On Sky TV discussing the PSI+ negotiations, interviewed by Jeff Randall

PSI talks to resume in Athens over the haircut imposed on banks by the EU in October 2011. Back then, Mrs Merkel and MR Sarkozy forced the hand of the IIF’s head, Mr Dallara, to accept the notion of a  ‘voluntary’ 50% haircut on the face value of Greek government bonds (except those not owned by the ECB).  What they ‘forgot’ to settle on that fateful night was the coupon rate on the new (haircut) bonds and the maturity. Thus the negotiations between Mr Dallara and the Greek government began. Will bond holders and the Greek government reach a deal? I have already argued (see here) that these negotiations will fail even if they… succeed. Yesterday I had a chance to summarise this view on Sky TV. Click here for a snippet of the interview  with Jeff Randall. [You can also click here from my previous discussion with Jeff, on similar matters back in September 2011.]

 

18 Comments

  • Very interesting thought Yani, what you mentioned as banks creating their own hedge funds to avoid the haircut.

    I wouldn’t mind at all raiding both the German treasury and stock market on such speculative basis.

    Not at all.

    • Dean, why don´t you just propose straight out war?

      The beloved “The Euro is a peace project” of the the Eurocrats will be exactly the opposite what they dreamed of.

  • Yes, I agree totally. Markets are behaving as one would expect, whereas European politicians are off their ****in* heads. On the matter of Greece’s possible expulsion from the eurozone: there is no legal mechanism to do it, and there is no obvious economic reason why it should be necessary. However, given that this whole mess is entirely caused by European (and Greek) politics, one can assert that it may be a European political decision that Greece quit the euro. The recent record of Greek politicians in handling this sort of problem is pitiful, and somehow I doubt that an unelected stooge of a prime minister is going to put up more than a symbolic fight for Greece. His lifelong affiliation is with banks, rather than with the Greek people.

    • “On the matter of Greece’s possible expulsion from the eurozone: there is no legal mechanism to do it, and there is no obvious economic reason why it should be necessary”

      Who cares about legal mechanism. The EU & EXB have broken rules and laws in this EURO crisis again & agaon.

      No economic law? Please look at the performance of the Drachme against DEM, CHF or USD. You will see a eonomic reason that is called devaluation, which is absolutely necessary to become competitive with e.g. Turkey again.

    • The ECB have not broken any laws. They may have bent the spirit of the law but that is not the same. For Greece to be thrown out there has to be an explicit violation of the Lisbon Treaty by Germany et al; one that the European Court will reject thus putting the whole of the EU in jeopardy. This is not insignificant.

      As for the economic argument for a voluntary exit from both the eurozone and the EU (since it is impossible to leave the euro without leaving the EU), your point explain nicely why Greece should have never entered the euro (you may recall that I had campaigned against Greece’s entry into the euro). BUT, it is not an argument in favour of a Greek exit from the euro (now that it is in). There is subtle but profound difference between (A) wishing that we should not have been in the euro and (B) choosing to exit the euro.

    • Replying to Pedro [and Yanis]:

      Again, I concur with Yanis. I can see no clear breaking of the rules of the eurozone, other than high indebtedness levels and the misreporting of those. It will be a political decision to eject Greece, unless Greece leaves the euro voluntarily (my biggest fear).

      On the matter of leaving the euro to reinvent the drachma… whereas a small devaluation would be helpful, this is not what would happen. Greece would be floundering with a very weak currency, no access to capital markets, and probably very little help from the IMF or others. On the other hand, Germany quitting the euro would probably provide all of the peripheral countries with that appropriate level of devaluation (and Germany with a new DM that would cripple its export competitiveness).

      That Greece should never have entered the euro at the time it did, with the rate that it did, and with no economic plans for better managing its economic situation within the eurozone, is now evident to all. Those of us who urged caution on Greece adopting the euro were ignored, because it was seen as a political decision that outclasses mere economics. The ability to print money was lost in an instant — with politicians failing to grasp that that was how Greece had formerly survived. They chose instead to focus on absurdly low real interest rates and cheaper imports — both of which were guaranteed to plunge Greece into debt and damage its balance of trade. Vague (neoliberal) phrases were bandied around, such as “monetary discipline” and “monetary convergence”, in order to convince people that they actually knew what they were doing. Since there was no accompanying fiscal discipline and clearly no convergence of real economies, then this was nothing other than farce.

      So, you can lament the fact that Greece adopted the euro, but an exit before others exit (or it collapses) would place Greece in a far worse situation even than it is in now. This is a waiting game, not an opportunity for drama and foolish gestures.

    • Why would any country prefer to live under EU dictatorship over being a sovereign country?

      The best would have been the referendum proposed end of last year. Just because the Eurocrats want to build a superstate and know that they will fail a referendum in all countries, they inofficially build their superstate without legitimation. This will lead to what happened in Yugoslavia…

    • Good argument. Your final sentence, however, gives me a nudge to comment……….and previous politicians who have had a lifelong affiliation with Greek people have achieved what????????

    • Ha! 🙂 Well, my counterfactual is contentious, but I still have some hope for the idea of democracy. If Greek politicians were genuinely accountable (legally as well as electorally) then perhaps much of the corruption and chaos could have been averted.

