At the time of the first Greek bail-out in May 2010, several commentators felt that there should have been a default, haircut, PSI, roll-your-own euphemism. It seems this view was shared at the IMF but not at the ECB and not by EU decision-makers so extend-and-pretend won the day. That deal has come unstuck, as predicted. This story in today’s Sunday Telegraph looks like it has decent sources:
The debt sustainainability analysis in the last IMF report on Greece looked like a triumph of hope over experience. The Telegraph is reporting new troika calculations that Greece faces, in 2020, and after a large haircut, a second bailout and eight further years of austerity, an exit debt ratio of 129% of GDP.
The Bundesfinanzministerium, according to the paper, is preparing for an endgame earlier than 2020. Perhaps they have seen Becket’s play:
‘Ever tried. Ever failed. No matter. Try Again. Fail again. Fail better.’

195 replies on “Endgame?”

“The idea instead is that the Greek government should officially declare itself bankrupt and begin negotiating an even bigger cut with its creditors. For Schäuble, it is more a question of when, not if.”

The only question remaining is whether Greece defaults WITHIN the EZ or EXITS the EZ. For political reasons I favour the former: Kiel Institute for World Economy reckons at least an 85% default.

Portugal also needs one; Ireland needs a ~30% trim or circa €50billion.

In European terms these are ‘small’ in terms of overall % of EZ GDP – and to use that much abused term … are … MANAGEABLE!

Looting of the national heritage in Athens reminds me of Baghdad … when priceless artifacts were looted in the National Museum … while the ‘Allies!!’ guarded the Department of Oil, Energy, & Minerals. And this is Europe.

As for the French Banks and all the rest of them … they have had 3 yrs to sort themselves out … and half a trillion from the ECB with another half to come ….

In relation to the ECB they really don’t have a choice (back to their role in the treaties needing some serious work).

If the SMP was legal at the time, based on the analysis that it was facilitating monetary policy transmission and not assuming Greek debts or monetary financing, then involvement in any default (or euphemism of choice) would be illegal involving either monetary financing or the assumption of Greece’s liabilities – the ECB can chose its poison here.

The Bundesbank thought that the purchase was illegal hence they can now suggest that the ECB should take a loss, but the ECB as a whole took the view that the purchase was legal so only not being repaid would be the problem.

If anyone had paid attention to the ECB position (and contrasting BuBa position) on SMP it should have flagged that this issue could arise (but let’s ignore EU law again) in any negotiated settlement on Greek debt.

On an aside have you tried to fix Greece?


I ended up at 5 – revising the treaties and the role of the ECB in a manner which could actually help isn’t an option.

@David Ireland really cannot expect such a haircut primarily because our ratio of foreign private holders (i.e. those holders from whom a haircut would be a net gain) to official creditors and domestic banks (the former won’t accept a hair cut, the latter we’d have to make whole again so it would be circular) is skewed.

Seamus Coffey explained this some time ago.



Law is subservient to Democracy.

Assuming, of course (and assumptions are always dangerous), that Europe may be considered ‘Democratic’ at the mo? Open question! Who is really pulling the strings?

@DO’D Who’s democracy? That of Greece, or that of Germany?

The EU is all about tempering nationalistic tendencies within Europe and thus tempering democracy in its most undiluted forms, and I for one, think that is a good thing.

Relax kids. If there’s one thing the last four years have taught us, it is the tectonic resistance of the EU and ECB to changes in policy.

Greece will leave, but not I think within the next three years. We might have defaults, haircuts, recessions, revolutions, coups, cuts, and inflation, but the eurozone is not going to break up while there is a legion of technocrats in the ECB whose livelihoods depend on it not breaking up.

Even the Almighty Markets(TM) have lost their ability to seriously influence the situation. The EU bureaucracy is the rock against which the high seas of finance have dashed their energies in vain. And while they may erode the thing eventually, well, it’ll take a very long time.

Right now, I’m guessing a German exit from the euro in 2016, one year or so after the Greek default of 2015.

The endgame is taking on more players.

Ignazio Visco, governor of Italy’s Central Bank, gave a very pessimistic account of the state of the Italian economy and its banks on Friday. There was an extraordinary drop in deposits between November and end of December, coupled with a contraction in business loans. Visco made the point, and this ties into comments on SMP, that Italian banks are still on their feet due the the ECB. I think the ECB may be backstopping the banks to the tune of 250 billion currently, but open to correction.

Visco is Draghi’s replacement.

Is it a coincidence that this information was presented now, while the decision over Greece is balanced on a knife edge? Could it tip the balance against a further bailout? Would it be make more sense to reserve firepower to bailout countries with a history of industrial production and exports?

“Law is subservient to Democracy.”

And our democracy is now subservient to our corporate and financial interests. And our law is an inconvenience that can be finessed with the assistance of our corraled legislators and somulent, incompetent officials. 😎

@ Colm McCarthy

The Telegraph, and this correspondent in Brussels in particular, has been predicting the end of the world as we know it for as long as I can remember.

cf. what Schaeuble had to say (Bloomberg) on the DSA.


@ Aisling

The statement by the Bundesbank that the ECB was acting illegaly was an extraordinary one by any measure and on a par with similar statements from Bafin. It simply demonstrates the struggle for control in Berlin which has been hiding in full view for months.

It’s realistic to plan for an endgame but it’s not going to happen on Monday.

In this week’s Economist, former governors of the central banks of Argentina and Mexico make the point that the Latin American debt deals in the 1990s followed progress on structural reform.

It would be naive given the endemic corruption and dysfunctional governance system, to have expected a miracle or even much better progress to have followed greater ‘foresight’ in May 2010 on debt forgiveness – – anyway, it wasn’t politically feasible.

The FT reported this week that last year the Greek state and private healthcare sectors spent €4bn on medicines alone, amounting to 2.4% of GDP – – the highest proportion in any industrialised country and more than twice that in the UK.

Greece spends more per capita on drugs than any nation except the US and Canada.

It’s hard to teach old dogs new tricks.

We Irish should know that insiders do not have much appetite for tackling beneficiaries of a corrupt system.

It’s foolish to believe that the Greek vested interests would not have been emboldened by lots of cash without strings.

@ David O’Donnell

Looting of treasures and French banks is stretching causality a little.

I know the blog is filled with those who say we shouldn’t default, that Greece shouldn’t exit the euro or default.that Armageddon would ensue. There are those, such as I, who argue instead that the euro is Armageddon in the making and that it is already a horror story.


The prospects for Greece, Ireland, Portugal, Spain would be improved outside the euro. There is plenty of Research to back this up.

Unfortunately, there is distinct lack of support from Irish economists for this position, who provide counter advice to our politicians on the merits of default and euro exit, but just to show I’m not alone in my own views, there is the link above 🙂

The experience of emerging market countries shows that the pain of devaluation would be brief and rapid growth and recovery would follow – Countries that have defaulted and devalued have experienced short, sharp contractions followed by very steep, protracted periods of growth. Orderly defaults and debt rescheduling, coupled with devaluations are inevitable and should be embraced. The European periphery would emerge with de-levered balance sheets. The European periphery could then grow again quickly, much like many emerging markets after defaults and devaluations (Asia 1997, Russia 1998, Argentina 2002, etc). In almost all cases, real GDP declined for only two to four quarters. Furthermore, real GDP levels rebounded to precrisis levels within two to three years and most countries were able to access international debt markets quickly.

“Finally, we will look at previous emerging market crisis analogues, and why this leads us to end on an optimistic note. Almost all economic analysts argued that dire consequences would follow for previous defaults and devaluations (Asia 1997, Russia 1998, Argentina 2002, and Iceland 2008). However, history shows that following defaults and devaluations, countries experienced two to four quarters of economic contraction, but then real GDP grew at a high, sustained pace for years. The best way to promote growth in the periphery, then, is to exit the euro, default and devalue.”

We should ignore the siren calls to pay unconscionable debt destructive of employment, the economy, public services, the Irish constitution, to support the relatively small number in the financial sector benefitting from what ought to be illegal transfers of wealth to support their debts and losses.

This rack and ruin is further falsified by lies that the Irish economy far from tumbling over a waterfall of debt, is instead on the cusp of great boom brought about by the magicking out of nothing of jobs in their 100’s thousands!

Richard Bruton TD Minister for Jobs, Enterprise and Innovation Richard Bruton TD will spend another week opening a few promised jobs here a few jobs there; but week by week real jobs are being lost such as Dublin’s famous Tubs & Tiles or Brooks Thomas keystone employers that are being plunged towards Davy Jones Locker almost on a daily basis.

The lenders and financial interests who will lose in the coming default will send out a fog of innuendo and propaganda to brainwash anyone who might think they should lose out rather than the schools, hospitals and public services they are currently looting.

But whats new? its still fun to point out the ECB emperor accompanied by the Troika plus entourage of Irish economists, is wearing no clothes 🙂

Perhaps the ECB might consider deferring the PN’s must have been inspired by the banks’ interest only mortgages debt trap…lol.

On the mechanics of Endgame, say involving a number of peripheral countries acting together. (Off topic, don’t know why we do not have ongoing discussions with Greece, Portugal, Spain on our common experiences in dealing with eg ECB/Troika) From link earlier post:

“AUSTRO-HUNGARY MONETARY BREAKUP 1919: QUICK, SIMPLE AND PAINLESS The closest historical analogy in terms of heterogeneity of members and indeed geography to the euro is the currency dissolution of the Austro-Hungarian Empire. Peter Garber and Michael Spencer produced an extremely detailed account of the breakup that is highly worth reading to understand the mechanics of dissolution. Garber and Spencer conclude that historical episode of the Austro-Hungarian currency breakup in 1919 provide many lessons for current policymakers: This episode suggests five lessons for currency reform elsewhere. First, currency separation can be accomplished relatively quickly. It involves little more than marking banknotes circulating within the breakaway state with a stamp. This initial operation will necessarily be followed by an exchange of stamped notes for new national currency, but it buys time for the authorities to plan the second stage carefully. Second, the exchange of old notes for new provides an opportunity for the authorities to eliminate any “monetary overhang” by imposing a tax on notes exchanged. Such a tax was imposed in the SerboCroat-Slovene State, Czechoslovakia, and Hungary. Third, if currency reforms are not conducted simultaneously throughout the former currency union, differential conversion rates for the old currency will create incentives for individuals to spend or exchange their old notes in the region where they are most valuable. The imposition of a tax, or differential expected rates of inflation, creates another incentive to move notes to escape the tax. Thus old notes will flow into those countries with the most favourable tax-inclusive real conversion rate. Fourth, states that are late in breaking away from the currency union may find more than their share of the stock of old notes dumped on them. Breakaway reforms elsewhere may cause people to sell their old notes for goods and assets in those states where they are still legal tender. The last to convert the old notes will then absorb both the notes originally circulating in its territories and many of the notes previously circulating elsewhere. A liquidation of old central bank assets prorated on the amount of currency collected will only partially compensate for lost goods. Finally, currency reform will succeed in creating a stable medium of exchange only if it is accompanied by sound fiscal and monetary policies. In this respect it is not necessary for fiscal restraint to precede currency reform if the new monetary authorities are constrained in their ability to extend credit to the state. In each of the Successor States, fiscal equilibrium was attained as a consequence of the currency reform, rather than as a precondition of it.”

One distinct advantage to us is that we have already travelled the road of austerity and budget deficit reform; but we need to take the final step of monetary reform, that’s not one others can make for us. By the looks of it, its not a step we’re prepared to take; its FG/LB happy, growth ‘hide the mess’ pills instead.

I’m so old I can remember when “lending into insolvency” was considered taboo for the IMF.

Media wishful thinking from the Telegraph? If you wish it hard enough you will get that long running shock horror Greece-in-disorderly-default sky-caves-in-on-chicken-licken story that will sell more papers? I (unfortunately) have to read the Telegraph every day – goes with the territory – and it doesn’t sound any different to stories about Greece they’ve been punting for the past six months.

More fun can be had reading the comments of right-wing nutters at the end of the story text.

Those who think that Greece could exit the euro without really disasterous consequences might take a look at this piece in this week’s Economist:

In particular the experience of Argentina and the reasons why is’nt a good precedent for Greece look fairly sobering.

Note this is my preferred option, but note these folks suggest this course for Greece and Portugal only, but strongly suggest this course for Ireland and some other EMU members

To understand some of the mechanics involved in breakup: Also from http://www.acting-man.com/blog/media/2012/02/February-2012-Eurozone-Breakup.pdf

“Breaking up the euro: recommendations based on historical precedents

In this section we will examine the timing of exits, capital controls, the re-denomination of existing debts, the restructuring of private and sovereign debt, the recapitalization of the central banks, and the legal and institutional aspects of euro exit. These recommendations are based on historical currency exits as well as the experience of emerging market devaluations.

We recommend that any country exiting the euro should take the following steps:

1. Convene a special session of Parliament on a Saturday, passing a law governing all the particular details of exit: currency stamping, demonetization of old notes, capital controls, redenomination of debts, etc. These new provisions would all take effect over the weekend.

2. Create a new currency (ideally named after the pre-euro currency) that would become legal tender, and all money, deposits and debts within the borders of the country would be redenominated into the new currency. This could be done, for example, at a 1:1 basis, eg 1
euro = 1 new drachma. All debts or deposits held by locals outside of the borders would not be subject to the law.

3. Make the national central bank solely charged, as before the introduction of the euro, with all monetary policy, payments systems, reserve management, etc. In order to promote its credibility and lead towards lower interest rates and lower inflation, it should be prohibited from directly monetizing fiscal liabilities, but this is not essential to exiting the euro.

4. Impose capital controls immediately over the weekend. Electronic transfers of old euros in the country would be prevented from being transferred to euro accounts outside the country. Capital controls would prevent old euros that are not stamped as new drachmas, pesetas, escudos or liras from leaving the country and being deposited elsewhere.

5. Declare a public bank holiday of a day or two to allow banks to stamp all their notes, prevent withdrawals of euros from banks and allow banks to make any necessary changes to their electronic payment systems.

6. Institute an immediate massive operation to stamp with ink or affix physical stamps to existing euro notes. Currency offices specifically tasked with this job would need to be set up around the exiting country.

7. Print new notes as quickly as possible in order to exchange them for old notes. Once enough new notes have been printed and exchanged, the old stamped notes would cease to be legal tender and would be de-monetized.

8. Allow the new currency to trade freely on foreign exchange markets and would float. This would contribute to the devaluation and regaining of lost competitiveness. This might lead towards a large devaluation, but the devaluation itself would be helpful to provide a strong
stimulus to the economy by making it competitive.

9. Expedited bankruptcy proceedings should be instituted and greater resources should be given to bankruptcy courts to deal with a spike in bankruptcies that would inevitably follow any currency exit.

10. Begin negotiations to re-structure and re-schedule sovereign debt subject to collective bargaining with the IMF and the Paris Club.

11. Notify the ECB and global central banks so they could put in place liquidity safety nets. In order to counteract the inevitable stresses in the financial system and interbank lending markets, central banks should coordinate to provide unlimited foreign exchange swap lines
to each other and expand existing discount lending facilities.

12. Begin post-facto negotiations with the ECB in order to determine how assets and liabilities should be resolved. The best solution is likely simply default and a reduction of existing liabilities in whole or in part.

13. Institute labor market reforms in order to make them more flexible and de-link wages from inflation and tie them to productivity. Inflation will be an inevitable consequence of devaluation. In order to avoid sustained higher rates of inflation, the country should accompany the devaluation with long term, structural reforms.

The previous steps are by no means exhaustive, and should be considered a minimum number of measures that countries would have to take to deal with the transition”

@ Colm Brazel

Thank you for bringing this quotation to my attention.

“Did you ever think that making a speech on economics is a lot like pissing down your leg? It seems hot to you, but it never does to anyone else.” President Lyndon B. Johnson.

