No but inflating away debts has in fact worked pretty well in plenty of other cases.

I’m somewhat mystified at how the (memory of) hyperinflation of the 1920s is so routinely offered as a comprehensive explanation of German inflation-hawkery. Usually this is accompanied by the claim the the hyperinflation led to the political catastrophe of 1933.

The problem is the hyperinflation ended a decade before then. What brought the Nazis to power was mass unemployment. So why are German policy-makers simultaneously so haunted by the spectre of inflation and yet so seemingly complacent about high unemployment?

Maybe Edgar can offer an answer to this conundrum?

On EuroIntelligence today:

http://www.eurointelligence.com/article.581+M5ca49a363f8.0.html

On printing money. Firstly, you might want to go back in German history a bit and you will find that the printing press solution did not work so well. Secondly, how is this going to work if everyone is doing it?

Article 143d was added in July 2009 - it deals with the transition path towards ’sound’ budgets at the state level, which are important components of the overall national deficit. This is the current effort to avoid further bailouts of the federal states.

Another promise of a bailout for Greece.

Print 500,000,000,000 now or watch your currency get sucked into the black hole of debt created by your banks.

Oh No?

I am absolutely correct on this.

Print or die.

It may have escaped your notice not mine.

Everybody else is printing money.

http://www.youtube.com/watch?v=UEqcchcijyg

“Greece lied and has been trying to put the gun to their partners heads”

I can only repeat myself.

The EU knew that Greece was lying.

The EU is lying now.

Edgar, can you give me an EU definition of “Promissory Note”.

How does that work Edgar? What are they? Are they “New” currency? Is it only Ireland that gets to issue “Promissory Notes”?

Why can’t Greece issue €50bn of Promissory Notes to its creditors now?

Why are we allowed to do it?

Did Keynes analyse “Promissory Notes”? Did Karl Marks? Did Adam Smith? Did Pol Pot?

Greece lied Edgar?

“Of course the German deficit is far too large - this is one of the reasons why they have been very unwilling to put money on the table for Greece.”

Here I disagree.

I think the reason that Germany is (and it is still the case) “unwilling to put money on the table for Greece” is German Zeitgeist. “They” have done everything. “They” have unified Germany and sacrificed the Deutschmark to the Euro at the insistence of the French.

The only thing Germany wants to know is this.

Is there a sound currency?

They have previous. They know the endgame of the debauchment of money.

“There is also Article 143d.”

“Promulgated by the Parliamentary Council on 23 May 1949 as amended up to June 2008”

The link I have is this. 143 ends at “c”.

https://www.btg-bestellservice.de/pdf/80201000.pdf

Your knowledge of the German Constitution exceeds mine.

When did the German people add 143d?

You make much of it. Do you have a link?

“but what is the difference between an EU bailout and an IMF bailout?”

To me it is obvious Edgar.

The EU has a printing press. The IMF simply creates more debt.

http://www.youtube.com/watch?v=RZvIoM4oLp0

Now, what is the German for Achilles Heel?

How do you translate “deadly weakness in spite of overall strength” into German?

It’s not €30bn + €15bn (from the nice men at the IMF).

It’s €80bn.

That didn’t take long.

http://www.reuters.com/article/idUSATH00535520100411

There are days when you really do have to admire Fianna Fail.

They really are smarter than the rest of us.

Brian’s next trick will be not to borrow at all. Just issue a promissory note to Greece and get an annual return of 5.5% on the €450.

That’s got to be worth more than the preference shares in AIB.

Now if I was in the bond market what would I do? Would I thank god for the reluctant solidarity of the Hydra and throw my chips into the pot or would I keep my chips and let the EZ members do the heavy lifting?

Daddy or chips?

Hmmm, chips I think.

I’d let the EZ members use up their money. If all works out well then so be it. I missed a three month window to gain 50bps.

If all does not work well I’ve still got my chips.

The John Perkins Appreciation Society will be opening a branch in Athens next week.

