Euro zone reaches a greek bailout deal

[rdking647]

Source: bloomberg

French President Nicolas Sarkozy said the euro region’s bailout fund will be leveraged by four to five times, and investors have agreed to a voluntary writedown of 50 percent on Greek debt. Sarkozy plans to call Chinese leader Hu Jintao today to discuss contributions from the Asian nation to a fund European leaders may set up to fight the crisis, a person familiar with the matter said

Read more: http://www.bloomberg.com/news/2011-10-27/asian-stocks-euro-advance-on-europe-s-expansion-of-bailout-metals-rally.html

---

its about damn time..

current US markets indicate a dow opening of up 100 points or so

[lovuian]

1. what they don't say is China is going to own Greece now

they just sold it out

[DJ13]

2. The food should be interesting

[DCBob]

8. ha!

Peking Gyros!

[dipsydoodle]

19. Just noticed your post

see my reply #18.

Same could happen to Italy who already acknowledge they will need to sell both government owned land and the government's stock in Italy's utilities.

[Zyzfyx]

44. Greece should be in good company

:patriot:

[DJ13]

3. the euro region’s bailout fund will be leveraged by four to five times

Wasnt leverage part of what caused the financial crisis in the first place?

[Mist]

5. Yeah, that's nervous-making. nt

[Mist]

4. The 50% reduction is a big concession. nt

[rdking647]

6. it beats 100% in an uncontrolled default

[JackRiddler]

20. No. It does not.

[Roland99]

31. not big enough, though.

won't be long before the printing press is humming at high-speed in Europe.

[Roland99]

32. Greek Bonds Trading With Expectation Of Substantial Further Haircuts

http://www.zerohedge.com/news/greek-bonds-trading-expectation-substantial-further-haircuts

...

Which is why we present the entire Greek bond curve, which show that while bond maturing around 1 year from now have since jumped to just shy of the 50 cent on the dollar haircut level, bonds further down the curve are just not buying it and continue to trade in the 30s! In other words, while Europe may have convinced the EURUSD shorts that everything is fixed, Greek bondholders are certainly not convinced. Those who believe that the ECB will go ahead and carry through on its promise of a 50% haircut and no further, should be buying up the entire curve which trades below 50. We also wish them good luck. Stocks and algo driven FX may be fooled but the bond market certainly isn't. If anything, judging by prevalent values, even assuming some modest accrued interest, the bond market is expecting a final haircut of about 62%.

[bluestateguy]

7. I'm confused

Everytime a bailout is made, it seems like the whole Greece thing goes away for a month or two, and then it starts popping back into the news again, and how a new bailout is needed.

[rdking647]

9. thats because europe keeps kicking the can down the road

this is the step they should have taken months ago..

[DCBob]

10. because the previos ones were temporary and not big enough.

the situation has gotten steadily worse and needed a more extreme fix. This may in fact not solve the problem either and their may be need for another bailout down the road.

[DCBob]

11. This is good and may be a big step in the right direction.

although clearly there is much more to be done before anyone will claim success.

[Matilda]

12. Can somebody explain this is simple terms?

If I went to the bank and borrowed an amount four or five times what my business is worth, I (and the bank) would want to be very confident that the loan would enable me to earn enough to pay all my bills and repay the loan as well. If not, I would be in trouble and eventually lose my business to the bank, and if it wasn't productive, the bank would also be taking a loss. Right?

I thought this was how Greece (and Ireland) got into trouble in the first place. So what is the situation now? Is this a good thing, or is it really a bad thing dressed up to look positive?

[DCBob]

13. Basically the Greek bond holders are getting the shaft.. .losing 50% of their investment.

The Greeks are not off the hook either since I am sure they will have to agree to some further severe austerity measures to keep future debt under control. The Chinese loans are necessary to help shore up the EU banks who are large holders of the Greek bonds which are now 1/2 value. At least that is the way I understand it.

On edit: and yes it is good since the alternative would be a disaster.

[Matilda]

15. The austerity measures mean the Greek people shoulder most of the burden.

I understand why they're rebelling against it, and I would too.

Would not a stimulus program - the government creating public works programs, for example - do more to help the economy without hurting the people so much? That way, there is a chance for people to earn money which they then spend to keep the economy going. If the government just cuts funding to help those most in need, how then is the economy going to be stimulated?

