Greece loses EU voting power in blow to sovereignty over financial debt

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Don't miss: Collapse of the euro is 'inevitable': Bailing out the Greek economy futile, says FRENCH banking chief

Greece loses EU voting power in blow to sovereignty

The European Union has shown its righteous wrath by stripping Greece of its vote at a crucial meeting next month, the worst humiliation ever suffered by an EU member state.

By Ambrose Evans-Pritchard, International Business Editor
Published: 7:56PM GMT 16 Feb 2010

The council of EU finance ministers said Athens must comply with austerity demands by March 16 or lose control over its own tax and spend policies altogether. It if fails to do so, the EU will itself impose cuts under the draconian Article 126.9 of the Lisbon Treaty in what would amount to economic suzerainty.

While the symbolic move to suspend Greece of its voting rights at one meeting makes no practical difference, it marks a constitutional watershed and represents a crushing loss of sovereignty.

"We certainly won't let them off the hook," said Austria's finance minister, Josef Proll, echoing views shared by colleagues in Northern Europe. Some German officials have called for Greece to be denied a vote in all EU matter until it emerges from "receivership".

The EU has still refused to reveal details of how it might help Greece raise €30bn (£26bn) from global debt markets by the end of June. Investors are unsure whether this is part of Kabuki play of "constructive ambiguity" to pressure Greece and keep markets guessing, or reflects the deep reluctance by Germany to be drawn deeper in an EU fiscal union. Greek bonds sold off as ten-year yields jumped to 6.42pc, but the euro rallied to $1.3765 against the dollar as broader issues resurfaced in currency markets.

Jean-Claude Juncker, head of the Eurogroup, hinted that ministers have already agreed on a support mechanism, should it be necessary. It will most likely involve by bilateral aid by eurozone states. He said proposals for an IMF bailout - backed by Britain - were "absurd" and would shatter the credibility of monetary union.

Many Germans disagree, including Otmar Issing, once the backbone of the European Central Bank. He said an EU rescue for Greece would be fatal, arguing that unflinching rigour is the only way to hold monetary union together without political union.

Tuesday's EU verdict amounted to a thumbs down on Greece's earlier austerity efforts, viewed as too reliant on one-off measures and too light on spending cuts. Greece must reduce its deficit from 12.7pc of GDP to 3pc in three years. Greek customs officials expressed their anger by kicking off a three-day strike, the first of many stoppages set to culminate in a general strike next week.

However, premier George Papandreou has won support from key political parties and a majority of the people. Greece may yet surprise critics by mustering its Spartan Spirit.

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How markets attacked the Greek piñata

By James Rickards

Published: February 11 2010 19:48 | Last updated: February 11 2010 19:48

Wall Street loves a piñata party – singling out a company or country, making it the piñata, grabbing their sticks and banging it until it breaks.

As in the child’s game, the piñata is left in shreds. Unlike the child’s game, in the Wall Street version the piñata is stuffed with money for the bankers to scoop up with both hands, instead of sweets. We see this game being played today, with Greece as the piñata.

Investors trying to understand why their portfolios have begun to melt down for the second time in five years are becoming experts in the fiscal policy of Greece. A look at the piñata party might make things clearer.

Greece’s travails are often measured by reference to the market in credit default swaps (CDS), a kind of insurance against default by Greece. As with any insurance, greater risks entail higher prices to buy the protection. But what happens if the price of insurance is no longer anchored to the underlying risk?

When we look behind CDS prices, we don’t see an objective measure of the public finances of Greece, but something very different. Sellers are typically pension funds looking to earn an “insurance” premium and buyers are often hedge funds looking to make a quick turn. In the middle you have Goldman Sachs or another large bank booking a fat spread.

Now the piñata party begins. Banks grab their sticks and start pounding thinly traded Greek bonds and pushing out the spread between Greek and the benchmark German CDS price. Step two is a call on the pension funds to put up more margin, or security, as the price has moved in favour of the buyer. The margin money is shovelled to the hedge funds, which enjoy the cash and paper profits and the 20 per cent performance fees that follow. How convenient when this happens in December in time for the annual accounts, as was recently the case. This dynamic of pushing out spreads and calling in margin is the same one that played out at Long-Term Capital Management in 1998 and AIG in 2008 and it is happening again, this time in Europe.

Eventually the money flow will be reversed, when a bail-out is announced, but in the meantime pension funds earn premium, banks earn spreads, hedge funds earn fees and everyone’s a winner – except the hapless hedge fund investors, who suffer the fees on fleeting performance, and the unfortunate inhabitants of the piñata. What does any of this have to do with Greece? Very little. It is not much more than a floating craps game in an alley off Wall Street.

This is where the idea of CDS as insurance breaks down. For over 250 years, insurance markets have required buyers to have an insurable interest; another name for skin in the game. Your neighbour cannot buy insurance on your house because they have no insurable interest in it.

