14-Jan-12 World View — Greece Bailout Talks Near Collapse As S&P Downgrades European Countries

This morning’s key headlines from

  • Greece bankruptcy threat looms as bailout negotiations collapse
  • S&P downgrades France and other European countries
  • The Growing Influence of the Ultra-Orthodox in Israel
  • Taiwan’s presidential elections crucial to relationship with China
  • The ‘1992 Consensus’ becomes Taiwan’s big campaign issue

Greece bankruptcy threat looms as bailout negotiations collapse

Greece's finance minister, Evangelos Venizelos
Greece’s finance minister, Evangelos Venizelos

With Greece requiring its next bailout payment of €14.5 billion by March to avoid bankruptcy, Greece’s negotiations with the Institute of International Finance (IIF), the body representing the investors holding toxic Greek bonds, broke down on Friday. The IIF said that the discussions had “paused for reflection”:

“Despite the efforts of Greece’s leadership, the proposal put forward, which involves an unprecedented 50% nominal reduction of Greece’s sovereign bonds in private investors’ hands … has not produced a constructive consolidated response by all parties.

We very much hope, however, that Greece, with the support of the euro area, would be in a position to re-engage constructively with the private sector with a view to finalizing a mutually acceptable agreement on a voluntary debt exchange.

Under the circumstances, discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach.”

Translation: Bondholders have resigned themselves to “voluntarily” losing more than 50% of their investment, but are balking at the terms of the “voluntary debt exchange.” There are two specific areas of disagreement. One is the interest rate that the new bonds will pay, in terms of regular “coupon bond” payments — investors want more than 5%, while the Greeks don’t want to pay more than 4%, and the Germans, who are the biggest payers of bailout money, want it to be at 2%. The second disagreement is over investor demands that British law govern the new bonds, so that it will be impossible in the future to use “collective action clauses” (CACs) to retroactively force investors to take a further haircut on the new bonds. Greece’s finance minister, Evangelos Venizelos, said that everything is just fine, and more talks are scheduled for Wednesday. Kathimerini and Guardian

S&P downgrades France and other European countries

In a denial of the Pollyannaish nonsense we’ve been hearing from European politicians, Standard & Poor’s ratings service on Friday downgraded the debt of two formerly AAA-rated countries — France and Austria — as well as the debt of seven other European countries. Perhaps most significant was France’s downgrade, since France’s AAA rating was a lynchpin of the AAA rating of Europe’s EFSF bailout fund program. (That is, investors would contribute to the EFSF fund only if it were AAA rated, and that would be because France guaranteed the fund and had an AAA rating.) However, Germany retained its AAA rating, as did Finland, the Netherlands and Luxembourg. Portugal and Cyprus were both cut to junk status. S&P said the move reflects a combination of economic and financial factors, as well as “an open and prolonged dispute among European policymakers over the proper approach to address challenges.” Telegraph and CNN

The Growing Influence of the Ultra-Orthodox in Israel

Top: Gender-separated fish shop in Jerusalem; Bottom: Two 'women of the shawl,' covered from head to toe with multiple=
Top: Gender-separated fish shop in Jerusalem; Bottom: Two ‘women of the shawl,’ covered from head to toe with multiple layers of clothing. (Spiegel)

Israelis were shocked by the recent stories of Ultra-Orthodox Jews who were spitting at an eight year old girl because her arms weren’t covered, or who dressed their own kids up in Nazi concentration camp uniforms, but these stories are part of the growing influence of the Ultra-Orthodox in Israel. Until now, the trend has been noticeable only in Jerusalem or near Tel Aviv, but increasingly it’s appearing in places where secular Israelis live. The most obvious public sign is gender-separation and women who cover themselves from head to toe with multiple layers of clothing. They call themselves “women of the shawl,” but secular Israelis call them the “Taliban.” In some ways, Israel resembles Iran more than Europe. It is a country where there is no civil marriage, and where rabbis rule on weddings and divorces. It is also a country where ultra-orthodox schoolchildren learn neither mathematics nor English, where every kindergarten and every military battalion has a rabbi, and where an infrastructure minister wants to place power plants under the supervision of rabbis so that even electricity will be in compliance with religious purity laws. All of these things have been around for decades, but now orthodox radicals are increasingly occupying key positions, thereby imposing their stamp on the secular majority. Spiegel

Taiwan’s presidential elections crucial to relationship with China

Taiwan is voting for a new president on Saturday. There are three candidates running, but there are two major ones, and the two represent vastly different policies for relations with China, meaning that this election could have effects far outside of Taiwan’s watery borders. The incumbent is President Ma Ying-jeou of the Kuomintang (KMT) party, and the principal challenger is Tsai Ing-wen of the Democratic Progressive Party (DPP).

  • The Kuomintang Party (KMT), or Chinese Nationalist Party, was the party originally founded by Chiang Kai-shek, whose army fled to Formosa (Taiwan) after being defeated by Mao Zedong in 1949, at the climax of China’s bloody civil war, Mao’s Communist Revolution. This party maintains the view that China and Taiwan will one day be reunited.
  • The Democratic Progressive Party (DPP) is the party that was formed from the 1990 Wild Lily rebellion, which in turn was triggered by the horror of Taiwanese students as they watched the Chinese Communist Party (CCP) mercilessly butcher and slaughter protesting students in the 1989 Tiananmen Square massacre. This party is loathed by the Beijing government, since the party wants to assert a separate Taiwanese identity, and eventually become a separate country.

Polls currently show the race is too close to call. A DPP victory would infuriate China and trigger some kind of retaliation. Bloomberg

The ‘1992 Consensus’ becomes Taiwan’s big campaign issue

The “1992 Consensus” was an agreement between representatives of Taiwan and mainland China in 1992, where they agreed that there was only “One China.” They agreed to disagree on what that term meant, but they both agreed that one day, Taiwan would be reunited with China. The KMT party supports the 1992 Consensus, and the DPP party rejects it. Beijing’s view is that without the consensus, relations between Taiwan and mainland China would become “unpredictable.” Xinhua