Sovereign debt bubble thread

[Sheilbh]

You're supposed to be waiting until after the election you bastards.

The next relevant election is only in September 2013. 

I think April 2013 matters too :shudder:

[Admiral Yi]

Where are the contradictions?

[Sheilbh]

Where are the contradictions?

Requiring that national public money is used prior to ESM recapitalisation doesn't sever the sovereign-bank cycle, it makes it EZ policy. 

Not necessarily a contradiction, but difficult to reconcile is that the EZ policy of direct recap ends with a reference to helping Ireland after their bank bail-outs.  That's far more difficult if the ESM can't take on legacy assets from mistakes under national supervisors.

[Zanza]

In each of those cases there's backsliding at best and contradiction at worst.  The condition that there be a banking supervisor in place before the ESM could directly recapitalise was pushed for by Germany, who are now objecting most strongly to the Commission's proposals and wanting it weakened (according to reports in the FT).  I think the way this has been reported in the Anglo-Saxon (and Irish press) and elsewhere I believe suggests that if this has been the position, it's certainly not been clear over the summer. 

Merkel's government policy statement to the German parliament on the day of the EU summit said so:

Diese Euro-weite Bankenaufsicht soll durch einen Vorschlag der Kommission, durch einstimmige Beschlussfassung im Rat und natürlich anschließende Umsetzung in den nationalen Staaten mit Parlamentsbeschlüssen geschaffen werden. Das passiert nicht in einem Tag und auch nicht in zwei Wochen, sondern das ist ein längerer Prozess. Ein Vorschlag dazu soll bis Ende des Jahres vorliegen.
Wenn diese Aufsicht geschaffen ist, dann haben wir eine europäische Institution im Euro-Raum, die in der Lage ist, Kontrolle auszuüben, und gleichzeitig auch befugt sein muss, Auflagen zu erteilen.

Damit ändern sich die Voraussetzungen für die Frage: Wie können wir mit Banken im Euro-Raum umgehen?
Deshalb wird in dem Beschluss dargelegt, dass in Zukunft – das geht, wie gesagt, in mehreren Monaten oder  vielleicht in einem Jahr – erkundet werden soll, ob auch eine direkte Kapitalisierung von Banken aus dem ESM nach Ausarbeitung eines Memorandum of Understanding durch die Europäische Zentralbank und nach Antrag des entsprechenden Landes erfolgen kann.

Can't read it? Well, I guess that's the same problem the now surprised English press has.

"There are a couple of countries that are trying to backtrack but I don't think they will be able to muster the force to succeed," the official said, referring to Finland and the Netherlands.

"'Legacy' problems is a newcomer to the debate. It is one more case of this habit of walking away from decisions taken."

That's true. I hadn't heard the legacy part before and it doesn't make sense to me either.

To suggest that's some kind of decision is laughable. It clearly states that the decision will be made later and is at best some kind of expression of intent. It's not making any committments, so there is nothing the Dutch, Finnish and German prime ministers can even go back on. They are just detailling what their policy proposals are regarding this.

Sort of.  That's how all European Council summit statements read, but it's an unusually urgent Council decision, it ends 'We task the Eurogroup to implement these decisions by 9 July 2012.'  They did handing it over to the Commission to draft the rules, which will then have to be agreed - but the principle and timescale were agreed and Germany, the Netherlands and Finland want to resile from both.

The devil is always in the details, so agreeing to the general principle is meaningless. Handing it over to the Commission to draft the rules is not a pre-emptive agreement of the result of that drafting of the rules.

I should say I think there'll be a sense of schadenfreude in Whitehall because Germany sounds almost British    Every government we've had moans.  First they think they did okay during the Council.  Then the Commission starts presenting proposals.  Suddenly it dawns on them that they've agreed to something rather more far-reaching than they suspected.

I am pretty sure Merkel knew what she did. Her parliament speech certainly sounds like it.

[Sheilbh]

Can't read it? Well, I guess that's the same problem the now surprised English press has.

Fair point, on me at least.  But a lot of what I read was from the Brussels press and a quick look at the Spanish, Irish and Italian media show they've all reported this as countries re-opening an agreement and, at best, putting the brakes on.  The Commission itself referred to this being backtracking and I think Brailly's statement was delicately pointed in stating what the Commission considers to have been agreed.

That's true. I hadn't heard the legacy part before and it doesn't make sense to me either.

Yeah, here's a briefing from a City analyst (incidentally his view was that both sides went away on 29 June reasonably thinking totally different things because of Euro-ambiguity of the agreement - that they mixed up tactical (Ireland and Spain) with strategic design of institutions and confusion's inevitable and 4am):

We think the implications of this row are potentially serious, if Germany et al stand behind the position they have laid out (some form of further clarification is certainly possible and talks are ongoing).

