sabato 23 marzo 2013

La Germania affonda l'Europa?

Nei tre articoli che proponiamo di seguito il leit motif è la posizione della Germania nella crisi Europea. Nel primo pezzo Luigi Zingales spiega quello che in fondo in Italia già sapevamo, che lo spread nell'ultimo anno è stato messo sotto controllo non da Monti ma da Draghi - e questo spiega come mai, con Monti in carica, i tassi di interesse fossero molto più alti di ora, senza governo e con due partiti anti-europeisti che hanno conquistato la maggioranza dei voti. L'intervento della BCE è stato decisivo, ma non può risolvere per sempre i problemi. Prima o poi arriveranno i tempi delle scelte. Il problema è sempre il solito: i governanti tedeschi, di destra e sinistra, sembrano essere più interessati al loro consenso elettorale che al bene dell'Europa ed impongono condizioni strettissime per il bail out - ma così facendo aumentano la rabbia ed il discontento dei popoli dell'Europa meridionale, che rischiano di ritrovarsi nella situazione di un protettorato tedesco, democrazie a sovranità limitata.
Questo è il sentimento diffuso anche a Cipro, come riporta Paul Mason della BBC: rifiutando di mettere tutto il denaro richiesto per il salvataggio dell'isola Merkel e Schauble hanno di fatto imposto un prelievo forzoso sui depositi, scatenando la furia dei cittadini ciprioti. Il ricatto, le minacce, l'agguato teso al presidente cipriota non fanno che accrescere la frustrazione della popolazione. Ora anche il piano B, con i soldi presi dai depositi di gas e dai fondi pensione viene rifiutato da Berlino che richiede garanzie più sostanziali che il debito venga ripagato - e dunque, agli occhi di molti, richiede azioni punitive contro i cittadini degli stati responsabili della crisi, a Cipro come in Grecia, con il risultato che ora nell'isola mediterranea minacciano di lasciare l'Eurozona.
Il problema, però non è solo Cipro. L'uscita dall'euro rischia di essere un precedente disastroso, ma ancora di più rischia di esserlo la richiesta di tassare i depositi, sostanzialmente contravvenendo l'assicurazione sui depositi sotto i 100 mila data dall'Europa. Il rischio prospettato da Mahoney è che queste azioni tedesche rischino di trasformare l'Europa meridionale in una nuova America latina, con un continuo drenaggio di fondi dal Sud - a rischio - verso il Nord - per ora immune dalla crisi finanziaria. In pratica, i depositi dei cittadini, in Spagna come in Italia, sarebbero a rischio, incentivando una fuga di capitali verso la Germania, portando all'impoverimento progressivo dei PIIGS e, forse, al collasso della zona Euro. 

