Tag Archives: Greece

Greek Vote Threatens Bailout

Posted on by

The obvious hasn’t been making the headlines:

A no vote means a lot more immediate austerity than a yes vote.

A no vote means Greece can’t borrow at all, and therefore govt. checks will only clear if Greece immediately cuts back to where it is only spending tax revenue.

A yes vote means Greece can continue to spend quite a bit more than tax revenues, to the tune of the check from the benefactors.

And with no one in government at any level having any kind of a plan to leave the euro, and no idea how to manage a new currency in any case, that option continues to have no political support.

So the choices are:
Yes, we accept a relatively modest deficit cut as per the EU proposal.
No, we prefer to go cold turkey to a balanced budget and a seriously draconian cut.

Meanwhile, tick, tick, tick, the entire euro economy continues to slow, and continuously nudge up the entire region’s budget deficit, as they all work their way towards the same fate as Greece.

And, tick, tick, tick, the US deficit reduction process moves forward, with multi trillion dollar reductions already proposed by both parties.

Greek Vote Threatens Bailout

By Alkman Granitsas, Marcus Walker, and Costas Paris

November 1 (WSJ) — ATHENS—Greek Prime Minister George Papandreou stunned Europe by announcing a referendum on his country’s latest bailout—a high-stakes gamble that could undermine the international effort to preserve the euro.

A “yes” vote in the referendum could deflate the massive street protests and strikes that threaten to paralyze Greece as it tries to enact a brutal austerity program to earn rescue loans from the euro zone and the International Monetary Fund.

Share

Euro Bailout Fund Chief Sees No Quick China Deal

Posted on by

Now it all starts unraveling. It’s all talk- another ‘optical illusion’ with no operational reality I sight. The China participation isn’t a done deal. The 50% haircut isn’t a done deal either as they haven’t yet figured out how to actually do it without a default event. The EFSF contributions aren’t a done deal either.

What they have done is further frightened investors to the point where the ECB will find itself buying a lot more bonds to keep member nation funding in check, while ‘negotiations’ drag on with no resolution, meaning, as previously discussed, this is the resolution.

Hoping i’m wrong…

Euro Bailout Fund Chief Sees No Quick China Deal

By Reuters

October 28 (CNBC) — The head of Europe’s bailout fund said on Friday he does not expect to reach a conclusive deal with Chinese leaders during a visit to Beijing but expects the surplus-rich country to continue buying bonds issued by the fund.

Share

Euro Zone Strikes Deal on 2nd Greek Package, EFSF

Posted on by

The markets like the announcement. Of course they also liked QE2…

Unfortunately, as previously discussed, without the ECB the EFSF isn’t sustainable. It’s like trying to lift up the bucket by the handle when you are standing in it.

Nor is it cast in stone yet, but all subject to details.

Also, the positive market response, if it continues, only encourages the continuing austerity measures that are weakening the euro economy and forcing already unsustainable deficits higher.

And, again, it’s a case of ‘the food was terrible and the portions were small.’

Starting with the 50% private sector loss on Greek bonds-

Presumably that ‘works’ if it indeed brings Greek debt down to 120% of GDP from 160% by 2020. But that implies the austerity measures won’t continue to reduce GDP and cause the Greek deficit to increase, as continues to be the case.

It presumes the 50% haircut will be considered sufficiently voluntary to not be a credit event that triggers a variety of global default clauses.

The rest of the ‘package’ presumes markets won’t reduce the presumed credit worthiness of member nations who fund the EFSF.

It presumes private sector funds will recapitalize the banks that lost capital on the write downs.

It presumes the EFSF won’t be needed to fully fund Portugal, Spain, and Italy.

It presumes banks and other investors required to be prudent and financially responsible to shareholders will continue to buy other euro member nation debt even after seeing the euro zone members allow Greece to default on half of their obligations.

That is, how could any bank now buy, for example, Italian debt, in full knowledge that euro zone policy options include a forced write down of that debt. And not in extreme, unforeseen circumstances, but under current conditions.

