Tradutor

domingo, outubro 16, 2011

Five recommendations to help resolve the Eurozone debt crisis

1.      1. The failure of prudential regulation, by the  national  Central Banks, has to be corrected. The Basel I, II, III etc, criteria led us to overlook the hidden overleveraging in the banks, and in the rest of the economies. Banks such as Dexia and some Landesbanken continued  to extend credit recklessly, to gain market share, well after other banks retracted and became more selective. British banks were the most imprudent after the German, and the Bank of England should step up to help bail them out. The combination of Basel and Maastricht permitted the accumulation of hidden liabilities off-balance sheet and off-budget, so this needs to be addressed too.  Bank recapitalization is a necessary but not sufficient condition to stabilize the Eurozone financial system,  bank credit and risk management practices have to be corrected as well. 

2.      2.  The Maastricht criteria,  which focus on the domestic imbalances, need to be complemented by criteria which highlight external imbalances, such as the CAB current account deficit, the balance of goods and non-factor services, and the accumulation of short term external liabilities (aka hot money inflows).  Without the  usual external policy instruments which serve as “automatic stabilizers” (exchange rate, import tariffs, interest rates and capital controls),  external imbalances among the Eurozone trading partners become more critical and  must be held low, which means lower CAB deficits AND lower CAB surpluses. 

3.      3. We urgently need long term funding instruments, for residential mortgages, but also to park some long term infrastructure assets like PPP project finance loans, etc, similar to the Infrastructure Crisis Facility funded by KfW (for developing countries only).  Portuguese and other banks are selling good long term assets at huge discounts, just because of funding problems, so a special investment fund would be very useful. This could be funded by the EIB, but with independent directors since the EIB would be conflicted. 

4.      4. We urgently need an European EXIMBANK, and/or European ECA Export Credit Agency, since small countries cannot compete in exports which require financing.  That is, how can Efacec compete with Siemens in a third market, when Siemens can offer very long term low-cost KfW financing? Export finance, both ST and LT, will be  essential if  the small and weak deficit countries are to have a real chance to turnaround their CAB deficits and to overcome their lack of competitiveness and dis-economies of scale.

5.      5. Most importantly of all, local savers have to be protected from suffering ANY “haircuts”.  The first rule of balance of payments rebalancing is to promote local savings.  The absurd 50-60% discounts   being discussed for Greece are a sure sign of a badly managed debt restructuring and disorderly default.  Perhaps they will reduce imprudent lending and moral hazard for the next few years.  But if the discounts are applied also to local savers, depositors and investors, the same ones who have to pay more local taxes,  there will  be  no solution to the crisis at all.   We urgently need to ensure that the savings instruments of local retail savers, both families and corporates, are held harmless, since local savers were never part of the problem and must be part of the solution. 

       Mariana Abrantes de Sousa 
       PPP Lusofonia, Portugal 


SE    See also the webcast of  the public audition by the European Parliament Commission on Monetary Affairs 
       Audição pública da Comissão de Assuntos Monetários e Económicos do Parlamento Europeu. Se tiverem interessados em seguir a mesma, será transmitida pela internet a partir do endereço

13 comentários:

  1. Na segunda feira por volta das 15:30 (hora de Lisboa) Ricardo Cabral, da Universidade da Madeiram, vai participar numa audição pública da Comissão de Assuntos Monetários e Económicos do Parlamento Europeu. Ver webcast em

    http://www.europarl.europa.eu/wps-europarl-internet/frd/live/live-video?eventId=20111017-1500-COMMITTEE-ECON&language=en

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  2. : But of course, external sovereign debt workout implies segmentation of the bond markets:
    - Existing legacy debt is part of the problem, will have take bigger losses which requires recapitalization of the banks
    - New debt has to be "attracted" with special protection like the partial credit insurance or much higher yields
    - Local bondholders have to be protected, they are part of the solution, even in the legacy debt, because the problem is more one of external imbalances and gross external debt than sovereign debt per se. To promote the essential local savings, in the context of freedom of capital movements, local savers have to receive special risk premia.

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  3. Os gregos fogem à "tosquia", transferindo mais de 200 mil milhões de euros na Suiça.

    Ver o ponto 5 acima, a necessidade de proteger aforradores locais.

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  4. Rapid response to Soros's 7-point plan, from Lisbon:

    It's good to see Soros supporting the Euro currency, this time.
    But, it's unfair to place quite so much responsibility on the hapless Eurozone taxpayers, through the EFSF.

    1. No, placing all the solvency risks on the EFSF shifts nearly the whole burden onto Eurozone taxpayers. Shareholders and national central banks, including the Bank of England, must accept solvency risk, as they are paid to do. Where are the national central banks which had responsibility for prudential regulation?
    2. No, The IMF does not need to shift its share of the burden onto the Eurozone taxpayers
    3. No, recapitalization of the over-extended banks is urgent, even if it means using national, not Eurozone, taxpayers funds, eg. nationalization a la Dexia
    4. No, rather than guarantees, big banks they need big capital. If they were allowed to become "too big to fail", they should be bailed out by their own national central banks which had responsibility for prudential regulation
    5. Yes, but new credit lines must be oriented to the productive export economy, not to paying off existing debt, which should be restructured.
    6. No, creditors countries should can first impose discipline at home by preventing their banks and investors from lending too much. Overextended creditors who are imprudent at home (under home-rule), are hardly in a position to dictate to imprudent and overleveraged debtor countries. Solvency risks must remain with national central banks, and with national taxpayers.
    7. No, shifting the whole loss onto the EFSF, and Eurozone taxpayers, will only protect the imprudent in the markets, which will be properly impressed only if they see a proper sharing of the sacrifice. If the sacrifice is concentrated on one group, all the others will continue to display moral hazard and indifference to the real risks.

