Sovereign debt bubble thread

[Sheilbh]

I love Monti.  His press conference today was full of good points (not least among them that Cameron should have asked for a single market in services in exchange for signing the treaty, it's long been a British goal and we'd probably have got it).  But he did deny that Italy needed financial aid.  Because it's Monti I'll believe him, but in most other cases when a PM says that the state goes to the EFSF in days.

Also worrying is that one of the questions asked of Draghi after the Greek deal was whether Ireland now needs debt restructuring (they do) he didn't answer.

Has anybody ever kept an EU deal?  I mean, the stability pact got raped to death the second it became inconvenient, didn't it?

Apparently one of the delays over the last few days has been translating the terms of the agreement into Greek for the LAOS leader whose English isn't very good (all the other party leaders were educated in the US).  This was considered very important because a number of cabinet ministers hadn't read the first bailout agreement when they signed up to it

Edit: Even then the Guardian liveblog had an entry on the politics tonight which doesn't sound promising:

7.47pm: In Athens tonight, the squabbling has started again between rival political parties – just hours after they appeared to put their differences aside and back the tough austerity measures demanded in return for its second bailout, worth €130bn.

Politicians have been engaged in an unseeemly rush to distance themselves from the deal. As we flagged up at 4.17pm, a deputy minister swiftly quit.

This was followed by the resignation of a senior member of the conservative New Democracy party. Yiannis Manolis claimed the deal would condemn Greeks to "Bulgarian salaries in a country with Brussels prices."

Aleka Papariga, the communist party leader, had already fired up the rhetoric, claiming that international lenders were determined to force the Greek people into "concentration camp conditions."

The junior party in the coalition is even claiming that it is not part of the agreement. As Helena Smith explains from Athens:


If there was any sense that the brinkmanship on display in the last few weeks is over, it was put to rest last night when Laos, the junior party in the ruling coalition said it had not even been informed about the bailout agreement.

As such, it had played no role in resolving the issue of cuts in supplementary pensions, the final obstacle to consensus being reached over the accord.

"We've had no contact all day with the prime minister's office," said Nikos Vasilliades a party spokesman. "The deal only represents the two main parties, Pasok and New Democracy."

Edit:  Greek economic statistics released earlier today:

Greece's manufacturing output contracted by 15.5pc in December from a year earlier.
Industrial output fell 11.3pc, compared to minus 7.8pc in November.
Unemployment jumped to 20.9pc in November, up from 18.2pc a month earlier.

[Zanza]

Has anybody ever kept an EU deal?

The EU entirely relies on the member countries acting in good faith. And in virtually all EU policy areas they do. There is no central executive to enforce compliance with EU legislation.

[Admiral Yi]

LOAS only has 16 seats so their jumping ship has no real significance.

Still, the move seems to have spooked the markets a bit.

[Sheilbh]

LOAS only has 16 seats so their jumping ship has no real significance.

Still, the move seems to have spooked the markets a bit.

It's not the numbers that matter.  It's the end of the national unity government.  Greece has now effectively got a grand coalition.

There's two things to remember about this bailout, which needs to go through before March 20.

The first is that there's an election in April.  Is the next government likely to keep to the terms of the deal?  By my rough guesswork anti-austerity parties will have over 50% of Parliament, based on current polls.

The second is that the deal with Greece is designed to get their debt as a percent of GDP down to 120% by 2020 and I think under 100% a decade or so later.  So the issue with Greece isn't about this government agreeing to a deal, it's about permanently shifting Greek revenue and spending levels (and growth) for at least the next decade.  I can't see this government achieving that so chances are they'll approve this round of austerity and then the next government will just have to do more of the same.

So the question isn't has this government agreed to a deal, it's has Greece?

Though I don't get the LAOS position of staying in the government but not voting for the measures:

LAOS leader says will not vote for debt deal

Karatzaferis calls on PM to replace PASOK MPs in Cabinet with technocrats
 
The leader of the rightwing Popular Orthodox Rally (LAOS), Georgios Karatzaferis, on Friday called on Prime Minister Lucas Papademos to reshuffle his government, installing technocrats in the place of Socialist PASOK ministers, adding that he would not approve a new debt deal agreed between the government and foreign creditors but neither would he withdraw from the coalition as he had threatened to do earlier this week.

"The creditors are asking for 40 years of submission,» Karatzaferis told a press conference. «Greece will not give itself up,» he said, adding that «Greece can survive outside the EU but cannot survive under a German boot.»

Insisting that the creditors' insistence on cuts to auxiliary pensions had been the last straw, he said that had the cuts passed, the leader of the mission of the International Monetary Fund in Greece, Poul Thomsen, would be 'persona non grata' in the country.

The rightwing leader accused the creditors of trying to «deprive Greece of the last trace of national sovereignty,» and said that the country should be given a five-year grace period to pay off its debts at a favorable interest rate.

karatzaferis did not determine whether his party's 16 MPs to approve new austerity measures in a parliamentary vote expected on Sunday or Monday. If his deputies vote down the bill, the government will retain a comfortable majority of 236 in the 300-seat House. But his party's votes would be useful as several coalition MPs in both PASOK and New Democracy have indicated that they object to certain measures and may vote against them.

