XEQUE MATE

Amanhã reunem-se os líderes europeus, pela primeira vez depois das eleições presidenciais em França e da primeira volta das legislativas na Grécia. Mesmo desconhecendo os resultados na segunda volta das legislativas gregas, todos os participantes sabem que a Grécia, independentemente dos resultados deste segundo escrutínio, não vai cumprir os programas de austeridade que lhe estão a impor. Nem a Grécia, nem Portugal, nem os que mais adiante se apresentarão na fila dos aflitos.

Hoje, a OCEDE junta-se ao coro daqueles que reclamam a emissão de eurobonds para salvar a Zona Euro, a União Europeia, e o sistema financeiro internacional de um abanão de consequências incalculáveis. Os gregos sabem que se forem ao fundo não irão sozinhos e não será o Syrisa, se por hipótese sair vencedor no próximo mês, que alterará os dados fundamentais que já são conhecidos: ou há uma alteração radical das posições alemãs ou o euro, que prometeu ser o cimento de uma união política europeia, estilhaçará uma união que começou a ser contruída há mais de sessenta anos.

Percebem-se as intenções de Merkel ao rejeitar liminarmente a emissão de eurobrigações e de todos os instrumentos que possam garantir a estabilidade da união europeia à custa do contribuintes alemães. Percebem-se pelo receio de que o controlo desse eventual custo lhe escape e que, consequentemente, possa embarcar numa espiral de irresponsabilidade colectiva sem meios para a conter.

O que está, fundamentalmente, em causa nesta encruzilhada é uma opção eminentemente política: ou a União Europeia progride claramente para a união política, que não estaria isenta de sérios conflitos, com orgãos de governo eleitos democraticamente, e a soberania de cada membro transferida para esse governo federal, ou, repito-me, adeus euro, adeus União Europeia.

Encontrar-nos-emos por aí a combater-nos uns aos outros.

ATÉ À BEIRA DO PRECIPÍCIO

"Se os europeus puserem o planeta em perspectiva, constatarão que os seus líderes políticos são os mais tónis do Mundo" (aqui)

É uma abordagem demasiado simplista, caro ZP.

Imagine que Helmut Kohl era ainda o actual chanceler da Alemanha, que Mitterrand ainda era vivo e presidente da França, que Filipe Gonzalez era chefe do governo espanhol, e por aí fora. Todos no activo e na posse plena das suas capacidades.


Que fariam eles? Uma primeira resposta seria que, estivessem eles no activo, e as coisas não teriam chegado ao estado a que chegou. Mas nem isso é incontroverso e a história não se rebobina.  

Agora, a União Europeia ou se integra ou se desintegra. Se se desintegra, ai dos europeus!

Mas para se integrar tem de decidir, antes de mais, isso mesmo.

Não é fácil. Não sei mesmo se não é impossível.

Há propostas para eurobrigações e que o BCE seja um banco com capacidade de "lender of last resort". Tudo bem. Mas depois quem manda e como manda? O problema é que ninguem quer avançar sobre o assunto.

Eu sou pelo federalismo mínimo (economia, finanças, defesa e segurança interna)
E você?

Receio que só mesmo à beira do precipício haja, se houver, uma reacção de defesa instintiva colectiva da Europa.

Temos de esperar que a coisa piore.

CALVINO E OS LATINOS

Merkel volta a fazer pressão para revisão dos tratados europeus (aqui)

Acções do Commerzbank, o segundo banco alemão, afundam 12%com notícias de que tem maiores necessidades de capital (aqui)

Merkel continua a rejeitar qualquer proposta que possa vir a envolver sistematicamente a Alemanha no pagamento de encargos, juros ou dívidas, de outros estados membros. Recusa as eurobonds e a capacidade do BCE assumir a condição de emprestador de último rercurso enquanto não for atingida a convergência na competitividade dos países membros da Zona Euro, o mesmo é dizer enquanto não  trabalharem mais ou melhor ou ganharem menos os divergentes. E quer que os faltosos e os relapsos na execução dos compromissos assumidos em contrapartida das ajudas financeiras concedidas sejam julgados em tribunal.

Durante algum tempo acreditou-se que a austeridade imposta aos países mais fragilizados pela dívida e pelos juros pudesse restabelecer a confiança e facilitar a recuperação. Mas não. Hoje, está mais que demonstrado que as medidas de austeridade, necessariamente indutoras de recessão, excitam a desconfiança dos investidores, engordam os especuladores, e não invertem, só por si, o ciclo diabólico. 

Donde não haver saída se Merkel, e os que se mantêm, por enquanto, calados por detrás dela não forem obrigados pelas circunstâncias a escolher um caminho com risco menos calculado. As circunstâncias de, também a Europa do Norte ser atingida pelo risco sistémico que agora fustiga a Europa do Sul. A França é o relé de contágio. No dia em que a França for atingida a Alemanha começa a mudar de ideias.

Mudança que exige, para além da convergência na competitividade económica, a convergência nos mesmos valores identitários fundamentais. Nem a germanização nem a latinização da Europa mas um compromisso de convivência entre dois mundos vizinhos que os interesses próprios obrigam à conjugação pacífica dos interesses comuns.

E, a este respeito, Merkel tem toda a razão quando reclama o avanço para uma alteração dos tratados. Deixa de ter se as alterações que tem em mente não tiverem como pressuposto um governo federal mínimo eleito por todos os cidadãos da União. Porque a perda de soberania não pode estar em causa se o objectivo é a integração política assegurada por um governo federal europeu democraticamente eleito, mas estará se da alteração que Merkel propõe resultar a abdicação de mais soberania a favor de um directório ad hoc sem legitimidade democrática.
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Act.- (23/11) Alemanha emite divida abaixo do esperado
O resultado do leilão (abaixo das expectativas não representa nenhum problema, segundo o ministro das Finanças alemão, mas economistas desconfiam.
Resultado do leilão na Alemanha conduz a desvalorização dom euro de quase 1%.

