Coppola Comment

While all eyes are focused on Greece, there is a potentially far more important crash going on. Via Sober Look comes this pair of charts: China's stock market is crashing. It's very evidently a bubble bursting. The question is, what will be the knock-on effect to the Chinese economy, and indeed to the whole of South East Asia, Brutal sell-offs of this kind are rarely without economic cost, especially when the bubble is debt financed (as this one is). I can't see this ending well. Related reading: China stocks are battered anew - WSJ

I know I keep saying that economics is not a morality play. But when it comes to Greece, I can find no other satisfactory explanation for what is going on.  The harsh treatment meted out to Greece over the last five years makes no economic sense whatsover. It has driven Greece into a deep depression that not only makes its government budget unsustainable but renders its debt unpayable: it has not only caused poverty and distress among Greece's population, but it has driven businesses into bankruptcy and done serious damage to the supply side of Greece's economy. And yet creditors want more . I might agree that reforms to pensions are a good idea. I might also agree with widening the tax base. But not, emphatically not, in an economy as depressed as this. What is needed is debt relief, FIRST. Then real reforms, and help to restore the wanton destruction caused to the economy through ill-considered and frankly vindictive austerity measures. But debt relief is not on the ag...

In a reply to a comment on my recent post about Target2 and ELA, I said this: There are no "Greek euros" or "German euros". There are only European euros. So the ECB is not exchanging Greek and German euros at par. Both countries are using the same currency, which is produced by the Eurosystem. The NCBs are not autonomous entities, they are part of the Eurosystem. They do not create their own currencies : collectively, they create the single currency. This is how a single currency works. If there are multiple "central banks" within a single currency area - as there are in the United States, for example - they do not produce their own currencies. St. Louis Federal Reserve does not produce St. Louis Dollars. It produces United States dollars. As does the Minneapolis Fed, and the New York Fed, and the Atlanta Fed, and so on. The twelve Federal Reserve banks collectively produce one currency, the US dollar. So the person who argued that Greek and Ge...

The UK is forcing universal banks like HSBC to ring-fence their retail operations from their global and investment banking businesses – a sort of watered-down Glass-Steagall arrangement. The ring-fence will come into force in 2019, and banks are currently working out how to implement it. HSBC is creating a completely separate UK retail entity with its own capital, management and head office. As part of this process, it conducted a review  of possible locations for the unit's new head office, and concluded that London was not ideal. In March, it announced that the new UK retail bank head office would be in Birmingham, to the delight of local politicians and media. The announcement sparked approving remarks about the UK retail bank going “back to its roots”: HSBC’s UK retail arm was formerly Midland Bank. Prior to its acquisition by HSBC, Midland Bank had a long and at times colourful history . It was founded in 1836 as the “Midland & Birmingham Bank”, and originall...

Hans Werner Sinn has a post on Project Syndicate which purports to explain why the plans of Greek finance minister Yanis Varoufakis are much cleverer than anyone has realised. I don’t disagree that Mr. Varoufakis’s plans are clever: indeed I have written several posts on Forbes explaining just how clever they are. But Professor Sinn’s explanation, sadly, is very wide of the mark. Here is Professor Sinn’s description of Mr. Varofakis’s strategy: Plan B comprises two key elements. First, there is simple provocation, aimed at riling up Greek citizens and thus escalating tensions between the country and its creditors. Greece’s citizens must believe that they are escaping grave injustice if they are to continue to trust their government during the difficult period that would follow an exit from the eurozone. Second, the Greek government is driving up the costs of Plan B for the other side, by allowing capital flight by its citizens. If it so chose, the government could contain this ...

The final paragraphs of Greek prime minister Alexis Tsipras's  op-ed in Le Monde  read thus: Europe, therefore, is at a crossroads. Following the serious concessions made by the Greek government, the decision is now not in the hands of the institutions, which in any case – with the exception of the European Commission- are not elected and are not accountable to the people, but rather in the hands of Europe’s leaders. Which strategy will prevail? The one that calls for a Europe of solidarity, equality and democracy, or the one that calls for rupture and division? If some, however, think or want to believe that this decision concerns only Greece, they are making a grave mistake. I would suggest that they re-read Hemingway’s masterpiece, “For Whom the Bell Tolls”. Hemingway's book is set in the Spanish Civil War. It graphically describes the ugly fight between those he describes as "fascists" - the Nationalists, who were supported by (among others) Italy's...