      On the other hand, if you would like a brief period of technocratic rule to manage a crisis, then why not select the most able and independent people for the job? The choice that Pasok made for the “government of national unity” [an amusingly inappropriate title] was really in the interests of preserving Pasok, as opposed to saving Greece. They continue with their narcissistic and arrogant abuse of power, even as we speak.

    • Greece [upon leaving the euro] would be floundering with a very weak currency, no access to capital markets, and probably very little help from the IMF or others.

      Well, Greece is not getting much help now. No one wants to buy Greek bonds . . . and, as I am writing this, it is being circled by vultures a la Democratic Republic of Congo. I am just saying, xenos. I mean, talk about being stuck between a rock and a hard place …. 🙁 (yeah, very sad)

    • If Greek politicians were genuinely accountable (legally as well as electorally) then perhaps much of the corruption and chaos could have been averted.

      I think it’s fair to say that the electorate be held accountable, too. Why do governments have the need to borrow? Governments borrow because their citizens desire public services for which they themselves are unwilling to pay for through taxation.

    • If I may add to my previous post regarding government borrowing lest I did not make myself clear 🙂

      I know the importance of the bond market to all levels of government, and in no way did I mean to imply that a government should never borrow. For example, if a long-term infrastructure project has a useful life of, say, 30 years, then the government will issue long-term 30-year bond to finance it, to be paid by taxpayers over said period; a question of fairness.

      No, the point that I was trying to make was this. If the citizens demand certain services from their government, but they refuse to finance or pay for them through their taxes knowing full well that their government will have to borrow and that these debts will be unpayable, then they are as culpable as their government.

      There is also a third party at fault: the lender for making the reckless loans who should have known better. So that makes it a reckless trio (reckless orgy? ;-))

      If I am not mistaken, I think I just described a ponzi scheme or a varation thereof.

    • Electorates — at least in modern democracy — do not make any decision other than how to vote. Indeed, the average level of education may be so far below what is needed to make decisions in complex contemporary societies that classical Athenian-style democracy is just out of the question.

      It was well understood at the point of Greece’s entry to the euro that Greece was (and remains) a clientelist polity — with all the implications that that carries. These include a tendency to inflationary government over-spending (financed through printing money and subsequent devaluations), non-transparency of public accounting, a weak private sector that is mostly under-capitalized, and over-reliance on the public sector for both employment and also purchases from the private sector. Corruption and nepotism are also key components of such a polity. All of these characteristics are highly problematic for a country in the eurozone — and arguably incompatible with it.

      So, let me ask you: who made the decision to join the euro? Was it the Greek people in the street? It was actually a Pasok government (with the advice of the current PM) and the policy was fully supported by ND. Quod erat demonstrandum.

  • Dear Yani
    I watched your interview with Jeff Randal last night. It was a very important intervention in an otherwise sterile, ill-informed and , in most cases , vindictive and almost racist reporting on the imposed Greek austerity disaster in the British media. The issues you raise with regard to ( vulture) hedge funds and corresponding activities by banks are very serious and underpin what is happening in PSI Mk1 and now with PSI Mk2 , especially the events last Friday and the developments today , Tuesday, and tomorrow. This is barely mentioned in the British media or discussions on TV channels , and where it is , this is in a passing, superficial and almost embarrassed manner from which they move on fast. As you saw, Randall found it embarrassing and could not really respond to you or follow up. The British public and business/finance readership is simply poorly informed and misled with regard to the machinations of Merkozy and the banks with regard to Greece.
    As I am writing this I am watching Bloomberg which is reporting that ” Greece is running out of time ” !!! Their economics editor discussed the issue of hedge funds and the 70% aim . They then brought in Rieder , from BlackRock who simply evaded the issue.

    I suggest that you compress the key messages of your excellent analysis of the PSI , link it to precisely what is happening right now in the “negotiations” and send it as a letter or article to the Financial Times , the Guardian, the Independent and New Statesman, perhaps tomorrow when we know the outcome.

    I am an academic( science, technology, economics, finance and management) and permanent resident in UK for 45 years. I have no party affiliations.

    • Thanks for this. Will keep trying. (Today I made these points on Al Jazeera, to be shown tomorrow, and on ITV News, also to be shown tomorrow. Will they screen it though?)

    • Indeed, the average level of education may be so far below what is needed to make decisions in complex contemporary societies that classical Athenian-style democracy is just out of the question.

      Indeed. Sometimes I think we’re better off just randomly selecting our representatives 🙁

      All of these characteristics are highly problematic for a country in the eurozone — and arguably incompatible with it.

      Agreed — especially for a small country such as Greece.

      Btw, did you catch the dangling construction in my previous reply? It’s a pity there is no edit feature here. 🙁

      “There is also a third party at fault: the lender for making the reckless loans who should have known better.”

      The “lender” should have known better and NOT the “loans.” 🙂

  • Dear Yanni,

    While we were debating whether Greece should remain in the EZ and the EU, a zombie on the other side (of Atlantic) have quoted this point of view (among other useful information):

    “This is why the EU is in such a hurry to form a complete superstate because they know what is coming, and to survive, Europe will have to be one whole cohesive state.”

    Hurry?!! and ..One superstate ?!! These words make me hope that rest of the interview is equally irrelevant. That he simply did not take his medication on that day…or not?

    read more here: http://www.dailysquib.co.uk/index.php?news=3089