Greece still in crisis

Is Mr. Hewitt working for the BBC or Fox news ??????

--This is ridiculous and insulting ---repeat, repeat, repeat !

#1

I know! What kind of fascist regime would slap a tax on fizzy drinks?

Countries like Portugal and Greece, barely seeable under a mountain of debt, are turning to China as a potential buyer of their government bonds.
The Greek Investment Minister Pamboukis said that China's purchase of Greek bonds will help Greece overcome the crisis and regain the confidence of the international market. It will also help the stability of the euro zone.
He said Greece would open its transport, tourism, telecommunications and banking sectors to Chinese investors. With an estimated one quarter of its $2.85 trillion in foreign exchange reserves invested in the euro, China most certainly does not want the euro zone and its currency to fail.
As such, China has repeatedly pledged its confidence in Europe's ability to pull through the crisis, going as far as to say it had already bought Greek and Spanish debt and would buy more if need be.

Perhaps the demonstrating journalists (pictured) could run an exposé on corruption and incompetence in government and tax endemic avoidance. The 2004 olympic games was a feeding frenzy for some Greek politicians, and you don't need to take my word for that; it was an open secret. The rest of the EU should not be called upon to bail-out Greece.

#3 Bluesberry

I am sure that default , restructuring is the Greek destiny . There will come a point when the Germans and others will no longer borrow and put up the money to bail out Greece . I think that even without the Greek resistance to austerity , eventual bankruptcy could not be avoided . In my view Greece would be wise to withdraw from the Euro and EU . Times are hard anyway for the people and they won't get any better . In truth the Greek people would be better without the restrictions of the EU .
It is difficult to see where China stands in this . Is China going to lose out badly on buying Eurobonds , or is she going to take over Europe as her own marketplace , undermining the viability of many European businesses .

"Greece was heading for bankruptcy a year ago. It still is."

Give me a break! The EU, the European Union Central Bank, the IMF say otherwise!
I don't know much of economy, but I do know that all these austerity measures must work! Greek employees and those in the pulic sector in particular, have seen many cuts! And taxes are imposed ... on a weekly basis on everything!

I know! What kind of fascist regime would slap a tax on fizzy drinks?
---
US and UK been considering such a tax for the last 5+ years...

Technically majority of Europe if not all, slapped a tax on fizzy drinks, its called VAT.

"The President of the European Council, Herman Van Rompuy, is in Greece today. His mood appears surprisingly chipper. "The threat of the (eurozone) crisis spreading has been reduced significantly, or disappeared," he declared."

+++++++++++++++++++++++++

Experience shows clearly that Euro speak is very much that like that in Wonderland -nothing means what it seems, but it does mean whatever the speaker wants it to mean. Statements assuring us that all was well were made before the Greek bailout, the Irish bailout and the Portuguese bailout. I fully expect them to be made before the Spanish bailout, and the eventual full demise of the Euro itself. The only question that we really need answering is exactly how much of British taxpayers money will be thrown into the bottomless pit in a futile attempt to shore up an unworkable economic model for another month or two?

Political hubris is no substitute for economic reality, and the longer the elites of Europe refuse to acknowledge this and abandon what was always a flawed project, made worse by the political expediency of turning a blind eye to blatant book-cooking by countries like Greece, the more social unrest we can expect in the Eurozone. I can't make up my mind whether those running the European project are mad or bad, but an increasing majority of people throughout Europe are heartily sick of them and their Utopian dreaming, which doesn't reflect either the wishes or the realities of the ordinary citizen.

Meanwhile someone is making lots and lots of money in the markets - and some of it is mine!

@ #7

I cant say that I would mind a bit of a luxury tax on soft drinks as I consider them to be liquid candy.

@ #4

So the EU is not becoming just a transfer union to prop up falling economies, but a transfer union to criminal corruption coffers... wonderful. Perhaps leaving the EU would afford the Greeks the opportunity to "clean house" and kick out the both the "shady uncle" and the "unwelcome house-guests." ... Is such a thing feasable (or even a priority for the people of Greece) without some major social/cultural upheaval?

There was no intention to 'bail out' or 'save' Greece with such an ill-constructed programme of just cuts that kill any commercial activity, reforms that won't happen and impossibly high interest rates that warrantee failure. The target has always been to gain time to save the banks, transfer the debt to the European tax payer via the European central bank and this is being done slowly but steadily. When this happens, then there will be some sort of restructuring of debt. For EU bureaucrats and associated bankers is a wonderful success. Of course they won't admit it. In this context, the Greek 'bail out' is a success and that's why it will be implemented in Irealand and Portugal. In this way, the banks will be saved. Of course this obvious fact it is 'too' difficult to comprehend by Gavin. Well done BBC for feeding us a steady diet of such 'analysis'.

#8

I don't know if these people are mad or bad but most of the so called decision makers are unelected.

" No taxation without representation" !!

I said it at the time and I will say it again: the Greek bailout did not solve the problem of Greeek insolvency. All the bailout achieved was to lend Greece even more money on which they could not pay the interest, let alone the capital.

Austerity measures in Greece have been introduced and can go no further. As it is, the measures to cut the deficit have had the opposite effect. Greece is in recession, unemployment is up and the deficit is growing. What a disaster, but Herman Van Rompuy and the EU remain in denial.

This Euro crisis is not over, far from it. It is getting wider and deeper as debts simply pile up.

How likely is it that Portugal will agree to a bailout given that their Parliament rejected the latest austerity package? And perhaps more importantly, how could any deal to bailout Portugal actually work? These bailouts have zero credibility.

And how long will it be before Spain admits they need a bailout?

Several comments above link the possibility of Greece leaving the Euro with them leaving the EU. This is not the same thing. There are two EU countries with opt outs from the single currency, a third - Sweden - deliberately avoiding convergence criteria and several others, one suspects, thinking of doing exactly the same thing.

As GH very properly points out, barely a year after Lisbon, the EU tore up the rule book. It has done so twice since. It is not up to Greece to walk away from the EU. It is up to the EU to recognise that the rulebook is not worth the paper it's written on, go away and think again. The single currency is a different matter. The ECB rulebook was clearly written to benefit the prosperous core nations at the expense of the peripheral ones and it is no surprise that they are failing under the burden.

Here in Hungary, everyone from taxi drivers to supermarkets are perfectly happy to accept the Euro and are laughing all the way to the bank with the benefit derived from the exchange rate they offer. I do not suggest that we should wrap up the whole project. What I do think is that the ECB should give up its ridiculous ambition to be a global reserve currency in the present circumstances, release the accession countries from the burden of being required to join and recognise that the struggling economies might be better off out of it.

As for China, it has to be said that all the time the war or words between them and the Americans continues, they have lots of lovely yuan burning a hole in their collective pocket. Europe is an obvious place to put it and the riskier the bond, the higher the return. Bring it on, I say. China's money is as good as anyone else and they have plenty of it.

European elites are in denial, but frankly so are ordinary people. Greece is just an extreme foretaste of what happens when countries start spending more on themselves than they can create. Advances in social provision from the public purse rapidly turn from being a welcome privilege to an angrily defended entitlement...as if retiring at 53 was the norm elsewhere in the world. Welfare, which was created to help people in extreme difficulty, becomes a major chunk of income for a good sized proportion of the population.

As in the UK, when things start to get squeezed, people cast around looking for someone to blame and they settle on "the rich"...without really ever wondering who "the rich" actually are and exactly how rich do you need to be to join "the rich". The idea that everyone has been exceeding their means by voting themselves generous social welfare provision is always overlooked.

If there is actually any such thing as "the smart money", it will be on a series of controlled defaults by Greece and others followed by an orderly withdrawal from the Euro. The alternative of shoring up the crumbling ediface of currency union is to drive all of us over a cliff two years from now!

Has anyone else noticed that an unshaven David Cameron appears to be protetsing in the top right of the picture. I think we should be told!

Hi All

Is the medicine working for Greece? Well the best place to answer that question is the bonds market. The lower the rate of return demanded on Greek debt the better it is working. Oh dear .... rising steadily. This is not good.

The medicine isn't working, is the problem the patient or the medicine?

The resistance to the austerity measures has been, in my opinion, something of a discrace. The bail out was entered into on the basis that Greece would accept austerity. It is grossly unfair to the French and German banks and taxpayers who are set to lose money if Greece restructures when Greece has failed to fulfill the promises it maid when accepting the bail out. So yes the patient must accept some blame.

Was the medicine the right medicine, we will never know. The patient didn't follow the course of treatment prescribed. Economists are still arguing about the effects of depression era economic policies, the Euro-zone crisis should be good for academic discussion for at least two centuries.

#14 - Anglophone

"Has anyone else noticed that an unshaven David Cameron appears to be protetsing in the top right of the picture".

Hey, yes. Have things gotten so bad at MI6 that PMs have to do their own dirty work now?

