On Merkozy's power, fools and power in general
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Last year, some observers hailed a close Franco-Anglo cooperation and diagnosed the end of the Franco-German couple which had exercised above proportional influence in Europe.
These politics games are simple; a few (two) large powers agree on common ground on a topic, then they go to a target summit and prevail with their proposals and demands because there's not going to be any agreement without them anyway. The advantage for the two is basically that the special interests of many others are a much weaker bargaining position.
Well, the British-French cooperation in military affairs is largely irrelevant now since the elephant in the room is the Euro currency area / PIIGS fiscal crisis. The UK is not part of the common currency and thus irrelevant; Cameron was not happy to be informed about this directly. The UK is a stakeholder, not a shareholder - and thus largely powerless in the issue.
Now there' much being written about 'Merkozy' and how they define the political reaction to the crisis. Authors ascribe especially great power to Merkel, often with reference to the German economic position.
Judging by the conventional view of great power games and by the view assumed by many journalists, Germany is now powerful.
Hmm, right.
Now what's the benefit of being powerful?
You know, Germans have become accustomed to expect that whenever they're being called 'important' or 'indispensable', it's actually about their money. It's thus not surprising that there's not exactly great cheering about this 'power' in Germany.
Moreover, the whole anecdote exemplifies how power must not be advantageous under all circumstances; the political reaction to the crisis is actually a rather primitive, and not really self-serving reaction. German foreign policy uses the crisis to shove some long-term improvements down the throats of Greece, and to influence the long-term outcome (at the cost of being called out for disastrous short-term effects).
There's a huge price, though; we're being played like a violin by the financial sector. We're the dog who gets wagged by his tail. So much about our 'power'.
Said 'power' or 'greatness' is rather 'size' - a common misunderstanding in many other cases of 'power' or 'greatness' as well.
What's really happening is that investors in the financial markets bought PIIGS public bonds and were promised a risk premium (higher than about 2% interest rate). In many cases, said investors were incompetent and did not understand that the risk premium was way too small. Well, their problem; but now they've got the additional problem that the risk might realize and they might indeed not get their money back.
This was when a lucky set of circumstances created the terrible urge "to do something" about the crisis, for, you know, people dislike change. The idea of supporting the countries in peril was born, and much fear about 'contagion' was spread.
As a result, said dumb investors were able to transfer much of their risks to European governments (the people of Europe); they socialised risk. Nobody's talking about socialising profit, of course.
Merkozy were dumb enough to get caught in this vicious circle; the more they support Greece, the more is at stake. The sunk costs theory say that must not play a role, but they're politicians and the only cost that really counts to them is the loss of their office.
Now they're adding one 'helping' measure after another and dig the hole deeper and deeper, delaying the collapse as much as they could (or at least till after their re-elections?). This means of course that more and more risk is being socialised.
Now where exactly is the benefit of being 'powerful'?
It certainly doesn't appear to be of much use if you're a fool.
Accordingly, getting rid of foolish policy should attract much more attention, and only once this has succeeded anyone should care much about the difficult-to-define 'power' of a nation.
Growth Action Plan Needed ...
So, how will Greece's only future, it's youth, be prepared to lead their country out of austerity?
Will EU universities and apprentice programs open satellite offices in Greece, will small business startups be cultivated, or has the brain-drain officially begun? Or maybe, perhaps, future remittances will be enough and Greek politicians have not epically failed their country after all...:cool:
Greek MPs pass austerity plan amid violent protests, 12 February 2012 Last updated at 18:40 ET, BBC
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Greece's parliament has passed a controversial package of austerity measures, demanded by the eurozone and IMF in return for a 130bn-euro ($170bn; £110bn) bailout to avoid default.
Coalition parties expelled over 40 deputies for failing to back the bill.
The vote came amid some of the worst violence seen in Greece in years.
Euro Gains as Greece Approves Austerity Measures, by Candice Zachariahs and Kristine Aquino - Feb 12, 2012 4:11 PM MT, Bloomberg News
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The 17-nation currency rose against most major peers after at least 151 members of the chamber voted for the measure, according to a tally of votes. The dollar slid versus 12 of its 16 most-traded counterparts before data tomorrow forecast to show U.S. retail sales rose in January by the most in four months, damping demand for haven assets.
Why Greece and Portugal ought to go bankrupt, By Wolfgang Münchau, Last updated: February 12, 2012 11:04 pm, Financial Times, www.ft.com
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Two years ago, most European policymakers still believed that Greece would pull through. They lacked experience in managing financial crises. They did not even consult with policymakers in other parts of the world who had dealt with crises in previous decades. Armed with ignorance and arrogance, they ended up repeating everyone else’s mistakes. They thought they were clever when they came up with the idea of an expansionary fiscal contraction. And they thought that a voluntary private sector involvement (PSI) could really help.
