Mody on Creditor Impunity

I am surprised this has not received more attention.

The original sin of Eurozone crisis mismanagement was the May 2010 ‘bail-out’ of Greece. As Karl Otto Pohl noted at the time, the beneficiaries were German banks, even more so French banks (as always, you gotta hand it to the French!), and rich Greeks. Yanis Varoufakis agreed at the time with Pohl, for which he will not be forgiven.

If you subscribe to the view that careless lenders should face haircuts, the official lenders to Greece should take a belated bath.

All of them, including the IMF, which means its shareholders, including us.

The alternative is an international financial order built on a doctrine of official creditor impunity.

44 replies on “Mody on Creditor Impunity”

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This post by me is awaiting moderation on the other current thread.

Stephen Kinsella had an interesting comment in reply to the contribution by Michael Heise.

“Michael misses the single key factor differentiating Ireland from Greece: Ireland’s openness. Any index of Ireland’s openness, say simply X+M/Y, shows Ireland’s export sector dwarf that of Greece, Portugal, or Spain. The Irish economy can ‘accommodate’ austerity in a way other economies can’t, simply because our export sector grew throughout the crisis, and the large and steady stream of FDI expenditure kept the economy on life support in a way very few other economies could have. Michael points to reforms in the Irish economy but as someone who has studied it extensively, I can’t point to any significant reforms of any kind. In truth, three things saved Ireland. First, Mario Draghi’s 2012 ‘whatever it takes’ speech. Second, the significant depreciation of the euro, which has helped us enormously given our large export profile, and third, a willingness on the part of the government to balance the books in terms of current spending. Ireland extracted over 18% of GDP over a four year period, but this is not comparable to the Greek or Icelandic crises, precisely because of the sectoral differences I highlighted above.”

To Ireland’s “openness” could be added the safety-valve of traditional emigration patterns; but this is a feature shared with the other economies in trouble; with the exception of Spain.

As to the author’s inability to identify any actual reforms, the items of mail coming through his front door relating to (i) property tax (ii) septic tank charges (iii) water charges – to list the most contentious – must have escaped his attention, the aim being to bring about the necessary “reform” i.e. re-balancing in the states finances.

But the comment misses the still more essential point which that in terms of flexibility and public administration, there is no comparison between the Irish economy and that of Greece. The failure to introduce the remaining, and by definition, more radical reforms in Ireland is attributable to the fact that these two elements are at a level, with the other factors mentioned, to allow for a “systems recovery” even from a catastrophic systems failure. To complete the metaphor, we seem intent, however, on continuing with the present operating system and it is simply a matter of time before the next “systems crash”.

Michael Heise is right in his central conclusion. The crucial factor lay in the steps taken to restore market confidence. Greece may have implemented even more draconian cuts but has failed totally in terms of opening up its economy, reforming its tax administration and recognising that the size of the state’s commitments must be related to the economic capacity of the country; in short, the programme of reform that its creditors are insisting on.

Syriza has been even more blatant than the administrations that went before it in putting its place men into public service positions. There is no real distinction between European and IMF creditors, apart from the US, and the other IMF countries dragged along in its wake; a situation up with which they are unwilling much longer to put, least of all to have to bear the cost of a Greek default.

The isolation of Varoufakis among his colleagues, according to the most recent reports, is now total. He seems unaware of the fact that he joined a club. He cannot dictate to it a new set of rules.

prob a bit like yourself Colm, quite a few of the IMF heads are ragin sik at the demise of ODC (ordinary decent capitalism) and the rise of the totalitarian power of the neu ‘doctrine of official creditor impunity’ ….. this got a mention on nakedcapitalism …. but clear to all propaganda free citizen-serfs that EU management of Greece post 2008 has been disastrous ….. the IMF had NO business in the EZ.

Somewhat related, Mick Clifford in fine form on yet another Irish version of Nietsczsche’s eternal recurring no-name “INQUIRY” ….

Absolutely right Colm. This shouldn’t even be controversial.

I have little doubt, however, but that the ECB’s press department will be along shortly in the form a 4-letter acronym to tell us how critics of European institutions understand nothing.

Hindsight and all that. I’m sure the official volley… (is that what you call hitting back the ball in tennis?) is that the markets were all over the place what with the Lehmans collapse and that (Too big to fail) so they had to use the softest tissue to wipe the bondholders.
I guess that is the riposte to your question. The euro bond market was too big to be allowed to fail, especially when no one knew what was going on and the proverbial had hit the fan. But now that it’s all quietened down perhaps the Germans might and French might accept another Greek haircut. Oh! dear, it’s all ECB debt now.

