Tag Archives: Greece

BEHIND THE SCENES, by François Leclerc

Guest post. Translated from the French by Tim Gupwell

There are some sinister goings-on behind the scenes of the European financial system, which are hardly being proclaimed from the rooftops! Even Mario Draghi himself is preoccupied by it, drawing attention to vague manifestations of “fragmentation” which are developing at the heart of the Eurozone. What was he alluding to?

It is occurring in three stages: an ongoing capital flight from countries on the verge of the abyss, leading to their banks becoming increasingly dependent on ECB loans, with the liquidities then supplied by the latter being used to buy state-issued debt, in order, for the time being, to prop up the whole edifice.

The way to put an end to this ultimately destabilizing process would be to renew confidence in the continuity of the Eurozone. This explains the plan to put together a fiscal union, then a banking one, and finally a political union. But all this takes time, and there is precious little of that available. All the more so as the regulators themselves are pushing for a reduction in these financial establishments’ cross-border exposures so as to reduce systemic risk, thus accentuating a process that people are trying to stop elsewhere ….

Continue reading BEHIND THE SCENES, by François Leclerc


Guest post. Translated from the French by Tim Gupwell

It is not just Italy and Spain causing problems, after the decisions taken during the last summit suffered a setback, in view of the spectacle of great confusion and nervousness we have witnessed with regard to the joint press release – which wasn’t one – from Spain, Italy and France demanding immediate implementation. Simultaneously, Greece is providing an example of the strategic retreat of the European authorities and of the IMF.

It is now the ECB and the Eurosystem which hold the vast majority of the Greek debt, a fact which has allowed the commercial banks to consider the countdown which has already begun with a far greater degree of equanimity. The same cannot be said for the European authorities.

Continue reading SURRENDER, YOU ARE SURROUNDED!, by François Leclerc

QUIET ON THE SET, AND… INACTION!, by François Leclerc

Guest post. Translated from the French by Tim Gupwell

Events are moving fast. We were expecting it of Greece, but Spain is overtaking it. Yesterday evening, a human tidal wave invaded Spanish town streets, which these days have become virtually permanent places of mini-demonstrations at midday or after work. Today, at the very moment when the Eurogroup ministers were adopting the bail-out plan for the Spanish banks, the bond rate had edged up to 7.20% and the Madrid Stock Market plunged more than 5%. Instead of falling as had been predicted, the government has announced that the official unemployment rate is going to reach 24.6% by the end of 2012. A bona fide rescue package will soon be required, something the Bundesbank and the Members of the Bundestag have been advocating, seeing an opportunity to carry out yet another brilliant demonstration, associated with another round of austerity measures. Time will tell soon tell us which one will be first.  

Italy is likely to be the next domino to fall. Major stock values fell by around 5% on the Milan stock market, since the Italian banks are saturated with debt securities whose value is gradually falling as bond rates increase in line with Spain’s. The Spanish scenario is repeating itself due to the increasingly interconnected links between public and private debt which have developed over recent months. Italy may not have the colossal property bubble, but it has a public debt situation that is just as bad.

Continue reading QUIET ON THE SET, AND… INACTION!, by François Leclerc


Guest post. Translated from the French by Tim Gupwell

“I can’t see any time soon when…the pressure will be off” replied David Cameron, the British Prime-Minister, in an interview with The Daily Telegraph. He continued, “this is a period for all countries, not just in Europe but I think you will see it in America too, where we have to deal with our deficits and we have to have sustainable debts”. In conclusion, his austerity policies are likely to continue beyond 2020, as the situation is “a lot tougher than the forecasters were expecting”. Georges Osborne, the Chancellor of the Exchequer, has already extended to 2017 the austerity plan of 2010, which was initially intended to last five years.

The prolongation of the schedule which is taking shape is now being referred to, in veiled terms, within the Eurozone, a good example being Jérôme Cahuzac, the French Budget Minister, when he announced that “ I’m afraid that reducing the debt may take a little longer” in reply to a journalist who was talking of one, two or three years.

In its annual report, the IMF has just outlined a road map for the Eurozone, advocating – when it actually makes any concrete proposals – measures which focus on pooling the debt, an issue which radically divides politicians. The continuing crisis, it now says, is raising questions about the viability of the monetary union because “its root causes remain unaddressed” and “the adverse links between sovereigns, banks, and the real economy are stronger than ever”.



