IMF warns it could hold back bail-out cash without assurances that Greece will fulfil its commitments, but Papandreou is 'unable to give that', while EC President urges Greece to back eurozone package.Eurozone chairman Jean-Claude Juncker is at the Cannes meeting, and he is not happy with Greece's decision to stop the bail-out process to give the public have a chance to vote. He said: "We took a decision last week as 17 (member states), we can't allow anyone to disassociate himself from that decision." But a pragmatic French official, also at the summit, said there was little chance of stopping them. The best they could hope for was to get the vote out of the way quickly. It is too late to persuade them to go back on the decision to hold a referendum. The idea is that they hold the referendum as quickly as possible and make it about being in the euro.Ben Bernanke said it was "a bit frustrating" to have to watch the Euro debacle from the sidelines and listed it in the run of "bad luck" that had held back US recovery alongside the nuclear accident in Japan and high oil prices. But he didn't give much insight into the Fed committee's thinking on the impact of European woes on the US or on what, if anything, the US can do to help the situation. Sadly he may have been silent because really there isn't much the US can do at all.The US markets seem to be having an unusually normal day. They started mildly up and have stayed there. There's almost a sense of "normalcy" as Americans like to say. No doubt there'll be a huge sell off or rally soon. For the record, the Dow Jones index is up 183 points, or 1.5%, with around half an hour to go.
Meanwhile, back in Europe, tensions are running high... A European Union official has given an interview to a small group of reporters in Cannes, appearing "angry and frustrated", according to the Wall Street Journal. The anonymous official said: I have no words to describe how I feel about Greece. Uncertainty is exactly what we don't need right now. If Greece were going to war tomorrow, they would establish national unity. Well, we are at war. The crisis is that bad. And it's time that Greece put party politics aside and demonstrate national unity. Greece as a country has to make it clear that they want to make the kind of effort that is necessary. If not, they have to bear the consequences. Papandreou, whether consciously or not, has called Europe's bluff. With a potential NO from the Greek people he could bring the European house of cards down. He is in a unique position, in my view, to renegotiate a bailout package with much more favourable terms for his people. And this is something that could benefit many other countries (Italy, Portugal etc). Truly, there can't be no growth in an economy - especially that of Greece - when what is imposed by the troika is no less than a reduction of people's real income by 1/3. Imagine what would happen to us here if the same conditions were imposed. I for one would not be able to pay my mortgage. And, what's more, the Left in Greece could play a vital role if in the end Pap's government falls (they would have to form an interim "national unity" government put together by their president). The New Democracy party (conservatives) are truly responsible for this mess in Greece and its current leader is really a laughable fellow. Let's just hope that it's the people who are favoured this time round and NOT the international markets and/or the banks.
7 comments:
The sky is falling in, the sky is falling in.
Neither a borrower nor a lender be, for loan oft loses both itself and friend and borrowing dulls the edge of husbandry. The words of Polonius, the archetypal 16th century buffoon!
Bankers should get back to reality and realise that reckless lending has consequences that can't be solved by bleating loudly and shouting at governments that they're too big/important to fail.
Greece should try to understand what "husbandry" means. It's hardly surprising it has middle english rather than greek roots.
9.34am - so our manufacturing industry went UP? But we can't sell things because we tied ourselves in so tightly with the protectionist EU trading zone that now cannot afford to buy things? Brilliant.
Ah no, the UK data was for the construction industry (it's right in the blog post, honest). UK Manufacturing PMI was released yesterday, and was just as bad -- it fell to 47.4 in October. I'll add that to the blog.
Usually the UK and European PMI's are released in sync - but because of euro public holidays they are a day behind
Sounds like the Greek people would be well out of it. The Eurozone was an untested model, and has been found to have serious weaknesses that seem to have been largely unforeseen by its advocates. It doesn't even benefit its winners like Germany, who have to take a hit when other countries are profligate with their economy.
