Time to burn Greece?

later12 · 02-06-2011 3:18pm

wiseguy wrote: »

Price stability for all 3xx million people in the eurozone as per Trichet's comments, yes that includes Greece and Ireland too.

Yes, but Trichet and his executive board are obliged to look at price stability on the Eurozone as a whole. They cannot take it in turns to set their policies for each member state. It has to be done on a wholesale basis - that is the architecture that they have to work with. They did not write these rules, they are obliged to follow them. Therefore I cannot understand why they are the guys being blamed.

Please do tell us what would happen to "price stability" and the euro itself for that matter if the ECB did not start to act as lender of last resort.

The ECB is not, in the strict financial sense, the lender of last resort.

Oh and where was "price stability" when property asset prices went thru' the roof in many of the member states, oh yes I forgot the decided to exclude property from inflation indexes.

Property was not exluded, rent is included but house prices were not. The problem was that not enough countries have the same infatuation that Ireland has had with property, and do not collect house price data in the NCPIs, and those handful of states that were collecting it, were using different methods, so there was little to no cross-comparability.

I have taken the time to answer your question and I would have hoped you would have taken the time to answer mine. Nevertheless I will ask you again.

How, given its defined role in stabile Eurozone monetary (and not fiscal or sovereign) policy, could the ECB possibly make transfer payments to Greece without causing financial instability elsewhere in the Eurozone, and after answering this using a thought out economic reasoning, perhaps you will approach the legal perspective of overturning the treaty remit.

Sand · 02-06-2011 10:13pm

@View

That is presumably what they believe they are doing. They appear to be saying, in the article, you quote that should Greek debt be restructured its "quality" will be degraded to such an extent that they would no longer be able to accept it as collateral for liquidity operations.

If this is truly the ECBs position then, to quote Orwell, it is a position so stupid that only very intelligent people can hold it.

Lets compare Greek debt at two points in time. Between those points in time, lets presume a default occurs. Then ask yourself a question: Would you rather hold Greek debt *before* a default, or *after* it? Before you answer, remember that your Greek Debt is more at risk of being defaulted on *before* the default, than it is *after* the default. Especially as the Greek debt position *after* a default would be more sustainable, having defaulted on the unsustainable portion of it.

It is not reasonable to expect the ECB to accept bonds irrespective of their quality.

And yet, the ECB accepts Greek bonds *now* despite everyone expecting a default on Greek bonds...which is exactly the *worst* time to hold Greek bonds as collateral against a dodgy loan.

Withdrawal of support for the peripheral banking system (if they have the big brass balls to do it) will be a political decision by the ECB - and it will result in a meltdown that will make Lehmans look like "the good old days", with the ECB/Eurozone being wiped out and Trichet and Co. joining the dole lines.

Hence they wont do it. Self interest is guiding their hysterical interventions, and self interest will guide their responses to a Greek default.

It isn't the job of the ECB to keel over at the request of politicians and agree to everything they propose.

No, but it is their job to support financial stability - threatening to destroy financial stability to intimidate politicians attempting to find a policy solution that the ECB doesnt like isnt their job.

No one says default would be a painless, no downside solution - but only the ECB says it will do everything in its power to ensure its as damaging as possible. Square that with their commitment to support financial stability...

@beef

Okay, explain to me what the ECB's job is and why they have a conflict?

Colm seems to have inferred that their job somehow involves Ireland getting back into the bond markets and that is not borne out by the treaties.

The ECB (along with the IMF and the EU) negotiated a plan with Ireland in November 2010, and to this day Trichet demands Ireland sticks to it.

A major component of this plan is that Ireland returns to the market in 2012 (witness the hysteria over Varadkar noting that probably wouldnt happen). A goal which was ludicrous to me in November 2010, but which has become increasingly accepted by Official Ireland as time has passed. Even though Gilmore is sticking to form by publically lying to us, whilst privately he probably agrees with Varadkar.

The ECBs screaming and shouting regarding Greece is undermining confidence in its commitment to its role as a provider of liquidity support to the peripheral banks, and with it to the peripheral sovereigns. A role which Trichet has bragged about - claiming unprecedented support by the ECB for Ireland. Ireland is a peripheral sovereign, which is anchored to the worst set of peripheral banks in the Eurozone.

I cant explain it any more simply than that to you. Either you get it, or you choose not to.

Meanwhile, you continue to assign positions to Colm McCarthy which he hasnt actually taken. I presume because you find it easier to knock down strawmen than to deal with actual positions. If you cant deal with the points he did raise, and instead try to knock down points he hasnt, what does that say for your own views?

Greece has failed to comply with the terms of her bailout.

No issues there - so why is the ECB beating Ireland to punish the Greek government? Are we the whipping boy?

Our problems were caused by failures in our regulatory and political systems, not by the ECB.

Were is the operative term there that makes that statement correct. Our problems are caused by failures of the ECB and our political systems.

...or accept Occam's Razor

I have, someone is wrong on the internet. All your twisting and turning doesnt change that. Build a bridge, and get over it.

