The amount of commentary on the Greek debt situation is really impressive. Some of the analysis is pretty good, too, including the debate about contagion, especially to Spain. Greece is only 2.5% of eurozone GDP but Spain is a big country and doesn’t deserve the “Mediterranean margin” label. Besides, Spain (and Ireland) are making Herculean efforts and may have already passed the bottom. Strangely, The Economist magazine is behind the curve this time but the bank economists and independents are cranking the stuff out.

Today we hear of a Der Speigel report saying Germany is considering up to Euros25 billion in aid for Greece, later denied by the European Commission spokesperson, who said “There is no Eurozone plan to bail out Greece and the fiscally troubled state hasn't asked for financial assistance.” According to Market News, he also told reporters that Eurostat hasn't yet received all the information it requires from Greece on its use of currency swaps, despite the deadline of last Friday set by European Commissioner for Economic and Monetary Affairs, Olli Rehn. "Eurostat has received some information but not all relevant information from the Greek authorities," the spokesman said. "Athens told us that the reason for the delay was partly to do with the 4-day strike at the finance ministry." We find this hilarious.

The WSJ reports that over the weekend, Greek PM Papandreou implicitly asked for debt guarantees from somebody, anybody, so that the country can borrow at lower rates, since the current high rates are undermining its ability to repay. The market believes Greece will be issuing a 10-year Euros 5 billion bond this week. A wide spread against Bunds would undermine confidence in the eurozone and the euro. At a guess, not issuing a bond is worse because it shows fear. Remember, the Greek debt management guy was replaced last week.

The WSJ tries to untangle some of the accounting shenanigans EMU countries have engaged in to hide debt, including Portugal and France (Portugal got caught). One of Greece’s tricks, aside from a series of a dozen currency swaps with Goldman Sachs, was to assert that military spending was a state secret and thus excluded from the deficit. And then the Greeks lied about it. “In 2000, Greece reported that it spent Euros 828 million ($1.13 billion) on the military - about a fourth of the Euros 3.17 billion it later said it spent. Greece admitted to underreporting military spending by Euros8.7 billion between 1997 and 2003.” You have to ask yourself against whom is Greece defending itself - Turkey? But Turkey has never wavered from wanting to join “Europe,” so it’s illogical to imagine it would attack Greece, isn’t it?

On a higher plane, Soros has an opinion article in the Sunday FT saying that Issing’s piece last week was exactly right -the eurozone was always a monetary union, not a political one, and putting the cart before the horse. “The construction is patently flawed. A fully fledged Euro currency requires both a central bank and a Treasury. The Treasury need not be used to tax citizens on an everyday basis but it needs to be available in times of crisis. When the financial system is in danger of collapsing, the central bank can provide liquidity, but only a Treasury can deal with problems of solvency. This is a well-known fact that should have been clear to everyone involved in the creation of the euro exchange rate.” Now there is a possible remedy to be found in the Lisbon Treaty, which would allow guarantees. “The most effective solution would be to issue jointly and severally guaranteed eurobonds to refinance, say, 75 per cent of the maturing debt as long as Greece meets its targets, leaving Athens to finance the rest of its needs as best it can. This would significantly reduce the cost of financing and it would be the equivalent of the International Monetary Fund disbursing conditional loans in tranches. But this is politically impossible at present because Germany is adamantly opposed to serving as the deep pocket for its profligate partners. Therefore makeshift arrangements will have to be found.”

Soros says Greece might be able to get past this crisis one time with makeshift assistance, “but that leaves Spain, Italy, Portugal and Ireland. Together they constitute too large a portion of euroland to be helped in this way. The survival of Greece would still leave the future of the euro exchange rate in question. Even if it handles the current crisis, what about the next one? It is clear what is needed: more intrusive monitoring and institutional arrangements for conditional assistance. A well-organised eurobond market would be desirable. The question is whether the political will for these steps can be generated.”

Bye for Now

Barbara Rockefeller

For the full story visit  www.rts-forex.com

Bye for Now

 

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