Grexit: First Borg, then Buiter, now Jakobsen
Steen Jakobsen
, Chief Investment Officer, Saxo Bank
, Chief Investment Officer, Saxo Bank
Filed in Steen's Chronicle
Denmark, 16 October 2012 at 5:16 GMT-716 October 2012 at 12:16 GMT+0
Citigroup’s Chief Economist Willem Buiter in FT today (p. 24: only widespread debt restructuring can save the Euro) is a must read. It’s short and to the point: the conditions for Greece staying are still not there and Merkel in Greece was a precondition for a Grexit.
This article followed Swedish Finance Minister Anders Borg's comments on the weekend that Greece is about to leave the Eurozone. His comments have weight as he is by far the most pragmatic finance minister in the world. This is major sign of the upcoming trouble for Greece and how reconciling a deal where Germany and Austerity North gets something, and how Club Med lead by Monti and Hollande continues to be non-accountable.
The EU Commission will try to find a compromise on extend-and-pretend for Greece but... Merkel is campaigning for re-election and from a game theory point of view, she needs to be more anti-EU than the 'all in' SPD and Steinbrueck. (SPD shifted to full support of a Fiscal Union in early summer)
Only by offering an alternative can she carve out her EU platform and come close to her core voters, which is problematic for the ever-tighter-union faction, who base their position on further and deeper German commitment.
Politicians will always prioritise elections, and as such, for Merkel the EU crisis noise should be kept at minimum.
Furthermore, giving Greece more time will only make things worse - Greece is clearly in open violation of all measures and Spain is following the same path as its structural deficit increases month by month. The 3 per cent deficit projection is a fata morgana and Greece will most likely be made 'an example of' by the northern core contingent.
Do not forget or underestimate the degree to which the crisis has finally arrived at the door steps of the rich north, as I wrote about last week. This will quickly change the dynamics, as protecting domestic growth and jobs in Germany, Netherlands and Denmark before anything else will become the top priority and increase the risk of irreconcilable differences and decrease the will to move in the direction of a full transfer union, leaving Europe ever more at odds with itself.
And then there is the serious threat to growth in France, the coming political volatility in Italy over the spring election and even the potential for the UK to move towards a vote on the EU.
By the end of 2013, I expect a number of governments will be in the process of or will have already asked their voters about their commitment to the EU. Germany has already mentioned this, and Finland, Denmark and the UK are not far behind. See a pattern here? Indeed, when or if the Grexit happens, the politicians will seek to avoid accountability by going directly to the voters.
Where was this possibility when they built the present European house without a foundation?
We need to make politicians accountable. The only way to do this is to institute maximum structural deficits of say 1 pct of GDP - that will remove the cheque book from the central planners and create a tangible goal-line the voters can react to.
Economists have clearly proven that debt in excess of 85 per cent of GDP is a tax on further growth - isn't it time to respect the economic gravity?
Safe travels,
Steen
This article followed Swedish Finance Minister Anders Borg's comments on the weekend that Greece is about to leave the Eurozone. His comments have weight as he is by far the most pragmatic finance minister in the world. This is major sign of the upcoming trouble for Greece and how reconciling a deal where Germany and Austerity North gets something, and how Club Med lead by Monti and Hollande continues to be non-accountable.
The Jakobsen take
Here is my take on a Grexit. The recent unwinding of political commitment to the EU is troublesome (read German, Dutch and Finnish opposition to sign the cheques) - and Europe needs another PSI (private sector involvement – see Wikipedia for basic outline).
The main macro input on Europe is now the German election (September 2013) and the total apathy left behind by the discussion on fiscal multipliers from the IMF has left the central planners 'rudderless on the open sea of debt crisis'.Here is my take on a Grexit. The recent unwinding of political commitment to the EU is troublesome (read German, Dutch and Finnish opposition to sign the cheques) - and Europe needs another PSI (private sector involvement – see Wikipedia for basic outline).
The EU Commission will try to find a compromise on extend-and-pretend for Greece but... Merkel is campaigning for re-election and from a game theory point of view, she needs to be more anti-EU than the 'all in' SPD and Steinbrueck. (SPD shifted to full support of a Fiscal Union in early summer)
Only by offering an alternative can she carve out her EU platform and come close to her core voters, which is problematic for the ever-tighter-union faction, who base their position on further and deeper German commitment.
Politicians will always prioritise elections, and as such, for Merkel the EU crisis noise should be kept at minimum.
Furthermore, giving Greece more time will only make things worse - Greece is clearly in open violation of all measures and Spain is following the same path as its structural deficit increases month by month. The 3 per cent deficit projection is a fata morgana and Greece will most likely be made 'an example of' by the northern core contingent.
Do not forget or underestimate the degree to which the crisis has finally arrived at the door steps of the rich north, as I wrote about last week. This will quickly change the dynamics, as protecting domestic growth and jobs in Germany, Netherlands and Denmark before anything else will become the top priority and increase the risk of irreconcilable differences and decrease the will to move in the direction of a full transfer union, leaving Europe ever more at odds with itself.
And then there is the serious threat to growth in France, the coming political volatility in Italy over the spring election and even the potential for the UK to move towards a vote on the EU.
By the end of 2013, I expect a number of governments will be in the process of or will have already asked their voters about their commitment to the EU. Germany has already mentioned this, and Finland, Denmark and the UK are not far behind. See a pattern here? Indeed, when or if the Grexit happens, the politicians will seek to avoid accountability by going directly to the voters.
Where was this possibility when they built the present European house without a foundation?
We need to make politicians accountable. The only way to do this is to institute maximum structural deficits of say 1 pct of GDP - that will remove the cheque book from the central planners and create a tangible goal-line the voters can react to.
Economists have clearly proven that debt in excess of 85 per cent of GDP is a tax on further growth - isn't it time to respect the economic gravity?
Safe travels,
Steen
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