Category Archives: Notes

Greece’s Financial Position Is Widely Misreported

In an FT letter to the editor, Ian Ball, the Chair of CIPFA International (Chartered Institute of Public Finance and Accountancy), argues that Greece’s financial position is widely misreported. He writes:

While the debt burden is commonly cited as being between 175 and 180 per cent of gross domestic product, this number is incorrect and indefensible because it is based on the face value of Greece’s debt that doesn’t take into account long maturities and concessional interest rates, as well as grace periods.

Greek debt, calculated on an International Public Sector Accounting Standards (IPSAS) basis, is significantly lower, and at the end of 2013 was 68 per cent of GDP. If this is not an appropriate method for measuring debt, then every company on major stock exchanges around the world has got its debt measurement wrong. In neither accounting standards nor economic principle is debt measured at face value. This pervasive misunderstanding of Greece’s real fiscal position has seen agreements reached between Greece and its creditors that do not address the real problem and instead may actually intensify it.

See also my earlier blog post.

Sovereign Debt Seniority

In a Vox column, Matthias Schlegl, Christoph Trebesch, and Mark Wright document an implicit seniority structure of external sovereign debt: IMF > Multinational > Bonds > Bilateral > Banks > Trade Credit (see the figure).

They argue that Greece’s recent default on the IMF constitutes an outlier.

… Greece in 2015 is clearly an outlier case, having defaulted on the most senior creditor (the IMF), while continuing to service historically more junior creditors. The evidence also suggests that the Eurozone rescue loans, which are essentially bilateral (government-to-government) credit, are likely to be a junior creditor class going forward. The evidence also rationalises why Greece may have an interest in exchanging the debt it owes to the IMF and the ECB into loans to the European Stability Mechanism, which is likely to be junior debt in the future, as discussed in the run-up to the July Eurozone summits. Policymakers should be aware of the associated changes in seniority and repayment incentives.

trebesch fig3 7 aug

Swiss German, Standard German, and Swiss Standard German

In the NZZ am Sonntag, Reto Hunziker argues that the schooling system in the German speaking part of Switzerland undermines students’ ability to speak proper German. Hunziker wants the Swiss to speak either their Swiss German dialect or Standard German—not the Swiss German dialect or Standard-German-As-Spoken-In-Schools-In-Switzerland.

Wikipedia article on High German languages. Wikipedia article on German dialects.

Europe, Monetary Union and Fiscal Union

In a recent blog post, John Cochrane criticizes the common wisdom that, on economic grounds, the Euro was a bad idea for Europe.

He responds to an earlier New York Times article by Greg Mankiw who argued that conventional wisdom: A monetary union requires (1) cross-subsidization/insurance across regions (“fiscal union”) or (2) significant labor mobility across regions. The US has both, Europe does not; Europe therefore needs regional monetary policy instruments and fluctuating exchange rates to dampen the consequences of adverse regional economic shocks.

Cochrane retorts

I am a big euro fan. … I am also a big meter fan. I don’t think each country needs its own measure of length, or to shorten it when local clothiers are having trouble and would like to raise cloth prices.

Cochrane takes aim at the “deeply old-Keynesian” notion that small regions with fewer inhabitants than the Los Angeles metro area (Greece or Ireland say) are exposed to regional “demand” shocks which require regional fiscal or monetary policy responses. In his view, these are small open economies, and demand shocks arise externally.

Cochrane questions the characterization of the US as “fiscal union.”

In the US, we have Federal contributions to social programs such as unemployment insurance. Europe has the common agricultural policy and many other subsidies. We do not have systematic, reliably countercyclical, timely, targeted, and temporary local fiscal stimulus programs. Just how big is the local cyclical variation in state or local level government spending or transfers? (And why does fiscal union matter so much anyway? If you’re a Keynesian, then local borrow and spend fiscal stimulus should be plenty. The union matters only when countries near sovereign default and can’t borrow.) … Yes, both US and Europe have some pretty large cross-subsidies. But most of these are permanent. … Monetary policy has at best short-run effects, so the argument for currency union has to be about local cyclical, recession-related variation in economic fortunes, not permanent transfers.

