Greek Crisis: Ending (at last) the Trojan War

By: Jacques Delpla

A peace initiative with Turkey could reduce Greece´s expenditures by 3pp of GDP.

Towards Default

By: Wolfgang Münchau

The European response to the Greek crisis is at least in part to blame.

The Systemic Risk Board: A return to the EMS

By: Casper de Vries

The board has no clear goal, no instruments or any power; at best it can collect and disseminate information on systemic risk.

The banking crisis - a rational interpretation

By: Patrick Minford

An unfashionable defense of rational expectation models.

Inflationary pressures to remain low

By: KOF Swiss Economic Institute

The KOF MPC indicator measures the risks to future price stability as communicated by the ECB.

Why the Euro will continue to weaken

By: Wolfgang Münchau

When you consolidate the fiscal position, either the private sector deteriorates, or the current account has to improve. This would either imply, or necessitate, a depreciation.

This is a Test Only

Testing

Sorry, no EMF – can’t be done

Merkel realises that Schauble’s proposals would require a substantial revision of the European Treaties; the plan has now been relegated to the status of a long-term goal; Jürgen Stark says EMF would be a violation of current European law, and would undermine the public’s trust in the euro; FT says in an editorial the plan is too much focus on fiscal policy, and does not take sufficient account of the euro area’s internal imbalances; Giancarlo Corsetti and Harold James make the case for an EMF, but say in the meantime the eurozone will have to make do with the IMF; Austria enact ambitious fiscal consolidation plan; James Hamilton reports about a new financial conditions index, which shows that the US economy is heading for a double-dipper; Rebecca Wilder says the competitive deflation is now the name of the game in the EU; Paul Krugman, meanwhile, says the EU is following in the footsteps of Andrew Mellon.

Schäuble proposes European Monetary Fund

Germany’s finance minister proposes radical Treaty changes to deal with crises similar to Greece; plan includes liquidity support for countries in financial difficulties based on a unanimous vote by finance ministers; insolvency will still be possible; countries would be obliged not to cal the IMF; stability and growth pact rules to be toughened: possible penalties include removal of voting rights or cut-off from cohesion funds; Greeks are very sceptical of these changes; Quentin Peel makes the point that such an arrangement could hardly be set up to help Greece; Juncker proposes European rating agency under the auspices of the ECB; Merkel continues to procrastinate on aid when she met with Papandreou on Friday; unlike Sarkozy, who said he is willing to put up money; Papandreou says he wants to borrow at similar rates than others; Kathimerini says austerity package is likely to prolong the recession; Paul Volcker says euro is likely to survive; Wolfgang Munchau, meanwhile, says euro is very likely to weaken.

“Greek crisis over” – Our ability to delude ourselves has reached the next level

EU and ECB declares victory: European rules and institutions have worked, as Greece manages to sell €5bn in a 10-year bond issue, albeit for a yield of 6.25% - which underscores the country’s near-junk status in global bond markets; Le Monde says all good, but Greece will still need the money, and is still planning to go the IMF if the Europeans not pay up; ECB leaves interest rates unchanged, and sticks to its not-so-optimistic economic outlook; declines any comment on reports that the ECB might drive out rating agencies; Trichet praises the Greeks for not (yet) seeking IMF assistance; the FT has an article explaining how hedge funds were involved in the Greek CDS saga – they were buyers a long time ago, but sellers most recently; an Italian MP has started a campaign for Mario Draghi as president of the European Central Bank; Michael Petis says that Japan did manage to adjust to its crisis, but differently than previously thought, and that this may also be the case in China; Yves Leterme, meanwhile, calls for a European Debt Agency.

Greece is now putting pressure on the eurozone – if you don’t help, we will turn to the IMF

George Papandreou unveils ambitious plan, and immediately asks for EU help – and threatens he will go to the IMF if no help arrives; he is due in Berlin tomorrow, and in Washington on Wednesday; Bloomberg says Germany remains unwilling to provide aid; Kathimerini has all the gory details of the austerity package: pension freeze, wage cuts; VAT and duty increases; European Commission and Juncker welcome the plan; euro rises; announcement triggers protests, with more protests threatened; Commission invites banks to discuss what happened with Greek CDS; US Justice Department is looking at potential collusion among hedge funds in speculation against the euro; Italy’s president calls for a European Monetary Fund; in 2009, German nominal wages fell for the first time since 1949; Ed Hugh says today’s ECB meeting is going to be one of the most interesting ones ever; Peter Ehrlich says Angela Merkel has a different definition of economic goverance than almost anyone else; Hans Werner Sinn, meanwhile, says it would be wrong to adopt another Glass-Steagall type legislation.

Hedge funds step up their bets against the euro

Hedge funds switch their bets from Greece to the Eurozone amid concern of regulatory backlash; European Commission is to investigate trading in CDS related to Greece; Greece is to announce today €4.8bn of additional measures; Austria’s central bank governor says Moody’s decision to downgrade Greek assets should not imply ineligibility for use as collateral in ECB liquidity; Austrian regulators are to restrict foreign currency loans, used for one third of the mortgages; Spanish unemployment continues to rise by 2%mom; Wolfgang Munchau says it is now decision time for Germany whether or not to support Greece; Rob Parenteau criticises the European tendency to discuss fiscal retrenchment in public sector only, ignoring completely the private sector; Peter Ludlow tells the story of how Herman von Rompuy secured an agreement over supporting Greek at the European Council in February; The famous Greek singer Nana Mouskouri , meanwhile, is to donate her MEP pension to her home country.