Yes, but if the Germans and French had had to bail out their own banks (rather than by diverting the bailout through the Greek taxpayer), that wouldn’t have allowed German politicians to scapegoat those swarthy Greeks and to pander the German public’s propensity to see themselves as the “victims,” always required to pay for the mistakes of “others.” It also would’ve actually cost Germany some money.

The 2010 Greek “bailout” was nothing but state-sponsored loan sharking.

Maybe the advocates of a Greek haircut would outline what taxes and expenditure cuts the Irish taxpayer should face to finance Greek continual fiscal incontinence.
My number is zero.

A tricky issue for the bejeweled Christine Legarde.
How does a person with a future eye on the French presidency square the painful necessity ( for French and EZ public opinion) of a realistic approach by the IMF to the Greek issue, with her own ambitions to the French presidency.

What is best for Greece is hardly her priority consideration. It may even suit her purpose if by July 2016 (when her first term ends), not only Greece had left the eurozone, but the whole eurozone issue was done and dusted once and for all; one way or the other.

She looked distinctly uncomfortable on the press platform at the February summit on Greece, and if I am correct she avoided last weeks summit.

Sharing the platform, after failed summits or failed ECOFIN meetings on Greece, does not enhance her successful woman image.

The view from the Rock Stars roof top terrace may not be so appealing if he takes Greece over the cliff. The ” they ” could be own citizens.

DOCM + Tull: Have you two nothing better to do than to continuously harp on about the Hellinic Minister of Finance? What has he done to you?

Our own Ministers of Finance (since 1996) have done quite a bit of harm to us here in Ireland. But sure that’s nothing! Yeah?

Greece is, unfortunately, a grim and deathly symptom of unsustainable rate-of-growth economies – of which we are also one. You’re in a Glass House:please stop flinging stones about.

If there is anythin economically and financially worse that rising crude-oil prices – its a significant decrease in same. Crude-oil prices are down by 50% or so – and some global economic indicators have tracked them down. That’s what ye both should be seriously concerned about.

Oh! I know what Kyrios Varoufakis has done. He has spoken some uncomfortable, unconventional and quite inconvenient truths about Capitalist economies. But so has Mm. Legarde. Those economies eventually reach a point where diminishing returns cannot sustain the debts. So, lots more debt is emitted to keep the show on the road.


It is very easy, in hindsight, to agree that such a burden of debt – allowing reckless lenders to be kept whole or vultures to cream it when they bought heavily discounted lending – should not have been imposed on any of the peripheral economies. But, for good and bad reasons, it was. There is little to be gained from lamenting it. And there is even less to be gained by seeking to secure a court judgement that it imposing it was illegal. The focus has to be on preventing the exercise of such private sector creditor immunity in the future. And some progress is being made.

In Greece’s case the tenor and cost of servicing the amount owed to the official lenders can, respectively, be extended and reduced. And to a considerable extent this has happened. There is probably potential to park this debt at a minimal servicing cost for a number of years if this or a replacement Greek government makes the effort to mend its failed state.

The new Greek government rejected – and believes it has a popular mandate to reject – the existing conditions for the official support programme. As an alternative to these conditions, it has made numerous vague commitments to take steps that might begin to mend Greece’s failed state. But these commitments lack the substance and detail required to convince the Eurogroup to accept them as a replacement for the conditions agreed with the previous government – and which would allow for a further drawdown from the official support package.

Greece could very easily fall out of the EZ through the gap between the timescale required to implement some of the alternative reform commitments being made by the Greek government and the much shorter timescale required to implement the existing conditions. It would require limited imagination and flexibility to close this gap, but both attributes appear to be in short supply in both camps.

DOCM is correct to point out that in terms of flexibility and public administration there is no comparison between Ireland and Greece. And there is a clear evidence in Ireland of a “systems recovery” after a particularly catastrophic “systems failure”. But the “systems recovery” has focused on protecting and advancing the interests of the powerful rent-capturing special interests groups while attempting to manage the impact of fiscal adjustment in the most politically astute manner possible.

However, I doubt very much that the resumption of the Standard Operating Procedure will lead to another “systems crash” similar to that in 2008. Occasionally the gaps between what is required to protect and advance the interests of the powerful rent-capturing special interest groups and the resulting costs and hassle that ordinary citizens will be prepared to endure will generate relatively minor political explosions. The approach to implementing water charges is one example. The SiteServ “arrangement” is another. But these only fuel increased cynicism and encourage a resigned despondency. There is no political grouping with potential to form, or to participate in the formation of, a government that isn’t in hock to some selection of the rent-capturing special interest groups.