@ Eureka

Yep, that seems to be the way its heading… The more they drive up the present cul de sac on the wrong side of the road, the more likely they’ll bring us closer to something similar to Arab spring for EMU…also observe as the arab world becomes more democratic, the EMU world becomes less so….ironic isn’t it?


Come on DOCM, Its unscientific, unobjective, unempirical and plain bad research to make a comparison between two docs dismissing one with a skipping in favour of another. That link I’ve given now OMF as well gives plenty of research links you can follow as it cites the research it draws from, also you selectively left out their comment beneath the Johnson piece:

IMPORTANT NOTE TO THE READER “Did you ever think that making a speech on economics is a lot like pissing down your leg? It seems hot to you, but it never does to anyone else.” President Lyndon B. Johnson It was with President Johnson’s salty humor in mind that the author decided to write this paper in plain English for the layperson in order to reach as wide an audience as possible. The paper is, however, based on a wide review of economic and legal academic and professional literature.


China’s achievement is literally the greatest in world economic history

Economic development’s purpose is to improve the conditions of human beings. Robert Lucas put it eloquently, in frequently quoted words, examining the consequences of different rates of economic growth: ‘I do not see how one can look at these figures without seeing them as possibilities. Is there some action a government of India could take that would lead the Indian economy to grow… If so, what, exactly?… The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else.’

In this framework it should be stated, soberly and with due consideration, that China’s economy since 1978 is the greatest economic achievement in world history. This article shows this in the prosaic language of statistics. But of course that is not the real issue. What really counts is the consequences of this for human beings – escape from poverty, improvement in life expectancy, improved health, expanded potential for education, improvement in the position of women, and many other dimensions. Economic statistics, such as GDP per capita, simply underpin this improvement in human conditions.


I would not attach much credence to what the conservative British media say about any Euro Zone member state. If I agreed with them I would have to re-examine my position.

Greece was under Ottoman (Turkish) control from the fall of the Byzantine Empire 1453 to 1828 and was recognised as being independent around 1832. They had similar experiences with the Ottoman Empire to what we had with the British Empire. In a nutshell it was equeally brutal. In much the same way as the Irish they blame their shortcomings on the occupier. This is most marked in the area of tax avoidance/evasion which they see as a patriotic duty. When I talk to Dimitri Michalopolous (fictitious) it was as if I was in a bar in rural Ireland talking to Paddy Moriarty (fictitious) about his tax exploits and the reasoning behind it.

Aisling:’The EU is all about tempering nationalistic tendencies within Europe and thus tempering democracy in its most undiluted forms, and I for one, think that is a good thing.’

I think you’re confusing what you call ‘undilted democracy’ with aggressive self interest on the part of a National community, to the detriment of it’s competitors/partners. I might be wrong.

But if not, it is another expression of a recurring cry that is made by those who would justify the road the EU always implied, and is now demanding, i.e. – the demotion of national democracy to the level of county council and the realignment of societies that is, to be frank, eugenics without the mono-racial ideolgy.
It is based on the presumption that harmonious co-operation can never occur with the direct democratic input of the governed, that assent should be conned if necessary, and on an inverted model where government & the economic framework of the community are their own justfication, and the community are the raw material.
There is in fact a recurring presence of eugenic thinking running through the whole of the last century in this regard, that raises the issue beyond a mere analogy. It runs the spectrum from Right-to-Left, from the atheistic to the pseudo religious of De Chardin, and is so widespread that it reduces the Nazi version to a footnote within the total. It’s peripheral, speculative wings, having renounced race, involve themselves in socio-sexual neo-Freudianism (witness Daniel Cohn Behndit’s colourful history), but it’s working core is satisfied with the overthrow of local distinction and unique circumstance in economic & social matters (i.e.; where they have evolved in response to local need and environment & not been consciously designed within the EU framework.)
Like most ideologies, it’s adherents have long since subscribed to it’s universality without reference to it’s relative suitability or applicability, and so are the slowest to recognise when it is the cause of rather than the solution to most problems contemporary to it.
These adherents are also the same people whose incomprehensible single-mindedness in the face of their misdeeds are wondered at by those who peruse the pages of history in later ages.

@David O Donnell
“Vice President Xi Jinping of China is very welcome to Ireland this weekend”

Is that welcome with tongue in cheek? “I for one welcome our new chinese overlords ..”
Anyway their increased presence here should help usher in a new era in industrial relations, and innovative management styles:

“Chinese managers at Chambishi shot six miners during a wage protest. Last year, at least 13 Zambian coal miners were shot by their Chinese managers at the Collumn Coal Mine, in the Southern province. ”


@DO’D: “Economic statistics, such as GDP per capita, simply underpin this improvement in human conditions.”

Eh? Depends, depends, depends!! Normal Distribution or Skewed? Depends.

The concept of the Meaningless Mean is relevant here. Check distribution and Median.

“China’s achievement is literally the greatest in world economic history.” Maybe. “Its all relative” – as the man said. Methinks the human cost has been airbrushed away.

Re- David O’Donnell
Ignoring the totalitarianism, forced migrations, enforced occupations, etc.
It also remainsto be seen how ‘instant’ urban centres fare out in the medium to long term.
Some are already deserted.

re Telegraph article, an unnamed official quoting Schauble.

“He just thinks the Greeks cannot do what needs to be done. And even if by some miracle they did what has been promised, he – and a growing group – are convinced it will not pull Greece out the hole,” said a eurozone official.

So the hardliner who put Greece on the rack and insisted that he would get results in the name of ‘austerity’, now admits failure. Not only are the Greeks reluctant to implement his policies but he admits that even if implemented they will not work.

This is an extraordinary admission. Austerity was Schauble’s doctrine. He has foisted it on Europe in the form of a fiscal compact.
Yet here is the admission that it does not work.
The experiment has failed. So sayeth the chief physician.
Will he now be fired? He should be.
Who in Europe will now listen as he proposes his next experiment?
How many more experiments will Schauble implement in Europe before Europe says no?

This notion that official lenders can avoid taking haircuts is going to have to be ditched.

It is sustainable for the IMF in its normal operations because on the whole it is an honest broker whose only objectives are to dig the country out of its hole, and to get other creditors more of their money back than they would if IMF had not intervened, with losses to unofficial lenders distributed on a good faith basis.

The ECB and this mess of interventions by European funds and national central banks do not fit this model. They bring a whole bunch of other priorities to their interventions, which leave countries where they have intervened less able to meet their sovereign commitments to private sector lenders, which enforce bad faith by insisting that sovereigns favour some classes of lenders over others, and which fail to dig countries out of their holes both to the disadvantage of their people and of private lenders at threat of being burned recursively.

Insisting that official actors such as these be given seniority over private lenders may feel right to people who think they are doing God’s work, but it’s hard to see how the European sovereign bond market can recover while they threaten it.

@ Brian Woods Snr
The west has rarely had economic advancement that didn’t begin with or end in war. The US is a slight exception but it’s the economic development associated with the discovery and population of a whole new continent.
I was struck by the photos with the calf – not for show but genuine interest. You don’t see that with our guys.
We could learn a lot from these guys.


’The EU is all about tempering nationalistic tendencies within Europe and thus tempering democracy in its most undiluted forms, and I for one, think that is a good thing.’

Unfortunately in Europe that project is not going well. European nations still cling to their national identities as if they are something to cherish. This oburate nationalism needs to be ended.

@BeeCeeTee Wait a second, private investors and speculators should be protected at the expense of taxpayers? Really? I really didn’t think anyone would posit that position in Ireland at the moment (or is it just that the taxpayers are from the other Member States (including us by the way) that they don’t count?


The IMF’s primary function is to prop up the largest banks in the wealthiest (creditor) countries. It does this by keeping its patients barely alive so as they can pay back their creditors. If you find any altruism, honesty or fairness in the IMF’s dealings with bankrupt and near bankrupt countries you will find something that Latin America looked for and did not find over two decades.

The Irish Gov’t and Irish banks are playing the same game with delinquent mortgage holders. They have carefully studied the master.

@Mickey Hickey

And the policy you obviously assume as the correct one today of putting c100k families into a bankruptcy regime and out of their houses solves what exactly ?? With c 150k empty houses spread across the country. Explain to me in detail how (i) this solves the bad loan problem for the bank (because to my mind it clearly just crystalises the loss with the added headache of a vacant property) and (ii ) How it improves in any manner the social cohesion of the families in question.


The EU is all about tempering nationalistic tendencies within Europe and thus tempering democracy in its most undiluted forms, and I for one, think that is a good thing.

A Marxist might ask which class interests does this “tempering” of democracy serve?

Also I do like the way Europhiles have difficulty hiding their hatred for the resistance popular democracy and national identity present to the great neoliberal dream.

I’ll answer that a couple of ways.

1) As a practical matter, if you want the bond markets to work, you don’t rip off investors by making some of them worse off than they would have been if the job had been left to the IMF under its regular rules of engagement. It’s happening right now in Greece, and bond prices for other stressed countries are pricing in the risk that it will happen elsewhere too.

2) As a matter of justice, if a loss is realised as a result of bringing insolvency tnto the open, as it is under IMF programmes, then if is fair that bondholders should take the damage. The risk that this might happen was, after all, priced into what they paid for the bonds. But in the case of what the EU has been doing, bondholders are also being asked to carry losses caused by pursuing political objectives. I mean objectives like saving banks, keeping the euro stable, and slowing the rate of fiscal adjustment in countries with problems. There is no justice in pushing these losses onto private bondholders, and the institutions that have been doing so are, to put it bluntly, a bunch of thieving freeloaders. If they want to do this stuff, they should have the honesty to do it with taxpayer funds, and suffer the electoral consequences.

@Joseph Ryan on Schauble’s acknowledgement that Greece has little chance of surviving austerity

So the hardliner who put Greece on the rack and insisted that he would get results in the name of ‘austerity’, now admits failure. Not only are the Greeks reluctant to implement his policies but he admits that even if implemented they will not work.

Austerity has always had a political rationale rather than an economic one and the currently dominant alliance of the European right and “the independent of popular democratic accountability or control” ECB have had considerable success in advancing their political and class interests through the implementation of austerity in the countries peripheral to Germany. It has also helped avoid any challenges to the institutional and legal framework of EU financial and economic structures that enabled the crisis and prevent its resolution.

If you accept that Greek austerity has been a success for the CDU and its fellow travellers and, in a more limited way, for the stakeholders in the ECB then it seems unlikely that Schauble or the other apostles of austerity will suffer any punishment for the damage they have done.

It is all working out rather well in fact.

Just to clarify:
1) I’m, of course, talking about the sovereign bond market.
2) Specifically in Ireland’s case, while the bank guarantee was notionally from taxpayer funds, the economic cost was split between taxpayers and holders of sovereign debt, so I include the Irish government of the day among the freeloaders.

@ Mickey Hickey

You hit the nail on the head there! What might be added, however, is the curiosity of much analysis coming to diametrically opposed conclusions depending on whether the context is Irish or EA/EU/international.

BeeCeeTee also has a point. In the inimitable comment of Karl-Otto Poehl, a former head of the Bundestag, the original Greek bailout was intended to “save German banks and rich Greeks”.
The fact that it was done on punitive terms using bilateral loans is a major element in the present crisis as these cannot be changed without going back to the various parliaments.

I see that our Chinese visitor has made a major speech and complimented us on our stoicism.


“The mechanics of currency breakups are complicated but feasible, and historical examples provide a roadmap for exit.”

Yeah… but this time it’s different innit?

Who knows what is really going on behind closed doors. All I do know is, so far this year, that when bad news is absent (there doesn’t even have to be any good news around, just an absence of bad news) there seems to be terrific pressure to drive the equity markets up. I’ve just been looking on it as an opportunity to make money ….. and I’m sure many involved in the Greek situation view it in those terms too.


Your contributions are very useful. The Treaty of the Functioning of the European Union can be dry, but is essential for the understanding of the situation, and in particular the behaviour of the ECB at the current time. European law is not primarily drafted by those with a common law background. It comes from a tradition which emphasises written rules over precedent. For example the implications of Article 125 (1) are quite simple:

“Overdraft facilities or any other type of credit facility with the European Central Bank…….in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.”

There are economically desirable solutions, and there are solutions that work within the Treaty framework as it stands (and which may or may not be economically desirable). Many otherwise sensible commentators miss the following
-There is no mechanism for leaving the eurozone without leaving the EU while you’re at it. This would take at least two years and would have a lot of non-monetary economic consequences
-eurozone member states are forbidden from running parallel currencies even if they want to

It was, for better or worse, designed this way deliberately. Many have recommended changes to these constraints, but the last round of Treaty change in Europe took 8 years. The implications of this (at least in the short term) are quite clear.

from The Tao Te Ching

‘The kind of person who always insists
on his way of seeing things
can never learn anything from anyone. (#24)

‘The Tao is generous and graceful in what it does
Without ever claiming any merit

And the sage’s greatness lies
in taking no credit. (#2)

‘If the sage can find The Mother of a Nation
Then he will govern for a long, long time. (#59)

And the question of ECB knowledge of the guarantee- at the very least – remains : http://www.independent.ie/business/irish/ecb-was-consulted-on-bank-guarantee-scheme-2279864.html
Whatever happened here is surely behind crumbs of knowledge had been thrown to Eamonn Ryan when he alluded to the ECB’s pressure -pre-existent the guarantee – that ”No Bank should be allowed to fail (his answer to Vincent Browne on two seperate occassions when pressed for his reasons for the guarantee by V. Browne). I know I’ve tried to draw attention to this before, and I see that others have also done so elsewhere, but the suspicion has existed and been raised since that time over three years ago, and the procession of events since then have mostly served to add credence to it than otherwise.

Beyond this, though, for how long is the option of departure from the Euro going to be met with responses that there is no mechanism in place to do so. Is EU membership is tied to euro membership ? Though there is a silent fatalistic intention that all roads lead to membership of the eurozone, it is not a pre-requisite. Exit from the eurozone was hitherto ‘unimaginable’, or so we were told till recently.
But more to the point, if, as is certain, the vast, vast majority in this country do not concur with Van Rumpoy’s assertion that ‘the Nation State has no place in a globalised world’, how can we in conscience proceed with this project ?
Put pressure on a man, or make him afraid, and he’ll show his true colours.
Applied to the EU institutions, this adage provokes a stark result.
At this stage, any honourable adherent to the european project is reduced to making excuses for their recent actions in his heart, assuring himself that extraordinary times require these type of measures, things will right themselves at some point in the future, etc. Or he merely suppresses the evidence before his eyes and ‘knuckles down to carrying on.’
We’ll ignore the less honourable players in this saga, the ones who knew exactly what they were doing.

The sheer quantity of documantation & commentary on the events of the past four years is remarkable, as is the quantity of evidence showing that EU apologism was in absolute denial, and scaremongers (on the subject of EU/ECB actions) if anything were underestimating the blatant disregard for law and democracy that was to follow.


The Treaty of the Functioning of the European Union can be dry, but is essential for the understanding of the situation, and in particular the behaviour of the ECB at the current time.

While examining EU law certainly helps understand how we ended up in this mess we can say with some certainty that the current legal framework did not reduce the severity of the European component of the global financial crisis and that it is now worsening it.

Why then the reluctance to accept that given the systemic nature of the European component of the global financial crisis the system will have to be changed before a solution is possible?

Many otherwise sensible commentators miss the following
-There is no mechanism for leaving the eurozone without leaving the EU while you’re at it. This would take at least two years and would have a lot of non-monetary economic consequences

Why not amaze me and be the first person to list the parts of any European treaty which comment in any way on the specific consequences of a country leaving the Euro? You could make your name here.

Now we all know that the ECB position is that everything that is not allowed is forbidden but then they would say that, wouldn’t they?

