Germany leans against giving aid to Greece

 

It looks as though Germany is hardening its position. Over the weekend, Angela Merkel told German TV that the best help Germany could offer to Greece is to insist that Greece does its homework. FT Deutschland reports that the Greek government spokesman Giorgos Petalotis said during a visit to Germany that the country was suffering badly from the speculative attacks, as a result of which it has to pay interest payments that are three times as high as those of Germany. Merkel is due to meet Papandreou on Friday.

Kathimerini also leads with the story, interpreting Merkel’s interview as a decision not to give money. She was also quoted as firmly denying reports that a rescue package has already been drawn up, waiting to be agreed on politically.

 

Aid to Greece might be unconstitutional

Der Spiegel has an interview with an influential German constitutional lawyer, who says the planned aid to Greece is almost certainly unconstitutional under German law. The view was expressed Paul Kirchhof, the former constitutional court justice who in 1998 gave the court’s verdict to reject an application to stop Germany’s participation in the euro. Kirchhof recommended that parliamentarians should take the case to the court under a procedure in which the court has to rule on institutional rights and obligations. (Considering the court’s subsequent ruling, especially last year’s ruling on the Lisbon Treaty), one could not exclude that the court might interpret the No Bailout Clause in the widest possible sense, i.e. extending to bilateral aid. 

 

Greece plans new measures this week

Greece is to announce new austerity measures this week, according to a report in the FT, accounting for about 2% of GDP, while the EU is still pressure for further measures. Those measures were necessary as the EU judged the Greek GDP forecast as too optimistic. The paper also reports that German banks are prepared to buy new Greek debt, as long as they get sufficient guarantees.

 

 

Hedge funds made large profits speculating against Greece

The FT has the story that several hedge funds made huge profits in speculating against Greece. The funds correctly anticipated that overexposed European banks would drive a wave of selling of Greek government securities. It said three or four funds were the main profiteers, including Paulson & Co. It quoted the head of macro research of one bank as saying: “[You only had to look] at the amount of sovereign debt the ECB was pushing European banks to buy, and you could see that the risks weren’t being considered.”

 

Wolfgang Munchau on the case for banning naked CDS

In his FT column Wolfgang Munchau says that banning naked CDS should be a No Brainer. Despite their technical complexity, naked CDS are economically insurance products, and should be regulated like insurance products. In particular, one should stipulate that you can only buy CDS if you actually own the underlying securities, i.e. outlaw naked CDS, which are an instrument of speculation only. He says the industry is bringing a lot of technical arguments on why this should not be done, but all these arguments essentially try to hide the underlying nature of these instruments. Munchau says he does not believe that CDS or other instruments actually caused the crisis, but they played an important role, and that the crisis for regulating them is overwhelming.

 

George Soros on the need for a crisis resolution mechanism

Writing in Project Syndicate, and syndicated in various European newspapers, George Soros says the eurozone needs both a crisis resolution mechanism, based on hard conditionality, and in which financial assistance is granted in tranches, which are in turn depending on the fulfillment of conditions. In addition, he said it would be useful for the EU to issue a common bond to reduce the interest burden.

 

 

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