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The bet here is that the political commitment to the EU and the combination of neoliberal and Austrian economics in the establishment will ensure that the EU doesn't break up and doesn't allow a default, preferring to go the IMF-style austerity route instead.

I wonder where the "no bondholder bail-ins before 2013" comes from. Is it that 2008-13 is a five-year period that they think a priori will allow banks to make their balance sheets whole to the point where they can take a default without blowing up?

Is it that by 2013 the banks will have offloaded all their debt onto the governments? Note that the EFSF is basically a way to replace unpayable maturing debt owed to "the market" with new debt owed to the EU Member States' treasuries. "The market" refuses to roll over the debt, so the EFSF does it for them.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Mon Apr 11th, 2011 at 09:13:44 AM EST
[ Parent ]
I wonder where the "no bondholder bail-ins before 2013" comes from. Is it that 2008-13 is a five-year period that they think a priori will allow banks to make their balance sheets whole to the point where they can take a default without blowing up?

That is the only thing that makes sense of the provision. And it is confirmed by the howls from Germany over StressTest 2.0. And, per Basel II definitions many of the Landsbanks will have to be capitalized, not re-capitalized. Has their capitalization to date consisted of "the full faith and credit" of their state governments?

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Apr 11th, 2011 at 11:28:06 AM EST
[ Parent ]
Silent Capital

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Apr 11th, 2011 at 12:02:18 PM EST
[ Parent ]
per Basel III definitions

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Apr 11th, 2011 at 12:03:44 PM EST
[ Parent ]
UPDATE 1-Germany acknowledges Greece may need to restructure deb

BERLIN, April 13 (Reuters) - Germany acknowledged for the first time on Wednesday that Greece may need to restructure its debt but said such a step could only be pursued before 2013 if it were done on a voluntary basis. In an interview with Die Welt newspaper, German Finance Minister Wolfgang Schaeuble said on Wednesday "additional steps" would have to be taken to deal with Greece's huge debt burden if an analysis from the European Central Bank and European Commission in June showed it is unsustainable.

His comments were the first by a senior euro zone official acknowledging that some form of restructuring of Greek debt may be needed. The ECB and the European Commission have both ruled out such a step, fearful that asking investors to accept changes such as smaller or later repayments could intensify the bloc's debt crisis, possibly sucking in other vulnerable economies. When asked by the daily how Greece, or other countries like Portugal, would ever be able to eliminate their "mountains of debt", Schaeuble said:

"In June we will get a progress report. I'm expecting a detailed analysis on the debt sustainability of Greece, that will be done in consultation with the Commission and the ECB. If this report concludes that there are doubts about the debt sustainability of Greece, something must be done about it."

Asked what should be done, Schaeuble said: "Then further steps will have to be taken."

Schaeuble made clear, however, that any restructuring would have to happen on a voluntary basis if done before 2013, when new rules go into effect that envision private creditors shouldering losses in the event debt relief is provided to stricken euro zone states. "Until then a restructuring could only take place on a voluntary basis," Schaeuble said.


This strikes me as about as reasonable as specifying that Grandpa can't die before 2013 because that would be awkward for the heirs. What ever the color scale is for unreality, this requires the deepest shade.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Apr 13th, 2011 at 09:50:11 PM EST
[ Parent ]
Take another sip, Angela.



As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Apr 13th, 2011 at 09:52:59 PM EST
[ Parent ]
ARGeezer:
Germany acknowledged for the first time on Wednesday that Greece may need to restructure its debt but said such a step could only be pursued before 2013 if it were done on a voluntary basis.
What is it with the magic 2013 date?

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Apr 14th, 2011 at 04:00:29 AM EST
[ Parent ]
Next German Federal elections?
by gk (gk) on Thu Apr 14th, 2011 at 04:06:01 AM EST
[ Parent ]
Surely they'd be better off doing it all now? Voters will have forgotten by 2013?

I suspect it's  the complex of regional and federal elections from now to 2013: lose too many of the smaller ones and Merkel will be gone.

by Colman (colman at eurotrib.com) on Thu Apr 14th, 2011 at 05:01:27 AM EST
[ Parent ]
Do voters care much? She may be postponing the problem so that her successor has to deal with it. If she gets reelected, then they can start talking about 2017 being the key date....
by gk (gk) on Thu Apr 14th, 2011 at 08:16:19 AM EST
[ Parent ]
The date for the next fiveyear plan?

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES!
by A swedish kind of death on Thu Apr 14th, 2011 at 08:00:04 AM EST
[ Parent ]
Finland may block Portugal aid
Greek debt restructuring to involve 40 to 50% haircuts

The German weekly Die Zeit quotes EU sources as estimating the size of a potential haircut for Greece of 40 to 50% to ensure debt sustainability. The paper reports that various options were under consideration now, including a simple maturity transformation. Moritz Kraemer of S&P is quoted in the article as suggesting a size of the necessary haircut of 50-70%, adding that a simple rescheduling would not provide sufficient debt relief. He said a restructuring is only worth doing if the debt is reduced to a sustainable level - considering the price a country has to pay for a restructuring of debt is very high in terms of lost market access.

 

Talking to Die Welt Wolfgang Schäuble said that he expected a detailed debt sustainability study for Greece to be prepared by the Commission and the ECB. "We will have to do something should this report conclude that the debt sustainability is in doubt", the finance minister said referring to "further measures" that would have to be undertaken.  However Schäuble also stressed that up until 2013 private creditors could only be subjected to voluntary debt restructuring. After 2013 private creditors would have to expect to automatically part of restructuring.

Why wasn't a debt sustainability study done a year ago? Anyway, better late than never.

And what is it about 2013?

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Apr 14th, 2011 at 04:06:38 AM EST
[ Parent ]
... enough time to quietly shift their liabilities onto the public balance sheet, so a public publicised bailout can be avoided.

The fact that the collateral damage from such a PR exercise includes several Mediterranean economies does not seem to overly concern Die Seriöse Leute.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Apr 14th, 2011 at 05:22:33 AM EST
[ Parent ]
Exactly.
by kjr63 on Fri Apr 15th, 2011 at 03:32:58 PM EST
[ Parent ]
First year after the end of the world, so a safe place to punt to.
by afew (afew(a in a circle)eurotrib_dot_com) on Thu Apr 14th, 2011 at 05:36:03 AM EST
[ Parent ]

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