Guest post. Translated from the French by Tim Gupwell

The European Finance Ministers managed during the course of the night to finalize a minimal agreement, which needs, as usual, to be examined in detail due to its grey areas. They put together a set of nominations to the ECB and the ESM based upon the provisional re-appointment of Jean-Claude Juncker at its head, in the absence of any other solution. Then they reached a “tentative agreement” (another way of saying a broad outline) with regard to the particular case of Spain which needs to be wrapped up for adoption on the 20th July.

An additional year will be given to Spain to reduce its deficit and get back on track, which confirms that things are in the process of getting out of hand, and which depends on the new austerity measures that Mariano Rajoy is going to announce this week. These are said to include an increase in VAT, reduced social security payments, reductions in unemployment benefits and a revision of the methods used to calculate retirement benefits. A preview of the program has already been presented by the Spanish Finance Minister, Luis de Guindos.


GUILTY PARTIES WANTED !, by François Leclerc

Guest post. Translated from the French by Tim Gupwell

In accordance with the predictable script, the bond market is under pressure again. The cost of servicing Spanish and Italian debt has continued to increase as their financing plans move forward in little measured steps. The effect of all this is to place an additional burden on the budgets, undermining those measures which are intended to reduce the deficits.

The statistical institutes INSEE (France), IFO (Germany) and ISTAT (Italy) all agree: Europe is sinking into a recession which they describe as ‘technical” in an attempt to make it sound innocuous, but which, regardless of what they call it, amounts to the same thing. This is why the ECB has, unsurprisingly, just decided to cut its main interest rate.

It explained that it was trying once more to encourage banks to develop credit in a bid to restart the economy. With the markets having anticipated the move, there is no guarantee of success. Success is assured, on the other hand, for the Eurosystem in its role of bad bank, the central bank having once more lowering the bar for the collateral guarantees it will accept from banks in return for this operation. Once again, the hidden purpose is to ease the pressure on the banks.

Continue reading GUILTY PARTIES WANTED !, by François Leclerc

Le Vif/L’Express, « There is ALWAYS an alternative », June 22, 2012

This is an exclusive preview – in English! – of my column which will be published in the Belgian weekly Le Vif/L’Express this coming Thursday

The phenomenon is the way in which things manifest themselves to us, and this can be real – either with things appearing as they really are; or it can be deceptive – with things appearing other than they really are – such is the case for optical illusions for example which suggest a false reality. Where the Greek language said phainomenon, latin said apparentia, appearance, with the same two nuances as for phenomenon – either an appearance faithful to the nature of things, or, on the other hand, an appearance which is deceptive.

Why this talk about epistemology? Because of the Greek elections last Sunday, and the European political class which has fallen victim to an appearance which is deceptive: it thought that encouraging the Greeks to vote for the right-wing party New Democracy was a way of saving the Euro, fearing that a vote for the left-wing coalition Syriza, would signal the end of it. Whereas in fact the opposite is true

Why? Because the formula adopted so far to try to save the Eurozone has been a spectacular failure. To persist stubbornly with the same policy following the principle of ‘TINA’ (There is no alternative, the infamous words of Margaret Thatcher), is to be sure of pursuing the hellish spiral descent which was triggered at the end of 2009. The Europeans who are roped together like a climbing team (let’s not pull the wool over our eyes) are in spiritual turmoil. The ropes of its members are working loose one by one: Greece, Ireland, Portugal, Cyprus…. whilst the number of them looking to have a secure foothold – burdened by the weight of those already dangling in mid-air which is growing heavier and heavier – is reducing dangerously.

Continue reading Le Vif/L’Express, « There is ALWAYS an alternative », June 22, 2012


France and the future of Europe

The fact that Spain seems to have lost all access to the capital markets for the foreseeable future, seeming thus, at first glance, to condemn the entire existence of the Eurozone, was headline news on Paul Jorion’s blog yesterday. Firstly, as discussed in the article ironically entitled “The Greeks have made the right choice”, where I drew attention to the fact that the victory of the right-wing party New Democracy in the elections didn’t seem to have any positive or negative effect on the international markets since the coupon for 10 year Spanish debt had shot past the 7% threshold in the morning (and was at 7.158% at the close). Then, I returned to the theme in the afternoon with “The loss of confidence in the Spanish markets – Live”

During all this time, what did the French press think of all this? Nothing it seems. Did they speak about it the following morning? Not really, not, in any event, in anything I had access to. In Les Échos on line ? Uh.. nothing. In the printed version ? Uh…..nothing. Le Monde on line? Uh….nothing. Le Figaro on line? Uh… nothing.  La Tribune (now only available on line)? Uh….nothing.