For another point of view see Leaving the euro zone: a user’s guide at


@ Shay Begorrah

Just had a quick glance and was struck by this particular pearl;

“The euro accounts of the residents in the domestic banks would immediately be converted into the new national currency on the same ratio of 1 EURO = 1 unit of the new national currency”.

If this is a measure of the quality of the rest of the paper, which I think it is, the author will be abandoning the euro on his own.

@BeeCeeTee So its a good thing that Irish banks can still access the unsecured bond markets because they repaid their senior bonds, right?

Consider the possibility that protecting markets which have colossally mispriced risk may not necessarily be the way to go. It may be, if you’re trying to prevent a Lehmans in the here and now, but it is certainly not an argument in favor of allowing the continued mispricing of such risk. Eurozone sovereign bonds should be priced taking into account that supranational law probably prevents an EU sovereign defaulting on debts held by official EU creditors. Just like the seniority of the IMF this is more than capable of being priced in.

@Examainer It is not necessarily 2 years to leave the EU – that’s the ceiling but a much shorter time frame can be agreed under TEU Art 50.

@Shay Begorrah There are no rules on leaving the eurozone, only on leaving the EU, but the actions necessary to leave the eurozone from a position of weakness (such as Greece is in) would require breaking a hell of a lot of EU rules, most of which have consequences. So long as Greece does this from within the EU those consequences can be tested in pretty much any courtroom in the EU. If you’re going to leave the euro far better to leave the EU so that you only have to deal with your own laws, and reapply to join the EU within a year or two.

To take one example, euro exit will collapse Greek banks. Greece will have to recap some of those banks with drachma nua. This is probably an illegal State Aid meaning that the banks in question cannot accept it, or could be forced to repay it with interest meaning they should recognize the liability. Under either analysis EU law requires that the Greek banking system remain insolvent, which is not a good thing.

Absent a source of hard currency any Greek exit will be horrific for the Greek people, Greece is not Argentina or Iceland so a solution which keeps them in the euro is preferable.

That said, I really think leaving the EU temporarily would add little to their woes (especially if membership of EEA could be agreed to cover most of that period and thus protect from the worst of losing EU membership) and would offer Greece a much firmer footing for euro exit (including allowing them default on official creditors).

Might as well be hanged for stealing a sheep as a lamb.


“The euro accounts of the residents in the domestic banks would immediately be converted into the new national currency on the same ratio of 1 EURO = 1 unit of the new national currency.”

If this is a measure of the quality of the rest of the paper, which I think it is, the author will be abandoning the euro on his own.

Part 3:

Previous post truncated due to WordPress issues, it thinks something I have typed is spam, I’ll have to do it line by line. Sorry Readers.

I ask partially because that would be crazy and partially because five lines later the paper says

One could think that the new currency would depreciate rapidly, the value of the new currency falling much below one euro.

Am I missing something here or did the late hour sap your normally remarkable ability to read and assimilate policy documents?

Part 2:


I was only interested in the papers view on whether there was a legal route to withdrawing only from the Euro related parts of the EU treaties.

I do have to ask you whether it might be possible that the author of this paper is explaining the accounting exercise necessary in the initial steps of redenomination rather than suggesting that the country would leave the Euro only to try and peg itself to it?


Is it possible that the words “I was only interested in the papers view on whether there was a legal route to withdrawing only from the Euro related parts of the EU treaties.” cause posts to fail?

My apologies for the four posts above, if a moderator would delete them that would be appreciated – my initial phrasing set off the blog spam filters somehow and I had to find the offending sentence.


“The euro accounts of the residents in the domestic banks would immediately be converted into the new national currency on the same ratio of 1 EURO = 1 unit of the new national currency.”

If this is a measure of the quality of the rest of the paper, which I think it is, the author will be abandoning the euro on his own.

I was only interested in the papers view on whether there was a legal route to withdrawing only from the Euro related parts of the EU treaties. I do have to ask you whether it might be possible that the author of this paper is explaining the accounting exercise necessary in the initial steps of re-denomination rather than suggesting that the country would leave the Euro only to try and peg itself to it?

I ask partially because that would be crazy and partially because five lines later the paper says

One could think that the new currency would depreciate rapidly, the value of the new currency falling much below one euro.

Am I missing something here or did the late hour sap your normally remarkable ability to read and assimilate policy documents?

@ Shay Begorrah

Crazy? Then why should the author suggest it in any context?

It is not just the Elgin marbles that have gone missing in this debate.


Go on failing. Go on. Only next time, try to fail better.
Samuel Beckett

Read more: http://www.brainyquote.com/quotes/authors/s/samuel_beckett.html#ixzz1msTUfXQe

@Colm McCarthy

No need for austerity on Beckett’s second tea! I hear it was rationed during the last ’emergency’; and I hear that the ‘pillars’ are demanding reductions in Earl Grey and imposing those cut rate deutsche brands on those afflicted with ff/pd debts! Tuff ol times alrite – roight!

@Shay That linked article is flawed in more ways than one. It shows little understanding of finance, a very limited and flawed understanding of EU law, International Law, and especially their interaction, and a complete misunderstanding of English law and the concept of Lex Monetae.

It even references courts that don’t exist like the “International Law Court” by which I assume they mean the “International Court of Justice”, but (unfortunately) the gulf between an ICJ decision and practical implementation is the width of the Atlantic and as the Nicaragua incident demonstrated (and the West Bank fence) sovereigns tend to take the rulings of the ICJ under advisement. The ICJ has moral authority but limited enforcement authority. Not so the Court of Justice of the European Union.

No such wiggle room exists with the ECJ for EU sovereigns. Hence EU law, which is supranational rather than international, is much more important here.

Are the EU treaties flawed when it comes to dealing with this crisis? Yes. In need of serious amendment? Yes. But more important than (potentially) customary international law when it comes down to the nuts and bolts? Hell yes!


“Hell yes!” +1

Then change the bleed1n law. This is democracy; or if and when ship is sinking – declare a state of emergency and do it anyway.

Between Facts and Norms. Jurgen Habermas, 1996, Polity/MIT Press

Law mediates the relationship between the Sytems of Power and Money … and the Lifeworlds of ordinary every-day citizens. Law matters …..

hope to see you more often on the blog ….


There are no rules on leaving the eurozone, only on leaving the EU, but the actions necessary to leave the eurozone from a position of weakness (such as Greece is in) would require breaking a hell of a lot of EU rules, most of which have consequences.

Germany and France escaped censure for years of breaching the stability and growth pact so the consequences of rule breaking can be avoided given the political space. The possible disadvantages of facing legal action in future also have to be balanced against the definite problems of maintaining the course of action favoured by Germany and the ECB.

To take one example, euro exit will collapse Greek banks. Greece will have to recap some of those banks with drachma nua. This is probably an illegal State Aid meaning that the banks in question cannot accept it, or could be forced to repay it with interest meaning they should recognize the liability. Under either analysis EU law requires that the Greek banking system remain insolvent, which is not a good thing.

It is important to acknowledge that the current set of EU laws are a central part of the crisis and need to change – for instance it is a mockery of social and economic justice that the billions spent on the bondholder rescue somehow fitted the criteria of legal state aid while less investor friendly attempts to recover from the disaster of the ECB/EMU do not. How long do you imagine Europe can survive such nauseating moral blindness where the law has shown itself to be so thoroughly subverted by the interests of capital?

The EU needs democratic and legal reform much more than it needs the stability of despair guaranteed by trying to make the current flawed legal and institutional framework somehow “work”.


Crazy? Then why should the author suggest it in any context?

Are you being deliberately obtuse or is this an accident? Whatever the merits of the paper


… twould drive a sane European democratic man or woman or child to take up revolutionary marxism … a ‘short march’ should do it.

@Shay But this is the problem. Some of us have no problem dealing with mental gymnastics and seeing how things interact. But, hand on your heart, do you really think that every voter can deal with that?

It is so easy for German politicians to claim that the problem with Greece is their profligacy because they didn’t exercise Teutonic restraint, without ever explaining that German austerity only worked because of the credit bubble elsewhere, that German austerity is a big part of the problem.

Then again, how do you tell your electorate that they should show restraint, and then ten years later admit that their accepting that austerity caused huge problems for other peoples who weren’t being so morally restrained?

From our point of view I tend to think that things will work themselves out, hell only one country has closed this kind of deficit in 3 years without implosion, and only three EZ countries have ever run the kind of sustained surpluses required to get out of this debt death mire, and we’re the only member of both clubs (not hard given we’re the only member of the former – believe me it hurts to give CJH credit for anything).

From Greece it is about trying to put religious beliefs aside and try to figure out which is the least worst option. But there is no easy answer for Greece.

EU laws need change. But bear in mind that the changes actually required to make dealing with this crisis manageable will require a referendum in Ireland. Do you hold out much hope on that?


That linked article is flawed in more ways than one. It shows little understanding of finance, a very limited and flawed understanding of EU law, International Law, and especially their interaction, and a complete misunderstanding of English law and the concept of Lex Monetae.

Without being disrespectful to you or endorsing the views of the author of the paper I mentioned (Professor Eric Dor, a new name to me) I find it more than a little amusing that the European Union we have ended up in is one where the multiplying number of experts on European law feel enabled, indeed compelled, to criticise economists for their lack of legal and financial understanding when the evidence is overwhelmingly strong that European law as it currently stands is a poor framework for economic thinking and completely inadequate to the task of keeping the financial sector under control.

Perhaps it would make more sense if the law took guidance on economics rather than gave it?

Joesph Stiglitz on the capture of the ECB by ‘special interests’.
The IMF has its own special interests as proven by Timmy Geithers veto of writedowns on Irish banks bonds made on behalf of wall street.
The fact that the ECB surpasses the IMFs zeal for making sure ‘special interests’ get repaid does lend itself to suspicion that it might be captured. Stiglitz a nobel prize winner and former chairman of Clintons council of economic advisors saying that it is caputured should really cause Irish people to sit up.
As Dr. Whelan suggests firstly Ireland should use its place in Europe to try to reform these issues with the ECB.
Dr. Honanhan raising Dr. Stiglitz article and concerns with the governing council would be a start.

@Yield or Bust
I strongly disapprove of putting anyone out on the street because they are behind in their mortgage payments. There is some logic to it in a booming job and housing market. It makes absolutely no sense whatsoever in a collapsing housing market and high unemployment. If a bank attempts to foreclose by putting the house up for auction the mortgage holder should be given the opportunity to enter into new mortgage arrangements based on the auction price and standard affordability criteria. If the delinquent mortgage holder has enough income to carry the house at the auction price then it must be mandatory for the bank to reduce his mortgage principal to the auction price and continue as the mortgagor. If the Gov’t made this arrangement mandatory there would be very few foreclosures as the banks would be eager to enter negotiations to reduce monthly payments while they still had some leverage. In the not so distant past people have been killed for bidding on foreclosed property. To this day there are families marked as having deprived fine decent people of their house and home and in the case of farms their livelihood. People out the country are indeed a different breed as my mother used to say.

The last thing Ireland needs are families out on the roads and more vacant housing. My point was the IMF abuses its power and the Irish Gov’t and banks are doing exactly the same thing.


I’m not quite sure what your point is, but I think you may have missed my clarification that I was talking specifically about sovereign bonds. Or maybe you are making an opaque response to my criticism of the last Irish government for burning holders of Irish sovereign debt to bail out bank bondholders. Or maybe your point is some sort of rhetoric device.

But if your view is that “protecting markets which have colossally mispriced risk may not necessarily be the way to go”, I can only agree with the sentiment. I have no doubt that, in the Irish context, Anglo and Irish Nationwide should have been allowed to go bust. I also have no doubt that the other banks should have been put through a resolution process invented at short notice, with shareholders and holders of subordinate debt getting wiped out, with the remaining losses distributed between senior bondholders and depositors, and with the government’s only financial contribution being to compensate depositors.

@ Eureka: ” … We could learn a lot from these guys.” Apologies for the delay in replying.

That’s for sure. Several commentators, DO’D, Mark and Amac seem to have a grip on reality about the vice-Emperor and his the Middle Kingdom to come. He comes from a really dangerous, deeply corrupt, failing state. Its not obvious, the painters and decorators are doing trojan work. And lots of dopey, unthinking folk are taken-in. It would be wonderful theatre except for the rows of corpses, trashed lives and their appalingly polluted environment. You smell Bejing before you can see it.

He should have had his knuckles and shins rapped sharply. Instead we had the sickening spectacle of our spinless leaders down on their knees, jostling with each other to give him the ‘business’.

I will skip the math – where the rules are not subject to PR, to show how the Middle Kingdom cannot expand its economic activity – absent ALL other world economies being reduced to the approximate current position of India and China combined. Try it and see the result.

And we all want to rush there? We do in our glue! Fun and games and interesting times ahead. The “end of the beginning” – Churchill I believe.

@ Brian Wood Snr 8:59 am

We can build a minaret for ourselves out of the sands of our own moral righteousness, claim God for ourselves, proclaim our arrogant moral righteous judgment on all who come before us built on the ashes of eg clerical abuse, or the shipping of orphans taken from mothers because they were born out of wedlock, or built on the corruption that caused the present financial meltdown; or, we can acknowledge our own flawed nature, acknowledge a common humanity, a shared belief in wisdom and the importance of family and a common humanity and work together to build a better place for families to live in.

Xenophobia is dangerous whether it tarnishes UK with the bombing raids of Dresden and Hamburg, US with the outrageous loss of life in Iraq, Japan with its terrible atrocious attack on China in WW11 1937 Nanking massacre to give a few examples.

China has a deep and rich cultural and social history and has made a huge contribution to the world with its industry and work ethic and values it attaches to education and science.

We can make a contribution to their way of life as they can to our way of life. In recent years China has made a great contribution to the recovery of Iceland.

Chinese vice-president Xi Jinping is very much welcome to Ireland.

If opportunity to discuss a Plan B exit strategy from the euro has not been grasped by our current political leaders, it’s very much to our loss.

@ 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).


@ Brian Woods Snr

The Irish do have a good capacity for delusion and maybe you have a capacity for exaggeration?

There is also much that is positive about China even in far-off lands.

South America is as dependent on commodities today as it was 40 years ago but contemporary life is a hell of a lot better for many people.

As for the Indo’s headline on thousands of jobs from the visit, let’s say that’s another exaggeration.


@ Aisling

private investors and speculators should be protected at the expense of taxpayers? Really? I really didn’t think anyone would posit that position in Ireland at the moment (or is it just that the taxpayers are from the other Member States (including us by the way) that they don’t count?

There is much to fell outraged about but as regards say bondholders, who are needed to fund public debt, Angela Merkel had to withdraw her proposal to have a bailin from private investors that was planned from

They now rationally demand a high premium on risky loans or go on strike. Many of these funds are required to invest in low return assets.

Big losses across Europe would hit private pension funds while pension members and those with none in the private sector as taxpayers pay for the unfunded generous pensions of the public sector.

As for equity, in the UK for example only a third of the private workforce have a pension and the average pot would pay out £1,400 annually.

@ All

A bit off topic but a valuable insight into the debate in Germany, this blog comment by a respected journalist on the mischief being created by Professor Sinn.


The Google translation is poor. Herewith the corrected key conclusion.

“Incidentally, one might just as well come to the opposite conclusion: the bailout policy maintains our trading partners are solvent and SECURE our foreign debts. Because at some point the money will flow in and out again to the south, then remove the target balances as if by magic and the ECB may cut back on their lending business. And we live in a monetary union. The ECB is not our central bank, but that the whole of Europe – and we can not prohibit the Italian banks from relying on their central bank in times of need. That is what central banks are for.”

