After 18 months of delay and denial, Greece is about to restructure its debts.
Road to ruin or recovery?
Euro Zone The National charts Europe's struggles as it attempts to through of financial crisis. Learn more
This, by itself, will not be enough to draw a line under the euro zone's crisis. Greece will also have to downsize its public sector, reform its tax administration, and take other steps to modernise its economy. Its European partners will have to build a firewall around Spain and Italy to prevent their debt markets and economies from being destabilised. Banks incurring balance-sheet damage will have to be recapitalised. The flaws in euro-zone governance will have to be fixed.
The indispensable first step, however, is a deep write-down of Greek debt - to less than half of its face value. The burden on the Greek taxpayer will be lightened, which is a prerequisite for reducing wages, pensions and other costs, and thus is essential to the strategy of "internal devaluation" needed to restore Greek competitiveness. Forcing bondholders to accept a haircut on what they will be paid also promises to discourage reckless lending to euro-zone sovereigns in the future.
This brings us to the question of why it took policymakers a year and a half to get to this point.
The answer is that there are strong incentives to delay. The Greek government, for which restructuring is an admission of failure, continues to hope that good news will magically turn up.
Likewise, French banks holding Greek bonds cling to whatever thin reed of optimism they can and lobby furiously against restructuring. European policymakers, for their part, worry that a sovereign-debt restructuring will damage the financial system and be a black mark for their monetary union.
The incentives to delay are myriad. The question is, what can be done about them?
Rather than resorting time after time to bailouts and delay, isn't there a way to more swiftly and decisively restructure the debts of insolvent sovereigns?
One answer would be to add to future bond covenants contractual provisions that would trigger the necessary restructuring automatically. The concept is taken from the debate over bank reform, where there is an analogous problem of bailouts and bail-ins. Because of the difficulty of putting banks through a bankruptcy-like procedure, there is an incentive, such as that which arises in the context of sovereign debt, to postpone the painful process of imposing losses on bondholders and instead provide a bailout and hope for the best.
Contingent convertible bonds, or "cocos", have been proposed as a solution to this problem. When a bank's capital falls below a pre-specified limit, its cocos automatically convert from debt to equity at a fraction of their previous price. This bails in the bondholders and helps to recapitalise the financial institution in question.
Extending this idea to sovereign debt, government bond covenants could stipulate that if a sovereign's debt/GDP ratio exceeds a specified threshold, principal and interest payments to bondholders would be automatically reduced. The idea is that if there is no adequate incentive to restructure once a crisis starts, it should be built in before the fact.
"Sovereign cocos" have the advantage that their activation would not constitute a credit event triggering the credit-default swaps (CDS) written on the bonds. The existence of large quantities of CDSs, together with uncertainty about who has written them, has fed the reluctance to proceed with restructuring. Sovereign cocos would assuage the fear of creating an AIG-like event, in which a too-big-to-fail underwriter is over-exposed.
Objections to the idea start with the question of whether there would be adequate demand for these novel sovereign-debt instruments. In fact, the success of banks in issuing cocos suggests that investors do have the appetite for them.
There is also a concern that the government might manipulate the debt and GDP statistics on which the conversion trigger is based. Outsourcing these figures' calculation to an independent entity, such as the IMF, could solve this problem.
There would be worries that adding cocos to sovereign bonds might raise governments' borrowing costs. But the literature on related instruments known as collective-action clauses suggests borrowing costs would rise only for governments approaching the limit of their creditworthiness - that is, close to the cocos' trigger. And raising borrowing costs for governments with dangerously heavy debts - thereby discouraging them from further borrowing - is precisely what we should want to do.
Adding cocos to government bonds will require solving a host of technical problems. But not adding them is a recipe for more delay, more bailouts, and more chaos the next time the debts of a sovereign such as Greece become unsustainable.