Nah, I don’t think they’re such bogeymen. What they are is symptomatic of weak government. When you don’t want to make hard choices, when you tell people there’s a free lunch, they’re eating it and they’re entitled to it, who you gonna have to call? Yeah, the bogeyman. He’ll give you last chance cash and take the flak while you tell the patsies that halving the number of nurses while maintaining consultant salaries is what the IMF forced you to do…

You’ve clearly met them. It’s a very accurate description! Puts you in mind of a ‘Men in Black’ movie, only they’re carrying laptops instead of those flashguns that remove your memory (or do they have those too?).

http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/10/123&format=HTML&aged=0&language=EN&guiLanguage=en

So, 3% over Euribor for short term and an additional 1% for term over three years.

€30bn from EZ members (€450m from Ireland). Unquantified from IMF.

On the German constitution - yes Article 115 I fired the comment off a bit fast. There is also Article 143d. A few years ago the government had to go through significant contortions, calling in the leading economists to testify that the deficit was only transitory and needed for stabilisation. It is easy to get tripped up in a process like that, especially as you can’t claim its transitory if it breaks the rules all the time.

“We are not out of this recession/depression yet. How can the currency survive if another two or three countries are forced into the arms of a loving IMF?” - indeed, but what is the difference between an EU bailout and an IMF bailout?? I suspect the answer is that the EU is going to be called upon again and again by the same countries. The experience with Germany’s internal bailouts shows that the same states continue to have problems. Of course nobody ever suggested that they have to be kicked out from the federation but at the same time these problems don’t seem to solve themselves via bailouts.

Do you think a Greek bailout has not wounded the Euro?

Good Idea.

Tried to post this @ 2:08.

Links rmoved now.

@ Edgar Morgenroth

I never thought I would have to refer to the German Constitution. Strange days indeed.

Good job I did though. It only has 146 Articles. I think you mean Article 115 not 150.

[Link Removed]

Article 115

[Limits of borrowing]

(1) The borrowing of funds and the assumption of surety obligations, guarantees, or other commitments that may lead to expenditures in future fiscal years shall require authorisation by a federal law specifying or permitting computation of the amounts involved. Revenue obtained by borrowing shall not exceed the total of investment expenditures provided for in the budget; exceptions shall be permissible only to avert a disturbance of the overall economic equilibrium. Details shall be regulated by a federal law.

I think one could interpret the collapse of a EZ member as being “a disturbance of the overall economic equilibrium”. You are of course correct. That would be a matter for a German Court to interpret and that it is ultimately a political decision.

As regards Nice/Lisbon I suspect the European Court (is that the right body?) can be relied upon to “play ball”. A fudge can be constructed that would allow a bailout not be a bailout. Promissory notes? LTEV? You are of course again correct, a mere challenge could derail any genuine effort to pull Greece back from the brink.

“It is useful to remeber that Greece broke the solidarity pact.”

So has Germany.

“For next year there are no doubts,” said Schaeuble. “We’re going to have a deficit of closer to six than to five percent.” But he promised to stick to the European Union’s Stability and Growth Pact, and bring the deficit back under three percent by 2013. Schaeuble called German a “fundamental anchor in the Pact”.

[Link Reomved]

“Greece would not be the first country to default and no doubt it would not be the last either.”

I hope they haven’t been listening to Brian Cowen because apparently if you do that frogs rain from the sky and the very dust of the land becomes lice and infects man and beast.

“A weaker Euro might suit some and the big question for us is whether there would be contagion.”

I don’t think that even the most cynical German would think that achieving a weaker Euro through the default of Greece is a viable tactic. Also I’m not sure that a devaluation of the currency would be long lasting. Would other countries / currency blocs not react?

Difficulties aside, if Greece is “allowed” to default the Euro currency in mortally wounded. We are not out of this recession/depression yet. How can the currency survive if another two or three countries are forced into the arms of a loving IMF?

Greece has (a) been systematically lying about its true fiscal position for the guts of a decade (b) ran a defict greater than the 3% Maastricht Treaty guidelines for what, 18 of the last 20 years or something like that and hasnt run a surplus in a generation despite the global economic boom, and (c) Greece is coming into this with a debt/gdp ratio of 115% as is. Ireland, on the other hand, has been quite honest about our problems/statistics, ran huge surpluses or balanced budgets for most of the 1995-2005 period, and came into its crisis with 40% debt/GDP ratio.

