More on Greece New York Times
Greece Pressed to Take Action on Economic Woes
“Whatever the rules, if you have clever enough financial advisers you can get round them in form if not substance,” said Philip R. Lane, an international macroeconomics professor at Trinity College in Dublin. “Ultimately, governments are responsible for their financial decisions.”

http://www.nytimes.com/2010/02/16/business/global/16euro.html?8au&emc=au

yep, the taxes aren’t so bad considering the quality of services that are provided

I grew up in Sweden, lived in Ireland for 10 years and since a couple of months am now living in Germany. Something that I found which might surprise some:

After tax & accomodation I have about the same amount left in Germany as I had in Ireland (salary almost identical).

Ireland has many advantages and I’d like to go back but not so much if the salaries goes down, taxes go up and the rents are artificially held up by tax funded NAMA. Somehow that combination seems to lead to a lower quality of life.

@Eoin,

about bondtraders and NAMA:
True, they don’t care much about NAMA now. Ireland has liquidity now but NAMA might lead to solvency issues later. Lending to insolvent entities are fine as long as they have liquidity to pay back. The problem will be when the liquidity is gone & solvency is a problem and then the problem will be for whoever is the bondholder at that time. I’m guessing some buyers now expect to be able to sell before that happens. Or being the suspicious kind, when that happens in 5-10 years time then the bondtrader will have retired on his/her bonus.
I might be wrong, NAMA might break even but I wouldn’t bet my money on it. Introduce the malus and we’ll see if bondtraders would

We are now being told that we have to show solidarity with the Greeks but there seems to be little talk about Greek solidarity towards the other EZ members - they did not care about the rest of the EZ and should now face the consequences.

I don’t mind if the EU makes some pretty speeches and announcements, what I do mind is support that is making it easier for Greece at a cost to the rest of the EU.

If that is what you are saying as well then we’re in total agreement.

If Greece is being bailed out now, then they know they can be bailed out again & they will not work as hard as they could/should to clean up their mess.

But hey, maybe Ireland will clean up and next time Ireland will help Greece out and then Germany won’t have to. Maybe then Irish people will pay this kind of taxes:
http://www.parmentier.de/steuer/steuer.htm?wagetax.htm

All in the name of solidarity of course

A Must Read - All Perfectly ‘Legal’ of course …….. peolple in glasshouses etc

Wall St. Helped Greece to Mask Debt Fueling Europe’s Crisis

‘One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels.’

http://www.nytimes.com/2010/02/14/business/global/14debt.html?th&emc=th

at no point have i suggested that Greece pass on their debt “burden” to the EU. All im suggesting is that we help them out with some emergency support at a time of crisis. We’re not giving anyone a free lunch here, and im not suggesting either lending them 50-60bn at 0% every year forever, or paying back all of their previous debt. What im saying is that Greece is facing a very real funding crisis and that they may need the EU/Germany to step into the breach created by this.

Whats interesting is that way back in the day everyone on here said that NAMA would scare bondholders away from funding Ireland, while i said that ultimately the budget deficit was of far more importance in terms of our indebtedness and bondholder perceptions of such. As we have seen with Greece, who have almost no major bank bailout to worry about, the budget deficit is the overriding concern of bond investors, and they now have the funding crisis which i was always worried about Ireland facing. Ultimately tackling the budget deficit has gotten Ireland out the mess now facing Greece, and markets don’t appear to be overly worried by NAMA.

I agree with your first point and not your second. A decline in the value of the euro is going to be good news for euro exporters. At a time of falling commodity prices, this is the sweet spot for devaluing in tandem - you are less likely to import inflation. This gives you some slack to beef up your exchange rate later in the cycle to prevent super-competitiveness and commodity-led inflation or asset price bubbles.

The point then is who benefits from keeping the euro strong? Not the exporting nations. Not really the euro-centralists, as a generalised european recovery would be good for most european economies. Rather it is those who export to the eurozone who have most to fear.

The US and the UK likewise have done all they can to cheapen their currencies short of their central bankers painting themselves pink and running naked through the studio on the evening news shouting “I’m a fairy, hear me roar”. Nothing they have done has given them the currency movement they need to make a significant difference to their exports or to make imports expensive enough that local substitution might occur (the real goal of their actions, I suspect, since this crisis, like the 1930s, is about over-production, over-capacity, over-spending, and a lack of return on investment (or debt as it is otherwise know)).

An add-on effect of a cheapened euro is that eastern europe, through the ERM, has an easing of pressure. Bets have been raised against various countries, way beyond the economic value of those countries. Some of the countries, the baltics for example, are reasonably well run by any standard I can see, yet still they took a pasting.

So, I think the “we want a strong euro” talk is an inside joke. Nobody ever says “we want to trash our currency externally, while keeping prices stable internally. We believe we are a large enough market to do this in”.

Not sure what you mean by chaos in Iceland. They are not rioting, they have food to eat & they are working themselves up again. Sure, they can no longer spend money they don’t have but is that really chaos?