EUROLIGAÇÕES

Não se trata de um mero jogo de palavras mas a designação eurobonds, os tão discutidos eurobonds, considerados por muitos como o elemento financeiro que poderia garantir a sustentabilidade da zona euro e a solidariedade entre os seus membros, traduzida por euro obrigações, também significa euro ligações. 

É garantido que os eurobonds poderiam reforçar a solidariedade europeia, nivelar os juros dentro da zona euro, desatando o nó cego a que os sistema chegou: moeda forte e juros elevados, insuportáveis para alguns dos seus membros, dois dos quais (a Espanha e a Itália) de capital importância para a continuidade do euro e da UE? Não é.

E não é porque não haveria nenhuma garantia que, mais dia menos dia, as discussões com os incumpridores dos compromissos assumidos (não pagamento oportuno dos empréstimos ) não descambassem na demolição do edifício comunitário com todas as consequências que daí poderiam decorrer, incluindo a outra guerra na Europa.

Este cenário não é delirante, o ministro das Finanças da Polónia, um país que tem ainda muito presente as consequências dramáticas para o seu povo do conflito que terminou há menos de 70 anos, lançou o aviso esta semana. Conflito esse que está na origem da construção europeia, precisamente com o primordial objectivo prevenir a ocorrência de uma nova guerra entre europeus. 

O tempo urge e os adiamentos só podem complicar a tarefa complicada de desatar o nó. A União Europeia precisa de falar a uma só voz, disse há dias Passos Coelho em Varsóvia e, ainda que muitos concordem, eventualmente considerem até uma banalidade, a verdade é que não é isso que acontece, bem  pelo contrário. Merkel, após a teleconferência com Sarkozy e Papandreous reafirmou a decisão inabalável de "não deixarmos cair a Grécia"; hoje, de manhã, ouço na rádio, que a ministra das Finanças da Aústria declarou que é preferível deixar que a Grécia declare falência ...

Assim não vamos lá.

Se não é possível recuar, a UE não pode deixar de avançar para um governo federal. Democraticamente eleito. E, nesse caso, e só nesse caso, as eurobrigações podem garantir as ligações que a União Europeia precisa urgentemente de ver reforçadas. Compete à Alemanha definir-se. E os outros 26 também.

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Correl . - Dois artigos publicados anteontem no Financial Times, que transcrevi aqui e aqui,

Ministro polaco das Finanças fala em risco de uma guerra na Europa a médio ou longo prazo em caso de ruptura da UE

KRUGMAN CONTRA TRICHET

Paul Krugman volta a avisar no "New York Times" de hoje que a política de defesa intransigente a estabilidade dos preços na zona euro está a conduzir a  moeda única para o colapso. Não podendo defender-se contra o comportamento dos investidores/credores que lhes impõem condições progressivamente insuportáveis, os governos da Espanha e da Itália, que já concordaram e impuseram reforçadas medidas de austeridade, que já aceitaram constitucionalizar os limites da dívida, estão a ser empurrados pelos mercados para o default, que, em consequência da dimensão das economias envolvidas, se vier a acontecer, provocará o colapso do sistema financeiro europeu.

Quem é que poderá estar interessado neste desastre, para além dos suspeitos do costume?

Trichet, alvo das principais críticas de Krugman, que também não poupa os advogados do estado mínimo nos EUA, obedece aos estatutos do BCE e transige tanto quanto lhe deixam os alemães, holandeses, finlandeses e uns quantos mais. E é, quanto a este ponto, o da responsabilidade de Trichet (ou de Ben Bernanke, do outro lado do Atlântico) que me parece que Krugman, e todo aqueles que perfilham as mesmas teses, atira para o alvo errado. 

Trichet (e BB), são funcionários que tomam as decisões que os regulamentos lhes consentem. Dentro dos limites em que se circunscrevem esses poderes, podem tomar boas ou más decisões - e, geralmente, só muito tarde as más decisões se revelam - mas, nas circunstâncias excepcionais actuais, que exigem soluções excepcionais, as competências de um de outro dependem, sobretudo, dos governantes políticos, com particular destaque para os alemães.

Krugman, reconheça-se, também não tem poupado Angela Merkel. Mas Merkel, apesar da intransigência na aceitação dos eurobonds (por exemplo) tem vindo a perder todas as últimas eleições, sinal, pelo menos aparente, de que os eleitores alemães se posicionam de modo mais intransigente que a Chanceler. Porquê?

Estarão os cidadãos alemães (e os holandeses, os finlandeses, os austríacos) cientes dos efeitos de um colapso de Espanha ou da Itália sobre os seus bancos, isto é, sobre as suas economias, sobre as suas poupanças?  

Precisa a União Europeia, e em particular a Zona Euro, de um abalo de intensidade superior à falência do  Lehman Brothers para a abanar e acordar?

Serão os eurobonds a terapêutica adequada? Talvez tivessem sido há largos meses atrás. Agora, é tarde demais para medidas pontuais. A crise actual veio impor um reequacionamento total da construção europeia, construção essa que passa inevitavelmente por uma integração a caminho acelerado de um governo federal das funções que sejam o travejamento essencial do edifício.
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Acabo de escrever esta nota e oiço já observarem-me: O sr., e todos quantos pensam o mesmo, em que planeta vivem? Pois se nem para os eurobonds os do Norte estão dispostos a avalizarem as indisciplinas do Sul como é que v. quer que, assim de um dia para o outro, 27 países se concertem à volta de um governo federal a tempo de evitar o precipício?

