The Great Debate UK

from Global News Journal:

If Greece’s debt dam breaks, who gets wet?

The 16 countries that share the euro single currency have agreed they will help Greece out if it needs. So far so good. But only now is the nitty-gritty of how member states will go about paying for their contributions being hammered out. And suddenly things are getting a little complicated.

Italy announced on Tuesday it would have to issue government bonds -- known as BTPs --  to raise funds for its part in any Greek assistance. 

Under the agreement finalised by euro zone members on Sunday -- by which they will provide about 30 billion euros to Greece if needed, and the IMF a further 15 billion euros -- Italy may be called upon to disburse about 5 billion, a figure proportional to its economic weight in the euro zone. Germany, the European Union's biggest economy, would have to provide a little over 8 billion euros. 

If Italy, which already has national debts in excess of 100 percent of GDP, issues more debt to raise money to help Greece get over its debt problems (Greece has a debt-to-GDP ratio of 120 percent),  then, in theory, the yield on Italian bonds is likely to rise as investors factor in the increased risk. And since almost all members of the euro zone have severe budget deficits (and therefore little free cash), potentially all of them are going to have to issue more debt to raise the funds to pay Greece to overcome its even more serious deficit problems. It's spreading the risk around.

Greece and the mythology of the EU

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Laurence_Copeland- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -

The (probably temporary) resolution of the Greek crisis seems to have produced a result which was unexpected – by me, at least. For the first time in the history of the EU, the German taxpayer has refused to be sacrificed on the altar of European solidarity.

from Breakingviews:

Uncle Sam’s Citi exit partly vindicates bailout

Uncle Sam is ready to get out of Citi. The U.S. Treasury is set to unload its 27 percent stake in the banking behemoth roughly two years after rescuing it. The exit should deliver a healthy profit for taxpayers. That's a relief for skeptics of the bailout, and represents another financial success story for the authorities managing the crisis. But Citigroup has hardly been turned around since the government stepped in.

The sale will happen comparatively quickly for its size. Treasury has hired Morgan Stanley to trickle its 7.7 billion Citi shares into the market over the next nine months. The outline of the process will be pre-ordained to avoid the appearance of any inside knowledge or conflict on the part of the bank's largest shareholder. At today's price of about $4.20 a share, the government would reap a profit of roughly $7 billion on its $25 billion investment. That's a nice paper profit, especially when put against Britain's hefty bank investments, which remain in the red.

from Breakingviews:

Has Greece delivered another Trojan horse?

Greece's economic statistics are dubious in more than one sense. The country probably bent its figures to get into the euro zone. Now, the EU is angry that Greece has not been straightforward about the size of its fiscal deficit. But the greater doubts concern how an uncompetitive, highly indebted, weakly governed country can live with a strong currency such as the euro.

The Trojans were shocked after Greek guile got them in. The feeling may be similar at Eurostat, the European Union's statistics office. There is particular anger at Greece's increase of its estimate of the fiscal deficit last year from a tolerable 3.7 percent of GDP to a quite intolerable 12.5 percent.

from Breakingviews:

Europe’s banks will suffer less from U.S. tax

-- Margaret Doyle and George Hay are Reuters Breakingview columnists. The opinions expressed are their own. --

European banks should suffer less than their American counterparts from the Obama administration’s proposed bank tax. The president’s proposed levy on banks’ wholesale funding requirements will hit all banks with a big presence on Wall Street. But assuming that U.S. banks will be taxed on their worldwide operations, the levy will hurt them more. This could be a major bonus for European investment banks -- as long as their own governments don’t follow suit.

from Commentaries:

Time to junk AIG

The federal government's $180 billion effort to prop up American International Group has worked, averting an even bigger financial catastrophe. Now it's time for the Obama administration to oversee the dismantling of the failed insurance giant with all due speed.

A report this week from the Government Accountability Office makes clear that AIG would crumble and likely reignite financial fears around the world without the government's massive support.

from DealZone:

‘New GM’ Gets a Visit from a Shareholder

obamalordstown1 GM's Lordstown, Ohio assembly plant has become a symbol of both GM's hard times and its best hopes for a turnaround after a $50 billion federal investment. A recent bump in sales because of the government's "Cash for Clunkers" program has allowed GM to call back more than 1,000 workers from layoff.   So it was a natural backdrop for a return visit by President Obama, who held a roundtable with workers and then gave a stump speech from the factory floor for his economic policies and health care reform.   But this is not your father's GM anymore and nothing about it as clear-cut as it seems -- even if you are the leader of the free world and head of the government that holds a controlling stake in the automaker.     At one point, Obama -- veering from his prepared remarks -- suggested that health-care reform would allow the UAW-represented workers in the audience to negotiate better wages.

“Think about it. If you are a member of the union right now, you’re spending all your time negotiating about health care. You need to be spending some time negotiating about wages, but you can’t do it," he said.

from Commentaries:

Time to get tough with AIG

It's time for someone in the Obama administration to read the riot act to Robert Benmosche, American International Group's new $7 million chief executive.

Since getting the job, Benmosche has spent more time at his lavish Croatian villa on the Adriatic coast than at the troubled insurer's corporate offices in New York.

from The Great Debate:

How the bailout feeds bloated banker pay

jamessaft1-- James Saft is a Reuters columnist. The opinions expressed are his own --

Rising pay in the finance sector in the wake of the global financial crisis is no surprise and is driven partly by the government's bailout itself and the underwriting of banks that are too big to fail.

News that some financial firms benefitting from government largesse actually increased the share of revenue they pay their employees sparked a lot of outrage but more heat than light.

from The Great Debate:

California, harbinger of hard U.S. choices

James Saft Great Debate -- James Saft is a Reuters columnist. The opinions expressed are his own --

California's fiscal train wreck should be watched warily by investors in U.S. Treasuries; as the start of a trend among states seeking bailouts, as a source of pressure on Federal funds and as a harbinger of hard choices at national level.

California voters last week rejected a finance bolstering proposal, setting the stage for billions of dollars worth of  cuts in services, layoffs and a shortened school year.

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