Citi's Buiter On Europe's Bumble And Stumble To Large-Scale Restructuring

Tyler Durden's picture


While still of the belief that a wholesale disintegration of the European Monetary Union remains a distinct tail-risk event, Citigroup's chief economist Willem Buiter succinctly summarizes his core view as "the euro-area will stumble and bumble towards an eventual resolution." However, that 'final' solution does not look like your grandma's European Union as he expects nothing more than a "continued Monetary Union, probably without Greece, having undergone both major sovereign debt restructurings in the periphery and financial debt restructurings for banks in the periphery and core." Transcribed from a three-minute clip, Buiter eloquently answers three key questions: How is the Euro crisis (and its consequent solution) shaping up? Does Germany have the upper-hand? and What sort of moral hazard issues might we see in the near future? He concludes "we won't have a smooth solution to this crisis."


Q. How is the Euro crisis and the consequent solution shaping up?

Buiter: The euro area is continuing to bumble and stumble to its eventual resolution. There still is the risk of disaster - of wholesale disintegration of the monetray union - but that is still pretty much a tail risk.

The most likely outcome will be a continued European Monetary Union - probably without Greece - and having undrgone a significant sovereign debt restructring and financial debt restructuring both in the periphery and for banks in the core also.

Q. Does Germany have the upper hand here?

Buiter: Nobody has the upper hand. Germany, perhaps, has the most to lose from the collapse of the monetary union and that of course weakens its negotiating power. Like every other EMU member nation, it can veto future aid programs, it can veto enlargement of rescue facilities but that's about it. After that, they only have the nuclear option of 'exit' which is very unlikely to be exercised.

This is why nobody has the upper-hand and decision-making remains a long drawn-out clumsy and often frustrating process

Q. What sort of moral hazard issues might we see in the near future?

Buiter: There isn't really significant risk of moral hazard. Moral hazard could occur if there was large-scale mutualization of sovereign debt and/or a large-scale transfer union but for political reasons that is NOT going to happen.

The ECB, which has announced that it is willing to intervene in markets to keep yields under control BUT only after countries (including Italy and Spain) go on programs, is not going to be the agent of moral hazard and neither is a large-scale increase in the size of the facilities.

It means of course that, while we won't have moral hazard, we also won't have a smooth solution towards the crisis


Source: Citigroup Velocity

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Sat, 08/11/2012 - 17:13 | 2697830 Ahmeexnal
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Hope and change!

Sat, 08/11/2012 - 19:13 | 2697977 Cosmosoft
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hey fukwad tylerzzz sacboy how can i get banned and unbanned for calling you fuking losers out, hey eric srpott is next  asswipes.


Sun, 08/12/2012 - 01:28 | 2698345 Terminus C
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Alright shiteater, I warned you.

Take your state lovin slimy, puss ridden, cum covered face and suck the cock of your bankster handler while shoving your fist up his ass.

You have a problem with a site that exposes the dark side of our society and dares question the status quo. How dare there be a source of information for the muppets so that they have some small hope of protecting themselves from the corrupt, thieving, lieing, asshole licking, sycophant politician/corporate managers who's only goal is to rape and pillage our society and the rest of the world.

The fact that you get to post here is irony utterly lost on you because the world that you swallow cum for seeks to destroy even the last few bastions of free expression.

Here is a challenge for you annonmous fuck-wit: wear a t-shirt that say people who read ZH are morons and see what happens to your punk ass when you walk down the street.

I hope I am the lucky ZH reader you meet first.

Sun, 08/12/2012 - 01:29 | 2698350 Cosmosoft
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cocksucking pig

Sun, 08/12/2012 - 01:58 | 2698370 Terminus C
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Too afraid to take up my challenge shit for brains?

Sun, 08/12/2012 - 12:36 | 2698789 GERxit
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Don't waste your time, Terminus!

He's obviously running on aggressively low-brains as he doesn't even come up with arguements but rather with his cursing and annoying spam-shit! 


