Opinion

Hugo Dixon

Greek Plan B needs two elements

Hugo Dixon
Jun 28, 2011 21:06 UTC

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

LONDON — The European Union is finally working on a plan B in the unlikely case that Greece’s parliament votes against austerity later this week. The priority in such a plan should be swift action by the European Central Bank to protect the rest of Europe’s banking system from mayhem. The EU should also try to give Athens a second chance to reflect on its folly.

The most dangerous immediate consequence of a No vote would be an acceleration of deposit flight from Greek banks. This could sow panic in banks in other peripheral nations. One way of stopping that would be for the ECB to immediately make clear that buckets of liquidity are available for non-Greek banks. Ideally, this shouldn’t just be short-term money, but medium-term money too. Euro zone governments should underwrite any losses the ECB incurred on such emergency support.

It would also be nice to stop Greece going into a tailspin. The hope would be that, once the Greek people and politicians witnessed the havoc unleashed by balking at austerity, they might change their minds. It would then be desirable to provide Athens some sort of bridging loan to prevent default before the second vote. The euro zone shouldn’t reward delinquency. But it might still be possible to give money if Athens pawned assets.

It would also be necessary to provide a bridging facility for the Greek banks; otherwise they could collapse before any second vote occurred. It’s hard to see how the ECB could provide it in such a scenario, as Athens would have just stuck two fingers up to Europe. But it could let the Greek central bank offer its banks emergency loans in the same way that the Irish central bank has been doing to its banks. There would, though, have to be limits given that the Greek central bank’s own balance sheet is shot to bits.

How the euro zone can save itself

Hugo Dixon
Jun 20, 2011 15:05 UTC

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.

Euro zone finance ministers have postponed a final decision on extending 12 billion euros of emergency loans to Greece. But the country should get the next tranche of its EU/IMF bailout program in early July. Around the same time, the authorities should agree to a new package of perhaps 120 billion euros that sees Greece through until end 2014 –- with private-sector creditors helping by rolling over their debts in some yet-to-be-determined quasi-voluntary manner. Athens still has the capacity to mess things up if it can’t get its parliament to approve the new austerity program. But following Friday’s cabinet reshuffle, the government looks like it will at least survive a no-confidence vote on June 21.

Greece mustn’t waste its second chance

Hugo Dixon
Jun 6, 2011 20:00 UTC

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

LONDON — Greece mustn’t waste its second chance. Athens looks like it will receive enough bailout cash to see it through to end-2013. But if it veers off track again, as is all too possible, any third chance might come with such extreme conditions that a messy default and a humiliating exit from the euro wouldn’t be far away.

The euro zone and International Monetary Fund are willing to provide more cash partly because the European Central Bank has scared Athens’ saviours into believing that a Greek default now would trigger a nightmarish set of domino collapses across the continent. In return, Greece has promised to raise the equivalent of 22 percent of GDP through privatisation by 2015, as well as squeezing another 10 percent of GDP from its fiscal deficit. There is also a plan to bail in private-sector creditors, albeit on a “voluntary” basis. That could cut the amount of new bailout money to perhaps 30 billion euros, out of a total funding hole of 65 billion euros.

Moral hazard is clue to solving euro crisis

Hugo Dixon
May 20, 2011 18:20 UTC

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

LONDON — Moral hazard is the clue to solving the euro crisis. The idea that entities don’t learn lessons unless they feel pain is valid in the euro zone — but only if the blame is shared properly. The mess isn’t just the responsibility of profligate Greeks, but also of foolish banks and hypocritical Germans and French. Each needs to suffer.

One of the main reasons the region’s financial crisis is so intractable — with endless wrangling over what is the best way forward — is because the different players haven’t fessed up to their own sins. There is therefore a tendency to proclaim their own virtue and pin the blame on others. This makes it hard to come up with a fair settlement.

The China files, postscript: Feisty females

Hugo Dixon
May 12, 2011 12:40 UTC

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

By Hugo Dixon

My first visit to China was in 1979. I was a schoolboy. It must have been one of the earliest Western school trips to the mainland. Mao Zedong had died three years before, Deng Xiaoping had launched the country on three decades of supercharged growth and the one-child policy had just been initiated. I hadn’t been back until this March.

