Eurogroup Statement

Here‘s a link to the Eurogroup statement from last night. This is promising

To this end, Ministers stand ready to adopt further measures that will improve the euro area’s systemic capacity to resist contagion risk, including enhancing the flexibility and the scope of the EFSF, lengthening the maturities of the loans and lowering the interest rates, including through a collateral arrangement where appropriate. Proposals to this effect will be presented to Ministers shortly.

But I’m not holding my breath waiting for an impressive intervention.

63 replies on “Eurogroup Statement”

..that will improve the euro area’s systemic capacity to resist contagion risk…

Contagion Risk? The whole EZ body is seriously infected, possibly terminally, and these people talk about contagion risk. We should all be glad they never took up medicine as a career.
The sooner this infection comes to a head the better for everybody. The Euro, the EZ, and even the EU are being sacrified to the money lenders.

The structural issue is these countries is lack of growth.
They need policies to let them grow.
These policys can start with restructuring of debts where needed – Greece.
The be followed up by the creation of Eurobonds – even if it takes getting it through the German parliment.
Then further strengthened by monetary easing, leaving the Euro slightly above parity with the dollar.

The challenges to this are
– influence (including monetary and intelletual capture) of the elite and financial sector on the media and political party funding. There are elections in Germany and France next year
– The part of the nice treaty where it says that nations cannot bailout other ones, this has already been broken in my opinion. This would need a new treaty or law to be passed in parliments of EU countries allowing Eurobonds. Lets be positive and do it.
– The make up of the ECB, their focus only on inflation over employment and their lack of tools. Again the ECB should be reformed, we are in a crisis, things can be changed.

The Euro , the EZ and even the EU is a creature of the money lenders.
They just need a respectable yield on their investments.
If the capital destruction gets messy they may decide to ease off in the interests of sustaining a longer term yield.
The nations of Europe decided to become currency users rather then issuers – then our partial independence became history.
Not only can the banks issue debt but now they can issue money at will.
Game over.

The Euro , the EZ and even the EU is a creature of the money lenders.
They just need a respectable yield on their investments.
If the capital destruction gets messy they may decide to ease off in the interests of sustaining a longer term yield.
The nations of Europe decided to become currency users rather then issuers – then our partial independence became history.
Not only can the banks issue debt but now they can issue money at will.
Game over.

The EU Finance ministers spake:

To this end, Ministers stand ready to adopt further measures that will improve the Euro area’s systemic capacity to resist contagion risk

It strikes this reader that the measures to deal with the systemic capacity to resist risk do not directly relate to changing the system.

The only measures which are directly related to reducing systemic risk are the financial sector stress tests and these measures are being resisted strongly by the EU state that is suffering least from the current system.

Up until the currently under regulated and badly controlled markets are seen as the problem and not the solution expect the situation to get worse as private investors save themselves from their consequences of their poor decisions at the collective but unequal expense of the European nation state.

Greece was forced into an EU/IMF bailout 13 days after its 10 year yields exceeded 7% and Ireland was forced into EU/IMF bailout 15 days after it was forced into a bailout.

Spanish 10 year yields reached 6.5% and Italy’s yields reached over 6% for the first time since 1997.

We may be reaching the endzone, Germany have to decide if they want euro to survive. If they do, its good news for Ireland as comprehensive solution will have to be agreed for entire Eurozone including EFSF bond purchasing an ultimately introduction of Eurobonds.

If a default takes place as part of second Greek Bailout, surely Ireland’s financial debt must take a hit and senior bondholders will be back on the agenda. And not just in Anglo/INBS.

From Ireland’s perspective high yields in Spain and Italy can only be good for us as it will force Germany to bite the bullet and save us all. But at what price…?

EU wide bank stress test results on Friday have taken on a new significance…

Shortly means shortly.

I guess “enhancing the scope and flexibility” of the EFSF can really only mean one or two things if they have already explicitly mentioned lower rates and longer maturities in the same release.

