China Knocks Greece Firmly Off the Front Pages

The whole Greece thing became an exceptionally dominant story for a while back there, didn't it? Maybe it should be again, what with headlines like:

Greek stock market surges as outline bailout deal reached with creditors 

€86bn, eh? But somehow that looks small beer alongside 

China stuns financial markets by devaluing yuan for second day running

That's quite a blockbuster for the silly season.  As the price of oil gently subsides back into the 40s and Vladimir Putin mints ever more of the hard metallic currency he reckons the world understands best, Obama's final 18 months in office may be more demanding than he once expected.

ND

Always Pleased To Help

This gets my weekend off on the right footing. The Telegraph reports that "Athens has launched the biggest sovereign bond restructuring in history". Ah yes, part of the Euro rescue plan from which Cameron so rudely opted out, leaving the UK a pariah and dooming the City to irrelevance.

But wait, what's this a the foot of the article ?

"The bond swap will be run from London by Deutsche Bank and HSBC."

Too right! Because with the best will in the world they really don't understand these things in Brussels, Luxembourg, Paris or even Frankfurt. (I particularly enjoy the idea they will require that Euro-denominated derivatives must be settled in Euroland: do these people actually know what a derivative is ?)

Now for the rest of the weekend: let's see what the much-vaunted Welsh back line can manage at Twickers.

ND

Greece: Life Imitates Art

"We're not proud. We take any currency, including goats"
- Michael O'Leary, RyanAir, 3 November 2011, announcing flights to Greece

"I thought you said you'd need to give them all a goat, not a vote !"
- Angela Merkel, 2 November 2011, announcing flight from Greece


ND

German Constitutional Court Ruling

Another urgently-convened meeting of the German Constitutional Court has been held to put words into the mouth of Merkel. It broke up twice in disarray, firstly when a motion was put that Idle's voluminous submission be debarred on the grounds of it being dialogue (albeit of high quality).

A second adjournment was called when rival supporters of the more pithy submissions of Budgie and Helga clashed rowdily in open session.

Finally, however, the Court was brought to order, and declared: (a) that Peter Whale is the winner; (b) his 12-month austerity programme is to commence with immediate effect; (c) upon successful completion in December 2012 he may nominate his bailout sum in either EUR (125 billion) or Deutschmark (12.50). In time for Weihnachten.

By order of the Court.

Carry On Merkel

Yes, our favourite comedy act is back on the road.

How we all laughed.

Now, your turn. Compo: what is the fun-loving Frau saying this time ? Answers in the comments, please.Prize - a genuine "Merkel" bailout + austerity package of your very own ! Worth over € 120 billion !!

(Must be over 18, have own parliamentary majority, no referendums or plebiscites, the decision of the German Constitutional Court is final, euro may go down as well as up)

ND

Bailout ! Squeeze Compo Entry

Rising to Steven L's bait ...

Germany, Greece & Interpreting the Bailout

Some great threads here this week, reminds me of 2008 ...

There are a couple of important additional points to make. Firstly, with adroit financial engineering - and access to some AAA muscle - it is always possible to defer a problem. Enron did it many times (AAA provided by banks); British Energy in 2002 (HMG); and now the PIIGS (Germany). The term in vogue is 'kicking the can down the road', but a better one is that used by Enron: it's a snowball, getting bigger and bigger, going downhill at an ever-increasing rate but, for the time being, gathering up all the snow in its path. And its principle tool is 'blend & extend' - in this case, averaging down the PIIGS' interest rates and extending repayment to infinity and beyond. Simples, when you know how. Sometimes it works, sometimes ...

