"And the band played on"
It is almost time for "Nearer My God to Thee"
http://www.reuters.com/article/2012/06/19/us-greece-idUSBRE85H0HO20120619
. . . New Democracy leader Antonis Samaras, who narrowly beat the radical leftist SYRIZA bloc on Sunday, has called for a two-year extension to the 2014 deadline set for Greece to meet budget targets under the bailout package. He also campaigned on promises to cut taxes and raise unemployment benefits and pensions.
DEAD LETTER
Venizelos called for the creation of a "national negotiating team that will deal with revision of the harsh terms of the bailout deal".
The call followed an election fought largely over whether to stick to the bailout deal or scrap it. SYRIZA argued it was a dead letter, while New Democracy said that to reject it outright would send the country out of the euro and back to the drachma.
With SYRIZA and its charismatic 37-year-old leader Alexis Tsipras defeated, Greece's European partners indicated they could give a New Democracy-led coalition some leeway after all.
The senior euro zone official said the bailout's Memorandum of Understanding (MoU) with Athens had to be renegotiated. The official said circumstances had changed in Greece, which lapsed into political paralysis when elections in May produced a stalemate, forcing Sunday's re-run.
"Anybody who would say that we need not, and cannot renegotiate the MoU is delusional, because he - or she - would be under the understanding that the whole program, the whole process, has remained completely on track ever since the weeks before the Greek first election," the official said.
With austerity and privatization programs hit by the paralysis, and tax receipts dwindling as the economy shrinks further, the official dismissed the idea of not revising the deal.
"We would be signing off on an illusion. So we have to sit down with our Greek colleagues and say: this is where we should be in July, and this is where we are in July...," the official said.
There is still likely to be a big gap between what Greece's new government asks for, and what its lenders in the European Union and International Monetary Fund would be prepared to give. "The new government must stick to its commitments," German Chancellor Angela Merkel warned on Monday.
"WEAK COALITION"
SYRIZA's Tsipras said the talk of renegotiation showed his bloc had been vindicated, and it was just a matter of time before they came to power. "What SYRIZA has been saying all along is that the bailout plan is not viable and cannot go on," he told Reuters in his first interview since the election. "Now they all recognize this.
In a sign that Greeks have drawn some confidence that the danger of an immediate departure from the euro zone has lifted, banks reported that some deposits withdrawn in the run-up to the vote appeared to be trickling back.
Samaras voted against Greece's first 110 billion euro bailout in 2010 and only reluctantly signed up to the second, frustrating European leaders scrambling to stem the debt crisis now engulfing Spain and Italy.
The 61-year-old Harvard-educated Samaras, the scion of one of Greece's most prestigious families, was given three days to form a coalition by the Greek president on Monday.
New Democracy took a 50-seat bonus under Greek electoral law for coming first, and a New Democracy-PASOK alliance would have 162 seats, a majority in the 300-seat parliament. Adding the Democratic Left would give it 179 seats.
A new government still faces the daunting prospect of imposing further austerity cuts on a nation divided over the price of bailout funds and with SYRIZA, which has been lifted by a wave of public anger against the old parties, in opposition.
"It will be a very weak coalition," said Nikos Konstandaras, managing editor of leading conservative daily Kathimerini, adding that New Democracy and PASOK had a history of mutual mud-slinging and of little cooperation.
"The irony is that Samaras undermined the bailout," he told Reuters. "We're now relying on the same people who sabotaged it to make it work."
(Additional reporting by Jan Strupczewski in Brussels and George Georgiopoulos, Karolina Tagaris, Greg Roumeliotis, Harry Papachristou, Dina Kyriakidou, Michael Stott and Paul Ingrassia in Athens; Writing by James Mackenzie and Matt Robinson; editing by David Stamp)"
Two days done out of three.
Next we get SYRIZA or another election.http://www.reuters.com/article/2012/06/19/us-greece-election-socialists-idUSBRE85I18A20120619
"ATHENS |
(Reuters) - Greek parties holding talks to form a government are likely to strike a deal by Wednesday, Socialist leader Evangelos Venizelos said on Tuesday."A government must be formed as soon as possible," Venizelos, head of the PASOK party, said in a televised statement. "As we stand now, it could be formed by midday tomorrow."
