Eurozone Rescue Going Off the Rails

In the runup to the crisis, it was striking to read the undertone of worry in quite a few of the articles in the Financial Times, and I don’t mean only Gillian Tett’s fixation on collateralized debt obligations. It was palpable that a lot of writers were uncomfortable with how frothy the markets were, yet couldn’t say anything too much at odds with what their largely cheerleading sources were telling them.

Even though the overall mood at this juncture is far more downbeat, there is again a reporting gap between the pink paper and the two major US print business outlets, the Wall Street Journal and the New York Times on the expected crisis nexus, the Eurozone. Both US media outlets have a prominent article on the latest Euro exercise in rescue brinksmanship. And they are almost the same story; indeed, at this hour, they perversely use identical photos of Merkel and Sarkozy conferring. They present the formerly aligned core nation leaders as being at odds, then widen the frame to explain the divisive issues. First,, the Germans want a deeper but voluntary haircut of at most 50% of Greek debt; the French do not want to go beyond the 21% reduction structured last July. The steeper writeoff would, of course, lead to a bigger hit to French banks. Second France (effectively) wants the ECB to provide further leverage to the EFSF directly, while Germany and the ECB itself are decidedly opposed (Germany wants individual states to be responsible for their banks, with the ECB acting as a guarantor). The Journal was thinner on details and focused on the hardening political stances, not just between France and Germany, but other states as well. Per the Journal:

People familiar with the negotiations said Germany and France remain so far apart on key issues that Ms. Merkel couldn’t get a green light to sign a deal from her increasingly assertive parliamentarians.

If you rated these articles as sobering, the far more detailed coverage at the Financial Times has an undertone of despair. And one story emphasizes an issue absent from the times and mentioned only in passing in the Journal: the experiment in Greece in radical austerity is killing the patient. From the Financial Times:

Greece’s economy has deteriorated so severely in the last three months that international lenders would have to find €252bn in bail-out loans through the end of the decade unless Greek bondholders are forced to accept severe cuts in their debt repayments.

The dire analysis, contained in a “strictly confidential” report by international lenders and obtained by the Financial Times, is more than double the €109bn in European Union and International Monetary Fund aid agreed just three months ago.

Under a more severe test run by economists for the so-called “troika” of lenders – the IMF, European Central Bank and European Commission – Greece’s bail-out needs could balloon to €444bn, the study said.

Now before you attribute this shortfall to civil disobedience, which has been a contributor, an even bigger factor seems to be a major breakdown of a wide range of critical operations, such as power and garbage collection. And the bailout plan had some absurd assumptions, such as forecasting proceeds from infrastructure sales that were three times the level private sources expected them to fetch.

A must-read set of on-the-ground accounts in the Guardian (hat tip reader FlyingKiwi) gives a sense of how bad things are:

The poor and middle classes are being asked to pick up the bill for the excesses of the rich and corrupt; those who have declared their taxes correctly continue to be taxed more than those who don’t; and in a country with one of the highest cost of living, wages are being cut and taxes being raised….

I live in chaos. Chaos is a Greek word and aptly describes life in this country. I have been a good citizen of this country and have worked hard in the 25 years that I have lived here. I work from 2pm to 10pm daily. I put in 40 teaching hours per week. If you add the lesson planning and marking it’s nearly 50 hours per week. I only see my husband for half an hour a day as he teaches in a state school in the morning but because his salary is so low he needs to supplement his income in the evenings. How many of our European colleagues work so many hours?…

I can’t get to work easily most days because public transport is usually on strike three days every week. The streets are piled high with rubbish…

I work with a local council in Crete. There is an increasing sense of the country having fallen apart. All temporary contracts have been arbitrarily cancelled so we can’t run any sports or arts programmes, even those which are profit-making. No one answers the phones in the central offices in Athens because of the sit-ins, so we can’t work our way round the red tape.

The town hall itself has been occupied by strikers for the last week. The rubbish hasn’t been collected for three weeks. Standard processes are paralysed. This includes the payment of staff – many are owed over six months.

Now remember the earlier prevailing assumptions. Even though Greece was widely understood last year to be deeply underwater and independent observers all said a bond writedowns of at least 50% were in order, it was also assumed that Greece alone was a manageable problem. The danger was seen as contagion to bigger economies, particularly Spain and Italy.

But Greece alone is morphing into a potentially unsolvable problem. The EFSF, with its CDO-like structure and its not-very-convincing of states guaranteeing the very same fund they are borrowing from, was always better on paper than it would work in reality. Given the difficulties of getting approvals even for existing plans that are in desperate need of reworking, the only way out of the box would seem to be to resort to the ECB (as in “print”). But Germany remains firmly opposed, and the ECB is not too keen.

The FT highlights a second issue: given the difficult of getting any fix approved, and that Italian bond spreads are elevated, it seems crucial to get a big enough fix approved. But given the impasse over Greek haircuts, the belated willingness to consider a much larger bailout fund is exposing its widely discussed design flaws (this blog was far from alone in pointing them out). Again, the FT:

The fight between Germany and France over how to increase the firepower of the eurozone’s €440bn ($609bn) rescue fund comes down to a fundamental question: is there enough money in Europe to prevent a run on the €1,900bn Italian bond market?…

The rescue fund, formally called the European financial stability facility, is only able to raise cheap money for bail-outs because it relies on the fiscal reputation of its two biggest members, France and Germany. They are two of only six nations in the 17 country eurozone that have a triple A debt rating.

But as the crisis in the eurozone has grown, spreading from small peripheral countries to major economies such as Spain and Italy, the sheer size of countries’ debts that need to be supported by the EFSF has threatened to buckle the hastily constructed edifice – and the weak point is in Paris.

Adding new money to the fund has proved impossible because it would probably force a downgrade of French debt, making the entire EFSF rescue system collapse. Plans to increase the fund’s firepower have similarly run into trouble because the leading “insurance” scheme – which would use the EFSF to guarantee losses on Italian bonds – saddles France with too many liabilities.

There are other possible ways out of this seeming impasse, such as having the IMF assist in rescues in Spain and Italy. The Eurocrats have managed in the past to cobble deals together at the 11th hour, even if they satisfy the markets for only a few days. But every time, the issues that need to be solved are more daunting, and the various government leaders believe or pretend they have less bargaining room than they did in the past. While it would be better if I were proven wrong, there is not much cause for optimism here.