Mario Draghi’s Opiate of the Markets

di Luigi Zingales
da Project Syndacate

From the standpoint of European stability, the Italian elections could not have delivered a worse outcome. Italy’s parliament is divided among three mutually incompatible political forces, with none strong enough to rule alone. Worse, one of these forces, which won 25% of the vote, is an anti-euro populist party, while another, a Euro-skeptic group led by former Prime Minister Silvio Berlusconi, received close to 30% support, giving anti-euro parties a clear majority.
Despite these scary results, the interest-rate spread for Italian government bonds relative to German bunds has increased by only 40 basis points since the election. In July 2012, when a pro-European, austerity-minded government was running the country, with the well-respected economist Mario Monti in charge, the spread reached 536 basis points. Today, with no government and little chance that a decent one will be formed soon, the spread sits at 314 points. So, are markets bullish about Italy, or have they lost their ability to assess risk?
A recent survey of international investors conducted by Morgan Stanley suggests that they are not bullish. Forty-six percent of the respondents said that the most likely outcome for Italy is an interim administration and new elections. And they regard this outcome as the worst-case scenario, one that implies a delay of any further economic measures, deep policy uncertainty, and the risk of an even less favorable electoral outcome.
The survey also clearly indicated why the interest-rate spread for Italian government bonds is not much wider: the perceived backstop provided by the European Central Bank. Although investors believe that the backstop is unlikely to be used, its mere presence dissuades them from betting against Italy. In other words, the “outright monetary transactions” (OMT) scheme announced by ECB President Mario Draghi last July has served as the proverbial “bazooka” – a gun so powerful that it does not need to be used.
Then-US Treasury Secretary Hank Paulson sought a bazooka during the 2008 financial crisis. He failed, because he believed that even a fake gun would work if it looked scary enough. Not falling for the trick, speculators repeatedly called his bluff. Draghi, with his famous pledge to do “whatever it takes” to ensure the euro’s survival, succeeded where Paulson did not. After all, he controls the monetary spigot.
But even Draghi’s bazooka is partly a bluff. Draghi designed it to relieve the ECB of the huge political responsibility of deciding when to save a country from default. For this reason, triggering the OMT mechanism requires the unanimous consent of eurozone governments. But, if the bazooka is needed, how likely is it to be fired before the German election in September? The Morgan Stanley survey did not ask this question, probably because everybody knows the answer: not likely at all.
Thus, markets remain calm because they expect the bazooka not to be needed. In that case, the fact that it cannot be triggered easily does not pose a significant problem. Its presence is enough to support a benign self-fulfilling prophecy. In other words, Draghi’s bazooka has anesthetized markets, impairing their ability to assess risk.
But as with all anesthetics, Draghi’s cannot and will not last forever. Either the underlying problem is fixed before the patient wakes up, or the pain will be devastating.
The investors surveyed by Morgan Stanley put the chance of a renewed crisis in Italy below 25%. I believe that it is higher than 50%. Even after Germany’s election, I am not sure that the government will be willing to support an Italian rescue program without asking for major guarantees concerning the objectives – and even the composition – of Italy’s ruling coalition.
Indeed, German Chancellor Angela Merkel will face a serious dilemma following her likely re-election. Without strict conditionality, she would risk shifting the domestic consensus in favor of Germany’s emerging Euro-skeptic mood. But, by insisting on such conditionality, she would trigger a huge political crisis in Europe. If the German government gets to decide who governs Italy, why should Italians bother voting? The eurozone will look like a German protectorate, rather than a voluntary union of sovereign countries. The political backlash would be enormous.
The only hope is that the eurozone makes strong progress toward establishing fiscal-redistribution mechanisms, such as European unemployment insurance, before Draghi’s anesthetic wears off. Otherwise, Europe will face a very rude awakening indeed.


Will Germany Turn Europe Into Latin America?

