Sovereign debt bubble thread

[The Minsky Moment]

Despite the time differences, Sheilbh and I precisely synchronize our reading of the FT leaders.

[alfred russel]

Is the decline in short term rates for Italy really just a function of the spike in lending to banks by the ECB? Parking the money in high yielding (but relatively short term and liquid) government debt is probably better than many other options.

[Zanza]

Merkel and Sarkozy in a spoof of Germany's New Year's Eve favorite "Dinner for One" with English subtitles:
http://www.youtube.com/watch?v=CC6f2RB9iO8

I think that sketch is also well-known in Scandinavia, no?

[Zoupa]

I don't see anyone laughing.

Are you sure you wanna be like common people?

[Zanza]

Greece: No second bailout, no euro

By NICHOLAS PAPHITIS, Associated Press – 2 hours ago 

ATHENS, Greece (AP) — Greece's government warned Tuesday that the debt-crippled country will have to ditch the euro if it fails to finalize the details of its second, euro130 billion ($169 billion) international bailout and that more austerity measures may need to be implemented. [...]

[Valmy]

Would a second bail out solve their problems?  What is to prevent them repeating this stunt again?

[Zanza]

It wouldn't solve anything, neither their short-term debt problem nor the long-term imbalances of the Eurozone.

[Sheilbh]

Would a second bail out solve their problems?  What is to prevent them repeating this stunt again?

It's not a stunt.  The second bailout is the one agreed in principle at the October Eurosummit.  The problem is it takes a long time to move from a Eurosummit agreeing to something and it getting acted upon.

It would seem extraordinary if the Greeks got a technocratic government that everyone wants to succeed but wasn't extended the support promised to the previous government.

[Zanza]

I think they are still scheduled to have an election in February. By the time this next tranche is necessary, they might have a new government.

[Sheilbh]

I think they are still scheduled to have an election in February. By the time this next tranche is necessary, they might have a new government.

I think you're right, though my understanding's that's a provisional date.  I thought the point of this government was to enact the reforms necessary on the Greek side - and possibly finish negotiations with Greek debt-holders to confirm the haircut - before the election and that the election date was contingent on that process. 

I also think a problem throughout this crisis has been waiting until things were necessary.

[Zanza]

The technocratic government is powerless and won't be able to do any reforms. And I doubt they'll have anywhere near the voluntary haircuts they need.

[MadImmortalMan]

Is Greece leaving the EZ bullish or bearish for the euro itself?

[Zanza]

It's bad as it means de facto default and that means a lot of losses that may not yet be written down will materialize in the exposed financial institutions. Furthermore it will set a precedent.

[Sheilbh]

The technocratic government is powerless and won't be able to do any reforms. And I doubt they'll have anywhere near the voluntary haircuts they need.

What are you basing that on?

The technocratic government's backed by all parties in the Parliament except for the Communists (I think that's how they're able to choose the election date, they'll vote to dissolve).  They've got far more official political support than Monti.  They've got a limited mandate, unlike Monti who got his for two years.  They've passed a very austere budget for 2012 that was supported by most parties (though I think New Democracy hinted that they weren't happy with the tax portions) and have been negotiating for the haircut.

I think you're right on the haircuts though.  I don't know if they'll get the 50% that was proposed at the October summit, and even that won't be nearly enough. 

Edit:  Incidentally they've pushed back the election date to 'around April'.

[Zanza]

I read an article recently which basically said that they haven't passed a single meaningful reform yet. They haven't been able to cut more than a 1000 of the 750,000 state employees apparently. They have still not been able to open up closed jobs such as truck or taxi drivers. And so on and so forth.

Passing an austerity budget is easy when you know you won't make it anyway.