There is slippage in Greece's debt reduction programme.
Europeâs hastily assembled bailout fund already seems to be coming apart at the seams, and thatâs before Ireland has even tapped into it. Austria is refusing to contribute to the next tranche of bailout money for Greece, citing the countryâs failure to meet conditions. Yesterday it emerged there is serious slippage in Greeceâs deficit reduction programme.
The way things are going, the facility will fail even before its wider fault lines have been fully exposed. Europe is making things up as it goes along, and a pretty desperate job it is making of it too. The extraordinary thing to outsiders trying to analyse these events is just how poorly prepared Europe was to cope with sovereign debt crises within its midst. Indeed the no bailout clause contained in the Maastricht Treaty seemed to deny the possibility of there ever being one.
Europe had wholly failed to plan for a hurricane of this sort â bizarre when you consider how meticulous the Germans are in their economic disciplines.
As a result, the euro is left scrambling around looking for a plan. The European Financial Stability Facility plainly isnât it, for this only seems to condemn the surplus nations to repeatedly having to bailout the deficit economies. Eventually, thatâs going to be politically unacceptable. Perhaps it already is judging by Austriaâs actions. And even if it were acceptable, it doesnât work. For decades, Northern Italy has been bailing out the south with massive transfers of money. Itâs done no good what so ever, with the gap between the rich north and poor south still as wide as ever. Fiscal transfers ultimately only succeed in entrenching the dependency culture.
Attempts by Germany to put in place a âresolution regimeâ which would allow debt restructuring for fiscally distressed nations, forcing bondholders to share in the costs, has only succeeded in making a bad situation worse. European finance ministers believed they were bring âclarityâ to this intention by stating that these haircuts would only apply to debt issued after 2013, but actually this brings no relief whatsoever. Is Europe really saying it plans to honour the entire stock of existing national debt in these distressed nations, which is what the statement implies? Me thinks not, for to do so would call into question the creditworthiness even of the mighty Germany.
Itâs all a terrible mess, or as Terry Smith, chief executive of Tullett Prebon, puts it, âthatâs what happens when some botched repair starts to come apart in a hurricaneâ. Quite so.
P.S. Standby for a statement from the Irish government at 5pm gmt. Ireland is expected to dress up agreement to use the bailout facility as a banking bailout package rather than a sovereign debt bailout. Unfortunately, in Ireland the two things amount to pretty much the same thing. Has Ireland been forced to surrender her beloved ultra-low corporation tax rate in return? Europeâs major economies have wanted to axe what they see as unfair tax competition for years. Theyâll never get a better chance.
P.P.S. The Irish PMâs statement has turned out to be a damp squib. Ireland has not applied for a bailout, he has reiterated, and he complains of âexaggerationâ by many analysts. So weâll just have to wait until next week then for Ireland to concede. Irelandâs finance minister is out in Brusels talking to his peers, where he plans to continue with the present charade.
Tags: Austria, European Financial Stability Facility, greece, ireland, terry smith, Tullett Prebon
http://blogs.telegraph.co.uk/finance/jeremywarner/100008678/austria-tells-greece-to-get-stuffed/
Europeâs hastily assembled bailout fund already seems to be coming apart at the seams, and thatâs before Ireland has even tapped into it. Austria is refusing to contribute to the next tranche of bailout money for Greece, citing the countryâs failure to meet conditions. Yesterday it emerged there is serious slippage in Greeceâs deficit reduction programme.
The way things are going, the facility will fail even before its wider fault lines have been fully exposed. Europe is making things up as it goes along, and a pretty desperate job it is making of it too. The extraordinary thing to outsiders trying to analyse these events is just how poorly prepared Europe was to cope with sovereign debt crises within its midst. Indeed the no bailout clause contained in the Maastricht Treaty seemed to deny the possibility of there ever being one.
Europe had wholly failed to plan for a hurricane of this sort â bizarre when you consider how meticulous the Germans are in their economic disciplines.
As a result, the euro is left scrambling around looking for a plan. The European Financial Stability Facility plainly isnât it, for this only seems to condemn the surplus nations to repeatedly having to bailout the deficit economies. Eventually, thatâs going to be politically unacceptable. Perhaps it already is judging by Austriaâs actions. And even if it were acceptable, it doesnât work. For decades, Northern Italy has been bailing out the south with massive transfers of money. Itâs done no good what so ever, with the gap between the rich north and poor south still as wide as ever. Fiscal transfers ultimately only succeed in entrenching the dependency culture.
Attempts by Germany to put in place a âresolution regimeâ which would allow debt restructuring for fiscally distressed nations, forcing bondholders to share in the costs, has only succeeded in making a bad situation worse. European finance ministers believed they were bring âclarityâ to this intention by stating that these haircuts would only apply to debt issued after 2013, but actually this brings no relief whatsoever. Is Europe really saying it plans to honour the entire stock of existing national debt in these distressed nations, which is what the statement implies? Me thinks not, for to do so would call into question the creditworthiness even of the mighty Germany.
Itâs all a terrible mess, or as Terry Smith, chief executive of Tullett Prebon, puts it, âthatâs what happens when some botched repair starts to come apart in a hurricaneâ. Quite so.
P.S. Standby for a statement from the Irish government at 5pm gmt. Ireland is expected to dress up agreement to use the bailout facility as a banking bailout package rather than a sovereign debt bailout. Unfortunately, in Ireland the two things amount to pretty much the same thing. Has Ireland been forced to surrender her beloved ultra-low corporation tax rate in return? Europeâs major economies have wanted to axe what they see as unfair tax competition for years. Theyâll never get a better chance.
P.P.S. The Irish PMâs statement has turned out to be a damp squib. Ireland has not applied for a bailout, he has reiterated, and he complains of âexaggerationâ by many analysts. So weâll just have to wait until next week then for Ireland to concede. Irelandâs finance minister is out in Brusels talking to his peers, where he plans to continue with the present charade.
Tags: Austria, European Financial Stability Facility, greece, ireland, terry smith, Tullett Prebon
http://blogs.telegraph.co.uk/finance/jeremywarner/100008678/austria-tells-greece-to-get-stuffed/