If you really think you got the better arguments, Cosmosoft, meet me in the marketplace - then we will see who's doing better in the end!

Sat, 08/11/2012 - 17:26 | 2697849 OldE_Ant
OldE_Ant's picture

lol.  Hows it shaping up?

We are hoping for a change, soon people will be praying.

How do you fill a spending gap?

You don't  It fills you!

End of Line

Sat, 08/11/2012 - 17:31 | 2697861 govttrader
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I'm starting to think Merkel strategically timed her vacation...

Sat, 08/11/2012 - 22:25 | 2698148 zhandax
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To coincide with the rest of Europe?  Brilliant!

Sun, 08/12/2012 - 07:02 | 2698494 brettd
brettd's picture

No...the Irony is that most Germans are Spain!

Sat, 08/11/2012 - 17:36 | 2697866 deez nutz
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Without wholesale money printing to the tune of TRILLIONS by the ECB, the EURO is done.  Stick a fork in it. 

Sat, 08/11/2012 - 18:23 | 2697918 LowProfile
LowProfile's picture

Well, I don't think trillions.  Half a trillion more...  Maybe.

Here is what will happen:

The EUR will devalue.  But it won't disappear, or lose utility. 

Ghordius so far has said it best (link to the comment below )

"it is well known that the bulk of Europe's sovereign gold is also contained deep under downtown Manhattan: we wish them all the best when they attempt to repatriate the physical when they need it, such as the day after the EUR finally collapses".

This is the other way round. First Nixon forbade repatriation on August 1971. Then europe had think through where all this was heading and concocted the EUR as a response to the situation, present and future.

This included expectations of future currency wars and great rounds of "competitive devaluations" in an environment that would make small currencies very, very fragile in view of huge waves of hot, speculative fiat looking for something to break for a quick profit. The CHF is already hiding under the EUR skirt, if this goes on we'll soon see other small currencies in some kind of trouble (the GBP's fate will also be very interesting). No financial pundit is currently ever thinking through (in the way of Bastiat) how this mess since 2008 would have looked like with 17 eu currencies all biting each other...

Ironically, the best way to get rid of the EUR would be the repatriation of the european gold, same as in 1971.

Fat chance. As long as the US Treasury/FED goes the fiat way and the USD is the global reserve currency (the two facts reinforce each other), I don't see how this "EUR collapse" could happen with an eurozone that is a net exporter, an ECB that values it's gold at market value and the European Fiscal Compact that is going to at least try to institutionalize nearly-balanced-budgets in the eurozone's future.

For all near-blind hate against all central banks that some here have, anybody looking seriously at the current situation should realize a few of those facts, that make btw the search for "understanding where the EURUSD is going" quite irrelevant, a mere short-term distraction. By now, we all have some proof that the ECB is really guided by the compromise between 17 national interests (yeah, call them mercantile, if you wish).

Parts of the gold markets are "getting it", eventually we'll talk here about "eurogold vs. usdgold", and more about "central banks FX reserves", etc.

And for all those that are expecting a "marriage of convenience" between the USD and the EUR - or even think this is a "grand plan": please remember East Asia's policies, expectations, demands (including SDRs), past currency manipulations and plans for the future. And how the current global trade flows function.


All I can think to add to what Ghordius wrote above (for now) is that the EUR is a supra-national currency, with no single nation in control of the issuance of currency (BIG difference between the ECB and the Fed, although it's clear the Fed is in collusion with the big banks).

Also, it uses the market price of gold to calculate it's reserves, with which it lends against.  This gives it an enormous advantage over both a debt-based and a gold-redeemable currency.

This also has the effect of limiting the ability of any one Eurozone member from issuing unsustainable debt (Greece, Spain, et. al. are running up against this market limit right now).

This has the effect of in the long run, making the EUR the most stable of all transactional currencies in the world.

