Martin Wolf on the Greek Rescue Package

Martin Wolf offers his perspective in this FT article.

76 replies on “Martin Wolf on the Greek Rescue Package”

If the Euro area ex-Greece borrows €80bn to lend to Greece, will Eurostat see that as €120bn increase in government indebtedness in the Eurozone?

MW appears to have been hauled out for our delectation as someone who puts cart before horse, at least as far as the Irish economy is concerned.

The crisis occurred despite the healthy fiscal surplus, invested in funding pensions for poor public servants. Now it is proposed to run deficits, because there is little appetite for revolution, and import massive borrowing.


Not a recipe for success but what alternative?

NAMA seems to have evolved into a liquidation agency? Despite the best efforts of GFF?

The war is already full on. The devaluation is in progress. Drama, appropriately a Greek skill, will ensure social solidarity and cohesion within the countries affected. Is it possible that the amount pumped into Ireland was nicely measured by TPTB? The idea being that as it becomes the turn of riverdance, the euro will drop even further? Who cares? This is going to hurt …. If the euro can drop 50%, say against the $US, then if we can snag income from US enterprize somehow, then we may end up paying of debt much faster. Job done! May take a decade or two.

Seems like everything I read says Greek default is inevitable and that the current bailout package will delay it long enough to/is simply wasting everyone’s (i.e. EU taxpayers – the ultimate pickers-up of the bill) money to pave the way for the exit of private investors…

…but they’re all going along with it because of the fear of what default might mean/potential consequences (even though they know that default will eventually happen – which seems a bit crazy to me, a bit ‘headless chicken’).

Have I missed something? That seems to be it in a nutshell to me.

When is someone going to shout “the Emporer has no clothes on”??

I posted on a previous article and was asked to explain myself…

I think that my response fits well into this discussion as well. According to Wolf the “choice – either it allows sovereign defaults, however messy, or it creates a true fiscal union, with strong discipline and funds sufficient to cushion adjustment in crushed economies”.

Do we want to centralize Europe even more? Is that the “simple” answer.

The “EU” is a misguided attempt to simplify Europe with disastrous results.

“We have never had a more top-down culture than for about 1500 years, than since Rome fell. Rome fell because it confused simplicity with efficiency. They simplified the state and centralized more and more as if that were the answer. The more they centralized, the more they destroyed the fabric of society. We are following the Roman pattern. We are centralizing as though that were the answer and we are destroying the pattern of society.” Our misplaced trust, descending culture and indebted economies are witness to this fact.

Historical, Europeans believed that the basic starting point for building a healthy society is the regeneration of man through Christ. Then man takes and applies that faith. In the past, for Europeans, the basic government is the self-government of the man. “Then the basic governmental unit is the family. This means that every father and mother will be more important in the sight of God than heads of state, because He controls children, property and the future. Then the third is the church as the government, fourth the school as a government, fifth your job governs you, then sixth society governs you with its ideas, beliefs and standards, and seventh, one among many forms of government, is the civil government.”

…Today, we are implicitly totalitarian. We speak of the state as “the government”. That’s totalitarian. So we have to rid ourselves of such things. A healthy society will only come about as each man governs himself under God and governs his particular sphere. And only so will we take back government from the state/banks and put it in the hands of individuals.

This was edited and taken from: Second American Revolution: Rousas John Rushdoony

“Historical, Europeans believed that the basic starting point for building a healthy society is the regeneration of man through Christ.”

Well, no; not, speaking personally, as such, no. And I suspect yer average peasant, snagging the daily turnip, didn’t really think along those lines either. Perhaps you mean “some Europeans said that they believed”?


@ Joseph

its a case of a structured default in tandem with massive fiscal consolidation, vs uncontrolled default and fiscal deficit still as is. The fear is that an uncontrolled series of events would lead to Lehman cubed in terms of market impact (ie sovereign debt markets freezing up), but that short term stabilisation and medium term restructuring would be more easily digested and absorbed by the markets.

