Sovereign debt bubble thread

[MadImmortalMan]

if the Netherlands, Finland, Germany and the Scandis were going through an economic and debt crisis.

A couple ticks in interest rates, and they might be.

[Admiral Yi]

It's kind of interesting that US unfunded liabilities are often mentioned when discussing total national debt but I've never seen them mentioned in terms of Yurodebt.

Youse guys ever see this in your local press?

[The Minsky Moment]

How does Germany, the Netherlands, Sweden or Denmark fit into that?  They can compete fine. 

They've not got a two-tier labour system, but there's plenty of worker protection in those countries (largely through the huge unions who also deliver part of the welfare state) and they are far more lenient and comfy - the Southern European welfare state is incredibly weighted towards the retired. 

Don't know about the rest, but Germany had the Hartz reforms in the early part of the century.

[Gups]

It's kind of interesting that US unfunded liabilities are often mentioned when discussing total national debt but I've never seen them mentioned in terms of Yurodebt.

Youse guys ever see this in your local press?

Sure. Usually in relation to pensions for state workers.

[PJL]

Greece to default on 23rd of March according to this article:

http://hat4uk.wordpress.com/2012/02/16/greek-default-exclusive-senior-us-bankers-given-explicit-timetable-for-athens-default/

GREEK DEFAULT EXCLUSIVE: SENIOR US BANKERS GIVEN EXPLICIT TIMETABLE FOR ATHENS DEFAULT

Wall Street...who gave it a map of the future?
DOCUMENTS RAISE AWKWARD QUESTIONS FOR WASHINGTON, IMF & BERLIN

A written document giving firm dates and detailed actions for a planned Greek default has been in the possession of two top Wall Street bank currency trading bosses since the second week in January. The Slog has separate but corroborative sources affirming the existence of the document, and a conviction among senior bank staff that – at least at the time – the plan represented "a timetable, not a contingency". The plan gives a firm date of March 23rd for default to be announced after the close of business.

Senior bankers on Wall Street have been given detailed documentation setting out a timetable to Greek default, including firm dates and technical 'orders' about last use of the euro as a currency there. The revelation arrived at Slogger's Roost last Monday, since when I have been trying to obtain corroboration. This arrived in the early hours of today (Thursday). One of the banks is Barclays Capital (Barcap) run by controversial figure Bob Diamond. The other must remain anonymous for the time being, in order to protect sources.

The document asserts that Greece will officially be declared in default by all the ratings agencies after the close of business on Friday march 23rd . At the weekend all Greek bank accounts will be frozen, with emergency measures detailed to prevent the flight of capital. Included in the paperwork is a list of very limited exceptions to the 'no withdrawals' order. All major banks 'are instructed  not to deal with euro exchange  as of open of business in Greece on Monday 25th march. All Greek markets will close for one day 'at least'.

As yet, I have been unable to establish the source of the documents. But one of my informants admitted, "I have strongly suggested to Greek business friends and clients that they sell up fast, do a sale and leaseback on property, empty bank accounts, and change to a hard currency."

I have little doubt that such a critical path analysis leading to default in Athens can be easily brushed aside as contingency planning. But this is not the impression Slog sources were given: and its existence is bound to further raise suspicions in ClubMed about the real intentions of 'EU Nord', Washington and the Troika – especially the IMF. In particular, the alleged creation of the document both supports (and/or coincides closely with):

1. Washington going cold on further IMF funding

2. IMF intervention in the Athens debt talks

3. Persistent rumours surrounding Wolfgang Schauble's plans

4. Evidence previously assembled by The Slog  concerning Americo-German coordination

5. A string of delaying tactics by senior EU and Troika officials since mid January.

Reviewing the timeline of the Greek Debt Marathon, the back end of it is pretty obviously one of persistent sabotage from Berlin, Brussels, and the IMF:

1. It's the second week of January 2012, and the bondholder deal is a few small steps away from lawyers crossing t's and dotting i's. Enter Schauble saying the haircut is nowhere near short enough. Bondholders' leader Charles Dalloran walks out.

2. The Troika barges into the Athens/Bondholder talks, and they turn into chaos, then grind to a halt.

3. FinMinCom meets in Brussels and several encouraging noises are made about progress towards a deal 'over the weekend'. Enter Merkel bearing demand to fire the Greek Government and replace it with an EU commissioner. This produces four more days of circular delay, following which Nicolas Sarkozy declares that the German demand was never a demand.

4. Lucas Papademos gets personally involved and strikes a deal with Dalloran. Then he extracts the support of all Party leaders for the deal. We're almost there. Enter Schauble and Brussels saying no, your economy's worse than we thought – we need a closer haircut and more savings.

5. The troika is now talking direct to the bondholders with Athens outside the loop. The creditors feel on the back foot. They agree to a lower percentage rate for the new bond issues and a 70% haircut. Venizelos meanwhile focuses on finding additional savings. Papademos intervenes again with leaders and creditors. We are now 'hours away'. Mario Draghi says no, the haircut is too close for the ECB, and not enough for everyone else.