Personal observation on use of language: those who proclaim that they ‘stand ready’ to act in a particular way rarely act in that way.

@ JK
at what price? That is a really interesting question. Every piece of evidence suggests that any change in the MOU will come at a hefty price. One could speculate that 12.5% CT rate will be put back on the table in return for lower rates/longer maturities & burden sharing.

Our govt should still be working on Plan B which is essentially a version of the Kelly medicine.


Good point.

You might have noticed a lot of Europeans quoting Winston Churchill about America recently. Worth noting that it actually took the Japanese demolition of the Pacific Fleet at Pearl Harbour and coordinated declarations of war on the US by Germany and Japan before America did “the right thing”.

Just sayin’…


So, is it a bit like Jack Lynch declaring he would ‘not stand idly by’ all those years ago?

I think we’ll have to wait and see how the game unfolds. Clever move by the market players having a go at Italy. With Draghi as ECB President-designate, Giulio Tremonti trying to hold the line and a cunning buffoon as PM it really ups the ante for the EZ core.

@ Tull

i disagree. The contagion arriving at Spain and Italy’s (and, to a lesser extent, France and Belgium) door has scared the EZ core sh1tless. There will be a lot more pragmatism and rationality going forward, ie longer maturities, lower rates, pro-growth policies and maybe even some selective default. I think they’ve finally realised the market is calling its bluff. Unless the ECB is willing to buy 20bn in BTPS’s per week, it won’t put a scratch on Italian yields.

With the EZ core scared witless, is now a time for Ireland to assess the limited decisions that fall within our remit. Should we now defer the recapitalisation of the banks for another quarter, perhaps. The ESM treaty today seems to reinstate the IMF principle of seeking burden-sharing from the private sector. With this sort of thinking now coming from the core of Europe, perhaps we should sit back and see what this means for Ireland.

yep…it is in Ireland’s interest that Italy/Spain get drawn into the crisis. These countries are too large for that mad imp Sarko to wave his ‘this isn’t happening’ wand at. Also they are large enough, to mean that Merkel will need to come down off the fence. If Ireland were as bad a bastard as LBS, we’d be briefing against Italy to force a crisis (like he did against us), at the very least Noonan should send him a prank fax.

Desmon Brennan

If Ireland were as bad a bastard as LBS, we’d be briefing against Italy to force a crisis (like he did against us), at the very least Noonan should send him a prank fax.

Why just a prank fax?

LBS can be expected to undergo a road to Damascus conversion on the calculus of moral hazard once he is ensconced at the Banca D’Italia and it would be a terrible shame if he managed to escape humiliation for his idiotic malice at the ECB before making his escape.

The IMF/EU review on Thursday has just become slightly more interesting in any case.

expect to see headlines from Germany ruling out an increase in the EFSF and from the ECB ruling out both direct purchases and debt buybacks. Then the air con will require cleaning.

The question is whether they will actually agree to DO anything before they all head off on their August hols…. what is the gap between ” standing ready” to do something and actually doing it ?? …. I suppose in diplomatic speak ” standing ready” is at least a bit better than ” considering” …

It’s understandable that people would be repelled by the stop-go political performance during the crisis both in Europe and Washington DC.

However, this is what tends to happen when there is a separation of powers and the apparently obvious answers are the preserve of the hurlers on the ditch.

During the Great Depression, the talent that FDR had was not consistency; he was willing to experiment and change course.

He had not begun with a plan and on March 10, 1933, just six day in office, he sent an emergency measure to Congress, requesting authority to cut the federal deficit by $500m, including a 50% cut in payments to veterans, which accounted for a quarter of the $3.6bn budget.

Who has the answers and would they in office be able to implement them?

In 2009, Krugman complained that the Obama stimulus was too timid at $787bn but would the recovery be still spluttering if it had been double or more?

