The Greek deal will not happen.
http://www.nytimes.com/2012/02/20/opinion/krugman-pain-without-gain.html?_r=1&partner=rssnyt&emc=rss
"Last week the European Commission confirmed what everyone suspected: the economies it surveys are shrinking, not growing. It’s not an official recession yet, but the only real question is how deep the downturn will be.
And this downturn is hitting nations that have never recovered from the last recession. For all America’s troubles, its gross domestic product has finally surpassed its pre-crisis peak; Europe’s has not. And some nations are suffering Great Depression-level pain: Greece and Ireland have had double-digit declines in output, Spain has 23 percent unemployment, Britain’s slump has now gone on longer than its slump in the 1930s.
Worse yet, European leaders — and quite a few influential players here — are still wedded to the economic doctrine responsible for this disaster.
For things didn’t have to be this bad. Greece would have been in deep trouble no matter what policy decisions were taken, and the same is true, to a lesser extent, of other nations around Europe’s periphery. But matters were made far worse than necessary by the way Europe’s leaders, and more broadly its policy elite, substituted moralizing for analysis, fantasies for the lessons of history.
Specifically, in early 2010 austerity economics — the insistence that governments should slash spending even in the face of high unemployment — became all the rage in European capitals. The doctrine asserted that the direct negative effects of spending cuts on employment would be offset by changes in “confidence,” that savage spending cuts would lead to a surge in consumer and business spending, while nations failing to make such cuts would see capital flight and soaring interest rates. If this sounds to you like something Herbert Hoover might have said, you’re right: It does and he did.
Now the results are in — and they’re exactly what three generations’ worth of economic analysis and all the lessons of history should have told you would happen. The confidence fairy has failed to show up: none of the countries slashing spending have seen the predicted private-sector surge. Instead, the depressing effects of fiscal austerity have been reinforced by falling private spending.
Furthermore, bond markets keep refusing to cooperate. Even austerity’s star pupils, countries that, like Portugal and Ireland, have done everything that was demanded of them, still face sky-high borrowing costs. Why? Because spending cuts have deeply depressed their economies, undermining their tax bases to such an extent that the ratio of debt to G.D.P., the standard indicator of fiscal progress, is getting worse rather than better.
Meanwhile, countries that didn’t jump on the austerity train — most notably, Japan and the United States — continue to have very low borrowing costs, defying the dire predictions of fiscal hawks.
Now, not everything has gone wrong. Late last year Spanish and Italian borrowing costs shot up, threatening a general financial meltdown. Those costs have now subsided, amid general sighs of relief. But this good news was actually a triumph of anti-austerity: Mario Draghi, the new president of the European Central Bank, brushed aside the inflation-worriers and engineered a large expansion of credit, which was just what the doctor ordered.
So what will it take to convince the Pain Caucus, the people on both sides of the Atlantic who insist that we can cut our way to prosperity, that they are wrong?
After all, the usual suspects were quick to pronounce the idea of fiscal stimulus dead for all time after President Obama’s efforts failed to produce a quick fall in unemployment — even though many economists warned in advance that the stimulus was too small. Yet as far as I can tell, austerity is still considered responsible and necessary despite its catastrophic failure in practice.
The point is that we could actually do a lot to help our economies simply by reversing the destructive austerity of the last two years. That’s true even in America, which has avoided full-fledged austerity at the federal level but has seen big spending and employment cuts at the state and local level. Remember all the fuss about whether there were enough “shovel ready” projects to make large-scale stimulus feasible? Well, never mind: all the federal government needs to do to give the economy a big boost is provide aid to lower-level governments, allowing these governments to rehire the hundreds of thousands of schoolteachers they have laid off and restart the building and maintenance projects they have canceled.
Look, I understand why influential people are reluctant to admit that policy ideas they thought reflected deep wisdom actually amounted to utter, destructive folly. But it’s time to put delusional beliefs about the virtues of austerity in a depressed economy behind us."
http://my.firedoglake.com/scarecrow/2012/02/20/euro-nations-continue-to-insult-strangle-threaten-greece/
That follows a week or more of intimidating and insulting comments by German financial minister Wolfgang Schäuble and others suggesting that it would be better for everyone if Greece just left, but if they insist on staying, they effectively have to surrender their fiscal sovereignty to the Troika representing outside creditors and even postpone elections to satisfy the Germans that a new government will honor the current government’s pledges.