Further, tax evasion in Greece seems to be a systematic habit which makes previous Irish evasion seem like childs play, has done very little to address real long term problems like retirement age and pension provisioning/entitlements. Finally, Irish people, in general, are very much behind the measures to both increase taxes and reduce expenditure, despite having a government in place that was elected in far better times and which is now deeply unpopular. There has been no massive or real strike action from a clearly unhappy public sector, and there has been no public demonstrations from the private sector. Greece, meanwhile, strikes and riots and complains about the government actions, despite the current government having only just been elected with a strong mandate to clean the country up.

Do you think any of this might explain while international investors are willing to give us the benefit of the doubt in our attempts to stabilise the economy and resume economic growth, while they cast a more dubious and critical eye over our friend on the Aegean?

One thing that doesn’t mislead is the amount of cash raised… whether that is through bonds or other sources (if you can identify those other sources). So it was patently clear by already this time last year where Greece was heading for in 2009.

As for this year and the coming years, here is an assignment for everyone
The Irish budget deficit is running a little lower that of Greece in cash terms over Q1
e.g. compare
independent.ie Irish Budget plans still on track despite tax take shortfall
to
ana.gr Sharp drop in Greek budget deficit in Q1

Questions:
Are comparisons between these two figures be meaningful?
Are both sets of data equally trustworthy at this stage? (only Eoin has to answer this question!).
Should figures in nominal cash terms be informed by respective measures of future national income or size of the working force?
If national income, how would you estimate it and at what date?
Are differences in sovereign contingent liabilities significant?
And a final question for bonus points… Which quarterly figure should be lower come this time 2011, and again in 2012?

independent.ie Central Bank wants details on how deficit will be reined in
And
globalcreditportal.com S&P affirms Ireland AA rating
where the relevant passage is

‘The government has begun implementing what we consider to be a wide-ranging expenditure-led fiscal consolidation program, with €4 billion (2.5% of GDP) of measures detailed in the 2010 budget and plans for a further €6 billion (3.8% of GDP) over the next two years.’

Good luck to everyone!

http://news.bbc.co.uk/2/hi/business/8614062.stm

Maybe this’ll stabilise things somewhat, but if rates don’t go back below 6% in the next couple of weeks, then i dont see how they can avoid actually tapping it.

@David O’Donnell - if there is going to be a bailout we will need to get used to them as the problems in Greece won’t be solved by getting them over the next two weeks - a few weeks down the line we will be at the same place again. Before long there will be more countries joining the club…..

Greek banks, in general, have actually been very lucky going into this in that they were all quite well capitalised and liquid. In contrast to other struggling western countries, their banking sector was not the cause of the problem, it was all sovereign related. I think the National Bank of Greece (the private bank, not the central bank) actually had more customer deposits than it did loans up until last year, in stark contrast to a 300% loans to deposits ratio at ILP or 175% at AIB/BOI. However, as you noted, and as Greg has suggested, there may now be a mini run occurring on them, and certainly it appears that their credit lines with foreign banks are starting to be cancelled. They’ll have enough spare liquidity sloshing around to buy the t-bills on Tuesday if they are “asked” to, but (a) if its only Greek banks buying, this can only go on for so long and (b) if its only Greek banks buying it’ll be a sure sign that the end game is nearing. (however, unlike with the general govt bond auctions, i dont think they release information on buyer geography etc on t-bills, though i suspect the big European banks will be talking to each other about whether they bought any for themselves of their clients)

“… how any deal will affect the sovereign bond market’s attitude to Ireland?”

… a lot less than the impact of a busted-flush Anglo-Irish buying Cavan and half of Fermanagh … !

@All
Get on with the bail-out now! Politically, EU will not allow Greece to default.

@All
IF Greece defaults … think about it … no, don’t think about it!

I never thought I would have to refer to the German Constitution. Strange days indeed.

Good job I did though. It only has 146 Articles. I think you mean Article 115 not 150.

https://www.btg-bestellservice.de/pdf/80201000.pdf (Page 74)

Article 115

[Limits of borrowing]

(1) The borrowing of funds and the assumption of surety obligations, guarantees, or other commitments that may lead to expenditures in future fiscal years shall require authorisation by a federal law specifying or permitting computation of the amounts involved. Revenue obtained by borrowing shall not exceed the total of investment expenditures provided for in the budget; exceptions shall be permissible only to avert a disturbance of the overall economic equilibrium. Details shall be regulated by a federal law.

