Brinkmanship in Brussels, Sturm and Drachma for Greece and Europe

 

 

Author: Jacob Funk Kirkegaard · February 27th, 2012 · Peterson Institute

Just as it did when Congress recently extended the payroll tax cut, brinkmanship has produced a deal in Europe to extend a new lifeline to Greece and clear the way for the biggest sovereign bond restructuring in history. Both pieces of the agreement—the privately held Greek debt write-down of more than €100 billion and the terms of the new bailout extension—have produced widespread doubts in markets and among many analysts. Accordingly, a more detailed look at both is worthwhile, before considering how this package fits into the ongoing brinkmanship between the euro area and the International Monetary Fund (IMF) and the general focus on austerity in the euro area.

Part 1: The Greek PSI Deal

The agreement on the privately held debt write-down—known as Private Sector Involvement, or PSI—is no ordinary bond swap, but instead a remarkably complex transaction of unprecedented scale. The ultimate haircut accepted by the private creditors from the Institute for International Finance (IIF) went up to 53.5 percent of the principal bond value. Factoring in estimated average reduced coupon payments of new bonds of just 2.63 percent in the first eight years and 3.65 percent of the full 30-year period¹, the ultimate net present value (NPV) loss for private creditors looks likely to approach 75 to 80 percent.

The new Greek bonds will be governed by English law, which means that the Greek government will not in the future be able to change the regulation of them. They will also be explicitly treated equally (pari passu) with new official sector loans from the European Financial Stability Facility (EFSF) as part of a co-financing assistance package to Greece. These sweeteners notwithstanding, it remains the case that private creditors face dramatic financial losses as a result of this bond swap.

Will Technology Save Us All, or Will It Tear Us Apart?

Date: 29-02-2012
Source: WIRED

LONG BEACH, California — “When we look at the wonders that we have created, is it the fire that lights up the world or the one that burns it down?”

It’s an appropriate question to ask at the Technology Entertainment and Design conference, the annual gathering of some of the world’s biggest thinkers and exposition of advancements in science and technology. It may be especially apt from the man who posed it on Tuesday, TED curator Chris Anderson.

Are our devices going to be markers of our rise to glory, or instruments of our eventual demise? More prosaically: Do you think our glass is half-full, or half-empty?

Paul Guilding, writer and former CEO of Greenpeace, definitely thinks the latter. “The earth is full,” Guilding said in his presentation. “Full of us, our stuff, demands. Our economy is bigger than its host, our planet.”

Capital Flight: Southern European Money Migrating North to Safety

Date: 29-02-2012
Source: SPIEGEL

Banking imbalances are becoming a real problem for Europe.

More and more people in southern euro-zone countries are moving their money north amid fears of losing their savings in the crisis. The capital flight makes things difficult for banks back home, but experts say there are no legal measures to stop it. Any steps would probably come too late, they say, and might even endanger the European project.

The case had dominated the headlines in Greece for a week. A Greek parliamentarian was thought to have moved €1 million ($1.34 million) out of the country and into a foreign account last May. Even if the move was legal, many citizens saw it as a betrayal at a time when they were already reeling from deep austerity measures. Other politicians called for the culprit among them to step forward or even down. But no one did.

On Tuesday, the mystery was solved. Parliament President Filippos Petsalnikos revealed that the offender was Isidoros Kouvelos, the husband of former Foreign Minister Dora Bakoyannis and a shipping magnate. “My husband’s activities were registered and declared,” Bakogianni said on Greek television. “He’s in shipping, and he has been doing that his whole life.”

Still, the incident sheds light on a trend that is increasingly worrisome for Greece and many other countries in southern Europe. Given the uncertain future of Europe’s common currency, a growing number of people are seeking to move their savings to safety. Last Friday, Finance Minister Evangelos Venizelos announced that, since 2009, fully €65 billion had been withdrawn from Greek accounts, and that roughly €16 billion of that was moved to foreign accounts. More than a third ended up in Great Britain, while about 10 percent migrated to Switzerland.