[DCBob]

16. Totally agree. The austerity stuff sucks and doesnt work anyway.

Its just sounds good and looks good to the negotiators.

[dipsydoodle]

21. To run a public works program

they'd need funds. In the absense of their population facing up to paying income tax rather than avoiding it those funds don't exist. Tax avoidance in Greece has always been a National pastime.

[JackRiddler]

30. Congratulations, you are replicating FOXNEWS talking points about lazy, unreliable Greeks.

Greece can withdraw from the euro and manage its own currency.

[dipsydoodle]

33. I provided fact

not opinion.

[JackRiddler]

34. What you think is a "national pastime" to Greeks is your opinion, not fact.

Now explain Ireland. Or all the other crises happening at the same time. Greece is not isolated. It's a global economic disaster caused by the banksters, an attempt to impose debt slavery on all nations. As each nation is taken down by the financial regime, excuses will be found: they ate too well, they're lazy and irresponsible, etc. It's the Greek taxpayers who are of course being screwed, so naturally there's a right-wing talking point out there denying that they even exist. And you're repeating it, in unwitting service to that ideology and its beneficiaries on Wall Street and in Frankfurt.

[dipsydoodle]

37. Its Greece we're discussing :; not Ireland

From February LAST year :

Greek Tax-Dodgers Threaten Papandreou’s Plan to Cut Budget Gap

Feb. 16 (Bloomberg) -- Apostolis Rigas took his Opel sedan for a 220-euro ($354) service at a repair shop in northern Athens. When he asked for a receipt, the price jumped to 260 euros as his mechanic would have to declare the income and pay tax.

>

Greece’s revenue from income tax was 4.7 percent of GDP in 2007, compared with an EU average of 8 percent, EU statistics show. Tax revenue fell by 2.5 percentage points of GDP between 2000 and 2007 to a euro region-low of 32 percent even as economic growth averaged 4.1 percent a year.

That decline has helped push the deficit to 12.7 percent of GDP, more than four times the EU limit. It has also inflated the national debt, which at 120 percent of GDP will be the highest in the euro region this year.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=apSz28ifLL9U

From December last year :

6 in 10 Greeks don't pay income taxes.

More than 5 million Greeks did not pay income taxes for 2008, according to public documents released by the struggling nation's finance ministry.

More than six in 10 taxpayers earn less than 12,000 euros per year and are not required to pay income taxes under the Greek tax system, the press office of the Greek Ministry of Finance said Thursday.

However, there is wide speculation that many Greeks are not accurately reporting their income.

http://articles.cnn.com/2010-12-31/world/greece.taxes_1_income-taxes-greek-press-tax-evasion?_s=PM:WORLD

note : according to public documents.

Its partly for this reason that their standard VAT rate has been increased to 23% and a property tax introduced : they're both unavoidable.

There is no justification for the antics of Greks to cost the tax payers of poorer nations like Slovakia more which is what is happening.

[JackRiddler]

40. Incorrect. We are discussing the world financial crisis brought on by the banksters...

and not only the case of Greece. This is not happening in a vacuum due to the "antics" of Greeks. (That kind of rhetoric defaming a nation deserves a much stronger answer, but I don't want this post deleted.) This is happening in dozens of nations, and Greece is merely the poster child for a program that eventually will also be imposed on the American people. When they come to cut Social Security here, it will be attributed to the "antics" of spendthrift Americans.

Your CNN-assisted talking point is the same bullshit that right-wingers say about the US: that half the people in the US "don't pay taxes." It is a lie. The majority of working Greeks pay payroll taxes, sales taxes, and a variety of charges. They provide most of the revenues. A lot of people don't pay income tax because they don't make enough income -- just like in the United States. (You are blaming the poor. As punishment, I wish I could stick you in a Greek town to work for 700 euros a month and fight for survival, and then have ignorant Americans complain that you're not paying enough in income taxes.) Meanwhile, rich Greek people evade income taxes, very much like the rich in the United States.

The Slovakia point is a pawn forwarded to justify a program that actually benefits German and French banks -- NOT Greeks. Actually, we agree. The taxpayers of other nations should not pay for the "Greek" debt, which mostly consists of interest on prior bridge loans and "bailouts." Greece should default on the odious debt. The TBTFs should be liquidated.