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  1. RT

    It’s a very very very sad dead-end we’re in, here in Europe. Every way of thinking for a plan to get out has always lead to some “block on the road” too big to be cleared in time. Be it politically, financially, or legally. And problems are mounting over time, already summing up to way too many self-made obstacles, it’s frightening. Someone has to cut this Gordian Knot, but who’s able to – Merkozy? Geez.

    1. Jack E Lohman

      All of these bailouts will tell us one thing… the folks that make money on them are the problem, the ones that should face strong public rebuke (if not incarceration). The honest ones will be tickled pink about a turnaround even without making money on it.

      1. Tony Wonder

        It’s like the world has forgotten how capitalism is supposed to work. The dialog around this to me is so depressing.

        Capitalism, like science, is largely about failure. Without the possibility of failure in the system, we do not, and will not, have capitalism (naked or otherwise).

        Bailouts are the problem. Capitalism is the solution. How has the world forgotten about capitalism? It is an ongoing tragedy, and a black mark for the Human race.

        1. Jack E Lohman

          Tony, it’s because our politicians are allowed to (and do) share in the booty. get the political corruption out of the system and our free-for-all capitalistic system will become properly regulated.

          1. James

            Political corruption is endemic to capitalism. It’s a natural part of the end game for a system based on greed and a winner take all mentality. The politicians are just doing what they will always naturally do under such a system: maximize their personal wealth and power by selling political access, which in a true capitalist system like ours, is just another “good” to be bought and sold in the market place. Good for them! They’re communicating an important – probably THE MOST important – message clearly, openly, and directly. Question is: is anybody listening?

          2. James

            I might add, the effects of potential efforts to regulate corruption in politics are already on display in our infamous war on drugs: the price of access will increase accordingly (or worse) and you’ll drive the small players out of the game, only to be replaced by renewed efforts on the part of the big boys, who are more often than not immune from such regulations anyway. In a word: escalation. Plus the illusion of a “crack down” provides political fodder for those who are in all likelihood the most corrupt already, and thus placate the masses to help ensure more of the same. Complete systemic corruption will never be alleviated from within by regulatory efforts – regardless of magnitude – alone. I think we all know where this is headed, but few who actually have the power to do something about it have the strength or the inclination to even acknowledge it. You see, it’s simply not “in their best interests” to do so. Tragedy of the commons indeed!

          3. psychohistorian


            Its because we have allowed a form of fascism to obtain a death grip on our government/military empire…..not a healthy situation.

          4. scraping_by

            True dat.

            Actually, corruption can be thought of as Free Market Democracy. The marketplace, if left alone, will find the price at which a politician will see the bribers’ good as more significant than the people who elected him.

            Refusing the capitalist view of governing requires a non-economic viewpoint. Things like religion, ethics, humanitarianism, etc. that have no place on the monetary scale are the things that keep it separate from brutish self interest. It’s no good expecting money math to lead to a better outcome.

            Rule of thumb: if there’s no conceivable marketplace for it, it’s probably too important to do without.

          5. James

            I’ve long felt that what we need now is a new breed of citizen politicians whose only goal is to be elected once and do the most good for the most people in their single term in office. And on rare occasion, such a thing still occasionally happens(!), even in such a ruthlessly efficient capitalist democracy such as ours. Unfortunately, the moneyed interests that normally spawn, fund, and promote candidates from their very start feel differently, and they almost always ensure that such efforts die before they even get started.

            I simply don’t see anyway such as system can be changed – from within or without – without a radical change in our underlying mentality. Without resorting to religion or any other sort of traditional humanistic theosophic malarkey (and I’m decidedly NOT of that mindset in any shape, manner, or form), I think we simply MUST begin thinking about alternatives to the current structure immediately. Granted, the implosion of the current system is likely to take many years – if not decades – to occur, but that’s all the more reason to begin our efforts now, while they can still be undertaken in a spirit of relative non-desperation. Very shortly we will no longer have that option.

            In the end, a forward looking people is both defined by and succeeds because of their ability to be forward thinking. Unfortunately, unfettered, rapacious, fascist global capitalism defines the term so narrowly – quarterly profits and dividends for the “investor class” – that it makes a mockery of the term and the humans that defined it in the first place. No matter what comes next, only a fool – or someone heavily invested in the current system – thinks it will resemble the current status quo in any significant way.

            We’re at nothing less than a major turning point in human history in my view (in conjunction with peak fossil fuel-based energy supplies – another story altogether), and the thinking that got us into our current mess MOST CERTAINLY ain’t going to get us out of it. Our decisions in the coming decade (or less) might well define the future of the entire “human experiment,” and no, I’m not being melodramatic. Yes, we DO INDEED still possess that kind of power, if only briefly.

        2. John Davis

          Tony, the answer to your question is found in the other replies. Look at the number of respondents claiming that corruption is just a manifestation of democracy or capitalism. Corruption is endemic to authority, one should note that the USSR or China were not free of corruption, indeed were/are far more corrupt than the western world today. The simple fact is any authoritarian structure has the potential for corruption. Yet, under the guise of security, both physical and financial, the populations of Europe and the U.S., have asked for, indeed demanded, increased authority by the government over even the most mundane of social activities. Further expanding the opportunity for corruption.

          Is it any wonder why corruption is now endemic to society? And why every solution to the economic crisis is inherently corrupt?

  2. Richard Kline

    In the same whirlwhind described here, I’d emphasize the postive movement: the front-and-center argument now is how _much_ to cut mark down the bonds. It has always been centrally necessary to write down the debt, and that is now what the wrangle is over. Good. (And where, pray tell, is that argument going on in the US? Inside the Zones of Occupation, sure, but not in the glass towers or inside the Beltway. ‘Crisis:’ we could use some of that here.)

    And as to ‘who will solve it,’ we now see the inherent stupidity and built in fail of parochial (national) political parties. Europe is a united economy. It is a united polity. It is a disunited political entity with a minimal government. Break-up (not on) or make up (go on). Formerly sovereign, ethnic-based, political factins are working their way up the learning curve that they can’t run a country this way. Ergo, they won’t keep running it this way.

    Banks? They can be replaced. Politicians? They can be replaced, and regularly are. Public services and civil government? One doesn’t have a society without those, and repacing them from Year Zero is a bitch. Ergo, it’s pretty clear what goes first . . . .

    1. Bgno64

      In the same whirlwhind described here, I’d emphasize the postive movement: the front-and-center argument now is how _much_ to cut mark down the bonds. It has always been centrally necessary to write down the debt, and that is now what the wrangle is over. Good.

      I don’t know that I’d call this “positive movement,” unless you mean in terms of pushing us toward the final, extremely messy resolution.

