Satyajit Das: Europe’s The Road to Nowhere, Part II – Roadblocks Ahead

By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)

Over the next few months, the Euro-Zone faces a number of challenges including: the implementation of the new arrangements, possible further downgrading of a number of nations, refinancing maturing debt and meeting required economic targets. There will also be complex political and social pressures.

Implementation of the new fiscal compact may not be a fait accompli. The lack of agreement by Britain makes the change more complex. A number of treaties and protocols need to be amended. There are also doubts as to whether the “work around” will be legally effective.

At least four governments have indicated that agreement to the changes is contingent on the precise legal text. One key area of concern is the precise form and extent of powers granted to the EU to police national budgets. Another relates to the structure of the ESM, where a qualified majority of 85% will have the power to make emergency decisions. Finland is currently opposed to the ESM act by super majority instead of unanimity. Others are also reluctant to pay in capital, which can be placed at risk without the right to a veto.

Given issues of national sovereignty, it is possible that there will delays in implementation. Changes cannot also be ruled out.

In the background, negotiations on the Greek package of July 2011 have also stalled. There is a risk that a significant number of banks will refuse to participate in the complex debt restructuring, entailing a writedown of 50% of private debt.

Following a review, S&P have downgraded France and Austria from AAA to AA+. The rating agencies may follow. The risk of further downgrades exists. The European bailout fund is under threat of being downgraded As the number of AAA rate guarantors backing it has fallen from Euro 451 billion to Euro 271 billion (a fall on 40%). This weakens its already compromised ability to raise funds to meet existing commitments to Greece, Ireland and Portugal and to support the funding of other countries.

Wall of Debt…

A crucial issue is the ability of European sovereigns to meet maturing debt commitments and to keep borrowing costs at a sustainable level.

European sovereigns and banks need to find Euro 1.9 trillion to refinance maturing debt in 2012, equivalent to around Euro 7.5 billion each business day.

Italy requires Euro 113 billion in the first quarter and around Euro 300 billion over the full year, equivalent to around Euro 1.5 billion per business day. Italy, Spain, France, and Germany together will need to issue in excess of Euro 4.5 billion every working day of 2012.

European banks, whose fates are intertwined with the sovereigns, need Euro 500 billion in the first half of 2012 and Euro 275 billion in the second half. They need to raise Euro 230 billion per quarter in 2012 compared to Euro 132 billion per quarter in 2011. Since June 2011, European banks have been only able to raise Euro 17 billion compared to Euro 120 billion for the same period in 2010.

Given that banks and investors have been steadily reducing their exposures to European countries and banks, the ability to finance this wall of debt is uncertain. The bailout fund and the IMF with around Euro 200-250 billion each cannot absorb this issuance. Europe will be forced to resort to “Sarko-nomics” to finance itself.

The ECB has reduced Euro interest rates and lengthened the term of emergency funding of banks to three years with easier collateral rules (a lottery ticket is now acceptable as surety for borrowing). The French President suggested that banks should buy government bonds, which could then be pledged as collateral to borrow unlimited funds from the ECB or national central banks.

Nicolas Sarkozy was unusually direct: “each state can turn to its banks, which will have liquidity at their disposal.” He pointed out that earning 6% on Italian bonds that could then be financed at 1% from central banks was a “no brainer”. At the same, ECB President Mario Draghi is urging banks to reduce holdings of government securities and to use the funding provided to meet debt maturities.

Sarko-nomics perpetuates the circular flow of funds with governments supporting banks that are in turn supposed to bail out the government. It does not address the unsustainable high cost of funds for countries like Italy. If its cost of debt stays around current market rates, then Italy’s interest costs will rise by about Euro 30 billion over the next two years, from 4.2% of GDP currently to 5.1% next year and 5.6% in 2013.

In many countries, Sarko-nomics will be supplemented by “financial oppression” as government increasing coerce their citizens and institutions to purchase sovereign bonds. Regulatory changes will require a proportion of individual retirement savings to be invested in government securities. Banks and financial institutions will be required to hold increased amounts of government bonds to meet liquidity and other requirements. There may be restrictions on foreign investments and capital transfers out of the country.

