Euro party, ja!

Angela's the kind of square, frumpy girl at college who only throws parties to appear cool as well as rich. And to rub shoulders with local lothario Silvio — a self-styled adorable reprobate who likes to think he wouldn't be seen dead with her in any other context.

Her money and connections have permitted her to hook up with a suave yet stunted other-half called Nick. He gives the impression that he's the one with both the trousers and the wallet in their relationship, but in fact he's neither. He's maxed out all his cards and he hasn't told her he had a rather worrying financial misunderstanding with the folks back home last week.

George and his mates got on the invitation list by telling a load of tall tales about how ludicrously loaded they are. Shipping and all that. Then they showed up empty handed, made a B-line for the drinks table, grabbed anything unopened, and have since been getting generally rowdy over in a corner.

Ideally they'd like to vacate somewhere else to hold their own little after party, but George's attempt to put it to a vote ended in a fracas. Now the booze has run dry, George has passed out and Angela has her beady eyes on their group from across the room.

Yes, she's on to them, and wants them to leave and never come back, but is frightened of making a scene which would kill the whole party stone dead.

And what a mess they've made. She's crying on Nick's shoulder as she takes in all the splintered furniture and the vomit on the couch. Surely they can't expect her to pay for all this?

Meanwhile, Silvio has decided that his style was being cramped and has left the building.

The remaining members of his overgroomed 'Club Med' clique are standing around in a huddle looking a bit confused. Is the party over yet? They can see why Angela has gone a bit ape about all the puke and stuff, but Silvio has been paying for most of the alcohol since Angela's party scene started...even if it did kind of fall off the back of a lorry.

2012, here we come.... (#37)

Spotted this chart within a post on FT Alphaville this morning. The headline was "Eurozone, why did we bother?"

2012, here we come.... (#36)

Later has arrived...

2012, here we come.... (#35)

Danny Gabay and Yiannis Koutelidakis, a pair from Fathom Consulting, passed the Guardian a note this week which couched its observations on Italy's insolvency within a rather clever metaphor of literary provenance:

"Italy is more akin to a once rich and famous Count who has been using the family heirlooms for firewood for years now and is facing some pretty cold winters ahead."

And, rather like Giuseppe Tomasi di Lampedusa back in the day, this count has been shivering away in his ancestral pad for many years now. For monetary union did no favours to the Eurozone's third largest economy, which was growing at a slow pace of 1% even in the 'boom' years before the 2008 crisis, and suffered a 5% plunge after it, comparatively more severe than the slide elsewhere in the EU. And relative to the Germans, the Italians have experienced a greater loss of competitiveness than the Greeks since joining the €.

Daniel Gros (Director of the Centre for European Policy Studies), has analysed all the factors that normally foster an increase in economic activity and has found that in all but one case, these have improved in Italy since it adopted the euro. The odd one out? Governance.

If political failure can so easily trump the potential for economic success, it is the very collection of individuals today voting for the new austerity package who pose the greatest threat to the future of European integration. For with a debt to GDP ratio of 120%, an Italy which doesn't grow at faster rate than 1% over the next few years represents a permanent systemic threat.

2012, here we come.... (#34)

In much the same way that the stench of corruption and a trail of floozies couldn't bring down Silvio Berlusconi, but the collective agitation of the bond market could, the spectre of international terrorism turns out to be a less effective tool for dismantling democracy than that of major financial disorder.

That the plutocrats fear poverty as much as death (and certainly more than the deaths of their fellow citizens somewhere lower down the scale) is something that eventually occurred to the IRA in the latter stages of their campaign when they switched from targeting random civilians and the occasional politician, to attempting to raze large parts of London's financial districts to the ground.

So we can slot financial crisis somewhere in between nuclear meltdown and army of suicide bombers on the scale of international fear catalysts. And we can see from the repeated use of the word 'contagion' over the past few months that this particular panic considers itself almost equivalent in overall scariness to a global pandemic of the biological sort.

We can also understand why those in a position to define public information have been so keen on the notion of the dirty bomb, which combines the unmatchable horror of seeping radioactivity with the similarly unseen threat of the enemy within. Then all one has to do is suggest that Wall Street would be high on the list of potential targets for such a device...

2012, here we come.... (#33)

Watching Greece change its PM has become a spectacle akin to watching Yahoo! appointing a new CEO...something that won't have gone unnoticed amongst those who still consider themselves the Greek electorate.