Greece should pay its on way. If the rules are bent for them, then the precedent will be set and expectations of further bailouts will be the result. The populations & governments of Portugal, Ireland, Italy & Spain will know that by throwing tantrums they can pass on their burden to someone else.

Bondtraders will know that the badly run countries will be saved by the well run countries so they have no interest anymore to force any tough conditions and improvements on their borrowers. Cheap credit for everyone. What could possibly go wrong with that?

Anyway, without unrolling too much foil, the point is that the whole funding system is incredibly opaque, in particular at the short end and especially when you start talking about commercial paper as opposed to treasury bills.

I think @Stuart’s point “My fear is it will be €20b for ever more as we have to subside Greek living standards ad infinitum” is very important. They did not get into this situation overneight and have dragged their feet regarding remedial action - they have just about zero credibility of pulling off a turnaround. Unless a deal implies of taking total control of their fiscal matters one would worry that the moral hazard of a bailout is too great. Of course one can help now and see wht they do - if they can’t reign in their expenditure and chase after taxes then the next crisis is preprogrammed.

well i think legally, per EU rules, they would have to tell everyone about it?

If only 20 bn in short-term is required, then even the NTMA would be able to source that in CP. But is there any need to tell anyone about it? The NTMA (and the other european chappies) borrow short, lend short to Greece. Greece is on a tight rein to keep the fiscal chariot on the tracks.

“Greek pensions are 96% of pre retirement salary”

Correct, and you get to retire at 61 right now (recently proposed increase to 63 was greeted with much anger).

I personally love this statistic and have mentioned it on here on a few occassions - in 2008 a grand total of 65 people declared an income above €900k in Greece, off a population of 11mio. I also like this one - there are 475k “self employed” people in Greece (painters and plumbers to be sure, but also accountants and solicitors). Of these, 75% of them have a declared income of under €12k. Tax evasion is quite clearly a big issue there.

@ Pat

quite a big fan of the Physical Gold ETF as it happens!!

“the Acropolis be renamed the Franzopolis” - more likely “Merkelopolis” as the idea seems to be that the Germans will come up with the bulk of the cash - a deal will come at a cost (repeating myself). They have been floating tax harmonisation for a long time…..

My fear is it will be €20b for ever more as we have to subside Greek living standards ad infinitum. I read an article in the economist on the plane recently and apparently Greek pensions are 96% of pre retirement salary and thay have a massively bloated public sector. The austerity measures they need make ours pale into insignificance and rack my brains as hard as I might apart from tourism what do the Greeks have going for them in terms of recovery.

Personally can’t see the Greek government pulling the austerity package off and if they know the EU will bail them out why push too hard? So in the end the deal will be off, I suppose the hope is by then the Portuguese and the Spanish and hopefully Ireland are out of nearly out of the woods. Otherwise it will all just have been a big waste of money. Maybe we can call it “Euronama”

Bond, didn’t you go up against Goldfinger? You did not do such a good job it seems! Look out for the Tungsten!

Eoin, I am shocked at the apparent hypocrisy! They are buying back their debt! They are reaching voluntary agreement with a willing seller who is happy to get out ahead, otherwise s/he could wait and wait! Capital is changing hands and markets are being freed! Precisely what should happen elsewhere.

This is exactly what I had been hinting that the Irish government should have been doing, for the banks, if they were obliged by forces bigger than the 32 counties, to set up NAMA. Rigging the market with players of this size is not possible, Eoin and you know it! Or you should…… There are plenty of these opportunities available for those with capital. But not if the capital is tied up in a social welfare program for stupid greedy property developers!

Get the finger out!

re Dubai - everything is owned by the same people, but in seperate legally incorporated structures. As such, the Dubai government is quite correct that Dubai World and its subsidiaries are not backed by a legal obligation from the Dubai State, and that these entities are responsible for their own borrowings. There was no “personal guarantees” extended to them. Of course, when they were building these companies up, they were quite happy for everything to be in a very grey area where people assumed there was a highly implicit guarantee, but the blame for that is shared far and wide.

And like you said, there seemed to be a lot of local dodgy activity going on behind the scenes (rumours of them buying back their own distressed debt for instance). Ultimately Abu Dhabi wanted the bailout to be on their terms, even getting the Burj Dubai renamed Burj Khalifa. Now im not suggesting the Acropolis be renamed the Franzopolis, but there could be some tough negotiations going on behind the scenes re Greece as well…

cost of saving Greece: 20bn this year and 20bn next year in shortish term loans. Its tiny relative to the size of the EU. We could even attach strict covenants to them so that if Greece isn’t hitting performance marks, then the deal is off. And why do Hans and Franz care what the Greek public care about them? A bit of external anger might even create some internal solidarity, which they are going to need to ge them through this.

To those who say that saving Greece would only mean we have to save Portugal and Spain, the difference there is that they have both smaller deficits to take care of, but also much much better overall debt levels to service. They have much more time and flexibility to get their houses in order, in the same way we appear to at least be trying to, although we have shown this process takes time and effort. Letting Greece default would only see them have less time and flexibility to do this. Greece is going to require very large amounts of funding over the next few years regardless, letting them default would probably see this entire burden fall on the EU anyway (im assuming we’re not suggesting letting the country fall into complete chaos, ie ala Lehmans or Iceland?)