Thank goodness we got rid of Labour just in time or we would be ending up just like Greece. A fat bloated public sector with enormous debts and little chance of reform.

Germans should not be so secularist, they should have taken the damned good advice of not casting pearls before swine. After imminent Greek debt restructuring good luck at getting any of that money back. The EU is becoming a one size fits none sort of union. The Euro is too high for Germany and France (Airbus already turning blue in the face), and rates are too high for Greece, Portugal, Spain, and Ireland. The more trouble arises in Europe the more the bureaucracy rises in Brussels. That is the nature of bureaucracy, it is incapable of self limitation. Germany should have used that money to increase birthrates. German population decline by 2050 will destroy the "power-house of Europe", rolls eyes, with a population loss of 20%. Europe hasn't seen population losses like that since the black death. Don't throw good money after bad.

#18 - njguy

"Germany should have used that money to increase birthrates"

How does that work? Pay women more to stay home a breed than they can earn at work? Make contraception prohibitively expensive? Build intensive baby farms?

Get real! People do have lifestyle choices including the right to decide if they want children and how many.

"So why not go for a restructuring? Why shouldn't those banks in Germany and France take a hit? The fear is that those banks - particularly in Germany - remain fragile. A Greek default could usher in a wider banking crisis."

Oh yes. Or rather, from the german perspective, oh no!

A wider banking crisis. So soon after the previous wider banking crisis. And we know what happens in a banking crisis, don't we?

Everyone except bankers gets financially molested by gubment road agents.

Yes. that is how it rolls with your modern banking crisis. Even in free switzerland it went like that. UBS should have failed, but the power of the pension fund fear factor meant that even a real democracy balked the fence, and borrowed in the public name to pay for the orchestrated losses of the private banker's banks.

Because it was that "or else". And we know what "or else" means: Greece. Total economic tofu: the economic equivalent of an inert and tasteless blob of white vegetable extract. No growth, no opportunity, no jobs and no MONEY.

You see, the thing is this: I mean, from my perspective the thing is this:

Germans riot much harder than our latin brethren. That is what I think.

When the new debt to pay for the existing debt to continue becomes too great for the next bit of available debt to support, then everyone loses their pensions.

That is across Europe. That is what "wider banking crisis" means. No pensions. All pensions GONE. Away. Weg. Raus. Down the drain, as the english say. Lost amidst the greater debt of the banking experts funds, like a diamond ring lost in an ocean of sewerage.

Worked for a foreign company, or east german state department, like a german slave for the past forty five years, and soon you will retire a wealthy man? Well you get NOTHING. Ha! Merkel me that one, smart guy!

You can see how it might not be a winning argument on the german shop floor. The same thing probably happened to uncle adolph back in the twenties.

So, yeah. A "wider banking crisis" that threatens german pensions is going to be a wild, wild ride. For everyone in Europe.

The thing to remember is that unlike the greek civil servants who are facing austerity just now, the germans who are to face it in the by and by have worked hard their whole lives. Doing what they were told.

Suckers.

Anglophone:
"As in the UK, when things start to get squeezed, people cast around looking for someone to blame and they settle on "the rich"...without really ever wondering who "the rich" actually are and exactly how rich do you need to be to join "the rich". The idea that everyone has been exceeding their means by voting themselves generous social welfare provision is always overlooked.

If there is actually any such thing as "the smart money", it will be on a series of controlled defaults by Greece and others followed by an orderly withdrawal from the Euro. The alternative of shoring up the crumbling ediface of currency union is to drive all of us over a cliff two years from now!"

That first paragraph is great stuff. Very well said indeed.

The second paragraph stinks of the crack pipe, sir. You dare suppose that the smart money follows a rational course of government action and policy! Why, and when would it start to do so?

Since when did governments operate to prevent debt sending their economies into war, poverty, theological despotism and stagnation?

As exhibit A, I present the patient readers of this fine blog with the past five thousand years of human history.

And I rest my case.

Embrace the cliff, and remember that the donkey you ride is neither the fastest, the smartest or the nimblest of its kind.

Ask not why you ride the donkey, but rather ask why the donkey is carrying you.

#19 - threnodio_II

Paying people to have children would be the ignorant mans way of going about it. Obviously your not very imaginative. Raising awareness and increasing benefits to children can work over time. The only other alternative is a dying society which is exactly what Germany and half of Europe is. These nations will fade into economic oblivion. An ever increasing share of the population over the age of 65 will drain Germany's resources to the bone. Older populations are less innovative and less productive. The economy is not just based on numbers an economy is based on human labour. Demographics will always be the master of economics whether Europe has learned to accept it or not.

The median age of Europe as of 2011 37 years old. By 2050 it will be 55. Contrast this with America. The US by 2050 will have a median age of only 35 years old and a population one third larger. This shields the US from the pressures of mounting debts. Europe cannot do this. God help you people when you wake up to this fact, by then it will be far too late.

When you treat pneumonia with medicine made for kidney failure, you can't expect the patient to smile and swallow, do you?

If Greece defaults, don't be so sure that the countries of choice for Greeks to go and work for 350 euros and help them prosper will be Germany and the UK. It's not the 50's.

Unless you invent some cause for war with China or Canada, for example, don't dream on using the PIIGS cheap workforce after they default.

How much British money will go towards this? Somebody asked. Well, after the European Court of Human Rights (don't they just love the notion that they can bend national governments to their will) decision on votes for rapists, er none.

#20. At 19:16pm 12th Apr 2011, democracythreat,

Me thinks you are shifting to the English way of thinking, having worked in Germany I am not surprised, it just takes a bit longer, well done and work to change the brain dead foolishness.

#22 - njguy

"Paying people to have children would be the ignorant mans way of going about it. Obviously your not very imaginative".

Really? Well I notice that you continue to lecture me on the demographic time bomb but make no atrtempt to answer my question. How do you propose to spend this money?

As to my lack of imagination, I suppose you would have to put that down to the contraints of aquiring an education. Just the basics you understand such as "ignorant man's way . . ." and "you are not very imaginative" or even - at a push - "you're not . . ."

Can we stop trading insults now?

@ #26

"How do you propose to spend this money?"

-->#22

"Raising awareness and increasing benefits to children can work over time."

I think I get where he is going with this; correct me if I am wrong: less hard spending and more soft influence. Promote the family unit and use spending to make it actually affordable for young german couples to start 2+ child families. This would mean actually addressing the negative birth rate issue rather than importing cheap labor from out of the country and spending more on propaganda and market influence and less on the outright distribution of funds.

#27 - The_Black_Knight_Strikes_Again

You are probably right but there are two arguments against this. The first is that, even it it were successful, it would take 20 years before the first generation of the new baby boom started to impact in the economy. Much more to the point, you are asking large numbers of women to revert to a stereotype from the middle of the last century - the classic housewife and mother. How are you going to do that in the 21st century?

A wasted year.

Greece is just deeper in debt. It should do the following:

1. Leave the Euro.
2. default on its debts (i.e. declare bankruptcy)
3. Start afresh - without any further EU handouts.

What will Greece's useless and venal politicians do? Nothing.

#29. MaxSceptic wrote:

"A wasted year. Greece is just deeper in debt. It should do the following:

1. Leave the Euro.
"

Wrong. The Euro is its salvation (and our salvation). Greece's situation outside the Euro would cost both Greece, and us more.

Your doctrinaire hatred of the Euro make all the rest you write just plain silly.

To The_Black_Knight_Strikes_Again (27):

Promoting family as an unit is only whitewashing, it really doesn't change costs or problems associated with having children. The only real solution is to make the society a mother friendly place: having a child should have a minimal impact on woman's income and career. In practise this means good public nurseries, good public healthcare, adequate benefits when in maternity leave (max 10 months), moving costs associated with women having children from businesses to the state, etc.. These are policies that make it possible for women to both have children and go to work, and these policies do produce results as can be seen in the Nordic countries.

However, like threnodio_II (27) correctly said, a child boom today would only start produce effects in the economy after 20 years. Actually economy would suffer the first 25 years from increased costs of having more children and after the children have turned 25 to 30, they start to produce gains for the economy. The best thing that countries should do is to stabilise their populations, meaning to aim at having in general 2.1 child per woman, not more and not less.

28 - threnodio_II

Your first point is not an argument it is an excuse for inaction. Yes it will take 20+ years for a new baby boom generation to mature, but that is exactly when Europe will need them most. As for stereotypes against women...sorry but that makes no sense. What stereotype are you referring to exactly? Women have vagina's do they not? They were designed to give birth. There is nothing insulting about it.

I find it strange that anyone would still be surprised at the path the Greek debt crisis is taking, given that this is the route that most countries that have experienced external debt crises have followed (i.e. where foreign lenders are involved). The government involved almost always claims that it will not restructure its debt mountain while trying to reduce its budget deficit (i.e. its need for new debt). The usual plan is to finally announce the debt restructuring from a position of strength (i.e. after the country no longer needs new debt to balance its budget), but some countries do not make it that far. More importantly, delaying the inevitable restructuring of Greek debt gives banks in the rest of Europe more time to build up reserves against these inevitable loses. Hence the lenders and the borrower have an interest in playing the "no restructuring" charade for as long as possible.

