Cost-effective Eurozone firewalls and the buyback boondoggle

John McHale has a recent thread on the probability of a Greek default.  In this thread I want to consider a different but related question.  Only some of the promised Greek bailout funds are intended for funding Greek government expenditures; the rest of the funds are intended to pay back outstanding Greek sovereign bonds. Conditional upon a Greek default, how should the bond-payback-earmarked Greek bailout funds be spent by the Eurozone?  Let X denote the total sum of Eurozone bailout funds intended for Greece, Y the amount earmarked for Greek government expenditures, and Z the funds available to pay back Greek bondholders.  Define a disorderly Greek default as one in which a private sector involvement (PSI) agreement is not in place or is inoperative. My question is:

In the event of a disorderly Greek default, how should the EU spend Z?

There is a historical precedent for massive wastage of taxpayer funds in analogous situations. Bulow and Rogoff call it the “buyback boondoggle.” The buyback boondoggle refers to the tendency of fiscally-distressed states to demonstrate their newfound fiscal discipline by handing over large quantities of taxpayer funds to outstanding bondholders, even when there is no fiscal benefit in doing so. In reality, the payment of funds to existing bondholders by states in fiscal distress can actually lower rather than raise the future borrowing prospects of the state (see the paper above and this related paper).    

Bulow and Rogoff make the now-obvious point that it is important to differentiate between existing bondholders and prospective new bondholders when emerging from a fiscal crisis. Policymakers in the midst of sovereign crises have an overwhelming urge to throw good money after bad. After a period of fiscal profligacy, politicians realize that it is important for the government to signal to capital markets that it will practice fiscal discipline in the future. What politicians can miss is that it is wasteful to throw away good money pretending that the state had such discipline in the past. In many cases the cost-efficient strategy is to fully default on existing claims, and start over. International investors are not stupid, and will in general act in their own interest, not that of existing bondholders.  They can differentiate between the past and the future.  (Rogoff the chess grandmaster was the first economist to see this clearly – in a chess game, you should play the board in front of you, not attempt to make amends for your bad decision four moves ago).

Also, in the current context, international investors know the difference between, say, Greece and Italy.  A full default by Greece on all existing claims need not have a huge impact on Italy etc.’s borrowing prospects.     

Much of the concern in the Eurozone is about the impact on European banks that are holding Greek bonds.  Can Eurozone banks withstand the hit to their capital ratios if they are forced to write down Greek bonds to zero?  Policymakers are actually proposing to deliberately pay off these bonds at a big premium to their fair value, partly in order to indirectly siphon money into Eurozone banks.  This is a really wasteful channel to get equity into private Eurozone banks.  If Eurozone banks need equity capital in light of a wipeout in Greek bond market values, they should be forced to accept direct equity injections.  Anything else is extremely wasteful, since much of the funds spent overpaying on Greek bonds will leak out of the Eurozone banking system into NYC/London/Bermuda hedge funds, etc. My own suggestion is that in the case of a disorderly Greek default virtually all of Z should be spent directly on firewalling Eurozone banks, and near zero should go to outstanding bondholders.

106 replies on “Cost-effective Eurozone firewalls and the buyback boondoggle”

@ Gregory Connor

The most immediate issue with regard to Greece is the question of whether or not the ECB will participate in the haircut in relation to its holdings of Greek bonds. There is a clear and open division within the governing council on the issue. In an interview with Liberation, the new French board member said that the ECB would not seek to profit from the sale of the bonds. Profits would return to the governments of the EA and they could decide what to do with them. He has been supported in this by the Belgian representative on the governing council and contradicted by the German. (So much for the widespread notion that the ECB is a monolithic body).

The Latin American experience is of little relevance, it seems to me, in relation to the looming forced or volunteered default, and possible exit, of a country in a monetary union.

A game of four-sided brinkmanship between the governments of the EA, the ECB, private investors and Greece is going on and it is impossible to say how it will turn out.

Very interesting question.
Will the ‘earmarked’ money Z be transferred directly from EU taxpayers to Greek bondholders who have been ‘defaulted’ on?
Well, that is what has been going anyway but it would then become a straight forward Social welfare cheque of billions for millionaires, billionaires and assorted wealthy individuals. The camoflage provided by the distressed State would have disappeared.

The extent to which solvency issue at banks has restricted policy option during the crisis is remarkable

Deposits and to a lesser extent senior debt have come to be viewed as super senior debt – the guarantee that gov’s give to deposits appears to be senior even to government debt.

Now public funds are being used to bail out private Greek creditors… even though EVERYONE knows (or at least believes) that there will be further writedowns


Thanks for the link.

I’m trying to figure out the gain in delaying until after the elections.

Could only be to ensure that the ‘right’ party gets into power before the money is released otherwise, if the ‘wrong’ party gets into power, our gracious core European leaders pull the plug on them and scupper their government and prospects straight away (probably leading to the ‘right’ party getting into power eventually). Seems to me they may be afraid of a left coalition getting their act together after the results are in (as some opinion polls in Greece are currently suggesting) and not sticking 100% to the cuts/austerity just agreed and signed up to by the two main parties.

Is it just me or is there a whiff of something undemocratic about that?

Between now and the elections in April, they just have to figure out a way of making a default in March look like not a default. I’m sure they will engineer something – though whether private creditors will go along with it is another question (or at least wringing some great concessions out of the situation if they do).

I am Spartacus.

I am astounded that nobody is really discussing why the first bail-out has been a complete failure.

It is obvious to me that the constant threats of the troika to push Greece into default has led the (lowly leveraged) Greek private sector to deleverage as quickly as possible and to hoard as much hard cash as possible.

In such circumstances, any attempt for the public sector to deleverage simply leads to a collapse of the economy. This is indeed what happened in 2011. Whitout any reduction of the budget deficit, the Greek economy has contracted by about 7%. Keeping the budget deficit stable was in fact quite an achievement.

It is thus the troika that is really botching the job, not the Greek government. The new package is just more of the same. I am really starting to become anti-Euro and anti-EU.

Interesting info on a UBS Q&A on Greece posted over at Zerohedge.

Am I right in thinking there are still tranches of the first package yet to be paid? Anyone know the tranche schedule for the first Greek bailout? Could the remainder of the first bailout be used to avoid a credit event in March (I doubt that they would care if people in Greece didn’t get paid or old age pensions weren’t received as long as the old CDS’ aren’t triggered)?

I am definitely Spartacus.

Your posts are far too rational & reasonable for this religious blog.

YOU MUST BELIEVE ……despite the evidence to the contary.

