Global Economics

The Kingdom of Howevers


People collect food thrown at Madrid's main food market.

Photograph by Pedro Armestre/AFP/Getty Images

People collect food thrown at Madrid's main food market.

Doesn’t this all mean that Netherlands, Finland, and Slovakia are getting somewhat rolled? They feel less responsible for the rest of the euro zone than Germany does.

How senior will the debt be from this new package? That seems like the key question to me. Very senior debt will kill the Spanish bond yields, but very junior debt will make this pure aid. How many euro zone countries are up for supporting pure aid on this scale?

—Tyler Cowen, “Quick Spain Thoughts,” Marginal Revolution, June 9, 2012, 3:12 p.m.

What a weekend.

See “The Twitter Vigilantes” on how the new normal in information flow has destroyed political and financial process.

As I tried on Saturday to discern (guess?) the next ten days, there was terrific analysis and insight (thanks, @lindayueh).

Tyler Cowen was early, smart, and dead-on. I urge you to read his brief essay. Project Syndicate has a prescient Michael Spence on unexpected outcomes. See Taleb on “interlocking fragility,” page 225, The Black Swan.

So if the ESM (European Stability Mechanism) is critical, and it is, I had to go to the source.

The EFSF (European Financial Stability Facility) 25-page love note (PDF) is wonderfully clear and direct. It starts out with appropriate delicacy (Luxembourgish law), with bailout free language as Greece, Ireland, and Portugal are guilty of “stepping out.”

It reads like a divorce agreement.

Item C7, page 6, contains this gem: “EFSF does not intend to use derivatives for the time being.”

Most of the following 19 pages then describe the mother of all derivative instruments.

Item D6, page 7: “The request for and control of this instrument needs to be ‘lighter’ than in the case of a regular macroeconomic adjustment programme …”

I believe this suggests, “We are not like the Americans.”

It then gets … worse.

The General Questions section then vaults to a set of “therefores,” “unlikelys,” and “howevers” leading to the crescendo of “in the unlikely event it is needed” in the vicinity of the ending ESM discussion.

The Kingdom of Spain is saving face this weekend. Stop. This crisis, this weekend, this June introduces us to the Kingdom of Howevers. Discuss.

Keene hosts Bloomberg Surveillance 7-10 a.m. ET on 1130 AM in the New York metro area and nationally on SiriusXM 113.

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