Columnist Robert Samuelson recently wrote that economists suffer from what one of them (Ricardo Caballero of the Massachusetts Institute of Technology) calls “the pretense-of-knowledge syndrome.” They act as if they understand more than they do and presume that their policies have benefits more predictable than they actually are.

He concluded: “The bad news is that if the recovery continues to disappoint, the discrediting of mainstream economic thinking will grow. The resulting intellectual void will summon forth new ideas. Some may be good, but others – though superficially appealing – will be fringe or lunatic.”

So history repeats and today’s Michelle Bachman is yesteryear’s Huey Long.

At a local level, the ideal would be that Irish politicians would tell punters home truths at election time; however, has anyone ever been elected in Ireland on a platform of frugality and ending patronage?

@ Cliff

Greek government bond redemption (6.6bn) on 20th August is a big red line in the sand, no point paying that back if you’re trying to maximise actual private sector involvement, so thats one reason why we might actually get something done this side of August bank holiday.

Also, and this is not a joke apparently (re Greek private sector participation)…


@ Michael Hennigan

“The Pretence of Knowledge” is Hayek’s title to his Nobel Prize acceptence speech, 1974.

I’m not sure if you were taking that knowledge for granted.


that’s 37 ways more than he was able to find before !

a few more and it could be “fifty ways to burn your bondholders”…..

@Michael Hennigan,

I think your realise that your ideal – “politicians would tell punters home truths at election time” – is a non-runner, here or anywhere else.

All that is needed is for politicians to explain and for voters to understand what governance is about. In essence it is about three things:
1. Curtailing, in the public interest, the pursuit by some of their interests;
2. Advancing the interests of some at the expense of damaging the interests of others in the public interest; and
3. Seeking to achieve a balance between legitimate, but conflicting, interests – again in the public interest.

The basis of representative democracy is that people do not have the time, resources or capability, either individually or collectively, to resolve these matters and, therefore, elect politicians and devolve their power to them to provide the necessary governance. And a basic requirement is that it is formulated and enacted in a democratic and transparent manner and enforced in an equally transparent manner – all subject to judicial oversight.

For the last 20 years Irish politicians have operated on the basis that there are really no conflicts between various interest groups and if they surface every effort should be made to smother them – the ‘social partnership’ process was the best example of this. And while the Celtic Tiger produced the goodies all governments operated on the basis that ‘all shall have prizes’. Enough largesse was spread around to smother any general discontent that certain favoured special interests were getting bigger prizes than most. The fundamantal and enduring conflicts between producers and service providers (and the owners, managers and staff in these bsuinesses), on one side, and citizens and consumers, other other, were carefully managed and smothered in so far as it was possible.

Any hint of this conflict was glossed over or defused by the use of task forces, review bodies or the allocation of responsibility to a growing herd of quangos where any conflict was quickly smothered in ‘public consultation’ processes and vested interests made hay without any effective scrutiny.

Poliiticans have lost the ability to govern – simply thorugh lack of use – and the only effective governance we are getting is at the insistence of the Troika and the requirement to transpose and enforce primary EU legislation. And even still, governing politicians will duck and dive to avoid doing what they are required to do and which is in the public interest.

I think it’s about time the EZ sets aside the EFSF ESM etc etc programmes. To date no country has recovered from a bout of the jitters. With Spain and Italy getting the yips, it’s time for Plan B. These existing programmes will start to look daft if the number of guarantors decreases while the amount guaranteed increases. Start with a goal of getting all member states debt to GNP* ratios down to 80% by 2022. Such a programme should be funded by ECB makey-up money so the givers and takers aren’t so readily identified; and designed to minimise inflation risks.

(* 😀 – me have green jersey too!)

“Should we now defer the recapitalisation of the banks for another quarter, perhaps”

The banks are in the Roscommon hospital accident and emergency mortuary but can be defrozen and electrocuted to give the impression of life. Please don’t expect them to talk.

