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Well, this sounds promising

by Colman Thu Jul 21st, 2011 at 05:19:28 AM EST

A Eurozone summit is on today.

Shortly after midnight, it was announced that German Chancellor Angela Merkel and French President Nicolas Sarkozy had agreed a joint position concerning a new rescue package for Greece after seven hours of pre-summit talks in Berlin.

Few details have been released, but the spokesman said the Franco-German position had also been agreed in discussions with the President of the European Central Bank, Jean-Claude Trichet, and the President of the European Council, Herman Van Rompuy.

I'm not optimisitic that anything Trichet and Merkel are willing to wear is worth doing.

Details haven't been announced, but allegedly it involves taxing banks and messing with the terms of Greek debt.


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The FT claims that the bank tax is off the table, and instead we're going to encourage private bond holders to be helpful.

The deal paves the way for a German-backed initiative for more direct measures to get private holders of Greek bonds to help pay for the bail-out. According to a version of the plan circulated by the European Commission on Wednesday evening, all owners of Greek bonds that come due in the next eight years will be urged to swap their holdings for new bonds that do not mature for another 30 years. Other plans, however, including a French-backed bond rollover plan, are believed to still be on the table.

by Colman (colman at eurotrib.com) on Thu Jul 21st, 2011 at 05:22:54 AM EST
They keep talking about this, and it never happens.  It reminds me vaguely of the spring of 2008, when the investment banks kept getting together to talk about setting up a "bad bank" to soak up Big Shitpile.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Thu Jul 21st, 2011 at 06:22:01 AM EST
[ Parent ]
Worse is the fact that under most of the proposals so far, the ratings agencies will declare Greece a "de facto" default and we'll get a new crisis anyway.

So basically, if there's no agreement, we're screwed - and if there's an agreement, we're screwed.

by Metatone (metatone [a|t] gmail (dot) com) on Thu Jul 21st, 2011 at 07:30:48 AM EST
[ Parent ]
Maybe, but I think at this point the ratings agencies would simply be stating the obvious.  If the plan put Greece on a sustainable path, a default wouldn't matter much.  As it is, default seems to be priced as an inevitability.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Thu Jul 21st, 2011 at 07:51:09 AM EST
[ Parent ]
The problem is Trichet - if he follows through on his threat:

His threat was that if the ratings agencies declare a default, the ECB will stop taking Greek bonds as collateral. The default is priced into the Greek banks who this will affect most - but we don't know who else will be affected.

by Metatone (metatone [a|t] gmail (dot) com) on Thu Jul 21st, 2011 at 08:06:52 AM EST
[ Parent ]
The problem would be if the "solution" were considered a default by the agencies or by the terms of the CDS that would trigger an unknown amount of liability, as most of the CDSs are "over the counter" arrangements and there may be $10 of CDS liability for every $1 of actual loss. So they better be ready to announce that all sovereign CDSs without insurable interest are void -- and that, in and of itself, would be a major financial event.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Jul 21st, 2011 at 11:11:03 AM EST
[ Parent ]
And Munchau thinks we're doomed:


To arrive at such a stark conclusion, one has to understand the nature of the threat the eurozone is facing. The problem is not Greece, or some other small country on its periphery. The existential danger is the rise in market interest rates of Italy and Spain, two large countries in the eurozone's core. To state the goal of today's meeting in simple terms would be to say: the survival of the eurozone depends on whether its leaders will be able to take decisions that would allow Italy and Spain to remain inside the eurozone on a sustainable basis. Greece is now just a side-show.

To ensure that the eurozone survives the next few weeks, they will need to take two important decisions on Thursday. The first, and most important, would be an increase in size and flexibility of the European financial stability facility, the rescue umbrella. At present, the overall size of the EFSF, including the share of the International Monetary Fund, is €750bn. With a second Greek credit about to be agreed and second programmes for Ireland and Portugal very likely, the ceiling will not be big enough to bring in Spain, let alone Italy. To do that that, the ceiling would have to be doubled, or trebled. One could think of other constructions, such as having no fixed limits at all or sliding limits. The structure of the EFSF would have to be changed if it was going to be made this big. It would have to be properly capitalised. Italy's share in the EFSF 18 per cent would otherwise not be credible.