He also points out that US monetary union far precedes US “fiscal union.” (And he questions the notion that “tight fiscal policy” lies at the root of Greece’s problems and easy monetary policy would have helped.)

Regarding labor mobility, Cochrane emphasizes again that it is cyclical labor mobility which should matter according to the conventional wisdom. He doubts that there are large differences in cyclical labor mobility between the US and Europe.

Not only are the gains from monetary decentralization in Europe small, according to Cochrane, but the benefits from monetary centralization are large, because of gains in credibility.

When Greece and Italy joined the euro, they basically said, defaulting and inflating now will be extremely costly. They were rewarded for the precommitment with very low interest rates. They blew the money, and are now facing the high costs they signed up for. But that just shows how real the precommitment was.

And Cochrane makes the point that policy should address underlying frictions:

The case for separate currencies is to protect the economy from sticky wages, sticky prices, and sticky people. But none of these stickinesses are written in stone. A plausible answer to my question about pre-new deal US is that prices and wages were not sticky (whatever that means) before the era of regulation. Well, that is a loss, and only very imperfectly addressed by artful devaluation of the currency.  Not every block can have its own currency, so local and industry variation within a country remains hobbled by sticky prices, wages, and people. If sticky wages,  prices and people are the central economic problem, we ought to have a lot of policies to unstick them. We do the opposite, and Europe even more so. The very social programs that Greg implicitly praises for fiscal stimulus tie people to location and undermine labor market flexibility.

He concludes:

So I think a lot of the conventional view seems to think implicitly of fairly closed economies, operating in parallel. But Europe’s economies are open. Moreover, the whole point of the eurozone is to open them further. Small open economies are much worse candidates for their own currency.

Greece and Austerity

In a Project Syndicate column, Edmund Phelps argues that it is not “austerity” which is to blame for Greece’s plight.

So spending more is not the remedy for Greece’s plight, just as spending less was not the cause. What is the remedy, then? No amount of debt restructuring, even debt forgiveness, will suffice to achieve prosperity (in the form of low unemployment and high job satisfaction). Such measures would only help Greece to revive government spending. Then the economy’s stultifying corporatism – clientelism and cronyism in the public sector and vested interests and entrenched elites in the private sector – would gain a new lease on life. The European left may advocate that, but it would hardly be in Europe’s interest.

The remedy must lie in adopting the right structural reforms. Whether or not the reforms sought by the eurozone members raise the chances that their loans will be repaid, these creditors have a political and economic interest in the monetary union’s survival and development. They should also be ready to help Greece with the costs of making the necessary changes.

Short-Sales, Bans on Them, and their Price Impact

In a 2012 edition of the New York Fed’s Current Issues, Robert Battalio, Hamid Mehran, and Paul Schultz discuss how short-sales work and whether bans on short-sales have had the desired effect of slowing down stock price declines. They haven’t.

Some quotes:

Our analysis of the empirical evidence from the United States suggests that the bans had little impact on stock prices. Even with the bans in place, prices continued to fall. At the same time, the bans lowered market liquidity and increased trading costs. …

Short-selling is the selling of borrowed shares by investors who expect to cover their positions later by repurchasing the shares at a lower price. … during 2005 it accounted for 24 percent of trading volume on the New York Stock Exchange and 31 percent of Nasdaq trading volume.

Most short sales are conducted by market makers or high-frequency traders, or by options market makers who short to hedge their options positions. Market makers and high-frequency traders generally do not maintain short positions for long periods. In fact, they typically close them within minutes or even seconds of opening them.

Our focus is on investors who short stocks for longer periods because they believe the stocks are overpriced; they expect to profit by repurchasing the stocks after prices have fallen. These investors generally borrow the shares from an institution, often one with a passive investing strategy. In exchange for the stocks, the borrower places collateral, usually cash, with the lender. (The standard collateral for U.S. equities is 102 percent of the shares’ value.)