(continua)

EUROBONDS, SÓ COM INTEGRAÇÃO POLÍTICA

Até onde poderá a desconfiança dos mercados (uma designação ambígua) provocar a desintegração da União Europeia ou o avanço para a integração política, não sabemos.  

Mas podemos admitir, com elevada probabilidade de acertar, que um retrocesso na construção europeia poderá deteminar o seu fim, com todas as consequências, incalculáveis mas certamente muito dramáticas, que essa ruptura provocará.

Já é mais difícil prognosticar até onde poderá ir o avanço para a integração política se a solidariedade forçada pela emissão de eurobonds forçar os países a abdicarem de mecanismos de soberania transferindo-os para orgãos supranacionais comunitários que governarão as finanças do conjunto e, implicitamente, de cada um dos membros da União.

Se acontecer, será uma integração política feita por razões que, segundo alguns, acabarão por minar os alicerces da União no futuro. A construção da União, contudo, tem sido em grande medida determinada por razões exógenas, mais por reacção do que por antecipação.

As recentes declarações de Merkel e Sarkozy sobre a criação de um "governo económico" não suscitaram, até agora, o debate público que uma proposta destas, no actual contexto da União, pressuporia.

Há muita gente, estranhamente mais fora que dentro da Zona Euro, que vê na emissão de eurobonds a única saída possível para sair da crise e garantir a continuação da construção europeia.

Do ponto de vista estritamente económico e financeiro, a proposta é inquestionável. O busilis da questão reside nos requisitos políticos que ela implica e que, por enquanto, não estão em discussão. Lançada a ideia de um "governo económico" sem indicação do âmbito e propósitos das suas atribuições, ninguém, com autoridade para o fazer, perguntou: O que é isso?
.

Aqui, mais uma abordagem ao assunto, emitida a partir de fora dos euromembros.

...

Common borrowing and shared risk are second nature in the United States. Taxpayers across all 50 states are responsible for the federal government’s outstanding debt even though some states may send more money per capita to Washington than others do.

Although the amount of U.S. debt may be onerous, size can be an advantage. Economists who study bond markets refer to the “liquidity premium.” Investors treat U.S. bonds as an especially safe investment, confident that there will always be enough to pay them off when the time comes, because there’s so much money sloshing around in the United States. This “premium” is one reason U.S. borrowing rates have remained low.

Advocates of eurobonds want a similar benefit. Individually, the 17 nations that share the euro run the gamut, from the rock-solid Netherlands to weakened Spain and tottering Greece. Each issues its own bonds in its own name and pays a different interest rate. But pool the nations together and the liquidity premium might kick in. The eurozone would become a $13 trillion economy rivaling the United States in size and population and almost certainly would carry a AAA rating, allowing Greece and Italy’s needs to be financed as cheaply as Germany’s.

But lining European countries behind common borrowing could prove much more unwieldy than in the United States. To make it work, countries might have to agree on closer coordination to decide how much they spend each year. They might even have to surrender some power to a centralized finance ministry, akin to the U.S. Treasury Department.

There’s already plenty of thinking about how to tackle such issues. Former Italian prime minister Romano Prodi, for instance, recently suggested that euro nations should pool all their gold to back common borrowing. Bruegel, a European think tank, has suggested “blue bonds” that the euro area would issue as a whole and “red bonds” that countries would issue on their own, probably with higher interest rates.

A feasibility study by European Economic and Monetary Affairs Commissioner Olli Rehn is expected to map out the possibilities.

What happens next might depend on the course of the crisis.

“If Italy is at the brink . . . then I’m not sure it isn’t sellable,” said Zsolt Darvas, a researcher at the Bruegel think tank, and an advocate for the eurobond idea. “If this was addressed in 1999, we would not be in this crisis.”

Europe debt crisis forces officials to revisit creation of common eurobonds

EUROPA FAZ DE CONTA

Merkel e Sarkozy reuniram-se ontem e decidiram que, resumidamente, a defesa do euro e da União Europeia passa pela constitucionalização dos limites da dívida, pela harmonização fiscal, pela imposição de uma taxa sobre as operações financeiras (tipo taxa Tobin), e por um governo económico chefiado por Van Rompuy.  As eurobrigações, que muitos consideram serem o remédio incontornável para enfrentar os especuladores (vulgo mercados), continuam rejeitadas. E sabe-se porquê.

Segundo Schäuble, o ministro alemão das Finanças,  “não haverá uma divisão de dívidas nem um apoio ilimitado”. Enquanto for necessário, os países devem ter “diferentes taxas de juro para que haja incentivo e mecanismos de sanção para forçar a consolidação”. E, nesse quadro,  a emissão de títulos de dívida comuns – as euro-obrigações, são indesejáveis"

Se o euro forçou os políticos europeus a avançarem por caminhos federativos, a Alemanha continua a opor-se que as eurobrigações forcem definitivamente a federação de responsabilidades desamparada de meios de um  governo federal. 

O "governo económico europeu" parece, à partida, poder contar apenas com a taxa Tobin para poder governar alguma coisa. Por outro lado, é questionável se um governo económico europeu é orgânicamente compatível com a continuidade das actuais atribuições da Comissão Europeia. Ao anunciar a intenção de constituir um governo económico e, até, a proposta do primeiro titular para o cargo, Merkel e Sarkozy, os efectivos governantes da União (parecem, logo são) deveriam ter tido a ousadia mínima de avançar para o anúncio das alterações na superestrutura dos orgãos comunitários  que as suas propostas implicam, a menos que, inconfessadamente, queiram continuar a coser a manta de retalhos para, realmente, continuarem a dominar a ribalta.

Se assim for, têm razão os que os acusam de falta de dimensão política adequada para os cargos que desempenham.  