Plan B


Re ‘lex monetae’ discussion above, also Shay Begorrah link above, plus this one below here, plus China Delegation visit, I’d like to speculate on what the Irish delegation ought to be discussing with the Chinese delegation, but are probably not 🙁


Both documents are in agreement as to the easy part of leaving the euro and the more difficult part:

Easy part:

“If any country exited the euro area by surprise, it would be highly unlikely that it would have printed enough new notes to exchange immediately for old notes. Before old notes and coins can be withdrawn, they will need to be stamped in ink or a physical stamp would need to be placed on them, and old unstamped notes would no longer legal tender. In the meantime, new notes are quickly printed.

Capital controls would need to be imposed at borders in order to prevent unstamped notes from leaving the country. Despite capital controls, old notes would still likely escape the country and be deposited elsewhere as citizens pursue an economic advantage. Once new notes are available, old stamped notes are de-monetized and are no longer legal tender. The entire process of stamping
and issuing new currency has typically been accomplished in a few months.”

Difficult Part:

The difficult part refers to the redenomination of both local and foreign debt:

From acting-man above:

“It would be impossible to enumerate all the potential forms of debt that could safely be redenominated into the new currency of the exiting country. However, Eric Dor of the IESEG School of Management has suggested the most obvious cases:
– A sovereign bond that had been issued in euro’s by the departing country, directed towards local investors, not to be traded on a foreign market and payable in the country;

– A loan in euros that was agreed on to a debtor of the departing country by a bank of another country in the euro zone or out of the zone, and which stipulated that the
repayments and interest were to be paid to a subsidiary of the lender in the debtor’s country.

– A loan in euro’s that was agreed on by a bank of the departing country, to a debtor of this country;

– A private or sovereign bond that had been issued in euro’s and that was traded from the start on the secondary market of the country wanting to quit;

– A debt based on a contract that was taken out in euros and governed by the law of the country wanting to quit or that stipulates that the payments were to be made in that country.
Source: Leaving the euro zone: a user’s guide Eric Dor, October 2011, IESEG School of Management, Working Paper Series

Undoubtedly, there are an infinite number of potential debts that one could envision would be subject to re-denomination upon exit. The previous examples, though, provide a good idea of the the potential applicability of lex monetae to debts.

Almost all sovereign borrowing in Europe is done under local law, which would allow countries to exit the euro and re-denominate their sovereign debt in local currencies. ”

In the case of Ireland, action-man points out a high proportion of sovereign debt in denominated under international law.

Its precisely in this area of legality in the teasing out of such liabiliities under an international court that we could do with a lot of help from China both in easing the pain of this from Ireland’s point of view and also from eg ECB point of view.

A commitment purchase and to support the issuance of Irish sovereign bonds needed to stabilise our exit would be an important factor in our recovery; plus a commitment to support us in any settlement negotiations, would be very helpful.

But I doubt any such negotiations such as the above are taking place in the land of dreams Tit Na N´Og 🙂


@ 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.

Gosh, poor old professor Dor joins professors Stiglitz and Krugman among the list of shamed prominent economists who fail the DOCM test. It will either end his career or guarantee him a major international prize in Economics and a role as a respected international newspaper and magazine columnist.

Seriously, I wonder if anywhere out there there might be an economist who meets your clearly very high requirements for seriousness, power of intellect and knowledge of the world but also does not agree with you on how the Eurozone crisis should be resolved?

@MH-ff and CB: Thanks for the comments. Self-rightous, self-referential behaviours (mine own) are indeed not welcome. What does it say about one’s mindset?

I have no illusions about modern day China. Its one bad place. Not the folk, not the country, not their wonderful heritage: its their leaders and their totalitarian state. Islam saved us westies from barbarism. Where is that Islam today? Times change, unfortunately.

Thanks again. Good to have one’s ideas pared back. But China can only advance economically at a significant economic, social and political cost to the ‘west’. The bill has not been presented – yet. Expect splutters of rightous indignation (from the usual sources) when it arrives. Actually, we may have been invoiced, but its being ignored.

@ Shay Begorrah

If I qualify my comment apropos academics with the words “when they go outside their area of expertise”, maybe it would allow a debate that sticks to the points under discussion.

Incidentally, the blog I referred to above ends;

“To put it bluntly; there are good arguments for and against the euro. That’s not what concerns me. I am concerned with the way the discussion is conducted which I think is at least as important as the content”.

@ Colm

“In the case of Ireland, action-man points out a high proportion of sovereign debt in denominated under international law.

Its precisely in this area of legality in the teasing out of such liabiliities under an international court that we could do with a lot of help from China both in easing the pain of this from Ireland’s point of view and also from eg ECB point of view.”

All Irish sovereign debt is issued under domestic Irish law (ZeroHedge ran a piece a few weeks ago claiming monster “foreign” issuance from the periphery countries – it is complete and utter crap). The figures that that article you linked to is referring to are mainly private sector issuance from the IFSC, although it does bring up some interesting issues with regard to the international financial sector in place here, something else that needs to be considered in this debate. Simply, cross border capital flows are now much greater and much more sensitive than they would have been under the other example of redenomination used. Bank runs now literally happen at the flick of a switch.

@ Colm Brazel

The experience of the rump of an empire after a devastating war…maybe offering the PLA (China’s army) a forward base…..

You’re struggling as you appear to need the crutch of others for ideas…..we happen to have a Constitution and if we remained a member of the EU, citizens would have the protection of the Court of Justice- a government could ignore existing laws and so on and tell people a new piece of paper is the same value as the euro – we could leave the IMF and the ECB in the lurch and have no lender of last resort.

The Chinese as a paymaster would make the Germans seem like cupcakes by comparison.

Why not roadtest this Domesday scenario with an importer of raw materials

Or one of the 30,000+ employed in international services or for that matter those responsible for most of the country’s exports.

There is no tooth fairy awaiting to rescue us except maybe the CAP for farmers — amazingly 94% of average farm income

Fantastic article in today’s Guardian about Greece that could easily be written about Ireland.


My favourite bit:

“Today, politicians are bickering about who is doing more to save the country: the loan-signers, who are agreeing to more and more austerity measures, or the loan-deniers, proposing what they call a “nationally proud solution”, a catchphrase that appears in various forms in the rhetoric of extreme right and extreme left alike. But both sides are denying a truth: the loan-signers that the reason more austerity measures are required is that they are unable and unwilling to cut public spending in rational ways; and the loan-deniers that their “proud solution” is a synonym for the indescribable misery of default. Both are lying for profit: the first to protect their clientelist networks, financed by public money, the second to drive Greece to the state of chaos and misery that forms the preferred habitat of extremist politics.”

@DOCM, I caught up with the discussion about the capture of the ECB on the previous thread.
To deal with the 2 major errors raised in the previous blog
1. He does not say that the ECB was responsible for not forcing the banks to buy insurance, rather that they could have ‘insisted’ on more transparency.
A seperate issue is the capture of regulators. Simon Johnson talks of a continued regulatory ‘capture’ in the global financial industry in another article.
2. Stiglitz point is that the ECB, by insisting on a voluntary restructuring is letting the ISDA dictate the terms of the bailout. If the ECB was prepared to consider an involuntary restructuring of private debt then the ISDA would not have such a strong hand.

@DOCM & Shay,

There is a clear dividing line here. One one side are those who believe, to varying extents, that rights and entitlements to public service provision (including jobs, pay and welfare) should be enforced irrespective of the economic circumstances (and that taxes should be levied to ensure this provision). On the other side are those who believe, again to varying extents, that such provision should be constrained by the ability of the resources available to finance and provide it and that enforcing provision protects existing inefficiencies and diverts resources from the sectors that generate the economic growth to resource more efficient and expansive provision of public services in the future.

The reason for the increasing anger, bitterness and frustration being expressed by those on the ‘left’ is that a majority of voters in most advanced economies subscribe, to varying extents, to the latter set of propositions – and they are being increasingly repulsed by the self-serving antics of many of those on the left defending ‘insiders’ and rent-seekers.

For all their undoubted intellectual talents, economists such as Krugman and Stiglitz veer towards the former set of propositions and find it difficult to break free from US exceptionalism (in terms of a reserve currency and the resulting ability to pursue a more active fiscal policy) when they comment on other advanced economies.

@Mickey Hickey

OK – I agree with that proposal but it does mean that the banks have to recognise the loss and renegotiate a new mortgage on a lower house price. The proposals on the table don’t go this route – the banks don’t necessarily have to relend to the current homeowner in the first instance and there is no mention that the negative equity balance being waived despite the banks marking the mortgage to todays house price. So the net position of the current homeowner is exactly the same – they may have a new lower mortgage on todays house price (with the likelihood of a lost tracker mortgage) but the negative equity balance remains to be paid i.e. debt levels remain and pain continues.

IMF or no IMF the debt levels remain the same under current Govt proposals – to solve the current impasse somebody somewhere has to be willing to take a loss. It seems to me that the banks aren’t willing to do this, the Govt (via the Regulator) will indicate that the banks can’t afford to take such a hit but all the while its becoming increasingly obvious that the current mortgage holders or c17% of them (based on Fridays numbers) can’t take the hit either – so where should the loss eventually fall ?

In my view the loss should of course have been taken by the finaciers of the banks namely the equity, bond and deposit holders. Given that the ECB was clearly not comfortable with this solution I would have thought the ECB should as a result be on the hook for this problem – how they divy up the loss across the EU nations is their issue but I’m sorry when they stepped in and said no go to the normal functioning of the market thhey have to live with decision.

The abuse of power here was the daft idea to not let the banks fail – we were brainwashed into believing that the banks danced to a different economic tune. They don’t. The banks sell credit and take a fee for their efforts – no different to any other commodity type broker.

Whilst I agree their has been an abuse of power by the key decision makers in this debacle the easy was for Ireland Inc to stop the rot is not to pay the upcoming €3.1bn PN. I’ve always found not paying tends to focus the mind of the parties involved.

@ Chris

On what basis would the ECB “insist” beyond the repeated lectures that Trichet gave to governments to live up to their responsibilities under the treaties? No institution of the EU can act outside its legal remit.

The issue of “regulatory capture” in the global financial system is a much wider one and can be discussed on its own merits.

The ECB fought tooth and nail against PSI and Trichet is reported to have brought charts to a European Council at the time the “burn the bondholders” sentiment was at its height, pointing out the negative impact on the sovereign debt markets. All he got was a thick ear from Sarkozy. The supposed “voluntary” restructuring in the case of Greece is all that is left of this misguided approach by Merkozy which has nearly destroyed the European sovereign bond market.

If the politicians have reversed engines on the issue, it is not because of any trenchant opposition of the ECB but because the debris of their own errors is all around them. By swapping its holding of Greek bonds, the ECB removes its irons from the fire and ensures that it remains in accordance with its treaty mandate.

@Bond 12:01

“The figures that that article you linked to is referring to are mainly private sector issuance from the IFSC”

Yup, know that, the authors appear aware of it too as they refer to multinationals, which is what I was referring to:
specifically their point here:

“It is also noteworthy that most of the government debt of Greece, Portugal, and Ireland is held abroad, and almost half Spanish and Italian government debt is held abroad. “Almost all countries within the euro issue most of their debt under their local laws. As the following chart from Nomura shows, Greece, Portugal and Spain local law governs 90% of the bonds issued by these countries. The only countries with very large foreign law issuance as a percentage of the total bonds issued are Netherlands, Italy and Ireland. (Ireland issues more than 60% of its bonds under foreign laws, but this is likely from subsidiaries of multinationals domiciled in Ireland and not Irish companies themselves.)”

@MH 12:08

Don’t know where you got your facts from there:-) Perhaps you need to reread my comments and sources I based them on. Not talking about lender of last resort or anything further than China support of US TB’s or recent advice/support of Iceland and Olafur Grimsson.

Your doomsday loss of export jobs is off the wall as well. I like to use good sources, don’t you; or do you prefer your own ideas 🙂

For the record the original equity holders have been largely wiped as should have been the case. The subbise have been haircut to varying degrees. The tapxpayer intervened to protect the depositor and the senior bondholders.
Now as I understand it you are proposing marking down loans to some kind of model. You are quite right to state that this will involve hits to the remaining liabilitly providers which are in order -the taxapyer, the deposit base and the ECB who has the best collatoral as some kind of security.

Effectively you are proposing an internal wealth transfer in Ireland from depositor/taxpayer to borrower. The largest beneficiary would of course be those with the largest loans. This is perhaps the the 2nd most regressicve form of taxation that I have seen-the forst being the original bailout.

Could Chinese vice-president Xi Jinping send some of his economists as interns here. We could give them visas and they could spend time assisting our highly paid academics. They might be able to show us how to get out of the mess we are in.


It’s probably labour in vain, but if the point keeps being hammered it might eventualy be inserted in to a few more brains. While the good times rolled national governments failed to empower the relevant EU institutions appropriately lest they curtail their (the governments) discretion. And many exploited that discretion beyond what was wise or sensible. Now that the bad times are here the governments (and a host of commentators) berate the institutions for not doing what they want them to do to rescue them from thier folly and abuse them when they refuse to act outside the mandates they have been democratically granted.

@ Colm

““In the case of Ireland, action-man points out a high proportion of sovereign debt in denominated under international law”

does not square with….

“Yup, know that, the authors appear aware of it too as they refer to multinationals, which is what I was referring to”

Also, re China and “recent advice/support of Iceland and Olafur Grimsson”

What exact advice or support have they shown to Iceland? Other than offering to buy up an extremely large piece of land.

@Paul Hunt

There is a clear dividing line here. ….

misers vs junkies or advocates of chemotherapy vs advocates of homeopathy

I think most normal people whether left and right leaning are frustrated that while homeopathy seems to be the default option for the finance industry… ie. keep diluting the euro to wash away the various ongoing frauds… chemotherapy is the default setting for the non connected…

I also think the most vocal complainers are the previously well connected who are finding out insider is a relative term.

Debt forgiveness with PSI is the correct decision for Greece. The negative effect of contagion are exagerated.
Government bond yields decreased in the week after the July 2011 summit anouncing PSI across the eurozone. In Portugal, bond yields dropped by one percent, in Ireland by almost two percent. Spain also benefited from lower borrowing costs and so did Austria, Belgium, France, the Netherlands, and Finland. Even Greece benefited from the deal with lower government bond yields. Only Italy did not see its bond yields fall. Taking a longer term view by calculating the change in ten year government bond yields from June to September of 2011 gives a similar picture. Austria, Belgium, Germany, France, Ireland, the Netherlands, Finland, Spain, and Malta saw falling bond yields. Prima facie evidence thus does not support the claim that PSI involvement caused the issues in the European sb market.


@Paul Hunt on those evil governments who prevented the blameless neoliberal technocrats in the EU from making Europe safe from social democracy.

And many exploited that discretion beyond what was wise or sensible. Now that the bad times are here the governments (and a host of commentators) berate the institutions for not doing what they want them to do to rescue them from their folly and abuse them when they refuse to act outside the mandates they have been democratically granted.

You keep using the word democratic. I do think it means what you think it means.

The ECB prides itself on its lack of democratic input (the hoi polloi have never understood the markets) and its primary role has been the protection of creditors/wealth holders. It is no more a democratic institution than NATO is.

It is rather fitting that reverse genius Jean Claude Trichet moved from trying to save the European financial sector from its comeuppance to a senior position in an arms manufacturer (EADS).

The penny has yet to drop that the pre-2008 income levels are not going to return anytime soon either in Ireland or many other places.

In Greece, the kleptocracy sustained many in the middle class and for the rest of society the political parties created jobs in the public service. In Ireland, employment in the tradeable sectors effectively stalled in 2001 but selling and building houses, fuelled by bank credit provided a jump in incomes and a massive boost in welfare.

Since the bust, the self-employed , usually one-person operations, have been absolutely clobbered; for the unemployed, long-term unemployment is back.

The trade unions have become so compromised as insiders that they are as silent about professional fee cartels as they are about disgraceful payoffs for senior civil servants who never had to make a consequential decisions in their professional lives.