Financial oppression will complement traditional public finance strategies such as direct reduction in government spending, indirect reductions in the form of changing eligibility such as delaying retirement age, and higher taxes, including re-introduction of wealth and property taxes as well as estate or gift duties.

Debt reduction through restructuring remains off the agenda. The adverse market reaction to the announcement of the 50% Greek writedown forced the EU to assure investors that it was a one-off and did not constitute a precedent. Despite this, investors remain sceptical, limiting purchases of European sovereign debt.

Weaker Euro-Zone countries may meet their debt requirements through these measures but it will merely prolong the adjustment period. It will also increase the size of the problem, locking Europe into a period of low growth and increasing debt levels.

Reality Check…

The prospects for the real economy in Europe are uncertain. European debt problems and slowing growth in emerging markets such as China, India and Brazil may lead to low or no growth.

For the nations that have received bailouts, the austerity measures imposed have not worked. Growth, budget deficit and debt level targets have been missed.

Greece has an Euro 14.4 billion bond maturing in March 2012. Prime Minister Lucas Papademos must meet existing targets and agree the second Greek bailout worth Euro 130 billion by end-January 2012 before scheduled elections to allow official funding to be available to re-finance this debt.

Even Ireland, the much lauded poster child of bailout austerity, has experienced problems. The country’s third quarter GDP fell 1.9% and its Gross National Product fell 2.2% (the later is a better measure of economic performance due to the country’s large export/ transhipment activity). Ireland must reduce its budget deficit from 32% of GDP in 2010 to 3% by 2015. Despite spending cuts and tax increases, Ireland is spending Euro 57 billion euros including Euro 10 billion to support its five nationalised banks, against Euro 34 billion in tax revenue.

Spain, which has voluntarily taken the austerity cure, is missing economic targets. Spain’s budget deficit is above forecast (at 8% of GDP, it is a full 2% above the target agreed with the EU) and the need for support of the Spanish banking system may strain public finances further. Unemployment increased to over 21% (nearly 5 million people). Spain’s economic outlook is poor and deteriorating.

Under Prime Minister Maria Monti, Italy has passed legislation and budget measures to stabilise debt. The actions focus on increasing taxes, especially the regressive value-added tax, rather than cutting expenditures. Structural reforms to promote growth are still under consideration and the content and timing is unknown. It is also not clear whether the plans will be fully implemented or work.

If the pattern elsewhere in Europe continues, it is unlikely that Italy will be able to stabilise its public finances. The sharp drop in demand from cuts in government spending and higher taxes will result in an economic slowdown, which will result in continuing deficits and increased debt.

In the third quarter of 2011, Italy’s economy contracted by 0.2%. The government forecast is for a further contraction of 0.4% in 2012. The government forecasts may be too optimistic. Confindustria, the Italian business federation forecasts the economy will contract by 1.6% in 2012.

Consumption is especially weak in many of the problem economies, with Greece experiencing falls of around 30% and Italy also experiencing large falls.

Stronger countries within the Euro-Zone are also affected. Lack of demand for exports within Europe and from emerging markets combined with tighter credit conditions may slow growth.

German export orders are slowing, reflecting the fact that the EU remains its largest export market, larger than demand from emerging countries. Germany exports to Italy and Spain total around 9-10 per cent in 2010), higher than to either the US (6-7%) or China (4-5%).

As what happens in Europe will not stay in Europe, being transmitted via trade and investment channels, negative feedback loops will complicate the economic outlook.

One complication will be the Euro itself. Following his American counterparts who insist that they favour a strong dollar inconsistent with the evidence, German Finance Minister Wolfgang Schaeuble stated that: “The Euro is a stable currency.” In fact, the Euro has fallen around 12 % against the dollar.

Should the European debt crisis cause currency volatility, as seems likely, the effects will be widespread. One unstated element of the calls for the ECB to engage in quantitative easing is to weaken the Euro, increasing the export competitiveness of weaker European nations boosting growth. Such action risks setting off currency wars as both developed nations (US, Japan, Britain, Switzerland) and emerging countries retaliate. The risk of capital controls, trade restrictions and currency intervention is high.