      What of the banks that suddenly have to take a 50 percent cut on Greek debt rather than 21 percent? What of the American financial institutions that are on the hook for all this via swaps and similar derivatives?

      The debt has to be written down big-time. But that’s like saying: This car is speeding toward the wall at 100 mph. It has to hit that wall. And I just think that’s where we’re at; there is no solution that doesn’t involve us, all of us, hitting the wall

      1. ambrit

        Dear Bgno64;
        The fun part is; the financials not only built the wall, they’re driving the car! We’re just poor doomed passengers sitting in the back seat.

        1. Jim Haygood

          Gary North expanded upon your metaphor: in the Euro-Bizarro world, the crash test dummies have strapped the engineers into the front seat!

          A crash dummy has some of the physical characteristics of a human being. It is used to test the safety of the interior of a car that has suffered a major accident. A pair of dummies are strapped into the front seat of a car that is on a track. Then the car is run into a wall at high speed. The engineers then examine what happened to the dummies. If the dummies had been human beings, would they have been killed? Dismembered?

          But what if the dummies were in charge? What if they strapped the engineers into the car and ran the test?

          This is what is happening in Europe today.

          The dummies are the bankers. The engineers are the politicians and EU bureaucrats. The observers in the back seat are stock market investors.

          1. psychohistorian

            It would be my opinion that the crash needs to be structured such that in the end the rich have lost all their money and they are then in the same boat/world as the rest of us.

            Where does it say in all the myth, including current religions, that ownership of private property is a inalienable human right? Since we seem to have lost the concept of rule-of-law it will be interesting to see going forward how effective might makes right over the 99% that will have little or nothing.

            I wonder if historians will call this period evolution or devolution?

      2. mg

        Unless the IMF and ECB take similar haircuts on their Greek debt, 50% is a drop in the bucket, a further kicking of the can.

    2. R Foreman

      US banks are backstopping much of the European debt as CDS counterparty, if what I read is true. Writing down the European debt will trigger those CDS payouts, and I am not convinced the large US banks would survive that. If the large primary dealers go under, then the US can no longer play its games of perpetual borrowing, and that sounds like the Malthusian nightmare they all want to avoid.

      Something has to be sacrificed so the rest may survive, you know cut off a gangreneous arm and leg. So far they’ve been happy to sacrifice the middle class, but we’re not wealthy enough to sustain these kinds of losses. The sacrifice has to be taken by something really, really large.

      1. Alex

        Which is why Bank of Amerika moved their toxic CDSs to a division which is FDIC insured. They know the shit is going to hit the fan, and they want a nice, juicy, bailout.

      2. Yves Smith Post author

        Greek sovereign debt, no. CDS are a very small % of face.

        I’m not sure the authorities have been as successful in discouraging CDS on other sovereign debt. And there is certainly a lot of CDS written on bank debt.

        1. Typing Monkey

          I’m not sure the authorities have been as successful in discouraging CDS on other sovereign debt. And there is certainly a lot of CDS written on bank debt.

          I’m not even sure that they are trying all that hard to discourage it.

          From the story Externality linked to:

          Among Dexia’s biggest trading partners are several large United States institutions, including Morgan Stanley and Goldman Sachs, according to two people with direct knowledge of the matter. To limit damage from Dexia’s collapse, the bailout fashioned by the French and Belgian governments may make these banks and other creditors whole — that is, paid in full for potentially tens of billions of euros they are owed. This would enable Dexia’s creditors and trading partners to avoid losses they might otherwise suffer without the taxpayer rescue.

  3. Swedish Lex

    The good news is that the EU leaders have been force-fed the red pill and that they therefore are beginning to see the euro world for what it really is.

    As per the most recent reporting in the FT and as per Yves’ analysis, they are beginning to understand that repeated austerity amputations eventually will kill the patient. This is a huge shift in perception of reality on behalf of officialdom. It will take a bit of “sinking in” before the EU leaders are prepared to accpet that most, if not all, of what they have done in the past three years have either been futile or aggravating the problems. Consequently, also, the denial about the (in)solvency of many European banks, and thus the system, is beginning to loosen up. Finally.

    The euro is/was beyond saving unless the leaders in Europea understand the depth of the problem and begin to act as if the had to assume the role of the founding mothers/fathers of a true and coherent euro zone which would include a federal fiscal brain and muscle as opposed to the nationalistic fudge we have now.

    I expect the euro zone to be in a more or less permament mode of “crisis summits” from now onwards. This will take years.

    1. Swedish Lex

      Furthermore, Greece, Portugal and Ireland will probably have to/wish to leave the euro within 3-5 years anyhow.

    2. Diego Méndez

      You seem to think that Germany would like to save the eurozone at any cost.

      I’d say that does not apply anymore. Seemingly, the German elite would rather see 1% inflation and a mini-eurozone ruled by German exporters than prevent social unrest in Southern Europe and a euro break-up.

      1. Swedish Lex

        I guess it is fair to say that Germans do not know what they want as regards the euro. For too long, it was all about giving the Greeks a good fiscal spanking, which as we know has nothing or very little to do with actually saving the euro.

        Only in recent days has the German elite on the middle/right begun to swing around as regards making profound modifications to the Treaty. Now even Merkel admits that significant modifications to the Treaty are required. The official tune for the past 18 months had been that the existing rules are sifficient to deal with the current problem and that changes to the Treaty would not be necessary for another few decades. A complete mental shift, it seems.

        The German Industry Federation has recently written a call together with its French and Italian peers essentially calling for a United States of Europe.

        The German left appears to be pretty convinced about the need for a federal Europe. Merkel’s current coalition could fall before the next elections or will probably lose its current majority.

        Not “saving” the euro and not providing a realistic alternative to the euro would obviously cost Germany a lot more.

        1. Eric

          Greece is a hopeless case, not because of Eurozone spanking, but because the country cannot or does not want to reform.

      2. Blissex

        German politicians would rather like to preserve the Euro and bailout the small peripheral countries for very many reasons, a major one explained by Angela Merkel:

        «Merkel rejected Greece leaving the euro area, saying that “we can’t force it, but I don’t believe in that in any case” because it would send a signal to financial markets that attacks on euro-area sovereigns can succeed.

        “Maybe Greece leaves, the next country leaves and then the next country after that,” she said. “They would speculate against all the countries.” A small group of euro countries would be left at the end, deprived of the euro’s advantage as the currency appreciates, she said.»

        The people who are opposed to bailing out the small countries are German voters, because they haven’t been told or understood that their pension funds are heavily invested in small country bonds and that their jobs are dependent on keeping the Euro low and on providing vendor financing to importers.