Does Gavin Hewitt have Credit Default Swaps betting on the default of Greece?

Or why does he seem supporting the agenda which would help speculators and hedgefunds, betting on the default of Greece, make masses of money? There is a huge suspicion, that Prof. Sinn, who has been criticised widely in the Zeit and Financial Times Deutschland, has these instruments.


He does not tell us anything about the 200 or 300 Bn Eurs which is lodged by Greeks in Switzerland, by Greek tax dodgers. If the Greeks get the money from Switzerland, the whole of the Greek debt could be paid off and the crisis would be over. They just have to ask.

The crisis could equally end, if CDS are abolished. Why do they still exist?

Also, the

15. At 17:21pm 12th Apr 2011, Ulkomaalainen wrote:

"The resistance to the austerity measures has been, in my opinion, something of a discrace."
Well, compared to the level of austerity introduced, the level of resistance has been pale at best. I know that things in Finland work in different ways than in Greece, but strikes etc have been the norm for almost two decades in Greece, what you see on TV is nothing new.

"The bail out was entered into on the basis that Greece would accept austerity. It is grossly unfair to the French and German banks and taxpayers who are set to lose money if Greece restructures when Greece has failed to fulfill the promises it maid when accepting the bail out. So yes the patient must accept some blame."
I might care about the German taxpayer but I don't give a damn about German banks, truth be told. The "bailout money" was not given to help the Greeks or their economy, it was meant to be used to pay back German and French banks that hold Greek bonds so that they don't fold. After this is taken care of, Greece will definitely be left to rot. Come to think of it, I care about no external entities at this point.

"Was the medicine the right medicine, we will never know. The patient didn't follow the course of treatment prescribed. Economists are still arguing about the effects of depression era economic policies, the Euro-zone crisis should be good for academic discussion for at least two centuries."
It sure will. But you are mistaken thinking the patient had to take the whole treatment prescribed. A government's first responsibility is to the people of the country, not banks, not creditors and not foreign governments. Maybe we should have been patient as a nation if any of that help and pressure went towards changing and rejuvenating the economy. As long as we are being push towards more debt just to pay the precious German banks, this is not FOR the people and the people are right to reject it.

@10 vassilis: Thanks for saying what is true. Mr Hewitt, when are you going to understand what is happening in Europe? Ditto for many other comments here. It's about the banks, not about reality.

Some people simply won't take nasty medicine , my sister is one of them .
In the case of Greece , it was clear from the beginning that the people were not going to take the nasty medicine , Austerity Measures , no matter what their government said . Further it was very foolish of the EU/ECB to believe that they would . Promises are made even though everyone knows they will be broken .

The banks should have been fully aware that they were unlikely to be repaid , that they would lose even more money .
Clearly the only objective of this operation is saving the Euro and the EU . It may be justly argued that the banks may lose even more if the Euro collapses .

As in Greece , there is an unwillingness of the people in both Ireland and Portugal to suffer the austerity measures , because of incompetent government , in order to save the banks .
Austerity measures , that may seem constructive on paper , appear to have a negative effect in practice ; that no amount of nasty medicine will cure .

It is foolish of EU leaders and governments to bury their heads in the sand and try to make everybody believe " Good Times Are Just Around The Corner ".
They are just putting off the evil day a little bit longer . More money for 2nd and 3rd bailouts will just be wasted , down the drain with no return .

I believe that Greece , Ireland and Portugal will eventually default . It would be far wiser of the EU to recognise the fact now . They could save further hardship in the countries , cut short the point of indebtedness and reduce the loss to the banks .
I guess that the EU , banks and national governments are in a downward spiral from which they cannot escape without severe loss of credibility , and money .

31. Jukka Rohila
"The best thing that countries should do is to stabilise their populations, meaning to aim at having in general 2.1 child per woman, not more and not less."

After having 2 children, how do I go about getting 1/10th of another child?

#36 Just_another_observer

I do not doubt for a minute that Gavin Hewitt is as aware as the rest of us where the problem lies . His job is to try to write an open blog on a subject without showing excessive bias . Very difficult to do !

To blame only the banks is not entirely right . The banks are inseparably interlinked with national governments and the EU . They are like three monkeys going round in endless circles holding each others tails ; if anyone lets go , they'll all fall down .

Only three night ago I was in a restaurant where people smoked (against the law) the final bill was not an official receipt (against the law). The restaurant did not have one foreign tourist and was full. Hefty fines could have been levied there as they could have been when later that evening many of those same people drove home without wearing their seat belts (against the law). Like non payment of tax and road tolls, the authorities seem apathetic when it comes to getting the money in to pay for their huge debt. Sadly, for such a lovely country and generally nice people the only way is down.

Germany cannot afford for the peripheral naughty boys to leave the Euro.

See what an exchange rate of €1 = $2.50 does to their imports.

#40 Patrick Warwick

Which lovely country was that ?
Most European countries are much more relaxed about such laws .
The authorities are more likely the most frequent breakers of these petty laws .

The thing I do not understand about this discussion is how everybody else gets blamed for the Greek situation but Greece. Sure, let's dump it on the EU, the banks, the IMF, the Brussells politicians, the ECB, but not on the country which, for years, awarded its citizens the biggest social benegits in Europe, whithout being able to afford it and cooking the books to cover it up. What is worse, the Greek citizens themselves were all in on the orcestrated racket to extort money from European taxpayers in order to save the cozy arrangment, threatening with strikes any time even a miniscule cut in budget spending was mentioned.
It is like having a drug addict, alcoholic cousin, who has been mooching off of the whole family for years, and when the big uncle is staging an intervention, the junkie is complaining how unfair life has been to him and many in the family agree and point at the horrible, horrible uncle. Well Greece it is time for the intervention and if you wouldn't like the austerity pill you should not be allowed to elect your government anymore, or you will spend the next thirty years after deffaulting, in living on the back of other EU countries again.
I am amazed that German taxpayers have not yet required a vote in the election of Greek government. After all the contributed to more than a half of Greece's GDP for this last year.

#34. At 23:43pm 12th Apr 2011, matt_us wrote:


"He does not tell us anything about the 200 or 300 Bn Eurs which is lodged by Greeks in Switzerland, by Greek tax dodgers. If the Greeks get the money from Switzerland, the whole of the Greek debt could be paid off and the crisis would be over. They just have to ask."

That is a slippery slope you tread whereby you advocate the repatriation of people's money on the accusation that they are tax dodgers. There have been a number of EU finance ministers menacing savers who lodge their money outside their country, in particular it is the high tax countries that try to milk every last penny out of the population. In the case of Switzerland I don't know what they signed up to regarding withholding tax but assuming they did then all those tax dodgers do actually pay withholding tax that does go to the Greek finance ministry, so they are not exactly tax dodgers are they.

As for CDS, you seem to have a bee in the bonnet about them. You seem to know a bit about finance so why just look at CDS as there are plenty of other ways the sharks can make a killing.

@buzet23
"That is a slippery slope you tread whereby you advocate the repatriation of people's money on the accusation that they are tax dodgers."

Slippery slope for Switzerland, indeed. Especially if in future every transfer to this and other tax heavens will have an automatic withholding tax of 30% applied to the money being sent, automatically. Just an idea at the moment. But certainly a good one.

Why is the money in Switzerland, unless Greeks want to dodge paying taxes at home? That must be the question.

Switzerland does not pay any interest on cash deposits at the moment. So there is no income to the Greeks, who could invest it in their own country's bonds, and receive 12% interest (That is the return on Greek bonds at the moment). Seems a very sensible solution to me. Get all that money back from Switzerland. We always do it when African dictators are involved, why not here? And force Greeks to invest in their own country. So that they can then pay tax (wealth tax) to pay for the Greek debt.

That is the proper way to solve the Greeks' financial problems. But the ideas being peddled here by Gavin Hewitt are not worthy of the BBC. Where is the independent thinking, the digging out of information, the looking at alternatives? Ok, a Europe correspondent hat a lot of territory to cover - but they have to look further than the headlines. But the information is out there - I find it - so should reporters whose job it is.

And Credit Default Swaps, betting on the default of the europeriphery, are not a figment of the imagination. They are the cause of the Eurocrisis. Any reporter must know that - if not, they should really not write about the crisis. If more money can be made on a default of Greece (Through the existance of CDS) than through bonds, obviously everybody is buying CDS. So there is now pressure for these instruments to pay out. ANd loads of money is still being invested in CDS.

If I read another article about the Eurocrisis, without CDS being mentioned on these BBC blogs - I know what is going on. And so will hopefully other readers who follow this Eurocrisis.