@bman

Realistically I think the Irish government are hoping Greece forces the Germans into a solidarity bond situation so we don't get get blamed when that is the only solution left on the table that is acceptable politically across the union.

Probably true, though it would be generous to credit the concept of coasting along on inertia and hope something happens before we drive over the cliff by describing it as a strategy.

For all those who claim Ireland has no negotiating chips it worth noting that as soon as it looked like Greece would refuse to meet the terms of its current deal, a second bailout package is already being discussed. It seems like the EU/ECB really, really, really dont want to deal with the mess of a default.

Advantage Ireland?

Cannibal Ox · 03-06-2011 10:33am

Irish Times wrote:

The Economic and Financial Committee (EFC) of deputy ministers and senior officials of the 17-nation currency zone approved the Greek programme in principle in talks in Vienna that ended after midnight, the source said.

The second programme for Greece is said to involve some participation of private sector investors but limited to avoid triggering a credit event. Details of that involvement, and the apportionment of the additional official international funding, remain to be worked out in time for a June 20th meeting of euro zone finance ministers, the source said.
...

On the eve of this deal, however, 16 MPs in Mr Papandreou’s Socialist Pasok party issued a letter in which they challenged his preparations to put new austerity measures and a €50 billion privatisation plan to a single vote of parliament.

The development rattled the government, which has a six-seat majority in parliament, and prompted anxiety in European circles as officials weighed the possible consequences of the challenge to Mr Papandreou’s authority.

Full link

Well, would you look at that.

I've no idea whether they're doing it to save their own skins, really believe the deal is bad or are just trying to gain some space for negotiation.

Either way though, it makes things interesting. We know the conservative opposition aren't going to support it, the communist party sure as hell isn't, and the people are sitting outside making their opposition pretty vocal.

So, if it does go through, and if nobody in Greece supports it, can it work?

Cannibal Ox · 03-06-2011 10:47am

Sand wrote:

For all those who claim Ireland has no negotiating chips it worth noting that as soon as it looked like Greece would refuse to meet the terms of its current deal, a second bailout package is already being discussed. It seems like the EU/ECB really, really, really dont want to deal with the mess of a default.

Advantage Ireland?

If Greece sets the precedent, then no. Greece is being steamrolled into this and, as far as I can see, that is setting a precedent for us to be steamrolled into a similar agreement.

I know we are in a different crisis then Greece. But every EU leader has their own public to contend with and their own elections to deal with. The German public doesn't need to distinguish between an Irish and Greece crisis, all they need to know is that their money is being used to solve our problems. They aren't going to like that, particularly when it isn't working, and it isn't going to make our bargaining situation any easier.

I mean, in truth, Greece could pull the plug and all hell would break loose. As could we. That's the ultimate bargaining chip, but no one is going to use it because it would be sheer lunacy.

later12 · 03-06-2011 12:20pm

Cannibal Ox wrote: »

I know we are in a different crisis then Greece.

Not necessarily, nor does it necessarily matter. Economic history clearly shows that defaults have a very strong tendency to happen in clusters, especially when there is some form of union or advanced economic relationship between those countries (e.g. in Latin America, US states, Asian economies).

If you go through the Greek, Irish, Portuguese and Spanish problems on a point by point basis, yes you will find differences, but you will also find similarities.

Nevertheless, from economic history we know that capital markets tend not to isolate problem economies in this fashion, there is a clear tendency for capital markets to target clusters instead, this is based on a record that goes back about 200 years. My bet is with history on this.

Scofflaw · 03-06-2011 5:24pm

Doesn't look like the EU is interested, judging by the latest Rehn communiqué:

Following the conclusion today of the Fourth Review Mission to Greece, EU Commissioner for Economic and Monetary Affairs, Olli Rehn, made the following remarks.

"The latest commitments by the Greek authorities are essential to restore fiscal sustainability and create the conditions for sustained growth and improving employment in Greece. They are crucial decisions at a critical moment to safeguard financial stability and economic recovery in Europe.

"The government's commitment to significantly accelerate the privatization plan, a cornerstone of the recovery programme, is particularly important, as it will alleviate the debt burden and also contribute to boost competitiveness of the economy.

"Effective and smooth implementation of the structural reforms remain key, especially in the healthcare sector, in the labour market as well as in transport and energy sectors. All these sectors have the potential to become growth drivers for the country. A successful implementation of these reforms will further contribute to restore confidence in the Greek economy among its international partners and market participants.

"In this sense, the European Commission and the Member States are ready to reinforce their technical assistance in those economic areas where the authorities may feel the need. Since the beginning of the adjustment programme, Greece has received such technical assistance from the Commission and the IMF in various policy areas relevant to implementation of the programme. We remain open to explore possibilities for further and reinforced assistance should there be a need, for instance in taxation and privatization matters.

"These decisive steps by the Greek authorities, if followed by full implementation, will pave the way for the Eurogroup to look into further steps to ensure that Greece can pursue such economic policies.

"Once again, I call on all political forces in Greece to put aside their domestic disputes and endorse the main objectives and policies of the programme, for the sake of the recovery of the country, for the sake of growth and employment."