        It is all a giant make-believe scheme of fictitious demand generation that is coming apart, and the small nations involved have just been greedy idiots signing up for liar loans that they have squandered in stupid ways.

    3. readerOfTeaLeaves

      This is a huge shift in perception of reality on behalf of officialdom. It will take a bit of “sinking in” before the EU leaders are prepared to accpet that most, if not all, of what they have done in the past three years have either been futile or aggravating the problems.


    4. Richard Kline

      So Swedish Lex, I agree with all parts of your remarks, as I suspect you know from past discussion. Officialdom is finally getting that they have to hang together or they will be hanged separately. When even the center right has it’s feet (finally!) going leftward on this, we know that the political ground has tilted. Now that we see the major business lobbying organizations calling for ‘something realistic’ it’s clear where the political will will beging to aggregate. Dropping the euro/junking the Eurozone would most certainly cost all participants far, far more than ‘a united fiscal state of Europe’ which, yes, require a ‘United States of Europe.’

      This rethinking and the institutional evolution to make it work will take years, 3-5 at a minimum, twice that under worst case circumstances. Most sitting heads of state in Europe will not survive the political realignments it will take to bring this off, to which the ‘don’t let the door hit you in the butt’ remark is fully applicable.

      The fiscal ‘crisis’ is in many respects overblown. There are insolvent banks. Those are solveable problems, if brutally painful for the elite and the politicos tied to them. There are (a few) insolvent small countries. They are eminently solveable problems—if there is the political will and institutional structure to intervene; both have been absent. Spain (private) and especially Italy (public) have large volumes of debt which may well be payable in principal but may have to be rescheduled with reduced interest. That is another, large problem, but in neither case one of insolvency which, however, the present institutional structures, do not allow any rational action upon.

      The real problem in Europe is simply this: for sixty years, financial and political union has been advanced upon a minimum schedule with all the holdouts being allowed to cling mightily to their illusions that unification was ‘limited.’ So _the public_ as well as parochial elites have been completely unprepared psychologically to act in solidarity. So their has been no solidarity, without which policy actions are feeble, fragmentary, and foetid, in a world failed. The Europublic has to accept that they are in a common boat and must enact a common solution. Period. That realization is seeping in through the planking of the boad, yawing wildly as it is with no hands on the tillers or the sheets; an analogy I’d prefer.

  4. Jim Haygood

    ‘The Germans want a deeper but voluntary haircut of at most 50% of Greek debt; the French do not want to go beyond the 21% reduction structured last July.’

    Although the German stance is the more pragmatic, both reflect deep denial on two accounts: (1) A 50% haircut is not enough; (2) Greece staying in the euro guarantees a re-default later.

    On measures such as debt-to-GDP, structural deficit, and growth prospects, Greece arguably is worse off than Argentina, which ended up imposing a 70% haircut after its 2001 default.

    One innovative feature in the Argentine debt swap was GDP linked bonds, intended to align the incentives of creditors with those of the sovereign debtor. These bonds have provided solid returns in light of Argentina’s subsequent buoyant growth, failing to pay a coupon only in 2009 when the threshold value of GDP expansion wasn’t met.

    By contrast, Greece’s plight harks back to the dark days of the Versailles conference, when the hard-headed French attitude was expressed as ‘Le Boche Paiera!’ The punitive peace terms (with a gratuitous boost from Woody Wilson, carrying water for equally hard-nosed US banksters) were intended to make Germany repay every penny of reparations, as well as crippling its economy so comprehensively that it never could wage war again. Both of these contradictory objectives failed spectacularly.

    Now the French insist, in the same mindless sing-song fashion, ‘Les Grecs Paiera!’ Germany is somewhat more pragmatic, but still wildly out of touch with reality in its niggardly haircut proposals, and its idée fixe that Greece must stay in the euro zone at all costs.

    Germany probably has the clout to block the path of least resistance for obtaining new funds — the ECB — from being turned into a garbage barge (to the extent it hasn’t already). But the French, whose Cristine Lagarde heads the IMF, doubtless will keep working that angle.

    The IMF constitutes the path of next-to-least resistance. So far, young Timmy Geithner has nixed a major hike in IMF involvement. And the US has the votes to enforce this stance. But Turbo Timmy’s a weak reed to lean on. America’s experience in the 2008 crisis provides the playbook: if euro bankstas want to panic the ECB and IMF into coughing up some serious loot, they’re going to have to crash the markets, HARD.

    1. Typing Monkey

      if euro bankstas want to panic the ECB and IMF into coughing up some serious loot, they’re going to have to crash the markets, HARD.

      Well, here’s the interesting ting–so far the stock markets are not reflecting the worry that is clearly being at least partially priced into the credit markets (which is doubly strange since debt holders, who get paid out first, should be less rather than more worried).

      Although most of my tiny portfolio is on the bearish side, I don’t know if the markets will crash (and if they do crash, I am not sure if I’ll actually be able to collect my winnings). I do know that the disconnect between the stock market and the bond market is really unnerving me, though–especially since I have no explanation for it.

  5. dearieme

    People cried “Don’t introduce the Euro, it’s a wildly reckless act.” The FT endlessly sneered at them as a bunch of savages. It’s too much to hope, I suppose, that the FT will ever admit that it had taken the stupid/reckless/ignorant/malevolent side.

    1. Blissex

      The Euro was a leap of faith, but not reckless, and a lot of politics is about emotions and feelings and faith, and the Euro was a well justified leap of faith.

      The wild, reckless act was done in both the USA and in most of Europe, completely unrelated to the Euro, and it was reinventing and reenabling wildcat banking in order to fuel asset price bubbles to satisfy the endless demand for low/no tax capital gains from voters and campaign donors.

      German, Chinese, French, Japanese voters and campaign donors did not demand capital gains, but jobs, so those countries did export financing bubbles, similarly enabled by ridiculous leverage ratios (wildcat banking).

      So they still have a strong base of (excessive) industrial capital and infrastructure at the end of the game, while the USA, the UK, Ireland, Spain all have to show is ridiculous house and share prices. Much good it will do to them.

    1. R Foreman

      They’ve rigged the system on a doomsday device. If the large banks fail then many of the sovereigns fail as well, and that will likely lead to one or more war actions. Here we are hurtling toward doomsday at breakneck speed. You think Timmy Geitner, GWB, and Darth Cheney wanted this ? I think all along it’s just been a failure of intelligence, just as with WMD in Iraq (ok, mix a bit of blind greed in there too).

