“Bloviation” is a style and term invented in
Ohio, , made well-known by its usage as political speech by President Warren G. Harding and formally recognised as a uniquely empty form of expression by the great journalist and critic H.L. Mencken. It is ironic that this term bloviate, with its common Yankee origin, is the appropriate one to describe the proceedings at USA Europe’s numerous summits on their crisis of debt.
Europe’s leaders apparently found a solution to resolve their crisis. It comprised of (a) forcing banks to accept a haircut of up to 50% on Greek debt, (b) enlarging the European Financial Stability Facility (EFSF) war-chest from €440 billion to €1 trillion, (c) requiring European banks to find more capital against their losses on Greek debt and (d) making a phone call to ’s President Hu Jintao. The euphoria lasted all of a day-and-a-half. China
How a decision taken at a summit of heads of state/govt. that banks will write-off 50% of Greek debt can be said to be “voluntary” boggles the mind. All defaults lead to loan work-outs and the easier end of it, is deferment (restructuring), the harder part of it, is partial write-offs. So, it would be correct to conclude that all of what happened recently was a post-default loan work-out. Insisting that it is not a default only undermines the credibility of the arrangement and leads to the kind of avoidable jitters that were created when part of the non-European financial world used the “d” term – default – to describe what happened. Rather reminiscent of the power wielded by
Europe’s heroes of myth over dragons – their true name.
The EFSF is now supposed to insure up to 20% of losses that may arise from banks purchase of other sovereigns bonds – perhaps of
Italy, Spain and – though that is not clear. There was talk of leveraging this €1 trillion fund up to 4 to 5 times by a mechanism that is unclear. Of course, all participating nations whose sovereign debt may result in losses and who are therefore being insured by other sovereigns are in prospective default. How tiresome. Portugal
Next, European banks will need to raise more capital for the losses they have taken and will have to continue to take. Are investors queuing up to contribute to the losses that these banks will have to incur as future summits will determine? Unlikely, except in a fantasy world: One peopled by rich Arab sheikhs and Chinese central bankers, with over-flowing pockets and empty brains. Which brings us to the phone call to President Hu Jintao.
, there are apparently two views. One, the minority one (or so I understand) reflecting the interests of the exporters of consumer goods is thus. Yes, the Middle Kingdom must step in, to save the Europeans who otherwise will not save themselves and thus doom our exports. Data for Jan–July 2011 suggests that this works out to annualized export value from China of €210 billion to the Euro-zone and €280 billion to the larger European Union. Or look at this way: of Chinese trade surpluses of €100 billion and €150 billion respectively. China
Second, is the majority view (as I understand) that it is
Europe that must in essence save itself. Which, it is not doing by refusing to accept the facts. As Deng Xiaoping had once written, the “quintessence of Mao Zedong Thought” is expressed in the four words "Seek truth from facts" – a slogan that Mao had coined in Yan’an.
The fact is that the European Monetary Union was not a good idea. It sprang forth whole from the minds of grand theorists of the European dream – one uncontaminated by petty national identities, befitting of the high minds that guide the helm of European decision-making – Olympian, in its majesty and in its self-esteem.
But such a decision would have forced
Europe’s leaders to face the facts and adapt – which they choose not to do. Surely, not just but the rest of the world will be sought to be drafted into the “save-the-world-by-saving-Europe” platform at the G20 summit. It was absurd making Slovakia with a per capita GDP of $16,000 bailout China with a per capita GDP of $27,000. It is preposterous to expect that Greece China with a per capita GDP of $5,000 or India with one of $1,500 should bail out and its even richer colleagues. Greece