In Belgium, it made the headlines in l’Écho, which manages to save the honour of the French-speaking press. What about the English-speaking press? There, it’s different: they’re talking about nothing else! Front page news for the Financial Times online, first page of the online Wall Street Journal, front page on the site of the Bloomberg agency, etc.

The conclusion to be drawn from all this? (Unless I have looked really, really badly) no one in France is even the slightest bit interested in the future of the Euro.


“The Greeks have made the right choice!”

Oh blast, the markets see it differently: the 10 year Spanish rate was at 6.82% at opening this morning and now it’s at 7.25% (3:30 PM). Unheard of, one has to say. Damned markets!

Voting for the Troïka method – it was pretty obvious – was voting to continue the same slow, downward spiral towards Hell, with the members of the Euro zone like a climbing team roped together, whose ropes, one after the other, are working loose.

Voting against would have brought things to a halt, forcing a rethink of the entire problem – which was exactly what was needed. That wasn’t what happened.

Thanks to the lead writer of Financial Times Deutschland who called last week for the Greeks to vote for New Democracy, thanks to François Hollande who did the same thing, – yours sincerely, a grateful Spain.

As one says of Humpty Dumpty, who fell off his wall: “He was pushed!” Same thing for the Roman Empire: it was pushed. But what on earth possessed Mr. Hollande to be one of the ones doing the pushing?

ON THE EVE OF THE GREEK ELECTIONS, by Panagiotis Grigoriou

Guest post. Translated from the French by Tim Gupwell

On Thursday 14th June a woman from Crete, aged 32 years old, stole three packs of milk and an ice-cream from a supermarket in Héraklion, causing a loss to the shop of 20.77 Euros. For several days, her four children had been given nothing but plain pasta to eat. Caught in the act, the young unemployed woman was immediately remanded into custody. She has just been released (Friday the 15th June) and the charges have finally been withdrawn, thanks to the mobilization of the town’s workers’ trade union group and also, thanks to the media exposure of this local news which became decidedly…national.

On Thursday evening, a man aged 55, in long term unemployment, committed suicide in his garden in Agrinio, in the heart of the country, with his hunting rifle. “It was a blood bath”, declared the neighbours, shocked, according to the news report. In this way, political realities under the ‘Troïkans’ are rendered through the symbolism and practice of spilling blood. It’s already an established fact in the mentalities and the collective logic that the death instinct has been reawakened, thanatos is on the verge of becoming a political contract. There is no longer any point in feeling sorry about this, it has to be dealt with, but how?

Continue reading ON THE EVE OF THE GREEK ELECTIONS, by Panagiotis Grigoriou

A BIG BANG, OR NOTHING , by François Leclerc

Guest post. Translated from the French by Tim Gupwell

With the G20 meeting being held in Mexico at the start of the week, our perspective will find itself altered, falsely accustomed as we are to only seeing the debt crisis from a European angle. On the 18th and 19th June, the greats of this world are going to gather in Los Cabos, a tourist resort in Southern Lower California, under the double auspices of debt and global recovery.

To avoid standing idly by whilst confronted by a disaster of its own making, the British Government has just announced a plan to relaunch the economy with banking credit, funded by a Bank of England liquidity programme. In the context of an overall 80 billion programme, there are plans for monthly injections of around 5 billion Pounds (6.1 billion Euros). But the question that needs to be asked is whether the results will be as inconclusive as those obtained from the ECB’s massive injections, or indeed the tireless pursuit of zero-rate loans (from 0% to 0.1%) by the Bank of Japan – still without any further success – and whose 700 billion Euro acquisition programme of private and corporate securities is still in force.

The British Government wants to make these banking loans conditional on the latter making specific commitments, but hasn’t this been heard before? The monetary policy instruments of the Central Banks merely allow more time to be bought, and do not resolve any of the unanswered questions.

Continue reading A BIG BANG, OR NOTHING , by François Leclerc


And now?

14 juin 2012 par Paul Jorion

And now? What are we going to do? Now that Spain has lost access to capital markets for its debt?

True, the downgrading yesterday evening of Spain’s rating by three notches by Moody’s, from an A3 to Baa3 has not helped matters. But after all, it hasn’t taught us anything that we didn’t already know last weekend: with a 10 year sovereign debt rate stuck around the level of 6.75% (*), the game was up anyway when it comes to financing its debt on the capital markets.

The cause of all this? The additional 100 billion euros obtained by Spain from the European funds, and for which the nation itself is directly liable, European regulations forbidding direct bail-outs from its institutions.