Having failed to learn from the mistakes of others, some of them are now beginning to learn from their own. In some northern European capitals, policymakers are beginning to understand that the Greek programme has been an unmitigated failure. They have lost trust in Greek politics. As we enter year five of a depression, and the certainty that Greek gross domestic product will fall further under the influence of austerity, they are on the verge of giving up on Greece.
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Some say it would be better to force Greece out of the eurozone right now, and use the funds to save Portugal. I disagree. I personally believe it would be best to recognise the desolate state of both countries, let both default inside the monetary union, and then use a sufficiently increased rescue fund to help them to rebuild themselves, and to ringfence the rest at the same time.
This will be very expensive. But to ignore reality for another two years will be ruinous.
Greece - Cutting out the Middle Man, TUESDAY, 7 FEBRUARY 2012,
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It seems that central bankers and politicians are endlessly resourceful when it comes to innovating ways to profit themselves and bankers at everyone else's expense. Where I had thought Greek default inevitable just two weeks ago, I no longer think so today. It appears that Sarkozy, Merkel and the Troika have decided to prevent a default regardless of what Greek politicians or citizens may choose to do.
The new plan is to take the EUR 130 billion that would have gone to Greece in the second bailout, and put it in an escrow account. The account may be labelled "Greek Government", but Greek politicians will not have any authority over the funds. The funds will be disbursed by a non-Greek overseer to pay holders of Greek debt. Official creditors will receive full payment. Private creditors will receive the new discounted rates agreed with the IIF for restructured debt. I am not sure what private creditors who reject the IIF proposal might receive, but it will not much matter as ISDA will find there is no credit event regardless.
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The can is kicked down the road for another quarter, and the bankers can pay themselves their 2011 bonuses.
After all, innovation is the driving force of economic growth, and deserves to be generously remunerated.
Junge Griechen-Elite verlässt ihr Land, 29.10.2011, 17:50 Uhr, Handelsblatt
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Je höher ein junger Grieche heute ausgebildet ist, desto stärker ist sein Drang, auszuwandern. Neun Prozent aller Uni-Absolventen verlassen ihr Land, sogar 51 Prozent der Promovierten. Doch sie gehen nicht gerne.
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Jeder Dritte landet von der Universität direkt in der Arbeitslosigkeit. Unter Akademikern hat sie sich seit 2007 verdoppelt. Insgesamt haben vier von zehn Griechen zwischen 15 bis 24 Jahren keinen Job. 2008, vor der Krise, waren es zwar auch schon 18,6 Prozent, aber seither hat sich diese Zahl mehr als verdoppelt. Griechenland bietet nicht nur eine turbulente Gegenwart, Griechenland bietet vor allem keine Zukunft.
Unter den 25- bis 35-Jährigen haben 22 Prozent keine Arbeit, nach offiziellen Statistiken. Damit verspielt das Krisen-Land eine wichtige Ressource: Etwa ein Zehntel der Bevölkerung (1,1 Millionen Menschen) sind jünger als 25 Jahre, weitere 1,5 Millionen sind zwischen 25 und 34 Jahre alt. Das sind die Zahlen, die Eleftheria und Sofia im Hinterkopf haben, während sie in den Räumen des Goethe-Instituts deutsche Vokabeln lernen. Die beiden jungen Frauen sind wie viele Griechen, sie lieben ihr Land. Und dennoch sehen sie keine Alternative zur Auswanderung.
Griechische Industrieproduktion mit -11,3% im Dezember, Querschuss am 9. Februar 2012 in Allgemein
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Eigentlich unfassbar, welch miese Wirtschaftdaten geboten werden und wie oft man sie noch darstellen muss, um der simplen seit 2 Jahren hier dokumentierten Erkenntnis zum Durchbruch zu verhelfen, dass die Maßnahmen der Troika (EU, EZB und IWF) völlig kontraproduktiv sind und zu einer beispiellosen Depression in Griechenland führen. Das griechische Statistikamt ELSTAT berichtete heute für Dezember 2011 einen Einbruch des unbereinigten Outputs der breit gefassten Industrieproduktion von -11,3% zum Vorjahresmonat. Besonders brisant, gerade das vergleichsweise stark unterentwickelte Verarbeitende Gewerbe in Griechenland, brach selbst zum schwachen Niveau des Vorjahresmonats um weitere -15,5% ein. Die organisierte Desasterzone “feiert” zum Schaden Aller in der Eurozone Urstände, insbesondere zum Schaden der griechischen Bevölkerung.