  
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Act. 18/8 - Delors: A Europa está à beira do abismo

SE FOSSE FÁCIL FAZER JÁ TINHA SIDO FEITO

Eurozone: An elusive debt resolution
by Peter Spiegel

As recently as a month ago, it appeared that a second bail-out of Greece would be a relatively straightforward affair. As with previous rescues cobbled together by the European Union and its lending partner, the International Monetary Fund, staff economists would estimate Athens’ financing hole over the next three years (about €115bn), agree a reform programme with the government and start writing cheques.

But instead, European leaders have been drawn into one of the most agonised debates seen since the eurozone debt crisis erupted nearly two years ago. It has sowed confusion in financial markets and pushed borrowing costs for the third- and fourth-largest eurozone economies – Italy and Spain – to 6 per cent, levels some analysts believe are not sustainable.

The confusion stems from the interlocking, and sometimes conflicting, problems facing European leaders.

Greece’s debt burden – expected to hit 172 per cent of gross domestic product next year – is, for example, so large that it may never get paid. Officials cannot acknowledge this, however, for fear of spooking bondholders into believing default is at hand. Similarly, private investors face political pressure to bear the burden of a new bail-out – but among the largest investors in Greek bonds are Greek banks, which would take huge losses (and need more international aid) if their holdings were cut in value.

“Every time we resolve one issue, two more come up,” says a senior European official involved in the deliberations.

The conflicting problems are compounded by conflicting institutions. Almost every participant in the debate – Athens, the European Central Bank, the IMF, the European Commission and national capitals – holds different and sometimes mutually exclusive interests.

The Frankfurt-based ECB, for instance, is responsible for making sure Europe’s banking sector remains solvent. But the sector (as well as the ECB itself) holds vast quantities of peripheral bonds – meaning any undermining of their value could hit their capitalisation levels, limiting their ability to survive a Lehman-like collapse. The German government, on the other hand, under pressure from the Bundestag, wants some of those banks to accept less than they were originally promised for their bond investments.

The result: Frankfurt and Berlin are at – increasingly tetchy – cross purposes. Can the square be circled? Officials say if it was easy to do, it would have been done by now.

There is intense pressure on the Germans and the Dutch to drop their insistence that bondholders pay a price, a stance that has held up an agreement and led to most of the market panic. But Berlin and the Hague argue that without bondholder participation a new deal will not be credible, since it will not lower Greece’s overall debt burden.

Around and around it goes. With just a day to go before an emergency summit in Brussels on Thursday, European officials say they will get a deal done in time. “There needs to be a very clear political agreement on all the elements,” says the European official. However, the battle to determine the exact nature of that deal will go right to the wire.

PROBLEM 1: THE FIRST RESCUE PACKAGE WAS NOT BIG ENOUGH

Solution: European leaders have agreed in principle to a second bail-out, needed to fill an estimated €115bn hole in Greece’s budget during the next three years.

The first package was too optimistic, particularly on Athens’ ability to return to financial markets to raise money for government operations. Under the current plan, agreed in May last year, Athens was supposed to raise €10.9bn in long-term loans from the bond market in March 2012, and €44.1bn between mid-2011 and mid-2013. With Greek 10-year bonds currently trading with interest rates above 18 per cent, officials have been forced to accept that this is impossible. More bail-out money is needed to fill the gap.

Players Behind the drive for a new bail-out is the International Monetary Fund, whose rules prevent it disbursing aid to a country without ensuring it has all the cash it needs for the next 12 months.

Dominique Strauss-Kahn’s resignation as IMF chief in May complicated matters. Officials say he had indicated he would be more lenient towards the European Union, and would not require it to quickly agree a new bail-out. But John Lipsky, who as IMF interim head had less political room to manoeuvre, pushed hard for a concrete new plan. George Papandreou, Greek prime minister, formally requested another bail-out late last month.

While the eurozone portion of the current bail-out is funded by loans directly from individual countries, the current and new packages are likely to be combined into a single IMF-EU programme totalling as much as €170bn – with the eurozone contribution coming from the European Financial Stability Facility, the €440bn bail-out fund.

PROBLEM 2: GERMAN, DUTCH AND FINNISH VOTERS ARE AGAINST FUNDING ANOTHER BAIL-OUT

Solution Leaders in all three countries have pushed for private holders of Greek bonds, mostly European banks, to shoulder part of a second bail-out. The original idea, proposed by Germany, was to persuade them to accept a delay in repayment on the €85bn worth of debt due in the next three years.

A more detailed version of this plan, again backed by Germany, would offer bondholders the chance to swap current holdings for new bonds not due for another seven years. Despite the “voluntary” nature of the plan, rating agencies threatened to rule it a “selective default”, as investors would not receive their full returns and officials would probably rely on coercion to win broad participation.

Attention then shifted to a less onerous French-backed alternative, where banks would agree to invest in new Greek bonds as soon as their holdings matured. But rating agencies ruled that this plan would also constitute a default, which sent negotiators for the EU and the banks back to the drawing board.

Players Pressure for private bondholder participation has been led by Wolfgang Schäuble, German finance minister, and Jan Kees de Jager, his Dutch counterpart. Both governments have promised their parliaments “significant” and “quantifiable” bondholder commitments, despite pressure from bodies such as the European Central Bank to drop the demand.

Leading negotiator for the banks is Charles Dallara, managing director of the Institute of International Finance. In a policy document given to EU leaders last week, he put the French and German plans on a list of possible tacks to which the banks would agree.

PROBLEM 3: GREEK BANKS BEING DRAGGED UNDER BY THE DEBT CRISIS MAY ALSO LOSE EMERGENCY FUNDING

Solution: Highlighting the dual nature of the problem, European officials are working on a two-pronged approach. First, they are trying to tailor the bail-out so that any cut-off of European Central Bank funding would be temporary. They are also discussing plans to inject capital into Greek banks.

