Exciting New Scheme Revealed

The summit communique contains the following:

’12. The Private Sector Involvement (PSI) has a vital role in establishing the sustainability of the

Greek debt. Therefore we welcome the current discussion between Greece and its private

investors to find a solution for a deeper PSI. Together with an ambitious reform programme

for the Greek economy, the PSI should secure the decline of the Greek debt to GDP ratio with

an objective of reaching 120% by 2020. To this end we invite Greece, private investors and

all parties concerned to develop a voluntary bond exchange with a nominal discount of 50%

on notional Greek debt held by private investors. The Euro zone Member States would

contribute to the PSI package up to 30 bn euro. On that basis, the official sector stands ready

to provide additional programme financing of up to 100 bn euro until 2014, including the

required recapitalisation of Greek banks. The new programme should be agreed by the end of

2011 and the exchange of bonds should be implemented at the beginning of 2012. We call on

the IMF to continue to contribute to the financing of the new Greek programme.’


I don’t quite see the point of going through a default (which is not, of course, a credit event) in order to get Greece down to 120% of GDP in 2020.

But note the very nifty €30 bill to be contributed by ‘…the Eurozone member states…’.

This could include little us! Imagine, the team taking one for France and we are allowed to tog out!  

What is being proposed here is that European investors who lost money in Greece are getting bailed out to the tune of €30 bill, not by their host governments but by the team. Those who lost money in Ireland got bailed out, and continue to get bailed out, by the host government only.

You have to hand it to the French.

Anglo Bonds No Cost to Taxpayer Talking Point Gets Full Rollout

In advance of next week’s $1 billion Anglo bond repayment (congrats to all our international hedgie readers), the government talking point that repayment of this bond doesn’t cost the taxpayer a cent is now getting a full rollout, with Michael Noonan on RTE Radio’s News at One today and Leo Varadkar on Tonight with Vincent Browne both at it.

Both ministers were insistent that because the IBRC (i.e. the new Anglo-INBS institution) has sold loans worth €2.5 billion for a loss of €500 million, thus realising €2 billion, that paying the remaining €3.7 billion in unguaranteed senior bonds won’t cost the Irish taxpayer any money.

Let’s make this as simple as possible: Even if you wanted to view this repayment as costless because Anglo has its “own funds” to repay the bond, ask yourself who would be the beneficiary of these “own funds” if they weren’t used to repay unguaranteed bondholders. Every cent going to these bondholders is coming from Irish taxpayers.

Slightly less simplistically, Leo acknowledges that we are putting large amounts of money in the form of the promissory note payments (“the only money we’re putting in is the promissory note” — ah yes, “Other than that Mrs. Lincoln ….”). How did they arrive at the figure for the promissory note? The figure was arrived at by figuring how much money was required to keep Anglo solvent, i.e. paying back all its bonds debts. If we didn’t pay back the unguaranteed bondholders, then we could revise the promissory note payments down.

I know that the remaining unguaranteed bond debts are dwarfed by the approximately €40 billion Anglo owes in ELA but this talking point is irritating all the same. Honestly guys, please stop.

European Sovereign Debt Crisis

The conclusion of the EU Summit this morning marks one more stage in the evolution of this crisis (comments please!).  The longer-term dynamic for the crisis was extensively discussed in Tuesday’s Policy Institute/IIIS roundtable event. The presentations are below (audio/video coming soon)


You can tune in to today’s IMF conference on Iceland here.

One of the speakers is Jon Danielsson. He has posted two articles on VOXEU, in which he argues that the recovery process in Iceland is far from complete and that the crisis response was not optimal.  The bank-sector article is here; the overview on the IMF programme is here.

Research on the Crisis

You may be interested in the papers that will be presented at the Economic Policy Panel meeting in Warsaw over the next two days, supported by the National Bank of Poland.  The papers are available here.

The list includes

  • a comprehensive overview of eurobonds by Carlo Favero and Alessandro Missale
  • how housing slumps end by Agustin Benetrix, Barry Eichengreen and Kevin O’Rourke
  • the interplay between sovereign risk and banking-sector risk in European bond markets by Ashok Mody and Damiano Sandri
  • a new proposal for automatic recapitalisation of banks by Patrick Bolton and Frederic Samama

Continue reading “Research on the Crisis”