Socialization of financial losses...
Greece has a 14.5 billion Euro bond redemption scheduled for 20 March, 2012. Gavyn Davies, in today's FT (Eurozone’s reluctant take-over bid for Greece, February 17, 2012 1:43 pm), estimates that Greece's ~353 billion euro debt results in a debt to GDP ratio of 163 percent, (with no end in sight).
A breakout of Greece's economy, by wikipedia, can be found here
Public Debt Bulletins from the Greek Ministry of Finance can be found here. The latest posted, as of today 17 Feb 2012, is for Dec 2011.
Wikipedia:
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Socialization (or socialisation) is a term used by sociologists, social psychologists, anthropologists, political scientists and educationalists to refer to the process of inheriting and disseminating norms, customs and ideologies.
The Doom Loop, by Andrew Haldane, Vol. 34 No. 4 · 23 February 2012, pages 21-22 | 3181 words, London Review of Books
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In the first half of the 19th century, the business of banking was simple. The UK had around five hundred banks and seven hundred building societies. Most of the former operated as unlimited liability partnerships: the owners-cum-managers backed the banks’ losses with every last penny of their own personal wealth. The building societies operated as mutually owned co-operatives, with ownership, control and liability all pooled. Financial sector assets amounted to less than 50 per cent of annual UK GDP.
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At first, limited liability status was not taken up enthusiastically by banks: they were reluctant to give up unlimited liability, which they regarded as a badge of prudence. But the collapse of the City of Glasgow bank in 1878, caused by speculative lending and false accounting practices, ended that. Eighty per cent of the bank’s shareholders were made destitute. The opinions of bankers, Parliament and public alike shifted quickly. By 1889, only two unlimited liability British banks remained.
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What impact did these changes have on banks’ incentive to take risks? The answer was provided in 1974, around a hundred years after the introduction of limited liability, by the Nobel Prize-winning economist Robert Merton, who showed that the equity of a limited liability company could be valued as if it were a financial option – that is, an instrument which offers rights over the future fruits of the company’s assets. This option has value – in the jargon, it is ‘in the money’ – provided a firm’s assets cover its debts. But the most extraordinary implication of Merton’s framework is that the value of those options can be enhanced by increases in the degree of uncertainty about the value of the bank’s assets. How so? Because while uncertainty increases both upside and downside risks, downside risks are capped by limited liability. For shareholders, the sky is the limit but the floor is always just beneath their feet. To maximise shareholder value, therefore, banks need simply to seek bigger and riskier bets.
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Finance has a further trick up its sleeve, a trick that at a stroke boosts both volatility and returns to the owners of a bank. Leverage, simply put, is borrowing against your capital stake. For example, if borrowing allows a bank to hold assets of 120 against capital of ten, then its leverage is 12. The beauty of leverage is that it effortlessly multiplies the amount shareholders receive as a return on their assets. Consider a bank that makes a 1 per cent return on its assets. By allowing leverage (assets relative to equity) of two, shareholders can double their money; with leverage of four, they can quadruple their money. And so on. Banks have been using this device for well over a century. As unlimited liability was phased out, leverage among banks rose from about three or four in the middle of the 19th century to about five or six at its close. Leverage continued its upward march when extended liability was removed, and by the end of the 20th century it was higher than twenty. In 2007, at its high-water mark, bank leverage hit thirty or more.
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Consider the effects of the too-big-to-fail problem on risk-taking incentives. If banks know they will be bailed out, those holding their debt will be less likely to price the risk of failure for themselves. Debtor discipline will therefore be weakest among those institutions where society would wish it to be strongest. This encourages them to grow larger still: the leverage cycle isn’t merely repeated, but amplified. The doom loop grows larger. The biggest banks effectively benefit from a disguised, and growing, state subsidy. By my estimate, for UK banks this subsidy amounts to tens of billions of pounds per year and has often stretched to hundreds of billions. Few UK government spending departments have budgets this big. For the global banks, the subsidy can reach a trillion dollars – about eight times the annual global development budget.
Andy Haldane, Executive Director, Financial Stability, Bank of England
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Andy Haldane is Executive Director for Financial Stability. Andy has responsibility for developing Bank policy on financial stability issues and the management of the Financial Stability Area. He is a member of the newly established Financial Policy Committee as well as several senior management committees of the Bank. He is also a member of the Basel Committee.
Andy joined the Bank in 1989. In previous roles he has headed the Bank's work on risk assessment, market infrastructure and on international finance. Prior to that he worked on various issues regarding monetary policy strategy, inflation targeting and central bank independence.