#45. At 09:01am 13th Apr 2011, matt_us,

I think you'll find withholding tax is tax levied on interest earned rather than a tax on money deposited, as a tax on money deposited would be a disgrace. It would be very Socialist to penalise a person for having wealth and that's what such a tax would be, indeed the concept of a wealth tax is inherently Socialist and of little justification since it is by nature a tax on already taxed wealth.

As for Greeks buying Greek bonds, that may be very patriotic but since in every likelihood Greece may default anyone investing in such bonds would be foolhardy as they may end up being virtually valueless. Remember the Ponzi scheme where high interest was paid on assets that were basically valueless, high interest is merely a sprat to catch the mackerel.

Again on the CDS issue, the betting on a default is not the reason for the Eurocrisis, the Euro was in a potential crisis from day one since almost all of the entrants falsified their accounts in order to appear to meet the convergence criteria. The poorer entrants then spent money they did not have rashly, funded in general by German banks so that German exports would be maximised, why do you think the German banks are the most exposed to these bailed out countries. In my mind it is Germany that has caused a fair part of this crisis by firstly creating the Euro since it would benefit their exports, and secondly lending vast amounts of Euros to dodgy borrowers so that exports would be boosted. The fact that some sharks see CDS as a way of making money out of this self inflicted fiasco is by the way, the crisis is not invented it is real and until the reasons for it are resolved it will just be crisis after crisis. A Euro composed of fundamentally dissimilar economies is the reason for the crisis not CDS.

Gminus has debt because it buys stuff. Gplus has wealth because it sells stuff. Gplus guarantees the debt of Gminus on the basis that Gminus spends less. Does this solve the problems of Gminus?

Even if Gminus stops spending totally, it cannot eliminate its debt unless it has some means of wealth (or money) creation.

34. At 23:43pm 12th Apr 2011, matt_us wrote:
Does Gavin Hewitt have Credit Default Swaps betting on the default of Greece?


Wow, Matt; that's some conspiracy. Whoever can keep all those people on the right path will take over the world!

#43 Bulgarian_bear

I believe I get your point correctly .

I expect it is true that many rich Greeks have stashed there money safely in Switzerland . With the irresponsible government at home they were wise to do so .
Surely , any recovery of such money is the concern of the Greek government .
Switzerland is wisely not a member of the EU and is not at a loss for having money banked there by foreigners .

I don't think anybody is feeling sorry for Greece or the Greek people , they've done it by themselves . Personally I think they should have defaulted and left the Euro .

The only reason that anybody is concerned is that they had been lent a lot of money by Germany and I believe France and Britain . There defaulting would leave uproar among those countries owed money and there would be created a huge loss of faith in the Euro .
The EU has been very irresponsible to allow countries to join the Euro who clearly didn't qualify and they did know . Introducing the Euro with only a handful of countries would not have looked very convincing .
The Greeks , The EU and The Germans are All bound up in this for their purely selfseeking interests .
If the EU had been responsible the Euro should never have been introduced .

@Buzet23

Sorry, you are completely missing the point I am trying to make.

First, why would it be a disgrace to levy a 30% withholding tax on money sent to some foreign country with the sole purpose of evading taxes in the home country. There is no reason for that. Its not socialist to have a walth tax - the US has one - as has the UK. It is levied on the death of someone and is called inheritance tax. A wealth tax levied before death would not be socialist either.

Second, why would Greeks be foolhardy buying their own countries debt. Than the rich would have an incentive to sort out Greeks state finances once and for all, rather than to rape the country and enrich themselves personally, as they have done so far (otherwise that money would not be in Switzerland).

Third, you might be right with yout anlysis of German banks profiting from giving credit to other countries, but CDS sharks are profiting now. That pofoteering makes the crisis worse. In addition, a CDS ban could be implemented tomorrow. How difficult is it.

One little law: "CDS and all derivatives based on sovereign debt are banned. Anybody braking that law will have their commercial licence withdrawn and their Chief Executive will be sent to prison." That's it. No cost. No bother. End of Eurocrisis.

I might be wrong - and the crisis might still continue - but it will be a lot easier to find creditors for the euro periphery countries. So let's introduce that law Europewide and US wide tomorrow!

Second,

Second,

@Another Engineer
"Wow, Matt; that's some conspiracy. Whoever can keep all those people on the right path will take over the world!"

How about you, Mr AnotherEngineer? Have you got a financial interest in the default of europeriphery countries?

As a general point, it has been known that journalists and bloggers have a financial interest in putting a certain point of view forward. People have gone to jail for that. So it is always a legitimate question. Do people have a financial interest in the view they put forward.

Hi matt-us #45

"Why is the money in Switzerland, unless Greeks want to dodge paying taxes at home? That must be the question."

The answer is that the Swiss Franc is viewed as a solid bet to still be worth something if the Euro collapses. Many of the so called bears have been shifting money and gold into Switzerland since the economic crisis broke. This flow of cash to Switzerland has boosted the value of the Swiss Franc to such levels that they having deflation problems. If you are a high net worth inidividual in Greece then putting money in Switzerland is a good idea. It implies nothing about tax avoidance or any lack of long term commitment to Greece it is simply a prudent move considering the current economic climate in Greece.

"Switzerland does not pay any interest on cash deposits at the moment. So there is no income to the Greeks, who could invest it in their own country's bonds, and receive 12% interest (That is the return on Greek bonds at the moment)."

There is income. As the Franc rises against the Euro the value of their deposits increases. The 12% return only comes in if Greece pays. If they fail to pay then there is no return and the investors lose. Given the choice £10,000 in Greek bonds or £10,000 in a Swiss bank acount which would you choose?

"And Credit Default Swaps, betting on the default of the europeriphery, are not a figment of the imagination. They are the cause of the Eurocrisis. Any reporter must know that - if not, they should really not write about the crisis. If more money can be made on a default of Greece (Through the existance of CDS) than through bonds, obviously everybody is buying CDS. So there is now pressure for these instruments to pay out. ANd loads of money is still being invested in CDS."

You're understanding of the cause of the crisis is somewhat at odds with my own. I view the root cause as a misvaluation of the real estate markets in the US. CDS was the mechanism by which the few, and they were a tiny minority, who worked out just how bad the bubble was managed to profit from the crash.

For someone to buy CDS contracts someone else must sell them. It is simply not possible for everyone to be buying CDS contracts on Euro zone debt. While it is true that some holders of CDS contracts could gain from a collapse of Greece one has to wonder how many of the CDS contract holders are holders of Greek bonds hedging their position?

"If I read another article about the Eurocrisis, without CDS being mentioned on these BBC blogs%

51. At 11:26am 13th Apr 2011, matt_us wrote:
How about you, Mr AnotherEngineer? Have you got a financial interest in the default of europeriphery countries?
==================
No, sadly my only financial interest is in our family home.

My point was that your conspiracy theory requires an enormous number of people to act in concert; I suppose that with modern communications it is possible, but unlikely.
Also what about the counter-parties on the CDSs etc, presumably other speculators?
Have they not organised a counter-conspiracy to talk up the prospects of the PIIGS and their bonds?

#50. At 11:17am 13th Apr 2011, matt_us wrote:

"@Buzet23

Sorry, you are completely missing the point I am trying to make.

First, why would it be a disgrace to levy a 30% withholding tax on money sent to some foreign country with the sole purpose of evading taxes in the home country. There is no reason for that. Its not socialist to have a walth tax - the US has one - as has the UK. It is levied on the death of someone and is called inheritance tax. A wealth tax levied before death would not be socialist either."

Your assumption is that anyone sending their wealth abroad is evading taxes, that is quite plainly absurd as many small as well as large investors quite legally use foreign countries to get a better return and legally avoid high tax rates. Remember tax evasion is illegal but tax avoidance is perfectly legal, and one of the principle tenets of the EU is freedom of movement and that includes money as well as people. To levy tax on someone for sending their money out of their own country is rank Socialist vengeance, and is on a par with the currency controls that Harold Wilson brought in to stop Brits sending money out of a bankrupt UK in the late 60's. Why should anyone who has some hard earnt savings not want to protect the value of those savings, and if Greece defaults then any savings in Greece will be worth squat.

As for inheritance tax, there are many of us that consider it to be a vicious Socialist vengeance, driven by greed and envy, as it is a tax on money that has already had tax paid on it and it is simply a form of implementation of that great Socialist dream, the redistribution of wealth. I would like to see such death taxes repealed as I fail to see why money I have earnt legally and paid taxes on should not be distributed to my children as I see fit and entirely without tax.

@Ulkamaalainen

You are telling me it is ok for the wealthy Greeks to shift their money to Switzerland, because they might gain from some currency speculation.

Well, I have a different view. In a national emergency like now for Greece, it is legitimate to repatriate all Greek savings in Switzerland back to Greece, and force Greeks to support their own country. And buy Greek bonds. Normal considerations do not apply!

