Coppola Comment

The Eurogroup (part of which is pictured above) has produced a statement on the outcome of the latest debt talks with Greece. As ever with Eurogroup statements, it confuses more than it enlightens. So here is my attempt at translating Eurogroup-speak into plain English. __________________________________________________________________________________ The Eurogroup welcomes that a full staff-level agreement has been reached between Greece and the institutions.  Phew. We got that through before the Brexit referendum. Also, the Eurogroup notes with satisfaction that the Greek authorities and the European institutions have reached an agreement on the contingency fiscal mechanism, which is in line with the Eurogroup statement adopted on 9 May in particular as regard the possible adoption of permanent structural measures, including revenue measures, to be agreed with the institutions. It therefore provides further reassurances that Greece will meet the primary surplus targets of t

It's not going to come from people working more. Excerpt from the IMF's latest Debt Sustainability Analysis for Greece , just released: Oh dear. Quite apart from the negative contribution to growth, the prospect of unemployment taking 44 years to return to something approaching normality is simply appalling for Greece's population. I've looked in more detail at this here  (Forbes). Well, if labour isn't going to drive growth, there's always investment, yes? Er, not really. The outlook for capital investment doesn't look too good either: Yeah, about that financial sector.....Greek banks are still in crisis, it seems. The IMF thinks they will need another 10bn Euros on top of the 43bn they have already received, and even with this, they aren't going to lend. And they aren't worth anything, so can't even be sold to raise money. Greek banks are zombies, and like all zombies, they drain the lifeblood of their victims. They are a serious o

Via Business Insider comes this colourful map and chart of CDS spreads worldwide: Those who thought Greek bonds would be the most expensive to insure, since everyone knows it can't pay its debts, need to think again. Venezuela is the most expensive, by a long way.  Related to that is this: The yield curve has been deeply inverted all year, but yields at all maturities are now rising: When even the yield on long-dated bonds is heading for 30%, the public finances are completely unsustainable.  Venezuela, of course, is monetarily sovereign, since it issues its own currency. Well, in theory. In practice it is burning through reserves at a shocking rate to support its absurd managed exchange rate system: Don't be fooled by the uptick in June. That is because China lent it some dollars . It'll get through those in short order if it continues on its present path. To be sure, Venezuela is still earning FX due to its trade surplus, but its c

It appears that the Greeks have given a bloody nose to the EU, turning in a resounding NO vote in Sunday's referendum. Though exactly what they have rejected is unclear. The ballot paper is, to say the least, complicated. The UK's Telegraph published this translation from Greek Analyst: The ballot paper of the #greferendum question upon which the Greek people are called to vote on. (Translated) pic.twitter.com/hPGJcp49Gs — The Greek Analyst (@GreekAnalyst) June 29, 2015 And the paper asked, "Does this make sense to you?" No, frankly, it doesn't. Neither of the documents referred to are current. The EU negotiators withdrew the June 25th offer as soon as the referendum was announced, replacing it with a subtly altered version from the "institutions" and dangling the carrot of debt restructuring if Greeks vote to accept the terms. No doubt they thought that this would force the Greek government to cancel the referendum. They were wrong. But th

I have been mulling over the terms of the agreement between Greece and the Eurogoup. Initially, I thought that Greece had ended up with an appalling deal, getting almost none of its aims and losing control of EFSF funding for its banks. The retention of future primary surplus targets under the November 2012 agreement - only the target for this year is under review - seemed particularly harsh. But then I listened to Pierre Moscovici explaining the thinking behind the deal, and suddenly the penny dropped. We've all been missing the point. Holger Schmieding of Berenberg Bank was on the right lines - he commented recently that the real problem in the Greek negotiations was that trust had broken down. Indeed it has. But not recently. Trust in Greece broke down a long time ago. The most obvious breakdown in trust happened in 2010 when the extent of Greece's indebtedness was revealed - and the lengths to which it had gone to conceal its true position. With the help of Goldma

The IMF’s  Article IV consultation  with the Euro area makes grim reading.  It starts off upbeat: "The euro area recovery is taking hold. Real activity has expanded for four consecutive quarters. An incipient revival in domestic demand is adding to the impetus from net exports. Financial market sentiment has improved dramatically, particularly after the recent ECB measures. Sovereign and corporate yields are now at historic lows in many countries, and lower funding costs have helped banks raise more capital." And it then goes on to praise the efforts national governments have made to clean up their balance sheets. It also commends policy-makers and regulators for the nascent banking union and the clean-up currently in progress. “Strong policy actions have boosted investor confidence and laid the foundations for recovery”, it cheerfully proclaims. But that’s where the cheerfulness ends. The fact is that the Euro area is still in deep, deep trouble.... Read on  here

My latest at Pieria considers the use of capital controls to mitigate the damaging effect of sudden large capital flows such as those we are currently seeing out of emerging market countries due to the Fed's QE taper. "Since the 2007/8 financial crisis, there has been considerable discussion about the role of capital flows in the formation of asset bubbles and their subsequent collapse, and about strategies for managing the movements of "hot money" from country to country in search of yield and/or safety. It is fair to say that there is far from a consensus: government policies around the world currently range from the extremely controlling to the totally laissez-faire. "The outflows of capital from emerging markets arising from the Fed’s tapering of QE have raised again the question of whether capital controls would be appropriate as a short-term measure to calm markets and prevent currency collapse. So far, no count

After much intense negotiation, it seems there is a new deal for Greece. Or at least that is how it has been presented in the media. But what sort of deal is it, and does it solve the Greek problem? The wording of the Eurogroup's statement  does not suggest that there is a "deal", as such. All it says is that the official sector - the ECB and Eurogroup - may be prepared to accept poorer returns on their holdings of Greek debt. The specific measures that they "would consider" are the following: 1% reduction in interest rates on the loans made available under the "Greek Loan Facility" (the first bailout) 0.1% reduction in the fees paid by Greece for EFSF guarantees of its debt deferral of interest for ten years on EFSF loans (the second bailout) extension of maturities on EFSF and bilateral loans by fifteen years  repatriation of interest paid by Greece to the ECB and national central banks (the "Eurosystem") These measures are condi

The IMF has just produced a new report on Ireland . It is not happy reading. But it is interesting- not least because it says as much about the beliefs of the IMF economists producing the report as it does about Ireland. The report is structured in four parts: 1. Household consumption, wealth and saving 2. Access to credit, debt overhang and economic recovery: the Irish case 3. Medium-term fiscal consolidation in Ireland: growth-friendly, targeted, sustainable 4. Averting structural unemployment in Ireland Each of these is in effect a separate report in its own right, and there is no attempt to draw over-arching conclusions from the findings of the four reports. Consequently the recommendations from one report are contra-indicated by recommendations from another report. Really the IMF should do better than this. But that's not my main issue with this report. It's the appalling logic. Part 1, the Household Consumption, Wealth and Saving section, notes that Irish ho