on the surface his plan may seem like a reasonable idea. First let's consider the idea, then potential problems.
Der Spiegel interviews Peter Nomikos who says 'For a Donation of 3,000 Euros, Every Greek Can Buy Freedom'
Given that Greek bonds sell for 12 cents on the dollar, on the surface his plan may seem like a reasonable idea. First let's consider the idea, then potential problems.
Der Spiegel interviews Peter Nomikos who says 'For a Donation of 3,000 Euros, Every Greek Can Buy Freedom'
Greek shipping heir Peter Nomikos has taken matters into his own hands. While EU leaders wrangle for a solution to Greece's problems, Nomikos started a non-profit to wipe out the country's debt. If all of his countrymen do their part, he tells SPIEGEL ONLINE, they will be able to shore up the country's finances.SPIEGEL ONLINE: Mr. Nomikos, you have just started a campaign to free Greece of debt. Your organization buys up Greek bonds and then forgives the debt. Are you serious?
Nomikos: Professionally, I deal with distressed debt. And it struck me that Greece has a historical opportunity. In the euro, the Greeks have a very strong currency, while the price of their government bonds has collapsed. That makes it possible to buy back debt at very low prices and reduce the Greek debt burden with relatively little expenditure.
SPIEGEL ONLINE: You are asking your countrymen for donations. What do you tell them?
Nomikos: If you break down the national debt, each Greek owes around €25,000 ($31,485). So I am telling my fellow citizens to make themselves debt-free. Greek government bonds with a nominal value of one euro currently trade for around 12 cents. For a donation of around €3,000, every Greek can buy his freedom.
SPIEGEL ONLINE: How many bonds has your foundation already bought?
Nomikos: We always buy those bonds that have the deepest discount. So far we have invested €273,000 ($343,816) and hold €2.2 million ($2.8 million) in Greek debt.
SPIEGEL ONLINE: And then you cancel the debt?Problematical Math
Nomikos: Not immediately. If we did that, we would decrease the impact of our project. When the GDP-to-debt ratio goes down, bond prices go up. If the movement becomes a great success, this could become a problem, because we cannot buy debt as cheaply on the markets. So we hold these bonds for a while and use any profits to buy more bonds. We plan to amass as many bonds as possible and then cancel the debt all at once.
- The population of Greece is 11,316,000. At €3,000 per person, Nomikos would need to raise nearly €34 billion. That is far lower than the €283 billion in bonds (at €25,000 per person), but it is hardly inconsequential.
- Bond prices will not stay at 12 cents on the dollar if the program makes any reasonable headway.
- Greek banks and pension plans are the biggest holders of Greek debt. I highly suspect neither has marked bonds to market. They certainly have not marked the bonds to zero. In other words there are severe implications should Nomikos succeed.
- Those depending on Greek pension plans have a vested interest that he not succeed.
I wish Peter Nomikos success, but point number 3 above suggests severe consequences. Points 1, 2, and 4 suggest that it will not happen in the first place, making point number 3 moot.
and.....
Spain Reminds Us What The Main Problem With Blank Checks Is: Says Q2 GDP Will Be Worse Than Q1
- fixed
- France
- Germany
- Gross Domestic Product
- Italy
- Musical Chairs
- Reality
- Recession
- Sovereign Debt
- Sovereigns
Even as Spain, Italy and soon France are scrambling to break the link between sovereigns and banks, an unpopular move that until recently Germany was very much against as it permitted the culture of endless unsupervised bank bailouts on taxpayer dimes to continue, we get a fresh reminder of why any unconditional aid, entitlement, or backstop guarantees funded by "other people's money" is always inevitably a bad idea. Case in point: Spain, which just said that its economy will contract in Q2 even more than in Q1. This reminds us why any claims of "austerity" are a total mockery: only Keynesian priests seem unable to grasp that countries gain much more upside from pushing their economies to the brink only to be bailed out, than from engaging in real economic viability and sustainability programs: i.e., living within your means (something we proved empirically before). Finally, this is also a stark reminder that when one removes out all the bailout noise and the daily high-beta gyrations of sovereign debt, the real reason why sovereign bondholders should be buying Spanish debt - an actual improvement in its economy- continues to not only be absent, but by the very nature of endless now-monthly bailouts, becomes impossible as debt never fixed more debt.
