under construction
Debt matters

24 Jul 11    Greek Bailout Negotiator Predicts Some Benefits for Banks, NYT, JACK EWING
10.Jul 11   Anton Keller an Frank Schäffler, MdB
5 juil 11   Andreas Schweizer: au Secrétaire de la Communauté Genevoise d’Action Syndicale
2 Jul 11   Anton Keller to H.E. George Papaconstantinou
14 Jun 11   Paying Greek debt, FT.com, editorial
14 Jun 11   New Greek bank plan ‘set to cost €20bn’, FT.com, Peter Spiegel et al.
14 Jun 11   Bernanke to Congress: Don’t allow the U.S. to default, Washington Post , Felicia Sonmez
14.Jun 11   Die Köpfe der Eurokrise - Wer jetzt über die Griechenland-Hilfe entscheidet, NZZ Online, DDP
13 Jun 11   Agency Cuts Greece’s Debt Rating Again, NYT, LANDON THOMAS Jr et al.
12 Jun 11   In Greece, Some See a New Lehman, NYT, LANDON THOMAS Jr
11 Jun 11   Deutsche Bank’s Chief Casts Long Shadow in Europe, NYT, JACK EWING et al.
6 Jun 11   Betting On the PIGs, streetlightblog
6.Jun 11   Orwellsche EU, Schweizer Monat, Frank Schäffler
June 11   Exposure of various parties to PIG debts, BIS Quarterly Review
20.Mai 11   Ein neues Antlitz für die Ökonomie, Tages-Anzeiger, Simon Schmid
23 May 11   When Institutions Rape Nations, truthout.org, Rebecca Solnit
16 mai 11   La dette américaine atteint le plafond autorisé par les parlementaires, LEMONDE, AFP, Reuters
19 avr 11   Geithner défend la dette américaine pour rassurer les créanciers, Reuters
11.Mär 11  Laurence Kotlikoff: «Die USA stehen schlechter da als Griechenland», NZZ Online Marco Metzler
10.Mär 11  US-Staatsanleihen vom weltgrössten Rentenfonds verschmäht, NZZ Online, Reuters
26.Feb 11   Die fatalen Folgen der lockeren Geld- und Schuldenpolitik, NZZ Online, Nicole Rütti, Kommentar
16.Jan 11   Beat Kappeler: Ein kurzer Leitfaden für die Rettung des Euro, NZZ am Sonntag
3 Dec 10   Europe’s financial contagion, Washington Post, Neil Irwin
28 Nov 10   The Macro-Stability of Swiss WIR-Bank Spending: Balance and Leverage Effects. Rensselaer, James Stodder
18 Nov 09   SocGen tells clients how to prepare for potential 'global collapse', Telegraph, Ambrose Evans-Pritchard, Comments
21 Oct 09   Cash substitute greases business wheels, swissinfo.ch, Matthew Allen
22 Sep 09   Richard W. Rahn: The Growing Debt Bomb, Washington Times
6 Apr 09   Options for Managing a Systemic Bank Crisis, Sapiens, Bernard Lietaer et al.
2008    The Banking Crisis: What Can Businesses Do Now?. Bernard Lietaer
9 Aug 06   Free Market Anti-Capitalism - The Swiss WIR System, Mutualist Blog, Kevin Carson
2006    WIR and the Swiss National Economy, WIR Bank, Tobias Studer et al.
26 Jan 05   Stephen Roach: "This is an utterly insane way to run the world economy", BBCnews
Jan 2005   RECIPROCAL EXCHANGE NETWORKS: Implications for Macroeconomic Stability, Rensselaer, James Stodder
9.Aug 04   Alternatives to Globalization - Cooperative Principle and Complementary Currency, Zeitfragen,  W.Wüthrich (English)
Sep 1994   60 Years WIR Business Circle Cooperative - Origins and Ideology, WIR Bank, Heidi Defila
1968    WIR in unserer Volkswirtschaft, WIR Bank, Tobias Studer (English)

BBCnews    26 January, 2005

"This is an utterly insane way to run the world economy",
Stephen Roach, Morgan Stanley, in Davos
Economists warn on US debt crisis

    US consumers' debts are an "accident waiting to happen", a leading economist has warned. Morgan Stanley chief economist Stephen Roach told a meeting at the Davos World Economic Forum that the US was headed for a property bubble. The cause, he said, was people's use of their houses as "massive ATM machines".  The US needed a sharp rise in interest rates to curb the rampant spending - but the Federal Reserve was "in denial" about it, he warned.

Bearish sentiments
    Mr Roach is famous in the investment community for taking a more cautious - some would say bleak - view of the world economy than many of his peers. His case at the panel discussion on the future of the global economy was that "self-indulgent" US shoppers had kept world factories in business recently.
    But the appetite for spending had been fed by dirt-cheap credit - in the shape of interest rates of just 1% for much of the past three years. At the same time, the surge of imports had been balanced by foreign countries buying US dollars, keeping their currencies cheap and the US government's massive budget deficit afloat.

Trouble ahead?
    That, in turn, kept interest rates low. "This is an utterly insane way to run the world economy," Mr Roach said. "You know that, we know that, but the Federal Reserve is in denial about it."
    At the same panel, Fred Bergsten, of Washington DC's Institute for International Economics, said the expanding budget could trigger chaos in the currency markets if it continued to drag the US dollar lower. "We face an enormous risk of a major dollar crisis" unless the government takes the need to close the deficit seriously, he said. "The world would undoubtedly fall into a much slower growth pattern."

Washington Post    December 30, 2005

Congress Is Asked to Raise Debt Limit

    Associated Press -  Treasury Secretary John W. Snow said yesterday that the United States could be unable to pay its bills in early 2006 unless Congress raises the government's borrowing authority, which is now capped at $8.18 trillion.
    Snow, in a letter to lawmakers, estimated that the government is expected to bump into the statutory debt limit around the middle of February. "At that time, unless the debt limit is raised or the Treasury Department takes authorized extraordinary actions, we will be unable to continue to finance government operations," Snow wrote. If the department were to carry out various accounting maneuvers -- as it has done in the past to avoid breaching the limit -- that would free up finances and allow the government to keep paying its bills "no longer than mid-March," Snow wrote.
    Boosting the debt limit is more a matter of politics than economics. Economists doubt Congress will refuse to raise the limit. A federal default is considered unimaginable because it would rattle bond markets, force interest rates higher and shake the economy. The last time Congress agreed to boost the debt limit was in November 2004 -- from $7.38 trillion to the current $8.18 trillion. The government's statutory borrowing authority was also pushed up in 2002 and 2003.
    Snow's letter did not say how much of a boost to the current debt limit the department would like to see this time. Instead, Snow implored, "I am writing to request that Congress raise the statutory debt limit as soon as possible."

February 18, 2007

Debtors Search for Discipline via Blogs

When a woman who calls herself Tricia discovered last week that she owed $22,302 on her credit cards, she could not wait to spread the news. Tricia, 29, does not talk to her family or friends about her finances, and says she is ashamed of her personal debt.

Yet from the laundry room of her home in northern Michigan, Tricia does something that would have been unthinkable — and impossible — a generation ago: she goes online and posts intimate details of her financial life, including her net worth (now negative $38,691), the balance and finance charges on her credit cards, and the amount of debt she has paid down since starting a blog about her debt last year ($15,312).

Her journal, bloggingawaydebt .com, is one of dozens that have sprung up in recent years taking advantage of Internet anonymity to reveal to strangers fiscal intimacies the authors might not tell their closest friends.

Like other debt bloggers, Tricia believes the exposure gives her the discipline to reduce her debt. “I think about this blog every time I’m in the store and something that I don’t need catches my eye,” she told readers last week. “Look what you all have done to me!”

A decade after the Internet became a public stage for revelations from the bedroom, it is now peering into the really private stuff: personal finance.

The blogs open a homey and sometimes shockingly candid window on the day-to-day finances of American households in a time of rising debt, failing mortgages and financial uncertainty. In 2006, the average American household carried about $7,200 in revolving debt (mostly on credit cards) and $21,000 in total debt.

A blog called “Poorer Than You” (kgazette.blogspot.com) describes the financial doings of a 20-year-old film-school dropout. (Typical post: “Yesterday we ate lunch at Subway for a total of $8.00, and went grocery shopping ... with a list! And didn’t buy anything that wasn’t on it!”) On saveleighann.blogspot.com, Leigh Ann Fraley, 37, provides daily accounts of her escape from $19,947 in credit card debt.

“I teach people how to get out of debt for a living, but I couldn’t do it myself until I started the blog,” said Ms. Fraley, who conducts seminars in personal finance for a bank in Northern California. “I started to write everything down, like, ‘I saved 20 cents today by parking at a meter that still had time on it.’ I tell things I wouldn’t tell my family.” When she got out of debt in December, she said, “The blog was the first people I told.”

A Boston couple who call themselves the King and Queen of Debt started their his-and-hers blog, “We’re in Debt” (wereindebt.com), last March as a way to talk to each other about their debt. They owed $34,155.70 on their credit cards at the time, and an additional $120,000, mostly in student loans.

“My wife and I have good communication skills in every avenue of life except finances,” said the King of Debt, insisting on anonymity because, he said, “We don’t want our parents to find out and kill us.”

Starting the blog, he said, “was a way to communicate.”

Tricia started her blog after reading the online account of another woman, thedebtdefier.blogspot.com, who said she had paid off her credit card debt of $19,794.23 in a little more than a year.

Like other bloggers interviewed for this article, Tricia said she and her husband had arrived at their debt gradually, not by big financial crises but by regularly spending more money than they made, using credit that was offered freely by credit card companies.

“It was nothing over the top,” said a Georgia blogger who calls himself N.C.N., for No Credit Needed, describing how his credit card balance reached $11,510.22.

“Just pretty much what everyone I know does and continues to do,” N.C.N. said. “Every month I’d say, ‘We’re going to pay off this credit card completely.’ Then I’d say, ‘O.K., just this month we’ll let it slide.’ Then you wake up and you have $5,000 on your credit card.” He says on his blogs (ncnblog.com and ncnnetwork.com) that he has no debt now and no credit cards. Like other blogs, his sites run advertisements for debt-reduction services, and N.C.N. says he makes a small profit.

Tricia said her credit problems began in her freshman year at Michigan Technological University, when she opened a Visa account in return for the campus signup premium, a large candy bar. Since then, she said, she has rarely made more than minimum payments. As credit card companies offered her more cards and deeper credit lines, she said she kept her balance close to the maximum, eventually topping $37,000. Even as her credit card debt surpassed her annual income, she assumed that someday she would make more money and pay it off.