It has taken time for things to deteriorate to this state, but anyone who thinks a cash band-aid is going to make it better is seriously delusional. Either the rules of the game have to change, or Greece Ireland Italy etc will have to leave and go back to the old mechanisms of playing about with the exchange rate etc. At least then they won't lose an important element of sovereignty by having their finances dictated by other nations who don't themselves have to take the pain of the 'austerity measures' they insist on.
What's the worst thing that can happen? By staying out of the euro Britain has demonstrated that you can be quite happily in Europe and out of the euro at the same time. What works for us would work for them as well.
Yes, I know that it's *much* more complicated, but it's difficult not to believe that one of the last things Frau Merkel, M. Sarkozy, and their financial over-lords want is to involve the People in these momentous decisions, whether those people be Greeks or the citizens of any of the other member countries.
Why, the Greeks should not miss this opportunity to just shut up and do as we dictate; and we're flying off to Cannes to make sure that Kyr George understands this!
Thanks for the comprehensive response; a forensic analysis of the human activity in recent days rather than talk of disembodied 'markets' would be worthwhile ATL.
It's so easy for media to witter on about the 'markets' without actually explaining anything. And, I have raised this before, but where oh where did the term 'haircut' come from? Is it a translation from another tongue perhaps? So underwhelming
forensic analysis of markets is kind of my thing - generally markets are 'technical' or 'fundamental'. Technical markets are driven by human behaviour - it is the fear/panic/exuberance of traders and their approach to managing risk that dictates the price of assets. Fundamental markets are driven by actual information on economies and companies. There are lots of academic ways to measure where we are on Technical-Fundamental spectrum (which are too longwinded to go into here), but it's safe to say that the last two months have been about as technical as it gets.
'Haircut' was, I think, first used by the brokerage desks in US banks in the 70s and 80s. Agree it's an awful term.
Anyway - a question to anyone with a sane answer regarding credit default swaps, as there's something I'm simply not getting. These are essentially insurance policies purchased by bondholders to mitigate against the risk of default, but the idea that they might actually be triggered is talked about as though it would cause the collapse of the entire financial system. So, opinions please:
1) What would the immediate effects of CDSs being triggered be?
Partly unknown. All CDS are 'over-the-counter' i.e. not centrally cleared or centrally traded. That said, there are international settlement agencies that keep track of exposures. Most big bank exposures to Greece are known, which is why Soc Gen tanked so much yesterday. Ultimately, most of the banks would need to pay out their side of the bargain - which could push some to bankrupcy. The big problem is that the interconnectedness of the system is not clear - i.e. the winners from the CDS trades might invest their money back in the bank or even be the bank itself.
2) If the effect is so catastrophic that they would never be paid out, why do companies buy them?
In anything but a banking crisis they are paid out and do kind of work as expected - insurance against a company going bankrupt. If I am a steel mill owner who uses Goldman Sachs to help sell and manage my steel supply, I want to be able to buy insurance on Goldman Sachs to manage the risks of my business. A CDS is one of the best ways to do that.
3) Surely given the above, it's 'almost' a one-way bet for those selling them?
Not really - you'd need to be sure that they wouldn't be triggered apart from in a financial collapse. 2008 was about as bad as it as has ever been in financial stress terms, yet the CDS insurance on Lehman Bros, Bear Sterns and a raft of mortgage related issues was all paid in full.
4) Why are they even legal
Good question. A better question is why are they not traded on a central exchange, with an independent clearing body that can keep track of everything. Policy makers have been talking about making this happen for 5 years now - it's a complete joke that no headway has been made.
In regards to CDS i am not going to pretend to be a expert but from what i have picked up they seem to be almost completely fraudulent as there will not be even near enough money in the system to ever pay back on all the CDS contracts.
This would have been known by the TBTF banks but just a another way for them to rake in mass profit whilst hanging out there clients and customers to dry (again)
You can only imgaine the amount of CDS payments that are about to be triggered by the contagion from the Greek default (trillions probably and where is that money going to come from (insolvent banks !)
I am not sure why people have bought them, as a hedge against tail risk no doubt but they will all end up ery dissapointed IMO.
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