He said his party would support the government "whole-heartedly" but had not yet decided what form its participation would take. PASOK and the smaller Democratic Left party are expected to back a coalition led by the conservative New Democracy party, which won Sunday's vote.
(Reporting by Harry Papachristou and Karolina Tagaris, Writing by Deepa Babington)"
I doubt it.
http://www.reuters.com/article/2012/06/19/us-eurozone-crisis-idUSBRE85D0CA20120619
MADRID/ATHENS |
(Reuters) - Spain lurched closer to becoming the largest euro zone country yet to be shut out of credit markets when it had to pay a euro era record price to sell short-term debt on Tuesday.
The soaring borrowing costs showed that a euro zone deal to lend Spain up to 100 billion euros ($126 billion) for its banks had not solved the country's problems or restored investor confidence and suggests more aid may be needed fix its finances.
They also illustrated how Europe's troubles run much deeper than Greece, brought back from the brink of default by Sunday's parliamentary election that has cleared the way for a renegotiation of the terms of its bailout package.
The two-and-a-half year old debt crisis has hobbled the global economy and world leaders meeting in Mexico piled pressure on the euro zone to move towards a fiscal and banking union to fix the crisis that now threatens to engulf Spain.
"The decidedly elevated yield levels leave a question mark firmly in place as regards the sustainability of Spain's public finances while doing nothing to temper speculation as to how long the country might hold out before looking for a more comprehensive bailout," said Rabobank strategist Richard McGuire.
Spain, the euro zone's fourth largest economy, had to pay 5.07 percent to sell 12-month Treasury bills and 5.11 percent to sell 18-month paper - an increase of about 200 basis points on the last auction for the same maturities a month ago. Yields on longer-term bonds are over 7 percent.
The auction underscored the government's increasingly shrill pleas for help from the European Central Bank, two days before Madrid tries to sell three-to-five year bonds.The ECB believes it can have little lasting influence on market confidence unless euro zone political leaders take bold decisions to strengthen the 17-nation currency zone although President Mario Draghi has hinted at a rate cut.
The central bank, the only federal institution with the capacity to act swiftly and decisively, is also split between hawks and doves, with German-led hardliners publicly opposing further purchases of government bonds of debt-stricken nations.
Germany, Europe's biggest economy and paymaster, has taken a tough line with countries in trouble during the crisis.
But its own economic outlook is darkening with the closely-watched ZEW index of analyst and investor sentiment falling at its fastest rate since October 1998, before the euro was launched.
German Chancellor Angela Merkel, attending the meeting in Mexico, agreed to move towards a more integrated European banking system, according to a draft G20 communique, but she continues to rule out mutualising the euro zone's debts.
PENALISED
Speaking to reporters on the sidelines of the G20 summit, Spanish Economy Minister Luis de Guindos said Madrid's policies were not to blame for the loss of investor confidence.
"We think ... that the way markets are penalizing Spain today does not reflect the efforts we have made or the growth potential of the economy," he said. "Spain is a solvent country and a country which has a capacity to grow."
Some market experts said the strong demand at Tuesday's T-bill auction reflected expectations that Spain would be able to avoid a full state bailout of the kind international lenders have provided for Greece, Ireland and Portugal.
"It's in no one's interest to see Spain bailed out, because then there will be questions as to whether there are enough funds, and questions over Italy," said one market maker in Spanish bonds.
Others voiced doubt that Spain, a proud, ancient nation that was a fast-growing star of the euro zone for a decade until a housing bubble burst in 2008, could avoid a sovereign rescue.
Standard & Poor's head of EMEA sovereign ratings, Moritz Kraemer, told Reuters television that an aid program was not necessarily a bad thing and was already factored into Spain's current BBB+ rating.
Spain's problems are already having an impact elsewhere. French food group Danone warned of a hit to its profits this year, partly because Spanish consumers have switched to cheaper yoghurts.
REALITY GAP
The euro zone debt crisis started in 2009 in Greece where mainstream, mainstream political leaders are racing to build a coalition government led by conservative New Democracy leader Antonis Samaras after a weekend election.
He has said he wants extra time to meet the conditions of the 130 billion euro EU/IMF bailout agreement.