She said she never discussed her debt with family or friends. “You don’t want them to know,” she said. “Our parents hope for the best for us, and it’s hard to let them know we’re struggling. And with friends, you don’t want them to think less of you. And when you go out with friends you don’t want to say, ‘Oh, I can’t do that, I don’t have the money.’ ”

Keeping the blog, she said, has made her conscious of her spending. Though most of her readers are strangers, she worries about letting them down.

“I know that if I use my credit card, I’ll have to go on there and say I used it. I’ll have to fess up. I’ve been wanting one of those L.C.D. TVs for quite a while now, but every time I see them, I think about having to come on the blog and say I bought it. Because we don’t need it, we have a TV, but it’s still a temptation that’s there. And I’m sure if I wasn’t blogging we’d already have it.”

For the engaged couple who say they are behind a blog called “Make Love, Not Debt” (makelovenotdebt.com; net worth: negative $70,787.94), the feedback from readers has not always been gentle. “People have very strong feelings about debt,” said the blog’s female half, who calls herself Her. “People were appalled by my spending, like buying a $500 pair of shoes.”

“Just having the amount of debt we have is offensive to a lot of people,” said Him, the blog’s other half. “People will levy personal attacks for mistakes we acknowledge. We don’t think that’s quite necessary.”

When they discussed wanting a $25,000 wedding, one reader scolded them: “Grow up, a wedding isn’t about how much debt you put yourself or your parents into. If you are worried about that, in my opinion, you are not ready for marriage.”

Tricia said the comments she had gotten had been overwhelmingly supportive. But she acknowledges that the fear of censure can be useful as well.

“I feel embarrassed about it,” she said of her debt. “I try not to, though. I try to put a spin on it when I start to get too down. I think to myself if we didn’t get in this mess and get out of it, we would’ve just kept going the way we were. But now we have health insurance, we’re saving for retirement. We could’ve just been living on the edge, but not underneath.”

Washington Times  September 22, 2009

Facing a one- to three-year countdown
The Growing Debt Bomb
By Richard W. Rahn

Assume you had put much of your savings into U.S. government bonds and then you learned the following. In just the last eight months, the Congressional Budget Office estimates of the amount of additional federal debt to be held by the public grew by an astounding $4 trillion for the 2010-19 period; and that the amount of federal debt held by the public grew from $5.9 trillion to $7.5 trillion in just the last 12 months.

In addition, you learned that the federal government (i.e., taxpayers) now owns (primarily through Fannie Mae and Freddie Mac) or insures (through the Federal Housing Administration and other government programs) about 80 percent of the $14.6 trillion of home mortgages outstanding in the United States. Last week, Congress passed a bill requiring all student loans be made by the federal government rather than banks, which means the taxpayers will be 100 percent liable for any student loan defaults.

You also learned that the Federal Deposit Insurance Corp. is considering tapping its Treasury credit line for up to $500 billion. It needs to do this because of the high number of bank failures and because each bank account is insured by the government (i.e., taxpayers) up to $250,000. The president and many in Congress are calling for a roughly $1 trillion health care bill - paid for by additional debt and/or more taxes, which will further slow economic growth, eventually leading to even more debt.

Finally, you also became aware of the following facts: Federal government expenditures are growing far faster than the economy, and thus the government is becoming a larger and larger share of gross domestic product. Obviously, this cannot continue forever because eventually the government would totally drive out the private sector.

The entitlement programs (i.e., Social Security, Medicare, Medicaid, etc.) all continue to grow faster than the economy, and they will take more than 100 percent of all federal tax revenue this year, requiring that virtually all of the other government spending programs, including defense and interest payments on the debt, be funded by more borrowing.

You are also aware that the government cannot tax its way out of the deficit situation, because increasing income tax rates on the upper income people will both slow the economy and cause them to find legal or illegal ways to avoid the tax increase, and the politicians have pledged to not increase taxes on those making less than $250,000, which includes all but a very few Americans.

Even if the politicians break their pledges not to increase taxes, they still cannot solve the deficit problem as long as they refuse to cut back on the growth in Social Security, Medicare, and Medicaid - because any new tax revenue will be quickly absorbed by the growth in spending. The best that any tax increase could do is delay the explosion of the debt bomb by, perhaps, a couple of years while further weakening the economy and job growth.

Now suppose you are not an individual bondholder but the Chinese government official responsible for the Chinese economy, and you know your government holds about $1 trillion in U.S. government securities. You have watched Congress and the administration become less and less fiscally responsible - more spending, more taxes, and more debt.

Then suddenly the administration puts punitive tariffs on your tire manufacturers while at the same time refuses to approve the trade treaties with Colombia, Panama and South Korea that have been negotiated.

You understand that these foolish and destructive actions by U.S. government officials indicate it does not understand the importance of free trade in fostering economic growth, and seem to be intent on replicating the mistakes of the 1930s.

The Chinese are not stupid, and they have been vocal in saying they are concerned that U.S. policies will lead to a further fall in the dollar and higher rates of inflation, both of which undermine the value of their investment in U.S. government securities.

The Chinese are now trying to diversify their holdings - and their recent activity in buying large quantities of tradable commodities is probably, in part, a hedge against a falling U.S. dollar. Thus, at the same time, the U.S. government needs to sell trillions of dollars of new bonds. It is by its own actions driving away foreign purchasers of bonds, which can only result in higher interest rates in the United States, which will further slow economic growth.

What is particularly frightening is that neither political party has offered a serious plan to defuse the debt bomb. The Democrats are just piling up more debt as if there were no limit, and the Republicans, to date, are only proposing measures to reduce the increase, rather than reverse it. When the debt bomb explodes - within the next one to three years - expect to see record high real interest rates and/or inflation, coupled with a collapse of many "entitlements." It will be like the neutron bomb, the buildings will be left standing, but the people will not.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.

Daily Telegraph    November 18, 2009

SocGen tells clients how to prepare for potential 'global collapse'
By Ambrose Evans-Pritchard

Société Générale has advised clients to be ready for a possible "global economic collapse" over the next two years, mapping a strategy of defensive investments to avoid wealth destruction.
Explosion of debt: Japan's public debt could reach as much as 270pc of GDP in the next two years. A bullet train is pictured speeding past Mount Fuji in Fuji city, west of Tokyo Photo: Reuters

In a report entitled "Worst-case debt scenario", the bank's asset team said state rescue packages over the last year have merely transferred private liabilities onto sagging sovereign shoulders, creating a fresh set of problems.

Overall debt is still far too high in almost all rich economies as a share of GDP (350pc in the US), whether public or private. It must be reduced by the hard slog of "deleveraging", for years.

"As yet, nobody can say with any certainty whether we have in fact escaped the prospect of a global economic collapse," said the 68-page report, headed by asset chief Daniel Fermon. It is an exploration of the dangers, not a forecast.

Under the French bank's "Bear Case" scenario (the gloomiest of three possible outcomes), the dollar would slide further and global equities would retest the March lows. Property prices would tumble again. Oil would fall back to $50 in 2010.

Governments have already shot their fiscal bolts. Even without fresh spending, public debt would explode within two years to 105pc of GDP in the UK, 125pc in the US and the eurozone, and 270pc in Japan. Worldwide state debt would reach $45 trillion, up two-and-a-half times in a decade.

(UK figures look low because debt started from a low base. Mr Ferman said the UK would converge with Europe at 130pc of GDP by 2015 under the bear case).

The underlying debt burden is greater than it was after the Second World War, when nominal levels looked similar. Ageing populations will make it harder to erode debt through growth. "High public debt looks entirely unsustainable in the long run. We have almost reached a point of no return for government debt," it said.

Inflating debt away might be seen by some governments as a lesser of evils.

If so, gold would go "up, and up, and up" as the only safe haven from fiat paper money. Private debt is also crippling. Even if the US savings rate stabilises at 7pc, and all of it is used to pay down debt, it will still take nine years for households to reduce debt/income ratios to the safe levels of the 1980s.

The bank said the current crisis displays "compelling similarities" with Japan during its Lost Decade (or two), with a big difference: Japan was able to stay afloat by exporting into a robust global economy and by letting the yen fall. It is not possible for half the world to pursue this strategy at the same time.

SocGen advises bears to sell the dollar and to "short" cyclical equities such as technology, auto, and travel to avoid being caught in the "inherent deflationary spiral". Emerging markets would not be spared. Paradoxically, they are more leveraged to the US growth than Wall Street itself. Farm commodities would hold up well, led by sugar.

Mr Fermon said junk bonds would lose 31pc of their value in 2010 alone. However, sovereign bonds would "generate turbo-charged returns" mimicking the secular slide in yields seen in Japan as the slump ground on. At one point Japan's 10-year yield dropped to 0.40pc. The Fed would hold down yields by purchasing more bonds. The European Central Bank would do less, for political reasons.

SocGen's case for buying sovereign bonds is controversial. A number of funds doubt whether the Japan scenario will be repeated, not least because Tokyo itself may be on the cusp of a debt compound crisis.

Mr Fermon said his report had electrified clients on both sides of the Atlantic. "Everybody wants to know what the impact will be. A lot of hedge funds and bankers are worried," he said.

comments (228)
'Debt levels risk another crisis'

Washington Post    December 3, 2010

Europe’s financial contagion
By Neil Irwin

Greece sneezed, and now most of Europe has a cold. The European debt crisis has already spread like a virus from Greece to Ireland, and other countries are now at risk: Portugal, Spain, and Italy are probable candidates for financial problems. Economists call this the “contagion effect.” How does this spread? Some of it has to do with confidence. When investors see one country encounter financial problems, they may doubt the health of other countries that seem to share economic or even political characteristics.

Contagion also has much to do with actual economic links among countries. Researchers have identified financial ties in particular as responsible for the “fast and furious” spread of crisis from one country to another. Trading activity between countries, however, can propagate economic sickness more slowly.

Who's exposed?    Through banking    Through trade
When an ailing country becomes over extended and unable to handle its debt, banks and other financial firms that have lent it money could be exposed to major losses. This could unsettle the home country of the banks or even spread the troubles to a third country. That can occur, for instance, because banks may try to cover their losses in one country by calling in loans in another.

