Greek fire

The Economist

Jul 12th 2011, 15:08 by Charlemagne | BRUSSELS

ONE CAN understand the anger of George Papandreou, the Greek prime minister. He has faced down riots, mass protests and party rebellion to push through a second austerity and reform package. But a second bail-out from the euro zone that was supposed to tide Greece over until 2014 has yet to materialise (although it did get a €12 billion ($17 billion) tranche of loans to keep going until September).

Last night's euro-zone statement was filled with promises of action, but the details remain slippery (see my post). Indecision is causing contagion; contagion is affecting bigger countries, like Italy. And the contagion of Italy threatens to ravage all of the euro zone, including Greece.

Mr Papandreou's letter to Jean-Claude Juncker, who presides over the Eurogroup of finance ministers, sums up the mismanagement of the euro-zone crisis more eloquently than most. It is worth reading. A long excerpt below:

Which way things are going?

My estimations of the situation (they reflect my personal views).

Selecting default

The Economist June 11^th 23:48

FOR THE first time since the start of the Greek debt crisis more than a year ago, the finance ministers of the euro area are ready to consider a default by Greece. They did not say so explicitly, of course, but the omissions from their statement tonight were eloquent.

Stocks, Euro Pare Losses, Italy Bonds Gain

Global stocks trimmed declines, a day after the biggest selloff since March, and the euro pared losses after Italy and Greece sold debt and European governments worked to halt the region’s credit crisis.

The MSCI All-Country World Index fell 0.7 percent at 10:56 a.m. in New York, recovering from an earlier plunge of as much as 1.4 percent. The Standard & Poor’s 500 Index slipped 0.1 percent after futures on the gauge tumbled as much as 1.8 percent before U.S. exchanges opened. The euro was down 0.2 percent at $1.3964 after slumping as much as 1.4 percent. Italian bonds reversed losses, sending 10-year yields down 15 basis points to 5.53 percent. Sugar and zinc led gains in the S&P GSCI Index of commodities as it reversed early losses.

Europe considers Greek default, leaders to meet

(Reuters) - European Union leaders are poised to hold an emergency summit after finance ministers acknowledged for the first time that some form of Greek default may be needed to cut Athens' debts and stop contagion to Italy and Spain.

"There will be an extra summit this Friday," a senior euro zone diplomat told Reuters, suggesting policymakers have been seized with a new sense of urgency after markets started targeting Italian assets.

Italian, Spanish, Portuguese Bonds Slump

By Garth Theunissen and Emma Charlton - Jul 11, 2011 1:28 PM GMT+0300

Italian and Spanish bonds tumbled and German bund yields sank to a seven-month low as contagion from Greece’s debt crisis threatened to spread to bigger economies, stoking demand for the safest assets.

The spreads investors demand to hold Italian, Portuguese and Spanish debt over bunds widened to euro-era records. The European Central Bank is seeking to double a fund to 1.5 trillion euros ($2.14 trillion) to cover an Italian crisis, Die Welt reported yesterday, citing senior central bankers. EU leaders are prepared to accept a Greek default on some obligations, the Financial Times said yesterday.

Democratization Can't Save Europe

The Need for a Centralization of Power

An Essay by Herfried Münkler

Spiegel Online International

Despite the myriad problems currently facing the European Union, democratization is not the answer. Rather, the EU's elites need to improve -- and power has to be taken away from the periphery.

Europe's political elites are a pathetic sight at the moment, from their contradictory reactions to the rebellions in the Arab world to their timid handling of the euro crisis. Either they persist in doing nothing or they flee from one falsehood to the next, all in the expectation that this will enable them to gain control over the markets. Now that the European elites have had to produce proof of their long-held claim that Europe is a capable player on the global political and economic stage, they have done nothing but flounder. And because they refuse to believe that this is the case, they celebrate every stumbling move as the salvation of Europe and the euro. The poor image Europe is currently projecting is largely the result of the impotence of its elites .

Italian Debt Adds to Fears in Euro Zone

The New York Times

By STEPHEN CASTLE

Published: July 10, 2011

LONDON — Top European officials planned to meet on Monday to wrestle with threats to the currency union as fears mounted that Italy could become a victim of the debt crisis even as discussions stalled over a second bailout for Greece. Finance ministers in the euro zone had previously scheduled two days of talks to begin on Monday afternoon in Brussels, with an emphasis on how to resolve Greece’s troubles. Over the weekend, a meeting of more senior officials was set for Monday morning.

A spokesman for Herman Van Rompuy, president of the European Council, denied that senior officials would discuss the state of Italy’s finances, which many investors consider increasingly precarious. But another official, who requested anonymity because he was not authorized to speak publicly, said Italy would probably be on the agenda.

ECB Is Heading for Some Hefty Icebergs

The By IRWIN STELZER

The Wall Street Journal

The Argentine government and the euro-zone policy makers have much in common: both have pistols at the ready, and aimed at unwanted messengers.

Argentina's government says the country's inflation rate is 9.7%. Most independent economists put the figure at 20%. So the government has filed criminal charges against one consulting firm, MyS for "publishing false information about inflation data," part of a coordinated campaign against independent economists.

EU Calls Top Officials to Meet on Greece Aid

The Wall Street Journal

By RIVA FROYMOVICH

European Union President Herman Van Rompuy has called a meeting of top EU policy makers Monday to discuss plans for a second bailout package for Greece, EU officials said on Sunday.