Whats happening is quite simple.
As long as peripheral countries remain in the euro we will transfer real resourses (see energy to the core)
They just don’t want Core European tourists spending their energy credits in Greece or Ireland.
Its a form of protectionism.
Europe is a mini version of the global economy.

@ PR Guy

It is not that complicated, in my view. The EA hardliners see no point in trying to hold the feet of Samaras to the fire now. Doing so makes them effectively participants in the internal Greek political debate, something that they do not want and which Germany now realises, after the debacle of the suggested appointment of an “overseer”, is actually counter-productive.

They now want to deal with a credible government with a popular mandate. The difficulty is that any delay risks causing the PSI deal to collapse. Hence the idea of putting the necessart “sweeteners” in place.The brinkmanship is set to continue.

This is a question of politics not economics. The Greeks are caught between a rock and a hard place and they have to make up their minds as to the future course of their country.


“I am really starting to become anti-Euro and anti-EU.”

Just imagine what the greks are thinking, to be followed by the Portugeuse, irish, Italians, Spaniards etc….

The destruction of the EU is no small achievement. Stalin would have been delighted by the ‘successes’ of the Troika so far.

John – yes, I agree, that application in your late 201 thread shows again the relevance of the Bulow-Rogoff analysis to Eurozone strategy at the moment. The naive policy of always paying as much as possible at each step of the game can be very wasteful.

DOCM – the Latin American experience is not directly relevant but the political temptation to “signal” fiscal fortitude in the wrong way is still very relevant.

@all FYI

Some sense from Die Zeit … ordinary citizens in Greece in a shocking state …. [where is it written that Greece cannot default WITHIN the EZ … as Gregory notes – most of this dosh is simply being filtered back to the ‘dodgy’ financial system ….

Greek crisis Brussels’ fatal therapy
15 February 2012 Die Zeit Hamburg

“The Euro Group has postponed its decision on whether or not to grant a new aid package to Greece, fearing that the austerity plan adopted by Athens will not be implemented. But rather than the brutal slashing imposed by Brussels, the country needs to be restructured. And rather than being stigmatised, it is in need of solidarity.


“It seems to me that we need to be concentrating on the considerations which make the very concept of a default anathema to any country which wishes to retain is sovereign cohesion and identity.”

Peter the matrixsQuidesque pupper-master couldn’t have put it better. In whose interests? Piss poor Greeks couldn’t give a fidler’s flute for ‘sovereign cohesion and identity’ at the mo.

Gregory Connor is … er .. actually making some sense: go with game-theory and the chess-master and play the board in front of you ….


Default and be done with it; in solidarity within the Eurozone and the European Union.


If I were Greece now, I would default big. 100% on all State debts, nationalise the banks and default 100% on all banks debts.

Then look for a little help from Russia or whoever in backing a new currency.

Europe has effectively declared economic war on Greece a long time ago. It is time the Greeks realised that. They are being publicly mauled, just like the Colosseum Christians, as a very public warning to other debtor nations.

It is time for Greece to recover its dignity.

@Joseph Ryan

One can maintain identity, culture, language etc with the EU or indeed the EZ … the step up relates to a broader and more inclusive sense of European Identity and a morphing/merging of Sovereignty at both these levels. The source of probs relate to ideologically un-monitored ‘dodgy capital flows’ within a flawed design of the EZ … and an ostrich of an ECB captured by the Bundesbank and the MatrizsQuid elite who demand their caviar on both sides of their toast …. the ‘hedgies’ are pulling the strings …

If Europe is to become ‘real’ then these problems can be addressed at European level … [and could have been a few years ago] and moves to a genuine democratic federal Europe [as distinct from the ‘nonsense rhyme’ of the merkozian fiscal pact best summed up in the logic of the Edward Lear’s Owl and the Pussycat] becomes possible.

An ejection, or forced exit, of Greece from the EZ could shatter this progressive, if painfully slow, political movement. This is the real ‘contagion danger’ … with the neo-libs and their captured politico-elite screwing the serfs for generations … Greece needs assistance to build institutional foundations – a generation at least – and within the EZ.

The zenophobes are on the march – just look at The Netherlands …. die netherlands of all places; time to be more than concerned …

Lessons for around here …?

There is a worrying article just released on the web version of the FT, hinting at a new variant of the wasteful “buyback boondoggle” by the EU in their strategy toward Greek sovereign bonds.

Here is a fair-use quote from the article for those outside the FT paywall.

“Further increasing the pressure on Athens, eurozone leaders were preparing to move forward on a debt restructuring for private holders of Greek bonds without immediately approving the full €130bn bail-out. The move would continue to starve the Greek government of funds even as Greece’s private creditors agreed a separate deal.”

So this involves paying the bondholders first, and holding back on releasing cash to the Greek government for wages, pensions, etc.

@Gregory Connor

Re FT link.

That sound like saying ‘We are going to pay off your creditors and are going to send you the bill’.

It does not sound very legal to me.

More on the democracy thing in Greece from the DT.

“20.33 We are hearing rumours that Germany, the Netherlands and Finland want guarantees from small Greek political parties that the bail-out measures will be kept in place, or for the elections in April to be called off.”

Keep those objections and moving goalposts coming lads.

I am Spartacus.


Put another way. The EFSF has undetaked to provide Greece with funds neccesary for the bond swap to go through. If they don’t pony up the cash on the due day, Greece cannnot go ahead with the swap. Greece will default in March when 14bn plus comes due and it has no cash. Greece leaves the euro at that point as it has to print money to keep its banks open.

however, if the EFSF misses a contractual payment to Greece, does that constitute a default?

NYT contd.

[i]n another sign of the heightened tension, Mr. Papoulias [Greek President] responded angrily to claims by Mr. Schäuble and other E.U. officials that the guarantees provided by Athens so far were inadequate.

“We all have the obligation to make the effort to get through this crisis. I will not accept Mr. Schäuble reviling my country, I don’t accept this as a Greek,” the president told members of Greece’s armed forces during a visit to the country’s Defense Ministry.

“Who is Mr. Schäuble to revile Greece? Who are the Dutch? Who are the Finns?” he said. “We always had the pride to defend not only our own country but the freedom of Europe.”

The president’s comments were confirmed in a written statement issued by his office after the visit.


What that I hear … someone polishing those ‘brass buttons’ again …. ??? Scenario for a state of national emergency?

Cicero would not approve!

Foreign nations that might end up paying for the actions that possible Greek leaders might take are asking questions to these possible leaders about which actions they’ll take. I’m not sure if I see the problem? Is the problem that the Greeks are not asking those questions (what will you do with the money, our taxes, that you’re asking us to trust you with? ) ?

