Tag Archives: IMF

LOTS OF FROTH, by François Leclerc

Guest post. Translated from the French by Tim Gupwell

A brand new development in the history of the ECB has occurred: leaks yesterday revealed the broad outlines of its new sovereign debt securities’ purchase programme. One cannot help thinking that it was necessary to prepare the ground in advance, with the ECB decisions falling well short of some of the mounting speculation.

According to Mario Draghi, there will be no limit to the amount of bond purchases on the secondary market – but the scope of the announcement needs to be put into perspective. They will in fact be decided on a case by case basis, and not as soon as a specific threshold has been crossed: based on interest rates or spread for example. It has also been confirmed that it will concern securities with a maturity of between one and three years, something already anticipated recently by the market, judging by the result of the issues which have occurred.

Continue reading LOTS OF FROTH, 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


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”.


WELL SPOTTED, BRAVO!, by François Leclerc

Guest post. Translated from the French by Tim Gupwell

As already highlighted the Spanish government is already benefitting from a de facto rescue plan under another name. To save appearances, the new austerity measures put forward for vote in parliament have not been the object of a memorandum jointly signed with those providing the funds, as had previously been the case for other countries. In fact, the announcement of these measures came the day before that of the banking bail-out!

One major difference with the preceding rescue plans can be observed: the entirety of the 100 billion Euros loans provided – whose planned repayment schedule is staggered until June 2013 – is destined for the banks. The State will merely pass on the funds, something which has not prevented the Government from imposing austerity measures on the Spanish, even though the two things are not strictly connected.

Continue reading WELL SPOTTED, BRAVO!, by François Leclerc

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


Guest post. Translated from the French by Tim Gupwell

What can you say when you are in total disagreement? You can always assert, with one voice, the need for a union! This is this perspective that the quartet composed of José Manuel Barroso, Mario Draghi, Jean-Claude Juncker and Herman Van Rompuy (in alphabetical order) continues to work on.

A new magic word has been discovered and is going to be proclaimed with all its variations, to push for the implementation of four unions: banking, fiscal, economic and political. With the fiscal union already in the pipeline, the next stage which urgently needs to be reached is that of the banking union. According to a leaked document, it is supposed to be ready in a year – reverting back to a new season of this tactic of putting out feelers to see how people react.

Continue reading AFTER THE WORDS, THE MAGIC FORMULA…, by François Leclerc

BACK FROM LOS CABOS, by François Leclerc

Guest post. Translated from the French by Tim Gupwell

Given that the G20 has confined itself to mere generalities and that the European Summit on the 28th and 29th June is dangerously close, what can be expected of the meeting in Rome on the 22nd June between Angela Merkel, Mario Monti, Mariano Rajoy and François Hollande, intended to serve as preparation for it?

Two projects are being examined in parallel by the European institutions, which are being assembled together and presented as if they were one of Great Wonders of the World. Firstly, by issuing Eurobonds with a short maturity- and thus with limited risk – and secondly by the creation of a fund intended to bring together and finance over a period of 20 to 25 years the stock of debt which exceeds the threshold of 60% each country’s GDP – these countries will have to demonstrate their credentials beforehand with regard to their budgetary commitments. Thanks to these virtuous arrangements, we will all be saved and the chaotic debt-reduction strategy will finally work as it should!

Intended to ease the pressure on the debt-reduction strategy, this wonderful arrangement will not, however, get Europe out of the recession which is the main cause of the investors’ lack of confidence. Due to its global dimension, this prospect was at the heart of the discussions at the G20. In order to help private sector debt-reduction, these two complementary measures will be coupled with a ‘Banking Union’ based on the doubtful premise that the banks will be able to finance their own rescue-packages without any external intervention.

Continue reading BACK FROM LOS CABOS, by François Leclerc

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


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.

It was no longer possible to carry on. Two and a half hours of videoconference between the Eurozone’s finance ministers (joined by Christine Lagarde on behalf of the IMF) were needed to finalize the scheme, allowing the German and Spanish governments to save face. Germany made sure that aid for the Spanish banks passed via the State, thus increasing Spain’s deficit, whilst Spain attempted to explain that this was not a bail-out plan or a loss of sovereignty, with, furthermore, the assistance not being subject to any austerity measures.

Up to a hundred billion Euros are going to be lent to FROB, the government’s banking support fund, on the condition that the government takes measures to stabilize its banking system. How this will work is yet to be defined. The IMF, which is not contributing financially to the rescue, will be entrusted with the task of ensuring it all goes smoothly.

Continue reading A HUNDRED BILLION EUROS FOR SPANISH BANKS, by François Leclerc

WHEN FATE INTERVENES…, by François Leclerc

Guest post. Translated from the French by Tim Gupwell.

In the blink of an eye, discussions have switched focus. The issue of growth which was at the forefront has rapidly surrendered its place to the elaboration of a plan for the supervision of the banks and the rescue of those in need. Improvisation continues to be a dominating force, with what was denied yesterday becoming a priority today.

The sheer size of the reported losses in the Spanish banking system and the capital withdrawals out of struggling countries have forcibly imposed this return to a theme which had been set aside. The global fragility of a highly interconnected system has been highlighted to such an extent that, in order to show the potential scale of it, the risk of a new European ‘Lehman Brothers’ scenario has been evoked. A new aspect, the chronic under-funding of the system, which had for a long time been denied and described in a relatively harmless and indulgent manner as a ‘liquidity crisis’, has now been fully recognized, at least for those cases which can no longer kept out of the public eye.

The reinforcement of minimum capital requirements by the European Banking Authority (EBA) – already considered insufficient even before they have been put into practice by all the banks concerned (clear to see from the example of the Spanish banks) – has been a belated first sign of the realization of this necessity. Meanwhile, while all this has been going on, the banking lobbies have been doing their utmost to hide the reality, seeking to modify the Basel III capital proposals in ways that benefit them, and to drag out the work on accounting norms by the International Accounting Standards Board (IASB). But all this is no longer enough.

Continue reading WHEN FATE INTERVENES…, 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.

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”.