Yesterday, while the Greek political elite struggled to find a functionary who was dull and compromised enough to suit all their interests, Italian bond yields poked their noses above 7.5%, perilously close to that all important 8%, goodbye Italy and goodbye Eurozone as we know it, cut-off point. The financial talking heads all say that what the markets want right now is certainty, but what yesterday's stampede for the exits demonstrates is that they don't really want to face up to the certainty that Europe is about to go down the plughole.

Anyway, things appear to have settled a bit today. Italy's 10-year bond yields dipped below 7% again and Spain's are not that far behind at 5.75%. As we can see from the chart below, it's difficult to see how a default in Spain would not be triggered by a worsening of the crisis in Greece and Italy. The latter nation owes €1.4 trillion, so the sucker is basically unbailoutable, however generous/stupid the Chinese happen to be feeling at the time.

For those who comfort themselves that the problem will go away once the northern members of the Eurozone have divested themselves of all those Club Med deadbeats, take a look at French 10-year bond yields today: 3.45% and rising. Merkozy may be joined at the hip, but the gap between the cost of state borrowing in France and Germany hasn't been this wide since '92 and it seems almost certain now that France will struggle to keep its own AAA rating, the loss of which will trigger another selling spree.

2012, here we come.... (#32)

With the PMs of both Greece and Italy circling the drain, and both nations attempting to demonstrate that their preferred response to outside interference would be the no government approach, it wasn't going to be long before the financial markets wised up to the fact that this was not a particularly positive news story.

On a separate note, us gibberish speakers in Latino-land are all Greeks. For Gringo apparently derives from Griego, the favourite term of abuse in eighteenth century Málaga for anyone who spoke Spanish badly. (In Madrid this agravio was reserved for the Irish.)

2012, here we come.... (#31)

...But probably too late.

Anyone who saw The Walking Dead this week will know what V was on about when she compared the situation of the zombie in the well to the crisis embedded in the Eurozone.

She reckons that any attempt to extricate said zombie now will have results similar to the one we witnessed on Sunday's show...

(It does look a bit like Silvio Berlusconi as well...)

2012, here we come.... (#30)

Il faut changer les traités...it was true last year, and it's even truer now...

(Thanks to Frode for the video link.)

2012, here we come.... (#29)

Misha Glenny, an acknowledged expert on Russia's 'crime of the century', when state assets were sold off at ganga prices to salivating, semi-criminal, would-be oligarchs, now believes the same thing is about to happen in Greece.

Writing in the FT about the moves made by Greece's high-earning, tax-evading, super-rich, he notes the surge in Greek interest this year in London's property market, and adds that these groups have an even bigger eye on the assets that the government may soon be forced to sell off...

"The oligarch conglomerates are waiting to scoop them up at anything up to less than a fifth of their real value – a poor financial return for the state but in 5-10 years time a bonanza for the purchasers. Some have been even banking on Greece exiting the euro so that they can then use the billions of euros squirrelled away outside the country to purchase the assets for knock-down drachma prices... If the crises in Greece and Italy tell us anything, it is that the European Union has tolerated widespread corruption, criminality and malign governance not just in supplicants from eastern Europe but in some of its core western European members....If anything is to come from the catastrophe facing Europe it is essential these patterns of corruption are broken. Otherwise neither Greece nor Italy will ever be free of the institutional sclerosis that allows these practices to prosper."

2012, here we come.... (#28)

Let's pause to calibrate our sense of doom and gloom by checking out some of the latest thinking from the pessimist platoon's point man. It seems that Dr Death likes to invite people back to his pad for wine, canapés and talk of creeping cataclysm.

It's a funny old thing this 'slow motion train wreck'. It looks a bit more to me like a set of nested train wrecks all playing out at slightly different frame rates. Indeed, some of them are periodically on freeze frame, almost tempting one to imagine that they might stay that way for long enough for most of the passengers to exit unharmed, or somehow even snap into reverse.

Greek politics seem resistant to all efforts at containment. If the Greeks themselves should have been offered the chance to vote on their own rescue package, then there are surely quite a few non-Greeks who probably feel they should have had in on the Papandreou confidence vote. The Greek PM managed to survive that process, albeit with a large knife in the back courtesy of his Finance Minister, but his plan of forming a coalition government of 'national unity' looks unpromising this weekend, given the continuing absence of the main opposition party.