Like in a war, you are conscripted, and have to fight for your country.

CDS markets on sovereign debt are huge. About 5 billion dollars is spent every week - on CDS options alone. That is about a fifth of what the UK government spends a week on NHS, police, education, local government, UK forces, etc.

And as long as we do not know who exactly sells Credit Default Swaps, it is prudent to assume it is stupid banks which need to be bailed out to avoid a financial crisis. I am against that as a taxpayer. Hence the ban of CDS is long overdue - why are these weapons of mass destruction not banned?

Ban the CDS bomb now, before it goes off. What are our politicians doing? - Cutting government spending left, right and centre, driving the UK into a recession, and receiving donations from hedgefunds, that is what!

@Anotherengineer
"My point was that your conspiracy theory requires an enormous number of people to act in concert; I suppose that with modern communications it is possible, but unlikely."

You can judge by yourself how unlikely. Do the following: Go to "google trends". Then type in the word "inflation". That will show you how many times inflation has been put into the google search engine.

Now, restrict your search to Germany. And then report back what you find!

#55. At 12:45pm 13th Apr 2011, matt_us,

Um, so you think that because you live in a country you should be willing to give your last penny to bail out a corrupt, incompetent, wasteful government that has previously lined their own pockets at your expense, employed by patronage party hacks, family members et al, and shown absolutely no respect for its citizens. I certainly would not and were I to have any savings left after these crooks have milked my savings they would be winging their way out of the country before it defaulted.

The politicians in charge of our countries are treating the people as serfs to be milked, so please don't express displeasure that some fight back and try to protect their wealth. Even in Belgium where I live, the finance minister tried menacing savers who lodged their funds in Luxembourg some years back saying they must be repatriated. It was then pointed out to the tow-rag that he was breaking EU law by demanding that and he backed down, but the principle remains, it is their money and they should have the right to do as they want with it.

Hi matt_us #55

"You are telling me it is ok for the wealthy Greeks to shift their money to Switzerland, because they might gain from some currency speculation."

Absolutely! It is after all their money.

"Well, I have a different view. In a national emergency like now for Greece, it is legitimate to repatriate all Greek savings in Switzerland back to Greece, and force Greeks to support their own country. And buy Greek bonds. Normal considerations do not apply!"

This would pretty much guarantee a crash. Switzerland would quite correctly bog the process down in court and the Greeks would instead of turning to the Swiss to export their money turn to some shady operators in places like the Carribean. Russian restrictions on currency transactions in teh 1980s made some Russian mobsters a fortune. A very bad idea.....

"Like in a war, you are conscripted, and have to fight for your country."

And when a government makes war upon its own people then are you still obliged to serve?

"CDS markets on sovereign debt are huge. About 5 billion dollars is spent every week - on CDS options alone. That is about a fifth of what the UK government spends a week on NHS, police, education, local government, UK forces, etc.

And as long as we do not know who exactly sells Credit Default Swaps, it is prudent to assume it is stupid banks which need to be bailed out to avoid a financial crisis. I am against that as a taxpayer. Hence the ban of CDS is long overdue - why are these weapons of mass destruction not banned?"

You are making the asumption that the CDS contract sellers have miscalculated the rate of default so they have not the reserves to meet their obligations should payment come due. If the seller has calculated correctly then they expect to make a profit and it is the purchaser of the CDS contract who will lose money.

CDS are not banned because there is no reason to do so. If you don't like CDS then make sure that the bank you lodge your money with is an institution that does not trade in these products.

This can't carry on, they can restructure tings how ever they like but all it will do is delay the inevitable and probably bring more countries into the ring of fire. I find it absurd that the ECB is not seeing that these countries simply do not fit within the Eurozone! No one seems to notice that it's these countries on the periphary of Europe that are suffering, these countres with different trading patterns to Germany. If the ECB wants to save the Euro, it needs to let Greece and Ireland go, so they atleast have a chance to save their economies, fiscal policy alone has proved not to work! They need their monetary powers back, they need their own currencies, to competitively devalue!
I personally believe he Euro s a good idea (for some countres) - core Europe i.e. France, Germany, BeNeLux, Austria, Czech rep, Slovakia, slovenia and even countries such as Croatia, Poland and Hungary were better suited then the others!
The thing is we're talking about completely restructuring very well established economies - very dangerous indeed! Its ok for the former communist states, they built their economy from scratch, therefore it's doable!
I think Portugal and Spain were saveable, had they been decisive and let Greece and Ireland go but now there is no doubt in my mind that Spain will go with their begging bowl by the end of 2011! Then eventually Italy anof course there is the whole question mark over Belgium and possibly Cyprus. Now if all that happens, they can't be bailed out, what you will have is an ECB crisis and dare I say a crisis within the IMF itself. I hope I am wrong but I've been saying this won't work for 10years. I made predictions in 2008 and all have been correct so far, I even got the right month with Portugal!
This really is Kamakazi economics and its affecing 10s of millions of people, soon to be 100s of millions of people. The problem is much worse then economics though, what ever party the people in these countries vote for, they will get the same result as they are being dictated to by Brussels and Strasbourg, my greater fear is that when you rob people of their democracy all they are left with is civil unrest and disobedience! That would be awful, I only pray that the markets crush this political project before we get to that, i doubt it though, as were already seeing the start of this in Greece! Bailouts will not save the Euro but backing out might!

@Another engineer
"Also what about the counter-parties on the CDSs etc, presumably other speculators? - Have they not organised a counter-conspiracy to talk up the prospects of the PIIGS and their bonds?"

Good point - but think about it. The CDS selling bank could potentially go bankrupt and should perhaps be more careful.

But think about it: You are a bank selling CDS - why should you want to talk up the prospects of the Europeriphery states? It is not in your interest to do so. People might stop buying CDS. In fact, it is in your interest to make as much panic as possible about Europeriphery countries, as only then will you be able to sell loads of CDS. Loads of CDS sold will translate into loads of profits - which in turn will translate into loads of bonusses to be paid to you and your executives.

You therefore are interested, as the buyers of CDS are as well, to make as much panic as possible about the prospects of europeriphery countries. Hence you see so much panic reports everywhere. All economists which get paid by a bank, will make panic about the euro-periphery. All papers and other media pick these vibes up, and re-inforce it.

Clearly, there is a downside. What if these CDS will have to pay out? Then the bank which issued them might well be made bankrupt. But what is your real downside here as the executive of such a bank? You could legitimately claim that

a) you were of the firm believe that the EU rescue fund would do its job, and would not let any country go bankrupt

b) that you believed all the austerity steps being taken should have saved the problem countries

c) If your bank were to go bankrupt - at least you got a few billion pounds in bonus payments in the last few years, and you might even have a few million pound pension fund

There is no risk for the executive of the CDS selling bank. Only potential upside to defraud the taxpayer.

Can people get it into their heads that this is why these credit default swaps have to be abolished straight away - so that these legalized frauds stop immediately.

@Ulkomaalainen
"This would pretty much guarantee a crash. Switzerland would quite correctly bog the process down in court and the Greeks would instead of turning to the Swiss to export their money turn to some shady operators in places like the Carribean. Russian restrictions on currency transactions in teh 1980s made some Russian mobsters a fortune. A very bad idea....."

No crash - apart from Swiss bank shares - probably.

The Swiss will play ball, they always do when the countries around them gang up against them. Each time Europe wants something from them, they comply. They have aready given up the Swiss secrecy law, because they had to.

Also, realistically, the ECB is in charge of all money transfers in Europe. Any money coming out or going into Switzerland or any other tax heaven (Carribean - Russia) might well be taxed with 30%, unless you can prove you have a legitimate purchase to make in Switzerland.

@Ulkomaalainen
"You are making the asumption that the CDS contract sellers have miscalculated the rate of default so they have not the reserves to meet their obligations should payment come due. If the seller has calculated correctly then they expect to make a profit and it is the purchaser of the CDS contract who will lose money."

So what is your estimate - how many provisions should they make against these CDS? And how many provisions have they made. Let me know the figures - and we can compare notes.

My estimate is that they should make 100% provisions against the risk of CDS having to be paid out, and my estimate is that they have not made any! So CDS should be banned!

@Buzet23
"Um, so you think that because you live in a country you should be willing to give your last penny to bail out a corrupt, incompetent, wasteful government that has previously lined their own pockets at your expense, employed by patronage party hacks, family members et al, and shown absolutely no respect for its citizens. "

I live in the UK, and I have at the moment to do exactly that!

61. At 13:39pm 13th Apr 2011, matt_us wrote:
Also, realistically, the ECB is in charge of all money transfers in Europe. Any money coming out or going into Switzerland or any other tax heaven (Carribean - Russia) might well be taxed with 30%, unless you can prove you have a legitimate purchase to make in Switzerland.
================
When did that take effect? I think the BofE, Swiss banks, Russian etc and even banks within eurozone would be surprised to hear that.