The most immediate threat is of a Greek default on its bonds, which would trigger an ECB cut-off. For months Greek banks have relied on the ECB for low-cost loans to run day-to-day operations. But the ECB requires “adequate” collateral – and the banks’ primary form of collateral is Greek bonds, which would be nearly worthless if they were in default. Eurozone officials are looking for ways to conjure up to €20bn in guarantees to enable continued borrowing from the ECB. Alternatively, the ECB may allow the Greek central bank, headed by George Provopoulos, to provide emergency loans.

A default would also probably force international lenders to recapitalise Greek banks as one of their other large sources of capital – Greek debt – would be significantly devalued.

Players Jean-Claude Trichet, ECB president, has driven this debate with his no-default stand. Others on the ECB’s governing council have been yet more adamant, since there are signs Mr Trichet could relent if even one of the major rating agencies decides against declaring default on whichever plan is adopted.

All Greek banks would probably need a capital injection if there were a bond default but those with particularly large holdings include National Bank of Greece, with a total of €12.9bn; EFG Europank, with €8.7bn; and Piraeus, with €8.1bn.

PROBLEM 4: FEARS OF A GREEK BOND DEFAULT HAVE LED TO A RUN ON SPANISH AND ITALIAN BONDS

Solution: Officials will emphasise that the plan to involve private shareholders in a Greek bail-out is aimed at Athens alone. But it could prove tough to convince investors.

To be fair, some of the panic in Italy is self-inflicted, with prime minister Silvio Berlusconi choosing exactly the wrong moment to pick a public fight with Giulio Tremonti, his respected finance minister. But Spain has been hit hard by “contagion” despite its exemplary implementation of reforms, its spending cuts and the overhaul of its banking system.

The cause of investor concern is the debate over Greece. If European leaders have reached the point at which they are actively considering defaults and debt restructurings for Greece, what is to stop them doing the same for Ireland and Portugal – which have also been bailed out – or for Italy and Spain? Moody’s, the rating agency, stated when it recently downgraded Irish and Portuguese debt that the shift in European attitudes towards defaults was a primary motivator in their decision.

Players Moody’s and the other leading rating agencies, Fitch and Standard & Poor’s, will play a significant role in deciding whether EU efforts to convince markets private bondholder participation is limited to Greece is credible.

Italian and Spanish officials believe they have done as much as they can to reassure investors – including rushing through a €47bn Italian austerity programme in recent days – and are hoping a quick decision on the specifics of a Greek bail-out at the Brussels summit on Thursday will end the assault on their sovereign bonds. Mr Berlusconi’s spat with Mr Tremonti continues to cause concern, however.

PROBLEM 5: ATHENS’ DEBT BURDEN IS TOO BIG TO BE PAID OFF

Solution: The overall Greek debt burden stands at €350bn. The most significant new suggestion for reducing it is to use the European Financial Stability Fund to finance a large bond buy-back plan – a scheme that could also be adopted by Ireland and Portugal. Although the EFSF does not have the power to conduct such a plan, it could lend Greece the funds to make the purchases itself.

Because Greek debt currently trades significantly below face value, investors would take a “voluntary” loss when selling their bonds in a buy-back – but would at least receive something for their investment. In return, Athens would retire the bonds and cut its debt burden. As Greek bonds are now trading at about 60 per cent of face value, a €30bn buy-back programme could wipe €50bn off the balance sheet.

Germany, which has long resisted this plan, looks ready to concede. It also looks more conciliatory on another point: lowering the rates Ireland, Portugal and Greece pay on their EFSF bail-out loans. Originally, all bailed-out countries had to pay 300 basis points above the EFSF’s cost of borrowing, a punitive rate meant to discourage bail-outs.

Players Mr Trichet has been pushing to use the EFSF for bond buy-backs, and has supporters within the European Commission, especially Olli Rehn, the EU’s most senior economic official. Mr Rehn, backed by José Manuel Barroso, commission president, is also a prime advocate for lower interest rates.

Angela Merkel, German chancellor, and Mark Rutte, Dutch prime minister, would be making a significant climbdown if they backed the bond-buying scheme since they fiercely resisted it six months ago.

E, AGORA, ANGELA?

As declarações dos dirigentes do SPD alemão de hoje (notícia de que coloquei link no apontamento anterior) vieram colocar à Chanceler Merkel um desafio irrecusavelmente motivador: a unidade europeia depende do sucesso do euro e Merkel pode contar com o apoio da oposição para a tomada de medidas, mesmo as mais impopulares, para a solução dos graves problemas com que a União Europeia actualmente se confronta.

E, agora, Angela? A política de arrastar os pés para não perder o equilíbrio em terreno escorregadio que caracteriza o comportamento dos líderes europeus, com particular ( e inevitável) destaque para a chanceler alemã, já não é solução porque os dados se alteraram radicalmente e as alternativas para empurrar os problemas para a frente estão a esgotar-se aceleradamente.

Com reestruturação ( a que Trichet se opõe porque o regimento do BCE não lhe permite aceitar colaterais de títulos de dívidas em default) ou eurobonds ( a que também Trichet se opõe) ou com hair cuts (que Trichet não quer nem ouvir falar) ou a conjugação dos três, a situação exige soluções de emergência porque os tratados da UE, incluindo, espantosamente, o último, não preveniram a possibilidade de insolvência de um ou mais dos seus membros e as medidas adequadas em tempo útil.

Agora, qualquer solução será de digestão difícil.

E, no entanto, a crise era inevitável desde o primeiro momento, porque desde o primeiro momento os bancos assumiram que, quaisquer que sejam as suas decisões, se delas resultarem perdas os contribuintes serão chamados a pagar. Enquanto esse pressuposto for convalidado pelo receio do risco sistémico, em parte alguma, e não só na zona euro, os desastres financeiros estarão sempre à espera dos pagadores de impostos.