    Mariana Abrantes de Sousa, PPP Lusofonia, Portugal

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  5. The necessary rethinking of Central Bank functions should focus more on prudential regulation and bank supervision, rather than on monetary policy.

    Where were the national prudential regulators as the (intra Eurozone) credit bubble grew?

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  6. The local portfolio issue is indeed far more important from the haircut discussion. We are in a brave new world, of exposing local investors to the transfer risk usually borne by cross-border investors.

    For example:
    A Dutch pension fund invested 5% of its assets in Greek Govt bonds. With a 50% haircut, it looses 2.5%, but it survives to continuing pension Dutch pension and to learn the lesson to be more prudent another day.
    A Greek pension fund has 50% invested in Greek Govt bonds. With a 50% haircut, it looses 25% of its value, it has to cut back on payments to Greek pensioners, it implodes.

    How can this be?

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  7. It's difficult to find a public secondary school in Portugal that teaches German.

    How can we hope to learn to sell to the German consumer, the biggest and richest market in Europe.

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  8. Os Estaleiros Navais de Viana do Castelo (ENVC) precisam entre três a cinco milhões de euros para comprar matéria-prima e equipamentos para iniciar a construção de dois navios asfalteiros para a Venezuela.

    O negócio vale 128 milhões de euros para a empresa de Viana do Castelo, mas corre o risco de ser cancelado porque os ENVC ainda não conseguiram financiamento para a pre-exportação

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  9. Os Estaleiros Navais de Viana do Castelo (ENVC) precisam entre três a cinco milhões de euros para comprar matéria-prima e equipamentos para iniciar a construção de dois navios asfalteiros para a Venezuela.

    O negócio vale 128 milhões de euros para a empresa de Viana do Castelo, mas corre o risco de ser cancelado porque os ENVC ainda não conseguiram financiamento para a pre-exportação

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  10. "...despite multiple assurances to the Greek public from officials, went ahead and CACed all retail investors, Greek or otherwise, with the backing of (under pressure from) Eurogroup..."

    This is perhaps the worst of all the irresponsably BAD PRECEDENTS that have been set in the uncharted turbulent waters of the Eurozone crisis.

    In the absence of a stand-still, the foolish international creditors shifted their holdings onto the official lenders, mostly at par. Without protection of the local investors, who were never a part of the excessive lending problem, you can be be sure that we will RUE the day when local savers were forced to take losses on their own local currency Government debt. This is totally contrary to international finance principles and traditional IMF balance of payments adjustment programs. Without promoting local savings there will be no light at the end of the tunnel.

    Consider an international pension fund from country A which might have 5% of its assets in bonds of country B. A pension fund of country B might easily have 50% of its assets in is own Government bonds. Then apply a hair-cut of 50% to all pension fund holdings of country B bonds: Pension fund A loses 2,5% of its assets, it will survive. Pension fund B loses 25% of its assets, it slips under water.

    Is this designed to promote capital flight or is that merely an unintended consequence?
    (Destas intenções está o inferno cheio)

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  11. Greek banks continue to bleed deposits which are now 30 percent below their peak in December 2009.

    Private-sector deposits in Portugal and other crisis countries fared much better, with the figures roughly flat in Portugal and Spain, dropping less than 1 percent in Ireland and rising more than 1 percent in Italy.

    With the exception of Portugal, there has been a steady decline in the amount of money parked in banks in all peripheral countries in the last year.

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  12. Seisachtheia (Greek: σεισάχθεια, from σείειν seiein, to shake, and ἄχθος achthos, burden, i.e. the relief of burdens) was a set of laws instituted by the Athenian lawmaker Solon (c. 638 BC–558 BC) in order to rectify the widespread serfdom and slaves that had run rampant in Athens by the 6th century BC, by debt relief. Under the pre-existing legal status, according to the account of the Constitution of the Athenians attributed to Aristotle, debtors unable to repay their creditors would surrender their land to them, then becoming hektemoroi, i.e. serfs who cultivated what used to be their own land and gave one sixth of produce to their creditors. Should the debt exceed the perceived value of debtor's total assets, then the debtor and his family would become the creditor's slaves as well.
    The same would result if a man defaulted on a debt whose collateral was the debtor's personal freedom.
    The seisachtheia laws immediately cancelled all outstanding debts, retroactively emancipated all previously enslaved debtors, reinstated all confiscated serf property to the hektemoroi, and forbade the use of personal freedom as collateral in all future debts.

    The laws instituted a ceiling to maximum property size - regardless of the legality of its acquisition (i.e. by marriage), meant to prevent excessive accumulation of land by powerful families.

    There is nothing new under the sun.

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  13. If a Europe-wide FEDERAL Deposit Insurance Corporation (FDIC) is such a "bad idea" why did the United States created just such an instrument by the Glass–Steagall Act of 1933, as part of Roosevelt's celebrated New Deal?
    As of January 2012, the US FDIC provides deposit insurance, which guarantees the safety of deposits in member banks, up to $250,000 per depositor per bank . That could help even the foolish surplus country banks that made too much cross border credit, confusing transfer risk with FX risk and reaching leverage ratios of 49X.
    Yes, an European deposit insurance scheme will need financial support from the surplus countries, but at least that financial support would be used to stabilize the local banking systems and to promote the local savings which are critical to the solution, instead of funding exports of German submarines and Dutch cheeses, which are perpetuating the problem.
    The Eurozone crisis will not hit bottom until something is done to protect local depositors and to promote locai savings, which are critical to any adjustment.
    Watch this space.

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