Andy has written extensively on domestic and international monetary and financial stability, authoring around 100 articles and three books. He is the co-founder of a charity 'Pro Bono Economics', which aims to broker economists into projects in the charitable sector.
Hat Tip to the blog, Jesse's Café Américain
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Today [17 February, 2012] was an option expiration.
There was an interesting divergence between the financials and big tech.
Monday the US markets will be closed. Another Greek drama may be in the offing.
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Feb. 23 Comex March silver options expiry
Feb. 23 Comex March copper options expiry
Feb. 24 Nymex February platinum futures last trading day
Feb. 24 Nymex February palladium futures last trading day
Feb. 27 Comex February gold futures last trading day
Feb. 27 Comex February copper futures last trading day
Feb. 27 Comex February E-micro gold futures last trading day
Feb. 27 Comex March E-mini copper futures last trading day
Feb. 27 Comex March miNY silver futures last trading day
Feb. 29 Nymex March palladium futures first notice day
Feb. 29 Comex March silver futures first notice day
Feb. 29 Comex March copper futures first notice day
March 16 Nymex April platinum options expiry
March 20 Nymex April platinum futures first notice day
March 27 Comex April gold options expiry
March 27 Comex April copper options expiry
March 28 Comex April miNY gold futures last trading
March 28 Comex March silver futures last trading day
March 28 Comex March copper futures last trading day
March 28 Comex April E-mini copper futures last trading day
March 28 Nymex March palladium futures last trading day
March 29 Comex April E-mini gold futures last trading day
March 30 Comex April gold futures first notice day
March 30 Comex April copper futures first notice day
"What’s past is prologue"
James Edward Miller: Greece and the EU Face Their Walt Kelly Moment, Posted by Ellen on 10 November 2011, 11:02 am, UNC Press Blog
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Among the peoples attracted into the orbit of Europe during the era of Enlightenment and industrialization, Greece proved a particularly quick study. Created in 1829-33, the Greek kingdom speedily acquired a European constitution, universal suffrage, and a set of national ideas that focused on territorial expansion at the expense of its Balkan and Ottoman neighbors. Economic expansion, efficient public administration, education reforms, infrastructural development, and even military professionalization played second fiddle to “redeeming Greek” lands and people. Greece ran up. However, Greek ambitions ran contrary to the calculations of the European great powers. “Europe” repeatedly intervened to throttle Greek designs. Greece grew fitfully through concessions made to the Greeks after the powers had arranged their own interests. Greece’s large, unpaid external debts to European banks led the powers to impose an oversight board to regulate its finances in 1893.
A legacy of military defeat and repeated European encroachment on Greek sovereignty were at the core of the 1909 Goudi military revolt. The military summoned Eleftherios Venizelos to initiate long overdue internal reforms and give the country an independent foreign policy. In the wake of World War I, seeking to create a nation of “two continents and five seas,” Greece conducted a war in Asia Minor against Turkish nationalists, throwing its army into an expanding conflict without clear military objectives. “Europe” turned on Greece. The Italians and French backed Turkey, and Britain withdrew its support for Athens.
In 1922, Greece lost its army and its war. Victorious Turkey expelled over a million Asia Minor Greeks, retook Constantinople, and reasserted its territorial claims to Eastern Thrace. Defeated, impoverished, divided, Greece plunged into an era of military coups, economic stagnation, the authoritarian dictatorship of John Metaxas, and a crushing German occupation. Civil war ensued from 1943 to 1949. The United States poured money and know-how into Greece, defeating a Communist-dominated insurrection and bringing Greece into Western institutions. In 1961, Greece applied to membership in the European Economic Community (EEC).
The United States and the Making of Modern Greece History and Power, 1950-1974, By James Edward Miller
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Focusing on one of the most dramatic and controversial periods in modern Greek history and in the history of the Cold War, James Edward Miller provides the first study to employ a wide range of international archives--American, Greek, English, and French--together with foreign language publications to shed light on the role the United States played in Greece between the termination of its civil war in 1949 and Turkey's 1974 invasion of Cyprus.
Miller demonstrates how U.S. officials sought, over a period of twenty-five years, to cultivate Greece as a strategic Cold War ally in order to check the spread of Soviet influence. The United States supported Greece's government through large-scale military aid, major investment of capital, and intermittent efforts to reform the political system. Miller examines the ways in which American and Greek officials cooperated in--and struggled over--the political future and the modernization of the country. Throughout, he evaluates the actions of the key figures involved, from George Papandreou and his son Andreas, to King Constantine, and from John Foster Dulles and Dwight D. Eisenhower to Richard Nixon and Henry Kissinger.