D DAY

Plan D stands for default . . . and the death of the euro

By Wolfgang Münchau

The biggest single danger in the eurozone crisis now is that events are moving too fast for Europe’s complacent political leadership. Last week, the crisis reached Italy. And the European Union looked the other way.

It was a huge mistake to postpone an emergency EU summit until Thursday this week. The European Council should by now have doubled or trebled the size of the European financial stability facility, the rescue umbrella. It should have made the facility more flexible, allowing it to buy bonds in the secondary markets. The council should have forced a closure of the debate on how to handle private investors, who bought Greek sovereign bonds.

Instead, the council allowed its finance ministers to get stuck in tedious technical details, unable to take a decision. Angela Merkel said there was no need for a summit right now. The German chancellor did what she has been doing throughout the crisis: hiding behind procedure. And since last Friday’s stress tests for banks was another cynical exercise in obfuscation, the council will need to take the first steps to sort out the banking mess at eurozone level. It will not. The crisis is moving too fast. Within a few weeks, the necessity moved from plan A to plan B to plan C. Plan A was austerity. Plan B acknowledges the need for debt relief, through some combination of a fiscal transfer and a contribution by bondholders. Plan C would widen the EFSF umbrella, to make it big enough to shelter Spain and Italy.

The EU is still fussing over plan B, and Germany rules out plan C. The hope among officials is that plan B will obviate the need for a plan C. That might have been the case four weeks ago. But why should a decision to inflict losses on banks help market sentiment on Italy now?

It is hard to comprehend why markets decided to panic over Italy at this particular time. There was a trigger, for sure, but Italy’s problems are not new. The country needs to grow by 2-3 per cent a year in the long run to be able to remain in the eurozone. Or it needs lower interest rates. The markets understand that Italian politics makes the first difficult, and German politics makes the second tough. If you accept the constraints of eurozone membership, low productivity growth, and high interest rates as given, Italy is insolvent. One of those constraints will have to give.

Five years ago, I was among those who argued that the probability of a collapse of the eurozone was close to zero. Last year, I wrote it was no longer trivial, but small. The odds have risen steadily since, not because of the crisis itself, but the political response. I now would put the odds of a break-up of the eurozone at 50:50. This is not because I doubt the pledge by the European Council to do whatever it takes to save the euro but because I fear it has left things too late. The council may be willing but it will not be able to deliver. As I argued last week, a eurozone bond is the only solution to the crisis. But this gets progressively more expensive, and politically less realistic, once bond spreads of large countries widen.

Europe’s political leadership has been, and still is, committing a category error in its approach. This is not a crisis of a small country at the edge of the eurozone. Nor is this a crisis brought on by rating agencies or speculators. This is a systemic crisis of a monetary union that refuses to be a fiscal union.

I often hear that Ms Merkel in particular has moved a long way from her original position 18 months ago, when she ruled out any money for Greece. This is true. But the crisis now moves at a rate that exceeds her political speed limit.

Giulio Tremonti, Italian finance minister, last week compared her with a first-class passenger on the Titanic. His anger is understandable. Her phlegmatic response itself is now a driver in this financial crisis, and people will rightly blame her for any serious accident.

My advice to Mr Tremonti is to confront Ms Merkel. His government should now adopt a two-pronged strategy. The first part is what I would call “plan D”. This is an emergency plan, the one to pull out of the drawer if Ms Merkel, like Martin Luther, continues to say she “can do no other”.

“D” stands for devaluation or default. To be clear, I am not saying that Italy should exit the eurozone. I am saying that Italy should prepare for that eventuality. In particular, Italy should signal to Ms Merkel that it can only remain a member of the eurozone if its interest rates are reduced. And I struggle to see that anything other than a eurozone bond can manage to achieve this.

No matter what happens, Italy will also need a credible programme to raise productivity growth in the long run.

Plan D would probably mark the end of the EU as we know it. I suspect that even Ms Merkel might not wish to go that far. Procrastination means collapse.

The EU has important choices to make in the next few days.

AFIRMA MÜNCHAU

Don’t blame Moody’s for a messy euro crisis

By Wolfgang Münchau

You can always gauge the temperature of the eurozone crisis by the blame game. Last week, the cacophony briefly subsided when everybody who mattered accused the rating agencies of engaging in an anti-European conspiracy. This was the day after Moody’s downgraded Portugal to junk. The fury of the reaction tells me that the process is in real trouble, once again.

The most interesting aspect of Moody’s rating was not the downgrade itself, but the reasoning. Moody’s expects that Portugal, like Greece, will need another loan. Moody’s also expects that the politics will be just as messy. Will not the Germans again seek private-sector participation as a condition? Of course they will. Moody’s concluded, rightly in my view, that the messy European Union politics constitutes a reason for concern. Having observed this crisis from the start, I agree. This is as much a crisis of policy co-ordination as it is a debt crisis.

Shortly before Moody’s downgrade, Standard & Poor’s pronounced that the French proposal for a debt rollover would, if implemented, constitute a selective default. If you add together S&P and Moody’s comments, you get a sense of the disturbing dynamic that lies ahead. Say, the eurozone governments decided to force Greece to default on part of its debt, and the rating agencies were to attach a selective default rating to Greek government bonds. If you expect, as Moody’s does, that Portugal will end up in the same position as Greece – having to request a follow-up loan – then the same private-sector participation rules would also apply to Portugal. Portugal would also receive a selective default rating at some point. Ireland will probably also need a second programme. I am not surprised at all that bond markets have been revaluing Spanish and Italian bonds. Neither country is in danger of defaulting, but their ratings will be dragged down to junk level if the periphery defaults.

Everybody hates the rating agencies and no one hates them more than the Europeans. The rating agencies were, without a doubt, an important contributing factor to the credit bubble. But last week, they did us a favour. They showed that populism will not work. The European Central Bank is absolutely right on this. A Greek default will unleash a dynamic process that will threaten the eurozone’s financial stability, even its very survival.