Such insurance is considered unhealthy because it would cause the neighbour to want your house to burn down – and maybe even light the match.

When the CDS market started in the 1990s the whiz-kid inventors neglected the concept of insurable interest. Anyone could bet on anything, creating a perverse wish for the failure of companies and countries by those holding side bets but having no interest in the underlying bonds or enterprises. We have given Wall Street huge incentives to burn down your house.

Let’s be clear, public finance in Greece is a mess. Statistics have been fudged, government pensions have been inflated and reckless borrowing has been the norm. Drastic remedies are required. But the crisis is manageable, and Europe has sent clear signals that they will take care of their own house without help from China, America or the International Monetary Fund.

Unfortunately, a measured response does no good to the dealers in CDS, who require volatility and even panic to make their game a profitable one. If contagion spreads in uncontrollable ways, so much the better for the traders in volatility, never mind the collateral damage.

Until the CDS market is confined to buyers who have an underlying interest in the risk being covered, and sellers who are regulated as insurance companies with adequate reserves, this market will remain a reckless enterprise bent on arson. Serious issues of sovereignty and stability are at stake. Regulators have to stop ignoring the piñata party and start providing adult supervision.

The writer is a director of Omnis and former general counsel of Long-Term Capital Management

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Russia tells Greece gas pipeline can help finances

Associated Press, 02.16.10, 10:39 AM EST



MOSCOW -- Russian Prime Minister Vladimir Putin has assured Greece that a major gas pipeline project will help it recover from its debt crisis by boosting state revenues, but has not publicly suggested any possible aid from Moscow.

Greek Prime Minister George Papandreou ended a two-day trip to Moscow Tuesday by promising the Kremlin that Greece's economic mess wouldn't sink the South Stream pipeline project.

The pipeline, set for 2015, would carry Russian gas to Europe under the Black Sea. Plans call for Greece to be both a customer for South Stream gas and a transit nation.

Papandreou's visit raised speculation that Greece, facing the biggest budget deficit in the euro-zone, may be seeking a bailout loan from Moscow, but the officials declined to take questions on the subject.

Copyright 2009 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed

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And Greece is going ALONG with this charade? LOL

Complete frippin' idiots.

Tell the EU to POUND SAND and get back out there and kick ass and take names.

Greece, once a mega empire succumbs to the wants and wiles of a Socialist society.

I laugh at them.

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Greece now, UK next as Scots ready for pound plunge

By Rodney Jefferson
Monday March 01 2010

While the eyes of the world focus on Greece’s debt crisis, investors in Edinburgh are busy preparing for the UK to be next.

Turcan Connell, which caters to rich families, expects the pound to lose between 20pc and 30pc against the dollar once investors turn their sights on Britain as the government sells a record amount of debt.

Concern that Greece won’t be able to cut its budget deficit helped send the euro 5pc lower against the dollar this year.

“Alarm bells were ringing in Greece for a long time and when it happened, it happened very quickly,” Haig Bathgate, head of strategy at Turcan Connell, said at the company’s offices in the Scottish capital. “The UK is in a similar predicament. It could be hit very hard.”

Money managers in Edinburgh, where investment decisions have been made on behalf of insurers, pensioners and the wealthy for two centuries, are maneuvering to protect assets from the UK economy as it limps out of its worst recession on record.

Bruce Stout, whose Murray International Trust Plc in Edinburgh has doubled over the past five years, said the chance of a plummeting pound are “better than even” and his biggest holdings are in Asia and Latin America. He called sterling a “very vulnerable currency.”

UK fund managers at Aegon Asset Management and Scottish Widows Investment Partnership, together responsible for more than £30bn, said in January they are buying companies that do the bulk of their business abroad.

‘Very dire’

“When there’s a fiscal crisis, the markets tend to punish that country very quickly,” said Bathgate, who is responsible for £560m.

“I don’t think Britain is in nearly as bad a position as Greece. We’ve got a good taxation system, however the position of the economy is very dire.”

The UK’s budget deficit is roughly the same as Greece’s, both exceeding 12pc of economic output.

Moody’s Investors Service and Standard & Poor’s said last week they may cut Greece’s credit rating as the five-month-old government struggles to curb spending and control its debt.

British Prime Minister Gordon Brown’s government in December increased its planned gilt sales for the financial year ending this month to a record £225.1bn from the £220bn announced in April. Moody’s Investors Service said in December the UK may “test the Aaa boundaries.”

Hung parliament

Brown must call an election by June and some polls signal that no party will emerge with a clear majority.

The pound weakened to an almost 10-month low against the dollar today, taking this year’s decline to 6.5pc.

A YouGov Plc poll published yesterday showed Brown’s Labour Party only two percentage points behind the opposition Conservatives, the narrowest margin for two years.

