The Great Debate UK

from Breakingviews:

Bearish markets remain in thrall to Greece

By Ian Campbell
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

LONDON -- The sell-off in equities and commodities is tempting for bulls but the falls could easily get worse.

Global stocks are down by 8 percent since May 2. The oil price has slumped by 19 percent over the same period. Three forces are at play turning equities and commodities markets bearish. The U.S. Federal Reserve will stop printing money at the end of this month. Global economic data continues to show a slowdown. And, most alarming of all, there’s the lack of even a temporary patch-up for Greece. That increases the risk of a disorderly default in the euro zone, which would slam the markets.

The first two threats the markets will get over in time. Some recent global data is unquestionably weak. But the March earthquake in Japan, which disrupted supply chains, and some natural easing in the pace of recovery, may be responsible. Overly buoyant commodity markets were themselves a negative. Oil at well over $100 a barrel was a huge burden for a global economy that is supposed to be in rehab. The current cooling of oil prices is supportive of growth and therefore reassuring.

from Breakingviews:

How the euro zone can save itself

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Hugo Dixon

Greece is likely to receive another short-term sticking plaster after the euro zone’s leaders stared into the abyss. But a repeat of the drama of recent days is all too possible. The region can, and must, protect itself against Athenian delinquency.

from Felix Salmon:

Could the EFSF engineer a Greek restructuring?

We're now close enough to a Greek default that the likes of Daniel Gros are coming up with schemes for how to avoid such a thing:

The European rescue fund -- European Financial Stability Facility, or E.F.S.F. -- should offer holders of Greek paper an exchange into E.F.S.F. paper at the current market price. Banks could be "induced" by regulators to accept the offer.

Nuclear plants aren’t the only meltdown worry in Germany


Having just got back from a couple of days in Hannover, I couldn’t help but be struck by the dominance of the local news agenda by two topics – and the almost complete absence of a third. Taking the British media at face value, I might have expected a city in near-panic, with people nervously scanning menus for safe dishes to order and maybe antiseptic handwashing facilities being hurriedly installed in public places. In fact, the town looked exactly as I remembered it from my last visit a few years ago, with E.coli rarely mentioned either in conversation or on the 24-hour TV news channels.

In fact, apart from endless replays of the goals from Tuesday night’s football (Germany versus Azerbaijan, a real clash of the Titans that must have been!), the news was all about the remote risk of a meltdown in the country’s nuclear power plants, and the anything-but-remote risk of meltdown in what is left of the Greek economy.

Trichet’s United States of Europe?


By Kathleen Brooks. The opinions expressed are her own.

Another week another round of EU officials proposing solutions to the Greek insolvency problem.

First there was the President of the European Council Jean Claude Juncker who suggested that bond holders could be tempted into rolling over their maturing debt and buying more Greek bonds as long as a few sweeteners like higher coupon or interest rates were thrown in.

from Felix Salmon:

Are Greek bonds pricing in a massive default?

Martin Feldstein reckons that the market is pricing in a "massive" Greek default:

Even though the additional loans that Greece will soon receive from the European Union and the IMF carry low interest rates, the level of Greek debt will rise rapidly to unsustainable levels. That’s why market interest rates on privately held Greek bonds and prices for credit-default swaps indicate that a massive default is coming.

from Felix Salmon:

The fraught politics facing Lagarde

To get an idea of the job facing the new head of the IMF, check out Patrick Wintour's interview with Vince Cable, a UK cabinet minister who, perfectly sensibly, says that Greece is going to have to restructure its debts. Cable puts a positive spin on the idea: a "soft restructuring", he says, with Greece staying in the euro zone, could lead to a closer political union.

Then, read the story of what happens when you so much as suggest such a thing to Jean-Claude Trichet, eurocrat-in-chief. Even if you're from Luxembourg:

from Felix Salmon:

The problems with a Greek “light dusting”

According to Christopher Whittall, "a consensus has grown among market participants that authorities will look to avoid triggering CDS when restructuring Greek bonds". Recall the inimitable language of Lee Buchheit, in his latest paper on how Greece might restructure:

The EU’s post-Deauville assurance that there will never be a restructuring of an existing Eurozone sovereign debt instrument (at least until 2013) presents something of an obstacle to any pre-2013 restructuring of Eurozone sovereign debt instruments. The face-saving solution may be linguistic. A voluntary liability management transaction undertaken by the debtor country before 2013, the argument goes, is not a “restructuring” as that term was used in the post-Deauville assurance. Restructuring, it may be claimed, connotes a degree of coercion on the affected creditors. But if the creditors themselves elect voluntarily to participate in a liability management transaction to improve the creditworthiness of their debtor, who in the official sector can or should gainsay that decision?

from The Great Debate:

Five ways to correct the Greek debt crisis

By Mohamed El-Erian
This piece is the English version of the one that appeared in Handelsblatt. The opinions expressed are his own.

Not a day goes by without a flood of comments on Greece and its debt problems. They seem to come from everywhere. Some are later denied while others are left to stand, accompanied by a continuous string of worrisome data. In the process, even greater disorder is gaining hold of the country’s debt markets, with credit spreads exploding in an ever more alarming fashion.

from Felix Salmon:

Expecting an early Greek default

Greece is going to restructure its debts -- and it's going to do so before mid-2013. That's the clear message sent by the latest Reuters poll of 55 economists from across Europe: 46 of them saw a restructuring in the next two years, with four saying it would happen in the next three months.

This is a major development. The markets haven't believed Greece for a while -- but now they don't believe the European Union, either. Remember that back in November, the EU put out a statement laying out a mechanism for restructuring a member's debt "in the unexpected event that a country would appear to be insolvent". It clearly says that "any private sector involvement based on these terms and conditions would not be effective before mid-2013".