The impasse leaves us with a single solution in the short run – and a single solution in the long run. The two are, in fact, the same. In the short run, the only way to bring the private sector into a voluntary scheme is a debt swap, to be organised by the European financial stability facility. That is currently not possible because the EFSF is not allowed to purchase bonds in secondary markets. Germany, in particular would have to change its position on this issue. But the Germans are among those who are pushing the hardest for private-sector participation. I would not be surprised if they changed their mind again – as they have been doing time and again in the past 18 months.

If the rules on the EFSF were relaxed, it could offer to buy up Greek debt at a discount, say 20 per cent, in exchange for its own AAA-rated bonds. The sellers would have to register a loss, but at least they end up with good securities. There would be no reason for the rating agencies to act.

In the long run, the only solution is a eurozone bond, which you can think of as an extended secondary-market purchase programme by the EFSF. This is why the short-term and long-term solutions are identical. Of course, it will not be called a eurozone bond. The Germans had a wonderful euphemism to describe the debt they raised to pay for unification: Sondervermögen, or “special wealth”. The EU will come up with a similarly misleading name. let us not kid ourselves however: a eurozone bond it will be.

Last week, a group of former European prime ministers proposed in the Financial Times the use of the European Investment Bank to issue eurozone bonds. This is an intriguing idea. It would have the major advantage that it would not require any changes to the European Treaties, at least not for now. The most important technical point is that the eurozone bond, or whatever it is called, would be issued on a “joint and several” basis. This means that everybody is responsible for the whole amount – similar to an overdraft in a joint bank account.

Do not think of it as something utopian, something that electorates have to approve in a referendum. On the contrary. The eurozone bond is – literally – the default option in this crisis. It is what will happen when nothing happens. If governments face the choice between the eurozone bond or an intrastate fiscal transfer, they will choose the former. Germany will not only accept it. Germany will propose it.

We have to thank the rating agencies for giving the eurozone’s policymakers a clearer vision of which strategies are feasible, and which are not. It is now time to get serious.

AFIRMA SOROS

TRUE EUROPEANS NOW NEED A 'PLAN B'

by George Soros

The European Union was brought into existence by what Karl Popper called “piecemeal social engineering”. A group of farsighted statesmen, inspired by the vision of a United States of Europe, recognised that this ideal could be approached only gradually, by setting limited objectives, mobilising the political will needed to achieve them, and concluding treaties that required states to surrender only as much sovereignty as they could bear politically. That is how the postwar Coal and Steel Community was transformed into the EU – one step at a time, understanding that each step was incomplete and would require further steps in due course.

The EU’s architects generated the necessary political will by drawing on the memory of the second world war, the threat posed by the Soviet Union, and the economic benefits of greater integration. The process fed on its own success, and, as the Soviet Union crumbled, it received a powerful boost from the prospect of German reunification.

Germany recognised that it could be reunified only in the context of greater European unification, and it was willing to pay the price. With the Germans helping to reconcile conflicting national interests by putting a little extra on the table, the process of European integration reached its apogee with the Maastricht treaty and the introduction of the euro.

But the euro was an incomplete currency: it had a central bank but no treasury. Its architects were fully aware of this deficiency, but believed that when the need arose, the political will could be summoned to take the next step forward.

That is not what happened, because the euro had other deficiencies of which its architects were unaware. They laboured under the misconception that financial markets can correct their own excesses, so the rules were designed to rein in only public-sector excesses. Even there, they relied too heavily on self-policing by sovereign states.

The excesses, however, were mainly in the private sector, as interest-rate convergence generated economic divergence. Lower interest rates in the weaker countries fuelled housing bubbles, while the strongest country, Germany, had to tighten its belt in order to cope with the burden of reunification. Meanwhile, the financial sector was thoroughly compromised by the spread of unsound financial instruments and poor lending practices.

With Germany reunified, the main impetus behind the integration process was removed. Then, the financial crisis unleashed a process of disintegration. The decisive moment came after Lehman Brothers collapsed, and authorities had to guarantee that no other systemically important financial institution would be allowed to fail. German Chancellor Angela Merkel insisted that there should be no joint EU guarantee; each country would have to take care of its own institutions. That was the root cause of today’s euro crisis.

The financial crisis forced sovereign states to substitute their own credit for the credit that had collapsed, and in Europe each state had to do so on its own, calling into question the creditworthiness of European government bonds. Risk premiums widened, and the eurozone was divided into creditor and debtor countries. Germany changed course 180 degrees from being the main driver of integration to the main opponent of a “transfer union.”

This created a two-speed Europe, with debtor countries sinking under the weight of their liabilities, and surplus countries forging ahead. As the largest creditor, Germany could dictate the terms of assistance, which were punitive and pushed debtor countries towards insolvency. Meanwhile, Germany benefited from the euro crisis, which depressed the exchange rate and boosted its competitiveness further.

As integration has turned into disintegration, the role of the European political establishment was also reversed, from spearheading further unification to defending the status quo. As a result, anyone who considers the status quo undesirable, unacceptable, or unsustainable has had to take an anti-European stance. And, as heavily indebted countries are pushed towards insolvency, the number of the disaffected continues to grow, together with support for anti-European parties such as True Finns in Finland.

Yet Europe’s political establishment continues to argue that there is no alternative to the status quo. Financial authorities resort to increasingly desperate measures in order to buy time. But time is working against them: the two-speed Europe is driving member countries further apart. Greece is heading towards disorderly default and/or devaluation, with incalculable consequences.