Remember that song, ‘The Foreman’s Job’?

How easy it was to drink the soup?

So what Paul Hunt refers to will likely take many more years to play out.

@ Bond,

I gave you the reference above “Ireland issues more than 60% of its bonds under foreign laws, but this is likely from subsidiaries of multinationals domiciled in Ireland and not Irish companies themselves.”

Re “What exact advice or support have they shown to Iceland?”

The links to youtube video interviews or podcasts I can’t lay my hands on, so you got me there:-)

But here are some links where he refers to ample support from China particularly in the area of clean energy. Also if you google you’ll see quite a number of bilateral visits building links between China and Iceland.

http://www.treehugger.com/energy-policy/president-of-iceland-our-clean-energy-economy-helped-us-survive-a-financial-crisis.html http://www.youtube.com/watch?v=KxTOYTdbnzk


clean energy economy http://www.youtube.com/watch?v=8j6JkwV23bk

@ Chris

“Government bond yields decreased in the week after the July 2011 summit anouncing PSI across the eurozone…Prima facie evidence thus does not support the claim that PSI involvement caused the issues in the European sb market.”

Any update on Portuguese yields since then? Any danger they may be subject to the Greek PSI contagion?

@ Colm

“But if I happen upon the podcast or video I’ve seen where he specifically addresses the support he got from China, I’ll send you the link

Why do I bother”

So thats a ‘No’ then? You’re pinning our hopes of surviving from a euro-exit on, among other things, help from China. You say we should look to Iceland and how they got help from China. But you can’t show what help they got from China. Ergo, your plan for Irish euro-exit appears built on a false premise, that China will help us for some reason.


The VP seemed to enjoy gis visit to Croker, although he is no Henry Shefflin. Therefore it follows that he is probably already a fan of the GAA, therefore he will help us. Does that work?

@ Tull

thought provoking as always. There’s a rumour out there that the “China to open major hub in Athlone” story actually refers to Mr Xi’s ambitions to turn Westmeath into the Man City of hurling.


The issue of “regulatory capture” in the global financial system is a much wider one and can be discussed on its own merits.

Though not here obviously….

Would you just have tried to distract people from the role that the undue influence of the financial sector in European policy making has played in causing and extending the current crisis by absurdly and disingenuously claiming the issue can not be discussed in a European context?

In case anyone has lost track the Eurozone crisis is part of a global financial crisis where the dominant strain of rightist European politics, European financial capitalists and market crazed EU institutions have conspired to try and paint what is undoubtedly a crisis of capitalism as a crisis of social democracy and then proceeded to try and raid democracy and social protection in order to give an unfair and dysfunctional economic arrangement the appearance of inevitability.

Crisis in the markets? Destroy everything else.

@ Chris

No doubt, this is correct but the argument is, unfortunately, a chicken and egg one in the sense that the PSI approach of Germany pushed up yields while the SMP programme introduced by the ECB pushed them down. I leave it to the experts to elaborate on this if any are that way inclined. I can only follow the politics, not the technical movements in the markets.

But the proof of the pudding is in the eating; Berlin has retreated on the PSI issue by agreeing to a change in the wording of the ESM treaty and the ECB, under Draghi, is clearly trying to exit from the SMP programme, going the more effective LTRO route instead.

How both sides got into such a bind will be the subject of eternal dispute and debate.

P.S. It seems that the Telegraph may have got it wrong on this occasion with regard to the “end game”. But the day is long!

@Eoin Bond

As regards Portugal and Greek PSI contagion, the Portuguse bond yeilds fell by 1 percent in the weeks after the PSI announcement, so no they were not affected by contagion. In July 11 before the announcement of PSI the bond yeilds were around 12% and now they are still around 12%.
There are many economic fundamental factors which influence bond yeilds in the longer term. http://www.tradingeconomics.com/portugal/indicators

@ Bond,

“But you can’t show what help they got from China.”

“that China will help us for some reason.’

Flattery will get you nowhere, Your mind is soooo closed, you don’t read my posts at all:-) I did mention the area of clean energy, plus I gave you links to follow and find out for yourself. But you’ve not looked at any of them. They’ve had ample support from China in that area. Perhaps you dismiss the recent bilateral links and visits of Klaus Regling to China or Barrossa. We’ve cemented further trade links this weekend. If our Government were doing more, construction in Ireland might have been given contracts in China.

Re “your plan for Irish euro-exit appears built on a false premise, that China will help us for some reason.”

What a cassandra you are. Be cheerful and optimistic and realistic, not this boo boo negative doomsayer, doom and gloom, Armageddon fear mongering nonsense, boo boo, nobody will help us. That’s plain boring 🙂


I fear you’re on the hunt for the fairness to all tooth fairy. You’ll be disappointed.

Whats gone wrong here is that the Govt/ECB/NAMA et al have stepped in to avoid losses being shared by those who should have taken them (it wouldn’t be fair you see) and the ongoing screw ups since have brought us to where we are today. Truly screwed.

We both know that the sub bond holders and the seniors should have taken it up the yaxy – the pari passu treatment of deposit holders and senior bond holders was and is a nonsense but the depositors do finance the operations of these ‘banks’ and in true capitalist form they too should have had to share some pain. That’s life – it ain’t pretty but that’s the rules of engagement. Or at least that’s the rules of engagement for financiers of manufacturers/retailers/construction sub contractors etc but not banks for some odd reason.

If we rewrite the rules when the directors and lending officers srcrew up, the the lender of last resort steps in i.e. the ECB. The ECB is not the Irish taxpayer. The losses have been forced onto the Irish taxpayer for dire lending decisions, this is plainly wrong and the Govt by it PN negotiations is clearly telling you that its wrong.

In a normal world when non recourse debt deals were struck the law works on the assumption the lender would not go out of his/her way to compromise the long term structure of the market that fed the mouth he lived off. Given that this is what the Irish banks did they should not be allowed to enforce such recourse lending arrangements when they have financed an additional 150k of unwanted units on the market and thereby closed off the normal ‘out’ a stressed borrower would have i.e. to sell the property.

So the banks mispriced the property in the first instance and then polluted the market with unwanted product and still believe they are entitled to 100% of their cash back – dream on. The stressed mortgage holder will understand that if its own Govt is looking for a debt deal write off for debts it can never pay(we all know that’s what the Govt actually desires) then why not me?

@michael H

The penny has yet to drop that the pre-2008 income levels are not going to return anytime soon either in Ireland or many other places.

If only Michael.

I read recently that the Central Bank had coughed up in the region of 30 million in one year on fees. Allowing for holidays and so on, this amounts to slightly less than 3 million per month, or 750k per week. Is that good value? I don’t know, but it seems to compare well to tribunal fees.

Likewise NAMA is spending money on professional fees as if money was about to go out of fashion. Can any Minister in government produce the data and arguments that would stand up these levels of expenditures?

The securities market program was in action since May 2010. It was actually slightly decreased in the weeks following the PSI announcement for Greece when bond yeilds fell across europe. http://www.bloomberg.com/quote/ECBCSMP:IND/chart.
It did increase rapidly from 7th August 2011 following actions by Spainish and Italian governments. So while it does explain later bond yeild reductions for Italy and Spain and maybe other “distressed” countries it doesn’t directly explain the lack of contagion across the Eurozone due to PSI involvement.

The treaty still includes PSI following IMF guidelines – the IMF were more eager for PSI in Irish banks that the EU or ECB.

Draghi was publicily against SMP from the start when he was at Banca D’Italia so no change in opinion there.

@ Chris

As I said, it is a chicken and egg argument and impossible to disentangle. What matters is the change in political sentiment and direction. The change to the ESM is a radical one. There is now no reference to PSI in its operative Article 11 as was previously the case. (Coincidentally, there was discussion just now on CNBC on the fall-off in action by the ECB under the SMP while the second round of LTRO is eagerly awaited. As the blog post by Gavyn Davies above underlines, what is happening in the EA has parallels across the globe which suggest considerable interaction between central banks).

@ All

This is the first article that I have seen that fingers the involvement of the three big arms suppliers – Germany, France and the US – in the Greek crisis. It helps both to underline and explain the exceptional nature of the crisis and the EA response. It is truly a “once off”. All that is now required is to get the markest to believe this!


Any legal opinions on this:

“The judicial concept of ECB crisis policy

The German legal philosopher and professor of public law Carl Schmitt thought the true hour of state power was the emergency. The time of the Weimar Republic was very appropriate for that purpose. Schmitt argues: “The exception is more interesting than the rule. The rule proves nothing; the exception proves everything. In the exception the power of real life breaks through the crust of a mechanism that has become torpid by repetition.”

Trichet in his ECB practice unconsciously copied that concept. Why? Fiscal Emergency in certain euro member states is a unique occasion to get rid of the rule of law. That leads directly to “unlimited ECB government”.

As a matter of fact ECB has become a de facto sovereign TFEU-legislator. What has started as a temporary suspension of rules has in the meantime become the definite and general revision of Article 123-125 TFEU and Article 127-130 TFEU.

In the meantime, the pending legal action in the European Court makes progress (plaintiff reference N°T-532/11). What remains to be seen is whether the General Court will declare the action of a citizen admissible. If the court does not have that wisdom, the ECB will be without any legal checks and balances and its way straight to its collapse as well as the collapse of the eurosystem will become inevitable.””

The legal counsel of the ECB should not be able to dictate what is legal or not, yet, people believe that as the ECB legal counsel says that the ECB cannot suffer losses on its SMP program. The ECB is not, or at least should not be, able to decide what is legal.


I realise it may pain you to accept it but there is as much anger among liberal and centre-right proponents of the ‘social market’ at the damage that unfettered Anglo-Saxon financial capitalism has wrought as there is among the so-called ‘social democratic left’. And, perhaps, more importantly, there is less difference in practice between the functionings of the ‘social market’ and of ‘social democracy’. It is characterised by some difference in emphasis and degree.

Generally, under the ‘social market’ private sector activities and professions are more cossetted; under ‘social democracy’ public sector activities and workers are more cossetted. The differences are not so deep and divisive as to prevent the emergence of a stable ‘grand coalition’ as in Germany from 2005-2009. It is very possible that such a ‘grand coalition’ will be formed again at the end of next year. In the increasingly anachronistic configuration of Irish politics the current Coalition Government could be viewed in a similar light.

There is a genuine commitment across the politcial spectrum in the EU to bring theforces of financial capitalism to heel. But, given the degree to which governments of all complexions entered in to this Faustian pact with banks and the financial sector – and the extent to which they lied to their voters – it will take quite some time to secure an effective resolution.

The penny has not yet dropped with the fiscal stimulus-demanding social democrats that bringing the financial sector to heel will require governments to reduce their reliance on the sovereign bond market and that a genuine sustainable economic recovery relies on significant structural reforms in the sheltered sectors – both public and private.

Though France may buck the trend (as Denmark did by a wafer-thin margin last November), there can be little doubt that a plurality of voters throughout Europe are in tune with the liberal/centre-right approach. We may regret this because when it comes to structural reform private sector activities will get a much easier ride than public sector activities. But that, unfortunately, is the reality. But while social democrats continue to hold firm to out-dated ideological baggage, to worship their ancient ‘households gods’ and to defend inefficient public sector practices and privilged ‘insiders’ and rent-seekers, it is likely that more and more voters will be repelled.

I do wish the press would stop framing the Greece story with words like ‘rescued’ and ‘saved’. They are like bloody parrots who will repeat any crap they’re given.

On the subject of ‘it was the PSI wot dunnit’ this is as far as I’ve got.

A sovereign can swear all it likes it will never, not anyhow, no way default: but it cannot really ever guarantee this. It cannot guarantee this because there are events out of its control.

Countries with their own Central Banks are less likely to default than countries without.

Only a few years ago sovereign bond markets in the EZ priced sovereign risk in a playpen sort of way, where risk was more an idea of how well the country was doing relative to one another (Ireland top of the class), but not the actual idea that the risk was not getting the money back.

Then the big fat financial crisis hit (see comments by Shay, mr quigley, etc for the centrality of this: and for those feeling they’re ‘forced’ to read documents, paul quigley’s one on shadow banking is a monster).

The first wave went through the financial sector and it managed to blow out Iceland off the bat – in this case this was so extreme that Iceland wouldn’t (proper demos) and couldn’t handle it, and Iceland took a different route: but notably did not repudiate its sovereign debt. See the other thread above.

Sovereigns, to varying extent and with varying levels of honesty and forethought took on banking debts (socialising the losses).

It was with a creeping horror that countries and market participants in the EZ realised that countries did not have their own courrency or a properly mandated Central Bank. The ECB would not / could not directly support the sovereigns. All countries were operating in a foreign currency. It was possible that EZ countries could default – even though they didn’t want to. EZ countries all have an object called a Central Bank, but it doesn’t have the powers that one assumes a Central Bank has.

Under the euro grave and ongoing differences in economic developments (inflation / balance of payments) in each country had been hidden by the cheap money available due to the snoozy illusion of the EZ described above. Worse, in order to maintain this snoozy illusion of a rising tide for all, even graver inbalances had arisen.

Greece was/is an outlier [insert moral judgment here] and it got caught hardest and most acutely, but fundamentally it is just a country in a (to put it blandly), non optimal currency union.

Then in July last year, the EZ sovereigns got out their pens and signed a document saying that Greece MUST have PSI and everyone else never will.

This was nuts. This was nuts because, as noted above, no sovereign can really promise not to invoke PSI and there is – in spite of the noble effort from DOCM above – no really good reason why Greece is different to anywhere else. Nor did it account for community solidarity – saying ‘Greece is different’ is ipso fact making them the other.

This is not to say that Greece might not be the only sovereign to default in the current crisis, but that if country X is in the exact same position as Greece, then the same things will happen. Can’t pay, won’t pay. That’s why the EU can swear all it likes that Portugal (sorry Portugal) won’t be different, but the markets won’t believe it.

My take is that the promise for PSI for Greece but never for any other country is the one that ruptured the faith in the markets for the political class. These people would say anything (and make other countries say anything) to try to make them happy, and people who will say anything are not trustworthy.

The markets are hydra headed and it is hard to track this.

One of the features of the new Fiscal Compact and ESM is that it says when it comes to default, IMF principles apply, and this is a good thing. It is a good thing because it clarifies that sovereign default is to be avoided in as far as it is possible, but it is possible that it might ultimately be the least worst option.

People may have different opinions as to the point at which sovereign default (and exit from a currency union) is desirable, but at least there is some kind of structure (ignoring the rest of the Fiscal compact) now which reflects a credible description of the way things actually are. And its principles based and flexible, not rules based and inflexible.

So for me, it was the simultaneous announcement that there must and must not be PSI in the EZ that destabilised the situation.

On the PN.

Interesting to see all the discussion of restructuring the PN in the press, including John Ihle in the Sunday Business Post who is basically saying shurrup and let the techno-wizards get on with it: there seems to be activity in Veronica’s “black box”.

@ Gavin Kostick

It is difficult to try and go in two opposing directions at the same time. That this was what was being attempted did not become evident to Merkel and her advisers until it was too late to reverse engines in the case of Greece.

Hence the contradiction that you identify and the policy dilemma that it has given rise to.

The answer from the markets will depend on how the countries most likely to be affected react. If, for example, the plaint in Ireland, “if Greece, why not us?”, or “Stop the March payment on the PN”, were to gain the upper hand, our goose would be well and truly cooked.

By the way; Greece is different! The aim is to get the debt ratio back to a floor which would be seen as an excessive ceiling for Ireland.

The latest reports suggest that reducing the excessive rates on the bilateral loans in the first bailout (oh happy days of righteous indignation!) will be an element in the final package (even if governments have to go back to their parliaments on the issue).