      1. Alex

        Doomsday. Why am I reminded of Dr. Strangelove? Something about mineshaft gaps. Or maybe just people getting the shaft.

  6. Mikey M

    The reason the FT seems to have a more depressed undertone re the eurozone crisis is becuause it was always a cheerleader for the euro project, and has a tremendous amount of emotional capital invested in an outcome which sees the eurozone remain intact.

    Personally i stopped buying the FT years ago when i realised the newspaper had lost any semblance of unbiased economic analysis and was in fact doing the bidding of EU federalists.

  7. Rodger Malcolm Mitchell


    I predicted this five years ago, in a speech at the University of Missouri, Kansas City, when I said, “Because of the Euro, no euro nation can control its own money supply. The Euro is the worst economic idea since the recession-era, Smoot-Hawley Tariff. The economies of European nations are doomed by the euro.”

    There are two, and only two, solutions to the euro nations’ problems:

    1. Return to Monetary Sovereignty by re-adopting their sovereign currencies,
    2. Become a quasi United States of Europe, in which the EU gives (not lends) euros to member nations as needed.

    There are no other solutions. The debt-hawk austerity “solution” doesn’t work in Europe, just as it doesn’t work in America. It’s the one approach guaranteed not to work anywhere on the planet.

    Rodger Malcolm Mitchell

    1. mg

      “2. Become a quasi United States of Europe, in which the EU gives (not lends) euros to member nations as needed.”

      Probably, but it took a war and and over 600k dead for D.C. to earn that right. What will it take for Brussels to become the fiscal overlords for the entire EU?

  8. Bam_Man

    And every one of the bankrupt PIIGS continues to add to their stock of unpayable debt. The same applies to “guarantor of the EFSF” France.

    A farce indeed.

  9. Eric

    To that Greek citizen who complains in the guardian article I say: fact is all Greek political parties the Greek people voted for are corrupt. So you could or should have known what mess these politicians have made.

    1. McKillop

      You “should have”, you say.
      Tell me, do the policies and practices of your government -policies and practices “you should” know about- meet with your approval?
      Are you responsible? Did you authorize
      any of the aspects of your ‘bail-outs’?

    2. pebird

      And those of us in the United States have some experience with corrupt politicians, so we know what we are talking about.

  10. mmckinl

    As I have leaned right here at Naked Capitalism … You can’t solve financial-sovereign insolvency with more debt …

    The haircuts have to come, 80% or more in Greece. Without debt resolution it is only going to get worse, much worse.

    The longer they wait the worse the outcomes. They are trying to save banksters and bond holders at the expense of everyone else.

    1. Typing Monkey

      They are trying to save banksters and bond holders at the expense of everyone else.

      Read Blissex’s comments above. It’s not limited to banksters–pension funds are also going to be heavily affected.

      I’m all for a default now, but don’t underestimate the shock waves that this may produce.

      Incidentally, you should go through Goldman’s financial statements if you have the time and patience. My analysis could be wrong (I am a very amateur investor without a formal education in accounting or finance), but I think there’s a very good chance that they won’t survive Euroland’s problems. Far from being invincible, Goldman (to me–see disclaimer above) looks to be on very shaky ground…

    1. R Foreman

      The people on the receiving end of those payment streams wouldn’t like that very much. In fact I’d hazard a guess they would take great exception to anyone just up and walking away from their debts.

    2. jonboinAR

      It seems to me from my slight reading here and elsewhere that there has to be a jubilee or haircut or whatever you want to call it. But then what happens directly next? Do a bunch of banks go bankrupt? Then what happens?

      1. Blissex

        The word you want to use instead of “jubilee” is “cramdown”.

        As you suspect the whole thorny issue is that someone has take a massive cramdown as liar loans cannot be repaid, and various people involved (the greeks, german workers, german pensioners, the European Central Bank) are all fighting as to who gets the sting.

        Initially the idea was that the greeks would be crammed down, but that as everybody expected cannot work (it was done only to show it can’t work).

        Most current proposals are about the ECB taking the cramdown together with the greeks, because german workers really don’t want to be involved, but that’s unrealistic, and things are changing.

        The only sure thing is that German pension funds will not take a cramdown, because that’s would cause political follies, unless it is done in a very, very disguised way diluted over a long time, and nobody has come forward with a suitable way to do that.

  11. David Starr

    Greece is broke. Greek bonds are worthless. Banks who stupidly bought Greek bonds are going to lose all the money they put into them. If that puts the bank out of business, good. Europe will do better with smarter banks that invest in economic development rather than pouring society’s capital down a Greek drain.
    European governments will need to insure bank depositors, lest a single bank failure cause a run on all banks. Europe needs something equivalent to FDIC if they don’t have it already.
    Bank bond holders and stock holders will loose their money. Next year’s generation of investors will be smarter and invest in banks that make money rather than loosing money. This is a good thing. Europe’s economy might do some growing if its capital were put to better use.

    1. Jim Haygood

      Wikipedia indicates that most EC countries offer 100,000 euros of deposit insurance.

      Moreover, ad hoc unlimited guarantees are common during crises, to stave off bank runs.

      What should be done — but won’t — is to provide unlimited deposit guarantees, and let the TBTF dinosaurs croak in the tar pits.

      This will never happen in France, where the banksters, industrialists and government ministers are mostly fellow enarques and grads of other grandes écoles … similar to the Ivy League gangsters looting the US.

    2. Blissex

      «Banks who stupidly bought Greek bonds are going to lose all the money they put into them. If that puts the bank out of business, good. Europe will do better with smarter banks that invest in economic development rather than pouring society’s capital down a Greek drain. [ … ] Bank bond holders and stock holders will loose their money.»

      I am very disappointed that you seem to have ignored my previous comments on this subject, because your prescriptions are quite mad because:

      * German and French etc. banks lent to Greece because their governments encouraged or required them to do so in order to provide vendor financing, and to keep the Euro low to export more outside the Euro area, and this kept French, German etc. employment artificially high.

      * Most investors in banks and Euro bonds are French and German pension funds, and if they have to take a cramdown, the whole financial system in those countries explodes and voters in those countries revolt because of the loss of a large chunk of their pensions.

      The loans to Greece etc. were liar loans enabled by lender industrial policies, and made in effect by lender pension funds, as lender banks were thinly capitalized funnels running on ridiculous leverage authorized by their governments.

      1. Typing Monkey

        You’re probably my favorite poster on this site, but I don’t understand your view can claim that accepting a default is “mad”. In fact, it’s inevitable–there’s not enough money to keep this charade going, and there’s not enough smoke to convince people otherwise.