Loans extended as a percentage of GDP -
interactive source: Washington Post

When a country trades extensively with another, their economies become intertwined. If a financial crisis in one country undermines its economy, it will import fewer goods from its trade partners, potentially crimping their economic growth also.
Exports as a percentage of GDP

Taking their temperature
When investors begin to lose confidence in a country’s ability to pay off its debt, they demand higher interest rates on the country’s bonds to cover the risk of loaning it money. When its borrowing costs rise, an ailing country has an even harder time raising money to pay off the debts it has. Borrowing costs are up this year in European countries considered more vulnerable as investors look to put their money somewhere they think is safer.

Borrowing costs 10-year bond yield spreads over benchmark German bonds

NOTE: Bank loan figures are the total outstanding as of June 2010. Export figures are annual, 2009.
SOURCES: Global Trade Information Services, CIA World Factbook, Bank for International Settlements.
GRAPHIC: Wilson Andrews and Alicia Parlapiano / The Washington Post - Dec. 3, 2010.

NZZ Online   26. Februar 2011

Die fatalen Folgen der lockeren Geld- und Schuldenpolitik
Nicole Rütti

Die lockere Geldpolitik der Zentral- und Notenbanken sowie die Schuldenwirtschaft der Industriestaaten bergen ein erhebliches Inflationspotenzial. Eine unkontrollierbare Teuerungsspirale hätte für die Weltkonjunktur schwerwiegende Folgen.
Kaum scheint die Wirtschaftskrise beendet, ist es zurück: das Schreckgespenst Inflation. Während die meisten Ökonomen vor einem Jahr noch die Gefahr einer sich akzentuierenden Deflationsspirale an die Wand malten, sind es nun abrupte Preissteigerungen – vor allem in den aufstrebenden Schwellenländern –, die Sorgen bereiten. So bewegt sich die Teuerungsrate in Indien in der Nähe von 10% und in China bei 5%. Auch in Südamerika ist die Teuerung nicht mehr nur für Länder wie Venezuela, das mit einem Anstieg der Konsumentenpreise von 27% im vergangenen Jahr weltweit einen Spitzenplatz belegte, zu einem Problem geworden, sondern auch für Volkswirtschaften wie Brasilien, Bolivien, Paraguay oder Uruguay. Die Furcht der betroffenen Regierungen, dass die galoppierende Preisentwicklung bei den Nahrungsmitteln Unruhen – wie in Nordafrika und im Nahen Osten – auslösen könnte, ist gross.

Ein vorübergehendes Phänomen?
Selbst in der EU hat der jüngste Anstieg der Konsumentenpreise den Rat der Europäischen Zentralbank überrascht und in erhöhte Wachsamkeit versetzt. Erstmals seit zwei Jahren bewegt sich die Inflationsrate im Euro-Raum wieder über der von den meisten Währungshütern als kritisch erachteten Marke von 2%. In Grossbritannien hat sie im Januar gar den Wert von 4% erklommen. Im Vergleich dazu befindet sich die Schweizer Volkswirtschaft derzeit in einer äusserst komfortablen Lage. So ist der im Landesindex der Konsumentenpreise abgebildete Warenkorb im vergangenen Jahr bloss um 0,7% teurer geworden, und im Januar hat sich das Preisniveau gar zurückgebildet. Diese Entwicklung ist dem starken Schweizerfranken zuzuschreiben, der die Importe deutlich verbilligt hat. In den USA notiert die Teuerung im historischen Vergleich ebenfalls auf einem tiefen Niveau von 1,6%. Aber der Renditeanstieg bei Staatsanleihen mit langen Laufzeiten lässt für die Zukunft einen erhöhten Inflationsdruck erwarten.

Zu Recht weisen die Zentralbanken in den Industrieländern darauf hin, dass der jüngste Teuerungsschub vor allem auf die gestiegenen Nahrungsmittel- und Energiepreise zurückzuführen sei. Sie halten den Preisauftrieb für ein vorübergehendes Phänomen und argumentieren, der Anstieg der Importpreise habe die Haushalte und Konsumenten nicht dazu bewogen, ihre Inflationserwartungen nach oben anzupassen. Grund für eine Abkehr von der bisherigen – äusserst expansiven – Geldpolitik bestehe somit vorerst nicht.

Die Hausse an den Rohstoff- und Agrarmärkten hat wiederum verschiedene Ursachen: Zum einen ist da die gestiegene Nachfrage der aufstrebenden Länder, zum anderen haben auch Naturkatastrophen und Wettereinflüsse – wie die Dürre in Russland im vergangenen Jahr – das Angebot verknappt. Nicht zuletzt lassen Unsicherheitsfaktoren wie die derzeitigen Unruhen in Nordafrika und im Nahen Osten die Preise steigen. In einigen Ländern haben auch die indirekten Folgen der Schuldenkrise, nämlich die zur Finanzierung erforderliche Erhöhung von Steuern wie in Grossbritannien, zu einem Anstieg der Teuerung beigetragen. Doch es existieren auch Faktoren, die längerfristig ein nicht unerhebliches Inflationspotenzial bergen. So haben die ultra-lockere Geldpolitik in den Industriestaaten und die daraus folgenden Kapitalströme in die aufstrebenden Länder zu einem unheilvollen Wechselspiel geführt. Ein Teil der von den Zentral- und Notenbanken bereitgestellten Liquidität hat den Weg in die Entwicklungsländer gefunden, fliesst dort in die bereits überhitzten Rohstoff- und Immobilienmärkte und kurbelt dadurch die Teuerung zusätzlich an. Diesem Problem mit einer Straffung der Geldpolitik zu begegnen, ist für die Entwicklungsländer nur beschränkt möglich, weil höhere Zinsen in der Regel zusätzliches ausländisches Kapital anziehen.

Importierte Inflation in Kauf genommen
Gleichzeitig wird der Teuerungsdruck durch die direkte oder indirekte Bindung der jeweiligen Währungen an den Dollar noch verschärft. So leiden Länder wie Brasilien unter den Folgen einer gegenüber dem Dollar starken Heimwährung und haben als Antwort darauf am Devisenmarkt höhere Dollar-Bestände erworben. Dies erhöht wiederum die Liquidität in den jeweiligen Heimmärkten. Mit anderen Worten: Die expansive Geldpolitik der Industriestaaten wird in die Schwellenländer exportiert, wo sie zu Teuerungsschüben führt. Über die verteuerten Warenausfuhren werden die Preissteigerungen dann in die Industriestaaten eingeführt und dort als importierte Inflation in Kauf genommen. Dieser Mechanismus hat es den Zentralbanken bisher erlaubt, länger als erforderlich ihren expansiven geldpolitischen Kurs beizubehalten. In Anbetracht der immensen Verschuldung der Industrieländer liegt es gleichzeitig auf der Hand, dass die herausgeforderten Regierungen nichts gegen «ein wenig Inflation» einzuwenden haben. Allein im Euro-Raum würde ein Zinsanstieg um einen Prozentpunkt den Schuldendienst um 25 Mrd. bis 30 Mrd. € in die Höhe klettern lassen, wogegen «etwas Inflation» den realen Wert der festverzinslichen Schulden entwertet. Doch eine laxe Geldpolitik im Namen des Schuldenabbaus könnte in eine unkontrollierbare Inflationsspirale münden.

Die zentrale Bedeutung von Inflationserwartungen
Wahrscheinlich sind solche Befürchtungen zurzeit überzogen: Zum einen haben die gestiegenen Importpreise in den meisten Industrieländern die Kernteuerung, welche die volatilen Bereiche Energie und Nahrungsmittel ausschliesst, bisher nicht in die Höhe getrieben. Sowohl in der Euro-Zone als auch in den USA notiert sie nahe bei 1%. Zum anderen läuft die Wirtschaft in den Industrieländern – im Gegensatz zu den boomenden Schwellenländern – nicht auf Hochtouren. Ihre Produktionskapazitäten sind noch nicht voll ausgelastet, die Nachfrage der Konsumenten bleibt verhalten, was den Spielraum der Unternehmen für Preissteigerungen einschränkt. In Anbetracht der hohen Arbeitslosigkeit in den USA und Europa zeichnet sich derzeit auch keine Lohn-Preis-Spirale ab. Dies könnte sich aber schnell einmal ändern, falls die Privathaushalte oder Firmen zum Schluss gelangen sollten, dass das gestiegene Preisniveau kein vorübergehendes Phänomen ist.

Fest steht, dass die lockere Geldpolitik sowie die Schuldenwirtschaft der Industrieländer ein erhebliches Inflationspotenzial bergen. Angesichts der niedrigen Teuerung der letzten zwanzig Jahre mögen sich zwar viele Wirtschaftsakteure in Sicherheit wiegen. Doch die Gefahr ist gross, dass die Geldschwemme ohne rechtzeitige Gegenmassnahme früher oder später auf das allgemeine Preisniveau durchschlagen wird. Die Folgen einer allfälligen Teuerungsspirale für die Weltkonjunktur – Kaufkraftverluste, zunehmende Unsicherheiten bei Investoren, Unternehmen und Konsumenten, aufgeschobene Investitionen, sinkende Attraktivität des Sparens sowie Reputationsverluste für die Notenbanken – wären fatal. Der Wirtschaftsaufschwung würde damit im Keime erstickt.

NZZ Online, Reuters    10. März 2011, 14:29,

Gigantischer US-Schuldenberg rückt in den Fokus
US-Staatsanleihen vom weltgrössten Rentenfonds verschmäht

Bill Gross von Pimco hat das Vertrauen in US-Staatsanleihen verloren. (Bild: Reuters)

Der weltgrösste Rentenfonds von Pimco ist seit Februar nicht mehr in US-Anleihen investiert. Auch wenn US-Anleihen bereits einen starken Wertverlust hinter sich haben, warnt Fonds-Manager Bill Gross vor einem weiteren Kursrutsch. Eine US-Schuldenkrise könnte näher rücken.
(Reuters) Der weltgrösste Rentenfonds stellt sich auf eine Schuldenkrise in den USA ein. Weil er einen massiven Wertverlust von US-Staatsanleihen befürchtet, trennte sich der knapp 240 Mrd. Dollar schwere Pimco Total Return Fund nach Angaben vom Mittwochabend bereits im Februar komplett von seinen Beständen an US-Schuldenpapieren.

