Hugo Dixon

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

A deal was better than a disaster. But last week’s planned rescue of Greece has the astonishing by-product of increasing its debts. It also lets private creditors off lightly while making taxpayers elsewhere in the euro zone pay through the nose. It doesn’t even mark the end of the crisis.

True, the sustainability of the Hellenic Republic’s debt has been improved. Its government will receive 109 billion euros of new 15-30 year loans from the euro zone at an interest rate of only 3.5 percent. Private-sector creditors will also swap or roll over 135 billion euros of existing bonds into new longer-term instruments.

But this private-sector involvement comes at a huge cost. Because the European Central Bank put the fear of God into politicians about the consequences of a Greek default, private creditors have been handled with kid gloves. Sure, they are going to suffer 21 percent losses compared to the face value of their bonds (assuming a 9 percent discount rate). But that’s much less than the 50 percent haircut that is needed to put Greece’s finances onto a stable footing.

What’s more, the financial fiddling used to corral the creditors actually means Greece’s debt will rise. This is mainly because Athens will need to borrow 35 billion euros to buy collateral to partially guarantee the new bonds it will give its creditors.

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

By Hugo Dixon

LONDON (Reuters Breakingviews) – Reverse ferret is a term coined by The Sun, one of the Murdochs’ UK newspapers, to refer to an abrupt U-turn in editorial line. This article is a reverse ferret, or at least a partial one.

Last week I wrote that James Murdoch should not be kicked out of his position as chairman of BSkyB. I admitted that he hadn’t covered himself with glory in dealing with the scandal at the News of the World, which he indirectly managed. But I argued that this was a separate business and his track record at BSkyB was good.

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

Listen to the politicians and one might think that Greece’s debts will fall as a result of last week’s provisional rescue by euro zone leaders and private-sector creditors. In fact, they go up. Athens’ borrowings will increase by 31 billion euros under the rescue scheme, according to an analysis by Reuters Breakingviews. This increase, equivalent to 14 percent of GDP, will push the country’s estimated peak debt/GDP ratio next year to 179 percent.

This bizarre result comes because of the way the different elements of the fearfully complex rescue plan interact. Greece will need to borrow extra funds to enhance the creditworthiness of the new bonds it will provide the private sector. It will also need to inject capital into its own banks. These extra borrowings amount to 55 billion euros and will more than outweigh the reduction in Greece’s debts that comes as a result of haircuts to be agreed by private-sector creditors and a planned buyback of debt at a discount to its face value.

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

James Murdoch shouldn’t be kicked out of BSkyB. Some observers want to use the Murdoch clan’s troubles at News International, their UK newspapers company, to run them out of town completely. But BSkyB, the pay-television group, is a separate business. And Murdoch Jr has done a good job first as its chief executive and now as its chairman.

Admittedly, Murdoch Jr hasn’t covered himself in glory in handling the alleged phone hacking and police bribery scandal. As well as being chairman of BSkyB, he has indirect responsibility at News Corp for the UK newspaper arm. He was slow to grip the problems — not least by allowing Rebekah Brooks, who ran the papers and reported to him, to stay in her position for too long. There are now multiple probes into the saga which could embroil him further. But nothing has yet come out which should disqualify him from his BSkyB role.

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

Silvio Berlusconi really must go. It’s no longer about abuse of power and “bunga bunga” sex parties. His continuation as Italy’s prime minister could drive the country into a financial death spiral. His own supporters are shaken and the public is afraid. But the left-wing opposition is behaving responsibly, so there’s some hope.

Italy pulled back from the brink — slightly -– on July 12. After nudging above 6 percent, the yield on 10-year government bonds fell back to a still uncomfortable 5.6 percent. Part of the explanation is that the opposition agreed to a fast-track parliamentary vote on the government’s new austerity program. The multi-year fiscal squeeze of more than  40 billion euros should therefore be approved by the end of the week.

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

The Greek crisis is fast descending into farce. The position of Germany, the euro zone’s main lender, is increasingly absurd. It is adamant that there will be no restructuring of Greek debt — at least, until 2013. And yet it is equally insistent that Athens’ private-sector creditors should contribute up to 30 billion euros to a new, 120 billion euro bailout. That would effectively amount to a half-cocked restructuring.

German Chancellor Angela Merkel’s inconsistencies seem based on her view that a sovereign restructuring won’t happen before 2013 just because she said it won’t. But her conflicting demands are becoming virtually impossible to reconcile. The ratings agencies are threatening to say that Greece has defaulted if there’s so much as a whiff of arm-twisting in the supposed “voluntary” rollover.

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

Europe has only itself to blame for the mess created by the ratings agencies. Luminaries including Jose Manuel Barroso, the president of the European Commission, and Wolfgang Schaeuble, Germany’s finance minister, have lambasted Moody’s for downgrading Portugal. But Europe has wasted many chances to neuter the power of credit ratings agencies. Instead they choose to fetishize them. An especially stark instance can be seen in the European Central Bank’s current approach to Greece.

For years it has been apparent that the financial world pays far too much attention to the three big ratings agencies — Moody’s, Standard & Poor’s and Fitch. They should be treated like any other opinion in the market. But their special position allows them to create havoc. It is not just that investors hang on their every word, they are also embedded in the system for regulating banks and other official mechanisms. Yet the agencies are often too slow to spot trouble, with the result that borrowers are able to run up excessive debts. And when they do change their minds, they can help provoke a stampede.