@ All

For an interpretation of the Eurogroup statement, that given by Michael Noonan on RTE this morning is the best if for no other reason than the fact that he participated in the negotiations leading up to. He may have overdone the euphoria bit but, by and large, what he said seems to hold together.

We will see on Friday which outcome is the most likely, that of the route sketched out by innumerable players at this stage, or the obstinate path hitherto pursued by Germany which leaves all the costs with other countries in circumstances where the crisis is actually reducing its own borrowing costs.

Merkel’s carpet-pulling talents are by now legendary. However, does she wish, as Wolfgang Munchau rather inelegantly put it, to be remembered as the East German that brought down the euro?

That word “collateral” could have interesting implications.

Both financially and politically.

The Greek PM is not impressed…”‘Too little, too late,’ says Greek PM

In an open letter to Eurogroup Chairman Jean-Claude Juncker early on Tuesday, Greek Prime Minister George Papandreou criticized European partners for acting too slowly to stem the crisis while creating a “cacophony” that ultimately put domestic politics before the common currency.

“Crunch time has arrived and there is no room for indecisiveness and errors such as taking decisions that in the end prove ‘too little, too late’ to convince the markets we are serious; (and) making compromises that satisfy our internal political ‘red lines’ that in the end substitute tactical politics for sound management of the crisis,” Papandreou wrote.”

@ Eoin Bond
Re that 36 ways to skin a cat… The IMF have a clear vision……
“Working Paper No. 11/164: Modeling Optimal Fiscal Consolidation Paths in a Selection of European Countries Author/Editor: Kanda, Daniel Summary: For a number of countries – Italy, Netherlands, the United Kingdom, Germany, Ireland, and France – this paper develops an inter-temporal model that elicits the implied country-preferences over balancing the conflicting objectives of fiscal consolidation and reduction of economic slack. The model suggests that some front-loading of adjustment is desirable, although the extent would vary by country preferences. It also finds that proposed consolidations may prove to be stronger than acceptable, especially if somewhat larger than anticipated fiscal multipliers lead to a sizeable economic deceleration.

There will be a risk of default as long as there is debt. Debt will not disappear -> The only way this crisis can be resolved is to allow defaults.

As Germany looks likely to end up paying, then it seems that they would be interested in the cheapest option -> Let countries that can’t fund themselves default.

Hopefully common sense will prevail; it is better to own banks than to hold bonds. Both have similar risk, but owning a bank also gives control and an upside. So for the ones who cared about underfunded state pensions in France, then it is better to allow the default to happen.

As for the credibility of solutions proposed by financial newspaper editors: Who spends more on advertising in financial papers, governments or the financial industry?

Regulatory capture of regulators and legislators have been discussed, why would newspaper editors be immune?

re The IMF have a clear vision……
“Working Paper No. 11/164: Modeling Optimal Fiscal Consolidation Paths in a Selection of European Countries Author/Editor:…..sizeable economic deceleration.

The summary/abstract you quote above is so obscure that I doubt even the writer knew what he wanted to say by the time he had finished.

Moody’s just downgraded Ireland a notch (to junk) with negative outlook.

If only the EU could regulate these pesky ratings agencies…….!

No immediate effect as ECB likely to accept our (junk) sovereign bonds and we’re not presently in the debt markets. NTMA has responded

” The National Treasury Management Agency (NTMA) notes the decision by Moody’s Investors Service to lower Ireland’s credit rating by one notch from Baa3 to Ba1.

The NTMA notes that Moody’s decision was primarily driven by their concern about the prospect of private investor participation in future financial support programmes in the euro area. Moody’s acknowledges that Ireland has demonstrated a strong commitment to fiscal consolidation and is successfully delivering on its objectives as required under the EU/IMF Programme of Support.

The situation in the euro area is evolving rapidly. In their statement of Monday 11 July, the Eurogroup set out a range of measures to safeguard the euro area’s financial stability. These include enhancing the flexibility and the scope of the European Financial Stability Facility, lengthening the maturities of the loans and lowering the interest rates. These are positive developments for Ireland.