da Project Syndicate

The headline in today's Journal is "Merkel's Hard Line, Vilified In Nicosia, Cheers Germany". Some quotes:
"Cyprus lives off a banking sector with low taxes and lax regulation that is completely out of whack. As a result, Cyprus is insolvent and no one outside of Cyprus is responsible for that…We've taken measures in all countries to protect ourselves against contagion effects."
--Wolfgang Schaueble, Finance Minister
"Merkel has nothing to lose in Cyprus."
--Ulrike Guerot, European Council on Foreign Relations
Germany is happy about the Cyrpus banking crisis because it will punish Cypriot sinfulness. I guess the sin is that the eurozone is no place for an offshore banking center/tax haven, which is debatable. But that decision should have been made before Cyprus was admitted into the eurozone. Now its banks have EUR 50 or 60 billion in euro-denominated deposits which Germany wants it to default on. The Journal says that "one reason that Berlin is taking such a hard line on Cyprus now is that it sees the country's crisis as a unique opportunity to end its reliance on tax refugees". This is punishing shoplifting with the death penalty.
Germans are very skilled at making things and being thrifty. They are economically admirable in every way except one: they have never accepted modern capital markets. They have resisted anglosaxon capitalism for forty years, and they still don't accept it. Germany (like France) believes in intermediated financial markets which can be controlled by the authorities in order to ensure financial stability. They don't trust independent market actors like hedge funds, US investment banks or rating agencies. You can make an argument that they are right, but it's way too late. They lost that battle and global finance is now substantially anglosaxonized.
A large percentage of European capital flows today are disintermediated, especially cross-border. And anyway, foreign banks are no more controllable than hedge funds. The creation of the eurozone by itself substantially reduced the power of national authorities. Consequently, the European capital market is now more powerful than the European national authorities. Germany doesn't like this for good reasons, but it is a fact that she can't change. Causing Cyprus to default is not a good way to deal with this issue.
So where's the black swan here? What did everyone miss? The markets knew that the Cyprus banks were insolvent because of Greece’s default. They knew that Cyprus had billions in offshore deposits. They knew that the Cypriot political system (like Greece's) is politically incapable of accepting any form of IMF-style austerity. Everyone has known about this witches' brew. But, everyone figured, the Cyprus problem is a rounding-error, and Europe always manages to kick the can down the road. It’ll get fixed. That’s certainly what I’ve been predicting.
What we didn't know was that Germany wants a crisis in Cyprus. Germany wants Cyprus to default on its bank deposits. That wasn’t understood until now. That’s the black swan. In retrospect, we can see the explanation: bailout fatigue on the part of the thrifty German people; the desire to disallow the enabling of tax evasion by a eurozone member; and outspoken distaste for the Russian kleptocracy. But the truly dangerous part of the German rationale is the mistaken opinion that a Cyprus banking collapse is manageable. This is the same stupid complacency that led to Lehman.
A Cypriot banking collapse will have unpredictable consequences; it’s a shot in the dark. It will inevitably create contagion--maybe not immediately, but eventually. Credit committees work on schedules. If Cyprus goes, risk limits for southern Europe will be reduced. Investments, deposits and capital flows will be redirected. Southern European banks will lose deposits not just from foreigners, but also from domestic investors and corporations.
A deposit freeze affects every bank, not just the weak. A Spanish millionaire is no safer in Banco Santander's headquarters office in Madrid than in the tiny caja down the street. Remember: if Cyprus blows up, Cypriots with deposits in foreign banks will not be affected. The key is getting your money out of the country.
This is a classic Latin American banking discussion. I’ve sat through scores of them. Southern Europe is at risk of going back to a Latin American-style financial system. Latin American depositors instinctively understand that you must keep your company's money and your family's wealth in a hard-currency deposit in a big bank in a strong country. Southern Europeans used to know this: it was called a numbered Swiss bank account. They are relearning this lesson. Let me be clear about what is happening here: we already have within the eurozone billions of nonconvertible euros. That’s a word you haven’t heard lately, unless you live in Venezuela or Cuba.
The West has spent the last sixty years building an institutional framework to allow global trade and capital flows. This has meant the dismantling of currency controls, capital controls, trade barriers and barriers to foreign investment. As this structure has been built, lessons have been learned: Don't lend or borrow foreign currency. Don't build up short-term foreign debt. Capital inflows can go both ways. The eurozone was supposed to be an enhancement to the globalization of finance. It was supposed to do for the eurozone what the dollar zone has done for the Americans.
If eurozone bank deposits now become subject to sovereign risk, that will reverse the whole process. No one can be that reckless, and the Germans aren't supposed to be reckless. They are what economists call "a serious country". Let's hope they stick to that tradition.
A Brief Note on Deposit Freezes
Deposit freezes almost never end well. They are imposed during banking crises in order to stop bank runs. Unless the reason for the lack of depositor confidence is removed or the deposits are rescheduled, the run will resume when the freeze ends. The only way to end a freeze without default is to restore confidence with a guarantee from a creditworthy guarantor backed by unlimited resources. Unlimited resources means a printing press.* There is only one such entity in the eurozone, the ECB, or the ESM backstopped by the ECB. There is no evidence that anyone is even discussing such a resolution. Germany wants a default.

Cypriot crisis: Will Germany's tough stance backfire?