I do remember the tv-ads for some Irish bank were the borrowers lied to their bank to get funds. That bank didn’t seem to care about what the money was to be used for. How did that bank do? Should it (and other banks) have asked tougher questions before lending out money?

@ Gregory Connor

I do not understand your last comment. Are not the bondholders taking a very substantial haircut? And are not the other outgoings you mention the responsibility of the Greek people in the first instance?

Two Greek leaders, the finance minister, who is a candidate for the leadership of PASOK (which bears a heavy responsibility for the mess in which Greece now finds itself) and Samaras, the candidate of the right, the likely, if not outright, winner of the next election, have chosen to enter a game of chicken with the Euro Area governments that are bailing them out. We will see what emerges from this game of political hardball.

Sorry to be so vulgar chaps.
But these statement while true explains the monarchy of finance we are poxed with.
Brian Lucey :
“The Irish voice on the ECB is not answerable to either this committee nor any organ of government, which is right and proper. It is in my view highly improbable that Governor Honohan has not raised these or similar proposals at the ECB”

What God given right have these Bozos ? to produce state money that is subject to tax and yet can replace their buddies credit money at a whim ?

If ever there was a argument for the exchequer and only the exchequer the right to create money – there it is.
This symbiosis of CB & Treasury is a twisted creature with even MMTers such as Randy Wray questioning their convictions.…/time-to-abolish-the-fed-maybe-andrew-jac…

The Cromwellian republic is a lie – a lie used to dupe peasants and rob the landed class or competing power.
The Bankers have become the landed elite.
Their revolution has inverted in on itself

Sorry Google

EconoMonitor : Great Leap Forward » Time to Abolish the Fed …

Remember this is a MMTer who thinks both the CB & treasury is the same thing.
This crime wave is rocking the very foundations of the western republics to their core.


Wasn’t it NW that got Greece into the fertilizer business. You have to hand it to Evangilos… He is playing with a lousy hand.


Come off it. As you well know, the leaders of Greece are stuck between a rock and a hard place. Being seen to cooperate too enthusiastically with the Troika (now viewed in that country as a flag of a convenience for Germany) would literally be political suicide…which you are inviting all the mainstream Greek parties to commit. Are you really hoping for a hard left or hard right government in Athens come April?

We are amidst the trees but we should occasionally stop and think about the dimensions of the wood.

“Two Greek leaders, the finance minister, who is a candidate for the leadership of PASOK (which bears a heavy responsibility for the mess in which Greece now finds itself) and Samaras, the candidate of the right, the likely, if not outright, winner of the next election, have chosen to enter a game of chicken with the Euro Area governments that are bailing them out. We will see what emerges from this game of political hardball.”

To my knowledge most of damage was done before PASOk came to power.
Without checking the more recent timetable of the disaster, my recollection is that it is not dissimilar to Ireland’s in terms of timeframe or of political party involvement.

But I do not understand, for a person who is most careful with phraseology, why you would still say the ‘Euro Area governments that are bailing them out’. As we all know the people being bailed out are the banks and official lenders that loaned money to Greece.

Greece is not being bailed out. Greece is being crucified to pay the above creditors. Bailed out is not a term that many would agree with, apart from the existing creditors.

In the case of official lenders, there is a very strong argument that they deliberately misled Greece, and other countries, with the assertion that austerity was an economic formula that would work.

It won’t, and it was never going to and they knew that. It was deception on a grand and intellectually dishonest scale by the official lenders.

@ PR Guy

“Is it just me or is there a whiff of something undemocratic about that?”

Eh, isnt this actually massively demcratic? ie you can choose to elect a government that agrees to our plan and we give them money, or you can elect a government that doesn’t agree to our plan and we kick you out of the EZ. Its asking the Greek people, directly, what they want to do.

What the Troika is rightly worried about is that they give Greece 80bn on the basis of the existing plan, and then a new government takes the money and runs in a couple of months time. All this “I am Spartacus” stuff is just a tad misguided.

@ Jesper and Gregory Connor

Extracts from the Stiglitz article;

“The ECB should have insisted on more transparency – indeed, that should have been one of the main lessons of 2008. Regulators should not have allowed the banks to speculate as they did; if anything, they should have required them to buy insurance – and then insisted on restructuring in a way that ensured that the insurance paid off”.

This may be contrasted with Article 127.6 TFEU which states that the Council (made up of finance ministers) may “confer specific tasks upon the European Central Bank concerning policies relating to the the prudential supervision of credit institutions and other financial institutions with the exceptio of insurance undertakings”.

Regulation is still largely in the hands of national regulators. Professor Stiglitz should make clear where he thinks the responsibility lies.

“Deciding whether a credit event has occurred is left to a secret committee of the International Swaps and Derivatives Association, an industry group that has a vested interest in the outcome. If news reports are correct, some members of the committee have been using their position to promote more accommodative negotiating positions. But it seems unconscionable that the ECB would delegate to a secret committee of self-interested market participants the right to determine what is an acceptable debt restructuring”.

The CDS market is a law unto itself (weapons of mass destruction in the phrase of Warren Buffet) and the participants have agreed the rules among themselves. What has the ECB got to do with it?

If this is a well researched article, I shudder to think what a badly-researched article would look like.

@ All

On the general issue of distinguishing the wood from the trees, if what is going on in relation to Greece is not a game of political hardball, I must be reading the wrong papers.

As I am writing this, a debate is going on mortgages is taking place on the Pat Kenny show, and the unfortunate situation that parents who guarantee mortgages for the children can get themslevs into. As to who is bailing out whom, a reading of the basic legal text for the EFSF is instructive.


cutting out part of paragraphs? Lovely 🙂

“None of these explanations is an adequate excuse for the ECB’s opposition to deep involuntary restructuring of Greece’s debt. The ECB should have insisted on more transparency – indeed, that should have been one of the main lessons of 2008. Regulators should not have allowed the banks to speculate as they did; if anything, they should have required them to buy insurance – and then insisted on restructuring in a way that ensured that the insurance paid off.”

I suppose by cutting out the first sentence it is possible to alter the message, but is it honest?

The ECB has skin in the game now – unless the ECB gets back what it paid for the Greek bonds it will make a substantial loss. Can its view on how deep haircut Greece can have be said to be given by an impartial institution?

@Bond Eoin Bond

“Eh, isnt this actually massively demcratic?”

Oh come off it. That really is tosh. It’s the equivalent of holding a gun to the head (and not even being held by a Greek but by external bodies).

…and the ‘I am Spartacus’ stuff is called ‘humour’

@ PR

its giving people a choice – they can default if they want, or they can sign up to the deal. That the choices aren’t nice is beside the point, thats the reality of the situation Greece is in, and there are no “nice” choices at this juncture.