Ireland has sufficient funding under the EU/IMF Programme of Support to cover all its financing requirements until the end of 2013.

Ireland retains investment-grade status with the other main ratings agencies.”

As such, being junked is helpful, as it focuses minds. The Irish problem isn’t solving itself, our medium term path is not credible – it would appear that the markets may yet manage to force realism into this situation. The advanced reality avoidance mechanisms of the fudgecrats have failed…looks like an interesting summit is due. I wonder will Ireland bring anything to the table, or just sit and nod wisely ?

The big criticism that is fair to call on the ratings agencies is their pro-cyclicality, ie in bad times they downgrade, making things worse, and vice versa. Somehow that needs to be corrected.

@Jagdip Singh

“The situation in the euro area is evolving rapidly.”

In PR-speak, that means everything is going to ratsh1t!

@PR Guy,

Not sure there’s any real impact on Ireland until late 2013. Maybe crystallises the decision to seek a second bailout to fund maturing debt which won’t increase overall debt, but beyond that, we’re outta the markets for the forseeable future so market ratings not so relevant to us for now.

This from the RTE website:

“There are reports that European Union leaders may hold an emergency summit on Friday after finance ministers acknowledged for the first time that some form of Greek default may be needed to cut Athens’ debts and stop contagion to Italy and Spain.”

I’m a bit confused. I thought the principle was there could not be any default for fear of contagion. But this reckons that default may be necessary to stop contagion. Has the world just shifted a bit, or is the reporting blurry, or other?

Eoin Bond:

Do you agree that the wailing from Barroso and Barnier about the agencies this last week is abject? The agencies screwed up in 2004 to 2007 for sure. But these guys are producing a response to the bank and sovdebt crisis, three years on, focussed on the agencies rather than the problem. Barroso is the president of the EU commission, not a columnist or a blogger. I am convinced that the performance of these guys has contributed to the speed of the denouement.


But we already have/had a ratings agency. Remember the CEBS or the European Banking Authority as the same collection of people is now called. And remember the great ratings jobit did in July 2010 when it gave AIB and Bank of Ireland the all clear?

If a bad pint of Carlsberg did ratings agencies…

@ Colm

completely agree, the official responses have been somewhere between stupid and dangerous. The ratings agencies are not the problem, per se, but our reliance on ratings, on a small band of raters, and their pro-cyclicality, are all genuine concerns. We need a better system of ratings, and how we use that system of rating, going forward. The agencies did not cause this problem, but they’re definitely not helping right now either. There needs to be a circuit break.

Ratings reform wont be delivered on our timetable.
There is a medium to long term danger in all this that we cede more soverignty in the reaching of a Europe wide solution, and do so without properly debating the merits of such a move.
Can we say such things now?
Is too soon?,.., or too late?

@ Gavin Kostick

“I thought the principle was there could not be any default for fear of contagion.”

This is what they fear. The counterparty risk of derivatives.

The Derivative Death Star.


0.001% failure is $ 1,500,000,000,000.

That’s counterparty risk.

There’s no point is pretending that most of it is “plain vanilla”.

Everything is plain vanilla until it’s not.

If 0.001% of derivative commitments cannot be met you have this.

Complex systems can work very well until they don’t work very well.

Then complexity itself is the enemy.

@ All

I think that it should by now be clear that what is involved is a game of high stakes international politics going well beyond Europe, the ramifications of which are impossible to either identify precisely or to predict. But the options are clear and they boil down to choosing between the approach of (i) Germany (supported by the Netherlands – whose finance minister does not impress – Finland and Austria) in relation to PSI and (ii) everyone else (literally).

If rating agencies did not exist they would have to be invented. The problem is not related to their ratings but the standing that these have been given in the international financial system, starting with the US.

