The marriage is one the rocks. Germany has lost its love for Greece, and England is waiting in the wings...
It's a sequel to this "Very European Break-up"
It's a sequel to this "Very European Break-up"
Showing posts with label the eurozone is a failure. Show all posts
Showing posts with label the eurozone is a failure. Show all posts
Thursday, December 20, 2012
Monday, May 21, 2012
Came, Saw, Bailed
Okay, so I clearly waited three weeks too long.
But I liquidated all the stock in my retirement accounts today. It was only 25%. But now it is 0%.
I sincerely hope that I did this at the bottom, and that things get very much better, quickly. You can all laugh at me.
But I doubt it. Because Spain cannot survive another month. And banks and financial institutions in England have truly massive exposure. This is the end. Boom. Not like economic boom. Like really loud heavy object hitting a floor boom.
UPDATE: LeBron describes capital flight from the wreckage of the EuroZone. The comments are quite funny.
UPDATE 2: Mr. Overwater asks, "Why?" Not the volatility thing, volumes have not been that high lately. In fact, holy shinola, volumes have fallen through the floor:
We are at 1999 levels of volume, even allowing for the Facebook IPO and etc. Yikes! I hadn't even seen that. Damn.
No, the problem I see (before I scared myself with this volume picture) is the bets that so many banks have made on Euro bailouts. It's not just JP Morgan and MF that did it, they just got caught first. Many banks, worst in England, but bad elsewhere also, took huge net long positions in sovereign debt from Eurozone nations, betting that the bailout woud happen. To the extent that the bonds were selling at a discount, and you end up getting par, that's a good bet.
The problem is that these banks are taking long positions with customers' money. There were not hedges, they were net bets, big ones.
Banks should be bookies, not bettors. Bookies lay off bets and use the line (whether it's points, or odds, or whatever) to adjust the market so they get equal amounts of exposure on either side. A bookie who himself takes a net position on a game, a horse race, or Greece is called (technically) an "idiot." Bookies take bets on both sides, and make money on the vig, and cash in on volume of trades.
Well, it turns out nearly every bank you can think of is an "idiot." They do NOT have equal positions betting for and against a Euro-zone sovereign debt bailout. They all bet the bailout would happen. As Louis XV said, "Apres (JP) MOIrgan, le deluge."
But I liquidated all the stock in my retirement accounts today. It was only 25%. But now it is 0%.
I sincerely hope that I did this at the bottom, and that things get very much better, quickly. You can all laugh at me.
But I doubt it. Because Spain cannot survive another month. And banks and financial institutions in England have truly massive exposure. This is the end. Boom. Not like economic boom. Like really loud heavy object hitting a floor boom.
UPDATE: LeBron describes capital flight from the wreckage of the EuroZone. The comments are quite funny.
UPDATE 2: Mr. Overwater asks, "Why?" Not the volatility thing, volumes have not been that high lately. In fact, holy shinola, volumes have fallen through the floor:
We are at 1999 levels of volume, even allowing for the Facebook IPO and etc. Yikes! I hadn't even seen that. Damn.
No, the problem I see (before I scared myself with this volume picture) is the bets that so many banks have made on Euro bailouts. It's not just JP Morgan and MF that did it, they just got caught first. Many banks, worst in England, but bad elsewhere also, took huge net long positions in sovereign debt from Eurozone nations, betting that the bailout woud happen. To the extent that the bonds were selling at a discount, and you end up getting par, that's a good bet.
The problem is that these banks are taking long positions with customers' money. There were not hedges, they were net bets, big ones.
Banks should be bookies, not bettors. Bookies lay off bets and use the line (whether it's points, or odds, or whatever) to adjust the market so they get equal amounts of exposure on either side. A bookie who himself takes a net position on a game, a horse race, or Greece is called (technically) an "idiot." Bookies take bets on both sides, and make money on the vig, and cash in on volume of trades.
Well, it turns out nearly every bank you can think of is an "idiot." They do NOT have equal positions betting for and against a Euro-zone sovereign debt bailout. They all bet the bailout would happen. As Louis XV said, "Apres (JP) MOIrgan, le deluge."
Wednesday, April 25, 2012
The EU Banquet
A. Raoul suggests that, at the EU Banquet, lobster will be served. Everyone will get their fair share. Here is the German lobster:
And the Greek lobster.
And the Greek lobster.