I can only speak for myself but the reason I have concentrated on Varoufakis to such an extent is that his approach constitutes IMHO an existential risk to Greece and other countries and he is himself, in the conduct of his office, a major roadblock to reaching agreement. There appears to be an emerging recognition of this fact; even by Syriza and Greek public opinion in general. Hence, the emerging noises on how it is to be circumvented. Open Europe (the eurosceptic UK think tank) reports that a poll by Kapa Research published in yesterday’s To Vima found that 72% of Greeks want an agreement to be found with Greece’s creditors, while 73% said Greece must stay in the Eurozone. A poll by Alco published in Proto Thema paper yesterday found that 50% of Greeks want the government to compromise even if the Eurozone rejects the government’s demands, compared to 36% who do not. In short, the people have more sense than their new government and especially more than that of their leading negotiator (who, as far as I can see, has no sense at all; there I go again!).

I cannot see much validity in the comparisons you draw.


Yves in fine realist form:


Blind Biddy says Hi!

@Colm McCarthy

Re your identification of louzy financial system corporate governance in yesterday’s media, I passed this on to Jacinta Heisenberg from Ballybrack and this is what she sent back to the BBIU:

Context – Hibernia

Corporate Governance pre-crash = Corporate Governance ongoing-crash


p.s. I usually only pass on ‘hard sums’ to Jacinta but I sent her this soft lite-touch one to cheer her up after she split from the most recent footballer … it took her only 13 secs to analyse the data.

Off to the public expenditure races again!

The minister may not believe in “segregation” but the fact is that the sides in a negotiation cannot both be on the same side of the table. The formal link established by the Buckley Report between the salaries of public representatives (i.e. the members of the Dáil charged with protecting the public purse) and public servants was a major ingredient in the rapid increase in salaries, especially at the higher levels, during the Celtic Tiger era as both sides had every interest in seeing this happen.

A prophetic pre-election piece by Paul Mason on the new professor apparently now in the negotiating saddle.

It is notable that Irish media coverage largely consists of syndicated material confirming, if confirmation was needed, the insular – not to say myopic – character of the debate in Ireland, insofar as there is one, of EU developments of considerable national concern

@ DOCM: Please. Greece is a symptom – irrespective of who its governance is. Its just the most salient of the EZ states to display the end-stage of debt stress. Zorba the Greek would do a better job? The polled seem to believe he might – until he actually tried of course.

Our governments are (and were) just a bad (in your terms) as those of Greece. Its a moot question of relativities: Think – ‘Adam and Paul’. Make sense now?

In respect of Howlin’s howlers – GUBU! Though at 8% in the polls and the probability of a significant decline in transfers = Bye, bye Labour, Hello Clann na Talmhan!

Creditor impunity might have been okay if the creditors had been fadbhraithnitheach and seen the need to act in the interests of growth and a way out of the debt vortex. But they didn`t and you never get a second chance to make a first impression. Especially with voting ladies.


We will have to agree to differ on that point. Greece is Greece!

The key question is to what extent Tsipras actually subscribes to the beliefs of a cadre of economic professors who have been given the – possibly disastrous for Greece – opportunity to put their theories into practice.

Eurogroup to Greece:

“Your signature or your life.”
Greece to Eurogroup:
“Wait a minute, wait a minute, I’m thinking about it.”

[From the old Jack Benny gag,-your money or your life].

We are holding a referendum. No, You are not.
Get rid of your finance minister. Yes Sir.
Get rid of your attitude. Yes Sir.
Fire all those people. Yes Sir.
Fire them at will. Yes Sir.
Repossess all those houses. Yes Sir.
Throw those ingrates onto the street. Yes Sir.
Cut those pensions in pension. Yes Sir.
Now pay us back all that private bondholder money we took on. Yes Sir.

Germany winning, Germany winning. All vassal states under control.

Until they are not.

If the Greek banks run out of cash it falls to the ECB to decide whether to expand ELA. If they decline, as has been threatened publicly, the ECB will decide whether a member state gets, for all practical purposes, ejected from the Eurozone.

At that point the Eurozone, never a monetary union, ceases to be even a common currency area. It becomes some kind of multilateral currency board with membership decided by a committee.

Whatever it takes!

“DOCM + Tull: Have you two nothing better to do than to continuously harp on about the Hellinic Minister of Finance? What has he done to you?”

As an occasional reader and rare contributor to this site I have noted an increasing degree of DOCM/TULL overload – no disrespect guys – its not that your views are not valid and points often well made. But there appears to be more at play here than expression of views – there seems to be an outright agenda with the regurgutation of the same points/issues over and over. This monopolisation of the threads seems to have dissauded some other interesting contributors (perhaps I am wrong) from recoiling e.g. MHennigan….a gentleman I certainly take issue with on many topics but who always has an interesting point of view to put forward. what to do!