The lender of the stocks pays interest on the collateral at a rate that is negotiated between the borrower and lender—referred to as the rebate rate. For stocks that are easy to borrow, rebate rates may range between 8 and 25 basis points below the federal funds rate …

Despite concerns that short-selling can artificially drive prices below fundamental values, it is not easy for investors to make money in this way. Short sales may depress stock prices, but the short-seller profits only after buying back the shares at low prices to close the position. If purchases and sales have a symmetric impact, such that a sale of shares moves prices down by about the same amount as the purchase of the same number of shares would raise prices, prices will rise to their original levels when the short-seller buys back the shares. In that case, the short-seller will not profit from this strategy and will instead lose money on trading costs.

One way for a short-seller to make a profit shorting a stock that is not overvalued is to somehow fool other investors into selling him the shares at a price that is lower than the one he charged the original investors. This is a risky scheme, however, and may prove very unprofitable. … Moreover, if short-sellers spread false rumors about a company or attempt to manipulate its share price, they are engaging in illegal activities and the targeted company may fight back.

… Lamont (2004) finds that, on average, the stocks of the targeted companies underperformed the market the following year by a whopping 24.7 percent. … “many of the sample firms are subsequently revealed to be fraudulent.”

In addition, investigations into the activities of the short-sellers were requested by sixty-six of Lamont’s sample firms. As Lamont notes, if the Securities and Exchange Commission (SEC) had found that these short-sellers were spreading false rumors, manipulating prices, or committing other illegal acts, their criminal activity would have been revealed and the stock would have rebounded. In fact, the companies that requested investigations earned abnormal returns of -27.7 percent the following year.

Another way in which a short-seller can profit from shorting a stock … is by weakening investor confidence in the firms whose stocks are shorted. This seems to have been a concern of the SEC when it imposed the 2008 ban on short sales. …

Still, it might take time to damage a financial firm in this way. Prices may need to be held artificially low for an extended period. Moreover, the firm would have an interest in convincing investors of the soundness of its assets. If other smart investors believed that the financial firm’s assets were solid, they would trade against the short-sellers, making the shorting strategy a risky one.

The Guardian reported in 2011 when four European countries introduced bans on short-sales while the UK did not.

Did Greece or “Germany” Surrender?

Social networks blame the German negotiators at the recent Euro summit for trying to humiliate Greece and dictating policy. This does not make any sense if one views the agreement as a loan contract between parties that are free to choose. But does it make any sense from a broader, political perspective?

According to Open Europe,

Italian Finance Minister Pier Carlo Padoan told Il Sole 24 Ore, “Almost all [Eurozone countries] were against a new [bailout] programme. Only the French, tiny Cyprus and we were in favour of a compromise. Maybe this isn’t well understood.”

In the FT, Gideon Rachman writes:

What nonsense. If anybody has capitulated, it is Germany. The German government has just agreed, in principle, to another multibillion-euro bailout of Greece — the third so far. In return, it has received promises of economic reform from a Greek government that makes it clear that it profoundly disagrees with everything that it has just agreed to.

German taxpayers seem to agree. According to Open Europe,

a snap Infratest Dimap poll for ARD found that 52% of respondents supported the agreement and 44% opposed it, while 62% said they want Greece to remain within the Eurozone compared to 32% who want it to leave. However, 78% of respondents said they did not trust the Greek government to fully implement the agreement.

Update:

The Economist’s Buttonwood column: “Even More on Debt and Democracy.”

Lars Feld’s comment in the FT.

Lee Jong-Wha’s comment on Project Syndicate.

 

The Brussels Agreement of 13 July 2015

Graeme Wearden in The Guardian summarizes the results of the Euro summit that ended with no Grexit:

An agreement has finally been reached in Brussels after almost 17 hours of talks, Europe’s longest-ever summit. A deal on the new bailout for Greece has still to be thrashed out, however. Here are the key points:

Greek assets transfer

Up to €50bn (£35bn) worth of Greek assets will be transferred to a new fund, which will contribute to the recapitalisation of Greek banks. The fund will be based in Athens, not Luxembourg as the Germans had originally demanded.

