Manfredi Weber on the Greek crisis

Manfredi Weber 

"The prime minister of Greece should apologise for those utterly unacceptable statements. Unfortunately he has passed over them in silence. You are destroying confidence in Europe.

You’re talking about dignity. But dignity means truth and honesty. You have said that the banks are closing because the evil ECB is ratcheting up pressure. You said the banks would be open on Tuesday it is now Wednesday, you are not being honest with the Greek people.

Mr Tsipras, the extremists of Europe are applauding you. Fidel Castro wrote a message to congratulate you on your triumph. It seems to me you are surrounding yourself with the wrong friends

If you’re talking about a debt haircut, be honest. Its not extraneous financial institutions that will pay

It’s Portugal, they will pay 3bn, Spain, 24bn. It’s the nurses in Poland. You have to think about the dignity of people in other European countries.

How can you tell Bulgaria in terms of solidarity that Greece cannot countenance further cuts, when in at least 5 other European countries the standard of living is lower than in Greece. When it comes to hope, people in the continent need hope in the future. Latvia sat in your position in 2009, but the parties there didn’t resort to a referendum, they sorted out their fiscal budget, now they’ve got faith in the future

It seems you’re not standing for hope in your approach.

The PM of Slovakia is also thinking about a referendum because the citizens are sick of shelling out for the Greeks. Europe is not a sum of national views. You engage in confrontation, we engage in compromise.

You are looking for failure. We are looking for success.

Max Hastings on 1914

Grand Admiral Tirpitz employed and English governess for his daughters, who completed their education at Cheltenham Ladies College.

Russia boomed in the last years before Armageddon. After 1917, its new Bolshevik rulers had become the fourth largest in the world, growing at almost ten percent annually. 

Max Hastings on Kaiser Wilhelm

He had no real thirst for blood but a taste for panolpy and posturing, a craving for martial success; he displayed many of the characteristics of a uniformed version of Mr Toad....Most of his contemporaries, including the statesman of Europe, thought him mildly unhinged, and this was probably clinically the case. 

Julian D. A. Wiseman on IR Swaps in a Euro Break Up

In 1998, new swaps were being transacted against LIBOR in any of ECU, DEM, FRF, ITL, ESP, NLG, and PTE (LIBOR is the London Inter-Bank Offered Rate, and is computed by the British Bankers’ Association). New swaps were also being transacted against FIBOR (the cost of borrowing DEM in Frankfurt, computed by the German Bankers’ Association), PIBOR (FRF in Paris), RIBOR (ITL in Rome), MIBOR (ESP in Madrid), AIBOR (NLG in Amsterdam),BIBOR (BEF in Belgium), HELIBOR (FIM in Helsinki), VIBOR (ATS in Vienna), DIBOR (IEP in Dublin), and others.

EMU brought on a simplification. There are no longer separate London ‘fixings’ of ECU, DEM, FRF, ITL, ESP, NLG, and PTE: there is one fixing of the cost of EUR money in London, and this is copied across for the other currencies. On the continent, the European Banking Federation has created a eurozone fixing called Euribor. And (for example), the German Bankers’ Association no longer fixes the cost of borrowing DEM in Frankfurt; instead it has specified that the FIBOR fixing shall be equal to the Euribor fixing.

For the most part, this has worked smoothly. (The one exception is that the French Bankers’ Association messed up the transition from FRF PIBOR to Euribor*3.)

Consider the position of two parties who have traded a BIBOR swap (the former Belgium-franc fixing), using German-law documentation. This swap is, well, whatever German law says it is. And it settles against, well, whatever the Belgium Banking Association says it does. Of course, for now and the foreseeable future, each jurisdiction’s law says that swaps are properly enforceable, and the various eurozone national banking associations say that their national IBORs have been properly succeeded by Euribor (with a modest exception for the French mess-up). But if either of these countries leave EMU, legal uncertainty would surely increase.
Conclusion

1. The old national currencies are irrecoverable. For good or for ill, Germany cannot recover the old Deutschmark — it has been too stirred up with the other national currencies.

2. A nation can leave EMU, by introducing a new currency. In doing so, it can leave euro obligations to be paid in euro, or it can cause varying degrees of trouble by doing something different.

3. Because governments have a lot of power over their legal jurisdictions, and over the legal definition of their own currency, both past and present, and over the definition of their former national ‘IBOR’, a government that wanted to cause trouble could cause a lot of it.

*3 PIBOR used to settle T+1. So if money was borrowed today for three months, the money would arrive on the business day after the trade date, and be repaid three months after receiving it. Euribor is T+2: money arrives the two business days after trading. The logical thing would have been for the French Bankers’ Association to say that a day’s PIBOR fixing is equal to the previous business day’s Euribor fixing, so that the old PIBOR fixing and the new Euribor fixing always span the same period of time. However, for ‘simplicity’, the French decided that today’s PIBOR fixing is to be today’s Euribor fixing. So, if you had traded a swap that was to fix against 3-month PIBOR on 29 September 1999, you might have thought that you were trading the cost of borrowing money from 30 September 1999 to 30 December 1999. But the rules by which PIBOR rolled into Euribor changed this to the cost of borrowing money from 01 October 1999 to 04 January 2000; changing the fixing from one that didn’t cover the turn-of-the-century weekend, to one that did. That made a big difference, and it seems that the whole sorry business is to end in court. (This problem was predicted in advance by William Porter of LEDR.)

Hans Kundnani on the German question

Hans Kundnani, editorial director of the European Council on Foreign Relations, recently argued in the Washington Quarterly that “Germany’s economy is too big for any of its neighbours, such as France, to challenge…but not big enough for Germany to exercise hegemony.” This, he concluded, is an economic statement of the “German question” that tormented Europe for 75 years after German unification in 1871.