And how can prudent investors invest in the banks when they’ve just seen euro zone remove some 100 billion euro in equity by decree?

The problem is, it takes a presumption of general improvement to presume additional losses will not be incurred by investors.

And it takes a presumption of general improvement to presume the EFSF will be successful.

And that requires the presumption that continued austerity measures will result in a general improvement.

Even as all evidence (and most theory) is showing the opposite.

Euro deal leaves much to do on rescue fund, Greek debt

By Luke baker and Julien Toyer

October 27 (Reuters) — Euro zone leaders struck a last-minute deal to limit the damage from the currency bloc’s debt crisis early on Thursday but are still far from finalizing plans to slash Greece’s debt burden and strengthen their rescue fund.

Share

MERKEL: ECB INVOLVEMENT IN EFSF LEVERAGE RULED OUT

Posted on by

Looks like Merkel is speaking purely for political effect, which may be all she’s capable of, unfortunately.

Fact is, from the beginning, without the ECB ultimately writing the check, it’s all been in ponzi.

And like all ponzi’s, it seems to work on the way up, and disintegrates on the way down.

With the ECB writing the check, deficits can be determined by further political/public purpose, without concern of ‘market forces’ undermining finance.

Without the ECB writing the check, it all probably keeps disintegrating, as none of the member nations can be inherently solvent without some form of ECB support.

MERKEL SAYS GOAL OF TONIGHTS DISCUSSIONS MUST BE TO HAVE A SOLUT ION WHICH PUTS GREECE AT A DEBT TO GDP RATIO OF 120 PCT BY 2020
MERKEL: ECB INVOLVEMENT IN EFSF LEVERAGE RULED OUT
MERKEL: GERMAN EFSF CONTRIBUTION WON’T EXCEED E211 BLN
MERKEL: BANK RECAP NECESSARY TO PREVENT CONTAGION
MERKEL: NEED PERMANENT SUPERVISION OF GREECE
MERKEL: TROIKA SUPERVISION DOESN’T SUFFICE
MERKEL: GREEK BOND HAIRCUT ALONE WON’T SOLVE PROBLEMS
MERKEL:PSI MUST BE MUCH HIGHER THAN AGREED ON JULY 21
MERKEL: NEED SIGNIFICANT PSI IN GREEK RESCUE

Share

Connecting the dots- deficit reduction is now only about inflation, not insolvency

Posted on by

From comments by Warren Buffet to Alan Greenspan,

And from all the responses to the S&P downgrade by economists and financial professionals from the four corners of the world,

THE WORD IS OUT!

The US government is the issuer of the US dollar.

So no matter how large the federal deficit might be:

The US government can always make any payments in US dollars that it wants to.
There is no such thing as the US govt running out of US dollars.
The US government always has the ‘ability to pay’ any amount of US dollars at any time.

NOW CONNECT THE DOTS TO:

The US is not dependent on tax revenue or foreign borrowing to be able to spend.

And,
whereas Greece is not the issuer of the euro,
much like the individual US states are not the issuer of the US dollar,

THERE IS NO SUCH THING AS THE US BECOMING THE NEXT GREECE

There is no such thing as the US getting cut off from spending by the financial markets and forced to go begging to the IMF to get US dollars to spend.

Nor is the US government subject to market forces driving up interest rates on US Treasury bills.

EVEN AFTER BEING DOWNGRADED US TREASURY BILL RATES REMAIN NEAR 0%

Why, because, any nation that issues its own currency also sets its own interest rates.
So in the US, the Federal Reserve Bank votes on the interest rate

SO, THEN,

WHAT IS THE POINT OF DEFICIT REDUCTION?

Suddenly, it’s NOT solvency.
The US is suddenly NOT going broke.
Social Security is suddenly NOT broken.
There is suddenly NO risk the US will not be able to make all payments as promised.

So now,

the deficit hawks must CHANGE THEIR REASONS FOR DEFICIT REDUCTION
or shut up!

they must FLIP FLOP
or shut up!