[JackRiddler]

22. Basically, the Greek people are being screwed for the next two generations.

Or longer. The country's slavery to odious debt is being enforced.

The banks have decided what the maximum is that can be paid by the Greeks, as they once did with Bolivia or Brazil in classic IMF austerity regimes. The idea is to take everything Greeks make that could possibly be taken sustainably, forever more, and stick it straight into debt payments.

They were never going to get 100 percent of the impossible debt payments. The game is to later own 100 percent of Greece, and have Greek labor (and immigrant labor) as serfdom.

Greece needs a bankruptcy and new start, but it's instead getting a foreclosure. Goldman Sachs is among the beneficiaries.

Do not think for a moment that this is a "bailout" for Greece, or any kind of favor to the Greek people. It represents Debt Ueber Alles. It means a kind of financial slavery for the unborn. It is financial war. The only rational and just resolution for the Greeks IS a "disorderly default."

A fierce and injust austerity has been imposed upon the Greek "99 percent" by their bought-off politicians. Greeks will be robbed of all economic opportunity and impoverished. Greek assets will pass into the ownership of bondholding institutions. Many of them stepped in during the last couple of years - despite knowing a default was inevitable - with the intent of getting to OWN formerly public Greek assets. Much of Greece will be liquidated and sold off to financial speculators.

This is a classic IMF austerity regime (in this case worked out by the troika), for the first time imposed from without on a Western nation. It is meant as a model for the rest of the Western world. One day many of the same banks will be imposing it on people here, who will be called irresponsible and lazy and entitled for having spent too much, etc.

[Nye Bevan]

24. Hasn't Greece been forgiven a huge amount of its debt, in this deal?

Isn't this better for the Greek people than insisting that they be squeezed out of every last Euro that they owe?

[JackRiddler]

Greeks are being squeezed out of every last Euro that the creditors calculate they can get.

This is the same deal that the IMF used to impose on Bolivia, or Brazil, or Argentina, when the bankers would have a meeting in New York, determine the maximum they could get out of those countries sustainably, and impose it.

"Greeks" do NOT owe this money. Their political class was paid off in creating profit centers for German and EU companies. They should not pay. They should liberate their country (and the unborn!) from the debt, take the hit and start over.

[JackRiddler]

28. (dupe delete)

[rdking647]

26. this is a case where the greek people and their leaders are at fault

they dont hva ethe money to pay their debt. period..
they have 2 options..
1. refuse to pay it at all
2. restructure it.

if they chose #1 then they cant borrow any money in the international markets. that means they have to run the country entirely with the money theu have.. and since tax avoidance is a national pasttime in greece that means huge,dramatic cuts.. state emplyees not getting paid.. pensions being stopped etc..

under #2 at least they have a shot to reform...

[JackRiddler]

29. Bankster propaganda. Anti-Greek cliches.

Greeks absolutely should choose the onerous but ultimately far better path to self-sufficiency and freedom from bankster dictates.

You should be placed in Athens on a 600 euro a month income (now being cut by 25 percent) and see how well you do.

[rdking647]

35. so what would you suggest

you have 1k in the bank.. your income is 500 a month
your rent is 2k a month

you have 2 choices.. either dont pau your rent or work out som aggreement with your landlord..

[JackRiddler]

39. My suggestion to you? That you stop using ridiculously invalid metaphors.

Greece is not me.

A nation is not a household.

The creditors of Greece are definitely NOT a landlord.

The first two are excusably mindless metaphors, if you're willing to dispense with them.

The latter is a very, very curious metaphor on your part.

I'll say it again: the creditors are not landlords. They do not own Greece and rent it out to the Greeks. They don't get to evict the Greek people. (In their fever dreams, they get to own all the public assets as collateral.)

Now, if we could get away from truly irrelevant and simpleminded metaphors of nations as single human beings or businesses, which hardly need to be addressed (but which I have done as a service to you and others who are misguided by the same invalid metaphors), I already said what Greece should do.

Default. Free itself from odious debt. Leave the euro. Take the hit and build a sustainable, self-sufficient economy with its own currency, one that it can issue. Depart from the path of debt slavery and generations of austerity. This is not a "bailout" of Greece. It is a bailout of the German and French and other banks. Since you like metaphors of a nation as business or individual, it's like a business bankruptcy. Your liquid assets are eaten, the remaining debt is retired, and the creditors don't get to own your income for the rest of your life. They also don't get to own your home.

