The consensus from investment bank research seems to be that an involuntary restructuring – a “hard default” would be bad, increase systemic risk, spread the contagion and push ECB to massive monetary easing, which would weaken the euro. Old players who are blogging seem to think that it would be better just to get the event over and done with and deal with the fallout. I think it would be better to listen to experience in this case. True, the world is a different animal from 20 years ago, and the banks are more opaque, more levered and the interconnectedness of everyone is scary. Everybody remembers Lehman.
But...as my friend Kari "The Street" said - the eurocrats have tried to solve the Greek problem for two years now. What are the chances they could solve something way bigger and really important, like Italy or Spain?
News – BTH
Markets – BTH
Recap – GMT
Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
EURO CRISIS: GENERAL
The European Commission and its civil servants gained unprecedented powers with the signing of the Maastricht Treaty on February 7 1992. Two decades later, the economy’s primacy over politics and the advent of the crisis has destroyed their dreams and turned them into scapegoats.
Europe’s new fiscal compact treaty does not outlaw Keynesianism and is a stepping stone to more progress – voxeu.org
Europe’s new fiscal compact is seen by some as the death of Keynesian government spending. This column argues that such analysis is simply wrong. It says that there is still room for government spending in extreme situations, but that there are now more safeguards to maintain stability, reduce contagion, and placate German taxpayers.
Global Manufacturing Steadies As She Goes, Or Does She? – A Fistful of Euros
Euro Area results were divided between the core countries which moved timidly back towards expansion, and those on the periphery where conditions were simply less recessionary than they had been at the end of last year.
EURO CRISIS: GERMANY
Crisis Desperation Drives Merkel to Campaign for Sarkozy – Der Spiegel
Chancellor Angela Merkel's move to help President Nicolas Sarkozy in his bid for re-election is unprecedented. But so too is the European debt crisis. Berlin is driven by the fear that a Socialist president in Paris may overturn its strategy to rescue the euro. But Merkel's campaign assistance poses risks
Germany: A Bric, or just stuck in a hard place? – Wolfgang Münchau / FT
Angela Merkel has just been to Beijing, in a year when China is about to displace France as Germany’s largest trading partner. When that happens, it will be a symbolic moment.
Angela Merkel has just been to Beijing, in a year when China is about to displace France as Germany’s largest trading partner. When that happens, it will be a symbolic moment.
EURO CRISIS: ECB
LTRO redux – Sober Look
LTRO will spike the ECB deposit facility, reduce private repo financing and M3, esp. in periphery, weigh on bank balance sheets and making unsecured bank paper even less recoverable.
The Longer Term Refinancing Operations of the ECB – ECB (pdf)
EURO CRISIS: GREECE
...finally some Greek citizens and even minor politicians seem to be getting the joke that the “bailouts” aren’t for Greece, it is for the people who lent Greece money. I do not think a Greek default is an economic disaster.
A Shift In European Sentiment - Is Germany Prepared To Let Greece Default? – ZH
UBS summarizing the palpable change in European outlook over Greece, and over the entire "Firewall" protocol.
UBS summarizing the palpable change in European outlook over Greece, and over the entire "Firewall" protocol.
Capturing the ECB – Joseph E. Stiglitz / Project Syndicate
On involuntary restructuring: But the riskiest countries already have been shut out of financial markets, so the possibility of a panic reaction is of limited consequence. Of course, others might be tempted to imitate Greece if Greece were indeed better off restructuring than not doing so. That is true, but everyone already knows it.
On Greece and the “EU-six-pack”: Part of this package was a well overdue framework for monitoring macro-level imbalances across the zone
The Greek Vise – Krugman / NYT
So we’re now looking at a scenario in which Greece is forced into killing levels of austerity to pay its foreign creditors, with no real light at the end of the tunnel. This is just not going to work.
So we’re now looking at a scenario in which Greece is forced into killing levels of austerity to pay its foreign creditors, with no real light at the end of the tunnel. This is just not going to work.
Revisiting The Greek "Razor's Edge" – ZH
Bank of America: The Troika has also been particularly tough and seems frustrated from continuous delays and implementation problems that threaten its credibility and could lead to moral hazard in the rest of the region, particularly after the PSI… A disorderly default in Greece would be in nobody’s interest...A massive ECB intervention may be needed, weakening the EUR.
Bank of America: The Troika has also been particularly tough and seems frustrated from continuous delays and implementation problems that threaten its credibility and could lead to moral hazard in the rest of the region, particularly after the PSI… A disorderly default in Greece would be in nobody’s interest...A massive ECB intervention may be needed, weakening the EUR.
JP Morgan Advises Its Clients To Read Zero Hedge Three Weeks Ago – ZH
By contrast, bonds issued under domestic law usually lack CACs, and the sovereign can retroactively change contract terms merely by changing domestic law. Thus, domestic law bonds offer significant advantages to the sovereign relative to foreign law bonds.
By contrast, bonds issued under domestic law usually lack CACs, and the sovereign can retroactively change contract terms merely by changing domestic law. Thus, domestic law bonds offer significant advantages to the sovereign relative to foreign law bonds.
Next 24 hours key for Greek default risk – Saxo
The odds certainly favour a last minute deal in which most or all of Troika demands are met – but the difficulty of the PSI implementation and the potential for further social backlash will remain strong…
Luxembourg Prime Minister Jean-Claude Juncker, head of the Euro Group, talks about the need for Greece to push ahead with economic reforms. If the country doesn't meet Europe's demands, it will have to declare bankruptcy in March, he says.
Greek talks descend into finger-pointing – Felix Salmon / Reuters
But I’ve never seen less appetite, at the European level, for a policy of continuing to kick the can down the road. Which means that there’s a very good chance that the long-awaited and long-feared crunch might soon be upon us.
EURO CRISIS: OTHER PIIGS
The repo spaniel that didn’t bark? – alphaville / FT
J.P. Morgan: anticipation and LTRO helped avoid Spain getting hit by the downgrade as badly as Italy did earlier.
J.P. Morgan: anticipation and LTRO helped avoid Spain getting hit by the downgrade as badly as Italy did earlier.
Portugal has been discreetly sounding out advisers on options to restructure its debt. Although the government has yet to formally appoint any firm, IFR has learnt that ministers have been watching developments in Greece closely with a view to replicating elements of any final agreement.
Since Portugal has been subjected to an austerity regimen by the EU/ECB/IMF troika, Portuguese consumers have adapted their habits. The crisis is pushing consumers to save but also to be more creative.
EMERGING
Nomura’s chief Asia economist, Rob Subbaraman, says the 1-in-3 odds indicated by the China Stress Index remain, but the hard landing is less likely
Morgan Stanley takes a look at equity valuation of Europe, US, Japan and emerging markets. Emerging is cheapest, US most expensive.
OTHER
minority games – The Physics of Finance
So, how to build models that go beyond this equilibrium picture? If the simple notion of equilibrium is too simple to explain market reality, why not non-equilibrium models? That is, models of markets in which the individuals' actions, even in the absence of outside shocks, never lead the market to settle down into some equilibrium balance.
The Housing Bottom is Here – Calculated Risk
DIVERSION
The End of Wall Street As They Knew It – New York Magazine
After surprisingly successful financial reform, public vilification, and politics that have turned against them, the Masters of the Universe are masters no longer.
What’s YOUR Competitive Advantage? – The Psy-Fi Blog
Everywhere you look in the investment industry it appears that the odds are stacked against the smaller investor. In every trade we make there’s a counterparty against whom we’re taking a bet and all too often they’re better informed and equipped than we are. For the most part trading is simply a way of enhancing the profits of the securities industry.