“Our planet presently has a new form of chaos, a type that has never been seen before. It is a form of chaos that comes, not when the culture has the wrong leaders in its places of eldership, not when leaders need to be changed, but where the whole system of elders has collapsed, and the culture is falling apart and dissolving into chaos. You see it in many places on the earth.” (Robert Moore PhD, Chicago based Jungian Psychoanalyst)

@john – do you have a date for that quote (year)?

@Eoin – “Lehman cubed” – I love how just a couple of words can paint a really vivid picture!

@Joseph: “When is someone going to shout “the Emperor has no clothes on”??

Some are shouting, but alas they are being classed as ‘financial and economic terrorists’ – and we know what happens to such persons!!!

The mathematics of the debt predicament are truely horrible. Default, in whatever disguise (real or virtual) will happen. My bet is on stealth devaluation and a parallel inflation of the money supply (non-credit version) as probable.

You will get some advance warning: sustained chorus of ‘the recession is over’ from the usual sources. Or just monitor the steady, real increase in food and energy costs.

Exponential economic growth is permissible in virtual time and space: not in finite time and space and with finite inputs. Collapse is inevitable.

B Peter

An aside: Is there any form of debt restructuring that comes close to devaluation in terms of ease of administration, certainty and uniform pain-spreading?

Devaulation may not be an option but shouldn’t any debt restructuring try to achieve the equivalent. For example, if banks enforce a haircut on their creditors and investors because of a reduction in the value of mortgage debt then isn’t it in society’s interest that banks savings be passed on to mortgage holders immediately to resolve the situation quickly and to spread the relief amongst the productive and consuming parts of the economy? It is not clear if the moral hazard effect would extend to individuals. It might also reduce the moral hazard for banks.

BTW – does anyone know what ‘ranking’ the EU/IMF package debt has against existing Greek debt? Junior or senior to? It seems to have been glossed over. If Greece does still end up defaulting at some point in the future, who gets paid first (or ‘at all’)?

@ Joseph

IMF debt will be senior to EU debt . Not sure if EU debt will be senior to general debt. Would have assumed it will be.

@Eoin – “Would have assumed it will be”

I’m not sure that is the case but I’ve yet to find the proof (either way) – interesting that this hasn’t been made ultra clear in the various statements being made in Greek and German parliaments over the past 24 hours. I guess it is buried in some small print somewhere.

I guess if it (the EU part) is ‘junior’ then there some people in Germany in particular might have a problem with that.

‘The eyes pulling over their wool’ and all that.

Are we at the stage when we hope for the Euro to go below parity with the dollar. (It started that way back at the launch). Boosts world demand for cheaper Euro produced goods. Americans might not like it.

@ Stuart

weak Euro, ECB keeps rates low (now priced in for no hike til March 2012 really), keeps liquidity plentiful….could be worse situations to be in….

@Brian J Goggin
Have you read… St Patrick, St. Augustine, Charlemagne, Justinian, Alfred the Great, … Martin Luther, John Knox, John Calvin, …. The foundations of social order (the creeds and councils of the early church), How about the Constitution of Ireland, How about the foundational laws of european countries? Come on don’t be foolish about the history of Europe. The people of the middle ages were pioneers in “the regeneration of man under Christ” after the fall of Rome. Why do you think they are so maligned?

@Eoin – re seniority of debt.

I found this on Eurointelligence but I think he’s also saying “I don’t know” (see the mention of Wolfgang Munchau in the FT Deutschland column):

@john – IT also breaking it – seems there are 3 people dead in a building burnt by protestors?

There is no point in your citing a small number of dead people: that doesn’t prove anythng about “Europeans” as a whole. Some people who wrote stuff that you have read may well have thought what you think they thought, but what about the Broad Mass of the Ordinary Working People ((c) CPI-ML)? Have you, for example, any idea what my great-great-grandmothers thought?

No, me neither, but you are not entitled to go making assumptions about their ideas.


EUR/USD @ 1.28, EUR/GBP @ 85p….the word ‘freefall’ is oft used, but….