Miller's engaging study offers a nuanced and well-balanced assessment of events that still influence Mediterranean politics today.
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James Edward Miller is adjunct professor in the School of Foreign Service at Georgetown University and chair of Western European Studies at the Foreign Service Institute.
Marshalling capital for euro periphery, February 24, 2012 7:30 pm, Financial Times, www.ft.com
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Greeks scrambling to do the homework demanded from them by Berlin and the rest of the eurozone are being given an encouragement of sorts. It takes the form of calls by the Federation of German Industries and the European Investment Bank for a “Marshall plan” to restart economic growth in Greece. The term is a misnomer and the proposal unlikely to see the light of day. But the idea is right.
For Greece in particular and the eurozone in general, the solution to the debt crisis has been cast as public sector austerity and structural reform. While the latter is essential and should produce long-term growth, the need to buoy up demand through the adjustment has been all but ignored. In return for deficit country reforms, surplus country governments should have boosted spending. Since this seems ruled out, only the core countries’ private sectors can save the eurozone from adjusting through stagnation rather than growth.
Die griechische Regierung startet den Schulden-Umbau, 25.02.2012, 10:19 Uhr, aktualisiert 10:44 Uhr, Handelsblatt
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AthenMehr als 160 deutsche Finanzbeamte stehen nach Informationen der „Wirtschaftswoche“ bereit, Griechenland beim Aufbau einer modernen Finanzverwaltung zu helfen. Für die Aufbauhelfer seien englische Sprachkenntnisse Voraussetzung, ein Dutzend spreche auch Griechisch, sagte Staatssekretär Hans Bernhard Beus aus dem Bundesfinanzministerium der „Wirtschaftswoche“. Besonders viele Freiwillige kommen demBericht zufolge aus Nordrhein-Westfalen.
„Wir sollten bei der Hilfe für Griechenland auch die Möglichkeit der Reaktivierung deutscher Steuerbeamter im Ruhestand in Erwägung ziehen“, empfahl der hessische Finanzminister Thomas Schäfer (CDU) in der „Wirtschaftswoche“. So könnten „große praktische Erfahrungen mobilisiert werden“.
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Das Programm läuft bis 2042. Die neuen Anleihen sollen bis 2015 einen Zinssatz von 2 Prozent haben. Danach soll der Zinssatz stufenweise steigen - bis 2020 auf 3,0 Prozent, 2021 3,65 und danach 4,3 Prozent. Verzicht und veränderte Konditionen summieren sich nach Berechnungen von Experten auf einen Verlust von mehr als 70 Prozent des Nominalwerts der Anleihen. Das Angebot sieht vor, dass die privaten Gläubiger auch zum Forderungsverzicht gezwungen werden könnten, falls die Beteiligung am freiwilligen Schuldenschnitt zu niedrig ausfallen sollte. Der Schuldenschnitt betrifft ausstehende Anleihen mit einem Gesamtvolumen von 206 Milliarden Euro. Die griechische Schuldenlast soll durch den Gläubigerverzicht um 107 Milliarden Euro schrumpfen.
La Grèce lance officiellement son offre d'échange de dette pour les porteurs privés, LEMONDE.FR avec Reuters | 24.02.12 | 21h20 • Mis à jour le 24.02.12 | 21h20
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La Grèce a officiellement lancé, vendredi 24 février, son offre d'échange de dette pour les porteurs privés d'obligations dans le cadre du deuxième plan de sauvetage de 130 milliards d'euros qui lui a été consenti. Un communiqué du ministère des finances grec confirme les modalités de cet échange telles qu'elles ont été présentées cette semaine.
Cette procédure a été finalisée après des mois de négociations tortueuses entre Athènes et ses créanciers, compliquées par les exigences sévères posées par les partenaires européens de la Grèce, la présence de hedge funds jouant la montre afin que le pays fasse défaut et qu'ils puissent encaisser les CDS sur les obligations grecques et celle de la Banque centrale européenne.
Cet échange de dette doit permettre à la république hellénique de réduire son endettement public de 100 milliards d'euros sur un total qui dépasse 350 milliards. Les banques, les assureurs et d'autres investisseurs détiennent un total de 206 milliards d'euros d'obligations grecques qui subiront une décote faciale de 53,5 % avec une perte réelle entre 73 % et 74 %.
Selon les termes de l'accord, les investisseurs empocheront des obligations assorties de maturités allongées d'une valeur représentant 31,5 % des titres qu'ils détiennent ainsi que des obligations à court terme émises par le Fonds européen de stabilité financière représentant 15 % de la valeur des anciennes dettes. Les nouvelles obligations serviront un coupon moyen de 3,65 % et seront régies par la législation britannique.