Stick to the programme and there's more money in the kitty for the Greeks, in other words.

I see as well that Merkel has lately reiterated Germany's commitment to the euro - possibly realising that her domestic angle in public pronouncements has been worth a couple of percentage points on Greek rates.

cordially,
Scofflaw

Sand · 04-06-2011 9:54pm

@Scofflaw

Stick to the programme and there's more money in the kitty for the Greeks, in other words.

I suppose though that the EU/ECB dont want to allow a scenario where the Greeks arent sticking to the plan. As Groucho Marx might have said, this is the plan you have to stick to, and if you dont like it, I have another plan. So long as there is a plan, and the Greeks are sticking to it, the messy default doesnt have to be acknowledged. Thats the Greek negotiating chip.

Its worthy noting I have absolutely no sympathy for the Greek protestors who complain about tax hikes and spending cuts whilst running such a deficit and being in such debt. But being the most servile, pliant and humble hasnt won us any negotiations on a second "bailout". At best we have been compared favourably to the Greeks for being easy to negotiate with (I.E. we are chumps). We cant even get a minor adjustment on an interest rate which everyone acknowledges is set at a stupid level. Meanwhile, the class truants, the selfish and unruly and badly behaving Greeks are getting a second bailout and people stretching the plan so that the Greeks can still be claimed to be sticking to it.

The "harsh" terms are merely external support to the Greek government to get necessary reforms through which even the Greeks would acknowledge are required.

I see as well that Merkel has lately reiterated Germany's commitment to the euro - possibly realising that her domestic angle in public pronouncements has been worth a couple of percentage points on Greek rates.

Hmmm, but commitment to the Euro and commitment to Greece are two seperate and perhaps conflicting goals. And Merkel has never stated anything other than total German commitment to the Euro. Her actions on the other hand have been far more mixed...

@Cannibal Ox

I mean, in truth, Greece could pull the plug and all hell would break loose. As could we. That's the ultimate bargaining chip, but no one is going to use it because it would be sheer lunacy

Well, the MAD doctrine assumed that everyone involved were rational, competent and forward thinking individuals who could understand the risks of a nuclear war, the likely results of one and then draw an appropriate conclusion.

However, we in Ireland are not considered to be rational, competent or forward thinking as a state. If we were, we wouldnt have gotten into this mess, would we? Hence, the theme of a reckless, feckless idiotic paddies in the periphery not being able to run their own affairs actually plays to our advantage here. If we threaten to default, the core have to presume we might actually be that crazy. Then its a question of are they - the rational, competent, diligent and forward thinking core states - lunatic enough to allow all hell to break loose? We've seen the answer in Greece where despite all the provocation offered by the Greek protestors (the most unsympathetic protest group around I think) the rational, competent, diligent and forward thinking core states are still trying to find a plan the Greeks can stick to.

Seriously, put the EU/ECB negotiating team in a room with Joe Higgins and Gerry Adams and let them present their plans for default to the ECB/EU. Then present the the EU/ECB with the option of dealing with them, or the option of dealing with the Irish people who are happy to pay their debts, but not the debts of the banks. I think common ground will be found.

Of course - a precursor to a serious threat of default is getting the deficit down ASAP. Not in a matter of a decade or more as Labour might envisage, but in a matter of months. Our deadline for eliminating the deficit has to be 2013 because we are not going to be able to re-enter the markets under the "burden sharing" clauses envisaged without running a hefty surplus.

Scofflaw · 05-06-2011 12:46am

However, we in Ireland are not considered to be rational, competent or forward thinking as a state. If we were, we wouldnt have gotten into this mess, would we? Hence, the theme of a reckless, feckless idiotic paddies in the periphery not being able to run their own affairs actually plays to our advantage here. If we threaten to default, the core have to presume we might actually be that crazy. Then its a question of are they - the rational, competent, diligent and forward thinking core states - lunatic enough to allow all hell to break loose? We've seen the answer in Greece where despite all the provocation offered by the Greek protestors (the most unsympathetic protest group around I think) the rational, competent, diligent and forward thinking core states are still trying to find a plan the Greeks can stick to.

The problem there would seem to be that Ireland sells itself as a rational, competent, and forward-thinking place to do business...in a rather less than diligent regulatory environment. Publicly metamorphosing into heavily bearded financial terrorists issuing a warning that we've placed a bomb under the world monetary system could be somewhat detrimental to that carefully cultivated image.

Something worth bearing in mind here is the role of the US, and their attitude to an Irish default. Out of all the interesting titbits in Morgan Kelly's piece in the IT, the one that has perhaps attracted least attention (perhaps because it doesn't fit the common narrative of blame) is the statement that the IMF's willingness to push haircuts on unguaranteed debt was torpedoed by the US Treasury Secretary, something which resulted in a carefully worded non-denial repudiation statement by the US Treasury (see here for some discussion).

cordially,
Scofflaw

beeftotheheels · 05-06-2011 1:04am

Sand wrote: »

The ECB (along with the IMF and the EU) negotiated a plan with Ireland in November 2010, and to this day Trichet demands Ireland sticks to it.

