De-icer

October 29, 2011

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Here is an interesting panel discussion about the Icelandic financial crisis. It is chaired by Martin Wolf (see blogroll), and includes Paul Krugman (see blogroll), Simon Johnson (see blogroll), a deputy director of the IMF, the current head of the Icelandic central bank, and another knowledgeable Icelander.

To recap: Iceland had by some measures the worst financial crisis in the history of the world (Wiki summary here.). However, because there was zero chance the country could bail out its banks — and it is not a Euro area member — they had to go bust, capital controls were introduced, and foreign wholesale funders of the Icelandic banks took the main financial hit. The obvious comparison is with Ireland, which has a similar-size crisis but is in the Euro and partly as a result was forced to go the bank rescue route. So, while Iceland has written off much of its bad debt and is recovering, Ireland is presently set to honour every European cent it owes and faces a decade of painful adjustment.

The event was filmed this week and runs to 1.5 hours. It is just about worth watching the whole thing, but if you don’t have time, scroll through and check these highlights as a taster menu of the way the world has changed — intellectually — as a result of the global financial crisis.

6 mins: Martin Wolf talks about the previously unthinkable phenomenon of the IMF admitting to mistakes.

30 mins: An IMF deputy director actually says: ‘Capital controls were probably the best thing that could be done at the time’. Remember that when the Asian crisis broke in 1997 the IMF was trying to change its articles of association to make a battle against capital controls a centre-piece of its mandate.

57 mins: Martin Wolf talks about the ‘new, cuddly IMF’.

62 mins: The point is made that the lessons of Latin America 1982 and south-east Asia 1997 have were finally learnt such that they could benefit a country (Iceland) whose population is the size of a mid-western town in the US. Roughly speaking, bad US, IMF and World Bank policies were used on approximately 1 billion people in order to learn positive lessons that have been applied to 300,000 people.

89 mins: Martin Wolf talks about the Vickers plan for UK financial sector reform, which he refers to as ‘modern Glass Steagall’. I think it would be fair to say he hopes that this is what it will turn out to be, since the ring-fencing strategy put forward by the final Vickers report has not in fact been tried before.

 

Final thought: the very moment when the IMF is said to have become ‘cuddly’ may be the one when it needs to not be cuddly. Italy, which I continue to believe will require IMF intervention, cries out for the toughest and most invasive kind of IMF action if it is to remain in the Euro area. This includes intervention in institutional areas like legal system reform where the Fund has never previously (to my knowledge) been active. Just when the IMF decided to be nice and listen to Icelandic policy makers, it needs to be Mr. Bad Cop to have any chance with Italian ones. In saying this, I stand by my own preference for Italy to be pushed out of the EU and forced to confront its problems itself — because only that will really force the country to grow up.

Shaggy dog

October 27, 2011

It’s another fudge from Europe. The European Financial Stability Fund has been ‘theoretically’ expanded through approved leverage to perhaps Euro1 trillion. Private holders of Greek bonds will ‘theoretically’ take a 50 percent hair-cut, though no details have really been agreed. Silvio Berlusconi has delivered a letter ripe with fulsome promises of structural reform in Italy, to add to lots of other fulsome promises he made before.

It was clear in recent days the markets were ready to accept some more thin European gruel as ‘good news’. Corporate earnings in the US continue to be strong and the latest US GDP figures suggest the American economy is slowly crawling away from the abyss. The very slow improvement in the US macro numbers is the bigger economic story, albeit less trumpeted in the press.

The European train wreck waiting to happen has been moved back down the line. But not far. In the absence of any substantive structural change in Italy, a train wreck there will be. The base case remains remains an Italian fiscal crisis and IMF intervention in the absence of any EU capacity to address the problem.

In the mean time, Italy’s negotiating position can only be strengthened by the ECB’s continued purchases of its debt (EU debt socialisation by the back door) and by the Greek debt hair-cut (What about us, another ‘young’,  ‘peripheral’ European state?). Time to write about something else for a while.