The location of the fund was a key sticking point in the marathon overnight talks. Transferring the assets out of Greece would have meant “liquidity asphyxiation”, said the Greek prime minister, Alexis Tsipras.

Bridging finance

Talks will begin immediately on bridging finance to avert the collapse of Greece’s banking system and help cover its debt repayments this summer. Greece must repay more than €7bn to the ECB in July and August, before any bailout cash can be handed over.

Debt restructuring

Greece has been promised discussions on restructuring its debts. The German chancellor, Angela Merkel, said the Eurogroup was ready to consider extending the maturity on Greek loans. There is now no need for a Plan B, she added.

New legislation

The Greek parliament must approve the deal before the German bundestag votes. It must also start passing legislation straight away to implement the agreed measures.

Creditors have insisted on immediate action on:

  1. Streamlining VAT
  2. Broadening the tax base
  3. Making further reforms to the pension system
  4. Adopt a code of civil procedure
  5. Safeguarding of legal independence for Greece ELSTAT — the statistic office
  6. Full implementation of automatic spending cuts
  7. Meet bank recovery and resolution directive

Radical reforms

Tsipras pledged to implement radical reforms to ensure that the Greek oligarchy finally makes a fair contribution. The agreement thrashed out overnight would allow Greece to “stand on our feet again”.

Implementation of reforms would be tough, the Greek prime minister said, but: “We fought hard abroad, we must now fight at home against vested interests.”

He added: “The measures are recessionary, but we hope that putting Grexit to bed means inward investment can begin to flow, negating them.”

Updates and additional links

More from the Guardian. An assessment by an analyst.

The official Euro summit statement.

Accounting, Greek Debt, and Realism (Part Three)

In a Vox blog post, Julian Schumacher and Beatrice Weder di Mauro offer meaningful Greek government debt statistics. They quote an ESM estimate according to which the 2012 restructuring of Greek debt owed to official lenders amounted to a 50% haircut (see this previous blog post). And they argue that the net present value of Greek government debt relative to GDP amounted to 93% (presumably in 2013 or 2014), in line with other estimates (see this previous blog post).

How Greece Benefitted from European Debt Relief

The 2014 Annual Report of the ESM contains a box on “How Greece Benefitted from European Debt Relief” (p. 29). The concluding paragraph states:

The measures correspond to substantial economic debt relief … Considering these maturity extensions and interest rate deferrals over the entire debt servicing profile from a net present value (NPV) perspective shows a reduction in the overall debt burden and reveals implicit savings. … Stretching out principal repayment schedules over such an extended period of time, along with interest payment deferral, imply that these payments account for substantially less in NPV terms when assessed from the Greek side taking into account the financial market perspective.

No explanation is given as to why the NPV perspective should only reveal “implicit” savings. Whether a Euro must be paid in ten years or in twenty does make a difference, and a rather substantial one at the relevant interest rates. A footnote attached to the last sentence of the above quote is rather obscure as well. It says:

It should be noted that this does not entail any financial loss or write-down from an EFSF perspective. The EFSF is fully repaid; Greece has to cover any financing costs related to the agreed interest rate deferral in line with the amendment of the Master Financial Assistance Facility Agreement.

See the earlier post on how to correctly account for sovereign debt.

Accounting for Sovereign Debt—Greece’s (Low) Debt Quota

An interesting conference organized by CESifo and Japonica Partners brought together accountants, lawyers and economists with interests in public finance and sovereign debt. Discussions about Greece took center stage.

According to estimates based on the accounting standards IPSAS, ESA 2010 or SNA 2008, Greece’s gross government debt quota at the end of 2013 amounted to roughly 70% and its net debt quota didn’t exceed 20%. The debt numbers give the present values of the contractual payments, discounted at the market yields at the time the debt was issued or restructured. The estimate of the gross debt position closely resembles estimates of the market value of Greek government debt by economists.