        By continuing to fund Greece (and yes, make the pension funds appear more solvent for a little bit longer), TPTB are simply allocating scarce resources (wealth) to nonproductive areas (financial obligations that could never hope to get paid off). How does that help anybody other than the few who are currently collecting pensions?

        I spent the last couple of weeks of my spare time (trying) to go through most of the major US banks’ statements–at least to the best of my abilities, which are perhaps less than stellar. However, the vast majority of them seem to be completely hopeless. JPM, MS, GS, BAC, C–they’re all in lala land with their derivatives exposure. The IBs are heavily exposed to France, Germany, and the UK (and the Cayman islands–I still don’t understand what that represents, though–hedge fund counterparties??). The European countries (including Britain) are all exposed to each other at multiples of their TCE. As soon as one domino falls, they’re all going to go. It doesn’t matter if the French government “forced” its banks to buy crappy Greek debt, because France lacks the resources to save all of its banks. Ditto England (again, from what I can tell)

        So why continue this charade? Let’em all fail, and let the governments and the people figure out how to allocate what’s left of the wealth using real information (ie, real values, not mark-to-(non)market(able) asset accounting). I don’t see how delaying this inevitable mess is going to help much—especially since the CBs in the meantime will likely decide to print like hell and ruin whatever little wealth remains.

        JMO, but I am hoping for a response…

  12. Mogden

    Yves seems to think that additional funds for Greece will help matters. It seems clear to me that these bandaids are a large part of the continuing problem — by allowing failure to persist unrecognized.

    I prefer a Mellonite vision: liquidate the cronies and liquidate the corrupt. This will yield immense short term pain but is the only way to save the patient.

    1. Yves Smith Post author

      I never said that. I’ve been advocating a restructuring since early last year, if not before then.

    1. jawbone

      Heh. I was about to make the same observation — palpable, not palatable.

      But chacun à son goût. eh?

    2. Yves Smith Post author

      Yes, when I’m tired I skip proofreading and regret it the next day.

      But palatable is kinda interesting.

  13. -jswift

    Imagine that a comet were to come out of the blue and
    hit a German nuclear reactor, necessitating massive evacuations.
    Would the rest of Europe offer to help,
    or would they criticize the Germans for not having
    closed their nuclear programs down more responsibly,
    and negotiate a tough bailout for them ?

    Greek budget overruns were certainly criticized by
    northern Europe before the Lehmann catastrophe and
    subsequent credit freeze, but the irresponsibility
    was frowned upon by northern Europe, as they might,
    had a neighbor come by and helped himself to a
    bit too much of a neighborhood barbecue.
    Even after the September 2008 crash, the Greek debt
    issue did not much excite markets, and it was largely
    (and bizarrely) forgotten
    till after the near default of Dubai world
    (ie December, 2009)
    which reminded them of the problem. Greece was not
    directly hit by failures of subprimes etc.
    In any case, though guilty of being mildly careless with their debt, Greece is certainly a victim of a catastrophe
    which was not of their making.
    (or please correct me if I’m wrong?)

    Now there is general agreement that Greece should be kept afloat, (albeit for pragmatic rather than moral reasons)
    and to some extent bailed out, but there is a struggle
    over who should pay. Politicians seem to blunder through,
    finding some inadequate, temporary fixes.
    This may not be as useless or harmful as it appears; for
    they manage to extract concessions here and there by
    keeping the threat of failure alive.
    (Are they on the verge of reckless behavior?
    even compared to investors playing the markets?)

    In the meantime, more serious constraints have been surfacing, reflecting other conveniently forgotten
    holes in the post crash financial system, and reflecting
    the general limits of bailouts in solving deeper problems;
    the limits of an unknown “new normal” that this all
    might be leading us into.
    What would be the effect of Greek default on Citibank’s solvency, or Paris property values?
    A hard restructuring in Greece
    won’t solve anything if other holes still hidden under the rug are to then undermine a short-term (though big) fix.

    A serious solution has to look beyond even the PIIGS, and back beyond
    the revocation of Glass-Stegall, at factors involving
    ineffable confidence levels, and and factors behind
    ineffective regulatory reforms. Globalization also needs
    to be reconsidered insofar as it has weakened decision
    making at local levels, tied hands, and disproportionately
    served special interests. Finally, if the public has to pay, and swallow alot of broken promises, there has to be a sense of justice in all this, which means that the bigger players in the creation of this
    mess have to be exposed, prosecuted, and to pay.

    What are the deeper interests of those currently in the driver’s seat,
    and what leeway is there in changing direction? How can elections or street pressure help overcome certain
    barriers, rather than making them even more rigid?

    1. Blissex

      «Greece is certainly a victim of a catastrophe which was not of their making. (or please correct me if I’m wrong?)»

      Correction is easy, but partial. Greece got a lot of liar loans, in which both the lenders and the borrower were fully aware of the liar nature of the loans, and connived in it.

      The lenders therefore share the responsibility of the catastrophe with the Greeks.

      The Greeks then were particularly crass in “investing” the loans into a lifestyle upgrade, a consumption boom, for the supporters of the ruling parties.

      While for example the Irish and Spanish “invested” their loans in make-believe real estate transactions and imaginary capital gains, the Portuguese had a semi credible economic case for their loans and were just rather unlucky, and the Italians semi defensibly put that money in keeping their rather weak economy ticking over plus some lifestyle upgrades for the supporters of the ruling parties.

  14. VietnamVet

    Europe and North America are intertwined. The Solutions are the same. Cut the bad bets out of the financial system. Re-regulate it. Give workers jobs. The problem is the Wealthy Elites and today’s Politicians think they are one and the same. The Elite are not willing to take a Haircut or pay for government jobs. They would rather drown it in the bathtub.

    Leaders have to be placed in power who will right the system and put workers back to work. Otherwise, Chaos and Revolution are racing towards us all. You do not want millions of educated young men and women with no jobs, no kids and no hope.

    1. rotter

      I think that would be a fine an necessary outcome, and not a bit less than capitalism deserves. It refuses, cruelly, to solve it problems. It should die a cruel and messy death.

    2. jawbone

      It’s pretty clear the Greek policians fear the One Percenters and the Banksters more than they fear the anger and rejection of their own people.

      But, here in the US, Obama et al have been pretty good at rejecting what the majority of voters wanted and needed in order to take good care of their principle, oh, donors. Their majority share holders…and that ain’t the 99%ers.

  15. George Phillies

    One might propose — one of the other economic blog pages occasionally gives interest rates on various national bonds — that after Greece may come Portugal. Your mileage may vary.