Have you noticed that the European regulations are packed with suicidal clauses, the implications of which we are still discovering today, in emergency situations? Some people, convinced of the unlimited power of the human will, will explain to you that this is deliberate: foreseen long ago for the setting in motion, one day, of the Great Secret Plan. A more down-to-earth explanation is that it is the result of human inventions which natural selection has not yet had the time to sort out.

But didn’t the Americans succeed, managing to found a great nation with lots of little bits?! True, but that is indeed the point: in that particular instance, the method of trial and error was used on a grand scale – the United States of today has had to endure a vicious civil war to clear things up somewhat. And some of the scars are still fresh.

Already, keeping the Greeks in the family is very hard. Add to that Portugal, plus Ireland, plus Cyprus (today, at the end of the morning). Nevertheless, Spain – and this was said from the start, right after the initial alert at the beginning of 2010 – is too big a morsel to swallow for the Euro zone to rest intact: it is just not possible. Not to mention Italy, also very pale, on a chair in the corridor of the clinic.

On the 5th April 2010– already two years ago! – I had explained it in an article for the Monde-Economie entitled “The red line”: “There will soon be national unity governments, when it becomes evident to everyone that no single party is able to get to grips with the irresolvable problems being posed; subsequently this will be followed by a Committee of Public Safety when it becomes clear that even working together they understand nothing; and – if God takes pity on us – this will be followed finally by a new National Resistance Council, at the moment when it will be necessary, beyond the differences considered irreconcilable today, to launch an ultimate attempt to save what can still be saved.”

M. Hollande has not yet reached this stage, convinced as he is, that if what France needs is growth, the Greek temperament is far better suited to aggressive austerity measures. What he wishes for the Greeks is for Pasok and New Democracy to come out victorious in the Greek elections. And he hasn’t hesitated to tell them. Without doubt, this would be a miniature reproduction of the ill-matched Franco-German couple which is currently offered to us. The winning formula seems, to him, to be that of the union of a right-wing Socialist party with a Liberal party, both of them convinced that mothballing the welfare state is a much more urgent priority than reining in the world of finance

It is to be noted that the Americans are in much the same state of mind. Yesterday, Jamie Dimon, the boss of J .P. Morgan Chase was being grilled by the Banking Committee of the American Senate. He was asked how his bank had managed, by inadvertence, to lose between 3 and 10 billion dollars. The Republican Party Senators used up all their allocated speaking time to maintain – wanting Mr. Dimon to confirm it enthusiastically – that at the moment the greatest worry is that of an over-regulation of the financial sector. This is how it is at certain periods, you can take my word for it: programmed suicide is to be found everywhere. And I am sparing you the most comical examples.

Finally, let’s wager that people in Brussels are working hard at the moment to find solutions, that further cunning plans are being concocted in order to be put into practice in 2014 or 2018. Why are these miracle solutions always being delayed, it would not be an exaggeration to say, indefinitely? All in good time. Except that today, on the 14th June 2012, this is what is missing the most – time that is.

(*) 6.974% at 10:51


How credit default swaps will have destroyed the Euro

12 juin 2012 par Paul Jorion

And what of the CDS (credit-default swap) speculators who don’t pay taxes? Why don’t we hear anything about them? We hear a lot about the Greeks not paying their taxes, and at the moment, due to the tactlessness of some, we hear a lot about international civil servants (more precisely those of the International Monetary Fund) who don’t pay taxes, but, in the case of CDS speculators who pay no taxes, goodness knows why – not a word!

It has to be said that it is not so simple to find out who they are exactly because they constitute part of the shadow banking sector. Which is what exactly? It is non-regulated finance. Why is it non-regulated? Because it is these people who pay the salaries of the lobbyists who draft up the financial regulation laws (and sometimes other laws too), which the elected representatives then receive ready-made, and which only require signing-off.

Being in the shadows therefore, we don’t really know who they are. Do they never explain who they are? Well yes, in a way: when a speculator speaks on his behalf, he always employs the same expression: “people acting with due care and diligence”. When a speculator explains what he does, he starts his phrase with “people acting with due care and diligence ….” For the remainder of this article I shall therefore designate the speculators as “people acting with due care and diligence”, and it will be clear who I am talking about.