Firstly, whatever the ambiguities around the June communiqué, the statement from Germany et al will still be taken as bad faith by the periphery, particularly Ireland. The leader of Ireland's Opposition declared yesterday that the EU had just told them to 'drop dead'. This will have implications for further negotiations on banking union, fiscal integration and the rest of the region's agenda, and we expect the October Summit to go badly as a result.

Secondly, there will be ramifications for perceptions of the debt sustainability of parts of the periphery, which will look worse now that the chance of shifting a chunk of the debt burden appears to have been closed off. The Spanish sovereign will likely remain on the hook for the €60 billion it may announce its banking sector needs this week (and might be incentivised to pitch a lower figure as a result).

Thirdly, there will be domestic political repercussions for the Governments impacted; we think the credibility of the Irish Government in particular may have been seriously harmed by this. Anti-European sentiment will have been boosted.

Fourthly, we think this move significantly ups the pressure on Mariano Rajoy to deliver measures to improve confidence relatively quickly if he is to avoid being overtaken by renewed negative sentiment around the region.

Finally, we think this move reflects the ongoing strength of feeling on transfers and burden sharing in parts of the European core. Germany, Finland and the Netherlands have made their nervousness about the direction the region is going fairly clear this week. We expect more concerns to emerge over the OMT (as we suggested in our note yesterday, the region is still constructed in a way that makes setbacks almost an inevitability).

The devil is always in the details, so agreeing to the general principle is meaningless. Handing it over to the Commission to draft the rules is not a pre-emptive agreement of the result of that drafting of the rules.

Not really, for a start it had an effect on the markets which want reassuring about EZ intentions as much as anything else.  Also when the general principle agreed is direct recapitalisation of banks as a matter of urgency, including Ireland and Spain and countries then say they agreed to direct recapitalisation of banks, at some point, excluding Ireland and Spain then there's an issue - it's not about the details.

My understanding is that generally speaking all of the politics over the details takes place while the Commission's working on drafting of rules.  That's the time when they're trying to find one that will be approved by the Council.  I suppose because they only meet every few months it's not like a normal executive which can hash the details out and go through numerous plans - hence the Commission's role, in communication with all the countries in drafting the rules and finding an acceptable consensus for the Council to approve.

Edit:  Even my German's good enough to understand what this means and whether there's a serious intention to meet it given the new emphasis on getting everything right: 'Ein Vorschlag dazu soll bis Ende des Jahres vorliegen.'

[MadImmortalMan]

Maybe the London Whale bet right, but his timing was just too soon...

[Zanza]

Merkel will visit Greece tomorrow. They mobilized 7000 police officers to protect her from the angry populace. 

[Neil]

Merkel will visit Greece tomorrow. They mobilized 7000 police officers to protect her from the angry populace. 

Why would she do that?  Is she retarded?

[Sheilbh]

I'm really surprised that it's her first visit there since the crisis began.

[Zanza]

What's the point? They hate her anyway.

[Neil]

I'm really surprised that it's her first visit there since the crisis began.

What does she have to gain by going there?  Everybody knows that Eurosolidarity is a lie, and that's part of the problem.

[Admiral Yi]

It's consistent with Shelf's theory that the eurozone crisis is largely a function of the lack of German leadership and engagement.

[Neil]

It's consistent with Shelf's theory that the eurozone crisis is largely a function of the lack of German leadership and engagement.

His theory doesn't take into account that no political preparation was ever made for this sort of European crisis.  The entire EU project was based on the post-Cold War prosperity lasting forever.

[Admiral Yi]

His theory doesn't take into account that no political preparation was ever made for this sort of European crisis.  The entire EU project was based on the post-Cold War prosperity lasting forever.

His theory is a transplantation to the metropole of the post-colonial belief that only imperalists posess agency and anything bad that an oppressed people does is because of improper incentives by their oppressors.

[Sheilbh]

His theory doesn't take into account that no political preparation was ever made for this sort of European crisis.  The entire EU project was based on the post-Cold War prosperity lasting forever.

His theory is a transplantation to the metropole of the post-colonial belief that only imperalists posess agency and anything bad that an oppressed people does is because of improper incentives by their oppressors.

What a load of bollocks. Both about my views and any post-colonial theory I've ever read (for a start it perpetuates the myth of a passive, suffering native waiting and almost requiring the imperial response). I think you need to read your post-colonial theory more. That description is a well-meaning Victorian clergyman talking. At best it's Passage to India.