Wer will noch US-Staatsanleihen?
Der Schritt ist ein neuer Beleg dafür, dass sich die Finanzmärkte nicht nur über die Schuldenkrise in Europa grosse Sorgen machen – auch der gigantische Schuldenberg der USA rückt zunehmend ins Bewusstsein. Der bei der Allianz-Tochter Pimco für den Fonds zuständige Manager Bill Gross hat zuletzt infrage gestellt, wer noch US-Staatsanleihen erwerben soll, wenn die amerikanische Notenbank Federal Reserve ihren Milliarden-Ankauf der Bonds wie geplant im Juni beendet. Er prognostiziert deshalb, dass US-Schuldtitel weiter rasant an Wert verlieren – obwohl sie bereits einen Kurssturz hinter sich haben.

Ende Januar hatte der Fonds noch zwölf Prozent seines Vermögens in US-Papieren investiert. Zuletzt hatte Pimco die Aussichten für US-Staatsanleihen vor zwei Jahren so negativ bewertet wie derzeit.

Pimco sorgt sich um das US-Defizit
Gross, der bei Pimco insgesamt ein Vermögen von 1,1 Bio. Dollar mitverwaltet, hat wiederholt davor gewarnt, dass das hohe US-Haushaltsdefizit die Inflation anheizen könnte. Gläubiger fordern zudem eine höhere Entschädigung für das wachsende Ausfallrisiko von US-Staatsanleihen. Allein in diesem Jahr wird sich die Neuverschuldung der Vereinigten Staaten voraussichtlich auf gut 1,6 Billionen Dollar belaufen – und zwischen den Parteien in Washington zeichnet sich kein Kompromiss darüber ab, wie der Schuldenberg abgebaut werden könnte.

Rentenmarkt reagiert vorerst gelassen
Allein in den vergangenen fünf Monaten ist die Rendite der richtungsweisenden zehnjährigen US-Staatsanleihe durch den Preisverfall um einen vollen Prozentpunkt auf zuletzt knapp 3,5 Prozent gestiegen. Gross geht davon aus, dass die Rendite auf 4,0 steigen wird, wenn die Notenbank keine Staatsanleihen mehr kaufen wird. Die Fed pumpt derzeit zur Stützung der Konjunktur viele Milliarden Dollar in den Wirtschaftskreislauf, indem sie Staatsanleihen kauft. Der Rentenmarkt nahm die Bekanntgabe von Pimco am Donnerstag gelassen – die Preise zogen sogar etwas an. Dies lag wahrscheinlich daran, dass Gross seine Abneigung gegenüber US-Staatsanleihen bereits wiederholt öffentlich gemacht hat. Der Total Return Fund hält nun mehrheitlich Hypothekenpapiere sowie Bargeld – dazu zählen auch alle Papiere mit einer Laufzeit von weniger als einem Jahr.

NZZ Online    11.März 2011

«Die USA stehen schlechter da als Griechenland»
200 Billionen Dollar implizite Schulden durch «Schneeballsysteme» in Altersvorsorge
Von Marco Metzler

Berücksichtigt man zusätzlich zu den Staatsschulden die impliziten Zahlungsversprechen der Sozialsysteme der USA, dann klafft in dem Land eine fiskalische Lücke von rund 200 Billionen Dollar. Im Vergleich zum BIP ist diese grösser als in Griechenland. Laut Ökonomie-Professor Laurence Kotlikoff sind die USA faktisch bankrott.
US-Flagge mit griechischen Farben: Ist die USA das nächste Griechenland? (Bild: Imago)

Der Ökonomie-Professor Laurence Kotlikoff von der Boston University hat an einer von der Privatbank Wegelin organisierten Konferenz darauf hingewiesen, dass in den USA – wenn man die impliziten Zahlungsversprechungen der Renten- und Sozialsystem mit einberechnet – eine grössere fiskalische Lücke klafft als beispielsweise in Griechenland. Seinen bewusst provokativen Vortrag hielt er am selben Tag, an dem der weltgrösste Rentenfonds von Pimco bekannt gegeben hatte, alle US-Staatsanleihen abgestossen zu haben.

Altersvorsorge als Schneeballsystem
Laut Kotlikoff bauen die Industriestaaten mit ihren Pensionssystemen nun schon seit 60 Jahren auf Schneeballsysteme (auf englisch: Ponzi Scheme). Ein Ponzi-Schema bezeichnet ein Geschäftsmodell, das, um die bisherigen Teilnehmer auszubezahlen, eine ständig wachsende Zahl an neuen Teilnehmer benötigt, die Geld in das System investieren. Benannt ist das Schema nach Charles Ponzi, der Anfang der zwanziger Jahre des letzten Jahrhunderts mit einem ebensolchen System zu zweifelhaftem Ruhm gelangte. Ein vergleichbares System hielt beispielsweise auch Ponzis Gesinnungsgenosse Bernard Madoff aufrecht.

Angesichts der demografischen Entwicklung in vielen Industriestaaten, in denen sich immer weniger Junge und immer mehr Alte gegenüberstehen, ist für Kotlikoff die Analogie zu einem Schneeballsystem nicht mehr weit, wie er mit folgender Anleitung ausführt.

Anleitung zum Bau eines Schneeballsystems
mtz. Laut Professor Kotlikoff sind auch Pensionssysteme der Industriestaaten nichts anderes als Schneeballsystem, die früher oder später zusammenbrechen werden. In seinem Vortrag liefert er auch gleich eine Anleitung an Politiker, um ein generationenübergreifendes Ponzi-Schema aufbauen und verschleiern zu können:

1. Man nehme der heutigen Jugend einen Betrag X weg
2. Man gebe den Alten X
3. Man verspreche der heutigen Jugend, dass sie im Alter Y erhalten werden, wobei Y grösser ist als X
4. Man werde gewählt oder gewinne die Wiederwahl
5. Man nehme der Jugend der Zukunft den Betrag Y weg
6. Man gebe Y den Alten der Zukunft
7. Man verspreche der Jugend der Zukunft, dass sie im Alter Z erhalten werden, wobei Z grösser ist als Y
8. Man werde gewählt oder gewinne die Wiederwahl
9. Man wiederhole Schritt 5 bis 8
10. Man wähle ein geeignetes fiskalisches Label, um sicherzustellen, dass die Verbindlichkeiten nicht als offizielle Schuld ausgewiesen werden.

Laut Kotlikoff kann man, um das Schneeballsystem zu verschleiern, beispielsweise die von der Jugend bezahlten Beträge als Steuern ausweisen und gleichzeitig die von den Alten erhaltenen Beträge als Transferzahlungen. Dies erlaube es, keine höhere offizielle Defizite auszuweisen und ein ausgeglichenes Budget zu präsentieren. Dadurch werden die Verbindlichkeiten zu inoffiziellen und impliziten Zahlungsversprechungen. Die fundamentalen Problem blieben aber weiterhin bestehen.

Die fiskalische Lücke eines Landes wird berechnet, indem man – vor einem unendlichen Zeithorizont – den gegenwärtigen Wert aller künftigen Ausgaben von dem gegenwärtigen Wert aller künftigen Steuereinnahmen subtrahiert. Die USA und auch viele EU-Länder bringen es gemäss Kotlikoff nicht fertig, die fiskalische Lücke vor einem unendlichen Zeithorizont auszurechnen und legen auch nicht offen, ob ihre Anlagen die offiziellen und inoffiziellen Verbindlichkeiten der Zukunft zu decken vermögen. «Das ist betrügerische Buchhaltung», sagt Kotlikoff.

Die USA stehen an einem Wendepunkt
Er zieht dabei eine Analogie zu den Betrügern wie Charles Ponzi oder Bernard Madoff, die beide gelogen haben, als es um den wahren Wert ihrer eigenen Anlagen ging. Dasselbe sei bei den generationenübergreifenden Schneeballsystemen der Fall. Ein solches System werde spätestens dann in sich zusammen fallen, wenn die Jungen die versprochenen Zahlungen an die Alten nicht mehr werden leisten können – denn schliesslich können die Jungen nicht mehr Steuern zahlen als sie tatsächlich verdienen.

«Die USA hat diesen Punkt erreicht», warnt Kotlikoff. «In Wirklichkeit sind die Vereinigten Staaten bankrott.» Das Congressional Budget Office habe die fiskalische Lücke zwischen dem gegenwärtigen Wert aller zukünftigen Ausgaben und den künftigen Steuereinnahmen der USA berechnet und komme auf eine Lücke von 202 Bio. Dollar (auf englisch: trillion). Dies stehe im Widerspruch zu den offiziell ausgewiesenen Staatsschulden der Vereinigten Staaten in der Höhe von 9 Bio. Dollar.

Steuererhöhung um 77 Prozent
«Die USA ist in schlechterer fiskalischer Verfassung als Griechenland», sagt Kotlikoff. Im Vergleich mit Europa habe die USA disproportional grosse inoffizielle, zukünftige Zahlungsversprechungen. Die fiskalische Lücke der USA sei 14 Mal grösser als das Bruttoinlandprodukt (BIP) des Landes, während der Faktor in Griechenland nur 11 betrage.

Um die fiskalische Lücke zu schliessen müsste laut Kotlikoff alle in den USA erhobenen Steuern ab sofort und permanent um 77 Prozent erhöht werden. Er glaube, dass weder die Republikaner noch die Demokraten jemals eine solche Steuererhöhung beschliessen werden. Aber allein eine sofortige, radikale Reform des Gesundheitswesens, des Steuersystems, der sozialen Sicherheit und der Staatsfinanzen könne die USA retten. Er rät deshalb auch davon ab, langfristige US-Staatsanleihen zu halten.

Drohende Inflation
Der Kollaps des Ponzi-Schemas in den USA könnte eine noch grössere Finanzkrise nach sich ziehen als die letzte, warnt Kotlikoff. Würde ein Kollaps verschiedener europäischer Staaten zu einem Sturm auf die Bankschalter führen – und sollte dieser Sturm auch auf die USA übergreifen – dann müsste die Notenbank Fed über Nacht im schlimmsten Fall 12 Billionen an neuen Dollars drucken.

Die Geldmenge der USA, die sich laut Kotlikoff schon von 0,84 Bio. Dollar im Jahr 2007 bis ins Jahr 2011 auf 3 Bio. Dollar ausgeweitet hat, würden sich über Nacht auf 15 Bio. Dollar erhöhen. Schon heute sei im Geldmengenwachstum die Basis für eine hohe Inflation angelegt. Sollten nochmals 12 Bio. Dollar dazukommen, dann werde eine Hyperinflation unvermeidlich sein.