A major component of this plan is that Ireland returns to the market in 2012 (witness the hysteria over Varadkar noting that probably wouldnt happen). A goal which was ludicrous to me in November 2010, but which has become increasingly accepted by Official Ireland as time has passed. Even though Gilmore is sticking to form by publically lying to us, whilst privately he probably agrees with Varadkar.

The ECBs screaming and shouting regarding Greece is undermining confidence in its commitment to its role as a provider of liquidity support to the peripheral banks, and with it to the peripheral sovereigns. A role which Trichet has bragged about - claiming unprecedented support by the ECB for Ireland. Ireland is a peripheral sovereign, which is anchored to the worst set of peripheral banks in the Eurozone.

I cant explain it any more simply than that to you. Either you get it, or you choose not to.

Meanwhile, you continue to assign positions to Colm McCarthy which he hasnt actually taken. I presume because you find it easier to knock down strawmen than to deal with actual positions. If you cant deal with the points he did raise, and instead try to knock down points he hasnt, what does that say for your own views?
....

Were is the operative term there that makes that statement correct. Our problems are caused by failures of the ECB and our political systems.

I have, someone is wrong on the internet. All your twisting and turning doesnt change that. Build a bridge, and get over it.

So, the markets have reacted with hysteria every time that the ECB have restated their view but not reacted at all to the notion that the Greek people might fail to comply with their bail out?

And all the while you have empirical evidence that had the ECB never intervened things would be good for us right now. Because you have mastered the quantum leap yet have been unable, for reasons best understood by yourself, to share it with the wider scientific community.

There is no conflict on the part of the ECB here unless you infer more into their role than they have been given by us "lender of last resort" anyone?

Their job is to police price stability within the EU and that Ireland may be collateral damage in that does not negate their job description under the treaties.

Amhran Nua · 05-06-2011 1:04am

Scofflaw wrote: »

The problem there would seem to be that Ireland sells itself as a rational, competent, and forward-thinking place to do business...in a rather less than diligent regulatory environment.

There's no particular reason why we couldn't ditch the bank debt in a rational, competent and forward thinking manner though. At the end of the day the sovereign is supreme. If that means some banks need replacing, so be it. We might even find we have a lot of support among the citizens of Europe. Contagion, horrors, domino effects, I don't buy it and neither do the markets.

Sand and other commentators are right though, we need to cut the deficit, and I do mean cut, in any and all cases. It should be a matter of urgent public interest that the government has no intention of doing so.

rinuccini · 05-06-2011 5:07am

enough of burning greece, we should be burning the bondholders. it seems that socialism is wrong for some people, unless its corpoarate socialism, and its the mega companies being bailed out snd not the poor people of ireland:mad:

beeftotheheels · 05-06-2011 12:37pm

Sand wrote: »

. Then its a question of are they - the rational, competent, diligent and forward thinking core states - lunatic enough to allow all hell to break loose? We've seen the answer in Greece where despite all the provocation offered by the Greek protestors (the most unsympathetic protest group around I think) the rational, competent, diligent and forward thinking core states are still trying to find a plan the Greeks can stick to.

Do you really believe this?

This is why the ECB has reiterated time and again that a default event must be avoided, this is why the ECB has taken to shouting this line from the roof tops, this is why the ECB threatened to pull funding from Greek banks.

To want to have a deal which stands some chance of being implemented is one thing (that is a rationale approach), but to create a deal which the Greek people would actually like is not going to happen regardless of how much they protest.

The ECB didn't cause the Greek crisis, the EU didn't cause the Greek crisis. Greece did that. They stand out as a jurisdiction which has struggled with democracy (despite giving us the word), and given the mess that they are in it is not beyond the realms of possibility that Greece could have a revolution or coup here, yet even then, reason dictates that the EU and its various institutions act in their own interests and not necessarily in the best interests of Greece.

I hope that democracy remains in Greece, I really do, but the prize here is not Greece, it is the EU. Do we risk plunging all of Europe into a deep and dark recession to appease the Greek unions? No.

So how is this any sort of precedent for Ireland behaving like a fool?

Scofflaw · 05-06-2011 1:57pm

Amhran Nua wrote: »

There's no particular reason why we couldn't ditch the bank debt in a rational, competent and forward thinking manner though. At the end of the day the sovereign is supreme. If that means some banks need replacing, so be it. We might even find we have a lot of support among the citizens of Europe. Contagion, horrors, domino effects, I don't buy it and neither do the markets.

I'm obviously prepared to accept that you don't buy it. I'm very much less prepared to accept your assertion that the markets don't either. And without wishing to cause offence, saying we can default in a "rational, competent and forward thinking manner" is really just words.

Amhran Nua wrote: »

Sand and other commentators are right though, we need to cut the deficit, and I do mean cut, in any and all cases. It should be a matter of urgent public interest that the government has no intention of doing so.

The government is doing so, though. Not as fast as some people would like, faster than others would like - and at a pace agreed with the people giving us life-support money. Neither of the first two groups can be satisfied by a compromise, but that's largely irrelevant as long as the third group are.

cordially,
Scofflaw

ei.sdraob · 05-06-2011 7:25pm

beeftotheheels wrote: »

This is why the ECB has reiterated time and again that a default event must be avoided, this is why the ECB has taken to shouting this line from the roof tops, this is why the ECB threatened to pull funding from Greek banks.