Voting Intentions…

The risks of political and social instability remain elevated.

Greece faces elections in April 2011. The polls indicate a fractious outcome, with the major parties unlikely to gain majorities with significant representation of minor parties. An unstable government combined with a broad coalition against austerity may result in attempts to renegotiate the bailout package. Failure could result in a disorderly default and Greece leaving the Euro.

The French presidential elections, scheduled for May 2012, also create uncertain. The principal opponents to incumbent Nicolas Sarkozy either oppose the Euro and the bailout (the National Front led by Marine Le Pen) or want to renegotiate the plan with the introduction of jointly guaranteed Euro-Zone bonds (the Socialists led by Francios Holland).

The European debt crisis is also creating political problems in Germany, Netherlands and Finland, especially among governing coalitions. The risk of unexpected political instability is not insignificant.

In the weaker countries, austerity means high unemployment, reductions in social services, higher taxes and reduced living standards. Social benefits increasingly below subsistence are widening income inequality and creating a “new poor”. Protest movements are gaining ground, with growing social unrest.

In the stronger nations, increasing resentment at the burden of supporting weaker Euro-Zone members is evident. Despite the tabloid headline, Germans have been relatively sanguine about their current commitment of funds to the bailout, aided by limited disclosure of the extent of the commitment and a relatively strong economy.

It seems only a downgrade of Germany’s cherished AAA rating, actual losses or any steps to undermine the sanctity of a hard currency (by printing money or other monetary techniques) will force increasing focus on the costs to Germans of the bailouts. Germany’s commitment to date is Euro 211 billion in guarantees, Euro 45 billion in advances to the IMF and Euro 500 billion owed to the Bundesbank by other national central banks – around 25% of GDP. The increasing risk of losses may even divert attention away from the 2012 European Soccer Championship where Germany is drawn in the “Group of Death” with Netherlands, Portugal and Denmark.

Road to Nowhere…

In the short term, Europe needs to restructure the debt of number of countries, recapitalise its banks and re-finance maturing debt at acceptable financing costs. In the long term, it needs to bring public finances and debt under control. It also needs to work out a way to improve growth, probably by restructuring the Euro to increase the competitiveness of weaker nations other than through internal deflation.

Such a program is difficult and not assured of success, but would provide some confidence. At the moment, Europe does not have any credible policy or workable solution in place.

One persistent meme is that Europe has enough money to solve its problems. This is based on the Euro-Zone members’ aggregate debt to GDP ratio of around 75%. There are several problems with this analysis.

The debt is concentrated in countries where growth, productivity and cost competitiveness is low, which is what caused the problems in the first place. The relevant wealth is in the hands of a few countries like Germany that appear unwilling to bail out spendthrift and irresponsible neighbours. A substantial portion of the savings is also invested in European government debt directly or in vulnerable banks, which have invested in the same securities.

The total debt of the PIIGS (Portugal, Ireland, Italy, Greece and Spain) plus Belgium is more than Euro 4 trillion. A writedown of around Euro 1 trillion in this debt is required to bring the debt levels down to sustainable levels (say 90% of GDP). In the absence of structural reforms and a return to growth, the writedowns required are significantly larger. This compares to the GDP of Germany and France respectively of Euro 3 trillion and Euro 2.2 trillion.

In addition, the stronger nations may have to bear the ongoing cost of financing the weaker countries budget and trade deficits. This does not appear economically or politically feasible.

Europe now resembles a chronically ill patient, receiving sufficient treatment to keep it alive. A full and complete recovery is unlikely on the present medical plan. Europe resembles a zombie economy, which functions in an impaired manner with periodic severe economic health crises. The risk of a sudden failure of vital organs is uncomfortably high.

In their song “Road to Nowhere”, David Byrne and the Talking Heads sang about “a ride to nowhere”. Byrne sang about “where time is on our side”. Europe’s time has just about run out. A failure to properly diagnose the problems and act decisively has put Europe firmly on the road to nowhere. It is journey that the global economy will be forced to share, at least in part.

