Greece Should ‘Default Big’ to Address Debt Woes, Argentina’s Blejer Says
By Eliana Raszewski and Camila Russo - Sep 13, 2011 6:18 PM CT
Mario Blejer, who managed Argentina’s central bank in the aftermath of the world’s biggest sovereign default, said Greece should halt payments on its debt to stop a deterioration of the economy that threatens the European Union.
“This debt is unpayable,” Blejer, who was also an adviser to Bank of England Governor Mervyn King from 2003 to 2008, said in an interview in Buenos Aires. “Greece should default, and default big. A small default is worse than a big default and also worse than no default.”
World Bank and International Monetary Fund officials will meet in Washington Sept. 23-25 as European Union officials work to keep the currency union from unraveling and the Greek crisis worsens. Europe is facing “a full-blown banking crisis” said Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., in an interview yesterday.
Rescue programs backed by the IMF and European Central Bank are “recession-creating” efforts that will leave Greece saddled with more debt relative to the size of its economy in coming years and stifle growth, Blejer said. A Greek default would push Portugal to do the same and would put Ireland “under tremendous pressure to at least symbolically default” on some of its debt, he added.
“It’s totally ridiculous what is going on,” Blejer, 63, said. “If you assume that these countries do everything that is in the program, they do all these adjustments and privatizations, at the end of 2012 debt-to-GDP will be bigger than this year.”
The statements by Blejer, who ran Argentina’s central bank in the months after its default on $95 billion in debt, put him at odds with German Chancellor Angela Merkel, who said the risks of contagion from a Greek default are too big and that an “uncontrolled insolvency” would further agitate turbulent global markets.
German coalition officials stepped up their criticism of Greece last week after a delegation from the European Commission, European Central Bank and IMF suspended a report on progress made in Athens toward meeting the terms of its rescue program. The delay threatened to derail a payment to Greece due next month.
“It doesn’t make sense to give money to Greece so Greece can pay the Germans back,” Blejer said when asked about the aid programs. “All these projects, all the euro projects don’t make sense economically.” more
REMINDER: Here's Who Gets Crushed If Greece Goes Bust
Greek prime minister George Papandreou passed new measures that cut wages and raise taxes, to help Greece meet deficit targets necessary for its next tranche of loans.
Protestors took to the streets to oppose the measures, but ECB president Jean-Claude Trichet announced that Greece most likely will receive the next round of funding but European markets barely reacted to the news.
But the rest of Europe still needs to approve the new bailout agreed to in July. If there is no consensus, Greece will likely be unable to pay its bills, and will default on its debt.
For example, German banks hold $22.65 billion in Greek debt. more
ECB Chief Economist Quits
Jürgen Stark's Resignation Is Setback for Merkel
By Peter Müller, Christoph Pauly and Christian Reiermann 09/12/2011
THE ECB's chief economist Jürgen Stark resigned on Friday.
The chief economist of the European Central Bank, Jürgen Stark, resigned on Friday, apparently over his opposition to the ECB's bond-buying program. The loss is embarrassing for Chancellor Angela Merkel, coming just months after the resignation of Axel Weber as Bundesbank president.
Shortly after his resignation as chief economist of the European Central Bank (ECB) on Friday, Jürgen Stark carried on as if nothing had happened, taking a group of visitors on a tour of the Eurotower in Frankfurt.
In its official announcement, the ECB cited "personal reasons" for the step. For a top central banker, however, personal reasons are always professional reasons as well. It was known that Stark had long questioned the policy of the ECB and its president, Jean-Claude Trichet, involving the purchase of large quantities of the government bonds of ailing euro-zone countries. He had trouble hiding his aversion to the Frenchman's approach. According to a friend, Stark made his decision to resign in early August, when the majority of the ECB governing council voted for the purchase of Italian and Spanish government bonds.
Trichet and his staff were dismayed when Stark announced internally that he intended to resign. They urged him to at least stay on until the ECB council meeting last Thursday. But then Trichet used the press conference following the meeting for a theatrical tirade against the inflexible Germans.
Undermining the Euro's Stability
Stark already voted against the first bond purchase program in the spring of 2010, and he also voted against the ECB's recent purchases a few weeks ago. Stark feared that the measure would undermine the stability of the euro. Worst yet, he felt that the central bank is giving up its independence and placing itself at the behest of politicians. This runs counter to the tradition of Germany's central bank, the Bundesbank, which Stark internalized during his tenure as its vice-president.