Yes, there is a new reason they can flip flop to.

Inflation.

They can start claiming the current path of deficit spending will lead to inflation.

Fine.

Bring it on!

First, they need to do the research, as they haven’t even thought about this yet.

Then they have to convince Congress to cut social security and medicare
Not because we might become the next Greece
Not because the US government checks might bounce someday
Not because the deficit will burden our grand children

But ONLY because some day,
if we don’t do something when the time comes
and even though we don’t have an inflation problem now,
and haven’t had one in a very long time,
SOME DAY far in the future,
inflation might go from x% to y%.

Fine.

Do you think Congress would take draconian steps now,
during this horrendous recession,
to make things worse
by cutting Social Security?
and by cutting funding or public infrastructure?
and by raising taxes?

How about we get the word out and find out, thanks!

Please distribute!

Share

China’s ‘vital’ interests at stake over Greek crisis

Posted on by

It’s more than China’s ‘vital interests’ as over their a loss of public funds from a Greek default could mean heads roll- literally- as there is a history of actual execution for failure and disgrace.

And note the past tense- China had helped by buying their debt.

Also, note the anecdotal signs of weakness, highlighted below:

Headlines:
China President Hu: Global Economic Recovery ‘Slow And Fragile’
China’s ‘vital’ interests at stake over Greek crisis
China Yuan Band Widening Would Have ‘Political’ Meaning Only
Consumer Spending Fades in China Economy After ‘Peak Days’
China economy faces over-tightening risk – government economist

China President Hu: Global Economic Recovery ‘Slow And Fragile’

June 17 (Dow Jones) — Chinese President Hu Jintao said Friday that the global economic recovery is still “slow and fragile” and is threatened by a resurgence of protectionism in various forms.

“There still exist some lagging effects of the financial crisis,” he said at a keynote speech at an investment forum in Russia.

Despite failing to agree on a landmark deal for gas supplies from Siberia, Hu was upbeat on the outlook for bilateral trade with Russia, which is rich in other natural resources crucial to China’s economic development.

Hu said he hopes to raise the level of annual bilateral trade between the two countries to $100 billion by 2015, and $200 billion by 2020, compared with $60 billion in 2010.

In 2009, Russia and China agreed in principle to construct two pipelines that would export natural gas from Siberia to China, but a final agreement has been held up due to persistent differences on gas pricing.

Late Thursday, the two sides failed to reach an agreement during last-minute talks at Gazprom headquarters in Moscow.

China’s ‘vital’ interests at stake over Greek crisis

June 17 (Guardian) — China’s “vital” interests are at stake if Europe cannot resolve its debt crisis, the Chinese foreign ministry said on Friday as it voiced concern about the economic problems of its biggest trading partner.

At a media briefing ahead of Chinese premier Wen Jiabao’s visit to Europe next week, vice foreign minister Fu Ying made plain that China had tried to help Europe overcome its troubles by buying more European debt and encouraging bilateral trade.

“Whether the European economy can recover and whether some European economies can overcome their hardships and escape crisis, is vitally important for us,” she said.

“China has consistently been quite concerned with the state of the European economy.”

Wen is due to visit Hungary, Britain and Germany late next week, just months after he visited France, Portugal and Spain and offered to help Europe overcome its debt woes.

With Greece on the verge of a debt default, investors will focus on whether China promises to buy even more debt from beleaguered European nations including Greece, and increase its investment in the region.

China is a natural prospective investor in European assets and government debt because it has $3.05 trillion (£1.9tn) in foreign currency reserves, the world’s largest.

With a quarter of the reserves estimated to be invested in euro-denominated assets, it is clearly in Beijing’s interest to help Europe survive its debt turmoil.

“We have supported other countries, especially European countries, in their efforts to surmount the financial crisis,” Fu said. “We have, for example, increased holdings of euro debt and promoted China-European Union trade.”

Beijing has said in the past that it has bought Greek debt, but has never revealed the size of its investment.