Wednesday, April 18, 2012
Alternatives to Austerity
European austerity is not causing renewed growth and it may not even be lowering debt ratios. Other than that, I guess it's going pretty well.
It's fun to rail against the dummies who thought austerity would work, but really, what else could the affected countries do? They can't use monetary policy because they don't have a currency and further fiscal expansion would cause the bond vigilantes to draw and quarter them.
Paul Krugman presents a complicated scenario where the ECB creates higher inflation and Germany runs a budget deficit to compensate for the austerity in Spain and Italy.
But Spain and Italy do NOT run the ECB or the German finance ministry!
The only alternative to austerity that the PIIGS have, that they can actually implement is to exit the Euro, devalue like crazy and hope for the best. They are choosing austerity over this step. I truly don't understand why, unemployment in Spain is well over 20% and climbing. It's hard to see how a Euro exit could make things worse.
In the West, we have spent decades getting conservative central bankers to be seen as the only proper type of central bankers, taking the Rogoff solution to the "inflation bias" problem highlighted by Barro & Gordon. But now we pretend to be shocked when these conservative bankers won't produce higher inflation.
Of course they won't, that's why they got the jobs to begin with!! If there was any chance they'd run higher inflation they'd never have been appointed.
It's fun to rail against the dummies who thought austerity would work, but really, what else could the affected countries do? They can't use monetary policy because they don't have a currency and further fiscal expansion would cause the bond vigilantes to draw and quarter them.
Paul Krugman presents a complicated scenario where the ECB creates higher inflation and Germany runs a budget deficit to compensate for the austerity in Spain and Italy.
But Spain and Italy do NOT run the ECB or the German finance ministry!
The only alternative to austerity that the PIIGS have, that they can actually implement is to exit the Euro, devalue like crazy and hope for the best. They are choosing austerity over this step. I truly don't understand why, unemployment in Spain is well over 20% and climbing. It's hard to see how a Euro exit could make things worse.
In the West, we have spent decades getting conservative central bankers to be seen as the only proper type of central bankers, taking the Rogoff solution to the "inflation bias" problem highlighted by Barro & Gordon. But now we pretend to be shocked when these conservative bankers won't produce higher inflation.
Of course they won't, that's why they got the jobs to begin with!! If there was any chance they'd run higher inflation they'd never have been appointed.
Friday, April 13, 2012
Debt Reckoning: Euro Problems are symptoms, not causes
KPC BFF Amar Bhide has an op ed that raises some important questions about the real problem in Europe.
And, of course, if we have the real problem wrong, we are unlikely to be working on a real solution.
And, of course, if we have the real problem wrong, we are unlikely to be working on a real solution.
Monday, February 06, 2012
End game for Greece?
The "Troika" (EC, ECB, IMF) is laying the smackdown on poor little Greece with demands of immediate public sector wage cuts, the closing of unprofitable publicly owned firms, and other spending cuts in exchange for the next "bailout" payment.
Supposedly, the "technocratic" (meaning unelected and troika-friendly) Greek PM can't get political buy-in, and without the "bailout" Greece could default quite soon.
While all this may just be weird Euro-posturing, I think that Germany and the EU is trying to show Greece the door.
I guess they think that the ECB's massive lending to banks has put them in a position to survive the default, but if I were them I'd be a bit more worried about what will happen in Portugal if Greece defaults and what might happen in Spain or Italy when Portugal defaults.
I think that if the Troika wants to keep the Eurozone intact, they should be putting much fewer conditions and burdens on Greece, not adding them.
Supposedly, the "technocratic" (meaning unelected and troika-friendly) Greek PM can't get political buy-in, and without the "bailout" Greece could default quite soon.
While all this may just be weird Euro-posturing, I think that Germany and the EU is trying to show Greece the door.
I guess they think that the ECB's massive lending to banks has put them in a position to survive the default, but if I were them I'd be a bit more worried about what will happen in Portugal if Greece defaults and what might happen in Spain or Italy when Portugal defaults.
I think that if the Troika wants to keep the Eurozone intact, they should be putting much fewer conditions and burdens on Greece, not adding them.
Saturday, January 28, 2012
Das boot
is exactly what Germany wants to give to what's left of the Greek government. Apparently installing an unelected "technocratic" government hasn't moved Greece very close to where Germany wants them to be so now they want to appoint a "budget commissioner" with veto power over Greek fiscal decisions. And they want Greece to pass a law saying that "first and foremost" all state revenues will go to debt reduction.
Read all about it here.