Spiegel Interview with Kenneth Rogoff

In an interview with SPIEGEL, Harvard economist Kenneth Rogoff, 58, says it was a mistake to bring all the southern European countries into the common currency. He also argues that Greece should be granted a “sabbatical” from the euro and that a United States of Europe may take shape far sooner than many believe.


Thought provoking.

It’s endgame alright. Greece is clearly never going to meet any of the targets it’s been set to get back to ‘sustainable’ levels. There really is nothing new coming out of the Greek talks last night. It is just the same old buying time. Not quite ready to pull the plug just yet. Need to get some more stability into the banks probably before they do pull the plug.


You seem resolutely determined not to acknowledge that the Greek PSI was triggered by the IMF. I presume this is because it interferes with your view that it was all a Merkozy mistake, for which they are now seeking forgiveness having seen the error of their ways. Merkozy had rambled on about PSI post-2013. It was the IMF that made it a reality in 2011.

It is clear that the IMF (with the US as the key player) in the weeks leading up to the July Council meeting said their contribution was conditional on debt sustainability being reached, and they used the 120%/2020 value. To achieve this PSI was required. The AAA-FinMin “team” (Schauble, de Jager etc) had always wanted PSI. However it only actually happened when the IMF demanded it as the price for their contribution.

The IMF have been totally consistent, and exactly the same thing happened yesterday. Going into yesterday’s meeting they said their contribution was conditional on the 120%/2020 target being reached. In the leaked DSA they suggested a few ways to get this down from the 129% level (ECB/NCB profits on SMP/Greek bonds etc.) What happened in the Eurogroup meeting was that the target was met, almost exactly (down to 120.5%). The AAA-countries managed to increase the PSI contribution, and reduce the amount to be allocated from ECB/NCB profits, but the end goal was reached.

PSI was the only sensible option for Greece. The rest of the world sees this clearly. And there will be more to come, since the fiscal adjustment needed in Greece is hopelessly optimistic, with a required 7% change in primary deficit in 3 years, then to run at over 4% for a decade. If Portugal slides down the slippery slope, the IMF will do exactly the same again. It is possible, but unlikely, that the EU will say “you can keep your IMF money, we’re not allowing Portugese PSI”. I’m sure the IMF would be glad to be out of it at that point; I suspect the Chinese will also instruct their staff to “tell them I’m not here”, as the avalanche of begging phone calls starts.

Fwiw, recent Spiegel Interview with Sinn – In German only unfortunately-

Spiegel :

Why does Europe insist on the bailout packages for Greece?

Prof. H.W. Sinn: This is not so much about Greece.

This is about financial Institutions and Banks, from Wallstreet to London and Paris. They took the Greeks hostage to force this never ending flow of bailout packages, not towards Greece, but into their own pockets.


Dear Hans Werner, I share your view, but would like to complete the picture. I know you did not do this in purpose, we are not getting younger.

From Wallstreet to London, Frankfurt and Paris.

@DOCM, Bryan G, PR Guy et al,

There is an undestandable focus here on examining these issues through the economics prism and then layering on the institutional and political aspects, but we end up going around in cricles. The fundamental problem is that Greece is a failed state. It is obviously not a failed state like Somalia or Aghanistan or other under-developed African states, but it is a failed state relative to the democratic governance norms on which the EU functions. (Ghana has more of a right to be in the EU than Greece.)

The common bond that is required to ensure effective democratic governance of a polity was never secured in Greece and, insofar as it was partially formed once the Colonels were removed, it has being fraying continuously. And now it seems to have snapped.

The EU, indulgently and naively, turned a blind eye to this fraying and sanctioned the structural, regional and social fund transfers that were used to conceal this fraying. And more recently, by default almost, its banking and financial sectors distributed the largesse that would conceal the fraying – mainly to replace the central transfers as the traditional funds were diluted to satisfy the demands of the new entrants from 2004.

And because the banks and financial sector implicitly substituted for the declining use of the traditional funds – and are now seriously exposed – the EU does not have the mechanisms that will secure sufficient democratic consent to provide the relief that Greece so badly requires.

So the Greeks are getting partial – but totally insufficient – relief. But, in the long run, it may be for the best, because if Greece were to get the full relief it requires, it would not confront its existential problem as a failed state. And only the Greeks can do this. It’s been a long time coming.

To a considerably lesser degree Portugal is also a failed state – as to a lesser degree again is Spain. But it should be possible to repair the fraying of the national common bonds there. Ireland is the only member of its own category as a slightly failed state with solid democratic institutions and all the trappings, but exhibiting a total failure to apply the processes in the public interest. This is probably the most difficult case, because so much effort is put in to projecting and sustaining optical illusions that what needs to be done to put Ireland on a path to sustainable economic recovery can be postponed indefinitely – and the path becomes longer and harder than it need be.

@ Brian G

You are attributing a view to me that I do not hold. The IMF is, of course, the main trigger. But you have to wind the film back further. It was Germany that insisted on IMF involvement. Merkel and Schaeuble were at least agreed on that. Trichet was adamantly opposed. It meant that Berlin was absconding from its responsibilities in respect of maintaining the single currency and he saw clearly the complications that would arise with Washington in the room (which is what IMF involvement effectively boils down to). But German banks had been badly burnt by Wall Street. And Merkel was on her crusade to subdue the markets.

We are where we are!

Herewith a link which opens a vista for the future. If past performance is any guide, the EA will again take the wrong direction before being forced back on to the right one.


cf.also Winkler paper on the “Joint Production of Confidence”

@ Paul Hunt

I agree! But failed states have a habit of turning nasty.

It was most unwise of the two dominant Greek parties, collectively responsible for the mess the country is in, not to allow the present half-technocratic government to continue. They seem both likely to be overwhelmed in the April elections with a very uncertain outcome for the people of Greece (over 70% of whom wish to retain the euro and avoid taking the naive advice of Rogoff and others that they shoot themselves in the head while billions of private Greek funds are sitting abroad safely abroad and which would return to hoover up what they had left).


I think you are hinting at the potential to constrain the ‘nastiness’ when you refer to the opinion polling that suggests that 70% of Greek voters wish to retain the Euro. It is of little use lamenting the desire of the main politcial parties to force an early election. Papademos isn’t Monti; and, conversely, the rag-tag political factions in Italy lack the (slightly fraying) cohesion of PASOK and New Democracy.

It may be that voters will severely punish the alternating economic lunacies of PASOK and New Democracy since 1975, but New Democracy was probably touching its core base vote at the last election and PASOK will take a hammering just because it was the incumbent while this tragedy unfolded. There will have to be a long overdue cleaning of the Augean stables, but I am reasonably confident that enough Greek voters will will a centre-right/centre-left grand coalition and seek to re-build a national common bond (similar to what has happened in Ireland with the slightly more and slightly less constitutional nationalists pushed to the edges with the hard left).

This, in the first instance, is a problem for the Greek people to solve. But the EU has to hasten institutional reform to be able to provide necessary relief when the Greek people respond as I expect.

I wonder what will be left of Greece when they’re raking through the ashes not so far down the road from here.

@Georg R B

About the most interesting thing I’ve ever heard Sinn say and you are right to pick up the Frankfurt bit.

PR Guy

I exchange thoughts with HW once in a while, and he knows me to call a spade a spade.

Christine Lagarde: “The success of this strategy crucially depends on full and timely policy implementation by Greece and long-term support by euro area member states.”

Translation: boots on the ground.


Schauble was completely opposed to IMF involvement. He wanted a European equivalent that had the power to suspend voting rights, levy fines etc. It was Merkel that forced the issue, largely to counter potential legal/constitutional problems in Germany with the Greek bailout.

Basically the Europeans have taken the basic IMF template that has been used successfully in countless debt restructurings in the past, and modified it so that it cannot possibly work. For example

– the interest rate on EFSF loans was designed to be punitive, totally defeating the purpose of allowing the beneficiary country time to return to sustainability. This was abandoned last July.

– the necessary debt-write downs had to be “voluntary”. This too was eventually abandoned last week. The ECB debt swap was an admission that CACs would be imposed, and hence that non-voluntary measures would be enforced.

– the restructuring favours existing creditors over potential new ones. The ECB declared itself to be a super-senior bond holder, and the €70bn of new greek bonds that will be issued as part of the “voluntary” deal appear to be senior to any bonds that will be issued at the end of the programme. This guarantees failure. This was never the model used by the IMF. The whole point (e.g. as used with Brady Bonds) was to hit existing bondholders hard, wipe the slate clean, implement reforms, and start again.

The IMF portion of the new Greek bailout is down to 10% from 33%. They know the programme won’t work, but want to keep a seat at the table and retain some influence, and this is probably the minimum level that allows them to do this.

Christine Lagarde: “The success of this strategy crucially depends on full and timely policy implementation by Greece and long-term support by **euro area member states**.”

Translation: “We’re outta here (as regards providing any significant money) – hope it works out for you guys!”

@ Bryan G

I would disagree with hardly anything that you say. (I had lost track of what Merkel was for and Schaeuble against).

The IMF is, indeed, retiring, injured because its biggest champion, the US is suffering from a major disability; no money!

The Latin American experience is not relevant. What is at issue is the threatened break-up of a monetary union and what to do about it. The ECB is adhering to its legal mandate in the matter of its involvement in the purchase of sovereign bonds. The issue of seniority is secondary as far as it is concerned. Draghi spelt out the situation in some detail at his most recent press conference.

I leave prediction as to what will happen to others. It seems clear to me, however, that the possibility of the ECB issuing tradeable certificates as adverted to in the Alphaville link above is the one to watch because of a rather obvious fact at this stage; the banks that make the Euro Area function are only prepared to trust the ECB and the creditworthy member states that back it and not each other. Until this problem is resolved, the fall in confidence and credit for the real economy will continue. The “strains”, as the ECB describes them, are now made glaringly obvious by the skewed balances in the Target 2 system. If these continue, Professor Sinn and his supporters will se themsleves as vindicated.


The Latin American experience is perfectly relevant – heavily indebted countries borrowing in an external currency. It is only not relevant when viewed through some sort of flawed “this time it’s different” logic. The ECB doesn’t care about the new tiered seniority structure making it impossible for Greece to return to the markets, as it doesn’t care whether Greece can ever return to the markets. The IMF pushed hard for significant OSI, and although there was some movement, it fell far short of what they were looking for.

The ECB’s behaviour is a classic case, in engineering terms, of uncoordinated local optimizations being made to a fundamentally unstable and unworkable system. Since no attempt is being made to fix the overall system, walking away is a perfectly rational response by the IMF.

D.O’D. : (quoting the Spiegel Interview)’In an interview with SPIEGEL, Harvard economist Kenneth Rogoff, 58, says it was a mistake to bring all the southern European countries into the common currency. He also argues that Greece should be granted a “sabbatical” from the euro and that a United States of Europe may take shape far sooner than many believe. ‘

….he goes on to compare it to the American 19th c situation , which has been done numerous times. It’s an untenable comparison:
The States, as they were, were embryonic culturally & institutionally. With notable exceptions, and disputed boundaries (not solely geographically), the European landscape is entrenched in National identities, Institutions and in the psyche of their peoples, they are following parallel but seperate destinies. The fact that Unification was a foregone conclusion among many of the coterie of the European architects has penetrated the public domain, and though it was probably always widely known in certain quarters, it is indisputable that it was deliberately absented from the ‘consents’ in the brief democratic consultations that were made.
Even now no Irish politician will openly admit the fact that they are actively participating in the process of dissolving the Irish Nation State. And while it is commonly spoken about on the continent, it’s supporters are still in the minority.
The common feeling that I meet with from people here is a quasy realisation that through the Treaties they were mis-sold, common currency was the surrender of financial control and free movement was neither designed to benefit the people within the Nation or those migrating into it, but the ceding of the ultimate investiture of a Nation in it’s people – citizenship was relativatised to the morphous virtual-reality EU institutions.
It’s almost laughable now, when I look back on the conversations that were occurring at the time – ‘Why are they calling it the european UNION, now ?’ ‘Ah, don’t be silly; it doesn’t mean anything of the sort…’

American commentary seems to miss this point entirely – ‘unification’ of the sort they’re talking abou will only be acheived through actual military imposition, and even some people are so far gone to accept this in the breaking eggs/omelette way, they result will, as with every other upheaval of a situation where a communally-identifying people, expressed in a region/Nation, were overthrown or taken control of by an external power – permanent instability and frequent recurring war.
The european institutions will never be an acceptable medium for democratic expression – they have inspired public antipathy in direct proportion to their increased powers. The helter-skelter acceleration of this widening ratio is indeed noted and commented upon, most recently by Joan Burton in a feeble, pleading manner, but also by more astute and impartial international observers. But nonetheless, the political quarters whom we may assume are the current engineers and architiects of integration, in a bizarre replication of the policy of increasing austerity, seem to believe that speeding up the processes of unificatio that are contrary to the common good, the common will, and common sense, harmonious compliance will magically prevail.
The most worrying thing is that the single-mindedness to apply their will, disregarding law, democracy and sovereignty in the manner that has been done, and the increasing desperation of these coteries, in a manner that I for one never beleived I would witness in western europe in my lifetime, makes the forced overtrow of parliamentary democracies not merely possible but likely. And in these scenarios, violent conflict will be a certainty.

@ all

Take a bow folks. Mighty hurling. Ars longa vita brevis.

@ Mark

‘Even now no Irish politician will openly admit the fact that they are actively participating in the process of dissolving the Irish Nation State. And while it is commonly spoken about on the continent, it’s supporters are still in the minority’

+ 1. We’re on the one road, the road to God Knows Where

Is this true?

“Ms. Katseli, an economist who was labor minister in the government of George Papandreou until she left in a cabinet reshuffle last June, was also upset that Greece’s lenders will have the right to seize the gold reserves in the Bank of Greece under the terms of the new deal..” (DT)

@ PR Guy

assume this is an element of the “collateral” that it has agreed to put up against some of the loans.

@ Paul Quigley


Becket is a favorite author of mine


“We’re on the one road, the road to God Knows Where”

Are you Lucky ? 🙂


Isn’t Ireland a bit like Lucky where the euro is POZZO?

“He is “tied” (a favourite theme in Godot) to Pozzo by a ridiculously long rope in the first act, and then a similarly ridiculous short rope in the second act. Both tie around his neck. When he is not serving Pozzo, he usually stands in one spot drooling or sleeping, if he stands there long enough. His props include a picnic basket, a coat, and a suitcase full of sand.”

The picnic basket is our bailout…..Lol

@ Bryan G

You are approaching this issue from the wrong angle. There is no point in attributing sentiments of one kind or another to the ECB. It is an institution and it acts in accordance with its legal mandate (which is, of course, an outcome of the political agreement with regard to the establishment of the euro; that the latter was a very botched job is generally agreed and not under discussion).

The point that I am making is that the concerns of Draghi in the matter of the ECB taking a loss on its bond purchases relate to the treaty ban on the monetary financing of governments. That I am correct is borne out by this report in today’s FT.


The stance adopted by the Bundesbank was a smokescreen, in my opinion. What would really be of interest would be to know how the German representative on the governing council (formerly an economic advisor to Merkel, if I am not mistaken) viewed the matter.

On the possibility of the ECB issuing debt certificates, as recommended by Nomura, I checked this out and it seems (a) there is full provision in the existing rules for such issuance (b) the possibility of doing so has been adverted to over the past few years, notably by LBS.

I remain of the view that the Latin American experience has little to give in the way of guidance with regard to the crisis in the euro because the contexts are completely different. The point about effectively borrowing in a foreign currency only emerged courtesy of the efforts of Paul de Grauwe, which does not say much for the economic analysis underpinning the euro in the first place. But it does underline the political rather than the economic nature of the problem viz. the status of the CBs in the ESCB is only as good as the sovereigns backing them. This is where debt certificates issued by the ECB might come in.

Even if the Latin American experience was relevant, it would not be one to emulate.


