An epitaph for Greece? - by Richard... Saturday, April 10, 2010

An epitaph for Greece? - by Richard... Saturday, April 10, 2010

Unwittingly, The Financial Times may have delivered the ultimate epitaph for the foolhardy experiment of allowing Greece into the eurozone.

It comes in its latest analytical offering – of which there has been no shortage – when we are told of the latest developments, with the rider: "This was not how things were supposed to work out." That, most certainly would suffice for the gravestone of a nation.

The situation on which the FT was commenting was the declaration by somebody or other in the EU telling everybody who would listen that the "colleagues" would come dashing to the rescue if need be. Greece would not be allowed to default.

Somehow, though, this message does not seem to have got through to the markets. Nervousness about Athens' public finances, we are told, has contaminated lending in the private sector, with depositors having withdrawn €10 billion from Greek banks.

This is what the FT thinks should not be happening. Greece cannot be forced out of the euro and is unlikely to leave voluntarily so, with the declaration of support, the markets are supposed to rush in and buy up Greek debt.

The reason for this seems to be that the EU – with Germany looming in the foreground – is playing an elaborate game of chicken. It framed its statement of support, says the FT, in terms of a reason why the support would never actually be needed.

Since Greece would not be allowed to fail – so the argument went – there was no need for the market to worry. And as long as the market wasn't worrying, there would be no need for support, and thus no reason to suppose that the support would not be forthcoming, because it wouldn't be needed ... as long as the market wasn't worried.

Worrying, however, is just what the market seems to be doing – manifest in the yields on two-year debt and the cost of credit default swaps, although precisely where they stand is not exactly clear ... different reports seem to be reporting different figures – rather like the Greek government's accounts.

But, as long as Greece is not going to be allowed to fail, and the wish becomes the promise, Germany – which is going to have to produce the dosh to make it not happen if the worst comes to the worst – is insisting that there is no need for a specific plan to keep Greece out of the schtuck ... because Greece is not going to be allowed to fail, and therefore it isn't going to fail.

Strangely, even though it is not going to fail, the European debt markets are still behaving as if the impossible could happen – which, of course, it can't. But since the debt brokers this side of the pond aren't playing ball, Greece is trying to offload debt on the US market, where it is assumed that there are gullible buyers around who are prepared to take a punt.

Unfortunately – for Greece – US investors seem no longer to be relying for their market intelligence on surface mail delivered by the fortnightly steam liner. Thus, the WSJ tells us, they aren't playing ball either. Neither are the Chinese and Japanese investors particularly interested, especially as there are safer options around ... like Russian bonds. It really is that bad.

As a result, the credit rating agency Standard & Poor is marking Greek debt down as BBB+, with a negative outlook. No one knows for sure if there is a ZZZ- category, but it could be that we are about to find out.

Nevertheless, all is not lost. The Guardian is telling us that Greece cannot be allowed to fail. The union cannot afford another failure like that of the now defunct Lisbon agenda, it says. So the member states must step in and do something. Somebody, anybody, must do something. So there ... sorted.

That leaves the New York Times to note that the question facing Europe is no longer whether Athens has the political will to cut spending and raise taxes to curb its gaping budget deficit, but whether Greece will run out of money before it gets the chance to do so.

The money, so to speak, is on Greece running out of money. "This is no longer about liquidity; it's a solvency issue," says Stephen Jen, a former economist at the IMF who is now a strategist at BlueGold Capital Management in London.

But, since German and French banks own over €100 billion in Greek bonds, it is unlikely that Greece will be allowed to fail. Here we go again. According to Yannis Stournaras, an economist and an adviser to previous Socialist governments, all Greece has to do is ask for the money.

Meanwhile, there are a lot of unhappy bunnies in Greece (pictured). They don't seem to be that convinced that Greece cannot fail. Clearly, they have not been told what to think ... nothing can go wrong ... Greece cannot fail.

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Go for coal (updated 2) - by Richard... Friday, April 09, 2010

The World Bank has approved the $3.75 billion loan for Eskom's 4.8GW coal-fired electricity plant in South Africa, despite the abstentions of British, US and the Dutch representatives.

Some 125 environmental groups had written to the World Bank demanding rejection of the loan. Local groups also put the British government on the spot, challenging the Labour government on its "green" credentials, calling for it to vote against the loan.

When the decision was announced, there was no immediate word on how the UK did actually vote, but a later report stated that the UK abstained. Offering a bland statement, an official spokesman for DFID said, by way of explanation: "The project raises several sensitive and potentially controversial issues which it has not been possible to resolve before this period began."

The US Treasury said it abstained due to "concerns about the climate impact of the project and its incompatibility with the World Bank's commitment to be a leader in climate change mitigation and adaptation."