Heimliche Enteignung
Selbstverständlich kann man implizite Schulden auch reduzieren, indem man die Zahlungsversprechen für die Jugend von heute reduziert und diese damit heimlich zu enteignen versucht. Aber dann stellt sich eine andere Frage: Wie lange werden die Jungen noch bereit sein, den Konsum der Alten mitzufinanzieren, wenn sie durchschauen, dass die Staaten die Zahlungsversprechen mittelfristig nicht mehr werden einhalten können? Vielleicht werden sich diese dann per Facebook und Twitter organisieren, um gegen die für sie schädlichen Schneeballsysteme zu revoltieren.

June 11, 2011

Deutsche Bank’s Chief Casts Long Shadow in Europe

Josef Ackermann last month at the Deutsche Bank shareholders' meeting, where he received much applause — and a few boos. Hannelore Foerster/Bloomberg News

LATE one night in September 2008, as the financial world trembled, Josef Ackermann received an urgent call from Berlin.

On the line was Angela Merkel, the German chancellor. She needed his help — now.

A big German bank was about to collapse, much the way Lehman Brothers had only days before. It was 12:45 a.m. and shaky financial markets were about to open across Asia. Fear was in the air.

Mrs. Merkel asked whether Mr. Ackermann, the head of Deutsche Bank, could help rescue the failing lender.

He could, and he did. Within minutes, he persuaded German bankers to pledge 8.5 billion euros for a bailout.

Mr. Ackermann, 63, emerged from the panic of 2008 as the most powerful banker in Europe and, depending on whom you ask, possibly the most dangerous one, too. As the chief executive of Europe’s largest bank and a symbol of German financial might, he is at the center of more concentric circles of power than any other banker on the Continent.

From this seat at the nexus of money and politics, Mr. Ackermann, for better or worse, is helping to shape Europe’s economic and financial future. He regularly advises politicians and policy makers on the most pressing economic issues of the day: the smoldering debt crises in Greece; the widening gulf between the economically strong nations of Europe, like Germany, and weaker ones like Ireland and Portugal; and the future of Europe’s economic and monetary union and that grand venture’s most manifest expression, the euro.

But it is no secret where Mr. Ackermann’s financial allegiances lie: with the banks. For instance, he has insisted that providing some sort of debt relief for Greece would be a huge mistake. Such a move — a restructuring, in banking parlance — would involve writing down Greece’s debt, which is now more than 140 percent of its gross domestic product, deferring payments and cutting interest rates.

What would be so bad about that? European banks, including German ones like Deutsche Bank, hold many billions of euros in Greek government bonds, and the banks would lose big if those debts were restructured. For the moment, Europe’s solution for Greece is, essentially, Mr. Ackermann’s: more bailout money and more austerity — an approach that some economists say only buys time without offering any hope of recovery.

Mr. Ackermann, like many of his counterparts in the United States, has also argued against tighter regulation of the post-crisis financial industry. His visibility as an industry advocate stems in part from his chairmanship of the Institute of International Finance, an association of the world’s biggest banks, including American ones like Goldman Sachs, Morgan Stanley and Citigroup. The group has released studies contending, among other things, that compelling banks to reduce their use of leverage — a move that would almost certainly reduce banks’ profits — would cause a credit crunch. That’s ridiculous, some economists counter.

“Most of the arguments made by the bankers and the I.I.F. in particular are just fallacious,” says Martin Hellwig, an economist and a director of the Bonn branch of the Max Planck Institute.

Even some of Mr. Ackermann’s peers in banking are uncomfortable with his positions. One senior European banking executive said he thought Mr. Ackermann’s zealous defense of banking interests failed to take public opinion into account. Like many ordinary Americans, many Europeans say they are paying the price for the excesses of bankers.

“As an industry, we have a reputational problem and we need to be aware of it and manage it properly,” says this banker, who did not want to be quoted by name for fear of damaging his relationship with Mr. Ackermann.

THE twin towers of Deutsche Bank punctuate the skyline in this city of bankers. They stand as a monument to a bank that was founded in Berlin in 1870 to ease trade with overseas markets, and it is now among the largest banks in the world. Deutsche Bank operates in more than 70 countries and in virtually every corner of finance.

The man who runs this giant has neither the star quality of Jamie Dimon, the head of JPMorgan Chase, nor the polarizing power of Lloyd C. Blankfein, the head of Goldman Sachs. But in Germany, Josef Ackermann is a household name. And although admired by many, he has also become a lightning rod for public hostility toward banks. His name springs to mind for protesters when they look for a banker to demonize.

So it might come as a surprise that in person, Mr. Ackermann comes across as soft-spoken and almost a bit shy. That’s all the more startling because he rose to the top of Deutsche Bank in 2002 after overseeing its investment bank, which isn’t known for shrinking violets.

In an interview late last month high in Deutsche Bank’s headquarters, surrounded by a few examples of the bank’s collection of modern art, Mr. Ackermann portrayed himself as a man who enjoys the simple pleasures. During his rare moments of leisure time, he likes to hike in the Alps in Switzerland, his native country, or browse in bookstores on Fifth Avenue in Manhattan. His bank has a large operation on Wall Street — indeed, it helped inflate the American mortgage bubble — and he keeps an apartment near Central Park.

Mr. Ackermann plays down his relationship with Mrs. Merkel, who has recently taken pains not to appear too close to him. Her office did not respond to requests for comment.

“We have a cordial and professional relationship,” Mr. Ackermann says. “But since the financial crisis, the relationship between banks and governments became more challenging.”

The relationship may not be as warm as it once was, but Mrs. Merkel, a pivotal player in European politics and economics, still calls on Mr. Ackermann. Since the European debt crisis unfolded in spring 2010, the two have been in direct contact numerous times, he says.

“He is a political animal,” Roland Berger, founder of the management consulting firm that bears his name, and a longtime adviser to Mr. Ackermann, says of him. “I’m not sure Germany without him would have mastered these critical situations as well as it did.”

Mr. Ackermann has offered advice to Mrs. Merkel and other political leaders on how to avoid spooking the markets with their public statements. Mr. Ackermann seems to enjoy a good relationship with Jean-Claude Trichet, the outgoing president of the European Central Bank, whose office is a few blocks from Deutsche Bank’s headquarters here.

But Mr. Ackermann has also said some things that have displeased Mrs. Merkel. Soon after European leaders fashioned a bailout package for Greece last May, he warned that the country might not be able to repay its debts. The very existence of the euro, he cautioned, would be jeopardized if investors lost confidence in other weak economies in the 17-member monetary union.

His comments sent financial markets reeling, and prompted a rebuke from Mrs. Merkel’s finance minister, Wolfgang Schäuble, who called them “irritating” and “unhelpful.”

But last week, Mr. Ackermann’s comments seemed prescient as Prime Minister George A. Papandreou of Greece struggled to persuade Parliament and the public that the nation must agree to more austerity measures to qualify for a second portion of loans from the European Union and the International Monetary Fund.

And on Friday, Mr. Schäuble himself warned that a failure to keep aid flowing raised “an acute danger of Greece being unable to pay its debts, with grave consequences for the euro area.”

The vote on the new Greek measures, which include shutting public-sector enterprises and selling more assets is expected before the end of the month. In the interview in late May, Mr. Ackermann echoed the warnings that got him into hot water a year ago, saying the biggest challenge now was to “convince people of any country to help Greece even more.”

He called on European governments to devise a “Marshall Plan” for Greece that would offer more aid, while forcing the country to sell billions of euros’ worth of state assets, and provide a framework for rebuilding its economy.

European governments have largely followed that advice. At the same time, however, Mr. Ackermann has opposed the German government and sided with his friend Mr. Trichet at the European Central Bank in arguing against restructuring the Greek debt, which would force investors — and banks — to share Greece’s pain.

Any restructuring, Mr. Ackermann cautions, could be even worse than the crisis brought on by Lehman’s collapse. It could threaten the stability of major financial institutions, as well as the European Central Bank, which hold huge amounts of Greek debt, he says.

Worse, he says, there is a “very serious” risk of contagion in the euro area if the situation in Greece causes investors to lose confidence in other fragile European countries. “If you could isolate the Greek case, then we’d be taking a very different approach,” he says.

JOSEF ACKERMANN stands on the stage of the Festhalle, an arena here. The hall is almost full. Above him, his own face fills a giant video screen as he reads from a teleprompter.

This is the scene inside the annual shareholder meeting of Deutsche Bank, which was held in May. Mr. Ackermann’s speech is being broadcast into adjacent rooms, where silver-haired shareholders line up at buffet tables to collect the free food that is known in Germany as the “wurst dividend.” His words even boom from speakers in the restrooms. Outside, a handful of protesters hand out leaflets calling for Deutsche Bank to be broken up.

On the dais, Mr. Ackermann alludes to the loss of confidence that the banking industry suffered as a result of the financial crisis, but says Deutsche Bank’s reputation remains solid.

“Especially over the past few years,” he tells the shareholders, “Deutsche Bank has further enhanced the good reputation it enjoys all over the world.”

He continues: “No business transaction is worth risking this good reputation and the bank’s credibility.”

A few people in the audience boo. Most applaud.

In fact, the reputation of Deutsche Bank, and its leader, has taken a few hard blows at home and abroad. Deutsche Bank was a big player in those toxic collateralized debt obligations that Wall Street sold during the American mortgage bubble. This year, a Senate report about Wall Street and the financial crisis concluded that Deutsche Bank continued to churn out C.D.O.’s even as the market was collapsing. A top trader at the German bank also wagered against some of the mortgage bonds inside those C.D.O.’s, the report found, much the way Goldman Sachs has been accused of betting against its own clients. (Goldman denies that.)

In March, Germany’s highest appeals court ruled that Deutsche Bank must compensate a small-business customer for losses incurred as a result of another type of derivative: interest-rate swaps. That decision could compel Deutsche Bank to compensate other business customers who contend that they were not warned of potential huge losses from the instruments. The ruling marred Deutsche Bank’s image as friend of the Mittelstand, the midsize businesses that underpin the German economy.

Back in the United States, the federal government filed a civil suit in May that accuses a Deutsche Bank subsidiary, MortgageIT, of lying about the quality of home loans it handled under a government program and demanding that the bank repay hundreds of millions of dollars of losses on the loans.

Mr. Ackermann says that almost all the transactions at issue in that suit occurred before his bank acquired MortgageIT, a real estate investment trust, in 2007. Since the crisis, he says, the culture of Deutsche Bank has changed.

NEARLY a year after Congress passed rules to rein in banks in the United States, America’s financial overhaul is mired in dissent. Europeans, too, want to get tougher on banks, but, as in the United States, the banks are pushing back.

