Once upon a time (well, 2012) in a realm of falling or flat prices and stalling economic growth, one man had the courage to face reality with only three arrows — of monetary stimulus, fiscal stimulus and structural economic reform — and a popular mandate to his name.
That name was Abe and he…
No. Let’s just cut to Morgan Stanley on the ‘tragedy’ of Abenomics so far, and its potential ‘rebirth’: Read more
After years of failed attempts to stabilise the Greek economy, the Greek government finally got debt relief in 2012. As we explained in our previous post, interest payments fell by more than half between 2011 and 2013. Since the 2012 modifications, Greece’s sovereign debt service costs have been significantly smaller as a share of total output than in Italy or Portugal.
Yet it hasn’t helped much. The economy continues to contract and Greece’s depression since 2008 is among the absolute worst of any country in the world since 1980. Investment spending had already plunged by 60 per cent in real terms between the peak in 2007 and the end of 2011. Since then, it’s dropped another 13 per cent. Overall, Greece has had no economic growth since the beginning of 2013:
Part of the reason: the debt modifications failed to convince private investors to return to Greece, despite having “solved” the problem of government debt service costs. Read more
Last week, we revealed a significant discrepancy between the Greek government’s net debt as reported by the International Monetary Fund’s World Economic Outlook database and what you’d get if you replicated the IMF’s standard methodology for netting out “financial assets corresponding to debt instruments” using data published by the Bank of Greece.
Neither the IMF nor the Bank of Greece had responded to our requests for an explanation of the discrepancy at the time we wrote our original post, nor did either institution respond in time for our follow-up discussion of the Greek government’s equity portfolio. Four days after we’d emailed our original question (while we were on holiday) we finally got some responses. Read more
According to data published by the Bank of Greece, which follows common standards set by the European Central Bank and Eurostat, the general government sector of the Greek economy owned financial assets worth about €86bn at the end of 2015.
Of that, about €18bn consisted of claims by various levels of government on each other, specifically about €3bn in T-bills, €7bn in Greek government bonds, and €8bn in short-term loans from local government to the central government. Net out those claims and the general government sector of the Greek economy held financial assets of about €68bn at the end of 2015. Read more
According to the International Monetary Fund, the Greek government’s financial assets were worth around €3bn in 2015, or less than 2 per cent of GDP. That’s what you get if you take the difference between general government gross debt and net debt, as reported in the latest version of the World Economic Outlook Database.
Yet according to our independent analysis of data from the Bank of Greece — and using the IMF’s preferred definitions of what should and shouldn’t be counted — the Greek government’s financial assets appear to be worth around €30bn in 2015, or about 16 per cent of GDP. Read more
Time is a flat circle, which is why the Greek government is set to run out of money before debt payments are due to the European Central Bank in July — just like last year, and despite last summer’s supposed deal between the Greek government and its various “official sector” creditors.
As before, the immediate cause of this latest crisis is the persistence of disagreements about the size of the budget surpluses (excluding interest) the Greek government is expected to generate, the specific “reforms” the government needs to implement, and the need for debt relief. The fundamental cause, however, is that the Greek government can’t raise money from the private sector at reasonable rates.
Why? Read more
Alphachat is available on Acast, iTunes and Stitcher. Read more
A guest post by Peter Doyle, economist and former IMF staffer
An election with only one candidate? Doesn’t sound competitive. But with nominations just closed for Managing Director of the IMF, the one candidate, Madame Lagarde, will be reelected regardless. Read more
It’s official: Ukraine has defaulted on $3bn in bonds it owes to the Russian government.
No one, including Russia, should be surprised, because Ukraine could do so confident in the knowledge other creditors, including the IMF, wouldn’t mind.
Indeed, while the die was cast when the IMF executive board agreed to change its position on lending to countries that owe money elsewhere, the real conclusion to draw may be about the evolution of an institution conceived to give only brief assistance to governments. Read more
China weakened the renminbi fixing by 1.86 per cent overnight, an unexpected move followed by the biggest one-day change in the value of the renminbi since the country abandoned its dollar peg for a managed trading band.
There are two schools of thought on this: Either balance of payment problems are forcing China’s hand, or the move is just another step in the slow and benign process of capital liberalisation.
On the first, well hey, they would depreciate in the current environment wouldn’t they? Exports are weak, the economy is sputtering, and the stock market can’t stay up without the state introducing a ban on it going down.
Move to a free-floating currency system? Meh. This is just another desperate devaluation story in the style of Nigeria, Russia before them and even peg busting Saudi Arabia on the back of a hard-currency drought in the offshore FX market. (FT Alphaville has predicted this for like ages, yeah?). Read more
The broad narrative of a coming capital account liberalisation in China has always bugged us. The main reason being that we couldn’t see how China, in its current state, was going to start letting money flow (easily) out as well as in.
But before we get into that we should note, somewhat counterintuitively, that China’s capital account is already fairly liberalised. Read more
In this guest post, former IMF staffer Peter Doyle castigates the institution’s flip-flopping over Greece…
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Here is another very strange, and short, document. Click to read.
It’s an update to the Greek debt sustainability analysis by IMF staff — yes one of those analyses again — which was originally published just before Greece’s July 5th referendum. Read more
They say crises define movements and people.
If that’s the case, purveyors of fintech payment solutions could soon be defined as those who stood ready to exploit a Greek national bankruptcy crisis for the benefit of “onboarding” users. Read more
Here is an earnest, but very strange, document. Click to read.
