The reporting in germany on the government response to developments at the IMF conference:
-Merkel refused to comment on the suggestion of a two year extension, saying she'd await the troika report.-Schäuble ruled out OSI, sounded extremely unconvinced about a two year extention for Greece, and basically said things were going better than the media presented it.
-Brüderle (FDP Floor-Leader) said that he didn't see a majority in the Bundestag for a 3rd Greek Bailout. Which is polite language for "we're not voting for it". The CSU would be against, but has made no public comment. Plenty in the CDU would be against too, but the majority will hold to Merkel's line. The SPD are for it, as I think are the Greens.
So it looks like another one of those wrapped-together-with-sticky-tape temporary coalitions, to get it through the Bundestag. And probably bundled together with other applications from Spain, Slowenia, Cyprus.
European Central Bank policymaker Jörg Asmussen has argued against Greece leaving the eurozone, at the IMF/World Bank shindig in Tokyo. Asmussen argued that Athens was making good progress. The Greek authorities have to demonstrate that they can continue to stick to their commitments... This is the best way out of its crisis: for Greece to reform within the euro area....CNN is also focusing on the growing divisions between the IMF and the eurozone over austerity....Its correspondent, Andrew Stevens, writes from Tokyo:The EU will produce its own conclusions about the impact of austerity measures next month. Whether that brings us any closer to a consensus is hard to judge.....Remember the old joke about economists: if you laid all the economists in the world end-to-end you still wouldn't reach a conclusion. But this is no joking matter. Millions of Europeans have fallen into poverty or at least economic hardship as a result of the current austerity programs.
6 comments:
hey wouldn't be insolvent with a 30% write down.
Banks have an average leverage ratio of (about) 30. That makes them (round numbers, very very simplified) technically insolvent when their assets drop in value by 3-4%. They can go insolvent quite easily, with sudden losses of asset value. Added to that, many offer Credit Default Swaps, so would have to pay out on those, for any such devaluation.
This would, by my understanding, wipe out most of the global financial system. Now, this might in fact be a desirable thing to do (I'm not joking, and I am not a socialist either), but it pretty definitely needs careful thought. Like somebody else has already said, you're wiping out not just banks, but insurance companies and people's savings too.
It's quite similar to an idea the german left party came up with.
http://www.spiegel.de/international/europe/german-left-party-proposes-new-way-to-save-the-euro-a-846788.html
It's, from my really quite neo-liberal perspective, an extremely attractive idea, provided one guarantees deposit and insurance policy-holders to a reasonable level. I just don't think the politicians will dare do it. That would throw millions of people out of work overnight, would jeopardise the flow of international trade (including stuff like: food), and all that. It would be a very frightening period, for everyone.
But it would be a solution.
The showdown between the eurozone and the IMF is being described as eyeball-to-eyeball, a shouting match, and a contest to see who will blink first.
I'm just running through the possible participants here:
Juncker, Rehn, Barroso, Merkel, Schäuble, Rajoy, Monti, Lagarde.
I'm having a little difficulty, to put it very mildly, imagining "eyeball-to-eyeball" shouting matches. I suspect Ian's source was either joking, or mischievously wanted to see what exaggerations he/she could get away with, with a british journalist.
Here's some reported dialog from the cliff-hanger summit on 28th/29th June, when Monti refused to agree any measures at all, without concessions from Merkel.
Merkel: "Mario, this really is not at all helpful"
Monti:"I know"
Write down all our debts personal, national, business by an agreed percentage and keep salaries the same - we would all have more to spend - this is how the QE money should have been used in order to generate economic activity because without furnishing consumers with the power to consume i.e. the 'ready', we are stalling. Instead QE funds are sitting on balance sheets going nowhere.
The only institutions who will suffer in a debt write down are those who already have wealth to spare - the banks, again, and investment houses; one shouldn't risk what one can't afford to lose - so they can afford to lose some of that credit they hold as it is lent at risk.
Write down 30% of ALL debts and watch the economy surge....
Here is an article that outlines the complex process that Greece will follow should they decide to exit the Eurozone:
http://viableopposition.blogspot.ca/2012/08/divorcing-europe-how-hard-can-it-be.html
The key issue will be to prevent a bank run as confidence in the nation is lost.
TOKYO—The head of the International Monetary Fund Saturday urged euro zone authorities to deploy the currency union's bailout funds and the European Central Bank's bond-buying program as part of an aggressive plan to tame its debt crisis.
Although IMF Managing Director Christine Lagarde didn't refer to any particular country when prodding the EU to wield its crisis-fighting weapons, Spain is the only country in the euro zone that is currently considering whether and when to tap the bailout funds. Also, the fund is pushing Europe to quickly appoint a pan-euro banking supervisor as a necessary step to allow for the ...bailout
German Finance Minister Wolfgang Schaeuble ruled out a Greek default as the cash-strapped country and international inspectors seek agreement on policies before an Oct. 18 European Union leaders summit.
“It will not happen that there will be a ‘Staatsbankrott’ in Greece,” Schaeuble said in English at a forum in Singapore today. “Greece has had to take a lot of very serious reforms” and an increasing majority of the population “does understand that being a member of the common European currency is in the best interest of Greece,” he said.
Schaeuble said he doesn’t see “any sense to speculate on Greece leaving the euro” because it would be very damaging for both the country and the region. Germany is ready to assist Greece to build a competitive economy and functioning public administration, he said.
Speculation about a Greek exit intensified as public opposition to spending cuts widens and Prime Minister Antonis Samaras’s government stalls on budget cuts. A deal with the troika of the International Monetary Fund, European Central Bank and European Commission is needed to unlock a 31 billion-euro ($40.2 billion) aid installment that the Greek government needs to recapitalize its banks and pay debts.
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