[rdking647]

41. lets say greece defaults

how do they continue to pay government employees and pensions.. they would have to go back to the drachma and devalue it hugely.. they would be shut out from borrowing money..
what would you think would happen if people where told their money was suddenly worth 50% less?

[JackRiddler]

42. Ask Argentinians if they would have preferred to accept IMF slavery.

The empirical examples of successful defaults are actually available. The cases of nations impoverished in every way by neoliberal regimes and debt slavery are legion. Why don't you read up on it before you mouth off more prejudices straight from the MSM? And if Greek money were suddenly "worth 50% less," meaning presumably in euros, Greeks would spend more of it at home and re-develop their own economy.

[rdking647]

43. the big difference is argentinia had an export driven economy

greece isnt....

[JackRiddler]

45. This is all the more reason for Greece to develop domestically. Any other irrelevant objections?

[rdking647]

46. my objections are based in reality

your plan is a fantasy world..
If greek were to default unemployment would skyrocket,as the state couldnt pay for all the workers unless they gave them hugely devalued drachmas.. you saw the violence that the current austerity provoked,what do you think a 50% pay cut would do???


if greece default how many deaths from rioting would you be willing to accept in your desire to punish the banks?

[JackRiddler]

48. Bankster "reality" perhaps, not the real interests of the Greeks.

The "violence" that the current austerity provoked was mainly the work of provocateurs working with the police, or who were themselves police in masks -- as even the Greek conservative and corporate media have often acknowledged. So in claiming "violence" in Greece you are parroting yet another lie of the anti-Greek propaganda. There seems to be no lie you are unwilling to tell about Greece, and no defamation you won't direct against the Greek people.

Again, the IMF-inspired debt slavery and austerity outrages happening there will be coming to the US and most of the West, more sooner than later. Greece is the test case. I stand in solidarity with our comrades of the Greek "99 percent," who are the very same people who are demanding a default! Save your bankster advice. Don't tell them what's in their best interest. They already know.

Argentina unpegged from the dollar, defaulted on its odious debts, and paid off only the IMF so that it would fuck off from interfering in their business. Their currency fell, but they regained control of their finances and their economy. Since then they have seen recovery and growth, and a more just and stable economy. They didn't sell their country's wealth to the lowest bidder, as the Troika demand of Greece.

Your words make it clear you are no friend of the Greeks, so stop pretending you are.

[rdking647]

49. your words make it clear you arent living in the real world

instead you live in a world of black helicopters,conspiricys and other nonsense

[JackRiddler]

67. Sad little last volley -- how old are you anyway?

[potone]

38. I agree.

Yes, tax evasion is a major problem in Greece, as is a bloated bureaocracy and rampant nepotism. But the fact is that the previous CONSERVATIVE government cooked the books with the help of--you guessed it--Goldman Sachs in order to join the euro, and now the socialist government is left to try to salvage the situation. Meanwhile the Greek people are facing rampant unemployment, punishing tax rates, slashed pensions, etc., etc., and they are also suffering a brain drain as talented young people are leaving the country in droves to places as far away as China and Australia. Bringing Greece to its knees is not the solution. I am not an economist and I do not know what would happen to Greece and the EU if Greece dropped out of the euro and went back to the drachma, but some years ago Argentina told the IMF to get lost and, after a tough time, the country recovered. Perhaps someone on this board who has a better understanding of economics than I have could tell me whether or not Greece should do the same.

[JackRiddler]

23. Greece is not a business. Businesses are not valid metaphors for nations.

Your examples in no way correspond to the actual Greek case.

Businesses can lose their value entirely. Nations never do. What Greece is worth is what can be pulled out of the nation and its labor, forevermore. A business gets to declare bankruptcy and the owners are then cleared of debt. Liability is limited. If a Slurpee's franchise fails, the owner gets to default and start over, and more importantly: The workers are NOT forced to work at half the wages and pay half of that to the store's creditors, forever more. This is what is being done to the Greek people. This is why full default, exit from the euro and a hard new beginning are necessary, rather than the generations of debt slavery now being enforced.