Hi matt_us

"No crash - apart from Swiss bank shares - probably.

The Swiss will play ball, they always do when the countries around them gang up against them. Each time Europe wants something from them, they comply. They have aready given up the Swiss secrecy law, because they had to.

Also, realistically, the ECB is in charge of all money transfers in Europe. Any money coming out or going into Switzerland or any other tax heaven (Carribean - Russia) might well be taxed with 30%, unless you can prove you have a legitimate purchase to make in Switzerland."

What a wonderful opportunity for the criminals. Import US dollars to Greece and then exchange them for the local Euros at a favourable rate. Then find a dodgy bank somewhere who will take the Euros. The Greeks then get to use dollars when they want to avoid your measures. One country two currencies. Just like Russia in the late 20Th century.

"My estimate is that they should make 100% provisions against the risk of CDS having to be paid out, and my estimate is that they have not made any! So CDS should be banned!"

Seeing as neither you nor I know who is actually selling the CDS contract you can choose any figure you like for your estimate in the safe and secure knowledge that I can't actually prove you wrong. Then again you cannot prove yourself right....

@AnotherEngineer
"When did that take effect? I think the BofE, Swiss banks, Russian etc and even banks within eurozone would be surprised to hear that."

That is just a technical point. That is how money transmission works. It goes through a system from the ECB. Any foreign currency transactions have to go through central banks of the individual countries to the ECB.

The only way you get money to Switzerland without anybody knowing, is to smuggle it over the border yourself. In cash. Not much use, as no bank should launder that money!

65. At 14:18pm 13th Apr 2011, matt_us wrote:
That is just a technical point. That is how money transmission works. It goes through a system from the ECB. Any foreign currency transactions have to go through central banks of the individual countries to the ECB.
==========
I think that it is a figment of your fevered imagination.
Feel free to prove me wrong! Does a payment from Russia to Japan go through the ECB?

@Ulkomaalainen
"The Greeks then get to use dollars when they want to avoid your measures. One country two currencies. Just like Russia in the late 20Th century."

Nonsense - what are Greeks going to do with dollars? Teh Euro is not going to loose in value, as the russian currency did. All money transmission is logged - whether Euros or Dollars. They could only smuggle small amounts of cash out of the country - not almost 300 billion Euros worth!

@Ulkaamalainen
"Seeing as neither you nor I know who is actually selling the CDS contract you can choose any figure you like for your estimate in the safe and secure knowledge that I can't actually prove you wrong. Then again you cannot prove yourself right...."

In that case prudence should prevail. Ban all CDS, just in case there could be some taxpayer's money at stake.

First we had an economic boom on the back of debt creation. Then we had a banking crisis when the whole CDS thing kicked in. This has then led to a sovereign debt crisis. Its the worlds giant pass the parcel (which contains a time bomb). A large number of us on the Peston blog have been saying for the last year that the bailouts were nothing more than kicking the can down the road. Taking on more debt to pay a debt does not work, and wont work. Only default will reduce debt to a level than can be serviced. Unfortunately this will risk bringing down the entire banking system. Its not going to be pretty. I will not be surprised if the banking system collapses next year. No wonder silver and gold are going through the roof. Does anyone trust a bank any more?

To Mr.Hewitt and all the contributor on this blog in which you put the Euro and the EU on the danger species list i my be simple person bat i do not understand the basic of you argument, 3 to 4 years ago the Euro value was just above one dollar and the Pound value was about 1.40 to 1.50 Euro today the official rate of exchange for the Euro is 1.44 Dollar and the pound is value at 1.11 Euro and i do believe after the announcement by the China premier which agree to buy a large amount of of the Spanish debt the Euro will be more valuable tomorrow.
I like to know the base of you argument or it is just because you are anti EU .
john

Hi matt_US #67

"Nonsense - what are Greeks going to do with dollars?"

They are going to spend them in a balck market free of government taxes.

"They could only smuggle small amounts of cash out of the country - not almost 300 billion Euros worth!"

Have you seen the estimates for the size of the illegal economy. $1,500,000,000,000. Now I grant you another 300 billion Euros would be a significant addition but hardly unmanageable for the enterprising criminal fraternity.

"In that case prudence should prevail. Ban all CDS, just in case there could be some taxpayer's money at stake."

This is a weak argument. Every investment has a risk of failure. CDS is no different. If you ban CDS then why not ban other investments?

53. At 12:08pm 13th Apr 2011, AnotherEngineer wrote:
51. At 11:26am 13th Apr 2011, matt_us wrote:
How about you, Mr AnotherEngineer? Have you got a financial interest in the default of europeriphery countries?
==================
No, sadly my only financial interest is in our family home.

My point was that your conspiracy theory requires an enormous number of people to act in concert; I suppose that with modern communications it is possible, but unlikely.
Also what about the counter-parties on the CDSs etc, presumably other speculators?
Have they not organised a counter-conspiracy to talk up the prospects of the PIIGS and their bonds?
……
Is it possible it only requires a few big players? eg Goldman Sacks, JPM, Rothschild etc.

Greece, Ireland, portugal, Spain... they are all basically bankrupt.

People in democracies work out sooner or later that they can vote themselves more money, and borrow it. Fiscal prudence doesn't win elections, giveaways, corruption and preferential treatment by way of handouts for special interest groups do.

So all of this is inevitable. Default will sooner or later follow barring some miraculous export led recovery to newly emerging economies allowing a new source of money (I'm not holding my breath)

70. At 15:58pm 13th Apr 2011, Ulkomaalainen wrote:


This is a weak argument. Every investment has a risk of failure. CDS is no different. If you ban CDS then why not ban other investments?
....
Your all being hard on Mat. Everyone knows that CDS was junk, parcelled up with a AAA rating to make it look good, and those selling it knew it was junk. And yet they weren't banged up for it.

69. At 15:40pm 13th Apr 2011, john wrote:

To Mr.Hewitt and all the contributor on this blog in which you put the Euro and the EU on the danger species list i my be simple person bat i do not understand the basic of you argument, 3 to 4 years ago the Euro value was just above one dollar and the Pound value was about 1.40 to 1.50 Euro today the official rate of exchange for the Euro is 1.44 Dollar and the pound is value at 1.11 Euro and i do believe after the announcement by the China premier which agree to buy a large amount of of the Spanish debt the Euro will be more valuable tomorrow.
I like to know the base of you argument or it is just because you are anti EU .
john
...........
Is the Euro value holding up or are all three sliding together? ie against the price of gold. I have nothing against the Euro, its just the one size fits all approach failed before when we had the ERM. You have different countries with different needs. You need to tansfer the wealth of German to the other countries to balance out the differences and if you dont, it will pull itself apart. Cant see the German people supporting that.

The EU really needs to get its head out of its own alimentary canal pretty quickly. The fundamental problem with the PIGS is not just the debt (or restructured debt) but their very fragile economies. The unemployment rates are staggeringly high - well into double figures. Here in the UK we start screaming when the rate goes over 5 percent.

Why this situation has been allowed to develop is mind boggling and I believe predates the intoduction of the Euro. When the Drachma and Peso were weaker than the Pound and Mark these countries benefitted enormously from tourism and the building of holiday flats etc. But in the end even this was just a speculative bubble that would eventually burst.

At the inception of the Euro the only view in Brussels was that it would be a roaring success. The only acceptable outlook was positive and no thought was given to contingency plans if things went pear shaped. I feel very sorry for the little people whosae lives will be turned upside down for a very long time but view the whole political class with the contempt that they deserve. Quite a few people at the time warned about the viability of a single currency, but the true believers would not countenance any sort of debate. It is this lack of democratic freedom of expression that makes me hate the Eu so much. It is a real shame as it could have worked out.

@AverageJoe
"Your all being hard on Mat. Everyone knows that CDS was junk, parcelled up with a AAA rating to make it look good, and those selling it knew it was junk. And yet they weren't banged up for it."

Thanks for standing up for me - but just for clarification. CDOs caused the 2008 crisis. They wer bad property debts, wrapped together to make bonds, or collaterised debt obligations. To make sure that they had an AAA rating, they were insured by a company which had an AAA rating, through Credit Default Swaps.

So when you bought a bond, ie a CDO, you really bought a slice of some bad American property loans, which was already insured, by a CDS issueing bank or insurance company, so that it looked like an AAA rated bond. That was the scam in 2008.

But here in this Eurocrisis, in 2010/11 CDS are used by hedgefunds und speculators to bet on the demise of the Eruoperiphery. They are simply bets that these countries will not pay their loans back. Just like betting on Man U winning the Champions league. Except in the case of CDS, the taxpayer pays the winnings.

@AverageJoe
"Is it possible it only requires a few big players? eg Goldman Sacks, JPM, Rothschild etc."

That is indeed possible. However, I think is more likely that there are investment banks, journalists, economists, web-blogs, politicians and newspaper proprietors in there - all financed by hedgefunds through massive bribes.

