For anyone wondering why Europe’s leaders are so determined to avoid a restructuring of Greek sovereign debt, I recommend a remarkable piece of research published on Monday by Jacques Cailloux, the Royal Bank of Scotland’s chief European economist, and his colleagues. (Unfortunately, it seems not to be easily available on the internet, so I’m providing links to news stories that refer to the report.)
The RBS economists estimate that the total amount of debt issued by public and private sector institutions in Greece, Portugal and Spain that is held by financial institutions outside these three countries is roughly €2,000bn. This is a staggeringly large figure, equivalent to about 22 per cent of the eurozone’s gross domestic product. It is far higher than previous published estimates. It indicates that, if a Greek or Portuguese or Spanish debt default were allowed to take place, the global financial system could suffer terrible damage. Read more
Better late than never. That is one way of looking at the three-year, €110bn rescue plan for Greece that was announced on Sunday by eurozone governments and the International Monetary Fund. It took seven months of indecision, bickering and ever-mounting chaos on the bond markets for the eurozone to get there, but in the end it did – and it may just have saved European monetary union as a result.
Looked at in a different light, however, the rescue package does not appear to be such a masterstroke. For its underlying premises are, first, that there should under no circumstances be a restructuring of Greek government debt, and secondly, that Greece’s troubles are unique to itself and need not be considered in a context of wider eurozone instability. Both premises are open to question. Read more
Europe’s leaders are getting radical. On Thursday the presidents, prime ministers and chancellors of the European Union will meet for a day of economic policy discussions in Brussels – but not in their normal location, the marble-and-glass Council of Ministers building, famous for its charmless, disinfected atmosphere and its 24km of headache-inducing corridors. No, this time they will get together in a nearby building called the Bibliothèque Solvay, which is a pleasant old library rented out for dinners and receptions.
The switch of location was the brainwave of Herman Van Rompuy, the EU’s first full-time president, who thought it would encourage a more creative, informal exchange of views. He has introduced another innovation: each leader is to be restricted to just one adviser at the talks. This isn’t a problem for countries with leaders who are masters of economic policy detail. But others are less happy about the arrangement. It is whispered that the Italians are swallowing especially hard, wondering what on earth Prime Minister Silvio Berlusconi will say once he’s on his own. Read more
The expression “it never rains but it pours” may seem inappropriate for a Mediterranean country such as Greece. But it was the phrase that sprang to mind when I heard last week that Greek tax collectors are planning to go on strike in protest at the government’s austerity measures. Like the political manipulation of budget data, the inefficiency of the tax system is one of the Greek state’s most glaring weaknesses. How will a tax collectors’ strike help matters?
That said, I do not share the view of German and French government officials who insisted vehemently last week that the solution to Greece’s problems lies almost entirely with the Greeks themselves. If this were the answer, nothing would be simpler than for the Greeks to roll up their sleeves and get on with a 10-year programe of wage restraint and productivity growth. Read more