When the Greek collapse was imminent, people talked a lot about the responsibility of the CDS for what was happening. Now with regard to Spain, not a word! Why have people stopped talking about credit default swaps? I don’t know, unless it is as in the Jacques Brel song “On n’oublie rien de rien, on s’habitue, c’est tout” (We don’t forget anything about anything, we just get used to it, that’s all”)

How will Credit Default Swaps destroy the Euro? I will explain. First of all, a reminder that a CDS can play the role of insurance for a debt.  Imagine you have lent 100 € to Oscar. As you are not sure of being paid back, you address yourself to Eusèbe who insures you. Every month you pay 5 € to Eusèbe, and in return for this premium, Eusèbe will pay you any money that is missing at the end. Oscar only gives you 75 € back? Eusèbe will give you the missing 25€. Oscar has vanished into thin air? Eusèbe will pay you, on the dot, the missing 100 €.

That’s what is called a ‘covered’ CDS position. Now let’s turn to the ‘naked’, uncovered positions. Pay close attention, this time it’s more complicated because there are now four people involved: there is also Jules and Gontran. Jules has lent 100 € to Gontran. I visit Eusèbe and I ask him to insure me against the possibility of Gontran not paying Jules back. Why would I do that? For goodness sake! Because I am a person acting with due care and diligence of course (I swear, some people ask the strangest questions!)

I won’t explain why it has become normal to call a ‘naked’ CDS position: “insuring the neighbour’s car”, I’m sure you have understood.

Naked CDS positions will be forbidden in Europe from the month of November. Why have we waited so long given that these naked CDS positions had already led to the collapse of Greece in January 2010? (Here we go again, people asking the strangest of questions!) Because there was still Spain, Italy and France…. to be sent to the scrap yard, then to be sold on in bits at attractive prices to those prudent (forward-thinking) ‘people acting with due care and diligence’ who had put some money aside.

How do these people acting with due care and diligence cause the collapse of a country? Once again, I’ll be brief: they insure the neighbour’s country. As they are (at the least) four times more numerous than those who insure their own country (and who have really something to lose), they inflate swell the demand, leading to a rise in prices.

Meanwhile the economists watching all this say to each other : “Goodness, look how the risk that Gontran doesn’t pay Jules back is increasing. Scary stuff!”

Do the economists not understand then that it is those people acting with due care and diligence who cause the prices to rise? No. In their economy manuals, speculation doesn’t exist: it is not explained. If it is, there is a little footnote which describes how “people acting with due care and diligence contribute liquidity to the market”. End of story.

The price of the CDS premiums increases, because demand increases. The economists calculate the risk that the country won’t repay its debt by effecting a calculation in the opposite sense: from the amount of the CDS premium.

The result is that the day when Gontran presents himself again, in order to lend to him the capital markets require a rate of interest into which they have inserted (it’s called the spread in the newspapers) the risk premium for the CDS market (those genuinely insured people acting with due care and diligence) and, hey presto, to borrow over 10 years, Gontran is asked to pay an interest rate of 28.9% ( as is the case for Greece at the moment according to Bloomberg) and it’s all over for Gontran: the troika is already knocking at his door explaining how to become a serf, and how it’s not too bad after all.

But wait, it’s not yet over: the funniest is yet to come! An insurer has to have reserve funds, doesn’t it? In that way, if something unforeseen happens, it can draw on its reserves. In the majority of cases, this will be enough and if it is not the problem is posed only for the difference between the sum to be paid and the reserves, which will, at least, have softened the blow. But in the case of the CDS (and here I see some of you laughing your heads off because you can see what is coming) the CDS are in the shadow banking sector! What would be the point of being in the shadow banking sector, if in this shadow banking sector, one were obliged to keep reserves as one would in the (idiotic) daylight sector?

So, no reserves to cushion the blow in case of a problem, and as there is -as I have said – (at least) four times more people acting with due care and diligence who have insured their neighbour’s country than those who are really running a risk………

And this is why, to cut a long story short, CDS will destroy the Euro (or at least, it, given that, from the way in which it started…..)


Guest post. Translated from the French by Tim Gupwell.

The chaotic ups and downs of the deleveraging process continue inexorably, affecting not only the debt of the member states but also a European banking system which is now in the same mess. What it had been concealing has now been revealed: it is in a very sick and feeble state.

In order to subdue and contain this gradual process, new bail-out instruments have had to be put in place – which are the subject of much debate; their effectiveness is limited since they are part of a debt-reduction strategy which relies predominantly on the staggering of its financing with public funds that are more or less mutualised. What is new about all this is that, as the amount required increases, it is becoming increasingly difficult to raise the funds. This is prompting a consolidation of the private sector (in order to limit the damage and to share the costs), which is, in turn, destabilizing this sector as well.

Continue reading WHEN THE WISE MAN POINTS AT THE MOON… (I), by François Leclerc


Guest post. Translated from the French by Tim Gupwell.