To me, this is Germany saying, "don't let the door hit you in the butt on the way out" to their southern vassals.
In my opinion Greece should take them up on the offer and generously offer investors including the ECB, German & French banks, and the IMF a 100% haircut on their holdings of Greek debt.
Greece has more leverage in this situation than Germany seems to want to believe or at least admit.
Read all about it here.
To me, this is Germany saying, "don't let the door hit you in the butt on the way out" to their southern vassals.
In my opinion Greece should take them up on the offer and generously offer investors including the ECB, German & French banks, and the IMF a 100% haircut on their holdings of Greek debt.
Greece has more leverage in this situation than Germany seems to want to believe or at least admit.
Tuesday, January 24, 2012
Lagarde vs. Lagarde
Chrissie, you got some 'splainin' to do!
The head of the International Monetary Fund warned that in addition to cutting yawning budget deficits Europe needs to do more to promote growth and stop the crisis from spreading to the world economy. "It is about avoiding a 1930s moment, in which inaction, insularity, and rigid ideology combine to cause a collapse in global demand," IMF Managing Director Christine Lagarde said before the German Council on Foreign Relations. "A moment, ultimately, leading to a downward spiral that could engulf the entire world," she said.
People, one of the most effective remedies for the "1930s problem" was for countries to exit the gold standard and devalue their currencies (you are allowed to agree with this even if you favor a gold standard by simply believing that they'd chosen the wrong parities). The situation in Europe is eerily similar. The PIIGS need to exit the Euro-zone and devalue their currencies! As far as I can see, the IMF is dead set AGAINST this proven remedy to "1930s problems"
Instead, the IMF is actually a big part of the forced austerity movement! The IMF is part of the group threatening further payouts to Greece unless they do what? INCREASE AUSTERITY!!
The IMF is making Greek negotiations with private creditors much harder by refusing to take any haircuts on their own loans to Greece (the IMF's insistence on being paid in full makes the required private haircut to hit the IMF's 120% debt in 2020 target even harder).
In other words, as is usually the case in a financial crisis, THE IMF IS PART OF THE PROBLEM.
The only viable alternative to self defeating austerity is exit and devaluation. I believe that IMF economists know this, but the leaders of the organization are more concerned about French and German banks than they are about economic performance and living standards in Greece and Portugal, so we get these ridiculous & hypocritical lectures.
The head of the International Monetary Fund warned that in addition to cutting yawning budget deficits Europe needs to do more to promote growth and stop the crisis from spreading to the world economy. "It is about avoiding a 1930s moment, in which inaction, insularity, and rigid ideology combine to cause a collapse in global demand," IMF Managing Director Christine Lagarde said before the German Council on Foreign Relations. "A moment, ultimately, leading to a downward spiral that could engulf the entire world," she said.
People, one of the most effective remedies for the "1930s problem" was for countries to exit the gold standard and devalue their currencies (you are allowed to agree with this even if you favor a gold standard by simply believing that they'd chosen the wrong parities). The situation in Europe is eerily similar. The PIIGS need to exit the Euro-zone and devalue their currencies! As far as I can see, the IMF is dead set AGAINST this proven remedy to "1930s problems"
Instead, the IMF is actually a big part of the forced austerity movement! The IMF is part of the group threatening further payouts to Greece unless they do what? INCREASE AUSTERITY!!
The IMF is making Greek negotiations with private creditors much harder by refusing to take any haircuts on their own loans to Greece (the IMF's insistence on being paid in full makes the required private haircut to hit the IMF's 120% debt in 2020 target even harder).
In other words, as is usually the case in a financial crisis, THE IMF IS PART OF THE PROBLEM.
The only viable alternative to self defeating austerity is exit and devaluation. I believe that IMF economists know this, but the leaders of the organization are more concerned about French and German banks than they are about economic performance and living standards in Greece and Portugal, so we get these ridiculous & hypocritical lectures.
Thursday, January 19, 2012
Austerity & Growth
There is a lot of discussion on the question of whether austerity is growth enhancing or not. While it's an entertaining debate, I get the feeling that the subtext is that European austerity only makes sense if it's growth enhancing, and I don't think that's true.
To my mind, Greece has two choices, default and devalue or continue on a path of ever greater austerity. Why they seem to be choosing option "b" is beyond my comprehension, but given they don't exit the system, what other option do they really have? Obviously they have no monetary levers. Obviously, they cannot borrow to finance further spending "stimulus". Obviously they cannot compel Germany to just pay up or the ECB to apply the monetary level system wide. Obviously, they are not going to export their way to prosperity in the near term. So it's pretty much austerity uber alles for them.