By doing the bolded bit all they have accomplished is push Greece and Ireland closer to default. The irony of it.

beeftotheheels · 05-06-2011 7:40pm

ei.sdraob wrote: »

By doing the bolded bit all they have accomplished is push Greece and Ireland closer to default. The irony of it.

By saying that Greece must not trigger a default event they have made a default event more, rather than less, likely?

How so?

No one is talking about a default event being a part of the bail out any more, chatter now is about seeking private investor involvement through rolling over ala Vienna etc which is not a default event.

So all the evidence points towards them having made a default event less rather than more likely but you draw the opposite conclusion?

ei.sdraob · 05-06-2011 7:48pm

beeftotheheels wrote: »

By saying that Greece must not trigger a default event they have made a default event more, rather than less, likely?

How so?

No one is talking about a default event being a part of the bail out any more, chatter now is about seeking private investor involvement through rolling over ala Vienna etc which is not a default event.

So all the evidence points towards them having made a default event less rather than more likely but you draw the opposite conclusion?

No by saying they will pull the plug on any support they have pushed Greece and in turn Ireland closer to default. You cant one one hand try to give an impression of "stability" while on the other hand undermining that stability with threats to go ballistic.

We have many posters on this forum who keep insisting that it is irresponsible for various Irish commentators to mention the D word, since that would be "reckless". Yet what the ECB has done is very reckless, and since then the bond yields have hit new highs. In the same manner in the previous year a few clumsy comments from Merkel et al have pushed them closer to the first bailout.

later12 · 05-06-2011 7:49pm

ei.sdraob wrote: »

By doing the bolded bit all they have accomplished is push Greece and Ireland closer to default. The irony of it.

There is an analogy for everything economic, I sometimes find, so here goes another one.

The ECB sometimes refers to high ELA dependant banking sectors as 'addicted' sectors. So lets look at them in a medical context - say, like heroin addicts.

In this case, the banks require (1) a daily fix to keep them ticking over (methadone) and (2) a structural reform (liver transplant)

Now if the patient refuses to fundamentally reform, or wishes to do something fundamentally self destructive, it is quite natural that the surgeon will refuse to continue the life saving measures. Certainly, this may push the patient into an earlier grave, but the patient seems intent on self destruction anyway, even despite the medical aid and resources. So why waste time and energy in helping, just to delay the inevitable?

What the ECB want (or seem to want) is an assured commitment to their medical prescription if we are to stay on their rehabilitation programme. Their commitment to our aid is not unconditional, nor can it reasonably be so. Their resources are limited; it is not their job to help us at all costs, any more than it is a medical practitioner's job to help addicted patients at all costs.

ei.sdraob · 05-06-2011 7:50pm

later10 wrote: »

There is an analogy for everything economic, I sometimes find, so here goes another one.

The ECB sometimes refers to high ELA dependant banking sectors as 'addicted' sectors. So lets look at them in a medical context - say, like heroin addicts.

In this case, the banks require (1) a daily fix to keep them ticking over (methadone) and (2) a structural reform (liver transplant)

Now if the patient refuses to fundamentally reform, or wishes to do something fundamentally self destructive, it is quite natural that the surgeon will refuse to continue the life saving measures. Certainly, this may push the patient into an earlier grave, but the patient seems intent on self destruction anyway, even despite the medical aid and resources. So why waste time and energy in helping, just to delay the inevitable?

What the ECB want (or seem to want) is an assured commitment to their medical prescription if we are to stay on their rehabilitation programme. Their commitment to our aid is not unconditional, nor can it reasonably be so. It is not their job to help us at all costs, any more than it is a medical practitioner's job to help addicted patients at all costs.

Where was the ECB when these banks were getting addicted on their cheap heroin... oh yes I forgot don't mention that bit...

beeftotheheels · 05-06-2011 7:59pm

ei.sdraob wrote: »

No by saying they will pull the plug on any support they have pushed Greece and in turn Ireland closer to default. You cant one one hand try to give an impression of "stability" while on the other hand undermining that stability with threats to go ballistic.

We have many posters on this forum who keep insisting that it is irresponsible for various Irish commentators to mention the D word, since that would be "reckless". Yet what the ECB has done is very reckless, and since then the bond yields have hit new highs. In the same manner in the previous year a few clumsy comments from Merkel et al have pushed them closer to the first bailout.

But the bond yields did not react negatively to the ECB comments, the bond yields reacted negatively to the uncertainty caused by Greece, and reacted positively to the Greek announcement that they would comply with the terms of their bailout, institute reforms and sell assets.

The ECB is not the bad guy here, and this is not just about Greece, or indeed Ireland. For us, or Greece, to try to serve our national interests above the wider European interests would prove to be folly if the ECB are right in their understanding of the consequences of a default event. We might reduce our debt burden in the short term but we could kiss goodbye to our exports until Europe climbed out of recession.