Since eurozone debt worries first rippled through markets last year, China has repeatedly said that it has confidence in the single-currency region.

“We have hoped to help eurozone countries in overcoming the crisis, and this is also a measure that is beneficial to China’s own economic development,” Fu said.

But mirroring deteriorating market confidence on Europe, China’s central bank published a report this week saying the economic bloc risked worsening its problems if it did not contain debt levels.

Share

Greece on the slippery slope

Posted on by

First, I think there isn’t enough political or popular support to leave the euro and go back to the drachma.

As previously discussed, it’s not obvious to the population or the political leadership that there is anything wrong with the euro itself.

Instead, it probably seems obvious the problem is the result of irresponsible leadership, and now they are all paying the price.

So staying with the euro, Greece has two immediate choices:

1. Negotiate the best austerity terms and conditions they can, and continue to muddle through.

2. Don’t accept them and default

Accepting the terms of the austerity package offered means some combination of spending cuts, tax hikes, assets sales, etc. that still leaves a sizable deficit for the next few years, with a glide path to some presumably sustainable level of deficit spending.

Defaulting means no more borrowing at all for most likely a considerable period of time, which means at least for a while they will only be able to spend the actual tax revenue they take in, which means immediately going to a 0 deficit.

What matters to Greece, on a practical level, is how large a deficit they are allowed to run. This makes default a lot more painful than any austerity package that allows for the funding of at least some size deficit.

Therefore it’s makes the most sense for Greece to accept the best package they can negotiate, rather than to refuse and default.

Additionally, the funding Greece will need to keep going is probably funding to pay for goods and services from Germany and some of the other euro member nations.

In other words, if Germany wants to get paid for its stream of exports to Greece it must approve some kind of funding package.

Reminds me of a an old story Woody Allen popularized a while back:

Doctor: So what’s the problem?

Patient: It’s my brother. He thinks he’s a chicken.

Doctor: Have you tried to talk to him about it?

Patient: No

Doctor: Why not?

Patient: Well, we need the eggs

Likewise the euro zone needs the eggs, and so the most likely path continues to be some manner of ECB funding of the banking system and the national govt’s, as needed, last minute, kicking and screaming about how they need an exit strategy, etc. etc. etc. And the unspoken pressure relief valve is inflation, with a falling euro leading the march. It’s unspoken because the ECB has a single mandate of price stability, which is not compatible with a continuously falling euro, and because a strong euro is an important part of the union’s ideology. But a weak euro that adjusts the price level, as a practical matter, is nonetheless the only pressure relief valve they have for their debt issues in general. And, also as previously discussed, it looks like market forces may be conspiring to move it all in that direction.

Share

Gross misunderstandings continue

Posted on by

He’s completely lost it:

US Is in Even Worse Shape Financially Than Greece: Gross

By Jeff Cox

June 13 (CNBC) — When adding in all of the money owed to cover future liabilities in entitlement programs the US is actually in worse financial shape than Greece and other debt-laden European countries, Pimco’s Bill Gross told CNBC Monday.

Share

Juncker, EU minister quoted

Posted on by

Juncker, EU minister and erstwhile unofficial IMF policy spokeman:

>   
>   (email exchange)
>   
>   Referring to questions about Greece’s prospects for restructuring in the absence of a
>   stabilization course:
>   

“If the donkey were a cat it could climb a tree. But it is not a cat. Nevertheless, this is a question that worries many people. My answer to it is almost a little theological: I do not believe that this question will ever be asked.”

>   
>   This interview out a couple days ago in Der Spiegel was priceless ( and informative)… he’s
>   being asked about why he denied the emergency meeting rumored some days ago about
>   Greece leaving EMU when it was true…
>   

“SPIEGEL: Are you saying that, as a finance minister in the age of global capital markets, you cannot tell people the truth?

Juncker: I do not have a ready answer to your question…”

Juncker: Greece is not broke.

SPIEGEL: Hope springs eternal.

Full interview here.

Share