Back then, Mao’s image was plastered everywhere and almost everybody wore Mao suits. I even bought one for myself. I also bought a Mao poster and stuck it in my bedroom at school. Nowadays, the posters have virtually vanished, along with the suits.

The China files, Part 3: Crony capitalism

Hugo Dixon
May 11, 2011 13:29 UTC

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

By Hugo Dixon

China’s economy is riddled with vested interests, while free speech is suppressed. This potentially explosive mixture sounds similar to Hosni Mubarak’s Egypt, though Beijing has been much more successful at promoting economic growth than Cairo in recent decades. No wonder the regime is cracking down on dissent — including arresting Ai Weiwei, the internationally renowned artist. But it won’t be easy to maintain the current political model — or to reform it. And failure to do either could knock the economy off its extraordinary trajectory.

The country is officially run by the Chinese Communist Party. But, apart from the suppression of individual rights, it is hard to see much about it that is communist. Inequality is high and rising. The Gini Coefficient, a standard measure of income inequality in a society, is over 0.4 and, by some measures, is close to 0.5 — high figures normally associated with sub-Saharan African countries.

The China files, Part 2: Brave new economic model

Hugo Dixon
May 10, 2011 13:16 UTC

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

By Hugo Dixon

The Chinese government knows it’s time for a change. The old economic model based on cheap exports and eye-popping investment can’t be sustained.

Fortunately, politicians aren’t sitting on their hands. The latest five-year plan, covering 2011-2015, aims to boost internal consumer demand as the main engine of growth. It envisages a bigger share in the economy for services, which are currently only 43 percent of GDP — barely half America’s level. The plan calls for more high-tech industry and for greener, less carbon-intensive growth. There’s also to be a big push into social housing, so the poor can afford somewhere to live.

The China files, Part 1: How fast can China grow?

Hugo Dixon
May 9, 2011 13:30 UTC

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

By Hugo Dixon

How fast can China grow over the next decade? Nowhere near the breakneck speed it has enjoyed over the past three decades. Multiple economic, environmental and political challenges will slow it down.

The capitalist revolution launched by Deng Xiaoping after Mao Zedong’s death still has a long way to go. But it is now in its early middle ages rather than its infancy. The government recognizes that the old model driven by exports and investment is running out of steam; indeed, its recently unveiled 12th five-year plan tries to grapple with that challenge.

Portugal’s bank rescue plan has one hole

Hugo Dixon
May 4, 2011 20:57 UTC

By Hugo Dixon and Neil Unmack
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

LONDON — Portugal’s bank rescue scheme has one big hole. The European Union and International Monetary Fund have come up with a punchy blueprint to restore confidence in the financial system, as part of the country’s 78 billion euro bailout. The plan includes recapitalisations, stress tests and privatisations. But there’s one weakness: funding. Allowing banks to issue state-guaranteed bonds, as envisaged by the plan, is only a partial solution so long as the government’s credit is still weak.

First, look at the good part of the blueprint. Banks will have to boost their core Tier 1 capital ratio to 9 percent by the end of 2011 and 10 percent by end-2012. That’s above the 7 percent agreed under the new global banking rules. If the banks can’t raise this capital on their own, the state will provide up to 12 billion euros.

Exclusive: Geronzi payoff, expenses in focus at Generali

Hugo Dixon
Apr 27, 2011 06:55 UTC

LONDON/MILAN (Reuters) – Cesare Geronzi’s apparently hefty payoff and his seemingly lavish expenses during 11 months as non-executive chairman of Generali (GASI.MI: Quote, Profile, Research, Stock Buzz) are set to come under the spotlight at the insurer’s shareholder meeting on Saturday, several directors and other sources said.

Geronzi, a powerful Italian corporate insider who has been close to Prime Minister Silvio Berlusconi, resigned in the face of a boardroom coup on April 6. He was awarded a payoff of 16.6 million euros ($24.3 million) upon leaving Europe’s No.3 insurer, several Generali directors and other high-ranking Generali sources told Reuters on condition of anonymity.

Geronzi also ran up bills to cover extensive use of private jets, five secretaries, multiple cars and drivers in four cities, the rent for a flat in Milan, a public relations team separate from the company’s main communications office, and sponsorship of events and media outside the company’s normal advertising program, according to the sources.