Italy is in largely the same boat, except their borrowing rates have not hit Grecian heights due to ECB interventions. Their only options are austerity or exit.
As for the US of A, the idea that we are practicing fiscal austerity is risible. You can't even see austerity from where we are currently standing.
To my mind, Greece has two choices, default and devalue or continue on a path of ever greater austerity. Why they seem to be choosing option "b" is beyond my comprehension, but given they don't exit the system, what other option do they really have? Obviously they have no monetary levers. Obviously, they cannot borrow to finance further spending "stimulus". Obviously they cannot compel Germany to just pay up or the ECB to apply the monetary level system wide. Obviously, they are not going to export their way to prosperity in the near term. So it's pretty much austerity uber alles for them.
Italy is in largely the same boat, except their borrowing rates have not hit Grecian heights due to ECB interventions. Their only options are austerity or exit.
As for the US of A, the idea that we are practicing fiscal austerity is risible. You can't even see austerity from where we are currently standing.
Monday, December 26, 2011
Germany and France Discuss the Future of the EU
Have been wanting to try to make a XtraNormal video.
This is my first effort. It's time consuming, but pretty fun.
Germany and France discuss the future of the EU in a closed door meeting, with a frank exchange of views...
This is my first effort. It's time consuming, but pretty fun.
Germany and France discuss the future of the EU in a closed door meeting, with a frank exchange of views...
Wednesday, December 14, 2011
Why do the Dutch hate Christmas?
Look at the Netherlands; twice as rich but almost twice as stingy as Poland. Stingier than the GERMANS (who are almost twice as stingy as the French)! Big ups to the Irish!
(clic the pic for a more Scroog-ian image)
Tall, smug and stingy is no way to go through life, son.
Hat Tip to Tim Harford's Twitter Feed.
*******UPDATE********
The Dutch aren't the only ones!
Tuesday, December 13, 2011
Random Observations on the EU crisis
Even if Draghi could wave a designer wand and make the Greek & Italian sovereign debt mountains go away, the Greek and Italian economies would remain horribly uncompetitive even vs. France, let alone Germany.
You know your central bank has little credibility when the market reaction to a promise to lend banks Euros at 1% for 3 years is to push bank stocks sharply down!
Saving the Euro is not the same thing as saving Europe.
There are actually worse things than countries expeditiously exiting the Euro zone; we may see some of them fairly soon.
It's hard for me to see how much blame falls on Germany. They reformed their economy and became super-competitive. People act like that was somehow nefarious.
Monday, December 05, 2011
Bridge to Euro
Some years ago a small rural town in Italy twinned with a similar town in Greece.
The Mayor of the Greek town visited the Italian town. When he saw the palatial mansion belonging to the Italian mayor he wondered how he could afford such a house. The Italian said; "You see that bridge over there? The EU gave us a grant to build a two-lane bridge, but by building a single lane bridge with traffic lights at either end this house could be built".
The following year the Italian visited the Greek town. He was simply amazed at the Greek Mayor's house, gold taps, marble floors, it was marvelous. When he asked how this could be afforded the Greek said; "You see that bridge over there?"
The Italian replied; "What bridge? There's no bridge." That's how it happens, folks.
Thanks to John-O for sending this!
The Mayor of the Greek town visited the Italian town. When he saw the palatial mansion belonging to the Italian mayor he wondered how he could afford such a house. The Italian said; "You see that bridge over there? The EU gave us a grant to build a two-lane bridge, but by building a single lane bridge with traffic lights at either end this house could be built".
The following year the Italian visited the Greek town. He was simply amazed at the Greek Mayor's house, gold taps, marble floors, it was marvelous. When he asked how this could be afforded the Greek said; "You see that bridge over there?"
The Italian replied; "What bridge? There's no bridge." That's how it happens, folks.
Thanks to John-O for sending this!
Wednesday, November 09, 2011
Your NBAPA / Eurozone deathwatch updates
1. Wow, players now say they'll take 50/50 revenue split (down from 57% in the last CBA) if the league will negotiate some "systems" issues. The owners are saying that unless they take the 50/50 deal currently offered by today, the new offer will be 47% for the players.
Ouch.