But what is a few million between friends, when you can make billions?

69 John
Agree with you completely. It's either mischief making or wishful thinking by the europhobes. The real concern should be over the weak dollar and the danger of that to the world's economic wellbeing.

There is a popular notion developing here in Greece and elsewhere that restructuring (i.e. some form of default) is an alternative solution to austerity measures. That somehow we can all return to the good old days of debt-fuelled consumption and unproductive jobs, if only we can walk away from at least some current debt obligations. This is naive thinking in the extreme.

First, as some other postings have pointed out, there would be severe implications for the international banking system. With the connivance of the bank regulators, there is currently a massive cover up of the damage already done to bank balance sheets. Greek and Portuguese sovereign debt has already lost a lot of value because of the increased credit risk. The regulatory authorities have pretended that such debt has not lost value because it is being "held to maturity", thus escaping the so-called stress tests. If there was a restructuring then the losses would be realised and exacerbated, and balance sheet weaknesses would have to be recognised. There is a real possibility of systemic bank runs and understandably the authorities are scared to death by this prospect. By the way, it is not just the German and French banks. The Greek banks themselves are heavily exposed, preferring to invest in Greek government paper rather than lend to Greek businesses in need.

Second, even if the banking system survives intact, restructuring and forcing creditors to take a haircut does not make the Greek economy suddenly sustainable in its current inefficient form. The economy cannot survive without borrowing capacity. Are these same lenders going to come back and offer funding at lower rates, having just borne the cost of past Greek excesses themselves? Or is there another group of potential lenders out there who have not been paying attention?

The answer to both questions is "no". Greece can only emerge from this crisis, with or without restructuring, if it finds a way of making the real economy function and grow. This requires real structural reform. Structural reform does not mean passing a law that on paper reforms the markets for road transport, legal services, pharmacies etc but then failing to implement the law because of pressure from vested interests and carrying on as if nothing has happened. How many new truck licenses have so far been issued I wonder?

I am sorry, but the Greek MPs and other commentators who think that debt restructuring would mean that Greece can avoid the structural reforms they are so afraid of implementing simply do not understand how deep the problems are. There will be no more massive EU subsidies to recreate the Greek economic myth of the last couple of decades. To think that the restructuring of the economy can be avoided is delusional. With or without debt restructuring, there will have to be austerity. Unproductive elements in both the public and private sectors must lose out. The question is what is the least painful way of getting the economy onto a growth trajectory. And can it be achieved within the current political establishment?

The most depressing aspect of all this is that the highly trained economists in IMF and ECB are themselves so disconnected with economic reality that they did not understand the impediments to structural reform. All they needed to do was ask any Greek citizen on the street. The Greek political establishment is so connected to the vested interests who are dragging down the country that the future is, indeed, very bleak, with or without debt restructuring.

#76. At 17:20pm 13th Apr 2011, matt_us,

Just why are you not attacking those who insured the cds, the sub-primes exposed the stupidity of so called intelligent financial experts who got scammed and we have all paid for the brain dead 'experts'. For once realise that the scammers will always find a vehicle that they can exploit, and they look for a ready supply of 'experts' who fall for it. The crass bu**hit is that the so called expert financially aware banks still employ high flyers from universities that have been taught squat by the even more expert university economists. Now I suggest you expose that scam whereby morons get high flying jobs by virtue of a worthless piece of paper awarded by university vested interests.

PS. the UK was not the country I was talking about, try emigrating into a number of EU countries if you wish to learn about abject incompetence and corruption.

68. At 15:19pm 13th Apr 2011, Averagejoe wrote:
A large number of us on the Peston blog have been saying for the last year that the bailouts were nothing more than kicking the can down the road. Taking on more debt to pay a debt does not work, and wont work. Only default will reduce debt to a level than can be serviced. Unfortunately this will risk bringing down the entire banking system. Its not going to be pretty. I will not be surprised if the banking system collapses next year. No wonder silver and gold are going through the roof. Does anyone trust a bank any more?
==================
Don't tell anyone, but I agree with you here. Can I have a share of your bribe?

65. At 14:18pm 13th Apr 2011, matt_us wrote:
@AnotherEngineer
"When did that take effect? I think the BofE, Swiss banks, Russian etc and even banks within eurozone would be surprised to hear that."
That is just a technical point. That is how money transmission works. It goes through a system from the ECB. Any foreign currency transactions have to go through central banks of the individual countries to the ECB.
======================
Are you still saying that transactions from European countries which are not even members of the EU go through the ECB?

• 60. At 13:25pm 13th Apr 2011, matt_us wrote:
@Another engineer
"Also what about the counter-parties on the CDSs etc, presumably other speculators? - Have they not organised a counter-conspiracy to talk up the prospects of the PIIGS and their bonds?"
==================
Good point - but think about it. The CDS selling bank could potentially go bankrupt and should perhaps be more careful.
But think about it: You are a bank selling CDS - why should you want to talk up the prospects of the Europeriphery states? It is not in your interest to do so. People might stop buying CDS. In fact, it is in your interest to make as much panic as possible about Europeriphery countries, as only then will you be able to sell loads of CDS. Loads of CDS sold will translate into loads of profits - which in turn will translate into loads of bonusses to be paid to you and your executives.
You therefore are interested, as the buyers of CDS are as well, to make as much panic as possible about the prospects of europeriphery countries. Hence you see so much panic reports everywhere. All economists which get paid by a bank, will make panic about the euro-periphery. All papers and other media pick these vibes up, and re-inforce it.
Clearly, there is a downside. What if these CDS will have to pay out? Then the bank which issued them might well be made bankrupt. But what is your real downside here as the executive of such a bank? You could legitimately claim that
a) you were of the firm believe that the EU rescue fund would do its job, and would not let any country go bankrupt
b) that you believed all the austerity steps being taken should have saved the problem countries
c) If your bank were to go bankrupt - at least you got a few billion pounds in bonus payments in the last few years, and you might even have a few million pound pension fund
There is no risk for the executive of the CDS selling bank. Only potential upside to defraud the taxpayer.
Can people get it into their heads that this is why these credit default swaps have to be abolished straight away - so that these legalized frauds stop immediately.
=====================
So the plot thickens: the conspiracy includes the people who will lose as well as the people who will win!
Presumably there is an end date on these CDSs; how long do they last for?
Surely the profit cannot be booked until they expire.

Also where does the $5bn per week come from? I thought that one of the crit

#82
Also where does the $5bn per week figure come from? I thought that one of the criticisms levelled at derivates was that they were done in secret. Have you got inside information

@Anotherengineer
"Don't tell anyone, but I agree with you here. Can I have a share of your bribe?"

Not everybody concerned about the growing debt situation has CDS. Some will be genuinely worried, as the press have done nothing but worrying and making panic about the subject.

The problem now, of course, is, you cannot keep them apart, are they genuinely worried and believe restructuring is the only way, or are they only "worried", because every little bit of panic helps to further undermine the creditworthiness of a country - and makes cashing in on CDS much more likely.

The only way to tell them apart would be a tick box for each contributor, whether they are journalist, blogger or economist.

Do you want to ban CDS straight away? Yes No.

Unless people tell me they want them banned I am entitled to believe they bought CDS and want to cash in. Caveat emptor.

@Another Engineer

How long do CDS contracts last for? Typically for about 5 years. Each quarter you will have to pay the insurance premium. That can reach from 0,5% of the sum insured, to about 10% p.a., depending when you bought the CDS for Greece. In the last two years, prices have shot up. (The price is fixed for the whole 5 years, when you buy them). In addition, smaller speculators can also bet on an index. So the average punter can also be involved. The stakes are lower than buying a CDS outright. It is like betting on a stock market index.

@42. Huaimek wrote:

"Most European countries are much more relaxed about such laws .
The authorities are more likely the most frequent breakers of these petty laws."

That says it all really. That attitude is what got the Greeks into their mess in the first place, and made the idea of a single currency for such totally incompatible cultures a non-starter.

A Greek default is inevitable.

@Anotherengineer
"Also where does the $5bn per week figure come from? I thought that one of the criticisms levelled at derivates was that they were done in secret. Have you got inside information "

Have a look at the FT alphaville blog, an article by Tracy Alloway on 28th March 2011.

By the way, I am not the only one who read that article. I just got this memo from Julian Assange. It looks like absolutely everybody is in on it:

_____________

Memo:
From: David (call me Dave), Number 10
To: Nick, Deputy PM

Nick,

saw interesting bit in FT yesterday by Tracy Alloway about $5 billion being bet each week in options, to bet on countries in Europe being bust.

Two thoughts on this. First, that is a lot of money, about a fifth of what we spend running our shop. Secondly, we ought to get in on that act, too. As you know, we are a bit exposed, if any of these countries go down. And, of course, we are always short of cash, so I thought a little flutter of 100 million cannot do much harm.