A senior euro zone official said the terms of the deal would be renegotiated because the May and June elections had delayed implementation of the program, knocking the targets off track.
"Because the economic situation has changed, the situation of tax receipts has changed, the rhythm of the implementation of the milestones has changed, the rhythm of privatization has changed -- if we were not to change the MoU (memo of understanding) -- it does not work," the official said.
But a gap yawned between the ambitious objectives for more time and easier conditions of the Greek pro-bailout parties and the willingness of European partners to make minor adjustments to the austerity and reform package.
Samaras has said he wants two extra years to bring Greece's public deficit down to the EU limit of 3 percent of GDP by 2016 instead of 2014, spreading out 11.7 billion euros of spending cuts due next month over the next 18 months.
The senior euro zone official in Brussels said that while details of the bailout were "changeable" and could be adapted, the drive to bring Greek debt down to a manageable level and push through structural economic reforms would not weaken.
Jean-Claude Juncker, veteran chairman of euro zone finance ministers, said he had tried to drive home that reality in a lengthy telephone call with Samaras on Monday.
"I... tried to make clear to him that there could be no substantial changes to Greece's adherence to the adjustment program," Juncker told Austrian ORF television.
With trust in Greek politicians at a low ebb, EU governments want to see a new administration implement long delayed public sector job cuts, privatizations and closures of loss-making enterprises as well as tougher anti-corruption measures.
The so-called "troika" of European Commission, ECB and International Monetary Fund will return to Athens next month to review Greece's implementation of its bailout commitment. It is almost certain to say the second adjustment program agreed earlier this year is already off track.
In an example of the domestic constraints facing euro zone governments, Germany's top court said Merkel's government did not consult parliament sufficiently about the configuration of Europe's permanent bailout scheme, but experts said it should not hamper Berlin's ability to react to the debt crisis.
The European Stability Mechanism (ESM) is supposed to come into effect in July but has not yet been ratified by many euro zone member states' parliaments, including Germany's Bundestag.
(Additional reporting by Nigel Davies and Fiona Ortiz in Madrid, Kirsten Donovan in London, Lesley Wroughton and Luke Baker in Los Cabos, Jan Strupczewski in Brussels, Alexander Huebner and Stephen Brown in Berlin; Writing by Paul Taylor; editing by Janet McBride and Anna Willard)"
http://krugman.blogs.nytimes.com/2012/06/19/interest-rates-varieties-of-error/
Interest Rates: Varieties of Error
I wrote recently about how the failure of inflation to soar was one of the three key tests that classical economics, in all its forms, failed in this depression, while Keynesian economics succeeded. A second was the effect of austerity; Jared Bernstein points us to one of the many charts, this time from Jay Shambaugh, showing that euro experience looks awfully Keynesian:
The last point is interest rates. But I constantly encounter people claiming that high bond prices and hence low interest rates are just a bubble. I don’t think so, but even aside from that, this claim misses a key point about the original nature of the argument.
Originally, claims that deficits would drive up rates weren’t based on arguments about solvency; they were based on the “crowding out” claim that the government would be competing with the private sector for a limited supply of savings. Then, when the promised rate spike failed to materialize, this was attributed to Fed purchases, with the claim that rates would spike when those came to an end. Wrong, and wrong again. As I wrote at the time, all this represented a basic misunderstanding of how the economy works.
Now, maybe there’s a solvency issue, and bond vigilantes will turn on America over that — although of course this keeps not happening either to us or to anyone else with their own currency. But you do need to know that many of the people making the solvency argument originally made a completely different argument — one that was completely wrong."
Originally, claims that deficits would drive up rates weren’t based on arguments about solvency; they were based on the “crowding out” claim that the government would be competing with the private sector for a limited supply of savings. Then, when the promised rate spike failed to materialize, this was attributed to Fed purchases, with the claim that rates would spike when those came to an end. Wrong, and wrong again. As I wrote at the time, all this represented a basic misunderstanding of how the economy works.
Now, maybe there’s a solvency issue, and bond vigilantes will turn on America over that — although of course this keeps not happening either to us or to anyone else with their own currency. But you do need to know that many of the people making the solvency argument originally made a completely different argument — one that was completely wrong."
Old habits die hard.
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