Author Archives: satyajitdas

Following protracted negotiations, the Greek government has agreed on a new Greek austerity package. The bond exchange is likely to proceed with bond holders’ suffering losses of over 70-75%.

The Troika – the European Union (“EU”), European Central Bank (“ECB”), the International Monetary Fund (“IMF”) – needs to reduce the level of Greek debt to a “sustainable” 120% of gross domestic product (“GDP”) by 2020. Continue reading →

Over the next few months, the Euro-Zone faces a number of challenges.

The new fiscal compact negotiated in December 2011 made no attempt to tackle the real issues – the level of debt, how to reduce it, how to meet funding requirements or how to restore growth. Most importantly there was no new funds committed.

But even the implementation of this faces delays, changes and legal challenges.

Negotiations on the Greek package of July 2011 have also stalled.

The major agencies are reviewing the ratings of 15 euro zone members. If France, Germany and the other AAA guarantors lose their highest credit rating, the bailout fund will also be downgraded, weakening its already compromised ability to raise funds to meet existing commitments to Greece, Ireland and Portugal and to support the funding of other countries.

European sovereigns and banks need to find Euro 1.9 trillion to refinance maturing debt in 2012.
The bailout fund and the IMF with around Euro 200-250 billion each cannot absorb this issuance.

The only solution available is for European banks to purchase the sovereign debt, which is then pledged as collateral to borrow unlimited funds from the ECB or national central banks. This perpetuates the circular flow of funds with governments supporting banks that are in turn supposed to bail out the government.

The real economy in Europe is moribund, in danger of slipping into recession.

For the nations that have received bailouts, the austerity measures imposed have not worked. Growth, budget deficit and debt level targets will be missed.

Stronger countries within the Euro-Zone are also affected. German export orders are slowing, reflecting the fact that the its exports to Italy and Spain total around 9-10 per cent in 2010), higher than to either the US (6-7%) or China (4-5%). Lack of demand for exports within Europe and from emerging markets combined with tighter credit conditions may slow growth.

The risks of political and social instability remain elevated. Greece faces elections in April 2011. The French presidential elections, scheduled for May 2012, also create uncertainty.

Europe now resembles a chronically ill patient, receiving sufficient treatment to keep it alive. A full and complete recovery is unlikely on the present medical plan. Europe resembles a zombie economy, which functions in an impaired manner with periodic severe economic health crises. The risk of a sudden failure of vital organs is uncomfortably high.

© 2011 Satyajit Das All Rights Reserved.

Satyajit Das is author of Extreme Money: The Masters of the Universe and the Cult of Risk (2011)available from amazon:

http://www.amazon.com/Extreme-Money-Masters-Universe-Cult/dp/0132790076/ref=sr_1_1?s=books&ie=UTF8&qid=1325975467&sr=1-1

http://www.amazon.co.uk/Extreme-Money-Masters-Universe-Financial/dp/0273723979/ref=sr_1_1?s=books&ie=UTF8&qid=1325975585&sr=1-1