In another post in the FT, Munchau says:

“There can really be no doubt about what the “no bail-out” rule was intended to mean. It meant that Greece should not be supported. The EU had to resort to some unseemly legal trickery to argue that advancing junior loans at a massive scale to an effectively insolvent country does not constitute a bail-out. The clause – Article 125 of the Lisbon treaty – is irresponsible. If you follow it, you end up breaking the eurozone. So far, the choice has been to break the clause instead, and now would be the right moment to change it.”

…suggesting it is junior to existing debts.

Bondmarkets closed to Greece, Portugal and Spain(?).


Hopefully the markets will also close to Ireland.

That way Anglo & Nationwide can be dumped in the chaos.

Never waste a crisis.

@ Joseph,

It is junior.

It is an outrage that the Ireland is now borrowing money to bail out French and German banks.

The entire system is insolvent.

The WSJ reports that Moody’s Investors Service said it put Portugal’s credit rating on review and warned of a possible two notch cut.

Portugal’s Aa2 government bond ratings—Moody’s third-highest rating—could fall by one, or at most two, notches, the ratings agency said. The review is expected to be concluded within three months.

S&P already downgraded Portugal by two notches last week and the latest comments add to concerns about sovereign finances in peripheral euro-zone countries.

European markets extended losses and Lisbon’s PSI traded 2% lower. The euro dropped to a 13-month low against the dollar to trade below $1.29 on the news from Moody’s.

@ Greg

Portugal got a 6mth t-bill away this morning for 500mn, but at a fairly chunky 2.95%, so still ‘open’. Spain still intending to go to the market with an auction tomorrow as well.


Should have been a “?” there.

Howvever tick tock tick tock.


How have Portugese CDS moved over the last five days?

Don’t know if this has been posted yet but it gives a good summary of the intra-EU liabilities of the PIIGS. We are owed about €90bn by the PIGS and we owe about €400bn to the BFG (Britian, France, Germany). Just hope the BFG turns out to be a Big Friendly Giant!

@Paddy Orwell

Prob need to remove the Vatican State of IFSC here ………. or mindful of our little sovereign – why not give it Vatican Status altogether – and toss in NAMA, the DDDA, Anglo-Irish, and INBS as well. I can think of a few more – but that would do me for now …

@ Michael and David. Many thanks. Which columns relate to the IFSC.

Only if the Lilliput guards get to wear really camp outfits and plastic light-sabers.

@Edgar Morgenroth

Swift would not approve of Lilliput – although we could do with a bit of Swiftian Bite at the mo.

Namaland, methinks, would do nicely.

Any other suggestions?

IFSC is not vatican city, it is disneyland for yuppies and Dermot Desmond is walt disney


Opening offers of $100 Billion or so on naming rights to get into the game …. eBay has never seen anything quite like this ……. would pay for a little 1789 and a bit of Irish restructuring …. then we toss AIB and BOI in as well as a gesture of goodwill on behalf of the Irish citizenry …


Concerning the McWilliams article. Much money has Ireland received from German and French banks since joining the EU? What’s more- how much of this money did Ireland have to repay? Sweet damn all I would think.Who dragged this country by the scruff of the neck out of the Middle Ages? McWilliams is a trite, headline grabing ,economic commentator with very little to offer by way of insight or remedies to our current economic woes.

@Aidan McGrath (in that article – “Buying the junk debt of the Greek government would be a radical step.”)

I’m sure I could think of more accurate/appropriate words than ‘radical step’ – but they probably wouldn’t be printed here.

mind you the same guy does not believe in global warming or that oil is a fossil fuel or in danger of depletion – so I guess a pinch of salt is recommended to taste the above

The above link does not work either.
Google- a bailout for greece

That should do the trick.

At some point I will have to cough up the subscription fee.

@Aidan McGrath
Q. What’s the difference between Ireland and Greece?
A. We’re about to find out.

You would have to say that our establishment are as reckless and cronyist as Greece’s:
“Just 17 of the country’s 134 TDs turned up for work in the Dail every day in the two weeks after the introduction of a “clocking-in” system on March 1.”

Q. What’s the difference between Ireland and Greece’s establishments?
A. Ours has better sales skills.

That should be 166 TDs (minus 3 who have gone to a better place – Brussels, Montrose and Waterford respectively).


