Is Greece going to set off the long feared next wave of the Great Recession?

Harvard Business School professor Rakesh Khurana has done extensive research on the value chief executives bring to large organizations, concluding in his excellent book, “Searching for a Corporate Savior,” that it is vastly overstated by executive pay packages.

“I was pretty naive,” he said. “I thought that once the facts were presented and there was reasoned discussion, corporate behavior would change.” Alas, it hasn’t turned out that way.

Khurana cites the old wisdom is that the simplest explanation is often the best one. “This is really a story about power: private power, the power of the economic elite, has trumped social norms, has trumped political power.”

I've my doubts: they started to become an "Euro-country" with (totally) wrong data - nothing -legal- happened ...

"...........Theodoros Pangalos, the famously blunt deputy prime minister, put it even more starkly. If Greece were to break with its would-be saviours and launch a new drachma, local banks would be besieged by panicked depositors and the army would have to keep order. “The shops will empty, and some people will jump out of windows,” he told El Mundo, a Spanish daily. (Last year Mr Pangalos irked some compatriots, and impressed others, by saying that ordinary Greeks, as well as the political elite, had wasted the loans and subsidies that rained down on the country: “We ate it up together.”) "

"...........After the Revolutionary War, the huge debts of states such as Massachusetts and South Carolina were strangling an already depressed economy. A farmers’ rebellion against rising taxes brought the young nation to the brink of its first civil war. Faith in U.S. credit fell so low that veterans were selling government IOUs for as little as 15 cents on the dollar. ...........Much like today’s Europe, the U.S. lacked a federal executive branch with the power to manage the crisis. But its first Treasury secretary, Alexander Hamilton, had a proposal that went far beyond what anyone in Europe is now considering. His plan: Have Congress authorize the federal government to take responsibility for some $25 million in states’ debts -- the equivalent of about $2 trillion in today’s economy -- and to raise the money to pay them. "

http://www.bloomberg.com/news/2011-07-01/will-crisis-ridden-europe-find-its-own-alexander-hamilton-view.html

You've just rediscovered the old "Tobin tax"- it won't work because there's no international tax system. But the euro zone could try the Hamilton plan

European commission unveils trillion-euro budget plan and wants bigger share of its spending to come from tax revenue or other levies that go automatically to Brussels

The European commission has called for Tobin-style taxes on the EU's financial sector to generate direct revenue for its first trillion-euro budget.

Unveiling its blueprint for the EU budget for the seven years from 2014, the commission demanded a bigger share of its spending supplied from "own resources" – tax revenue or other levies that go auto- matically to Brussels rather than being handed over by the 27 member states.

In the face of stiff opposition from Britain, the commission called for much of the budget to come directly from new financial market taxes and a simplified method of taking a share of member states' VAT receipts. "We are proposing an ambitious and, at the same time, responsible budget," said José Manuel Barroso, the president of the commission. "It is a realistic proposal." ... ... ...

Looks like the end game to Greek default will be over soon, as in before year-end; there's absolutely no way they can cover these maturities.

Goldman Sachs & Co. borrowed $15 billion from the U.S. Federal Reserve on Dec. 9, 2008 -- the biggest single loan from a program whose details have been secret until today........ http://www.federalreserve.gov/monetarypolicy/bst_tranche.htm

....Ultimately, German politicians can throw up their hands and say, bluntly: If you don’t like our proposals, you can do something else, but pay for it yourself.

Either way, the result is increasing risk of a debt default and losses for creditors. We’ll see the consequences as interest rates for troubled countries rise and the liquidity in their government bond markets dries up.

Exiting the moral hazard trade is a good idea. But there is no transition plan -- just a series of improvisations, gut reactions and continual renegotiations. There isn’t yet anything close to the political will to definitively end things with a comprehensive solution that tells you who will restructure and who will get unlimited bailouts. This contagion will spread, until senior euro-zone leadership decides -- once and for all -- who is to be saved and on what terms.

Cleary Gottlieb’s new client
Posted by Joseph Cotterill on Aug 01 11:50.

Great spot by John Dizard — an appointment to raise eye-brows:

Last week, it was announced that Cleary Gottlieb, the New York headquartered international law firm, had been engaged by the Hellenic Republic. I believe this tells us a lot about the direction euro area finance will take… the Cleary team working on Greece will be headed by Lee Buchheit, the partner who has previously represented Iceland, Argentina, etc, etc. Trusted by distressed governments, cursed by former optimists with long positions, his is the mobile number of choice for sovereigns that believe they have unsustainable debt burdens.

