Eurosummit Statement: October 26

Here‘s the official statement from last night’s summit. Other materials are here.

24 replies on “Eurosummit Statement: October 26”

‘All other euro area Member States solemnly reaffirm their inflexible determination to honour fully their own individual sovereign signature and all their commitments to sustainable fiscal conditions and structural reforms.’

If my neighbour gets his debts reduced by 50%, why wouldn’t I look for the same?

Loss of economic sovereignty on taxation, and hence a material reduction in democratic accountability, is also included, Robert Peston notes:

“…perhaps most significant was eurozone leaders’ announcement that there will be tougher controls in future on the budgets of member countries, integration of taxation, and a whole new framework for running the eurozone, including a new leadership structure which will rival the decision-making mechanism of the wider European Union.”

If banks need to tap the EFSF for recapitalisation monies, will the transaction be between the bank and the EFSF or between the sovereign and the EFSF?

The new fund idea to enlarge the EFSF seems a bit wishy-washy at the moment.


“Eurozone member states will contribute to this private sector involvement (PSI) package with up to 30 billion euros”

Does this mean EuroZone govs are taking hits of 30bn on sov bonds purchased from Greece?

If it is referring to the EuroZone contribution to the new 100bn deal Greece needs then surely the contribution would need to be higher (can’t expect the IMF to pay the other 70bn?)


Annals of Genghis Khan, Vol 2087, No 10, October 27. Paul de Grauwe, European Summits in Ivory Towers. Special Issue on the theme ‘Only a fool goes into a battle s/he knows s/he cannot win.

‘Imagine an army going to war. It has overwhelming firepower. The generals, however, announce that they actually hate the whole thing and that they will limit the shooting as much as possible. Some of the generals are so upset by the prospect of going to war that they resign from the army. The remaining generals then tell the enemy that the shooting will only be temporary, and that the army will go home as soon as possible. What is the likely outcome of this war? You guessed it. Utter defeat by the enemy.The ECB has been behaving like the generals. When it announced its programme of government bond buying it made it known to the financial markets (the enemy) that it thoroughly dislikes it and that it will discontinue it as soon as possible. Some members of the Governing Council of the ECB resigned in disgust at the prospect of having to buy bad bonds. Like the army, the ECB has overwhelming (in fact unlimited) firepower but it made it clear that it is not prepared to use the full strength of its money-creating capacity. What is the likely outcome of such a programme? You guessed it. Defeat by the financial markets.

Who really loses?

To David,
What do you think would be the consequences of printing one or two trillion euros? Would you think high spike of inflation is a possibility, say 5-6% or higher? Maybe very high interest rates to bring inflation under control back to 2-3%, what would consequence of interest rates at 7 or 8 % in Euro area be, especially for irish mortgage holders? What about loss of buying power of Irish and european citizens, pressure of wage increases, strikes to get that buying power back? That’s just to mention a few consequences of QE? do you completely disagree with such a possible outcome of massive QE of a couple of trillion at least.
Only other alternative is massive debt default of PIIGs, eurobonds and complete fiscal control by central European government, not German government. The future is not bright…


So a 50% haircut is actually an overestimate? Little confusing – I understand it has something to do with the new bonds the banks will be issue din exchange. “Incentivise” or “sweetener” are certainly the words going about in the international press.

Maybe this is the key phrase in the release:

“Credit enhancement will be provided to underpin the quality of collateral so as to allow its continued use for access to Eurosystem liquidity operations by Greek banks”

A little help on this please.

Am I right in thinking that the banks instead of losing money stand to gain considerably from this deal?

A voluntary contribution was agreed with private creditors: on notional Greek debt held by them, the nominal discount will be 50%. Eurozone member states will contribute to this private sector involvement (PSI) package with up to 30 billion euros.

Greek debt was reported to be €366B at the end of July. Split as follows
30% ‘Official’ funding
30% Greek banks/pension funds etc
40% Others.

So PSI contibute a haircut of 50% on 70% =35% of 366B= 128B loss? [The ‘official’ funding of 30% takes no pain.]

But Greek bonds can currently be bought for small fractions of their nominal value.
So is now possible that instead of losing money on Greek debt, marked to market, as of last week, the banks and private sector will actually make a considerable profit here? Assuming that is that the remaining 50% of Greek bonds are 100% solid.

@Joeseph Ryan

Is it reasonable to assume that if you had Greek debt on your books it would all be in your “marked to market” book rather than your “hold to maturity” book?

@Rob S

What were the bonds worth on the open market last week?
Any improvement in that price is profit for the holders not a loss.

Is the deal on offer an improvement on the market price?

I confess I do not know the answer but I would like to know it.

Its a loss from where they were 2 years ago?

I don’t know the answer would you argue equally that the subbies in one of our banks got away with murder if their bonds were trading at 5% of the nominal value whilst they got a deal worth 10%?

Point 18:

“the objective is to support market access for euro area Member States faced with market pressures and to ensure the proper functioning of the euro area sovereign debt market, while fully preserving the high credit standing of the EFSF.”

seems like a contradiction in terms. Either the market functions properly and then there is no need for interference or it doesn’t and the interference will then shift the market-price. Supposing that the EFSF does interfere with the market, then an interesting question might be: Who benefits? The buyer (EFSF) or the seller (the current holder of the bonds)? The assumption is that the price without interference is too low so it seems like the seller is the big beneficiary.