Charles Gave on market intervention

Such distortions reverberate throughout the system, affecting every asset class from commodities to real estate. They also create a domino effect of spreading interventions, wack-a-mole style. So to summarize, after ten years of "smart" interventions by astute policymakers we are now left without any proper market pricing mechanism for:

1) US interest rates and exchange rates - both manipulated by the Fed

2) Oil prices - which are manipulated on a second order by the undervalued Dollar

3) The Euro exchange rate - manipulated by the ECB and China

4) Sovereign yields in Europe - manipulated by the ECB and the PBOC

5) The Swiss France and the Yen - now both manipulated by the local central banks.

It is no wonder international liquidity is vulnerable to a squeeze and markets are nervous. Why anybody is surprised that we have been in bear markets for the better part of the last ten years is beyond me. Never in my 40 year career have I seen such a combination of incompetence and intellectual arrogance in the ruling class.

Roubini on Eurozone sovereign debt restructuring mechanisms

First, consider that any holder of CDS protection would not be a creditor of a distressed sovereign unless he/she has an actual long position in the underlying bonds; holders of CDS protection don‘t vote in a debt restructuring process (i.e., an exchange offer) if their CDS protection is naked without any underlying actual exposure to the bond........

Since most likely an exchange offer under threat of default is considered—as it is by rating agencies that considered them as coercive thus triggering a selective default rating–as a credit event that triggers the CDS an holder of CDS protection would be paid regardless of whether he/she has underlying exposure to the bonds and regardless of whether he/she tries to sabotage the debt restructuring. In effect, the holder of CDS protection has no incentive to sabotage a restructuring because such a restructuring is by itself a credit event that triggers the CDS regardless of whether the restructuring is successful or not.........

In summary, a European SDRM is not necessary to achieve an orderly restructuring of public debts of eurozone members. Such restructuring can be achieved in an orderly manner any time via the traditional tool of exchange offers that have been successfully been used for emerging market sovereigns in distress. Thus, the current debate on a European SDRM is a total red herring: The reason why the EU has so far decided to provide financing to member states in distress is not the lack of a legal mechanism for an orderly restructuring; rather, it reflects concern about systemic contagion. But an orderly restructuring via exchange offers can significantly reduce such a risk while providing significant debt servicing relief to sovereign that are financially distressed via an orderly—if coercive—debt restructuring.

The current tragedy is that the European debate on a crisis resolution mechanism or SDRM has had perverse effects: .... the talk about a European SDRM has been the trigger of the recent blow-out of Irish spreads and created greater turmoil than order. Additionally, the confusing and contradictory remarks of EU officials and national leaders on when the restructuring mechanism will take effect and to which debts it will apply (new or old ones) has created greater uncertainty among investors. The reality is that, regardless of what the EU says or doesn‘t say, the probability of a coercive restructuring of the Greek or Irish debt is totally independent of whether a European SDRM will be created in 2013 or later and whether its terms would apply to new or old debt. The EU has zero effective power in deciding—via a new legal mechanism—whether Greece or any other EZ sovereign will restructure its debt and when.

Indeed, if Greece does not regain market access it will be forced to restructure its debts when the IMF/EU bailout program expires even if, as possible, the IMF or the EU were to decide to maintain its exposure to Greece upon expiration of that official support. In effect, if Greece doesn‘t regain its market access, its need to finance its new yearly deficits and to rollover private claims coming to maturity will force a debt restructuring. To prevent this, IMF/EU would have to not only extend their existing program but, on top of that, significantly increase its lending/financial commitments beyond the current €110 billion lending envelope since Greece will have large financing needs beyond 2012 given its ongoing fiscal deficit and need to rollover private claims coming to maturity.

This is why the recent statement by some European finance ministers asserting that the proposed debt restructuring mechanism will apply only to debts issued only after 2013—a statement which backpedaled away from previous pronouncements in order to calm spooked bond markets—is totally meaningless.....Moreover, the recent statement of a sub-set of EU finance ministers that haircuts will be imposed on new debts issued after 2013 not the old one is actually counter-productive and ensures that PIIGS in distress will lose market access rather than regain it over time: Why would any private creditor of a PIIGS want to purchase the newly issued debt of such a sovereign when such debt—rather than the old one—would be restructured? The whole logic of DIP financing is that new debts get seniority relative to old debts—that are already locked in—to ensure that new financing arrives to a sovereign under distress. The weird EU view that new debts—rather than old ones—would be subject to debt restructuring turns the basic principle of DIP financing on its head and ensures that market access will be lost even to distressed sovereigns that still have such access.

The constraints for an orderly debt restructurings are not legal–the lack of a formal crisis resolution mechanism; they are rather political: i.e., when will the EU agree that some of its member states are not just illiquid but near insolvent and thus in need of an orderly market based restructuring of their public debts that would provide debt relief while limiting the risk of a systemic contagion to the rest of the eurozone.

Joseph Roth in What I Saw

The great gain to German literature from Jewish writers is the theme of the city. The have discovered the cafe and the factory and the bar and the hotel. Berlin's bourgeoisie and its banks, the watering holes of the rich and the slums of the poor. Sin and vice, the day of the city and the city by night.

The dull sergeant came to represent Germany under Bismarck. Behind the sergeant stood the engineer who supplied him with weapons, the chemist who brewed poison gas to destroy the human brain, and at the same time formulated the drug to relieve his migraine, the German professor who is in fact the most dangerous (and dogmatic) enemy of European civilisation, the inventor of the philological equivalent of poison gas.