The USD could do the same, but to try and adopt the EUR model, it would create a price shock in gold (and the USD) that TPTB are clearly trying to avoid.

This IMO will result in the EUR becoming (at least in the West) the transactional currency of choice.  Not a great store of value (unless you buy stable EU nation bonds, depending on the larger environment), but a superior medium of exchange than other currencies (owing to it's wide acceptance and greater stability).

Gold, bitchez.

Oh, and



Sat, 08/11/2012 - 17:50 | 2697882 A Lunatic
A Lunatic's picture

Looks to me like a great opportunity to test the theory that "Everything's better with Blue Bonnet on it".

Sat, 08/11/2012 - 17:59 | 2697896 Yen Cross
Yen Cross's picture

 A lot of the commodity/risk currencies are inverted (h/s) on the hourly. If they form shoulders, it should be around the 50% retraces of the ( Thursday highs & Friday lows). We gap up initially, then down to the retrace mentioned.

Sat, 08/11/2012 - 19:40 | 2697997 bobert
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Ecuse me. 

How does your topic relate to the monetary union in Europe?

You seem very knowlegable about foreign currency trades. Any other thoughts?

Sat, 08/11/2012 - 18:02 | 2697898 Landrew
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I think it's just the opposite. When the print they will devalue the Euro. They will print and the Euro will fall and the dollar/pound/yen/franc will rise and that is good for Europe ex oil,gas and imported foodstuffs. They will then be able to grow their exports and increase employment. Without employment across all of Europe they will all be overthrown.

Sun, 08/12/2012 - 09:49 | 2698606 youngman
youngman's picture

I think it should be 1 to 1 already with the dollar.....but it is holding up.....I think its the Chinese keeping it their products seem cheap....who knows....but it seems to hold its own....when Dragai said more went

Sat, 08/11/2012 - 18:14 | 2697905 Vegetius
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Once again we have cutting edge analysis from our dear friends the banks still stuck in the position that the public are like sheep. They are indeed until you run out of bread and circuses for them, and Look! you have run out.

The sands of time are slipping away and your old world is going as well. The drums for war are everywhere, as the local players sense a bit of weakness in the leader of the free world. Economic depression will crush you banker boys, and as you are the ones in the firing line, kick back and enjoy your necktie party.

“Mischief springs from the power which the monied interest derives from a paper currency which they are able to control, and from the multitude of corporations with exclusive privileges…which are employed for their benefit.”

- Andrew Jackson

Sat, 08/11/2012 - 19:53 | 2698004 Herodotus
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Germany should agree to the bailouts and the resulting inflation in exchange for restoration of her 1914 borders.

Sat, 08/11/2012 - 20:18 | 2698022 bobert
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They may want to negotiate for some Mediterranean beachfront property in addition to the 1914 borders.

Sat, 08/11/2012 - 22:02 | 2698127 disabledvet
disabledvet's picture

'44 will do as well I'm sure.

Sat, 08/11/2012 - 18:38 | 2697941 Reese Bobby
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Buiter is a wolf in sheep's clothing.  Bought and paid for by the Global Bank Cartel.  F*** Him.

Sat, 08/11/2012 - 21:31 | 2698087 Hedgetard55
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One more worker bee in the international bankster hive. He is full of shit.

Sun, 08/12/2012 - 04:20 | 2698429 LudwigVon
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Yeah, and TD mirror has a glitch, signing on to the "where is the transfer union" drivel, umm its the 900 billion in target2 system, but it is short lived because it does nothing to aid debt prices or quantity accrued, ergo profligate sovereigns get punished, and Germny pays its nearly Trillion dollar price tag for the low currency. Fun times.

Sat, 08/11/2012 - 18:57 | 2697959 xyrius16
xyrius16's picture

Well it is clear we are heading for Dante's Inferno

Sat, 08/11/2012 - 19:00 | 2697963 q99x2
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Ugh. When will Greece default?