Your preferred situation – the Troika gives Greece a load of money, and then the people, via a new government in two months time, decide if they want to repay it or not – is no more democratic, and could essentially amount to larceny under cover of alleged democracy.

If Greece wants to default, then they have to be willing to accept all the negative repurcussions that come with it.

Views from the Greek Lifeworld [nakedcapitalism …

Austerity Policy Destroying Greek Society

Dimitri’s sister writes ….

Going to take care of business at The National Bank of Greece was once
an all-day affair…most often now, you can zip in and out in less than
5 minutes. On the other hand, the line-ups to make payments at the
Greek electrical company have become longer and longer. There you find
very volatile crowds of people fighting with employees to defer payments
through payment plans, or to have their electricity reconnected after
having had it cut off as a result of the “haratsi,” which is a
government property tax incorporated into the electrical bill, often
quoted by legal experts as one of the many unconstitutional acts this
government has committed. What right does the electrical company have to
assume the role of a tax collector, and to deprive us of electricity
when we become unable to pay the arbitrary taxes issued at the drop of a
hat to generate more money for the EU and IMF?

Suicides, drug abuse, prostitution and crime have infiltrated village
life. In our village, which has slightly more than 1000 inhabitants, I
was a victim of theft by a drug addict just outside my front door. I
have been to the funerals of two friends who were murdered here in the
village by their assailants when they were unable to produce money on
demand. Other friends of ours have died of heart attacks, stressed to
the limit by debt, or worse, the loss of their cars and homes. … ”

Now – who on Wall Street owns all those CDSs? Any why is a ‘Credit Event’ not to be recognised as a ‘Credit Event’?

@ Jesper

Please deal with the point and leave allusions to honesty and dishonesty elsewhere! The opening sentence has nothing to do with the mistaken attribution by Stiglitz of powers to the ECB which it does not have because the governments of the EU have refused to give them.

@ David O’Donnell

Traders and companies collect VAT every day on behalf of the state (in every member state of the EU as the introduction of such a tax is a requirement of membership). The problem in Greece is that there has been, and still is, widespread evasion of this tax. Maybe the situation has changed with regard to this and other taxes as Greece is nearing the achievement of a primary surplus. The country could, in theory, keep government going even if it defaulted. What this would do to its banking system is another question.

Law and order has always been a reserved responsibility of the Member States (Article 72 TFEU).


Agree. Greek Revenue is an absolute shambles ….. and there is no quick fix for this one …..

Irish Revenue, on the other hand, is recognised in EU and Globally, as efficient and progressive. This is one area where Irish expertise could assist over time …..

Let’s face it – its banking system is history. The wealth has flown …. Greece is Bankrupt – let it face reality and declare it …. French banks have had enough time … and half a trillion at peanuts from ECB and perhaps another half a trillion to come ….

As for the Sovereigns – well Deauville basically destroyed a few – for German and French ill-thought out local political reasons ….

Kiel Institute for the World Economy – Kiel reckons 30% ~€50 billion for Ireland and 85% for Greece ……… this 120% for Greece is further NON-sense …. 110+140 = 250 billion for a failure, civil strife, and regression in EU democracy ….

Without bank credit (energy) growth they cannot repay the money – they would be mad to repay money , money (debt) is not designed to be repaid as this creates a deflationary vortex that prevents the effiecent use of available resourses.
Me thinks you understand this but still persist with your verbal embroidery – I like your artwork but generally do the opposite of what you recommend and surprisingly it has worked out for me so far.

Keep up the good work.

PS the negative repercussions of keeping the status quo also has consequences – much more negative in my opinion.

The Euro Emperor has no clothes – if he recognized this 2 years ago and devalued against Gold he may still have held the affection of his peripheral subjects – now not so much.

@Eoin Bond

If Greece wants to default, then they have to be willing to accept all the negative repurcussions that come with it.

You could say that Greece has to take responsibility for the consequences of years of bad decisions and greed at the highest echelons in exactly the way the Eurozone financial sector never will.

The politics and priorities of the currently dominant EU powers to the European component of the global financial crisis continues to be shockingly immoral.


you keep putting up strawmen.

Read this part again:
“The ECB’s stance is peculiar. One would have hoped that the banks might have managed the default risk on the bonds in their portfolios by buying insurance. And, if they bought insurance, a regulator concerned with systemic stability would want to be sure that the insurer pays in the event of a loss. But the ECB wants the banks to suffer a 50% loss on their bond holdings, without insurance “benefits” having to be paid.”

Would you be so kind as to offer a plausible explanation to the ECB’s stance?

@Bond Eoin Bond

“Your preferred situation – the Troika gives Greece a load of money”

I didn’t actually state my preferred option in the post – but that’s by the by.

I doubt that Greece – or more importantly, the voters in Greece – will be given a choice either way. They are powerless (as are their politicians – who can only revert to a bit of name calling now in their powerless frustration).

Whatever the outcome of all this is going to be, the decision will have already been made in whatever halls of power these decisions are made in (possibly that meeting of triple-A countries a short while ago? The Frankfort group? etc.), not by the powerless – that’s just the way these things work. All we are witnessing at the moment is the playing out of that decision (the ‘planned approach’ to implementing that decision – and it will have been planned).

If it has been decided that they are to be pushed out then that’s what will be done unto them (though the subsequent spin will try to dress it up as the Greeks having made/forced that ‘choice’ themselves). If not, then there will be some other course of action done unto them, depending on which option is the best CBA. Either way, they are going to get done unto.

The point I’m trying to make is that regardless of the inconvenience of democracy, there is no ‘choice’ about it. Others will make the choice and democracy won’t get a look in (though the ‘blame’ for the choice will undoubtedly be aimed at Greek politicians, unions, population, whoever). As far as I can make out in my years on this planet, democracy is a bit of an illusion designed to keep the masses compliant anyway – but it’s a better vehicle for a sizeable minority to make lots of money (as opposed to despotic regimes were only a handful of people make lots of money… and not as much).

There seem to be two sets of discussions going on: 1) get rid and manage the consequences and never let them off the hook 2) escrow account, permanent Troika presence possibly underpinned with no elections in April and a technocrat government/cabinet (not just a PM) and never let them off the hook. Neither scenario suggests giving the Greeks a load of money. I’ve no doubt someone at the top has done their calculations on the back of a fag packet to work out which is better for them.

