…the contagion into core banks may be being underestimated by investors. Moody’s on Tuesday said it could downgrade France’s BNP Paribas, Société Générale and Crédit Agricole due to their holdings of Greek debt, and the ratings firm is looking at whether other banks could face similar risks.
Disturbingly, the worries have now reached non-financial companies, which have been virtually bulletproof this year. Investment-grade bond issuance has come to a near-standstill. The yield premium on Portugal Telecom’s February 2016 euro bond over German Bunds has widened a stunning 2.3 percentage points in the last two weeks, data from Société Générale show. Italian and Spanish credits are under pressure too. The credit market now starts by pricing government risk and then works back to price debt from financials and companies, one investor says: Greece is a destabilizing influence at the center of the market’s deliberations.
I groaned over the headline: a play, of course, on Greeks bearing gifts.
But the situation is serious. No one seems to have any plan. The consensus among economists is clear: Greece must default on its debts (again – it has a track record on this). It needs to leave the eurozone. Banks stuck with Greek bonds (mostly German) need to figure out how to absorb the losses. But the European Union leaders seem unable to grasp these nettles. Where there is no vision the people perish.
It is astonishing watching the riots in Greece. If I were a public worker there I too would be frightened for my job and the future. But strikes and riots are not the answer: they can only make it more difficult to move forward with creative answers. In general I am astonished at how public workers in crisis-hit economies fail to understand that the situation cannot carry on as before. Californians will recognise the syndrome – I know that Europeans are not alone in this respect. Here in the UK teachers, already well paid and with fantastic salaries, are striking at the end of the month because they are being asked to work a little longer and pay a little more towards their pensions. As they say in the US: go figure.
Leaving to one side the issues of how things came to this pass (Greece, Portugal, Ireland, the United States – etc.), the disturbing thing to me is the complete inability of national political “leaders” to rally the population to the necessity of common sacrifice to avert greater disaster. This is the great failure of contemporary electoral democracy across many national boundaries. In the US, it is particularly striking how much nonsense the leaders of both parties seem to be willing to propagate rather than take things head-on. It all reduces itself to marketing ploys and posturing for the next electoral go-round.
Yes, but if a politician spoke the truth would he or she be elected? The Greeks cannot even bring themselves to pay taxes – how much less likely they are to vote for a government that imposes swingeing austerity measures. It is as much a failure of we, the people. We have to be careful here, though. One of the striking things about the early 1930s was the disdain for democracy. In Germany and Italy, democracy and capitalism were widely perceived to have failed. Here in the UK an element on the far right thought the same thing: not only Mosley and his British Union of Fascists but also (although it pains me to say this) some Catholics, who thought Franco and even Mussolini would be improvements for their nations. Fascism (not Nazism) seemed to offer an ideal of an organic society at which various levels (professional, worker, etc) co-operated seamlessly to achieve common goals. A myth, of course, and it played into Hitler’s hands. But I fear that there may be a recrudescence of extremism in Europe, among those who think the present system failed and discredited. In the US a similar response is more likely to take the form of utter indifference to the political system among younger generations who will disdain it.
The collapse of the European Union was built into it with the widespread incorporation of European Socialism, optimistically financed by a dependence on the US for defense. The overall EU collapse, which appears to be the inevitable result of deliberate policy, coupled with the economic struggles in the US as we desperately try to throw ourselves down the EU toilet before the tank empties, will leave Europe prostrate and helpless against whatever invader can muster a half baked military. WWII redux, ala Santayana. With globalists like Soros gaming the system, could this be the result they are looking for, as an opportunity to impose a world government? Stay tuned. It’s gonna get interesting.
Once you get used to Santa Clause it’s hard to take it back.
Interesting comments and observations. NPR had a story this morning regarding the re-emergence of Isolationism in the Republican Party. Of course, history rarely repeats itself exactly, and expecting it to do so can create new problems. But would not be surprising if we are moving towards a seismic shift in global affairs.
Today’s developments are ominous. IMHO, the real issue is: Who absorbs the losses? One would think that the lenders who loaned Greece money would absorb the losses if Greece defaults.
As I understand it, forcing the lenders to recognize Greece’s default would trigger a wave of falling dominoes: (a) Greece’s lenders would themselves become insolvent, causing (b) anybody who loaned money to those lenders to become insolvent. In such a scenario, the defaults would quickly spread beyond banks and throughout Europe and into the United States. Yikes!
To avoid the falling dominoes. European politicians want the EU [N.B. i.e. the German taxpayers] to absorb the losses and loan more euros to keep the Greeks going. Not surprisingly, the German taxpayers have demurred. Note well that now the politicians are talking about IMF loans; that means American and other taxpayers will absorb the losses, because the United States and other beyond Europe contribute money to the IMF.
Also note that the Greeks themselves appear unwilling to reduce their standard of living to something they can actually afford. I don’t understand why they think other people should subsidize their economy. In the U.S. certain segments of the population and the political class have the same attitude as the Greeks.
In sum: Yikes!!!