Mr. Ackermann says he agrees that more banking regulation is needed, but warns that too much regulation would discourage banks from lending — the argument that so irks economist critics.

It would be impossible to eliminate the risk of financial crises without hurting the economy, Mr. Ackermann says. “If you wanted to reduce the probability to zero,” he says, “we would have trouble financing the real economy.”

On that point, many economists agree. But Mr. Ackermann says too much anger has been heaped upon banks like his. He boasts of how Deutsche Bank made it through the panic without direct government aid — another contention that annoys his critics. In fact, Deutsche Bank received the equivalent of a back-door bailout from American taxpayers when the United States government intervened to prevent the American International Group, the insurer, from collapsing.

Mr. Ackermann says Deutsche Bank’s direct exposure to A.I.G. would have resulted in a net loss of a few hundred million dollars, something that the bank would have been able to absorb.

But he acknowledges that if A.I.G. had been allowed to fail, Deutsche Bank — as well as the entire global financial system — would have been in much more trouble. “Of course, in that sense, we are very grateful” for governments’ support of the financial system, he says.

Warm words aside, some argue that Mr. Ackermann has continued to take big risks even after the harrowing events of 2008. Simon Johnson, the former chief economist at the International Monetary Fund and a prominent critic of Wall Street, has called Mr. Ackermann “one of the most dangerous bankers in the world.” The reason, Mr. Johnson has said, is that Mr. Ackermann is still pushing Deutsche Bank for a 25 percent annual return on equity, before taxes. Such a goal, Mr. Johnson says, is bound to encourage its bankers and traders to take more risks and employ lots of leverage, which can fuel profits on the way up but amplify losses on the way down.

Mr. Hellwig, the economist, says such hefty returns are possible only for banks that know they would be rescued if they ran into trouble — in other words, for banks too big to fail. Banks themselves would never lend to businesses that had such leverage, he says.

Mr. Ackermann maintains that his bank has drastically cut back on risky businesses. For example, he says, it no longer trades with its own money. He has promised to put more emphasis on traditional forms of banking, like providing advice and lending to midsize businesses. Last year, Deutsche Bank extended its German retail network by acquiring Postbank, which offers banking services from post offices.

Still, Deutsche Bank continues to rely heavily on its investment banking unit for profit. The unit, called the corporate and investment bank group, is based in London and reported a pretax profit of 2.56 billion euros in the first quarter. That amounted to about 85 percent of Deutsche Bank’s total pretax profit.

Deutsche Bank also belongs to a small circle of global banks that account for a huge proportion of international derivatives trading, prompting the European Commission to investigate the institutions for possible domination of the market for credit default swaps, an instrument used to insure debt.

MR. ACKERMANN seems such a fixture that it is hard to imagine Germany without him. He has already served almost as long as Hermann J. Abs, who led Deutsche Bank back to international prominence in the 1950s and 1960s, when Germany was rebuilding after World War II.

Mr. Ackermann’s contract has already been extended once, until 2013, and he vows that he won’t stay on beyond then. Already, there is fevered speculation about who may replace him.

Anshu Jain, the head of Deutsche Bank’s investment banking unit, is often mentioned. But Mr. Jain, who grew up in India, is not fluent in German and would be hard-pressed to take over the political obligations that come with the job of running Deutsche Bank.

Under one scenario, Mr. Jain would share top duties with Axel Weber, the former president of the German Bundesbank, who would handle interaction with government and central banks.

Mr. Ackermann says the decision on who will replace him lies with Deutsche Bank’s supervisory board. But, like so many things in European finance, he will no doubt play a role in choosing his replacement. “It is not my job,” he says, but “I am, of course, involved.”

June 12, 2011

In Greece, Some See a New Lehman

Prime Minister George Papandreou of Greece, right, with Finance Minister George Papaconstantinou in Parliament this month. Alexandros Vlachos/European Pressphoto Agency

LONDON — Bond traders and officials at the European Central Bank have been unified in their warnings that a restructuring of Greece’s debt would set off an investor panic similar to the one that followed the bankruptcy of Lehman Brothers.

Others, however, have argued that Greece’s debt of 330 billion euros, or $473 billion, while too large for the country to bear, is small enough to allow banks and other institutions to take a loss without bringing the world financial system to its knees.

But the comparisons between Greece and Lehman grew more frequent last week as global markets reeled, spurred in part by the view that Germany’s insistence that private investors participate in a second rescue package for Athens would overcome the objections of the European Central Bank.

“It is a valid concern,” said David Riley, head of sovereign ratings at Fitch. “The Rubicon would be crossed — we would have a sovereign default event and that can be quite a shock, not just for the peripheral countries but for Spain and beyond.”

The thinking goes like this: though banks and other investors have done much to pare their Greek holdings in the last year, if they are forced to take a loss, and the ratings agencies declare Greece in default, investors would start selling in a panic. And they would not sell just the bonds of countries struggling with debt — Portugal, Ireland, Spain and Italy. In a hasty retreat into cash, traders would unload more liquid assets as well, everything from high-grade corporate bonds to American and emerging market equities — as occurred in 2008 after Lehman failed.

To be sure, much has to be wrong for the European debt crisis to approximate what happened after Lehman failed in 2008. Not only did banks, hedge funds and insurance companies immediately seize up, but the effect on the broader global economy was also striking as trade flows nearly ground to a halt.

Analysts point out that the global financial system has survived sovereign defaults in the past, including Russia’s in 1998 and Argentina’s in 2001.

Also, since the prospect of a Greek default has been foreshadowed for so long, financial institutions have had sufficient opportunity to reduce their holdings of Greek debt. But in doing that, the private sector has passed much of the exposure to Greece and other troubled economies in Europe to public sector entities like the European Central Bank and the International Monetary Fund. That means that if a restructuring comes, the taxpayer — more than the private investor — will pay.

Lending weight to the fears of another Lehman crisis, regulators are warning that in such a situation, even super-safe money market funds may not provide the risk-free refuge they proclaim to offer.

According to a recent report by Fitch, as of February, 44.3 percent of prime money market funds in the United States were invested in the short-term debt of European banks. Some of those institutions, like Deutsche Bank and Barclays, do not have dangerous Greek exposure. But some of those funds also hold shares of French banks like Société Générale, Crédit Agricole and BNP Paribas, which do have significant Greek bond holdings — about 8.5 billion euros, or, in the case of BNP and Société Générale, about 10 percent of their Tier 1 capital.

This month, the president of the Federal Reserve Bank of Boston, Eric S. Rosengren, warned that the large share of European banks in American money market fund portfolios posed a Lehman-like risk if, in the wake of a default in Europe, panicky investors took their money out all at once.

“Money market mutual funds have the potential to be impacted should there be unexpected international financial problems emanating from Europe,” he said in a speech at Stanford.

Jean-Claude Trichet, president of the European Central Bank. Bank officials have warned against a Greek debt restructuring. Kai Pfaffenbach/Reuters

The idea that European banks, not those in the United States, would take a hit if Greece defaulted, has sustained a view that such a crisis might be containable. But according to a recent analysis by The Street Light financial blog, this misses the point. It will be American banks and insurance companies that will have to make the lion’s share of default insurance payments to European institutions if Greece fails.

Citing recent data from the Bank for International Settlements, the blog points out that in the event of a Greek default, direct creditors would be on the hook for 70 percent of the losses, with credit default insurance picking up the rest. Thus, if one includes credit default exposure, American exposure to Greece increases from $7.3 billion to $41.4 billion.

Again, a pinch of salt: such numbers in no way approach the wild bet that the American International Group made on the United States housing market, a wager that led to the company’s collapse. But they are a reminder that, as was the case with Lehman Brothers, the links that directly or indirectly bind investors to Greece extend far beyond Europe.

It is still unclear what type of loss private sector banks would suffer if the Germans overcame the central bank’s objections and got acceptance for their proposal for “reprofiling,” which would have investors exchange their shorter-term Greek debt for longer-term paper.

The ratings agencies have already determined that if there is any indication that banks are being forced to participate in such a reprofiling, that would constitute a “distressed debt exchange” and violate the terms of the original contract between Greece and its creditors.

But for many investors, such contractual niceties are largely irrelevant. In their view, it is only a question of when, not if, Greece defaults. They are already preparing for the Lehman-style panic that they believe will follow.

“This is not just about Greece,” said Steffen Gruschka of SG Alpha, a hedge fund focused on emerging markets in Europe. ”It is about the effect that a default will have on credit default swaps in Spain and Italy. You could see a situation where there is a domino effect.”

Mr. Gruschka said he had been broadly reducing his equity positions and he now has 70 percent of his portfolio in cash.

The stock market sell-off Friday, in which the Dow Jones industrial average fell below 12,000 for the first time in three months, suggested that Mr. Gruschka was not alone in adopting a “risk-off approach,” as investors now term a bias against higher-returning but riskier assets like stocks, commodities and richer-yielding bonds.

Indeed, the data has been suggesting just such a dynamic for a while now.

According to EPFR, a provider of fund flow data, American and emerging market equity funds experienced continued outflows in the first week of June, with investors redeeming $7.74 billion from equity funds and putting $5.98 billion into less-risky bond funds — a 47-week high.

To some, such a material shift suggests that the real worry should be the question of how larger indebted countries outside the euro zone — like Britain, Japan and even the United States — face the challenge of reducing deficits as their economies stagnate.

“We are too fixated on Greece,” said Stephen Jen, a widely followed currency expert who is now in the process of setting up his own hedge fund. “You can bail out Greece, but how much is it going to cost to bail out the United States and Japan?”

June 13, 2011

Agency Cuts Greece’s Debt Rating Again

LONDON — Standard & Poor’s, the credit ratings agency, lowered its grade on Greek debt to CCC on Monday in the latest sign that the market believes that Greece will be forced to default on its debt. The three-notch downgrade makes Greece’s debt the lowest-rated in the world by S.& P., a spokesman for the agency said.

The downgrade comes at a particularly awkward time for Greece. The government is trying to persuade legislators to accept a fresh set of austerity measures. At the same time, Germany, the dominant economy in the 17-member euro zone, is proposing that private sector bondholders accept some form of a loss on their Greek bonds as a condition for a broader rescue package for Greece that could approach 100 billion euros ($143 billion).

S.& P. made its announcement less than two weeks after Moody’s Investors Service also lowered Greece’s credit rating, putting it three notches lower to Caa1 and saying that more downgrades were possible.