Option 1, even with some short term losses, could be better in the longer run if it persuades other errant bleeders not to go down that route (the ‘pour encouragement les autres’ option) but option 2 could be better if the fallout/consequences from option 1 are too great – or too unknown – and the potential losses are unacceptable (unless those losses can be routed elsewhere e.g. USA – don’t we Europeans ‘owe them one’ for some dodgy mortgage-backed crap they put our way not long ago?). It will all come down to the sums that impact a few, not what’s best for the wider society or any kind of bleeding heart option 3 (the third way). Everything at the top gets quantified (as I’m sure you know).

I’m sure it will all end in tears though (mostly Greek ones) and like all these situations, including Ireland’s, if the difficult/less palatable but probably ‘better in the long run’ choices had been made a while back, the dust would have settled by now.

I am Bartacus. Eat my Tsolias.

@DOCM on Stiglitz

I am much better informed about the special type of economics that pertains in the EU than not one but two winners of the fake Nobel. Here are some documents prepared by the people who enabled the current crisis and will not deal with its causes that no one with a job has time to read. I rest my case.

What is with the expressions of contempt for the idealistic, principled and brilliant?

I suspect that this relates in some way to an inability to engage with the systemic nature of the European component of the global financial crisis and in particular how the ECB and the current European institutional structures contribute to it by being trapped in a legally enforced ideological hole from where solutions can not be seen (and will not be imagined).

It is Paul Krugman’s venn diagram again, again.

Is this the Venn diagram to which you refer? My browser did not go anywhere when clicking on your hyperlink

I do not think that Stiglitz goes to bed much – he naps briefly on airplanes. I do not always agree with him, but in this case find his arguments sensible. He only expresses perplexity and astonishment (not any doctrinaire convictions) at the strange ECB strategy regarding credit default events. I share his perplexity. An EU document describing their medium-term policy research agenda on derivatives regulation is unconvincing to me as evidence of good current policies.

BREAKING – looks like deal WILL be done on Monday. ECB swaps existing Greek bonds for new secured ones ones, books a profit of 10bn, gives this to national governments, they give this to Greece. PSI deal to proceed as planned, still open question on “escrow account”. Looks like a lot of people stepped back from the edge over the last 24 hrs.

@Bond. Eoin Bond … Thanks for the update. I am surprised — I have no particular ability to predict sovereign defaults but I speculated in my own mind that they were toast (I never made any prediction publicly, except to my poor long-suffering spouse).

I note that the first step seems to be to pay off the bondholders and then worry later about whether Greece receives money for runnings its government entitlement cash needs. But anyway a deal for the time being and no disorderly default?

@Gregory Connor

An EU document describing their medium-term policy research agenda on derivatives regulation is unconvincing to me as evidence of good current policies.

Just so, and yes that was the PK tragi-cartoon I was trying to link to.

Who I wonder had the bright idea of a common market in financial services without a common regulatory framework or intrusive monitoring and why exactly is dealing with the root of the current crisis (the GFC – banking, financial regulation and the privileging of financial capital) not a priority?

It is almost four years after the start of the global financial crisis and I missed any talk of a common EU bank resolution policy other than the state being on the hook for everything. We could yet end up with a bigger bill for our banking system if the Austerians get there way.

@ Gregory Connor et al

I am not disputing the undoubted brilliance of the two economists in question within their own fields. All that I am trying to demonstrate is that both have a faulty grasp of the institutional structure of the EU. I have quoted chapter and verse on two examples in relation to the mistaken views of Stiglitz regarding the powers of the ECB. You are free to show me and other readers that I am wrong.

The document to which I referred Professor Stiglitz is one from the Commission, not the ECB, and it illustrates the role of the Commission as sole proposer of policies (i.e. the Member States cannot act except on the basis of its proposals) on which the legislature (Council + European Parliament) have sole right of decision.

This is the link to their proposal, which I understand is likely to be adopted, in double quick time, by the legislature.

The above also illustrates how the distribution of powers between the institutions of the EU works. The two learned professors may understand how Washington works but their grasp of the parallel structures in Brussels is hazy, to say the least.

What Stiglitz has to say on the crisis I do not find particularly persuasive. On the other hand, Krugman is right with regard to its basic cause viz. imbalances in the Euro Area. This issue is being debated, or rather ignored, on another thread opened by Philip Lane.

@DOCM – I am sympathetic with what you say – I often notice that US-based economists tend to assume-away any important institutional features of European economies. But the US economists are correct in their basic assessment that EU policymakers screwed the pooch in how they constructed and regulated the Euro capital market system. And I am not convinced that the performance of EU institutions (e.g., ECB) has improved that much recently. What is the problem with calling a credit event a credit event? Someone needs to explain that logically to Stiglitz (and others).

@ Gavin Kostick

The thread in question is called “Macro-economic imbalances in the EU” a few threads back. It runs to five contributions. I am responsible for two.

@ Gregory Connor

I am no defender of either the institutions – or the participants in them – of the EU. But I object to the referee being blindsided and the wrong player being sent of for some imagined infringement or other.

On the question that you pose, there is unlikely to be an answer because it goes right back to the interpretation of the Maastricht no bailout clause (Article 125 TFEU, ex Article 103 TEC). In other words, was Trichet right to start the SMP programme? Two members of the ECB were lost overboard on the issue (Weber and Stark). Insofar as there can be an answer, BEB gives it above. It is an elegant but not very persuasive solution which was signalled some days ago by both the French and Belgian representatives on the governing council. (The German member of the Executive Board of the ECB and the head of the Bundesbank seem not to see eye to eye on the issue).

The ECB has to defend the thesis that the SMP is intended to maintain the smooth running of the euro and nothing else. It simply cannot concede that it is a creditor on a par with any other investing in government bonds, still less that it is doing so to support the fiscal position of a member country of the EA.

The newspeak in the FT is fun:
“The ECB had no comment on Thursday on the exchange, which is expected to be settled shortly. Its policymakers will argue the deal has avoided losses that could have run into tens of billions of euros.”

The deal has avoided losses 😀 The losses are there and incurred due to the decision of the ECB to buy Greek government bonds. Transferring the losses by having another buyer (in reality the same people end up paying for it) pay over the market price is an attempt to cover their ‘expertise’.

Cartoon of the Day – Greece


When is a ‘credit event’ not a ‘credit event’?

Following the social construction of reality it is when Herr Geithner states that it does not exist because the Credit Default Swops would have to be paid out on Wall Street … so FinSector charges for them and trousers them as profit while safe in the secure knowledge that their captured politicos will ensure that these bets are not called in … or at least will not be called in before the execs have trousered the bonuses and stashed them in the vaults of Zurich etc ….

@ Gavin/DOCM (and kinda Paul Hunt)

re Macro-economic imbalances thread

I tried to coax Mr Hunt into a bet on the likely lack of comments on that thread, despite its importance. He was too clever to fall for the bait.