6. Draghi relents a little, the bondholders say they are "tentatively flexible". We're two small steps away from a deal. Enter Schauble moaning about £325m of savings unaccounted for...a thousandth of the total Greek debt.

6. Tempers get inflamed back in Athens. Greek leaders start muttering about doing what they have to do, getting the deal signed, and then having elections. Berlin and FinMinCom demand that all Greek Party leaders sign a document ordering them to stick to the deal regardless of election results. This loses another two days....but the bondholders are still keen to sign.

7. The German Bundesbank leaks a story to German newspaper Handelsblatt saying the Greeks will not be able to satisfy bondholder demands, and thus technical default is now a certainty. The story is traced back to the office of anti-bailout hawk Jens Weidmann.

8. Deutsche Mittelstands Nachtrichen runs a story claiming another 2.5 bn euro hole has been found in the Greek budget proposals. The story is deconstructed by The Slog and others and turns out to be complete bollocks. But the FinMinCom meeting in Brussels is postponed, and replaced with a conference call.

9. Merkel says she doesn't trust New Democracy leader Antonis Samaras. Athenian leaders must now sign another pledge after the additional 325m euros of savings have been found and agreed. They all sign (Wednesday morning – yesterday – 15th February).

10. Yesterday afternoon, the EU finance ministers' conference call begins to talk about cutting its losses. A firm proposal is tabled – by Berlin, it seems – to divide the next bailout tranche into smaller slices. The next Com meeting is put off for six days.

11. Schauble describes the Greek debt as "a bottomless pit". Merkel joins the fray by suggesting the bailout be put back until after the April elections. This clearly makes no sense, as from March 16th Greece will be in technical default without more money. But Schauble adds that indeed, Greece should postpone its elections.....and "install a technocrat government similar to Italy's."

12. Wen Jiabao makes nice noises about what a fine place Europe is to visit, but van Rompuy and Barroso come away predictably empty-handed.

13. Thursday dawns with everyone wondering where we are. Venizelos accuses "forces trying to push Greece out of the eurozone". German government spokesman Steffen Seibert calls this "false" and adds, "I can state quite clearly on behalf of the federal government that Germany has taken no such decision." Nobody said you had, Ducky. Berlin briefs on amphetamines about Angela Merkel being 'resolutely opposed to default'. A majority of market opinion leaders and bondholders think the EU is bluffing, reports the FT. But a French source tells The Slog earlier today he thinks Germany "is talking from a position of strength. There is no doubt in our minds [in the Elysees] that Berlin has the necessary plans in place."

We're but an hour into the working day EU time (1hr ahead of GMT) and already the main EU players are busy installing further roadblocks. Boss of radio Luxembourg Jean-Claude Juncker said, "Further considerations are necessary regarding the specific mechanisms to strengthen the surveillance of programme implementation and to ensure that priority is given to debt servicing." An intention as vague as that could take forever to fulfil....or until March 23rd.

A senior German official quoted by Reuters has added: "Questions remain that are very important to Germany and other member states about the sustainability of the programme."

Ultimately, not even the Germans can see into the future: this is get off the pot time....but only if you've been devious for some time about being on the pot in the first place. The Slog's recent profile of Angela Merkel demonstrated beyond too much doubt that the Fuhrerine in Berlin is more than capable of being devious.

In the last three weeks, several EU officials have pumped out the line – over and over again – that Greek default is no longer the bogeyman people thought it was....or to be more precise, they told us it was. "It would have led to a credit crunch immediately and hurt us all," said a senior eurozone official. "Now, the odds [of such a catastrophic impact] are something like 10-20%. It's still possible, but it's not a certainty."

First of all Draghi pumps money into the banking system, then the Troika/Berlin axis slows everything down. Now awkward facts come to light about the existence of 'a plan' which would protect America – by dumping the Greek contagion – and help the eurozone by concentrating  the bailout cash available to save the bigger players: Italy, Spain and France. An unpleasant phrase is doing the rounds in Brussels at the moment: 'amputate and corterise'. It's certainly beginning to look like that. And without doubt, that's the way Mario Monti sees it.

Were I Greek, Portuguese or Irish, I'd be a worried man this morning.

[Zanza]

How does Germany, the Netherlands, Sweden or Denmark fit into that?  They can compete fine. 

They've not got a two-tier labour system

Germany is developing a two-tier labor system in the last few years. Low-wage, temporary jobs, often via temporary staffing agencies have created hundreds of thousands, if not millions of jobs in the last decade. These employees often do exactly the same job as the "core" employees of a company, but are not paid according to the union wage bargaining agreement.

As I understand it, in Spain you are either on an indefinido contract (which makes it prohibitively expensive to fire you or make you redundant  if you've been there for any length of time) or you must be on a fixed term or temporary contract.

