Thursday, October 27, 2011

2012, here we come.... (#23)

Knowing that the Germans wanted to treat the Greeks to a number one haircut and that the French preferred to see them sporting a fashion-friendly number three, I could have told you a week ago that they would settle on a number two.

As soon as this compromise had been announced, and the banks and other bond holders were facing up to a 50% 'voluntary'* decapitalisation of their Greek paper, Klaus Regling, boss of the European Finances Seriously Fucked fund (EFSF) was off to the airport in order to board a plane to Asia in the hope of spreading the contagion as fast and as far as possible. I hear that in Asia people wear surgical masks conscientiously in order to indicate to passers-by that they could be infectious. Somehow I doubt that Herr Regling was wearing one of these.

Back in the days before the Lehman Brothers collapse the very last people to buy subprime-backed bonds were nearly all Germans. Now the Germans themseles have to hope that there are fresh territories full of even more ingenuous financial patsies out there in Russia, China, Brazil etc.

However this ends up being funded, the impact on EU financial institutions and the flow of credit will be marked. The markets might have been relieved by the noises coming out of Brussels last night, but those pesky economists have been rather less impressed. Carl Weinberg of High Frequency Economics for example, predicts a double digit drop in Eurozone GDP across the funding period:

“Seen from the funding side, the euro package will divert €1,300bn worth of savings from private sector investment and spending. That must mean a reduction of Euroland’s €9400bn GDP by €1300bn, or 13.8 per cent over the period in which it is financed."

* Up in the land of licentious litigation there will be people taking legal counsel about their credit default swaps today.

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