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  1. jake chase

    I greatly admirer Das’s Traders Guns and Money, but this entire post misses the essential point about Europe’s financial problems: they cannot be solved in the usual way: by loading more debt on the public sectors of peripheral countries in order to stimulate industrial demand in Germany, and financial profits to ponzi banks, that somehow trickles down to European populations as ‘economic growth’, without requiring those already rich to accept one dollar less (and indeed to keep grabbing more) than they pulled out during the past 12 years of the common currency scheme. They can be ‘solved’ only in the politically impossible way of drastically reducing the take of those atop the wealth pyramid and ending the looting by finance.

    This would not make the slightest difference here in America were it not for the uncounted trillions in derivative bets on sovereign debt infecting our largest banks, all of which will be immediately insolvent unless a pretense of voluntary restructuring can be dredged out of the seemingly inevitable sovereign repudiations. How can this pretense of voluntariness be managed? Only by the grace of Bernanke, through Fed slight of hand.

    All these billions and trillions in sovereign ‘requirements’ so elegantly laid out by Das will shortly be winging their way across the Atlantic to find refuge on the balance sheet of the Fed in an exchange of electronic fiat for worthless bonds. The pretense will be saving the global trading system; the reality will be extortion by the uber rich. The suckers will be the American middle class, since the American rich will refuse to pay and the American remainder will be unable to pay. How this will be jiggered will be of interest only to specialists in the jargon of finance. As to the effect on markets, they will fluctuate, violently, providing a maximum of entertainment for those in the business of talking about them, and intermittent anguish for those having anything to lose.

  2. Gerald Muller

    In my opinion, there two main causes for the present mess: the Euro on the one hand, a stupid construction whose only agenda (hidden at the time of implementation) was to force politicians into a USE (United States of Europe) to balance the power of the USA. This idea was a technocratic stupid one if there was one. Europeans do not feel Europeans. They feel Italians, Germans or French but certainly not Europeans. Furthermore they do not speak the same language, a detail that seem to have been missed by said technocrats. On the other hand the rise of the financial mob has had the same result as in the USA albeit with slightly less impact, but by no means negligible.
    Neither point are addressed by Europeans leaders nor by this article. In fact, just to take the case of France, there is approximately 80 billion Euros per year that are thrown down the drain in useless and costly schemes. Not to mention the million civil servants too many compared to Germany, costing also around 50 to 60 billion per year. France could reduce its debt on its own, even if this would be rather late in the day. However, Sarkozy does not even dream of it and François Hollande (misspelt in the article) would precipitate the country into an abyss in no time.
    Italy could also reduce its debt on its own by slashing the vast amounts squandered. Spain is a far more difficult problem, but solving both France’s and Italy’s woes would vastly increase the chances of solving the whole European mess.

    1. Random Lurker

      I have to disagree with you on at least 2 points:
      1) I think that it was obvious from the beginning (meaning in the early postwar era) that the various common markets were supposed (at least by some proponents) to leat to a sort of “United States of Europe”, although in a gradual way.
      2) “Italy could also reduce its debt on its own by slashing the vast amounts squandered.” I think that this approach is basically wrong (in the case of Italy as in the case of other nations). Suppose, for example, that Italy lowers retirements and is able to catch all the tax evasion: this would lead to a rearrangement of wealth between Italians, but not to a diminishing total Italian debt. In facts, a country like Italy cannot “squander” money (although it can squander resources). In order to solve its debt problems, Italy (and other nations) necessariously have to become net exporters; but in the european contest this means that either previously net exporters, as Germany, become net importers (which I suppose is hard to sell politically to Germans) or the whole EU has to become a net exporter (which can only happen by weakening further the Euro, whith all the political problems stated in the article).

      Cheers from Italy!

    2. Cezary

      This is another opionion from that side of Atlantic which is a little biased. Reading this kind of notions makes me sick, so I have to react this time.