“There is a first assessment, then a second, a third, a fourth…..It’s the worst possible way of doing things because everybody ends up doing the right thing but at the highest possible cost and price”. Who was it speaking so harshly yesterday of banking losses and of the policies of the European leaders? Answer: The ECB president, Mario Draghi, in the course of a hearing before the European parliament.

With his colleagues from the governing council, he drove home this same point, supporting the creation of the “European banking union” proposed by the Commission, starting with the constitution of a deposit guarantee fund. He was supported by the governor of the Bank of Italy, Ignazio Visco, who is getting ready to lead the charge. Rising Spanish bond rates have driven Italian rates higher; according to sources, the recession is estimated to be between -1.4% and -1.7% for this year, and the official unemployment rate exceeds 10%.

At one moment or another it becomes necessary to face up to reality, and this moment has arrived, manifesting itself in the massive outflows of capital from Spain, calculated by the Bank of Spain at 66.2 billion Euros (according to the latest available figures) for the month of March alone. The withdrawal of deposits is not a fantasy taking the form of long queues at cash machines (which could always occur): it is people with capital and businesses which are fleeing the country.

Added to the collapse of an entire swathe of the Spanish banking system, this phenomenon has suddenly come to dominate the public debt crisis and its corollary the fiscal discipline pact which had aimed to resolve it. Sidestepping the issue, Angela Merkel has declared that the Spanish situation is not the result of the strategy of austerity that she has advocated, but the outcome of the burst property bubble which occurred before its implementation. As if the former did not feed the latter.

Continue reading THE TOWERING MOUNTAIN, SWAYING FROM SIDE TO SIDE, by François Leclerc


Translated from the French by Tim Gupwell.

I have made the observation here that what leads us to desire change is never the projection of an idyllic image of a new future world to which we aspire, but rather the present moment in which we live become intolerable.

Irony plays a considerable role in history and it would be particularly pleasing if, where cold and objective reason has not been able to resolve the Greek situation at the heart of the Euro zone or of the conundrum of the Euro zone itself, indignation itself succeeds. Because if the recent remarks made by Mme. Lagarde are taking root in Greek minds, they are also blazing a path across the rest of Europe.

The diktats that the Troïka (European Union, Central European bank, and the IMF) are imposing on Athens are a technical jumble in which it is easy to get lost if one seeks to refute the arguments one by one, but that haughty and irritated declaration, oozing class arrogance, recalling the famous “let them eat cake” (as she had done before with “ri–lance”, hilarious attempt to coin a new word which unites the two concepts of rigour and reliance and which is still making us laugh), from a person whose revenue is not subject to tax, this latter revenue appearing to be extremely generous when we consider the 14 monumental blunders pronounced by its beneficiary over a period of only five years (catalogued by a fellow blogger), seems to have the potential to arouse the sort of refusal of the intolerable which seemed to have been lacking until now.


An English translation by Bernard Bouvet of my post “Les spéculateurs sur la dette grecque, neutralisés”.

Last Friday’s ruling by the International Swaps and Derivatives Association (ISDA) that the much talked about Greek debt swap, or the so-called private sector initiative (PSI), does not represent a “credit event” and, therefore does not trigger Credit Default Swaps (CDS) payments, constitutes a remarkable victory against the markets, the first real victory in an asymmetric war started exactly five years ago at the height of the subprime mortgage crisis.

With this decision, sovereign debt speculation is being brought to heel: being effectively neutralised, since a partial default (private holders of Greek debt getting 46.5 cents on the euro), alongside a debt rescheduling and a readjustment of interest rates guided less by speculative motives and more by an objective risk evaluation (taking into consideration the European guaranty), won’t be viewed a “credit event”. If such an array of reasons for depreciation is not viewed for what it should be, then nothing will from then on, at the very least as far as CDS contracts on euro sovereign debts are concerned.

It was long overdue for debt buyers, more accurately, lenders to sovereign states, to acknowledge that the rate tagged onto a loan – the “coupon” – already includes a risk premium, that is calculated specifically to compensate the preferably rare occurrences at such times when the advanced funds won’t be reimbursed, or only partially, such as in Greece’s case.

The sovereign states, having until now unconditionally and scrupulously followed the diktats of the sovereign debt speculators, desperately needing a victory to re-stamp their authority, should be grateful to the ISDA. Its fifteen members committee’s decision was apparently unanimous: an impressive feat, admittedly. What could have been the motivating factor being the consensus? With no explanation – none will be provided, we are being assured – one can only speculate (pun unintended).