I wonder if Christian Wulff will be resigning today and telling us that he’s only doing it so that he can clear his name. Nothing changes with politicians. Deny all the wrongdoing up to the very last minute then resign and say you are only doing so to clear the decks so you can grab the trusty shield of honour and sword of whatever it was.

Merkel will be fully supportive no doubt (just as she is fully supportive of Greece staying in the Euro – even though some of her colleagues may be less so). That should be the kiss of death then.

Meanwhile, back in Greece Mr Bond it looks like option 2 is coming to the fore. But will they force the elections to be put back from April?

@ PR

“I wonder if Christian Wulff will be resigning today”

Yep, was “announced” on Bloomie about 30 mins ago. Merkel cancelled her trip to Italy as a result, will make a speech in around 45 mins.

re Greece – whatever happens, everyone has decided to step back from the brink. Schauble is still a wild card, but he’s now been kinda isolated by himself.

I like the questions raised by the Bulow Rogoff piece; ultimately who gets priority in a bailout situation, lenders or debtors.

From Panama, Indonesia, Colombia, Ecuador, Venezuela, John Perkins in ‘Confessions Of An Economic Hit Man’ spilled the beans on international consulting firms that worked ‘to convince poorer countries to accept enormous development loans – and to make sure that such projects were contracted to U.S. companies’. His book doesn’t go into the post war legacy of IRAQ, The Iraq war has been worth billions of dollars to Halliburton through oil contracts though this is somewhat related. ‘Once these countries were saddled with huge debts, the American government would request their “pound of flesh” in favours, including access to natural resources, military cooperation and political support.

You don’t have to believe a word of his book, of course. Neither do you have to believe there is anything illicit in the pursuit of euro bailouts that target the saving of bondholders and foreign banking institutions and fellow EMU governments at the expense of Ireland being sucked dry. After all, we will be able to use some of those ‘assets’ to invest in jobs; but you can join me in having little weaPing to yourself, if you like 🙁

@ Bond

Re “In Argentina, where dollars were widely used as a unit of account, redenomination took the form of “pesification”.”

I’d say Mario Blejer (pictured left) and Guillermo Ortiz both lost out through the Argentinian default. Their piece is poorly argued and self contradictory in places.

In fact, quite the opposite, Argentina and more recently Iceland are examples indicating that rather than Armageddon if Greece can politically find the democratic will, it can not only survive, but prosper.

The alternative is to reach Armageddon the slow way as the euro mother of Anglos spawns more political and economic mess 😥

@ Colm

“I’d say Mario Blejer (pictured left) and Guillermo Ortiz both lost out through the Argentinian default. Their piece is poorly argued and self contradictory in places.”

Could you show me how they lost out and where they are contradictory? I mean, i know how Central Bank Governors shouldn’t usually be listened too, but lets just be sure this time…

We’re of tougher stock in Ireland. Takes a lot more than these little whiffs to get you fired. Seanie and Fingleton organised cheap loans for many of their friends on a regular basis. We use ‘commercial sensitivity’ to avoid this kind of mess. And eh whats he doin on a cheap holiday flight looking for upgrades, shouldn’t he be on the government jet collected by the limos 🙂
“Mr Wulff belatedly apologised for misleading the Lower Saxony state parliament about a cheap €500,000 home loan from a businessman friend. The President has also apologised for leaving a message on the answering machine of the editor of Germany’s best-selling Bild newspaper threatening a “war” if the daily published a story about his private finance dealings. He was also later criticised for accepting free upgrades for holiday flights for himself and his family as well as staying free of charge at the holiday villas of wealthy businessmen.”


“He was also later criticised for accepting free upgrades for holiday flights for himself and his family as well as staying free of charge at the holiday villas of wealthy businessmen.”

The guy’s obviously an amateur compared to the Tony Blair’s of this world.

@Bond Eoin Bond

I agree, Schauble is starting to look increasingly isolated as the week drags on. Only able to call on the odd Finn and flying Dutchman to back him up.

I will still be surprised if Greek elections go ahead in April but maybe they will take a flyer that those who have actually signed up to commitment to the cuts after elections happen will be the winners. If not, they can always do what they do with us when we vote the wrong way – tell us to vote again until we get it right.

@ Bond,

OK, you’re even more gullible than I am:-) We’ll organise an online conference. I’ll set it up. You can interview them. Ask them if they lost out through the pesification of their dollars, or if any of their friends lost out. I’ve read a lot on the Argentinian default to know there were winners and losers. Don’t wish to to and fro on this other than suggest you study the interesting subject yourself as well. Its highly likely and probable both they and their ‘special’ friends in the financial world lost out bigtime in the political ‘pesification’. Break over gotta go, have a good weekend.


A sobering piece in The Economist by two people who evidently know what they are talking about.

In case anyone has missed it, the comment by Namawinelake, (HT ‘What goes up’) which brings the debate about the PNs down to earth with a bang.

Laura Noonan in the Indo also had a very perceptive view of the involvement of the Oireachtas.


“But after almost three hours, the path forward looked as murky as ever — though that was arguably always going to be the case since the committee hadn’t the benefit of the IMF, EC, ECB, Department of Finance or anyone actually party to the talks.

That didn’t stop the committee from breaking into a round of applause when things finally wrapped up”.

@ All

The ECB is reportedly swapping its Greek bond holdings over the weekend for new identical ones but with different numbers to avoid being caught up in the process of inserting retroactive CACs in Greek legislation governing their bond issues!

When coupled with the long-running struggle for control between Merkel and Schaeuble breaking into the full light of media attention, this is not looking good.

@ Colm

one of them is Mexican. Was he punting about in ARS in the early part of the Millenium?? Is resorting to completely baseless accusations or innuendo the new mantra? Jesus wept.


Yes, Herr President Christian Wulff has resigned … storm in a teacup ..

Now … if someone would tell me that the FDP had resigned from the German Gov …. then this would be a substantive story to hasten the end of MerKozy …. and we get to experience ‘how’ a Social Democratic Kore might address EU and EZ realities … be really cool if democracy might be restored as well ….

re ECB/Greek bond Swap: ECB ‘Windfall’ profit.

I see from the Ir Times Business , Ralph Atkins, (copied from FT, cannot link) that the ECB is to pass on the 15 billion profit on Greek bond to EZ governments:

I find this extraordinary. That the ECB should be acting a for profit merchant bank taking full advantage of Greek distress to make a killing of €15 billion on Greek bonds and pass that back to national governments.

Even if the ‘profit’ never materialises, there is something fundamentally wrong about this.
Ireland should object strongly to this aspect of the deal. If it stands it will mean that the windfall profits to be made by the ECB on Irish bonds will go not to Ireland but to France, Germany and other EZ countries.
Effectively it means that the larger EZ states profit from the misfortunes of those states in difficulty.

