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Archive for June 6th, 2011

AFP news report of Sunday’s protest inAthens

Some 50-80,000 people are estimated to have gathered in peaceful, non-political protest in front of the parliament buildings in Athens yesterday evening. This is an ongoing daily protest which gathers each evening. For a country with a population of 11.3m of which 4m live inAthens, it was an impressive display, particularly because it was not political or affiliated with any union. The political reaction so far to relatively small, peaceful crowds that gather each evening has been “meh”.

Our biggest protest during the financial crisis was 100-200,00 in 2009 when the (original) pension levy was introduced.  Last November, 2010 between 50-100,000 marched in protest at what was seen as the continuing financial mismanagement of the country after the IMF landed.

But really large protests in Greece, like Ireland, have traditionally needed political or union support and on Thursday this week, Athens will see a unionist march, and perhaps then, there might be some political reaction to the protesters. You can also expect an escalation in street protests once the actual austerity and privatisation programme has been published, and that is expected later this week. Remember Greek citizens and most Greek politicians don’t yet know what has been agreed at staff-level with the troika, and the likelihood is they’re not going to be pleased when they find out.

And speaking of finding out, it will be today when the Greek prime minister and his immediate team present the detail to cabinet. And the betting is that even the cabinet is not going to be pleased – the ruling PASOK party has its own John Brutonopouloses.  It will be later in the week when the detail is laid before parliament. And since consensus has not been reached between the main political parties, despite the best efforts of the prime minister and indeed the president of Greece, you can expect some fireworks then as well. You know those funny moments you see from time to time in foreign parliaments, when parliamentarians resort to fisticuffs? Don’t be surprised to see new footage in that genre from Athens this week.

Outside of Greece, the ECB seems to be shifting its attention to the question of maturing debt and the need for private sector involvement. In a speech which might have many Irish people rolling around on the floor laughing were it not for the brutal realities of our own economic situation, the outspoken ECB board member, Lorenzo Bini Smaghi told a conference in Berlin today “the basic rationale behind involving private creditors when a debtor is in distress is straightforward and uncontroversial: creditors and investors should bear the consequences of their decisions as fully as possible and should not rely on taxpayers’ money to be bailed out. The underlying reason has long existed: a bailout by taxpayers today may encourage risky lending by private investors in the future”. Elsewhere in the speech he advocates private sector involvement in the roll-over of some €100bn of Greek debt. With respect to Greece avoiding default, he said “the key question is whether the Greek government and the Greek people are willing to implement these measures [austerity and privatization]”

The IMF today said that the Greek plan agreed at staff-level did not envisage debt restructuring. There seems to be an emerging division between the IMF and EU and it would seem from here that the IMF want a new bailout package whereas the Europeans want a private sector contribution to Greece’s debt.

This temporary GreekWatch feature is winding up today. Firstly, it was originally  started because Irish media failed to report the fact that the troika review mission on the ground in Athens had upped pencils and calculators a fortnight ago and suspended their review saying there was no point in continuing. That event had the distinct potential to sink the Greek bailout which would have major knock-on consequences forIreland. Since the GreekWatch feature started, Irish media has (co-incidentally) increased its coverage of Greece. Secondly and against the odds some might say, staff-level agreement was reached between Greece and the troika staffs last Friday. If Greece had failed to overcome that early hurdle there would be some conclusion now, but it seems the conclusion has been deferred as the troika principals will vote on the staff-level agreement in a few weeks time. The drawdown of the next tranche of €12bn in total seems to have been deferred from 29th June to “early July”.Greecehas maturing debt to repay from 15th July so ultimately that is the deadline. At this stage the view on here is that there will be some botched form of deal, probably another bailout of about €100bn which will need be approved at national parliament level (you can practically hear the fists being cupped in anticipation in Helsinki right now); the next tranche from the original bailout will be released and that Greece will come to some muddled agreement with its troika creditors. It may take another three months before the seemingly inevitable is accepted : thatGreececannot enact sufficient austerity and privatisation measures to allow the country to repay its debts.