Now, as I understand it, you bet on an index showing how bust countries really are. That CDX index is about 100 today, but obviously will explode if Greece and others go down. So I thought of buying an option to buy insurance (CDS) if in three months time the index is higher than 120. The index will then be around 200 or 300, I guess, and we will have made some money.

I know you like to swing the other way, if that is the right expression here, you big Euro softie, and think, that Euro country default is very unlikely. You believe the Eurocrisis is over in 3 months time. If you are right, we could buy options to sell insurance at 80 in three months time. If the index has fallen to 30, we can buy cheaper and are in the money.

Could you get in touch with that Tracy from the FT and figure out whether I understood this right, and what exactly we would get for our 100 million if we bought options at prices set out above? Perhaps she can run through a couple of scenarios - and give us the ball park figures:

1) Greece reschedules 40% of its debt (my bet), bringing down Ireland and Protugal with them.
2) Eurocrisis is over, as Trichet buys bonds until yields come down to less than 5% everywhere (your bet)

Apparently the trades are more expensive if you just buy the option, rather than to buy the option and then commit to buy the insurance afterwards (delta hedge). We probably don't need to buy the insurance

memo part 2

We probably don't need to buy the insurance and are fine without the delta hedge - but just check. Sounds like they want to sell extended insurance, which I don't really need, just as Dixons did at the week-end when I bought our new widescreen telly for No. 10.

Also, make sure our counterparties are not British or European, but too big to fail American institutions - so the yanks can bail us out if the banks cannot pay up. And if Tracy, who seems to be a smart cookie, can keep it simple so that George gets it, too, that would help. As you know, he already has problems, just making everything add up.

And ask her, too, which way the smart money is going, CDX index going up, or CDX index going down?

Thanks, Dave.

Much of the demand for buying CDSs comes from European banks including the Swiss giants Credit Suisse and UBS, France’s Société Générale and BNP Paribas and Deutsche Bank of Germany. They have been among the heaviest buyers of swaps insurance, according to traders and bankers who asked for anonymity because they were not authorized to comment publicly.

That is because those countries are the most exposed. In Feb 2010 French banks held $75.4 billion worth of Greek debt, followed by Swiss institutions, at $64 billion, according to the Bank for International Settlements. German banks’ exposure stands at $43.2 billion.

Source:
https://www.nytimes.com/2010/02/25/business/global/25swaps.html?_r=1&ref=business

So if CDSs were banned, the banks holding Greek debt would be at far greater risk and would be far more inclined to sell what they have and not to buy any more Greek bonds. What then would happen to the yield on Greek bonds? The yield would surely go through the roof as sellers would greatly outnumber buyers!

So whilst the CDS market may appear to bring greater pressure on Greece, banning them would not help Greece either! It appears that the availability of insurance through buying and selling CDSs helps to maintain a market for Greek bonds that would be greatly weakened without the availability of CDSs.

However the fundamental problem with CDSs is that there is no guarantee that the provider of CDS will be able to meet their obligations to pay out in the event of default - in fact it is highly unlikely they would be able to cover their obligations and therein lies the danger. CDS insurance is therefore an illusion that could turn into a nightmare.

Would I ban CDSs? Answer: Of course I would.

Would that help Greece and other PIIGs? Answer: Of course not!

Robert M. Fisherman today on the NY Times makes very good points about the current situation.

@89 (matt_us)
What you seem to forget, is that it isn't CDS that undermines those countries. Its those countries themselves. No one forced them to structurally overspend, have a big deficit, increased national debt and lie about their accounts. They did it themselves.

What is happening now is a consequence of the structural overspending, the sky-high national debts and huge deficits. When you dig yourself into what George Carlin liked to call a big [expletive deleted] hole, sooner or later people are gonna see that hole is very deep and they gonna bet on you being unable to get out.

I see many of people around that seem to live in a fantasy world of 'EU and Euro good, all else bad' and are simply blind to the simple fact that there is no federal/fiscal transfer system underpinning the euro. And besides, good luck at getting Germany or my country Netherlands to sign up for that. Public sentiment here in Netherlands is overwhelmingly against the euro, against more bailouts and against austerity. A default of those countries like Greece and Ireland is a near certainty, and that will be embarrassing for our politicians who all but guaranteed that would never happen, when they were signing up for the illegal bailouts. Indeed, many still seem to believe that its 'save EU and Euro at any price' and 'austerity for the people and more money for EU and more bailouts and bonuses for bankers'. The EU is truly a bankers wet dream. Where else can you get loans to one country guaranteed by a bunch of other countries?

And besides, even if CDS was abolished or banned, you think that will stop investors from betting against a country or company? You have to be seriously deluding yourself. The Euro's main problem is the Euro itself, the basis it was 'founded' on (or rather: lack thereof). It was inheritly an exclusively political project, designed to further political integration. They knew perfectly well some crisis would happen down the road, and that they would use it to further their dream: the destruction of national parliamentary democracy and elitist rule in all of Europe.

@busby2
"....according to traders and bankers who asked for anonymity because they were not authorized to comment publicly."

busby, they are trying to pull a fast one, it is hedgefunds which buy into these instruments, hoping to make a better return this year than my mum - who bought shares at the beginning of this year and outperformed the average hedgefund by some 30%. Hedgefunds are suffering - they desperately need a big win!

@busby2
"So if CDSs were banned, the banks holding Greek debt would be at far greater risk and would be far more inclined to sell what they have and not to buy any more Greek bonds. What then would happen to the yield on Greek bonds? The yield would surely go through the roof as sellers would greatly outnumber buyers!"

The yield is set by the ECB, which has been the only buyer. If they wanted to, they could buy loads of bonds on he secondary market and bring yields down by tomorrow.

If you find one institutional investor who has recently bought a CDS for protecting their Greek bond assets, I will buy you a pint. It is much cheaper to sell into the market, and buy a risk free bond (say German) instead. No bond investor would now buy a Greek CDS to insure their bond.


@mvr_512
I see many of people around that seem to live in a fantasy world of 'EU and Euro good, all else bad' and are simply blind to the simple fact that there is no federal/fiscal transfer system underpinning the euro."

After the banning of CDS the underlying problems still remain. But they are getting better, and could in time be resolved. The problem is the current account deficits. Germany and Holland sells too much, and does not go on holiday enough into the periphery countries. That is the problem. You do not need a transfer system, just more holidays of current account surplus countries to current account deficit countries. That would equalise the trade balance (and the current account).

#59 Nick_90
Excellent post !
#74 Averagejoe
Excellent post !
#75 Excellentcatblogger
Excellent post !

Matt_us

You're a record that has got stuck , time to shut up !
CDS may have relevence in the present time ; but over the life of the Euro , they have not been the cause of its undoing . If they are banned today , it will not make any difference or lift Greece , Ireland and Portugal from the mire of debt that they have got themselves into . Countries were allowed to join the single currency with existing unacceptible debt levels . The benefits of the Euro and low interest rates have enabled them to borrow and spend way beyond their earning capacity to repay their debts .
I was sure before the introduction of the Euro , the effect it would have on countries like Italy , Spain , Portugal and Ireland and later Greece . In my view it was criminal of the EU to allow them to join and criminal of their respective governments to conceal the debts and take those countries into the single currency .

I don't know whether any of you looked up Max Keiser Report .
He says that the August 2007 US banking crisis came about , because a journalist investigated money laundering by the Mexican drug cartels , found that the banks were in it up to their necks . The government ordered the banks to stop money laundering , so the drug cartels withdrew their money , $378bl , leaving the banks without liquidity .

Instead of a comment - a photo I took in Greece last summer:



https://v12.nonxt8.c.bigcache.googleapis.com/static.panoramio.com/photos/original/46966949.jpg?redirect_counter=1

I took this picture in Greece last summer.

But I suspect it won't be difficult to take one just like that in Portugal or Spain next summer. :-(



https://v7.nonxt1.c.bigcache.googleapis.com/static.panoramio.com/photos/original/45714409.jpg?redirect_counter=1

#93 Matt_us

"That is the problem. You do not need a transfer system, just more holidays of current account surplus countries to current account deficit countries. That would equalise the trade balance (and the current account".

Before the Mediterranean countries joined the Single Currency , that's just what used to happen . The exchange rate was so good , northern countries could afford several holidays a year . Lots of Germans and British owned houses in those countries ; people retired to southern Europe for the warmer climate and lower cost of living . The parity of the Euro has destroyed all of that benefit to Mediterranean countries . When I went to live in Italy I got Lira3000 to the pound sterling , the cost of living was cheap . I could buy a small 25acre Chianti hill farm for the equivalent of £123,000 .

#90 Mvr_512

Excellent post --- Well said !

Regarding CDS , Greece should have defaulted , been allowed to default . Trying to bail out Greece , when there is little realistic prospect of succeeding , simply invites speculation , making their situation worse .