A Dutch Foreign Ministry spokesman said it had advised its representative to abstain, citing concerns that Eskom was not doing enough to develop alternatives to coal. "The Netherlands believes Eskom is doing relatively too little to develop alternatives to coal, so we don't think this is a good proposal," a ministry spokesman said.

There is some early reaction but we will wait to see how the greenies react en masse – they are going to hate it, not least because this will be one of the biggest coal-fired plants in the world.

Costing about £11 billion for the complete development, the first of the 800 MW units (of six) is scheduled to be on-line for the first quarter of 2012. When fully operational, in 2015, it will be burning 14.6 million tons of coal per year, with an expected life of 40-50 years. And the South Africans have ruled out any prospect of carbon capture.

You can see why the greenies are so upset. The plant will add potentially 1.5 billion tons of carbon dioxide to the atmosphere over term - about three times the total UK annual emissions from power stations, motor vehicles and homes. It effectively makes a nonsense of our attempts to cut our emissions, especially when India is planning six of these units, dwarfing any UK reductions.

Strangely, although The Guardian covered the loan issue on 1 April, and The Times on Tuesday, UK media response has been sluggish.

The Times was first into the fray, remarking that Britain effectively had the casting vote on the loan because of the US abstention, following with a reaction from Ruth Davis, chief policy adviser for Greenpeace.

Davis is saying: "Britain could have stopped the loan if it had wanted to but it took the easy way out. Abstaining at this late stage is effectively allowing it to go ahead. The plant will be a major source of greenhouse gas emissions, paid for partly with aid money intended for the world's poor." She added: "Hopefully Britain's abstention means this will be the last plant of this kind subsidised by the UK taxpayer."

The Guardian skirts the UK dimension, instead remarking that the vote had been widely seen as a test of the Obama administration's commitment to new guidelines put forward barely three months ago, shifting aid to the developing world away from coal and fossil fuels to less polluting energy sources.

This paper also cites environmental groups, notably Karen Ornstein of Friends of the Earth, and again the focus is on the US. Says Ornstein: "I am not going to give them points for abstaining. This was totally the easy way out ... If the US were to follow its own clean coal guidance for multilateral development banks it would have had to vote no on this loan." Michael Stulman of Africa Action adds that the entire project was misguided, and would do little to help poor South Africans.

The Financial Times has environmental campaigners claiming that they were given inadequate time to respond to the proposal, saying they "will not let the matter rest". Earthlife Africa and GroundWork, two South African campaign groups, have already complained to the bank's inspection panel asserting that its rules are being broken.

These two groups issued their own press release, calling the decision a "governance disaster", declaring:

This is an assault on the livelihoods and way of life of global citizenry. Instead of using its financial resources to help developing economies leapfrog from carbon intensive development and promoting investment in clean and ultimately cheaper alternatives, such as wind and solar, the World Bank is propagating "business as usual". This is akin to fighting a fire with petrol.

On might, on that basis, expect the BBC to come in strongly, but its coverage is muted.

On the other hand, South Africa's Business Day comes to the defence of the Bank (sort of), citing its spokesman saying that the loan was brought about by "unique circumstances" including South Africa's energy crisis of 2007 and early 2008, and the global financial crisis that exposed the country's vulnerability to an energy shock and severe economic consequences.

That is as maybe, but there are other loan applications in the offing, specifically from India. It is going to be interesting to see how the Bank deals with these if it is looking for "unique circumstances" as the justification for granting approvals.

It is thus Roger Pielke Jr who puts the issue in perspective. When GDP growth comes into conflict with emissions reduction goals, he writes, it is not going to be growth that is scaled back. Further, when rich countries wanting emissions reductions run into poorer countries wanting energy, it is not going to be rich countries who get their way.

He adds that when energy access depends upon cheap energy, arguments to increase energy costs or deny energy access are not going to be very compelling. The South African coal plant decision well illustrates many of the political boundary conditions that shape climate policy. Policy design will have to accommodate these conditions, rather than ignore them or think that they will somehow go away.

That succinct summary draws the battle lines - development or greenery, but not both. Even if the likes of the UK are prepared to wreck its economy in pursuit of green obsessions, developing countries are not prepared to follow. And, so far, the NGOs have not been able to prevail. But, the battle will doubtless continue.

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Not the Foreign Office - by Richard... Thursday, April 08, 2010

Via Witterings from Witney we learn that David Cameron's goal is to "put fire into people's bellies, steel into their backbones and joy into people's souls."

He was, apparently, speaking this morning at the launch of the Conservative plans for a "non-military national citizenship service".

Our response has the same initials as the Foreign Office, but most decidedly does not use the same words. Does this man actually listen to what he is saying?