      First of all, I am European. I was born here, I live here and I am not going to leave. I feel even more: I am the citizen of the world as one of your presidents put it as a metaphore “Ich bin ein Berliner”. Because in what way we are different? I bet you also want quite comofortable life, raise kids in good environment, have some fun, feel loved and needed. So this nationalistic approach bothers me. Just to conclude we are people and we are in the same boat called Earth.

      Second: how long did american patriotism and unity were born? 200 years? And you expect that Europeans will do it in 20? Please…

      Third: Please look at the OCED countries debt levels. All countries, especially including US have more debt than they can bear in the long run and this is going to be worse every day. So please don’t point fingers. This year alone US needs to increase deficit by 1.5 trillion (if I’am not mistaken). So the disease is common and not only European.

      Fourth: The problem of indebtness is not a coincidence. This is systemic, so any healing must be changing the system itself instead of trying to pump up more money/debt. This will only prolong the agony. And it concerns both sides of the Atlantic.

      All the best to “naked capitalism” and readers.

      1. Jim

        Cezary, to answer your points…

        (i) You feel more European than “x”, but it’s highly unlikely that a majority of your peers feel the same way. Can you cite any poll in which a majority of Greeks or Germans consider themselves Greeks and Germans moreso than European?

        (ii) The US had a common language and, for the most part, a common heritage, from the start. If Germany agreed to a United States of Europe, would you be willing to accept that the official language of Europe would be German, that German would be taught in all schools, and that the federal government would be based in Berlin, with disproportionate representation for the North over the South?

        Also, please recall that the US fought a Civil War to maintain its integrity, a war which cost 625K lives, or 2% of its population. Adjusted for population, the number dead would be 6M in the Eurozone today.

        (iii) The US controls its own currency. So does Japan, with debt/GDP of 215%. There is interest rate risk, but not credit risk.

        Agree to have Berlin be the capital of the United States of Europe, with 17 states, and Europe can have debt/GDP of 125% without the market bidding up rates above 2.5%.

        (iv) Again, the US shares very little with the Eurozone in terms of credit risk. In fact, the US shares FAR more with the UK, than the UK shares with the Eurozone.

        Controlling your currency makes all the difference.

        1. Cezary

          Dear Jim,

          What an interesting discussion begins here :D

          I am sorry for the tone of my last post but I feel discomfort reading some of the opionions from US, pointing Europe as a main crisis reason. Just a reminder it began in 2007 in US. Certainly I do not believe in blaming this or that country because what started with Salomon Brothers and Bearn Stearns earlier was just a trigger for the later events. And the economy’s sickness we’re seeing today is just the realisation of inevitable.

          Second, you presented the idea that Europe will not cope with the fiscal crisis and therefore it will spread out to the other side of the Atlantic and possibly to the rest of the world. This might be true but nevertheless it started in US a few years ago.

          Now getting to your reply: I mostly agree with you about the current differences with a significant remark.
          You can present difference in the whole process of unification between US and Europe this way: US had war and then unification, Europe had 2 wars (so called World Wars with, sadly, but a lot more casualities than required by your calculation) and then unification. Can we agree on that? Of course this is painfull process and exposed to many risks (like you pointed them) but neverthelss meaning the same. Europe is just in the beginning of this. And I still can’t understand why so many people in Europe can’t see this great idea behind unification. It is the greatest political achievement since Roman Empire but this is just me :D

          I am not saying that Europe isn’t in deep, black hole right now. In fact it is. I am just saying that we all are and there are very turbulent times coming. Irrespective of wether it is coming from Europe or any other place. Current crisis is just a catalyst. And please look at the US debt dynamics. Your country goes the same path as France, UK, Spain and all other heavy indebted nations. It will just take a little longer to blow. US ows almost $2 trillion to China. And this is only matter of time when they stop buying bonds to gain advantage.

          So you really believe that control of currency will save anyone? What FED can do right now? Pump more money onto market? Just wait for hyper deflation. Or maybe there will be miraculous healing by invisible hand of the market? Or there will be some significant structural reforms form Congress or new US president?

          I don’t see any easy/cheap prescriptions for US – exactly the same as for Europe.