THIS IS NOT HOW IRELAND GOT IN "TROUBLE," BY THE WAY.

Ireland was the neoliberal poster child. They did everything the bankster ideology required: government surpluses, low taxes, subsidies to corporations, incentives for people to take out debt and buy houses, etc. Ireland got screwed overnight because their OWNED government very, very bizarrely committed to covering private bank losses when they failed in their private business scams. Private debt became public debt, and even though Ireland did everything the Wall Street Journal could have ever wanted, overnight it was transformed from a model capitalist nation to a delinquent. Now the bankster-owned media pretend that Ireland actually spent its way into a mess. It did not. It adopted the banksters mess, so that they can now blame the Irish people.

[Demeter]

27. Amen!

Crossposting to SMW

[Celefin]

36. Repeat. This. Truth.

Thanks for that post.

The Irish government sold their nation's sovereignty to protect their rich pals.
The Greek government is doing the same.

These nations are finished. The will be bled dry for generations.

Meanwhile,
Iceland is recovering nicely after defaulting and kicking out their irresponsible government and letting their banks go against the wall. Wallstreet said they were heading for misery. The opposite is happening.

Argentina defaulted on 96$ billion, causing international lending to dry up completely.
The government embarked on a massive social welfare program, choosing to let investors pay for the risk they took.
currently their economy is growing by 9% annually despite the 'worldwide' crisis.

According to Wallstreet, what they did is THE unthinkable horror scenario everyone should be afraid of.
Go figure.

[riderinthestorm]

14. Thanks for this. I've basically been online most of the day waiting for the news

Been on pins and needles as I got on in between work times. Its about time the Eurozone finally took some action. Now we wait to see what happens.

I can finally go to bed!!

[DCBob]

17. Euro markets opening way up..

investors think this is the real deal... at least initially.

[dipsydoodle]

18. Sarkozy to Seek China Aid as EU Expands Rescue Fund

French President Nicolas Sarkozy said he plans to call Chinese counterpart Hu Jintao today to discuss China contributing to Europe’s efforts to resolve the region’s debt crisis.

The European Financial Stability Facility will be worth about $1.4 trillion after European leaders agreed to leverage existing guarantees by as much as five times, Sarkozy said at a briefing in Brussels at 4 a.m. local time. The presidents will speak about noon Brussels time and Chinese support will be welcomed, he said. Jiang Yu, China’s foreign ministry spokeswoman, said Beijing is ready to work with Europe to stabilize markets.

Sarkozy’s outreach precedes a Group of 20 summit he will host next week, and coincides with European efforts to bolster the role of the International Monetary Fund in overcoming the euro-region’s woes. Australia’s finance chief said that while it’s “appropriate” to look at the IMF’s resources, Europeans must look to themselves first for bailout money.

“China will need time to evaluate this plan very carefully,” said Shen Jianguang, a Hong Kong-based economist for Mizuho Securities Asia Ltd. “What worries China is that there is so much disagreement among European policy makers. It doesn’t want to be seen spending money on a plan that even Europeans don’t want to support.”

http://www.bloomberg.com/news/2011-10-26/euro-rescue-fund-chief-goes-to-china-as-europe-seeks-investors.html

[Yo_Mama]

25. Not nearly enough to make a difference

Reducing Greek debt to 120% of GDP by 2020 just guarantees that the economy will continue to decline, especially as younger Greeks have to leave the country to get jobs.

This is insane - the Greek population is already beginning to show signs of hunger and the medical system is beginning to fail. The 50% writeoff doesn't apply to some of the debt holders (like the ECB), so it isn't nearly enough of a debt reduction to put the Greek economy on a paying basis.

[kiranon]

47. Cutting Greek debt by 50% won't save the banks or the Greeks IMHO.

It buys time for those in power to save what they can before the whole thing goes down. Time to learn Chinese or will the Chinese also get burned in the process? And, what if the Chinese decide not to play? Read John Lewis's new book "Boomerang" for an interesting cultural prospective of Iceland, Ireland, Greek and US financial failings.

[DCBob]

65. It buys time for everyone... alot of time... and that may be enough.

The process will be slow and painful but given enough time I believe they will work it out. It is not in anyone's best interest to let Greece or any nation in the EU collapse.

