28 October 2011 8:16 AM
Eurozone summit: designed to fail
Indeed, on Wednesday night at the Council building, that was the first bit of news the government press officers came down to spread among the reporters as the negotiations continued upstairs – that this voluntary ‘restructuring’ of debt had been agreed, now the rest of the deal on the EFSF and the €106bn bank recapitalisation could be negotiated (the recapitalisation, by the way, is already reckoned to be underpowered because it makes almost no allowance for the possibility of default by Spain and Italy).
Except that picture was just all wrong.
More, to do it ‘voluntarily,’ which is to day, not to have their losses covered by credit-default swaps (CDS), the insurance contracts for which the banks pay more multi-millions to protect themselves from just such a default.
(Why were eurozone leaders desperate to keep the default ‘voluntary?’ Triggering CDS would cause what the financial markets call a ‘credit event,’ and make more problems for the sovereign bonds of other countries. So what the EU rep was saying to Mr Dallara and his team was the equivalent of having a drunk driver smash into your BMW and then ask you not to mention it to the insurance company because he might lose his no-claims bonus.)
The eurozone summit conclusions want us to believe that the bankers’ representatives listened to all this and said: ‘Oh, okay, sure. We’ll voluntarily take a 50 percent haircut on our investments.’
And no doubt you do believe the conclusions, because the headline offered by the eurozone leaders was that, really, Greece has had its debt to private investors cut by half. At 4 a.m when the summit ended, that was the story the journalists took away home. No details, just a headline: 50 percent haircut of Greek debt.
But like any take away, by 9 o’clock the following morning it no longer looked so appetizing.
We have Peter Speigel of the Financial Times to thank for identifying just why the so-called voluntary restructuring of Greek debt never sounded quite true. He managed to see Mr Dallara before he flew out of Brussels yesterday morning. Mr Dallara ‘was very clear that the lack of final details’ in the deal gave him ‘quite a bit of room to manoeuvre.’ The banker said: ‘The specific elements of the deal, that is to say the structure of the new claim on Greece, remains to be negotiated.’
I won’t give you the techno-details, but the fact is we won’t know what kind of a deal the bankers actually cut with the eurozone until we know what the changes in coupons (the annual interest rate) and maturities (how quickly it will be paid off) will be. And these things haven’t been decided yet. It could be that there won’t be much of a haircut at all.
In fact, there may be a far smaller haircut than if the banks were just left to suffer default by market forces. That could explain why Mr Dallara released a satisfied, upbeat statement before he jetted out of Brussels: it sounded to me like Wall Street banker-speak for ‘So long, suckers!’
But if the banks and other private sector investors aren’t really going to drop half the Greek debt, why were Mr Barroso, President Sarkozy and the rest selling this as yet uncalculated haircut so hard?
Because they had to present something to pretend that Greece could be on the road to solvency. Yet it is not, and it won’t be, not as long as its economy is tortured by the EU austerity programme and not as long as it stays in the eurozone.
But the eurozone leaders have to pretend that Greece can mend if only there is ‘more Europe.’ Trying to quarantine Greece, trying to protect Spain, Portugal, Ireland, and above all Italy from the consequences of being in the euro (the eurozone leaders will fail to stop the contagion, but that is another story) is the excuse they have been looking for to impose ‘more Europe’ on the people of the 17 member states of the euro.
That is why we are now hearing talk of treaty change. Forget ‘limited’ treaty change, that weasel word means nothing: all change, like all money, like all everything else except the expanse of the universe and mother love, is ‘limited.’
This ideological goal of ‘more Europe’ is why we are now hearing there ‘must’ be a eurozone finance minister, there ‘must’ be more fiscal discipline imposed from Brussels – more accurately known as the power to tax and spend, formerly the power only of the parliament of a sovereign state.
Here in one line is what is going on, from Bloomberg financial news earlier this week: ‘Central bank officials may be hoping that by keeping the threat of financial Armageddon alive, they can coerce the region’s people and governments into moving toward the deeper union that the euro’s creators envisioned.’
That is all that the eurozone summit was about. Well, that and protecting Chancellor Merkel and President Sarkozy from the final disaster of the eurozone for as long as possible.
The summit was not at all about solving the eurozone crisis, which is a crisis of government debt, because it offered nothing to bring back growth to the eurozone. Indeed, even as the summit was underway, the latest economic evidence suggested Spain and Italy were already in recession, and the rest of the eurozone is heading the same way.
Yet debt can only be repaid by economic growth. Which is why some of the world’s leading economists were dismissing the summit the moment it ended.
Roger Bootle's Capital Economics said: ‘We still expect the crisis to prompt a prolonged recession in the euro-zone, further turmoil in global financial markets and, at some point, the end of the euro itself in its current form.’
Nouriel Roubini, the economist credited with predicting the 2008 worldwide recession, sent out this tweet: ‘Little in EZ [eurozone] plan to restore growth/competitiveness. Without it financial schemes (greek haircut, bank recap, levered EFSF) alone will fail.’
Right in less than 140 characters, Dr Roubini.
What the euro has done to Greece: Weimar 1931 bank runs
From this morning's Eurointelligence. No further comment needed:
'The expected summit decision that banks will have to accept a loss of 50 percent or more on Greek bonds led to first signs of a bank run in Athens, Bild reports.'
'The mass circulation daily's Athens correspondent Paul Ronzheimer has been at several banks in the capital where he found people queueing in order to get their money out of their accounts.'
'He quotes bank employees who talk of people walking away from the bank with €300,000 in cash and other who will hide their cash in fish, walls or bury it in their garden. "The situation is so alarming that only few people still have trust in their country," he quotes one director of a branch bank.'
The referendum rebels: 'Now we're 80. That makes an army.'
Bravo, bravo to the more than 80 Conservative MPs who last night put their country and their constituents above their career ambitions and voted in favour of giving the British people a vote on the EU.
But this isn't the end. This is just the beginning: 'Now we're 80. That makes an army. Who's going to stop us now?'
Here are Nelson Eddy and his rebels -- 'shoulder to shoulder, and bolder and bolder' -- for those stout-hearted Tory MPs. Speakers up:
Will referendum rebels give in to Cameron threats? Depends if they 'hold their manhoods cheap'
To any Tory MPs wondering if they can find the courage to endanger their own political careers by defying the Government whip on the referendum vote, this one's for you. Speakers up:
'If we are mark'd to die, we are enow to do our country loss; and if to live, the fewer men, the greater share of honour.'
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