Comment, analysis, and other offerings from Friday’s FT,
Editorial: Draghi displays an excess of discipline
When Mario Draghi’s name was first mooted as a successor to Jean-Claude Trichet at the helm of the European Central Bank, some worried that an Italian would throw monetary restraint to the wind and let the money presses run day and night. How wrong they were, the FT says. The real worry is that, as Greek euro membership is in the balance and Italian bond yields hit record highs, Mr Draghi may be disciplined to an excess. In his first press conference as ECB president, Mr Draghi proved that only the paranoid can cast doubt on hawkish credentials. A quarter-point cut in the interest rate is a conservative policy. The decision was taken unanimously – which is a tactical victory for Mr Draghi’s leadership but no marker of a change to the ECB’s overly cautious approach.
Samuel Brittan: Why I would have voted no in a Greek referendum
There is an old English saying that all work and no play makes Jack a dull boy. Whether that is true or not, it is pretty clear that all finance and no adjustment makes for a dull international economy. Let me explain. Nearly all the action and discussion on problem countries and areas take the form of financing packages. And if such a package runs into difficulties another refinancing package is dreamed up. Moreover, nearly all the unofficial comment is on the same lines, with ever more ingenious insurance and leverage introduced. For those who like this sort of thing, this is the sort of thing they like. Meanwhile, those of us who were brought up think of international economics in terms of costs, prices and exchange rates are made to feel like dinosaurs, writes FT columnist Samuel Brittan.
Opinion: Don’t put banks on a starvation diet
Global regulators are putting the banks through a boot camp to knock them into shape, writes Jon Pain, a partner at KPMG and was managing director of supervision at the Financial Services Authority. Banks probably feel they have been on a crash diet and a strict fitness regime since the crisis. But few outsiders would have much sympathy. The global crisis left the public feeling that the banking sector was bloated, overpaid and in poor shape to perform its key function of supplying credit to the real economy. This week, the Archbishop of Canterbury has thrown his moral authority behind the calls for tougher regulation, in particular a financial transaction tax. The reforms developed after the crisis were right at the time, but the market realities of the past three years have undone their effectiveness and restricted banks’ ability to supply credit to the real economy.
Insight: Greece’s European identity at stake
Europa, in ancient Greek myth, was a maiden princess seduced by Zeus, the supreme god, who assumed the form of a white bull and whisked her off to Crete. In today’s European debt crisis it is open to question who is shafting whom. When Greece joined Europe’s monetary union, it chose the Europa legend as the image to be emblazoned on one side of the 2-euro Greek coin. Happy were the days when ancient Greek civilisation was associated so smoothly with modern Europe. Aside from the existential question of the eurozone’s survival, what is at stake in the debt crisis is nothing less than the European identity of contemporary Greek society. This would be put to a severe test if Greece were to tumble out of the eurozone and suffer the mother of all economic and social implosions, writes the FT’s Tony Barber.
Gillian Tett: Subprime moment looms for ‘risk-free’ sovereign debt
When future financial historians look back at the early 21st century, they may wonder why anybody ever thought it was a good idea to repackage subprime securities into triple A bonds, writes the FT’s Gillian Tett. So, too, in relation to assumptions about the “risk-free” status of western sovereign debt. After all, during most of the past few decades, it has been taken as a key axiom of investing that most western sovereign debt was in effect risk-free, and thus expected to trade at relatively undifferentiated tight spreads. Now, of course, that assumption is being exposed as a fallacy. Just look at those Greek haircuts, or the scale of future losses now being implied in the credit derivatives markets for Portugal, Ireland and Italy.
Lex on EU banks: that shrinking feeling
The shrinking of European banks was never going to be pretty. The surprise from BNP Paribas, France’s biggest bank, was a two-fifths cut in its Italian bond holdings to €12bn. The Greek bond portfolio was also written down further to 60 per cent – in line with the deal in the latest bail-out package, but allowing some margin on the to be-finalised details. That leaves the bank’s exposure to peripheral sovereign debt (including Spain and Italy) at €16bn, a near-50 per cent drop since the end of August, says Lex.