Barry Eichengreen is a professor of economics and political science at the University of California, Berkeley, and the author of Exorbitant Privilege
* Project Syndicate
'My Son'
Director: Christian Carion
Starring: James McAvoy, Claire Foy, Tom Cullen, Gary Lewis
Rating: 2/5
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Our legal consultant
Name: Dr Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
RESULTS
5pm: Sheikh Mansour bin Zayed Al Nahyan Racing Festival Purebred Arabian Cup Conditions (PA) Dh 200,000 (Turf) 1,600m
Winner: Hameem, Adrie de Vries (jockey), Abdallah Al Hammadi (trainer)
5.30pm: Sheikha Fatima bint Mubarak Cup Conditions (PA) Dh 200,000 (T) 1,600m
Winner: Winked, Connor Beasley, Abdallah Al Hammadi
6pm: Sheikh Sultan bin Zayed Al Nahyan National Day Cup Listed (TB) Dh 380,000 (T) 1,600m
Winner: Boerhan, Ryan Curatolo, Nicholas Bachalard
6.30pm: Sheikh Sultan bin Zayed Al Nahyan National Day Group 3 (PA) Dh 500,000 (T) 1,600m
Winner: AF Alwajel, Tadhg O’Shea, Ernst Oertel
7pm: Sheikh Sultan bin Zayed Al Nahyan National Day Jewel Crown Group 1 (PA) Dh 5,000,000 (T) 2,200m
Winner: Messi, Pat Dobbs, Timo Keersmaekers
7.30pm: Sheikh Mansour bin Zayed Al Nahyan Racing Festival Handicap (PA) Dh 150,000 (T) 1,400m
Winner: Harrab, Ryan Curatolo, Jean de Roualle
8pm: Wathba Stallions Cup Handicap (PA) Dh 100,000 (T) 1,400m
Winner: AF Alareeq, Connor Beasley, Ahmed Al Mehairbi
Sri Lanka-India Test series schedule
- 1st Test India won by 304 runs at Galle
- 2nd Test India won by innings and 53 runs at Colombo
- 3rd Test August 12-16 at Pallekele
The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
Navdeep Suri, India's Ambassador to the UAE
There has been a longstanding need from the Indian community to have a religious premises where they can practise their beliefs. Currently there is a very, very small temple in Bur Dubai and the community has outgrown this. So this will be a major temple and open to all denominations and a place should reflect India’s diversity.
It fits so well into the UAE’s own commitment to tolerance and pluralism and coming in the year of tolerance gives it that extra dimension.
What we will see on April 20 is the foundation ceremony and we expect a pretty broad cross section of the Indian community to be present, both from the UAE and abroad. The Hindu group that is building the temple will have their holiest leader attending – and we expect very senior representation from the leadership of the UAE.
When the designs were taken to the leadership, there were two clear options. There was a New Jersey model with a rectangular structure with the temple recessed inside so it was not too visible from the outside and another was the Neasden temple in London with the spires in its classical shape. And they said: look we said we wanted a temple so it should look like a temple. So this should be a classical style temple in all its glory.
It is beautifully located - 30 minutes outside of Abu Dhabi and barely 45 minutes to Dubai so it serves the needs of both communities.
This is going to be the big temple where I expect people to come from across the country at major festivals and occasions.
It is hugely important – it will take a couple of years to complete given the scale. It is going to be remarkable and will contribute something not just to the landscape in terms of visual architecture but also to the ethos. Here will be a real representation of UAE’s pluralism.
Simran
Director Hansal Mehta
Stars: Kangana Ranaut, Soham Shah, Esha Tiwari Pandey
Three stars
UAE currency: the story behind the money in your pockets
A State of Passion
Directors: Carol Mansour and Muna Khalidi
Stars: Dr Ghassan Abu-Sittah
Rating: 4/5
Tonight's Chat on The National
Tonight's Chat is a series of online conversations on The National. The series features a diverse range of celebrities, politicians and business leaders from around the Arab world.
Tonight’s Chat host Ricardo Karam is a renowned author and broadcaster with a decades-long career in TV. He has previously interviewed Bill Gates, Carlos Ghosn, Andre Agassi and the late Zaha Hadid, among others. Karam is also the founder of Takreem.
Intellectually curious and thought-provoking, Tonight’s Chat moves the conversation forward.
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UAE currency: the story behind the money in your pockets
Results
6.30pm: Al Maktoum Challenge Round-2 Group 1 (PA) US$75,000 (Dirt) 1,900m
Winner: Ziyadd, Richard Mullen (jockey), Jean de Roualle (trainer).
7.05pm: Al Rashidiya Group 2 (TB) $250,000 (Turf) 1,800m
Winner: Barney Roy, William Buick, Charlie Appleby.
7.40pm: Meydan Cup Listed Handicap (TB) $175,000 (T) 2,810m
Winner: Secret Advisor, Tadhg O’Shea, Charlie Appleby.
8.15pm: Handicap (TB) $175,000 (D) 1,600m
Winner: Plata O Plomo, Carlos Lopez, Susanne Berneklint.
8.50pm: Handicap (TB) $135,000 (T) 1,600m
Winner: Salute The Soldier, Adrie de Vries, Fawzi Nass.
9.25pm: Al Shindagha Sprint Group 3 (TB) $200,000 (D) 1,200m
Winner: Gladiator King, Mickael Barzalona, Satish Seemar.