They agencies are simply currently identifying for investors something that is plain for all to see : the profound political division in the EZ as to how the crisis can be resolved. This is rooted in the popular German belief – encouraged by political parties of every hue – that the euro is but the DM in a different guise. It is not and unless this recognised the path to a rump currency union made up of no more than Germany, the Netherlands and Austria (Finland being involved presently as an electoral accident) is probaly inevitable.

The consequences of such an outcome for the political and economic development of Europe generally are incalculable.


@colm Mc

Yes definitely. It looks so, so ludicrous – particularly given the fact it is 4 years since the SPVs started to implode – that you have this pathetic bleating about people who are more bearish than the great and the good (ratings agencies, short sellers and, they haven’t realised this yet but most other competent market participants). That is the strategy:

1 Look the other way
2 If 1 doesn’t work, bleat.
3 Be successful statesman / bureaucrat.

The old-fashioned market players might have been eclipsed for a while by truckloads of bullshit, but they haven’t gone away you know.

The bears point to what the EZ guys are saying and say “look, now tell me you think they know what they are doing!”


‘Old-fashioned players’ is OK, but I love the phrase ‘real money people’ to describe the stern, silver-haired, granite-faced, adults I presume (hope!) are in charge of the bond market.

the old men of the bond Market were put out to pasture during the heady days of the boom. If they were still around, do you not think they would have gone into the ECB and the other institutions and told them what they were doing was insane, over a good bottle of red of course.

@ All

It seems from press reports that Merkel is not dragging the carpet but her feet with regard to the mooted emergency meeting.

Link below to excellent article by Brendan Keenan. The ESF may be amended “in writing” (Article 15.5 of Framework Agreement available on EFSF website) and is designed to avoid the risk of constitutional challenge to which reference is also made in the article.

@ Colm

re real money in charge of the bond market.

They should be in charge, because you need deep pockets to move trillion euro markets like Italy. The problem is that the real money men are no longer used to the volatility we have seen in recent months. Back in the 90’s, with currency crises very much du jour, they were probably quite used to it, but the game changed for the last decade or so, so it may take them a while to take the market back from the fast money men. As Tull suggested, there may not be many of them left, a lot of the buying of government bonds in recent years have been carried out by what i’d term “carry monkeys” just looking to lock in a spread over cost of funds.

@ All

Rather than pulling the rug, Merkel is refusing to step on to it, thereby once again reasserting her political authority over more sensible sources such as the finance ministry.

And for once, she is right. Attendance at a summit called in haste without some finality on the German position, whatever it is, would have left her politically exposed, apart from the fact that she is currently in Africa (and under political domestic fire for helping sell naval patrol boats to Angola, having also recently authorised the sale of tanks to Saudi Arabia!).

Whether by accident or design, our esteemed Taoiseach has hit the right note and is widely quoted in the international press. Van Rompuy, on the other hand, has stumbled. The man has an impossible job.

Arthur Beesley describes the situation as a Rubrik’s cube in toady’s FT. It is a good deal less complicated than that. There are only two sides in the struggles and only one side can win (unless the Greeks shoot themselves in the foot by defaulting and cause abandonment of the game). It may be noted from the FT article that even German central bankers do not agree with the obsessive pursuit of negotiated – as opposed to market engineered – PSI at this critical juncture.

An interesting weekend is ahead, especially against the background of a German state bank, Heleba, pulling out of the stress tests rather than face the music.

@ Ceterisparibus re ” IMF have a clear vision.” Just as they had back then…
This from an article by Liam Halligan in the Telegraph….

“There is growing recognition,” said the preface of the IMF’s Global Stability Report in 2006, “that the dispersion of credit risk by banks to a broader and more diverse group of investors has helped make the banking and overall financial system more resilient. Consequently the commercial banks may be less vulnerable today to credit or economic shocks.”
This was the conventional Western wisdom, as stated by the world’s premier financial watchdog. It was also complete and utter nonsense. Worse, it was nonsense that justified – and, if we’re honest, was specifically designed to justify – the actions of a financial services industry that was completely out of control.”

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