The claim that Greece urgently needs debt relief received only limited support, and least from people who worked for and with the Greek government. My reading was that any need for near term debt relief is mostly of a political nature.

Some relevant links:

  • Georgetown’s Anna Gelpern.
  • Duke’s Mitu Gulati.
  • IFAC, CIPFA.
  • “The Reckoning: Financial Accountability and the Rise and Fall of Nations” by Jacob Soll.
  • Japonica Partners.
  • IPSAS: IFAC page, Wikipedia, slides with background info and examples, comparison with GFS (see p. 11).
  • Chicago Fed Mark Wright’s “The Stock of External Sovereign Debt: Can We Take the Data at ‘Face Value’?“
  • European System of National and Regional Accounts in the European Union (ESA 2010), Chapter 20 (Government accounts):

    20.221: Debt operations can be particularly important for the general government sector, as they often serve as a means for government to provide economic aid to other units. The recording of these operations is covered in chapter 5. The general principle for any cancellation or assumption of debt of a unit by another unit, by mutual agreement is to recognise that there is a voluntary transfer of wealth between the two units. This means that the counterpart transaction of the liability assumed or of the claim cancelled is a capital transfer. No flow of money is usually observed, this may be characterised as a capital transfer in kind.

    20.236: Debt restructuring is an agreement to alter the terms and conditions for servicing an existing debt, usually on more favourable terms for the debtor. The debt instrument that is being restructured is considered to be extinguished and replaced by a new debt instrument with the new terms and conditions. If there is a difference in value between the extinguished debt instrument and the new debt instrument, it is a type of debt cancellation and a capital transfer is necessary to account for the difference.

  • UN, EC, OECD, IMF and World Bank System of National Accounts (2008 SNA):

    22.109–110: Debt rescheduling (or refinancing) is an agreement to alter the terms and conditions for servicing an existing debt, usually on more favourable terms for the debtor. Debt rescheduling involves rearrangements on the same type of instrument, with the same principal value and the same creditor as with the old debt. Refinancing entails a different debt instrument, generally at a different value and may be with a creditor different than that from the old debt. Under both arrangements, the debt instrument that is being rescheduled is considered to be extinguished and replaced by a new debt instrument with the new terms and conditions. If there is a difference in value between the extinguished debt instrument and the new debt instrument, part is a type of debt forgiveness by government and a capital transfer is necessary to account for the difference.

Olivier Blanchard Defends IMF Policy in Greece

In a Vox blog post, Olivier Blanchard addresses four critiques against the IMF’s engagement in Greece. He argues that

  • the 2010 program did help Greece; without it, Greece would have undergone much harsher “austerity;”
  • the financing given to Greece did not only benefit foreign banks; the 2012 PSI amounted to debt relief on the order of 10’000 Euro per capita;
  • “[m]any … reforms were either not implemented, or not implemented on a sufficient scale … [m]ultipliers were larger than initially assumed … [b]ut fiscal consolidation explains only a fraction of the output decline”;
  • conditionality also reflects political constraints on the part of the lender countries.

Olivier sees the Fund on the sidelines, in particular after Greece’s default against the IMF:

The role of the Fund in this context is not to recommend a particular decision, but to indicate the tradeoff between less fiscal adjustment and fewer structural reforms on the one hand, and the need for more financing and debt relief on the other.

Last Exit Before Grexit?

Nicolai Kwasniewski reports in Der Spiegel about the last (?) chance for Greece to avoid Grexit.

  • By Wednesday night, Greece has to submit a request for an ESM program.
  • After discussing the request, Euro finance ministers will ask the “institutions” to evaluate it and to assess whether the stability of the Euro zone is under threat (a prerequisite for ESM funding), the program is sustainable etc.
  • Greece has to submit detailed reform proposals until Thursday. To be acceptable, they will have to satisfy stricter requirements than those the Greek voters recently rejected.
  • Euro finance ministers will evaluate the proposals on Saturday.
  • EU prime ministers and presidents have the last word on Sunday.