Next day update:

Porco cane! Rome auctions some debt this morning and the market still wants 6 percent (FT sub needed)… In fact the cost of Italian public debt has gone up to a new record. Is it possible that people outside the Italian elite are less stupid than they thought?

Un-modern family

October 24, 2011

You’ve got a big mummy who hasn’t aged that well but has cash. Your dad is a bit flash but somewhat light-weight and ineffectual. And you are still sponging off your parents despite the fact you are 75 years old.


Sound familiar? That’s right, it’s the Germany-France-Italy relationship.

The sight of Frau Merkel and Sarko-I-can-do-a-serious-face-too chastising Big Baby Silvio Berlusconi is like watching some super-sick sitcom that makes Modern Family seem like straight play.

Sil is going to have an emergency cabinet meeting (FT sub) to talk about really really really doing something to sort out Italy’s structural problems.

I am soooooooo excited.

Betchuartooo.

 

Mum and Dad are questioned about Sil:

Here is the presser where a journalist asks in French if Mummy Merkel and Daddy Sarko find Sil’s promises about what he is going to do convincing. The facial expressions are priceless. There have been a couple of hundred thousand page views already.

Sunday bloody Wednesday

October 20, 2011

Italian debt yields are back over 6 percent. So France and Germany react by announcing that Sunday’s last-chance saloon summit on European debt and economic restructuring will go ahead, but won’t reach any decisions. Instead there might be another summit on Wednesday. Or Thursday. Or next weekend. Maybe Sarko and Merkel are hoping the markets will really fall apart so they can be seen to be forced to do something. This is the most likely endgame. But of course if they are forced by a market crisis, France and Germany will react with a bail-out package rather than a new political agreement that puts the EU on a sustainable track to being the world’s most desirable economic bloc to live in. That would involve a political and institutional agreement, not a conclave of thieving banker types trying to structure the EFSF in a sufficiently complex way that the world is conned into thinking that all is well.

While pondering this, I check the press at the end of the day and am saddened to discover that Berlusconi is dead. ‘Maverick dictator with little regard for reality’ says the headline of the obit in the FT (sub needed). It is a bit tough to say of a deceased G8 leader that he ‘had a grandiose vision of himself and of his country’s place in history’. None the less, Italians certainly ‘were impoverished and repressed by his policies but nonetheless forced to pay homage to the illusion that he was a political visionary’. However, surely the FT has got it wrong with the claim that Berlusconi was born in a tent near Sirte in 1942? Wasn’t he born in Milan in 1936?

 

 

 

 

Flummoxed

October 11, 2011

The latest remarks of European leaders about the EU crisis, and the markets’ positive response, leave me at a loss to understand what is going on. The idea seems to be that having a bit more argument about the shape of a Greek debt write-off, and moving forward with the recapitalisation of banks, is all that needs to be done.

The rhetoric assumes that this is a financial crisis. It isn’t. At heart this is a political crisis of the EU. It requires two societies — Greece and Italy — to decide whether they are going to adjust to the requirements of EU- and Eurozone membership. There are good arguments why both these states might want to cut and run. If they really cannot adjust their institutional frameworks to allow them to compete at European levels, they are better off outside the union.

But whatever is decided, the problem is a political one with only political solutions. Martin Wolf (FT sub needed) seems to think the same.

 

 

And mayonnaise all over

October 6, 2011

In the finest traditions of the Italian judiciary, the presiding judge in the Sollecito-Knox appeal — Claudio Pratillo Hellmann — has been giving interviews to the press.

You can guess what he said: this has been a terrible mess, creating appalling trauma for innocent people, in particular the Kercher family. We really have got to get an independent prosecution service set up — like the CPS in the UK — and start following our rules about criminal investigations. Plus, we need a full public enquiry into the whole thing, not least the conduct of the police, why no tapes of the Knox interviews were ever produced, allegations of physical attacks on journalists, and so on. And don’t even get me started on Mignini…

But of course I am joking. What Hellman really said (let me stress I have not had time to read the original text in Italian but John Hooper is a serious correspondent) is that it is quite possible Sollecito and Knox were party to the murder, that Mignini is at the top of his game, and that the issues are really very complicated.