The report also seems to verify @Gregory Connor’s post that money ‘earmarked’ for bond repayments will not even be given to Greece.
The Europeans are now going to write cheques to themselves using Greece’s chequebook. (Calling it an eskrow account).

Now that the ECB does not have to worry about sharing in the PSI haircut, why not make it a proper credit event and increase the PSI to 99% leaving the bondholders with the correct value of approximately zero for their worthless Greek bonds. It would be a proper credit event, without PSI agreement, but at least no wastage of taxpayer funding?

@ Joseph

“the ECB is to pass on the 15 billion profit on Greek bond to EZ governments”

eh, and the national government are going to pass it on to Greece. This is just a legal/precedent issue about the ECB not taking a loss. And no one is profiting “from Ireland/Greece”, they are effectively “profiting” from whoever sold them the bonds. Ireland issued Xbn in bonds, it repays that same Xbn in bonds. A bank or insurance fund in between takes the loss.

@Bond. Eoin Bond.

I would view it differently from you.

The ECB entered the market to buy bonds at a very large discount, while holding a gun to the head to the nation State to make sure that they paid up in full. Then the ECB hand the profit to the large EZ states.

“eh, and the national government are going to pass it on to Greece. ”
They may or they may not!! It is by no means a done deal.

And that is not the point. Why should the EZ govts profit from the distress of other States. That is the central issue.
And from an Irish perspective it set a terrible precedent. Why should Germany or France or any AAA or AA or indeed BBB- State make a windfall profit from Irish bonds?
This is the precedent for that to happen.

@ Gavin Kostick

I do not think that the PN issue is off topic. Unfortunately, in the real world, there is no way we can abscond from the guarantee given by the Irish state in the matter other than by some form of default and placing ourselves in a position analagous to Greece. Why would want to do that escapes me.

@David O’Donnell

“be really cool if democracy might be restored as well ….”

Don’t start giving out about (lack of) democracy on this thread or Mr Bond will jump down your throat 😉

And definitely don’t tell him you are Spartacus!


@ Joseph

“The ECB entered the market to buy bonds at a very large discount”

And why did they enter? To make a profit, or to try and support the market and prevent a complete and total collapse? Yes i know this happened anyway, but they were attempting to stop it happening.

“They may or they may not!! It is by no means a done deal.”

Well, it is a done deal basically. The ECB are giving back their profits via the national governments. This way the ECB doesnt set a precedent for taking losses alongside private sector, which has always been the de facto position of the IMF.

@PR Guy

Blind Biddy is a fan of Eoin Bond … how do you think she figured out how to ‘trigger a credit event’ ?? [which would prob give DOCM a minor coronary …] she musta picked up a few tutorials on the QT ….

As for Spartacus … why do you think Angela postponed her trip to the Appian way today … don’t think she could handle all those crucified serfs impaled on those lamp posts on The Appian Way!

As for Democracy – I posted on NamaWineLake as Prof Whelan is on a weekend break from the ‘trolls’ …


“Unfortunately, in the real world, there is no way we can abscond from the guarantee given by the Irish state in the matter other than by some form of default and placing ourselves in a position analagous to Greece.”

I assume you’re referring to the prom notes and letters of comfort here.

The point is that the repayment of the prom notes can be restructured by the ECB governing council, ie there does not need to be any default.

From Karl Whelan’s briefing paper:

“The truth is that the ECB Governing Council is the only body that really matters for this question. If a plan to restructure the promissory notes was accepted by the Governing Council, then it is very unlikely that the either the Commission or the IMF would object.”

My understanding – and if this is unclear Karl Whelan spells it out in loving detail – is that the Irish government issued the prom notes (and associated love letters) to what is now IBRIC, so that they could be used as collateral to access ELA from the ICB with permission from the ECB.

If the creditor, in this case ultimately the ECB, decides to restruture the payments required from the Irish government then there needs be no default – in much the same way as the Troika could decide to lower the rate of interest on a portion of the bailout funds without Ireland defaulting.

@Gavin Kostick

I am not an expert in banking but commonsense tells me that the entire PN edifice is built on the letters of comfort. The net effect of what you say would be to release the Irish state from its obligation and have the ESCB take on the consequences with regard to the precedent set. It would be a “form of default” (I cannot think of any better description) in relation to the operation of euro system.

Article 127 TFEU states in its opening sentence; “The primary objective of the European System of Central Banks (hereinafter referred to as the “ESCB”) shall be to maintain price stability”. The central banks are the skeleton holding the construction of the euro together.

With regard to the ECB, the lengths to which it has gone to ensure that it would take no loss on its Greek bonds is surely an indication that the limits of unorthodoxy have been reached.

cf. Stephen Kinsella’s note.


As I see it, you are offering two reasons why the repayments for the prom notes can’t be restructured.

(a) Because it would be a form of default, and:

(b) Because it would set an impossible precedent.

With regard to (a), I kind of rest my case above and note; “The net effect of what you say would be to release the Irish state from its obligation”. Well yes, although the Irish state would not be released but would reschedule the payments. If a debtor is released (or offered rescheduled payments) and they accept that release then they are not defaulting. If the ECB, for the smooth operation of the Eurosystem, wish to restructure the prom notes, they can do so.

(b) is a bit trickier.

I would note:

There have and are being surprising precedents set all over the place. The prom notes themselves are a precedent – a precedent for a country offering future tax revenue against supporting the national and European financial system. What is unfolding is the question of how to handle this precedent.

Back to a pragmatic apporoach, here is the way I see it:

(a) Would the restructuring of the prom notes be a benefit to the Irish economy?
Answer: yes.

(b) Would the restructuring of the prom notes have any negative effect on any other party elsewhere?
Answer: No.

(c) Might the restructuring set a precedent that others might wish to follow?
Answer: Maybe.

When issues of this kind come down to a group meeting and the decision is ultimately in one person’s perview, then it is worth considering the single sentence that that person will use to explain that decision. EG what will Mario Draghi say when he comes home to Mrs Draghi (assuming there is one).

Mrs Draghi: Hello sweetie, please don’t drop your coat on the floor.

Mr Draghi: Sorry sweetie. Dinner smells nice.

Mrs Draghi: Anything interesting today, dear?

Mr Draghi: Oh, nothing really. Well we restructured the Irish prom notes.

Mrs Draghi: That’s nice sweetie. Why?

Mr Draghi: Well, they need some breathing space. And Europe needs a win, so it seemed the best.