Speaking an hour before a scheduled Cabinet meeting, Karatzaferis repeated an earlier demand for Papademos to replace ministers of PASOK with technocrats.

[Iormlund]

Our government announced the terms of the new labour reform. It changes nothing. The dual-tiered job market is here to stay.

[Admiral Yi]

Our government announced the terms of the new labour reform. It changes nothing. The dual-tiered job market is here to stay.

[Zanza]

Our government announced the terms of the new labour reform. It changes nothing. The dual-tiered job market is here to stay.

Can we blame Angela Merkel for this somehow?

[jimmy olsen]

Greek parliament passed the austerity package. A shitload of rioting resulted and dozens of MPs were expelled from their party for voting against party line.

http://www.guardian.co.uk/business/2012/feb/13/eurozone-crisis-greece-austerity-package-vote?newsfeed=true

[Tamas]

Greek parliament passed the austerity package. A shitload of rioting resulted and dozens of MPs were expelled from their party for voting against party line.

http://www.guardian.co.uk/business/2012/feb/13/eurozone-crisis-greece-austerity-package-vote?newsfeed=true

This is like the 3rd or 4th "omg mostest importantest greek votehing!!!!!" in the last few months.

I will go bankrupt trying to catch a short before they are finally let go

[Zanza]

Apparently the ECB has Greek sovereign bonds they bought with nominal value in their balance sheets. If they would write down those to purchasing price and reduce Greece's debt load by the same amount, they would at most lose some interest payments from Greece, but as they don't really need that anyway, it seems to be a simple way to substantially reduce Greece's debt (the ECB is Greece's biggest creditor).

[Sheilbh]

Yeah.  The ECB's been incredibly resistant to any haircut on their bonds, so it would actually make a small profit on Greek debt.  But obviously that means PSI in Greece has to be far, far higher and will make banks more reluctant to buy other troubled sovereigns that the ECB's bought debt from.  My understanding is that the ECB basically plan to write-down Greek debt to what they paid for it, but no-one's sure how yet.

Ideally the status of debt held by the ECB does need to be clarified though rather than basically being an institutional fight.

I wonder if that's part of the reason the ECB's to some extent bought up bonds at a distance.  They've pumped a lot of liquidity into banks who have then bought sovereign debt.  That would make PSI haircuts easier, less severe and more effective in, say, Ireland or Portugal.  But then I think the ECB is, with the Finns, entirely opposed to PSI happening again so I'm not sure.

Edit:  Incidentally I don't know that after the election, that Greece will have the 177 votes for austerity that they had last weekend.  Surely if PASOK collapses (as it looks like they will) the austerity consensus will be dead.  Also Samaras apparently said that after elections his party will probably win in April that they will renegotiate the agreement.  To be fair Enda Kenny said the same in  Ireland's election.  But, well, Greece isn't Ireland.

[alfred russel]

Sheilbh, it is all well and good to be against austerity when no one likes it and you aren't in power, but what choice do they have? Greece is running a large deficit that needs to be financed. If they reject the deal they are getting, they impose on themselves a harsher austerity package as they need to immediately balance the budget.

[Sheilbh]

Sheilbh, it is all well and good to be against austerity when no one likes it and you aren't in power, but what choice do they have? Greece is running a large deficit that needs to be financed. If they reject the deal they are getting, they impose on themselves a harsher austerity package as they need to immediately balance the budget.

Default which would be worse.  Especially if they are still running a primary deficit as there'd need to be far more severe, immediate cuts and near dictatorial powers of the state over the economy.

But as I've said before I think that people can endure that sort of thing.  My view is that the only reason Greece hasn't defaulted and rejected all of this is because they lack a leader with populist charisma enough to pull it off.  If they find their Kirchner it'll be ochi-ochi-ochi and I think that goes across Europe.  As I say I think there's a very real threat (especially if Monti fails) that Orban is the future of Europe, not a Hungarian aberration and that we'll see a grass-roots dissolution of Europe.

This is I think one of the real problems with the way this is being handled is that the choice is being set up between economic aid and national pride and dignity.  I think eventually the latter'll win out.  Countries can deal with lots of austerity, I think they struggle more with a sense of humiliation and emasculation.  Especially a country with a history like Greece.

[Tamas]

I am quite convinced we will see a Greek default. Allegedly, they are nearing a point where they could live off of their income if they didn't have to pay their loans. They will default and possibly collapse the banking system due to all the CDSes and the big unkown knowns they represent.

But, if the CDS chain does not ignite, we might end up being better off with flushing Greece down the drain and letting them become the Thailand of Europe. Except that the women will stay ugly there I guess.

What you can see nowadays is increasangly better economic data from the US, so-so, but not declining data from Europe, yet the stock markets are moved almost exclusively by Greek news. I don't think the world economy can live in this suspense until 2015 or more.

[Sheilbh]

I agree.  I don't know how it'll end though.  On the one hand I think Greece is reasonably cauterised.  The banks seem relatively well hedged against a Greek default.  I also think there's a sense that PIIS are progressing, though they've problems, and that Greece is of a totally different magnitude.

All of that's true but I still don't know if I'd bet that a Greek default wouldn't lead to contagion.  It seems a pretty big gamble to me - probably best way to avoid it would be to really do as much as possible to make the PIIS more secure and steady.