A short story

Some days ago, France and Spain lifted the restrictions they had imposed on short selling (Financial Times, February 13 and February 16, 2012).  Many countries had implemented similar bans in 2008 in reaction to the financial crisis. (see Beber and Pagano, Journal of Finance, forthcoming for more details).

Sovereign Debt Diplomacy

The recent second Greek bailout has been accepted after intense negotiations. As for any negotiations, countries came with their own political agenda. Press reports shed some light on these motivations. For example, European diplomats informed the Financial Times that “the German and Dutch finance ministers pushed for further “haircuts” in Greek bonds” suggesting that these countries were willing to limit the involvement of their taxpayers.

Although the role of diplomacy is important, the exact motivations of the countries providing the bailout are often overlooked. Diplomatic, economic and geopolitical considerations probably play a more important role than pure altruistic motivations. For instance, Der Spiegel published a few months ago an insightful article detailing French sales of military vessels to Greece, which was already at the time struggling to make end meets. The article stressed German reactions to these sales. Surprising as it may seem, it was not the sale itself which was questioned but the fact that ThyssenKrup had lost the deal to the French company DCNS! German taxpayer money was going to end up subsidizing a French company (read: instead of a German one). Critiques regarding arm sales to Greece had however been voiced a year earlier by Turkey. Stephen Castle, in the New York Times had indeed reported in March 2010 that “Egemen Bagis, Turkey’s chief negotiator with the European Union, has criticized Germany, along with France, for seeking to sell military equipment to Greece while pressing the government in Athens to make drastic public spending cuts as a result of its dire financial crisis.”

Greece, Germany and “Supersanctions”

“The German government wants Greece to cede sovereignty over tax and spending decisions to a eurozone “budget commissioner” to secure a second €130bn bail-out.”

“German holders of Greek bonds had demanded international financial control of Greek finances.”

Despite their strong similarity, 119 years separate these two quotes. The first one emanates from the January 27th, online version of the Financial Times, the second one is the description made by Wynne (1951) of the Greek situation in 1893!

Greece before Greece… Betting on Victory and Patriotism

Greek is under the spotlight…and, with my partner and in laws from Cephalonia, I could not resist sharing my thoughts about the earliest Greek default.

Following the fall of Constantinople and the end of the Byzantine Empire, Greece fell under the Ottoman rule. Many attempts to regain independence failed during the following centuries. At the beginning of the 1820s, the war between Persia and the Ottoman Empire opened a window of opportunity to start a revolution. As had been the case with Latin American countries seeking independence at the same time, the Greek insurgents badly needed external finance to wage the war.

The Hull nouveau has arrived

Some days ago, after my first Derivatives class, a student asked me whether he should buy the latest edition of John Hull’s “Options, Futures and Other Derivatives” (JH8).  He had borrowed the 1^st edition (JH1) from his father and was wondering whether the new version was very different. Browsing through the new edition, he quickly realized that this was the case.  My advice was: “Keep the 1^st edition as might gain value. Buy the new edition, use it for this class and transmit it to your children. The return on investment should be positive”.