All of these insults were happening while Angela Merkel and Troika officials were insisting that a Greek default and leaving the Euro were out of the question, while demanding more and more austerity concessions as a condition for providing the loan funds they promised months ago. The goal posts have been moving almost daily.
Everyone’s been playing bad cop/bullying cop, and there’s not a sensible voice among the entire Euro leadership. As one might expect, this has infuriated the Greek government and more importantly, the Greek people, who turned out in the hundreds of thousands to protest not only the strangling austerity measures but the bulling and insults that came with them. And yet the government keeps promising to meet each set of new demands.
Today, as the Euro ministers are meeting supposedly to reach final agreement, we get yet more insults and bullying. From The FT’s live crisis blog at that meeting:
“Money is the thing we can control Greece with.” That pretty well sums up the bankster mentality, and they say this because they know it usually works.15.21: Jan Kees de Jager, the Dutch finance minister, has roiled the markets with his latest comments outside the Brussels meeting. This via Reuters:
“Greece wants the money and so far we haven’t given them anything. We have said no over the past weeks. We can afford to say to no until Greece has met all the demands. It’s up to Greece and the troika (of the ECB, the IMF and the European Commission) to say whether this has been done and for us it is a no until Greece has done so. If Greece lives up to all its obligations, then the Netherlands will also do its part.
. . . it’s probably necessary that there is some kind of permanent presence of the troika in Athens not every three months but on a permanent basis.. . .“I am in favour of more control, more supervision … Money is the thing we can control Greece with.”
Throughout the Euro/Greek crisis, the Euro leaders have focused on making sure future creditors were protected, even as current private creditors were getting a 70% haircut, never mind what the consequences were for the Greek economy or the Greek people. At no time has anyone every offered Greece a way out of its depression or a way to relieve the suffering of the Greek people while they reformed their economy.
So everything else — pensions, wages, assets, services, their future — had to be sacrificed to protect the new creditors, primarily northern Euro banks. And now the banksters’ governments are openly declaring that if you don’t protect the creditors, you can’t have democracy."
http://www.eschatonblog.com/2012/02/choices.html
Monday, February 20, 2012
Choices
__( http://www.ft.com/intl/cms/s/0/16f04ffa-5963-11e1-9153-00144feabdc0.html#axzz1mxgjbMB7 )__
When Wolfgang Schäuble proposed that Greece should postpone its elections as a condition for further help, I knew that the game would soon be up. We are at the point where success is no longer compatible with democracy. The German finance minister wants to prevent a “wrong” democratic choice. Similar to this is the suggestion to let the elections go ahead, but to have a grand coalition irrespective of the outcome. The eurozone wants to impose its choice of government on Greece – the eurozone’s first colony.
Get Greece (out)
Brutal, brutal, formal, excruciatingly-timed, leaked confirmation of what we we’ve known for ages – the Greek bailout 2.0 is Souvlaki in the sky…
First from Reuters, who had the toxic doc first (got that?):
(Reuters) – Greece will need additional relief if it is to cut its debts to 120 percent of GDP by 2020 and if it doesn’t follow through on structural reforms and other measures, its debt could hit 160 percent by 2020, a confidential analysis conducted by the IMF, European Central Bank and European Commission shows.And from the FT’s Peter Spiegel, who has been leafing through the same leaked report:
The report makes clear why the fight over the new Greek bail-out has been so intense in recent days. A German-led group of creditor countries – including the Netherlands and Finland – has expressed extreme reluctance since they received the report about the advisability of allowing the second rescue to go through.The Eurogroup meeting was still underway in Brussels at pixel time. We’d hazard a guess that negotiations were actually going okay… until this report came out.
A “tailored downside scenario” prepared for eurozone leaders in the report suggests Greek debt could fall far more slowly than hoped, to only 160 per cent of economic output by 2020 – far below the target of 120 per cent set by the International Monetary Fund. Under such a scenario, Greece would need about €245bn in bail-out aid, nearly twice the €136bn under the “baseline” projections.