The most likely scenario: as representative of all players in the CDS market, the ISDA had to protect the conflicting interests of two very different types of speculators, those who contracted naked positions on the Greek debt (in other word, speculating on Greece’s default without really being exposed to the risk of a loss), and those issuing CDS (with no adequate capital reserves, as permitted under the legal framework – or rather in its very absence). An overall process of risk analysis probably swayed the needle in favour of the “insurers”, their downfall proving more costly and a source of an increase in systemic risk (risk of a collapse of an entire financial system) than the failure of the bettors (the ghost of AIG still haunts memories – that insurance company infamous collapse in the fall of 2008 brought about by the reckless issuance of CDS in the demise of Lehman Brothers and its collateral victims).

If my hypothesis is true, the neutralisation of sovereign debt speculation happened not so much thanks to the sovereign states themselves, but rather to the two opposite types of speculators in that market neutralising each other. With all due respect, if one was expecting the sovereign states to show, once again, some courage, one would probably have to wait indeed a very long time!

Hellenic Securitisation S.A. – Request for Information, by Panagiotis Grigoriou

Guest post. Translated from the French by Bernard Bouvet.

This is Athens!

We are barely able to recover from Memorandum 2 (see the latest entry (Sightseeing Athens) on my blog “Greek Crisis”). The Shock Strategy, when undergone as a…patient, doesn’t give you any respite. Multi-risk, multi-faceted, a total weapon. In the meantime, through the mainstream media, I see that France, self-absorbed in electioneering, is turning its presidential campaign into a political beauty contest, far, far removed from the crucial issues.

At home, the bankocracy’s advance is measured at the speed of light: the situation is far worse than what we had imagined. We still have access to information, however difficult. On the other hand, the citizens haven’t yet really grasped the crux of the matter, being bludgeoned as they are under so-called austerity measures that cleverly hide ulterior motives. Alas, a lot worse is to come: society’s general frame of reference is to be brazenly transformed. The empty shells, at home, like the papademocracy, and elsewhere, will last the required period of time, and then, one fine day, we find ourselves under a political regime totally… alien!

The Greek State has been abolished, as a matter of fact. That will become increasingly evident next summer. What I, and some others, want to find out, is who is behind the company Hellenic- Securitisation S.A.: its founders, partners, “backers”, shareholders, public or private (individuals, companies, banks, etc.). Recently established in Luxembourg, this structure will “manage” the Greek debt. Through this channel, Greece will be stripped of its private and state assets. Greece becomes then an ex-State, assuming the legal status of a corporation, a country whose name itself becomes a brand, changeable at the will of “shareholders” if that helps to improve profitability. In a nutshell, this is the talk of the streets here.
In any case, there is a little bit of info regarding this structure here (); more is needed.

Is there anybody here, among friends of the “Blog de Paul Jorion”, anybody who cherishes the Truth, who has an idea about how to go uncovering the facts around this Hellenic Securitisation S.A.? Aside from any journalistic considerations, I sense that we are touching a structural and “structuring” aspect concerning our “Greek experiment”. A situation, to my knowledge, with absolutely no precedent in the installation of a new regime in Europe.

Thank you in advance for your help!


An English translation by Bernard Bouvet of my post: M. Stiglitz n’est pas au courant.

What caused it? Is it the one year 7% decline in Greece’s GDP in 2011, 16% altogether since the crisis began in 2007? Or perhaps the defections among members of the Greek parliament during Sunday’s vote, followed by exclusions from their respective parties, and to top it all, opinion polls in favour of the Left and the Radical Left? The Greek government giving thus the impression that it doesn’t represent the will of its citizens “anymore”, and so, rendering Sunday’s vote on austerity plan meaningless?

In any case, eurozone leaders are now hesitant. The postponement of the Eurogroup meeting scheduled for today (Wednesday Feb 15) – replaced instead by a conference call – is an indication that those at the top are all of a sudden starting to feel weak at the knees: yesterday morning’s triumphant mood faded into a flimsy excuses session by evening.

Earlier on Monday, I was musing how long that formidable immunity to facts would last, as shown by the troika now governing Greece for the last several months and poised to follow suit in the rest of Europe. Just to be clear, I mean the ultra-liberal, closed club involving the European Commission, the European Central Bank, and the International Monetary Fund. Last evening reactions seem to suggest that the vaccine may be wearing off after all.

In a recent interview, Mr. Stiglitz, whose analyses are usually excellent, is raising the question of what is behind this immunity to facts. He wonders if banks in the eurozone failed to cover themselves against an eventual default of Greece? Or whether anyone has the capacity to assess the ensuing losses? Perhaps the reason, Mr. Stiglitz reflects, is the basic inability of the CDS issuing financial institutions to cover the claims in the event of a default?