Point 19, offering risk insurance? It would appear that credit events won’t be allowed so does that mean that even this kind of insurance will never pay out?

& buying bonds in the primary market?

It might be possible to assume that the EFSF will only buy bonds that are incorrectly priced. Who decides what is correct and what is incorrect? Who is this knower of all?
Looks like Soviet-style central planning 🙁

@Rob S

“Its a loss from where they were 2 years ago?”

To me it is a joke. A very sick joke.

A holder of Greeks govt bonds that were trading openly at ten cents last weeks is now to get 50 cents.
Some haircut!
And for the privilege of the above investor getting a profit of 400% on the market price, European taxpayers via a 30Billion donation are going to compensate the investor for a portion of the loss he incurred from the date of issue until last week’s market price.

I have not seen the markets yet, but I bet bank shares have rocketed.
The is PSI alright.
PSI of taxpayers compensating banks for existing losses on their investments.

@Rob S

The biggest gainers were banks, led by French institutions, which are the most exposed to Greek debt, with some up by 20%.

The banks take a ‘haircut’ of 50% on Greek debt and rise 20% in value.
You don’t have to be Einstein to work out what has happened.

The European and in particular the French banks have been given a massive bailout based on market prices.

When will Greece get another bailout?

“Greece’s finance minister has said the country’s debt mountain, which threatened to sink the country and the euro zone, is now manageable after a deal with creditor banks to cut it by 50%.
Evangelos Venizelos said today that the deal would make Greece’s debt “viable under international guidelines”. He noted that, without the debt ‘haircut’, Greece would have seen its borrowing equal to 173% of annual economic output by 2020, an unsustainable level.”

Viable under international standards? What standards say that the new projected debt level of 120% of GDP is sustainable. Rogoff doesn’t think so.
Has anyone any idea?

The Economist says no.

‘Europe’s rescue plan’

“At this summit Europe’s leaders had hoped to prove that their resolve to back the euro was greater than the markets’ capacity to bet against it. For all the backslapping and brave words, they have once again failed. There will be more crises, and further summits. By the time they settle on a solution that works, the costs will have risen still further.”

@Gavin Kostick

European summit
The fake euro rescue
27 October 2011, Berliner Zeitung, Berlin

Eurozone is not out of danger
And so tougher cuts, debt forgiveness for Greece, boosted capital reserves for banks and a bigger EFSF are supposed to take on the task of bringing back confidence in the creditworthiness of Europe. Whether it works out quite like that is iffy. Each of these steps is likely to stoke the mistrust even more.

Because with the slashing of the debt, politicians are revising their former position that the radical austerity programmes were actually working. The recapitalisation of the banks contradicts their former assurance that the banking system was robust enough.

By authorising the EFSF to support the banks, they’re giving up their claim that this recapitalisation was enough to ringfence the banks against the crisis. By making the EFSF bigger, they’re scrapping their verdict that the crisis was merely a problem of a few small states that didn’t know how to keep their books in order.

By leveraging the EFSF to ever higher sums in the billions, they’re disproving their claim that the eurozone is finally out of danger. And with the ongoing fight over the cost of the euro rescue, with worries about euro-bonds and any stronger involvement by the ECB, with the tight restrictions on relief measures – in short, with the constantly stressed conditions they’re slapping on the bailout, they’re contradicting their own claim to do everything possible, and with no strings attached, to save the euro.

@Brendan Quinn

Democracy would trump The Financialization of the Lifeworlds of the Citizen_serfs throughout the EU – and The European Project would be returned to its righful heirs – ordinary European people.

At the mo – democracy in the EZ is an illusion – politicos, of all hues, have been, and are being held, captured. Methinks you might have a touch of it yourself … rem the financial system couldn’t give a sh1te about Irish mortgage holders (i.e. people) – for those in difficulty, their only hope is a strong and functioning democracy.

The Economist says no.

The economist is right.
From the point of view of the large European powers particularly France, the purpose of the deal was to cut the Greek anchor from the balance sheets of their Big Euro banks with as little cost to the banks and to the host country as possible, in the hope that the big issues of overborrowing and lack of growth would miraculously evaporate through the novel policy of austerity driven growth, the growth fairy as Krugman calls it.

The result is that they, sorry ‘we’ have thrown €30 billion of EZ taxpayers money at the mainly French banks without even a ‘grace a vous’ note from Sarkozy, while the Euro debt problem continues to grow and recession beckons because ‘growth fairy’ lost her wand.

The deal will improve the stock market for banks for a week or two and the crisis will emerge worse than ever even before the end of the year.

But the French banks did well today, they were up 20% at about 4pm.
And as Colm McCarthy points out, the Irish back row is throwing its weight behind Les Blues Banks.

Its the Fraternité in our psychological make up.

@David O’Donnell Says:
October 27th, 2011 at 12:41 pm

Spot on.

To use a sporting parlance – ‘Front Up or ‘F*** Off’.

The only notice anyone would have taken of the Irish at this would have been if Enda had have got up along with David Cameroon (intentional), left the room as they sat down to disucss the ‘Euro Crisis’ and realised they were one short at the vote.

@Ordinary Man

Neat international rules in Melbourne this morning – Ireland 80ish Australis 35ish [don’t have exact at the mo] …. and 90% of the 30,000 spectatators were, to use an economic abstraction, the cream of Irish Human Capital.

Fair play to the GAA – and the IRFU.

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