If this seemingly inexorable process is to be arrested and reversed, both Greece and the eurozone must urgently adopt a plan B. A Greek default may be inevitable, but it need not be disorderly. And, while some contagion will be unavoidable – whatever happens to Greece is likely to spread to Portugal, and Ireland’s financial position, too, could become unsustainable – the rest of the eurozone needs to be ringfenced. That means strengthening the eurozone, which would probably require wider use of Eurobonds and a eurozone-wide deposit-insurance scheme of some kind.

Generating the political will would require a plan B for the EU itself. The European elite needs to revert to the principles that guided the union’s creation, recognising that our understanding of reality is inherently imperfect, and that perceptions are bound to be biased and institutions flawed. An open society does not treat prevailing arrangements as sacrosanct; it allows for alternatives when those arrangements fail.

It should be possible to mobilise a pro-European silent majority behind the idea that when the status quo becomes untenable, we should look for a European solution rather than national ones. “True Europeans” ought to outnumber true Finns and other anti-Europeans in Germany and elsewhere.

The writer is chairman of Soros Fund Management and founder of the Open Society Foundations.

c/p aqui

DESTA VEZ É DIFERENTE

This time is different

Carmen M. Reinhart

Keneth Rogoff

How likely is financial repression?

Martin Wolf

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First comes financial crisis; then comes sovereign debt crisis; then comes financial repression. This is the view of Carmen Reinhart, co-author of This Time is Different, the masterly study of financial crises through the ages. I recently had a fascinating conversation on this topic with her, here in New York, where I have been living since the beginning of April.

So the question for the exchange is: how likely is financial repression? What forms might it take? Might this even be the end of the era of globalised finance?

Her argument is very plausible. It is also supported by the history of both advanced and emerging countries. First, governments encourage credit expansion by the financial sector. As a result, a mountain of bad debt is piled up. Then, at some point, comes panic. At this stage, governments nationalise the liabilities of their financial sector and, more important, find their revenues collapsing, along with the economy. Huge fiscal deficits then emerge and public debt starts to soar. Of course, frequently, governments short-circuit this financial route and simply run huge and unsustainable fiscal deficits in good times. Either way, an unsustainable fiscal position leads, sooner or later, to a sovereign debt crisis, particularly if governments borrow in foreign currencies, short term, or both (as often happens, in such situations).

What do governments do when it becomes expensive to borrow? They promise to mend their ways, of course. But, by now, it is often too late: nobody believes them. So they tell the central bank to buy their bonds, which starts a run on the currency. Pegged exchange rates collapse and floating exchange rates fall. Inflation becomes an imminent threat.

At this point, desperate governments look for ways to force institutions to hold their bonds, willy nilly. This is the point at which financial repression begins: banks are forced to hold government bonds, for “liquidity”; pension funds are forced to hold government bonds, for “safety”; interest rate ceilings are imposed on private lending; to prevent “usury”; and, if all else fails, exchange controls are imposed, to ensure nobody can easily escape from such regulations.

So how likely are such measures in the advanced countries that are now in difficulty? How easily would financial markets find it to evade them? What might governments do in response? Could financial globalisation even disintegrate? This is a subject on which I plan to write a column soon. I look for comments on this theme.

O QUE DIZ SOROS

The euro will face bigger tests than Greece

By George Soros

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Otmar Issing, one of the fathers of the euro, correctly states the principle on which the single currency was founded. As he wrote in the FT last week, the euro was meant to be a monetary union but not a political one. Participating states established a common central bank but refused to surrender the right to tax their citizens to a common authority. This principle was enshrined in the Maastricht treaty and has since been rigorously interpreted by the German constitutional court. The euro was a unique and unusual construction whose viability is now being tested.
The construction is patently flawed. A fully fledged 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. Mr Issing admits that he was among those who believed that "starting monetary union without having established a political union was putting the cart before the horse".
The European Union was brought into existence by putting the cart before the horse: setting limited but politically attainable targets and timetables, knowing full well that they would not be sufficient and require further steps in due course. But for various reasons the process gradually ground to a halt. The EU is now largely frozen in its present shape.
The same applies to the euro. The crash of 2008 revealed the flaw in its construction when members had to rescue their banking systems independently. The Greek debt crisis brought matters to a climax. If member countries cannot take the next steps forward, the euro may fall apart.
The original construction of the euro postulated that members would abide by the limits set by Maastricht. But previous Greek governments egregiously violated those limits. The government of George Papandreou, elected last October with a mandate to clean house, revealed that the budget deficit reached 12.7 per cent in 2009, shocking both the European authorities and the markets.
The European authorities accepted a plan that would reduce the deficit gradually with a first instalment of 4 per cent, but markets were not reassured. The risk premium on Greek government bonds continues to hover around 3 per cent, depriving Greece of much of the benefit of euro membership. If this continues, there is a real danger that Greece may not be able to extricate itself from its predicament whatever it does. Further budget cuts would further depress economic activity, reducing tax revenues and worsening the debt-to-GNP ratio. Given that danger, the risk premium will not revert to its previous level in the absence of outside assistance.
The situation is aggravated by the market in credit default swaps, which is biased in favour of those who speculate on failure. Being long CDS, the risk automatically declines if they are wrong. This is the opposite of selling short stocks, where being wrong the risk automatically increases. Speculation in CDS may drive the risk premium higher.
Recognising the need, the last Ecofin meeting of EU finance ministers for the first time committed itself "to safeguard financial stability in the euro area as a whole". But they have not yet found a mechanism for doing it because the present institutional arrangements do not provide one - although Article 123 of the Lisbon treaty establishes a legal basis for it. 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.
The Papandreou government is determined to correct the abuses of the past and it enjoys remarkable public support. There have been mass protests and resistance from the old guard of the governing party, but the public seems ready to accept austerity as long as it sees progress in correcting budgetary abuses - and there are plenty of abuses to allow progress.
So makeshift assistance should be enough for Greece, 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 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.