          So I am sorry but we all are in this and only together we can survive. Blaming anyone will not make anything better. I just hope that all the measures taken will change the world for better (I mean different and better) and we will not go in direction of tyrrany, terror and xenophobia.


  3. Musashi

    Sorry to ask the obvious, but where are all the numbers in the article coming from? Are there any public source from where normal citizens can get these numbers?


  4. Jose L Campos

    I was a few weeks back in Europe. They really have nowhere to go because life there feels like Paradise.
    All these prophets always foresee doom but reality continues existing. Categories learned in school are deadwood. Life creates reality independent of the wishes of learned people. Crises are simply objective dialectical moments.
    The rating agencies continue to downgrade everyone and bonds continue to be sold at higher and higher prices and the process shows that the rating agencies are themselves becoming deadwood.

    1. craazyman

      I think you may be right. The only road to nowhere for me is my investment portfolio, as the market keeps rising in total defiance of the doom and gloomers. But the moment I cave and go in big — that will be the top. I don’t know what to do. Maybe it will be today!

    2. sidelarge

      That’s quite often the case (= economic/financial media blowing things out of proportion), and if there is one thing that needs to be seriously discredited (we should even cheat, if necessary, to achieve that), that’s the rating agencies, but you should specify “Europe”. I visited Spain last month, and it was most certainly not a Paradise. Things there are already as bad as the data suggest, and it’s very clear that they are getting worse, falling into a seemingly bottomless pit. I also got this impression that what the banks, like Sandander and BBVA, did there is considerably worse than what their American counterparts did in the US, if you can imagine any such thing. It seems that they have also managed to dictate the national/local policies for their own interest far more successfully there, pretending to be the driving force to pull the economy out of the malaise, much of which they themselves are responsible for.

      With disastrously many young people, including numerous university graduates, effectively locked out of the job market, competing for scarce extremely-low-paying jobs, it all looked like a total Nightmare to me. No “business cycle” could stop that nasty spiral.

    3. Jim

      Jose, Domingo Cavallo said the same in Argentina about a decade ago. He blamed speculators, and assured everyone that the dollar peg was there to say, forever.

  5. snowdrift

    So “financial oppression” is what the cool kids call it? Up till now I more often read it as financial repression, and even with scare quotes it’s still an ideologically-loaded term. Regardless of what it’s called, it works:

    And if the ECB is willing to send a proper signal instead of almost covertly dabbling in bond purchases with its SMP, Europe could have all the money it wanted, and without any treaty changes, since the treaty only prohibits the ECB buying in the primary market.

  6. Jesper

    Which is better? Being on the road to nowhere (keeping democracy and rule of law) or being on the road towards a banking oligarchy?

    What is being discussed is:
    -Changing the principle of equality before the law, otherwise the banking crisis due to incompetent bankers will result in failed banks failing.
    -Centralising power, also known as moving power as far away as possible from citizens.

    I’d need more information about the banking led Utopia before I start moving towards it. Anyone up for explaining how the world will become a better place if we only give up everything we have to the all-knowing central planners in the ‘Too Big to Fail’ banks?

  7. Jackrabbit

    Now there is talk of an impeding Greek default.

    That will drive down the price of Greek debt even more.

    It seems like Greece or the ECB could/should/is/will buy that debt at firesale prices.

    So it seems that this rumor-driven, manipulated market creates an opportunity for the ECB/Greece to capture a discount without negotiating with investors.

    Once private investors are forced to sell at a steep loss, the ECB can “negotiate” with banks for any remaining discount and then Greece can be “saved.”

    Rinse, repeat for other PIIGS and the Euro itself is “saved.”