Yet perhaps the more intriguing train wreck right now is Italy. The Euro denominated BTP/bund spread separating Italy from Germany is at a record high. The Italian Central Bank claims that Italy is solvent so long as it doesn't have to pay more than 8%. We're at 6.6% and counting. Last week, at a joint press conference, when Merkozy was asked if Berlusconi had been able to reassure them, they looked at each other and burst out laughing.

Meanwhile, the Italian PM has been bragging that Italy turned down the option of a low interest loan from the IMF.

2012, here we come.... (#27)

Does anyone really think that Merkel and Sarko had no idea Papandreou would go rogue (i.e. to the people) after the Brussels get-together last week?

And why is it so surprising, that the nation which invented democracy should think it appropriate that some sort of popular consultation could take place before surrendering much of its sovereign control over its economic fate for the next several years.

Papadreou's gamble does now appear to have backfired, but one can understand the original motivation: transform a Hobson's choice cobbled together by foreign technocrats into something at least resembling a local political Catch-22.

For the Greeks, who might be forgiven for caring less about what now happens to the wider world economy, there's an extended period of economic pain ahead. In the short term at least, the pain would probably be greater if they were permitted the option of disorderly default and a return to the Drachma.

Papandreou may have hoped that his government could play upon popular terror of that greater pain, turning the plebiscite into something of a formality, and covering the collective backsides of Greece's political elite with a democratic mandate for the barber-shop approach to bond-holders.

Or, maybe he wanted to leave the door open for the full meltdown 'solution', which would at least leave the Greeks in charge of their own destiny once again — first in the queue as far as the euro exit sequence goes, and perhaps not that much worse off than everyone else once the impact of this decision has run its course.

2012, here we come.... (#26)

Most people are able to go about their lives without even the sketchiest understanding of quantum physics. To lack even an intuitive comprehension of classical Newtonian physics is a far more dangerous disposition however.

Until recently something very comparable applied to the world of economics. Most people could get on with their daily lives as producers and consumers of goods and services and not really have to give much thought to the weird underlying reality constructed out of semi-comprehensible securities, credit default swaps, CDOs, quantitative easing etc. etc.

Yet rather like a scientist who wakes up one morning with the premonition that the quantum world is the primary one and that everything else we perceive around us mere epiphenomena, I had a similar awakening myself with regards to the structure of 'late stage capitalism' around the middle of the last decade.

Surrounded by marketing people who thought of their own role in life as the most creative and fascinating part of the whole supply chain, I started to pity them for the bottom-feeders that they now appeared to me to be. For suddenly nothing was as it had always seemed: economics, politics and society in general was revealed as inexorably emerging from the hidden reality of high finance. And then in 2008 it stopped being quite so hidden.

There can hardly be a citizen in a major western democracy who is not now aware now how their world really works. Millions have been deprived of the illusion of usefulness (and not just PR and marketing people!). Can anyone deny that over the course of the last three years our leaders have made all other social and political goals subsidiary to that of maintaining the solvency of our banks? And however much we moan about this, if they hadn't, we'd have a lot more to moan about.

This is why the US markets responded so positively to news of the latest Eurozone fudge at the end of last week. This new plan is likely to accelerate the pending recession across the old world but, lets be clear, America doesn't care. These Frogs and Krouts are competitors after all. The current American administration cares about two things only. Postponing any day of reckoning beyond the 2012 Presidential election, and preventing a 'credit event' with global economic consequences. If the Europeans can find a way to sink themselves without affecting everyone else, so much the better...

2012, here we come.... (#25)

Remember how I told you how I was done with this little series of posts?

...I lied.

2012, here we come.... (#24)

Tom Meltzer explains the European bailout 'plan' with the help of his animated friends. Hilarious.

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

Given that the can has now been kicked further down the road than I can be bothered to gaze, (right into the kind of distant mirage one habitually witnesses when traversing Florida's 'Aligator Alley'), I shall signal a break from this series of posts, by quoting the last sentence of Michael Lewis's Boomerang:

"As idiotic as optimism can sometimes seem, it has a weird habit of paying off."

420 days, 16 hours and 53 minutes to Bak'tun 13.

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.

2012, here we come.... (#22)

"I've said it before and I'll say it again, this is a marathon not a sprint." (Nicolas Sarkozy, last night)

Didn't Pheidippides keel over and die at the end? Beware of Greeks bearing metaphors.