While everyone here is obsessed with the Greek election, I am now able to report exclusively for the first results from the UK election. My own (postal) vote: went to the DUP. So, as of now the total no of votes for the main UK parties is Con: 0, Lab 0, LD: 0, UKIP: 0, SNP: 0, SF: 0, DUP 1. Obviously there is a long way to go before the final votes are counted, so the final state of the parties may be somewhat different. This was the first time I, a strong nationalist, voted DUP. My vote was largely a protest vote, triggered by the fact that the nationalist parties in N. Ireland have abandoned nationalism and replaced it with marxist economic policies and Bacik-style social liberalism. For those interested in the next UK Government, the DUP are more likely to align with the Conservatives, but its by no means certain.


Off to the public expenditure races again!

There is nothing wrong with a modest increase in public expenditure if the economy is growing rapidly. Its what nearly all countries do. The important thing is that public expenditure and debt be reduced as a percentage of GDP. This is very likely to happen even with a modest increase (say 2%) in public expenditure. Given the magnitude of the fall in the euro, nominal GDP/GNP could grow by anything from 6% to 10% in 2015 (made up of a 5%-6% real increase and a large increase in export prices resulting from the fall in the euro). Nominal GDP/GNP rose by 13% between 2011 and 2014, while public expenditure was flat. So, public expenditure as a percentage of GDP/GNP is now falling very fast. In addition, expenditure on unemployment benefit is also likely to be falling very fast as unemployment tumbles, allowing scope for modest increases elsewhere. While I’d be totally against large increases in public expenditure, modest increases of around 2% are eminently affordable in current circumstances.

Regarding debt, government projections today show gross debt as a percentage of GDP falling from 109% at end-2014 to 89% at end 20120. Net debt is likely to be much lower still. With this debt trajectory, modest increases in public expenditure of around 2% per annum are no big deal.

DOCM: For the love of God! The list of econs who espoused policies which, when enacted, caused thousands of folk to be murdered is ….. Some even have got “that prize” for their valiant economic theories!

“The key question is to what extent Tsipras actually subscribes to the beliefs of a cadre of economic professors who have been given the – possibly disastrous for Greece – opportunity to put their theories into practice.”

You’ll be sure to let me know how many Greeks will be murdered by their own regime – just for the sake of whatever!

@ Nocense: I believe you may be correct. The numbers are down. Closing the site might be the charitable thing to do.

The full text of the speech by Weidmann, available for the moment at least, only in German.

Comprehensive, structured and uncompromising!

It would be a brave Chancellor who would go up against it, given both current popular sentiment and institutional structures in Germany. He also lays the political emphasis where the economic weight dictates i.e. citing the success of Spain in getting its budgetary house in order and the failure of France to do likewise.


While it is indisputable that the average number of posts per day to this site is in severe decline, I think it is unfair to blame TMcA and DOCM. I have noted the decline myself in some of my recent posts.

There is a long-established inverse correlation between good economic news and the number of posts to this site. The basic problem is that recent economic news has been too good. Many of the doom posters have packed their bags and left since the economy turned. I do miss them. Although total economic collapse (the only thing that will bring them back) is a bit too high a price to pay for the pleasure of their company again.

Champagne socialism! Don’t you just love it?

This time its the bold Yanis. When he was first appointed back in January I wrote here that he was obviously a chancer, that he would use the Greeks’ suffering to make a name for himself among the international jet set (esp the female component of it), then resign and become an A-list celeb on the US chat show circuit. Its all going as I predicted. Yanis may be a Cretan, but he’s no cretin.


When Herr Dr. Weidmann can say the following presumably with a straight face:

“Im Übrigen sind die deutschen Exporterfolge das Ergebnis von Marktprozessen und nicht von staatlichen Eingriffen, Fehlanreizen oder Marktverzerrungen.”

Rough translation – “Moreover, the German export successes are the result of market processes and not by government intervention, disincentives or market distortions.”

it would be wise to take many of his other pronouncements with a large pinch of salt.

When it comes to his pronouncements on Greece, the nub of the problem is that the Greek Government believes it has a mandate to reject the previous conditionality of the official lending. Instead it is advancing vague offers to transform the Greek state, economy and society – and it is doing so from a relatively narrow political base (while pandering to various powerful rent-capturing special interest groups on the left). All of the centre-right, centrist and, in particular, the centre-left governments of the EU are determined to deprive Syriza of any chance of success. Herr Dr. Weidmann is simply putting a gloss on this determination to prevent us seeing it too clearly.