A so-called hung parliament or signs retail sales and economic growth aren’t recovering as expected might be the catalysts for the pound to accelerate declines, Bathgate said.

The Office for National Statistics last week revised up the rate of economic growth for the fourth quarter to 0.3pc from a previous estimate of 0.1pc.

“There could be a number of triggers,” he said. “If there’s indecision about how you deal with a problem, that’s when things start to fall apart. We could be in the position where the spotlight turns to the UK.”

UBS report

The pound may fall below parity with the euro and drop to the lowest level against the dollar since the mid-1980s should the UK cut spending too quickly, Mansoor Mohi-Uddin, chief currency strategist at UBS AG, said in a February 24 report.

Sterling slid to a nine-month nadir against the dollar last week, trading at $1.52. Zurich-based UBS, the world’s second- biggest currency trader, predicted it could fall “quickly back” to $1.05 or below.

The pound may come under further pressure with the Bank of England resuming its quantitative-easing program, a process of injecting new money into the economy, within the next three to four months, Bathgate said.

Policy maker Adam Posen said February 24 the central bank may expand the £200bn asset-purchase plan should the economic recovery prove weaker than expected.

“If it comes back then we’re likely to be the only people doing that in the world at that time,” said Bathgate. “My strong view is the government is trying to create inflation and devalue the currency.”

Selling bonds

Bathgate said he sold conventional UK government-bond investments at the end of 2008 and only holds index-linked securities because of concern inflation may accelerate.

The firm also has reduced holdings in corporate bonds because of the potential “knock-on impact” from a decline in government securities.

The yield on the benchmark 10-year gilt dropped 24 basis points to 4.03pc last week.

The yield on Greek 10-year bonds fell 6 points to 6.39pc. German bunds, the region’s benchmark debt, declined 18 points to 3.10pc.

Turcan Connell, whose clients typically have at least £5m to invest, was founded in 1998 and oversees about £1bn in total.

Bathgate is responsible for allocating money to different funds, and half is currently in stocks portfolios with 30pc in hedge funds and other so-called alternative investments.

- Rodney Jefferson

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Analysts fear spread of crisis in Greece

Say even U. S. at risk if confidence ebbs

By Neil Irwin
THE WASHINGTON POST
www.buffalonews.com

WASHINGTON — Greece’s economy is about the size of that of Massachusetts. The Mediterranean nation ranks 63rd among buyers of U. S. exports. Athens is 5,139 miles from Washington.

But despite this literal and figurative distance, the Greek debt crisis has created a new set of risks for the U. S. economy — remote risks, perhaps, but real nonetheless.

Economic policymakers and many private analysts see a danger that the Greek troubles will lead to the next wave of turmoil for the global economy. Investors are pouring money into government debt around the world, viewing it as a safe investment in an uncertain time. That has helped keep interest rates very low in most large countries, fueling the global economic recovery.

But any default or near-default by Greece could lead investors to question those assumptions, raising doubts that the debts of other nations, including Spain and Italy, and even Great Britain and the United States, are safe.

As investors perceive a greater risk, they would demand higher interest rates on their loans, causing rates to rise and choking economic growth. Mortgage rates, for example, would rise, and borrowing money for business expansions would become more expensive.

Some analysts fear that, just as subprime mortgage loans — representing a minuscule portion of the global financial landscape — triggered a massive crisis back in 2007, Greece could cause problems for much bigger, and apparently more stable, nations around the world.

The global financial meltdown has shown that crises tend to evolve in unpredictable ways. That was also the experience in the late 1990s, when market fears about Thailand’s foreign debt led investors to question the finances of several other East Asian nations, resulting in the Asian financial crisis of 1997-98.

“Greece is like Thailand in 1997 and like subprime in the summer of 2007,” said Robert Dugger, a managing partner at Hanover Investment Group, a financial consulting firm.

Such contagion has not yet spread from Greece, and forecasters generally view this prospect as a “tail risk” — a danger that’s unlikely to arise but that would be nasty if it did. Financial market participants seem confident that Greece’s problems will be confined to Greece and perhaps a few other European nations with particularly ugly public finances.

Washington policymakers, their private concern notwithstanding, have said publicly only that they are monitoring the situation and are confident that European authorities will be responsible for any bailout.

So far, the episode has made it cheaper for the U. S. government to borrow, as investors have moved money into dollars —and Treasury bonds in particular— to try to reduce exposure to developments in Europe.

Thursday, the federal government could borrow money for 10 years at 3.6 percent, based on bond yields, very low by any historical standard and down from 3.84 percent at the beginning of the year.

Finally, even Greece got good news Thursday when it sold 5 billion euros — about $6.8 billion — of 10-year debt, suggesting that global investors expect Athens to steer its finances into line.

But if a crisis of confidence in government debt were to erupt, it could spread quickly because of the way European economies are linked with each other and with the rest of the world.