  16. Jim Haygood

    The Troika’s ‘STRICTLY CONFIDENTIAL’ assessment of Greece, dated October 21st, is a shockeroo! Quoting from page 7:

    Deeper PSI [Private Sector Involvement, a euphemism for ‘haircuts’] … debt can be brought to just above 120 percent of GDP by end-2020 if 50 percent discounts are applied. To reduce debt below 110 percent of GDP by 2020 would require a face value reduction of at least 60 percent and/or more concessional official sector financing terms.

    Recall that Reinhart and Rogoff pegged 90 percent of GDP as the danger threshold for default, although countries with a track record of default, inflation and instability can get into trouble at levels as low as 50 percent of GDP.

    In other words, even a 60 percent haircut (leaving Greek debt at 110% of GDP in 2020) probably would result in a re-default on the swapped debt.

    Europe is living in LalaLand … and its hair is on fire.

    Wonder how Ms. Market’s gonna react to this appalling confession by the Troika.

    1. Jim Haygood

      p.s. Don’t miss the priceless footnote at the bottom of page 7:

      1 The ECB does not agree with these illustrative scenarios concerning a deeper PSI in this report.

      Au revoir, Jean-Claude!!!

      “Brownie, you’re doing a heck of a job!”

    2. Jim Haygood

      Working weekend in Bruxelles, Part One:

      A 10-hour meeting in Brussels failed to yield a blueprint for banks’ role in a revamped Greek rescue as European finance ministers haggled over what they called a “credible firewall” against fallout from deeper writedowns.

      The ministers’ meeting broke up at about 7 p.m. after reaching agreement that European banks may need about 100 billion euros ($139 billion) in capital after marking their sovereign-debt holdings to market values, according to a person familiar with the discussions.

      Plans now being considered involve an exchange with a 50 percent reduction in net present value, or upfront bond exchanges into either AAA rated bonds from the European Financial Stability Facility or new 30-year Greek government debt, according to people familiar with the matter. Upfront exchanges could involve a 50 percent discount off face value.

      As the Troika report linked above makes perfectly plain, a 50% haircut leaves Greece with a debt ratio north of 120% of GDP in 2020 … ENSURING THAT IT WILL DEFAULT AGAIN.

      What did Yves say the other day … Sisyphus has great biceps? PUSH!!

      p.s. One hundred billion euros ain’t enough.

  17. Hugh

    Swedish Lex wrote: “the EU leaders have been force-fed the red pill and that they therefore are beginning to see the euro world for what it really is.”

    This crisis has been going on for more than a year and a half and the best you can come up with is not that EU leaders now see what the problem is but are only beginning to. To me, this is an example of how expectations get managed down until any hint no matter how faint is taken as a major positive and a turning point.

    But consider, these are leaders backed up by what are supposed to be world class elites. It is their job, and they have the resources for it, to be well ahead of the curve not a year and a half behind it, or actually more since they still aren’t on top of the problem but only dimly aware of what it is.

    Add to this that this is not the first or the second or the third or the fourth but about the twentieth time that we have seen one of these elite sponsored “solutions” fall apart.

    Nor is it a case that no one could have known. Blogs like this one and commenters like myself have been writing throughout this time both what the problems are (the lack of a debt union, an ineffective ECB, German mercantilism, insolvent banks, corrupt politics, and kleptocratic elites) and the solutions: forensic audits of the banks, replacement of their managements and prosecution of those managements, restructuring of the banks, a debt union, burn the rich bondholders, end German mercantilism, and dump the elite political classes. Re this last, come on, no one seriously thinks that those who created the Great Financial Crisis in this country are going to be the ones to fix it. Why should Europe be any different?

    1. kaj

      To the Swedish Lex:

      You sounded so sanguine just a few days ago;; how good is your analysis? worth something?

  18. Ishmael

    A weird thing about asset values, when the state starts seizing assets to keep it alive or the govt just stops functioning, is that it quickly goes to zero. A house worth 500,000 euros could soon go to zero. Look at Detroit, homes there quickly went from $80,000 to $6,000.

    My point is that is the reason for the need of more and more bailout money.

    In addition, a similar thing could happen in the US. Various levels of govt from Federal to local are coming up with more and more ways of seizing assets to keep their bloated and over paid bureaucracy functioning.

    Their is only one way out of this and it will be lots of pain before their is pleasure. Both banks and govts have to be severly downsized. Anyone who thinks that the way out for Europe is a US of Europe does not understand the nature of Europeans. Just look how Yugoslavia could not be held together since Tito died or Iraq could not be held together once Saddam was gone. The only thing is a US of Europe is a thousand times worse than the above situations.

    1. Because

      Sorry, but the banks can’t be downsized. They live for concentration and will do it no matter what system you impose without the rule of law.

      You don’t get it and intellectually create a fantasy trying to.

  19. MyLessThanPrimeBeef

    Chaos is a Greek word.

    Unfortunately, drama is also a Greek word.

    Worse still, tragedy is another Greek word, from goat + ode.

    1. Valissa

      “Ode To Billy Goats” by Randy Mitchell

      After the introductory bit by a country music DJ/VJ Don Welch, Randy Mitchell parodies the classic country folk song “Ode to Billy Joe” with a story of how kudzu eating goats saved the day up on Missionary Ridge in Chattanooga, TN.

  20. Karen

    Seems all this hysterical avoidance of reality is a new phenomenon, dating back only a few decades.

    Rolling over debt (and transferring it from banks to taxpayers) in a frantic effort to postpone the day of reckoning is only making things worse. Are they hoping the tooth fairy is going to wave her magic wand and make the whole mess go away?

    They need to pass emergency sunshine laws forcing all the banks and other big players to lay their books bare for examination by hardnosed experts (led by people like Bill Black), who can then come up with proposed rules for winding down the affairs of all the insolvent government-backed entities (banks and __?).

    Insolvency is best addressed by bankruptcy and a fresh start.

    The most vulnerable innocent victims of that process can be helped as a separate operation.

    1. Typing Monkey

      Are they hoping the tooth fairy is going to wave her magic wand and make the whole mess go away?

      No. They are hoping that they make it past the upcoming French and German elections. After that, they’ll let things fall apart (as they can’t prevent this from occurring, anyway)

      1. Nathanael

        The German Federal Election isn’t scheduled until September 2013.

        They are not going to be able to extend-and-pretend for two full years, not with Greece already having a general strike. That’s just completely implausible.

