Yet Another Post on Sovereign Debt and Democracy
Dr. Oatley disagreed with my post on democracy and sovereign debt, and cited some of his own recent research to smack me down. I don't disagree with a word of what he wrote. (And believe it or not, I noticed that that paper -- which I had previously read -- had just come out, but was waiting to post on it until he had a chance to.) I also don't think anything he wrote contradicts anything I wrote. Why does he think it does? It's my fault
Categories: climate Tags: climate, democracy, document-has, greece, moved-here-, moved-permanently, permanently, sovereign debt
Sovereign Debt As Social Contract
The Economist blogger Charlamagne has written an insightful post on Greece: The Greek civil war, and the bloody score-settling that followed, is a living memory for many Greeks. Any consideration of Greek nepotism or clientelism needs to be seen in that light. So for example, it is not enough to say that Greek civil servants enjoy jobs for life, and that is a big problem. (Though it is a big problem, not least because many Greek civil servants are paid pitiful wages—partly because there are so many of them. That means they will resist austerity measures all the harder, because they feel like victims in this crisis, not fat cats.) But the bloated public sector is also a function of history. ... Newspapers here in Belgium talk all the time about the government needing to "buy social peace" by paying off some interest group or other. In Belgium, the alternative to " paix sociale " is a strike. In Greece, plenty of grown-ups remember when the alternative to social peace was their neighbour, or their loved-one, vanishing in the night into a jail cell or worse. The current clientelist truce between right and left is the price (albeit a horrible, wasteful price) established for the current version of social peace enjoyed in Greece
Categories: climate Tags: climate, debt, democracy, document-has, emu; monetary union, greece, moved-here-, moved-permanently, permanently
Now This Is How You Do Journalism
I spend more time bashing bad press work than praising good. I don't know if that's because there isn't very much good stuff, or because I'm mean-spirited, but today I can happily praise this article on Greece and the IMF by Sewell Chan and Liz Alderman of the NY Times . Let's parse it a bit: In the last two days, Greece’s finance minister has threatened to turn to the International Monetary Fund for a bailout if Chancellor Angela Merkel of Germany and other European politicians resist pledging aid to help Greece cope with its newfound frugality.
Categories: climate Tags: climate, document-has, greece, imf, moved-here-, moved-permanently, permanently, political economy, sovereign debt
A Little Light Game Theory (Greek Sovereign Debt Edition)
A few days ago I saw Jeffrey Friedman extend his "Basel thesis" -- in which the risk-weighting scheme in the Basel Accords created the incentive structure that led to the subprime financial crisis -- to Greece's debt crisis: So why did the bursting of the asset bubble in housing cause a banking crisis, freezing interbank lending and then bank lending into the "real" economy? Because, according to the Basel thesis, Basel I bank-capital regulations, enhanced in 2001 in the United States by the Recourse Rule, encouraged banks worldwide and especially in the United States to leverage into asset-backed securities, including mortgage-backed securities, that were either government guaranteed (by Fan or Fred) or were privately issued but had an AA or AAA rating. How did the Basel rules encourage this? By giving such securities a 20 percent risk weight. Translation: An AAA-rated mortgage backed security worth $100 required only $2 in bank capital at the 8 percent Basel rate for adequately capitalized banks. $100 x .08 x .20 (the 20 percent risk weight assigned to asset-backed securities by the Recourse Rule) = $2. By contrast, a commercial loan of $100 required $8 of bank capital, because Basel gave such loans a 100 percent risk weight. $100 x 8 percent x 1.00 = $8. Similarly, a $100 whole mortgage retained by the bank required $4 of capital, because the Basel risk weight for unsecuritized mortgages was 50 percent
Categories: climate, mortgage, trading Tags: climate, document-has, emu; monetary union, game theory, greece, mortgage, moved-permanently, permanently, pigs, sovereign debt, trading
ECB on Wire
Felix Salmon is worried about the eurozone: Will Greece be giving up fiscal independence in return for bailout funds or German guarantees? I’m sure it’ll agree to stringent conditions, while claiming that it would have kept to such a plan in any case. The question is what happens when — inevitably — it ends up breaking its fiscal promises, or trying to play silly games to get around them. What will Germany be able to do, in that case, to snap Greece back into line?
Categories: climate Tags: climate, document-has, ecb, greece, moved-here-, moved-permanently, permanently, pigs
Coulda Seen This One Coming
Rogoff : But the problem is not only the numbers; it is one of credibility. Thanks to decades of low investment in statistical capacity, no one trusts the Greek government’s figures. Nor does Greece’s default history inspire confidence. As demonstrated in my recent book with Carmen Reinhart This Time is Different: Eight Centuries of Financial Folly , Greece has been in default roughly one out of every two years since it first gained independence in the nineteenth century. It's bad: Most Greeks are taking whatever action they can to avoid the government’s likely insatiable thirst for higher tax revenues, with wealthy individuals shifting money abroad and ordinary people migrating to the underground economy. Greece’s underground economy, estimated to be as large as 30% of GDP, is already one of Europe’s biggest, and it is growing by the day. In the case of Argentina, a pair of massive IMF loans in 2000 and 2001 ultimately only delayed the inevitable harsh adjustment, and made the country’s ultimate default even more traumatic. Like Argentina, Greece has a fixed exchange rate, a long history of fiscal deficits, and an even longer history of sovereign defaults
Categories: climate Tags: climate, document-has, greece, moved-here-, moved-permanently, permanently, pigs
Is Greece Too Big to Fail?
We've talked about the dire situation in Greece here before , and now the situation has come to a head: Greece has chosen austerity, much to pleasure of EU officials and displeasure of Greeks , who begun massive strikes. Whenever I hear about a macroeconomic development in the EU, I turn to the indispensable A Fistful of Euros for comment. Edward Hugh doesn't disappoint : [Public statements from EU officials] have been widely interpreted in the international press as a “no” from Germany and France to any EU bailout of Greece.
Categories: climate Tags: bailout, climate, ecb, greece, moved-here-, moved-permanently, pigs, sovereign debt
When Bad News Is Good News Is Bad News
Greece's sovereign debt rating was downgraded by Moody's today, following similar downgrades by Fitch's and S&P's.
Categories: climate Tags: climate, document-has, greece, moved-here-, moved-permanently, permanently, sovereign debt
Opa!
Last week I wondered whether Greece might default on its debt, what that might mean for the Euro. Well, Der Spiegel stares down the barrel : Greece has already accumulated a mountain of debt that will be difficult if not impossible to pay off. The government has borrowed more than 110 percent of the country's economic output over the years, and if investors lose confidence in the bonds, a meltdown could happen as early as next year. That's when the government borrowers in Athens will be required to refinance €25 billion worth of debt -- that is, repay what they owe using funds borrowed from the financial markets. But if no buyers can be found for its securities, Greece will have no choice but to declare insolvency -- just as Mexico, Ecuador, Russia and Argentina have done in past decades. This puts Brussels in a predicament. European Union rules preclude the 27-member bloc from lending money to member states to plug holes in their budgets or bridge deficits
Categories: climate Tags: climate, document-has, euro, greece, moved-here-, moved-permanently, permanently