Sun, 08/12/2012 - 09:50 | 2698608 youngman
youngman's picture

Ugh. When will Greece default AGAIN?

Sat, 08/11/2012 - 19:28 | 2697988 smiler03
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At last I can relax and put my hoarded cash into equities.

Sun, 08/12/2012 - 07:38 | 2698515 lewy14
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You know over the last five years I've inferred the following rule of thumb: the markets will confound the maximum number of people they can.

Right now, a huge rally past the 2007 highs would confound quite a few people... just sayin'...

Sat, 08/11/2012 - 21:47 | 2698083 wang (not verified)
wang's picture

Citi's Buiter


say it again

Citi's Buiter


sorry, did you say CITI? asin CI(T(axpayer)I


Watch this

most are scum

see minute 10:32 of this video from Bloomberg yesterday

Shilling  the analysts are paid to be bulls



Sat, 08/11/2012 - 21:46 | 2698111 disabledvet
disabledvet's picture

Restructuring? BUWAHAHAHAHAHAHA! Europe is the ULTIMATE DISSERTATION on the difference between a "bid and an ask." Believe me when i tell you...there will be institutions saying for CENTURIES "did i just buy that?" BRACE FOR IMPACT:

Sat, 08/11/2012 - 23:48 | 2698254 vinu02
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Sun, 08/12/2012 - 05:48 | 2698457 Linus2011
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Expect Germany to dominate the fate of all of Europe and the world economy very soon.

Which means: Pressing Austerity to all parasite states, spending trillions only to generate more hate.

Expect it to go badly wrong in the end.

Sun, 08/12/2012 - 06:01 | 2698462 Ghordius
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LOL - first, I note a word that is IMO a bit an English-speaking obsession, lately: "dominate". How about "cooperate"?

second, you use "pressing" "Austerity" and "parasite" "states", which leaves me a bit clueless on what you find good or bad.

Third, you expect the whole thing to go badly wrong. Is it a wish or a fear?

Sun, 08/12/2012 - 07:44 | 2698517 lewy14
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Cooperation requires trust. Of which there is approximately zero.

What we are witnessing now is nothing more than a repeated game, where we will, eventually, reach an equilibrium.

To expect that equilibrium to be globally optimal is to possess a misplaced faith in the powers of human beings.

[The trick, of course, to avoiding the pitfalls of arrogance or misanthropy is to realize all this, and love mankind anyway.]

Sun, 08/12/2012 - 13:18 | 2698858 Ghordius
Ghordius's picture

+1 great comment - good trick - pls with an additional serving of trust, for me, it's a renewable resource

Sun, 08/12/2012 - 06:15 | 2698470 Linus2011
Linus2011's picture

times for "cooperation" in the EU are definitely over. to my opionion it never really existed among these strongly opportunistic countries.

to be honest - as an investor i am waiting for it to happen and am hedged exactly for that. sometimes a quick and early disaster is just the best solution.

Sun, 08/12/2012 - 06:55 | 2698490 dpr10
dpr10's picture

what makes this idiot so sure that after Greece leaving the Eurozone, there wont be further significant contagion to prompt others to leave????and socialist France is not even in the zone yet..wait till vigilantes go after France;;))

Sun, 08/12/2012 - 09:24 | 2698569 Disenchanted
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I'm sorta can someone clear this up for me? Is "restructuring" shorthand for piling more debt on countries where the original problem was too much debt?


Just whom is the interest paid to on all that debt(old and new)?  (That one is rhetorical btw, as I have figured that out.)


Thanks in advance.

Sun, 08/12/2012 - 09:42 | 2698586 DanDaley
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Buiter is very close to the Spanish buitre, vulture.  Curious, or curioso.

Sun, 08/12/2012 - 14:52 | 2698997 theprofromdover
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Germany has two options; it prefers the greater german empire version.

Fiscal and political union will happen in the dead of night, you won't be asked for your opinion.

Why do you think it is so quiet just now.

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