Davos, the Swiss ski resort that played host to the 2010 World Economic Forum, was not notable for any grand final communiqué and it drew to a close with many ordinary citizens in developed and developing economies scarcely aware that it had happened.
What did happen, apart from an astonishing keynote speech by French President Nicolas Sarkozy, which contained references to an imminent “planetary government” (not in my lifetime, I hope, Monsieur le President), was a great deal of confabulation among some very high-powered delegates concerning matters such as the regulation of the banks, bankers bonuses and pay structures, and whether or not the European sovereign debt crisis was easing.
Reuters reported that the Greek Finance Minister, George Papaconstantinou gave a speech in which he said he was encouraged by the informal talks he’d been having to find ways of reducing the impossible repayment burdens on Greece. He seemed confident that this could be achieved without Greece restructuring its debt. There is near universal agreement that with Greek debt scheduled to hit 158% of GDP by 2013, the interest payments on the debt will be impossible for Greece to sustain without help, and there is no point in that help consisting of yet more debt.
Reuters reported a story in the Greek newspaper To Vima, which claimed that the EU, the IMF and the ECB were in talks on a debt reduction solution which parallels the 1980s Brady Plan which took Latin America out of bankruptcy. If true, this shows that the fact known to every fund manager, namely that a Greek default is inevitable on the current lines, has finally been grasped by people who can actually do something about it.
The deal is complicated but it essentially involves bondholders taking a haircut of about 25% while the term of Greece’s major debt to the EU and the IMF would be extended to 30 years, with major private lenders owning more than 100 billion euros of Greek bonds being asked to extend their maturity to 15 to 20 years.
Reuters also reported that there was general agreement among policymakers and central bankers at Davos that the eurozone debt crisis was over the worst for now, and that the euro would definitely endure. Delegates also drew considerable confidence from a report released just before Davos, by the United Nations Conference on Trade and Development, which said that multinational companies in developed economies were sitting on a record $4-5 trillion in cash. The Times of India said that the cash had been built up as a bulwark against a potential double dip recession, and with the US turning in 3.2% growth for 2010, that threat now seems to have gone away. It follows that much of that cash mountain is now available to boost non-organic growth through merger and acquisition activity, which will be a massive shot in the arm for markets if it happens. JP Morgan CEO Jamie Dimon pointed out that his company hired 8,000 people in 2010 and that other major companies (he cited Ford, for example), are also recruiting for an anticipated upturn. Here’s hoping he’s right, but there is still a mountain to climb for developed economies and the point at which uninspired growth shades off into stagnation is a grey zone indeed.
Further information on economic recovery and post crash strategies:
- Investment Lessons from the Crash, by Jeremy Beckwith
- Staying in the Dark about Derivatives Will Bring Economic Collapse, by Hernando de Soto
- Warwick Commission Highlights the Local and Political Dimensions of Global Financial Reform, by Leonard Seabrooke
Tags: Davos , european sovereign debt , George Papaconstantino , Greece , United Nations Conference on Trade and Development , World Economic Forum