While one more downgrade for Greece is unlikely to change matters much, it does put more stress on Germany, which has been facing pressure from the European Central Bank not to restructure Greek debt.

In its news release, S.& P. said that its downgrade reflected the reality that any form of debt exchange — where bondholders would trade their shorter-term debt for longer-dated paper — would be seen as harmful to creditors and thus, in the eyes of S.& P., would be equal to a default. S.& P. said if that occurred, Greece’s rating would reach the level of D.

“It is currently the lowest-rated sovereign in the world,” said John Piecuch, a communications director for S.& P. “We have ratings on 126 sovereigns and that is the lowest.”

The ratings agency also cited the continuing depths of the Greek economic slump, pointing out that the unemployment rate was now at 16.2 percent. Greece has financing needs of close to 160 billion euros ($229 billion) through 2014. Given these steep requirements and the difficulties of the government in pushing through its austerity package, S.& P. concluded that some form of restructuring was now more likely than not.

“In our view Greece is increasingly likely to restructure its debt in a manner that, under the conditions of any package of additional funding provided by Greece’s official creditors, would result in one or more defaults under our criteria,” S.& P. said in a research report accompanying the announcement.

It added that the risks were rising for implementing borrowing programs from Europe and the International Monetary Fund, given the country’s financing needs and political disagreements over the conditions that Greece’s partners are demanding.

When Moody’s lowered Greece’s credit rating on June 1, it also cited growing risks, noting that Greece would not be able to stabilize its debt position without restructuring. Moody’s mentioned that Europe and the I.M.F. were increasingly likely to require that private creditors take part in restructuring the country’s debt.

Greece’s Finance Ministry said on Monday that S.& P.’s move overlooked the government’s commitment to tough fiscal efforts to repair public finances and remain a member of the 17-member euro currency group, according to Reuters.

“The decision also overlooks the government’s moves to avoid any problems relating to Greece’s contractual obligations, as well as the will of all Greeks to plan our future inside the euro zone,” the Finance Ministry said in a statement reported by Reuters.

The S.& P. move puts Greece’s rating below that of Pakistan, Ecuador, Fiji, Jamaica and Granada, which have ratings of B-minus and are seen as having the capacity to meet their financial commitments but with the likelihood that adverse conditions would make it difficult.

Austerity efforts by the Greek government have ignited public opposition, with daily protests occurring in front of the nation’s Parliament this month. Greece’s debt challenges were highlighted last week when Jean-Claude Trichet, the president of Europe’s central bank, continued a disagreement with the government of Germany by rejecting any suggestion that Greece’s creditors should be required to help with a rescue plan.

Christine Hauser reported from New York.

NZZ Online, DDP   14. Juni 2011, 14:07

Die Köpfe der Eurokrise
Wer jetzt über die Griechenland-Hilfe entscheidet

Steht im Zentrum der Eurokrise: Griechenland (im Bild die Nationalbank in Athen) (Bild: Keystone / ddp / Thanassis Stavrakis)
Deutschlands Finanzminister Wolfgang Schäuble, der Vorsitzende der Euro-Gruppe Jean-Claude Juncker, der scheidende Chef der Europäischen Zentralbank Jean-Claude Trichet und der EU-Währungskommissar Olli Rehn entscheiden, wie Griechenland gerettet wird.
(ddp) Bis zum kommenden Montag muss die Griechenland-Rettung stehen, damit die Eurozone nicht auseinanderbricht. Wer will was in der Schuldenkrise? Die Positionen der vier wichtigsten Köpfe im Überblick.

Wolfgang Schäuble
Der Bundesfinanzminister gehört zu den überzeugtesten und glaubwürdigsten Europäern, die in der Schuldenkrise den Ton angeben. Nichtsdestotrotz verfolgt Schäuble (68) einen in Athen und Brüssel als hart empfundenen Kurs. Sein Kernanliegen ist eine «substanzielle» Beteiligung des Privatsektors an künftigen Rettungsaktionen.

Der deutsche Finanzminister Wolfgang Schäuble (Bild: Reuters)

Ein Motiv dabei ist es, die Zustimmung der deutschen Öffentlichkeit und des Parlamentes zu gewinnen. Nicht allein der Steuerzahler, sondern auch Banken und Investoren sollen zur Kasse gebeten werden, um Griechenland und damit den Euro zu retten.

Doch die Gläubigerbeteiligung ist ein heikles Instrument. Denn wenn die Investoren wissen, dass sie bei Finanznöten eines Staates Geld verlieren, verlangen sie vorab von dem betreffenden Land höhere Zinsen für die Anleihen. Schäuble und seine Bundeskanzlerin Angela Merkel wollen das so. Denn um niedrige Zinsen zu erhalten, werden alle Regierungen so dazu gezwungen, solide zu haushalten.

Mit seinem Kurs, den Schäuble kürzlich in einem Brief an seine Kollegen ausführte, hat sich der Finanzminister zum Vorkämpfer mehrerer Euro-Staaten gemacht. In Finnland, den Niederlanden, in der Slowakei und in Slowenien gibt es ebenfalls erheblichen Widerstand gegen neue Griechenlandhilfe ohne grundlegenden Kurswechsel.

Jean-Claude Juncker
Der luxemburgische Ministerpräsident und Vorsitzende der Euro-Gruppe ist der lauteste Gegenspieler Schäubles. Juncker (56) vertritt einen entgegengesetzten Ansatz: Er will Staaten in Not mit gemeinsamen Staatsanleihen der Eurozone helfen. Schuldscheine mit dem Siegel der Gemeinschaft wären zu wesentlich geringeren Zinsen zu haben.

Jean-Claude Juncker (Bild: Reuters)

Dadurch erhielten die abgehängten Staaten den notwendigen Spielraum für ihre Haushalts- und Wirtschaftsreformen, meint Juncker. Aus Berliner Sicht entfiele so aber der Zwang für harte Massnahmen. Die Sorge: Die massiven Wettbewerbsungleichgewichte in der Eurozone würden nicht verschwinden, die Währungsunion bliebe auf Dauer eine instabile Zweiklassengesellschaft.

Über seinen Eurobonds-Vorschlag hinaus hat Juncker nur wenige Akzente gesetzt. Sein Ruf als Krisenmanager hat zudem durch mehrere voreilige Aussagen gelitten. So verkündete er vorvergangenen Freitag, die nächste Tranche der Notkredite für Griechenland werde freigegeben, obwohl die Entscheidung des Internationalen Währungsfonds (IMF) und der Euro-Finanzminister noch immer nicht getroffen wurde.

In Berlin und anderen Hauptstädten ist man daher unzufrieden mit dem Eurogruppenchef. Anders als Schäuble steht Juncker im eigenen Land nicht unter massivem Rechtfertigungsdruck für neue Milliardenhilfen. Deswegen lässt er sich gerne als Anwalt der europäischen Solidarität feiern. Sein Einfluss ist aber begrenzt.

Jean-Claude Trichet
Der scheidende Chef der Europäischen Zentralbank (EZB) hat von Beginn an massiv für Rettungsmassnahmen geworben. Mit der Warnung vor einer «systemischen Krise» brachte Trichet (68) Merkel im Frühjahr 2010 mit dazu, ihren Widerstand gegen ein Notprogramm für Griechenland aufzugeben. Zudem ist Trichet einer der schärfsten Gegner einer Umschuldung Athens.

Jean-Claude Trichet, Präsident der Europäischen Zentralbank, während der Pressekonferenz in Basel. (Bild: Georgios Kefalas / Keystone)

Aus seiner Sicht würde die Mithaftung des Privatsektors die Schuldenkrise verschlimmern: Der Markt werde dann auch eine Pleite Irlands, Portugals oder Spaniens nicht mehr ausschliessen, die Zinsen würden weiter hochschiessen und der gesamten Eurozone drohe der Kollaps. Trichet steckt dabei in einer Zwickmühle. Denn unter seiner Führung hat die EZB selbst einen Grossteil der griechischen Staatsanleihen übernommen. Von einem Schuldenschnitt würde die Bank also auch selbst hart getroffen.

Für Aufsehen sorgte Trichet Anfang Juni, als er als frisch gekürter Karlspreisträger die Gründung eines europäischen Finanzministeriums forderte. Dieses soll in brenzligen Situationen direkt in die Entscheidungen von Euro-Staaten eingreifen können.

Da aber schon der Versuch der EU-Kommission, weitgehend automatische Sanktionen gegen Schuldensünder verhängen zu können, am französischen und deutschen Widerstand scheiterte, gilt Trichets jüngster Vorschlag als nicht durchsetzbar. Dahinter aber steht der gleiche Ansatz wie bei Schäuble: Beide wollen erreichen, dass die zur Sicherung der Eurozone notwendigen harten Entscheidungen auch getroffen und umgesetzt werden.

Olli Rehn
Der EU-Währungskommissar hat sich wie Trichet lange gegen eine Privatgläubigerbeteiligung bei der Griechenland-Rettung gestemmt. Inzwischen hat Rehn (68) sich aber Schäubles Druck gebeugt, will die Einbeziehung aber so gering wie möglich halten. Er will verhindern, dass der Schritt als Kreditausfall eingestuft würde, und wirbt nun für eine Lösung auf Basis der Wiener Initiative. Das hiesse, Banken würden ihre Anleihen freiwillig länger halten.

EU-Wirtschaftskommissar Olli Rehn beim Verlassen einer Pressekonferenz am 1. März in Athen. (Bild: Reuters)

Der bedächtige Finne hat in der Schuldenkrise eine Vermittlerrolle übernommen. Er sieht in Staaten wie Deutschland eine Hilfsmüdigkeit und mahnt die Griechen zugleich, ihre Reformmüdigkeit zu überwinden. Sauer ist Rehn über den öffentlich ausgetragenen Streit zwischen den Hauptstädten und vorschnellen Äusserungen, weil er um die Glaubwürdigkeit bangt. «Wir müssen uns verbal disziplinieren», sagt Rehn.

Grundsätzlich pocht Rehn auf einen grösseren Einfluss der EU-Kommission als Lehre aus der Schuldenkrise. Aus seiner Feder stammt ein ganzes Paket an Gesetzesvorschlägen, mit dem die wirtschaftliche Zusammenarbeit gestärkt und der Spielraum der Nationalstaaten eingeschränkt werden soll. Darüber hinaus wirbt auch Rehn für europäische Anleihen, mit denen Wackelkandidaten ihre Schulden leichter abtragen könnten.