“Prolonged financial support on appropriate terms by the official sector may be necessary,” the report said, a clear reference to the possibility that bail-out funds may be needed indefinitely.
Even under the most favourable circumstances, Greece could need an additional €50bn in bail-out aid by the end of the decade on top of the €136bn in new funds until 2015 being debated at a crucial eurozone finance ministers’ meeting on Monday night. That “baseline” scenario includes projections that the Greek economy will stop shrinking next year and return to 2.3 per cent growth in 2014.
Here’s a very useful fact box on the matter from Reuters.
And here’s a totally useless word cloud on the leaked document, also from Reuters…
http://www.reuters.com/article/2012/02/19/us-greece-austerity-idUSTRE81I05T20120219
(Reuters) - Greece's cabinet approved late on Saturday 325 million euros ($428 million) of extra austerity measures needed to complete a 3.3 billion euro package of cuts -- the price demanded from Athens for a new EU/IMF bailout.
Below are the main measures, some of which may need new legislation. The information comes from statements by Prime Minister Lucas Papademos, the text of hundreds of pages of legislation posted in Greek and English on the parliament's web site, and government sources. (For web links see bottom of story)
FISCAL ADJUSTMENT
- Before any funds are disbursed under the bailout in March, the government must pass a supplementary budget including spending cuts worth 1.5 percent of gross domestic product this year, or 3.3 billion euros ($4.37 billion).
- A first breakdown of the cuts, issued this month, stated that 1.1 billion euros would come from health spending, mainly by lowering pharmaceuticals prices; 400 million euros from public investment; 300 million euros from the defense budget; 300 million from pension cuts and 300 million from the central government. Some 325 million euros of cuts were put aside to be detailed later, with the remainder to come from a series of smaller measures to reduce ministry operating expenses.
- While the final package of measures worth 325 million euros still needs to be officially specified, two government sources told Reuters on Feb 16 that 100 million euros would come from further defense cuts. An extra 90 million will be collected by bringing forward public sector wage reductions and another 135 million from the health, labor and interior ministries, the sources said. Prime Minister Lucas Papademos said on February 18 more cuts to pensions were unavoidable but said only the portion above a monthly threshold of 1,300 euros would be affected.
- In June, the government then in charge following possible elections penciled for April will have to specify additional austerity measures worth 10 billion euros for 2013-2015.
BANK RECAPITALISATIONS
- All banks will be required to achieve a core tier-1 capital ratio of 9 percent by the third quarter of 2012 and of 10 percent in the second quarter of 2013, by raising capital themselves and/or receiving bailout funds.
- Depending on the degree of state help they will need, banks will receive state funds in exchange for common voting shares, shares with restricted voting rights or convertible bonds.
PRIVATISATIONS
- Cumulative privatization receipts since June 2011 should be at least 4.5 billion euros by end-2012, 7.5 billion by end-2013, 12.2 billion by end-2014 and 15 billion by end-2015. An initial privatization target of 50 billion euros should be achieved "over the medium term."
- There will be increased powers for Greece's privatization agency to sell an asset in pieces, or liquidate it if it cannot be sold in its current form.
- The list of companies whose full or partial privatization will be launched in 2012 includes gas company DEPA, gas grid operator DESFA and refiner Hellenic Petroleum.
LABOUR REFORM
- Before any bailout funds are disbursed, Greece must pass legislation to reduce the monthly minimum wage, currently at about 750 euros gross, by 22 percent. For people below the age of 25, it will be cut by 32 percent; automatic wage increases based on seniority will be scrapped; collective wage agreements will be allowed to adapt "to changing economic conditions on a frequent and regular basis"; social security contributions are to be reduced by 5 percent.
- About 15,000 state workers will be placed in a "labor reserve" in 2012, meaning they will receive 60 percent of their basic wage and dismissed after a year; one civil servant will be hired for every five retiring, with the aim of cutting the state sector workforce by about 150,000 people by 2015.
STRUCTURAL REFORMS
- Before receiving any funds, Greece must revise legislation to make sure that a variety of professions are opened up to competition, including primary health care, stevedores, accountants, tourist guides and real-estate brokers.
FISCAL, ECONOMIC TARGETS
- For 2012, the annual general government primary deficit should not exceed 2.06 billion euros. For 2013 and 2014 the primary surplus should be at least 3.6 billion euros and 9.5 billion euros respectively. The figures above are subject to change.