“McWilliams is a trite, headline grabing ,economic commentator with very little to offer by way of insight or remedies to our current economic woes.

I look forward to your offer by way of insight or remedies to our current economic woes.”.

I particularly look forward to your explanation of how €50,000,000,000 of (let’s call it Irish) money extracted from (let’s call them Irish) people is a “good thing”.

In fact Ray I am filled with joy at the prospect.

But enough of my greed for joy. How can I be joyful if the Greek is suffering a 17% reduction of the annual income? I know you understand this Ray.

But we have to pay our debts Ray. Isn’t that the way it goes?

But hey Ray. How about this?

How about the Greeks pay whatever debt they owe themselves?

How about the Irish pay whatever debt the Irish owe themselves?

Ray. You’re not going to tell me that the Greeks owe money to (international) “banks”.

That’s right Ray the banks lent money. It’s what they do Ray.

The banks that lent the money were not widows and orphans Ray.

They knew what they were doing.

Are you beginning to understand me Ray?

Sweet Jesus Ray. Name the banks.

Would they be German banks? French banks?

Is the €1.3bn that Ireland now “gives” to Greece not going directly to German and French banks?

Ray Ray Ray,

Tell me that’s not so.

Come on Ray. €1.3bn would build and staff four Global high price hospitals. Envy of the World.

Ray. Tell me why we can’t have the envy of the world.

Is it because we also need to borrow money?


Why are we borrowing money to bail out Anglo and Nationwide?


Why are we borrowing money to bail out Greece?


Ray Ray Ray.

Wake Up

Come on Ray.

We could build four Super Global Hospitals for €1.3bn.

Tell me it’s not so Ray.


“William Engdahl thinks the whole Greek “crisis” including the S&P downgrade, is part of an attempt to attack the Euro, by Wall st and London city, to take pressure off the dollar and sterling”


“and doesn’t feel that either Portugal Spain or Ireland, are under serious threat”


How is it possible for him to say that America attacks the Euro and then say that it is not under threat?

That’s just silly.

Unless Portugal Spain and Ireland can pay the debt collector at 9am tomorrow.

Does he believe that?

Of course he does.

He believes that Spain has €10bn cash to lend to Greece.

He must be right.

Aidan McGrath

“mind you the same guy does not believe in global warming”

Astounding. Truly astounding.

So. Anyone who does not believe in “global warming” (I presume you mean Anthropogenic Global Warming) is an idiot.

Utter bollocks.

AGW is a lie.

“or that oil is a fossil fuel or in danger of depletion”

The new bollocks.

Having lost all credibility on AGW the Mellons go for “Oil Depletion”.

Utter bollocks.

But hey.

Maybe the entire collection of “Carbon Tax” for the next three years can go to pay German and French banks for stupidly lending money to Greece.

Sounds about right.

Stupidity upon stupidity.

Bond. Eoin Bond…

“seriously man, can the GS conspiracy theories stop…”

What and why?

Greg Says:

May 5th, 2010 at 3:01 pm

Who bought the 500mm?

Agents of the ECB?


“Broad Mass of the Ordinary Working People” ((c) CPI-ML) !!!!
That really takes me back! David Vipond died, I believe? There are some who espoused capitalism with a small “c” later on, or else they were gathering intel or sabotaging!!!

A great deal of human activity is wasted. Joshua said so.

“Look at the birds of the air and the lilies in the field: they toil not; neither do they sew.”

The government buys votes by doleing out money, jobs and circuses. In return, we all get wealthier, but those who actually produce wealth. like the poor farmer, lose out, wealth wise. Inequality. But why worry about it? It works. Until it no longer does. At least we do not wage war on nearly every other country in the world.

The good thing about this “crisis” is that it may enable +ve changes, given that many will have plenty of time to think about such matters, if they do not submerge themselves in online porn and games.

Simplify government and legislation. Reduce both. The time between crises and their severity may ameliorate? Let folks make up their own minds? Liberty for all.