Many open-minded Italians will forgive Hellman because his brave decision to do the only sensible thing and have the forensic ‘evidence’ looked at by more serious people decided the outcome of the case. He is likely just covering his fanny, as they say in America. But in covering his fanny he is ensuring that everything will stay the same. Which means that people less interesting, less white, less attractive and less well funded than Sollecito and Knox will continue to get stitched up unnecessarily.

Who knows more about extortion, Part II

October 5, 2011

You will remember that back at the start of August in Banking the Sopranos I took a look at Italy’s debt profile and suggested that a) the markets were going to realise that Italy is a much worse risk than Spain and b) that the scale of the Italian liability is such that the power of extortion lay with the Italian side in its dealings with the EU. The Italian government then — in a stroke of comic genius — promised to legislate to make itself solvent.

Two months later we have senior IMF officials saying the Fund is ready to buy Italian debt, and northern Europe (Germany) readying to recapitalise banks such that they can survive big write-downs in ‘peripheral’ country sovereign bonds. The Sopranos look to be almost home and dry without even having to make Mrs Merkel an offer she can’t refuse.

But have the Germans really thought this through? Even if German banks had to write down 50 percent of the value of their (Greek and) Italian bonds they could manage with government back-stop of Euro100 billion, or less than 3 percent of GDP. It is a heavy price, but the return would include pushing Italy out of the Euro as a very profound lesson to other EU miscreants (particularly the eastern European periphery) and giving a world-first lesson about moral hazard to the banking sector, which would eventually have to pay off the write-down. People say that Italy is an important market for Germany, but given the condition of the place it is not going to be a growth opportunity for anyone. Sometimes, as the Chinese say, you need to cut a monkey’s head off to scare the chickens.

I say all this as someone whose family assets are largely concentrated in Italy. We have more than most to lose. And yet I think it would be better to throw Italy to the dogs than to move forward with a bail-out that enforces no fundamental structural change. Either Italy should be inside the Euro with a dramatic structural reform programme led by the IMF, or else outside it with a debt reduction but no one to turn to but itself. As I have written before, if Europe wants a more worthy cause for its patience, why not try Turkey?

 

More:

There are FT discussions of latest European bank bail-out plans here and here (sub needed).

Witch leaves Salem

October 4, 2011

Knox is gone. Not only that, she flew — which is pretty compelling evidence she is a witch. Let those four years inside be a lesson to other young people thinking of taking a student holiday in Italy and smoking a bit of dope. Just as well Knox and Sollecito didn’t grow their own and end up dead in Perugia’s Capanne prison, like the hippie who built our kitchen.

I forgot to remind readers yesterday who have not done so already to watch this short interview with the chief investigator in the Sollecito-Knox case. Arthur Miller must be eating his heart out. His play was only based on a true story.

Other:

Writer Douglas Preston on Mignini and the case, and Mignini’s form with respect to the earlier Tuscan serial killer case. What Preston says is no doubt true, but the Mignini focus tends to draw attention away from what are really systemic problems in Italy. Mignini is a symptom. The incompetence of the magistrates compounds the incompetence of the police and unlike the UK — with the Crown Prosecution Service — there is nothing in the middle of them to act as a circuit breaker.

Before Mr Giobbi undertakes his next ‘exquisitely psychological’ investigation, he would do well to read this.

John Hooper does a Q&A in the Guardian that gives answers I would agree with to a number of obvious and important questions.

The ones that got away

October 3, 2011

So Sollecito and Knox are out.

My immediate reaction is that this is consistent with the behaviour of a survivor institutional-retard state. It is another moment, to use the phrase which Lampedusa never quite used, when ‘everything must change so that everything can remain the same’.

Sollecito and Knox are free so that we can get back to business as usual. It’s a sort of mini Mani Pulite for the legal system.

Anecdotally, what stands out for me more than anything is ignorance. I have asked four separate Italian lawyers, two internationally renowned and two from my local town, what they think about the Sollecito-Knox case and each has said they are sure that in some sense they are guilty. But when you ask why, you realise they are ignorant of even basic facts in the case. A small dose of northern European puritan professionalism would go a long way in Italy. This is a society where no one is capable of saying ‘I don’t know’.