Since the leaders of countries like the Netherlands, Finland and Germany haven't prepared political or public opinion for what needs to be done, he doesn't think it will be done. The Euro may be screwed. Depends where our leaders' cowardice takes them.

by Colman (colman at eurotrib.com) on Thu Jul 21st, 2011 at 05:28:37 AM EST
Only if you share his opinion where the italian debt market is headed. I don't see this yet.
by IM on Thu Jul 21st, 2011 at 05:56:56 AM EST
[ Parent ]
Just wait until "the markets" start attacking France.

After Italy, it's just a matter of time. Belgium is now safe, as it has already been bypassed in favour of bigger prey.

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Fri Jul 22nd, 2011 at 07:30:36 AM EST
[ Parent ]
So the german government has once again given in to France.
by IM on Thu Jul 21st, 2011 at 05:53:27 AM EST
And the rest of us just watch the big boys decide.
by cagatacos on Thu Jul 21st, 2011 at 07:09:46 AM EST
[ Parent ]
Two go in, one opinion comes out.

So much for the power of unelected eurocrats.

by IM on Thu Jul 21st, 2011 at 07:10:59 AM EST
[ Parent ]
They still haven't solved anything.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Fri Jul 22nd, 2011 at 07:27:35 AM EST
[ Parent ]
Well there's always my Plan G for Greece

...or Plan I for Ireland; Plan S for Spain; choose your letter......

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Thu Jul 21st, 2011 at 05:59:45 AM EST
Good solution, but it would still most likely trigger CDS claims and does nothing for those holding CDSs without insurable interest.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Jul 21st, 2011 at 11:17:17 AM EST
[ Parent ]
European Tribune - Community, Politics & Progress.
I'm not optimisitic that anything Trichet and Merkel are willing to wear is worth doing

I don't like their clothes either. ;)

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Jul 21st, 2011 at 07:48:38 AM EST
Here's a link to a draft statement that has been leaked.
by Colman (colman at eurotrib.com) on Thu Jul 21st, 2011 at 10:33:59 AM EST
European debt crisis: Live | Business | guardian.co.uk
4. We call for a comprehensive strategy for growth and investment in Greece. Structural funds should be re-allocated for competitiveness and growth under a European "Marshall Plan". Member States and the Commission will mobilize all resources necessary in order to provide exceptional technical assistance to help Greece implement its reforms.

Sounds too good to be true. Sounds like a major defeat for the Austerians!

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Thu Jul 21st, 2011 at 10:52:11 AM EST
[ Parent ]
Yeah, we'll see what makes it through the summit.
by Colman (colman at eurotrib.com) on Thu Jul 21st, 2011 at 11:01:21 AM EST
[ Parent ]
Economics and Politics by Paul Krugman - The Conscience of a Liberal - NYTimes.com

The Telegraph has a leaked draft of the eurozone rescue plan for Greece. The financial engineering is Rube Goldbergish and unconvincing. But here's what leaped out at me:

9. All euro area Member States will adhere strictly to the agreed fiscal targets, improve competitiveness and address macro-economic imbalances. Deficits in all countries except those under a programme will be brought below 3% by 2013 at the latest.

OK, so we're going to demand harsh austerity in the debt-crisis countries; and meanwhile, we're also going to have austerity in the non-debt-crisis countries.

by Metatone (metatone [a|t] gmail (dot) com) on Thu Jul 21st, 2011 at 11:55:06 AM EST
[ Parent ]
If we keep doing the things that haven't worked, and can't work, suddenly we'll get:

and

To the RESCUE!!!

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Thu Jul 21st, 2011 at 12:27:52 PM EST
[ Parent ]
I note that technical assistance to "implement reforms" would be assistance to implement the public wealth sell-out and destruction of the (trivial to begin with and half-way invisible by now) welfare state. So I don't see this as a defeat for the austerians, since if I understand correctly, things like "labor market reforms" (weakened or no collective bargaining for private of public sector) and further defunding education and health remain as they are... I'll have to wait to see for whom exactly this "Marshall Plan" is for... the fact that the banks are being left untouched can't be a good sign...

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Thu Jul 21st, 2011 at 12:09:48 PM EST
[ Parent ]
Yeah, it looks like another attempt to use Greece as a pass-through entity to bail-out the German and French banks.

Who, I note, foolishly lent the money in the first place.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Thu Jul 21st, 2011 at 12:21:28 PM EST
[ Parent ]
technical assistance to implement reforms could quite easily be newspeak for more and better tazers...

sorry to be so cynical! i trust these guys about as far as i can throw them.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Thu Jul 21st, 2011 at 04:20:25 PM EST
[ Parent ]
Technical assistance for "reforms" from these folks, is like technical assistance for "policing" from Burma. Not exactly a hopeful prospect...

