The Wall Street Journal’s Marketbeat blog discusses an interesting flow chart prepared by BNP  Paribas which shows the various scenarios that could play out following the imminent Greek bond offer to its private bondholders. Among the apparent paradoxes brought out by the chart is that Greece could be better off from a debt reduction perspective if a small majority rather than large majority of bondholders accept the offer, because then it will have the latitude to, er, screw the holdouts, including the possibility of giving them nothing. Whereas with a very high majority, there will be a strong incentive to keep everything consensual and the holdouts escape at par.

Anyway, the chart refers to the scenario where Greece is able to impose a punitive scheme on the holdouts as “Anglo Irish.”  This is because of the bank’s 2010 offering to subordinated debt holders, who were offered new bonds with 20 percent of the face value of the old ones, and by accepting they were voting to impose essentially a complete wipeout of anyone who didn’t accept. FT Alphaville discussed the strategy in detail at the time.

It’s a perfectly good label, but if you come away from the chart thinking that Ireland came up with a hardball (or is that “fair shoulder”?) solution to its problem of bank debt, you’d be wrong. That particular offer only dealt with a tiny proportion of Anglo’s overall debt, and it was the easiest target. In fact, far larger public sums have been spent paying at par the legacy unsecured and unguaranteed senior debt in Anglo Irish — claims that would have only residual value had Anglo been allowed to go to the wall as an insolvent bank.  The closer analogy is with the wheeze that the ECB just pulled to make sure its own holdings of Greek bonds get paid at par, despite having paid heavily discounted market prices for them.

So good luck to Greece with the Anglo Irish scenario. It would have been nice had it been tried on any larger scale in Ireland.

This new post at VoxEU on the sudden plunge in world trade in 2008-2009 is very interesting. For one thing, it gives us some detail about how the crisis was transmitted around the world, and how this transmission happened between typically supply-side factors (wages are too high, the wrong goods are produced, everyone is suddenly a “zero marginal product worker”) and demand-side ones. It seems that the unprecedently large chunk of world trade that consists of intermediate goods in supply chains played an important part. On this occasion, “The World, On Time” was the last thing anyone wanted.

Another interesting and important point which isn’t explicitly made is that fiscal stimulus didn’t actually “leak” as so many people feared. Countries that carried out substantial stimulus didn’t see their balance of payments get sharply worse. This is because public spending often goes into nontradable goods, and the rest is often spent on home production.

In so far as you want “rebalancing”, then, it doesn’t make sense to think that austerity leads to it.