It is not reckless to talk about default, but it is reckless to threaten default at a time when it can be avoided since to do so spooks the bond market fairies with limited prospect for success.

The ECB, throughout this crisis, has been seeking to calm those pesky bond market fairies, while national politics, whether in Germany or in Greece, have been spooking the markets.

later12 · 05-06-2011 8:23pm

ei.sdraob wrote: »

Where was the ECB when these banks were getting addicted on their cheap heroin... oh yes I forgot don't mention that bit...

Not at all, mention it all you want: but be aware that it weakens your case against the ECB.

The ECB had no remit to set a benchmark rate specifically for Ireland. This is how the common currency has been designed; true in many ways the design is flawed, but it is what the ECB have had to work with. It wasn't their fault that they couldn't interfere with the CBI or the FR, they were not the architects of their own design. The ECB were given a responsibility to set a benchmark rate for the Eurozone as a whole, so suggesting that they should have taken it upon themselves to act outside of the rules, when fault blatantly lies with our own misregulation, is a little unrealistic.

beeftotheheels · 05-06-2011 10:49pm

Oops - guess the CDS exposure may have been preying on Geithner's mind when he suggested that we didn't burn the bondholders...

http://www.bbc.co.uk/news/business-13663002

Sand · 06-06-2011 12:27am

@Scofflaw

The problem there would seem to be that Ireland sells itself as a rational, competent, and forward-thinking place to do business...in a rather less than diligent regulatory environment. Publicly metamorphosing into heavily bearded financial terrorists issuing a warning that we've placed a bomb under the world monetary system could be somewhat detrimental to that carefully cultivated image.

This is the thing - practically all objective, disinterested observers expect us to default. What is incredulous to them is our insisting "Pile that debt on. Yeah, dont worry, I can cover everyones debts! Keep on piling it on. Borrow, borrow, borrow - I'm good for it lads!"

Thats what terrifies investors to whom we are trying to sell ourselves as a good place to do business - investors wonder, who do these guys think theyre fooling? Do they think theyre going to fool me? So default isnt actually incompatible with being seen as rational, competent or forward thinking.

When we go in to "threaten" to default it wont actually be us saying: "Hi. We are threatening to default. We want you to think we want to default. But really we dont want to. So please make an offer to stop us defaulting, even though we dont actually want to" and we wont be going in saying: "Allahu Akbar!!!!"

We will be going in presenting default as the rational, competent and forward thinking option from an *Irish* perspective. Which it is, in the absence of any meaningful solidarity from the core. And they already think we're a bunch of clowns who cant run our own affairs so they must at least allow for us being willing to go through with it - especially after they have the please of talking to Gerry Adams and Joe Higgins and realising these are actually elected representitives of the Irish people.

Thats when a real and rational negotiation can take place.

@beef

So, the markets have reacted with hysteria every time that the ECB have restated their view but not reacted at all to the notion that the Greek people might fail to comply with their bail out?

Theyve already priced in the risk of imminent Greek default. Thats been on the cards for a year or more. What hasnt been adequately priced in is what the hell the ECB will do: with the ECB threatening to suicide bomb the EU banking system, whatever benefit of the doubt the ECB was given for stepping in and stabilising the situation post default was erroded.

Ireland is long, long, long past the time where anyone cares what we or the Greeks think - despite the absolute hysteria breaking out over Varadkars comments, Irish bonds barely shifted at all in reaction to his views - which were already well known and accepted and priced in. What is important now is what the EU/IMF/ECB will do in reaction to a default in the periphery - hence Irish bonds shifting dramatically in reaction to the ECBs stupid threats.

And all the while you have empirical evidence that had the ECB never intervened things would be good for us right now.

I see youre still assigning views to people which they havent actually stated...again, you must wonder what does that say for your own views when you must invent opposing arguments to knockdown.

beeftotheheels · 06-06-2011 12:46am

Sand wrote: »

@beef

Theyve already priced in the risk of imminent Greek default. Thats been on the cards for a year or more. What hasnt been adequately priced in is what the hell the ECB will do: with the ECB threatening to suicide bomb the EU banking system, whatever benefit of the doubt the ECB was given for stepping in and stabilising the situation post default was erroded.

Ireland is long, long, long past the time where anyone cares what we or the Greeks think - despite the absolute hysteria breaking out over Varadkars comments, Irish bonds barely shifted at all in reaction to his views - which were already well known and accepted and priced in. What is important now is what the EU/IMF/ECB will do in reaction to a default in the periphery - hence Irish bonds shifting dramatically in reaction to the ECBs stupid threats.

Post hoc ergo propter hoc...

It seems more probable to me that yields on bonds and the pricing of CDSs increased because of market uncertainty around the reaching of a Greek deal, not because of the ECB assuring investors that they would not tolerate a default event on their watch. You only have to look at the impact of it looking like Greece may agree a deal on the ECB's terms where the yield has fallen back slightly.

http://www.bloomberg.com/apps/quote?ticker=GIGB10YR:IND

Sand wrote: »

I see youre still assigning views to people which they havent actually stated...again, you must wonder what does that say for your own views when you must invent opposing arguments to knockdown.