Peter Spiegel, Anne-Sylvaine Chassany and Duncan Robinson report in the FT.

Major IMF-Internal Disagreement Preceded the First Greek Bailout

At the 9 May 2010 meeting at which the IMF board approved the first bailout program for Greece, not all members approved. In fact, many members, including the Executive Director representing Switzerland, challenged the proposal, suggested less optimistic scenarios and asked for modifications. The Wall Street Journal published excerpts of the minutes in October 2013, see below.

Sebastian Bräuer in the NZZ am Sonntag also reports on the issue. He points out that the Swiss Executive Director asked what would happen if the Greek government were not to implement the agreed reforms; and if IMF and European commission were to disagree. Bräuer also reports that some European banks would have been prepared to bear losses resulting from their Greek exposure, see below.

The WSJ writes:

Swiss executive director Rene Weber in a prepared statement to the board for the May 9, 2010 meeting: We have “considerable doubts about the feasibility of the program…We have doubts on the growth assumptions, which seem to be overly benign. Even a small negative deviation from the baseline growth projections would make the debt level unsustainable over the longer term…Why has debt restructuring and the involvement of the private sector in the rescue package not been considered so far?”

“The exceptionally high risks of the program were recognized by staff itself, in particular in its assessment of debt sustainability.”

“Several chairs (Argentina, Brazil, India, Russia, and Switzerland) lamented that the program has a missing element: it should have included debt restructuring and Private Sector Involvement (PSI) to avoid, according to the Brazilian ED, ‘a bailout of Greece’s private sector bondholders, mainly European financial institutions.’ The Argentine ED was very critical at the program, as it seems to replicate the mistakes (i.e., unsustainable fiscal tightening) made in the run up to the Argentina’s crisis of 2001. Much to the ‘surprise’ of the other European EDs, the Swiss ED forcefully echoed the above concerns about the lack of debt restructuring in the program, and pointed to the need for resuming the discussions on a Sovereign Debt Restructuring Mechanism.”

“The Swiss ED (supported by Australia, Brazil, Iran) noted that staff had ‘silently’ changed in the paper (i.e., without a prior approval by the board) the criterion No.2 of the exceptional access policy, by extending it to cases where there is a ‘high risk of international systemic spillover effects.’”

The NZZ writes:

[Swiss ED Weber asked:] “Wie reagiert der Fonds, wenn die Behörden die Sparmassnahmen und Strukturreformen nicht umsetzen?”

[IMF-deputy John Lipsky said:] “Es gibt keinen Plan B. Es gibt einen Plan A und die Absicht, dass Plan A erfolgreich ist.”

“Ich kann die Direktoren informieren, dass deutsche Banken Unterstützung für Griechenland erwägen”, sagte der deutsche IMF-Direktor Klaus Stein. Sein französischer Kollege Ambroise Fayolle ergänzte, auch die Banken seines Landes würden ihren Job tun.

Arguments in Favor of ELA to Greece

Martin Hellwig argues in the Handelsblatt that the ECB should not cut Emergency Liquidity Assistance (ELA) to the Greek central bank. He makes the following points:

  • In 2010, the ECB pressured Ireland to guarantee bank liabilities (vis-a-vis other European banks) by threatening to cut ELA. Such blackmailing is inconsistent with the ECB’s task to safeguard cash and payment systems.
  • The same applies to Greece now. As lender of last resort, the ECB should provide funding to Greek banks even (or exactly) when they don’t have access to markets, as long as they are solvent. In principle, the banks may use central bank funding for whatever purpose they see fit; right now, however, the ECB has put restrictions on Greek banks’ purchases of Greek government bonds.
  • Are the Greek banks solvent? There are certainly liquidity problems, due to heavy withdrawals triggered by fears that the Greek government may convert Euro into Drachma denominated deposits. Solvency problems are only very recent, due to the economic malaise.

At this point Hellwig stops arguing based on the European treaties.