Here is the latest steaming pile of reality just served from from Spain, via Bloomberg:
- Data for 2Q show contraction was “slightly superior” to that of 1Q, Spain’s economy minister said today during a conference in Navacerrada, near Madrid.
- The deterioration is "not very significant" says Guindos
- Spain is “totally committed” to austerity: Guindos
- Says EU summit “intensified” European project, sent message of solidarity
- Says Spain must show public finances, services are sustainable
No they're not. It's ok though: the government did not cut more spending than necessary
in order to live within its means, because itknows that if things get
bad enough, and yields on debt soar, someone, somewhere will step in and make the price of debt, so critical to plug the ever grown deficit hole, sustainable for just a little longer, even as deficits accumulate to a level that is simply ridiculous, at least until the next risk flaring crisis.
in order to live within its means, because itknows that if things get
bad enough, and yields on debt soar, someone, somewhere will step in and make the price of debt, so critical to plug the ever grown deficit hole, sustainable for just a little longer, even as deficits accumulate to a level that is simply ridiculous, at least until the next risk flaring crisis.
This is precisely what Monti and Rajoy showed at last week's Eurosummit: every time things get worse, someone who has done the right thing, has to fold to keep the party going for all the crack addicts.
The problem with this approach, and it applies to the US entitlement state underfunded by about $100 trillion just as much as it does to Europe, is that at the end of the day only math matters. One can push for artificially lower yields to keep the game of musical chairs going longer, but not even naive children believe that there could be a happy ending to a farce in which one time bailouts continue to enable self-destructive behavior, which in turn becomes a Mutually Assured Destruction gambit to the worst offenders.
In the mean time Spain's already deep recession is about to become even worse, to be followed by Italy, France, and soon, Germany too, now that it has decided to spread the wealth.
and...
http://www.telegraph.co.uk/finance/comment/liamhalligan/9366983/Italy-has-won-this-euro-battle-but-not-the-war.html
9:19PM BST 30 Jun 2012
In Brussels on Friday, Angela Merkel certainly indicated some concessions on the use of collective eurozone bail-out funds to address soaring Spanish and Italian sovereign borrowing costs.
The German chancellor, the argument goes, has “finally capitulated”, now agreeing to back-stop the banking sector debts - and, therefore, the worst of the sovereign debts - of the single currency’s profligate “Club Med” members.
And so, we’re told, the eurozone is now headed for the sun-lit uplands of stability and policy coherence. There was enough oomph behind this view - or at least enough “angst-fatigue” - to launch another relief rally. The main Italian, Spanish and Greek equity indices surged 5pc to 7pc, with Franco-German bourses going along for the ride.
In London, even the FTSE 100 rose 1.4pc on the eurozone’s love-in, despite shocking news about the UK’s banking sector. This Libor rate-fix should sear itself into the British psyche, causing as much shame and outrage as Watergate.
Just as the exposure of blatant criminal activity among top political operatives led to serious heads rolling in mid-1970s America, so revelations of yet more wilful wrong-doing among our own “commercial elite” should bring very big changes in the way we run our financial services industry. But more of that later. Because the news from Brussels also warrants attention.
One day soon enough the people of Greece will storm the Bastille, pitchforks in hand, and demand an end to the debt slavery. But is there a better way forward ?
ReplyDeleteInsolvent nations, insolvent megabanks, insolvent Central Banks, unpayable CDS's written by the trillion-- this is not how to run a financial system, folks. But is it within the Wit of Man to some up with something better ?
http://themeanoldinvestor.blogspot.com/2012/07/great-reset.html