 di Paul Mason
da BBC

The question people in financial markets are shouting about is: what on earth does Germany think it is doing? It triggered the Cyprus crisis and is playing hardball, rejecting the Cyprus government's latest attempt to solve it. Here is my take on what is happening.
First the facts.
Last Friday in Brussels the Germans led Eurogroup ambush of the new president of Cyprus, demanding an immediate resolution to the country's debt crisis.
They were the ones to demand depositors take losses, although at first Mrs Merkel assured them the ordinary savers would lose just 3% of their money. Then, according to a report in the Financial Times, Wolfgang Schauble, the German finance minister, upped this to 6% and 10% for those with savings above 100,000 euros - though this version of events is disputed by German CDU MP Dr Michael Fuchs, who told Newsnight on Monday it is "not our problem" how Cyprus raised the money - as long as it is raised.
This immediately nullified the explicit 100,000 deposit guarantee in the eurozone and the president of Cyprus said it would never pass through parliament.
So to focus Cypriot minds, Jorg Assmussen, the German socialist who heads the council of the European Central Bank also told them the ECB was pulling emergency funding to Laiki Bank, thus rendering it insolvent.
Moral hazard Now, after a week of Cypriot attempts to get Russia to soften the size of the bailout, which Germany also nixed, the Germans have rejected the latest plan out of Nicosia, which would involve nationalising the country's pension schemes and also mortgaging future revenues from an oil and gas field that comes on stream in 2020.
Germany's intent in all this is, at a textual level, clear: they want to avoid creating a moral hazard, rewarding a country that has sold itself as a rule-free playground for Russians who want to keep their money offshore.
They want to insist any money lent from the European Stability Mechanism (ESM) bailout fund can be paid back on a sustainable basis, and so they need a debt write off.
In Greece this came from banks who had bought government debt; but in Cyprus few global banks were stupid enough to buy this debt, and so the money has to come from Cypriots themselves.
But there is a wider, strategic and philosophical basis to Germany's stance. First, they are engaged in a tough negotiation over the shape of a future banking union in Europe.
Decisions taken in Germany are directly affecting ordinary Cypriots
Once that union is in place, say Germany, Finland and the Netherlands, direct centralised bailouts of banks will be allowed: there will be effective pooling of taxpayer money within the eurozone. But…
This north European trio are insisting the new banking union cannot cover "legacy debts": that is, from the pre-2007 crisis.
So it is logical to pursue at the same time a banking union with fiscal transfers in future, and a cleanup of the old debts with the countries responsible taking the pain.
On top of that the German public is increasingly outraged over the scale of its taxpayer exposure to what it sees as profligate peripheral countries.
So that is the principle, the strategy and the tactics of Germany.
But here is the problem: the outcome of their actions is repeatedly creating situations they do not want.
Cyprus, like Greece and Spain beforehand, creates an existential crisis for the euro. Once one country leaves, however small, the fiction that it is a permanent currency union is exposed.
In the process of imposing perfectly rational economic pain, something else is revealed.
The eurozone does not involve shared sovereignty - which is hard enough for some countries to accept under austerity pressures. In fact it has come to involve the sovereignty of the solvent nations over the insolvent nations.
Contagion What shocked everyone, not just Cypriots, was the sudden, tactical and coercive manner in which both the IMF and the ECB attacked the incoming Cyprus government.
It was the equivalent of the cops breaking down your door at 6am: perfectly legitimate if you have the legal right to do so, but it can seem excessive.
So Germany is left with a mismatch between intent and outcome. And the outcome could get really nasty. It is not just the contagion effect on southern Europe of seeing queues at cash machines and people going bust. Or the potential "me too" effect on Greece if Cyprus leaves.
What is being presented is a choice: stay in Europe or become part of the Brics, beholden to Russia for finance, Israel for various as yet untransparent deals, remain continually at odds with Turkey and Northern Cyprus, and once your finances have recovered, sell yourself as a kind of posh nightclub to the world.
Actually, the polls are telling us, and my colleagues on the ground report, more and more Greek Cypriots are seeing this as a viable option. Given the choice between a busted euro and a vibrant, if rule-free, future in the Russian penumbra, they may choose the latter.
Israel and Iran This FT article gives a flavour of the diplomatic and military unknowns out of a closer Russian-Cypriot relationship.
The Russian Navy could gain a Mediterranean base, but Russian intelligence would then lose the ability to mingle freely with Nato personnel, suggests the author, so it is swings and roundabouts.
I would suggest the island is currently also something of a diplomatic and intelligence battleground for Israel and Iran, so it gets even murkier.
In the end the crisis has exposed two weaknesses of modern German politics: first on economics, they don't seem able to move away from principle-driven action to outcome-driven action.
On the bigger geo-diplomacy - driving an EU member state into the arms of the Russians and sending a big sub-textual signal to other states close to Russia - it just begins to look like the Germans cannot do geo-politics.


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