Given your constant criticism of the ECB's handling of the situation, which is not based on facts as we know them, I had to infer that you somehow have evidence not available to the rest of us (because it requires a quantum leap).

But given you suggested in your latest post that we threaten to detonate the nuclear bomb we are strapped to as a bargaining tool, and send TDs who are not part of the government and thus do not have a mandate from the Irish people in to negotiate for us, I've revised my analysis on this and so I wholeheartedly apologize for that inference.

ei.sdraob · 06-06-2011 10:10am

later10 wrote: »

Not at all, mention it all you want: but be aware that it weakens your case against the ECB.

The ECB had no remit to set a benchmark rate specifically for Ireland. This is how the common currency has been designed; true in many ways the design is flawed, but it is what the ECB have had to work with. It wasn't their fault that they couldn't interfere with the CBI or the FR, they were not the architects of their own design. The ECB were given a responsibility to set a benchmark rate for the Eurozone as a whole, so suggesting that they should have taken it upon themselves to act outside of the rules, when fault blatantly lies with our own misregulation, is a little unrealistic.

I keep hearing the "it is not ECBs fault, they have no powers to interfere, etc etc" argument over and over in several threads now, and I am not convinced.

The ECB had 2 choices during this crisis over the last few years,
1) do nothing
2) do something

The ECB chose 2) to do something, they chose to extend their powers and bend their rules to accept worse collateral. They chose to help since the alternative would have left them on the dole queues too.

Now to threaten to remove this support is childish and contradictory. To say now that they have no powers is hypocritical considering they have shown to be able to step and speak out of their bounds already. By doing this they are creating more uncertainty which leads to less stability. Why would anyone invest in EUrozone when the main actor seems to be acting like a person suffering from dissociative identity disorder?

The ECB, throughout this crisis, has been seeking to calm those pesky bond market fairies, while national politics, whether in Germany or in Greece, have been spooking the markets.

"pesky market"

You couldnt make this up, if the ECB really do think they are above the market they deserve to fail. They are an actor a major actor in the market but no way are they above it.

Yes the ECB have made some right moves but they also have made bad moves, there is no coherent strategy no master plan nothing, they are coming up with **** as they go in a contradictory manner, and that does not inspire confidence

beeftotheheels · 06-06-2011 11:14am

ei.sdraob wrote: »

I keep hearing the "it is not ECBs fault, they have no powers to interfere, etc etc" argument over and over in several threads now, and I am not convinced.

The ECB had 2 choices during this crisis over the last few years,
1) do nothing
2) do something

The ECB chose 2) to do something, they chose to extend their powers and bend their rules to accept worse collateral. They chose to help since the alternative would have left them on the dole queues too.

I largely agree with the fact that they chose option 2 but not for the reason you state. As eurocrats the chances of them ending up on the dole is pretty slim. The reason they chose option 2 was to try and protect price stability in the eurozone and to try and contain the global financial crisis and buy time for the banks to strengthen their balance sheets.

Had the ECB exceeded their mandate in 2004 to interfere with our banking regulation what do you think would have happened? We'd have given them short shift, and if they didn't get their noses out we'd have had them up in court (and we'd have won). There is a huge difference both politically and legally between trying to act outside your powers in the normal scheme of things, and acting outside your powers in a crisis which you can support given the definition of your role.

The ECB are doing the latter here, fudging the rules to protect the whole. Had they made up rules to interfere in Ireland's domestic affairs at a point in time when the crisis was not yet certain they would have had no such justification and no doubt would have incurred the wrath of de Bert.

ei.sdraob wrote: »

Now to threaten to remove this support is childish and contradictory. To say now that they have no powers is hypocritical considering they have shown to be able to step and speak out of their bounds already. By doing this they are creating more uncertainty which leads to less stability. Why would anyone invest in EUrozone when the main actor seems to be acting like a person suffering from dissociative identity disorder?

Because most market forces understand that the ECB is not the problem here and their position is not contradictory. Almost uniquely amongst the players in this is the ECB (but also the Commission) have a European rather than a national agenda so they are acting on behalf of the whole when national governments want to act in their perceived national best interests i.e. what plays well to the voters.

If the ECB didn't threaten to pull funding for Greek banks how on earth would the Greek PM have managed to survive getting a second bailout which did not involve triggering a default event? The Greek people seem to want a default event, the German taxpayers seem to want a default event, yet the consequences of a default event are not understood by the vast majority of ordinary electors. Does the German taxpayer perceive the risk that German banks could take a huge hit if Greece had a default event and so they may have to recapitalize their own banks? Does the German taxpayer know whether the exposure lies with their banks or whether the risk has been passed on using a CDS or otherwise to a US bank? Or given their larger exposure does the German taxpayer worry at all about triggering huge losses in a French bank which could then have knock on effects on the German banks?

The ECB wants to buy as much time as possible, before the ESM kicks in, and default events are triggered, in order to shore up the balance sheets of the larger banks so that they can withstand a default event.