I see that B. Lenihan is making ‘pre-emptive statements’ – see:

When it hits the fan, it will all be a European problem, not because our chronic mismanagement helped cause/contributed to the problem in the first place. Nice one Brian. This is worse than B. Cowen telling us “We are where we are” without mentioning who brought us “here” in the first place.

What was that chap’s name who washed his hands of the problem? Pontious something?

Get your seatbelts on. It’s clearly going to be a bumpy ride.

@ Greg

jesus, you really went off on one last night eh?

In answer to the question directed at me – no idea. They don’t give out information on t-bill auctions (as opposed to giving out info on term bond sales). But i’d suspect that Portugese banks and corporates were the main buyers, followed by similar Spanish buyers. For all the trouble the Portugese may or may not be in, defaulting between now and the start of November is not going to happen. At 3%, its a pretty fantastic return for domestic buyers.

Can anyone fill me in (in a sentence or two) what the consequences might be of the ECB’s “nuclear option” – “a purchase of Greek and possibly other countries’ government bonds to halt the debt crisis that is threatening the euro’s survival”.

I presume this is some form of QE? Result = inflation? Anything else? Credibility? This would be done ‘second hand’ by buying it from banks?

@ Joseph


Buying bonds = QE = debasement of currency = eventual inflation (though note that this never really happened in Japan).

The ECB is legally precluded from buying bonds directly off Eurozone governments, but think there’s a grey area allowing it to buy the bonds on the secondary market.

@Eoin – thanks.

Doesn’t sound as though the world will fall in on itself then. It sounds like something that could be ‘managed’ with the right set of skills around.

@ Joseph

…if Ze Germans will allow it. Remember, the old Bundesbank was the uber inflation hawk on global monetary policy. For them to let off the shackles on QE would be quite a change in outlook.

Greg, I am wide awake.

I am not an economist and neither am I a paid economic commentator so I don’t have any answers to the present economic crisis. I would, however, expect that people who profess to be economists or who are paid for their economic commentary would be rigourous in their analysis and not always appeal to the populist view. My knowledge(which is limited) of the economic debacle comes from whatever books or articles I can get my hands on.
I never said that extracting 50 Billion from anybody is a “good thing”.I wish ,Greg, that the Greeks could pay their own debts but that’s exactly it, is it not, that they can’t. If the roles were reversed and Ireland was Greece and vica versa, would we not expect a bailout ? Would we not be aggreived if Greece decided – “well we are not bailing out those suckers”?If we could all pay our own debts there would not be a crisis. Furthermore, if Greece decided in the morning not to accept any bailout money from Ireland I would not bet on that same money being spent on four state of the art hospitals.
I am pro European Greg and beleive in giving a neigbhor a lift when he is in trouble. I am of an age to recall when most people in this country had not a pot to pee in. Membership of the EU or, the EEC as it was then gave this country an enormous economic lift and improved the standard of living for everybody. The EU and monetary union is an experiment which is still ongoing.


“In answer to the question directed at me – no idea. They don’t give out information on t-bill”

“They don’t give out information on t-bill”

They don’t.

But you seem to be a happy little drummer boy.

For something “they” don’t give information on.

@Bond. Eoin Bond

May 5th, 2010 at 11:14 pm
“seriously man, can the GS conspiracy theories stop…”

Normally I’m the first to crticise conspiracy theorists – but the case against Goldman in the case of:
– the ABACUS CDO market rigging – including the connivance of S&P to falsify the ratings.
– the market manipulation by fraudulent front running using computer algorithms, to discover “hidden” trade limits, and reap no-risk profits thereby.
– the collusion with corrupt Greek politicians to swindle their way into the Eurozoe ..

pretty convincing so far – and many Senators on both sides of the house are in agreement – at least on some of these issues – the big one yet to get the attention it deserves is the HFT scandal I suspect.
I heard an interview with “Suds” on RTe yesterday – apparently he refused to take any questions on the CDO scandal.
I looked in Engdahls site and he was just a “conspiracy” too far for my liking – it doesn’t mean he was wrong on GS – the ad hominem logic applies – in fact he was right on that one.

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