For the same reasons, Axel Weber resigned as president of the Bundesbank and chose not to succeed Trichet as head of the ECB. Stark's resignation is bad news for the current Bundesbank president, Jens Weidmann, who is also opposed to the bond purchases, and who is now losing an ally in the struggle over monetary policy. For German central bankers, monetary policy traditionally involves using all means possible to fight the risks of inflation. Printing money to buy up bonds is clearly not part of that approach. moreWatching the money men whose crazy ideas have brought on the current economic disaster embarrass themselves in public is a small reward for having had to listen to their madness for 35+ years, but it still satisfies. Masters of the Universe indeed.
An Impeccable DisasterBy PAUL KRUGMAN Published: September 11, 2011
On Thursday Jean-Claude Trichet, the president of the European Central Bank or E.C.B. — Europe’s equivalent to Ben Bernanke — lost his sang-froid. In response to a question about whether the E.C.B. is becoming a “bad bank” thanks to its purchases of troubled nations’ debt, Mr. Trichet, his voice rising, insisted that his institution has performed “impeccably, impeccably!” as a guardian of price stability.
Indeed it has. And that’s why the euro is now at risk of collapse.
Financial turmoil in Europe is no longer a problem of small, peripheral economies like Greece. What’s under way right now is a full-scale market run on the much larger economies of Spain and Italy. At this point countries in crisis account for about a third of the euro area’s G.D.P., so the common European currency itself is under existential threat.
And all indications are that European leaders are unwilling even to acknowledge the nature of that threat, let alone deal with it effectively.I’ve complained a lot about the “fiscalization” of economic discourse here in America, the way in which a premature focus on budget deficits turned Washington’s attention away from the ongoing jobs disaster. But we’re not unique in that respect, and in fact the Europeans have been much, much worse.
Listen to many European leaders — especially, but by no means only, the Germans — and you’d think that their continent’s troubles are a simple morality tale of debt and punishment: Governments borrowed too much, now they’re paying the price, and fiscal austerity is the only answer.
Yet this story applies, if at all, to Greece and nobody else. Spain in particular had a budget surplus and low debt before the 2008 financial crisis; its fiscal record, one might say, was impeccable. And while it was hit hard by the collapse of its housing boom, it’s still a relatively low-debt country, and it’s hard to make the case that the underlying fiscal condition of Spain’s government is worse than that of, say, Britain’s government.
Of course, the main reason the banksters are in such a panic to keep the illusion that their Greek loans are still performing is because the logic of a massive global debt restructuring is impeccable.So why is Spain — along with Italy, which has higher debt but smaller deficits — in so much trouble? The answer is that these countries are facing something very much like a bank run, except that the run is on their governments rather than, or more accurately as well as, their financial institutions. more
Massive default is best way to fix the economy
Commentary: Clearing away the debt is the only way forward
By Brett Arends, MarketWatch Sept. 12, 2011, 12:00 a.m. EDT
NEW YORK (MarketWatch) — You want to fix this economic crisis? You want to put people back to work? You want to light a fire under the economy?
There’s a way to do it. Fast. And relatively simple.
But you’re not going to like it. You’re not going to like it at all.
Default. A national Chapter 11 bankruptcy.
The fastest way to fix this mess is to see tens of millions of homeowners default on their mortgages and other debts, and millions more file for bankruptcy.
Roy Smith: Break up the banks, even Goldman
Fears of recession, tough trading conditions, an ocean of unresolved litigation and the worsening euro-zone mess have delivered a real pounding to bank stocks this summer. Former Goldman Sachs partner Roy Smith joins Mean Street to offer a solution: Break up the banks.
I told you that you wouldn’t like it.
I don’t like it much either. It sticks in the craw that people got to borrow all that money and won’t have to pay it back.
But you know what? The time to stop that was five or 10 years ago, when the money was being lent.
And mass Chapter 11 is, by far, the least obnoxious solution to our problems.
That’s because the real cause of our economic slump isn’t too much government or too little government. It isn’t red tape, high taxes, low taxes, the growing divide between the rich and the poor, too much government debt, too little government debt, corporations, poor people, “greed,” “socialism,” China, Greece, or the legalization of gay marriage. It isn’t, in short, any of the things all the various nitwits say it is.
It’s the debt, stupid. more