It’s a Greek debt sustainability analysis by IMF staff. Yes, one of those analyses. A preliminary one, but in many ways the DSA to end all DSAs. Read more
This belief — that an implicit official sector guarantee has quietly settled over every sovereign debt instrument issued by every geopolitically significant country on the planet — is a fallacy. The moral hazard implications of allowing this idea to prosper are staggering. More importantly, the official sector lacks the resources to make good on such an implicit guarantee, even if it wanted to do so.
– Lee Buchheit, ‘Sovereign fragility’, 2014
Coming home to roost now though, isn’t it? Read more
In this guest post, former IMF staffer Peter Doyle argues that in pushing for pensions, VAT and labour reforms, creditors are only stoking the latent explosiveness of Greece…
Troika-Greek negotiations are reportedly down to the wire over early-retirement pensions, VAT, and labor reforms: the IMF says all are non-negotiable; Tsipras, perhaps inadvertently echoing Mrs. Thatcher, has, so far, responded “No! No! No!”
These three issues converge on those at the upper end of their working lives, the 50-74 year old cohort, and are reflected in its participation and unemployment behavior. So it is worth considering data on those and the associated implications for the negotiations. Doing so suggests that these creditor red lines lack foundation. Read more
Spoiler alert. In this guest post, former IMF staffer Peter Doyle, argues that some participants in the on-going Greek crisis might be suffering from anosmia…
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A flurry of fresh headlines: Greek stocks pummelled; “Air of unreality” as IMF quits talks. A seemingly credible report from Germany’s Bild saying Angela has resigned herself to possible Grexit.
There was that aggressive Giavazzi op-ed in the FT.
Oh, and 10,000 Greeks have taken their own lives over the past five years of crisis, according to Theodoros Giannaros, a public hospital governor, whose own son committed suicide after losing his job.
Maybe this is the end, end game. Read more
A post-dated cheque without the drawing rights, that is.
As Tsipras and co stagger towards the next IMF payment deadline on Friday, all the while spitting furiously about the supposed abolition of democracy in Europe, it seems extraordinary that Greece has made it thus far without an event. Consider the payment schedule so far, from JP Morgan, published at the beginning of March… Read more
With a big h/t to Faisal Islam, here’s what the Bank of England was thinking at the start of September and just before that IMF loan in 1976 (do click through for the full thing):
Might have to pop this at the top, it’s a chart with lots of negative yield stuff on it after all:
Now, as we have said before… friends don’t let friends extrapolate too wildly from the IMF’s COFER data. Read more
Consider this from Gavekal’s Chen Long. If nothing else, it puts China’s local government debt restructuring in context:
Of course, that context also involves noting the restructuring’s potential to get a whole load bigger. Which then demands we put that in its own context of China’s general plan to deal with its debt load and, eventually, note that what China means by capital account liberalisation mightn’t be quite what everyone else means by capital account liberalisation. Read more
In this guest post, Gabriel Sterne, head of global macro research, Oxford Economics, looks at previous large drawdowns in Greek bond prices for clues about the future.
Greek Prime Minister George Papandreou “asked our partners to contribute decisively in order to give Greece a safe harbour” five years ago this week.
Since then, Greek government bond (GGB) prices have plunged by 37 per cent — or more! — four separate times, with one amazing long rally in between: Read more
Here’s former IMF staffer Peter Doyle , with some bold advice from the wings of the IMF Spring meetings…
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Courtesy of the IMF and spotted by Toby Nangle, do click to enlarge:
Thousands of officials, journalists, academics and market professionals will soon be in Washington DC for the spring meetings of the International Monetary Fund and World Bank, from April 17 to 19. Former IMF staffer Peter Doyle advises attendees on what to really ask the IMF.
Another spring, another IMF Spring Meeting, another set of IMF platitudes—a two-, three- (or is it four?)-speed, variably geometric, or airline metaphoric world economy, making progress, more to do, notably for the poor, sundry complacencies and risks to beware. Even Occupy has been put to sleep by these rituals.
But much goes on behind this veil of blur. Here are five steps to get to what matters. Read more
This guest post is from Peter Doyle, an economist and former IMF staffer
In an otherwise sound critique of Mr. Varoufakis’ list of proposals for Greek government policies last week, Mme. Lagarde’s letter to Mr. Dijsselbloem contains an additional, unremarked, but revealing element. After saying that, in the IMF’s view, the Greek list was sufficiently comprehensive to be a valid starting point for a successful conclusion of the review, she added:
… but a determination in this regard should of course rest primarily on an assessment by Member States themselves and by the relevant European institutions.
This week’s $40bn IMF programme announced for Ukraine will include some restructuring of its debt. Gabriel Sterne, head of global macro research at Oxford Economics, points out that it comes at an interesting time for the fund’s policy on restructuring.
The IMF’s proposals to change its policy on sovereign debt reprofiling have divided opinion, with FT Alphaville providing a debating platform between supporters (for example here and here) and sceptics including myself (for example here and here).
The proposals are motivated by the objective of providing a fund programme breathing space to work when it is unclear if debt is unsustainable. Read more
‘Reprofiling’ is a controversial word in the world of sovereign debt at the moment. The IMF is gathering responses on a proposal to extend bond maturities when a country’s debt looks like it might be unsustainable going into a programme.
In this post, having reviewed criticisms of the proposal, Lee Buchheit, Mitu Gulati and Ignacio Tirado discuss how reprofiling can be designed to avoid hostility from creditors. Read more