[Divernan]

50. Banks Agree to Take Loss on Greek Debt to Help Resolve Euro Crisis

Source: New York Times

European leaders in Brussels obtained an agreement from banks in meetings early Thursday to take a 50 percent loss on the face value of their Greek debt, making significant progress toward resolving the euro zone financial crisis.

The accord was reached just before 4 a.m. local time after difficult bargaining and represented a crucial element for restoring credibility to the euro. The severe reduction would bring Greek debt down by 2020 to 120 percent of that nation’s gross domestic product, a figure still enormous, but more sustainable for an economy driven into recession by austerity measures.



Read more: http://www.nytimes.com/?emc=na

---

Whaddaya know! The banks agreed to take a loss instead of demanding government handouts. There's a lesson here for the US politicians in the White House and Congress. Here's how effective leaders deal with banks.

[Divernan]

51. Leaders goal: restore market confidence in the Euro & creditworthiness of 17 countries using it.

More from the NYT following the news flash above:
http://www.nytimes.com/2011/10/27/world/europe/german-vote-backs-bailout-fund-as-rifts-remain-in-talks.html?_r=1&hp

Chancellor Angela Merkel of Germany said: “I believe we were able to live up to expectations, that we did the right thing for the euro zone, and this brings us one step farther along the road to a good and sensible solution.”

In the face of considerable pressure from Europe’s leaders, the banks had been resisting requests that they voluntarily accept a loss of about 50 percent on their Greek loans, far more than the 21 percent agreed to previously. But after months of denying that Greece would have to restructure its large debt, which was trading at 40 percent of face value, European leaders forced the much larger reduction, known as a “haircut,” on the banks, while the International Monetary Fund promised more aid to Greece.

Germany had taken a tougher stance than France with the banks. Mrs. Merkel was willing to think about imposing an involuntary write-down on the private sector, but Mr. Sarkozy remained worried about the consequences on the markets and the banking system.

In a statement, Charles Dallara, managing director of the Institute of International Finance, which represents the major banks, said he welcomed the deal. He called it “a comprehensive package of measures to stabilize Europe, to strengthen the European banking system and to support Greece’s reform effort.”

[dkf]

52. They might still get handouts. They just have to try to raise the capital first.

[Divernan]

61. Please quote any provision in the agreement for future handouts.

One would almost think you are baselessly dismissing this agreement because of how weak and ineffectual, or alternatively, co-opted, it shows the White House and Congress to be in dealing with US banks.

Others who would dismiss this agreement might be those who have personal financial ties to US banks, whether through employment or stock holdings.

[dkf]

63. Here...

Banks have until the end of June 2012 to achieve this quantitative capital target. They must first use private sources to raise the required funds and then turn to public funds if necessary. The national governments can provide support to banks if required. Eurozone banks that does not have government support can fund the recapitalization via a loan from the European Financial Stability Facility (EFSF).


"Any form of public support, whether at a national or EU-level, will be subject to the conditionality of the current special state aid crisis framework, which the Commission has indicated will be applied with the necessary proportionality in view of the systemic character of the crisis," the statement added.

http://www.rttnews.com/Content/MarketSensitiveNews.aspx?Id=1743385&SM=1


The European Financial Stability Facility (EFSF) was created by the euro area Member States following the decisions taken on 9 May 2010 within the framework of the Ecofin Council.

The EFSF’s mandate is to safeguard financial stability in Europe by providing financial assistance to euro area Member States.

EFSF is authorised to use the following instruments linked to appropriate conditionality:

Provide loans to countries in financial difficulties
Intervene in the debt primary and secondary markets. Intervention in the secondary market will be only on the basis of an ECB analysis recognising the existence of exceptional financial market circumstances and risks to financial stability
Act on the basis of a precautionary programme
Finance recapitalisations of financial institutions through loans to governments

http://www.efsf.europa.eu/about/index.htm

[Divernan]

64. EFSF issues bonds or other debt instruments - these are not "handouts".

http://www.efsf.europa.eu/about/index.htm
"The European Financial Stability Facility (EFSF) was created by the euro area Member States following the decisions taken on 9 May 2010 within the framework of the Ecofin Council.

The EFSF’s mandate is to safeguard financial stability in Europe by providing financial assistance to euro area Member States.