Worth paying attention to:

One of the great UK long-form journalists was in Perugia tonight:

10.31pm: Peter Popham of the Independent tweets:

Weird mood in Perugia’s medieval heart, thugs baying for Amanda’s blood, robbed of the witch they wanted to burn.

The video in court is very Italian, lots of extras on camera. Sollecito, who as a local always seemed to accept that a life in jail might be his fate is more together. Knox, who stood up a the start of the appeal and took the fight to the jury, is spent at this point.

John Hooper toys with the Perugia is different angle.

I am not so sure.

Monday’s coverage:

The second part of this article highlights the position that Italian ‘justice’ has left the Kerchers in. Their suffering goes on because of the grotesque unprofessionalism of the investigation and trial. The Kercher family will hold a press conference this morning that will be blogged here by the Guardian. Their anguish remains focused on the idea that the use of two knives and the number of wounds in the murder must have required more than Guede. I can’t speak to this or to the behaviour of sex attackers who use knives. What everyone can speak to is the fact that there was no motive and no evidence to put Sollecito and Knox in the bedroom where Meredith Kercher died and a huge amount of forensic evidence — hair, hand prints, finger prints, semen, other DNA — to put Guede there. I wonder if at the presser the Kerchers will mention the fact that Guede can expecct to be out of jail in only seven or eight years after his sentence was reduced on appeal (largely, I would say, to ‘fit’ with the wrongful convictions of Sollecito and Knox). If you run a legal system like a bunch of adoloscents, there will be a price to pay. Laid-back Italy doesn’t seem so cool today.

The Perugia shock blog reminds us that Knox’s 3-year, Euro22,000 criminal defamation conviction for saying the black bar owner she knew had committed the crime is UPHELD. This is very important because it is tantamount to saying the police did not intimidate and hit her during the illegal all-night interrogation for which no tape recordings have ever been produced. I have blogged before that the obvious explanation for her accusation against the bar owner, Patrick Lumumba, is that the first clearly identifiable forensic evidence the police found at the crime scene was the hair of a black male (Guede). They knew they were looking for a black man before they got the DNA match to Guede’s police record. And, in the middle of the night, subjecting Amanda Knox to the kind of pressure and sleep deprivation that produces false confessions everywhere, they got their black man (a mild-mannered barman according to people I know who know him).

(Note that the Perugia Shock blog, written by an Italian non-native English speaker, sometimes slips into the kind of emotional language that is not helpful to understanding the case. However in general it provides excellent, fine-grained coverage that you will not find in a newspaper. The author is being sued for guess what — criminal defamation — by Mignini.)

 

Want to read the rest of the stuff I have written about the Sollecito-Knox case? Just click on the ‘Sollecito and Knox’ tag (subject Categories and Tags are all listed in the right hand border).

School’s in

October 3, 2011

It works quite well for us in Cambridge that I can go for a run while the kids ride their bikes. I get some exercise and they get to win. On Sunday I went with the eldest on a circuit through town, where we agreed to poke around a college. We picked Trinity Hall, which is small, rich and riparian.

Upon entering, it was clear that undergraduates were arriving. At the Porter’s lodge a group of keen helpers in pink T-shirts was ready to nab a newby.

Further on through a couple of courtyards, parents were being allowed to drive in to the college to deposit their children. The cars weren’t flash. There was one Mercedes, but otherwise these were the vehicles of people who had spent a jolly lot of money educating their kids.

Confident young people ignored signs instructing them not to walk on the grass. It was, I suddenly saw, a perfect replica of an English public school at the beginning of term.

We went and sat on the wall down by the river and watched the punts. Next to us, three girls with squeaky boarding school accents chatted. Someone had hung a pirate flag from the window of their room. One of the girls, noticing this, observed in deadpan tones: ‘They should take that down. I think it cheapens the place.’

For some reason, the scene made me think of the signs in Italian courtrooms that say ‘Everyone is equal before the law’.