The Greeks are mainly responsible for their current predicament. But the German government has made the country's situation worse with its lectures and reluctance to provide assistance. Chancellor Angela Merkel is mainly to blame for the fact that German taxpayers now have to suffer.

"Anything that can go wrong will go wrong." This piece of wisdom, known as Murphy's Law, currently applies extraordinarily well to economic policy in the euro zone.

On the one side there are the Greeks, who clearly still do not have their financial statistics under control and who produce one false report after another about the country's budget deficit. On the other side are the Germans, who delight in hindering a rapid and unambiguous European response to the Greek crisis -- in the process driving the cost of a solution through the roof.

...In the process, and as a result of the active assistance of the German government, what has happened is exactly the thing that was supposed to be avoided, and what could have been avoided -- namely that Greece has indeed been forced to ask for financial help from other European countries.

The problem for the German government is that its arguments are not tenable. That applies first of all to the reference to the financial markets, an argument that is delivered in a tone of utter conviction that the risk premiums seen there accurately represent real risks. It is remarkable that, after all that has happened in the last couple of years, experienced politicians still assume that financial markets produce rational and reliable information.

It is a fact that speculators have access to no more information about Greece than the economic experts in Europe's governments. There are, however, many market players such as hedge funds which derive profits from uncertain events. The more chaotic things are, the more they like it. Their biggest enemy is political clarity, which is why they are delighted when politicians indulge in scaremongering. In the case of Greece, this scaremongering has succeeded extremely well, as the skyrocketing risk premiums show.

The role of rating agencies can also not be forgotten. It was their downgrading of Greece's creditworthiness that triggered waves of speculation. This is partly because the rating agencies, according to current regulations and despite their total failure during the financial crisis, still have a lot of power over the markets -- power that was given to them by politicians. Every downgrading of Greece's status forces banks to sell Greek government bonds. This in turn accelerates the decline in the value of those bonds, leading to even higher interest rates.

Merkel showed not only zero leadership

Merkel has been shown up in this for what she is, far from the wise leader she was building a reputation for.

believe it was dvx who surmised that perhaps as Schäuble was at the end of his career, he felt he could afford to say what he believed.

And there is some question about how long he'll stick around:

Joey Ackermann, meanwhile, is making the rounds of the banks and insurance companies to drum up chump change for the Greek rescue.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

How has it reached the point where 25-35 year old hedge fund bankers/speculators/financial vermin are determining the policies of nation-states?

The way to avoid such a situation is very easy though: keep the public finances sound.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

It's an instance of mental capture. In the case at hand, officials have shirked their responsibility for policy and have hidden behind market quotes. As I paraphrased back in February

"the market is always right, we in the Eurogroup have no greater insight into the credibility of Greece's fiscal position than what you can get from looking at market prices"

The problem is the dominant economic ideology.

The brainless should not be in banking -- Willem Buiter

How did we let the system get so polluted that those who skim the system now control it?

Wm. K. Black calls it "control fraud". In the USA it started in the big banks and has extended to The Fed, The Treasury, The SEC....of course, ever promoted and pedaled by the RW "think tanks".


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

Unification projects on the scale of the European Union has normally required at least two serious shooting wars.

Germany required one against Austria, one against France and a practise match against Denmark; Britain required too many to recount; France required only one, but it lasted a hundred years, Italy required one against Austria and then a civil war on top of that; USA required a boatload of massacres, plus a serious civil war; India required a whole boatload too.

If we can move from a loose confederation to a federal architecture at only the comparatively minor cost of a serious business depression, then I think we should count our blessings.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

It has been the case since day one that the ECB could quietly and at no cost (in fact, making Seigniorage profit) put a floor on the price of Greek debt

Do you mean by doing this?

ECB Comes to Greece's Aid by Waving Collateral Rules (Update3) - BusinessWeek

May 3 (Bloomberg) -- The European Central Bank joined the international rescue of Greece, saying it would indefinitely accept the country's debt as collateral regardless of its country's credit rating, underpinning gains in the bond market.

The decision came less than a day after Greece agreed to a 110 billion-euro ($145 billion) package of emergency loans from the International Monetary Fund and its euro-region allies. Under the plan backed by the ECB, Greece pledged 30 billion euros in budget cuts to bring a deficit of 13.6 percent of gross domestic product within the EU limit of 3 percent in 2014.

"The ECB is a key player in the rescue package designed to help Greece and it is clearly buying insurance against the likelihood of further multiple downgrades of the Greek debt, something that might lead to a halt of ECB financing to the Greek banks," said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc in London.

http://www.businessweek.com/ap/financialnews/D9FG2MU80.htm

The idea being openly discussed is that the ECB may support bond prices -- and the balance sheets of banks holding them -- by buying government bonds even though the bank's constitution says it can't directly bail out profligate governments.

"Ultimately, the ECB may have to rewrite the rules," said Neil Mackinnon, global macro strategist at VTB Capital.

One option could be for the ECB to get round the no bailout rule by buying bonds on the secondary market from the banks instead of the governments -- a Spanish bank, say, would go to the ECB and exchange Spanish bonds, which could be junk status, in exchange for cash.

"That would prevent a banking crisis, provide liquidity, underpin solvency and indirectly help fiscally challenged governments to fund themselves," said Mackinnon..

I can imagine this being discussed among the Central Bank chairmen at a conference of the European System of Central Banks, and Axel Weber banging the table with his shoe like Khrushchev as he screams¨"over my dead body!".

Now, there's a picture to cherish...

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

Soros' attack on the Pound in 1992 was a successful political bet that the Bundesbank would not spend any DM keeping the pound within the bounds of the European Exchange Rate Mechanism. He was right and made a handsome profit. 20 years later he's complaining that Germany doesn't have the political will to do anything about market attacks on the Euro. I think his successors are making the same political bet about German commitment to the European construction, and will equally make out like bandits.

Bond markets will open at an unprecedented 1am on Friday - three hours after the polls close - because traders want to be able to sell UK gilts

Well, so fucking what?

I mean, excuse my French, but why the fuck is the Exchange (which last time I checked was supposed to be a quasi-public institution whose main responsibility is to ensure an orderly and transparent market) cowtowing to such hysterical demands?

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

We care about those dumbasses because?

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.