While I absolutely hate the way the owners are treating the players here (I was, after all, a member and minor official of the United Electrical Workers), the players are in a weak position. It is rumored that a sizable majority of them would vote yes on the current offer if union officials would allow a vote.
2. Italian bond yields hit 7.6% yesterday. People, Silvio's resignation is not going to make reform any easier or growth any faster. Probably all it will do is make Italy more compliant to the misguided policies of the German and French run EU "braintrust".
Phone call for Spain! Get ready for your closeup.
Wednesday, November 02, 2011
Friday, October 28, 2011
Your Euro Death Watch update
1. Yields on Italian sovereign debt are RISING today!
2. Euro officials are going hat in hand to Beijing. Rumor is that China wants their loan to the EU to be DENOMINATED IN RENMINBI!
YIKES and double YIKES!
2. Euro officials are going hat in hand to Beijing. Rumor is that China wants their loan to the EU to be DENOMINATED IN RENMINBI!
YIKES and double YIKES!
Help! I need a CDS for my CDS
To me, one of the strangest parts of the latest EU bailout-rescue fund saga is Brussels' seeming determination to kill off the sovereign CDS market. I wrote about it back in July, but in this current round, the issue is much more stark.
Private investors are supposed to take a "voluntary" 50% haircut on Greek sovereign debt. The reason why EU negotiators worked so hard to get it called voluntary is that they don't want the default to trigger payment clauses in CDS contracts.
Why they so strenuously object to this is not fully clear (at least to me). Maybe they feel like if the CDS don't pay out, it's not really a default? Maybe they think they are being clever and "punishing evil speculators"?
But it's not really that simple.
First, the ability to buy insurance puts more people into the Greek (and Italian and Spanish) sovereign debt markets than would otherwise be there. At the margin, invalidating these insurance policies will drive people out of the very markets the EU is begging people to enter.
Second, if I ran a bank that held Greek debt that was hedged via CDS, I would fight like hell against accepting the haircut. After all it's voluntary, right? I'd wait around until a haircut that would trigger my insurance payment came on the horizon. And, if I somehow got strong-armed into taking the "voluntary" 50% reduction, I'd litigate and fight like hell to force the insurance to be paid to me anyway.
However, I guess I wouldn't worry too much about the CDS not triggering yet though. This deal, as a best case scenario (i.e. everyone accepts the voluntary haircut and Greece hits all its promised revenue and deficit targets for the next decade) reduces the Greek Debt/GDP ratio from 180% to 120% in 10 years! Why doesn't a 50% haircut cut the debt ratio by at least 50% (more if you think the Greek economy will expand at all in the next 10 years)? Because at this point a lot of the debt is payable to the ECB, IMF and other "official" creditors who are not taking a seat in the barber's chair.
Tuesday, October 25, 2011
Nero and Caligula are a' feudin'!
Well, OK, it's actually Sarkozy and Berlusconi, but that's more than close enough. Sarky is really worked up about the ECB, which is good, except what he's worked up about is that there might be two Italians and (gasp) no Frenchmen on its board come November.
Sarkozy has made clear that France wouldn't accept a situation under which Italy would have two of its nationals on the board and France none, when Frenchman Jean-Claude Trichet is replaced at the helm of the Frankfurt-based bank by Draghi in November.
After repeating in piqued diplomatic language Friday that it expected Bini to quit the ECB board to honor a commitment he made this summer to step down by year-end and clear the way for a French official to join the ECB board, the French government appeared to be losing its patience.
But Berlusconi argued it was none of its responsibility. "We offered him prestigious posts, but Bini Smaghi declined them all," Berlusconi said, adding that he bore no responsibility in the spat. "At a certain point, I asked [ Sarkozy]: What should I do? Kill him?"
Really.
Yeah, Nicky, that's really the problem that you should be focussed on. Well done. At least you are proving that you play a mean fiddle.
At the latest rescue summit, these two giants of statecraft managed to feud over the future of one, Lorenzo Bini Smagi (aka the Lusitania?):
After repeating in piqued diplomatic language Friday that it expected Bini to quit the ECB board to honor a commitment he made this summer to step down by year-end and clear the way for a French official to join the ECB board, the French government appeared to be losing its patience.
But Berlusconi argued it was none of its responsibility. "We offered him prestigious posts, but Bini Smaghi declined them all," Berlusconi said, adding that he bore no responsibility in the spat. "At a certain point, I asked [ Sarkozy]: What should I do? Kill him?"
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