  • Instead, he suggests that the solvency rule could be waived in situations like currently in Greece or in Germany in 1931.
  • He concedes that a freezing of ELA could be considered a precautionary measure against Grexit—an event that is not anticipated in the European treaties.
  • But it could also be considered a measure that forces Greece into economic turmoil; the Greek banks into insolvency; and Greece out of the Euro area against its will.

IMF Debt Sustainability Analysis for Greece—Outdated

A recent IMF draft debt sustainability analysis for Greece, written just before the recent turmoil, foresaw that Greece (or its creditors) needs additional 50 billion Euro plus bailout money, as well as maturity extensions or another haircut. Now it needs more of that.

Peter Spiegel comments in the FT.

The Greek Bank Holiday and Capital Controls

Saturday, 27 June 2015 and earlier:

  • In a Medium blog post, Karl Whelan provides an excellent discussion of the policy mistakes that worsened the Greek debt crisis.
  • Hans-Werner Sinn’s “The Greek Tragedy.”
  • Alex Barker discusses in the FT the options for Greece’s banking system.

Sunday, 28 June:

  • Christian Rickens comments in Der Spiegel that the upcoming Greek referendum is the price to pay for five years of cowardice, both on the part of the Greek government and its European partners.
  • The FT summarizes the main policy decisions during the last days that led the Greek economy to “hit a roadblock.”
  • The Economist writes that “[I]n these circumstances a cap on ELA must mean tough restrictions on deposit withdrawals both in cash and through transfers abroad.” It draws parallels to Cyprus in March 2013 where banks closed for two weeks and where capital controls were recently lifted.
  • Ekathimerini reports about the decision to close the banks and instate capital controls. It quotes the Greek prime minister as saying that “[Rejection] of the Greek government’s request for a short extension of the program was an unprecedented act by European standards, questioning the right of a sovereign people to decide. … This decision led the ECB today to limit the liquidity available to Greek banks and forced the Greek central bank to suggest a bank holiday and restrictions on bank withdrawals. … One thing is clear: the refusal of a short extension, and the attempt to nullify a democratic procedure is an act deeply offensive and shameful for the democratic traditions of Europe.”

Monday–Tuesday, 29–30 June:

  • Claire Phipps summarizes in The Guardian the main elements of the ‘Bank Holiday break’ decree that the Greek prime minister and president enacted during the night, in response to “the extremely urgent and unforeseen need to protect the Greek financial system and the Greek economy due to the lack of liquidity caused by the Eurogroup’s decision on June 27 to refuse the extension of the loan agreement with Greece”.
  • Philip Stafford and Roger Blitz speculate in the FT about the implications of Grexit. (See also the earlier post on Lex Monetae.)
  • The FT’s liveblog.
  • In the FT, Martin Sandbu convincingly addresses questions on the bigger picture, including political aspects of the crisis.
  • Anil Kashyap has published “A Primer on the Greek Crisis.”
  • In the FT, Shawn Donnan discusses the consequences of a Greek default against the IMF.
  • Der Spiegel reviews how the international press assigns responsibility for the crisis.

Wednesday, 1 July:

  • In the FT, Peter Spiegel outlines the way forward to a new “Greek” bailout.
  • The Economist’s Free Exchange blogger on the limited experience with capital controls (Iceland, Cyprus, now Greece).

Note: This post has been updated repeatedly.

Charles Ferguson’s “Inside Job”

Charles Ferguson’s movie Inside Job portrays as

  • evil: Feldstein, Hubbard, Paulson, Rubin, Summers, Wall Street, … ;
  • clueless or not convincing: Bernanke, Campbell, Geithner, Greenspan, Mishkin, Portes, … ;
  • aware (at least ex post): Buiter, Johnson, Lagarde, Lo, Partney, Rogoff, Roubini, Strauss-Kahn, Tett, Wolf, … .

Economics and economists are considered part of the problem rather than the solution. While the movie

  • depicts Ragu Rajan as the hero,

it is silent about the fact that Rajan is one of the most prominent economists.