The pressures being applied to the euro have roots wholly other than reasonable doubt that debt can be sustained. The unwise insistence by Germany and France that private investors should bear some of the burden of debt restructuring has led to the US (and others') disorderly withdrawal from financial markets for euro sovereign debt. This has been exacerbated by the European Banking Authority insisting on the principle that such bonds should be marked to market instead of valued at their purchase price, coupled with applying this criterion to all European banks, not just those systemically important, as is the case in America.
There are other more technical problems, concerning the ratios between capitalisation and total assets that the EBA has accepted which are disadvantageous to large sections of European banking. (cf the illuminating article by Marcello de Cecco in today's Repubblica, Perche' L'EBA e' subalterna agli USA).
Considering that there is an Italian in charge of the European Banking Authority, not to mention the Italian in charge at the European Central Bank (who refuses to buy unlimited amounts of Italian bonds), an Italian is Chief Economist of the OECD, (which has just forecast zero growth for the Eurozone in general, and half a percentage point decline for Italy in particular, thus attracting Moody prognostications for multi-state default in the euro-area), an outburst of Italian self-hate seems to be contributing to the financial crisis.
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4 comments:
"The unwise insistence by Germany and France that private investors should bear some of the burden of debt restructuring has led to the US (and others) disorderly withdrawal from financial markets for euro sovereign debt."
Why, since when are creditors not exposed to the risk of losing at least some of their capital lent to bad debtors?
Nothing the matter with demanding a "haircut" on bad loans. The trouble is that the cut was first announced on 18 October last year at Dauville; then a 21% cut on Greek bonds was imposed on (pardon, "voluntarily" accepted by)creditor banks last May, claiming that this was a unique exceptional event; then it became a 50% cut last October. It should have been done once only, maybe at a higher rate. And the Council should have stopped wasting time with wild and non credible schemes for multiplying the EFSF funds with risky creative accounting, trying to turn it into an insurance company (the Germans) or a bank (the French), multiplying also the riskiness of its operations.
It's happened: in Switzerland (Ticino) they're not accepting euro cash any more. This morning they wouldn't let me buy a jam doughnut at the baker's.
Posso pagare in euro? I asked
Lady just stared at me until I handed over 1 franc 10.
Not even a jam doughnut, Musician!
I'm going to get rid of lots and lots of euros while in Vienna. Vienna has all sorts of wonderful things to consume. No point having euros cluttering up the house when it could be full of paintings and china and violet sweeties and hooded wolf capes, and down to the floor lodens, and chocolate cakes, and piles and piles of music, and marzipan (but not those beastly things with pictures of Mozart on them), and dancing horses. To mention but a few.
"since when are creditors not exposed to the risk of losing at least some of their capital lent to bad debtors?"
Since Mervyn King fell and Northern Rock was 'saved', C.
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