It certainly is a combination of all of the above, in particular the fact that by and large, CDS have probably been issued by some of the least solid German banks and even Greek banks themselves. (Human stupidity knows no bounds! Seriously, who could have ever thought-out (dreamed?) that a bank in a given country constitutes an insurer of choice against a default payment of that very country?) The real culprit is not at all a true mystery, there it is: private retirement savings accounts, the ultra-liberalism’s last bastion.

Private retirement savings accounts were meant to save the world. Once and for all, private retirement savings accounts were supposed to triumph over several grotesque values we had inherited from the 18th century, such as – ew! yuck! – solidarity. Private retirement savings accounts would rid this world of the shame of unfunded pension plan (pay-as-you-go, PAYGO) which turns parents into “ogres devouring their own children and grandchildren” (dixit). Most of all, private retirement savings accounts would bring retirement plans into the glorious and sacred realm of profit. But to fulfil this destiny, the portfolios of insurers required constant and ineluctable growth. The stock market had to rise steadily forever. At one time, the thinking was, some still do, that high-frequency trading could give a helping hand – invisibly! – without having to prosecute and/or convict too many whistle-blowing programmers. And above all, government bonds, and sovereign debts, could never ever depreciate.

Now with Greece defaulting, or rather with the fact that it is finally recognized that Greece is defaulting, the house of cards is collapsing. The demise of private retirement savings accounts puts an end to the myth – guarantor of social peace – that “We are all shareholders and investors”. It puts an end to the myth “that everyone can get rich, it’s just a matter of effort!”. That myth, also, has been contradicted by facts, for at least the past twenty years in Western countries.

No, Mr Stiglitz there never was anything mysterious about why the troika is immune to facts!

Le Monde – Économie, Monday 8 – Tuesday 9 March 2010

Here an English translation of La machine infernale, my monthly column for March in Le Monde – Économie.


Only five years ago, we were led to believe that the advertised model of the economic and financial apparatus represented a system that was finally mature: stable because thoroughly predisposed to self-regulate and practically safe thanks to super-efficient risk-spreading.

Self-regulation did not happen. Risk, although atomized, was nonetheless concentrated by the more astute players into enormous portfolios of financial products with, influenced by the economic climate, inflated risk premium; an unavoidable downside correction triggered the implosion of the Bear Stearns, Lehman Brothers, AIG, Fannie Mae, and Freddie Mac.

Computers brought complexification to the credit-based world of finances which from then on prevented it from functioning in anything but bubble mode: euphoria concealed the non-existence of self-regulation, while concentration of risk, for a time minimal, went undetected.

By contrast current events highlight the dysfunctional nature of the economic and financial workings outside the dynamics of an economic bubble. Thus, in the case of the speculation against the Euro, a collection of harmful elements combine in a potent toxic mix.

Sometime during 2001-2002, the European Union turns a blind eye to Wall Street’s currency swaps-disguised loans to member states in order to allow them to comply with the terms of the Euro zone Stability and Growth Pact (SGP). Yet, the increasing complexity of financial products makes it impossible for rating agencies to correctly assess the underlying risk. When the subprime crisis breaks in 2007, rating agencies are rapidly discredited. Vague attempts to reform those agencies suffer the fate of all proposed regulations at the time (with the exception of some, sufficiently innocuous): they are shelved into oblivion. Meanwhile, scientific rigor proving elusive, rating agencies will do with inflexibility.

The downgrading of Greece tainted currency swaps put them just a notch above the trigger for a margin call that that nation is unable to honour. Speculation on the, by now, strong likelihood of Greece defaulting gets under way. By taking long positions in Credit-Default-Swaps (CDS), speculators are “insuring” against a risk they don’t face, but by so doing, increase the likelihood that it materializes. Rising CDS prices, considered as an objective measure of risk, according to the prevailing “efficient market” economic theory, generate a proportional increase of the coupon required upon issuance of new debt by Greece, further penalizing her. A vicious spiral snaps in place that nothing can stop. Like so many dominoes, other Euro zone states are being lined up. Once one is in default, the rest of those still unscathed would be weakened, and speculation will immediately target the next most exposed.

When banks were failing, States provided help. The heat is now turned on States. Only the IMF will be left to stage a rescue. On February 26, an announcement was made, through its president, Dominique Strauss-Kahn that the IMF was ready to take up its role. We count on it: the IMF is surely the last defence line.

Many thanks to “bb”.