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Thu Jul 21st, 2011 at 04:27:38 PM EST
[ Parent ]
But! but! Marshall Plan, who ever he is, sounds so impressive. This certainly sounds like a situation that needs a Marshal and a Plan!

These guys and gals seem to have a limited number of ideas upon which the required agreement cannot be obtained. So they keep reshuffling their proposals with different combinations, hoping that no one will notice they are recycling rejected ideas and praying that some magic combination will be agreed and will work. But it seems that nothing that would work will ever be adopted, as they give priority to protecting the very ones who are largely responsible for the problem, as it is them for whom the guys and gals really work.

 

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Jul 21st, 2011 at 06:07:20 PM EST
[ Parent ]
They seem all too distracted by Greece to notice the smoke coming out of their own attics.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Jul 21st, 2011 at 11:21:35 AM EST
[ Parent ]
As I read it:  not really.

They are still trying to apply monetary policy solutions to a situation requiring fiscal policy intervention.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Thu Jul 21st, 2011 at 12:20:12 PM EST
by Colman (colman at eurotrib.com) on Thu Jul 21st, 2011 at 03:39:39 PM EST
No mention pf a "Marshall Plan" even, nothing really significant except the rate and length restructuring... Too little, too late. How much time will this buy, then, 3 months, 3 weeks, 3 days?

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Thu Jul 21st, 2011 at 04:04:42 PM EST
[ Parent ]
it's like they're stretching elastic to see when it snaps.

roll over this, reform that... anything but deal with reality.

trichet, barroso, what a sorry apology for statesmen we are cursed with right now in yurp. mushbrains...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Thu Jul 21st, 2011 at 04:23:38 PM EST
[ Parent ]
3 months. Next crisis is scheduled for October and it will be big.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Fri Jul 22nd, 2011 at 07:37:58 AM EST
[ Parent ]
What sort of crisis are we talking about? And you think that Italian and Spanish bond spreads will behave til then?

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Fri Jul 22nd, 2011 at 01:45:51 PM EST
[ Parent ]
I'm thinking a major market crash before the end of October. And yes, it's possible that the market will go to sleep for the month of August. After all the serious people (and the traders) like their vacations in the sun.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Fri Jul 22nd, 2011 at 05:10:45 PM EST
[ Parent ]
A comparison between the draft version and the final statement

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Thu Jul 21st, 2011 at 06:53:03 PM EST
[ Parent ]
So finally they talk about bank recapitalization and market-making of last resort.

However, the "Marshall Plan" was dropped and EU funds will be targeted towards "reforms" and "fiscal consolidation".

Not bad, but insufficient.

It may be enough to get the Euro through the current crisis but at the price of either a lost decade in much of the EU or another private debt bubble in the periphery if new business cycle manages to get started, ending with another crisis. Because none of the structural causes of the imbalances is addressed.

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Fri Jul 22nd, 2011 at 07:37:23 AM EST
[ Parent ]
The Private Sector Involvement section is simply appalling.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Fri Jul 22nd, 2011 at 09:44:30 AM EST
[ Parent ]
The text merits all the scorn and cold water poured on it. Still, there is incremental progress in the right direction on a number of points.

Major beef-up for the EFSF and ESM. Lower interest rates and extended maturities on future loans, with a "grace period of 10 years". Ireland and Portugal get the same deal.

"Financial sector" haircut of €37 billion; interestingly, no mechanism specified! But this is the first step of a write-down.

"Marshall Plan" reference is removed, but EU funds and the EIB are to be mobilized by the Commission's task force, to target "competitiveness and growth, job creation and training". This is such a wide remit that the effects depend on who's driving, and their ideological orientation.

EU parliament ordered to finalize and vote the "strengthening" of the "Stability and Growth Pact", member states agree to help the Polish presidency to bully the Parliament into submission on this. That should be interesting...

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Fri Jul 22nd, 2011 at 04:15:08 AM EST
"Marshall Plan" reference is removed, but EU funds and the EIB are to be mobilized by the Commission's task force, to target "competitiveness and growth, job creation and training". This is such a wide remit that the effects depend on who's driving, and their ideological orientation.

Gah, they're going to use the EIB to tweak the labour market?

THe purpose of the EIB is to influence capital formation where the market's choice of the direction and pace of investment is not as desired. Not to fund "active employment policies".

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Fri Jul 22nd, 2011 at 07:22:51 AM EST
[ Parent ]


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