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Mercredi 30 Mai 2012

Give Greece a Chance, listen to the Copenhagen Compliance Conference

By Kersi F. Porbunderwalla

One of the speakers of The Copenhagen Compliance Conference had already 2 years ago given his advice on how to solve the Euro crisis. He then repeated his arguments at a breakfast meeting on how to help Greece to get out of the euro mess. In this article we argue that the ECB and the EU Commission to face the music and begin the euro liquidation in a somewhat organized and orderly manner.

In business, we know that from time to time we have to write down a bad debt. Accounting standards even require companies to make provisions for bad debts or using cost/benefit analysis by accepting a small percentage of the debt, and charge the balance to equity.

There is an ancient Chinese saying that you cannot pluck hair from a bald man. Therefore, it is obvious that EU has to take the loss now, meaning that we write off a portion of the Greek debt, and to give Greece a chance to rebuild their finances.

Lost cause
Trying to save the euro is a lost cause because the solidarity between the inhabitants of Finland and Greece will never be the same as between the leaders of France and Germany. We see that even in relatively smaller EU countries with more or less common culture, values, language and history, the enthusiasm for equalization amongst people with a variety of religion, castes, creed and color the desire to transfer the wealth from the rich to the poor is relatively easy to overlook.

Analysts, experts and bankers have in the past 2 years, given an abundance of information on the estimates and the estimated cost of a Greek euro-exit. The amount is large and daunting, especially if only extrapolate the calculations to other challenged countries. Unfortunately, the amount for a euro bail out and the following consequences at the stock market, etc. is estimated at between 350 b € to 3, 5 trillion € is increasing and still counting.

It is a fairly straightforward calculation to figure out a theoretical valuation of the how much the drachma and followed by the lira, pesetas and escudos is overvalued, relative to what the case would have been if the still existed. The amount in most cases is between 20 and 50%. This is the potential loss that the EU has to make provision for on an annual basis, depending on the number of years the ECB and others want to prolong the crisis.

Don’t prolong the anguish
On the other hand it is also relatively straightforward to figure out why Germany and others continue to struggle to keep the failed euro project alive. They have a reverse issue. The D-mark would have appreciated by at least 25 per cent. Germany is favored by an artificially low exchange rate, while countries in South Europe suffer.

The euro membership has ruined or is in the process of ruining different countries because the EU commission refuses to bite the bullet. Instead, the focus is on more or less thought out solutions like the Stability Pact, ESM, Finance covenants that just prolong the anguish of the people in those countries and figure out ways to hide additional indebtedness.

Check the Euro premise
The ultimate euro exit for a few countries is just a quantification of losses that have long been a reality. It does not matter whether the Greeks will be in euro or not - they can/will never pay a single euro back on their debts. That has been a known fact for quite some time and reconfirmed as a reality, as the bill in several other countries is increasing due to the dramatic decline in their GDP.

It is time to prepare the Greek exit out of the firm euro power. They are hanging on to their euro membership when the premise for their entry was wrong and the primary cause of misery and losses for many euro and EU countries.

There is probably no other alternative than to start printing more euro’s and acquiring new loans to pay off the old loans, because we fail to address the underlying dilemma.

Therefore if the EU does not address the current predicament and the Greek problem is not contained, it will apply to other challenged countries whose economy and competitiveness is also being totally smashed, by their euro debt.

Urban equalization
There are other alternatives like an equal distribution of wealth from the rich countries to the poor countries. This technique is equivalent to urban equalization that we have in Denmark in Denmark for many years. This would mean that the rich EU countries should transfer several billions of Euros to the so that the poorer countries can continue with their lavish spending. This is neither a viable solution and would mean certain death for the treaty of Rome.

Therefore, the right thing for the EU commission to do is to stop pussyfooting. Either treat the euro as a single currency, and undergo a complete political and monetary union, with unusually large remittances from the strong to the weak areas or acknowledge the mistakes and accept public humiliation by doing what many companies do when the going gets extremely difficult, to face reality and begin an orderly liquidation.

If not, then who will then foot the final bill, which in the long run will be much higher for the entire EU and probably end in reversing the progress made in the last 50 years back to start?

Source: Lars Seier Christensen, CEO, Saxo Bank A/S was a speaker at the Copenhagen Compliance Conference, in an article in Borsen

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