Now, Greece’s biggest legal task right at this moment is to ensure that bondholder participation in the IIF-sponsored exchange will take place broadly, and voluntarily. Hopefully with a modicum of litigation from investors. Cleary Gottlieb Steen & Hamilton are an impressive choice for that in any case. They’ve been consulted by Greece’s official creditors previously in the crisis.
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So since Buchheit got that bit right, we think Dizard is on to something when he reckons a “Mopping-Up Law” might be on the agenda soon. It’s an idea from Buchheit and Gulati’s original 2010 paper, based on the observation that almost all of Greece’s government bonds were issued under Greek law:

No other debtor country in modern history has been in a position significantly to affect the outcome of a sovereign debt restructuring by changing some feature of the law by which the vast majority of the instruments are governed.

Therefore the Greek parliament could, and at any point it chose, simply legislate to force bondholders into a haircut — credit event triggers be damned! — though Buchheit warned how opportunistic this would look, not to mention the precedent that would be set in Greece and elsewhere in the periphery. Bondholders would have nightmares of the parliament voting in a Law for the Restoration of the Drachma as its next act…

So the authors argued that Greece might instead get bondholders to do half the work themselves, by adding a ‘statutory collective action clause’ to the Greek law debt. That is, an exchange becomes binding on all holders by law, as soon as (but not until) two-thirds or so vote for it.

There’s all to play for as to whether the current financing offer gets the 90 per cent participation rate by September. If it were to fail, a retroactive law change would be messy and there’s no suggestion it would be the first, or second, or third, fall-back option. There are alternative routes, such as executing another exchange. But it is not inconceivable. Not a thing you could trust the eurozone to swear off anyway. Debt crisis is the sphere of logics of consequence, not logics of appropriateness. Greece CDS sellers, bond hold-outs, beware, we would argue.
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But again, what price a Greek holdout over that timeframe?

The report warned, however, that the EU loans package would only play a small role in the long process to Greek recovery.

"Initial analysis suggests that the package would decrease the debt burden only slightly," the OECD said.

"The additional official financial support agreed and the maturity extensions, both public and private, provide the time needed for Greece to continue to implement fundamental fiscal and structural reforms, and for those reforms to bear fruit," the report said.

It is likely to take the Greek government a full generation to lower its debt-to-GDP ratio. Even by the OECD's "best-case" scenario, it would take 24 years for the government in Athens to get its sovereign debt down to 60 percent of GDP, the nominal limit set for EU member states.

Italian finance minister Giulio Tremonti has begun crisis talks with Jean-Claude Juncker, chair of the Eurogroup of finance ministers from the 17 eurozone countries.

The talks come as yields on Italian bonds have reached euro-era record levels.

Italian Prime Minister Silvio Berlusconi is due to address parliament on the economy later on Wednesday.

Spain's cost of borrowing has also been rising.

In early trading on Wednesday, the yield on Italian 10-year bonds rose 0.19 percentage points to 6.21%, while the yield on Spanish 10-year bonds was at 6.34%, just below Tuesday's record of 6.45%.

A cost of borrowing above 6% is considered unsustainable by many economists.

LUXEMBOURG/ROME, Aug 3 (Reuters) - Italy sought European political support on Wednesday as its stocks and bonds came under heightened attack in a selloff triggered by the euro zone's debt woes and fears of a global economic slowdown.

Italian Economy Minister Giulio Tremonti met the chairman of euro zone finance ministers, Jean-Claude Juncker, for emergency talks as the yields on Italian and Spanish 10-year bonds flirted with new 14-year highs and bank shares plummeted.

Prime Minister Silvio Berlusconi, who has been largely silent, closeted with his lawyers over several ongoing trials, was due to address parliament later to try to calm markets.

"Italian and Spanish bond yields rose to their new record highs. This is a very alarming and scary thing," Finnish Prime Minister Jyrki Katainen said.

"The whole of Europe is in a very dangerous situation," he told public broadcaster YLE in an interview.

Less than two weeks after leaders of the 17-nation euro zone agreed on a second bailout for Greece, Europe's worst hit debtor, and adopted measures meant to stem contagion to larger sovereigns, the debt crisis is back with full force.

Shouldn't this result in Greece getting kicked out of the EU?