Sarfira
Director: Sudha Kongara Prasad
Starring: Akshay Kumar, Radhika Madan, Paresh Rawal
Rating: 2/5
From exhibitions to the battlefield
In 2016, the Shaded Dome was awarded with the 'De Vernufteling' people's choice award, an annual prize by the Dutch Association of Consulting Engineers and the Royal Netherlands Society of Engineers for the most innovative project by a Dutch engineering firm.
It was assigned by the Dutch Ministry of Defence to modify the Shaded Dome to make it suitable for ballistic protection. Royal HaskoningDHV, one of the companies which designed the dome, is an independent international engineering and project management consultancy, leading the way in sustainable development and innovation.
It is driving positive change through innovation and technology, helping use resources more efficiently.
It aims to minimise the impact on the environment by leading by example in its projects in sustainable development and innovation, to become part of the solution to a more sustainable society now and into the future.
What are the GCSE grade equivalents?
- Grade 9 = above an A*
- Grade 8 = between grades A* and A
- Grade 7 = grade A
- Grade 6 = just above a grade B
- Grade 5 = between grades B and C
- Grade 4 = grade C
- Grade 3 = between grades D and E
- Grade 2 = between grades E and F
- Grade 1 = between grades F and G
The candidates
Dr Ayham Ammora, scientist and business executive
Ali Azeem, business leader
Tony Booth, professor of education
Lord Browne, former BP chief executive
Dr Mohamed El-Erian, economist
Professor Wyn Evans, astrophysicist
Dr Mark Mann, scientist
Gina MIller, anti-Brexit campaigner
Lord Smith, former Cabinet minister
Sandi Toksvig, broadcaster
The specs
Engine: Turbocharged four-cylinder 2.7-litre
Power: 325hp
Torque: 500Nm
Transmission: 10-speed automatic
Price: From Dh189,700
On sale: now
The biog
From: Upper Egypt
Age: 78
Family: a daughter in Egypt; a son in Dubai and his wife, Nabila
Favourite Abu Dhabi activity: walking near to Emirates Palace
Favourite building in Abu Dhabi: Emirates Palace
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How much do leading UAE’s UK curriculum schools charge for Year 6?
- Nord Anglia International School (Dubai) – Dh85,032
- Kings School Al Barsha (Dubai) – Dh71,905
- Brighton College Abu Dhabi - Dh68,560
- Jumeirah English Speaking School (Dubai) – Dh59,728
- Gems Wellington International School – Dubai Branch – Dh58,488
- The British School Al Khubairat (Abu Dhabi) - Dh54,170
- Dubai English Speaking School – Dh51,269
*Annual tuition fees covering the 2024/2025 academic year
The burning issue
The internal combustion engine is facing a watershed moment – major manufacturer Volvo is to stop producing petroleum-powered vehicles by 2021 and countries in Europe, including the UK, have vowed to ban their sale before 2040. The National takes a look at the story of one of the most successful technologies of the last 100 years and how it has impacted life in the UAE.
Read part four: an affection for classic cars lives on
Read part three: the age of the electric vehicle begins
Read part one: how cars came to the UAE
The%20specs
%3Cp%3E%3Cstrong%3EEngine%3A%20%3C%2Fstrong%3E2.3-litre%204cyl%20turbo%0D%3Cbr%3E%3Cstrong%3EPower%3A%20%3C%2Fstrong%3E299hp%20at%205%2C500rpm%0D%3Cbr%3E%3Cstrong%3ETorque%3A%20%3C%2Fstrong%3E420Nm%20at%202%2C750rpm%0D%3Cbr%3E%3Cstrong%3ETransmission%3A%20%3C%2Fstrong%3E10-speed%20auto%0D%3Cbr%3E%3Cstrong%3EFuel%20consumption%3A%20%3C%2Fstrong%3E12.4L%2F100km%0D%3Cbr%3E%3Cstrong%3EOn%20sale%3A%20%3C%2Fstrong%3ENow%0D%3Cbr%3E%3Cstrong%3EPrice%3A%20%3C%2Fstrong%3EFrom%20Dh157%2C395%20(XLS)%3B%20Dh199%2C395%20(Limited)%3C%2Fp%3E%0A
Results
United States beat UAE by three wickets
United States beat Scotland by 35 runs
UAE v Scotland – no result
United States beat UAE by 98 runs
Scotland beat United States by four wickets
Fixtures
Sunday, 10am, ICC Academy, Dubai - UAE v Scotland
Admission is free