EFSF is authorised to use the following instruments linked to appropriate conditionality:

* Provide loans to countries in financial difficulties
* Intervene in the debt primary and secondary markets. Intervention in the secondary market will be only on the basis of an ECB analysis recognising the existence of exceptional financial market circumstances and risks to financial stability
* Act on the basis of a precautionary programme
* Finance recapitalisations of financial institutions through loans to governments

To fulfill its mission, EFSF issues bonds or other debt instruments on the capital markets."

My comment: the "intervention . . . on the basis of an ECB analysis" and to "act on the basis of a precautionary programme" clearly are not intended to free up funds for obscene bonuses for top bankers.

So all in all, the EU is far ahead of the US in confronting and controlling the rapacious banking industry.

[dkf]

68. It's only a handout if the TARP was a handout.

I'm not sure what we mean by that anymore.

[naaman fletcher]

53. How kind of them...

They agree to recognize a 50% loss on what ought to be an 80% loss, but the taxpayers will bail them out anyway.

[Divernan]

54. Isn't that 50% more loss than US banks have taken?

With multi-million dollar pensions to top executives remaining in place in US banking industry?

[naaman fletcher]

55. yep

although it remains to be seen if the european banks actually eat that loss from an economic perspective or will just make it up with a government handout somewhere else.

[Divernan]

56. Sounds like a strategic victory for Germany in the power struggle w/banks

The banks bet on Germany bailing out all Eurozone members and hence spent the 10 years before 2010 lending all the money they could to Greece, Italy, etc. at interest rates similar to those of Germany (assuming that at the end of the day, Germany would be their debtor).

Now Germany forced a 100 million debt reduction down the banks' throat, sweetend with some Brady bonds they will issue, and managed to fend off the impertinent demands for even more German taxes from the US and the UK, plus, there will be at least some control mechanism for overindebted member states and, perhaps most importantly, the ECB was not turned into a permanent lender of last ressort via the EFSF.

It's not a total victory, for sure - compromises were made, e.g. concerning the leveraging of the EFSF - but I would say that it is an important strategic victory for Germany (and therefore the Eurozone). It shows the markets that at the end of the day, speculating against the Euro/Germany may turn out not to be such a good idea since Germany is determined to keep the Euro running, even at the cost of making the banks "an offer they can't refuse" if push comes to shove ("Accept a haircut, or we let default and nationalise you when you go bankrupt as a result.")

[elleng]

60. Yes; Merkel does her work well.

[still_one]

57. I would NOT assume that the banks agreed to this without a handout /nt

[Divernan]

59. "token Brady bonds" (see post 6) do not equate to handouts.

http://www.project-syndicate.org/commentary/johnson12/English

"There is a better solution, pioneered after commercial banks in the United States loaned too much to Latin America in the 1970’s. Sovereign debt was eventually restructured through the creation of “Brady bonds.” The trick was to offer banks the opportunity to swap their claims on (insolvent) Latin American countries into long-maturity, low-coupon bonds that were collateralized with US Treasuries.

"The good collateral meant that banks could hold these debts at par on their balance sheets. At the same time, this swap reduced troubled countries’ debt-payment obligations – allowing them to get back on their feet.

"Europe could take this route. Rather than continuing to pile new debts onto bad debts, the EU stabilization fund could be used to collateralize such new par bonds. Creditors could be offered these par bonds, or a shorter-term bond with a higher coupon – but with debt principal marked down. The new bonds could be known as Trichet or Merkel/Sarkozy or Honohan bonds – whatever works to build consensus.

(Simon Johnson, a former chief economist of the IMF, is co-founder of a leading economics blog, http://BaselineScenario.com, a professor at MIT Sloan, and a senior fellow at the Peterson Institute for International Economics. Peter Boone, Chairman of Effective Intervention at the London School of Economics' Center for Economic Performance, is a principal in Salute Capital Management Ltd.)

[elleng]

58. The lesson, for U.S. politicians, such as it is, is don't be in Europe,

where, it appears, the people's interests CAN prevail, over corporations.

[Divernan]

62. That's the message which true believers in some US politicians don't want to hear.

[unkachuck]

66. "...Sarkozy said the euro region’s bailout fund will be leveraged..."

....hmmmm, is paying off a debt crisis with more debt kosher?