- In 2012-2014, the general government budget deficit must be reduced by 7 percentage points from a 2011 level which Athens forecasts at between 9.1 and 9.4 percent of GDP. The fiscal targets may be stretched by one year into 2015 if economic growth is weaker than expected.
- The economy is seen shrinking overall by 4-5 percent in 2012 and 2013. Recovery is expected to begin in 2013, with the economy growing at a pace of 2.5-3 percent in each of 2014 and 2015.
DEBT-SWAP DEAL
The bill lays out the legal groundwork for the EU's EFSF rescue fund and the European Central Bank to facilitate a planned debt swap deal.
- A 35-billion euro "ECB Credit Enhancement Facility Agreement" will enable Greece to finance a repurchase agreement whereby the ECB, acting on Greece's behalf, would offer to buy back some Greek government bonds held by euro zone central banks.
- The European Financial Stability Facility will make 30 billion euros available as a sweetener for the debt swap.
(Additional reporting by George Georgiopoulos; editing by Mark John and Mark Trevelyan)
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walterrhett
I will acquire debt when it will serve me. -
Cathy Horyn's Runway Report
A big contrast with what Bill Cunningham saw as significant.
I like Cunningham's view better.
There is novelty in both.
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frantaclaus
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Personal Health — New Dietary Guidelines for Americans
The government has offered new recommendations that clearly favor the health and well-being of consumers over hard-lobbying farm interests.
It all looks like good advice to me.
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Crisp-Braised Duck Legs With Vegetables
Easy. Say when.
Sooner is better. As soon as you can is best. -
Franklin Ballard
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Does IMF Stand for Impressive Macroeconomic Flexibility?
So the IMF is holding a meeting on rethinking macroeconomic policy (I was invited but couldn’t make the timing work.) And the Fund’s chief economist has already made it clear that he’s open to some serious revision of the prevailing paradigm.
See my lead.
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Chaakles
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Why All the News Media Scorn for Huntsman?
“Why All the News Media Scorn for Huntsman? http://nyti.ms/iXZzbw // This is in some ways better than the NYTM piece.”
Huntsman was the most rational of the candidates.He has ended his candidacy.
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Does IMF Stand for Impressive Macroeconomic Flexibility?
So the IMF is holding a meeting on rethinking macroeconomic policy (I was invited but couldn’t make the timing work.) And the Fund’s chief economist has already made it clear that he’s open to some serious revision of the prevailing paradigm.
I am still long. I will call my broker tomorrow morning.
http://krugman.blogs.nytimes.com/2012/02/20/hooverbruning-2012/
Hoover/Brüning 2012
I haven’t written much lately about the spate of articles either calling for, or at least wistfully speculating about, a “centrist” third-party candidacy. It’s nonsense, of course, on multiple levels. For one thing, if you look at what pundits calling for such a candidacy want, it’s all already in Obama’s proposals. For another, it’s not going to happen. For a third, the favorite imaginary candidate, Michael Bloomberg, turns out to be totally ignorant about the economic crisis.
But thinking about today’s column, I realized that it’s even worse than that. What defines centrist heroes, as far as I can tell, is that they are people who, faced with a catastrophic slump driven by private-sector abuses, and a severe shortfall of spending, declared that our most urgent priority is … to reduce budget deficits.
That’s often described as a courageous position, but it’s actually anything but: nobody in the Beltway dinner-party circuit has ever been ostracized for demanding entitlement cuts. And aside from being totally conventional, it’s also deeply wrong-headed — and if you ask me somewhat unethical, too, because it involves exploiting a crisis to push an agenda totally unrelated to that crisis.
Anyway, my thought for the evening." -
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http://www.bbc.co.uk/news/business/market_data/overview/
The BBC audio news feed can be found at:
Greece debt talks held amid hopes
Eurozone finance ministers meeting in Brussels say they are hopeful Greece will secure a second bailout needed to avoid bankruptcy. - Hewitt: The Greek gamble
- Stocks up on bailout hopes
- Q&A: Greek debt crisis
- Struggling Greeks lose faith
- ECB stops buying euro bonds
- Timeline of Eurozone crisis
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