I think one could interpret the collapse of a EZ member as being “a disturbance of the overall economic equilibrium”. You are of course correct. That would be a matter for a German Court to interpret and that it is ultimately a political decision.

As regards Nice/Lisbon I suspect the European Court (is that the right body?) can be relied upon to “play ball”. A fudge can be constructed that would allow a bailout not be a bailout. Promissory notes? LTEV? You are of course again correct, a mere challenge could derail any genuine effort to pull Greece back from the brink.

“It is useful to remeber that Greece broke the solidarity pact.”

So has Germany.

“For next year there are no doubts,” said Schaeuble. “We’re going to have a deficit of closer to six than to five percent.” But he promised to stick to the European Union’s Stability and Growth Pact, and bring the deficit back under three percent by 2013. Schaeuble called German a “fundamental anchor in the Pact”.

http://www.dw-world.de/dw/article/0,,5017828,00.html
“Greece would not be the first country to default and no doubt it would not be the last either.”

I hope they haven’t been listening to Brian Cowen because apparently if you do that frogs rain from the sky and the very dust of the land becomes lice and infects man and beast.

“A weaker Euro might suit some and the big question for us is whether there would be contagion.”

I don’t think that even the most cynical German would think that achieving a weaker Euro through the default of Greece is a viable tactic. Also I’m not sure that a devaluation of the currency would be long lasting. Would other countries / currency blocs not react?

Difficulties aside, if Greece is “allowed” to default the Euro currency in mortally wounded. We are not out of this recession/depression yet. How can the currency survive if another two or three countries are forced into the arms of a loving IMF?

Firstly, with a record deficit in Germany, the government has basically no room to play with. Article 150 of the German constitution limits deficits to the size of capital expenditure and some limited temporary stabilisation. If the deficit increases the constitutional court might rule the budget unconstitutional - Angela Merkel is not going to commit hara kiri for Greece.

Secondly, any bailout that looks remotely like it contravenes the Nice/Lisbon treaties will be challanged in the courts. Again there could be very serious political fallout from this - who wants to take that risk for Greece?

It is useful to remeber that Greece broke the solidarity pact. The also played this very badly, by asking for bailouts from the start and the way they tried to force their partners into giving the bailout.

Greece would not be the first country to default and no doubt it would not be the last either. A weaker Euro might suit some and the big question for us is whether there would be contagion.

Until a global consensus emerges. Around what, though. It will be dressed up as “democratic”. But AGW will not be on the agenda. What can keep the mob from doing too much damage, now that most of the middle class will be joining them?

Khazakhstan has a better rating than California. I am not surprized, but some are. Only those countries with essential commodities will have a relatively easy path. With demand dropping for everything, it is all relative.
Remember, the FT will only carry certain types of truth.

The effect of the Greek fiscal debacle has been to weaken the euro. When the IMF-rate deal was announced, the euro strengthened by a cent in short order. At the mid-130s, it is still overpriced for the eurozone exporters. Everyone else is spending themselves to weakness, the Germans aren’t going to buy that, but are they above an uncompetitive devaluation?

http://www.irisheconomy.ie/index.php/2010/02/08/even-more-on-greece/#comment-35045

“The real issue is solidarity and with it the future of the Euro itself.”

Either Greece gets a real bailout by Monday or there will be a run on its banks in short order. The middle class will start getting their money out and confidence will be lost. Fractional reserve banking is entirely reliant on confidence. Without it there is no system, there are no banks.

No more pussyfooting from Merkel. This is one can that cannot be kicked down the road. There is no more road.

The Germans pay for this or watch Greece collapse.

There’s no point in saying that Greece has been a naughty boy and giving it a thrashing in the form of 8% funding costs.

They cooked the books. So what. The Germans knew it. The French knew it.

The Germans and French are now colluding with Ireland to cook the books here.

Promissory notes?

Get real.

Print money.