The ECB is trying to create stability in the face of the desires of the national electorates.

ei.sdraob wrote: »

"pesky market"

Yes the ECB have made some right moves but they also have made bad moves, there is no coherent strategy no master plan nothing, they are coming up with **** as they go in a contradictory manner, and that does not inspire confidence

I referred to the bond markets as "pesky" which they are in relation to national interests.

Haven't seen Trichet & co use the term at all.

The ECB has been trying to placate the markets, and they have been doing so consistently, they have a coherent plan which is to postpone for as long as possible the triggering of a default event which could cause European banks to realize huge losses. They are the most consistent and coherent player in all of this, their position remains unchanged since the beginning of the crisis. Where the inconsistency lies is with other EU institutions who by definition are conflicted between their own national and their European interests. Not with the ECB.

Cannibal Ox · 07-06-2011 11:01am

I'm not sure how valid a point this is, but it seems to me that there's an assumption being made in all of this that if you fix the economy, you fix the social and political problems.

So, for example, Greek people stopped paying tolls on motorways in protest (link). That lost thousands of euros of tax for the government. Is the cause of that economic, i.e, can they not afford to pay for tolls? Or is dissatisfaction with how the country is being run? If you force them to pay tax, or if you take a loan from the ECB to cover up that tax, will that solve the problem? If the problem is political/social, can you solve it through economic measures?

Dunno if it's valid to scale that example up to the country, but I'll do it anyway. If the root of the problem isn't that Greece can't pay it's debts, but dissatisfaction with how the country is being run and treated, can economic measures solve that problem?

Which brings me to....

Irish Times wrote:

Greek prime minister George Papandreou has said he would consider giving voters a voice over austerity measures demanded by international lenders in exchange for a bailout as dissent mounts.

"I am prepared for the big changes we are pursuing and to even use the institution of a referendum for the widest possible consensus or opinion," Mr Papandreou said in a statement last night after seeking consensus in his cabinet.

Full link

I'd love to know if he thinks he can actually win a referendum. Looking at the opposition on the streets and in the parliament, and the crazy figures (I've seen polls with 80+% dissatisfaction with all political parties, but I'm not really sure how reliable they are) banging about, he either knows something the protestors don't, or he thinks without a referendum there'll be trouble.

I don't think it is enough to deal solely at the level of EU wide institutions and governments if you want to maintain a smidgen of democratic norms across the EU. I also don't think the solution can only be economic, I think there are social and political causes that need to be addressed. And they can't be addressed by forcing a people to accept a deal without even consulting them.

beeftotheheels · 07-06-2011 4:13pm

Cannibal Ox wrote: »

I'd love to know if he thinks he can actually win a referendum. Looking at the opposition on the streets and in the parliament, and the crazy figures (I've seen polls with 80+% dissatisfaction with all political parties, but I'm not really sure how reliable they are) banging about, he either knows something the protestors don't, or he thinks without a referendum there'll be trouble.

I think it is the point in bold.

He's potentially looking at a revolution and you are completely correct that this is not just an economic crisis, nor can it simply have an economic solution.

But at its most basic, this crisis is highlighting the huge mismatch between national democracies and global trade. The Greek protesters know how they feel, the German taxpayers know how they feel. But in a world of free trade and multinational organizations engaged in cross border financial activities the consequences of any decision by a national electorate can extend far beyond their borders. Similarly businesses which engaged in global trade revert to being national problems when things go wrong.

So we're then faced with the realization, most starkly within the EU, that where you create a common open market, where you create a common currency, from an economic point of view it really is not a great idea to leave so much competence to the Member States. We can see this is the frequent disagreements between the ECB with its European mandate, and the Council with their national mandates.

It seems to me that this leaves us with a stark choice. We either reign back our commitment to free trade to the point where it is right and manageable that we control our own economy, or we surrender control of areas relating to that free trade. In the shorter term to the EU, but in the longer term perhaps we will see more global regulation.

I honestly have no idea in which of these diametrically opposing directions we will jump.

Scofflaw · 07-06-2011 7:43pm

I honestly have no idea in which of these diametrically opposing directions we will jump.

I doubt we'll jump at all - I'd have thought we're more likely to lurch first in one direction, then another, and quite often in both directions at once.

cordially,
Scofflaw

Tora Bora · 07-06-2011 8:55pm

Heard Michael Noonan on RTE this evening, urging all and sundry to stop the negative commentary on the nations economic position. He particularly urged the use of the D word be dropped.
He wants us all to think positive, and go out and work hard for the common good.
That's Michael Noonan, minister for finance, and proud owner of German government bonds.
If that investment isn't a hedge against a domestic default, I'm a dutch man.

McDave · 07-06-2011 10:09pm

The way things are going with governing party in Greece deputies losing their nerve and Papandreou's referendum threat, the Eurozone has to have an exit scenario worked out. My gut feeling is if Greece puts it to the Eurozone that they're not prepared to go through with the politics, the Eurozone will simply cut its losses and form more sustainable defences around the remaining states.

In direct answer to the OP, I don't think the Eurozone will burn Greece. If anything, Greece will burn itself.

Time to burn Greece?

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