The selling off of assets in the energy sector including sections of the ESB. The Troika will allow monies raised in excess of ¢2bn to be invested into employment generation.

Would it be a good suggestion to spend those monies on the creation of a public sector company for the energy sector to make up for any job losses future owners of the ESB may make; also to provide competition against the newly private ESB especially if it embarks on some ENRON/California charade using blackouts, cutting off the electricity supply?

Don’t laugh, I’m serious !

@DOCM 10:42

Appreciate the points re Mario you are making. In Endgame there are two aspects you also make frequent mention to: ‘political’ and currently what is feasible under current technical aspects of EU Law.

Buiter has a paper here on both aspects, the technical issues re debt certificates, E bonds very interesting.

But note especially his view here:

“We therefore expect the selective and limited issuance of E-bonds in years to come, but not the uncapped and open-ended pooling of sovereign risk in the euro area without a quid pro quo in terms of an uncapped and open-ended loss of fiscal sovereignty for the financial beneficiary governments that others advocate and/or expect.”

If there is a second ‘bailout’ of Ireland say for 2013, which appears unavoidable, the quid pro quo will mean the installation at most of a permanent ‘puppet government’ for Ireland with Ireland reduced to county council status in the EMU, or, which is virtually the same thing, absorption of Ireland into be beginning of a creeping Federalisation of the EU.

2016 new Lisbon/Dublin Treaty for the EU with Ireland becoming a new federated state of Germany’s Bundesland FailieIrlandie, what do you think?

Could we persuade them to join the FDI tour and transfer say a couple of factories over here, eg Porche Stutgart?

Should note “but the minimal fiscal Europe should
fall well short of even the lightest variety of transfer Europe.” of Buiter makes a lot of his views on debt certs, e bonds and ‘open-ended loss of fiscal sovereignty’ a bit hard to take! This is a vision for POZZO states dominated by the core, EUSSR; we had that before, it didn’t work!

@Bond Eoin Bond

Did they only have a collateral agreement with Finland do you know?

I thought they were the only ones who insisted on it and I believe it was signed last week. I just assumed they had put up the state railway system/a couple of islands/future taxes on Germans putting their towels on sunbeds before daybreak/etc. as collateral.

Would anyone out there be able to quantify the size of the gold reserves held in Greece?

Seibert (a Merkel PR Guy): Portugal and Ireland will not be offered more generous terms on the back of Greece’s new deal – under which the interest payment on its first package are cut.

Politics in hard times indeed.

@ PR

“Portugal and Ireland will not be offered more generous terms on the back of Greece’s new deal – under which the interest payment on its first package are cut.”

Greek deal will now be at euribor+150bps, Portuguese and Irish is basically at Euribor flat (or the fixed rate derived off the euribor curve), so we’re already getting it a lot cheaper than the Greeks.


I wasn’t attributing sentiment to the ECB, as heartless individuals that kick their cat as they leave for work in the morning, but was saying that they chose to ignore the longer term issues relating to Greece were when they were making their decisions, and when using the leverage they have over the financial system to ensure that their decisions are adopted and enforced.

This issue again shows the problems with having a rules-based framework as against a principles-based one. Let’s look at the rules:

The treaty doesn’t ban “monetary financing of governments” – it bans ECB purchases of government bonds on the primary markets and bans providing overdraft facilities for governments. That’s why the SMP program is legal, and why LTRO funds used to purchase government bonds are legal. If “profits” on instruments bought in the secondary market are allowed, then “losses” are allowed also – these are simply consequences of a prior legal action. There are lots of references in the treaty to “markets” and “competition”. I didn’t find any provisions that said that profits shall be legal but that losses shall be illegal. I also could easily make the case that the treatment given to the ECB’s holdings of Greek bonds violates Article 124 on preferential access by EU institutions.

Given ten different people you would get ten different interpretations of how the obviously inadequate “rule book” should be applied to a situation that was never considered when the rule book was written. What is really going on is that the ECB is just protecting its own interests and that of its clients (the banks).

There is media spin on the ECB “forgoing profits”. This in nonsense, since the ECB will do exactly as it would have done if there was no Greek bailout deal – i.e. distribute its profits to its shareholders – i.e. the member states. The member states can decide what to do with this money (e.g. allocate it to Greece). It is still likely that Germany will make a profit out of its lending to Greece, due to its very low borrowing costs, and thus will not allocate any of its share of the ECB profits to to Greece in order to meet the target interest rate. There were suggestions that the ECB would allow a debt-buy back by Greece at the ECB’s purchase cost – it did not do this. In fact it did not take any actions to reduce Greece’s debt level during the recent talks and by declaring itself super-senior has made things worse in the long-term.

@ Bryan G

Your focus remains too narrow. There is, of course, no ban on losses in the treaty on SMP as such a provision would be a nonsense. But what we are talking about is the ECB participating in a debt writedown for a country in budgetary difficulties which would be impossible to justify in political terms and, almost certainly, also legally, given other provisions in the treaties. (What the Bundesbank was up to in its reported misgivings on the seniority issue, I do not know!).

That is not where the real action is, in my opinion. I suggest that, if you have not already done so, that you look at the Alphaville post above and do a track-back of previous postings and links, notably Draghi’s remarks before Christmas on the lack of quality collateral i.e. safe assets.

Notably this link.



you’re confused again. The ECB is supposedly filled with technocrats hired to do what is right without political concerns. Now you’re claiming that it is subject to political interference and cannot take an action due to political reasons. It is quite an accusation. Which politician is interfering with the ECB?


It is not my focus that is too narrow – it is the ECB’s.

You say that taking losses on SMP securities would violate “other” (unspecified) provisions in the treaty. As I wrote above, in my view taking such losses is not prohibited by Article 123, which as far as I’m aware is the only one (apart from the equivalent in the ECB Statutes protocol) relevant to the financing of public bodies. What are these “other” provisions which it would violate?

I think you give the game away with your “politically unacceptable” comment. The “illegality” argument is just a smokescreen, and one that requires reading far more into Article 123 than is actually there.

Maybe I’m missing something but I don’t see how ECB debt certificates will solve anything. As pointed out in an an Alphaville comment, “only the cash-poor need the certificates, and only the cash-rich can afford them”. It will just be a way for cash-rich banks to earn greater profits from their cash than they can earn from the ECB’s deposit facility.

@ Brian G

Both you and Jesper misunderstand the nature of the EU. It is a political undertaking operating in a legal context. My reference to action by the ECB in taking losses being “poliitically unacceptable” clearly refers to Germany. The ECB must have regard to that. It cannot operate in a manner divorced from political reality. As to whether such a step would be legal or not is a matter which could only be established by the ECJ not by any blogger, myself included.

As to the question of whether or not debt certificates would be of assistance, I have no idea and did not venture a view in the matter. I simply said that I thought that it was the development to watch, especially in the context of the next flood of LTRO liquidity.

@ DOCM, Bryan G, etc.

Fascinating stuff above I must say.

“My reference to action by the ECB in taking losses being “politically unacceptable” clearly refers to Germany. The ECB must have regard to that. It cannot operate in a manner divorced from political reality.”

I’m not being argumentative here: genuinely curious.

If the ECB must take political considerations on board, and in particular the politics of Germany, where does that leave its independence?

@ Gavin Kostick

It leaves it where it has always been; in the real world!

The members of the governing council and, of course, the executive committee, are expressly forbidden from taking instructions from any quarter but the individuals involved cannot live in some kind of parallel universe divorced from the necessity of taking into account the political impact of, and the response to, decisions being taken.


if your accusation is accurate that the ECB is folding to political pressure then there are a few people within the ECB that has to be removed. A central banker who is not protecting his/her independence against political interference is about as useful as a financial regulator that does not regulate.

& your often used argument: People who don’t agree with you simply don’t understand is most often used by sullen teenagers 😀

@ Jesper

You should make an effort to stick to the issues and leave aside the ad hominem remarks.

As to which understanding of how the ECB works is correct, everyone is free to come to their own conclusions. The issue is an important one. The wider the debate the better.

I posted a link to the ECB website outlining its indepence, it seems to be stuck in moderation. A googling will find the document, a quote from it:

Political independence

The independence of the ECB is conducive to maintaining price stability. This is supported by extensive theoretical analysis and empirical evidence on central bank independence.

The ECB’s independence is laid down in the institutional framework for the single monetary policy (in the Treaty and in the Statute).
Practical implications

Neither the ECB nor the national central banks (NCBs), nor any member of their decision-making bodies, are allowed to seek or take instructions from EU institutions or bodies, from any government of an EU Member State or from any other body.

EU institutions and bodies and the governments of the Member States must respect this principle and not seek to influence the members of the decision-making bodies of the ECB (Article 130 of the Treaty)”

I don’t see the ECB duties regarding independence as something that is open for interpretation. Either the people at the ECB protect its independence or they do not. If they do not, then they should be removed from office.

@ Jesper

This is, of course, the case and I am not questioning it. But to extrapolate from these prescriptions that the ECB must live in some kind of ivory tower divorced from the world about it is to part company with reality. Executive Board member Asmussen has certainly not done so.

@ Brian G

It may be noted that Asmussen was expecting, on behalf of the ECB, a one-third contribution from the IMF.


Have I ever indicated that I believe there is a problem that members of the ECB are giving interviews? Looks like you’re back to building strawmen.

You’re claiming that the ECB is for political reasons about to do something. The ECB is not subject to political pressure and anyone trying to claim that the actions that the ECB are undertaking is coming from a government is making a very strong accusation that the ECB is no longer independent.

Are the people at the ECB able to stand up for themselves or not? If not, then they should be removed from office as they are no longer doing their job.

I see there appears to be a trail now of German political visitors dampening any speculation on any relief from the ¢31 bn plus ¢16 bn interest contrary to what Dukes, FG/LB, Noonan have been flagging.

The Irish Government must be well used to getting it all wrong by now, nothing new there 🙂 Next ¢3bn + end of March. Children on hospital trollies Day, Mar 17, ‘Compact Day’ (?) get to suck the debt sweets to see how they taste; you know if they don’t take them, they won’t get any ESM wards, or further payments to pay IBRC’s ¢47 bn.

of 14 December 2011
on the Magyar Nemzeti Bank

“It is of utmost importance to design an institutional structure that
separates monetary policy from the influence of short-term political interests.”

Does that apply to the ECB?


RE “@ Brian G

Both you and Jesper misunderstand the nature of the EU. It is a political undertaking operating in a legal context. My reference to action by the ECB in taking losses being “poliitically unacceptable” clearly refers to Germany. ”

Nope, DOCM, you misunderstand the nature of the EU and are confusing it with the EMU, they are not identical. The EMU undertaking operates in a legal context operating in a political EU context.

Its an important distinction especially to countrIEs like the UK.

@DOCM, Jesper

I don’t view the situation as one where the ECB are buckling under political pressure, but rather one in which they are using their considerable powers to ensure that their interests are protected and enforced. They have a clear hierarchy of interests:

1) The ECB themselves
2) Creditors in core banks
3) Creditors in non-core banks
4) Core sovereigns
5) Non-core sovereigns

For example, they have already subordinated sovereign debt to private bank debt (in Ireland) and subordinated private bank debt to their own debt (in Greece).

Asmussen’s comment on the IMF’s involvement was illuminating – he said that the IMF had refused to participate in the funding needed for PSI, and would only participate in the portion that could be regarded as a “classical” bailout. Thus it appears that the IMF have gone on strike over the handling of the PSI, its “voluntary” nature, and the ECB’s non-participation. The amounts related to PSI are large

– €30bn in “sweetners” for the bondholders
– €6bn in accrued interest
– €40bn to €50bn in Greek bank recap costs (includes an additional €23bn allocation in the new bailout package). Presumably the IMF think that if the asset side of the balance sheet is written down, the losses should flow through to the creditors, rather than flow through to Greek taxpayers.

(There is also a temporary loan of €35bn to replace Greek bonds held as collateral with the ECB during the exchange process, but I’m not factoring that in as it’s temporary and outside the €130bn package).

Thus somewhere between 1/2 to 2/3s of the new bailout package is PSI related, and this comes close to explaining the 10% (€13bn) figure reported as the IMF’s contribution. The IMF are saying that if EZ-style PSI is going to happen, it is not going to be funded by the rest of the world.

@ Bryan G, DOCM, Jesper

“The IMF are saying that if EZ-style PSI is going to happen, it is not going to be funded by the rest of the world.”

And who might be ‘the rest of the world’. It might be worthwhile for some to read carefully the following article:


“The major creditors to Greece – the firms that stand to lose the most from a default – are represented by the Institute for International Finance (IIF). The IIF negotiated the debt swap deal, which includes the 74% write-down on behalf of its members. The important point is that those members still have to individually agree to the terms.

Who are the members? According to BusinessWeek:

“The IIF’s steering committee that negotiated the swap included representatives from banks and insurers with the largest holdings of Greek government bonds, including National Bank of Greece SA, BNP Paribas, Commerzbank AG, Deutsche Bank, Intesa Sanpaolo SpA, ING Groep NV, Allianz SE and Axa.”

Biggies are in France, Germany.

“The IIF has a larger group called the “creditors committee” made up of 32 insurers and banks. These are the main banks and financial firms facing the write-down in the value of their Greek debt. So why are they willing?

The main answer is that they’ve already written that value down on their books. They’ve used the three months since the Long Term Refinancing Operation (LTRO) began to prepare for just this moment. They could’ve borrowed money from the European Central Bank (ECB) to replenish their capital levels after taking the Greek loss.———


“If that were the case, the members of the ISDA wouldn’t be worried about the credit default swaps related to Greek debt. But they are. And the members most worried are the five US banks that write 97% of all credit default swap contracts in the US.

Those banks – JP Morgan, Morgan Stanley, Goldman Sachs, Bank of America, and Citigroup – are all represented on the board of directors of the ISDA. Those banks have collected income by selling credit default insurance on European banks. Those banks stand to lose the most if Greece defaults.

“The solvency of banks on both sides of the Atlantic depends on Europe’s most-indebted governments never defaulting on their bonds. ”

The thing about unregulated shadow banking and how it leverages debt is like this; cds is like insurance, so say a major seller of CDS like Morgan Stanley issues insurance on a Greek bond, obviously it pays up in the event of a fail of that bond. Plus it doesn’t have any LTRO system in place. Even worse, CDS can be sold to anyone on virtually anything. So CDS on that Greek bond can be sold multiple times over exposing Morgan to a counterparty risk far in excess of the value of the bond itself.

“the total notional value of the over-the-counter global derivatives market was $708 trillion in June of 2011, or 11.4 times the size of global GDP in 2010.”

That is the market blowout risk the firecappers are trying not to set alight.

@Bryan G,

we agree on that the ECB has considerable power and based on the actions of the ECB the list of priorities seems like it could be from an internal ECB document.

About the list:
1. The ECB should not be engaged in risky activities so it should not matter. Sadly enough the ECB did enter into the SMP and now we’re seeing the result. It is protecting itself even though by doing so it creates uncertainty and therefore instability.
2. Core banks. If core banks are so central for the functioning of the euro then there should be plans for dealing with problems in them. ECB claims they are that important but for some reason ECB has not used its considerable powers to propose a solution for how they can be dealt with if there are problems.
3. See 2.
4 & 5. Solve the priorities above and a lot will be solved. I think it is likely that the ECB baserate will still be set on rate that is based on what is good for the largest number of people .

Something that might be of interest:
Here is a link to the ECBs evaluation from last year of the Hungarian central bank:

If the ECB were to do an honest evaluation of itself, would it pass?

Check the points under: 2. Need for a stable institutional framework.

@Colm Brazel

By “rest of the world” I meant IMF member countries.