While they have taken some hits in most EU member-states the rent-capturing special interest groups favoured by the left retain some political heft. Most mainstream political parties and the special interest groups to which they pander are determined to prevent any increase in their political heft. A combination of this external pressure, the remaining strength of the Greek oilgarchs and their hangers-on, the economic illiteracy of some of its policies, the cussedness of the special interest groups it favours and the clear desire of a majority of Greeks to stay within the EZ will lead eventually to a managed capitulation by Syriza.


Your voting choice makes perfect sense. For anyone in Britain (and I’ll include Northern Ireland with its long rent-seeking tradition) who is in a job or has a pension and either solely or jointly owns a house with or without a mortgage, it would be totally irrational for him or her not to vote Tory (or for a likely fellow-travelling party such as the DUP). Only the Tories will protect and increase the unearned economic rents accumulating in their properites and will allow them to capture these unearned rents. And only the Tories will curtail the public largesse to those who don’t own property because they are in low-paid employment or are unemployed, underemployed or unable to work – all the more to cosset the property-owning class.

And it extends beyond property-owning to ‘property rights’ to a post or to a position that entitles the holder to capture unearned economic rents.

It will take widespread public disgust and anger and concerted collective political action to reduce the capture of these economic rents and to promote instead the common good. This will happen when those who are currently beguiled by the delusions, fantasies and economic illiteracy advanced by the various non-mainstream individuals and factions wake up to reality – and when at least some of the rent capturers are confronted directly with the implications of their greed, narrow-mindedness and stupidity.

And as for the volume and intensity of the traffic on this site, I suspect there were quite a few of us who saw the need and opportunity for a fundamental change in economic governance. However, the various metamorphosing and often conflicting combinations of rent-capturing special interest groups ensured that that was not going to happen – for now.

@Paul Hunt

Must be nice to have a big squishy pink marshmallow of a concept like “rent capture” to drag along behind you collecting all of the things you happen not to like.

@ JtO: “The basic problem is that recent economic news has been too good.”

You think so? Meringue looks good too – but has no strength. Peaky and Brittle. Global indicators have slumped and have barely moved. So whose on the amphetamines then?

“Many of the doom posters have packed their bags and left since the economy turned. I do miss them.”

I suppose it does look good when you can ‘roll over’ your debts and re-cast with a lower interest rate. Pity the distressed Irish mortgage holders cannot do same.

This site has passed its shelf-life date. Which is a real achievement in itself. It’ll saunter along for a bit yet. Its controversy which attracts. Not homogenized pap.


Good link to Wyplosz.

The only reason that the ECB under Draghi is being left holding the Greek can is simple.
The current Eurozone governments haven’t got the brains to ‘bail out’ Greece, and they haven’t got the balls to throw Greece out.

Bondholder friendly, and small state unfriendly Europe would prefer that the Greeks walk meekly down the plank. I doubt that will happen .


You were a little over-optimistic regarding the unemployment date. I note too that retail sales (less auto) are still struggling.
Further, news on the construction related front is not that good, with the investment boost of 2014 tapering off, at least in one industru that I am aware of.
The government has not even the wit to enforce start a comprehensive house building program, for fear of upsetting their landhoarding buddies, or not allowing them in for the obligatory land profit cut.

PS. These are facts about the present, not prognostications of doom or utopia in the future.

Thanks, Ernie. Examining the exercise of political and economic power and expensiture of resources to sustain the capture of economic rents has far more explanatory power than the load of outdated ideological claptrap you lug around – it must be breaking your back. Even Greece’s MoF, who is known to have a penchant for some of this nonsense, has discarded most of it.

The desire and ability to capture economic rents by powerful special interest groups goes a long way to explain Ireland’s triple bubble that crashed so spectacularly in 2008. But the Banking Inquiry won’t examine this. And now that some, but not all, of the rent capture in the affected sectors has been addressed – how ever crudely and inequitably, there is no interest in asking the question: in addition to the sectors affected directly by the rent capture that inflated the triple bubble, are other sectors affected by rent capture and to what extent?

Sounds ominous. Now try to express it without repeating the words “rent capture” ten times.

DOCM: – Now this would not have anything to do with the conundrum?

“For all kinds of reasons, advanced economies, and perhaps emerging ones too, seem to have run out of productivity-enhancing growth and therefore need constant infusions of financially destabilizing debt to keep them going.”

And the election promises of FG and Lab are affordable? I doubt it. Tax reductions and restoration of some public expenditure reductions? No worries. Just roll over the debts. Negative interest rate are all the rage. Our jokers make the Greek lot look positively reasonable.

That elastic with the brick attached looks awfully stretched!

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