Mit mehreren Vorstössen, etwa zu automatischen Sanktionen gegen Defizitsünder, ist Rehn vorerst gescheitert. Allerdings gibt er noch nicht auf. Bei der anstehenden Verabschiedung seiner Gesetzesentwürfe zur Stabilitätspaktreform will er eine Revisionsklausel einfügen. Diese soll sicherstellen, dass zu einem späteren Zeitpunkt die Reform reformiert werden kann. Ob er selbst dann noch in Brüssel sitzt, ist offen. Im Herbst will sich Rehn entscheiden, ob er sich 2012 um die finnische Präsidentschaft bewirbt.

Washington Post    June 14, 2011

Bernanke to Congress: Don’t allow the U.S. to default
By Felicia Sonmez


Federal Reserve Chairman Ben Bernanke said Tuesday that “maintaining the status quo is not an option” when it comes to the debate over addressing the country’s soaring debt. But he also warned Congress that a failure to raise the debt ceiling this summer is also not an option.

“I fully understand the desire to use the debt limit to force a necessary and difficult fiscal policy adjustment, but the debt limit is the wrong tool for that important job,” Bernanke said at a summit on lowering the U.S. budget deficit hosted by the Committee for a Responsible Federal Budget and the New America Foundation.

“Failing to raise the debt ceiling in a timely way will be self-defeating if the objective is to chart a course for the better fiscal situation for our nation.”

Bernanke delivered the opening remarks at the event featuring more than a dozen lawmakers and economic luminaries, including House Budget Committee Chairman Paul Ryan (R-Wis.), Sen. Michael Bennet (D-Colo.) and former Sen. Alan Simpson (R-Wyo.). The Fed chief admonished lawmakers who have argued that failing to raise the $14.3 trillion debt ceiling wouldn’t necessarily cause the country to default on its obligations.

“Failure to raise the debt limit would require the federal government to delay or renege on payments for obligations already entered into,” Bernanke said. “In particular, even a short suspension of payments on principal or interest on the Treasury’s debt obligations would cause severe disruptions in financial markets and the payment system, induce rating downgrades of the U.S. government debt, create fundamental doubts about the creditworthiness of the United States and damage the special role of the dollar and of Treasury securities in global markets in the longer term.”

Even the prospect of the country defaulting on its debt has dangers, Bernanke said, including a greater chance of “a sudden fiscal crisis.”

As Bernanke was speaking at the event, Vice President Biden was holding his sixth meeting at the Capitol with a group of lawmakers who are trying to forge a deficit-reduction plan in exchange for a vote to raise the debt ceiling. The bipartisan group of senators and House members is aiming for an outline by the end of the month. The U.S. Treasury has set an Aug. 2 deadline for raising the country’s borrowing limit.

While warning of the pitfalls of allowing the country to default on its debt, Bernanke also stressed what he said were the benefits of negotiating a credible deficit-reduction plan: lower interest rates, higher consumer confidence and greater sustainability.

He urged that any budget deal should “be fair to both current and future generations” and should “reform the government’s tax policies and spending priorities so they not only reduce deficit but also enhance the long-term growth potential of our economy.”

“We cannot reasonably expect to grow our way out of our fiscal imbalances, but a more productive economy will ease the trade-offs that we face,” Bernanke said.

Sen. Pat Toomey (R-Pa.), who has been the leading proponent of the argument that the government can avoid default by prioritizing its debt payments, responded to Bernanke in a statement Tuesday night.

“As I’ve said from the start, it is clear that the Treasury Department can prioritize debt service and still fund principal and interest payments on our debt obligations after we hit the debt limit,” Toomey said. “Absolutely nothing in Chairman Bernanke’s comments today refutes this important point. In fact, he acknowledges this possibility. I therefore hope he would also speak out publicly and assure the markets about this certainty, rather than just emphasizing the potentially disruptive effects if the Treasury has to delay payments for other parts of the government.”

FT.com    Jun 14 2011  22:11

New Greek bank plan ‘set to cost €20bn’
By Peter Spiegel in Brussels and Quentin Peel in Berlin

A German-inspired plan to reschedule Greek debt could force eurozone governments to provide up to an extra €20bn to avoid a meltdown of its financial sector, European finance ministers have been warned.
A briefing paper circulated by the European Commission, and seen by the Financial Times, warned the extra money may be needed to recapitalise Greek banks following a proposed maturity extension of Greek government bonds, which would be classified by rating agencies as a “selective default”.

A further cash reserve may be required for emergency Greek bank liquidity if the European Central Bank refuses to accept downgraded bonds as collateral. Ministers have been told all the Greek collateral – some €70bn – might have to be replaced.

Opponents of Greek default, led by Europe’s central bankers, warned of the German debt exchange plan’s drawbacks.

“If despite everything you try to reduce the debt and you provoke a risk of default, you’ll have to finance the entire Greek economy,” said Christian Noyer, Bank of France governor.

“All in all, the costs seem to outweigh the benefits,” said Mario Draghi, incoming ECB president. The ministers, meeting in Brussels on Tuesday, are looking to involve private creditors in a new Greece rescue programme, to gain parliamentary support in countries such as Germany, the Netherlands and Finland without precipitating a disorderly default by Athens.

Ministers are considering three options for private sector involvement, which have been set out in a document circulated by the European Commission.

The most drastic is for a voluntary debt exchange, involving an extension of maturities on Greek government bonds to buy time for Athens to cope with its debt crisis. Wolfgang Schäuble, German finance minister, suggested a seven-year extension.

European officials calculate a successful debt exchange with 100 per cent participation would “virtually eliminate the need for official financing” for the next five-and-a-half years, on top of the €57bn still to be paid from Greece’s €110bn rescue programme agreed last year.

But the plan could also leave the eurozone responsible for propping up Greece’s financial system.

The second and third options are for a voluntary “rollover” of bonds, less likely to trigger a bond downgrade, and therefore favoured by the ECB and France, in particular.

One would be a co-ordinated rolling-over of bonds at maturity, probably organised by Athens itself, and designed to enable the broadest possible participation. The third option, likely to contribute the lowest level of private creditor participation in any rescue plan, is for an informal rollover of bonds.

FT.com    Jun 14 2011  22:23

Paying Greek debt

“Something will turn up.” Charles Dickens, the Victorian novelist, made the expression famous 160 years ago when he put it in the mouth of Wilkins Micawber, the perennial optimist of David Copperfield. At times it has seemed as if Micawberism has defined the response of European policymakers to the Greek debt emergency. But not much has turned up since May 2010, when the European Union and International Monetary Fund hastily arranged a three-year, €110bn loan for Greece.

The original hope was that Greece would be strong enough to return to the capital markets next year, but this has proved wide of the mark. Another costly EU-IMF rescue of the eurozone’s weakest link is therefore on its way. Whether this will help Greece to restore robust economic growth, achieve a primary budget surplus, issue bonds at affordable prices and avoid an appeal for debt relief is anyone’s guess. But European governments clearly think it is worth a try.

Fearing the impact of a sovereign default on their banks, not to mention European monetary union, Europe’s leaders chose last year to diagnose Greece’s condition as a liquidity problem rather than a case of incurable insolvency. Now they appear belatedly to be drawing the logical consequences of this step. A German proposal to persuade private holders of Greek bonds to swap them for bonds of longer maturity is losing traction in other EU capitals. It never appealed, in any case, to the European Central Bank or the European Commission, largely because it would have placed Greece in default and raised the danger of turmoil spreading through European bond markets.

Eurozone leaders are instead likely to settle for some version of the ECB’s preference for a voluntary rollover of debt that will mature between now and summer 2014. The main advantage of this plan is that it might avoid a declaration of Greek default and thus limit market contagion. But with private creditors continuing to shed their holdings of Greek bonds, and with tens of billions of euros in fresh EU-IMF funds heading for Greece, the reality is that EU governments are fast on their way to holding all Greece’s debt.

There is nothing wrong with this, if governments truly believe that Greece will follow their orders and overhaul its uncompetitive and often corrupt economic culture so comprehensively that it will eventually pay its debts. But whether this belief is justified is another matter.

July 24, 2011

Greek Bailout Negotiator Predicts Some Benefits for Banks

The finance industry’s lead negotiator on debt relief for Greece said that though a deal reached last week would lead to write-offs at some institutions, the move would help assuage fears about the health of European banks.

Many analysts have been skeptical that the agreement reached Thursday by European leaders, which calls for banks to accept a 21 percent cut in the value of their Greek bonds, will bring lasting relief to Greece or ease market tensions.

But Charles H. Dallara, managing director of the Institute of International Finance, whose members include most large global banks, said the accord would help prevent fears about Greece from infecting other countries like Spain and Italy and undermining confidence in banks.

“The uncertainty swirling around this deal was catalyzing negative contagion in two directions,” Mr. Dallara said. “Now there is a sense that the losses are understood and broadly viewed as quite manageable.”

Mr. Dallara, who is based in Washington but spent five weeks in Europe before the deal was announced last week, said by telephone on Sunday that the rescue package would also give Greece a chance to turn around its dysfunctional economy.

“There is no other economy in Europe within miles of Greece in terms of distortions and imbalances,” he said. “If one can create conditions for growth, that will make all the difference. That will be the ultimate test of whether this will work.”

The Institute of International Finance has estimated that the deal will cost banks and other investors 54 billion euros, or $78 billion, but Mr. Dallara acknowledged that it was difficult to determine the real cost.

Some banks have had losses from holdings of Greek debt and others have not. Banks that swap their Greek bonds for new ones with lower interest payments, but more security, will take write-offs that will hurt earnings.

Before the deal, the European Central Bank firmly opposed any plan that credit rating agencies would see as a partial default, as is the case with this plan. But Mr. Dallara said that banks and government negotiators realized early in the talks that a default would be hard to avoid.

Rather, the talks focused on finding a way for investors to contribute, as Germany demanded, but in a manner acceptable to the banks and other bondholders. Mr. Dallara said a turning point in the talks came at a meeting in Paris in mid-July, when European governments agreed to a plan for banks to swap Greek debt for new securities backed by collateral.

From that point, talks focused on details of the plan, Mr. Dallara said. In the days before the announcement of the deal late Thursday in Brussels, Josef Ackermann, chief executive of Deutsche Bank and chairman of the institute, used his political acumen to complete the package with European leaders.

Mr. Dallara noted that Greece still faced a huge struggle, but said, “I think this gives Greece the wind at its back that it needs.”