talk about the euro

It was my first time on a TV talkshow - last week, German ARD had an hour-long program "Menschen bei Maischberger" on "The Euro Crisis - Never-ending horror?". The other guests included the parliamentary secretary at the German Economics Ministry, Peter Hintze, the SPD elder statesman Klaus von Donanyi, Tissy Bruns, Chief Political Correspondent of the Berlin daily Tagesspiegel, Anja Kohl, ARD stock market expert, and Heinz Kammerer, representative of the German banking association. It was certainly educational for me. About half the time, Hinze highjacked the occasion with long sermons about the importance of Euro rescue packages for the political future of the EU. He is an ex-pastor, after all, and uplifting rhetoric that is long smooth phrases and short on analysis comes easily to him; how theology qualifies him to be a major player in German economic policy-making I will never know (compare that to the qualifications of Alan Krueger, serving in a similar position at the US Treasury). Von Donanyi impressed me the most; sharper than many people half his age, at age 83, he had read everything and thought about everything, down to the latest Reinhardt-Rogoff book. I still differed with his conclusions, but he was in a different league from from Hintze... having served in the same capacity under Helmut Schmidt, in the 1970s. Someone should write a bit about the decline and fall of the German political class.

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The Economist has come round to my conclusion of last spring, namely that the Greek sovereign debt case is a no-hoper... I hate to say "I told you so", but the simple debt dynamics of Greece are just too grim [see "Greece and 1+1 of debt dynamics"].

Meanwhile, the forex market is celebrating the "success" of the Portuguese and Spanish debt auctions. The Euro shot up against the dollar since Tuesday. It is true - the auctions didn't go as bad as feared. Yields still up by a 100 bp, and close to 7% for Portugal's 10 year bond. You can apply the same logic that I used for Portugal. Current debt stock is not as bad as Greece's, at 85% of GDP, but the Economist calculates that they need a swing in the primary balance of 8%. That's a very big number. Foreign bondholders will get scared long before any Portuguese politician can deliver on this. With fully 2/3 or debt held abroad, I agree with Paul Krugman, who observed in the NYTimes that with a few more successes like the last one, Portugal will be bust for sure.