However I would put Greece escaping default in the next 6 weeks at no more than 60:40 and plainly there are many hurdles to overcome. Between now and “early July” there will be on here a weekly round-up of events in Greece. Remember if Greece defaults, there are both threats and opportunities opened up to Ireland. Let’s hope that the powers that be here are aware of that and are making contingency plans. If Greece defaults before Minister Noonan puts the next €24bn into the Irish banking system, there might well be opportunities.

So for now then, farewell to GreekWatch.

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It’s a Bank Holiday here in Irelandtoday so a relatively slow news day domestically. However over in Berlin, one of the seven members of the ECB board, the Florentine, Lorenzo Bini Smaghi has delivered a noteworthy speech which might be of interest over here. Lorenzo of course is the quite-often controversial member of the ECB board and his comments in the past have raised hackles here and elsewhere (for example here and here). However he is generally good for an interesting, if sometimes provocative, opinion and today is no different.

His full speech is here. And early on in it he chides Ireland, Greece and Portugal for not seeking bailout financing earlier. And worse, for then blaming the EU (and presumably ECB) for their domestic predicament. Sound familiar?

The main focus of his speech is an attack on sovereign default. He claims there are very few successful restructurings, that restructuring takes a long time and will ultimately hurt tax-payers in both debtor and creditor countries. He points out that countries with a history of restructuring will see interest premia imposed on future borrowings. His comments are a thinly veiled warning to Greece.

He claims that Greece is perfectly capable of dealing with its present predicament. And Greece’s future success will boil down to political will and the will of the people. He claims “restructuring should only be the last resort, i.e. when it is clear that the debtor country cannot repay its debts” There are some that would say that Greece is already at that point, but it is clear that Lorenzo disagrees, indeed elsewhere he claims that Greece’s gross debt of €330bn is largely matched by assets of €300bn. Not at all sure where the €300bn comes from, but it will include the privatization of some €50bn of state-owned assets that Greece has now agreed to in principle.

What might be of intense interest inIrelandis when Lorenzo makes a distinction between private sector debt and sovereign debt. With the former he says “the basic rationale behind involving private creditors when a debtor is in distress is straightforward and uncontroversial: creditors and investors should bear the consequences of their decisions as fully as possible and should not rely on taxpayers’ money to be bailed out. The underlying reason has long existed: a bailout by taxpayers today may encourage risky lending by private investors in the future”

When I read this I wondered if someone had hit poor Lorenzo over the head with a paddy wacker, as it is crystal clear that bondholders are “private creditors”, that our banks are “in distress”, that bondholders should “bear the consequences of their decisions as fully as possible and not rely on taxpayers’ money to be bailed out”. How on earth are unguaranteed senior bondholders in Ireland different to the creditors described in the remarks above?

You might also be amused at the claim “EMU is based on two pillars. The first is price stability, ensured by an independent central bank. The second is sound public finances, promoted by the Stability and Growth Pact. This second pillar has not worked properly and needs to be repaired” The Stability and Growth Pact famously calls for deficits to be kept below 3% of GDP. It also calls for debt:GDP to be capped at 60%. And although our Finnish friend, Olli Rehn always thought to mention the former, he somehow developed amnesia when it came to the latter and seemed perfectly happy for Ireland to take on debt which will grow to well in excess of 100% of GDP. Amusing to hear the ECB also talk in support of the Stability and Growth Pact whilst totally ignoring burgeoning national debt levels.

And lastly you might be amused by the suggestion that a restructuring of debt will have a cost to tax-payers in both debtor and creditor countries! Of course it will, the usual resolution of a debt that can’t be paid, normally involves pain to both debtor and creditor. It would seem to be a perversion of free market economics for it to be any different.

So on this slow news day inIreland, we should express our gratitude to Lorenzo for livening up the day. And hopefully his words will be recorded by our “negotiators”, as they seem to converge with our own national views in many areas.

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