Same in Germany. You either have an indefinite contract and then it is hard and often expensive to fire you or you have a temporary contract (also: see above).

Aspects of the welfare state that are tied to employment are a drag on competitiveness and hiring, whereas those that are funded out of general revenue are not.  If an employer has to provide X euros for pensions, Y euros for unemployment compensation, Z euros for maternity leave, etc, he's going to care and be aware of it when making hiring decisions.

These non-wage labor costs are actually very much in focus of policy making in Germany in the last years. They attempt to lower them where possible or at least to shift them from employer to employee. There was recently a proposal by OECD to lower them further and finance that with a higher VAT. Might be worth it.

[Zanza]

It's kind of interesting that US unfunded liabilities are often mentioned when discussing total national debt but I've never seen them mentioned in terms of Yurodebt.

Youse guys ever see this in your local press?

Of course. Mostly in context of raising the retirement age or when discussing whether parents have to pay less than childless persons for something called "compulsory long term care insurance", which will pay for nursing homes of old people.

[MadImmortalMan]

Whoa. PLJ--that's big if true. How reputable is the source? I've never heard of them.


Edit: It's not even on Zero Hedge. They'd be all over that like Koreans on Starcraft.

[Neil]

Whoa. PLJ--that's big if true. How reputable is the source? I've never heard of them.

It looks like one of those Usenet rants you used to see back in the day.

[Admiral Yi]

It reads very much like a conspiracy theory rag.

[Admiral Yi]

And a quick read through shows them mischaracterizing things.  Schauble didn't call Greece a bottomless pit, he said he doesn't want Greece to become a bottomless pit.

[PJL]

Well it's from a blog, and although some people will dismiss it as a conspiracy thing, it defintely has a ring of truth about it.  I certainly wouldn't dimiss it out of hand, and I'm not the sort of person to believe any old conspiracy. Apart from the odd misquote or whatever, I'd consider a credible and consistant.

[Barrister]

Well it's from a blog, and although some people will dismiss it as a conspiracy thing, it defintely has a ring of truth about it.

Not really.  It has the ring of a conspiracy screed.

[The Minsky Moment]

Some excerpts from an opinion piece by a Harvard prof who advised Papandreou informally:  http://www.ft.com/intl/cms/s/0/48b55f8a-57d3-11e1-b089-00144feabdc0.html#axzz1mZV03g27

But almost none of the moralising clichés were true. Greek taxes were more than a third of gross domestic product, near the European average. And if Greeks were anti-business, why then were there more small entrepreneurs per capita than anywhere else in Europe? Government was not bloated in terms of employees – at a fifth of the labour force, it was about the European average. Corruption was clearly a problem, but our data showed it was concentrated – incomprehensibly to non-Greeks – in the health sector, where minor "gifts" to doctors secured early scheduling of surgeries.

What government suffered from most was a lack of technology and human-resource management. There was no computerised budget management; social security records and property rolls were maintained manually; sharing of routine data or work assignments across ministries was almost non-existent.

Fast-forward to Greeks' current agony over the latest austerity measures, exacted for a 50 per cent writedown of privately-held bond debt and Europe's second enormous aid package. Will the Greeks now finally make the reforms work, as optimists hope – or inevitably default, as the cynics keep warning?

My own guess, paradoxically, is both. The momentum for most reforms is there, as the latest "troika" report makes clear – desperately-needed computerisation is under way, work patterns are being reorganised, protected sectors of the private economy opened. But because there is no growth plan – austerity is not a growth plan – Greece faces a long, dark path.

A third of its economy depends on tourism and international shipping; neither is "controlled" by Greece. "Modernisation" of its internal economy means the spread of large firms in place of micro-enterprises, a structural shift complicated for a small economy searching for a niche between the hyper-efficient Germans and the low-cost Chinese. 

Some interesting additional facts:
1)  Greek trade with the ROTW outside of the EU is roughly in balance.  But its trade within the EU is grossly unbalanced - imported goods are almost double exported goods.  Thus the Greek "competitiveness" problem is not truly an international phenonomenon but entirely a problem within the trade bloc.  The main individual country sources of imbalances are Germany, Benelux, France and Italy.
2)  One of the largest categories of EU origin imports into Greece -  amounting to 20% of all such imports - consists of food and live animals.  Greece runs a very sizable deficit on agricultural trade.
3)  As the article above indicates, the principal way Greece has filled the current account gap from the trade imbalance is through shipping and tourism.  Both are suffering historically brutal recessions.
4)  When Greece entered the Euro, debt-GDP was at about 109%.

[PJL]

The reason why Greek self-employed is so high at the moment is that doctors and various other professsions are desperately getting themselves burdened with less tax, and self-employment is a good option to do this with. Nothing to do with entrepenurial spirit at all.

Barrister - read a few other articles in the blog and then tell me it's still a conspiracy rag. Certainly not you're hard core one at least.