I think that’s quite a weak article that you linked – long on handwaving and short on details. Greek CDSs are not about to cause a meltdown. The net amount outstanding is less than €4bn. CDSs are marked to market and CDS sellers have to post collateral/margin on an ongoing basis. Dealers may have large notional exposures but the net will be low since they are just intermediating between other parties. If anything CDSs spread risk away from the banking system to hedge funds/speculators etc.

The reason the ECB insisted on a “voluntary” restructuring was so that they could avoid taking losses on their own holdings simply by not volunteering. When that didn’t work they declared themselves to be super-senior and forced Greece to go along. The whole issue about whether a credit event happens or not was just a sideshow.


ECB claims they are that important but for some reason ECB has not used its considerable powers to propose a solution for how they can be dealt with if there are problems.

The ECB already has its solution as to how problem banks should be handled – they should be recapitalized using taxpayer funds as needed. No senior bondholder should ever take a loss, no matter how much money a bank has lost. The ECB have been very successful at ensuring that their preferred solution is the one that gets implemented.

@ Bryan G

Re ” I think that’s quite a weak article that you linked – long on handwaving and short on details. ”

Actually, I rarely give ground, but on this one, I have to partially agree with you. Plus the guys probably have some gold bullion skin in the game.

RE “CDS sellers have to post collateral/margin on an ongoing basis” That is technically true but there has been widespread speculation the hedging against CDS is not worth the paper its written upon, a bit like the acquisition of multiple mortgages for single properties tried here ‘successfully’ in the past. The banking system is exposed through investment banking in the US primarily, but with LTRO they’ve managed the cap the potential blowouts for now. Rating agencies have been worried about this eg


Here’s a table of European bank exposure: http://www.bloomberg.com/news/2011-12-09/european-banks-cds-held-and-sovereign-debt-exposure-table-.html

Here is a better discussion of the CDS risk focusing on what happened to AIG which ran out of CDS collateral in 2008 and contributed to the meltdown.


But since then US banks have reduced their risk and earned a lot of money through the LTRO balloon. However, the problem of the peripherals remain; the risk has not gone away and Europe can still face a blowout as credit downgrades of particularly Italy have shown.

One aspect of this though I’m curious to know further is the counterintuitive role of the ECB in relation to Greece:

You write,

“When that didn’t work they declared themselves to be super-senior and forced Greece to go along.”

I’m trying to get a better handle wondering why they did this ? Also I’m wondering how this can be enforced in a meltdown situation, what collateral would this be based on, gold, foreign reserves ?

Also do you have any links to the detail of the financial bailout of Greece that specifically relates to agreements made with Greece under cover of this demand ?

@Colm Brazel

I overheard an American banker in an office in Frankfurt the other day making some joke about CDS (vis European risk, not specifically related to Greece) along the lines of “We’ll pretend we are serious about paying up while continuing to trouser your (Europeans) money and you continue to pretend you are fully covered in the event of it all going whatsits-up.”

@Bryan G,

and I agree about your point about senior bondholders and the ECB preferred solution. I don’t like it and the ECB position that anything but 100% protection for senior bondholders seem a bit high. Why not 95% or less?

It seems difficult now to address the situation with senior bonds, but it has to be addressed. The ECBs position that sovereigns has to guarantee 100% of capital and interest of senior bonds due to ‘implicit’ guarantees is something that I do not see as a good way going forward. Could a sovereign (not dependent on the ECB) legislate that only explicit guarantees up to 80% of the capital of senior bonds will be supported?

I keep reading about financial markets wanting certainty, the uncertainty regarding implicit guarantees has to disappear into history and I do not see it as possible that the explicit guarantee can be 100%, in an ideal world the national parliaments would set the limit preferably in the constitution.

Senior bonds have been the facilitator of large capitalflows and the large capitalflows have been a cause of the crisis in Ireland.

I believe that the Irish property bubble would have been less severe if the implicit 100% (including interest) guarantee of senior bonds had been clarified before the crisis. Why allow an implicit guarantee? Why should the guaranteed amount be 100% of capital and interest?

I seem to remember a post a couple of years back where it was claimed that some investors wanted to diversify their bond holdings and therefore wanted to invest in Irish government bonds. At the time there were not many Irish government bonds around but as they wanted the Irish government bond ‘play’, they invested in senior bonds of Irish banks. Their investment then made the credit boom even worse. Law of unintended consequences?

& then we have the stress tests for banks…. Supposedly to reduce uncertainty. Why is there uncertainty? Is it possibly due to some weaknesses in legislation regarding valuation of bank assets?

EU institutions are looking into wage growth in nations, not sure why that is prioritised over looking into ways of dealing with the banking crisis. It looks like EU institutions are about controlling the citizens on behalf of finance instead of controlling finance on behalf of citizens.

Papdemos earlier today:

“We have made a titanic effort and I believe titanic is the right word to complete prior actions required for approval of financial support for the country and the process of the private sector involvement which will be officially launched today.”

Titanic? Launch? Titanic again?

I really must get in touch and ask him if he would like a new PR Guy.

@ PR Guy,

That American banker was telling it like it is. Plus you know the new CDS is LTRO is not just the EMU version of QE, it can also be used to recapitalise banks, sovereign debt, American investment banks; yep, lots of European banks instead of using it to purchase European sovereign debt are hedging their bets and using it to purchase Us dollars and bonds.

Re “I really must get in touch and ask him if he would like a new PR Guy.”

No, he was using the term in the correct sense there 🙂

@Colm Brazel

AIG was different, because it had a AAA-rating and didn’t have to post collateral, and when it lost its AAA rating then it had to post a huge amount all at once, which it could not do. The rules have changed since then, so that everybody has to post collateral as prices change. Most collateral is cash, according to this article, which also gives more details. The major US banks say their net positions are small – this has been a slow-motion default for two years, so there has been ample time to hedge appropriately. At this point I don’t think any form of meltdown due to Greek CDSs is credible.

The ECB did a bond swap with Greece, getting new bonds that were the same as the old ones except that the new ones are exempt from the CACs that Greece is retroactively imposing on its old issues. I have no doubt that this approach was decided in Frankfurt and Greece just went along. Since the ECB will be exempt from the CACs they can just keep their bonds till maturity and get paid at par, which is what they plan to do. As Greece’s situation got worse over the last few months it became clear that a 100% participation rate in the “voluntary” bond swap was needed, to get the numbers to add up for the “120% in 2020” target. Hence the CACs, and the need for the ECB to do something other than not volunteer. More details can be found in the link posted below.


Denmark has already implemented and refined a sensible approach on bank resolution. In the EZ the issue isn’t even on the agenda. In Denmark’s case the banking industry itself pre-funds a Deposit Guarantee scheme. If a bank fails it is transferred to be a subsidiary of a state Bad Bank, and the bank is wound down, with senior bondholders taking losses. This scheme raised the cost of funding for all but the biggest banks, so they made some changes to spread the losses over the entire banking system, but the taxpayer pays no more with the latest changes than they did previously. In fact Sweden said they were going to implement a similar bail-in approach, but I don’t know how far along that is.

EU institutions are looking into wage growth in nations, not sure why that is prioritised over looking into ways of dealing with the banking crisis. It looks like EU institutions are about controlling the citizens on behalf of finance instead of controlling finance on behalf of citizens.

I agree with this. The one-dimensional diagnosis of the problem, and its associated solution, has been largely driven by Germany. More generally I still find it bizarre that basic issues such as pan-EU bank deposit and resolution schemes, and mechanisms to prevent future credit bubbles and massive imbalances, are seemingly off the agenda.


It seems that the IMF are making the combined EFSF/ESM total of €750bn a precondition for their contribution. Why would China, Japan etc offer more if Germany is refusing to do the same?

DOCM: Saft misses your point but his own is hardly a minor matter. The treatment of traditional sovereign bond investors, relative to official lenders and bank bondholders, will cast a long shadow. The consequences are clouded by the LTRO impact and the outperformance of the dwindling AAA band. Stick around!

@ colm mccarthy

I will do my best!

We are all banking experts now; of necessity!

You may have seen this item by Zoltan Pozsar some months ago.


All that Draghi has done is buy time. As Germany (or, at least Schaeuble) seem to be insisting on closing down the sovereign bond market, something has got to give if the present European slow-down is not going to turn into a full-blown recession. Assuming the Greek pirouette does not come unstuck, action will have to be taken in the coming weeks.

@Bryan G,

at this time I don’t know how Sweden would deal with a situation where equity and sub debt were wiped out to make senior debt vulnerable. I suspect that until it happens it is an unknown.

What I can say is that if such large losses were to occur then some other legislation is likely to come into play. Members of the board would then risk facing criminal charges and possibly even becoming jointly liable for the incurred losses. In theory that should keep members of the board focused on controlling management and stopping management from taking stupid risks.

James Saft asks: “If this is the way business is done in Europe, with the cooperation of the IMF, why would Britain or the U.S. be any different if similar issues arose?”

Britain has the Bank of England and the US has the Fed. As Atrios would say, this has been another edition of Simple Answers to Stupid Questions.

@ Bryan G 5:36

Now its my turn to say, ” I think that’s quite a weak article that you linked – long on handwaving and short on details. ” 🙂

Disclaimer, the following is a wide ranging speculative piece, but really the issues covered here require more than I can give here to subjects in question; but, if this sparks a few new thoughts and questions, however unsatisfactory this is of some worth.

I think there is a common misbelief that the CDS market has successfully in the case of Greece been adequately sanitized and sterilised to prevent contagion; or that the problems re bond markets particularly effecting derivatives and CDO (collateralized debt obligations) particularly synthetic CDO’s are easy to deal with and have been adequately addressed.

The problem is the drift or infection or cross contamination of CDS across markets in general in a domino effect that in the case of interbank lending, for example, increases anxiety especially in the world of investment banking.

Because of the growing market in derivatives, derivatives are the canary in the coalmine that signal alarm in times of economic trauma eg AIG.

There was a CDS collateral problem you correctly identified with AIG, but this AIG problem related to CDO’s about which there is little in the article you link to.

The problem with CDO’s is the doubt related to the underlying assets upon which CDO’s are based; another problem relates to the mark-to-market nature of CDO’s, how markets can suddenly collapse effecting CDO value as everyone runs to the door.

To understand how complex this market is, consider Synthetic CDO’s in the following dribble:

http://derivativedribble.wordpress.com/2008/11/11/synthetic- cdos-demystified/

http://en.wikipedia.org/wiki/Credit_default_swap# Regulatory_concerns_over_CDS

Efforts are being made to stem the tide of problems in the CDS markets.

” A clearinghouse acts as the buyer to every seller and seller to every buyer, reducing the risk of counterparty defaulting on a transaction. In the over-the-counter market, where credit- default swaps are currently traded, participants are exposed to each other in case of a default. A clearinghouse also provides one location for regulators to view traders’ positions and prices.”

To illustrate the importance of these instruments and perhaps a rush of propaganda to state the problem has been defused:

“During the current 2012 negotiations regarding the restructuring of Greek sovereign debt, one important issue is whether the restructuring will trigger CDS payments. ECB and IMF negotiators are trying to avoid these triggers as they may jeopardize the stability of major European banks who have been protection writers. ”

There is a useful thesis here:

http://www.hks.harvard.edu/m-rcbg/students/dunlop/2009- CDOmeltdown.pdf

OTC’s can be nasty, odious and toxic and to date little has been done to reform the financial services industry and prevent abuse that led to subprime problems in the US. There is to my mind no reason to not suspect that suspect collateral and assets due to the very nature of unregulated derivatives do not lie as instruments of financial destruction across the global financial system.

“…the advent of synthetic CDOs significantly altered the evolution of the CDO market. Rather than investing in cash bonds, synthetic CDOs were created from pools of credit-default swap contracts (CDS), essentially insurance contracts protecting against default of specific asset-backed securities. 15 The use of CDS could give the same payoff profile as cash bonds, but did not require the upfront funding of buying a cash bond. Furthermore, using CDS as opposed to cash bonds gave CDO managers the freedom to securitize any bond without the need to locate, purchase, or own it prior to…”

The arcane world of red codes, clearing houses for sovereign CDS eg in the following, is difficult to compute.

https://www.theice.com/publicdocs/clear_europe/circulars/ C11170_att2.pdf

Greece and Italy have been victim to speculative CDS attack, also highlighted by Merkel, she has spoken against speculation in CDS exacerbating the meltdown in the EMU:

” The OTC derivative market is the largest market for derivatives, and is largely unregulated with respect to disclosure of information between the parties, since the OTC market is made up of banks and other highly sophisticated parties, such as hedge funds. Reporting of OTC amounts are difficult because trades can occur in private, without activity being visible on any exchange. …”

http://en.wikipedia.org/wiki/Derivative_(finance)# OTC_and_exchange-traded

A key insertion in the 2000 commodities futures modernisation Act was that which exempted over the counter derivatives like credit default swaps from regulation by commodities futures regulation commission. This has proved to have been a disastrous mistake whose consequences we still face.

There is huge resistance in the financial services and banking sector to any regulation interfering with opportunity for profit.

Non disclosure, poor reporting, lack of transparency, regulation, unaccountability, unreliability eg see Rating Agencies critique in Harvard Dunlop thesis above, mean nothing is what it seems; what is there, for sure, is one big problem the world has to face as it did under Roosevelt when he brought into effect the 1933 Banking Act Glass Steagall.

De Regulation in the Gramm Leach Blilley act in 1999 dismantled safeguards that contributed to the mess in global Finance of today. The losses in OTC subprime handed onto European banks have been unaccounted for and hidden away. The market in toxic CDS speculation is still out there.

A couple of intriguing takes as part of an ongoing interest on the above I have is to do with the very nature meltdown itself in relation to derivatives and OTC. These financial instruments provide a different component to other defaults through history as they are a recent phenomenom. One aspect of this is what I’d term gravity economics meaning forces in the financial industry cause chaos rather than purely physical, economic forces such as a drop in manufacturing output. This creates a synthetic, unreal economy much like the euro currency as it undergoes a switchover to manufactured illusory economics making you wonder how long the center can hold.

The magic world of LTRO has for the moment defused the derivative instruments of mass destruction across Europe. Interbank lending which
in a rerun of 2008 was looking for its european AIG and drying up lending has again begun to move. But the huge takeUp of LTRO by banks throughout Europe will signal a weakness in the euro when this funding dries up. Another weakness will become evident when this funding is used as a fund to further further speculation in financial markets rather than on release of credit into economies where austerity and deflation mean
investment is at risk.

The gravitational pull of resources, financial support to banks and financial institutions, away from the ‘common market’ of credit and business investment and employment, will reveal the euro as the financial black hole the euro currency has become.

@DOCM 4:44

Re “This guy knows what he is doing.”

You would be talking about an unelected technocrat there, on a growing list of unelected technocrats across Europe sent in to replace democratically elected governments.

Plus, the guy hasn’t a clue as to what he’s doing. From your link:

“Draghi: ….. But for the interbank markets to function we need a return of full confidence in the counterparty. We can address only the liquidity side of the problem. But then growth prospects have to pick up. After a very weak fourth quarter, economic activity in the euro area is progressively stabilizing at low levels.

Oh, no it aint, its being pulled into a black hole. LTRO can only have a short term stimulus function and when LTRO runs out, eventually the peripherals have to go to market !

Draghi is sucking economies dry to pay for the losses of European banks; failure is guaranteed.


Nigel Farage outlines the democratic deficit here on the path of the euro and the EMU.


Austerity is not working. The EMU is following disastrous policies. Disparities within EMU and between EMU countries are growing. Ireland’s economic policy based on no bank should fail is a political and economic disaster; yet, we’re Draghi’s poster boy, lol.

You can see and hear the air going out of the tyres of the Irish economy; but the cheerleaders who got it all wrong before still lead the blind frenzy of support for the euro, the ‘Compact’, the creation of an Irish vassal state.

You couldn’t make it up 🙂

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