  21. Susan the other

    If the Greek debt is forgiven it is the equivalent of income for each Greek. This would balance out the unaccountable accumulation of odious debt in the first place – or as Marx would say, “false capital.” And if the debt is formally forgiven, would it trigger CDSs? No default here. What do CDS contracts say about forgiveness? It’s not forgiveness if it is still held against someone.

  22. bmeisen

    The Euro was born because a broad German majority endorsed it – Kohl and his CDU/FDP government could have vetoed it in the 80s, but they didn’t. The SPD could have raised a stink but they didn’t. I think the German consesus was that Germany would benefit, as it has, and be able to throw liquidity on annoying flare-ups. There is also a powerful longing for harmony in Europe, and a genuine willingness to sacrifice for the whole. This is a prominent feature of German culture, despite the perniscious image of them as Nazis. The political elite have long shared a commitment to European integration, as a source of income and as a guarantee for peace. These interests led them to overlook the congenital flaw of the Euro.

    , as they have shared . and EU politics is not a monolith that cranks slowly and inevitably forward to serve the interests of Germany. It is the politicians who introduced it flawed

    1. Typing Monkey

      Kohl and his CDU/FDP government could have vetoed it in the 80s, but they didn’t.

      If I remember correctly, this was part of an agreement with France, whereby France supported German reunification in exchange for Germany giving up its Dmark.

  23. gerold k.b. weber

    As big of a problem Greece is (and I agree with your analysis), the much bigger one is the distortet market for Eurozone sovereign debt, which creates high interest rates without any relation to the reality of future defaults, which of course is fundamentally unknown. Krugman called this dynamic a ‘self-fulfilling panic’ (some ‘self-fulfilling greed’ might also be in the mix, I suggested).
    Perceived high country riks is then handed down to banks and corporations of that country, creating funding problems for them too.

    Relying religiously on the wisdom of the Eurozone sovereign bond and CDS markets endangers Eurozone core countries like Spain, Italy, and Belgium, and further down the road possibly France and Austria too. But exactly this religious belief in God Market is deeply entrenched in Germany’s ruling coalition, and definitely not shared by Sarkozy.

    Some Eurozone governments, represented by Sarkozy, want a solution in which the EFSF is backstopped by the ECB, which would create the desired ‘bazooka’ to keep the markets in check. This would simply give the Eurozone the same means available and readily used in the US, Japan, and GB.

    The ‘market fundamentalist’ Eurozone governments, represented by Merkel and Schäuble, want the EFSF only to act as an insurer of Eurozone sovereign debt. The construct would have limited funding and other dubious properties, as outlined by Satyajit Das in an excellent post at naked capitalism.

    Merkel and Schäuble oppose the ECB backstop partly based on their own slowly shifting convictions, but probably even more due to the political realities in the governing coalition of CDU, CSU, and FDP. German ‘economic identity’ is still to a large degree rooted in the hard currency policy of the pre-Euro Bundesbank which acted as bulwark against the – in German mind always threatening – inflation ghost.

    In my opinion a highly leveraged EFSF without ECB backstop still risks dangerous market distortions after further rating downgrades of Eurozone countries followed by downgrades of banks. Therefore, count me on Sarkozy’s side on the ECB backstop issue.

    But I would strongly recommend for the EFSF to restrict usage of the ECB backstop to the purpose of safeguarding an interest rate ceiling for Eurozone sovereign debt, as recently proposed by Belgian economist Bernard Delbecque at VoxEU. The ECB spigots should not be opened for Eurozone bank recapitalizations, as Europe is politically far away from nationalizing financial institutions at the EU or Eurozone level.

    1. gerold k.b. weber

      Yves: “But Greece alone is morphing into a potentially unsolvable problem.”

      Summary of a new report in the reputable German ‘’:

      Based on the new ‘EU-Troika’ report, Greece needs something between 252 and 444 billon euros until 2020, depending on the success of austerity and the sell-off of state-owned enterprises.

      In the best case for the EFSF, Greece needs 252 billion euros and private lenders take a haircut of 60 percent (it is very unclear if this will be achieved), the EFSF has to use about 110 billion euros only for Greece.

      As the EFSF tells that about half of its 440 billion total lending power is already dedicated, this would leave only about 110 billion for other tasks. Thus some despair is reported from the current EU finance minister meeting …

      Hopes to counteract distorted markets for Eurozone government bonds without resorting to the ECB should fade fast.

  24. kaj

    We are back to the same old problem of a contrived, artficially expensive currency and internal devaluation which does not work. The best thing to do would be break up this artificial union and for Germany to go back to the old Deutchmark with a fixed rate of 1.80-2.25 to the USD. All this floating rate nonsense, a la Mundell and Friedman benefits only the G-damned banks, especially, the large U.S., British, French and Deutchbank which conduct at least a Trillion Dollars of currency manipulation a day and is a source of incredible profitability for these essentially useless enterprises. The U.S. banks, especially, will suffer horrendous losses if such a scheme were to go through because of their linkages with the large European banks and all these enterprises will be totally bankrupted.

    China and several other countries now have a “fixed” exchange rate and even Japan manipulates its rates through market intervention daily; China has learnt the de-industrialization lesson from Japan.

    Fixed exchange rates with quarterly central bank to central bank adjustment is the best way to conduct the enterprise with buyers and sellers dealing exclusively their central banks.

    Unfortunately, the genie is out of the bottle and we face Gotterdammerung. Don’t ask Krugman for advise though!

  25. RueTheDay

    Today was supposed to be the big day – the day when the master plan for saving Europe was released by the technocrats.

    The latest word is that the new big day is Wednesday and that what will be released on Wednesday will consist of more of a broad outline (AKA a plan to have a plan) than an actual, detailed plan.

    Deja vu.

    The sticking points appear to be what to do with Greece, how big of a haircut the bondholders should take, how to expand the EFSF, etc.

    Deja vu.

    Nothing has really changed. I have no idea why the market keeps getting fooled by the technocrats and their endless “wait, we now understand the magnitude of the problem, we’re serious this time, we’ll have a real plan by next Sunday” games.

  26. EB4TL

    “There are other possible ways out of this seeming impasse, such as having the IMF assist in rescues in Spain and Italy. ”

    Why hasn’t anyone been talking about a debt to equity swaps for banks, as demanded by the FT in 8/2001 (Lagarde spells ugly truth on debt). In fact, it might be coming :

    EUROPEAN COMMISSION Brussels, 12.10.2011
    COM(2011) 669 final COMMUNICATION FROM THE COMMISSION A roadmap to stability and growth


    Banks should first use private sources of capital, including through restructuring and conversion of debt to equity instruments.

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