Camp David: G-8 Platitudes Don't Solve Anything

As pundits parse words like austerity and growth, it becomes increasingly clear that Camp David platitudes mean nothing and make no difference. Headlines speak of bold agreements: “G-8 Leaders Agree to Mix Growth, Cuts” that closer reading reveals to be hot air. When German chancellor Angela Merkel injects the word “growth” into her remarks, the press breathlessly reports a weakening of her austerity stance. Barack Obama’s insistence on both growth and “fiscal discipline” resembles calls for motherhood and apple pie. The new French President Francois Hollande pushes a financial transactions tax and mutes his election rhetoric for stimulus. His post election briefings probably convinced him that he cannot spook the bond vigilantes more than he already has. British Premier David Cameron nixes Hollande’s transaction tax post haste. Newly-inaugurated President Vladimir Putin boycotts the G-8 in a huff, sending instead his stooge Prime Minister Medvedev.  There is no more idle talk of a Russian bailout contribution. Russia is doing well to manage its own crises.

The EU crisis resembles mountain climbers, tied together by ropes, scaling a rocky cliff.  One (Greece) is balanced on a thin ledge. A few others teeter perilously (Portugal, Spain, and Ireland). They know that if one falls, others could be pulled along. One the climbers (Germany) has a knife either to cut himself free or to sever the rope of climbers about to fall. The knife-wielder fears he could end up alone on the cliff.

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Unless It’s a Typo, Greece is Going to Default on Its Default!

Buried amidst the details of today’s Financial Times account of the Greek default was  a sensational figure. If I understand it correctly, it said that the “new” Greek bonds are trading in grey markets at 28 to 40 cents to the Euro. Following this was the remarkable statement that, in effect, said that  markets anticipate that Greece will default on its default.

Banks that exchanged “old” for “new” Greek bonds got about 47 cents on the Euro. If they were to turn around and sell them on the market at 40 cents on the Euro, they would get about 18 cents per Euro on their “old” bonds. Or did I miss something?

I also believe that the European Central Bank has agreed to accept the “new” Greek debt as collateral at their full face value. If so, the European Central Bank will be holding collateral assets that are overvalued by 60 percent.

Maybe I am missing something, but if I am right, this sounds sort of crazy to me. Can someone help me out on this?

I Repeat Again: There Is Still No Greek Solution

The press is again full of reports that the troika (IMF, EU, and ECB) have reached an agreement on Greece. Markets will again rise, until they see that little has happened.

The troika has agreed to release a new tranche of rescue funds to stave off a March Greek default. Private lenders have agreed to their haircut (but that had really been decided a long time ago). The rescue funds will probably be doled out slowly to make sure that Greece meets its end of the bargain and cuts wages and public sector employment.

With an election coming up (and the public vehemently against outside intervention and austerity), Greece cannot meet its end of the bargain. Greece can only do so by agreeing to be governed by external bodies, such as the troika, which spells the end (temporarily perhaps) of Greece independence.

This is one of a hundred of steps that remain to be taken before we can say that Greece has been rescued.

I Repeat: There Is No Greek Solution

The press announced another agreement. The markets rose. The Greek parliament approved more austerity measures demanded by the troika of international agencies to release the next tranche of Greece’s bailout funds. Maybe Greece will indeed get some more international money to stave off default, but this will be a temporary band-aid.

It is too late for Greece.  Greece is no longer governable.  Angry crowds will get angrier and larger. There will be general strikes. With an upcoming election, any parliamentary candidate who backs the austerity program will lose. Greek politicians can promise the Germans, the IMF, and the European Central Bank austerity until they are blue in the face, but they will prove impotent in the face of  public anger and intransigence.

Greece has held on so long by making promises it cannot keep, which its European neighbors pretend to believe. This farce is coming to an end. Either Europe must decide to look the other way and unconditionally bail out Greece or let Greece default. Both outcomes are bad, but the choice must be made and soon.