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Archive for May 29th, 2011

Sunday seems to be a day of rest for politicians and central bankers; so, little to report from these sources today. On the other hand, Sunday is features day for many newspapers and magazines and there is no shortage of comment on the developing Greek problem.

First up, the IMF emailed a statement to Reuters on Sunday in which it dismissed reports that it, the IMF, had already concluded thatGreece had missed targets, a consequence of which might be the refusal to provide the next tranche of bailout funding. No said the IMF in its statement, “our discussions with the authorities continue, are making good progress and are expected to conclude soon”

The ECB continues to display the communication co-ordination of a sack of drowning kittens, with ECB chief economist Jurgen Stark sticking it up to the Greeks in the German weekly Die Welt Am Sonntag in which he says that Greece is not a hole without a bottom but that it needs to enact reforms so as to reduce its debt by 20%. No Teutonic sympathy forthcoming there.

National politicians and the EU seem to be taking the day off, though Tanaiste Eamon Gilmore seemed to be saying on RTE radio today that the EU didn’t have a contingency plan for a Greek default; an incredible suggestion from a politician who should recognise the value of credibility in these times. InGreeceitself there are continuing demonstrations which are not political or affiliated to unionists. The Greek deputy prime minister recognises the potential of these protests but so far they are marked by their rejection of austerity and privatisations, and the title above is quoting the deputy prime minister challenging protesters to articulate a positive alternative. It seems a fair challenge.

As for the Sundays, the German Der Spiegel is keenly following the Greek crisis, not least because German banks have an estimated €25bn of Greek debt (out of a total of €327bn) and the ECB, to which German is a main contributor, has a further exposure of €87.1bn to Greek banks.

Thanks to commenter Who Shot the Tiger, we get an insight into US thinking from the Wall Street Journal who advocate a swift restructuring of Greek debt. Easy for outsiders to advocate writing off €163bn of debt though, especially when the fallout is likely to be borne by the Greeks and Europeans.

The US’s businessinsider.com features a well-written piece by John Maudlin which argues from the safe distance of the US, that Greece cannot sustain its debt and needs to default, and likens the denial demonstrated by some towards the Greek situation to the Jews denying the emergence of the Nazi nightmare in the 1930s. The Godwin’s law followers (or as I call them, the Lord Voldemort he-who-shall-not-be-named children) mightn’t appreciate the analogy and of course there is no certainty in the Greek situation; nonetheless it’s an interesting attempt at a comparison.

As it’s Day 5 of 13 of the GreekWatch series (day 13 is 5th June when the IMF/EU/ECB troika is due to judge Greek compliance with the bailout), this might be a good juncture to examine any lessons forIreland

(1) There are major divisions between the IMF, ECB, European Commission, EU national governments, the Greek government and opposition, economists on the sidelines. It is striking to hear Nicolas Sarkozy calling for private bondholders to roll-over their debt whilst the ECB is seemingly adamant that the bailout agreement be implemented without the smallest of deviations. The ECB has shown itself to be an organisation  without discipline, threatening a unilateral withdrawal of funding one moment, mollifying concerns the next. Interesting that Patrick Honohan, our own governor is one of the few national central bank governors not to offer his two cents in the past week.  Divisions can be exploited and an appreciation of the relative positions ofIreland’s creditors might assist our negotiations, which frankly appear to have hit a brick wall.

(2) The Greeks obtained a 1%+ reduction in their bailout interest rate with what now seems like a vague promise of additional measures in the areas of austerity and privatisation. RememberGreecewas supposed to have signed up to a €50bn privatisation commitment. But take a look at what Greece has done – it owns 20% of the national telecoms company, OTE (comparable to our own Eircom) and it was apparently committing to selling that 20% stake, then it changed its mind and decided to sell 10% and then it changed its mind again and decided to sell an “option” to buy a 10% stake at a future date. IfGreececan get a 1%+ reduction in its interest rate on the back of “commitments” like that, thenIrelandmust be a pretty poor negotiator to come away with nothing. Or perhaps we need perfect the art of the empty promise.

(3) Whilst the EU is increasingly talking tough, the betting is still thatGreecewill get its next tranche and possibly an additional bailout without firm action in return. Weakness on the part of creditors at this juncture should be keenly studied byIreland.

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