The gathering comes as Europe continues to struggle with a contentious issue: whether and how Greece's private-sector creditors should share the burden when the anticipated second aid package is doled out to the debt-burdened country.

Greece Needs ‘Endgame’ From EU to Enact Deficit Cuts, Canada’s Martin Says

Bloomberg
Former Canadian Prime Minister Paul Martin, who slashed his nation’s debt in the decade through 2005, said Europe needs to show Greece how austerity will pay off in the medium term to successfully push through budget cuts.

Letter to the Greeks

JUN 29, 2011 09:38 EDT

By Hugo Dixon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Dear Greeks,The anger you feel about your plight is understandable. You are staring at several unpalatable alternatives, all of which will involve big cuts in living standards for years to come. But the options you face are not all equally bad. You must avoid an emotional reaction that leaves you in an even worse state — and you must ostracise those who resort to violence.

What Obama Wants

By PAUL KRUGMAN

Published: July 7, 2011

On Thursday, President Obama met with Republicans to discuss a debt deal. We don’t know exactly what was proposed, but news reports before the meeting suggested that Mr. Obama is offering huge spending cuts, possibly including cuts to Social Security and an end to Medicare’s status as a program available in full to all Americans, regardless of income. Obviously, the details matter a lot, but progressives, and Democrats in general, are understandably very worried. Should they be? In a word, yes.

Some of the Wall Street Journal reader's opinions about the Greek Crisis...

The Greeks Have Little Wiggle Room

While Andy Kessler's proposal for restructuring Greek debt by backing it with Greek assets is attractive ("The 'Brady Bond' Solution for Greek Debt," op-ed, June 29), it raises a significant question that he does not address.

Beware of Greeks Bearing New AAA-Rated Gifts

 Jonathan Weil

Structured finance helped turn Greece into a disaster zone. It seems only natural that Greece would look to structured finance once again to buy time.

The spark that accelerated Greece’s debt crisis early last year was the revelation that Greek authorities had used some fancy derivative trades a decade ago to mask the true size of the country’s debt. Today it’s Greece’s creditors who are dreaming up the wacky financial engineering, in hopes that the European Union can keep pretending the nation isn’t bankrupt.

Was it worth it?

Jul 4th 2011, 14:10 by R.A. | WASHINGTON

STEVE WALDMAN asks the burning question:

Suppose that Greece had never adopted the Euro and the terms of its external borrowing had remained subject to “market discipline”, as it had been in the 1990s. Would Greece today be better off or worse off, in real terms, looking forward?

Debt crises

Europe and America, increasingly alike

Jul 6th 2011, 13:52 by M.S.

The Economist

GIDEON RACHMAN had a good thumb-sucker in yesterday's Financial Times arguing that the current political-economic crises in America and Europe are basically two sides of the same crisis. "In Washington they are arguing about a debt ceiling; in Brussels they are staring into a debt abyss. But the basic problem is the same. Both the US and the European Union have public finances that are out of control and political systems that are too dysfunctional to fix the problem," Mr Rachman writes. I have some quibbles about the way he frames the economic issues as a generalized problem of "an unsustainable and dangerous boom in credit", viz homeowner credit in America and the overdrawn borrowing of Greece and Italy in Europe.

Is democracy an economic liability?

Jul 6th 2011, 17:01 by R.A. | WASHINGTON

The Economist

OVER at Democracy in America, a colleague embarks on an interesting discussion highlighting the similarities between the institutional roots of economic troubles in Europe and America. Then, alas, he goes astray:

I actually think the issue goes beyond the increasing unwillingness of Chinese authorities to even pretend to listen to Western complaints about human rights. Unless you buy the Nouriel Roubini argument, and I don't, China is going to be the world's largest economy within ten or 15 years, bigger than America or the euro-zone. And, in case anyone has failed to notice, it's a Communist country.

Hedge Funds Move Past Greece With Bets That Sovereign Debt Crisis Expands

By Katherine Burton and Saijel Kishan - Jul 7, 2011 7:00 AM GMT+0300

Hedge funds that trade bonds and loans are increasing bets that Europe’s sovereign debt crisis will spread to Portugal, Spain and Italy, even after Greece won a temporary reprieve with 12 billion euros in aid.

“Nothing you’ve seen so far has dealt with solvency, just liquidity,” said Simon Finch, head of credit trading at CQS UK LLP, a London-based hedge fund that oversees $11 billion.

Finch, who has bought and sold corporate bonds and loans for 18 years, has stepped up trading in mobile-phone, utility and toll-road companies in the three countries. He expects their governments will be forced to slash spending to pay off lenders, slowing growth and reducing discretionary consumer outlays.

CQS is among the hedge funds that say investors are underestimating the odds of distress or even default not only by Portugal, whose credit rating was downgraded this week to junk status by Moody’s, but also by the bigger Italy and Spain. The funds are moving beyond a direct wager that sovereign debt values will tumble, targeting potential fallout in the corporate-debt market and the banking industry.

German Move Roils Talks on Greece

Revived Proposal for Bond Swaps Raises Question on Plans for Encouraging Private-Sector Creditors to Help in Bailout

By STEPHEN FIDLER in Brussels, SEBASTIAN MOFFETT in Paris and BRIAN BLACKSTONE in Frankfurt

European governments' plan for private-sector creditors to help Greece's next bailout without triggering a default were thrown into doubt Wednesday, as senior German officials resurrected a once-rejected proposal that would cost investors more.