I’d also note that many of the bank “safety nets” erected by various EU governments were ultimately never required, and so have cost the taxpayer nothing (in many situations in fact delivering a profit). In essence, they did their job exactly as they were supposed to.

And, @ YM, i dont quite get the logic that by letting Greece default, it’ll be easier to bailout the next, potentially much bigger, country? Or rather, i understand the logic, but don’t see how that’s a situation we want to occur? Isn’t there as much merit in trying to avoid that situation altogether by saving Greecing as by letting her default? Either way, i certainly dont see a Greece default being a “minor” issue when 75% of their government debt is held externally (there would also be immediate problems in the Balkans where Greek banks are very active).

Anyway, as you said Karl, this is probably going to remain the evolving storyline of H1 2009, so there’s plenty of time and energy to use on it in the future. For now i urge you all to don the Green Jersey and focus on our true enemy, those cheating Frogs….

Needless to say we are in a different position here - there is no oil-rich cousin with oodles of spare cash who will come in and pay off the Greek debt - so I think you are right to say Greece defaulting would be a big deal, but we are not there yet. As an economist I wonder what would be cheaper in the long-run - letting them default and potentially having to sort out the debt holders or to bail them out. However, I doubt that they are going to be let default.

This is an important debate and we’ll probably be revisiting it a lot in the coming weeks. For now though, some quick thoughts:

1. Nobody thinks that, as a general matter, sovereign debt is risk-free. As Reinhart and Rogoff have documented, sovereign default has ocurred time and again over history and there’s no reason to think it won’t happen again.

2. Dubai-related chaos? Who even remembers that now? Yes we could handle a large multiple of that chaos.

3. As for other states “going under”, the principal way to avoid sovereign default is to take the steps necessary to convince the market that you are on a stable fiscal path. Isn’t that what we’ve been trying to do? And wouldn’t we have to do that even if we did end up getting an EU rescue package?

I have to say that Mr. Hennigan’s comments about “markets aching for bailouts” strikes a chord with me. How much of the current crisis atmosphere reflects pressure from sovereign bond owners to extend the safety net to them?

Eoin, we can only have so big a safety net. If every government in Europe has to provide a safety net to see that it’s banks don’t go bust and then every government in Europe has an implicit sovereign safety net from the Germans, then that’s a pretty huge net we’re asking Hans and Franz to stitch together. And you know, they’re not really so keen on this kind of thing.

i think the notion of perceived risk-free EZ sovereign debt (everyone on her ehas been telling me that if you want risk-free, invest in govt bonds) ending up in default would have a hugely destabilising affect on the EZ economy and the Euro as a whole. Personally i think it would be a very very big deal.

Look at what happened when a Dubai fund (not even the sovereign itself) got into trouble before Xmas. This was a quasi-soveriegn corporate, with only an implicit state guarantee, with almost no linkage to the global financial system, and even the notion of a debt extention caused havoc. You don’t think that an outright default from a first world EZ sovereign would cause a large multiple of that chaos? Beyond this, if Greece isnt systematic enough, then neither is Portugal, Ireland, and potentially Belgium or Austria. Do we let those ones go under as well, if it came to it?

http://news.bbc.co.uk/2/hi/europe/8513430.stm

As I said the other day, this guy thinks he’s playing poker……. I wll see your two and raise you two.

Maybe he’s shorting the Euro??!!

I’m off to bed. But, look, for those who wonder if I’m just mouthing off on Greece versus Lehman Brothers, I do actually try to figure this stuff out in a non-blog post fashion, e.g. this paper here written for MEPs on the Economic and Financial Committee

http://ideas.repec.org/p/ucn/wpaper/200927.html

On the other hand, if a Greek default is a minor issue and the markets become used to the idea that sovereigns might default (which, according to Reinhart and Rogoff, is their natural state over time) then it is a matter of price - CDS won’t be available at any price, bonds will be priced at pre-CDS levels.

But that assumes that if a Greek default passed without a murmur so too would the next one. But while Greece might be small enough to fail, maybe Spain isn’t?

Remember, the resolution of the CDS on Iceland and the Icelandic banks was supposed to be a major event. It passed by with no problems. The same too was the case for Lehman’s bond CDS. It was the fact that Lehmans was a counterparty for so much that caused major instability (as far as I understand it).

A sovereign doesn’t generally have to role of a counterparty in quite the same way. The fallout, if there is significant fallout, from Greece will be of the LTCM kind where a seemingly unrelated counterparty fails, but that counterparty has greater significance. So the whispers about bank exposure, specifically French bank exposure, may be what is driving the shouts for a bailout.

I get the analogy you’re making and understand why you’re making it. I just don’t agree. Lehman’s was far more interconnected with the major US banks than Greek sovereign debt is. Not as much as AIB mind you, but important all the same. Some good charts on interconnectedness here

http://www.imf.org/External/Pubs/FT/GFSR/2009/01/pdf/text.pdf