Mrs Draghi: Sweetie? What about other countries that want prom notes?

Mr Draghi: Let them ask. We can always say no.

Mrs Draghi: But what if they mention the Irish? Like bambinos in sweetshops countries are, always looking to put their hands in the sweetie jars.

Mr Draghi: I’ll tell them the Irish had to issue prom notes before I issued that massive liquidity for the their banks. They don’t need prom notes because their banks have easy access to cheap money – and the Irish realised their losses in the banking system before anyone else, and they had proper stress tests. The Irish are stand up guys.

Mrs Draghi: That’s nice. Sweetie?

Mr Draghi: Yes?

Mrs Draghi: How come there are no women, apart from the one whose name I can’t remmeber, on the governing council?

Mr Draghi: What’s for tea?

Mrs Draghi: Irish lamb with garlic and rosemary and roast Woosters.

Mr Draghi: Nice chap that Honohan.

I have no idea what the issue of price stability has to do with this discussion. The restructuring of the prom notes would probably have a teeny tiny impact in the right direction.

@ Gavin Kostick

What do you mean by the term “repayment” and “restructured”? If it is a question of changing the terms of the method of payment, there may be no problem. Indeed, I understand this to be the official position.

With regard to the principal, Article 125 TFEU prohibits not just the EU from taking on the commitments of a member country, it also prohibits the other governments from doing so.

Of course, such is the audacious nature of the most recent move by Draghi, who knows?


“I wonder if Christian Wulff will be resigning today and telling us that he’s only doing it so that he can clear his name. Nothing changes with politicians. Deny all the wrongdoing up to the very last minute then resign and say you are only doing so to clear the decks so you can grab the trusty shield of honour and sword of whatever it was”

“….bent and twisted journalism in our country with the simple sword of truth and the trusty shield of British fair play, so be it.”

So obviously you can’t do that on the continent.

So lets see whats happening:

1. Greece changes their laws to benefit the ECB to the tunes of billions of euro and this also saves the face of several high ranking ECB officials
2. The ECB then gives an opinion on how well Greece is managing its economy

The ECB will surely not be influenced in its opinion by the gift from Greece, or?


“So obviously you can’t do that on the continent.”

Not so fast there grumpy 🙂

Only yesterday, Sarkozy was doing his British ‘fair play’ bit and admitted had he been in Cameron’s place, he would have done the same thing (veto)! British ‘culture’ spreading throughout Euroland…. er, just what we need?

I see the Guardian is throwing doubts over the Greek bailout this morning.


Thanks for those – am busy but look forward to reading.

For “What do you mean by the term “repayment” and “restructured”?” I’m thinking of section 5 of K Whelan’s briefing paper.

@ Gavin Kostick

I have read section 5 and I am none the wiser other than that I assume that what is proposed involves an effective write-down of the amount. The argumentation escapes me entirely otherwise.

Laura Noonan has a further piece in today’s Indo.

Coincidentally, Eurostat has just published the details of how it proposes to book loans from the EFSF.

It seems to me that a little more realism should enter both the political and academic debate on the issue of the PN’s. Indeed, the point of the discussion by the Oireachtas committee is a bit hard to fathom as the people who actually know what is going on were not there. Further confirmation, if such was needed, of the thesis defended by Paul Hunt that the dysfunctional nature of our political system is a large part of our problem.

Bond is always good for a good chase 🙂

Times are tough, folks, and appears are going to get tougher.,21059/

Here’s a little about Ortiz:

Mexico has always made effort to distinguish itself from Latin American neighbours’ risk of default. Plus Ortiz has long involvement with IMF and International Court of Settlements

Even a cursory reading shows he’s involved with this group closely linked to Rockefeller Foundation

Central bank governors and those running the FED are about the last to cite on authoritative good advice on what to do in a meltdown crisis. Honahan’s abysmal record in Ireland is a case in point.

On a car radio I heard Mary Hanafin chillingly cite the governor of the bank of Ireland as a source of advice on our banking guarantee, the poor woman still believes it to be the right decision. Honahan went on to distinguish the interest rate giveaway. Unfortunately, we appear neither to have the calibre of Central Bank governors of the UK, now politicos of the calibre of Alistair Darling, chancellor of the exchequer during their crisis ! Jean Claude Trichet we believed had the ECB in good order; instead we find its a house of cards ponzi scheme disaster waiting to happen.

Our own politicians on most sides ar in thrall to the DOF, NTMA, ICB and have very little understanding of whats going on; so they take the advice of those who got us into the mess in the first place. They point to a horror story consequence of not following their advice and beg we ignore the horror story all about us. The euro is a horror story that has done incredible damage to the EU.

The solution appears to be make the horror worse; further austerity will further cripple default endangered, peripheral satellites whose only future appears to be full adsorption and engorgement by Germany on a political and financial level to protect minority elites in affected debt endangered states.

Re DOCM Vs Stiglitz

I’m on Stiglitz’s side

PSI voluntary haircuts on Greece is going to have a negative effect far worse than direct involvement by the ECB. I take the point according to DOCM that Stiglitz does not grasp how the ECB works. But the point in question is not relevant in one sense if you consider the distinction between what is the case and what should be the case. The point I think that Stiglitz is making is on what should be the case! There SHOULD be a mechanism for the ECB to be able to use transfers from the inner core to pay for the Greek default requirements. There is none. ECB policy is directed by Germany and France and now has a Bundestag debt brake to make sure eurobonds or something similar used to grow Greece are not at Germany’s loss. This makes the ECB into a ponzi pyramid attempting to rebubble itself with selling more debt for Greece in an effort to get PSI to support the bubble while it itself refrains from doing so.

No thanks!

Its ‘bailout’ of Greece is nothing but an illusion that makes both Greece and euro more risky and damaged than before. The ECB should be doing what Stiglitz suggests. But current structures and the influence of Germany and France and the core mean this won’t happen.

Re Joseph Ryan ““the ECB is to pass on the 15 billion profit on Greek bond to EZ governments”

The mere notion of that is disgusting, underhand, fraught with profiteering, financial manipulation and potential deceit, the mind boggles!

@ Shay Begorrah

Having now had opportunity to read the paper and, as is regrettably often the case with academic papers, would have to say that it has absolutely no merit whatsoever.

@ Chris

The article by Stiglitz was discussed on the “buyback boondoggle” thread opened by Gregory Connor. I adverted to several elements which I considered to be major errors which invalidated the thesis that he advances (which, incidentally, is rather insulting to the people who run the ESCB and the ECB in the sense that he more tha insinuates that they have been failing in their duties).

@ All

The latest in the saga of the PNs (also the subject of a fairly intelligent debate on the Week in Politics).


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