2012, here we come.... (#21)

There's a new movie out in UK cinemas right now, Stephen Sodebergh's Contagion, the subject matter of which is a biological rather than a financial pandemic. I was however interested to hear the director's stated opinion that when the time comes, when thousands if not millions of lives are threatened by some nasty little microbe, we, humanity, will inevitably find a solution.

Broadly the same idea was worked into the teleplay for this week's The Walking Dead (again, not in fact a documentary about a sizeable portion of the world's developed economies) in which a character referred to the zombie apocalypse in rural Georgia as just another one of those blips in human progress which we seem to be able to muddle through.

And this set me thinking how we do seem to have this underlying apprehension that all major problems have some sort of solution...as long as we put our thinking caps on and kind of douse them in our collective output of opinion. Yet the euro crisis has all the makings of a properly intractable difficulty.

A last word on the sort of cultural change which might save the day; not, I'm afraid to say, a particularly optimistic word. In Boomerang, Lewis identifies the current euphemism used to describe the kind of miraculous transformation which would make Greek people more like German people: structural reform.

He goes on to point out sagely that this kind of personality about-face can rarely happen quickly enough to be relevant to what actually transpires. I would add that most forms of significant cultural change are organic, which means that individual-level mirror-gazing, combined with promises to be less selfish, myopic, reckless etc. are ultimately akin to attempts to reseed a rainforest by systematically planting individual trees.

2012, here we come.... (#20)

"If there were any justice in the world the Greek bankers would be in the street marching to protest the morals of the ordinary Greek citizen." (Michael Lewis)

I've read up enough on the Greeks recently to have to resist the urge to get on the next plane to Athens and start chucking those petrol bombs back at them. And I'm not especially well disposed either to those masked Italian protestors brandishing 'We are the 99%' banners.

Lewis's book amply demonstrates the human need to pin the blame. His visits to countries affected by the current crisis, which he likens to financial disaster tourism, also show us that — depending not just on our political biases, but also on our national cultural backgrounds — we tend to look in different directions for our scapegoats. Only the Irish seem to have been collectively flummoxed by the question of who is actually to blame. For everyone else it is really simple: investment bankers, dodgy politicians, the 1%...not me. (Been thinking of getting myself one of these t-shirts.)

In truth cheap money brought out the worst in everyone, and what we have witnessed is perhaps the greatest flowering of human folly in the modern era. And to my mind a good deal of the populist protest sentiment, whether Tea Partyist or OWS, is just another expression of this absurdity, though one can appreciate the levels of frustration that seem rise in parallel with our collective improvidence.

Technological change has surely played a major part in all this, because it is that much easier to be immoral (or at least recklessly irresponsible) when you are sitting behind a computer screen. But lets not blame our tools eh?

Greece has had what Lewis describes as a societal level moral collapse, and when that happens there really are no political solutions, only cultural ones. And these are of course incredibly hard to introduce as piecemeal policy measures.

Of course Greece is only an extreme case of what has happened on a far more international level. Guatemala may not have been exactly flooded with cheap credit over the past decade or so, but it's hard not to examine the state of its political and social affairs without considering the wider context of a global ethical malaise. It's enough to make one turn to religion. Well, not quite.

Anyway, I'm not really buying the argument of Marshall Auerback (The Myth of Greek Profligacy, Counterpunch) that all attempts to paint the Greeks as deadbeats are "nonsensical propaganda, designing to justify the continued collective execution being inflicted on Athens for the sins of its father and grandfathers. As if Greece is the only country ever to cook its books in the European Union!"

Of course European monetary union has always implied a degree of book-cooking. But just to gain entry to the single currency Greece had to commit grand fraud — pretending that their budget deficit was 3% when it was in fact 15% — a situation which was only fully revealed once the IMF had had a chance to de-manipulate all the numbers and uncover some of the expenses which had been simply shifted out of the accounts to prepare the way for euro membership.

As with much of the sub-prime lending that went on prior to 2008, it must have been obvious to quite a few people (who should now feel thoroughly ashamed of themselves) that Athens was utterly crooked and therefore a very bad bet.

And some of the usual suspects from across the pond quickly became involved to make things even worse: Goldman Sachs reportedly took $300m in fees for fixing up some suspect loans which helped the Greek government to disguise its real level of indebtedness. The Wall Street men also taught the Greeks how to securitise future income streams from things like the lottery and motorway tolls, so they could spend cash up front from revenues yet to be received. As individual blame connected with collective blame, local blame duly connected with global blame.