    1. orionATL

      i posted this angry, lets-do-something-for-gods-sake comment at one of david dayen’s “firedoglake” posts (Eurozone Busily Decimating Member Countries, Monday January 16, 2012)

      more knowledgeable folk can suggest more sensible specific steps for the reviled southern european nations to take than i suggested, but i stand behind the general thrust of my comment:

      “orionATL January 16th, 2012 at 6:43 pm

      this problem of national bonds speculators with the power to destroy economies is actually amazingly simple to solve.

      for hedge funds or private banks or other private investors who hold “insured against loss” govt paper, e. g., paper protected by credit default swaps,

      freeze the assets of those entities, seize their official documents, revoke their certificates to operate in that country, and tax them 110% on any returns from national govt defaults.

      that the hedge funds operate internationally, and may be in new york on hong kong should make no difference.

      similarly, bond series numbers known to be held by these speculators could have their value specifically revoked.

      alternatively, playing speculators off against each other might have promise – you know, like the army captain said, “if you want to elicit a confession from a suspect you line men three up and shoot the man just to the left or right of the suspect you want to a confession from.”

      (the use of a torture analogy here is not accident – the u.s. broke international law, its own domestic law, and peace treaties it had signed n order to torture. why should the actions of speculators whose run for the gold might destroy a nation’s economy, or the world’s, be treated with governmental diffidence.)

      this approach would work even better if the euro zone acted in concert, better still, if the u.s. co-operated… ”

      critiques and comments solicited.

      1. Doctor_K

        I fully agree. Financial markets are a tool to finance productive investment and they operate under license of politics to do so. It is self delusory to not understand that politics have the upper hand and that if bad goes to worst the State is going to act boldly.

        European public opinions will fully back their governements and only in UK there would be critizism. Speeches about freedom and libertarian propaganda will be useless if European politicians decide that their countries are at a clear and actual danger.

      2. Jim

        Who adds more value to society?

        (a) A hedge fund manager whose trades enable the world to see the true value of Greek debt,


        (b) An overpaid Eurocrat in Brussels, earning in excess of 500K Euros a year, and who was partly responsible for the ill-fated Euro, which never should have come about.

        Who’s done more damage to society, (a) or (b).

        It’s a no-brainer.

        1. Doctor_K

          There is nothing as “true value”. Price is determined by perceptions that are subjective. The hedge fund manager doing shorting against Greek debt is making the price going down. This is the reason that shorting is so profitable, because is a self fulfilled prophecy.

          Whatever crimes the outweigh and overpaid Eurocrat can commit in his Satrapy in Brussels, the hedge fund manager doing shorting is not “showing the real price” of something but making impossible to a country with millions of inhabitants to finance itself.

          In USA Randian chit-chat protects these people but in Europe we are starting to understand that they should be stopped before destroy the world (with or without the Eurocrat).

  8. orionATL

    one of the matters of at least some concern to europeans who follow these matters is tax evasion and gray-, black-, off-the-books business transactions and “markets”.

    i have no knowledge of european tax collection or businesses customs.

    given that these are economically “big” countries with large gdp’s,

    would anyone care to comment on just how important non-payment of taxes and gray-, black-markets are to the current financial straits of any of the (invidiously labeled) PIIGS?

    is this concern an important factor or just a moral sideshow generated by strait-laced anglo-american-german fiscal types?

  9. Lafayette

    Europe resembles a zombie economy, which functions in an impaired manner with periodic severe economic health crises. The risk of a sudden failure of vital organs is uncomfortably high.

    It is getting very borrrrinnnngggg refuting this drivel.

    Two rating agencies have refused, for the moment, to cut the rating. The auctions (on short term debt) has gone well, with a slight drop in interest rates. We’ll see what long-term debt auctions look like soon enough.

    If Das thinks that the common currency of a economy of 330 million people is a “zombie”, then he’s obliged to give a more cogent argument than the ones presented so far.

    Seems like he’s personally shorted the euro and is trying to make some quick money by bad-mouthing it down further.

    Which suits the EuroZone currency just fine since the euro is back to almost the point at which it was first announced at 1.18 to the dollar.

    Americans should think of embarking upon a European vacation this year – the one they’ve been putting off for the past five years.

  10. Jackrabbit

    Bloomberg Reports That Greek Private Creditor Deal Near, At 32 Cent Recovery, According To Hedge Fund Involved (via ZH)

    Only hours ago I speculated on such an outcome!?!? (see earlier comment)

    1. orionATL

      you did indeed. if this holds it is a fine outcome and a great precedent – for european nations involved.

      but who picks up any hedge hog losses?

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