For the second point we start with the bailout document itself + a little interpretation. Of course, it's a blend-&-extend snowball alright:

"We have decided to lengthen the maturity of future EFSF loans to Greece to the maximum extent possible from the current 7.5 years to a minimum of 15 years and up to 30 years with a grace period of 10 years … We also decided to extend substantially the maturities of the existing Greek facility … The EFSF lending rates and maturities we agreed upon for Greece will be applied also for Portugal and Ireland"

It's also a chest-beating exercise to warn off the wicked speculators with the usual battle-cry: our pockets are deeper than yours

"to do whatever is needed to ensure the financial stability of the euro area as a whole and its Member States … we will provide adequate resources to recapitalise Greek banks if needed … Member States and the Commission will immediately mobilize all resources necessary … We are determined to continue to provide support to countries under programmes"

There is also a warning-shot across the bows of the rating agencies. Of course, Soros et al have heard this all before. They - and some altogether nastier people, more in a later post - are rolling out their strategies for all this even as we write. But fair enough, Germany is a pretty ugly gorilla in its own right.

Then there are the pieties:

"All other euro countries solemnly reaffirm their inflexible determination to honour fully their own individual sovereign signature and all their commitments to sustainable fiscal conditions and structural reforms ... All euro area Member States will adhere strictly to the agreed fiscal targets"

Yeah, yeah. This, of course, is the classic formula of blend + extend + pretend: readily more available to governments than to businesses, who must observe less forgiving disciplines. But then we come to a really important bit, & my second point.

"We call for a comprehensive strategy for growth and investment in Greece … We will mobilise EU funds and institutions such as the EIB towards this goal and relaunch the Greek economy. Member States and the Commission will immediately mobilize all resources necessary in order to provide exceptional technical assistance to help Greece"

This, dear readers, is the thing we don't really grasp on this side of the Channel: Euro-solidarity. And this is where the German takeover comes in, albeit with a slightly (only slightly) different perspective to the 'they couldn't do it by force so they're doing it by stealth' line. Because we (they) have been here before, most notably the re-unification project. The Deutsche Einheit is a lesson in what Germany will do, when mobilised under the banner of solidarity (if you don't believe it, read this): and Greece is a commensurate task.

Solidarity comes with sticks as well as carrots. So the document also contains a warning-shot across Ireland's bows on the subject of Corporation Tax rates (paying attention, Salmond ?). Which leads us neatly to the sinister stuff.

"To improve the effectiveness of the EFSF and of the ESM and address contagion, we agree to increase their flexibility linked to appropriate conditionality, allowing them to act on the basis of a precautionary programme, finance recapitalisation of financial institutions through loans to governments including in non programme countries (and) intervene in the secondary markets: ... to improve working methods and enhance crisis management in the euro area ... our determination to reinforce convergence, competitiveness and governance"

Increase flexibility ... precautionary programme ... intervene ... convergence ... governance ... the sound of Emergency Powers being devised. They ain't gonna brook much opposition within the wider EU.

It's going to get ugly for Cameron.

ND

Strauss-Kahn's perfect timing

Now, mr Dominique Strauss-Kahn is not someon you will find Capitalists defending in general. The communist Frenchman has a long hisotry of economic and political misjudgements. However, his arrest on Friday in New York is quite something.

At a crucial moment in the negotiations over further European bailout the key lead is gone. the IMF have bent over to help the EU, even though the EU has held tight onto its prinicples of keeping the Euro and avoiding default. In part, this has been thanks to the head of the IMF backing this unorthodox (read silly) strategy.

So to have the one of the lead actors incapacitated at such a key moment is intriguing. of course Strauss-Kahn was also going to stand for the French Presidency so he will have many enemies across the world - which does not mean that in the end, he is his own worst enemy after all.

His temporary replacement is an American with a background of working for JP Morgan. He is sure to have different views, although perhaps the needs of diplomacy mean that he won't be able to obviously change track on IMF policy too quickly; however, charges for Stauss-Kahn will mean Lipsky will get a more long-term shot at the job, certainly until new appointments in the new year.

Timing is everything and this timing sure seems 'odd', conspiracy theorists will have a field day but the key will be to see if there is any change to the terms of the Greek bailout - the more changes there are, the more suspicious I will become.